-----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, HM5GAFz97mBED4oHPuLr71GmpFow+fCtgVqID4cF1oTP8tdMJuw9GsUwWjePeGrk /8d+C76fPnueHJZ7Uj7Y0w== 0001095811-00-000605.txt : 20000321 0001095811-00-000605.hdr.sgml : 20000321 ACCESSION NUMBER: 0001095811-00-000605 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAN PACIFIC RETAIL PROPERTIES INC CENTRAL INDEX KEY: 0001040454 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330752457 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13243 FILM NUMBER: 573965 BUSINESS ADDRESS: STREET 1: 1631-B S MELROSE DR CITY: VISTA STATE: CA ZIP: 92083 BUSINESS PHONE: 7607271002 MAIL ADDRESS: STREET 1: 1631-B SOUTH MELROSE DR CITY: VISTA STATE: CA ZIP: 92083 10-K405 1 10-K405 FOR THE YEAR ENDED 12/31/99. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER: 001-13243 -------------------- PAN PACIFIC RETAIL PROPERTIES, INC. (Exact Name of Registrant as Specified in Its Charter) MARYLAND 33-0752457 (State of Incorporation) (I.R.S. Employer Identification No.) 1631-B SOUTH MELROSE DRIVE, VISTA, CALIFORNIA 92083 (Address of Principal Executive Offices) (zip code) Registrant's telephone number, including area code: (760) 727-1002 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ----------------------------- ----------------------------------------- Common Stock, $0.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 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 held by non-affiliates was approximately $194,529,000 based upon the closing price on the New York Stock Exchange for such shares of $18.625 on March 17, 2000. As of March 17, 2000, the number of shares of the Registrant's common stock outstanding was 21,252,512. ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE Part III of this report on Form 10-K incorporates by reference information from the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of the close of the Registrant's fiscal year. PAN PACIFIC RETAIL PROPERTIES, INC. TABLE OF CONTENTS
PART I Page ---- ITEM 1. BUSINESS............................................................ 1 ITEM 2. PROPERTIES.......................................................... 8 ITEM 3. LEGAL PROCEEDINGS................................................... 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................................. 18 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA................................ 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 20 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......... 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................... 27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................. 28 ITEM 11. EXECUTIVE COMPENSATION.............................................. 28 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................................... 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................................... 28
3 PART I ITEM 1. BUSINESS Pan Pacific Retail Properties, Inc. (the "Company"), a self-administered and self-managed real estate investment trust (a "REIT"), was formed in April 1997 to continue and expand the acquisition, ownership, management, leasing and development business of Revenue Properties (U.S.), Inc. (formerly known as Pan Pacific Development (U.S.), Inc.) and its affiliates (collectively, "RPUS"). The Company's portfolio consists principally of community and neighborhood shopping centers predominantly located in five key Western U.S. markets. On August 13, 1997, the Company completed its initial public offering (the "IPO"). As of December 31, 1999, the Company owned or controlled a portfolio of 58 shopping center properties (collectively, the "Properties"), of which 54 are located in the Western United States including 13 in Northern California, 11 in Southern California, 7 in Nevada and 23 in the Pacific Northwest (9 in Washington and 14 in Oregon). The Company employed 98 people as of December 31, 1999, including five executive officers and senior personnel, in the areas of administration, accounting services, property management, maintenance, leasing, acquisitions and business development. The Company's executive offices are located at 1631-B South Melrose Drive, Vista, California, and its telephone number is (760) 727-1002. In addition to personnel located at its executive offices, the Company operates regional offices in Las Vegas, Nevada; Kent, Washington; Portland, Oregon; Chino, California; and Sacramento, California. Each of the regional offices is responsible for property management, maintenance and leasing. The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code") commencing with its taxable year ended December 31, 1997. The Company believes that, commencing with its taxable year ended December 31, 1997, it has been organized and has operated in such a manner so as to qualify for taxation as a REIT under the Code, and the Company intends to continue to operate in such a manner, but no assurance can be given that it will continue to operate in such a manner so as to qualify or remain qualified. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain federal, state and local taxes on its revenue and properties. BUSINESS STRATEGIES The Company's business strategies involve three fundamental practices: - Owning and operating shopping centers in select markets with strong economic and demographic characteristics in order to establish and maintain a portfolio of real estate assets with stable income and the potential for long-term growth; - Developing local and regional market expertise through the hands-on participation of senior management in property operations and leasing in order to capitalize on market trends, retailing trends and acquisition opportunities; and - Establishing and maintaining a diversified and complementary tenant mix with an emphasis on tenants that provide day-to-day consumer necessities in order to provide steady rental revenue. GROWTH STRATEGIES The Company's principal growth strategy is to acquire shopping centers that provide an opportunity to expand in current markets or to establish a presence in targeted markets with favorable economic and demographic characteristics. The Company seeks to acquire properties that can benefit from its hands-on management, that may require repositioning, redevelopment or renovation or which can be purchased at attractive capitalization rates and are consistent in terms of quality and location with the Company's existing portfolio. 4 The Company seeks to continue to utilize its in-depth market knowledge within its five key markets to pursue its strategy of opportunistic acquisitions of shopping centers for long-term investment. The Company believes that significant opportunities exist within these markets to acquire shopping center properties that are consistent with its existing portfolio in terms of quality of construction, positive submarket demographics and location attributes and that provide attractive initial investment yields with potential for growth in cash flow. The Company further believes it has certain competitive advantages which enhance its ability to identify and capitalize on acquisition opportunities, including: (i) long-standing relationships with institutional and other owners of shopping center properties in the Company's five primary regions; (ii) fully integrated real estate operations which enable the Company to respond quickly to acquisition opportunities and to capitalize on the resulting economies of scale; and (iii) access to capital as a public company. Since the closing of the Company's IPO on August 13, 1997 through December 31, 1999, the Company has acquired 36 shopping centers totaling 4,557,115 square feet of retail space for approximately $405.3 million. One of the properties, a single-tenant property acquired as part of a portfolio, was subsequently disposed of in December 1999. All of the other 35 properties are located in the Company's five key markets, and 26 of the shopping centers (72%) are anchored by grocery stores. Management believes that all of the centers are located in markets with strong demographic characteristics. Management intends to add value to these retail properties through the application of its active, hands-on management and aggressive leasing strategies. The Company believes that current market conditions generally favor acquisitions and, as such, management intends to continue acquiring properties as its primary growth strategy. The Company also seeks to maximize the cash flow from its Properties by continuing to enhance the operating performance of each Property through its in-house leasing and property management programs. The Company aggressively pursues: (i) the leasing of currently available space; (ii) the renewal or releasing of expiring leases at higher rental rates which management believes currently are available based on improving market conditions and its recent leasing activity; and (iii) economies of scale in the management and leasing of properties that may be realized by focusing its acquisition and development activities within its five primary regions. FINANCING STRATEGIES The Company's financing strategy is to maintain a strong and flexible financial position by maintaining a prudent level of leverage, maintaining a pool of unencumbered assets and managing its variable interest rate exposure. The Company intends to finance future acquisitions with the most advantageous sources of capital available to the Company, which may include the sale of common stock, preferred stock or debt securities through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings and the issuance of operating units of a subsidiary in exchange for contributed property. During 1998, the Company completed a secondary offering of 4,348,000 shares of common stock at $21.125 per share. The net proceeds to the Company were approximately $85,913,000. The Company also obtained an increase to its unsecured credit facility (the "Unsecured Credit Facility") from $150,000,000 to $200,000,000 and a reduction in the top borrowing rate thereunder to LIBOR plus 1.375%. Also, during 1998, the Company formed Pan Pacific (Portland), LLC ("PPP LLC"), with the Company as sole managing member. In the fourth quarter, PPP LLC acquired a portfolio of six shopping centers located in Oregon. In exchange for four properties which were contributed to PPP LLC, 832,617 units were issued to certain non-managing members. Distributions are made to the non-managing members at a rate equal to the distribution being paid by the Company on a share of common stock. A non-managing member can seek redemption of their units after the first anniversary. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) paying cash. During 1999, the Company completed a number of financing transactions. At the end of the second quarter, the Company closed a $35,000,000 financing transaction evidenced by notes payable, secured by deeds of trust on two properties, Rainbow Promenade and San Dimas Marketplace, bearing interest at 7.2%, due in July 2006. At the beginning of the third quarter, the Company closed a second financing transaction for $56,300,000 also evidenced by notes payable, secured by deeds of trust on four properties, Melrose Village Plaza, Monterey Plaza, Tustin Marketplace and Tanasbourne Village, bearing interest at 7.1%, due in August 2009. The proceeds were used to pay down the Unsecured Credit Facility. 5 Also in the third quarter, the Company formed Pan Pacific (Rancho Las Palmas), LLC (the "RLPLLC") and Pan Pacific (RLP), Inc. ("RLP, Inc.") in connection with the acquisition of Rancho Las Palmas Retail Center. The Company and RLP, Inc. are co-managing members of RLPLLC. As part of the acquisition, and in exchange for an interest in the asset contributed to RLPLLC by an individual, 314,587 units were issued to a non-managing member. Distributions are made to the non-managing member at a rate equal to the distributions paid by the Company on a share of common stock. The non-managing member can seek redemption of its units after the first anniversary. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share for each unit, or (ii) paying cash. In December 1999, the Company entered into a modification agreement with the lender on the Chino Town Square Shopping Center. Pursuant to the terms of the modification agreement the maturity date was extended to January 2010 and the interest rate was reduced from 8.0% to 7.72%. The loan was previously set to mature in March of 2000. Also in December 1999, the Company extended its $200,000,000 Unsecured Credit Facility for three years. In October 1999, the Company achieved an investment grade credit rating from Standard & Poor's. Because of this rating, the borrowing rate on the credit line was reduced to LIBOR plus 1.15%. DISPOSITIONS During 1999, the Company disposed of three non-strategic assets. In June, the Company sold a single-tenant property in Hillsboro, Oregon. The net proceeds from the sale were used to repay indebtedness under the Unsecured Credit Facility. In December, the Company sold Rosewood Village, a 50,000 square foot property in Northern California. The net proceeds were used to acquire the Cable Park property in a like-kind exchange transaction pursuant to Section 1031 of the Code. Also in December, the Company sold Foothill Center, a 20,000 square foot property in Southern California. A portion of the proceeds was taken back as a note receivable secured by a deed of trust. The balance of the net proceeds, received in cash, was used to repay indebtedness under the Unsecured Credit Facility. The Company has intentions to cause the disposition of several other Properties, although if, after taking into account the tax consequences of any disposition, including the Company's continued ability to qualify as a REIT, it determines that such action would not be in its best interests. CERTAIN CAUTIONARY STATEMENTS REAL ESTATE INVESTMENT ASSOCIATED RISKS. Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If our properties do not generate revenue sufficient to meet operating expenses, including debt service, tenant improvements, leasing commissions and other capital expenditures, we may have to borrow additional amounts to cover fixed costs. This would adversely affect our cash flow and ability to service our debt and make distributions to our stockholders. Our revenue and the value of our properties may be adversely affected by a number of factors, including: - The national economic climate; - The local economic climate; - Local real estate conditions; - Changes in retail expenditures by consumers; - The perceptions of prospective tenants of the attractiveness of the property; - Our ability to manage and maintain the properties and secure adequate insurance; and - Increases in operating costs (including real estate taxes and utilities). 6 In addition, real estate values and income from properties are also affected by factors such as applicable laws, including tax laws, interest rate levels and the availability of financing. OUR POTENTIAL INABILITY TO RETAIN TENANTS AND RELET SPACE. We will be subject to the risks that, upon expiration or termination, leases may not be renewed, the space may not be relet or the terms of renewal or reletting (including the cost of required renovations) may be less favorable than current lease terms. Leases covering a total of approximately 6.9% and 44.3% of the leased gross leasable area, or GLA, of our properties will expire through the end of 2000 and 2004, respectively. We budget for renovation and reletting expenses, which takes into consideration our view of both the current and expected market conditions in the geographic regions in which our properties are located, but we cannot assure you that these reserves will be sufficient to cover these costs. Our cash flow and ability to make expected distributions to stockholders could be adversely affected, if: - We are unable to promptly relet or renew leases for all or a substantial portion of this space; - The rental rates upon renewal or reletting are significantly lower than expected; or - Our reserves for these purposes prove inadequate. DEPENDENCE ON MARKET CONDITIONS IN THE GEOGRAPHIC REGIONS. We have 13 properties located in Northern California, 11 properties located in Southern California, 7 properties located in Las Vegas, Nevada and 23 properties located in the Pacific Northwest (9 in Washington and 14 in Oregon). To the extent that general economic or other relevant conditions in these regions decline and result in a decrease in consumer demand in these regions, our performance may be adversely affected. POTENTIAL ILLIQUIDITY OF REAL ESTATE. Equity real estate investments are relatively illiquid. This illiquidity tends to limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. In addition, the Code limits a REIT's ability to sell properties held for fewer than four years, which may affect our ability to sell properties without adversely affecting returns to holders of common stock. COMPETITION WITH OTHER DEVELOPERS AND REAL ESTATE COMPANIES. There are numerous commercial developers and real estate companies that compete with us in seeking land for development, properties for acquisition and tenants for properties. There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. In addition, retailers at our properties face increasing competition from outlet stores, discount shopping clubs, and other forms of marketing of goods, such as direct mail, internet marketing and telemarketing. This competition may reduce properties available for acquisition or development, reduce percentage rents payable to us and may, through the introduction of competition, contribute to lease defaults or insolvency of tenants. Thus, competition could materially affect our ability to generate net income and to service our debt and make distributions to our stockholders. COST OF COMPLIANCE WITH CHANGES IN LAWS. Because increases in income, service or transfer taxes are generally not passed through to tenants under leases, these increases may adversely affect our cash flow and our ability to service our debt and make distributions to stockholders. Our properties are also subject to various federal, state and local regulatory requirements, such as requirements of the Americans with Disabilities Act of 1990 and state and local fire and life safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. In addition, we cannot assure you that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures by us. Any of these events could adversely affect our cash flow and expected distributions. RELIANCE ON CERTAIN TENANTS AND ANCHORS. Our income and funds from operations could be adversely affected in the event of the bankruptcy or insolvency, or a downturn in the business, of any anchor store, or if any anchor tenant does not renew its lease when it expires. If tenant sales at our properties were to decline, tenants might be unable to pay their rent or other occupancy costs. In the event of default by a tenant, delays and costs in enforcing our rights could be experienced. In addition, the closing of one or more anchor-occupied stores or lease termination by one or more anchor tenants of a shopping center, whose leases may permit termination, could adversely impact that property and result in lease terminations or reductions in rent by other tenants, whose leases may permit termination or rent reduction in those circumstances. This could adversely affect our ability to re-lease the space that is vacated. Each of these developments could adversely affect our funds from operations and our ability to 7 service our debt and make expected distributions to stockholders. LACK OF OPERATING HISTORY WITH RESPECT TO THE RECENT ACQUISITION AND DEVELOPMENT OF PROPERTIES. At December 31, 1999, we owned and operated 58 properties, consisting of approximately 9.1 million square feet of owned space. Twenty-two of our properties have been acquired since January 1, 1998, and may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We cannot assure you that we will succeed with this integration or effectively manage additional properties. We also cannot assure you that newly acquired properties will perform as expected. INFLUENCE OF CERTAIN AFFILIATES. Stuart Tanz, our Chairman, President and Chief Executive Officer, through his and his family's ownership interests in Revenue Properties Company Limited and Revenue Property Company Limited's ownership of Revenue Properties (U.S.), Inc., owns or controls over 50% of our total outstanding shares of common stock as of March 15, 2000. In addition, Revenue Properties (U.S.) has the right to nominate two of our directors. Consequently, although the Tanz family will not be able to take action on our behalf without the concurrence of other members of our board of directors, they may be able to exert substantial influence over our affairs. This influence might not be consistent with the interest of other stockholders. In addition, there may be conflicts between the interests of the public stockholders of Revenue Properties Company Limited and our public stockholders. DEPENDENCE ON KEY MANAGEMENT PERSONNEL. Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers. We believe that our success will depend in large part upon their efforts. If any key management personnel do not remain in our employ, we could be materially adversely affected. DEBT FINANCING AND EXISTING DEBT MATURITIES. We are subject to risks normally associated with debt financing, including: - The risk that our cash flow will be insufficient to meet required payments of principal and interest; - The risk that existing indebtedness on our properties (which in all cases will not have been fully amortized at maturity) will not be able to be refinanced; or - The terms of any refinancing will not be as favorable as the terms of existing indebtedness. At December 31, 1999, we had outstanding indebtedness of approximately $357,290,000, including unamortized note payable premiums totaling $1,762,000, that will mature over 13 years. Since we anticipate that only a small portion of the principal of the indebtedness will be repaid prior to maturity, and that we will not have funds on hand sufficient to repay the balance of the indebtedness in full at maturity, it will be necessary for us to refinance the debt either through additional borrowings or equity or debt offerings. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, we expect that our cash flow will not be sufficient in all years to pay distributions at expected levels and to repay all of this maturing debt. Also, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, the interest expense relating to refinanced indebtedness would increase. This could adversely affect our cash flow and our ability to make expected distributions to our stockholders. In addition, if we are unable to refinance the indebtedness on acceptable terms, we might dispose of properties upon disadvantageous terms, which might result in losses to us and might adversely affect funds available for distribution to stockholders. POTENTIAL DEFAULTS UNDER MORTGAGE FINANCING. At December 31, 1999, we had approximately $228,490,000 in principal amount of mortgage financing. The payment and other obligations under certain of the mortgage financing is secured by cross-collateralized, and cross-defaulted first mortgage liens in the aggregate amount of approximately $56,067,000 on four properties, $52,989,000 on four other properties, $18,376,000 on three properties and $34,788,000 on two properties. If we are unable to meet our obligations under the mortgage 8 financing, the properties securing that debt could be foreclosed upon. This could have a material adverse effect on us and our ability to make expected distributions and could threaten our continued viability. RISING INTEREST RATES AND VARIABLE-RATE DEBT. Advances under our unsecured credit facility may bear interest at a variable-rate. In addition, we may incur other variable-rate indebtedness in the future. Increases in interest rates on that indebtedness would increase our interest expense, which could adversely affect our cash flow and our ability to service our debt and pay expected distributions to stockholders. Accordingly, we may in the future engage in other transactions to further limit our exposure to rising interest rates as appropriate and cost effective. TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. Commencing with our taxable year ended December 31, 1997, we believe that we have qualified as a REIT under the Code. Qualification as a REIT involves the satisfaction of numerous requirements (some on an annual and some on a quarterly basis) established under highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. These requirements involve the determination of various facts and circumstances not entirely within our control. Legislation, new regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Moreover, unless we were entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our qualification. This treatment would significantly reduce our net earnings available for distribution to stockholders because of our additional tax liability for the years involved. In addition, distributions to stockholders would no longer be required. ACQUISITION AND DEVELOPMENT INVESTMENTS MAY NOT PERFORM AS EXPECTED. We intend to continue acquiring, developing and redeveloping shopping center properties. Acquisitions of retail properties entail risks that investments will fail to perform in accordance with expectations. Estimates of development costs and costs of improvements, to bring an acquired property up to standards established for the market position intended for that property, may prove inaccurate. We intend to expand or renovate our properties from time to time. Expansion and renovation projects generally require expenditure of capital as well as various government and other approvals, the receipt of which cannot be assured. While our policies with respect to expansion and renovation activities are intended to limit some of the risks otherwise associated with such activities, we will still incur certain risks, including expenditures of funds on, and devotion of management's time to, projects that may not be completed. We anticipate that future acquisitions, development and renovations will be financed through a combination of advances under our unsecured credit facility, other lines of credit and other forms of secured or unsecured financing. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms. It is possible that we will in the future expand our business to new geographic markets. We will not initially possess the same level of familiarity with new markets outside of the geographic areas in which our properties are currently located. This could adversely affect our ability to acquire, develop, manage or lease properties in any new localities. We also intend to develop and construct shopping centers in accordance with our business and growth strategies. Risks associated with our development and construction activities may include: - Abandonment of development opportunities; - Construction costs of a property exceeding original estimates, possibly making the property uneconomical; - Occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; 9 - Financing may not be available on favorable terms for development of a property; and - Construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs. In addition, new development activities, regardless of whether they would ultimately be successful, typically require a substantial portion of management's time and attention. Development activities would also be subject to risks relating to our inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations. OUR PROPERTIES MAY BE SUBJECT TO UNKNOWN ENVIRONMENTAL LIABILITIES. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property. They may also be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by these parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants. Liability under these laws may still be imposed even when the contaminants were associated with previous owners or operators and the liability under these laws has been interpreted to be joint and several, unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of these substances may be substantial, and the presence of these substances, or the failure to properly remediate the contamination on the property, may adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Those who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may also be liable for the costs of removal or remediation of a release of hazardous or toxic substances at the disposal or treatment facility, whether or not the facility is owned or operated by them. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs incurred in connection with the contamination. Sometimes, the remedy to remediate contamination may include deed restriction or institutional control, which can restrict how the property may be used. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination stemming from the site. Some federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials, or ACMs, when these materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with our ownership and operation of our properties, we may be potentially liable for these costs. Shopping centers may have businesses such as dry cleaners and auto repair or servicing businesses that handle, store and generate small quantities of hazardous wastes. The operation may result in spills or releases from time-to-time that can result in soil or groundwater contamination. Independent environmental consultants have conducted or updated Phase I Environmental Assessments at our properties. These Phase I Assessments have included, among other things, a visual inspection of our properties and the surrounding area and a review of relevant state, federal and historical documents. Phase I Assessments of our properties have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations taken as a whole, nor are we aware of any material environmental liability. It is still possible that our Phase I Assessments do not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, we cannot assure you that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties will not be affected by tenants, by the condition of land or operations in the vicinity of our properties (such as the presence of underground storage tanks), or by third parties unrelated to us. 10 NO LIMITATION ON AMOUNT OF INDEBTEDNESS WE MAY INCUR. At December 31, 1999, our debt to total market capitalization ratio was approximately 49.4% (assuming the conversion of PPP LLC units). We currently have a policy of incurring debt only if upon incurrence the debt to total market capitalization ratio would be 50% or less. It should be noted, however, that our organizational documents do not contain any limitation on the amount of indebtedness we may incur. Accordingly, our board of directors could alter or eliminate this policy. If this policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our cash flow and, consequently, reduce the amount available for distribution to stockholders. This could also increase the risk of default on our indebtedness. CERTAIN TYPES OF LOSSES MAY EXCEED INSURANCE COVERAGE. We carry comprehensive liability, public area liability, fire, earthquake, flood, boiler and machinery, extended coverage and rental loss insurance covering our properties, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. There are, however, certain types of losses that are not generally insured because it is not economically feasible to insure against these losses. If an uninsured loss or a loss exceeding insured limits occurs, we could lose our capital invested in the property, as well as the anticipated future revenue from the property. In the case of debt which is with recourse to us, we would remain obligated for any mortgage debt or other financial obligations related to the property. In these circumstances, any loss would adversely affect us. DISPOSITION OF PROPERTIES WITH BUILT-IN GAIN. In connection with our formation in 1997, certain entities taxable as "C" corporations were merged either into us or into our subsidiaries which qualified as "qualified REIT subsidiaries". Certain of these entities held 13 properties with "built-in gain" at the time the entities were merged into us or into our subsidiaries. A property has "built-in gain" if (i) on the day it was acquired, the former owner's tax basis in the property was less than the property's fair market value, and (ii) it was acquired in a transaction in which our tax basis in the property was determined by reference to the former owner's tax basis in the property. Under recently promulgated Treasury Regulations, if these properties are sold within 10 years of the date we acquired them, we will be required to pay taxes on the built-in gain that would have been realized if the merging "C" corporation had liquidated on the day before the date of the mergers. Therefore, we may have less flexibility in determining whether or not to dispose of these properties. If we desire to dispose of these properties at some future date within this 10 year period, we may be subject to tax on the built-in gain. ITEM 2. PROPERTIES GENERAL As of December 31, 1999, the Properties consist of 58 neighborhood/community shopping centers containing 9.1 million square feet of which 8.1 million square feet is owned by the Company with the balance owned by certain retailers. The Properties are primarily situated in five key Western U.S. markets including Northern California, Southern California, Nevada, Oregon and Washington, each of which the Company believes has attractive economic and demographic characteristics. The largest concentration of Properties, consisting of 38% of the total GLA, is located in California (21% of which is located in Northern California and 17% is located in Southern California). Another 18% of the total GLA is located in Nevada and 24% of the total GLA is located in Oregon with 16% located in Washington. In addition, Properties consisting of the remaining 4% of the total GLA are located in New Mexico, Tennessee, Kentucky and Florida. As of December 31, 1999, 97.5% of the Properties' total GLA was leased by 1,394 tenants. The Properties are regionally managed under active central control by the Company's executive officers. Property management, leasing, capital expenditures, construction and acquisition decisions are centrally administered at the Company's corporate office. The Company employs property managers at each of its regional offices to oversee and direct the day-to-day operations of the Properties, as well as the on-site personnel. Property managers communicate daily with the Company's corporate offices to implement the Company's policies and procedures. As a result of management's in-house leasing program, the Properties benefit from a diversified merchandising mix. At December 31, 1999, 71.6% of the total leased GLA was leased to national tenants, 8.9% leased to regional tenants and 19.5% to local tenants. To promote stability and attract non-anchor tenants, the Company generally enters into long-term leases (typically 15 to 20 years) with major or anchor tenants which usually contain provisions permitting tenants to renew their leases at rates which often include fixed rent increases or CPI adjustments from the 11 prior base rent. At December 31, 1999, anchor tenants leased 57.2% of the total leased GLA, with only 55.7% of anchor-leased GLA (31.9% of the total leased GLA) scheduled to expire within the next 10 years. To take advantage of improving market conditions and changing retail trends, the Company generally enters into shorter term leases (typically three to five years) with non-anchor tenants. The Company's leases are generally on a triple-net basis, which require the tenants to pay their pro rata share of all real property taxes, insurance and property operating expenses. 12 PROPERTIES The following table sets forth certain information for the 58 properties owned at December 31, 1999.
GROSS LEASABLE AREA TOTAL --------------------------------- % LEASED NUMBER OF YEAR COMPANY TENANT AS OF TENANTS AS COMPLETED/ OWNED OWNED TOTAL 12/31/99 OF 12/31/99 PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) (5) (5) ---------- --------- --------- --------- -------- ----------- NORTHERN CALIFORNIA Brookvale Shopping Center.......... 1968/ 131,239 -- 131,239 100.0% 18 Fremont, CA 1989 Cable Park......................... 1987 160,811 -- 160,811 99.5 33 Orangevale (Sacramento), CA Chico Crossroads................... 1988/ 267,735 -- 267,735 100.0 18 Chico, CA 1994 Creekside Center................... 1968 80,911 -- 80,911 100.0 18 Hayward, CA Fairmont Shopping Center........... 1988 104,281 -- 104,281 100.0 29 Pacifica, CA Fashion Faire Shopping Center...... 1987 95,255 -- 95,255 100.0 17 San Leandro, CA Glen Cove Center................... 1990 66,000 -- 66,000 100.0 11 Vallejo, CA Laguna Village..................... 1996 108,833 -- 108,833 100.0 14 Sacramento, CA Lakewood Shopping Center........... 1988 107,769 -- 107,769 100.0 28 Windsor, CA Manteca Marketplace................ 1972/ 172,435 -- 172,435 100.0 27 Manteca, CA 1988 Monterey Plaza..................... 1990 183,180 49,500 232,680 99.3 30 San Jose, CA The Shops at Lincoln School........ 1988 81,443 -- 81,443 100.0 18 Modesto, CA Westwood Village Shopping Center... 1981/ 102,375 -- 102,375 93.2 20 South Redding, CA 1998 --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 1,662,267 49,500 1,711,767 99.5% 281 --------- --------- --------- ----- ----- SOUTHERN CALIFORNIA Arlington Courtyard................ 1991 12,221 -- 12,221 82.8% 4 Riverside, CA Canyon Square Plaza................ 1988 96,727 -- 96,727 89.7 29 Santa Clarita, CA Chino Town Square(2)............... 1987 336,997 188,064 525,061 100.0 52 Chino, CA Laurentian Center.................. 1988 97,131 -- 97,131 100.0 25 Ontario, CA Marina Village..................... 1964/ 149,107 -- 149,107 96.5 34 Huntington Beach, CA 1996 Melrose Village Plaza.............. 1990 132,674 -- 132,674 99.1 31 Vista, CA Palmdale Center.................... 1975 81,050 -- 81,050 100.0 14 Palmdale, CA Rancho Las Palmas.................. 1980 167,852 10,815 178,667 91.1 40 Rancho Mirage, CA San Dimas Marketplace.............. 1997 154,020 117,000 271,020 100.0 23 San Dimas, CA Tustin Heights Shopping Center..... 1983 131,518 -- 131,518 100.0 21 Tustin, CA Vineyard Village East.............. 1992 45,200 -- 45,200 100.0 4 Ontario, CA --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 1,404,497 315,879 1,720,376 97.6% 277 --------- --------- --------- ----- ----- WASHINGTON Auburn North....................... 1977/ 172,777 -- 172,777 100.0% 25 Auburn, WA 1999 Canyon Ridge Plaza................. 1995 86,909 181,300 268,209 100.0 19 Kent, WA Claremont Village Plaza............ 1955/ 88,770 -- 88,770 96.7 15 Everett, WA 1994 Olympia Square..................... 1988 167,721 -- 167,721 99.2 39 Olympia, WA Olympia West Center................ 1980/ 69,212 3,800 73,012 100.0 6 Olympia, WA 1995 Pacific Commons.................... 1987 151,233 55,241 206,474 100.0 23 Spanaway, WA Panther Lake....................... 1989 69,090 44,237 113,327 100.0 21 Kent, WA Sunset Square...................... 1989 376,023 10,634 386,657 100.0 42 Bellingham, WA Tacoma Central..................... 1987/ 134,868 165,519 300,387 99.4 21 Tacoma, WA 1994 --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 1,316,603 460,731 1,777,334 99.6% 211 --------- --------- --------- ----- -----
ANNUALIZED BASE RENT ANN. BASE IN PLACE AT 12/31/99(1) RENT/ ----------------------- LEASED SQ. PROPERTY AND LOCATION ANN. BASE RENT($)(1) FT.(4) MAJOR RETAILERS ----------------------- ---------- --------------- NORTHERN CALIFORNIA Brookvale Shopping Center......... $ 1,281,380 $ 9.76 Albertson's Supermarket, Long's Drugs, Fremont, CA Bally Fitness Cable Park........................ 1,304,957 8.16 Albertson's Supermarket, Long's Drugs Orangevale (Sacramento), CA Chico Crossroads.................. 2,046,811 7.64 Food-4-Less, HomeBase Chico, CA Barnes & Noble, Office Depot Creekside Center.................. 797,021 9.85 Albertson's Supermarket, Long's Drugs Hayward, CA Fairmont Shopping Center.......... 1,267,134 12.15 Albertson's Supermarket, Rite Aid Drugs Pacifica, CA Fashion Faire Shopping Center..... 1,327,614 13.94 Pure Foods Supermarket, Ross Dress for Less, San Leandro, CA Michael's Arts & Crafts Glen Cove Center.................. 861,886 13.06 Safeway Supermarket and Drug Vallejo, CA Laguna Village.................... 1,806,851 16.60 United Artists Theatres, 24 Hour Fitness Sacramento, CA Lakewood Shopping Center.......... 987,292 9.16 Raley's Supermarket, U.S. Post Office Windsor, CA Manteca Marketplace............... 1,839,869 10.67 Save Mart Supermarket, Rite Aid Drugs, Manteca, CA Stadium 10 Cinemas, Ben Franklin Crafts Monterey Plaza.................... 2,615,074 14.38 Wal-Mart, Albertson's Supermarket (3), Walgreens San Jose, CA The Shops at Lincoln School....... 764,855 9.39 Save Mart Supermarket Modesto, CA Westwood Village Shopping Center.. 700,923 7.35 Holiday Supermarket, Rite Aid Drugs South Redding, CA ----------- ------ REGION TOTAL/WEIGHTED AVERAGE $17,601,667 $10.65 ----------- ------ SOUTHERN CALIFORNIA Arlington Courtyard............... $ 112,369 $11.10 Harvest Christian Bookstore Riverside, CA Canyon Square Plaza............... 1,071,529 12.36 Albertson's Supermarket and Drug Santa Clarita, CA Chino Town Square(2).............. 4,558,892 13.53 Target (3), Wal-Mart, Mervyn's (3), Chino, CA Nordstrom Rack, AMC Theaters Laurentian Center................. 1,175,279 12.10 Pep Boys, 24 Hour Fitness, Abbey Carpet Ontario, CA Marina Village.................... 1,587,496 11.04 Von's Supermarket, Sav-On Drug Huntington Beach, CA Melrose Village Plaza............. 1,497,773 11.39 Albertson's Supermarket, Sav-On Drug Vista, CA Palmdale Center................... 507,747 6.26 Smart & Final, Rite Aid Drugs, Palmdale, CA Pic 'N' Save Rancho Las Palmas................. 2,009,607 13.14 Von's Supermarket, Long's Drugs Rancho Mirage, CA San Dimas Marketplace............. 2,296,415 14.91 Target, Office Max, Ross Stores, San Dimas, CA Petco, Trader Joe's Market Tustin Heights Shopping Center.... 1,630,667 12.40 Ralphs Supermarket, Long's Drugs, Tustin, CA Michael's Arts & Crafts Vineyard Village East............. 379,001 8.38 Sears, Dunn Edwards Paints Ontario, CA ----------- ------ REGION TOTAL/WEIGHTE $16,826,775 $12.27 ----------- ------ WASHINGTON Auburn North...................... 1,245,186 $7.21 Albertson's Supermarket, Rite Aid Drugs, Auburn, WA Office Depot, Fashion Bug Canyon Ridge Plaza................ 953,455 10.97 Target (3), Top Foods Supermarket (3), Ross Kent, WA Dress For Less Claremont Village Plaza........... 1,191,018 13.87 QFC Supermarket and Drug Everett, WA Olympia Square.................... 1,951,033 11.72 Albertson's Supermarket and Drug, Olympia, WA Ross Dress For Less Olympia West Center............... 1,233,399 17.82 Barnes & Noble, Good Guys, Petco Olympia, WA Pacific Commons................... 1,538,115 10.17 Stockmarket Foods, K-Mart Spanaway, WA Panther Lake...................... 826,822 11.97 Albertson's Supermarket (3), Rite Aid Drugs Kent, WA Sunset Square..................... 3,097,028 8.24 Cost Cutter Supermarket, K-Mart, Bellingham, WA Jo-Ann Fabrics & Crafts, Rite Aid Drugs Tacoma Central.................... 2,210,816 16.49 Target (3), Top Food & Drug (3), Tacoma, WA Office Depot, TJ Maxx, Cineplex Odeon ----------- ------ REGION TOTAL/WEIGHTED AVERAGE $14,246,872 $10.86 ----------- ------
- ----------------- (1) Annualized base rent for all leases in place at December 31,1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months of such leases, multiplied by 12. (2) The company owns a 94% interest in Chino Town Square. Table reflects 100% of Property data. (3) These retailers own their space and are not tenants of the company. (4) Annualized base rent divided by the owned GLA leased at December 31, 1999. (5) Percent leased and total number of tenants includes month to month leases. 13 PROPERTIES The following table sets forth certain information for the 58 properties owned at December 31, 1999.
GROSS LEASABLE AREA TOTAL --------------------------------- % LEASED NUMBER OF YEAR COMPANY TENANT AS OF TENANTS AS COMPLETED/ OWNED OWNED TOTAL 12/31/99 OF 12/31/99 PROPERTY AND LOCATION EXPANDED (SQ. FT.) (SQ. FT.) (SQ. FT.) (5) (5) ---------- --------- --------- --------- -------- ----------- OREGON Albany Plaza..................... 1977/ 114,465 30,998 145,463 94.1% 19 Albany, OR 1998 Bear Creek Plaza................. 1977/ 183,998 -- 183,998 100.0 27 Medford, OR 1998 Hermiston Plaza.................. 1976/ 150,396 -- 150,396 84.2 24 Hermiston, OR 1998 Hood River....................... 1967/ 104,162 -- 104,162 84.1 10 Hood River, OR 1999 Milwaukie Marketplace............ 1989 185,859 10,323 196,182 100.0 27 Milwaukie, OR Oregon City Shopping Center...... 1961/ 247,689 -- 247,689 95.3 36 Oregon City, OR 1999 Oregon Trail Shopping Center..... 1977/ 208,284 -- 208,284 93.8 29 Gresham, OR 1999 Pioneer Plaza.................... 1988 96,027 4,293 100,320 97.2 21 Springfield, OR Powell Valley Junction........... 1990 107,583 -- 107,583 97.2 8 Gresham, OR Sandy Marketplace................ 1985 101,438 -- 101,438 100.0 20 Sandy, OR Shute Park Plaza................. 1989 58,560 -- 58,560 88.8 20 Hillsboro, OR Southgate Shopping Center........ 1957/ 50,862 -- 50,862 100.0 10 Milwaukie, OR 1986 Sunset Mall...................... 1969/ 115,635 2,500 118,135 100.0 28 Portland, OR 1997 Tanasbourne Village.............. 1990 210,992 1,209 212,201 100.0 40 Hillsboro, OR --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 1,935,950 49,323 1,985,273 95.7% 319 --------- --------- --------- ----- ----- NEVADA Cheyenne Commons................. 1992 362,758 -- 362,758 87.3% 45 Las Vegas, NV Green Valley Town & Country...... 1990 130,722 -- 130,722 98.3 36 Henderson, NV Mira Loma Shopping Center........ 1985 94,361 2,546 96,907 100.0 20 Reno, NV Rainbow Promenade................ 1995/ 228,279 -- 228,279 99.3 25 Las Vegas, NV 1997 Sahara Pavilion North............ 1989 333,679 -- 333,679 96.7 65 Las Vegas, NV Sahara Pavilion South............ 1990 160,682 -- 160,682 96.1 25 Las Vegas, NV Winterwood Pavilion.............. 1990 144,653 -- 144,653 98.9 27 Las Vegas, NV --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 1,455,134 2,546 1,457,680 95.3% 243 --------- --------- --------- ----- ----- OTHER Country Club Center.............. 1988/ 57,626 63,000 120,626 100.0% 21 Albuquerque, NM 1998 Maysville Marketsquare........... 1991/ 126,507 89,612 216,119 100.0 19 Maysville, KY 1993 Memphis Retail Center............ 1990 51,542 40,000 91,542 94.2 12 Memphis, TN Ocoee Plaza...................... 1990 52,242 -- 52,242 96.8 11 Ocoee, FL --------- --------- --------- ----- ----- REGION TOTAL/WEIGHTED AVERAGE 287,917 192,612 480,529 98.4% 63 --------- --------- --------- ----- ----- PORTFOLIO TOTAL/WEIGHTED AVERAGE 8,062,368 1,070,591 9,132,959 97.5% 1,394 --------- --------- --------- ----- -----
ANNUALIZED BASE RENT ANN. BASE IN PLACE AT 12/31/99(1) RENT/ ----------------------- LEASED SQ. PROPERTY AND LOCATION ANN. BASE RENT($)(1) FT.(4) MAJOR RETAILERS ----------------------- ---------- --------------- OREGON Albany Plaza..................... $772,241 $ 7.17 Albertson's Supermarket, Rite Aid Drugs Albany, OR Bear Creek Plaza................. $1,268,616 $ 6.89 Albertson's Supermarket, Bi-Mart Drug, TJ Maxx, Medford, OR Value Village Hermiston Plaza.................. 789,149 6.23 Safeway Supermarket and Drug Hermiston, OR Hood River....................... 438,795 5.01 Rosauer's Supermarket, Hi School Pharmacy Hood River, OR Milwaukie Marketplace............ 1,780,839 9.58 Albertson's Supermarket, Rite Aid Drugs, Milwaukie, OR Jo-Ann Fabrics & Crafts Oregon City Shopping Center...... 1,579,199 6.69 Emporium, Rite Aid Drugs, Fisherman's Oregon City, OR Market, Michael's Arts & Crafts Oregon Trail Shopping Center..... 1,889,366 9.67 Nature's Supermarket, Office Depot, Big 5 Sporting Gresham, OR Goods, Pic 'N' Save, Michael's Arts & Crafts Pioneer Plaza.................... 853,129 9.14 Safeway Supermarket & Drug Springfield, OR Powell Valley Junction........... 974,670 9.32 Food-4-Less, Cascade Athletic Club Gresham, OR Sandy Marketplace................ 881,857 8.69 Thriftway Supermarket, Hi School Pharmacy Sandy, OR Shute Park Plaza................. 586,792 11.29 True Value Hillsboro, OR Southgate Shopping Center........ 602,134 11.84 Office Max Milwaukie, OR Sunset Mall...................... 1,250,010 10.81 Safeway Supermarket & Drug, Portland, OR Homespun Crafters Tanasbourne Village.............. 2,574,767 12.20 Safeway Supermarket, Rite Aid Drugs, Hillsboro, OR Jo-Ann Fabrics & Crafts, Pier 1 Imports ----------- ------ REGION TOTAL/WEIGHTED AVERAGE $16,241,564 $ 8.77 ----------- ------ NEVADA Cheyenne Commons................. $ 3,991,779 $12.61 Wal-Mart, 24 Hour Fitness, Las Vegas, NV Ross Dress For Less Green Valley Town & Country...... 1,797,066 13.99 Albertson's/Sav-On Superstore Henderson, NV Mira Loma Shopping Center........ 938,061 9.94 Scolari's Market, Long's Drugs Reno, NV Rainbow Promenade................ 3,217,621 14.19 United Artists Theatres, Barnes & Noble, Las Vegas, NV Linens 'N Things, Office Max, Cost Plus Sahara Pavilion North............ 4,282,717 13.27 Von's Supermarket, Long's Drugs, TJMaxx, Las Vegas, NV Shepler's, Border's Books, Gold's Gym Sahara Pavilion South............ 2,124,183 13.75 Sports Authority, Office Max, Las Vegas, NV Michael's Arts & Crafts Winterwood Pavilion.............. 1,396,330 9.76 Von's Supermarket and Drug, Las Vegas, NV Heilig-Meyer Furniture ----------- ------ REGION TOTAL/WEIGHTED AVERAGE $17,747,757 $12.80 ----------- ------ OTHER Country Club Center.............. $ 633,203 $10.99 Furr's Foods (3) Albuquerque, NM Maysville Marketsquare........... 905,401 7.16 Wal-Mart (3), Kroger Company Maysville, KY J.C. Penney Memphis Retail Center............ 477,410 9.83 Hancock Fabrics Memphis, TN Ocoee Plaza...................... 359,686 7.11 Food Lion, Family Dollar Ocoee, FL ----------- ------ REGION TOTAL/WEIGHTED AVERAGE $ 2,375,700 $ 8.39 ----------- ------ PORTFOLIO TOTAL/WEIGHTED AVERAGE $85,040,335 $10.82 ----------- ------
(1) Annualized base rent for all leases in place at December 31,1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months of such leases, multiplied by 12. (2) The company owns a 94% interest in Chino Town Square. Table reflects 100% of Property data. (3) These retailers own their space and are not tenants of the company. (4) Annualized base rent divided by the owned GLA leased at December 31, 1999. (5) Percent leased and total number of tenants includes month to month leases. 14 NATIONAL, REGIONAL AND LOCAL TENANT SUMMARY The following table sets forth certain information for the 58 properties owned at December 31, 1999.
NATIONAL TENANTS(1) REGIONAL TENANTS(1) LOCAL TENANTS(1) ---------------------------- ---------------------------- ------------------------------ % OF PROPERTY % OF PROPERTY % OF PROPERTY % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE PROPERTY LEASED GLA RENT(2) LEASED GLA RENT(2) LEASED GLA RENT(2) ------------- ------------- ------------- ------------- -------------- ------------- NORTHERN CALIFORNIA Brookvale Shopping Center ........... 89.11% 81.55% 0.00% 0.00% 10.89% 18.45% Cable Park Shopping Center .......... 85.53 71.42 -- -- 14.47 28.58 Chico Crossroads .................... 98.62 97.35 -- -- 1.38 2.65 Creekside Center .................... 80.43 64.80 -- -- 19.57 35.20 Fairmont Shopping Center ............ 64.94 46.01 11.67 12.57 23.39 41.42 Fashion Faire Place ................. 84.64 78.55 -- -- 15.36 21.45 Glen Cove Center .................... 81.39 74.47 -- -- 18.61 25.53 Laguna Village ...................... 82.76 80.08 5.79 6.96 11.45 12.96 Lakewood Shopping Center ............ 81.90 73.17 1.21 2.53 16.89 24.30 Manteca Marketplace ................. 37.64 36.00 48.86 45.63 13.50 18.37 Monterey Plaza ...................... 88.10 79.51 1.63 2.94 10.27 17.55 The Shops at Lincoln School ......... 20.52 35.01 52.62 36.85 26.86 28.14 Westwood Village Shopping Center .... 41.78 45.91 1.67 2.21 56.55 51.88 ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............... 75.36% 69.67% 9.16% 8.68% 15.48% 21.65% SOUTHERN CALIFORNIA Arlington Courtyard ................. 12.06% 13.23% 50.92% 41.16% 37.01% 45.61% Canyon Square ....................... 59.71 43.98 2.07 3.04 38.23 52.98 Chino Town Square ................... 84.85 78.13 6.41 9.82 8.74 12.05 Laurentian Center .................. 47.83 48.59 27.31 24.94 24.86 26.47 Marina Village ...................... 45.44 34.93 16.85 23.01 37.71 42.06 Melrose Village Plaza ............... 84.26 79.68 1.02 1.38 14.72 18.94 Palmdale Shopping Center ............ 87.46 73.38 -- -- 12.54 26.62 Rancho Las Palmas ................... 46.57 25.62 9.41 10.24 44.02 64.14 San Dimas Marketplace ............... 91.64 88.40 2.87 3.99 5.49 7.62 Tustin Heights Shopping Center ...... 85.84 75.44 0.89 1.45 13.27 23.10 Vineyard Village East ............... 86.28 76.02 13.72 23.98 -- -- ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............... 72.78% 64.37% 7.78% 9.59% 19.44% 26.04% WASHINGTON Auburn North ........................ 80.31% 73.59% 16.24% 18.81% 3.45% 7.60% Canyon Ridge Plaza .................. 83.15 80.74 9.59 9.76 7.26 9.50 Claremont Village ................... 74.08 75.95 7.13 7.28 18.79 16.77 Olympia Square ...................... 79.48 74.67 13.29 15.13 7.23 10.20 Olympia West Center ................. 83.05 87.24 8.48 7.34 8.47 5.41 Pacific Commons Shopping Center ..... 43.01 42.96 2.15 2.46 54.84 54.58 Panther Lake ........................ 57.78 51.70 7.96 8.33 34.26 39.97 Sunset Square ....................... 67.82 56.76 25.92 32.10 6.26 11.14 Tacoma Central ...................... 89.78 89.04 6.35 5.99 3.87 4.98 ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............... 72.02% 69.76% 14.10% 14.24% 13.88% 16.00%
- --------------------- (1) The company defines national tenants as any tenant that operates in at least four metropolitan areas located in more than one region (i.e., northwest, northeast, midwest, southwest or southeast); regional tenants as any tenant that operates in two or more metropolitan areas located within the same region; local tenants as any tenant that operates stores only within the same metropolitan area as the shopping center. (2) Annualized base rent for all leases in place at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. 15
NATIONAL TENANTS(1) REGIONAL TENANTS(1) LOCAL TENANTS(1) ---------------------------- ---------------------------- ------------------------------ % OF PROPERTY % OF PROPERTY % OF PROPERTY % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE % OF PROPERTY ANN. BASE PROPERTY LEASED GLA RENT(2) LEASED GLA RENT(2) LEASED GLA RENT(2) ------------- ------------- ------------- ------------- -------------- ------------- OREGON Albany Plaza ..................... 67.88% 60.36% 7.44% 9.81% 24.68% 29.83% Bear Creek Plaza ................. 89.00 82.31 4.68 5.23 6.31 12.46 Hermiston Plaza .................. 70.78 45.24 4.53 10.05 24.70 44.72 Hood River Shopping Center ....... 28.44 21.56 31.31 50.45 40.24 27.99 Milwaukie Marketplace ............ 79.98 67.92 3.78 5.13 16.24 26.95 Oregon City Shopping Center ...... 66.68 46.01 5.34 12.35 27.97 41.65 Oregon Trail Shopping Center ..... 60.26 57.15 3.62 7.15 36.12 35.70 Pioneer Plaza .................... 70.56 55.23 14.56 25.96 14.88 18.81 Powell Valley Junction ........... 64.08 61.11 -- -- 35.92 38.89 Sandy Marketplace ................ 34.48 38.91 24.04 19.31 41.49 41.77 Shute Park Plaza ................. 35.16 30.98 16.86 21.53 47.98 47.49 Southgate Shopping Center ........ 70.63 61.91 10.69 12.80 18.67 25.29 Sunset Mall & Office ............. 54.99 36.34 5.03 9.98 39.99 53.68 Tanasbourne Village .............. 68.97 64.00 9.48 12.17 21.55 23.83 ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............ 65.37% 55.81% 8.18% 11.57% 26.45% 32.63% NEVADA Cheyenne Commons ................. 88.96% 79.87% 0.47% 0.92% 10.58% 19.22% Green Valley Town & Country ...... 54.09 44.40 4.35 5.27 41.56 50.33 Mira Loma Shopping Center ........ 24.74 26.50 10.82 7.54 64.44 65.96 Rainbow Promenade ................ 90.31 84.53 2.86 4.61 6.83 10.86 Sahara Pavilion North ............ 72.48 61.70 11.83 11.91 15.69 26.40 Sahara Pavilion South ............ 73.79 64.98 7.62 9.78 18.59 25.24 Winterwood Pavilion .............. 76.35 70.54 13.20 11.51 10.46 17.95 ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............ 74.67% 67.31% 6.81% 7.04% 18.52% 25.65% OTHER AREAS Country Club Center .............. 23.63% 33.19% 5.39% 6.16% 70.98% 60.66% Maysville Market Square .......... 91.12 88.73 4.18 4.91 4.70 6.36 Memphis Retail Center ............ 38.29 45.49 -- -- 61.71 54.51 Ocoee Plaza ...................... 80.00 77.84 -- -- 20.00 22.16 ----- ----- ----- ----- ----- ----- REGION WEIGHTED AVERAGE ............ 66.62% 63.71% 2.95% 3.50% 30.43% 32.79% ----- ----- ----- ----- ----- ----- PORTFOLIO WEIGHTED AVERAGE ......... 71.60% 65.39% 8.90% 9.86% 19.50% 24.75% ===== ===== ===== ===== ===== =====
- --------------------- (1) The company defines national tenants as any tenant that operates in at least four metropolitan areas located in more than one region (i.e., northwest, northeast, midwest, southwest or southeast); regional tenants as any tenant that operates in two or more metropolitan areas located within the same region; local tenants as any tenant that operates stores only within the same metropolitan area as the shopping center. (2) Annualized base rent for all leases in place at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. 16 ANCHOR AND NON-ANCHOR TENANT SUMMARY The following table sets forth certain information for the 58 properties owned at December 31, 1999.
ANCHOR TENANTS(1) NON-ANCHOR TENANTS(1) ---------------------------- ---------------------------- % % OF PROPERTY % % OF PROPERTY OCCUPIED ANN. BASE OCCUPIED ANN. BASE PROPERTY GLA RENT GLA RENT -------- ------------- -------- ------------- NORTHERN CALIFORNIA Brookvale Shopping Center ........... 73.59% 51.40% 26.41% 48.60% Cable Park Shopping Center .......... 69.21 36.98 30.79 63.02 Chico Crossroads .................... 85.18 75.81 14.82 24.19 Creekside Center .................... 67.45 32.68 32.55 67.32 Fairmont Shopping Center ............ 50.12 25.94 49.88 74.06 Fashion Faire Place ................. 48.00 33.74 52.00 66.26 Glen Cove Center .................... 76.30 67.76 23.70 32.24 Laguna Village ...................... 77.07 75.19 22.93 24.81 Lakewood Shopping Center ............ 52.41 34.36 47.59 65.64 Manteca Marketplace ................. 55.98 48.84 44.02 51.16 Monterey Plaza ...................... 55.78 29.11 44.22 70.89 The Shops at Lincoln School ......... 52.62 36.85 47.38 63.15 Westwood Village Shopping Center .... 53.59 38.84 46.41 61.16 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 64.77% 46.80% 35.23% 53.20% ----- ----- ------ ------ SOUTHERN CALIFORNIA Arlington Courtyard ................. 0.00% 0.00% 100.00% 100.00% Canyon Square ....................... 48.79 32.94 51.21 67.06 Chino Town Square ................... 61.02 51.70 38.98 48.30 Laurentian Center .................. 37.89 33.12 62.11 66.88 Marina Village ...................... 43.11 27.96 56.89 72.04 Melrose Village Plaza ............... 52.45 39.30 47.55 60.70 Palmdale Shopping Center ............ 77.32 49.88 22.68 50.12 Chino Town Square ................... 36.05 10.88 63.95 89.12 San Dimas Marketplace ............... 46.88 39.27 53.12 60.73 Tustin Heights Shopping Center ...... 62.36 40.67 37.64 59.33 Vineyard Village East ............... 57.52 41.16 42.48 58.84 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 52.07% 37.62% 47.93% 62.38% ----- ----- ------ ------ WASHINGTON Auburn North ........................ 66.53% 51.45% 33.47% 48.55% Canyon Ridge Plaza .................. 31.30 19.58 68.70 80.42 Claremont Village ................... 46.12 45.39 53.88 54.61 Olympia Square ...................... 46.01 31.73 53.99 68.27 Olympia West Center ................. 56.65 62.26 43.35 37.74 Pacific Commons Shopping Center ..... 50.43 47.40 49.57 52.60 Panther Lake ........................ 33.84 20.48 66.16 79.52 Sunset Square ....................... 75.43 58.25 24.57 41.75 Tacoma Central ...................... 65.75 61.72 34.25 38.28 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 58.60% 47.88% 41.40% 52.12% ----- ----- ------ ------
- ------------ (1) Anchors defined as single tenants which lease 15,000 square feet or more, non-anchors defined as tenants which lease less than 15,000 square feet. (2) Annualized base rent for all leases in place in which tenants are in occupancy at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. 17 ANCHOR AND NON-ANCHOR TENANT SUMMARY The following table sets forth certain information for the 58 properties owned at December 31, 1999.
ANCHOR TENANTS(1) NON-ANCHOR TENANTS(1) ---------------------------- ---------------------------- % % OF PROPERTY % % OF PROPERTY OCCUPIED ANN. BASE OCCUPIED ANN. BASE PROPERTY GLA RENT GLA RENT -------- ------------- -------- ------------- OREGON Albany Plaza ........................ 40.24% 32.07% 59.76% 67.93% Bear Creek Plaza .................... 69.07 51.14 30.93 48.86 Hermiston Plaza ..................... 52.30 23.28 47.70 76.72 Hood River Shopping Center .......... 83.47 60.42 16.53 39.58 Milwaukie Marketplace ............... 50.34 28.47 49.66 71.53 Oregon City Shopping Center ......... 72.07 44.75 27.93 55.25 Oregon Trail Shopping Center ........ 66.56 54.06 33.44 45.94 Pioneer Plaza ....................... 52.38 37.36 47.62 62.64 Powell Valley Junction .............. 78.07 62.39 21.93 37.61 Sandy Marketplace ................... 55.36 46.58 44.64 53.42 Shute Park Plaza .................... -- -- 100.00 100.00 Southgate Shopping Center ........... 58.98 43.84 41.02 56.16 Sunset Mall ......................... 42.24 17.87 57.76 82.13 Tanasbourne Village ................. 47.62 31.20 52.38 68.80 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 58.08% 38.26% 41.92% 61.74% ----- ----- ------ ------ NEVADA Cheyenne Commons .................... 61.39% 39.58% 38.61% 60.42% Green Valley Town & Country ......... 38.53 21.24 61.47 78.76 Mira Loma ........................... 58.51 49.36 41.49 50.64 Rainbow Promenade ................... 65.56 56.49 34.44 43.51 Sahara Pavilion North ............... 50.33 30.32 49.67 69.68 Sahara Pavilion South ............... 51.00 30.46 49.00 69.54 Winterwood Pavilion ................. 47.41 25.67 52.59 74.33 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 54.41% 36.82% 45.59% 63.18% ----- ----- ------ ------ OTHER AREAS Country Club Center ................. 0.00% 0.00% 100.00% 100.00% Maysville Market Square ............. 63.79 56.93 36.21 43.07 Memphis Retail Center ............... -- -- 100.00 100.00 Ocoee Plaza ......................... 49.44 47.26 50.56 52.74 ----- ----- ------ ------ REGION WEIGHTED AVERAGE ............... 37.58% 29.00% 62.42% 71.00% ----- ----- ------ ------ PORTFOLIO WEIGHTED AVERAGE ...... 57.16% 41.00% 42.84% 59.00% ===== ===== ====== ======
- ------------ (1) Anchors defined as single tenants which lease 15,000 square feet or more, non-anchors defined as tenants which lease less than 15,000 square feet. (2) Annualized base rent for all leases in place in which tenants are in occupancy at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. 18 MAJOR TENANTS The following table sets forth certain information for the 58 properties owned at December 31, 1999.
Annualized Base Rent in Place at 12/31/99 ----------------------------------------- LEASED GLA % OF TOTAL TOTAL ANN. BASE % OF TOTAL NUMBER OF AS OF 12/31/99 LEASED ANN. BASE RENT/SQ. FT. ANN. BASE TENANT LEASES (SQ. FT.) GLA RENT ($)(1) ($)(2) RENT ------ --------- -------------- ---------- ----------- ------------ --------- Albertson's/Savon (3) 12 500,077 6.49% $ 2,891,847 $5.78 3.46% Wal-Mart (4) 3 316,588 4.11 2,836,372 8.96 3.39 Von's/Safeway (5) 8 363,556 4.72 2,083,819 5.73 2.49 Rite Aid 13 290,141 3.76 1,667,728 5.75 2.00 Office Max, Inc. 5 134,550 1.75 1,480,871 11.01 1.77 United Artists Theatres 2 88,196 1.14 1,361,109 15.43 1.63 24 Hour Fitness 3 86,305 1.12 1,246,423 14.44 1.49 Ross Dress for Less 6 126,393 1.64 1,042,254 8.25 1.25 Hollywood Video 9 54,790 0.71 1,040,978 19.00 1.25 Barnes & Noble 3 70,573 0.92 999,250 14.16 1.20 Shari's Restaurant 10 38,793 0.50 986,487 25.43 1.18 Long's Drug Store 7 170,009 2.21 909,841 5.35 1.09 -- --------- ----- ----------- ----- ----- TOTAL 81 2,239,971 29.06% $18,546,979 $8.28 22.20% == ========= ===== =========== ===== =====
- ------------ (1) Annualized base rent for all leases in place at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (2) Annualized base rent divided by gross leasable area at December 31, 1999. (3) Number of leases includes ten Albertson's Supermarket locations and two Savon Drug Store locations. (4) Number of leases includes two Wal-Mart locations and one Sam's Club Location. (5) Number of leases includes four Von's Supermarket locations and four Safeway Supermarket locations. 19 LEASE EXPIRATIONS The following table sets forth certain information for the 58 properties owned at December 31, 1999.
ANNUALIZED BASE RENT IN PLACE AT 12/31/99 --------------------------------------------- LEASE NUMBER OF GLA UNDER TOTAL ANN. ANN. BASE EXPIRATION LEASES EXPIRING % OF BASE RENT($) % OF ANN. RENT YEAR EXPIRING LEASES (SQ. FT.) GLA (2) BASE RENT ($/SQ. FT.)(3) ---------- --------- ---------------- ------ ------------ --------- -------------- ALL LEASES 1 ........................... 2000 214 528,269 6.85 7,167,931 8.58 13.57 2 ........................... 2001 216 669,257 8.68 7,447,433 8.91 11.13 3 ........................... 2002 249 676,034 8.77 8,926,517 10.68 13.20 4 ........................... 2003 188 657,590 8.53 8,026,904 9.61 12.21 5 ........................... 2004 188 882,819 11.45 8,596,655 10.29 9.74 6 ........................... 2005 63 547,049 7.10 5,418,975 6.49 9.91 7 ........................... 2006 29 367,802 4.77 3,929,620 4.70 10.68 8 ........................... 2007 29 218,321 2.83 2,454,413 2.94 11.24 9 ........................... 2008 33 469,806 6.10 4,070,649 4.87 8.66 10 .......................... 2009 47 542,690 7.04 5,979,250 7.16 11.02 11 and after ................ 2010+ 101 2,147,407 27.86 21,535,724 25.77 10.03 ----- --------- ------ ----------- ------ ------ TOTAL/WEIGHTED AVERAGE ...... 1,357 7,707,044 100.00% $83,554,071 100.00% $10.84 ===== ========= ====== =========== ====== ====== ALL ANCHOR LEASES (1) 1 ........................... 2000 4 87,300 1.98 616,107 1.80 7.06 2 ........................... 2001 9 223,541 5.07 1,193,385 3.48 5.34 3 ........................... 2002 6 160,973 3.65 1,087,701 3.18 6.76 4 ........................... 2003 8 197,998 4.49 1,376,545 4.02 6.95 5 ........................... 2004 9 363,242 8.25 1,313,925 3.84 3.62 6 ........................... 2005 15 340,979 7.74 2,751,827 8.03 8.07 7 ........................... 2006 6 243,291 5.52 2,311,640 6.75 9.50 8 ........................... 2007 5 120,406 2.73 798,942 2.33 6.64 9 ........................... 2008 8 352,615 8.00 2,221,271 6.48 6.30 10 .......................... 2009 10 366,112 8.31 3,091,957 9.03 8.45 11 and after ................ 2010+ 54 1,948,709 44.26 17,493,582 51.07 8.98 ----- --------- ------ ----------- ------ ------ TOTAL/WEIGHTED AVERAGE ...... 134 4,405,166 100.00% $34,256,882 100.00% $ 7.78 ===== ========= ====== =========== ====== ====== ALL NON-ANCHOR LEASES (1) 1 ........................... 2000 210 440,969 13.36 6,551,823 13.29 14.86 2 ........................... 2001 207 445,716 13.50 6,254,048 12.69 14.03 3 ........................... 2002 243 515,061 15.60 7,838,816 15.90 15.22 4 ........................... 2003 180 459,592 13.92 6,650,359 13.49 14.47 5 ........................... 2004 179 519,577 15.74 7,282,730 14.77 14.02 6 ........................... 2005 48 206,070 6.24 2,667,148 5.41 12.94 7 ........................... 2006 23 124,511 3.77 1,617,980 3.28 12.99 8 ........................... 2007 24 97,915 2.97 1,655,471 3.36 16.91 9 ........................... 2008 25 117,191 3.55 1,849,378 3.75 15.78 10 .......................... 2009 37 176,578 5.35 2,887,293 5.86 16.35 11 and after ................ 2010+ 47 198,698 6.02 4,042,142 8.20 20.34 ----- --------- ------ ----------- ------ ------ TOTAL/WEIGHTED AVERAGE ...... 1,223 3,301,878 100.00% $49,297,188 100.00% $14.93 ===== ========= ====== =========== ====== ======
- ------------ Note: Number of Leases expiring does not include tenants on a month-to-month agreement, whose combined occupancy totals 73,746 sq. ft. (1) The company defines anchors as single tenants which lease 15,000 square feet or more, non-anchors defined as tenants which lease less than 15,000 square feet. (2) Annualized base rent for all leases in place at December 31, 1999 calculated as follows: total base rent, calculated in accordance with GAAP, to be received during the entire term of each lease, divided by the terms in months for such leases, multiplied by 12. (3) Annualized base rent divided by gross leasable area at December 31, 1999. 20 ITEM 3. LEGAL PROCEEDINGS The Company is a party to legal proceedings that arise in the normal course of business, which matters are generally covered by insurance. The resolution of these matters cannot be predicted with certainty. However, in the opinion of management, based upon currently available information, liability under such proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial statements taken as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1999, no matters were submitted to a vote of stockholders of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock began trading on the New York Stock Exchange ("NYSE") on August 8, 1997, under the symbol "PNP". On March 4, 2000 the Company had approximately 86 stockholders of record and approximately 2600 beneficial owners. The following table sets forth for the periods indicated the high and low sales prices as reported by the NYSE and the distributions declared by the Company.
DISTRIBUTIONS HIGH LOW DECLARED ------- ------- ------------- First Quarter 1998 $22.562 $21.375 $0.38 Second Quarter 1998 $22.750 $19.375 $0.38 Third Quarter 1998 $22.000 $16.500 $0.38 Fourth Quarter 1998 $20.500 $17.562 $0.38 First Quarter 1999 $20.250 $17.500 $0.40 Second Quarter 1999 $20.188 $17.375 $0.40 Third Quarter 1999 $20.188 $17.063 $0.40 Fourth Quarter 1999 $18.250 $15.125 $0.40
The fourth quarter 1998 and 1999 distributions on an annualized basis amount to $1.52 and $1.60 per share, respectively. All distributions will be made by the Company at the discretion of the Board of Directors and will depend upon the earnings of the Company, its financial condition and any other factors the Board of Directors deems relevant. In order to qualify for the beneficial tax treatment accorded to real estate investment trusts under the Code, the Company is required to make distributions to holders of its shares in an amount at least equal to 95% of the Company's "real estate investment trust taxable income," as defined in Section 857 of the Code. 21 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected financial data for the Company on a historical basis. The following data should be read in connection with management's discussion and analysis of financial condition and results of operations and the consolidated financial statements and notes thereto located elsewhere in this report. SELECTED CONSOLIDATED FINANCIAL DATA (1) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- -------- STATEMENTS OF OPERATIONS DATA: Total revenue $101,062 $79,253 $46,710 $35,623 $30,767 Operating and general and administrative expenses 25,513 19,765 14,216 12,766 12,775 Depreciation and amortization 17,476 14,298 8,928 7,693 6,340 Interest expense 23,939 18,295 14,057 14,671 12,262 Income (loss) before extraordinary item 32,576 26,634 9,356 449 (615) Net income (loss) 32,576 26,634 8,313 449 (615) Per share data: Income before extraordinary item-diluted (2) 1.54 1.35 0.55 -- -- Net income-diluted (2) 1.54 1.35 0.49 -- -- Distributions declared 1.60 1.52 0.58 -- --
AS OF DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Properties, net $748,061 $667,478 $455,514 $264,017 $251,423 Total assets 784,537 705,541 487,220 293,186 275,690 Notes payable 228,490 144,024 108,316 192,915 191,302 Line of credit payable 128,800 138,500 62,450 -- -- Advances from related party -- -- -- 32,113 16,482 Minority interests 23,347 17,318 1,521 1,539 1,347 Stockholders' equity 381,866 383,088 301,055 -- -- Owner's equity -- -- -- 61,808 61,359
(1) The financial data as of the dates and for the periods prior to August 13, 1997 represents the combined financial data of Pan Pacific Development Properties. See Note 1 to the consolidated financial statements. (2) The 1997 data is calculated as if the shares were outstanding for the entire year based on the diluted number of shares assumed to be outstanding (see Note 2(i) to the consolidated financial statements). The years prior to 1997 had no outstanding shares of common stock and therefore the information is not relevant or included here. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY LANGUAGE The discussions in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. Such forward-looking statements are subject to certain risks and uncertainties. Factors that could cause actual results to differ materially from expectations include market valuations of the Company's stock, financial performance and operations of its shopping centers, real estate conditions, execution of shopping center development programs, successful completion of renovations, completion of pending acquisitions, changes in the availability of additional acquisitions, changes in local or national economic conditions, and other risks detailed from time to time in reports filed with the Securities and Exchange Commission. OVERVIEW The following discussions should be read in connection with the consolidated financial statements of Pan Pacific Retail Properties, Inc. and subsidiaries (the "Company"), and the notes thereto, appearing elsewhere in this report. The Company receives income primarily from rental revenue (including recoveries from tenants) from shopping center properties. Primarily as a result of the Company's acquisition and outparcel buildout program, the financial data shows increases in total revenue from period to period. The Company has experienced economies of scale as it has grown its portfolio from 25 properties, at the initial public offering ("IPO") in August 1997, to 58 properties at December 31, 1999. For example, in 1999 and 1998, the Company experienced a decrease in overhead costs as a percentage of total revenue as compared to 1997 and 1996. For the years ended December 31, 1999 and 1998, general and administrative expenses, as a percentage of total revenue were 5.3% and 5.2%, respectively. This compares favorably with the years ended December 31, 1997 and 1996, where this same ratio was 8.4% and 9.2%, respectively. Another example of economies of scale is the reduction in operating expenses on a square foot basis. During the year ended December 31, 1999, the Company owned properties comprising a weighted average GLA of 7,640,000 square feet. Total expenses, excluding interest, depreciation and amortization for the year ended December 31, 1999 were $25,513,000 or $3.34 per square foot. During the year ended December 31, 1998, the Company owned properties comprising a weighted average GLA of 6,026,000 square feet. Total expenses, excluding interest, depreciation and amortization, for the year ended December 31, 1998 were $19,765,000 or $3.28 per square foot. These expense rates per square foot compare favorably with the same calculations for the years ended December 31, 1997 and 1996 where the rates per square foot were $3.97 and $4.38, respectively. The Company anticipates there will be continued benefits in the future due to these economies of scale, although to a lesser extent than what has been noted above. The Company expects that the more significant part of its revenue growth in the next year or two will come from additional acquisitions and rent increases from re-leasing and re-tenanting initiatives, the benefit of the stabilization of the properties acquired during 1998 and 1999 and the revenue generated from expanded GLA due to the buildout of outparcels. RESULTS OF OPERATIONS Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Total revenue increased by $21,809,000 or 27.5% to $101,062,000 from $79,253,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. Rental revenue increased by $16,924,000 or 26.8% to $80,137,000 from $63,213,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in rental revenue resulted principally from the acquisition of San Dimas Marketplace and Bear Creek Plaza in January 1998; Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and Shute Park Plaza in February 1998; Manteca Marketplace in March 1998; a 24 Hour Fitness building, Panther Lake Shopping Center and Creekside Center in April 1998; 23 Westwood Village Shopping Center and Fashion Faire Shopping Center in May 1998; Pacific Commons Shopping Center in June 1998; Oregon Trail, Hermiston Plaza and Hood River Center in October 1998; Sandy Marketplace, Southgate Center, Oregon City Shopping Center, Sunset Mall, Mira Loma Shopping Center and Glen Cove Center in November 1998; the remaining 50% interest in Melrose Village Plaza in January 1999; Auburn North Shopping Center in March 1999; Marina Village in April 1999; Canyon Square Plaza and Rancho Las Palmas Retail Center in September 1999; and The Shops at Lincoln School and Albany Plaza in October 1999 (collectively, the "1998 and 1999 Acquisitions"). Recoveries from tenants increased by $4,165,000 or 30.3% to $17,893,000 from $13,728,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This increase resulted primarily from the 1998 and 1999 Acquisitions. Recoveries from tenants were 89.7% of property operating expenses and property taxes for the year ended December 31, 1999 compared to 88.3% of the same expenses for the same period in 1998. Property operating expenses increased by $2,738,000 or 27.9% to $12,551,000 from $9,813,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in property operating expenses was primarily attributable to the 1998 and 1999 Acquisitions. Property taxes increased by $1,664,000 or 29.0% to $7,399,000 from $5,735,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. The increase in property taxes was also primarily the result of the 1998 and 1999 Acquisitions. Depreciation and amortization increased by $3,178,000 or 22.2% to $17,476,000 from $14,298,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This was primarily due to the 1998 and 1999 Acquisitions. Interest expense increased by $5,644,000 or 30.9% to $23,939,000 from $18,295,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998, primarily as a result of interest expense relating to amounts drawn on the Company's unsecured credit facility (the "Unsecured Credit Facility") to finance acquisitions, interest expense on the fixed-rate mortgage assumed related to Westwood Village Shopping Center in the second quarter of 1998, interest expense on the fixed-rate mortgages assumed related to Sunset Mall, Oregon City Shopping Center, Sandy Marketplace and Southgate Center in the fourth quarter of 1998 and interest expense on the fixed-rate mortgage assumed related to Rancho Las Palmas Retail Center in the third quarter of 1999. Interest expense also increased as a result of the secured financings on Rainbow Promenade, San Dimas Marketplace, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village completed in June and July 1999. Although the proceeds were used to paydown the Unsecured Credit Facility, the fixed interest rates on the secured financings were greater than the Company's variable-rate borrowings under the Unsecured Credit Facility. These increases were offset by a decrease in interest expense related to the repayment of debt of approximately $82,000,000 in May 1998 in connection with the Company's secondary offering of common stock. General and administrative expenses increased by $1,206,000 or 29.4% to $5,315,000 from $4,109,000 for the year ended December 31, 1999, compared to the year ended December 31, 1998. This increase was primarily attributable to costs associated with additional staffing necessitated by acquisitions in 1998, annual compensation increases as well as a one-time accrual for executive severance cost in 1999. As a percentage of total revenue, general and administrative expenses were 5.3% for the year ended December 31, 1999 and 5.2% for the year ended December 31, 1998. The following table compares the operating data for the 31 properties ("Same Properties") that were owned and in operation for the entirety of both years ended December 31, 1999 and 1998:
1999 1998 ----------- ----------- Revenue: Rental $52,331,000 $51,169,000 Recoveries from tenants 11,722,000 11,297,000 Operating income from unconsolidated partnerships 349,000 303,000 Other 1,204,000 745,000 ----------- ----------- $65,606,000 $63,514,000 Operating expenses: Property operating and property taxes 13,191,000 12,647,000
24 ----------- ----------- Operating income $52,415,000 $50,867,000 =========== ===========
Operating income for the Same Properties for the year ended December 31, 1999 increased over the same period in the prior year by $1,548,000 or 3.0%. This increase was attributable to increased rental revenue primarily related to the development of pads at Brookvale Shopping Center, Canyon Ridge Plaza, Sunset Square and Winterwood Pavilion, and increased occupancy at Laguna Village, Laurentian Center, Sahara Pavilion North and Winterwood Pavilion. These increases were offset by a decrease due to a vacancy at Memphis Retail Center. Other income also increased due to lease settlements recorded at Cheyenne Commons, Claremont Village Plaza, Green Valley Town & Country, Sahara Pavilion North and Tacoma Central. Operating expenses for these Same Properties increased by $544,000 or 4.3% primarily due to increases in common area maintenance costs at Cheyenne Commons, Rainbow Promenade, Sahara Pavilion South and Winterwood Pavilion, and increases in bad debt expense at Green Valley Town & Country and Sahara Pavilion South. Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997. Total revenue increased by $32,543,000 or 69.7% to $79,253,000 for the year ended December 31, 1998 as compared to $46,710,000 for the year ended December 31, 1997. Rental revenue increased by $26,096,000 or 70.3% to $63,213,000 from $37,117,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997. The increase in rental revenue resulted principally from the acquisition of San Dimas Marketplace and Bear Creek Plaza in January 1998; Milwaukie Marketplace, Pioneer Plaza, Powell Valley Junction and Shute Park Plaza in February 1998; Manteca Marketplace in March 1998; a 24 Hour Fitness building, Panther Lake Shopping Center and Creekside Center in April 1998; Westwood Village Shopping Center and Fashion Faire Shopping Center in May 1998; Pacific Commons Shopping Center in June 1998; Oregon Trail, Hermiston Plaza and Hood River Center in October 1998; and Sandy Marketplace, Southgate Center, Oregon City Shopping Center, Sunset Mall, Mira Loma Shopping Center and Glen Cove Center in November 1998 (collectively, the "1998 Acquisitions") and the benefit of a full year of rental revenue from the acquisition of Chico Crossroads in February 1997; Monterey Plaza in April 1997; Fairmont Shopping Center in May 1997; Lakewood Shopping Center in June 1997; Green Valley Town & Country in August 1997; Rainbow Promenade in September 1997; Claremont Village, Olympia West and Tacoma Central in November 1997; Tustin Heights, Palmdale Center and Brookvale Center in December 1997; and the inclusion in operations of Laguna Village Phase II in the third quarter of 1997 (collectively, the "1997 Acquisitions"). Recoveries from tenants increased by $5,686,000 or 70.7% to $13,728,000 for the year ended December 31, 1998, compared to $8,042,000, for the year ended December 31, 1997. This increase resulted primarily from the 1998 Acquisitions and the 1997 Acquisitions. Recoveries from tenants were 88.3% of property operating expenses and property taxes for the year ended December 31, 1998 as compared to 86.2% of the same expenses for the same period in 1997. Property operating expenses increased by $3,671,000 or 59.8% from $6,142,000 to $9,813,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997. The increase in property operating expenses was primarily attributable to the 1998 Acquisitions and the 1997 Acquisitions. Property taxes increased by $2,548,000 or 80.0% for the year ended December 31, 1998, compared to the year ended December 31, 1997. The increase in property taxes was also primarily the result of the 1998 Acquisitions and the 1997 Acquisitions. Depreciation and amortization increased by $5,370,000 or 60.2% to $14,298,000 from $8,928,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997. This was primarily due to the 1998 Acquisitions, the 1997 Acquisitions and amortization for current year additions of tenant improvements and leasing commissions. Interest expense increased by $4,238,000 or 30.2% to $18,295,000 from $14,057,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997, primarily as a result of interest expense relating to amounts drawn on the Company's unsecured credit facility (the "Unsecured Credit Facility") to finance acquisitions, interest expense related to the assumption of fixed-rate mortgages on Tacoma Central and Olympia West in the fourth quarter of 1997, interest expense on the fixed-rate mortgage assumed related to Westwood Village Shopping Center in the second quarter of 1998 as well as interest expense on the fixed-rate mortgages assumed related to Sunset Mall, Oregon City Shopping Center, Sandy Marketplace and Southgate Center in the fourth quarter of 1998. These increases were offset by decreases in interest expense related to the repayment of debt of approximately $134,000,000 in August 1997 in connection with the Company's IPO and approximately 25 $82,000,000 in May 1998 in connection with the Company's secondary offering. General and administrative expenses increased by $186,000 or 4.7% to $4,109,000 from $3,923,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997. This increase was primarily attributable to annual salary increases and costs associated with additional staffing necessitated by the acquisitions. These increases were partially offset by a decrease in the management fee paid to Revenue Properties Company Limited ("Revenue Properties") as that fee is no longer being charged effective with the completion of the IPO. As a percentage of total revenue, general and administrative expenses were 5.2% and 8.4% for the years ended December 31, 1998 and 1997, respectively. Other expenses consist primarily of loan guaranty fees and the expensing of due diligence costs for acquisitions that are not completed. Other expenses decreased by $856,000 or 88.8% to $108,000 from $964,000 for the year ended December 31, 1998, compared to the year ended December 31, 1997. The decrease was primarily due to loan guaranty fees paid to Revenue Properties which are no longer being charged as the debt which was guaranteed was paid off in August 1997 in connection with the IPO. In 1997, as part of the Formation Transactions (see Note 1 to the consolidated financial statements located elsewhere in this report), $134,217,000 of notes payable were repaid. In connection with the early payoff of these notes, an extraordinary loss of $1,043,000 was recorded which included prepayment penalties and the write-off of unamortized financing costs and loan premium. The following table compares the operating data for the 19 properties ("Same Properties") that were owned and in operation for the entirety of both years ended December 31, 1998 and 1997:
1998 1997 ----------- ----------- Revenue: Rental $28,804,000 $28,462,000 Recoveries from tenants 7,798,000 7,597,000 Operating income from unconsolidated partnerships 948,000 887,000 Other 383,000 485,000 ----------- ----------- $37,933,000 $37,431,000 Operating expenses: Property operating and property taxes 8,539,000 8,653,000 ----------- ----------- Operating income $29,394,000 $28,778,000 =========== ===========
Operating income for the Same Properties for the year ended December 31, 1998 increased over the same period in the prior year by $616,000 or 2.1%. This increase was attributable to increased rental revenue due to increased occupancy levels primarily at Cheyenne Commons and Chino Town Square. This increase was offset by a decrease in other income primarily due to termination fees recorded in 1997 at Sunset Square. Operating expenses for these Same Properties decreased by $114,000 or 1.3% primarily due to bad debt expense in 1997 at Sunset Square. FUNDS FROM OPERATIONS The White Paper on Funds from Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts in March 1995 (the "White Paper") defines Funds from Operations as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Management considers Funds from Operations an appropriate measure of performance of an equity REIT because it is predicated on cash flow analyses. The Company computes Funds from Operations in accordance with standards established by the White Paper. The Company's computation of Funds from Operations may, however, differ from the methodology for calculating Funds from Operations utilized by other equity REITs and, therefore, may not be comparable to such other REITs. Funds from Operations should not be considered as an alternative to net income (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. With respect to NAREIT's clarification to the definition of Funds from Operations which is effective January 1, 2000, the Company expects no impact on its calculation of Funds from Operations. 26 The following table presents the Company's actual Funds from Operations for the years ended December 31, 1999 and 1998 and actual and pro forma Funds from Operations for the year ended December 31, 1997:
DECEMBER 31, DECEMBER 31, 1999 1998 DECEMBER 31, 1997 ------------ ------------ ------------------------------ ACTUAL ACTUAL ACTUAL PRO FORMA ------------ ------------ ----------- ----------- Net income $32,576,000 $26,634,000 $ 8,313,000 $17,537,000 Add: Extraordinary loss -- -- 1,043,000 -- Depreciation and amortization 17,476,000 14,298,000 8,928,000 9,484,000 Depreciation of unconsolidated partnerships 8,000 211,000 208,000 208,000 Depreciation of non-real estate corporate assets (392,000) (220,000) (204,000) (204,000) DownREIT minority interests 1,530,000 211,000 -- -- Less: Net gain on sale of real estate (400,000) -- -- -- ----------- ----------- ----------- ----------- Funds from Operations $50,798,000 $41,134,000 $18,288,000 $27,025,000 =========== =========== =========== =========== Weighted average number of shares of common stock outstanding (assuming dilution) 22,122,659 19,662,622 16,866,173 -- Number of shares of common stock assumed to be outstanding -- -- -- 16,814,012
CASH FLOWS Comparison of the Year Ended December 31, 1999 to the Year Ended December 31, 1998. Net cash provided by operating activities increased by $7,377,000 to $46,740,000 for the year ended December 31, 1999, as compared to $39,363,000 for the year ended December 31, 1998. The increase was primarily the result of an increase in operating income due to property acquisitions. Net cash used in investing activities decreased by $89,292,000 to $77,671,000 for the year ended December 31, 1999, compared to $166,963,000 for the year ended December 31, 1998. The decrease was primarily the result of a reduction in acquisitions of and additions to operating properties and an increase in proceeds from sale of real estate offset by an acquisition of interest in an unconsolidated partnership. Net cash provided by financing activities decreased by $101,090,000 to $29,269,000 for the year ended December 31, 1999, compared to $130,359,000 for the year ended December 31, 1998. The decrease primarily resulted from a decrease in line of credit proceeds, an increase in line of credit payments, an increase in notes payable payments, a decrease in the issuance of common stock and an increase in distributions paid offset by an increase in notes payable proceeds. Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997. Net cash provided by operating activities increased by $24,121,000 to $39,363,000 for the year ended December 31, 1998, as compared to $15,242,000 for the year ended December 31, 1997. The increase was primarily the result of an increase in operating income due to property acquisitions. Net cash used in investing activities increased by $517,000 to $166,963,000 for the year ended December 31, 1998, compared to $166,446,000 for the year ended December 31, 1997. The increase was primarily the result of acquisitions of and additions to operating properties for the 1998 Acquisitions, offset by contributions to unconsolidated partnerships in 1997. Net cash provided by financing activities decreased by $12,610,000 to $130,359,000 for the year ended December 31, 1998, compared to $142,969,000 for the year ended December 31, 1997. The decrease primarily resulted from a decrease in notes payable payments, offset by a decrease in advances from related party, a decrease 27 in issuance of common stock and an increase in distributions paid. YEAR 2000 ISSUE To date, we are not aware of any adverse effects of the Year 2000 issue on any of our internal systems or those of our vendors or tenants. Management does not expect Year 2000 issues to have a material adverse effect on our operations or financial results in 2000. LIQUIDITY AND CAPITAL RESOURCES The total market capitalization of the Company at December 31, 1999, was approximately $722,685,000, based on the market closing price at December 31, 1999 of $16.3125 per share (assuming the conversion of 1,147,204 DownREIT LLC units) and the debt outstanding of approximately $357,290,000 (exclusive of accounts payable and accrued expenses). As a result, the Company's debt to total market capitalization ratio was approximately 49.4% at December 31, 1999. The Board of Directors adopted a policy of limiting the Company's indebtedness to approximately 50% of its total market capitalization. However, the Company may from time to time modify its debt policy in light of current economic or market conditions including but not limited to the relative costs of debt and equity capital, market conditions for debt and equity securities and fluctuations in the market price of its common stock. Accordingly, the Company may increase or decrease its debt to market capitalization ratio beyond the limit described above. In addition, considering current market volatility with regard to stock prices, an alternate measure of leverage which is not affected by fluctuations in stock price is the ratio of debt to gross real estate assets. At December 31, 1999 the Company's debt to gross real estate assets ratio was 44.4%. At December 31, 1999, the Company had $71,200,000 available under its Unsecured Credit Facility. In October, the Company received an investment grade credit rating of BBB- from Standard & Poor's, thereby reducing the Company's borrowing costs under the Unsecured Credit Facility by 22.5 basis points. As such, at the Company's option, amounts borrowed under the Unsecured Credit Facility bear interest at either LIBOR plus 1.15% or a reference rate. The weighted average interest rate for short-term LIBOR contracts under the Unsecured Credit Facility at December 31, 1999 was 8.79%. This weighted average rate was unusually high at year-end as a result of significant interest rate volatility caused by Y2K concerns in the financial markets. Shortly after year-end, LIBOR dropped back down to levels consistent with rates before the year-end spike resulting in a current borrowing rate of approximately 7.0%. The Company will continue to use the Unsecured Credit Facility to take advantage of select acquisition opportunities as well as to provide funds for general corporate purposes. The rate of external growth in 1999 was at a slower pace than the rate of external growth during 1998 in response to capital market conditions. This decreased external growth rate is expected to continue through the year 2000. The Company's indebtedness outstanding at December 31, 1999 requires balloon payments of $128,800,000 in 2002, $4,004,000 in 2004, $7,401,000 in 2005, $30,520,000 in 2006, $74,644,000 in 2007, $46,355,000 in 2009, $23,191,000 in 2010 and $5,836,000 in 2012. The balloon payment due in the year 2002 represents the balance drawn on the Unsecured Credit Facility at December 31, 1999 of $128,800,000. With regard to the balloon payments noted above, it is likely that the Company will not have sufficient funds on hand to repay these balloon amounts at maturity. Therefore, the Company expects to refinance such debt either through additional debt financings secured by individual properties or groups of properties, by unsecured private or public debt offerings or by additional equity offerings. During 1999, the Company completed a number of financing transactions. At the end of the second quarter, the Company closed a $35,000,000 financing transaction evidenced by notes payable, secured by deeds of trust on two properties, Rainbow Promenade and San Dimas Marketplace, bearing interest at 7.2%. At the beginning of the third quarter, the Company closed a second financing transaction for $56,300,000 also evidenced by notes payable, secured by deeds of trust on four properties, Melrose Village Plaza, Monterey Plaza, Tustin Heights Shopping Center and Tanasbourne Village, bearing interest at 7.1%. The proceeds were used to pay down the Unsecured Credit Facility. Also in the third quarter, the Company formed Pan Pacific (Rancho Las Palmas), LLC (the "RLPLLC") and Pan Pacific (RLP), Inc. in connection with the acquisition of Rancho Las Palmas Retail Center. As part of the acquisition, and in exchange for an interest in the asset contributed to RLPLLC by an individual, 314,587 DownREIT LLC units were issued. 28 In the fourth quarter the Company entered into a new $200,000,000 Unsecured Credit Facility for three years under similar terms and conditions as the old facility and with the same syndicate of banks. The Unsecured Credit Facility matures in December 2002. In addition, the Company entered into a modification agreement with the lender on the Chino Town Square property. The loan was set to mature in March of 2000. Pursuant to the terms of the modification agreement the maturity date was extended to January 2010 and the interest rate was reduced from 8.0% to 7.72%. Following these financing transactions, at December 31, 1999, 39 of the Company's 58 properties remain unencumbered. The Company expects to make distributions from net cash provided by operations. Operating cash flows in excess of amounts to be used for distributions will be invested by the Company primarily in short-term investments such as collateralized securities of the United States government or its agencies, high-grade commercial paper and bank deposits or will be used to pay down outstanding balances on the Unsecured Credit Facility, if any. The following table provides historical distribution information:
Distribution Quarter Ended Date Declared Record Date Date Paid Per Share - ------------------ ------------------- ------------------ ---------------- ------------ September 30, 1997 October 6, 1997 October 22, 1997 October 31, 1997 $0.2128 December 31, 1997 December 5, 1997 December 29, 1997 January 19, 1998 $0.3625 March 31, 1998 March 17, 1998 March 31, 1998 April 17, 1998 $0.3800 June 30, 1998 June 19, 1998 June 30, 1998 July 17, 1998 $0.3800 September 30, 1998 September 11, 1998 October 5, 1998 October 21, 1998 $0.3800 December 31, 1998 December 8, 1998 December 22, 1998 January 20, 1999 $0.3800 March 31, 1999 February 10, 1999 March 17, 1999 April 16, 1999 $0.4000 June 30, 1999 June 15, 1999 June 28, 1999 July 16, 1999 $0.4000 September 30, 1999 September 9, 1999 September 24, 1999 October 22, 1999 $0.4000 December 31, 1999 December 9, 1999 December 22, 1999 January 21, 2000 $0.4000
The Company expects to meet its short-term liquidity requirements generally through its current working capital and net cash provided by operations. The Company believes that its net cash provided by operations will be sufficient to allow the Company to make the distributions necessary to enable the Company to continue to qualify as a REIT. The Company also believes that the foregoing sources of liquidity will be sufficient to fund its short-term liquidity needs for the foreseeable future. The Company expects to meet certain long-term liquidity requirements such as property acquisition and development, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness, the issuance of additional equity or debt securities and the use of net proceeds from the disposition of non-strategic assets. The Company also expects to use funds available under the Unsecured Credit Facility to finance acquisition and development activities and capital improvements on an interim basis. INFLATION Substantially all of the leases provide for the recovery of real estate taxes and operating expenses incurred by the Company. In addition, many of the leases provide for fixed base rent increases or indexed escalations (based on the consumer price index or other measures) and percentage rent. The Company believes that inflationary increases in expenses will be substantially offset by expense reimbursements, contractual rent increases and percentage rent described above. The Unsecured Credit Facility bears interest at a variable rate, which will be influenced by changes in short-term interest rates, and will be sensitive to inflation. 29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and could enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative or trading purposes. The Company's interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts, weighted average interest rates, fair values and other terms required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Fair 2000 2001 2002 2003 2004 Thereafter Total Value(2) ------- ------- --------- ------- ------- --------- --------- --------- Fixed-rate debt (1) $3,306 $3,600 $ 3,888 $4,203 $8,408 $203,323 $226,728 $226,556 Average interest rate 7.69% 7.69% 7.69% 7.69% 7.36% 7.69% 7.67% 7.77% Variable-rate LIBOR debt (1) -- -- $128,800 -- -- -- $128,800 $128,800 Average interest rate -- -- 8.79% -- -- -- 8.79% 8.79%
(1) Principal amounts shown are in thousands. (2) The fair value of fixed-rate debt and variable-rate LIBOR debt were determined based on the current rates offered for fixed-rate debt and variable-rate LIBOR debt with similar risks and maturities. The table incorporates only those exposures that exist as of December 31, 1999, and does not consider those exposures or positions which could arise after that date. Moreover, because firm commitments are not presented in the table above, the information presented therein has limited predictive value. As a result, the Company's interest rate fluctuations will depend on the exposures that arise during the period and interest rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Regulation S-X are included in this Annual Report on Form 10-K commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 30 PART III Certain information required by Part III is omitted from this annual report on Form 10-K in that the Company will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A for its Annual Meeting of Stockholders to be held in May, 2000 (the "Proxy Statement") and the information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the sections captioned "Proposal One; Election of Directors" and "Compliance with Federal Securities Laws" of the Proxy Statement are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in the section captioned "Executive Compensation" of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the section captioned "Principal and Management Stockholders" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the section captioned "Certain Relationships and Related Transactions" of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules The following consolidated financial information is included as a separate section of this Annual Report on Form 10-K. 1. Consolidated Financial Statements:
Page(s) ------- Independent Auditors' Report....................................... F-1 Consolidated Balance Sheets as of December 31, 1999 and 1998........................................................ F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997................................ F-3 Consolidated Statements of Equity for the years ended December 31, 1999, 1998 and 1997................................ F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................................ F-5 Notes to Consolidated Financial Statements......................... F-7
2. Consolidated Financial Statement Schedule: Schedule III--Properties and Accumulated Depreciation.............. F-20
31 Exhibits
Exhibit No. Description - ----------- ----------- 3.1 Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 4.1 Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.1 The 1997 Stock Option and Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Exhibit 10.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.2 Form of Officers and Directors Indemnification Agreement (previously filed as Exhibit 10.2 to the Company's Registration Statement on Form S-11 (Registration No. 333- 28715) and incorporated herein by reference) 10.3 Form of Employment Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.4 Form of Employment Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.5 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.5 Form of Miscellaneous Rights Agreement (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.6 Form of Non-Competition Agreement (previously filed as Exhibit 10.7 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.7 Credit Agreement with Bank of America NT&SA (previously filed as Exhibit 10.8 to the Company's filing of Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.8 Amended and Restated Limited Liability Company Agreement of Pan Pacific (Portland), LLC (previously filed as Exhibit 99.1 to the Company's Form 8-K filed October 23, 1998 and incorporated herein by reference) 10.9 Form of First Amendment to Employment Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.21 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.10 Form of First Amendment to Non-Qualified Stock Option Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.22 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference)
32 10.11 Form of First Amendment to Incentive Stock Option Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.23 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.12 Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.24 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.13 Form of First Amendment to Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.25 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.14 Form of First Amendment to Employment Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.26 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.15 Restricted Stock Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.27 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.16 Form of First Amendment to Restricted Stock Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.28 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.17 Form of First Amendment to Non-Qualified Stock Option Agreement for Independent Directors (previously filed as Exhibit 10.32 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.18 Form of Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.1 to the Company's filing on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference) 10.19 Credit Agreement with Bank of America, NA dated December 20, 1999 10.20 Employment Agreement between the Company and Mr. Joseph B. Tyson 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule (electronically filed with the Securities and Exchange Commission only)
(b) Reports on Form 8-K. None 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 17, 2000. PAN PACIFIC RETAIL PROPERTIES, INC. By: /s/ Stuart A. Tanz By: /s/ Joseph B. Tyson ------------------------------------- ---------------------------------- Stuart A. Tanz Joseph B. Tyson President and Chief Executive Officer Executive Vice President and Chief Financial Officer By: /s/ Laurie A. Sneve ------------------------------------ Laurie A. Sneve, CPA Vice President and Controller (Principal Accounting 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/ Stuart A. Tanz Director, Chairman, Chief Executive Officer and President March 17, 2000 - -------------------------- Stuart A. Tanz /s/ Joseph B. Tyson Executive Vice President, Chief Financial Officer, Treasurer March 17, 2000 - -------------------------- and Secretary Joseph B. Tyson /s/ Laurie A. Sneve Vice President and Controller (Principal Accounting Officer) March 17, 2000 - -------------------------- Laurie A. Sneve, CPA /s/ Paul D. Campbell Director March 17, 2000 - -------------------------- Paul D. Campbell /s/ Mark J. Riedy Director March 17, 2000 - -------------------------- Mark J. Riedy /s/ Bernard M. Feldman Director March 17, 2000 - -------------------------- Bernard M. Feldman /s/ David P. Zimel Director March 17, 2000 - -------------------------- David P. Zimel
34 INDEPENDENT AUDITORS' REPORT The Board of Directors Pan Pacific Retail Properties, Inc.: We have audited the accompanying consolidated balance sheets of Pan Pacific Retail Properties, Inc. and subsidiaries (see Note 1) as of December 31, 1999 and 1998, and the related consolidated statements of income, equity and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pan Pacific Retail Properties, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP San Diego, California January 31, 2000 35 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, ASSETS: 1999 1998 ------------ ------------ Operating properties, at cost: Land $209,071 $186,891 Buildings and improvements (including related party development and acquisition fees of $1,235) 569,519 501,645 Tenant improvements 26,496 20,986 -------- -------- 805,086 709,522 Less accumulated depreciation and amortization (57,025) (42,044) -------- -------- 748,061 667,478 Investments in unconsolidated partnerships 1,496 9,946 Cash and cash equivalents 1,097 2,759 Restricted cash 592 912 Accounts receivable (net of allowance for doubtful accounts of $608 and $412, respectively) 3,295 2,958 Accrued rent receivable (net of allowance for doubtful accounts of $1,377 and $1,071, respectively) 12,391 9,643 Notes receivable 3,043 2,411 Deferred lease commissions (including unamortized related party amounts of $2,396 and $2,310, respectively, and net of accumulated amortization of $2,281 and $2,093, respectively) 3,943 2,955 Prepaid expenses 7,987 5,244 Other assets 2,632 1,235 -------- -------- $784,537 $705,541 ======== ======== LIABILITIES AND EQUITY: Notes payable $228,490 $144,024 Line of credit payable 128,800 138,500 Accounts payable, accrued expenses and other liabilities (including related party amounts of $404 and $405, respectively) 13,074 14,384 Distributions payable (including related party amounts of $4,323 and $4,107, respectively) 8,960 8,227 -------- -------- 379,324 305,135 Minority interests 23,347 17,318 -------- -------- Stockholders' equity: Common stock par value $.01 per share, 100,000,000 authorized shares, 21,252,512 and 21,162,012 shares issued and outstanding at December 31, 1999 and 1998, respectively 213 212 Paid in capital in excess of par value 481,312 481,182 Accumulated deficit (99,659) (98,306) -------- -------- 381,866 383,088 -------- -------- $784,537 $705,541 ======== ========
See accompanying notes to consolidated financial statements. 36 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 -------- ------- ------- REVENUE: Base rent $ 79,377 $62,585 $36,839 Percentage rent 760 628 278 Recoveries from tenants 17,893 13,728 8,042 Net gain on sale of real estate 400 -- -- Income from unconsolidated partnerships 341 737 409 Other 2,291 1,575 1,142 -------- ------- ------- 101,062 79,253 46,710 -------- ------- ------- EXPENSES: Property operating 12,551 9,813 6,142 Property taxes 7,399 5,735 3,187 Depreciation and amortization 17,476 14,298 8,928 Interest 23,939 18,295 14,057 General and administrative 5,315 4,109 3,923 Other 248 108 964 -------- ------- ------- 66,928 52,358 37,201 -------- ------- ------- INCOME BEFORE MINORITY INTERESTS AND EXTRAORDINARY ITEM 34,134 26,895 9,509 Minority interests (1,558) (261) (153) -------- ------- ------- INCOME BEFORE EXTRAORDINARY ITEM 32,576 26,634 9,356 Extraordinary loss on early extinguishment of debt -- -- (1,043) -------- ------- ------- NET INCOME $ 32,576 $26,634 $ 8,313 ======== ======= ======= Basic earnings per share: Income before extraordinary item $ 1.54 $ 1.37 $ 0.56 Extraordinary item $ -- $ -- $ (0.06) Net income $ 1.54 $ 1.37 $ 0.49 Diluted earnings per share: Income before extraordinary item $ 1.54 $ 1.35 $ 0.55 Extraordinary item $ -- $ -- $ (0.06) Net income $ 1.54 $ 1.35 $ 0.49
See accompanying notes to consolidated financial statements. 37 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL OWNER'S --------------------- PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT TOTAL -------- ---------- ------ ---------- ----------- -------- Balance at December 31, 1996 $ 61,808 -- $ -- $ -- $ -- $ 61,808 Net proceeds from the initial public offering -- 8,050,000 80 143,204 -- 143,284 Capital contribution from RPUS (Note 1) (61,808) 8,764,012 88 252,109 (93,066) 97,323 Net income -- -- -- -- 8,313 8,313 Cash dividends paid and declared -- -- -- -- (9,673) (9,673) -------- ---------- ---- -------- -------- -------- Balance at December 31, 1997 -- 16,814,012 168 395,313 (94,426) 301,055 Net proceeds from secondary offering -- 4,348,000 44 85,869 -- 85,913 Net income -- -- -- -- 26,634 26,634 Cash distributions paid and declared -- -- -- -- (30,514) (30,514) -------- ---------- ---- -------- -------- -------- Balance at December 31, 1998 -- 21,162,012 212 481,182 (98,306) 383,088 Restricted stock awards 90,500 1 130 -- 131 Net income -- -- -- -- 32,576 32,576 Cash distributions paid and declared -- -- -- -- (33,929) (33,929) ======== ========== ==== ======== ======== ======== Balance at December 31, 1999 $ -- 21,252,512 $213 $481,312 $(99,659) $381,866 ======== ========== ==== ======== ======== ========
See accompanying notes to consolidated financial statements. 38 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 32,576 $ 26,634 $ 8,313 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,476 14,298 8,928 Amortization of prepaid financing costs 707 697 453 Net gain on sale of real estate (400) -- -- Income from unconsolidated partnerships (341) (737) (409) Extraordinary loss on early extinguishment of debt -- -- 1,043 Minority interests 1,558 261 153 Changes in assets and liabilities: Decrease (increase) in restricted cash 320 (251) 36 Increase in accounts receivable (337) (1,332) (552) Increase in accrued rent receivable (2,748) (2,023) (1,625) Increase in deferred lease commissions (1,785) (1,039) (906) Increase in prepaid expenses (732) (1,480) (823) Increase in other assets (948) (609) (1,424) Increase in accounts payable, accrued expenses and other liabilities 1,394 4,944 2,055 --------- --------- --------- Net cash provided by operating activities 46,740 39,363 15,242 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of and additions to operating properties (81,219) (169,140) (157,650) Additions to property under development -- -- (3,245) Proceeds from sale of real estate 12,915 -- -- Increase (decrease) in construction accounts payable and accrued expenses (2,573) 1,656 917 Contributions to unconsolidated partnerships -- -- (7,010) Distributions from unconsolidated partnerships 84 712 -- Acquisition of interest in unconsolidated partnership (7,163) -- -- Acquisition of minority interests (204) (160) (170) Increase in other assets (841) -- -- Collections of notes receivable 1,599 113 5,363 Increases in notes receivable (269) (144) (4,651) --------- --------- --------- Net cash used in investing activities (77,671) (166,963) (166,446) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit proceeds 106,962 177,101 68,500 Line of credit payments (116,662) (101,051) (6,050) Notes payable proceeds 91,300 -- -- Notes payable payments (14,949) (2,479) (123,539) Advances from related party -- -- 65,210 Prepaid financing costs (2,719) (601) (216) Payment of prepayment penalties -- -- (1,035) Refunds from loan escrow -- 43 393 Issuance of common stock -- 85,913 143,284 Distributions paid (34,663) (28,567) (3,578) --------- --------- --------- Net cash provided by financing activities 29,269 130,359 142,969 --------- --------- --------- NET INCREASE/(DECREASE) IN CASH AND CASH (1,662) 2,759 (8,235) EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,759 -- 8,235 ========= ========= ========= CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,097 $ 2,759 $ -- ========= ========= ========= (Continued)
39 PAN PACIFIC RETAIL PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest (net of amounts capitalized of $22,995 $17,539 $14,206 $231, $286 and $229, respectively) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Transfer from property under development to operating properties $ -- $ -- $ 5,907 Transfer from property under development to deferred lease commissions $ -- $ -- $ 119 Transfer from investment in unconsolidated partnerships to property $15,775 $ -- $ -- Transfer of acquisition deposits from other assets to property $ -- $ 1,465 $ -- Notes receivable issued upon sales of property $ 1,962 $ -- $ -- Notes payable assumed upon acquisition of properties $12,523 $38,187 $37,421 Note payable assumed by buyer upon sale of property $ 4,408 $ -- $ -- Wrap-around note receivable and note payable assumed $ -- $ -- $ 1,519 Foreclosure of a property securing a note receivable $ -- $ 601 $ 1,283 Minority interest from acquisition of property $ 6,134 $15,722 $ -- Reclassification of advances from related party to stockholders' equity $ -- $ -- $97,323 Distributions payable $ 8,960 $ 8,227 $ 6,095
See accompanying notes to consolidated financial statements. 40 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 1. ORGANIZATION AND BASIS OF PRESENTATION Pan Pacific Realty Corporation was incorporated in the state of Maryland on April 16, 1997 (inception) and subsequently changed its name to Pan Pacific Retail Properties, Inc. (together with its subsidiaries, the "Company"). The Company was formed to continue to operate and expand the shopping center business conducted by Revenue Properties (U.S.), Inc. ("RPUS"), formerly known as Pan Pacific Development (U.S.) Inc., a wholly-owned subsidiary of Revenue Properties Company Limited ("Revenue Properties"), and its subsidiaries related to the ownership, leasing and management of its neighborhood and community shopping centers and a medical office building ("Pan Pacific Development Properties"). As of December 31, 1999, the Company owned a portfolio comprised of 58 properties located primarily in the Western region of the United States. Commencing with its taxable year ended December 31, 1997, the Company believes it qualifies as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code. On August 13, 1997, the Company completed an initial public offering of 8,050,000 shares of common stock at $19.50 per share (including 1,050,000 shares issued as a result of the full exercise of the over-allotment option by the underwriters on September 8, 1997) (the "Offering"). The aggregate proceeds to the Company, net of underwriters' discount, advisory fee and offering costs were approximately $143,284,000. The following transactions occurred simultaneously with the completion of the Offering (collectively, the "Formation Transactions"): - Certain properties were transferred by RPUS entities to the Company and certain RPUS entities were merged with and into the Company. - RPUS advanced cash of $26,486,000 to the Company (the "RPUS Contribution"). - The Company obtained a $150,000,000 unsecured credit facility (the "Unsecured Credit Facility") which has been and is expected to be used to finance additional shopping center acquisitions and for other corporate purposes. - A portion of the estimated net proceeds of the Offering and the RPUS Contribution were used by the Company to repay indebtedness of the Company and to pay transaction costs, including fees and expenses associated with the Unsecured Credit Facility. The transfer of certain properties and the merger of certain RPUS entities with and into the Company was accounted for as a combination of affiliated entities under common control in a manner similar to a pooling-of-interests. Under this method, the assets, liabilities and equity were carried over at their historical book values and their operations have been recorded on a combined historical basis. The pooling-of-interests method of accounting also requires the reporting of results of operations, for the period in which the combination occurred, as though the entities had been combined as of either the beginning of the period or inception. Accordingly, the results of operations for the year ended December 31, 1997 comprise those of the combined entities from August 13, 1997 through December 31, 1997. Prior to the combination, the Company had no significant operations; therefore, the combined operations for the periods prior to August 13, 1997 represent primarily the operations of Pan Pacific Development Properties. All of the accounts of RPUS unrelated to these activities have been excluded from these consolidated financial statements. A deficit of $93,066,000 was accumulated by Pan Pacific Development Properties prior to the Formation Transactions. The combination did not require any material adjustments to conform to accounting policies of the separate entities. 41 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) On May 18, 1998, the Company completed a secondary offering of 4,348,000 shares of common stock at $21.125 per share (including 348,000 shares issued as a result of the partial exercise of the over-allotment option by the underwriters on June 11, 1998). The aggregate proceeds to the Company, net of underwriters' discount, advisory fee and offering costs were approximately $85,913,000. In September 1998, the Company formed Pan Pacific (Portland), LLC ("PPP LLC"), with the Company as the sole managing member. In October and November of 1998, PPP LLC acquired a portfolio of six shopping centers located in Oregon. In exchange for four properties which were contributed to PPP LLC, 832,617 units were issued to certain non-managing members. A non-managing member can seek redemption of the units after the first anniversary. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share of common stock for each unit, or (ii) paying cash to the non-managing member based on the average trading price of its common stock. Distributions are made to the non-managing members at a rate equal to the distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the non-managing members in an amount equal to the cumulative distributions earned by such members. All remaining net income or loss is allocated to the managing member. In September 1999, the Company formed Pan Pacific (Rancho Las Palmas), LLC ("RLP LLC") and Pan Pacific (RLP), Inc. ("RLP, Inc.") in connection with the acquisition of Rancho Las Palmas Retail Center. The Company and RLP, Inc., a wholly-owned subsidiary of the Company, are co-managing members of RLP LLC. As part of the acquisition, and in exchange for an interest in the asset contributed to RLP LLC by an individual, 314,587 units were issued to a non-managing member. The non-managing member can seek redemption of the units beginning on the first anniversary of the date of issuance. The Company, at its option, may redeem the units by either (i) issuing common stock at the rate of one share of common stock for each unit, or (ii) paying cash to the non-managing member based on the average trading price of its common stock. Distributions are made to the non-managing member at a rate equal to the distribution being paid by the Company on a share of common stock. Net income or loss is allocated to the non-managing member in an amount equal to the cumulative distributions earned by the non-managing member. All remaining net income or loss is allocated to the managing members. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (Note 1). All material intercompany transactions and balances have been eliminated. At December 31, 1999, the Company consolidated Chino Town Square, of which the Company's ownership interest is 95.1%, PPP LLC, of which the Company's ownership interest is 56.2%, and RLP LLC, of which the Company has control and whose ownership interest is 16%. The Company has recorded a minority interest for the portions not owned by the Company. (b) CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, highly liquid investments with an original maturity of three months or less are considered cash equivalents. (c) INCOME RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the leases, less a general allowance for doubtful accounts relating to accrued rent receivable for leases which may be terminated before the end of the contracted term. 42 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (d) CAPITALIZATION OF COSTS The Company capitalizes certain acquisition related costs to the carrying costs of the property acquired. These costs are being depreciated over the estimated useful lives of the properties. The capitalized costs associated with unsuccessful acquisitions are charged to expense when the acquisition is abandoned. (e) DEPRECIATION AND AMORTIZATION Depreciation on buildings and improvements is provided using a forty-year straight-line basis. Tenant improvements and costs incurred in obtaining leases are depreciated on a straight-line basis over the lives of the respective leases. Prepaid loan fees are amortized over the lives of the loans and the related amortization expense is included as a component of interest expense. (f) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (g) INCOME TAXES As of April 16, 1997, the Company elected to be taxed as a REIT pursuant to the Internal Revenue Code, as amended. In general, a corporation that distributes at least 95% of its REIT taxable income to stockholders in any taxable year and complies with certain other requirements (relating primarily to the nature of its assets and the sources of its revenue) is not subject to federal income taxation to the extent of the income which it distributes. Management believes that the Company has qualified and intends for it to continue to qualify as a REIT in the future. As discussed more fully in Note 9, management also does not expect that the Company will pay income taxes on "built-in gains" on certain of its assets. Based on these considerations, management does not believe that the Company will be liable for income taxes at the federal level or in most of the states in which it operates in future years. Where required, deferred income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors. 43 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (h) CREDIT RISK The Company predominantly operates in one industry segment: real estate ownership, management and development. No single tenant accounts for 10% or more of rental revenue. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and receivables. The Company places its temporary cash investments with financial institutions which the Company believes are of high credit quality. Concentration of credit risk with respect to receivables is limited due to the large number of tenants comprising the Company's customer base, and their dispersion across many geographical areas. At December 31, 1999 and 1998, the Company had no significant concentration of credit risk. (i) NET INCOME PER SHARE Basic earnings per share ("EPS") is computed by dividing earnings available to common stockholders during the period by the weighted average number of common shares outstanding during each period. Diluted EPS is computed by dividing the amount of earnings for the period available to common stockholders during the period by the weighted-average number of shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period, net of shares assumed to be repurchased using the treasury stock method. The following is a reconciliation of the numerator and denominator for the calculation of basic and diluted EPS (all net income is available to common stockholders for the period presented):
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Income available to common stockholders: Basic $ 32,576 $ 26,634 $ 8,313 Add-back income allocated to PPP LLC and 1,530 211 -- RLP LLC units (minority interest) ----------- ----------- ----------- Diluted $ 34,106 $ 26,845 $ 8,313 =========== =========== =========== Weighted average shares: Basic (deemed outstanding the entire year in 1997) 21,196,238 19,507,141 16,814,012 Incremental shares from assumed: Exercise of dilutive stock options 8,478 32,404 52,161 Conversion of PPP LLC and RLP LLC units 917,943 123,077 -- ----------- ----------- ----------- Diluted 22,122,659 19,662,622 16,866,173 =========== =========== ===========
At December 31, 1999 and 1998, 1,210,067 and 328,500 stock options, respectively, were excluded from the calculation of diluted weighted-average shares because they were anti-dilutive. There were no anti-dilutive stock options outstanding at December 31, 1997. 44 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) (j) STOCK PLANS The Company accounts for its stock plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the annual pro forma disclosures required by SFAS No. 123. (k) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reporting of revenue and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (l) RECLASSIFICATIONS Certain reclassifications of 1997 amounts have been made in order to conform to 1999 presentation. 3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS The accompanying consolidated financial statements include investments in partnerships in which the Company does not own a controlling interest. At December 31, 1999, the Company owned a 50% general partner interest in North Coast Health Center. At December 31, 1998, the Company owned 50% general partner interests in Melrose Village Plaza and North Coast Health Center. These investments are reported using the equity method. On January 5, 1999, the Company acquired the remaining interest in Melrose Village Plaza from the limited partner. 45 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS (CONTINUED) Summarized combined financial information for the partnerships is presented below:
AS OF DECEMBER 31, ------------------ 1999 1998 ------ ------- Properties $2,993 $19,182 Other assets -- 894 ------ ------- Total assets $2,993 $20,076 ====== ======= Liabilities $ -- $ 184 Partners' capital 2,993 19,892 ------ ------- Total liabilities and partners' capital $2,993 $20,076 ====== =======
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ Revenue $2,534 $4,186 $4,046 Expenses 1,852 2,712 3,228 ------ ------ ------ Net income $ 682 $1,474 $ 818 ====== ====== ======
4. OTHER ASSETS Included in other assets is an $800,000 investment made by the Company during 1999 in Esave, Inc. (dba Eversave.com). Esave, Inc. is an Internet company designed to provide consumers with easy, on-line access to special offers and sales promotions provided by the retailers and services within their local neighborhoods. Esave, Inc. also provides the shopper with an easy, on-line means of searching for specific products, services and pricing from their convenient neighborhood retailers. At December 31, 1999, the Company owned approximately 6% of Esave, Inc.'s total stock outstanding, which is accounted for using the cost method. 46 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 5. NOTES PAYABLE AND LINE OF CREDIT
DECEMBER 31, -------------------- 1999 1998 -------- -------- Notes payable consist of the following: Bank notes payable, secured by a mortgage and deeds of trust, bearing interest at 8.17% with monthly principal and interest payments of $404, due in January 2007 $ 52,989 $ 53,429 Bank note payable, secured by a deed of trust, bearing interest at 7.72% with monthly principal and interest payments of $190, due in January 2010 26,546 27,160 Bank note payable, secured by a deed of trust, bearing interest at 7.00% with monthly principal and interest payments of $37, due in March 2004 4,485 4,561 Bank note payable, secured by a deed of trust, bearing interest at 8.52% with monthly principal and interest payments of $35, due in January 2007, assumed by buyer upon sale of property in December 1999 -- 4,441 Bank notes payable, secured by deeds of trust, bearing interest at 7.80% with monthly principal and interest payments of $107, due in December 2005 10,743 11,172 Bank notes payable, secured by deeds of trust, bearing interest at 7.88% with monthly principal and interest payments of $56, due in August 2008 4,189 5,161 Bank note payable, secured by deeds of trust, bearing interest at 8.73% with monthly principal and interest payments of $144, due in February 2007 (a) 16,933 17,148 Bank note payable, secured by a deed of trust, bearing interest at 7.65% with monthly principal and interest payments of $54, due in October 2012 (b) 7,495 7,569 Bank note payable, secured by a deed of trust, bearing interest at 8.50% with monthly principal and interest payments of $34, due in March 2000, repaid in December 1999 -- 3,725 Bank notes payable, secured by deeds of trust, bearing interest at 7.21% with monthly principal and interest payments of $252, due in July 2006 34,788 -- Bank notes payable, secured by deeds of trust, bearing interest at 7.10% with monthly principal and interest payments of $391, due in August 2009 56,067 -- Bank note payable, secured by a deed of trust, bearing interest at 8.10% with monthly principal and interest payments of $94, due in August 2007 12,493 -- Promissory note payable, secured by a deed of trust, bearing interest at 8%, due and repaid in January 1999 -- 7,700 -------- -------- 226,728 142,066 Unamortized note payable premiums 1,762 1,958 -------- -------- $228,490 $144,024 ======== ========
(a) Excludes unamortized note payable premium of $1,443 and $1,620 at December 31, 1999 and 1998, respectively. (b) Excludes unamortized note payable premium of $319 and $338 at December 31, 1999 and 1998, respectively. 47 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 5. NOTES PAYABLE AND LINE OF CREDIT (CONTINUED) Principal payments under these notes payable are due as follows:
2000 $ 3,306 2001 3,600 2002 3,888 2003 4,203 2004 8,408 2005 and subsequent 203,323 --------- $226,728 =========
As part of the Formation Transactions, $134,217,000 of notes payable were repaid. In connection with the early payoff of these notes, an extraordinary loss of $1,043,000 was recorded which includes prepayment penalties, unamortized financing costs and loan premium. The Company also has a $200,000,000 Unsecured Credit Facility which bears interest, at the Company's option, at either LIBOR plus 1.15% or a reference rate and expires in December 2002. At December 31, 1999, the amount drawn on this line of credit was $128,800,000 and the interest rate was 8.79%. The credit facility requires a quarterly fee of 0.20% per annum on the total aggregate commitment. 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate fair value of each class of financial instruments: (a) CASH AND CASH EQUIVALENTS, RESTRICTED CASH, ACCOUNTS RECEIVABLE, CERTAIN NOTES RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES AND OTHER LIABILITIES The carrying amounts approximate fair values because of the short maturity of these instruments. (b) A NOTE RECEIVABLE It was not practicable to estimate the fair value of the note receivable due to the uncertainty of the timing of repayment. (c) A NOTE RECEIVABLE The fair value of the note receivable approximates the carrying amount based on market rates for the same or other instruments with similar risk, security and remaining maturities. (d) NOTES AND LINE OF CREDIT PAYABLE The fair value of notes payable and the line of credit payable approximates the carrying amount based on the current rates offered for notes and lines of credit payable with similar risks and maturities. 48 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 7. NET GAIN ON SALE OF REAL ESTATE The Company recorded a net gain of $400,000 on the sale of three assets for the year ended December 31, 1999. This consisted of the sale of a single-tenant property on June 30, 1999 for cash of $4,400,000 recognizing a gain of $75,000. In addition, the Company sold a shopping center on December 9, 1999 for $7,750,000, representing cash and a note receivable, recognizing a gain of $988,000. On December 22, 1999 the Company sold a shopping center for $820,000, representing cash and a note receivable, recognizing a loss of $663,000. 8. STOCK PLANS In August 1997, the Company established the 1997 Stock Option and Incentive Plan (the "Plan") pursuant to which the Company's Board of Directors may grant restricted stock awards and stock options to officers and key employees. The Plan authorizes grants of restricted stock and options to purchase up to 1,620,000 shares of authorized but unissued common stock. (a) STOCK OPTIONS Stock options are granted with an exercise price equal to the stock's fair value at the date of grant. At the time of the Offering, the Company issued to certain officers, directors and key employees, 900,000 common stock options pursuant to the Plan. The stock options were granted with an exercise price of $19.50, equal to the stock's fair value at the date of grant. On March 17, 1998, the Company issued 337,500 common stock options pursuant to the Plan. The stock options were granted with an exercise price of $22.1875, equal to the stock's fair value at the date of grant. On March 19, 1999, the Company issued 233,000 common stock options pursuant to the Plan. The stock options were granted with an exercise price of $17.625, equal to the stock's fair value at the date of grant. On October 11, 1999, the Company issued 50,000 common stock options pursuant to the Plan. The stock options were granted with an exercise price of $18.90, which was greater than the stock's fair value at the date of grant. The stock options have seven-year terms and vest 33 1/3% per year over three years from the date of grant, except for the options granted to the independent directors which vest 33 1/3% immediately, with the remainder vesting ratably over two years. The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 were $1.64, $2.48 and $2.64, respectively, on the dates of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:
1999 1998 1997 ------ ------- ------ Expected distribution yield 8.50% 7.50% 6.75% Risk-free interest rate 5.00% 5.00% 6.50% Expected volatility 23.90% 23.72% 22.05% Expected life (years) 6.5 5 5
49 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 8. STOCK PLANS (CONTINUED) The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ----------------------- ----------------------- ---------------------- AS PRO AS PRO AS PRO REPORTED FORMA REPORTED FORMA REPORTED FORMA -------- ------- -------- ------- -------- ------ Net income $32,576 $31,481 $26,634 $25,676 $8,313 $8,012 Diluted earnings per share $ 1.54 $ 1.49 $ 1.35 $ 1.31 $ 0.49 $ 0.48
Pro forma net income reflects options granted since adoption of the Plan. Stock option activity during the periods presented is as follows:
NUMBER OF WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE ---------- ---------------- Balance at December 31, 1996 -- -- Granted 900,000 $19.5000 Exercised -- -- Forfeited -- -- Expired -- -- --------- Balance at December 31, 1997 900,000 19.5000 Granted 337,500 22.1875 Exercised -- -- Forfeited (20,666) 20.6700 Expired (1,667) 19.5000 --------- Balance at December 31, 1998 1,215,167 20.2265 Granted 283,000 17.6250 Exercised -- -- Forfeited (17,000) 20.0600 Expired (3,333) 19.5000 --------- Balance at December 31, 1999 1,477,834 19.7750 =========
At December 31, 1999, the weighted-average exercise price and weighted-average remaining contractual life of outstanding options were $19.775 and 4.8 years, respectively. At December 31, 1999, 761,173 of the options were exercisable. (b) RESTRICTED STOCK During 1999 the Company granted 90,500 shares of restricted stock to certain officers and key employees pursuant to the Plan. The restricted shares vest 20% per year over five years from the date of grant. Compensation expense, for the portion that vested during 1999, has been recognized in general and administrative expenses. At December 31, 1999, there were 51,666 additional shares available for grant under the Plan. 50 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 9. INCOME TAXES The Company's income tax expense is included in other expenses and consists of the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ---- ---- ---- Current income taxes: Federal $-- $ -- $ -- State 46 20 19 ---- ---- ---- $ 46 $ 20 $ 19 ==== ==== ====
The differences between income tax expense computed using statutory income tax rates and the Company's effective income tax rate are as follows:
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 -------- -------- ------- Federal income taxes $ 11,104 $ 9,062 $ 3,188 State income taxes, net of federal benefit 1,905 1,554 572 Decrease in valuation allowance -- -- (2,519) Distributions paid deduction (13,009) (10,616) (1,222) Other 46 20 -- -------- -------- ------- $ 46 $ 20 $ 19 ======== ======== =======
At December 31, 1999, the Company had unused net operating losses carried forward for federal income tax purposes of approximately $12,000,000. The Company went through a change in control for tax purposes during 1997 which significantly restricts the use of the Company's net operating losses carried forward in future years. The net operating losses carried forward expire at various times through 2010. As discussed in Note 2(g), the Company elected to be taxed as a REIT, effective April 16, 1997. Management believes that the Company qualified and management's intent is to continue to qualify as a REIT and therefore does not expect the Company will be liable for income taxes on "built-in gains" on its assets at the federal level or in most states in future years. Accordingly, for the years ended December 31, 1999, 1998 and 1997, no provision was recorded for federal or substantially all state income taxes. In connection with the Company's incorporation and the Offering in 1997, certain nontaxable mergers were consummated with RPUS whereby several wholly-owned subsidiaries of RPUS merged with and into the Company. To the extent the excess fair value of the assets at the date of merger exceeded the aggregate adjusted tax bases of those assets, a net unrecognized built-in gain was created for income tax purposes. 51 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 9. INCOME TAXES (CONTINUED) In connection with its election to be taxed as a REIT, the Company will also elect to be subject to the "built-in gain" rules. Under these rules, taxes may be payable at the time and to the extent that the net unrealized gains on the Company's assets at the date of conversion to REIT status are recognized in taxable dispositions of such assets in the ten-year period following conversion. Such net unrealized gains were approximately $50,000,000 at December 31, 1999, 1998 and 1997. Management believes that the Company will not be required to make payments of income taxes on built-in gains during the ten-year period ending December 31, 2007 due to the availability of its net operating loss carryforward to offset built-in gains which might be recognized, the potential for the Company to make nontaxable dispositions, if necessary (e.g., like-kind exchanges of properties) and the intent and ability of the Company to defer asset dispositions to periods when related gains will not be subject to the built-in gains income taxes. However, it may be necessary to recognize a liability for such income taxes in the future if management's plans and intentions with respect to asset dispositions, or the related tax laws, change. 10. FUTURE LEASE REVENUE Total future minimum lease receipts under noncancellable operating tenant leases in effect at December 31, 1999 are as follows:
2000 $ 82,182 2001 75,706 2002 68,496 2003 59,524 2004 51,516 2005 and subsequent 280,592 --------- $618,016 =========
11. RELATED PARTY TRANSACTIONS (a) Included in general and administrative expenses are management fees totaling $481,000 for the year ended December 31, 1997 which are a reimbursement of costs incurred by Revenue Properties for managing the development of the properties, directing corporate strategy, and consulting on operations. Effective August 13, 1997, at the closing of the Offering, these fees are no longer being incurred by the Company. (b) The Company paid a consulting fee of $259,000 for the year ended December 31, 1997 to a sole proprietorship owned by a director of Revenue Properties. Effective August 13, 1997, at the closing of the Offering, these fees are no longer being incurred by the Company. (c) The Company incurred $529,000 for the year ended December 31, 1997 for loan guaranty fees charged by Revenue Properties. These fees are recorded as a component of other expenses. Effective August 13, 1997, at the closing of the Offering, these fees are no longer being incurred by the Company. (d) Distributions on common stock paid to RPUS during 1999 and 1998 were $17,077,000 and $14,625,000, respectively. At December 31, 1999 and 1998, $4,323,000 and $4,107,000, respectively, were payable as distributions to RPUS. (e) The Company received $150,000, $270,000 and $60,000 for the years ended December 31, 1999, 1998 and 1997, respectively, which represent a reimbursement of costs incurred by the Company in providing financial services to RPUS. These amounts are included as a reduction of general and administrative expenses. 52 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 11. RELATED PARTY TRANSACTIONS (CONTINUED) (f) The Company has notes receivable at December 31, 1999 of $260,000 due from executive officers. The notes bear interest at 7.00% and mature in August 2000. The Company had a note receivable at December 31, 1998 of $144,000 due from an executive officer. The note bore interest at 7.00% and matured in December 1999. On January 21, 1999, principal of $20,000 was repaid. On March 24, 1999, the remaining principal and accrued interest outstanding of approximately $125,000 was repaid. 12. EMPLOYEE BENEFIT PLAN The Company implemented an employee benefit plan in March 1997. All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a Section 401(k) plan as defined by the Internal Revenue Code. The employee benefit plan allows eligible employees to defer up to 15 percent of their annual compensation. The amounts contributed by employees are immediately vested and non-forfeitable. The Company, at management's discretion, may match employee contributions. This cost is accrued as incurred. The Company's cost for the years ended December 31, 1999, 1998 and 1997 was approximately $23,000, $17,000 and $63,000, respectively. 13. COMMITMENTS AND CONTINGENCIES (a) The Company leases certain real estate and office equipment under operating leases expiring at various dates through 2021. Rental expense was $769,000, $810,000 and $637,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Minimum rentals under noncancellable leases in effect at December 31, 1999 were as follows: 2000 $ 768 2001 767 2002 437 2003 199 2004 196 2005 and subsequent 3,017 ------ $5,384 ======
(b) Various claims and legal proceedings arise in the ordinary course of business. The ultimate amount of liability from all claims and actions cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending and threatened legal claims will not materially affect the consolidated financial statements taken as a whole. 53 PAN PACIFIC RETAIL PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT OPTION AND SHARE DATA) 14. QUARTERLY FINANCIAL DATA (UNAUDITED) The following summarizes the condensed quarterly financial information for the Company:
QUARTERS ENDED 1999 ------------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ------- -------- Revenue $27,536 $25,365 $24,346 $23,815 Expenses and minority interests 18,897 17,345 16,267 15,977 ------- ------- ------- ------- Net income $ 8,639 $ 8,020 $ 8,079 $ 7,838 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.41 $ 0.38 $ 0.38 $ 0.37
QUARTERS ENDED 1998 ------------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ------- -------- Revenue $22,323 $20,242 $19,248 $17,440 Expenses and minority interests 14,612 12,793 13,146 12,068 ------- ------- ------- ------- Net income $ 7,711 $ 7,449 $ 6,102 $ 5,372 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.36 $ 0.35 $ 0.32 $ 0.32
15. SEGMENT REPORTING The Company predominantly operates in one industry segment, real estate ownership, management and development. As of December 31, 1999 and 1998, the Company owned 58 and 54 community shopping centers, respectively, primarily located in the Western United States (see Note 1). Management reviews operating and financial data for each property separately and independently from all other properties when making resource allocation decisions and measuring performance. Therefore, the Company defines operating segments as individual properties with no segment representing more than 10% of the total for the Company. No single tenant accounts for 10% or more of rental revenue and none of the shopping centers are located in a foreign country. 54 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999 (IN THOUSANDS)
COSTS CAPITALIZED INITIAL COSTS SUBSEQUENT TO ------------------------- ACQUISITION BUILDINGS ------------------------- AND CARRYING DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS(2) IMPROVEMENTS(2) COSTS ------------ ------ --------------- --------------- -------- PROPERTIES: Albany Plaza Albany, OR $ -- $1,525 $ 4,638 $ -- $ -- Arlington Courtyard Riverside, CA -- 401 753 75 -- Auburn North Auburn, WA -- 2,275 8,053 -- -- Bear Creek Plaza Medford, OR -- 3,275 9,825 664 -- Brookvale Center Fremont, CA -- 3,164 9,492 624 -- Cable Park Orangevale, CA -- 3,043 9,174 -- -- Canyon Ridge Plaza Kent, WA -- 2,457 -- 7,607 1,275 Canyon Square Plaza Santa Clarita, CA -- 2,725 8,338 -- -- Cheyenne Commons Las Vegas, NV -- 8,540 26,810 1,712 -- Chico Crossroads Chico, CA -- 3,600 17,063 24 -- Chino Town Square Chino, CA 26,546 8,801 10,297 25,559 -- Claremont Village Everett, WA -- 2,320 6,987 199 -- Country Club Center Rio Rancho, NM 3,226 566 2,514 862 -- Creekside Center Hayward, CA -- 1,500 4,500 551 -- Fairmont Shopping Center Fairmont, CA -- 3,420 8,003 165 -- Fashion Faire San Leandro, CA -- 2,863 8,588 212 -- Glen Cove Center Vallejo, CA -- 1,925 5,775 56 -- Green Valley Town & Country Henderson, NV -- 4,096 12,333 75 -- Hermiston Plaza Hermiston, OR -- 1,931 5,791 1,168 -- Hood River Center Hood River, OR -- 1,169 3,507 463 -- Laguna Village Sacramento, CA -- 3,226 -- 15,273 1,644 Lakewood Shopping Center Lakewood, CA -- 2,363 7,125 69 -- Laurentian Center Ontario, CA 4,485 2,767 6,445 723 -- Manteca Marketplace Manteca, CA -- 3,904 11,713 544 -- Marina Village Huntington Beach, CA -- 3,586 10,933 -- -- Maysville Marketsquare Maysville, KY 5,279 3,454 2,001 3,688 79 Melrose Village Vista, CA 9,187 5,125 11,621 -- --
TOTAL COSTS ------------------------------------ BUILDINGS DATE OF AND TOTAL ACCUMULATED ACQUIS.(A) DESCRIPTION LAND IMPROVEMENTS (1)(2)(3) DEPRECIATION(2)(3) CONSTR.(C) ------- ------------ --------- ------------------ ---------- PROPERTIES: Albany Plaza Albany, OR $ 1,525 $ 4,638 $ 6,163 $ 19 1999(A) Arlington Courtyard Riverside, CA 401 828 1,229 199 1994(A) Auburn North Auburn, WA 2,275 8,053 10,328 135 1999(A) Bear Creek Plaza Medford, OR 3,275 10,489 13,764 531 1998(A) Brookvale Center Fremont, CA 3,164 10,116 13,280 524 1997(A) Cable Park Orangevale, CA 3,043 9,174 12,217 -- 1999(A) Canyon Ridge Plaza Kent, WA 2,904 8,435 11,339 1,130 1992(A) 1995(C) Canyon Square Plaza Santa Clarita, CA 2,725 8,338 11,063 65 1999(A) Cheyenne Commons Las Vegas, NV 8,540 28,522 37,062 3,466 1995(A) Chico Crossroads Chico, CA 3,600 17,087 20,687 1,221 1997(A) Chino Town Square Chino, CA 21,248 23,409 44,657 2,831 1992(A) Claremont Village Everett, WA 2,320 7,186 9,506 410 1997(A) Country Club Center Rio Rancho, NM 566 3,376 3,942 941 1992(A) Creekside Center Hayward, CA 1,500 5,051 6,551 204 1998(A) Fairmont Shopping Center Fairmont, CA 3,420 8,168 11,588 560 1997(A) Fashion Faire San Leandro, CA 2,863 8,800 11,663 351 1998(A) Glen Cove Center Vallejo, CA 1,925 5,831 7,756 171 1998(A) Green Valley Town & Country Henderson, NV 4,096 12,408 16,504 743 1997(A) Hermiston Plaza Hermiston, OR 1,931 6,959 8,890 215 1998(A) Hood River Center Hood River, OR 1,169 3,970 5,139 119 1998(A) Laguna Village Sacramento, CA 3,448 16,695 20,143 1,902 1992(A) 1996/97(C) Lakewood Shopping Center Lakewood, CA 2,363 7,194 9,557 486 1997(A) Laurentian Center Ontario, CA 2,767 7,168 9,935 1,485 1994/96(A) Manteca Marketplace Manteca, CA 3,904 12,257 16,161 597 1998(A) Marina Village Huntington Beach, CA 3,586 10,933 14,519 182 1999(A) Maysville Marketsquare Maysville, KY 3,299 5,923 9,222 1,154 1992(A) 1993(C) Melrose Village Vista, CA 5,125 11,621 16,746 1,911 1999(A) (continued)
55 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 1999 (IN THOUSANDS)
COSTS CAPITALIZED INITIAL COSTS SUBSEQUENT TO ------------------------- ACQUISITION BUILDINGS ------------------------- AND CARRYING DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS(2) IMPROVEMENTS(2) COSTS ------------ ------ --------------- --------------- -------- PROPERTIES: Memphis Retail Center Memphis, TN -- 1,204 3,780 (103) -- Milwaukie Marketplace Milwaukie, OR -- 3,181 9,554 378 -- Mira Loma Shopping Center Reno, NV -- 1,925 5,775 221 -- Monterey Plaza San Jose, CA 17,427 7,688 18,761 248 -- Ocoee Plaza Ocoee, FL -- 651 2,911 286 -- Olympia Square Olympia, WA 13,883 3,737 11,580 1,013 -- Olympia West Center Olympia, WA 4,189 2,735 8,295 142 -- Oregon City Shopping Center Oregon City, OR 10,290 4,426 13,272 237 -- Oregon Trail Gresham, OR -- 3,593 10,779 3,119 -- Pacific Commons Shopping Center -- 3,419 10,256 85 -- Spanaway, WA Palmdale Center Palmdale, CA -- 1,150 3,454 57 -- Panther Lake Shopping Center Kent, WA -- 1,950 5,850 133 -- Pioneer Plaza Springfield, OR -- 1,864 5,591 132 -- Powell Valley Junction Gresham, OR -- 1,546 4,639 600 -- Rainbow Promenade Las Vegas, NV 19,879 9,390 21,774 251 -- Rancho Las Palmas Rancho Mirage, CA 12,493 5,025 15,235 -- -- Sahara Pavilion North Las Vegas, NV 30,601 11,920 28,554 650 -- Sahara Pavilion South Las Vegas, NV -- 4,833 12,988 1,572 -- San Dimas Market Place San Dimas, CA 14,909 5,700 17,100 218 -- Sandy Marketplace Sandy, OR 4,778 2,046 6,064 209 -- Shops at Lincoln School Modesto, CA -- 1,672 5,067 -- -- Shute Park Plaza Hillsboro, OR -- 994 2,981 245 -- Southgate Center Milwaukie, OR 3,308 1,424 4,268 461 -- Sunset Mall Portland, OR 7,814 2,996 8,989 101 -- Sunset Square Bellingham, WA -- 6,100 18,647 2,630 -- Tacoma Central Tacoma, WA 10,743 5,314 16,288 170 -- Tanasbourne Village Hillsboro, OR 18,772 5,573 13,861 1,417 --
TOTAL COSTS ------------------------------------ BUILDINGS DATE OF AND TOTAL ACCUMULATED ACQUIS. (A) DESCRIPTION LAND IMPROVEMENTS (1)(2)(3) DEPRECIATION(2)(3) CONSTR. (C) ------- ------------ --------- ------------------ ----------- PROPERTIES: Memphis Retail Center Memphis, TN 1,204 3,677 4,881 676 1992(A) Milwaukie Marketplace Milwaukie, OR 3,181 9,932 13,113 488 1998(A) Mira Loma Shopping Center Reno, NV 1,925 5,996 7,921 173 1998(A) Monterey Plaza San Jose, CA 7,702 18,995 26,697 1,328 1997(A) Ocoee Plaza Ocoee, FL 651 3,197 3,848 605 1992(A) Olympia Square Olympia, WA 3,737 12,593 16,330 3,130 1992(A) Olympia West Center Olympia, WA 2,735 8,437 11,172 486 1997(A) Oregon City Shopping Center Oregon City, OR 4,426 13,509 17,935 396 1998(A) Oregon Trail Gresham, OR 3,593 13,898 17,491 409 1998(A) Pacific Commons Shopping Center 3,419 10,341 13,760 389 1998(A) Spanaway, WA Palmdale Center Palmdale, CA 1,150 3,511 4,661 176 1997(A) Panther Lake Shopping Center Kent, WA 1,950 5,983 7,933 272 1998(A) Pioneer Plaza Springfield, OR 1,864 5,723 7,587 280 1998(A) Powell Valley Junction Gresham, OR 1,546 5,239 6,785 245 1998(A) Rainbow Promenade Las Vegas, NV 9,381 22,034 31,415 1,261 1997(A) Rancho Las Palmas Rancho Mirage, CA 5,025 15,235 20,260 95 1999(A) Sahara Pavilion North Las Vegas, NV 11,920 29,204 41,124 6,003 1992(A) Sahara Pavilion South Las Vegas, NV 4,833 14,560 19,393 3,269 1992(A) San Dimas Market Place San Dimas, CA 5,700 17,318 23,018 866 1998(A) Sandy Marketplace Sandy, OR 2,046 6,273 8,319 191 1998(A) Shops at Lincoln School Modesto, CA 1,672 5,067 6,739 32 1999(A) Shute Park Plaza Hillsboro, OR 994 3,226 4,220 170 1998(A) Southgate Center Milwaukie, OR 1,424 4,729 6,153 130 1998(A) Sunset Mall Portland, OR 2,996 9,090 12,086 264 1998(A) Sunset Square Bellingham, WA 6,100 21,277 27,377 5,069 1992(A) Tacoma Central Tacoma, WA 5,314 16,458 21,772 888 1997(A) Tanasbourne Village Hillsboro, OR 5,573 15,278 20,851 3,394 1992(A) (continued)
56 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 1999 (IN THOUSANDS)
COSTS CAPITALIZED INITIAL COSTS SUBSEQUENT TO ------------------------- ACQUISITION BUILDINGS ------------------------- AND CARRYING DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS(2) IMPROVEMENTS(2) COSTS ------------ -------- --------------- --------------- -------- PROPERTIES: Tustin Heights Tustin, CA 10,681 3,675 10,776 428 -- Vineyard Village East Ontario, CA -- 649 2,716 137 -- Westwood Village Shopping Center -- 1,131 3,393 385 -- Redding, CA Winterwood Pavilion Las Vegas, NV -- 4,573 13,015 1,756 -- -------- -------- -------- ------- -------- $228,490 $196,105 $528,492 $77,491 $ 2,998 ======== ======== ======= ======= ========
TOTAL COSTS ------------------------------------ BUILDINGS DATE OF AND TOTAL ACCUMULATED ACQUIS. (A) DESCRIPTION LAND IMPROVEMENTS (1)(2)(3) DEPRECIATION(2)(3) CONSTR. (C) -------- ------------ --------- ------------------ ----------- PROPERTIES: Tustin Heights Tustin, CA 3,675 11,204 14,879 588 1997(A) Vineyard Village East Ontario, CA 649 2,853 3,502 464 1994(A) Westwood Village Shopping Center 1,131 3,778 4,909 173 1998(A) Redding, CA Winterwood Pavilion Las Vegas, NV 4,573 14,771 19,344 3,563 1992(A) -------- -------- -------- ------- $209,071 $596,015 $805,086 $57,025 ======== ======== ======== =======
57 PAN PACIFIC RETAIL PROPERTIES, INC. SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED) DECEMBER 31, 1999 (IN THOUSANDS) NOTES: (1) The aggregate gross cost of the properties owned by Pan Pacific Retail Properties, Inc. for federal income tax purposes, approximated $811,355 as of December 31, 1999. (2) Net of write-offs of fully depreciated assets. (3) The following table reconciles the historical cost and related accumulated depreciation and amortization of Pan Pacific Retail Properties, Inc. from January 1, 1997 through December 31, 1999:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- COST OF PROPERTIES 1999 1998 1997 - ------------------ -------- --------- --------- Balance, beginning of period $709,522 $485,590 $290,874 Additions during period (acquisition, improvements, etc.) 109,613 224,989 199,251 Interest capitalized 231 286 229 Deductions during period (write-off of tenant improvements and cost of real estate sold) (14,280) (1,343) (4,764) -------- -------- -------- Balance, close of period $805,086 $709,522 $485,590 ======== ======== ========
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- ACCUMULATED DEPRECIATION AND AMORTIZATION 1999 1998 1997 - ----------------------------------------- ------- -------- -------- Balance, beginning of period $42,044 $30,076 $26,857 Additions during period (depreciation and amortization expense) 17,782 13,311 7,983 Deductions during period (write-off of accumulated depreciation of tenant improvements and cost of real estate sold) (2,801) (1,343) (4,764) ------- ------- ------- Balance, close of period $57,025 $42,044 $30,076 ======= ======= =======
See accompanying independent auditors' report. 58 EXHIBITS INDEX
Exhibit No. Description - ----------- ----------- 3.1 Articles of Amendment and Restatement of the Company (previously filed as Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 3.2 Amended and Restated Bylaws of the Company (previously filed as Exhibit 3.2 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 4.1 Form of Certificate of Common Stock (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.1 The 1997 Stock Option and Incentive Plan of Pan Pacific Retail Properties, Inc. (previously filed as Exhibit 10.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.2 Form of Officers and Directors Indemnification Agreement (previously filed as Exhibit 10.2 to the Company's Registration Statement on Form S-11 (Registration No. 333- 28715) and incorporated herein by reference) 10.3 Form of Employment Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.4 Form of Employment Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.5 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.5 Form of Miscellaneous Rights Agreement (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.6 Form of Non-Competition Agreement (previously filed as Exhibit 10.7 to the Company's Registration Statement on Form S-11 (Registration No. 333-28715) and incorporated herein by reference) 10.7 Credit Agreement with Bank of America NT&SA (previously filed as Exhibit 10.8 to the Company's filing of Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.8 Amended and Restated Limited Liability Company Agreement of Pan Pacific (Portland), LLC (previously filed as Exhibit 99.1 to the Company's Form 8-K filed October 23, 1998 and incorporated herein by reference) 10.9 Form of First Amendment to Employment Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.21 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.10 Form of First Amendment to Non-Qualified Stock Option Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.22 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference)
59 10.11 Form of First Amendment to Incentive Stock Option Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.23 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.12 Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.24 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.13 Form of First Amendment to Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.25 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.14 Form of First Amendment to Employment Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.26 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.15 Restricted Stock Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.27 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.16 Form of First Amendment to Restricted Stock Agreement between the Company and Mr. Jeffrey S. Stauffer (previously filed as Exhibit 10.28 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.17 Form of First Amendment to Non-Qualified Stock Option Agreement for Independent Directors (previously filed as Exhibit 10.32 to the Company's filing of Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) 10.18 Form of Restricted Stock Agreement between the Company and Mr. Stuart A. Tanz (previously filed as Exhibit 10.1 to the Company's filing on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference) 10.19 Credit Agreement with Bank of America, NA dated December 20, 1999 10.20 Employment Agreement between the Company and Mr. Joseph B. Tyson 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG LLP 27.1 Financial Data Schedule (electronically filed with the Securities and Exchange Commission only)
EX-10.19 2 CREDIT AGREEMENT WITH BANK OF AMERICA 1 EXHIBIT 10.19 $200,000,000.00 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 20, 1999 among PAN PACIFIC RETAIL PROPERTIES, INC. as the Company, BANK OF AMERICA, N.A., as successor to Bank of America National Trust and Savings Association, U.S. BANK NATIONAL ASSOCIATION, Co-Agent KEYBANK NATIONAL ASSOCIATION, Co-Agent THE BANK OF NOVA SCOTIA, Co-Agent FIRST UNION NATIONAL BANK, as successor to Signet Bank SANWA BANK CALIFORNIA, and DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES (and any additional commercial institutions which from time to time are a party to this Agreement), as the Banks, and BANK OF AMERICA, N.A., as successor to Bank of America National Trust and Savings Association, as the Administrative Agent and Banc of America Securities LLC, as Lead Arranger and Sole Bank Manager 2 TABLE OF CONTENTS
Page ---- ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS..............................................1 1.1 Defined Terms.......................................................1 1.2 Use of Defined Terms...............................................20 1.3 Accounting Terms...................................................20 1.4 Exhibits...........................................................21 1.5 References.........................................................21 ARTICLE 2: RECITALS.....................................................................21 ARTICLE 3:BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT..........................................................................21 3.1 Disbursement of Loan Proceeds......................................21 3.2 Reference Rate Borrowings..........................................22 3.3 LIBOR Borrowing....................................................23 3.4 Redesignation of Borrowings........................................24 3.5 Calculation of Borrowing Base......................................25 3.6 Availability Limits................................................29 3.7 Payments by the Banks to the Agent.................................29 3.8 Sharing of Payments, Etc...........................................29 3.9 Letter of Credit Sublimit..........................................30 3.9.1 Amount and Terms of the Credit.....................................30 3.9.2 Standby Letters of Credit..........................................30 3.9.3 Request for Credit.................................................31 3.9.4 Conditions Precedent to Issuance of Letters of Credit..............32 ARTICLE 4: PAYMENTS AND FEES............................................................32 4.1 Principal and Interest.............................................32 4.2 Facility Fee.......................................................35 4.3 Letter of Credit Annual Fees.......................................36 4.4 Late Payments......................................................36 4.5 Taxes..............................................................36 4.6 Illegality.........................................................36 4.7 Increased Costs and Reduction of Return............................37 4.8 Funding Losses.....................................................38 4.9 Inability to Determine Rates.......................................39 4.10 Reserves on LIBOR Rate Loans.......................................39 4.11 Certificates of Banks..............................................39 4.12 Substitution of Banks..............................................40 4.13 Survival...........................................................40
-i- 3 4.14 Manner and Treatment of Payments...................................40 4.15 Change in Capital Requirements; Additional Costs...................40 4.16 Mandatory Prepayment...............................................41 4.17 Other Fees and Consideration Payable to Bank of America............41 4.18 Computation of Interest and Fees...................................41 ARTICLE 5: SECURITY.....................................................................42 5.1 Unsecured Credit...................................................42 ARTICLE 6: CONDITIONS...................................................................42 6.1 Conditions to Disbursement of First Borrowings.....................42 6.2 Conditions for Subsequent Borrowings or for a Redesignation of Borrowings.........................................................42 6.3 Any Borrowing......................................................42 ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................43 7.1 Incorporation, Qualification, Powers and Capital Stock.............43 7.2 Execution, Delivery and Performance of Loan Documents..............43 7.3 Compliance with Laws and Other Requirements........................44 7.4 Subsidiaries.......................................................44 7.5 Affiliated Partnerships............................................45 7.6 Financial Statements of the Company and the Subsidiaries...........45 7.7 No Material Adverse Change.........................................45 7.8 Tax Liability......................................................46 7.9 Litigation.........................................................46 7.10 ERISA Compliance...................................................46 7.11 Regulations U and X; Investment Company Act........................47 7.12 No Default.........................................................47 7.13 Borrowing Base.....................................................48 7.14 Environmental Matters..............................................48 7.15 Insurance..........................................................49 7.16 No Burdensome Restrictions.........................................49 7.17 Full Disclosure....................................................49 7.18 Year 2000 Compliance...............................................49 ARTICLE 8: COVENANTS OF THE COMPANY.....................................................50 8.1 Consolidated Tangible Net Worth....................................50 8.2 Debt Service Coverage Ratio........................................50 8.3 Leverage Ratio.....................................................50 8.4 Secured Debt Ratio.................................................50 8.5 Unencumbered Asset Ratios..........................................51 8.6 Unencumbered Assets NOI to Total Unsecured Debt Service............51
-ii- 4 8.7 Limitations on Subsidiary Unsecured Indebtedness and Secured Indebtedness.......................................................51 8.8 Payment of Taxes and Other Potential Liens.........................51 8.9 Preservation of Existence..........................................51 8.10 REIT Status; No Prohibited Transactions............................52 8.11 Maintenance of Properties..........................................52 8.12 Maintenance of Insurance...........................................52 8.13 Mergers............................................................53 8.14 Books and Records..................................................53 8.15 Inspection Rights..................................................53 8.16 Reporting Requirements.............................................53 8.17 Notices............................................................55 8.18 Liens..............................................................56 8.19 No Other Negative Pledge...........................................57 8.20 Prepayment of Indebtedness.........................................57 8.21 Loans and Investments..............................................57 8.22 Compliance with Laws and Other Requirements........................58 8.23 Change in Nature of Business.......................................58 8.24 Compliance with ERISA..............................................58 8.25 Dividends..........................................................59 8.26 Disposition of Properties..........................................59 8.27 Management; Ownership..............................................59 8.28 Compliance with Availability Limits................................59 8.29 Development Limitation.............................................59 8.30 Environmental Laws.................................................59 8.31 Use of Proceeds....................................................60 8.32 Transactions with Affiliates.......................................60 8.33 Accounting Changes.................................................60 ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT..................................60 9.1 Events of Default..................................................60 9.2 Remedies...........................................................63 9.3 Rights Not Exclusive...............................................63 ARTICLE 10: THE AGENT...................................................................64 10.1 Appointment and Authorization......................................64 10.2 Delegation of Duties...............................................64 10.3 Liability of Agent.................................................64 10.4 Reliance by Agent..................................................65 10.5 Notice of Default..................................................65 10.6 Credit Decision....................................................66 10.7 Indemnification....................................................66
-iii- 5 10.8 Agent in Individual Capacity.......................................67 10.9 Successor Agent....................................................67 10.10 Withholding Tax....................................................67 10.11 Collateral Matters.................................................69 10.12 Performance by the Agent...........................................70 10.13 Actions............................................................70 10.14 Co-Agent...........................................................70 ARTICLE 11: MISCELLANEOUS...............................................................70 11.1 Amendments and Waivers.............................................70 11.2 Costs, Expenses and Taxes..........................................71 11.3 No Waiver; Cumulative Remedies.....................................72 11.4 Payments Set Aside.................................................72 11.5 Successors and Assigns.............................................72 11.6 Assignments, Participations, etc...................................72 11.7 Set-off............................................................75 11.8 Automatic Debits...................................................76 11.9 Notification of Addresses, Lending Offices, Etc....................76 11.10 Survival of Representations, Warranties and Indemnifications.......76 11.11 Notices............................................................76 11.12 Indemnity by the Company...........................................77 11.13 Integration and Severability.......................................77 11.14 Counterparts.......................................................77 11.15 No Third Parties Benefitted........................................77 11.16 Section Headings...................................................78 11.17 Further Acts by the Company........................................78 11.18 Time of the Essence................................................78 11.19 Governing Law......................................................78 11.20 Reference and Arbitration..........................................78 11.21 Effectiveness of this Agreement....................................79 11.22 Possible Increase in the Total Aggregate Commitment................80
-iv- 6 LIST OF EXHIBITS Exhibit "A" - Note Exhibit "B" - Borrowing Base Certificate Exhibit "C-1" - Request for Borrowing Exhibit "C-2" - Request for Letter of Credit Exhibit "D" - Request for Redesignation of Borrowing Exhibit "E" - Subsidiaries Exhibit "F" - Form of Legal Opinion Exhibit "G" - Form of Assignment and Acceptance Agreement LIST OF SCHEDULES Schedule 1.1(A) - List of Assets Schedule 1.1(B) - Designated Responsible Officials Schedule 1.1(C) - Pricing Grid Schedule 3.5(c) - Assets Initially Constituting The Borrowing Base Properties Pool Schedule 7.7 - Material Adverse Changes and Material Liabilities Schedule 7.9 - Material Litigation and Other Actions Schedule 7.14 - Environmental Matters Schedule 8.21(e) - Description of Existing Partnerships -v- 7 AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement (this "Agreement") is entered into as of December 20, 1999, by and among PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation (the "Company"), the several financial institutions from time to time party to this Agreement (collectively, the "Banks" and individually, a "Bank"), and BANK OF AMERICA, N.A., as successor to Bank of America National Trust and Savings Association, a national banking association, as agent for the Banks ("Bank of America" and the "Agent"). WHEREAS, the Banks, the Agent and the Company are parties to that certain Credit Agreement dated as of August 13, 1997, as amended by that certain Modification Agreement dated as of March 19, 1998 and that certain Second Modification Agreement dated as of January 22, 1999 (collectively, the "Prior Credit Agreement"). Bank of America previously assigned a portion of its interest in the Prior Credit Agreement to Dresdner Bank AG pursuant to that certain Assignment and Acceptance Agreement dated as of April 20, 1998, between Bank of America and Dresdner Bank AG. WHEREAS, the Banks, the Agent and the Company desire by this Agreement to amend and restate the Prior Credit Agreement in its entirety. WHEREAS, the "Tanasbourne Asset" (as defined in the Prior Credit Agreement) is now wholly owned by the Company. Further, all Existing Pan Pacific/BofA Credit Facilities (as defined in the Prior Credit Agreement) were paid in full in accordance with the provisions of Section 11.21 of the Prior Credit Agreement. WHEREAS, the Banks have agreed to make available to the Company an unsecured revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: -1- 8 ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth respectively after each: "Account" means the Company's general account no. 1423100780 maintained with Bank of America, and any future similar account with Bank of America. "Actual Debt Service" means for any period, without duplication, the sum of (a) the aggregate amount of interest which, in conformity with GAAP, would be set opposite the caption "interest expense" or any like caption on an income statement for the Company and consolidated Subsidiaries, whether expensed directly, or included as a component of cost of goods sold, or allocated to joint ventures, or otherwise (including without limitation imputed interest on Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with Rate Hedging Obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premiums, in any, and all non-cash interest expense other than interest and other charges amortized to cost of sales), plus (b) the aggregate amount of all principal and other payments due during such period with respect to Indebtedness of the Company or any of its consolidated Subsidiaries (excluding, however, any principal "balloon pay ments" paid or payable by the Company or any consolidated Subsidiaries during such period), plus (c) cash dividends paid on any preferred stock of the Company. "Adjusted Current Value" means, for any Asset, as of any date, the Net Operating Income for such Asset as of such date divided by the Applicable Cap Rate; provided, however, that if the Agent has not received quarterly operating statements for such Asset for each of the immediately preceding four calendar quarters (whether because the Company has owned such Asset for less than four calendar quarters, or otherwise), then the "Adjusted Current Value" for such Asset shall be the lesser of (a) the Adjusted Current Value as calculated above, or (b) the purchase price paid by the Company upon acquiring such Asset, net of all brokerage commissions, finder's fees and other closing costs or expenses incurred by the Company in connection with the acquisition of such Asset. "Adjusted EBITDA" means, for any period, without duplication, (a) the sum of the following amounts attributable to such period and calculated -2- 9 on a consolidated basis for the Company and consolidated Subsidiaries: (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) charges against income for all federal, state and local taxes, (iv) depreciation expense, (v) amortization expense, (vi) other non-cash charges and expenses, and (vii) any losses arising outside of the ordinary course of business which have been included in the determination of Consolidated Net Income, less (b) any gains arising outside the ordinary course of business which have been included in the determination of Consolidated Net Income, as determined on a consolidated basis for the Company and consolidated Subsidiaries, less (c) net income (determined in accordance with GAAP) of, loans or contributions to, and other cash investments in any Affiliated Partnership (provided that such net income shall be included to the extent of the Company's direct or indirect proportionate interest in the net income of such Affiliated Partnership), less (d) the aggregate amount of all actual expenditures made by the Company during such period for replacements or substitutions to improvements to any of the Company's Assets, including remediation of deferred maintenance, which, in accordance with GAAP, would be treated as a capital expense, plus (e) net losses (determined in accordance with GAAP) of, and dividends, distributions, loan payments or other cash return on investments from, any Affiliated Partnership (provided that such net losses shall be included to the extent of the Company's direct or indirect proportionate interest in the net losses of such Affiliated Partnership). "Affiliate" means any Person (a) which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or any Subsidiary, as the context may require, or (b) which owns beneficially or of record 10% or more of the voting stock of the Company. The term "control" means the possession, directly or indirectly, of the power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities or partnership interests, by contract, family relationship or otherwise. "Affiliated Partnership" means any general or limited partnership or joint venture in which the Company, any Subsidiary, or any other Affiliate is a partner or joint venturer. "Agent" means Bank of America when acting in its capacity as the Agent under any of the Loan Documents, and any successor agent. "Agent-Related Persons" means the Agent and any successor agent (pursuant to the terms of Section 10.9) together with their respective -3- 10 Affiliates and the directors, officers, agents, employees and attorneys-in-fact of such Persons and Affiliates. "Aggregate Adjusted Current Value" means, as of any date of determination, the sum of the Adjusted Current Values as of such date for all Assets. "Agreement" means this Credit Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. "Applicable Cap Rate" means 9.50% for all Assets; provided, however, that the Majority Banks shall have the right, at the end of any calendar year, to review and adjust in their sole and absolute discretion, the Applicable Cap Rate, which change shall become effective immediately upon written notice by Agent to Company. "Assets" means, as of any date, all real estate assets of the Company as of such date. As of the Closing Date, "Assets" consist of the real estate assets described in Schedule 1.1(A). "Assignee" shall have the meaning set forth in Section 11.6. "Assignment and Acceptance" shall have the meaning set forth in Section 11.6. "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the allocated reasonable cost of internal legal services and all reasonable disbursements of internal legal counsel. "Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday on which banks (including the Banks) are open for business in California. "Banks" means Bank of America, N.A., as successor to Bank of America National Trust and Savings Association, a national banking association ("Bank of America"), U.S. Bank National Association (FKA First Bank National Association) ("U.S. Bank"), KeyBank National Association ("KeyBank"), The Bank of Nova Scotia ("Bank of Nova Scotia"), First Union National Bank, as successor to Signet Bank ("First Union"), Sanwa Bank California, a California corporation ("Sanwa Bank"), and Dresdner Bank AG, New York and Grand Cayman Branches ("Dresdner") and the additional -4- 11 financial institutions (if any) from time to time party to this Agreement, any of their successors and assigns (including any Assignee), or any one or more of them. "Borrowing" means each of the Loans to be made by the Banks to the Company as provided in Article 3. "Borrowing Base" has the meaning set forth in Section 3.5(b). "Borrowing Base Certificate" means a written calculation of the Borrowing Base, substantially in the form of Exhibit "B" attached hereto and made a part hereof, signed by a Responsible Official of the Company and properly completed to provide all information required to be included thereon. "Borrowing Base Properties Pool" has the meaning set forth in Section 3.5(c) hereof. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capitalized Lease Obligations" means any obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "CERCLA" has the meaning specified in the definition of "Environmental Laws." "Closing Date" means the time and Banking Day on which the conditions precedent specified in Section 11.21 are satisfied or waived as provided therein, or shall be as otherwise specified in Section 11.21. "Co-Agent" means each of the Banks which is designated in writing by the Agent to receive the title of Co-Agent hereunder (subject to Section 10.14 hereof). "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. -5- 12 "Commitment" means, with respect to the Loans, the following initial percentage obligations and initial aggregate dollar amounts as to each of the following Banks, subject to adjustment as provided below:
Percentage Aggregate Dollar Bank Obligation Amount 1. Bank of America 16.0 $32,000,000 2. U.S. Bank 15.5 $31,000,000 3. KeyBank 15.5 $31,000,000 4. Bank of Nova Scotia 15.5 $31,000,000 5. First Union 15.0 $30,000,000 6. Sanwa Bank 10.0 $20,000,000 7. Dresdner 12.5 $25,000,000
As (i) Banks are added to this Agreement or withdraw from this Agreement, (ii) assignments are made by the Banks in accordance with Section 11.6 hereof, and/or (iii) the Total Aggregate Commitment is increased in accordance with Section 11.22 hereof, the above figures shall be appropriately adjusted. The Assignment and Acceptances executed by the Banks, and the records maintained by the Agent, shall be presumptive evidence of each Bank's Commitment, as each such Bank's Commitment may change from time to time in accordance with the terms of this Agreement. "Company" means Pan Pacific Retail Properties, Inc., a Maryland corporation, and its successors and assigns. "Consolidated Net Income" means, for any period, the net income (or loss) of the Company and consolidated Subsidiaries determined in accordance with GAAP. "Consolidated Tangible Net Worth" means, as of any time of determination, (a) the total assets of the Company and consolidated Subsidiaries, minus (b) the carrying value of all intangible assets of the Company and consolidated Subsidiaries, including deferred costs associated with goodwill, patents, franchises, organizational expense and the like, minus (c) the total liabilities of the Company and consolidated Subsidiaries, all determined in accordance with GAAP consistently applied. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or -6- 13 other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Rate Hedging Obligation. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Designated Responsible Official" means a responsible official of the Company that is specifically authorized to execute Requests for Borrowings and Requests for Letters of Credit and to otherwise request Borrowings or the issuance of Letters of Credit hereunder, request and accept interest rate quotes and designate and redesignate LIBOR Borrowings, LIBOR Periods and otherwise act for the Company in connection with borrowing funds under this Agreement and establishing or reestablishing applicable interest rates with respect thereto. As of the date of this Agreement, the Designated Responsible Officials are set forth in Schedule 1.1(B) hereto. The Company, by written -7- 14 notice to Agent in accordance with the notice provisions of this Agreement, may, with the written consent of the Agent (not to be unreasonably withheld) change the persons who constitute Designated Responsible Officials hereunder. "Dollars" or "$" means United States dollars. "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States, or (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental, placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from any property, whether owned by the Company or any other Person. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the California Hazardous Waste Control -8- 15 Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code, the California Health and Safety Code and any other similar laws or other environmental, health or safety laws of other states. "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as now or from time to time hereafter in effect. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Events of Default" has the meaning set forth for that term in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "Facility Fee" has the meaning set forth in Section 4.2. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. -9- 16 "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Banking Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Banking Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "Fee Letter Agreement" has the meaning set forth in Section 4.17. "Fixed Rate Option Requests" means the combined number of LIBOR Borrowings made in any specified period of time. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "Funds From Operations" means net income (loss), computed in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. "GAAP" means, as of any date, generally accepted accounting principals set forth in the then current opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the then current statements and pronouncements of the Financial Accounting Standards Board (or agency with similar functions of comparable stature and authority within the United States accounting profession). "Government Securities" means readily marketable direct obligations of the United States of America or obligations fully guaranteed by the United States of America. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to -10- 17 government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantor" means any Person who hereafter guarantees repayment of all or part of the Loans (it being understood that as of the date of this Agreement there is no Guarantor) and such Person's successors and assigns. "Guaranty" means any guaranty hereafter executed by a Guarantor and approved by Agent. "Hazardous Materials" means all those substances that are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to capital leases; (g) all Rate Hedging Obligations; (h) all indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. "Indebtedness" does not include, however, security deposits, accounts payable, accrued liabilities and any prepaid rents (as such terms are defined in accordance with GAAP). -11- 18 "Interest Differential" means, with respect to any prepayment or redesignation of a LIBOR Rate Loan on a day other than the last day of the applicable LIBOR Period and with respect to any failure to borrow a LIBOR Rate Loan on the date or in the amount specified in any Request for Borrowing or any Request for Redesignation of Borrowing, (a) the LIBOR Rate payable (or, with respect to a failure to borrow, the LIBOR Rate which would have been payable) with respect to the LIBOR Rate Loan minus (b) the LIBOR Rate on, or as near as practicable to the date of, the prepayment or failure to borrow for a LIBOR Rate Loan with a LIBOR Period commencing on such date and ending on the last day of the LIBOR Period of the LIBOR Borrowing so prepaid or which would have been borrowed on such date. The determination of the Interest Differential by the Agent shall be conclusive in the absence of manifest error. "Interest Payment Date" means the first day of any month. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Issuing Bank" means Bank of America in its individual capacity as a bank issuing Letters of Credit under this Agreement. "Laws" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. "L/C Commitment" has the meaning set forth in Section 3.9.1. "L/C Commitment Termination Date" has the meaning set forth in Section 3.9.1. "L/C Obligations" has the meaning set forth in Section 3.9.1. "Letters of Credit" has the meaning set forth in Section 3.9.2(a). "Leverage Ratio" has the meaning set forth in Section 8.3 "LIBOR Banking Day" means any Banking Day on which banks are open for business in London, England. -12- 19 "LIBOR Base Rate" means the offered rate (determined solely by the Agent) for a period of time comparable to the number of days in the applicable LIBOR Period for deposits in United States Dollars, as shown on Telerate Page 3750 as of 11:00 a.m. London time two (2) LIBOR Banking Days prior to the first day of the applicable LIBOR Period, or if Telerate Page 3750 is unavailable, the rate for such deposits determined by the Agent at such time based on such other published service of general application as shall be selected by the Agent for such purpose. The determination of the LIBOR Base Rate by the Agent shall be conclusive in the absence of manifest error. "Telerate Page 3750" means the display designated as such on Teleratesystem Incorporated (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks for United States Dollar deposits). "LIBOR Borrowing" means any portion of the Loan Proceeds designated or redesignated by the Company as a LIBOR Borrowing pursuant to Article 3. "LIBOR Lending Office" means the office or branch of each Bank so designated on the signature pages of this Agreement, or such other office or branch of each Bank as it may hereafter designate, by written notice to the Company, as its LIBOR Lending Office. "LIBOR Period" means, as to each LIBOR Borrowing, the period commencing on the date specified by the Company pursuant to Sections 3.3 or 3.4 and ending at least seven days but not more than one month thereafter, or ending two, three, six, nine or twelve months thereafter, as designated by the Company in the applicable Request for Borrowing or Request for Redesignation of Borrowing, provided that: (a) the first day in any LIBOR Period shall be a LIBOR Banking Day; (b) any LIBOR Period that would otherwise end on a day that is not a LIBOR Banking Day shall be extended to the next succeeding LIBOR Banking Day unless such LIBOR Banking Day falls in another calendar month, in which case such LIBOR Period shall end on the next preceding LIBOR Banking Day; and (c) No LIBOR Period shall extend beyond the Maturity Date. -13- 20 "LIBOR Rate" means, for any LIBOR Period for any LIBOR Borrowing, the rate (rounded upward, if necessary, to the next 1/100 of 1%) obtained by dividing (i) the LIBOR Base Rate for such LIBOR Period, by (ii) a percentage equal to 100% minus the LIBOR Reserve Percentage for such LIBOR Period. "LIBOR Rate Spread" means the additional component of interest, expressed as a percentage per annum, to be added to the LIBOR Rate in determining the applicable rate of interest for LIBOR Borrowings. The applicable LIBOR Rate Spread shall be determined in accordance with the pricing grid and guidelines set forth in Schedule 1.1(C). "LIBOR Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Regulation D. The Reserve Percentage shall be expressed as a decimal and rounded upward, if necessary, to the nearest 1/100th of one percent, and shall include marginal, emergency, supplemental, special and other reserve percentages. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" or "Loans" means each of the loans and Borrowings under this Agreement. "Loan Documents" means, collectively, this Agreement, each Note, and any Guaranty. "Loan Proceeds" means the proceeds of the Loans, in the aggregate principal amount of up to $200,000,000 (subject to increase in accordance with Section 11.22 below). -14- 21 "Majority Banks" means, at any time, if Bank of America is the only Bank, Bank of America, and, if there is more than one Bank, at least two Banks then holding in excess of 66 2/3% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, at least two Banks then having in excess of 66 2/3% of the Total Aggregate Commitment. "Material" means, in connection with the Company, its Subsidiaries, and the Loan and the Loan Documents, such circumstances or facts which the Banks in the exercise of their discretion could be expected to rely upon in determining whether to enter into or to continue lending under this Agreement or which could have a bearing on any actions undertaken by the Banks. Such Material circumstances or facts shall include, without limitation, such circumstances or facts as would alter, enlarge, restrict or otherwise affect the rights and liabilities otherwise existing between the parties to the Agreement or any other Loan Document. "Maturity Date" means December 20, 2002. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Net Operating Income" means, for any Asset, as of any date and calculated on a cash basis, (a) the gross rental income of such Asset for the immediately preceding four consecutive calendar quarters, less (b) the aggregate amount of all actual operating expenses (excluding capital expenditures) for such Asset during such period, less (c) an imputed capital expenditures amount equal to 3.5% of the difference between (a) and (b) above. In the event the Agent receives operating statements covering only a portion of the relevant four calendar quarter period (whether because the Asset has been owned for less than four calendar quarters, or otherwise), the Agent shall calculate Net Operating Income for such Asset on the basis of the operating statements which have been provided, subject to such adjustments as the Agent deems appropriate in its sole discretion to accurately reflect anticipated annual operating results. In the event (a) the Company has, within the two calendar quarters preceding the date of calculation, completed the build-out of additional in-line shop space or pad space on any Asset, (b) such additional space has been leased to tenants who have commenced paying rent, are in occupancy and have opened for business, and (c) the Agent determines that, as a result of the -15- 22 leasing of such additional space, annual Net Operating Income for such Asset will increase by at least $250,000, then Net Operating Income for such Asset shall be calculated based upon the operating statement for such Asset covering the most recently completed calendar quarter, subject to such adjustments as the Agent deems appropriate in its sole and reasonable discretion to accurately reflect anticipated annual operating results. In addition, the Agent may, in its sole discretion, reduce the Net Operating Income for any Asset by the amount of rents attributable to any leases (i) which are in default or which have terminated or are otherwise no longer in effect, or (ii) which are otherwise unacceptable to the Agent in its sole discretion. "Note" means each of the amended and restated promissory notes, substantially in the form of Exhibit "A" attached hereto and made a part hereof, executed by the Company in favor of the Banks, each to the order of the applicable Bank as payee to evidence such Bank's share of the Loans, and each in the original principal amount of the applicable Bank's Commitment such that the aggregate original principal amount of all Notes is initially $200,000,000 (subject to increase as provided in Section 11.22 below); as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced (and any promissory note that may be issued in substitution or exchange therefor). "Obligations" means all obligations of every nature of the Company from time to time owed to the Banks under the Loan Documents. "Opinion of Counsel" means the favorable written legal opinion(s) of Hale, Lane, Peek, Dennison, Howard, Anderson & Pearl, and/or other counsel acceptable to Agent, as counsel to the Company and the Subsidiaries, to this Agreement, substantially in the form of Exhibit "F" attached hereto, together with copies of all factual certificates and legal opinions upon which such counsel has relied. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" shall have the meaning set forth in Section 11.6. -16- 23 "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Person" means any entity, whether an individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, Governmental Authority or otherwise. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place as determined by the Agent) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Rate Hedging Obligations" means, for any Person, the net obligations of such Person pursuant to any interest rate hedging agreement or any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or a beneficiary. "Reference Rate" means the higher of: (a) the rate of interest publicly announced from time to time by Bank of America in Charlotte, North Carolina, as its reference rate. It is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate; and -17- 24 (b) 0.50% per annum above the latest Federal Funds Rate. Any change in the Reference Rate shall take effect on the day specified in the public announcement of such change. "Reference Rate Borrowing" means any portion of the Loan Proceeds which is not designated or redesignated by the Company as a LIBOR Borrowing pursuant to Sections 3.3 or 3.4. "Reference Rate Spread" means the additional component of interest, expressed as a percentage per annum, to be added to the Reference Rate in determining the applicable rate of interest for Reference Rate Borrowings. The applicable Reference Rate Spread shall be determined in accordance with the pricing grid and guidelines set forth in Schedule 1.1(C). "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as now or from time to time hereafter in effect and any other regulation issued in substitution therefor. "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Request for Borrowing" means a written request for a Borrowing substantially in the form of Exhibit "C-1" attached hereto, signed by a Responsible Official of the Company and properly completed to provide all information required to be included thereon. "Request for Letter of Credit" means a written request for a Letter of Credit substantially in the form of Exhibit "C-2" attached hereto, signed by a Responsible Official of the Company and properly completed to provide all information required to be included thereon. "Request for Redesignation of Borrowing" means a written request for redesignation of Borrowing substantially in the form of Exhibit "D" attached hereto, signed by a Responsible Official of the Company and properly completed to provide all information required to be included thereon. "Requirement of Law" means, as to any Person, any Law or determination of an arbitrator or of a Governmental Authority, in each case -18- 25 applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Official" means: (a) when used with reference to a Person other than an individual, any corporate officer of such Person, general partner of such Person, corporate officer of a corporate general partner of such Person, or corporate officer of a corporate general partner of a partnership that is a general partner of such Person, or any other responsible official thereof duly acting on behalf thereof, and (b) when used with reference to a Person who is an individual, such Person. Any document or certificate hereunder that is signed or executed by a Responsible Official of another Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such other Person. "Secured Indebtedness" means all Indebtedness that is secured by real property. "Special Circumstance" means the adoption of any Law or interpretation, or any change therein or thereof, or any change in the interpretation, administration or application thereof by any Governmental Authority, central bank or comparable authority, or compliance by the Banks or their LIBOR Lending Offices with any request or directive (whether or not having the force of Law) of any Governmental Authority, central bank or comparable authority, or the occurrence of circumstances affecting the applicable certificate of deposit market or London interbank eurodollar market generally which are beyond the reasonable control of the Banks. "Subsidiary" means (i) any corporation of which at least 50% of the outstanding securities of any class or classes (however designated) having ordinary voting power to elect directors of the corporation is owned by the Company and/or by one or more than one other Subsidiary, and (ii) any partnership, joint venture or limited liability company in which the Company and/or any Subsidiary owns at least a 50% interest, or which is otherwise controlled by the Company and/or any Subsidiary. "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Taxes" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, such taxes (including -19- 26 income taxes or franchise taxes) as are imposed on or measured by each Bank's net income. "Total Aggregate Commitment" means the total aggregate combined Commitments of each of the Banks. The Total Aggregate Commitment concurrently equals $200,000,000, and is subject to increase in accordance with Section 11.22 below. "Total Liabilities" means, at any time of determination thereof, without duplication, (a) all Indebtedness of the Company and consolidated Subsidiaries, that, in conformity with GAAP applied on a consistent basis, should be included in determining total liabilities shown on the liability side of a consolidated balance sheet of the Company and consolidated Subsidiaries, plus (b) all Indebtedness of any Affiliated Partnership, plus (c) all Contingent Obligations of the Company and consolidated Subsidiaries. "Treasury Rate" means, as of any date of determination, the yield to maturity of the most recently issued 7-year U.S. Treasury Security as quoted by the Telerate News Services on such date. If such date is not a business day, then the quote shall be obtained on the business day immediately preceding such date. If the Telerate News Services (a) publishes more than one such 7-year U.S. Treasury Security, the average of such yields shall apply, or (b) ceases to publish such yield, the Treasury Rate shall be determined from such substitute financial reporting service or source as the Agent in its sole discretion deems appropriate. "Total Unsecured Debt Service" means, for each period of four consecutive calendar quarters, the Actual Debt Service for such period that is attributable to Unsecured Indebtedness. "Unencumbered Assets" means those Assets which are not subject to or encumbered by any Liens (other than Liens of a type described in Sections 8.18(a) or 8.18(b)). "Unencumbered Assets NOI" means, for each period of four consecutive calendar quarters, the aggregate Net Operating Income for such period from all Unencumbered Assets of the Company. Unencumbered Assets NOI shall be annualized as provided in the definition of Net Operating Income set forth above, if applicable. In calculating Unencumbered Assets NOI, if, with respect to Unencumbered Assets owned by the Company less than one quarter, the Company cannot present operating statements satisfactory to the Agent which would allow the Agent to calculate an annualized Net Operating -20- 27 Income for such Assets (as contemplated within the definition of Net Operating Income set forth in Section 1.1 hereof), the Agent shall calculate an annualized Net Operating Income for such Assets based on the Company's "proforma" reports submitted to Agent, and such additional information and documentation as the Agent shall require, subject to such adjustments as the Agent deems appropriate in its sole discretion to accurately reflect actual annual operating results for the period. "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "Unsecured Indebtedness" means all Indebtedness that is not secured by real property. 1.2 Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any of the members of the relevant class. 1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis. 1.4 Exhibits. All exhibits to this Agreement, either as now existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. 1.5 References. Any reference to any Loan Document or other document shall include such document both as originally executed and as it may from time to time be amended or modified. References herein to Articles, Sections, Schedules and Exhibits shall be construed as references to this Agreement unless a different document is named. References to subparagraphs shall be construed as references to the same Section in which the reference appears. The terms "including" and "include" mean "including (include) without limitation". This Section 1.5 shall apply to all of the Loan Documents. -21- 28 ARTICLE 2: RECITALS. This Agreement is made with reference to the following facts: (a) The Company is primarily engaged in the business of acquiring, owning and operating (and, to a lesser extent, developing) retail shopping centers. (b) The Company has applied to the Banks for the Loans (i) to finance or refinance the acquisition (and, within the limits specified herein, the development) of retail shopping centers, and (ii) for general working capital purposes. (c) The Banks are willing to make the Loans to the Company on the terms and conditions set forth in this Agreement and in the other Loan Documents. ARTICLE 3: BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT. 3.1 Disbursement of Loan Proceeds. (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Banking Day immediately preceding the Maturity Date, each Bank shall, according to its Pro Rata Share, make Loans to the Company in such amounts as the Company may request that do not exceed in the aggregate at any one time outstanding, the Commitment of such Bank (less the Pro Rata Share of such Bank's L/C Obligations, if any). Subject to the limitations set forth herein, the Company may (prior to the Maturity Date) borrow, repay and reborrow under each Bank's Commitment without premium or penalty. The Company may not request more than five new Borrowings during any calendar month. In no event shall the Banks be obligated to make Loans to the Company at any time if, after giving effect to such Loans, the provisions of Section 3.6 would be violated. (b) Unless the Agent otherwise consents, the aggregate amount of each LIBOR Borrowing shall be not less than $1,500,000 and the aggregate amount of each Reference Rate Borrowing shall be not less than $250,000. -22- 29 (c) The Loans made by the Banks pursuant to this Agreement shall be evidenced by each Note. (d) A Request for Borrowing shall be irrevocable upon receipt by the Agent. The Agent shall not be bound by any preliminary information that it may give the Company concerning a particular LIBOR Rate before it delivers the binding rate quote in accordance with Section 3.3(c) below. (e) Unless the Agent otherwise consents, no more than seven (7) LIBOR Borrowings in the aggregate shall be outstanding at any one time. (f) The Agent will notify each Bank of its receipt of a Request for Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing on the date of timely receipt of a Request for Borrowing by the Company. (g) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the Company at the Agent's Payment Office by 11:00 a.m. (California time) on the date of Borrowing requested by the Company in funds immediately available to the Agent. The proceeds of all such Loans will then be made available to the Company by the Agent by wire transfer in accordance with written instructions provided to the Agent by the Company of like funds as received by the Agent. 3.2 Reference Rate Borrowings. All Loans shall at all times constitute Reference Rate Borrowings unless properly designated or redesignated as LIBOR Borrowings pursuant to Sections 3.3. or 3.4. Each request by the Company for a new Reference Rate Borrowing shall be made pursuant to a Request for Borrowing, executed by a Designated Responsible Official, received by the Agent, at the Agent's office, not later than 9:00 a.m., California time, at least one (1) Banking Day prior to the date the Reference Rate Borrowing is to be funded to the Company. The Agent will notify each Bank of its receipt of a Request for Borrowing in accordance with Section 3.1(f). 3.3 LIBOR Borrowing. (a) Each request by the Company for a LIBOR Borrowing shall be made pursuant to a Request for Borrowing, executed by a Designated Responsible Official, received by the Agent, at the Agent's office, not later than 9:00 a.m., California time, at least three (3) LIBOR Banking Days before the first day of the applicable LIBOR Period. The Agent will notify each Bank of its receipt of a Request for Borrowing in accordance with Section 3.1(f). -23- 30 (b) Each Request for Borrowing pertaining to a LIBOR Borrowing shall designate the LIBOR Period applicable to such LIBOR Borrowing. If any Request for Borrowing fails to specify the duration of the LIBOR Period for the requested LIBOR Borrowing, the LIBOR Period shall be one month. (c) At or about 9:00 a.m., California time, one (1) LIBOR Banking Day after the LIBOR Banking Day on which Agent receives the Company's Request for Borrowing, the Agent shall determine the applicable LIBOR Rate (which determination shall be conclusive in the absence of manifest error) and shall promptly give notice of the same to the Company and the Banks by telephone, telecopier or telex. (d) Upon fulfillment of the applicable conditions set forth in Article 6, a LIBOR Borrowing shall become effective on the first day of the applicable LIBOR Period. (e) The Agent in its sole discretion may require the Company to request any LIBOR Borrowing of $100,000,000 or more, or any redesigna tion of a Reference Rate Borrowing of $100,000,000 or more as a LIBOR Borrowing, at a time or on a day which is earlier than the deadline stated above (or for redesignations of Reference Rate Borrowings, stated Section 3.4 below) for making such a request. The Company acknowledges that if this happens, the LIBOR Period for that LIBOR Borrowing could begin later than the Company had originally contemplated. The Company consents to any and all such delays. (f) Nothing contained herein shall require the Banks to fund any LIBOR Borrowing in the London interbank eurodollar market. 3.4 Redesignation of Borrowings. (a) Subject to Section 6.3, if any LIBOR Borrowing is not repaid on the last day of the applicable LIBOR Period, such Borrowing automatically shall be redesignated as a Reference Rate Borrowing on such date. (b) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date until one month preceding the Maturity Date, the Company may request that all or a portion of outstanding Reference Rate Borrowings be redesignated as a LIBOR -24- 31 Borrowing; provided that the LIBOR Period for such LIBOR Borrowing shall end on or before the Maturity Date. (c) Each redesignation of all or a portion of outstanding Reference Rate Borrowings as a LIBOR Borrowing shall be made pursuant to a written Request for Redesignation of Borrowing, executed by a Designated Responsible Official. Not later than 9:00 a.m., California time, at least three (3) LIBOR Banking Days prior to the first day of the applicable LIBOR Period, the Agent shall have received, at the Agent's office, a properly completed Request for Redesignation of Borrowing specifying (1) the requested date of redesignation, (2) the requested amount of Reference Rate Borrowings to be redesignated as a LIBOR Borrowing, and (3) the requested LIBOR Period. The Agent may, in its sole and absolute discretion, permit a Request for Redesignation of Borrowing to be made by telecopier or by telephone (with confirmation sent promptly by telecopier) by the Company, in which case the Company shall confirm same by mailing a written Request for Redesignation of Borrowing to the Agent within 24 hours following the date of redesignation. (d) The Agent will notify each Bank of its receipt of a Request for Redesignation on the date of timely receipt of a Request for Redesignation from the Company. All redesignations shall be made ratably according to the respective outstanding principal amount of the Loans with respect to which the Request for Redesignation was given is then held by each Bank. (e) Unless all of the Banks otherwise agree, during the existence of an Event of Default, the Company may not elect to have a Loan converted into a LIBOR Borrowing. (f) Unless the Banks otherwise consent, the amount of Reference Rate Borrowings to be redesignated as a LIBOR Borrowing shall be not less than $1,500,000. (g) With respect to any redesignation of Reference Rate Borrowing as a LIBOR Borrowing, at or about 9:00 a.m., California time, one (1) LIBOR Banking Day after the LIBOR Banking Day on which Agent receives the Company's Request for Redesignation, the Agent shall determine the applicable LIBOR Rate (which determination shall be conclusive in the absence of manifest error) and shall promptly give notice of the same to the Company and the Banks by telephone, telecopier or telex. (h) Upon fulfillment of the applicable conditions set forth in this Agreement, the redesignation of all or a portion of outstanding Reference -25- 32 Rate Borrowings as a LIBOR Borrowing shall become effective on the first day of the applicable LIBOR Period. (i) A Request for Redesignation of Borrowing shall be irrevocable upon receipt by the Agent. (j) Nothing contained herein shall require the Banks to fund any LIBOR Borrowing resulting from redesignation of all or a portion of any of the Reference Rate Borrowings, in the London interbank eurodollar market. 3.5 Calculation of Borrowing Base. (a) The Borrowing Base shall be calculated at the times and in the manner set forth in this Section 3.5(a): (i) Within thirty (30) days after the end of each calendar quarter, and at such other times as the Majority Banks may reasonably require (including without limitation at any time following the removal of any property from the Borrowing Base Properties Pool), the Company shall provide the Agent with a Borrowing Base Certificate showing the Company's calculations of the components of the Borrowing Base and such data supporting such calculations as the Majority Banks may require. The Majority Banks shall have a period of fifteen (15) days following Agent's receipt of a Borrowing Base Certificate to notify the Agent of the Majority Banks' approval or disapproval thereof, and the Agent shall have five (5) Banking Days thereafter to notify the Company of the decision of the Majority Banks. Failure of the Majority Banks to so notify the Agent within such fifteen (15) day period shall be deemed approval and such Borrowing Base as set forth in such Borrowing Base Certificate shall be effective as of the date approved (or deemed approved) by the Majority Banks. (ii) In the event that the Agent (as requested by the Majority Banks) timely notifies the Company of disapproval of a Borrowing Base Certificate, then the Agent shall, at the same time, notify the Company in writing of the amount of the Borrowing Base as determined by the Majority Banks and the basis of such determination, and the effective date thereof (which shall be the date of the giving of such notice by the Agent), and such amount shall thereupon and thereafter constitute the Borrowing Base which shall remain in effect until such time as the Borrowing Base is redetermined in accordance -26- 33 with this Section 3.5(a). The Company shall cooperate in good faith with the Banks in the calculation of the Borrowing Base. (iii) Each determination of the Borrowing Base in accordance with this Section 3.5(a) shall be binding and conclusive upon the parties hereto (i) provided that the Majority Banks are not bound to rely on information and figures provided by the Company if the Majority Banks determine in good faith that it would be inappropriate to do so. Nothing contained herein shall be deemed to restrict the Company from submitting additional Borrowing Base Certificates to the Agent (but not more often than once per calendar month) for the Majority Banks' approval at times other than those required hereunder (including, without limitation, at any time following the addition of a property to the Borrowing Base Properties Pool). (b) Amount of Borrowing Base. As used herein, the term "Borrowing Base" shall mean the lesser of: (i) an amount equal to the sum of: (A) an amount which would be fully amortized in 25 equal annual installments of principal and interest by 50% of the cumulative Net Operating Income from the Assets within the Borrowing Base Properties Pool which have been owned and held by the Company for at least one full calendar quarter, assuming interest at a per annum rate equal to the greater of (1) 2% per annum plus the Treasury Rate or (2) 8.5%, plus (B) an amount equal to 50% of the cumulative net purchase prices paid by the Company for the Assets within the Borrowing Base Properties Pool which have been owned and held by the Company for less than one full calendar quarter (it being understood that an Asset may not be counted under both subparagraph (A) and subparagraph (B) immediately above); or (ii) an amount equal to one-half of the aggregate Adjusted Current Values of the Assets within the Borrowing Base Properties Pool. (c) Only those Assets which constitute part of the "Borrowing Base Properties Pool" shall be included in the calculation of the Borrowing Base as set forth above. As used herein, the "Borrowing Base Properties Pool" means those Assets which the Majority Banks, in the exercise of their sole and absolute discretion, designate in writing as constituting part of the Borrowing Base Properties Pool. The Assets which shall initially constitute the Borrowing Base Properties Pool are as set forth on Schedule 3.5(c) hereto. From time to -27- 34 time after the Closing Date, the Company may submit written requests (not more often than once each calendar month) to add additional Assets to the Borrowing Base Properties Pool. In each instance, it shall be in the sole and absolute discretion of the Majority Banks as to whether any additional Assets are added to the Borrowing Base Properties Pool; provided that the Majority Banks shall use reasonable efforts to respond to any requests by the Company to add additional Assets to the Borrowing Base Properties Pool within 30 days of the receipt by Agent of such written request from the Company (together with such information regarding each of such Assets as the Majority Banks and Agent shall request). Provided further, however, that failure of the Majority Banks to respond to any such request within such 30-day period shall be deemed to be a disapproval of such request. Without limiting the Majority Banks' discretion as to which Assets shall be designated as part of the Borrowing Base Properties Pool, the Company acknowledges and understands that the Agent shall not be required to even submit an Asset to the Banks for their consideration unless such Asset is 100% owned by the Company (in fee), is free of all Liens (other than Liens of a type permitted under Section 8.18), is a well-located, stabilized retail shopping center, is at least 90% leased (subject to subsection 3.5(d) below) to reputable, third party tenants who are in occupancy and have opened for business, and as to which a recent "Phase I" environmental report has disclosed no material toxic or hazardous substances. In connection with each request from the Company to add an Asset to the Borrowing Base Properties Pool, the Company shall submit to the Agent the following information and documentation, in addition to any other information, documentation or other items required by the Agent or the Majority Banks in their sole discretion: (1) a current Phase I environmental report addressed to the Company, which is dated within the guidelines of the Majority Banks, (2) a title insurance policy insuring the Company's lien free fee ownership interest in the subject Asset, and a current title report with respect to such Asset, and (3) a current rent roll (and detailed analysis of the net operating income generated from such Asset, including gross rental receipts, operating expenses, capital expenditures and other relevant information for at least the prior four quarters, if available). Assets may be removed from the Borrowing Base Properties Pool as follows: (i) The Company may remove Assets at any time from the Borrowing Base Properties Pool, upon not less than ten (10) days' written notice to the Agent, so long as (A) the Company shall have submitted a Borrowing Base Certificate to the Agent in accordance with Section 3.5(a)(i) at least thirty (30) days (but not more than ninety (90) days) prior to the date of the proposed release of the subject Asset from the Borrowing Base Properties Pool, (B) the Company shall concurrently -28- 35 reduce the outstanding amount of Loans and/or L/C Obligations (by repayment of outstanding Loans, termination of issued Letters of Credit, or both) to the extent necessary to comply with the availability limits set forth in Section 3.6 below, and any other applicable provisions of this Agreement, (C) following such removal, the Borrowing Base Properties Pool shall not have less than three separate Assets as part of the Borrowing Base Properties Pool, (D) following such removal, the aggregate Adjusted Current Value of the properties in the Borrowing Base Properties Pool shall not be less than $45,000,000, and (E) no Event of Default or event that with the giving of notice and/or the passage of time would constitute an Event of Default shall have occurred and be continuing; and (ii) The Majority Banks may, at any time, remove Assets from the Borrowing Base Properties Pool, upon not less than ten (10) days written notice from the Agent to the Company, if the Majority Banks in their sole and absolute discretion have determined that a material adverse change has occurred with respect to any of such Assets (including without limitation a noncompliance with any specific criteria set forth in the introductory paragraph to subsection 3.5(c) above). (d) Notwithstanding the foregoing, the Banks will not refuse to consider an Asset for inclusion in the Borrowing Base Properties Pool, nor remove an Asset from the Borrowing Base Properties Pool, solely due to the fact that the "leasing rate" (hereby defined for purposes of this subparagraph as the percentage of the leasable square feet in such Asset that is leased to reputable, third party tenants who are in occupancy and are open for business) for such Asset has dropped below 90%, so long as (i) the leasing rate for such Asset is no less than 85%, (ii) the decline in leasing rate is a direct result of a renovation or re-tenanting of the Asset initiated by the Company, (iii) the leasing rate of the Asset has been below 90% for no more than six months, and (iv) no more than 15% of the Borrowing Base is attributable to Assets whose leasing rates are below 90%. 3.6 Availability Limits. The sum of the aggregate principal amount at any time outstanding under the Loans plus the L/C Obligations shall not at any time exceed the lesser of (i) the Total Aggregate Commitment or (ii) the Borrowing Base. -29- 36 3.7 Payments by the Banks to the Agent. (a) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Banking Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the date of Borrowing and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the Banking Day following such date of Borrowing make such amount available to the Agent, together with interest at the Reference Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Banking Day following the date of Borrowing, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Bank to make any Loan on any date of Borrowing shall not relieve any other Bank of any obligation hereunder to make a Loan on such date of Borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any date of Borrowing. 3.8 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, -30- 37 such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) 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 Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 11.7) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. 3.9 Letter of Credit Sublimit. 3.9.1 Amount and Terms of the Credit. Subject to the terms and upon the conditions of this Agreement, the Issuing Bank shall issue standby letters of credit for the account of the Company from time to time up to but not including the date which is one year prior to the Maturity Date (the "L/C Commitment Termination Date"). The maximum aggregate principal amount which remains undrawn under all outstanding Letters of Credit (the "L/C Obligations") under this Agreement shall not exceed at any one time outstanding the aggregate principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (the "L/C Commitment"). 3.9.2 Standby Letters of Credit. (a) Amounts and Terms of Standby Letters of Credit. During the period from the Closing Date to but excluding the L/C Commitment Termination Date, and subject to the terms and conditions of this Agreement, upon Company's request pursuant to Section 3.9.3, the Issuing Bank shall issue one or more standby letter(s) of credit (each, a "Letter of Credit," and collectively, the "Letters of Credit") for the account of Company (subject to Section 3.9.4); provided that the Issuing Bank shall not be obligated to issue any Letter of Credit if, after giving effect thereto, (i) the L/C Obligations would exceed the L/C Commitment, or (ii) the total aggregate outstanding Loans plus the L/C Obligations would exceed the lesser of (A) the Total Aggregate Commitment, or (B) the Borrowing Base. All Letters of Credit shall be on Issuing Bank's standard forms of letters of credit at the time of issuance. No Letter of Credit shall have an expiration date (unless the Banks otherwise consent in writing) later than the earlier of (i) 12 -31- 38 months after the date of issuance, or (ii) the date which is 60 days prior to the Maturity Date. No "evergreen" provisions shall be permitted. The Issuing Bank shall not be required to issue any Letter of Credit hereunder unless such Letter of Credit is for the benefit of a party to which the Company or its Subsidiaries owe certain performance obligations incurred in the ordinary course of their real estate business. Issuing Bank shall not be required to issue any Letter of Credit for the benefit of creditors to which the Company or its Subsidiaries are obligated in respect of obligations for borrowed money, other than to back a purchase money note generated in connection with the acquisition of Assets. Notwithstanding the above, (i) Issuing Bank shall have no duty to inquire as to or to approve the particular use of a requested Letter of Credit, and (ii) Issuing Bank may issue Letters of Credit for any other purposes not stated above in its sole discretion. (b) Letter of Credit Draws are Loans under this Agreement. The Company and each Bank agree that any draws under any Letters of Credit shall constitute Loans under this Agreement for all purposes. Without limiting the foregoing, (i) all draws under any Letter of Credit shall bear interest and be repaid as Loans outstanding under this Agreement, and (ii) if, at the time any draw is made under any Letter of Credit, an Event of Default has occurred or the Maturity Date has passed or the Loans have been accelerated or are otherwise due and payable, such draw under such Letter of Credit shall be immediately due and payable in full. Promptly upon being notified by the Agent (after Agent has received notice from the Issuing Bank) that a draw has occurred under any Letter of Credit, each Bank shall reimburse the Agent, for the benefit of the Issuing Bank, for that Bank's Pro Rata Share of such draw. 3.9.3 Request for Credit. The Company, on or after the Closing Date, shall give the Issuing Bank notice of its request for the issuance of a Letter of Credit by delivering to the Issuing Bank (with a copy to the Agent) a duly executed and completed L/C Application on Issuing Bank's then current form (herein, an "L/C Application"). Such request shall specify: (i) the date on which the issuance of the Letter of Credit is requested to be made (which day shall be a Banking Day), and (ii) the amount of the Letter of Credit. Subject to the conditions herein, the Issuing Bank will issue the Letter of Credit as soon as reasonably practicable after receiving the above described notice. -32- 39 3.9.4 Conditions Precedent to Issuance of Letters of Credit. The obligation of the Issuing Bank to issue any Letter of Credit requested by the Company is subject to satisfaction of the following conditions precedent: (a) Conditions to Loans shall be Satisfied. Each of the conditions specified in Sections 6.2 and 6.3 to Borrowings shall also be applicable as conditions precedent to the issuance of any Letter of Credit. (b) L/C Application. The Issuing Bank shall have received from the Company, in form and substance satisfactory to the Issuing Bank, (i) a duly executed and completed L/C Application which L/C Application shall set forth, among other things, the beneficiary, the amount, and the term of the proposed Letter of Credit, and (ii) a duly executed and completed Request for Letter of Credit (in the form attached hereto as Exhibit "C-2"). (c) Issuing Bank Approval. The Issuing Bank shall have determined that the amount of any requested Letter of Credit, the beneficiary thereof and the other terms contained in the documents pertaining to such Letter of Credit are satisfactory to the Issuing Bank in the exercise of its sole discretion. (d) Payment of Fees. The Company shall pay the Issuing Bank all required fees in accordance with the Fee Letter Agreement and this Agreement for the issuance and renewal of each Letter of Credit. In addition, the Company shall pay to the Issuing Bank (for its own benefit) all reasonable and customary processing fees and costs described in the documents pertaining to such Letter of Credit. (e) Telephone Confirmation. Prior to the issuance of any Letter of Credit, the Issuing Bank shall confirm by telephone with the Agent that, following the issuance of such Letter of Credit, none of the limitations set forth in Section 3.9 would be violated. ARTICLE 4: PAYMENTS AND FEES. 4.1 Principal and Interest. (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Borrowing from the date thereof until payment in full -33- 40 is made and shall accrue and be payable at the rates set forth herein both before and after default and before and after maturity and judgment, with interest on overdue interest to bear interest at the rate specified in Section 4.4. Upon any partial prepayment or redesignation of outstanding Reference Rate Borrowings, interest accrued through the date of such prepayment or redesignation shall be payable on the next following Interest Payment Date and shall be deducted from the Account on such date. Insufficient funds in the Account shall not excuse the Company's obligation to pay accrued interest on the Interest Payment Date. Upon any partial prepayment or payment in full or redesignation or conversion of any LIBOR Borrowing, or upon any payment or redesignation in full of all outstanding Reference Rate Borrowings, interest accrued through the date of such prepayment, payment, redesignation or conversion shall be payable on the next following Interest Payment Date. (b) Interest on each Reference Rate Borrowing shall be computed on the basis of a year of 360 days and the actual number of days elapsed (which shall result in more interest being due than if a year of 365 days were used), at the Reference Rate times the total principal balance outstanding under each Note. Interest accrued on each Reference Rate Borrowing shall be payable on each Interest Payment Date, commencing with the first such date to occur after the Closing Date, and shall be deducted from the Account on each such Interest Payment Date. Insufficient funds in the Account shall not excuse the Company's obligation to pay accrued interest on the Interest Payment Date. The Agent shall use its best efforts to notify the Company of the amount of interest so payable prior to each Interest Payment Date, but failure of the Agent to do so shall not excuse payment of such interest when payable. Except as otherwise provided in Section 4.4, the unpaid principal amount of any Reference Rate Borrowing shall bear interest at a fluctuating rate per annum equal to the Reference Rate plus the Reference Rate Spread. Each change in the interest rate shall take effect simultaneously with the corresponding change in the Reference Rate. Each change in the Reference Rate shall be effective as of 12:01 a.m. on the Banking Day on which the change in the Reference Rate is announced, unless otherwise specified in such announcement, in which case the change shall be effective as so specified. (c) Interest on each LIBOR Borrowing shall be computed on the basis of a year of 360 days and the actual number of days elapsed (which shall result in more interest being due than if a year of 365 days were used). Interest accrued on each LIBOR Borrowing which is for a term of one month shall be payable on the next Interest Payment Date following the maturity date of that LIBOR Borrowing. Interest accrued on each other LIBOR Borrowing outstanding as of each Interest Payment Date, commencing with the first such -34- 41 date to occur after the Closing Date: (i) shall be payable on each such Interest Payment Date and shall be deducted from the Account on such date, and (ii) shall be payable on the next Interest Payment Date following the maturity date of that LIBOR Borrowing. Insufficient funds in the Account shall not excuse the Company's obligation to pay accrued interest on the Interest Payment Date. The Agent shall use its best efforts to notify the Company of the amount of interest so payable prior to each such date, but failure of the Agent to do so shall not excuse payment of such interest when payable. The unpaid principal amount of any LIBOR Borrowing shall bear interest at a rate per annum equal to the LIBOR Rate for that LIBOR Borrowing plus the applicable LIBOR Rate Spread. (d) If not sooner paid, the principal indebtedness evidenced by each Note shall be payable as follows: (i) subject to the applicable provisions of this Agreement providing for automatic redesignation of Borrowings upon compliance with Section 3.4, the principal amount of each LIBOR Borrowing shall be payable on the last day of the LIBOR Period for such Borrowing; (ii) the amount, if any, by which the principal indebted ness evidenced by each Note at any time exceeds the applicable Bank's Commitment shall be payable immediately; (iii) the amount of each payment required pursuant to Section 4.16 shall be payable immediately; and (iv) all remaining outstanding Loans (together with any and all other indebtedness not otherwise paid when due under the Loan Documents) shall be payable in full on the Maturity Date. (e) Each Note may, at any time and from time to time, be paid or prepaid in whole or in part, provided that (i) any partial prepayment shall be in an amount not less than $250,000, (ii) except as required by subsection (d) above, no LIBOR Borrowing may be paid or prepaid in whole or in part prior to the last day of the applicable LIBOR Period without the prior consent of each Bank, and, notwithstanding such required prepayment or such consent, any payment or prepayment of all or any part of any LIBOR Borrowing on a day other than the last day of the applicable LIBOR Period shall be made on a LIBOR Banking Day, as applicable, and shall be preceded by at least five (5) LIBOR Banking Days, as applicable, written notice to the Agent of the date -35- 42 and amount of such payment or payments, and (iii) any prepayment of a LIBOR Borrowing shall be accompanied by a prepayment fee calculated in accordance with subsection (f) below and any other amounts required to be paid pursuant to Section 4.8. In addition, if at any time the amount of any LIBOR Borrowing is reduced (by payment, prepayment or conversion of a part thereof) to an amount less than $1,500,000, such LIBOR Borrowing shall automatically convert into a Reference Rate Borrowing, and on and after such date the right of the Company to continue such Borrowing as a LIBOR Borrowing shall terminate. (f) Prepayment fees shall be calculated as follows: (i) $250; plus (ii) principal amount of the LIBOR Borrowing, times [the number of days between the date of prepayment and the last day in the applicable LIBOR Period] divided by 360, times the applicable Interest Differential; plus (iii) all reasonable out-of-pocket expenses (including Attorney Costs) incurred by the Banks and reasonably attributable to such prepayment; provided that no prepayment fee shall be payable (and no credit or rebate shall be required) if the product of the foregoing formula is not positive. For purposes of calculating any prepayment fee under this subsection (f), each LIBOR Borrowing (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR Base Rate used in determining the LIBOR Rate for such LIBOR Borrowing by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, regardless of whether such LIBOR Borrowing is so funded. The Agent's determination of the amount of any prepayment fee shall be conclusive in the absence of manifest error. Nothing contained in this Section 4.1 shall relieve the Company from its obligation to make interest payments to the Banks on each Interest Payment Date (in accordance with the terms and conditions contained herein) in the event the funds held in the Account are insufficient to make such interest payments on any such Interest Payment Date. 4.2 Facility Fee. For the period commencing on the date of this Agreement and ending on the Maturity Date, the Company shall pay to the Agent each -36- 43 quarter, for the account of each Bank in accordance with its Pro Rata Share, a facility fee (the "Facility Fee"), computed on the basis of a year of 360 days and the actual number of days elapsed, at the rate per annum determined in accordance with the pricing grid and guidelines set forth in Schedule 1.1(C), times the Total Aggregate Commitment. The Facility Fee shall be measured quarterly and shall be payable quarterly in arrears on October 1, January 1, April 1 and July 1 of each year, with the first such payment due January 1, 2000 (such first Facility Fee payment under this Agreement shall be prorated with any "unused fee" that accrued during the same quarterly period under Section 4.2 of the Prior Credit Agreement, and the prorated unused fee so determined shall be paid upon the effective date of this Agreement), except that upon payment of each Note in full, the Facility Fee accrued to the date of payment shall be payable on the date of payment. 4.3 Letter of Credit Annual Fees. For each Letter of Credit issued pursuant to this Agreement, the Company shall pay to the Agent, for the account of each Bank in accordance with its Pro Rata Share Bank, an annual fee (computed on the basis of a year of 360 days and the actual number of days elapsed) equal to the LIBOR Rate Spread in effect on the date of issuance of such Letter of Credit multiplied by the face amount of such Letter of Credit. Such annual fee shall be payable quarterly in advance, commencing with the date of issuance, and continuing each three months thereafter so long as the Letter of Credit is outstanding. 4.4 Late Payments. Should any installment of principal or interest or any fee or cost or other amount payable under any Loan Document to the Banks not be paid within 10 days of when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Reference Rate plus 3.00% per annum, to the fullest extent permitted by applicable Law. Accrued and unpaid interest on past due amounts (including, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by applicable Law. 4.5 Taxes. All payments payable to the Banks hereunder or with respect to the Loan Documents shall be made to the Banks without deductions for any Taxes or Other Taxes except to the extent the Company is required by any Law or Governmental Authority to withhold and except in accordance with Section 10.10 to the extent, if any, that such amounts are required to be withheld by the Agent under the laws of the United States of America or any other applicable taxing authority. 4.6 Illegality. (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the -37- 44 interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make LIBOR Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, any obligation of that Bank to make LIBOR Rate Loans shall be suspended until the Bank notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any LIBOR Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Agent), prepay in full such LIBOR Borrowings of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 4.8, either on the last day of the LIBOR Period thereof, if the Bank may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBOR Rate Loan. If the Company is required to so prepay any LIBOR Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Reference Rate Loan. (c) If the obligation of any Bank to make or maintain LIBOR Rate Loans has been so terminated or suspended, all Loans which would otherwise be made by the Bank as LIBOR Rate Loans shall be instead Reference Rate Loans. (d) Before giving any notice to the Agent under this Section, the affected Bank shall designate a different Lending Office with respect to its Reference Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 4.7 Increased Costs and Reduction of Return. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR Rate or in respect of the assessment rate payable by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank or reduction of return of agreeing to make or making, funding or maintaining any LIBOR Rate Loans, -38- 45 then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 4.8 Funding Losses. The Company shall reimburse each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Request for Borrowing or a Request for Redesignation of Borrowing; or (b) the prepayment (including pursuant to Section 4.16) or other payment (including after acceleration thereof) of a LIBOR Rate Loan on a day that is not the last day of the relevant LIBOR Period; or (c) the automatic conversion under Section 4.1(e) of any LIBOR Borrowing to a Reference Rate Borrowing on a day that is not the last day of the relevant LIBOR Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. Such loss or expense shall be calculated as follows: -39- 46 (i) principal amount of the LIBOR Borrowing, times [the number of days between the date of the event and the last day in the applicable LIBOR Period] divided by 360, times the applicable Interest Differential; plus (ii) all out-of-pocket expenses (including Attorney Costs) incurred by the Banks and reasonably attributable to such event; provided that no prepayment fee shall be payable (and no credit or rebate shall be required) if the product of the foregoing formula is not positive. For purposes of calculating amounts payable by the Company to the Banks under this Section 4.8, each LIBOR Borrowing (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR Base Rate used in determining the LIBOR Rate for such LIBOR Borrowing by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, regardless of whether such LIBOR Borrowing is so funded. 4.9 Inability to Determine Rates. If any Bank determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested LIBOR Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR Rate applicable pursuant to subsection 4.1(c) for any requested LIBOR Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to such Banks of funding such Loan, the Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain LIBOR Rate Loans, as the case may be, hereunder shall be suspended until the Agent upon the instruction of such Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Request for Borrowing or Request for Redesignation of Borrowing then submitted by it. If the Company does not revoke such Request, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Reference Rate Loans instead of LIBOR Rate Loans. 4.10 Reserves on LIBOR Rate Loans. The Company shall pay to each Bank, as long as such Bank shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as "Eurocurrency liabilities"), additional costs on the unpaid principal amount of each LIBOR Rate Loan equal to the actual costs of such reserves allocated to such Loan by the Bank (as determined by the Bank in good faith, which determination shall be conclusive), payable on each date on which interest is payable on such Loan, provided the Company shall have received at least 15 days' -40- 47 prior written notice (with a copy to the Agent) of such additional costs from the Bank. If a Bank fails to give notice 15 days prior to the relevant Interest Payment Date, such additional costs shall be payable 15 days from receipt of such notice. 4.11 Certificates of Banks. Any Bank claiming reimbursement or compensation under this Article 4 shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.12 Substitution of Banks. Upon the receipt by the Company from any Bank (an "Affected Bank") of a claim for compensation under Section 4.7 or Section 4.15, the Company may: (i) request the Affected Bank to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Company to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment (a "Replacement Bank"); or (ii) request one or more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment; or (iii) designate a Replacement Bank. Any such designation of a Replacement Bank under clause (i) or (iii) shall be subject to the prior written consent of the Agent (which consent shall not be unreasonably withheld). 4.13 Survival. The agreements and obligations of the Company in this Article 4 shall survive for one year following the payment in full of all Obligations. 4.14 Manner and Treatment of Payments. The amount of each payment hereunder or on each Note shall be made to Agent for the account of each applicable Bank in immediately available funds on the day of payment (which must be a Banking Day). Any payment received after 11:00 a.m., California time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. Whenever any payment to be made hereunder or on each Note is due on a day that is not a Banking Day, payment shall be made on the next succeeding Banking Day; provided that the extension shall be included in the computation of interest owing on the next following Interest Payment Date. Any payment of the principal of any LIBOR Borrowing shall be made on a LIBOR Banking Day as applicable. 4.15 Change in Capital Requirements; Additional Costs. If a Bank at any time subsequent to the date of this Agreement determines that the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank under any Law or any guideline, request or directive of any Governmental Authority is based on or increased by advances and/or commitments of the type contemplated by this Agreement, then Company shall pay to the Bank on demand such additional amounts as the Bank may reasonably determine to be -41- 48 sufficient to compensate the Bank or such other corporation in light of such circumstances to the extent that the Bank reasonably determines that the maintenance of such capital is allocable to advances and/or commitments under this Agreement. If the occurrence of any Special Circumstance or other regulatory development, or the imposition of any Tax or Other Tax, or change in applicable Law, shall result in an increase in the cost or reduction of return to the Bank of making, funding, maintaining or continuing the funding of any Borrowing, then Company shall pay to the Bank on demand such additional amounts as the Bank determines to be necessary to compensate the Bank for such increased cost. 4.16 Mandatory Prepayment. In addition to any other prepayments required herein, the Company shall make the following mandatory prepayments: (i) in the event that the aggregate principal amount of the outstanding Loans plus the L/C Obligations at any time exceeds the limitations specified in Section 3.6, the Company shall immediately make a prepayment of the Loans in such amount as is necessary to cause the amount of outstanding Loans plus L/C Obligations to comply with the limitations of Section 3.6; (ii) in the event that the Company offers or sells any equity or debt instruments or interests of any type or nature, all cash proceeds to the Company derived from such offerings or sales (net of actual and reasonable costs of the offerings or sales) shall be applied as mandatory principal prepayments on the Notes; and (iii) in the event that the Company merges or consolidates with or sells all or substantially all of its assets to any Person, all Obligations shall immediately become due and payable (the foregoing does not affect any other remedies available with respect to any other provisions of this Agreement or the other Loan Documents which may prohibit the foregoing events). All mandatory prepayments shall be applied first to all outstanding Reference Rate Borrowings before being applied to outstanding LIBOR Borrowings. 4.17 Other Fees and Consideration Payable to Bank of America. The Banks have been informed that pursuant to an amended and restated fee letter agreement of even date herewith between Bank of America and the Company (the "Fee Letter Agreement"), the Company has agreed to pay Bank of America for its sole benefit (i.e., not to be shared with the other Banks) other fees and compensation as consideration for Bank of America's performance of its duties as Agent under this Agreement, for its commitment to make the Loans and to issue Letters of Credit, and for other reasons, as more fully set forth in the Fee Letter Agreement. The Company covenants and agrees to pay such fees and compensation to Bank of America in accordance with the Fee Letter Agreement. 4.18 Computation of Interest and Fees. Computation of all types of interest and all fees payable hereunder (or under the Fee Letter Agreement) shall be calculated on the basis of a year of 360 days and the actual number of days elapsed, -42- 49 which results in a higher yield to Banks than a method based on a year of 365 or 366 days. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid (or deemed paid pursuant to Section 4.14), provided that any Loan that is repaid on the same day on which it is made shall bear interest for one day. ARTICLE 5: SECURITY. 5.1 Unsecured Credit. The Obligations shall be unsecured (except as specified in Section 9.2, or as may otherwise now or hereafter be specifically provided for to the contrary). ARTICLE 6: CONDITIONS. 6.1 Conditions to Disbursement of First Borrowings. The obligation of the Banks to make the first new disbursement of the Loan Proceeds is subject to the conditions precedent specified in Section 11.21. 6.2 Conditions for Subsequent Borrowings or for a Redesignation of Borrowings. The obligation of the Banks to make any subsequent disbursement of Loan Proceeds or redesignation of Borrowing is subject to the following conditions precedent: (a) the representations and warranties contained in Article 7, as of the latest reporting required under this Agreement, shall be correct in all Material respects on and as of the date of the Borrowing, or redesignation thereof, as though made on and as of that date, and no Event of Default or event that could become an Event of Default upon the giving of notice and/or the passage of time shall have occurred and be continuing; and (b) the Company shall, at its sole expense, deliver or cause to be delivered to the Agent, in form and substance satisfactory to the Agent, a Request for Borrowing or a Request for Redesignation of Borrowing, as applicable. 6.3 Any Borrowing. In addition to any applicable conditions precedent set forth elsewhere in this Article 6, the obligation of the Banks to make any Loan is subject to the conditions precedent that the representations and warranties contained in Article 7 shall be true and correct in all Material respects on and as of the date of such Loan as though made on and as of that date, and that there shall not have -43- 50 occurred any default which would constitute an Event of Default or which would upon notice or the passage of time constitute an Event of Default. ARTICLE 7: REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Agent and each Bank that: 7.1 Incorporation, Qualification, Powers and Capital Stock. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Maryland, is duly qualified to do business as, and is in good standing as, a foreign corporation in each jurisdiction in which the conduct of its business or the ownership, leasing or operation of its properties makes such qualifica tion necessary, and has all requisite power and authority to conduct its business and to own, lease and operate its properties. Without limiting the foregoing, the Company qualifies as, and has elected to be taxed as, a real estate investment trust under the Code. All outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid, nonassessable, and issued in compliance with all applicable state and federal securities and other Laws. 7.2 Execution, Delivery and Performance of Loan Documents. (a) The Company has all requisite power and authority to execute and deliver, and to perform all of its obligations under, the Loan Documents. (b) The execution and delivery by the Company of, and the performance by the Company of each of its obligations under, each Loan Document have been duly authorized by all necessary action and do not and will not: (i) require any consent or approval not heretofore obtained of any stockholder, security holder or creditor of the Company or any Subsidiary; (ii) violate any provision of the articles of incorporation or bylaws of the Company or any provision of the articles or certificate of incorporation or organization, bylaws, operating agreement or partnership agreement of any Subsidiary; (iii) result in or require the creation or imposition of any Lien (except to the extent that any Lien is created under this -44- 51 Agreement) upon or with respect to any property now owned or leased or hereafter acquired by the Company or any Subsidiary; (iv) violate any provision of any Law, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Company, any Subsidiary or any property owned by the Company or any Subsidiary; (v) result in a breach of or constitute a default under, or cause or permit the acceleration of any Contractual Obligation of the Company or any Subsidiaries. (c) The Company and each Subsidiary is not in default under any Law, order, writ, judgment, injunction, decree, determination, award, indenture, agreement, lease or instrument described in Sections 7.2(b)(iv) or 7.2(b)(v) above, in any respect that (i) is Materially adverse to the interests of the Banks, or that (ii) could Materially impair the ability of the Company to perform its obligations under the Loan Documents, or (iii) has a Material adverse effect on the business or financial condition of the Company or any Subsidiary. (d) No authorization, consent, approval, order, license, permit or exemption from, or filing, registration or qualification with, or other action by, or notice to any Governmental Authority not heretofore obtained is or will be required under applicable Law to authorize or permit the execution and delivery of, and performance by the Company of all of its obligations under, the Loan Documents. (e) Each of the Loan Documents, when executed and delivered, will constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency or other similar laws relating to or affecting creditors' rights generally or equitable principles relating to the granting of specific performance or other equitable remedies as a matter of judicial discretion. 7.3 Compliance with Laws and Other Requirements. The Company is in compliance with all Requirements of Law and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, permits and exemptions from, and has accomplished all filings, registrations or qualifications with, any Governmental Authority that are necessary for the transaction of its business. -45- 52 7.4 Subsidiaries. (a) Exhibit "E" hereto correctly sets forth the names and jurisdictions of incorporation or formation of all present Subsidiaries. Except as described in Exhibit "E", the Company does not own any capital stock, membership interest, equity interest or partnership interest in any Person other than the Subsidiaries. All outstanding shares of capital stock, membership interests or partnership interests, as the case may be, of each Subsidiary that are owned by the Company or any Subsidiary are (i) owned of record and beneficially by the Company and/or by one or more Subsidiaries, free and clear of all liens, claims, encumbrances and rights of others, and are (ii) duly authorized, validly issued, fully paid, nonassessable, and issued in compliance with all applicable state and federal securities and other Laws. The Company may update Exhibit "E" from time to time by sending written notice to the Agent. (b) Each Subsidiary is a corporation, partnership or limited liability company duly incorporated, formed or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, formation or organization (as applicable), is duly qualified to do business as, and is in good standing as, a foreign corporation, partnership or limited liability company in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, and has all requisite power and authority to conduct its business and to own and lease its properties. (c) Each Subsidiary is in compliance with all Requirements of Law and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, permits and exemptions from, and has accomplished all filings, registrations or qualifications with, any Governmental Authority that are necessary for the transaction of its business. 7.5 Affiliated Partnerships. There are no Affiliated Partnerships presently in existence which are not Subsidiaries listed on Exhibit "E" hereto. 7.6 Financial Statements of the Company and the Subsidiaries. The Company has furnished to the Banks a copy of the Pan Pacific Retail Properties, Inc. annual audited financial statements dated as of December 31, 1998, and quarterly unaudited financial statements through September 30, 1999, which contain certain financial information of the Company and its Subsidiaries. Such financial information fairly presents the consolidated financial position of the Company and the Subsidiaries as at the dates specified therein and the consolidated results of operations and cash -46- 53 flows for the periods then ended, all in conformity with GAAP applied on a consistent basis. 7.7 No Material Adverse Change. There has been no Material adverse change in the condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole, from the financial condition of the Company and the Subsidiaries, taken as a whole, as set forth in the financial statements described in Section 7.6 above, and the Company and the Subsidiaries, taken as a whole, do not have any Material liability or, to the best knowledge of the Company, Material contingent liability, not reflected or disclosed in the financial statements described in Section 7.6 above, except as may be disclosed in Schedule 7.7 hereto. 7.8 Tax Liability. The Company and each Subsidiary have filed all tax returns (federal, state and local) required to be filed by them and have paid all taxes shown thereon to be due and all property taxes due, including interest and penalties, if any. To the best knowledge of the Company, there does not exist any substantial likelihood that any Governmental Authority will successfully assert a tax deficiency against the Company or any Subsidiary that is Material to the Company and the Subsidiaries, taken as a whole, that has not been adequately reserved against in the financial statements described in Section 7.6. The Company and each Subsidiary has established and is maintaining adequate reserves for tax liabilities, if any, sufficient to comply with GAAP. 7.9 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the best knowledge of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against or affecting the Company or any Subsidiary, or any property of the Company or any Subsidiary, which, if determined adversely to the Company or the Subsidiary, could have a material adverse effect on the interests of any Bank, or could Materially impair the ability of the Company to perform its obligations under the Loan Documents, or could have a Material adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, except as may be disclosed in Schedule 7.9 hereto. 7.10 ERISA Compliance. (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all -47- 54 required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in (i) a Material adverse change in, or a Material adverse effect upon, the operations, business, properties, condition (financial or otherwise) of the Company, or (ii) a Material impairment of the ability of the Company to perform its obligations under the Loan Documents or to avoid any Event of Default. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in (i) a Material adverse change in, or a Material adverse effect upon, the operations, business, properties, condition (financial or otherwise) of the Company, or (ii) a Material impairment of the ability of the Company to perform its obligations under the Loan Documents or to avoid any Event of Default. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 7.11 Regulations U and X; Investment Company Act. Neither the Company nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the meanings of Regulation U of the FRB. No part of the Loan Proceeds will be used to purchase or carry any margin stock, or to extend credit to others for that purpose, or for any purpose that violates the provisions of Regulations U or X of the Board of Governors. Neither the Company nor any Subsidiary is or is required to be registered under the Investment Company Act of 1940. -48- 55 7.12 No Default. No event has occurred and is continuing that is an Event of Default or that could become an Event of Default upon the giving of notice and/or the passage of time. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all other such defaults, could reasonably be expected to (a) have a Material adverse effect on the business or financial condition of the Company or any Subsidiary, (b) be Materially adverse to the interests of the Banks, or (c) Materially impair the ability of the Company to perform its obligations under the Loan Documents. 7.13 Borrowing Base. The sum of the aggregate principal amount outstanding under the Loans plus the L/C Obligations does not exceed the Borrowing Base. 7.14 Environmental Matters. (a) Except as specifically disclosed in Schedule 7.14, the on-going operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except such non-compliance which would not ( if enforced in accordance with applicable law) result in liability in excess of $200,000 in the aggregate. (b) Except as specifically disclosed in Schedule 7.14, the Company and each of its Subsidiaries have obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for their respective ordinary course operations, all such Environmental Permits are in good standing, and the Company and each of its Subsidiaries are in compliance with all material terms and conditions of such Environmental Permits. (c) Except as specifically disclosed in Schedule 7.14, none of the Company, any of its Subsidiaries or any of their respective present property or operations, is subject to any outstanding written order from or agreement with any Governmental Authority, nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material. (d) Except as specifically disclosed in Schedule 7.14, there are no Hazardous Materials or other conditions or circumstances existing with respect to any property of the Company or any Subsidiary, or arising from operations of the Company or any Subsidiaries that would reasonably be expected to give rise to Environmental Claims with a potential liability of the -49- 56 Company and Subsidiaries in excess of $200,000 in the aggregate for any such condition, circumstance or property. In addition, (i) no underground storage tanks exist on any property owned or operated by the Company or any Subsidiary (x) that are not properly registered or permitted under applicable Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials off-site, and (ii) the Company and Subsidiaries have notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment and have met all notification requirements under Title III of CERCLA and all other Environmental Laws. 7.15 Insurance. The properties of the Company and each Subsidiary is insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. All such insurance is in compliance with the insurance requirements specified in this Agreement. 7.16 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any formation documents or other organizational or charter documents, or any Requirement of Law, which could reasonably be expected to (a) have a Material adverse affect on the business or financial condition of the Company or any Subsidiary, (b) be Materially adverse to the interests of the Banks, or (c) Materially impair the ability of the Company to perform its obligations under the Loan Documents. 7.17 Full Disclosure. None of the representations or warranties made by the Company in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Banks prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 7.18 Year 2000 Compliance. The Company has developed and budgeted for a comprehensive program to address the "Year 2000" problem (that is, the inability of computers, as well as embedded microchips in non-computing devices, to perform properly date-sensitive functions with respect to certain dates prior to and -50- 57 after December 31, 1999). The Company has implemented that program substantially in accordance with its timetable and budget and reasonably anticipates that it will substantially avoid the Year 2000 problem as to all computers, as well as embedded microchips in non-computing devices, that are material to the Company's business, properties or operations. The Company has developed feasible contingency plans adequately to ensure uninterrupted and unimpaired business operation in the event of failure of its own or a third party's systems or equipment due to the Year 2000 problem, including those of vendors, customers, and suppliers, as well as a general failure of or interruption in its communications and delivery infrastructure. ARTICLE 8: COVENANTS OF THE COMPANY. As long as any Note remains unpaid or any other Obligation remains outstanding or any Commitment remains in effect: 8.1 Consolidated Tangible Net Worth. The Company shall not permit Consolidated Tangible Net Worth at any time to be less than the sum of (a) $375,000,000 plus (b) 75% of the net proceeds from any equity offerings of the Company. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. 8.2 Debt Service Coverage Ratio. The Company shall not permit at any time the ratio of (a) Adjusted EBITDA to (b) Actual Debt Service to be less than 2.0 to 1.0. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. 8.3 Leverage Ratio. The Company shall not permit at any time the ratio (the "Leverage Ratio") of (a) Total Liabilities to (b) Aggregate Adjusted Current Value, to exceed .50 to 1.0. Notwithstanding anything in the definitions of "Total Liabilities" or "Aggregate Adjusted Current Value" to the contrary, the Leverage Ratio shall be computed so that (i) "Total Liabilities" shall also include the Company's direct or indirect proportionate interest in any Indebtedness of such Affiliated Partnerships, and (ii) "Aggregate Adjusted Current Value" shall also include the Company's direct or indirect proportionate interest in the value of any assets owned by such Affiliated Partnerships, determined in the same manner as for Assets. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. Notwithstanding the foregoing, the Company may request in writing of Agent (and Agent shall not unreasonably withhold its consent) that the maximum Leverage Ratio be increased to .55 to 1.0 for a period of no more than six (6) months, if and only if the fact that the Company's Leverage Ratio exceeds .50 to 1.0 is a direct result of the Company's acquisition of a company or a portfolio of properties having an acquisition cost greater -51- 58 than or equal to 15% of the Company's total assets immediately prior to such acquisition, determined in accordance with GAAP. In the event that Agent consents to a temporary increase in the Leverage Ratio in accordance with the immediately preceding sentence, then during the period of such temporary increase, the Reference Rate Spread and the LIBOR Rate Spread each shall be increased by 0.25% per annum. 8.4 Secured Debt Ratio. The Company shall not permit, at any time, the ratio of (a) the aggregate amount of Total Liabilities then secured by real property to (b) Aggregate Adjusted Current Value to exceed .35 to 1.0. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. 8.5 Unencumbered Asset Ratios. (a) the Company shall not permit, at any time, the ratio of (i) the aggregate amount of the Adjusted Current Values of all Unencumbered Assets to (ii) the aggregate amount of Total Liabilities which are not secured by real property to be less than 2.0 to 1.0. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. (b) Company shall not permit, at any time, the ratio of (i) the aggregate amount of the Adjusted Current Values of all Unencumbered Assets to (ii) Aggregate Adjusted Current Value to be less than .50 to 1.0. The foregoing covenant shall be tested quarterly as of the end of each calendar quarter. 8.6 Unencumbered Assets NOI to Total Unsecured Debt Service. The Company shall not, at any time, permit the ratio of Unencumbered Assets NOI to Total Unsecured Debt Service to be less than 2.0 to 1.0. This covenant shall be tested quarterly as of the last day of each calendar quarter, for each period consisting of four consecutive calendar quarters (i.e., it shall be tested on a rolling four calendar quarter basis as of the last day of each such quarter). 8.7 Limitations on Subsidiary Unsecured Indebtedness and Secured Indebtedness. No Subsidiary at any time: (i) shall have any Unsecured Indebtedness other than ordinary trade payables in the ordinary course of its business; nor (ii) shall have any Secured Indebtedness other than non-recourse Secured Indebtedness (except for an existing $4,500,000 letter of credit and guaranty with respect to the retail project in Chino, California, commonly known as "Chino Town Square"). 8.8 Payment of Taxes and Other Potential Liens. The Company shall pay and discharge promptly, and cause each Subsidiary to pay and discharge promptly, all taxes, assessments and governmental charges or levies imposed upon it, upon its -52- 59 property or any part thereof, upon its income or profits or any part thereof, or upon any right or interest of any Bank under or in respect of any Loan Document, except that neither the Company nor any Subsidiary shall be required to pay or cause to be paid (a) any income or gross receipts tax generally applicable to banks and imposed on any Bank, or (b) any tax, assessment, charge or levy that is not yet past due, or being actively contested in good faith by appropriate proceedings, as long as the Company or Subsidiary, as the case may be, has established and maintains adequate reserves for the payment of the same and, by reason of nonpayment, no property of the Company or any Subsidiary is in danger of being lost or forfeited. 8.9 Preservation of Existence. The Company shall preserve and maintain, and cause each Subsidiary to preserve and maintain, its corporate or partnership existence, as the case may be, and all licenses, rights, franchises and privileges in the jurisdiction of its incorporation or formation and all authorizations, consents, approvals, orders, licenses, permits or exemptions from, or registrations or qualifications with, any Governmental Authority that are necessary for the transaction of its business, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, to do business as a foreign corporation or partnership in each jurisdiction in which such qualification is necessary in view of its business or the ownership or leasing of its properties. 8.10 REIT Status; No Prohibited Transactions. The Company shall at all times elect to be taxed as, and shall take any and all action necessary to qualify as, a real estate investment trust under the Code. The Company shall not suffer or incur in any fiscal year any "net income from prohibited transactions" as defined in Sections 857 and 1221 of the Code, as those sections may be amended from time to time. 8.11 Maintenance of Properties. The Company shall maintain, preserve and protect, and cause each Subsidiary to maintain, preserve and protect, all of its properties in good order and condition, subject to wear and tear in the ordinary course of business and, in the case of unimproved properties, damage caused by the natural elements, and not allow any Subsidiary to suffer or permit any waste of its properties. 8.12 Maintenance of Insurance. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons; including workers' compensation insurance, public liability and property and casualty insurance which amount shall not -53- 60 be reduced by the Company in the absence of 10 days' prior notice to the Agent. All such insurance shall name the Agent as loss payee/mortgagee and as additional insured, for the benefit of the Banks, as their interests may appear. All casualty and key man insurance maintained by the Company shall name the Agent as loss payee and all liability insurance shall name the Agent as additional insured for the benefit of the Banks, as their interests may appear. Upon request of the Agent or any Bank, the Company shall furnish the Agent, with sufficient copies for each Bank, at reasonable intervals (but not more than once per calendar year) a certificate of the chief financial officer of the Company (and, if requested by the Agent, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company and its Subsidiaries in accordance with this Section (and which, in the case of a certificate of a broker, were placed through such broker). 8.13 Mergers. The Company shall not merge or consolidate, or permit any Subsidiary to merge or consolidate, with or into any Person, except that any Subsidiary existing on the date hereof may merge into the Company (provided that the surviving entity is the Company) or into any other Subsidiary; provided that if the transaction involves a merger of a Subsidiary and wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving corporation; and provided further that no Subsidiary who is a Guarantor at the time of the proposed merger shall merge with or into a non-guarantying Subsidiary. 8.14 Books and Records. The Company shall maintain, and cause each Subsidiary to maintain, full and complete books of account and other records reflecting the results of its operations in conformity with GAAP applied on a consistent basis and all applicable requirements of any Governmental Authority having jurisdiction over the Company or any Subsidiary or any business or properties of the Company or any Subsidiary. 8.15 Inspection Rights. At any time during regular business hours and at any other reasonable time, and as often as requested, the Company shall permit, and cause each Subsidiary to permit, each Bank or any employee, agent or representative thereof to inspect and make copies and abstracts from the records and books of account of, and to visit and inspect the properties of, the Company and any Subsidiary, and to discuss any affairs, finances and accounts of the Company and any Subsidiary with any of their respective officers or directors. 8.16 Reporting Requirements. The Company shall cause to be delivered to the Agent, in form and detail satisfactory to the Agent and the Majority Banks, with sufficient copies for each Bank, the following (together with any compliance certificates and supporting information requested by Agent): -54- 61 (a) As soon as available and in any event within 45 days after the end of each calendar quarter, unaudited consolidated balance sheets, statements of income, retained earnings and cash flows of the Company and the Subsidiaries for such period, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer or the treasurer of the Company. Additionally, the Company shall deliver with the unaudited consolidated balance sheets a schedule which shall reconcile the amounts used to calculate the covenants pursuant to Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.21(d), 8.25 and 8.29 to such unaudited consolidated balance sheet. (b) As soon as available and in any event within 90 days after the end of each calendar year, a consolidated balance sheet of the Company and the Subsidiaries as of the end of the calendar year most recently ended and consolidated statements of income, retained earnings and cash flows of the Company and the Subsidiaries for such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, audited by and with the unqualified opinion of an independent certified public accountants of nationally recognized standing selected by the Company and acceptable to the Majority Banks. (c) Within five (5) days of the sending or filing thereof, copies of each annual report, proxy or financial statement or other report or communication sent to the shareholders of the Company, and copies of all annual, regular, periodic and special filings, reports and registration statements which the Company or any of its Subsidiaries may file or be required to file with the Securities Exchange Commission or any similar or corresponding Governmental Agency, with any securities exchange or other national market trading system, or with the National Association of Securities Dealers, including Forms 8K, 10-K, 10-Q, 126-25 and NASD report no. 10b-17. (d) At the time of the delivery of the financial statements described in (a) and (b) above, a certificate of the chief financial officer or the treasurer of the Company stating that no event exists that is, or with the giving of notice and/or the passage of time would be, an Event of Default, or if such an event exists, stating the nature thereof and the action that the Company proposes to take with respect thereto. (e) As soon as practicable, and in any event within 45 days after the end of each calendar quarter, a report (including rent rolls and leasing activity summaries) covering each of the Assets and each of the real estate assets owned by one or more Subsidiaries showing the actual operating results -55- 62 of each Asset and each such other real estate asset for the calendar quarter most recently ended, duly certified by the chief financial office of the Company. (f) Within 45 days after the end of each calendar quarter, a certificate of the Company's chief financial officer or treasurer, together with such backup information as the Agent may reasonably require, demonstrating in reasonable detail that the Company was in compliance during the applicable period with the covenants set forth in Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.21(d), 8.25 and 8.29. (g) As soon as practicable, and in any event within 60 days after the end of each fiscal year, financial projections (including a balance sheet, income statement and statement of cash flows) for the Company and the Subsidiaries for the next succeeding three-year period. (h) Such other information about the business, assets, operation or condition, financial or otherwise, of the Company or any Subsidiary, as each Bank may reasonably request from time to time. 8.17 Notices. The Company shall promptly notify the Agent and each Bank: (a) of the occurrence of any Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become an Event of Default (and in each case such notice shall include the action that the Company proposes to take with respect thereto); (b) of (i) any breach or non-performance of, or any default under, any Contractual Obligation of the Company or any Subsidiaries that is Materially adverse to the interests of the Banks, or that could Materially impair the ability of the Company to perform its obligations under the Loan Documents, or that has a Material adverse effect on the business or financial condition of the Company or any Subsidiary, and (ii) any dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Company or any Subsidiaries and any Governmental Authority; (c) of the commencement of, or any Material development in, any litigation or proceeding affecting the Company or any Subsidiary (i) in which the amount of damages claimed is $1,000,000 or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, would reasonably be expected to be Materially adverse to the interests of the Banks, to Materially impair the ability of the Company to perform its obligations under -56- 63 the Loan Documents, or to have a Material adverse effect on the business or financial condition of the Company or any Subsidiary, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement or any Loan Document; (d) upon, but in no event later than 10 days after, becoming aware of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company or any Subsidiary or any of their respective properties pursuant to any applicable Environmental Laws, (ii) all other Environmental Claims, and (iii) any environmental or similar condition on any real property adjoining or in the vicinity of the property of the Company or any Subsidiary that could reasonably be anticipated to cause such property or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws; (e) of any other litigation or proceeding affecting the Company or any Subsidiaries which the Company would be required to report to the Securities Exchange Commission pursuant to the Exchange Act, within four days after reporting the same to the Securities Exchange Commission; (f) of any of the following events affecting the Company, together with a copy of any notice with respect to such event that may be required to be filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company with respect to such event: (i) an ERISA Event; (ii) if any of the representations and warranties in Section 7.10 ceases to be true and correct; (iii) the adoption of any new Pension Plan or other Plan subject to Section 412 of the Code; (iv) the adoption of any amendment to a Pension Plan or other Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; or (v) the commencement of contributions to any Pension Plan or other Plan subject to Section 412 of the Code; and -57- 64 (g) of any material change in accounting policies or financial reporting practices by the Company or any Subsidiaries. Each notice under this Section shall be accompanied by a written statement by the Company's chief financial officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection (a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 8.18 Liens. The Company shall not create, incur, assume or allow to exist any Lien of any nature upon or with respect to any Asset in the Borrowing Base Properties Pool, except the following permissible Liens: (a) Liens for taxes, assessments or governmental charges or levies to the extent that neither the Company nor any Subsidiary is required to pay the amount secured thereby under Section 8.8; and (b) Liens imposed by law, such as carrier's, warehouseman's, mechanic's, materialman's and other similar Liens, arising in the ordinary course of business in respect of obligations that are not overdue or are being actively contested in good faith by appropriate proceedings, as long as the Company or Subsidiary, as the case may be, has established and maintains adequate reserves for the payment of the same and, by reason of nonpayment, no property of the Company or any Subsidiary is in danger of being lost or forfeited. 8.19 No Other Negative Pledge. The Company shall not covenant or otherwise agree with any Person (other than the Banks and Agent pursuant to this Agreement), whether in connection with obtaining or modifying credit accommo dations from such Person, or incurring other Indebtedness, or otherwise, to keep its Unencumbered Assets free of any or all Liens. 8.20 Prepayment of Indebtedness. If an Event of Default has occurred and is continuing or an acceleration of the Obligations has occurred, the Company shall not prepay the principal amount, in whole or in part, of any Indebtedness other than (a) Obligations owed to each Bank hereunder or under some other agreement between the Company and such Bank, and (b) Indebtedness which ranks pari passu with the Obligations and which is or becomes due and owing whether by reason of acceleration or otherwise. -58- 65 8.21 Loans and Investments. The Company shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any commitment to purchase or acquire, any capital stock, equity interest or any obligations or securities of, or any interest in, any Person, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person, including any Affiliate, except for: (a) investments in cash equivalents; (b) Extensions of credit by the Company, in the ordinary course of business and at market terms, to any of its wholly-owned Subsidiaries or by any of its wholly-owned Subsidiaries to another of its wholly-owned Subsidiaries; (c) Extensions of credit by the Company to tenants leasing space within the Assets for the build out of tenant improvements within the Assets, provided that the aggregate amount of all such extensions of credit (outstanding plus committed) shall not at any time exceed $1,000,000; or (d) investments in Persons, provided that (i) any such investment is undertaken in accordance with all Requirements of Law; (ii) the Company's (or a Subsidiary's) percentage ownership interest in such Person after such investment will not cause such Person to become a Subsidiary; and (iii) the aggregate amount of all such Investments shall not at any time exceed an amount equal to 15% of the Aggregate Adjusted Current Value; or (e) investments in existing partnerships which the Company, as of the date hereof, is a partner (as reflected in Schedule 8.21(e) hereof). 8.22 Compliance with Laws and Other Requirements. (a) The Company shall comply, and cause each Subsidiary to comply, with all Requirements of Law and orders of any Governmental Authority. (b) The Company shall comply, and cause each Subsidiary (to the extent they are so engaged) to comply, with all Requirements of Law relating to the development, management and operation of each of its real estate assets, and shall obtain, and cause each Subsidiary (to the extent they are so engaged) to obtain, all necessary authorizations, consents, approvals, licenses and permits of any Governmental Authority with respect thereto. -59- 66 8.23 Change in Nature of Business. The Company shall not make, or permit any Subsidiary to make, any change in the nature of its or their respective businesses as carried on at the date hereof that is Material to the Company and Subsidiaries, taken as a whole, which has not been consented to by the Majority Banks in writing. 8.24 Compliance with ERISA. The Company shall , and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. In addition, the Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $500,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.25 Dividends. The Company shall not declare or pay any dividend on any of its capital stock now or hereafter outstanding which exceeds the lesser of (a) 100% of the Funds From Operations for the calendar quarter in which such dividend is paid, and (b) 95% of the average quarterly Funds From Operations (calculated based upon the current calendar quarter and the immediately preceding three calendar quarters. Notwithstanding the foregoing, the Company may pay dividends that exceed the foregoing limitation to the extent (but only to the extent) that the payment of such dividends is necessary to maintain its status as a real estate investment trust under the Code. 8.26 Disposition of Properties. The Company shall not, and shall not permit the Subsidiaries to, sell, assign, exchange, transfer, lease or otherwise dispose of any of their respective properties (whether real or personal), other than properties sold, assigned, exchanged, transferred, leased or otherwise disposed of for fair value and in the ordinary course of business. 8.27 Management; Ownership. The Company shall at all times, unless the Majority Banks otherwise agree, maintain Stuart Tanz as president and chief executive officer of the Company. 8.28 Compliance with Availability Limits. The Company shall not permit the aggregate outstanding principal amount of the Loans plus the L/C Obligations to exceed the lesser of (a) the Total Aggregate Commitment, or (b) the Borrowing Base. -60- 67 8.29 Development Limitation. The Company and its Subsidiaries shall not commit to, commence or continue construction of any improvements (excluding normal repair or rehabilitation work on currently owned properties) on any undeveloped or partially developed property of the Company or any of its Subsidiaries, if the cost to complete such construction, together with the aggregate cost to complete construction of all other improvements to be constructed on undeveloped or partially developed property of the Company or any of its Subsidiaries, would exceed 10% of the Aggregate Adjusted Current Value. 8.30 Environmental Laws. (a) The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. (b) Upon the written request of the Agent or any Bank, the Company shall submit and cause each of its Subsidiaries to submit, to the Agent with sufficient copies for each Bank, at the Company's sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report required pursuant to Section 8.17(d), that could, individually or in the aggregate, result in liability in excess of $50,000. 8.31 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital purposes not in contravention of any Laws or of any Loan Document. Without limiting the foregoing, the Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry "margin stock" as such term is defined in Regulation G, T, U or X of the FRB, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry margin stock, (iii) to extend credit for the purpose of purchasing or carrying any margin stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. 8.32 Transactions with Affiliates. The Company shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Company, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 8.33 Accounting Changes. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting -61- 68 treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT. 9.1 Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: (a) failure to pay within 5 days after the date when due the principal of each Note or any portion thereof or any interest thereon; or (b) failure to pay any fee or any other amount payable by the Company or any Subsidiary under the Loan Documents within 15 days after the date when due; or (c) failure to perform or observe any other term, covenant or agreement contained in any Loan Document on the Company's or any Subsidiary's part to be performed or observed, and such failure shall continue uncured for a period of thirty (30) days following notice from the Agent to the Company (provided, however, that the cure period specified in this subparagraph (c) shall not be applicable to any of the other Events of Default set forth in the other subparagraphs of this Section 9.1, or with respect to the failure to perform any covenants set forth in Sections 8.12 or 8.13, or with respect to any other provisions of any of the other Loan Documents as to which a cure period is specifically stated); or (d) any representation or warranty in any Loan Document or in any certificate, agreement, instrument or other document made or delivered pursuant to or in connection with any Loan Document proves to have been incorrect when made in any respect that is materially adverse to the interests of any Bank under the Loan Documents; or (e) the occurrence of any default under any other agreement between the Company and any Bank, including without limitation, the failure to pay when due (or within any stated grace period) the principal or any principal installment of, or any interest, on any present or future indebtedness for borrowed money owed by the Company to any Bank; or (f) the Company, any Subsidiary or any Guarantor is dissolved or liquidated or all or substantially all of the assets of the Company -62- 69 are sold or otherwise transferred or encumbered without the prior written consent of each Bank; or (g) the Company, any Subsidiary or any Guarantor is the subject of an order for relief by any bankruptcy court, or is unable or admits in writing its inability to pay its debts as they mature or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of the Company, Subsidiary or Guarantor and the appointment continues undischarged or unstayed for 60 days; or institutes or consents to any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, custodianship, conservatorship, liquidation, rehabilitation or similar proceeding relating to it or to all or any part of its property under the laws of any jurisdiction; or any similar proceeding is instituted without the consent of the Company, Subsidiary or Guarantor and continues undismissed or unstayed for 45 days; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against all or any part of the property of the Company, any Subsidiary or any Guarantor and is not released, vacated or fully bonded within 45 days after its issue or levy; or (h) the Majority Banks have reasonably determined that a Material adverse change has occurred since the date hereof in the operations, business or financial condition of the Company and the Subsidiaries taken as a whole, and 30 calendar days have elapsed since the date that notice of such determination is given to the Company; or (i) the Company, any Subsidiary or any Guarantor shall (i) fail to pay any indebtedness to any other Person or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness, or (ii) fail to perform any term, covenant or condition on its part to be performed under any agreement or instrument relating to any such indebtedness, when required to be performed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or -63- 70 (j) any Guarantor shall reject or disaffirm its Guaranty, or otherwise notify the Agent that it does not intend the Guaranty or its liability thereunder to apply to any one or more future Borrowings or other Obligations; or (k) (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $500,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $500,000; or (l) any Borrowing Base Certificate proves to have been incorrect in any Material respect when delivered to the Agent. 9.2 Remedies. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the Commitment of each Bank to make Loans to be terminated, whereupon such Commitments shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (g) of Section 9.1, the obligation of each Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. Upon the occurrence of any Event of Default, the Company shall immediately pay to Agent, for the benefit of the Banks, an amount (the "L/C Obligations Amount") -64- 71 equal to the aggregate outstanding L/C Obligations; and upon written receipt of the payment of the L/C Obligations Amount, the Agent shall deposit such funds in an interest-bearing cash account (the "Cash Account") in the name of the Company maintained with the Agent as to which the Company shall have no right of withdrawal except as provided below. The Company hereby irrevocably authorizes and directs the Agent to apply amounts on deposit in the Cash Account against draws on the outstanding Letters of Credit as such draws are made. The Agent shall have, and is hereby granted, a security interest in the Cash Account and all funds therein, to secure all Obligations owing to the Agent and the Banks by the Company. Upon expiration of all Letters of Credit and payment in full of all draws thereunder and all outstanding Loans and other Obligations, the amounts then on deposit in the Cash Account and any interest accrued thereon shall then be returned to the Company (to the extent any funds remain in the Cash Account after application of such funds as provided above.) 9.3 Rights Not Exclusive. The rights and remedies of the Agent and Banks provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE 10: THE AGENT. 10.1 Appointment and Authorization. Each Bank hereby irrevocably appoints, designates and authorizes the Agent to take such action in its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 10.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. -65- 72 10.3 Liability of Agent. None of the Agent-Related Persons shall: (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or for the value of or title to any collateral, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.4 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of each Bank as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of each Bank -66- 73 and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 6.1 and Section 11.21, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 10.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such default or Event of Default as may be requested by the Majority Banks in accordance with Article 9; provided, however, that unless and until the Agent has received any such request, 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 or in the best interest of the Banks. 10.6 Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, the value of and title to any collateral, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, -67- 74 operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 10.7 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligations of the Company to do so), pro rata, from and against any and all liabilities covered by any indemnification hereunder; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such liabilities resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including attorney costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 10.8 Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Agent hereunder and without notice to or consent of the Banks. Each Bank acknowledges that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to it. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" include Bank of America in its individual capacity. -68- 75 10.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks upon the written consent of the Company and the Banks (which consents shall not be unreasonably withheld). If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint a successor agent from among the Banks upon the written consent of the Company and the Banks (which consents shall not be unreasonably withheld). Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. If Bank of America reduces its Commitment to zero dollars hereunder (and a percentage obligation of zero), or Bank of America dissolves, liquidates, or ceases doing business (it being understood that a merger would not constitute dissolution, liquidation or cessation of business), the Majority Banks may require Bank of America to discontinue acting as Agent hereunder, and the Majority Banks may appoint a new Agent. 10.10 Withholding Tax. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such -69- 76 Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank in accordance with Section 11.6, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank in accordance with Section 11.6, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or -70- 77 because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. 10.11 Collateral Matters. (a) [Intentionally Deleted.] (b) The Banks irrevocably authorize the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent upon any collateral (i) upon termination of the Commitments and payment in full of all Loans and all other Obligations known to the Agent and payable under this Agreement or any other Loan Document; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any disposition permitted hereunder; (iii) constituting property in which the Company or any Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting property leased to the Company or any Subsidiary under a lease which has expired or been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Company or such Subsidiary to be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness or other debt instrument, if the indebtedness evidenced thereby has been paid in full; or (vi) if approved, authorized or ratified in writing by all the Banks. Upon request by the Agent at any time, the Banks will confirm in writing the Agent's authority to release particular types or items of collateral. (c) Each Bank agrees with and in favor of each other (which agreement shall not be for the benefit of the Company or any Subsidiary) that the Company's obligation to such Bank under this Agreement and the other Loan Documents is not and shall not be secured by any real property collateral now or hereafter acquired by such Bank. 10.12 Performance by the Agent. In the event that the Company shall default in or fail to perform any of its obligations under the Loan Documents, which default is not cured within any applicable cure period, the Agent shall have the right, but not the duty, without limitation upon any of the Agent's or the Banks' rights -71- 78 pursuant thereto, to perform the same, and the Company agrees to pay to the Agent within five (5) Banking Days after demand, all reasonable costs and expenses incurred by the Agent in connection therewith, including without limitation reasonable Attorney Costs, together with interest thereon from the date which is 5 Banking Days after demand until paid at a rate per annum equal to the Reference Rate plus 3%. 10.13 Actions. The Agent shall have the right to commence, appear in, and defend any action or proceeding purporting to affect the rights or duties of the Banks hereunder or the payment of any funds, and in connection therewith the Agent may pay necessary expenses, employ counsel, and pay Attorney Costs. The Company agrees to pay to the Agent, within 5 Banking Days after demand, all reasonable costs and expenses incurred by the Agent in connection therewith, including without limitation reasonable Attorney Costs, together with interest thereon from the date which is 5 Banking Days after demand until paid at a rate per annum equal to the Reference Rate plus 3%. 10.14 Co-Agent. Notwithstanding anything contained herein which may be construed to the contrary, the Co-Agent shall not exercise any of the rights or have any of the responsibilities of the Agent hereunder, or any other rights or responsibilities other than its rights and responsibilities as a Bank hereunder. ARTICLE 11: MISCELLANEOUS. 11.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Agent at the written request of the Majority Banks) and the Company and acknowledged by the Agent, and then any such waiver of consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank, unless such Bank has consented thereto in writing; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; -72- 79 (c) reduce the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; (e) amend the definitions of Borrowing Base or Majority Banks, or amend Sections 3.5 or 3.6; (f) amend this Section or any provision herein providing for consent or other action by all Banks; (g) discharge any Guarantor, or release any Material portion of any collateral except where the consent of the Majority Banks only is specifically provided for; or (h) amend, or perform any act pursuant to, any provision herein expressly requiring the consent of each Bank; and, provided further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document. Each Bank shall bear its Pro Rata Share of all costs and expenses incurred in any amendment, waiver or consent pursuant to this Agreement. 11.2 Costs, Expenses and Taxes. The Company shall pay on demand the reasonable costs and expenses of the Agent and the Banks in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver and enforcement of the Loan Documents and any matter related thereto and any litigation or dispute with respect thereto (including any bankruptcy or similar proceedings), including without limitation Attorney Costs; provided, however, the Company shall not be liable for any expenses of any Bank other than Bank of America (for itself and as Agent) in connection with the negotiation and preparation of the Loan Documents (provided further, that the immediately preceding proviso shall not be deemed to limit the right of each Bank to payment from the Company of all reasonable costs and expenses incurred by each Bank as aforesaid in connection with any and all future administration, amendments, waivers, enforcement actions, litigation, negotiations and other actions or matters other than assignments or participations with respect to which the only amounts payable shall be the processing fee owing pursuant to Section 11.6(a) relating to the Loans and Loan Documents). Any amount payable to -73- 80 the Agent and the Banks under this Section 11.2 shall, from the date of demand for payment, and any other amount payable to the Agent under the Loan Documents which is not paid when due or within any applicable grace period shall, thereafter, bear interest at the rate in effect under each Note with respect to Reference Rate Borrowings. 11.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.4 Payments Set Aside. To the extent that the Company makes a payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar proceeding relating to or affecting creditors' rights generally or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its Pro Rata Share of any amount so recovered from or repaid by the Agent. 11.5 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank, and no Bank may assign or transfer any of its rights or obligations under this Agreement except in accordance with Section 11.6. 11.6 Assignments, Participations, etc. (a) Any Bank may, with the written consent of (i) the Company at all times other than during the existence of an Event of Default (which consent shall not be unreasonably withheld) and (ii) the Agent (which consent shall not be unreasonably withheld), at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an affiliate of such Bank) -74- 81 which have not been a party to any Material litigation with the Agent or the Company (each an "Assignee") all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Bank hereunder, in an initial minimum amount of $10,000,000 and in minimum amounts of $1,000,000 after the first assignment; provided, however, that (A) each Bank (including each Eligible Assignee) must retain a Commitment of not less than $15,000,000 after giving effect to such assignment (unless such assignor Bank transfers and assigns all of its Commitment hereunder), and (B) the Company and the Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (1) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (2) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit "G" ("Assignment and Acceptance") together with any Note or Notes subject to such assignment and (3) the assignor Bank has paid to the Agent a processing fee in the amount of $3,000. All costs and expenses incurred by an assigning Bank in such assignment shall be borne by such Bank. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to and received the consent of the Company with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Banking Days after its receipt of notice by the Agent that it has received an executed Assignment and Acceptance and payment of the processing fee (and provided that it consents to such assignment in accordance with Section 11.6(a)), the Company shall execute and deliver to the Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this -75- 82 Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. (d) Any Bank may, with the written consent (which consent shall not be required if the participation is to an affiliate of the Bank) of (i) the Company at all times other than during the existence of an Event of Default (which consent shall not be unreasonably withheld) and (ii) the Agent (which consent shall not be unreasonably withheld), at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (A) the originating Bank's obligations under this Agreement shall remain unchanged, (B) the originating Bank shall remain solely responsible for the performance of such obligations, (C) the Company and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (D) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section 11.1. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 4.5, 4.7, 4.8 and 11.12 as though it were also a Bank hereunder, and, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on such Company's or Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by -76- 83 the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder, and (H) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. (f) Notwithstanding any other provision in this Agreement, the parties to this Agreement acknowledge and agree that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments, and do not prohibit or restrict assignments by any Bank creating security interests, including any pledge or assignment by a Bank of any Loan or Note or other rights or interests in or to this Agreement (or any portion thereof) in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14 or any other applicable law, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable Law. The Company, upon receipt of written notice from the applicable Bank, agrees to issue Notes to any Bank requiring Notes to facilitate transactions of the type described in this paragraph. 11.7 Set-off. Subject to Section 3.8 and in addition to any rights and remedies of the Banks provided by Law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final excluding the Company's customer trust accounts) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to the Banks, now or hereafter existing, irrespective of whether or not the -77- 84 Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 11.8 Automatic Debits. With respect to any principal or interest payment, commitment fee or usage fee, or any other cost or expense (including Attorney Costs), due and payable to the Agent or the Banks under the Loan Documents, the Company hereby irrevocably authorizes and directs the Agent to debit any deposit account of the Company with the Agent (as one of the Banks) in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such payment, fee, or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the payment, fee, other cost or expense then due, such debits will be reversed (in whole or in part, in the Agent's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 11.9 Notification of Addresses, Lending Offices, Etc. Each Bank shall notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 11.10 Survival of Representations, Warranties and Indemnifications. All representations, warranties and indemnifications made by the Company herein or in any certificate or other writing delivered by or on behalf of the Company pursuant to any Loan Document will survive the making and repayment of the Loan and the execution and delivery of each Note, and have been or will be relied upon by each Bank, notwithstanding any investigation made by such Bank or on its behalf. 11.11 Notices. Except as otherwise provided herein or in each Note: (a) all notices, requests, demands, directions and other communications provided for hereunder and under each Note must be in writing and must be mailed, telecopied, delivered or sent by telex or cable to the appropriate party at the address set forth on the signature pages of this Agreement or, as to any party, at any other address as may be designated by it in a written notice sent to the other party in accordance with this Section 11.11, and -78- 85 (b) if any notice, request, demand, direction or other communication is given by mail it will be effective on the earlier of receipt or the third calendar day after deposit in the United States mails with first class or airmail postage prepaid; if given by telecopier, when receipt is confirmed by the recipient; if given by cable, when delivered to the telegraph company with charges prepaid; if given by telex, when sent; or if given by personal delivery, when delivered. 11.12 Indemnity by the Company. The Company agrees to indemnify, save and hold harmless each Bank, the Agent and their directors, officers, agents, attorneys and employees (collectively the "indemnitees") from and against (a) any and all claims, demands, actions or causes of action that are asserted against any indemnitee by any Person if the claim, demand, action or cause of action directly or indirectly relates to a claim, demand, action or cause of action that the Person has or asserts against the Company or any officer, director or shareholder of the Company, and (b) any and all liabilities, losses, costs or expenses (including Attorney Costs) that any indemnitee suffers or incurs as a result of the assertion of any such claim, demand, action or cause of action. 11.13 Integration and Severability. This Agreement and the other Loan Documents comprise the complete and integrated agreement of the parties on the subject matter hereof and supersede all prior agreements (including without limitation all prior letter agreements), written or oral, on the subject matter hereof. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions or the operation, enforceability or validity of that provision in any other jurisdiction, and to this end the provisions of the Loan Documents are declared to be severable. 11.14 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.15 No Third Parties Benefitted. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Agent and the Agent-Related Persons, and their successors and permitted assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. -79- 86 11.16 Section Headings. Section headings in this Agreement are included for convenience of reference only and are not part of this Agreement for any other purpose. 11.17 Further Acts by the Company. The Company agrees, at its own expense, to do such acts and execute and deliver such documents as any Bank from time to time reasonably requires for the purpose of carrying out the intention or facilitating the performance of the terms hereof. 11.18 Time of the Essence. Time is of the essence of the Loan Documents. 11.19 Governing Law. The Loan Documents shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California without regard to the conflict of law provisions thereof. 11.20 Reference and Arbitration. (a) In any judicial action between or among the parties, including any action or cause of action arising out of or relating to this Agreement or the Loan Documents or based on or arising from an alleged tort, all decisions of fact and law shall at the request of any party be referred to a referee in accordance with California Code of Civil Procedure Sections 638 et seq. The parties shall designate to the court a referee or referees selected under the auspices of the American Arbitration Association ("AAA") in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (b) Any controversy or claim between or among the parties, including those arising out of or relating to this Agreement or the Loan Documents and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the AAA. The arbitrator(s) shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having -80- 87 jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (c) No provision of this Section 11.20 shall limit the right of any party to this Agreement to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. 11.21 Effectiveness of this Agreement. Notwithstanding anything contained herein to the contrary, the effectiveness of the Banks' and the Agent's obligations hereunder are expressly conditioned upon satisfaction of all of the following conditions precedent (any one or more of which the Banks may waive in their sole discretion): (a) The Agent shall have received the following original executed documents (in form and substance satisfactory to the Agent and legal counsel for the Agent in sufficient number for the Agent and each Bank): (i) this Agreement; (ii) each Note; (iii) the Guaranty (if any); (iv) the Opinion of Counsel (provided that the Opinion o of Counsel with respect to the Subsidiaries may be deferred until no later than 30 days following the effective date of this Agreement) ; (v) a certified copy of resolutions of the board of directors of the Company authorizing the execution of the Loan Documents, together with an incumbency certificate executed by the corporate secretary of the Company; (vi) a certified copy of resolutions of the board of directors of each Guarantor (if any) authorizing the execution of the Guaranty, together with an incumbency certificate executed by the corporate secretary of each Guarantor (if any); and -81- 88 (vii) such other agreements, instruments and documents as any Bank shall reasonably request. (b) The Agent shall have received evidence satisfactory to the Agent and legal counsel to the Agent that the Company has been duly incorporated, validly exists and is in good standing under the laws of the State of Maryland, is duly qualified to do business as, and is in good standing as, a foreign corporation in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, and has all requisite power and authority to conduct its business and to own and lease its properties. (c) The Agent shall have received and approved (i) updated legal organizational charts of the Company and the Subsidiaries, (ii) updated Schedules to be attached to this Agreement upon execution hereof, (i) financial projections (including a balance sheet, income statement and statement of cash flows) on an annual basis through the year ended 12/31/2002, and (ii) pro forma covenant compliance calculations for the same period. (d) The Agent shall have determined that no default exists under the Prior Credit Agreement, and that no default shall exist under this Agreement as of the execution hereof. (e) The Agent shall have received all fees that are payable by the Company upon the closing of this transaction as set forth in the Fee Letter Agreement, and all of Agent's legal fees and costs payable to its counsel Sheppard, Mullin, Richter & Hampton LLC in connection with this Agreement. 11.22 Possible Increase in the Total Aggregate Commitment As of the Closing Date, the Total Aggregate Commitment will be $200,000,000. However, the parties hereto acknowledge that, with the consent of the Agent and the Company only, new banks may be added to the Agreement and/or existing Banks may choose to increase their individual Commitment, so that the Total Aggregate Commitment may be increased, subsequent to the Closing Date, up to a maximum of $250,000,000. Each of the Banks acknowledges and agrees that their consent to any such increase in the Total Aggregate Commitment shall not be required and additional Banks may be added to this Agreement, and any existing Banks under this Agreement may increase their Commitments without the consent or agreement of the other Banks (provided, however, that no Bank's individual Commitment may be increased without such Bank's consent); so long as the Agent and the Company have consented in writing to such new Banks or the increase in the Commitment of any of the existing Banks, as applicable. Agent shall not unreasonably withhold its consent to the Company's -82- 89 request for an increase in the Total Aggregate Commitment under this Section, except that (i) any proposed new Bank must be acceptable to Agent in its sole discretion, (ii) the fees to be paid by Borrower for such increase must be acceptable to Agent and the new Bank (or the existing Bank if its Commitment is increased) in their sole discretion, and (iii) all requirements of this Section must be satisfied. The addition of any new Bank to this Agreement, or the increase in the Commitment of any existing Bank, shall be effective upon the satisfaction of the following: (a) Agent shall have sent written notice of such new Bank or increase in the Commitment of any existing Bank to the other Banks hereunder, together with notice of such new Bank's Commitment or such existing Bank's increase in its Commitment; (b) The Company shall have executed and delivered to Agent a new Note with respect to any new Bank in the amount of such new Bank's Commitment; or with respect to an increase in the Commitment of an existing Bank, the Company shall have executed a replacement Note for such existing Bank in an amount equal to the increased Commitment amount; (c) With respect to (i) new Banks under this Agreement, each new Bank shall acknowledge in writing (in a form satisfactory to Agent) that it is assuming the rights and obligations of a "Bank" under this Agreement, and shall execute a copy of this Agreement with a notation on the signature page as to the amount of such new Bank's Commitment; and (ii) existing Banks that increase their Commitment, each such existing Bank shall execute a replacement signature page for this Agreement, with the increased amount of such existing Bank's increased Commitment noted thereon; and (d) The Company, and each new Bank and each existing Bank that wishes to increase its Commitment, shall execute and deliver to Agent such additional documents as Agent and its legal counsel shall require to carry out the intent of this Section. -83- 90 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. THE COMPANY: PAN PACIFIC RETAIL PROPERTIES, INC., A MARYLAND CORPORATION By:____________________________________ Stuart A. Tanz, Director Chairman, Chief Executive Officer and President By:____________________________________ Joseph B. Tyson, Executive Vice President and Chief Financial Officer Address for notices: Pan Pacific Retail Properties, Inc. 1631-B South Melrose Drive Vista, California 92083 Attention: Mr. Stuart Tanz Telephone: (760) 727-1002 Telecopier: (760) 727-1430 -84- 91 THE BANKS: BANK OF AMERICA, N.A., AS SUCCESSOR TO BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, A NATIONAL BANKING ASSOCIATION By:____________________________________ Robert N. Allen, Vice President Address for Notices: Bank of America, N.A. Real Estate Structured Debt Group CA9-706-06-02 555 South Flower Street, 6th floor Los Angeles, California 90071-2385 Attention: Mr. Robert Allen Telephone: 213-228-5479 Telecopier: 213-228-3421 LIBOR Lending Office: Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614-8525 Attention: Ms. Nancy Miller Telephone: (949) 260-5768 Telecopier: (949) 260-5637 -85- 92 U.S. BANK NATIONAL ASSOCIATION, (FKA: FIRST BANK NATIONAL ASSOCIATION) By:____________________________________ ____________________________________ [Printed Name and Title] Address for Notices: U.S. Bank National Association Real Estate Banking Division 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Mr. Michael Raarup Telephone: (612) 973-2102 Telecopier: (612) 973-0830 LIBOR Lending Office: U.S. Bank National Association Real Estate Banking Division 601 Second Avenue South Minneapolis, Minnesota 55402 Attention: Joni Hanson Ruiz Telephone: (612) 973-1158 Telecopier: (612) 973-0830 -86- 93 KEYBANK NATIONAL ASSOCIATION By:____________________________________ ____________________________________ [Printed Name and Title] Address for Notices: KeyBank National Association 127 Public Square, 6th floor OH-01-27-0603 Cleveland, Ohio 44114 Attention: Mr. Kevin P. Murray Telephone: (216) 689-4660 Telecopier: (216) 689-4997 LIBOR Lending Office: KeyBank National Association 127 Public Square OH-01-27-0603 Cleveland, Ohio 44114 Attention: Ms. Julie Lewis Telephone: (216) 689-0219 Telecopier: (216) 689-3566 -87- 94 THE BANK OF NOVA SCOTIA By:____________________________________ ____________________________________ [Printed Name and Title] Address for Notices: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, California 94104 Attention: Ms. Kate Piggett Telephone: (415) 616-4154 Telecopier: (415) 397-0791 LIBOR Lending Office: The Bank of Nova Scotia 600 Peachtree Street N.E., Suite 2700 Atlanta, Georgia 30308 Attention: Mr. Mark Francois Telephone: (404) 877-1577 Telecopier: (404) 888-8998 -88- 95 FIRST UNION NATIONAL BANK (AS SUCCESSOR TO SIGNET BANK) By:____________________________________ John Schissel, Relationship Manager Address for Notices: First Union National Bank One First Union Center, NC 0166 Charlotte, North Carolina 28288-0166 Attention: Mr. John Schissel Telephone: (704) 383-1967 Telecopier: (704) 383-6205 LIBOR Lending Office: First Union National Bank One First Union Center, NC 0166 Charlotte, North Carolina 28288 Attention: Ms. Greg Ponder Telephone: (704) 715-1055 Telecopier: (704) 383-7989 -89- 96 SANWA BANK CALIFORNIA, A CALIFORNIA CORPORATION By:____________________________________ ____________________________________ [Printed Name and Title] Address for Notices: Sanwa Bank California 4041 MacArthur Boulevard, Suite 100 Newport Beach, California 92660 Attention: Mr. Kurt Mair Telephone: (949) 622-6004 Telecopier: (949) 833-3275 LIBOR Lending Office: Sanwa Bank California 4041 MacArthur Boulevard, Suite 100 Newport Beach, California 92660 Attention: Ms. Betty Myers Telephone: (949) 622-6020 Telecopier: (949) 852-1510 -90- 97 DRESDNER BANK, AG, NEW YORK AND GRAND CAYMAN BRANCHES By:____________________________________ ____________________________________ [Printed Name and Title] Address for Notices: Dresdner Bank AG, Los Angeles Agency 333 South Grand Avenue, Suite 1700 Los Angeles, California 90071 Attention: Mr. John L. Cobus Telephone: (213) 473-5431 Telecopier: (213) 473-5450 LIBOR Lending Office: Dresdner Bank AG, Los Angeles Agency 333 South Grand Avenue, Suite 1700 Los Angeles, California 90071 Attention: Ms. Natividad Taduran Telephone: (212) 429-2516 Telecopier: (212) 429-2130 -91- 98 THE AGENT: BANK OF AMERICA, N.A., AS SUCCESSOR TO BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, A NATIONAL BANKING ASSOCIATION By:____________________________________ Robert N. Allen, Vice President Address for Notices: (Agent's Payment Office) Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614-8525 Attention: Ms. Nancy Miller Telephone: (714) 260-5768 Telecopier: (714) 260-5637 -92- 99 EXHIBIT "A" AMENDED AND RESTATED NOTE $_________________ December __, 1999 Irvine, California FOR VALUE RECEIVED, Pan Pacific Retail Properties, Inc., a Maryland corporation (the "Company"), promises to pay to the order of ____________________ _______________________________________________ ("Bank") the principal amount of _________________________________ AND NO/100 DOLLARS ($___________), or such lesser aggregate amount of Loans as may be made pursuant to Bank's Commitment under the Credit Agreement hereinafter described, payable as hereinafter set forth. Company promises to pay interest on the principal amount hereof remaining unpaid from time to time from the date hereof until the date of payment in full, payable as hereinafter set forth. Reference is made to the Amended and Restated Credit Agreement of even date herewith among Company and the Banks (the "Agreement"). Terms defined in the Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Agreement. This is one of the Notes referred to in the Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. This Amended and Restated Note amends and restates and supersedes in its entirety that certain Note dated August 13, 1997, in the face principal amount of $__________, executed by the Company in favor of Bank pursuant to the Prior Credit Agreement. The principal indebtedness evidenced by this Note shall be payable as provided in the Agreement and in any event on the Maturity Date (which is December 20, 2002, as provided in the Agreement). Interest shall be payable on the outstanding daily unpaid principal amount of each Loan hereunder from the date thereof until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Agreement both before and after default and before and after maturity and judgment, with interest on overdue EXHIBIT "A" -- Page 1 100 interest to bear interest at the rate set forth in Section 4.4 of the Agreement, to the fullest extent permitted by applicable Law. The amount of each payment hereunder shall be made to Bank at Agent's office located in [Irvine], California, for the account of Bank, in lawful money of the United States of America and in immediately available funds not later than 11:00 a.m., California time, on the day of payment (which must be a Banking Day). All payments received after 11:00 a.m., California time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. Bank shall use its best efforts to keep a record of Loans made by it and payments of principal with respect to this Note, and such record shall be presumptive evidence of the principal amount owing under this Note. Company hereby promises to pay all costs and expenses of any holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of any holder's rights hereunder, including Attorney Costs, whether or not an action is filed in connection therewith. Company hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable Laws. Assignment of this Note is subject to the consent of certain parties pursuant to Section 11.6 of the Agreement. This Note shall be delivered to and accepted by Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the internal Laws thereof without regard to the choice of law provisions thereof. "Company" PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: -------------------------------------- -------------------------------------- [Printed Name and Title] EXHIBIT "A" -- Page 2 101 By: --------------------------------------- --------------------------------------- [Printed Name and Title] EXHIBIT "A" -- Page 3 102 EXHIBIT "B" BORROWING BASE CERTIFICATE The undersigned, being the duly elected chief financial officer of Pan Pacific Retail Properties, Inc., a Maryland corporation, hereby certifies that the following is a true and correct calculation of the Borrowing Base as of _____________, 199__: [AGENT TO PROVIDE FORM OF CALCULATION AND SCHEDULES IT WOULD DESIRE] PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: ------------------------------------- ------------------------------------- [Printed Name and Title] By: ------------------------------------- ------------------------------------- [Printed Name and Title] EXHIBIT "B" -- Page 1 103 EXHIBIT "C-1" REQUEST FOR BORROWING 1. This REQUEST FOR BORROWING is executed and delivered by the Company to the Agent for the Banks pursuant to the Amended and Restated Credit Agreement (the "Agreement") dated as of December 20, 1999, entered into by the Company, the Banks and the Agent. Any terms used herein and not defined herein shall have the meanings defined in the Agreement. 2. The Company hereby requests that the Banks make a Loan for the account of the Company pursuant to the Agreement, as follows: (a) Amount of Loan: $________________. (b) Date of Loan: _______________, 19__. (c) Type of Loan (check one box only): [ ] Reference Rate Borrowing. [ ] LIBOR Borrowing with a ____-month LIBOR Period ending _______________, 19__. 3. In connection with the Loan requested herein, the Company hereby represents, warrants and certifies to the Banks that, as of the date of the Loan requested herein: Each representation and warranty made by the Company in Article 7 of the Agreement will be true and correct, both immediately before and after such Loan is made, as though such representation and warranty was made on and as of the date of such Loan, provided, however, the representations and warranties made by the Company in Section 7.13 of the Agreement are true and correct as of the last reporting under the Agreement; no actions, suits or proceedings will be pending against or affecting the Company or any of its Subsidiaries or any property of any of them in any court of Law or before any Governmental Authority which might reasonably be expected to Materially adversely affect the business, operations or financial condition of the Company and its Subsidiaries taken as a whole; no Material adverse change will have occurred in the business, operations or financial condition of the Company and its Subsidiaries taken as a whole since the Closing Date; and no Event of Default or event that upon notice or passage of time would constitute an Event of Default will have occurred and be continuing. (If any of the foregoing statements is not true and EXHIBIT "C-1" -- Page 1 104 correct, attach a statement specifying in detail the circumstances thereof and the actions the Company is taking or proposes to take with respect thereto.) 4. This Request for Borrowing is executed on ____________, 19__, by a Responsible Official of the Company on behalf of the Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. Dated: ------------------ PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] EXHIBIT "C-1" -- Page 2 105 EXHIBIT "C-2" REQUEST FOR LETTER OF CREDIT 1. This REQUEST FOR LETTER OF CREDIT is executed and delivered by the Company to the Agent for the Banks pursuant to the Amended and Restated Credit Agreement (the "Agreement") dated as of December 20, 1999, entered into by the Company, the Banks and the Agent. Any terms used herein and not defined herein shall have the meanings defined in the Agreement. 2. The Company hereby requests that the Issuing Bank issue a Letter of Credit in accordance with the L/C Application accompanying this request. 3. In connection with the Letter of Credit requested herein, the Company hereby represents, warrants and certifies to the Banks that, as of the date of the Letter of Credit requested herein: Each representation and warranty made by the Company in Article 7 of the Agreement will be true and correct, both immediately before and after such Letter of Credit is issued, as though such representation and warranty was made on and as of the date of such issuance, provided, however, the representations and warranties made by the Company in Section 7.13 of the Agreement are true and correct as of the last reporting under the Agreement; no actions, suits or proceedings will be pending against or affecting the Company or any of its Subsidiaries or any property of any of them in any court of Law or before any Governmental Authority which might reasonably be expected to Materially adversely affect the business, operations or financial condition of the Company and its Subsidiaries taken as a whole; no Material adverse change will have occurred in the business, operations or financial condition of the Company and its Subsidiaries taken as a whole since the Closing Date; and no Event of Default or event that upon notice or passage of time would constitute an Event of Default will have occurred and be continuing. (If any of the foregoing statements is not true and correct, attach a statement specifying in detail the circumstances thereof and the actions the Company is taking or proposes to take with respect thereto.) 4. This Request for Letter of Credit is executed on ____________, 19__, by a Responsible Official of the Company on behalf of the Company. The EXHIBIT "C-2" -- Page 1 106 undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. Dated: ------------------- PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] EXHIBIT "C-2" -- Page 2 107 EXHIBIT "D" REQUEST FOR REDESIGNATION OF BORROWING 1. This REQUEST FOR REDESIGNATION OF BORROWING is executed and delivered by the Company to the Agent for the Banks pursuant to the Amended and Restated Credit Agreement (the "Agreement") dated as of December 20, 1999, entered into by the Company, the Banks and the Agent. Any terms used herein and not defined herein shall have the meanings defined in the Agreement. 2. The Company hereby requests that the Banks redesignate outstanding Reference Rate Borrowings heretofore made or redesignated for the account of the Company pursuant to the Agreement, as follows: (a) Total Amount of Loans to be Redesignated: $---------------. (b) Date of Redesignation: ________________, 19__. (c) Type of Loan as so Redesignated: LIBOR Borrowing with a ____-month LIBOR Period ending _______________, 19__. 3. In connection with the redesignation of Borrowing requested herein, the Company hereby represents, warrants and certifies to the Banks that, as of the date of the Loan requested herein: Each representation and warranty made by the Company in Article 7 of the Agreement will be true and correct, both immediately before and after such redesignation of Borrowing is made, as though such representation and warranty was made on and as of the date of such redesignation of Borrowing, provided, however, the representations and warranties made by the Company in Section 7.13 of the Agreement are true and correct as of the last reporting under the Agreement; no actions, suits or proceedings will be pending against or affecting the Company or any of its Subsidiaries or any property of any of them in any court of Law or before any Governmental Authority which might reasonably be expected to Materially adversely affect the business, operations or financial condition of the Company and its Subsidiaries taken as a whole; no Material adverse change will have occurred in the business, operations or financial condition of the Company and its Subsidiaries taken as a whole since the Closing Date; and no Event of Default or event that upon notice or passage of time would constitute an Event of Default will have occurred and be continuing. (If any of the foregoing statements is not true and EXHIBIT "D" -- Page 1 108 correct, attach a statement specifying in detail the circumstances thereof and the actions the Company is taking or proposes to take with respect thereto.) 4. This Request for Redesignation of Borrowing is executed on ____________, 19__, by a Responsible Official on behalf of the Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. Dated: ------------------ PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] By: ------------------------------------------ ------------------------------------------ [Printed Name and Title] EXHIBIT "D" -- Page 2 109 EXHIBIT "E" SUBSIDIARIES 1. Pan Pacific Development (Tennessee) Acquisition, Inc., a Delaware corporation 2. Pan Pacific Development (Rosewood), Inc., a California corporation 3. Pan Pacific Development (Olympia Square), Inc., a Washington corporation 4. Pan Pacific Development (Kentucky), Inc., a Kentucky corporation 5. Sahara Pavilion North - U.S., Inc., a Nevada corporation 6. Pan Pacific Development (New Mexico), Inc., a New Mexico corporation 7. Pan Pacific Development (Chino), Inc., a Delaware corporation 8. Melrose Village Plaza Partners, a California general partnership 9. Tanasbourne Village Limited Partnership, an Oregon limited partnership 10. North Coast Health Center Joint Venture, a California general partnership 11. Pan Pacific U.S. Shopping Center I Limited Partnership, a Delaware limited partnership EXHIBIT "E" -- Page 1 110 EXHIBIT "F" FORM OF LEGAL OPINION _________________, 199___ Bank of America, N.A., as successor to Bank of America National Trust and Savings Association, as Agent and to the Banks that are, or may become, parties to the to the Agreement c/o Bank of America, N.A. Real Estate Structured Debt Group CA9-706-06-02 555 South Flower Street, 6th floor Los Angeles, California 90071-2385 Attention: Mr. Robert Allen Re: PAN PACIFIC RETAIL PROPERTIES, INC. Ladies and Gentlemen: We have acted as special counsel to Pan Pacific Retail Properties, Inc., a Maryland corporation (the "Company"), in connection with the execution and delivery of an Amended and Restated Credit Agreement, dated as of even date herewith (the "Agreement") by and among the Company and Bank of America, N.A., as successor to Bank of America National Trust and Savings Association, a national banking association, and other Banks that are, or may become, parties to the Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Agreement. In our capacity as counsel for the Company, we have made such legal and factual inquiries and examinations as we deemed advisable for purposes of rendering this opinion, and, in the course thereof, we have examined originals, or copies of originals certified to our satisfaction, of such agreements, documents, certificates and other statements of government officials, officers of the Company and EXHIBIT "F" -- Page 1 111 others as we deemed relevant and necessary as a basis for this opinion. We have relied upon such certificates and documents with respect to the accuracy of factual matters contained therein, which factual matters were not independently established or verified by us. In all such examinations, we have assumed the genuineness of all signatures by each party and the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as conformed or photostatic copies. For the purpose of the opinions hereinafter expressed, we have assumed the due execution and delivery, pursuant to due authorization, of each document referred to herein by each party thereto other than the Company and the Subsidiaries and that each document constitutes the valid and binding obligation of each party thereto other than the Company and the Subsidiaries, enforceable against such party in accordance with its terms. On the basis of our inquiries and examinations, and subject to the qualifications, exceptions, assumptions and limitations contained herein, we are of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and is qualified to do business in the jurisdictions in which the nature of the property owned or leased by the Company or the nature of the business transacted by the Company makes such qualification necessary, except where the failure to be so qualified would not have a Material adverse effect on the business or financial condition of the Company and the Subsidiaries taken as a whole. 2. The execution, delivery and performance by the Company of the Agreement and each Note pursuant thereto are within the Company's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (a) the Company's certificate of incorporation or bylaws, (b) any law or (c) any agreement or instrument identified to us by the Company as being Material to the business or financial condition of the Company and the Subsidiaries taken as a whole. 3. The Agreement is, and the Notes when delivered thereunder will be, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 4. No action of, or filing with, or approval or other action by, any governmental or public body or authority which has not been taken, made or obtained is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of the Agreement and the Notes. EXHIBIT "F" -- Page 2 112 5. Each Subsidiary is duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Subsidiaries is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which the ownership of property or the nature of the business transacted by such Subsidiary makes such qualification necessary. 6. To the best of our knowledge, the Company owns all of the issued and outstanding capital stock of each of the Subsidiaries. Very truly yours, ------------------------------------- EXHIBIT "F" -- Page 3 113 EXHIBIT "G" FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and Acceptance") dated as of __________, 199__ is made between ______________________________ (the "Assignor") and ______________________________ (the "Assignee"). RECITALS WHEREAS, the Assignor is party to that certain Amended and Restated Credit Agreement dated as of December 20, 1999 (as amended, amended and restated, modified, supplemented or renewed, the "Credit Agreement") among Pan Pacific Retail Properties, Inc., a Maryland corporation (the "Company"), the several financial institutions from time to time party thereto (including the Assignor, the "Banks"), and Bank of America, N.A., as successor to Bank of America National Trust and Savings Association, as agent for the Banks (the "Agent"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans (the "Committed Loans") to the Company in an aggregate amount not to exceed $__________ (the "Commitment"); WHEREAS, [the Assignor has made Committed Loans in the aggregate principal amount of $__________ to the Company] [no Committed Loans are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, [together with a corresponding portion of each of its outstanding Loans, in an amount equal to $__________ (the "Assigned Amount") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; EXHIBIT "G" -- Page 1 114 NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. Assignment and Acceptance. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except as provided in this Assignment and Acceptance) __% (the "Assignee's Percentage Share") of (A) the Commitment [and the Loans] of the Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [If appropriate, add paragraph specifying payment to Assignor by Assignee of outstanding principal of, accrued interest on, and fees with respect to, Committed Loans and L/C Obligations assigned.] (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee 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. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Section ___ and ___ of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $__________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $__________. EXHIBIT "G" -- Page 2 115 2. Payments. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $__________, representing the Assignee's Pro Rata Share of the principal amount of all Committed Loans. (b) The [Assignor] [Assignee] further agrees to pay to the Agent a processing fee in the amount specified in Section [ ](__) of the Credit Agreement. 3. Reallocation of Payments. Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment [and] Loans shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. Independent Credit Decision. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section [ ](__) of the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, 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 credit and legal decisions in taking or not taking action under the Credit Agreement. 5. Effective Date; Notices. (a) As between the Assignor and the Assignee, the effective date for this Assignment and Acceptance shall be __________, 199__ (the "Effective Date"); provided that the following conditions precedent have been satisfied on or before the Effective Date: EXHIBIT "G" -- Page 3 116 (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section [ ](__) the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; [(iv) the Assignee shall have complied with Section [ ](__) of the Credit Agreement (if applicable); (v) the processing fee referred to in Section 2(b) hereof and in Section [ ](__) of the Credit Agreement shall have been paid to the Agent; and (vi) the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Percentage Share of the rights and obligations of the Assignor under the Credit Agreement (if such agreement exists). (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company [, the Issuing Bank] and the Agent for acknowledgment by the Agent, a Notice of Assignment [substantially] in the form attached hereto as Schedule 1. [6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AGENT] (a) The Assignee hereby appoints and authorizes the Assignor 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 Banks pursuant to the terms of the Credit Agreement. (b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Agent under the Credit Agreement.] 7. Withholding Tax. The Assignee (a) represents and warrants to the Bank, the Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Bank with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the EXHIBIT "G" -- Page 4 117 United States or any State thereof) to the Agent and the Company prior to the time that the Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. Representations and Warranties. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. (b) The Assignor 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. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. EXHIBIT "G" -- Page 5 118 (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. Further Assurances. The Assignor and the Assignee each hereby agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Agent, which may be required in connection with the assignment and assumption contemplated hereby. 10. Miscellaneous. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. EXHIBIT "G" -- Page 6 119 (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in California over any suit, action or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such [California] State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. [Reference] (f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN). [Other provisions to be added as may be negotiated between the Assignor and the Assignee, provided that such provisions are not inconsistent with the Credit Agreement.] IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: ------------------------------------- ------------------------------------- [Printed Name and Title] EXHIBIT "G" -- Page 7 120 [ASSIGNEE] By: ------------------------------------- ------------------------------------- [Printed Name and Title] EXHIBIT "G" -- Page 8 121 SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE _________________, 19__ Bank of America, N.A., as Agent _______________________________ _______________________________ Attn:__________________________ Pan Pacific Retail Properties, Inc. _______________________________ _______________________________ Attn:__________________________ Ladies and Gentlemen: We refer to the Amended and Restated Credit Agreement dated as of December 20, 1999 (as amended, amended and restated, modified, supplemented or renewed from time to time the "Credit Agreement") among Pan Pacific Retail Properties, Inc., a Maryland corporation (the "Company"), the Banks referred to therein and Bank of America, N.A., as successor to Bank of America National Trust and Savings Association, as agent for the Banks (the "Agent"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the assignment by __________________ (the "Assignor") to _______________ (the "Assignee") of _____% of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitments of the Assignor and all outstanding Loans made by the Assignor) pursuant to the Assignment and Acceptance Agreement attached hereto (the "Assignment and Acceptance"). Before giving effect to such assignment, the Assignor's Commitment is $ ___________ and the aggregate amount of its outstanding Loans is $_____________. After giving effect to such assignment, the Assignor's Commitment shall be $______________ and the Assignee's Commitment shall be $______________. SCHEDULE 1 -- Page 1 122 2. The Assignee agrees that, upon receiving the consent of the Agent and, if applicable, the Company to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. 3. The following administrative details apply to the Assignee: (A) Notice Address: Assignee name: __________________________ Address:_________________________________ _________________________________ _________________________________ Attention:_______________________________ Telephone: (___) _______________________ Telecopier: (___) ______________________ Telex (Answerback):______________________ (B) Payment Instructions: Account No.:_____________________________ At:_____________________________ _____________________________ _____________________________ Reference:_______________________________ Attention:_______________________________ 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. SCHEDULE 1 -- Page 2 123 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By: ------------------------------------- Title: ---------------------------------- By: ------------------------------------- Title: ---------------------------------- [NAME OF ASSIGNEE] By: ------------------------------------- Title: ---------------------------------- By: ------------------------------------- Title: ---------------------------------- SCHEDULE 1 -- Page 3 124 ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation By: ------------------------------------ Title: --------------------------------- By: ------------------------------------ Title: --------------------------------- BANK OF AMERICA, N.A., as successor to Bank of America National Trust and Savings Association, as Agent By: ------------------------------------ Title: --------------------------------- By: ------------------------------------ Title: --------------------------------- SCHEDULE 1 -- Page 4 125 SCHEDULE 1.1(A) LIST OF ASSETS 1. Arlington Courtyard 30. Monterey Plaza 2. Auburn North 31. Ocoee Plaza 3. Bear Creek Plaza 32. Olympia Square 4. Brookvale Shopping Center 33. Olympia West 5. Canyon Ridge 34. Oregon City 6. Canyon Square 35. Oregon Trail 7. Cheyenne Commons 36. Pacific Commons Shopping 8. Chico Crossroads Center 9. Chino Town Square 37. Palmdale Shopping Center 10. Claremont Village 38. Panther Lake Shopping Center 11. Country Club Center 39. Pioneer Plaza 12. Creekside Center 40. Powell Valley Junction 13. Fairmont Shopping Center 41. Rainbow Promenade 14. Fashion Faire Place 42. Rancho Las Palmas 15. Foothill Center 43. Rosewood Village 16. Glen Cove Shopping Center 44. Sahara Pavilion North 17. Green Valley Town & Country 45. Sahara Pavilion South 18. Hermiston Plaza 46. San Dimas Marketplace 19. Hood River Shopping Center 47. Sandy Marketplace 20. Laguna Village 48. Shute Park Plaza 21. Lakewood Center 49. Southgate Shopping Center 22. Laurentian Center 50. Sunset Mall & Office 23. The Manteca Marketplace 51. Sunset Square 24. Marina Village 52. Tacoma Central 25. Maysville Marketsquare 53. Tanasbourne 26. Melrose Village Plaza 54. Tustin Heights Shopping 27. Memphis Retail Center Center 28. Milwaukie Marketplace 55. Vineyard Village East 29. Mira Loma Center 56. Westwood Village Shopping Center 57. Winterwood SCHEDULE 1.1(A) 126 SCHEDULE 1.1(B) DESIGNATED RESPONSIBLE OFFICIALS 1. Stuart A. Tanz, Director Chairman, Chief Executive Officer and President 2. Jeff Stauffer, Executive Vice President and Chief Operating Officer 3. Joseph B. Tyson, Executive Vice President and Chief Financial Officer 4. Laurie A. Sneve, Vice President and Controller SCHEDULE 1.1(B) 127 SCHEDULE 1.1(C) PRICING GRID
LIBOR Rate Reference Facility Fee Company's Credit Rating Spread Rate Spread (per annum) - ----------------------- ---------- ----------- ------------ BBB+/Baa1 or better 1.05% 0.0% 0.15% BBB/Baa2 1.10% 0.0% 0.175% BBB-/Baa3 1.15% 0.0% 0.20% Less than BBB-/Baa3 (or not rated) 1.45% 0.25% 0.25% and Leverage Ratio greater than or equal to .45 to 1 Less than BBB-/Baa3 (or not rated) 1.35% 0.25% 0.25% and Leverage Ratio greater than or equal to .35 to 1 but less than .45 to 1 Less than BBB-/Baa3 (or not rated) 1.25% 0.25% 0.25% and Leverage Ratio less than .35 to 1
The applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee shall be determined in accordance with the foregoing pricing grid and the following guidelines (and any other applicable provisions of the Agreement): (i) The above credit ratings refer to the Company's current senior long term debt ratings (or lack thereof) as published by Standard & Poors or Moody's Investor Services. If a difference in rating between Standard & Poors and Moody's Investor Services exists, the lower rating shall be deemed the Company's credit rating for purposes of the foregoing pricing grid. If the Company has received a rating from either of Standard & Poors and Moody's Investor Services, but not both, the rating received by the Company shall be deemed the Company's credit rating for purposes of the foregoing pricing grid. (ii) For purposes of determining the Reference Rate Spread, LIBOR Rate Spread and Facility Fee, the Leverage Ratio shall be determined quarterly as of the last day of the last month of each calendar quarter. If such determination discloses a change in SCHEDULE 1.1(C) 128 the Leverage Ratio which results in a change in the applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee, such change shall be effective on the first day of the third month of the ensuing calendar quarter. For example, if the Leverage Ratio tested as of September 30, 1999 was .35 to 1, and changed to .28 to 1 as of December 31, 1999, the lower applicable LIBOR Rate Spread would become effective as of March 1, 2000. In addition to the above, if Agent redetermines the Reference Rate Spread, LIBOR Rate Spread or Facility Fee pursuant to subparagraph (iii) below, Agent may also redetermine the Leverage Ratio at that time. (iii) The Company shall notify Agent immediately of any change in the Company's credit rating as described above. If such change in the Company's credit rating results in a decrease to the applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee described above, such change to the applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee shall become effective on the first Banking Day following Agent's receipt of the Company's notice. If such change in the Company's credit rating results in an increase to the applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee described above, then such change in the applicable Reference Rate Spread, LIBOR Rate Spread or Facility Fee shall be effective on the next Banking Day following the date on which the change in the Company's credit rating is first announced or published by the rating agency (regardless of when the Company's notice is received by Agent, if at all). (iv) The Reference Rate Spread and the LIBOR Rate Spread, as determined above, are subject to further increase under Section 8.3 of the Agreement. SCHEDULE 1.1(C) 129 SCHEDULE 3.5(c) ASSETS INITIALLY CONSTITUTING THE BORROWING BASE PROPERTIES POOL Arlington Courtyard Bear Creek Plaza Brookvale Canyon Ridge Plaza Cheyenne Commons Chico Crossroads Claremont Village Creekside Fairmont Fashion Faire Glen Cove Green Valley Laguna Village Lakewood Center Manteca Marketplace Memphis Retail Center (formerly known as Sports Unlimited) Milwaukie Marketplace Mira Loma Ocoee Plaza Pacific Commons Palmdale Panther Lake Pioneer Plaza Powell Valley Sahara Pavilion South Shute Park Plaza Sunset Square Vineyard Village East Winterwood Pavilion SCHEDULE 3.5(c) 130 SCHEDULE 7.7 MATERIAL ADVERSE CHANGES AND MATERIAL LIABILITIES None. SCHEDULE 7.7 131 SCHEDULE 7.9 MATERIAL LITIGATION AND OTHER ACTIONS None. SCHEDULE 7.9 132 SCHEDULE 7.14 ENVIRONMENTAL MATTERS 1. Marina Village - This Asset has environmental contamination which was remediated just prior to acquisition by the Company. This Asset is in a monitoring only period at the end of which a "clean letter" is expected. No further remediation work is required at this time. SCHEDULE 7.14 133 SCHEDULE 8.21(e) DESCRIPTION OF EXISTING PARTNERSHIPS 1. North Coast Health Center Joint Venture, a California general partnership 2. Pan Pacific Development (Tennessee), Limited Partnership, a California limited partnership 3. Pan Pacific U.S. Shopping Center I Limited Partnership, a Delaware limited partnership 4. Maysville Marketsquare Associate Limited Partnership, a Kentucky limited partnership SCHEDULE 8.21(e) EX-10.20 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.20 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of October 11, 1999, by and between PAN PACIFIC RETAIL PROPERTIES, INC., a Maryland corporation (the "Company") and JOSEPH B. TYSON ("Executive"). 1. EMPLOYMENT The Company hereby employs Executive and Executive hereby accepts employment upon the terms, and conditions set forth below. 2. TERM AND RENEWAL 2.1 Term. The term of this Agreement shall commence on the date of this Agreement (the "Effective Date"), and shall continue for two years from the Effective Date (the "Original Employment Term"), on the terms and conditions set forth below, unless sooner terminated as provided in Section 5. 2.2 Extension. Following the expiration of the Original Employment Term and provided that this Agreement has not been terminated pursuant to Section 5, and every year thereafter, the Agreement shall renew for an additional 12 month period, effective on each anniversary date of the Effective Date. 2.3 Non-Renewal. In the event the Company does not renew this Agreement, the Company shall pay Executive no later than the date of such non-renewal, as a single severance payment, an amount equal to one (1) year's Base Compensation and Bonus Compensation pursuant to Sections 3.1 and 3.2. For purposes of this Section 2.3, the bonus will be equal to the prior year's bonus or fifty percent (50%) of Base Compensation assumed if no actual bonus history is available. 3. COMPENSATION 3.1 Base Compensation. For the services to be rendered by Executive under this Agreement, Executive shall be entitled to receive, commencing as of the Effective Date, an initial annual base compensation ("Base Compensation') of $175,000, payable in substantially equal semi-monthly installments. The Base Compensation shall be reviewed and adjusted annually as determined by the Compensation Committee (the "Compensation Committee") of the Board of Directors (the "Board") of the Company. 3.2 Bonus Compensation. The Compensation Committee shall review Executive's performance at least annually during each year of the Original Employment Term and during any periods of automatic extension of this Agreement pursuant to Section 2.2 and cause the Company to award Executive a cash bonus which the Compensation Committee shall reasonably determine 2 as fairly compensating and rewarding Executive for services rendered to the Company and/or as an incentive for continued service to the Company. The amount of such cash bonus shall be determined in the sole and absolute discretion of the Compensation Committee and shall be dependent on, among other things, the achievement of certain performance levels by the Company, including, without limitation, growth in funds from operations, and Executive's performance and contribution to increasing the funds from operations. 3.3 Non-Qualified Stock Options and Restricted Stock. For services to be rendered by Executive under this Agreement, the Company shall grant Executive non-qualified stock options to acquire 50,000 shares of common stock of the Company at an exercise price per share $18.90. Such options shall be granted pursuant to the 1997 Stock Incentive Plan of the Company and vest equally over three years (i.e. options for 16,666.6 shares shall vest and become exercisable upon each anniversary of this Agreement unless previously terminated). In addition, the Company shall grant Executive 10,000 restricted shares of common stock of the Company pursuant to the 1997 Stock Incentive Plan of the Company and shall vest pursuant to the Company's restricted stock initiative program. 3.4 Benefits. (a) Medical Insurance. The Company shall provide to Executive, Executive's spouse and children, at its sole cost, such health, dental and optical insurance as the Company may from time to time make available to its other executive employees. (b) Life and Disability Insurance. The Company shall provide Executive such disability and life insurance as the Company in its sole discretion may from time to time make available to its other executive employees. (c) Pension Plans, Etc. Executive shall be entitled to participate in all pension, 401(k) and other employee plans and benefits established by the Company on at least the same terms as the Company's other executive employees. 3.5 Automobile Allowance. The Company shall provide Executive with an automobile allowance of $750.00 per month during the term of Executive's employment with the Company. 3.6 Vacation. Executive shall be entitled to four vacation weeks (20 business days) in each calendar year, subject to and on a basis consistent with Company policy. In addition, Executive shall be entitled to all Company holidays. 4. POSITION AND DUTIES 4.1 Position. The Company agrees that the duties that may be assigned Executive shall be the usual and customary duties of the offices of Chief Financial Officer and Executive Vice President. Executive shall have such executive power and authority as shall reasonably be 2 3 required to enable Executive to discharge the duties of such offices. At the Company's request, Executive may, at Executive's discretion, serve the Company and its respective subsidiaries in other offices and capacities in addition to the foregoing, but shall not be required to do so. In the event the Company and Executive mutually agree that Executive shall terminate Executive's service in any one or more of the aforementioned capacities, or Executive's service in one or more of the aforementioned capacities is terminated, Executive's compensation, as specified in this Agreement, shall not be diminished or reduced in any manner. 4.2 Devotion of Time and Effort. Executive shall use Executive's good faith best efforts and judgment in performing Executive's duties as required hereunder and to act in the best interests of the Company. Executive shall devote substantially all of his business time and attention to the performance of services of the Company in his capacity as an officer thereof and as may reasonably be requested by the Board. 4.3 Other Activities. Executive may engage in other activities for Executive's own account while employed hereunder, including without limitation charitable, community and other business activities, provided that such other activities do not materially interfere with the performance of Executive's duties hereunder and provided that Executive shall not become an employee, officer or director of Revenue Properties Company Limited, a corporation organized under the laws of Ontario, Canada; Pan Pacific Development (U.S.) Inc., a Delaware corporation, or Revenue Properties (U.S.), Inc., a Delaware corporation. 4.4 Business Expenses. The Company shall promptly, but in no event later than ten days after submission of a claim of expenditure, reimburse Executive for all reasonable business expenses including, without limitation, business seminar fees, professional association dues, bar dues, country club membership fees and other reasonable entertainment expenses incurred by Executive in connection with the business of the Company, upon presentation to the Company of written receipts for such expenses. Such reimbursement shall also include, but not be limited to, reimbursement for all reasonable travel expenses, including all airfare, hotel and rental car expenses, incurred by Executive in travelling in connection with the business of the Company. 4.5 Company's Obligations. The Company shall provide Executive with any and all necessary or appropriate current financial information and access to current information and records regarding all material transactions involving the Company, including but not limited to acquisition of assets, personnel contracts, dispositions of assets, service agreements and registration statements or other state or federal filings or disclosures, reasonably necessary for Executive to carry out Executive's duties and responsibilities hereunder. In addition, the Company agrees to provide Executive, as a condition to Executive's services hereunder, such staff, equipment and office space as is reasonably necessary for Executive to perform Executive's duties hereunder. 3 4 5. TERMINATION 5.1 By Company Without Cause. The Company may terminate this Agreement without "cause" (as hereinafter defined) at any time following the first anniversary of the Effective Date, provided that the Company first deliver to Executive the Company's written election to terminate this Agreement at least 90 days prior to the effective date of termination. 5.2 Severance Payment (a) Amount. In the event the Company terminates Executive's services hereunder pursuant to Section 5.1, Executive shall continue to render services to the Company pursuant to this Agreement until the date of termination and shall continue to receive compensation, as provided hereunder, through the termination date. In addition to other compensation payable to Executive for services rendered through the termination date, the Company shall pay Executive no later than the date of such termination, as a single severance payment, an amount equal to two years' annual Base Compensation, plus Bonus Compensation pursuant to Sections 3.1 and 3.2. For purposes of this Section 5.2, bonus will be equal to prior year's bonus or 50% of Base Compensation assumed if no actual bonus history is available. (b) Benefits. In the event Executive's employment hereunder is terminated by the Company without cause pursuant to Section 5.1 or by Executive pursuant to Section 5.4 or 5.6, then in addition to paying Executive the Severance Amount, the Company shall continue to provide to Executive and Executive's spouse and children, as applicable, all of the benefits described in Section 3.4 for a period of one year commencing on the date of such termination (the "Severance Benefits"). (c) Limitation. Notwithstanding anything contained in this Agreement to the contrary, to the extent that payments and benefits provided under this Agreement to Executive and benefits provided to, or for the benefit of, Executive under any other Company plan or agreement (such payments or benefits are collectively referred to as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Payments shall be reduced (but not below zero) to the extent necessary so that no Payment to be made or benefit to be provided to Executive shall be subject to the Excise Tax, but only if, by reason of such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax benefit received by him if no such reduction was made. For purposes of this Agreement, "net after-tax benefit" shall mean (i) the Payments which Executive receives or is then entitled to receive from the Company that would constitute "parachute payments" within the meaning of Section 280G of the Code, less (ii) the amount of all federal, state and local income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. The foregoing 4 5 determination will be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Company and reasonably acceptable to Executive (which may be, but will not be required to be, the Company's independent auditors). The Company will direct the Accounting Firm to submit its determination and detailed supporting calculations to both Executive and the Company within fifteen (15) days after the date of Executive's termination. If the Accounting Firm determines that such reduction is required by this Section 5.2(c), Executive, in his discretion, may determine which Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to him. The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by this Section 5.2(c) will be borne by the Company. (d) Stock Options and Restricted Stock. If the Executive is terminated pursuant to the terms of Section 5.1, 5.4 and 5.6, the Executive shall receive full vesting of the stock options and restricted stock referred to in Section 3.3 regardless of the annual limitation set out therein in accordance with the restricted stock and stock option agreements. 5.3 By the Company For Cause. The Company may terminate Executive for cause at any time, upon written notice to Executive. For purposes of this Agreement, "cause" shall mean: (a) Executive's conviction for commission of a felony or a crime involving moral turpitude; (b) Executive's willful commission of any act of theft, embezzlement or misappropriation against the Company; (c) Executive's willful and continued failure to substantially perform Executive's duties hereunder (other than such failure resulting from Executive's incapacity due to physical or mental illness), which failure is not remedied within a reasonable time after demand for substantial performance is delivered by the Company which specifically identifies the manner in which the Company believes that Executive has not substantially performed Executive's duties; or (d) Executive's death or Disability (as hereinafter defined). In the event Executive is terminated for cause pursuant to this Section 5.3, Executive shall have the right to receive Executive's compensation as otherwise provided under this Agreement through the effective date of termination. Executive shall have no further right to receive compensation or other consideration from the Company or have any other remedy whatsoever against the Company as a result of this Agreement or the termination of Executive pursuant to this Section 5.3, except as set forth below with respect to a termination due to Executive's Disability. 5 6 In the event Executive is terminated by reason of Executive's Disability (but not death), the Company shall immediately pay Executive a single severance payment equal to the Severance Amount. Said payment shall be in addition to any disability insurance payments to which Executive is otherwise entitled and any other compensation earned by Executive hereunder. For purposes of this Agreement, the term "Disability" shall mean a physical or mental incapacity as a result of which Executive becomes unable to continue the proper performance of Executive's duties hereunder for six consecutive calendar months or for shorter periods aggregating 180 business days in any 12 month period, but only to the extent that such definition does not violate the Americans with Disabilities Act of 1990. 5.4 By Executive For Good Reason. Executive may terminate this Agreement for good reason upon at least 30 days' prior written notice to the Company. For purposes of this Agreement, "good reason" shall mean: (a) the Company's material breach of any of its respective obligations hereunder and either such breach is incurable or, if curable, has not been cured within 15 business days following receipt by the Company of written notice from Executive to the Company of such breach by the Company; (b) any material decrease in Executive's authority or responsibilities as Chief Financial Officer and Executive Vice President of the Company without Executive's prior consent. In the event that Executive terminates this Agreement for good reason pursuant to this Section 5.4, Executive shall have the right to receive Executive's compensation as provided hereunder through the effective date of termination and shall also have the same rights and remedies against the Company as Executive would have had if the Company had terminated Executive's employment without cause pursuant to Section 5.1 (including the right to receive the Severance Amount payable and the Severance Benefits to be provided under Section 5.2). 5.5 Executive's Voluntary Termination. Executive may, at any time, terminate this Agreement without good reason upon written notice delivered to the Company at least 90 days prior to the effective date of termination. In the event of such voluntary termination of this Agreement by Executive: (i) Executive shall have the right to receive Executive's compensation as provided hereunder through the effective date of termination, and (ii) the Company on the one hand, and Executive, on the other hand, shall not have any further right or remedy against one another except as provided in Sections 6, 7 and 8 hereof which shall remain in full force and effect. 5.6 Change of Control. Executive may terminate this Agreement, upon at least 10 days' prior written notice to the Company at any time within one year after a "change in control" (as hereinafter defined) of the Company. In the event Executive terminates this Agreement for good reason within one year after a change in control pursuant to this Section 5.6, (i) Executive shall continue to render services pursuant hereto and shall continue to receive compensation, as 6 7 provided hereunder, through the termination date, (ii) the Company shall pay Executive no later than the date of such termination, as a single severance payment, an amount equal to the Severance Amount and (iii) following such termination, the Company shall provide the Severance Benefits as required by Section 5.2(b). Upon Executive's termination of this Agreement without good reason pursuant to this Section 5.6, (i) Executive shall have the right to receive Executive's compensation as provided hereunder through the effective date of termination, and (ii) the Company on the one hand, and Executive, on the other hand, shall not have any further right or remedy against one another except as provided in Sections 6, 7 and 8 hereof which shall remain in full force and effect. For purposes of this Agreement, a "change in control" shall mean the occurrence of any of the following events: (a) the individuals constituting the Board (the "Incumbent Board") as of the date hereof cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered a member of the Incumbent Board; (b) provided that the number of shares of common stock of the Company directly held by Revenue Properties Company Limited and its subsidiaries (other than the Company and the Company's subsidiaries) represents 50% or less of the total outstanding shares of common stock of the Company, an acquisition of any voting securities of the Company (the "Voting Securities") by any "person" (as the term "person" is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such person has "beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of the combined voting power of the Company's then outstanding Voting Securities; or (c) approval by the stockholders of the Company of: (i) a merger, consolidation, share exchange or reorganization of the Company, unless the stockholders of the Company, immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 80% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or reorganization in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, share exchange or reorganization; or (ii) a complete liquidation or dissolution of the Company; or (iii) an agreement for the sale or other disposition of all or substantially all of the assets of the Company. 7 8 6. CONFIDENTIALITY During the term of Executive's employment under this Agreement, Executive will have access to and become acquainted with various information relating to the Company's business operations, marketing data, business plans, strategies, employees, contracts, financial records and accounts, projections and budgets, and similar information. Executive agrees that to the extent such information is not generally available to the public and gives the Company an advantage over competitors who do not know of or use such information, such information and documents constitute "trade secrets" of the Company. Executive further agrees that all such information and documents relating to the business of the Company whether they are prepared by Executive or come into Executive's possession in any other way, are owned by the Company and shall remain the exclusive property of the Company. Executive shall not misuse, misappropriate or disclose any trade secrets of the Company directly or indirectly, or use them for Executive's own benefit, either during the term of this Agreement or at any time thereafter, except as may be necessary or appropriate in the course of Executive's employment with the Company unless such action is either previously agreed to in writing by the Company or required by law. 7. NON-SOLICITATION For a period of one (1) year following the date Executive's employment hereunder is terminated, Executive shall not solicit or induce any of the Company's employees, agents or independent contractors to end their relationship with the Company, or recruit, hire or otherwise induce any such person to perform services for Executive, or any other person, firm or company. The restrictions set forth in this Section 7 shall not apply if Executive's employment is terminated pursuant to Section 5.1, 5.4 or 5,6. 8. NON-COMPETITION AFTER TERMINATION For a period of one (1) year following the date Executive's employment hereunder is terminated, Executive shall not engage in the ownership, development, acquisition, renovation, management or leasing of any shopping center properties in the Butte, Marin, Sacramento, San Mateo, Santa Clara and Sonoma counties of Northern California, the Orange, Riverside, San Bernardino and San Diego counties of Southern California, the Las Vegas metropolitan area in Nevada, the Maysville seven-county area in Kentucky, the Seattle metropolitan area in Washington, the Portland metropolitan area in Oregon, the Orlando metropolitan area in Florida, the Memphis metropolitan area in Tennessee, the Albuquerque metropolitan area in New Mexico and any other county in which the Company acquires shopping center property during the term of Executive's employment hereunder (collectively, the "Restricted Area"). In addition, Executive shall not engage in any active or passive investment in or reasonably relating to the ownership, development, acquisition, renovation, management or leasing of shopping center properties in the Restricted Area for a period of one year following the date of termination, with the exception of the ownership of up to one percent (1) of the securities of any publicly-traded companies involved in such activities. Nothing herein shall relieve or limit Executive's 8 9 obligation to comply with Sections 6 and 7. The restrictions set forth in this Section 8 shall not apply if Executive's employment is terminated pursuant to Section 5.1, 5.4 or 5.6. 9. INDEMNIFICATION To the fullest extent permitted under applicable law, the Company shall indemnify, defend and hold Executive harmless from and against any and all causes of action, claims, demands, liabilities, damages, costs and expenses of any nature whatsoever (collectively, "Damages") directly or indirectly arising out of or relating to Executive discharging Executive's duties hereunder on behalf of the Company, so long as Executive acted in good faith within the course and scope of Executive's duties with respect to the matter giving rise to the claim or Damages for which Executive seeks indemnification. 10. GENERAL PROVISIONS 10.1 Assignment; Binding Effect. Neither the Company nor Executive may assign, delegate or otherwise transfer this Agreement or any of their respective rights or obligations hereunder without the prior written consent of the other party. Any attempted prohibited assignment or delegation shall be void. This Agreement shall be binding upon and inure to the benefit of any permitted successors or assigns of the parties and the heirs, executors, administrators and/or personal representatives of Executive. 10.2 Notices. All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method with electronic confirmation of receipt; the day after it is sent, if sent for next-day delivery to a domestic address by recognized overnight delivery service (e.g., FEDEX); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: If to the Company: Pan Pacific Retail Properties, Inc. 1631-B South Melrose Drive Vista, CA 92083 Attention: Stuart A. Tanz Facsimile: (760) 727-1430/1534 If to Executive: Joseph B. Tyson 5041 Seachase Way San Diego, CA 92130 Phone: (858) 509-5977 Any party may change its address for the purpose of this Section 10.2 by giving the other party written notice of its new address in the manner set forth above. 9 10 10.3 Entire Agreement. This Agreement constitutes the entire agreement of the parties, and supersedes all prior agreements, understandings and negotiations, whether written or oral, between the Company and Executive with respect to the employment of Executive by the Company. 10.4 Amendments; Waivers. This Agreement may be amended or modified, and any of the terms and covenants may be waived, only by a written instrument executed by the parties hereto, or, in the case of a waiver, by the party waiving compliance. Any waiver by any party in any one or more instances of any term or covenant contained in this Agreement shall neither be deemed to be nor construed as a further or continuing waiver of any such term or covenant of this Agreement. 10.5 Provisions Severable. In case any one or more provisions of this Agreement shall be invalid, illegal or unenforceable, in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not, in any way, be affected or impaired thereby. If any provision hereof is determined by any court of competent jurisdiction to be invalid or unenforceable by reason of such provision extending the covenants and agreements contained herein for too great a period of time or over too great a geographical area, or being too extensive in any other respect, such provision shall be interpreted to extend only over the maximum period of time and geographical area, and to the maximum extent in all other respects, as to which it is valid and enforceable, all as determined by such court in such action. 10.6 Attorney's Fees. If any legal action, arbitration or other proceeding, is brought for the enforcement of this Agreement, or because of an alleged dispute, breach or default in connection with any of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, including any appeal of such action or proceeding, in addition to any other relief to which that party may be entitled. 10.7 Governing Law. This Agreement shall be construed, performed and enforced in accordance with, and governed by the laws of the State of California without giving effect to the principles of conflict of laws thereof. 10.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first written above. THE COMPANY EXECUTIVE - ----------- --------- 10 11 PAN PACIFIC RETAIL PROPERTIES, INC. a Maryland corporation By: -------------------------------------- --------------------------------- Stuart A. Tanz Joseph B. Tyson Chief Executive Officer and President 11 EX-21.1 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Maysville Marketsquare Associates, L.P. North Coast Health Center (JV Partnership) Pan Pacific (Cable Park), LLC Pan Pacific (Clackamas), Inc. Pan Pacific (Clackamas), LLC Pan Pacific (Marina Village), LLC Pan Pacific (Portland), LLC Pan Pacific (Rancho Las Palmas), LLC Pan Pacific (RLP), Inc. Pan Pacific (Sunset Mall), LLC Pan Pacific Development (Chino), Inc. Pan Pacific Development (Kentucky), Inc. Pan Pacific Development (New Mexico), Inc. Pan Pacific Development (Olympia Square), Inc. Pan Pacific Development (Rosewood), Inc. Pan Pacific Development (Tennessee) Acquisition, Inc. Pan Pacific Development (Tennessee), L.P. Pan Pacific U.S. Shopping Center I, LP Sahara Pavilion North U.S., Inc. EX-23.1 5 CONSENT OF KPMG LLP 1 EXHIBIT 23.1 The Board of Directors Pan Pacific Retail Properties, Inc. We consent to incorporation by reference in Registration Statement Nos. 333-63319, 333-63743 and 333-72551, each on Form S-3 of Pan Pacific Retail Properties, Inc. and to incorporation by reference in Registration Statement No. 333-61169 on Form S-8 of Pan Pacific Retail Properties, Inc., of our report dated January 31, 2000, relating to the consolidated balance sheets of Pan Pacific Retail Properties, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, equity and cash flows for each of the years in the three-year period ended December 31, 1999, and the related Schedule III, which report appears in the December 31, 1999, annual report on Form 10-K of Pan Pacific Retail Properties, Inc. /s/ KPMG LLP San Diego, California March 20, 2000 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,689 0 20,714 1,985 0 0 805,086 57,025 784,537 0 0 0 0 213 381,653 784,537 0 101,062 0 0 42,203 702 23,939 34,218 84 0 0 0 0 32,576 1.54 1.54
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