<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
------------------------
EXCEL LEGACY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 33-0781747
(State of Incorporation or (I.R.S. Employer
Organization) Identification
No.)
</TABLE>
16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CALIFORNIA 92127
(Address, Including Zip Code, of Principal Executive Offices)
(619) 485-9400
(Registrant's Telephone Number, Including Area Code)
------------------------
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
- --------- -------------------------------------- ------------------------------------------------------------------
<C> <S> <C>
1. Business.............................. "SUMMARY"; "THE DISTRIBUTION--Background and Reasons for the
Distribution"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; "THE COMPANY"
and "BUSINESS AND PROPERTIES."
2. Financial Information................. "SUMMARY"; "RISK FACTORS"; "PRO FORMA COMBINED CAPITALIZATION";
"UNAUDITED PRO FORMA FINANCIAL INFORMATION"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "FINANCIAL STATEMENTS."
3. Properties............................ "BUSINESS AND PROPERTIES."
4. Security Ownership of Certain "MANAGEMENT" and "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
Beneficial Owners and Management...... OWNERS AND MANAGEMENT."
5. Directors and Executive Officers...... "SUMMARY"; "RISK FACTORS"; "THE COMPANY" and "MANAGEMENT."
6. Executive Compensation................ "MANAGEMENT--Executive Officer Compensation."
7. Certain Relationships and Related "CERTAIN TRANSACTIONS."
Transactions..........................
8. Legal Proceedings..................... "BUSINESS AND PROPERTIES--Legal Proceedings."
9. Market Price of and Dividends on the "SUMMARY"; "THE DISTRIBUTION--Quotation and Trading of Company
Registrant's Common Equity and Related Common Stock; Dividend Policy" and "RISK FACTORS--Dividend
Stockholder Matters................... Policy."
10. Recent Sales of Unregistered None.
Securities............................
11. Description of Registrant's Securities "LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS" and "DESCRIPTION
to be Registered...................... OF THE COMPANY'S CAPITAL STOCK."
12. Indemnification of Directors and "MANAGEMENT--Indemnification Agreements"; "LEGACY CERTIFICATE OF
Officers.............................. INCORPORATION AND BYLAWS--Indemnification and Advancement of
Expenses" and "LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF THE COMPANY."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM
ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
- --------- -------------------------------------- ------------------------------------------------------------------
<C> <S> <C>
13. Financial Statements and Supplementary "SUMMARY"; "PRO FORMA COMBINED CAPITALIZATION"; "UNAUDITED PRO
Data.................................. FORMA FINANCIAL INFORMATION"; "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"FINANCIAL STATEMENTS."
14. Changes in and Disagreements with None.
Accountants on Accounting and
Financial Disclosure..................
15. Financial Statements and Exhibits.....
(a) Financial Statements and
Schedules
(1) Financial Statements: "FINANCIAL STATEMENTS."
(b) Exhibits:
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------------------------------------- ------------------------------------------------------------------
<C> <S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of Excel
Legacy Corporation (included as Annex I to Information Sheet).
3.2 Form of Amended and Restated Bylaws of Excel Legacy Corporation
(included as Annex II to Information Statement).
4.1* Form of Common Stock Certificate.
4.2* Form of Certificate of Designation of Series A Preferred Stock.
10.1 Form of 1998 Stock Option Plan of Excel Legacy Corporation
(included as Annex III to Information Statement).
10.2 Form of Intercompany Agreement.
10.3 Form of Distribution Agreement.
10.4* Form of Employee Benefits Allocation Agreement.
10.5* Form of Tax Sharing Agreement.
10.6* Form of Transitional Services Agreement.
10.7* Form of Indemnity Agreement.
21.1 Subsidiaries of Excel Legacy Corporation.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Latham & Watkins.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
PRELIMINARY COPIES
EXCEL REALTY TRUST, INC.
16955 Via Del Campo,
Suite 100
San Diego, California
92127
(619) 485-9400
, 1998
Dear Stockholder:
The Board of Directors of Excel Realty Trust, Inc. ("Excel") has approved
the distribution (the "Distribution") to holders of Excel common stock, through
a special dividend, of the common stock of Excel Legacy Corporation ("Legacy").
Legacy was organized to create and realize value by identifying and making
opportunistic real estate investments through the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses.
The Board of Directors of Excel believes that the Distribution is in the
best interests of Excel stockholders. The completion of the Distribution will
permit each of Legacy and Excel to concentrate on its core business. The Board
of Directors of Excel believes that the Distribution also will allow financial
markets to better understand and recognize the merits of the two businesses. The
common stock of Excel will continue to be listed on the New York Stock Exchange.
Legacy initially intends to apply to have the shares of Legacy common stock
approved for quotation and trading on the OTC Bulletin Board.
If you are a holder of Excel common stock of record at the close of business
on , 1998, you will receive as a dividend one share of Legacy common
stock for each share of Excel common stock you hold. The Distribution will be a
taxable transaction to the stockholders of Excel. The Distribution is scheduled
to occur on or about , 1998. We expect to mail the Legacy common
stock certificates shortly thereafter. Stockholders of Excel on the record date
must retain their Excel share certificates which will continue to represent
shares of Excel common stock.
The enclosed Information Statement contains information about the
Distribution and about Legacy. We urge you to read it carefully. Holders of
Excel common stock are not required to take any action to participate in the
Distribution. A stockholder vote is not required in connection with this matter
and, accordingly, your proxy is not being sought.
We are optimistic about the prospects for Excel and Legacy and appreciate
your continued support.
Sincerely,
Gary B. Sabin
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXCEL REALTY TRUST, INC.
<PAGE>
INFORMATION STATEMENT
EXCEL LEGACY CORPORATION
COMMON STOCK
This Information Statement (the "Information Statement") is being furnished
in connection with the distribution (the "Distribution") to holders of common
stock, par value $.01 per share ("Excel Common Stock"), of Excel Realty Trust,
Inc., a Maryland corporation ("Excel"), of all of the outstanding shares of
common stock, par value $.01 per share ("Company Common Stock"), of Excel Legacy
Corporation, a Delaware corporation ("Legacy" or the "Company"), pursuant to the
terms of a Distribution Agreement to be entered into between Excel and Legacy
(the "Distribution Agreement"). Legacy was organized to create and realize value
by identifying and making opportunistic real estate investments through the
direct acquisition, rehabilitation, development, financing and management of
real properties and/or participation in these activities through the purchase of
debt instruments or equity interests of entities engaged in such real estate
businesses. See "RISK FACTORS"; "THE COMPANY" and "BUSINESS AND PROPERTIES."
Shares of Company Common Stock will be distributed to holders of record of
Excel Common Stock as of the close of business on , 1998 (the "Record
Date"). Each such holder will receive one share of Company Common Stock for each
share of Excel Common Stock held on the Record Date. The Distribution will be a
taxable event to the stockholders of Excel. See "THE DISTRIBUTION--Material
Federal Income Tax Consequences of the Distribution." The Distribution is
scheduled to occur on or about , 1998 (the "Distribution Date"). No
consideration will be paid by holders of Excel Common Stock for shares of
Company Common Stock. See "THE DISTRIBUTION--Manner of Effecting the
Distribution."
There is no current trading market for the Company Common Stock, although a
"when issued" market may develop prior to the Distribution Date. The Company
initially intends to apply to have the shares of Company Common Stock approved
for quotation and trading on the OTC Bulletin Board under the symbol "XELC." See
"THE DISTRIBUTION--Quotation and Trading of Company Common Stock; Dividend
Policy."
------------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
Stockholders of Excel with inquiries related to the Distribution should
contact Graham R. Bullick, Ph.D., Senior Vice President, Excel Realty Trust,
Inc., 16955 Via Del Campo, Suite 100, San Diego, California 92127, telephone:
(619) 485-9400; or Excel's stock transfer agent, BankBoston, N.A., c/o Boston
EquiServe, P.O. Box 1666, Boston, Massachusetts 02105, telephone: (800)
730-6001. BankBoston, N.A. is also acting as distribution agent for the
Distribution.
THE DATE OF THIS INFORMATION STATEMENT IS , 1998.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
SUMMARY OF CERTAIN INFORMATION............................................................................. 2
THE DISTRIBUTION........................................................................................... 8
Background and Reasons for the Distribution.............................................................. 8
Distribution Agent....................................................................................... 8
Manner of Effecting the Distribution..................................................................... 8
Results of the Distribution.............................................................................. 9
Material Federal Income Tax Consequences of the Distribution............................................. 9
Quotation and Trading of Company Common Stock; Dividend Policy........................................... 12
Conditions; Termination.................................................................................. 13
Reasons for Furnishing the Information Statement......................................................... 13
RISK FACTORS............................................................................................... 14
RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE DISTRIBUTION............................................... 23
Distribution Agreement................................................................................... 23
Employee Benefits Allocation Agreement................................................................... 23
Tax Sharing Agreement.................................................................................... 24
Transitional Services Agreement.......................................................................... 24
Policies and Procedures for Addressing Conflicts......................................................... 24
REGULATORY APPROVALS....................................................................................... 25
PRO FORMA COMBINED CAPITALIZATION.......................................................................... 26
EXCEL LEGACY CORPORATION UNAUDITED PRO FORMA FINANCIAL INFORMATION......................................... 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 31
Nature of Business....................................................................................... 31
Liquidity................................................................................................ 31
Results of Operations.................................................................................... 31
Capital Resources........................................................................................ 31
THE COMPANY................................................................................................ 32
General.................................................................................................. 32
Management............................................................................................... 33
Business Strategy........................................................................................ 34
Intercompany Agreement................................................................................... 36
Initial Capital and Financing............................................................................ 37
BUSINESS AND PROPERTIES.................................................................................... 38
Properties............................................................................................... 38
Notes Receivable......................................................................................... 45
Principal Tenants........................................................................................ 47
Environmental Matters.................................................................................... 48
Employees................................................................................................ 48
Corporate Headquarters................................................................................... 48
Legal Proceedings........................................................................................ 48
MANAGEMENT................................................................................................. 49
Board of Directors....................................................................................... 49
Committees of the Board of Directors..................................................................... 49
Compensation of the Board of Directors................................................................... 50
Executive Officers....................................................................................... 50
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Executive Officer Compensation........................................................................... 51
Legacy Stock Option Plan................................................................................. 52
Indemnification Agreements............................................................................... 54
CERTAIN TRANSACTIONS....................................................................................... 56
Interests Relating to Excel.............................................................................. 56
Private Placements....................................................................................... 56
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................................... 57
LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS............................................................. 58
Authorized Stock......................................................................................... 58
Directors................................................................................................ 58
Liability for Monetary Damages........................................................................... 58
Anti-Takeover Effect of Authorized But Undesignated Preferred Stock...................................... 58
Indemnification and Advancement of Expenses.............................................................. 59
Amendment of the Company Certificate and Bylaws.......................................................... 60
Transactions With Interested Officers or Directors....................................................... 60
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK................................................................. 61
General.................................................................................................. 61
Common Stock............................................................................................. 61
Series A Preferred Stock................................................................................. 62
Registration Rights...................................................................................... 64
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY..................................... 65
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
ANNEX I-- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF LEGACY
ANNEX II--AMENDED AND RESTATED BYLAWS OF LEGACY
ANNEX III--LEGACY STOCK OPTION PLAN
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Legacy has filed a Registration Statement on Form 10 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the Company Common Stock. This Information Statement does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information, reference is made hereby to the
Registration Statement and such exhibits and schedules. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as exhibits to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. Copies of these documents may be inspected without charge at the
principal office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained from the Commission upon payment of the charges prescribed by the
Commission. Copies of this material also should be available through the
Internet by using "Quick Forms Lookup" at the SEC EDGAR Archive, the address of
which is http:// www.sec.gov.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company also will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders.
NO PERSON IS AUTHORIZED BY EXCEL OR THE COMPANY TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
1
<PAGE>
SUMMARY OF CERTAIN INFORMATION
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS SET FORTH ELSEWHERE IN THIS INFORMATION STATEMENT. CAPITALIZED TERMS
USED BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS INFORMATION
STATEMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS INFORMATION
STATEMENT TO THE COMPANY OR LEGACY PRIOR TO CONSUMMATION OF THE DISTRIBUTION
INCLUDE THE ASSETS TO BE TRANSFERRED TO LEGACY PURSUANT TO THE DISTRIBUTION
AGREEMENT, AND REFERENCES IN THIS INFORMATION STATEMENT TO EXCEL INCLUDE ITS
CONSOLIDATED SUBSIDIARIES.
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company.............. Excel Realty Trust, Inc., a Maryland corporation
("Excel"). Prior to the Distribution, Excel and ERT
Development Corporation, a Delaware corporation of which
Excel owns 100% of the outstanding preferred shares
("EDV"), will transfer to the Company certain real
properties, notes receivable and related assets and
liabilities currently held by Excel and EDV. See "BUSI-
NESS AND PROPERTIES."
Distributed Company............... Excel Legacy Corporation, a recently-formed Delaware
corporation ("Legacy" or the "Company"). See "THE
COMPANY."
Distribution Ratio................ One share of Company Common Stock for each share of
Excel Common Stock held on the Record Date.
Shares to be Outstanding Following
the Distribution................ Based on shares of Excel Common Stock
outstanding on the Record Date, approximately
shares of Company Common Stock. In addition, the Company
has obtained commitments to buy, effective upon
consummation of the Distribution, (i) 9,195,224 shares
of Company Common Stock in a private placement to
certain of the Company's officers, and (ii)
shares of Series A Cumulative Convertible Preferred
Stock of the Company ("Series A Preferred Stock") in a
private placement to certain "qualified institutional
buyers" (as such term is defined in Rule 144A under the
Securities Act of 1933, as amended (the "Securities
Act")), which shares will be convertible at any time
into shares of Company Common Stock. See "CERTAIN
TRANSACTIONS."
Fractional Share Interests........ Fractional shares of Company Common Stock will not be
distributed. Fractional shares of Company Common Stock
will be aggregated and sold in the public market by the
Distribution Agent (as defined below) and the aggregate
net cash proceeds will be distributed ratably to those
stockholders entitled to fractional interests. See "THE
DISTRIBUTION--Manner of Effecting the Distribution."
Record Date....................... , 1998 (5:00 p.m. Eastern Standard Time).
Distribution Date................. , 1998.
Mailing Date...................... Certificates representing the shares of Company Common
Stock to be distributed pursuant to the Distribution
will be delivered to the Distribution Agent on the
Distribution Date. The Distribution Agent will mail
certificates representing the shares of Company Common
Stock to holders of Excel Common Stock as
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
soon as practicable thereafter. Holders of Excel Common
Stock should not send stock certificates to Excel, the
Company or the Distribution Agent. See "THE
DISTRIBUTION--Manner of Effecting the Distribution."
Conditions to the Distribution.... The Distribution is conditioned upon, among other
things, declaration of the special dividend by the Board
of Directors of Excel (the "Excel Board"). The Excel
Board has reserved the right to waive any conditions to
the Distribution or, even if the conditions to the
Distribution are satisfied, to abandon, defer or modify
the Distribution at any time prior to the Distribution
Date. See "THE DISTRIBUTION--Conditions; Termination."
Reasons for the Distribution...... Excel is a self-administered, self-managed real estate
investment trust ("REIT"), and as a result, its
activities are limited by the investment limitations and
leverage expectations imposed by the public markets and
Federal income tax laws applicable to REITs. The Excel
Board believes that significant opportunities are avail-
able to those investors that are not restricted by the
tax laws governing REITs or influenced by public market
perception. Thus, the Excel Board determined that it is
in the best interests of Excel and its stockholders to
organize the Company to pursue such opportunities, to
transfer to the Company certain real properties, notes
receivable and related assets and liabilities currently
held by Excel and EDV, and to spin-off the Company to
the Excel stockholders. The Distribution will (i)
provide the Company with the flexibility to pursue
opportunistic real estate investments, (ii) permit
investors to make more focused investment decisions
based on the specific attributes of the businesses of
Excel and the Company, and (iii) enable financial
markets to better understand and recognize the merits of
the two businesses. See "THE DISTRIBUTION--Background
and Reasons for the Distribution."
Federal Income Tax Consequences to
Excel Stockholders.............. The Distribution will be a taxable event to Excel's
stockholders for Federal income tax purposes. The amount
of the Distribution received by each Excel stockholder
will be treated as a dividend (i.e., as ordinary income)
to such stockholder to the extent of such stockholder's
pro rata share of Excel's current and accumulated
earnings and profits. The amount of the Distribution
received by each Excel stockholder that is not treated
as a dividend will first be treated as a nontaxable
return of capital to the extent of such stockholder's
basis in his Excel Common Stock, and then generally as
capital gain. The amount of the Distribution received by
each Excel stockholder for Federal income tax purposes
will be the fair market value of the Company Common
Stock received by such stockholder as of the
Distribution Date. Excel will make a determination of
the fair market value of the Company Common Stock as of
the Distribution Date. Excel will report the amount of
the Distribution received by each stockholder to such
stockholder and to the Internal Revenue Service (the
"IRS") on IRS Form 1099-DIV.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
There can be no assurance that the IRS or the courts
will agree with the amount determined by Excel. Excel
stockholders are urged to consult their own tax advisors
as to the specific tax consequences to them of the
Distribution. See "THE DISTRIBUTION--Material Federal
Income Tax Consequences of the Distribution."
Federal Income Tax Consequences to
Excel........................... The Distribution may be a taxable event to Excel for
Federal income tax purposes. Excel will recognize gain
upon the Distribution equal to the excess, if any, of
the fair market value of the Company Common Stock on the
Distribution Date over Excel's tax basis in such stock.
Excel will not recognize any loss upon the Distribution,
even if its tax basis in the Company Common Stock that
is distributed to its stockholders exceeds the fair
market value of such stock on the Distribution Date. See
"THE DISTRIBUTION--Material Federal Income Tax
Consequences of the Distribution."
Trading Market.................... There is currently no public market for the Company
Common Stock. The Company initially intends to apply to
have the Company Common Stock approved for quotation and
trading on the OTC Bulletin Board under the symbol
"XELC." See "THE DISTRIBUTION--Quotation and Trading of
the Company Common Stock; Dividend Policy" and "RISK
FACTORS-- Absence of Prior Trading Market for Company
Common Stock; Potential Volatility."
Distribution Agent and Transfer
Agent for the Company
Common Stock.................... BankBoston, N.A.
Dividends......................... The Company's dividend policy will be established by the
Board of Directors of the Company (the "Company Board")
from time to time based on the results of operations and
financial condition of the Company and such other
business considerations as the Company Board considers
relevant. The Company presently intends to retain future
earnings to finance the growth and development of its
business; and, therefore, the Company does not currently
anticipate paying any cash dividends. Any future
determination relating to dividend policy will be made
at the discretion of the Company Board. See "THE
DISTRIBUTION--Quotation and Trading of Company Common
Stock; Dividend Policy" and "RISK FACTORS--Dividend
Policy."
Anti-Takeover Provisions.......... The Amended and Restated Certificate of Incorporation of
the Company (the "Company Certificate") and the Amended
and Restated Bylaws of the Company (the "Company
Bylaws"), as well as Delaware statutory law, contain
provisions that may have the effect of discouraging an
acquisition of control of the Company not approved by
the Company Board. These provisions have been designed
to enable the Company to develop its business and foster
its long-term growth without disruptions caused by the
threat of a takeover not deemed by the Company
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Board to be in the best interests of the Company and its
stockholders. Such provisions also may have the effect
of discouraging third parties from making proposals
involving an acquisition or change of control of the
Company, although such proposals, if made, might be
considered desirable by a majority of the Company's
stockholders. Such provisions could further have the
effect of making it more difficult for third parties to
cause the replacement of the current management of the
Company without the concurrence of the Company Board.
See "RISK FACTORS--Certain Anti-Takeover Features";
"LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS" and
"DESCRIPTION OF THE COMPANY'S CAPITAL STOCK."
Risk Factors...................... See "RISK FACTORS" for a discussion of factors that
should be considered in connection with the Company
Common Stock received in the Distribution.
Relationship with Excel after the
Distribution.................... Excel will have no stock ownership in the Company upon
consummation of the Distribution. For purposes of
governing certain ongoing relationships between the
Company and Excel after the Distribution and to provide
for an orderly transition, the Company and Excel have
entered into or will enter into certain agreements. Such
agreements include: (i) the Distribution Agreement
providing for, among other things, the Distribution and
the division between the Company and Excel of certain
assets and liabilities; (ii) an Employee Benefits
Allocation Agreement, providing for certain allocations
of responsibilities with respect to employee
compensation, benefits and labor matters; (iii) a Tax
Sharing Agreement pursuant to which the Company and
Excel will agree to allocate tax liabilities that relate
to periods prior to the Distribution Date; and (iv) a
Transitional Services Agreement pursuant to which Excel
will provide certain property acquisition, management
and other services to the Company on a transitional
basis. See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER
THE DISTRIBUTION."
Policies and Procedures for
Addressing Conflicts............ The Company and Excel intend to pursue separate and
distinct business strategies to minimize potential
conflicts of interest between the two companies.
Nonetheless, the on-going relationships between the
Company and Excel may present conflict situations for
certain officers and directors. Certain persons will
serve as officers and/or directors of both the Company
and Excel, and also will own (or have options or other
rights to acquire) a significant number of shares of
common stock in both companies. The Company and Excel
will adopt appropriate policies and procedures to be
followed by the Board of Directors of each company to
address potential conflicts. In addition, the Company
Certificate contains a specific purpose clause which
attempts to avoid conflicts of interest by identifying
at the outset which types of opportunities will be
pursued by each company.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
This clause provides that the Company's purpose includes
performing an agreement between the Company and Excel
(the "Intercompany Agreement"), which prohibits the
Company from engaging in certain activities or making
certain investments unless Excel was first offered the
opportunity and declined to pursue such activities or
investments. See "RISK FACTORS-- Possible Conflicts with
Excel After the Distribution"; "RELATIONSHIP BETWEEN
LEGACY AND EXCEL AFTER THE DISTRIBUTION--Policies and
Procedures for Addressing Conflicts" and "THE
COMPANY--Intercompany Agreement."
Interests of Certain Persons in
the Distribution................ As of the Distribution Date, the Company Board will
consist of Gary B. Sabin, who is currently Chairman,
President and Chief Executive Officer of Excel and who
will serve in the same positions with the Company,
Richard B. Muir, who is currently Executive Vice
President and Secretary of Excel and who will serve in
the same positions with the Company, John H. Wilmot and
Robert E. Parsons, Jr., who are currently directors of
Excel, and Michael D. Coster and , who are not
affiliated with Excel. As of the Distribution Date, the
executive officers of the Company will include Mr.
Sabin, Mr. Muir, Graham R. Bullick, who is currently
Senior Vice President--Capital Markets of Excel and who
will serve in the same position with the Company, Ronald
H. Sabin, who is currently Senior Vice President--Asset
Management of Excel and who will serve in the same
position with the Company, David A. Lund, who is cur-
rently Chief Financial Officer of Excel and who will
serve in the same position with the Company, S. Eric
Ottesen, who is currently Senior Vice President, General
Counsel and Assistant Secretary of Excel and who will
serve in the same positions with the Company, and Mark
T. Burton, who is currently Senior Vice
President--Acquisitions of Excel and who will serve in
the same position with the Company. See "MANAGEMENT."
Based solely on their ownership of Excel Common Stock
and options to acquire Excel Common Stock on the Record
Date, the executive officers and directors of the
Company will beneficially own an aggregate of
shares, or approximately %, of the outstanding
Company Common Stock immediately following the
Distribution. In addition, certain officers of the
Company (i) have agreed to purchase, effective upon
consummation of the Distribution, 9,195,224 shares of
Company Common Stock in a private placement at a price
per share of $2.39 (the estimated market value of the
Company Common Stock as of the Distribution Date based
upon the value of the assets being transferred to the
Company), for an aggregate purchase price of
approximately $22.0 million, and (ii) will be granted
options to acquire 3,100,000 shares of Company Common
Stock under the 1998 Stock Option Plan of Excel Legacy
Corporation (the "Legacy Stock Option Plan") upon
consummation of the Distribution. As a result, the
executive officers and directors of
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
the Company will beneficially own or have the right to
acquire an aggregate of shares, or
approximately %, of the outstanding Company Common
Stock immediately following the Distribution. See "RISK
FACTORS--Control by Executive Officers and Directors";
"MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN
TRANSACTIONS" and "SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
</TABLE>
7
<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Excel is a self-administered, self-managed real estate investment trust
("REIT") which acquires, owns and manages neighborhood and community shopping
centers and other retail and commercial properties. Excel is limited in its
activities by the investment limitations and leverage expectations imposed by
the public markets and Federal income tax laws applicable to REITs. The Excel
Board believes that significant opportunities are available to those investors
that are not restricted by the tax laws governing REITs or influenced by public
market perception. Thus, the Excel Board determined that it is in the best
interests of Excel and its stockholders to organize the Company to pursue such
opportunities, to transfer to the Company certain real properties, notes
receivable and related assets and liabilities currently held by Excel and EDV,
and to spin-off the Company to the Excel stockholders. The Company intends to
create and realize value by identifying and making opportunistic real estate
investments through the direct acquisition, rehabilitation, development,
financing and management of real properties and/or participation in these
activities through the purchase of debt instruments or equity interests of
entities engaged in such real estate businesses. See "THE COMPANY" and "BUSINESS
AND PROPERTIES."
The separation of Excel and the Company will (i) provide the Company with
the flexibility to pursue opportunistic real estate investments, (ii) permit
investors to make more focused investment decisions based on the specific
attributes of the businesses of Excel and the Company, and (iii) enable
financial markets to better understand and recognize the merits of the two
businesses.
A small number of REITs, operating under tax provisions that no longer are
available, have shares that are "paired" or "stapled" with shares of a related
operating company. The shares of Company Common Stock and Excel Common Stock are
not, and will not be, paired or stapled in any manner and may be owned and
transferred separately and independently of each other. However, stockholders
who own shares of Company Common Stock and Excel Common Stock will in effect
have the economic equivalent of a paired investment in the Company and Excel.
The Excel Board recognized in its planning that the Distribution would
result in a transaction taxable to Excel stockholders and possibly to Excel
depending on the fair market value of the Company Common Stock on the
Distribution Date. Due to the nature of the assets to be transferred to the
Company and the amount and duration of Excel's holdings thereof, Excel and the
Company are not positioned to effect the Distribution on a tax-free basis. The
Excel Board has considered that Excel's substantial tax basis in the Company
Common Stock (and prior to their transfer to the Company, in the assets to be
transferred) would minimize taxable gains, if any, to Excel that would otherwise
be recognized. Upon review of this and other relevant factors, the Excel Board
concluded that the benefits of the Distribution would more than offset any
negative tax consequences of the Distribution. See "--Material Federal Income
Tax Consequences of the Distribution."
DISTRIBUTION AGENT
The Distribution Agent is BankBoston, N.A., c/o Boston EquiServe, P.O. Box
1666, Boston, Massachusetts 02105, telephone: (800) 730-6001.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement (the "Distribution Agreement") that will be
executed on or prior to the Distribution Date among Excel, EDV and the Company.
Excel will effect the Distribution on the Distribution Date by delivering
all outstanding shares of Company Common Stock to the Distribution Agent for
distribution to the holders of record of Excel
Common Stock as of the close of business on the Record Date. The Distribution
will be made on the basis of one share of Company Common Stock for each share of
Excel Common Stock held as of the close of business on the Record Date. Based on
shares of Excel Common Stock on the Record Date,
8
<PAGE>
approximately shares of Company Common Stock will be distributed to
Excel stockholders. The shares of Company Common Stock will be fully paid and
nonassessable, and the holders thereof will not be entitled to preemptive
rights. See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK." It is expected that
certificates representing shares of the Company Common Stock will be mailed to
holders of Excel Common Stock as soon as practicable after the Distribution
Date.
HOLDERS OF EXCEL COMMON STOCK SHOULD NOT SEND CERTIFICATES TO THE COMPANY,
EXCEL OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK
CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK AS SOON AS PRACTICABLE
AFTER THE DISTRIBUTION DATE. EXCEL STOCK CERTIFICATES WILL CONTINUE TO REPRESENT
SHARES OF EXCEL COMMON STOCK AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON
THE CERTIFICATES.
No certificates or scrip representing fractional interests in shares of
Company Common Stock ("Fractional Shares") will be issued to holders of Excel
Common Stock as part of the Distribution. The Distribution Agent, acting as
agent for holders of Excel Common Stock otherwise entitled to receive
certificates representing Fractional Shares, will aggregate and sell in the open
market all Fractional Shares at then prevailing prices and distribute the net
proceeds to the stockholders entitled thereto. Excel will pay the fees and
expenses of the Distribution Agent in connection with such sales.
No holder of Excel Common Stock will be required to pay any cash or other
consideration for the shares of Company Common Stock to be received in the
Distribution or to surrender or exchange shares of Excel Common Stock or to take
any other action in order to receive the Company Common Stock pursuant to the
Distribution.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be a separate public company which
will own certain real properties, notes receivable and related assets and
liabilities currently owned by Excel and EDV. See "THE COMPANY" and "BUSINESS
AND PROPERTIES." The number and identity of the holders of Company Common Stock
immediately after the Distribution will be substantially the same as the number
and identity of the holders of Excel Common Stock on the Record Date.
Immediately after the Distribution, the Company expects to have approximately
holders of record of the Company Common Stock and approximately
shares of the Company Common Stock outstanding based on the number
of Excel stockholders of record on the Record Date, the outstanding shares of
Excel Common Stock on the Record Date and the distribution ratio of one share of
Company Common Stock for each share of Excel Common Stock. In addition, the
Company has obtained commitments to buy, effective upon consummation of the
Distribution, (i) 9,195,224 shares of Company Common Stock in a private
placement to certain of the Company's officers, and (ii) shares of
Series A Preferred Stock in a private placement to certain "qualified
institutional buyers" (as such term is defined in Rule 144A under the Securities
Act), which shares will be convertible at any time into shares of Company Common
Stock. See "CERTAIN TRANSACTIONS."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
INTRODUCTION. The following is a summary of certain material Federal income
tax considerations associated with the Distribution prepared by Latham &
Watkins, tax counsel to Excel and the Company ("Tax Counsel"). This discussion
is based upon the laws, regulations and reported rulings and decisions in effect
as of the date of this Information Statement, all of which are subject to
change, retroactively or prospectively, and to possibly differing
interpretations. This discussion does not purport to deal with the Federal
income or other tax consequences applicable to all stockholders in light of
their particular investment circumstances or to all categories of stockholders,
some of whom may be subject to special rules (including, for example, insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States). No ruling on the Federal, state or local tax considerations relevant to
the operations of Excel or the Company
9
<PAGE>
or to the Distribution is being requested from the IRS or from any other tax
authority. Tax Counsel has rendered certain opinions discussed herein, which Tax
Counsel believes address the material issues with respect to the Distribution
and with respect to the qualification of Excel as a REIT which are raised by the
structure and currently anticipated activities of the Company.
TAXATION OF EXCEL IN GENERAL. Excel has made an election to be treated 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, 1987.
Excel believes that it was organized and has operated in such a manner so as to
qualify as a REIT, and Excel intends to continue to operate in such a manner,
but no assurance can be given that it has operated in a manner so as to qualify,
or will operate in a manner so as to continue to qualify, as a REIT.
The sections of the Code relating to qualifications and operation as a REIT
are highly technical and complex. In the opinion of Tax Counsel, with respect to
its taxable years ending on or after December 31, 1993, Excel has been organized
in conformity with the requirements for qualification as a REIT, and its
proposed manner of operation will enable it to meet the requirements for
qualification as a REIT. It must be emphasized that this opinion is based on
various assumptions relating to the organization and operation of Excel and is
conditioned upon certain representations made by Excel as to certain relevant
factual matters, including matters related to the organization, expected
operation, and assets of Excel. Moreover, continued qualification as a REIT will
depend upon Excel's ability to meet, through actual annual operating results,
the distribution levels, stock ownership requirements and the various
qualification tests and other requirements imposed under the Code. Accordingly,
no assurance can be given that the actual stock ownership of Excel, the mix of
its assets, or the results of its operations for any particular taxable year
will satisfy such requirements.
TAXABLE INCOME RECOGNITION BY EXCEL AS A RESULT OF THE DISTRIBUTION. On the
Distribution Date, Excel will, in the opinion of Tax Counsel, recognize tax gain
on the Distribution to the extent the value of the Company Common Stock
distributed by Excel exceeds the basis of Excel in such stock. For book
purposes, the Company will transfer the assets at historical cost with no gain
recognized. Prior to the Distribution, Excel will transfer to the Company
certain real properties, notes receivable and related assets and liabilities
currently held by Excel in exchange for Company Common Stock (the
"Contribution"). See "BUSINESS AND PROPERTIES." Excel will recognize gain as a
result of the Contribution to the extent that the fair market value of the
Company Common Stock exceeds Excel's adjusted basis in such assets, determined
as of the date of the Contribution (the "Contribution Gain"). The amount of the
Contribution Gain will reduce Excel's gain on the Distribution.
Because of the factual nature of the issue of the value of the Company
Common Stock received by Excel as a result of the Contribution and then
distributed by Excel, Tax Counsel is unable to render an opinion on the amount
of gain recognized by Excel as a result of these transactions. The amount of
gain, if any, will increase Excel's current or accumulated earnings and profits.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS OF EXCEL AS A RESULT OF THE
DISTRIBUTION. The Distribution will be treated as a distribution, the amount of
which equals the value of the Company Common Stock distributed plus any cash in
lieu of fractional shares, and Excel stockholders will receive a basis in
Company Common Stock equal to the value thereof at the time of the Distribution.
Because of the factual nature of the issue of the value of the Company Common
Stock distributed, Tax Counsel is unable to render an opinion on it. As long as
Excel qualifies as a REIT, distributions (including the Distribution) made to
Excel's taxable U.S. stockholders out of Excel's current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. stockholders as ordinary income and, for corporate
stockholders, will not be eligible for the dividends received deduction.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a stockholder to the extent that they do not exceed the adjusted
basis of the stockholder's shares of Excel Common Stock, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
stockholder's shares of Excel
10
<PAGE>
Common Stock, such distributions will be included in income as long-term capital
gain if the shares have been held more than eighteen months, mid-term capital
gain if the shares have been held more than one year but no more than eighteen
months, or short-term capital gain if the shares have been held for one year or
less, assuming the shares are a capital asset in the hands of the stockholder.
In addition, any distribution declared by Excel in October, November or December
of any year payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by Excel and received by the stockholder on
December 31 of such year, provided that the distribution is actually paid by
Excel during January of the following calendar year. Stockholders may not
include any net operating losses or capital losses of Excel in their respective
income tax returns. In general, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from Excel required to be treated by such stockholder as
long-term capital gain.
TAXATION OF TAX-EXEMPT STOCKHOLDERS OF EXCEL AS A RESULT OF THE
DISTRIBUTION. Most tax-exempt employees' pension trusts are not subject to
Federal income tax except to the extent of their receipt of "unrelated business
taxable income" as defined in Section 512(a) of the Code ("UBTI"). The
Distribution to a stockholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its shares of Excel Common Stock with "acquisition indebtedness" within the
meaning of the Code and such shares are not otherwise used in an unrelated trade
or business of the tax-exempt entity. In addition, certain pension trusts that
own more than 10.0% of a "pension-held REIT" must report a portion of the
dividends that they receive from such a REIT as UBTI. Excel has not been and
does not expect to be treated as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN STOCKHOLDERS OF EXCEL AS A RESULT OF THE
DISTRIBUTION. The rules governing United States Federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are complex,
and no attempt will be made in this Information Statement to provide more than a
summary of such rules. Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of Federal, state and local tax laws with
regard to the Distribution, including any reporting requirements. In general, as
is the case with domestic taxable stockholders of Excel, the Distribution is
treated as a distribution whose amount equals the value of the Company Common
Stock distributed plus any cash in lieu of fractional shares, and Excel
stockholders will receive a basis in Company Common Stock equal to the fair
market value thereof at the time of the Distribution.
Distributions that are not attributable to gain from sales or exchanges by
Excel of United States real property interests and not designated by Excel as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current and accumulated earnings and profits of
Excel. Such distributions ordinarily will be subject to a withholding tax equal
to 30.0% of the gross amount of the distribution, unless an applicable tax
treaty reduces or eliminates that tax. Excel expects to withhold U.S. income tax
at the rate of 30.0% on the gross amount of any such distribution made to a
Non-U.S. Stockholder unless (i) a lower treaty rate applies and the Non-U.S.
Stockholder has filed the required IRS Form 1001 with Excel (or, as discussed
below, such other certifications as shall be required under the Final Treasury
Regulations to establish that the Non-U.S. Stockholder is entitled to claim the
benefits of such reduced treaty rate), or (ii) the Non-U.S. Stockholder files an
IRS Form 4224 with Excel claiming that the distribution is effectively connected
with the Non-U.S. Stockholder's conduct of a U.S. trade or business (or, as
discussed below, such other certifications as shall be required under the Final
Treasury Regulations to establish such withholding tax exemption). Distributions
in excess of Excel's current and accumulated earnings and profits will be
subject to a 10.0% withholding requirement but will not be taxable to a
stockholder to the extent that such distributions do not exceed the adjusted
basis of the stockholder's shares of Excel Common Stock, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a Non-
U.S. Stockholder's shares, such distributions will give rise to tax liability if
the Non-U.S. Stockholder would otherwise be subject to tax on any gain from the
sale or disposition of the Excel Common Stock, as
11
<PAGE>
described below. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distributions would be subject to withholding at the
same rate as dividends. However, a Non-U.S. Stockholder may seek a refund of
such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of Excel's current and accumulated earnings
and profits.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules applicable to Non-U.S. Stockholders
(the "Final Treasury Regulations"). In general, the Final Treasury Regulations
do not significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. For example, the Final Treasury Regulations (i)
adopt a certification rule under which a foreign stockholder who wishes to claim
the benefit of an applicable treaty rate with respect to dividends received from
a United States corporation will be required to satisfy certain certification
and other requirements, and (ii) subject distributions to information reporting
and backup withholding unless applicable certification requirements are
satisfied. The Final Treasury Regulations are generally effective for payments
made after December 31, 1998, subject to certain transition rules. NON-U.S.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPACT,
IF ANY, OF THE FINAL TREASURY REGULATIONS.
Gain recognized by a Non-U.S. Stockholder upon a sale of Excel Common Stock
generally will not be taxed under the provisions of the Foreign Investment in
Real Property Tax Act of 1980, as amended ("FIRPTA"), if Excel is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50.0% in value of the stock
was held directly or indirectly by foreign persons. Excel is and currently
expects to continue to be a "domestically controlled REIT," and in such case the
sale of Excel Common Stock would not be subject to taxation under FIRPTA.
However, gain not subject to FIRPTA nonetheless will be taxable to a Non-U.S.
Stockholder if (i) investment in the Excel Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's U.S. trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. Stockholders with respect to such gain, or (ii) the Non-U.S. Stockholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and either the individual has a "tax home" in
the United States or the gain is attributable to an office or other fixed place
of business maintained by the individual in the United States, in which case
gains will be subject to a 30.0% tax. If the gain on the sale of Excel Common
Stock were to be subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as U.S. Stockholders with respect to such
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and the purchaser of
the Excel Common Stock would be required to withhold and remit to the IRS 10.0%
of the purchase price.
ALL EXCEL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
QUOTATION AND TRADING OF COMPANY COMMON STOCK; DIVIDEND POLICY
There is not currently a public market for the Company Common Stock. Prices
at which the Company Common Stock may trade prior to the Distribution on a
"when-issued" basis or after the Distribution cannot be predicted. Until the
Company Common Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which the Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
success of the Company's business, the depth and liquidity of the market for the
Company Common Stock, investor perception of the Company and its assets, the
Company's dividend policy, and general economic and market conditions. Such
prices also may be affected by certain provisions of the Company Certificate and
the Company Bylaws, as each will be in effect following the Distribution, which
may have an anti-takeover effect. See "RISK FACTORS--Absence of Prior Trading
Market for Company Common Stock; Potential Volatility" and "LEGACY CERTIFICATE
OF INCORPORATION AND BYLAWS."
12
<PAGE>
The Company initially intends to apply to have the Company Common Stock
approved for quotation and trading on the OTC Bulletin Board. Immediately after
the Distribution, the Company expects to have approximately
stockholders of record based upon the number of stockholders of record of Excel
on the Record Date. For certain information regarding options to purchase the
Company Common Stock that will be outstanding after the Distribution, see
"RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE DISTRIBUTION--Employee Benefits
Allocation Agreement" and "MANAGEMENT--Legacy Stock Option Plan."
The Company presently intends to retain future earnings to finance the
growth and development of its business; and, therefore, the Company does not
currently anticipate paying any cash dividends. Any future determination
relating to dividend policy will be made at the discretion of the Company Board.
Such determinations will depend on a number of factors, including the future
earnings, capital requirements, financial condition and prospects of the
Company, possible loan or financing covenant restrictions, and such other
factors as the Company Board may deem relevant. See "RISK FACTORS--Dividend
Policy."
The Company initially will consist of certain real properties, notes
receivable and related assets and liabilities transferred from Excel and EDV as
described in "BUSINESS AND PROPERTIES." Nothing herein should be construed to
suggest that the trading price of Excel Common Stock at any point in time may be
used as a substitute for the trading price of Company Common Stock. No assurance
can be given that the Company Common Stock will trade at a price per share
reflecting the earnings per share or other multiple, or other attributes, of
Excel. See "RISK FACTORS--Absence of Prior Trading Market for Company Common
Stock; Potential Volatility."
It is the Company's belief that the Company Common Stock distributed to
Excel's stockholders in the Distribution will be freely transferable, except for
securities received by persons who may be deemed to be "affiliates" of Excel
within the meaning of Rule 144 under the Securities Act, in which case such
persons may not publicly offer or sell the Company Common Stock received in
connection with the Distribution except pursuant to a registration statement
under the Securities Act or pursuant to Rule 144. There can be no assurance that
the Commission will not take a contrary view, and no ruling from the Commission
has been or will be sought. See "RISK FACTORS--Shares Eligible for Future Sale."
CONDITIONS; TERMINATION
The Excel Board has conditioned the Distribution upon, among other things,
(i) the transfer of assets and liabilities contemplated by the Distribution
Agreement having been consummated in all material respects, (ii) the Company
Board having been elected by Excel as sole stockholder of the Company, and the
Company Certificate and the Company Bylaws, as each will be in effect after the
Distribution, having been adopted and being in effect, (iii) the Registration
Statement on Form 10 with respect to the Company Common Stock having become
effective under the Exchange Act, and (iv) receipt of any necessary consents to
the Distribution from third parties, except for those the failure of which to
obtain would not have a material adverse effect on the Company or Excel. The
Company believes that there are no third-party consents which if not obtained
would have a material adverse effect on the Company, Excel or the Distribution.
Any of the conditions to the Distribution may be waived in the discretion of the
Excel Board. Even if all of the above conditions are satisfied, the Excel Board
has reserved the right to abandon, defer or modify the Distribution or the other
elements of the Distribution at any time prior to the Distribution Date;
however, the Excel Board will not waive any of the conditions to the
Distribution or make any changes in the terms of the Distribution unless the
Excel Board determines that such changes would not be materially adverse to the
Excel stockholders. See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE
DISTRIBUTION--Distribution Agreement."
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by Excel solely to provide
information to Excel stockholders who will receive Company Common Stock in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of Excel or the Company. The
information contained in this Information Statement is believed by Excel and the
Company to be accurate as of the date set forth on the cover of this Information
Statement. Changes may occur after that date, and neither the Company nor Excel
will update the information except in the normal course of their respective
public disclosure practices.
13
<PAGE>
RISK FACTORS
This Information Statement contains forward-looking statements within the
meaning of the Securities Act. Discussions containing such forward-looking
statements may be found throughout this Information Statement, including without
limitation in the materials set forth under "SUMMARY"; "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; "THE COMPANY"
and "BUSINESS AND PROPERTIES." Actual events or results may differ materially
from those discussed in the forward-looking statements as a result of various
factors, including without limitation the risk factors set forth below and the
matters set forth in this Information Statement generally.
GENERAL RISKS
If the properties of the Company, the properties of those entities in which
it invests or the properties of those entities to which it will lend
(collectively, the "Properties") do not generate revenue sufficient to meet
operating expenses, including debt service and capital expenditures, the
financial condition and results of operations of the Company may be adversely
affected. The Company's financial condition and results of operations also may
be adversely affected by a number of other factors, including international and
domestic general economic climate and local real estate conditions (such as
oversupply of or reduced demand for space and changes in market rental rates);
the perceptions of prospective tenants of the safety, convenience and
attractiveness of the Properties; the ability of the owner to provide adequate
management, maintenance and insurance; energy and supply shortages; the ability
to collect on a timely basis all rent from tenants and interest from borrowers;
the expense of periodically renovating, repairing and reletting spaces; and
increasing operating costs (including real estate taxes and utilities) which may
not be passed through to tenants. Certain significant expenditures associated
with investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental revenues from the investment. If a Property is
mortgaged to secure the payment of indebtedness and if the Company or the entity
in which the Company invests or to which it lends is unable to meet its mortgage
payments, a loss could be sustained as a result of foreclosure on the property
or the exercise of other remedies by the mortgagee. In addition, real estate
values and income from properties also are affected by such factors as
compliance with laws, including tax laws, interest rate levels and the
availability of financing.
DIFFICULTY OF LOCATING SUITABLE INVESTMENTS; COMPETITION; CAPITAL REQUIREMENTS
Identifying, completing and realizing on real estate investments has from
time to time been highly competitive, and involves a high degree of uncertainty.
The Company will be competing for investments with many public and private real
estate investment vehicles, including financial institutions (such as mortgage
banks, pension funds and real estate investment trusts) and other institutional
investors, as well as individuals. There can be no assurance that the Company
will be able to locate and complete investments which satisfy the Company's rate
of return objective or realize upon their value or that it will be able to fully
invest its available capital.
Many of those with whom the Company will compete for investments are far
larger than the Company, may have greater financial resources than the Company
and may have management personnel with more experience than the officers of the
Company.
The success of the Company's business strategy is dependent upon being able
to obtain significant amounts of equity capital and proceeds from borrowings on
terms financially advantageous to the Company. The inability of the Company to
obtain such equity capital and debt proceeds on such terms may have a material
adverse effect on the Company.
14
<PAGE>
RISKS OF ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES
ACQUISITION. The Company intends to acquire existing properties to the
extent that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of properties entail general investment risks
associated with any real estate investment, including the risk that investments
will fail to perform as expected, that estimates of the cost of improvements to
bring an acquired property up to standards established for the intended market
position may prove inaccurate and the occupancy rates and rents achieved may be
less than anticipated.
DEVELOPMENT, CONSTRUCTION AND RENOVATION. The Company also intends to
pursue the selective development, construction and renovation of properties for
its own account or the account of, or through, entities in which it owns an
equity interest as opportunities arise, including without limitation long-term,
higher-risk, mixed-use retail entertainment projects. Risks associated with the
Company's development, construction and renovation activities include the risks
that: the Company may abandon development opportunities after expending
resources to determine feasibility; construction and renovation costs of a
project may exceed original estimates; occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable; and
development, construction, renovation and lease-up may not be completed on
schedule (including risks beyond the control of the Company, such as weather or
labor conditions or material shortages) resulting in increased debt service
expense and construction costs. Development, construction and renovation
activities also are subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations. These risks could result
in substantial unanticipated delays or expenses and, under certain
circumstances, could prevent completion of development, construction and
renovation activities once undertaken, any of which could adversely affect the
financial condition and results of operations of the Company. Properties under
development or acquired for development may generate little or no cash flow from
the date of acquisition through the date of completion of development and may
experience operating deficits after the date of completion. In addition, new
development and renovation activities, regardless of whether or not they are
ultimately successful, typically require a substantial portion of management's
time and attention.
Any properties developed and renovated by the Company will be subject to the
risks associated with the ownership and operation of real estate described
elsewhere in this section entitled "RISK FACTORS."
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY
The Company's cash flow, results of operations and value of its assets would
be adversely affected if a significant number of tenants of the Properties
failed to meet their lease obligations or if the Company or the owner of a
Property were unable to lease a significant amount of space on economically
favorable terms. In the event of a default by a lessee, the owner may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The bankruptcy or insolvency of a major tenant may
have an adverse effect on a property. At any time, a tenant also may seek
protection under the bankruptcy laws, which could result in rejection and
termination of such tenant's lease and thereby cause a reduction in the cash
flow of the property. If a tenant rejects its lease, the owner's claim for
breach of the lease would (absent collateral securing the claim) be treated as a
general unsecured claim. Generally, the amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 15.0% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments). No assurance can be given that the Properties
will not experience significant tenant defaults in the future.
OPERATING RISKS
The Properties are subject to operating risks common to the particular
property type, any and all of which may adversely affect occupancy or rental
rates. Such properties are subject to increases in operating expenses such as
cleaning; electricity; heating, ventilation and air-conditioning; elevator
repair and
15
<PAGE>
maintenance; insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While commercial
tenants are often obligated to pay a portion of these escalating costs, there
can be no assurance that they will agree to pay such costs or that the portion
that they agree to pay will fully cover such costs. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates. To the
extent rents cannot be increased or costs controlled, the cash flow of the
Company and its financial condition may be adversely affected.
ADVERSE CONSEQUENCES OF DEBT FINANCING
LEVERAGE. Some of the Company's real estate equity investments may utilize
a leveraged capital structure, in which case a third party lender would be
entitled to cash flow generated by such investments prior to the Company
receiving a return. As a result of such leverage, the Company would be subject
to the risks normally associated with debt financing, including the risk that
cash flow from operations and investments will be insufficient to meet required
payments of principal and interest, the risk that existing debt (which in most
cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancings will not be as favorable to
the Company, and the risk that necessary capital expenditures for such purposes
as renovations and other improvements will not be able to be financed on
favorable terms or at all. While such leverage may increase returns or the funds
available for investment by the Company, it also will increase the risk of loss
on a leveraged investment. If the Company defaults on secured indebtedness, the
lender may foreclose and the Company could lose its entire investment in the
security for such loan. Because the Company may engage in portfolio financings
where several investments are cross-collateralized, multiple investments may be
subject to the risk of loss. As a result, the Company could lose its interests
in performing investments in the event such investments are cross-collateralized
with poorly performing or nonperforming investments. In addition, recourse debt,
which the Company reserves the right to obtain, may subject other assets of the
Company to risk of loss.
EXISTING DEBT MATURITIES; FORECLOSURES. The Company anticipates that only a
portion of the principal of the Company's indebtedness outstanding from time to
time will be repaid prior to maturity. However, the Company may not have
sufficient funds to repay such indebtedness at maturity; it may therefore be
necessary for the Company to refinance debt through additional debt financing or
equity offerings. If the Company is unable to refinance this indebtedness on
acceptable terms, the Company may be forced to dispose of properties or other
assets upon disadvantageous terms, which could result in losses to the Company
and adversely affect the amount of cash available for further investment.
RISK OF RISING INTEREST RATES. The Company may incur indebtedness in the
future that bears interest at a variable rate or may be required to refinance
its debt at higher rates. Accordingly, increases in interest rates could
increase the Company's interest expense and adversely affect the financial
condition and results of operations of the Company.
COVENANTS. Various credit facilities or other debt obligations may require
the Company to comply with a number of financial and other covenants on an
ongoing basis. Failure to comply with such covenants may limit the Company's
ability to borrow funds or may cause a default under its then-existing
indebtedness.
NO LIMITATION ON DEBT. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness the Company may incur. The
Company also has the ability to use a more highly leveraged business strategy
than typically used by REITs. Accordingly, the Company could become highly
leveraged, resulting in an increase in debt service that could increase the risk
of default on the Company's indebtedness.
16
<PAGE>
LACK OF CONTROL AND OTHER RISKS OF EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
The Company may invest in shares of REITs or other entities that invest in
real estate assets, including debt instruments and equity interests. In such
cases, the Company will be relying on the assets, investments and management of
the REIT or other entity in which it is investing. Such entities and their
properties will be subject to the other risks affecting the ownership and
operation of real estate and investment in debt set forth in this section
entitled "RISK FACTORS."
The Company also may co-invest with third parties through partnerships,
joint ventures or other entities, acquiring non-controlling interests in or
sharing responsibility for managing the affairs of a property, partnership,
joint venture or other entity and, therefore, will not be in a position to
exercise sole decision-making authority regarding the property, partnership,
joint venture or other entity.
Investments in partnerships, joint ventures or other entities may, under
certain circumstances, involve risks not present were a third party not
involved, including the possibility that the Company's partners or co-venturers
might become bankrupt or otherwise fail to fund their share of required capital
contributions, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of the Company and contrary to the Company's policies or
objectives. Such investments also may have the potential risk of impasse on
decisions, such as a sale, because neither the Company nor the partner or
co-venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, the Company may in certain circumstances be liable for the actions of
its third-party partners or co-venturers.
NATURE OF INVESTMENTS MADE BY THE COMPANY MAY INVOLVE HIGH RISK; ILLIQUIDITY OF
REAL ESTATE INVESTMENTS
The Company may make investments in real estate-related assets and
businesses which have experienced severe financial difficulties, which
difficulties may never be overcome. Since the Company may only make a limited
number of investments and since many of the investments may involve a high
degree of risk, poor performance by one of the investments could severely affect
the financial condition and results of operations of the Company.
Equity and debt investments in real estate may be relatively illiquid. Such
illiquidity limits the ability of the Company to modify its portfolio in
response to changes in economic or other conditions. Illiquidity may result from
the absence of an established market for the investments as well as legal or
contractual restrictions on their resale by the Company.
RELIANCE ON MAJOR TENANTS
As of the Distribution Date, the Company's largest tenants will be Wal-Mart
Stores, Inc. and Lowe's Home Centers, Inc., which will account for approximately
39.2% and 12.6% of the Company's total revenue as of such date, respectively.
See "BUSINESS AND PROPERTIES--Principal Tenants." The financial position of the
Company may be adversely affected by financial difficulties experienced by
either of such tenants, or any other major tenant of the Company, including a
bankruptcy, insolvency or general downturn in the business of any such tenant,
or in the event any such tenant does not renew its leases as they expire.
THIRD-PARTY BANKRUPTCY RISKS
Investments made in assets operating in workout modes or under Chapter 11 of
the Bankruptcy Code could be subordinated or disallowed, and the Company could
be liable to third parties in such circumstances. Furthermore, distributions
made to the Company in respect of such investments could be
17
<PAGE>
recovered if any such distribution is found to be a fraudulent conveyance or
preferential payment. Bankruptcy laws, including the automatic stay imposed upon
the filing of a bankruptcy petition, may delay the ability of the Company to
realize on collateral for loan positions held by it or may adversely affect the
priority of such loans through doctrines such as equitable subordination or may
result in a restructure of the debt through principles such as the "cramdown"
provisions of the bankruptcy laws.
RISKS OF REGISTRATION UNDER INVESTMENT COMPANY ACT
The Company is currently not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), since
management believes that the Company either is not within the definition of
"investment company" thereunder or, alternatively, is excluded from regulation
under the Investment Company Act by one or more exemptions. In the future, the
Company will seek to continue to conduct its operations so as to avoid
registration under the Investment Company Act. Therefore, the assets that the
Company may acquire or sell may be limited by the provisions of the Investment
Company Act. If the Company were to become an investment company under the
Investment Company Act and if it failed to qualify for an exemption thereunder,
it would be unable to conduct its business as presently conducted which could
have a material adverse effect on the Company and the market price for the
Company Common Stock.
RISKS OF UNINSURED LOSS
The Company will carry comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the properties that it owns, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. There are, however, certain types of losses (such as losses
arising from acts of war or relating to pollution) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a property, as well as the
anticipated future revenue from such property and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss would adversely affect the financial condition and results of
operations of the Company.
With respect to those properties in which the Company holds an interest
through a mortgage, as well as those properties owned by entities to whom the
Company makes unsecured loans, the borrowers will most likely be obligated to
maintain insurance on such properties and to arrange for the Company to be
covered as a named insured on such policies. The face amount and scope of such
insurance coverage may be less comprehensive than the Company would carry if it
held the fee interest in such property. Accordingly in such circumstances, or in
the event that the borrowers fail to maintain required coverage, uninsured or
underinsured losses may occur, which could have an adverse impact on the
Company's cash flow or financial condition.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/or the aggregate assets of the owner.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances also may be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
persons. Certain environmental laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("ACMs") when such materials are in
poor condition, or in
18
<PAGE>
the event of renovation or demolition. Such laws impose liability for release of
ACMs into the air and third parties may seek recovery from owners or operators
of real properties for personal injury associated with ACMs. The operation and
subsequent removal of certain underground storage tanks also are regulated by
Federal and state laws. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for the
disposal or treatment of hazardous or toxic substances, and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and injuries to persons and
property. See "BUSINESS AND PROPERTIES-- Environmental Matters."
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, growth, debt,
capitalization and operations, will be determined by the Company Board. Although
it has no present intention to do so, the Company Board may amend or revise
these policies at any time and from time to time at its discretion without a
vote of the stockholders of the Company. A change in these policies could
adversely affect the Company's financial condition, results of operations and
the market price of the Company Common Stock.
COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
Under the Americans with Disabilities Act of 1980 (the "ADA"), places of
public accommodations and commercial facilities are required to meet certain
Federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which the Company invests and noncompliance could result in
the imposition of fines by the United States government or an award of damages
to private litigants. Although management of the Company believes that its
properties are substantially in compliance with present requirements of the ADA,
the Company may incur additional costs of compliance in the future. A number of
additional Federal, state and local laws exist which impose further burdens or
restrictions on owners with respect to access by disabled persons and may
require modifications to properties in which the Company invests, or restrict
certain further renovations thereof, with respect to access by disabled persons.
Final regulations under the ADA have not yet been promulgated and the ultimate
amount of the cost of compliance with the ADA or other such laws is not
currently ascertainable. While such costs are not expected to have a material
effect on the Company, they could be substantial. If required changes involve
greater expense than the Company currently anticipates, the Company's financial
condition and results of operations could be adversely affected.
NONCOMPLIANCE WITH OTHER LAWS
Real estate properties also are subject to various Federal, state and local
regulatory requirements, such as 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. The Company believes that its properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's results of
operations.
HEDGING POLICIES/RISKS
In connection with the financing of certain real estate investments, the
Company may employ hedging techniques designed to protect the Company against
adverse movements in currency and/or interest rates. While such transactions may
reduce certain risks, such transactions themselves may entail certain other
risks. Thus, while the Company may benefit from the use of these hedging
mechanisms generally, unanticipated changes in interest rates, securities
prices, or currency exchange rates may result in a poorer
19
<PAGE>
overall performance for the Company than if it had not entered into such hedging
transactions. See "THE COMPANY--Financing Policies."
DIVIDEND POLICY
The future payment of dividends by the Company will depend on decisions that
will be made by the Company Board from time to time based on the results of
operations and financial condition of the Company and such other business
considerations as the Company Board considers relevant. The Company presently
anticipates that it will retain all available funds for use in the operation and
expansion of its business and does not anticipate paying any dividends in the
foreseeable future. See "THE DISTRIBUTION--Quotation and Trading of Company
Common Stock; Dividend Policy."
RECENTLY FORMED ENTITY; LACK OF INDEPENDENT OPERATING HISTORY
It should be noted that the Company is a recently-formed entity with no
prior operating history. There can be no assurance that the Company will not
encounter financial, managerial or other difficulties as a result of its lack of
operating history or inability to rely on the financial and other resources of
Excel.
TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution will be a taxable event to Excel for Federal income tax
purposes. Excel will recognize gain upon the Distribution equal to the excess,
if any, of the fair market value of the Company Common Stock on the Distribution
Date over Excel's tax basis in such stock. Although the Company believes that
any such gain will be insubstantial, the IRS may be able to assert successfully
that the gain is not insubstantial. Because of the factual nature of the
valuation, Tax Counsel is unable to render an opinion on it. See "THE
DISTRIBUTION--Material Federal Income Tax Consequences of the Distribution" for
a more detailed explanation.
The Distribution will be treated as a distribution, the amount of which
equals the value of the Company Common Stock distributed plus any cash in lieu
of fractional shares, and Excel stockholders will receive a basis in Company
Common Stock equal to the value thereof at the time of the Distribution. Because
of the factual nature of the issue of the value of the Company Common Stock
distributed, Tax Counsel is unable to render an opinion on it. The Distribution
will be taxable to Excel stockholders to the same extent as any other
distribution made by Excel to its stockholders. As long as Excel qualifies as a
REIT, distributions (including the Distribution) made to Excel's taxable U.S.
stockholders out of Excel's current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taxable as ordinary income and,
for corporate stockholders, will not be eligible for the dividends received
deduction. Distributions in excess of current and accumulated earnings and
profits will not be taxable to Excel's taxable U.S. stockholders to the extent
they do not exceed the adjusted basis of the stockholder's shares of Excel
Common Stock, but rather will reduce the adjusted basis of such shares. To the
extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of the stockholder's shares of Excel Common
Stock, such distributions generally will be taxable as capital gain. For a more
detailed explanation, see "THE DISTRIBUTION--Material Federal Income Tax
Consequences of the Distribution."
EFFECTS ON EXCEL COMMON STOCK
After the Distribution, the Excel Common Stock will continue to be traded on
the New York Stock Exchange. As a result of the Distribution, the trading price
of Excel Common Stock may vary from the trading price of Excel Common Stock
prior to the Distribution. The combined trading prices of Excel Common Stock and
Company Common Stock after the Distribution may be less than, equal to or
greater than the trading prices of Excel Common Stock prior to the Distribution.
In addition, until the market has fully analyzed the operations of Excel without
the Company's assets, the price at which the Excel Common Stock trades may
fluctuate significantly.
20
<PAGE>
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS
Based solely on their ownership of Excel Common Stock and options to acquire
Excel Common Stock on the Record Date, the executive officers and directors of
the Company will beneficially own an aggregate of shares, or
approximately %, of the outstanding Company Common Stock immediately
following the Distribution. In addition, certain officers of the Company (i)
have agreed to purchase, effective upon consummation of the Distribution,
9,195,224 shares of Company Common Stock in a private placement, and (ii) will
be granted options to acquire 3,100,000 shares of Company Common Stock under the
Legacy Stock Option Plan upon consummation of the Distribution. As a result, the
executive officers and directors of the Company will beneficially own or have
the right to acquire an aggregate of shares, or approximately %, of
the outstanding Company Common Stock immediately following the Distribution. See
"MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN TRANSACTIONS" and "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Such persons will have
substantial influence over the Company and on the outcome of matters submitted
to the Company's stockholders for approval. In addition, such ownership could
discourage acquisition of Company Common Stock by potential investors, and could
have an anti-takeover effect, possibly depressing the trading price of the
Company Common Stock.
POSSIBLE CONFLICTS WITH EXCEL AFTER THE DISTRIBUTION
Following the Distribution, certain directors and executive officers of
Excel will serve as directors and executive officers of the Company. See
"MANAGEMENT." The Company and Excel also have entered into certain agreements
providing for (i) the orderly separation of the Company and Excel and the making
of the Distribution, (ii) the sharing of certain facilities and services, and
(iii) the allocation of certain tax and other liabilities. Because the
management of both the Company and Excel will be largely the same following the
Distribution, conflicts may arise with respect to the operation and effect of
these agreements and relationships which could have an adverse effect on the
Company if not properly resolved. In this regard, the Company and Excel will
adopt appropriate policies and procedures to be followed by the Board of
Directors of each company to address potential conflicts. In addition, the
Company Certificate contains a specific purpose clause which attempts to avoid
conflicts of interest by identifying at the outset which types of opportunities
will be pursued by each company. This clause provides that the Company's purpose
includes performing the Intercompany Agreement, which prohibits the Company from
engaging in certain activities or making certain investments unless Excel was
first offered the opportunity and declined to pursue such activities or
investments. See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE
DISTRIBUTION--Policies and Procedures for Addressing Conflicts" and "THE
COMPANY-- Intercompany Agreement."
ABSENCE OF PRIOR TRADING MARKET FOR COMPANY COMMON STOCK; POTENTIAL VOLATILITY
There is no existing market for the Company Common Stock. Although the
Company initially intends to apply for quotation and trading of the Company
Common Stock on the OTC Bulletin Board, no assurance can be given that an active
trading market for the Company Common Stock will develop. Prices at which the
Company Common Stock may trade cannot be predicted. Nothing herein should be
construed to suggest that the trading price of Excel Common Stock at any point
in time may be used as a substitute for the trading price of Company Common
Stock. The prices at which the Company Common Stock trades will be determined by
the marketplace and may be influenced by many factors, including, among others,
the success of the Company's business, the depth and liquidity of the market for
the Company Common Stock, investor perception of the Company and its assets, the
Company's dividend policy, and general economic and market conditions. The depth
and liquidity of the market for the Company Common Stock may be affected by the
aggregate beneficial ownership by executive officers and directors of the
Company of approximately % of the Company Common Stock immediately following
the Distribution. See "-- Control by Executive Officers and Directors." The
prices at which the Company Common Stock trades also may be affected by certain
provisions of the Company Certificate and the Company Bylaws, as each will be in
effect following the Distribution, which may have an anti-takeover effect. See
"--Certain Anti-Takeover Features."
21
<PAGE>
In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many companies and which
have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations and general economic
conditions may adversely affect the market price of the Company Common Stock.
CERTAIN ANTI-TAKEOVER FEATURES
Upon consummation of the Distribution, certain provisions of the Company
Certificate and the Company Bylaws, along with certain provisions of Delaware
statutory law, could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. Such provisions could diminish
the opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of the Company
Common Stock. Such provisions also may inhibit fluctuations in the market price
of the Company Common Stock that could result from takeover attempts. See
"LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers and other
key personnel. While the Company believes that it could find replacements for
these persons, the loss of their services could have a temporary adverse effect
on the operations of the Company. None of the Company's executive officers or
other key personnel has an employment agreement with the Company. There can be
no assurance that the Company will be able to retain these persons or to attract
suitable replacements or additional personnel if required. The Company has not
obtained key-man insurance for any of its executive officers or other key
personnel.
SHARES ELIGIBLE FOR FUTURE SALE
The approximately shares of Company Common Stock distributed to
Excel stockholders in the Distribution will be freely transferable, except for
the shares distributed to persons who may be deemed to be "affiliates" of the
Company under the Securities Act. Such affiliates will be permitted to sell
their shares of Company Common Stock pursuant to Rule 144 under the Securities
Act beginning 90 days after the Distribution, subject to certain volume
limitations, manner of sale limitations, notice requirements and the
availability of current public information about the Company. In addition,
immediately following the Distribution, (i) 9,195,224 shares of Company Common
Stock will be purchased by certain of the Company's officers in a private
placement, (ii) shares of Series A Preferred Stock will be purchased by
certain "qualified institutional buyers" (as such term is defined in Rule 144A
under the Securities Act) in a private placement, which shares will be
convertible at any time into shares of Company Common Stock, and (iii) options
to purchase 3,100,000 shares of Company Common Stock will be granted to the
Company's executive officers under the 1998 Stock Option Plan of Excel Legacy
Corporation (the "Legacy Stock Option Plan"). See "MANAGEMENT-- Legacy Stock
Option Plan" and "CERTAIN TRANSACTIONS." Shares of Company Common Stock issued
in (or pursuant to conversion rights granted in) the private placements may be
sold only pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
such as the exemption afforded by Rule 144. In this regard, the Company will
grant the purchasers of the Series A Preferred Stock certain registration
rights. See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK-- Registration Rights."
Shares issued pursuant to the exercise of options granted under the Legacy Stock
Option Plan will be freely transferable without restriction, subject, in the
case of sales by affiliates, to compliance with Rule 144.
The Company is unable to estimate the number of shares that may be sold in
the future by its stockholders or the effect, if any, that sales of shares by
such stockholders will have on the market price of the Company Common Stock
prevailing from time to time. Sales of substantial amounts of Company Common
Stock, or the prospect of such sales, could adversely affect the market price of
the Company Common Stock.
22
<PAGE>
RELATIONSHIP BETWEEN LEGACY AND EXCEL
AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships between
the Company, Excel and EDV after the Distribution and to provide mechanisms for
an orderly transition, the Company, Excel and EDV have entered or will enter
into various agreements, and will adopt policies, as described in this section.
DISTRIBUTION AGREEMENT
Prior to the Distribution Date, the Company, Excel and EDV will enter into
the Distribution Agreement, which provides for, among other things, (i) the
division between the Company, Excel and EDV of certain assets and liabilities,
(ii) the Distribution, and (iii) certain other agreements governing the
relationship between the Company, Excel and EDV following the Distribution.
Pursuant to the Distribution Agreement, as consideration for the asset
transfers, the Company will issue to Excel (a) a sufficient number of shares of
Company Common Stock to effect the Distribution, and (b) a promissory note
payable to Excel in the amount of approximately $25.3 million. In addition, in
connection with the asset transfers, Excel will cancel certain indebtedness of
EDV currently held by Excel in the amount of approximately $32.8 million. See
"CERTAIN TRANSACTIONS."
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate to the Company, effective as of the Distribution Date, financial
responsibility for the liabilities arising out of or in connection with the
assets to be transferred to the Company pursuant to the Distribution Agreement.
The agreements to be executed in connection with the Distribution Agreement set
forth certain specific allocations of liabilities between the Company, Excel and
EDV. See "--Employee Benefits Allocation Agreement" and "--Tax Sharing
Agreement."
The Distribution Agreement also provides that by the Distribution Date, the
Company Certificate and the Company Bylaws shall be in the forms attached hereto
as Annex I and II, respectively, and that the Company and Excel will take all
actions which may be required to elect or otherwise appoint, as directors of the
Company, the persons indicated herein. See "MANAGEMENT" and "LEGACY CERTIFICATE
OF INCORPORATION AND BYLAWS."
The Distribution Agreement also provides that each of the Company, Excel and
EDV will be granted access to certain records and information in the possession
of the others, and requires the retention by each of the Company, Excel and EDV
for a period of ten years following the Distribution of all such information in
its possession, and thereafter requires that each party give the others prior
notice of its intention to dispose of such information. In addition, the
Distribution Agreement provides for the allocation of shared privileges with
respect to certain information and requires each of the Company, Excel and EDV
to obtain the consent of the others prior to waiving any shared privilege.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred, with any expenses that cannot be allocated on such basis to be split
equally between the parties.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
The Distribution Agreement calls for Excel and the Company to enter into an
Employee Benefits and Other Employment Matters Allocation Agreement (the
"Employee Benefits Allocation Agreement") containing a number of provisions
relating to current and former employees of Excel. The Employee Benefits
Allocation Agreement generally contemplates that the Company will assume no
obligations or liabilities with respect to employee plans or benefits of Excel
prior to the Distribution Date, and that Excel will be responsible for
continuing to provide employee benefits (other than those provided under the
Legacy Stock Option Plan) for the Excel personnel who become employees of the
Company after the Distribution Date.
23
<PAGE>
Prior to the Distribution Date, Excel, as sole stockholder of the Company,
will approve the adoption by the Company of the Legacy Stock Option Plan for
purposes of granting awards of Company Common Stock to employees, officers and
directors of the Company subsequent to the Distribution. Excel also will approve
the reservation of 5,250,380 shares of Company Common Stock under the Legacy
Stock Option Plan, and the grant of options to acquire 3,100,000 of such shares
to the Company's executive officers upon consummation of the Distribution. For a
discussion of the principal terms and conditions of the Legacy Stock Option
Plan, see "MANAGEMENT--Legacy Stock Option Plan."
TAX SHARING AGREEMENT
Excel and the Company will enter into a tax sharing agreement defining the
parties' rights and obligations with respect to tax returns and tax liabilities,
including, in particular, Federal and state income tax returns and liabilities,
for taxable years and other taxable periods ending on or before the Distribution
Date. In general, Excel will be responsible for (i) filing all Federal and state
income tax returns of Excel, the Company and any of their subsidiaries for all
taxable years ending on or before or including the Distribution Date, and (ii)
paying the taxes relating to such returns (including any deficiencies proposed
by applicable taxing authorities), to the extent attributable to
pre-Distribution Date periods. Excel and the Company will each be responsible
for filing its own returns and paying its own taxes for post-Distribution Date
periods. Excel and the Company will cooperate with each other and share
information in preparing income tax returns and in dealing with other tax
matters.
TRANSITIONAL SERVICES AGREEMENT
The Company and Excel will enter into a Transitional Services Agreement
pursuant to which Excel will provide certain property acquisition, management
and other services to the Company on a transitional basis. The fees for such
transitional services will be based on hourly rates or a percentage of revenues
designed to reflect the costs (including indirect costs) of providing such
services. The Company will be free to procure such services from outside vendors
or to develop in-house capabilities in order to provide such services
internally. The transitional services agreement will terminate on December 15,
1998 unless extended in writing by the parties.
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
The Company and Excel intend to pursue separate and distinct business
strategies to minimize potential conflicts of interest between the two
companies. Nonetheless, the on-going relationships between the Company and Excel
may present conflict situations for certain officers and directors. Certain
persons will serve as officers and/or directors of both the Company and Excel,
and also will own (or have options or other rights to acquire) a significant
number of shares of common stock in both companies. The Company and Excel will
adopt appropriate policies and procedures to be followed by the Board of
Directors of each company to limit the involvement of such officers and
directors in conflict situations, including matters relating to contractual
relationships or litigation between the Company and Excel. Such procedures
include requiring the persons serving as directors of both companies to abstain
from voting as directors with respect to matters that present a significant
conflict of interest between the companies. Whether or not a significant
conflict of interest situation exists will be determined on a case-by-case basis
depending on such factors as the dollar value of the matter, the degree of
personal interest of any officers or directors in the matter and the likelihood
that resolution of the matter has significant strategic, operational or
financial implications for the business of the Company and/or Excel. In
addition, the Company Certificate contains a specific purpose clause which
attempts to avoid conflicts of interest by identifying at the outset which types
of opportunities will be pursued by each company. This clause provides that the
Company's purpose includes performing the Intercompany Agreement, which
prohibits the Company from engaging in certain activities or making certain
investments unless Excel was first offered the opportunity and declined to
pursue such activities or investments. See "RISK FACTORS--Possible Conflicts
with Excel After the Distribution" and "THE COMPANY--Intercompany Agreement."
24
<PAGE>
REGULATORY APPROVALS
The Company does not believe that any material Federal or state regulatory
approvals will be necessary in connection with the Distribution.
25
<PAGE>
PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1997, the adjustments required to give effect to the Distribution
and the pro forma capitalization of the Company at such date. The table should
be read in conjunction with the historical and pro forma combined financial
statements and the notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgages payable...................................................................... -- $ 37,532
Notes payable--Excel................................................................... -- 25,256
---------- -----------
Total debt........................................................................... -- 62,788
Stockholders' equity..................................................................... -- 50,238
---------- -----------
Total capitalization................................................................. -- $ 113,026
---------- -----------
---------- -----------
</TABLE>
26
<PAGE>
EXCEL LEGACY CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet of Legacy
as of October 31, 1997 and unaudited pro forma condensed combined statement of
operations for the year ended July 31, 1997 have been prepared to reflect the
results of the Distribution. The unaudited pro forma condensed combined balance
sheet and unaudited pro forma condensed combined statement of operations have
been prepared as if the Distribution and capitalization occurred on October 31,
1997. The unaudited pro forma condensed combined financial information is not
necessarily indicative of the results that actually would have occurred if the
Distribution and capitalization had been consummated as of October 31, 1997.
PRO FORMA BALANCE SHEET--UNAUDITED
AS OF OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY
EXCEL REALTY TRUST, INC. CAPITALIZATION
EXCEL LEGACY ------------------------- BY PREFERRED
CORPORATION ASSET GROUP OTHER CAPITALIZATION STOCK PRO FORMA
HISTORICAL(A) AUDITED(B) ASSETS(C) BY OFFICERS(D) OFFERING(E) CONSOLIDATED
--------------- ------------ ----------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate:
Land................. $ -- $ 15,324 $ 3,274 $ -- $ -- $ 18,598
Buildings............ -- 34,789 6,081 -- -- 40,870
Under development.... -- 14,191 -- -- -- 14,191
Accumulated
depreciation....... -- (4,040) -- --, -- (4,040)
----- ------------ ----------- ------- --------------- ------------
Net real estate.... -- 60,264 9,355 -- -- 69,619
Cash................... 1 -- -- 10,988 -- 10,989
Notes receivable....... -- 21,981 -- -- -- 21,981
Interest receivable.... -- 2,009 -- -- -- 2,009
Leasehold interest..... -- -- 2,000 -- -- 2,000
Deferred tax asset..... -- -- 6,653 -- -- 6,653
----- ------------ ----------- ------- --------------- ------------
Total assets....... $ 1 $ 84,254 $ 18,008 $ 10,988 -- $ 113,251
----- ------------ ----------- ------- --------------- ------------
----- ------------ ----------- ------- --------------- ------------
LIABILITIES:
Mortgages payable...... $ -- $ 34,657 $ 2,875 $ -- -- $ 37,532
Notes Payable--
Excel................ -- 25,256 -- -- -- 25,256
Interest payable....... -- 225 -- -- -- 225
----- ------------ ----------- ------- --------------- ------------
Total liabilities.. -- 60,138 2,875 -- -- 63,013
----- ------------ ----------- ------- --------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock........ -- -- -- -- -- --
Common stock........... -- 2 -- 1 -- 3
Additional paid in
capital.............. 1 24,114 15,133 10,987 -- 50,235
Retained earnings...... -- -- -- -- -- --
----- ------------ ----------- ------- --------------- ------------
Total stockholders'
equity........... 1 24,116 15,133 10,988 -- 50,238
----- ------------ ----------- ------- --------------- ------------
Total liabilities
and stockholders'
equity........... $ 1 $ 84,254 $ 18,008 $ 10,988 -- $ 113,251
----- ------------ ----------- ------- --------------- ------------
----- ------------ ----------- ------- --------------- ------------
</TABLE>
27
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
A) Reflects the audited historical balance sheet of Excel Legacy Corporation
(the "Company") as of November 17, 1997. Excel Realty Trust, Inc. ("Excel")
is the sole stockholder of the Company, and the Company is currently
considered a qualified REIT subsidiary of Excel.
B) Reflects the transfer of assets and liabilities currently held by Excel and
ERT Development Corporation ("EDV") to the Company for stock. See Combined
Balance Sheet of Excel Legacy Corporation Asset Group (the "Asset Group") at
page F-6. The transfer by Excel and EDV will include (1) ten single tenant
buildings with related mortgages, (2) a substantially vacant shopping mall
in Scottsdale, Arizona which the Company intends to redevelop, and (3) four
notes receivable related to development projects located in Arizona and
California. The $49.4 million equity of Excel in the Asset Group will be
divided between $25.1 million in common stock and $25.3 million in a note
payable to Excel.
C) Reflects the following adjustments: (1) The purchase of the Scottsdale City
Centre office building in October 1997 for $7.7 million with a mortgage
payable of $2.9 million. The property is currently owned by EDV but will be
transferred to the Company immediately prior to the spin-off. (2) The
purchase of the Brio restaurant building in Scottsdale, Arizona for $1.7
million in November 1997. The property is currently owned by EDV but will be
transferred to the Company immediately prior to the spinoff. (3) In November
1997, the Company acquired a leasehold interest in a parcel of land near the
Grand Canyon in Arizona for $2.0 million. (4) Since the spin-off of assets
to the Company will be a taxable transaction to Excel, the tax basis of the
assets will be approximately $16.7 million higher than the book value.
Therefore, a deferred tax asset has been recorded for $6.7 million for the
estimated future tax savings to the Company from the higher tax basis in the
assets. (5) The above assets less liabilities will be transferred to the
Company through the issuance of common stock.
D) Certain officers of the Company have agreed to purchase $22.0 million in
stock from the Company by paying $11.0 million in cash and $11.0 in notes
receivable at 7.0% interest. The notes receivable have been recorded as an
offset to the common stock. The capitalization is valued at $2.39 per share.
E) Represents shares of Series A Cumulative Convertible Preferred
Stock of the Company that have been committed to be purchased by certain
qualified institutional buyers at $5.00 per share immediately after the
Distribution.
28
<PAGE>
EXCEL LEGACY CORPORATION
PRO FORMA STATEMENT OF OPERATIONS--UNAUDITED
FOR THE YEAR ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY
EXCEL LEGACY EXCEL REALTY TRUST, INC.
CORPORATION -------------------------- CAPITALIZATION BY
HISTORICAL ASSET GROUP OTHER CAPITALIZATION BY PREFERRED STOCK PRO FORMA
(A) AUDITED (B) ASSETS (C) OFFICERS (D) OFFERING (E) CONSOLIDATED
------------- ------------- ----------- ------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental.................... $ -- $ 4,937 $ 1,192 $ -- -- $ 6,129
Interest.................. -- 2,628 -- 769 -- 3,397
------------- ------ ----------- ----- ------ ------
Total revenues.......... -- 7,565 1,192 769 -- 9,526
------------- ------ ----------- ----- ------ ------
Expenses:
Interest.................. -- 2,720 257 -- -- 2,977
Depreciation.............. -- 870 125 -- -- 995
Property operations....... -- -- 412 -- -- 412
General and
administrative.......... -- 49 1,192 -- -- 1,241
------------- ------ ----------- ----- ------ ------
Total expenses.......... -- 3,639 1,986 -- -- 5,625
------------- ------ ----------- ----- ------ ------
Net income before taxes..... -- 3,926 (794) 769 -- 3,901
Income taxes................ -- 1,564 (316) 306 -- 1,554
------------- ------ ----------- ----- ------ ------
Net income (loss)........... $ -- $ 2,362 $ (478) $ 463 -- $ 2,347
------------- ------ ----------- ----- ------ ------
------------- ------ ----------- ----- ------ ------
</TABLE>
29
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
A) Legacy had no operations prior to the spin-off.
B) Reflects the historical revenue and expenses associated with the transfer of
the assets held by Excel and EDV. See Combined Statements of Operations of
Excel Legacy Corporation Asset Group at page F-7. Rental and interest
revenue and interest expense are four times the quarter ended October 31,
1997 numbers. Management fees of 1.0% on the triple-net leased properties
have been recorded as administrative expense.
C) The rental revenue, interest, depreciation and property operation expenses
are the pro forma revenue and expenses from the Scottsdale City Centre
office building purchased in October 1997 and the Brio restaurant building
purchased in November 1997 that will be transferred to the Company. The
adjustment of general and administrative expenses represents the estimated
overhead costs of forming and operating the Company in addition to the
management fee of 4.0% on the Scottsdale property.
D) The interest income represents interest earned on the notes from the
officers. Interest earned on cash reserves has not been included in the Pro
Forma Statement of Operations.
E) No income return has been projected on the cash received from the committed
amount of Series A Cumulative Convertible Preferred Stock of the Company to
be purchased by certain qualified institutional buyers.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NATURE OF BUSINESS
The Company was only recently formed and has no operating history. The
Company was organized to create and realize value by identifying and making
opportunistic real estate investments through the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses.
LIQUIDITY
In connection with the formation and capitalization of the Company, the
Company will receive approximately $22.0 million from the sale of Company Common
Stock to certain officers of the Company. In addition, the Company plans to sell
shares of Series A Preferred Stock for a total purchase price of
approximately $200.0 million immediately following the Distribution. See
"CERTAIN TRANSACTIONS."
RESULTS OF OPERATIONS
Following the Distribution, the Company will receive approximately $6.1
million in annual rental revenues from its properties based on current rental
rates and current tenants. All of the properties, with the exception of the
Scottsdale Galleria and the Scottsdale City Centre office building, are single
tenant retail properties which are currently leased to Wal-Mart Stores, Inc. or
Lowe's Home Centers, Inc. See "BUSINESS AND PROPERTIES."
The interest expense on the Company's properties is expected to be
approximately $3.0 million per year. All of the mortgage notes are fixed rate
loans with average interest rates of approximately 7.65% to 8.75% per annum.
General and administrative costs are expected to be approximately $1.2 million
in the coming year based on the employees who will initially be working for the
Company.
The above figures are management estimates and actual results may differ
materially from those discussed.
CAPITAL RESOURCES
Following the Distribution, the Company will own approximately $73.7 million
in real estate that will be encumbered with mortgages in the amount of $62.8
million. All properties will be encumbered with mortgages. In addition, the
Company will have $22.0 million in notes receivable that have been loaned on
various real estate development projects which will not be collected until the
projects are completed. The Company also will have recourse notes receivable
from various officers of the Company for approximately $11.0 million stemming
from their acquisition of shares of Company Common Stock. These notes are not
expected to be repaid for several years and will likely not be repaid until, and
if, the price of the Company Common Stock increases sufficiently for the
officers to borrow the loan amounts from an outside source and repay the
Company.
The Company will have approximately $11.0 million in cash. In addition, the
Company expects to receive an additional $200.0 million immediately following
the Distribution from the sale of Series A Preferred Stock, as discussed above.
As of the date of this Information Statement, the Company has no commitments
to purchase any additional assets. The Company intends to operate its business
as described herein, however, and may purchase additional assets from time to
time in the future. The purchase of additional assets will be contingent upon
securing adequate funding on terms acceptable to the Company. The Company is not
aware of any material unfavorable trends in either capital resources or the
outlook for long-term cash generation, nor does it expect any material changes
in the availability and relative cost of such capital resources.
There are currently no material changes being considered in the objectives
and policies of the Company as set forth in this Information Statement.
31
<PAGE>
THE COMPANY
GENERAL
The Company was organized to create and realize value by identifying and
making opportunistic real estate investments through the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses. The Company
intends to provide investors with return opportunities that are not generally
available to publicly traded REITs due to investment limitations and leverage
expectations imposed by the public markets and Federal income tax laws
applicable to REITs.
The Company Certificate contains a specific purpose clause which attempts to
avoid conflicts of interest between the Company and Excel by identifying at the
outset which types of opportunities will be pursued by each company. This clause
provides that the Company's purpose includes performing the Intercompany
Agreement, which prohibits, for so long as the Intercompany Agreement remains in
effect, the Company from engaging in certain activities or making certain
investments unless Excel was first offered the opportunity and declined to
pursue such activities or investments. See "--Intercompany Agreement."
To a large extent, public REITs manage their property portfolios with
consideration to both public market perceptions and tax laws. Because investors
are seeking a consistent and growing income stream from their REIT investments,
REITs are under constant pressure to (i) grow recurring cash flow, known as
funds from operations ("FFO"), an indicator of performance in the REIT industry,
and (ii) maintain a low leverage ratio (debt to total capitalization, one
measure used to determine the relative risk of that cash flow stream, as rising
interest rates can diminish FFO and impact dividends). As a result, REITs have
generally been hesitant to participate in long-term, higher-risk development
projects or to bring their leverage ratios to above 40.0%. In addition, the tax
laws governing REITs include limitations on (i) the types of assets that REITs
may own and the time period that real estate may be held, restricting REITs from
investing in operating companies and equity and debt securities, and
participating in short-term trading opportunities, and (ii) the ability of REITs
to retain earnings, requiring REITs to distribute 95.0% of net taxable income,
excluding capital gains, each year. Further, because gains on the sales of
properties are not included in the calculation of FFO, REITs are dissuaded from
buying distressed assets which may have substantial long-term appreciation
potential but lack immediate cash flow. As a result of these influences, the
overwhelming majority of REITs acquire specific property types, have debt to
total capitalization ratios of less than 40.0%, and limit their development
activity to under 15.0% of total real estate assets. These characteristics
provide REIT investors with "bond like" dividends as well as share appreciation
based upon property values.
In such an environment, the Company believes that significant opportunities
are available to those investors that are not restricted by the Federal income
tax laws governing REITs or influenced by public market perception with regard
to REIT securities. Thus, the Company intends to invest in a variety of real
estate related assets such as (i) public and private debt and equity securities
of real estate related entities, (ii) development opportunities that provide
substantial value appreciation rather than immediate cash flow, (iii) properties
requiring substantial repositioning or restructuring in order to create
significant value, and (iv) properties with long-term leases enabling the
Company to utilize a substantial amount of leverage. Further, the Company will
be able to manage the timing of asset dispositions without regard to the minimum
hold periods required of REITs while also acquiring properties using
substantial, yet prudent, leverage, to increase returns on what otherwise might
be less attractive investments. The Company believes that these investment
guidelines will lead to significant opportunities in the real estate marketplace
by investing in the assets, projects and transactions that have been largely
ignored by public real estate companies. As opportunities emerge, the Company
may in the future expand its real estate related businesses and activities
beyond the areas listed above.
32
<PAGE>
The Company currently does not intend to qualify as a REIT under the Code.
Consequently, the Company has the flexibility to respond quickly to
opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. By not qualifying as a REIT under the Code (which would
require the Company to distribute each year at least 95.0% of its net taxable
income, excluding capital gains), the Company has the ability and currently
intends to retain for reinvestment its cash flow generated from operations and
to sell properties without the substantial income tax penalties which may be
imposed on REITs in such transactions. In addition, the Company differs from
real estate opportunity funds that are typically structured as private
partnerships. In that regard, the business of the Company is conducted without
the payment of acquisition, disposition or management fees to general partners
which should result in additional cash flow being available for reinvestment. In
addition, unlike investors in opportunity funds, the Company's stockholders will
have voting rights and are expected to have enhanced liquidity through their
ability to sell or margin their stock. The Company also hopes to attract a
broader range of investors because there will be no stipulated investment
minimum. However, unlike REITs and opportunity funds, the Company is subject to
corporate level taxation.
The Company was incorporated under the laws of Delaware in November 1997.
The Company's executive offices are located at 16955 Via Del Campo, Suite 100,
San Diego, California 92127, and its telephone number is (619) 485-9400.
MANAGEMENT
Collectively, the Company's management has more than 100 years of experience
in real estate investing and management. They began the predecessor to Excel in
1977 and the majority of them have administered the investments and affairs of
Excel and its affiliates since 1989. They bring with them the successful
implementation of Excel's unique approach to portfolio management which has
resulted in consistently high occupancy rates, increasing rental revenues, a
history of adding value through aggressive acquisition, development, expansion
and re-leasing activities, and a history of selling mature properties and
redeploying the assets. The Company believes that the extensive experience of
management in real estate, capital markets and public company operations, their
knowledge, credibility and business relationships, and their demonstrated track
record of recognizing and profiting from emerging real estate trends should help
the Company accomplish its business objectives.
EXCEL'S PERFORMANCE
In 1995, Excel was the number one performing retail REIT in the United
States based upon total returns to stockholders, generating returns of 35.7%
versus 34.1% for the S&P 500. In 1996, Excel generated returns to stockholders
of 34.6% versus 22.7% for the S&P 500. As of September 30, 1997, Excel owned and
managed 143 properties located in 28 states, with approximately 13.2 million
square feet of gross leasable area ("GLA"), which was 97.0% leased.
INNOVATIVE APPROACH TO STRUCTURES AND INVESTMENT TECHNIQUES
The Company's management has extensive experience sourcing and structuring a
wide variety of transactions that are consistent with the Company's investment
philosophy. For example, Excel was (i) one of the first REITs to form a
"downREIT" allowing investors to defer tax liabilities and increase liquidity
while typically enabling the REIT to purchase quality assets at a discount to
market pricing, (ii) one of the first REITs to complete a retail Rapidly Offered
Common Stock (ROCS) Offering which expedites access to the capital markets while
minimizing management's time and expense, and (iii) one of the first REITs to
employ a taxable affiliate structure to expand its development and fee income
activities.
33
<PAGE>
BUSINESS STRATEGY
The Company intends to pursue a variety of real estate related activities,
such as (i) investing in properties requiring significant restructuring or
redevelopment in order to create substantial value, (ii) developing long-term,
mixed-use development/entertainment projects that have the potential for
substantial capital gains but which may take three to five years to fully
develop, (iii) acquiring single tenant properties that can be highly leveraged
with fixed rate debt that amortizes over the term of the property's tenant
leases, (iv) purchasing portfolios of properties on a wholesale basis, then
selling the properties individually on a retail basis, and (v) acquiring debt or
equity securities in real estate operating companies, including defaulted debt
at a discount to the value of the underlying asset securing the debt. Further,
the Company will be able to manage the timing of asset dispositions without
regard to the minimum hold periods required of REITs while also acquiring
properties using substantial, yet prudent, leverage to increase returns on what
otherwise might be less attractive investments.
INVESTMENT POLICIES
The Company intends to acquire, develop, own and manage a variety of real
estate related assets that offer return opportunities that are not generally
available to publicly traded REITs. As opportunities emerge and in response to
changes in market, real estate and general economic conditions, the Company may
in the future retract from, discontinue or expand its real estate related
business and activities. There can be no assurance that the acquisition or
development of any of the real estate assets outlined below will be consummated.
RESTRUCTURING AND REDEVELOPMENT IN ORDER TO CREATE SUBSTANTIAL VALUE. The
Company may from time to time engage in selective restructuring and development
activities as opportunities arise and when justified by expected returns. The
Company believes that by pursuing selective restructuring and development
activities it can achieve returns which are greater than returns that could be
achieved by acquiring stabilized properties. The Company believes that
appropriate, well located properties which are currently underperforming can be
acquired on advantageous terms and repositioned with the expectation of
achieving enhanced returns that are greater than returns which could be achieved
by acquiring a stabilized property. The Company also believes that these types
of properties are not attractive acquisition candidates for REITs because the
properties have no or limited cash flow as a result of required rehabilitation
or not being substantially leased. As a result, a REIT that is heavily dependent
upon long-term restructuring or redevelopment activities may have difficulty
covering its mandatory dividends. The Company also may acquire land for
speculation, future development or subdivision.
DEVELOPMENT. The Company may from time to time undertake directly or
through joint venture financing long-term, large development projects that have
the potential for substantial gains but which may take three to five years to
fully develop, with particular emphasis on mixed-use retail entertainment
projects. To the extent the Company provides joint venture financing, the
developer will often bear the substantial portion of the economic risks
associated with the construction, development and initial rent-up of properties.
Under this financing method, the Company either may purchase the undeveloped
property and lease such property back to the developer or make a subordinated
loan to the developer and, upon completion, the Company would have the option to
purchase the development. The Company believes that these financing and
development activities will give the Company opportunities to purchase
properties at capitalization rates slightly above those which might otherwise be
available after completion of development. Since substantial value appreciation
from these investments is not immediately realized, many REITs substantially
limit their development activity. The Company believes that such investments
represent high return opportunities that are underutilized by REITs.
ACQUIRING SINGLE TENANT PROPERTIES. The Company may from time to time seek
to acquire single tenant properties which can be highly leveraged with fixed
rate debt that amortizes over the term of the property's tenant leases, the
profits from which can be enhanced significantly when property-specific leverage
that
34
<PAGE>
carries an interest rate below the capitalization rate on the property is
utilized. Initially, the Company will seek to apply this business strategy to
retail and office properties. As opportunities arise, the Company may seek to
acquire other types of commercial properties, including industrial properties.
PURCHASING PORTFOLIOS OF PROPERTIES ON A WHOLESALE BASIS. The Company may
from time to time seek to purchase portfolios of properties on a wholesale
basis, then sell such properties individually on a retail basis. The tax
regulations governing REITs discourage such short-term trading activity, causing
a REIT to lose its REIT status if it were to engage excessively in these
activities. Thus, the Company believes that there are abundant short-term
trading opportunities in the real estate markets that are not appropriate for
REITs and are therefore passed over by REITs in favor of other investments.
ACQUIRING DEBT OR EQUITY SECURITIES IN REAL ESTATE OPERATING COMPANIES. The
Company may from time to time acquire real estate related equity securities or
make loans that constitute, or invest in, real estate related senior, junior or
otherwise subordinated debt securities, which debt securities may be unsecured
or secured by liens on real estate or the economic benefits thereof. Some of the
entities in which the Company may invest may be start-up companies or companies
in need of additional capital. These investments may contain options to acquire,
or be convertible into the right to acquire, all or a portion of the underlying
real estate, or contain the right to participate in the cash flow and economic
return which may be derived from the real estate.
Debt investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities, secured and unsecured lines of
credit, distressed loans, and loans previously made by foreign and other
financial institutions. In some cases the Company may only acquire a
participating interest in a debt security. The Company believes that there are
opportunities to acquire real estate debt securities, especially in the low or
below investment grade tranches, at significant returns as a result of
inefficiencies in pricing, while utilizing management's real estate expertise to
analyze the underlying properties and thereby effectively minimizing risk. The
Company also may provide credit enhancement or guarantees of the obligations of
others involved in real estate related activities, and may invest in
participating or convertible mortgages if the Company concludes that it may
benefit from the cash flow and/or any appreciation in the value of the property.
Such mortgages may be similar to equity participations. In addition, the Company
may make mortgage loans or participate in such loans and contemporaneously or
otherwise obtain related property purchase options.
Equity investments may include development projects directly or through
joint ventures (as described above), as well as the purchase of general or
limited partnership interests in limited partnerships, shares in publicly traded
or privately held corporations or interests in other entities that own real
estate, make real estate related loans, invest in real estate related debt
instruments or provide services or products to the real estate industry. The
Company intends to engage in active real estate businesses, which may include
land subdivisions, property sales and other businesses considered ineligible or
impractical investments for REITs. The Company also may hold real estate or
interests therein for investment. The Company may purchase substantially leased,
mostly unleased or vacant properties of any type or geographic location. The
Company intends to renovate and re-lease the mostly unleased or vacant
properties. The Company also may purchase leasehold positions and sub-lease the
property.
In addition, the Company may in the future invest in retail, residential,
hotel and other types of properties and manage and lease properties owned by it
or in which it has an equity or debt investment. The activities described above
often do not generate immediate cash flow, and cash flow generated may be
nonrecurring. These investments may be subject to existing debt financing and
any such financing will have a priority over the equity interests of the
Company.
PROACTIVE ASSET MANAGEMENT
Using sophisticated real estate information management systems, the
Company's management will regularly monitor and evaluate each portfolio asset to
identify properties which can be sold or exchanged
35
<PAGE>
for optimal sales prices (or exchange values) given prevailing market conditions
and the particular characteristics of each property. Through this strategy, the
Company will seek to continually update its core property portfolio by disposing
of properties which have limited appreciation potential and redeploy capital
into newer properties or properties where its aggressive management techniques
may maximize property values. The Company may engage from time to time in
like-kind property exchanges (I.E., Code Section 1031 exchanges) which will
allow the Company to dispose of properties and redeploy proceeds in a tax
efficient manner. In addition to value enhancement, the Company also will focus
on the efficient management of cash and maintaining strong operational cost
controls.
The Company may utilize the experience of Excel and its nine regional
offices to provide property management for those assets acquired or developed.
By leveraging this franchise, the Company will have access to professional
management that emphasizes maintaining or creating high occupancy rates and
monitoring the physical condition of properties and the financial condition of
tenants.
FINANCING POLICIES
The Company will seek to finance its investments through both public and
private secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities will include both
common and preferred equity issuances of the Company. The Company does not have
a policy limiting the number or amount of mortgages that may be placed on any
particular property, but mortgage financing instruments usually limit additional
indebtedness on such properties. There are currently no restrictions on the
amount of debt that the Company may incur.
The Company may seek variable rate financing from time to time if such
financing appears advantageous in light of then-prevailing market conditions. In
such case, the Company will consider hedging against interest rate risk through
interest rate protection agreements, interest rate swaps or other means. See
"RISK FACTORS--Hedging Policies/Risks."
The Company does not plan to distribute dividends for the foreseeable
future, which will permit it to accumulate for reinvestment cash flow from
investments, disposition of investments and other business activities. See "THE
DISTRIBUTION--Quotation and Trading of Company Common Stock; Dividend Policy"
and "RISK FACTORS--Dividend Policy."
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company does not intend to qualify as a REIT, but it may, from time to
time, invest in REITs and sell properties or entities to REITs for cash and/or
securities. Further, it may spin-off to its common stockholders shares of its
subsidiaries or shares of other entities it has acquired through the sale of its
properties, investments or otherwise. These spin-offs may involve the formation
of new entities and may be taxable or non-taxable, depending upon the facts and
circumstances. The Company's policies with respect to its activities may be
reviewed and modified from time to time by the Company's directors without
notice to or vote of its stockholders. See "RISK FACTORS--Changes in Policies
Without Stockholder Approval."
INTERCOMPANY AGREEMENT
The Company and Excel will enter into the Intercompany Agreement on or prior
to the Distribution Date to provide each other with rights to participate in
certain transactions. Pursuant to the Intercompany Agreement, during the term
thereof, the Company will agree not to engage in activities or make investments
that involve neighborhood and community shopping centers, power centers, malls
or other conventional retail properties (including without limitation the
opportunity to provide services related to such real estate and to invest in
entities that invest primarily in or have a substantial portion of their assets
in such real estate), unless it has first provided written notice to Excel of
the material terms and conditions of such activities or investments, and Excel
has determined not to pursue such activities or investments
36
<PAGE>
either by providing written notice to the Company rejecting the opportunity
within ten days following the date of receipt of notice of the opportunity or by
allowing such ten-day period to lapse. The Intercompany Agreement expressly
permits the Company to engage in activities or make investments that involve
office and industrial properties, single tenant retail properties,
entertainment/retail/mixed-use development projects, real estate mortgages, real
estate derivatives, or entities that invest primarily in or have a substantial
portion of their assets in such real estate assets.
Pursuant to the Intercompany Agreement, during the term thereof, the Company
and Excel also will agree to notify each other of, and make available to each
other, investment opportunities which they develop or of which they become aware
but are unable or unwilling to pursue. The term of the Intercompany Agreement
will commence upon the date of signing and will terminate upon the earlier of
(i) the tenth anniversary of the date of signing, or (ii) a change in control of
either party. See "RISK FACTORS--Possible Conflicts with Excel After the
Distribution" and "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE
DISTRIBUTION--Policies and Procedures for Addressing Conflicts."
INITIAL CAPITAL AND FINANCING
The Company has obtained commitments to buy, effective upon consummation of
the Distribution, (i) 9,195,224 shares of Company Common Stock in a private
placement to certain of the Company's officers at a price per share of $2.39
(the estimated market value of the Company Common Stock as of the Distribution
Date based upon the value of the assets being transferred to the Company), for
an aggregate purchase price of approximately $22.0 million, and (ii)
shares of Series A Preferred Stock in a private placement to certain "qualified
institutional buyers" (as such term is defined in Rule 144A under the Securities
Act) at a price per share of $5.00, for an aggregate purchase price of
approximately $200.0 million. See "CERTAIN TRANSACTIONS."
37
<PAGE>
BUSINESS AND PROPERTIES
Prior to the Distribution, Excel and EDV will transfer to the Company
certain real properties, notes receivable and related assets and liabilities
currently held by Excel and EDV. The following provides a brief description of
such assets.
PROPERTIES
The table below sets forth certain pertinent information regarding the
properties to be transferred to the Company prior to the Distribution. The
information is presented as of September 30, 1997.
<TABLE>
<CAPTION>
TOTAL BASE
YEAR GLA RENTAL RENT PER LEASE
TENANT BUILT (SQ. FT.) INCOME SQ. FT. EXPIRATION
----------- --------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arizona
Scottsdale Galleria................... (1) (1) (1) (1) (1) (1)
Scottsdale City Centre................ (2) 1982 64,262 $ 1,038,138(3) $ 16.15(4) (5)
Brio Land............................. (6) (6) (6) (6) (6) (6)
Grand Canyon.......................... (7) (7) (7) (7) (7) (7)
Colorado
Brighton.............................. Wal-Mart 1992 94,220 343,021 3.64 2008
Illinois
Orland Hills.......................... Wal-Mart 1992 114,513 824,075 7.20 2009
Indiana
Decatur............................... Wal-Mart 1992 72,200 324,200 4.49 2009
Terre Haute........................... Lowe's 1993 104,259 557,786 5.36 2013
Wabash................................ Wal-Mart 1992 93,465 374,604 4.01 2008
Michigan
Big Rapids............................ Wal-Mart 1992 91,440 337,628 3.69 2008
Ohio
Middletown............................ Lowe's 1993 126,400 650,000 5.14 2013
Pennsylvania
Wyomissing............................ Wal-Mart 1992 115,092 679,668 5.91 2008
Texas
Temple................................ Wal-Mart 1992 110,580 629,771 5.70 2008
Wisconsin
Berlin................................ Wal-Mart 1992 59,097 218,017 3.69 2009
---------- ------------ -----------
Total....................................................... 1,045,528 $ 5,976,908 $ 5.72
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
- ------------------------
(1) Property currently under renovation.
(2) Major tenants include Allied Waste Industries, Inc., RAS Management, Inc.
and Commerce International R.E.I.
(3) As of November 15, 1997.
(4) Average as of November 15, 1997.
(5) Lease terms average two years.
(6) Property consists of 0.5 acres of land and is currently being redeveloped.
(7) Property consists of 6.5 acres of land and is currently being redeveloped.
38
<PAGE>
SCOTTSDALE GALLERIA
In September 1993, Excel acquired the Scottsdale Galleria (the "Galleria").
The Galleria is situated on approximately 6.3 acres and consists of (i) an
enclosed shopping mall contained in two separate buildings, and (ii) a
multi-level parking garage. The buildings and the parking garage are connected
by a pedestrian bridge. The main building (the "Atrium") is a four level
building with a transparent glass roof and has approximately 414,768 square feet
of GLA. The smaller building contains the "5th Avenue Shops" and has
approximately 105,713 square feet of GLA.
The Galleria is located in the designated Waterfront Redevelopment District,
a high priority project for the City of Scottsdale which will utilize the
Arizona Canal as the main focal point with landscaped banks, benches, walkways,
bridges and stores lining the canal banks similar to San Antonio's "Riverwalk."
Other major points of interest in the area include the Center for Performing
Arts, Scottsdale Civic Center, Scottsdale Memorial Hospital, Stetson Square,
Scottsdale Fashion Square, Camelview Plaza and Scottsdale Stadium (spring
training home to the San Francisco Giants and their affiliated Triple A farm
club). The area is typified by single family residences, hotels, commercial and
multi-family uses and is going through a growth and renovation cycle, of which
the Waterfront Redevelopment District is an integral part, with the older retail
uses being remodeled as well as new growth in the retail and apartment segments
of the market. The City of Scottsdale has issued a request for proposals ("RFP")
for the redevelopment of this area. Excel was granted the RFP and the right to
redevelop this area, which will be transferred to the Company along with the
Galleria.
Excel purchased the Galleria for approximately $6.0 million in connection
with a foreclosure of the property. Excel's current basis in the Galleria is
approximately $14.2 million. The Galleria has been the subject of various
development plans since Excel's acquisition of the property, none of which has
been financially feasible. In connection with these previous development
activities, most of the existing tenant improvements and interior common area
improvements were removed and sold. Therefore, the majority of the Galleria's
interior will need to be re-improved in connection with any redevelopment of the
property.
SCOTTSDALE CITY CENTRE
In September 1997, EDV acquired the Scottsdale City Centre, a 64,262 square
foot office building situated on approximately 2.5 acres in Scottsdale, Arizona
(the "City Centre"). The City Centre was purchased as an expansion site for the
RFP associated with the Waterfront Redevelopment District and the Galleria.
The purchase price for the City Centre was approximately $7.7 million.
Approximately $4.8 million of the purchase price was paid in cash, and EDV
assumed a loan with approximately $2.9 million in outstanding principal (the
"City Centre Loan"). The City Centre Loan bears interest at the rate of 8.125%
per annum and matures in February 2006. Any prepayment during the fourth through
eighth years of the City Centre Loan must be accompanied by a prepayment premium
equal to a percentage of the amount being prepaid, which percentage equals 5.0%
in the fourth year and decreases by 1.0% each year thereafter to a minimum 1.0%
prepayment premium. No prepayment premium must be paid during the final three
months of the loan. EDV also may prepay up to 10.0% (on a non-cumulative basis)
of the outstanding principal balance of the loan each year on the due date of
any monthly payment without incurring a prepayment premium. The City Centre Loan
must be repaid if the City Centre is sold.
The City Centre Loan is non-recourse and repayment of the loan by EDV is
secured by a first mortgage on the City Centre and an assignment of EDV's rights
in the leases in effect for the tenants of the City Centre.
39
<PAGE>
BRIO LAND
In November 1997, EDV acquired approximately 0.5 acres of land located in
Scottsdale, Arizona (the "Brio Land"). The Brio Land was purchased as an
expansion site for the RFP associated with the Waterfront Redevelopment District
and the Galleria. The Brio Land currently contains a 3,700 square foot building
which is leased to a restaurant. The seller originally entered into a purchase
contract to sell the Brio Land to Emerald Equities, L.L.C. for approximately
$1.6 million. EDV subsequently acquired Emerald Equities' interest in the
purchase contract for $100,000. The total purchase price paid by EDV for the
Brio Land thus totalled approximately $1.7 million, all of which was paid in
cash.
GRAND CANYON PROPERTY
In November 1997, Excel acquired a leasehold interest in approximately 6.5
acres of land located in Tusayan, Arizona at the entrance to Grand Canyon
National Park on the South Rim (the "Grand Canyon Property") for approximately
$2.0 million. The Grand Canyon Property currently contains a building which will
be demolished and is subject to a lease which will be terminated and replaced
with a new land lease (the "New Lease") with a term of 50 years and two ten year
renewal options. The New Lease encompasses both the Grand Canyon Property and an
adjacent parcel consisting of approximately 3.5 acres currently owned by Red
Feather Properties Limited Partnership. Red Feather Properties Limited
Partnership and the Company intend to form a joint venture to enter into the New
Lease.
BRIGHTON, COLORADO
In December 1992, Excel acquired a 94,220 square foot building situated on
approximately 12.8 acres in Brighton, Colorado (the "Brighton Property").
The Brighton Property is a single free-standing building occupied by
Wal-Mart Stores, Inc. ("Wal-Mart"). Wal-Mart's annual rent is approximately
$343,000, under a lease that expires in January 2008. Wal-Mart's lease is a
triple net lease and all property taxes on the Brighton Property are paid by
Wal-Mart. Wal-Mart has an option to extend the term of the lease for seven
consecutive periods of five years each at an annual rent of approximately
$200,000. During the option terms, in addition to the annual rent as described
above, Wal-Mart will pay to Excel a percentage rent equal to 1.0% of the amount
by which Wal-Mart's gross sales at the Brighton Property exceed $590 per square
foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Brighton Property from
Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Brighton Property was approximately $3.6 million.
Approximately $500,000 of the purchase price was paid in cash, and Excel assumed
a loan with approximately $3.0 million in outstanding principal (the "Brighton
Loan"). As part of the purchase price, Excel also issued shares of Excel Common
Stock with an aggregate value of approximately $103,000. The Brighton Loan is
self-amortizing, bears interest at the rate of 7.1595% per annum and matures in
January 2008. The Brighton Loan is prepayable only in full and then only after
April 10, 2000, and must be repaid if the Brighton Property is sold. Under
certain circumstances, prepayment of the loan must be accompanied by a yield
maintenance payment.
The Brighton Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Brighton Property and an assignment of
Excel's rights in the Wal-Mart lease.
ORLAND HILLS, ILLINOIS
In March 1993, Excel acquired a 114,513 square foot building situated on
approximately 11.9 acres in Orland Hills, Illinois (the "Orland Hills
Property").
40
<PAGE>
The Orland Hills Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $820,000, under a lease that
expires in January 2009. Wal-Mart's lease is a triple net lease and all property
taxes on the Orland Hills Property are paid by Wal-Mart. Wal-Mart has an option
to extend the term of the lease for seven consecutive periods of five years each
at an annual rent of approximately $490,000. During the option terms, in
addition to the annual rent as described above, Wal-Mart will pay to Excel a
percentage rent equal to 1.0% of the amount by which Wal-Mart's gross sales at
the Orland Hills Property exceed $590 per square foot of the store building
under roof.
Wal-Mart has a right of first refusal to purchase the Orland Hills Property
from Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Orland Hills Property was $8.8 million.
Approximately $1.2 million of the purchase price was paid in cash, and Excel
assumed approximately $7.3 million in existing bond financing which was obtained
through the sale of investment grade rated commercial mortgage pass-through
certificates in a real estate mortgage investment conduit ("REMIC") (the "Orland
Hills Loan"). As part of the purchase price, Excel also issued shares of Excel
Common Stock with an aggregate value of approximately $300,000. The notes
representing the Orland Hills Loan bear interest at different rates that equate
to a weighted average interest rate of approximately 8.18% per annum. The Orland
Hills Loan is self-amortizing and matures in January 2009. The Orland Hills Loan
is prepayable only in full and must be repaid if the Orland Hills Property is
sold. Under certain circumstances, prepayment of the loan must be accompanied by
a yield maintenance payment, which will be no greater than 1.0% of the
outstanding principal amount of the Orland Hills Loan at the time of prepayment.
The Orland Hills Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Orland Hills Property and an assignment of
Excel's rights in the Wal-Mart lease.
DECATUR, INDIANA
In December 1992, Excel acquired a 72,200 square foot building situated on
approximately 11.4 acres in Decatur, Indiana (the "Decatur Property").
The Decatur Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $320,000, under a lease that
expires in January 2009. Wal-Mart's lease is a triple net lease and all property
taxes on the Decatur Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $190,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to Excel a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the Decatur
Property exceed $590 per square foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Decatur Property from
Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Decatur Property was $3.4 million. Approximately
$400,000 of the purchase price was paid in cash, and Excel assumed approximately
$2.9 million in existing bond financing which was obtained through the sale of
investment grade rated commercial mortgage pass-through certificates in a REMIC
(the "Decatur Loan"). As part of the purchase price, Excel also issued shares of
Excel Common Stock with an aggregate value of approximately $100,000. The notes
representing the Decatur Loan bear interest at different rates that equate to a
weighted average interest rate of approximately 8.18% per annum. The Decatur
Loan is self-amortizing and matures in January 2009. The Decatur Loan is
prepayable only in full and must be repaid if the Decatur Property is sold.
Under certain circumstances, prepayment of the loan must be accompanied by a
yield maintenance payment, which will be no greater than 1.0% of the outstanding
principal amount of the Decatur Loan at the time of prepayment.
41
<PAGE>
The Decatur Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Decatur Property and an assignment of Excel's
rights in the Wal-Mart lease.
TERRE HAUTE, INDIANA
In June 1993, Excel acquired a 104,259 square foot building situated on
approximately 10.8 acres in Terre Haute, Indiana (the "Terre Haute Property").
The Terre Haute Property is a single free-standing building occupied by
Lowe's Home Centers, Inc. ("Lowe's"). Lowe's annual rent is approximately
$560,000, under a lease that expires in January 2013. Lowe's lease is a triple
net lease and all property taxes on the Terre Haute Property are paid by Lowe's.
Lowe's has an option to extend the term of the lease for six consecutive periods
of five years each. During the first two option terms, the annual rent will be
approximately $586,000. During the third and fourth option terms, the annual
rent will be approximately $615,000. During the final two option terms, the
annual rent will be approximately $646,000. During the option terms, in addition
to the annual rent as described above, Lowe's will pay to Excel a percentage
rent equal to 1.0% of Lowe's gross sales at the Terre Haute Property between
$55.8 million and $65.8 million and 0.5% of Lowe's gross sales at the Terre
Haute Property in excess of $65.8 million. The percentages set forth above as
well as the thresholds are subject to upward adjustment in accordance with any
increases in rent during the option terms.
The purchase price for the Terre Haute Property was approximately $5.3
million. Approximately $1.0 million of the purchase price was paid in cash, and
Excel assumed a loan with approximately $4.0 million in outstanding principal
(the "Terre Haute Loan"). As part of the purchase price, Excel also issued
shares of Excel Common Stock with an aggregate value of approximately $300,000.
The Terre Haute Loan bears interest at the rate of 8.75% per annum and matures
in June 2003. The Terre Haute Loan must be repaid if the Terre Haute Property is
sold. Any prepayment during the sixth through ninth years of the Terre Haute
Loan must be accompanied by a prepayment premium equal to a percentage of the
amount being prepaid, which percentage equals 5.0% in the sixth year and
decreases by 1.0% each year thereafter. No prepayment premium must be paid
during the final three months of the loan.
The Terre Haute Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Terre Haute Property and an assignment of
Excel's rights in the Lowe's lease.
WABASH, INDIANA
In December 1992, Excel acquired a 93,465 square foot building situated on
approximately 10.9 acres in Wabash, Indiana (the "Wabash Property").
The Wabash Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $375,000, under a lease that expires in
January 2008. Wal-Mart's lease is a triple net lease and all property taxes on
the Wabash Property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $220,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to Excel a percentage rent
equal to 1.0% of the amount by which Wal-Mart's gross sales at the Wabash
Property exceed $590 per square foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Wabash Property from
Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Wabash Property was $3.9 million. Approximately
$200,000 of the purchase price was paid in cash, and Excel assumed a loan with
approximately $3.7 million in outstanding principal (the "Wabash Loan"). The
Wabash Loan bears interest at the rate of 7.1595% per annum and matures in
January 2008. The Wabash Loan is prepayable only in full and then only after
April 10, 2000, and must be repaid if the Wabash Property is sold. Under certain
circumstances, prepayment of the loan must be accompanied by a yield maintenance
payment.
42
<PAGE>
The Wabash Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Wabash Property and an assignment of Excel's
rights in the Wal-Mart lease.
BIG RAPIDS, MICHIGAN
In December 1992, Excel acquired a 91,440 square foot building situated on
approximately 17.1 acres in Big Rapids, Michigan (the "Big Rapids Property").
The Big Rapids Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $340,000, under a lease that
expires in January 2008. Wal-Mart's lease is a triple net lease and all property
taxes on the Big Rapids Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $200,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to Excel a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the Big
Rapids Property exceed $590 per square foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Big Rapids Property
from Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Big Rapids Property was approximately $3.5
million. The purchase price included no cash. Excel assumed a loan with
approximately $3.4 million in outstanding principal (the "Big Rapids Loan"). As
part of the purchase price, Excel also issued shares of Excel Common Stock with
an aggregate value of approximately $100,000. The Big Rapids Loan bears interest
at the rate of 7.1595% per annum and matures in January 2008. The Big Rapids
Loan is prepayable only in full and then only after April 10, 2000, and must be
repaid if the Big Rapids Property is sold. Under certain circumstances,
prepayment of the loan must be accompanied by a yield maintenance payment.
The Big Rapids Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Big Rapids Property and an assignment of
Excel's rights in the Wal-Mart lease.
MIDDLETOWN, OHIO
In February 1994, Excel acquired a 126,400 square foot building situated on
approximately 15.7 acres in Middletown, Ohio (the "Middletown Property").
The Middletown Property is a single free-standing building occupied by
Lowe's. Lowe's annual rent is approximately $650,000, under a lease that expires
in January 2013. Lowe's lease is a triple net lease and all property taxes on
the Middletown Property are paid by Lowe's. Lowe's has an option to extend the
term of the lease for six consecutive periods of five years each. During the
first two option terms, the annual rent will be approximately $715,000. During
the third and fourth option terms, the annual rent will be approximately
$750,000. During the final two option terms, the annual rent will be
approximately $790,000. During the option terms, in addition to the annual rent
as described above, Lowe's will pay to Excel a percentage rent equal to 1.0% of
Lowe's gross sales at the Middletown Property between $65.0 million and $75.0
million and 0.5% of Lowe's gross sales at the Middletown Property in excess of
$75.0 million. The percentages set forth above as well as the thresholds are
subject to upward adjustment in accordance with any increases in rent during the
option terms.
The purchase price for the Middletown Property was approximately $6.2
million. Approximately $1.5 million of the purchase price was paid in cash, and
Excel assumed a loan with approximately $4.4 million in outstanding principal
(the "Middletown Loan"). As part of the purchase price, Excel also issued shares
of Excel Common Stock with an aggregate value of approximately $300,000. The
Middletown Loan bears interest at the rate of 7.625% per annum and matures in
March 2014. The Middletown Loan is prepayable only in full and then only after
April 1, 1999, and must be repaid if the Middletown Property is sold. Under
certain circumstances, prepayment of the loan must be accompanied by a yield
maintenance
43
<PAGE>
payment, which will be no greater than 1.0% of the outstanding principal amount
of the Middletown Loan at the time of prepayment. No prepayment premium must be
paid after July 2013.
The Middletown Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Middletown Property and an assignment of
Excel's rights in the Lowe's lease.
WYOMISSING, PENNSYLVANIA
In December 1992, Excel acquired a 115,092 square foot building situated on
approximately 3.5 acres in Wyomissing, Pennsylvania (the "Wyomissing Property").
The Wyomissing Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $680,000, under a lease that
expires in January 2008. Wal-Mart's lease is a triple net lease and all property
taxes on the Wyomissing Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $400,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to Excel a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the
Wyomissing Property exceed $590 per square foot of the store building under
roof.
Wal-Mart has a right of first refusal to purchase the Wyomissing Property
from Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Wyomissing Property was approximately $7.1
million. Approximately $100,000 of the purchase price was paid in cash, and
Excel assumed a loan with approximately $6.8 million in outstanding principal
(the "Wyomissing Loan"). As part of the purchase price, Excel also issued shares
of Excel Common Stock with an aggregate value of approximately $200,000. The
Wyomissing Loan bears interest at the rate of 7.9195% per annum and matures in
January 2008. The Wyomissing Loan is prepayable only in full and then only after
April 10, 2000, and must be repaid if the Wyomissing Property is sold. Under
certain circumstances, prepayment of the loan must be accompanied by a yield
maintenance payment.
The Wyomissing Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Wyomissing Property and an assignment of
Excel's rights in the Wal-Mart lease.
TEMPLE, TEXAS
In December 1992, Excel acquired a 110,580 square foot building situated on
approximately 16.5 acres in Temple, Texas (the "Temple Property").
The Temple Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $630,000, under a lease that expires in
January 2008. Wal-Mart's lease is a triple net lease and all property taxes on
the Temple Property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $370,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to Excel a percentage rent
equal to 1.0% of the amount by which Wal-Mart's gross sales at the Temple
Property exceed $590 per square foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Temple Property from
Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Temple Property was approximately $5.8 million.
None of the purchase price was paid in cash. Excel assumed a loan with
approximately $5.6 million in outstanding principal (the "Temple Loan"). As part
of the purchase price, Excel also issued shares of Excel Common Stock with an
aggregate value of approximately $200,000. The Temple Loan bears interest at the
rate of 7.1595% per annum and matures in January 2008. The Temple Loan is
prepayable only in full and then only after
44
<PAGE>
April 10, 2000, and must be repaid if the Temple Property is sold. Under certain
circumstances, prepayment of the loan must be accompanied by a yield maintenance
payment.
The Temple Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Temple Property and an assignment of Excel's
rights in the Wal-Mart lease.
BERLIN, WISCONSIN
In December 1992, Excel acquired a 59,097 square foot building situated on
approximately 7.6 acres in Berlin, Wisconsin (the "Berlin Property).
The Berlin Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $220,000, under a lease that expires in
January 2009. Wal-Mart's lease is a triple net lease and all property taxes on
the Berlin property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $130,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to Excel a percentage rent
equal to 1.0% of the amount by which Wal-Mart's gross sales at the Berlin
Property exceed $590 per square foot of the store building under roof.
Wal-Mart has a right of first refusal to purchase the Berlin Property from
Excel if Excel receives an "acceptable bona fide offer to buy" or if Excel
offers to sell the property on the terms of such offer.
The purchase price for the Berlin Property was approximately $2.3 million.
None of the purchase price was paid in cash. Excel assumed approximately $2.2
million in existing bond financing which was obtained through the sale of
investment grade rated commercial mortgage pass-through certificates in a REMIC
(the "Berlin Loan"). As part of the purchase price, Excel also issued shares of
Excel Common Stock with an aggregate value of approximately $100,000. The notes
representing the Berlin Loan bear interest at different rates that equate to a
weighted average interest rate of approximately 8.18% per annum. The Berlin Loan
is self-amortizing and matures in January 2009. The Berlin Loan is prepayable
only in full and must be repaid if the Berlin Property is sold. Under certain
circumstances, prepayment of the loan must be accompanied by a yield maintenance
payment, which will be no greater than 1.0% of the outstanding principal amount
of the Berlin Loan at the time of prepayment.
The Berlin Loan is non-recourse and repayment of the loan by Excel is
secured by a first mortgage on the Berlin Property and an assignment of Excel's
rights in the Wal-Mart lease.
NOTES RECEIVABLE
LOS ARCOS LOAN
EDV holds a $24.5 million promissory note (the "Los Arcos Loan") payable by
Los Arcos Development, LLC, the owner of a 700,000 square foot indoor regional
mall located in Scottsdale, Arizona. The borrower intends to redevelop the
property through the acquisition of adjoining parcels and the construction of
certain improvements. The City of Scottsdale has issued an RFP for the
redevelopment of this area. Los Arcos Development, LLC was granted the RFP and
the right to redevelop this area, which will be transferred to the Company along
with the Los Arcos Loan. The note secures a three-year revolving line of credit.
As of October 31, 1997, approximately $18.5 million was outstanding under the
Los Arcos Loan, plus accrued interest of approximately $1.9 million. The Los
Arcos Loan was originated in December 1996 and matures on the earlier of (i) the
sale of the property and (ii) December 19, 2003. Interest on outstanding amounts
under the Los Arcos Loan accrues at the rate of 12.0% per annum until December
19, 1998. From and after such date, all amounts outstanding and interest accrued
thereon will accrue and be compounded annually. Accrued interest on the Los
Arcos Loan becomes payable out of the property's net cash flow once the
borrower's development of the property is completed. Interest not paid out of
current net cash flow will continue to accrue.
45
<PAGE>
Until the maturity date, EDV is entitled to receive a "profits
participation" equal to 50.0% of the net proceeds of any sale of the borrower's
ownership interest in the property less any senior encumbrances, amounts due
under the Los Arcos Loan and other costs and expenses incidental to the
disposition of the property. Such proceeds will be adjusted upward for any net
income from operations and downward for any net loss from operations during the
term of the Los Arcos Loan.
In connection with the Los Arcos Loan, EDV has the right of prior approval
with respect to (i) the decision to purchase any adjacent parcels, (ii) leases
in excess of 25,000 square feet, (iii) the final development plan for the
property, (iv) decisions concerning major project financing, (v) the form of any
subordination agreement affecting the Los Arcos Loan, and (vi) the development
agreement with the City of Scottsdale.
The Los Arcos Loan is non-recourse and repayment of the loan is secured by a
first mortgage on the property, which mortgage may be subordinated to future
lenders providing construction or interim financing in connection with the
redevelopment or operation of the property. The Los Arcos Loan may be prepaid in
whole or in part at any time and must be repaid if the property is sold.
In connection with the Los Arcos Loan, the borrower has provided EDV with an
indemnification against any and all claims arising out of the presence of
hazardous substances on the property.
EDV has an option to require the borrower to sell or refinance the property
at any time from December 19, 2001 through June 19, 2002, and to be paid its
profits participation out of the proceeds of such sale or refinancing.
FIRST STREET LOAN
EDV holds a $4.8 million promissory note (the "First Street Loan") payable
by First Street Investments Limited Partnership, the owner of a 120,000 square
foot, eight story office building located in downtown Phoenix, Arizona. The note
secures a three-year revolving line of credit. As of October 31, 1997,
approximately $4.3 million was outstanding under the First Street Loan, plus
accrued interest of approximately $300,000. The First Street Loan was originated
in May 1997 and matures on the earlier of (i) the sale of the property and (ii)
May 28, 2004. Until the maturity date, the borrower is to pay interest only on
all amounts outstanding under the First Street Loan at the rate of 11.0% per
annum. Interest not paid currently will accrue at the rate of 12.0% per annum
until May 28, 1999. From and after such date, interest will accrue and be
compounded annually.
Until the maturity date, EDV is entitled to receive a "profits
participation" equal to 50.0% of the net proceeds of any sale of the borrower's
ownership interest in the property less any senior encumbrances, amounts due
under the First Street Loan and other costs and expenses incidental to the
disposition of the property. Such proceeds will be adjusted upward for any net
income from operations and downward for any net loss from operations during the
term of the First Street Loan.
The First Street Loan is non-recourse and repayment of the loan is secured
by a subordinated mortgage on the property. The First Street Loan may be prepaid
in whole or in part at any time and must be repaid if the property is sold.
In connection with the First Street Loan, the borrower has provided EDV with
an indemnification against any and all claims arising out of the presence of
hazardous substances on the property.
EDV has an option to require the borrower to sell or refinance the property
at any time from May 28, 2002 through November 28, 2002, and to be paid its
profits participation out of the proceeds of such sale or refinancing.
46
<PAGE>
GRAND CANYON LOAN
EDV holds a $1.1 million promissory note (the "Grand Canyon Loan") payable
by Fain Properties Limited Partnership, the owner of approximately 17 acres of
undeveloped land located in Tusayan, Arizona on the South Rim of Grand Canyon
National Park. The Grand Canyon Loan was originated in October 1995 and matures
in September 1998. Until the maturity date, the borrower is to pay interest only
at the rate of 7.0% per annum. In addition, upon the maturity, prepayment or
acceleration of the Grand Canyon Loan, the borrower also must pay additional
interest from October 1995 on the principal amount of the Grand Canyon Loan at
the rate of 3.0% per annum. The Grand Canyon Loan is non-recourse and repayment
of the loan is secured by a first mortgage on the property. The Grand Canyon
Loan must be repaid if the property is sold. The borrower intends to use the
proceeds from the Grand Canyon Loan to develop a hotel and a retail
entertainment shopping center on the property, in which the Company would have a
percentage ownership upon completion. As of October 31, 1997, accrued interest
on the Grand Canyon Loan was approximately $100,000.
SEAPORT VILLAGE/HARBOR VENTURES LOAN
EDV holds a $2.5 million promissory note (the "Seaport Village Loan")
payable by Russell B. Geyser securing a revolving line of credit. As of October
31, 1997, approximately $50,000 was outstanding under the Seaport Village Loan.
The Seaport Village Loan was originated in June 1997 and matures in December
1998, subject to extension at Mr. Geyser's option until June 1999, at which time
the principal amount and all interest accrued thereon at the rate of 12.0% per
annum will be due and payable. Until the maturity date, Mr. Geyser is not
required to make any payments to EDV with respect to the Seaport Village Loan.
All amounts advanced and outstanding under the Seaport Village Loan bear
interest at the rate of 12.0% per annum. On June 5, 1998, all accrued but unpaid
interest will be added to the principal amount outstanding under the loan as of
that date.
Funds drawn under the Seaport Village Loan may be used solely for earnest
money deposits and option payments on projects approved by EDV as being of a
type for which EDV would be willing to provide equity capital and for
pre-development expenses in connection with the expansion of Seaport Village, a
retail entertainment shopping center located on San Diego harbor in downtown San
Diego, California.
Repayment of the Seaport Village Loan is secured by Mr. Geyser's entire
membership or partnership interest, as applicable, in certain joint venture
entities, including Harbor Ventures, LLC, the joint venture entity through which
Mr. Geyser is participating in the development of Seaport Village. Mr. Geyser
has agreed to provide EDV with a security interest in any future joint venture
entity in which Mr. Geyser has an interest where such entity receives capital by
way of loan, equity investment or land lease from EDV or its affiliates. Mr.
Geyser has agreed at all times to maintain combined fair market value equity in
each entity in which EDV has a security interest equivalent to 1.5 dollars of
equity for every one dollar advanced under the Seaport Village Loan. In the
event the foregoing test is not satisfied at any time, Mr. Geyser must pledge
additional collateral acceptable to EDV or repay a portion of the principal
outstanding in order to regain compliance.
PRINCIPAL TENANTS
As of the Distribution Date, Wal-Mart will be the Company's largest tenant,
representing approximately 39.2% of the Company's total revenue (approximately
76.0% of its GLA) as of such date. Wal-Mart is the nation's largest retailer and
operates approximately 2,000 discount department stores and over 400 warehouse
clubs. Wal-Mart is listed on the New York Stock Exchange and, as of September
1997, had credit ratings of AA from Standard & Poor's Corporation ("Standard &
Poor's") and Aa2 from Moody's Investors Service, Inc. ("Moody's").
47
<PAGE>
As of the Distribution Date, Lowe's will be the Company's second largest
tenant, representing approximately 12.6% of the Company's total revenue
(approximately 24.0% of its GLA) as of such date. Lowe's is owned by Lowe's
Companies, Inc., the nation's second largest home improvement retailer with over
400 stores. Lowe's Companies, Inc. is listed on the New York Stock Exchange and,
as of September 1997, had credit ratings of A and A2 from Standard & Poor's and
Moody's, respectively. See "RISK FACTORS--Reliance on Major Tenants."
ENVIRONMENTAL MATTERS
Pursuant to the Distribution Agreement, the Company will agree to indemnify
Excel and EDV for all liabilities arising out of their prior ownership of the
properties and notes receivable described above. The Company's ownership of such
properties and notes receivable and its agreement to indemnify Excel and EDV
could subject it to certain environmental liabilities.
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/or the aggregate assets of the owner.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances also may be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
persons. Certain environmental laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("ACMs") when such materials are in
poor condition, or in the event of renovation or demolition. Such laws impose
liability for release of ACMs into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
ACMs. The operation and subsequent removal of certain underground storage tanks
also are regulated by Federal and state laws.
Each of the properties being transferred to the Company prior to the
Distribution has undergone a Phase I assessment (involving investigation without
soil sampling or groundwater analysis) by environmental consultants. The Company
is unaware of any environmental liability or noncompliance with applicable
environmental laws or regulations arising out of such properties that the
Company believes would have a material adverse effect on its business, assets or
results of operations. Nonetheless, there can be no assurance that the Company's
knowledge is complete with regard to, or that the Phase I assessments have
identified, all material environmental liabilities. See "RISK FACTORS--Potential
Environmental Liability Related to the Properties."
EMPLOYEES
Following the Distribution, the Company will have approximately 17
employees, some of whom will be shared with Excel. The Company believes that its
future prospects will depend, in part, on its ability to continue to attract and
retain skilled management personnel.
CORPORATE HEADQUARTERS
Excel has agreed to make available to the Company, at Excel's principal
office located at 16955 Via Del Campo, Suite 100, San Diego, California 92127,
space for the Company's principal corporate office. The Company believes that
these facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
The Company is a newly-formed corporation and, as such, is not a party to
any legal proceedings.
48
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
Upon consummation of the Distribution, the Company's Board of Directors is
expected to be comprised of six directors: Gary B. Sabin, Richard B. Muir, John
H. Wilmot, Robert E. Parsons, Jr., Michael D. Coster and . Such
directors will serve until the next Annual Meeting of Stockholders of the
Company and until their respective successors have been duly elected and
qualified.
The table below indicates the name, position with the Company and age of
each nominee for director.
<TABLE>
<CAPTION>
NAME POSITION WITH LEGACY AGE
- -------------------------------- ------------------------------------------------------ ---
<S> <C> <C>
Gary B. Sabin................... Chairman, President and Chief Executive Officer 44
Richard B. Muir................. Director, Executive Vice President and Secretary 43
John H. Wilmot.................. Director 54
Robert E. Parsons, Jr........... Director 41
Michael D. Coster............... Director 36
</TABLE>
GARY B. SABIN has served as Chairman of the Board of Directors, President
and Chief Executive Officer of Excel since January 1989 and of EDV and Excel
Interfinancial Corporation ("EIC") since their formation. Mr. Sabin has served
as Chief Executive Officer of various companies since his founding of Excel's
predecessor company and its affiliates starting in 1977. He has been active for
20 years in diverse aspects of the real estate industry, including the
evaluation and negotiation of real estate acquisitions, management, financing
and dispositions.
RICHARD B. MUIR has served as Director, Executive Vice President and
Secretary of Excel since January 1989 and as Executive Vice President of EDV
since its formation. Mr. Muir has served as an officer and director for various
affiliates of Excel since 1978, primarily in administrative and executive
capacities, including direct involvement in and supervision of asset
acquisitions, management, financing and dispositions.
JOHN H. WILMOT has served as a Director of Excel since 1989. Mr. Wilmot,
individually and through his wholly-owned corporations, develops and manages
real property, primarily in the Phoenix/Scottsdale area, and has been active in
such business since prior to 1989.
ROBERT E. PARSONS, JR. has served as a Director of Excel since January 1989.
Mr. Parsons is presently Executive Vice President and Chief Financial Officer of
Host Marriott Corporation, a company he joined in 1981. He also serves as a
Director and officer of several Host Marriott subsidiaries, and as a Director of
Merrill Financial Corporation, a privately-held real estate company.
MICHAEL D. COSTER has been employed by BankBoston Corporation and its
affiliates, including BankBoston, N.A. and BancBoston Securities Inc. ("BSI"),
since 1988, most recently as a Managing Director and head of BSI's Real Estate
Capital Markets Group. Prior to joining BankBoston Corporation, Mr. Coster
managed a regional real estate lending office for the Bank of New York. Mr.
Coster is a graduate of Dartmouth College and has completed professional and
graduate courses at the Massachusetts Institute of Technology Center for Real
Estate, the American Institute of Real Estate Appraisers and the Urban Land
Institute.
[BIO OF ADDITIONAL DIRECTOR TO COME]
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Audit Committee will consist of Messrs. . The
Audit Committee will review the annual audits of the Company's independent
public accountants, review and evaluate internal
49
<PAGE>
accounting controls, recommend the selection of the Company's independent public
accountants, review and pass upon (or ratify) related party transactions, and
conduct such reviews and examinations as it deems necessary with respect to the
practices and policies of, and the relationship between, the Company and its
independent public accountants.
COMPENSATION COMMITTEE. The Compensation Committee will consist of Messrs.
. The Compensation Committee will review salaries, bonuses and stock
options of senior officers of the Company, and administer the Company's
executive compensation policies and stock option plans.
EXECUTIVE COMMITTEE. The Executive Committee will consist of Messrs.
. The Executive Committee will have all powers and rights necessary to
exercise the full authority of the Company Board in the management of the
business and affairs of the Company, except as provided in the Delaware General
Corporation Law or the Company Bylaws.
COMPENSATION OF THE BOARD OF DIRECTORS
Each non-employee director of the Company will receive $6,000 per year for
serving on the Company Board and an additional $500 for each meeting attended
(other than committee meetings). An additional $4,000 will be paid to any
non-employee director who serves on the Executive Committee. Each director is
eligible to receive stock options pursuant to the Legacy Stock Option Plan.
Directors also will receive reimbursement for travel expenses incurred in
connection with their duties as directors.
EXECUTIVE OFFICERS
Set forth below are the names, positions and ages of the individuals who
will become executive officers of the Company upon consummation of the
Distribution:
<TABLE>
<CAPTION>
NAME POSITION WITH LEGACY AGE
- ------------------------------- ------------------------------------------------------ ---
<S> <C> <C>
Gary B. Sabin.................. Chairman, President and Chief Executive Officer 44
Richard B. Muir................ Director, Executive Vice President and Secretary 43
Graham R. Bullick, Ph.D........ Senior Vice President--Capital Markets 47
Ronald H. Sabin................ Senior Vice President--Asset Management 47
David A. Lund.................. Chief Financial Officer 45
S. Eric Ottesen................ Senior Vice President, General Counsel and Assistant
Secretary 43
Mark T. Burton................. Senior Vice President--Acquisitions 37
</TABLE>
GARY B. SABIN has served as Chairman of the Board of Directors, President
and Chief Executive Officer of Excel since January 1989 and of EDV and EIC since
their formation. Mr. Sabin has served as Chief Executive Officer of various
companies since his founding of Excel's predecessor company and its affiliates
starting in 1977. He has been active for 20 years in diverse aspects of the real
estate industry, including the evaluation and negotiation of real estate
acquisitions, management, financing and dispositions.
RICHARD B. MUIR has served as Director, Executive Vice President and
Secretary of Excel since January 1989 and as Executive Vice President of EDV
since its formation. Mr. Muir has served as an officer and director for various
affiliates of Excel since 1978, primarily in administrative and executive
capacities, including direct involvement in and supervision of asset
acquisitions, management, financing and dispositions.
50
<PAGE>
GRAHAM R. BULLICK, PH.D. has served as Senior Vice President--Capital
Markets of Excel since January 1991. Previously, Dr. Bullick was associated with
Excel as a Director from 1991 to 1992. From 1985 to 1991, Dr. Bullick served as
Vice President and Chief Operations Officer for a real estate investment firm,
where his responsibilities included acquisition and financing of investment real
estate projects.
RONALD H. SABIN has served as Senior Vice President--Asset Management of
Excel since January 1989. Mr. Sabin has served as an officer or otherwise been
employed by affiliates of Excel since 1979, primarily providing property
management services. Mr. Sabin has supervised the management of Excel's
properties for 15 years and is a licensed real estate broker and a licensed
property and casualty insurance agent. Ronald Sabin is the brother of Gary
Sabin.
DAVID A. LUND has served as Chief Financial Officer of Excel since 1994 and
as a Vice President of Excel since 1988. Mr. Lund has served as an officer and
director of certain affiliates of Excel since 1983. Prior to 1983, Mr. Lund was
a partner in a public accounting firm. Mr. Lund is a Certified Public
Accountant.
S. ERIC OTTESEN has served as General Counsel of Excel since January 1995,
as Senior Vice President since October 1995 and as Assistant Secretary since
September 1996. From 1987 to 1995, Mr. Ottesen was a senior partner in a San
Diego law firm.
MARK T. BURTON has served as Senior Vice President--Acquisitions of Excel
since October 1995 and as a Vice President of Excel since January 1989. Mr.
Burton has been associated with Excel and its affiliates since 1983, primarily
in the evaluation and selection of property acquisitions.
EXECUTIVE OFFICER COMPENSATION
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
The Company has no employment agreements with any person and does not presently
anticipate paying a salary or other compensation to any executive officer for
his services in such capacity, although options will be granted to the executive
officers. See
"--Legacy Stock Option Plan." The Company may in the future consider paying a
salary or other compensation to employees who are shared with Excel on the basis
of an allocation of their salary from Excel.
The following table provides certain information concerning the stock
options which the Company expects to grant to its executive officers as of the
Distribution Date. The Company does not expect to grant any stock appreciation
rights as of such date.
51
<PAGE>
OPTION GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM(1)
OPTIONS GRANTED TO BASE PRICE EXPIRATION ---------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5.0% 10.0%
- ------------------------------------- ----------- ------------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Sabin........................ 800,000 22.9% (2) (3) -- $ 480,913
Richard B. Muir...................... 800,000 22.9 (2) (3) -- 480,913
Graham R. Bullick.................... 300,000 8.6 (2) (3) -- 180,342
Ronald H. Sabin...................... 300,000 8.6 (2) (3) -- 180,342
David A. Lund........................ 300,000 8.6 (2) (3) -- 180,342
S. Eric Ottesen...................... 300,000 8.6 (2) (3) -- 180,342
Mark T. Burton....................... 300,000 8.6 (2) (3) -- 180,342
</TABLE>
- ------------------------
(1) These amounts represent assumed rates of appreciation in the price of the
Company Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations (assuming the
per share market value as of the date of grant equals the estimated book
value per share of $2.39). Actual gains, if any, on stock option exercises
will depend on the future price of the Company Common Stock and overall
stock market conditions. There is no representation that the rates of
appreciation reflected in this table will be achieved.
(2) One-half of the options will have an exercise price of $5.00 per share, and
the other half will have an exercise price of $10.00 per share.
(3) The options will vest in five equal installments commencing on the first
anniversary of the date of grant, and will expire on the tenth anniversary
of the date of grant.
LEGACY STOCK OPTION PLAN
Prior to the Distribution Date, the Company will adopt (which adoption will
be approved by Excel, as sole stockholder of the Company) the 1998 Stock Option
Plan of Excel Legacy Corporation (the "Legacy Stock Option Plan"). The principal
purposes of the Legacy Stock Option Plan will be to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
the granting of options ("Options"), thereby stimulating their personal and
active interest in the Company's development and financial success, and inducing
them to remain in the Company's employ. In addition to Options granted to
officers, employees and consultants, the Legacy Stock Option Plan will provide
for formula grants of Options ("Director Options") to the Company's directors.
Under the Legacy Stock Option Plan, not more than 5,250,380 shares of
Company Common Stock (or the equivalent in other equity securities) will be
authorized for issuance upon exercise of Options. Furthermore, the maximum
number of shares which may be subject to Options granted under the Legacy Stock
Option Plan to any individual in any calendar year may not exceed 525,000.
Upon consummation of the Distribution, the Company will issue Options to
acquire an aggregate of 3,100,000 shares of Company Common Stock to its
executive officers under the Legacy Stock Option Plan, 50.0% of which will have
an exercise price of $5.00 per share and 50.0% of which will have an exercise
price of $10.00 per share. The Options will become exercisable in five equal
annual installments commencing on the first anniversary of the date of grant.
The principal features of the Legacy Stock Option Plan are summarized below,
but the summary is qualified in its entirety by reference to the Legacy Stock
Option Plan, which is attached hereto as Annex III.
52
<PAGE>
ADMINISTRATION. Following the Distribution, the Compensation Committee of
the Company Board or another committee thereof (the "Committee") will administer
the Legacy Stock Option Plan with respect to grants to employees or consultants
of the Company and the full Company Board will administer the Legacy Stock
Option Plan with respect to Director Options. The Committee will consist of at
least two members of the Company Board, each of whom is a "non-employee
director" for purposes of Rule 16b-3 under the Exchange Act ("Rule 16b-3") and,
with respect to Options which are intended to constitute performance-based
compensation under Section 162(m) of the Code, an "outside director" for
purposes of Section 162(m) of the Code. Subject to the terms and conditions of
the Legacy Stock Option Plan, the Company Board or the Committee has the
authority to select the persons to whom Options are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof, and
to make all other determinations and to take all other actions necessary or
advisable for the administration of the Legacy Stock Option Plan. Similarly, the
Company Board has discretion to determine the terms and conditions of Director
Options and to interpret and administer the Legacy Stock Option Plan with
respect to Director Options. The Committee (and the Company Board) are also
authorized to adopt, amend and rescind rules relating to the administration of
the Legacy Stock Option Plan.
ELIGIBILITY. Options under the Legacy Stock Option Plan may be granted to
individuals who are then officers or other employees of the Company or any of
its present or future subsidiaries. Such Options also may be granted to
consultants of the Company selected by the Company Board or the Committee for
participation in the Legacy Stock Option Plan. Non-employee directors of the
Company will be granted NQSOs (as defined below) pursuant to the formula grant
provisions of the Legacy Stock Option Plan.
OPTIONS UNDER THE LEGACY STOCK OPTION PLAN. The Legacy Stock Option Plan
provides that the Committee may grant or issue Options. Each grant will be set
forth in a separate agreement with the person receiving the award and will
indicate the type, terms and conditions of the grant.
Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Company Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than par value), and usually will become exercisable (in the discretion of the
Company Board or the Committee) in one or more installments after the grant
date, subject to the participant's continued employment with the Company and/or
subject to the satisfaction of individual or Company performance targets
established by the Company Board or the Committee. NQSOs may be granted for any
term specified by the Company Board or the Committee.
Incentive Stock Options ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Company Common Stock on the date of
grant, may only be granted to employees, must expire within a specified period
of time following the optionee's termination of employment, and must be
exercised within ten years after the date of grant. ISOs may be subsequently
modified to disqualify them from treatment as ISOs. In the case of an ISO
granted to an individual who owns (or is deemed to own) at least 10.0% of the
total combined voting power of all classes of stock of the Company, the Legacy
Stock Option Plan provides that the exercise price must be at least 110.0% of
the fair market value of a share of Company Common Stock on the date of grant
and the ISO must expire upon the fifth anniversary of the date of grant.
SECURITIES LAWS AND FEDERAL INCOME TAXES. The Legacy Stock Option Plan is
intended to conform to the extent necessary with all provisions of the
Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Commission thereunder, including without limitation Rule
16b-3. The Legacy Stock Option Plan will be administered, and Options will be
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Legacy
Stock Option Plan and Options granted thereunder shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
53
<PAGE>
Under current Federal laws, in general, recipients of grants of NQSOs under
the Legacy Stock Option Plan are taxable under Section 83 of the Code upon their
receipt of Company Common Stock or cash with respect to such grants and, subject
to Section 162(m) of the Code, the Company will be entitled to an income tax
deduction with respect to the amounts taxable to such recipients. Under Sections
421 and 422 of the Code, recipients of ISOs are generally not taxable on their
receipt of Company Common Stock upon their exercise of ISOs if the ISOs and
option stock are held for certain minimum holding periods and, in such event,
the Company is not entitled to income tax deductions with respect to such
exercises. Participants in the Legacy Stock Option Plan will be provided with
detailed information regarding the tax consequences relating to the various
types of grants under the plan.
In general, under Section 162(m) of the Code, income tax deductions of
publicly-held corporations may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits paid) for certain executive officers exceeds $1.0 million (less the
amount of any "excess parachute payments" as defined in Section 280G of the
Code) in any one year. However, under Section 162(m), the deduction limit does
not apply to certain "performance-based compensation" established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options will satisfy the
"performance-based compensation" exception if the options are granted by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the compensation
is based solely on an increase in the stock price after the grant date (I.E.,
the option exercise price is equal to or greater than the fair market value of
the stock subject to the award on the grant date).
The Company has attempted to structure the Legacy Stock Option Plan in such
a manner that, after the Distribution Date, subject to obtaining stockholder
approval for the stock options, the remuneration attributable to stock options
which meet the other requirements of Section 162(m) will not be subject to the
$1.0 million limitation. The Company has not, however, requested a ruling from
the IRS or an opinion of counsel regarding this issue.
INDEMNIFICATION AGREEMENTS
The Company will enter into indemnification agreements with its directors
and certain executive officers (each, an "Indemnified Person"). An Indemnified
Person is specifically indemnified and held harmless under such agreements for
costs and expenses, including without limitation, damages, judgments, amounts
paid in settlement, reasonable costs of investigation, reasonable attorneys'
fees, costs of investigative, judicial or administrative proceedings or appeals,
costs or attachment of similar bonds, fines, penalties, and excise taxes
assessed with respect to employee benefit plans actually and reasonably incurred
in connection with a threatened, pending or completed claim, action, suit or
proceeding by reason of the fact that (i) he is or was a director, officer,
employee and/or agent of the Company, or (ii) he is or was serving as a
director, officer, employee, trustee and/or agent of another corporation or
entity at the request of the Company. To qualify for indemnification, the claim
must not be (i) based solely upon an Indemnified Person's gaining in fact any
personal profit or advantage to which he was not legally entitled, (ii) an
accounting for profits made from the purchase or sale of securities pursuant to
Section 16(b) of the Exchange Act, and (iii) based solely upon knowingly
fraudulent, deliberately dishonest, or willful misconduct on the part of the
Indemnified Person. The Company will indemnify the Indemnified Person to the
extent that (i) the Indemnified Person gives the Company prompt written notice
of any claim, (ii) expenses have not been advanced pursuant to Article Eighth of
the Company Certificate, (iii) the Indemnified Person has not already received
payment pursuant to collectible insurance policies, and (iv) indemnification is
not unlawful.
Under such indemnification agreements, the Company will advance costs and
expenses incurred by the Indemnified Person in advance of the final disposition
of an action, suit or proceeding if he undertakes to repay amounts advanced if
it is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Company. The Company will advance costs and
expenses related to
54
<PAGE>
defending or investigating an action, suit or proceeding unless a determination
is made that (i) the Indemnified Person did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, (ii) the Indemnified Person intentionally breached his duty to the
Company or its stockholders, or (iii) with respect to any criminal action or
proceeding, the Indemnified Person had reasonable cause to believe his conduct
was unlawful. Such determination will be made by a majority vote of a quorum of
the Company Board consisting of directors not a party to the suit, action or
proceeding, by a written opinion of independent legal counsel, by the
stockholders or by a final, nonappealable adjudication in a court of competent
jurisdiction. If the Company advances costs and expenses of any action, suit or
proceeding, the Company reserves the right to assume the defense of such action,
suit or proceeding upon written notice to the Indemnified Person of its
intention to do so. After delivery of such notice, the Company shall not be
liable for any costs or expenses incurred by the Indemnified Person in retaining
separate counsel unless (i) the employment of separate counsel was previously
authorized by the Company, (ii) the Indemnified Person reasonably concludes that
joint representation would entail a conflict of interest, or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
suit or proceeding. The indemnification provisions and provisions for advancing
expenses in such agreements are expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to the Delaware General
Corporation Law, the Company Certificate and the Company Bylaws.
55
<PAGE>
CERTAIN TRANSACTIONS
INTERESTS RELATING TO EXCEL
Excel is the sole stockholder of the Company as of the date of this
Information Statement. Prior to the Distribution, Excel and EDV will transfer to
the Company certain real properties, notes receivable and related assets and
liabilities currently held by Excel and EDV. As consideration for such asset
transfers, the Company will issue to Excel (i) a sufficient number of shares of
Company Common Stock to effect the Distribution, and (ii) a promissory note
payable to Excel in the amount of approximately $25.3 million. Such note will
bear interest at the rate of % per annum, mature in and be a
non-recourse obligation secured by a first mortgage on the Scottsdale Galleria.
In addition, in connection with such asset transfers, Excel will cancel certain
indebtedness of EDV currently held by Excel in the amount of approximately $32.8
million. See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE DISTRIBUTION."
The Intercompany Agreement between the Company and Excel will set forth the
basis on which the Company and Excel will provide each other with rights to
participate in certain transactions. See "THE COMPANY--Intercompany Agreement."
PRIVATE PLACEMENTS
The Company has obtained commitments to buy, effective upon consummation of
the Distribution, (i) 9,195,224 shares of Company Common Stock in a private
placement to certain of the Company's officers at a price per share of $2.39
(the estimated market value of the Company Common Stock as of the Distribution
Date based upon the value of the assets being transferred to the Company), for
an aggregate purchase price of approximately $22.0 million, and (ii)
shares of Series A Cumulative Convertible Preferred Stock of the Company
("Series A Preferred Stock") in a private placement to certain "qualified
institutional buyers" (as such term is defined in Rule 144A under the Securities
Act) at a price per share of $5.00, for an aggregate purchase price of
approximately $200.0 million. For a list of the purchasers in the foregoing
private placements and the respective amounts of Company Common Stock and Series
A Preferred Stock purchased, see "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT." For a description of the rights, preferences and
privileges of the Series A Preferred Stock, see "DESCRIPTION OF THE COMPANY'S
CAPITAL STOCK--Series A Preferred Stock."
The Company has agreed to loan to certain of its officers, in connection
with their purchase of Company Common Stock described above, 50.0% of the
purchase price therefor (an aggregate amount of approximately $11.0 million).
Such loans will bear interest at the rate of 7.0% per annum, mature in
2003 and be recourse obligations of such officers.
The Company has retained BancBoston Securities Inc. ("BSI"), an affiliate of
BankBoston, N.A., to act as placement agent in connection with the private
placement of Series A Preferred Stock described above. Pursuant to such
engagement, the Company will pay to BSI a success fee upon completion of the
private placement of $ . As noted in "SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT," BSI has agreed to acquire shares of
Series A Preferred Stock in the private placement.
56
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Company Common Stock
and Series A Preferred Stock (collectively, the "Voting Stock") expected to be
beneficially owned immediately following the Distribution by (i) the executive
officers and directors of the Company, (ii) all of the Company's executive
officers and directors as a group, and (iii) all other stockholders expected to
beneficially own more than 5.0% of the Company Common Stock or Series A
Preferred Stock, based upon the beneficial ownership by such persons of Excel
Common Stock as of the Record Date and the private placements described in
"CERTAIN TRANSACTIONS." Except as otherwise indicated, each individual named has
a business address of 16955 Via Del Campo, Suite 100, San Diego, California
92127, and is expected to have sole investment and voting power with respect to
the securities shown.
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
NUMBER OF OF
SHARES OF SERIES
COMPANY A
COMMON PREFERRED
STOCK STOCK PERCENT
BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2) OWNED
- ----------------------------------- --------- ------- ------------
<S> <C> <C> <C>
Officers and Directors
Gary B. Sabin(3)...................
Richard B. Muir....................
Ronald H. Sabin....................
David A. Lund......................
Mark T. Burton.....................
Graham R. Bullick..................
S. Eric Ottesen....................
John H. Wilmot(4)..................
Robert E. Parsons, Jr.(5)..........
Michael D. Coster(6)...............
[ADDITIONAL DIRECTOR]..............
Officers and Directors as a group
(11 persons).....................
Fidelity Management & Research
Company(7).......................
</TABLE>
- ------------------------
* Represents less than 1.0% of the outstanding shares of stock.
(1) Includes shares of Company Common Stock to be purchased from the Company in
a private placement, effective upon consummation of the Distribution, as
follows: Mr. Gary Sabin, 2,998,410; Mr. Muir, 999,469; Mr. Ronald Sabin,
999,469; Mr. Lund, 999,469; Mr. Burton, 999,469; Mr. Bullick, 999,469; and
Mr. Ottesen, 999,469. See "CERTAIN TRANSACTIONS."
(2) Includes shares of Series A Preferred Stock to be purchased from the Company
in a private placement, effective upon consummation of the Distribution, as
follows: . See "CERTAIN TRANSACTIONS."
(3) Includes shares of Company Common Stock to be held by EIC, of which Gary
Sabin is the controlling stockholder.
(4) Mr. Wilmot's business address is 4455 E. Camelback Rd., Phoenix, Arizona
85018.
(5) Mr. Parson's business address is Host Marriott Corporation, 10400 Fernwood
Road, Washington, D.C. 20058.
(6) Mr. Coster's business address is BancBoston Securities Inc., 100 Federal
Street, Boston, Massachusetts 02110.
(7) Fidelity is a group of funds of which no single fund is expected to own more
than 5.0% of the Company Common Stock. Fidelity's business address is 82
Devonshire Street, Boston, Massachusetts 02109.
57
<PAGE>
LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS
Prior to the Distribution Date, the Company's Certificate of Incorporation
and Bylaws will be amended by the Company Board and by Excel, as sole
stockholder of the Company. The following is a summary of such Amended and
Restated Certificate of Incorporation (the "Company Certificate") and such
Amended and Restated Bylaws (the "Company Bylaws") and is qualified in its
entirety by reference to the complete text of the Company Certificate as set
forth in Annex I hereto, and the Company Bylaws as set forth in Annex II hereto.
AUTHORIZED STOCK
The Company Certificate will provide that the Company is authorized to issue
200,000,000 shares of stock, consisting of 150,000,000 shares of Company Common
Stock and 50,000,000 shares of preferred stock, par value $.01 per share
("Company Preferred Stock" and, together with the Company Common Stock, "Company
Stock"). Shares of Company Preferred Stock may be issued from time to time, in
one or more series, each of which series shall have such voting powers,
designations, preferences and rights, and the qualifications, limitations or
restrictions relating thereto, as shall be authorized by the Company Board. See
"DESCRIPTION OF THE COMPANY'S CAPITAL STOCK."
DIRECTORS
The Company Bylaws will provide that the number of directors shall consist
of three or more members, the exact number of which shall be fixed by the
Company Board from time to time. Initially, the Company Board will have five
members. The Company Bylaws will provide that, except as otherwise provided by
law or the Company Certificate, a quorum of the Company Board for the
transaction of business shall consist of a majority of the entire Board of
Directors. The act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. The Company
Certificate and the Company Bylaws will not provide for a classified board or
for cumulative voting in the election of directors to the Company Board. The
Company Bylaws will provide that vacancies and any newly-created directorships
resulting from an increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director.
LIABILITY FOR MONETARY DAMAGES
The Company Certificate will provide that no director will be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, other than liability for breach of the duty of
loyalty to the Company or its stockholders, acts or omissions not in good faith,
intentional misconduct, a knowing violation of law, certain unlawful dividends,
stock repurchases or redemptions or any transaction from which the director
derived an improper personal benefit. Any repeal or modification of such
provision by the stockholders of the Company will not adversely affect any right
or protection of a director existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNDESIGNATED PREFERRED STOCK
As described above, the Company Board will be authorized to provide for the
issuance of shares of Company Preferred Stock, in one or more series, and to fix
by resolution of the Company Board and to the extent permitted by the Delaware
General Corporation Law (the "DGCL"), the terms and conditions of each such
series. The Company believes that the availability of Company Preferred Stock
will provide the Company with increased flexibility in structuring possible
future financings and acquisitions and in meeting other corporate needs which
might arise from time to time. Authorized but unissued shares of Company
Preferred Stock, as well as authorized but unissued shares of Company Common
Stock, will be available for issuance without further action by Company
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which any class of Company
Stock may then be listed for trading.
58
<PAGE>
Although the Company Board has no present intention of doing so (other than
as described in the section entitled "CERTAIN TRANSACTIONS"), it will be able to
issue a series of Company Preferred Stock that could, depending on its terms,
either impede or facilitate the completion of a merger, tender offer or other
takeover attempt. For instance, such new shares might impede a business
combination by including class voting rights which would enable the holder to
block such transaction or facilitate a business combination by including voting
rights which would provide a required percentage vote of stockholders. The
Company Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its then existing
stockholders. The Company Board, in so acting, will be able to issue Company
Preferred Stock having terms which would discourage an acquisition attempt or
other transaction that some or a majority of the stockholders might believe to
be in their best interests or in which stockholders might receive a premium for
their stock over the then market price of such stock.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The Company Certificate will provide for the indemnification of present and
former directors and officers of the Company and persons serving as directors,
officers, employees or agents of another corporation or entity at the request of
the Company (each, an "Indemnified Party") to the fullest extent permitted by
the DGCL. Indemnified Parties are specifically indemnified in the Company
Certificate and the Company Bylaws (the "Indemnification Provisions") for
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by an Indemnified Party (i) in
connection with a threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he is or was a director or officer of the Company or is or was serving as a
director, officer, employee or agent of another corporation or entity at the
request of the Company, or (ii) in connection with the defense or settlement of
a threatened, pending or completed action or suit by or in the right of the
Company, provided that such indemnification is permitted only with judicial
approval if the Indemnified Party is adjudged to be liable to the Company. Such
Indemnified Party must have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the subject
corporation and, with respect to any criminal action or proceeding, must have
had no reasonable cause to believe his conduct was unlawful. Any indemnification
under the Indemnification Provisions must be authorized based on a determination
that the indemnification is proper if the applicable standard of conduct has
been met by the Indemnified Party, provided that no such authorization is
required, and indemnification is mandatory, where a director or officer of the
Company is successful in the defense of such action, suit or proceeding or any
claim or matter therein. Otherwise, such determination will be made by a
majority vote of a quorum of the Company Board consisting of directors not a
party to the suit, action or proceeding, by a written opinion of independent
legal counsel or by the stockholders. In the event that a determination is made
that a director or officer is not entitled to indemnification under the
Indemnification Provisions, the Indemnification Provisions provide that the
Indemnified Party may seek a judicial determination of his right to
indemnification. The Indemnification Provisions further provide that the
Indemnified Party is entitled to indemnification for all expenses (including
attorneys' fees) incurred in any proceeding seeking to collect from the Company
an indemnity claim under the Indemnification Provisions if such Indemnified
Party is successful. Other than proceedings to enforce rights to
indemnification, the Company is not obligated to indemnify any person in
connection with a proceeding initiated by such person, unless authorized by the
Company Board.
The Company will pay expenses incurred by a director or officer of the
Company, or a former director or officer of the Company, in advance of the final
disposition of an action, suit or proceeding, if he undertakes to repay amounts
advanced if it is ultimately determined that he is not entitled to be
indemnified by the Company.
The Indemnification Provisions and provisions for advancing expenses in the
Company Certificate will be expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to the Company Bylaws. The
Indemnification Provisions and provisions for advancing expenses in the Company
Bylaws and the Company Certificate will be expressly not exclusive of any other
rights of
59
<PAGE>
indemnification or advancement of expenses pursuant to any agreement, vote of
the stockholders or disinterested directors or pursuant to judicial direction.
The Company will be authorized to purchase insurance on behalf of an Indemnified
Party for liabilities incurred, whether or not the Company would have the power
or obligation to indemnify him pursuant to the Company Certificate, the Company
Bylaws or the DGCL.
In addition, the Company will enter into indemnification agreements with its
directors and certain of its executive officers pursuant to which such persons
are indemnified for costs and expenses actually and reasonably incurred by such
persons in connection with a threatened, pending or completed claim arising out
of service as a director, officer, employee, trustee and/or agent of the Company
or another entity at the request of the Company. See
"MANAGEMENT--Indemnification Agreements."
AMENDMENT OF THE COMPANY CERTIFICATE AND BYLAWS
The DGCL provides that approval of a majority of the stockholders entitled
to vote thereon is required to amend the Company Certificate. A bylaw may be
amended or repealed, or a new bylaw adopted, by (i) the affirmative vote of the
holders of a majority of the stock entitled to vote thereon, or (ii) a majority
of the entire Company Board.
TRANSACTIONS WITH INTERESTED OFFICERS OR DIRECTORS
The Company Bylaws will provide, in accordance with the DGCL, that contracts
or transactions between the Company and a director or officer of the Company or
a corporation or entity in which such officer or director is also an officer or
director or has a financial interest, are not void or voidable solely for such
reason or solely because the Company officer or director is present at or
participates in any meeting of the Company Board which authorizes the
transaction or contract, or solely because such officer's or director's vote is
counted for such purpose, if (i) the material facts as to his relationship or
interest are disclosed or are known to the Company Board or a committee and the
Company Board or a committee in good faith authorizes such contract or
transaction; (ii) the material facts as to his relationship or interest are
disclosed or are known to the stockholders entitled to vote thereon and the
stockholders in good faith specifically approve such contract or transact; or
(iii) the contract or transaction is fair to the Company at the time it is
authorized, approved or ratified by the Company Board, a committee or the
stockholders. In addition, the Company Bylaws will provide that any transactions
with interested directors or officers or their affiliates shall be made on
commercially reasonable terms substantially equivalent to terms available from
third parties in an arm's-length transaction in the competitive marketplace.
60
<PAGE>
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 1,000 shares of Company
Common Stock, of which 100 shares are issued and outstanding and are owned by
Excel. Under the Company Certificate, which will be adopted by the Company Board
and by Excel, as sole stockholder of the Company, prior to the Distribution Date
in substantially the form set forth in Annex I to this Information Statement,
the total number of shares of all classes of stock that the Company will have
authority to issue will be 200,000,000, of which 150,000,000 will be shares of
Company Common Stock and 50,000,000 will be shares of Company Preferred Stock.
Based on the number of shares of Excel Common Stock outstanding on the
Record Date, approximately shares of Company Common Stock, constituting
approximately % of the authorized Company Common Stock, will be issued to
Excel and distributed to stockholders of Excel in the Distribution. In addition,
effective upon consummation of the Distribution, 9,195,224 shares of Company
Common Stock will be sold in a private placement to certain of the Company's
officers. See "CERTAIN TRANSACTIONS." All of the shares of Company Common Stock
issued in the Distribution and the private placement will be validly issued,
fully paid and nonassessable.
The Company Certificate will provide that the Company Board is authorized to
provide for the issuance of shares of Company Preferred Stock, from time to
time, in one or more series. Prior to the issuance of shares in each series, the
Company Board is required by the Company Certificate and the DGCL to adopt
resolutions and file a Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (the "Certificate of
Designation") with the Secretary of State of Delaware, fixing for each such
series the designations, preferences and relative, participating, optional or
other special rights applicable to the shares to be included in any such series
and any qualifications, limitations or restrictions thereon, including, but not
limited to, dividend rights, dividend rate or rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences as are permitted by
Delaware law.
The Company Certificate (including the Certificate of Designation to be
filed with respect to the Series A Preferred Stock) will classify shares
of Company Preferred Stock, constituting approximately % of the authorized
Company Preferred Stock, as Series A Preferred Stock, to be sold in a private
placement to certain "qualified institutional buyers" upon consummation of the
Distribution. See "CERTAIN TRANSACTIONS." All of the shares of Series A
Preferred Stock issued in the private placement will be validly issued, fully
paid and nonassessable.
COMMON STOCK
VOTING RIGHTS. Each holder of Company Common Stock will be entitled to one
vote for each share registered in his name on the books of the Company on all
matters submitted to a vote of stockholders. Except as otherwise provided by
law, the holders of Company Common Stock will vote as one class. The shares of
Company Common Stock will not have cumulative voting rights. As a result,
subject to the voting rights, if any, of the holders of any shares of Company
Preferred Stock which may at the time be outstanding, the holders of Company
Common Stock entitled to exercise more than 50.0% of the voting rights in an
election of directors will be able to elect 100.0% of the directors to be
elected if they choose to do so. In such event, the holders of the remaining
shares of Company Common Stock voting for the election of directors will not be
able to elect any persons to the Company Board. The Company Certificate and the
Company Bylaws contain certain provisions that could have an anti-takeover
effect. See "LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS."
61
<PAGE>
DIVIDEND RIGHTS. Subject to the rights of the holders of any shares of
Company Preferred Stock which may at the time be outstanding, holders of the
Company Common Stock will be entitled to such dividends as the Company Board may
declare out of funds legally available therefor. Because portions of the
operations of the Company may be conducted through wholly-owned subsidiaries,
the Company's cash flow and consequent ability to pay dividends on the Company
Common Stock may be dependent to some degree upon the earnings of such
subsidiaries and on dividends and other payments therefrom.
LIQUIDATION RIGHTS AND OTHER PROVISIONS. Subject to the prior rights of
creditors and the holders of any Company Preferred Stock which may be
outstanding from time to time, the holders of Company Common Stock are entitled
in the event of liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.
The Company Common Stock is not liable for any calls or assessments and is
not convertible into any other securities. In addition, there are no redemption
or sinking fund provisions applicable to the Company Common Stock.
The transfer agent and registrar for the Company Common Stock will be
BankBoston, N.A.
SERIES A PREFERRED STOCK
RANKING. With respect to the right to receive dividends and to participate
in distributions or payments in the event of any liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock will rank (i) junior to
any other Company Preferred Stock ranking, as to dividends and upon liquidation,
prior to the Series A Preferred Stock, (ii) on a parity with any other Company
Preferred Stock ranking, as to dividends and upon liquidation, on a parity with
the Series A Preferred Stock, and (iii) senior to the Company Common Stock and
any other class or series of shares of stock of the Company ranking, as to
dividends and upon liquidation, junior to the Series A Preferred Stock
(collectively, the "Junior Shares").
DIVIDENDS. The holders of the Series A Preferred Stock are entitled to
receive, when, as and if declared by the Company Board, out of funds of the
Company legally available for payment thereof, cumulative cash dividends payable
in an amount per share equal to the cash dividends, if any, on the shares of
Company Common Stock (or portion thereof) into which a share of Series A
Preferred Stock is convertible. Such dividends will equal the number of shares
of Company Common Stock, or portion thereof, into which a share of Series A
Preferred Stock is convertible, multiplied by the most current quarterly
dividend on the Company Common Stock on or before the applicable dividend
payment date. Dividends on the Series A Preferred Stock will be payable
quarterly in arrears on the 15th day (or the next succeeding business day) of
January, April, July and October of each year. The amount of any dividend
payable on the Series A Preferred Stock for any period less than a full dividend
period will be computed pro rata on the basis of twelve 30-day months and a
360-day year.
In the event the Company fails to pay any dividend on the Series A Preferred
Stock, the Company may not pay any dividends on any other capital stock of the
Company other than (i) pro rata with other securities of the Company ranking
pari passu with the Series A Preferred Stock or (ii) with Junior Shares until
such dividend on the Series A Preferred Stock has been paid in full.
DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP. Upon the
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the holders of shares of the Series A Preferred Stock will be entitled to
receive and to be paid out of the assets of the Company available for
distribution to its stockholders, before any payment or distribution is made on
any Junior Shares, the amount of $5.00 per share of the Series A Preferred Stock
(the "Liquidation Preference"), plus (i) a premium equivalent to a 7.0% annual
total return on the Series A Preferred Stock from the date of issuance and (ii)
any accrued and unpaid dividends. If, upon any dissolution, liquidation or
winding up of the Company, the amounts payable to the holders of shares of the
Series A Preferred Stock and holders of any other shares of stock of
62
<PAGE>
the Company ranking as to any such distribution on a parity with the Series A
Preferred Stock are not paid in full, the holders of the Series A Preferred
Stock and of such other shares will share ratably in such distribution of assets
of the Company in proportion to the full respective preference amounts to which
they are entitled. A sale, conveyance or disposition of all or substantially all
of the assets of the Company shall be deemed to be a liquidation, dissolution or
winding up for purposes of payment of the Liquidation Preference.
REDEMPTION. The Series A Preferred Stock may not be redeemed by the Company
prior to , 2005. On , 2005 (the "Redemption Date"), the Company
will be required to redeem all outstanding shares of Series A Preferred Stock
for cash at a per share price equal to the Liquidation Preference, plus any
accrued and unpaid dividends to the Redemption Date. The Company will not be
entitled to redeem the Series A Preferred Stock prior to the Redemption Date.
VOTING RIGHTS. Except as otherwise required by law, the Series A Preferred
Stock, the Company Common Stock and any other capital stock of the Company
entitled to vote with the Company Common Stock will be deemed to be one class
for the purpose of voting, or giving written consent in lieu of voting, on all
matters submitted for the approval of the stockholders of the Company. Each
person in whose name shares of Series A Preferred Stock is registered on the
record date for determining the holders of the Series A Preferred Stock entitled
to vote at any meeting of stockholders (or adjournment thereof) or to consent to
corporate action in writing without a meeting will be entitled to, at such
meeting or with respect to such action, one vote for each share of Company
Common Stock into which each share of Series A Preferred Stock registered in the
name of such person on such record date could be converted (with any fractional
share determined on an aggregate conversion basis being rounded to the nearest
whole share).
So long as any shares of the Series A Preferred Stock remain outstanding,
the Company will not, without the affirmative vote of the holders of at least
two-thirds of the shares of the Series A Preferred Stock outstanding at the
time, (i) authorize or create, or increase the authorized amount of any shares
of any class or any security convertible into shares of any class ranking senior
to the Series A Preferred Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, or (ii)
amend, alter or repeal the provisions of the Company Certificate or of the
Company Bylaws so as to adversely affect any right, preference, privilege or
voting power of the Series A Preferred Stock or the holders thereof; provided,
however, that any increase in the amount of the authorized or issued shares of
any class or security convertible into any shares ranking on a parity with or
junior to the Series A Preferred Stock with respect to the payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to adversely affect such rights, preferences, privileges or voting
powers.
CONVERSION RIGHTS. Holders of the Series A Preferred Stock have the right,
exercisable at any time and from time to time, to convert all or any of the
Series A Preferred Stock into Company Common Stock at a conversion price of
$5.00 per share of Company Common Stock (representing a premium of 109.2% in
excess of the estimated market value of the Company Common Stock as of the
Distribution Date) (the "Conversion Price").
In addition, in the event the closing price of the Company Common Stock on
the OTC Bulletin Board (or a successor quotation system or other principal
exchange) is equal to or greater than $5.00 per share for 30 consecutive trading
days following the Distribution Date, the Company shall have the right to
convert all of the outstanding shares of Series A Preferred Stock into a number
of shares of Company Common Stock equal to the product of (i) the number of
shares of Series A Preferred Stock to be converted multiplied by (ii) $5.00
divided by the Conversion Price then in effect.
CONVERSION PRICE ADJUSTMENTS. The Conversion Price is subject to adjustment
upon certain events, including (i) dividends (and other distributions) payable
in Company Common Stock or any class of capital stock of the Company (but
excluding issuances of Company Common Stock pursuant to the Company's
63
<PAGE>
employee benefit plans), (ii) the issuance to all holders of Company Common
Stock of certain rights or warrants entitling them to subscribe for or purchase
Company Common Stock at a price per share less than current market price per
share of the Company Common Stock (but excluding issuances of Company Common
Stock pursuant to the Company's employee benefit plans), (iii) subdivisions,
combinations and reclassifications of the Company Common Stock, and (iv)
distributions to all holders of Company Common Stock of evidences of
indebtedness of the Company or of assets (including securities and cash, but
excluding those dividends, rights, warrants and distributions referred to in
clause (i), (ii) or (iii) above).
REGISTRATION RIGHTS
The holders of the Series A Preferred Stock will be entitled to certain
rights with respect to the registration under the Securities Act of the Series A
Preferred Stock and the Company Common Stock into which such shares will be
convertible (collectively, the "Registrable Securities"). These rights will be
provided under the terms of an agreement to be entered into between the Company
and the holders of the Series A Preferred Stock as of the date of initial
issuance of the Series A Preferred Stock. Subject to certain limitations in the
agreement, the Company will agree to file, as promptly as practicable and in any
event within 60 days following the date of initial issuance of the Series A
Preferred Stock, a "shelf" registration statement under the Securities Act for
all of the Registrable Securities, and to use all reasonable efforts to cause
such registration statement to become effective within 60 days following the
date of filing. If the Company registers any of the Company Common Stock either
for its own account or for the account of other security holders, the holders of
Registrable Securities will be entitled to include their shares of Company
Common Stock in the registration. A holder's right to include shares in an
underwritten offering will be subject to certain conditions, including the right
of the underwriters to limit the number of shares included in the offering. All
expenses other than underwriting discounts and commissions incurred in
connection with such registrations will be borne by the Company.
64
<PAGE>
LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY
Articles Eighth and Ninth of the Company Certificate and Article VIII of the
Company Bylaws (the "Director Liability and Indemnification Provisions") limit
the personal liability of the Company's directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty. The Director
Liability and Indemnification Provisions are substantially identical to
comparable provisions contained in Excel's Amended and Restated Articles and
Bylaws.
The Director Liability and Indemnification Provisions define and clarify the
rights of certain individuals, including the Company's directors and officers,
to indemnification by the Company in the event of personal liability or expenses
incurred by them as a result of certain litigation against them. Such provisions
are consistent with Section 102(b)(7) of the DGCL, which is designed, among
other things, to encourage qualified individuals to serve as directors of
Delaware corporations by permitting Delaware corporations to include in their
articles or certificates of incorporation a provision limiting or eliminating
directors' liability for monetary damages and with other existing DGCL
provisions permitting indemnification of certain individuals, including
directors and officers. The limitations of liability in the Director Liability
and Indemnification Provisions may not affect claims arising under the Federal
securities laws.
In performing their duties, directors of a Delaware corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determine in good faith, after appropriate consideration, to be
the best interests of the corporation and its stockholders. Decisions made on
that basis are protected by the "business judgment rule." The business judgment
rule is designed to protect directors from personal liability to the corporation
or its stockholders when business decisions are subsequently challenged.
However, the expense of defending lawsuits, the frequency with which unwarranted
litigation is brought against directors and the inevitable uncertainties with
respect to the outcome of applying the business judgment rule to particular
facts and circumstances mean that, as a practical matter, directors and officers
of a corporation rely on indemnity from, and insurance procured by, the
corporation they serve as a financial backstop in the event of such expenses or
unforeseen liability. The Delaware legislature has recognized that adequate
insurance and indemnity provisions are often a condition of an individual's
willingness to serve as director of a Delaware corporation. The DGCL has for
some time specifically permitted corporations to provide indemnity and procure
insurance for its directors and officers.
The Director Liability and Indemnification Provisions will be approved,
along with the rest of the Company Certificate and the Company Bylaws, by Excel,
as sole stockholder of the Company prior to the Distribution Date.
Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Company Certificate and the
Company Bylaws.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. Article Ninth of the
Company Certificate protects directors against monetary damages for breaches of
their fiduciary duty of care, except as set forth below. Under the DGCL, absent
Article Ninth, directors could generally be held liable for gross negligence for
decisions made in the performance of their duty of care but not for simple
negligence. Article Ninth eliminates director liability for negligence in the
performance of their duties, including gross negligence. Directors remain liable
for breaches of their duty of loyalty to the Company and its stockholders, as
well as acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law and transactions from which a director
derives improper personal benefit. Article Ninth does not eliminate director
liability under Section 174 of the DGCL, which makes directors personally liable
for unlawful dividends or unlawful stock repurchases or redemptions and
expressly sets forth a negligence standard with respect to such liability.
65
<PAGE>
While Article Ninth provides directors with protection from awards of
monetary damages for breaches of the duty of care, it does not eliminate the
directors' duty of care. Accordingly, Article Ninth will have no effect on the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of the duty of care. The provisions of Article Ninth
which eliminate liability as described above will apply to officers of the
Company only if they are directors of the Company and are acting in their
capacity as directors, and will not apply to officers of the Company who are not
directors. The elimination of liability of directors for monetary damages in the
circumstances described above may deter persons from bringing third-party or
derivative actions against directors to the extent such actions seek monetary
damages.
INDEMNIFICATION AND INSURANCE. Under Section 145 of the DGCL, directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation--a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A similar
standard of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the DGCL requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the Company.
Article VIII of the Company Bylaws provides that all directors and officers
of the Company are entitled to indemnification as set forth in the Company
Certificate.
Article Eighth of the Company Certificate provides that each person who was
or is made a party to, or is involved in any action, suit or proceeding by
reason of the fact that he is or was a director, officer or employee of the
Company will be indemnified by the Company against all expenses and liabilities,
including counsel fees, paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
Eighth also provides that the right of indemnification shall be in addition to
and not exclusive of all other rights to which such director, officer or
employee may be entitled. See "LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS--
Indemnification and Advancement of Expenses."
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXCEL LEGACY CORPORATION BALANCE SHEET:
Report of Coopers & Lybrand L.L.P., Independent Accountants.............................................. F-2
Balance Sheet as of November 17, 1997.................................................................... F-3
Note to Balance Sheet.................................................................................... F-4
EXCEL LEGACY CORPORATION ASSET GROUP FINANCIAL STATEMENTS:
Report of Coopers & Lybrand L.L.P., Independent Accountants.............................................. F-5
Combined Balance Sheets as of October 31, 1997 (unaudited), July 31, 1997 and July 31,
1996................................................................................................... F-6
Combined Statements of Operations for each of the three years in the period ended July 31, 1997 and the
three months ended October 31, 1997 (unaudited) and October 31, 1996 (unaudited)....................... F-7
Combined Statements of Changes in Investment by Excel Realty Trust, Inc. for each of the three years in
the period ended July 31, 1997 and the three months ended October 31, 1997 (unaudited) and October 31,
1996 (unaudited)....................................................................................... F-8
Combined Statements of Cash Flows for each of the three years in the period ended July 31, 1997 and the
three months ended October 31, 1997 (unaudited) and October 31, 1996 (unaudited)....................... F-9
Notes to Combined Financial Statements................................................................... F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
We have audited the accompanying balance sheet of Excel Legacy Corporation
(the "Company") as of November 17, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Excel Legacy Corporation as of
November 17, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
San Diego, California
November 24, 1997
F-2
<PAGE>
EXCEL LEGACY CORPORATION
BALANCE SHEET
NOVEMBER 17, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Cash................................................................................................... $ 1,000
---------
---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized, 100 shares outstanding.......................... $ 1
Additional paid-in capital............................................................................. 999
---------
$ 1,000
---------
---------
</TABLE>
The accompanying note is an integral part of the balance sheet.
F-3
<PAGE>
EXCEL LEGACY CORPORATION
NOTE TO BALANCE SHEET
FORMATION OF THE COMPANY:
Excel Legacy Corporation (the "Company"), a Delaware Corporation, was formed
on November 17, 1997 to own, operate and/or develop real estate. Certain real
estate assets ("Excel Legacy Corporation Asset Group") are planned to be
transferred from Excel Realty Trust, Inc. ("Excel") and ERT Development
Corporation ("EDV"), an unconsolidated affiliate of Excel, to the Company. In
September 1997, Excel's Board of Directors approved in principle, a plan for the
distribution (the "Distribution") of Company stock to holders of Excel common
stock. Excel is the sole stockholder of the Company and the Company is currently
considered a qualified REIT subsidiary of Excel.
The following assets are scheduled to be transferred to the Company:
- Ten single tenant free-standing buildings with a book value of $46.0
million and encumbered by mortgages of $34.7 million at October 31, 1997.
- A 670,000 square foot shopping mall located in Scottsdale, Arizona which
is substantially vacant. The Company intends to redevelop this property.
The book value is $14.2 million at October 31, 1997.
- Notes receivable related to development projects located in Arizona (3)
and California. The principal amount of the notes at October 31, 1997 is
$22.0 million.
As consideration for the transfers, the company will (a) issue to Excel a
significant number of shares of Company Common Stock to effect the Distribution,
and (b) execute a $25.3 million note payable to Excel. Other assets may be
transferred to the Company as the Boards of the Company and Excel deem
appropriate prior to the Distribution. The Company's authorized stock consists
of 1,000 shares of $.01 par value common stock and will be increased to provide
for the shares to be issued in connection with the Distribution.
The Company has obtained commitments to buy, effective upon consummation of
the Distribution. 9,195,224 shares of Company Common Stock in a private
placement to certain of the Company's officers at a price per share of $2.39 for
an aggregate purchase price of $22.0 million. The Company is also trying to
obtain commitments to purchase up to 40 million shares of Company Series A
Cumulative Convertible Preferred Stock ("Preferred Offering") in a private
placement to certain "qualified institutional buyers" (as such term is defined
in Rule 144A under the Securities Act of 1933, as amended), which shares will be
convertible at any time into shares of Company Common Stock. The aggregate
purchase price of the Preferred Offering will be up to $200 million or $5.00 per
share. At the balance sheet date no firm commitments for the Preferred Offering
had been received by the Company.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
We have audited the accompanying combined balance sheets of Excel Legacy
Corporation Asset Group (the "Portfolio"), as defined in Note 1, as of July 31,
1997 and 1996 and the related combined statements of operations, changes in
investment by Excel Realty Trust, Inc. and cash flows for each of the three
years in the period ended July 31, 1997. These financial statements are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Excel
Legacy Corporation Asset Group as of July 31, 1997 and 1996 and the combined
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997, in conformity with generally accepted accounting
principles.
As more fully described in Note 1, certain general and administrative
expenses were paid by Excel Realty Trust, Inc. and allocated to the Portfolio
principally based on Excel Realty Trust, Inc.'s specific identification of
individual cost items based upon estimated levels of effort devoted by its
corporate administrative departments. We have reviewed the methods and
documentation used in allocating such amounts and, in the circumstances, we
believe the methods used are reasonable and the documentation appropriate.
However, if the Portfolio had operated as a separate entity, actual expenses
might have been different.
COOPERS & LYBRAND, L.L.P.
San Diego, California
November 24, 1997
F-5
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1997
--------- --------- OCTOBER 31,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate:
Land........................................................................ $ 15,324 $ 15,324 $ 15,324
Buildings................................................................... 34,789 34,789 34,789
Real estate under development............................................... 13,888 14,060 14,191
Accumulated depreciation.................................................... (2,953) (3,823) (4,040)
--------- --------- ------------
Net real estate........................................................... 61,048 60,350 60,264
Notes receivable.............................................................. 1,050 21,958 21,981
Interest receivable........................................................... 71 1,379 2,009
--------- --------- ------------
$ 62,169 $ 83,687 $ 84,254
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND INVESTMENT BY EXCEL REALTY TRUST, INC.
Liabilities:
Mortgages payable........................................................... $ 36,754 $ 35,115 $ 34,657
Interest payable............................................................ 253 228 225
--------- --------- ------------
Total liabilities......................................................... 37,007 35,343 34,882
Commitments and contingencies................................................. -- -- --
Investment by Excel Realty Trust, Inc......................................... 25,162 48,344 49,372
--------- --------- ------------
$ 62,169 $ 83,687 $ 84,254
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental revenue................................................. $ 5,897 $ 4,937 $ 4,937 $ 1,234 $ 1,234
Interest....................................................... -- 95 1,458 27 657
--------- --------- --------- --------- ---------
Total revenue................................................ 5,897 5,032 6,395 1,261 1,891
--------- --------- --------- --------- ---------
Operating expenses:
Interest....................................................... 3,185 3,080 2,896 755 680
Depreciation................................................... 870 870 870 218 217
Administrative expenses........................................ 548 563 799 146 163
--------- --------- --------- --------- ---------
Total operating expenses..................................... 4,603 4,513 4,565 1,119 1,060
--------- --------- --------- --------- ---------
Income before income taxes....................................... 1,294 519 1,830 142 831
Provision for income taxes....................................... 515 207 729 56 331
--------- --------- --------- --------- ---------
Net income..................................................... $ 779 $ 312 $ 1,101 $ 86 $ 500
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF CHANGES IN INVESTMENT BY
EXCEL REALTY TRUST, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Investment by Excel Realty Trust, Inc. at August 1, 1994............................................... $ 17,441
Net income for the year ended July 31, 1995.......................................................... 779
Net return to Excel Realty Trust, Inc................................................................ (276)
---------
Investment by Excel Realty Trust, Inc. at July 31, 1995................................................ 17,944
Net income for the year ended July 31, 1996.......................................................... 312
Net investment by Excel Realty Trust, Inc............................................................ 6,906
---------
Investment by Excel Realty Trust, Inc. at July 31, 1996................................................ 25,162
Net income for the year ended July 31, 1997.......................................................... 1,101
Net investment by Excel Realty Trust, Inc............................................................ 22,081
---------
Investment by Excel Realty Trust, Inc. at July 31, 1997................................................ 48,344
Net income for the three months ended October 31, 1997 (unaudited)................................... 500
Net investment by Excel Realty Trust, Inc. (unaudited)............................................... 528
---------
Investment by Excel Realty Trust, Inc. at October 31, 1997 (unaudited)................................. $ 49,372
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
-------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 779 $ 312 $ 1,101 $ 86 $ 500
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation......................................... 870 870 870 217 217
Change in interest receivable........................ -- (71) (1,308) (26) (631)
Change in interest payable........................... (8) (9) (24) (2) (3)
--------- --------- ---------- --------- ---------
Net cash provided by operating activities.............. 1,641 1,102 639 275 83
--------- --------- ---------- --------- ---------
Cash flows from investing activities:
Net costs paid on real estate held for development..... -- (5,488) (171) 315 (132)
Advances for notes receivable.......................... -- (1,050) (20,908) -- (23)
--------- --------- ---------- --------- ---------
Net cash provided by (used in) investing activities.... -- (6,538) (21,079) 315 (155)
--------- --------- ---------- --------- ---------
Cash flows from financing activities:
Principal payments of mortgages payable................ (1,365) (1,470) (1,641) (361) (456)
Net investment by Excel Realty Trust, Inc.............. (276) 6,906 22,081 (229) 528
--------- --------- ---------- --------- ---------
Net cash provided by (used in) financing activities.... (1,641) 5,436 20,440 (590) 72
--------- --------- ---------- --------- ---------
Net increase in cash..................................... -- -- -- -- --
Cash at beginning of period.............................. -- -- -- -- --
--------- --------- ---------- --------- ---------
Cash at end of period.................................... $ -- $ -- $ -- $ -- $ --
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
FORMATION OF THE COMPANY
Excel Legacy Corporation (the "Company"), a Delaware Corporation, was formed
on November 17, 1997 to own, operate and/or develop real estate. Certain real
estate assets ("Excel Legacy Corporation Asset Group") are planned to be
transferred from Excel Realty Trust, Inc. ("Excel") and ERT Development
Corporation ("EDV"), an unconsolidated affiliate of Excel, to the Company. In
September 1997, Excel's Board of Directors approved in principle, a plan for the
distribution (the "Distribution") of Company stock to holders of Excel common
stock. Excel is the sole stockholder of the Company and the Company is currently
considered a qualified REIT subsidiary of Excel.
The following assets are scheduled to be transferred to the Company:
- Ten single tenant free-standing buildings with a book value of $46.0
million and encumbered by mortgages of $34.7 million at October 31, 1997.
- A 670,000 square foot shopping mall located in Scottsdale, Arizona which
is substantially vacant. The Company intends to redevelop this property.
The book value is $14.2 million at October 31, 1997.
- Four notes receivable related to development projects located in Arizona
(3) and California. The principal amount of the notes at October 31, 1997
is $22.0 million.
Other assets may be transferred to the Company as the Boards of the Company
and Excel deem appropriate. The Company's authorized stock consists of 1,000
shares of $.01 par value common stock and will be increased to provide for the
shares to be issued in connection with the Distribution.
BASIS OF PRESENTATION
These financial statements present the financial position, results of
operations, and cash flows for the Excel Legacy Corporation Asset Group,
hereafter referred to as the Company, as if it were a separate entity of Excel
for all periods presented. Excel and EDV's historical basis in the assets and
liabilities has been carried over. Changes in investment by Excel represent the
net income of the Company plus the net change in cash and non-cash items
transferred between the Company and Excel.
The combined financial statements include assets, liabilities and operations
to be transferred to the Company in connection with the acquisition of assets
from Excel and EDV. All significant intercompany accounts have been eliminated.
Certain general and administrative expenses were paid by Excel and allocated to
the Company, principally based on Excel's specific identification of individual
cost items based upon estimated levels of effort devoted by its corporate
administrative departments. Expense amounts allocated to administrative expenses
were $799,000, $563,000 and $548,000 for each of the years ended July 31, 1997,
1996 and 1995, respectively, and $163,000 and $146,000 for each of the three
month periods ended October 31, 1997 and 1996, respectively. In the opinion of
management, the methods for allocating corporate administrative expenses are
reasonable. It is not practical to estimate the expenses that would have been
incurred by the Company if it had operated on a stand-alone basis.
F-10
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REAL ESTATE
Land, buildings and real estate under development are recorded at cost.
Depreciation is computed using the straight-line method over estimated useful
lives of 40 years for buildings. Expenditures for maintenance and repairs are
charged to expense as incurred and significant renovations are capitalized.
Direct costs incurred for properties under development or redevelopment are
capitalized and depreciation is not charged to the property until the project is
completed.
The Company assesses whether there has been a permanent impairment in the
value of its real estate by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's ability
to pay rent under the terms of the lease. If a property is leased at a
significantly lower rent, the Company may recognize a permanent impairment loss
if the value of the income stream is not considered sufficient to recover its
investment.
INCOME TAXES
The Company's income tax provision is determined as if the Company had paid
income tax on taxable income on a separate company basis. Taxes payable are
charged directly against the investment by Excel. The Company's income tax
provision, all of which is current, is based on income before taxes. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities of their financial
reporting amounts at each year end based on enacted laws and statutory tax rates
applicable to the years in which the differences are expected to affect taxable
income. There are no significant timing differences between financial reporting
and taxable income and as such, the Company has not recorded any deferred income
tax assets or liabilities.
REVENUE RECOGNITION
Base rental revenue is recognized on the straight-line basis, which averages
annual minimum rents over the terms of the leases. The leases also provide that
the tenant directly pay all of the common area maintenance and other operating
expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
As of October 31, 1997, eight of the ten operating properties held by the
Company are leased to Wal-Mart. Rents from these stores account for
approximately 76% of the Company's scheduled rental revenue. While the financial
position of the Company may be adversely affected by financial difficulties
experienced by Wal-Mart, the Company has not experienced any such events.
Additionally, two of the Company's notes receivable which account for 95% of the
Company's scheduled interest revenue at October 31, 1997 are with the same
developer. EDV is committed to provide up to approximately $9,000,000 in
additional advances related to these notes.
F-11
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of October 31, 1997 and the three
months ended October 31, 1997 and 1996 are unaudited but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair statement of the financial position and the operating
results and cash flows of such periods. Interim results are not necessarily
indicative of results for the entire year or future periods.
3. REAL ESTATE:
The financial statements include ten single tenant free-standing buildings
which are located in Colorado, Illinois, Indiana (3), Michigan, Ohio,
Pennsylvania, Texas, and Wisconsin. Eight of the buildings are leased by
Wal-Mart and two of the buildings are leased by Lowe's.
REAL ESTATE UNDER DEVELOPMENT
In preparation for the redevelopment of a property located in Scottsdale,
Arizona, the Company terminated a master lease to an unaffiliated developer on
August 1, 1995. As part of the termination agreement, the Company paid the
lessee in exchange for the lessee's equity participation rights in the property,
$5,000,000 which was capitalized as part of the asset held for sale.
Depreciation expense is no longer being charged to the property and costs
incurred during redevelopment are being capitalized.
4. NOTES RECEIVABLE:
The Company holds a $16,593,000 mortgage loan receivable from a developer
and owner of a shopping center located in Scottsdale, Arizona. The borrower
intends to redevelop the property through the acquisition of adjoining parcels
and the construction of certain improvements. The loan was originated in
December 1996, and matures upon the sale of the property and bears interest at
the rate of 12%. In addition, the borrower must pay the Company a "profits
participation" equal to 50% of the profits generated by the property. The loan
is non-recourse and repayment of the loan is collateralized by a first mortgage
on the property. Interest receivable at October 31, 1997, July 31, 1997 and July
31, 1996 is $1,674,000, $1,193,000 and $0, respectively.
The Company holds a $4,290,000 promissory note receivable from a developer
and owner of an eight story office building in downtown Phoenix, Arizona. The
loan was originated in May 1997 and matures upon the sale of the property by the
borrower. Until maturity, the loan bears interest at 11% per annum. In addition,
the borrower must pay the Company a "profits participation" equal to 50% of the
profits generated by the property. The loan is non-recourse and repayment of the
loan is collateralized by a first mortgage on the property. Interest receivable
was $309,000, $161,000 and $0 at October 31, 1997, July 31, 1997 and July 31,
1996, respectively.
The Company holds a $1,050,000 promissory note receivable from an owner of a
land parcel located in Arizona. The loan originated in October 1995 and matures
in September 1998. Until the maturity date, the borrower is to pay interest at
the rate of 7% per annum. In addition, upon maturity, prepayment or acceleration
of the note, the borrower must pay additional interest from October 1995 on the
principal amount of the note at the rate of 3% per annum. The note is
non-recourse and repayment of the loan is collateralized by a first mortgage on
the property.
F-12
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES RECEIVABLE: (CONTINUED)
At October 31, 1997, the Company has approximately $48,000 in notes
receivable from a developer relating to predevelopment expenses of a property
located in San Diego, California. The outstanding amounts related to these
advances bear interest at the rate of 12%. EDV is committed to provide up to
$2,500,000 in total advances related to this project.
5. MORTGAGES PAYABLE:
The Company's single free-standing buildings are all encumbered by
mortgages. Interest rates on the properties range from 7.625% to 8.75% and
mature on various dates to 2014. Monthly payments at October 31, 1997 total
$380,000. The loans are non-recourse and repayment of the loans by the Company
is collateralized by a first mortgage on the properties.
The principal payments required to be made on mortgages payable are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998, remaining nine months:....................................................... $ 1,448
1999............................................................................... 2,077
2000............................................................................... 2,240
2001............................................................................... 2,417
2002............................................................................... 2,614
Thereafter......................................................................... 23,861
---------
$ 34,657
---------
---------
</TABLE>
6. MINIMUM FUTURE RENTALS:
The Company leases its single free-standing buildings to tenants under
noncancellable operating leases requiring the tenant to pay a minimum rent. The
leases require the tenant to pay all expenses of operating the property such as
insurance, property taxes, and structural repairs and maintenance. Minimum
future rental revenue for the next five years is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998, remaining nine months:....................................................... $ 3,704
1999............................................................................... 4,939
2000............................................................................... 4,939
2001............................................................................... 4,939
2002............................................................................... 4,939
Thereafter......................................................................... 36,836
---------
$ 60,296
---------
---------
</TABLE>
F-13
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. NEW PRONOUNCEMENTS:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share and SFAS No.
129, Disclosure of Information about Capital Structure, which become effective
for periods after December 15, 1997 and SFAS No. 131, Disclosures about Segments
in an Enterprise and Related Information and SFAS No. 130, Comprehensive Income,
which become effective in 1998. The Company has determined that the adoption of
these SFASs will not have a material effect on the consolidated financial
statements.
F-14
<PAGE>
ANNEX I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EXCEL LEGACY CORPORATION
EXCEL LEGACY CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. The Corporation's original Certificate of Incorporation was filed on
November 17, 1997.
2. That by action taken by unanimous written consent of the Board of
Directors on , 1998, resolutions were duly adopted setting forth a
proposed amendment and restatement of the Certificate of Incorporation of the
Corporation, declaring said amendment and restatement to be advisable and
directing its officers to submit said amendment and restatement to the sole
stockholder of the Corporation for consideration thereof. The resolution setting
forth the proposed amendment and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of the Corporation is
hereby amended to read in its entirety as follows, subject to the required
consent of the sole stockholder of the corporation:
FIRST: The name of the Corporation is Excel Legacy Corporation
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is (i) to perform an agreement
(the "Intercompany Agreement") to be entered into by and between the
Corporation and Excel Realty Trust, Inc., a Maryland corporation ("Excel"),
pursuant to which the Corporation and Excel will provide each other with
rights to participate in certain transactions for so long as the
Intercompany Agreement remains in effect, and (ii) subject to the terms and
conditions set forth in the Intercompany Agreement, to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 200,000,000, which shall consist of
150,000,000 shares of Common Stock, each having a par value of $.01 (the
"Common Stock"), and 50,000,000 shares of Preferred Stock, each having a par
value of $.01 (the "Preferred Stock").
The Board of Directors is hereby authorized from time to time to provide
by resolution for the issuance of shares of preferred stock in one of more
series not exceeding in the aggregate the number of shares of Preferred
Stock authorized by this Certificate of Incorporation, as amended from time
to time; and to determine with respect to each such series the voting
powers, if any (which voting powers, if granted, may be full or limited),
designations, preference and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions relating
thereto, including without limiting the generality of the foregoing, the
voting rights relating to shares of Preferred Stock of any series (which may
be one of more votes per share or a fraction of a vote per share, which may
vary over time and which may be applicable generally or only upon the
happening and continuance of stated events or conditions), the rate of
dividend to which holders of Preferred Stock of any series may be entitled
(which may be cumulative or noncumulative), the rights of holders of
Preferred Stock of
I-1
<PAGE>
any series in the event of liquidation, dissolution or winding up of the
affairs of the Corporation, the rights, if any, of holders of Preferred
Stock of any series to convert or exchange such shares of Preferred Stock of
such series for shares of any other class or series of capital stock or for
any other securities, property or assets of the Corporation or any
subsidiary (including the determination of the price or prices or the rate
or rates applicable to such rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange
shall be applicable and the time or times during which a particular price or
rate shall be applicable), whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates, and
whether any shares of that series shall be redeemed pursuant to a retirement
or sinking fund or otherwise and the terms and conditions of such
obligation.
Before the Corporation shall issue any shares of Preferred Stock of any
series, a certificate setting forth a copy of the resolution or resolutions
of the Board of Directors, fixing the voting powers, designations,
preferences, the relative, participating, optional or other rights, if any,
and the qualifications, limitations and restrictions, if any, relating to
the shares of Preferred Stock of such series, and the number of shares of
Preferred Stock of such series authorized by the Board of Directors to be
issued shall be made under seal of the Corporation and signed by and shall
be filed and a copy thereof recorded in the manner prescribed by the GCL.
The Board of Directors is further authorized to increase or decrease (but
not below the number of such shares of such series then outstanding) the
number of shares of any series subsequent to the issuance of shares of that
series.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and
of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(b) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the Bylaws of the Corporation.
(c) The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the Bylaws of the Corporation.
The election of directors need not be by written ballot unless the Bylaws so
provide.
(d) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the
GCL, this Certificate of Incorporation, and any Bylaws adopted by the
stockholders; PROVIDED, HOWEVER, that no Bylaws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would
have been valid if such Bylaws had not been adopted.
SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Corporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
EIGHTH: (a) Subject to Article EIGHTH (c), the Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed
I-2
<PAGE>
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) Subject to Article EIGHTH (c), the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to
be liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) Any indemnification under this Article EIGHTH (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Article EIGHTH (a) or Article EIGHTH (b), as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (ii) if such a quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Article EIGHTH (a)
or Article EIGHTH (b), or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
(d) Notwithstanding any contrary determination in the specific case
under Article EIGHTH (c), and notwithstanding the absence of any
determination thereunder, any present or former director or officer of the
Corporation may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under
Article EIGHTH (a) and Article EIGHTH (b). The basis of such indemnification
by a court shall be a determination by such court that indemnification of
such person is proper in the circumstances because he has met the applicable
standards of conduct set forth in Article EIGHTH (a) or Article EIGHTH (b),
as the case may be. Neither a contrary determination in the specific case
under Article EIGHTH (c) nor the absence of
I-3
<PAGE>
any determination thereunder shall be a defense to such application or
create a presumption that such person seeking indemnification has not met
any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Article EIGHTH (d) shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, such person seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
(e) Expenses incurred by a person who is or was a director or officer of
the Corporation in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article EIGHTH.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to this Article EIGHTH shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, it being the policy of the Corporation
that indemnification of the persons specified in Article EIGHTH (a) and
Article EIGHTH (b) shall be made to the fullest extent permitted by law. The
provisions of this Article EIGHTH shall not be deemed to preclude the
indemnification of any person who is not specified in Article EIGHTH (a) or
Article EIGHTH (b) but whom the Corporation has the power or obligation to
indemnify under the provisions of the GCL, or otherwise.
(g) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power or the obligation
to indemnify him against such liability under the provisions of this Article
EIGHTH or Section 145 of the GCL.
(h) For purposes of this Article EIGHTH, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors or officers,
so that any person who is or was a director or officer of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of
this Article EIGHTH with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article EIGHTH,
references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such person with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and
in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article EIGHTH. For purposes of any determination under
Article EIGHTH (c), a person shall be deemed to have acted in good faith in
a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
Corporation or another enterprise, or on information supplied to
I-4
<PAGE>
him by the officers of the Corporation or another enterprise in the course
of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care
by the Corporation or another enterprise. The term "another enterprise" is
used in this Article EIGHTH (h) shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of the Corporation as
a director, officer, employee or agent. The provisions of this Article
EIGHTH (h) shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Article EIGHTH (a) or (b), as the case may
be.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article EIGHTH shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director or officer of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(j) Notwithstanding anything contained in this Article EIGHTH to the
contrary, except for proceedings to enforce rights to indemnification (which
shall be governed by Article EIGHTH (d)), the Corporation shall not be
obligated to indemnify any person in connection with a proceeding (or part,
thereof) initiated by such person unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the Corporation.
(k) The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar
to those conferred in this Article EIGHTH to directors and officers of the
Corporation.
NINTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article NINTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification."
3. That thereafter, by consent of the sole stockholder of all of the issued
and outstanding shares of stock of the Corporation in accordance with Section
228 of the General Corporation Law of the State of Delaware, all of the shares
of the Corporation were voted in favor of the amendment.
4. That said Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
I-5
<PAGE>
IN WITNESS WHEREOF, EXCEL LEGACY CORPORATION has caused this Certificate to
be signed by Gary B. Sabin, its President and Richard B. Muir, its Secretary,
this day of , 1998.
EXCEL LEGACY CORPORATION,
a Delaware corporation
By:
--------------------------------------
Name: Gary B. Sabin
Title: President
ATTEST
- -------------------------------------------
Name: Richard B. Muir
Title: Secretary
I-6
<PAGE>
ANNEX II
AMENDED AND RESTATED
BYLAWS
OF
EXCEL LEGACY CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be established and maintained in the City of Wilmington, County of New
Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which meeting
the stockholders shall elect Directors in the manner provided in the Certificate
of Incorporation and in the Bylaws, and transact such other business as may
properly be brought before the meeting. Written notice of the Annual Meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes may be called by either (i) the Chairman, (ii) the Vice Chairman,
(iii) the President, (iv) any Vice President, (v) the Secretary or (vi) any
Assistant Secretary, if there be one, and shall be called by any such officer at
the request in writing by a majority of the entire Board of Directors, or at the
request in writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum and
the votes present may continue to transact business until adjournment. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or
II-1
<PAGE>
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors shall
consist of three or more members, the exact number of which shall be fixed from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the Annual Meeting in which his term expires and until his successor is duly
elected and qualified, or until his earlier resignation or removal. Any director
may resign at any time upon written notice to the Corporation. Directors need
not be stockholders.
SECTION 2. VACANCIES. Vacancies, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. The directors so chosen shall hold office until the
next annual election of directors and until their successors are duly elected
and qualified, or until their earlier
II-2
<PAGE>
resignation or removal. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
SECTION 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, the Vice Chairman, the President, or any director. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail, telephone, facsimile or telegram not less than forty-eight (48)
hours before the date of the meeting.
SECTION 5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time without notice other than announcement at the meeting, until a quorum shall
be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the Directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. Any committee, to the extent allowed by law and
provided in these Bylaws or the resolution establishing such committee, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation; but no committee
shall have the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes and report to the Board of Directors when
required.
SECTION 9. COMPENSATION. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the
II-3
<PAGE>
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction. Any
such contract or transaction shall be made on commercially reasonable terms
substantially equivalent to terms available from third parties in an
arm's-length transaction in the competitive marketplace.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The executive officers of the Corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors, a President and Chief Executive Officer, a Secretary and a Chief
Financial Officer. The Board of Directors, in its discretion, may also choose
one or more Executive Vice Presidents (each of whom shall also be an executive
officer), a Treasurer (who shall also be an executive officer) and Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the entire Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by a majority
of the entire Board of Directors. The salaries of all executive officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors shall preside at all meetings of the stockholders and of the Board
of Directors. Except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise
II-4
<PAGE>
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors. The Chairman of the Board of Directors may only be
appointed or removed by a majority of the entire Board of Directors.
SECTION 4. VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice Chairman of
the Board of Directors shall, in the absence or disability of the Chairman of
the Board of Directors, preside at meetings of the stockholders and the Board of
Directors. The Vice Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors or the Vice Chairman of the Board of Directors, or if there be none,
the President shall preside at all meetings of the stockholders and the Board of
Directors. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors. The President may only be appointed or removed by a
majority of the entire Board of Directors.
SECTION 6. EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS. At the request
of the President or in his absence or in the event of his inability or refusal
to act (and if there be no Chairman of the Board of Directors), the Senior
Executive Vice President, and then the Executive Vice President or the Executive
Vice Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice President (including Senior Executive and Executive Vice
Presidents) shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he or she shall be. If the Secretary shall be unable or shall refuse
to cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall also
serve as the Treasurer unless Treasurer shall be separately appointed by the
Board of Directors and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in
II-5
<PAGE>
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Chief Financial Officer and of the financial condition of the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President if
there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman or Vice Chairman of the Board of Directors, or the President
or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations, or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed, or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or
II-6
<PAGE>
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost stolen or destroyed (unless otherwise
authorized by the Board). When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex, facsimile or cable, in which event notice shall be deemed
given upon receipt.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business
transacted or to be transacted at, nor the purpose of any meeting need be
specified in any written waiver of notice thereof.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any
II-7
<PAGE>
regular or special meeting, and may be paid in cash, in property, or in shares
of the capital stock. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
The power, right and obligation of the Corporation to indemnify any director
or officer of the Corporation and employees and agents of the Corporation shall
be as set forth in Article EIGHTH of the Certificate of Incorporation. All
directors and officers of the Corporation shall be entitled to indemnification
as set forth in the Certificate of Incorporation.
ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed, in whole or in
part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors; provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors.
II-8
<PAGE>
ANNEX III
THE 1998 STOCK OPTION PLAN
OF
EXCEL LEGACY CORPORATION
Excel Legacy Corporation, a Delaware corporation, has adopted The 1998 Stock
Option Plan of Excel Legacy Corporation (this "Plan"), effective ,
1998, for the benefit of its eligible employees, consultants and directors.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key Employees and
consultants to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock which
recognizes such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company which
will reflect the growth, development and financial success of the Company.
ARTICLE I
DEFINITIONS
1.1 GENERAL. Wherever the following terms are used in this Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2 AWARD LIMIT. "Award Limit" shall mean 525,000 shares of Common Stock,
as adjusted pursuant to Section 7.3.
1.3 BOARD. "Board" shall mean the Board of Directors of the Company.
1.4 CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 COMMITTEE. "Committee" shall mean the Compensation Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 6.1.
1.6 COMMON STOCK. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share.
1.7 COMPANY. "Company" shall mean Excel Legacy Corporation, a Delaware
corporation.
1.8 CORPORATE TRANSACTION. "Corporate Transaction" shall mean any of the
following stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State in which the Company is incorporated, form a holding company or effect a
similar reorganization as to form whereupon this Plan and all Options are
assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred or issued
to a person or persons different from those who held such securities immediately
prior to such merger.
III-1
<PAGE>
1.9 DIRECTOR. "Director" shall mean a member of the Board.
1.10 DISTRIBUTION. "Distribution" shall mean the distribution of Common
Stock to the stockholders of Excel Realty Trust, Inc.
1.11 EMPLOYEE. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.12 EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.13 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock as
of a given date shall be (i) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (ii) if Common Stock is not traded on an exchange but is
quoted on Nasdaq or a successor quotation system, the closing price of a share
of Common Stock on the trading day previous to such date as reported by Nasdaq
or such successor quotation system; or (iii) if Common Stock is not publicly
traded on an exchange and not quoted on Nasdaq or a successor quotation system,
the Fair Market Value of a share of Common Stock as established by the Committee
(or the Board, in the case of Options granted to Directors) acting in good
faith.
1.14 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Committee.
1.15 INDEPENDENT DIRECTOR. "Independent Director" shall mean a member of
the Board who is not an Employee of the Company.
1.16 NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the Committee.
1.17 OPTION. "Option" shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
PROVIDED, HOWEVER, that Options granted to Independent Directors and consultants
shall be Non-Qualified Stock Options.
1.18 OPTIONEE. "Optionee" shall mean an Employee, consultant or Director
granted an Option under this Plan.
1.19 PLAN. "Plan" shall mean The 1998 Stock Option Plan of Excel Legacy
Corporation.
1.20 QDRO. "QDRO" shall mean a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
1.21 RULE 16B-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.22 SECTION 162(M) PARTICIPANT. "Section 162(m) Participant" shall mean
any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.23 SUBSIDIARY. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
III-2
<PAGE>
1.24 TERMINATION OF CONSULTANCY. "Termination of Consultancy" shall mean
the time when the engagement of an Optionee as a consultant to the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Consultancy, including, but not by way of limitation, the question of whether
a Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of this Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.25 TERMINATION OF DIRECTORSHIP. "Termination of Directorship" shall mean
the time when an Optionee who is a Director ceases to be a Director for any
reason, including, but not by way of limitation, a termination by resignation,
failure to be elected, death or retirement. The Board, in its sole and absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship with respect to Directors.
1.26 TERMINATION OF EMPLOYMENT. "Termination of Employment" shall mean the
time when the employee-employer relationship between an Optionee and the Company
or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an Optionee by
the Company or any Subsidiary, (ii) at the discretion of the Committee,
terminations which result in a temporary severance of the employee-employer
relationship, and (iii) at the discretion of the Committee, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; PROVIDED, HOWEVER, that, unless
otherwise determined by the Committee in its discretion, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that with respect to Incentive Stock Options,
such leave of absence, change in status or other change interrupts employment
for the purposes of Section 422(a)(2) of the Code and the then applicable
regulations and revenue rulings under said Section. Notwithstanding any other
provision of this Plan, the Company or any Subsidiary has an absolute and
unrestricted right to terminate an Employee's employment at any time for any
reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Options shall be Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
Options or rights or upon any such awards under the Plan shall not exceed
5,250,380. The shares of Common Stock issuable upon exercise of such Options may
be either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any fiscal year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award Limit and
if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is
III-3
<PAGE>
treated as a cancellation of the Option and a grant of a new Option and both the
Option deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit.
2.2 ADD-BACK OF OPTIONS. If any Option to acquire shares of Common Stock
under this Plan expires or is canceled without having been fully exercised, or
is exercised in whole or in part for cash as permitted by this Plan, the number
of shares subject to such Option but as to which such Option was not exercised
prior to its expiration, cancellation or exercise may again be optioned
hereunder, subject to the limitations of Section 2.1. Furthermore, any shares
subject to Options which are adjusted pursuant to Section 7.3 and become
exercisable with respect to shares of stock of another corporation shall be
considered cancelled and may again be optioned hereunder, subject to the
limitations of Section 2.1. Shares of Common Stock which are delivered by the
Optionee or withheld by the Company upon the exercise of any Option under this
Plan, in payment of the exercise price thereof, may again be optioned hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned if such action
would cause an Incentive Stock Option to fail to qualify as an incentive stock
option under Section 422 of the Code.
ARTICLE III
GRANTING OF OPTIONS
3.1 ELIGIBILITY. Any Employee or consultant selected by the Committee
pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each
Director of the Company shall be eligible to be granted Options at the times and
in the manner set forth in Section 3.4(d).
3.2 DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under this Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
3.3 QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.
3.4 GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its absolute discretion, and
subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from among
the key Employees or consultants (including Employees or consultants who
have previously received Options under this Plan) such of them as in its
opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
consultants;
(iii) Subject to Section 3.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with
this Plan; PROVIDED, HOWEVER, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of a key Employee or consultant to be granted an
Option, the Committee shall instruct the Chief Executive Officer of the Company
to issue the Option and may impose such
III-4
<PAGE>
conditions on the grant of the Option as it deems appropriate. Without limiting
the generality of the preceding sentence, the Committee may, in its discretion
and on such terms as it deems appropriate, require as a condition on the grant
of an Option to an Employee or consultant that the Employee or consultant
surrender for cancellation some or all of the unexercised Options or other
rights which have been previously granted to him under this Plan or otherwise.
An Option, the grant of which is conditioned upon such surrender, may have an
Option price lower (or higher) than the exercise price of such surrendered
Option or other award, may cover the same (or a lesser or greater) number of
shares as such surrendered Option or other award, may contain such other terms
as the Committee deems appropriate, and shall be exercisable in accordance with
its terms, without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code.
(d) During the term of the Plan, each person who is a Director as of the
date of the Distribution automatically shall be granted an Option to purchase
( ) shares of Common Stock (subject to adjustment as provided in
Section 7.3) on the date of each annual meeting of stockholders after such
Distribution at which the Director is reelected to the Board. During the term of
the Plan, a person who is initially elected to the Board after the consummation
of the Distribution and who is a Director at the time of such initial election
automatically shall be granted an Option to purchase ( ) shares of
Common Stock (subject to adjustment as provided in Section 7.3) on the date of
each annual meeting of stockholders after such initial election at which the
Director is reelected to the Board. Members of the Board who are employees of
the Company who subsequently retire from the Company and remain on the Board, to
the extent that they are otherwise eligible, will receive, after retirement from
employment with the Company, Options as described in the preceding sentence.
ARTICLE IV
TERMS OF OPTIONS
4.1 OPTION AGREEMENT. Each Option shall be evidenced by a written Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of Options granted to Directors) shall
determine, consistent with this Plan. Stock Option Agreements evidencing Options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the Code. Stock
Option Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
422 of the Code.
4.2 OPTION PRICE. The price per share of the shares subject to each Option
shall be set by the Committee; PROVIDED, HOWEVER, that such price shall be no
less than the par value of a share of Common Stock, unless otherwise permitted
by applicable state law, and (i) in the case of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
such price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; (ii) in the case of Incentive
Stock Options such price shall not be less than 100% of the Fair Market Value of
a share of Common Stock on the date the Option is granted (or the date the
Option is modified, extended or renewed for purposes of Section 424(h) of the
Code); (iii) in the case of Incentive Stock Options granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code), such price shall not be less than 110% of the Fair Market Value of a
share of Common Stock on the date the Option is granted (or the date the Option
is modified, extended or renewed for purposes of Section 424(h) of the Code);
and (iv) in the case of Options granted to Directors, such price shall equal
100% of the Fair Market Value of a share
III-5
<PAGE>
of Common Stock on the date the Option is granted; PROVIDED, HOWEVER, that the
price of each share subject to each Option granted to Directors on the date of
the Distribution shall equal the average of the trading price for the Common
Stock for the twenty days commencing on the sixth day after the effective date
of the Distribution.
4.3 OPTION TERM. The term of an Option shall be set by the Committee in
its discretion; PROVIDED, HOWEVER, that, (i) in the case of Options granted to
Directors, the term shall be ten (10) years from the date the Option is granted,
without variation or acceleration hereunder, but subject to Section 5.6, and
(ii) in the case of Incentive Stock Options, the term shall not be more than ten
(10) years from the date the Incentive Stock Option is granted, or five (5)
years from such date if the Incentive Stock Option is granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a termination.
4.4 OPTION VESTING
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; PROVIDED, HOWEVER, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and PROVIDED, FURTHER, that Options granted to Directors
shall become exercisable in cumulative annual installments of 20% on each of the
first, second, third, fourth and fifth anniversaries of the date of Option
grant, without variation or acceleration hereunder except as provided in Section
7.3(b). At any time after grant of an Option, the Committee may, in its sole and
absolute discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option (except an Option granted to a
Director) vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees or
consultants either in the Stock Option Agreement or by action of the Committee
following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with respect
to which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for the
first time by an Optionee during any calendar year (under the Plan and all other
incentive stock option plans of the Company and any parent or subsidiary
corporation (within the meaning of Section 422 of the Code) of the Company)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.5 CONSIDERATION. In consideration of the granting of an Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ of (or to consult for or to serve as a Director of, as applicable) the
Company or any Subsidiary for a period of at least six months (or such shorter
period as may be fixed in the Stock Option Agreement or by action of the
Committee following grant of the Option) after the Option is granted (or, in the
case of a Director, until the next annual meeting of stockholders of the
Company). Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of, or as a
consultant for, the Company or any Subsidiary, or
III-6
<PAGE>
as a director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Optionee at any time for any reason whatsoever, with or without
good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Committee (or the Board, in the case of Options granted to
Directors) may require that, by the terms of the Option, a partial exercise be
with respect to a minimum number of shares.
5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established by the
Committee (or the Board, in the case of Options granted to Directors) stating
that the Option, or a portion thereof, is exercised. The notice shall be signed
by the Optionee or other person then entitled to exercise the Option or such
portion of the Option;
(b) Such representations and documents as the Committee (or the Board, in
the case of Options granted to Directors), in its absolute discretion, deems
necessary or advisable to effect compliance with all applicable provisions of
the Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations. The Committee or Board may, in its absolute
discretion, also take whatever additional actions it deems appropriate to effect
such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant to Section 7.1
by any person or persons other than the Optionee, appropriate proof of the right
of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares with
respect to which the Option, or portion thereof, is exercised. However, the
Committee (or the Board, in the case of Options granted to Directors), may in
its discretion (i) allow a delay in payment up to thirty (30) days from the date
the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in
part, through the delivery of shares of Common Stock owned by the Optionee, duly
endorsed for transfer to the Company with a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or exercised
portion thereof; (iii) allow payment, in whole or in part, through the surrender
of shares of Common Stock then issuable upon exercise of the Option having a
Fair Market Value on the date of Option exercise equal to the aggregate exercise
price of the Option or exercised portion thereof; (iv) allow payment, in whole
or in part, through the delivery of property of any kind which constitutes good
and valuable consideration; (v) allow payment, in whole or in part, through the
delivery of a full recourse promissory note bearing interest (at no less than
such rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Committee or the Board; (vi)
allow payment, in whole or in part, through the delivery of a notice that the
Optionee has placed a market sell order with a broker with respect to shares of
Common Stock then issuable upon exercise of the Option, and that the broker has
been directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note,
the Committee (or the Board, in the case of Options granted to Directors) may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law.
III-7
<PAGE>
5.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be
required to issue or deliver any certificate or certificates of stock purchased
upon the exercise of any Option or portion thereof prior to fulfillment of all
of the following conditions, any of which may be waived by the Company, in its
discretion:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law, or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body
which the Committee or Board shall, in its absolute discretion, deem necessary
or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Directors) shall, in its absolute, discretion determine to be
necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Directors) may establish from time to time for reasons of administrative
convenience; and
(e) Subject to Section 5.2(d), the receipt by the Company of full payment
for such shares, including payment of any applicable withholding tax.
5.4 RIGHTS AS STOCKHOLDERS. The holders of Options shall not be, nor have
any of the rights or privileges of, stockholders of the Company in respect of
any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
5.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee (or Board, in the
case of Options granted to Directors), in its absolute discretion, may impose
such restrictions on the ownership and transferability of the shares purchasable
upon the exercise of an Option as it deems appropriate. Any such restriction
shall be set forth in the respective Stock Option Agreement and may be referred
to on the certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of
Common Stock acquired by exercise of an Incentive Stock Option within (i) two
years from the date of granting (including the date the Option is modified,
extended or renewed for purposes of Section 424(h) of the Code) such Option to
such Employee or (ii) one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
5.6 LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO DIRECTORS. No Option
granted to a Director may be exercised to any extent by anyone after the first
to occur of the following events:
(a) the expiration of twelve (12) months from the date of the Optionee's
death;
(b) the expiration of twelve (12) months from the date of the Optionee's
Termination of Directorship by reason of his permanent and total disability
(within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the Optionee's
Termination of Directorship for any reason other than such Optionee's death or
his permanent and total disability, unless the Optionee dies within said
three-month period; or
(d) The expiration of ten years from the date the Option was granted.
III-8
<PAGE>
ARTICLE VI
ADMINISTRATION
6.1 COMPENSATION COMMITTEE. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under this Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
6.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee
to conduct the general administration of this Plan in accordance with its
provisions. The Committee shall have the power to interpret this Plan and the
agreements pursuant to which Options are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this Plan as
are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Directors. Any such grant or award under this Plan
need not be the same with respect to each Optionee. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under this Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
6.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a
majority of its members in attendance at a meeting at which a quorum is present
or by a memorandum or other written instrument signed by all members of the
Committee.
6.4 COMPENSATION; PROFESSIONAL ASSISTANCE, GOOD FAITH ACTIONS. Members of
the Committee shall receive such compensation, if any, for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Optionees, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or Options, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 NOT TRANSFERABLE. Options under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution or pursuant to a QDRO, unless and until such options have been
exercised, or the shares underlying such options have been issued, and all
restrictions applicable to such shares have lapsed. No Option or interest or
right therein shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted
III-9
<PAGE>
disposition thereof shall be null and void and of no effect, except to the
extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee, only he may exercise an Option (or any
portion thereof) granted to him under the Plan, unless it has been disposed of
pursuant to a QDRO. After the death of the Optionee, any exercisable portion of
an Option may, prior to the time when such portion becomes unexercisable under
the Plan or the applicable Stock Option Agreement or other agreement, be
exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN. Except as otherwise
provided in this Section 7.2, this Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, except as
provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan, and no action of
the Board or the Committee may be taken that would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Furthermore, no
modification of the Award Limit shall be effective prior to the approval of the
Company's stockholders. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, alter or impair any rights
or obligations under any Options theretofore granted or awarded, unless the
award itself otherwise expressly so provides. No Options may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after the
first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's stockholders under Section 7.4.
7.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 7.3(d), in the event that the Committee (or the
Board, in the case of Options granted to Directors) determines that any dividend
or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company
(including, but not limited to, a Corporate Transaction), or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's sole discretion (or in the
case of Options granted to Directors, the Board's sole discretion), affects the
Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to an Option, then the Committee (or the Board, in the case of Options granted
to Directors) shall, in such manner as it may deem equitable, adjust any or all
of
(i) the number and kind of shares of Common Stock (or other securities
or property) with respect to which Options may be granted under the Plan,
(including, but not limited to, adjustments of the limitations in Section
2.1 on the maximum number and kind of shares which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other securities
or property) subject to outstanding Options, and
III-10
<PAGE>
(iii) the grant or exercise price with respect to any Option.
(b) Subject to Section 7.3(d), in the event of any Corporate Transaction or
other transaction or event described in Section 7.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the
Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the Committee
(or the Board, in the case of Options granted to Directors) in its discretion is
hereby authorized to take any one or more of the following actions whenever the
Committee (or the Board, in the case of Options granted to Directors) determines
that such action is appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan
or with respect to any option under this Plan, to facilitate such transactions
or events or to give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Directors) may provide, either by the terms of the
agreement or by action taken prior to the occurrence of such transaction or
event and either automatically or upon the optionee's request, for either
the purchase of any such Option for an amount of cash equal to the positive
difference, if any, between the amount that could have been obtained upon
the exercise of such Option and the exercise price of such Option, or
realization of the optionee's rights had such Option been currently
exercisable or payable or fully vested or the replacement of such Option
with other rights or property selected by the Committee (or the Board, in
the case of Options granted to Directors) in its sole discretion;
(ii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Directors) may provide, either by the terms of such
Option or by action taken prior to the occurrence of such transaction or
event, that for a specified period of time prior to such transaction or
event, such Option shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in (i) Section 4.4 or (ii) the
provisions of such Option;
(iii) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Directors) may provide, either by the terms of such
Option or by action taken prior to the occurrence of such transaction or
event, that upon such event, such Option be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar Options covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; and
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the case
of Options granted to Directors) may make adjustments in the number and type
of shares of Common Stock (or other securities or property) subject to
outstanding Options and/or in the terms and conditions of (including the
grant or exercise price), and the criteria included in, outstanding Options
and Options which may be granted in the future.
(c) Subject to Section 7.3(d) and 7.8, the Committee (or the Board, in the
case of Options granted to Directors) may, in its discretion, include such
further provisions and limitations in any Option as it may deem equitable and in
the best interests of the Company.
(d) With respect to Options which are granted to Section 162(m) Participants
and are intended to qualify as performance-based compensation under Section
162(m)(4)(C), no adjustment or action described in this Section 7.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such option to fail to so qualify under Section
162(m)(4)(C), as the case may be, or any successor provisions thereto.
Furthermore, no such adjustment or action shall be authorized to the extent such
adjustment or action would result in short-swing profits liability under Section
16 or violate the exemptive conditions of
III-11
<PAGE>
Rule 16b-3 unless the Committee (or the Board, in the case of Options granted to
Directors) determines that the option is not to comply with such exemptive
conditions. The number of shares of Common Stock subject to any option shall
always be rounded to the next whole number.
7.4 APPROVAL OF PLAN BY STOCKHOLDERS. This Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of this Plan. Options may be granted prior to such
stockholder approval, provided that such Options shall not be exercisable prior
to the time when this Plan is approved by the stockholders, and provided further
that if such approval has not been obtained at the end of said twelve-month
period, all Options previously granted under this Plan shall thereupon be
canceled and become null and void.
7.5 TAX WITHHOLDING. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Option. The Committee (or the
Board, in the case of Options granted to Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee to elect to have
the Company withhold shares of Common Stock otherwise issuable under such Option
(or allow the return of shares of Common Stock) having a Fair Market Value equal
to the sums required to be withheld.
7.6 LOANS. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Option granted
under this Plan. The terms and conditions of any such loan shall be set by the
Committee.
7.7 FORFEITURE PROVISIONS. Pursuant to its general authority to determine
the terms and conditions applicable to awards under the Plan, the Committee (or
the Board, in the case of Options granted to Directors) shall have the right (to
the extent consistent with the applicable exemptive conditions of Rule 16b-3) to
provide, in the terms of Options made under the Plan, or to require the
recipient to agree by separate written instrument, that (i) any proceeds, gains
or other economic benefit actually or constructively received by the recipient
upon any receipt or exercise of an Option, or upon the receipt or resale of any
Common Stock underlying such Option, must be paid to the Company, and (ii) the
Option shall terminate and any unexercised portion of such Option (whether or
not vested) shall be forfeited, if (a) a Termination of Employment, Termination
of Consultancy or Termination of Directorship occurs prior to a specified date,
or within a specified time period following receipt or exercise of the Option,
or (b) the recipient at any time, or during a specified time period, engages in
any activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
7.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of this Plan, this Plan, and
any Option granted to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan and Options
granted hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other provision
of this Plan, any Option which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
7.9 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
this Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
III-12
<PAGE>
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any proper corporate purpose including but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
7.10 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Options
under this Plan and the issuance and delivery of shares of Common Stock and the
payment of money under this Plan or under Options granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Options granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
7.11 TITLES. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Plan.
7.12 GOVERNING LAW. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
III-13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
EXCEL LEGACY CORPORATION
Dated: December 12, 1997 By /s/ GARY B. SABIN
-----------------------------------------
Gary B. Sabin
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
<PAGE>
INTERCOMPANY AGREEMENT
This INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into
as of the ____ day of ____________, 1998, by and between Excel Realty Trust,
Inc., a Maryland corporation ("Excel"), and Excel Legacy Corporation, a Delaware
corporation ("Legacy").
W I T N E S E T H:
WHEREAS, Excel may in certain circumstances determine that it is
precluded from pursuing, or is limited in the manner in which it pursues,
various business opportunities due to its status as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code");
WHEREAS, Legacy is a newly-formed corporation which was organized by
Excel for the purpose of identifying and making opportunistic real estate
investments that are not generally available to REITs; and
WHEREAS, in light of the purpose for which Legacy was formed, Excel
and Legacy desire to enter into this Agreement in order to provide to each other
a right of first opportunity and notification right with respect to certain
investment opportunities.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
1. DEFINITIONS. Except as otherwise may be expressly provided herein,
the following terms shall have the meanings set forth below:
(a) "Change in Control" shall mean a change in ownership or control
of a party effected through either of the following transactions:
(i) any person or related group of persons (other than such
party or a Controlled Affiliate of such party) directly or indirectly
acquires beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of securities possessing more
than fifty percent (50%) of the total combined voting power of such party's
outstanding securities; or
(ii) there is a change in the composition of such party's Board
of Directors over a period of thirty-six (36) consecutive months (or less)
such that a majority of the Board members (rounded up to the nearest whole
number) ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was approved
by the Board; or
(iii) there is a change in the composition of such party's
senior executive management such that both Gary B. Sabin and Richard B.
Muir cease to be employed by such party.
(b) "Controlled Affiliate" shall mean, with respect to a party, any
entity controlled by, controlling or under common control with such party.
<PAGE>
(c) "Notice" shall have the meaning set forth in Section 2(a)(i)
hereof.
(d) "REIT Opportunity" shall mean a direct or indirect opportunity
to invest in neighborhood and community shopping centers, power centers,
malls or other conventional retail properties (including without limitation
the opportunity to provide services related to such real estate and to invest
in entities that invest primarily in or have a substantial portion of their
assets in such real estate), but not including office and industrial
properties, single tenant retail properties, entertainment/retail/mixed-use
development projects, real estate mortgages, real estate derivatives, or
entities that invest primarily in or have a substantial portion of their
assets in such real estate assets. Excel shall have the right from time to
time to provide written notice to Legacy specifying certain criteria for a
REIT Opportunity in addition to the criteria specified above in this
definition of REIT Opportunity. Any such written notice from Excel may be
modified or canceled by written notice given by Excel at any time. This
definition of REIT Opportunity shall be modified as appropriate from time to
time in accordance with any such written notices sent by Excel.
(e) "Ten-Day Period" shall have the meaning set forth in Section
2(a)(i) hereof.
(f) "Withdrawal Date" shall have the meaning set forth in Section
2(a)(ii) hereof.
2. RIGHT OF FIRST OPPORTUNITY; NOTIFICATION RIGHT.
(a) RIGHT OF FIRST OPPORTUNITY.
(i) During the term of this Agreement, if Legacy develops a
REIT Opportunity, or if any REIT Opportunity otherwise becomes available to
Legacy, Legacy shall first offer such REIT Opportunity to Excel. The offer
shall be made by written notice (the "Notice") from Legacy to Excel, which
Notice shall contain a detailed description of the material terms and
conditions of the REIT Opportunity. Excel shall have ten days (the
"Ten-Day Period") from the date of receipt of the Notice to notify Legacy
in writing that it has accepted or rejected the REIT Opportunity. If Excel
does not respond by the end of the Ten-Day Period, Excel shall be deemed to
have rejected the REIT Opportunity. If Excel accepts a REIT Opportunity,
but subsequently decides not to pursue such opportunity or for any other
reason fails to consummate such opportunity, Excel shall immediately
provide written notice that it is no longer pursuing such REIT Opportunity
to Legacy.
(ii) If Excel rejects a REIT Opportunity, or accepts such REIT
Opportunity but thereafter provides, or is required by the provisions
hereof to provide, written notice to Legacy that it is no longer pursuing
such REIT Opportunity, Legacy shall, for a period of one year after the
Withdrawal Date (as hereinafter defined), be entitled to acquire the REIT
Opportunity (A) at a price, and on terms and conditions, that are not more
favorable to Legacy in any material respect than the price and terms and
conditions set forth in the Notice relating to such REIT Opportunity or (B)
if Excel, at any time after the Notice, negotiated a different price, terms
or conditions with the seller, then at a price, and on terms and
conditions, that are not more favorable to Legacy in any material respect
than the price and terms and conditions negotiated by Excel with the
seller. If Legacy does not enter into a binding agreement to acquire the
REIT Opportunity within such one-year period, or if the price and terms and
conditions are more favorable to Legacy in any material respect than the
price and terms and conditions set forth
2
<PAGE>
in the Notice (or, if applicable, than the price and terms and conditions
negotiated by Excel with the seller subsequent to the Notice), Legacy shall
again be required to comply with the procedures set forth above in Section
2(a)(i) if it desires to acquire such REIT Opportunity. The "Withdrawal
Date" means any one of the following dates, as applicable: (A) the date
that Excel notifies Legacy that it has rejected the REIT Opportunity, (B)
if Excel does not respond to Legacy regarding the REIT Opportunity, the
expiration date of the Ten-Day Period, or (C) if Excel accepts the REIT
Opportunity but subsequently ceases to pursue the opportunity, the earlier
of (1) thirty (30) days after the date on which Excel ceases to pursue the
REIT Opportunity or (2) the date of receipt by Legacy of written notice
from Excel that it is no longer pursuing the REIT Opportunity.
(b) NOTIFICATION RIGHT. In the event that either party hereto
develops or becomes aware of any investment opportunity during the term of this
Agreement (other than a REIT Opportunity), and such party is not interested in
pursuing such opportunity, or the opportunity is otherwise unavailable to such
party, such party shall immediately notify the other party of such opportunity
and provide to the other party a copy of all written information, and a
description of all material terms not set forth in writing, available to such
party concerning such opportunity.
3. GENERAL TERMS AND CONDITIONS FOR FIRST OPPORTUNITY/NOTIFICATION
RIGHTS.
(a) Unless waived or unless agreed to as part of an investment, each
party hereto shall bear its own expenses with respect to any opportunity to
which this Agreement is applicable, and each party agrees that it shall not be
entitled to any compensation from the other party with respect to any such
opportunity.
(b) A party shall not be required to comply with the right of first
opportunity and notification requirements set forth in this Agreement during any
period in which the other party or any Controlled Affiliate of such other party
is in default of this Agreement or any other agreement entered into by the
parties hereto or any of their Controlled Affiliates, if such default is
material and remains uncured for fifteen (15) days after receipt of notice
thereof.
(c) Any opportunity which is offered to and accepted by Excel under
this Agreement may be entered into by or on behalf of Excel or by any designee
which is a Controlled Affiliate of Excel. Any opportunity which is offered to
and accepted by Legacy under this Agreement may be entered into by or on behalf
of Legacy or by any designee which is a Controlled Affiliate of Legacy.
(d) All first opportunity and notification rights set forth in this
Agreement shall be subordinated to any seller consent and confidentiality
requirements; no party shall be required to comply with the first opportunity
and notification rights set forth in this Agreement to the extent such
compliance would violate any seller consent or confidentiality requirements.
(e) While it is the intention of the parties to align their
businesses in accordance with the terms of this Agreement, each party shall act
independently in its own best interests, and neither party shall be considered a
partner or agent of the other party or owe any fiduciary or other common law
duties to the other party.
3
<PAGE>
4. SPECIFIC PERFORMANCE. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party would likely have no adequate remedy at law if such party shall fail
to perform its obligations hereunder, and such party therefor confirms that the
other party's right to specific performance of the terms of this Agreement is
essential to protect the rights and interests of the other party. Accordingly,
in addition to any other remedies that a party hereto may have at law or in
equity, such party shall have the right to have all obligations, covenants,
agreements and other provisions of this Agreement specifically performed by the
other party hereto and the right to obtain a temporary restraining order or a
temporary or permanent injunction to secure specific performance and to prevent
a breach or threatened breach of this Agreement by the other party.
5. TERM. The term of this Agreement shall commence as of the date of
this Agreement and shall terminate upon the earlier of (a) the tenth (10th)
anniversary of the date of this Agreement, or (b) a Change in Control of either
party hereto. Notwithstanding the foregoing, a party hereto may terminate this
Agreement if the other party or any Controlled Affiliate of such other party is
in default of this Agreement or any other agreement entered into by the parties
hereto or any of their Controlled Affiliates, if such default is material and
remains uncured for fifteen (15) days after receipt of notice thereof.
6. MISCELLANEOUS.
(a) NOTICES. Notices shall be sent to the parties at the following
addresses:
Excel Realty Trust, Inc.
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attn: Gary B. Sabin
Facsimile: (619) 485-8530
Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attn: Richard B. Muir
Facsimile: (619) 485-8530
Notices may be hand-delivered or sent by certified mail, return
receipt requested, Federal Express or comparable overnight delivery service,
or facsimile. Notice shall be deemed received at the time delivered by hand,
on the fourth business day following deposit in the U.S. mail, and on the
first business day following deposit with Federal Express or other delivery
service, or transmission by facsimile. Any party to this Agreement may
change its address for notice by giving written notice to the other party at
the address and in accordance with the procedures provided above.
(b) REASONABLE AND NECESSARY RESTRICTIONS. Each of the parties
hereto hereby acknowledges and agrees that the restrictions, prohibitions and
other provisions of this Agreement are reasonable, fair and equitable in scope,
term and duration, and are necessary to protect the legitimate business
interests of the parties hereto. Each party covenants that it will not sue to
challenge the enforceability of this Agreement or raise any equitable defense to
its enforcement.
4
<PAGE>
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the
express written consent of each of the parties hereto.
(d) AMENDMENTS; WAIVERS. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the party or parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
(e) CHOICE OF LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of California,
without regard to the principles of choice of law thereof.
(f) SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
(g) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to specifically
in this Agreement or is executed by the parties after the date hereof; and (ii)
is not intended to confer upon any other person any rights or remedies
hereunder, and shall not be enforceable by any party not a signatory to this
Agreement.
(h) HEADINGS. The headings of the sections hereof are inserted for
convenience of reference only and are not intended to be a part of or affect the
meaning or interpretation of this Agreement or of any term or provision hereof.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by one of its duly authorized officers, as of the date
first written above.
EXCEL REALTY TRUST, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
EXCEL LEGACY CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
6
<PAGE>
DISTRIBUTION AGREEMENT
among
EXCEL REALTY TRUST, INC.
ERT DEVELOPMENT CORPORATION
and
EXCEL LEGACY CORPORATION
dated as of
____________, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01 General. . . . . . . . . . . . . . . . . . . . 2
Section 1.02 Terms Defined Elsewhere in Agreement . . . . . 11
ARTICLE II. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . 11
Section 2.01 Transfer of Assets to Legacy . . . . . . . . . 11
Section 2.02 Consideration. . . . . . . . . . . . . . . . . 12
Section 2.03 Transfers Not Effected Prior to the
Distribution . . . . . . . . . . . . . . . 13
Section 2.04 Cooperation Re: Assets. . . . . . . . . . . . 13
Section 2.05 No Representations or Warranties; Consents . . 14
Section 2.06 Conveyancing and Assumption Instruments. . . . 15
Section 2.07 Cash Management. . . . . . . . . . . . . . . . 16
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES . . . . . . . . . 17
Section 3.01 Assumption and Satisfaction of Liabilities . . 17
ARTICLE IV. THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.01 Cooperation Prior to the Distribution. . . . . 17
Section 4.02 Excel and EDV Board Action; Conditions
Precedent to the Distribution. . . . . . . 18
Section 4.03 The Distribution . . . . . . . . . . . . . . . 19
Section 4.04 Cash in Lieu of Fractional Shares. . . . . . . 19
ARTICLE V. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.01 Indemnification by Excel . . . . . . . . . . . 20
Section 5.02 Indemnification by EDV . . . . . . . . . . . . 20
Section 5.03 Indemnification by Legacy. . . . . . . . . . . 21
Section 5.04 Insurance Proceeds . . . . . . . . . . . . . . 21
Section 5.05 Procedure for Indemnification. . . . . . . . . 22
Section 5.06 Remedies Cumulative. . . . . . . . . . . . . . 26
Section 5.07 Survival of Indemnities. . . . . . . . . . . . 26
ARTICLE VI. CERTAIN ADDITIONAL MATTERS. . . . . . . . . . . . . . . . . . 26
Section 6.01 Legacy Board . . . . . . . . . . . . . . . . . 26
Section 6.02 Certificate and Bylaws . . . . . . . . . . . . 26
Section 6.03 Certain Post-Distribution Transactions.. . . . 26
Section 6.04 Notices by Excel.. . . . . . . . . . . . . . . 28
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES . . . . . . . . . . . . . 28
Section 7.01 Provision of Corporate Records . . . . . . . . 28
i
<PAGE>
PAGE
----
Section 7.02 Access to Information. . . . . . . . . . . . . 29
Section 7.03 Production of Witnesses. . . . . . . . . . . . 30
Section 7.04 Reimbursement. . . . . . . . . . . . . . . . . 30
Section 7.05 Retention of Records . . . . . . . . . . . . . 30
Section 7.06 Confidentiality. . . . . . . . . . . . . . . . 31
Section 7.07 Privileged Matters . . . . . . . . . . . . . . 31
ARTICLE VIII. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.01 Policies and Rights Included Within
the Legacy Assets. . . . . . . . . . . . . 35
Section 8.02 Post-Distribution Date Claims . . . . . . . . . 35
Section 8.03 Administration and Reserves . . . . . . . . . . 36
Section 8.04 Agreement for Waiver of Conflict and
Shared Defense . . . . . . . . . . . . . . 37
ARTICLE IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.01 Complete Agreement; Construction . . . . . . . 37
Section 9.02 Expenses . . . . . . . . . . . . . . . . . . . 38
Section 9.03 Governing Law. . . . . . . . . . . . . . . . . 38
Section 9.04 Notices. . . . . . . . . . . . . . . . . . . . 38
Section 9.05 Amendments . . . . . . . . . . . . . . . . . . 39
Section 9.06 Successors and Assigns . . . . . . . . . . . . 39
Section 9.07 Termination. . . . . . . . . . . . . . . . . . 39
Section 9.08 Subsidiaries . . . . . . . . . . . . . . . . . 39
Section 9.09 No Third-Party Beneficiaries . . . . . . . . . 39
Section 9.10 Titles and Headings. . . . . . . . . . . . . . 40
Section 9.11 Exhibits and Schedules . . . . . . . . . . . . 40
Section 9.12 Legal Enforceability . . . . . . . . . . . . . 40
Section 9.13 Arbitration of Disputes. . . . . . . . . . . . 40
EXHIBITS
Exhibit A: EDV Projected Balance Sheet
Exhibit B: Employee Benefits Allocation Agreement
Exhibit C: Excel Projected Balance Sheet
Exhibit D: Legacy Bylaws
Exhibit E: Legacy Certificate
Exhibit F: Legacy Employees
Exhibit G: Legacy Projected Balance Sheet
Exhibit H: Tax Sharing Agreement
Exhibit I: Transitional Services Agreement
Exhibit J: Asset Management and Disposition Agreement
ii
<PAGE>
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this ____
day of ____________, 1998 among Excel Realty Trust, Inc., a Maryland corporation
("Excel"), ERT Development Corporation, a Delaware corporation ("EDV"), and
Excel Legacy Corporation, a Delaware corporation and a wholly-owned subsidiary
of Excel ("Legacy").
RECITALS
WHEREAS, Excel and EDV, of which Excel owns 100% of the outstanding
preferred shares, (i) acquire, develop, own and manage certain real estate
assets, including neighborhood and community shopping centers and other retail
and commercial properties, and (ii) hold certain notes receivable;
WHEREAS, the Boards of Directors of Excel and EDV have each
determined that it is in the best interests of their respective stockholders
to transfer to Legacy certain real properties, notes receivable and related
assets and liabilities currently held by Excel and EDV (the "Asset
Transfers"), and thereafter to distribute all of the outstanding shares of
common stock, par value $.01 per share, of Legacy to the holders of Excel
common stock (the "Distribution");
WHEREAS, in connection with the Distribution, Excel, EDV and Legacy
have determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.01 GENERAL. As used in this Agreement, the following terms
shall have the following meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of Excel shall not include
Legacy or any other Person which would be an Affiliate of Excel by reason of
Excel's ownership of the capital stock of Legacy prior to the Distribution or
the fact that any officer or director of Legacy shall also serve as an officer
or director of Excel, (ii) the Affiliates of EDV shall not include Legacy or any
other Person which would be an Affiliate of EDV by reason of the fact that any
officer or director or Legacy shall also serve as an officer or director of EDV,
and (iii) the Affiliates of Legacy shall not include Excel, EDV or any other
Person which would be an Affiliate of Legacy by reason of Excel's ownership of
the capital stock of Legacy prior to the Distribution or the fact that any
officer or director of Legacy shall also serve as an officer or director of
Excel or EDV.
AGENT: The distribution agent appointed by Excel to distribute the
Legacy Common Stock pursuant to the Distribution.
2
<PAGE>
COMMISSION: The Securities and Exchange Commission.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION DATE: The date determined by the Excel Board as the date
on which the Distribution shall be effected, which Distribution Date is
contemplated by the Excel Board to occur on or about ____________, 1998.
DISTRIBUTION RECORD DATE: The date established by the Excel Board as
the date for taking a record of the Holders of Excel Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as ____________, 1998, subject to the fulfillment on or before
____________, 1998 of certain conditions to the Distribution as provided in
Section 4.02.
EDV BOARD: The Board of Directors of EDV.
EDV BOOKS AND RECORDS: The books and records (including computerized
records) of EDV and all books and records owned by Legacy which relate to the
EDV Retained Business or are necessary to operate the EDV Retained Business, or
are required by law to be retained by EDV, all files relating to any Action
pertaining to the EDV Retained Liabilities, original corporate minute books,
stock ledgers and certificates and corporate seals, and all licenses, leases,
agreements and filings, relating to EDV or the EDV Retained Business (but not
including the Legacy Books and Records, provided that EDV shall have access to,
and shall have the right to obtain duplicate copies of, the Legacy Books and
Records in accordance with the provisions of Article VII).
EDV COMMON STOCK: The common stock, par value $.0001 per share, of
EDV.
EDV NOTES: The notes receivable listed on Schedule 1.01(a).
3
<PAGE>
EDV PROJECTED BALANCE SHEET: The Projected Balance Sheet for EDV as
of ____________, 1997 attached hereto as Exhibit A.
EDV REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(b).
EDV RETAINED ASSETS: The assets of EDV other than the Legacy Assets
transferred to Legacy by EDV, including without limitation (i) assets relating
to the EDV Retained Business, determined on a basis consistent with the
determination of assets included on the EDV Projected Balance Sheet, (iii) all
of the assets expressly allocated to EDV under this Agreement or the Related
Agreements, and (iv) any other assets of EDV and its Affiliates relating to the
EDV Retained Business.
EDV RETAINED BUSINESS: The businesses conducted by EDV pursuant to or
utilizing the EDV Retained Assets, including without limitation, the
acquisition, development, ownership and management of real estate assets.
EDV RETAINED LIABILITIES: (i) All of the Liabilities arising out of
or in connection with the EDV Retained Assets or the EDV Retained Business,
determined on a basis consistent with the determination of the Liabilities of
EDV included on the EDV Projected Balance Sheet, (ii) all of the Liabilities of
EDV under, or to be retained or assumed by EDV pursuant to, this Agreement or
any of the Related Agreements, (iii) any Financing Obligations not constituting
Legacy Liabilities or Excel Retained Liabilities, (iv) all Liabilities for the
payment of outstanding drafts of EDV attributable to the EDV Retained Business
existing as of the Distribution Date, and (v) all other Liabilities of EDV not
constituting Legacy Liabilities.
EDV RETAINED POLICIES: All Policies, current or past, which are owned
or maintained by or on behalf of EDV (or any of its predecessors) which relate
to the EDV Retained Business but do not relate to the Legacy Business.
4
<PAGE>
EMPLOYEE BENEFITS ALLOCATION AGREEMENT: The Employee Benefits and
Other Employment Matters Allocation Agreement between Excel and Legacy, which
agreement shall be entered into on or prior to the Distribution Date in
substantially the form of Exhibit B attached hereto.
EXCEL BOARD: The Board of Directors of Excel.
EXCEL BOOKS AND RECORDS: The books and records (including
computerized records) of Excel and all books and records owned by Legacy which
relate to the Excel Retained Business or are necessary to operate the Excel
Retained Business, or are required by law to be retained by Excel, including
without limitation, all files relating to any Action pertaining to the Excel
Retained Liabilities, original corporate minute books, stock ledgers and
certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to Excel or the Excel Retained Business (but not including the
Legacy Books and Records, provided that Excel shall have access to, and shall
have the right to obtain duplicate copies of, the Legacy Books and Records in
accordance with the provisions of Article VII).
EXCEL COMMON STOCK: The common stock, par value $.01 per share, of
Excel.
EXCEL NOTES: The notes listed on Schedule 1.01(c).
EXCEL PROJECTED BALANCE SHEET: The Projected Consolidated Balance
Sheet for Excel as of ____________, 1997 attached hereto as Exhibit C.
EXCEL REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(d).
EXCEL RETAINED ASSETS: The assets of Excel other than the Legacy
Assets transferred to Legacy by Excel, including without limitation (i) assets
relating to the Excel Retained Business, determined on a basis consistent with
the determination of assets included on the Excel Projected Balance Sheet,
(iii) all of the assets expressly allocated to Excel under this Agreement or the
Related
5
<PAGE>
Agreements, and (iv) any other assets of Excel and its Affiliates relating to
the Excel Retained Business.
EXCEL RETAINED BUSINESS: The businesses conducted by Excel pursuant
to or utilizing the Excel Retained Assets, including without limitation, the
acquisition, development, ownership and management of real estate assets,
including neighborhood and community shopping centers and other retail and
commercial properties.
EXCEL RETAINED LIABILITIES: (i) All of the Liabilities arising out of
or in connection with the Excel Retained Assets or the Excel Retained Business,
determined on a basis consistent with the determination of the Liabilities of
Excel included on the Excel Projected Balance Sheet, (ii) all Liabilities
arising out of or in connection with any lawsuits relating to the Distribution
(other than those Liabilities relating to employee claims which shall be
allocated pursuant to the Employee Benefits Allocation Agreement), (iii) all of
the Liabilities of Excel under, or to be retained or assumed by Excel pursuant
to, this Agreement or any of the Related Agreements, (iv) any Financing
Obligations not constituting Legacy Liabilities or EDV Retained Liabilities,
(v) all Liabilities for the payment of outstanding drafts of Excel attributable
to the Excel Retained Business existing as of the Distribution Date, and
(vi) all other Liabilities of Excel not constituting Legacy Liabilities.
EXCEL RETAINED POLICIES: All Policies, current or past, which are
owned or maintained by or on behalf of Excel (or any of its predecessors) which
relate to the Excel Retained Business but do not relate to the Legacy Business.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, notes, debentures or similar instruments,
(iii) obligations under capitalized leases and deferred purchase arrangements,
(iv) reimbursement or other obligations relating to letters of
6
<PAGE>
credit or similar arrangements, and (v) obligations to guarantee, directly or
indirectly, any of the foregoing types of obligations on behalf of others.
HOLDERS: The holders of record of Excel Common Stock as of the
Distribution Record Date.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LEGACY BOARD: The Board of Directors of Legacy.
LEGACY BOOKS AND RECORDS: The books and records (including
computerized records) of Legacy and all books and records owned by Excel and EDV
which relate to the Legacy Business or are necessary to operate the Legacy
Business, including, without limitation, all such books and records relating to
Legacy Employees, all files relating to any Action being assumed by Legacy as
part of the Legacy Liabilities, original corporate minute books, stock ledgers
and certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to Legacy or the Legacy Business (but not including the Excel
Books and Records or the EDV Books and Records, provided that Legacy shall have
access to, and have the right to obtain duplicate copies of, the Excel Books and
Records and the EDV Books and Records in accordance with the provisions of
Article VII).
LEGACY BYLAWS: The Amended and Restated Bylaws of Legacy,
substantially in the form of Exhibit D, to be in effect at the Distribution
Date.
7
<PAGE>
LEGACY CERTIFICATE: The Amended and Restated Certificate of
Incorporation of Legacy, substantially in the form of Exhibit E, to be in effect
at the Distribution Date.
LEGACY COMMON STOCK: The common stock, par value $.01 per share,
of Legacy.
LEGACY EMPLOYEES: All of the Legacy employees at the time of the
Distribution, as identified on Exhibit F.
LEGACY LIABILITIES: (i) All of the Liabilities of Legacy under, or to
be retained or assumed by Legacy pursuant to, this Agreement or any of the
Related Agreements, including those set forth on Schedule 1.01(e), (ii) all
Liabilities for payment of outstanding drafts of Excel or EDV attributable to
the Legacy Business existing as of the Distribution Date, and (iii) all
Liabilities arising out of or in connection with any of the Legacy Assets or the
Legacy Business, determined on a basis consistent with the determination of the
Liabilities of Legacy included on the Legacy Projected Balance Sheet.
LEGACY POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of Excel or EDV or any of their Affiliates or
predecessors, which relate to the Legacy Business but do not relate to the
Retained Businesses, and which Policies are either maintained by Legacy or
assignable to Legacy.
LEGACY PROJECTED BALANCE SHEET: The Projected Balance Sheet for
Legacy as of ____________, 1997 attached hereto as Exhibit G.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
8
<PAGE>
NOTES: The Excel Notes and the EDV Notes, collectively.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the Legacy Business or the Retained Businesses as conducted prior to
the Distribution Date, including without limitation primary and excess policies,
comprehensive general liability policies, automobile and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
PRIVILEGED INFORMATION: All Information as to which Excel, EDV,
Legacy or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation (i) the Conveyancing and Assumption
Instruments, (ii) the Employee Benefits Allocation Agreement, (iii) the Tax
Sharing Agreement, and (iv) the Transitional Services Agreements.
RETAINED ASSETS: The Excel Retained Assets and the EDV Retained
Assets, collectively.
RETAINED BUSINESSES: The Excel Retained Business and the EDV Retained
Business, collectively.
9
<PAGE>
RETAINED LIABILITIES: The Excel Retained Liabilities and the EDV
Retained Liabilities, collectively.
RETAINED POLICIES: The Excel Retained Policies and the EDV Retained
Policies, collectively.
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of Excel, EDV or their predecessors which relate to
both the Retained Businesses and the Legacy Business, and all other Policies not
constituting Legacy Policies or Retained Policies.
SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has at
least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between Legacy and
Excel, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit H attached hereto.
TRANSITIONAL SERVICES AGREEMENTS: The agreements to be entered into
between Excel and Legacy on or prior to the Distribution Date, providing for the
furnishing of certain services on a transitional basis after the Distribution
Date, in substantially the forms of the following: the Transitional Services
Agreement attached hereto as Exhibit I and the Asset Management and Disposition
Agreement attached hereto as Exhibit J.
10
<PAGE>
Section 1.02 TERMS DEFINED ELSEWHERE IN AGREEMENT.
Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
Asset Transfers Recitals
Consents 4.01(c)
Distribution Recitals
EDV/Legacy Indemnifiable Losses 5.02
Excel Recitals
Excel/EDV Indemnitees 5.03
Excel/EDV Indemnifiable Losses 5.03
Excel/Legacy Indemnifiable Losses 5.01
Indemnifiable Losses 5.03
Indemnifying Party 5.04
Indemnitee 5.04
Information 7.02
Legacy Recitals
Legacy Assets 2.01(c)
Legacy Business Recitals
Legacy Indemnitees 5.01
Pending Action 5.05(h)
Third-Party Claim 5.05(a)
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01 TRANSFER OF ASSETS TO LEGACY.
(a) Prior to the Distribution Date, Excel shall take or cause to be
taken all actions necessary to cause the transfer, assignment, delivery and
conveyance to Legacy of all of Excel's right, title and interest in the
following assets:
(i) the Excel Real Estate Assets;
(ii) the Excel Notes;
(iii) the Legacy Books and Records;
(iv) all of the other assets to be assigned to Legacy by Excel
under this Agreement or the Related Agreements; and
11
<PAGE>
(v) all other assets relating to the Legacy Business held by
Excel, determined on a basis consistent with the determination of the assets
included on the Legacy Projected Balance Sheet.
(b) Prior to the Distribution Date, EDV shall take or cause to be
taken all actions necessary to cause the transfer, assignment, delivery and
conveyance to Legacy of all of EDV's right, title and interest in the following
assets:
(i) the EDV Real Estate Assets;
(ii) the EDV Notes;
(iii) the Legacy Books and Records;
(iv) all of the other assets to be assigned to Legacy by EDV
under this Agreement or the Related Agreements; and
(v) all other assets relating to the Legacy Business held by
EDV, determined on a basis consistent with the determination of the assets
included on the Legacy Projected Balance Sheet.
(c) The "Legacy Assets" shall consist of the assets transferred to
Legacy by Excel and EDV pursuant to this Section 2.1.
Section 2.02 CONSIDERATION FOR ASSET TRANSFERS. As consideration for
the foregoing asset transfers:
(a) On or prior to the Distribution Date, Excel shall receive from
Legacy (i) a sufficient number of shares of Legacy Common Stock to effect the
Distribution to the Holders of Excel Common Stock, and (ii) a promissory note
payable to Excel in the amount of $____ million.
(b) On or prior to the Distribution Date, EDV shall receive
evidence of the cancellation of certain indebtedness of EDV currently held by
Excel in the amount of $____ million.
12
<PAGE>
Section 2.03 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To
the extent that any transfers contemplated by this Article II shall not have
been fully effected on the Distribution Date, the parties shall cooperate to
effect such transfers as promptly as shall be practicable following the
Distribution Date. Nothing herein shall be deemed to require the transfer of
any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that
Excel, EDV and Legacy and their respective Subsidiaries and Affiliates shall
cooperate in seeking to obtain any necessary consents or approvals for the
transfer of all assets and Liabilities contemplated to be transferred pursuant
to this Article II. In the event that any such transfer of assets or
Liabilities has not been consummated effective as of the Distribution Date, the
party retaining such asset or Liability shall thereafter hold such asset in
trust for the use and benefit of the party entitled thereto (at the expense of
the party entitled thereto) and retain such Liability for the account of the
party by whom such Liability is to be assumed pursuant hereto, and take such
other actions as may be reasonably required in order to place the parties,
insofar as reasonably possible, in the same position as would have existed had
such asset been transferred or such Liability been assumed as contemplated
hereby. As and when any such asset or Liability becomes transferable, such
transfer and assumption shall be effected forthwith. The parties agree that,
except as set forth in this Section 2.03, as of the Distribution Date, each
party hereto shall be deemed to have acquired complete and sole beneficial
ownership over all of the assets, together with all rights, powers and
privileges incidental thereto, and shall be deemed to have assumed in accordance
with the terms of this Agreement all of the Liabilities, and all duties,
obligations and responsibilities incidental thereto, which such party is
entitled to acquire or required to assume pursuant to the terms of this
Agreement.
Section 2.04 COOPERATION RE: ASSETS. In the case that at any time
after the Distribution Date, Legacy reasonably determines that any of the Excel
Retained Assets or the EDV
13
<PAGE>
Retained Assets are essential for the conduct of the Legacy Business, or Excel
reasonably determines that any of the Legacy Assets are essential for the
conduct of the Excel Retained Business, or EDV reasonably determines that any of
the Legacy Assets are essential for the conduct of the EDV Retained Business,
and the nature of such assets makes it impracticable for Legacy, Excel or EDV,
as the case may be, to obtain substitute assets or to make alternative
arrangements on commercially reasonable terms to conduct their respective
businesses, and reasonable provisions for the use thereof are not already
included in the Related Agreements, then Legacy (with respect to the Legacy
Assets), Excel (with respect to the Excel Retained Assets) and EDV (with respect
to the EDV Retained Assets) shall cooperate to make such assets available to the
appropriate party on commercially reasonable terms, as may be reasonably
required for such party to maintain normal business operations (provided that
such assets shall be required to be made available only until such time as the
other party may reasonably obtain substitute assets or make alternative
arrangements on commercially reasonable terms to permit it to maintain normal
business operations).
Section 2.05 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the
parties hereto understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this Agreement or
otherwise, representing or warranting in any way (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any assets of such party or
(ii) as to the legal sufficiency to convey title to any asset transferred
pursuant to this Agreement or any Related Agreement, including, without
limitation, any Conveyancing and Assumption Instruments. It is also agreed and
understood that there are no warranties, express or implied, as to the
merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
14
<PAGE>
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use their good faith efforts to
obtain all consents and approvals, to enter into all reasonable amendatory
agreements and to make all filings and applications which may be reasonably
required for the consummation of the transactions contemplated by this
Agreement, and shall take all such further reasonable actions as shall be
reasonably necessary to preserve for each of Excel, EDV and Legacy, to the
greatest extent feasible, the economic and operational benefits of the
allocation of assets and liabilities provided for in this Agreement. In case at
any time after the Distribution Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary or
desirable action.
Section 2.06 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection
with the Asset Transfers and the assumptions of Liabilities contemplated by this
Agreement, the parties shall execute or cause to be executed by the appropriate
entities the Conveyancing and Assumption Instruments in such forms as the
parties shall reasonably agree, including the transfer of real property with
deeds as may be appropriate, and the assignment of trademarks and other
intellectual property rights. The transfer of capital stock shall be effected
by means of delivery of stock certificates and executed stock powers and
notation on the stock record books of the corporation or other legal entities
involved and, to the extent required by applicable law, by notation on public
registries.
15
<PAGE>
Section 2.07 CASH MANAGEMENT.
(a) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. Legacy shall
establish and maintain a separate cash management system and accounting records
with respect to the Legacy Business effective as of 12:01 a.m. on the day
following the Distribution Date; thereafter, (i) any payments by Excel or EDV on
behalf of Legacy in connection with the Legacy Business (including, without
limitation, any such payments in respect of Liabilities or other obligations of
Legacy under the Employee Benefits Allocation Agreement) shall be recorded in
the accounts of Legacy as a payable to Excel or EDV, as applicable; (ii) any
payments by Legacy on behalf of Excel or EDV in connection with the Excel
Retained Business or the EDV Retained Business, respectively (including, without
limitation, any such payments in respect of Liabilities or other obligations of
Excel or EDV under the Employee Benefits Allocation Agreement), shall be
recorded in the accounts of Excel or EDV, as applicable, as a payable to Legacy;
(iii) any cash payments received by Excel or EDV relating to the Legacy Business
or the Legacy Assets shall be recorded in the accounts of Excel or EDV, as
applicable, as a payable to Legacy; (iv) any cash payments received by Legacy
relating to the Excel Retained Business, the EDV Retained Business, the Excel
Retained Assets or the EDV Retained Assets shall be recorded in the accounts of
Legacy as a payable to Excel or EDV, as applicable; (v) Excel, EDV and Legacy
shall make adjustments for late deposits, checks returned for not sufficient
funds and other post-Distribution Date transactions as shall be reasonable under
the circumstances consistent with the purpose and intent of this Agreement; and
(vi) the net balance due to Excel, EDV or Legacy, as the case may be, in respect
of the aggregate amounts of clauses (i), (ii), (iii), (iv) and (v) shall be paid
by Excel, EDV or Legacy, as appropriate, as promptly as practicable. For
purposes of this Section 2.07(a), the parties contemplate that the Excel
Retained Business, the EDV Retained Business and the Legacy Business, including
but not limited to the administration of accounts payable and accounts
receivable, will be conducted in the normal course.
16
<PAGE>
(b) All transactions contemplated in this Section 2.07 shall be
subject to audit by the parties, and any dispute thereunder shall be resolved by
Coopers & Lybrand L.L.P. (or, if Coopers & Lybrand L.L.P. is not available, by
such other independent firm of certified public accountants mutually acceptable
to Excel, EDV and Legacy), whose decision shall be final and unappealable.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01 ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as
set forth in the Employee Benefits Allocation Agreement, the Tax Sharing
Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) Legacy shall assume, pay, perform and discharge in due
course all of the Legacy Liabilities, (b) Excel shall pay, perform and discharge
in due course all of the Excel Retained Liabilities, and (c) EDV shall pay,
perform and discharge in due course all of the EDV Retained Liabilities.
ARTICLE IV.
THE DISTRIBUTION
Section 4.01 COOPERATION PRIOR TO THE DISTRIBUTION.
(a) Excel, EDV and Legacy shall cooperate in preparing, filing with
the Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Employee Benefits Allocation Agreement.
(b) Excel, EDV and Legacy shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
transactions contemplated by this Agreement and the Related Agreements.
17
<PAGE>
(c) Excel, EDV and Legacy shall use all reasonable efforts to obtain
any third-party consents or approvals necessary or desirable in connection with
the transactions contemplated hereby ("Consents").
(d) Excel, EDV and Legacy will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements.
Section 4.02 EXCEL AND EDV BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION. The Excel Board and the EDV Board shall, in their discretion,
establish any appropriate procedures in connection with the Distribution. In no
event shall the Distribution occur unless the following conditions shall have
been satisfied:
(a) the transactions contemplated by Sections 2.01 and 2.02 shall
have been consummated in all material respects;
(b) the Legacy Board, comprised as contemplated by Section 6.01,
shall have been elected, and the Legacy Certificate and Legacy Bylaws shall have
been adopted and shall be in effect;
(c) Excel, EDV and Legacy shall have obtained all Consents, the
failure of which to obtain would, in the determination of each of the Excel
Board and the EDV Board, have a material adverse effect on Excel, EDV or Legacy;
(d) the Registration Statement on Form 10 under the Exchange Act
filed by Legacy shall have been declared effective by the Commission;
(e) the Legacy Common Stock shall have been approved for quotation
and trading on the OTC Bulletin Board subject to official notice of issuance;
and
(f) Excel, EDV and Legacy shall have entered into the Related
Agreements to which they are a party;
18
<PAGE>
PROVIDED, HOWEVER, that (i) any such condition may be waived by the concurrence
of the Excel Board and the EDV Board in their sole discretion, and (ii) the
satisfaction of such conditions shall not create any obligation on the part of
Excel, EDV or any other party hereto to effect the Distribution or in any way
limit Excel's and EDV's power of termination set forth in Section 9.07 or alter
the consequences of any such termination from those specified in such Section.
Section 4.03 THE DISTRIBUTION. On the Distribution Date, subject to
the conditions and rights of termination set forth in this Agreement, Excel
shall deliver to the Agent a share certificate representing all of the then
outstanding shares of Legacy Common Stock owned by Excel and shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, such Legacy Common Stock to the Holders. Legacy agrees to provide all
share certificates that the Agent shall require in order to effect the
Distribution.
Section 4.04 CASH IN LIEU OF FRACTIONAL SHARES. No certificate or
scrip representing fractional shares of Legacy Common Stock shall be issued as
part of the Distribution and in lieu thereof, each holder of Excel Common Stock
who would otherwise be entitled to receive a fractional share of Legacy Common
Stock will receive cash for such fractional share. Excel shall instruct the
Agent to determine the number of whole shares and fractional shares of Legacy
Common Stock allocable to each holder of record of Excel Common Stock as of the
Distribution Record Date. Excel shall instruct the Agent to aggregate all such
fractional shares into whole shares and sell the whole shares obtained thereby
in the open market as soon as practicable following the Distribution Date at
then prevailing prices on behalf of Holders who otherwise would be entitled to
receive fractional share interests and to distribute to each such Holder such
Holder's ratable share of the proceeds of such sale as soon as practicable after
the Distribution Date. Excel shall bear the costs of commissions incurred in
connection with such sales.
19
<PAGE>
ARTICLE V.
INDEMNIFICATION
Section 5.01 INDEMNIFICATION BY EXCEL. Except as otherwise expressly
set forth in a Related Agreement, Excel shall indemnify, defend and hold
harmless Legacy and its directors, officers, employees, agents and Affiliates
and each of the heirs, executors, successors and assigns of any of the foregoing
(the "Legacy Indemnitees") from and against the Excel Retained Liabilities and
any and all losses, Liabilities, damages, including, without limitation, the
costs and expenses of any and all Actions, threatened Actions, demands,
assessments, judgments, settlements and compromises relating to the Excel
Retained Liabilities and attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions (collectively, "Excel/Legacy Indemnifiable Losses"
and, individually, an "Excel/Legacy Indemnifiable Loss") of the Legacy
Indemnitees arising out of or due to the failure or alleged failure of Excel or
any of its Affiliates (i) prior to or after the Distribution Date to pay,
perform or otherwise discharge in due course any of the Excel Retained
Liabilities, or (ii) comply with the provisions of Section 6.04.
Section 5.02 INDEMNIFICATION BY EDV. Except as otherwise expressly
set forth in a Related Agreement, EDV shall indemnify, defend and hold harmless
the Legacy Indemnitees from and against the EDV Retained Liabilities and any and
all losses, Liabilities, damages, including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating to the EDV Retained Liabilities
and attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions (collectively, "EDV/Legacy Indemnifiable Losses" and, individually, an
"EDV/Legacy Indemnifiable Loss") of the Legacy Indemnitees arising out of or due
to the failure or alleged failure of EDV or any of its Affiliates (i) prior to
or after the
20
<PAGE>
Distribution Date to pay, perform or otherwise discharge in due course any of
the EDV Retained Liabilities, or (ii) comply with the provisions of
Section 6.04.
Section 5.03 INDEMNIFICATION BY LEGACY. Except as otherwise
expressly set forth in a Related Agreement, Legacy shall indemnify, defend and
hold harmless Excel and EDV and each of their respective directors, officers,
employees, agents and Affiliates and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Excel and EDV Indemnitees") from and
against the Legacy Liabilities and any and all losses, Liabilities, damages,
including, without limitation, the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and compromises
relating to the Legacy Liabilities and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions (collectively, "Excel/EDV Indemnifiable
Losses" and, individually, an "Excel/EDV Indemnifiable Loss") of the Excel and
EDV Indemnitees arising out of or due to the failure or alleged failure of
Legacy or any of its Affiliates (i) prior to or after the Distribution Date to
pay, perform or otherwise discharge in due course any of the Legacy Liabilities
or (ii) comply with the provisions of Section 6.04. The "Excel/Legacy
Indemnifiable Losses," the "EDV/Legacy Indemnifiable Losses," and the "Excel/EDV
Indemnifiable Losses" are collectively referred to as the "Indemnifiable
Losses."
Section 5.04 INSURANCE PROCEEDS. The amount which any party (an
"Indemnifying Party") is or may be required to pay to any other Person (an
"Indemnitee") pursuant to Section 5.01, Section 5.02 or Section 5.03 shall be
reduced (including, without limitation, retroactively) by any Insurance Proceeds
or other amounts actually recovered by or on behalf of such Indemnitee in
reduction of the related Indemnifiable Loss. If an Indemnitee shall have
received the payment required by this Agreement from an Indemnifying Party in
respect of an Indemnifiable Loss and shall subsequently actually receive
Insurance Proceeds, or other amounts in respect of such Indemnifiable
21
<PAGE>
Loss as specified above, then such Indemnitee shall pay to such Indemnifying
Party a sum equal to the amount of such Insurance Proceeds or other amounts
actually received.
Section 5.05 PROCEDURE FOR INDEMNIFICATION.
(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; PROVIDED that the failure of any Indemnitee to give notice as
required by this Section 5.05 shall not relieve the Indemnifying Party of its
obligations under this Article V, except to the extent that such Indemnifying
Party is prejudiced by such failure to give notice. Such notice shall describe
the Third-Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.05(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have
22
<PAGE>
elected not to assume responsibility for such Third-Party Claim), and such
Indemnitee shall cooperate in the defense or settlement or compromise of such
Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of
its election to assume responsibility for a Third-Party Claim, such Indemnifying
Party shall not be liable to such Indemnitee under this Article V for any legal
or other expenses (except expenses approved in advance by the Indemnifying
Party) subsequently incurred by such Indemnitee in connection with the defense
thereof; PROVIDED that if the defendants in any such claim include both the
Indemnifying Party and one or more Indemnitees and in such Indemnitees'
reasonable judgment a conflict of interest between such Indemnitees and such
Indemnifying Party exists in respect of such claim, such Indemnitees shall have
the right to employ separate counsel and in that event the reasonable fees and
expenses of such separate counsel (but not more than one separate counsel
reasonably satisfactory to the Indemnifying Party) shall be paid by such
Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01, 5.02 or 5.03, as the case may be) such Indemnitee may defend or
(subject to the following sentence) seek to compromise or settle such
Third-Party Claim. Notwithstanding the foregoing, an Indemnitee may not settle
or compromise any claim without prior written notice to the Indemnifying Party,
which shall have the option within ten days following the receipt of such notice
(i) to disapprove the settlement and assume all past and future responsibility
for the claim, including reimbursing the Indemnitee for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue to
refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnitee elects to proceed therewith,
or (iii) to approve the amount of the settlement, reserving the Indemnifying
Party's right to contest the Indemnitee's right to indemnity, or (iv) to approve
and agree to pay the settlement. In the event the Indemnifying Party
23
<PAGE>
makes no response to such written notice from the Indemnitee, the Indemnifying
Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any personnel and any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 5.05 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of
the offer to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) PLUS (ii) the lesser of (A) the amount of any
offer of settlement or compromise which such Indemnitee declined to accept and
(B) the actual out-of-pocket amount such Indemnitee is obligated to pay
subsequent to such date as a result of such Indemnitee's continuing to pursue
such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable
24
<PAGE>
Indemnifying Party. Such Indemnifying Party shall have a period of 15 days
after the receipt of such notice within which to respond thereto. If such
Indemnifying Party does not respond within such 15-day period, such Indemnifying
Party shall be deemed to have refused to accept responsibility to make payment.
If such Indemnifying Party does not respond within such 15-day period or rejects
such claim in whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party under applicable law or under this
Agreement.
(f) In addition to any adjustments required pursuant to Section 5.04,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(h) Notwithstanding anything else in this Section 5.05 to the
contrary, with respect to any Action pending at the time of the Distribution (a
"Pending Action") with respect to which an Indemnifying Party may be obligated
to provide indemnification pursuant to this Agreement, Excel, EDV or Legacy
shall, at the request of any other party, cause the employee(s) who were
handling the defense, compromise or settlement of such Pending Action prior to
the Distribution to continue to handle such defense, compromise or settlement
following the Distribution (subject to the
25
<PAGE>
last two sentences of subsection (b) above). If such employees are employed by
the Indemnitee, the Indemnitee shall keep the Indemnifying Party reasonably
informed of the progress of, and the Indemnifying Party shall cooperate in, such
defense, compromise or settlement.
Section 5.06 REMEDIES CUMULATIVE. The remedies provided in this
Article V shall be cumulative and shall not preclude assertion by any Indemnitee
of any other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 5.07 SURVIVAL OF INDEMNITIES. The obligations of each of
Excel, EDV and Legacy under this Article V shall survive the sale or other
transfer by it of any assets or businesses or the assignment by it of any
Liabilities with respect to any Indemnifiable Loss of the others related to such
assets, businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01 LEGACY BOARD. Excel, EDV and Legacy shall take all
actions which may be required to constitute, effective as of the Distribution
Date, the board of directors of Legacy with the persons listed on Schedule
1.01(f).
Section 6.02 CERTIFICATE AND BYLAWS. On or prior to the Distribution
Date, Legacy shall adopt the Legacy Certificate and the Legacy Bylaws, and shall
file the Legacy Certificate with the Secretary of State of the State of
Delaware.
Section 6.03 CERTAIN POST-DISTRIBUTION TRANSACTIONS.
(a) LEGACY. (i) Legacy shall comply with each representation
and statement made, or to be made, to any taxing authority in connection with
any ruling obtained, or to be obtained, by Excel, EDV and Legacy acting
together, from any such taxing authority with respect to any transaction
contemplated by this Agreement, and (ii) until the second anniversary of the
Distribution Date, Legacy shall not (A) make a material disposition, by means of
a sale or exchange
26
<PAGE>
of assets or capital stock, a distribution to stockholders or otherwise, of any
substantial portion of its assets, (B) repurchase or issue any Legacy capital
stock (other than stock issued pursuant to employee plans), or (C) cease the
active conduct of a material portion of its business independently, with its own
employees and without material change, unless, in each of cases (A), (B) and
(C), in the opinion of counsel to Legacy, which opinion shall be reasonably
satisfactory to Excel and EDV, or pursuant to a favorable supplemental ruling
letter reasonably satisfactory to Excel and EDV, such act or omission would not
adversely affect the tax consequences of the Distribution to Excel or EDV or the
stockholders of Excel or EDV, as set forth in any ruling issued by any taxing
authority.
(b) EXCEL. (i) Excel shall comply with each representation and
statement made, or to be made, to any taxing authority in connection with any
ruling obtained, or to be obtained, by Excel, EDV and Legacy acting together,
from any such taxing authority with respect to any transaction contemplated by
this Agreement, and (ii) until the second anniversary of the Distribution Date,
Excel shall not (A) make a material disposition, by means of a sale or exchange
of assets or capital stock, a distribution to stockholders or otherwise, of any
substantial portion of its assets (other than the Legacy Assets), (B) repurchase
or issue any capital stock of Excel (other than stock issued pursuant to
employee plans), or (C) cease the active conduct of a material portion of its
business independently, with its own employees and without material change,
unless, in each of cases (A), (B) and (C), in the opinion of counsel to Excel,
which opinion shall be reasonably satisfactory to Legacy, or pursuant to a
favorable supplemental ruling letter reasonably satisfactory to Legacy, such act
or omission would not adversely affect the tax consequences of the Distribution
to Legacy or the stockholders of Legacy, as set forth in any ruling issued by
any taxing authority.
(c) EDV. (i) EDV shall comply with each representation and statement
made, or to be made, to any taxing authority in connection with any ruling
obtained, or to be obtained, by Excel, EDV and Legacy acting together, from any
such taxing authority with respect to any
27
<PAGE>
transaction contemplated by this Agreement, and (ii) until the second
anniversary of the Distribution Date, EDV shall not (A) make a material
disposition, by means of a sale or exchange of assets or capital stock, a
distribution to stockholders or otherwise, of any substantial portion of its
assets (other than the Legacy Assets), (B) repurchase or issue any capital stock
of EDV (other than stock issued pursuant to employee plans), or (C) cease the
active conduct of a material portion of its business independently, with its own
employees and without material change, unless, in each of cases (A), (B) and
(C), in the opinion of counsel to EDV, which opinion shall be reasonably
satisfactory to Legacy, or pursuant to a favorable supplemental ruling letter
reasonably satisfactory to Legacy, such act or omission would not adversely
affect the tax consequences of the Distribution to Legacy or the stockholders of
Legacy, as set forth in any ruling issued by any taxing authority.
Section 6.04 NOTICES BY EXCEL. Excel shall provide notice of the
Distribution to all holders of its securities, or options, rights or warrants
convertible into its securities, as may be required by Excel's Certificate of
Incorporation or Bylaws or any agreement to which Excel is a party.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01 PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in a Related Agreement, each
of Excel and EDV shall arrange as soon as practicable following the Distribution
Date, to the extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Legacy's cost) to Legacy
of the Legacy Books and Records in its possession, except to the extent such
items are already in the possession of Legacy. The Legacy Books and Records
shall be the property of Legacy, but shall be available to Excel and EDV for
review and duplication
28
<PAGE>
until Excel or EDV shall notify Legacy in writing that such records are no
longer of use to Excel or EDV, respectively.
(b) Except as otherwise provided in a Related Agreement, Legacy shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at Excel's cost) to Excel of the Excel Books
and Records in its possession, except to the extent such items are already in
the possession of Excel. The Excel Books and Records shall be the property of
Excel, but shall be available to Legacy for review and duplication until Legacy
shall notify Excel in writing that such records are no longer of use to Legacy.
(c) Except as otherwise provided in a Related Agreement, Legacy shall
arrange as soon as practicable following the Distribution Date, to the extent
not previously delivered in connection with the transactions contemplated in
Article II, for the transportation (at EDV's cost) to EDV of the EDV Books and
Records in its possession, except to the extent such items are already in the
possession of EDV. The EDV Books and Records shall be the property of EDV, but
shall be available to Legacy for review and duplication until Legacy shall
notify EDV in writing that such records are no longer of use to Legacy.
Section 7.02 ACCESS TO INFORMATION. Except as otherwise provided in
a Related Agreement, from and after the Distribution Date, Excel and EDV shall
afford to Legacy and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information relating to pre-Distribution operations
(collectively, "Information") within Excel's or EDV's possession insofar as such
access is reasonably required by Legacy for the conduct of its business, subject
to appropriate restrictions for classified or Privileged Information.
Similarly,
29
<PAGE>
except as otherwise provided in a Related Agreement, Legacy shall afford to
Excel and EDV and their authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights during
normal business hours to Information within Legacy's possession, insofar as such
access is reasonably required by Excel or EDV for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Information may be requested under this Article VII for the legitimate business
purposes of either party, including, without limitation, audit, accounting,
claims (including claims for indemnification hereunder), litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
Section 7.03 PRODUCTION OF WITNESSES. At all times from and after
the Distribution Date, each of Excel, EDV and Legacy shall use reasonable
efforts to make available to the others, upon written request, its and its
Subsidiaries' officers, directors, employees and agents as witnesses to the
extent that such persons may reasonably be required in connection with any
Action.
Section 7.04 REIMBURSEMENT. Except to the extent otherwise
contemplated in any Related Agreement, a party providing Information or witness
services to another party under this Article VII shall be entitled to receive
from the recipient, upon the presentation of invoices therefor, payments of such
amounts, relating to supplies, disbursements and other out-of-pocket expenses
(at cost) and direct and indirect expenses of employees who are witnesses or
otherwise furnish assistance (at cost), as may be reasonably incurred in
providing such Information or witness services.
Section 7.05 RETENTION OF RECORDS. Except as otherwise required by
law or agreed to in a Related Agreement or otherwise in writing, each of Excel,
EDV and Legacy may destroy or otherwise dispose of any of the Information, which
is material Information and is not contained in other Information retained by
Excel, EDV or Legacy, as the case may be, at any time after the tenth
30
<PAGE>
anniversary of this Agreement, provided that, prior to such destruction or
disposal, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested at the expense of the party requesting such Information.
Section 7.06 CONFIDENTIALITY. Each of Excel, EDV, Legacy and their
respective Subsidiaries shall hold, and shall cause its consultants and advisors
to hold, in strict confidence, all Information concerning the other parties
hereto in its possession or furnished by the other parties or the other parties'
representatives pursuant to this Agreement (except to the extent that such
Information has been (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from other sources by such party), and each party
shall not release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, rating agencies, bankers and other
consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as reasonably advised by its counsel or by other
requirements of law, or unless such Information is reasonably required to be
disclosed in connection with (x) any litigation with any third-parties or
litigation between Excel, EDV and Legacy or any of them, (y) any contractual
agreement to which Excel, EDV or Legacy or any of them are currently parties, or
(z) in exercise of any party's rights hereunder.
Section 7.07 PRIVILEGED MATTERS. Excel, EDV and Legacy recognize
that legal and other professional services that have been and will be provided
prior to the Distribution Date have been and will be rendered for the benefit of
each of Excel, EDV and Legacy and that each of Excel,
31
<PAGE>
EDV and Legacy should be deemed to be the client for the purposes of asserting
all Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:
(a) Excel shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Excel Retained Business, whether or not the Privileged
Information is in the possession of or under the control of Excel, EDV or
Legacy. Excel shall also be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information that
relates solely to the subject matter of any claims constituting Excel Retained
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by Excel, whether or not the
Privileged Information is in the possession of or under the control of Excel,
EDV or Legacy.
(b) EDV shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the EDV Retained Business, whether or not the Privileged Information
is in the possession of or under the control of Excel, EDV or Legacy. EDV shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information that relates solely to the
subject matter of any claims constituting EDV Retained Liabilities, now pending
or which may be asserted in the future, in any lawsuits or other proceedings
initiated against or by EDV, whether or not the Privileged Information is in the
possession of or under the control of Excel, EDV or Legacy.
(c) Legacy shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Legacy Business, whether or not the Privileged Information
is in the possession of or under the control of Excel, EDV or Legacy. Legacy
shall also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information which relates solely to the
subject matter of any claims constituting Legacy Liabilities, now pending or
which may be asserted in the future, in any
32
<PAGE>
lawsuits or other proceedings initiated against or by Legacy, whether or not the
Privileged Information is in the possession of Legacy or under the control of
Excel, EDV or Legacy.
(d) Excel, EDV and Legacy agree that they shall have a shared
Privilege, with equal right to assert or waive, subject to the restrictions in
this Section 7.07, with respect to all Privileges not allocated pursuant to the
terms of Sections 7.07(a), (b) and (c). All Privileges relating to any claims,
proceedings, litigation, disputes or other matters which involve each of Excel,
EDV and Legacy in respect of which Excel, EDV and Legacy retain any
responsibility or liability under this Agreement shall be subject to a shared
Privilege.
(e) No party may waive any Privilege which could be asserted under
any applicable law, and in which any other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(f) below. Consent shall be in writing, or shall be deemed to be granted unless
written objection is made within 20 days after notice upon the other party
requesting such consent.
(f) In the event of any litigation or dispute between Excel, EDV and
Legacy, or any of them, any party may waive a Privilege in which any other party
has a shared Privilege, without obtaining the consent of the other party,
provided that such waiver of a shared Privilege shall be effective only as to
the use of Information with respect to the litigation or dispute between such
parties, and shall not operate as a waiver of the shared Privilege with respect
to third-parties.
(g) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of any party, each
party agrees that it shall negotiate in good faith, shall endeavor to minimize
any prejudice to the rights of the other parties, and shall not unreasonably
withhold consent to any request for waiver by the other parties. Each party
specifically
33
<PAGE>
agrees that it will not withhold consent to waiver for any purpose except to
protect its own legitimate interests.
(h) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which any other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(i) The transfer of the Legacy Books and Records, the Excel Books and
Records and the EDV Books and Records and other Information between Excel, EDV,
Legacy and their respective Subsidiaries is made in reliance on the agreement of
Excel, EDV and Legacy, as set forth in Sections 7.06 and 7.07, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 7.01 and 7.02, the agreement to provide witnesses and individuals
pursuant to Section 7.03 and the transfer of Privileged Information between
Excel, EDV, Legacy and their respective Subsidiaries pursuant to this Agreement
shall not be deemed a waiver of any Privilege that has been or may be asserted
under this Agreement or otherwise.
34
<PAGE>
ARTICLE VIII.
INSURANCE
Section 8.01 POLICIES AND RIGHTS INCLUDED WITHIN THE LEGACY ASSETS.
Without limiting the generality of the definition of the Legacy Assets set forth
in Section 2.01 or the effect of Section 2.01, the Legacy Assets shall include
(a) any and all rights of an insured party under each of the Shared Policies,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer, with respect to all injuries, losses, liabilities,
damages and expenses incurred or claimed to have been incurred on or prior to
the Distribution Date by any party in or in connection with the conduct of the
Legacy Business or, to the extent any claim is made against Legacy or any of its
Subsidiaries, the Retained Businesses, and which injuries, losses, liabilities,
damages and expenses may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies; PROVIDED, HOWEVER, that nothing in
this Section 8.01 shall be deemed to constitute (or to reflect) the assignment
of the Shared Policies, or any of them, to Legacy, and (b) the Legacy Policies.
Section 8.02 POST-DISTRIBUTION DATE CLAIMS. If, subsequent to the
Distribution Date, any person, corporation, firm or entity shall assert a claim
against Legacy with respect to any injury, loss, liability, damage or expense
incurred or claimed to have been incurred on or prior to the Distribution Date
in or in connection with the Distribution or the conduct of the Legacy Business
or, to the extent any claim is made against Legacy or any of its Subsidiaries,
the Retained Businesses, and which injury, loss, liability, damage or expense
may arise out of insured or insurable occurrences or events under one or more of
the Shared Policies, Excel and/or EDV, as appropriate, shall at the time such
claim is asserted be deemed to assign, without need of further documentation, to
Legacy any and all rights of an insured party under the applicable Shared Policy
with respect to such asserted claim, specifically including rights of indemnity
and the right to be defended by or at the expense of
35
<PAGE>
the insurer; PROVIDED, HOWEVER, that nothing in this Section 8.02 shall be
deemed to constitute (or to reflect) the assignment of the Shared Policies, or
any of them, to Legacy.
Section 8.03 ADMINISTRATION AND RESERVES.
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) Legacy shall be entitled to any reserves established by
Excel, EDV or any of their Subsidiaries, or the benefit of reserves held by
any insurance carrier, with respect to the Legacy Liabilities;
(ii) Excel shall be entitled to any reserves established by
Excel or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Excel Retained Liabilities; and
(iii) EDV shall be entitled to any reserves established by EDV
or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the EDV Retained Liabilities.
(b) INSURANCE PREMIUMS. Legacy shall have the right but not the
obligation to pay the premiums, to the extent that Excel and EDV do not pay
premiums with respect to Retained Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies and the Legacy Policies, as required
under the terms and conditions of the respective Policies, whereupon Excel and
EDV shall forthwith reimburse Legacy for that portion of such premiums paid by
Legacy as are attributable to the Retained Liabilities. Each of Excel and EDV
shall provide continued coverage under its director and officer liability
insurance policy, if any, for a period of not less than three years for acts
which took place or were alleged to have taken place prior to the Distribution
Date covering persons who were directors and officers of Excel or EDV,
respectively, prior to the Distribution
36
<PAGE>
Date. Fifty percent of the additional premiums, if any, for such coverage shall
be reimbursed by Legacy within 15 days of the Distribution Date.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
Legacy with respect to the Legacy Liabilities, to Excel with respect to the
Excel Retained Liabilities and to EDV with respect to the EDV Retained
Liabilities. Payment of the allocable portions of indemnity costs of Insurance
Proceeds resulting from the liability policies will be made to the appropriate
party upon receipt from the insurance carrier. In the event that the aggregate
limits on any Shared Policies are exceeded, the parties agree to provide an
equitable allocation of Insurance Proceeds received after the Distribution Date
based upon their respective bona fide claims. The parties agree to use their
best efforts to cooperate with respect to insurance matters.
Section 8.04 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In
the event that Insured Claims of Excel, EDV and Legacy, or any two of them,
exist relating to the same occurrence, such parties agree to jointly defend and
to waive any conflict of interest necessary to the conduct of that joint
defense. Nothing in this Section 8.04 shall be construed to limit or otherwise
alter in any way the indemnity obligations of the parties to this Agreement,
including those created by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement,
including the Schedules and Exhibits and the Related Agreements and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter. Notwithstanding any other provisions in
this Agreement to the
37
<PAGE>
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of the Related Agreements,
the Related Agreements shall control.
Section 9.02 EXPENSES. Except as otherwise set forth in this
Agreement or any Related Agreement, all costs and expenses in connection with
the preparation, execution, delivery and implementation of this Agreement, the
Distribution and with the consummation of the transactions contemplated by this
Agreement shall be charged to the party for whose benefit the expenses are
incurred, with any expenses which cannot be allocated on such basis to be split
equally between the parties.
Section 9.03 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the principles of conflicts of laws thereof.
Section 9.04 NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To Legacy:
Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attention: Gary B. Sabin
To Excel:
Excel Realty Trust, Inc.
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attention: Gary B. Sabin
38
<PAGE>
To EDV:
ERT Development Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attention: Gary B. Sabin
Section 9.05 AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
Section 9.06 SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns. The parties acknowledge
and agree that any party into which Excel, EDV or Legacy merges or which
acquires all or substantially all of Excel's, EDV's or Legacy's assets in a sale
transaction would constitute a permitted assign for purposes of this Section
9.06.
Section 9.07 TERMINATION. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Excel Board and the EDV Board without the approval of
Legacy or of the stockholders of Excel or EDV. In the event of such
termination, no party shall have any liability to any other party pursuant to
this Agreement.
Section 9.08 SUBSIDIARIES. Each of the parties hereto shall cause to
be performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such party
which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
Section 9.09 NO THIRD-PARTY BENEFICIARIES. Except for the provisions
of Article V relating to Indemnities, this Agreement is solely for the benefit
of the parties hereto and their respective Subsidiaries and Affiliates and
should not be deemed to confer upon third-parties any
39
<PAGE>
remedy, claim, Liability, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
Section 9.10 TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 9.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
Section 9.12 LEGAL ENFORCEABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 9.13 ARBITRATION OF DISPUTES.
(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets constitute Legacy Assets or Retained Assets or
whether specific Liabilities constitute Legacy Liabilities or Retained
Liabilities, shall be settled by arbitration in accordance with the Rules of the
American Arbitration Association then in effect, as modified by this Section
9.13 or by the further agreement of the parties.
(b) Such arbitration shall be conducted in San Diego, California.
40
<PAGE>
(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall have
the authority to award to the prevailing party its attorneys' fees and costs
incurred in such arbitration. The arbitrators shall not, under any
circumstances, have any authority to award punitive, exemplary or similar
damages, and may not, in any event, make any ruling, finding or award that does
not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 9.13 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain any other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.13. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.13 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.13.
(e) The parties hereby consent to the jurisdiction of the federal
courts located in San Diego, California for all purposes under this Agreement.
(f) Neither the parties nor the arbitrators may disclose the
existence or results of any arbitration under this Agreement or any evidence
presented during the course of the arbitration without the prior written consent
of the parties, except as required to fulfill applicable disclosure and
reporting obligations, or as otherwise required by law.
(g) Except as provided in Section 9.13(c), each party shall bear its
own costs incurred in the arbitration. If any party refuses to submit to
arbitration any dispute required to be submitted to arbitration pursuant to this
Section 9.13, and instead commences any other proceeding, including, without
limitation, litigation, then the party who seeks enforcement of the obligation
to arbitrate shall be entitled to its attorneys' fees and costs incurred in any
such proceeding.
41
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
EXCEL REALTY TRUST, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
ERT DEVELOPMENT CORPORATION
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
EXCEL LEGACY CORPORATION
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
42
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
None.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Information Statement of Excel Legacy
Corporation on Form 10 of our reports dated November 24, 1997 on our audits of
the balance sheet of Excel Legacy Corporation as of November 17, 1997 and the
financial statements of Excel Legacy Corporation Asset Group as of July 31, 1997
and 1996, and for the years ended July 31, 1997, 1996, and 1995.
COOPERS & LYBRAND, L.L.P.
San Diego, California
December 10, 1997
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF LATHAM & WATKINS]
December 12, 1997
We hereby consent to the use of our name in the Registration Statement
on Form 10 filed by Excel Legacy Corporation, a Delaware corporation (the
"Company"), with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, for the registration of shares of the
Company's common stock, par value $.01 per share, under the caption "THE
DISTRIBUTION--Material Federal Income Tax Consequences of the Distribution."
Very truly yours,
/s/ LATHAM & WATKINS
--------------------------------
Latham & Watkins
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> NOV-17-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 999
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
