<PAGE>
As filed with the Securities and Exchange Commission on March 26, 1998.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): MARCH 24, 1998
EXCEL LEGACY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-2350 33-0781747
(State or Other Jurisdiction (Commission File Number) (I.R.S Employer
of Incorporation) Identification No.)
16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CALIFORNIA 92127
(Address of Principal Executive Offices) (Zip Code)
(619) 485-9400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 134
Exhibit Index on Page 4
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ITEM 5. OTHER EVENTS.
On March 24, 1998, the Registration Statement on Form 10 (File No.
0-23503) (the "Registration Statement") with respect to the previously
announced intention of Excel Realty Trust, Inc., a Maryland corporation
("Excel"), to spin-off Excel Legacy Corporation ("Legacy"), a newly-formed
Delaware corporation which is currently a wholly-owned subsidiary of Excel,
was declared effective by the Securities and Exchange Commission, and Excel
established March 31, 1998 as the distribution date upon which the shares of
Legacy common stock will be distributed to stockholders of Excel in the
spin-off.
The spin-off will be effected through a dividend distribution to
Excel stockholders of all Legacy common stock held by Excel. The distribution
will consist of one share of Legacy common stock for each share of Excel
common stock held on the record date (March 2, 1998). Upon completion of the
spin-off, Legacy will cease to be a wholly-owned subsidiary of Excel and will
operate as an independent public company. Excel stockholders will not have
to pay for any shares of Legacy common stock received in the distribution or
take any action to receive such shares.
The above matters are more fully described in an information
statement contained in the Registration Statement, which is being distributed
to Excel stockholders and which is attached as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
99.1 Information Statement, dated March 24, 1998, relating to the
spin-off of Excel Legacy Corporation.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 26, 1998 EXCEL LEGACY CORPORATION
By: /s/ Gary B. Sabin
-------------------------------------
Gary B. Sabin
President and Chief Executive Officer
3
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EXHIBIT INDEX
DESCRIPTION
99.1 Information Statement, dated March 24, 1998 relating to the
spin-off of Excel Legacy Corporation.
4
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March 24, 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 March 2, 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 March 31, 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 March 2, 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 March 31, 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 "XLCY." 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 MARCH 24, 1998.
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INFORMATION STATEMENT
TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... 1
SUMMARY OF INFORMATION..................................................................................... 2
RISK FACTORS............................................................................................... 11
Recently Formed Entity; Lack of Independent Operating History............................................ 11
Possible Conflicts with Excel After the Distribution..................................................... 11
Failure of Excel to Qualify as a REIT Would Allow Excel to Compete with the Company...................... 12
Reliance on Major Tenants................................................................................ 12
Control by Executive Officers and Directors.............................................................. 12
Tax Consequences of the Distribution..................................................................... 13
Absence of Future Funding Commitments; Need for Future Capital........................................... 13
Dilution................................................................................................. 14
Absence of Prior Trading Market for Company Common Stock; Potential Volatility........................... 14
Shares Eligible for Future Sale.......................................................................... 14
Potential Adverse Effect on Excel Common Stock of Distribution........................................... 15
Difficulty of Locating Suitable Investments; Competition................................................. 15
Acquisition, Development, Construction and Renovation Activities......................................... 15
Acquired Properties May Fail to Perform as Expected and Capital Expenditures May Exceed Estimates...... 15
Uncertainty of Cash Flow from Development, Construction and Renovation Activities...................... 15
Operating Risks.......................................................................................... 16
Potential Increases in Operating Costs................................................................. 16
Dependence on Real Estate Conditions................................................................... 16
Fixed Costs Do Not Vary with Revenues.................................................................. 16
Dependence on Rental Income from Real Property........................................................... 16
Potential Adverse Consequences of Debt Financing......................................................... 17
Use of Leverage Could Adversely Affect the Company..................................................... 17
Inability to Repay or Refinance Indebtedness at Maturity; Foreclosures................................. 17
Rising Interest Rates Could Increase the Company's Interest Expense.................................... 17
Restrictive Covenants Could Adversely Affect the Company's Borrowings.................................. 17
No Limitation on Debt.................................................................................. 17
Equity Investments in and with Third Parties............................................................. 18
Dependence on Third Parties............................................................................ 18
Potential Lack of Control of Management................................................................ 18
Potential Conflicts and Increased Bankruptcy, Liability and Other Risks................................ 18
Illiquidity of Real Estate Investments................................................................... 18
Disadvantages of Investments in Debt Instruments......................................................... 18
Dependence on Borrowers to Preserve Value of Collateral; Possibility of Nonpayment..................... 18
Unrated Debt Instruments............................................................................... 18
Limited Remedies Upon Default of Mortgage Loans.......................................................... 19
Disadvantages of Investments in Commercial Mortgage-Backed Securities.................................... 19
Investments in Commercial Mortgage-Backed Securities Subject to Real Estate Risks Applicable to
Underlying Properties................................................................................. 19
Credit Support for Commercial Mortgage-Backed Securities May Prove Inadequate.......................... 19
Subordinated Securities May Not Be Repaid Upon Default................................................. 19
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Limitations on Remedies Upon Default..................................................................... 20
Third-Party Bankruptcy Risks............................................................................. 20
Costs of Compliance with the Investment Company Act...................................................... 20
Uninsured Losses......................................................................................... 20
Potential Environmental Liability Related to the Properties.............................................. 21
Changes in Policies Without Stockholder Approval......................................................... 21
Hedging Policies/Risks................................................................................... 21
Dividend Policy.......................................................................................... 21
Certain Anti-Takeover Features Affecting a Change in Control of the Company.............................. 22
Dependence on Key Personnel.............................................................................. 22
Costs of Compliance with the Americans with Disabilities Act and Similar Laws............................ 22
Noncompliance with Other Laws............................................................................ 22
THE DISTRIBUTION........................................................................................... 23
Background and Reasons for the Distribution.............................................................. 23
Distribution Agent....................................................................................... 24
Manner of Effecting the Distribution..................................................................... 24
Results of the Distribution.............................................................................. 25
Material Federal Income Tax Consequences of the Distribution............................................. 25
Quotation and Trading of Company Common Stock; Dividend Policy........................................... 28
Conditions; Termination.................................................................................. 29
Reasons for Furnishing the Information Statement......................................................... 29
RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE DISTRIBUTION............................................... 30
Distribution Agreement................................................................................... 30
Administrative Services Agreement........................................................................ 30
Tax Sharing Agreement.................................................................................... 31
Transitional Services Agreement.......................................................................... 31
Intercompany Agreement................................................................................... 31
Policies and Procedures for Addressing Conflicts......................................................... 32
REGULATORY APPROVALS....................................................................................... 33
PRO FORMA COMBINED CAPITALIZATION.......................................................................... 34
EXCEL LEGACY CORPORATION UNAUDITED PRO FORMA FINANCIAL INFORMATION......................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 39
Nature of Business....................................................................................... 39
Liquidity................................................................................................ 39
Results of Operations.................................................................................... 39
Capital Resources........................................................................................ 41
THE COMPANY................................................................................................ 42
General.................................................................................................. 42
Business Strategy........................................................................................ 44
Intercompany Agreement................................................................................... 47
Initial Capital and Financing............................................................................ 47
BUSINESS AND PROPERTIES.................................................................................... 48
Properties............................................................................................... 48
Notes Receivable......................................................................................... 57
Principal Tenants........................................................................................ 59
Environmental Matters.................................................................................... 60
Employees................................................................................................ 60
Corporate Headquarters................................................................................... 60
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Legal Proceedings........................................................................................ 60
MANAGEMENT................................................................................................. 61
Board of Directors....................................................................................... 61
Committees of the Board of Directors..................................................................... 62
Compensation of the Board of Directors................................................................... 62
Executive Officers....................................................................................... 62
Executive Officer Compensation........................................................................... 63
Legacy Stock Option Plan................................................................................. 64
Indemnification Agreements............................................................................... 66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................. 68
Interests Relating to Excel.............................................................................. 68
Private Placements....................................................................................... 68
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................................................... 69
LEGACY CERTIFICATE OF INCORPORATION AND BYLAWS............................................................. 71
Authorized Stock......................................................................................... 71
Directors................................................................................................ 71
Liability for Monetary Damages........................................................................... 71
Anti-Takeover Effect of Authorized But Undesignated Preferred Stock...................................... 71
Indemnification and Advancement of Expenses.............................................................. 72
Amendment of the Company Certificate and Bylaws.......................................................... 73
Transactions With Interested Officers or Directors....................................................... 73
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK................................................................. 74
General.................................................................................................. 74
Common Stock............................................................................................. 74
Series A Preferred Stock................................................................................. 75
Warrants................................................................................................. 77
Registration Rights...................................................................................... 77
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY..................................... 78
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
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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
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SUMMARY OF 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
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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"). The Company
currently owns three properties, two of which are single
tenant properties that represent an aggregate of 220,000
square feet of gross leasable area ("GLA") and
approximately $4.9 million in annual base rental income.
The remaining property is a parcel of vacant land
currently being redeveloped by the Company. See "THE
COMPANY" and "BUSINESS AND PROPERTIES."
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 23,160,757 shares of Excel Common Stock
outstanding on the Record Date, approximately 23,160,757
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) 16,425,000
shares of Series A Cumulative Convertible Preferred
Stock of the Company ("Series A Preferred Stock") in a
private placement to certain qualified institutional
buyers ("QIBs") (as such term is defined in Rule 144A
under the Securities Act of 1933, as amended (the
"Securities Act")), which shares will be convertible, on
a one-for-one basis, by the holders thereof at any time
and by the Company under certain circumstances into
shares of Company Common Stock. The Company has agreed
to grant warrants to purchase shares of Series A
Preferred Stock to two QIBs in connection with their
purchase of Series A Preferred Stock described above.
One of the QIBs will be granted warrants to purchase
4,256,000 shares of Series A Preferred Stock, which will
be exercisable at any time for a period of up to two
years following the date of issuance. The other QIB will
be granted warrants to purchase 241,000 shares of Series
A Preferred Stock, which will be exercisable at any time
until the earlier of (i) seven days following the date
of issuance or
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(ii) April 30, 1998. The Company also 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). See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
Record Date....................... March 2, 1998 (5:00 p.m. Eastern Standard Time).
Distribution Date................. March 31, 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 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"). 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. 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
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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 enable investors who own both
Excel Common Stock and Company Common Stock to
participate in the benefits of the REIT operations of
Excel and the non-REIT operations of the Company. See
"THE DISTRIBUTION--Background and Reasons for the
Distribution."
Eleven of the properties to be transferred to the
Company by Excel and EDV are single tenant properties
subject to long-term leases. Although ownership of these
properties by Excel is consistent with the limitations
on REITs described above, the management of Excel
believes that optimal yields on investments in such
properties can only be obtained when the ratio of debt
to equity exceeds 80.0% of a given property's fair
market value. As described above, such leverage ratios
far exceed the expectations for a REIT. Thus, Excel
believes that it is in the best interests of Excel and
its stockholders to transfer these properties to the
Company.
The remaining properties to be transferred to the
Company by Excel and EDV are those that will involve
long-term restructuring or redevelopment activities or
are currently undeveloped (i.e., raw land). Because
these properties have no or limited cash flow as a
result of required rehabilitation or development or are
not being substantially leased, substantial value
appreciation from these investments is not immediately
realized. As discussed above, the mandatory distribution
requirements applicable to REITs make ownership of such
properties less desirable for a REIT because of their
limited cash flow. Thus, Excel believes that such
properties represent high return opportunities that the
Company will be better positioned to pursue. See
"BUSINESS AND PROPERTIES--Properties."
The Company is also receiving four notes receivable from
EDV. The management of Excel believes that the projects
underlying these notes receivable are consistent with
the Company's strategy to obtain long-term, mixed-use
development projects which may take three to five years
to fully develop. In addition, these projects will not
generate short-term cash flow and are therefore not as
attractive to Excel because of the mandatory
distribution requirements applicable to REITs. See
"BUSINESS AND PROPERTIES--Notes Receivable."
The Company and Excel will enter into the Intercompany
Agreement (as defined below) on or prior to the
Distribution Date to provide each other with rights to
participate in certain transactions. 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."
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Assets to be Transferred to the
Company......................... Prior to the Distribution, Excel and EDV will transfer
to the Company a total of 16 properties and four notes
receivable. Eleven of the properties to be transferred
to the Company are single tenant properties and
represent an aggregate of 984,966 square feet of GLA and
approximately $5.0 million in annual base rental income.
Each of these properties is subject to a long-term,
triple net lease, the earliest of which expires in 2002.
The remaining five properties to be transferred to the
Company consist of (i) a leasehold interest in a parcel
of vacant land containing approximately 0.5 acres
currently being redeveloped, (ii) a parcel of vacant
land containing approximately 3.6 acres currently being
redeveloped, (iii) a parcel of vacant land containing
approximately 27,000 square feet currently being
redeveloped, (iv) an office building containing 64,262
square feet of GLA with an annual base rental income of
approximately $1.1 million and (v) an enclosed shopping
mall containing 520,481 square feet of GLA currently
being redeveloped. The aggregate principal amount of the
notes receivable to be transferred to the Company totals
approximately $22.1 million. As of the Distribution
Date, AMC Multi-Cinema, Inc. ("AMC"), Wal-Mart Stores,
Inc. ("Wal-Mart") and Lowe's Home Centers, Inc.
("Lowe's") will be the Company's largest tenants,
representing approximately 45.2%, 34.2% and 11.1% of the
Company's total revenue as of such date, respectively.
See "RISK FACTORS-- Reliance on Major Tenants" and
"BUSINESS AND PROPERTIES."
Business Strategy of the The Company intends to pursue a variety of real
Company......................... estate-related activities, including (i) 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,
(ii) acquiring single tenant properties that can be
highly leveraged with fixed rate debt that amortizes
over the term of the property's tenant leases, (iii)
purchasing portfolios of properties on a wholesale
basis, then selling the properties individually on a
retail basis, (iv) investing in properties requiring
significant restructuring or redevelopment in order to
create substantial value, such as changing the use,
tenant mix or focus of a property, 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. See
"THE COMPANY--Business Strategy."
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
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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. 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........................... Excel will recognize taxable gain as a result of the
transfer of certain properties and assets to the Company
in exchange for Company Common Stock. Such gain will be
in an amount equal to the lesser of (i) the excess of
the fair market value of the properties and assets
contributed over Excel's adjusted basis in such
properties and assets or (ii) $21.4 million, which is
the principal balance of a promissory note issued by the
Company to Excel as part of the consideration for such
asset-transfers. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Interests Relating to Excel.". 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. 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
"XLCY." See "RISK FACTORS--Absence of Prior Trading
Market for Company Common Stock; Potential Volatility"
and "THE DISTRIBUTION--Quotation and Trading of the
Company Common Stock; Dividend Policy."
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
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<S> <C>
determination relating to dividend policy will be made
at the discretion of the Company Board. See "RISK
FACTORS-- Dividend Policy" and "THE
DISTRIBUTION--Quotation and Trading of Company Common
Stock; 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. Such provisions include Article
Fourth of the Company Certificate which authorizes the
Company Board to issue additional shares of preferred
stock of the Company, in one or more series, without
further action by Company stockholders, and to establish
the rights and preferences (including the convertibility
of such shares of preferred stock into Company Common
Stock) of any series of preferred stock so issued. 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 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 Affecting a
Change in Control of the Company"; "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 Administrative Services
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
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<S> <C>
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 on or
prior to the Distribution Date to be followed by the
Board of Directors of each company to address potential
conflicts. 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. In addition, the Company Certificate contains
a specific purpose clause which identifies at the outset
which types of opportunities will be pursued by the
Company. 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 Richard J. Nordlund and Robert S. Talbot, 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
currently Chief Financial Officer of Excel and who will
serve in the same position with the Company, S. Eric
Ottesen, who is
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<S> <C>
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 as of the
Record Date, the executive officers and directors of the
Company will beneficially own an aggregate of 1,162,375
shares, or approximately 5.0%, 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 the Company will
beneficially own or have the right to acquire an
aggregate of 10,157,599 shares, or approximately 31.4%,
of the outstanding Company Common Stock immediately
following the Distribution. 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). See "RISK
FACTORS--Control by Executive Officers and Directors";
"MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" and "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
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SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth selected financial data for the planned real
estate assets to be transferred from Excel and EDV to Legacy (the "Excel Legacy
Corporation Asset Group") and should be read in conjunction with the Combined
Financial Statements of the Excel Legacy Corporation Asset Group included
elsewhere in this document. The financial data of the Excel Legacy Corporation
Asset Group as of and for the six months ended January 31, 1998 and 1997, in the
opinion of management, include all normal recurring adjustments for a fair
statement of the results for the interim periods. The financial data for the
each of the three years ended July 31, 1997, 1996 and 1995 and as of July 31,
1997 and 1996 are derived from the Excel Legacy Corporation Asset Group's
financial statements for similar periods, which are included elsewhere in this
Information Statement and have been audited by Coopers & Lybrand LLP. All of the
other financial data is unaudited.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JANUARY 31, YEAR ENDED JULY 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........................ $ 4,136 $ 2,762 $ 6,395 $ 5,032 $ 5,897 $ 5,348 $ 2,064
Total operating expenses............. 2,361 2,417 4,565 4,513 4,603 4,034 1,806
Income before income taxes........... 1,775 345 1,830 519 1,294 1,314 258
Provision for income taxes........... 707 138 729 207 515 523 103
Net income........................... 1,068 207 1,101 312 779 791 155
BALANCE SHEET DATA (AT END OF
PERIOD):
Real estate after accumulated
depreciation....................... $ 71,798 $ 60,514 $ 60,350 $ 61,048 $ 56,184 $ 57,191 $ 43,466
Total assets......................... 96,522 78,526 83,687 62,169 59,388 59,012 43,466
Mortgages payable.................... 36,803 35,978 35,115 36,754 38,224 39,590 36,351
Total liabilities.................... 37,213 36,218 35,343 37,007 38,485 39,915 36,600
Investment by Excel Realty Trust,
Inc................................ 59,309 42,308 48,344 25,162 20,903 19,097 6,866
</TABLE>
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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.
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. Currently the Company has no external source of financing and the Company
has not received any commitment with respect to any funds needed in the future.
The Company expects to be able to access
capital markets or to seek other financing, but there can be no assurance that
it will be able to do so at all or in amounts or on terms acceptable to the
Company. The Company also expects to establish a working line of credit for the
acquisition and development of properties, but there can be no assurance that
such a line will be obtained at all or in amounts or on terms acceptable to the
Company.
POSSIBLE CONFLICTS WITH EXCEL AFTER 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 Richard J. Nordlund and Robert S.
Talbot, 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 currently 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." None of the members of management of the Company
is committed to spending a particular amount of time on the Company's affairs,
nor will any of them devote his full time to the Company. As a result of these
dual roles, there is the potential for a lack of management attention to the
Company which could have an adverse effect on the Company. The members of senior
management of the Company will not receive a salary from the Company, but
instead will receive payment from Excel based upon the amount of time spent on
Company matters pursuant to the Transitional Services Agreement (as defined
below). See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE
DISTRIBUTION--Transitional Services Agreement."
The Company and Excel 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. More specifically, members of the Board and senior management
of the
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Company and Excel may be presented with conflicts of interest with respect to
certain matters affecting the Company and Excel, such as the determination of
which company may take advantage of potential business opportunities, decisions
concerning the business focus of each company (including decisions concerning
the types of properties and geographic locations in which such companies make
investments), potential competition between the business activities conducted,
or sought to be conducted, by such companies (including competition for
properties and tenants), possible corporate transactions (such as acquisitions),
and other strategic decisions affecting the future of such companies. Conflicts
also may arise with respect to the restriction on the Company's right to engage
in certain activities or make certain investments unless Excel was first offered
the opportunity and declined to pursue such activities or investments (as
described below). In this regard, the Company and Excel will adopt appropriate
policies and procedures on or prior to the Distribution Date to be followed by
the Board of Directors of each company to address potential conflicts. 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. In addition, the Company
Certificate contains a specific purpose clause which identifies at the outset
which types of opportunities will be pursued by the 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."
FAILURE OF EXCEL TO QUALIFY AS A REIT WOULD ALLOW EXCEL TO COMPETE WITH THE
COMPANY
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. See "THE COMPANY-- Intercompany Agreement." The
Intercompany Agreement 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 and investments. As a REIT, Excel is required
to focus principally on investment in certain real estate assets and is
prevented from owning certain assets and conducting certain activities that
would be inconsistent with its status as a REIT. If Excel in the future should
fail to qualify as a REIT, it would thereafter have the ability to participate
in a broader range of investments and activities that are presented to it by the
Company under the Intercompany Agreement. As a result, Excel's ability to engage
in non-REIT activities could (i) significantly restrict the opportunities the
Company may pursue, and/or (ii) allow Excel to compete with the Company for
non-REIT investments. Accordingly, if Excel should fail to qualify as a REIT,
that failure could have a material adverse effect on the Company.
RELIANCE ON MAJOR TENANTS
As of the Distribution Date, the Company's largest tenants will be AMC,
Wal-Mart and Lowe's, which will account for approximately 45.2%, 34.2% and 11.1%
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 any 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.
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS
Based solely on their ownership of Excel Common Stock and options to acquire
Excel Common Stock as of the Record Date, the executive officers and directors
of the Company will beneficially own an aggregate of 1,162,375 shares, or
approximately 5.0%, 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
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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 10,157,599 shares,
or approximately 31.4%, of the outstanding Company Common Stock immediately
following the Distribution. See "MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN
RELATIONSHIPS AND RELATED 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.
TAX CONSEQUENCES OF THE DISTRIBUTION
Excel will recognize gain for Federal income tax purposes as a result of the
transfer of certain properties and assets to the Company in exchange for Company
Common Stock. Such gain will be in an amount equal to the lesser of (i) the
excess of the fair market value of the properties and assets contributed over
Excel's adjusted basis in such properties and assets or (ii) $21.4 million,
which is the principal balance of a promissory note issued by the Company to
Excel as part of the consideration for such asset transfers. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Interests Relating to Excel." 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. Because of the factual nature of the issue of the value
of the Company Common Stock received by Excel as a result of the transfer of
assets and then distributed by Excel, Tax Counsel is unable to render an opinion
on the amount of gain recognized as a result of these transactions. For a more
detailed explanation, see "THE DISTRIBUTION--Material Federal Income Tax
Consequences 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. 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."
ABSENCE OF FUTURE FUNDING COMMITMENTS; NEED FOR FUTURE CAPITAL
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. Currently the Company has no
external source of financing and the Company has not received any commitment
with respect to any funds needed in the future. The Company expects to be able
to access capital markets or to seek other financing, but there can be no
assurance that it will be able to do so at all or in amounts or on terms
acceptable to the Company. Failure to obtain such financing could result in the
delay or abandonment of some or all of the Company's acquisition and development
plans and could have a material adverse effect on the Company. In the absence of
such financing, there can be no assurance that
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<PAGE>
the Company will have sufficient working capital to finance future acquisitions
or to pursue additional opportunities. Excel currently is not obligated to
provide any additional funds to the Company or to assist it in obtaining
additional financing.
DILUTION
The Company may from time to time raise additional capital from the issuance
and sale of equity securities. Any such issuances may significantly dilute the
interests of the existing holders of Company securities, including the Company
Common Stock.
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 following the
Distribution or, if developed, that any such market will be sustained. In the
absence of a public trading market, an investor may be unable to liquidate his
investment in the Company. 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 31.4% 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 Affecting a Change in Control of the Company."
SHARES ELIGIBLE FOR FUTURE SALE
The approximately 23,160,757 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) 16,425,000 shares of Series A Preferred Stock will be purchased
by certain QIBs in a private placement, which shares will be convertible, on a
one-for-one basis, by the holders thereof at any time and by the Company under
certain circumstances into shares of Company Common Stock, (iii) warrants to
purchase 4,497,000 shares of Series A Preferred Stock will be granted to certain
QIBs in connection with their purchase of Series A Preferred Stock described
above, and (iv) options to purchase 3,100,000 shares of Company Common Stock
will be granted to the Company's executive officers under the Legacy Stock
Option Plan. See "MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" and "DESCRIPTION OF THE COMPANY'S CAPITAL
STOCK--Series A Preferred Stock" and "--Warrants." Shares of Company Common
Stock and Series A Preferred 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
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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.
POTENTIAL ADVERSE EFFECTS ON EXCEL COMMON STOCK OF DISTRIBUTION
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 is expected to be lower than the trading price of Excel
Common Stock prior to the Distribution to reflect the value of the assets
transferred to the Company. 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.
DIFFICULTY OF LOCATING SUITABLE INVESTMENTS; COMPETITION
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 REITs) 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.
ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES
ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL EXPENDITURES
MAY EXCEED ESTIMATES. 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.
UNCERTAINTY OF CASH FLOW FROM DEVELOPMENT, CONSTRUCTION AND RENOVATION
ACTIVITIES. 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
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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."
OPERATING RISKS
POTENTIAL INCREASES IN OPERATING COSTS. 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 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 maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping, repairs
and maintenance.
DEPENDENCE ON REAL ESTATE CONDITIONS. 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.
FIXED COSTS DO NOT VARY WITH REVENUES. 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. 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.
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
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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.
POTENTIAL ADVERSE CONSEQUENCES OF DEBT FINANCING
USE OF LEVERAGE COULD ADVERSELY AFFECT THE COMPANY. 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.
INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY; 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.
RISING INTEREST RATES COULD INCREASE THE COMPANY'S INTEREST EXPENSE. 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.
RESTRICTIVE COVENANTS COULD ADVERSELY AFFECT THE COMPANY'S
BORROWINGS. 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.
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EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
DEPENDENCE ON 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."
POTENTIAL LACK OF CONTROL OF MANAGEMENT. 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.
POTENTIAL CONFLICTS AND INCREASED BANKRUPTCY, LIABILITY AND OTHER
RISKS. 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.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS
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 and may have a material
adverse effect on the Company. 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.
DISADVANTAGES OF INVESTMENTS IN DEBT INSTRUMENTS
DEPENDENCE ON BORROWERS TO PRESERVE VALUE OF COLLATERAL; POSSIBILITY OF
NONPAYMENT. The Company may originate debt investments and may acquire
performing or nonperforming debt investments. In general, debt instruments carry
the risk that borrowers may not be able to make debt service payments or to pay
principal when due, the risk that the value of any collateral may be less than
the amounts owed, the risk that interest rates payable on the debt instruments
may be lower than the Company's cost of funds, and the risk that the collateral
may be mismanaged or otherwise decline in value during periods in which the
Company is seeking to obtain control of the underlying real estate. The Company
is also dependent on the ability of the borrowers to operate successfully their
properties. Such borrowers and their properties will be subject to the other
risks affecting the ownership and operation of real estate set forth in this
section entitled "RISK FACTORS." Some of the loans may be structured so that all
or a substantial portion of the principal will not be paid until maturity, which
increases the risk of default at that time.
UNRATED DEBT INSTRUMENTS. It is anticipated that a substantial portion of
the debt in which the Company invests will not be rated by any
nationally-recognized rating agency. Generally, the value of unrated classes is
more subject to fluctuation due to economic conditions than rated classes. The
Company's acquisition of credit supported classes of securitizations (which
generally are expected to be first loss classes) which are unrated at the time
of acquisition and which have lower ratings may increase the risk of nonpayment
or of
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a significant delay in payments on these classes. Should rated assets be
downgraded, it may adversely affect their value and may adversely affect the
Company.
LIMITED REMEDIES UPON DEFAULT OF MORTGAGE LOANS
To the extent the Company invests in mortgage loans, such mortgage loans may
or may not be recourse obligations of the borrower and generally will not be
insured or guaranteed by governmental agencies or otherwise. In the event of a
default under such obligations, the Company may have to foreclose its mortgage
or protect its interest by acquiring title to a property and thereafter making
substantial improvements or repairs in order to maximize the property's
investment potential. Borrowers may contest enforcement of foreclosure or other
remedies, seek bankruptcy protection against such enforcement and/ or bring
claims for lender liability in response to actions to enforce mortgage
obligations. Relatively high "loan-to-value" ratios and declines in the value of
the property may prevent the Company from realizing an amount equal to its
mortgage loan upon foreclosure.
The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole authority to
declare a default under the mortgage or to control the property or any
foreclosure.
Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of control
over the collateral and any related foreclosure proceeding. In the event of a
default on a senior mortgage, the Company may make payments to prevent
foreclosure on the senior mortgage without necessarily improving the Company's
position with respect to the subject real property. In such event, the Company
would be entitled to share in the proceeds only after satisfaction of the
amounts due to the holder of the senior mortgage.
DISADVANTAGES OF INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES
INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES SUBJECT TO REAL ESTATE
RISKS APPLICABLE TO UNDERLYING PROPERTIES. As noted above, the Company may seek
to invest in real estate-related debt instruments, which may include commercial
mortgage-backed securities. Many of the risks of investing in commercial
mortgage-backed securities reflect the risks of investing directly in the real
estate securing the underlying mortgage loans. This may be especially true in
the case of commercial mortgage securities secured by, or evidencing an interest
in, a single commercial mortgage loan or a relatively small or less diverse pool
of commercial mortgage loans. See "--Disadvantages of Investments in Mortgage
Loans."
CREDIT SUPPORT FOR COMMERCIAL MORTGAGE-BACKED SECURITIES MAY PROVE
INADEQUATE. The risks of investing in commercial mortgage-backed securities
include risks that the existing credit support will prove to be inadequate,
either because of unanticipated levels of losses or, if such credit support is
provided by a third party, because of difficulties experienced by such provider.
Delays or difficulties encountered in servicing commercial mortgage-backed
securities may cause greater losses and, therefore, greater resort to credit
support than was originally anticipated, and may cause a rating agency to
downgrade a security.
SUBORDINATED SECURITIES MAY NOT BE REPAID UPON DEFAULT. The Company may
acquire subordinated tranches of commercial mortgage-backed securities
issuances. In general, subordinated tranches of commercial mortgage-backed
securities are entitled to receive repayment of principal only after all
principal payments have been made on more senior tranches and also have
subordinated rights as to receipt of interest distributions. In addition, an
active secondary market for such subordinated securities is not as well
developed as the market for certain other mortgage-backed securities.
Accordingly, such subordinated commercial mortgage-backed securities may have
limited marketability and there can be no assurance that a more efficient
secondary market will develop.
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LIMITATIONS ON REMEDIES UPON DEFAULT
Although the Company will have certain contractual remedies upon the default
by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or collecting rents generated therefrom, certain legal
requirements (including the risks of lender liability) may limit the ability of
the Company to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
provisions.
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 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.
COSTS OF COMPLIANCE WITH THE 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.
UNINSURED LOSSES
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.
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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 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.
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 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."
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
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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 AFFECTING A CHANGE IN CONTROL OF THE COMPANY
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 include Article
Fourth of the Company Certificate which authorizes the Company Board to issue
additional shares of preferred stock of the Company, in one or more series, and
to establish the rights and preferences (including the convertibility of such
shares of preferred stock into shares of Company Common Stock) of any series of
preferred stock so issued. 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.
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.
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THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Excel is a self-administered, self-managed REIT which acquires, owns and
manages neighborhood and community shopping centers and other retail and
commercial properties. To a large extent, public REITs, including Excel, 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 FFO, 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. Thus, the Excel Board
determined that it is in the best interests of Excel and its stockholders to
organize the Company to pursue opportunities 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, 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 enable investors who own both Excel
Common Stock and Company Common Stock to participate in the benefits of the REIT
operations of Excel and the non-REIT operations of the Company.
Eleven of the properties to be transferred to the Company by Excel and EDV
are single tenant properties subject to long-term leases. Although ownership of
these properties by Excel is consistent with the limitations on REITs described
above, the management of Excel believes that optimal yields on investments in
such properties can only be obtained when the ratio of debt to equity exceeds
80.0% of a given property's fair market value. As described above, such leverage
ratios far exceed the expectations for a REIT. Thus, Excel believes that it is
in the best interests of Excel and its stockholders to transfer these properties
to the Company.
The remaining properties to be transferred to the Company by Excel and EDV
are those that will involve long-term restructuring or redevelopment activities
or are currently undeveloped (i.e., raw land). Because these properties have no
or limited cash flow as a result of required rehabilitation or development or
are not being substantially leased, substantial value appreciation from these
investments is not immediately realized. As discussed above, the mandatory
distribution requirements applicable to REITs make ownership of such properties
less desirable for a REIT because of their limited cash flow. Thus, Excel
believes that such properties represent high return opportunities that the
Company will be better positioned to pursue. See "BUSINESS AND
PROPERTIES--Properties."
The Company is also receiving four notes receivable from EDV. The management
of Excel believes that the projects underlying these notes receivable are
consistent with the Company's strategy to obtain long-term, mixed-use
development projects which may take three to five years to fully develop. In
addition, these projects will not generate short-term cash flow and are
therefore not as attractive to Excel because of the mandatory distribution
requirements applicable to REITs. See "BUSINESS AND PROPERTIES-- Notes
Receivable."
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
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interests of entities engaged in such real estate businesses. In this regard,
the Company Certificate contains a specific purpose clause which identifies at
the outset which types of opportunities will be pursued by the 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 "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."
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 23,160,757 shares of Excel
Common Stock on the Record Date, approximately 23,160,757 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 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.
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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. 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 1,447 holders of record
of the Company Common Stock and approximately 23,160,757 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) 16,425,000 shares of Series A Preferred Stock in a private placement to
certain QIBs, which shares will be convertible, on a one-for-one basis, by the
holders thereof at any time and by the Company under certain circumstances into
shares of Company Common Stock. The Company has agreed to grant warrants to
purchase shares of Series A Preferred Stock to two QIBs in connection with their
purchase of Series A Preferred Stock described above. One of the QIBs will be
granted warrants to purchase 4,256,000 shares of Series A Preferred Stock, which
will be exercisable at any time for a period of up to two years following the
date of issuance. The other QIB will be granted warrants to purchase 241,000
shares of Series A Preferred Stock, which will be exercisable at any time until
the earlier of (i) seven days following the date of issuance or (ii) April 30,
1998. See "CERTAIN RELATIONSHIPS AND RELATED 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 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
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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. Immediately prior to the Distribution, Excel will transfer to the
Company certain real properties, notes receivable and related assets and
liabilities held by Excel in exchange for Company Common Stock which the Company
will issue to Excel (the "Contribution"). See "BUSINESS AND PROPERTIES." Excel
will recognize gain for Federal income tax purposes as a result of the
Contribution in an amount equal to the lesser of (i) the excess of the fair
market value of the properties and assets contributed over Excel's adjusted
basis in such properties and assets, determined as of the date of the
Contribution, or (ii) $21.4 million, which is the principal balance of a
promissory note issued by the Company to Excel as part of the consideration for
such asset transfers. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Interests Relating to Excel." For book purposes, Excel will
transfer the assets at historical cost with no gain recognized. Excel's tax
basis in the Company Common Stock received in exchange for the contributed
assets will be equal to the sum of (i) Excel's adjusted basis in the properties
and assets contributed, reduced by $21.4 million, and (ii) the gain recognized
by Excel on the Contribution.
Excel's taxable gain on the Distribution, if any, will be measured by the
extent to which, at the time of the Distribution, the fair market value of the
Company Common Stock distributed by Excel exceeds Excel's basis in such stock.
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,
and thereby increase the portion of Excel's distributions that are treated as
made out of earnings and profits, and thus are dividends for federal income tax
purposes.
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 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.
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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.
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. Any portion of the
Distribution which is treated as a capital gain dividend and is not attributable
to a disposition by Excel of a United States real property interest shall be
subject to a similar rule. Provided that Excel is a "domestically controlled
REIT" for federal income tax purposes, a Non-U.S. Stockholder would be subject
to taxation on gain from a sale or disposition of Excel Common Stock only if (i)
the investment in the Excel Common Stock were treated as effectively connected
with such Non-U.S. Stockholder's U.S. trade or business, in which case the
Non-U.S. Stockholder would be subject to the same treatment as U.S. shareholders
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
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183 days or more during the taxable year of the sale or disposition 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 the gain will be subject to a 30.0% tax. The
Company believes that Excel is and currently expects to continue to be a
"domestically controlled REIT" for federal income tax purposes.
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 Company anticipates that a portion of the Distribution will be treated
as attributable to Excel's disposition of a United States real property
interest. To the extent that a portion of the Distribution were to be treated as
attributable to the disposition of a United States real property interest, a
non-U.S. Stockholder would be subject to tax on such portion as though it were
gain that was effectively connected with a United States trade or business of
such Non-U.S. Stockholder. Thus, Non-U.S. Stockholders would be taxed on such
portions of the Distribution at the normal capital gain rates applicable to U.S.
shareholders. Excel is required under applicable Treasury Regulations to
withhold 35.0% of any distribution to a Non-U.S. Stockholder that could be
designated by Excel as a capital gain dividend. The amount so withheld is
creditable against the Non-U.S. Stockholder's U.S. tax liability.
Amounts required to be withheld from payments to Non-U.S. Stockholders will
be collected by converting a portion of the Company Common Stock to be
distributed into cash.
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."
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 1,447 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 "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,
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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, 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.
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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 $21.4 million. Such note will
bear interest at the rate of 12.0% per annum, mature in March 2003 and be a
non-recourse obligation secured by a first mortgage on the Scottsdale Galleria.
In addition, in connection with the asset transfers, Excel will cancel certain
indebtedness of EDV currently held by Excel in the amount of approximately $33.3
million. See "CERTAIN RELATIONSHIPS AND RELATED 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 "--Administrative Services 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.
ADMINISTRATIVE SERVICES AGREEMENT
The Distribution Agreement calls for Excel and the Company to enter into an
Administrative Services Agreement (the "Administrative Services Agreement")
containing a number of provisions relating to employees of Excel and the
Company. The Administrative Services Agreement generally provides that, after
the Distribution, Excel will provide management and administrative services to
the Company,
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including the ability to use the services of Excel's employees in connection
with the Company's business. In exchange for those services, the Company is
required to pay Excel on a monthly basis 115.0% of the sum of (i) two-thirds of
the aggregate amount of all wages and salaries paid during the month to Excel
employees who spend more than 50.0% of their working time performing services
for the Company and are designated in writing as "Legacy Individuals" for
purposes of the Administrative Services Agreement, and (ii) one-third of the
aggregate amount of all wages and salaries paid during the month to Excel
employees that are not designated as Legacy Individuals. Under the
Administrative Services Agreement, Excel will be responsible for continuing to
provide employee benefits (other than those provided under the Legacy Stock
Option Plan) to Excel employees and to Legacy Individuals. The Administrative
Services Agreement may be terminated either by Excel or the Company at any time
upon 30 days' prior written notice to the other party. Any individuals
independently hired by the Company after the Distribution as separate employees
of the Company will not be subject to the Administrative Services Agreement. The
income Excel receives under the Administrative Services Agreement will not be
qualifying income for purposes of the 75.0% REIT income test or the 95.0% REIT
income test.
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 the Distribution Date, and (ii) paying the
taxes relating to such returns (including any deficiencies proposed by
applicable taxing authorities). For post-Distribution periods, Excel and the
Company will each be responsible for filing its own returns and paying its own
taxes relating to such returns (including any deficiencies proposed by
applicable taxing authorities). 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 (the
"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 actual 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. The income Excel receives pursuant to the Transitional
Services Agreement will not be qualifying income for purposes of the 75.0% REIT
income test or the 95.0% REIT income test.
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. See "THE COMPANY-- Intercompany Agreement."
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POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
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 Richard J. Nordlund and Robert S.
Talbot, 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 currently 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 1,162,375 shares, or
approximately 5.0%, 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 10,157,599 shares, or approximately 31.4%,
of the outstanding Company Common Stock immediately following the Distribution.
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). See "RISK
FACTORS--Control by Executive Officers and Directors"; "MANAGEMENT--Legacy Stock
Option Plan"; "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
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 the persons who will serve as officers
and/or directors of both the Company and Excel, and who will own (or have
options or other rights to acquire) a significant number of shares of common
stock in both companies. Such persons may be presented with conflicts of
interest with respect to certain matters affecting the Company and Excel, such
as the determination of which company may take advantage of potential business
opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on the Company's right to engage in certain activities or make
certain investments unless Excel was first offered the opportunity and declined
to pursue such activities or investments (as described below).
The Company and Excel will adopt appropriate policies and procedures on or
prior to the Distribution Date to be followed by the Board of Directors of each
company to limit the involvement of such officers and directors in conflict
situations. 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
32
<PAGE>
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 identifies at the outset which types of
opportunities will be pursued by the 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."
REGULATORY APPROVALS
The Company does not believe that any material Federal or state regulatory
approvals will be necessary in connection with the Distribution.
33
<PAGE>
PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the capitalization of the Company (A) as of
January 31, 1998, (B) as adjusted to give effect to the Distribution and (C) as
adjusted to reflect the sale of Company Common Stock to certain officers and
Series A Preferred Stock to certain QIBs. 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 JANUARY 31, 1998
-----------------------------------------
ACTUAL(A) PRO FORMA(B) AS ADJUSTED(C)
---------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Mortgages payable................................................... -- $ 36,803 $ 36,803
Notes payable--bank................................................. -- 24,452 24,452
Notes payable--Excel................................................ -- 21,412 21,412
---------- ------------- --------------
Total debt........................................................ -- 82,667 82,667
Stockholders' equity.................................................. 1 45,213 136,273
---------- ------------- --------------
Total capitalization.............................................. 1 $ 128,436 $ 218,940
---------- ------------- --------------
---------- ------------- --------------
</TABLE>
34
<PAGE>
EXCEL LEGACY CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet of the Company as of January
31, 1998 and unaudited pro forma condensed combined statement of operations for
the six months ended January 31, 1998 and the year ended July 31, 1997 have been
prepared to reflect the results of the Distribution, issuance of preferred and
common shares and acquisition of properties by the Company. The unaudited pro
forma balance sheet has been prepared as if the transactions had occurred on
January 31, 1998. The unaudited pro forma statements of operations have been
prepared as if the transactions had occurred at the beginning of the year ended
July 31, 1997. The unaudited pro forma financial information is not necessarily
indicative of the results that actually would have occurred if the Distribution
and capitalization had been consummated as of January 31, 1998. The Company has
adopted July 31 as its fiscal year end.
PRO FORMA BALANCE SHEET--UNAUDITED
AS OF JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET GROUP COMMON AND
EXCEL LEGACY TRANSFERRED BY PREFERRED
CORPORATION EXCEL REALTY PRO FORMA STOCK TO BE PRO FORMA
HISTORICAL(A) TRUST, INC.(B) ADJUSTMENTS(C) PRO FORMA ISSUED(D) AS ADJUSTED
------------- -------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate:
Land........................... $ 15,738 $ 18,647 $ 5,400(1) $ 39,785 $ -- $ 39,785
Buildings...................... -- 40,960 40,960 -- 40,960
Under development.............. 9,482 14,702 -- 24,184 -- 24,184
Leasehold interest............. -- 1,790 -- 1,790 -- 1,790
Accumulated depreciation....... -- (4,301) -- (4,301) -- (4,301)
------------- ------- -------------- ----------- -------------- -----------
Net real estate.............. 25,220 71,798 5,400 102,418 -- 102,418
Cash............................. 34 -- (5,400)(1) (5,366) 91,060 85,694
Accounts receivable.............. 106 -- -- 106 -- 106
Notes receivable................. -- 22,089 -- 22,089 -- 22,089
Interest receivable.............. 2 2,604 -- 2,606 -- 2,606
Other assets..................... -- 31 -- 31 -- 31
Deferred tax asset............... -- -- 6,552(2) 6,552 -- 6,552
------------- ------- -------------- ----------- -------------- -----------
Total assets................. $ 25,362 $ 96,522 $ 6,552 $ 128,436 $ 91,060 $ 219,496
------------- ------- -------------- ----------- -------------- -----------
------------- ------- -------------- ----------- -------------- -----------
LIABILITIES:
Mortgages payable................ $ -- $ 36,803 $ -- $ 36,803 $ -- $ 36,803
Notes Payable.................... 24,452 -- -- 24,452 -- 24,452
Notes Payable--Excel............. 763 -- 20,649(3) 21,412 -- 21,412
Accounts payable................. 14 -- -- 14 -- 14
Interest payable................. 132 242 -- 374 -- 374
Other liabilities................ -- 168 -- 168 -- 168
------------- ------- -------------- ----------- -------------- -----------
Total liabilities............ 25,361 37,213 20,649 83,223 -- 83,223
------------- ------- -------------- ----------- -------------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock.................. -- -- -- -- 164 164
Common stock..................... -- 232 -- 232 92 324
Additional paid-in capital....... 1 59,077 (20,649)(3) 44,981 101,792 146,773
6,552(2)
Retained earnings................ -- -- -- -- -- --
------------- ------- -------------- ----------- -------------- -----------
1 59,309 (14,097) 45,213 102,048 147,261
Due from officers for common
shares......................... -- -- -- -- (10,988) (10,988)
------------- ------- -------------- ----------- -------------- -----------
Total stockholders' equity... 1 59,309 (14,097) 45,213 91,060 136,273
------------- ------- -------------- ----------- -------------- -----------
Total liabilities and
stockholders' equity....... $ 25,362 $ 96,522 $ 6,552 $ 128,436 $ 91,060 $ 219,496
------------- ------- -------------- ----------- -------------- -----------
------------- ------- -------------- ----------- -------------- -----------
</TABLE>
35
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
A) Reflects the unaudited historical balance sheet of Excel Legacy Corporation
(the "Company") as of January 31, 1998 at page F-3. 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 at historical cost of the assets and liabilities
currently held by Excel and ERT Development Corporation ("EDV") to the
Company for stock. See Combined Balance Sheets of Excel Legacy Corporation
Asset Group (the "Asset Group") at page F-7. The transfer by Excel and EDV
will include (1) eleven single tenant buildings with related mortgages, (2)
a substantially vacant shopping mall, the Scottsdale Galleria, in
Scottsdale, Arizona which the Company intends to redevelop, (3) an office
building in Scottsdale, Arizona, (4) a leasehold interest in a parcel of
land near the Grand Canyon in Arizona, and (5) four notes receivable related
to development projects located in Arizona and California.
C) Represents the following pro forma adjustments as numbered on the face of the
Pro Forma Balance Sheet: (1) EDV has acquired two parcels of land for a
total cost of $5.4 million which will be transferred to the Company
immediately after the Distribution. One parcel of land in Scottsdale,
Arizona is located in the Waterfront Redevelopment District and would be
part of the Company's development project. The Company currently has no
plans for the other parcel of land located in San Diego, California. (2) The
Company will recognize a deferred tax asset as a result of the Distribution.
For federal and state income tax purposes, the Company will record the
assets transferred at fair market value which is estimated to be
approximately $16.4 million over their current book value. The tax benefit
to the Company under generally accepted accounting principles will
approximate $6.6 million as the transferred assets are sold in the future.
(3) In lieu of equity for the entire amount of property being contributed by
EDV and Excel to the Company, the Company will issue a note payable to Excel
for $21.4 million ($20.6 million from the asset transfer and $800,000 from
the Telluride land purchase) that will be secured by a trust deed on the
Scottsdale Galleria property.
The Company is under contract to purchase 11.1 acres of land in San Diego,
California for $4.0 million. The Company intends to construct an
approximately 100,000 square foot industrial office building on the land for
an estimated construction cost of $11.8 million. EDV has paid earnest money
of $250,000 for the land, the purchase of which is expected to close in late
March 1998. No pro forma adjustment has been made for this purchase due to
its uncertainty.
D) Certain officers of the Company will purchase 9,195,224 shares of Company
Common Stock from the Company for $22.0 million 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 total stockholders' equity. The
capitalization is valued at $2.39 per share which represents the Company's
estimate of fair market value. The issuance of the shares will give the
officers 31.4% of the common stock ownership of the Company.
Also represents 16,425,000 shares of Series A Preferred Stock of the Company
that certain qualified institutional buyers have committed to purchase at
$5.00 per share immediately after the Distribution. The net proceeds will be
approximately $80.1 million after issuance costs. The Series A Preferred
Stock may be converted into Company Common Stock, on a one-for-one basis, by
the holders of the Series A Preferred Stock at any time and by the Company
after the Company Common Stock has been trading above $5.00 per share for 30
consecutive days. As part of the preferred stock issuance, the Company will
issue warrants to purchase 4,497,000 shares of Series A Preferred Stock at an
exercise price of $5.00 per share to two QIBs. See "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK--Series A Preferred Stock" and "--Warrants."
36
<PAGE>
EXCEL LEGACY CORPORATION
PRO FORMA STATEMENTS OF OPERATIONS--UNAUDITED
FOR THE YEAR ENDED JULY 31, 1997 AND
THE SIX MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSET GROUP
EXCEL LEGACY TRANSFERRED BY COMMON AND
CORPORATION EXCEL REALTY PRO FORMA PREFERRED STOCK
SIX MONTHS ENDED JANUARY 31, 1998 HISTORICAL(A) TRUST, INC.(B) ADJUSTMENTS(C) PRO FORMA TO BE ISSUED(D)
- --------------------------------- --------------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental......................... $ -- $ 2,818 $ 246(1) $ 3,064 $ --
Interest....................... -- 1,318 -- 1,318 --
------ ------ ------ ----------- ------
Total revenues............... -- 4,136 246 4,382 --
------ ------ ------ ----------- ------
Expenses:
Interest....................... -- 1,445 60(1) 1,505 --
Depreciation and
amortization................. -- 482 36(1) 518 --
Property operations............ -- 94 112(1) 206 --
General and administrative..... -- 340 12(1) 614 --
262(2)
------ ------ ------ ----------- ------
Total expenses............... -- 2,361 482 2,843 --
------ ------ ------ ----------- ------
Net income (loss) before taxes... -- 1,775 (236) 1,539 --
Current income tax expense
(benefit)(E)................... -- 707 (93) 614 --
------ ------ ------ ----------- ------
Net income (loss)................ $ -- $ 1,068 $ (143) $ 925 $ --
------ ------ ------ ----------- ------
------ ------ ------ ----------- ------
Net income per common share(F):
Basic.......................... $ 0.03
Fully-Diluted.................. $ 0.02
<CAPTION>
PRO FORMA
SIX MONTHS ENDED JANUARY 31, 1998 AS ADJUSTED
- --------------------------------- -------------
<S> <C>
Revenues:
Rental......................... $ 3,064
Interest....................... 1,318
-------------
Total revenues............... 4,382
-------------
Expenses:
Interest....................... 1,505
Depreciation and
amortization................. 518
Property operations............ 206
General and administrative..... 614
-------------
Total expenses............... 2,843
-------------
Net income (loss) before taxes... 1,539
Current income tax expense
(benefit)(E)................... 614
-------------
Net income (loss)................ $ 925
-------------
-------------
Net income per common share(F):
Basic.......................... $ 0.03
Fully-Diluted.................. $ 0.02
</TABLE>
<TABLE>
<CAPTION>
ASSET GROUP
EXCEL LEGACY TRANSFERRED BY COMMON AND
CORPORATION EXCEL REALTY PRO FORMA PREFERRED STOCK
YEAR ENDED JULY 31, 1997 HISTORICAL(A) TRUST, INC.(B) ADJUSTMENTS(C) PRO FORMA TO BE ISSUED(D)
- --------------------------------- --------------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental......................... $ -- $ 4,937 $ 1,192(1) $ 6,129 $ --
Interest....................... -- 1,458 -- 1,458 --
------ ------ ------ ----------- ------
Total revenues............... -- 6,395 1,192 7,587 --
------ ------ ------ ----------- ------
Expenses:
Interest....................... -- 2,896 257(1) 3,153 --
Depreciation................... -- 870 152(1) 1,022 --
Property operations............ -- -- 412(1) 412 --
General and administrative..... -- 799 48(1) 1,244 --
397(2)
------ ------ ------ ----------- ------
Total expenses............... -- 4,565 1,266 5,831 --
------ ------ ------ ----------- ------
Net income (loss) before taxes... -- 1,830 (74) 1,756 --
Current income tax expense
(benefit)(E)................... -- 729 (30) 699 --
------ ------ ------ ----------- ------
Net income (loss)................ $ -- $ 1,101 $ (44) $ 1,057 $ --
------ ------ ------ ----------- ------
------ ------ ------ ----------- ------
Net income per common share(F):
Basic.......................... $ 0.03
Fully-Diluted.................. $ 0.02
<CAPTION>
PRO FORMA
YEAR ENDED JULY 31, 1997 AS ADJUSTED
- --------------------------------- -------------
<S> <C>
Revenues:
Rental......................... $ 6,129
Interest....................... 1,458
-------------
Total revenues............... 7,587
-------------
Expenses:
Interest....................... 3,153
Depreciation................... 1,022
Property operations............ 412
General and administrative..... 1,244
-------------
Total expenses............... 5,831
-------------
Net income (loss) before taxes... 1,756
Current income tax expense
(benefit)(E)................... 699
-------------
Net income (loss)................ $ 1,057
-------------
-------------
Net income per common share(F):
Basic.......................... $ 0.03
Fully-Diluted.................. $ 0.02
</TABLE>
37
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
A) Legacy had no operations prior to the Distribution.
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-8.
C) Represents the following pro forma adjustments as numbered on the face of the
Pro Forma Statements of Operations--Unaudited. (1) Represents the rental
revenue and expenses for assets purchased by EDV from third parties with the
intent of transferring them to the Company upon the Distribution as if the
properties had been purchased at the beginning of the period presented. The
Scottsdale City Centre office building was purchased in October 1997 and the
Brio Land was purchased in November 1997. All rental revenue adjustments are
based on signed leases. (2) 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.
Two AMC theaters under construction were purchased in January 1998. No
operations are included in the Pro Forma Statements of Operations because
the assets did not generate revenues until after the pro forma periods shown
and expenses would have been capitalized as construction costs.
D) The Company has not made any pro forma adjustments for any amounts which may
be earned on the proceeds from the issuance of the new Company Common Stock
or the Series A Preferred Stock. Should all the Series A Preferred Stock be
converted to Company Common Stock, on a one-for-one basis, the new basic net
income per share to the common stockholders would be equivalent to the
diluted net income per share shown on the Pro Forma Statements of
Operations--Unaudited. The diluted net income per share would remain the
same as shown on the Pro Forma Statements of Operations--Unaudited.
E) All income taxes are considered current expense in the Pro Forma Statements
of Operations-- Unaudited. The Company has recorded a deferred tax asset on
the Pro Forma Balance Sheet. This will offset against income tax expense as
the properties being transferred to the Company are sold. See Note C to the
Notes to Pro Forma Balance Sheet. The Company is not aware of any other
timing differences between future book and taxable net income.
F) The per share amounts of income have been calculated using the following
shares for both the six months ended January 31, 1998 and year ended July
31, 1997. The common shares outstanding of 32,355,981 (23,160,757 shares of
Company Common Stock outstanding in Excel plus 9,195,224 shares of Company
Common Stock to be issued to officers of the Company on the date of the
Distribution) were used for the denominator in the basic per share
calculation with net income as the numerator. There is no preferred stock
dividend to subtract from net income to arrive at basic per share net
income. The fully diluted calculation used 48,780,981 shares outstanding as
the denominator which represents 32,355,981 shares of Company Common Stock
plus the 16,425,000 shares of Series A Preferred Stock that are treated as
stock equivalents. The numerator for the fully diluted calculation was also
the net income.
38
<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 $11.0 million in cash and approximately $11.0
million in notes receivable from the sale of Company Common Stock to certain
officers of the Company. Such notes will bear interest at the rate of 7.0% per
annum, mature in March 2003 and be recourse obligations of such officers. In
addition, the Company plans to sell 16,425,000 shares of Series A Preferred
Stock for a total net issuance price of approximately $80.1 million immediately
following the Distribution. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The total debt of the Company after the Distribution will consist of the
following: (1) $26.4 million in mortgages on the eight Wal-Mart properties.
These mortgages are self-amortizing with the rent being paid by Wal-Mart
directly to the mortgage holders. The mortgages will be entirely repaid when the
initial terms of the leases with Wal-Mart expire. (2) $7.8 million in mortgages
on the two Lowe's properties. These mortgages are also self-amortizing over the
term of the leases with Lowe's. The current mortgage balance will be repaid when
the leases expire. (3) A $2.6 million mortgage securing the Scottsdale City
Centre office building. Monthly payments are $25,327 with a balloon payment in
the year 2006. (4) A current note payable to a bank secured by the AMC theaters
in the amount of $49.9 million of which $24.5 million had been advanced through
January 31, 1998 to construct the buildings. This is a short-term note with the
balance coming due March 25, 1998. The Company intends to either repay this note
with the proceeds from the Company Common Stock and Series A Preferred Stock
offerings or refinance the properties upon completion. (5) A note to Excel in
the amount of $21.4 million which will be secured by the Scottsdale Galleria
property. Interest only payments at 12.0% will be due each month with the
principal due March 31, 2003.
The Company anticipates that cash flow from operations will be adequate to
meet its short-term liquidity requirements. The Company expects to meet its
long-term liquidity requirements, such as property acquisitions and development
and mortgage debt maturities, through the most advantageous sources of capital
available to the Company at the time, which may include the sale of common
stock, preferred stock or debt securities through public offerings or private
placements, the incurrence of indebtedness through secured or unsecured
borrowings and the reinvestment of proceeds from the disposition of assets.
RESULTS OF OPERATIONS
The results of operations for the Excel Legacy Corporation Asset Group are
set forth below. See Excel Legacy Corporation Asset Group financial statements
at pages F-7 through F-16.
COMPARISON OF THE YEAR ENDED JULY 31, 1997 TO THE YEAR ENDED JULY 31, 1996.
There was no change in RENTAL REVENUE between the years ended July 31, 1997
and 1996.
INTEREST REVENUE for the year ended July 31, 1997 was approximately $1.5
million, an increase of 1435.0% over interest revenue of $95,000 for the year
ended July 31, 1996. The increase is primarily attributable to additional loans
made on the Los Arcos and First Street projects during the year.
39
<PAGE>
INTEREST EXPENSE for the year ended July 31, 1997 was approximately $2.9
million, a decrease of 6.0% over interest expense of approximately $3.1 million
for the year ended July 31, 1996. The decrease is primarily attributable to
recurring principal payments on the mortgages on those properties occupied by
Wal-Mart and Lowe's.
ADMINISTRATIVE EXPENSES for the year ended July 31, 1997 were $799,000, an
increase of 42.0% over administrative expenses of $563,000 for the year ended
July 31, 1996. The increase is primarily attributable to salary and wage
expense.
THE PROVISION FOR INCOME TAXES for the year ended July 31, 1997 was
$729,000, an increase of 252.0% over income tax expense of $207,000 in the
comparable period in 1996. The increase is attributable to the increase in
income before taxes during the year.
COMPARISON OF THE YEAR ENDED JULY 31, 1996 TO THE YEAR ENDED JULY 31, 1995.
RENTAL REVENUE for the year ended July 31, 1996 was approximately $4.9
million, a decrease of 16.0% over rental revenue of approximately $5.9 million
for the year ended July 31, 1995. The decrease is attributable to the
reclassification of the Scottsdale Galleria from real estate to real estate
under development. As a result of the reclassification, costs to develop the
property, net of incidental revenues earned, are capitalized to the basis of the
property rather than recognized as revenue and expense.
INTEREST REVENUE for the year ended July 31, 1996 was $95,000, an increase
of 100.0% over interest revenue for the year ended July 31, 1995. The increase
is attributable to the initiation of the Los Arcos and First Street notes
receivable during the year.
INTEREST EXPENSE for the year ended July 31, 1996 was approximately $3.1
million, a decrease of 3.0% over interest expense of approximately $3.2 million
for the year ended July 31, 1995. The decrease is primarily attributable to
recurring principal payments on the mortgages on those properties occupied by
Wal-Mart and Lowe's.
ADMINISTRATIVE EXPENSES for the year ended July 31, 1996 were $563,000, an
increase of 3.0% over administrative expenses of $548,000 for the year ended
July 31, 1995. The increase is primarily attributable to salary and wage
expenses.
THE PROVISION FOR INCOME TAXES for the year ended July 31, 1996 was
$207,000, a decrease of 60.0% over income tax expense of $515,000 in the
comparable period in 1995. The decrease is attributable to the decrease in
income before taxes during the year.
COMPARISON OF THE SIX MONTHS ENDED JANUARY 31, 1998 TO THE SIX MONTHS ENDED
JANUARY 31, 1997.
RENTAL REVENUE for the six months ended January 31, 1998 was approximately
$2.8 million, an increase of 14.2% over rental revenue of approximately $2.5
million for the six months ended January 31, 1997. The increase relates to an
office building and land leased to a restaurant which were acquired in October
1997.
INTEREST REVENUE for the six months ended January 31, 1998 was approximately
$1.3 million, an increase of 348.3% over interest revenue of $294,000 in the
comparable period in 1997. The increase was primarily attributable to additional
loans made on the Los Arcos and First Street projects during the corresponding
periods.
INTEREST EXPENSE for the six months ended January 31, 1998 was approximately
$1.4 million, a decrease of 3.6% over interest expense of approximately $1.5
million in the comparable period in 1997. The decrease is attributable to
recurring principal payments on the mortgages on those properties occupied by
Wal-Mart and Lowe's.
ADMINISTRATIVE EXPENSES for the six months ended January 31, 1998 were
$340,000, a decrease of 29.6% over administrative expenses of $483,000 in the
comparable period in 1997. The decrease is primarily attributable to bonuses
paid in 1997.
40
<PAGE>
PROPERTY EXPENSES of $94,000 in the six months ended January 31, 1998
related to properties acquired in October 1997. Property expenses were $0 in the
six months ended January 31, 1997.
The PROVISION FOR INCOME TAXES for the six months ended January 31, 1998 was
$707,000, an increase of 412.3% over income tax expense of $138,000 in the
comparable period in 1997. The increase is attributable to the increase in
income before income taxes during the period.
VALUATION OF PROPERTIES
Valuation of the single tenant properties to be transferred to the Company
by Excel was based upon an estimate of the fair market value of the assets to be
transferred. For these properties the value was determined by applying a 9.5%
capitalization rate to the net operating income of such properties. For
properties purchased by Excel within the last six months, the property valuation
was based on Excel's acquisition cost for the properties, since Excel was acting
as the nominee for the Company. In the opinion of Excel's management, due to the
short holding period of the property by Excel, the value of properties purchased
less than six months ago is not significantly different from the original cost.
The valuation of the Scottsdale Galleria was determined based upon binding
purchase offers made to the Company by willing third-party, non-affiliated
purchasers.
CAPITAL RESOURCES
Following the Distribution, the Company will own approximately $102.4
million in real estate that will be encumbered with mortgages in the amount of
$82.7 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 $85.7 million in cash after receipt of
$80.1 million from the sale of Series A Preferred Stock for which the Company
currently has commitments. The Company plans to sell 16,425,000 shares of Series
A Preferred Stock immediately following the Distribution. The Company intends to
use $49.9 million of these proceeds to repay the loan and letters of credit used
to finance the purchase of the Highlands Ranch and Westminster, Colorado
properties.
The Company is under contract to purchase 11.1 acres of land in San Diego,
California for $4.0 million. The Company intends to construct an approximately
100,000 square foot industrial office building on the land for an estimated
construction cost of $11.8 million. EDV has paid earnest money of $250,000 for
the land, the purchase of which is expected to close in late March 1998. As of
the date of this Information Statement, the Company has no commitments to
purchase any other assets or to make any material capital expenditures in
connection with the redevelopment of any of its properties. The Company intends
to operate its business as described herein, however, and may purchase
additional assets and make such capital expenditures from time to time in the
future. Any such expenditures 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.
41
<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.
To a large extent, public REITs, including Excel, 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 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.
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. Eleven of the properties to be transferred to the Company by
Excel are single tenant properties subject to long-term leases. Although
ownership of these properties by Excel is consistent with the limitations on
REITs described above, the management of Excel believes that optimal yields on
investments in such properties can only be obtained when the ratio of debt to
equity exceeds 80.0% of a given property's fair market value. As described
above, such leverage ratios far exceed the expectations for a REIT. Thus, Excel
believes that it is in the best interests of Excel and its stockholders to
transfer these assets to the Company.
The remaining properties to be transferred to the Company by Excel and EDV
are those that will involve long-term restructuring or redevelopment activities
or are currently undeveloped (i.e., raw land). Because these properties have no
or limited cash flow as a result of required rehabilitation or development or
are not being substantially leased, substantial value appreciation from these
investments is not immediately realized. As discussed above, the mandatory
distribution requirements applicable to REITs make ownership of such properties
less desirable for a REIT because of their limited cash flow. Thus, Excel
believes that such properties represent high return opportunities that the
Company will be better positioned to pursue. See "BUSINESS AND
PROPERTIES--Properties."
The Company is also receiving four notes receivable from EDV. The management
of Excel believes that the projects underlying these notes receivable are
consistent with the Company's strategy to obtain long-term, mixed-use
development projects which may take three to five years to fully develop. In
addition, these projects will not generate short-term cash flow and are
therefore not as attractive to Excel because of the mandatory distribution
requirements applicable to REITs. See "BUSINESS AND PROPERTIES-- Notes
Receivable."
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In addition to the properties it will own immediately following the
Distribution, the Company intends to invest in a variety of real estate related
assets such as (i) development opportunities that provide substantial value
appreciation rather than immediate cash flow, (ii) properties with long-term
leases enabling the Company to utilize a substantial amount of leverage, (iii)
properties requiring substantial repositioning or restructuring in order to
create significant value, such as changing the use, tenant mix or focus of a
property, and (iv) public and private debt and equity securities of real estate
related entities. Although such real estate related assets are not subject to
the limitations applicable to REITs described above, there are some risks
associated with investments in these types of assets. See "RISK FACTORS--
Disadvantages of Investments in Debt Instruments"; "--Limited Remedies Upon
Default of Mortgage Loans"; "--Disadvantages of Investments in Commercial
Mortgage-Backed Securities" and "--Limitations on Remedies Upon Default."
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. As opportunities
emerge, the Company may in the future expand its real estate related businesses
and activities beyond the areas listed above.
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. In addition, the Company Certificate contains a specific
purpose clause which identifies at the outset which types of opportunities will
be pursued by the 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 "RISK
FACTORS-- Possible Conflicts with Excel After the Distribution"; "RELATIONSHIP
BETWEEN LEGACY AND EXCEL AFTER THE DISTRIBUTION--Policies and Procedures for
Addressing Conflicts" and "--Intercompany Agreement."
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.
In pursuing the real estate related opportunities described above, the
Company expects to compete for real estate investments with many public and
private real estate investment vehicles, including financial institutions (such
as mortgage banks, pension funds and REITs) and other institutional investors,
as well as individuals. The real estate industry and the process of identifying,
completing and realizing on real estate investments has from time to time been
highly competitive. In addition, 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. See "RISK FACTORS--Difficulty of
Locating Suitable Investments; Competition."
43
<PAGE>
The Company was incorporated under the laws of Delaware on November 17,
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.
BUSINESS STRATEGY
The Company intends to pursue a variety of real estate related activities,
including (i) 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, (ii) acquiring single tenant properties that can
be highly leveraged with fixed rate debt that amortizes over the term of the
property's tenant leases, (iii) purchasing portfolios of properties on a
wholesale basis, then selling the properties individually on a retail basis,
(iv) investing in properties requiring significant restructuring or
redevelopment in order to create substantial value, such as changing the use,
tenant mix or focus of a property, 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. Subject to the provisions of the Intercompany
Agreement, pursuant to which the Company must provide Excel with rights to
participate in certain transactions (see "--Intercompany Agreement"), the
Company does not intend to limit its investments in the areas described above to
certain sectors of the real estate market or certain types of properties.
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.
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. For a
detailed discussion of the risks associated with these activities and
investments, see "RISK FACTORS--Acquisition, Development, Construction and
Renovation Activities."
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 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.
For a detailed discussion of the risks associated with these types of activities
and investments, see "RISK FACTORS-- Potential Adverse Consequences of Debt
Financing."
44
<PAGE>
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.
RESTRUCTURING AND REDEVELOPMENT IN ORDER TO CREATE SUBSTANTIAL VALUE. The
Company may from time to time engage in selective restructuring and development
activities such as changing the use, tenant mix or focus of a property, as
opportunities arise and when justified by expected returns. The Company believes
that appropriate, well located properties which are currently underperforming
can be acquired on advantageous terms and repositioned through such selective
restructuring and development activities 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. For a detailed discussion of the
risks associated with these activities and investments, see "RISK FACTORS--
Acquisition, Development, Construction and Renovation Activities."
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. In determining whether to make
a loan, the Company will consider whether the borrower is willing to grant to
the Company the right to acquire some or all of the underlying real estate
securing such loan, or the right to participate in the cash flow and economic
return which may be derived from such real estate. Only if a borrower is willing
to grant one or more such rights to the Company, and the Company has satisfied
itself after reasonable due diligence that the risks associated with the
proposed loan are acceptable, will the Company be willing to make the loan.
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
45
<PAGE>
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. For a detailed discussion of the risks associated with these types of
activities and investments, see "RISK FACTORS--Disadvantages of Investments in
Debt Instruments"; "--Limited Remedies Upon Default of Mortgage Loans";
"--Disadvantages of Investments in Commercial Mortgage-Backed Securities" and
"--Limitations on Remedies Upon Default."
PROACTIVE ASSET MANAGEMENT
Using real estate information management systems, commercially available
databases and spreadsheets and analyses provided by outside vendors, all of
which are available on a wide area network, the Company's management will
regularly monitor and evaluate each portfolio asset to identify properties which
can be sold or exchanged 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. See "RISK FACTORS--Potential Adverse
Consequences of Debt Financing."
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 "RISK
FACTORS--Dividend Policy" and "THE DISTRIBUTION--Quotation and Trading of
Company Common Stock; Dividend Policy."
46
<PAGE>
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 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) 16,425,000
shares of Series A Preferred Stock in a private placement to certain QIBs at a
price per share of $5.00, for an aggregate purchase price of approximately $82.1
million. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
47
<PAGE>
BUSINESS AND PROPERTIES
PROPERTIES
The table below sets forth certain pertinent information regarding the
properties currently owned by the Company and the properties to be transferred
to the Company by Excel and EDV prior to the Distribution. All information is
presented as of January 31, 1998, unless otherwise indicated.
<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)........ (2) (2) (2) (2) (2) (2)
Scottsdale City Centre(3)..... (4) 1982 64,262 $ 1,087,190(5) $ 16.15(6) (7)
Scottsdale Towers(3).......... (8) (8) (8) (8) (8) (8)
Brio Land(3).................. Brio 1975 3,700 104,314 $ 28.19 2002
Grand Canyon(3)............... (9) (9) (9) (9) (9) (9)
California
Rancho Bernardo............... (10) (10) (10) (10) (10) (10)
San Diego..................... (11) (11) (11) (11) (11) (11)
Colorado
Brighton(1)................... Wal-Mart 1992 94,220 343,021 3.64 2008
Highlands Ranch(12)........... AMC(13) 1998 110,000 2,413,000 13) 21.94 13) 2018 (13)
Telluride Land(12)............ (14) (14) (14) (14) (14) (14)
Westminster(12)............... AMC(13) 1998 110,000 2,520,000 13) 22.91 13) 2018 (13)
Illinois
Orland Hills(1)............... Wal-Mart 1992 114,513 824,075 7.20 2009
Indiana
Decatur(1).................... Wal-Mart 1992 72,200 324,200 4.49 2009
Terre Haute(1)................ Lowe's 1993 104,259 557,786 5.36 2013
Wabash(1)..................... Wal-Mart 1992 93,465 374,604 4.01 2008
Michigan
Big Rapids(1)................. Wal-Mart 1992 91,440 337,628 3.69 2008
Ohio
Middletown(1)................. Lowe's 1993 126,400 650,000 5.14 2013
Pennsylvania
Wyomissing(1)................. Wal-Mart 1992 115,092 679,668 5.91 2008
Texas
Temple(1)..................... Wal-Mart 1992 110,580 629,771 5.70 2008
Wisconsin
Berlin(1)..................... Wal-Mart 1992 59,097 218,017 3.69 2009
---------- ------------ -----------
Total.............................................. 1,269,228 $ 11,063,274 $ 8.72
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
- --------------------------
(1) To be transferred to the Company as part of the Excel Legacy Corporation
Asset Group.
(2) Property is currently being redeveloped.
(3) To be transferred to the Company by EDV.
(4) Set forth below is a list of the tenants of the Scottsdale City Centre, in
each case followed by their approximate annual rent and square footage of
GLA: Allied Waste Industries, Inc. ($96,000, 7,400 sq. ft.); American
Airlines ($800, 450 sq. ft.); American Nortel Communications ($1,800, 1,150
sq. ft.); Arizona Subway Development ($2,400, 1,700 sq. ft.); BGNET--LLC
($5,400, 3,500 sq. ft.); CIC Systems, Inc. ($1,700, 1,100 sq. ft.); CLS
International Travel ($1,800, 1,400 sq. ft.); Commerce International
($6,300, 4,300 sq. ft.); Designlin Advertising Ltd. ($1,700, 1,500 sq. ft.);
Duke Energy Trading & Marketing ($830, 480 sq. ft.); Grand Canyon Title
Agency ($2,400, 1,700 sq. ft.); Greater Phoenix Enterprise ($4,400, 3,000
sq. ft.); Dr. Kevin Harris, D.D.S. ($2,200, 1,500 sq. ft.); Idea Man, Inc.
($3,700, 2,700 sq. ft.); Intercell Corporation ($6,100, 4,000 sq. ft.);
Margrave, Celmins & Verber ($4,900, 3,800 sq. ft.); MBA Insurance Agency of
Arizona, Inc. ($5,000, 3,300 sq. ft.); National Scientific Corporation
($3,300, 2,100 sq. ft.); Noranda Properties ($2,000, 1,500 sq. ft.); Powers
Unlimited ($1,700, 950 sq. ft.); RAS Management, Inc.
48
<PAGE>
($96,000, 6,800 sq. ft.); Shurwest, Inc. ($4,000, 2,800 sq. ft.); Sports
Tour Classics, Inc. ($4,700, 3,000 sq. ft.); Trust Realty Advisors, Inc.
(1,000, 600 sq. ft.); and VR Business Brokers/Roth & Associates, Inc.
($2,300, 1,600 sq. ft.).
(5) As of November 15, 1997.
(6) Average as of November 15, 1997.
(7) Lease terms average two years. Eight leases expire in 1998, representing
approximately 13,500 square feet of GLA and approximately $214,000 in annual
rental income. Three leases expire in 1999, representing approximately
13,500 square feet of GLA and approximately $190,000 in annual rental
income. One lease expires in 2000, representing approximately 3,000 square
feet of GLA and approximately $56,000 in annual rental income. Six leases
expire in 2001, representing approximately 16,300 square feet of GLA and
approximately $200,000 in annual rental income. One lease expires in 2002,
representing approximately 3,300 square feet of GLA and approximately
$60,000 in annual rental income. One lease expires in 2003, representing
approximately 3,800 square feet of GLA and approximately $60,000 in annual
rental income.
(8) Property consists of 3.6 acres of land and is currently being redeveloped.
(9) Property consists of 6.5 acres of land and is currently being redeveloped.
(10) Property consists of 11.1 acres of land. The Company has entered into a
contract to purchase the land, which transaction is scheduled to close in
late March 1998.
(11) Property consists of 27,000 square feet of land and is currently being
redeveloped.
(12) Owned by the Company prior to the Distribution. The Highlands Ranch and
Westminster properties were acquired by the Company on January 13, 1998. The
Telluride property was acquired by the Company on January 27, 1998.
(13) The leases with AMC for the Highlands Ranch and Westminster properties have
been executed and rental payments thereunder commenced March 15, 1998.
(14) Property consists of 0.25 acres of land and is currently being redeveloped.
SCOTTSDALE GALLERIA
In September 1993, Excel acquired the Scottsdale Galleria (the "Scottsdale
Galleria"). The Scottsdale 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 Scottsdale 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 Scottsdale Galleria.
Excel purchased the Scottsdale Galleria for approximately $11.0 million in
connection with a foreclosure of the property. The estimated fair market value
of the Scottsdale Galleria is approximately $25.0 million. The Scottsdale
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 Scottsdale Galleria's interior will need to be
re-improved in connection with any redevelopment of the property.
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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 Scottsdale
Galleria.
The purchase price for the City Centre was approximately $7.9 million.
Approximately $5.3 million of the purchase price was paid in cash, and EDV
assumed a loan with approximately $2.6 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.
SCOTTSDALE TOWERS
In March 1998, EDV acquired approximately 3.6 acres of vacant land located
in Scottsdale, Arizona (the "Scottsdale Towers") for approximately $3.6 million.
The Scottsdale Towers was purchased by EDV as an expansion site for the RFP
associated with the Waterfront Redevelopment District and the Scottsdale
Galleria. The Scottsdale Towers is located in three sections, which are adjacent
to the Scottsdale Galleria and the Brio Land.
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 Scottsdale Galleria. The Brio Land currently contains a 3,700 square
foot building which is leased to the Brio Restaurant. The Brio Restaurant's
annual rent is approximately $104,000, under a lease that expires in May 2002.
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
$1.6 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
$1.8 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.
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RANCHO BERNARDO, CALIFORNIA
The Company has entered into a contract to purchase approximately 11.1 acres
of land located in the community of Rancho Bernardo in San Diego, California for
approximately $4.0 million. The transaction is expected to close in late March
1998. On approximately 8.0 acres of this site (which is the final piece of
undeveloped land zoned for such use within this community), the Company intends
to construct and develop a build-to-suit research and development office complex
for a single-user, hi-tech, electronics manufacturer. The Company intends to
commence construction of the complex in September 1998. The complex is expected
to include a single building containing approximately 100,000 square feet and to
be constructed for a cost of approximately $11.8 million. The Company will
retain the remaining approximately 3.0 acres for future development.
SAN DIEGO, CALIFORNIA
In February 1998, EDV acquired approximately 27,000 square feet of vacant
land located in San Diego, California (the "San Diego Land") for approximately
$1.8 million. The Company currently has no plans for the San Diego Land.
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. 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.
HIGHLANDS RANCH AND WESTMINSTER, COLORADO
In January 1998, the Company acquired two properties currently under
construction situated on approximately 43.6 acres in Highlands Ranch and
Westminster, Colorado.
The acquired properties consist of two 110,000 square foot 24 screen movie
theaters, which are expected to be completed in March 1998. The Highlands Ranch
theater will contain 4,850 seats and the Westminster theater will contain 5,100
seats. Both properties are occupied by AMC. The leases are guaranteed by AMC's
parent corporation, AMC Entertainment, Inc. Each of the leases has a 20-year
term.
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For the first ten years of the lease terms, AMC's annual rent is approximately
$2.4 million for the Highlands Ranch theater and $2.5 million for the
Westminster theater. For the eleventh through fifteenth years of the lease
terms, AMC's annual rent is approximately $2.7 million for the Highlands Ranch
theater and $2.8 million for the Westminster theater. For the final five years
of the lease terms, AMC's annual rent is approximately $2.9 million for the
Highlands Ranch theater and $3.0 million for the Westminster theater. The AMC
leases are triple net leases and all property taxes on the Highlands Ranch and
Westminster properties are paid by AMC. AMC has an option to extend the term of
each lease for six consecutive periods of five years. The annual rent will
increase by approximately $300,000 to $400,000 for each option term from
approximately $3.2 million during the first option term to $5.2 million during
the sixth option term for the Highlands Ranch theater and from approximately
$3.4 million during the first option term to $5.4 million during the sixth
option term for the Westminster theater. Rent under the leases is set to
commence by March 15, 1998.
The aggregate purchase price and cost to complete construction of the
theaters will be approximately $50.0 million, consisting of approximately $24.5
million in cash paid from the proceeds of a 90-day loan that matures on March
25, 1998 and bears interest at the rate of LIBOR plus 1.2% per annum, and two
letters of credit posted by Excel with an aggregate face value of $25.5 million.
AMC will draw funds for construction of the theaters from the letters of credit,
which cover the remaining construction allowance due to AMC from the seller of
the properties. The letters of credit expire on March 25, 1998 and must be fully
repaid by the Company at that time. Any change orders or overages which would
result in construction costs above the face amount of the letters of credit are
the responsibility of AMC.
TELLURIDE, COLORADO
In January 1998, the Company acquired approximately 0.25 acres of land
located at the base of Telluride mountain in Telluride Mountain Village Ski
Resort in Telluride, Colorado for approximately $763,000. The Company intends to
develop a "ski-in" condominium development comprised of 23 units on the
property. The construction of the project will require a $6.0 million
construction loan and is expected to be completed during the summer of 1999.
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").
The Orland Hills Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $824,000, 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
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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 $324,000, 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.
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. Lowe's annual rent is approximately $557,000, 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.
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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.
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 $338,000, 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.
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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 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.
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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 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.
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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 $22.8 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 January 31, 1998, approximately $16.6 million was outstanding under the
Los Arcos Loan, plus accrued interest of approximately $2.2 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.
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.
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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 January 31, 1998,
approximately $4.3 million was outstanding under the First Street Loan,
including accrued interest of approximately $216,000. 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.
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 January 31, 1998, accrued interest
on the Grand Canyon Loan was approximately $228,000.
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 January
31, 1998, approximately $156,000 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
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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, AMC will be the Company's largest tenant,
representing approximately 45.2% of the Company's total revenue (approximately
17.4% of its GLA) as of such date. AMC's parent corporation, AMC Entertainment,
Inc., has guaranteed the leases on the Highlands Ranch and Westminster
properties under which AMC is the tenant, which guarantee will remain in place
for the full term of such leases. AMC Entertainment, Inc. is a motion picture
exhibitor and operates approximately 230 theaters (containing approximately
1,960 screens) primarily in California, Florida, Michigan, Missouri,
Pennsylvania and Texas. AMC Entertainment, Inc. also owns theaters in Japan and
Portugal. AMC Entertainment, Inc. is listed on the American Stock Exchange.
As of the Distribution Date, Wal-Mart will be the Company's second largest
tenant, representing approximately 34.2% of the Company's total revenue
(approximately 59.3% 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 December 1997, had credit ratings of AA from Standard & Poor's Corporation
("Standard & Poor's") and Aa1-Aa2 from Moody's Investors Service, Inc.
("Moody's").
As of the Distribution Date, Lowe's will be the Company's third largest
tenant, representing approximately 11.1% of the Company's total revenue
(approximately 18.2% 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 December 1997, had credit ratings of A and A2 from Standard & Poor's and
Moody's, respectively. See "RISK FACTORS--Reliance on Major Tenants."
AMC Entertainment, Inc., Wal-Mart and Lowe's are publicly-traded companies
subject to the reporting requirements of the Exchange Act, and financial and
other information regarding these companies is on file with the Commission.
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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 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, approximately 15 of whom will be shared with Excel. The shared
employees will be compensated by the Company and Excel on a pro rata basis for
time spent on their respective affairs. The Company will pay its pro rata share
of such employees' salaries to Excel and Excel will pay the employees their
regular salaries. See "RELATIONSHIP BETWEEN LEGACY AND EXCEL AFTER THE
DISTRIBUTION--Administrative Services Agreement." 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 will lease the
space from Excel at current market rates. 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.
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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., Richard J. Nordlund and Robert S. Talbot.
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
Richard J. Nordlund............. Director 52
Robert S. Talbot................ Director 44
</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.
RICHARD J. NORDLUND has served as President of RJN Management, a real estate
firm in Santa Barbara, California, for the past 10 years. From 1978 through
1988, Mr. Nordlund served as President of First Corporate Services, an
investment banking firm in Minneapolis, Minnesota. He is also associated with
Miller & Schroeder Financial, Inc. and is a Director of College Enterprises,
Inc. Mr. Nordlund's business experience includes 28 years in the investment
banking and mortgage banking industries.
ROBERT S. TALBOT is an attorney and has served as President of Holrob
Investments, LLC, a company engaged in the acquisition, development, management
and leasing of real property, since 1997. From 1985 through 1997, Mr. Talbot
served as General Counsel for Horne Properties, Inc., where he was involved in
the acquisition and development of over 100 shopping centers. He also serves as
a member of the Public
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Building Authority of Knoxville, Tennessee, as a member of the Knoxville
Industrial Development Board, as a Director of the Knoxville Chamber of Commerce
and as Chairman of the St. Mary's Foundation.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Audit Committee will consist of Messrs. Nordlund,
Parsons and Talbot. The Audit Committee will review the annual audits of the
Company's independent public accountants, review and evaluate internal
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.
Nordlund, Talbot and Wilmot. 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. Sabin,
Muir and Wilmot. 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 46
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,
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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.
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.
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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.
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.
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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.
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
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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.
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, or (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.
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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 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 "DGCL"), the
Company Certificate and the Company Bylaws.
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CERTAIN RELATIONSHIPS AND RELATED 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 $21.4 million. Such note will
bear interest at the rate of 12.0% per annum, mature in March 2003 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 $33.3
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) 16,425,000
shares of Series A Preferred Stock in a private placement to certain QIBs at a
price per share of $5.00, for an aggregate purchase price of approximately $82.1
million. The Company has agreed to grant to certain QIBs, in connection with
their purchase of Series A Preferred Stock described above, warrants to purchase
4,497,000 shares of Series A Preferred Stock at an exercise price of $5.00 per
share. One of the QIBs will be granted warrants to purchase 4,256,000 shares of
Series A Preferred Stock, which will be exercisable at any time for a period of
up to two years following the date of issuance. The other QIB will be granted
warrants to purchase 241,000 shares of Series A Preferred Stock, which will be
exercisable at any time until the earlier of (i) seven days following the date
of issuance or (ii) April 30, 1998. 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 and warrants to purchase Series A
Preferred Stock, see "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK--Series A
Preferred Stock" and "--Warrants."
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 March
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 of approximately 2.5% of
funds raised upon completion of the private placement. As noted in "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," BancBoston Capital Inc.,
an affiliate of BSI, has agreed to acquire 2,440,000 shares of Series A
Preferred Stock in the private placement and, in connection therewith, will be
granted warrants to purchase an additional 241,000 shares of Series A Preferred
Stock.
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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 RELATIONSHIPS AND RELATED 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
BENEFICIALLY BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2) BENEFICIALLY OWNED
- ----------------------------------- ----------- ------- -------------------------------------------------------
<S> <C> <C> <C>
Gary B. Sabin(3)................... 3,840,712 -- 11.9% of Company Common Stock
7.9% of Voting Stock
Richard B. Muir.................... 1,086,081 -- 3.4% of Company Common Stock
2.2% of Voting Stock
Ronald H. Sabin.................... 1,086,870 -- 3.4% of Company Common Stock
2.2% of Voting Stock
David A. Lund...................... 1,021,750 -- 3.2% of Company Common Stock
2.1% of Voting Stock
Mark T. Burton..................... 1,018,300 -- 3.2% of Company Common Stock
2.1% of Voting Stock
Graham R. Bullick.................. 1,006,605 -- 3.1% of Company Common Stock
2.1% of Voting Stock
S. Eric Ottesen.................... 1,000,556 -- 3.1% of Company Common Stock
2.1% of Voting Stock
John H. Wilmot(4).................. 91,929 -- 0.3% of Company Common Stock
0.2% of Voting Stock
Robert E. Parsons, Jr.(5).......... 4,796 -- 0.0% of Company Common Stock
0.0% of Voting Stock
Richard J. Nordlund(6)............. -- -- 0.0% of Company Common Stock
0.0% of Voting Stock
Robert S. Talbot(7)................ -- -- 0.0% of Company Common Stock
0.0% of Voting Stock
Officers and Directors as a group
(11 persons)..................... 10,157,599 -- 31.4% of Company Common Stock
20.8% of Voting Stock
Fidelity Management Company(8)..... 2,715,790 -- 8.4% of Company Common Stock
5.6% of Voting Stock
Southeastern Asset Management,
Inc.(9).......................... -- 14,600,000 0.0% of Company Common Stock
27.5% of Voting Stock
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
NUMBER OF OF
SHARES OF SERIES
COMPANY A
COMMON PREFERRED
STOCK STOCK
BENEFICIALLY BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2) BENEFICIALLY OWNED
- ----------------------------------- ----------- ------- -------------------------------------------------------
<S> <C> <C> <C>
BancBoston Capital Inc.(10)........ -- 2,681,000 0.0% of Company Common Stock
5.5% of Voting Stock
The Northwestern Mutual Life
Insurance Company(11)............ -- 2,000,000 0.0% of Company Common Stock
4.1% of Voting Stock
Allstate Insurance Company(12)..... -- 1,641,000 0.0% of Company Common Stock
3.4% of Voting Stock
</TABLE>
- ------------------------
(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 RELATIONSHIPS AND RELATED 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: Southeastern Asset Management, Inc., 10,344,000;
BancBoston Capital Inc., 2,440,000; The Northwestern Mutual Life Insurance
Company, 2,000,000; and Allstate Insurance Company, 1,641,000. See "CERTAIN
RELATIONSHIPS AND RELATED 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. Nordlund's business address is 817 Hot Springs Road, Santa Barbara,
California 93108-1108.
(7) Mr. Talbot's business address is 530 South Gay Street, Knoxville, Tennessee
37902.
(8) 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.
(9) Includes warrants to purchase 4,256,000 shares of Series A Preferred Stock
exercisable at any time for a period of up to two years following the date
of issuance. Southeastern Asset Management, Inc.'s business address is 6410
Poplar Avenue, Memphis, Tennessee 38119.
(10) Includes warrants to purchase 241,000 shares of Series A Preferred Stock
exercisable at any time for a period of up to two years following the date
of issuance. BancBoston Capital Inc.'s business address is 100 Federal
Street, Boston, Massachusetts 02110.
(11) The Northwestern Mutual Life Insurance Company's business address is 720
East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(12) Allstate Insurance Company's business address is Allstate Plaza, 3075
Sanders Road, Suite G5B, Northbrook, Illinois 60062-7127.
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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 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.
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<PAGE>
Although the Company Board has no present intention of doing so (other than
as described in the section entitled "CERTAIN RELATIONSHIPS AND RELATED
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
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<PAGE>
Company Bylaws and the Company Certificate will be expressly not exclusive of
any other rights of 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.
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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 23,160,757 shares of Company Common Stock,
constituting approximately 15.4% 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 RELATIONSHIPS AND RELATED 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 25,000,000
shares of Company Preferred Stock, constituting 50.0% of the authorized Company
Preferred Stock, as Series A Preferred Stock, to be sold in a private placement
to certain QIBs upon consummation of the Distribution. See "CERTAIN
RELATIONSHIPS AND RELATED 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."
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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
75
<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 March 2005. In March 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, on a one-for-one basis, 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
76
<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).
WARRANTS
The Company has agreed to grant to two QIBs, in connection with their
purchase of Series A Preferred Stock, warrants to purchase a total of 4,497,000
shares of Series A Preferred Stock at an exercise price of $5.00 per share,
subject to certain adjustments (the "Exercise Price"). The warrants are intended
to enable the QIBs to maintain their percentage ownership interest in the
Company for a period of time following the Distribution. One of the QIBs will be
granted warrants to purchase 4,256,000 shares of Series A Preferred Stock, which
will be exercisable, in whole or in part, at any time and from time to time
until the earlier of (i) the second anniversary of the date of issuance or (ii)
90 days after the Company has issued additional common or preferred equity in a
public offering at a price of at least $5.00 per share (the "Exercise Period").
In addition, such warrants will provide that, upon the request of the Company,
which may be delivered at any time and from time to time during the Exercise
Period, the holder shall exercise the warrants in whole or in part (as requested
by the Company); provided that such exercise does not cause the holder to
violate certain limitations with regard to its ownership of voting securities of
the Company or applicable law. If during the Exercise Period the Company
exercises its right, pursuant to the Certificate of Designation of the Series A
Preferred Stock, to convert all of the outstanding shares of Series A Preferred
Stock into shares of Company Common Stock and any warrants remain unexercised at
the time of such conversion, then such warrants shall be automatically converted
into the right to purchase the number of shares of Company Common Stock into
which the shares of Series A Preferred Stock deliverable upon exercise of the
warrants are then convertible, at a price per share equal to the Exercise Price
then in effect.
The other QIB will be granted warrants to purchase 241,000 shares of Series
A Preferred Stock, which will be exercisable, in whole or in part, at any time
and from time to time until the earlier of (i) seven days following the date of
issuance or (ii) April 30, 1998. Such warrants do not contain any of the forced
conversion provisions described 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.
77
<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.
78
<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."
79
<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 Sheets as of January 31, 1998 (unaudited) and November 17, 1997.................................. F-3
Notes to Balance Sheets.................................................................................. F-4
EXCEL LEGACY CORPORATION ASSET GROUP FINANCIAL STATEMENTS:
Report of Coopers & Lybrand L.L.P., Independent Accountants.............................................. F-6
Combined Balance Sheets as of January 31, 1998 (unaudited), July 31, 1997 and July 31,
1996................................................................................................... F-7
Combined Statements of Operations for each of the three years in the period ended July 31, 1997 and the
six months ended January 31, 1998 (unaudited) and January 31, 1997 (unaudited)......................... F-8
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 six months ended January 31, 1998 (unaudited) and January 31,
1997 (unaudited)....................................................................................... F-9
Combined Statements of Cash Flows for each of the three years in the period ended July 31, 1997 and the
six months ended January 31, 1998 (unaudited) and January 31, 1997 (unaudited)......................... F-10
Notes to Combined Financial Statements................................................................... F-11
</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 SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 17, JANUARY 31,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real Estate:
Land............................................................... $ -- $ 15,738
Building under construction........................................ -- 9,482
----- -----------
Total real estate................................................ -- 25,220
Cash................................................................. 1 34
Accounts receivable.................................................. -- 106
Interest receivable.................................................. -- 2
----- -----------
Total assets................................................... $ 1 $ 25,362
----- -----------
----- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable:
Affiliates....................................................... $ -- $ 763
Other............................................................ -- 24,452
Accounts payable................................................... -- 14
Interest payable................................................... -- 132
----- -----------
Total liabilities.............................................. -- 25,361
Stockholder's Equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none
outstanding...................................................... -- --
Common stock, $.01 par value, 150,000,000 shares authorized, 100
shares issued and outstanding.................................... -- --
Additional paid-in capital......................................... 1 1
Retained earnings.................................................. -- --
----- -----------
Total stockholder's equity..................................... 1 1
----- -----------
Total liabilities and stockholder's equity..................... $ 1 $ 25,362
----- -----------
----- -----------
</TABLE>
The accompanying notes are an integral part of the balance sheets.
F-3
<PAGE>
EXCEL LEGACY CORPORATION
NOTES TO BALANCE SHEETS
1. 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:
- Eleven single tenant free-standing buildings with a book value of $47.6
million and encumbered by mortgages of $34.2 million at January 31, 1998.
- 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 $14.7 million at January 31, 1998.
- An office building containing 64,000 square feet located in Scottsdale,
Arizona. This building was acquired in October 1997, has a book value of
approximately $7.9 million at January 31, 1998 and is encumbered by a
mortgage of $2.6 million.
- A leasehold interest in 6.5 acres of land located in Tusayan, Arizona. The
leasehold interest was acquired in November 1997 for approximately $1.8
million and will have a term of 50 years with two 10-year renewal options.
- Four notes receivable related to development projects located in Arizona
(3) and California. The principal amount of the notes at January 31, 1998
is $22.1 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 $21.4 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 has had relatively no operations since inception. Total revenues
and expenses have been less than $500, therefore, no income statement, statement
of changes in stockholder's equity or statement of cash flows has been
presented. Revenue and expenses associated with the construction of the
properties mentioned below have been capitalized.
2. REAL ESTATE (UNAUDITED):
On January 13, 1998 the Company purchased two properties currently under
construction in Highlands Ranch and Westminster, Colorado. The Company has paid
$24.4 million to date to construct the buildings with an estimated total
construction cost of $50.0 million. The buildings will be occupied by AMC
Multi-Cinema, Inc. and rent under the leases commenced March 15, 1998. On
January 29, 1998, the Company purchased a parcel of land in Telluride, Colorado
for approximately $763,000.
F-4
<PAGE>
EXCEL LEGACY CORPORATION
NOTES TO BALANCE SHEETS (CONTINUED)
3. NOTES PAYABLE (UNAUDITED):
The Company has borrowed $24.5 million from a bank. The loan is secured by
the AMC theater buildings. Monthly interest only payments at LIBOR plus 1.2% are
due until the loan matures on March 25, 1998. The Company has also borrowed
approximately $800,000 from its parent company, Excel Realty Trust, Inc. There
is no stated interest rate and the note is due on demand.
The Company has committed to lend an additional $25.5 million to finish the
AMC theater construction. The funds have been arranged through a letter of
credit from a bank.
4. COMMITMENTS TO ISSUE PREFERRED AND COMMON STOCK (UNAUDITED):
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 intends to lend 50.0%
of the amount of the purchase price or $11.0 million at a 7.0% interest rate.
The Company has obtained commitments to buy, effective upon consummation of
the Distribution, 16,425,000 shares of Series A Preferred Stock at $5.00 per
share in a private placement to certain qualified institutional buyers ("QIBs")
(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 on a one-for-one basis. The aggregate purchase price will be $80.1
million, less a 2.5% selling cost. As part of the preferred stock issuance, the
Company will issue warrants to purchase 4,497,000 shares of Series A Preferred
Stock at an exercise price of $5.00 per share to two QIBs.
F-5
<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-6
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1997
--------- --------- JANUARY 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate:
Land........................................................................ $ 15,324 $ 15,324 $ 18,647
Buildings................................................................... 34,789 34,789 40,960
Real estate under development............................................... 13,888 14,060 14,702
Leasehold interest.......................................................... -- -- 1,790
Accumulated depreciation.................................................... (2,953) (3,823) (4,301)
--------- --------- ------------
Net real estate........................................................... 61,048 60,350 71,798
Notes receivable.............................................................. 1,050 21,958 22,089
Interest receivable........................................................... 71 1,379 2,604
Other assets.................................................................. -- -- 31
--------- --------- ------------
$ 62,169 $ 83,687 $ 96,522
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND INVESTMENT BY EXCEL REALTY TRUST, INC.
Liabilities:
Mortgages payable........................................................... $ 36,754 $ 35,115 $ 36,803
Interest payable............................................................ 253 228 242
Other liabilities........................................................... -- -- 168
--------- --------- ------------
Total liabilities......................................................... 37,007 35,343 37,213
Commitments and contingencies................................................. -- -- --
Investment by Excel Realty Trust, Inc......................................... 25,162 48,344 59,309
--------- --------- ------------
$ 62,169 $ 83,687 $ 96,522
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental revenue................................................. $ 5,897 $ 4,937 $ 4,937 $ 2,468 $ 2,818
Interest....................................................... -- 95 1,458 294 1,318
--------- --------- --------- --------- ---------
Total revenue................................................ 5,897 5,032 6,395 2,762 4,136
--------- --------- --------- --------- ---------
Operating expenses:
Interest....................................................... 3,185 3,080 2,896 1,499 1,445
Depreciation and amortization.................................. 870 870 870 435 482
Administrative expenses........................................ 548 563 799 483 340
Property expenses.............................................. -- -- -- -- 94
--------- --------- --------- --------- ---------
Total operating expenses..................................... 4,603 4,513 4,565 2,417 2,361
--------- --------- --------- --------- ---------
Income before income taxes....................................... 1,294 519 1,830 345 1,775
Provision for income taxes....................................... 515 207 729 138 707
--------- --------- --------- --------- ---------
Net income..................................................... $ 779 $ 312 $ 1,101 $ 207 $ 1,068
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<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 six months ended January 31, 1998 (unaudited)..................................... 1,068
Net investment by Excel Realty Trust, Inc. (unaudited)............................................... 9,897
---------
Investment by Excel Realty Trust, Inc. at January 31, 1998 (unaudited)................................. $ 59,309
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 779 $ 312 $ 1,101 $ 207 $ 1,068
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................... 870 870 870 435 482
Change in interest receivable and other
assets........................................ -- (71) (1,308) (298) (1,257)
Change in interest payable and other
liabilities................................... (8) (9) (24) (12) 180
--------- --------- ---------- ---------- ---------
Net cash provided by operating activities......... 1,641 1,102 639 332 473
--------- --------- ---------- ---------- ---------
Cash flows from investing activities:
Net costs paid on real estate held for
development..................................... -- (5,488) (171) 99 (643)
Cash paid for real estate acquired................ -- -- -- -- (6,601)
Cash paid for leasehold interest.................. -- -- -- -- (1,790)
Advances for notes receivable..................... -- (1,050) (20,908) (16,593) (131)
--------- --------- ---------- ---------- ---------
Net cash used in investing activities............. -- (6,538) (21,079) (16,494) (9,165)
--------- --------- ---------- ---------- ---------
Cash flows from financing activities:
Principal payments of mortgages payable........... (1,365) (1,470) (1,641) (776) (1,205)
Net investment by Excel Realty Trust, Inc......... (276) 6,906 22,081 16,938 9,897
--------- --------- ---------- ---------- ---------
Net cash provided by (used in) financing
activities...................................... (1,641) 5,436 20,440 16,162 8,692
--------- --------- ---------- ---------- ---------
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-10
<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 were acquired prior to July 31, 1997 and are scheduled
to be transferred to the Company:
- Ten single tenant free-standing buildings with a book value of $45.8
million and encumbered by mortgages of $34.2 million at January 31, 1998.
- 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 $14.7 million at January 31, 1998.
- Four notes receivable related to development projects located in Arizona
(3) and California. The principal amount of the notes at January 31, 1998
is $22.1 million.
The following additional assets were acquired subsequent to July 31, 1997
and are scheduled to be transferred to the Company:
- A single-tenant free-standing building with a book value of $1.6 million
and unencumbered at January 31, 1998.
- An office building containing 64,000 square feet located in Scottsdale,
Arizona. This building was acquired in October 1997 for $7.9 million. At
January 31, 1998 the property has a book value of approximately $7.9
million and is encumbered by a mortgage of $2.6 million.
- A leasehold interest in 6.5 acres of land located in Tusayan, Arizona. The
leasehold interest was acquired in November 1997 for approximately $1.8
million and has a term of 50 years with two 10-year renewal options.
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
150,000,000 shares of $.01 par value common stock and 50,000,000 shares of $.01
par value preferred stock.
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
F-11
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION: (CONTINUED)
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 $340,000
and $483,000 for each of the six month periods ended January 31, 1998 and 1997,
respectively. In the opinion of management, the methods for allocating corporate
administrative expenses are reasonable.
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. The leasehold interest is being amortized over
the initial lease term of 50 years using the straight-line method. 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 these factors indicate that there
has been a permanent impairment in the value of its real estate, the Company
estimates the future cash flows expected to result from the operations of the
property and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the property, the Company will recognize a permanent impairment loss,
equal to the amount by which the carrying amount of the property exceeds the
fair value of the property.
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.
F-12
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 January 31, 1998, eight of the 12 operating properties held by the
Company are leased to Wal-Mart. Rents from these stores account for
approximately 65.0% of the Company's scheduled rental revenue. Two of the
operating properties, which account for 20.0% of scheduled rental revenue, are
leased to Lowe's. 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. Wal-Mart and Lowe's are publicly-traded companies,
and financial and other information regarding these companies is on file with
the Securities and Exchange Commission.
Additionally, two of the Company's notes receivable which account for 95.0%
of the Company's scheduled interest revenue at January 31, 1998 are with the
same developer. EDV is committed to provide up to approximately $9,000,000 in
additional advances related to these notes.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of January 31, 1998 and for the six
months ended January 31, 1998 and 1997 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 11 single tenant free-standing buildings
which are located in Arizona, Colorado, Illinois, Indiana (3), Michigan, Ohio,
Pennsylvania, Texas, and Wisconsin and an office building in Arizona. Eight of
the buildings are leased by Wal-Mart and two of the buildings are leased by
Lowe's. The financial statements also include a leasehold interest in land
located in Arizona.
REAL ESTATE UNDER DEVELOPMENT
The financial statements include a property located in Scottsdale, Arizona
that is under redevelopment. The shopping center is substantially vacant with
large amounts of demolition having occurred. 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
F-13
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES RECEIVABLE: (CONTINUED)
in December 1996, and matures upon the sale of the property and bears interest
at the rate of 12.0%. In addition, the borrower must pay the Company a "profits
participation" equal to 50.0% 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 January 31, 1998, July 31, 1997 and July
31, 1996 is $2,156,000, $1,193,000 and $0, respectively.
Summarized unaudited financial statements as of and for the twelve months
ended December 31, 1997 for the shopping center are as follows:
<TABLE>
<S> <C>
BALANCE SHEET:
Real estate, net of depreciation............................. $15,445,000
Other assets................................................. 1,741,000
----------
$17,186,000
----------
----------
Notes payable to the Company................................. $16,593,000
Other liabilities............................................ 2,365,000
----------
18,958,000
Partners' deficit............................................ (1,772,000)
----------
$17,186,000
----------
----------
STATEMENT OF OPERATIONS:
Total revenues............................................... $3,293,000
Operating expenses:
Property................................................... (1,737,000)
Interest................................................... (1,945,000)
Depreciation............................................... (322,000)
Amortization............................................... (251,000)
----------
Net operating loss....................................... $ (962,000)
----------
----------
</TABLE>
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 11.0% per annum. In
addition, the borrower must pay the Company a "profits participation" equal to
50.0% 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 $216,000, $84,000 and $0 at January 31, 1998, 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 7.0% 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 3.0% per annum. The note
is non-recourse and repayment of the loan is collateralized by a first mortgage
on the property.
F-14
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES RECEIVABLE: (CONTINUED)
At January 31, 1998, the Company has approximately $156,000 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 12.0%. EDV is committed to provide up to
$2,500,000 in total advances related to this project.
5. MORTGAGES PAYABLE:
Ten of the Company's single free-standing buildings are encumbered by
mortgages. The Company's office building is encumbered by a 8.125% mortgage due
in 2006. Interest rates on the properties range from 7.625% to 8.75% and mature
on various dates to 2014. Monthly payments at January 31, 1998 total $405,000.
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 six months:........................................................ $ 1,013
1999............................................................................... 2,182
2000............................................................................... 2,353
2001............................................................................... 2,538
2002............................................................................... 2,743
Thereafter......................................................................... 25,974
---------
$ 36,803
---------
---------
</TABLE>
6. MINIMUM FUTURE RENTALS:
The Company leases its properties to tenants under noncancelable operating
leases generally requiring the tenant to pay a minimum rent. The leases
generally either (i) require the tenant to pay all expenses of operating the
property such as insurance, property taxes, and structural repairs and
maintenance, or (ii) require the tenant to reimburse the Company for the
tenant's share of real estate taxes and other common area maintenance expenses.
Minimum future rental revenue for the next five years is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998, remaining six months:........................................................ $ 4,129
1999............................................................................... 5,519
2000............................................................................... 5,411
2001............................................................................... 5,268
2002............................................................................... 5,070
Thereafter......................................................................... 36,842
---------
$ 62,239
---------
---------
</TABLE>
7. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
The amounts paid for interest during the years ended July 31, 1997, 1996 and
1995 were $2,920,000, $3,089,000, and $3,193,000, respectively. For the six
months ended January 31, 1998 and 1997, interest of
F-15
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE: (CONTINUED)
$1,503,000 and $1,449,000 was paid, respectively. For the six months ended
January 31, 1997, the Company assumed mortgages payable of $2,893,000 in
conjunction with an office building acquired in Scottsdale, Arizona.
8. 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-16
<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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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
three thousand (3,000) 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 three thousand (3,000)
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
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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
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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.
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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.
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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
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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
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(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
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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
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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.
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