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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1999
REGISTRATION NO. 333-80339
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXCEL LEGACY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6512 33-0781747
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CA 92127
(858) 675-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
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GARY B. SABIN COPIES TO:
CHIEF EXECUTIVE OFFICER SCOTT N. WOLFE, ESQ.
EXCEL LEGACY CORPORATION LATHAM & WATKINS
16955 VIA DEL CAMPO, SUITE 100 701 B STREET, SUITE 2100
SAN DIEGO, CA 92127 SAN DIEGO, CALIFORNIA 92101
(858) 675-9400 (619) 236-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE(1) PRICE REGISTRATION FEE
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9.0% Convertible Redeemable
Subordinated Debentures due 2004...... $36,586,113(1) 100% $36,586,113(1) $28,895(2)
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10.0% Senior Redeemable Notes due
2004................................. $19,956,062(1) 100% $19,956,062(1) (2)
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Common Stock, par value $0.01 per
share................................ (3) (3) (3) (2)(3)
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(1) The 9.0% Convertible Redeemable Subordinated Debentures and 10.0% Senior
Redeemable Notes and cash consideration will be offered in exchange for any
and all shares of common stock of Price Enterprises, Inc. on the terms
described herein.
(2) Estimated solely for purposes of calculating the registration fee and
computed under Rule 457(f)(1) under the Securities Act of 1933, based on (i)
13,304,041 shares of the Enterprises common stock, representing all of the
issued and outstanding shares of the Enterprises common stock as of August
31, 1999, which is the maximum number of shares of the Enterprises common
stock to be received by Excel Legacy Corporation, and (ii) $7.8125, the
average of the high and low prices for the Enterprises common stock as
reported on the Nasdaq National Market on August 31, 1999. Legacy has
previously paid the amount of $28,883.
(3) Pursuant to Rule 416 under the Securities Act of 1933, the shares of Legacy
common stock being registered hereunder include the number of shares of
Legacy common stock issuable upon conversion of the Legacy debentures plus
such indeterminate number of additional shares as may become issuable upon
conversion of the Legacy debentures as a result of adjustments in the
conversion price thereof. Pursuant to Rule 457(i) under the Securities Act
of 1933, no registration fee is required for the Legacy common stock
issuable upon conversion of the Legacy debentures because no additional
consideration will be required in connection with the issuance of the Legacy
common stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED SEPTEMBER 7, 1999
OFFER TO EXCHANGE
$8.50 COMPRISED OF
$[4.25] IN CASH,
$[2.75] IN PRINCIPAL AMOUNT OF 9.0% CONVERTIBLE REDEEMABLE SUBORDINATED
DEBENTURES DUE 2004
AND
$[1.50] IN PRINCIPAL AMOUNT OF 10.0% SENIOR REDEEMABLE NOTES DUE 2004
OF
EXCEL LEGACY CORPORATION
FOR ANY AND ALL SHARES OF COMMON STOCK OF
PRICE ENTERPRISES, INC.
-------------------------
OUR OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON ,
1999, UNLESS EXTENDED.
Excel Legacy Corporation is offering to exchange a total of $8.50
consisting of $[4.25] in cash, $[2.75] in principal amount of our 9.0%
Convertible Redeemable Subordinated Debentures due 2004 and $[1.50] in principal
amount of our 10.0% Senior Redeemable Notes due 2004 for each share of common
stock of Price Enterprises, Inc. If all Enterprises' stockholders accept our
offer, in the aggregate we will pay approximately $56.5 million in cash and
issue the principal amount of approximately $36.6 million in Legacy debentures
and approximately $20.0 million in Legacy notes. Enterprises' board of directors
has approved this transaction.
The Enterprises common stock and the Enterprises preferred stock are traded
on the Nasdaq National Market under the symbols "PREN" and "PRENP,"
respectively. On August 31, 1999, the closing price for the Enterprises common
stock was $7.750 and the closing price for the Enterprises preferred stock was
$14.875. Legacy's common stock, into which the Legacy debentures may be
converted, is traded on the American Stock Exchange under the symbol "XLG." On
August 31, 1999, the closing price for the Legacy common stock was $3.688. We
intend to apply to have the Legacy debentures listed on the American Stock
Exchange. The Legacy notes are not listed on a national securities exchange or
the Nasdaq National Market and we do not intend to apply for listing with
respect to the Legacy notes.
The cash, debentures and notes issued in the exchange offer will accrue
interest from August 15, 1999. The Legacy debentures may be converted at the
option of the holder into shares of Legacy common stock at the initial
conversion price of $5.50 per share at any time before the close of business on
the maturity date of the Legacy debentures.
You have until 5:00 p.m., New York City time, on ,
1999 to accept our offer, unless extended. At that time, our offer and your
withdrawal rights will expire. This prospectus and the enclosed letter of
transmittal describe how to accept our offer.
Stockholders who hold in the aggregate 8,014,970 shares of the Enterprises
common stock, representing approximately 51% of the Enterprises voting power,
have agreed to exchange their shares in our offer. These shares have been placed
in escrow pending the closing of the exchange offer.
The Enterprises preferred stock will remain outstanding following our
offer. After the exchange, the holders of the Enterprises preferred stock will
be entitled to elect a majority of Enterprises' board of directors and to have
one designee on Legacy's board of directors. Also after the exchange, we may
merge Enterprises with a wholly-owned subsidiary of Legacy. The merger will have
no effect on Enterprises' stockholders who accept our offer. It will affect,
however, Enterprises' stockholders who do not accept our offer. If we proceed
with a merger, we will give those stockholders the identical amount and ratio of
cash, Legacy debentures and Legacy notes for their Enterprises common stock as
is being offered to you.
-------------------------
THE LEGACY DEBENTURES AND THE LEGACY NOTES WE ARE OFFERING INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS FOR A
DISCUSSION OF THE RISKS YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER AND AN
INVESTMENT IN THE DEBENTURES AND THE NOTES.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in the
exchange offer or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
-------------------------
This prospectus is dated , 1999.
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SOURCES OF ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about Legacy and Enterprises that is not included or delivered with this
document. This information is available without charge to the holders of
Enterprises common stock upon written or oral request.
You may contact the information agent with respect to the exchange offer as
follows:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005-4496
(800) 659-6590
You may contact Legacy as follows:
Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, CA 92127
(858) 675-9400
You may contact Enterprises as follows:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
(858) 581-4679
To obtain timely delivery before the expiration of our offer, you should
request the information no later than , 1999, which is
five business days prior to the expiration of our offer.
You may access documents filed by Legacy and Enterprises with the SEC at
the SEC's website at www.sec.gov. Please refer to "Where You Can Find More
Information" in this prospectus.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT OUR OFFER....................... 1
PROSPECTUS SUMMARY.......................................... 3
Summary of the Exchange Offer............................. 3
Excel Legacy Corporation.................................. 4
Price Enterprises, Inc. .................................. 4
Recent Developments....................................... 5
The Exchange Offer........................................ 5
Cash...................................................... 9
Legacy 9.0% Convertible Redeemable Subordinated Debentures
due 2004............................................... 9
Legacy 10.0% Senior Redeemable Notes due 2004............. 10
Benefits to Enterprises' Insiders in the Exchange Offer... 11
Risk Factors.............................................. 12
Summary Selected Financial Data of Legacy................. 13
Summary Selected Financial Data of Enterprises............ 14
Selected Pro Forma Consolidated Condensed Financial
Information............................................ 15
Ratio of Earnings to Fixed Charges........................ 16
Comparative Per Share Data................................ 16
Comparative Per Share Market Information.................. 17
RISK FACTORS................................................ 18
FORWARD-LOOKING STATEMENTS.................................. 29
THE EXCHANGE OFFER.......................................... 30
General................................................... 30
Background of the Exchange Offer.......................... 30
Our Reasons for the Exchange Offer........................ 35
Enterprises' Reasons for the Exchange Offer............... 37
Fairness Opinion.......................................... 40
Exchange Rate............................................. 45
Expiration Date........................................... 45
Exchange of Cash, Debentures and Notes for the Enterprises
Common Stock........................................... 45
Exchange Agent............................................ 47
Guaranteed Delivery Procedures............................ 48
Conditions to the Exchange................................ 48
Termination of the Exchange Offer......................... 50
Withdrawal Rights......................................... 50
Federal Income Tax Consequences........................... 51
Fees and Expenses......................................... 51
Resales of the Legacy Debentures and the Legacy Notes by
Enterprises' Affiliates................................ 52
Regulatory Matters........................................ 52
Effect on Options to Purchase the Enterprises Stock....... 52
Effect on the Enterprises Preferred Stock................. 52
Accounting Treatment...................................... 53
Possible Merger and Appraisal Rights...................... 53
DESCRIPTION OF THE AGREEMENTS............................... 54
The Stockholders Agreement................................ 54
The Company Agreement..................................... 56
Termination of the Agreements and Liquidated Damages...... 57
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DESCRIPTION OF LEGACY CAPITAL STOCK......................... 58
General................................................... 58
Legacy Common Stock....................................... 58
Legacy Preferred Stock.................................... 59
Registrar and Transfer Agent.............................. 59
DESCRIPTION OF THE LEGACY DEBENTURES AND THE LEGACY NOTES... 60
General................................................... 60
Maturity and Interest..................................... 60
Redemption................................................ 61
Selection and Notice of Redemption........................ 61
Ranking................................................... 61
Conversion................................................ 63
Covenants................................................. 65
Events of Default......................................... 66
Satisfaction and Discharge................................ 68
Modification of the Indentures............................ 70
Governing Law............................................. 71
The Trustee............................................... 71
Definitions............................................... 71
INFORMATION ABOUT LEGACY.................................... 73
General................................................... 73
Our Properties............................................ 73
Our Principal Tenants..................................... 76
Our Employees............................................. 76
Our Headquarters.......................................... 76
Our Directors and Officers................................ 77
INFORMATION ABOUT ENTERPRISES............................... 79
General................................................... 79
Enterprises' Properties................................... 79
Enterprises' Principal Tenants............................ 81
Enterprises' Employees.................................... 81
Enterprises' Headquarters................................. 81
Enterprises' Directors and Officers....................... 81
DIRECTORS AND MANAGEMENT OF ENTERPRISES FOLLOWING THE
EXCHANGE OFFER............................................ 83
BENEFITS TO ENTERPRISES' INSIDERS IN THE EXCHANGE OFFER..... 84
Severance Payments........................................ 84
Stock Options............................................. 86
Indemnification and Directors and Officers' Liability
Insurance.............................................. 87
COMPARISON OF STOCKHOLDER RIGHTS............................ 87
Form of Organization and Purpose.......................... 87
Capitalization............................................ 88
Restrictions on Ownership and Transfer of Stock........... 88
Amendment of Legacy's Charter and Enterprises' Charter.... 89
Stockholder Voting Rights Generally....................... 89
Stockholder Action by Written Consent..................... 90
Special Stockholder Meetings.............................. 91
Inspection Rights......................................... 91
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Number and Election of Directors.......................... 92
Removal of Directors...................................... 93
Vacancies on the Board of Directors....................... 93
Standard of Conduct....................................... 94
Advance Notice of Director Nominations and of New Business
Proposals.............................................. 94
Limitation of Liability and Indemnification of Directors
and Officers........................................... 95
Declaration of Dividends.................................. 96
Appraisal Rights.......................................... 97
Merger, Consolidation, Share Exchange and Transfer of All
or Substantially All Assets............................ 98
Change in Control Under Delaware/Maryland Law............. 99
SUMMARY SELECTED FINANCIAL DATA OF LEGACY................... 103
SUMMARY SELECTED FINANCIAL DATA OF ENTERPRISES.............. 104
EXCEL LEGACY CORPORATION UNAUDITED PRO FORMA OPERATING AND
FINANCIAL INFORMATION..................................... 105
PRICE ENTERPRISES, INC. UNAUDITED PRO FORMA OPERATING AND
FINANCIAL INFORMATION..................................... 112
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............... 117
Treatment of the Exchange Offer........................... 118
Legacy Debentures......................................... 119
Legacy Notes.............................................. 120
Legacy Common Stock....................................... 121
Information Reporting and Backup Withholding.............. 122
Proposed Legislation...................................... 123
LEGAL MATTERS............................................... 124
EXPERTS..................................................... 124
WHERE YOU CAN FIND MORE INFORMATION......................... 125
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QUESTIONS AND ANSWERS ABOUT OUR OFFER
Q1: PLEASE EXPLAIN THE EXCHANGE RATE.
A1: If the exchange occurs, you will receive $[4.25] in cash, $[2.75] in
principal amount of Legacy debentures and $[1.50] in principal amount of
Legacy notes for each share of the Enterprises common stock you choose to
exchange. However, instead of issuing Legacy debentures and notes with a
principal amount of other than $1,000 or an integral multiple of $1,000, we
will pay you cash for amounts that are below a multiple of $1,000.
Example: If you currently own 1,000 shares of the Enterprises common
stock, then after the exchange you will receive $5,500 in cash, $2,000 in
principal amount of Legacy debentures and $1,000 in principal amount of
Legacy notes. Although the exchange rate indicates that you should receive
$4,250 in cash, $2,750 in principal amount of Legacy debentures and $1,500
in principal amount of Legacy notes, we will not be issuing Legacy
debentures or Legacy notes in principal amounts other than $1,000 and
multiple integrals thereof. Accordingly, in this example, $750 otherwise
issuable in the form of a Legacy debenture and $500 otherwise issuable in
the form of a Legacy note would be added to the amount to be paid to you
in cash.
The cash, debentures and notes issued in the exchange offer will accrue
interest from August 15, 1999. The cash will accrue interest at the rate
of 8.0% per annum, the Legacy debentures will accrue interest at the rate
of 9.0% per annum, and the Legacy notes will accrue interest at the rate
of 10.0% per annum.
Q2: WHAT DO I NEED TO DO NOW?
A2: You received a letter of transmittal along with this prospectus. If you
wish to accept our offer, you must complete, sign and date the letter of
transmittal according to the instructions in this prospectus and the letter
of transmittal. You must then mail or deliver the letter of transmittal,
the stock certificates that represent the Enterprises common stock you wish
to exchange, and any other necessary documents to Norwest Bank Minnesota,
National Association, which is the exchange agent for our offer. If your
shares are held by your broker and are not certificated in your name, you
will receive instructions from your broker on how to participate in our
offer. Please contact your broker if you have not yet received instructions
regarding the exchange offer.
Q3: WHEN DO I NEED TO SEND MY LETTER OF TRANSMITTAL AND STOCK CERTIFICATES?
A3: Our offer expires at 5:00 p.m., New York City time, on
, 1999, unless we extend this time, in which case we
will issue a press release. The exchange agent must receive your letter of
transmittal, stock certificates and other necessary documents before this
expiration date.
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<PAGE> 8
Q4: CAN I CHANGE MY MIND AFTER I TENDER MY SHARES OF THE ENTERPRISES COMMON
STOCK?
A4: Yes. You may withdraw tenders of your shares of the Enterprises common
stock any time before the exchange offer expires. If you change your mind
again, you can retender your shares of the Enterprises common stock by
following the tender procedures again prior to the expiration of the
exchange offer. If the exchange is terminated without our acceptance of any
shares of the Enterprises common stock tendered, we will promptly return
all shares that you have tendered.
Q5: CAN I TENDER ONLY A PORTION OF MY SHARES OF THE ENTERPRISES COMMON STOCK IN
THE EXCHANGE OFFER?
A5: Yes, you may exchange some or all of your shares of the Enterprises common
stock.
Q6: DO I DO ANYTHING IF I WANT TO RETAIN MY SHARES OF THE ENTERPRISES COMMON
STOCK?
A6: No. If you want to retain your shares of the Enterprises common stock, you
do not need to take any action.
Q7: WHEN WILL I RECEIVE THE CASH, DEBENTURES AND NOTES?
A7: If the exchange occurs, we will send you a check for the cash portion of
our offer and the Legacy debentures and notes to which you will be entitled
promptly after the expiration date.
Q8: WHAT ARE THE TAX CONSEQUENCES OF THE EXCHANGE TO ME?
A8: The exchange of the Enterprises common stock for cash, Legacy debentures
and Legacy notes in the exchange offer will be a taxable transaction for
United States federal income tax purposes and may also be taxable under
applicable state, local and foreign tax laws. YOU SHOULD CAREFULLY READ THE
SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER, AND
OF ACQUIRING, OWNING AND DISPOSING OF THE LEGACY DEBENTURES AND THE LEGACY
NOTES, UNDER "UNITED STATES FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED
TO CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES IN YOUR PARTICULAR CIRCUMSTANCE.
Q9: WHOM SHOULD I CALL WITH QUESTIONS?
A9: If you have any questions about our offer or the exchange, you may call the
information agent, D.F. King & Co., Inc., at (800) 659-6590 to ask any
questions or to request additional documents. You may also call Graham R.
Bullick, Ph.D., our Senior Vice President of Capital Markets and head of
our Investor Relations Department at (858) 675-9400.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this prospectus. You should carefully
consider the factors set forth herein under the caption "Risk Factors" and are
urged to read this prospectus and the other exchange offer documents in their
entirety.
SUMMARY OF THE EXCHANGE OFFER
We entered into two agreements that govern our actions with respect to our
offer to exchange a total of $8.50 consisting of $[4.25] in cash, $[2.75] in
principal amount of our 9.0% Convertible Redeemable Subordinated Debentures due
2004 and $[1.50] in principal amount of our 10.0% Senior Redeemable Notes due
2004 for each share of the Enterprises common stock.
STOCKHOLDERS AGREEMENT
We entered into an agreement, dated May 12, 1999, with Sol Price, as
trustee of several trusts, all of the directors of Enterprises and some of their
family members, the President and Chief Executive Officer of Enterprises, and
numerous other individuals and entities known to Mr. Price. This first
agreement, as amended, is referred to in this prospectus as the "stockholders
agreement." Some of these stockholders, including Mr. Price, executed the
stockholders agreement on May 12, 1999, but others, including the Enterprises
directors and their family members, did not execute it until after the company
agreement described below was signed. Under the stockholders agreement, we
agreed to offer to all Enterprises' stockholders $8.50 per share for all
outstanding shares of the Enterprises common stock. To facilitate the exchange
offer, Mr. Price, as trustee, and other Enterprises' stockholders have deposited
into escrow an aggregate of 8,014,970 shares of the Enterprises common stock,
representing approximately 51% of the Enterprises voting power, and we have
deposited into escrow $8.5 million in cash. The shares held in escrow will be
tendered in the exchange offer, and the funds held in escrow will be released to
satisfy a portion of our monetary obligations under the exchange offer.
COMPANY AGREEMENT
Under the stockholders agreement, Enterprises' board of directors had the
right to determine whether the transaction would proceed and, if so, whether the
transaction would proceed as an exchange offer or a merger. The Enterprises
board met on June 2, 1999 and approved the transaction and determined that it
would proceed as an exchange offer. In deciding that the transaction should
proceed as an exchange offer, Enterprises' board focused mainly on the ability
of each holder of the Enterprises common stock to make his or her own decision
in an exchange offer as to whether to exchange the holder's shares for the
consideration offered by Legacy or to remain a stockholder of Enterprises.
Enterprises' board also believed that an exchange offer would be completed more
quickly than a merger.
Also on June 2, 1999, we entered into an agreement with Enterprises which,
as amended, is referred to in this prospectus as the "company agreement." Under
the
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company agreement, we have agreed that the holders of the Enterprises preferred
stock will be entitled, after the closing of the exchange offer, to elect a
majority of Enterprises' board of directors and to have one designee on Legacy's
board of directors, until:
- less than 2,000,000 shares of the Enterprises preferred stock remain
outstanding,
- we make an offer to purchase any and all outstanding shares of the
Enterprises preferred stock at a cash price of $16.00 per share, and
purchase all shares duly tendered and not withdrawn, or
- the directors of Enterprises (1) issue any equity securities without
unanimous approval of Enterprises' board or (2) fail to pay dividends on
the Enterprises common stock in an amount necessary to maintain
Enterprises' status as a REIT, or in an amount equal to the excess, if
any, of Enterprises' funds from operations, less preferred stock
dividends, over $7.5 million.
The third point above is intended to protect the interests of the holders
of the Enterprises preferred stock by creating an annual reserve of $7.5 million
at the Enterprises level which will not be distributed to Legacy or any other
holder of the Enterprises common stock. We have agreed with Enterprises that the
$7.5 million reserve may be used for the improvement and/or acquisition of
properties, the repurchase of the Enterprises preferred stock or the reduction
of Enterprises' debt.
EXCEL LEGACY CORPORATION
Legacy, a Delaware corporation, was formed on November 17, 1997 as a wholly
owned subsidiary of Excel Realty Trust, Inc., a Maryland corporation and a REIT.
On March 31, 1998, Excel Realty Trust effected a spin-off of our business
through a special dividend of all of our outstanding common stock to the holders
of Excel Realty Trust common stock. Excel Realty Trust effected this spin-off to
allow us to pursue a wider variety of real estate opportunities including
owning, acquiring, developing and managing retail, entertainment, office, hotel
and mixed-use projects and real estate and other operating companies throughout
the United States and Canada.
Our principal executive offices are located at 16955 Via Del Campo, Suite
100, San Diego, California 92127 and our telephone number is (858) 675-9400.
PRICE ENTERPRISES, INC.
Enterprises is a REIT incorporated in the state of Maryland. Its principal
business is to own, acquire, develop, operate, manage and lease real property.
Enterprises was originally incorporated in July 1994 as a Delaware corporation
and began operations as a wholly owned subsidiary of Costco Companies, Inc.,
formerly Price/Costco, Inc. In 1994, Costco spun-off Enterprises and transferred
to Enterprises as part of a voluntary exchange offer substantially all of the
real estate assets which historically formed Costco's non-club real estate
business segment, merchandising business entities and other assets. In June
1997, Enterprises' board of directors determined that it would be
4
<PAGE> 11
in the best interest of Enterprises and its stockholders to separate
Enterprises' core real estate business from its merchandising businesses. In
August 1997, Enterprises' merchandising businesses, real estate properties held
for sale, and various other assets were spun-off to PriceSmart, Inc. Through a
stock distribution, PriceSmart became a separate public company. Since that
time, Enterprises has engaged in a combination of acquiring, developing, owning,
managing and/or selling real estate assets, primarily shopping centers. The
PriceSmart distribution resulted in Enterprises becoming eligible to elect
federal tax treatment as a REIT, which allows Enterprises to substantially
eliminate its obligation to pay taxes on income.
Enterprises' principal executive offices are located at 4649 Morena
Boulevard, San Diego, California 92117 and its telephone number is (858)
581-4679.
RECENT DEVELOPMENTS
On August 23, 1999, Legacy sold to Wal Mart Real Estate Business Trust
eight properties that were previously under lease to Wal Mart Stores, Inc. for
aggregate consideration of approximately $35.0 million in cash and the
assumption of approximately $24.0 million in liabilities. The properties consist
of retail centers located in Brighton, Colorado; Orlando Hills, Illinois;
Decatur, Indiana; Wabash, Indiana; Big Rapids, Michigan; Wyomissing,
Pennsylvania; Temple, Texas; and Berlin, Wisconsin.
On September 1, 1999, Sol Price agreed to make a two-year secured loan to
Legacy in the principal amount of up to $30.0 million. The exact amount of the
loan will depend on the amount of funds required by Legacy to satisfy its
monetary obligations under the exchange offer. The loan will bear interest at
the London interbank offered rate (LIBOR) plus 1.5% and will be secured by the
Enterprises common stock owned at any time by Legacy. Legacy may prepay the loan
at any time prior to its maturity without any prepayment penalty. The loan
transaction is subject to, and scheduled to close concurrently with, the closing
of the exchange offer.
Legacy entered into these two transactions to obtain additional funds for
the cash consideration required in the exchange offer.
THE EXCHANGE OFFER
TERMS OF OUR OFFER........... We are offering to exchange $8.50 consisting of
$[4.25] in cash, $[2.75] in principal amount of
our 9.0% Convertible Redeemable Subordinated
Debentures due 2004 and $[1.50] in principal
amount of our 10.0% Senior Redeemable Notes due
2004 for each share of the Enterprises common
stock held by you. However, instead of issuing
Legacy debentures and notes with a principal
amount of other than $1,000 or an integral
multiple of $1,000, we will pay you cash for
amounts that are below a multiple of $1,000.
5
<PAGE> 12
Under the stockholders agreement, the cash,
debentures and notes issued in the exchange
offer will accrue interest from August 15, 1999.
The cash will accrue interest at the rate of
8.0% per annum, the Legacy debentures will
accrue interest at the rate of 9.0% per annum,
and the Legacy notes will accrue interest at the
rate of 10.0% per annum.
All shares of the Enterprises common stock
properly tendered and not withdrawn will be
exchanged at the exchange rate, on the terms and
subject to the conditions of the exchange offer.
We will promptly return any shares of the
Enterprises common stock if the conditions of
the exchange offer are not met.
EXPIRATION DATE.............. You have until 5:00 p.m., New York City time, on
, 1999 to accept our offer, unless
extended. At that time, our offer will expire.
If we extend the expiration date, we will
publicly announce the extension as soon as
practicable after we make the extension and in
any event no later than 9:00 a.m. New York City
time on the next business day after the
previously scheduled expiration date.
WITHDRAWAL RIGHTS............ You may withdraw tenders of your shares of the
Enterprises common stock at any time before the
exchange offer expires. If you change your mind
again, you may retender your shares of the
Enterprises common stock by following the
exchange offer procedures again prior to the
expiration of the exchange offer.
CONDITIONS TO THE EXCHANGE
OFFER...................... Our offer is conditioned upon 8,000,000 shares
of the Enterprises common stock being tendered
for exchange and not withdrawn. Under the
stockholders agreement, Sol Price, as trustee of
several trusts, and other stockholders of
Enterprises have agreed to exchange their shares
of the Enterprises common stock, which together
aggregate 8,014,970 shares. These shares have
been placed in escrow pending the closing of the
exchange offer. Although we expect the minimum
number of shares of the Enterprises common stock
to be tendered in the exchange offer from the
escrow described above, it is very important to
us that you tender your shares.
6
<PAGE> 13
PROCEDURES FOR TENDERING YOUR
SHARES OF THE ENTERPRISES
COMMON STOCK............... If you hold certificates for shares of the
Enterprises common stock, you must complete and
sign the letter of transmittal designating the
number of the Enterprises shares you wish to
tender and return the letter with your stock
certificates and any other documents required by
the letter of transmittal, by registered mail,
return receipt requested, so that it is received
by the exchange agent at one of the addresses
listed in "The Exchange Offer -- The Exchange
Agent" before the expiration of the exchange
offer on , 1999.
If you hold shares of the Enterprises common
stock through a broker, you should receive
instructions from your broker on how to
participate. In this situation, you do not need
to complete the letter of transmittal. Please
contact your broker directly if you have not yet
received instructions. Some financial
institutions may also effect tenders by
book-entry transfer through The Depository Trust
Company.
If you hold certificates for shares of the
Enterprises common stock or if you hold the
Enterprises shares through a broker, you may
also comply with the procedures for guaranteed
delivery.
GUARANTEED DELIVERY
PROCEDURES................. Holders of the Enterprises common stock who wish
to tender their shares and whose shares are not
immediately available or who cannot deliver
their certificates for the Enterprises common
stock, the letter of transmittal or any other
documentation required by the letter of
transmittal to the exchange agent prior to the
expiration date must tender their shares of the
Enterprises common stock according to the
guaranteed delivery procedures described in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
ACCEPTANCE OF THE ENTERPRISES
COMMON STOCK AND DELIVERY
OF CASH, LEGACY DEBENTURES
AND LEGACY NOTES........... Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will accept
for exchange any and all shares of the
Enterprises common stock that are properly
tendered in the exchange offer and not withdrawn
prior to the expiration date. The cash, Legacy
debentures and Legacy notes to be delivered in
exchange for your shares of the Enterprises
7
<PAGE> 14
common stock will be delivered promptly
following the expiration of our offer.
UNITED STATED FEDERAL INCOME
TAX CONSEQUENCES........... The exchange of the Enterprises common stock for
cash, Legacy debentures and Legacy notes in the
exchange offer will be a taxable transaction for
United States federal income tax purposes and
may also be taxable under applicable state,
local and foreign tax laws. YOU SHOULD CAREFULLY
READ THE SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE OFFER, AND OF
ACQUIRING, OWNING AND DISPOSING OF THE LEGACY
DEBENTURES AND THE LEGACY NOTES, UNDER "UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES" AND ARE
URGED TO CONSULT WITH YOUR OWN TAX ADVISORS AS
TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES IN YOUR PARTICULAR CIRCUMSTANCE.
NO APPRAISAL RIGHTS.......... No appraisal rights are available to
stockholders of Enterprises in connection with
the exchange offer.
Following the exchange offer, we may merge
Enterprises with a wholly-owned subsidiary of
Legacy. If the Enterprises common stock is
listed on the Nasdaq National Market on the
record date for determining stockholders
entitled to vote on the merger, no appraisal
rights will be available to Enterprises'
stockholders in connection with the merger. In
contrast, if the Enterprises common stock is not
listed on the Nasdaq National Market on such
record date, Enterprises' stockholders will be
entitled to appraisal rights in connection with
the merger. The continued listing of the
Enterprises common stock will depend on the
number of shares outstanding after the exchange
offer. There will be approximately 5.3 million
shares outstanding after the tender of the
Enterprises common stock held in escrow under
the stockholders agreement. If a sufficient
number of additional shares is tendered to
reduce the outstanding shares below 750,000,
which is the minimum number required by the
Nasdaq National Market for continued listing,
the Enterprises common stock may be delisted
from the Nasdaq National Market and Enterprises'
stockholders may be entitled to appraisal rights
in connection with the merger.
EXCHANGE AGENT............... Norwest Bank Minnesota, National Association is
serving as the exchange agent in connection with
our exchange offer.
8
<PAGE> 15
INFORMATION AGENT............ D.F. King & Co., Inc. is serving as the
information agent in connection with our
exchange offer.
CASH
CASH OFFERED................. In addition to $[2.75] in principal amount of
Legacy debentures and $[1.50] in principal
amount of Legacy notes, we will pay $[4.25] in
cash for each share of the Enterprises common
stock tendered in the exchange offer. We will
pay the aggregate amount of approximately $56.5
million in cash assuming all outstanding shares
of the Enterprises common stock are exchanged.
INTEREST..................... Under the stockholders agreement, interest will
begin to accrue on the cash from August 15, 1999
at the rate of 8.0% per annum. The interest will
be paid with the cash portion of the offer
promptly after the expiration date.
LEGACY 9.0% CONVERTIBLE REDEEMABLE SUBORDINATED DEBENTURES DUE 2004
SECURITIES OFFERED........... In addition to $[4.25] in cash and $[1.50] in
principal amount of Legacy notes, we will pay
$[2.75] in principal amount of our 9.0%
Convertible Redeemable Subordinated Debentures
due 2004 for each share of the Enterprises
common stock tendered in the exchange offer. We
will not, however, issue debentures in a
principal amount of other than $1,000 or an
integral multiple of $1,000. Instead, we will
pay you cash for amounts that are below a
multiple of $1,000.
We will issue approximately $36.6 million in
aggregate principal amount of Legacy debentures
assuming all outstanding shares of the
Enterprises common stock are exchanged.
MATURITY..................... , 2004.
INTEREST..................... Under the stockholders agreement, interest will
begin to accrue on the Legacy debentures from
August 15, 1999 at the rate of 9.0% per annum.
Cash interest will be payable on the Legacy
debentures semi-annually in arrears on
and
, commencing
, 2000.
9
<PAGE> 16
CONVERSION................... The Legacy debentures may be converted at the
option of the holder into shares of Legacy
common stock at the initial conversion price of
$5.50 per share at any time before the close of
business on the maturity date of the Legacy
debentures.
RANKING...................... The Legacy debentures will be unsecured
subordinated obligations and will rank junior in
right of payment to all of our existing and
future indebtedness that is not expressly
subordinated to the debentures. As of August 31,
1999, we had outstanding approximately $98.4
million of senior indebtedness.
OPTIONAL REDEMPTION.......... The Legacy debentures may be redeemed at our
option, in whole or in part, at any time on or
after , 2001, at the
redemption price of 100% of the principal amount
of the Legacy debentures, plus accrued and
unpaid interest through the redemption date.
LEGACY 10.0% SENIOR REDEEMABLE NOTES DUE 2004
SECURITIES OFFERED........... In addition to $[4.25] in cash and $[2.75] in
principal amount of Legacy debentures, we will
pay $[1.50] in principal amount of our 10.0%
Senior Redeemable Notes due 2004 for each share
of the Enterprises common stock tendered in the
exchange offer. We will not, however, issue
notes in a principal amount of other than $1,000
or an integral multiple of $1,000. Instead, we
will pay you cash for amounts that are below a
multiple of $1,000.
We will issue approximately $20.0 million in
aggregate principal amount of Legacy notes
assuming all outstanding shares of the
Enterprises common stock are exchanged.
MATURITY..................... , 2004.
INTEREST..................... Under the stockholders agreement, interest will
begin to accrue on the Legacy notes from August
15, 1999 at the rate of 10.0% per annum. Cash
interest will be payable on the Legacy notes
semi-annually in arrears on
and
, commencing
, 2000.
RANKING...................... The Legacy notes will be senior obligations of
Legacy, will rank equal in right of payment with
all existing and future senior indebtedness of
Legacy and will rank senior in right of payment
to the Legacy
10
<PAGE> 17
debentures and any future subordinated
indebtedness of Legacy, provided that the Legacy
notes will be effectively subordinated to our
secured indebtedness and the indebtedness and
other liabilities of our subsidiaries.
As of August 31, 1999, we had approximately
$98.4 million in outstanding secured debt that
effectively ranks senior to the Legacy notes,
and no outstanding debt that ranks equal or
junior to the Legacy notes. The Legacy
debentures, however, will rank junior in right
of payment to the Legacy notes.
OPTIONAL REDEMPTION.......... The Legacy notes may be redeemed at our option,
in whole or in part, at any time at the
redemption price of 100% of the principal amount
of the Legacy notes, plus accrued and unpaid
interest through the redemption date.
BENEFITS TO ENTERPRISES' INSIDERS IN THE EXCHANGE OFFER
In considering whether to exchange your shares of the Enterprises common
stock, you should be aware of the interests that directors, executive officers
and other personnel of Enterprises have in the exchange offer. These include:
- severance payments,
- acceleration of vesting of the Enterprises stock options and cash
payments with respect to those options, and
- continuing indemnification and directors and officers' liability
insurance.
The following table summarizes the aggregate amount of severance payments
and cash payments with respect to options to be made in connection with the
exchange offer:
<TABLE>
<CAPTION>
CASH PAYMENTS WITH
CASH RESPECT TO THE
INSIDERS AND OTHER PERSONNEL OF ENTERPRISES SEVERANCE PAYMENTS ENTERPRISES OPTIONS
- ------------------------------------------- ------------------ -------------------
<S> <C> <C>
Jack McGrory,
President and Chief Executive Officer..... $ 360,000 $ 992,582
Gary W. Nielson,
Former Executive Vice President and Chief
Financial Officer......................... 210,000 199,500
Joseph R. Satz,
Executive Vice President and General
Counsel................................... 215,000 277,429
All non-employee directors.................. -- 329,278
All other personnel......................... 1,316,500 1,342,554
---------- ----------
Total............................. $2,101,500 $3,141,343
========== ==========
</TABLE>
These interests are different from and in addition to your and their
interests as stockholders.
11
<PAGE> 18
RISK FACTORS
You should carefully consider all of the information set forth in this
prospectus and, in particular, should evaluate the specific risk factors set
forth under the caption "Risk Factors" for a discussion of some of the risks
involved with our offer and the receipt of the Legacy debentures and the Legacy
notes. These risk factors include the following:
- Our limited operating history makes it difficult to evaluate our
business,
- We may face significant competition from developers, owners and operators
of real estate properties which may inhibit the success of our business,
- Our financial performance depends on regional economic conditions since
many of our properties and investments are located in Arizona, California
and Colorado,
- Our use of debt to finance acquisitions and developments could adversely
affect our business,
- We may not realize the expected benefits from the exchange offer, making
our future financial performance uncertain,
- The protections in the company agreement for Enterprises' preferred
stockholders limit Enterprises' common stockholders' ability to control
Enterprises and receive dividends,
- There is no established market for the Legacy debentures or the Legacy
notes, and
- The Legacy debentures and the Legacy notes are effectively subordinated
to secured indebtedness and indebtedness of our subsidiaries.
12
<PAGE> 19
SUMMARY SELECTED FINANCIAL DATA OF LEGACY
The selected financial data presented below as of July 31, 1998 and for the
period from November 17, 1997 (inception) to July 31, 1998 have been derived
from the audited financial statements of Legacy. The selected financial data
presented below as of December 31, 1998 and June 30, 1999 and for the five
months ended December 31, 1998 and the six months ended June 30, 1999 have been
derived from the unaudited financial statements of Legacy. The selected
financial data presented below as of July 31, 1997, 1996 and 1995 and for the
eight months ended March 31, 1998 and each of the three years in the period
ended July 31, 1997 have been derived from the audited financial statements of
the Excel Legacy Corporation Asset Group. In the opinion of our management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which consist only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1999. The
data below should be read in conjunction with our Annual Report on Form 10-K for
the fiscal year ended July 31, 1998, as amended, our Transition Report on Form
10-Q for the five months ended December 31, 1998, and our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, each of which is incorporated
herein by reference.
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS FIVE MONTHS INCEPTION EIGHT MONTHS
ENDED ENDED (NOVEMBER 17, ENDED YEAR ENDED JULY 31,
JUNE 30, DECEMBER 31, 1997) TO MARCH 31, ---------------------------
1999 1998 JULY 31, 1998 1998 1997 1996 1995
---------- ------------ ------------- ------------ ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Total revenue................. $ 15,433 $ 15,010 $ 8,145 $ 3,757 $ 6,395 $ 5,032 $ 5,897
Total operating expenses...... (14,334) (13,754) (5,267) (3,149) (4,565) (4,513) (4,803)
Net income before income
taxes....................... 1,099 1,256 2,878 2,385) 1,830 519 1,794
Provision of income taxes..... (413) (535) (1,143) 946 (729) (207) (515)
Net income.................... 686 721 1,735 1,419 1,101 312 779
Earnings before depreciation,
amortization and deferred
taxes ("EBDADT")............ 2,812 2,712 3,001 N/A N/A N/A N/A
Earnings before income taxes,
depreciation and
amortization ("EBITDA")..... 3,178 5,819 5,453 N/A N/A N/A N/A
Net income per share:
Basic....................... $ 0.02 $ 0.02 $ 0.11 N/A N/A N/A N/A
Diluted..................... 0.01 0.01 0.07 N/A N/A N/A N/A
Weighted average number of
shares:
Basic....................... 33,458 33,458 15,842 N/A N/A N/A N/A
Diluted..................... 54,755 54,768 25,984 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF JULY 31,
JUNE 30, DECEMBER 31, JULY 31, MARCH 31, ---------------------------
1999 1998 1998 1998 1997 1996 1995
--------- ------------ ------------- ------------ ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Net real estate.............. $193,525 $190,878 $ 175,756 (1) $60,350 $61,048 $56,184
Total assets................. 290,690 261,296 246,916 (1) 83,687 62,169 59,388
Mortgages and notes
payable.................... 118,996 90,986 72,714 (1) 35,115 36,754 38,224
Stockholders' equity......... 167,326 166,640 165,919 (1) -- -- --
Investment by Excel Realty
Trust, Inc................. -- -- -- (1) 48,344 25,162 20,903
</TABLE>
- -------------------------
(1) Not applicable as assets were spun-off to Legacy at March 31, 1998.
13
<PAGE> 20
SUMMARY SELECTED FINANCIAL DATA OF ENTERPRISES
The selected financial data presented below as of August 31, 1994, 1995,
1996, and 1997 and as of December 31, 1997 and 1998, and for the twelve months
ended August 31, 1994, 1995, 1996, and 1997, the four months ended December 31,
1997 and the twelve months ended December 31, 1998 have been derived from the
audited financial statements of Enterprises. The selected financial data
presented below as of June 30, 1999 and for the six months ended June 30, 1999
have been derived from the unaudited financial statements of Enterprises. In the
opinion of Enterprises' management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary for a
fair presentation of the financial position and the results of operations for
these periods. Operating results for the six month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 1999. The data below should be read in conjunction with
Enterprises' Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, and Enterprises' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
FOUR MONTHS
SIX MONTHS ENDED YEAR ENDED AUGUST 31
ENDED YEAR ENDED DECEMBER 31, ---------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 1997 1997 1996 1995 1994
------------- ----------------- ------------ ------- ------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Rental revenues......... $ 34,281 $62,485 $18,170 $56,838 $56,221 $ 51,897 $ 30,316
Operating income
(loss)................ 17,791 31,393 9,045 22,422 5,829 16,635 (74,711)
Income (loss) from
continuing
operations............ 19,825 29,429 17,508 19,085 8,340 13,297 (40,596)
Discontinued
operations............ -- -- -- (4,860) (8,250) (12,751) (883)
Net income.............. 19,825 29,429 17,508 14,225 90 546 (41,479)
Dividends paid to
preferred
stockholders.......... (16,631) (8,316) -- -- -- -- --
Net income applicable to
common stockholders... 3,194 21,113 17,508 14,225 90 546 (41,479)
Net income (loss) per
common share from
continuing operations --
basic................... .24 .97 .74 .82 .36 .53 (1.50)
Cash dividends per
share................. .70 1.40 .35 1.20 -- .08 --
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31 AS OF AUGUST 31
JUNE 30, ------------------- -----------------------------------------
1999 1998 1997 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Real estate assets, net........ $399,429 $418,507 $353,056 $337,139 $337,098 $330,443 $405,966
Total assets............. 434,832 457,352 408,478 403,757 540,325 555,994 591,511
Long-term debt................. 8,877 8,923 -- -- -- 15,425 --
Stockholders' equity........... 348,081 344,811 406,624 396,476 532,899 532,085 578,788(1)
Book value per common share.... (.40) (.65) 17.13 16.78 22.88 22.90 21.44
</TABLE>
- -------------------------
(1) Amount represents investment by Costco prior to the spin-off of Enterprises.
14
<PAGE> 21
SELECTED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
In the table below, we provide you with unaudited selected pro forma
consolidated condensed financial information for Legacy as if the exchange offer
had closed on January 1, 1998 for income statement purposes and on June 30, 1999
for balance sheet purposes. Because holders of the Enterprises preferred stock
will be entitled to elect a majority of Enterprises' board of directors
following the closing of the exchange offer, Enterprises has been reflected as
an equity method investment in the pro forma financial statements.
The pro forma data included herein may not be indicative of the actual
results or financial position had the exchange offer closed on the dates
indicated. You should read this information in connection with, and such
information is qualified in its entirety by, the financial statements and
accompanying notes of Legacy and Enterprises incorporated by reference in this
prospectus and the "Unaudited Pro Forma Operating and Financial Information" and
accompanying notes included in this prospectus.
Upon the closing of the exchange offer, the actual financial position and
results of operations of Legacy will differ, perhaps materially, from the pro
forma amounts reflected herein due to a variety of factors, including changes in
operating results between the dates of the pro forma financial information and
the time the exchange offer is closed, as well as the factors discussed in "Risk
Factors."
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
--------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
INCOME STATEMENT DATA:
Revenues...................................... $10,970 $13,834
Loss before income taxes...................... (2,203) (4,273)
Net loss applicable to common shares.......... (523) (4,273)
EBDADT(1)..................................... 5,063 4,629
Weighted average basic number of common shares
outstanding................................ 33,458 25,205
Weighted average diluted number of common
shares outstanding......................... 54,755 41,312
Basic net loss per common share............... $ (0.02) $ (0.17)
Diluted net loss per common share............. (0.01) (0.10)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1999
--------
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DATA:
Total assets.............................................. $353,390
Mortgages and notes payable (including the Legacy
debentures, the Legacy notes and the note to Sol
Price)................................................. 182,036
Stockholders' equity...................................... 167,326
</TABLE>
- -------------------------
(1) EBDADT includes the earnings of Enterprises even though Legacy is required
by the company agreement to create an annual reserve of $7.5 million at the
Enterprises level which will not be distributed to Legacy or any other
holder of the Enterprises common stock. We have agreed with Enterprises that
the $7.5 million reserve may be used for the improvement and/or acquisition
of properties, the repurchase of the Enterprises preferred stock or the
reduction of Enterprises' debt.
15
<PAGE> 22
RATIO OF EARNINGS TO FIXED CHARGES
Legacy's ratios of earnings to fixed charges are as follows for the periods
indicated:
<TABLE>
<CAPTION>
FROM INCEPTION TO FIVE MONTHS SIX MONTHS
FISCAL YEAR ENDED ENDED
ENDED DECEMBER 31, JUNE 30,
JULY 31, 1998 1998 1999
----------------- ------------ ----------
<S> <C> <C> <C>
Ratio of earnings to fixed
charges........................... 2.61x 1.47x 1.45x
</TABLE>
There were no preferred stock dividends through June 30, 1999. We have
computed the ratio of earnings to fixed charges by dividing income before income
taxes and minority interests plus fixed charges, excluding capitalized interest,
by fixed charges.
COMPARATIVE PER SHARE DATA
The table below sets forth, for the periods indicated:
- the historical basic and diluted net income and book value per share of
the Legacy common stock in comparison with the pro forma basic and
diluted net income and book value per share after giving effect to the
closing of the exchange offer,
- the historical basic and diluted net income and book value per share of
the Enterprises common stock, and
- the actual cash dividends per share compared in the case of Legacy with
pro forma cash dividends after giving effect to the closing of the
exchange offer.
The information presented in this table should be read in conjunction with
the pro forma consolidated condensed financial information and the separate
financial statements of Legacy and Enterprises incorporated by reference in this
prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1999 1998
----------------- -----------------
<S> <C> <C>
Legacy historical
Net income per common share -- basic......... $ 0.02 $ 0.10
Net income per common share -- diluted....... 0.01 0.06
Cash dividends paid per common share......... -- --
Book value per common share.................. 5.03 4.98
Enterprises historical
Net income per common share -- basic......... .30 0.97
Net income per common share -- diluted....... .29 0.96
Cash dividends paid per common share......... -- 1.05
Book value per common share.................. (0.40) (0.65)
Unaudited Legacy pro forma
Net loss per common share -- basic........... (0.02) (0.17)
Net loss per common share -- diluted......... (0.01) (0.10)
Cash dividends paid per common share......... -- --
Book value per common share.................. 5.03
</TABLE>
16
<PAGE> 23
COMPARATIVE PER SHARE MARKET INFORMATION
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of the Legacy common stock, the Enterprises
common stock and the Enterprises preferred stock. Legacy's common stock was
quoted on the OTC Bulletin Board under the symbol "XLCY" from March 30, 1998 to
November 16, 1998 and has been listed on the American Stock Exchange under the
symbol "XLG" from November 17, 1998 to the present. Legacy's Series B preferred
stock is not listed on any securities exchange. The Enterprises common stock and
the Enterprises preferred stock are listed on the Nasdaq National Market under
the symbols "PREN" and "PRENP," respectively.
<TABLE>
<CAPTION>
LEGACY ENTERPRISES ENTERPRISES
COMMON STOCK COMMON STOCK PREFERRED STOCK(1)
--------------- ----------------- -------------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.............. $ -- $ -- $19.000 $16.750 $ -- $ --
Second Quarter............. -- -- 19.625 17.375 -- --
Third Quarter.............. -- 23.000 17.625 -- --
Fourth Quarter............. -- -- 19.375 17.125 -- --
1998
First Quarter.............. 6.000 4.875 20.250 18.000 -- --
Second Quarter............. 6.750 4.297 19.500 17.375 -- --
Third Quarter.............. 5.000 2.500 19.250 2.250(1) 15.000 12.875
Fourth Quarter............. 4.000 1.875 6.219 4.250 14.250 13.000
1999
First Quarter.............. 4.000 3.063 6.000 4.344 15.125 13.500
Second Quarter............. 5.688 2.875 8.000 4.875 15.500 14.313
Third Quarter (through
August 31)............... 4.750 3.500 8.000 7.250 16.250 14.625
</TABLE>
- -------------------------
(1) On August 17, 1998, Enterprises distributed one share of its preferred stock
for each outstanding share of its common stock owned of record on June 30,
1998.
Set forth below are the reported high, low and closing sales prices of the
Legacy common stock, the Enterprises common stock and the Enterprises preferred
stock on May 11, 1999, the last trading day prior to the announcement of the
stockholders agreement.
<TABLE>
<CAPTION>
LEGACY ENTERPRISES ENTERPRISES
COMMON STOCK COMMON STOCK PREFERRED STOCK
- --------------------------- ------------------------------ ------------------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
- ------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4.938.. $4.750 $4.875 $7.250 $6.625 $6.750 $15.000 $14.875 $14.875
</TABLE>
Set forth below are the reported high, low and closing sales prices of the
Legacy common stock, the Enterprises common stock and the Enterprises preferred
stock on June 1, 1999, the last trading day prior to the announcement of the
company agreement.
<TABLE>
<CAPTION>
LEGACY ENTERPRISES ENTERPRISES
COMMON STOCK COMMON STOCK PREFERRED STOCK
- --------------------------- ------------------------------ ------------------------------
HIGH LOW CLOSE HIGH LOW CLOSE HIGH LOW CLOSE
- ------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5.125.. $4.875 $4.875 $7.750 $7.688 $7.750 $15.188 $15.000 $15.188
</TABLE>
17
<PAGE> 24
RISK FACTORS
You should carefully consider all of the information contained in this
prospectus or incorporated in this prospectus by reference and, in particular,
the following risk factors in considering whether or not to tender your shares
of the Enterprises common stock in the exchange offer. Certain statements in
this prospectus that are not historical fact constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results to be
materially different from results expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, but are not
limited to, the following factors.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
Legacy was incorporated in November 1997 and became an independent business
in March 1998 after Excel Realty Trust completed a spin-off of our business.
Accordingly, we have a limited operating history on which to base an evaluation
of our business and prospects. You must consider our prospects in light of the
risks and uncertainties encountered by companies in the early stages of
development, particularly companies in the real estate industry.
OUR TENANTS MAY FACE FINANCIAL DIFFICULTIES AND BE UNABLE TO PAY RENT WHICH MAY,
IN TURN, CAUSE FINANCIAL DIFFICULTIES FOR US
Our financial position may be materially harmed if any of our major
tenants, including AMC Multi-Cinema, Inc. and Lowe's Home Centers, Inc., or any
other significant tenant experiences financial difficulties, such as a
bankruptcy, insolvency or general downturn in the business of the tenant. In
addition, any failure or delay by any of our tenants to make rent payments could
impair our financial condition and materially harm our business. As of August
31, 1999, AMC accounted for approximately 58% of our total rental revenue and
Lowe's accounted for approximately 14% of our total rental revenue. In our most
recent quarterly period rental revenue accounted for approximately 50% of our
total revenue. Although failure on the part of a tenant to materially comply
with the terms of a lease, including failure to pay rent, would give us the
right to terminate the lease, repossess the property and enforce the payment
obligations under the lease, we would then be required to find another tenant to
lease the property. We cannot assure you that we would be able to enforce the
payment obligations against the defaulting tenant, find another tenant or, if
another tenant were found, that we would be able to enter into a new lease on
favorable terms.
WE MAY FACE SIGNIFICANT COMPETITION FROM DEVELOPERS, OWNERS AND OPERATORS OF
REAL ESTATE PROPERTIES WHICH MAY INHIBIT THE SUCCESS OF OUR BUSINESS
We compete in the acquisition of real estate properties with over 200
publicly-traded REITs as well as other public and private real estate investment
entities, including financial institutions such as mortgage banks and pension
funds, and other institutional investors, as well as individuals. Competition
from these entities may impair our financial condition and materially harm our
business by reducing the number of suitable investment opportunities offered to
us and increasing the bargaining power of prospective sellers of property, which
often increases the price necessary to
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<PAGE> 25
purchase a property. Many of our competitors in the real estate sector are
significantly larger than us and may have greater financial resources and more
experienced managers than us.
In addition, a large portion of our developed properties are located in
areas where our competitors maintain similar properties. We will need to compete
for tenants based on rental rates, attractiveness and location of properties, as
well as quality of maintenance and management services. Competition from these
and other properties may impair our financial condition and materially harm our
business by:
- interfering with our ability to attract and retain tenants,
- increasing vacancies, which lowers market rental rates and limits our
ability to negotiate favorable rental rates, and
- impairing our ability to minimize operating expenses.
OUR FINANCIAL PERFORMANCE DEPENDS ON REGIONAL ECONOMIC CONDITIONS SINCE MANY OF
OUR PROPERTIES AND INVESTMENTS ARE LOCATED IN ARIZONA, CALIFORNIA AND COLORADO
Of our 15 properties and real estate-related investments, 12 are located in
three states: six in Arizona, three in Colorado and three in California.
Concentrating most of our properties and real estate-related investments in
these states may expose us to greater economic risks than if our properties and
real estate-related investments were located in several geographic regions. Our
revenue from, and the value of, our properties and investments located in these
states may be affected by a number of factors, including local real estate
conditions, such as an oversupply of or reduced demand for real estate
properties, and the local economic climate. High unemployment, business
downsizing, industry slowdowns, changing demographics, and other factors may
adversely impact any of these local economic climates. A general downturn in the
economy or real estate conditions in Arizona, California or Colorado could
impair our financial condition and materially harm our business. Further, due to
the relatively high cost of real estate in the southwestern United States, the
real estate market in that region may be more sensitive to fluctuations in
interest rates and general economic conditions than other regions of the United
States. We do not have any limitations or targets for the concentration of the
geographic location of our properties and, accordingly, the risks associated
with this geographic concentration will increase if we continue to acquire
properties in Arizona, California and Colorado.
OUR SUBSTANTIAL LEVERAGE MAY BE DIFFICULT TO SERVICE AND COULD ADVERSELY AFFECT
OUR BUSINESS
As of August 31, 1999, we had outstanding borrowings of approximately $34.0
million under our credit facility, with total borrowing capacity of $35.0
million, and additional debt of approximately $64.4 million. This total debt of
$98.4 million represented approximately 37.9% of our total assets at August 31,
1999. All of this debt is senior to the Legacy debentures and the Legacy notes.
After the closing of the exchange offer, and assuming all shares of the
Enterprises common stock are tendered in the exchange offer, on a pro forma
basis our total indebtedness will increase to
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<PAGE> 26
approximately $182.0 million (not taking into account Enterprises' total
indebtedness of approximately $83.4 million), which will represent approximately
51.5% of our total assets. Therefore, we are and will continue to be exposed to
the risks normally associated with debt financing which may materially harm our
business, including the following:
- our cash flow may be insufficient to meet required payments of principal
and interest,
- payments of principal and interest on borrowings may leave us with
insufficient cash resources to pay operating expenses,
- we may not be able to refinance debt on our properties at maturity, and
- if refinanced, the terms of refinancing may not be as favorable as the
original terms of the debt.
Our earnings to fixed charges ratio was 1.45 for the six months ended June
30, 1999. On a pro forma basis, our earnings to fixed charges ratio decreases to
0.91. Our interest coverage ratio was 1.17 for the six months ended June 30,
1999. On a pro forma basis, our interest coverage ratio decreases to 1.08.
WE ARE INCURRING ADDITIONAL DEBT TO FACILITATE THE EXCHANGE OFFER SECURED BY THE
ENTERPRISES COMMON STOCK AND A DEFAULT ON THAT DEBT COULD RESULT IN OUR LOSS OF
ENTERPRISES
Sol Price has agreed to make a two-year loan to Legacy in the principal
amount of up to $30.0 million secured by the Enterprises common stock owned at
any time by Legacy. We will use the proceeds of the loan to satisfy a portion of
our monetary obligations under the exchange offer. The loan will rank senior in
right of payment to the Legacy debentures and the Legacy notes. In order to
satisfy our obligations under the loan, we may seek to refinance the loan or
issue equity to raise additional funds, neither of which alternatives may be
available to us on favorable terms. If we are unable to meet our obligations
under the loan, Mr. Price will have the right to take ownership of the
Enterprises common stock tendered in the exchange offer.
WE MAY NOT REALIZE THE EXPECTED BENEFITS FROM THE EXCHANGE OFFER, MAKING OUR
FUTURE FINANCIAL PERFORMANCE UNCERTAIN
We entered into the stockholders agreement and the company agreement with
the expectation that the exchange offer will result in a number of benefits,
including cost savings, operating efficiencies, revenue enhancements, tax
advantages and other synergies. If these benefits and synergies are not
realized, our financial performance and the performance of Enterprises could be
adversely impacted. After the closing of the exchange offer, we expect that some
of our executive officers will begin to manage the operations of Enterprises
along with some members of Enterprises' existing operations management team. We
cannot assure you that this integration will be completed rapidly or that the
new management team will be successful in this endeavor. Further, the process of
implementing new management at Enterprises could negatively affect employee
morale and influence the decisions of current and prospective tenants and
business partners as a result of uncertainty over the operations of Legacy and
Enterprises following the exchange offer. The inability to successfully
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<PAGE> 27
integrate our operations with those of Enterprises could impair our financial
condition and materially harm our business.
WE FACE RISKS ASSOCIATED WITH OUR EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
BECAUSE OF OUR LACK OF CONTROL OVER THE UNDERLYING REAL ESTATE ASSETS
As part of our growth strategy, we may invest in shares of REITs or other
entities that invest in real estate assets. In these cases, we will be relying
on the assets, investments and management of the REIT or other entity in which
we are investing. These entities and their properties will be exposed to the
risks normally associated with the ownership and operation of real estate.
We also may invest in or with other parties through partnerships and joint
ventures. In these cases we will not be the only entity making decisions
relating to the property, partnership, joint venture or other entity. Risks
associated with investments in partnerships, joint ventures or other entities
include:
- the possibility that our partners might experience serious financial
difficulties or fail to fund their share of required investment
contributions,
- that the partners might have economic or other business interests or
goals which are inconsistent with our business interests or goals, and
- that the partners may take action contrary to our instructions or
requests and adverse to our policies and objectives.
Any substantial loss or action of this nature could potentially harm our
business. In addition, we may in some circumstances be liable for the actions of
our third-party partners or co-venturers.
RISING INTEREST RATES MAY ADVERSELY AFFECT OUR CASH FLOW
We owe approximately $98.4 million as of August 31, 1999 under our credit
facility and mortgage debt, of which $36.7 million bears interest at variable
rates. In addition, the loan of up to $30.0 million from Sol Price to Legacy
will bear interest at a variable rate. Variable rate debt creates higher debt
payments if market interest rates increase. We may incur additional debt in the
future that also bears interest at variable rates. Higher debt payments as a
result of an increase in interest rates could adversely affect our cash flow,
cause us to default under some debt obligations or agreements, and materially
harm our business.
BECAUSE WE DO NOT HAVE A POLICY PLACING A LIMIT ON THE AMOUNT OF DEBT THAT WE
MAY INCUR, OUR FUTURE BORROWINGS COULD BE SIGNIFICANT AND MAY ADVERSELY AFFECT
OUR CASH FLOW AND RESULTS OF OPERATIONS
We do not have a policy limiting the amount of debt that we may incur.
Accordingly, our management and board of directors have discretion to increase
the amount of our outstanding debt at any time. We could incur higher levels of
debt, resulting in an increase in our total debt payments, which could adversely
affect our cash flow and materially harm our business. In addition, if we
increase the amount of
21
<PAGE> 28
our debt it may increase the risk of our default on all of our debt, including
the Legacy debentures and the Legacy notes.
WE COULD INCUR SIGNIFICANT COSTS AND EXPENSES RELATED TO ENVIRONMENTAL PROBLEMS
Various federal, state and local laws and regulations require property
owners or operators to pay for the costs of removal or remediation of hazardous
or toxic substances located on a property. Although we are not aware of any
necessary environmental remediation or other environmental liability on our
portfolio of properties, these laws often impose liability without regard to
whether the owner or operator of the property was responsible for or even knew
of the presence of the hazardous substances. The presence of or failure to
properly remediate hazardous or toxic substances may impair our ability to rent,
sell or borrow against a property. These laws and regulations also impose
liability on persons who arrange for the disposal or treatment of hazardous or
toxic substances at another location for the costs of removal or remediation of
these hazardous substances at the disposal or treatment facility. Further, these
laws often impose liability regardless of whether the entity arranging for the
disposal ever owned or operated the disposal facility. Other environmental laws
and regulations impose liability on owners or operators of property for injuries
relating to the release of asbestos-containing materials into the air. As owners
and operators of property and as potential arrangers for hazardous substance
disposal, we may be liable under the laws and regulations for removal or
remediation costs, governmental penalties, property damage, personal injuries
and related expenses. Payment of these costs and expenses could impair our
financial condition and materially harm our business.
WE COULD FACE SIGNIFICANT COSTS OF COMPLIANCE IF WE ARE CONSIDERED AN INVESTMENT
COMPANY UNDER THE INVESTMENT COMPANY ACT
We are not currently registered as an investment company under the
Investment Company Act of 1940, since our management believes that we either are
not within the definition of investment company under the Investment Company Act
or, alternatively, excluded from regulation under the Investment Company Act by
an exemption. If we are deemed to be an investment company under the Investment
Company Act and fail to qualify for an exemption, we would be unable to conduct
our business as currently conducted, which could materially harm our business.
In the future, we intend to conduct our operations in order to avoid
registration under the Investment Company Act. Therefore, the assets that we may
acquire or sell may be limited by the regulations of the Investment Company Act.
THE COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT COULD ADVERSELY
AFFECT OUR BUSINESS
Under the Americans with Disabilities Act of 1990, all public
accommodations and commercial facilities must meet federal requirements relating
to access and use by disabled persons. Compliance with the Americans with
Disabilities Act requirements could involve removal of structural barriers from
disabled persons' entrances on our properties. Other federal, state and local
laws may require modifications to or restrict
22
<PAGE> 29
further renovations of our properties with these accesses. Although we believe
that our properties are substantially in compliance with present requirements,
noncompliance with the Americans with Disabilities Act or related laws or
regulations could result in the United States government imposing fines or
private litigants being awarded damages against us. If we incur these costs and
expenses it could impair our financial condition.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR BUSINESS AT A PREMIUM PRICE
Some of the provisions of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of our business at a premium price
and could make removal of our management more difficult. These provisions could
reduce the opportunities for our stockholders to participate in tender offers,
including tender offers that are priced above the then current market price of
our common stock. Our certificate of incorporation permits our board of
directors to issue shares of preferred stock in one or more series without
stockholder approval. The preferred stock may be issued quickly with terms that
delay or prevent a change in control of our business. In addition, Section 203
of the Delaware General Corporation Law imposes restrictions on mergers and
other business combinations between us and any holder of 15% or more of our
common stock.
THERE IS NO ESTABLISHED MARKET FOR THE LEGACY DEBENTURES OR THE LEGACY NOTES
There is no established trading market for the Legacy debentures or the
Legacy notes. We intend to apply to have the Legacy debentures listed on the
American Stock Exchange, however, we cannot assure you that an active trading
market will develop and be sustained for the Legacy debentures. We do not intend
to apply for listing of the Legacy notes on any securities exchange.
The liquidity of any market for the Legacy debentures or the Legacy notes
will depend upon the number of holders of the debentures or notes, our
performance, the market for similar securities, the interest of securities
dealers in making a market in the debentures or notes and other factors. A
liquid trading market may not develop for the Legacy debentures or the Legacy
notes.
THE PROTECTIONS IN THE COMPANY AGREEMENT FOR ENTERPRISES' PREFERRED STOCKHOLDERS
LIMIT ENTERPRISES' COMMON STOCKHOLDERS' ABILITY TO CONTROL ENTERPRISES AND
RECEIVE DIVIDENDS
We have agreed to protections for the holders of the Enterprises preferred
stock which limit the control over Enterprises by its common stockholders and
the dividends payable to Enterprises' common stockholders. Following the closing
of the exchange offer, the holders of the Enterprises preferred stock will be
entitled to elect a majority of Enterprises' board of directors and to have one
designee on Legacy's board of directors, until:
- less than 2,000,000 shares of the Enterprises preferred stock remain
outstanding,
23
<PAGE> 30
- we make an offer to purchase any and all outstanding shares of the
Enterprises preferred stock at a cash price of $16.00 per share, and
purchase all shares duly tendered and not withdrawn, or
- the directors of Enterprises (1) issue any equity securities without
unanimous approval of Enterprises' board or (2) fail to pay dividends on
the Enterprises common stock in an amount necessary to maintain
Enterprises' status as a REIT, or in an amount equal to the excess, if
any, of Enterprises' funds from operations, less preferred stock
dividends, over $7.5 million.
The third point above is intended to protect the interests of the holders
of the Enterprises preferred stock by creating an annual reserve of $7.5 million
at the Enterprises level which will not be distributed to Legacy or any other
holder of the Enterprises common stock. This reserve will limit our ability and
the ability of all other Enterprises' common stockholders to receive cash
distributions from Enterprises for so long as the Enterprises preferred stock is
outstanding. We have agreed with Enterprises that the $7.5 million reserve may
be used for the improvement and/or acquisition of properties, the repurchase of
the Enterprises preferred stock or the reduction of Enterprises' debt.
THE RIGHTS OF ENTERPRISES' STOCKHOLDERS WHO BECOME LEGACY STOCKHOLDERS WILL BE
DIFFERENT UNDER DELAWARE LAW AND LEGACY'S ORGANIZATIONAL DOCUMENTS
Legacy is incorporated under the laws of the state of Delaware, and
Enterprises is incorporated under the laws of the state of Maryland.
Stockholders of Enterprises may become stockholders of Legacy through the
conversion of the Legacy debentures to be received in the exchange offer. As
Legacy stockholders, their rights would be governed by the Delaware General
Corporation Law (DGCL) and Legacy's charter and bylaws, which differ in some
material respects from the Maryland General Corporation Law (MGCL) and
Enterprises' charter and bylaws. For instance, under the DGCL, any action that
may be taken at a meeting of stockholders may be taken without a meeting if a
written consent is signed by stockholders having at least the number of votes
that would have been necessary to authorize or take the action at a meeting. In
contrast, under the MGCL, any action may be taken without a meeting only if a
unanimous written consent is signed by each stockholder entitled to vote on the
matter.
THE LEGACY DEBENTURES RANK JUNIOR TO OUR EXISTING DEBT AND POSSIBLY ALL OF OUR
FUTURE BORROWINGS
The Legacy debentures rank behind all of our existing indebtedness, the
Legacy notes and all of our future borrowings, except:
- future indebtedness that expressly provides that it ranks equal with, or
junior in right of payment to, the Legacy debentures,
- any debt owed by us to any of our subsidiaries,
- liabilities for taxes, and
- our trade payables.
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<PAGE> 31
As a result, upon any distribution to our creditors in a bankruptcy, liquidation
or reorganization or similar proceeding relating to Legacy or our property, the
holders of our senior debt will be entitled to be paid in full in cash before
any payment may be made with respect to the Legacy debentures. In addition, all
payments on the Legacy debentures will be blocked for a period of time in the
event of a payment default on senior debt. As of August 31, 1999, we had
approximately $98.4 million of senior indebtedness outstanding. Following the
exchange offer, the Legacy notes will be senior debt in relation to the Legacy
debentures.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to Legacy, holders of the Legacy debentures will participate
with trade creditors and all other holders of our subordinated indebtedness in
the assets remaining after we have paid all of the senior debt. However, because
the indenture for the Legacy debentures requires that amounts otherwise payable
to holders of the Legacy debentures in a bankruptcy or similar proceeding be
paid to holders of senior debt instead, holders of the Legacy debentures may
receive less, ratably than holders of trade payables in any such proceeding. In
any of these cases, we may not have sufficient funds to pay all of our creditors
and holders of Legacy debentures may receive less, ratably than the holders of
senior debt.
THE LEGACY DEBENTURES AND THE LEGACY NOTES ARE EFFECTIVELY SUBORDINATED TO
SECURED INDEBTEDNESS AND INDEBTEDNESS OF OUR SUBSIDIARIES
The Legacy debentures and the Legacy notes will not be secured by any of
our assets. Therefore, the debentures and the notes will be effectively
subordinated in right of payment to our existing and future secured
indebtedness, to the extent of the value of the assets securing that
indebtedness. As of August 31, 1999, we had outstanding borrowings of
approximately $34.0 million under our credit facility, with total borrowing
capacity of $35.0 million, and additional debt of approximately $64.4 million.
This debt is secured and therefore senior to the Legacy debentures and the
Legacy notes.
The Legacy debentures and the Legacy notes also will be effectively
subordinated in right of payment to all existing and future indebtedness and
liabilities of our subsidiaries. In addition, the indentures under which the
Legacy debentures and the Legacy notes will be issued will permit us to incur
additional indebtedness, without restriction. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to our subsidiaries, the holders of any indebtedness of our subsidiaries
will be entitled to payment from the assets of our subsidiaries prior to the
holders of any general unsecured obligations of Legacy, including the Legacy
debentures and the Legacy notes.
We conduct a portion of our operations through subsidiaries and, assuming
the exchange offer is closed, will rely on dividends from Enterprises for a
substantial portion of the funds to pay the principal and interest on the Legacy
debentures and the Legacy notes. The company agreement contains a provision
intended to protect the interests of the holders of the Enterprises preferred
stock by creating an annual reserve of $7.5 million at the Enterprises level
which will not be distributed to Legacy or any other holder of the Enterprises
common stock. This reserve will limit our ability to receive cash distributions
from Enterprises for so long as the Enterprises preferred
25
<PAGE> 32
stock is outstanding. The holders of the Legacy debentures and the Legacy notes
will have no direct claim against Enterprises or any of our other subsidiaries
for payment under the debentures or the notes. Our subsidiaries are separate and
distinct legal entities and will have no obligation, contingent or otherwise, to
pay any dividend or make any other distribution to Legacy, or otherwise to pay
amounts due with respect to the Legacy debentures or the Legacy notes or to make
funds available for such payments. We must rely on dividends and other payments
from our subsidiaries or must raise funds in a public or private equity or debt
offering or sell assets to generate the funds necessary to meet our obligations,
including the payment of principal and interest on the Legacy debentures and the
Legacy notes. There can be no assurance that we will be able to obtain such
funds on acceptable terms or at all.
WE MAY REDEEM THE LEGACY NOTES AND THE LEGACY DEBENTURES AND CEASE MAKING
INTEREST PAYMENTS TO YOU WHICH COULD RESULT IN YOUR BEING UNABLE TO REINVEST THE
PROCEEDS AT THE SAME INTEREST RATES
If we elect to redeem the Legacy notes or the Legacy debentures, you will
no longer receive interest payments from us after the redemption. We cannot
assure you that you will be able to reinvest the proceeds of the redemption at
the same interest rates payable under the debentures and the notes. The Legacy
notes are redeemable at any time. The Legacy debentures are not redeemable
before , 2001. In each case, we may redeem the Legacy
debentures and/or the Legacy notes at our option, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption price of 100% of
the principal amount being redeemed. In addition, we must pay all accrued and
unpaid interest on the debentures and/or notes redeemed.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL CONTROL OVER OUR VOTING
STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS
Our present executive officers and directors and their affiliates
beneficially own approximately 30% of our outstanding common stock. As a result,
these stockholders will continue to significantly influence our management and
affairs and all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions, such as a
merger, consolidation or sale of substantially all of our assets. Accordingly,
these stockholders also will be in a position to make decisions which could
impair our financial condition and materially harm our business.
THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS
Given the early stage of development of our business, we depend to a large
extent on the performance of our senior management team and other key employees
for strategic business direction and real estate experience. If we lost the
service of any members of our senior management or other key employees it could
materially harm our business. We do not have employment agreements with any of
our senior management or key employees. In addition, we have not obtained
key-man life insurance for any of our senior management or other key employees.
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<PAGE> 33
OUR BOARD OF DIRECTORS MAY MAKE CHANGES IN OUR INVESTMENT, FINANCING AND
DISTRIBUTION POLICIES WITHOUT STOCKHOLDER APPROVAL AND IN A MANNER WITH WHICH
YOU MAY NOT AGREE
Our investment, financing, borrowing and distribution policies and our
policies regarding all other activities, growth, debt, capitalization and
operations, will be determined by our board of directors. Although our board of
directors has no present intention to do so, it may amend or revise these
policies at any time without a vote of our stockholders. Our board of directors
may amend these policies in a manner with which you may not agree. A change in
these policies could impair our financial condition and materially harm our
business.
ENTERPRISES' DIRECTORS, OFFICERS AND OTHER PERSONNEL WILL RECEIVE BENEFITS IN
THE EXCHANGE OFFER THAT ARE DIFFERENT FROM BENEFITS TO ENTERPRISES' STOCKHOLDERS
GENERALLY
Stockholders of Enterprises should be aware that Enterprises' directors,
officers and other personnel have interests in, and will receive benefits as a
result of, the exchange offer that are different from the interests of, and
benefits to, stockholders of Enterprises generally.
Enterprises has entered into an employment agreement with Jack McGrory, its
Chief Executive Officer, and a severance agreement with Gary W. Nielson, its
former Chief Financial Officer, that will entitle these individuals to receive
severance payments in connection with the exchange offer. Mr. Nielson received a
severance payment of approximately $210,000 upon the commencement of the
exchange offer. Assuming the exchange offer closes in September 1999, Mr.
McGrory will receive a severance payment of approximately $360,000. Enterprises
currently estimates that the aggregate required severance payments to its
directors, officers and other personnel will be approximately $2.1 million,
assuming that all such persons are terminated following the exchange offer and
that the terminations occur in September 1999. In addition, the company
agreement provides for the acceleration of vesting of the Enterprises stock
options and cash payments with respect to the common stock portion of those
options. The aggregate cash option payments to Enterprises' directors, officers
and other personnel due to the exchange offer will total approximately $3.1
million. These persons also will retain their preferred stock options,
approximately 670,500 shares in the aggregate, which will become fully vested
and exercisable as a result of the exchange offer.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS IN THE FORESEEABLE FUTURE
We presently anticipate that we will retain all available funds for use in
the operation and expansion of our business and do not anticipate paying any
dividends in the foreseeable future. Any future payment of dividends to our
stockholders will depend on decisions that will be made by our board of
directors and will depend on then existing conditions, including our financial
condition, contractual restrictions, capital requirements and business
prospects.
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<PAGE> 34
YEAR 2000 PROBLEMS COULD DISRUPT OUR OPERATIONS
The Year 2000 problem is the result of computer software and embedded chips
using a two-digit format, as opposed to four digits, to indicate the year.
Computer systems may be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors. The failure to correct a
material Year 2000 problem could result in an interruption in, or a failure of,
normal business activities or operations. To the extent our software
applications contain source codes that are unable to appropriately interpret the
upcoming calendar year 2000, some level of modification, or even possibly
replacement of these applications may be necessary.
We have made an assessment of the impact of the Year 2000 issue on our
internal operations and have developed a plan to bring our computer systems into
compliance before the end of 1999. This plan addresses the modification or
replacement of applications and operating systems to achieve timely Year 2000
compliance and also includes communication and analysis with outside vendors and
other third parties with whom we interface electronically. We do not believe
that the impact of any Year 2000 issues will impair our financial condition or
materially harm our business. However, if modifications and conversions are not
made or completed in a timely manner by either third parties or us, the Year
2000 issue could materially harm our business. To date, we have incurred minimal
expenses related to Year 2000 compliance. We expect to incur approximately
$75,000 of total expenses related to Year 2000 compliance. Since we have adopted
a plan to address Year 2000 issues, we have not developed a comprehensive
contingency plan for dealing with the most reasonably likely worst case
scenario. However, if we identify significant risks in the future or are unable
to meet our anticipated schedule for completion of our Year 2000 compliance, we
will develop contingency plans to the extent necessary at that time.
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FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
particularly under the headings "Information About Legacy," "Information About
Enterprises," and "Directors and Management of Enterprises Following the
Exchange Offer." These statements are generally indicated by words or phrases
such as "believe," "may," "will," "anticipate," "estimate," "plan," "project,"
"continue," "expect," "intend" and similar words or phrases. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including factors discussed in our
filings with the SEC and the following:
- the effect of economic, credit and capital market conditions in general
and on real estate companies in particular,
- our ability to compete effectively,
- our ability to acquire or develop properties and the risk that potential
acquisitions or developments may not perform in accordance with
expectations,
- fluctuations in our operating results,
- government approvals, actions and initiatives, including the need for
compliance with environmental requirements and the Americans with
Disabilities Act,
- additions or departures of key personnel, and
- other risk factors described under "Risk Factors" in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information or future events. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
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THE EXCHANGE OFFER
GENERAL
We are offering to exchange a total of $8.50 consisting of $[4.25] in cash,
$[2.75] in principal amount of our 9.0% Convertible Redeemable Subordinated
Debentures due 2004 and $[1.50] in principal amount of our 10.0% Senior
Redeemable Notes due 2004 for each share of the Enterprises common stock. If all
Enterprises' stockholders accept our offer, in the aggregate we will pay
approximately $56.5 million in cash and issue the principal amount of
approximately $36.6 million in Legacy debentures and approximately $20.0 million
in Legacy notes. Enterprises' board of directors has approved this transaction.
The exchange offer is open to all holders of the Enterprises common stock.
We are sending this prospectus and related exchange offer documents to persons
who held the Enterprises common stock at the close of business on
, 1999. On that date, there were shares of
the Enterprises common stock outstanding, which were held of record by
approximately stockholders. We will also furnish this prospectus and
related exchange offer documents to brokers, banks and similar persons whose
names or the names of whose nominees appear on Enterprises' stockholder list or,
if applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of the
Enterprises common stock.
BACKGROUND OF THE EXCHANGE OFFER
The information in this section regarding the deliberations of Enterprises'
board of directors and the actions of Enterprises' management and legal and
financial advisors is based on information furnished by Enterprises to Legacy.
From January to March 1999, Gary Sabin, in his capacity as President of New
Plan Excel Realty Trust, Inc., held numerous discussions with Jack McGrory,
President and Chief Executive Officer of Enterprises, and Sol Price, founder and
a major stockholder of Enterprises, regarding a possible business combination of
New Plan Excel and Enterprises. These discussions culminated in New Plan Excel
formally rejecting the proposed terms of the combination over a series of
meetings during March and April 1999.
Although New Plan Excel rejected the proposed business combination with
Enterprises, Mr. Sabin, who is also our Chairman, President and Chief Executive
Officer, remained interested in pursuing it on behalf of Legacy. Legacy
routinely considers acquisitions and business combinations as possible methods
of enhancing stockholder value.
Mr. Sabin and other executives of Legacy, who also served as executives of
New Plan Excel at the time, were very familiar with the business, properties and
financial condition of Enterprises, as they had conducted a due diligence
investigation of Enterprises in connection with New Plan Excel's consideration
of a possible business combination. In the course of this investigation, Legacy
personnel reviewed documentation and conducted discussions with Enterprises'
management and other representa-
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tives concerning Enterprises' business, properties and financial condition.
Legacy personnel also visited many of Enterprises' properties.
Under an intercompany agreement between Legacy and New Plan Excel, which
was entered into in March 1998 in connection with the spin-off of Legacy from
Excel Realty Trust, Inc. (predecessor to New Plan Excel), New Plan Excel had a
right of first refusal with respect to some types of business opportunities
presented to the parties, such as the proposed business combination with
Enterprises. After New Plan Excel determined not to pursue the opportunity,
Legacy was entitled to pursue it; provided that the combination did not involve
terms that were more favorable to Legacy in any material respect than the terms
considered by New Plan Excel, and that a binding agreement was executed within
one year. The intercompany agreement has since been terminated under a
separation agreement between Legacy and New Plan Excel described below.
During this period Enterprises and its representatives had discussions with
other parties regarding a potential acquisition of Enterprises. While
Enterprises signed confidentiality agreements with some of these parties, none
developed into a firm offer for the Enterprises common or preferred stock.
On April 1, 1999, Gary Sabin, Richard Muir, Executive Vice President of
Legacy, Eric Ottesen, Senior Vice President and General Counsel of Legacy, and
Graham Bullick, Senior Vice President -- Capital Markets of Legacy, met with
Jack McGrory at Legacy's offices in San Diego. At this meeting, the parties
discussed various issues concerning the structure, pricing and timing of a
possible business combination of Legacy and Enterprises. A variety of structures
were considered, including a tender offer, an exchange offer and a merger, with
a preliminary indication of price at $8.50 per share of the Enterprises common
stock. This price was based on negotiations between the parties as to the
appropriate premium above the market price of the Enterprises common stock and
the fair market value of Enterprises' properties.
From April 2 through April 14, 1999, the parties held numerous conference
calls to further discuss the structure, pricing and timing of the proposed
combination, and to review draft term sheets prepared by Legacy's outside legal
counsel. Sol Price participated in some of these discussions.
On April 15, 1999, Gary Sabin, Richard Muir and Kelly Burt, Executive Vice
President -- Development of Legacy, met with Sol Price and Jack McGrory at Mr.
Price's offices in San Diego. At this meeting, the parties discussed the terms
and consideration of a possible business combination with an agreement among
Legacy, Sol Price, as trustee of several trusts, and other holders of the
Enterprises common stock whereby Mr. Price, as trustee, and the other holders of
the Enterprises common stock would agree to tender or vote their shares, as the
case may be, subject to Enterprises' board of directors subsequently approving
the transaction and determining whether the transaction would proceed as an
exchange offer or merger in which Legacy would offer the same consideration to
all Enterprises' stockholders. The parties contemplated that, following the
approval by Enterprises' board of directors, the transaction would proceed with
an agreement between Legacy and Enterprises. The price of the transaction was
tentatively set at $8.50 per share of the Enterprises
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common stock, but the structure, and the form of consideration, were not finally
determined and no agreement was reached.
From April 16 through May 2, 1999, the parties held numerous conference
calls to further discuss the structure, terms and consideration of the proposed
combination, and to review draft term sheets prepared by Legacy's outside legal
counsel. During this period, the parties agreed that the consideration would
include some combination of cash, convertible subordinated debentures or senior
notes issued by Legacy.
On April 21, 1999, Legacy entered into a separation agreement with New Plan
Excel in which the parties agreed, among other things, to modify the terms of
some of their existing agreements, including the termination of the intercompany
agreement described above. The separation agreement expressly provided that New
Plan Excel would not raise any objection to Legacy entering into an agreement
with Enterprises. The separation agreement enabled Gary Sabin and the other
Legacy executives to devote their full-time attention to Legacy.
On May 3, 1999, Mr. Price's legal counsel prepared a draft of the
stockholders agreement based on the foregoing discussions, and the parties met
at the offices of Legacy's outside legal counsel to negotiate the draft.
From May 4 through May 10, 1999, the parties held numerous discussions to
further negotiate the terms of the proposed stockholders agreement, and to
prepare and negotiate the related exhibits and schedules. Most of the
discussions were held by conference call, with one in-person meeting held on May
7, 1999 at the offices of Legacy's outside legal counsel. During this period,
the parties agreed that the transaction between Legacy and Enterprises'
stockholders who are parties to the stockholders agreement would be subject to
cancellation unless the board of directors of Enterprises approved the
transaction in the period following the execution of the stockholders agreement,
and Enterprises signed the company agreement by which Enterprises would agree to
facilitate the transaction and approve Legacy's acquisition of the Enterprises
common stock. In addition, during this period, the parties agreed that Legacy
would have the option to pay the $8.50 per share consideration in all cash or in
a combination of at least $4.25 in cash, at least $2.75 in Legacy debentures,
and $1.50 in whatever combination Legacy may choose of cash, debentures or
senior notes. This ratio of cash, debentures and notes was based on negotiations
between the parties, with Mr. Price interested in Enterprises' stockholders
receiving at least 50% of the consideration in cash and a significant portion in
convertible securities that would provide Enterprises' stockholders with the
opportunity to participate in any upside potential of the Legacy common stock,
and Legacy interested in maintaining maximum flexibility with respect to paying
the consideration in all cash and minimizing the potential dilution to the
Legacy common stock inherent in issuing convertible securities. The parties
agreed that the conversion price of the Legacy debentures would be $5.50 per
share, based on negotiations as to the appropriate premium above the market
price of Legacy common stock and above the $5.00 per share price at which Legacy
had previously issued its Series A preferred stock.
On May 11, 1999, Gary Sabin, Sol Price and Jack McGrory met at the offices
of Legacy's outside legal counsel to finalize the terms of the stockholders
agreement and the related exhibits and schedules.
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Also on May 11, 1999, the board of directors of Legacy held a special
telephonic meeting to consider the stockholders agreement. At this meeting, our
board reviewed the terms of the stockholders agreement with Legacy's management
and internal legal counsel. Based on such discussions, our board unanimously
approved the stockholders agreement and the transactions contemplated thereby.
On May 12, 1999, Gary Sabin and Sol Price met at Mr. Price's offices and
signed the stockholders agreement. Later that day, Legacy issued a press release
announcing the execution of the stockholders agreement.
On May 18, 1999, Valuation Research Corporation delivered its written
opinion to Enterprises' board of directors that, as of such date, the
consideration to be received by the holders of the Enterprises common stock in
the exchange offer is fair, from a financial point of view, to such holders. A
copy of the opinion is attached hereto as Annex C.
On May 21, 1999, Sol Price and the other Enterprises' stockholders who
signed the stockholders agreement deposited certificates representing 4,464,382
shares of the Enterprises common stock into escrow as required by the
stockholders agreement. On the same day, Legacy deposited $1.0 million in cash
into escrow as required by the stockholders agreement.
On June 1, 1999, the board of directors of Legacy held a special telephonic
meeting to consider the company agreement. At this meeting, our board reviewed
the company agreement with Legacy's management and Legacy's internal and outside
legal counsel. Our board heard presentations by its outside legal counsel with
respect to the terms of the proposed business combination and the duties of the
board in considering such a transaction. Based on such discussions and
presentations, the board of directors of Legacy unanimously approved the company
agreement and the transactions contemplated thereby.
On June 2, 1999, the board of directors of Enterprises held a special
meeting to consider the company agreement. At this meeting, Enterprises' board
reviewed the company agreement with Enterprises' management, Enterprises'
internal and outside legal counsel, Enterprises' auditors and representatives of
Valuation Research Corporation. Enterprises originally retained Valuation
Research Corporation to render a fairness opinion in connection with the
proposed New Plan Excel/Enterprises transaction, but when that transaction did
not proceed, Enterprises retained Valuation Research Corporation to render a
fairness opinion in connection with this transaction. Enterprises' board heard
presentations by its management and outside legal counsel with respect to the
terms of the proposed business combination and the duties of the board in
considering such a transaction. Enterprises' board also heard presentations by
its auditors with respect to the tax and accounting implications of the
transaction and by Valuation Research Corporation with respect to the financial
terms of the proposed combination.
At the conclusion of its presentation, Valuation Research Corporation
delivered its oral opinion to Enterprises' board that, as of May 18, 1999, the
consideration to be received by the holders of the Enterprises common stock in
the exchange offer is fair, from a financial point of view, to such holders.
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Based on such discussions, presentations and opinion, the board of
directors of Enterprises unanimously approved the company agreement and the
transactions contemplated thereby and determined that the business combination
should take the form of the exchange offer. Although Enterprises' board
considered the conclusions set forth in the fairness opinion in deciding to
approve the exchange offer, it was advised by its counsel that it did not need
to specifically adopt such conclusions and did not in fact do so. In deciding
that the transaction should proceed as an exchange offer for the Enterprises
common stock, Enterprises' board focused mainly on the ability of each holder of
the Enterprises common stock to make his or her own decision in an exchange
offer as to whether to exchange the holder's shares of the Enterprises common
stock for the consideration offered by Legacy or to remain a stockholder of
Enterprises. Enterprises' board also believed that an exchange offer would be
completed more quickly than a merger.
Also on June 2, 1999, Legacy and Enterprises signed the company agreement
and issued a joint press release announcing the execution of the company
agreement. In addition, Legacy agreed by separate letter to take some
affirmative actions to preserve Enterprises' status as a REIT in consideration
of the approval by Enterprises of Legacy's acquisition of the Enterprises common
stock.
On June 3, 1999, Legacy deposited an additional $6.5 million in cash into
escrow as required by the stockholders agreement, so that the aggregate amount
of funds in escrow totaled $7.5 million.
On June 4, 1999, some of Enterprises' stockholders who signed the
stockholders agreement deposited certificates representing 3,550,588 additional
shares of the Enterprises common stock into escrow as required by the
stockholders agreement, so that the aggregate number of shares in escrow totaled
8,014,970 shares of the Enterprises common stock, representing approximately 51%
of the Enterprises voting power.
During July and August 1999, Legacy considered means of raising capital for
the cash consideration required in the exchange offer. On August 23, 1999,
Legacy sold to Wal Mart Real Estate Business Trust eight properties that were
previously under lease to Wal Mart Stores, Inc. for aggregate consideration of
approximately $35.0 million in cash and the assumption of approximately $24.0
million in liabilities. Legacy considered raising additional capital through the
issuance of capital stock and debt, and through other property sales and bank
financing. In the end, Legacy determined that none of these alternatives, other
than the property sale to Wal Mart, was available on attractive terms at this
time.
From August 20, 1999 to September 1, 1999, Legacy held numerous discussions
with Enterprises and Sol Price regarding raising additional funds for the
exchange offer. The parties ultimately agreed that Sol Price would make a
two-year secured loan to Legacy in the principal amount of up to $30.0 million.
The loan will bear interest at LIBOR plus 1.5% and will be secured by the
Enterprises common stock owned at any time by Legacy. The parties agreed that
Legacy may prepay the loan at any time prior to its maturity without any
prepayment penalty.
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Also during this period, the parties held discussions concerning an
amendment to the stockholders agreement and the company agreement. The
agreements initially provided that Legacy may not cause a change of control of
Legacy or Enterprises after the closing of the exchange offer without either
offering to purchase all of the Enterprises preferred stock or obtaining the
approval of the holders of the Enterprises preferred stock. Although Legacy has
no current plan or intention with respect to a change of control of either
company, it desired to amend this provision in order to maintain greater
flexibility in the future. Legacy proposed that a change of control require the
approval of Enterprises' board of directors, instead of requiring the approval
of the holders of the Enterprises preferred stock. Enterprises agreed to this
amendment, believing that the Enterprises board, which will consist of a
majority of directors designated by the holders of the Enterprises preferred
stock, will be able to adequately protect the interests of such holders
following the exchange offer.
On August 30, 1999, Legacy's board of directors held a special telephonic
meeting to approve the loan transaction with Sol Price and the amendments to the
stockholders agreement and the company agreement.
On August 31, 1999, Enterprises' board of directors approved the amendments
to the agreements by written consent. On the same day, the parties executed the
amendments to the agreements.
On September 1, 1999, Legacy deposited an additional $1.0 million into
escrow as required by the stockholders agreement so that a total of $8.5 million
in cash would be held in escrow.
[On , 1999, Legacy and Sol Price executed a definitive loan
agreement. The loan transaction is subject to, and scheduled to close
concurrently with, the closing of the exchange offer. Legacy will use the
proceeds of the loan to satisfy a portion of its monetary obligations under the
exchange offer.]
[On , 1999, the pricing committee of the board of
directors of Legacy held a special meeting at which it determined that the
consideration in the exchange offer would consist of $ per share in cash,
$ per share in principal amount of Legacy debentures and $ per share in
principal amount of Legacy notes.]
OUR REASONS FOR THE EXCHANGE OFFER
Legacy's board of directors believes that the terms of the exchange offer
are fair to and in the best interests of Legacy and its stockholders. In
reaching its conclusion to approve the stockholders agreement, the company
agreement and the exchange offer, our board consulted with management, as well
as our legal and financial advisors, and considered the following factors, each
of which had a positive effect on the board's determination:
- The exchange offer will be an effective way of implementing and
accelerating our growth strategy consistent with our business goals.
- The exchange offer will enable us to significantly expand the size and
geographic diversity of our property portfolio, thereby reducing the
potential adverse impact on the overall portfolio of fluctuations in
local economies.
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- The exchange offer will enable us to use Enterprises as a vehicle to
acquire traditional, fully-developed properties, such as shopping
centers, while continuing to acquire non-traditional properties, such as
those requiring significant restructuring or redevelopment, through
Legacy.
- The exchange offer will enable us to place some of our completed
development projects into a REIT to take advantage of preferred tax
treatment.
- Our management believes that Enterprises' properties are generally well-
maintained with strong credit quality tenants, providing us with a solid
base from which to grow.
- Our management believes that the increased size of our portfolio as a
result of the exchange offer may provide us with greater liquidity,
including expanded access to the capital markets at a reduced cost,
enabling us to improve our results of operations and financial position.
- The exchange offer will enable us to leverage our investment in the
Enterprises common stock by virtue of the outstanding Enterprises
preferred stock.
- The exchange offer will provide us with opportunities for economies of
scale and operating efficiencies, primarily in terms of the integration
of property management and back office facilities.
- The exchange offer will provide us with opportunities for cost savings by
eliminating the management time and effort required to acquire a
substantial number of properties on an individual basis.
- The exchange offer's payment terms will provide us with the flexibility
to effectuate the offer through the issuance, at our election, of all
cash or some combination of cash and debt securities.
- The exchange offer is likely to be completed in a timely manner,
particularly in light of the large percentage of the Enterprises common
stock held in escrow.
- The company agreement entitles us, upon a material breach by Enterprises,
either to acquire the shares of the Enterprises common stock held in
escrow by completing the exchange offer, or to liquidated damages in the
amount of $7.5 million.
Our board of directors also considered potentially negative factors that
could arise or do arise from the proposed transaction, including the following:
- We will likely incur significant costs of up to $8.0 million in
connection with completing the exchange offer, and the exchange offer
will require substantial management time and effort to effectuate the
transaction and integrate the businesses of Legacy and Enterprises.
- The company agreement entitles Enterprises, upon a material breach by us,
to liquidated damages in the amount of $7.5 million plus interest.
- The company agreement imposes significant conditions and restrictions on
our ability to control Enterprises, entitling the holders of the
Enterprises preferred stock to elect a majority of Enterprises' board of
directors and creating an annual reserve of $7.5 million at the
Enterprises level which will not be distributed to Legacy or any other
holder of the Enterprises common stock.
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- We face a significant risk that the anticipated benefits of the exchange
offer might not be fully realized.
The foregoing discussion of the information and factors considered by
Legacy's board of directors is not intended to be exhaustive but is believed to
include all material factors considered by Legacy's board. In reaching its
determination to approve the stockholders agreement, the company agreement and
the exchange offer, our board concluded that the potential benefits of the
exchange offer outweighed the potential risks, but did not, in view of the wide
variety of information and factors considered, assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. Although directors, executive officers
and other personnel of Enterprises have interests in the exchange offer, as
described under "Benefits to Enterprises' Insiders in the Exchange Offer," our
board did not consider the potential benefits to be received by these
individuals as a factor in reaching its decision to approve the stockholders
agreement, the company agreement and the exchange offer.
ENTERPRISES' REASONS FOR THE EXCHANGE OFFER
Enterprises' board of directors thought about a number of factors in
approving the company agreement and the offer from Legacy. Those factors can be
separated into four categories:
- factors relating to the timing -- that is, is this a reasonable time to
sell Enterprises?
- factors relating to price -- is this a fair price at which to sell?
- factors relating to Legacy -- if the time and price are appropriate, is
there anything about Legacy, or the nature of the consideration, that
would suggest Legacy was not an appropriate buyer? and
- factors relating to the Enterprises preferred stock -- are adequate
protections for the preferred stock possible?
Timing. Enterprises' board concluded that this is a sensible time for a
transaction like this. Enterprises' board currently sees an uncertain economic
climate. Current nominal interest rates seem to be relatively low by recent
historical standards. If inflationary fears or other factors were to lead to
increases in interest rates, the value of Enterprises' properties would decline.
If the economy were to perform poorly, as a general matter, that would affect
the financial health of Enterprises. The growth of "e-commerce," or other
changes in consumer shopping patterns, could adversely affect the kind of "big
box retail" operations that comprise most of Enterprises' tenants, and
therefore, could adversely affect Enterprises. Enterprises was also finding it
increasingly difficult to identify opportunities for real property acquisitions
at competitive prices. In addition, the increasing competition between national
and regional retailers has resulted in some of Enterprises' tenants being forced
into bankruptcy, and may continue to do so.
Some, or even all, of these uncertainties might not actually develop in
such a way as to hurt the business of Enterprises. Enterprises' board considered
the possibility that
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some of these uncertainties might in fact develop in such a way as to make the
business of Enterprises more valuable. In particular, the longer nominal
interest rates continue to remain relatively low and the economy continues its
current performance, all other things being equal, the more valuable the
business of Enterprises might become. Enterprises' board ultimately concluded,
however, that the very existence of these uncertainties indicated that the
timing of a transaction like the offer discussed in these materials was
reasonable.
Enterprises' board also believes that a larger operation than Enterprises
would see some operating efficiencies. Having the real estate, tax, financial,
legal and other skills necessary for Enterprises' operations involves a
significant level of essentially fixed costs. Once such a team is assembled,
efficiencies can be achieved by using it to manage a larger portfolio of
properties. Enterprises' board did not, however, want to increase the size of
Enterprises and increase the management responsibilities of Enterprises' current
management team. Among other things, a REIT is required to distribute
substantially all of its income. As a result, a REIT can only increase the
number of properties it manages by taking on additional debt, issuing new
securities, or engaging in "like kind" exchanges of existing properties for a
number of other properties. Enterprises' board did not find any of these
possibilities attractive.
Price. Once Enterprises' board concluded that it was a reasonable time for
a transaction of this nature, the next question was price. Various individuals
made several possible acquirers aware of Enterprises' potential interest in a
sale, and Enterprises engaged in informal discussions with several potential
acquirers. None of those entities indicated that they would pay as much as $8.50
per share of the Enterprises common stock, and, except for the discussions with
New Plan Excel described above under "-- Background of the Exchange Offer," none
of the discussions between those entities and Enterprises materialized into an
offer to acquire Enterprises.
Further, objective criteria provided support for the fairness of the price
of $8.50 per share. Such price reflects a premium of 46.23% over the closing
price of the Enterprises common stock on the Nasdaq National Market on April 30,
1999.
Enterprises' board also considered the fact that no one approached
Enterprises to discuss or propose a competing offer from the time of the
announcement of the stockholders agreement on May 12, 1999 through the meeting
of Enterprises' board on June 2. If a competing offer had been made during that
period, Enterprises could have accepted it without any obligations to Legacy at
all.
In order to validate these conclusions further, Enterprises' board retained
Valuation Research Corporation to evaluate the transaction from a financial
point of view. That firm issued an opinion that Enterprises' board viewed as
favorable, a copy of which is attached as Annex C. (You should read that opinion
in its entirety to understand its limitations, the assumptions on which it is
based, and its conclusions.)
In reaching its conclusions, Enterprises' board also considered that a
portion of Legacy's purchase price might be paid in debt instruments, which
might be valued in the market at less than their par value. A lower valuation,
of course, would mean that the effective purchase price was less than $8.50 per
share. If the Legacy debentures or the Legacy notes traded at 90% of par, for
example, the initial effective purchase price
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would be approximately $8.08 per share. Enterprises' board also considered that
declines in market interest rates and, with respect to the Legacy debentures,
the convertibility feature, could cause the Legacy debentures and the Legacy
notes to trade at a price higher than 100% of par.
Legacy. Enterprises' board also considered Legacy and its management. In
particular, the board considered the risks described under the caption "Risk
Factors" contained elsewhere in this prospectus. After considering these risks
and the other information about Legacy that appears in this prospectus and
related materials, Enterprises' board was comfortable establishing a
relationship with Legacy. You should study this prospectus and related materials
and make your own conclusions as to whether to accept the offer, and as to
whether to retain an interest in Legacy's securities. From the perspective of
Enterprises' board, there was a realistic possibility that the convertibility
feature of the convertible debt could provide stockholders with some of the
upside potential currently associated with their investment. However,
Enterprises' board cannot provide you with any assurances on these questions and
you should reach your own conclusions.
Preferred Stock. After going through this analysis, Enterprises' board
thought it also important to retain reasonable protections for the holders of
the Enterprises preferred stock. Legacy agreed to various protections, including
proposed charter amendments giving holders of the Enterprises preferred stock
(excluding Legacy if it buys the Enterprises preferred stock) the right to elect
a majority of Enterprises' directors even if Legacy owns 100% of the Enterprises
common stock and any shares of the Enterprises preferred stock. These
protections are explained in greater detail elsewhere in this prospectus,
particularly in "-- Effect on Enterprises Preferred Stock" and "Description of
the Agreements -- The Company Agreement." Naturally, Enterprises' board cannot
be sure that the provisions will be effective in providing protection for
holders of the Enterprises preferred stock, and the holders will have to decide
for themselves whether it is desirable to maintain their interest rather than
selling all or part of it.
Enterprises' board also considered that stockholders holding over 51% of
the Enterprises voting power, and over 60% of the Enterprises common stock, had
expressed satisfaction with the proposal of Legacy, and had placed, or indicated
a willingness to place, their Enterprises common stock in escrow with
instructions to accept the offer.
Based on all of the foregoing, Enterprises' board determined that the
potential negative factors described in this section were outweighed by the
potential benefits of the transaction to the stockholders of Enterprises and
voted unanimously to approve the exchange offer.
Although directors, executive officers and other personnel of Enterprises
have interests in the exchange offer, as described under "Benefits to
Enterprises' Insiders in the Exchange Offer," Enterprises' board did not
consider the potential benefits to be received by these individuals as a factor
in reaching its decision to approve the exchange offer.
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FAIRNESS OPINION
Enterprises' board of directors retained Valuation Research Corporation to
render an opinion with respect to the fairness, from a financial point of view,
of the consideration to be paid to the holders of the Enterprises common stock
in our offer. The consideration in our offer was determined through arm's-length
negotiations between Legacy and Enterprises.
Since its founding in 1975, Valuation Research Corporation has provided
valuation services to clients throughout the United States, including Fortune
500 companies, as well as internationally through its affiliation with various
valuation companies across Europe and South America. The financial group
activities of Valuation Research Corporation include financial advisory
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert testimony. Valuation Research
Corporation is regularly engaged in the valuation of businesses and their
securities in connection with mergers, acquisitions and reorganizations and for
estate, tax, corporate and other purposes.
Valuation Research Corporation was initially retained by Enterprises in
connection with Enterprises' initial discussions with New Plan Excel, but when
that transaction did not proceed, Enterprises retained Valuation Research
Corporation to render its opinion as to whether the consideration to be paid by
Legacy to the holders of the Enterprises common stock in the exchange offer is
fair, from a financial point of view, to the holders of the Enterprises common
stock. Valuation Research Corporation was selected because of its experience and
expertise. Prior to the engagements, neither Valuation Research Corporation nor
any affiliate of Valuation Research Corporation had performed any investment
banking or other financial services for or had any other material relationship
with Legacy or Enterprises. Valuation Research Corporation did not receive any
instructions from Enterprises, Legacy or any affiliate of Enterprises or Legacy
with respect to the fairness opinion other than the direction from Enterprises
to determine whether the consideration to be paid to the holders of the
Enterprises common stock in our offer is fair from a financial point of view.
Valuation Research Corporation delivered to Enterprises' board of directors
its written opinion dated May 18, 1999 to the effect that, as of such date and
based upon and subject to various considerations set forth in the opinion and
such other factors as Valuation Research Corporation deemed relevant, the
consideration to be paid by Legacy to the holders of the Enterprises common
stock is fair from a financial point of view. Although we do not currently
anticipate that the fairness opinion will be updated, Enterprises will consider
the need for a revised fairness opinion if a material amendment to the
stockholders agreement or the company agreement is made. For example,
Enterprises might obtain a revised fairness opinion in the event of a change in
the exchange rate, in the allocation of cash and securities included in the
exchange rate, or in the terms of the Legacy debentures or the Legacy notes.
THE COMPLETE TEXT OF VALUATION RESEARCH CORPORATION'S OPINION, INCLUDING
EXHIBITS A AND B DELIVERED THEREWITH, IS ATTACHED HERETO AS ANNEX C AND THE
SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE OPINION. STOCKHOLDERS OF ENTERPRISES ARE URGED TO READ THE OPINION
CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE
FACTORS CONSIDERED AND THE
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ASSUMPTIONS MADE BY VALUATION RESEARCH CORPORATION. VALUATION RESEARCH
CORPORATION'S OPINION TO ENTERPRISES' BOARD OF DIRECTORS ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE PAID, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO YOU AS TO WHETHER YOU SHOULD EXCHANGE
YOUR SHARES OF THE ENTERPRISES COMMON STOCK.
In connection with rendering its opinion, Valuation Research Corporation:
- reviewed the stockholders agreement and the company agreement,
- reviewed and analyzed publicly available business and financial
information of Enterprises and Legacy for recent years and interim
periods to date, including, but not limited to:
- Legacy's Annual Report on Form 10-K for the fiscal year ended July
31, 1998
- Legacy's Transition Report on Form 10-Q for the transition period
from August 1, 1998 to December 31, 1998,
- Enterprises' Transition Report on Form 10-K for the transition period
from September 1, 1997 to December 31, 1997, and
- Enterprises' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998,
- reviewed and analyzed internal financial and operating information,
including financial forecasts, analyses and projections prepared by
management of Enterprises and Legacy,
- conducted discussions with members of the senior management of
Enterprises with respect to the business and prospects of Enterprises,
- reviewed and considered financial and stock market data relating to
Enterprises, and compared that data with similar data for other publicly
traded companies that Valuation Research Corporation believed may be
relevant, and
- reviewed the financial terms, to the extent publicly available, of
transactions that Valuation Research Corporation believed may be
relevant.
In addition, Valuation Research Corporation conducted such other analyses
and examinations and considered such other financial, economic and market
criteria as it deemed necessary in arriving at its opinion.
In rendering its opinion, Valuation Research Corporation assumed and
relied, without independent verification, upon the accuracy and completeness of
all financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with Valuation Research Corporation. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with Valuation Research Corporation, it was
advised by Enterprises' management that those forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of management as to the future financial
performance of Enterprises. Valuation Research
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Corporation did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Enterprises
nor did Valuation Research Corporation make any physical inspection of the
properties or assets of Enterprises. Valuation Research Corporation's opinion is
based upon the conditions as they existed as of the date of its opinion and can
be evaluated on that date only.
The fairness opinion of Valuation Research Corporation was only one of many
factors considered by Enterprises' board of directors in determining to approve
the exchange offer.
The following paragraphs briefly summarize the quantitative analyses
performed by Valuation Research Corporation in arriving at its opinion dated May
18, 1999 presented to Enterprises' board of directors.
Comparable Companies Analysis. Valuation Research Corporation compared
selected publicly-available historical and projected stock market data and
financial results for Enterprises to the corresponding data of the following
companies:
- Burnham Pacific Properties, Inc.,
- Developers Diversified Realty Corp.,
- JDN Realty Corporation,
- Kimco Realty Corporation, and
- Weingarten Realty Investors (collectively, the Comparable Companies).
Such data included, among other things, multiples of current stock price to 1998
funds from operations per share (FFO) and projected 1999 FFO. FFO is defined as
net income plus depreciation and amortization, excluding gains on sales of
property, non-recurring charges, and other extraordinary items. All of the
trading multiples of the Comparable Companies were based on closing stock prices
as of April 30, 1999 and all FFO per share estimates were based on projections
published, in the case of the Comparable Companies, by First Call and, in the
case of Enterprises, projections provided by management. Accordingly, such
estimated projections may or may not prove to be accurate.
The Comparable Companies were found to have April 30, 1999 closing stock
prices estimated to equal 8.5x to 12.9x 1998 FFO and 7.6x to 10.9x projected
1999 FFO. Applying such multiples to Enterprises' 1998 FFO per share ($0.67
assuming the issuance of the preferred stock at the beginning of the year) and
projected 1999 FFO per share ($0.76) resulted in implied price ranges of $5.70
to $8.64 and $5.78 to $8.28, respectively. The offer price for Enterprises
($8.50) is within the ranges for the offer price implied by Valuation Research
Corporation's comparable company analysis.
Comparable Transactions Analysis. Valuation Research Corporation also
analyzed publicly available information for five selected acquisition and merger
transactions between REITs deemed by Valuation Research Corporation to be
reasonably similar to the exchange offer. In examining these transactions,
Valuation
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Research Corporation analyzed various financial parameters of the acquired
company relative to the consideration offered. Combinations between REITs
compared included:
- Kimco Realty Corporation and The Price REIT, Inc.,
- Simon DeBartolo Group, Inc. and Corporate Property Investors,
- Prime Retail, Inc. and Horizon Group, Inc.,
- Excel Realty Trust and New Plan Excel, and
- Santa Anita Realty Enterprises and Meditrust (collectively, the
Comparable Transactions).
Valuation Research Corporation analyzed the multiple of consideration
offered to each acquired company's last twelve month FFO. Based on this
analysis, the implied last twelve month FFO as a multiple of the equity purchase
price ranged between 7.4x and 12.2x. Applying such multiples to Enterprises'
1998 FFO per share ($0.67) resulted in an implied common stock price range of
$4.96 to $8.17. The offer price for Enterprises exceeds the range for the offer
price implied by Valuation Research Corporation's comparable transactions
analysis.
None of the companies or acquired entities utilized in the above Comparable
Companies analysis and Comparable Transactions analysis for comparative purposes
is, of course, identical to Enterprises. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative review
of such results and involves complex considerations and judgments concerning
differences in financial and operating characteristics of the Comparable
Companies and the acquired entities and other factors that could affect the
value of the Comparable Companies and acquired entities as well as that of
Enterprises.
Discounted Cash Flow Analysis. Valuation Research Corporation performed a
discounted cash flow analysis of the projected cash flow of Enterprises for
calendar years 1999 through 2003, based in part on internal estimates provided
by management. The stand-alone discounted cash flow analysis of Enterprises was
determined by adding the present value of projected free cash flows over the
five-year period from 1999 to 2003 and the present value of the estimated
terminal value of Enterprises in year 2003 and subtracting the value of any
long-term debt and preferred stock of Enterprises. The estimated terminal value
was calculated based on a perpetuity formula assuming a 2.0% growth rate. The
cash flows and terminal values of Enterprises were discounted to present value
using a discount rate of 10.0%. The analysis resulted in an equity value of
Enterprises of approximately $6.30 per share. The offer price for Enterprises
exceeds this value.
Historical Trading Price Analysis. Valuation Research Corporation also
examined the history of the trading prices and volume for the shares of the
Enterprises common stock. This examination showed that during the period from
April 30, 1998 to April 30, 1999, the Enterprises common stock traded in the
range of $4.35 to $5.81 per share. The offer price for Enterprises exceeds this
range, representing a premium of approximately 46.3% over the closing price of
$5.81 on April 30, 1999.
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Average Transaction Premium Analysis. Valuation Research Corporation
reviewed mergers and acquisitions in the real estate industry utilizing publicly
available data to derive an average premium paid over the public trading prices
per share five days prior to the announcement of such transactions in 1997.
Valuation Research Corporation noted that the reasons for, and circumstances
surrounding, each of the transactions analyzed were diverse and that premiums
fluctuate among different industry sectors based on perceived growth, synergies,
strategic value and the type of consideration utilized in the transaction. The
analysis indicated that the average premium paid over trading prices was 22.5%
in 1997. As noted above, the offer price for Enterprises represents a premium of
approximately 46.3% over the closing price of $5.81 on April 30, 1999.
REIT Unsecured Debt and Preferred Stock Issues Analysis. Valuation
Research Corporation reviewed recently issued unsecured debt and preferred
stocks in the U.S. REIT industry. This examination showed that U.S. REIT
unsecured debt issues with a rating of between Baa1/BBB+ to Baa3/BBB- had a
coupon rate range of 6.7% to 7.75%. Also, newly issued U.S. REIT preferred
stocks with a rating of between ba2/ BB+ to baa2/BBB+ had a coupon in the range
of 8.25% to 9.5% and a corresponding yield range of 8.29% to 9.49%.
Valuation Research Corporation observed that the Legacy debentures and the
Legacy notes offer a coupon rate at the high end of the above described
unsecured debt issues and preferred stocks. Valuation Research Corporation also
noted that the Legacy debentures offer the holders the potential to benefit from
any potential appreciation in Legacy's equity market value.
Valuation Research Corporation assigned equal weight to each of the
analyses described above in reaching its conclusions. Valuation Research
Corporation believes that its analysis in the summary set forth above must be
considered as a whole. None of the factors discussed above or in the fairness
opinion itself failed to support the conclusion of the fairness opinion that the
transaction is fair from a financial point of view. Selecting portions of this
analysis, without considering all of the analysis, would create an incomplete
view of the process underlying Valuation Research Corporation's opinion. In
performing its analysis, Valuation Research Corporation made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
Enterprises and Legacy. The analysis performed by Valuation Research Corporation
is not necessarily indicative of actual values or actual future results, both of
which may be significantly more or less favorable than suggested by the
analysis.
Under the terms of Valuation Research Corporation's engagement, Enterprises
has agreed to pay Valuation Research Corporation for its financial advisory
services in connection with the exchange offer a fee of $70,000. Enterprises has
also agreed to reimburse Valuation Research Corporation for its reasonable
out-of-pocket expenses incurred in performing its services. In addition,
Enterprises has agreed to pay a fee of $25,000 to Valuation Research Corporation
for its work in connection with Enterprises' discussions with New Plan Excel.
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EXCHANGE RATE
We will pay $[4.25] in cash and issue the principal amount of $[2.75] in
Legacy debentures and $[1.50] in Legacy notes in exchange for each share of the
Enterprises common stock tendered in the exchange offer. However, instead of
issuing Legacy debentures and notes with a principal amount of other than $1,000
or an integral multiple of $1,000, we will pay you cash for amounts that are
below a multiple of $1,000. For example, if you tender 1,000 shares of the
Enterprises common stock in our offer, we will pay to you $5,500 in cash and
issue to you the principal amount of $2,000 in Legacy debentures and $1,000 in
Legacy notes. Although the exchange rate indicates that you should receive
$4,250 in cash, $2,750 in principal amount of Legacy debentures and $1,500 in
principal amount of Legacy notes, we will not be issuing Legacy debentures or
Legacy notes in principal amounts other than $1,000 and multiple integrals
thereof. Accordingly, in this example, $750 otherwise issuable in the form of a
Legacy debenture and $500 otherwise issuable in the form of a Legacy note would
be added to the amount to be paid to you in cash.
Under the stockholders agreement, the cash, debentures and notes issued in
the exchange offer will accrue interest from August 15, 1999. The cash will
accrue interest at the rate of 8.0% per annum, the Legacy debentures will accrue
interest at the rate of 9.0% per annum, and the Legacy notes will accrue
interest at the rate of 10.0% per annum. The interest on the cash will be paid
with the cash portion of the offer promptly after the expiration date. The
interest on the Legacy debentures and the Legacy notes will be paid on their
regular interest payment dates.
EXPIRATION DATE
You have until 5:00 p.m., New York City time, on , 1999 to
accept our offer, unless extended. At that time, our offer will expire. If we
extend the expiration date, we will publicly announce the extension as soon as
practicable after we make the extension, and in any event no later than 9:00
a.m. New York City time on the next business day after the previously scheduled
expiration date. Without limiting the manner in which we may choose to make a
public announcement, we will not have any obligation to publish or communicate
the public announcement other than by making a release to the Dow Jones News
Services.
EXCHANGE OF CASH, DEBENTURES AND NOTES FOR THE ENTERPRISES COMMON STOCK
If you deliver a properly completed and executed letter of transmittal,
which you received along with this prospectus, and stock certificates
representing your shares of the Enterprises common stock prior to the expiration
date to the exchange agent at its address, then you will have accepted the
exchange offer as to the number of shares reflected on the stock certificates
delivered.
Except as provided below, all signatures on a letter of transmittal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, which is a member of one of the recognized signature
guarantee programs
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identified in the letter of transmittal (each such institution is referred to in
this prospectus as an "eligible institution"). Signatures on a letter of
transmittal need not be guaranteed if:
- the letter of transmittal is signed by the registered holder of the
shares of the Enterprises common stock tendered therewith and the
registered holder has not completed the box entitled "Special Exchange
Instructions" on the letter of transmittal, or
- the shares of the Enterprises common stock tendered therewith are for the
account of an eligible institution.
YOU MUST CHOOSE HOW TO DELIVER THE LETTER OF TRANSMITTAL, STOCK
CERTIFICATES AND OTHER NECESSARY DOCUMENTS TO THE EXCHANGE AGENT, AND YOU BEAR
THE RISK OF HOW YOU MAKE THIS DELIVERY. WE RECOMMEND THAT YOU USE AN OVERNIGHT
OR HAND DELIVERY SERVICE RATHER THAN A MAIL SERVICE. IN ALL CASES, YOU SHOULD
ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD SEND THE LETTER OF
TRANSMITTAL, STOCK CERTIFICATES AND OTHER NECESSARY DOCUMENTS TO THE EXCHANGE
AGENT AT THE ADDRESS PROVIDED IN THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL.
If you want us to issue the Legacy debentures or the Legacy notes in a name
other than the name in which your Enterprises stock certificates are registered,
you must properly endorse or otherwise place in proper form for transfer your
stock certificates so surrendered, and the person requesting this exchange must
pay to Legacy or the exchange agent any applicable transfer or other taxes
required due to the issuance of this certificate. If your Enterprises stock
certificates are registered in the name of your broker, dealer, commercial bank,
trust company, or other nominee and you wish to tender your shares, you should
contact the registered holder promptly and instruct the registered holder to
tender on your behalf. If your stock certificates are registered in the name of
the registered holder and you wish to tender on your own behalf, you must,
before completing and executing the letter of transmittal and delivering the
letter of transmittal, stock certificates, and other necessary documents, either
arrange to register your shares in your name or obtain a properly completed
stock power from the registered holder.
If the letter of transmittal is signed by a person other than the
registered holder of any of the Enterprises common stock listed therein, the
stock certificates reflecting ownership of this Enterprises common stock must be
endorsed or accompanied by appropriate stock powers that authorize this person
to tender the Enterprises common stock on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
these stock certificates.
If the letter of transmittal, any stock certificates representing the
Enterprises common stock tendered, or any stock powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of a
corporation, or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing and, unless waived by us, submit with
the letter of transmittal evidence satisfactory to us of their authority to so
act.
After the expiration date the exchange agent will send us written notice of
the amount of the outstanding Enterprises common stock validly tendered in the
exchange
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offer. Promptly after we receive this notice, if all the conditions to the offer
are satisfied or waived, then we will exchange each validly tendered share of
the Enterprises common stock for cash, Legacy debentures and Legacy notes at the
exchange rate described above. We then will deliver by mail checks, Legacy
debentures and Legacy notes representing the Enterprises common stock that has
been tendered.
All questions as to the validity, form, eligibility, acceptance and
withdrawal of the tendered shares of the Enterprises common stock will be
determined by us in our sole discretion, and our determination will be final and
binding. We reserve the absolute right to reject any and all shares of the
Enterprises common stock not properly tendered or any shares of the Enterprises
common stock our acceptance of which would, in the opinion of our counsel, be
unlawful. We reserve the absolute right to waive any irregularities or
conditions of tenders as to particular shares of the Enterprises common stock.
Unless waived by us, any defects or irregularities in connection with tenders of
shares of the Enterprises common stock must be cured within the time we
determine. Neither we, the exchange agent nor any other person shall be under
any duty to give notification of defects or irregularities with respect to
tenders of shares of the Enterprises common stock or withdrawal of shares nor
shall any of them incur any liability for failure to give any notification.
Tenders of shares of the Enterprises common stock will not be deemed to have
been made until such defects or irregularities have been cured or waived. As
soon as practicable following the expiration date, the exchange agent will
return without cost any stock certificates representing the Enterprises common
stock that were not properly tendered and as to which defects or irregularities
have not been cured or waived to the tendering holder of these stock
certificates, unless otherwise provided in the letter of transmittal.
If any of the stock certificates representing your Enterprises common stock
have been mutilated, lost, stolen or destroyed, you should contact the exchange
agent at the address below for further instruction.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as exchange
agent of the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notice of guaranteed delivery (see below) should be directed to the
exchange agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: Facsimile Transmission:
Price Enterprises Exchange Offer Attn: Customized Fiduciary Services
c/o Norwest Bank Minnesota, N.A. (612) 667-9825
P.O. Box 2370
Minneapolis, MN 55402-0370 Confirm by Telephone:
Attn: Customized Fiduciary Services (612) 316-3667
By Overnight Delivery: By Hand Delivery:
Price Enterprises Exchange Offer Price Enterprises Exchange Offer
c/o Norwest Bank Minnesota, N.A. c/o Norwest Bank Minnesota, N.A.
Sixth & Marquette Northstar East Building, 12th Floor
MAC-N9303-I20 608 Second Avenue South
Minneapolis, MN 55479 Minneapolis, MN 55479
Attn: Customized Fiduciary Services Attn: Customized Fiduciary Services
</TABLE>
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GUARANTEED DELIVERY PROCEDURES
Enterprises' stockholders who wish to tender their shares of the
Enterprises common stock and whose stock certificates representing the
Enterprises common stock are not immediately available or who cannot deliver the
letter of transmittal, their stock certificates, or any other required documents
to the exchange agent prior to the expiration date, may effect a tender if:
- the tender is made through an eligible institution,
- prior to the expiration date, the exchange agent receives from this
eligible institution a properly completed and duly executed notice of
guaranteed delivery, which you received along with this prospectus, that:
- sets forth the name and address of the holder of the Enterprises common
stock, the certificate number or numbers of the Enterprises common stock,
and the number of shares of the Enterprises common stock tendered,
- states that the tender is being made thereby, and
- guarantees that, within three business days after the expiration date,
the letter of transmittal, the stock certificates representing the
Enterprises common stock to be tendered in proper form for transfer, and
any other necessary documents will be deposited by the eligible
institution with the exchange agent, and
- a properly completed and executed letter of transmittal, together with
the stock certificates representing all the tendered Enterprises common
stock in proper form for transfer, and all other necessary documents are
received by the exchange agent within three business days after the
expiration date.
CONDITIONS TO THE EXCHANGE
Our offer is conditioned upon 8,000,000 shares of the Enterprises common
stock being tendered for exchange and not withdrawn prior to the expiration date
for the exchange offer. Under the stockholders agreement, Sol Price, as trustee
of several trusts, and other stockholders of Enterprises have agreed to exchange
their shares of the Enterprises common stock, which together aggregate 8,014,970
shares. These shares have been placed in escrow pending the closing of the
exchange offer. Although we expect the minimum number of shares of the
Enterprises common stock to be tendered in the exchange offer from the escrow
described above, it is very important to us that you tender your shares.
In addition, regardless of whether 8,000,000 shares of the Enterprises
common stock are tendered in the exchange offer, we will be under no obligation
to accept the shares if prior to the expiration date any of the following occur:
- any court or other governmental entity shall have issued an order, decree
or ruling or taken any other action, which order, decree, ruling or other
action
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Legacy and Enterprises shall have used all reasonable efforts to resist,
resolve or lift, as applicable:
- seeking to restrain, enjoin or otherwise prohibit the transactions
contemplated by the stockholders agreement,
- seeking to prohibit or restrict the ownership or operation by Legacy
of any material portion of Enterprises' business or assets,
- making the acquisition of, or exchange for, some or all of the shares
of the Enterprises common stock illegal, or
- imposing material limitations on the ability of Legacy effectively to
acquire or to hold or to exercise full rights of ownership of the
Enterprises common stock,
- any authorizations, consents, orders or approvals of, or declarations or
filings with, any governmental entity which, if not obtained in
connection with the closing of the transactions contemplated by the
stockholders agreement, could reasonably be expected to have a material
adverse effect on the business, assets, results of operations or
condition of Enterprises, including without limitation the effectiveness
of any applicable registration statement or proxy materials, shall not
have been obtained, declared, filed or have occurred, as the case may be,
- (1) any general suspension of trading in, or limitation on prices for,
the Enterprises common stock on the Nasdaq National Market, (2) a
declaration of a banking moratorium or any general suspension of payments
in respect of banks in the United States or (3) in the case of any of the
foregoing events described in clauses (1) and (2) existing at the time of
the commencement of our offer, a material acceleration or worsening
thereof,
- Enterprises commences a case under any chapter of Title XI of the United
States Code, which is the federal bankruptcy law, or any similar law or
regulation; or a petition under any chapter of Title XI of the United
States Code or any similar law or regulation shall have been filed
against Enterprises which is not dismissed within three business days,
- any change, development, effect or circumstance shall have occurred or be
threatened with respect to Enterprises' major tenant, Costco Companies,
Inc., formerly Price/Costco, Inc., that would reasonably be expected to
have a material adverse effect on the business, assets, results of
operations or condition of Enterprises, or
- the stockholders agreement among Legacy, Sol Price, as trustee of several
trusts, and other stockholders of Enterprises shall have been terminated.
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TERMINATION OF THE EXCHANGE OFFER
Our exchange offer, as well as the stockholders agreement and the company
agreement, may be terminated at any time prior to the expiration date if:
- the parties to the agreements agree to the termination,
- any party materially breaches its obligations under the agreements,
- we do not close the exchange offer by , 1999, other
than as a result of any conditions to the exchange offer not being
satisfied, or
- any conditions to the exchange offer are not satisfied by December 1,
1999 due to no fault of the parties.
If the agreements terminate under the second point above, the breaching
party is obligated to pay the nonbreaching party liquidated damages in the
amount of $7.5 million (or $7.5 million plus interest in the case of a material
breach by Legacy); provided that, in the case of a material breach by
Enterprises, we may elect, in lieu of the liquidated damages, to close the
exchange offer and obtain the shares held in escrow and all other shares
tendered in the offer. If the agreements terminate under the third point above,
we are obligated to pay Enterprises liquidated damages in the amount of $7.5
million plus interest. If the agreements terminate under the first or fourth
point above, the escrow will be terminated, all items held in the escrow will be
returned to the parties who deposited them, and none of the parties generally
will have any further obligations thereunder. The amount payable by Legacy to
Enterprises is subject to increase based on the timing of the termination as
described in "Description of the Agreements -- The Stockholders Agreement."
If the exchange offer is terminated without our acceptance of any shares of
the Enterprises common stock tendered, we will promptly return all shares
tendered to the appropriate Enterprises' stockholders.
WITHDRAWAL RIGHTS
You may withdraw tenders of your shares of the Enterprises common stock at
any time before the exchange offer expires. If you change your mind again, you
may retender your shares of the Enterprises common stock by following the
exchange offer procedures again prior to the expiration of the exchange offer.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of its addresses set forth in the section
of this prospectus titled "-- The Exchange Agent." The notice of withdrawal
must:
- specify the name of the person having tendered the shares of the
Enterprises common stock to be withdrawn,
- identify the number of shares of the Enterprises common stock to be
withdrawn, and
- specify the name in which physical share certificates representing the
Enterprises common stock are registered, if different from that of the
withdrawing holder.
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If certificates for the Enterprises common stock have been delivered or
otherwise identified to the exchange agent, then, before the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution.
Any shares of the Enterprises common stock withdrawn will be deemed not to
have been validly tendered for exchange for purposes of our offer. Any shares
which have been tendered for exchange but which are not exchanged for any reason
will be promptly returned to the holder who tendered the shares. Properly
withdrawn shares may be retendered by following one of the procedures described
in this prospectus and the letter of transmittal.
Except as otherwise provided above, any tender of shares of the Enterprises
common stock made under the exchange offer is irrevocable.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of the Enterprises common stock for cash, Legacy debentures
and Legacy notes in the exchange offer will be a taxable transaction for United
States federal income tax purposes and may also be taxable under applicable
state, local and foreign tax laws. YOU SHOULD CAREFULLY READ THE SUMMARY OF THE
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER, AND OF ACQUIRING, OWNING
AND DISPOSING OF THE LEGACY DEBENTURES AND THE LEGACY NOTES, UNDER "UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED TO CONSULT WITH YOUR OWN
TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES IN
YOUR PARTICULAR CIRCUMSTANCE.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by our officers and regular employees and the
officers and regular employees of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay the cash expenses to be incurred in connection with the
exchange offer, which are estimated in the aggregate to be approximately $8.0
million. Such expenses include registration fees, fees and expenses of the
exchange agent for our offer and the trustee under the indentures for the Legacy
debentures and the Legacy notes, accounting and legal fees, printing costs,
severance payments to Enterprises' employees and payments with respect to the
Enterprises stock options, among others.
We will pay all transfer taxes, if any, applicable to the exchange of cash,
Legacy debentures and Legacy notes for the Enterprises common stock in the
exchange offer. If, however, a transfer tax is imposed for any reason other than
the exchange of cash, Legacy debentures and Legacy notes for the Enterprises
common stock in the
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exchange offer, then the amount of any transfer taxes will be payable by the
tendering stockholder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the letter of transmittal, the amount
of such transfer taxes will be billed directly to the Enterprises' stockholder.
RESALES OF THE LEGACY DEBENTURES AND THE LEGACY NOTES BY ENTERPRISES' AFFILIATES
Although we will register with the SEC under the Securities Act of 1933 the
Legacy debentures and the Legacy notes to be issued to Enterprises' stockholders
in the exchange offer, affiliates of Enterprises must comply with the provisions
of Rule 145 under the Securities Act of 1933. Enterprises' affiliates include
any person who, directly or indirectly, controls, or is controlled by, or is
under common control with Enterprises. Rule 145(d) requires that each person
deemed to be an affiliate of Enterprises must resell his Legacy debentures and
Legacy notes in compliance with the requirements of Rule 144 under the
Securities Act of 1933 if the Legacy debentures or the Legacy notes are sold
within the first year after the receipt thereof. After the first anniversary of
our issuance of the Legacy debentures and the Legacy notes, if this person is
not an affiliate of Legacy and Legacy is current in the filing of its periodic
securities law reports, this person may freely resell his Legacy debentures and
Legacy notes received in the exchange offer without limitation. After the second
anniversary of our issuance of the Legacy debentures and the Legacy notes, if
this person is not an affiliate of Legacy at the time of sale and has not been
so for at least three months prior to the sale, this person may freely resell
his Legacy debentures and Legacy notes without limitation, regardless of the
status of our periodic securities law reports.
REGULATORY MATTERS
We believe that the exchange offer may be closed without notification being
given or information being furnished to the Federal Trade Commission or the
Antitrust Division of the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and that no waiting period
requirements under the Hart-Scott-Rodino Act are applicable to our offer.
EFFECT ON OPTIONS TO PURCHASE THE ENTERPRISES STOCK
Our offer does not apply to options to purchase the Enterprises stock.
However, we have agreed with Enterprises in the company agreement to accelerate
the vesting of the Enterprises stock options and to make cash payments with
respect to those options.
EFFECT ON THE ENTERPRISES PREFERRED STOCK
Our offer does not apply to the Enterprises preferred stock, which will
remain outstanding following the exchange offer. We have agreed in the company
agreement that after the closing of the exchange offer, the holders of the
Enterprises preferred
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stock will be entitled to elect a majority of Enterprises' board of directors
and to have one designee on Legacy's board of directors, until:
- less than 2,000,000 shares of the Enterprises preferred stock remain
outstanding,
- we make an offer to purchase any and all outstanding shares of the
Enterprises preferred stock at a cash price of $16.00 per share, and
purchase all shares duly tendered and not withdrawn, or
- the directors of Enterprises (1) issue any equity securities without
unanimous approval of Enterprises' board or (2) fail to pay dividends on
the Enterprises common stock in an amount necessary to maintain
Enterprises' status as a REIT, or in an amount equal to the excess, if
any, of Enterprises' funds from operations, less preferred stock
dividends, over $7.5 million.
In addition, Legacy has agreed by separate letter to take some affirmative
actions to preserve Enterprises' status as a REIT in consideration of
Enterprises' approval of the exchange offer.
ACCOUNTING TREATMENT
For accounting purposes, neither Legacy nor Enterprises will recognize a
gain or loss as a result of the exchange offer. Enterprises will, however,
expense its costs related to the exchange offer. We will account for our
purchase of the Enterprises common stock under the equity method. Under the
equity method, we will report our investment as a one-line item on our balance
sheet and our equity in the earnings or loss of Enterprises as a one-line item
on our statement of income. We will not consolidate the accounts of Enterprises
because the holders of the Enterprises preferred stock will be entitled to elect
a majority of Enterprises' board of directors following the closing of the
exchange offer. However, if one of the conditions occurs which terminates the
right of the holders of the Enterprises preferred stock to elect a majority of
Enterprises' board, we may be able to consolidate the accounts of Enterprises at
that time.
POSSIBLE MERGER AND APPRAISAL RIGHTS
After the exchange, we may merge Enterprises with a wholly-owned subsidiary
of Legacy. Whether we decide to proceed with a merger depends upon a number of
factors which cannot be ascertained at the present time. These factors include
the number of shares which are tendered in our offer, the relative
attractiveness of completing the merger compared to investing our resources in
other investments, and the availability of financing to fund the cash portion of
the consideration required to effect the merger. The more shares tendered in the
exchange offer, the more likely it is that we will effect the merger as less
cash will be required to pay for the remaining shares. The merger will have no
effect on Enterprises' stockholders who accept our offer. It will affect,
however, Enterprises' stockholders who do not accept our offer. If we proceed
with a merger, we will give those stockholders the identical amount and ratio of
cash, Legacy debentures and Legacy notes for their shares of the Enterprises
common stock as is being offered to you.
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If the Enterprises common stock is listed on the Nasdaq National Market on
the record date for determining stockholders entitled to vote on the merger, no
appraisal rights will be available to Enterprises' stockholders in connection
with the merger. In contrast, if the Enterprises common stock is not listed on
the Nasdaq National Market on such record date, Enterprises' stockholders will
be entitled to appraisal rights in connection with the merger. The continued
listing of the Enterprises common stock will depend on the number of shares
outstanding after the exchange offer. There will be approximately 5.3 million
shares outstanding after the tender of the Enterprises common stock held in
escrow under the stockholders agreement. If a sufficient number of additional
shares is tendered to reduce the outstanding shares below 750,000, which is the
minimum number required by the Nasdaq National Market for continued listing, the
Enterprises common stock may be delisted from the Nasdaq National Market and
Enterprises' stockholders may be entitled to appraisal rights in connection with
the merger.
DESCRIPTION OF THE AGREEMENTS
The following is a brief summary of the material provisions of the
stockholders agreement and the company agreement. Copies of the agreements are
included as Annex A and Annex B, respectively, and are incorporated herein by
reference. This summary does not purport to be complete and is qualified in its
entirety by reference to the stockholders agreement and the company agreement.
All Enterprises' stockholders are urged to read the stockholders agreement and
the company agreement in their entirety.
THE STOCKHOLDERS AGREEMENT
We entered into two agreements that govern our actions with respect to our
offer to exchange cash, Legacy debentures and Legacy notes for your shares of
the Enterprises common stock. The first agreement, as amended, is referred to in
this prospectus as the "stockholders agreement." The stockholders agreement was
entered into with Sol Price, as trustee of several trusts, all of the directors
of Enterprises and some of their family members, the President and Chief
Executive Officer of Enterprises, and numerous other individuals and entities
known to Mr. Price.
Under the stockholders agreement, we agreed to pay $8.50 per share for the
Enterprises common stock, comprised, at our election, of $8.50 in cash or:
- at least $4.25 in cash,
- at least $2.75 in principal amount of the Legacy debentures, and
- $1.50 per share in whatever combination we may choose of cash, Legacy
debentures or Legacy notes.
We ultimately decided to make our offer to you at the exchange rate of
$[4.25] in cash, $[2.75] in principal amount of Legacy debentures and $[1.50] in
principal amount of Legacy notes for each share of the Enterprises common stock.
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The cash, debentures and notes issued in the exchange offer will accrue
interest from August 15, 1999. The cash will accrue interest at the rate of 8.0%
per annum, the Legacy debentures will accrue interest at the rate of 9.0% per
annum, and the Legacy notes will accrue interest at the rate of 10.0% per annum.
On May 21, 1999, Sol Price, as trustee, and the other stockholders of
Enterprises who are parties to the stockholders agreement deposited an aggregate
of 4,464,382 shares of the Enterprises common stock, representing approximately
28.5% of the Enterprises voting power, into escrow, and we deposited into escrow
the sum of $1.0 million. The stockholders agreement granted Enterprises' board
of directors the right to determine whether the transaction would proceed, and
if so, whether the transaction would proceed as an exchange offer or a merger.
Enterprises' board met on June 2, 1999 and approved the transaction and
determined that the transaction would proceed as an exchange offer. In deciding
that the transaction should proceed as an exchange offer, Enterprises' board
focused mainly on the ability of each holder of the Enterprises common stock to
make his or her own decision in an exchange offer as to whether to exchange the
holder's shares for the consideration offered by Legacy or to remain a
stockholder of Enterprises. Enterprises' board also believed that an exchange
offer would be completed more quickly than a merger. On June 4, 1999, some of
Enterprises' stockholders who signed the stockholders agreement deposited
additional shares of the Enterprises common stock into escrow so that the
aggregate number of shares held in escrow would be 8,014,970, which represents
approximately 51% of the Enterprises voting power. At the same time, we
deposited an additional $6.5 million into escrow so that a total of $7.5 million
in cash would be held in escrow. The shares held in escrow will be tendered in
the exchange offer, and the funds held in escrow will be released to satisfy a
portion of our monetary obligations under the exchange offer.
We agreed to deposit an additional $1.0 million in cash into escrow on each
of September 1, 1999, October 1, 1999 and November 1, 1999 if, as to each such
date, the exchange offer has not closed. On September 1, 1999, we deposited an
additional $1.0 million into escrow as required by the stockholders agreement so
that a total of $8.5 million in cash would be held in escrow. These funds will
be released to satisfy a portion of our monetary obligations under the exchange
offer. However, if the exchange offer is terminated in such a manner as to
require us to pay liquidated damages to Enterprises as described below, these
funds will be added to the amount payable by Legacy to Enterprises thereby
bringing the total liquidated damages to as much as $10.5 million.
Mr. Price, as trustee, and the other stockholders of Enterprises who are
parties to the stockholders agreement agreed not to sell their shares of the
Enterprises common stock until the exchange offer is closed or otherwise
terminated, and to vote their shares of the Enterprises common stock and
preferred stock against any proposal by a third party (other than Legacy) to
acquire more than 25% of the voting power of Enterprises or all or substantially
all of the assets of Enterprises.
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THE COMPANY AGREEMENT
On June 2, 1999, following the approval of the exchange offer by our board
of directors and Enterprises' board of directors, we entered into an agreement
with Enterprises which, as amended, is referred to in this prospectus as the
"company agreement."
Under the company agreement, Enterprises or Enterprises' board of
directors, as applicable, is obligated to:
- not take any action to revoke, modify or otherwise alter its approval of
the exchange offer,
- permit Gary B. Sabin, Chairman, President and Chief Executive Officer of
Legacy, and Richard B. Muir, Executive Vice President and Director of
Legacy, to attend all meetings of Enterprises' board of directors (other
than those relating to the exchange offer or any competing transaction)
in a non-voting observer capacity until the closing of the exchange
offer, at which time the directors of Enterprises will cause Messrs.
Sabin and Muir or two other designees of Legacy to be appointed to the
board of directors of Enterprises,
- appoint Mr. Sabin as Chief Executive Officer of Enterprises effective
upon the closing of the exchange offer,
- act only in the ordinary course of business until the closing of the
exchange offer, and
- cooperate with Legacy with respect to the exchange offer documents and
use all reasonable efforts to satisfy the conditions to the exchange
offer.
Under the company agreement, Legacy has agreed that, following the closing
of the exchange offer, the holders of the Enterprises preferred stock will be
entitled to elect a majority of Enterprises' board of directors and to have one
designee on Legacy's board of directors, until:
- less than 2,000,000 shares of the Enterprises preferred stock remain
outstanding,
- we make an offer to purchase any and all outstanding shares of the
Enterprises preferred stock at a cash price of $16.00 per share, and
purchase all shares duly tendered and not withdrawn, or
- the directors of Enterprises (1) issue any equity securities without
unanimous approval of Enterprises' board or (2) fail to pay dividends on
the Enterprises common stock in an amount necessary to maintain
Enterprises' status as a REIT, or in an amount equal to the excess, if
any, of Enterprises' funds from operations, less preferred stock
dividends, over $7.5 million.
The third point above is intended to protect the interests of the holders
of the Enterprises preferred stock by creating an annual reserve of $7.5 million
at the Enterprises level which will not be distributed to Legacy or any other
holder of the Enterprises common stock. This reserve will limit our ability to
receive cash distributions from Enterprises for so long as the Enterprises
preferred stock is
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outstanding. We have agreed with Enterprises that the $7.5 million reserve may
be used for the improvement and/or acquisition of properties, the repurchase of
the Enterprises preferred stock or the reduction of Enterprises' debt.
Under the company agreement, Legacy is also obligated to:
- not cause a change of control of Enterprises including by a change of
control of Legacy itself:
- prior to the closing of the exchange offer, without the consent of Sol
Price, or
- after the closing of the exchange offer, without either offering to
purchase all shares of the Enterprises preferred stock or obtaining the
approval of Enterprises' board of directors,
- after the closing of the exchange offer, cause Enterprises to pay all
severance obligations owing to Enterprises employees, and to accelerate
the vesting of all stock options held by Enterprises' employees and
directors and to make cash payments with respect to those options,
- after the closing of the exchange offer, cause Enterprises to maintain
directors and officers' liability insurance insuring all persons who are
or were directors or officers of Enterprises in an amount not less than
that in effect on April 30, 1999, for a period of at least three years
following the closing of the exchange offer, and
- until such time as there are no shares of the Enterprises preferred stock
outstanding, not take any action that would cause Enterprises to fail to
qualify as a REIT.
In addition, Legacy has agreed by separate letter to take some affirmative
actions to preserve Enterprises' status as a REIT in consideration of
Enterprises' approval of the exchange offer.
TERMINATION OF THE AGREEMENTS AND LIQUIDATED DAMAGES
The stockholders agreement and the company agreement, as well as our
exchange offer, may be terminated if:
- the parties to the agreements agree to the termination,
- any party materially breaches its obligations under the agreements,
- we do not close the exchange offer by , 1999, other
than as a result of any conditions to the exchange offer not being
satisfied, or
- any conditions to the exchange offer are not satisfied by December 1,
1999 due to no fault of the parties.
If the agreements terminate under the second point above, the breaching
party is obligated to pay the nonbreaching party liquidated damages in the
amount of $7.5 million (or $7.5 million plus interest in the case of a material
breach by Legacy). In lieu of liquidated damages, we may elect to close the
exchange offer and obtain the
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shares held in escrow and all other shares tendered in the offer. If the
agreements terminate under the third point above, we are obligated to pay
Enterprises liquidated damages in the amount of $7.5 million plus interest. If
the agreements terminate under the first or fourth point above, the escrow will
be terminated, all items held in the escrow will be returned to the parties who
deposited them, and the parties generally will have no further obligations to
each other. The amount payable by Legacy to Enterprises is subject to increase
based on the timing of the termination as described in "-- The Stockholders
Agreement."
If the exchange offer is terminated without our acceptance of any shares of
the Enterprises common stock tendered, we will promptly return all shares
tendered to the appropriate stockholders of Enterprises.
DESCRIPTION OF LEGACY CAPITAL STOCK
GENERAL
Legacy's authorized capital stock consists of 150,000,000 shares of common
stock and 50,000,000 shares of preferred stock. A certificate of designation
classifies 25,000,000 shares of our preferred stock as Series B preferred stock.
At August 31, 1999, we had outstanding approximately 33,457,804 shares of common
stock and 21,281,000 shares of Series B preferred stock. As of August 31, 1999,
3,932,000 shares of Legacy common stock were reserved for issuance upon exercise
of outstanding options.
LEGACY COMMON STOCK
Voting Rights. Each holder of Legacy common stock is entitled to one vote
for each share registered in his name on the books of Legacy on all matters
submitted to a vote of stockholders. Except as otherwise provided by law, the
holders of Legacy common stock vote as one class. The shares of common stock do
not have cumulative voting rights. As a result, subject to the voting rights, if
any, of the holders of any shares of preferred stock which may at the time be
outstanding, the holders of common stock entitled to exercise more than 50% of
the voting rights in an election of directors will be able to elect 100% of the
directors to be elected if they choose to do so. In such event, the holders of
the remaining shares of common stock voting for the election of directors will
not be able to elect any persons to our board of directors. Our charter and our
amended and restated bylaws contain provisions that could have an anti-takeover
effect.
Dividend Rights. Subject to the rights of the holders of any shares of
Legacy preferred stock which may at the time be outstanding, holders of Legacy
common stock will be entitled to such dividends as our board of directors may
declare out of funds legally available therefor. Because portions of our
operations may be conducted through subsidiaries, our cash flow and consequent
ability to pay dividends on the common stock may be dependent to some degree
upon the earnings of such subsidiaries and on dividends and other payments
therefrom.
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Liquidation Rights and Other Provisions. Subject to the prior rights of
creditors and the holders of any Legacy preferred stock which may be outstanding
from time to time, the holders of Legacy common stock are entitled in the event
of liquidation, dissolution or winding up to share pro rata in the distribution
of all remaining assets.
Legacy 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 common stock.
LEGACY PREFERRED STOCK
Under Legacy's charter, our board of directors is authorized generally
without stockholder approval to issue shares of preferred stock from time to
time, in one or more classes or series. Prior to the issuance of shares of each
series, the board of directors is required by the DGCL and Legacy's charter to
adopt resolutions and file a certificate of designation with the Delaware
Secretary of State. The certificate of designation fixes for each class or
series the designations, powers, preferences, rights, qualifications,
limitations and restrictions, including the following:
- the number of shares constituting each class or series,
- voting rights,
- rights and terms of redemption, including sinking fund provisions,
- dividend rights and rates,
- dissolution,
- terms concerning the distribution of assets,
- conversion or exchange terms,
- redemption prices, and
- liquidation preferences.
Holders of our Series B preferred stock are entitled to receive, when, as
and if declared by the board of directors, cumulative cash dividends payable in
an amount per share equal to the cash dividends, if any, on the shares of common
stock into which our shares of Series B preferred stock are convertible. Holders
of the Series B preferred stock are also entitled to a liquidation preference of
$5.00 per share, plus a premium of 7.0% per annum, in the event of our
liquidation, dissolution or other winding up of our affairs. The shares of
Series B preferred stock are convertible into our common stock at our option or
at the option of the holders at any time, on a one-for-one basis, subject to
adjustments.
REGISTRAR AND TRANSFER AGENT
BankBoston, N.A. is the registrar and transfer agent for our common stock
and Series B preferred stock.
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DESCRIPTION OF THE LEGACY DEBENTURES AND THE LEGACY NOTES
GENERAL
We will issue the Legacy debentures and the Legacy notes under separate
indentures between us and Norwest Bank Minnesota, National Association, as
trustee. The following is a summary of the material provisions of the
indentures. It does not include all of the provisions of the indentures. We urge
you to read the indentures because they define your rights. The terms of the
Legacy debentures and the Legacy notes include those stated in the indentures
and those made part of the indentures by reference to the Trust Indenture Act
(the TIA) as in effect on the date of the indentures. Copies of the indentures
have been filed as exhibits with the registration statement of which this
prospectus is a part and may be obtained from us or the information agent. You
can find definitions of some of the terms used in the following summary under
"-- Definitions."
The Legacy debentures and the Legacy notes will be unsecured obligations of
Legacy. Because the Legacy debentures and the Legacy notes will not be secured
by any of our assets, the debentures and the notes will be effectively
subordinated in right of payment to our existing and future secured
indebtedness, to the extent of the value of the assets securing that
indebtedness, and effectively subordinated in right of payment to all of the
indebtedness and other liabilities of our subsidiaries.
The Legacy debentures will rank subordinate in right of payment to all of
our senior debt. The Legacy notes will be senior obligations of Legacy, will
rank equal in right of payment with all existing and future senior indebtedness
of Legacy and will rank senior in right of payment to the Legacy debentures and
any future subordinated indebtedness of Legacy. However, the Legacy notes will
be effectively subordinated to our secured indebtedness and the indebtedness and
other liabilities of our subsidiaries.
The indentures will permit the incurrence of additional debt, including
secured debt, by us and our subsidiaries, without restriction.
We will issue the Legacy debentures and the Legacy notes in fully
registered form in denominations of $1,000 and integral multiples of $1,000. The
trustee will initially act as paying agent, conversion agent and registrar. The
debentures and notes may be presented for registration of transfer and exchange
at the offices of the registrar. We may change any paying agent, conversion
agent and registrar without notice to holders of the Legacy debentures or the
Legacy notes. We will pay principal, and premium, if any, on the Legacy
debentures and the Legacy notes at the trustee's corporate office in New York,
New York. At our option, interest also may be paid by mailing a check to the
holder's registered address.
MATURITY AND INTEREST
The Legacy debentures and the Legacy notes will mature on ,
2004. The Legacy debentures accrue interest at the rate of 9.0% per annum from
August 15, 1999 and the Legacy notes accrue interest at the rate of 10.0% per
annum from August 15, 1999. Interest on the debentures and the notes will be
payable
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semiannually in cash on each and , commencing on
, 2000.
We will make interest payments to the persons who are registered holders of
the Legacy debentures and the Legacy notes at the close of business on
and immediately preceding the applicable interest
payment date.
Neither the Legacy debentures nor the Legacy notes contain any mandatory
sinking fund.
REDEMPTION
The Legacy debentures are not redeemable before , 2001. The
Legacy notes are redeemable at any time. In each case, we may redeem the Legacy
debentures and/or the Legacy notes at our option, in whole or in part, upon not
less than 30 nor more than 60 days' notice. Any redemption will be at the price
of 100% of the principal amount being redeemed. In addition, we must pay all
accrued and unpaid interest on the debentures and/or notes redeemed.
SELECTION AND NOTICE OF REDEMPTION
In the event that we choose to redeem less than all of the Legacy
debentures or less than all of the Legacy notes, selection of the debentures or
notes for redemption will be made by the trustee either:
- on a pro rata basis,
- by lot, or
- in compliance with the requirements of the principal national securities
exchange, if any, on which the Legacy debentures or the Legacy notes are
listed, as the trustee shall deem fair and appropriate.
No Legacy debentures or Legacy notes of a principal amount of $1,000 or
less may be redeemed in part.
We will send notice of redemption by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of Legacy debentures
or Legacy notes to be redeemed at its registered address. On and after the
redemption date, interest will cease to accrue on the Legacy debentures and the
Legacy notes called for redemption as long as we have deposited with the paying
agent funds in satisfaction of the redemption price. The trustee will initially
serve as the paying agent.
RANKING
Legacy Debentures. The payment of all obligations on the Legacy debentures
is subordinated in right of payment to the prior payment in full in cash or cash
equivalents of all obligations on our senior debt, including the Legacy notes.
The Legacy debentures also will be effectively subordinated in right of payment
to our secured indebtedness and the indebtedness and other liabilities of our
subsidiaries.
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In the event of any distribution to our creditors in a liquidation or
dissolution of Legacy, or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to us or our property, the holders
of senior debt will be entitled to receive payment in full in cash of all
obligations due in respect of senior debt, including interest after the
commencement of any bankruptcy or similar proceeding whether or not the interest
is an allowed claim in the proceeding, before the holders of Legacy debentures
will be entitled to receive any payment with respect to the Legacy debentures.
We also may not make any payment in respect of the Legacy debentures if:
- a payment default on senior debt occurs and is continuing, or
- any other default occurs and is continuing on senior debt that permits
holders of the senior debt to accelerate its maturity and the trustee
receives a notice of such default (a payment blockage notice) from the
representative of any senior debt.
Payments on the Legacy debentures may and will be resumed in the case of a
payment default, upon the date on which the default is cured or waived, or, if
the default is not the subject of judicial proceedings, upon the date that is
120 days after notice is given. No new payment blockage notice with respect to
the same issue of senior debt may be delivered unless and until nine months have
elapsed since the effectiveness of the immediately prior payment blockage
notice.
We must promptly notify holders of senior debt if payment of the Legacy
debentures is accelerated because of an event of default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Legacy, holders of the Legacy
debentures may recover less ratably than our creditors who are holders of senior
debt. For a description of some of the implications of these subordination
provisions, see "Risk Factors -- The Legacy debentures rank junior to our
existing debt and possibly all of our future borrowings."
As of August 31, 1999, we had:
- approximately $98.4 million in outstanding debt that ranks senior to the
Legacy debentures,
- no debt that ranks equal to the Legacy debentures, and
- no debt that ranks junior to the Legacy debentures.
The Legacy notes will rank senior to the Legacy debentures and,
accordingly, after the closing of the exchange offer and assuming all shares of
the Enterprises common stock are tendered, on a pro forma basis we will have
approximately $145.4 million in senior debt outstanding including the Legacy
notes but not taking into account Enterprises' total indebtedness of
approximately $83.4 million.
The indenture for the Legacy debentures will permit the incurrence of
additional debt without restriction.
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Legacy Notes. The Legacy notes will be senior obligations of Legacy, will
rank equal in right of payment to all existing and future senior indebtedness of
Legacy and will rank senior in right of payment to the Legacy debentures and any
future subordinated indebtedness of Legacy. However, the Legacy notes will be
effectively subordinated to our secured indebtedness and the indebtedness and
other liabilities of our subsidiaries. For a discussion of the effective
subordination of the Legacy notes in relation to our secured indebtedness and
the indebtedness and other liabilities of our subsidiaries, see "Risk
Factors -- The Legacy debentures and the Legacy notes are effectively
subordinated to secured indebtedness and indebtedness of our subsidiaries."
As of August 31, 1999, we had:
- approximately $98.4 million in outstanding secured debt under our
existing credit facility and other mortgage debt that effectively ranks
senior to the Legacy notes,
- no debt that ranks equal to the Legacy notes, and
- no debt that ranks junior to the Legacy notes.
After the closing of the exchange offer and assuming all shares of the
Enterprises common stock are tendered, on a pro forma basis we will have
approximately $145.4 million in senior debt outstanding including the Legacy
notes but not taking into account Enterprises' total indebtedness of
approximately $83.4 million. In addition, the Legacy debentures will rank junior
to the Legacy notes and, accordingly, we will have approximately $20.0 million
in subordinated debt after the closing of the exchange offer.
The indenture for the Legacy notes will permit the incurrence of additional
debt, including secured debt, by us and our subsidiaries, without restriction.
CONVERSION
Legacy Debentures. The holders of Legacy debentures will be entitled at
any time before the day prior to the final maturity date of the debentures,
subject to prior redemption, to convert any Legacy debentures into Legacy common
stock at the conversion price of $5.50 per share, subject to adjustment as
described below. Any conversion of Legacy debentures must be made in
denominations of $1,000 or multiples thereof.
Except as described below, no payment or other adjustment will be made on
conversion of any Legacy debentures for interest accrued thereon or for
dividends on any Legacy common stock issued. However, interest will be paid on
any interest payment date with respect to Legacy debentures surrendered for
conversion after a record date for the payment of interest. We are not required
to issue fractional shares of common stock upon conversion of Legacy debentures
and, in lieu thereof, will pay a cash adjustment based upon the market price of
the Legacy common stock on the last business day prior to the date of
conversion. In the case of Legacy debentures called for redemption, conversion
rights will expire at the close of business on the day fixed for redemption
unless we default in the payment of the redemption price.
The initial conversion price of $5.50 per share of Legacy common stock is
subject to antidilution adjustment. The conversion price adjustments are
designed to benefit
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the holders of Legacy debentures by preserving the economic benefit to such
holders of the $5.50 conversion price. For example, if we issue a stock dividend
on the Legacy common stock, the conversion price would be adjusted so that each
holder would be entitled to receive the number of shares of Legacy common stock
which he would have owned immediately following such dividend if he had
converted his Legacy debentures immediately prior to such dividend. Likewise, if
we issue our common stock at a price significantly below the current market
price, the conversion price would be adjusted so that each holder would be
entitled to receive additional shares of Legacy common stock in an amount
sufficient to offset the dilutive effect of the below-market stock issuance.
There is no set range of conversion price adjustments, as the direction and
magnitude of such adjustments will depend on the type of action giving rise
thereto. However, in every case, the adjustments will be directed at maintaining
the value of the Legacy common stock into which the Legacy debentures may be
converted. The conversion price adjustments apply to the following events which
may affect the Legacy common stock:
- the issuance of Legacy common stock as a dividend or distribution on
Legacy common stock,
- subdivisions and combinations of Legacy common stock,
- the issuance to all holders of Legacy common stock of rights or warrants
to purchase Legacy common stock,
- the distribution to all holders of Legacy common stock of capital stock
(other than Legacy common stock), or evidences of indebtedness of Legacy
or of assets, and
- the issuance of shares of Legacy common stock for a consideration per
share less than 95% of the current market price per share of the Legacy
common stock, or the issuance of securities convertible into Legacy
common stock at a conversion price less than 95% of the current market
price per share of the Legacy common stock, subject in each case to
exceptions.
In the case of any reclassification of Legacy common stock, or a
consolidation, merger or combination involving Legacy or a sale to another
person of substantially all of the assets of Legacy, in each case as a result of
which holders of Legacy common stock shall be entitled to receive stock, other
securities or other assets such as cash with respect to or in exchange for
Legacy common stock, the holders of the Legacy debentures then outstanding will
generally be entitled thereafter to convert the Legacy debentures into the kind
and amount of shares of stock, other securities or other assets which they would
have owned or been entitled to receive had they been common stockholders at the
time of the event.
In the event of a taxable distribution to the holders of Legacy common
stock or in other circumstances requiring conversion price adjustments, the
holders of Legacy debentures may, in some circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend; in other circumstances, the absence of such an adjustment may result
in a taxable dividend to the holders of Legacy common stock.
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We may from time to time and to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
we will give at least 15 days' notice of such reduction, if our board of
directors has made a determination that a reduction would be in the best
interests of Legacy, which determination shall be conclusive. We may, at our
option, make reductions in the conversion price, in addition to those set forth
above, as our board deems advisable to avoid or diminish any income tax to
holders of Legacy common stock resulting from any dividend or distribution of
stock or rights to acquire stock or from any event treated as such for income
tax purposes.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect. However, any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment. In
addition, no adjustment in the conversion price will be required as a result of
the actions listed above if all holders of Legacy debentures are entitled to
participate in the transaction on a basis and with notice that our board of
directors determines to be fair and appropriate. Except as stated above, the
conversion price will not be adjusted for the issuance of Legacy common stock,
any securities convertible into or exchangeable for Legacy common stock or any
securities carrying the right to purchase any of the foregoing.
Legacy Notes. The Legacy notes are not convertible.
COVENANTS
The indentures contain the following covenants:
Merger, Consolidation and Sale of Assets. We will not consolidate or merge
with or into any person, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets to any person unless either:
- Legacy is the surviving or continuing corporation, or
- the person, if other than Legacy, formed by or surviving the
consolidation or merger, or to which the sale, assignment, transfer,
lease, conveyance or other disposition is made:
- is a corporation organized and validly existing under the laws of the
United States or any state thereof or the District of Columbia,
- expressly assumes, by supplemental indenture in form and substance
satisfactory to the trustee the due and punctual payment of the
principal of and interest on all of the Legacy debentures and the
Legacy notes and the performance of every covenant of the debentures,
the notes and the applicable indenture on the part of Legacy to be
performed or observed, and
- immediately after the transaction no default of event of default
under the applicable indenture exists.
The indentures provide that upon any consolidation, combination or merger
or any transfer of all or substantially all of our assets in which we are not
the continuing
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corporation, the successor person formed by such consolidation or into which we
are merged or to which such conveyance, lease or transfer is made shall succeed
to, and be substituted for, and may exercise every right and power of, Legacy
under the indentures, the Legacy debentures and the Legacy notes with the same
effect as if the surviving entity had been named as such and that, in the event
of a conveyance, lease or transfer, the conveyor, lessor or transferor will be
released from the provisions of the indentures.
Reports to Holders. The indentures provide that, whether or not required
by the rules and regulations of the SEC, so long as any Legacy debentures or any
Legacy notes are outstanding, we will furnish to the holders of Legacy
debentures and Legacy notes copies of all annual reports and other information,
documents, and other reports (or copies of any of the foregoing as the SEC may
by rules and regulations prescribe) which we are required to file with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, within
15 days after the filing of the report with the SEC.
Compliance Certificate. The indentures provide that we will deliver to the
trustee, within 90 days after the end of each fiscal year, an officers'
certificate stating that a review of our activities and the activities of our
subsidiaries during the preceding fiscal year has been made under the
supervision of the signing officer with a view to determining whether we have
fulfilled our obligations under, and complied with the covenants and conditions
contained in, the indentures. The compliance certificate must also state that,
to the best of the knowledge of the officer of Legacy providing the certificate,
we are not in default in the performance or observance of any of the provisions
of the indentures and that no event has occurred and remains in existence by
reason of which payments on account of the principal of or interest, if any, on
the Legacy debentures or the Legacy notes are prohibited. Alternatively, the
officer must describe in the certificate all defaults or events of default of
which the officer may have knowledge.
No Financial Covenants or Restrictions on Payments or Incurrence of
Debt. The indentures do not contain any financial covenants or any restrictions
on our payment of dividends, repurchase of securities or incurrence of
additional indebtedness.
EVENTS OF DEFAULT
The following events are defined in the indentures as "events of default"
with respect to the Legacy debentures and the Legacy notes:
- we fail to pay interest on any Legacy debentures or Legacy notes, as
applicable, when the interest becomes due and payable and the default
continues for a period of 30 days, whether or not, in the case of the
Legacy debentures, such payment shall be prohibited by the subordination
provisions of the indenture for the Legacy debentures,
- we fail to pay the principal on any Legacy debentures or Legacy notes, as
applicable, when such principal becomes due and payable at maturity, upon
redemption or otherwise, whether or not, in the case of the Legacy
debentures,
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such payment shall be prohibited by the subordination provisions of the
indenture for the Legacy debentures,
- we fail to comply with any of our other agreements or covenants contained
in the indentures which default continues for a period of 30 days after
we receive written notice specifying the default and demanding that such
default be remedied from the trustee or the holders of at least 25% of
the outstanding principal amount of the Legacy debentures or the Legacy
notes, as applicable,
- an event of default occurs under any mortgage, indenture or instrument
under which we may incur additional indebtedness, if:
- after giving effect to any applicable grace periods and any
extensions of the grace periods, the principal amount of any
indebtedness of Legacy, or the acceleration of the final stated
maturity of any such indebtedness, which acceleration remains uncured
or unrescinded or as a result of the event of default, the maturity
of the indebtedness has been accelerated prior to its expressed
maturity, and
- the aggregate principal amount of such indebtedness, together with
the principal amount of any other such indebtedness in default for
failure to pay principal at final maturity or which has been
accelerated, aggregates $1.0 million or more,
- one or more judgments in an aggregate amount in excess of $500,000 shall
have been rendered against Legacy or any of our subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 30 days
after such judgment or judgments become final and non-appealable, or
- events of bankruptcy affecting Legacy or any of our material
subsidiaries.
If an event of default, other than an event of default as a result of
events of bankruptcy affecting Legacy or any of our material subsidiaries, shall
occur and be continuing, the trustee or the holders of at least 25% in principal
amount of outstanding Legacy debentures or Legacy notes, as applicable, may
declare the principal of and accrued interest on all the Legacy debentures or
the Legacy notes, as applicable, to be due and payable by notice in writing to
Legacy and the trustee. The notice must specify the event of default and that it
is a "notice of acceleration." Upon delivery of the notice, the principal of and
accrued interest on all the Legacy debentures or the Legacy notes, as
applicable, will become immediately due and payable.
The indentures provide that, at any time after a notice of acceleration
with respect to the Legacy debentures or the Legacy notes, the holders of a
majority in principal amount of the Legacy debentures or the Legacy notes, as
applicable, may rescind and cancel the declaration of default and its
consequences:
- if the rescission would not conflict with any judgment or decree,
- if all existing events of default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration, and
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- the trustee receives an officers' certificate from us that the rescission
would not conflict with any judgment or decree and the event of default
has been cured or waived.
No rescission shall affect any subsequent default or impair any right consequent
thereto.
The holders of a majority in principal amount of the Legacy debentures or
the Legacy notes, as applicable, may waive any existing default or event of
default under the indentures, and its consequences, except a default in the
payment of the principal of or interest on any Legacy debentures or Legacy
notes.
Holders of the Legacy debentures or the Legacy notes may not enforce the
indentures, the Legacy debentures or the Legacy notes except as provided in the
indentures and under the TIA. Subject to the provisions of the indentures
relating to the duties of the trustee, the trustee is under no obligation to
exercise any of its rights or powers under the indentures at the request, order
or direction of any of the holders, unless such holders have offered to the
trustee reasonable indemnity. Subject to all provisions of the indentures and
applicable law, the holders of a majority in aggregate principal amount of the
then outstanding Legacy debentures or the Legacy notes, as applicable, have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee.
Under the indentures, we are required to provide an officers' certificate
to the trustee promptly upon any such officer obtaining knowledge of any default
or event of default that has occurred and, if applicable, describe the default
or event of default and its current status. We must provide the certificate at
least annually whether or not we know of any default or event of default.
SATISFACTION AND DISCHARGE
The indentures will be discharged and will cease to be of further effect,
except as to the rights, powers, trust, duties and immunities of the trustee and
our obligations in connection therewith and the repayment of excess funds held
by the trustee to us, as expressly provided for in the indentures:
- as to all outstanding Legacy debentures when all the Legacy debentures
theretofore authenticated and delivered have been delivered to the
trustee for cancellation, or
- as to all outstanding Legacy notes when all the Legacy notes theretofore
authenticated and delivered have been delivered to the trustee for
cancellation.
In addition, we may, at our option and at any time, elect to have our
obligations discharged with respect to the outstanding Legacy debentures or
Legacy notes (a defeasance). A defeasance means that we shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Legacy debentures or Legacy notes, as applicable, except for:
- the rights of holders to convert the Legacy debentures into our common
stock under the indenture for the Legacy debentures,
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- the rights of holders to receive payments in respect of the principal of
and interest on the Legacy debentures or the Legacy notes when such
payments are due,
- our obligations with respect to the Legacy debentures or the Legacy notes
concerning issuing temporary debentures or notes, registration of
debentures or notes, mutilated, destroyed, lost or stolen debentures or
notes and the maintenance of an office or agency for payments, and
- the rights, powers, trust, duties and immunities of the trustee and our
obligations in connection therewith.
In order to exercise a defeasance under the indentures:
- we must irrevocably deposit with the trustee for the benefit of the
holders cash, non-callable U.S. government obligations, or a combination
thereof, in such amounts, which in the opinion of a nationally recognized
firm of independent public accountants, will be sufficient to pay the
principal of and interest on the Legacy debentures or the Legacy notes,
as applicable, on the stated date for payment thereof or on the
redemption date without investment or reinvestment of interest or
proceeds on those funds, as the case may be,
- we must deliver to the trustee an opinion of counsel confirming that:
- we have received from, or there has been published by the Internal
Revenue Service a ruling, or
- since the date of the applicable indenture, there has been a change
in the applicable federal income tax law,
in either case to the effect that the holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred,
- no default or event of default shall have occurred and be continuing on
the date of the deposit, after giving effect to the deposit, or insofar
as events of default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 91st day after the date of
deposit,
- the defeasance shall not result in a breach or violation of, or
constitute a default under any agreement or instrument to which we or any
of our subsidiaries is bound,
- we must deliver to the trustee an opinion of counsel to the effect that:
- the trust funds will not be subject to any rights of holders of
senior debt, including, without limitation, those arising under the
applicable indenture,
- after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally,
and
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- neither the applicable trust nor the trustee will be required to
register as an investment company under the Investment Company Act of
1940, as amended, as a result of the defeasance,
- we must deliver to the trustee an officers' certificate stating that the
deposit was not made by us with the intent of preferring the holders over
any of our other creditors or with the intent of defeating, hindering,
delaying or defrauding any of our other creditors or others, and
- we must deliver to the trustee an officers' certificate stating that all
conditions precedent provided for or relating to the defeasance have been
complied with.
The trustee will acknowledge the satisfaction and discharge of the
applicable indenture if we have delivered to the trustee the deposits indicated
above and satisfied each of the conditions listed above.
MODIFICATION OF THE INDENTURES
From time to time, Legacy and the trustee, without the consent of the
holders, may amend the indentures for specified purposes, including:
- curing ambiguities, defects or inconsistencies,
- to permit the consolidation, merger, or sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of our
properties or assets,
- to adjust the conversion price of the Legacy debentures for our common
stock for distributions from Legacy to all holders of our common stock,
and
- any change that does not, in the opinion of the trustee, adversely affect
the rights of any of the holders.
Other modifications and amendments of the indentures may be made with the
consent of the holders of a majority in principal amount of the then outstanding
Legacy debentures or Legacy notes, as applicable. However, without the consent
of each holder affected by an amendment of the indentures, no amendment may:
- reduce the amount of Legacy debentures or Legacy notes whose holders must
consent to an amendment,
- reduce the rate of or change the time for payment of interest,
- reduce the principal of or change the fixed maturity date, or alter the
redemption provisions,
- provide for the payment of principal or interest in money other than
currency of the United States,
- make any change in the provisions of the indentures protecting the right
of each holder to receive payment of principal or interest on or after
the due date thereof or to bring suit to enforce such payment, or
permitting holders of a
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majority in principal amount of Legacy debentures or Legacy notes, as
applicable, to waive defaults or events of default,
- make any change that adversely affects the rights of holders of Legacy
debentures to convert the debentures, or
- modify or change any provision of the indentures or the related
definitions affecting the subordination, seniority or other ranking of
the Legacy debentures or the Legacy notes, in a manner which adversely
affects the holders.
No modification of the indenture for the Legacy debentures may adversely
affect the rights of the holders of senior debt unless the holders of the issue
of senior debt that is affected have consented to the change.
GOVERNING LAW
The Legacy debentures, the Legacy notes and the indentures will be governed
by the laws of the state of New York.
THE TRUSTEE
The indentures provide that, except during the continuance of an event of
default, the trustee will perform only the duties as are specifically set forth
in the indentures. During the existence of an event of default, the trustee will
exercise the rights and powers vested in it by the indentures, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The indentures and the provisions of the TIA contain limitations on the
rights of the trustee, should it become a creditor of Legacy, to obtain payments
of claims from Legacy or to realize on property received in respect of any such
claim as security or otherwise. Subject to the TIA, the trustee will be
permitted to engage in other transactions; provided that if the trustee acquires
any conflicting interest as described in the TIA, it must eliminate the conflict
or resign.
DEFINITIONS
Set forth below is a summary of some of the defined terms used in the
indentures and in the above description of the indentures. Reference is made to
the indentures for the full definition of all terms, as well as any other terms
used herein for which no definition is provided.
"debt" of any person means any indebtedness, contingent or in respect of
borrowed money, or evidenced by bonds, notes, debentures or similar instruments
or letters of credit, or representing the balance deferred and unpaid of the
purchase price of any property or interest therein, except any such balance that
constitutes a trade payable, if and to the extent such indebtedness would appear
as a liability upon a balance sheet of such person prepared on a consolidated
basis in accordance with generally accepted accounting principles.
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"material subsidiary," means any subsidiary of Legacy which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933 and the Securities Exchange Act of 1934, and any other
subsidiary of Legacy which is material to the business, earnings, prospects,
assets or condition, financial or otherwise, of Legacy and our subsidiaries
taken as a whole.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"senior debt," with respect to the Legacy debentures means all debt
created, incurred, assumed or guaranteed by Legacy, unless the instrument under
which such debt is created, incurred, assumed or guaranteed expressly provides
that such debt is not senior or superior in right of payment to the Legacy
debentures. Notwithstanding anything to the contrary in the foregoing, senior
debt shall not include:
- any debt of Legacy to any of its subsidiaries,
- any liability for federal, state, local or other taxes owed or owing by
Legacy,
- any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), or
- any obligations with respect to any capital stock.
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INFORMATION ABOUT LEGACY
GENERAL
Legacy, a Delaware corporation, was formed on November 17, 1997 as a wholly
owned subsidiary of Excel Realty Trust, Inc., a Maryland corporation and a real
estate investment trust. On March 31, 1998, Excel Realty Trust effected a
spin-off of our business through a special dividend of all of our outstanding
common stock to the holders of Excel Realty Trust common stock. Excel Realty
Trust effected this spin-off to allow us to pursue a wider variety of real
estate opportunities including owning, acquiring, developing and managing
retail, entertainment, office, hotel and mixed-use projects and real estate and
other operating companies throughout the United States and Canada.
In connection with this spin-off, Excel Realty Trust transferred real
properties, notes receivable and related assets and liabilities to us. In
addition to operating assets obtained from the spin-off, we intend to pursue
signature real estate projects that have unique locations, concepts or
significant entry barriers associated with them, including:
- developing mixed-use development and entertainment projects that have the
potential for substantial capital gains but which may take several years
to fully develop,
- investing in properties requiring significant restructuring or
redevelopment to create substantial value, such as changing the use,
tenant mix or focus of a property,
- acquiring single tenant properties that can be highly leveraged with
fixed-rate debt that amortizes over the term of the tenant leases,
- acquiring debt or stock of real estate and other operating companies,
including defaulted debt at a discount to the value of the underlying
asset securing the debt,
- acquiring office and industrial sites and properties where aggressive
management and re-development may add significant value, and
- acquiring and developing hotel and hospitality projects in unique
locations.
OUR PROPERTIES
At August 31, 1999, our business consisted of the following portfolio of
real properties, notes receivable, and investments in real estate-related
ventures:
- five properties located in Arizona ranging from retail, office and
restaurant space in Scottsdale to a hotel property near the Grand Canyon,
- three properties located in Colorado, two of which are leased to AMC
Multi-Cinema, Inc. and contain 24-screen movie theaters and one of which
is vacant land located at the base of Telluride mountain being considered
for condominium development,
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- three properties located in California ranging from a shopping center in
Palm Springs to land in San Diego under construction for office
development,
- two single tenant retail properties located in Indiana and Ohio which are
leased to Lowe's Home Centers, Inc.,
- four notes receivable relating to real estate projects in Arizona and
California with an aggregate outstanding balance of approximately $23.2
million as of August 31, 1999, and
- ownership interests in a number of real estate-related ventures,
including:
- a 65% ownership interest in a joint venture which owns and operates a
hotel, dinner theater and retail shop located near the Grand Canyon
in northern Arizona,
- a 50% ownership interest in a development company which owns Newport
Centre, a retail and office facility located in Winnipeg, Canada,
- a 23.7% ownership interest in a development company which owns land
in Indianapolis, Indiana, and
- an 80% ownership interest (subject to reduction to 50% based on
performance measures) in a full-service car wash company which owns
or leases 19 car wash properties in and around Phoenix, Arizona and
San Antonio, Texas. In March 1999, we entered into an agreement to
sell substantially all of the assets of the car wash company. The
sale is subject to the receipt of a variety of approvals and other
customary closing conditions.
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The following table describes our portfolio of real estate properties as of
August 31, 1999. Amounts shown for annual minimum rents are based on executed
leases at August 31, 1999. We made no allowances for contractually-based delays
to the commencement of rental payments. Due to the nature of real estate
investments, our actual rental income may differ from amounts shown in the table
below.
<TABLE>
<CAPTION>
TENANTS GLA (SQ FT) ANNUAL RENT
---------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Arizona
Scottsdale Galleria............... (1) 520.5 (1)
Scottsdale City Centre............ various 64.3 $ 824.8
Scottsdale Land................... (2) (2) (2)
Brio Land......................... Roaring Forks 3.7 104.3
Restaurant
Grand Hotel....................... (3) (3) (3)
Millennia Car Wash................ (4) (4) (4)
California
Desert Fashion Plaza.............. Saks Fifth 283.9 566.6
Avenue/various
Rancho Bernardo................... (5) (5) (5)
San Diego......................... (6) (6) (6)
Colorado
Highlands Ranch................... AMC 110.0 2,413.0
Telluride......................... (7) (7) (7)
Westminster....................... AMC 110.0 2,520.0
Indiana
Terre Haute(8).................... Lowe's 104.2 557.8
Ohio
Middletown(8)..................... Lowe's 126.4 650.0
Winnipeg, Canada
Newport Centre(9)................. Bank of 156.9 936.0
Montreal/various
------- --------
Total..................... 1,479.9 $8,572.5
======= ========
</TABLE>
- -------------------------
(1) Property is currently being redeveloped.
(2) Property consists of vacant land adjacent to the Scottsdale Galleria and the
Brio Land.
(3) Legacy holds a 65% ownership interest in Grand Tusayan LLC which owns and
operates a 120-room hotel and restaurant.
(4) Legacy holds an 80% ownership interest in Millennia which owns or leases 19
car wash properties in and around Phoenix, Arizona and San Antonio, Texas.
Legacy's ownership interest is subject to reduction to 50% based on
performance measures. Legacy has entered into an agreement to sell
substantially all of the assets of Millennia.
(5) Property consists of land currently under development as an office building.
(6) Property consists of vacant land currently held for sale.
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(7) Property consists of vacant land being considered for condominium
development.
(8) Single tenant property acquired from Excel Realty Trust in connection with
the spin-off of Legacy.
(9) Property is owned by a Nova Scotia company of which Legacy holds a 50%
ownership interest.
OUR PRINCIPAL TENANTS
Our two largest tenants accounted for approximately 72% of our total
annualized rental revenues as of August 31, 1999. In our most recent quarterly
period rental revenue accounted for approximately 50% of our total revenue. We
show certain information about these tenants in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
PERCENT OF
NUMBER AREA UNDER ANNUAL TOTAL ANNUAL
TENANT OF LEASES LEASE (SQ. FT.) RENT REVENUES
------ --------- --------------- -------------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
AMC............................ 2 220.0 $4,933.0 58%
Lowe's......................... 2 230.6 1,207.8 14
-- ----- -------- --
4 450.6 $6,140.8 72%
== ===== ======== ==
</TABLE>
As of August 31, 1999, AMC was our largest tenant in terms of total
revenues. AMC's parent corporation, AMC Entertainment, Inc., has guaranteed the
leases under which AMC is the tenant, which guarantee will remain in place for
the full term of the leases. AMC Entertainment is a motion picture exhibitor and
operates approximately 240 theaters. AMC Entertainment is listed on the American
Stock Exchange and, as of December 1998, had credit ratings of B- from Standard
& Poor's Corporation and B3 from Moody's Investors Service, Inc.
As of August 31, 1999, Lowe's was our second largest tenant in terms of
total revenues. Lowe's is owned by Lowe's Companies, Inc., the nation's second
largest home improvement retailer with over 400 stores. Lowe's Companies is
listed on the New York Stock Exchange and, as of December 1998, had credit
ratings of A from Standard & Poor's and A2 from Moody's.
AMC Entertainment and Lowe's are publicly-traded companies subject to the
reporting requirements of the Securities Exchange Act of 1934, and financial and
other information regarding these companies is on file with the SEC.
OUR EMPLOYEES
As of August 31, 1999, we had approximately 156 employees, including the
employees of our subsidiaries.
OUR HEADQUARTERS
Our principal executive offices are located at 16955 Via Del Campo, Suite
100, San Diego, California 92127 and our telephone number is (858) 675-9400.
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OUR DIRECTORS AND OFFICERS
The table below indicates the name, position with Legacy and ages of our
directors, executive officers and other key employees as of August 31, 1999.
<TABLE>
<CAPTION>
NAME POSITION WITH LEGACY AGE
---- -------------------- ---
<S> <C> <C>
Gary B. Sabin.............. Chairman, President and Chief Executive 45
Officer
Richard B. Muir............ Director, Executive Vice President and 44
Secretary
Kelly D. Burt.............. Director, Executive Vice 42
President -- Development
Richard J. Nordlund........ Director 54
Robert E. Parsons, Jr...... Director 44
Robert S. Talbott.......... Director 46
John H. Wilmot............. Director 57
Emmett R. Albergotti....... Senior Vice President -- Retail Development 56
Graham R. Bullick, Ph.D.... Senior Vice President -- Capital Markets 49
Mark T. Burton............. Senior Vice President -- Acquisitions 39
S. Eric Ottesen............ Senior Vice President, General Counsel and 44
Assistant Secretary
James Y. Nakagawa.......... Chief Financial Officer 33
</TABLE>
Gary B. Sabin has served as Chairman of the Board of Directors, President
and Chief Executive Officer since our formation. Mr. Sabin served as Director
and President of New Plan Excel from September 1998 to April 1999 and as
Chairman, President and Chief Executive Officer of Excel Realty Trust from
January 1989 to September 1998. In addition, Mr. Sabin has served as Chief
Executive Officer of various companies since his founding of Excel Realty
Trust's predecessor company and its affiliates starting in 1977. He has been
active for over 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 since our formation. Mr. Muir served as a Director, Executive Vice
President and Co-Chief Operating Officer of New Plan Excel from September 1998
to April 1999 and served as Director, Executive Vice President and Secretary of
Excel Realty Trust from January 1989 to September 1998. In addition, Mr. Muir
served as an officer and director of various affiliates of Excel Realty Trust
since 1978, primarily in administrative and executive capacities, including
direct involvement in and supervision of asset acquisitions, management,
financing and dispositions.
Kelly D. Burt has served as Director and Executive Vice
President -- Development since May 1998. From 1992 to May 1998, Mr. Burt served
as President and founder of TenantFirst, a real estate development company in
San Diego, California that was acquired by us in May 1998. From 1984 to 1992,
Mr. Burt was an Industrial/ Office Partner at the San Diego division of Trammell
Crow Company, a real estate development company headquartered in Dallas, Texas.
Richard J. Nordlund has served as a Director since our formation and as
President of RJN Management, a real estate firm in Santa Barbara, California,
since 1985. From 1978 through 1988, Mr. Nordlund served as President of First
Corporate Services, an investment banking firm in Minneapolis, Minnesota. He is
also associated
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<PAGE> 84
with Miller & Schroeder Financial, Inc. Mr. Nordlund's business experience
includes 28 years in the investment banking and mortgage banking industries.
Robert E. Parsons, Jr. has served as a Director since our formation. He
served as a Director of Excel Realty Trust and then New Plan Excel from January
1989 to April 1999. 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.
Robert S. Talbott has served as a Director since our formation. Mr. Talbott
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. Talbott served as Executive
Vice President and President of 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 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.
John H. Wilmot has served as a Director since our formation. He served as a
Director of Excel Realty Trust and then New Plan Excel from 1989 to April 1999.
Mr. Wilmot, individually and through his wholly-owned corporations, develops and
manages real property, including office buildings, shopping centers and
residential projects primarily in the Phoenix/Scottsdale area, and has been
active in such business since 1976.
Emmett R. Albergotti has served as Senior Vice President -- Retail
Development since August 1998. From 1993 to August 1998, Mr. Albergotti served
as Senior Vice President of AMC Realty, Inc., the real estate arm of AMC
Entertainment, Inc., for which he oversaw the acquisition and development of new
theater locations throughout the western United States.
Graham R. Bullick, Ph.D., has served as Senior Vice President -- Capital
Markets since our formation. Mr. Bullick served as Senior Vice
President -- Capital Markets of Excel Realty Trust and then New Plan Excel from
January 1991 to April 1999. Previously, Mr. Bullick was associated with Excel
Realty Trust as a Director from 1991 to 1992. From 1985 to 1991, Mr. 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.
Mark T. Burton has served as Senior Vice President -- Acquisitions since
our formation and held the same position with Excel Realty Trust and then New
Plan Excel from October 1995 to April 1999. Mr. Burton also served as a Vice
President of Excel Realty Trust from January 1989 to October 1995. Mr. Burton
was associated with Excel Realty Trust and its affiliates beginning in 1983,
primarily in the evaluation and selection of property acquisitions.
S. Eric Ottesen has served as Senior Vice President, General Counsel and
Assistant Secretary since our formation. Mr. Ottesen served as Senior Vice
President -- Legal Affairs and Secretary of New Plan Excel from September 1998
to
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<PAGE> 85
April 1999. Mr. Ottesen served as Senior Vice President, General Counsel and
Assistant Secretary of Excel Realty Trust from September 1996 to September 1998.
From 1987 to 1995, Mr. Ottesen was a senior partner in a San Diego law firm.
James Y. Nakagawa has served as Chief Financial Officer since October 1998.
From March 1998 to October 1998, Mr. Nakagawa served as Controller of Legacy.
Mr. Nakagawa served as Controller of Excel Realty Trust and then New Plan Excel
from September 1994 to April 1999. Prior to joining New Plan Excel, Mr. Nakagawa
was a manager at Coopers & Lybrand LLP. Mr. Nakagawa is a certified public
accountant.
INFORMATION ABOUT ENTERPRISES
GENERAL
Enterprises is a REIT incorporated in the state of Maryland. Its principal
business is to own, acquire, develop, operate, manage and lease real property.
Enterprises was originally incorporated in July 1994 as a Delaware corporation
and began operations as a wholly owned subsidiary of Costco Companies, Inc.,
formerly Price/Costco, Inc. In 1994, Costco spun-off Enterprises and transferred
to Enterprises as part of a voluntary exchange offer substantially all of the
real estate assets which historically formed Costco's non-club real estate
business segment, merchandising business entities and other assets.
In June 1997, Enterprises' board of directors determined that it would be
in the best interest of Enterprises and its stockholders to separate
Enterprises' core real estate business from its merchandising businesses.
Accordingly, Enterprises' board approved a spin-off transaction in which
Enterprises would continue to conduct its real estate business consisting of an
initial asset base of 27 retail properties and $40 million of cash following the
spin-off. In August 1997, Enterprises' merchandising businesses, real estate
properties held for sale, and various other assets were spun-off to PriceSmart.
Through a stock distribution, PriceSmart became a separate public company. Since
that time, Enterprises has engaged in a combination of acquiring, developing,
owning, managing and/or selling real estate assets, primarily shopping centers.
The PriceSmart distribution resulted in Enterprises becoming eligible to elect
federal tax treatment as a REIT, which allows Enterprises to substantially
eliminate its obligation to pay taxes on income.
ENTERPRISES' PROPERTIES
At August 31, 1999, Enterprises owned 30 commercial real estate properties
and held one property with a 21-year ground lease. These properties encompass
approximately 4.0 million square feet of GLA and were 92% leased at August 31,
1999. The five largest properties include approximately 1.7 million square feet
of GLA that generate annual minimum rent of approximately $25.8 million, based
on leases existing as of August 31, 1999.
Included in the properties Enterprises owned at August 31, 1999 are four
self storage facilities. Two of these facilities, San Diego, California and
Azusa, California,
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<PAGE> 86
are located on the same sites as Enterprises' commercial properties. The other
two self storage facilities are stand-alone properties. At August 31, 1999,
these facilities had approximately 450,000 square feet of GLA and were 85%
occupied.
The following table describes Enterprises' portfolio of real estate
properties as of August 31, 1999. Amounts shown for annual minimum rents are
based on executed leases at August 31, 1999. Enterprises made no allowances for
contractually-based delays to the commencement of rental payments. Due to the
nature of real estate investments, Enterprises' actual rental income may differ
from amounts shown in the table below. Self storage properties as of August 31,
1999 are shown separately from Enterprises' commercial portfolio.
<TABLE>
<CAPTION>
NUMBER PERCENT ANNUAL
COMMERCIAL PROPERTIES OF TENANTS GLA (SQ FT) LEASED RENT
--------------------- ---------- -------------- ------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Westbury, NY......................... 8 398.6 100% $ 7,693.3
Pentagon City, VA.................... 12 336.8 100 6,549.1
Sacramento/Bradshaw, CA.............. 2 296.9 100 4,407.7
Wayne, NJ(1)......................... 5 348.1 89 4,279.8
Philadelphia, PA..................... 18 304.4 91 2,828.1
Signal Hill, CA...................... 14 154.8 100 2,323.2
Roseville, CA........................ 18 188.5 90 2,108.9
San Diego, CA(2)..................... 3 443.2 100 1,954.8
Fountain Valley, CA.................. 15 119.0 92 1,679.7
Glen Burnie, MD...................... 8 130.6 85 1,361.8
Seekonk, MA.......................... 9 213.7 49 1,359.8
San Diego/Rancho San Diego, CA....... 16 93.7 97 1,084.9
Moorestown, NJ (leased land)......... 2 172.6 36 979.5
San Diego/Carmel Mountain, CA........ 6 35.0 96 861.9
Inglewood, CA........................ 1 119.9 100 847.0
Northridge, CA....................... 2 22.0 100 734.0
New Britain, CT...................... 1 112.4 100 671.1
San Juan Capistrano, CA.............. 6 56.4 100 590.9
Azusa, CA(2)......................... 3 206.6 100 512.8
Smithtown, NY........................ 1 55.6 100 500.7
Sacramento/Stockton, CA.............. 2 50.2 100 470.2
Hampton, VA.......................... 2 45.6 100 445.2
Redwood City, CA..................... 2 49.4 100 413.5
Tucson, AZ........................... 9 40.1 100 269.8
Denver/Littleton, CO................. 1 26.4 100 216.1
Denver/Aurora, CO.................... 1 7.3 100 164.3
San Diego/Southeast, CA.............. 2 8.9 100 149.8
Chula Vista/Rancho del Rey, CA....... 1 3.2 100 75.0
Temecula, CA(3)...................... 0 0 0 0
--- ------- --- ---------
Total Commercial Properties........ 170 4,039.9 92% $45,532.9
=== ======= === =========
</TABLE>
- -------------------------
(1) Includes 37,000 sq. ft. of vacant storage space.
(2) Price Self Storage is also located at these properties.
(3) Future shopping center development consisting of 47.5 acres purchased in
July 1999.
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<PAGE> 87
<TABLE>
<CAPTION>
SELF STORAGE PROPERTIES GLA (SQ FT) PERCENT LEASED
----------------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C>
San Diego/Murphy Canyon, CA................... 222.7 96%
San Diego, CA................................. 89.9(1) 99
Azusa, CA..................................... 85.2(1)(2) 75
Solana Beach, CA.............................. 59.4(3) 44
----- --
Total Self Storage Properties............... 457.2 85%
===== ==
</TABLE>
- -------------------------
(1) GLA of facility is also included in GLA for the commercial property listed
above.
(2) Opened during the first quarter of 1999.
(3) Opened a portion of the facility during the first quarter of 1999.
ENTERPRISES' PRINCIPAL TENANTS
Enterprises' eight largest tenants accounted for approximately 45% of its
total GLA and approximately 56% of its total annualized rental revenues as of
August 31, 1999. The table below presents certain information about these
tenants:
<TABLE>
<CAPTION>
PERCENT PERCENT OF
NUMBER AREA UNDER OF GLA ANNUAL TOTAL
TENANT OF LEASES LEASE (SQ FT) UNDER LEASE RENT ANNUAL RENT
------ --------- -------------- ----------- -------------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Costco................... 4 618.2 15.3% $ 8,337.4 18.3%
The Sports Authority..... 8 341.2 8.4 4,357.5 9.6
The Home Depot........... 2 214.2 5.3 2,737.5 6.0
AT&T Wireless............ 1 156.6 3.9 2,240.0 4.9
Level One
Communications......... 1 140.4 3.5 2,167.7 4.8
Kmart.................... 1 110.0 2.7 2,027.2 4.5
Marshalls................ 2 87.9 2.2 1,835.4 4.0
PETsMART................. 6 155.8 3.9 1,617.7 3.6
-- ------- ---- --------- ----
25 1,824.3 45.2% $25,320.4 55.7%
== ======= ==== ========= ====
</TABLE>
ENTERPRISES' EMPLOYEES
Enterprises had 50 employees as of August 31, 1999 including 15 responsible
for property management, 17 employed in finance and administration and 18
employed in the self storage business.
ENTERPRISES' HEADQUARTERS
Enterprises' principal executive offices are located at 4649 Morena
Boulevard, San Diego, California 92117 and its telephone number is (858)
581-4679.
ENTERPRISES' DIRECTORS AND OFFICERS
The table below indicates the name, position with Enterprises and ages of
its directors, executive officers and other key employees as of August 31, 1999.
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<PAGE> 88
<TABLE>
<CAPTION>
NAME POSITION WITH ENTERPRISES AGE
---- ------------------------- ---
<S> <C> <C>
Robert E. Price..................... Chairman of the Board 57
Jack McGrory........................ President, Chief Executive Officer 49
and Director
Paul A. Peterson.................... Vice Chairman of the Board 71
Murray L. Galinson.................. Director 62
James F. Cahill..................... Director 44
Anne L. Evans....................... Director 67
Joseph R. Satz...................... Executive Vice President, General 58
Counsel and Secretary
Kathleen M. Hillan.................. Senior Vice President -- Finance 40
</TABLE>
Robert E. Price has been Chairman of the Board of Enterprises since July
28, 1994. Mr. Price was President and Chief Executive Officer of Enterprises
from July 28, 1994 to August 29, 1997. Mr. Price was Chairman of the Board of
Price/ Costco, Inc. from October 1993 to December 1994. From 1976 to October
1993, he was Chief Executive Officer and a Director of The Price Company. Mr.
Price served as Chairman of the Board of The Price Company from January 1989 to
October 1993, and as its President from 1976 until December 1990. In addition to
his role in Enterprises, Mr. Price serves as Chairman of the Board of
PriceSmart, Inc.
Jack McGrory became a Director of Enterprises on August 29, 1997. Mr.
McGrory also became the President and Chief Executive Officer of Enterprises on
September 2, 1997. Prior to September 2, 1997, Mr. McGrory served as City
Manager of the City of San Diego from March 1991 through August 1997.
Paul A. Peterson is a lawyer and is a senior member of the law firm of
Peterson & Price in San Diego. He was a Director of Price/Costco, Inc. from
October 1993 until December 1994. From 1976 to October 1993, he was Secretary
and, except for a period of eleven months in 1982, a Director of The Price
Company. Mr. Peterson served as Vice Chairman of the Board of The Price Company
from November 1991 to October 1993. Mr. Peterson has served as a Director of
Enterprises since July 28, 1994.
Murray L. Galinson has been Chairman of the Board of San Diego National
Bank and SDNB Financial Corp. since May 1996 and a Director of both entities
since their inception in 1981. In addition, Mr. Galinson was Chief Executive
Officer of both entities from September 1984 until September 1997. Mr. Galinson
served as President of both entities from September 1984 until May 1996. Mr.
Galinson has served as a Director of Enterprises since August 28, 1994.
James F. Cahill has been Executive Vice President of Price Entities since
January 1987. In this position he has been responsible for the oversight and
investment activities of the financial portfolio of Sol Price, founder of The
Price Company, and related entities. He was a Director of Neighborhood National
Bank, located in San Diego, from 1992 through January 1998. Prior to his current
position, Mr. Cahill was employed at The Price Company for ten years with his
last position being Vice President of Operations. Mr. Cahill became a Director
of Enterprises on August 29, 1997.
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Anne L. Evans has been the Chairman of Evans Hotels since April 1984. Ms.
Evans also served as its President from April 1984 until March 1993. She served
as a member of the Board of Directors of the Los Angeles Branch of the Federal
Reserve Bank of San Francisco from October 1992 through December 1998 and was
the Chairman during 1997 and 1998. Ms. Evans became a Director of Enterprises on
October 16, 1997.
Joseph R. Satz has been Executive Vice President of Enterprises since
October 16, 1997. He became the Secretary and General Counsel of Enterprises on
September 16, 1997. Mr. Satz held the position of Vice President and Counsel of
Enterprises from August 1994 until he assumed his current positions. Mr. Satz
has provided legal counsel for The Price Company and Price/Costco, Inc. since
1983.
Kathleen M. Hillan became Enterprises' Senior Vice President -- Finance on
October 16, 1997. Ms. Hillan was Corporate Controller of Enterprises from August
1994 until she assumed her current position. Ms. Hillan was International
Finance Manager of The Price Company from 1992 until August 1994.
DIRECTORS AND MANAGEMENT OF ENTERPRISES
FOLLOWING THE EXCHANGE OFFER
If the exchange offer closes as planned, Enterprises' board of directors
will be reduced from six to five members, and will be comprised of the following
persons or their designees:
- Gary B. Sabin, Chairman, President and Chief Executive Officer of Legacy,
- Richard B. Muir, Executive Vice President and Director of Legacy,
- Jack McGrory, currently President, Chief Executive Officer and Director
of Enterprises,
- James F. Cahill, currently Director of Enterprises, and
- Simon M. Lorne, a partner with the Los Angeles law firm of Munger, Tolles
& Olson LLP, a position he has held since April 1999. Mr. Lorne had also
been a partner in that firm from 1972 to 1993. From 1993 to 1996, Mr.
Lorne was General Counsel of the U.S. Securities and Exchange Commission.
From 1996 until re-joining Munger, Tolles & Olson, he was a Managing
Director of Salomon Smith Barney and, prior to the merger that formed
Salomon Smith Barney, of Salomon Brothers. Salomon Smith Barney is, and
Salomon Brothers was, an investment banking and securities firm. Mr.
Lorne owns 2,500 shares of the Enterprises common stock and 29,550 shares
of the Enterprises preferred stock. Mr. Lorne and his firm have
represented Enterprises and Sol Price in the exchange offer.
For additional information regarding the persons listed above, see "Information
About Legacy -- Our Directors and Officers" and "Information About
Enterprises -- Enterprises' Directors and Officers."
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<PAGE> 90
In addition, the company agreement requires that Mr. Sabin be appointed as
Chief Executive Officer of Enterprises effective upon the closing of the
exchange offer. Although neither the company agreement nor the stockholders
agreement specifies who will manage Enterprises under Mr. Sabin's direction, we
currently expect that the officers of Legacy will be appointed as officers of
Enterprises in their current positions, and that the property management and
other operational personnel of Enterprises will continue to serve in their
current positions with Enterprises. As noted in "Description of the
Agreements -- The Company Agreement," we are obligated to continue to operate
Enterprises as a REIT so long as any shares of Enterprises preferred stock
remain outstanding.
BENEFITS TO ENTERPRISES' INSIDERS IN THE EXCHANGE OFFER
In considering whether to exchange your shares of the Enterprises common
stock, you should be aware of the interests that directors, executive officers
and other personnel of Enterprises have in the exchange offer. These include:
- severance payments,
- acceleration of vesting of the Enterprises stock options and cash
payments with respect to those options, and
- continuing indemnification and directors and officers' liability
insurance.
These interests are different from and in addition to your and their
interests as stockholders. Enterprises' board did not consider the potential
benefits to be received by these individuals as a factor in reaching its
decision to approve the exchange offer.
SEVERANCE PAYMENTS
We agreed with Enterprises in the company agreement that the closing of the
exchange offer will be treated as a "change of control" for purposes of
Enterprises' employee benefit plans, and each employment, severance or similar
agreement applicable to Enterprises' personnel or any of its subsidiaries. We
agreed that Enterprises may terminate specified personnel prior to the closing
of the exchange offer with our consent, and that such personnel will be entitled
to severance payments as if they had been employed at the time of the "change of
control." We also agreed to provide Enterprises with the necessary funds to pay
its severance obligations which may arise as a result of the exchange offer.
In addition, we agreed that all of Enterprises' personnel, upon the closing
of the exchange offer, will in general receive credit with respect to each
employee benefit plan, program, policy or arrangement of Enterprises or Legacy
for service with Enterprises or any of its subsidiaries or predecessor
companies, including The Price Company and Costco Companies, Inc., for purposes
of determining eligibility to participate, vesting and entitlement to benefits.
Jack McGrory, Chief Executive Officer. Jack McGrory became Chief Executive
Officer of Enterprises on September 2, 1997. Mr. McGrory entered into an
employment agreement with Enterprises on June 18, 1997 for a term of three years
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<PAGE> 91
commencing September 2, 1997, as amended on August 27, 1997 and again on
February 2, 1999. Under the employment agreement, following the closing of the
exchange offer, Mr. McGrory will be entitled to the continuation of his base
salary for the remainder of the term of the agreement payable in conformity with
Enterprises' normal payroll period. Assuming the exchange offer closes in
September 1999, Mr. McGrory will be entitled to receive approximately $360,000
in the form of severance payments including bonus amounts.
Gary W. Nielson, Executive Vice President and Chief Financial
Officer. Gary W. Nielson became Executive Vice President and Chief Financial
Officer of Enterprises on February 2, 1998. Mr. Nielson entered into an
employment agreement with Enterprises for a term of two years commencing
February 2, 1998. Under the employment agreement, following the closing of the
exchange offer, Mr. Nielson would have been entitled to the greater of:
- the continuation of his base salary for the remainder of the term of the
agreement payable in conformity with Enterprises' normal payroll period,
or
- $175,000.
Mr. Nielson resigned from Enterprises in May 1999 and, with our consent,
received approximately $210,000 in the form of severance payments including
bonus amounts in connection with the commencement of the exchange offer.
Other Executive Officers and Personnel of Enterprises. The company
agreement provides that other executive officers and personnel of Enterprises
who are:
- not offered employment by Enterprises or Legacy on substantially similar
terms to their employment with Enterprises at the closing of the exchange
offer, or
- terminated by Enterprises or Legacy within one year following the closing
of the exchange offer,
will be entitled to receive severance benefits equal to one month's base pay for
each year of service to Enterprises, its predecessors or its subsidiaries (with
a minimum of four months' and a maximum of one year's base pay and subject to
adjustment to include bonus amounts in some cases).
The following table sets forth the approximate severance payments to be
made to each of Enterprises' directors and executive officers, and, as a group,
the other personnel of Enterprises assuming that all directors, executive
officers and other personnel of Enterprises will be terminated following the
exchange offer and the terminations occur in September 1999.
<TABLE>
<CAPTION>
TOTAL SEVERANCE
NAME PAYMENT
---- ---------------
<S> <C>
Jack McGrory..................................... $ 360,000
Gary W. Nielson.................................. 210,000
Joseph R. Satz................................... 215,000
All other Enterprises' personnel................. 1,316,500
----------
Total.......................................... $2,101,500
==========
</TABLE>
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<PAGE> 92
STOCK OPTIONS
We agreed with Enterprises in the company agreement to cause all options to
purchase the Enterprises common stock and the Enterprises preferred stock to
become fully vested and exercisable upon the closing of the exchange offer.
Enterprises has granted to some of its employees options to purchase only
common stock. After the closing of the exchange offer, all options to purchase
the Enterprises common stock will be canceled, and Enterprises will pay to each
holder in cash:
- the excess, if any, of $8.50 over the applicable exercise price,
- multiplied by the number of shares of the Enterprises common stock
subject to the applicable option.
Enterprises has also granted to some of its directors, executive officers
and employees options to purchase both common stock and preferred stock. After
the closing of the exchange offer, each outstanding option which represents the
right to purchase a share of both the Enterprises common stock and the
Enterprises preferred stock will be modified so that the holder will:
- be paid by Enterprises an amount in cash determined by multiplying:
- the excess, if any, of $8.50 over an amount equal to 22.7% of the
applicable exercise price of such option (rounded to the nearest
whole cent), by
- the number of shares of the Enterprises common stock subject to the
option, and
- receive a replacement option to purchase shares of the Enterprises
preferred stock, exercisable on the same terms and conditions as the
surrendered option to purchase the same number of shares of the
Enterprises preferred stock at an exercise price equal to 77.3% of the
applicable exercise price of the option (rounded to the nearest whole
cent); except that the option received in exchange will be fully
exercisable and vested and will not expire for a period ending upon the
earlier of:
- two years following the closing of the exchange offer or such longer
period as may be applicable to holders who remain employed by us or
Enterprises after the exchange offer, or
- such time as no shares of the Enterprises preferred stock remain
outstanding, at which time the option will represent the right to
receive the redemption price for the Enterprises preferred stock.
Although Enterprises will make the payments to the holders of the
Enterprises options as described above, we agreed in the company agreement to
provide Enterprises with the necessary funds to make those payments.
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<PAGE> 93
The following table sets forth, as of August 31, 1999, the number of
options to purchase shares of the Enterprises common stock and the Enterprises
preferred stock held by the directors and current and former executive officers
of Enterprises and, as a group, the other employees of Enterprises. The table
also indicates the effect of the exchange offer on those options.
<TABLE>
<CAPTION>
ENTERPRISES
ENTERPRISES WEIGHTED ENTERPRISES WEIGHTED CASH PREFERRED
COMMON AVERAGE PREFERRED AVERAGE PROCEEDS AFTER STOCK SUBJECT TO
STOCK SUBJECT EXERCISE STOCK SUBJECT EXERCISE EXCHANGE OPTIONS AFTER
NAME TO OPTIONS PRICE TO OPTIONS PRICE OFFER EXCHANGE OFFER
---- ------------- -------- ------------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jack McGrory......... 236,329 $4.30 236,329 $14.66 $ 992,582 236,329
Paul A. Peterson..... 26,716 2.57 26,716 8.76 158,426 26,716
Murray L. Galinson... 12,358 2.57 12,358 8.76 73,283 12,358
James F. Cahill...... 12,358 4.06 12,358 13.84 54,870 12,358
Anne L. Evans........ 10,000 4.23 10,000 14.40 42,700 10,000
Gary W. Nielson...... 50,000 4.51 50,000 15.37 199,500 50,000
Joseph R. Satz....... 54,244 3.39 54,244 11.53 277,429 54,244
All other employees... 278,498 3.68 268,498 12.31 1,342,554 268,498
------- ----- ------- ------ ---------- -------
Total.............. 680,503 $3.88 670,503 $13.16 $3,141,344 670,503
======= ===== ======= ====== ========== =======
</TABLE>
INDEMNIFICATION AND DIRECTORS AND OFFICERS' LIABILITY INSURANCE
We agreed with Enterprises in the company agreement to cause Enterprises to
maintain directors and officers' liability insurance insuring all persons who
are or were directors or officers of Enterprises in an amount not less than that
in effect on April 30, 1999, for a period of at least three years following the
closing of the exchange offer, and to cause Enterprises to indemnify each such
person against all liability relating to their actions as directors or officers
of Enterprises.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of our stockholders are currently governed by the DGCL, our
charter and our bylaws. Stockholders of Enterprises may become stockholders of
Legacy through the conversion of the Legacy debentures to be received in the
exchange offer. The following discussion compares existing rights of
stockholders of Enterprises with those of stockholders of Legacy. This summary
of comparative rights of Legacy's and Enterprises' stockholders may not be
complete and is subject to and qualified in its entirety by reference to the
MGCL, the DGCL, Legacy's charter, Legacy's bylaws, Enterprises' charter and
Enterprises' bylaws.
FORM OF ORGANIZATION AND PURPOSE
Legacy. Legacy is a Delaware corporation. Under Legacy's charter, Legacy
is authorized to engage in any lawful acts or activities for which corporations
may be organized under the DGCL, subject to the terms and conditions set forth
in the Intercompany Agreement by and between Legacy and Excel Realty Trust, for
so long as the Intercompany Agreement is in effect. The Intercompany Agreement
was terminated in all material respects on April 21, 1999.
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<PAGE> 94
Enterprises. Enterprises is a Maryland corporation. Under Enterprises'
charter, Enterprises is authorized to engage in any lawful act or activity for
which corporations may be organized under the MGCL.
CAPITALIZATION
Legacy. Legacy's charter authorizes a total of 200,000,000 shares of stock
consisting of 150,000,000 shares of Legacy common stock and 50,000,000 shares of
Legacy preferred stock. A certificate of designation classifies 25,000,000
shares of our preferred stock as Series B preferred stock. At August 31, 1999,
33,457,804 shares of the Legacy common stock and 21,281,000 shares of the Series
B preferred stock were issued and outstanding.
Enterprises. Enterprises' charter authorizes a total number of 100,000,000
shares of stock, consisting of 74,000,000 shares of Enterprises common stock and
26,000,000 shares of the Enterprises preferred stock. At August 31, 1999,
13,304,041 shares of the Enterprises common stock and 23,759,456 shares of the
Enterprises preferred stock were issued and outstanding.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF STOCK
Legacy. Although permitted by the DGCL, neither Legacy's charter nor
Legacy's bylaws provide for restrictions on the transfer of Legacy securities.
In addition, under the DGCL no restriction is binding with respect to
securities issued prior to adoption of the restriction unless the holders of the
securities are parties to an agreement or voted in favor of the restriction. A
restriction on the transfer of securities of a corporation is permitted under
the DGCL if, among other things, it prohibits the transfer of the restricted
securities to designated persons or classes of persons, and the designation is
not manifestly unreasonable. Any other lawful restriction on the transfer of
securities also is permitted under the DGCL. The DGCL expressly provides that
any restriction on the transfer of shares imposed for the purpose of maintaining
a tax advantage to the corporation is conclusively presumed to be for a
reasonable purpose.
Enterprises. As permitted by the MGCL, for purposes of maintaining
Enterprises' REIT status under the Code, Enterprises' charter provides that,
subject to some exceptions, no person or persons acting as a group may:
- beneficially own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 5% (by number or value, whichever is
more restrictive) of the outstanding stock of Enterprises, or
- constructively own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (by number or value, whichever is
more restrictive) of the outstanding stock of Enterprises.
Enterprises' board of directors may, however, in its sole discretion,
exempt a person or persons from the above ownership limits, provided that the
procedures set forth in Enterprises' charter are complied with and Enterprises'
board of directors has determined that the exemption will not cause Enterprises
to fail to qualify as a REIT.
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Enterprises' board of directors has waived the above ownership limits with
respect to the Price family and affiliated entities, and with respect to Legacy.
Enterprises' charter further prohibits, without exception:
- any person from actually or constructively owning shares of stock of
Enterprises that would result in Enterprises being "closely held" under
Section 856(h) of the Code or otherwise cause Enterprises to fail to
qualify as a REIT, and
- any person from transferring shares of stock of Enterprises if such
transfer would result in all classes and series of stock of Enterprises
being owned by fewer than 100 persons.
AMENDMENT OF LEGACY'S CHARTER AND ENTERPRISES' CHARTER
Legacy. Under the DGCL, a corporation's certificate of incorporation may
be amended if the amendment is approved by the board of directors, by a majority
of the outstanding stock entitled to vote on the amendment, and by a majority of
the outstanding stock of each class entitled to vote on the amendment. Under the
DGCL, the holders of the outstanding shares of a class are entitled to vote as a
separate class on a proposed amendment, whether or not entitled to vote thereon
by the certificate of incorporation, that would increase or decrease the
aggregate number of authorized shares of that class, increase or decrease the
par value of the shares of that class or alter or change the powers, preferences
or special rights of the shares of that class so as to affect them adversely. If
any proposed amendment would adversely affect one or more series by altering or
changing the powers, preferences or special rights of the series, but would not
so affect the entire class, then only the shares of the series so affected by
the amendment is entitled to vote as a separate class on the amendment. Legacy's
charter provides that Legacy reserves the right to amend, alter, change or
repeal any provision of Legacy's charter in the manner prescribed by statute and
that all rights granted to Legacy stockholders in Legacy's charter are granted
subject to such reservation.
Enterprises. Under the MGCL, in order to amend the charter, the board of
directors must adopt a resolution setting forth and declaring advisable the
proposed amendment and direct that the proposed amendment be submitted to
stockholders for their consideration either at an annual or special meeting of
stockholders. The proposed amendment must then be approved by the affirmative
vote of two-thirds of all the stockholder votes entitled to be cast on the
matter, unless a greater or lesser proportion of votes (but not less than a
majority of all votes entitled to be cast) is specified in the charter.
Enterprises' charter provides that any action, which would include an amendment
to Enterprises' charter, shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total number of shares
entitled to vote thereon, rather than two-thirds as otherwise provided for under
the MGCL.
STOCKHOLDER VOTING RIGHTS GENERALLY
Legacy. Under the DGCL, unless otherwise provided in the certificate of
incorporation and subject to certain provisions of the DGCL, each stockholder is
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entitled to one vote for each share of capital stock held by him. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize others
to act for him by proxy, but no proxy may be voted or acted upon after three
years from its date, unless the proxy specifically provides for its
effectiveness for a longer period. The DGCL further provides that in all matters
other than the election of directors, the affirmative vote of the majority of
shares present in person or represented by proxy at a duly held meeting at which
a quorum is present is deemed to be the act of the stockholders, unless the
DGCL, the certificate of incorporation or the bylaws specify a different voting
requirement. Where a separate vote by a class or classes is required, a majority
of the outstanding shares of such class or classes, present in person or
represented by proxy, constitutes a quorum entitled to take action with respect
to that vote on that matter, and the affirmative vote of the majority of shares
of the class or classes present in person or represented by proxy at the meeting
is the act of that class. The holders of the Legacy Series B preferred stock are
entitled to one vote per share, voting together with the holders of the Legacy
common stock, on all matters that the holders of the Legacy common stock are
entitled to vote on.
Enterprises. Under the MGCL, unless the charter provides for a greater or
lesser number of votes per share or limits or denies voting rights, each
outstanding share of common stock is entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A stockholder may vote the
stock the stockholder owns either in person or by proxy. A proxy is not valid
for more than eleven months after its date, unless it provides otherwise. Unless
the MGCL or charter specify a different voting requirement, a majority of all
the votes cast at a duly held meeting at which a quorum is present and entitled
to vote on the subject matter is deemed to be the act of the stockholders.
Additionally, unless the MGCL or charter provide otherwise, if two or more
classes of stock are entitled to vote separately on any matter for which the
MGCL requires approval by two-thirds of all the votes entitled to be cast, the
matter must be approved by two-thirds of all the votes of each class. The
holders of the Enterprises preferred stock are entitled to 1/10 of one vote per
share, voting together with the holders of the Enterprises common stock on all
matters that the holders of the Enterprises common stock are entitled to vote
on. As permitted by the MGCL, Enterprises' charter provides that any action
which would otherwise require a greater proportion is valid and effective if
authorized by the affirmative vote of a majority of the holders of shares
entitled to vote on the action.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Legacy. Under the DGCL, unless otherwise provided in a corporation's
certificate of incorporation, any action that may be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action, is
signed by stockholders having at least that number of votes that would have been
necessary to authorize or take the action at a meeting at which all shares
entitled to vote were present and voted.
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Enterprises. Under the MGCL, any action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting if the following are
filed with the records of stockholder meetings:
- an unanimous written consent which sets forth the action and is signed by
each stockholder entitled to vote on the matter, and
- a written waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote at it.
SPECIAL STOCKHOLDER MEETINGS
Legacy. Legacy's bylaws provide that special meetings of stockholders may
be called by:
- the chairman,
- the vice chairman,
- the president,
- any vice president,
- the secretary,
- any assistant secretary,
- at the written request of a majority of the entire board of directors, or
- at the written request of stockholders owning a majority of the capital
stock of Legacy and entitled to vote.
Enterprises. Enterprises' bylaws provide that special meetings of
stockholders may be called by:
- the chairman of the board,
- the president,
- a majority of the board of directors by vote at a meeting or in writing,
or
- the secretary at the written request of stockholders entitled to cast at
least a majority of the votes entitled to be cast at the meeting.
INSPECTION RIGHTS
Legacy. A stockholder of a Delaware corporation may inspect the
stockholder list and any stockholder making a written demand may inspect any
other corporate books and records for any purpose reasonably related to such
person's interest as a stockholder.
Enterprises. One or more persons who have been holders of record for more
than six months of at least 5% of the outstanding stock of any class of a
Maryland corporation are entitled to inspect and copy the corporation's books of
account and
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stock ledger and receive a written statement of the corporation's affairs and a
verified list of stockholders.
NUMBER AND ELECTION OF DIRECTORS
Legacy. The minimum number of directors of a Delaware corporation is one.
The DGCL provides that the number of directors shall be fixed by, or in the
manner provided in, the bylaws, unless the certificate of incorporation fixes
the number of directors, in which case the number of directors may be changed
only by amendment of the certificate of incorporation. In addition, the DGCL
permits, but does not require, a classified board of directors, with staggered
terms under which one-half or one-third of the directors are elected for terms
of two or three years, respectively. Directors of a Delaware corporation are
elected by a plurality vote of the shares present in person or represented by
proxy at a stockholders meeting and entitled to vote on the election of
directors. Legacy's bylaws provide that Legacy's board of directors determines
the number of directors comprising the board of directors, but that there must
not be less than three directors. The current number of directors is seven.
Enterprises. The minimum number of directors of a Maryland corporation
having three or more stockholders is three. The number of directors is provided
by the charter until changed by the bylaws. The bylaws may both alter the number
of directors set by the charter, and authorize a majority of the entire board of
directors to alter within specified limits the number of directors set by the
charter or the bylaws, but the action may not affect the tenure of office of any
director.
In addition, the MGCL permits, but does not require, the board of directors
to be classified. If the directors are divided into classes, the term of office
may be provided in the bylaws, except that the term of office of a director may
not be longer than five years or, except in the case of an initial or substitute
director, shorter than the period between annual meetings. The term of office of
at least one class must expire each year. Each share of stock may be voted for
as many individuals as there are directors to be elected and for whose election
the share is entitled to be voted. Unless the charter or bylaws provide
otherwise, a plurality of all the votes cast at a meeting at which a quorum is
present is sufficient to elect a director.
Enterprises' charter provides that the number of directors shall be six,
which number may be increased or decreased in accordance with Enterprises'
bylaws, provided that the total number of directors may not be less than the
minimum number permitted by the MGCL. Under Enterprises' bylaws, the number of
directors is fixed by Enterprises' board of directors within the limits set
forth in Enterprises' charter, provided that there may not be more than 25
directors.
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REMOVAL OF DIRECTORS
Legacy. A director of a Delaware corporation may be removed with or
without cause by the holders of a majority of shares then entitled to vote at an
election of directors, provided, that:
- when a corporation has a classified board of directors, a director may be
removed only for cause, unless the certificate of incorporation provides
otherwise,
- if a corporation has cumulative voting for the election of directors and
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire
board of directors, or, if there is more than one class of directors, at
an election of the class of directors of which he is a member, and
- whenever the stockholders of any class or series are entitled to elect
one or more directors by the certificate of incorporation, a director
elected by a class or series may be removed by the affirmative vote of a
majority of all the votes of that class or series and not the vote of the
outstanding shares as a whole.
Enterprises. Enterprises' charter provides that, subject to the rights of
one or more classes or series of preferred stock to remove one or more
directors, any director or the entire board of directors may be removed only for
cause and only by the affirmative vote of stockholders holding at least a
majority of all the votes entitled to be cast in the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Legacy. As permitted by the DGCL, Legacy's bylaws provide that vacancies
and newly created directorships resulting from any increase in the authorized
number of directors elected by all of the stockholders having the right to vote
as a single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. However, if the
certificate of incorporation directs that a particular class is to elect a
director, the vacancy may be filled only by the other directors elected by that
class. If, at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the whole board as
constituted immediately prior to the increase, the Delaware Court of Chancery
may, upon application of stockholders holding at least ten percent of the total
number of shares outstanding having the right to vote for such directors, order
an election to be held to fill the vacancy or newly created directorship or to
replace the director chosen by the directors then in office. Under the DGCL,
unless otherwise provided in the certificate of incorporation or bylaws, when
one or more directors resigns from the board, effective at a future date, a
majority of the directors then in office, including those who have resigned,
have the power to fill the vacancy or vacancies, with that vote to take effect
when such resignation or resignations becomes effective, and each director so
chosen shall hold office as provided in the DGCL for the filling of other
vacancies.
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Enterprises. Enterprises' bylaws provide that subject to the rights of the
holders of any class of stock separately entitled to elect one or more
directors, the stockholders may elect a successor to fill a vacancy on
Enterprises' board of directors resulting from the removal of a director.
Subject to the rights of the holders of any class of stock separately entitled
to elect one or more directors, a majority of the remaining directors, whether
or not sufficient to constitute a quorum, may fill a vacancy which results from
any cause, except that a vacancy which results from an increase in the number of
directors may be filled by a majority of the entire board of directors.
STANDARD OF CONDUCT
Legacy. Under Delaware law, the standards of conduct for directors have
developed through written opinions of the Delaware courts in cases decided by
them. Generally, directors of Delaware corporations are subject to a duty of
loyalty and a duty of care. The duty of loyalty has been said to require
directors to refrain from self-dealing and the duty of care requires directors
to use that amount of care which ordinarily careful and prudent persons would
use in similar circumstances. Gross negligence has been established as the test
for breach of the standard for the duty of care in the process of
decision-making by directors of Delaware corporations.
Enterprises. The standards of conduct for directors of Maryland
corporations are governed by the MGCL. Section 2-405.1 of the MGCL requires that
a director of a Maryland corporation perform his duties:
- in good faith,
- in a manner he reasonably believes to be in the best interests of the
corporation, and
- with the care an ordinarily prudent person in a like position would use
under similar circumstances.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND OF NEW BUSINESS PROPOSALS
Legacy. Legacy's bylaws do not provide for advance notice of director
nominations or new business proposals.
Enterprises. Enterprises' bylaws provide that with respect to an annual
meeting of stockholders, nominations of persons for election to Enterprises'
board of directors and the proposal of business to be considered by stockholders
may be made only:
- pursuant to Enterprises' notice of meeting,
- by or at the direction of the board of directors, or
- by a stockholder who was a stockholder of record both at the time of
giving notice provided for in Enterprises' bylaws and at the time of the
annual meeting, and who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in Enterprises'
bylaws.
The advance notice provisions contained in Enterprises' bylaws generally
require that stockholders deliver nominations and new business proposals to
Enterprises'
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secretary not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day before the date on which Enterprises first
mailed its proxy materials for the prior year's annual meeting of stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Legacy. Under the DGCL, directors may be indemnified for liabilities
incurred in connection with specified actions (other than any action brought by
or in the right of the corporation), if they acted in good faith and in a manner
they reasonably believed to be in and not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. The same standard of
conduct is applicable for indemnification in the case of derivative actions
brought by or in the right of the corporation, except that in such cases the
DGCL authorizes indemnification only for expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such cases. Moreover,
the DGCL requires court approval before there can be any such indemnification
where the person seeking indemnification has been found liable to the
corporation in a derivative action. To the extent that a present or former
director or officer has been successful in defense of any action, suit or
proceeding, the DGCL provides for indemnification for expenses (including
attorneys' fees). The DGCL states expressly that the indemnification provided by
or granted under the DGCL is not deemed exclusive of any non-statutory
indemnification rights existing under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
Legacy's charter and bylaws provide that every director, officer and
employee of Legacy shall be indemnified against all expenses and liabilities,
including counsel fees, reasonably incurred by or imposed upon him by reason of
his being or having been a director, officer or employee of Legacy.
Under Legacy's charter, no director shall be liable to Legacy or its
stockholders for monetary damages, for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law,
- under section 174 of the DGCL (concerning unlawful payment of dividend or
unlawful stock purchase or redemption), or
- for any transaction from which the directors derived an improper personal
benefit.
Enterprises. Unless a corporation's charter provides otherwise, which
Enterprises' charter does not, the MGCL requires a corporation to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to advance reasonable expenses
to a director or officer. A
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corporation may indemnify its present and former directors and officers, among
others, against:
- judgments,
- penalties,
- fines,
- settlements, and
- reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service
in those or other capacities.
The MGCL does not permit a corporation to indemnify its present and former
directors and officers if it is established that:
- the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty,
- the director or officer actually received an improper personal benefit in
money, property or services, or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under the MGCL, a Maryland corporation generally may not indemnify for an
adverse judgment in a suit by or in the right of the corporation. Also, a
Maryland corporation generally may not indemnify for a judgment of liability on
the basis that personal benefit was improperly received. In either of these
cases, a Maryland corporation may indemnify for expenses only if a court so
orders. Enterprises' charter obligates Enterprises to indemnify its directors
and officers, whether serving Enterprises or at its request any other entity, to
the full extent required or permitted by the MGCL, including the advancement of
expenses under the procedures and to the full extent permitted by law, and other
employees and agents to such extent as authorized by its board of directors and
bylaws and as may be permitted by law. Enterprises' bylaws specify the
procedures for indemnification and advancement of expenses.
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a final
judgment establishes that the dishonesty is material to the cause of action.
Enterprises' charter contains a provision which eliminates liability of
directors and officers to the maximum extent permitted by the MGCL.
DECLARATION OF DIVIDENDS
Legacy. Under the DGCL, a corporation is permitted to declare and pay
dividends out of surplus (as defined in the DGCL) or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared and/or
for the preceding fiscal year as long as the amount of capital of the
corporation following the declaration
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and payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Dividends may be paid in cash,
property or shares of a corporation's capital stock. In addition, the DGCL
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation.
Enterprises. Under the MGCL, if authorized by its board of directors, a
Maryland corporation may declare and pay dividends subject to any restriction in
its charter unless, after giving effect to the dividend:
- the corporation would not be able to pay indebtedness of the corporation
as the indebtedness becomes due in the usual course of business, or
- the corporation's total assets would be less than the sum of the
corporation's total liabilities plus, unless the charter permits
otherwise, the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of the stockholders whose preferential rights on
dissolution are superior to those receiving the dividend.
APPRAISAL RIGHTS
Legacy. Under the DGCL, the right to receive the fair value of dissenting
shares is made available to stockholders of a constituent corporation in a
merger or consolidation effected under the DGCL. Dissenters' rights of appraisal
are not available for the shares of any class or series of stock, if the stock,
or depository receipts in respect thereof, were at the record date fixed to
determine stockholders entitled to receive notice and vote on such transaction,
either:
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Security Dealers, Inc., or
- held of record by more than 2,000 holders.
Further, no appraisal rights are available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as provided
by the DGCL. Notwithstanding the foregoing, unless limited or held of record by
more than 2,000 persons, appraisal rights under the DGCL are available for the
shares of any class or series of stock of a corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation under the
DGCL to accept for such stock anything except:
- shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof,
- shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts in respect
thereof will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National
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Association of Securities Dealers, Inc., or held of record by more than
2,000 holders,
- cash in lieu of fractional shares, or
- any combination of the shares of stock, depository receipts and cash in
lieu of such fractional shares.
Enterprises. Under the MGCL, a stockholder of a Maryland corporation has
the right to demand and receive payment of the fair value of the stockholder's
stock from the corporation if the corporation consolidates or merges with
another corporation, the corporation sells all of its assets or, if not
permitted by its charter, the Corporation amends it charter to substantially
affect the stockholders' contract rights, unless:
- the stock is listed on a national securities exchange or is designated as
a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc., or
- the stock is that of the successor in a merger, unless
- the merger alters the contract rights of the stock as expressly set
forth in the charter, and the charter does not reserve the right to
do so, or
- the stock is to be changed or converted in whole or in part in the
merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of the
provisions for the treatment of fractional shares of stock in the
successor.
MERGER, CONSOLIDATION, SHARE EXCHANGE AND TRANSFER OF ALL OR SUBSTANTIALLY ALL
ASSETS
Legacy. Under the DGCL, the principal terms of a merger or consolidation
generally require the approval of the stockholders of each of the constituent
corporations. Unless otherwise required in a corporation's certificate of
incorporation, the DGCL does not require a stockholder vote of the surviving
corporation in a merger if:
- the agreement of merger does not amend in any respect the certificate of
incorporation of the corporation,
- each share of stock of the corporation outstanding immediately prior to
the effective date of the merger is to be an identical outstanding or
treasury share of the surviving corporation after the effective date of
the merger, and
- either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into common stock are to be
issued or delivered under the plan of merger, or the number of authorized
unissued shares or the treasury shares of common stock of the surviving
corporation to be issued or delivered under the plan of merger, plus
those initially issuable upon conversion of any other shares, securities
or obligations to be issued or delivered under the plan, do not exceed
20% of the number of shares of
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common stock outstanding immediately prior to the effective date of the
merger, or
- the merger is of a subsidiary into a parent, provided the parent owns at
least 90% of the subsidiary.
When a stockholder vote is required under the DGCL to approve a merger or
consolidation, unless the certificate of incorporation provides otherwise (which
Legacy's charter does not), the affirmative vote of a majority of the
outstanding stock entitled to vote on the merger or consolidation shall be
required to approve the merger or consolidation. If multiple classes of stock
are entitled to vote on the merger or consolidation as separate classes, then a
majority of each class entitled to vote to approve the merger or consolidation,
voting separately as a class, shall be required to approve the merger or
consolidation.
The board of directors or governing body of a Delaware corporation may take
action to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including the corporation's goodwill and corporate
franchises, upon such terms and conditions and for such consideration, which may
consist of money or other property, including shares of stock or other
securities of any other corporation as it deems expedient and for the best
interests of the corporation, when authorized by the holders of a majority of
the outstanding stock of the corporation entitled to vote on the matter.
Enterprises. The MGCL generally provides that mergers, consolidations,
share exchanges or transfers of assets must first be advised by a majority of
the board of directors and thereafter approved by stockholders by the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter, unless the charter provides for a greater or lesser stockholder vote,
but not less than a majority of the number of votes entitled to be cast on the
matter. However, some mergers may be accomplished without a vote of
stockholders. For example, no stockholder vote is required for a merger of a
subsidiary of a Maryland corporation into its parent, provided the parent owns
at least 90% of the subsidiary. In addition, a merger need not be approved by
stockholders of a Maryland successor corporation if the merger does not
reclassify or change the outstanding shares or otherwise amend the charter, and
the number of shares to be issued or delivered in the merger is not more than
20% of the number of its shares of the same class or series outstanding
immediately before the merger becomes effective. A share exchange need be
approved by a Maryland successor only by its board of directors and by any other
action required by its charter. Enterprises' charter requires that any merger,
consolidation, share exchange or transfer of assets requiring stockholder
approval be approved by a majority vote of all votes entitled to be cast on the
matter.
CHANGE IN CONTROL UNDER DELAWARE/MARYLAND LAW
Legacy. Section 203 of the DGCL provides that, subject to exceptions
specified therein, a corporation will not engage in any business combination
with any "interested
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stockholder" for a three-year period following the time that such stockholder
becomes an interested stockholder unless:
- prior to such time the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder,
- upon the closing of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer), or
- at or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Except as specified in Section 203 of the DGCL, an interested stockholder
is defined to include any person that:
- is the owner of 15% or more of the outstanding voting stock of the
corporation,
- is an affiliate or associate of the corporation and was the owner of 15%
or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder,
or
- the affiliates and associates of such person.
Section 203(b)(4) of the DGCL exempts from the restrictions in Section 203
a corporation that does not have a class of voting stock that is:
- listed on a national securities exchange,
- authorized for quotation on The Nasdaq Stock Market,
- held of record by more than 2,000 stockholders, unless any of the
foregoing results from action taken, directly or indirectly, by an
interested stockholder or from a transaction in which a person becomes an
interested stockholder.
Enterprises. Under the MGCL, "business combinations" between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an
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asset transfer or issuance or reclassification of equity securities. An
interested stockholder generally includes:
- any person who beneficially owns 10% or more of the voting power of the
corporation's shares, or
- an affiliate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or
more of the voting power of the then outstanding voting stock of the
corporation.
After the five-year prohibition, any business combination between the
Maryland corporation and an interested stockholder generally must be recommended
by the board of directors of the corporation and approved by two super-majority
stockholder votes, unless, among other conditions, the holders of common stock
receive a minimum price, as defined by the MGCL, for their shares and the
consideration is received in cash or in the same form as previously paid by the
interested stockholder for its common stock. None of these provisions of the
MGCL will apply, however, to business combinations that are approved or exempted
by the board of directors of the corporation prior to the time that the
interested stockholder becomes an interested stockholder.
Also under the MGCL, "control shares" of a Maryland corporation acquired in
a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter.
Shares of stock owned by the acquiror, by officers or by directors who are
employees of the corporation are excluded from shares entitled to vote on the
matter. "Control shares" are voting shares of stock which, if aggregated with
all other shares of stock owned by the acquiror or shares of stock for which the
acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power:
- one-fifth or more but less than one-third,
- one-third or more but less than a majority, or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. Except
as otherwise specified in the statute, a "control share acquisition" means the
acquisition of control shares.
Once a person who has made or proposes to make a control share acquisition
has undertaken to pay expenses and satisfied other conditions, the person may
compel the board of directors to call a special meeting of stockholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made the corporation may itself present the question at
any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to the conditions and limitations in the statute, the corporation may
redeem any or all of
101
<PAGE> 108
the control shares for fair value, except for control shares for which voting
rights previously have been approved. Fair value is determined without regard to
the absence of voting rights for control shares, as of the date of the last
control share acquisition or of any meeting of stockholders at which the voting
rights of control shares are considered and not approved. If voting rights for
control shares are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of these appraisal rights may not be less than the
highest price per share paid in the control share acquisition. Some of the
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
Under the MGCL, Enterprises' board of directors has adopted a resolution
providing that the "business combination" provisions of Maryland law shall not
apply to any "business combination" with Enterprises. Enterprises' bylaws
contain a provision exempting from the control share acquisition statute any and
all acquisitions by any person of shares of stock of Enterprises. There can be
no assurance, however, that Enterprises' board of directors will not rescind the
resolution or amend the bylaws in the future to provide that the "business
combination" and "control share acquisition" provisions of the MGCL apply to
Enterprises, except that Enterprises' board has irrevocably exempted Legacy from
the operation and effect of the business combination provisions of the MGCL.
102
<PAGE> 109
SUMMARY SELECTED FINANCIAL DATA OF LEGACY
The selected financial data presented below as of July 31, 1998 and for the
period from November 17, 1997 (inception) to July 31, 1998 have been derived
from the audited financial statements of Legacy. The selected financial data
presented below as of December 31, 1998 and June 30, 1999 and for the five
months ended December 31, 1998 and the six months ended June 30, 1999 have been
derived from the unaudited financial statements of Legacy. The selected
financial data presented below as of July 31, 1997, 1996 and 1995 and for the
eight months ended March 31, 1998 and each of the three years in the period
ended July 31, 1997 have been derived from the audited financial statements of
the Excel Legacy Corporation Asset Group. In the opinion of our management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which consist only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the six month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1999. The
data below should be read in conjunction with our Annual Report on Form 10-K for
the fiscal year ended July 31, 1998, as amended, our Transition Report on Form
10-Q for the five months ended December 31, 1998, and our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, each of which is incorporated
herein by reference.
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS FIVE MONTHS INCEPTION EIGHT MONTHS
ENDED ENDED (NOVEMBER 17, ENDED YEAR ENDED JULY 31,
JUNE 30, DECEMBER 31, 1997) TO MARCH 31, ---------------------------
1999 1998 JULY 31, 1998 1998 1997 1996 1995
---------- ------------ ------------- ------------ ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Total revenue............... $ 15,433 $ 15,010 $ 8,145 $ 3,757 $ 6,395 $ 5,032 $ 5,897
Total operating expenses.... (14,334) (13,754) (5,267) (3,149) (4,565) (4,513) (4,803)
Net income before income
taxes..................... 1,099 1,256 2,878 2,385) 1,830 519 1,794
Provision of income taxes... (413) (535) (1,143) 946 (729) (207) (515)
Net income.................. 686 721 1,735 1,419 1,101 312 779
Earnings before
depreciation, amortization
and deferred taxes
("EBDADT")................ 2,812 2,712 3,001 N/A N/A N/A N/A
Earnings before income
taxes, depreciation and
amortization ("EBITDA")... 3,178 5,819 5,453 N/A N/A N/A N/A
Net income per share:
Basic..................... $ 0.02 $ 0.02 $ 0.11 N/A N/A N/A N/A
Diluted................... 0.01 0.01 0.07 N/A N/A N/A N/A
Weighted average number of
shares:
Basic..................... 33,458 33,458 15,842 N/A N/A N/A N/A
Diluted................... 54,755 54,768 25,984 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF JULY 31,
JUNE 30, DECEMBER 31, JULY 31, MARCH 31, ---------------------------
1999 1998 1998 1998 1997 1996 1995
-------- ------------ -------- --------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Net real estate..................... $193,525 $190,878 $175,756 (1) $60,350 $61,048 $56,184
Total assets...................... 290,690 261,296 246,916 (1) 83,687 62,169 59,388
Mortgages and notes payable......... 118,996 90,986 72,714 (1) 35,115 36,754 38,224
Stockholders' equity................ 167,326 166,640 165,919 (1) -- -- --
Investment by Excel Realty Trust.... -- -- -- (1) 48,344 25,162 20,903
</TABLE>
- -------------------------
(1) Not applicable as assets were spun-off to Legacy at March 31, 1998.
103
<PAGE> 110
SUMMARY SELECTED FINANCIAL DATA OF ENTERPRISES
The selected financial data presented below as of August 31, 1994, 1995,
1996, and 1997 and as of December 31, 1997 and 1998, and for the twelve months
ended August 31, 1994, 1995, 1996, and 1997, the four months ended December 31,
1997 and the twelve months ended December 31, 1998 have been derived from the
audited financial statements of Enterprises. The selected financial data
presented below as of June 30, 1999 and for the six months ended June 30, 1999
have been derived from the unaudited financial statements of Enterprises. In the
opinion of Enterprises' management, the unaudited financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary for a
fair presentation of the financial position and the results of operations for
these periods. Operating results for the six month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 1999. The data below should be read in conjunction with
Enterprises' Annual Report on Form 10-K for the year ended December 31, 1998, as
amended, and Enterprises' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
SIX
MONTHS FOUR MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED AUGUST 31
JUNE 30, DECEMBER 31, DECEMBER 31, ---------------------------------------
1999 1998 1997 1997 1996 1995 1994
-------- ------------ ------------ ------- ------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Rental revenues.................. $ 34,281 $62,485 $18,170 $56,838 $56,221 $ 51,897 $ 30,316
Operating income (loss).......... 17,791 31,393 9,045 22,422 5,829 16,635 (74,711)
Income (loss) from continuing
operations..................... 19,825 29,429 17,508 19,085 8,340 13,297 (40,596)
Discontinued operations.......... -- -- -- (4,860) (8,250) (12,751) (883)
Net income....................... 19,825 29,429 17,508 14,225 90 546 (41,479)
Dividends paid to preferred
stockholders................... (16,631) (8,316) -- -- -- -- --
Net income applicable to common
stockholders................... 3,194 21,113 17,508 14,225 90 546 (41,479)
Net income (loss) per common
share from continuing
operations -- basic............ .24 .97 .74 .82 .36 .53 (1.50)
Cash dividends per common
share.......................... -- 1.05 .35 1.20 -- .08 --
Cash dividends per preferred
share.......................... .70 .35 -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31 AS OF AUGUST 31
AS OF ------------------- -------------------------------------------
JUNE 30, 1999 1998 1997 1997 1996 1995 1994
------------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA
Real estate assets, net........ $399,429 $418,507 $353,056 $337,139 $337,098 $330,443 $ 405,966
Total assets................. 434,832 457,352 408,478 403,757 540,325 555,994 591,511
Long-term debt................. 8,877 8,923 -- -- -- 15,425 --
Stockholders' equity........... 348,081 344,811 406,624 396,476 532,899 532,085 578,788(1)
Book value per common share.... (.40) (.65) 17.13 16.78 22.88 22.90 21.44
</TABLE>
- -------------------------
(1) Amount represents investment by Costco prior to the spin-off of Enterprises.
104
<PAGE> 111
EXCEL LEGACY CORPORATION
UNAUDITED PRO FORMA OPERATING AND FINANCIAL INFORMATION
The following tables set forth summary consolidated pro forma operating and
financial information of Legacy for the six months ended June 30, 1999 and the
twelve months ended December 31, 1998 as if the exchange offer had closed on
June 30, 1999 for balance sheet data and January 1, 1998 for income statement
data.
The pro forma data included herein may not be indicative of the actual
results or financial position had the exchange offer closed on the dates
indicated. You should read this information in connection with, and such
information is qualified in its entirety by, the financial statements and
accompanying notes of Legacy and Enterprises incorporated by reference in this
prospectus.
Upon the closing of the exchange offer, the actual financial position and
results of operations of Legacy will differ, perhaps materially, from the pro
forma amounts reflected herein due to a variety of factors, including changes in
operating results between the dates of the pro forma financial information and
the time the exchange offer is closed, as well as the factors discussed in "Risk
Factors."
105
<PAGE> 112
EXCEL LEGACY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
HISTORICAL PRO FORMA FORMA
JUNE 30, 1999 ADJUSTMENTS TOTALS
------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate, net....................... $193,525 $ (30,058)(2C) $128,467
(35,000)(2D)
Cash................................... 8,070 (618)(2C) --
(48,452)(2B)
11,000(2D)
30,000(2E)
Accounts receivable, net............... 498 (47)(2C) 451
Notes receivable....................... 23,305 23,305
Investment in Enterprises.............. -- 121,000(2B) 121,000
Investment in partnerships............. 17,738 19,837(2C) 37,575
Interest receivable.................... 7,079 -- 7,079
Pre-development costs.................. 25,049 (1,000)(2C) 24,049
Other assets........................... 9,304 (3,952)(2C) 5,352
Deferred tax asset..................... 6,112 -- 6,112
-------- --------- --------
Total assets......................... $290,680 $ 62,710 $353,390
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable
(including Legacy debentures,
Legacy notes and note to Sol
Price)............................ $118,596 $ 72,548(2B) $182,036
(15,108)(2C)
(24,000)(2D)
30,000(2E)
Accounts payable, accrued expenses
and other liabilities............. 3,908 (730)(2C) 3,178
-------- --------- --------
Total liabilities............... 122,504 62,710 185,214
Minority interests..................... 850 -- 850
Stockholders' Equity:
Preferred stock...................... 213 -- 213
Common stock......................... 335 -- 335
Additional paid-in capital........... 174,508 -- 174,508
Retained earnings.................... 3,142 -- 3,142
Notes receivable from affiliates for
common shares..................... (10,872) -- (10,872)
-------- --------- --------
Total stockholders' equity...... 167,326 -- 167,326
-------- --------- --------
Total liabilities and
stockholders' equity......... $290,680 $ 62,710 $353,390
======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed
financial statements.
- ---------------
106
<PAGE> 113
EXCEL LEGACY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
HISTORICAL ENDED HISTORICAL ENDED
SIX MONTHS JUNE 30, TWELVE MONTHS DECEMBER 31,
ENDED 1999 ENDED 1998
JUNE 30, PRO FORMA PRO FORMA DECEMBER 31, PRO FORMA PRO FORMA
1999 ADJUSTMENTS RESULTS 1998 ADJUSTMENTS RESULTS
---------- ----------- ----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental............... $ 6,440 $(1,107)(3D) $ 5,333 $ 9,932 $(2,387)(3D) $ 7,545
Operating income..... 6,898 (4,275)(3C) 2,623 9,402 (7,756)(3C) 1,646
Interest income and
other revenues..... 2,095 -- 2,095 3,821 (15)(3C) 3,806
Equity income from
investment in
Enterprises........ -- 919(3B) 919 -- 837(3B) 837
------- ------- ------- ------- ------- -------
Total revenue.... 15,433 (4,463) 10,970 23,155 (9,321) 13,834
------- ------- ------- ------- ------- -------
Operating expenses:
Interest............. 3,954 3,363(3A) 6,995 4,163 6,725(3A) 10,982
(419)(3C) (348)(3C)
(953)(3D) (1,658)(3D)
1,050(3E) 2,100(3C)
Depreciation and
amortization....... 2,079 (334)(3C) 1,597 2,975 (550)(3C) 1,980
(148)(3D) (445)(3D)
Property operating
expenses........... 1,060 -- 1,060 2,561 -- 2,561
Operating expenses... 3,816 (1,811)(3C) 2,005 5,783 (4,745)(3C) 1,038
General and
administrative..... 3,425 (1,909)(3C) 1,516 3,539 (1,993)(3C) 1,546
------- ------- ------- ------- ------- -------
14,334 (1,161) 13,173 19,021 (914) 18,107
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes......... 1,099 (3,302) (2,203) 4,134 (8,407) (4,273)
Provision (benefit) for
income taxes......... 413 (2,093) (1,680) 1,678 (1,678) --
------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shares............... $ 686 $(1,209) $ (523) $ 2,456 $(6,729) $(4,273)
======= ======= ======= ======= ======= =======
Earnings before
depreciation
amortization and
deferred taxes(4).... $ 2,812 $ 2,251 $ 5,063 $ 5,713 $(1,084) $ 4,629
======= ======= ======= ======= ======= =======
Basic net income (loss)
per common share..... 0.02 -- (0.02) 0.10 -- (0.17)
Diluted net income
(loss) per common
share................ 0.01 -- (0.01) 0.06 -- (0.10)
Weighted average basic
number of common
shares outstanding... 33,458 -- 33,458 25,205 -- 25,205
Weighted average
diluted number of
common shares
outstanding.......... 54,755 -- 54,755 41,312 -- 41,312
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed
financial statements.
106.1
<PAGE> 114
EXCEL LEGACY CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF ACCOUNTING TREATMENT
For accounting purposes, neither Legacy nor Enterprises will recognize a
gain or loss as a result of the exchange offer. Enterprises will, however,
expense its costs related to the exchange offer. We will account for our
purchase of the Enterprises common stock under the equity method. Under the
equity method, we will report our investment as a one-line item on our balance
sheet and our equity in the earnings or loss of Enterprises as a one-line item
on our statement of income. We will not consolidate the accounts of Enterprises
because the holders of the Enterprises preferred stock will be entitled to elect
a majority of Enterprises' board of directors following the closing of the
exchange offer. However, if one of the conditions occurs which terminates the
right of the holders of the Enterprises preferred stock to elect a majority of
Enterprises' board, we may be able to consolidate the accounts of Enterprises at
that time.
The historical results of Enterprises have been adjusted to reflect pro
forma results of the application of purchase accounting. Our equity earnings in
Enterprises reflect Enterprises' pro forma results of operations.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Certain reclassifications have been made to our historical balance
sheets to conform to the desired pro forma condensed balance sheet presentation.
The funds used to acquire the shares of the Enterprises common stock have been
assumed to come from new debt issuances and cash on hand.
(B) Represents the estimated assumed purchase price of shares of the
Enterprises common stock as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SHARES VALUE PER TOTAL
OUTSTANDING SHARE CONSIDERATION
----------- --------- -------------
<S> <C> <C> <C>
Enterprises common stock.............. 13,298 $8.50 $113,033
Estimated transaction costs........... 7,967
--------
$121,000
========
</TABLE>
Estimated fees and expenses related to the transaction are as follows (in
thousands):
<TABLE>
<S> <C>
Severance of Enterprises' personnel(1)...................... $2,098
Exercise and payment of stock options....................... 3,141
Accounting and legal........................................ 200
Other costs................................................. 2,528
------
$7,967
======
</TABLE>
- -------------------------
(1) Assumes that all personnel will be terminated following the exchange offer,
which is not presently intended.
108
<PAGE> 115
The purchase price of shares of the Enterprises common stock is assumed to
be provided by the following sources (in thousands):
<TABLE>
<S> <C>
9.0% Convertible Redeemable Subordinated Debentures due 2004
described herein.......................................... $ 36,571
10.0% Senior Redeemable Notes due 2004 described herein..... 19,948
Other debt assumed to be issued to provide funds for the
transaction (see footnote 3)................................ 64,481
--------
$121,000
========
</TABLE>
(C) Certain adjustments have been made to our historical balance sheet to
reflect the sale of existing Millennia assets.
(D) Certain adjustments have been made to our historical balance sheets to
reflect the sale of eight properties previously leased to Wal Mart.
(E) Certain adjustments have been made to our historical balance sheets to
reflect the note to Sol Price in the principal amount of $30.0 million bearing
interest at LIBOR plus 1.5% per annum (assumed at an average rate of 7.0% per
annum). The exact principal amount of the note will depend on the amount of
funds required by Legacy to satisfy its monetary obligations under the exchange
offer.
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(A) Certain reclassifications have been made to our historical balance
sheets to conform to the desired pro forma condensed balance sheet presentation.
The funds used to acquire the shares of the Enterprises common stock have been
assumed to come from cash on hand of $48.5 million and various new debt
issuances with approximately $20.0 million bearing an average interest rate of
10.0% per annum and approximately $52.5 million bearing an average interest rate
of 9.0% per annum.
109
<PAGE> 116
(B) Below is a reconciliation of our pro forma equity income from our
investment in Enterprises (in thousands):
<TABLE>
<S> <C>
SIX MONTHS ENDED JUNE 30, 1999:
Net income applicable to common stockholders................ $ 3,194
Adjustment to depreciation(1)............................... 1,804
Adjustment to amortization(2)............................... 301
Decrease in estimated general and administrative costs(3)... 993
Effect of sale of two properties in April, 1999(4).......... (5,373)
-------
Equity income from investment in Enterprises................ $ 919
=======
TWELVE MONTHS ENDED DECEMBER 31, 1998:
Net income applicable to common stockholders................ $21,113
Pro forma effect of preferred distributions................. (24,948)
Adjustment to depreciation(1)............................... 3,249
Adjustment to amortization(2)............................... 717
Decrease in estimated general and administrative costs(3)... 1,922
Effect of sale of two properties in April, 1999(4).......... (1,216)
-------
Equity income from investment in Enterprises................ $ 837
=======
</TABLE>
- -------------------------
(1) In accordance with the purchase method of accounting, the purchase
price of the Enterprises common stock has been allocated among the
assets and liabilities of Enterprises based upon respective fair
values. As such, the basis in Enterprises' real estate has been
changed. Accordingly, the depreciation lives used for depreciation has
been changed from 25 years to 40 years in accordance with Legacy's
accounting policy.
(2) In accordance with the purchase method of accounting, deferred leasing
costs, which were being amortized over the life of related tenant
leases, were written off.
(3) The decrease in general and administrative costs reflects: (a)
Enterprises' salaries and related expenses from personnel, including
senior management, who will be severed upon the closing of the
transaction; (b) Enterprises' actual corporate expenses that are not
expected to be incurred subsequent to the exchange offer as
Enterprises' offices will be consolidated with Legacy's offices. Legacy
has identified specific costs included in the Enterprises historical
results which it believes will not be incurred by Enterprises after the
exchange offer due to this consolidation. These costs include
consulting fees related to consultants who Legacy will not utilize
after the exchange offer, rent for the Enterprises office space and
miscellaneous office costs such as supplies and equipment.
110
<PAGE> 117
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Salaries related to senior management
and other personnel to be severed.... $684 $1,349
Corporate expenses not expected to be
incurred due to consolidation of
offices.............................. 309 573
---- ------
Decrease in estimated general and
administrative expenses.............. $993 $1,922
==== ======
</TABLE>
(4) Due to the sale of the Dallas, Texas and Buffalo, New York properties
in April 1999, net income is reduced by the operating income derived
from those properties during the period.
(C) Certain adjustments have been made to adjust our historical operating
results to reflect the pending sale of existing Millennia assets.
(D) Certain adjustments have been made to adjust our historical operating
results to reflect the sale of eight properties previously leased to Wal Mart.
(E) Certain adjustments have been made to adjust our historical results to
reflect the note to Sol Price in the principal amount of $30.0 million bearing
interest at LIBOR plus 1.5% per annum (assumed at an average rate of 7.0% per
annum). The exact principal amount of the note will depend on the amount of
funds required by Legacy to satisfy its monetary obligations under the exchange
offer.
4. EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES
We calculate Earnings Before Depreciation, Amortization and Deferred Taxes
("EBDADT") as net income, plus depreciation and amortization on real estate and
real estate related assets (including depreciation and amortization of
Enterprises), amortized leasing commission costs and certain non-recurring
items. EBDADT does not represent cash flows from operations as defined by
generally accepted accounting principles, and may not be comparable to other
similarly titled measures of other companies. We believe, however, that to
facilitate a clear understanding of our operating results, EBDADT should be
examined in conjunction with our net income as reductions for certain items are
not meaningful in evaluating income-producing real estate.
EBDADT includes the earnings of Enterprises even though Legacy is required
by the company agreement to create an annual reserve of $7.5 million at the
Enterprises level which will not be distributed to Legacy or any other holder of
the Enterprises common stock. We have agreed with Enterprises that the $7.5
million reserve may be used for the improvement and/or acquisition of
properties, the repurchase of the Enterprises preferred stock or the reduction
of Enterprises' debt.
111
<PAGE> 118
PRICE ENTERPRISES, INC.
UNAUDITED PRO FORMA OPERATING AND FINANCIAL INFORMATION
The following tables set forth summary pro forma operating and financial
information of Enterprises for the six months ended June 30, 1999 and the twelve
months ended December 31, 1998 as if the exchange offer had closed on June 30,
1999 for balance sheet data and January 1, 1998 for income statement data.
The pro forma data included herein may not be indicative of the actual
results or financial position had the exchange offer closed on the dates
indicated. You should read this information in connection with, and such
information is qualified in its entirety by, the financial statements and
accompanying notes of Enterprises incorporated by reference in this prospectus.
Upon the closing of the exchange offer, the actual financial position and
results of operations of Enterprises will differ, perhaps materially, from the
pro forma amounts reflected herein due to a variety of factors, including
changes in operating results between the dates of the pro forma financial
information and the time the exchange offer is closed, as well as the factors
discussed in "Risk Factors."
112
<PAGE> 119
PRICE ENTERPRISES, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
JUNE 30, 1999 ADJUSTMENTS TOTALS
------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate, net................ $399,429 $145,997(2B) $545,426
Investment in joint venture..... 4,270 -- 4,270
Cash............................ 1,022 -- 1,022
Accounts receivable, net........ 1,299 -- 1,299
Deferred rents.................. 16,010 (16,010)(2C) --
Deferred leasing costs, net..... 3,664 (3,664)(2C) --
Prepaid expenses and other
assets....................... 1,273 -- 1,273
Income taxes receivable......... 7,865 -- 7,865
-------- -------- --------
Total assets............... $434,832 $126,323 $561,155
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Lines of credit and note
payable.................... $ 83,377 -- $ 83,377
Accounts payable and other
liabilities................ 3,374 -- 3,374
-------- -------- --------
Total liabilities.......... 86,751 -- 86,751
Stockholders' Equity
Preferred stock.............. 353,404 -- 353,404
Common stock................. 1 120,999(2D) 121,000
Additional paid-in capital...... 1,005 (1,005) --
Accumulated deficit............. (6,329) 6,329 --
-------- -------- --------
Total stockholders'
equity.................. 348,081 126,323 474,404
-------- -------- --------
Total liabilities and
stockholders' equity.... $434,832 $126,323 $561,155
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
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<PAGE> 120
PRICE ENTERPRISES, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
HISTORICAL PRO FORMA TWELVE TWELVE
SIX MONTHS SIX MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, PRO FORMA JUNE 30, DECEMBER 31, PRO FORMA DECEMBER 31,
1999 ADJUSTMENTS 1999 1998 ADJUSTMENTS 1998
---------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rental revenues................. $ 34,281 $(1,513)(3A) $ 32,768 $62,485 $ (3,680)(3A) $ 58,805
Operating expenses:
Depreciation and amortization... 6,358 (2,369)(3B)(3C) 3,989 12,471 (5,549)(3B)(3C) 6,922
Property operating expenses... 8,687 (593)(3C) 8,094 15,641 (881)(3C) 14,760
General and administrative.... 1,445 (993)(3D) 452 2,980 (1,922)(3D) 1,058
-------- ------- -------- ------- -------- --------
Total operating expenses.... 16,490 (3,955) 12,535 31,092 (8,352) 22,740
-------- ------- -------- ------- -------- --------
Operating income.............. 17,791 2,442 20,233 31,393 4,672 36,065
Interest expense, net........... (2,683) -- (2,683) (1,964) -- (1,964)
Gain on sale of real estate..... 4,717 (4,717) -- -- -- --
-------- ------- -------- ------- -------- --------
Net income.................. 19,825 (2,275) 17,550 29,429 4,672 34,101
Dividends paid to preferred
stockholders.................. (16,631) -- (16,631) (8,316) (24,948)(3E) (33,264)
-------- ------- -------- ------- -------- --------
Net income (loss) applicable to
common stockholders........... $ 3,194 $(2,275) $ 919 $21,113 $(20,276) $ 837
======== ======= ======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
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<PAGE> 121
PRICE ENTERPRISES, INC.
NOTES AND MANAGEMENT'S ASSUMPTIONS TO
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF ACCOUNTING TREATMENT
For accounting purposes, neither Legacy nor Enterprises will recognize a
gain or loss as a result of the exchange offer. Enterprises will expense its
costs related to the exchange offer. Legacy will account for its investment in
Enterprises under the equity method.
The historical results of Enterprises have been adjusted to reflect the pro
forma results of the application of purchase accounting. In accordance with
purchase accounting, the cost basis of Legacy's investment in the common stock
of Enterprises has been allocated among Enterprises' assets and liabilities to
adjust them to fair value at the time of the closing of the exchange offer. The
pro forma balance sheet and income statement have also been adjusted to exclude
two properties that Enterprises sold during the six month period ended June 30,
1999.
2. PRO FORMA ADJUSTMENTS TO CONSOLIDATED CONDENSED BALANCE SHEET
(A) Certain reclassifications have been made to Enterprises' historical
balance sheet to conform to the desired pro forma condensed balance sheet
presentation.
(B) Real estate, net
<TABLE>
<S> <C>
Fair value adjustments to land and buildings....... $ 86,915
Elimination of accumulated depreciation............ 59,082
--------
$145,997
========
</TABLE>
(C) Deferred rents and deferred leasing costs have been adjusted to zero in
accordance with the application of purchase accounting.
(D) Represents Legacy's estimated investment or purchase price of the
common stock of Enterprises as follows:
<TABLE>
<CAPTION>
SHARES VALUE PER TOTAL
OUTSTANDING SHARE CONSIDERATION
----------- --------- -------------
<S> <C> <C> <C>
Enterprises common stock.... 13,298 $8.50 $113,033
Estimated transaction
costs..................... 7,967
--------
$121,000
========
</TABLE>
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<PAGE> 122
Estimated fees and expenses related to the transaction are as follows (in
thousands):
<TABLE>
<S> <C>
Severance of Enterprises' personnel(1)................. $2,098
Exercise and payment of stock options.................. 3,141
Accounting and legal................................... 200
Other.................................................. 2,528
------
$7,967
======
</TABLE>
- -------------------------
(1) Assumes that all personnel will be terminated following the exchange offer,
which is not presently intended.
3. PRO FORMA ADJUSTMENTS TO CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(A) Rental revenues have been adjusted to exclude rental revenue from two
properties that were sold during the six month period ended June 30, 1999.
(B) Depreciation and amortization have been adjusted to eliminate the
historical amounts of approximately $6,358,000 and $12,471,000 for the six
months ended June 30, 1999 and the twelve months ended December 31, 1998,
respectively. The pro forma depreciation and amortization amounts reflect the
new basis of the properties following the closing of the exchange offer and the
adoption of Legacy's accounting policy of depreciating properties over an
estimated useful life of 40 years rather than 25 years currently being used by
Enterprises.
(C) Property operating expenses and depreciation and amortization have been
adjusted to reflect the pro forma effect of no longer operating the two
properties that Enterprises sold during the six month period ended June 30,
1999.
(D) General and administrative expenses have been adjusted to reflect the
following pro forma effects of the closing of the exchange offer:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Salaries related to senior
management and other personnel
to be severed................. $684 $1,349
Corporate expenses not expected
to be incurred due to
consolidation of offices...... 309 573
---- ------
Decrease in estimated general
and administrative expenses... $993 $1,922
==== ======
</TABLE>
(E) Preferred stock dividends were paid for one quarter during 1998. The
pro forma results for the twelve months ended December 31, 1998 have been
adjusted to reflect four quarterly dividends to the preferred stockholders.
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<PAGE> 123
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal United States federal income
tax consequences to United States Holders, as defined below, of:
- an exchange of the Enterprises common stock in the exchange offer, and
- the acquisition, ownership and disposition of Legacy debentures, Legacy
notes and Legacy common stock.
The discussion is limited to holders of the Enterprises common stock
participating in the exchange offer, and does not address subsequent holders of
Legacy debentures, Legacy notes or Legacy common stock. Those stockholders who
do not participate in the exchange should not incur any United States federal
income tax liability from the exchange.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the Code), existing United States Treasury Regulations promulgated thereunder,
published rulings, administrative pronouncements and judicial decisions, all as
in effect as of the date hereof and all of which are subject to changes which
could affect the tax consequences described herein, possibly on a retroactive
basis.
This summary addresses only Enterprises common stock transferred in the
exchange offer, Legacy debentures and Legacy notes received in the exchange
offer, and Legacy common stock received upon conversion of the Legacy debentures
held as capital assets. It does not address all of the tax consequences that may
be relevant to particular stockholders in light of their personal circumstances,
or to some types of stockholders such as:
- some types of financial institutions,
- dealers or traders in securities or commodities,
- insurance companies,
- "S" corporations,
- expatriates,
- Non-United States Holders, as defined below,
- tax-exempt organizations,
- persons who are subject to alternative minimum tax, or
- persons who hold stock or the Legacy debentures or Legacy notes as a
position in a "straddle" or as part of a "hedging" or "conversion"
transaction or that have a functional currency other than the United
States dollar.
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<PAGE> 124
This summary may not be applicable with respect to stock or debentures or notes
acquired as compensation, including the Enterprises common stock acquired upon
the exercise of stock options or which were or are subject to forfeiture
restrictions. This summary also does not address the state, local or foreign tax
consequences of participating in the exchange offer or acquiring, owning and
disposing of Legacy debentures, Legacy notes, or Legacy common stock.
As used in the discussion below, the term "earnings and profits" refers to
our current or accumulated earnings and profits as determined under the Code.
There is no assurance that we will have earnings and profits for any particular
taxable year.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES
TO YOUR PARTICIPATION IN THE EXCHANGE OFFER AND THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF LEGACY DEBENTURES, LEGACY NOTES, OR LEGACY COMMON STOCK.
A "United States Holder" is a holder of the Enterprises common stock, or
Legacy debentures, Legacy notes, or Legacy common stock, that for United States
federal income tax purposes is:
- a citizen or resident of the United States,
- a corporation or partnership created or organized in or under the laws of
the United States or any state or division thereof, including the
District of Columbia,
- an estate the income of which is subject to United States federal income
taxation regardless of its source, or
- a trust (1) the administration over which a United States court can
exercise primary supervision and (2) all of the substantial decisions of
which one or more United States persons have the authority to control and
other types of trusts considered United States Holders for federal income
tax purposes.
A "Non-United States Holder" is a holder of the Enterprises common stock,
or Legacy debentures, Legacy notes, or Legacy common stock, other than a United
States Holder.
TREATMENT OF THE EXCHANGE OFFER
An exchange of the Enterprises common stock for cash, Legacy debentures and
Legacy notes in the exchange offer by a United States Holder will be a taxable
transaction for United States federal income tax purposes and may also be a
taxable transaction under applicable state, local or foreign tax laws. In
general, for United States federal income tax purposes, each stockholder will
recognize gain or loss equal to the difference between:
- the amount of cash and the issue price of any Legacy debentures and
Legacy notes received and
- the stockholder's adjusted tax basis in the Enterprises common stock
exchanged therefor.
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<PAGE> 125
Assuming the Enterprises common stock constitutes a capital asset in the
hands of the stockholder, such gain or loss will be capital gain or loss. The
issue price of Legacy debentures and Legacy notes will be determined as follows.
If Legacy debentures or Legacy notes, as the case may be, are traded or deemed
traded on an established securities market on or at any time during the 60-day
period ending 30 days after the exchange date, the issue price of Legacy
debentures or Legacy notes, as the case may be, will be their fair market value
determined as of the exchange date. Subject to certain limitations, Legacy
debentures or Legacy notes will be deemed so traded if, among other things,
price quotations are readily available from dealers, brokers or traders. If
Legacy debentures or Legacy notes, as the case may be, are not deemed traded
under these rules, then the issue price of Legacy debentures or Legacy notes, as
the case may be, will be, assuming the Enterprises common stock is publicly
traded or deemed publicly traded within the period described above, the fair
market value of the Enterprises common stock for which Legacy debentures or
Legacy notes, as the case may be, are exchanged. If neither Legacy debentures or
Legacy notes, as the case may be, nor the Enterprises common stock, are deemed
traded, the issue price of Legacy debentures or Legacy notes, as the case may
be, will be their principal amount.
LEGACY DEBENTURES
Interest. Stated interest on the Legacy debentures will generally be
includible in a United States Holder's gross income and taxable as ordinary
income for United States federal income tax purposes at the time it is paid or
accrued, in accordance with the United States Holder's regular method of
accounting for federal income tax purposes.
Original Issue Discount. If the stated principal amount of a Legacy
debenture exceeds the issue price of the Legacy debenture, as determined above,
by more than a statutorily determined de minimis amount, a United States Holder
will be required to include the amount of such excess as income over the term of
the Legacy debenture under a constant yield method. Such excess amount is
referred to below as original issue discount, or OID.
Adjustments to Conversion Ratio. If at any time we make a distribution of
cash or property to holders of Legacy common stock that would be taxable to such
stockholders as a dividend for United States federal income tax purposes and, in
accordance with the terms of the Legacy debentures, the conversion price or
conversion ratio of the Legacy debentures is adjusted, such adjustment will
likely be deemed to be the payment of a constructive distribution to holders of
the Legacy debentures -- resulting in ordinary income, subject to a possible
dividends received deduction in the case of corporate holders -- to the extent
of our current or accumulated earnings and profits, even though such holders
receive no cash. An adjustment to the conversion price made under a bona fide
reasonable adjustment formula which has the effect of preventing the dilution of
the interest of the holders of the Legacy debentures and which is not made to
compensate them for taxable distributions of cash or property on any of the
outstanding Legacy common stock or any convertible securities, generally will
not result in constructive distribution. For example, a decrease in the
conversion price in the event of distributions of
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<PAGE> 126
indebtedness or assets of Legacy will generally result in a deemed distribution
to holders of the Legacy debentures, but a decrease in the event of stock
dividends or the distribution of rights to subscribe for Legacy common stock
ordinarily would not.
Sale, Exchange, Redemption or Retirement of a Legacy Debenture. Except as
provided below under "-- Conversion of Legacy Debentures into Legacy Common
Stock," each United States Holder generally will recognize gain or loss upon the
sale, exchange, redemption, retirement or other taxable disposition of Legacy
debentures measured by the difference, if any, between:
- the amount of cash and the fair market value of any property
received -- except to the extent that such cash or other property is
attributable to the payment of accrued interest not previously included
in income, which amount will be taxable as ordinary income, and
- such holder's adjusted tax basis in the Legacy debentures.
The initial basis in a Legacy debenture will be equal to its issue price,
as determined above. If a Legacy debenture is issued with more than a de minimis
amount of OID, its basis would be increased by the amount of accrued OID and
decreased by the amount of any payment on the Legacy debenture other than
payment of stated interest. Except as noted immediately above, any such gain or
loss recognized on the sale, exchange, redemption, retirement or other taxable
disposition of Legacy debentures will be capital gain or loss.
Conversion of Legacy Debentures into Legacy Common Stock. A United States
Holder generally will not recognize any income, gain or loss upon conversion of
a Legacy debenture into Legacy common stock except to the extent the Legacy
common stock is considered attributable to accrued interest not previously
included in income (which is taxable as ordinary income) or with respect to cash
received in lieu of a fractional share of Legacy common stock. The adjusted
basis of shares of Legacy common stock received on conversion will generally
equal the adjusted basis of the Legacy debentures converted, reduced by the
portion of adjusted basis allocated to any fractional share of Legacy common
stock exchanged for cash, and the holding period of the Legacy common stock
received on conversion will generally include the period during which the
converted Legacy debentures were held. However, a United States Holder's tax
basis in shares of Legacy common stock considered attributable to accrued
interest as described above generally will equal the amount of such accrued
interest included in income, and the holding period for such shares will begin
as of the date of conversion.
LEGACY NOTES
Interest. Stated interest on the Legacy notes will generally be includible
in a United States Holder's gross income and taxable as ordinary income for
United States federal income tax purposes at the time it is paid or accrued, in
accordance with the United States Holder's regular method of accounting for
federal income tax purposes.
Original Issue Discount. If the stated principal amount of a Legacy note
exceeds its issue price, as determined above, by more than a statutorily defined
de minimis
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<PAGE> 127
amount, a United States Holder will be required to include the amount of such
OID as income over the term of the Legacy note under a constant yield method.
Sale, Exchange, Redemption or Retirement of a Legacy Note. Each United
States Holder generally will recognize gain or loss upon the sale, exchange,
redemption, retirement or other taxable disposition of Legacy notes measured by
the difference, if any, between:
- the amount of cash and the fair market value of any property
received -- except to the extent that such cash or other property is
attributable to the payment of accrued interest not previously included
in income, which amount will be taxable as ordinary income, and
- such holder's adjusted tax basis in the Legacy notes.
The initial basis in a Legacy note will be equal to its issue price, as
determined above. If a Legacy note is issued with more than a de minimis amount
of OID, its basis would be increased by the amount of accrued OID and decreased
by the amount of any payment on the Legacy note other than payment of stated
interest. Except as noted immediately above, any such gain or loss recognized on
the sale, exchange, redemption, retirement or other taxable disposition of
Legacy notes will be capital gain or loss.
LEGACY COMMON STOCK
Cash Distributions. The amount of any cash distribution with respect to
Legacy common stock will be treated as a dividend, taxable as ordinary income to
the recipient thereof, to the extent of our current or accumulated earnings and
profits as determined under United States federal income tax principles. To the
extent that the amount of such distribution exceeds our current and accumulated
earnings and profits, the excess first will be treated as a return of capital
that will reduce the holder's tax basis in the Legacy common stock. Any
remaining amount after the holder's basis has been reduced to zero will be
taxable as capital gain.
Dividends received by corporate stockholders will be eligible for the 70%
dividends-received deduction under section 243 of the Code, subject to various
exceptions and limitations contained in the Code. U.S. corporate stockholders
should note, however, that there can be no assurance that distributions with
respect to Legacy common stock will not exceed the amount of our current or
accumulated earnings and profits. Accordingly, there can be no assurance that
the dividends-received deduction will apply to distributions on the Legacy
common stock. Corporate holders should consult their tax advisors as to the
availability and the limitations relating to the dividends-received deduction.
CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO THE OWNERSHIP AND
DISPOSITION OF THEIR COMMON STOCK.
Sale or Disposition. A sale or other disposition of Legacy common stock
will normally be a taxable event. Upon such a taxable sale or other disposition,
a stockholder will generally recognize capital gain or loss equal to the
difference between
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<PAGE> 128
the amount of cash and the fair market value of property received by the holder
for the Legacy common stock and the holder's adjusted tax basis in those shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury regulations, a
holder of the Enterprises common stock participating in the exchange, Legacy
debentures, Legacy notes, or Legacy common stock, as the case may be, may be
subject to backup withholding at the rate of 31% with respect to "reportable
payments" unless the holder (1) is a corporation or comes within other exempt
categories and, when required, demonstrates this fact, or (2) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. "Reportable payments" include:
- dividend payments,
- interest payments,
- under some circumstances, principal payments on the Legacy debentures or
Legacy notes,
- the gross proceeds payable in the exchange offer -- i.e., cash and any
Legacy debentures and Legacy notes, and
- the proceeds of a taxable sale or exchange of the Legacy debentures,
Legacy notes, or Legacy common stock, as the case may be.
The payor will be required to deduct and withhold the prescribed amounts
if:
- the payee fails to furnish a taxpayer identification number (TIN) to the
payor in the manner required by the Code and applicable Treasury
regulations,
- the Internal Revenue Service (IRS) notifies the payor that the TIN
furnished by the payee is incorrect,
- there has been a "notified payee underreporting" described in section
3406(c) of the Code, or
- there has been a failure of the payee to certify under penalty of perjury
that the payee is not subject to withholding under section 3406(a)(1)(C)
of the Code.
In such event, we will be required to withhold an amount equal to 31% from
any dividend payment made with respect to the holder's Legacy common stock, any
interest payment made with respect to the holder's Legacy debentures or Legacy
notes, the gross proceeds payable to the holder in the exchange offer, any
payment of proceeds to the holder of a taxable sale or exchange of the Legacy
debentures, Legacy notes, or Legacy common stock, or any other "reportable
payments." Amounts paid as backup withholding do not constitute an additional
tax and will be credited against the holder's United States federal income tax
liabilities, so long as the required information is provided to the IRS. We will
report to persons transferring the Enterprises common stock in the exchange
offer, to the holders of the Legacy debentures, Legacy notes, or Legacy common
stock and to the IRS the amount of any "reportable payments" for each calendar
year and the amount of tax withheld, if any,
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<PAGE> 129
with respect to payment on the securities. A person transferring the Enterprises
common stock in the exchange offer, and a holder of Legacy debentures, Legacy
notes, or Legacy common stock who does not provide us with his or her correct
taxpayer identification number may be subject to penalties imposed by the IRS.
PROPOSED LEGISLATION
Enterprises elected to be taxed as a REIT under Sections 856 through 860 of
the Code commencing with the short taxable year from September 1, 1997 to
December 31, 1997. Under current law, the closing of the exchange offer or the
merger should not adversely affect Enterprises' REIT status. After the closing
of the exchange offer, and, if applicable, the merger, Enterprises intends to
continue to operate in a manner so as to qualify for taxation as a REIT under
the Code.
Enterprises' qualification and taxation as a REIT depends on Enterprises'
ability to meet various qualification tests imposed under the Code. One of these
qualification tests (the Five or Fewer Rule) requires that no more than 50% of
the value of the REIT's outstanding shares can be owned directly or indirectly,
applying various ownership attribution rules, by five or fewer individuals at
any time during the last half of a REIT's taxable year. Under existing law,
because of various ownership attribution rules, a corporation, such as Legacy,
could own more than 50% of the total value of a REIT's outstanding shares
without causing the REIT to fail to satisfy the Five or Fewer Rule. The current
version of the Taxpayer Refund and Relief Act of 1999 contains a provision
which, if enacted in its present form, would add an additional requirement that
would prohibit any person or entity from controlling a REIT (i.e., owning stock
possessing 50% or more of the total combined voting power of all classes of
voting stock of a REIT or 50% or more of the total value of shares of all
classes of stock of a REIT). Although the Taxpayer Refund and Relief Act of 1999
was passed by both houses of Congress on August 5, 1999, the legislation has not
been signed into law by President Clinton. President Clinton has stated that he
intends to veto the current version of the Taxpayer Refund and Relief Act.
However, the final version of any enacted tax legislation likely will include a
provision that would prohibit any person or entity from controlling a REIT.
The controlled REIT provisions of the Taxpayer Refund and Relief Act, if
enacted in their current form, would apply to taxable years ending after July
14, 1999, but would not apply to a REIT which (1) as of July 14, 1999, is
already controlled by a person or entity and (2) has significant business assets
or activities as of such date. For purposes of the controlled REIT provisions, a
REIT is treated as controlled by a person or entity as of July 14, 1999 if the
REIT becomes a controlled entity after such date in a transaction that either
(1) is made under a written agreement which was binding on such date or (2) is
described on or before such date in an SEC filing which was required because of
the transaction. It is not clear whether Legacy would be considered to own 50%
or more of the total combined voting power of Enterprises upon the closing of
the exchange offer. However, if the controlled REIT provisions of the Taxpayer
Refund and Relief Act were enacted in their current form, they would not apply
to Enterprises as a result of the closing of the exchange offer, because either
(1) Enterprises would not be considered a controlled REIT within the meaning of
such legislation or (2) if Enterprises would be considered a controlled REIT, it
would
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<PAGE> 130
have become a controlled REIT in a transaction described on or before July 14,
1999 in a required SEC filing. However, if (1) this legislation or similar
legislation were enacted and (2) after July 14, 1999, Legacy or Enterprises
engaged in any transaction other than the exchange offer that increased Legacy's
total voting power in Enterprises' stock or Legacy's ownership of Enterprises'
stock, Enterprises may not qualify as a REIT if Legacy would be considered to
own 50% or more of the total voting power or value of Enterprises' stock as a
result of such transaction. It is presently uncertain whether any such
legislation will be enacted, or if enacted, what the terms of such legislation,
including its effective date, will be.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT WITH HIS TAX ADVISOR
WITH RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF LEGACY DEBENTURES, LEGACY
NOTES AND LEGACY COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS
OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAXING JURISDICTION.
LEGAL MATTERS
The validity of the Legacy debentures and the Legacy notes offered hereby
and the Legacy common stock into which the Legacy debentures may be converted
will be passed upon for Legacy by Latham & Watkins, San Diego, California.
EXPERTS
The financial statements and schedules of Legacy and Excel Legacy
Corporation Asset Group incorporated in this prospectus by reference to Legacy's
Annual Report on Form 10-K/A for the period from inception (November 17, 1997)
to July 31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements and schedule of Enterprises appearing
in Enterprises' Annual Report on Form 10-K for the year ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedule are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
Legacy and Enterprises are subject to the informational requirements of the
Securities Exchange Act of 1934, and file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, proxy statements and other information we and Enterprises file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the SEC's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0300 for further
information on the public reference rooms. You may also access filed documents
at the SEC's web site at www.sec.gov.
This prospectus incorporates important business and financial information
about Legacy and Enterprises that is not included in or delivered with this
prospectus. We have filed a registration statement on Form S-4 and related
exhibits with the SEC under the Securities Act of 1933. The registration
statement contains additional information about Legacy and Enterprises and the
securities offered hereby. You may inspect the registration statement and
exhibits without charge and obtain copies from the SEC at prescribed rates at
the locations above.
The SEC allows us to incorporate by reference the information we and
Enterprises file with it, which means that we can disclose important information
to you by referring to those documents. The information incorporated by
reference is an important part of this prospectus, and information that we and
Enterprises file later with the SEC will automatically update and supersede this
information. We incorporate by reference the following documents which we and
Enterprises have filed with the SEC:
LEGACY'S SEC FILINGS (FILE NO. 0-23503):
- Our Annual Report on Form 10-K for the fiscal year ended July 31, 1998
and Amendment Nos. 1 and 2 thereto on Form 10-K/A,
- Our Quarterly Report on Form 10-Q for the quarter ended October 31, 1998,
- Our Transition Report on Form 10-Q for the transition period from August
1, 1998 to December 31, 1998,
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
and Amendment No. 1 thereto on Form 10-Q/A,
- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
- Our Current Reports on Form 8-K filed with the SEC on December 18, 1998,
May 14, 1999, June 4, 1999 and September 1, 1999,
- The description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on November 13, 1998, and
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<PAGE> 132
- All documents filed by us with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus and before the termination of this offering.
ENTERPRISES' SEC FILINGS (FILE NO. 0-20449):
- Enterprises' Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and Amendment No. 1 thereto on Form 10-K/A,
- Enterprises' Quarterly Report on Form 10-Q for the quarter ended March
31, 1999,
- Enterprises' Quarterly Report on Form 10-Q for the quarter ended June 30,
1999,
- Enterprises' Current Report on Form 8-K filed with the SEC on June 4,
1999, and
- All documents filed by Enterprises with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and before the termination of this offering.
The information incorporated by reference is deemed to be part of this
prospectus. Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed modified, superseded
or replaced for purposes of this prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies, supersedes or replaces such
statement. Any statement so modified, superseded or replaced will not be deemed,
except as so modified, superseded or replaced, to constitute a part of this
prospectus.
Legacy has supplied all information contained or incorporated by reference
in this prospectus relating to Legacy, and Enterprises has supplied all such
information relating to Enterprises.
If you are stockholder of Enterprises, you may have already received some
of the documents incorporated by reference, but you can obtain any of them
through the information agent, Legacy, Enterprises or the SEC. Documents
incorporated by reference are available from the information agent, Legacy or
Enterprises without charge, excluding all exhibits unless we have specifically
incorporated by reference an exhibit in this prospectus. Enterprises'
stockholders may obtain documents incorporated by reference in this prospectus
by requesting them in writing or by telephone from the appropriate party at the
following addresses:
<TABLE>
<S> <C>
Excel Legacy Corporation Price Enterprises, Inc.
16955 Via Del Campo, Suite 100 4649 Morena Boulevard
San Diego, CA 92127 San Diego, California 92117
(858) 675-9400 (858) 581-4679
</TABLE>
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<PAGE> 133
You may also contact the information agent for the exchange offer at the
following address:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005-4496
(800) 659-6590
To obtain timely delivery before the expiration of our offer, you should
request the information no later than , 1999, which is
five business days prior to the expiration of our offer.
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the dates on the front of these documents.
We have not authorized anyone to give you any information or to make any
representations about the transactions we discuss in this prospectus other than
those contained herein. If you are given any information or representations
about these matters that is not discussed, you should not rely on that
information. This prospectus is not an offer to sell or a solicitation of an
offer to buy securities anywhere or to anyone where or to whom we are not
permitted to offer or sell securities under applicable law. The delivery of this
prospectus offered hereby does not, under any circumstances, mean that there has
not been a change in our affairs since the date hereof. It also does not mean
that the information in this prospectus is correct after this date.
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<PAGE> 134
ANNEX A
THE STOCKHOLDERS AGREEMENT
AGREEMENT
PARTIES:
A. Excel Legacy Corporation, a Delaware corporation ("Legacy").
B. Certain shareholders of Price Enterprises, Inc. ("PREN"), a Maryland
corporation qualified as a Real Estate Investment Trust for federal income tax
purposes, who sign copies of this Agreement on or about the Board Approval Date
(Item 2), including Sol Price ("Price"), a Trustee of significant holders of
Common Stock ("Common Stock") and Preferred Stock ("Preferred Stock") of PREN.
(Each such shareholder, including Price, is referred to as a "Selling
Shareholder" and, at any point in time, all such persons who have then signed
substantially identical agreements, together with Price, are referred to
collectively as the "Selling Shareholders.")
AGREEMENT, subject to all of the terms and conditions below:
1. Each Selling Shareholder agrees to deposit into an escrow (the "Escrow")
his, her or its shares of PREN Common Stock in order to facilitate a transaction
with Legacy in which Legacy will seek to acquire all shares of PREN Common Stock
for $8.50 per share, comprised, at Legacy's election, of (i) $8.50 in cash or
(ii) (A) at least $4.25 in cash, (B) at least $2.75 per share in principal
amount of a Legacy 9% Convertible (at $5.50 per share) Subordinated Debenture
("Debenture"), issued pursuant to an indenture in the form attached as Exhibit A
hereto, with such changes as may be acceptable to a majority in interest of the
Selling Shareholders ("Majority of the Selling Shareholders"), with their
interests for such purposes being determined solely by the number of shares of
PREN Common Stock deposited by them into Escrow, and to Legacy and such changes
as may be required by the trustee under such indenture, and (C) $1.50 per share
in whatever combination Legacy may choose of cash, Debentures, and 10% Senior
Notes ("Notes") due October 31, 2004, issued at par, with a mandatory sinking
fund of 20% per year at the end of each of the first four years after issuance
(with credit given for open market purchases), a prepayment option by Legacy at
par plus accrued interest at any time, and customary protections for noteholders
reasonably acceptable to a Majority of the Selling Shareholders, but no more
stringent than the terms of bank indebtedness of Legacy at the time. The
Debentures and Notes (if any) shall be issued in denominations of $1,000 and
integral multiples thereof. Legacy shall deliver checks for the current market
value of any fractional shares in accordance with the Indenture. The transaction
in which Legacy will seek to acquire all of the Common Stock of PREN will be at
the option of the PREN Board of Directors to be exercised on the Board Approval
Date, either (A) a merger between PREN and a newly-formed wholly owned
subsidiary of Legacy or (B) a tender offer or exchange offer, in either case
with the consideration above being paid or offered for each share of PREN Common
Stock. Legacy shall elect the form of consideration prior to the distribution of
the applicable offer to purchase or proxy materials to PREN's shareholders.
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2. 4,000,000 shares of PREN Common Stock shall be deposited by the Selling
Shareholders in the Escrow, which will be held by an escrow agent pursuant to an
escrow agreement (the "Escrow Agreement") containing the provisions described
herein and such other provisions as may be required by the escrow agent, within
5 business days after this Agreement has been signed by Price on behalf of
certain Selling Shareholders and by Legacy. On the date following the date on
which the Board of Directors of PREN determines whether to approve the
transactions contemplated hereby, which approval date, if any, shall in no event
be later than June 2, 1999 (the "Board Approval Date"), there shall be deposited
(if the Board does approve) into Escrow at least 4,000,000 additional shares of
PREN Common Stock, and there shall be issued a joint press release with respect
to the Board's approval. Each Selling Shareholder hereby represents that all
shares of PREN Common Stock deposited into Escrow by such Selling Shareholder
are, or on the date of such deposit will be, owned free and clear of all liens,
charges, encumbrances and restrictions of any kind. Price shall give Legacy 48
hours notice of the expected Board Approval Date, and if no such notice is
given, Legacy shall treat June 2, 1999 as the Board Approval Date.
3. Legacy agrees to deposit into Escrow (A) $1,000,000 in cash within 24 hours
after the first share deposit referred to in Item 2 above, (B) an additional
$6,500,000 in cash by the close of business on the first business day following
the Board Approval Date, and (C) an additional $1,000,000 in cash on each of
September 1, October 1 and November 1, 1999 if, as to each such date, the
Closing has not occurred. Neither the PREN Common Stock nor the cash shall be
released from Escrow until the Closing (Item 4), except that, pursuant to the
terms of the Escrow Agreement, the shares of PREN Common Stock shall be properly
tendered prior to the Closing in the Offer described in Item 4 below, or voted
in favor of the Merger described in Item 4 below, and the cash shall be provided
to Legacy at the Closing for purposes of making a portion of the cash payments
required.
4. The Escrow shall close (the "Closing"), with the PREN Common Stock delivered
to Legacy and the cash delivered to the Selling Shareholders (or their
designees) in accordance with the Escrow Agreement, when (A) Legacy shall have
offered to purchase all outstanding shares of PREN Common Stock (including the
shares held in Escrow) subject only to the Offer Conditions (Item 6B), and shall
have purchased all shares tendered and not withdrawn (the "Offer"), or (B) PREN
shall have merged with a wholly owned subsidiary of Legacy, subject only to the
Merger Conditions (Item 6B) (the "Merger"), in either case with all Common Stock
of PREN being offered or receiving the consideration specified in Item 1 above.
Alternatively, the Escrow shall close, and all items held in the Escrow shall be
returned to the party or parties who deposited them (except for cash used for
damage payments in Item 7 below or Item 5 of the PREN Agreement (as defined in
Item 8B below)), when August 31, 1999 occurs (if the Escrow has not already
closed under the first sentence in this Item 4), or when Legacy and a Majority
of the Selling Shareholders agree and so instruct the escrow agent, or as
provided in Item 7 or 9. Provided, that (i) the August 31, 1999 date shall be
extended by the period, if any, by which the time between the filing by Legacy
of documents with the Securities and Exchange Commission for the registration of
the Offer or the proxy materials for the Merger and the first date on which the
Offer can be commenced within the meaning of Rule 14d-2
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under the Securities Exchange Act of 1934, or the proxy materials may be mailed,
as applicable, exceeds 30 days, but not beyond December 1, 1999, and (ii) in any
event, interest shall accrue on the cash, Debentures and Notes, if applicable,
issued in the Offer or Merger from August 15, 1999. The cash shall accrue
interest at the rate of 8% per annum from August 15, 1999. If the Escrow
terminates under Item 7, 9 or 11 below or under Item 3 or 5 of the PREN
Agreement, earnings on the cash held in Escrow shall be distributed together
with the cash on which it accrues to the party entitled to receive the cash. If
the Offer or Merger is consummated, earnings on the cash held in Escrow shall be
distributed to Legacy for purposes of making a portion of the cash payments
required.
5. Each Selling Shareholder agrees and commits that, from the date hereof
through the Closing, such Selling Shareholder (i) shall not, directly or
indirectly, sell, offer to sell, grant any option for the sale of or otherwise
transfer or dispose of, or enter into any agreement to sell, any PREN Common
Stock owned beneficially or otherwise by such Selling Shareholder, and (ii)
shall vote (or cause to be voted) all Common Stock and Preferred Stock of PREN
owned beneficially or otherwise by such Selling Shareholder in favor of the
Merger and related matters (if applicable), and against any Company Takeover
Proposal or any other action or agreement which would impede, interfere with or
prevent the transactions contemplated hereby. For purposes hereof, "Company
Takeover Proposal" means any proposal by a third party (other than Legacy) to
acquire, directly or indirectly, including pursuant to a tender offer, exchange
offer, merger or similar transaction, more than 25% of the voting power of PREN,
or all or substantially all of the assets of PREN. In addition, each Selling
Shareholder agrees to comply with any applicable requirements of Rule 145 under
the Securities Act of 1933 in connection with any resales of the Debentures and
Notes.
6. Legacy further agrees and commits that:
A. At or as promptly as practicable after the Closing, Legacy shall cause
to be taken all actions reasonably necessary to cause the Preferred
Stock of PREN to be entitled under PREN's charter documents (including
those of any successor to PREN by merger, etc.) to elect a majority of
the Directors of PREN (which majority shall mean that the holders of
PREN Preferred Stock have one more designee than Legacy); provided that
such right shall terminate upon the earliest to occur of the following
(the "Preferred Termination"): (i) less than 2,000,000 shares of PREN
Preferred Stock (adjusted for stock splits, dividends, reverse splits,
etc.) shall remain outstanding, (ii) Legacy shall have made an offer to
purchase any and all outstanding shares of PREN Preferred Stock at a
cash price of $16 per share, and shall have purchased all shares duly
tendered and not withdrawn, or (iii) the Directors of PREN shall have
(a) issued or agreed to issue any equity securities or securities
convertible or exchangeable into or exercisable for equity securities,
in any case without unanimous Board approval, or (b) failed in any
fiscal year to declare or pay dividends on the PREN Common Stock as and
when requested by Legacy (1) to distribute 100% of PREN's taxable
income for such fiscal year or otherwise to maintain PREN's status as a
REIT, or (2) in an amount equal to the excess, if any, of (x)(A) funds
from operations less rent smoothing for such fiscal year, minus (B) the
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amount required to pay dividends on the PREN Preferred Stock for such
fiscal year, over (y) $7,500,000. Pending the effectuation of such
corporate action, Legacy agrees for the benefit of the holders of PREN
Preferred Stock to vote in favor of the election of Jack McGrory, Simon
Lorne and James Cahill (or their designees) as Directors of PREN and to
vote against any increase in the size of the PREN Board beyond five
members. Following the Closing until the Preferred Termination, neither
Legacy nor any subsidiary or affiliate of Legacy which acquires shares
of PREN Preferred Stock shall be entitled to vote such shares in any
election of Directors of PREN.
B. Legacy shall commence taking all actions reasonably necessary to make
the Offer or to effect the Merger (as applicable) to acquire all
outstanding shares of PREN Common Stock (including those shares held in
Escrow) for the consideration specified in Item 1 above, subject in the
case of the Offer only to the conditions specified on Exhibit B hereto
(the "Offer Conditions"), and in the case of the Merger only to the
conditions specified on Exhibit B hereto (other than the Minimum
Condition) and other customary conditions to a merger, including the
approval of PREN's shareholders and the filing of applicable merger
documents (the "Merger Conditions"). In the case of the Offer, Legacy
shall purchase all shares duly tendered and not withdrawn.
C. Legacy shall use all reasonable efforts to satisfy the Offer Conditions
or the Merger Conditions (as applicable). Legacy agrees that it will
proceed in good faith as expeditiously as possible to complete
requisite governmental reviews, to obtain any requisite approvals and
otherwise to consummate the transactions contemplated hereby, and
neither Legacy nor its counsel will engage in any communications with
third parties (including governmental offices and agencies) without the
direct participation of PREN and its counsel.
D. Legacy shall not take any action to cause a direct or indirect Change
of Control of PREN (including by Change of Control of Legacy itself)
(i) after the date hereof and prior to the Closing without the consent
of Price, or (ii) after the Closing, without either offering to
purchase all shares of PREN Preferred Stock or obtaining the approval
of a majority of such shares (unless a higher percentage is required by
PREN's charter or Maryland law). For purposes of this provision, a
"Change of Control" will be deemed to have occurred at such time as (a)
any person or group of related persons for purposes of Section 13(d) of
the Securities Exchange Act of 1934 (other than Legacy) becomes the
beneficial owner of 50% or more of the total voting power of PREN or
Legacy, (b) there shall be consummated any merger or consolidation of
PREN or Legacy in which PREN or Legacy, as the case may be, is not the
continuing or surviving corporation or pursuant to which the Common
Stock of PREN or Legacy would be converted into cash, securities or
other property, other than a merger or consolidation in which the
holders of the Common Stock of PREN or Legacy outstanding immediately
prior to the merger or consolidation hold at least a majority of the
Common Stock of the surviving corporation immediately after such merger
or consolidation, or (c) the directors of Legacy on the date hereof (or
persons
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nominated for election by such directors) shall no longer constitute a
majority of the Board of Directors of Legacy.
E. Following the Closing until the Preferred Termination, Legacy shall
take all actions in its power to ensure that at least one
representative of the interests of the PREN Preferred Stock, as
designated by a majority in interest of the Selling Shareholders who
hold PREN Preferred Stock, is serving as a director of Legacy.
F. Legacy shall cause any and all Debentures and Notes to be registered
under the Securities Act of 1933, and to maintain such registration, in
each case if and as necessary to make all such Debentures and Notes
freely transferable.
G. Within 10 days after the Closing, Legacy shall use all reasonable
efforts to cause PREN to pay all options held by employees and
directors of PREN, and severance payments for employees of PREN, as
described on Exhibit B and Schedule B-2 to the PREN Agreement. With
Legacy's prior written consent, which consent shall not be unreasonably
withheld, PREN may terminate certain employees prior to the Closing and
pay such employees the severance payments described on Exhibit B and
Schedule B-2 to the PREN Agreement. Upon the Closing, Legacy shall
provide PREN with the funds to cover all payments under such exhibit
and schedule.
H. Legacy shall cause PREN to maintain Officers' and Directors' Errors and
Omissions Insurance insuring all persons who are or were officers or
directors of PREN in an amount not less than that in effect on April
30, 1999, for a period of at least 3 years following the Closing, and
thereafter as long as necessary (if at all) to ensure the continuation
of protection with respect to any and all claims made prior to the end
of that period, and shall, and shall cause PREN to, hold harmless and
indemnify each such person against all expense, loss and liability
(including costs of defense and investigation) relating to their
actions as such officers or directors of PREN, except, as to any such
person, as to any matter as to which it is finally judicially
determined that indemnification is not permitted for such person by
Maryland law under the applicable circumstances.
I. In any merger between PREN and a subsidiary of Legacy pursuant to which
shares of PREN Common Stock are converted into cash or into securities
other than Common Stock of Legacy or of the surviving corporation,
Legacy will make appropriate provisions such that the cash and other
assets of PREN will not be depleted in any material respect, and the
liabilities of PREN will not be increased in any material respect, as a
result of such transaction.
J. Until such time as there are no shares of PREN Preferred Stock
outstanding, Legacy shall not take any action that would cause PREN to
fail to qualify as a REIT.
7. If Legacy abandons the transaction prior to the Board Approval Date or is
unwilling to execute the PREN Agreement, Legacy shall pay the total sum of
$1,000,000 (together with earnings thereon) as liquidated damages, with such sum
being apportioned among the Selling Shareholders and PREN as Price may direct.
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Additionally, upon notice to the escrow agent in accordance with the Escrow
Agreement of Legacy's having so abandoned the transaction or having not executed
the PREN Agreement, the Escrow shall be terminated, the initial $1,000,000
deposited by Legacy (together with earnings thereon) shall be distributed as
provided in this Item 7, and any and all other shares and other items held in
the Escrow shall be returned to the parties who originally deposited them. The
parties expressly recognize that in the event of any failure of condition
referenced above, measuring monetary damages would be extremely difficult or
impracticable to ascertain because of the nature of the assets of PREN. The
payment of $1,000,000 (together with earnings thereon) as described above in
this Item 7 is not intended as a forfeiture or penalty within the meaning of
California Civil Code sec.sec. 3275 or 3369 but is intended to constitute
liquidated damages, and shall be the sole and exclusive remedy of the Selling
Shareholders and PREN. If Legacy breaches Item 6 above after it and PREN have
executed the PREN Agreement, the sole redress of the Selling Shareholders and
PREN shall be pursuant to Item 5 of the PREN Agreement.
8. Price agrees that if any of the following conditions are not met, the
provisions of Item 9 shall immediately take effect:
A. The number of shares of PREN Common Stock held in Escrow shall
represent at least 51% of the general voting power of PREN on June 10,
1999.
B. On the Board Approval Date, the Directors of PREN shall have (i) taken
such actions as may be necessary to approve Legacy (insofar as
restrictions in PREN's charter documents are concerned) to acquire up
to 100% of the PREN Common Stock and to confirm that the transactions
contemplated hereby are exempt from the operation of any applicable
anti-takeover statute under the Maryland General Corporation Law, which
actions shall state that they are irrevocable, and (ii) duly executed
and delivered the Agreement attached as Exhibit C hereto (the "PREN
Agreement").
9. The following liquidated damages provision shall apply if the Selling
Shareholders abandon the transaction on or prior to the Board Approval Date, or
the Directors of PREN do not take the actions specified in Item 8B above. In
either such case, Price shall pay or cause to be paid to Legacy the total sum of
$1,000,000 as liquidated damages. Additionally, upon notice to the escrow agent
in accordance with the Escrow Agreement of the Selling Shareholders' having so
abandoned the transaction or the PREN Directors having not taken such actions,
the Escrow shall be terminated, the initial $1,000,000 (together with earnings
thereon) shall be returned to Legacy, and any and all other shares and other
items held in the Escrow shall be returned to the parties who originally
deposited them. The parties expressly recognize that in the event of any failure
of condition referenced above, measuring monetary damages would be extremely
difficult or impracticable to ascertain because of the nature of the assets of
PREN. The payment of $1,000,000 as described above in this Item 9 is not
intended as a forfeiture or penalty within the meaning of California Civil Code
sec.sec. 3275 or 3369 but is intended to constitute liquidated damages, and
shall be the sole and exclusive remedy of Legacy.
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10. If the events described in Items 8A and 8B above occur as described, the
liquidated damages provision set forth in Item 9 shall no longer be applicable
after the Board Approval Date and Legacy's rights and remedies shall then be as
specified in this Item 10 and in the PREN Agreement. In such case, each Selling
Shareholder, by signing a copy of this Agreement, agrees that he, she or it
shall, from and after the Board Approval Date, not take any action (litigation
or otherwise) to contest or challenge in any way the validity or irrevocability
of the actions referred to in Item 8B(i) above; provided that, in the case of
any Selling Shareholder who is a Director of PREN, nothing contained herein
shall be construed to limit or otherwise affect such Selling Shareholder's
ability to act in his capacity as a PREN Director. Each Selling Shareholder
shall vigorously defend against any litigation or other claim brought by a third
party to contest or challenge in any way such actions.
11. If the Offer Conditions or the Merger Conditions (as applicable) have not
been satisfied by December 1, 1999 (unless extended pursuant to Item 5 of the
PREN Agreement) due to no fault of the parties hereto, Legacy or a Majority of
the Selling Shareholders may terminate this Agreement upon written notice to the
other party. Upon any such termination, the Escrow shall close, and except as
otherwise provided in Item 5 of the PREN Agreement, all items held in the Escrow
shall be returned to the party or parties who deposited them, and none of the
parties hereto shall have any further obligation or liability hereunder.
12. Any action permitted or authorized by or for the Selling Shareholders, or
any notice to be given by or on behalf of the Selling Shareholders, shall be
deemed for all purposes to have been duly permitted, authorized or given if it
has been permitted, authorized or given by a Majority of the Selling
Shareholders.
13. This Agreement (including the exhibits hereto and all copies executed by
different Selling Shareholders) constitutes one entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, and is intended to be fully
binding and enforceable as of the date provided below. This Agreement may be
executed in counterparts. This Agreement shall be governed and construed in
accordance with the laws of the State of California, without regard to the laws
that might be applicable under conflicts of laws principles. This Agreement
shall not be altered or otherwise amended except pursuant to an instrument in
writing signed by Legacy and a Majority of the Selling Shareholders; provided
that any party to this Agreement may waive in writing any obligation owed to it
by any other party under this Agreement. In the event of any action brought to
enforce or interpret any part of this Agreement, the prevailing party shall be
entitled to recover attorneys' fees, as well as all other costs and expenses of
bringing such action as an element of damages.
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DATED: MAY 12, 1999
<TABLE>
<S> <C>
SELLING SHAREHOLDERS EXCEL LEGACY CORPORATION
By: /s/ SOL PRICE By: /s/ GARY B. SABIN
---------------------------------- ----------------------------------
Sol Price Name: Gary B. Sabin
Sol Price, Trustee Title: President and
Price Family Charitable Trust Chief Executive Officer
UTD 03/13/84
Number of Shares of
Common Stock: 2,213,129
By: /s/ SOL PRICE
----------------------------------
Sol Price, Trustee
Price Charitable Remainder Trust
UTD 01/10/83
Number of Shares of
Common Stock: 308,490
By: /s/ SOL PRICE
----------------------------------
Sol Price, Trustee
Marion Brodie Trust
UTD 04/23/96
Number of Shares of
Common Stock: 34,950
</TABLE>
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ANNEX A-I
AMENDMENT
FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
This FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT (this "Amendment") is made
and entered into as of August 31, 1999, by and among Excel Legacy Corporation, a
Delaware corporation ("Legacy"), and certain shareholders (the "Amending
Shareholders") of Price Enterprises, Inc., a Maryland corporation qualified as a
Real Estate Investment Trust for federal income tax purposes ("PREN"), listed on
the signature pages hereto.
RECITALS
WHEREAS, the Company and certain shareholders of PREN entered into an
Agreement dated as of May 12, 1999 (the "Agreement");
WHEREAS, a Majority of the Selling Shareholders (as such term is defined in
the Agreement) is required to effect an amendment to the Agreement, and the
Amending Shareholders constitute a Majority of the Selling Shareholders; and
WHEREAS, Legacy and the Amending Shareholders desire to amend certain terms
and provisions of the Agreement as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Legacy and the Amending Shareholders amend the Agreement as
follows:
1. Relation to Agreement. Except as hereby amended, the Agreement shall
continue in full force and effect.
2. Capitalized Terms. Capitalized terms used and not otherwise defined
herein are used with the meanings attributed thereto in the Agreement.
3. Change of Control. Item 6.D. of the Agreement is hereby amended by
deleting the first sentence of such Item and inserting the following in lieu
thereof:
Legacy shall not take any action to cause a direct or indirect Change
of Control of PREN (including by Change of Control of Legacy itself)
(i) after the date hereof and prior to the Closing without the
consent of Price, or (ii) after the Closing, without either offering
to purchase all shares of PREN Preferred Stock or obtaining the
approval of the Board of Directors of PREN.
4. Miscellaneous. This Amendment shall be governed and construed on the
same basis as the Agreement, as set forth therein.
5. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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<PAGE> 143
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first above written.
EXCEL LEGACY CORPORATION
By: /s/ GARY B. SABIN
-----------------------------------
Name: Gary B. Sabin
Title: President and
Chief Executive Officer
AMENDING SHAREHOLDER
By: /s/ SOL PRICE
-----------------------------------
Name: Sol Price, Trustee
Price Family Charitable Trust UTD
03/13/84
Number of shares of Common Stock:
2,213,129
By: /s/ SOL PRICE
-----------------------------------
Name: Sol Price, Trustee
Price Charitable Remainder Trust UTD
01/10/83
Number of shares of Common Stock:
308,490
By: /s/ SOL PRICE
-----------------------------------
Name: Sol Price, Trustee
Marion Brodie Trust UTD 04/23/96
Number of shares of Common Stock:
34,950
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<PAGE> 144
ANNEX B
THE COMPANY AGREEMENT
AGREEMENT
This Agreement is entered into as of June 2, 1999 by and between Excel
Legacy Corporation, a Delaware corporation ("Legacy"), and Price Enterprises,
Inc., a Maryland corporation ("PREN").
RECITALS
A. Legacy and certain shareholders of PREN (the "Selling Shareholders") have
entered into an Agreement dated May 12, 1999 (the "Shareholders Agreement").
B. As a condition precedent to Legacy's commitments under the Shareholders
Agreement, Legacy has required that PREN enter into this Agreement pursuant
to which PREN is agreeing to take certain actions, subject to the terms and
conditions set forth herein.
AGREEMENT
The parties to this Agreement, intending to be legally bound, hereby agree
as follows:
1. Capitalized terms used and not otherwise defined in this Agreement shall
have the meanings assigned to them in the Shareholders Agreement.
2. PREN agrees that if any of the following events do not occur as described,
the provisions of Item 3 below shall immediately take effect:
A. On the Board Approval Date, the Directors of PREN shall have taken such
actions as may be necessary (i) to approve the taking of all actions
described on Exhibit A hereto without any further Board approval, (ii)
to provide for the treatment of PREN options as described on Exhibit B
hereto, and (iii) to appoint Gary Sabin as Chief Executive Officer of
PREN. All such approvals and other actions shall be effective as of the
Closing and shall state that they are irrevocable.
B. PREN shall not take any action (i) to revoke, modify or otherwise alter
in any way the approvals and other actions referred to in Item 2A above
or Item 8B of the Shareholders Agreement, or (ii) to contest or
challenge in any way (through litigation or otherwise) the validity or
irrevocability of the approvals and other actions referred to in Item
2A above or Item 8B of the Shareholders Agreement. PREN shall
vigorously defend against any litigation or other claim brought by a
third party to contest or challenge in any way such approvals or other
actions.
C. The Directors of PREN shall permit Gary Sabin and Richard Muir (or two
other designees of Legacy) to attend all meetings of the Board of
Directors of
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PREN (other than those relating to the transactions contemplated hereby
or relating to any Company Takeover Proposal) in a non-voting observer
capacity until the Closing, at which time the Directors of PREN shall
cause Messrs. Sabin and Muir (or two other designees of Legacy) to be
appointed or elected as members of the Board of Directors of PREN.
Legacy's Board observer rights shall terminate if this Agreement
terminates.
D. PREN shall cooperate with Legacy and use all reasonable efforts to take
or cause to be taken all actions necessary with respect to the
preparation and filing of the Offer documents or Merger documents (as
applicable), including all actions required pursuant to Section 14 of
the Securities Exchange Act of 1934 (but shall not be required to
execute any agreements or to make any representations or warranties,
other than as required by applicable rules and regulations of the
Securities and Exchange Commission, Nasdaq or any lenders of PREN in
order to consummate the transactions contemplated by this Agreement or
the Shareholders Agreement). In the case of the Merger, PREN shall take
or cause to be taken all actions necessary to duly call and hold a
meeting of the PREN shareholders to consider the Merger and related
matters.
E. Except in relation to the matters described in this Agreement or the
Shareholders Agreement, the Directors of PREN shall act only in the
ordinary course of business until the Closing. Without limiting the
generality of the foregoing, PREN shall not, without the prior written
consent of Legacy, incur material debt, or issue or agree to issue any
equity securities or securities convertible or exchangeable into or
exercisable for equity securities, or pay any dividend other than
regularly scheduled dividends on the PREN Preferred Stock, or take any
action that would cause PREN to fail to qualify as a REIT.
F. PREN shall use all reasonable efforts to satisfy the Offer Conditions
or the Merger Conditions (as applicable). PREN agrees that it will
proceed in good faith as expeditiously as possible to complete
requisite governmental reviews, to obtain any requisite approvals and
otherwise to consummate the transactions contemplated by this Agreement
and the Shareholders Agreement, and neither PREN nor its counsel will
engage in any communications with third parties (including governmental
offices and agencies) without the direct participation of Legacy and
its counsel.
3. If any of the events described in Item 2 do not occur as described, Legacy
shall be entitled, at its election, either to (i)(A) acquire the shares of PREN
Common Stock held in Escrow by consummating the Offer with the consideration
specified in Item 1 of the Shareholders Agreement and having such shares
tendered in accordance with the Escrow Agreement, and (B) any and all equitable
remedies necessary to ensure PREN's compliance with this Agreement, or (ii)
liquidated damages in the amount of $7,500,000. Additionally, in the case of
clause (ii) above, upon notice to the escrow agent in accordance with the Escrow
Agreement of PREN's having breached this Agreement, the Escrow shall be
terminated, the initial $7,500,000 (together with earnings thereon) shall be
returned to Legacy, and any and all other shares and other items held in the
Escrow shall be returned to the parties who originally deposited
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them. The parties expressly recognize that in the event of any failure of
condition referenced above, measuring monetary damages would be extremely
difficult or impracticable to ascertain because of the nature of the assets of
PREN. The payment of $7,500,000 as described above in this Item 3 is not
intended as a forfeiture or penalty within the meaning of California Civil Code
sec.sec. 3275 or 3369 but is intended to constitute liquidated damages, and
shall be the sole and exclusive remedy of Legacy.
4. Legacy agrees and commits that:
A. At or as promptly as practicable after the Closing, Legacy shall cause
to be taken all actions reasonably necessary to cause the Preferred
Stock of PREN to be entitled under PREN's charter documents (including
those of any successor to PREN by merger, etc.) to elect a majority of
the Directors of PREN (which majority shall mean that the holders of
PREN Preferred Stock have one more designee than Legacy); provided that
such right shall terminate upon the earliest to occur of the following
(the "Preferred Termination"): (i) less than 2,000,000 shares of PREN
Preferred Stock (adjusted for stock splits, dividends, reverse splits,
etc.) shall remain outstanding, (ii) Legacy shall have made an offer to
purchase any and all outstanding shares of PREN Preferred Stock at a
cash price of $16 per share, and shall have purchased all shares duly
tendered and not withdrawn, or (iii) the Directors of PREN shall have
(a) issued or agreed to issue any equity securities or securities
convertible or exchangeable into or exercisable for equity securities,
in any case without unanimous Board approval, or (b) failed in any
fiscal year to declare or pay dividends on the PREN Common Stock as and
when requested by Legacy (1) to distribute 100% of PREN's taxable
income for such fiscal year or otherwise to maintain PREN's status as a
REIT, or (2) in an amount equal to the excess, if any, of (x)(A) funds
from operations less rent smoothing for such fiscal year, minus (B) the
amount required to pay dividends on the PREN Preferred Stock for such
fiscal year, over (y) $7,500,000. Pending the effectuation of such
corporate action, Legacy agrees for the benefit of the holders of PREN
Preferred Stock to vote in favor of the election of Jack McGrory, Simon
Lorne and James Cahill (or their designees) as Directors of PREN and to
vote against any increase in the size of the PREN Board beyond five
members. Following the Closing until the Preferred Termination, neither
Legacy nor any subsidiary or affiliate of Legacy which acquires shares
of PREN Preferred Stock shall be entitled to vote such shares in any
election of Directors of PREN.
B. Legacy shall commence taking all actions reasonably necessary to make
the Offer or to effect the Merger (as applicable) to acquire all
outstanding shares of PREN Common Stock (including those shares held in
Escrow) for the consideration specified in Item 1 of the Shareholders
Agreement, subject in the case of the Offer only to the Offer
Conditions, and in the case of the Merger only to the Merger
Conditions. In the case of the Offer, Legacy shall purchase all shares
duly tendered and not withdrawn.
C. Legacy shall use all reasonable efforts to satisfy the Offer Conditions
or the Merger Conditions (as applicable). Legacy agrees that it will
proceed in good
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faith as expeditiously as possible to complete requisite governmental
reviews, to obtain any requisite approvals and otherwise to consummate
the transactions contemplated hereby, and neither Legacy nor its
counsel will engage in any communications with third parties (including
governmental offices and agencies) without the direct participation of
PREN and its counsel.
D. Legacy shall not take any action to cause a direct or indirect Change
of Control of PREN (including by Change of Control of Legacy itself)
(i) after the date hereof and prior to the Closing without the consent
of Price, or (ii) after the Closing, without either offering to
purchase all shares of PREN Preferred Stock or obtaining the approval
of a majority of such shares (unless a higher percentage is required by
PREN's charter or Maryland law). For purposes of this provision, a
"Change of Control" will be deemed to have occurred at such time as (a)
any person or group of related persons for purposes of Section 13(d) of
the Securities Exchange Act of 1934 (other than Legacy) becomes the
beneficial owner of 50% or more of the total voting power of PREN or
Legacy, (b) there shall be consummated any merger or consolidation of
PREN or Legacy in which PREN or Legacy, as the case may be, is not the
continuing or surviving corporation or pursuant to which the Common
Stock of PREN or Legacy would be converted into cash, securities or
other property, other than a merger or consolidation in which the
holders of the Common Stock of PREN or Legacy outstanding immediately
prior to the merger or consolidation hold at least a majority of the
Common Stock of the surviving corporation immediately after such merger
or consolidation, or (c) the directors of Legacy on the date hereof (or
persons nominated for election by such directors) shall no longer
constitute a majority of the Board of Directors of Legacy.
E. Following the Closing until the Preferred Termination, Legacy shall
take all actions in its power to ensure that at least one
representative of the interests of the PREN Preferred Stock, as
designated by a majority in interest of the Selling Shareholders who
hold PREN Preferred Stock, is serving as a director of Legacy.
F. Legacy shall cause any and all Debentures and Notes to be registered
under the Securities Act of 1933, and to maintain such registration, in
each case if and as necessary to make all such Debentures and Notes
freely transferable.
G. Within 10 days after the Closing, Legacy shall use all reasonable
efforts to cause PREN to pay all options held by employees and
directors of PREN, and severance payments for employees of PREN, as
described on Exhibit B and Schedule B-2 hereto. With Legacy's prior
written consent, which consent shall not be unreasonably withheld, PREN
may terminate certain employees prior to the Closing and pay such
employees the severance payments described on Exhibit B and Schedule
B-2 hereto. Upon the Closing, Legacy shall provide PREN with the funds
to cover all payments under such exhibit and schedule.
H. Legacy shall cause PREN to maintain Officers' and Directors' Errors and
Omissions Insurance insuring all persons who are or were officers or
directors
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of PREN in an amount not less than that in effect on April 30, 1999,
for a period of at least 3 years following the Closing, and thereafter
as long as necessary (if at all) to ensure the continuation of
protection with respect to any and all claims made prior to the end of
that period, and shall, and shall cause PREN to, hold harmless and
indemnify each such person against all expense, loss and liability
(including costs of defense and investigation) relating to their
actions as such officers or directors of PREN, except, as to any such
person, as to any matter as to which it is finally judicially
determined that indemnification is not permitted for such person by
Maryland law under the applicable circumstances.
I. In any merger between PREN and a subsidiary of Legacy pursuant to which
shares of PREN Common Stock are converted into cash or into securities
other than Common Stock of Legacy or of the surviving corporation,
Legacy will make appropriate provisions such that the cash and other
assets of PREN will not be depleted in any material respect, and the
liabilities of PREN will not be increased in any material respect, as a
result of such transaction.
J. Until such time as there are no shares of PREN Preferred Stock
outstanding, Legacy shall not take any action that would cause PREN to
fail to qualify as a REIT.
5. If Legacy materially fails to do anything it has agreed to do in this
Agreement or the Shareholders Agreement or does anything material it has agreed
not to do, or if the Escrow terminates because of the passage of time as
provided in Item 4 of the Shareholders Agreement, Legacy shall pay the total sum
of $7,500,000 (or such larger sum as may be held in Escrow at such time)
(together with earnings thereon) as liquidated damages, with such sum being
apportioned among PREN and the Selling Shareholders as PREN may direct.
Notwithstanding the foregoing, Legacy shall not be obligated to pay such
liquidated damages in the case of the passage of time provided in Item 4 of the
Shareholders Agreement if such passage of time occurs as a result of (i) any
failure of the condition set forth in paragraph (a) of the Offer Conditions or
Merger Conditions (as applicable) which results, directly or indirectly, from
any litigation or other claim or action commenced by or on behalf of, or based
on or relating to, PREN or any of its officers, directors, employees, agents,
shareholders or affiliates, (ii) any failure of the condition set forth in
paragraph (c) of the Offer Conditions or Merger Conditions (as applicable)
(provided that Legacy shall be obligated, for purposes of this Item 5 only, to
consummate the Offer or Merger (as applicable) within three business days
following the satisfaction of such condition), or (iii) any failure of the
conditions set forth in paragraph (d), (e) or (f) of the Offer Conditions or
Merger Conditions (as applicable). Additionally, upon notice to the escrow agent
in accordance with the Escrow Agreement of Legacy's having so breached this
Agreement, or of the passage of time, the Escrow shall be terminated, the
initial $7,500,000 deposited by Legacy (or such larger sum as may be deposited
by Legacy pursuant to Item 3 of the Shareholders Agreement) (together with
earnings thereon) shall be distributed as provided in this Item 5, and any and
all other shares and other items held in the Escrow shall be returned to the
parties who originally deposited them. The parties expressly recognize that in
the event of any failure of condition referenced above, measuring monetary
damages would be extremely difficult
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or impracticable to ascertain because of the nature of the assets of PREN. The
payment of $7,500,000 (or such larger sum as may be held in Escrow) (together
with earnings thereon) as described above in this Item 5 is not intended as a
forfeiture or penalty within the meaning of California Civil Code sec.sec. 3275
or 3369 but is intended to constitute liquidated damages, and shall be the sole
and exclusive remedy of the Selling Shareholders and PREN.
6. This Agreement shall automatically terminate and be of no further force or
effect upon the termination of the Shareholders Agreement in accordance with its
terms. Upon any such termination, none of the parties hereto shall have any
further obligation or liability hereunder.
7. This Agreement and the Shareholders Agreement (including the exhibits hereto
and thereto) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, and are intended to be fully binding and enforceable
as of the dates provided. This Agreement may be executed in counterparts. This
Agreement shall be governed and construed in accordance with the laws of the
State of California, without regard to the laws that might be applicable under
conflicts of laws principles. This Agreement shall not be altered or otherwise
amended except pursuant to an instrument in writing signed by Legacy and PREN;
provided that any party to this Agreement may waive in writing any obligation
owed to it by any other party under this Agreement. In the event of any action
brought to enforce or interpret any part of this Agreement, the prevailing party
shall be entitled to recover attorneys' fees, as well as all other costs and
expenses of bringing such action as an element of damages.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date set forth above.
<TABLE>
<S> <C>
Price Enterprises, Inc. Excel Legacy Corporation
By: /s/ Jack McGrory By: /s/ Gary B. Sabin
---------------------------------- ----------------------------------
Name: Jack McGrory Name: Gary B. Sabin
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
</TABLE>
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ANNEX B-I
AMENDMENT
FIRST AMENDMENT TO COMPANY AGREEMENT
This FIRST AMENDMENT TO COMPANY AGREEMENT (this "Amendment") is made and
entered into as of August 31, 1999, by and between Excel Legacy Corporation, a
Delaware corporation ("Legacy"), and Price Enterprises, Inc., a Maryland
corporation qualified as a Real Estate Investment Trust for federal income tax
purposes ("PREN").
RECITALS
WHEREAS, the Company and PREN entered into an Agreement dated as of June 2,
1999 (the "Agreement"); and
WHEREAS, Legacy and PREN desire to amend certain terms and provisions of
the Agreement as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Legacy and PREN amend the Agreement as follows:
1. Relation to Agreement. Except as hereby amended, the Agreement shall
continue in full force and effect.
2. Capitalized Terms. Capitalized terms used and not otherwise defined
herein are used with the meanings attributed thereto in the Agreement.
3. Change of Control. Item 4.D. of the Agreement is hereby amended by
deleting the first sentence of such Item and inserting the following in lieu
thereof:
Legacy shall not take any action to cause a direct or indirect Change
of Control of PREN (including by Change of Control of Legacy itself)
(i) after the date hereof and prior to the Closing without the
consent of Price, or (ii) after the Closing, without either offering
to purchase all shares of PREN Preferred Stock or obtaining the
approval of the Board of Directors of PREN.
4. Miscellaneous. This Amendment shall be governed and construed on the
same basis as the Agreement, as set forth therein.
5. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first above written.
EXCEL LEGACY CORPORATION
By: /s/ GARY B. SABIN
-----------------------------------
Name: Gary B. Sabin
--------------------------------
Title: President and Chief Executive
Officer
----------------------------------
PRICE ENTERPRISES, INC.
By: /s/ JACK MCGRORY
-----------------------------------
Name: Jack McGrory
--------------------------------
Title: President and Chief Executive
Officer
----------------------------------
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ANNEX C
FAIRNESS OPINION
[VALUATION RESEARCH CORPORATION LETTERHEAD]
May 18, 1999
The Board of Directors
Price Enterprises, Inc.
4649 Morena Blvd
San Diego, CA 92117
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the Shares of common stock, $0.0001 par value per
share (the "Shares"), of Price Enterprises, Inc. (the "Company" or "Price") of
the consideration to be received by such holders pursuant to the terms of the
Agreement (the "Agreement") dated as of May 12, 1999, among Excel Legacy
Corporation, a Delaware corporation ("Legacy"), and certain shareholders of
Price Enterprises, Inc., a Maryland corporation (the "Company") including Sol
Price, a Trustee of significant holders of Price Shares and Preferred Stock.
As more fully described in the Agreement, Price's Board of Directors will
have the option to determine how Legacy will acquire all of the common stock of
Price as either (a) a merger between Price and a newly-formed wholly owned
subsidiary of Legacy or (b) a tender offer or exchange offer (the
"Transaction"). Under the terms of the Agreement, Legacy will offer to acquire
all shares of Price Common Stock for $8.50 per share, comprised, at Legacy's
election, of (i) $8.50 in cash or (ii)(a) at least $4.25 in cash, (b) at least
$2.75 in principal amount of Legacy's 9.0% Convertible Subordinated Debentures
due 2004 (the "Debentures"), which will be convertible into shares of Legacy
Common Stock at $5.50 per share, and (c) $1.50 per share in whatever combination
Legacy may choose of cash, Debentures, and Legacy's 10% Senior Notes (the
"Notes") due October 31, 2004, issued at par, with a mandatory sinking fund of
20.0% per year at the end of each of the first four years after issuance.
In connection with rendering our opinion, we have: (i) reviewed the
Agreement dated as of May 12, 1999; (ii) reviewed and analyzed certain publicly
available business and financial information of the Company and Legacy for
recent years and interim periods to date; (iii) reviewed and analyzed certain
internal financial and operating information, including financial forecasts,
analysis and projections prepared by management of the Company and Legacy; (iv)
conducted discussions with members of the senior management of the Company with
respect to the business and prospects of the Company; (v) reviewed and
considered certain financial and stock market data relating to the Company, and
we have compared that data with similar data for certain other publicly traded
companies that we believe may be relevant; and (vi) reviewed the financial
terms, to the extent publicly available, of certain comparable transactions. In
addition, we have conducted such other analyses and
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examinations and considered such other financial, economic and market criteria
as we have deemed necessary in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of the Company that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgements of management as to the future
financial performance of the Company. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company nor have we made any physical inspection of the
properties or assets of the Company. Further, our opinion is based upon the
conditions as they exist and can be evaluated on the date hereof only.
Valuation Research Corporation has been engaged to render a fairness
opinion to Price Enterprises, Inc. in connection with the proposed Transaction
and will receive a fee for such a service.
Our opinion expressed herein is provided for the information of the Board
of Directors of Price in its evaluation of the proposed Transaction, and our
opinion is not intended to be or does not constitute a recommendation to any
stockholder as to whether or not such stockholder should tender or exchange
shares of Price's common stock or alternatively how such stockholder should vote
on the merger between Price and a newly-formed wholly owned subsidiary of
Legacy, depending on whichever option Price's Board of Directors chooses. This
letter may be disclosed in its entirety in any proxy statement or information
statement relating to the proposed Transaction sent to the Company's
shareholders.
Based upon and subject to the foregoing, our work as described above and
other factors we deemed relevant, we are of the opinion that, as of the date
hereof, the consideration to be received by the holders of Price's common stock
in the Transaction is fair, from a financial point of view, to such holders.
Very truly yours,
VALUATION RESEARCH CORPORATION
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EXHIBIT A
GENERAL LIMITING CONDITIONS AND ASSUMPTIONS
In accordance with recognized professional standards as generally practiced
in the valuation industry, the fee for these services is not contingent upon the
conclusions of value contained herein. Valuation Research Corporation
(Valuation) has determined to the best of its knowledge and in good faith that
neither it nor any of its agents or employees have a material financial interest
in the Buyer or the Seller.
Neither Valuation, nor its agents or employees assume any responsibility
for matters legal in nature, nor do they render any opinion as to any title to,
or legal status of, property which may be involved, both real and personal,
tangible and intangible, which title is assumed to be good and marketable. Any
and all property is analyzed as if it is free and clear of any and all liens or
encumbrances except those created in the transaction or otherwise described in
the applicable documents or notified to Valuation, and that all relevant
agreements are valid and enforceable.
Valuation assumes that all laws, statutes, ordinances, or other
regulations, or regulations of any governmental authority relevant to and in
connection with this engagement are complied with unless express written
noncompliance is brought to the attention of Valuation and is stated and defined
by those relied on by Valuation, including Price Enterprises, Inc. and its
management.
Valuation has relied on certain information furnished by others, including
but not limited to the Company without further check or verification. Valuation
believes such information to be reliable as to accuracy and completeness but
offers no warranty or representation to that effect. Such information generally
includes, but is not limited to, financial analyses and forecasts; historical,
pro forma, audited, and unaudited financial statements; management analyses;
transaction models; and various other documents some of which we have received
in draft form only and which we assume will be substantially similar form at the
time of close with no material effect as relates to our work or conclusions.
In some instances, public information and statistical information has been
obtained from sources Valuation has accepted as being reliable; however,
Valuation makes no representation as to the accuracy or completeness of such
information and has accepted the information without further verification.
Neither all nor any part of the contents of this opinion (especially any
conclusions as to value, the identity or any appraiser or appraisers, or the
firm with which such appraisers are connected, or any reference to any of their
professional designations) may be disseminated to the public through advertising
media, public relations, new media, sales media, mail, direct transmittal, or
any other public means of communication, without the prior written consent and
approval of Valuation Research Corporation, excluding bankruptcy, insolvency or
similar judicial proceedings, written notice of which must be provided
immediately to Valuation Research.
Any further consultation, testimony, attendance, or research in reference
to the present engagement beyond this opinions expressed herein as of the date
of valuation
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are subject to agreement by Valuation in specific written agreements between the
parties.
The opinion expressed by Valuation results from the development and
analysis of several valuation indications arrived at through the use of
generally accepted valuation procedures. These procedures included projected
income analysis, market comparable analysis, comparable transactions analysis
and premium paid analysis. The projected income analysis utilized cash flow
projections discounted to present value. The discount rate selected was based on
risk and return requirements deemed appropriate by Valuation. The market
comparable analysis compared stock prices and various financial ratios of
publicly-traded companies reasonably similar to Price Enterprises, Inc.
Material changes in the industry or in market conditions which might affect
Price Enterprises, Inc's business from and after the effective date of the
proposed transaction which are not reasonably foreseeable are not taken into
account.
Our opinion is necessarily based on economic, market, financial and other
conditions as of the date herein. While various judgements and estimates which
we consider reasonable and appropriate under the circumstances were made by
Valuation in the determination of value, no assurance can be given by Valuation
that the sale price which might subsequently be realized in any future
transaction, if and when effected, will be at the value presented in our
analysis.
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EXHIBIT B
The following is a summary of the financial analyses Valuation Research
Corporation ("VRC") utilized in connection with providing its written opinion to
the Board of Directors.
Comparable Companies Analysis: Valuation Research Corporation ("VRC")
compared selected publicly-available historical and projected stock market data
and financial results for Price Enterprises, Inc to the corresponding data of
the following companies: Burnham Pacific Properties, Inc., Developers
Diversified Realty Corp., JDN Realty Corporation, Kimco Realty Corporation, and
Weingarten Realty Investors ("Comparable Companies"). Such data included, among
other things, multiples of current stock price to 1998 funds from operations per
share ("1998 FFO") (defined as net income plus depreciation and amortization,
excluding gains on sales of property, non-recurring charges, and other
extraordinary items) and projected 1999 funds from operations per share ("1999
Projected FFO"). All of the trading multiples of the Comparable Companies were
based on closing stock prices as of April 30, 1999 and all FFO per share
estimates were based on projections published, in the case of the Comparable
Companies, by First Call and, in the case of Price, projections provided by
management. Accordingly, such estimated projections may or may not prove to be
accurate.
The Comparable Companies were found to have April 30, 1999 closing stock
prices estimated to equal 8.5x to 12.9x 1998 FFO and 7.6x to 10.9x projected
1999 FFO. Applying such multiples to Price's 1998 FFO per share ($0.67 assuming
the issuance of the preferred stock at the beginning of the year) and projected
1999 FFO per share ($0.76) resulted in implied price ranges of $5.70 to $8.64
and $5.78 to $8.28, respectively. The offer price for Price ($8.50) is within
the ranges for the offer price implied by Valuation Research Corporation's
comparable company analysis.
Comparable Transactions Analysis: Valuation Research Corporation also
analyzed publicly available information for five selected acquisition and merger
transactions between REITs deemed by VRC to be reasonably similar to the Merger.
In examining these transactions, VRC analyzed certain financial parameters of
the acquired company relative to the consideration offered. Combinations between
REITs compared included: (i) Kimco Realty Corporation and The Price REIT, Inc.,
(ii) Simon DeBartolo Group, Inc and Corporate Property Investors, (iii) Prime
Retail, Inc and Horizon Group, Inc., (iv) Excel Realty Trust, Inc., and New Plan
Realty Trust and (v) Santa Anita Realty Enterprises and Meditrust (the
"Comparable Transactions").
Valuation Research Corporation analyzed the multiple of consideration
offered to each acquired company's last twelve month FFO. Based on this
analysis, the implied last twelve month FFO as a multiple of the equity purchase
price ranged between 7.4x and 12.2x. Applying such multiples to Price's 1998 FFO
per share ($0.67) resulted in an implied common stock price range of $4.96 to
$8.17. The offer price for Price exceeds the range for the offer price implied
by Valuation Research Corporation's comparable transactions analysis.
None of the companies or acquired entities utilized in the above comparable
companies analysis and comparable transactions analysis for comparative purposes
is,
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of course, identical to Price. Accordingly, a complete analysis of the results
of the foregoing calculations cannot be limited to a quantitative review of such
results and involves complex considerations and judgment concerning differences
in financial and operating characteristics of the Comparable Companies and the
acquired entities and other factors that could affect the value of the
Comparable Companies and acquired entities as well as that of Price.
Discounted Cash Flow Analysis: VRC performed a discounted cash flow
analysis of the projected cash flow of Price Enterprises, Inc for calendar years
1999 through 2003, based in part on internal estimates provided by management.
The stand-alone discounted cash flow analysis of Price was determined by (i)
adding (a) the present value of projected free cash flows over the five-year
period from 1999 to 2003 and (b) the present value of the estimated terminal
value of Price in year 2003 and (ii) subtracting the value of any long-term debt
and preferred stock of Price. The estimated terminal value was calculated based
on a perpetuity formula assuming a 2.0% growth rate. The cash flows and terminal
values of Price were discounted to present value using a discount rate of 10.0%.
The analysis resulted in an equity value of Price of approximately $6.30 per
share. The offer price for Price exceeds this value.
Premiums Paid Analysis: VRC also examined the history of the trading
prices and volume for the shares of Price common stock. This examination showed
that during April 30, 1998 and April 30, 1999, Price's common stock traded in
the range of $4.35 and $5.81 per share. It is worth noting that based on the
offer price of $8.50 per share, Price is receiving a premium of approximately
46.3% over its closing price of $5.81 as of April 30, 1999.
Average Transaction Premium Analysis: VRC reviewed mergers and
acquisitions in the real estate industry utilizing publicly available data to
derive an average premium paid over the public trading prices per share five
days prior to the announcement of such transactions in 1997. VRC noted that the
reasons for, and circumstances surrounding, each of the transactions analyzed
were diverse and that premiums fluctuate among different industry sectors based
on perceived growth, synergies, strategic value and the type of consideration
utilized in the transaction. The analysis indicated that the average premium
paid over trading prices was 22.5% in 1997. As noted above, Price is receiving a
premium of approximately 46.3% over its closing price as of April 30, 1999.
U.S. REIT Unsecured Debt and Preferred Stock Issues Analysis: VRC reviewed
recently issued unsecured debt and preferred stocks in the U.S. REIT industry.
This examination showed that U.S. REIT unsecured debt issues with a rating of
between Baa1/BBB+ to Baa3/BBB- had a coupon rate range of 6.7% to 7.75%. Also,
newly issued U.S. REIT Preferred Stocks with a rating of between ba2/BB+ to
baa2/BBB+ had a coupon in the range of 8.25% to 9.5% and a corresponding yield
range of 8.29% and 9.49%.
Both the Legacy's 10.0% Senior Notes and the 9.0% Legacy's Convertible
Subordinated Notes offer a coupon rate at the high end of the above described
unsecured debt issues and preferred stocks. Furthermore, the 9.0% Legacy's
Convertible Subordinated Notes offer the holders the potential to benefit from
any potential appreciation in Legacy's equity market value.
C-6
<PAGE> 158
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN
THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR
REPRESENTATIONS.
THIS PROSPECTUS DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY OF THE
SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON MAKING THE
OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CAN NOT LEGALLY BE OFFERED
THE SECURITIES.
THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS COVER,
AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS
PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT -- NOR DO WE IMPLY THOSE
THINGS BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About Our Offer..... 1
Prospectus Summary........................ 3
Risk Factors.............................. 18
Forward-Looking Statements................ 29
The Exchange Offer........................ 30
Description of the Agreements............. 54
Description of Legacy Capital Stock....... 58
Description of the Legacy Debentures and
the Legacy Notes........................ 60
Information About Legacy.................. 73
Information About Enterprises............. 79
Directors and Management of Enterprises
Following the Exchange Offer............ 83
Benefits to Enterprises' Insiders in the
Exchange Offer.......................... 84
Comparison of Stockholder Rights.......... 87
Summary Selected Financial Data of
Legacy.................................. 103
Summary Selected Financial Data of
Enterprises............................. 104
Excel Legacy Corporation Unaudited Pro
Forma Operating and Financial
Information............................. 105
Price Enterprises, Inc. Unaudited Pro
Forma Operating and Financial
Information............................. 112
United States Federal Income Tax
Consequences............................ 118
Legal Matters............................. 125
Experts................................... 125
Where You Can Find More Information....... 126
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
EXCEL LEGACY CORPORATION
OFFER TO EXCHANGE
$8.50 COMPRISED OF
$[4.25] IN CASH,
$[2.75] IN PRINCIPAL AMOUNT OF
9.0% CONVERTIBLE REDEEMABLE SUBORDINATED
DEBENTURES DUE 2004
AND
$[1.50] IN PRINCIPAL AMOUNT OF
10.0% SENIOR REDEEMABLE NOTES DUE 2004
OF
EXCEL LEGACY CORPORATION
FOR
ANY AND ALL SHARES OF COMMON STOCK
OF PRICE ENTERPRISES, INC.
-------------------------
PROSPECTUS
-------------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 159
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles Eighth and Ninth of the Amended and Restated Certificate of
Incorporation (the "Company Certificate") of Excel Legacy Corporation (the
"Company") and Article VIII of the Amended and Restated Bylaws of Company (the
"Company Bylaws," with Articles Eighth and Ninth of the Company Certificate and
Article VIII of the Company Bylaws hereinafter referred to as 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 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.
II-1
<PAGE> 160
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.
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 of employee of the
Company will be indemnified by the Company against all expenses and liabilities,
including counsel fees, paid in
II-2
<PAGE> 161
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 right to which such director, officer or employee may be
entitled.
Policies of insurance may be obtained and maintained by the Company under
which its directors and officers will be insured against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which they are parties by
reason of being or having been such directors or officers.
The Company has entered into indemnification agreements with its executive
officers and directors pursuant to which the Company has agreed to indemnify
these officers and directors exclusive of any other rights of indemnification or
advancement of expenses pursuant to the DGCL, the Company Certificate and the
Company Bylaws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this registration statement on Form S-4 is
described on the Exhibit Index and is incorporated herein by reference.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is
II-3
<PAGE> 162
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the SEC under Section 305(b)(2) of the Act.
II-4
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, State of California, on September 7, 1999.
EXCEL LEGACY CORPORATION
By: /s/ GARY B. SABIN
-----------------------------------
Gary B. Sabin
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ GARY B. SABIN Chairman, President and September 7, 1999
- ------------------------------------------ Chief Executive Officer
Gary B. Sabin (Principal Executive
Officer)
/s/ RICHARD B. MUIR* Director, Executive Vice September 7, 1999
- ------------------------------------------ President and Secretary
Richard B. Muir
/s/ KELLY D. BURT* Director and Executive September 7, 1999
- ------------------------------------------ Vice
Kelly D. Burt President -- Development
/s/ JAMES Y. NAKAGAWA* Chief Financial Officer September 7, 1999
- ------------------------------------------ (Principal Financial and
James Y. Nakagawa Accounting Officer)
/s/ RICHARD J. NORDLUND* Director September 7, 1999
- ------------------------------------------
Richard J. Nordlund
/s/ ROBERT E. PARSONS, JR.* Director September 7, 1999
- ------------------------------------------
Robert E. Parsons, Jr.
/s/ ROBERT S. TALBOTT* Director September 7, 1999
- ------------------------------------------
Robert S. Talbott
/s/ JOHN H. WILMOT* Director September 7, 1999
- ------------------------------------------
John H. Wilmot
*By: /s/ GARY B. SABIN
------------------------------------
Gary B. Sabin
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 164
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Excel
Legacy Corporation, incorporated by reference to Exhibit 3.1
to Excel Legacy Corporation's Registration Statement on Form
S-11 as filed with the SEC on June 11, 1998 (File No.
333-55715).
3.2 Amended and Restated Bylaws of Excel Legacy Corporation,
incorporated by reference to Exhibit 3.2 to Excel Legacy
Corporation's Registration Statement on Form S-11 as filed
with the SEC on June 11, 1998 (File No. 333-55715).
4.1 Form of Common Stock Certificate, incorporated by reference
to Exhibit 4.1 to Excel Legacy Corporation's Registration
Statement on Form 10 as filed with the SEC on December 12,
1998 (File No. 0-23503).
4.2 Form of Indenture for 9.0% Convertible Redeemable
Subordinated Debentures due 2004.(2)
4.3 Form of Indenture for 10.0% Senior Redeemable Notes due
2004.(2)
5.1 Opinion of Latham & Watkins.(1)
8.1 Opinion of Latham & Watkins regarding certain tax
matters.(2)
10.1 Agreement dated as of May 12, 1999, as amended, by and among
Excel Legacy Corporation and the other individuals and
entities listed on the signature pages thereto (filed as
Annex A to the Prospectus included in this Registration
Statement).
10.2 Agreement dated as of June 2, 1999, as amended, between
Excel Legacy Corporation and Price Enterprises, Inc. (filed
as Annex B to the Prospectus included in this Registration
Statement).
10.3 Letter dated June 2, 1999 from Excel Legacy Corporation to
Price Enterprises, Inc. regarding the status of Price
Enterprises, Inc. as a REIT.(1)
23.1 Consent of Latham & Watkins.(1)
23.2 Consent of PricewaterhouseCoopers LLP.(2)
23.3 Consent of Ernst & Young LLP.(2)
23.4 Consent of Valuation Research Corporation.(2)
24.1 Powers of Attorney.(1)
25.1 Statement of Eligibility of Trustee on Form T-1.(2)
</TABLE>
- -------------------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
Excel Legacy Corporation, as Issuer
$ ____________
9.0% Convertible Subordinated Debentures
due _________, 2004
--------------------
INDENTURE
Dated as of __________, 1999
-----------------------
Norwest Bank Minnesota, National Association, as Trustee
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.......................................1
Section 1.01. Definitions.................................................................1
Section 1.02. Other Definitions...........................................................3
Section 1.03. Incorporation by Reference of Trust Indenture Act...........................3
Section 1.04. Rules of Construction.......................................................3
ARTICLE 2. THE SECURITIES...................................................................4
Section 2.01. Form and Dating.............................................................4
Section 2.02. Execution and Authentication................................................4
Section 2.03. Registrar, Paying Agent and Conversion Agent................................5
Section 2.04. Paying Agent to Hold Money in Trust.........................................5
Section 2.05. Securityholder Lists........................................................5
Section 2.06. Transfer and Exchange.......................................................5
Section 2.07. Replacement Securities......................................................6
Section 2.08. Outstanding Securities......................................................6
Section 2.09. Treasury Securities.........................................................7
Section 2.10. Temporary Securities........................................................7
Section 2.11. Cancellation................................................................7
Section 2.12. Defaulted Interest..........................................................7
ARTICLE 3. REDEMPTION.......................................................................8
Section 3.01. Notices to Trustee..........................................................8
Section 3.02. Selection of Securities to be Redeemed......................................8
Section 3.03. Notice of Redemption........................................................8
Section 3.04. Effect of Notice of Redemption..............................................9
Section 3.05. Deposit of Redemption Price.................................................9
Section 3.06. Securities Redeemed in Part.................................................9
ARTICLE 4. COVENANTS.......................................................................10
Section 4.01. Payment of Securities......................................................10
Section 4.02. SEC Reports................................................................10
Section 4.03. Compliance Certificate.....................................................10
Section 4.04. Stay, Extension and Usury Laws.............................................11
Section 4.05. Continued Existence........................................................11
Section 4.06. Taxes......................................................................11
ARTICLE 5. SUCCESSORS......................................................................11
Section 5.01. When Company May Merge, etc................................................11
Section 5.02. Successor Corporation Substituted..........................................12
ARTICLE 6. DEFAULTS AND REMEDIES...........................................................12
Section 6.01. Events of Default..........................................................12
Section 6.02. Acceleration...............................................................14
Section 6.03. Other Remedies.............................................................14
Section 6.04. Waiver of Past Defaults....................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.05. Control by Majority........................................................15
Section 6.06. Limitation on Suits........................................................15
Section 6.07. Rights of Holders to Receive Payment.......................................15
Section 6.08. Collection Suit by Trustee.................................................16
Section 6.09. Trustee May File Proofs of Claim...........................................16
Section 6.10. Priorities.................................................................16
Section 6.11. Undertaking for Costs......................................................16
ARTICLE 7. TRUSTEE.........................................................................17
Section 7.01. Duties of Trustee..........................................................17
Section 7.02. Rights of Trustee..........................................................18
Section 7.03. Individual Rights of Trustee...............................................18
Section 7.04. Trustee's Disclaimer.......................................................18
Section 7.05. Notice of Defaults.........................................................18
Section 7.06. Reports by Trustee to Holders..............................................19
Section 7.07. Compensation and Indemnity.................................................19
Section 7.08. Replacement of Trustee.....................................................19
Section 7.09. Successor Trustee by Merger, etc...........................................20
Section 7.10. Eligibility; Disqualification..............................................20
Section 7.11. Preferential Collection of Claims Against Company..........................21
Section 7.12. Sections Applicable to Registrar, Paying Agent and Conversion Agent........21
ARTICLE 8. DISCHARGE OF INDENTURE..........................................................21
Section 8.01. Termination of Company's Obligations.......................................21
Section 8.02. Application of Trust Money.................................................23
Section 8.03. Repayment to Company.......................................................23
Section 8.04. Reinstatement..............................................................23
ARTICLE 9. AMENDMENTS......................................................................24
Section 9.01. Without Consent of Holders.................................................24
Section 9.02. With Consent of Holders....................................................24
Section 9.03. Compliance with Trust Indenture Act........................................25
Section 9.04. Revocation and Effect of Consents..........................................25
Section 9.05. Notation on or Exchange of Securities......................................26
Section 9.06. Trustee Protected..........................................................26
ARTICLE 10. CONVERSION.....................................................................26
Section 10.01. Conversion Privilege......................................................26
Section 10.02. Conversion Procedure......................................................26
Section 10.03. Fractional Shares.........................................................27
Section 10.04. Taxes on Conversion.......................................................27
Section 10.05. Company to Provide Stock..................................................27
Section 10.06. Adjustment for Change in Capital Stock....................................28
Section 10.07. Adjustment for Rights Issue...............................................28
Section 10.08. Adjustment for Other Distributions........................................29
Section 10.09. Adjustment for Common Stock Issue.........................................30
Section 10.10. Adjustment for Convertible Securities Issue...............................31
Section 10.11. Current Market Price......................................................32
Section 10.12. Consideration Received....................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 10.13. When Adjustment May Be Deferred...........................................32
Section 10.14. When No Adjustment Required...............................................32
Section 10.15. Notice of Adjustment......................................................33
Section 10.16. Voluntary Reduction.......................................................33
Section 10.17. Notice of Certain Transactions............................................33
Section 10.18. Reorganization of Company.................................................34
Section 10.19. Company Determination Final...............................................34
Section 10.20. Trustee's Disclaimer......................................................34
ARTICLE 11. SUBORDINATION..................................................................35
Section 11.01. Agreement to Subordinate..................................................35
Section 11.02. Certain Definitions.......................................................35
Section 11.03. Liquidation; Dissolution; Bankruptcy......................................35
Section 11.04. Default on Senior Debt....................................................36
Section 11.05. Acceleration of Securities................................................36
Section 11.06. When Distribution Must Be Paid Over.......................................37
Section 11.07. Notice by Company.........................................................37
Section 11.08. Subrogation...............................................................37
Section 11.09. Relative Rights...........................................................37
Section 11.10. Subordination May Not Be Impaired by Company..............................38
Section 11.11. Distribution or Notice to Representative..................................38
Section 11.12. Rights of Trustee and Paying Agent........................................38
ARTICLE 12. MISCELLANEOUS..................................................................38
Section 12.01. Trust Indenture Act Controls..............................................38
Section 12.02. Notices...................................................................38
Section 12.03. Communication by Holders with Other Holders...............................39
Section 12.04. Certificate and Opinion as to Conditions Precedent........................39
Section 12.05. Statements Required in Certificate or Opinion.............................39
Section 12.06. Rules by Trustee and Agents...............................................40
Section 12.07. Legal Holidays............................................................40
Section 12.08. No Recourse Against Others................................................40
Section 12.09. Counterparts..............................................................40
Section 12.10. Variable Provisions.......................................................40
Section 12.11. Governing Law.............................................................41
Section 12.12. No Adverse Interpretation of Other Agreements.............................41
Section 12.13. Successors................................................................41
Section 12.14. Severability..............................................................41
Section 12.15. Table of Contents, Headings, Etc..........................................41
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- ---------------- -----------------
<S> <C>
310(a)(1) ................................................. 7.10
(a)(2) .................................................. 7.10
(a)(3) .................................................. N.A.
(a)(4) .................................................. N.A.
(b) .................................................. 7.08; 7.10; 12.02
(c) .................................................. N.A.
311(a) .................................................. 7.11
X (b) .................................................. 7.11
(c) .................................................. N.A.
312(a) .................................................. 2.05
(b) .................................................. 12.03
(c) .................................................. 12.03
313(a) .................................................. 7.06
(b)(1) .................................................. N.A.
(b)(2) .................................................. 7.06
(c) .................................................. 7.06; 12.02
(d) .................................................. 7.06
314(a) .................................................. 4.02; 12.02
(b) .................................................. N.A.
(c)(1) .................................................. 12.04
(c)(2) .................................................. 12.04
(c)(3) .................................................. N.A.
(d) .................................................. N.A.
(e) .................................................. 12.05
(f) .................................................. N.A.
315(a) .................................................. 7.01(b)
(b) .................................................. 7.05; 12.02
(c) .................................................. 7.01(a)
(d) .................................................. 7.01(c)
(e) .................................................. 6.11
316(a)(last sentence) .................................................. 2.09
(a)(1)(A) .................................................. 6.05
(a)(1)(B) .................................................. 6.04
(a)(2) .................................................. N.A.
(b) .................................................. 6.07
317(a)(1) .................................................. 6.08
(a)(2) .................................................. 6.09
(b) .................................................. 2.04
318(a) .................................................. 12.01
</TABLE>
N.A. means not applicable.
- ----------------
* This Cross-Reference Table is not part of the Indenture.
iv
<PAGE> 6
INDENTURE, dated as of _________ __, 1999, between Excel Legacy
Corporation, a Delaware corporation ("Company"), and Norwest Bank Minnesota,
National Association ("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 9.0% Convertible
Subordinated Debentures due _______, 2004 ("Securities"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"capital stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Company" means the party named as such above until a successor replaces
it in accordance with Article 5 and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Securityholder" means a person in whose name a Security is
registered.
"Indenture" means this Indenture as amended from time to time.
"Material Subsidiary" means any subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933 and the Exchange Act, as amended, (as such Regulation is
in effect on the date hereof), and any other subsidiary of the Company which is
material to the business, earnings, prospects, assets or condition, financial or
otherwise, of the Company and its subsidiaries taken as a whole.
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"Officers' Certificate" means a certificate signed by two Officers, one
of whom must be the Chairman of the Board, the President, the Treasurer, a
Vice-President, the principal executive officer, the principal financial officer
and/or the principal accounting officer of the Company. See Sections 12.04 and
12.05
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 12.04 and 12.05.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"Quoted Price" of the Common Stock is the last reported sales price of
the Common Stock as reported by Nasdaq, National Market System, or if the Common
Stock is listed on a securities exchange, the last reported sales price of the
Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange or if neither so reported or listed, the last
reported bid price of the Common Stock.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture in the form of Exhibit A hereto.
"subsidiary" of any specified person means (i) a corporation a majority
of whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly owned by such person or by such
person and a subsidiary or subsidiaries of such person or (ii) any other person
(other than a corporation) in which such person or such person and a subsidiary
or subsidiaries of such person or a subsidiary or subsidiaries of such person
directly or indirectly, at the date of determination thereof has at least
majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of execution of this Indenture.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
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Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Bankruptcy Law"............................................... 6.01
"Common Stock"................................................. 10.01
"Conversion Agent"............................................. 2.03
"Custodian..................................................... 6.01
"Debt"......................................................... 11.02
"Event of Default"............................................. 6.01
"Legal Holiday"................................................ 12.07
"Officer"...................................................... 12.10
"Paying Agent"................................................. 2.03
"Payment Default".............................................. 6.01
"Registrar".................................................... 2.03
"Representative"............................................... 11.02
"Senior Debt".................................................. 11.02
"U.S. Government Obligations".................................. 8.01
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
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<PAGE> 9
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) references to "generally accepted accounting principles"
shall mean generally accepted accounting principles in effect as of the
time when and for the period as to which such accounting principles are
to be applied;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular; and
(6) provisions apply to successive events and transactions.
ARTICLE 2.
THE SECURITIES
Section 2.01. Form and Dating.
The Securities shall be substantially in the form of Exhibit A, which is
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Security shall
be dated the date of its authentication.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the
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Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same right as an Agent to deal with the Company or an Affiliate.
Section 2.03. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain in the Borough of Manhattan, City of New
York, State of New York, and in such other locations as it shall determine (i)
an office or agency where securities may be presented for registration of
transfer or for exchange ("Registrar"), (ii) an office or agency where
Securities may be presented for payment ("Paying Agent"), and (iii) an office or
agency where Securities may be presented for conversion ("Conversion Agent").
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents. The term
"Paying Agent" includes any additional paying agent; the term "Conversion Agent"
includes any additional conversion agent. The Company may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without prior notice. The
Company shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or maintain another
entity as Registrar, Paying Agent or Conversion Agent, the Trustee shall act as
such. The Company or any of its subsidiaries may act as Conversion Agent, Paying
Agent, Registrar or co-registrar.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
of any default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a subsidiary) shall have no further liability for
the money. If the Company or a subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the
Securityholders all money held by it as Paying Agent.
Section 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before each interest payment date and at such other times
as the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.06. Transfer and Exchange.
Where Securities are presented to the Registrar or a co-registrar with a
request to register a transfer or to exchange them for an equal principal amount
of Securities of other denominations,
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<PAGE> 11
the Registrar shall register the transfer or make the exchange if its
requirements for such transactions are met. To permit registrations of transfers
and exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06, 9.05 or 10.02).
The Company shall not be required (i) to issue, register the transfer of
or exchange Securities during a period beginning at the opening of business 15
days before the day of any selection of Securities for redemption under Section
3.02 and ending at the close of business on the day of selection, or (ii) to
register the transfer or exchange of any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being redeemed
in part.
Section 2.07. Replacement Securities.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder shall be required to provide
an indemnity bond sufficient in the judgment of both to protect the Company, the
Trustee, any Agent or any authenticating agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge for its expenses in
replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to all the benefits provided under this Indenture equally
and proportionately with all other Securities duly issued hereunder.
Section 2.08. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Security.
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Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities that the Company or any Affiliate of the Company offers to purchase
or acquire pursuant to an exchange offer, tender offer or otherwise shall not be
deemed to be owned by the Company or such Affiliate until legal title passes to
the Company or such Affiliate.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
As promptly as is reasonably practicable, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to
the Trustee any Securities surrendered to them for registration of transfer,
exchange, payment or conversion. The Trustee shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement,
conversion or cancellation and shall dispose of canceled Securities in
accordance with its normal practices. The Company may not issue new Securities
to replace Securities that it has paid or that have been delivered to the
Trustee for cancellation or that any Securityholder has converted pursuant to
Article 10.
Section 2.12. Defaulted Interest.
If the Company fails to make a payment of interest on the Securities, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest in any lawful manner. It may pay such defaulted interest, plus any such
interest payable on it, to the persons who are Securityholders on a subsequent
special record date. The Company shall fix any such record date (which shall be
at least 5 and not more than 30 days before the payment date) and payment date.
At least 15 days before any such record date, the Company shall mail to
Securityholders a notice that states the record date, payment date, and amount
of such interest to be paid. Interest to be paid prior to the expiration of the
30-day grace period specified in Section 6.01 shall be paid to Securityholders
on the regular payment date for the interest payment that has not been made.
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<PAGE> 13
ARTICLE 3.
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5, it shall notify the Trustee of the
redemption date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section at least
50 days before the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee).
Section 3.02. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by a method that
complies with the requirements of any exchange on which the Securities are
listed and that the Trustee considers fair and appropriate. The Trustee shall
make the selection not more than 75 days and not less than 30 days before the
redemption date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each Holder whose Securities are to
be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued in the name of the Holder thereof;
(4) the conversion price;
(5) the name and address of the Paying Agent and Conversion
Agent;
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<PAGE> 14
(6) that Securities called for redemption may be converted at any
time before the close of business on the day prior to the redemption
date;
(7) that Holders who want to convert Securities must satisfy the
requirements in paragraph 7 of the Securities;
(8) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest;
(9) that interest on Securities called for redemption ceases to
accrue on and after the redemption date; and
(10) the paragraph of the Securities pursuant to which the
Securities are being redeemed.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at its expense.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
Security.
Section 3.05. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date (subject to
the rights of Holders of record on the relevant record date to receive interest
due on an interest payment date which may occur prior to the date of
redemption). The Trustee or the Paying Agent shall return to the Company any
money not required for that purpose.
Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
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ARTICLE 4.
COVENANTS
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or a subsidiary) holds on that date money designated for and sufficient
to pay all principal and interest then due and such Paying Agent is not
prohibited from paying such money to the Holders on that date pursuant to the
terms of this Indenture; provided, however, that money held by the Paying Agent
for the benefit of holders of Senior Debt pursuant to the provisions of Article
11 hereof shall not be considered paid within the meaning of this Section 4.01.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal, at the rate borne by the Securities, compounded semiannually;
and (ii) overdue installments of interest (without regard to any applicable
grace period) at the same rate, compounded semiannually.
Section 4.02. SEC Reports.
The Company shall deliver to the Trustee and to the Holders within 15
days after it files them with the SEC copies of the annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. The Company also shall comply with the other provisions of TIA
Section 314(a). The Company shall timely comply with its reporting and filing
obligations under the applicable federal securities law.
Section 4.03. Compliance Certificate.
The Company shall deliver to the Trustee, within 105 days after the end
of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under, and complied with the covenants
and conditions contained in, this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company has kept, observed, performed and fulfilled each and every covenant, and
complied with the conditions, contained in this Indenture and is not in default
in the performance or observance of any of the terms, provisions and conditions
hereof (or, if a Default or Events of Default shall have occurred, describing
all such Defaults or Events of Default of which he may have knowledge) and that
to the best of his knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of or interest, if any, on
the Securities are prohibited. See Section 12.10.
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The Company will, so long as any of the Securities are outstanding
deliver to the Trustee, forthwith upon becoming aware of (i) any Default, Event
of Default or default in the performance of any covenant, agreement or condition
in this Indenture or (ii) any event of default under any other mortgage,
indenture or instrument as that term is used in Section 6.01(4), an Officers'
Certificate specifying such Default, Event of Default or default.
Section 4.04. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
Section 4.05. Continued Existence.
Subject to Article 5, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
corporation and will refrain from taking any action that would cause its
existence as a corporation to cease, including without limitation any action
that would result in its liquidation, winding up or dissolution.
Section 4.06. Taxes.
The Company shall, and shall cause each of its subsidiaries to, pay
prior to delinquency all taxes, assessments and governmental levies, except as
contested in good faith and by appropriate proceedings.
ARTICLE 5.
SUCCESSORS
Section 5.01. When Company May Merge, etc.
The Company shall not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets to, any person unless:
(1) the person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made,
is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia;
(2) the corporation formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance
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<PAGE> 17
or other disposition shall have been made, assumes by supplemental
indenture in a form reasonably satisfactory to the Trustee all the
obligations of the Company under the Securities and this Indenture,
except that it need not assume the obligations of the Company as to
conversion of Securities if, pursuant to Section 10.18, the Company or
another person enters into a supplemental indenture obligating it to
deliver the securities, cash or other assets deliverable upon conversion
of Securities; and
(3) immediately after the transaction no Default or Event of
Default exists.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01, the successor corporation formed
by such consolidation or into or with which the Company is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
person has been named as the Company herein; provided, however, that the
predecessor Company in the case of a sale, assignment, transfer, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of and interest on the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable, whether or not such
payments shall be prohibited by Article 11, and the Default continues
for a period of 30 days after the date due and payable;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity, upon
redemption or otherwise, whether or not such payments shall be
prohibited by Article 11;
(3) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities or this Indenture and
the Default continues for the period and after the notice specified
below, whether or not such payments shall be prohibited by Article 11;
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(4) an event of default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company
or any subsidiary (or the payment of which is guaranteed by the Company
or a subsidiary), whether such indebtedness or guarantee now exists or
shall be created hereafter, if (a) either (i) such event of default
results from the failure to pay when due principal of or interest on
such indebtedness within the grace period provided for in such
indebtedness (which failure continues beyond any applicable grace
period) (a "Payment Default") or (ii) as a result of such event of
default the maturity of such indebtedness has been accelerated prior to
its expressed maturity and (b) the principal amount of such
indebtedness, together with the principal amount of any other such
indebtedness under which there is a Payment Default or the maturity of
which has been so accelerated, aggregates $1,000,000 or more;
(5) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the
Company or any subsidiary which remains undischarged for a period
(during which execution shall not be effectively stayed) of 30 days,
provided that the aggregate of all such judgments exceeds $500,000.
(6) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as the same
become due;
(7) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Material
Subsidiary or for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material
Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
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The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or State Law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (3) (other than Defaults under Section 4.05, 5.01
or 10.01 which Defaults shall be Events of Default with the notice but without
the passage of time specified in this paragraph) or (5) is not an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities notify the Company of the Default and the
Company does not cure the Default within 30 days after receipt of the notice.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default."
Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (6) and (7) of Section 6.01) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of the
then outstanding Securities by notice to the Company and the Trustee, may
declare the unpaid principal of and accrued interest on all the Securities to be
due and payable. Upon such declaration the principal and interest shall be due
and payable immediately. If an Event of Default specified in clause (6) or (7)
of Section 6.01 occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in principal amount of the
then outstanding Securities by notice to the Trustee may rescind an acceleration
and its consequences if (i) the rescission would not conflict with any judgment
or decree, (ii) all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, and (iii) the Company has delivered an Officers' Certificate to
the Trustee to the effect of clauses (i) and (ii) above.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on any Security or a Default or
Event of Default under Article 10. When a Default or Event of Default is
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waived, it is cured and ceases; but no such waiver shall extend to any
subsequent or other Default or impact any right consequent thereon.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
other Securityholders, or would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to bring suit for the enforcement of the right to convert
the Security shall not be impaired or affected without the consent of the
Holder.
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Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Securityholders allowed in any judicial proceedings relative to the Company,
its creditors or its property. Nothing contained herein shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First:. to the Trustee for amounts due under Section 7.07;
Second:to holders of Senior Debt to the extent required by Article 11;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a
record date and payment date for any payment to Securityholders.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit
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by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
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Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent (other than an agent who is an
employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers, provided, however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to Sections 7.10 and
7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or any Statement in the Securities
other than its authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security (including any
failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
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Section 7.06. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 12.10, the
Trustee shall mail to Securityholders a brief report dated as of such reporting
date that complies with TIA Section 313(a). The Trustee also shall comply with
TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it. Such expenses may include the reasonable compensation
and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
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(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07. Notwithstanding the replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring trustee with respect to
expenses and liabilities incurred by it prior to such replacement.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee, provided that such successor shall otherwise be qualified and eligible
to act as a Trustee pursuant to the provisions of this Article.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a). The Trustee shall always have a combined
capital and surplus as stated in Section 12.10. The Trustee is subject to TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9). Section 12.10 lists any excluded indenture or
trust agreement.
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Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
Section 7.12. Sections Applicable to Registrar, Paying Agent and Conversion
Agent.
The term "Trustee" as used in Sections 7.01, 7.02, 7.03, 7.04 and 7.07
shall (unless the context otherwise requires) be construed as extending to and
including the Trustee acting in its capacity, if any, as Paying Agent, Registrar
and Conversion Agent.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and 8.03 shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder. In addition, subject to Section 8.04, the Company may terminate all
of its obligations under this Indenture (except the Company's obligations under
Sections 7.07 and 8.03) if:
(1) the Securities mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory
to the Trustee for giving the notice of redemption;
(2) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations sufficient without investment of
such money or reinvestment of interest or proceeds from such U.S.
Government Obligation to pay principal and interest on the Securities to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder. The Company may make the deposit only during
the one-year period and only if Article 11 permits it;
(3) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the money or U.S. Government Obligations
so deposited, without investment of such money or reinvestment of
interest or proceeds on such U.S. Government Obligations, will provide
cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Securities to maturity or
redemption, as the case may be;
(4) the Company delivers to the Trustee an Opinion of Counsel
stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the
date of this Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such
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Opinion of Counsel shall confirm that, the holders of the outstanding
Securities will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amount and in the same manner and at the
same time as would have been the case if such defeasance had not
occurred;
(5) no Default or Event of Default or event which with notice or
lapse of time or both would become an Event of Default shall have
occurred and be continuing on the date of such deposit and after giving
effect thereto or, insofar as subsections (6) and (7) of Section 6.01
are concerned, at any time during the period ending on and including the
91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period);
(6) such defeasance shall not result in a breach or violation of,
or constitute a default under any agreement or instrument to which the
Company or any of its subsidiaries is bound, and shall not be prohibited
by Article 11;
(7) the Company delivers to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, except that if a court were to rule under any such law in any
case or proceeding that the trust funds remained property of the
Company, no opinion is given as to the effect of such laws on the trust
funds except the following: (A) assuming such trust funds remained in
the Trustee's possession prior to such court ruling to the extent not
paid to holders of the Securities, the Trustee will hold, for the
benefit of such holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise and (B)
such holders will be entitled to receive adequate protection of their
interest in such trust funds if such trust funds are used;
(8) the Company delivers to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the Securities over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(9) the Company delivers to the Trustee an Opinion of Counsel
stating that neither the trust nor the Trustee will be required to
register as an investment company under the Investment Company Act of
1940, as amended; and
(10) the Company delivers to the Trustee an Officers' Certificate
stating that all conditions precedent to the defeasance and discharge of
the Securities as contemplated by this Article 8 have been complied
with.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06,
2.07, 4.01, 7.07, 8.03, 8.04 and in Article 10, shall survive until the
Securities are no longer outstanding. Thereafter, only the Company's obligations
in Sections 7.07 and 8.03 shall survive.
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After a deposit made pursuant to this Section 8.01 and satisfaction of
the conditions set forth herein, the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under this Indenture except
for those surviving obligations specified above.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged. In order to have money available on a
payment date to pay principal or interest on the Securities, the U.S. Government
Obligations shall be payable as to principal or interest on or before such
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities. Money and securities so held in trust are not subject to Article 11.
Section 8.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
Subject to applicable abandoned property law, the Trustee and the Paying
Agent shall pay to the Company upon request any money held by them for the
payment of principal or interest that remains unclaimed for two years after the
date upon which such payment shall have become due; provided, however, that the
Company shall have first caused notice of such payment to the Company to be
mailed to each Securityholder entitled thereto no less than 30 days prior to
such payment. After payment to the Company, Securityholders entitled to the
money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person.
Section 8.04. Reinstatement.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01 until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02; provided, however, that if the Company makes any
payment of interest on or principal of any Security following the reinstatement
of its obligations, the Company shall be subrogated to the
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rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS
Section 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Sections 5.01 and 10.18;
(3) to provide for uncertificated Securities in addition to
certificated Securities; or
(4) to make any change that does not adversely affect the rights
hereunder of any Securityholder.
Section 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture or the Securities with the written consent of the Holders of at least
a majority in principal amount of the then outstanding Securities. Subject to
Sections 6.04 and 6.07, the Holders of a majority in principal amount of the
Securities then outstanding may also waive compliance in a particular instance
by the Company with any provision of this Indenture or the Securities. However,
without the consent of each Securityholder affected, an amendment or waiver
under this Section may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment or waiver;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that stated in
the Security;
(5) make any change in Section 6.04, 6.07 or 9.02 (this
sentence);
(6) make any change that adversely affects the right to convert
any Security;
(7) make any change in Article 11 that adversely affects the
rights of any Securityholder; or
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(8) waive a default in the payment of the principal of, or
interest on, any Security or any Default under Article 10.
An amendment or waiver under this Section may not make any change that
adversely affects the rights under Article 11 of any holder of an issue of
Senior Debt unless the holders of the issue pursuant to its terms consent to the
change or the change is otherwise permissible.
To secure a consent of the Holders under this Section, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment
or waiver.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective shall
have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(8) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security that evidences the same debt as the consenting Holder's Security.
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Section 9.05. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.06. Trustee Protected.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
12.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
ARTICLE 10.
CONVERSION
Section 10.01. Conversion Privilege.
A Holder of a Security may convert it into Common Stock at any time
during the period stated in paragraph 7 of the Securities. The number of shares
issuable upon conversion of a Security is determined as follows: Divide the
principal amount to be converted by the conversion price in effect on the
conversion date. Round the result to the nearest 1/100th of a share.
The initial conversion price is stated in paragraph 7 of the Securities.
The conversion price is subject to adjustment.
A Holder may convert a portion of a Security if the portion is $1,000 or
an integral multiple of $1,000. Provisions of this Indenture that apply to
conversion of all of a Security also apply to conversion of a portion of it.
"Common Stock" means Common Stock of the Company as it exists on the
date of this Indenture or as it may be constituted from time to time.
Section 10.02. Conversion Procedure.
To convert a Security a Holder must satisfy the requirements in
paragraph 7 of the Securities. The date on which the Holder satisfies all those
requirements is the conversion date. As soon as practical after the conversion
date, the Company shall deliver through the Conversion Agent a certificate for
the number of full shares of Common Stock issuable upon the conversion and a
check for any fractional share determined pursuant to Section 10.03. The person
in whose name the certificate is registered shall become the stockholder of
record on and after the conversion date.
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No payment or adjustment will be made for accrued interest on a
converted Security or dividends on any Common Stock issued. However, interest
will be paid on any interest payment date with respect to Securities surrendered
for conversion after a record date for the payment of interest to the registered
Holder on such record date.
If a Holder converts more than one Security at the same time, the number
of full shares issuable upon the conversion shall be based on the total
principal amount of the Securities converted.
Upon a surrender of a Security that is converted in part, the Company
shall issue and the Trustee shall authenticate for the Holder a new Security
equal in principal amount to the unconverted portion of the Security
surrendered.
If the last day on which a Security may be converted is a Legal Holiday
in a place where a Conversion Agent is located, the Security may be surrendered
to that Conversion Agent on the next succeeding day that is not a Legal Holiday.
Section 10.03. Fractional Shares.
The Company will not issue a fractional share of Common Stock upon
conversion of a Security. Instead the Company will deliver its check for the
current market value of the fractional share. The current market value of a
fraction of a share is determined as follows: Multiply the current market price
(as set forth below) of a full share by the fraction. Round the result to the
nearest cent.
The current market price of a share of Common Stock is the Quoted Price
of the Common Stock on the last trading day prior to the conversion date. In the
absence of such a quotation, the Company shall determine the current market
price on the basis of such quotations as it considers appropriate.
Section 10.04. Taxes on Conversion.
If a Holder of a Security converts it, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion. However, the Holder shall pay any such tax
which is due because the shares are issued in a name other than the Holder's
name.
Section 10.05. Company to Provide Stock.
The Company has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury,
solely for the purpose of issuance upon conversion of Securities as herein
provided, enough shares of Common Stock to permit the conversion of the
Securities in full.
All shares of Common Stock which may be issued upon conversion of the
Securities shall be duly authorized, validly issued, fully paid and
non-assessable when issued.
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<PAGE> 33
The Company will take all reasonable necessary actions to comply with
all securities laws regulating the offer and delivery of shares of Common Stock
upon conversion of Securities and will take all reasonable necessary actions to
list such shares on each national securities exchange on which the Common Stock
is listed.
Section 10.06. Adjustment for Change in Capital Stock.
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock;
then the conversion privilege and the conversion price in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted shall be entitled to receive the number of shares of
capital stock of the Company which he would have owned immediately following
such action if he had converted the Security immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of it may
receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted conversion price between
the classes of capital stock. After such allocation, the conversion privilege
and the conversion price of each class of capital stock shall thereafter be
subject to adjustment on terms comparable to those applicable to Common Stock in
this Article.
Section 10.07. Adjustment for Rights Issue.
If the Company distributes any rights or warrants to substantially all
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to subscribe for or purchase shares of
Common Stock at a price per share less than the current market price per share
on that record date, the conversion price shall be adjusted in accordance with
the formula:
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<PAGE> 34
N x P
-----
O + M
---------
C' = C x O + N
where:
C' = the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights are
exercisable, not all warrants or rights shall have been exercised, the
conversion price shall be immediately readjusted to what it would have been if
"N" in the above formula had been the number of shares actually issued.
Section 10.08. Adjustment for Other Distributions.
If the Company distributes to all holders of its Common Stock any of its
assets or debt securities or any rights or warrants to purchase assets, debt
securities or other securities of the Company, the conversion price shall be
adjusted in accordance with the formula:
M - F
-----
C' = C x M
where:
C' = the adjusted conversion price.
C = the current conversion price.
M = the current market price per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of Common
Stock. The Board of Directors shall determine the fair market
value.
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<PAGE> 35
The adjustment shall be made successively whenever any such distribution
is made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.
This Section does not apply to regular cash dividends or cash
distributions paid out of consolidated current earnings as shown on the books of
the Company. Also, this Section does not apply to rights or warrants referred to
in Section 10.07.
Section 10.09. Adjustment for Common Stock Issue.
If the Company issues shares of Common Stock for a consideration per
share less than the current market price per share on the date the Company fixes
the offering price of such additional shares, the conversion price shall be
adjusted in accordance with the formula:
O + P
-
M
-----
C' = C x A
where:
C' = the adjusted conversion price.
C = the then current conversion price.
O = the number of shares outstanding immediately prior to the issuance
of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the current market price per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the issuance of
such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This Section does not apply to (i) any of the transactions described in
Sections 10.07, 10.08 and 10.10, (ii) the conversion of Securities, or the
conversion, exchange or exercise of other securities convertible or exchangeable
for Common Stock, (iii) Common Stock issued to the Company's employees under
bona fide employee benefit plans adopted by the Board of Directors and approved
by the holders of Common Stock when required by law, if such Common Stock would
otherwise be covered by this Section (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date of this Indenture
shall not exceed 5% of the Common Stock outstanding at the time of the adoption
of each such plan, exclusive of antidilution adjustments thereunder), (iv)
Common Stock issued to acquire, or in the acquisition of, all or any portion of
a business as a going concern, in an arm's length transaction between the
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<PAGE> 36
Company and an unaffiliated third party, whether such acquisition shall be
effected by purchase of assets, exchange of securities, merger, consolidation or
otherwise, or (v) Common Stock issued in a bona fide public offering pursuant to
a firm commitment underwriting.
Section 10.10. Adjustment for Convertible Securities Issue.
If the Company issues any securities convertible into or exchangeable or
exercisable for Common Stock (other than the Securities or securities issued in
transactions described in Sections 10.07 and 10.08) for a consideration per
share of Common Stock initially deliverable upon conversion, exchange or
exercise of such securities less than the current market price per share on the
date of issuance of such securities, the conversion price shall be adjusted in
accordance with this formula:
O + P
-
M
-----
C' = C x O + D
where:
C' = the adjusted conversion price.
C = the then current conversion price.
O = the number of shares outstanding immediately prior to the issuance
of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the current market price per share on the date of issuance of such
securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for or upon exercise of such securities at the initial
conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities have not been issued when such securities are no longer outstanding,
then the conversion price shall promptly be readjusted to the conversion price
which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion, exchange or exercise of such securities.
This Section does not apply to (i) convertible securities issued to
acquire, or in the acquisition of, all or any portion of a business as a going
concern, in an arm's length transaction between the Company and an unaffiliated
third party, whether such acquisition shall be effected by purchase of assets,
exchange of securities, merger, consolidation or otherwise, or (ii) convertible
securities issued in a bona fide public offering pursuant to a firm commitment
underwriting.
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<PAGE> 37
Section 10.11. Current Market Price.
In Sections 10.07, 10.08, 10.09 and 10.10, the current market price per
share of Common Stock on any date shall equal 95% of the average of the Quoted
Prices of the Common Stock for 30 consecutive trading days ending on the last
full trading day prior to the date in question. In the absence of one or more
such quotations, the Company shall determine the current market price on the
basis of such quotations as it considers appropriate.
Section 10.12. Consideration Received.
For purposes of any computation respecting consideration received
pursuant to Sections 10.09 and 10.10, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue
or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors (irrespective of the
accounting treatment thereof), whose determination shall be conclusive,
and described in a Board resolution which shall be filed with the
Trustee; and
(3) in the case of the issuance of securities convertible into or
exchangeable or exercisable for shares, the aggregate consideration
received therefor shall be deemed to be the consideration received by
the Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (1) and (2) of this
Section).
Section 10.13. When Adjustment May Be Deferred.
No adjustment in the conversion price need be made unless the adjustment
would require an increase or decrease of at least 1% in the conversion price.
Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Article shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be.
Section 10.14. When No Adjustment Required.
No adjustment need be made for a transaction referred to in Sections
10.06, 10.07, 10.08, 10.09 or 10.10 if all Securityholders are entitled to
participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
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<PAGE> 38
No adjustment need be made for rights to purchase Common Stock pursuant
to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par value
of the Common Stock.
To the extent the Securities become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
Section 10.15. Notice of Adjustment.
Whenever the conversion price is adjusted, the Company shall promptly
mail to Securityholders a notice of the adjustment. The Company shall file with
the Trustee a certificate from the Company's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it. The certificate shall be conclusive evidence that the adjustment is correct.
Section 10.16. Voluntary Reduction.
The Company from time to time may reduce the conversion price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period, provided, that in no event may the
conversion price be less than the par value of a share of Common Stock.
Whenever the conversion price is reduced, the Company shall mail to
Securityholders and the Trustee a notice of the reduction. The Company shall
mail the notice at least 15 days before the date the reduced conversion price
takes effect. The notice shall state the reduced conversion price and the period
it will be in effect.
A reduction of the conversion price does not change or adjust the
conversion price otherwise in effect for purposes of Sections 10.06, 10.07,
10.08, 10.09 and 10.10.
Section 10.17. Notice of Certain Transactions.
If:
(1) the Company takes any action that would require an adjustment
in the conversion price pursuant to Sections 10.06, 10.07, 10.08, 10.09
or 10.10 and if the Company does not let Securityholders participate
pursuant to Section 10.14;
(2) the Company takes any action that would require a
supplemental indenture pursuant to Section 10.18; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Securityholders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination,
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<PAGE> 39
reclassification, consolidation, merger, transfer, lease, liquidation or
dissolution. The Company shall mail the notice at least 15 days before such
date. Failure to mail the notice or any defect in it shall not affect the
validity of the transaction.
Section 10.18. Reorganization of Company.
If the Company is a party to a transaction subject to Section 5.01, or a
merger which reclassifies or changes its outstanding Common Stock, upon
consummation of such transaction the Securities shall automatically become
convertible into the kind and amount of securities, cash or other assets which
the Holder of a Security would have owned immediately after the consolidation,
merger, transfer or lease if the Holder had converted the Security immediately
before the effective date of the transaction. Concurrently with the consummation
of such transaction, the person obligated to issue securities or deliver cash or
other assets upon conversion of the Securities shall enter into a supplemental
indenture so providing and further providing for adjustments which shall be as
nearly equivalent as may be practical to the adjustments provided for in this
Article. The successor Company shall mail to Securityholders a notice describing
the supplemental indenture.
If securities deliverable upon conversion of Securities, as provided
above, are themselves convertible into the securities of an affiliate of the
formed, surviving, transferee or lessee corporation, that issuer shall join in
the supplemental indenture which shall so provide.
If this Section applies, Section 10.06 does not apply.
Section 10.19. Company Determination Final.
Subject to Section 10.15, any determination that the Company or the
Board of Directors must make pursuant to Section 10.03, 10.06, 10.08, 10.09,
10.10, 10.11, 10.12 or 10.14 is conclusive.
Section 10.20. Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this
Article should be made, how it should be made or what it should be. The Trustee
has no duty to determine whether any provisions of a supplemental indenture
under Section 10.18 are correct. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities. The Trustee shall not be responsible for the Company's failure to
comply with this Article. Each Conversion Agent other than the Company shall
have the same protection under this Section as the Trustee.
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<PAGE> 40
ARTICLE 11.
SUBORDINATION
Section 11.01. Agreement to Subordinate.
The Company agrees, and each Securityholder by accepting a Security
agrees, that the indebtedness evidenced by the Securities is subordinated in
right of payment, to the extent and in the manner provided in this Article, to
the prior payment in full of all Senior Debt, and that the subordination is for
the benefit of the holders of Senior Debt.
Section 11.02. Certain Definitions.
"Debt" of any person means any indebtedness, contingent or in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or representing
the balance deferred and unpaid of the purchase price of any property or
interest therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles.
"Representative" means the indenture trustee or other trustee, agent or
representative for an issue of Senior Debt.
"Senior Debt" means all Debt (present or future) created, incurred,
assumed or guaranteed by the Company (and all renewals, extensions or refundings
thereof), unless the instrument under which such Debt is created, incurred,
assumed or guaranteed expressly provides that such Debt is not senior or
superior in right of payment to the Securities. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include (i) any Debt of the
Company to any of its subsidiaries, (ii) any liability for Federal, state, local
or other taxes owed or owing by the Company, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), or
(iv) any obligations with respect to any capital stock.
Section 11.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
(1) holders of Senior Debt shall be entitled to receive payment in full
in cash of the principal of and interest (including interest accruing after the
commencement of any such proceeding) to the date of payment on the Senior Debt
before Securityholders shall be entitled to receive any payment of principal of
or interest on Securities; and
(2) until the Senior Debt is paid in full in cash, any distribution to
which Securityholders would be entitled but for this Article shall be made to
holders of Senior Debt as
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<PAGE> 41
their interests may appear, except that Securityholders may receive securities
that are subordinated to Senior Debt to at least the same extent as the
Securities.
For purposes of this Article 11, a distribution may consist of cash,
securities or other property, by set-off or otherwise.
Section 11.04. Default on Senior Debt.
Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by the Company or any
person acting on behalf of the Company on account of the principal or interest
of the Securities.
The Company may not pay principal of or interest on the Securities and
may not acquire any Securities for cash or property (other than capital stock of
the Company or other securities of the Company that are subordinated to Senior
Debt to at least the same extent as the Securities) if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or the Company
receives a notice of the default from a person who may give it pursuant to
Section 11.12. If the Company receives any such notice, a subsequent notice
received within nine months thereafter relating to the same issue of Senior Debt
shall not be effective for purposes of this Section.
The Company shall resume payments on the Securities and may acquire them
when:
(a) the default is cured or waived, or
(b) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Article otherwise permits the payment or acquisition at that time.
Section 11.05. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration. The Company shall pay the Securities when 120 days pass after the
acceleration occurs if this Article permits the payment at that time; provided,
however, that if no Senior Debt is outstanding at the time of such acceleration,
the Company shall pay the Securities in accordance with the provisions of
Article 6.
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<PAGE> 42
Section 11.06. When Distribution Must Be Paid Over.
In the event that the Company shall make any payment to the Trustee on
account of the principal or interest on the Securities at a time when such
payment is prohibited by Section 11.03 or 11.04, such payment shall be held by
the Trustee, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Debt (pro rata as to each of such holders on
the basis of the respective amounts of Senior Debt held by them) or their
representative or the trustee under the indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay all Senior Debt in full in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
If a distribution is made to Securityholders that because of this
Article should not have been made to them, the Securityholders who receive the
distribution shall hold it in trust for holders of Senior Debt and pay it over
to them as their interests may appear.
Section 11.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of principal of or
interest on the Securities to violate this Article, but failure to give such
notice shall not affect the subordination of the Securities to the Senior Debt
provided in this Article. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
Section 11.08. Subrogation.
After all Senior Debt is paid in full and until the Securities are paid
in full, Securityholders shall be subrogated to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Securityholders have been applied to the
payment of Senior Debt. A distribution made under this Article to holders of
Senior Debt which otherwise would have been made to Securityholders is not, as
between the Company and Securityholders, a payment by the Company on Senior
Debt.
Section 11.09. Relative Rights.
This Article defines the relative rights of Securityholders and holders
of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the obligation
of the Company, which is absolute and unconditional, to pay principal of and
interest on the Securities in accordance with their terms;
(2) affect the relative rights of Securityholders and creditors of the
Company other than holders of Senior Debt or, as between the Company and the
Trustee, the obligations of the Company to the Trustee; or
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<PAGE> 43
(3) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of Senior Debt to receive distributions otherwise payable to
Securityholders.
If the Company fails because of this Article to pay principal of or
interest on Security on the due date, the failure is still a Default or Event of
Default.
Section 11.10. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the subordination of
the indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
Section 11.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Section 11.12. Rights of Trustee and Paying Agent.
The Trustee or Paying Agent may continue to make payments on the
Securities until it receives notice of facts that would cause a payment of
principal of or interest on the Securities to violate this Article. Only the
Company, a Representative or a holder of an issue of Senior Debt that has no
Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 12.02. Notices.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail to the other's address stated in Section 12.10. The Company or the Trustee
by notice to the other may designate additional or different address for
subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
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<PAGE> 44
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 12.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
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<PAGE> 45
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar, Paying Agent or Conversion Agent may make
reasonable rules and set reasonable requirements for its functions.
Section 12.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 12.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by excepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
Section 12.09. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 12.10. Variable Provisions.
"Officer" means Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
The Company initially appoints the Trustee as Conversion Agent, Paying
Agent, Registrar and authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the fiscal
year ending on December 31, 1999.
The reporting date for Section 7.06 is [May 15] of each year. The first
reporting date is [May 15], 2000.
The Trustee shall always have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition.
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<PAGE> 46
The Company's address is:
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attn: Gary B. Sabin, President and Chief
Executive Officer
Facsimile No.: (619) 675-9405
The Trustee's address is:
Norwest Bank Minnesota, National Association
Corporate Trust Services
Sixth & Marquette
N 9303-120
Minneapolis, Minnesota 55479
Facsimile No.: (612) 667-9825
Section 12.11. Governing Law.
The internal laws of the State of New York shall govern this Indenture
and the Securities, without regard to the conflicts of laws provisions thereof.
Section 12.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 12.13. Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 12.14. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.15. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
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<PAGE> 47
SIGNATURES
Dated: as of ________________ EXCEL LEGACY CORPORATION,
a Delaware corporation
By ___________________________
Dated: as of ________________ Norwest Bank Minnesota,
National Association
By____________________________
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<PAGE> 48
Exhibit A
(Face of Security)
No. ___ $ _____________
9.0% CONVERTIBLE SUBORDINATED DEBENTURE
DUE _________ __, 2004
EXCEL LEGACY CORPORATION
promises to pay to
_____________
or registered assigns,
the principal sum of _____________ Dollars on _______ __, 2004
Interest Payment Dates: ___________ and ___________
Record Dates: ___________ and ___________
This is one of the Securities described in the within-mentioned Indenture.
Additional provisions of this Security are set forth on the
other side of this Security.
Authenticated: Dated:
Norwest Bank Minnesota,
National Association, Excel Legacy Corporation
as Trustee
By ________________________ By _____________________
Authorized Signature
OR
as Authenticating Agent
By ________________________
Authorized Signature
A-1
<PAGE> 49
(Back of Security)
9.0% Convertible Subordinated Debenture
due _________ __, 2004
1. Interest. Excel Legacy Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
_________ __ and _________ __ of each year. Interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 15, 1999. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Securities
(except defaulted interest) to the persons who are registered holders of
Securities at the close of business on the record date for the next interest
payment date even though Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal and
interest by check payable in such money. It may mail an interest check to a
holder's registered address.
3. Paying Agent, Registrar and Conversion Agent. The Trustee will act as
Conversion Agent, Paying Agent and Registrar. The Company may change any Paying
Agent, Registrar, Conversion Agent or co-registrar without prior notice. The
Company or any of its subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Securities under an Indenture dated
as of _________ __, 1999 ("Indenture") between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the
Indenture. The Securities are subject to, and qualified by, all such terms,
certain of which are summarized hereon, and Securityholders are referred to the
Indenture and such Act for a statement of such terms. The Securities are
unsecured general obligations of the Company limited to $___________ in
aggregate principal amount.
5. Optional Redemption. On or after _______ __, 2001, the Company may
redeem all or some of the Securities from time to time at the redemption price
of 100% of the principal amount of such Securities plus accrued interest to the
redemption date.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. In the event of a redemption of less than all of the Securities, the
Securities will be chosen for redemption by the Trustee, generally pro rata or
by
A-2
<PAGE> 50
lot. On and after the redemption date interest ceases to accrue on Securities or
portions of them called for redemption.
If this Security is redeemed subsequent to a record date with respect to
any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the person in whose name
this Security is registered at the close of business on such record date.
7. Conversion. A holder of a Security may convert it into Common Stock
of the Company at any time before the close of business (New York time) on the
day prior to the maturity date. If the Security is called for redemption, the
holder may convert it at any time before the close of business (New York time)
on the day prior to the redemption date (unless the Company shall default in
payment due upon redemption thereof). The initial conversion price of $5.50 per
share is subject to adjustment in certain events. To determine the number of
shares issuable upon conversion of a Security, divide the principal amount to be
converted by the conversion price in effect on the conversion date. On
conversion, no payment or adjustment for interest will be made. However,
interest will be paid on any interest payment date with respect to Securities
surrendered for conversion after a record date for the payment of interest to
the registered holder on such record date. The Company will deliver a check for
any fractional share.
To convert a Security a holder must (1) complete and sign the conversion
notice on the back of the Security, (2) surrender the Security to a Conversion
Agent, (3) furnish appropriate endorsements and transfer documents if required
by the Registrar or Conversion Agent, and (4) pay any transfer or similar tax if
required. A holder may convert a portion of a Security if the portion is $1,000
or an integral multiple of $1,000.
The conversion price is subject to adjustment as set forth in the
Indenture in certain events. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least 1% in the
price then in effect; but any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
The Company from time to time may voluntarily reduce the conversion
price for a period of time, provided that the conversion price is not less than
the par value of a share of Common Stock.
If the Company is a party to a consolidation or merger or a transfer or
lease of all or substantially all of its assets, the Securities automatically
become convertible into the kind and amount of securities, cash or other assets
which the Holder of a Security would have owned immediately after such
transaction if the Holder had converted the Security immediately before the
effective date of the transaction.
8. Subordination. The Securities are subordinated to Senior Debt, as
defined in the Indenture. To the extent provided in the Indenture, Senior Debt
must be paid before the Securities may be paid. The Company agrees, and each
Securityholder by accepting a Security
A-3
<PAGE> 51
agrees, to the subordination and authorizes the Trustee to give it effect and
appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations, Transfer, Exchange. The Securities are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any Security or portion
of a Security selected for redemption (except the unredeemed portion of any
Security being redeemed in part). Also, it need not exchange or register the
transfer of any Securities for a period of 15 days before a selection of
Securities to be redeemed.
10. Persons Deemed Owners. Except as provided in paragraph 2, the
registered holder of a Security may be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Securities may be amended with the consent of the holders of at least a
majority in principal amount of the then outstanding Securities, and any
existing default may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended to cure any
ambiguity, defect or inconsistency, to provide for assumption of the Company's
obligations to Securityholders or to make any change that does not adversely
affect the rights of any Securityholder.
12. Defaults and Remedies. An Event of Default is: default for 30 days
in payment of interest on the Securities; default in payment of principal on
them; failure by the Company for 30 days after notice to it to comply with any
of its other agreements in the Indenture or the Securities or, in the case of
failure by the Company to maintain its corporate existence or to comply with the
restrictions on consolidation, merger or transfer or lease of substantially all
its assets or the provisions regarding conversion of Securities, with such
notice but without such passage of time; certain defaults under and
accelerations prior to maturity of other indebtedness; certain final judgments
which remain undischarged; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the holders of at
least 25% in principal amount of the then outstanding Securities may declare all
the Securities to be due and payable immediately, except that in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Securities become due and payable without further action or notice.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing default
(except a default in payment of principal or interest) if it determines that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
A-4
<PAGE> 52
13. Trustee Dealings with the Company. Subject to certain limitations
imposed by the TIA, the Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
14. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
15. Authentication. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written request and without
charge a copy of the Indenture, which has in it the text of this Security in
larger type. Requests may be made to:
Treasurer, Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
A-5
<PAGE> 53
ASSIGNMENT FORM
To Assign this Security, fill in the form below:
I or we assign and transfer this Security to
__________________
[__________________]
(Insert assignee's social security
or tax I.D. number)
_________________________
_________________________
_________________________
_________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint
______________________________,
agent to transfer this Security on the
books of the Company. The agent may
substitute another to act for him.
CONVERSION NOTICE
To convert this Security into Common Stock of the Company, check the box:
_____
[_____]
To convert only part of this Security, state the amount ($1,000 or integral
multiples thereof):
__________________
[$_________ ]
If you want the stock certificate made out in another person's name, fill in the
form below:
__________________
[__________________]
(insert other person's social
security or tax I.D. number)
_________________________
_________________________
_________________________
_________________________
Print or type other person's name, address and zip code)
Date: ____________ Your Signature: ______________________
______________________
(Sign exactly as your name appears
on the other side of this Security)
A-6
<PAGE> 1
EXHIBIT 4.3
Excel Legacy Corporation, as Issuer
$___________
10.0% Senior Notes
due _________, 2004
--------------------
INDENTURE
Dated as of __________, 1999
-----------------------
Norwest Bank Minnesota, National Association, as Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.......................................1
Section 1.01. Definitions.................................................................1
Section 1.02. Other Definitions...........................................................2
Section 1.03. Incorporation by Reference of Trust Indenture Act...........................3
Section 1.04. Rules of Construction.......................................................3
ARTICLE 2. THE SECURITIES...................................................................4
Section 2.01. Form and Dating.............................................................4
Section 2.02. Execution and Authentication................................................4
Section 2.03. Registrar and Paying Agent..................................................4
Section 2.04. Paying Agent to Hold Money in Trust.........................................5
Section 2.05. Securityholder Lists........................................................5
Section 2.06. Transfer and Exchange.......................................................5
Section 2.07. Replacement Securities......................................................6
Section 2.08. Outstanding Securities......................................................6
Section 2.09. Treasury Securities.........................................................6
Section 2.10. Temporary Securities........................................................6
Section 2.11. Cancellation................................................................7
Section 2.12. Defaulted Interest..........................................................7
ARTICLE 3. REDEMPTION.......................................................................7
Section 3.01. Notices to Trustee..........................................................7
Section 3.02. Selection of Securities to be Redeemed......................................7
Section 3.03. Notice of Redemption........................................................8
Section 3.04. Effect of Notice of Redemption..............................................8
Section 3.05. Deposit of Redemption Price.................................................8
Section 3.06. Securities Redeemed in Part.................................................9
ARTICLE 4. COVENANTS........................................................................9
Section 4.01. Payment of Securities.......................................................9
Section 4.02. SEC Reports.................................................................9
Section 4.03. Compliance Certificate......................................................9
Section 4.04. Stay, Extension and Usury Laws.............................................10
Section 4.05. Continued Existence........................................................10
Section 4.06. Taxes......................................................................10
ARTICLE 5. SUCCESSORS......................................................................10
Section 5.01. When Company May Merge, etc................................................10
Section 5.02. Successor Corporation Substituted..........................................11
ARTICLE 6. DEFAULTS AND REMEDIES...........................................................11
Section 6.01. Events of Default..........................................................11
Section 6.02. Acceleration...............................................................13
Section 6.03. Other Remedies.............................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.04. Waiver of Past Defaults....................................................13
Section 6.05. Control by Majority........................................................13
Section 6.06. Limitation on Suits........................................................14
Section 6.07. Rights of Holders to Receive Payment.......................................14
Section 6.08. Collection Suit by Trustee.................................................14
Section 6.09. Trustee May File Proofs of Claim...........................................14
Section 6.10. Priorities.................................................................15
Section 6.11. Undertaking for Costs......................................................15
ARTICLE 7. TRUSTEE.........................................................................15
Section 7.01. Duties of Trustee..........................................................15
Section 7.02. Rights of Trustee..........................................................16
Section 7.03. Individual Rights of Trustee...............................................17
Section 7.04. Trustee's Disclaimer.......................................................17
Section 7.05. Notice of Defaults.........................................................17
Section 7.06. Reports by Trustee to Holders..............................................17
Section 7.07. Compensation and Indemnity.................................................17
Section 7.08. Replacement of Trustee.....................................................18
Section 7.09. Successor Trustee by Merger, etc...........................................19
Section 7.10. Eligibility; Disqualification..............................................19
Section 7.11. Preferential Collection of Claims Against Company..........................19
Section 7.12. Sections Applicable to Registrar and Paying Agent..........................19
ARTICLE 8. DISCHARGE OF INDENTURE..........................................................20
Section 8.01. Termination of Company's Obligations.......................................20
Section 8.02. Application of Trust Money.................................................22
Section 8.03. Repayment to Company.......................................................22
Section 8.04. Reinstatement..............................................................22
ARTICLE 9. AMENDMENTS......................................................................22
Section 9.01. Without Consent of Holders.................................................22
Section 9.02. With Consent of Holders....................................................23
Section 9.03. Compliance with Trust Indenture Act........................................23
Section 9.04. Revocation and Effect of Consents..........................................24
Section 9.05. Notation on or Exchange of Securities......................................24
Section 9.06. Trustee Protected..........................................................24
ARTICLE 10. MISCELLANEOUS..................................................................25
Section 10.01. Trust Indenture Act Controls..............................................25
Section 10.02. Notices...................................................................25
Section 10.03. Communication by Holders with Other Holders...............................25
Section 10.04. Certificate and Opinion as to Conditions Precedent........................25
Section 10.05. Statements Required in Certificate or Opinion.............................26
Section 10.06. Rules by Trustee and Agents...............................................26
Section 10.07. Legal Holidays............................................................26
Section 10.08. No Recourse Against Others................................................26
Section 10.09. Counterparts..............................................................26
Section 10.10. Variable Provisions.......................................................27
Section 10.11. Governing Law.............................................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 10.12. No Adverse Interpretation of Other Agreements.............................27
Section 10.13. Successors................................................................28
Section 10.14. Severability..............................................................28
Section 10.15. Table of Contents, Headings, Etc..........................................28
</TABLE>
iii
<PAGE> 5
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- ---------------- -----------------
<S> <C>
310(a)(1) ................................................. 7.10
(a)(2) .................................................. 7.10
(a)(3) .................................................. N.A.
(a)(4) .................................................. N.A.
(b) .................................................. 7.08; 7.10; 10.02
(c) .................................................. N.A.
311(a) .................................................. 7.11
X (b) .................................................. 7.11
(c) .................................................. N.A.
312(a) .................................................. 2.05
(b) .................................................. 10.03
(c) .................................................. 10.03
313(a) .................................................. 7.06
(b)(1) .................................................. N.A.
(b)(2) .................................................. 7.06
(c) .................................................. 7.06; 10.02
(d) .................................................. 7.06
314(a) .................................................. 4.02; 10.02
(b) .................................................. N.A.
(c)(1) .................................................. 10.04
(c)(2) .................................................. 10.04
(c)(3) .................................................. N.A.
(d) .................................................. N.A.
(e) .................................................. 10.05
(f) .................................................. N.A.
315(a) .................................................. 7.01(b)
(b) .................................................. 7.05; 10.02
(c) .................................................. 7.01(a)
(d) .................................................. 7.01(c)
(e) .................................................. 6.11
316(a)(last sentence) .................................................. 2.09
(a)(1)(A) .................................................. 6.05
(a)(1)(B) .................................................. 6.04
(a)(2) .................................................. N.A.
(b) .................................................. 6.07
317(a)(1) .................................................. 6.08
(a)(2) .................................................. 6.09
(b) .................................................. 2.04
318(a) .................................................. 10.01
N.A. means not applicable.
</TABLE>
- ----------------
* This Cross-Reference Table is not part of the Indenture.
iv
<PAGE> 6
INDENTURE, dated as of _________, 1999, between Excel Legacy
Corporation, a Delaware corporation ("Company"), and Norwest Bank Minnesota,
National Association ("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 10.0% Senior Notes
due _______, 2004 ("Securities"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"capital stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Company" means the party named as such above until a successor replaces
it in accordance with Article 5 and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Securityholder" means a person in whose name a Security is
registered.
"Indenture" means this Indenture as amended from time to time.
"Material Subsidiary" means any subsidiary of the Company which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933 and the Exchange Act, as amended, (as such Regulation is
in effect on the date hereof), and any other subsidiary of the Company which is
material to the business, earnings, prospects, assets or condition, financial or
otherwise, of the Company and its subsidiaries taken as a whole.
"Officers' Certificate" means a certificate signed by two Officers, one
of whom must be the Chairman of the Board, the President, the Treasurer, a
Vice-President, the principal executive
1
<PAGE> 7
officer, the principal financial officer and/or the principal accounting officer
of the Company. See Sections 10.04 and 10.05
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
See Sections 10.04 and 10.05.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture in the form of Exhibit A hereto.
"subsidiary" of any specified person means (i) a corporation a majority
of whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly owned by such person or by such
person and a subsidiary or subsidiaries of such person or (ii) any other person
(other than a corporation) in which such person or such person and a subsidiary
or subsidiaries of such person or a subsidiary or subsidiaries of such person
directly or indirectly, at the date of determination thereof has at least
majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of execution of this Indenture.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Bankruptcy Law"............................................... 6.01
"Custodian..................................................... 6.01
"Event of Default"............................................. 6.01
"Legal Holiday"................................................ 10.07
"Officer"...................................................... 10.10
"Paying Agent"................................................. 2.03
"Payment Default".............................................. 6.01
"Registrar".................................................... 2.03
</TABLE>
2
<PAGE> 8
<TABLE>
<S> <C>
"U.S. Government Obligations".................................. 8.01
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) references to "generally accepted accounting principles"
shall mean generally accepted accounting principles in effect as of the
time when and for the period as to which such accounting principles are
to be applied;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular; and
(6) provisions apply to successive events and transactions.
3
<PAGE> 9
ARTICLE 2.
THE SECURITIES
Section 2.01. Form and Dating.
The Securities shall be substantially in the form of Exhibit A, which is
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Security shall
be dated the date of its authentication.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities upon a
written order of the Company signed by two Officers. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same right as an Agent to deal with the Company or
an Affiliate.
Section 2.03. Registrar and Paying Agent
The Company shall maintain in the Borough of Manhattan, City of New
York, State of New York, and in such other locations as it shall determine (i)
an office or agency where securities may be presented for registration of
transfer or for exchange ("Registrar"), and (ii) an office or agency where
Securities may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent. The
Company may change any Paying Agent,
4
<PAGE> 10
Registrar or co-registrar without prior notice. The Company shall notify the
Trustee of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its subsidiaries may
act as Paying Agent, Registrar or co-registrar.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
of any default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a subsidiary) shall have no further liability for
the money. If the Company or a subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the
Securityholders all money held by it as Paying Agent.
Section 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before each interest payment date and at such other times
as the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Securityholders.
Section 2.06. Transfer and Exchange.
Where Securities are presented to the Registrar or a co-registrar with a
request to register a transfer or to exchange them for an equal principal amount
of Securities of other denominations, the Registrar shall register the transfer
or make the exchange if its requirements for such transactions are met. To
permit registrations of transfers and exchanges, the Company shall issue and the
Trustee shall authenticate Securities at the Registrar's request. No service
charge shall be made for any registration of transfer or exchange (except as
otherwise expressly permitted herein), but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer tax or similar
governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or
9.05).
The Company shall not be required (i) to issue, register the transfer of
or exchange Securities during a period beginning at the opening of business 15
days before the day of any selection of Securities for redemption under Section
3.02 and ending at the close of business on the day of selection, or (ii) to
register the transfer or exchange of any Security so selected for redemption in
whole or in part, except the unredeemed portion of any Security being redeemed
in part.
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Section 2.07. Replacement Securities.
If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder shall be required to provide
an indemnity bond sufficient in the judgment of both to protect the Company, the
Trustee, any Agent or any authenticating agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge for its expenses in
replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to all the benefits provided under this Indenture equally
and proportionately with all other Securities duly issued hereunder.
Section 2.08. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Security.
Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Securities that the Company or any Affiliate of the Company offers to purchase
or acquire pursuant to an exchange offer, tender offer or otherwise shall not be
deemed to be owned by the Company or such Affiliate until legal title passes to
the Company or such Affiliate.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
As promptly as is reasonably practicable, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities.
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Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
canceled Securities in accordance with its normal practices. The Company may not
issue new Securities to replace Securities that it has paid or that have been
delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company fails to make a payment of interest on the Securities, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest in any lawful manner. It may pay such defaulted interest, plus any such
interest payable on it, to the persons who are Securityholders on a subsequent
special record date. The Company shall fix any such record date (which shall be
at least 5 and not more than 30 days before the payment date) and payment date.
At least 15 days before any such record date, the Company shall mail to
Securityholders a notice that states the record date, payment date, and amount
of such interest to be paid. Interest to be paid prior to the expiration of the
30-day grace period specified in Section 6.01 shall be paid to Securityholders
on the regular payment date for the interest payment that has not been made.
ARTICLE 3.
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5, it shall notify the Trustee of the
redemption date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this Section at least
50 days before the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee).
Section 3.02. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by a method that
complies with the requirements of any exchange on which the Securities are
listed and that the Trustee considers fair and appropriate. The Trustee shall
make the selection not more than 75 days and not less than 30 days before the
redemption date from Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
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Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each Holder whose Securities are to
be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued in the name of the Holder thereof;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest;
(6) that interest on Securities called for redemption ceases to
accrue on and after the redemption date; and
(7) the paragraph of the Securities pursuant to which the
Securities are being redeemed.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at its expense.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
Security.
Section 3.05. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date (subject to
the rights of Holders of record on the relevant record date to receive interest
due on an interest payment date which may occur prior to the date of
redemption). The Trustee or the Paying Agent shall return to the Company any
money not required for that purpose.
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Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or a subsidiary) holds on that date money designated for and sufficient
to pay all principal and interest then due and such Paying Agent is not
prohibited from paying such money to the Holders on that date pursuant to the
terms of this Indenture.
To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal, at the rate borne by the Securities, compounded semiannually;
and (ii) overdue installments of interest (without regard to any applicable
grace period) at the same rate, compounded semiannually.
Section 4.02. SEC Reports.
The Company shall deliver to the Trustee and to the Holders within 15
days after it files them with the SEC copies of the annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. The Company also shall comply with the other provisions of TIA
Section 314(a). The Company shall timely comply with its reporting and filing
obligations under the applicable federal securities law.
Section 4.03. Compliance Certificate.
The Company shall deliver to the Trustee, within 105 days after the end
of each fiscal year of the Company, an Officers' Certificate stating that a
review of the activities of the Company and its subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under, and complied with the covenants
and conditions contained in, this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his knowledge the
Company has kept, observed, performed and fulfilled each and every covenant, and
complied with the conditions, contained in this Indenture and is not in default
in the performance or observance of any of the terms, provisions and conditions
hereof (or, if a Default or Events of Default shall have occurred, describing
all such Defaults or Events of Default of which he may have knowledge) and that
to the best of his knowledge no event has occurred and
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remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Securities are prohibited. See Section 10.10.
The Company will, so long as any of the Securities are outstanding
deliver to the Trustee, forthwith upon becoming aware of (i) any Default, Event
of Default or default in the performance of any covenant, agreement or condition
in this Indenture or (ii) any event of default under any other mortgage,
indenture or instrument as that term is used in Section 6.01(4), an Officers'
Certificate specifying such Default, Event of Default or default.
Section 4.04. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
Section 4.05. Continued Existence.
Subject to Article 5, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
corporation and will refrain from taking any action that would cause its
existence as a corporation to cease, including without limitation any action
that would result in its liquidation, winding up or dissolution.
Section 4.06. Taxes.
The Company shall, and shall cause each of its subsidiaries to, pay
prior to delinquency all taxes, assessments and governmental levies, except as
contested in good faith and by appropriate proceedings.
ARTICLE 5.
SUCCESSORS
Section 5.01. When Company May Merge, etc.
The Company shall not consolidate or merge with or into, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets to, any person unless:
(1) the person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made,
is a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia;
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(2) the corporation formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made, assumes by supplemental indenture in a form reasonably
satisfactory to the Trustee all the obligations of the Company under the
Securities and this Indenture; and
(3) immediately after the transaction no Default or Event of
Default exists.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01, the successor corporation formed
by such consolidation or into or with which the Company is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
person has been named as the Company herein; provided, however, that the
predecessor Company in the case of a sale, assignment, transfer, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of and interest on the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the Default continues
for a period of 30 days after the date due and payable;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities or this Indenture and
the Default continues for the period and after the notice specified
below;
(4) an event of default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company
or any subsidiary (or the payment of which is guaranteed by the Company
or a subsidiary), whether such indebtedness or
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guarantee now exists or shall be created hereafter, if (a) either (i)
such event of default results from the failure to pay when due principal
of or interest on such indebtedness within the grace period provided for
in such indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default") or (ii) as a result of such event of
default the maturity of such indebtedness has been accelerated prior to
its expressed maturity and (b) the principal amount of such
indebtedness, together with the principal amount of any other such
indebtedness under which there is a Payment Default or the maturity of
which has been so accelerated, aggregates $1,000,000 or more;
(5) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the
Company or any subsidiary which remains undischarged for a period
(during which execution shall not be effectively stayed) of 30 days,
provided that the aggregate of all such judgments exceeds $500,000.
(6) the Company or any Material Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as the same
become due;
(7) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Material
Subsidiary or for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material
Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or State Law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
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A Default under clause (3) (other than Defaults under Section 4.05 or
5.01 which Defaults shall be Events of Default with the notice but without the
passage of time specified in this paragraph) or (5) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Securities notify the Company of the Default and the Company does
not cure the Default within 30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default."
Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (6) and (7) of Section 6.01) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of the
then outstanding Securities by notice to the Company and the Trustee, may
declare the unpaid principal of and accrued interest on all the Securities to be
due and payable. Upon such declaration the principal and interest shall be due
and payable immediately. If an Event of Default specified in clause (6) or (7)
of Section 6.01 occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in principal amount of the
then outstanding Securities by notice to the Trustee may rescind an acceleration
and its consequences if (i) the rescission would not conflict with any judgment
or decree, (ii) all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, and (iii) the Company has delivered an Officers' Certificate to
the Trustee to the effect of clauses (i) and (ii) above.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on any Security. When a Default or
Event of Default is waived, it is cured and ceases; but no such waiver shall
extend to any subsequent or other Default or impact any right consequent
thereon.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the
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Trustee or exercising any trust or power conferred on it. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture, is
unduly prejudicial to the rights of other Securityholders, or would involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Securityholders allowed
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in any judicial proceedings relative to the Company, its creditors or its
property. Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the
amounts due and payable on the Securities for principal
and interest, respectively; and
Third: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a
record date and payment date for any payment to Securityholders.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
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(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent (other than an agent who is an
employee of the Trustee) appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers, provided, however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to Sections 7.10 and
7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or any Statement in the Securities
other than its authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security (including any
failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 10.10, the
Trustee shall mail to Securityholders a brief report dated as of such reporting
date that complies with TIA Section 313(a). The Trustee also shall comply with
TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed, if any. The Company shall notify the Trustee when the Securities are
listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it. Such expenses may include the reasonable compensation
and out-of-pocket expenses of the Trustee's agents and counsel.
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The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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<PAGE> 24
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07. Notwithstanding the replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring trustee with respect to
expenses and liabilities incurred by it prior to such replacement.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee, provided that such successor shall otherwise be qualified and eligible
to act as a Trustee pursuant to the provisions of this Article.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a). The Trustee shall always have a combined
capital and surplus as stated in Section 10.10. The Trustee is subject to TIA
Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9). Section 10.10 lists any excluded indenture or
trust agreement.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
Section 7.12. Sections Applicable to Registrar and Paying Agent.
The term "Trustee" as used in Sections 7.01, 7.02, 7.03, 7.04 and 7.07
shall (unless the context otherwise requires) be construed as extending to and
including the Trustee acting in its capacity, if any, as Paying Agent and
Registrar.
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<PAGE> 25
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and 8.03 shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder. In addition, subject to Section 8.04, the Company may terminate all
of its obligations under this Indenture (except the Company's obligations under
Sections 7.07 and 8.03) if:
(1) the Securities mature within one year or all of them are to
be called for redemption within one year under arrangements satisfactory
to the Trustee for giving the notice of redemption;
(2) the Company irrevocably deposits in trust with the Trustee
money or U.S. Government Obligations sufficient without investment of
such money or reinvestment of interest or proceeds from such U.S.
Government Obligation to pay principal and interest on the Securities to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder. The Company may make the deposit only during
the one-year period;
(3) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the money or U.S. Government Obligations
so deposited, without investment of such money or reinvestment of
interest or proceeds on such U.S. Government Obligations, will provide
cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Securities to maturity or
redemption, as the case may be;
(4) the Company delivers to the Trustee an Opinion of Counsel
stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the
date of this Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the holders of the
outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amount and in the same manner
and at the same time as would have been the case if such defeasance had
not occurred;
(5) no Default or Event of Default or event which with notice or
lapse of time or both would become an Event of Default shall have
occurred and be continuing on the date of such deposit and after giving
effect thereto or, insofar as subsections (6) and (7) of Section 6.01
are concerned, at any time during the period ending on and including the
91st
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<PAGE> 26
day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period);
(6) such defeasance shall not result in a breach or violation of,
or constitute a default under any agreement or instrument to which the
Company or any of its subsidiaries is bound;
(7) the Company delivers to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, except that if a court were to rule under any such law in any
case or proceeding that the trust funds remained property of the
Company, no opinion is given as to the effect of such laws on the trust
funds except the following: (A) assuming such trust funds remained in
the Trustee's possession prior to such court ruling to the extent not
paid to holders of the Securities, the Trustee will hold, for the
benefit of such holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise and (B)
such holders will be entitled to receive adequate protection of their
interest in such trust funds if such trust funds are used;
(8) the Company delivers to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the Securities over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(9) the Company delivers to the Trustee an Opinion of Counsel
stating that neither the trust nor the Trustee will be required to
register as an investment company under the Investment Company Act of
1940, as amended; and
(10) the Company delivers to the Trustee an Officers' Certificate
stating that all conditions precedent to the defeasance and discharge of
the Securities as contemplated by this Article 8 have been complied
with.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06,
2.07, 4.01, 7.07, 8.03 and 8.04, shall survive until the Securities are no
longer outstanding. Thereafter, only the Company's obligations in Sections 7.07
and 8.03 shall survive.
After a deposit made pursuant to this Section 8.01 and satisfaction of
the conditions set forth herein, the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under this Indenture except
for those surviving obligations specified above.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged. In order to have money available on a
payment date to pay principal or interest on the Securities, the U.S. Government
Obligations shall be payable as to principal or interest on or before such
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<PAGE> 27
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities.
Section 8.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
Subject to applicable abandoned property law, the Trustee and the Paying
Agent shall pay to the Company upon request any money held by them for the
payment of principal or interest that remains unclaimed for two years after the
date upon which such payment shall have become due; provided, however, that the
Company shall have first caused notice of such payment to the Company to be
mailed to each Securityholder entitled thereto no less than 30 days prior to
such payment. After payment to the Company, Securityholders entitled to the
money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person.
Section 8.04. Reinstatement.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01 until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02; provided, however, that if the Company makes any
payment of interest on or principal of any Security following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS
Section 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
without the consent of any Securityholder:
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<PAGE> 28
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01;
(3) to provide for uncertificated Securities in addition to
certificated Securities; or
(4) to make any change that does not adversely affect the rights
hereunder of any Securityholder.
Section 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture or the Securities with the written consent of the Holders of at least
a majority in principal amount of the then outstanding Securities. Subject to
Sections 6.04 and 6.07, the Holders of a majority in principal amount of the
Securities then outstanding may also waive compliance in a particular instance
by the Company with any provision of this Indenture or the Securities. However,
without the consent of each Securityholder affected, an amendment or waiver
under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment or waiver;
(2) reduce the rate of or change the time for payment of interest
on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that stated in
the Security;
(5) make any change in Section 6.04, 6.07 or 9.02 (this
sentence); or
(6) waive a default in the payment of the principal of, or
interest on, any Security.
To secure a consent of the Holders under this Section, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment
or waiver.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
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<PAGE> 29
Section 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective shall
have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(6) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security that evidences the same debt as the consenting Holder's Security.
Section 9.05. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.06. Trustee Protected.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section
10.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture.
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<PAGE> 30
ARTICLE 10.
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 10.02. Notices.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail to the other's address stated in Section 10.10. The Company or the Trustee
by notice to the other may designate additional or different address for
subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 10.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
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<PAGE> 31
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 10.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by excepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
Section 10.09. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
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<PAGE> 32
Section 10.10. Variable Provisions.
"Officer" means Chairman of the Board, the President, any Vice
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
The Company initially appoints the Trustee as Paying Agent, Registrar
and authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the fiscal
year ending on December 31, 1999.
The reporting date for Section 7.06 is [May 15] of each year. The first
reporting date is [May 15], 2000.
The Trustee shall always have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition.
The Company's address is:
16955 Via Del Campo, Suite 100
San Diego, California 92127
Attn: Gary B. Sabin, President and Chief Executive
Officer
Facsimile No.: (619) 675-9405
The Trustee's address is:
Norwest Bank Minnesota, National Association
Corporate Trust Services
Sixth & Marquette
N 9303-120
Minneapolis, Minnesota 55479
Facsimile No.: (612) 667-9825
Section 10.11. Governing Law.
The internal laws of the State of New York shall govern this Indenture
and the Securities, without regard to the conflicts of laws provisions thereof.
Section 10.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
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<PAGE> 33
Section 10.13. Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 10.14. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.15. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SIGNATURES
Dated: as of ________________ EXCEL LEGACY CORPORATION,
a Delaware corporation
By ________________________
Dated: as of ________________ Norwest Bank Minnesota,
National Association
By ________________________
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<PAGE> 34
Exhibit A
(Face of Security)
No. ___ $ _____________
10.0% SENIOR NOTE
DUE _________ __, 2004
EXCEL LEGACY CORPORATION
promises to pay to
____________
or registered assigns,
the principal sum of _____________ Dollars on _______ __, 2004
Interest Payment Dates: ___________ and ___________
Record Dates: ___________ and ___________
This is one of the Securities described in the within-mentioned Indenture.
Additional provisions of this Security are set forth on the
other side of this Security.
Authenticated: Dated:
Norwest Bank Minnesota, National Association, Excel Legacy Corporation
as Trustee
By ________________________ By _____________________
Authorized Signature
OR
as Authenticating Agent
By ________________________
Authorized Signature
A-1
<PAGE> 35
(Back of Security)
10.0% Senior Note
due _________ __, 2004
1. Interest. Excel Legacy Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
_________ __ and _________ __ of each year. Interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from August 15, 1999. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Securities
(except defaulted interest) to the persons who are registered holders of
Securities at the close of business on the record date for the next interest
payment date even though Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal and
interest by check payable in such money. It may mail an interest check to a
holder's registered address.
3. Paying Agent and Registrar. The Trustee will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-registrar
without prior notice. The Company or any of its subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Securities under an Indenture dated
as of _________ __, 1999 ("Indenture") between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the
Indenture. The Securities are subject to, and qualified by, all such terms,
certain of which are summarized hereon, and Securityholders are referred to the
Indenture and such Act for a statement of such terms. The Securities are
unsecured general obligations of the Company limited to $___________ in
aggregate principal amount.
5. Optional Redemption. The Company may redeem all or some of the
Securities at any time and from time to time at the redemption price of 100% of
the principal amount of such Securities plus accrued interest to the redemption
date.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. In the event of a redemption of less than all of the Securities, the
Securities will be chosen for redemption by the Trustee, generally pro rata or
by lot. On and after the redemption date interest ceases to accrue on Securities
or portions of them called for redemption.
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<PAGE> 36
If this Security is redeemed subsequent to a record date with respect to
any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the person in whose name
this Security is registered at the close of business on such record date.
7. Denominations, Transfer, Exchange. The Securities are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Registrar may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any Security or portion
of a Security selected for redemption (except the unredeemed portion of any
Security being redeemed in part). Also, it need not exchange or register the
transfer of any Securities for a period of 15 days before a selection of
Securities to be redeemed.
8. Persons Deemed Owners. Except as provided in paragraph 2, the
registered holder of a Security may be treated as its owner for all purposes.
9. Amendments and Waivers. Subject to certain exceptions, the Indenture
or the Securities may be amended with the consent of the holders of at least a
majority in principal amount of the then outstanding Securities, and any
existing default may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be amended to cure any
ambiguity, defect or inconsistency, to provide for assumption of the Company's
obligations to Securityholders or to make any change that does not adversely
affect the rights of any Securityholder.
10. Defaults and Remedies. An Event of Default is: default for 30 days
in payment of interest on the Securities; default in payment of principal on
them; failure by the Company for 30 days after notice to it to comply with any
of its other agreements in the Indenture or the Securities or, in the case of
failure by the Company to maintain its corporate existence or to comply with the
restrictions on consolidation, merger or transfer or lease of substantially all
its assets, with such notice but without such passage of time; certain defaults
under and accelerations prior to maturity of other indebtedness; certain final
judgments which remain undischarged; and certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Securities become due and payable without further
action or notice. Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Securityholders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that
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<PAGE> 37
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
11. Trustee Dealings with the Company. Subject to certain limitations
imposed by the TIA, the Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
12. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
13. Authentication. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
14. Abbreviations. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written request and without
charge a copy of the Indenture, which has in it the text of this Security in
larger type. Requests may be made to:
Treasurer, Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
iii
<PAGE> 38
ASSIGNMENT FORM
To Assign this Security, fill in the form below:
I or we assign and transfer this Security to
__________________
[__________________]
(Insert assignee's social security or tax I.D. number)
______________________
______________________
______________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _________________________, agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Dated: _________________________ Signed: _____________________________
(Sign exactly as your name appears
on the other side of this Security)
iv
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF LATHAM & WATKINS]
September 7, 1999
Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, California 92127
Re: Excel Legacy Corporation
Ladies and Gentlemen:
We have acted as special tax counsel to Excel Legacy Corporation, a
Delaware corporation (the "Company"), in connection with the registration of (i)
9.0% Convertible Subordinated Debentures due 2004 of the Company (the
"Debentures"), (ii) 10.0% Senior Notes due 2004 of the Company (the "Notes"),
and (iii) Common Stock, par value $0.01 per share, of the Company issuable upon
conversion of the Debentures (the "Common Stock"), pursuant to a Registration
Statement on Form S-4 under the Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on June 9, 1999 (File No. 333-80339) (as
amended, and together with the information incorporated by reference or deemed
included therein, the "Registration Statement"). In accordance with the terms of
the Stockholders Agreement (as defined in the Registration Statement), the
Company agreed to offer (the "Exchange Offer") to all holders of Common Stock
("Enterprises Common Stock") of Price Enterprises, Inc., a Maryland corporation
("PEI"), $8.50 per share for all outstanding shares of PEI Common Stock,
comprised of $4.25 in cash, $2.75 in principal amount of the Debentures, and
$1.50 in principal amount of the Notes.
You have requested our opinion concerning certain of the material United
States federal income tax consequences in connection with the Exchange Offer.
In formulating our opinion, we examined such documents as we deemed
appropriate, including (i) the Registration Statement, (ii) the Stockholders
Agreement, (iii) the Company's charter and bylaws, and (iv) such other records,
certificates and documents as we have deemed necessary or appropriate for
purposes of rendering the opinion set forth herein. In addition, we have
obtained such additional information as we deemed relevant and necessary through
consultation with various officers and representatives of the Company. This
opinion is based on various statements of fact and assumptions, including the
statements of fact and representations set forth in the Registration Statement.
The opinions expressed herein are conditioned on the initial and continuing
accuracy of the facts, information, statements and representations set forth in
the documents and filings referred to herein.
As special tax counsel, we have made such legal and factual examinations
and inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes of
this opinion. For purposes of this opinion, we have not made an independent
investigation or audit of the facts set forth in the above referenced documents.
<PAGE> 2
LATHAM & WATKINS
Excel Legacy Corporation
September 7, 1999
Page 2
In our examination, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures thereon, the
legal capacity of natural persons executing such documents and the conformity to
authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the federal income tax laws of the United States, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of other
federal laws, the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any state. We
express no opinion as to (i) whether PEI was organized in conformity with the
requirements for qualification and taxation as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the "Code"), (ii) whether
PEI's method of operation has enabled PEI to meet the requirements for
qualification and taxation as a real estate investment trust under the Code, or
(iii) the effect of the Exchange Offer on PEI's status as a real estate
investment trust.
Based on such facts, assumptions and representations and subject to the
limitations and the discussion set forth herein and in the Registration
Statement, it is our opinion that:
(1) Upon a United States Holder's (as defined in the "United States
Federal Income Tax Consequences" portion of the Registration
Statement) exchange of Enterprises Common Stock for cash, Debentures
and Notes, such holder will recognize gain or loss equal to the
difference between (a) the amount of cash and the issue price of the
Debentures and Notes received, and (b) such holder's adjusted basis
in the Enterprises Common Stock exchanged therefor. Assuming the
Enterprises Common Stock constitutes a capital asset in the hands of
such holder, such gain or loss will be capital gain or loss;
(2) Stated interest on the Debentures will generally be includible in a
United States Holder's gross income and taxable as ordinary interest
income at the time it is paid or accrued, in accordance with such
holder's regular method of accounting for federal income tax
purposes;
(3) If the stated principal amount of a Debenture exceeds the issue
price of the Debenture by more than a statutorily determined de
minimis amount, a United States Holder will be required to include
the amount of such excess as ordinary interest income over the term
of the Debenture under a constant yield method;
(4) Except as provided below under subparagraph (8), each United States
Holder generally will recognize gain or loss upon the sale,
exchange, redemption, retirement or other taxable disposition of
Debentures measured by the difference, if any, between (a) the
amount of cash and the fair market value of any property received -
except to the extent that such cash or other property is
attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary
interest income, and (b) such holder's adjusted tax basis in the
Debentures;
<PAGE> 3
LATHAM & WATKINS
Excel Legacy Corporation
September 7, 1999
Page 3
(5) Stated interest on the Notes will generally be includible in a
United States Holder's gross income and taxable as ordinary interest
income at the time it is paid or accrued, in accordance with such
holder's regular method of accounting for federal income tax
purposes;
(6) If the stated principal amount of a Note exceeds the issue price of
the Note by more than a statutorily determined de minimis amount, a
United States Holder will be required to include the amount of such
excess as ordinary interest income over the term of the Note under a
constant yield method;
(7) Except as provided below under subparagraph (8), each United States
Holder generally will recognize gain or loss upon the sale,
exchange, redemption, retirement or other taxable disposition of
Notes measured by the difference, if any, between (a) the amount of
cash and the fair market value of any property received - except to
the extent that such cash or other property is attributable to the
payment of accrued interest not previously included in income, which
amount will be taxable as ordinary interest income, and (b) such
holder's adjusted tax basis in the Notes;
(8) A United States Holder generally will not recognize any income, gain
or loss upon conversion of a Debenture or a Note into Common Stock
except to the extent the Common Stock is considered attributable to
accrued interest not previously included in income (which is taxable
as ordinary interest income) or with respect to cash received in
lieu of a fractional share of Common Stock;
(9) The adjusted basis of shares of Common Stock received on conversion
will generally equal the adjusted basis of the Debentures or Notes
(as the case may be) converted, reduced by the portion of adjusted
basis allocated to any fractional share of Common Stock exchanged
for cash, and the holding period of the Common Stock received on
conversion will generally include the period during which the
converted Debentures or Notes (as the case may be) were held.
However, a United States Holder's tax basis in shares of Common
Stock considered attributable to accrued interest as described in
subparagraph (8) above generally will equal the amount of such
accrued interest included in income, and the holding period for such
shares will begin as of the date of conversion;
(10) The amount of any cash distribution received by a United States
Holder with respect to Common Stock will be treated as a dividend,
taxable as ordinary income to such holder, to the extent of the
Company's current or accumulated earnings and profits as determined
under United States federal income tax principles. To the extent
that the amount of such distribution exceeds the Company's current
and accumulated earnings and profits, the excess first will be
treated as a return of capital that will reduce the United States
Holder's tax basis in the Common Stock. Any remaining amount after
the United States Holder's basis has been reduced to zero will be
taxable as capital gain; and
<PAGE> 4
LATHAM & WATKINS
Excel Legacy Corporation
September 7, 1999
Page 4
(11) Any sale or other disposition of the Common Stock by a United
States Holder will normally be a taxable event. Upon such a taxable
sale or other disposition, such holder will generally recognize
capital gain or loss equal to the difference between the amount of
cash and the fair market value of property received by such holder
for the Common Stock and the holder's adjusted tax basis in those
shares.
No opinion is expressed as to any matter not discussed herein. This
opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to change
either prospectively or retroactively. Any such change may affect the
conclusions stated herein. Also, any variation or difference in the facts,
information, statements and representations from those set forth in the
statements of fact and representations set forth in the Registration Statement
may affect the conclusions stated herein.
Except as provided below, this opinion is rendered to you and is for
your use in connection with the Registration Statement. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted to, or relied
upon by any other person, firm or corporation for any purpose, without our prior
written consent. Notwithstanding the preceding two sentences, this opinion may
be relied upon by the United States Holders who acquire the Debentures and the
Notes pursuant to the Exchange Offer. This opinion speaks only as of the date
hereof and we have no responsibility or obligation to update this opinion, to
consider its applicability or correctness to other than its addressees, or to
take into account changes in law, facts or any other development of which we may
later become aware.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references in the Registration Statement to our
firm and to the inclusion of a copy of this opinion letter as an exhibit to the
Registration Statement. In giving such consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/S/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated October 22, 1998 relating to the
consolidated financial statements and financial statement schedules of Excel
Legacy Corporation, which appear in Excel Legacy Corporation's annual report on
Form 10-K/A for the period from inception (November 17, 1997) to July 31, 1998.
We also consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report dated August 13, 1999 relating to the combined
financial statements of Excel Legacy Asset Group, which appear in Excel Legacy
Corporation's annual report on Form 10-K/A for the period from inception
(November 17, 1997) to July 31, 1998. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Diego, California
September 2, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333-80339) and related Prospectus of Excel
Legacy Corporation for the registration of certain securities and to the
incorporation by reference therein of our reports (a) dated January 19, 1999
(except for Note 12, as to which the date is January 22, 1999), with respect to
the consolidated financial statements and schedule of Price Enterprises, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1998,
and (b) dated June 24, 1998 with respect to the statements of revenue over
specific operating expenses of the Sacramento Office Complex of Price
Enterprises, Inc. included in its Current Report on Amendment No. 1 to Form 8-K
dated May 1, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Diego, California
September 1, 1999
<PAGE> 1
Exhibit 23.4
CONSENT OF VALUATION RESEARCH CORPORATION
We hereby consent to the use of our opinion letter dated May 18, 1999,
including Exhibits A and B, to the Board of Directors of Price Enterprises, Inc.
included as Annex C to the Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the exchange offer by Excel Legacy Corporation
for any and all shares of common stock of Price Enterprises, Inc., and to the
references to such opinion in such Prospectus under the captions "The Exchange
Offer--Background of the Exchange Offer," The Exchange Offer--Enterprises'
Reasons for the Exchange Offer" and "The Exchange Offer--Fairness Opinion." In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
VALUATION RESEARCH CORPORATION
/s/ Dennis C. Valerio
-------------------------------
Dennis C. Valerio
President
Los Angeles, California
September 1, 1999
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
[ ] CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
EXCEL LEGACY CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 33-0781747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices) (Zip code)
-----------------------------
9.0% CONVERTIBLE REDEEMABLE SUBORDINATED DEBENTURES DUE 2004
10.0% SENIOR REDEEMABLE NOTES DUE 2004
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank incorporates
by reference into this Form T-1 the exhibits
attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting Comptroller
of the Currency dated January 12, 1943, as to
change of corporate title of Northwestern National
Bank and Trust Company of Minneapolis to
Northwestern National Bank of Minneapolis.*
<PAGE> 3
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller
of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise corporate
trust powers issued January 2, 1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-83117
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 19th day of August 1999.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Timothy P. Mowdy
-----------------------------------------
Timothy P. Mowdy
Corporate Trust Officer
<PAGE> 5
EXHIBIT 6
August 19, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Timothy P. Mowdy
-----------------------------------------
Timothy P. Mowdy
Corporate Trust Officer
