<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.)
</TABLE>
16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CA 92127
(619) 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
(619) 675-9400 (619) 236-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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 Subordinated
Debentures due 2004............... $36,570,658(1) 100% $36,570,658(1) $28,883(2)
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10.0% Senior Notes due 2004......... $19,947,632(1) 100% $19,947,632(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 Subordinated Debentures (Legacy debentures) and 10.0%
Senior Notes (Legacy notes) and certain cash consideration will be offered
in exchange for any and all shares of common stock of Price Enterprises,
Inc. (PEI) 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)
13,298,421 shares of PEI common stock, representing all of the issued and
outstanding shares of PEI common stock as of June 4, 1999, which is the
maximum number of shares of PEI common stock to be received by Excel Legacy
Corporation, and (ii) $7.8125, the average of the high and low prices for
the PEI common stock as reported on the Nasdaq National Market on June 4,
1999.
(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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<PAGE> 2
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 JUNE 9, 1999
OFFER TO EXCHANGE
$8.50 COMPRISED OF
$[4.25] IN CASH,
$[2.75] IN PRINCIPAL AMOUNT OF 9.0% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
AND
$[1.50] IN PRINCIPAL AMOUNT OF 10.0% SENIOR 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 (referred to in this prospectus as "we," "us,"
"our," or "Legacy") 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
Subordinated Debentures due 2004 (Legacy debentures) and $[1.50] in principal
amount of our 10.0% Senior Notes due 2004 (Legacy notes) for each share of
common stock of Price Enterprises, Inc. (PEI). If all PEI 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 $19.9 million in Legacy notes. PEI's board of directors has
approved this transaction.
Legacy's common stock, into which the Legacy debentures may be converted, is
traded on the American Stock Exchange under the symbol "XLG." On June 4, 1999,
the closing price for the Legacy common stock was $5.00. 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.
PEI's common stock and preferred stock are traded on the Nasdaq National
Market under the symbols "PREN" and "PRENP," respectively. On June 4, 1999, the
closing price for the PEI common stock was $7.25 and the closing price for the
PEI preferred stock was $15.125. The PEI preferred stock will remain outstanding
following our offer.
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.
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.
After the exchange, we may merge PEI with a wholly-owned subsidiary of
Legacy. The merger will have no effect on the PEI stockholders who accept our
offer. It will affect, however, those PEI stockholders who do not accept our
offer. If we proceed with a merger, we will give those stockholders the same
ratio of cash, Legacy debentures and Legacy notes for their PEI common stock as
is being offered to you.
This prospectus provides you with detailed information about our offer and
the exchange, including conditions to our offer, and information about Legacy
and PEI. In addition, you may obtain information about Legacy and PEI from
documents that we and PEI have filed with the Securities and Exchange
Commission. Please read this entire document and the enclosed letter of
transmittal carefully.
-------------------------
THE LEGACY DEBENTURES AND THE LEGACY NOTES WE ARE OFFERING INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 19 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.
<PAGE> 3
SOURCES OF ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about Legacy and PEI that is not included or delivered with this document. This
information is available without charge to the holders of PEI common stock upon
written or oral request.
You may contact the information agent with respect to the exchange offer as
follows:
------------------------------
------------------------------
------------------------------
Attn:
------------------
(__)_____
------------------
You may contact Legacy as follows:
Excel Legacy Corporation
16955 Via Del Campo, Suite 100
San Diego, CA 92127
(619) 675-9400
You may contact PEI as follows:
Price Enterprises, Inc.
4649 Morena Boulevard
San Diego, California 92117
(619) 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 PEI with the SEC at the SEC's
website at www.sec.gov. Please refer to "Where You Can Find More Information" in
this prospectus.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT OUR OFFER....................... 1
PROSPECTUS SUMMARY.......................................... 5
Summary of the Exchange Offer............................. 5
Excel Legacy Corporation.................................. 6
Price Enterprises, Inc.................................... 7
The Exchange Offer........................................ 8
Cash...................................................... 11
Legacy 9.0% Convertible Subordinated Debentures due
2004................................................... 11
Legacy 10.0% Senior Notes due 2004........................ 12
Persons Interested in the Exchange Offer.................. 13
Risk Factors.............................................. 13
Summary Selected Financial Data of Legacy................. 14
Summary Selected Financial Data of PEI.................... 15
Selected Pro Forma Consolidated Condensed Financial
Information............................................ 16
Ratio of Earnings to Fixed Charges........................ 17
Comparative Per Share Data................................ 17
Comparative Per Share Market Information.................. 18
RISK FACTORS................................................ 19
FORWARD-LOOKING STATEMENTS.................................. 31
THE EXCHANGE OFFER.......................................... 32
General................................................... 32
Background of the Exchange Offer.......................... 32
Our Reasons for the Exchange Offer........................ 36
PEI's Reasons for the Exchange Offer...................... 37
Fairness Opinion.......................................... 39
Exchange Rate............................................. 43
Expiration Date........................................... 43
Exchange of Cash, Debentures and Notes for PEI Common
Stock.................................................. 44
Exchange Agent............................................ 45
Guaranteed Delivery Procedures............................ 46
Conditions to the Exchange................................ 47
Termination of the Exchange Offer......................... 48
Withdrawal Rights......................................... 48
Federal Income Tax Consequences........................... 49
Fees and Expenses......................................... 49
Resales of the Legacy Debentures and Legacy Notes by PEI
Affiliates............................................. 50
Regulatory Matters........................................ 50
Effect on Options to Purchase PEI Stock................... 50
Effect on PEI Preferred Stock............................. 50
Accounting Treatment...................................... 51
Anticipated Merger and Dissenting Stockholders Rights..... 51
DESCRIPTION OF THE AGREEMENTS............................... 52
The Stockholders Agreement................................ 52
The Company Agreement..................................... 53
Termination of the Agreements and Liquidated Damages...... 55
DESCRIPTION OF LEGACY CAPITAL STOCK......................... 56
General................................................... 56
</TABLE>
i
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Legacy Common Stock....................................... 56
Legacy Preferred Stock.................................... 57
Registrar and Transfer Agent.............................. 57
DESCRIPTION OF THE LEGACY DEBENTURES AND THE LEGACY NOTES... 57
General................................................... 57
Maturity and Interest..................................... 58
Redemption................................................ 58
Selection and Notice of Redemption........................ 59
Ranking................................................... 59
Conversion................................................ 61
Covenants................................................. 63
Events of Default......................................... 64
Satisfaction and Discharge................................ 65
Modification of the Indentures............................ 67
Governing Law............................................. 68
The Trustee............................................... 68
Certain Definitions....................................... 68
INFORMATION ABOUT LEGACY.................................... 70
General................................................... 70
Our Properties............................................ 70
Our Principal Tenants..................................... 73
Our Employees............................................. 73
Our Headquarters.......................................... 73
Our Directors and Officers................................ 74
INFORMATION ABOUT PEI....................................... 76
General................................................... 76
PEI's Properties.......................................... 76
PEI's Principal Tenants................................... 78
PEI's Employees........................................... 78
PEI's Headquarters........................................ 78
PEI's Directors and Officers.............................. 79
DIRECTORS AND MANAGEMENT OF PEI FOLLOWING THE EXCHANGE
OFFER..................................................... 80
PERSONS INTERESTED IN THE EXCHANGE OFFER.................... 81
Severance Payments........................................ 81
Stock Options............................................. 82
Indemnification and Directors and Officers' Liability
Insurance.............................................. 83
COMPARISON OF STOCKHOLDER RIGHTS............................ 84
Form of Organization and Purpose.......................... 84
Capitalization............................................ 84
Restrictions on Ownership and Transfer of Stock........... 84
Amendment of Legacy Charter/PEI Charter................... 85
Stockholder Voting Rights Generally....................... 86
Stockholder Action by Written Consent..................... 86
Special Stockholder Meetings.............................. 87
Inspection Rights......................................... 87
Number and Election of Directors.......................... 88
Removal of Directors...................................... 88
</TABLE>
ii
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Vacancies on the Board of Directors....................... 89
Standard of Conduct....................................... 89
Advance Notice of Director Nominations and of New Business
Proposals.............................................. 90
Limitation of Liability and Indemnification of Directors
and Officers........................................... 90
Declaration of Dividends.................................. 92
Appraisal Rights.......................................... 92
Merger, Consolidation, Share Exchange and Transfer of All
or Substantially All Assets............................ 94
Change in Control Pursuant to Delaware/Maryland Law....... 95
SUMMARY SELECTED FINANCIAL DATA OF LEGACY................... 98
SUMMARY SELECTED FINANCIAL DATA OF PEI...................... 99
UNAUDITED PRO FORMA OPERATING AND FINANCIAL INFORMATION..... 100
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............. 105
Treatment of the Exchange Offer........................... 106
Legacy Debentures......................................... 107
Legacy Notes.............................................. 108
Legacy Common Stock....................................... 108
Information Reporting and Backup Withholding.............. 109
Proposed Legislation...................................... 110
LEGAL MATTERS............................................... 111
EXPERTS..................................................... 111
WHERE YOU CAN FIND MORE INFORMATION......................... 112
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT OUR OFFER
Q1: WHAT AM I BEING OFFERED?
A1: We are offering you $[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 PEI common stock held by you. PEI's board of directors has approved this
transaction.
Q2: WHO IS LEGACY?
A2: We were formed as a Delaware corporation on November 17, 1997 and are
headquartered in San Diego, California. We were originally formed as a
wholly owned subsidiary of Excel Realty Trust, Inc., a real estate
investment trust (REIT) now known as New Plan Excel Realty Trust, Inc., to
pursue a variety of real estate opportunities. These opportunities include
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. We are no longer affiliated with
New Plan Excel. Our common stock is listed on the American Stock Exchange
and we file periodic and other reports with the SEC. For a more detailed
discussion of our business and properties, see "Information About Legacy."
Q3: WHY IS LEGACY MAKING THIS OFFER?
A3: In reaching its conclusion to make the offer, our board of directors
consulted with our management, as well as our legal and financial advisors,
and considered the following positive factors:
- The effectiveness of the exchange offer in implementing and accelerating
our growth strategy consistent with our business goals.
- The ability to significantly expand the size and geographic diversity of
our property portfolio as a result of the exchange offer, thereby
reducing the potential adverse impact on the overall portfolio of
fluctuations in local economies.
- The ability to use PEI 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 opportunity to place some of our completed development projects into
a REIT to take advantage of preferred tax treatment.
- Our management's view that PEI's properties are generally well-maintained
with strong credit quality tenants, providing a solid base from which to
grow.
- Our management's view 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.
For a more detailed discussion of our reasons for the exchange offer and
other positive and potentially negative factors which our board of directors
considered in reaching its decision, see "The Exchange Offer -- Our Reasons
for the Exchange Offer."
1
<PAGE> 8
Q4: PLEASE EXPLAIN THE EXCHANGE RATE.
A4: 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 PEI 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 PEI 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.
Q5: PLEASE EXPLAIN THE SIGNIFICANT TERMS OF THE LEGACY DEBENTURES.
A5: As a holder of Legacy debentures, you will be entitled to interest at the
rate of 9.0% per annum, payable semi-annually on and
commencing , 2000. Interest will accrue on the
debentures from August 15, 1999. The Legacy debentures will mature on
, 2004. The 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
, 2004. The 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 debentures, plus accrued and
unpaid interest through the redemption date. 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. For a more detailed discussion of the terms
of the Legacy debentures, see "Description of the Legacy Debentures and the
Legacy Notes."
Q6: PLEASE EXPLAIN THE SIGNIFICANT TERMS OF THE LEGACY NOTES.
A6: As a holder of Legacy notes, you will be entitled to interest at the rate
of 10.0% per annum, payable semi-annually on and
commencing , 2000. Interest will accrue on the
notes from August 15, 1999. The Legacy notes will mature on ,
2004. 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
notes, plus accrued and unpaid interest through the redemption date. 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, provided that the
2
<PAGE> 9
Legacy notes will be effectively subordinated to our secured indebtedness
and the indebtedness and other liabilities of our subsidiaries. For a more
detailed discussion of the terms of the Legacy notes, see "Description of
the Legacy Debentures and the Legacy Notes."
Q7: WHAT DO I NEED TO DO NOW?
A7: 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 PEI common stock you wish to
exchange, and any other necessary documents to , which is
the exchange agent for our offer. For detailed instructions, see "The
Exchange Offer." If your shares are held by your broker and are not
certificated in your name (i.e., your shares are held in "street 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.
Q8: WHEN DO I NEED TO SEND MY LETTER OF TRANSMITTAL AND STOCK CERTIFICATES?
A8: 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. For
detailed instructions, see "The Exchange Offer."
Q9: CAN I CHANGE MY MIND AFTER I TENDER MY PEI COMMON STOCK?
A9: Yes. You may withdraw tenders of your shares of PEI common stock any time
before the exchange offer expires. If you change your mind again, you can
retender your shares of PEI 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 PEI common stock
tendered, we will promptly return all shares that you have tendered.
Q10: CAN I TENDER ONLY A PORTION OF MY PEI COMMON STOCK IN THE EXCHANGE OFFER?
A10: Yes, you may exchange some or all of your PEI common stock.
Q11: DO I DO ANYTHING IF I WANT TO RETAIN MY PEI COMMON STOCK?
A11: No. If you want to retain your PEI common stock, you do not need to take
any action.
Q12: HOW MANY PEI STOCKHOLDERS MUST ACCEPT THIS OFFER?
A12: Our offer is conditioned upon 8,000,000 shares of PEI common stock
(representing approximately 51% of the PEI voting power) being tendered
for exchange and not withdrawn and is subject to other customary
conditions.
- Sol Price, as trustee of certain trusts, and other stockholders of PEI
have agreed to exchange their shares of PEI common stock, which together
aggregate 8,014,970 shares. These shares have been placed in escrow
pending the consummation of the exchange offer.
3
<PAGE> 10
- Although we expect the minimum number of shares of PEI 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.
The agreement between Legacy, Sol Price, as trustee of certain trusts, and
other stockholders of PEI is referred to in this prospectus as the
"Stockholders Agreement." For a discussion of the terms of the Stockholders
Agreement, see "Description of the Agreements -- The Stockholders
Agreement." For a discussion of the other conditions to our offer, see "The
Exchange Offer -- Conditions to the Exchange."
Q13: WHEN WILL I RECEIVE THE CASH, DEBENTURES AND NOTES?
A13: If the exchange occurs, we (acting through the exchange agent) 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.
Q14: WHAT ARE THE TAX CONSEQUENCES OF THE EXCHANGE TO ME?
A14: The exchange of PEI common stock for cash, Legacy debentures and Legacy
notes pursuant to 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.
Q15: WHAT IS THE EFFECT OF OUR OFFER ON THE PEI PREFERRED STOCK?
A15: The PEI preferred stock will remain outstanding and will be unaffected by
the exchange offer except that we have agreed to provide certain
protections for the holders of PEI preferred stock which are described in
"The Exchange Offer -- Effect on PEI Preferred Stock" and "Description of
the Agreements -- The Company Agreement."
Q16: WHAT IS THE EFFECT OF OUR OFFER ON PEI STOCK OPTIONS?
A16: We have agreed with PEI to accelerate the vesting of PEI stock options and
to make cash payments with respect to those options. For a discussion of
the effect of the exchange offer on PEI stock options, see "The Exchange
Offer -- Effect on Options to Purchase PEI Stock" and "Persons Interested
in the Exchange Offer."
Q17: WHOM SHOULD I CALL WITH QUESTIONS?
A17: If you have any questions about our offer or the exchange, you may call
the information agent, , at ( )
to ask any questions or to request additional documents.
You may also call Graham R. Bullick, Ph.D., our Vice President of Capital
Markets and head of our Investor Relations Department at (619) 675-9400.
4
<PAGE> 11
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 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 Subordinated Debentures due
2004 and $[1.50] in principal amount of our 10.0% Senior Notes due 2004 for each
share of PEI common stock. 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 PEI common stock.
STOCKHOLDERS AGREEMENT
On May 12, 1999, we entered into an agreement with Sol Price, as trustee of
certain trusts, and other stockholders of PEI. This first agreement is referred
to in this prospectus as the "Stockholders Agreement." In accordance with the
terms of the Stockholders Agreement, we agreed to offer to all PEI stockholders
$8.50 per share for all outstanding shares of PEI common stock. To facilitate
the exchange offer, Mr. Price, as trustee of certain trusts, and other PEI
stockholders have deposited into escrow an aggregate of 8,014,970 shares of PEI
common stock (representing approximately 51% of the PEI voting power), and we
have deposited into escrow $7.5 million in cash. If the parties satisfy their
obligations under the Stockholders Agreement and the Company Agreement described
below, 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
Pursuant to the Stockholders Agreement, PEI's 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 for PEI common stock or a merger
with PEI. The PEI board met on June 2, 1999 and approved the transaction and
determined that it would proceed as an exchange offer. On the same day, we
entered into an agreement with PEI which is referred to in this prospectus as
the "Company Agreement." Under the Company Agreement, Legacy and PEI have agreed
to take certain actions to facilitate the exchange offer. In addition, after the
consummation of the exchange offer, we have agreed that the holders of PEI
preferred stock will be entitled to elect a majority of PEI's board of directors
and to have one designee on Legacy's board of directors, until (1) less than
2,000,000 shares of PEI preferred stock remain outstanding, (2) we make an offer
to purchase any and all outstanding shares of PEI preferred stock at a cash
price of $16.00 per share, and purchase all shares duly tendered and not
withdrawn, or (3) in other circumstances described in the Company Agreement. The
Company Agreement also contains a provision intended to protect the interests of
the holders of PEI preferred stock by creating an annual reserve of $7.5 million
at the PEI level which will not be distributed to Legacy or any other holder of
PEI common stock. We have agreed with PEI that the $7.5 million reserve may be
used for the improvement and/or acquisition of properties, the buy-back of PEI
preferred stock or the reduction of PEI debt.
For a more detailed discussion of the provisions of the Stockholders
Agreement and the Company Agreement, see "Description of the Agreements."
5
<PAGE> 12
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.
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 the 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.
At March 31, 1999, our business consisted of the following portfolio of
real properties, notes receivable, and investments in real estate-related
ventures:
- ten single tenant retail properties located in Colorado, Illinois,
Indiana (3), Michigan, Ohio, Pennsylvania, Texas and Wisconsin, eight of
which are leased to Wal-Mart Stores, Inc. and two of which are leased to
Lowe's Home Centers, Inc.,
- 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,
- three properties located in California ranging from a shopping center in
Palm Springs to land in San Diego under construction for office
development,
- four notes receivable relating to real estate projects in Arizona and
California with an aggregate outstanding balance of approximately $23.2
million as of March 31, 1999, and
6
<PAGE> 13
- ownership interests in a number of real estate-related ventures,
including (1) 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, (2) a 50% ownership interest in a development
company which owns Newport Centre, a retail and office facility located
in Winnipeg, Canada, (3) a 23.7% ownership interest in a development
company which owns land in Indianapolis, Indiana, and (4) 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.
For more details about our business, see "Information About Legacy."
Our principal executive offices are located at 16955 Via Del Campo, Suite
100, San Diego, California 92127 and our telephone number is (619) 675-9400.
PRICE ENTERPRISES, INC.
PEI is a REIT incorporated in the state of Maryland. Its principal business
is to own, acquire, develop, operate, manage and lease real property. PEI 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 PEI and transferred to PEI 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, certain
merchandising business entities and other assets.
In June 1997, PEI's board of directors determined that it would be in the
best interest of PEI and its stockholders to separate PEI's core real estate
business from its merchandising businesses. Accordingly, the PEI board approved
a spin-off transaction in which PEI 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, PEI's 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, PEI has engaged in a combination of
acquiring, developing, owning, managing and/or selling real estate assets,
primarily shopping centers. The PriceSmart distribution resulted in PEI becoming
eligible to elect federal tax treatment as a REIT, which allows PEI to
substantially eliminate its obligation to pay taxes on income.
At March 31, 1999, PEI owned 32 commercial real estate properties and held
one property with a 21-year ground lease. These properties encompass
approximately 4.4 million square feet of gross leaseable area (GLA) and were 94%
leased at March 31, 1999. The five largest properties include approximately 1.7
million square feet of GLA that generate annual minimum rent of approximately
$25.6 million, based on leases existing as of March 31, 1999.
Included in the properties PEI owned at March 31, 1999 are four self
storage facilities. Two of these facilities, San Diego, California and Azusa,
California, are located on the same sites as PEI's commercial properties. The
other two self storage facilities are
7
<PAGE> 14
stand-alone properties. At March 31, 1999, these facilities had approximately
400,000 square feet of GLA and were 84% occupied.
For more details about PEI's business, see "Information About PEI."
PEI's principal executive offices are located at 4649 Morena Boulevard, San
Diego, California 92117 and its telephone number is (619) 581-4679.
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 Subordinated Debentures due
2004 and $[1.50] in principal amount of our
10.0% Senior Notes due 2004 for each share of
PEI 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.
Pursuant to 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 PEI 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 PEI common stock
if the conditions of the exchange offer are not
met.
EXPIRATION DATE, EXTENSION,
TERMINATION................ 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). We may
also terminate the exchange offer in the
circumstances described in "The Exchange
Offer -- Termination of the Exchange Offer."
WITHDRAWAL RIGHTS............ You may withdraw tenders of your shares of PEI
common stock at any time before the exchange
offer expires. If you change your mind again,
you may retender your shares of PEI common stock
by following
8
<PAGE> 15
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 PEI common stock being tendered for exchange
and not withdrawn and is subject to other
customary conditions. Under the Stockholders
Agreement, Sol Price, as trustee of certain
trusts, and other stockholders of PEI have
agreed to exchange their shares of PEI common
stock, which together aggregate 8,014,970
shares. These shares have been placed in escrow
pending the consummation of the exchange offer.
Although we expect the minimum number of shares
of PEI 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. For a discussion of the terms of the
Stockholders Agreement, see "Description of the
Agreements -- The Stockholders Agreement." For a
discussion of the other conditions to our offer,
see "The Exchange Offer -- Conditions to the
Exchange."
PROCEDURES FOR TENDERING YOUR
SHARES OF PEI COMMON
STOCK...................... If you hold certificates for shares of PEI
common stock, you must complete and sign the
letter of transmittal designating the number of
PEI shares you wish to tender and return the
letter with your PEI common 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 PEI common stock through a
broker (i.e., your shares are held in "street
name"), 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 PEI
common stock or if you hold PEI shares through a
broker, you may also comply with the procedures
for guaranteed delivery. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
9
<PAGE> 16
GUARANTEED DELIVERY
PROCEDURES................... Holders of PEI common stock who wish to tender
their shares and whose shares are not
immediately available or who cannot deliver
their certificates for the PEI 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 PEI common stock
according to the guaranteed delivery procedures
described in "The Exchange Offer--Guaranteed
Delivery Procedures."
ACCEPTANCE OF THE PEI 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 PEI 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 PEI
common stock will be delivered promptly
following the expiration of our offer.
UNITED STATED FEDERAL INCOME
TAX CONSIDERATIONS......... The exchange of PEI common stock for cash,
Legacy debentures and Legacy notes pursuant to
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 PEI in connection with the
exchange offer.
If the transaction is consummated as planned and
the number of outstanding shares of PEI common
stock is reduced below the level required for
listing by the Nasdaq National Market, the PEI
common stock may be delisted from the Nasdaq
National Market. Under Maryland law, those
stockholders who do not tender their shares of
PEI common stock in the exchange offer
10
<PAGE> 17
may dissent from any future merger of PEI only
if the PEI common stock is not listed on the
Nasdaq National Market on the record date for
determining stockholders entitled to vote on the
merger, and they must comply fully with federal
law and Maryland law for their dissent to be
effective.
EXCHANGE AGENT............... is serving as the exchange agent
in connection with our exchange offer.
INFORMATION AGENT............ is serving as the information
agent in connection with our exchange offer.
FORWARDING AGENT............. is serving as the forwarding
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 PEI 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 PEI common stock are
exchanged.
INTEREST..................... Pursuant to 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 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 Subordinated Debentures due 2004 for
each share of PEI 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 PEI common
stock are exchanged.
MATURITY..................... , 2004.
11
<PAGE> 18
INTEREST..................... Pursuant to 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.
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. The conversion price is subject to
adjustment upon the occurrence of certain events
affecting the Legacy common stock. See
"Description of the Legacy
Debentures -- Conversion."
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 March 31,
1999, we had outstanding approximately $99.7
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.
For additional information regarding the Legacy debentures, see
"Description of the Legacy Debentures and the Legacy Notes."
LEGACY 10.0% SENIOR 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 Notes due 2004 for each share of PEI
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 $19.9 million in
aggregate principal amount of Legacy notes
assuming all outstanding shares of PEI common
stock are exchanged.
MATURITY..................... , 2004.
INTEREST..................... Pursuant to the Stockholders Agreement, interest
will begin to accrue on the Legacy notes from
August 15,
12
<PAGE> 19
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 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 March 31, 1999, we had approximately $99.7
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.
PERSONS INTERESTED IN THE EXCHANGE OFFER
In considering whether to exchange your shares of PEI common stock, you
should be aware of the interests that directors, executive officers and other
personnel of PEI have in the exchange offer. These include:
- severance payments,
- acceleration of vesting of PEI 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. PEI's board of directors was aware of these interests
and considered them in approving our offer.
For a more detailed discussion of the interests of PEI's directors,
executive officers and other personnel in the exchange offer, see "Persons
Interested in the Exchange Offer."
RISK FACTORS
Prospective investors 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 certain
risks involved with our offer and the receipt of the Legacy debentures and the
Legacy notes.
13
<PAGE> 20
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 March 31, 1999 and for the five
months ended December 31, 1998 and the three months ended March 31, 1999 have
been derived from the unaudited financial statements of Legacy. 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 three month period ended March 31, 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 (1)
our Annual Report on Form 10-K for the fiscal year ended July 31, 1998, which
was filed with the SEC on October 28, 1998, (2) our Transition Report on Form
10-Q for the five months ended December 31, 1998, which was filed with the SEC
on February 12, 1999, and (3) our Quarterly Report on Form 10-Q for the three
months ended March 31, 1999, which was filed with the SEC on May 7, 1999, each
of which is incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS FIVE MONTHS PERIOD FROM INCEPTION
ENDED ENDED (NOVEMBER 17, 1997)
MARCH 31, 1999 DECEMBER 31, 1998 TO JULY 31, 1998
-------------- ----------------- ---------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS
DATA:
Total revenue...................... $ 9,217 $ 15,010 $ 8,145
Total operating expenses........... (8,904) (13,754) (5,267)
Net income before income taxes..... 313 1,256 2,878
Provision of income taxes.......... (139) (535) (1,143)
Net income......................... 174 721 1,735
Earnings before depreciation,
amortization and deferred taxes
("EBDADT")....................... 1,405 2,712 3,001
Earnings before income taxes,
depreciation and amortization
("EBITDA")....................... 3,534 5,819 5,453
Net income per share:
Basic............................ $ 0.01 $ 0.02 $ 0.11
Diluted.......................... 0.00 0.01 0.07
Weighted average number of shares:
Basic............................ 33,458 33,458 15,842
Diluted.......................... 54,747 54,768 25,984
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998 JULY 31, 1998
-------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Net real estate........................... $191,448 $190,878 $175,756
Total assets.............................. 270,138 261,296 246,916
Mortgages and notes payable............... 99,694 90,986 72,714
Stockholders' equity...................... 166,814 166,640 165,919
</TABLE>
14
<PAGE> 21
SUMMARY SELECTED FINANCIAL DATA OF PEI
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 PEI. The selected financial data presented below
as of March 31, 1999 and for the three months ended March 31, 1999 have been
derived from the unaudited financial statements of PEI. In the opinion of PEI's
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 three month period ended March 31, 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 (1)
PEI's Annual Report on Form 10-K for the year ended December 31, 1998, which was
filed with the SEC on March 29, 1999 and (2) PEI's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 which was filed with the SEC on May 14,
1999, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
FOUR MONTHS
THREE MONTHS ENDED YEAR ENDED AUGUST 31
ENDED YEAR ENDED DECEMBER 31, -------------------------------------
MARCH 31, 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..... $17,427 $62,485 $18,170 $56,838 $56,221 $51,897 $30,316
Operating income
(loss)............ 9,089 31,393 9,045 22,422 5,829 16,635 (74,711)
Income (loss) from
continuing
operations........ 7,565 29,429 17,508 19,085 8,340 13,297 (40,596)
Discontinued
operations........ -- -- -- (4,860) (8,250) (12,751) (883)
Net income.......... 7,565 29,429 17,508 14,225 90 546 (41,479)
Dividends paid to
preferred
stockholders...... (8,316) (8,316) -- -- -- -- --
Net income
applicable to
common
stockholders...... (751) 21,113 17,508 14,225 90 546 (41,479)
Net income (loss)
per share from
continuing
operations -- basic... (.06) .97 .74 .82 .36 .53 (1.50)
Cash dividends per
share............. .35 1.40 .35 1.20 -- .08 --
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31 AS OF AUGUST 31
AS OF ------------------- -----------------------------------------
MARCH 31, 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.... $422,570 $418,507 $353,056 $337,139 $337,098 $330,443 $405,966
Total assets......... 457,779 457,352 408,478 403,757 540,325 555,994 591,511
Long-term debt............. 8,895 8,923 -- -- -- 15,425 --
Stockholders' equity....... 344,088 344,811 406,624 396,476 532,899 532,085 578,788(1)
Book value per common
share.................... (.70) (.65) 17.13 16.78 22.88 22.90 21.44
</TABLE>
- ---------------
(1) Amount represents investment by Costco prior to the spin-off of PEI.
15
<PAGE> 22
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 been consummated on January 1, 1998 for income statement purposes and on
March 31, 1999 for balance sheet purposes. Because holders of PEI preferred
stock will be entitled to elect a majority of PEI's board of directors following
the consummation of the exchange offer, PEI 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 been consummated 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 PEI incorporated by reference in this
prospectus and the "Unaudited Pro Forma Operating and Financial Information" and
accompanying notes included in this prospectus. For additional information see
"Summary Selected Financial Data of Legacy," "Summary Selected Financial Data of
PEI" and "Where You Can Find More Information."
Upon consummation 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 consummated, as well as the factors discussed in
"Risk Factors."
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT DATA:
Revenues................................................ $10,032 $24,818
Loss before income taxes................................ (1,645) (5,293)
Net loss applicable to common shares.................... (675) (5,293)
EBDADT.................................................. 2,781 6,859
Weighted average basic number of common shares
outstanding.......................................... 33,458 25,205
Weighted average diluted number of common shares
outstanding.......................................... 54,747 41,312
Basic net income (loss) per common share................ $ (0.02) $ (0.21)
Diluted net income (loss) per common share.............. (0.01) (0.13)
Basic EBDADT per common share........................... 0.08 0.27
Diluted EBDADT per common share......................... 0.05 0.17
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C> <C>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DATA:
Total assets.............................................. $391,138
Mortgages and notes payable (including Legacy debentures
and Legacy notes)...................................... 220,694
Stockholders' equity...................................... 166,814
</TABLE>
16
<PAGE> 23
RATIO OF EARNINGS TO FIXED CHARGES
Legacy's ratios of earnings to fixed charges are as follows for the periods
indicated:
<TABLE>
<CAPTION>
FIVE MONTHS THREE
FROM INCEPTION TO ENDED MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
JULY 31, 1998 1998 1999
----------------- ------------ ---------------
<S> <C> <C> <C>
Ratio of earnings to fixed
charges........................... 2.61x 1.47x 1.15x
</TABLE>
There were no preferred stock dividends through March 31, 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, (1) 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 consummation of the exchange offer, (2) the
historical basic and diluted net income and book value per share of the PEI
common stock, and (3) the actual cash dividends per share compared in the case
of Legacy with pro forma cash dividends after giving effect to the consummation
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 PEI incorporated by reference in
this prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Legacy historical
Net income per common share -- basic..... $ 0.01 $ 0.10
Net income per common share -- diluted... -- 0.06
Cash dividends paid per common share..... -- --
Book value per common share.............. 4.99 4.98
PEI historical
Net income per common share -- basic..... (0.06) 0.97
Net income per common share -- diluted... (0.06) 0.96
Cash dividends paid per common share..... -- 1.05
Book value per common share.............. (0.70) (0.65)
Unaudited pro forma
Net income per common share -- basic..... (0.02) (0.21)
Net income per common share -- diluted... (0.01) (0.13)
Cash dividends paid per common share..... -- --
Book value per common share.............. 4.99
</TABLE>
17
<PAGE> 24
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 PEI common
stock and the PEI 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 PEI common stock and PEI preferred stock
are listed on the Nasdaq National Market under the symbols "PREN" and "PRENP,"
respectively.
<TABLE>
<CAPTION>
LEGACY PEI PEI
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 (through
June 4)............... 5.688 2.875 8.000 4.875 15.313 14.313
</TABLE>
- -------------------------
(1) On August 17, 1998, PEI distributed one share of its preferred stock for
each outstanding share of PEI 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 PEI common stock and the PEI preferred stock on May 11,
1999, the last trading day prior to the announcement of the Stockholders
Agreement.
<TABLE>
<CAPTION>
LEGACY PEI PEI
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 PEI common stock and the PEI preferred stock on June 1,
1999, the last trading day prior to the announcement of the Company Agreement.
<TABLE>
<CAPTION>
LEGACY PEI PEI
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>
18
<PAGE> 25
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 PEI 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.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE AN EVALUATION OF 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 FINANCIAL PERFORMANCE WILL DEPEND ON SOME EVENTS AND CONDITIONS BEYOND OUR
CONTROL
Our financial performance depends on the ability of our properties to
generate revenues in excess of operating expenses, including scheduled payments
on debt and capital expenditure requirements. Events or conditions that are
beyond our control may adversely affect our operations and the value of our
properties and real estate-related investments. These events or conditions could
include:
- changes in the general economic climate,
- changes in local conditions, such as an oversupply of similar properties
or a reduction in demand for properties,
- decreased attractiveness of our properties to potential tenants,
- competition from developers, owners and operators of properties,
- increased operating costs, including insurance premiums and real estate
taxes, due to inflation and other factors which may not necessarily be
offset by increased rents,
- changes in laws and regulations, including tax and environmental laws and
regulations, and agency or court interpretations of these laws and
regulations and the related costs of compliance, and
- changes in interest rate levels and the availability of financing.
Following the exchange offer, our financial performance will depend, in
significant part, on the results of PEI's operations. For a discussion of our
reliance on PEI to generate sufficient cash flow to service our debt, see
"-- Our Ability to Generate Cash to Service our Debt Depends on Many Factors
Beyond Our Control."
19
<PAGE> 26
OUR TENANTS MAY FACE FINANCIAL DIFFICULTIES AND BE UNABLE TO PAY RENT
Our major tenants currently include AMC Multi-Cinema, Inc., Wal-Mart
Stores, Inc. and Lowe's Home Centers, Inc. As of March 31, 1999, AMC accounted
for approximately 14% of our total revenue, Wal-Mart accounted for approximately
10% of our total revenue and Lowe's accounted for approximately 3% of our total
revenue. Our financial position may be materially harmed if any of these tenants
or any other significant tenant experiences financial difficulties, including 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. 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
We plan to continue to acquire additional real estate properties, including
those properties with development or redevelopment opportunities. We will
compete for these investments with many public and private real estate
investment entities, including financial institutions such as mortgage banks,
pension funds and REITs, and other institutional investors, as well as
individuals. Many of these entities are larger than us and may have greater
financial resources and more experienced managers than us. 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 purchase a property.
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.
20
<PAGE> 27
OUR PROPERTY DEVELOPMENT ACTIVITIES MAY BE MORE COSTLY THAN ANTICIPATED
As part of our growth strategy, we may develop and renovate a portion of
our properties. To the extent that we engage in development activities, we will
be exposed to the risks normally associated with these activities, including the
following:
- we may not be able to obtain construction financing on favorable terms,
- occupancy rates and rents at recently completed properties may not be
sufficient for us to achieve our intended return on investment,
- expenses of operating a completed development may be higher than
expected,
- we may be unsuccessful or delayed in obtaining necessary zoning, land
use, building, occupancy, and other governmental permits and regulatory
approvals,
- we may incur construction costs for developing a property which exceed
our estimates due to factors beyond our control, such as weather, labor
conditions or material shortages, and
- we may not be able to obtain long-term financing upon completing
construction of the development.
These risks could result in substantial unanticipated delays or expenses
that could prevent completion of the development or cause us to abandon
development activities which we have already begun to explore. If any of these
events occur, it could materially harm our ability to achieve our projected
yields on properties under development and could materially harm our business.
OUR FINANCIAL PERFORMANCE DEPENDS ON REGIONAL ECONOMIC CONDITIONS SINCE MANY OF
OUR PROPERTIES AND INVESTMENTS ARE LOCATED IN ARIZONA, CALIFORNIA AND COLORADO
Many of our properties and real estate-related investments are located in
three states: Arizona, California and Colorado. 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.
WE MAY BE UNABLE TO RENEW LEASES WITH OUR EXISTING TENANTS OR RE-LEASE SPACE TO
NEW TENANTS
We may not be able to renew leases or obtain new leases as existing leases
for our properties expire. Further, the terms of a renewal or a new lease,
including the cost of required renovations or concessions to tenants, may be
less favorable than current lease terms. If we are unable to re-lease
substantial amounts of vacant space promptly, if the rental rates upon a renewal
or a new lease are significantly lower than expected, or if
21
<PAGE> 28
reserves for costs of re-leasing prove inadequate, our financial condition and
business may be materially harmed.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE
Real estate investments generally cannot be sold quickly. This illiquidity
may limit our ability to react quickly in response to changes in economic and
other conditions which may affect the value of our properties. If we want to
sell a property, we might not be able to transfer ownership of that property in
the time period we desire, and the sales price of the property might not recoup
or exceed our purchase price for the property. This limitation on our ability to
sell our investments could impair our financial condition and materially harm
our business.
OUR USE OF DEBT TO FINANCE ACQUISITIONS AND DEVELOPMENTS COULD ADVERSELY AFFECT
OUR BUSINESS
We currently have debt and may in the future incur additional debt to
finance our acquisition and development of properties. We also intend to issue
additional debt in connection with our offer in the form of the Legacy
debentures and the Legacy notes. Therefore, we will be exposed to the risks
normally associated with debt financing. These risks, including the following,
may materially harm our business:
- 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.
As of March 31, 1999, we had outstanding borrowings of approximately $13.3
million under our credit facility, with total borrowing capacity of $20.0
million, and outstanding mortgage debt of approximately $86.4 million (including
the debt of our subsidiaries). This debt is senior to the Legacy debentures and
the Legacy notes. After the consummation of the exchange offer, and assuming all
shares of PEI common stock are tendered in the exchange offer and we borrow the
funds necessary for the cash portion of the consideration in the exchange offer,
our total indebtedness will increase to approximately $220.7 million (not taking
into account PEI's total indebtedness of approximately $108.9 million).
We may have to refinance the principal due on our debt at maturity,
including the Legacy debentures and the Legacy notes. In addition, we may not be
able to refinance our debt on acceptable terms, or at all. If we are unable to
refinance our debt on acceptable
22
<PAGE> 29
terms, or at all, events or conditions that may adversely affect our financial
condition and materially harm our business include the following:
- we may need to dispose of one or more of our properties with unfavorable
terms,
- prevailing interest rates or other factors at the time of refinancing
could increase the interest rates at which we borrow and, therefore, our
interest expense, and
- if we mortgage property to secure payment of debt and are unable to meet
mortgage payments, the lender could foreclose on the property or appoint
a receiver to receive an assignment of the rent payments under our
leases.
OUR ABILITY TO GENERATE CASH TO SERVICE OUR DEBT DEPENDS ON MANY FACTORS BEYOND
OUR CONTROL
Our ability to make payments on and to refinance our indebtedness,
including the Legacy debentures and the Legacy notes, and to fund planned
capital expenditures and research and development efforts will depend on our
ability and the ability of PEI to generate cash in the future. This is subject
not only to the performance of Legacy and PEI within the real estate industry,
but also to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
The Company Agreement contains a provision intended to protect the
interests of the holders of PEI preferred stock by creating an annual reserve of
$7.5 million at the PEI level which will not be distributed to Legacy or any
other holder of PEI common stock. This reserve will limit our ability to receive
cash distributions from PEI for so long as the PEI preferred stock is
outstanding. For a description of the terms of the Company Agreement, see
"Description of the Agreements -- The Company Agreement."
We cannot assure you that following the consummation of the exchange offer
the businesses of PEI and Legacy will generate sufficient cash flow from
operations, that currently anticipated cost savings and revenue growth will be
realized on schedule or at all or that future borrowings will be available to us
in amounts sufficient to enable us to pay our indebtedness, including the Legacy
debentures and the Legacy notes, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness, including the Legacy
debentures and the Legacy notes, on or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness, including the Legacy
debentures and the Legacy notes, on commercially reasonable terms or at all.
WE MAY NOT REALIZE THE EXPECTED BENEFITS FROM THE CONSUMMATION OF THE EXCHANGE
OFFER
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. After the consummation of the exchange offer, we
expect that some of our executive officers will begin to manage the operations
of PEI along with some members of PEI's 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 PEI 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 PEI
23
<PAGE> 30
following the exchange offer. The inability to successfully integrate our
operations with those of PEI could impair our financial condition and materially
harm our business.
WE FACE RISKS ASSOCIATED WITH OUR EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
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.
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING BUSINESSES WE MAY ACQUIRE INTO OUR
BUSINESS
As part of our growth strategy, we may acquire real estate-related
businesses. If we acquire another business it would expose us to additional
risks. In particular, risks associated with the acquisition of real estate
companies include:
- the difficulty of assimilating and integrating the operations and
personnel of the combined companies,
- the potential disruption of our ongoing business,
- our inability to retain key managerial and other personnel, and
- the potential additional expenses associated with real estate transfer
taxes and property tax assessments, integration costs and unanticipated
liabilities or contingencies.
If we are unable to successfully address any of the foregoing risks, it
could materially harm our business.
THE FAILURE OF OUR INVESTMENT IN DEBT INSTRUMENTS COULD ADVERSELY AFFECT OUR
BUSINESS
As part of our investment strategy, we may purchase debt instruments. In
general, debt instruments carry the risk that borrowers may not make their
required payments when
24
<PAGE> 31
due. In addition, our debt investments may expose us to various risks, including
the risk that the value of any collateral securing the debt may be less than the
amounts owed and the risk that interest rates relating to the debt instruments
may be lower than the interest rate at which we borrow.
RISING INTEREST RATES MAY ADVERSELY AFFECT OUR CASH FLOW
We and our subsidiaries owe approximately $99.7 million as of March 31,
1999 under our credit facility and mortgage debt, of which $14.5 million bears
interest at variable rates. We may incur additional debt in the future that also
bears interest at variable rates. Variable rate debt creates higher debt
payments if market interest rates increase. These higher debt payments could
adversely affect our cash flow, cause us to default under some debt obligations
or agreements, and materially harm our business.
WE DO NOT HAVE A POLICY PLACING A LIMIT ON THE AMOUNT OF DEBT THAT WE MAY INCUR
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 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. 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
(1) not within the definition of investment company under the Investment Company
Act or, alternatively,
25
<PAGE> 32
(2) excluded from regulation under the Investment Company Act by an exemption.
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.
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.
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 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 MAY EXPERIENCE LOSSES FROM OUR PROPERTIES FOR WHICH WE CANNOT OBTAIN
INSURANCE OR CANNOT OBTAIN INSURANCE AT A REASONABLE COST
We carry comprehensive liability, fire, flood, extended coverage and rental
loss insurance on our properties. We believe our insurance coverage is of the
type and amount normally obtained by owners of real property. We believe all of
our properties have adequate levels of insurance. However, there are some types
of losses, such as civil unrest or catastrophic acts of nature, for which we
cannot obtain insurance or for which we cannot obtain insurance at a reasonable
cost. In the event of an uninsured loss or a loss in excess of our insurance
limits, we could lose the income generated from the affected property, as well
as the money invested in the affected property. Also, we would continue to be
obligated to repay any mortgage debt or other obligation related to the affected
property. Any loss of this nature could materially harm our business.
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.
26
<PAGE> 33
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.
WE MAY EXPERIENCE VOLATILITY IN THE PRICE OF OUR PUBLICLY TRADED SECURITIES
The market price of our common stock has fluctuated in the past and is
likely to continue to fluctuate in the future. In addition, the market prices of
securities of other real estate companies has at times been volatile. Factors
that may affect the market price of the Legacy debentures, the Legacy notes and
our common stock, many of which are beyond our control, include:
- fluctuations in our operating results,
- analysts' reports and projections,
- changes in the market valuations of other real estate companies,
- the extent of institutional investor interest in our business,
- the reputation of real estate companies generally and the attractiveness
of their securities in comparison to the securities of other businesses,
and
- general financial market conditions.
Fluctuations in the market price of our securities may in turn adversely affect
(1) our ability to complete any targeted acquisitions, (2) our access to capital
and financing and (3) our ability to attract and retain qualified personnel. In
the past, following periods of volatility in the market price of securities of a
particular company, securities class action litigation against that company
would often result. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could materially harm our business.
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.
27
<PAGE> 34
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 March 31, 1999, we had
approximately $99.7 million of senior indebtedness outstanding (including the
indebtedness of our subsidiaries).
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 to our existing and future secured indebtedness, to the extent of
the value of the assets securing that indebtedness. As of March 31, 1999, we had
outstanding borrowings of approximately $13.3 million under our credit facility,
with total borrowing capacity of $20.0 million, and outstanding mortgage debt of
approximately $86.4 million (including the debt of our subsidiaries). 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 and our
subsidiaries 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
thereof 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 consummated, will rely on dividends from PEI 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 PEI preferred stock by
creating an annual reserve of $7.5 million at the PEI level which will not be
distributed to Legacy or any other holder of PEI common stock. This reserve will
limit our ability to receive cash distributions from PEI for so long as the PEI
preferred stock is outstanding. For a description of the terms of the Company
Agreement, see "Description of the Agreements -- The Company Agreement." The
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holders of the Legacy debentures and the Legacy notes will have no direct claim
against PEI 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.
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.
OUR BOARD OF DIRECTORS MAY MAKE CHANGES IN OUR INVESTMENT, FINANCING AND
DISTRIBUTION POLICIES WITHOUT STOCKHOLDER APPROVAL
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.
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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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
PEI," and "Directors and Management of PEI 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 Subordinated Debentures due
2004 and $[1.50] in principal amount of our 10.0% Senior Notes due 2004 for each
share of PEI common stock. If all PEI 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 $19.9 million in Legacy notes. PEI's board of directors has
approved this transaction.
We are sending this prospectus and related exchange offer documents to
persons who held PEI common stock at the close of business on ,
1999. On that date, there were shares of PEI 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 PEI's 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 PEI common stock.
BACKGROUND OF THE EXCHANGE OFFER
The information in this section regarding the deliberations of PEI's board
of directors and the actions of PEI's management and legal and financial
advisors is based on information furnished by PEI 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 PEI, and Sol Price, founder and a major
stockholder of PEI, regarding a possible business combination of New Plan Excel
and PEI. 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
PEI, 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 PEI, as they had conducted a due diligence investigation
of PEI 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 PEI's management and other
representatives concerning PEI's business, properties and financial condition.
Legacy personnel also visited many of PEI's 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 certain business opportunities presented
to the parties, such as the proposed business combination with PEI. After New
Plan Excel determined not to pursue the
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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
pursuant to a separation agreement between Legacy and New Plan Excel described
below.
During this period PEI and its representatives had discussions with other
parties regarding a potential acquisition of PEI. While PEI signed
confidentiality agreements with some of these parties, none developed into a
firm offer for PEI's 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 PEI. 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 PEI common stock.
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 certain trusts, and other holders of PEI common
stock whereby Mr. Price, as trustee, and the other holders of PEI common stock
would agree to tender or vote their shares, as the case may be, subject to the
PEI 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 PEI stockholders. The parties
contemplated that, following the approval by the PEI board of directors, the
transaction would proceed with an agreement between Legacy and PEI. The price of
the transaction was tentatively set at $8.50 per share of PEI 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, pursuant to which the parties agreed, among other things, to modify the
terms of certain 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 PEI. The separation agreement enabled Gary Sabin and the
other Legacy executives to devote their full-time attention to Legacy.
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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 certain PEI
stockholders would be subject to cancellation unless the board of directors of
PEI approved the transaction in the period following the execution of the
Stockholders Agreement, and PEI signed the Company Agreement by which PEI would
agree to facilitate the transaction and approve Legacy's acquisition of PEI
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 (1) at least $4.25 in cash, (2) at least $2.75 in Legacy
debentures, and (3) $1.50 in whatever combination Legacy may choose of cash,
debentures or senior notes.
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.
Also on May 11, 1999, the board of directors of Legacy held a special
telephonic meeting to consider the Stockholders Agreement. At this meeting, the
Legacy board reviewed the terms of the Stockholders Agreement with Legacy's
management and internal legal counsel. Based on such discussions, the Legacy
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 the PEI board that, as of such date, the consideration to be received
by the holders of PEI common stock pursuant to 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 PEI stockholders who signed the
Stockholders Agreement deposited certificates representing 4,464,382 shares of
PEI common stock into escrow pursuant to the Stockholders Agreement. On the same
day, Legacy deposited $1.0 million in cash into escrow pursuant to 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, the Legacy board
reviewed the Company Agreement with Legacy's management and Legacy's internal
and outside legal counsel. The Legacy 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.
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On June 2, 1999, the board of directors of PEI held a special meeting to
consider the Company Agreement. At this meeting, the PEI board reviewed the
Company Agreement with PEI's management, PEI's internal and outside legal
counsel, PEI's auditors and representatives of Valuation Research Corporation.
(PEI originally retained Valuation Research Corporation to render a fairness
opinion in connection with the proposed New Plan Excel/PEI transaction, but when
that transaction was not consummated, PEI retained Valuation Research
Corporation to render a fairness opinion in connection with this transaction.)
The PEI 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. The PEI 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 the PEI board that, as of May 18, 1999, the
consideration to be received by the holders of PEI common stock pursuant to the
exchange offer is fair, from a financial point of view, to such holders.
Based on such discussions, presentations and opinion, the board of
directors of PEI unanimously (1) approved the Company Agreement and the
transactions contemplated thereby, and (2) determined that the business
combination should take the form of the exchange offer.
Also on June 2, 1999, Legacy and PEI 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 PEI's status as a REIT in consideration of the approval by PEI of
Legacy's acquisition of PEI common stock.
On June 3, 1999, Legacy deposited an additional $6.5 million in cash into
escrow pursuant to the Stockholders Agreement, so that the aggregate amount of
funds in escrow totaled $7.5 million.
On June 4, 1999, certain of the PEI stockholders who signed the
Stockholders Agreement deposited certificates representing 3,550,588 additional
shares of PEI common stock into escrow pursuant to the Stockholders Agreement,
so that the aggregate number of shares in escrow totaled 8,014,970 shares of PEI
common stock (representing approximately 51% of the PEI voting power).
[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.]
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OUR REASONS FOR THE EXCHANGE OFFER
In reaching its conclusion to approve the Stockholders Agreement, the
Company Agreement and the exchange offer, Legacy's board of directors consulted
with management, as well as our legal and financial advisors, and considered the
following positive factors:
- The effectiveness of the exchange offer in implementing and accelerating
our growth strategy consistent with our business goals.
- The ability to significantly expand the size and geographic diversity of
our property portfolio as a result of the exchange offer, thereby
reducing the potential adverse impact on the overall portfolio of
fluctuations in local economies.
- The ability to use PEI 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 opportunity to place some of our completed development projects into
a REIT to take advantage of preferred tax treatment.
- Our management's view that PEI's properties are generally well-maintained
with strong credit quality tenants, providing a solid base from which to
grow.
- Our management's view 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 leverage of Legacy's investment in the PEI common stock by virtue of
the outstanding PEI preferred stock.
- The opportunities for economies of scale and operating efficiencies that
should result from the exchange offer, primarily in terms of the
integration of property management and back office facilities.
- The opportunities for cost savings that should result from eliminating
the management time and effort required to acquire a substantial number
of properties on an individual basis.
- The ability to effectuate the exchange offer through the issuance, at our
election, of all cash or some combination of cash and debt securities.
- The likelihood of completing the exchange offer and acquiring control of
PEI in a timely manner, particularly in light of the large percentage of
PEI common stock held in escrow.
- The terms of the Company Agreement entitling us, upon a material breach
by PEI, either to acquire the shares of PEI common stock held in escrow
by completing the exchange offer, or to liquidated damages in the amount
of $7.5 million.
- Our board's view that the overall terms of the Stockholders Agreement and
the Company Agreement are fair to us and our stockholders.
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Our board of directors also considered potentially negative factors that
could arise or do arise from the proposed transaction, including the following:
- The significant costs involved in connection with completing the exchange
offer and the substantial management time and effort required to
effectuate the transaction and integrate the businesses of Legacy and
PEI.
- The terms of the Company Agreement entitling PEI, upon a material breach
by us, to liquidated damages in the amount of $7.5 million (plus
interest).
- The conditions and restrictions imposed upon our ability to control PEI,
which conditions and restrictions are intended to protect the holders of
PEI preferred stock.
- The possible adverse effects on the market for Legacy common stock and on
our ability to raise capital that might result if the exchange offer is
not consummated.
- The risk that the anticipated benefits of the exchange offer might not be
fully realized.
In the view of our board of directors, the negative factors were not
sufficient, either individually or collectively, to outweigh the advantages of
the exchange offer.
The foregoing discussion of the information and factors considered by the
Legacy board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the Legacy board in reaching its
determination to approve the Stockholders Agreement, the Company Agreement and
the exchange offer. In view of the wide variety of information and factors
considered, our board of directors did not find it practical to, and did not,
assign any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
PEI'S REASONS FOR THE EXCHANGE OFFER
The PEI 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:
(1) factors relating to the timing -- that is, is this a reasonable time to
sell PEI?
(2) factors relating to price -- is this a fair price at which to sell?
(3) 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
(4) factors relating to the PEI preferred stock -- are adequate protections
for the preferred stock possible?
Timing. The PEI board concluded that this is a sensible time for a
transaction like this. The PEI 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 PEI's properties would decline. If the
economy were to perform poorly, as a general matter, that would affect the
financial health of PEI. The growth of "e-commerce," or other changes in
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consumer shopping patterns, could adversely affect the kind of "big box retail"
operations that comprise most of PEI's tenants, and therefore, could adversely
affect PEI.
Some, or even all, of these uncertainties might not actually develop in
such a way as to hurt the business of PEI. However, the very existence of the
uncertainties was itself a consideration suggesting that the timing of a
transaction like the offer discussed in these materials was reasonable.
Added to these, the PEI board believes that a larger operation than PEI
would see some operating efficiencies. Having the real estate, tax, financial,
legal and other skills necessary for PEI's 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. The PEI
board did not, however, want to increase the size of PEI and increase the
management responsibilities of PEI's 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. The PEI board did not
find any of these possibilities attractive.
Price. Once the PEI board concluded that it was a reasonable time for a
transaction of this nature, the next question was price. Various individuals
made several possible acquirors aware of PEI's potential interest in a sale, and
PEI engaged in serious discussions and negotiations with some of those entities.
None of those entities proposed paying as much as $8.50 per share of PEI common
stock.
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 PEI common stock on the Nasdaq National Market on April 30, 1999.
The PEI board also considered the fact that no one approached PEI to
discuss or propose a competing offer from the time of the announcement of the
Stockholders Agreement on May 12 through the meeting of the PEI board on June 2.
If a competing offer had been made during that period, PEI could have accepted
it without any obligations to Legacy at all.
In order to validate these conclusions further, the PEI board retained
Valuation Research Corporation to evaluate the transaction from a financial
point of view. That firm issued an opinion that the PEI 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, the PEI board also considered that a portion
of the Legacy 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 Legacy notes traded at 90% of par, for example, the
initial effective purchase price would be approximately $8.08 per share. The PEI
board also considered that declines in market interest rates and, with respect
to the Legacy debentures, the convertibility feature, could cause the Legacy
debt to trade at a price higher than 100% of par.
Legacy. The PEI board also considered Legacy and its management. Based on
the same information about Legacy that appears in this prospectus and related
materials, the PEI board was comfortable establishing a relationship with
Legacy. You should study this
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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 PEI board's perspective, 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, the PEI board cannot provide you with any assurances on
these questions and you should reach your own conclusions.
Preferred Stock. After going through this analysis, the PEI board thought
it also important to retain reasonable protections for the holders of PEI
preferred stock. Legacy agreed to certain such protections, including proposed
charter amendments giving holders of PEI preferred stock (excluding Legacy if it
buys any PEI preferred stock) the right to elect a majority of PEI's directors
even if Legacy owns 100% of the PEI common stock and any shares of PEI preferred
stock. These protections are explained in greater detail elsewhere in this
prospectus, particularly in "-- Effect on PEI Preferred Stock" and "Description
of the Agreements -- The Company Agreement." Naturally, the PEI board cannot be
sure that the provisions will be effective in providing protection for holders
of PEI 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.
The PEI board also considered that stockholders holding over 51% of the
voting power, and over 60% of the PEI common stock, had expressed satisfaction
with the proposal of Legacy, and had placed, or indicated a willingness to
place, their PEI common stock in escrow with instructions to accept the offer.
See "Description of the Agreements -- The Stockholders Agreement."
Based on all of the foregoing, the PEI board voted unanimously to approve
the exchange offer.
FAIRNESS OPINION
PEI's 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 PEI common stock in our offer. The
consideration in our offer was determined through arm's-length negotiations
between Legacy and PEI.
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 PEI in connection
with PEI's initial discussions with New Plan Excel, but when that transaction
was not consummated, PEI retained Valuation Research Corporation to render its
opinion as to whether the consideration to be paid by Legacy to the holders of
PEI common stock in the exchange offer is fair, from a financial point of view,
to the holders of PEI common stock. Valuation Research Corporation was selected
because of its experience and expertise. Prior to the engagements, neither
Valuation Research Corporation nor any
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affiliate of Valuation Research Corporation had performed any investment banking
or other financial services for or had any other material relationship with
Legacy or PEI.
Valuation Research Corporation delivered to PEI's 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 PEI common stock is fair
from a financial point of view.
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 PEI ARE URGED TO READ THE OPINION CAREFULLY AND
IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS
CONSIDERED AND THE ASSUMPTIONS MADE BY VALUATION RESEARCH CORPORATION. VALUATION
RESEARCH CORPORATION'S OPINION TO PEI'S 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 PEI COMMON STOCK.
In connection with rendering its opinion, Valuation Research Corporation:
- reviewed the Stockholders Agreement and the Company Agreement,
- reviewed and analyzed certain publicly available business and financial
information of PEI and Legacy for recent years and interim periods to
date, including, but not limited to, (1) Legacy's Annual Report on Form
10-K for the fiscal year ended July 31, 1998 and Transition Report on
Form 10-Q for the transition period from August 1, 1998 to December 31,
1998 and (2) PEI's Transition Report on Form 10-K for the transition
period from September 1, 1997 to December 31, 1997 and Annual Report on
Form 10-K for the fiscal year ended December 31, 1998,
- reviewed and analyzed certain internal financial and operating
information, including financial forecasts, analyses and projections
prepared by management of PEI and Legacy,
- conducted discussions with members of the senior management of PEI with
respect to the business and prospects of PEI,
- reviewed and considered certain financial and stock market data relating
to PEI, and compared that data with similar data for certain other
publicly traded companies that Valuation Research Corporation believed
may be relevant, and
- reviewed the financial terms, to the extent publicly available, of
certain 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
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Valuation Research Corporation, it was advised by PEI's 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 PEI. Valuation Research Corporation did
not make and was not provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of PEI nor did Valuation
Research Corporation make any physical inspection of the properties or assets of
PEI. 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 PEI's 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 PEI's board of directors.
Comparable Companies Analysis. Valuation Research Corporation compared
selected publicly-available historical and projected stock market data and
financial results for PEI 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 (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 PEI, projections
provided by management. Accordingly, such estimated projections may or may not
prove to be accurate.
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 Research Corporation analyzed certain 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
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- Santa Anita Realty Enterprises and Meditrust (collectively, the
Comparable Transactions).
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 PEI. 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 PEI.
Discounted Cash Flow Analysis. Valuation Research Corporation performed a
discounted cash flow analysis of the projected cash flow of PEI for calendar
years 1999 through 2003, based in part on internal estimates provided by
management. The stand-alone discounted cash flow analysis of PEI was determined
by (1) 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 PEI in year 2003 and (2) subtracting the value of any
long-term debt and preferred stock of PEI. The estimated terminal value was
calculated based on a perpetuity formula assuming a 2.0% growth rate. The cash
flows and terminal values of PEI were discounted to present value using a
discount rate of 10.0%.
Historical Trading Price Analysis. Valuation Research Corporation also
examined the history of the trading prices and volume for the shares of PEI
common stock. This examination showed that during the period from April 30, 1998
to April 30, 1999, the PEI common stock traded in the range of $4.35 to $5.81
per share.
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.
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 believes that its analysis in the summary
set forth above must be considered as a whole. Selecting portions of this
analysis, without considering all of the analysis, would create an incomplete
view of the process underlying
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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 PEI 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.
Pursuant to the terms of Valuation Research Corporation's engagement, PEI
has agreed to pay Valuation Research Corporation for its financial advisory
services in connection with the exchange offer a fee of $70,000. PEI has also
agreed to reimburse Valuation Research Corporation for its reasonable
out-of-pocket expenses incurred in performing its services. In addition, PEI has
agreed to pay a fee of $25,000 to Valuation Research Corporation for its work in
connection with PEI's discussions with New Plan Excel.
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 PEI
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 PEI 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.
Pursuant to 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.
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EXCHANGE OF CASH, DEBENTURES AND NOTES FOR PEI 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 PEI 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 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 PEI 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 PEI 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 PEI 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 PEI 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 PEI common stock listed therein, the stock certificates
reflecting ownership of this PEI common stock must be endorsed or accompanied by
appropriate stock powers that authorize this person to tender the PEI common
stock on behalf of the registered holder,
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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 PEI
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 outstanding PEI common stock validly tendered in the exchange
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
PEI common stock for cash, Legacy debentures and Legacy notes at the exchange
rate described above. We then will deliver by registered mail checks, Legacy
debentures and Legacy notes representing the PEI common stock that has been
tendered.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered shares of PEI 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
PEI common stock not properly tendered or any shares of PEI 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 PEI common stock. Unless waived by us, any defects or
irregularities in connection with tenders of shares of PEI 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 PEI common stock or withdrawal of shares
nor shall any of them incur any liability for failure to give any notification.
Tenders of shares of PEI 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 PEI 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 PEI common stock have
been mutilated, lost, stolen or destroyed, you should contact the exchange agent
at the address below for further instruction.
EXCHANGE AGENT
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
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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: By Hand Delivery:
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Attn: Attn:
- -------------------------------------- --------------------------------------
By Overnight Delivery: By Facsimile:
- -------------------------------------- ( ____ )
- -------------------------------------- --------------------------------------
- -------------------------------------- Confirm by Telephone:
- -------------------------------------- ( ____ )
Attn: --------------------------------------
- --------------------------------------
</TABLE>
GUARANTEED DELIVERY PROCEDURES
PEI stockholders who wish to tender their shares of PEI common stock and
whose stock certificates representing PEI 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 (by facsimile
transmission, mail or hand delivery) 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 PEI common stock, the
certificate number or numbers of the PEI common stock, and the number
of shares of PEI 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 PEI
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 tendered PEI 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.
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CONDITIONS TO THE EXCHANGE
Our offer is conditioned upon 8,000,000 shares of PEI 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
certain trusts, and other stockholders of PEI have agreed to exchange their
shares of PEI common stock, which together aggregate 8,014,970 shares. These
shares have been placed in escrow pending the consummation of the exchange
offer. Although we expect the minimum number of shares of PEI 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. For a discussion of the terms of
the Stockholders Agreement, see "Description of the Agreements -- The
Stockholders Agreement."
In addition, regardless of whether 8,000,000 shares of PEI common stock are
tendered in the exchange offer, we will be under no obligation to accept the
shares if prior to our acceptance of the shares 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 Legacy and PEI 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 PEI's business or assets,
- making the acquisition of, or exchange for, some or all of the shares
of PEI 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 PEI
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 consummation 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 (financial or otherwise) of PEI, 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 PEI 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,
- PEI 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 PEI which is not dismissed within three business days,
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- any change, development, effect or circumstance shall have occurred or be
threatened with respect to PEI's 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 (financial or otherwise) of PEI, or
- the Stockholders Agreement among Legacy, Sol Price, as trustee of certain
trusts, and other stockholders of PEI shall have been terminated pursuant
to its terms.
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 consummate 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 PEI, we
may elect, in lieu of the liquidated damages, to consummate 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
PEI 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 PEI 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
PEI common stock tendered, we will promptly return all shares tendered to the
appropriate PEI stockholders.
WITHDRAWAL RIGHTS
You may withdraw tenders of your shares of PEI common stock at any time
before the exchange offer expires. If you change your mind again, you may
retender your shares of PEI 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 PEI common
stock to be withdrawn,
- identify the number of shares of PEI common stock to be withdrawn, and
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- specify the name in which physical share certificates representing PEI
common stock are registered, if different from that of the withdrawing
holder.
If certificates for the PEI 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. See "-- Exchange of Cash, Debentures and Notes for PEI Common
Stock" for a description of the entities that qualify as eligible institutions.
Any shares of PEI 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 PEI common
stock made under the exchange offer is irrevocable.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of PEI common stock for cash, Legacy debentures and Legacy
notes pursuant to 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 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 PEI employees and payments with respect to PEI stock
options, among others.
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We will pay all transfer taxes, if any, applicable to the exchange of cash,
Legacy debentures and Legacy notes for PEI common stock pursuant to the
exchange. If, however, a transfer tax is imposed for any reason other than the
exchange of cash, Legacy debentures and Legacy notes for PEI common stock
pursuant to the exchange, then the amount of any transfer taxes (whether imposed
on the PEI stockholder or any other persons) 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 PEI stockholder.
RESALES OF THE LEGACY DEBENTURES AND LEGACY NOTES BY PEI 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 PEI stockholders in the
exchange offer, affiliates of PEI must comply with the provisions of Rule 145
under the Securities Act of 1933. PEI affiliates include any person who,
directly or indirectly, controls, or is controlled by, or is under common
control with PEI. Rule 145(d) requires that each person deemed to be an
affiliate of PEI must resell his Legacy debentures and Legacy notes pursuant to
certain 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 consummated without notification
being given or information being furnished to the Federal Trade Commission or
the Antitrust Division of the Department of Justice pursuant to 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 PEI STOCK
Our offer does not apply to options to purchase PEI stock. However, we have
agreed with PEI in the Company Agreement to accelerate the vesting of PEI stock
options and to make cash payments with respect to those options. For a
discussion of the effect of our offer on PEI options, see "Persons Interested in
the Exchange Offer."
EFFECT ON PEI PREFERRED STOCK
Our offer does not apply to the PEI preferred stock, which will remain
outstanding following the exchange offer. We have agreed in the Company
Agreement that after the consummation of the exchange offer, the holders of PEI
preferred stock will be entitled to
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elect a majority of PEI's board of directors and to have one designee on
Legacy's board of directors, until:
- less than 2,000,000 shares of PEI preferred stock remain outstanding,
- we make an offer to purchase any and all outstanding shares of PEI
preferred stock at a cash price of $16.00 per share, and purchase all
shares duly tendered and not withdrawn, or
- in other circumstances described in the Company Agreement.
For a more detailed discussion, see "Description of the Agreements -- The
Company Agreement." In addition, Legacy has agreed by separate letter to take
some affirmative actions to preserve PEI's status as a REIT in consideration of
the approval by PEI of Legacy's acquisition of PEI common stock.
ACCOUNTING TREATMENT
For accounting purposes, neither Legacy nor PEI will recognize a gain or
loss as a result of the exchange offer. PEI will, however, expense its costs
related to the exchange offer. We will account for our purchase of the PEI
common stock under the equity method. Pursuant to 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 PEI as a one-line item on our statement of income. We
will not consolidate the accounts of PEI because the holders of PEI preferred
stock will be entitled to elect a majority of PEI's board of directors following
the consummation of the exchange offer. However, if one of the conditions occurs
which terminates the right of the holders of PEI preferred stock to elect a
majority of the PEI board, we may be able to consolidate the accounts of PEI at
that time. For a discussion of the rights of the holders of PEI preferred stock
to elect a majority of the PEI board, see "Description of the Agreements -- The
Company Agreement."
ANTICIPATED MERGER AND DISSENTING STOCKHOLDERS RIGHTS
After the exchange, we may merge PEI with a wholly-owned subsidiary of
Legacy. The merger will have no effect on the PEI stockholders who accept our
offer. It will affect, however, those PEI stockholders who do not accept our
offer. If we proceed with a merger, we will give those stockholders the same
ratio of cash, Legacy debentures and Legacy notes for their PEI common stock as
is being offered to you. If the transaction is consummated as planned and the
number of outstanding shares of PEI common stock is reduced below the level
required for listing by the Nasdaq National Market, the PEI common stock may be
delisted from the Nasdaq National Market. Under Maryland law, those stockholders
who do not tender their shares of PEI common stock in the exchange offer may
dissent from any future merger of PEI only if the PEI common stock is not listed
on the Nasdaq National Market on the record date for determining stockholders
entitled to vote on the merger, and they must comply fully with federal law and
Maryland law for their dissent to be effective.
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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 PEI 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
PEI common stock. The first agreement, which is referred to in this prospectus
as the "Stockholders Agreement," was entered into with Sol Price, as trustee of
certain trusts, and other stockholders of PEI. For a discussion of the
background of our offer and the negotiations with respect to the Stockholders
Agreement, see "The Exchange Offer -- Background of the Exchange Offer."
Under the terms of the Stockholders Agreement, we agreed to pay $8.50 per
share for the PEI 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 PEI common stock.
Pursuant to 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 Stockholders Agreement sets forth the conditions to which our offer is
subject. For a discussion of those conditions, see "The Exchange
Offer -- Conditions to the Exchange." For a discussion of the terms of the
Legacy debentures and the Legacy notes, see "Description of the Legacy
Debentures and the Legacy Notes."
Pursuant to the Stockholders Agreement, on May 21, 1999, Sol Price, as
trustee of certain trusts, and the other stockholders of PEI who are parties to
the Stockholders Agreement deposited an aggregate of 4,464,382 shares of PEI
common stock (representing approximately 28.5% of the PEI voting power) into
escrow, and we deposited into escrow the sum of $1.0 million. The Stockholders
Agreement granted the PEI board of directors the right to determine whether the
transaction would proceed, and if so, whether the transaction would proceed as
an exchange offer for PEI common stock or a merger with PEI. If the transaction
did not proceed as a result of PEI or the PEI stockholders abandoning the
transaction, we would have been entitled to liquidated damages in the amount of
$1.0 million payable by Sol Price individually. Likewise, if the transaction did
not proceed as a result of Legacy abandoning the transaction, the PEI
stockholders would
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have been entitled to liquidated damages in the amount of $1.0 million (plus
interest). For a description of the liquidated damages provisions which now
apply, see "-- Termination of the Agreements and Liquidated Damages."
The PEI board met on June 2, 1999 and approved the transaction, and
determined that the transaction would proceed as an exchange offer. On June 4,
1999, certain of the PEI stockholders who signed the Stockholders Agreement
deposited additional shares of PEI common stock into escrow so that the
aggregate number of shares held in escrow would be 8,014,970 (representing
approximately 51% of the PEI 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. Pursuant to the Stockholders Agreement, 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 been consummated. Upon consummation of the
exchange offer, these funds, if so deposited, will be released to satisfy a
portion of our monetary obligations under the exchange offer. If the exchange
offer is terminated in such a manner as to require us to pay liquidated damages
to PEI as described below, these funds will be added to the amount payable by
Legacy to PEI (bringing the total liquidated damages to as much as $10.5
million).
Mr. Price, as trustee of certain trusts, and the other PEI stockholders
agreed not to sell or otherwise transfer their shares of PEI common stock until
the exchange offer is consummated or otherwise terminated, and to vote their
shares of PEI 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 PEI or
all or substantially all of the assets of PEI.
THE COMPANY AGREEMENT
On June 2, 1999, following the approval of the exchange offer by our board
of directors and the PEI board of directors, we entered into an agreement with
PEI which requires PEI to take certain actions to facilitate the transaction,
including cooperating with us with respect to the preparation and filing of this
prospectus and related exchange offer documents. This second agreement is
referred to in this prospectus as the "Company Agreement."
Pursuant to the Company Agreement, PEI (or the PEI 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 the PEI board of directors (other than
those relating to the exchange offer or any competing transaction) in a
non-voting observer capacity until the consummation of the exchange
offer, at which time the directors of PEI will cause Messrs. Sabin and
Muir (or two other designees of Legacy) to be appointed to the board of
directors of PEI,
- appoint Mr. Sabin as Chief Executive Officer of PEI effective upon
consummation of the exchange offer,
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- act only in the ordinary course of business until consummation 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.
Pursuant to the Company Agreement, Legacy is obligated, after the
consummation of the exchange offer, to cause the holders of PEI preferred stock
to be entitled under PEI's charter documents to elect a majority of PEI's board
of directors and to have one designee on Legacy's board of directors, until such
time as:
- less than 2,000,000 shares of PEI preferred stock remain outstanding,
- we make an offer to purchase any and all outstanding shares of PEI
preferred stock at a cash price of $16.00 per share, and purchase all
shares duly tendered and not withdrawn, or
- the directors of PEI (a) issue or agree to issue any equity securities or
securities convertible or exchangeable into or exercisable for equity
securities, in any case without unanimous approval of the PEI board, or
(b) fail in any fiscal year to declare or pay dividends on the PEI common
stock as and when requested by Legacy (1) to distribute 100% of PEI's
taxable income for such fiscal year or otherwise to maintain PEI'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 PEI preferred stock for such
fiscal year, over (y) $7.5 million.
The third point above is intended to protect the interests of the holders of PEI
preferred stock by creating an annual reserve of $7.5 million at the PEI level
which will not be distributed to Legacy or any other holder of PEI common stock.
This reserve will limit our ability to receive cash distributions from PEI for
so long as the PEI preferred stock is outstanding. We have agreed with PEI that
the $7.5 million reserve may be used for the improvement and/or acquisition of
properties, the buy-back of PEI preferred stock or the reduction of PEI debt.
Pursuant to the Company Agreement, Legacy is also obligated to:
- not cause a change of control of PEI (including by a change of control of
Legacy itself):
- prior to the consummation of the exchange offer, without the consent
of Sol Price, or
- after the consummation of the exchange offer, without either offering
to purchase all shares of PEI preferred stock or obtaining the
approval of a majority of the PEI preferred stock (unless a higher
percentage is required by PEI's charter or Maryland law). For purposes
of this provision, a "change of control" is deemed to have occurred at
such time as:
- 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 PEI or Legacy,
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- any merger or consolidation of PEI or Legacy is consummated in
which PEI or Legacy, as the case may be, is not the continuing or
surviving corporation or pursuant to which the common stock of
PEI 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 PEI 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
- the directors of Legacy on the date of the Company Agreement (or
persons nominated for election by such directors) no longer
constitute a majority of Legacy's board of directors,
- after the consummation of the exchange offer, cause PEI to pay all
severance obligations owing to PEI employees, and to accelerate the
vesting of all stock options held by PEI employees and directors and to
make certain cash payments with respect to those options (see "Persons
Interested in the Exchange Offer" for a detailed description of these
payments),
- after the consummation of the exchange offer, cause PEI to maintain
directors and officers' liability insurance insuring all persons who are
or were directors or officers of PEI in an amount not less than that in
effect on April 30, 1999, for a period of at least three years following
the consummation of the exchange, and cause PEI to indemnify each such
person against all liability relating to their actions as directors or
officers of PEI, and
- until such time as there are no shares of PEI preferred stock
outstanding, not take any action that would cause PEI to fail to qualify
as a REIT.
In addition, Legacy has agreed by separate letter to take some affirmative
actions to preserve PEI's status as a REIT in consideration of the approval by
PEI of Legacy's acquisition of PEI common stock.
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 consummate 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 PEI, we
may elect, in lieu of the liquidated damages, to consummate 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
PEI 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
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them, and none of the parties generally will have any further obligations
thereunder. The amount payable by Legacy to PEI is subject to increase based on
the timing of the termination as described in "-- Description of the
Stockholders Agreement."
If the exchange offer is terminated without our acceptance of any shares of
PEI common stock tendered, we will promptly return all shares tendered to the
appropriate PEI stockholders.
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 March 31, 1999, we had outstanding approximately 32,607,704 shares of common
stock and 21,281,000 shares of Series B preferred stock. As of March 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 the Legacy board of directors. The Legacy
charter and our amended and restated bylaws (the Legacy bylaws) contain
provisions that could have an anti-takeover effect. See "Risk Factors -- We Have
Implemented Anti-Takeover Provisions that Could Prevent an Acquisition of Our
Business at a Premium Price."
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.
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.
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LEGACY PREFERRED STOCK
Under the Legacy 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 Delaware General Corporation
Law (DGCL) and the Legacy 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.
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 , 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
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registration statement of which this prospectus is a part and may be obtained
from us. You can find definitions of certain terms used in the following summary
under "-- Certain 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 to our existing and future secured indebtedness (and that of our
subsidiaries), to the extent of the value of the assets securing that
indebtedness.
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, provided that 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. For a discussion
of the effective subordination of the Legacy debentures and 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."
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 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
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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.
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 Legacy notes, as
applicable, 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.
Notice of redemption will be mailed 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 or portions thereof called for redemption as long as we have
deposited with the paying agent (which initially will be the trustee) funds in
satisfaction of the applicable redemption price.
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.
For the definition of "senior debt" from the indenture for the Legacy
debentures, see "-- Certain Definitions." The Legacy debentures also will be
effectively subordinated to our secured indebtedness and the indebtedness and
other liabilities of our subsidiaries.
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 other like proceeding at the rate
specified in the applicable senior debt whether or not such interest is an
allowed claim in any such proceeding, before the holders of Legacy debentures
will be entitled to receive any payment with respect to the Legacy debentures 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.
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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 shall be resumed (1) in the case
of a payment default, upon the date on which such default is cured or waived, or
(2) if 120 days pass after notice is given if the default is not the subject of
judicial proceedings. 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. For a description of
events of default see "-- Events 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 March 31, 1999, we had:
- approximately $99.7 million in outstanding debt that ranks senior to the
Legacy debentures (including the debt of our subsidiaries),
- 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 consummation of the exchange offer and assuming all
shares of PEI common stock are tendered and we borrow the funds necessary for
the cash portion of the consideration in the exchange offer, we will have
approximately $184.1 million in senior debt outstanding (including the debt of
our subsidiaries but not taking into account PEI's total indebtedness of
approximately $108.9 million).
The indenture for the Legacy debentures will permit the incurrence of
additional debt without restriction.
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, provided that 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."
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As of March 31, 1999, we had:
- approximately $99.7 million in outstanding secured debt under our
existing credit facility and other mortgage debt that effectively ranks
senior to the Legacy notes (including the debt of our subsidiaries),
- no debt that ranks equal to the Legacy notes, and
- no debt that ranks junior to the Legacy notes.
The Legacy debentures will rank junior to the Legacy notes and,
accordingly, after the consummation of the exchange offer and assuming all
shares of PEI common stock are tendered, we will have approximately $19.9
million in subordinated debt.
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 prior to the final maturity date of the debentures, subject to prior
redemption, to convert any Legacy debentures or portions thereof (in
denominations of $1,000 or multiples thereof) into Legacy common stock at the
conversion price of $5.50 per share, subject to adjustment as described below.
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 adjustment under formulae as set forth in the indenture for the
Legacy debentures in events which affect Legacy common stock, including:
- 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
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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 or conveyance to
another person of the property and assets of Legacy as an entirety or
substantially as an entirety, in each case as a result of which holders of
Legacy common stock shall be entitled to receive stock, other securities, other
property or assets (including 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 property or assets
which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had the Legacy debentures been converted into Legacy common stock immediately
prior to such reclassification, consolidation, merger, combination, sale or
conveyance assuming that a holder of Legacy debentures would not have exercised
any rights of election as to the stock, other securities or other property or
assets receivable in connection therewith.
In the event of a taxable distribution to the holders of Legacy common
stock or in certain other circumstances requiring conversion price adjustments,
the holders of Legacy debentures may, in certain circumstances, be deemed to
have received a distribution subject to United States federal income tax as a
dividend; in certain other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of Legacy common stock. See "United
States Federal Income Tax Considerations."
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. See "United States Federal Income Tax Considerations."
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; provided that 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 in light of the basis and notice
on which holders of Legacy common stock participate in the transaction. Except
as stated above, the conversion price will not be adjusted for the issuance of
Legacy common stock or any securities convertible into or exchangeable for
Legacy common stock or carrying the right to purchase any of the foregoing.
Legacy Notes. The Legacy notes are not convertible.
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COVENANTS
The indentures contain the following covenants:
Merger, Consolidation and Sale of Assets. We will not, in a single
transaction or series of related transactions, 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, whether as an entirety or substantially as
an entirety 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, executed and delivered to the trustee,
the due and punctual payment of the principal of, and premium, if any,
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 accordance with the
foregoing, in which we are not the continuing 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 or Legacy notes, as applicable, 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
kept, observed, performed and fulfilled its obligations under, and complied with
the covenants and conditions contained in, the indentures, and further stating,
that to the best of the knowledge of the officer of Legacy providing the
certificate that we are not in
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default in the performance or observance of any of the terms, provisions and
conditions of the indentures (or, describing all defaults or events of default
of which the officer 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 Legacy debentures or the
Legacy notes are prohibited.
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, 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
- certain events of bankruptcy affecting Legacy or any of our material
subsidiaries.
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If an event of default (other than an event of default as a result of
certain 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 specifying the respective event of
default and that it is a "notice of acceleration" and the same shall 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, as applicable, as
described in the preceding paragraph, 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
- 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, as applicable, 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 (provided that the officers shall provide such certification
at least annually whether or not they know of any default or event of default)
that has occurred and, if applicable, describe such default or event of default
and the status thereof.
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
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expressly provided for in the indentures, (1) as to all outstanding Legacy
debentures when all the Legacy debentures theretofore authenticated and
delivered have been delivered to the trustee for cancellation or (2) 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 in accordance with the terms of the debentures and the indenture
for the Legacy debentures,
- the rights of holders to receive payments in respect of the principal of,
premium, if any, 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, in trust, for the benefit
of the holders cash in U.S. dollars, 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 applicable 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 reasonably
acceptable to the trustee confirming that:
- Legacy has 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, and based thereon such opinion of
counsel shall confirm that, the holders 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 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 such deposit, after giving effect to the deposit, or insofar
as events of default from
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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
- 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 certain 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 in accordance with the terms of the indentures,
- to adjust the conversion price of the Legacy debentures for our common
stock for certain 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, except that, without the
consent of each holder affected thereby, 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 or have the effect of changing the time for
payment of interest,
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- reduce the principal of or change or have the effect of changing 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 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 indentures provide that the Legacy debentures, the Legacy notes and the
indentures will be governed by, and construed in accordance with, the laws of
the state of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
THE TRUSTEE
The indentures provide that, except during the continuance of an event of
default, the trustee will perform only such duties as are specifically set forth
in the indentures. During the existence of an event of default, the trustee will
exercise such 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 certain limitations on
the rights of the trustee, should it become a creditor of Legacy, to obtain
payments of claims in certain cases or to realize on certain 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 such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain 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 (whether or not the recourse of the lender is to the whole of the
assets of such
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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.
"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 (as such
Regulation is in effect on the date hereof), 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
(present or future) created, incurred, assumed or guaranteed by Legacy (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 Legacy
debentures. Notwithstanding anything to the contrary in the foregoing, senior
debt shall not include (1) any debt of Legacy to any of its subsidiaries, (2)
any liability for federal, state, local or other taxes owed or owing by Legacy,
(3) 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 (4) 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 March 31, 1999, our business consisted of the following portfolio of
real properties, notes receivable, and investments in real estate-related
ventures:
- ten single tenant retail properties located in Colorado, Illinois,
Indiana (3), Michigan, Ohio, Pennsylvania, Texas and Wisconsin, eight of
which are leased to Wal-Mart Stores, Inc. and two of which are leased to
Lowe's Home Centers, Inc.,
- 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,
- four notes receivable relating to real estate projects in Arizona and
California with an aggregate outstanding balance of approximately $23.2
million as of March 31, 1999, and
- ownership interests in a number of real estate-related ventures,
including (1) 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, (2) a 50% ownership interest in a development
company which owns Newport Centre, a retail and office facility located
in Winnipeg, Canada, (3) a 23.7% ownership interest in a development
company which owns land in Indianapolis, Indiana, and (4) 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.
The following table describes our portfolio of real estate properties as of
March 31, 1999. Amounts shown for annual minimum rents are based on executed
leases at March 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.
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<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 Restaurant 3.7 104.3
Grand Hotel............. (3) (3) (3)
Millennia Car Wash...... (4) (4) (4)
California
Desert Fashion Plaza.... Saks Fifth Avenue/various 283.9 566.6
Rancho Bernardo......... (5) (5) (5)
San Diego............... (6) (6) (6)
Colorado
Brighton(7)............. Wal-Mart 94.2 343.0
Highlands Ranch......... AMC 110.0 2,413.0
Telluride............... (8) (8) (8)
Westminster............. AMC 110.0 2,520.0
Illinois
Orland Hills(7)......... Wal-Mart 114.5 824.1
Indiana
Decatur(7).............. Wal-Mart 72.2 324.3
Terre Haute(7).......... Lowe's 104.2 557.8
Wabash(7)............... Wal-Mart 93.5 374.6
Michigan
Big Rapids(7)........... Wal-Mart 91.4 337.6
Ohio
Middletown(7)........... Lowe's 126.4 650.0
Pennsylvania
Wyomissing(7)........... Wal-Mart 115.1 679.7
Texas
Temple(7)............... Wal-Mart 110.6 629.8
Wisconsin
Berlin(7)............... Wal-Mart 59.1 218.0
Winnipeg, Canada
Newport Centre(9)....... Bank of Montreal/various 156.9 936.0
------- ---------
Total..................... 2,230.5 $12,303.6
======= =========
</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 (subject to reduction to 50% based on
performance measures) in Millennia which owns or leases 19 car wash
properties in and around Phoenix, Arizona and San Antonio, Texas. 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.
(7) Single tenant property acquired from Excel Realty Trust in connection with
the spin-off of Legacy.
(8) Property consists of vacant land being considered for condominium
development.
(9) Property is owned by a Nova Scotia company of which Legacy holds a 50%
ownership interest.
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OUR PRINCIPAL TENANTS
Our three largest tenants accounted for approximately 27% of our total
annualized rental revenues as of March 31, 1999. 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 14%
Wal-Mart....................... 8 750.6 3,731.1 10
Lowe's......................... 2 230.6 1,207.8 3
-- ------- -------- --
12 1,201.2 $9,871.9 27%
== ======= ======== ==
</TABLE>
As of March 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 March 31, 1999, Wal-Mart was our second largest tenant in terms of
total revenues and leased more individual properties from us than any other
tenant. Wal-Mart is the nation's largest retailer and operates approximately
2,000 discount department stores and over 400 warehouse clubs. Wal-Mart is
listed on the New York Stock Exchange and, as of December 1998, had credit
ratings of AA from Standard & Poor's and AA2 from Moody's.
As of March 31, 1999, Lowe's was our third 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, Wal-Mart 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 March 31, 1999, we had approximately 735 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 (619) 675-9400.
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<PAGE> 80
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 June 4, 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 43
Secretary
Kelly D. Burt............. Director, Executive Vice 41
President -- Development
Richard J. Nordlund....... Director 53
Robert E. Parsons, Jr. ... Director 43
Robert S. Talbott......... Director 45
John H. Wilmot............ Director 55
Emmett R. Albergotti...... Senior Vice President -- Retail Development 56
Graham R. Bullick, Ph.D... Senior Vice President -- Capital Markets 48
Mark T. Burton............ Senior Vice President -- Acquisitions 38
S. Eric Ottesen........... Senior Vice President, General Counsel and 43
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 with Miller & Schroeder Financial, Inc. Mr. Nordlund's business
experience includes 28 years in the investment banking and mortgage banking
industries.
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<PAGE> 81
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 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.
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<PAGE> 82
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 PEI
GENERAL
PEI is a REIT incorporated in the state of Maryland. Its principal business
is to own, acquire, develop, operate, manage and lease real property. PEI 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 PEI and transferred to PEI 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, certain
merchandising business entities and other assets.
In June 1997, PEI's board of directors determined that it would be in the
best interest of PEI and its stockholders to separate PEI's core real estate
business from its merchandising businesses. Accordingly, the PEI board approved
a spin-off transaction in which PEI 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, PEI's 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, PEI has engaged in a combination of
acquiring, developing, owning, managing and/or selling real estate assets,
primarily shopping centers. The PriceSmart distribution resulted in PEI becoming
eligible to elect federal tax treatment as a REIT, which allows PEI to
substantially eliminate its obligation to pay taxes on income.
PEI'S PROPERTIES
At March 31, 1999, PEI owned 31 commercial real estate properties and held
one property with a 21-year ground lease. These properties encompass
approximately 4.4 million square feet of GLA and were 94% leased at March 31,
1999. The five largest properties include approximately 1.7 million square feet
of GLA that generate annual minimum rent of approximately $25.6 million, based
on leases existing as of March 31, 1999.
Included in the properties PEI owned at March 31, 1999 are four self
storage facilities. Two of these facilities, San Diego, California and Azusa,
California, are located on the same sites as PEI's commercial properties. The
other two self storage facilities are stand-alone properties. At March 31, 1999,
these facilities had approximately 400,000 square feet of GLA and were 84%
occupied.
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<PAGE> 83
The following table describes PEI's portfolio of real estate properties as
of March 31, 1999. Amounts shown for annual minimum rents are based on executed
leases at March 31, 1999. PEI made no allowances for contractually-based delays
to the commencement of rental payments. Due to the nature of real estate
investments, PEI's actual rental income may differ from amounts shown in the
table below. Self storage properties as of March 31, 1999 are shown separately
from PEI's 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% $ 7,651.4
Pentagon City, VA................. 12 336.8 100 6,566.1
Sacramento/Bradshaw, CA........... 2 296.9 100 4,407.7
Wayne, NJ(1)...................... 5 348.1 89 4,258.5
Philadelphia, PA.................. 16 304.4 89 2,733.5
Dallas, TX(2)..................... 5 177.5 93 2,623.2
San Diego, CA(3).................. 3 443.2 100 2,282.5
Signal Hill, CA................... 14 154.8 100 2,190.9
Roseville, CA..................... 9 189.6 90 2,008.4
Fountain Valley, CA............... 15 119.0 92 1,680.7
Moorestown, NJ (leased land)...... 3 172.6 100 1,632.9
Glen Burnie, MD................... 11 130.6 98 1,501.4
Seekonk, MA....................... 9 213.1 48 1,337.2
San Diego/Rancho San Diego, CA.... 16 93.7 97 1,104.5
Inglewood, CA..................... 1 119.9 100 847.0
San Diego/Carmel Mountain, CA..... 5 35.0 90 797.7
Northridge, CA.................... 2 22.0 100 734.0
Buffalo, NY(2).................... 1 115.4 100 733.3
New Britain, CT................... 1 112.4 100 671.1
San Juan Capistrano, CA........... 6 56.4 100 589.9
Smithtown, NY..................... 1 55.6 100 500.7
Sacramento/Stockton, CA........... 2 49.8 100 470.2
Hampton, VA....................... 2 45.6 100 445.2
Redwood City, CA.................. 2 49.4 100 376.6
Azusa, CA(3)...................... 3 206.6 100 360.5
Tucson, AZ........................ 9 40.1 100 293.8
Denver/Littleton, CO.............. 1 26.4 100 216.1
Denver/Aurora, CO................. 1 7.3 100 164.3
San Diego/Southeast, CA........... 2 8.9 100 148.1
Chula Vista/Rancho del Rey, CA.... 1 3.2 100 75.0
--- ------- --- ---------
Total Commercial Properties....... 168 4,332.9 94% $49,402.4
=== ======= === =========
</TABLE>
- -------------------------
(1) Includes 37,000 sq. ft. of vacant storage space.
(2) Property was sold in April 1999.
(3) Price Self Storage is also located at this property.
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<PAGE> 84
<TABLE>
<CAPTION>
SELF STORAGE PROPERTIES GLA (SQ FT) PERCENT LEASED
----------------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C>
San Diego/Murphy Canyon, CA..................... 197.9 99%
San Diego, CA................................... 89.9(1) 99
Azusa, CA....................................... 85.2(1)(2) 38
Solana Beach, CA................................ 8.0(3) 21
----- --
Total Self Storage Properties................... 381.0 84%
===== ==
</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.
PEI'S PRINCIPAL TENANTS
PEI's eight largest tenants accounted for approximately 44% of its total
GLA and approximately 51% of its total annualized rental revenues as of March
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 15.0% $ 8,307.9 16.8%
The Sports Authority...... 8 341.2 8.3 4,333.5 8.8
The Home Depot............ 2 214.2 5.2 2,550.7 5.2
AT&T Wireless............. 1 156.6 3.8 2,240.0 4.5
Level One Communications.. 1 140.4 3.4 2,167.7 4.4
Kmart..................... 1 110.0 2.7 2,027.2 4.1
Marshalls................. 2 87.9 2.1 1,826.3 3.7
PETsMART.................. 6 155.8 3.8 1,603.4 3.2
-- ------- ---- --------- ----
25 1,824.3 44.3% $25,056.7 50.7%
== ======= ==== ========= ====
</TABLE>
PEI'S EMPLOYEES
PEI employed 50 employees as of March 31, 1999 including 15 responsible for
property management, 19 employed in finance and administration and 16 employed
in the self storage business.
PEI'S HEADQUARTERS
PEI's principal executive offices are located at 4649 Morena Boulevard, San
Diego, California 92117 and its telephone number is (619) 581-4679.
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<PAGE> 85
PEI'S DIRECTORS AND OFFICERS
The table below indicates the name, position with PEI and ages of its
directors, executive officers and other key employees as of June 4, 1999.
<TABLE>
<CAPTION>
NAME POSITION WITH PEI AGE
---- ----------------- ---
<S> <C> <C>
Robert E. Price..... Chairman of the Board 56
Jack McGrory........ President, Chief Executive Officer and Director 49
Paul A. Peterson.... Vice Chairman of the Board 71
Murray L. Galinson.. Director 62
James F. Cahill..... Director 44
Anne L. Evans....... Director 66
Joseph R. Satz...... Executive Vice President, General Counsel and 57
Secretary
Kathleen M. Hillan.. Senior Vice President -- Finance 40
</TABLE>
Robert E. Price has been Chairman of the Board of PEI since July 28, 1994.
Mr. Price was President and Chief Executive Officer of PEI 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 PEI, Mr.
Price serves as Chairman of the Board of PriceSmart, Inc.
Jack McGrory became a Director of PEI on August 29, 1997. Mr. McGrory also
became the President and Chief Executive Officer of PEI 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 PEI
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 PEI 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 PEI on August 29, 1997.
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
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<PAGE> 86
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 PEI on October 16, 1997.
Joseph R. Satz has been Executive Vice President of PEI since October 16,
1997. He became the Secretary and General Counsel of PEI on September 16, 1997.
Mr. Satz held the position of Vice President and Counsel of PEI 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 PEI's Senior Vice President -- Finance on October
16, 1997. Ms. Hillan was Corporate Controller of PEI 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 PEI
FOLLOWING THE EXCHANGE OFFER
If the exchange offer is consummated as planned, PEI's 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 PEI,
- James F. Cahill, currently Director of PEI, and
-
--------------------------------.
For additional information regarding the persons listed above, see
"Information About Legacy -- Our Directors and Officers" and "Information About
PEI -- PEI's Directors and Officers."
In addition, the Company Agreement requires that Mr. Sabin be appointed as
Chief Executive Officer of PEI effective upon the consummation of the exchange
offer. Although neither the Company Agreement nor the Stockholders Agreement
specifies who will manage PEI under Mr. Sabin's direction, we currently expect
that the officers of Legacy will be appointed as officers of PEI in their
current positions, and that the property management and other operational
personnel of PEI will continue to serve in their current positions with PEI. As
noted in "Description of the Agreements -- The Company Agreement," we are
obligated to continue to operate PEI as a REIT so long as any shares of PEI
preferred stock remain outstanding.
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<PAGE> 87
PERSONS INTERESTED IN THE EXCHANGE OFFER
In considering whether to exchange your shares of PEI common stock, you
should be aware of the interests that directors, executive officers and other
personnel of PEI have in the exchange offer. These include:
- severance payments,
- acceleration of vesting of PEI 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. PEI's board of directors was aware of these interests
and considered them in approving our offer.
SEVERANCE PAYMENTS
We agreed with PEI in the Company Agreement that the consummation of the
exchange offer will be treated as a "change of control" for purposes of PEI's
employee benefit plans, and each employment, severance or similar agreement
applicable to PEI personnel or any of its subsidiaries. We agreed that PEI may
terminate certain personnel prior to the consummation 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 PEI 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 PEI's personnel, upon the consummation
of the exchange offer, will in general receive credit with respect to each
employee benefit plan, program, policy or arrangement of PEI or Legacy for
service with PEI 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 PEI on September 2, 1997. Mr. McGrory entered into an employment
agreement with PEI on June 18, 1997 for a term of three years commencing
September 2, 1997, as amended on August 27, 1997 and again on February 2, 1999.
Under the employment agreement, following the consummation 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 PEI's
normal payroll period. Assuming the exchange offer is consummated in June 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 PEI on
February 2, 1998. Mr. Nielson entered into an employment agreement with PEI for
a term of two years commencing February 2, 1998. Under the employment agreement,
following the consummation 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 PEI's normal payroll period, or
- $175,000.
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<PAGE> 88
Mr. Nielson resigned from PEI 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 PEI. The Company Agreement
provides that other executive officers and personnel of PEI who are:
- not offered employment by PEI or Legacy on substantially similar terms to
their employment with PEI at the time that the exchange offer is
consummated, or
- terminated by PEI or Legacy within one year following the consummation of
the exchange offer,
will be entitled to receive severance benefits equal to one month's base pay for
each year of service to PEI, 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 PEI's directors and executive officers, and, as a group, the
other personnel of PEI assuming that (1) all directors, executive officers and
other personnel of PEI will be terminated following the exchange offer and (2)
the terminations occur in June 1999.
<TABLE>
<CAPTION>
NAME TOTAL SEVERANCE PAYMENT
---- -----------------------
<S> <C>
Jack McGrory.............................. $ 360,000
Gary W. Nielson........................... 210,000
Joseph R. Satz............................ 215,000
All other PEI personnel................... 1,334,300
----------
Total................................... $2,119,300
==========
</TABLE>
STOCK OPTIONS
We agreed with PEI in the Company Agreement to cause all options to
purchase PEI common stock and PEI preferred stock to become fully vested and
exercisable upon the consummation of the exchange offer.
PEI has granted to some of its employees options to purchase only PEI
common stock. After the consummation of the exchange offer, all options to
purchase PEI common stock will be canceled, and PEI 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 PEI common stock subject to the
applicable option.
PEI has also granted to some of its directors, executive officers and
employees options to purchase both PEI common stock and PEI preferred stock.
After the consummation of the exchange offer, each outstanding option which
represents the right to purchase a share of both PEI common stock and PEI
preferred stock will be modified so that the holder will:
- be paid by PEI 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
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<PAGE> 89
- the number of shares of PEI common stock subject to the option, and
- receive a replacement option to purchase PEI preferred stock, exercisable
on the same terms and conditions as the surrendered option to purchase
the same number of shares of PEI 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 consummation of the exchange offer (or such
longer period as may be applicable to holders who remain employed by
us or PEI after the exchange offer), or
- such time as no shares of PEI preferred stock remain outstanding (at
which time the option will represent the right to receive the
redemption price for the PEI preferred stock).
Although PEI will make the payments to the holders of PEI options as
described above, we agreed in the Company Agreement to provide PEI with the
necessary funds to make those payments.
The following table sets forth, as of March 31, 1999, the number of options
to purchase PEI common stock and PEI preferred stock held by the directors and
current and former executive officers of PEI and, as a group, the other
employees of PEI. The table also indicates the effect of the exchange offer on
those options.
<TABLE>
<CAPTION>
PEI WEIGHTED WEIGHTED PEI PREFERRED
COMMON AVERAGE PEI PREFERRED AVERAGE CASH PROCEEDS STOCK SUBJECT TO
STOCK SUBJECT EXERCISE STOCK SUBJECT EXERCISE AFTER OPTIONS AFTER
NAME TO OPTIONS PRICE TO OPTIONS PRICE EXCHANGE 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 PEI in the Company Agreement to cause PEI to maintain
directors and officers' liability insurance insuring all persons who are or were
directors or officers of PEI in an amount not less than that in effect on April
30, 1999, for a period of at least three years following the consummation of the
exchange offer, and to cause PEI to indemnify each such person against all
liability relating to their actions as directors or officers of PEI.
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<PAGE> 90
COMPARISON OF STOCKHOLDER RIGHTS
The rights of our stockholders are currently governed by the DGCL, the
Legacy charter and the Legacy bylaws. Stockholders of PEI 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 PEI with those of stockholders of Legacy. This summary
of comparative rights of Legacy and PEI stockholders may not be complete and is
subject to and qualified in its entirety by reference to the Maryland General
Corporation Law (MGCL), the DGCL, the Legacy charter, the Legacy bylaws, the PEI
charter and the PEI bylaws.
FORM OF ORGANIZATION AND PURPOSE
Legacy. Legacy is a Delaware corporation. Pursuant to the Legacy 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.
PEI. PEI is a Maryland corporation. Pursuant to the PEI charter, PEI is
authorized to engage in any lawful act or activity for which corporations may be
organized under the MGCL.
CAPITALIZATION
Legacy. The Legacy 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 March
31, 1999, 32,607,704 shares of the Legacy common stock and 21,281,000 shares of
the Series B preferred stock were issued and outstanding.
PEI. The PEI charter authorizes a total number of 100,000,000 shares of
stock, consisting of 74,000,000 shares of PEI common stock and 26,000,000 shares
of PEI preferred stock. At March 31, 1999, 13,298,421 shares of the PEI common
stock and 23,758,801 shares of the PEI preferred stock were issued and
outstanding.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF STOCK
Legacy. Although permitted by the DGCL, neither the Legacy charter nor the
Legacy 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.
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PEI. As permitted by the MGCL, for purposes of maintaining PEI's REIT
status under the Code, the PEI charter provides that, subject to certain
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 PEI, 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 PEI.
The PEI 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 the PEI charter are complied with and the PEI board of directors
has determined that the exemption will not cause PEI to fail to qualify as a
REIT. The PEI board of directors has waived the above ownership limits with
respect to the Price family and affiliated entities, and with respect to Legacy.
The PEI charter further prohibits, without exception:
- any person from actually or constructively owning shares of stock of PEI
that would result in PEI being "closely held" under Section 856(h) of the
Code or otherwise cause PEI to fail to qualify as a REIT, and
- any person from transferring shares of stock of PEI if such transfer
would result in all classes and series of stock of PEI being owned by
fewer than 100 persons.
AMENDMENT OF LEGACY CHARTER/PEI 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. The
Legacy charter provides that Legacy reserves the right to amend, alter, change
or repeal any provision of the Legacy charter in the manner prescribed by
statute and that all rights granted to Legacy stockholders in the Legacy charter
are granted subject to such reservation.
PEI. 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
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majority of all votes entitled to be cast) is specified in the charter. The PEI
charter provides that any action, which would include an amendment to the PEI
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
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.
PEI. 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 PEI preferred
stock are entitled to 1/10 of one vote per share, voting together with the
holders of the PEI common stock on all matters that the holders of the PEI
common stock are entitled to vote on. As permitted by the MGCL, the PEI 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 (or consents) in writing, setting forth
the action, is signed by stockholders having
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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.
PEI. 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. The Legacy bylaws provide that special meetings of stockholders of
the corporation may be called by:
- the chairman,
- the vice chairman,
- the president,
- any vice president,
- the secretary,
- any assistant secretary,
- at the request in writing by a majority of the entire board of directors,
or
- at the written request in writing of stockholders owning a majority of
the capital stock of Legacy and entitled to vote.
PEI. The PEI bylaws provide that special meetings of the 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.
PEI. 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 stock ledger and receive a written statement of the corporation's affairs
and a verified list of stockholders.
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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. The Legacy 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.
PEI. 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.
The PEI charter provides that the number of directors shall be six, which
number may be increased or decreased in accordance with the PEI bylaws, provided
that the total number of directors may not be less than the minimum number
permitted by the MGCL. Pursuant to the PEI bylaws, the number of directors is
fixed by PEI's board of directors within the limits set forth in the PEI
charter, provided that there may not be more than 25 directors.
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
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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.
PEI. The PEI charter provides that, subject to the rights of one or more
classes or series of preferred stock to remove one or more director, any
director or the entire board of directors may be removed only for cause (a final
judgment of a court of competent jurisdiction, holding that such director caused
demonstrable, material harm to PEI through bad faith or active and deliberate
dishonesty) 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, the Legacy 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.
PEI. The PEI 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 the PEI 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
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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.
PEI. 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 of an ordinarily prudent person in a like position would
use under similar circumstances.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND OF NEW BUSINESS PROPOSALS
Legacy. The Legacy bylaws do not provide for advance notice of director
nominations or new business proposals.
PEI. The PEI bylaws provide that with respect to an annual meeting of
stockholders, nominations of persons for election to PEI's board of directors
and the proposal of business to be considered by stockholders may be made only:
- pursuant to PEI's 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 PEI's 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 the PEI bylaws.
The advance notice provisions contained in the PEI bylaws generally require
that stockholders deliver nominations and new business proposals to PEI's
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 PEI 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
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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 pursuant to 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.
The Legacy 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 the Legacy 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.
PEI. Unless a corporation's charter provides otherwise, which the PEI
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 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.
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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. The PEI charter obligates PEI to indemnify its directors and officers,
whether serving PEI 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. The PEI 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. The
PEI 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 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.
PEI. 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
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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 pursuant to
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 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.
PEI. 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.
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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 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
the Legacy 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.
PEI. 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,
certain 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
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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.
The PEI 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 PURSUANT TO DELAWARE/MARYLAND LAW
Legacy. Section 203 of the DGCL provides that, subject to certain
exceptions specified therein, a corporation will not engage in any business
combination with any "interested 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 consummation 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 3-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,
95
<PAGE> 102
- 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.
PEI. 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 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.
96
<PAGE> 103
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 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.
Pursuant to the MGCL, the PEI board of directors has adopted a resolution
providing that the "business combination" provisions of Maryland law shall not
apply to any "business combination" with PEI. The PEI bylaws contain a provision
exempting from the control share acquisition statute any and all acquisitions by
any person of shares of stock of PEI. There can be no assurance, however, that
the PEI 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 PEI, except that the PEI board has
irrevocably exempted Legacy from the operation and effect of the business
combination provisions of the MGCL.
97
<PAGE> 104
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 March 31, 1999 and for the five
months ended December 31, 1998 and the three months ended March 31, 1999 have
been derived from the unaudited financial statements of Legacy. 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 three month period ended March 31, 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 (1)
our Annual Report on Form 10-K for the fiscal year ended July 31, 1998, which
was filed with the SEC on October 28, 1998, (2) our Transition Report on Form
10-Q for the five months ended December 31, 1998, which was filed with the SEC
on February 12, 1999, and (3) our Quarterly Report on Form 10-Q for the three
months ended March 31, 1999, which was filed with the SEC on May 7, 1999, each
of which is incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS FIVE MONTHS PERIOD FROM INCEPTION
ENDED ENDED (NOVEMBER 17, 1997)
MARCH 31, 1999 DECEMBER 31, 1998 TO JULY 31, 1998
-------------- ----------------- ----------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS
DATA:
Total revenue..................... $ 9,217 $ 15,010 $ 8,145
Total operating expenses.......... (8,904) (13,754) (5,267)
Net income before income taxes.... 313 1,256 2,878
Provision of income taxes......... (139) (535) (1,143)
Net income........................ 174 721 1,735
EBDADT............................ 1,405 2,712 3,001
EBITDA............................ 3,534 5,819 5,453
Net income per share:
Basic........................... $ 0.01 $ 0.02 $ 0.11
Diluted......................... 0.00 0.01 0.07
Weighted average number of shares:
Basic........................... 33,458 33,458 15,842
Diluted......................... 54,747 54,768 25,984
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
MARCH 31, 1999 DECEMBER 31, 1998 JULY 31, 1998
-------------- ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Net real estate........................... $191,448 $190,878 $175,756
Total assets............................ 270,138 261,296 246,916
Mortgages and notes payable............... 99,694 90,986 72,714
Stockholders' equity...................... 166,814 166,640 165,919
</TABLE>
98
<PAGE> 105
SUMMARY SELECTED FINANCIAL DATA OF PEI
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 PEI. The selected financial data presented below
as of March 31, 1999 and for the three months ended March 31, 1999 have been
derived from the unaudited financial statements of PEI. In the opinion of PEI's
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 three month period ended March 31, 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 (1)
PEI's Annual Report on Form 10-K for the year ended December 31, 1998, which was
filed with the SEC on March 29, 1999 and (2) PEI's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999 which was filed with the SEC on May 14,
1999, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED AUGUST 31
ENDED YEAR ENDED FOUR MONTHS ENDED ----------------------------------------
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 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.......... $17,427 $62,485 $18,170 $56,838 $56,221 $51,897 $30,316
Operating income
(loss)................. 9,089 31,393 9,045 22,422 5,829 16,635 (74,711)
Income (loss) from
continuing
operations............. 7,565 29,429 17,508 19,085 8,340 13,297 (40,596)
Discontinued
operations............. -- -- -- (4,860) (8,250) (12,751) (883)
Net income............... 7,565 29,429 17,508 14,225 90 546 (41,479)
Dividends paid to
preferred
stockholders........... (8,316) (8,316) -- -- -- -- --
Net income applicable to
common stockholders.... (751) 21,113 17,508 14,225 90 546 (41,479)
Net income (loss) per
share from continuing
operations -- basic.... (.06) .97 .74 .82 .36 .53 (1.50)
Cash dividends per
share.................. .35 1.40 .35 1.20 -- .08 --
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31 AS OF AUGUST 31
AS OF -------------------- --------------------------------------------
MARCH 31, 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................ $422,570 $418,507 $353,056 $337,139 $337,098 $330,443 $405,966
Total assets..................... 457,779 457,352 408,478 403,757 540,325 555,994 591,511
Long-term debt......................... 8,895 8,923 -- -- -- 15,425 --
Stockholders' equity................... 344,088 344,811 406,624 396,476 532,899 532,085 578,788(1)
Book value per common share............ (.70) (.65) 17.13 16.78 22.88 22.90 21.44
</TABLE>
- ---------------
(1) Amount represents investment by Costco prior to the spin-off of PEI.
99
<PAGE> 106
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 three months ended March 31, 1999 and
the twelve months ended December 31, 1998 as if the exchange offer had been
consummated on March 31, 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 been consummated 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 PEI incorporated by reference in this
prospectus. For additional information see "Summary Selected Financial Data of
Legacy," "Summary Selected Financial Data of PEI" and "Where You Can Find More
Information."
Upon consummation 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 consummated, as well as the factors discussed in
"Risk Factors."
100
<PAGE> 107
EXCEL LEGACY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
PRO
HISTORICAL PRO FORMA FORMA
MARCH 31, 1999 ADJUSTMENTS TOTALS
-------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate, net...................... $191,448 $ -- $191,448
Cash.................................. 1,775 -- 1,775
Accounts receivable, net.............. 169 -- 169
Notes receivable...................... 23,239 -- 23,239
Investment in PEI..................... -- 121,000(2) 121,000
Investment in partnerships............ 12,829 -- 12,829
Interest receivable................... 6,187 -- 6,187
Pre-development costs................. 19,302 -- 19,302
Other assets.......................... 9,043 -- 9,043
Deferred tax asset.................... 6,146 -- 6,146
-------- -------- --------
Total assets................ $270,138 $121,000 $391,138
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable
(including Legacy debentures and
Legacy notes).................... $ 99,694 $121,000(2) $220,694
Accounts payable, accrued expenses
and other liabilities............ 2,782 -- 2,782
-------- -------- --------
Total liabilities........... 102,476 121,000 223,476
Minority interests.................... 848 -- 848
Stockholders' Equity:
Preferred stock..................... 213 -- 213
Common stock........................ 335 -- 335
Additional paid-in capital.......... 174,508 -- 174,508
Retained earnings................... 2,630 -- 2,630
Notes receivable from affiliates for
common shares.................... (10,872) -- (10,872)
-------- -------- --------
Total stockholders'
equity................... 166,814 -- 166,814
-------- -------- --------
Total liabilities and
stockholders' equity..... $270,138 $121,000 $391,138
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
101
<PAGE> 108
EXCEL LEGACY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
HISTORICAL ENDED
THREE MONTHS MARCH 31, 1999
ENDED PRO FORMA PRO FORMA
MARCH 31, 1999 ADJUSTMENTS RESULTS
-------------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Rental..................... $3,312 $ -- $ 3,312
Operating income........... 4,896 -- 4,896
Interest income and other
revenues................. 1,009 -- 1,009
Equity income from
investment in PEI........ -- 815(1) 815
------ ------- -------
Total revenue........ 9,217 815 10,032
------ ------- -------
Operating expenses:
Interest................... 2,025 2,773(3) 4,798
Depreciation and
amortization............. 1,196 -- 1,196
Property operating
expenses................. 482 -- 482
Operating expenses......... 2,511 -- 2,511
General and
administrative........... 2,690 -- 2,690
------ ------- -------
8,904 2,773 11,677
------ ------- -------
Income (loss) before income
taxes...................... 313 (1,958) (1,645)
Provision (benefit) for
income taxes............... 139 (1,109) (970)
------ ------- -------
Net income (loss) applicable
to common shares........... $ 174 $ (849) $ (675)
====== ======= =======
Earnings before depreciation
amortization and deferred
taxes(4)................... $1,405 $ 1,376 $ 2,781
====== ======= =======
Basic net income (loss) per
common share............... 0.01 -- (0.02)
Diluted net income (loss) per
common share............... 0.00 -- (0.01)
Basic EBDADT per common
share...................... 0.04 -- 0.08
Diluted EBDADT per common
share...................... 0.03 -- 0.05
Weighted average basic number
of common shares
outstanding................ 33,458 -- 33,458
Weighted average diluted
number of common shares
outstanding................ 54,747 -- 54,747
<CAPTION>
TWELVE MONTHS
HISTORICAL ENDED
TWELVE MONTHS DECEMBER 31, 1998
ENDED PRO FORMA PRO FORMA
DECEMBER 31, 1998 ADJUSTMENTS RESULTS
----------------- ----------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Rental..................... $ 9,932 $ -- $ 9,932
Operating income........... 9,402 -- 9,402
Interest income and other
revenues................. 3,821 -- 3,821
Equity income from
investment in PEI........ -- 1,663(1) 1,663
------- ------- -------
Total revenue........ 23,155 1,663 24,818
------- ------- -------
Operating expenses:
Interest................... 4,163 11,090(3) 15,253
Depreciation and
amortization............. 2,975 -- 2,975
Property operating
expenses................. 2,561 -- 2,561
Operating expenses......... 5,783 -- 5,783
General and
administrative........... 3,539 -- 3,539
------- ------- -------
19,021 10,090 30,111
------- ------- -------
Income (loss) before income
taxes...................... 4,134 (9,427) (5,293)
Provision (benefit) for
income taxes............... 1,678 (1,678) --
------- ------- -------
Net income (loss) applicable
to common shares........... $ 2,456 $(7,749) $(5,293)
======= ======= =======
Earnings before depreciation
amortization and deferred
taxes(4)................... $ 5,713 $ 1,146 $ 6,859
======= ======= =======
Basic net income (loss) per
common share............... 0.10 -- (0.21)
Diluted net income (loss) per
common share............... 0.06 -- (0.13)
Basic EBDADT per common
share...................... 0.23 -- 0.27
Diluted EBDADT per common
share...................... 0.14 -- 0.17
Weighted average basic number
of common shares
outstanding................ 25,205 -- 25,205
Weighted average diluted
number of common shares
outstanding................ 41,312 -- 41,312
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
102
<PAGE> 109
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 PEI will recognize a gain or
loss as a result of the exchange offer. PEI will, however, expense its costs
related to the exchange offer. We will account for our purchase of the PEI
common stock under the equity method. Pursuant to 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 PEI as a one-line item on our statement of income. We
will not consolidate the accounts of PEI because the holders of PEI preferred
stock will be entitled to elect a majority of PEI's board of directors following
the consummation of the exchange offer. However, if one of the conditions occurs
which terminates the right of the holders of PEI preferred stock to elect a
majority of the PEI board, we may be able to consolidate the accounts of PEI at
that time.
The historical results of PEI have been adjusted to reflect pro forma
results of the application of purchase accounting. Our equity earnings in PEI
reflect PEI's 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 PEI common stock have been assumed to
come from new debt issuances.
(B) Represents the estimated assumed purchase price of shares of PEI common
stock as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SHARES VALUE PER TOTAL
OUTSTANDING SHARE CONSIDERATION
----------- --------- -------------
<S> <C> <C> <C>
PEI 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 PEI personnel(1)............................... $2,119
Exercise and payment of stock options....................... 3,141
Accounting and legal........................................ 200
Other costs................................................. 2,507
------
$7,967
======
</TABLE>
- ---------------
(1) Assumes that all personnel will be terminated following the exchange
offer, which is not presently intended.
103
<PAGE> 110
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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 PEI common stock have been assumed to come
from various new debt issuances with approximately $20 million bearing an
average interest rate of 10.0% per annum and approximately $101 million bearing
an average interest rate of 9.0% per annum.
Below is a reconciliation of our pro forma equity income from our
investment in PEI:
<TABLE>
<S> <C>
THREE MONTHS ENDED MARCH 31, 1999:
Net loss applicable to common stockholders.................. $ (751)
Adjustment to depreciation and amortization................. 1,050
Decrease in estimated general and administrative costs...... 516
--------
Equity income from investment in PEI........................ $ 815
========
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 and amortization................. 3,576
Decrease in estimated general and administrative costs...... 1,922
--------
Equity income from investment in PEI........................ $ 1,663
========
</TABLE>
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 PEI),
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.
104
<PAGE> 111
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal United States federal income
tax consequences to United States Holders (as defined below) of:
- an exchange of PEI 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 PEI 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 PEI common stock transferred pursuant to the
exchange offer, Legacy debentures and Legacy notes received pursuant to 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 certain types of stockholders (such as certain
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). This summary may not be applicable with respect to stock
or debentures or notes acquired as compensation (including PEI 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 SHOULD 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.
105
<PAGE> 112
A "United States Holder" is a holder of PEI 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
certain other trusts considered United States Holders for federal income
tax purposes.
A "Non-United States Holder" is a holder of PEI 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 PEI 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 PEI common stock exchanged
therefor.
Assuming the PEI 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 PEI common stock is publicly traded (or deemed publicly traded)
within the period described above, the fair market value of PEI 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 PEI common
stock, are deemed traded, the issue price of Legacy debentures or Legacy notes,
as the case may be, will be their principal amount.
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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 (such excess being
referred to as original issue discount (OID)), a United States Holder will be
required to include the amount of such OID as income over the term of the Legacy
debenture under a constant yield method.
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 pursuant to 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 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.
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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 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
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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 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 PEI 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 certain circumstances, principal payments on the Legacy debentures
or Legacy notes,
- the gross proceeds (i.e., cash and any Legacy debentures and Legacy
notes) payable pursuant to the exchange offer, 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,
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- 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 pursuant to 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 PEI common stock pursuant to 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, with respect to payment on
the securities. A person transferring PEI common stock pursuant to 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
PEI 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 consummation of the exchange offer or the
merger should not adversely affect PEI's REIT status. After consummation of the
exchange offer (and, if applicable, the merger), PEI intends to continue to
operate in a manner so as to qualify for taxation as a REIT under the Code.
PEI's qualification and taxation as a REIT depends on PEI's 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
certain 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
certain 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. President Clinton's Fiscal
Year 2000 Budget Proposal contains a provision which, if enacted in its present
form, would add an additional requirement that would prohibit any person
(defined to include certain entities such as corporations) from 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.
The budget proposal, if enacted in its current form, would apply to (a)
entities electing REIT status for taxable years beginning on or after the date
of first committee action, and (b) entities electing REIT status prior to such
date that do not have significant business assets or activities as of such date.
If the budget proposal were enacted in its
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current form, it would not apply to PEI. However, if (a) this proposal or
similar legislation were enacted and applied to PEI and (b) the exchange offer
were consummated, PEI would not qualify as a REIT because Legacy would own 50%
or more of the total voting power of PEI's stock. It is presently uncertain
whether any such proposal will be enacted, or if enacted, what the terms of such
proposal, 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 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
Certain legal matters relating to the exchange offer, including 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 incorporated in this prospectus by
reference to the Annual Report on Form 10-K 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 PEI appearing in
PEI's 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 PEI 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 PEI 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 PEI 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 PEI 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 PEI
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 PEI file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the following documents which we and PEI 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,
- 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,
- Our Current Reports on Form 8-K filed with the SEC on December 18, 1998,
May 14, 1999 and June 4, 1999, and
- 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.
PEI'S SEC FILINGS (FILE NO. 0-20449):
- PEI's Annual Report on Form 10-K for the fiscal year ended December 31,
1998,
- PEI's Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1998,
- PEI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
- PEI's Current Report on Form 8-K filed with the SEC on June 4, 1999, and
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- All documents filed by PEI 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 PEI has supplied all such information
relating to PEI.
If you are a PEI stockholder, you may have already received some of the
documents incorporated by reference, but you can obtain any of them through the
information agent, Legacy, PEI or the SEC. Documents incorporated by reference
are available from the information agent, Legacy or PEI without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this prospectus. PEI 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
(619) 675-9400 (619) 581-4679
</TABLE>
You may also contact the information agent for the exchange offer at the
following address:
-------------------------
-------------------------
-------------------------
( )
------------------
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.
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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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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.
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
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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 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
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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
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.
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<PAGE> 124
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 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
A-4
<PAGE> 125
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.
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.
A-5
<PAGE> 126
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.
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.
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<PAGE> 127
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.
A-7
<PAGE> 128
Dated: May 12, 1999
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS EXCEL LEGACY CORPORATION
<S> <C>
By: /s/ SOL PRICE By: /s/ GARY B. SABIN
---------------------------------
Sol Price, Trustee Name: Gary B. Sabin
Price Family Charitable Trust Title: President and
UTD 03/13/84 Chief Executive Officer
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>
A-8
<PAGE> 129
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 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
B-1
<PAGE> 130
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 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.
B-2
<PAGE> 131
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 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
B-3
<PAGE> 132
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 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.
B-4
<PAGE> 133
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 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
B-5
<PAGE> 134
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>
B-6
<PAGE> 135
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 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
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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 not be used by any person or for any purpose other than specified
herein or otherwise reproduced, disseminated, quoted or referred to at any time,
in any manner or for any purpose, without the prior written consent and approval
of Valuation Research Corporation. Notwithstanding the above restriction, 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 are subject to agreement by Valuation in specific written
agreements between the parties.
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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.
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").
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 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%.
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
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April 30, 1998 and April 30, 1999, Price's common stock traded in the range of
$4.35 and $5.81 per share.
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. It is worth noting that based on the offer price of
$8.50, Price is receiving a premium of 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.
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- ------------------------------------------------------
- ------------------------------------------------------
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.................... 5
Risk Factors.......................... 19
Forward-Looking Statements............ 31
The Exchange Offer.................... 32
Description of the Agreements......... 52
Description of Legacy Capital Stock... 56
Description of the Legacy Debentures
and the Legacy Notes................ 57
Information About Legacy.............. 70
Information About PEI................. 76
Directors and Management of PEI
Following the Exchange Offer........ 80
Persons Interested in the Exchange
Offer............................... 81
Comparison of Stockholder Rights...... 84
Summary Selected Financial Data of
Legacy.............................. 98
Summary Selected Financial Data of
PEI................................. 99
Unaudited Pro Forma Operating and
Financial Information............... 100
United States Federal Income Tax
Considerations...................... 105
Legal Matters......................... 111
Experts............................... 111
Where You Can Find More Information... 112
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
EXCEL LEGACY CORPORATION
OFFER TO EXCHANGE
$8.50 COMPRISED OF
$[4.25] IN CASH,
$[2.75] IN PRINCIPAL AMOUNT OF
9.0% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2004
AND
$[1.50] IN PRINCIPAL AMOUNT OF
10.0% SENIOR NOTES DUE 2004
OF
EXCEL LEGACY CORPORATION
FOR
ANY AND ALL SHARES OF COMMON STOCK
OF PRICE ENTERPRISES, INC.
--------------------
PROSPECTUS
--------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 142
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.
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
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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 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.
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<PAGE> 144
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 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.
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<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on June 9, 1999.
EXCEL LEGACY CORPORATION
By: /s/ GARY B. SABIN
-----------------------------------
Gary B. Sabin
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below authorizes Gary B.
Sabin and Richard B. Muir, and either of them, with full power of substitution
and resubstitution, his true and lawful attorneys-in-fact, for him in any and
all capacities, to sign any amendments (including post-effective amendments or
supplements) to this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ GARY B. SABIN Chairman, President and June 9, 1999
- --------------------------------------------------- Chief Executive Officer
Gary B. Sabin (Principal Executive
Officer)
/s/ RICHARD B. MUIR Director, Executive Vice June 9, 1999
- --------------------------------------------------- President and Secretary
Richard B. Muir
/s/ KELLY D. BURT Director and Executive June 9, 1999
- --------------------------------------------------- Vice President --
Kelly D. Burt Development
/s/ JAMES Y. NAKAGAWA Chief Financial Officer June 9, 1999
- --------------------------------------------------- (Principal Financial and
James Y. Nakagawa Accounting Officer)
/s/ RICHARD J. NORDLUND Director June 9, 1999
- ---------------------------------------------------
Richard J. Nordlund
/s/ ROBERT E. PARSONS, JR. Director June 9, 1999
- ---------------------------------------------------
Robert E. Parsons, Jr.
/s/ ROBERT S. TALBOTT Director June 9, 1999
- ---------------------------------------------------
Robert S. Talbott
/s/ JOHN H. WILMOT Director June 9, 1999
- ---------------------------------------------------
John H. Wilmot
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 Subordinated
Debentures due 2004.(2)
4.3 Form of Indenture for 10.0% Senior Notes due 2004.(2)
5.1 Opinion of Latham & Watkins.(2)
8.1 Opinion of Latham & Watkins regarding certain tax
matters.(2)
10.1 Agreement dated as of May 12, 1999 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).(1)
10.2 Agreement dated as of June 2, 1999 between Excel Legacy
Corporation and Price Enterprises, Inc. (filed as Annex B to
the Prospectus included in this Registration Statement).(1)
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 (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.(1)
23.3 Consent of Ernst & Young LLP.(1)
23.4 Consent of Valuation Research Corporation.(1)
24.1 Powers of Attorney (contained on the signature page of this
Registration Statement).(1)
25.1 Statement of Eligibility of Trustee on Form T-1.(2)
</TABLE>
- -------------------------
(1) Filed herewith.
(2) To be filed by amendment.
<PAGE> 1
Exhibit 10.3
[Excel Legacy Corporation Letterhead]
The Board of Directors
Price Enterprises, Inc.
4649 Morena Blvd.
San Diego, CA 92117
June 2, 1999
Gentlemen:
We understand you are meeting to consider the action of Price
Enterprises, Inc. ("PEI") in response to the Agreement of May 12, 1999 between
Excel Legacy Corporation ("Legacy") and Sol Price, as trustee, and certain other
shareholders of PEI. In that connection, Legacy has asked you to exempt Legacy
from the Ownership Limit and the 9.8% limit (the "Exemption") set forth in
Paragraph (b)(1)b. of Article TENTH of PEI's Articles of Incorporation
("Charter") and in PEI's Articles Supplementary. Paragraph (i) of Article TENTH
permits PEI's Board of Directors to grant such an Exemption if it obtains
satisfactory assurances from Legacy, in order to preserve the status of PEI as a
Real Estate Investment Trust ("REIT") for federal income taxes.
In order to provide the basis for the requested Exemption, and in
consideration for your granting it, this will confirm to you Legacy's commitment
that, so long as there are outstanding Capital Shares (as defined in the
Charter) of PEI, (1) Legacy will not own, Beneficially or Constructively (both
as defined in the Charter), Capital Shares of PEI to the extent that such
Beneficial or Constructive Ownership of Capital Shares of PEI would result in
PEI being "closely-held" within the meaning of Section 856(h) of the Internal
Revenue Code of 1986, as amended (the "Code"), or would result in PEI otherwise
failing to qualify as a REIT (including, but not limited to, Beneficial or
Constructive Ownership that would result in PEI owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by PEI (either directly or
indirectly through one or more partnerships or other entities) from such tenant
would cause PEI to fail to satisfy any of the gross income requirements of
Section 856(c) of the Code), (2) on behalf of PEI, Legacy will obtain from
certain of Legacy's shareholders (as determined by Legacy) such representations
and undertakings as are reasonably necessary to ascertain that ownership of
Legacy capital stock will not (a) result in PEI being "closely-held" within the
meaning of Section 856(h) of the Code or (b) result in PEI otherwise failing to
qualify as a REIT (including, but not limited to, Beneficial or Constructive
Ownership that would result in PEI owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the Code if
the income derived by PEI (either directly or directly through one or more
partnerships or other entities) from such tenant would cause PEI to fail to
satisfy any of the gross income requirements of Section 856(c) of the Code), and
(3) in the event Legacy breaches any of the representations or undertakings
given by Legacy in clause (1) of this paragraph, then, as the sole and exclusive
remedy for such breach, the Exemption shall be void ab initio and will result in
such Capital Shares of PEI (or a portion thereof) being (i) automatically
transferred to a trust for the benefit of a charitable beneficiary (as set forth
in the Charter), or (ii) under certain circumstances, being automatically
redeemed by PEI (as set forth in the Charter).
Very truly yours,
/s/ Richard B. Muir
Richard B. Muir
Executive Vice President
<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
financial statements and financial statement schedules, which appears in Excel
Legacy Corporation's Annual Report on Form 10-K 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
June 8, 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) and related Prospectus of Excel Legacy
Corporation for the registration of certain securities and to the incorporation
by reference therein of our report 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, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Diego, California
June 8, 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--PEI's 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
June 9, 1999
