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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
BURNHAM PACIFIC PROPERTIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Common stock, $0.01 par value per share, and
Series 2000-C Convertible Preferred Stock, $0.01 par value
per share.
(2) Aggregate number of securities to which transaction
applies: 32,324,046 shares of common stock and 4,400,000
shares of Series 2000-C Convertible Preferred Stock.
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined): The filing fee was determined based
upon (a) the product of 32,324,046 shares of common stock
and the projected liquidation payment of $7.00 per share
of common stock and (b) an aggregate payment of
$115,500,000 to holders of shares of Series 2000-C
Convertible Preferred Stock.
(4) Proposed maximum aggregate value of transaction:
$341,768,322
(5) Total fee paid: $68,355
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
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BURNHAM PACIFIC PROPERTIES, INC.
110 WEST A STREET, SUITE 900
SAN DIEGO, CA 92101
IMPORTANT ANNUAL MEETING
October , 2000
, 2000
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Burnham Pacific Properties, Inc. to be held at The Pan Pacific Hotel, 500 Post
Street, San Francisco, California, on October , 2000, at 9:00 a.m., local
time. At the Annual Meeting, you will be asked to approve two proposals. First,
stockholders will be asked to consider and approve a Plan of Complete
Liquidation and Dissolution (the "Plan of Liquidation" or the "Plan") of the
Company. Stockholders will also be asked to elect nine directors of the Company.
The principal purpose of the Plan of Liquidation is to maximize stockholder
value by distributing the net proceeds of the liquidation to holders of our
Preferred Stock and our Common Stock. The Plan of Liquidation contemplates the
following agreements and steps:
- A Liquidation and Property Management Services Agreement with DDR Real
Estate Services Inc. to act as our Liquidator;
- the sale of 15 of our properties to the Prudential Insurance Company of
America for approximately $356 million in a combination of cash and the
assumption of liabilities;
- the sale of 19 of our properties to GMS Realty, LLC for $167 million in
cash and the assumption of $138 million in liabilities;
- the orderly sale of our remaining assets for cash or cash equivalents;
- the payment of (or provision for) our liabilities and expenses, including
establishing a reserve to fund contingent liabilities;
- the distribution of the proceeds of the liquidation to our Preferred
Stockholders and Common Stockholders; and
- the winding up of our operations and resulting dissolution of the Company.
We are taking these steps in accordance with the Plan of Liquidation. While
we have entered into three agreements to date in implementing the Plan of
Liquidation, our commitments under each of these agreements are generally
subject to your approval of the Plan. These three agreements include the
Liquidation and Property Management Services Agreement with DDR Real Estate
Services, Inc., dated September 10, 2000, the Purchase and Sale Agreement with
Prudential Insurance Company of America, dated as of September 5, 2000, and the
Purchase and Sale Agreement with GMS, dated September 19, 2000. The principal
terms of each of these agreements are described in the accompanying proxy
statement.
Once a quorum is present or represented by proxy at the Annual Meeting, the
affirmative vote of holders of at least a majority of the outstanding shares of
our Common Stock and the Preferred Stock, voting together as a single class on
an as-converted basis, is required to approve the Plan. The approval of at least
a majority of the outstanding shares of the Preferred Stock, voting as a
separate class, is also required to approve the Plan. In addition, the
affirmative vote of the holders of a plurality of the shares of our Common Stock
and the Preferred Stock, voting together as a single class on an as-converted
basis, is required to elect each Director nominee.
Subject to certain limited conditions, the holders of all of the outstanding
shares of Preferred Stock have agreed to vote their shares in favor of the Plan
and for the Company's nominees for
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election to the Board of Directors, both when voting with the Common Stock on an
as-converted basis for the Plan of Liquidation and for the election of Directors
and also when voting as a separate class with respect to the Plan of
Liquidation. In addition, and also subject to certain limited conditions, the
members of the SA Group, which include Jay L. Schottenstein and Michael L.
Ashner, have also agreed to vote their shares of Common Stock for the Plan of
Liquidation and for the Company's Director nominees at the Annual Meeting.
YOUR BOARD OF DIRECTORS, AFTER CAREFULLY REVIEWING THE COMPANY'S STRATEGIC
ALTERNATIVES AND THE TERMS AND CONDITIONS OF THE PLAN OF LIQUIDATION, HAS
DETERMINED THAT THE PLAN OF LIQUIDATION IS ADVISABLE AND IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS, HAS APPROVED THE PLAN OF LIQUIDATION, AND
RECOMMENDS THAT YOU VOTE "FOR" THE PLAN. YOU SHOULD CAREFULLY READ THE PLAN OF
LIQUIDATION, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THE ACCOMPANYING PROXY
STATEMENT. THE BOARD ALSO RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE COMPANY'S
DIRECTOR NOMINEES.
At the Annual Meeting, you will also be asked to transact such other
business as may properly come before the Annual Meeting or any adjournment or
postponement thereof. It is not anticipated that any other matter will be
brought before the Annual Meeting. If, however, other matters are properly
presented, proxies will be voted in accordance with the discretion of the proxy
holders.
PLEASE GIVE ALL OF THIS INFORMATION YOUR CAREFUL ATTENTION. YOUR VOTE IS
IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE
REQUESTED TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED OR VOTE BY TELEPHONE OR OVER THE INTERNET IN
ACCORDANCE WITH THE INSTRUCTIONS PROVIDED ON YOUR PROXY CARD OR VOTING
INSTRUCTION FORM. RETURNING A SIGNED PROXY CARD WILL NOT PREVENT YOU FROM VOTING
YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY CHOOSE TO ATTEND THE ANNUAL MEETING.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
SCOTT C. VERGES
Interim Chief Executive Officer
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BURNHAM PACIFIC PROPERTIES, INC.
110 WEST A STREET, SUITE 900
SAN DIEGO, CA 92101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER , 2000
To the Stockholders of Burnham Pacific Properties, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Burnham
Pacific Properties, Inc., a Maryland corporation (the "Company"), will be held
at the Pan Pacific Hotel, 500 Post Street, San Francisco, California, 94102, on
October , 2000, at 9:00 a.m., local time, for the following purposes:
- To consider and act upon a Plan of Complete Liquidation and Dissolution of
the Company, and to ratify and approve the transactions described in this
proxy statement which the Company and its Board of Directors have
undertaken in connection with the Plan;
- To elect nine Directors; and
- To consider and act upon such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof or as may
relate to the conduct of the Annual Meeting.
Our Board of Directors fixed the close of business on September 18, 2000 as
the record date for determining those stockholders entitled to receive notice of
and to vote at the Annual Meeting. A list of stockholders entitled to receive
notice of and to vote at the Annual Meeting will be available for examination at
our principal executive offices in San Diego during ordinary business hours from
, 2000 until the Annual Meeting. A form of proxy and a proxy statement
containing more detailed information with respect to matters to be considered at
the Annual Meeting accompany and form a part of this notice.
At the Annual Meeting, you will also be asked to transact such other
business as may properly come before the Annual Meeting or any adjournment or
postponement thereof. It is not anticipated that any other matter will be
brought before the Annual Meeting. If, however, other matters are properly
presented, proxies will be voted in accordance with the discretion of the proxy
holders.
IMPORTANT
YOUR VOTE IS IMPORTANT! WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY CARD USING THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY ALSO VOTE BY TELEPHONE OR OVER THE INTERNET BY
FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD OR VOTING INSTRUCTION FORM. IF YOU
HAVE ANY QUESTIONS OR NEED ASSISTANCE, PLEASE CALL D.F. KING & CO., INC., WHICH
IS ASSISTING US IN THE PROXY SOLICITATION PROCESS, TOLL-FREE AT 1-888-246-5358.
BY ORDER OF THE BOARD OF DIRECTORS
Michael L. Rubin
SECRETARY
San Diego, California
September , 2000
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BURNHAM PACIFIC PROPERTIES, INC.
110 WEST A STREET
SAN DIEGO, CA 92101
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PROXY STATEMENT
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TABLE OF CONTENTS
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Cautionary Statement Regarding Forward-Looking Statements... iii
Glossary.................................................... iv
Summary..................................................... 1
Overview of the Plan of Liquidation....................... 1
Potential Benefits of the Plan of Liquidation............. 1
Potential Detriments of Approving the Plan of
Liquidation............................................. 2
Our Recommendation........................................ 2
Potential Conflicts of Interests.......................... 2
Matters to be Voted on at the Annual Meeting.............. 2
The Annual Meeting........................................ 2
Selected Historical Financial Data.......................... 4
Sources and Uses of Proceeds of Certain Asset Sales......... 5
Debt Maturity Schedule...................................... 6
Annual Meeting.............................................. 7
What is the background of the Company's decision to
liquidate?................................................ 9
What litigation is Burnham a party to which arises out of
Burnham's consideration of its strategic alternatives or
related matters?.......................................... 13
What are our reasons for recommending the Plan of
Liquidation?.............................................. 14
Proposal No. 1--Plan of Complete Liquidation and
Dissolution............................................... 15
What are you being asked to approve?...................... 15
What is the Board's recommendation?....................... 15
What does the Plan of Liquidation contemplate?............ 15
What are the key provisions of the Plan of Liquidation?... 15
What is Burnham's estimate of the amount of distributions
to be paid to the Common
Stockholders as a result of the liquidation?............ 16
What steps has Burnham taken to implement the Plan of
Liquidation?............................................ 17
What interests exist among the interested parties to the
Plan of Liquidation that are different from your
interests as a stockholder?............................. 17
Why did Burnham choose to hire a third-party
liquidator?............................................. 18
Who is the liquidator?.................................... 19
What are the key provisions of the Liquidation and
Property Management Services Agreement?................. 19
What are the key provisions of the Prudential Purchase and
Sale Agreement?......................................... 25
What is the relationship between Prudential and the
Liquidator?............................................. 28
What are the key provisions of the GMS Purchase and Sale
Agreement?.............................................. 29
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i
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What is the opinion of Burnham's financial advisor as to
the fairness, from a financial point of view, of the
aggregate consideration to be received in connection
with the sale of assets to Prudential and GMS?.......... 31
Which stockholders have already agreed to vote in favor of
the Plan?............................................... 38
What are the key provisions of the Exchange Agreement with
the Preferred Stockholders?............................. 39
Why did Burnham enter into the Exchange Agreement?........ 44
What are the key provisions of the agreement with the SA
Group?.................................................. 44
Why did Burnham enter into the agreement with the SA
Group?.................................................. 45
What other matters does the Company believe are relevant
to my vote?............................................. 46
What are the federal income tax consequences of the Plan
of the Liquidation?..................................... 47
Proposal No. 2--Election of Directors....................... 51
Required Vote and Recommendation.......................... 52
Director Biographies...................................... 53
Principal Executive Officers of Burnham................... 54
Information Regarding the Board of Directors of Burnham
and its Committees...................................... 55
Director Compensation..................................... 55
Executive Compensation.................................... 56
Compensation Committee Interlocks and Insider
Participation........................................... 58
Report of Compensation Committee.......................... 58
Employment Agreements and Severance Arrangements.......... 61
Stock Performance Chart................................... 62
Securities Ownership of Certain Beneficial Owners and
Mangagement............................................... 62
Certain Relationships and Related Transactions.............. 65
Section 16(a) Beneficial Ownership Reporting Compliance..... 67
Experts..................................................... 67
Stockholder Proposals....................................... 67
Where You Can Find More Information......................... 68
APPENDICES.................................................. 70
Appendix A--Plan of Liquidation and Dissolution........... A-1
Appendix B--Opinions of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc................................. B-1
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ii
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
- CERTAIN STATEMENTS, INCLUDING POSSIBLE OR ASSUMED FUTURE RESULTS OF THE
COMPANY'S OPERATIONS AND POSSIBLE OR ASSUMED FUTURE RESULTS OF THE
COMPANY'S DECISION TO ADOPT THE PLAN OF LIQUIDATION, INCLUDING ANY
FORECASTS, PROJECTIONS AND DESCRIPTIONS OF ANTICIPATED COST SAVINGS OR OF
ANTICIPATED PROCEEDS AVAILABLE FOR DISTRIBUTION, AND CERTAIN STATEMENTS
INCORPORATED BY REFERENCE FROM DOCUMENTS FILED BY US WITH THE SEC AND ANY
STATEMENTS MADE IN THIS PROXY STATEMENT OR IN THE DOCUMENTS FILED WITH THE
SEC REGARDING FUTURE CASH FLOWS, FUTURE BUSINESS PROSPECTS, REVENUES,
WORKING CAPITAL, LIQUIDITY, CAPITAL NEEDS, INTEREST COSTS, INCOME OR THE
EFFECTS OF THE LIQUIDATION;
- ANY STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES," "INTENDS," "ESTIMATES," "PROJECTS"
OR SIMILAR EXPRESSIONS; AND
- ANY OTHER STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE HEREIN
REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS.
BECAUSE THESE STATEMENTS ARE SUBJECT TO NUMEROUS RISKS AND UNCERTAINTIES,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY OUR
FORWARD-LOOKING STATEMENTS. WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON THESE
STATEMENTS. IN ADDITION, THE STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROXY
STATEMENT OR AS OF SUCH OTHER DATE SPECIFICALLY REFERENCED.
AMONG THOSE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
ARE:
- UNCERTAINTIES RELATING TO OUR PROPERTY PORTFOLIO;
- UNCERTAINTIES RELATING TO OUR OPERATIONS;
- UNCERTAINTIES RELATING TO THE IMPLEMENTATION OF OUR LIQUIDATION STRATEGY;
- UNCERTAINTIES RELATING TO DOMESTIC AND INTERNATIONAL ECONOMIC AND
POLITICAL CONDITIONS;
- UNCERTAINTIES REGARDING THE IMPACT OF REGULATIONS, CHANGES IN GOVERNMENT
POLICY AND INDUSTRY COMPETITION; AND
- OTHER RISKS MENTIONED FROM TIME TO TIME IN OUR REPORTS FILED WITH THE SEC.
THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS PROXY STATEMENT
SHOULD BE CONSIDERED IN CONNECTION WITH ANY SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS THAT MAY BE ISSUED BY US OR PERSONS ACTING ON OUR
BEHALF. EXCEPT FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION AS
REQUIRED BY THE FEDERAL SECURITIES LAWS, WE UNDERTAKE NO OBLIGATION TO RELEASE
PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS PROXY STATEMENT OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
iii
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GLOSSARY
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "WE," "US," THE
"COMPANY," AND "BURNHAM" IN THIS PROXY STATEMENT REFER TO BURNHAM PACIFIC
PROPERTIES, INC., A MARYLAND CORPORATION, AND ITS SUBSIDIARIES ON A CONSOLIDATED
BASIS.
"ANNUAL MEETING" means Burnham's Annual Meeting of Stockholders to be held at
The Pan Pacific Hotel, 500 Post Street, San Francisco, California, on
October , 2000, at 9:00 a.m. local time, including any postponement or
adjournment thereof.
"ARTICLES SUPPLEMENTARY" means the Articles Supplementary designating 5,000,000
shares of Preferred Stock as 5,000,000 shares of Series 2000-C Convertible
Preferred Stock, filed with the State Department of Assessments and Taxation of
Maryland on August 31, 2000.
"BLACKACRE" means Blackacre SMC Master Holdings, LLC.
"CALPERS" means California Public Employees' Retirement System.
"CHANGE OF CONTROL PREFERENCE" means (i) an aggregate amount equal to
$110,000,000, plus a five percent premium on such preference, plus any accrued
and due or not yet due dividends, plus a five percent premium on any accrued and
due dividends which remain unpaid when referring to the Preferred Stock;
(ii) an aggregate amount equal to $10,000,000, plus a five percent premium on
such preference, plus any accrued and due or not yet due dividends, plus a five
percent premium on any accrued and due dividends which remain unpaid when
referring to the preferred Operating Partnership units; and (iii) an aggregate
amount equal to $120,000,000, plus a five percent premium on such preference,
plus any accrued and due or not yet due dividends, plus a five percent premium
on any accrued and due dividends which remain unpaid when referring to the
Preferred Stock and the preferred Operating Partnership units collectively.
"COMMON STOCK" means the common stock, par value $.01 per share, of Burnham.
"COMMON STOCKHOLDERS" means the holders of the Common Stock.
"DDRRES" means DDR Real Estate Services Inc.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGREEMENT" means the Exchange Agreement, dated as of August 31, 2000,
by and among Burnham, the Operating Partnership, Westbrook and Blackacre, as
amended by that certain letter agreement dated as of September 11, 2000 by and
among Burnham, the Operating Partnership, Westbrook and Blackacre.
"GECC" means General Electric Capital Corporation.
"GMS" means GMS Realty, LLC.
"GMS PORTFOLIO" means the 19 assets to be sold by Burnham to GMS in the GMS Sale
and listed on page . In Houlihan Lokey's opinion attached to this Proxy
Statement as APPENDIX B, the GMS Portfolio is referred to as the "GS Portfolio."
"GMS SALE" means the sale by Burnham of the GMS Portfolio to GMS. In Houlihan
Lokey's opinion attached to this Proxy Statement as APPENDIX B, the GMS Sale is
referred to as the "GS Portfolio Sale."
"[XXXX]" means [XXXX].
"GROSS REVENUES" means the total gross monthly collections of rent and tenant
reimbursements received from the properties, including only the following: base
rents, percentage rents and reimbursements of taxes, insurance or common area
maintenance charges for which a tenant is liable under its lease.
iv
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Gross revenues do not include the following: (i) receipts from the operation or
rental of parking facilities, (ii) business interruption or rental loss
proceeds, (iii) any payment of money by a tenant in consideration for or in
conjunction with a security, rental or other deposit (unless and until actually
applied as rent), (iv) payments in connection with the termination,
cancellation, expiration, renewal, extension or modification of a tenant's lease
in excess of past due rent accrued for such tenant during the term of the
Liquidation Services Agreement, (v) property insurance loss proceeds,
(vi) remodeling and tenant improvement charge costs, (vii) condemnation
proceeds, (viii) proceeds received by the Company in connection with the sale of
any portion of any property or the refinancing of any indebtedness secured by a
lien on any portion of any property, or (ix) direct payments of taxes or
insurance by any tenant of any property. Any advance rental payments (not to
exceed 30 days in advance of their due date) shall be included in gross revenues
when received.
"HOULIHAN LOKEY" means Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
"LIBOR" means the London Interbank Offered Rate.
"LIQUIDATION" means the transactions contemplated by the Plan.
"LIQUIDATION PREFERENCE" has the meaning assigned to such term in the Articles
Supplementary.
"LIQUIDATION SERVICES AGREEMENT" means the Liquidation and Property Management
Services Agreement, dated as of September 10, 2000, by and between Burnham and
the Liquidator.
"LIQUIDATING TRUST" means, under the Liquidation Services Agreement, a trust
designated by the Directors of the Company into which cash and property may be
transferred if deemed necessary by the Directors.
"LIQUIDATOR" means DDR Real Estate Services Inc.
"LIQUIDATOR INDEMNITEES" means, under the Liquidation Services Agreement, the
Liquidator and its officers, directors, and employees, collectively.
"OLD PREFERRED STOCK" means Series 1997-A Convertible Preferred Stock, par value
$.01 per share, of Burnham.
"OPERATING CASH" means, under the Exchange Agreement, the amount by which
Burnham's Gross Revenues calculated on a cash basis for such period exceeds
Operating Expenses for such period calculated on an accrual basis.
"OPERATING EXPENSES" means for any period, the actual costs and expenses or pro
forma costs and expenses, as applicable, of owning, operating, managing and
maintaining the Company's properties during such period incurred by the Company,
determined on an accrual basis in accordance with GAAP, including, without
limitation, management fees, real estate taxes, special assessments, insurance
premiums, utility costs (other than utility costs paid directly to utility
companies by tenants), other expenses paid by the Company as reasonable and
appropriate to operate and maintain the Company's properties, and state and
local excise (but not income) taxes paid by the Company with respect to the
Company's properties; PROVIDED, HOWEVER, that in no event shall Operating
Expenses include (i) interest due on long-term indebtedness, (ii) any fees paid
in connection with long-term indebtedness, (iii) certain tenant improvements,
except to the extent such expenditures are included in special assessments as
set forth above, or (iv) depreciation, amortization and other non-cash items.
"OPERATING PARTNERSHIP" means Burnham Pacific Operating Partnership, L.P., a
subsidiary of Burnham.
"PLAN" OR "PLAN OF LIQUIDATION" means the Plan of Complete Liquidation and
Dissolution attached as APPENDIX A to this proxy statement.
"PREFERRED STOCK" means Series 2000-C Convertible Preferred Stock, par value
$.01 per share, of Burnham.
v
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"PREFERRED STOCKHOLDERS" means Westbrook and Blackacre.
"PRUDENTIAL" means The Prudential Insurance Company of America.
"PRUDENTIAL AGREEMENT" means that certain Purchase and Sale Agreement dated as
of September 5, 2000, by and between the Company and Prudential.
"PRUDENTIAL PORTFOLIO" means the 15 assets sold by Burnham to Prudential in the
Promotional Portfolio Sale, and listed on page . In Houlihan Lokey's opinion
attached to this proxy statement as APPENDIX B, the Prudential Portfolio is
referred to as the "Promotional Portfolio."
"PRUDENTIAL SALE" means the sale by Burnham of the Prudential Portfolio to
Prudential. In Houlihan Lokey's opinion attached to this proxy statement as
APPENDIX B, the Prudential Sale is referred to as the "Promotional Portfolio
Sale."
"REIT" means a real estate investment trust.
"SA GROUP" means Jay L. Schottenstein, Schottenstein Stores Corporation, Jubilee
Limited Partnership, Jubilee Limited Partnership III, Schottenstein Professional
Asset Management Corp., Michael L. Ashner and Susan Ashner.
"SEC" means the United States Securities and Exchange Commission.
"SHAREHOLDER RIGHTS PLAN" means the Company's Shareholder Rights Agreement,
dated as of June 19, 1999, as amended through the date hereof.
"SSC" means Schottenstein Stores Corporation.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated December 5,
1997, by and among Burnham, the Operating Partnership and Westbrook, as amended
on or prior to the date hereof.
"SUPERIOR PROPOSAL" means any proposal made by a third party to acquire,
directly or indirectly, including through a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction for consideration consisting of cash and/ or
securities, more than 50% of the combined voting power of the shares of the
Company's stock then outstanding or all or substantially all the assets of the
Company, and otherwise on terms which the Board determines in its good faith
judgment (after consulting with a financial advisor of nationally recognized
reputation) (A) is reasonably capable of being completed, taking into account
all legal, financial, regulatory and other aspects of the proposal, and
(B) presents, in its entirety, more favorable terms after considering both
financial and non-financial factors, taken as a whole, to Burnham and its
stockholders than the Plan of Liquidation.
"WESTBROOK" means Westbrook Burnham Holdings, L.L.C. and Westbrook Burnham
Co-Holdings, L.L.C.
vi
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT. IT
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR ADDITIONAL
INFORMATION CONCERNING THE PLAN OF LIQUIDATION AND THE PROPOSAL REGARDING THE
ELECTION OF DIRECTORS, YOU SHOULD READ THIS ENTIRE PROXY STATEMENT AND THE OTHER
DOCUMENTS REFERRED TO IN THIS PROXY STATEMENT. A COPY OF THE PLAN OF LIQUIDATION
IS INCLUDED IN THIS PROXY STATEMENT AS APPENDIX A. FOR ADDITIONAL INFORMATION
REGARDING BURNHAM YOU SHOULD READ THE DOCUMENTS WE HAVE FILED WITH THE SEC
LISTED UNDER THE CAPTION "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE .
OVERVIEW OF THE PLAN OF LIQUIDATION
The Plan of Liquidation contemplates the orderly sale of our assets for cash
or cash equivalents and the payment of (or provision for) our liabilities and
expenses, including the establishment of a reserve to fund our contingent
liabilities. The principal purpose of the Plan of Liquidation is to maximize
stockholder value by liquidating our assets and distributing the net proceeds of
the liquidation to the holders of our Preferred Stock and our Common Stock. To
date, we have entered into three agreements to further this objective. On
September 5, 2000, we entered into a Purchase and Sale Agreement with Prudential
pursuant to which Prudential has agreed to acquire 15 of our properties for a
gross purchase price of approximately $356 million consisting of a combination
of cash and the assumption of liabilities. On September 10, 2000, we entered
into the Liquidation Services Agreement with DDRRES, which will serve as the
Liquidator pursuant to the terms of that agreement. Finally, on September 19,
2000, we entered into a Purchase and Sale Agreement with GMS to acquire 19 of
our properties for a gross purchase price of approximately $305 million,
consisting of $167 million in cash and the assumption of $138 million in
liabilities. Our commitments under each of these three agreements are generally
subject to your approval of the Plan of Liquidation.
POTENTIAL BENEFITS OF THE PLAN OF LIQUIDATION
We believe that implementing the Plan of Liquidation benefits our
stockholders in a number of ways, including the following:
- Burnham currently expects to make liquidating distributions, after payment
of the Liquidation Preferences to the Preferred Stockholders and preferred
Operating Partnership unitholders respectively, totaling between $
and $ per share of Common Stock by means of two or more liquidating
distributions. These amounts do not include regular quarterly dividends
and distributions, if any, which may be made from Burnham's Operating
Cash. Due to a variety of factors, including certain of those referenced
above under the caption "Cautionary Statement Regarding Forward-looking
Statements," Burnham cannot be sure whether it will be able to sell its
assets and, if it does so, the timing and net proceeds of any such sales.
Therefore, Burnham cannot be sure as to the number or amount of
liquidating distributions or distributions of Operating Cash; and
- Burnham expects that any amounts per share to be received by the
stockholders will be paid in cash, thereby eliminating any uncertainties
in valuing the consideration to be received by our stockholders.
1
<PAGE>
POTENTIAL DETRIMENTS OF APPROVING THE PLAN OF LIQUIDATION
In making our determination to recommend the Plan of Liquidation we
considered certain negative effects which implementing the Plan of Liquidation
could have on our stockholders, including the following:
- if the stockholders approve the Plan and the Plan is implemented, our
stockholders will no longer participate in any future earnings or growth
of our assets or benefit from any increases in the value of our assets
once such assets are sold; and
- our stockholders may, depending on the basis in their stock, recognize a
taxable gain in connection with the completion of the liquidation.
OUR RECOMMENDATION
Your Board of Directors believes that the Plan of Liquidation is advisable
and in the best interest of Burnham and its stockholders. Accordingly, the Board
of Directors recommends that you vote FOR the approval of the Plan of
Liquidation and FOR Burnham's nominees for election to the Board of Directors.
POTENTIAL CONFLICTS OF INTERESTS
In considering the recommendations of our Board of Directors with respect to
the Plan, and in implementing the Plan, you should be aware that some of our
Directors, officers and significant stockholders may have had or, together with
the Liquidator, may have, interests that are different from your interests as a
stockholder. The Board of Directors was aware of these matters in its
consideration of the Plan.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
Burnham cannot implement the Plan of Liquidation without the approval of the
holders of a majority of the outstanding shares of the Company's Common Stock
and the Preferred Stock voting together as a single class on an as-converted
basis. You are being asked to approve the Plan of Liquidation.
You are also being asked to elect nine persons to serve on the Board of
Directors.
THE ANNUAL MEETING
You are entitled to vote at Burnham's annual meeting if you owned shares of
record of Common Stock or Preferred Stock on September 18, 2000. You will have
one vote for each share of Common Stock that you owned of record on
September 18, 2000 for each proposal considered at the Annual Meeting. Each
share of Preferred Stock is entitled to vote with the Common Stock on an
as-converted basis on each proposal considered at the Annual Meeting. Each share
of Preferred Stock is convertible into approximately 1.626 shares of Common
Stock. As a result, each share of Preferred Stock is entitled to vote as if it
had been converted into approximately 1.626 shares of Common Stock.
Approval of the Plan of Liquidation requires the affirmative vote of at
least a majority of the outstanding shares of the Company's Common Stock and
Preferred Stock, voting together as a single class on an as-converted basis. In
addition, the approval of at least a majority of the outstanding shares of
Preferred Stock, voting as a separate class, is necessary to approve the Plan of
Liquidation. A plurality of all the votes cast for the election of a nominee to
serve on the Board of Directors shall elect that nominee.
At the close of business on September 18, 2000, the record date for
determining those stockholders eligible to vote at the Annual Meeting, there
were 4,400,000 shares of Preferred Stock and
2
<PAGE>
32,324,046 shares of Common Stock outstanding. Each share of Preferred Stock is
convertible into approximately 1.626 shares of Common Stock. As a result, the
outstanding shares of Preferred Stock represent 7,154,472 votes out of
39,478,518 votes eligible to be cast, or 18.12% of the votes eligible to be
cast, at the Annual Meeting. Subject to certain limited conditions, the holders
of the outstanding shares of Preferred Stock have agreed to vote their shares
for the Plan of Liquidation and for the Company's nominees for election to the
Board of Directors, both when voting with the Common Stockholders on an
as-converted basis at the Annual Meeting for the Plan of Liquidation and for the
election of Directors and when also voting as a separate class with respect to
the Plan of Liquidation. The Company anticipates that the holders of the
outstanding shares of Preferred Stock shall execute a written consent approving
the Plan of Liquidation prior to or contemporaneously with the Annual Meeting.
Members of the SA Group hold approximately 3,162,066 shares of Common Stock,
which comprise approximately 8.01% of the votes eligible to be cast at the
Annual Meeting. The members of the SA Group have agreed to vote all of their
shares of Common Stock for the Plan of Liquidation and for the Company's
nominees for election to the Board of Directors. In addition, the Directors
(other than Mr. Schottenstein and Mr. Ashner) and executive officers of Burnham
and their affiliates hold approximately 592,389 shares of Common Stock eligible
to be voted at the Annual Meeting, or approximately 1.50% of the votes eligible
to be cast at the Annual Meeting, and have agreed to vote all of their shares of
Common Stock for the Plan of Liquidation and for the Company's nominees for
election to the Board of Directors.
As a result of the agreements between the Company and the holders of the
Preferred Stock, the members of the SA Group and the Company's Directors and
executive officers, parties which hold the right to cast approximately
10,908,927 votes, or approximately 27.63% of the votes eligible to be cast at
the Annual Meeting, have already agreed to vote all of their shares of Preferred
Stock or Common Stock, as the case may be, for the Plan of Liquidation and for
the Company's nominees for election to the Board of Directors.
3
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the last five fiscal
years has been derived from our audited consolidated financial statements
incorporated by reference into this proxy statement. The selected historical
financial data for the six-month periods ended June 30, 2000 and 1999 has been
derived from our unaudited consolidated financial statements incorporated by
reference into this proxy statement. This information is only a summary, and you
should read it together with the historical financial statements and related
notes contained in the annual reports and other information that we have filed
with the SEC and incorporated by reference herein. See "Where You Can Find More
Information" on page .
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
OPERATING STATEMENT DATE ---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUES............................... $ 62,169 $ 69,504 $ 132,810 $ 131,723 $ 68,174 $ 47,314 $ 48,669
========== ========== ========== ========== ======== ======== ========
Income (Loss) from Operations................ $ 614 $ 9,761 $ 14,606 $ 25,434 $ 12,899 $ 9,892 $(14,951)
Gain (Loss) on Sales of Real Estate.......... 394 -- 10,371 (1,814) 5,896 2,298 2,233
Minority Interest............................ (2,011) (2,383) (5,024) (4,864) (45) (35) --
---------- ---------- ---------- ---------- -------- -------- --------
Net Income (Loss) Before Extraordinary Item
and Cumulative Effect of a Change In
Accounting Principle....................... $ (1,003) $ 7,378 $ 19,953 $ 18,756 $ 18,750 $ 12,155 $(12,718)
Loss from Early Extinguishment of Debt....... -- -- -- -- (52) (884) --
Cumulative Effect of a Change in Accounting
Principle.................................. -- (1,866) (1,886) -- -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Net Income (Loss)............................ $ (1,003) $ 5,512 $ 18,087 $ 18,756 $ 18,698 $ 11,271 $(12,718)
Dividends Paid to Preferred Stockholders..... (2,800) (2,800) (5,600) (5,600) -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Income (Loss) Available to Common
Stockholders............................... $ (3,803) $ 2,712 $ 12,487 $ 13,156 $ 18,698 $ 11,271 $ 12,718
========== ========== ========== ========== ======== ======== ========
Earnings Per Share (Basic)
Income (Loss) Before Extraordinary Item And
Cumulative Effect of a Change in Accounting
Principle.................................. $ (0.12) $ 0.14 $ 0.45 $ 0.44 $ 0.88 $ 0.71 $ (0.75)
Extraordinary Item........................... -- -- -- -- -- (0.05) --
Cumulative Effect of a Change in Accounting
Principle.................................. -- (0.06) (0.06) -- -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Income (Loss) Available to Common
Stockholders............................... $ (0.12) 0.08 $ 0.39 $ 0.44 $ 0.88 $ 0.66 $ (0.75)
========== ========== ========== ========== ======== ======== ========
Earnings Per Share (Diluted):
Income (Loss) Before Extraordinary Item And
Cumulative Effect of a Change in Accounting
Principle.................................. $ (0.12) $ 0.14 $ 0.45 $ 0.44 $ 0.87 $ 0.71 $ (0.75)
Extraordinary Item........................... -- -- -- -- -- (0.05) --
Cumulative Effect of a Change in Accounting
Principle.................................. -- (0.06) (0.06) -- -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Income (Loss) Available to Common
Stockholders............................... $ (0.12) $ 0.08 $ 0.39 $ 0.44 $ 0.87 $ 0.66 $ (0.75)
========== ========== ========== ========== ======== ======== ========
DIVIDENDS PAID-COMMON........................ $ 16,968 $ 16,779 $ 33,717 $ 31,310 $ 21,856 $ 17,113 $ 22,564
========== ========== ========== ========== ======== ======== ========
DIVIDENDS PAID PER SHARE--COMMON............. $ .525 .525 $ 1.05 $ 1.05 $ 1.00 $ 1.00 $ 1.33
========== ========== ========== ========== ======== ======== ========
TAXABLE INCOME PER SHARE--ORDINARY........... $ 0.65 $ 0.65 $ 0.93 $ -- $ 0.59
========== ========== ======== ======== ========
TAXABLE INCOME PER SHARE--CAPITAL GAIN....... $ 0.05 $ -- $ -- $ -- $ 0.17
========== ========== ======== ======== ========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
OPERATING STATEMENT DATE ---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets................................. $1,035,447 $1,088,861 $1,035,015 $1,114,176 $943,795 $356,195 $327,770
Total Notes Payable.......................... $ 405,989 $ 412,456 $ 400,410 $ 394,029 $369,511 $105,552 $ 92,173
Line of Credit Advances...................... $ 162,420 $ 183,375 $ 138,420 $ 180,999 $180,869 $ 72,900 $ 24,933
Convertible Subordinated Debentures.......... $ -- -- $ -- $ -- $ -- $ -- $ 25,700
Number of Common Shares Outstanding at Period
End........................................ 32,324 31,966 32,274 31,954 23,449 17,096 17,082
Weighted Average Number of Shares-
Basic...................................... 32,301 31,957 32,062 29,864 21,335 17,085 17,016
Weighted Average Number of Shares-
Diluted.................................... 32,301 31,997 32,062 30,001 21,521 17,129 17,020
</TABLE>
SOURCES AND USES OF PROCEEDS OF CERTAIN ASSET SALES
We have summarized below the estimated sources and uses of the proceeds we
expect to receive from the sale of certain assets to Prudential and GMS. The
actual sources and uses of the proceeds of these sales will vary from those
summarized in this proxy statement, depending on, among other factors, the
actual dates of the closings of, and the amounts received in, the sales of the
assets that are the subject of the Prudential Portfolio and GMS Portfolio and
the amount needed to pay (or provide for) our liabilities and expenses,
including any change to the amount of our reserve to fund contingent
liabilities.
ESTIMATED SOURCES AND USES OF LIQUIDATION PROCEEDS
<TABLE>
<CAPTION>
TRANSACTION LIQUIDATION
VALUE(1) DEBT(2) PROCEEDS
------------ ------------ -------------
<S> <C> <C> <C>
SOURCES OF LIQUIDATION PROCEEDS:
Prudential Sale................................... $353,218,000 $296,285,000 $ 56,933,000
GMS Sale.......................................... 304,238,000 138,000,000 166,238,000
------------ ------------ -------------
Total............................................. $657,456,000 $434,285,000 $ 223,171,000
============ ============ =============
USES OF LIQUIDATION PROCEEDS:
Reserve Funds (3)................................. $ (21,300,000)
Liquidating Distributions to Preferred
Stockholders.................................... (115,500,000)
Liquidating Distributions to Preferred
Unitholders..................................... (10,500,000)
Funds Available for Distribution to Common
Stockholders/Unitholders........................ (75,871,000)
-------------
Total............................................. $(223,171,000)
=============
</TABLE>
------------------------
(1) Transaction Values are net of selling costs and projected capital
expenditures.
(2) Debt figures include mortgage debt, construction loans and line of credit
release payments.
(3) Reserve Funds includes reserves for environmental, litigation, legal,
capital expenditures, consulting costs and severance expenses.
5
<PAGE>
DEBT MATURITY SCHEDULE
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OUTSTANDING MATURITY INTEREST ANNUAL
PROPERTY 8/31/2000 DATE RATE PAYMENT
-------- ----------------- ------------ -------- -----------
<S> <C> <C> <C> <C>
FIXED RATE DEBT:
Golden State Properties (19 properties)................. $144,406,590 January-08 6.76% $12,265,377
Plaza at Puente Hills................................... 31,617,600 March-04 7.98% 3,060,656
Valley Central Shopping Center.......................... 24,262,448 March-04 7.98% 2,348,661
Mountaingate Plaza...................................... 22,506,111 March-06 8.05% 2,241,680
Lake Arrowhead Plaza.................................... 19,334,488 September-11 9.20% 1,946,074
Gateway Center (previously Marin City).................. 16,313,258 October-08 7.39% 1,492,976
Simi Valley Plaza....................................... 15,949,898 June-26 8.98% 1,579,268
Northwest Acquisitions (3 properties)................... 15,761,094 December-07 7.45% 1,348,345
1000 Van Ness Capitalized Lease Obligation 15,036,724 December-43 7.85% 1,238,000
City of Pleasant Hill Bonds............................. 14,085,000 August-28 5.35% 753,095
Richmond................................................ 6,677,710 January-05 9.50% 755,280
Olympiad................................................ 5,932,801 October-07 7.49% 549,326
Crenshaw Imperial....................................... 5,010,908 July-10 8.80% 534,952
Plaza de Monterey....................................... 3,886,143 December-00 10.13% 447,360
Puget Park.............................................. 2,414,600 July-07 8.38% 267,384
San Diego Factory Outlet Center......................... 2,136,375 September-06 8.67% 453,138
Pleasant Hill Redevelopment Agency...................... 1,550,916 November-04 10.00% 155,092
Silver Plaza............................................ 300,000 September-01 4.28% N/A(7)
Powell Note............................................. 200,000 November-00 0.00% 200,000
------------ -----------
TOTAL FIXED RATE DEBT:.................................. $347,382,664 $31,636,664
------------ -----------
VARIABLE RATE DEBT:
Cameron Park Construction Loan.......................... $ 8,823,715 December-00 8.94%(1)(2) N/A
Pleasant Hill Construction Loan......................... 41,018,702 November-00 8.37%(1)(3) N/A
Van Ness Construction Loan.............................. 8,781,068 December-00 8.53%(1)(4) N/A
GE Line of Credit....................................... 149,422,431 November-00 9.13%(1)(5) N/A
Union Bank Line of Credit............................... 5,000,000 November-00 8.64%(1)(6) N/A
------------
TOTAL VARIABLE RATE DEBT................................ $213,045,916
------------
Total................................................... $560,428,580
============
</TABLE>
------------------------------
(1) Rate is as of 8/31/00.
(2) The interest rate for this loan is based on either prime or LIBOR plus 225
basis points.
(3) The interest rate for this loan is based on either prime or LIBOR plus 175
basis points.
(4) The interest rate for this loan is based on either prime plus 50 basis
points or LIBOR plus 190 basis points.
(5) The interest rate for this loan is based on LIBOR plus 250 basis points.
(6) The interest rate for this loan is based on either prime or LIBOR plus 200
basis points.
(7) Balloon payment on maturity date.
6
<PAGE>
ANNUAL MEETING
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER , 2000
DATE, TIME AND PLACE
The Annual Meeting of stockholders of Burnham will be held at The Pan
Pacific Hotel, 500 Post Street, San Francisco, California on October , 2000,
at 9:00 a.m. local time, and any adjournment or postponement thereof. This proxy
statement and the accompanying Notice of Annual Meeting of Stockholders and
proxy card are first being mailed to stockholders on or about [ ], 2000.
PURPOSE
At the Annual Meeting, you will be asked to consider and vote upon the Plan
of Liquidation. You will also be asked to consider and vote upon the election of
nine Directors of the Company. The Board of Directors is not currently aware of
any business to be acted upon at the Annual Meeting other than as described in
this Proxy Statement. If, however, other matters are properly brought before the
Annual Meeting, the persons appointed as proxies will have discretion to vote on
those matters according to their discretion.
RECORD DATE FOR VOTING
Only stockholders of record at the close of business on September 18, 2000
are entitled to receive notice of and to vote at such meeting. On such date
there were issued and outstanding 32,324,046 shares of Common Stock and
4,400,000 shares of Preferred Stock, each share of which is entitled to vote
with the Common Stock as if fully converted into Common Stock. Each share of
Preferred Stock is currently convertible into approximately 1.626 shares of
Common Stock, resulting in the Preferred Stock having an aggregate of 7,154,472
votes, there being an aggregate of 39,478,518 votes eligible to be cast at the
Annual Meeting.
QUORUM
A majority of the votes eligible to be cast represented in person or by
proxy constitutes a quorum for the meeting. If a quorum is not present, the
Annual Meeting may be adjourned without further notice to a date not more than
120 days after the original record date at which a quorum is present, and shares
represented by proxies may be voted for such adjournment.
A broker non-vote occurs on a matter when a broker holding stock in street
name returns an executed proxy but does not vote on the matter because the
broker lacks discretionary authority from the beneficial owner to vote on that
matter. The missing votes are deemed to be "broker non-votes." Shares present
but abstaining and broker non-votes will be included in the number of shares
present at the Annual Meeting for purposes of establishing a quorum.
VOTING METHODS AND PROXIES
You can vote on the matters to come before the Annual Meeting as follows:
- by signing, dating and mailing the proxy card in the enclosed postage-paid
envelope;
- by using the Internet and authorizing a proxy to vote your shares at the
Web site listed on the enclosed proxy card;
- by using the toll-free telephone number listed on the enclosed proxy card
to authorize a proxy to vote your shares; or
- by attending the Annual Meeting and casting your vote there.
7
<PAGE>
The telephone and Internet proxy authorization procedures are designed to
authenticate proxies by use of a personal identification number. The procedures
allow registered stockholders to authorize a proxy to vote their shares and to
confirm that their instructions have been properly recorded. Specific
instructions to be followed are set forth on the enclosed proxy card. If you
choose to authorize a proxy by telephone or the Internet, you must do so prior
to 9:00 a.m. Pacific Time on October , 2000, the date of the Annual Meeting. If
you hold shares in a street name through a broker or bank, separate instructions
for telephone and Internet voting may be provided on the voting instruction form
provided by your broker or bank. Stockholders who return the proxy card are
urged to specify their choices by marking the appropriate boxes on the card. If
a proxy card is dated, signed and returned without specifying choices, the
shares will be voted FOR the Plan of Liquidation and the Company's nominees for
election to the Board of Directors.
REQUIRED VOTE
Once a quorum is present or represented by proxy at the Annual Meeting, the
affirmative vote of holders of at least a majority of the outstanding shares of
the Company's Common Stock and the Preferred Stock, voting together as a single
class on an as-converted basis, is required to approve the Plan of Liquidation.
The approval of at least a majority of the outstanding shares of the Preferred
Stock, voting as a separate class, is also required to approve the Plan. In
addition, the affirmative vote of the holders of a plurality of the shares of
the Company's Common Stock and Preferred Stock, voting together as a single
class on an as-converted basis, is required to elect each Director. Subject to
certain limited conditions, the Preferred Stockholders have agreed to vote all
of their shares FOR the Plan and FOR the nominees for election to the Board of
Directors, both when voting with the Common Stockholders on an as-converted
basis at the Annual Meeting for the Plan of Liquidation and for the election of
Directors and also when voting as a separate class with respect to the Plan of
Liquidation. The Company anticipates that the holders of the outstanding shares
of Preferred Stock shall execute a written consent approving the Plan of
Liquidation prior to or contemporaneously with the Annual Meeting.
At the close of business on September 18, 2000, the record date for
determining those stockholders eligible to vote at the Annual Meeting, there
were 4,400,000 shares of Preferred Stock and 32,324,046 shares of Common Stock
outstanding. Each share of Preferred Stock is convertible into approximately
1.626 shares of Common Stock. As a result, the outstanding shares of Preferred
Stock represent 7,154,472 votes out of 39,478,518 votes eligible to be cast, or
18.12% of votes eligible to be cast, at the Annual Meeting. Members of the SA
Group hold approximately 3,162,066 shares of Common Stock or approximately 8.01%
of the votes eligible to be cast at the Annual Meeting. The members of the SA
Group have agreed to vote all of their shares of Common Stock FOR the Plan of
Liquidation and FOR the Company's nominees for election to the Board of
Directors. In addition, the Directors (other than Mr. Schottenstein and
Mr. Ashner) and executive officers of Burnham and their affiliates hold
approximately 592,389 shares of Common Stock, or approximately 1.50% of the
votes eligible to be cast at the Annual Meeting, and have agreed to vote all of
their shares of Common Stock FOR the Plan of Liquidation and FOR the Company's
nominees for election to the Board of Directors.
As a result of the agreements between the Company and the holders of the
Preferred Stock, the members of the SA Group, and the Company's Directors and
executive officers, stockholders who hold the right to cast approximately
10,908,927 votes, or approximately 27.63% of the votes eligible to be cast at
the Annual Meeting, have agreed to vote all of their shares of Preferred Stock
or Common Stock, as the case may be, FOR the Plan of Liquidation and FOR the
Company's nominees for election to the Board of Directors.
Abstentions and broker non-votes will have the effect of votes against the
Plan, but will have no effect on the election of Directors. In the event that
the requisite votes are not cast in favor of the
8
<PAGE>
Plan, with the result that the Plan is not approved, the Company intends to
continue to operate as a publicly owned real estate investment trust. In the
event the Plan is not approved, the Board of Directors presently intends to meet
to consider what, if any, steps to take in the best interests of the Company and
its stockholders, including the possibility of resubmitting the Plan or another
plan of complete liquidation and dissolution to stockholders for future
consideration. In the event that a quorum is not present, the Meeting may be
adjourned as described above under "Quorum."
REVOCATION OF PROXIES
A stockholder may revoke a proxy given with respect to the Annual Meeting at
any time before it is voted at the Annual Meeting by:
- filing with the Secretary of the Company a written revocation;
- granting a duly executed proxy bearing a later date;
- issuing later dated instructions by telephone or the Internet; or
- if such stockholder is present at the Annual Meeting, indicating his or
her intention to vote in person at the Annual Meeting.
Stockholders holding shares in street name at a broker or bank custodian
must follow the procedures of such broker or bank custodian if they wish to
revoke a previous voting instruction.
INFORMATION REGARDING TABULATION OF THE VOTE
We have a policy that all proxies, ballots and votes tabulated at a meeting
of our stockholders are confidential, and the votes will not be revealed to any
of our employees or anyone else, other than the inspectors, unless it is
necessary to meet applicable legal requirements.
PROXY SOLICITOR
We have retained D.F. King & Co., Inc. to assist us in soliciting proxies,
for a fee of $20,000, plus reimbursement of its expenses. Officers and other
employees of the Company may, without receiving additional consideration
therefor, solicit proxies in person, by telephone, facsimile, mail or the
Internet. The Company will pay the expense of preparing, printing and mailing
the Notice of Annual Meeting of Stockholders and proxy material and all other
expenses of soliciting proxies.
WHAT IS THE BACKGROUND OF THE COMPANY'S DECISION TO LIQUIDATE?
Beginning in November 1999, the Company, with the assistance of [XXXX],
undertook a lengthy and comprehensive review of its strategic alternatives,
including consideration of a merger of the Company, a sale of all or certain
assets of the Company, and a reorganization of the Company. The Company's Board
of Directors subsequently determined that, in its business judgment, a
liquidation of the Company will maximize stockholder value. The background of
the Board's decision follows:
On June 7, 1999, the Company received an unsolicited proposal from
Schottenstein Stores Company ("SSC") and certain of its affiliates to negotiate
a business combination in which the Company would be merged into an acquisition
affiliate of SSC and the holders of the Company's Common Stock would receive $13
per share. The proposal was subject to a number of conditions, including
completion of due diligence satisfactory to SSC. The proposed transaction was
also made conditional upon approval of the Company's stockholders and the
holders of units in the Operating Partnership.
On June 16, 1999, the Company retained [XXXX] to assist the Company in
reviewing the acquisition proposal from SSC. At a meeting of the Company's Board
of Directors on June 19, 1999, the Board adopted a Shareholder Rights Plan in
order to enhance the Board's ability to protect the
9
<PAGE>
interests of the Company's stockholders and to provide the Board with sufficient
time to review the SSC proposal.
10
<PAGE>
On July 12, 1999, SSC increased its proposal to $13.50 per share subject to
the same conditions described above. The Company responded by sending a letter
to SSC dated July 12, 1999 assuring SSC that the Company had been and was
seriously reviewing SSC's revised proposal and that a representative of the
Company would contact SSC once the Board was in a position to make an informed
response to the proposal.
On July 23, 1999, after an extensive evaluation of the SSC proposal and
after receiving advice from [XXXX], the Company's Board of Directors concluded
that it would not be in the best interests of the Company's stockholders to
accept the proposal and unanimously voted to reject SSC's proposal.
On November 12, 1999, the Company announced that its Board of Directors had
instructed management and [XXXX] to actively pursue a full range of strategic
alternatives in order to maximize stockholder value. The Company also announced
that it had commenced the active marketing of certain properties to provide
additional liquidity and financial flexibility. In conjunction with the
Company's pursuit of all strategic alternatives, on December 10, 1999, [XXXX]
began soliciting interest with respect to a sale of the entire Company and/or
certain of the Company's assets. [XXXX]' activities included the solicitation of
SSC. In order to protect the Company's confidential information, maximize the
competition among potential bidders, and foster an orderly marketing and bidding
process, interested parties were asked to sign customary confidentiality
agreements which included standstill provisions with the Company as a condition
to receiving such confidential information.
On January 12, 2000, [XXXX] distributed updated information on the Company
and instructions to potential bidders for the submission of initial indications
of interest by February 7, 2000.
On February 1, 2000, SSC announced that after extensive meetings with the
Company's advisors, SSC had refused to enter into the confidentiality agreement
that contained standstill provisions restricting SSC's ability to make
acquisition proposals or engage in a proxy contest, among other things, and was
considering its strategic alternatives, including proposing a slate of directors
for election at the next Annual Meeting of Stockholders.
By February 7, 2000, the Company had received initial indications of
interest from three bidders, two of whom proposed asset purchases and one of
whom proposed contributing assets into the Company's Operating Partnership and
restructuring the Company.
On February 9, 2000, the Company's Board of Directors unanimously approved
an amendment to the Company's Bylaws to extend the date of the annual
stockholders meeting to July 11, 2000 to give the potential bidders sufficient
time to analyze additional information and prepare definitive proposals. The
Company's two largest preferred stockholders agreed in advance to the
rescheduling of the annual stockholders meeting, while SSC indicated that it did
not object to the rescheduling.
On February 15, 2000, following extensive negotiations, the Company entered
into a confidentiality agreement that did not contain standstill provisions with
SSC. SSC began its due diligence with respect to the business and operations of
the Company on or about February 17, 2000.
On February 21, 2000, the Company announced that it had completed the
initial phase of the strategic alternative process. In this regard, the Company
ultimately entered into 25 confidentiality agreements with potential bidders,
including SSC. The Company subsequently commenced the next phase of exchanging
information with such potential bidders.
On March 28, 2000, five parties submitted second-round indications of
interest, including one proposal to acquire the entire Company and four
proposals to acquire selected groups of assets, all of which were contingent
upon completion of due diligence and certain other conditions. Also on
March 28, 2000, SSC formally withdrew from the process and indicated that it
would not participate in the process in the future. It did, however,
subsequently have discussions with representatives of the Company about
exchanging its shares of Common Stock of the Company for certain assets of the
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Company. The Company and SSC were not able to reach any agreement with respect
to such a transaction.
On April 5, 2000, the Board of Directors of the Company determined that it
was advisable to delay the date of the annual stockholders' meeting to
September 12, 2000 in order to provide sufficient time to explore all strategic
alternatives and receive definitive bids.
On May 10, 2000, after extensive negotiations and exchanges of information
with potential bidders, the Company received bids from two interested parties to
purchase the entire Company contingent upon certain conditions.
On June 1, 2000, the Company announced that it had rescheduled the annual
stockholders' meeting to October 18, 2000 in order to give interested parties
sufficient time to review due diligence materials and submit final transaction
proposals.
On June 14, 2000, SSC announced that it intended to nominate a slate of
directors for election at the Company's 2000 Annual Meeting of Stockholders with
a view toward obtaining control of the Board of Directors and replacing
management. On the same date, the Company issued a press release announcing that
it would oppose any efforts by SSC to force the Company to hold the Annual
Meeting on an earlier date because it believed that any such effort would
subvert and seriously prejudice the Company's pursuit of strategic alternatives
to maximize stockholder value.
On June 16, 2000, SSC announced that it had filed a complaint in the United
States District Court for the District of Maryland to commence legal proceedings
to, among other things, compel the Company to hold its annual stockholders
meeting no later than August 31, 2000.
On June 19, 2000, one of the two remaining bidders withdrew from the process
and terminated negotiations with the Company.
On July 7, 2000, the last remaining bidder submitted an offer to the Company
subject to several potential adjustments. On July 14, 2000, after extensive
discussions and upon advice of management and [XXXX], the Board of Directors of
the Company rejected the offer as inadequate and instructed management and
[XXXX] to engage in negotiations to improve the offer price. The Board also
instructed management to finalize a plan of reorganization and a plan of
liquidation for its review.
On July 24, 2000, Westbrook issued a notice to the Company asserting the
exercise of its Change of Control Preference under the terms of the Company's
Old Preferred Stock. Under the terms of the Old Preferred Stock, a valid
election of Westbrook's Change of Control Preference would have prohibited the
Company from making distributions to the holders of the Common Stock until the
payment in full of the Change of Control Preference.
On August 1, 2000, the last remaining bidder submitted a revised,
non-contingent bid for the entire Company. The Company estimated that under the
bid the holder of each share of the Company's Common Stock would have received
approximately $5.42 per share.
On August 7, 2000, the Company issued a press release announcing that it had
entered into an agreement with Westbrook pursuant to which Westbrook had
suspended its election regarding the Change of Control Preference. Pursuant to
this agreement, Westbrook retained its right to revive the election and the
Company retained its right to contest the availability of the election under the
terms of the Old Preferred Stock.
On August 8, 2000, after an extensive review of the Company's strategic
alternatives and upon advice of management and [XXXX], the Board rejected the
last remaining bidder's revised non-contingent bid as inadequate, decided not to
attempt to carry out a proposed reorganization plan and determined that a plan
of liquidation would best maximize stockholder value.
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On August 13, 2000, the Operating Partnership and the Company entered into
an agreement with Blackacre pursuant to which Blackacre would be treated as if
it had submitted a notice to the Operating Partnership electing to exercise its
Change of Control Preference under the terms of the Operating Partnership
Agreement and such notice would be suspended, but, like Westbrook, Blackacre
could elect to revive the election to receive the Change in Control Preference,
and the Operating Partnership and the Company could question the availability of
the election under the terms of the preferred Operating Partnership units held
by Blackacre. Under the terms of the preferred Operating Partnership units, a
valid election of Blackacre's Change of Control Preference would have prohibited
the Operating Partnership from making distributions to the holders of common
units in the Operating Partnership (including the Company) until the payment in
full of the Change of Control Preference.
On August 14, 2000, Jay L. Schottenstein, an affiliate of SSC, and
Michael L. Ashner issued a press release announcing, among other things, that
together they would nominate a slate of directors for election at the Annual
Meeting to pursue a liquidation of the Company.
On August 15, 2000, the Company announced that the Board of Directors
intended to adopt a plan of liquidation and planned to have the Company retain a
third party to oversee and manage the liquidation process. The Company also
announced that it had reached an agreement in principle with affiliates of
Westbrook and Blackacre that they would support the Board's decision to develop
a plan of liquidation.
On August 31, 2000, the Board of Directors adopted the Plan of Liquidation,
subject to its approval by the stockholders, and after extensive negotiations,
the Company, the Operating Partnership, Westbrook and Blackacre entered into an
Exchange Agreement. The Exchange Agreement revised the Company's and the
Operating Partnership's arrangements with certain of its preferred equity
holders. Westbrook and Blackacre exchanged their respective preferred Operating
Partnership units for the same number of shares of Old Preferred Stock, and then
Westbrook exchanged 2.8 million shares of Old Preferred Stock for the same
number of shares of Preferred Stock and Blackacre exchanged 1.6 million shares
of Old Preferred Stock for the same number of shares of Preferred Stock. The
Exchange Agreement and the terms of the Preferred Stock gave the holders of the
Preferred Stock the right to receive an amount equal to the Change of Control
Preference from the net proceeds of sales of assets as part of the Plan of
Liquidation and to require Burnham to redeem the Preferred Stock in any event on
or after September 30, 2001 for the same amount. In addition to other rights,
the holders of the Preferred Stock were granted the right as a separate group to
elect two directors to the Company's Board of Directors at any time after the
date of the agreement. Presently, the holders of Preferred Stock have not
elected directors. The Exchange Agreement also permitted Burnham to pay ordinary
dividends to holders of shares of Common Stock through the first quarter of
2001, provided that such dividends are paid out of Operating Cash, in an amount
not exceeding the average quarterly dividend or distribution paid to the holders
of shares of Common Stock for the four fiscal quarters immediately preceding the
date of the Exchange Agreement, and after payment of all accrued dividends owing
to the Preferred Stockholders as of the date of such quarterly dividend.
On September 5, 2000, the Company entered into a Purchase and Sale Agreement
with Prudential for the sale of fifteen of Burnham's properties for a gross
purchase price of approximately $356 million in a combination of cash and the
assumption of indebtedness.
On September 10, 2000, after negotiating bids from several potential
liquidation agents, the Company entered into an agreement with DDRRES pursuant
to which DDRRES agreed to act as a liquidation agent on behalf of the Company
with respect to its remaining assets.
On September 11, 2000, the Company entered into the SA Group Agreement with
the SA Group pursuant to which, among other things, the Company and the SA Group
granted each other mutual general releases and the SA Group agreed to dismiss
the pending litigation in the United States District Court for the District of
Maryland. Burnham elected Jay L. Schottenstein and Michael L.
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Ashner to Burnham's Board of Directors and Mr. Schottenstein to serve as
Co-Chairman of the Board. The SA Group agreed to vote their shares in favor of
the Plan of Liquidation and for the Company's nominees for director. The Company
agreed to allow members of the SA Group to purchase up to 19.9% of the Company's
Common Stock under the Company's Shareholder Rights Plan, subject to the
Company's continued qualification as a real estate investment trust under the
Internal Revenue Code of 1986, as amended. To reimburse the SA Group for
expenses incurred in connection with its litigation and to settle such
litigation, Burnham agreed to pay the SA Group $1 million and to pay the SA
Group an additional $1.5 million when and if the Preferred Stock was redeemed.
Also on September 11, 2000, the Company and the Preferred Stockholders
entered into a letter agreement pursuant to which, among other things, the
Preferred Stockholders consented to the SA Group Agreement and agreed to support
and vote for the SA Group's nominees to serve on Burnham's Board of Directors.
Under the letter agreement, the Company agreed to allow each of Westbrook,
Blackacre and Morgan Stanley, Dean Witter & Co. and its affiliates to purchase
up to 19.9% of the Company's Common Stock under the Company's Shareholder Rights
Plan, and to take such action as is necessary to exempt such ownership from
certain limitations set forth in the Company's Charter subject to the Company's
continued qualification as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, and on and after the date on which no shares
of Preferred Stock remain outstanding to expand the Board of Directors by one,
to elect Allen Curtis Greer II to the vacancy created by such expansion and to
nominate Mr. Greer or such other person holding that Board seat for election to
the Board at any subsequent meeting of the Stockholders at which Directors are
to be elected.
On September 19, 2000, the Company entered into a Purchase and Sale
Agreement with GMS for the sale of nineteen of the Company's properties for a
gross purchase price of approximately $305 million consisting of $167 million in
cash and the assumption of $138 million in liabilities.
WHAT LITIGATION IS BURNHAM A PARTY TO WHICH ARISES OUT OF BURNHAM'S
CONSIDERATION OF ITS STRATEGIC ALTERNATIVES OR RELATED MATTERS?
In addition to the lawsuit filed by SSC in the United States District Court
for the District of Maryland which SSC has agreed to dismiss with prejudice
pursuant to the SA Group Agreement, discussed above, the following actions have
been filed in the Superior Court of the State of California, San Diego County:
1. On June 23, 1999, Savanah J. Finch, a stockholder, filed a class action
on behalf of Burnham's stockholders against Burnham and its directors (FINCH,
ET AL V. BURNHAM PACIFIC PROPERTIES, ET AL, Case No. 731969), alleging that the
directors breached their fiduciary duty by, among other actions, failing to
properly consider the SSC proposal and by adopting the Shareholders Rights Plan
and executive retention program.
2. On February 7, 2000, Alyce Lou, a stockholder, filed a derivative action
against Burnham's officers and directors (LOU V. J. DAVID MARTIN, ET AL., Case
No. GIC 743017), alleging that they breached their fiduciary duties to
stockholders and Burnham by, among other actions, failing to properly consider
the SSC proposal, adopting the Shareholders Rights Plan and executive retention
program, and postponing the annual stockholders meeting.
3. On August 9, 2000, Theodore Erler, Jr., a stockholder, filed a class
action and derivative action against Burnham's directors (ERLER V. J. DAVID
MARTIN ET AL, Case No. GIC 752682), alleging that the directors breached their
fiduciary duty in connection with an alleged proposal made by Developers
Diversified Realty Corporation and Prudential Insurance Company of America.
Erler also alleged that the directors acted improperly with respect to the SSC
proposal, in adopting the Shareholders Rights Plan and executive retention
program, and in postponing the annual stockholders meeting.
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On November 17, 1999, the Superior Court denied the plaintiff's request in
FINCH for a preliminary injunction invalidating the Shareholders Rights Plan and
executive retention program. On June 12, 2000, the Superior Court granted the
defendants' demurrer without leave to amend in FINCH, ruling that an amended
complaint failed to state a cause of action. The judgment dismissing the
complaint is on appeal. The defendants' demurrers challenging the sufficiency of
the LOU and ERLER complaints are pending and have not been decided.
WHAT ARE OUR REASONS FOR RECOMMENDING THE PLAN OF LIQUIDATION?
The Company's Board of Directors consulted with our management and financial
and legal advisors in determining that the Plan of Liquidation was advisable and
in the best interests of our stockholders. The Board of Directors also
considered the following:
- Possible strategic alternatives to the liquidation, including the
possibility of engaging in a reorganization of the Company, a strategic
partnership, a merger, the sale of some of our assets and/or continuing
our operations in the ordinary course of business. Based on a variety of
factors, including the advice of our financial advisor, [XXXX], the Board
concluded in its business judgment that no other alternative considered
was reasonably likely to provide equal or greater value to our
stockholders than the proposed Plan of Liquidation;
- The Board's belief that, with the assistance of [XXXX], the Company had
thoroughly explored the market's interest in various strategic
alternatives. Since undertaking a review of the Company's strategic
alternatives in November of 1999, the Company has entered into 25
confidentiality agreements with potential bidders for the Company or its
assets, including SSC, Prudential, GMS, Developers Diversified Realty and
Coventry;
- The Board's belief that the amount of the anticipated liquidation
distributions totaling between $ and $ per share of Common Stock in
cash which we intend to distribute to our Common Stockholders in the
liquidation is fair relative to the Board's own assessment of our current
and expected future financial condition, earnings, business opportunities,
strategies and competitive position and the nature of the market
environment in which we operate; and
- The expected amount per share to be received by our stockholders in the
liquidation will be payable in cash, thereby eliminating any uncertainties
in valuing the consideration to be received by our Common Stockholders if
they were to receive an equity interest in another enterprise.
The Board of Directors believes that each of the factors mentioned above
generally supports its determination and recommendation. The Board of Directors
did, however, consider potentially negative factors in its deliberations
concerning the liquidation, including the following:
- Upon completion of the proposed liquidation, our stockholders will no
longer participate in any future earnings or growth of our assets or
benefit from any increases in the value of our assets; and
- Our stockholders may, depending on their tax bases in their stock,
recognize a taxable gain upon the completion of the liquidation.
Based upon the foregoing, the Board of Directors believes that it has fully
explored all strategic alternatives and, as a result of that process, on August
15, 2000, it approved and authorized the orderly liquidation of the Company
based upon its determination that such action is advisable and in the best
interests of the Company and its stockholders. On August 27, 2000, the Board of
Directors adopted the Plan as advisable and in the best interests of the
stockholders and directed that the Plan be submitted for consideration by the
Company's stockholders. A copy of the Plan is attached to this proxy statement
as APPENDIX A.
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PROPOSAL NO. 1--PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
WHAT ARE YOU BEING ASKED TO APPROVE?
You are being asked to approve the Company's proposed Plan of Liquidation.
By voting in favor of the Plan of Liquidation, you will also approve and ratify
the transactions described in this proxy statement which the Company and its
Board of Directors have undertaken in connection with its consideration and
recommendation that the stockholders support the Plan.
WHAT IS THE BOARD'S RECOMMENDATION?
YOUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSED
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION.
WHAT DOES THE PLAN OF LIQUIDATION CONTEMPLATE?
The Plan of Liquidation contemplates the following agreements and steps:
- entering into the Liquidation Services Agreement with DDRRES to act as the
Liquidator;
- the sale of 15 of our properties to Prudential for approximately
$356 million in a combination of cash and assumption of liabilities;
- the sale of 19 of our properties to GMS for approximately $305 million
consisting of $167 million in cash and the assumption of $138 million in
liabilities;
- the orderly sale of our remaining assets for cash or cash equivalents;
- paying (or providing for) our liabilities and expenses and establishing a
reserve to fund contingent liabilities;
- distributing the proceeds of the liquidation to the holders of our
Preferred Stock and Common Stock; and
- winding up our operations and dissolving, all in accordance with the Plan
of Liquidation attached as APPENDIX A to this proxy statement.
WHAT ARE THE KEY PROVISIONS OF THE PLAN OF LIQUIDATION?
The Plan provides, in part, that:
- The Company is not anticipated to engage in any business activities,
except to the extent necessary to preserve its assets, wind up its
business and affairs, discharge and pay all its liabilities, and then
distribute its assets to its stockholders;
- The final distribution to holders of the Company's Common Stock will be
made, if possible, no later than the second anniversary of the date on
which the Common Stockholders approve the Plan. Notwithstanding this
provision, however, we cannot assure you that the final distribution will
be made in such time period;
- The distributions contemplated by the Plan of Liquidation are anticipated
to be in complete liquidation of the Company and in cancellation of all
issued and outstanding shares of Common Stock and Preferred Stock;
- Subject to the prior approval of the holders of a majority of the shares
of Preferred Stock, the Board of Directors has the authority to terminate
the Company's status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended;
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- Subject to the prior approval of the holders of a majority of the shares
of Preferred Stock and upon certain determinations by the Board of
Directors, the Company will transfer and assign to a Liquidating Trust the
Company's remaining cash and property to pay (or adequately provide for)
all the remaining debts and liabilities;
- Upon the transfer and assignment by the Company to the Liquidating Trust
of the Company's remaining assets, such assets shall be held solely for
the benefit of an ultimate distribution to the stockholders after payment
of unsatisfied debts and liabilities and the stockholders' certificates
for shares shall be deemed to represent certificates for identical
interests in the Liquidating Trust;
- The Board of Directors of the Company, or the trustees of the Liquidating
Trust, and such officers of the Company as the Board of Directors may
direct, are authorized to interpret the provisions of the Plan and to take
such further actions and to execute such agreements, conveyances,
assignments, transfers, certificates and other documents, as may in their
judgment be necessary or desirable in order to wind up expeditiously the
affairs of the Company and complete the liquidation;
- The Board of Directors may terminate the Plan for any reason. The power of
termination shall be exercisable both before and after approval of the
Plan by the stockholders of the Company, but such power shall not continue
after Articles of Dissolution have been accepted for record by the State
Department of Assessments and Taxation of Maryland; and
- Notwithstanding approval of the Plan by the stockholders of the Company
and the unitholders of the Partnership, the Board of Directors may modify
or amend the Plan without further action by the stockholders of the
Company or the unitholders of the Partnership to the extent permitted
under then current law, subject to the consent of the Preferred
Stockholders as required pursuant to the Exchange Agreement.
Neither the consummation of the Prudential Sale nor the consummation of the
GMS Sale is a condition to the approval of and implementation of the Plan. In
the event that either the Prudential Sale or the GMS Sale is not consummated or
if either Prudential or GMS does not actually purchase all of the assets the
Company proposes to sell to Prudential and GMS, respectively, the Board of
Directors will pursue the sale of such assets to other potential purchasers in
the manner contemplated by the Plan.
In connection with the Plan, the Company has previously entered into an
Exchange Agreement with its Preferred Stockholders, pursuant to which the
Preferred Stockholders have agreed, subject to certain limited conditions, to
vote in favor of the Plan. The Preferred Stockholders have certain approval
rights with respect to amendments to the Plan and to actions to be taken by the
Company in order to carry out the Plan. For a more detailed description of the
Exchange Agreement, you should refer to "Proposal No. 1--Plan of Complete
Liquidation and Dissolution--What are the key terms of the Exchange Agreement?"
WHAT IS BURNHAM'S ESTIMATE OF THE AMOUNT OF DISTRIBUTIONS TO BE PAID TO THE
COMMON STOCKHOLDERS AS A RESULT OF THE LIQUIDATION?
Burnham estimates that it will make liquidating distributions to the Common
Stockholders in an aggregate amount in the range of $ to $ per share after
full payment of the Liquidation Preference of the Preferred Stockholders and the
holders of preferred Operating Partnership units respectively. There can be no
assurance as to the aggregate amount of such liquidating distributions or that
Burnham will make any such distributions.
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Neither the Company's independent auditors, nor any other independent
accountants, have compiled, examined, or performed any procedures with respect
to the liquidation estimates contained in this proxy statement, nor have they
expressed any opinion or any other form of assurance on such estimates, and
assume no responsibility for, and disclaim any association with, the liquidation
estimates.
WHAT STEPS HAS BURNHAM TAKEN TO IMPLEMENT THE PLAN OF LIQUIDATION?
Burnham has taken several steps to implement the plan of liquidation
including:
- entering into the Liquidation Services and Property Management Agreement
pursuant to which DDRRES will act as Burnham's liquidating agent. For a
more detailed description of the Liquidation Services and Property
Management Agreement, refer to "Proposal No. 1--Plan of Complete
Liquidation and Dissolution--What are the key terms of the Liquidation
Services and Property Management Agreement?";
- entering into the Prudential Agreement pursuant to which Burnham will sell
15 properties to Prudential in consideration of approximately
$356 million in a combination of cash and the assumption of indebtedness;
- entering into the GMS Agreement with respect to the sale of 19 properties
to GMS for a gross purchase price of $305 million consisting of
$167 million in cash and the assumption of $138 million in liabilities;
and
- entering into an Exchange Agreement with its Preferred Stockholders
pursuant to which they have agreed, subject to certain limited conditions,
to vote in favor of the Plan.
WHAT INTERESTS EXIST AMONG THE INTERESTED PARTIES TO THE PLAN OF LIQUIDATION
THAT ARE DIFFERENT FROM YOUR INTERESTS AS A STOCKHOLDER?
In considering the recommendations of our Board of Directors with respect to
the Plan, and in implementing the Plan, you should be aware that some of our
Directors, officers and significant stockholders may have had, or together with
the Liquidator, may have, interests that are different from your interests as a
stockholder. The Board of Directors was aware of these matters in its
consideration of the Plan.
EXECUTIVE OFFICERS
On June 30, 1999, Burnham entered into Senior Executive Severance Agreements
with five of its most senior executives--Messrs. J. David Martin, Scott C.
Verges, James W. Gaube, Daniel B. Platt and Joseph Wm. Byrne. In general, these
agreements provide that upon the occurrence of certain termination events
following a change of control of Burnham, the executive is entitled to receive
an amount equal to three times his then current base annual salary plus three
times his then current target annual bonus, and Burnham would also provide the
senior executive with continuation of health, dental and life insurance and
certain other welfare benefits for thirty-six months. In addition, Burnham would
deliver to the senior executive a tax "gross-up" payment to cover any excise tax
due with respect to such severance benefits. Messrs. Martin, Gaube and Byrne
have since left the Company and agreed to accept reduced severance. For a more
detailed description of the Senior Executive Severance Agreements, please refer
to "Proposal No. 2--Election of Directors--Report of Compensation Committee."
On August 27, 2000, the Board of Directors, upon recommendation of the
Governance Committee resolved that, in addition to the salary presently provided
to Mr. Verges in consideration for his services to the Company, the Company
shall also provide Mr. Verges a bonus payment of $125,000 (the "Bonus") subject
to the occurrence of the following events: (A) the Company executes an agreement
with Coventry Real Estate Partners and certain affiliates or another party,
subject to stockholder
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approval, to sell at least 12 real estate properties; (B) the Company executes
an agreement, subject to stockholder approval, to sell certain real estate
properties, collectively known as the "Golden State Properties"; and (C) the
Company enters into a definitive agreement whereby a third party shall act as a
liquidation agent on behalf of the Company with respect to the proposed Plan of
Liquidation.
DIRECTORS
Jay L. Schottenstein and Michael L. Ashner are members of the SA Group
which, pursuant to the terms of the SA Group Agreement, may propose bids to
purchase assets of the Company in connection with the liquidation.
THE LIQUIDATOR
Because the Liquidator is an affiliate of companies which own and manage
real estate assets, it may have certain conflicts of interest with its duties
under the Liquidation Services Agreement. The Liquidation Services Agreement
contains provisions intended to eliminate or reduce these potential conflicts of
interest, including the absolute right of the Company to approve all sales and a
mutual covenant by the parties to expeditiously liquidate the properties in a
manner that maximizes the sale proceeds of the properties.
VOTING AGREEMENTS WITH BOARD MEMBERS
All of the members of the Company's Board of Directors have entered into
voting agreements pursuant to which they have agreed to vote in favor of the
Plan and in favor of the slate of directors in Proposal No. 2.
WHY DID BURNHAM CHOOSE TO HIRE A THIRD-PARTY LIQUIDATOR?
In considering the possibility of adopting a plan of liquidation, the Board
of Directors of the Company considered extensively whether the Company should
conduct the liquidation itself or seek the assistance of a third-party
liquidator. The Board of Directors ultimately chose to seek the assistance of a
third-party liquidator for the following reasons, among others:
- EXPERTISE. While the Company's management and other employees have
significant experience in operating and managing the properties it owns,
the Company's management and other employees are relatively inexperienced
in the types of transactions contemplated by the Plan of Liquidation. The
Company sought a third-party liquidator with significant experience in
conducting the transactions contemplated by the Plan of Liquidation;
- RETENTION OF PERSONNEL. While the Company's personnel may otherwise have
been capable of conducting the liquidation, the Board of Directors could
not be sure that such personnel would remain with the Company for the
duration of the liquidation process, potentially jeopardizing the
successful completion of the liquidation or reducing the estimated
aggregate amount of the liquidating distributions to the Company's
stockholders;
- REDUCTION OF OVERHEAD. The Board of Directors believes that hiring a
third-party liquidator enables the Company to reduce overhead and general
and administrative expenses and, in the opinion of the Board of Directors,
achieve cost savings in the liquidation. We cannot assure you, however,
that we will achieve any such cost savings; and
- CONFLICT OF INTERESTS. As the Company's management and other employees
have severance arrangements which give them a financial incentive to
liquidate the Company as rapidly as possible, the Board of Directors
feared that such an incentive would entice the Company's management and
other employees to sell assets as quickly as possible instead of working
to obtain the best selling price for the Company and its stockholders. The
Board of Directors
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deliberately established incentive fees for any third-party liquidator
that would more closely align the interests in the liquidation of the
third-party liquidator and those of the Company's stockholders.
WHO IS THE LIQUIDATOR?
DDRRES is an indirect, wholly-owned subsidiary of Developers Diversified
Realty Corporation. Developers Diversified Realty Corporation is a
self-administered and self-managed real estate investment trust operating as a
fully-integrated real estate company which develops, leases and manages shopping
centers. Developers Diversified Realty Corporation currently owns or manages 206
shopping centers in 40 states totaling 47.7 million square feet of retail space.
Developers Diversified Realty Corporation is a publicly traded corporation
listed on the New York Stock Exchange.
WHAT ARE THE KEY PROVISIONS OF THE LIQUIDATION AND PROPERTY MANAGEMENT SERVICES
AGREEMENT?
GENERAL
On September 10, 2000, the Company entered into the Liquidation Services
Agreement with DDRRES. Pursuant to the Liquidation Services Agreement and
generally subject to stockholder approval, the Company has engaged the
Liquidator to manage and oversee the liquidation process. The initial term of
the Liquidation Services Agreement ends on October 17, 2002, subject to the
unilateral right of the Company to extend the initial term for a period of six
months upon 60 days' prior written notice to the Liquidator. The Liquidator may
request a six month extension from the Company upon the same 60 days' prior
notice, which request shall not be unreasonably denied by the Company.
Subject to the terms of the agreement, the Liquidator will provide property,
asset and construction management services and leasing services for all of
Burnham's properties other than those properties sold to Prudential or GMS. The
Liquidator will perform services and tasks and exercise authority as the
property manager and leasing agent for each property and any other services
provided in the Liquidation Services Agreement. The Liquidator shall use all
commercially reasonable efforts to manage each such property so as to maximize
the market value of the properties and the net operating income from the
properties.
The Liquidator commenced asset management of the properties and preparation
for the transfer of property management and leasing services immediately upon
the signing of the Liquidation Services Agreement. It is a condition precedent
to the effectiveness of the Liquidation Services Agreement that the Company
shall have obtained approval of the Plan of Liquidation from the stockholders of
the Company. If the stockholders approve the Plan, Burnham will transfer
property management and leasing functions to the Liquidator pursuant to a
schedule reasonably approved by the Company and the Liquidator. All property
management and leasing functions shall be fully staffed and operated by the
Liquidator prior to December 31, 2000. In consideration of performing such
functions prior to stockholder approval, the Liquidator shall receive a monthly
fee, prorated for partial months, equal to $125,000 per month.
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SCOPE OF SERVICES
The Liquidator shall render or cause to be rendered services with respect to
each property which shall include, without limitation, the following:
- Preparing and implementing portfolio business plans and asset business
plans consistent with the Plan;
- Implementing a program of fiscal control, and administering, coordinating
and overseeing the activities of all contractors, subcontractors and other
providers of goods and services in carrying out the management, leasing
and disposition of the properties;
- Providing administrative bookkeeping and income and expense reporting
services with respect to each property and the properties as a whole;
- Soliciting tenants for each property;
- Providing property management services and administering the contracts
entered into in regard to those services;
- Reviewing and analyzing the properties;
- Engaging, or coordinating with sales brokers hired by the Company or with
the Company's approval, reviewing and updating existing offering memoranda
or causing the preparation of a new comprehensive offering memorandum or
prospectus, within thirty (30) days following stockholder approval of the
Plan;
- Preparing a comprehensive marketing plan for the properties;
- Assisting the Company and any designated brokers in connection with any
proposed sale or financing of any and all of the properties;
- Negotiating and consummating, subject in all respects to the Company's
approval, the sale of any and all of the properties pursuant to offers
received and approved by the Company; and
- Performing any other customary and reasonable services of a property
manager, leasing agent, liquidator or investment sales advisor with
respect to the properties and such other services as would not materially
increase the Liquidator's costs or liabilities in performing its
obligations under the Liquidation Services Agreement.
Except as required to comply with a court order or administrative or
regulatory directive, each of the following actions of the Liquidator requires
the prior written approval of the Company:
- the direct or indirect acquisition of any real property or any interest in
real property;
- the acceptance of any offer for the purchase of any property, the entering
into any agreement (including an option) for the sale or other disposition
of any property, and the closing, sale or transfer of any property or any
portion thereof;
- the financing of any property or interest therein or portion thereof,
including, without limitation, the creation of any mortgage loan or
security interest in any property;
- the hiring of (A) any broker or finder in connection with the sale of any
property, (B) any third party leasing agent for the leasing of a property,
or (C) any contractor, appraiser, consultant, auditor, accountant,
engineer, or other vendor (other than a utility company), where, in each
case, the total amount payable under the respective service contract is
equal to, or greater than $25,000 to perform services necessary or
appropriate for the management and liquidation of the properties;
- the hiring of or payment to certain affiliates, except as expressly
provided;
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<PAGE>
- the lease or sublease as landlord or sublandlord, as the case may be, of
any premises in any property of greater than 10,000 square feet;
- the execution, termination or material amendment or material modification
of any lease or sublease (except for the execution of a lease or sublease
as landlord or sublandlord);
- the establishment of reserves, except to the extent consistent with the
reserves required under (A) an approved budget or business plan, (B) the
Plan or (C) the Articles Supplementary and Exchange Agreement with the
Preferred Stockholders;
- any action inconsistent with the terms of the Plan, the Exchange Agreement
or the Articles Supplementary; and
- the hiring of any counsel for or on behalf of the Company.
The Company retains responsibility for all corporate functions, while the
Liquidator is responsible for disposing of the Company's properties in the
Liquidation.
SERVICE REQUIREMENTS
The Liquidator may, at its sole cost and expense, enter into contracts with
affiliates of the Liquidator to perform the services required of the Liquidator
under the Liquidation Service Agreement without the consent of the Company. All
persons utilized by the Liquidator in connection with the services to be
rendered shall be independent contractors or the Liquidator's employees and
shall not in any case be the employees or agents of the Company. Further, the
Liquidator shall at all times during the pendency of the Liquidation Services
Agreement provide such experienced personnel as are reasonably required to carry
out the obligations of the Liquidator under the Liquidation Services Agreement.
- The Liquidator shall use commercially reasonable efforts to collect all
rents and other charges;
- The Liquidator shall inspect or cause to be inspected each property in
such intervals as it deems in good faith necessary to perform its
obligations;
- The Liquidator shall uphold a standard of good faith and commercial
reasonableness in performing its obligations and duties hereunder;
- The Liquidator shall serve as leasing agent for each property and agrees
to furnish leasing and marketing services with respect to the leasing of
space in the properties; and
- The Liquidator, on behalf of the Company, shall provide tenant services
for each of the properties in a manner consistent with services provided
by property manager of comparable properties located in the same market
area as the pertinent property and consistent with the Company's
qualification as a REIT.
COMPENSATION
PROPERTY MANAGEMENT FEE
As compensation for the property management services to be rendered by the
Liquidator under the Liquidation Services Agreement, the Company agreed to pay
to the Liquidator a property management fee equal to four percent (4%) of the
Gross Revenues received from the properties in consecutive monthly installments
as and when such revenues are received.
ASSET MANAGEMENT FEE
As compensation for the asset management services to be rendered by the
Liquidator under the Liquidation Services Agreement through the termination date
thereof, the Company agrees to pay to
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<PAGE>
the Liquidator an asset management fee equal to two percent (2%) of the Gross
Revenues received from the properties. The asset management fee shall be paid in
consecutive monthly installments as and when said Gross Revenues are received.
DISPOSITION INCENTIVE FEE
In addition to the property management fee and the asset management fee set
forth above, if and to the extent that the Liquidation results in liquidating
distributions to the common stockholders of the Company in excess of $7.50 per
share, the Liquidator shall be paid a disposition incentive fee equal to 10% of
the amount by which the actual aggregate amount of the per share liquidating
distributions to the common stockholders exceeds $7.50 per share. For purposes
of calculating the disposition incentive fee in the Liquidation Services
Agreement, distributions to stockholders which represent either income from
operations of the properties as determined for financial accounting purposes or
income earned on the investment of sale proceeds are not counted as liquidating
distributions and therefore do not count towards the $7.50 threshhold. The right
of the Liquidator to receive the disposition incentive fee survives termination
of the Liquidation Services Agreement, unless such termination is the result of
an event of default by the Liquidator or the occurrence of other specified
events of default occurring prior to April 1, 2001 which are caused by the gross
negligence, willful misconduct or fraud of the Liquidator.
CONSTRUCTION MANAGEMENT FEE
As compensation for its construction management services, the Liquidator
shall receive a construction management fee equal to 5% of costs, excluding the
cost of land, for all construction projects having aggregate costs of greater
than $50,000. No construction management fees shall be paid for projects for
properties then subject to the Prudential Agreement except in certain instances
where the Prudential Agreement is terminated for circumstances out of
Prudential's control.
LEASING FEES
The Liquidator shall receive certain leasing fees as follows:
- For new leases, 6% of rent received for years 1 through 5; 3% of rent for
years 6 through 10 (reduced to 5% and 2.5% if no co-broker);
- For ground leases, 3% of rent received for years 1 through 5; 1.5% of rent
for years 6 through 10;
- For renewals, 50% of the amount of new lease commissions; and
- The Liquidator is responsible for the payment of any third party brokerage
commissions.
No leasing fees shall be paid for leases entered into for properties then
subject to the Prudential Agreement, and the Liquidator shall not be responsible
for any third party brokerage commissions, except in certain instances where the
Prudential Agreement is terminated for circumstances out of Prudential's
control.
COSTS AND EXPENSES
Except as provided in the Liquidation Services Agreement, specifically
provided for in an approved budget, and expenses that can be passed through to
tenants as a reimbursable operating expense, the Liquidator shall bear all costs
and expenses incurred in rendering all supervisory services, rent and other
collection, lease enforcement (exclusive of court costs and attorneys' fees),
lease termination, management, construction oversight and facilitation,
accounting, bookkeeping and record keeping, and no such costs or expenses shall
be charged to the Company. The Liquidation Services Agreement
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<PAGE>
specifically excludes wages, out-of-pocket costs, supplies, accounting and
transportation as expenses which are borne by the Liquidator. Except for certain
non-reimbursable third party expenses, the Company shall be responsible for and
shall pay all third-party costs and expenses incurred in accordance with the
provisions of the Liquidation Services Agreement with respect to the Company and
the properties to the extent not otherwise reimbursed from other sources.
INDEMNIFICATION
The Liquidator agrees to indemnify, defend and hold harmless the Company and
its officers, employees and directors for, from and against any cost, loss,
damage or expense (including, but not limited to, attorneys' fees and all court
costs and other expenses of litigation, whether or not recoverable under local
law) resulting from a breach by the Liquidator of the Liquidation Services
Agreement or the fraud, gross negligence or willful misconduct of the Liquidator
and its officers, directors, and employees in the performance of its obligations
under the Liquidation Services Agreement.
The Company agrees to indemnify, defend and hold harmless the Liquidator and
its officers, directors, and employees for, from and against any cost, loss,
damage or expense resulting from the following:
- the fraud, gross negligence or willful misconduct of the Company and its
officers, directors, and employees in connection with the duties of the
Liquidator;
- The Liquidator's status as the Company's liquidator, property manager or
leasing agent;
- any act (or failure to act) undertaken and performed (or refused to be
undertaken) in good faith within the Liquidator's scope of authority;
- any failure or refusal to perform any acts except those expressly required
by the terms of the Liquidation Services Agreement;
- performance or failure to perform any acts in good faith reliance on the
advice of accountants or legal counsel or in good faith reliance on the
advice, instruction or approval from the Company; and
- actual or alleged violations by the Company of the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, resulting
from the acts or transactions contemplated by the Liquidation Services
Agreement.
Neither party shall be liable to the other under the Liquidation Services
Agreement for any consequential or punitive damages.
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an event of
default under the Liquidation Services Agreement on the part of the party with
respect to whom such event occurs:
- failure to comply with, any agreements, obligations or undertakings of a
party, which continues for thirty (30) days following written notice,
subject to certain exceptions;
- certain bankruptcy events or a general assignment for the benefit of
creditors with respect to such party;
- certain prohibited transfers by the Liquidator;
- any dissolution or termination of the corporate existence of the
Liquidator or cessation of business by the Liquidator; and
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- the Liquidator's failure before December 31, 2000, to own an amount of
shares equal to at least nine and nine-tenths percent of the issued and
outstanding shares of Common Stock as of the date of the Liquidation
Services Agreement, or if the Liquidator subsequently voluntarily sells
shares such that the Liquidator no longer owns an amount of shares equal
to at least nine and nine-tenths percent of the issued and outstanding
shares of Common Stock.
REMEDIES ON DEFAULT
Upon the occurrence and during the continuance of any event of default, the
non-defaulting party shall be released from is obligations under the Liquidation
Services Agreement without termination of its rights and shall be entitled to
exercise any or all of the following remedies:
- terminate the Liquidation Services Agreement;
- terminate the Liquidator's payment of the fees and/or the ability of the
Liquidator to pay any other amount from any bank account to which it has
access;
- exercise each and every other right or remedy available under the
Liquidation Services Agreement as a result of an event of default; and
- exercise every other right or remedy available at law or in equity.
TERMINATION RIGHT
The Company shall have the right to terminate the Liquidation Services
Agreement upon the occurrence of a (x) "Redemption Default" (as such term is
defined in Section 9 of the Articles Supplementary relating to the Preferred
Stock), on or after April 1, 2001 or (y) a Redemption Default occurring prior to
or April 1, 2001 which is the result of gross negligence, willful misconduct, or
fraud by the Liquidator.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The parties made typical representations and warranties to each other
regarding corporate organization, receipt of corporate authorization, due
execution, absence of breach or default under other contracts, and the absence
of legal proceedings.
APPROVAL OF SALES PROPOSALS BY THE COMPANY; INITIATION OF SALES BY THE
COMPANY
The Liquidation Services Agreement gives the Company absolute discretion in
approving sales of properties. In addition, the Liquidation Services Agreement
provides the Company with the ability to pursue potential sales of properties on
its own behalf and obligates the Liquidator to pursue such sales as the Company
directs and not to interfere with any efforts of the Company in its own
liquidation efforts. The Liquidation Services Agreement also provides the
Company with the sole right to manage and coordinate the sales of properties
pursuant to the Prudential Agreement and the GMS Agreement.
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<PAGE>
WHAT ARE THE KEY PROVISIONS OF THE PRUDENTIAL PURCHASE AND SALE AGREEMENT?
GENERAL TERMS
On September 5, 2000, the Company and Prudential entered into a purchase and
sale agreement for the purchase of 15 properties for an aggregate purchase price
of approximately $356, which includes the assumption by Prudential of
approximately $173 million in indebtedness. The properties are:
<TABLE>
<CAPTION>
PROPERTY CITY/STATE
-------- ---------------------------------
<S> <C>
Downtown Pleasant Hill................... Pleasant Hill, CA
Hilltop Plaza............................ Richmond, CA
San Diego Factory Outlet Center/
K Mart at San Diego Factory Outlet
Center................................. San Ysidro, CA
Plaza at Puente Hills.................... City of Industry, CA
Valley Central........................... Lancaster, CA
Richmond................................. Richmond, CA
La Mancha................................ Fullerton, CA
Cameron Park............................. Cameron Park, CA
Lake Arrowhead........................... Lake Arrowhead Village, CA
Olympiad Plaza........................... Mission Viejo, CA
Mountaingate............................. Simi Valley, CA
Meridian................................. Bellingham, WA
Keizer Creekside......................... Keizer, OR
Puget Park............................... Everett, WA
Village East............................. Salem, OR
</TABLE>
However, at any time prior to 5:00 p.m., Pacific Time, on October 31, 2000,
Prudential may elect to terminate the agreement with respect to the Hilltop
Plaza and Village East properties.
REPRESENTATIONS AND WARRANTIES
The Prudential Agreement contains customary representations and warranties
by us and, in some cases, certain of our subsidiaries, relating to, among other
things:
- our organization, qualification and similar corporate matters;
- our authorization, execution and delivery of the Prudential Agreement and
its binding effect on us;
- the absence of violation of our organization documents, law or contracts;
- our receipt of consents to the Prudential transaction required under law
or our contracts;
- the absence of litigation that could have a material adverse effect on the
properties;
- our ownership of the properties and the absence of security interests,
liens or other encumbrances on title or options, rights of first refusal,
rights of first offer or other rights to purchase the properties;
- the absence of structural defects relating to the properties which singly
or in the aggregate would have a material adverse effect on the
properties;
- the absence of service contracts which are not cancelable within 30 days'
notice; and
- each of our material leases on the properties being in full force and
effect.
The foregoing representations and warranties are subject, in some cases, to
specified limitations, exceptions and qualifications. For example, each
representation and warranty is deemed expressly
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<PAGE>
qualified by any information expressly set forth in any document, instrument or
agreement listed on our disclosure schedule attached to the agreement and such
information is deemed an exception to each representation and warranty.
Prudential makes representations and warranties to us about, among other
things:
- its organization, qualification and similar corporate matters;
- its authorization, execution and delivery of the Prudential Agreement and
its binding effect on Prudential; and
- the absence of any agreements with brokers or agents in connection with
the transaction.
NO SOLICITATION OF TRANSACTIONS
Upon signing the agreement, we agreed to immediately terminate any
discussions or negotiations with respect to any of the properties and to
prohibit any of our officers, directors, employees or advisors from engaging in
any such discussions or negotiations.
CONDITIONS TO CONSUMMATION OF THE PRUDENTIAL TRANSACTION
There are several conditions that must be satisfied before Prudential is
obligated to complete the purchase of the properties. Among other things, these
include the following:
- the accuracy of our representations and warranties;
- securing of all consents of any governmental regulatory body or third
party required in connection with execution, delivery and performance of
the Prudential Agreement;
- all construction work at the Pleasant Hill and Cameron Park properties
shall have been completed;
- certain tenants and Operating Partnership unitholders having rights of
first refusal on certain of the properties shall have waived such rights;
and
- certain tenants (as listed in the agreement) shall have occupied their
space at the Pleasant Hill Property.
The conditions are to be satisfied independently for each property. Closings
will occur for a property as the conditions are satisfied for that property. The
purchase price for all of the properties is allocated to permit several
closings.
The following are conditions of our obligation to consummate the
transaction:
- approval of our stockholders and the holders of our Operating Partnership
units; and
- the performance by Prudential of all of its obligations under the
agreement and the delivery of a certificate to that effect.
PRORATION OF INCOME AND EXPENSES
The following expenses and income will be prorated as of the closing date of
the transaction:
- any taxes owed relating to the property;
- all amounts receivable under any service contract on the property;
- all base rents and other fixed sums due under the leases; and
- transfer taxes, title expenses, loan assumption fees and costs shall be
paid by seller.
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<PAGE>
ADDITIONAL AGREEMENTS
Pursuant to the agreement, we agree that from the date of the agreement to
the closing of the transaction, we will conduct our business in the ordinary
course and take, or refrain from taking, the following actions, among other
things:
- acquire, sell, encumber or dispose of any assets;
- lease any space to any tenant in any of the properties or grant any leases
or credits without approval;
- enter into, amend or terminate any contract involving the payment of more
than $2,500 per annum;
- create or permit to exist any lien or encumbrance on any of the
properties;
- alter, modify or amend any of the indebtedness to be assumed by
Prudential, the contracts for construction on the properties, or other
material contracts;
- prepay any of the indebtedness to be assumed by Prudential; and
- terminate or allow to lapse any of our insurance policies.
In addition, we agree that we will bear any risk of loss to the properties
until the escrow is closed. If there is material loss or damage to or threatened
or actual condemnation or other proceeding affecting any of the properties,
Prudential may elect not to purchase the affected property or may purchase such
property for the purchase price less any proceeds payable to us from insurance
proceeds or otherwise as a result of such loss.
AGREEMENT REGARDING TAX-PROTECTED PROPERTIES
Five of the assets to be sold to Prudential are subject to agreements
between the Company and the party that contributed such property to the
Operating Partnership not to sell the property or to encumber the property with
not less than a specified amount of indebtedness or not to sell the property (or
otherwise provide the contributor with an agreed upon amount of debt which is
allocated to them for tax purposes). The Company's breach of such an agreement
may result in adverse tax consequences to the contributors of the property. The
Company estimates that its potential liability to reimburse such contributors
for taxes payable by such contributors upon the sale of such properties may be
between $2.3 million and $5.6 million. The Company and Prudential have agreed to
work in good faith in an attempt to structure the transfer of such assets in a
manner that would eliminate or reduce the Company's liability to such
contributors arising in connection with the sale of assets to Prudential. If
Prudential and the Company are unable to reach agreement within 180 days after
the date of the agreement, the Company may extend the deadline by 180 days in
order to reach an agreement. If no agreement can be reached, the Company shall
remain liable for such taxes.
TERMINATION RIGHTS AND FEES
If the conditions that must be satisfied before Prudential is obligated to
complete the purchase, as described above, are not satisfied by the 180th day
after the date of the agreement, then Prudential has no obligation to complete
the purchase of the properties for which the conditions have not been satisfied.
If the Prudential Agreement is terminated by Prudential as a result of an
inaccurate representation and warranty of which the Company has knowledge or the
breach of any term or covenant of the agreement by the Company, if there is an
injunction against the sale issued by a court of competent jurisdiction or other
rule prohibiting the sale or if our stockholders and holders of operating
partnership units in the Operating Partnership fail to approve the transaction,
then we must pay
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<PAGE>
Prudential up to $5 million in liquidated damages ($5 million multiplied by a
fraction the numerator of which is the purchase price of properties for which a
closing has not occurred and the denominator of which is the aggregate purchase
price of all 15 properties). If the Prudential Agreement is terminated by the
Company as a result of the breach of any term or covenant of Prudential, then we
are entitled to keep Prudential's earnest money deposit of up to $5 million,
plus all accrued interest, as liquidated damages and our sole remedy for such
breach.
If the Prudential Agreement is terminated by the Company as a result of the
Company entering a definitive agreement to sell the properties to another party
who has made a proposal that is more favorable to the Company than Prudential's
proposal, or the agreement is terminated by Prudential as a result of the
Company's Board of Directors withdrawing or modifying its recommendation of the
Plan of Liquidation or not including that recommendation in the proxy statement
or the Company entering into a definitive agreement with respect to an
unsolicited proposal to purchase the 15 properties, then we must pay to
Prudential up to $15 million as a break-up fee.
POST-CLOSING CLAIMS
Our representations and warranties in the purchase and sale agreement
survive the closing of the sale of a property for a period of 12 months. In
addition, pursuant to that agreement, we have the obligation to indemnify
Prudential from any liabilities imposed upon or asserted against Prudential by
reason of, among other things, any tort or contract claims occurring on or in
respect of the properties before the closing of the sale transaction, the
violation of any environmental or other applicable laws, and any lawsuit
threatened or filed regarding the purchase transaction. These indemnity
obligations survive the closing of the sale transaction for each property for
12 months. The Company's post-closing liability with respect to inaccurate
representations and warranties and indemnification of Prudential shall not
exceed, in the aggregate, $5 million except for post-closing liability based on
fraud or intentional misrepresentation of the Company for which there is no
limit.
EXPENSES
Generally, each party will pay its own costs in connection with the
transaction. We must pay all transfer, stamp, title insurance or similar taxes
due as a result of the transaction.
ASSIGNMENT
Prudential has the right to assign the purchase and sale agreement to an
entity formed with Developers Diversified Realty Corporation and/or Coventry
Real Estate Partners Ltd. without the Company's consent and to assign the
purchase agreement as to the Mountaingate property to any third parties without
the Company's consent.
WHAT IS THE RELATIONSHIP BETWEEN PRUDENTIAL AND THE LIQUIDATOR?
The purchaser of the 15 properties is Prudential. However, the Prudential
Agreement permits the assignment of such agreement by Prudential to a joint
venture comprised of Prudential, Developers Diversified Realty Corporation
and/or Coventry Real Estate Partners, Ltd., which is an affiliate of Developers
Diversified Realty Corporation. It is currently anticipated that the right to
purchase one of the properties will be assigned to Developers Diversified Realty
Corporation or an affiliated entity to purchase on its own account. It is
currently anticipated that the right to purchase the remaining properties will
be assigned to the Retail Value Investment Program, which is a joint venture
among Developers Diversified Realty Corporation, Coventry Real Estate
Partners, Ltd. and Prudential Real Estate Investors, which is an affiliate of
Prudential.
28
<PAGE>
WHAT ARE THE KEY PROVISIONS OF THE GMS PURCHASE AND SALE AGREEMENT?
GENERAL TERMS
On September 19, 2000 an affiliate of the Company, BPP Golden State
Acquisitions, LLC, and GMS Realty, LLC entered into an agreement for purchase
and sale for the purchase of 19 properties for an aggregate purchase price of
$305,000,000, which includes the assumption of approximately $138,000,000 in
indebtedness. The properties are:
<TABLE>
<CAPTION>
PROPERTY CITY/STATE
-------- ---------------------------------
<S> <C>
580 Marketplace Castro Valley, CA
Arcade Square Sacramento, CA
Buena Vista Marketplace Duarte, CA
Centerwood Plaza Bellflower, CA
Creekside Shopping Center Vacaville, CA
Discovery Plaza Sacramento, CA
Fremont Gateway Plaza Fremont, CA
Hallmark Town Center Madera, CA
Menifee Town Center Menifee, CA
Prospector's Plaza Placerville, CA
Ralph's Center Redondo Beach, CA
San Marcos Lucky Plaza San Marcos, CA
Shasta Crossroads Redding, CA
Silver Creek Plaza San Jose, CA
Southampton Center Benecia, CA
Stony Pont Plaza Santa Rosa, CA
Summerhills Shopping Center Sacramento, CA
Sunset Center Suisun City, CA
Westminster Center Westminster, CA
</TABLE>
The purchase agreement provides that GMS will deposit $5,000,000 into escrow
on or before September 22, 2000 and an additional $5,000,000 upon the expiration
of its due diligence period on October 29, 2000.
DUE DILIGENCE PERIOD
GMS will be conducting its due diligence for a period of forty (40) days.
The scope of GMS's due diligence shall include the review of physical,
environmental, title, economic and legal conditions at the properties. GMS will
also be obtaining estoppels from tenants and parties to reciprocal easement
agreements at the properties.
REPRESENTATIONS AND WARRANTIES
The GMS purchase agreement contains customary representations and warranties
made by the Company's affiliate relating to:
- the organization, valid existence and good standing under the laws of the
state of California and similar corporate matters;
- the ability to consummate the transaction without and third party (except
as disclosed in the purchase agreement) or governmental consent;
- the absence of litigation that would prohibit the consummation of the
transaction;
- the absence of condemnation proceedings;
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<PAGE>
- the absence of litigation or threatened litigation that would materially
affect the properties;
- the absence of material violations of building and zoning codes;
- the absence of material contracts in excess of $5,000 per year and not
terminable upon 30 days notice;
- the absence of notices of the violation of environmental laws;
- the accuracy of rent rolls attached to the purchase agreement;
- the absence of any material default under the tenant leases at the
properties; and
- the absence of material misrepresentations regarding the matters disclosed
to GMS.
These representations are qualified to the current actual knowledge of the
Company's affiliate and those matters specifically disclosed to GMS in the
purchase agreement. The representations and warranties shall survive closing for
a period of one year.
GMS makes the following representations:
- the organization, valid existence and good standing under the laws of the
state of Delaware and similar corporate matters;
- the ability to consummate the transaction without further consent; and
- the absence of litigation that would prohibit the consummation of the
transaction.
CONDITIONS TO CONSUMMATION OF THE GMS TRANSACTION
The consummation of the sale of the properties is conditioned on the
following matters:
- the willingness of the title company to issue title insurance for the
properties;
- the review of due diligence materials;
- the performance of all material obligations under the purchase agreement;
- the lender's approval of the assumption of the indebtedness;
- the approval of the Company's board of directors and shareholders;
- the approval of any operating partnership unit holders; and
- the consent of any ground lessor.
This transaction shall close upon the satisfaction of all conditions, but in
no case earlier than November 27, 2000 and no later than January 10, 2001.
PRORATION OF INCOME AND EXPENSES
The following expenses shall be prorated as of closing:
- real estate taxes, personal property taxes and general and special
assessments relating to the properties;
- prepaid expenses; and
- leasing costs and rents due under the leases.
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<PAGE>
PAYMENT OF COSTS AND EXPENSES
GMS will be assuming $138,000,000 in indebtedness, a portion of which
includes any assumption fees in connection with the loan. The Company's
affiliate will be paying the balance of such assumption fees. The Company's
affiliate will be paying for the cost of title policies (excluding any
endorsements required by GMS) and all transfer taxes. Escrow fees will be
divided equally and all other closing costs will be paid on a property by
property basis pursuant to county custom.
TERMINATION RIGHTS AND FEES
If the purchase agreement is terminated as a result of the Company's failure
to obtain stockholder approval for the transaction and the Company consequently
terminates the purchase agreement, GMS will be paid the sum of $3,000,000 to
compensate GMS for its time, effort and expenses incurred with pursuing the
transaction. If the purchase agreement is terminated as a result of a breach on
behalf of the Company's affiliate, GMS may pursue an action for specific
performance or receive its out of pocket expenses in an amount not to exceed
$1,500,000.
ADDITIONAL AGREEMENTS
From the date of the agreement until the closing of the transaction, the
Company's affiliate agrees to conduct its business in the ordinary course and
maintain properties consistent with past practices and comply with laws. In
addition the Company's affiliate agrees to:
- not sell or dispose of personal property;
- not create liens or exceptions to title;
- maintain property insurance;
- maintain books, accounts and records consistent with past practices;
- comply with terms of all contracts and leases;
- not knowingly take any actions to violate the representations and
warranties;
- reasonably cooperate with GMS to obtain environmental insurance; and
- provide GMS of notice of any litigation.
After the due diligence expiration date, the Company's affiliate agrees not
to enter into or modify any contracts or leases without GMS's prior written
approval.
WHAT IS THE OPINION OF BURNHAM'S FINANCIAL ADVISOR AS TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE AGGREGATE CONSIDERATION TO BE RECEIVED IN
CONNECTION WITH THE SALE OF ASSETS TO PRUDENTIAL AND GMS?
FAIRNESS OPINIONS
The Board of Directors of the Company retained Houlihan Lokey Howard & Zukin
Financial Advisors, Inc. ("Houlihan Lokey") to render an opinion as to the
fairness, from a financial point of view, of the gross consideration of
approximately $356 million comprised of a combination of cash and the assumption
of indebtedness to be received by the Company from Prudential in connection with
Prudential's purchase of the 15 assets described below.
The Board of Directors of the Company also retained Houlihan Lokey to render
an opinion as to the fairness, from a financial point of view, of the
consideration of $167 million in cash and the assumption of $138 million in
liabilities to be received by the Company from GMS Realty, LLC ("GMS") in
connection with GMS's proposed purchase of the 19 assets described below and
referred
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to herein as the "GMS Portfolio." The GMS Sale together with the Prudential Sale
are referred to as the "Sales."
The Company retained Houlihan Lokey based upon Houlihan Lokey's experience
in the valuation of businesses and their securities in connection with
recapitalizations and similar transactions, especially with respect to REITs and
other real estate companies. Houlihan Lokey is a nationally recognized
investment banking firm that is continually engaged in providing financial
advisory services in connection with mergers and acquisitions, leveraged
buyouts, business valuations for a variety of regulatory and planning purposes,
recapitalizations, financial restructurings, and private placements of debt and
equity securities.
Houlihan Lokey delivered its two written opinions to the Board of Directors
of the Company (the "Houlihan Lokey Opinions"), (A) the first was delivered on
September 1, 2000 to the effect that, as of the date of such opinion, on the
basis of its analysis summarized below and subject to the limitations described
below, the consideration of approximately $356 million comprised of a
combination of cash and the assumption of indebtedness to be received by the
Company in connection with Prudential's acquisition of the Prudential Portfolio
is fair to the Company from a financial point of view and (B) the second was
delivered on September 8, 2000 to the effect that, as of the date of such
opinion, on the basis of its analysis summarized below and subject to the
limitations described below, the gross consideration of $305 million, consisting
of $167 million in cash and the assumption of $138 million in liabilities to be
received by the Company in connection with GMS's acquisition of the Golden State
Portfolio, is fair to the Company from a financial point of view. The Houlihan
Lokey Opinions do not address any other aspect of the Sales, the Plan, the sale
of any of the Company's other assets or any other matter discussed herein. The
Houlihan Lokey Opinions do not constitute a recommendation to any stockholder as
to how any such stockholder should vote on the Plan or any other matter.
Houlihan Lokey has no obligation to update the Houlihan Lokey Opinions.
THE FULL TEXT OF THE HOULIHAN LOKEY OPINIONS, WHICH SET FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT. THE SUMMARY OF THE HOULIHAN
LOKEY OPINIONS IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE HOULIHAN LOKEY OPINIONS, COPIES OF WHICH ARE ATTACHED TO
THIS PROXY STATEMENT AS APPENDIX B. YOU ARE URGED TO, AND SHOULD, READ THE
OPINIONS CAREFULLY AND IN THEIR ENTIRETY.
As compensation to Houlihan Lokey for its services in connection with the
Sales, the Company agreed to pay Houlihan Lokey an aggregate fee of between
$300,000 and $400,000. No portion of Houlihan Lokey's fee is contingent upon the
successful completion of any part of the Sales, or approval of the Plan. The
Company has also agreed to indemnify Houlihan Lokey and related persons against
certain liabilities, including liabilities under federal securities laws,
arising out of the engagement of Houlihan Lokey, and to reimburse Houlihan Lokey
for certain expenses.
The Houlihan Lokey Opinions do not address the Company's underlying business
decision to effect the Sales, the use of proceeds from the Sales, or the form,
timing, or amount of any consideration distributed to the Company's stockholders
as a result of the Sales. Further, the Houlihan Lokey Opinions do not address
the Company's underlying business decision to sell any or all of its assets, the
Plan or any other strategic alternatives, or the method by which it shall
distribute any consideration received as a result of any sales. Houlihan Lokey
did not, and was not requested by the Company or any other person to, solicit
third party indications of interest in acquiring the Prudential Portfolio, the
GMS Portfolio or all or any part of the Company or to make any recommendations
as to the form or amount of consideration to be received by the Company, the
stockholders of the Company, or any other person in connection with the
Prudential Sale or the GMS Sale, which consideration was determined through
negotiations among Prudential or GMS, as applicable, and the Company. Houlihan
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Lokey was not asked to opine on and did not express any opinion as to (1) tax or
legal consequences of the Prudential Sale, the GMS Sale or any part of either,
including but not limited to tax or legal consequences to the Company or the
stockholders of the Company; (2) the fairness, advisability or desirability of
alternatives to the Prudential Sale, the GMS Sale or any part of either;
(3) the fair market value of the Company or any of its assets; (4) the fairness
of any aspect of the Sales not expressly addressed in the Houlihan Lokey
Opinions; or (5) any other aspect of the Company's Plan of Liquidation,
including the payment of or establishing reserves with respect to the Company's
liabilities or the amount that will ultimately be distributed to the Company's
stockholders. Houlihan Lokey did not perform an independent appraisal of the
Prudential Portfolio, the Golden State Portfolio or any other assets of the
Company. Furthermore, Houlihan Lokey did not negotiate the Sales or any part of
either or advise the Company with respect to alternatives to either. Houlihan
Lokey's Opinion with respect to the Prudential Sale assumes gross consideration
to the Company of approximately $356 million and does not address the fairness
from a financial point of view of the Prudential Sale in the event that less
than all of the Prudential Properties are sold.
PRUDENTIAL SALE OPINION
In arriving at its opinion, Houlihan Lokey:
- held discussions with the Company's senior management and met with the
Company's asset management to discuss the Prudential Sale, the operations,
financial condition, future prospects and performance of the Prudential
Portfolio;
- reviewed company-prepared income statements for each of the assets
comprising the Prudential Portfolio (collectively the "Prudential
Properties" and individually, a "Prudential Property") for the three
fiscal years ended December 31, 1999, and the interim period ended
July 31, 2000, which the Company's management has identified as being the
most current financial statements available for each such asset;
- reviewed specific portions of the Confidential Information Memorandum
pertaining to the Prudential Portfolio and the Prudential Properties as
prepared by the investment banking firm of Goldman Sachs;
- reviewed the Letter of Interest pertaining to Prudential's acquisition of
the Prudential Portfolio as prepared by Prudential dated August 18, 2000;
- reviewed forecasts and projections prepared by the Company's management
with respect to the Prudential Properties for the years ending
December 31, 2000 through December 31, 2005;
- conducted site visits to certain of the Prudential Properties;
- reviewed publicly available information on certain transactions involving
properties that Houlihan Lokey deemed comparable to the Prudential
Properties;
- reviewed publicly available information on certain companies that Houlihan
Lokey deemed comparable to the Prudential Portfolio; and
- conducted such other analyses, studies and investigations as Houlihan
Lokey deemed appropriate.
VALUATION ANALYSES.
The following is a summary of the material financial analyses used by
Houlihan Lokey in connection with providing its opinion. This summary is
qualified in its entirety by reference to the full text of the Houlihan Lokey
Opinion relating to the Prudential Sale, which is attached to this Proxy
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Statement. The stockholders of the Company are urged to read the full text of
such Houlihan Lokey Opinion carefully and in its entirety.
In order to determine the fairness, from a financial point of view, to the
Company of the gross consideration to be received by the Company from Prudential
in connection with the Prudential Sale, Houlihan Lokey analyzed the value of
each of the Prudential Properties within the Prudential Portfolio as well as the
Prudential Portfolio on a consolidated basis.
Houlihan Lokey analyzed the value of the 15 properties that constitute the
Prudential Portfolio, including the Prudential Properties known as: Downtown
Pleasant Hill, Hilltop Plaza, San Diego Factory Outlet Center and K-Mart at San
Diego Factory Outlet Center, Plaza at Puente Hills, Valley Centeral, Richmond
Shopping Center, La Mancha Shopping Center, Cameron Park, Lake Arrowhead
Village, Olympiad Plaza, Mountaingate Plaza, Meridian Village, Puget Park,
Keizer Creekside, and Village East.
In order to determine the estimated enterprise value of the Prudential
Properties and Prudential Portfolio, Houlihan Lokey primarily used the following
methodologies: (1) a net asset value approach based on various capitalization
rates, (2) a discounted cash flow approach, (3) an implied property square foot
approach, and (4) an implied sale capitalization approach. The analyses required
studies of the overall market, economic and industry conditions in which the
Prudential Properties operate and the historical and projected operating results
of the each of the Prudential Properties.
PROPERTY DIRECT CAPITALIZATION APPROACHES. Houlihan Lokey derived an
indication of the range of enterprise value for each Prudential Property by:
(a) applying capitalization rates to the adjusted net operating income of each
Prudential Property as of December 31, 1999 (the "FYE Capitalization Rate
Approach"), and (b) applying capitalization rates to the projected adjusted net
operating income of each of the Prudential Properties for the fiscal years
ending December 31, 2000 and December 31, 2001 (collectively, the "Future NOI
Capitalization Rate Approach"). Houlihan Lokey utilized publicly available
information regarding capitalization rates exhibited in transactions involving
assets similar in type and location to each of the Prudential Properties.
By applying appropriate capitalization rates to the net operating income of
each of the Prudential Properties as discussed above, Houlihan Lokey calculated
an enterprise value indication for the Prudential Portfolio of approximately
$356 million.
PROPERTY DISCOUNTED CASH FLOW APPROACH. Houlihan Lokey utilized cash flow
projections prepared by the Company for each of the Prudential Properties
covering fiscal years 2000 through 2005. After calculating the net present value
of the cash flows of each of the Prudential Properties for the applicable
periods using discount rates of 10.5 percent to 15.0 percent, a terminal value
of each of the Prudential Properties was calculated based upon an exit
capitalization rate of 8.95 percent to 12.25 percent. Based on the projections
for each of the Prudential Properties provided by the Company and this analysis,
Houlihan Lokey calculated an enterprise value indication for the Prudential
Portfolio of approximately $359 million.
IMPLIED PROPERTY SQUARE FOOT APPROACH. Houlihan Lokey determined the
implied price per square foot for each Prudential Property based upon its
enterprise value indications for each Prudential Property derived in the
Property Direct Capitalization Approach and the Property Discounted Cash Flow
Approach. The resulting indications of price per square foot were then compared
to publicly available information on transactions involving properties that are
comparable to the Prudential Properties. Such transactions exhibited a range of
price per square foot that were consistent with the implied price per square
foot of Houlihan Lokey's Property Direct Capitalization Approach and Property
Discounted Cash Flow Approach. This analysis provides further support to the
valuation indications resulting from the Prudential Property Direct
Capitalization Approach and Prudential Property Discounted Cash Flow Approach.
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IMPLIED PRUDENTIAL SALE CAPITALIZATION RATE ANALYSIS. Based upon the
approximately $356 million of gross consideration to be paid in connection with
the Prudential Sale, Houlihan Lokey derived a range of implied capitalization
rates for the aggregate assets included in the Prudential Sale based upon:
(a) adjusted net operating income of the Prudential Portfolio as of
December 31, 1999 (the "Trailing NOI Capitalization Rate Analysis Approach") and
(b) estimated adjusted net operating income of the Prudential Portfolio for the
fiscal years ending December 31, 2000 and December 31, 2001 (the "Future NOI
Capitalization Rate Analysis Approach"), with such implied capitalization rates
range being 7.40 percent to 8.72 percent. These implied capitalization rates
were then compared to publicly available capitalization rates that were
exhibited in transactions involving assets similar in type and location to the
Prudential Properties.
FAIRNESS ANALYSES.
In order to determine the fairness, from a financial point of view, of the
gross consideration to be received by the Company from Prudential in connection
with the Prudential Sale, Houlihan Lokey first determined the Prudential
Portfolio's enterprise value based upon the range of selected enterprise values
as derived from the aforementioned FYE Capitalization Rate Approach, Future NOI
Capitalization Rate Approach, and the Property Discounted Cash Flow Approach and
concluded a range of value for the Prudential Portfolio of $352.4 million to
$363.7 million. This range reflects Houlihan Lokey's determination of the
appropriate enterprise value for each Prudential Property and the summation of
such values to determine the aggregate enterprise value of the Prudential
Portfolio. Houlihan Lokey compared the total gross consideration to be received
by the Company from Prudential in connection with the Prudential Sale with such
range, and noted that the gross consideration to be received by the Company for
the Prudential Portfolio falls within Houlihan Lokey's range of enterprise
values for the Prudential Portfolio. Further, Houlihan Lokey considered the
Implied Property Square Foot Approach and the Implied Portfolio Sale
Capitalization Rate Analysis and noted that the price per square foot and the
capitalization rates exhibited in the Prudential Sale are consistent with the
price per square foot exhibited in transactions involving properties similar to
the Prudential Properties and capitalization rates exhibited by public companies
similar to the Prudential Portfolio.
Based upon the foregoing analyses Houlihan Lokey concluded that the gross
consideration to be received by the Company from Prudential in connection with
the Prudential Sale is fair to the Company from a financial point of view.
GMS SALE OPINION
In arriving at its opinion, Houlihan Lokey:
- held discussions with the Company's senior management and met with the
Company's asset management to discuss the GMS Sale, the operations,
financial condition, future prospects and performance of the GMS Sale;
- reviewed company-prepared income statements for each of the assets
comprising the GMS Portfolio (collectively the "GMS Properties" and
individually, a "GMS Property") for the three fiscal years ended
December 31, 1999, and the interim period ended July 31, 2000, which the
Company's management has identified as being the most current financial
statements available for each such asset;
- reviewed specific portions of the Confidential Information Memorandum
pertaining to the GMS Portfolio and the GMS Properties as prepared by the
investment banking firm of Goldman Sachs;
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- reviewed the Letter of Interest pertaining to GMS's acquisition of the GMS
Portfolio as prepared by GMS dated August 23, 2000;
- reviewed forecasts and projections prepared by the Company's management
with respect to the GMS Properties for the years ending December 31, 2000
through December 31, 2005;
- conducted site visits to certain of the GMS Properties;
- reviewed publicly available information on certain transactions involving
properties that Houlihan Lokey deemed comparable to the GMS Properties;
- reviewed publicly available information on certain companies that Houlihan
Lokey deemed comparable to the GMS Portfolio; and
- conducted such other analyses, studies and investigations as Houlihan
Lokey deemed appropriate.
VALUATION ANALYSES.
The following is a summary of the material financial analyses used by
Houlihan Lokey in connection with providing its opinion. This summary is
qualified in its entirety by reference to the full text of the Houlihan Lokey
Opinion relating to the GMS Sale, which is attached to this Proxy Statement. The
stockholders of the Company are urged to read the full text of such Houlihan
Lokey Opinion carefully and in its entirety.
In order to determine the fairness, from a financial point of view, to the
Company of the gross consideration to be received by the Company from GMS in
connection with the GMS Sale, Houlihan Lokey analyzed the value of each of the
GMS Properties as well as the GMS Portfolio on a consolidated basis.
Houlihan Lokey analyzed the value of the 19 properties that constitute the
GMS Portfolio, including the GMS Properties known as 580 Marketplace, Arcade
Square, Buena Vista Marketplace, Centerwood Plaza, Creekside Shopping Center,
Discovery Plaza, Fremont Gateway Plaza, Hallmark Town Center, Menifee Town
Center, Prospector's Plaza, Ralph's Center, San Marcos Lucky Plaza, Shasta
Crossroads, Silver Creek Plaza, Southampton Center, Stony Point Plaza,
Summerhills Shopping Center, Sunset Center, and Westminster Center.
In order to determine the estimated enterprise value of the GMS Properties
and the GMS Portfolio, Houlihan Lokey primarily used the following
methodologies: (1) a net asset value approach based on various capitalization
rates, (2) a discounted cash flow approach, (3) an implied property square foot
approach, and (4) an implied sale capitalization approach. The analyses required
studies of the overall market, economic and industry conditions in which the GMS
Properties operate and the historical and projected operating results of the
each of the GMS Properties.
PROPERTY DIRECT CAPITALIZATION APPROACHES. Houlihan Lokey derived an
indication of the range of enterprise value for each of the GMS Properties by:
(a) applying capitalization rates to the adjusted net operating income of each
of the GMS Properties as of December 31, 1999 (the "FYE Capitalization Rate
Approach"), and (b) applying capitalization rates to the projected adjusted net
operating income of each of the GMS Properties for the fiscal years ending
December 31, 2000 and December 31, 2001 (collectively, the "Future NOI
Capitalization Rate Approach"). Houlihan Lokey utilized publicly available
information regarding capitalization rates exhibited in transactions involving
assets similar in type and location to each of the GMS Properties.
By applying appropriate capitalization rates to the net operating income of
each of the GMS Properties, as discussed above, Houlihan Lokey calculated an
enterprise value indication for the GMS Portfolio of approximately
$291.5 million.
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PROPERTY DISCOUNTED CASH FLOW APPROACH. Houlihan Lokey utilized cash flow
projections prepared by the Company for each of the GMS Properties covering
fiscal years 2000 through 2005. After calculating the net present value of the
cash flows of each of the GMS Properties for the applicable periods using
discount rates of 11.5 percent to 12.5 percent, a terminal value of each of the
GMS Properties was calculated based upon an exit capitalization rate of
9.05 percent to 10.55 percent. Based on the projections for each of the GMS
Properties provided by the Company and this analysis, Houlihan Lokey calculated
an enterprise value indication for the GMS Portfolio of approximately
$302.9 million.
IMPLIED PROPERTY SQUARE FOOT APPROACH. Houlihan Lokey determined the
implied price per square foot for each GMS Property based upon its enterprise
value indications for each GMS Property derived in the Property Direct
Capitalization Approach and the Property Discounted Cash Flow Approach. The
resulting indications of price per square foot were then compared to publicly
available information on transaction involving properties that are comparable to
the GMS Properties. Such transactions exhibited a range of price per square foot
that were consistent with the implied price per square foot of Houlihan Lokey's
Property Direct Capitalization Approach and Property Discounted Cash Flow
Approach. This analysis provides further support to the valuation indications
resulting from the Property Direct Capitalization Approach and Property
Discounted Cash Flow Approach.
IMPLIED GMS SALE CAPITALIZATION RATE ANALYSIS. Based upon the $305 million
of gross consideration to be paid in connection with the GMS Sale, Houlihan
Lokey derived a range of implied capitalization rates for the aggregate assets
included in the GMS Sale based upon: (a) adjusted net operating income of the
GMS Portfolio as of December 31, 1999 (the "Trailing NOI Capitalization Rate
Analysis Approach") and (b) estimated adjusted net operating income of the GMS
Portfolio for the fiscal years ending December 31, 2000 and December 31, 2001
(the "Future NOI Capitalization Rate Analysis Approach"), with such implied
capitalization rates range being 8.76 percent to 9.35 percent. These implied
capitalization rates were then compared to publicly available capitalization
rates that were exhibited in transactions involving assets similar in type and
location to the GMS Portfolio.
FAIRNESS ANALYSES.
In order to determine the fairness, from a financial point of view, of the
gross consideration to be received by the Company from GMS in connection with
the GMS Sale, Houlihan Lokey first determined the GMS Portfolio's enterprise
value based upon the range of selected enterprise values as derived from the
aforementioned FYE Capitalization Rate Approach, Future NOI Capitalization Rate
Approach and the Property Discounted Cash Flow Approach, and concluded at a
ranged of value for the GMS Portfolio of $289.4 million to $305.1 million. This
range reflects Houlihan Lokey's determination of the appropriate enterprise
value for each GMS Property and the summation of such values to determine the
aggregate enterprise value of the GMS portfolio. Houlihan Lokey compared the
total gross consideration to be received by the Company from GMS in connection
with the GMS Sale with such range, and noted that the gross consideration to be
received by the Company for the GMS Portfolio falls within Houlihan Lokey's
range of enterprise values for the GMS Portfolio. Further, Houlihan Lokey
considered the Implied Property Square Foot Approach and the Implied Portfolio
Sale Capitalization Rate Analysis and noted that the price per square foot and
the capitalization rates exhibited in the GMS Sale are consistent with the price
per square foot exhibited in transactions involving properties similar to the
GMS Properties and capitalization rates exhibited by public companies similar to
the GMS Portfolio.
Based upon the foregoing analyses Houlihan Lokey concluded that the gross
consideration to be received by the Company from GMS in connection with the GMS
Sale is fair to the Company from a financial point of view.
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GENERAL
In arriving at its fairness opinions, Houlihan Lokey reviewed key economic
and market indicators, including, but not limited to, growth in Gross Domestic
Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Each of Houlihan Lokey's opinions are based on the business,
economic, market and other conditions as they existed as of the date of the
respective opinion and on the projected financial information provided to
Houlihan Lokey as of such date. In rendering its opinion, Houlihan Lokey has
relied upon and assumed, without independent verification, that the historical
and projected financial information provided to Houlihan Lokey was reasonably
and accurately prepared based upon the best current available estimates of the
financial results and condition of the Company, the Prudential Portfolio, the
GMS Portfolio and the properties included in either Portfolio and that no
material changes have occurred in the information reviewed between the date the
information was provided and the date of the Houlihan Lokey Opinions. Houlihan
Lokey did not independently verify the accuracy or completeness of the
information supplied to it with respect to the Company, the Prudential
Portfolio, the GMS Portfolio and the properties included in either Portfolio and
does not assume responsibility for it. Houlihan Lokey did not make any
independent appraisal of the specific properties or assets of the Company.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinions. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinions, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
view of the processes underlying the analyses set forth in Houlihan Lokey's
fairness opinions. In its analysis, Houlihan Lokey made numerous assumptions
with respect to the Company, the Prudential Portfolio, the GMS Portfolio, the
properties included in the Portfolios, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of the respective entities. The estimates contained in such
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be more or less favorable than suggested by such
analyses. However, there were no specific factors reviewed by Houlihan Lokey
that did not support its opinions. Additionally, analyses relating to the value
of businesses or securities are not appraisals. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
WHICH STOCKHOLDERS HAVE ALREADY AGREED TO VOTE IN FAVOR OF THE PLAN?
On August 31, 2000, Burnham and the Operating Partnership entered into an
agreement with the Preferred Stockholders pursuant to which, among other things,
the Preferred Stockholders agreed, subject to certain limitations, to vote all
their voting securities in favor of the Plan and the Company's nominees for
election to the Board of Directors, both when voting as a separate class and
when voting with the Common Stockholders on an as-converted basis at the Annual
Meeting. The Preferred Stockholders beneficially own, in the aggregate, shares
of Preferred Stock which, on an as converted basis, represent 18.12 percent of
the outstanding Common Stock.
On September 11, 2000, Burnham and the Operating Partnership entered into an
agreement with the SA Group pursuant to which, among other things, the SA Group
agreed to support and vote all of its shares of stock of Burnham in favor of the
Plan of Liquidation, and the election of all directors nominated by the Board of
Directors for election at any and all annual or special meetings of
stockholders. The SA Group beneficially owns, in the aggregate, shares
constituting approximately
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9.78 percent of the outstanding common stock of Burnham and approximately 8.01%
of the votes eligible to be cast at the Annual Meeting.
The Directors (other than Mr. Schottenstein and Mr. Ashner) and Executive
Officers of Burnham and their affiliates hold approximately 592,389 shares of
Common Stock eligible to vote at the Annual Meeting, or approximately 1.50% of
the votes eligible to be cast at the Annual Meeting, and have already agreed to
vote all of their shares of Preferred Stock or Common Stock, as the case may be,
for the Plan of Liquidation and for the Company's nominees for election to the
Board of Directors.
WHAT ARE THE KEY PROVISIONS OF THE EXCHANGE AGREEMENT WITH THE PREFERRED
STOCKHOLDERS?
Immediately prior to entering into the Exchange Agreement, the Preferred
Stockholders issued a notice of redemption to the Operating Partnership electing
their right to redeem all of their respective Series 1997-A Preferred Units
pursuant to Exhibit C to the First Amendment to the Agreement of Limited
Partnership of the Operating Partnership, as amended, for either cash in an
amount equal to the Liquidation Preference or, in the event that the Company
chose to assume the obligations of the Operating Partnership to satisfy the
redemption right, an equal number of shares of Old Preferred Stock. The Company
chose to assume the obligations of the Operating Partnership and issued to
Blackacre 1,599,900 shares of Old Preferred Stock in exchange for their
1,599,000 preferred Operating Partnership units and issued to Westbrook 10
shares of Old Preferred Stock in exchange for their 10 preferred Operating
Partnership units. As a result of the redemption, the Preferred Stockholders no
longer own any Series 1997-A Preferred Units. The remaining holders of
Series 1997-A Preferred Units own in the aggregate 400,000 Series 1997-A
Preferred Units. After their respective redemptions, Blackacre owns 1,600,000
shares of Preferred Stock and Westbrook owns 2,800,000 shares of Preferred
Stock. Concurrently with the signing of the Exchange Agreement, the Charter of
the Company was amended by the filing of Articles Supplementary which
established the rights of the Preferred Stock, followed by the Company's
cancellation of the shares of Old Preferred Stock tendered to the Company in the
exchange for Preferred Stock.
Burnham's agreement with its Preferred Stockholders is governed by the
Exchange Agreement and Articles Supplementary to Burnham's Charter. Under the
terms of the Exchange Agreement, the Company agreed, among other things, to do
the following:
- to nominate for election to the Board of Directors at the Annual Meeting
the nominees named in this Proxy Statement and recommend that the
stockholders approve such nominees;
- to propose the Plan and to recommend that the Plan be approved by the
stockholders at the Annual Meeting, subject to the right of the Board of
Directors to withhold or withdraw such recommendation if the Board
determines in good faith that its duties under Maryland law require it to
not propose and recommend the Plan because the Company has received a
Superior Proposal and has delivered notice of such proposal to the
Preferred Stockholders;
- after the date on which there are no longer any shares of Preferred Stock
outstanding, to amend its Bylaws to increase the number of Directors
elected by the Common Stock by one, to appoint Allen Curtis Greer II to
hold the Board seat created thereby; and to nominate Mr. Greer for
election to the Board of Directors at any subsequent meeting of the
Company's stockholders at which an election of Directors would be held;
- in the event that the Board of Directors delegates the authority to make
decisions or to take actions with respect to the liquidation of the
Company's assets to a committee or sub-committee of the Board, then the
number of Directors on such committee who are nominees of the SA Group
will not be proportionately greater than the number of members of the
Board nominated by the SA Group is to the entire Board;
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- to amend its Shareholder Rights Agreement to permit each of Westbrook,
Blackacre and Morgan Stanley, Dean Witter & Co., and its affiliates to
beneficially own 19.9% of the outstanding shares of Common Stock without
triggering any adverse consequences to such party under the Shareholder
Rights Agreement; and
- to take such action as is necessary to permit such increased ownership
under its Charter, subject to Burnham's continued qualification as a REIT
under the Internal Revenue Code of 1986, as amended.
Pursuant to the Exchange Agreement, the Company agreed to take certain
actions in connection with the implementation of the Plan including, without
limitation:
- on or prior to November 1, 2000, to close the sale of the Anacomp Building
and Design Market, two of the Company's properties, and to apply the net
proceeds of such sales to reduce certain indebtedness of the Company under
its credit facility with GECC;
- promptly following approval of the Plan by the stockholders, to consummate
the Prudential Sale in consideration of approximately $356 million;
- promptly following approval of the Plan by the stockholders, to consummate
the GMS Sale in consideration of approximately $305 million;
- to distribute net proceeds from all asset sales in the liquidation to the
Preferred Stockholders, within thirty days of receipt by the Company to be
applied against their Change of Control Preference or Liquidation
Preference, subject to the prior payment of liabilities and setting aside
of reserves as described in the Plan of Liquidation;
- to distribute the net proceeds of the Prudential Sale and the GMS Sale in
the manner contemplated by the Exchange Agreement;
- to terminate all employees as of a specified date, other than certain
management employees, to pay certain severance benefits to terminated
employees and to cap the salaries payable to the retained employees at
specified amounts;
- as of the date on which the Company obtains stockholder approval of the
Plan, to implement the terms of the Liquidation Services Agreement with
DDRRES acceptable to Westbrook and Blackacre and in a form reasonably
agreed upon by the Company, Westbrook and Blackacre;
- to consult with the Preferred Stockholders with respect to retaining
legal, financial, strategic or other professional advisors and with
respect to any distributions of information or materials (including proxy
materials) to the stockholders or the SEC regarding the Plan of
Liquidation, the nominees for election to the Board of Directors or the
Annual Meeting;
- at any time when a Preferred Stockholder has not nominated and elected a
member of the Board of Directors, to allow such Preferred Stockholder to
have a representative observe all portions of all meetings of the Board of
Directors, except to the extent that arrangements with that Preferred
Stockholder are being discussed or when the Board of Directors is
discussing threatened, pending or ongoing litigation and the presence of
the Preferred Stockholder's observer would eliminate the attorney-client
privilege between the Company and its counsel;
- to provide director's liability insurance and indemnification for each
director elected directly by the Preferred Stockholders, to the same
extent that such insurance and indemnification is made available to other
members of the Board of Directors. However, in the event that the Company
reduces insurance or indemnification for only certain members of the
Board, it cannot similarly reduce insurance or indemnification with
respect to the members elected by the Preferred Stockholders;
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- to use reasonable efforts to negotiate decreases in the severance
compensation of its senior executives, subject to the approval of the
Preferred Stockholders;
- as soon as reasonably practicable, but not later than December 31, 2000,
to close all of the Company's offices except its San Diego office and
either the San Francisco office or Los Angeles office in a manner
reasonably anticipated to minimize the costs of such closings, and to
reduce the size of the San Diego office; and
- to operate the Company's remaining properties in the normal course of
business during a 12-18 month liquidation period.
Under the Exchange Agreement, the Company also agreed to refrain from taking
certain actions including, without limitation, the following:
- modifying the Plan of Liquidation without the consent of the Preferred
Stockholders except for a modification to the Plan due to the failure to
consummate the Prudential Sale or the GMS Sale.
- making any distributions to or paying any dividend to holders of shares of
Common Stock without the consent of the Preferred Stockholders, except for
regular quarterly dividends or distributions. The Company may only make
regular quarterly dividends or distributions paid solely out of Operating
Cash, in an amount not exceeding the average quarterly dividend or
distribution paid to the holders of shares of Common Stock over the last
four fiscal quarters and after payment of all accrued dividends owing to
the Preferred Stockholders as of the date of such quarterly dividend.
However, as of April 1, 2001, if the Plan of Liquidation is approved, a
Preferred Stockholder may deliver an election of a Change of Control
Preference, which, if valid, may have the effect of preventing the Company
from making dividends or distributions to Common Stockholders until such
preference is paid in full;
- amending its Bylaws to increase the maximum number of directors on the
Board without the prior written consent of the Preferred Stockholders;
- amending the severance agreement with J. David Martin, its former Chief
Executive Officer, without the written consent of the Preferred
Stockholders; and
- amending its existing debt agreements in any manner that would reduce the
net proceeds available for distribution to the Preferred Stockholders,
except that the Company may modify its existing credit facility with GECC
subject to certain limitations and may refinance its existing mortgage
debt so long as the outstanding principal amount or release price are not
increased or the Preferred Stockholders are not otherwise materially
adversely affected.
In consideration of the foregoing provisions, the Preferred Stockholders
have agreed to, among other things, to consent to the proposal of the Plan and
the proposal of the nominees for election to the Board of Directors set forth in
this proxy statement; subject to certain conditions, to vote all voting
securities held by the Preferred Stockholders in favor of the Plan and such
nominees, both when voting as a separate class and when voting with the common
stockholders on an as-converted basis; and to vote all such securities against
any other plan of liquidation.
The Preferred Stockholders also agreed to refrain from taking certain
actions including, but not limited to, the following:
- reinstating any election of a Change of Control Preference currently
suspended unless the Plan and the nominees for election to the Board of
Directors set forth in this proxy statement are not approved at the Annual
Meeting or the Annual Meeting does not occur on or prior to December 15,
2000;
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- delivering any election of a Change of Control Preference prior to
December 15, 2000, unless the Plan or the nominees for election to the
Board of Directors are not approved at the Annual Meeting, the Annual
Meeting does not occur on or prior to December 15, 2000, the Company
delivers notice of a Superior Proposal to the Plan to the Preferred
Stockholders and the Board of Directors supports such a Superior Proposal
or such proposal is not rejected by the Board within five business days of
receipt, or the Company modifies the Plan without the consent of the
Preferred Stockholders;
- if the Plan and the nominees are approved at the Annual Meeting,
delivering an election of a Change of Control Preference prior to
April 1, 2001 with respect to the Plan or any event consistent with or
pursuant to the Plan;
- selling or otherwise assigning any of their shares of Preferred Stock
until the day following the record date established for determining
stockholders of the Company entitled to receive notice of and to vote at
the Annual Meeting; and
- restricting or limiting their right and ability to vote their shares of
Preferred Stock in favor of the Plan and the nominees.
In the event that the Company otherwise modifies the Plan or fails to carry
out the Plan as agreed by the Company and the Preferred Stockholders, except as
would not materially change the Plan or the implementation of the Plan, taken as
a whole, without the consent of the Preferred Stockholders, the Preferred
Stockholders are entitled to cause the Company to redeem their shares of
Preferred Stock for the amount of the Change of Control Preference less any
amounts already distributed to the Preferred Stockholders with respect to the
Change of Control Preference or Liquidation Preference.
In addition to the aforementioned agreements made by the Company and the
Preferred Stockholders under the Exchange Agreement, each of the parties also
provided customary representations and warranties.
ARTICLES SUPPLEMENTARY
The Articles Supplementary include the following significant terms:
- until there are no longer any shares of Preferred Stock outstanding, the
Preferred Stockholders, voting separately as a class, have the right to
elect two individuals who will serve as directors on the Company's Board
of Directors. Common Stockholders do not have a right to vote with respect
to such directors. As of the date hereof, the Preferred Stockholders have
not exercised their right to elect two directors; however, the Preferred
Stockholders have informed the Company that they intend to nominate
[Preferred Stockholder nominee 1] and [Preferred Stockholder nominee 2]
with respect to their election right;
- no action of any committee or any other group acting on behalf of the
Board of Directors shall be effective unless at least one director elected
by the Preferred Stockholders is a member of that committee or group;
- upon a sale of all or substantially all of the assets of the Company or a
voluntary liquidation, dissolution or winding-up of the Company, the
Preferred Stockholders are entitled to receive, out of the assets of the
Company available for distribution, a Change of Control Preference or
Liquidation Preference prior to any distribution to holders of shares of
Common Stock;
- if, among other things, Burnham's stockholders do not approve the Plan of
Liquidation and the nominees for election to the Board of Directors at the
Annual Meeting or if the Board of Directors has delivered notice of a
Superior Proposal to the Plan to the Preferred Stockholders, the Preferred
Stockholders are entitled to receive a Change of Control Preference or
Liquidation Preference;
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- at any time on or after September 30, 2001, the Preferred Stock may be
redeemed, at the option of the Preferred Stockholders, for consideration
in an amount equal to the Change of Control Preference, less any payments
already made with respect to the Change of Control Preference or the
Liquidation Preference;
- the Preferred Stock may be redeemed, at the option of the Preferred
Stockholders, for consideration in an amount equal to the Change of
Control Preference if the Company makes a distribution or dividend to
common stockholders without obtaining the prior written consent of the
Preferred Stockholders that when aggregated with all other such
distributions or dividends and proceeds from asset dispositions that are
not distributed in accordance with the Exchange Agreement equals or
exceeds $1,500,000; provided that the Company may make regular quarterly
dividends which are in an amount not in excess of the average quarterly
dividend paid by the Company over the last four fiscal quarters and which
are paid solely out of Operating Cash. However, as of April 1, 2001, if
the Plan of Liquidation is approved, a Preferred Stockholder may deliver
an election of a Change of Control Preference, which, if valid, may have
the effect of preventing the Company from making dividends or
distributions to Common Stockholders until such preference is paid in
full;
- in the event that, at a time when the Preferred Stockholders have the
right to redeem their shares of Preferred Stock, the Company fails to
redeem the shares of Preferred Stock, the Board of Directors shall be
immediately increased in size by a number equal to the current number of
directors minus three and the Preferred Stockholders have the right to
immediately elect directors to fill each of the newly created seats and,
voting as a separate class, to elect directors to fill such seats on the
Board until no shares of Preferred Stock remain outstanding;
- the Company has the right, at any time, to redeem all of the shares of
Preferred Stock for the value of the Change of Control Preference less any
payments already made with respect to the Change of Control Preference or
the Liquidation Preference by delivering a notice of redemption to each
holder of shares of Preferred Stock; and
- payment by the Company of the Change of Control Preference or Liquidation
Preference shall constitute payment in redemption of the Preferred Stock.
RELATED AGREEMENTS
In connection with the execution of the Exchange Agreement, the Company, the
Operating Partnership, the Preferred Stockholders, and/or affiliates of such
entities, have entered into ancillary agreements, each as of the date of the
Exchange Agreement, including Management Participation Agreements whereby
affiliates of Westbrook have certain rights to participate in the management of
the Company by appointing a representative who shall be entitled to receive at
least one planning draft of each periodic budget and operating plan prepared by
the Company's management prior to the proposal of such budget and plan to the
Board, and to receive prior notice of major asset dispositions and acquisitions,
mergers, and refinancings or restructuring of the Company's debt, which
management intends to bring before the Board of Directors.
The Operating Partnership, the Company, the Preferred Stockholders and the
holders of preferred Operating Partnership units also agreed to an amendment to
the Operating Partnership Agreement which, among other things, amends and
restates the terms of the preferred Operating Partnership units such that said
terms are substantially similar to the terms of the Articles Supplementary
relating to the Preferred Stock as described above with the exception of certain
voting rights, which the holders of preferred Operating Partnership units do not
possess.
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The Company has amended its Shareholder Rights Plan to permit each of
Westbrook, Blackacre, the SA Group and Morgan Stanley, Dean Witter & Co., and
its affiliates to beneficially own 19.9% of the outstanding shares of Common
Stock without triggering any adverse consequences to such party under the
Shareholder Rights Plan. Further, the Company will take such action as is
necessary to permit such increased ownership under its Charter; provided that
purchases of shares of Common Stock would not be permitted if it would cause the
Company to fail to qualify as a REIT under the Internal Revenue Code of 1986, as
amended. In addition, the Shareholder Rights Plan was amended to state that
notwithstanding the formation or existence of a group, Blackacre shall not be
deemed to beneficially own the securities of Westbrook and Westbrook shall not
be deemed to beneficially own the securities owned by Blackacre. The full text
of the Shareholder Rights Plan is attached as Exhibit 4.1 to the Company's
Form 8-A filed with the SEC on June 23, 1999 and the full text of the amendment
is contained in .
WHY DID BURNHAM ENTER INTO THE EXCHANGE AGREEMENT?
Burnham entered into the Exchange Agreement with the Preferred Stockholders
for the following reasons:
- To obtain the Preferred Stockholders' approval of the Plan. In addition to
the affirmative vote of holders of at least a majority of the outstanding
shares of Burnham's Common Stock and Preferred Stock, voting together as a
single class on an as-converted basis, we also need the approval of at
least a majority of the outstanding shares of Preferred Stock, voting as a
separate class, in order to approve the Plan. The Exchange Agreement
provided the Company the opportunity to secure the approval of the
Preferred Stockholders as a separate class. The Preferred Stockholders
have agreed, subject to certain limitations, to approve the Plan of
Liquidation, both when voting as a separate class and when voting with the
Common Stockholders on an as-converted basis at the Annual Meeting.
- To settle with the Preferred Stockholders the issue regarding the payment
of dividends during the pendency of the Plan. The Preferred Stockholders
had separately notified the Operating Partnership and Burnham that they
were electing to exercise the Change of Control Preference under the terms
of the Old Preferred Stock and the preferred Operating Partnership units.
If valid, the election of the Change of Control Preference would have had
the effect of prohibiting Burnham from making distributions to holders of
Common Stock until the Preferred Stock had been redeemed.
- To avoid the possibility that the Preferred Stockholders would initiate a
proxy contest, which Burnham believes would have resulted in significant
expense to the Company and its stockholders.
WHAT ARE THE KEY PROVISIONS OF THE AGREEMENT WITH THE SA GROUP?
The SA Group agreed to:
- vote its shares in favor of the Plan and the slate of nominees for
director; and
- dismiss with prejudice its pending litigation against Burnham.
The SA Group agreed not to:
- acquire ownership of any of the assets, businesses, securities or debt
obligations of Burnham or its subsidiaries, except as otherwise permitted
by the agreement;
- commence or support any stockholder proposal not supported by Burnham's
Board of Directors or make or in any way participate in any solicitation
of proxies to vote or seek to advise or influence in any manner whatsoever
any person with respect to the voting of any securities of Burnham or any
of its subsidiaries;
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- otherwise act to seek to propose to Burnham or any of its subsidiaries or
their respective equity holders any merger, tender or exchange offer,
business combination, restructuring, recapitalization or similar
transaction to or with Burnham or otherwise act to seek to control, change
or influence the management, the Board of Directors or policies of Burnham
or any of its subsidiaries, or nominate any person as a director of
Burnham who is not nominated by the then incumbent directors, or propose
any matter to be voted upon by the stockholders of Burnham or the equity
holders of any of its subsidiaries.
- solicit, negotiate with, or provide any information to, any person with
respect to a merger with, tender or exchange offer for, or liquidation of
Burnham or any of its subsidiaries or any acquisition of Burnham or any of
its subsidiaries, or any similar transaction;
- announce an intention to, or enter into any discussion, negotiations,
arrangements or understandings with any third party with respect to, any
of the foregoing;
- disclose any intention, plan or arrangement inconsistent with the
foregoing;
- advise, assist or encourage any other person in connection with any of the
foregoing; and
- enter into any agreement with respect to the foregoing or ask for a waiver
of any such provisions.
Burnham agreed to:
- limit the size of its Board of Directors to not more than eleven members;
- permit the members of the SA Group to bid for any properties that are then
being offered for sale by the Company;
- amend the Shareholder Rights Plan and, subject to certain limitations,
grant waivers of the ownership limitations contained in its charter, in
order to permit the members of the SA Group to own, in the aggregate, up
to 19.9% of the outstanding shares of Common Stock;
- pay $1 million and, when and if the Preferred Stock is redeemed, an
additional $1.5 million to the SA Group;
- appoint Mr. Schottenstein and Mr. Ashner to the Board of Directors and
cause Mr. Schottenstein to be elected Co-Chairman of the Board of
Directors; and
- nominate for election as directors and use all reasonable best efforts to
cause to be elected or appointed as directors Jay L. Schottenstein and
Michael L. Ashner, or such other nominees as the SA Group may designate
who are reasonably acceptable to a majority of the Board of Directors.
In addition, the parties each granted to the other a release of all claims
it had or has against the other.
WHY DID BURNHAM ENTER INTO THE AGREEMENT WITH THE SA GROUP?
Burnham entered into the agreement with the SA Group for the following
reasons:
- to obtain the dismissal, with prejudice, of legal proceedings instituted
by members of the SA Group against Burnham and certain of its directors,
which could have resulted in significant expense to Burnham and its
stockholders;
- to obtain the general release of any claims that parties in the SA Group
have now or may have against Burnham; and
- to avoid the proxy contest threatened by the SA Group, which Burnham
believes would have resulted in significant expense to Burnham and its
stockholders.
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WHAT OTHER MATTERS DOES THE COMPANY BELIEVE ARE RELEVANT TO MY VOTE?
NO ASSURANCES OF DISTRIBUTIONS
There can be no assurances that the Company will be successful in disposing
of properties for values equaling or exceeding those currently estimated by the
Company or that such dispositions will occur as early as intended by the
Directors. If values of the Company's assets decline or the costs and expenses
related to such sales and to the liquidation process exceed those which are
currently estimated by the Company, the liquidation may not yield distributions
as great as or greater than the recent market prices of the shares of Common
Stock. No assurances can be made as to the actual amount and timing of
distributions which could be made over a substantial period of time.
NO ASSURANCES AS TO SALE OF JOINTLY HELD PROPERTIES
The Company currently jointly owns certain properties. Because of the nature
of joint ownership, the Company and its co-owners may need to agree on the terms
of each property sale before such sale can be effected. There can be no
assurance that the Company and its co-owners will agree on satisfactory sales
terms for any of the properties. If the parties are unable to agree, the matter
could ultimately go before a court of law, and a judicial partition could be
sought.
SALES OF ASSETS NOT SUBJECT TO FURTHER STOCKHOLDER OR UNITHOLDER APPROVAL
If the stockholders and unitholders approve the Plan, the Directors will
have the authority to sell any and all of the Company's assets on such terms as
the Board determines appropriate. Notably, the stockholders and unitholders will
have no subsequent opportunity to vote on such matters and will, therefore, have
no right to approve or disapprove the terms of such sales.
QUALIFICATION AS A REIT
Management's estimate of the liquidation price per share set forth above
assumes that the Company will continue to qualify as a REIT under the Code
during the entire liquidation process and, therefore, no provision has been made
for federal income taxes. Although the Company expects to maintain such REIT
qualification, there can be no assurance thereof. Should we lose our REIT
status, we would be taxable as a corporation for Federal income tax purposes and
would be liable for Federal income taxes at the corporate rate with respect to
our entire income from operations and from liquidating sales and distribution of
our assets for the taxable year in which our qualifications as a REIT terminates
and in any subsequent years.
NO ASSURANCES AS TO SALES PRICE OF ASSETS
Management cannot give any assurances as to the price at which any of its
properties ultimately will be sold. Real estate market values are constantly
changing and fluctuate with changes in interest rates, the availability of
suitable buyers, the perceived quality and dependability of income flows from
tenancies and a number of other factors, both local and national. In addition,
environmental contamination or unknown liabilities, if any, at the Company's
properties may adversely impact the sales price of those assets.
TAX PROTECTED ASSETS
Thirteen of the Company's assets, including five to be sold to Prudential,
are subject to agreements between the Company and the party that contributed
such property to encumber the property with not less than a specified amount of
indebtedness or not to sell the property (or otherwise provide the contributor
with an agreed upon amount of debt which is allocated to them for tax purposes).
The Company's breach of such an agreement may result in adverse tax consequences
to the contributors of the property. The Company estimates that its potential
liability to reimburse such contributors for taxes
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paid by such contributors upon the sale of such property may be between
$2.3 million and $5.6 million. The Company believes that it can structure sales
of some or all of these properties so that the adverse tax consequences to the
contributors are avoided; however, such structuring arrangements generally are
subject to the consent of the particular contributor. If the Company is not
successful in so structuring all or some of these sales to avoid adverse tax
consequences to the contributor, the Company will endeavor to resolve any damage
claim the contributor has against the Company. In its calculations of estimated
liquidation proceeds, the Company has created a reserve for this potential
liability which is significantly less than its maximum potential liability.
There can be no assurance that this reserve amount will be adequate.
APPROVAL BY LIMITED PARTNERS IN BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.
Substantially all of the Company's assets are held by Burnham Pacific
Operating Partnership, L.P., a Delaware limited partnership ("BPOP"), of which
the Company is the general partner. Pursuant to BPOP's Agreement of Limited
Partnership, as amended (the "Operating Partnership Agreement"), BPOP may not
sell all or substantially all of its assets without the consent of partners,
including holders of Preferred Units voting on an as-converted basis with Common
Units, holding at least a majority of the partnership units in BPOP. The Company
holds 32,324,046 a majority of the issued and outstanding partnership units in
BPOP and intends to execute a written consent to the Plan of Liquidation.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION?
The following discussion summarizes certain material U.S. federal income tax
considerations that may be relevant to you as a result of the liquidation and
dissolution of the Company. This discussion is based upon interpretations of the
Internal Revenue Code of 1986, as amended, Treasury regulations promulgated
under the Code, judicial decisions, and administrative rulings as of the date of
this proxy statement, all of which are subject to change or differing
interpretations, including changes and interpretations with retroactive effect.
The discussion below does not address all U.S. federal income tax consequences
or any state, local or foreign tax consequences of the Company's liquidation.
Your tax treatment may vary depending upon your particular situation. Also,
stockholders subject to special treatment, including dealers in securities or
foreign currency, tax-exempt entities, non-U.S. stockholders, banks, thrifts,
insurance companies, persons that hold our capital stock as part of a
"straddle", a "hedge", a "constructive sale" transaction or a "conversion
transaction", persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities, may be subject to special rules
not discussed below. This discussion also does not address the U.S. federal
income tax consequences of the liquidation and dissolution of the Company to
holders of our capital stock that do not hold that stock as a capital asset. A
U.S. stockholder is a U.S. citizen or resident as defined within the Code, a
domestic corporation, an estate the income of which is includable in its gross
income for U.S. federal income tax purposes without regard to its source, or a
trust if a U.S. court is able to exercise primary supervision over the
administration of the trust, and one or more U.S. persons have the authority to
control all the substantial decisions of the trust. A non-U.S. stockholder is
any stockholder that is not a U.S. stockholder.
THIS U.S. FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND
MAY NOT ADDRESS ALL TAX CONSIDERATIONS THAT MAY BE SIGNIFICANT TO A HOLDER OF
OUR CAPITAL STOCK. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE LIQUIDATION, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS AND CHANGES IN APPLICABLE TAX LAWS.
TAX CONSEQUENCES TO THE COMPANY
We have qualified as a REIT under Sections 856-860 of the Code since we
became a REIT in 1987. As a REIT, we are generally not subject to federal
corporate income tax on the portion of our
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taxable income that we currently distribute to our stockholders in distributions
that are eligible for the dividends paid deduction. If the Plan is adopted by
our stockholders, we expect to carry out the Company's liquidation and
dissolution in a manner that will allow us to continue to meet the requirements
for qualification as a REIT until we have distributed all our assets to our
stockholders, which may include the transfer of assets to a liquidating trust.
The Board of Directors, however, has the authority under the Plan to cause the
Company to discontinue our status as a REIT at any time if the Board of
Directors finds it in the best interests of our stockholders to do so.
In order to maintain our status as a REIT, we must, among other things,
continue to derive income from qualified sources, principally rents from real
property, interest from mortgages on real property and gains from the sale or
exchange of real estate assets. In addition, our principal investments must
continue to be in real estate assets.
So long as we continue to qualify as a REIT, any net gain from "prohibited
transactions" will be subject to a 100% tax. "Prohibited transactions" are sales
of property held primarily for sale to customers in the ordinary course of a
trade or business. Whether a real estate asset is property held primarily for
sale to customers in the ordinary course of a trade or business is a highly
factual determination. We believe that all of our properties are held for
investment and the production of rental income, and that none of the sales of
our properties in accordance with the Plan will constitute a prohibited
transaction. There can, however, be no assurances that the Internal Revenue
Service will not successfully challenge the characterization of properties we
hold for purposes of applying the 100% tax.
We expect to completely liquidate within 24 months after our adoption of the
Plan. Assuming we so liquidate, distributions pursuant to the Plan made within
such 24-month period will be treated as dividends paid for purposes of computing
our dividends paid deduction, but only to the extent of our earnings and
profits, computed without regard to our capital losses, for the taxable year in
which any such distributions are made. As a result, and provided that we
continue to meet our qualification as a REIT, we believe that we will not be
subject to federal corporate income tax on gain recognized in connection with
liquidating sales of our assets, nor will we be subject to federal corporate
income tax on gains realized upon a liquidating distribution of any of our
appreciated assets.
While we expect to continue to qualify as a REIT for the period prior to the
distribution of all of our assets to our stockholders, which includes the
transfer of assets to a liquidating trust, no assurance can be given that we
will not lose or terminate our status as a REIT as a result of unforeseen
circumstances. Should we lose our status as a REIT, either inadvertently or
because the Board of Directors deems such loss to be in the best interests of
our stockholders, we would be taxable as a corporation for federal income tax
purposes and would be liable for federal income taxes at the corporate rate with
respect to our entire income from operations and from liquidating sales and
distribution of our assets for the taxable year in which our qualification as a
REIT terminates and in any subsequent years.
CONSEQUENCES TO U.S. STOCKHOLDERS
Distributions we make within 24 months of our adoption of the Plan will not
be dividend income to you, notwithstanding the Company's treatment of such
distributions for purposes of the dividends paid deduction. Distributions in
liquidation, including an amount equal to your pro rata share of the fair market
value of the assets transferred to a liquidating trust, should first reduce the
basis of your shares of our capital stock, with any excess constituting a
capital gain if you hold the shares as a capital asset. If the sum of all
liquidating distributions is less than your basis in your shares, the difference
will constitute a capital loss which is recognized at the time you receive your
final liquidating distribution, which includes the transfer of assets to a
liquidating trust. Such capital gain or loss will be long or short term,
depending on whether such shares have been held for more than one year.
The maximum tax rate imposed on the long-term capital gains of non-corporate
taxpayers is 20%, although a 25% maximum tax rate is imposed on the portion of
such gains attributable to the prior
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depreciation claimed in respect of depreciable real property held for more than
one year and not otherwise treated as ordinary "recapture" income under
Section 1250 of the Code. The Secretary of the Treasury has the authority to
prescribe appropriate regulations on how the capital gains rates will apply to
sales and exchanges by partnerships and REITs and of interests in partnerships
and REITs. Pursuant to this authority, the Secretary of the Treasury had issued
proposed regulations on August 9, 1999 relating to the taxation of capital gains
in the case of sales and exchanges of interests in partnerships, S corporations
and trusts, but not of interests in REITs. Accordingly, you are urged to consult
with your tax advisors with respect to your capital gain tax liability resulting
from our liquidation and your receipt of liquidating distributions from us.
CONSEQUENCES TO NON-U.S. STOCKHOLDERS
Generally, a non-U.S. stockholder's gain or loss from the Company's
liquidation and dissolution will be determined in the same manner as that of a
U.S. stockholder. Assuming that the Company's liquidating distributions are
treated as consideration received in a taxable sale of our capital stock by
stockholders for purposes of the Foreign Investment in Real Property Tax Act of
1980, or FIRPTA, in accordance with the general treatment of liquidating
distribution for U.S. federal income tax purposes and subject to the discussion
below regarding potential application of certain FIRPTA provisions governing
distributions, a non-U.S. stockholder should not be subject to U.S. federal
income taxation on any gain or loss as a result of the Company's liquidation
unless (a) the gain is effectively connected with a U.S. trade or business of
the non-U.S. stockholder, (b) that stockholder is an individual who has been
present in the U.S. for 183 days or more during the taxable year of disposition
and certain other conditions are satisfied, or (c) the Company's capital stock
in the hands of the stockholder constitutes a "U.S. real property interest"
within the meaning of FIRPTA.
If a non-U.S. stockholder's capital stock constitutes a "U.S. real property
interest" within the meaning of FIRPTA or if the gain from the liquidating
distributions is otherwise effectively connected with a U.S. trade or business
of the non-U.S. stockholder, that stockholder will be subject to U.S. federal
income tax generally at regular capital gains rates with respect to that gain.
In addition, the non-U.S. stockholder may be subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations. If the non-U.S. stockholder is an individual who
has been present in the U.S. for 183 days or more during the taxable year of
disposition and certain other conditions are satisfied, that stockholder will be
subject to a 30% tax on its capital gains. An applicable income tax treaty may
modify certain of these consequences for a non-U.S. stockholder eligible for
treaty benefits and non-U.S. stockholders should consult with their tax advisors
regarding the possible application of such a treaty.
Our capital stock owned by a non-U.S. stockholder will generally constitute
a U.S. real property interest if either (a) we are not a
"domestically-controlled REIT" at all times during a specified testing period or
(b) that non-U.S. stockholder held more than 5% of the total fair market value
of our capital stock at any time during the shorter of the time that stockholder
held that our capital stock or during the five-year period ending on the date of
receipt of the final liquidating distribution from us. We will be a domestically
controlled REIT if non-U.S. stockholders held less than 50% of the value of its
stock at all times during the 5 year period ending with the payment of the final
liquidating distribution. Based on the record ownership of our capital stock, we
believe we are a domestically-controlled REIT, but no assurance can be given
that the actual ownership of our capital stock has been or will be sufficient
for us to qualify as a domestically-controlled REIT at all times during the
applicable testing period.
The tax treatment of non-U.S. stockholders described above assumes that the
receipt of the liquidating distributions will be treated as a sale of our
capital stock for purposes of FIRPTA, consistent with the general treatment of
liquidating distributions for federal income tax purposes. It is
49
<PAGE>
possible, however, that non-U.S. stockholders will be subject to tax under
special provisions of FIRPTA which provide that distributions from REITs are
treated as gain from the sale of U.S. real property interests, and thus subject
to tax as described above, to the extent that the distributions are attributable
to gain from the sale of U.S. real property interests by the REIT. These
provisions could apply because, although these liquidating distributions are
generally treated as involving a taxable exchange of shares for purposes of
determining a stockholder's tax consequences, it is not clear under current law
whether the sale treatment generally applicable to these liquidating
distributions also applies for purposes of FIRPTA. Accordingly, it is possible
that the Internal Revenue Service may assert that liquidating distributions
received by a non-U.S. stockholder are subject to tax under FIRPTA, as gain
effectively connected with a U.S. trade or business.
Any liquidating distributions paid to non-U.S. stockholders will be subject
to income tax withholding at the rate of 10% if our capital stock in the hands
of a non-U.S. stockholder constitutes a U.S. real property interest. Because of
the difficulties of determining whether a particular non-U.S. stockholder's
capital stock constitutes a U.S. real property interest, non-U.S. stockholders
should anticipate that 10% of each liquidating distribution will be withheld and
paid over to the Internal Revenue Service. A non-U.S. stockholder may be
entitled to a refund or credit against the stockholder's U.S. tax liability with
respect to the amount withheld, provided that the required information is
furnished to the Internal Revenue Service on a timely basis. Non-U.S.
stockholders should consult their own tax advisors regarding withholding tax
considerations.
BACKUP WITHHOLDING
Unless you comply with certain reporting and/or certification procedures or
are an exempt recipient under applicable provisions of the Code and Treasury
regulations promulgated under the Code, you may be subject to a 31% backup
withholding tax with respect to any cash payments received pursuant to the
liquidation. You should consult your own tax advisors to ensure compliance with
these procedures.
Backup withholding generally will not apply to payments made to certain
exempt recipients such as a corporation or financial institution or to a
stockholder who furnishes a correct taxpayer identification number or provides a
certificate of foreign status and provides certain other required information.
If backup withholding applies, the amount withheld is not an additional tax, but
is credited against that stockholder's U.S. federal income tax liability.
In the event that we are unable to dispose of all of our assets within
24 months after adoption of the Plan or if it is otherwise advantageous or
appropriate to do so, the Board of Directors may establish a liquidating trust
to which we could distribute in kind our unsold assets. In any event, even if
all of our assets were disposed of within such period, the Board of Directors
may decide to establish a liquidating trust to retain cash reserves beyond such
24-month period to meet our contingent liabilities. Under the Code, a trust will
be treated as a liquidating trust if it is organized for the primary purpose of
liquidating and distributing the assets transferred to it, and if its activities
are all reasonably necessary to and consistent with the accomplishment of that
purpose. However, if the liquidation is prolonged or if the liquidation purpose
becomes so obscured by business activities that the declared purpose of the
liquidation can be said to be lost or abandoned, it will no longer be consider a
liquidating trust. Although neither the Code nor the Treasury regulations
thereunder provide any specific guidance as the length of time a liquidating
trust may last, the Internal Revenue Service's guidelines for issuing rulings
with respect to liquidating trust status call for a term not to exceed three
years, which period may be extended to cover the collection of installment
obligations.
50
<PAGE>
An entity classified as a liquidating trust may receive assets, including
cash, from the liquidating entity without incurring any tax. It will be treated
as a grantor trust, and accordingly will also not be subject to tax on any
income or gain recognized by it. Instead, you will be treated as the owner of
your pro rata portion of each asset, including cash, received by and held by the
liquidating trust. Accordingly, you will be treated as having received a
liquidating distribution equal to your share of the amount of cash and the fair
market value of any asset distributed to the liquidating trust and recognize
gain to the extent such value is greater than your basis in your stock
notwithstanding that you may not currently receive a distribution of cash or any
other assets with which to satisfy the resulting tax liability. In addition, you
will be required to take into account in computing your taxable income your pro
rata share of each item of income, gain and loss of the liquidating trust.
An individual stockholder who itemizes deductions may deduct his pro rata
share of fees and expenses of the liquidating trust only to the extent that such
amount, together with the stockholder's other miscellaneous deductions, exceeds
2% of his adjusted gross income. A stockholder will also recognize taxable gain
or loss when all or part of his pro rata portion of an asset is disposed of for
an amount greater or less than his pro rata portion of the fair market value of
such asset at the time it was transferred to the liquidating trust. Any such
gain or loss will be capital gain or loss so long as the stockholder holds his
interest in the assets as a capital asset.
If the liquidating trust fails to qualify as such, its treatment will
depend, among other things, upon the reasons for its failure to so qualify. In
such case, the liquidating trust would most likely be taxable as a corporation.
In such case the liquidating trust itself would be subject to tax, and
stockholders could also be subject to tax upon the receipt of certain
distributions from the liquidating trust. If the Board of Directors avails
itself of the use of a liquidating trust, it is anticipated that every effort
will be made to ensure that it will be classified as such for federal income tax
purposes.
STATE AND LOCAL INCOME TAX
You may also be subject to state or local taxes with respect to the
liquidating distributions received from us pursuant to the Plan. You should
consult your tax advisors regarding such taxes.
PROPOSAL NO. 2--ELECTION OF DIRECTORS
The Bylaws (the "Bylaws") of the Company currently provide that the number
of Directors shall be not less than the minimum number required by Maryland
General Corporation Law, nor more than eleven. The Board of Directors has fixed
the number of Directors to be elected by the holders of Common Stock together
with the holders of Preferred Stock, voting as a separate class on an
as-converted basis, at the Annual Meeting at nine, each to hold office for the
term of one year and until his or her successor is elected and qualified. Two
other Directors may be elected by the holders of Preferred Stock, voting
separately as a class, at any time until there are no longer any shares of
Preferred Stock outstanding. The Board of Directors has nominated the persons
named below for election.
The Bylaws provide that every stockholder entitled to vote in the election
of Directors may vote each of his or her shares for as many individuals as there
are directors to be elected and for whose election the shares are entitled to be
voted. Assuming the presence of a quorum, the [nine] candidates receiving the
highest number of affirmative votes of the shares entitled to be voted will be
elected, and abstentions and broker non-votes will have no effect on the
election of Directors.
The nominees for Director and the Executive Officers of the Company have
indicated that they intend to vote all shares of Common Stock which they are
entitled to vote FOR the election of each of the nominees for Director. As of
September 18, 2000, the current Directors and Executive Officers of the Company
in the aggregate had the right to vote 5,754,455 shares of Common Stock,
representing approximately 9.51% of the outstanding Common Stock of the Company
as of such date. Further,
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<PAGE>
pursuant to the Exchange Agreement, the Preferred Stockholders have agreed to
vote in favor of the persons nominated by management to serve as Directors.
Management proposes the following nominees for election as Directors of the
Company: Michael L. Ashner, [Nominee 1], James D. Klingbeil, James D. Harper,
Jr., [Nominee 2], Nina B. Matis, Donne P. Moen, Philip S. Schlein, and Jay L.
Schottenstein. Each Director elected will hold office until the next Annual
Meeting of stockholders and until his or her successor, if any, is elected and
qualified, unless he or she resigns or he or she becomes disqualified to act as
a Director. The affirmative vote of a plurality of the shares present and voting
in person or by proxy at the meeting is necessary to elect these individuals as
Directors. It is intended that the proxies received by management will be voted
FOR the election of the nominees for Directors described above, unless authority
to do so is withheld. The Company believes that each of the nominees will stand
for election and, if elected, will serve as a Director. However, if any nominee
fails to stand for election, the proxies will be voted for the election of such
other person(s) as the Company's Board of Directors may nominate and recommend.
REQUIRED VOTE AND RECOMMENDATION
The affirmative vote of a plurality of the shares of the Company's Common
Stock and Preferred Stock present and voting in person or by proxy as a single
class on an as-converted basis is required to approve the nominees. Subject to
certain limited conditions, the holders of all of the outstanding shares of
Preferred Stock have approved the nominees and have agreed to vote such shares
in favor of the nominees at the Annual Meeting of Stockholders when they vote
together with the Common Stock as a single class. The vote of the holders of all
of the outstanding shares of Preferred Stock represents 18.12 percent of the
total number of votes eligible to be cast at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEES
NAMED ABOVE.
Pursuant to the Exchange Agreement and the Articles Supplementary, at any
annual meeting of stockholders at which directors are to be elected, a plurality
of shares of Preferred Stock, voting separately as a class, have the right to
elect two individuals who will serve as directors on the Company's Board of
Directors. Common stockholders do not have the right to vote with respect to
such directors. As of the date hereof, the Preferred Stockholders have not
exercised their right to elect two directors; however, the Preferred
Stockholders have informed the Company that they intend to nominate [Preferred
Stockholder nominee 1] and [Preferred Stockholder nominee 2] with respect to
their election right.
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<PAGE>
DIRECTOR BIOGRAPHIES
The following table and biographical descriptions set forth certain
information with respect to our current Directors and the nominees for election
to the Board of Directors, based on information furnished to us by the
Directors. There is no family relationship between any Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- -------------------- ----------------
<S> <C> <C>
Malin Burnham............................. 72 Chairman of the Board of Directors
Michael L. Ashner......................... 48 Director
James D. Harper, Jr....................... 66 Director
James D. Klingbeil........................ 64 Director
Nina B. Matis............................. 53 Director
Donne P. Moen............................. 64 Director
Philip S. Schlein......................... 66 Director
Jay L. Schottenstein...................... 46 Director
Robin Wolaner............................. 46 Director
[Nominee 1]............................... [Nominee for Director]
[Nominee 2]............................... [Nominee for Director]
</TABLE>
The principal occupation for the last five years of each of the Directors,
as well as other related information, is set forth below.
MALIN BURNHAM has been Chairman of the Board of Directors since 1985 and
served as interim President and Chief Executive Officer from October 1994 to
September 1995. Mr. Burnham is a private investor. He is also Chairman of John
Burnham & Company and Director of First National Bank (San Diego) and a Trustee
of The Burnham Institute.
MICHAEL L. ASHNER has been the Chief Executive Officer of Winthrop Financial
Associates and its subsidiaries since 1996, a Director and the Chief Executive
Officer of Newkirk NL Holdings LLC, Newkirk Stock LLC and Newkirk RE
Holdings LLC and their respective subsidiaries since 1997 and the President of
Exeter Capital Corporation since 1981. From 1994 until 1996, Mr. Ashner was the
President, Co-Chairman and a Director of National Property Investors, Inc. From
1984 until 1996, Mr. Ashner was a Director and an Executive Officer of NPI
Property Management Corporation. He currently serves as a Director of
NBTY, Inc., Nexthealth, Inc., Greate Bay Hotel and Casino Corp., Inc. and
Interstate Hotels Corp.
JAMES D. HARPER, JR. has been a Director since 1997. Mr. Harper has been
President of JDH Realty Co. in Miami, Florida since 1982 and is the principal
partner in AH Development, S.E. and AH HA Investments, S.E., both of which are
partnerships developing land in Puerto Rico. From 1971 until 1975, Mr. Harper
worked for Continental Illinois Company, serving as its Executive Vice President
in charge of all domestic and international real estate services beginning in
1974. From 1969 until its acquisition by Continental Illinois Company in 1971,
Mr. Harper served as President and Chief Executive Officer of Group
Counselor's Inc., a privately held REIT management company. He is a Director of
Equity Residential Properties Trust, Equity Office Properties Trust, and JDH
Realty Co.
JAMES D. KLINGBEIL has been a Director since 1996. He is Chairman, President
and Chief Executive Officer of American Apartment Communities, Inc. He is
Trustee and former President of the Urban Land Institute, and a member of the
Chief Executives Organization and World Business Council, and serves on the
Policy Advisory Board for the Center for Real Estate and Urban Economics,
University of California. He has also served as Public Interest Director of
Federal Home Loan Bank of Cincinnati and the Federal Home Loan Mortgage Company
Advisory Board. Mr. Klingbeil is a Director of United Dominion Realty Trust.
53
<PAGE>
NINA B. MATIS has been a Director since 1998. She is a partner in and member
of the Executive Committee of the law firm of Katten Muchin Zavis, in Chicago,
Illinois. She became a partner in the firm in September 1976. During 1984
through 1987, she was Adjunct Professor of Northwestern University School of Law
where she taught Real Estate Transactions. She is a member of the American
College of Real Estate Lawyers, Ely Chapter of Lambda Alpha International,
Chicago Finance Exchange, Urban Land Institute, REFF, Chicago Real Estate
Executive Woman, The Chicago Network and The Economic Club of Chicago.
DONNE P. MOEN has been a Director since 1996. He is the retired Vice
Chairman of Union Bank in California, where he served in a variety of executive
positions from 1963 until 1992. Mr. Moen has also been a member of the board of
a number of civic and nonprofit organizations including The Los Angeles Library
Foundation, Los Angeles Educational Partnership, Toberman Settlement House, and
Chadwick School.
PHILIP S. SCHLEIN has been a Director since 1996. He joined U.S. Venture
Partners, a California based venture capital company, in 1985, where he is now a
partner. Prior to that time, he had a 28-year career in the retailing industry,
including serving as President and Chief Executive Officer of Macy's California
from 1974 to 1985. He currently serves as a Director of Ross Stores, Inc., Quick
Response Services, BEBE, HomeGrocer.com, Inc. and a number of private companies.
Mr. Schlein holds a B.S. in Economics from the University of Pennsylvania.
JAY L. SCHOTTENSTEIN has been the Chairman of the Board and Chief Executive
Officer of Schotttenstein Stores Corporation and American Eagle
Outfitters, Inc. since 1992 and Chairman of the Board of Value City Department
Stores, Inc. since 1992. He currently serves as a Director of American Eagle
Outfitters, Inc. and Value City Department Stores, Inc.
ROBIN WOLANER has been a Director since 1997. Ms. Wolaner is Executive Vice
President of C/Net Inc., an internet media company, and a Director of
HealthCentral.com Inc., an internet company. From 1992 to 1995, she was
President and Chief Executive officer of Sunset Publishing Company. In 1986,
Ms. Wolaner founded PARENTING MAGAZINE, later serving as its President and Chief
Executive Officer from 1990 to 1992. Ms. Wolaner also served as the Vice
President in charge of Development of Time Publishing Ventures from 1990 to
1992.
[Nominee 1]
[Nominee 2]
PRINCIPAL EXECUTIVE OFFICERS OF BURNHAM
The following table and biographical descriptions set forth certain
information with respect to our Executive Officers, based on information
furnished to us by the Executive Officers. There is no family relationship
between any Executive Officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- -------- ----------------
<S> <C> <C>
Scott C. Verges........................... 46 Interim Chief Executive Officer,
President, Chief Administrative Officer
and General Counsel
Daniel B. Platt........................... 54 Executive Vice President, Chief Financial
Officer
</TABLE>
The principal occupation for the last five years of each of the Executive
Officers, as well as other related information, is set forth below.
MR. VERGES became General Counsel of the Company in January 1999, Chief
Administrative Officer in May 1999, and was named the Interim Chief Executive
Officer and President in August 2000
54
<PAGE>
upon the resignation of J. David Martin. Prior to joining the Company, he was
associated with the law firm of Mandel Buder & Verges. Prior to Mandel Buder &
Verges, Mr. Verges co-founded the law firm of Cassidy & Verges. Mr. Verges
received his J.D. in 1980 from Boalt Hall School of Law at the University of
California, Berkeley.
MR. PLATT has been the Chief Financial Officer of the Company since
October 1995. Until 1994, Mr. Platt was Group Executive Vice President of Bank
of America with responsibility for merging the real estate lending activities of
the two banks upon Bank of America's acquisition of Security Pacific Bank in
1992. Mr. Platt joined Security Pacific Bank in 1990 as Executive Vice President
responsible for creating a new real estate workout group and in 1991 was made
Vice Chairman of the Real Estate Industries Group, where he assumed additional
corporate management responsibilities for all real estate activities. Prior to
joining Security Pacific Bank, Mr. Platt spent 20 years with Union Bank, where
he was responsible for all real estate and commercial banking activities.
INFORMATION REGARDING THE BOARD OF DIRECTORS OF BURNHAM AND ITS COMMITTEES
The Company's Board of Directors conducted 13 meetings, including regularly
scheduled and Annual Meetings during 1999, and no Director attended fewer than
75 percent of the aggregate of the total number of meetings during 1999 and the
total number of meetings held by all committees of the Board on which he or she
served. The Company has standing Audit, Compensation and Governance Committees.
All of the Audit Committee, the Compensation Committee, and the Governance
Committee had 100 percent attendance at every meeting.
AUDIT COMMITTEE. The Audit Committee, which consists of Donne Moen
(Chairman), Nina Matis, and Robin Wolaner, met three times during 1999. This
committee advises and assists the Company's chief financial officer in making
periodic overall reviews of the Company's internal controls and financial
statements, appoints the Company's independent auditors for the Company's annual
audit, meets periodically with the auditors to discuss their audit, and advises
and provides oversight of the Company's internal audit activities.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of
Philip Schlein, James Klingbeil and James Harper, met 7 times during 1999. This
committee formulates the Company's compensation policies with respect to the
Company's executive officers. See "Report of the Compensation Committee" for
additional information.
GOVERNANCE COMMITTEE. The Governance Committee, which consists of Philip
Schlein, James Klingbeil and James Harper, met 7 times during 1999. This
committee addresses policies, procedures and issues relating to the governance
of the Board of Directors.
DIRECTOR COMPENSATION
The Company awarded to each Director, with the exception of Mr. Martin, 750
Director Restricted Shares on March 31, 1999, June 30, 1999, September 30, 1999
and December 31, 1999 for their services as Directors. Mr. Martin received no
compensation for his services as a Director in addition to his compensation as
President and Chief Executive Officer.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the last fiscal year, the annual
compensation awarded to our Chief Executive Officer and the four most highly
compensated Executive Officers at the end of Fiscal 1999 who earned in excess of
$100,000 during 1999 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
------------------------------ ----------------------------------------
SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL ANNUAL OPTIONS ALL OTHER
POSITION COMPENSATION YEAR SALARY BONUS COMPENSATION (#)(1) COMPENSATION
--------------------- -------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. David Martin(2)............. 1999 $452,083 $ -0- (3) -0- $3,281(4)
Former President, Chief 1998 387,500 -0- (3) 250,000 -0-
Executive Officer and 1997 250,000 350,000 (3) 300,000 -0-
Director
Daniel B. Platt................ 1999 250,000 -0- (3) -0- 6,948(5)
Executive Vice President, 1998 245,833 -0- (3) 50,000 4,917(6)
Chief Financial Officer 1997 200,000 175,000 (3) 150,000 4,000(6)
Joseph Wm. Byrne(7)............ 1999 250,000 -0- (3) -0- 6,746(8)
Former Executive Vice 1998 175,189 -0- (3) 100,000 -0-
President, Chief Operating
Officer
James W. Gaube................. 1999 200,000 -0- (3) -0- 3,046(9)
Former Executive Vice 1998 183,333 -0- (3) 70,000 1,333(6)
President, 1997 160,417 100,000 (3) 30,000 -0-
Chief Investment Officer
Scott C. Verges(10)............ 1999 200,000 -0- (3) 30,000 -0-
Interim Chief Executive
Officer, President, Chief
Administrative Officer,
Former Secretary and General
Counsel
</TABLE>
------------------------
(1) Except with respect to Mr. Verges, all listed option grants represent
options granted after the close of the year indicated reflecting
compensation for the Named Executive Officer's performance in the year
indicated. All options were granted under the Company's Stock Option and
Incentive Plan and are for shares of the Company's Common Stock. The 30,000
options listed for Mr. Verges reflect compensation for the year indicated.
(2) Mr. Martin resigned from the positions of President and Chief Executive
Officer and as a Director of the Company effective August 2000 and
Mr. Verges was named as Interim Chief Executive Officer.
(3) Other annual compensation, if any, constituted less than 10% of such
person's salary and bonus.
(4) Reflects a $1,333 matching contribution to Mr. Martin's 401(k) plan and
$1,948 in life insurance premiums paid by the Company.
(5) Reflects a $5,000 matching contribution to Mr. Platt's 401(k) plan and
$1,948 in life insurance premiums paid by the Company.
(6) Company's matching contributions to employee's 401(k) plan.
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<PAGE>
(7) Mr. Byrne joined the Company effective April 1998 and resigned May 31, 2000.
(8) Reflects a $5,000 matching contribution to Mr. Byrne's 401(k) plan and
$1,746 in life insurance premiums paid by the Company.
(9) Reflects a $1,333 matching contribution to Mr. Gaube's 401(k) plan and
$1,713 in life insurance premiums paid by the Company.
(10) Mr. Verges joined the Company effective January 1999.
OPTION GRANTS IN FISCAL YEAR 1999
Options to purchase shares of Common Stock were granted under the Company's
Stock Option and Incentive Plan to certain of the Officers listed in the Summary
Compensation Table above during 1999 as summarized in the following table. Such
options are considered a part of the Officers' compensation with respect to
1998(1).
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF GRANTED TO
SECURITIES UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS GRANTED DURING FISCAL BASE PRICE PER EXPIRATION PRESENT
NAME (#) (1) YEAR 1999 ($/SH) (2) DATE VALUE(3)
---- --------------------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
J. David Martin.............. 250,000 43.5% $11.313 2/9/09 $346,500
Daniel B. Platt.............. 50,000 8.7% 11.313 2/9/09 69,300
Joseph Wm. Byrne............. 100,000 17.4% 11.313 2/9/09 138,600
James W. Gaube............... 70,000 12.2% 11.313 2/9/09 97,020
Scott C. Verges.............. 30,000 5.2% 11.313 2/9/09 41,580
</TABLE>
------------------------
(1) Except with respect to Mr. Verges, these options were granted in 1999 as
compensation for fiscal year 1998. The 30,000 options listed for Mr. Verges
reflect compensation for 1999. All the options listed are nonqualified stock
options, one third of which were fully vested on February 9, 2000, one third
of which will vest on February 9, 2001, and one third of which will vest on
February 9, 2002.
(2) Equal to the closing market price of the Common Stock on the grant date.
(3) The option values presented are based on the Black-Scholes option-pricing
model adapted for use in valuing stock options. The Black-Scholes model
relies on several key assumptions to estimate the present value of options,
including the volatility of and dividend yield on the security underlying
the option, a risk-free rate of return on the date of grant, and the term of
the option. In calculating the grant date present values set forth in the
table, the Black-Scholes option-pricing model used the following
weighted-average assumptions: 8.0% dividend yield, expected volatility of
25%, risk-free rate of return of 6.0% and expected lives of 5 years. There
is no assurance that these assumptions will prove to be true in the future.
Consequently, the grant date present values set forth in the table are only
theoretical values and may not accurately determine present value. The
actual value, if any, that may be realized by each individual will depend on
the market price of Common Stock on the date of exercise.
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<PAGE>
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth information concerning the number and value
of unexercised options to purchase Common Stock of the Company at the end of
1999. No Named Executive Officer exercised any options to purchase Common Stock
during 1999.
AGGREGATED FISCAL YEAR-END 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. David Martin............ N/A N/A 650,000 450,000 -- --
Daniel B. Platt............ 350,000 150,000 -- --
Joseph Wm. Byrne........... -- 100,000 -- --
James W. Gaube............. 10,000 90,000 -- --
Scott C. Verges............ -- 30,000 -- --
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Schlein,
Harper and Klingbeil. None of these individuals is an Executive Officer of the
Company.
REPORT OF COMPENSATION COMMITTEE
GENERAL
The Compensation Committee of the Board of Directors consists of three
members, all of whom are independent directors of other companies. Two members
of the Committee have extensive experience as directors and chief executive
officers of public companies or major operating divisions of public companies,
and the third has extensive experience as a director of a public company and
chief executive officer of a private company. No member of the Committee was or
is an officer or employee of the Company.
In formulating the policies under which the Company's executives were
compensated, the Committee considered, among other factors, the competitive
environment in which the Company operates and the fact that the Company must
retain and motivate its corporate leaders in order to achieve its goals for
short-term and long-term profitability, growth and return to stockholders.
EXECUTIVE SEVERANCE
In connection with addressing the acquisition proposal from SSC, the
Committee recognized that, as is the case with many publicly held corporations,
the possibility of a change in control of the Company exists and that such
possibility, and the uncertainty and questions which it may raise among senior
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders. Therefore, the Committee
determined that severance arrangements may be appropriate to reinforce and
encourage the continued attention and dedication of the senior executives to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control.
The Compensation Committee engaged the services of a special executive
compensation consultant to assist them in the implementation of severance
incentive packages for its executives. In order to ensure the stable operation
of the Company in the face of potential hostile takeover and/or some other
change of control, the adoption of the severance arrangements were deemed to be
appropriate.
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<PAGE>
Consequently, on June 30, 1999, the Company entered into Senior Executive
Severance Agreements with certain of its most senior executives
(Messrs. Martin, Verges, Gaube, Platt and Byrne) whose leadership and management
expertise was deemed vital to the continued operation of the Company's business.
In general, these severance agreements, as amended, provide that in the event
certain "Terminating Events" occur following a "Change in Control" of the
Company, then the Company shall pay the executive an aggregate of three times
such senior executive's then current annual base salary plus three times such
executive's then current target annual bonus.
In general, the severance agreements provide that following a Change in
Control, the benefits provided for thereunder become payable upon (a) the
termination of the employment of the executive by the Company without "cause" or
the termination of the employment by the executive for "good reason" during the
twelve month period following the Change in Control, or (b) upon the voluntary
termination of employment by the executive for any reason during a 30-day window
period one year after the Change in Control. In particular, the severance
agreements provide that in these circumstances the Company shall pay the senior
executive an aggregate of three times such senior executive's then current
annual base salary plus three times such senior executive's then current target
annual bonus. In addition, the severance agreements provide for the continuation
of certain health, dental and life insurance and other welfare benefits for
thirty-six (36) months. The severance agreements also provide for the
reimbursement of certain excise tax liabilities that may arise in connection
with the benefits provided pursuant thereto.
Effective as of August 18, 2000, Mr. Martin resigned from the Company. As
part of a separation agreement entered into by Mr. Martin and the Company,
Mr. Martin gave up all rights under his Senior Executive Severance Agreement
(described above) and all rights to his Phantom Shares (see below). In addition,
the Separation Agreement provided, among other benefits, for a severance payment
in the amount of $1,575,000 to be paid to Mr. Martin in 72 installments
commencing on September 1, 2000; provided, however, that upon a Change in
Control, any remaining installments will be paid in one lump sum.
Effective as of May 31, 2000, Mr. Byrne resigned from the Company. As part
of a separation agreement entered into by Mr. Byrne and the Company, Mr. Byrne
gave up all rights under his Senior Executive Severance Agreement (described
above) and all rights to his Phantom Shares (see below). In addition, the
Separation Agreement provided, among other benefits, for a severance payment in
the amount of $250,000 to be paid to Mr. Byrne in 12 installments commencing on
June 6, 2000; provided, however, that upon a Change in Control, any remaining
installments will be paid in one lump sum.
Mr. Gaube resigned from the Company and has orally agreed to a reduction in
his severance arrangement in connection with his resignation.
OTHER SEVERANCE
Broad based severance plans were also adopted for the remaining employees
intended to reinforce and encourage the continued attention and dedication of
the Company's employees to their assigned duties, as well as assist the Company
in recruiting new employees, notwithstanding the possibility, threat or
occurrence of a change in control of the Company.
Under the Executive Severance Plan (which covers certain employees in senior
management positions), if a covered employee's employment is terminated by the
Company without "cause" or by the executive for "good reason" within twenty-four
months following a Change in Control, such employee is entitled to receive an
amount equal to two times the sum of his current annual base salary and his
average bonus as determined over the prior three years. Under the Management
Severance Plan (which covers management employees not otherwise covered by a
severance plan or agreement), if a covered employee is terminated by the Company
without "cause" or by the executive for "good reason" within twenty-four months
following a Change in Control, such member shall be entitled to
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<PAGE>
receive an amount equal to the sum of his current annual base salary and his
average bonus as determined over the prior three years. Under the Rank and File
Severance Plan (which covers the remainder of the work force), if a covered
employee is terminated by the Company without "cause" or if his employment is
"deemed terminated" within twelve months following a Change in Control, such
employee shall be entitled to receive an amount equal to the sum of (i) three
months base salary and (ii) one additional week's base salary for each year of
employment. Under all these severance plans certain health, dental, life
insurance and other welfare benefits are continued for a period equivalent to
the measurement used to determine the amount of the individual's severance
payments.
PHANTOM SHARE AWARDS
The executive compensation consultant also consulted with the Committee
regarding the competitiveness of the Company's compensation and benefits
program. Following a review of industry background and the Company's peer group,
and the position of the Company within such peer group, the compensation
consultant provided recommendations to the Committee regarding the compensation
structure for the Chief Executive Officer including support for the proposition
that Mr. Martin had historically been underpaid. As a result, the Committee
determined to raise Mr. Martin's base salary to $525,000 effective as of
August 1, 1999.
In addition, in recognition of prior years of being under compensated, a
long-term incentive award for contributions to the Company made from 1996
through 1998 was granted to Mr. Martin in the form of a phantom shares award in
the amount of 122,222 phantom units. A second long-term incentive award for
contributions to the Company during 1999 was granted to Mr. Martin in the form
of a phantom shares award in the amount of 66,667 phantom units. Subsequently,
when the Company's performance for 1999 proved not to be as expected,
Mr. Martin agreed to the rescission of this award.
In addition to the foregoing, long-term retention awards were granted to
Mr. Martin in the form of a phantom shares award in the amount of 237,037
phantom units, and to Messrs. Verges, Platt, Gaube and Byrne received grants of
30,000 phantom units each.
The phantom share awards were intended to be used solely as a device for the
measurement and determination of amounts to be paid in lieu of granting
additional equity interests. All of the phantom shares awards were to vest upon
a change of control of the Company or death or disability. Upon vesting, the
value of the vested units will be paid in cash equal to the fair market value of
a like number of shares of the Company's Common Stock. When granted, all of the
phantom share awards were also to vest ratably over a ten year period. However,
all of the executives subsequently agreed to the elimination of this portion of
the vesting provisions feature as a result of what they believed to be the
failure of the Company's 1999 performance to meet expectations. As a result, the
phantom share awards would vest only upon a Change in Control, death or
disability.
On September 1, 2000, the Company announced that all of its executive
officers have surrendered their entire phantom stock grants.
The approval of the liquidation of the Company will constitute a Change in
Control for purposes of the Senior Executive Severance Agreements, the Executive
Severance Plan, the Management Severance Plan, and the Rank and File Severance
Plan, as well as the Separation Agreements with Messrs. Martin and Byrne
described above.
Supplemental or bonus compensation is awarded to the Chief Executive Officer
and the executive officers of the Company at the discretion of the Committee. At
its meeting in , 2000, the Committee determined that the Company's results
for 1999 did not justify the award of cash bonuses for that year. In September
of 2000, the Committee awarded Mr. Verges a bonus payment conditional upon the
Company entering several agreements.
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The Compensation Committee believes that evaluation of the overall
performance of the Company's senior executives can not be reduced to a fixed
formula and that the prudent use of discretion in determining pay levels is in
the best interests of the Company and its stockholders.
Philip S. Schlein, Chairman
James D. Harper, Jr.
James D. Klingbeil
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
On June 30, 1999, the Company entered into Senior Executive Severance
Agreements (the "Severance Agreements") with J. David Martin, Joseph Wm. Byrne,
James W. Gaube, Daniel B. Platt and Scott C. Verges (the "Senior Executives"),
whose leadership and management expertise the Company believed were vital to the
continued operation of the Company's business. Messrs. Martin, Byrne, and Gaube
have since left the Company.
In general, the Severance Agreements provide that in the event that certain
Terminating Events (as defined in the Severance Agreements) occur with respect
to a Senior Executive following a Change in Control (as defined in the Severance
Agreements), then the Company shall pay the Senior Executive an aggregate of
three times such Senior Executive's then current annual base salary plus three
times such Senior Executive's then current target annual bonus. The Liquidation
constitutes such a Change in Control.
In addition, the Severance Agreements provide for the continuation of
certain health, dental and life insurance and other welfare benefits for
thirty-six (36) months, provided that any such benefits are offset against any
amounts payable under any other Company plan. The Severance Agreements also
provide for the reimbursement of certain excise tax liabilities that may arise
in connection with the benefits provided pursuant thereto.
Effective as of August 1, 1999, the Company entered into Phantom Shares
Agreements with the Senior Executives. On September 1, 2000, however, the
Company announced that all of its executive officers have surrendered their
entire phantom stock grants.
In September of 2000, the Committee awarded Mr. Verges a bonus payment
conditional upon the Company entering several agreements.
The above descriptions of the Severance Agreements and the Phantom Shares
Agreements are not complete and are qualified in their entirety by reference to
such documents, all of which have been filed as exhibits to reports of the
Company on Form 8-K.
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STOCK PERFORMANCE CHART
The following graph compares the Corporation's stock price for the past five
years with the Standard & Poor's 500 Index and the Equity REIT Index prepared by
the National Association of Real Estate Investment Trusts ("NAREIT"). The graph
assumes all dividends were reinvested at the market price on the day the
dividend was paid.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Index (12/31/94=100)
<TABLE>
<CAPTION>
S&P 500 BURNHAM ALL EQUITY REITS (1)
-------- -------- --------------------
<S> <C> <C> <C>
Dec. 94.................................................. 100.00 100.00 100.00
Dec. 95.................................................. 118.31 84.44 115.27
Dec. 96.................................................. 160.61 142.74 155.92
Dec. 97.................................................. 190.90 153.75 187.51
Dec. 98.................................................. 154.97 130.72 154.69
Dec. 99.................................................. 144.93 112.02 147.54
</TABLE>
(1) Source: NAREIT Total Return Index
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of Common
Stock as of August 31, 2000 by (i) each Director and nominee, (ii) the Named
Executive Officers, and (iii) all Directors and Executive Officers of the
Company as a group. None of such individuals has any beneficial ownership of the
Preferred Stock. The numbers in the following table are based on 32,324,046
shares of Common Stock outstanding as of August 31, 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP (1)
-----------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------------- --------
<S> <C> <C>
Malin Burnham............................................... 536,864(1)(2) 1.7%
Joseph Wm. Byrne............................................ 35,333(1) *
James W. Gaube.............................................. 44,333(1)(3) *
James D. Harper, Jr......................................... 11,071 *
James D. Klingbeil.......................................... 41,276(4) *
J. David Martin............................................. 883,333(1)(5) 2.7%
Nina B. Matis............................................... 6,425 *
Donne P. Moen............................................... 23,375(6) *
Daniel B. Platt............................................. 437,436(1)(7) 1.3%
Philip S. Schlein........................................... 17,088 *
Jay L. Schottenstein and Michael L. Ashner.................. 3,162,066(8) 9.8%
Scott C. Verges............................................. 22,000(1) *
Robin Wolaner............................................... 11,521 *
All Directors and Named Executive Officers of the Company as
a group (14 persons)...................................... 5,232,121 15.5%
</TABLE>
------------------------
* less than 1%
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(1) Based upon information provided by the individuals listed above, such
persons have the direct right to vote and dispose of all such shares except
for (i) the following number of shares included in the table which are not
yet outstanding which the following persons have the right as of August 31,
2000, to acquire under outstanding options that are vested or will vest
within 60 days: Messrs. Burnham 141,000, Byrne 33,333, Gaube 43,333, Martin
833,333, Platt 416,667 and Verges 10,000, all Director nominees and
executive officers as a group 1,477,666 and (ii) as set forth in the
following notes.
(2) Includes (i) 7,682 shares of Common Stock beneficially owned by
Mr. Burnham's spouse and (iii) 378 shares of Common Stock beneficially owned
by the Burnham Foundation, of which Mr. Burnham is a trustee, as to which
Mr. Burnham disclaims beneficial ownership.
(3) Includes 1,000 shares of Common Stock as to which Mr. Gaube shares the power
to vote and dispose.
(4) Includes 2,200 shares of Common Stock held by Mr. Klingbeil as trustee of a
trust in which Mr. Klingbeil disclaims any economic interest.
(5) Mr. Martin also holds 62,537 limited partnership units in two partnerships
of which the Company (through Burnham Pacific Operating Partnership, L.P.)
is general partner. Such partnerships own two completed retail centers
acquired from Mr. Martin and other affiliates of the Martin Group. Each such
unit may under certain circumstances be exchangeable on a 1-for-1 basis for
a share of the Company's Common Stock.
(6) Includes 13,625 shares of Common Stock as to which Mr. Moen shares the power
to vote and dispose.
(7) Includes (i) 5,069 shares which are held in Mr. Platt's 401(k) plan as of
June 30, 2000, (ii) 2,500 shares of Common Stock held in an IRA for the
benefit of Mr. Platt's wife, and (iii) 13,200 shares of Common Stock
beneficially owned by a trust in which Mr. Platt has a beneficial interest.
(8) In a filing on Schedule 13D, Schottenstein Stores Corporation, together with
certain of its affiliates and Michael L. Ashner and Susan Ashner, who have
all joined as a "group" for purposes of Rule 13d-5, reported that as of
September 11, 2000 the group was the beneficial owner of an aggregate of
3,162,066 shares of Common Stock.
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<PAGE>
BENEFICIAL OWNERSHIP OF CERTAIN OTHERS
Information known to the Company with respect to beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than five percent of each
class of the Company's voting securities as of September, 2000 is as follows.
Such information is based upon filings received by the Company under the
Exchange Act, with respect to the Common Stock, and the terms of the Stock
Purchase Agreement and filings under the Exchange Act, with respect to the
Preferred Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
--------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ --------- --------
<S> <C> <C>
Morgan Stanley, Dean Witter & Co. (1)....................... 5,252,495 16.28%
1585 Broadway
New York, NY 10036
Westbrook Burnham Holdings, L.L.C. and
Westbrook Burnham Co-Holdings, L.L.C.(2).................... 4,552,845 12.35%
c/o Westbrook Partners, LLC
265 Franklin St., Suite 1800
Boston, MA 02110
Schottenstein Stores Corporation (3)........................ 3,162,066 9.78%
1800 Moler Road,
Columbus, OH 43207
Blackacre SMC Master Holdings, LLC (4)...................... 2,601,626 7.45%
c/o Stephen Feinberg
450 Park Avenue, 28th Floor
New York, NY 10022
</TABLE>
------------------------
(1) In its most recent amended filing on Schedule 13G under the Exchange Act,
Morgan Stanley, Dean Witter & Co. and its wholly-owned subsidiary, Morgan
Stanley Dean Witter Investment Management Inc., reported that as of
February 7, 2000 the former had shared voting and dispositive power with
respect to 4,083,495 and 5,252,495 of such shares of Common Stock,
respectively, and the latter had shared voting and dispositive power with
respect to 3,709,800 and 4,875,700 of such shares of Common Stock,
respectively.
(2) Westbrook Burnham Holdings, L.L.C. and Westbrook Burnham Co-Holdings, L.L.C.
own in the aggregate 2,800,000 shares of Preferred Stock. The Preferred
Stock votes with the Common Stock as if fully converted into Common Stock
and all outstanding shares of Preferred Stock are currently convertible into
Common Stock. If such shares were fully converted, Westbrook would be the
beneficial owner of approximately 4,552,845 shares of Common Stock
representing 12.35% of the outstanding number of shares of Common Stock
after giving effect to such conversion but not to the issuance of any other
shares of Common Stock not actually outstanding at the present time. In a
filing on Schedule 13D under the Exchange Act, Westbrook and certain of
their affiliates reported that as of August 15, 2000 in the aggregate they
were "beneficial owners" of 4,552,845 shares of Common Stock (being the
number of shares of Common Stock issuable upon conversion of Preferred
Stock).
(3) In a filing on Schedule 13D, Schottenstein Stores Corporation, together with
certain of its affiliates and Michael L. Ashner and Susan Ashner, who have
all joined as a "group" for purposes of Rule 13d-5, reported that as of
September 11, 2000 the group was the beneficial owner of an aggregate of
3,162,066 shares of Common Stock.
64
<PAGE>
(4) Blackacre SMC Master Holdings, LLC is the holder of 1,600,000 shares of
Preferred Stock. If such shares were fully converted into Common Stock,
Blackacre would be the beneficial owner of 2,601,626 shares of Common Stock,
representing 7.45% of the outstanding number of shares of Common Stock after
giving effect to such conversion but not to the issuance of any other shares
of Common Stock not actually outstanding at the present time. In a filing on
Schedule 13D, Blackacre reported that as of August 31, 2000 it was the
beneficial owner of 2,601,626 shares of Common Stock (being the number of
shares of Common Stock issuable upon conversion of Preferred Stock). Stephen
Feinberg possesses sole power to vote and direct the disposition of
Blackacre's shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DIRECTORS AND EXECUTIVE OFFICERS
CERTAIN BUSINESS TRANSACTIONS. Concurrently with Mr. Martin's initial
employment with the Company in October 1995, the Company acquired the right to
redevelop the historic 1000 Van Ness property in downtown San Francisco, with
the intention that, upon completion of redevelopment, the Company would retain
ownership of the retail and entertainment portions of the redeveloped property
and Holliday/Van Ness, L.P. ("Holliday") would become the owner of the
residential portion of the redeveloped property. The Company through a
subsidiary entered into a purchase and sale agreement with Holliday whereby
Holliday would reimburse the Company for all of the Company's costs and expenses
incurred at the direction of Holliday in connection with the acquisition and
construction of the residential portion. Pursuant to the purchase and sale
agreement, the costs, which were approximately $18,000,000, were paid by
Holliday to the Company in a series of transactions during 1998 and early 1999
coinciding with the sale of the residential units to third parties. Upon receipt
of the final payment, the Company conveyed all of the unsold residential units
to Holliday. Mr. Martin has approximately a 35% interest in Holliday.
In December 1998, the Company entered into an operating lease for a
corporate office in Emeryville, California. The landlord is a partnership in
which Mr. Martin has an economic interest. The lease commenced on January 1,
1999 with a five year term. Monthly lease payments are approximately $11,460,
with a three percent annual increase.
During 1998, the Company acquired leasehold interests in [three] former
Ernst Home Improvement Stores, aggregating approximately 134,000 square feet of
retail space for approximately $5.2 million. The Company had options to acquire
three additional leasehold interests in former locations of the Ernst Home
Improvement chain which expired on December 31, 1998. The Company acquired its
existing stores and its options from the purchaser of the leasehold interest in
bankruptcy proceedings involving the Ernst Home Improvement chain. One of the
principals of such purchaser is Donald Gaube, a brother of James W. Gaube,
Executive Vice President and Chief Investment Officer of the Company. James W.
Gaube disclaims any personal interest in his brother's interest in the purchaser
and has no personal interest in any proceeds that the purchaser received in
connection with the above referenced leasehold interests.
SEVERANCE AND COMPENSATION AGREEMENTS. On June 30, 1999, the Company
entered into Senior Executive Severance Agreements (the "Severance Agreements")
with J. David Martin, Joseph W. Byrne, James W. Gaube, Daniel B. Platt and Scott
C. Verges (the "Senior Executives"), whose leadership and management expertise
the Company believed were vital to the continued operation of the Company's
business. As described below, Messrs. Martin, Byrne, and Gaube have since left
the Company.
65
<PAGE>
In general, the Severance Agreements provide that in the event that certain
Terminating Events (as defined in the Severance Agreements) occur with respect
to a Senior Executive following a Change in Control (as defined in the Severance
Agreements), then the Company shall pay the Senior Executive an aggregate of
three times such Senior Executive's then current annual base salary plus three
times such Senior Executive's then current target annual bonus. The Liquidation
constitutes such a Change in Control.
In addition, the Severance Agreements provide for the continuation of
certain health, dental and life insurance and other welfare benefits for
thirty-six (36) months, provided that any such benefits are offset against any
amounts payable under any other Company plan. The Severance Agreements also
provide for the reimbursement of certain excise tax liabilities that may arise
in connection with the benefits provided pursuant thereto.
Effective as of August 1, 1999, the Company entered into Phantom Shares
Agreements with the Senior Executives. On September 1, 2000, however, the
Company announced that all of its executive officers have surrendered their
entire phantom stock grants.
Effective as of August 18, 2000, Mr. Martin resigned from the Company. As
part of a separation agreement entered into by Mr. Martin and the Company,
Mr. Martin gave up all rights under his Severance Agreement and all rights to
his Phantom Shares. In addition, the separation agreement provided, among other
benefits, for a severance payment in the amount of $1,575,000 to be paid to
Mr. Martin in 72 installments commencing on September 1, 2000; provided,
however, that upon a Change in Control, any remaining installments will be paid
in one lump sum.
Effective as of May 31, 2000, Mr. Byrne resigned from the Company. As part
of a separation agreement entered into by Mr. Byrne and the Company, Mr. Byrne
gave up all rights under his Senior Executive Severance Agreement and all rights
to his Phantom Shares. In addition, the separation agreement provided, among
other benefits, for a severance payment in the amount of $250,000 to be paid to
Mr. Byrne in 12 installments commencing on June 6, 2000; provided, however, that
upon a Change in Control, any remaining installments will be paid in one lump
sum.
On August , 2000, in a letter dated August 17, 2000, CalPERS, a joint
venture partner of the Company in BPP Retail, LLC, proposed to the Company that
the Company withdraw from the joint venture in BPP Retail, LLC and allow a team
of the Company's employees led by the Company's Chief Operating Officer, James
Gaube, to join with CalPERS in a restructured joint venture. Otherwise, the
letter stated, CalPERS would elect to remove the Company's affiliate as manager
of BPP Retail, LLC. After Board deliberations which focused on the impact of the
arrangement on Mr. Gaube's severance, the Board voted that, if it could
negotiate a smaller severance with Mr. Gaube, it would accede to CalPERS'
proposal. Mr. Gaube resigned from the Company and has orally agreed to a
reduction in his severance arrangement in connection with his resignation.
In September of 2000, the Committee awarded Mr. Verges a bonus payment
conditional upon the Company entering several agreements.
NOMINEES FOR ELECTION AS A DIRECTOR
AGREEMENT WITH THE SA GROUP. Jay L. Schottenstein and Michael L. Ashner are
principal members of the SA Group. Pursuant to the agreement with the SA Group,
the Company agreed, among other things, to do the following:
- pay $1 million and, when and if the Preferred Stock is redeemed, an
additional $1.5 million to the SA Group; and
66
<PAGE>
- amend the Shareholder Rights Plan and, subject to certain limitations,
grant waivers of the ownership limitations contained in its charter, in
order to permit members of the SA Group to own, in the aggregate, up to
19.9 percent of the outstanding shares of Common Stock.
STOCKHOLDERS
EXCHANGE AGREEMENT. As of the date of this proxy statement, each of
Westbrook and Blackacre individually own more than five percent of the Company's
outstanding shares of Preferred Stock. Pursuant to the Exchange Agreement with
Westbrook and Blackacre, the Company agreed to, among other things, the
following:
- to distribute net proceeds from all asset sales in the liquidation to the
Preferred Stockholders, within thirty days of receipt by the Company to be
applied against their Change of Control Preference or Liquidation
Preference, subject to prior payment of liabilities and setting aside
reserves as described in the Plan of Liquidation; and
- amend the Shareholder Rights Plan to permit each of Westbrook, Blackacre,
Morgan Stanley, Dean Witter & Co., and its affiliates to beneficially own
19.9% of the outstanding shares of Common Stock without triggering any
adverse consequences to such party under the Shareholder Rights Plan.
The above descriptions of the Severance Agreements, Phantom Shares
Agreements, the agreement with the SA Group, and the Exchange Agreement are not
complete and are qualified in their entirety by reference to such documents, all
of which have been filed as exhibits to reports of the Company on Form 8-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who are beneficial owners of more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% beneficial
owners are required by SEC regulations to furnish the Company with copies of
Section 16(a) forms they file. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company, and written
representations that no other reports were required during the fiscal year ended
December 31, 1999, all Section 16(a) filing requirements applicable to such
persons were satisfied.
EXPERTS
The Company's financial statements for the year ended December 31, 1999 were
audited by Deloitte & Touche LLP, which has audited the Company's books and
records since 1986. A representative of Deloitte & Touche LLP will be present at
the Annual Meeting, will be given the opportunity to make a statement if he or
she so desires, and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If we complete the liquidation, we will no longer have public stockholders
or any public participation in our stockholder meetings. If we have not
completed the liquidation, or if the plan of liquidation is not approved by the
stockholders, we intend to hold our next annual stockholder meeting in May,
2001. In that case, you would continue to be entitled to attend and participate
in our stockholder meetings if you continue to own shares of the Company's
Common Stock. If the liquidation is not completed, any stockholder proposal that
is submitted to us for inclusion in our proxy statement for our annual meeting
in 2000 pursuant to Rule 14a-8 under the Exchange Act generally must be
67
<PAGE>
received by the Secretary of Burnham Pacific Properties, Inc., 110 West A
Street, Suite 900, San Diego, California 92101, on or before the close of
business on the 120th day prior to the anniversary of the date the proxy is
released to stockholders this year.
If you intend to present a proposal at our annual meeting in 2001 but do not
intend to have your proposal included in our proxy statement, you must notify us
on a timely basis of your intent to present such proposal at the meeting. To be
timely, your notice must be delivered to the Secretary of Burnham Pacific
Properties, Inc., 110 West A Street, Suite 900, San Diego, California 92101, not
earlier than the close of business on the 90th day prior to such annual meeting
and not later than the close of business on the 36th day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made by the corporation.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
We are subject to the information filing requirements of the Securities
Exchange Act of 1934 and, in accordance with that act, are obligated to file
with the Securities and Exchange Commission periodic reports, proxy statements
and other information relating to our business, financial condition and other
matters. These reports, proxy statements and other information may be inspected
at the Commission's office at the public reference facilities of the Commission
at 450 Fifth Street, NW, Washington, D.C. 20549, and are also available for
inspection at the regional offices of the Commission located at Citicorp Center,
13th Floor, New York, New York 10048. Copies of these materials can be obtained,
upon payment of the Commission's customary charges, by writing to the
Commission's principal office at 450 Fifth Street, NW, Washington, D.C. 20549.
The Commission also maintains a website at http://www.sec.gov that contains
reports, proxy statements and other information. The information is also
available at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Securities and Exchange Commission, or the "Commission", allows us to
"incorporate by reference" information into this proxy statement. This means
that we can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is considered to be part of this proxy statement and later information
filed with the Commission will update and supersede the information in this
proxy statement.
We incorporate by reference each document we file pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this proxy statement and prior to the Annual Meeting. We also incorporate by
reference into this proxy statement the following documents that we filed with
the Commission (File No. [----]) under the Exchange Act:
--Our Annual Report on Form 10-K for the year ended December 31, 1999,
as amended;
--Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2000 and June 30, 2000; and
--Our Current Reports on From 8-K, dated January 14, 2000; February 3,
2000; February 10, 2000; February 16, 2000; April 10, 2000; June 1, 2000;
June 15, 2000; August 4, 2000; August 8, 2000; August 17, 2000; August 23,
2000; August 28, 2000; September 1, 2000; September 6, 2000; and
September 21, 2000.
All subsequent documents filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement and prior to the date of the Annual
68
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Meeting will be deemed to be incorporated by reference into this proxy statement
and to be a part of the proxy statement form the date of the filing of those
documents.
Documents incorporated by reference are available from us without charge,
excluding all exhibits (unless we have specifically incorporated by reference an
exhibit into this proxy statement). You may obtain documents incorporated by
reference by requesting them in writing or by telephone as follows:
Burnham Pacific Properties, Inc.
110 West A Street, Suite 900
San Diego, CA 92101
Attention: Corporate Secretary
Telephone: (619) 652-4700
If you would like to request documents from us, please do so by , 2000
in order to ensure timely receipt before the Annual Meeting.
You should rely only on the information contained in this document to vote
your shares of Common Stock and/or Preferred Stock at the Annual Meeting. We
have not authorized anyone to provide you with information that is different
from what is contained in this document. This document is dated September [ ],
2000. You should not assume that the information contained in this document is
accurate as of any date other than that date, and the mailing of this document
to stockholders does not create any implication to the contrary. This proxy
statement does not constitute a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such proxy
solicitation in that jurisdiction.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you have
questions about the liquidation or need assistance voting your shares, you
should contact:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
1-888-246-5358 (Toll-Free)
You may also contact your Company:
BURNHAM PACIFIC PROPERTIES, INC.
110 West A Street, Suite 900
San Diego, CA 92101
1-619-652-4700.
Attention: Daniel B. Platt, Chief Financial Officer
69
<PAGE>
APPENDICES
Appendix A - Plan of Liquidation and Dissolution
Appendix B - Opinions of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc.
70
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APPENDIX A
BURNHAM PACIFIC PROPERTIES, INC.
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
1. This Plan of Complete Liquidation (the "Plan") of Burnham Pacific
Properties, Inc., a Maryland corporation (the "Company"), has been approved by
the Company's Board of Directors as being advisable and in the best interests of
the Company and its stockholders. The Board of Directors has directed that the
Plan be submitted to the stockholders of the Company for approval. The Plan
shall become effective upon approval of the Plan by the holders of at least a
majority of the outstanding shares of the Company's common stock, $0.01 par
value (the "Common Stock"), and the Series 2000-C Convertible Preferred Stock,
$0.01 par value (the "Preferred Stock"), voting together as a single class on an
as-converted basis, and upon the approval of at least a majority of the
outstanding shares of Preferred Stock, voting separately as a class. The date of
the stockholders' approval is hereinafter referred to as the "Effective Date."
It is currently contemplated that prior to obtaining the approval of the holders
of the Preferred Stock, such holders will exchange their shares of Preferred
Stock for shares of a new series of preferred stock of the Company. If this
exchange is effected, "Preferred Stock" as used herein shall refer to such new
series of preferred stock.
2. On or after the Effective Date, the Company shall be voluntarily
liquidated and dissolved. Pursuant to the Plan, the Board shall cause the
Company to sell, convey, transfer and deliver or otherwise dispose of any and/or
all of the assets of the Company in one or more transactions, without further
approval of the stockholders. The Company shall not engage in any business
activities, except to the extent necessary for preserving the values of the
Company's assets, winding up its business and affairs, discharging and paying
all Company liabilities and distributing the Company's assets to its
stockholders in accordance with the Plan and the Company's charter.
3. The appropriate officers of the Company shall take such actions as may
be necessary or appropriate to marshal the assets of the Company and convert the
same, in whole or in parts, into cash or such other form as may be conveniently
distributed to the stockholders.
4. After provision for all debts and other reserves as may be deemed
necessary or appropriate by the Board of Directors, the appropriate officers of
the Company shall distribute, by means of one or more distributions (one or more
of which distributions may be in the form of beneficial interests in a trust
holding Company assets), all of the assets of the Company to the stockholders.
Subject to the terms of the Articles Supplementary of the Company and in
connection therewith such officers shall execute all checks, instruments,
notices and any and all other documents necessary to effectuate such
distribution. The final distribution shall be made no later than the second
anniversary of the Effective Date.
5. Subject to Section 7 below and the Charter and Articles Supplementary of
the Company, the distributions contemplated by Section 4 above shall be in
complete liquidation of the Company and in cancellation of all shares of Common
Stock and Preferred Stock issued and outstanding, and all certificates
representing such issued and outstanding shares of Common Stock and Preferred
Stock shall thereupon be canceled. The Board of Directors shall make such
provisions as it deems appropriate regarding the cancellations, in connection
with the making of distributions hereunder, of certificates representing the
shares of Common Stock and Preferred Stock (or certificates representing
interests in the Liquidating Trust as provided in Section 7 hereof) outstanding.
6. In the course of the liquidation, the Board of Directors, acting in its
discretion, shall have the authority to terminate the Company's status as a real
estate investment trust under Section 856-860 of the Internal Revenue Code of
1986, as amended; provided that such termination shall not be effective without
the prior approval of the holders of a majority of the shares of Preferred
Stock.
A-1
<PAGE>
7. In the event that it should not be feasible, in the opinion of the Board
of Directors, for the Company to pay, or adequately provide for, all debts and
liabilities of the Company (including costs and expenses incurred and
anticipated to be incurred in connection with the liquidation of the Company) at
the time the final liquidation distribution is made pursuant to Section 4
hereof, or, if earlier, the latest applicable date to avoid payment by the
Company of Federal income taxes, or the Board of Directors shall determine that
it is not advisable to distribute at such time any of the property then held by
or for the account of the Company because such property is not reasonably
susceptible of distribution to stockholders or otherwise, the Company shall
transfer and assign, at such time as is determined by the Board of Directors, to
a liquidating trust as designated by the Board of Directors (the "Liquidating
Trust") sufficient cash and property to pay, or adequately provide for, all such
debts and liabilities and such other property as it shall have determined is
appropriate; provided that the provisions of the Liquidating Trust Agreement and
the transfer to the Liquidating Trust of any property of the Company pursuant to
this Section 7 shall not be effective without the prior approval by the holders
of a majority of the shares of the Preferred Stock. Upon such transfer and
assignment, certificates for shares of Common Stock and Preferred Stock will be
deemed to represent certificates for identical interests in the Liquidating
Trust. The Liquidating Trust shall be constituted pursuant to a Liquidating
Trust Agreement in such form as the Board of Directors may approve and its
initial trustees shall be appointed by the Board of Directors, it being intended
that the transfer and assignment to the Liquidating Trust pursuant hereto and
the distribution to the stockholders of the beneficial interest therein shall
constitute a part of the final liquidating distribution by the Company to the
stockholders of their pro rata interest in the remaining amount of cash and
other property held by or for the account of the Company. From and after the
date of the Company's transfer of cash and property to the Liquidating Trust,
the Company shall have no interest of any character in and to any such cash and
property and all of such cash and property shall thereafter by held by the
Liquidating Trust solely for the benefit of an ultimate distribution to the
stockholders, subject to any unsatisfied debts, liabilities and expenses.
Adoption of the Plan will constitute the approval by the stockholders of the
Liquidating Trust Agreement and the appointment of trustees.
8. Upon assignment and conveyance of the assets of the Company to the
stockholders, in complete liquidation of the Company as contemplated by
Sections 4 and 5 above, and the taking of all actions required under the law of
the State of Maryland in connection with the liquidation and dissolution of the
Company, the appropriate officers of the Company shall execute and cause to be
filed with the State Department of Assessments and Taxation of the State of
Maryland, and elsewhere as may be required or deemed appropriate, such documents
as may be required to dissolve the Company.
9. The Board of Directors of the Company, or the trustees of the
Liquidating Trust, and such officers of the Company as the Board of Directors
may direct, are hereby authorized to interpret the provisions of the Plan and
are hereby authorized and directed to take such further actions, to execute such
agreements, conveyances, assignments, transfers, certificates and other
documents, as may in their judgment be necessary or desirable in order to wind
up expeditiously the affairs of the Company and complete the liquidation
thereof, including, without limitation, (i)the execution of any contracts,
deeds, assignments or other instruments necessary or appropriate to sell or
otherwise dispose of, any and all property of the Company, whether real or
personal, tangible or intangible, (ii)the appointment of other persons to carry
out any aspect of this Plan, (iii)the temporary investment of funds in such
medium as the Board of Directors may deem appropriate, and (iv)the modification
of this plan as may be necessary to implement this plan. The death, resignation
or other disability of any Director or officer of the Company shall not impair
the authority of the surviving or remaining Directors or officers of the Company
(or any persons appointed as substitutes therefor) to exercise any of the powers
provided for in this Plan. Upon such death, resignation or other disability, the
surviving or remaining Directors shall have the authority to fill the vacancy or
vacancies so created, but the failure to fill such vacancy or
A-2
<PAGE>
vacancies shall not impair the authority of the surviving or remaining Directors
or officers to exercise any of the powers provided for in this Plan.
10. The Board of Directors may terminate this Plan for any reason. The
power of termination shall be exercisable both before and after approval of the
Plan by the stockholders of the Company, but such power shall not continue after
articles of dissolution have been accepted for record by the State Department of
Assessments and Taxation of the State of Maryland. Notwithstanding approval of
the Plan by the stockholders of the Company, the Board of Directors may modify
or amend the Plan without further action by the stockholders of the Company to
the extent permitted under then current law.
A-3
<PAGE>
APPENDIX B
[LOGO]
September 1, 2000
The Board of Directors
Burnham Pacific Properties, Inc.
110 West A Street
Suite 900
San Diego, CA 92101
Dear Members of the Board of Directors:
We understand that Burnham Pacific Properties, Inc. (the "Company"), as part
of its announced plan to liquidate, intends to enter into a contract to sell
certain of the Company's assets. Specifically, we understand that the Company
intends to enter into a contract to sell 15 of its properties known as: Downtown
Pleasant Hill, Hilltop Plaza, San Diego Factory Outlet Center and K-Mart, Plaza
at Puente Hills, Valley Central, Richmond Shopping Center, La Mancha Shopping
Center, Cameron Park, Lake Arrowhead Village, Olympiad Plaza, Mountaingate
Plaza, Meridian Village, Puget Park, Keizer Creekside, and Village East
(individually referred to herein as a "Property" and collectively referred to as
the "Promotional Portfolio"), to a venture between Developers Diversified Realty
Corp. ("DDR") and Coventry Real Estate Partners, Ltd. ("Coventry" and with DDR,
"DDR Coventry") for total consideration of at least $355.61 million (the
"Promotional Portfolio Sale").
You have requested our opinion (the "Opinion") as to the matters set forth
below. This Opinion does not address the Company's underlying business decision
to effect the Promotional Portfolio Sale, the use of proceeds from the
Promotional Portfolio Sale, or the form, timing, or amount of any consideration
distributed to the Company's shareholders as a result of the Promotional
Portfolio Sale. Further, this Opinion does not address the Company's underlying
business decision to sell any or all of its assets, its plan of liquidation or
any other strategic alternatives, or the method by which it shall distribute any
consideration received as a result of any sales. Houlihan Lokey did not, and was
not requested by the Company or any other person to, solicit third party
indications of interest in acquiring the Promotional Portfolio, or all or any
part of the Company or to make any recommendations as to the form or amount of
consideration to be received by the Company, the stockholders of the Company, or
any other person in connection with the Promotional Portfolio Sale, which
consideration was determined through negotiations among DDR/Coventry, as
applicable, and the Company. Houlihan Lokey was not asked to opine on and did
not express any opinion as to (1) tax or legal consequences of the Promotional
Portfolio Sale, or any part thereof, including but not limited to tax or legal
consequences to the Company or the stockholders of the Company; (2) the
fairness, advisability or desirability of alternatives to the Promotional
Portfolio Sale, or any part thereof; (3) the fair market value of the Company or
any of its assets; (4) the fairness of any aspect of the Promotional Portfolio
Sale not expressly addressed in the Houlihan Lokey Opinions; or (5) any other
aspect of the Company's plan of liquidation, including the payment of or
establishing reserves with respect to the Company's liabilities or the amount
that will ultimately be distributed to the Company's stockholders. Houlihan
Lokey did not perform an independent appraisal of the Promotional Portfolio, the
Properties or any other assets of the Company. Furthermore, Houlihan Lokey did
not negotiate the Promotional Portfolio Sale or any part of either or advise the
Company with respect to alternatives it.
B-1
<PAGE>
The Board of Directors
Burnham Pacific Properties, Inc.
September 22, 2000 -2-
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. held discussions with the Company's senior management and met with the
Company's asset management to discuss the Promotional Portfolio Sale, the
operations, financial condition, future prospects and performance of the
Promotional Portfolio;
2. reviewed company-prepared income statements for each Property for the three
fiscal years ended December 31, 1999, and the interim period ended July 31,
2000, which the Company's management has identified as being the most
current financial statements available for each such asset;
3. reviewed specific portions of the Confidential Information Memorandum
pertaining to the Promotional Portfolio and the Properties as prepared by
the investment banking firm of Goldman Sachs;
4. reviewed the Letter of Interest pertaining to DDR/Coventry's acquisition of
the Promotional Portfolio as prepared by DDR/Coventry dated August 18, 2000;
5. reviewed forecasts and projections prepared by the Company's management with
respect to the Properties for the years ending December 31, 2000 through
December 31, 2005;
6. conducted site visits to certain of the Properties;
7. reviewed publicly available information on certain transactions involving
properties that we deemed comparable to the Properties;
8. reviewed publicly available information on certain companies that we deemed
comparable to the Promotional Portfolio; and
9. conducted such other studies analyses, studies and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably and
accurately prepared and reflect the best currently available estimates of the
future financial results and condition of the Promotional Portfolio and each
Property, and that there has been no material change in the assets, financial
condition, business or prospects of the Promotional Portfolio or any Property
since the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. Other than as set forth above, we have not
made any physical inspection of any of the Properties or assets of the Company.
We have not made an independent appraisal of any of the Properties or assets of
the Company. Our opinion is necessarily based on business, economic, market and
other conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the gross consideration to be received by the Company from DDR/Coventry in
connection with the Promotional Portfolio Sale is fair to the Company from a
financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
B-2
<PAGE>
[LOGO]
September 8, 2000
The Board of Directors
Burnham Pacific Properties, Inc.
110 West A Street
Suite 900
San Diego, CA 92101
Dear Members of the Board of Directors:
We understand that Burnham Pacific Properties, Inc. (the "Company"), as part
of its announced plan to liquidate, intends to enter into a contract to sell
certain of the Company's assets. Specifically, we understand that the Company
intends to enter into a contract to sell 19 of its properties known as: 580
Marketplace, Arcade Square, Buena Vista Marketplace, Centerwood Plaza, Creekside
Shopping Center, Discovery Plaza, Fremont Gateway Plaza, Hallmark Town Center,
Menifee Town Center, Prospector's Plaza, Ralph's Center, San Marcos Lucky Plaza,
Shasta Crossroads, Silver Creek Plaza, Southampton Center, Stony Point Plaza,
Summerhills Shopping Center, Sunset Center, and Westminster Center (individually
referred to herein as a "Property" and collectively referred to as the "Golden
State Portfolio"), to GMS Realty, LLC ("GMS") for total consideration of at
least $305.00 million (the "Golden State Portfolio Sale").
You have requested our opinion (the "Opinion") as to the matters set forth
below. This Opinion does not address the Company's underlying business decision
to effect the Golden State Portfolio Sale, the use of proceeds from the Golden
State Portfolio Sale, or the form, timing, or amount of any consideration
distributed to the Company's shareholders as a result of the Golden State
Portfolio Sale. Further, this Opinion does not address the Company's underlying
business decision to sell any or all of its assets, its plan of liquidation or
any other strategic alternatives, or the method by which it shall distribute any
consideration received as a result of any sales. Houlihan Lokey did not, and was
not requested by the Company or any other person to, solicit third party
indications of interest in acquiring the Golden State Portfolio, or all or any
part of the Company or to make any recommendations as to the form or amount of
consideration to be received by the Company, the stockholders of the Company, or
any other person in connection with the Golden State Portfolio Sale, which
consideration was determined through negotiations among DDR/Coventry, as
applicable, and the Company. Houlihan Lokey was not asked to opine on and did
not express any opinion as to (1) tax or legal consequences of the Golden State
Portfolio Sale, or any part thereof, including but not limited to tax or legal
consequences to the Company or the stockholders of the Company; (2) the
fairness, advisability or desirability of alternatives to the Golden State
Portfolio Sale, or any part thereof; (3) the fair market value of the Company or
any of its assets; (4) the fairness of any aspect of the Golden State Portfolio
Sale not expressly addressed in the Houlihan Lokey Opinions; or (5) any other
aspect of the Company's plan of liquidation, including the payment of or
establishing reserves with respect to the Company's liabilities or the amount
that will ultimately be distributed to the Company's stockholders. Houlihan
Lokey did not perform an independent appraisal of the Golden State Portfolio,
the Properties or any other assets of the Company. Furthermore, Houlihan Lokey
did not negotiate the Golden State Portfolio Sale or any part of either or
advise the Company with respect to alternatives it .
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. held discussions with the Company's senior management and met with the
Company's asset management to discuss the Golden State Portfolio Sale, the
operations, financial condition, future prospects and performance of the
Golden State Portfolio;
B-3
<PAGE>
The Board of Directors
Burnham Pacific Properties, Inc.
September 22, 2000 -2-
2. reviewed company-prepared income statements for each Property for the three
fiscal years ended December 31, 1999, and the interim period ended July 31,
2000, which the Company's management has identified as being the most
current financial statements available for each such asset;
3. reviewed specific portions of the Confidential Information Memorandum
pertaining to the Golden State Portfolio and the Properties as prepared by
the investment banking firm of Goldman Sachs;
4. reviewed the Letter of Interest pertaining to GMS' acquisition of the Golden
State Portfolio as prepared by GMS dated August 23, 2000;
5. reviewed forecasts and projections prepared by the Company's management with
respect to the Properties for the years ending December 31, 2000 through
December 31, 2005;
6. conducted site visits to certain of the Properties;
7. reviewed publicly available information on certain transactions involving
properties that we deemed comparable to the Properties;
8. reviewed publicly available information on certain companies that we deemed
comparable to the Golden State Portfolio; and
9. conducted such other studies analyses, studies and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably and
accurately prepared and reflect the best currently available estimates of the
future financial results and condition of the Golden State Portfolio and each
Property, and that there has been no material change in the assets, financial
condition, business or prospects of the Golden State Portfolio or any Property
since the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. Other than as set forth above, we have not
made any physical inspection of any of the Properties or assets of the Company.
We have not made an independent appraisal of any of the Properties or assets of
the Company. Our opinion is necessarily based on business, economic, market and
other conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the gross consideration of at least $305 million to be received by the Company
from GMS in connection with the Golden State Portfolio Sale is fair to the
Company from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
B-4
<PAGE>
(Front)
PROXY
BURNHAM PACIFIC PROPERTIES, INC.
110 WEST A STREET, SUITE 900
SAN DIEGO, CA 92101
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF BURNHAM PACIFIC PROPERTIES, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER , 2000
The undersigned hereby constitutes and appoints Scott C. Verges and Michael
L. Rubin, and each of them, as proxies (the "Proxies") for the undersigned, with
full power of substitution in each, and authorizes each of them to represent the
undersigned at the Annual Meeting of Stockholders (the "Annual Meeting") of
Burnham Pacific Properties, Inc. ("Burnham Pacific") to be held at The Pan
Pacific Hotel, 500 Post Street, San Francisco, California, 94102, on
October , 2000, at 9:00 a.m., local time, and at any adjournments or
postponements thereof with all powers possessed by the undersigned if personally
present at the Annual Meeting, and to vote all shares of (1) common stock, par
value $.01 per share, of Burnham Pacific and (2) Series 2000-C Convertible
Preferred Stock, par value $.01 per share, held of record by the undersigned as
of the close of business on September 18, 2000, at the Annual Meeting, and at
any adjournments or postponements thereof.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
ENSURE THAT YOUR SHARES ARE VOTED AT THE ANNUAL MEETING, YOU ARE URGED TO SIGN,
DATE AND MAIL THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE OR AUTHORIZE A
PROXY TO VOTE YOUR SHARES BY TELEPHONE OR OVER THE INTERNET IN ACCORDANCE WITH
THE INSTRUCTIONS PROVIDED BELOW. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE
IN PERSON EVEN IF YOU HAVE ALREADY RETURNED A PROXY.
PLEASE SIGN AND DATE THIS PROXY ON REVERSE SIDE
AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
Burnham Pacific encourages you to take advantage of new and convenient ways
by which you can vote your shares. You can authorize a proxy to vote your shares
electronically through the Internet or the telephone. This eliminates the need
to return the proxy card. If you choose to authorize a proxy to vote your shares
electronically through the Internet or the telephone, you must do so prior to
12:00 a.m. Eastern Time on October , 2000, the date of the Annual Meeting.
To authorize a proxy to vote your shares electronically you must use the
control number ________ to access the system.
1. To authorize a proxy to vote your shares over the Internet:
-- Log on to the Internet and go to the web site
http://www.eproxyvote.com/bpp
2. To authorize a proxy to vote your shares over the telephone:
-- On a touch-tone telephone call 1-877-779-8683 24 hours a day 7 days a
week.
Your electronic vote authorizes the Proxies in the same manner as if you
marked, signed, dated and returned the proxy card. If you choose to authorize a
proxy to vote your shares electronically, there is no need for you to mail back
your proxy card.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Annual Meeting of Stockholders and the proxy statement with respect
thereto and hereby revoke(s) any proxy or proxies heretofore given.
<PAGE>
(Back)
LOGO
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2 SET FORTH BELOW. THE PROXIES ARE
EACH AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF OR MATTERS INCIDENTAL
THERETO. STOCKHOLDERS WHO PLAN TO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR
PROXY BY CASTING THEIR VOTE AT THE ANNUAL MEETING IN PERSON. PLEASE SIGN, DATE
AND PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. To approve the Plan of Complete Liquidation and Dissolution (the "Plan") of
Burnham Pacific. A vote in favor of the Plan will also approve and ratify
the transactions described in the proxy statement which Burnham Pacific and
its Board of Directors have undertaken in connection with the Plan.
FOR / / AGAINST / / ABSTAIN / /
2. To elect the following individuals to serve as Directors of Burnham Pacific
until their respective successors are duly elected and qualified:
(01) Michael L. Ashner, (02) Nominee 1, (03) James D. Klingbeil,
(04) James D. Harper, Jr., (05) Nominee 2, (06) Nina B. Matis,
(07) Donne P. Moen, (08) Philip S. Schlein and (09) Jay L. Schottenstein.
FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES / /
LISTED ABOVE (except as marked
to the contrary below)
----------------------------------------------------------------------------
Instruction: To withhold authority to vote for any individual nominee,
mark "FOR" all nominees above and write the name(s) of the nominee(s)
with respect to whom you wish to withhold authority to vote on the line
above.
3. To consider and act upon such other matters as may properly come before the
Annual Meeting and any adjournments or postponements thereof or matters
incidental thereto in the discretion of the Proxies.
FOR / / AGAINST / / ABSTAIN / /
Where there is more than one holder, each should sign. When signing as an
attorney, administrator, executor, guardian or trustee, please add your title as
such. If executed by a company or partnership, the proxy should be executed in
the full corporate or partnership name and signed by a duly authorized person,
stating his or her title or authority.
/ / Check here only if you plan to attend the meeting in person.
Stockholder(s)
signature(s): ____________________________ Date: ______________
Stockholder(s)
signature(s): ____________________________ Date: ______________
LOGO
