<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGENCY REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 6798 59-3191743
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
121 WEST FORSYTH STREET, SUITE 200
JACKSONVILLE, FLORIDA 32202
(904) 356-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARTIN E. STEIN, JR.,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
121 WEST FORSYTH STREET, SUITE 200
JACKSONVILLE, FLORIDA 32202
(904) 356-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES E. COMMANDER III EDWARD J. SCHNEIDMAN
LINDA Y. KELSO MAYER, BROWN & PLATT
FOLEY & LARDNER 190 SOUTH LASALLE STREET
200 LAURA STREET CHICAGO, ILLINOIS 60603
JACKSONVILLE, FLORIDA 32202 (312) 782-0600
(904) 359-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<TABLE>
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<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.01 par
value(3)............... 32,251,630 $22.91 $704,349,671 $207,783
- -------------------------------------------------------------------------------------------
Series 1 preferred
stock, $0.01 par value. 542,532 20.83 11,302,760 3,334
- -------------------------------------------------------------------------------------------
Series 2 preferred
stock, $0.01 par val-
ue(4).................. 1,502,532 20.83 20,000,000 5,900
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended,
the maximum aggregate offering price is based on the book value of the
Pacific Retail Trust Common and Preferred Shares as of August 31, 1998.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933.
Pursuant to Rule 457(i), the total fee is calculated on the basis of the
common stock and preferred stock issuable at the effective time of the
merger and does not include common stock issuable upon conversion of
preferred stock.
(3) Represents 30,749,097 shares of common stock issuable upon consummation of
the proposed merger and 1,502,532 shares of common stock issuable upon
conversion of Series 2 preferred stock.
(4) Represents 960,000 shares of Series 2 preferred stock issuable upon
consummation of the proposed merger and 542,532 shares of Series 2
preferred stock issuable upon conversion of the Series 1 preferred stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Regency Realty
Corporation, a Florida corporation ("REGENCY"), will be held on Friday,
December 18, 1998 at , Eastern Standard Time, at , , Jacksonville,
Florida 32202, for the following purposes:
1. To consider and vote upon the approval of the Agreement and Plan of
Merger dated as of September 23, 1998 (the "Merger Agreement"), between
REGENCY and Pacific Retail Trust, a Maryland real estate investment
trust ("PACIFIC RETAIL"), pursuant to which among other matters, (i)
PACIFIC RETAIL will be merged with and into REGENCY, (ii) each
outstanding PACIFIC RETAIL Common Share will be converted into the right
to receive 0.48 shares of REGENCY Common Stock and (iii) each
outstanding PACIFIC RETAIL Preferred Share will be converted into the
right to receive 0.48 shares of REGENCY Preferred Stock of a comparable
series, all as more fully described in the accompanying Joint Proxy
Statement and Prospectus;
2. To consider and vote upon amendments to REGENCY's Articles of
Incorporation (the "REGENCY Articles Amendment") to permit Security
Capital Holdings S.A., REGENCY's largest shareholder and the controlling
shareholder of PACIFIC RETAIL) to acquire the REGENCY Common Stock
issuable to it in the merger and to prohibit Non-U.S. Persons (other
than Security Capital Holdings S.A. and certain related parties) from
directly or indirectly acquiring REGENCY capital stock so long as Non-
U.S. Persons own 50% or more of the issued and outstanding shares of
REGENCY capital stock, as more fully described in the accompanying Joint
Proxy Statement and Prospectus;
3. To consider and vote on Amendment No. 1 to the REGENCY 1993 Long-Term
Omnibus Plan (the "REGENCY Incentive Plan") to increase the number of
shares available for award under the REGENCY Incentive Plan to
incorporate the shares authorized under PACIFIC RETAIL's stock option
plan and to expand the class of eligible participants to include three
departing PACIFIC RETAIL executives, as more fully described in the
accompanying Joint Proxy Statement and Prospectus; and
4. To transact any other business that may properly come before the special
meeting or any adjournment or postponement thereof.
Copies of the Merger Agreement and the REGENCY Articles Amendment are set forth
as Annex A and Annex D, respectively, to the Joint Proxy Statement and
Prospectus and are incorporated herein by reference.
The REGENCY Board of Directors has fixed October 13, 1998, as the record date
for the determination of shareholders entitled to notice of and to vote at the
special meeting. The affirmative vote of the holders of a majority of the
outstanding REGENCY Common Stock is required to approve the Merger Agreement.
Assuming the presence of a quorum, the affirmative vote of a majority of the
outstanding shares of REGENCY Common Stock voting with respect to the proposed
REGENCY Articles Amendment is required to approve Proposal 2. The affirmative
vote of a majority of the REGENCY Common Stock voted with respect to the
Amendment to the REGENCY
<PAGE>
Jacksonville, Florida,
November , 1998
Incentive Plan is required to approve Proposal 3 (provided that more than 50%
of the votes entitled to be cast are voted on the proposal). The approval of
each proposal is a condition to the approval of each other proposal. Holders of
REGENCY Common Stock are not entitled to dissenters' rights under Florida law
in connection with any of the proposals.
The attached Joint Proxy Statement and Prospectus is being sent to the holder
of REGENCY's Class B Non-Voting Common Stock for its information only; such
holder is not entitled to notice of, or to vote at, the special meeting.
REGENCY'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE MERGER AND THE TWO OTHER PROPOSALS BEING SUBMITTED
TO A VOTE OF SHAREHOLDERS.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED PRE-
ADDRESSED, POSTAGE-PAID ENVELOPE.
Very truly yours,
J. Christian Leavitt
Secretary
<PAGE>
PACIFIC RETAIL TRUST
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Pacific Retail
Trust, a Maryland real estate investment trust ("PACIFIC RETAIL"), will be held
on , , 1998 at , Central time, at the offices of PACIFIC RETAIL,
8140 Walnut Hill Lane, Suite 400, Dallas, Texas, 75231, for the following
purposes:
1. To consider and vote upon the approval of the Agreement and Plan of
Merger dated as of September 23, 1998 (the "Merger Agreement"), between
PACIFIC RETAIL and Regency Realty Corporation, a Florida corporation
("REGENCY") (an affiliate of Security Capital U.S. Realty, PACIFIC
RETAIL's largest shareholder), pursuant to which among other matters,
(i) PACIFIC RETAIL will be merged with and into REGENCY, (ii) each
outstanding PACIFIC RETAIL Common Share will be converted into the right
to receive 0.48 shares of REGENCY Common Stock and (iii) each
outstanding PACIFIC RETAIL Preferred Share will be converted into the
right to receive 0.48 shares of REGENCY Preferred Stock of a comparable
series, all as more fully described in the accompanying Joint Proxy
Statement and Prospectus:
2. To transact any other business that may properly come before the special
meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex A to the Joint Proxy
Statement and Prospectus and is incorporated herein by reference.
The PACIFIC RETAIL Board of Trustees has fixed , 1998, as the record date
for the determination of shareholders entitled to notice of and to vote at the
special meeting. The affirmative vote of the holders of a majority of the votes
entitled to be cast by holders of PACIFIC RETAIL Common Shares and Preferred
Shares, voting together as a single class, is required to approve the merger
and the Merger Agreement.
HOLDERS OF PACIFIC RETAIL COMMON SHARES AND PREFERRED SHARES ARE ENTITLED TO
DISSENTERS' RIGHTS UNDER MARYLAND LAW IN CONNECTION WITH THE PROPOSALS.
PACIFIC RETAIL'S BOARD OF TRUSTEES HAS APPROVED THE MERGER AND RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE MERGER.
Whether or not you plan to attend the special meeting, please complete, date
and sign the enclosed proxy card and mail it promptly in the enclosed pre-
addressed, postage-paid envelope.
Very truly yours,
Jane E. Mody
Secretary
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS JOINT PROXY STATEMENT AND PROSPECTUS IS NOT COMPLETE +
+AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION +
+STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. +
+THIS JOINT PROXY STATEMENT AND PROSPECTUS IS NOT AN OFFER TO SELL THESE +
+SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY +
+STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of REGENCY REALTY CORPORATION and the Board of Trustees
of PACIFIC RETAIL TRUST have approved a merger of PACIFIC RETAIL into REGENCY
and recommend that their shareholders vote in favor of the merger. The merger
will create a $2.2 billion market capitalization REIT with 194 grocery-anchored
shopping centers in high-growth markets in 22 states and the District of
Columbia. Holders of PACIFIC RETAIL Common Shares will receive 0.48 of a share
of REGENCY Common Stock for each of their PACIFIC RETAIL Common Shares. Holders
of PACIFIC RETAIL Preferred Shares will receive 0.48 of a share of a
corresponding series of REGENCY Preferred Stock for each of their PACIFIC
RETAIL Preferred Shares. Up to an aggregate of 30,749,097 shares of REGENCY
Common Stock and 1,502,532 shares of REGENCY Preferred Stock are issuable upon
consummation of the merger.
The merger can only be completed if the holders of a majority of REGENCY's
Common Stock approve it and the holders of a majority of PACIFIC RETAIL's
Common and Preferred Shares, voting together, approve it. REGENCY is also
asking its shareholders to approve (1) amendments to REGENCY's Articles of
Incorporation and (2) amendments to a REGENCY Incentive Plan, without which the
merger cannot take place.
REGENCY common stock is traded on the New York Stock Exchange under the symbol
"REG." Security Capital Holdings S.A. owns approximately 46.0% of the REGENCY
Common Stock and approximately 69.9% of PACIFIC RETAIL voting shares. Security
Capital Holdings S.A. has agreed to vote all of such stock in favor of each of
the proposals.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER IN EVALUATING THE MERGER.
Whether or not you plan to attend, please vote on the proposal(s) submitted at
your shareholders meeting by completing and mailing the enclosed proxy card. If
you sign, date and mail your proxy card without indicating how you wish to
vote, your proxy will be counted as a vote in favor of the proposal(s)
submitted at your meeting. If you fail to return your card or if you do not
instruct your broker how to vote any shares held in "street name," the effect
will be a vote against the merger, unless you attend the meeting and vote in
person for the merger.
This Joint Proxy Statement and Prospectus contains detailed information about
the proposed merger. We encourage you to read this entire document carefully.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement and Prospectus dated , 1998, and first mailed to
shareholders on , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INCORPORATION BY REFERENCE................................................ vi
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...........................
SUMMARY................................................................... 1
The Companies........................................................... 1
The Combined Company.................................................... 1
The Merger.............................................................. 3
The Merger Agreement.................................................... 5
The Special Meetings of Shareholders.................................... 6
Historical Financial Data of Regency.................................... 9
Historical Financial Data of PACIFIC RETAIL............................. 10
Regency Pro Forma Summary Financial Data................................ 11
Comparative Market and Per Share Data................................... 12
RISK FACTORS.............................................................. 13
Risk Factors Relating to the Merger..................................... 13
Risk Factors Relating to Ownership of REGENCY Common Stock.............. 15
REGENCY................................................................... 19
Operating and Investment Philosophy..................................... 19
Grocery-Anchored Infill Strategy........................................ 20
Research Driven Market Selection........................................ 20
Retail Operating System................................................. 20
Acquisition Track Record................................................ 21
Capital Strategy........................................................ 22
Available Information................................................... 22
PACIFIC RETAIL............................................................ 23
Description of Business................................................. 23
Properties.............................................................. 23
Tenants................................................................. 24
Historical Financial Data of PACIFIC RETAIL............................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 27
Investment Policies of PACIFIC RETAIL................................... 33
THE COMBINED COMPANY...................................................... 37
THE MERGER................................................................ 39
Terms of the Merger..................................................... 39
The Subsidiary Mergers.................................................. 39
Background of the Merger................................................ 40
Reasons for the Merger; Recommendations of the REGENCY Board............ 45
Opinion of REGENCY's Financial Advisor.................................. 47
Reasons for the Merger; Recommendations of the PACIFIC RETAIL Board..... 52
Opinion of PACIFIC RETAIL's Financial Advisor........................... 54
Interests of Certain Parties............................................ 58
Voting Agreement........................................................ 59
Transfer Restriction Agreements......................................... 60
Amendment to Stockholders Agreement..................................... 60
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Material Federal Income Tax Consequences................................ 63
Accounting Treatment.................................................... 67
Restrictions on Sales by Affiliates..................................... 67
Dissenters' Rights...................................................... 67
THE MERGER AGREEMENT...................................................... 69
REGENCY Board Recommendation............................................ 69
PACIFIC RETAIL Board Recommendation..................................... 69
General................................................................. 69
Effective Time of the Merger............................................ 69
Exchange of PACIFIC RETAIL Share Certificates........................... 69
Conditions to the Merger................................................ 71
Representations and Warranties.......................................... 72
Certain Covenants....................................................... 72
Distributions........................................................... 74
No Solicitation of Transactions......................................... 75
Termination............................................................. 76
Termination Amount...................................................... 77
Indemnification......................................................... 78
Amendment And Waiver.................................................... 78
APPROVAL OF THE REGENCY ARTICLES AMENDMENT................................ 79
Description of Amendment................................................ 79
Possible Effect of Proposed Amendment................................... 82
AMENDMENT TO THE REGENCY INCENTIVE PLAN................................... 82
General................................................................. 83
Increase in Number of Shares............................................ 83
Description of the Plan................................................. 84
Amendment to Allow Substitute Options for Departing PACIFIC RETAIL
Executives............................................................. 86
Substitute Options After the Merger..................................... 86
Other REGENCY Incentive Plan Programs................................... 87
INFORMATION CONCERNING EXECUTIVE OFFICERS AND DIRECTORS OF REGENCY AFTER
THE MERGER............................................................... 89
Executive Compensation.................................................. 91
THE SPECIAL MEETINGS OF SHAREHOLDERS...................................... 93
The REGENCY Special Meeting............................................. 93
The PACIFIC RETAIL Special Meeting...................................... 94
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 96
DESCRIPTION OF REGENCY SECURITIES......................................... 106
REGENCY Common Stock.................................................... 106
Special Common Stock.................................................... 106
REGENCY Preferred Stock................................................. 107
Restrictions on Ownership............................................... 109
Staggered Board of Directors............................................ 112
Advance Notice Provisions for Shareholder Nominations and Shareholder
Proposals.............................................................. 112
Certain Provisions of Florida Law....................................... 112
PRINCIPAL SHAREHOLDERS OF PACIFIC RETAIL.................................. 113
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CERTAIN PACIFIC RETAIL RELATIONSHIPS AND TRANSACTIONS.................. 115
Investor Agreement................................................... 115
Registration Rights Agreements....................................... 115
Shareholders Agreement............................................... 116
Private Offerings.................................................... 116
Partnership Affiliations............................................. 117
Share Purchase Program............................................... 117
LEGAL MATTERS.......................................................... 118
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS............................. 118
EXPENSES OF SOLICITATION............................................... 118
SHAREHOLDER PROPOSALS.................................................. 119
INDEX TO FINANCIAL STATEMENTS.......................................... FS-1
ANNEXES
Agreement and Plan of Merger......................................... Annex A
Opinion of Prudential Securities Incorporated........................ Annex B
Opinion of Goldman, Sachs & Co....................................... Annex C
Articles of Amendment to REGENCY Articles of Incorporation........... Annex D
Amendment No. 3 to Stockholders Agreement............................ Annex E
Designations of REGENCY Series 1 and Series 2 Preferred Stock........ Annex F
Title 3, Subtitle 2 of the Maryland General Corporation Law and Title
8, Subtitle 5 of the Corporations and Associations Article of the
Annotated Code of Maryland.......................................... Annex G
</TABLE>
iii
<PAGE>
INCORPORATION BY REFERENCE
This Joint Proxy Statement and Prospectus incorporates important business and
financial information about REGENCY that is not included in or delivered with
this document. This information is available without charge upon oral or
written request addressed to Ms. Lesley Stocker, Shareholder Communications,
121 West Forsyth Street, Suite 200, Jacksonville, Florida 32202, (telephone:
(904) 356-7000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST
REQUEST THE INFORMATION BY DECEMBER 11, 1998.
The following documents, which have been filed with the Securities and Exchange
Commission by REGENCY pursuant to the Securities Exchange Act of 1934 (File No.
1-12298), are incorporated by reference in this Joint Proxy Statement and
Prospectus:
(a) REGENCY's Annual Report on Form 10-K for the year ended December 31,
1997;
(b) REGENCY's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998;
(c) REGENCY's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998;
(d) REGENCY's Current Report on Form 8-K dated January 12, 1998 and filed
February 4, 1998, as amended by Form 8-K/A dated March 11, 1998 and
filed March 19, 1998;
(e) REGENCY's Current Report on Form 8-K dated January 14, 1998 and filed
July 20, 1998;
(f) REGENCY's Current Report on Form 8-K dated and filed September 24,
1998;
(g) REGENCY's Current Report on Form 8-K dated and filed October 7, 1998;
and
(h) The description of REGENCY Common Stock contained in REGENCY's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on August 30, 1993, and declared effective on
October 29, 1993, including portions of REGENCY's Registration
Statement on Form S-11 (No. 33-67258) incorporated by reference
therein.
All documents filed by REGENCY pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this Joint Proxy
Statement and Prospectus and prior to the dates of the REGENCY special meeting
and the PACIFIC RETAIL special meeting shall be deemed incorporated in and a
part of this Joint Proxy Statement and Prospectus from the date of filing of
such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein shall be deemed modified or superseded for purposes of this Joint Proxy
Statement and Prospectus to the extent that a statement contained herein or in
any other subsequently filed document that is deemed to be incorporated herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement and Prospectus.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. This Joint Proxy
iv
<PAGE>
Statement and Prospectus is not an offer to sell these securities in any state
where the offer and sale is not permitted. The information in this Joint Proxy
Statement and Prospectus is current as of thedate it is mailed to security
holders, and not necessarily as of any later date. If any material change
occurs during the period that this Joint Proxy Statement and Prospectus is
required to be delivered, this Joint Proxy Statement and Prospectus will be
supplemented.
All information regarding REGENCY in this Joint Proxy Statement and Prospectus
has been supplied by REGENCY, and all information regarding PACIFIC RETAIL in
this Joint Proxy Statement and Prospectus has been supplied by PACIFIC RETAIL.
v
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Joint Proxy Statement and Prospectus that are
not historical facts are forward-looking statements and, with respect to
REGENCY, within Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements are based
on current expectations, estimates and projections about the industry and
markets in which PACIFIC RETAIL and REGENCY operate, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," "should," variations of
such words and similar expressions are intended to identify forward-looking
statements. Such statements involve known and unknown risks, uncertainties and
other factors, including those identified under the caption "Risk Factors" and
elsewhere in this Joint Proxy Statement and Prospectus, that may cause actual
results to be materially different from any future results expressed or implied
by such forward-looking statements. You should not place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
REGENCY and PACIFIC RETAIL do not undertake to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
vi
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed information
appearing elsewhere or incorporated in this Joint Proxy Statement and
Prospectus. We urge you to review the entire Joint Proxy Statement and
Prospectus including its Annexes.
THE COMPANIES
REGENCY
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
(904) 356-7000
REGENCY acquires, owns, develops and manages neighborhood shopping centers in
targeted infill markets primarily in the eastern half of the United States.
REGENCY commenced operations as a real estate investment trust in 1993 with the
completion of its initial public offering. It succeeded to the real estate
business of The Regency Group, Inc., which began operating in 1963.
PACIFIC RETAIL
8140 Walnut Hill Lane, Suite 400
Dallas, Texas 75231
(214) 696-9500
PACIFIC RETAIL is a fully integrated operating company focused on becoming the
preeminent owner, operator and developer of grocery and drug store anchored
neighborhood infill shopping centers in the high growth markets of the western
United States. It was formed as a Maryland real estate investment trust in
1995.
THE COMBINED COMPANY (SEE PAGE 38)
Upon completion of the merger, REGENCY will have a total market capitalization
of approximately $2.2 billion. Based on the portfolios of REGENCY and PACIFIC
RETAIL as of June 30, 1998, the combined company will own 194 shopping centers,
consisting of approximately 22.5 million square feet of gross leasable area, in
22 states and Washington, D.C., including 13 shopping centers under
development.
REGENCY and PACIFIC RETAIL expect the combined company resulting from the
merger to have the following important characteristics, which are intended to
create long-term shareholder value:
. A focus on operating, owning and providing third-party services for a
national platform of grocery-anchored infill retail centers.
. Use of proprietary research to identify investment opportunities
throughout the United States in markets that have:
1. high barriers to entry; and
2. faster population growth and a higher average household income than
the national average.
1
<PAGE>
. Close relationships with leading supermarket chains that are first or
second in their markets.
. ""Preferred customer" initiatives to create multiple leasing
opportunities with top retailer tenants nationwide.
. Synergies that we expect to result in higher growth in funds from
operations than the companies would attain separately.
. A combined customer-driven development pipeline of over $400 million with
higher anticipated yields than acquisition properties.
. Economies of scale that we expect to produce cost savings of more than $5
million annually by the year 2000.
. A strong balance sheet, with a ratio of debt-to-book capitalization of
30% on a pro forma basis as of June 30, 1998, with anticipated credit
capacity of more than $600 million.
. A larger market capitalization that should allow access to debt and
equity markets on more favorable terms than those available to the
individual entities.
. A combined management team with common operating philosophies and
methods.
REGENCY and PACIFIC RETAIL also expect the merger to have the following
potential detriments to their shareholders:
. The merger consideration is fixed, but the market price of REGENCY Common
Stock may fluctuate. Accordingly, the REGENCY Common Stock and REGENCY
Preferred Stock that REGENCY will issue in exchange for the PACIFIC
RETAIL Common Shares and PACIFIC RETAIL Preferred Shares may have a
greater or lower value than the value contemplated at the time the Merger
Agreement was signed.
. As of September 23, 1998, Security Capital Holdings S.A. (together with
its parent Security Capital U.S. Realty, "SC-USREALTY") owned 46.0% of
the outstanding REGENCY Common Stock and 69.9% of the outstanding PACIFIC
RETAIL Common Shares and Preferred Shares. SC-USREALTY will own
approximately 59.3% of the outstanding REGENCY voting stock as a result
of the merger (52.5% on a fully diluted basis giving effect to the
conversion or exchange of all convertible securities including
partnership units). A change of control without SC-USREALTY's concurrence
will be highly unlikely after the merger.
. The size of the transaction may make rapid integration of REGENCY and
PACIFIC RETAIL more difficult.
. Holders of REGENCY stock and PACIFIC RETAIL shares will become subject to
the real estate risks of the markets in which the other company currently
operates.
2
<PAGE>
THE MERGER
TERMS OF THE MERGER (SEE PAGE 39)
The REGENCY and PACIFIC RETAIL Boards have each approved the merger. We have
included the Merger Agreement as Annex A. Upon satisfaction (or waiver) of
certain conditions, when the merger becomes effective:
1. PACIFIC RETAIL will merge into REGENCY;
2. each outstanding PACIFIC RETAIL Common Share will convert into the
right to receive 0.48 shares of REGENCY Common Stock; and
3. each outstanding PACIFIC RETAIL Preferred Share will convert into
the right to receive 0.48 shares of a corresponding series of
REGENCY Preferred Stock.
REGENCY will pay cash in lieu of any fractional shares of REGENCY stock in the
merger.
Based upon the number of PACIFIC RETAIL Common Shares outstanding on
September 30, 1998, the holders of PACIFIC RETAIL Common Shares and Preferred
Shares immediately prior to the merger will hold, immediately after the merger,
approximately 55.8% of the aggregate number of shares of REGENCY voting stock
expected to be outstanding after the merger (52.4% on a fully diluted basis).
RECOMMENDATION OF THE REGENCY BOARD
THE MEMBERS OF THE REGENCY BOARD OF DIRECTORS PRESENT AT THE MEETING OTHER THAN
SC-USREALTY'S REPRESENTATIVES, WHO ABSTAINED, HAVE UNANIMOUSLY APPROVED THE
MERGER AND RECOMMEND THAT REGENCY SHAREHOLDERS VOTE "FOR" THE MERGER AND FOR
THE OTHER TWO PROPOSALS BEING SUBMITTED FOR REGENCY SHAREHOLDER APPROVAL.
The affirmative vote of the holders of a majority of the outstanding REGENCY
Common Stock is required to approve the merger. The affirmative vote of the
holders of a majority of the REGENCY Common Stock voting with respect to the
REGENCY Articles Amendment is required to approve such amendment. The
affirmative vote of the holders of a majority of the REGENCY Common Stock voted
with respect to the Amendment to the REGENCY Incentive Plan is required to
approve such amendment (provided that more than 50% of the votes entitled to be
cast are voted on the proposal).
RECOMMENDATION OF THE PACIFIC RETAIL BOARD
THE PACIFIC RETAIL BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT PACIFIC RETAIL SHAREHOLDERS VOTE "FOR" THE MERGER. The
affirmative vote of the holders of a majority of the outstanding PACIFIC RETAIL
Common Shares and Preferred Shares, voting together as a single class, is
required to approve this proposal.
3
<PAGE>
OPINION OF REGENCY'S FINANCIAL ADVISOR (SEE PAGE 48)
Prudential Securities Incorporated, REGENCY's financial advisor, has delivered
a written opinion to the Special Committee of the REGENCY Board of Directors,
dated September 23, 1998, to the effect that, based upon and subject to the
matters set forth in its opinion, as of such date, the consideration to be paid
by REGENCY in the merger is fair, from a financial point of view, to the
shareholders of REGENCY other than SC-USREALTY. The full text of the opinion of
Prudential Securities Incorporated, which sets forth the assumptions made,
matters considered and limitations on the reviews undertaken, is attached as
Annex B hereto. REGENCY shareholders are urged to read the Prudential opinion
in its entirety.
OPINION OF PACIFIC RETAIL'S FINANCIAL ADVISOR (SEE PAGE 55)
Goldman, Sachs & Co. has delivered its written opinion, dated September 23,
1998, to the Special Committee of the PACIFIC RETAIL Board of Trustees to the
effect that the exchange ratio of 0.48 shares of REGENCY Common Stock to be
paid for each PACIFIC RETAIL Common Share is fair from a financial point of
view to the holders of PACIFIC RETAIL Common Shares other than SC-USREALTY. The
full text of the opinion of Goldman Sachs, which sets forth the assumptions
made, matters considered and limitations of the review undertaken, is attached
as Annex C hereto. Holders of PACIFIC RETAIL Common Shares are urged to read
the opinion of Goldman Sachs in its entirety.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 63)
In the opinion of Mayer, Brown & Platt, based on certain representations of
REGENCY, PACIFIC RETAIL and SC-USREALTY, the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. Accordingly,
. no gain or loss will be recognized by PACIFIC RETAIL shareholders except
to the extent of cash received for fractional shares or pursuant to the
exercise of dissenters' rights,
. no gain or loss will be recognized by REGENCY shareholders, and
. no gain or loss will be recognized by PACIFIC RETAIL or REGENCY.
In the opinion of Foley & Lardner, based on certain representations of REGENCY
and PACIFIC RETAIL, the consummation of the merger will not jeopardize the
status of REGENCY as a real estate investment trust under the Internal Revenue
Code.
DISSENTERS' RIGHTS (SEE PAGE 67)
If you own PACIFIC RETAIL Common Shares or PACIFIC RETAIL Preferred Shares, you
have the right to dissent from the merger and receive cash for the fair value
of your shares. To exercise this right, you must strictly comply with certain
procedures outlined under Maryland law, including filing a written objection to
the merger prior to or at the PACIFIC RETAIL special meeting. Failure to follow
the procedures under Maryland law will result in you losing your right to
receive cash for the fair value of your PACIFIC RETAIL Common Shares or PACIFIC
RETAIL Preferred Shares. Because the REGENCY Common Stock is listed on the New
York Stock Exchange, REGENCY shareholders do not have dissenters' rights under
Florida law.
4
<PAGE>
THE MERGER AGREEMENT
We encourage you to read the Merger Agreement, attached as Annex A, in its
entirety.
EFFECTIVE TIME OF THE MERGER
Subject to the satisfaction (or waiver) of certain conditions, we currently
expect the merger to become effective at 11:59 p.m., Eastern Standard Time, on
December 31, 1998.
CONDITIONS TO THE MERGER (SEE PAGE 65)
The completion of the merger depends upon meeting or waiving a number of
conditions, including:
1. Approval of the merger by the shareholders of PACIFIC RETAIL and
REGENCY;
2. Approval by REGENCY shareholders of the REGENCY Articles Amendment;
3. Approval by REGENCY shareholders of Amendment No. 1 to the REGENCY
Incentive Plan;
4. The consent of the lenders under REGENCY's and PACIFIC RETAIL's
lines of credit;
5. The authorization for listing on the New York Stock Exchange of the
REGENCY Common Stock issuable as a result of the merger;
6. Holders of not more than 10% of PACIFIC RETAIL Common Shares and
PACIFIC RETAIL Preferred Shares exercising dissenters' rights;
7. The receipt of legal opinions regarding the impact of the merger on
REGENCY's REIT status and the treatment of the merger as a
reorganization.
TERMINATION (SEE PAGE 71)
REGENCY or PACIFIC RETAIL can agree to terminate the Merger Agreement at any
time, even if the shareholders of both companies have approved the merger.
Also, either company can decide, without the consent of the other, to terminate
the Merger Agreement if:
1. The merger has not been consummated on or before March 31, 1999;
2. The other party materially fails to perform under the Merger
Agreement;
3. The Board of the terminating party withdraws or modifies its
recommendation that its shareholders approve the Merger Agreement;
or
4. The other party continues to negotiate or does not reject a proposal
for an alternative transaction with another person within 15 days
after receiving an alternative proposal.
TERMINATION AMOUNT (SEE PAGE 72)
PACIFIC RETAIL or REGENCY may be required to pay a $20 million termination fee
under the following circumstances:
1. If the Merger Agreement is terminated by REGENCY or PACIFIC RETAIL
because the Board of the terminating party withdraws or modifies its
recommendation that
5
<PAGE>
shareholders approve the Merger Agreement, then the terminating
party must pay $20 million to the non-terminating party.
2. If at any time within one year after termination of the Merger
Agreement because of an alternative proposal received by the non-
terminating party, the non-terminating party enters into a letter of
intent or agreement with another person relating to an alternative
transaction, then the non-terminating party must pay $20 million to
the terminating party.
DISTRIBUTIONS (SEE PAGE 69)
REGENCY expects to continue its present dividend policy after the merger. The
current quarterly dividend on REGENCY Common Stock is $0.44 per share.
THE SPECIAL MEETINGS OF SHAREHOLDERS
THE REGENCY SPECIAL MEETING (SEE PAGE 83)
. The REGENCY special meeting of shareholders is scheduled to be held at
: .m., Eastern Standard Time, on Friday, December 18, 1998 at
, , , .
. The REGENCY Board of Directors fixed the close of business on October 13,
1998 as the record date for the determination of holders of REGENCY
Common Stock entitled to notice of and to vote at the REGENCY special
meeting of shareholders.
. The affirmative vote of the holders of a majority of the outstanding
shares of REGENCY Common Stock is required to approve the merger.
OTHER REGENCY MEETING MATTERS (SEE PAGE 85)
Amendment of REGENCY Articles of Incorporation
. The REGENCY Articles Amendment to be submitted to the REGENCY special
meeting will allow SC-USREALTY to acquire the REGENCY Common Stock
issuable to it in the merger. The REGENCY Articles presently invalidate
transfers that result in Non-U.S. Persons owning 50% or more of the fair
market value of the outstanding REGENCY capital stock. The REGENCY
Articles Amendment makes it clear that this provision will not prevent
SC-USREALTY from exchanging all of its PACIFIC RETAIL Common Shares for
REGENCY Common Stock in the merger.
. The proposed REGENCY Articles Amendment will prohibit the transfer of
REGENCY capital stock to any Non-U.S. Person (other than SC-USREALTY and
related parties) so long as Non-U.S. Persons continue to own 50% or more
by value of REGENCY's outstanding capital stock. This prohibition will
preserve REGENCY's ability to requalify as a domestically controlled REIT
if ownership by Non-U.S. Persons falls below 50% or more by value of
REGENCY's outstanding capital stock.
6
<PAGE>
. If at any time Non-U.S. Persons own less than 50% of the fair market
value of the outstanding REGENCY capital stock, the REGENCY Articles
Amendment invalidates any transfers by any person other than SC-USREALTY
or its affiliates to any other person that results in Non-U.S. Persons
(including SC-USREALTY and its affiliates) owning 50% or more of the fair
market value of the outstanding REGENCY capital stock or results in Non-
U.S. Persons (other than SC-USREALTY and its affiliates) owning 4.9% or
more of the fair market value of the outstanding REGENCY capital stock.
This prohibition will ensure that once REGENCY returns to the status of a
domestically controlled REIT, it will remain a domestically controlled
REIT.
. The approval of the merger is a condition to the approval of the REGENCY
Articles Amendment. The approval of the REGENCY Articles Amendment is a
condition to the approval and consummation of the merger.
. Assuming the presence of a quorum, the affirmative vote of a majority of
the shares of REGENCY Common Stock voting is required to approve the
REGENCY Articles Amendment.
. We have attached a copy of the REGENCY Articles Amendment as Annex D.
Amendment No. 1 to REGENCY Incentive Plan
. The REGENCY Board of Directors is proposing to increase the number of
shares available for award under the REGENCY Incentive Plan by the number
of shares authorized under the corresponding PACIFIC RETAIL option plan
(adjusted for the merger).
. The REGENCY Board of Directors also is proposing to amend the REGENCY
Incentive Plan to permit the grant of substitute options to three
departing PACIFIC RETAIL executives (in lieu of any other severance
compensation).
. The approval of the merger is a condition to the approval of the
amendment to the REGENCY Incentive Plan. Approval of the Amendment to the
REGENCY Incentive Plan is a condition to the approval of the merger.
. The affirmative vote of a majority of the outstanding shares of REGENCY
Common Stock voting is required to approve the amendment to the REGENCY
Incentive Plan (provided that more than 50% of the votes entitled to be
cast are voted on the proposal).
CONTROL OF REGENCY VOTE BY SC-USREALTY AND MANAGEMENT
As of the REGENCY record date, REGENCY's directors and executive officers, all
of whom have indicated that they will vote all of their REGENCY Common Stock in
favor of each of the proposals, owned approximately 7.8% of the outstanding
REGENCY Common Stock. SC-USREALTY owns 46.0% of the outstanding REGENCY Common
Stock and has agreed to vote all of its REGENCY Common Stock in favor of each
of the proposals. Assuming that SC-USREALTY and such directors and executive
officers vote in favor of each of the proposals, each proposal will be
approved.
7
<PAGE>
THE PACIFIC RETAIL SPECIAL MEETING
. The PACIFIC RETAIL special meeting of shareholders is scheduled to be
held at : .m., time, on , , 1998 at the offices of
PACIFIC RETAIL, 8140 Walnut Hill Lane, Suite 400, Dallas, Texas 75231.
. The PACIFIC RETAIL Board of Trustees has fixed the close of business
on , 1998 as the record date for the determination of holders of
PACIFIC RETAIL shares entitled to notice of and to vote at the PACIFIC
RETAIL special meeting of shareholders.
. The proposal to approve the merger must be approved by the affirmative
vote of the holders of a majority of the votes entitled to be cast by
holders of PACIFIC RETAIL Common Shares and PACIFIC RETAIL Preferred
Shares, voting together as a single class.
CONTROL OF PACIFIC RETAIL VOTE BY SC-USREALTY AND MANAGEMENT
As of the PACIFIC RETAIL record date, PACIFIC RETAIL's trustees and executive
officers, all of whom have indicated that they intend to vote all of their
PACIFIC RETAIL shares in favor of the merger, owned approximately 0.7% of the
total number of votes entitled to be cast at the meeting. SC-USREALTY, which
owns 69.9% of the total number of votes entitled to be cast at the meeting, has
agreed to vote all of its PACIFIC RETAIL Common Shares in favor of the
proposal. Assuming that SC-USREALTY and such trustees and officers vote in
favor of the merger, the proposal will be approved.
8
<PAGE>
HISTORICAL FINANCIAL DATA OF REGENCY
The following table sets forth selected financial data relating to the results
of operations and historical financial condition of REGENCY as of and for the
six months ended June 30, 1998 and June 30, 1997 and the years ended December
31, 1997, 1996, 1995, 1994 and 1993 (amounts in thousands, except per share
data). Such selected financial data is qualified in its entirety by and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
included in REGENCY's Quarterly Report on Form 10-Q for the six months ended
June 30, 1998 and Annual Report on Form 10-K for the year ended December 31,
1997, which are incorporated by reference in this Joint Proxy Statement and
Prospectus.
<TABLE>
<CAPTION>
REGENCY REALTY CORPORATION
------------------------------------------------------------------
REGENCY
PERIOD PROPERTIES
SIX MONTHS ENDED ENDED PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31, NOVEMBER 3,
------------------- -------------------------------- ------------ ------------
1998 1997 1997 1996 1995 1994 1993 1993
---------- ------- ------- ------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues....... $ 59,961 38,654 89,306 43,433 31,555 25,673 3,094 7,375
Management, leasing
and brokerage fees... 5,406 3,688 8,448 3,444 2,426 2,332 572 2,247
Equity in income of
real estate
partnership
investments.......... 147 17 33 70 4 17 3 18
---------- ------- ------- ------- ------- ------- ------- ------
Total revenues...... 65,514 42,359 97,787 46,948 33,985 28,022 3,669 9,640
---------- ------- ------- ------- ------- ------- ------- ------
Operating expenses:
Operating, maintenance
and real estate
taxes................ 14,260 9,587 22,904 12,065 8,683 7,140 862 3,365
General and
administrative....... 7,262 5,216 9,964 6,048 4,894 4,531 736 2,835
Depreciation and
amortization......... 11,385 7,075 16,303 8,059 5,854 5,266 679 1,564
---------- ------- ------- ------- ------- ------- ------- ------
Total operating
expenses........... 32,907 21,878 49,171 26,172 19,431 16,937 2,277 7,764
---------- ------- ------- ------- ------- ------- ------- ------
Interest expense net of
income................. 11,907 9,769 18,667 10,811 8,969 5,701 496 3,937
---------- ------- ------- ------- ------- ------- ------- ------
Income before minority
interests.............. 20,700 10,712 29,949 9,965 5,585 5,384 895 (2,061)
Minority interests of
exchangeable operating
partnership units...... (892) (1,603) (2,042) -- -- -- -- --
Minority interest of
limited partners....... (200) (345) (505) -- -- -- -- 126
Equity in loss of
unconsolidated
partnership............ -- -- -- -- -- -- -- (111)
Other non-recurring
income, net............ 10,746 -- -- -- -- -- -- 3,291
---------- ------- ------- ------- ------- ------- ------- ------
Net income.............. 30,354 8,764 27,402 9,965 5,585 5,384 895 1,245
Preferred stock
dividends.............. -- -- -- 58 591 283 -- --
---------- ------- ------- ------- ------- ------- ------- ------
Net income for common
stockholders........... $ 30,354 8,764 27,402 9,907 4,994 5,101 895 1,245
========== ======= ======= ======= ======= ======= ======= ======
Earnings per share
(EPS):
Basic................. $ 1.11 .51 1.28 0.82 0.75 0.80 0.14 N/A
Diluted............... 1.06 .51 1.23 0.82 0.75 0.80 0.14 N/A
Distributions per common
share.................. 0.88 0.84 1.68 1.62 1.58 1.50 -- --
OTHER DATA:
Common stock
outstanding including
Class B common if
converted............ 28,398 20,742 26,967 13,590 9,704 6,455 6,333 N/A
Redeemable partnership
units outstanding to
minority interests... 1,324 574 574 59 -- -- -- --
Consolidated ratios of
earnings to combined
fixed charges and
preferred stock
dividends............ 2.0 1.8 2.2 1.8 1.4 1.7 N/A N/A
Company owned gross
leasable area........ 13,868 9,424 9,981 5,512 3,981 3,182 2,337 1,145
Number of properties
owned (at end of
period).............. 124 86 89 50 36 30 23 8
BALANCE SHEET DATA:
Real estate
investments at cost.. $1,103,886 764,544 834,402 393,403 279,046 217,539 152,821 N/A
Total assets.......... 1,093,098 754,983 826,849 386,524 271,005 214,082 153,653 N/A
Total debt............ 407,527 356,438 278,050 171,607 115,617 107,998 53,521 N/A
Stockholders' equity.. 552,512 359,026 513,627 206,726 147,007 101,760 97,416 N/A
</TABLE>
9
<PAGE>
HISTORICAL FINANCIAL DATA OF PACIFIC RETAIL
The following table sets forth selected financial data relating to the results
of operations and historical financial condition of PACIFIC RETAIL as of and
for the six months ended June 30, 1998 and June 30, 1997 and the years ended
December 31, 1997 and 1996, and as of and for the period from inception
(April 27, 1995) through December 31, 1995 (amounts in thousands, except per
share data and property data). Such selected financial data is qualified in its
entirety by and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes of PACIFIC RETAIL included elsewhere in this Joint Proxy
Statement and Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED PERIOD
JUNE 30, DECEMBER 31, ENDED
------------------- ---------------- DECEMBER 31,
1998 1997 1997 1996 1995
---------- ------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues............ $ 58,173 32,922 79,002 27,513 1,806
Management, leasing and
brokerage fees............ 31 232 392 53 11
---------- ------- ------- ------- ------
Total revenues......... 58,204 33,154 79,394 27,566 1,817
---------- ------- ------- ------- ------
Operating expenses:
Operating, maintenance and
real estate taxes......... 13,549 8,403 19,739 6,719 473
General and administrative. 4,427 3,244 6,542 3,566 511
Depreciation and
amortization 10,910 6,318 14,715 5,083 350
---------- ------- ------- ------- ------
Total operating
expenses.............. 28,886 17,965 40,996 15,368 1,334
---------- ------- ------- ------- ------
Interest expense net of
income...................... 6,150 4,260 11,187 2,134 88
Income before minority
interests................... 23,168 10,929 27,211 10,064 395
Minority interests of
redeemable operating
partnership units........... 305 269 491 193 --
Minority interest of
development subsidiary...... (18) -- (1) -- --
---------- ------- ------- ------- ------
Net income................... 22,881 10,660 26,721 9,871 395
Preferred share dividends.... 1,175 1,098 2,195 1,177 112
---------- ------- ------- ------- ------
Net income for common
shareholders................ $ 21,706 9,562 24,526 8,694 283
========== ======= ======= ======= ======
Earnings per share (EPS):
Basic...................... $ 0.34 0.27 0.61 0.54 0.18
Diluted.................... $ 0.34 0.27 0.61 0.54 0.18
Distributions per common
share....................... $ 0.385 0.36 0.72 0.624 0.11
OTHER DATA:
Common stock outstanding... 64,038 41,186 64,023 23,960 5,400
Preferred shares series A.. 1,130 1,130 1,130 1,130 1,130
Preferred shares series B.. 2,000 2,000 2,000 2,000 --
Company owned gross
leasable area............. 7,648 5,275 6,806 3,718 798
Number of properties owned
at end of period.......... 67 42 56 29 6
BALANCE SHEET DATA:
Real estate investments at
cost...................... $1,009,362 590,576 851,458 380,070 63,790
Total assets............... $1,014,918 597,486 857,244 400,176 68,452
Total debt................. $ 277,101 133,034 118,114 122,636 3,478
Minority interest.......... $ 9,470 7,841 7,681 7,710 --
Shareholders' equity....... $ 728,348 456,612 731,450 269,830 64,975
</TABLE>
10
<PAGE>
REGENCY PRO FORMA SUMMARY FINANCIAL DATA
The following table sets forth unaudited pro forma condensed financial
information as of and for the six months ended June 30, 1998 and the year ended
December 31, 1997, giving effect, where appropriate, to (1) the merger and (2)
the acquisition of certain properties. The following information should be read
in conjunction with the REGENCY historical and pro forma financial statements
incorporated by reference herein, and the PACIFIC RETAIL historical financial
statements included elsewhere in this Joint Proxy Statement and Prospectus. The
unaudited pro forma summary information is intended for informational purposes
and is not necessarily indicative of the future financial position or future
results of operations of REGENCY or of the financial position or the results of
operations of REGENCY that would have actually occurred had the merger been
completed as of the date or for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 YEAR ENDED DECEMBER 31, 1997
----------------------------------- ---------------------------------
REGENCY PACIFIC RETAIL COMBINED REGENCY PACIFIC RETAIL COMBINED
PRO FORMA PRO FORMA COMPANY PRO FORMA PRO FORMA COMPANY
--------- -------------- --------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues....... 67,589 63,803 131,392 129,382 119,995 249,377
Management, leasing
and brokerage fees... 5,406 -- 5,406 9,057 -- 9,057
Equity in income of
real estate
partnership
investments.......... 146 -- 146 33 -- 33
--------- --------- --------- ------- ------- -------
Total revenues...... 73,141 63,803 136,944 138,472 119,995 258,467
Operating expenses:
Operating, maintenance
and real estate
taxes................ 15,645 14,867 30,512 29,781 28,779 58,560
General and
administrative....... 7,673 4,589 12,262 12,723 7,790 20,513
Depreciation and
amortization......... 12,651 11,926 25,161 23,754 21,069 45,992
--------- --------- --------- ------- ------- -------
Total operating
expenses........... 35,969 31,382 67,935 66,258 57,638 125,065
Interest expense net of
income................. 13,501 9,942 23,443 35,843 33,898 69,741
--------- --------- --------- ------- ------- -------
Income before minority
interests.............. 23,671 22,479 45,566 36,371 28,459 63,661
Minority interest of
exchangeable operating
partnership units...... (893) (131) (1,018) (1,719) (76) (1,783)
Minority interest of
limited partners.......
Equity in loss of
unconsolidated
partnership............
Other non-recurring
income, net............ 1,410 -- 1,410 -- -- --
--------- --------- --------- ------- ------- -------
Net income.............. 24,188 22,348 45,958 34,652 28,383 61,878
Preferred stock
dividends.............. (3,250) (1,176) (4,426) (6,500) (2,195) (8,695)
--------- --------- --------- ------- ------- -------
Net income for common
stockholders........... 20,938 21,172 41,532 28,152 26,188 53,183
========= ========= ========= ======= ======= =======
Earnings per share
(EPS):
Basic................. 0.73 0.33 0.70 1.32 0.65 1.31
Diluted............... 0.72 0.33 0.69 1.23 0.64 1.25
Distributions per common
share.................. 0.88 0.39 0.88 1.68 0.72 1.68
OTHER DATA:
Common stock
outstanding including
Class B common and
Series 2 preferred if
converted............ 28,398 67,168 60,639 26,967 67,153 --
Redeemable partnership
units outstanding to
minority interests... 1,324 880 1,746 574 765 --
Consolidated ratios of
earnings to combined
fixed charges and
preferred stock
dividends............ 1.7 2.5 2.0 1.4 1.6 1.5
Company owned gross
leasable area........ 13,868 7,648 21,516 9,981 6,806 16,787
Number of properties
owned (at end of
period).............. 124 67 191 89 56 145
BALANCE SHEET DATA:
Real estate
investments at cost.. 1,140,129 1,074,059 2,230,809 -- -- --
Total assets.......... 1,130,591 1,079,616 2,234,253 -- -- --
Total debt............ 445,020 328,533 773,553 -- -- --
Stockholders' equity.. 552,512 728,348 1,304,524 -- -- --
</TABLE>
11
<PAGE>
COMPARATIVE MARKET AND PER SHARE DATA
The REGENCY Common Stock is listed and traded on the New York Stock Exchange
under the symbol "REG." There is no public market for the PACIFIC RETAIL Common
Shares or PACIFIC RETAIL Preferred Shares.
The merger consideration is fixed and the market price of REGENCY Common Stock
may change. As a result, the market value of the REGENCY Common Stock or
REGENCY Preferred Stock that holders of PACIFIC RETAIL Common Shares or PACIFIC
RETAIL Preferred Shares will receive in the merger may increase or decrease
prior to and following the merger. We urge you to obtain current market
quotations for REGENCY Common Stock. On September 23, 1998 (the last trading
day prior to the announcement of the signing of the Merger Agreement) the
closing price of the REGENCY Common Stock, was $23.44. The value of a PACIFIC
RETAIL Common Share on such date on an equivalent per share basis was $11.25.
The following tables set forth for REGENCY Common Stock and PACIFIC RETAIL
Common Shares certain historical and pro forma summary per share financial
information and equivalent per share data based on the conversion of each
PACIFIC RETAIL Common Share into 0.48 shares of REGENCY Common Stock. The
combined pro forma summary amounts included in the table below are based on the
purchase method of accounting. The following information should be read in
conjunction with the historical and/or pro forma financial statements and
accompanying notes of REGENCY and PACIFIC RETAIL included or incorporated by
reference in this Joint Proxy Statement and Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------ ------------------- ------------------
PACIFIC PACIFIC PACIFIC PACIFIC
REGENCY RETAIL REGENCY RETAIL REGENCY RETAIL REGENCY RETAIL
-------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share from
operations attributable
to common shares:
Basic:
Historical............ $ 1.11 .34 1.28 .61 .82 .54 .75 .18
Pro forma prior to
merger(1)............ .73 .33 1.32 .65 -- -- -- --
Combined pro forma.... .70 -- 1.31 -- -- -- -- --
0.48 combined pro
forma................ -- .71 -- 1.27 -- -- -- --
Diluted:
Historical............ 1.06 .34 1.23 .61 .82 .54 .75 .18
Pro forma prior to
merger(1)............ .72 .33 1.23 .64 -- -- -- --
Combined pro forma.... .69 -- 1.25 -- -- -- -- --
0.48 combined pro
forma................ -- .71 -- 1.27 -- -- -- --
Distributions per common
share:
Historical............ .88 .39 1.68 .72 1.62 .62 1.58 .11
Combined pro forma.... .88 -- 1.68 -- -- -- -- --
0.48 combined pro
forma................ -- .81 -- 1.50 -- -- -- --
Book value per common
share (at end of
period):
Historical............ 19.49 10.84 19.15 10.88 15.18 9.96 15.15 12.00
Pro forma prior to
merger(1)............ 19.49 10.84 -- -- -- -- -- --
Combined pro forma.... -- -- -- -- -- -- -- --
0.48 combined pro
forma................ -- 22.59 -- -- -- -- -- --
</TABLE>
- --------
(1) Reflects the pro forma effect of acquisitions by REGENCY and PACIFIC RETAIL
as described on page FS-2.
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RISK FACTORS
You should consider carefully the factors set forth below in evaluating the
merger. The following list of risk factors may not be exhaustive. This Joint
Proxy Statement and Prospectus contains forward-looking statements with respect
to the operations of REGENCY, PACIFIC RETAIL and the combined company. Actual
results could differ materially from those set forth in the forward-looking
statements. See "Disclosure Regarding Forward-Looking Statements."
RISK FACTORS RELATING TO THE MERGER
Fixed Merger Consideration Subject to Risk of Change in Stock Value
The value of REGENCY stock and PACIFIC RETAIL shares at the effective time of
the merger may be different from the price and value as of the date the merger
consideration was determined. This difference could be caused by changes in the
operations and prospects of REGENCY or PACIFIC RETAIL, general market and
economic conditions and other factors.
REGENCY does not intend to obtain an updated fairness opinion of Prudential
Securities, and PACIFIC RETAIL does not intend to obtain an updated fairness
opinion of Goldman Sachs prior to the effective time of the merger.
Conflicts of Interest
. SC-USREALTY has invested approximately $523.0 million in the securities
of PACIFIC RETAIL and has invested approximately $235.5 million in the
securities of REGENCY. As a result, SC-USREALTY may have an incentive to
structure the merger in a manner that would favor its larger investment
in PACIFIC RETAIL.
. If the merger is consummated, certain officers and trustees of PACIFIC
RETAIL at the effective time of the merger will become officers and
directors of REGENCY. Mary Lou Rogers, currently a director of REGENCY, a
trustee of PACIFIC RETAIL and a Managing Director of Security Capital
Group Incorporated, SC-USREALTY's largest shareholder, will become
President and Chief Operating Officer of REGENCY. Dennis H. Alberts, a
trustee and the Chief Executive Officer of PACIFIC RETAIL, Jane E. Mody,
a Managing Director and the Chief Financial Officer of PACIFIC RETAIL,
and Joshua M. Brown, a Managing Director of PACIFIC RETAIL, will be
granted options by REGENCY in replacement of their existing PACIFIC
RETAIL options in lieu of severance compensation. Additionally, Messrs.
Schweitzer, Worrell, Cozad, Alberts and Kelley, each trustees of PACIFIC
RETAIL, will continue as directors of REGENCY after the merger and will
be granted options to acquire 2,000 shares of REGENCY Common Stock
pursuant to the REGENCY Incentive Plan upon their appointment to the
REGENCY Board and will be granted annual options during their tenure as
directors.
Significant Influence of Principal Shareholder
As of September 23, 1998, SC-USREALTY beneficially owned 46.0% of the
outstanding REGENCY Common Stock (37.7% on a fully diluted basis) and 69.9% of
the outstanding PACIFIC RETAIL shares. As a result, SC-USREALTY currently
controls approximately 46.0% of the
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<PAGE>
REGENCY vote and 69.9% of the PACIFIC RETAIL vote on the merger. If the merger
is consummated, SC-USREALTY will own approximately 59.3% of the outstanding
REGENCY stock (52.5% on a fully diluted basis). Under the REGENCY Articles, no
other shareholder may hold more than 7.0% of the shares of REGENCY.
REGENCY is a party to a stockholders agreement with SC-USREALTY. Under the
stockholders agreement, as amended concurrently with the effectiveness of the
merger, SC-USREALTY has the right to nominate the number of directors on
REGENCY's Board proportionate to its ownership in REGENCY (rounded down to the
nearest whole number) but not more than 49% of REGENCY's Board. SC-USREALTY
also has the right to be consulted before REGENCY can take certain significant
actions. Although "standstill" provisions in the amended stockholders agreement
preclude SC-USREALTY from owning more than 60% of the REGENCY Common Stock on a
fully diluted basis and limit SC-USREALTY's ability to vote its shares,
SC-USREALTY may exercise substantial influence over REGENCY's affairs. SC-
USREALTY's ownership position and influence on the Board will make a change of
control of REGENCY highly unlikely without SC-USREALTY's concurrence. If the
standstill ends, SC-USREALTY would be able to elect the majority of directors
to REGENCY's Board and vote a majority of the shares of REGENCY Common Stock.
As a result, REGENCY may be a less attractive target for an unsolicited
acquisition by an outsider, which may limit the opportunity for REGENCY
shareholders to receive a premium for their REGENCY Common Stock.
Substantial Expenses and Payments if Merger Fails to Occur
The merger may not be consummated. If the merger is not consummated, REGENCY
and PACIFIC RETAIL will have incurred substantial expenses. If the Merger
Agreement is terminated under certain circumstances, the terminating party may
be required to pay the non-terminating party a $20 million termination fee. See
"The Merger Agreement--Termination Amount."
Differences in Shareholder Rights
The rights of shareholders of PACIFIC RETAIL currently are governed by Maryland
law and PACIFIC RETAIL's Declaration of Trust and bylaws. Upon completion of
the merger, shareholders of PACIFIC RETAIL will become shareholders of REGENCY
and their rights will be governed by Florida law and the REGENCY Articles and
bylaws. The rights of shareholders of PACIFIC RETAIL may differ materially from
the rights of shareholders of REGENCY. See "Comparison of Shareholder Rights."
Prohibitions on Investment by Non-U.S. Investors
Section 5.14 of the REGENCY Articles contains provisions designed to preserve
REGENCY's status as a domestically controlled REIT. Section 5.14 of the REGENCY
Articles as presently in effect invalidates the issuance or transfer of
REGENCY's capital stock if it would result in the fair market value of all
capital stock owned directly or indirectly by Non-U.S. Persons comprising 5% or
more (excluding shares owned by SC-USREALTY) or 50% or more (including shares
owned by SC-USREALTY) of the fair market value of REGENCY's outstanding capital
stock.
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<PAGE>
Although SC-USREALTY may waive or revise this limitation by giving prior notice
to the REGENCY Board of Directors, the REGENCY Articles Amendment would amend
Section 5.14 to make it clear that SC-USREALTY may exchange all of its PACIFIC
RETAIL Common Shares for its shares of REGENCY Common Stock in the merger, even
though Non-U.S. Persons will own more than 50% of the fair market value of
REGENCY's outstanding capital stock after the merger. As a result, REGENCY
expects no longer to qualify as a domestically controlled REIT for U.S. federal
income tax purposes. The REGENCY Articles Amendment prohibits the transfer by
any person other than SC-USREALTY and certain related parties of REGENCY
capital stock to Non-U.S. Persons (other than SC-USREALTY) so long as Non-U.S.
Persons own 50% or more of the fair market value of the outstanding REGENCY
capital stock. At any time that Non-U.S Persons own less than 50% of the fair
market value of the outstanding REGENCY capital stock, any transfer by any
person (other than SC-USREALTY) is prohibited by the REGENCY Articles Amendment
if it would result in the fair market value of all capital stock owned directly
or indirectly by Non-U.S. Persons comprising 4.9% or more (excluding shares
owned by SC-USREALTY), or 50% or more (including shares owned by SC-USREALTY),
of the fair market value of REGENCY's outstanding capital stock. Any of the
restrictions in Section 5.14 of the REGENCY Articles currently in effect or in
the REGENCY Articles Amendment may be waived or revised by SC-USREALTY with
prior notice to the REGENCY Board.
With or without the proposed amendment, REGENCY capital stock is not a suitable
investment for non-U.S. investors other than SC-USREALTY and transfers to Non-
U.S. Persons will be prohibited in many circumstances. Under the REGENCY
Articles as presently in effect and as proposed to be amended, any shares
issued or transferred in violation of the transfer restrictions in Section 5.14
will be void, or if such remedy is invalid, will be subject to the provisions
for "excess shares" described in "Description of REGENCY Securities--
Restrictions on Ownership."
RISK FACTORS RELATING TO OWNERSHIP OF REGENCY COMMON STOCK
Significant Reliance on Major Tenants
REGENCY derives significant revenues from anchor tenants such as Kroger or
Publix that occupy more than one center. REGENCY could be adversely affected in
the event a major tenant:
. files for bankruptcy or insolvency;
. experiences a downturn in its business;
. does not renew its leases as they expire; or
. renews at lower rental rates.
Vacated anchor space, including space owned by the anchor, can adversely affect
the entire shopping center because of the loss of the departed anchor tenant's
customer drawing power. Most anchors have the right to vacate and prevent
retenanting by paying rent for the balance of the lease term. In addition, if
certain major tenants cease to occupy a property, then certain other tenants
are entitled to terminate their leases at the property.
If tenants seek the protection of the bankruptcy laws, they may reject and
terminate their leases and thereby cause a reduction in the cash flow available
for distribution by REGENCY. Such reduction could be material if a major tenant
files bankruptcy.
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<PAGE>
Geographic Concentration of Properties
REGENCY's performance depends on the economic conditions in markets in which
its properties are concentrated, including Florida and Georgia. Management
believes that the merger will lessen the impact that any single local economy
has on REGENCY's operating results. However, those results could be adversely
affected if conditions, such as an oversupply of space or a reduction in demand
for real estate, in REGENCY's primary market areas become more competitive
relative to other geographic areas. In addition, as a result of the merger,
REGENCY will be exposed to the risks associated with the markets in which
PACIFIC RETAIL currently operates, particularly Texas and California.
Risk of REGENCY's Rapid Growth Through Acquisitions
REGENCY has pursued extensive growth opportunities. This expansion has placed
significant demands on its operational, administrative and financial resources.
You can expect the continued growth of REGENCY's real estate portfolio,
including growth by reason of the merger, to continue to place a significant
strain on its resources. REGENCY's future performance depends in part on its
ability to successfully attract and retain qualified management personnel to
manage REGENCY's growth and operations.
In addition, acquired properties may fail to operate at expected levels due to
the many factors which affect the value of real estate. REGENCY may not have
sufficient resources to identify and manage acquired properties or otherwise be
able to maintain its historic rate of growth.
Risks Related to Partnership Structure
REGENCY's primary property-owning vehicle is Regency Centers, L.P., of which
REGENCY is the general partner. From time to time, REGENCY acquires properties
through Regency Centers, L.P. in exchange for limited partnership interests.
This acquisition structure may permit certain tax deferral advantages to
limited partners who contribute properties to the partnership.
Properties contributed to Regency Centers, L.P. may have unrealized gain
attributable to the difference between the fair market value and adjusted tax
basis in such properties prior to contribution. As a result, the sale of such
properties could cause adverse tax consequences to the limited partners who
contributed the properties. Generally, Regency Centers, L.P. has no obligation
to consider the tax consequences of its actions to any limited partner.
However, Regency Centers, L.P. may acquire properties in the future subject to
material restrictions designed to minimize the adverse tax consequences to the
limited partners who contribute the properties. These restrictions could
significantly reduce REGENCY's flexibility to manage its assets.
General Risks Relating to Real Estate Investments
. Value of Real Estate Dependent on Numerous Factors. Real property
investments are subject to varying degrees of risk. Real estate values
are affected by a number of factors, including:
1. changes in the general economic climate,
2. local conditions (such as an oversupply of space or a reduction in
demand for real estate in an area),
16
<PAGE>
3. the quality and philosophy of management,
4. competition from other available space,
5. the ability of the owner to provide adequate maintenance and
insurance, and
6. the ability of the owner to control variable operating costs.
Shopping centers, in particular, may be affected by:
1. changing perceptions of retailers or shoppers regarding the safety,
convenience and attractiveness of the shopping center, and
2. the overall climate for the retail industry generally.
Real estate values are also affected by such factors as:
1. government regulations,
2. interest rate levels,
3. the availability of financing, and
4. potential liability under, and changes in, environmental, zoning,
tax and other laws.
. Restrictions on, and Risks of, Unsuccessful Development
Activities. REGENCY intends to pursue development activities as
opportunities arise. Such development activities generally require
various government and other approvals. REGENCY may not receive such
approvals.
REGENCY will incur risks associated with any such development activities.
These risks include:
1. the risk that development opportunities explored by REGENCY may be
abandoned;
2. the risk that construction costs of a project may exceed original
estimates, possibly making the project unprofitable;
3. lack of cash flow during the construction period; and
4. the risk that occupancy rates and rents at a completed project will
not be sufficient to make the project profitable.
In case of an unsuccessful development project, REGENCY's loss could exceed
its investment in the project. Also, REGENCY's competitors seek properties
for development and may have greater resources than REGENCY.
Adverse Effect of Market Interest Rates on Stock Prices
The annual dividend rate on the REGENCY Common Stock as a percentage of its
market price may influence the trading price of such stock. An increase in
market interest rates may lead purchasers to demand a higher annual dividend
rate, which could adversely affect the market price of such stock. A decrease
in the market price of the REGENCY Common Stock could reduce REGENCY's ability
to raise additional equity in the public markets.
Risks of Losing Property Management Contracts
REGENCY is subject to the risks associated with the management of properties
owned by third parties. Management contracts typically are cancelable upon 30
days' notice. Contracts may be lost
17
<PAGE>
due to the sale of the property or to competitors. Contracts also may not be
renewed upon expiration or on terms consistent with current terms. Any of these
developments would reduce REGENCY's ability to make expected distributions to
its shareholders.
Adverse Effect of Uninsured Loss on Performance
REGENCY carries comprehensive liability, fire, flood, extended coverage and
rental loss insurance on its properties. Such coverage has policy
specifications and insured limits customarily carried for similar properties.
REGENCY believes that this insurance is adequate in accordance with industry
standards. However, certain types of losses (such as from hurricanes, wars or
earthquakes) may be uninsurable, or the cost of insuring against such losses
may not be economically justifiable. If an uninsured loss occurs, REGENCY could
lose both the invested capital in and anticipated revenues from the property,
but would still be obligated to repay any recourse mortgage indebtedness on the
property.
Uncertainty of Availability of Refinancing
REGENCY does not expect to generate sufficient funds from operations to make
balloon principal payments when due on its indebtedness. REGENCY may not be
able to refinance such indebtedness or to otherwise obtain funds to make such
payments by selling assets or raising equity. An inability to make balloon
payments when due could cause the mortgage lenders to foreclose on the
properties securing such indebtedness, which would have a material adverse
effect on REGENCY. In addition, interest rates and other terms on any loans
obtained to refinance such indebtedness may be less favorable than the rates on
the current indebtedness.
Risks of Increased Interest Rates
REGENCY is obligated on floating rate debt. If REGENCY does not eliminate its
exposure to increases in interest rates through interest rate protection or cap
agreements, such increases may adversely affect REGENCY's performance.
Potential Environmental Liability
Under various federal, state and local laws, ordinances and regulations, an
owner or manager of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on such property. These
laws often impose liability without regard to whether the owner knew of, or was
responsible for, the presence of the hazardous or toxic substances. The cost of
required remediation and the owner's liability for remediation could exceed the
value of the property and/or the aggregate assets of the owner. The presence of
such substances, or the failure to properly remediate such substances, may
adversely affect the owner's ability to sell or rent the property or borrow
using the property as collateral.
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<PAGE>
REGENCY
REGENCY acquires, owns, develops and manages neighborhood shopping centers in
targeted infill markets in the eastern half of the United States. As of June
30, 1998, REGENCY owned, directly or indirectly, 124 properties, containing
approximately 13.9 million square feet of gross leasable area ("GLA"). As of
June 30, 1998, REGENCY had an investment in real estate of approximately $1.1
billion.
As of June 30, 1998, approximately 61% of REGENCY's 13.9 million square feet of
GLA was located in Georgia and Florida. REGENCY's shopping centers (excluding
centers under development) were approximately 92.7% leased as of June 30, 1998.
OPERATING AND INVESTMENT PHILOSOPHY
REGENCY's key operating and investment objective is to create long-term
shareholder value by:
. growing its high quality real estate portfolio of grocery-anchored
neighborhood shopping centers in attractive infill markets,
. maximizing the value of the portfolio through its "Retail Operating
System," developed in conjunction with SC-USREALTY, which incorporates
research based investment strategies, value-added leasing and management
systems, and customer-driven development programs, and
. using conservative financial management and REGENCY's substantial capital
base to access the most cost effective capital to fund REGENCY's growth.
Management believes that the key to achieving its objective is its single focus
on, and growing critical mass of, quality grocery-anchored neighborhood
shopping centers. In the opinion of management, REGENCY's premier platform of
shopping centers in targeted markets, its proprietary research capabilities,
its value enhancing Retail Operating System, its cohesive and experienced
management team and its access to competitively priced capital enable it to
maintain a competitive advantage over other operators.
REGENCY believes that ownership of the approximately 30,000 shopping centers
throughout the United States is highly fragmented, with less than 10% owned by
REITs, and that many centers are held by unsophisticated and undercapitalized
owners. REGENCY has identified approximately 1,000 centers in its target
markets as potential acquisition opportunities, of which less than 10% are
owned by REITs. As a result, REGENCY believes that an opportunity exists for it
to be a consolidating force in the industry. In addition, REGENCY believes that
through proprietary demographic research and targeting, its portfolio and
tenant mix can be customized for and marketed to national and regional
retailers, thereby producing greater sales and a value-added shopping
environment for both retailer and shopper.
REGENCY's shopping center properties feature some of the most attractive
characteristics in the industry:
. an average age of 7 years,
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<PAGE>
. an average remaining grocery-anchor lease term of 13 years, and
. an average grocery-anchor size of 46,000 square feet (42% of the square
footage of the grocery-anchored centers on average).
GROCERY-ANCHORED INFILL STRATEGY
REGENCY focuses its investment strategy on grocery-anchored infill shopping
centers. Infill locations are situated in densely populated residential
communities where there are significant barriers to entry, such as zoning
restrictions, growth management laws or limited availability of sites for
development or expansions. REGENCY is focused on building a platform of
grocery-anchored neighborhood shopping centers because grocery stores provide
convenience shopping for daily necessities, generate foot traffic for adjacent
"side shop" tenants and should be better able to withstand adverse economic
conditions. By developing close relationships with the leading supermarket
chains, REGENCY believes it can attract the best "side shop" merchants and
enhance revenue potential. Based on REGENCY research, at June 30, 1998, 84 of
REGENCY's shopping centers were anchored by the grocery store with the first or
second leading market share, as measured by total market sales.
RESEARCH DRIVEN MARKET SELECTION
REGENCY has identified 21 markets in the eastern half of the United States as
target markets. These markets were selected because, in general, they offer
greater growth in population, household income and employment than the national
averages. In addition, REGENCY believes that it can achieve "critical mass" in
these markets (defined as owning or managing 4 to 5 shopping centers) and that
it can generate sustainable competitive advantages, through long-term leases to
the predominant grocery-anchor and other barriers to entry from competition.
Within these markets, REGENCY's research staff further defines and selects
submarkets and trade areas based on additional analysis of the above data.
REGENCY then identifies target properties and their owners (including
development opportunities) within these submarkets and trade areas based on 3-
mile radius demographic data and ranks potential properties for purchase. The
properties currently owned by REGENCY are in submarkets with an average 3-mile
population of 69,000, average household income of $62,000 and projected 5-year
population growth of 12%.
RETAIL OPERATING SYSTEM
REGENCY's Retail Operating System drives its value-added operating strategy.
Its Retail Operating System is characterized by:
. proactive leasing and management;
. value enhancing remerchandising initiatives;
. REGENCY's "preferred customer initiative"; and
. a customer-driven development and redevelopment program.
Proactive leasing and management
REGENCY's integrated approach to property management strengthens its leasing
and management efforts. Property managers are an integral component of the
acquisition and integration teams. Thorough, candid tenant interviews by
property managers during acquisition due diligence allow REGENCY to quickly
assess both problem areas as well as opportunities for revenue enhancement
prior to closing. Property
20
<PAGE>
managers are responsible not only for the general operations of their centers,
but also for coordinating leasing efforts, thereby aligning their interests
with REGENCY's. In addition, REGENCY's information systems allow managers to
spot future lease expirations and to proactively market and remerchandise
spaces several years in advance of such expirations.
Value enhancing remerchandising initiatives
REGENCY believes that certain shopping centers underserve their customers,
reducing foot traffic and negatively affecting the tenants located in the
shopping center. In response, REGENCY is initiating a remerchandising program
which is directed at obtaining the optimum mix of tenants offering goods,
personal services and entertainment and dining options in each of its shopping
centers. By re-tenanting shopping centers with tenants that more effectively
service the community, REGENCY expects to increase sales, and therefore the
value of its shopping centers.
Preferred customer initiative
REGENCY has established a preferred customer initiative with dedicated
personnel whose goal is to establish new and strengthen existing strategic
relationships with successful retailers at the national, regional and local
levels. REGENCY achieves this goal by establishing corporate relationships,
negotiating standard lease forms and working with the preferred customers to
match expansion plans with future availability in REGENCY's shopping centers.
REGENCY monitors retail trends and the operating performance of these preferred
customers. Management expects the benefits of the preferred customer initiative
to improve the merchandising and performance of the shopping centers, establish
brand recognition among leading operators, reduce turnover of tenants and
reduce vacancies. REGENCY currently has identified and is developing
relationships with 45 preferred customers, including Radio Shack, GNC, Hallmark
Cards, Mailboxes, Etc. and Starbucks Coffee, and continues to target additional
tenants with which to establish preferred customer relationships.
Customer-driven development and redevelopment program
REGENCY conducts its development and redevelopment program in close cooperation
with its major customers, including Kroger, Publix and Eckerd. REGENCY uses its
development capabilities to service these customer's growth needs by building
or re-developing modern properties with state of the art supermarket formats
that generate higher returns for REGENCY under new long-term leases. During
1997, REGENCY began development on 20 retail projects, including new
developments, redevelopments and build-to-suits. Upon completion, REGENCY will
have invested $77.4 million in these projects. In 1998, REGENCY has begun
development on 21 retail projects, including new developments, redevelopments
and build-to-suits. Upon completion, REGENCY will have invested $139 million in
these projects. REGENCY manages its development risk by obtaining signed anchor
leases prior to beginning construction.
ACQUISITION TRACK RECORD
REGENCY has grown its asset base significantly through acquisitions over the
last several years, acquiring properties totaling $107.1 million in 1996,
$406.9 million in 1997 and $239.2 million through June 30, 1998. Through these
acquisitions, REGENCY has diversified geographically from its predominantly
Florida-based portfolio and established a presence in many of its target
markets.
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Upon identifying an acquisition target, REGENCY utilizes expertise from all of
its functional areas, including acquisitions, due diligence and property
management, to determine the appropriate purchase price and to develop a
business plan for the center and design an integration plan for the management
of the center. REGENCY believes that its established acquisition and
integration procedures produce higher returns on its portfolio, reduce risk and
position REGENCY to capitalize on consolidation in the shopping center
industry.
CAPITAL STRATEGY
REGENCY intends to maintain a conservative capital structure designed to
enhance access to capital on favorable terms, to allow growth through
development and acquisition and to promote future earnings growth. REGENCY has
adopted a policy of limiting total indebtedness to 50% of total assets at cost
and maintaining a minimum debt service coverage ratio of 2:1.
Since REGENCY's initial public offering in 1993, REGENCY has financed its
growth in part through a series of public and private offerings of REGENCY
equity and Regency Centers, L.P. units totaling, as of September 30, 1998,
approximately $560.7 million, including the Regency Centers, L.P. utilization
of its units as consideration for acquisitions.
AVAILABLE INFORMATION
REGENCY files reports, proxy statements and other information with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934. The public may read and copy these reports, proxy statements and other
information at the Securities and Exchange Commission's Public Reference Room,
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission also maintains a Web site at http://www.sec.gov that
contains materials filed by REGENCY electronically with the Securities and
Exchange Commission. In addition, the public may read such materials at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, on which the
REGENCY Common Stock is listed. REGENCY also maintains a Web site at
www.regencyrealty.com.
REGENCY has filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933, with respect to the
REGENCY Common Stock and REGENCY Preferred Stock to be issued in the merger.
This Joint Proxy Statement and Prospectus does not contain all of the
information in such registration statement. For further information, refer to
the registration statement.
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PACIFIC RETAIL
DESCRIPTION OF BUSINESS
PACIFIC RETAIL is a Maryland real estate investment trust organized in 1995.
PACIFIC RETAIL is a fully integrated operating company focused on becoming the
preeminent owner, operator and developer of grocery and drug store anchored
neighborhood infill shopping centers in the high growth markets of the western
United States. PACIFIC RETAIL has various national and regional retail tenants
with whom it does business on an ongoing basis including Albertson's,
Randall's, Radio Shack, General Nutrition Centers and Hallmark Cards.
At December 31, 1997, PACIFIC RETAIL's operating properties contained 6.3
million square feet of GLA and were 94.1% leased. 53 of the properties are
neighborhood infill shopping centers, of which 42 are grocery anchored and 19
are drug store anchored. The properties are located primarily in California
(43.4% of GLA), Texas (36.6% of GLA), Arizona-Colorado (11.7% of GLA) and
Washington-Oregon (8.3% of GLA). As of December 31, 1997, there was one revenue
generating property in Texas that was classified as a redevelopment and is not
included as an operating property. This property contains a total of 443,924
square feet of GLA. For more specific data and information about the properties
owned by PACIFIC RETAIL, see "--Properties" and "--Management's Discussion and
Analysis of Financial Condition and Results of Operations," included elsewhere
in this Joint Proxy Statement and Prospectus.
PACIFIC RETAIL continues the development and refinement of its "Retail
Operating System." This value-added retail strategy is being implemented
through three groups: the Market Research Group, the Remerchandising/Marketing
Group and the Regional Retail Group with the objective of maximizing the
overall performance of each of PACIFIC RETAIL's neighborhood infill shopping
centers. The Market Research Group is responsible for conducting and evaluating
critical market research to identify target markets for acquisition and
development and define trade areas to determine consumer buying preferences for
each of PACIFIC RETAIL's neighborhood infill shopping centers. Based on those
findings, the Remerchandising/Marketing Group designs remerchandising and
marketing strategies for the portfolio as a whole as well as each neighborhood
infill shopping center. The Remerchandising/Marketing Group also markets
PACIFIC RETAIL's services to a targeted list of national and regional
retailers, building long-term relationships with these customers and providing
a single point of contact to meet their retail space needs. The Regional Retail
Group develops and maintains local relationships with retailers and provides
hands-on service at the local level. PACIFIC RETAIL believes that the Retail
Operating System provides it with a significant competitive advantage among its
peers. In addition, PACIFIC RETAIL has experienced capital markets, investment
and retail professionals on the PACIFIC RETAIL Board.
PACIFIC RETAIL believes that its research-driven "Retail Operating System,"
which focuses on customer service and achieving critical mass in markets with
positive demographics for retailing, will generate long-term, sustainable cash
flow growth. In the near term, targeted retenanting and remerchandising
strategies are expected to improve revenues.
PROPERTIES
The following table provides an overview of PACIFIC RETAIL's operating property
portfolio by market as of June 30, 1998. No individual property, or group of
properties operated as a single
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business unit, amounts to 10% or more of PACIFIC RETAIL's total consolidated
assets nor do the gross revenues from any such property amount to 10% or more
of PACIFIC RETAIL's consolidated gross revenues for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
% OF
% OF OPERATING
TOTAL PROPERTIES
SQUARE SQUARE CURRENT BASED % % NUMBER OF
MARKET FEET FEET INVESTMENT ON COST LEASED OCCUPIED PROPERTIES
- ------ --------- ------ ------------ ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sacramento Area......... 236,329 3.3 $ 25,430,954 2.7 91.0 89.4 2
San Francisco Bay Area.. 1,023,576 14.4 166,566,845 17.7 95.4 93.3 11
Los Angeles County Area. 669,079 9.4 81,943,427 8.7 97.5 96.2 7
Orange County Area...... 641,783 9.0 93,599,551 10.0 96.0 88.8 5
San Diego County Area... 610,356 8.6 107,366,163 11.4 98.9 96.9 4
Seattle Area............ 858,702 12.1 113,397,709 12.1 96.9 95.8 9
Dallas/Ft. Worth Area... 1,945,570 27.4 221,679,251 23.6 93.6 90.4 14
Houston Area............ 114,416 1.6 11,157,022 1.2 97.0 97.0 1
Austin Area............. 267,064 3.8 34,640,220 3.7 98.2 95.9 2
Denver Area............. 417,862 5.9 43,819,450 4.6 99.4 99.4 4
Phoenix Area............ 327,232 4.6 40,350,033 4.3 98.2 98.2 2
--------- ----- ------------ ------ ---- ---- ---
Total Operating
Portfolio.............. 7,111,969 100.0% $939,950,625 100.00% 96.0% 93.6% 61
========= ===== ============ ====== ==== ==== ===
</TABLE>
- --------
Note: A significant portion (72.12%) of PACIFIC RETAIL's portfolio is
considered prestabilized. Prestabilized properties are those which have been
owned less than one year or, if owned more than one year, have not reached 93%
occupancy. There are two revenue generating properties that are classified as
redevelopments that are not included in the table above.
No single tenant of PACIFIC RETAIL provided PACIFIC RETAIL with 10% or more of
its rental revenues on an aggregated basis in the year ended December 31, 1997.
TENANTS
Significant portions of the properties are occupied by major regional or
national tenants. Regional tenants are those with multiple stores in multiple
markets within the state, national tenants are those with a presence in a
majority of the states within the continental United States, and local tenants
are those whose sole presence is in a single market. Most of the shopping
centers are anchored by a regional or national retailer, some of whom own their
own land and improvements and have easements to use common areas that are owned
by PACIFIC RETAIL. To the extent that the shopping centers are anchored by
store space which PACIFIC RETAIL does not own, PACIFIC RETAIL is able to
capitalize on the customer drawing power and other advantages provided by an
anchor tenant while not bearing the leasing and operating risks associated with
leasing space to such a tenant. In most instances, these anchor tenants
contribute to common area maintenance.
The following table shows the historical average percentage occupancy of
properties owned by PACIFIC RETAIL during the period indicated (other than
properties which are still in the initial lease-up stage). As previously
indicated PACIFIC RETAIL commenced operations in August 1995.
<TABLE>
<CAPTION>
YEAR OCCUPANCY
---- ---------
<S> <C>
1995............................................................... 91.8%
1996............................................................... 91.1%
1997............................................................... 93.0%
1998............................................................... 93.6%
</TABLE>
24
<PAGE>
LEASES AND RENTAL REVENUES
A substantial portion of PACIFIC RETAIL's income consists of minimum or base
rent received under leases typically ranging from three to five years for non-
anchor tenants and ten years or more for anchor tenants. Most of the leases
require the tenants to pay additional rent in the form of a pro rata share of
real estate taxes, common area maintenance and certain other expense
reimbursements. A substantial number of leases also provide for the payment of
additional rent calculated as a percentage of the tenant's gross sales above a
pre-determined threshold ("percentage rents"). For the year ended December 31,
1997, minimum rent and percentage rents accounted for 74.4% and 1.5%,
respectively, of revenues from the properties.
Most of the leases provide for increases in minimum rent in the future,
generally in the form of automatic fixed rate increases after specified dates,
but in some instances, provide for automatic percentage increases or increases
based on consumer price indices. A few of the retail tenant leases permit the
tenant to terminate its lease if a specified anchor tenant leaves the shopping
center. In some cases, PACIFIC RETAIL has the right to replace the vacated
anchor and void the tenant's termination right. The leases typically require
the landlord to provide for maintenance of the common areas, including
cleaning, lighting, paving, security and landscaping. Some of the shopping
center leases also require the tenant to contribute a specified amount to an
advertising and promotion fund for the shopping center, and require the
landlord to contribute to and administer the fund. The leases generally
restrict the ability of tenants to assign or sublet their spaces without the
landlord's prior written consent.
Anchor tenants generally are able to negotiate from their own lease forms
rather than using the landlord's form leases and, accordingly, the leases for
anchor tenants are not uniform. Most anchor tenants include exclusive use
provisions in their leases prohibiting the landlord from leasing space in that
property to tenants operating substantially similar businesses.
Tenant Lease Expirations and Renewals
The following table sets forth, for leases in place as of June 30, 1998, a
schedule of the lease expirations for the properties for the next ten years,
assuming that no tenants exercise renewal options:
<TABLE>
<CAPTION>
AVERAGE PERCENT OF
ANNUALIZED MINIMUM RENT TOTAL LEASED
MINIMUM RENT PER SQ. FT. SQ. FOOTAGE
LEASE APPROXIMATE UNDER UNDER REPRESENTED
EXPIRATION NO. OF LEASES LEASED AREA IN EXPIRING EXPIRING BY EXPIRING
YEAR EXPIRING SQ. FT. LEASES LEASES LEASES
---------- ------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1998...... 165 326,741 $ 4,863,351 $14.88 4.79%
1999...... 224 404,286 $ 7,118,116 $17.61 5.92%
2000...... 274 741,092 $12,449,771 $16.80 10.86%
2001...... 250 627,973 $ 9,881,542 $15.74 9.20%
2002...... 205 587,353 $ 8,813,138 $15.00 8.60%
2003...... 183 600,114 $ 8,365,773 $13.94 8.79%
2004...... 49 297,401 $ 3,870,181 $13.01 4.36%
2005...... 42 315,398 $ 3,898,079 $12.36 4.62%
2006...... 49 350,567 $ 5,455,920 $15.56 5.14%
2007...... 39 330,394 $ 3,777,569 $11.43 4.84%
</TABLE>
25
<PAGE>
HISTORICAL FINANCIAL DATA OF PACIFIC RETAIL
The following table sets forth selected financial data relating to the results
of operations and historical financial condition of PACIFIC RETAIL as of and
for the six months ended June 30, 1998 and June 30, 1997 and the years ended
December 31, 1997 and 1996, and as of and for the period from inception
(April 27, 1995) through December 31, 1995 (amounts in thousands, except per
share data and property data). Such selected financial data is qualified in its
entirety by and should be read in conjunction with "--Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
financial statements and notes of PACIFIC RETAIL included elsewhere in this
Joint Proxy Statement and Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
------------------- ---------------- ------------
1998 1997 1997 1996 1995
---------- ------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues............ $ 58,173 32,922 79,002 27,513 1,806
Management, leasing and
brokerage fees............ 31 232 392 53 11
---------- ------- ------- ------- ------
Total revenues......... 58,204 33,154 79,394 27,566 1,817
---------- ------- ------- ------- ------
Operating expenses:
Operating, maintenance and
real estate taxes......... 13,549 8,403 19,739 6,719 473
General and administrative. 4,427 3,244 6,542 3,566 511
Depreciation and
amortization 10,910 6,318 14,715 5,083 350
---------- ------- ------- ------- ------
Total operating
expenses.............. 28,886 17,965 40,996 15,368 1,334
---------- ------- ------- ------- ------
Interest expense net of
income..................... 6,150 4,260 11,187 2,134 88
Income before minority
interests.................. 23,168 10,929 27,211 10,064 395
Minority interests of
redeemable operating
partnership units.......... 305 269 491 193 --
Minority interest of
development subsidiary..... (18) -- (1) -- --
---------- ------- ------- ------- ------
Net income.................. 22,881 10,660 26,721 9,871 395
Preferred share dividends... 1,175 1,098 2,195 1,177 112
---------- ------- ------- ------- ------
Net income for common
shareholders............... $ 21,706 9,562 24,526 8,694 283
========== ======= ======= ======= ======
Earnings per share (EPS):
Basic...................... $ 0.34 0.27 0.61 0.54 0.18
Diluted.................... $ 0.34 0.27 0.61 0.54 0.18
Distributions per common
share....................... $ 0.385 0.36 0.72 0.624 0.11
OTHER DATA:
Common stock outstanding.... 64,038 41,186 64,023 23,960 5,400
Preferred shares Series A... 1,130 1,130 1,130 1,130 1,130
Preferred shares Series B... 2,000 2,000 2,000 2,000 --
Company owned gross leasable
area....................... 7,648 5,275 6,806 3,718 798
Number of properties owned
at end of period........... 67 42 56 29 6
BALANCE SHEET DATA:
Real estate investments at
cost....................... $1,009,362 590,576 851,458 380,070 63,790
Total assets................ $1,014,918 597,486 857,244 400,176 68,452
Total debt.................. $ 277,101 133,034 118,114 122,636 3,478
Minority interest........... $ 9,470 7,841 7,681 7,710 --
Shareholders' equity........ $ 728,348 456,612 731,450 269,830 64,975
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the "--Historical
Financial Data of PACIFIC RETAIL" and all of the financial statements appearing
elsewhere in this Joint Proxy Statement and Prospectus. Historical results and
percentage relationships set forth in "Historical Financial Data of PACIFIC
RETAIL" and the Pro Forma Balance Sheet and Statements of Earnings for PACIFIC
RETAIL are not indicative of future operations of PACIFIC RETAIL.
The statements contained in this discussion that are not historical are
forward-looking statements. These forward-looking statements are based on
current expectations, estimates and projections about the industry and markets
in which PACIFIC RETAIL operates, management's beliefs and assumptions made by
management. Words such as "expect," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," "should," variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions ("Future Factors") which are difficult in
such forward-looking statements. Future Factors include: (i) changes in general
economic conditions in its target markets that could adversely affect interest
rates that could adversely affect PACIFIC RETAIL's customers; (ii) changes in
financial markets and interest rates that could adversely affect PACIFIC
RETAIL's cost of capital and its ability to meet its financial needs and
obligations; (iii) increased or unanticipated competition for distribution
properties in PACIFIC RETAIL's target markets and (iv) those factors discussed
below. These are representative of Future Factors that could affect the outcome
of the forward-looking statements.
Results of Operations
Interim Period Results
Net earnings for the six-month period ended June 30, 1998 were $22.9 million
($0.34 per share) as compared to $10.7 million ($0.27 per share) for the same
period in 1997. In the first half of 1998, PACIFIC RETAIL had 61 operating
properties as compared to 41 operating properties in the first half of 1997.
The increase in operating properties resulted in increases in rental revenues
($25.2 million), rental expenses ($2.9 million), insurance expense and real
estate taxes ($2.3 million) and depreciation ($4.6 million) in the six-month
period ended June 30, 1998 as compared to the same period in 1997.
Interest expense in the six-month period ended June 30, 1998 was $6.5 million
as compared to $4.4 million for the six-month period ended June 30, 1997. The
increase in interest expense of $2.1 million is primarily a result of increases
in the line of credit to fund the additional properties acquired. PACIFIC
RETAIL's weighted average short-term interest rate for the first half of 1998
was 7.32% as compared to 8.08% in the first half of 1997.
Costs related directly to the acquisition, development and improvement of real
estate, including tenant improvements, are capitalized; ordinary repairs and
maintenance are expensed as incurred. Costs incurred in connection with
unsuccessful acquisitions are expensed at the time acquisition efforts are
terminated. Depreciation is computed on a straight-line basis over the expected
economic useful lives, which are principally 10 to 40 years for buildings and
improvements.
27
<PAGE>
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes impairment losses on
property whenever events and changes in circumstances indicate that the
carrying amount of long-lived assets, on an individual property basis, may not
be recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net cash
flows to the carrying amount of the asset. Impairment losses are recognized in
operating income as they are determined. As of December 31, 1997 no impairment
losses have been incurred.
Earnings per Share
PACIFIC RETAIL has adopted Statement of Financial Standards No. 128 ("SFAS
128"), which establishes standards for computing and presenting earnings per
share ("EPS"). Basic EPS excludes the effect of potentially dilutive securities
while diluted EPS reflects the potential dilution that would occur if dilutive
securities or other contracts to issue Common Shares were exercised, converted
into, or resulted in the issuance of Common Shares that then shared in the
earnings of the company.
In March 1998, the Emerging Issues Task Force ("EITF") finalized Issue 97-11,
requiring all internal costs associated with acquiring operating properties to
be expensed as incurred. PACIFIC RETAIL has applied this policy prospectively.
In July 1998, the EITF finalized Issue 98-9, requiring contingent rent based on
the lessee's sales volume to be recognized when specified targets are met.
PACIFIC RETAIL has applied this policy prospectively since May 1998.
1997 Compared to 1996
Net earnings in 1997 were $26.7 million ($0.61 per share), an increase of $16.9
million from net earnings in 1996 of $9.8 million ($0.54 per share).
Property Operations. Rental revenues for 1997 increased $51.5 million over
revenues for 1996. In 1997, rental expenses, and insurance expenses and real
estate taxes increased over the 1996 levels by $5.9 million and $7.2 million,
respectively. These increases in revenue and expenses are attributable to the
acquisition of an additional 25 operating properties in 1997.
Including the newly acquired and developed assets, income from property
operations (which is defined as rental income plus other real estate income,
less rental expenses and insurance expenses and real estate taxes) increased
$38.4 million for 1997 over 1996. Depreciation expense increased $9.6 million
for 1997 over 1996. These increases are almost entirely related to the
increased number of assets in operation.
Cash provided by operating activities was $53.3 million in 1997, an increase of
$52.8 million from the 1996 level. This increase is primarily the result of
operating income before depreciation from the additional 25 properties acquired
in 1997 and the full year of ownership of properties acquired during 1996
coupled with a decrease at the end of 1997 in funds escrowed for the
acquisition of properties.
Properties Fully Operating Throughout Both Periods. PACIFIC RETAIL owned six
properties for the full years of 1996 and 1997. The net operating income of
those six properties decreased from $5.69 million in 1996 to $5.58 million in
1997 or (2.02%). The primary reason for the decrease in
28
<PAGE>
net operating income was the initial implementation of PACIFIC RETAIL's
remerchandising plan with regard to these properties which resulted in slightly
increased costs to PACIFIC RETAIL and a decrease in current tenant occupancy.
Interest Expense. Interest expense for 1997 was $9.4 million higher than for
1996. This was the result of the line of credit being utilized extensively
during the year for acquisitions until December 1997 when the issuance of
additional PACIFIC RETAIL Common Shares provided funds to reduce the amount of
the outstanding line of credit.
1996 Compared to 1995
In 1996, net earnings increased by $9.5 million over 1995; $9.9 million ($0.54
per share) in 1996 as compared to $0.39 million ($0.18 per share) in 1995. The
increase was the result of 1996 being the first full year of operations and the
addition of 21 more operating properties during 1996.
Rental revenues were $27.5 million in 1996 as compared to $1.8 million in 1995.
This increase of $25.7 million is primarily the result of the addition of 21
more operating properties during 1996.
The increased number of operating properties in operation generated less cash
in 1996 as compared to 1995. Cash provided by operating activities was $0.5
million in 1996 as compared to $1.4 million in 1995. The primary reason for the
decrease in cash provided by operating activities is that funds deposited in
escrow for the purchase of additional properties increased by approximately
$16.4 million from the end of 1995 to the end of 1996.
Liquidity and Capital Resources
PACIFIC RETAIL considers its liquidity and ability to generate cash from
operations and financings to be adequate and expects it to continue to be
adequate to meet PACIFIC RETAIL's development, acquisition, operating, debt
service and shareholder distribution requirements.
Investing and Financing Activities
Overview. PACIFIC RETAIL's investment activities, which consisted primarily of
acquiring and developing retail properties, used approximately $151.7 million,
$396.5 million, $297.2 million and $52.5 million of cash for the six-month
period ended June 30, 1998, the two years ended December 31, 1997 and 1996 and
the period ended December 31, 1995, respectively.
PACIFIC RETAIL's financing activities provided net cash flow of $133.1 million,
$345.6 million, $295.9 million and $53.9 million for the six-month period ended
June 30, 1998, the years ended December 31, 1997 and 1996 and the period ended
December 31, 1995, respectively. Combined proceeds from equity offerings of
$0.05 million in the six-month period ended June 30, 1998, $466.0 million, net
of expenses, in 1997, $206.3 million in 1996, and $54.0 million in 1995 were
the primary source of financing funds. Proceeds from line of credit borrowings,
net of repayments, were $160.0 million in the six-month period ended June 30,
1998, $74.4 million in 1996 and $0.6 million in 1995.
First Half of 1998 Investing and Financing Activities. During the first half of
1998, PACIFIC RETAIL's additional investment in real estate aggregated $157.9
million, primarily as a result of
29
<PAGE>
continued acquisition activity. This investment included the acquisitions of
land parcels for the development of properties with a GLA of 252,810 square
feet. These additional properties brought PACIFIC RETAIL's total portfolio to a
GLA of 7.9 million square feet at June 30, 1998 (7.1 million square feet of GLA
of operating properties and 0.79 million square feet of GLA of properties under
construction and in planning). The additional investment during the first half
of 1998 was financed primarily through proceeds from the line of credit. Also
during this period, PACIFIC RETAIL began construction on two properties with an
aggregate GLA of 252,810 square feet.
At June 30, 1998, PACIFIC RETAIL had $74.9 million of budgeted development
costs for projects under construction. These developments are subject to a
number of conditions, and PACIFIC RETAIL cannot predict with certainty that any
of them will be consummated.
1997 Investing and Financing Activities. In 1997, PACIFIC RETAIL acquired
existing operating properties with an aggregate GLA of 3.1 million square feet.
The cost of the 25 operating properties acquired in 1997 was $440.1 million. At
December 31,1997, PACIFIC RETAIL's operating property portfolio aggregated 6.4
million square feet of GLA. PACIFIC RETAIL's development portfolio at the end
of 1997 included a property with a GLA of 443,924 square feet under
construction and properties with a GLA of 234,900 square feet in planning with
an estimated cost upon completion of $33.6 million.
During 1997, PACIFIC RETAIL's net additional investment in real estate was
$471.4 million bringing its total real estate investment at December 31, 1997
to $851.5 million. Sales of PACIFIC RETAIL Common Shares generated the largest
source of capital in 1997. PACIFIC RETAIL sold $465.9 million of PACIFIC RETAIL
Common Shares, net of share repurchases, through 10 private placements. In
connection with the acquisition of certain properties in 1997, PACIFIC RETAIL
assumed $74.9 million in existing debt. At December 31, 1997, PACIFIC RETAIL's
outstanding balance on its line of credit was $13.6 million.
1996 Investing and Financing Activities. PACIFIC RETAIL's investment strategy
in 1996 focused on two components: the acquisition of a substantial base of
existing operating properties to provide operating cash flow and the creation
of an internal development process. During 1996, PACIFIC RETAIL acquired 22
operating properties. At December 31, 1996, PACIFIC RETAIL had an aggregated
GLA of 3.7 million square feet in its portfolio, 443,924 square feet of which
was under development. The one project under development had an estimated
completion cost of $26.3 million.
PACIFIC RETAIL's investment in real estate at December 31, 1996 aggregated
$380.1 million. The additional investment of approximately $316.3 million in
1996 was financed through the sale of additional PACIFIC RETAIL Common Shares
generating approximately $206.3 million, an increase in the line of credit
balance from $0.6 million to $75 million and a bridge loan of $26.5 million.
PACIFIC RETAIL assumed existing debt of $11.4 million associated with certain
of the properties acquired.
1995 Investing and Financing Activities. PACIFIC RETAIL's initial portfolio
investment consisted of the acquisition of six operating properties (with a GLA
of 798,198 square feet) located in Texas.
PACIFIC RETAIL's investment in real estate at December 31, 1995 aggregated
$63.8 million, which was primarily financed by the issuance of $54.0 million of
PACIFIC RETAIL Common Shares and $11.3 million of PACIFIC RETAIL Series A
Preferred Shares.
30
<PAGE>
Line of Credit-Secured. On December 27, 1995, PACIFIC RETAIL entered into a
credit agreement with a group of lenders to provide a secured line of credit up
to a maximum of $50 million. On July 19, 1996, the credit agreement was amended
to increase the secured line of credit to a maximum of $75 million. On November
14, 1997, the secured line of credit agreement was amended. Under the amended
credit agreement, borrowings bear interest at the greater of prime or federal
funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a margin of
1.25%, if the ratio of total liabilities to gross asset value is less than 0.35
to 1.0, or 1.40% if the ratio of total liabilities to gross asset value is
greater than or equal to 0.35 to 1.0. Additionally, there is a fee of .125% per
annum of the average daily unfunded line of credit balance, or a fee of 0.25%
per annum of the average daily line of credit balance if the average daily
balance for both the secured and unsecured lines of credit is greater than $100
million. Interest is paid monthly based on the unpaid principal balance. On
May 18, 1998, the credit agreement was amended; the secured line of credit was
paid in full and terminated through the use of funds from the unsecured line of
credit. The weighted average interest rates for the period from January 1, 1998
to May 18, 1998 and the year ended December 31, 1997 were 6.98% and 7.4%
respectively. The interest rate at December 31, 1997 was 8.5%.
Lines of Credit-Unsecured. On March 28, 1997, PACIFIC RETAIL entered into a
credit agreement with a group of lenders to provide an unsecured line of credit
up to a maximum of $75 million. On November 14, 1997, the unsecured line of
credit was increased to a maximum of $125 million. On May 18, 1998, the credit
agreement was amended and the unsecured line of credit was increased to $350
million. Borrowings bear interest at the greater of prime or federal funds rate
plus 0.50% or, at PACIFIC RETAIL's option, LIBOR plus a margin of 1.25%, if the
ratio of total liabilities to gross asset value is less than 0.35 to 1.0, or
1.40% if the ratio of total liabilities to gross asset value is greater than or
equal to 0.35 to 1.0 and less than 0.5 to 1.0. Additionally, there is a fee of
0.125% per annum of the daily average unfunded line of credit balance, or a fee
of 0.25% per annum of the average daily unfunded line of credit balance if the
average daily balance is greater than $175 million. Interest is paid monthly
based on the unpaid principal balance. The weighted average interest rate for
the six months ended June 30, 1998 and the period from March 28, 1997 to
December 31, 1997 were 7.03% and 7.7% respectively. There were no borrowings
outstanding under the unsecured line of credit at December 31, 1997. The
outstanding borrowings at June 30, 1998 were $173.6 million and the weighted
average interest rate was 7.07%.
On December 19, 1996, PACIFIC RETAIL entered into a credit agreement with a
group of lenders. The agreement, amended on December 27, 1996, provided for an
unsecured line of credit up to $32.5 million. Borrowings under the loan bore
interest at the same rate as the original secured line of credit. PACIFIC
RETAIL entered into a "negative pledge" agreement whereby it pledged not to
encumber certain of its properties with any debt until after the repayment of
the funds borrowed under the loan. The interest rate at December 31, 1996 was
8.0%. The loan was repaid in January 1997.
Mortgage Debt. At June 30, 1998, PACIFIC RETAIL had approximately $88.9
million of mortgages payable and approximately $1.3 million of tax exempt bond
issues. This long-term mortgage debt, which is substantially fully amortizing,
has a weighted average interest rate of 8.4% and an average maturity of 6.72
years, thus providing PACIFIC RETAIL with favorable and conservative financial
leverage on the investment in the properties associated with such debt.
31
<PAGE>
Distributions and Funds from Operations
PACIFIC RETAIL's current distribution policy is to pay quarterly distributions
to shareholders based upon what PACIFIC RETAIL considers to be a reasonable
percentage of cash flow. Because depreciation is a non-cash expense, cash flow
typically will be greater than earnings from operations and net earnings.
Therefore, quarterly distributions will be higher than quarterly earnings.
Distributions paid on shares in 1997, 1996 and 1995 aggregated $31.1 million
($0.72 per share), $11.3 million ($0.62 per share) and $0.7 million ($0.11 per
share), respectively. The distributions paid were in excess of net earnings in
both 1997 and 1996 resulting in decreases in shareholders' equity of $6.1
million in 1997 and $1.7 million in 1996.
The payment of distributions is subject to the discretion of the PACIFIC RETAIL
Board and is dependent upon the financial condition and operating results of
PACIFIC RETAIL. On March 31, 1998, PACIFIC RETAIL paid a quarterly distribution
of $0.1925 per share for shares outstanding throughout the first quarter, and
on June 30, 1998 PACIFIC RETAIL paid a quarterly distribution of $0.1925 per
share for shares outstanding throughout the second quarter. The distributions
paid aggregated $13.1 million for the each of the first and second quarters.
Funds from operations represents PACIFIC RETAIL's net earnings (computed in
accordance with generally accepted accounting principles ("GAAP") before
minority interest and before gains/losses on disposition of depreciated
property, plus real estate depreciation and amortization, significant non-
recurring items and significant non-cash items. PACIFIC RETAIL believes that
funds from operations is helpful to a reader as a measure of the performance of
an equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides a reader with an
indication of the ability of PACIFIC RETAIL to incur and service debt, to make
capital expenditures and to fund other cash needs. Under this more conservative
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. The funds from operations measure presented
by PACIFIC RETAIL, while consistent with the National Association of Real
Estate Investment Trusts ("NAREIT") definition, will not be comparable to
similarly titled measures of other REITs which do not compute funds from
operations in a manner consistent with PACIFIC RETAIL. Funds from operations
are not intended to represent cash made available to shareholders. Funds from
operations should not be considered as an alternative to net earnings or any
other GAAP measurement of performance as an indicator of PACIFIC RETAIL's
operating performance, or as an alternative to cash flows from operating,
investing or financing activities as a measure of liquidity.
Funds from operations were $32.7 million and $16.0 million for the six-month
periods ended June 30, 1998 and 1997, respectively. Funds from operations were
$39.5 million and $13.9 million and $0.627 million for the years ended December
31, 1997 and 1996 and the period ended December 31, 1995, respectively. The
aggregate increases corresponded with the increased number of properties in
operation in each year.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain computer
programs that have time-sensitive software may
32
<PAGE>
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business activities.
PACIFIC RETAIL has undertaken a review of all of its computer systems and
applications to determine if these programs are Year 2000 compliant and if not,
the efforts that will be necessary to bring the programs into compliance. The
review has indicated that all network hardware and operating systems are
compliant based upon certification of the vendors. The workstation operating
systems and workstation application hardware have been certified by the vendors
to be compliant. The workstations are currently under review and those not
deemed to be compliant will be replaced or modified before February 1999. The
cost of replacement or modification is not expected to be material. All major
accounting and financial reporting applications are certified compliant by the
vendors with the exception of two special application modules which are to be
replaced, tested and certified by vendors by December 1998. Surveys conducted
with major vendors have revealed no critical issues. Several utility companies
have indicated that Year 2000 problems currently exist, but are all currently
engaged in programs to reduce or totally repair those problems during 1999.
INVESTMENT POLICIES OF PACIFIC RETAIL
PACIFIC RETAIL's Business Strategies and Philosophy
PACIFIC RETAIL's key business objectives are to increase cash flow and the
value of its properties, and to pursue continued growth through the selective
acquisition, development, renovation and expansion of income producing
properties, principally shopping centers. PACIFIC RETAIL's strategies for
achieving these objectives are to:
. intensively manage and lease its properties with a strong emphasis on
tenant relations, regular maintenance, periodic improvements, and
effective in-house support systems;
. seek continued growth by selectively acquiring and developing additional
quality properties with attractive yields and strong prospects for future
cash flow growth and capital appreciation, focusing primarily on grocery
and drug store anchored and well-located infill neighborhood shopping
centers that have sustainable competitive leasing advantages;
. maintain a conservative capital structure with a ratio of debt to total
market capitalization that is contemplated to be no more than 35%; and
. cultivate management expertise and strong client relationships by
continuing to attract, motivate and retain talented and dedicated
employees at every level of PACIFIC RETAIL.
PACIFIC RETAIL believes that the key to successful implementation of these
strategies is to continue to exploit its competitive strengths, which are,
principally, its real estate expertise and depth of management professionals,
its strong relationships with tenants, institutional investors and lenders, and
its proximity to tenants, properties and markets through its offices in Dallas,
Los Angeles, San Francisco, Denver, Irvine, San Diego, Seattle and Portland.
Policies With Respect To Certain Activities
The following is a discussion of investment and financing policies of PACIFIC
RETAIL. The policies with respect to these activities have been determined by
the PACIFIC RETAIL Board of Trustees and may be amended or revised from time to
time at the discretion of the PACIFIC RETAIL Board of Trustees without a vote
of PACIFIC RETAIL's shareholders.
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Investment Policies
The investment objectives of PACIFIC RETAIL are to increase cash flow available
for distributions and to enhance portfolio value. PACIFIC RETAIL's policy is to
manage, selectively acquire and develop assets for generation of additional
current income and long-term value appreciation.
PACIFIC RETAIL may develop, purchase or lease income-producing properties for
long-term investment, expand and improve the properties presently owned, or
sell such properties, in whole or in part, when circumstances warrant. PACIFIC
RETAIL may also participate with other entities in property ownership through
joint ventures or other types of co-ownership.
Financing Policies
PACIFIC RETAIL intends to maintain a conservative ratio of debt to total market
capitalization (i.e., the market value of issued and outstanding shares of
PACIFIC RETAIL Common Shares plus total debt) of no more than 35%. The debt-to-
total-market-capitalization ratio, which is based upon market values of equity
and accordingly fluctuates with changes in the price of the PACIFIC RETAIL
Common Shares, differs from debt-to-book-capitalization ratios which are based
upon book values. The debt-to-book-capitalization ratio may not reflect the
current income potential of the assets and the operating business. PACIFIC
RETAIL believes that debt-to-total-market-capitalization provides a more
appropriate indication of leverage for a company whose assets are primarily
operating real estate.
PACIFIC RETAIL may from time to time re-evaluate its borrowing policies in
light of changes in current economic conditions, relative costs of debt and
equity capital, market values of properties, growth and acquisition
opportunities and other factors. PACIFIC RETAIL may modify its borrowing policy
and may increase or decrease its ratio of debt to total market capitalization.
To the extent that the board of trustees determines to seek additional capital,
PACIFIC RETAIL may raise such capital through additional equity offerings, debt
financing or retention of cash flow (subject to provisions in the Internal
Revenue Code requiring the distribution by a REIT of a certain percentage of
taxable income and taking into account taxes that would be imposed on
undistributed taxable income), or a combination of these methods. A change in
PACIFIC RETAIL's debt capitalization policies could result in a more highly
leveraged PACIFIC RETAIL with an increased risk of default on indebtedness, an
increase in debt service costs and a decrease in the amounts distributed to
holders of PACIFIC RETAIL Common Shares.
Additional Information
Acquisitions
Since October 1995, PACIFIC RETAIL has closed on over $975 million of
acquisitions and has expanded its management team in California and the Pacific
Northwest. Acquisitions in 1997 totaled $458.4 million. As of June 30, 1998,
PACIFIC RETAIL owned 61 neighborhood infill shopping centers containing
approximately 7.1 million square feet excluding development or redevelopment
properties. Its target markets include 21 high-growth markets in the western
half of the United States. As of June 30, 1998, the operating properties owned
by PACIFIC RETAIL were 96.0% leased. As of June 30, 1998, PACIFIC RETAIL
employed approximately 130 people.
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Competition
There are numerous shopping center developers, real estate companies and other
owners of real estate that operate in the western United States that compete
with PACIFIC RETAIL in seeking retail tenants to occupy vacant space, for the
acquisition of shopping centers, and for the development of new shopping
centers.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, developer or operator of real estate may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances at, on, under or in its property. The costs of such removal or
remediation of such substances could be substantial. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to remediate or operate and manage
properly such substances, may adversely affect the owner's ability to sell or
rent such real estate or to borrow using such real estate as collateral.
PACIFIC RETAIL has not been notified by any governmental authority of any non-
compliance, liability or other claim in connection with any of the properties
owned or being acquired by it that are likely to be material, and PACIFIC
RETAIL is not aware of any environmental condition with respect to any of its
properties that is likely to be material. PACIFIC RETAIL has subjected each of
its properties to a Phase I environmental assessment (which does not involve
invasive procedures such as soil sampling or ground water analysis) by
independent consultants. While some of these assessments have led to further
investigation and sampling, none of the environmental assessments has revealed,
nor is PACIFIC RETAIL aware of, any environmental liability (including
asbestos-related liability) that PACIFIC RETAIL believes would have a material
adverse effect on its business, financial condition or results of operations.
No assurance can be given, however, that these assessments and investigations
reveal all potential environmental liabilities, that no prior owner or operator
created any material environmental condition not known to PACIFIC RETAIL or the
independent consultants or that future uses or conditions (including, without
limitation, tenant actions or changes in applicable environmental laws and
regulations) will not result in unreimbursed costs relating to environmental
liabilities.
Insurance Coverage
PACIFIC RETAIL believes that all of its properties are adequately insured;
however, an uninsured loss could result in loss of capital investment and
anticipated profits. See "Risk Factors--General Risks Relating to Real Estate
Investments."
Tax Basis
PACIFIC RETAIL's basis in the properties for Federal income tax purposes is its
cost basis. Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets, which range from five to seven years for
personal property and 10 to 40 years for depreciable real property.
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Real Estate Taxes
PACIFIC RETAIL's real estate taxes for the year ended December 31, 1997, were
approximately $10.0 million. Substantially all the leases for the properties
contain provisions requiring tenants to pay as additional rent a proportionate
share of real estate tax increases.
Market Price of Shares and Dividends
There is no established public trading market for the PACIFIC RETAIL Common
Shares or the PACIFIC RETAIL Preferred Shares. The following table sets forth
the PACIFIC RETAIL distributions per share for the periods indicated.
<TABLE>
<CAPTION>
DISTRIBUTIONS PER SHARE(1)
-------------------------------
COMMON PREFERRED A PREFERRED B
SHARES SHARES SHARES
------- ----------- -----------
<S> <C> <C> <C>
1996
First Quarter................................. $0.150 $0.137 --
Second Quarter................................ 0.150 0.137 --
Third Quarter................................. 0.150 0.137 $0.150
Fourth Quarter................................ 0.174 0.161 0.174
1997
First Quarter................................. 0.180 0.167 0.180
Second Quarter................................ 0.180 0.167 0.180
Third Quarter................................. 0.180 0.167 0.180
Fourth Quarter................................ 0.180 0.167 0.180
1998
First Quarter................................. 0.1925 0.1795 0.1925
Second Quarter................................ 0.1925 0.1795 0.1925
Third Quarter................................. 0.1925 0.1795 0.1925
</TABLE>
- --------
(1) While a private REIT, PACIFIC RETAIL's distribution policy is to calculate
and pay distributions based on the number of days of ownership during the
period, resulting in multiple record dates which correspond with the dates
additional shares are issued.
The taxability information for 1995 is based upon the best available data.
PACIFIC RETAIL's tax returns have not been examined by the Internal Revenue
Service and, therefore, the taxability of dividends is subject to change.
The total distribution required to maintain PACIFIC RETAIL's REIT status for
tax purposes was $26.2 million for 1997, $9.5 million for 1996, and $0.3
million for 1995. PACIFIC RETAIL distributed $31.1 million, $11.3 million, and
$0.7 million in 1997, 1996 and 1995, respectively.
As of September 30, 1998, PACIFIC RETAIL had approximately 281 record holders
of PACIFIC RETAIL Common Shares and one record holder of each class of PACIFIC
RETAIL Preferred Shares.
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THE COMBINED COMPANY
REGENCY expects the combined company resulting from the merger to have the
following important characteristics, which are intended to create long-term
shareholder value:
. The first company to focus on operating, owning and providing third-
party services for a national platform of grocery-anchored infill
retail centers;
. Use of proprietary research through the Retail Operating System to
identify investment opportunities for the combined entity (and
expansion opportunities for national retailers) in markets and
submarkets throughout the United States that have:
. high barriers to entry and
. faster population growth and a higher average household income
than national averages;
. Close relationships with leading supermarket chains that are first or
second in their markets;
. ""Preferred customer" initiatives with top retailer shop space
tenants to create multiple leasing opportunities across a nationwide
platform;
. Synergies we expect to result in higher growth in funds from
operations per share than would have been attained by the individual
entities;
. A combined customer-driven development pipeline of over $400 million
with higher anticipated yields than acquisition properties;
. Economies of scale that we expect to produce identified cost savings
of more than $5 million annually by the year 2000;
. A strong balance sheet, with a ratio of debt-to-book capitalization
of 30% on a pro forma basis as of June 30, 1998, with anticipated
credit capacity of more than $600 million to pursue strategic
investment opportunities;
. Continue building a development pipeline and take advantage of
acquisition opportunities when they become more attractively priced;
. A larger market capitalization that should allow access to debt and
equity markets on more favorable terms than those available to the
individual entities; and
. A combined management team with common operating philosophies and
methods.
REGENCY and PACIFIC RETAIL also expect the merger to have the following
potential detriments to present holders of REGENCY stock and PACIFIC RETAIL
shares:
. The merger consideration is fixed, but the market price of REGENCY
Common Stock may change. Accordingly, the REGENCY Common Stock and
REGENCY Preferred Stock that REGENCY will issue in exchange for the
PACIFIC RETAIL Common Shares and PACIFIC RETAIL Preferred Shares may
have a greater or lower aggregate value than the value contemplated
at the time the Merger Agreement was signed.
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. As of September 23, 1998, SC-USREALTY owned 46.0% of the outstanding
REGENCY Common Stock and 69.9% of the outstanding PACIFIC RETAIL
Common Shares and Preferred Shares. SC-USREALTY will own
approximately 59.3% of the outstanding REGENCY Common Stock (52.5% on
a fully diluted basis) as a result of the merger.
. The size of the transaction may make rapid integration of REGENCY and
PACIFIC RETAIL more difficult.
. REGENCY shareholders and PACIFIC RETAIL shareholders will become
subject to the real estate risks of the markets in which the other
company currently operates.
. REGENCY will no longer qualify as a "domestically controlled REIT"
for U.S. federal income tax purposes.
Following the merger, REGENCY will continue to be taxed as a REIT under the
Internal Revenue Code and be organized as a corporation under the laws of the
State of Florida. REGENCY's headquarters will be located at 121 West Forsyth
Street, Jacksonville, Florida 32202 (telephone: (904) 356-7000) and will have
regional offices in Atlanta, Cincinnati, Denver, Dallas, Los Angeles, St. Louis
and San Francisco.
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THE MERGER
TERMS OF THE MERGER
The REGENCY Board and the PACIFIC RETAIL Board have each approved the merger
and the Merger Agreement, a copy of which is attached hereto as Annex A and
incorporated herein by reference. Pursuant to the Merger Agreement, among other
things, upon satisfaction (or waiver) of the conditions set forth therein, at
the effective time of the merger:
. PACIFIC RETAIL will be merged with and into REGENCY, with REGENCY
being the surviving entity,
. each issued and outstanding PACIFIC RETAIL Common Share will be
converted into the right to receive 0.48 shares of REGENCY Common
Stock, and
. each issued and outstanding PACIFIC RETAIL Preferred Share will be
converted into the right to receive 0.48 shares of a corresponding
series of REGENCY Preferred Stock.
No fractional shares of REGENCY Common Stock or REGENCY Preferred Stock will be
issued in the merger. In lieu thereof, a holder of PACIFIC RETAIL shares
otherwise entitled to a fractional share will be paid cash in respect of such
fractional interest based on the average closing price of a share of REGENCY
Common Stock on the New York Stock Exchange on the 10 consecutive trading days
ending on the fifth day immediately preceding the effective time of the merger.
As a result of the merger and without any action on the part of the holder
thereof, at the effective time, each PACIFIC RETAIL share will cease to be
outstanding, will be canceled and retired and will cease to exist. Each holder
of a certificate representing PACIFIC RETAIL Common Shares or PACIFIC RETAIL
Preferred Shares will thereafter cease to have any rights with respect to such
shares, except the right to receive the REGENCY Common Stock or REGENCY
Preferred Stock, as applicable, and cash in lieu of fractional shares upon the
surrender of such certificate. Promptly after the effective time of the merger,
REGENCY will mail a letter of transmittal and instructions to each holder of a
certificate representing PACIFIC RETAIL shares as of the effective time for use
in effecting the surrender of the certificate in exchange for certificates
representing REGENCY stock and cash in lieu of fractional shares. See "The
Merger Agreement--Exchange of PACIFIC RETAIL Share Certificates."
THE SUBSIDIARY MERGERS
In addition to the merger of PACIFIC RETAIL into REGENCY, certain subsidiaries
of PACIFIC RETAIL are expected to be merged into subsidiaries of REGENCY.
The Management Company Merger
PRT Development Corporation, PACIFIC RETAIL's non-qualified REIT subsidiary, is
expected to be merged with and into Regency Realty Group, Inc., REGENCY's non-
qualified REIT subsidiary, at or after the effective time of the PACIFIC
RETAIL/REGENCY merger, subject to applicable consents, including that of SC-
USREALTY. The non-qualified REIT subsidiaries engage in development activities
and the leasing and management of properties owned by third parties. Any income
generated by these activities does not constitute income from real property
investments for
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REIT qualification purposes. REGENCY and SC-USREALTY are negotiating the terms
of the merger of these two subsidiaries. The terms of the merger are dependent
upon the relative valuation of these two subsidiaries. This valuation has not
been finalized as of the date of this Joint Proxy Statement and Prospectus.
SC-USREALTY owns all of the shares of Class A voting stock of PRT Development
Corporation, and is generally entitled to 5% of all distributions made by it.
PACIFIC RETAIL owns all of the Class B non-voting stock of PRT Development
Corporation and is generally entitled to all remaining distributions.
As a result of the merger, REGENCY will acquire all the Class B non-voting
stock and SC-USREALTY will receive cash in exchange for its Class A voting
shares in an amount to be determined upon completion of the valuation. REGENCY
anticipates that The Regency Group, Inc., which holds 93% of the common stock
of REGENCY's non-qualified REIT subsidiary, will contribute the purchase price
of the Class A voting shares to REGENCY's non-qualified REIT subsidiary in the
form of an interest-bearing loan from this entity.
The Operating Partnership Merger
Upon the effectiveness of the merger, REGENCY will become the sole general
partner of Retail Property Partners Limited Partnership. Thereafter, Retail
Property Partners Limited Partnership may merge into Regency Centers, L.P. at
such time as REGENCY determines appropriate, subject to applicable consents of
third parties.
BACKGROUND OF THE MERGER
In January 1998, REGENCY signed an agreement to acquire assets from the Midland
Development Group, Inc. and related entities ("Midland"). Midland required that
REGENCY acquire shopping centers and shopping center developments from Midland
throughout Midland's territory, including properties in two of PACIFIC RETAIL's
targeted markets, Colorado and Texas. REGENCY offered to transfer to PACIFIC
RETAIL the right to acquire the Midland properties in the Western states in
which PACIFIC RETAIL operates because REGENCY's Stockholders Agreement with
SC-USREALTY (see "The Merger--Amendment to Stockholders Agreement") did not
permit it to own a material amount of assets in those states. REGENCY and
PACIFIC RETAIL decided to discuss in more depth after the Midland closing a
possible transfer of these properties. Accordingly, PACIFIC RETAIL declined to
acquire these Midland properties at the time of the Midland closing. SC-
USREALTY consented to REGENCY's acquisition of properties in Colorado and Texas
in order to permit REGENCY to acquire the rest of the Midland portfolio, which
included infill properties in the Eastern U.S.
As preparations proceeded for the closing of the Midland acquisition, REGENCY
considered a further expansion into high growth Western markets through mergers
and acquisitions. PACIFIC RETAIL appeared to be a better strategic fit than
other public and private companies because PACIFIC RETAIL and REGENCY both
focus on grocery-anchored infill neighborhood shopping centers, PACIFIC RETAIL
has a more extensive presence in the majority of the high growth Western
markets than many public shopping center companies, PACIFIC RETAIL has a more
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extensive development program than many of the companies REGENCY reviewed and
the two companies' operating and investment systems are similar. As a result,
REGENCY discussed with SC-USREALTY its views on the possibility of a
combination of REGENCY and PACIFIC RETAIL. REGENCY believed that a business
combination with PACIFIC RETAIL was attractive since it would enable the
combined companies to (1) create a national platform of grocery-anchored infill
neighborhood centers in high growth markets, (2) achieve greater growth in
funds from operations than each would achieve independently and (3) have a
larger combined capital structure that would provide greater access to capital
markets than each could obtain independently. SC-USREALTY indicated that it
would be supportive of such a combination and encouraged management of REGENCY
and PACIFIC RETAIL to negotiate a mutually acceptable transaction.
For the reasons described above, the proposed combination of REGENCY and
PACIFIC RETAIL also was appealing to PACIFIC RETAIL. In addition, the benefit
of a combination to PACIFIC RETAIL was reinforced by the state of the capital
markets in 1998. PACIFIC RETAIL's stated objective since formation has been to
build a premier grocery-anchored infill neighborhood shopping center company in
the Western U.S. and to take it public. However, an initial public offering
involves significant time and expense, with no assurance of success. Moreover,
as a sector, REIT stocks have experienced significant price declines in 1998
making an initial public offering more difficult. Therefore, giving PACIFIC
RETAIL shareholders the benefits of being shareholders of a publicly traded
company through a business combination with an existing New York Stock
Exchange-listed REIT rather than through its own initial public offering was an
attractive alternative to PACIFIC RETAIL.
On February 10, 1998, Martin E. Stein, Jr., REGENCY'S chairman, met with
William Sanders, Chairman of Security Capital Group Incorporated ("Security
Capital Group"), an affiliate of SC-USREALTY and the sole stockholder of SC-
USREALTY's sub-advisor, and C. Ronald Blankenship, Vice Chairman of Security
Capital Group, to discuss the possible combination of REGENCY and PACIFIC
RETAIL. At that meeting, Mr. Sanders supported REGENCY's intentions to proceed
with an analysis of such a transaction. On March 18, 1998, Mr. Stein met in
Dallas with Dennis H. Alberts, President and Chief Executive Officer of PACIFIC
RETAIL, to discuss a proposed combination. Messrs. Stein and Alberts agreed
that a transaction was a logical next step for both companies and agreed to
begin discussions in more detail about a transaction.
Each of REGENCY and PACIFIC RETAIL appointed a special committee from among its
independent directors and trustees to evaluate the terms of any proposed
business combination between REGENCY and PACIFIC RETAIL. The special committees
were intended to consider the interests of all shareholders. Management of
REGENCY provided initial background information concerning a possible business
combination to the REGENCY Board at a meeting on March 19, 1998. At that
meeting, the REGENCY Board appointed Edward L. Baker, J. Dix Druce, Jr., Albert
Ernest, Jr. and Douglas S. Luke from among REGENCY's independent directors to
serve as the special committee of the REGENCY Board to evaluate any proposed
business combination with PACIFIC RETAIL (the "REGENCY Special Committee").
During the next several weeks, the REGENCY Special Committee solicited
proposals from law firms to serve as special counsel to the committee and in
April 1998 retained Willkie Farr & Gallagher, based on the recommendation of
the committee chairman. The REGENCY Special Committee also
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<PAGE>
retained Prudential Securities Incorporated ("Prudential Securities"), based on
its expertise and experience in the real estate and REIT industries, to provide
financial advisory services and assistance to the committee and to render an
opinion to the committee with respect to the fairness to REGENCY's
shareholders, from a financial point of view, of the consideration that would
be paid to REGENCY in a transaction with PACIFIC RETAIL, if one should be
proposed and negotiated. Prudential Securities served as managing underwriter
for a REGENCY stock offering in July 1997.
On April 22, 1998, the PACIFIC RETAIL Board appointed Terry N. Worrell and John
C. Schweitzer as its special committee for purposes of evaluating a possible
business combination with REGENCY (the "PACIFIC RETAIL Special Committee"). Mr.
Schweitzer was elected as chairman of the committee. PACIFIC RETAIL agreed to
pay the members of the PACIFIC RETAIL Special Committee a $6,000 fee each as
partial compensation for their time spent on behalf of the committee. In July
1998, the PACIFIC RETAIL Special Committee selected Munger, Tolles & Olson LLP
("Munger Tolles") as its special counsel, based on the recommendation of the
committee chairman, and selected Goldman, Sachs & Co. ("Goldman Sachs") to
serve as its financial advisor, based on its expertise and experience in the
real estate and REIT industries.
In April 1998, REGENCY and PACIFIC RETAIL negotiated and signed a
confidentiality agreement in preparation for exchanging financial and other
confidential information. In late April and early May, REGENCY conducted a
series of tours of PACIFIC RETAIL properties and exchanged information with
PACIFIC RETAIL. On April 22, 1998, Mr. Alberts discussed with Mr. Stein PACIFIC
RETAIL's expectation as to how REGENCY should analyze the net asset value of
PACIFIC RETAIL's retail centers in protected, high growth Western markets, low
leverage, and projected high growth rate in funds from operations resulting
from PACIFIC RETAIL's development program. At a REGENCY Board meeting on May
26, 1998, management gave a report concerning the results of the initial
exchanges of financial information.
The REGENCY Special Committee held a meeting on June 29, 1998 to discuss the
status of due diligence and discussions with PACIFIC RETAIL. The committee
directed management to review and compile key financial measures, including
funds from operations and net asset value, with respect to both companies that
would enable the committee to make a fair comparison of the relative
contributions of both entities in a combined company. It also directed
Prudential Securities to analyze these measures in order to assist the
committee in developing a fair transaction for REGENCY's shareholders that
would be positively recognized by the capital markets.
The REGENCY Special Committee held a meeting on July 23, 1998 at which
management presented the results of its financial due diligence to date.
Prudential Securities attended the meeting and reported on different
mechanisms, including alternative securities and contingent valuation rights,
that have been used in other transactions. Prudential Securities noted that
alternative securities or contingent valuation rights might be complicated and
be perceived by investors as financial engineering to generate a higher than
warranted price to PACIFIC RETAIL. At this meeting, the REGENCY Special
Committee indicated that it recognized a premium might be warranted for PACIFIC
RETAIL's assets, especially the centers in protected markets in the San
Francisco Bay area, Portland and Seattle, so long as the transaction is
accretive to REGENCY's shareholders.
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Active negotiations ensued over the following weeks. At a meeting between Mr.
Stein and Mr. Schweitzer on July 30, 1998, they discussed exchange ratios based
on each company's projected contribution to funds from operations. Mr. Stein
also communicated his desire that the transaction be a relatively straight-
forward stock-for-stock merger, be accretive, enhance REGENCY's sustainable
growth rate in funds from operations per share, reflect favorable asset
pricing, and reflect the current reduction in the share prices of REGENCY and
other public REITs. Mr. Schweitzer indicated that it was important for PACIFIC
RETAIL to receive a premium for the value of its Western shopping centers. Mr.
Stein also met with Mr. Alberts and Jane E. Mody, Managing Director and Chief
Financial Officer of PACIFIC RETAIL on July 31, 1998 to confirm the assumptions
and bases on which the parties were conducting their analyses.
On July 31, 1998, the PACIFIC RETAIL Special Committee met with Munger Tolles.
At this meeting, Mr. Schweitzer reported on his meeting with Mr. Stein and also
reported that he had instructed Goldman Sachs to undertake a financial analysis
relating to the proposed transaction. The committee members discussed the
business rationale for the proposed merger and various bases for valuing
PACIFIC RETAIL and REGENCY. The committee also discussed the possibility of
business combinations with other parties. Munger Tolles provided advice as to
the Special Committee's legal duties.
The PACIFIC RETAIL Special Committee met again on August 10, 1998 with Munger
Tolles and Goldman Sachs. At this meeting, Mr. Schweitzer reported on his
further discussions with Mr. Stein. The committee and its advisers engaged in
an extensive discussion of factors relevant to the determination of an exchange
ratio acceptable to PACIFIC RETAIL's shareholders, with the committee focusing
on the interests of PACIFIC RETAIL's shareholders other than SC-USREALTY. At
the committee's invitation, representatives of SC-USREALTY and Security Capital
Group participated in a portion of this meeting to express their views on the
proposed merger. Also during this meeting, the committee discussed with Munger
Tolles the effects of actual and potential conflicts of interest among
participants in the negotiating process and the possibility of alternative
business combination transactions.
On August 19, 1998, the PACIFIC RETAIL Special Committee met again. At this
meeting, Goldman Sachs reported to the committee on various financial analyses
that it had performed regarding the proposed merger. This report and the
ensuing discussion among the committee and its advisors included consideration
of numerous financial measures pertinent to determining whether an exchange
ratio that is fair to the PACIFIC RETAIL shareholders (other than SC-USREALTY)
could be negotiated. The Special Committee also met separately with Munger
Tolles to discuss the process of its deliberations and negotiations.
On August 25, 1998, Mr. Schweitzer had further discussions with Mr. Stein as to
the possible combination of REGENCY and PACIFIC RETAIL. The parties refined
their analyses and began to narrow their differences during the course of
ongoing due diligence in late August and early September.
As a result of the negotiations between Mr. Schweitzer and Mr. Stein, the
PACIFIC RETAIL Special Committee discussed on September 2, 1998 the status of
negotiations with respect to the proposed merger and determined to proceed with
the proposed combination, subject to receipt of
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updated budgets and financial information and to negotiation of acceptable
definitive merger documentation and receipt from Goldman Sachs of its opinion
that the exchange ratio ultimately agreed upon is fair from a financial point
of view to the shareholders of PACIFIC RETAIL other than SC-USREALTY. Mr.
Schweitzer asked Goldman Sachs to undertake the financial analysis to reach its
opinion as to financial fairness, and asked Munger Tolles to work with PACIFIC
RETAIL's regular counsel to negotiate definitive merger documents with counsel
for REGENCY and the REGENCY Special Committee.
The REGENCY Special Committee held a meeting on September 8, 1998 at which
management presented the results of additional discussions with PACIFIC RETAIL
and further due diligence. Representatives of Prudential Securities summarized
the additional due diligence that had been conducted with respect to PACIFIC
RETAIL, the benefits of the proposed transaction to REGENCY and its
shareholders and the financial and valuation analyses undertaken by Prudential
Securities in connection with the transaction. The REGENCY Special Committee
determined to continue negotiations and due diligence with respect to the
proposed transaction.
REGENCY also agreed to pay total fees of $600,000 to Prudential Securities,
$12,000 to Mr. Druce and $6,000 each to the other committee members as
compensation for services for the REGENCY Special Committee.
From September 8 through September 22, 1998, following review of updated
budgets and financial information, including detailed review of REGENCY's and
PACIFIC RETAIL's projected cash flows, the parties continued their discussion
as to the terms of the proposed merger, ultimately agreeing on an exchange
ratio of 0.48 shares of REGENCY Common Stock for each PACIFIC RETAIL Common
Share.
The PACIFIC RETAIL Special Committee met again on September 22, 1998. The
committee reviewed again the business rationale for the proposed merger,
including establishing a national company with an expanded ability to serve
major national tenants, creating a combined company with a market
capitalization among the largest for neighborhood shopping center companies in
the U.S., geographically diversifying PACIFIC RETAIL's properties and reducing
concentration in its markets, reducing borrowing costs and improving access to
capital, creating economies of scale due to the similarity in PACIFIC RETAIL's
and REGENCY's operating policies and procedures, and obtaining the benefits of
a public equity market without the risks and costs of an initial public
offering. Goldman Sachs made a presentation regarding the methodologies it used
in reviewing the proposed merger and arriving at its opinion, including the
issues it examined in arriving at its opinion and the form of its opinion.
Goldman Sachs reported on its financial analysis of the proposed exchange ratio
of 0.48 shares of REGENCY Common Stock for each PACIFIC RETAIL Common Share,
concluding with its oral opinion, confirmed by its written opinion dated
September 23, 1998, that the exchange ratio is fair from a financial point of
view to shareholders of PACIFIC RETAIL other than SC-USREALTY. Munger Tolles
reported to the PACIFIC RETAIL Special Committee on the negotiations of the
definitive merger documentation and summarized the documents for the committee.
Following such reports and further discussion, the committee voted unanimously
to recommend to the full PACIFIC RETAIL Board that it approve the proposed
merger as being fair and reasonable to PACIFIC RETAIL's shareholders, other
than SC-USREALTY, and on terms and
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conditions not less favorable than those available from unaffiliated third
parties. A meeting of the full PACIFIC RETAIL Board of Trustees commenced
immediately thereafter.
At such meeting, the PACIFIC RETAIL Board reviewed the information considered
by the PACIFIC RETAIL Special Committee, including the opinion of Goldman
Sachs, and reviewed the terms of the merger and the Merger Agreement. The
PACIFIC RETAIL Special Committee also considered the recommendation of the
PACIFIC RETAIL Special Committee. Following such review, the PACIFIC RETAIL
Board unanimously approved the merger and the Merger Agreement and resolved to
recommend the merger to the PACIFIC RETAIL shareholders.
At a meeting of the REGENCY Special Committee on September 23, 1998, management
presented the reasons why it believed the merger is in the best interests of
REGENCY's shareholders, which reasons are discussed elsewhere herein (see "--
Reasons for the Merger; Recommendation of the REGENCY Board"). Prudential
Securities also presented its analysis of the proposed merger, and concluded,
based upon such analysis, by delivering its opinion to the REGENCY Special
Committee in oral form, which was confirmed in writing on September 23, 1998,
that the merger consideration to be paid by REGENCY in the merger is fair to
REGENCY's shareholders (other than SC-USREALTY) from a financial point of view.
After discussing these presentations, the REGENCY Special Committee voted
unanimously to recommend that the REGENCY Board of Directors approve the
merger.
The Merger Agreement was executed after the close of business on September 23,
1998 and announced prior to the opening of business on September 24, 1998.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE REGENCY BOARD
At a special meeting of the REGENCY Board on September 23, 1998, following a
review of the information considered by REGENCY and a review of the terms of
the Merger Agreement, as well as consideration of the recommendation of the
REGENCY Special Committee, the REGENCY Board approved the Merger Agreement. As
noted below, the REGENCY Board considered the determination by the REGENCY
Special Committee that the proposed transaction is fair and reasonable to
REGENCY and REGENCY's shareholders (other than SC-USREALTY) and their
recommendation that the REGENCY Board approve the Merger Agreement.
In making its determination with respect to the merger, the REGENCY Board
considered the following material positive factors:
(1) The merger will more than double REGENCY's size, transforming it from a
regional shopping center REIT into one of the nation's largest
nationwide shopping center REITs with a valuable portfolio of infill
grocery-anchored centers in some of the fastest growing areas of the
western U.S.
(2) This national platform will allow the combined entity to offer
development opportunities to leading grocer chains in infill markets
throughout the U.S. and to expand REGENCY's "preferred customer"
initiative with leading side shop retailers across the country.
(3) National REITs tend to command higher multiples of funds from
operations in the capital markets than regional REITs because of their
geographic diversification. The merger will
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reduce REGENCY's dependence on regional grocer chain anchor tenants in
its current markets as well as expand its geographic base.
(4) REGENCY will acquire, at a 9.75% capitalization rate, an attractive,
geographically broad portfolio that management views as the best
acquisition opportunity from among public and private companies in the
same western markets;
(5) Economies of scale are expected to produce identified cost savings of
more than $5 million annually by the year 2000.
(6) The merger is expected to increase REGENCY's growth rate by utilizing
PACIFIC RETAIL's attractive balance sheet, which has a lower debt-to-
book capitalization rate than REGENCY's, and PACIFIC RETAIL's
development program.
(7) The combined entity should have more than $600 million of credit
capacity to pursue strategic investment opportunities, continue
building a development pipeline and take advantage of acquisition
opportunities when they become more attractively priced.
(8) The merger will double REGENCY's market capitalization, which should
allow access to debt and equity markets on more favorable terms than
those presently available to REGENCY and provide greater liquidity for
shareholders.
(9) The REGENCY Board believes that the merger provides an opportunity to
combine management teams that are skilled at creating shareholder value
through development, acquisitions and property operations and that the
similarity in their respective operating philosophies, methods and
corporate culture, which is due in large part to their respective
affiliations with SC-USREALTY, will allow for ease of integration and
the opportunity to quickly add value to the combined entity.
(10) As noted above, the REGENCY Board placed special emphasis on the
recommendation of the REGENCY Special Committee. In reaching its
determination, the REGENCY Special Committee considered the same
factors described herein that were considered by the REGENCY Board as
a whole. The REGENCY Special Committee also consulted with Willkie
Farr & Gallagher and Prudential Securities. In addition, the REGENCY
Special Committee considered the opinion, analyses and presentations
of Prudential Securities described below under "--Opinion of REGENCY's
Financial Advisor," including the opinion of Prudential Securities
dated September 23, 1998 to the effect that, as of the date of such
opinion, and based upon and subject to certain matters stated therein,
the consideration to be paid by REGENCY in the merger is fair to
REGENCY's shareholders (other than SC-USREALTY) from a financial point
of view.
The REGENCY Board also considered the following potentially negative factors in
its deliberations concerning the merger:
(1) Because the exchange ratio is fixed, the REGENCY stock that REGENCY
will be required to issue in the merger may have a greater aggregate
value than the value contemplated at the time the Merger Agreement was
signed due to fluctuations in the market price of the REGENCY Common
Stock.
(2) While the exchange ratio was negotiated based on, among other things,
the relative contributions of the two entities in terms of net asset
value and funds from operations, the exchange ratio might possibly have
been more favorable to REGENCY had PACIFIC
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RETAIL been a public company and the PACIFIC RETAIL Common Shares
suffered the same decline in market value since January 1, 1998 that has
been experienced by the REIT industry generally.
(3) The ownership of Security Capital Holdings S.A. in REGENCY will
increase to more than 50% as a result of the merger, which will give
Security Capital Holdings S.A. absolute voting control of REGENCY in
the event that SC-USREALTY's standstill expires or is terminated for
any reason.
(4) Due to its size and national scope, the combined entity will face
challenges in initially integrating the individual entities and
managing its operations on a continuing basis.
In view of the wide variety of factors considered by the REGENCY Board, the
REGENCY Board did not quantify or otherwise attempt to assign relative weights
to the specific factors considered in making its determination. However, in
the view of the REGENCY Board, the potentially negative factors considered by
it were not sufficient, either individually or collectively, to outweigh the
positive factors considered by it in its deliberations relating to the merger.
OPINION OF REGENCY'S FINANCIAL ADVISOR
On September 23, 1998, Prudential Securities delivered its oral opinion to the
REGENCY Special Committee to the effect that, as of such date, the
consideration to be paid by REGENCY in the merger was fair, from a financial
point of view, to REGENCY's shareholders (other than SC-USREALTY) (the
"Prudential Securities Opinion"). Prudential Securities made a presentation of
the financial analysis underlying its oral opinion at a meeting of the REGENCY
Special Committee on September 23, 1998. This analysis, as presented to the
REGENCY Special Committee, is summarized below. Prudential Securities
confirmed its opinion in writing on September 23, 1998.
In requesting the Prudential Securities Opinion, the REGENCY Special Committee
did not give any special instructions to Prudential Securities or impose any
limitation upon the scope of the investigation that Prudential Securities used
to deliver the Prudential Securities Opinion. A copy of the Prudential
Securities Opinion, which sets forth the assumptions made, matters considered
and limits on the review undertaken, is attached to this Joint Proxy Statement
and Prospectus as Annex B and is incorporated herein by reference. The summary
of the Prudential Securities Opinion set forth below is qualified in its
entirety by reference to the full text of the Prudential Securities Opinion.
REGENCY shareholders are urged to read the Prudential Securities Opinion in
its entirety.
THE PRUDENTIAL SECURITIES OPINION IS FOR THE USE OF THE REGENCY SPECIAL
COMMITTEE, IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY
REGENCY IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING OF
SHAREHOLDERS OR AS TO ANY OTHER ACTION SUCH SHAREHOLDER SHOULD TAKE REGARDING
THE MERGER.
In conducting its analysis and arriving at the Prudential Securities Opinion
dated September 23, 1998, Prudential Securities reviewed such information and
considered such financial data and other
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factors as Prudential Securities deemed relevant under the circumstances,
including, among others, the following:
. A draft, dated September 21, 1998, of the Merger Agreement, including the
exhibits thereto relating to the mergers of REGENCY's and PACIFIC
RETAIL's operating partnerships and non-qualified REIT subsidiaries
(together with the merger, for the purposes of the Prudential Opinion,
the "Transaction");
. Certain publicly available historical financial and operating data for
REGENCY including, but not limited to:
(1) The Annual Report to Shareholders and Annual Report on Form 10-K
for the fiscal year ended December 31, 1997,
(2) The Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998,
(3) Reports on Forms 8-K, dated March 19, 1998 and July 20, 1998, and
(4) The Proxy Statement relating to the Annual Meeting of Shareholders
held on May 26, 1998;
. Historical stock market prices and trading volume for REGENCY's Common
Stock;
. Certain historical results of operations of PACIFIC RETAIL provided to
Prudential Securities by the management of REGENCY;
. Certain information relating to REGENCY, including projected income
statement data for the fiscal years ending December 31, 1998 through
December 31, 2001 prepared by the management of REGENCY;
. Certain information relating to PACIFIC RETAIL, including financial
forecasts for the fiscal years ending December 31, 1998 through December
31, 2001 prepared by the management of PACIFIC RETAIL and adjusted by the
management of REGENCY;
. Projected consolidated financial forecasts, after giving effect to the
Transaction, for the fiscal years ending December 31, 1998 through
December 31, 2001, prepared by the management of REGENCY;
. Publicly available financial, operating, and stock market data concerning
certain companies engaged in businesses Prudential Securities deemed
comparable to PACIFIC RETAIL or otherwise relevant to Prudential
Securities' inquiry;
. The financial terms of certain recent transactions Prudential Securities
deemed relevant to their inquiry;
. The pro forma financial impact of the Transaction on REGENCY's earnings;
and
. Such other financial studies, analyses and investigations as Prudential
Securities deemed appropriate.
Prudential Securities assumed, with REGENCY's consent, that the draft of the
Merger Agreement which Prudential Securities reviewed (as referred to above)
would conform in all material respects to that document in final form.
Prudential Securities met with the senior management of REGENCY and PACIFIC
RETAIL to discuss:
. The prospects for their respective businesses,
. Their estimates of such businesses' future financial performance,
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. The financial impact of the Transaction on the respective companies, and
. Such other matters as Prudential Securities deemed relevant.
In connection with its review and analysis and in arriving at the Prudential
Securities Opinion, Prudential Securities relied upon the accuracy and
completeness of the financial and other information provided to Prudential
Securities by REGENCY and PACIFIC RETAIL and has not undertaken any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of REGENCY or PACIFIC RETAIL. With respect to
certain financial forecasts provided to Prudential Securities by REGENCY for
REGENCY and PACIFIC RETAIL, Prudential Securities assumed such information (and
the assumptions and bases therefor) represents REGENCY's best currently
available estimate as to the future financial performance of REGENCY and
PACIFIC RETAIL. The Prudential Securities Opinion is predicated on the merger
qualifying:
. As a reorganization within the meaning of Section 368 of the Internal
Revenue Code, and
. For purchase accounting treatment.
Further, the Prudential Securities Opinion is necessarily based on economic,
financial and market conditions as they exist, and can only be evaluated as of
September 23, 1998.
The Prudential Securities Opinion does not address nor should it be construed
to address the relative merits of the Transaction or alternative business
strategies which may be available to REGENCY. In addition, the Prudential
Securities Opinion does not in any manner address the prices at which REGENCY
Common Stock will trade following consummation of the Transaction.
In addition, the Prudential Securities Opinion and the presentation to the
REGENCY Special Committee was one of the many factors taken into consideration
by the REGENCY Special Committee in making its determination to recommend
approval of the Merger Agreement. Consequently, the analyses of Prudential
Securities described below should not be viewed as determinative of the opinion
of the REGENCY Special Committee with respect to the consideration to be paid
by REGENCY in the merger. The exchange ratio was determined through arm's
length negotiations between REGENCY and PACIFIC RETAIL and was approved by the
REGENCY Special Committee.
In arriving at the Prudential Securities Opinion, Prudential Securities
performed a variety of financial analyses, including those summarized herein.
The summary set forth below of the analyses presented to the REGENCY Special
Committee at the September 23, 1998 meeting does not purport to be a complete
description of the analyses performed. The preparation of a fairness opinion is
a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
these methods to the particular circumstance and, therefore, such an opinion is
not necessarily susceptible to partial analysis or summary description.
Prudential Securities believes that its analyses must be considered as a whole
and that selecting portions thereof or portions of the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying the Prudential Securities Opinion.
Prudential Securities made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control
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of REGENCY and PACIFIC RETAIL. Any estimates contained in Prudential
Securities' analyses are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the values of businesses and
securities do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Subject to the
foregoing, the following is a summary of the material financial analyses
presented by Prudential Securities to the REGENCY Special Committee in
connection with the Prudential Securities Opinion dated September 23, 1998.
Comparable Companies Analysis
A comparable companies analysis was employed by Prudential Securities to
establish implied ranges for the exchange ratio. Prudential Securities analyzed
publicly available historical and projected financial results, including
multiples of current stock price to projected 1998 funds from operations per
share ("1998 Projected FFO") (defined as net income plus depreciation and
amortization, excluding gains on sales of property, non-recurring charges, and
other extraordinary items) and projected 1999 funds from operations per share
("1999 Projected FFO") of certain companies considered by Prudential Securities
to be reasonably similar to PACIFIC RETAIL. The companies analyzed included:
Bradley Real Estate, Inc., Burnham Pacific Properties, Inc., Center Trust
Properties, Developers Diversified Realty Corp., Excel Realty Trust, Inc.,
Federal Realty Investment Trust, JDN Realty Corporation, Kimco Realty
Corporation, New Plan Realty Trust, and Weingarten Realty Investors (the
"Prudential Securities PACIFIC RETAIL Comparable Companies"). All of the
trading multiples of the Prudential Securities PACIFIC RETAIL Comparable
Companies were based on closing stock prices on September 18, 1998 (the
"September 18th Closing Price") and all funds from operations per share
estimates were published by First Call. The estimates published by First Call
were not prepared in connection with the Transaction or at the request of
Prudential Securities.
The Prudential Securities PACIFIC RETAIL Comparable Companies were found to
have a September 18th Closing Price estimated to be equal to 8.61x to 12.27x
1998 Projected funds from operations and 7.83x to 10.35x 1999 Projected FFO.
Applying such multiples to PACIFIC RETAIL's estimated 1998 FFO per share
($1.01) and estimated 1999 FFO per share ($1.12) resulted in implied ranges for
the exchange ratio of 0.40 to 0.57 and 0.40 to 0.53, respectively, based on
REGENCY's closing price of $21.75 on September 18, 1998.
Comparable Transactions Analysis
Prudential Securities also analyzed the consideration paid in several recent
merger and acquisition transactions deemed by Prudential Securities to be
reasonably similar to the Transaction, and considered the multiple of the
equity purchase price (defined as the purchase price of the acquired entity's
equity) to the acquired entity's latest twelve months funds from operations
("LTM FFO") and to the acquired entity's forward twelve months funds from
operations ("F-FFO"), based upon publicly available information for such
transactions. The transactions considered were the combinations of:
(i) Metropolitan Partners LLC and Tower Realty Trust, Inc. (pending), (ii) New
Plan Realty Trust, Inc. and Excel Realty Trust, Inc. (pending), (iii) Bay
Apartment Communities and Avalon Properties, Inc., (iv) EastGroup Properties
and Meridian Point Realty Trust VIII, (v) Kimco Realty Corporation and Price
REIT Inc., (vi) Camden Property Trust and Oasis Residential Inc.,
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(vii) Apartment Investment and Management Company and Ambassador Apartments
Inc., and (viii) Prime Realty and Horizon Group (the "Prudential Securities
Comparable Transactions").
The Prudential Securities Comparable Transactions were found to imply for the
acquired entity an equity purchase price within a range of 8.1x to 17.1x LTM
FFO and 8.1x to 12.5x F-FFO. Applying such multiples to PACIFIC RETAIL's LTM
FFO per share ($1.01) and F-FFO per share ($1.12) resulted in implied ranges
for the exchange ratio of 0.37 to 0.79 and 0.42 to 0.64, respectively.
None of the companies or acquired entities utilized in the above Prudential
Securities PACIFIC RETAIL Comparable Companies analysis and Prudential
Securities Comparable Transactions analysis for comparative purposes is, of
course, identical to PACIFIC RETAIL. Accordingly, a complete analysis of the
results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Prudential Securities PACIFIC RETAIL Comparable Companies and the acquired
entities in the Prudential Securities Comparable Transactions and other factors
that could affect the public trading value and consideration paid for each of
the Prudential Securities PACIFIC RETAIL Comparable Companies and the acquired
entities, respectively, as well as that of PACIFIC RETAIL.
Contribution Analysis
Prudential Securities observed that PACIFIC RETAIL stockholders would own 52.6%
of the common stock of REGENCY on a pro forma basis after giving effect to the
merger (the "Combined Company"). Prudential Securities reviewed the relative
contributions to the Combined Company's net asset valuation. The analysis
indicated that PACIFIC RETAIL would contribute 53.6% of the Combined Company's
net asset value. Prudential Securities also reviewed REGENCY's and PACIFIC
RETAIL's relative contribution with respect to certain projected operating and
financial information, including, among other things, projected funds from
operations and adjusted funds from operations ("AFFO") for REGENCY and PACIFIC
RETAIL without giving effect to potential transaction synergies. Prudential
Securities observed that in 1998, 1999 and 2000, PACIFIC RETAIL would
contribute 51.0%, 51.5% and 51.8% to the Combined Company's projected funds
from operations, respectively, and 51.2%, 51.8% and 52.3% to the Combined
Company's AFFO. The range of relative contributions of REGENCY and PACIFIC
RETAIL (excluding the relative contributions to net asset value) to the
Combined Company resulted in an implied range for the exchange ratio of 0.45 to
0.48. Projected financial and other information concerning REGENCY and PACIFIC
RETAIL and the impact of the merger upon the holders of REGENCY Common Stock
are not necessarily indicative of future results. All projected financial
information is subject to numerous contingencies, many of which are beyond the
control of management of REGENCY and PACIFIC RETAIL.
Net Asset Valuation Analysis
Prudential Securities performed a net asset valuation analysis for REGENCY and
PACIFIC RETAIL based upon aggregate real estate valuations of their respective
properties (based on annualized 1998 second quarter net operating income,
adjusted to reflect stabilized net operating income of acquisition and
development properties placed in service during the second quarter of 1998, and
in the case of
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REGENCY, further adjusted for equity income of unconsolidated partnerships and
minority interests in consolidated partnerships), the value of REGENCY's and
PACIFIC RETAIL's other assets (in the case of REGENCY, adjusted by the value of
construction-in-progress for assets placed in service and included in the real
estate valuation, and of the value of REGENCY's third-party fee revenue
business based on annualized 1998 first and second quarter net earnings at a
5.0x multiple) and liabilities, and their respective debt balances, in each
case as of June 30, 1998. Prudential Securities utilized a capitalization rate
of 9.00% for REGENCY and a capitalization rate of 8.75% for PACIFIC RETAIL.
These calculations indicated a per share net asset value for REGENCY of $24.11
per share and for PACIFIC RETAIL of $12.04 per share. The respective net asset
valuations per share of REGENCY and PACIFIC RETAIL resulted in an implied
exchange ratio of 0.50.
REGENCY selected Prudential Securities to provide a fairness opinion because it
is a nationally recognized investment banking firm engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions and
for other purposes and has substantial experience in transactions similar to
the Transaction. Pursuant to an engagement letter with Prudential Securities,
REGENCY has paid Prudential Securities a fee of $250,000 upon the delivery of
the Prudential Securities Opinion. In addition, the engagement letter with
Prudential Securities provides that REGENCY will reimburse Prudential
Securities for its reasonable out-of-pocket expenses, will pay an additional
$350,000 upon the consummation of the Transaction and will indemnify Prudential
Securities and certain related persons against certain liabilities, including
liabilities under securities laws, arising out of the merger or its engagement.
In the ordinary course of business, Prudential Securities may actively trade
the shares of REGENCY Common Stock for its own account and for the accounts of
customers, and accordingly, may at any time hold a long or short position in
such securities.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE PACIFIC RETAIL BOARD
At a special meeting of the PACIFIC RETAIL Board on September 22, 1998,
following a review of the information considered by PACIFIC RETAIL and a review
of the terms of the Merger Agreement as well as consideration of the
recommendation of the PACIFIC RETAIL Special Committee, the PACIFIC RETAIL
Board approved the Merger Agreement. As noted below, the PACIFIC RETAIL Board
considered the determination by the PACIFIC RETAIL Special Committee that the
merger and the Merger Agreement are fair to PACIFIC RETAIL and to the
shareholders of PACIFIC RETAIL, other than SC-USREALTY, and their
recommendation that the PACIFIC RETAIL Board approve the Merger Agreement.
In making its determination with respect to the merger, the PACIFIC RETAIL
Board considered the following material positive factors:
1. The national platform created by the combined company, together with a
significant incremental investment in markets with good long-term growth
prospects should provide PACIFIC RETAIL shareholders with a strong
foundation for continued long-term growth while at the same time
decreasing the exposure of its portfolio to market conditions in Texas
and California.
2. The PACIFIC RETAIL Board of Trustees believe that the combined company
will achieve an improved credit profile, reduced cost of capital and
increased access to capital.
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3. PACIFIC RETAIL shareholders will receive an immediate increase of 9.7%
in their annual distribution rate.
4. The PACIFIC RETAIL Board believes that the management teams of REGENCY
and PACIFIC RETAIL are each skilled at creating shareholder value
through development, acquisitions and property operations and that the
merger presents an opportunity to create value by implementing the best
practices of each company. Further, the similar culture of each of the
companies will allow for ease of integration and the opportunity to
quickly add value to the combined company.
5. The PACIFIC RETAIL Board believes that the increased size of the
combined company (resulting in the third largest shopping center REIT
based on the number of properties owned) will enable the combined
company to attract and retain a significant depth of management.
6. The PACIFIC RETAIL Board considered management's belief that the merger
will result in economies of scale for the combined company that are
expected to produce identified cost savings in excess of $5 million
annually beginning in 2000.
7. The PACIFIC RETAIL Board believes that the merger will result in
improved liquidity and other trading characteristics for PACIFIC RETAIL
shareholders as a result of the public market for REGENCY Common Stock
and increased total equity capitalization of the combined company and a
possible increase in trading volume of the securities of the combined
company.
8. The premium that PACIFIC RETAIL shareholders would receive for their
PACIFIC RETAIL Common Shares in the merger.
9. As noted above, the PACIFIC RETAIL Board placed special emphasis on the
recommendation of the PACIFIC RETAIL Special Committee. In reaching this
determination, the PACIFIC RETAIL Special Committee considered the same
factors described herein which were considered by the PACIFIC RETAIL
Board as a whole. The PACIFIC RETAIL Special Committee consulted with
Munger Tolles. In addition, the PACIFIC RETAIL Special Committee
considered the opinion, analyses and presentations of Goldman Sachs
described below under "--Opinion of PACIFIC RETAIL's Financial Advisor,"
including the opinion of Goldman Sachs to the effect that, as of the
date of such opinion, and based upon and subject to certain matters
stated therein, the consideration to be received by the holders of
PACIFIC RETAIL Common Shares pursuant to the Merger Agreement was fair,
from a financial point of view, to such holders (other than SC-USREALTY
and its affiliates).
The PACIFIC RETAIL Board also considered the following potentially negative
factors in its deliberations concerning the merger:
1. The fact that, because the exchange ratio is fixed, a decline in the
value of REGENCY Common Stock would reduce the value of the
consideration to be received by PACIFIC RETAIL's holders in the merger.
2. The larger asset base of the combined company could make perpetuation of
the rate of growth in funds from operations from external investment
activity more difficult.
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3. The size of the transaction may make rapid integration of REGENCY and
PACIFIC RETAIL more difficult. The PACIFIC RETAIL Board believed that
this detriment was partially offset by the similar operating culture and
consistent financial policies and accounting systems at the two
companies. Additionally, management time and resources would be
allocated to the transaction rather than operating PACIFIC RETAIL's
business.
4. The merger will result in holders of PACIFIC RETAIL Common Shares being
subjected to risk of the markets in which REGENCY currently operates.
5. The combined company will have a higher percentage of debt to total
market capitalization than PACIFIC RETAIL.
In view of the wide variety of factors considered by the PACIFIC RETAIL Board,
the PACIFIC RETAIL Board did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its
determination. However, in view of the PACIFIC RETAIL Board, the potentially
negative factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by it in its
deliberations regarding the merger.
OPINION OF PACIFIC RETAIL'S FINANCIAL ADVISOR
On September 23, 1998, Goldman Sachs delivered its written opinion to the
PACIFIC RETAIL Special Committee that, as of such date, the exchange ratio
pursuant to the Merger Agreement was fair from a financial point of view to the
holders of PACIFIC RETAIL Common Shares, other than SC-USREALTY.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF SEPTEMBER 23,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX C
TO THIS JOINT PROXY STATEMENT AND PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF PACIFIC RETAIL COMMON SHARES ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
. the Merger Agreement,
. audited financial statements for PACIFIC RETAIL for the three years
ended December 31, 1997,
. Annual Reports to Shareholders and Annual Reports on Form 10-K of
REGENCY for the five years ended December 31, 1997,
. certain interim reports and unaudited quarterly reports to
shareholders of PACIFIC RETAIL,
. certain interim reports and Quarterly Reports on Form 10-Q of
REGENCY,
. certain internal financial analyses and forecasts for PACIFIC RETAIL
prepared by the managements of PACIFIC RETAIL and REGENCY, and
. certain internal financial analyses and forecasts for REGENCY
prepared by the management of REGENCY.
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Goldman Sachs also held discussions with members of the senior management of
PACIFIC RETAIL and REGENCY regarding the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Merger Agreement and
the past and current business operations, financial condition and future
prospects of their respective companies. In addition, Goldman Sachs reviewed
the reported price and trading activity for the REGENCY Common Stock, compared
certain financial information for PACIFIC RETAIL and financial and stock market
information for REGENCY with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the real estate industry and performed
such other studies and analyses as it considered appropriate.
In preparing its opinion, Goldman Sachs relied upon the accuracy and
completeness of all of the financial and other information reviewed by it and
assumed, with the PACIFIC RETAIL Special Committee's consent, that the
financial forecasts for PACIFIC RETAIL and REGENCY were reasonably prepared on
a basis reflecting the best currently available judgments and estimates of the
management of PACIFIC RETAIL and of REGENCY. In addition, Goldman Sachs did not
make an independent evaluation or appraisal of the assets and liabilities of
PACIFIC RETAIL or REGENCY or any of their subsidiaries, and Goldman Sachs was
not furnished with any such evaluation or appraisal. Goldman Sachs was not
requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of or other business combination with PACIFIC RETAIL.
The opinion referred to herein was provided for the information and assistance
of the PACIFIC RETAIL Special Committee in connection with its consideration of
the transaction contemplated by the Merger Agreement, and such opinion does not
constitute a recommendation as to how any holder of PACIFIC RETAIL Common
Shares should vote with respect to such transaction.
The following is a summary of certain of the analyses used by Goldman Sachs in
connection with providing its written opinion, dated September 23, 1998, to the
PACIFIC RETAIL Special Committee.
Funds From Operations Contribution Analysis
Goldman Sachs reviewed certain estimated future financial information for
PACIFIC RETAIL, REGENCY and the pro forma combined entity resulting from the
merger prepared by the managements of PACIFIC RETAIL and REGENCY. The analysis
indicated that PACIFIC RETAIL would contribute 50.9% of the combined funds from
operations ("Combined FFO") attributable to the common shares of the combined
entity in 1998 on a fully diluted basis, 51.6% of the Combined FFO in 1999, and
51.2% of the Combined FFO in 2000, while holders of PACIFIC RETAIL Common
Shares would hold 52.6% of the fully diluted common shares outstanding in
REGENCY.
Pro Forma Implied Exchange Ratio Analysis
Goldman Sachs reviewed certain estimated future financial information for
PACIFIC RETAIL, REGENCY and the pro forma combined entity resulting from the
merger prepared by the managements of PACIFIC RETAIL and REGENCY. The analysis
indicated an implied exchange ratio of REGENCY Common Stock for PACIFIC RETAIL
Common Shares, based on fully diluted FFO per share contributed by REGENCY and
PACIFIC RETAIL, of .452 in 1998, .460 in 1999 and .466 in 2000.
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FFO Accretion
Goldman Sachs compared 1999, 2000 and 2001 FFO per share estimates for PACIFIC
RETAIL on a stand alone basis to pro forma estimates for the combined entity
assuming a 0.48 exchange ratio prepared by the managements of PACIFIC RETAIL
and REGENCY, which estimates showed FFO per share accretion in 1999, 2000 and
2001 on a fully diluted basis.
REGENCY Comparable Companies Analysis
Goldman Sachs reviewed and compared certain financial information relating to
REGENCY to corresponding financial information, ratios and multiples for seven
publicly traded shopping center REITs: (1) Developers Diversified Realty
Corporation, (2) Federal Realty Investment Trust, (3) IRT Property Company, (4)
JDN Realty Corporation, (5) Kimco Realty Corporation, (6) New Plan Realty, and
(7) Weingarten Realty Investors (the "Regency Comparable Companies"). The
Regency Comparable Companies were chosen because they are publicly traded
companies with operations that for purposes of analysis may be considered
similar to REGENCY. The multiples of REGENCY were calculated using a price of
$21.75 per share of REGENCY Common Stock, the closing price of the REGENCY
Common Stock on the NYSE on September 18, 1998. The multiples and ratios for
REGENCY and the Regency Comparable Companies were based on the most recent
publicly available information, on information supplied by Institutional
Brokers Estimate Service ("I/B/E/S") and on the closing market price on
September 18, 1998. With respect to the Regency Comparable Companies, Goldman
Sachs considered the closing stock market price as a multiple of estimated 1998
and estimated 1999 FFO per share, which ranged from 8.6x to 12.7x with a mean
of 10.7x for estimated 1998 FFO per share, and 7.9x to 10.7x with a mean of
9.6x for estimated 1999 FFO per share, compared to 9.7x and 8.8x, respectively,
for REGENCY. The analysis further indicated estimated 1998-1999 FFO per share
growth rates for the Regency Comparable Companies that ranged from 7.4% to
19.3% with a mean of 11.1%, compared to 9.3% for REGENCY. Goldman Sachs also
considered the ratios of estimated 1998 FFO multiples to the estimated 1998-
1999 FFO per share growth rate for the Regency Comparable Companies, which
ranged from .7 to 1.4 with a mean of 1.0, compared to 1.0 for REGENCY.
West Coast Retail Comparable Companies Analysis
Goldman Sachs reviewed and compared certain financial information relating to
four publicly traded shopping center REITs whose assets are primarily located
on the west coast (the "West Coast Retail Comparable Companies"). The West
Coast Retail Comparable Companies were selected because they have a geographic
concentration that for purposes of analysis may be considered similar to
PACIFIC RETAIL. The multiples and ratios for the West Coast Retail Comparable
Companies were based on the most recent publicly available information, on
information supplied by I/B/E/S and on the closing market price on September
18, 1998. With respect to the West Coast Retail Comparable Companies, Goldman
Sachs considered the closing stock market price as a multiple of estimated 1998
and estimated 1999 FFO per share, which ranged from 8.6x to 9.7x with a mean of
9.1x for estimated 1998 FFO per share, and 7.8x to 9.0x with a mean of 8.4x for
estimated 1999 FFO per share. The analysis further indicated estimated 1998-
1999 FFO growth rates for the West Coast Retail Comparable Companies that
ranged from 8.1% to 10.7% with a mean of 9.3%. Goldman
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Sachs also considered the ratios of 1998 estimated FFO multiples to the
estimated 1998 to 1999 growth rate, which ranged from .9 to 1.2 with a mean of
1.0.
Selected Transactions Analysis
Goldman Sachs analyzed certain information relating to selected transactions in
the retail sector of the REIT industry since 1995 (the "Selected Retail
Transactions"). Such analysis indicated for the Selected Retail Transactions
transaction FFO multiples as a percentage of the acquiring company's FFO
multiple on a forward four-quarter basis for the particular Selected Retail
Transaction that ranged from 111.5% to 73.5% with a mean of 95.8%, compared to
104.5% for the merger. Such analysis indicated for the Selected Retail
Transactions transaction FFO multiples as a percentage of the acquiring
company's FFO multiple on a trailing four-quarter basis for the particular
Selected Retail Transaction that ranged from 114.2% to 38.2% with a mean of
81.6%, compared with 104.3% for the merger. In addition, Goldman Sachs analyzed
certain information relating to selected transactions in the REIT industry
since 1995 (the "Selected REIT Transactions"). Such analysis indicated for the
Selected REIT Transactions transaction FFO multiples as a percentage of the
acquiring company's FFO multiple on a forward four-quarter basis for the
particular Selected REIT Transaction that ranged from 111.5% to 73.5% with a
mean of 96.9%, compared with 104.5% for the merger.
Dividend Analysis
Goldman Sachs analyzed the pro forma dividend payment per PACIFIC RETAIL Common
Share. Based on PACIFIC RETAIL's current dividend of $0.77 per share, REGENCY's
current dividend of $1.76 per share and the exchange ratio of 0.48, holders of
PACIFIC RETAIL Common Shares will receive a dividend of $0.8448, a 9.7% premium
over their current dividend.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. The analyses were
prepared solely for the purposes of Goldman Sachs' providing its opinion to the
PACIFIC RETAIL Special Committee as to the fairness from a financial point of
view to the holders of PACIFIC RETAIL Common Shares other than SC-USREALTY and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts or
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their
respective advisors, none of PACIFIC RETAIL, REGENCY, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. As described above, Goldman Sachs' opinion to the PACIFIC
RETAIL Special Committee was one of many factors taken into consideration by
the PACIFIC RETAIL Special Committee in making its determination to approve the
Merger Agreement. The foregoing summary does not purport to be a complete
description of the analysis performed by Goldman Sachs and is qualified by
reference to the written opinion of Goldman Sachs set forth in Annex C hereto.
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Goldman Sachs is familiar with REGENCY, having acted as (i) lead managing
underwriter of an offering of $100 million of 7.125% notes due 2005 in July
1998 and (ii) co-managing underwriter of an offering of 2,415,000 shares of
REGENCY Common Stock in July 1997, and may provide investment banking services
to REGENCY in the future. Goldman Sachs is familiar with SC-USREALTY, having
acted as (i) lead managing underwriter of an offering of $350 million of 2.000%
convertible notes due 2003 in May 1998, (ii) lead managing underwriter of an
offering of 5,735,493 common shares of SC-USREALTY in December 1997, and (iii)
lead managing underwriter of an offering of 16,733,800 of common shares of SC-
USREALTY in November 1996, and may provide investment banking services to SC-
USREALTY in the future. In addition, Goldman Sachs is familiar with Security
Capital Group, which has an equity interest in SC-USREALTY, having rendered
significant investment banking services to Security Capital Group and certain
of its affiliates from time to time, including having acted as principal in
certain transactions, and may provide investment banking services to or act as
principal in certain transactions with Security Capital Group and its
affiliates in the future. Goldman Sachs, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. The PACIFIC RETAIL Special Committee selected Goldman Sachs
as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
merger.
Goldman Sachs provides a full range of financial, advisory and security
services in the course of its normal trading activities may from time to time
effect transactions and hold securities, including derivative securities, of
REGENCY, SC-USREALTY, or Security Capital Group for its own account or for the
accounts of customers.
Pursuant to a letter agreement dated July 27, 1998 (the "Goldman Engagement
Letter"), the PACIFIC RETAIL Special Committee engaged Goldman Sachs to render
an opinion with respect to the fairness of the exchange ratio. Pursuant to the
terms of the Goldman Engagement Letter, PACIFIC RETAIL has agreed to pay
Goldman Sachs a fee of $500,000 for delivery of its written opinion dated
September 23, 1998, whether or not such opinion is favorable as to the fairness
of the exchange ratio pursuant to the Merger Agreement. PACIFIC RETAIL has also
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including attorney's fees, and to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
INTERESTS OF CERTAIN PARTIES
If the merger is consummated, Mary Lou Rogers, Managing Director of Security
Capital Group Incorporated, a trustee of PACIFIC RETAIL and a director of
REGENCY, will become President and Chief Operating Officer of REGENCY. Certain
officers as well as other employees of PACIFIC RETAIL are expected to become
officers and employees of REGENCY. James G. Buis, John S. Delatour, and Brian
M. Smith, each a Managing Director of PACIFIC RETAIL, will be the Managing
Director-Investments (Southwest), the Managing Director-Operations (West), and
the Managing Director-Investments (Pacific), respectively, of REGENCY upon
consummation of the merger. In addition, John T. Kelley, Chairman of the
PACIFIC RETAIL Board of Trustee, Dennis H.
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Alberts, President and Chief Executive Officer and a Trustee of PACIFIC RETAIL
and Jeffrey A. Cozad a Director and Executive Officer of SC-USREALTY and a
Trustee of PACIFIC RETAIL and John C. Schweitzer and Terry N. Worrell, also
trustees of PACIFIC RETAIL and members of the PACIFIC RETAIL Special Committee,
will become directors of REGENCY at the effective time of the merger. As
directors of REGENCY, each of Messrs. Kelley, Alberts, Cozad, Schweitzer and
Worrell will receive an option to purchase 2,000 shares of REGENCY Common Stock
and will receive an additional option to purchase 1,000 shares of REGENCY
Common Stock for each year in which they serve as a REGENCY director. See
"Information Concerning Executive Officers and Directors of REGENCY After the
Merger."
Each officer and employee of PACIFIC RETAIL who currently owns options to
acquire PACIFIC RETAIL Common Shares that remain unexercised immediately prior
to the effective time of the merger and who becomes a REGENCY officer or
employee will receive substitute options to acquire REGENCY Common Stock upon
completion of the merger. The PACIFIC RETAIL options of Dennis H. Alberts,
President and Chief Executive Officer of PACIFIC RETAIL, Jane E. Mody, Managing
Director and Chief Financial Officer of PACIFIC RETAIL, and Joshua M. Brown,
Managing Director of PACIFIC RETAIL, who are expected to become executives of
an affiliate of Security Capital Group after the merger, will receive fully
vested options of REGENCY which will terminate if they cease to be employed by
Security Capital Group or any affiliate. Except for the vesting provisions
applicable to the options of these three departing PACIFIC RETAIL executive
officers, the options issued to former PACIFIC RETAIL officers and employees
will have the same vesting and termination dates as the PACIFIC RETAIL options
they currently hold. See "Amendment to the REGENCY Incentive Plan."
VOTING AGREEMENT
Concurrently with the execution of the Merger Agreement, REGENCY, PACIFIC
RETAIL and SC-USREALTY entered into an agreement (the "Voting Agreement"),
which requires that, subject to the terms and conditions of the Voting
Agreement, SC-USREALTY must vote all REGENCY Common Stock and PACIFIC RETAIL
Common Shares beneficially owned by it:
. in favor of the merger and the Merger Agreement and each of the other
matters presented at the REGENCY Special Meeting and the PACIFIC RETAIL
Special Meeting and
. against any proposal for an alternative transaction presented to the
shareholders of PACIFIC RETAIL or REGENCY for their approval.
Under the Voting Agreement, SC-USREALTY may not, directly or through its
directors, officers or other representatives, (1) initiate, solicit, or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to PACIFIC RETAIL's or REGENCY's shareholders) with respect
to an alternative transaction in lieu of the merger, or (2) engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an alternative transaction,
or otherwise facilitate any effort or attempt to make or implement an
alternative transaction. Further, SC-USREALTY has agreed that it will notify
PACIFIC RETAIL and REGENCY immediately if it receives any such inquiries or
proposals or any such request for information, or any such negotiations or
discussions are sought to be initiated or continued with it, and each of
PACIFIC RETAIL and
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REGENCY has agreed to notify SC-USREALTY immediately if it receives any such
inquiries or proposals or any such request for information, or any such
negotiations or discussions are sought to be initiated or continued with it.
If the PACIFIC RETAIL Board or the REGENCY Board validly exercises any of its
respective rights under the Merger Agreement with respect to an alternative
transaction, SC-USREALTY will no longer be subject to the restrictions
described in clause (2) of the preceding paragraph with respect to, but only
with respect to, the particular alternative transaction at issue and only for
so long as the PACIFIC RETAIL Board or the REGENCY Board, as applicable,
continues to exercise such rights.
The parties have agreed in the Voting Agreement that, as of the effective time
of the merger, the Investor Agreement dated October 20, 1995 between SC-
USREALTY and PACIFIC RETAIL will automatically terminate. See "Certain PACIFIC
RETAIL Relationships and Transactions--Investor Agreement."
The Voting Agreement terminates upon the earlier of the consummation of the
merger and any termination of the Merger Agreement.
TRANSFER RESTRICTION AGREEMENTS
SC-USREALTY has also agreed in separate transfer restriction agreements with
PACIFIC RETAIL and REGENCY, respectively, that, until any termination of the
Merger Agreement or the close of business on the date of the later to occur of
the REGENCY Special Meeting and the PACIFIC RETAIL special meeting, SC-USREALTY
will not sell or otherwise dispose of any REGENCY Common Stock or PACIFIC
RETAIL Common Shares, respectively (not including a pledge of REGENCY Common
Stock or PACIFIC RETAIL Common Shares, as the case may be, as security with
respect to a bona fide loan from a financial institution), or enter into any
contract, option or other arrangement or undertaking with respect to the
voting, direct or indirect sale, assignment, transfer or other disposition of
any REGENCY Common Stock or PACIFIC RETAIL Common Shares, as the case may be.
AMENDMENT TO STOCKHOLDERS AGREEMENT
REGENCY and SC-USREALTY are parties to a Stockholders Agreement dated as of
July 10, 1996, as amended (the "Stockholders Agreement"). REGENCY and SC-
USREALTY have entered into an Amendment No. 3 to the Stockholders Agreement
(the "Stockholders Amendment") that will take effect simultaneously with the
merger.
SC-USREALTY has agreed in the Stockholders Agreement to a "standstill" which
expires on September 10, 2001 and is renewable for additional one year terms
thereafter. A "standstill" is an agreement by a shareholder to refrain from
changing its position. As part of its standstill, SC-USREALTY has agreed not to
acquire additional shares and not to take certain actions relating to
management or control, such as replacing members of REGENCY's Board of
Directors. The Stockholders Agreement also gives SC-USREALTY certain rights
such as the right to nominate directors, to participate in equity offerings by
REGENCY and to be consulted on certain significant actions. In addition,
REGENCY has also agreed to certain restrictions in the Stockholders Agreement
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including the amount of debt it can incur and the types of investments it can
make. The impact of the Stockholders Amendment on these rights is described
below. The Stockholders Agreement has previously been filed with the
Securities and Exchange Commission, and a copy of the Stockholders Amendment
is attached hereto as Annex E. The following description is qualified in its
entirety by reference to these agreements.
Limit Ownership of REGENCY Common Stock During Standstill
Under the Stockholders Agreement, during its standstill SC-USREALTY is
prohibited from beneficially owning more than 45% of the outstanding REGENCY
Common Stock on a fully diluted basis. SC-USREALTY will own approximately
52.5% of the outstanding REGENCY Common Stock on a fully diluted basis upon
completion of the merger. The Stockholders Amendment permits SC-USREALTY to
exchange all of its PACIFIC RETAIL shares in the merger by limiting
SC-USREALTY's ownership of REGENCY Common Stock during the term of its
standstill to 60% on a fully diluted basis until such time as SC-USREALTY's
ownership of REGENCY Common Stock falls below 45% on a fully diluted basis for
a continuous period of 180 days, at which time the limit will be reduced from
60% to 49% on a fully diluted basis.
Board Representation
Under the Stockholders Agreement, SC-USREALTY has the right (but not the
obligation) to name five nominees to REGENCY's 13-person Board of Directors,
which is proportionate to its ownership of REGENCY Common Stock. SC-USREALTY
presently has two representatives on REGENCY's Board, consisting of Mary Lou
Rogers (who will become President and Chief Operating Officer at the effective
time and will cease to be deemed an SC-USREALTY representative), and Jonathan
L. Smith. The Stockholders Amendment provides that from the effective time of
the merger until the next annual or special meeting (or action by written
consent in lieu of a meeting) at which directors are elected, SC-USREALTY will
have the right, but not the obligation, to name three representatives on the
REGENCY Board of Directors. The Stockholders Amendment also provides that at
and after the first election of directors to occur after the merger and until
SC-USREALTY no longer owns 15% (as opposed to 20% under the present
Stockholders Agreement) of the outstanding REGENCY Common Stock on a fully
diluted basis for a continuous period of 180 days, or until any earlier
expiration of the standstill provisions of the Stockholders Agreement, SC-
USREALTY will have the right to nominate the greater of (1) three (as opposed
to two under the present Stockholders Agreement) and (2) that number of
directors corresponding to the percentage of REGENCY Common Stock owned by SC-
USREALTY, but not more than 49% of the REGENCY Board, rounded down to the
nearest whole number. If its standstill ends but SC-USREALTY continues to own
at least 15% (as opposed to 20% under the present Stockholders Agreement) of
the outstanding REGENCY Common Stock on a fully diluted basis for a continuous
period of 180 days, SC-USREALTY will have the right to nominate the lesser of
(1) three directors (as opposed to two under the present Stockholders
Agreement), and (2) the number corresponding to the percentage of REGENCY
Common Stock owned by SC-USREALTY.
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Voting
On most matters, SC-USREALTY must vote its shares at its option either (i) in
accordance with the recommendation of the REGENCY Board or (ii) proportionately
in accordance with the vote of the other holders of REGENCY Common Stock. Under
the Stockholders Agreement, SC-USREALTY may, however, vote all its shares in
its own discretion with respect to the election of its nominees to the Board
and all its shares up to 40% of the outstanding shares of REGENCY Common Stock
in its own discretion with respect to votes requiring the approval of holders
of a majority of the outstanding shares on (i) any amendment to REGENCY's
Articles or bylaws which would reasonably be expected to materially adversely
affect SC-USREALTY and (ii) any merger, consolidation, sale of a material
amount of assets, recapitalization, liquidation, or similar action out of the
ordinary course of business, or the issuance of securities to a person which
requires shareholder approval under the rules of the New York Stock Exchange
(an "Extraordinary Transaction"). SC-USREALTY may only vote 28% of the
outstanding shares of REGENCY Common Stock in its discretion in the event of an
Extraordinary Transaction requiring the approval of holders of two-thirds of
the outstanding shares of REGENCY Common Stock. Shares owned over these
thresholds must be voted in accordance with the recommendation of the REGENCY
Board or proportionately in accordance with the vote of the other holders of
REGENCY Common Stock. Under the Stockholders Amendment, the 40% and 28%
limitations described above will be changed to 49% and 32%, respectively.
Participation Rights
SC-USREALTY generally has the right under the Stockholders Agreement to
purchase additional equity securities (at the same price offered to other
purchasers) each time that REGENCY sells additional shares of capital stock (or
options or other rights to acquire capital stock), in order to preserve SC-
USREALTY's pro rata ownership of REGENCY, except that it may not purchase more
than 37.5% of the securities offered. Under the Stockholders Amendment, SC-
USREALTY waives any participation rights it may have in connection with the
merger and the percentage of securities offered that SC-USREALTY may purchase
in any offering by REGENCY is increased from 37.5% to 49%.
Investments in Shopping Center Properties
The Stockholders Amendment will extend the geographic region in which REGENCY
may operate and in which SC-USREALTY's investment activities are restricted
from a defined portion in the U.S. where REGENCY's current properties are
located to the entire U.S. The effect of this amendment will be to permit
REGENCY to invest in shopping centers of less than 350,000 square feet located
anywhere in the U.S. The amendment also will restrict SC-USREALTY and its
controlled affiliates from directly or indirectly owning, purchasing,
developing or otherwise acquiring shopping centers anywhere in the U.S. except
through their investment in (1) REGENCY, (2) other shopping center companies in
which SC-USREALTY is not represented on the board of directors and does not
participate in the management of such other company, and (3) shopping centers
representing an incidental part of a portfolio investment provided that they
are offered to REGENCY upon acquisition and if not then purchased by REGENCY,
again upon resale.
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Other
In order to avoid certain adverse federal income tax consequences to certain
shareholders of SC-USREALTY in view of the increase in REGENCY assets that will
result from the merger, the Stockholders Amendment also will reduce the
percentage of assets that may be managed by persons other than employees of
REGENCY from 30% to 22%, at cost, of REGENCY's consolidated assets.
Because the merger will more than double SC-USREALTY's investment in REGENCY,
the Stockholders Amendment also will reduce the threshold for the termination
of certain rights on the part of SC-USREALTY. Any right of SC-USREALTY that
presently terminates after SC-USREALTY ceases to own 20% or 15%, respectively,
of the outstanding REGENCY Common Stock on a fully diluted basis for a
continuous period of 180 days will not terminate under the Stockholders
Amendment until its ownership is so reduced to the 15% and 10% levels,
respectively. For example, participation rights that currently terminate when
SC-USREALTY so ceases to own 15% of the outstanding REGENCY Common Stock will
terminate after the merger when SC-USREALTY so ceases to own 10% of the
outstanding REGENCY Common Stock.
Although REGENCY does not believe that the limitations imposed on REGENCY's
activities by the Stockholders Agreement or the Stockholders Amendment will
materially impair REGENCY's ability to conduct its business, there can be no
assurance that these limitations will not adversely affect REGENCY's operations
in the future.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax consequences
of the merger of PACIFIC RETAIL with and into REGENCY. The discussions below
under "Tax Treatment of PACIFIC RETAIL, REGENCY and United States Holders" and
"Tax Treatment of Non-U.S. Holder" are accurate in all material respects as to
matters of law and legal conclusions and, to the extent such discussions
constitute matters of law or legal conclusions, they are based on the opinion
of Mayer, Brown & Platt. This summary is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), its legislative
history, Treasury regulations, administrative pronouncements and judicial
decisions, all of which are subject to change, possibly with retroactive
effect. This summary does not purport to be a complete discussion of all U.S.
federal income tax consequences relating to the merger. This summary does not
address the tax consequences of the merger under state, local or non-U.S. tax
laws. In addition, this summary may not apply, in whole or in part, to
particular categories of REGENCY or PACIFIC RETAIL shareholders, such as
financial institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies, holders of limited partnership units in
Retail Property Partners Limited Partnership or Regency Centers, L.P.,
individuals who received REGENCY Common Stock or PACIFIC RETAIL Common Shares
pursuant to stock options, restricted stock programs or in other compensatory
transactions, and other special status taxpayers. Finally, a tax ruling from
the Internal Revenue Service ("IRS") has not been requested with respect to the
merger or the other transactions described herein, and there can be no complete
assurance that the IRS will not assert a contrary position. This summary is
included for general information only. All REGENCY and PACIFIC RETAIL
shareholders are urged to consult their tax advisors to determine the specific
tax consequences of the merger, including any state, local and non-U.S. tax
consequences.
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For purposes of the following discussion, a "United States Holder" is any
person other than a "Non-U.S. Holder." A "Non-U.S. Holder" is any person other
than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or any state, (iii) an estate whose income is
includible in gross income for United States tax purposes regardless of source
or (iv) "United States Trust." A United States Trust includes a trust if, and
only if, (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
Tax Treatment of PACIFIC RETAIL, REGENCY and United States Holders
In the opinion of Mayer, Brown & Platt, based on certain representations of
PACIFIC RETAIL, REGENCY and SC-USREALTY, the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368 of
the Code and each of PACIFIC RETAIL and REGENCY will be a party to such merger
within the meaning of Section 368(b) of the Code. The discussion below assumes
that the merger will be treated as a reorganization within the meaning of
Section 368 of the Code.
No income, gain or loss will be recognized by PACIFIC RETAIL or REGENCY
pursuant to the merger.
No income, gain or loss will be recognized by a United States Holder of REGENCY
Common Shares pursuant to the merger. The tax basis and holding period of the
REGENCY Common Shares owned by a United States Holder will not change as a
result of the merger.
No income, gain or loss will be recognized by a United States Holder of PACIFIC
RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares or PACIFIC
RETAIL Series B Preferred Shares who, pursuant to the merger, receives REGENCY
Common Stock, REGENCY Series 1 Preferred Stock or REGENCY Series 2 Preferred
Stock, as the case may be, in exchange for all of such holder's PACIFIC RETAIL
Common Shares, PACIFIC RETAIL Series A Preferred Shares or PACIFIC RETAIL
Series B Preferred Shares, as the case may be (except to the extent of cash
received in lieu of a fractional share and pursuant to the exercise of
dissenters's rights). The tax basis of the shares of REGENCY Common Stock,
REGENCY Series 1 Preferred Stock or REGENCY Series 2 Preferred Stock, as the
case may be, received by a United States Holder in such exchange (including any
basis allocable to fractional shares) will be equal to the tax basis of the
PACIFIC RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares, PACIFIC
RETAIL Series B Preferred Shares, as the case may be, surrendered in exchange
therefor. The holding period of the REGENCY Common Stock, REGENCY Series 1
Preferred Stock or REGENCY Series 2 Preferred Stock, as the case may be,
received will include the holding period of PACIFIC RETAIL Common Shares,
PACIFIC RETAIL Series A Preferred Shares or PACIFIC RETAIL Series B Preferred
Shares, as the case may be, surrendered in exchange therefor provided that such
shares were held as capital assets of the holder at the effective time of the
merger.
A United States Holder of PACIFIC RETAIL Common Shares, PACIFIC RETAIL Series A
Preferred Shares or PACIFIC RETAIL Series B Preferred Shares that receives cash
in the merger in lieu of a fractional share interest will be treated as having
received the fractional share interest in
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REGENCY Common Stock, REGENCY Series 1 Preferred Stock or REGENCY Series 2
Preferred Stock, as the case may be, in the merger (with tax basis determined
as discussed above) and then as having received the cash in redemption of the
fractional share interest. The cash payment will be treated as a distribution
in payment of the fractional interest deemed redeemed under Section 302 of the
Code. A United States Holder of PACIFIC RETAIL Common Shares, PACIFIC RETAIL
Series A Preferred Shares or PACIFIC RETAIL Series B Preferred Shares, as the
case may be, who (i) is not involved in directing corporate affairs, (ii) holds
a minimal interest in PACIFIC RETAIL and (iii) is not considered to own
indirectly shares of PACIFIC RETAIL or REGENCY under the constructive ownership
rules of Section 318 of the Code, will generally recognize gain or loss on the
deemed redemption in an amount equal to the difference between the amount of
cash received and such holder's adjusted tax basis allocable to such fractional
share. Such gain or loss will be capital gain or loss if such holder's PACIFIC
RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares or PACIFIC
RETAIL Series B Preferred Shares, as the case may be, are held as a capital
asset at the effective time. The capital gain or loss so recognized generally
will be long-term capital gain or loss if the holding period for the fractional
share interest exceeds one year. In the case of other holders, Section 302 of
the Code set forth other tests, which, if met, would also result in similar
treatment of the holder. In the event, however, that none of these tests could
be met, the cash payment would be taxed as a dividend.
The merger will be a taxable event for a United States Holder who perfects its
dissenters' rights and receives solely cash in exchange for PACIFIC RETAIL
Common Shares, PACIFIC RETAIL Series A Preferred Shares or PACIFIC RETAIL
Series B Preferred Shares, as the case may be. A United States Holder would
generally recognize capital gain or loss, equal to the difference between the
amount of cash received and the holder's tax basis in the shares surrendered,
provided that such shares were held by such holder as a capital asset at the
time of the merger and that such holder, following the redemption of the
holder's PACIFIC RETAIL shares, owns no REGENCY shares either directly or
indirectly under the constructive ownership rules of Section 318 of the Code.
Tax Treatment of Non-U.S. Holders
Provided that, immediately after the merger, REGENCY is a United States real
property holding corporation ("USRPHC") as defined in Section 897(c)(2) of the
Code and does not qualify as a domestically controlled REIT as defined in
Section 897(h) of the Code, no gain or loss will be recognized by a Non-U.S.
Holder (who complies with certain filing requirements described below) of
PACIFIC RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares or
PACIFIC RETAIL Series B Preferred Shares who receives pursuant to the merger
REGENCY Common Stock, REGENCY Series 1 Preferred Stock or REGENCY Series 2
Preferred Stock, as the case may be, in exchange for all of such holder's
PACIFIC RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares or
PACIFIC RETAIL Series B Preferred Shares, as the case may be (except to the
extent of cash received in lieu of a fractional share or pursuant to the
exercise of dissenters' rights). To the extent a Non-U.S. Holder receives cash
in lieu of fractional share interests or pursuant to the exercise of
dissenters' rights, such cash will generally be subject to taxation under the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") as a sale of a
United States real property interest ("USRPI") as defined in Section 897(c) of
the Code. REGENCY expects that it will be a USRPHC immediately following the
merger and that it will not qualify as a domestically controlled
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REIT immediately following the merger. In addition, Non-U.S. Holders must
fulfill all applicable filing requirements under Treasury regulation section
1.897-5T(d)(1)(iii) in order to avoid taxation under FIRPTA. If, contrary to
its current expectation, REGENCY qualifies as a domestically controlled REIT
immediately after the merger, the exchange of PACIFIC RETAIL Common Shares,
PACIFIC RETAIL Series A Preferred Shares or PACIFIC RETAIL Series B Preferred
Shares for REGENCY Common Stock, REGENCY Series 1 Preferred Stock or REGENCY
Series 2 Preferred Stock, as the case may be, would be subject to taxation
under FIRPTA as a sale of a USRPI. If gain on the sale or exchange of PACIFIC
RETAIL Common Shares, PACIFIC RETAIL Series A Preferred Shares or PACIFIC
RETAIL Series B Preferred Shares were subject to taxation under FIRPTA, a Non-
U.S. Holder would be subject to U.S. income tax rates applicable to U.S.
individuals or corporations, and REGENCY could be required to withhold 10% of
the purchase price and remit such amount to the IRS. The branch profits tax
would not apply to such sales or exchanges unless possibly the gain were
effectively connected with a U.S. trade or business.
Assuming that REGENCY is a USRPHC, a sale or exchange of REGENCY Common Stock,
REGENCY Series 1 Preferred Stock or REGENCY Series 2 Preferred Stock following
the merger by a Non-U.S. Holder will generally be subject to U.S. taxation
under FIRPTA as a sale of a USRPI unless REGENCY qualifies as a domestically
controlled REIT. A domestically controlled REIT is a REIT in which, at all
times during a specified testing period (generally five years), less than 50%
in value of its shares is held directly or indirectly by Non-U.S. Holders. As a
result of the merger, REGENCY expects no longer to qualify as a domestically
controlled REIT. Thus, in general, a sale or exchange of REGENCY Common Stock,
REGENCY Series 1 Preferred Stock or REGENCY Series 2 Preferred Stock by a Non-
U.S. Holder during the period beginning on the effective time and ending five
years after REGENCY has continually qualified as a domestically control REIT
will be subject to taxation under FIRPTA as a sale of a USRPI unless (i) such
shares are "regularly traded" (as defined by applicable Treasury regulations)
on an established securities market (e.g., the New York Stock Exchange on which
the REGENCY Common Stock is listed) and (ii) the selling Non-U.S. Holder held
5% or less of the class of stock sold or exchanged. If a Non-U.S. Holder sells
or exchanges REGENCY Common Stock, REGENCY Series 1 Preferred Stock or REGENCY
Series 2 Preferred Stock subsequent to REGENCY continually qualifying as a
domestically controlled REIT for five years, such Non U.S. Holder generally
will not be subject to taxation on such sale or exchange under FIRPTA.
If gain on the sale or exchange of REGENCY Common Stock, REGENCY Series 1
Preferred Stock or REGENCY Series 2 Preferred Stock were subject to taxation
under FIRPTA, a Non-U.S. Holder would be subject to U.S. income tax rates
applicable to U.S. individuals or corporations, and the purchaser of shares
could be required to withhold 10% of the purchase price and remit such amount
to the IRS. The branch profits tax would not apply to such sales or exchanges
unless, possibly, the gain were effectively connected with a U.S. trade or
business.
Consequences of the Merger on REGENCY's Qualification as a REIT
In the opinion of Foley & Lardner, based upon certain representations of
PACIFIC RETAIL and REGENCY, the consummation of the merger will not jeopardize
the status of REGENCY as a REIT under the Code. REGENCY intends to operate in a
manner which permits it to satisfy the
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requirements for taxation as a REIT under the applicable provisions of the
Code, but no assurance can be given that these requirements will be met.
ACCOUNTING TREATMENT
REGENCY will account for the merger as a purchase in accordance with Accounting
Principles Board Opinion No. 16. Accordingly, REGENCY will record the assets
and liabilities acquired from PACIFIC RETAIL at REGENCY's cost (the purchase
price).
RESTRICTIONS ON SALES BY AFFILIATES
The REGENCY Common Stock to be issued in the merger will be registered under
the Securities Act of 1933. Such securities will be freely transferable under
the Securities Act of 1933, except for those issued to any person who may be
deemed to be an affiliate (as such term is defined for purposes of Rule 145
under the Securities Act of 1933) of REGENCY or PACIFIC RETAIL. Affiliates may
not sell their REGENCY Common Stock acquired in connection with the merger
except pursuant to (1) an effective registration statement under the Securities
Act of 1933 covering such securities, (2) paragraph (d) of Rule 145 or (3) any
other applicable exemption under the Securities Act of 1933. PACIFIC RETAIL has
agreed to use its reasonable best efforts to procure written agreements from
executive officers, directors and other affiliates containing appropriate
representations and commitments intended to ensure compliance with the
Securities Act of 1933.
DISSENTERS' RIGHTS
Shareholders of PACIFIC RETAIL are entitled to appraisal rights under Title 8
of the Corporations and Associations Article of the Annotated Code of Maryland
(the "Maryland REIT Law") and the Maryland General Corporation Law (the
"Maryland Act"). The preservation and exercise of appraisal rights are
conditioned on strict adherence to the applicable provisions of the Maryland
REIT Law and the Maryland Act. Each PACIFIC RETAIL shareholder desiring to
exercise appraisal rights should refer to Section 8-501.1(i) of the Maryland
REIT Law and to Title 3, Subtitle 2, of the Maryland Act, copies of which are
attached as Annex G to this Joint Proxy Statement and Prospectus, for a
complete statement of their rights and the steps which must be followed in
connection with the exercise of those rights. The following summary of the
rights of objecting shareholders does not purport to be a complete statement of
the procedures to be followed by shareholders of PACIFIC RETAIL desiring to
exercise their appraisal rights.
Under the Maryland REIT Law and the Maryland Act, a shareholder of PACIFIC
RETAIL will be entitled to demand and receive payment of the fair value of its
shares from REGENCY instead of receiving shares in REGENCY. However, a
shareholder who wants to receive fair value for its shares must follow specific
procedures. Such shareholder must:
(1) before or at the PACIFIC RETAIL special meeting at which the merger
will be considered, file with PACIFIC RETAIL a written objection to
the merger;
(2) not vote in favor of the merger; and
(3) make written demand on the successor corporation, REGENCY, within 20
days after the Articles of Merger of PACIFIC RETAIL into REGENCY (the
"Articles of Merger") have
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been accepted for record by the State Department of Assessments and
Taxation of Maryland (the "SDAT").
Any shareholder who fails to comply with the requirements described above will
be bound by the terms of the merger.
REGENCY is required to promptly notify each objecting shareholder in writing of
the date of acceptance of the Articles of Merger for record by the SDAT.
REGENCY may send a written offer to each objecting shareholder to pay for its
shares at what REGENCY considers to be the fair value thereof. Within 50 days
after the SDAT accepts the Articles of Merger for record, either REGENCY or any
objecting shareholder who has not received payment for its shares may petition
a court of equity in the appropriate county in Maryland for an appraisal to
determine the fair value of the shares.
REGENCY does not presently intend to file an appraisal petition, and
shareholders seeking to exercise appraisal rights should not assume that
REGENCY will file such a petition or that REGENCY will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
shareholders of PACIFIC RETAIL who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time period and in the manner prescribed in the Maryland Act.
If the court finds that an objecting shareholder is entitled to an appraisal of
its shares, the court is required to appoint three disinterested appraisers to
determine the fair value of its shares on terms and conditions the court
determines proper. The appraisers must, within 60 days after appointment (or
such longer period as the court may direct), file with the court and mail to
each party to the proceeding their report stating their conclusion as to the
fair value of such shares.
"Fair value" is determined as of the close of business on the day the
shareholders vote on the merger and may not include any appreciation or
depreciation which directly or indirectly results from the merger or from its
proposal.
Within 15 days after the filing of the report, any party may object to such
report and request a hearing on it. The court must, upon motion of any party,
enter an order either confirming, modifying or rejecting such report and, if
confirmed or modified, enter judgment for the appraised value of the shares. If
the appraisers' report is rejected, the court may determine the fair value of
the shares of the objecting shareholders or may remit the proceeding to the
same or other appraisers. Any judgment entered pursuant to a court proceeding
shall include interest from the date of the shareholders' vote on the action to
which objection was made. Costs of the proceeding shall be determined by the
court and may be assessed against REGENCY or, under certain circumstances, the
objecting shareholder, or both.
At any time after the filing of a petition for appraisal, the court may require
objecting shareholders to submit their certificates evidencing the shares to
the clerk of the court for notation of the pendency of the appraisal
proceeding.
A shareholder demanding payment for shares has no right to receive any
dividends or distributions payable to shareholders of record after the close of
business on the date of the shareholders' vote on
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the merger and shall cease to have any right as a shareholder of PACIFIC RETAIL
with respect to such shares except the right to receive payment of the fair
value thereof.
THE MERGER AGREEMENT
REGENCY BOARD RECOMMENDATION
THE MEMBERS OF THE REGENCY BOARD OF DIRECTORS, OTHER THAN SC-USREALTY'S
REPRESENTATIVES, WHO ABSTAINED, HAVE UNANIMOUSLY APPROVED AND RECOMMEND THAT
REGENCY SHAREHOLDERS VOTE "FOR" THE MERGER. The affirmative vote of the holders
of a majority of the outstanding REGENCY Common Stock is required to approve
this proposal.
PACIFIC RETAIL BOARD RECOMMENDATION
THE PACIFIC RETAIL BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED AND RECOMMENDS
THAT PACIFIC RETAIL SHAREHOLDERS VOTE "FOR" THE MERGER. The affirmative vote of
the holders of a majority of the votes entitled to be cast by holders of
PACIFIC RETAIL Common Shares and PACIFIC RETAIL Preferred Shares, voting
together as a single class, is required to approve this proposal.
GENERAL
The Merger Agreement provides for the merger of PACIFIC RETAIL with and into
REGENCY. In the merger, the holders of PACIFIC RETAIL Common Shares would be
issued REGENCY Common Stock and the holders of PACIFIC RETAIL Preferred Shares
would be issued REGENCY Preferred Stock. The transaction is intended to qualify
as a tax-free reorganization for federal income tax purposes. The discussion in
this Joint Proxy Statement and Prospectus of the Merger Agreement and the
description of the material terms of the Merger Agreement are qualified in
their entirety by reference to the Merger Agreement, a copy of which is
attached to this Joint Proxy Statement and Prospectus as Annex A and is
incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
Subject to the satisfaction (or waiver) of the other conditions to the
obligations of REGENCY and PACIFIC RETAIL to consummate the merger, the merger
will be consummated as soon as practicable following the approval by the
shareholders of REGENCY and PACIFIC RETAIL of the merger and the Merger
Agreement at their respective special meetings. It is currently expected that
the merger will become effective at 11:59 p.m., Eastern Standard Time, on
December 31, 1998.
EXCHANGE OF PACIFIC RETAIL SHARE CERTIFICATES
As soon as practicable after the effective time of the merger, REGENCY will
mail to each holder of an outstanding certificate or certificates which prior
thereto evidenced PACIFIC RETAIL Shares (1) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to such
certificate will pass, only upon delivery of such certificates to REGENCY), and
(2) instructions for use in effecting the surrender of such certificates for
the REGENCY Common Stock or REGENCY Preferred Stock, as the case may be. Upon
surrender to REGENCY of such
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certificates for cancellation, together with such letter of transmittal, the
holder of such certificates shall be entitled to a certificate evidencing the
number of full shares of REGENCY Common Stock or REGENCY Preferred Stock, as
the case may be, and the amount of cash in lieu of a fractional share, if any,
into which the aggregate number of PACIFIC RETAIL shares previously evidenced
by such certificates surrendered were converted pursuant to the Merger
Agreement. HOLDERS OF PACIFIC RETAIL SHARES SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No dividends or other distributions with respect to REGENCY Common Stock or
REGENCY Preferred Stock with a record date after the effective time of the
merger will be paid to the holder of any unsurrendered certificate for PACIFIC
RETAIL Common Shares or PACIFIC RETAIL Preferred Shares, and no cash in lieu of
fractional shares will be paid to any such holder until the surrender of such
certificate in accordance with the foregoing procedures. Subject to the effect
of applicable laws, following surrender of any such certificate, REGENCY will
pay, without interest, to the holder of the certificate evidencing whole shares
of REGENCY Common Stock or REGENCY Preferred Stock issued in the merger at the
time of such surrender, any cash payable in lieu of a fractional share to which
such holder is entitled and the amount of dividends or other distributions with
a record date after the effective time of the merger theretofore paid with
respect to such whole shares of REGENCY Common Stock or REGENCY Preferred
Stock. REGENCY will pay, at the appropriate payment date, the amount of
dividends or other distributions with a record date after the effective time
but prior to such surrender and a payment date subsequent to such surrender
payable with respect to such whole shares of REGENCY Common Stock or REGENCY
Preferred Stock.
No fractional shares of REGENCY stock will be issued upon the surrender of
certificates evidencing PACIFIC RETAIL Common Shares or PACIFIC RETAIL
Preferred Shares. In lieu of issuing fractional shares, REGENCY will pay each
former holder of PACIFIC RETAIL shares who would otherwise be entitled to
received a fractional share of REGENCY stock an amount in cash equal to the
product obtained by multiplying (1) such fractional share interest by (2) the
average closing price of a share of REGENCY Common Stock on the New York Stock
Exchange on the ten consecutive trading days ending on the fifth day
immediately preceding the effective time of the merger.
After the effective time of the merger, there will be no further transfer on
the records of PACIFIC RETAIL or its transfer agent of certificates evidencing
PACIFIC RETAIL shares, and if such certificates are presented to PACIFIC RETAIL
for transfer, they will be canceled against delivery of certificates for
REGENCY stock as provided above.
No interest will be paid or will accrue on any cash payable pursuant to the
Merger Agreement. All REGENCY stock issued and all cash paid upon the surrender
of certificates evidencing PACIFIC RETAIL Common Shares and PACIFIC RETAIL
Preferred Shares in accordance with the procedures outlined above shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the PACIFIC RETAIL shares theretofore represented by such
certificates.
The Merger Agreement provides that at the effective time of the merger, PACIFIC
RETAIL's obligations with respect to outstanding options to acquire PACIFIC
RETAIL Common Shares will cease to represent a right to acquire such shares and
will be replaced by substitute options to
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purchase REGENCY Common Stock as described below in "Amendment to the REGENCY
Incentive Plan--Description of the Plan--Grant of Substitute Non-Qualified
Options."
CONDITIONS TO THE MERGER
The respective obligations of REGENCY and PACIFIC RETAIL to effect the merger
and the other transactions contemplated by the Merger Agreement are subject to
the satisfaction or waiver of each of the following conditions at or prior to
the effective time of the merger:
(1) the other party shall have performed in all material respects its
agreements contained in the Merger Agreement required to be performed
on or prior to the closing of the merger and the representations and
warranties of the other party shall be true and correct in all material
respects on and as of the date made and the date of the closing of the
merger;
(2) the shareholders of REGENCY shall have approved the merger, the Merger
Agreement and the matters contemplated thereby;
(3) the shareholders of PACIFIC RETAIL shall have approved the merger, the
Merger Agreement and the matters contemplated thereby;
(4) the registration statement filed by REGENCY with the Securities and
Exchange Commission shall have become effective in accordance with the
Securities Act of 1933, and no stop order suspending such effectiveness
shall have been issued and remain in effect and no proceeding for that
purpose shall have been initiated or threatened by the Securities and
Exchange Commission;
(5) the REGENCY Common Stock issuable as a result of the merger shall have
been approved for listing on the New York Stock Exchange, subject to
notice of issuance;
(6) REGENCY's shareholders shall have approved the REGENCY Articles
Amendment;
(7) REGENCY's shareholders shall have approved the amendment to the REGENCY
Incentive Plan;
(8) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the merger
shall have been issued and remain in effect;
(9) any filings by the parties that may be required by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, and any filings
by the parties with various state blue sky authorities shall have been
obtained and be in effect at the closing of the merger;
(10) the parties shall have received all required consents and waivers from
third parties;
(11) the holders of more than 10% of the issued and outstanding PACIFIC
RETAIL Common Shares and PACIFIC RETAIL Preferred Shares shall not
have duly perfected a demand for dissenters' rights in accordance with
the Maryland Act;
(12) each of REGENCY, PACIFIC RETAIL and SC-USREALTY shall have received a
favorable opinion from Mayer, Brown & Platt to the effect that, for
United States federal income tax purposes (i) the merger will qualify
as a reorganization within the meaning of Section 368 of the Code and
that each of REGENCY and PACIFIC RETAIL will be party to such
reorganization within the meaning of Section 368(b) of the Code, (ii)
no gain or loss will be recognized by holders of PACIFIC RETAIL Common
Shares or PACIFIC
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RETAIL Preferred Shares except to the extent of cash received pursuant
to the merger or pursuant to the exercise of dissenters' rights and
(iii) no gain or loss will be recognized by REGENCY or PACIFIC RETAIL
pursuant to the merger; and
(13) each of REGENCY, PACIFIC RETAIL and SC-USREALTY shall have received a
favorable opinion from Foley & Lardner that the merger will not
jeopardize REGENCY's status as a REIT.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and warranties
relating to, among other things: (1) the due organization, power, authority and
standing of REGENCY and PACIFIC RETAIL and similar corporate matters; (2) the
capital structure of REGENCY and PACIFIC RETAIL; (3) the authorization,
execution, delivery and enforceability of the Merger Agreement, (4) certain
documents filed by REGENCY with the Securities and Exchange Commission and
certain financial statements of PACIFIC RETAIL and the accuracy of information
contained therein; (5) the absence of certain changes or events from the
information filed by REGENCY with the Securities
and Exchange Commission or from such financial statements of PACIFIC RETAIL;
(6) the accuracy of the information supplied by each party for inclusion in
this Joint Proxy Statement and Prospectus; (7) certain matters relating to
taxes; (8) the absence of undisclosed liabilities; (9) litigation; (10) the
absence of violations of law; (11) properties; (12) labor matters; (13)
employee benefit plans; (14) intellectual property; (15) material contracts;
(16) environmental matters; (17) insurance; (18) brokers and finders; (19) the
exemption of the transaction from the application of Florida and Maryland
antitakeover laws; (20) the vote required of each party's shareholders
necessary to approve the merger; (21) the recommendations of the PACIFIC RETAIL
Board and the REGENCY Board; and (22) the receipt of fairness opinions.
CERTAIN COVENANTS
Conduct of Business Prior to Merger
Except as specifically required by the terms of the Merger Agreement or upon
written consent of the other party, REGENCY and PACIFIC RETAIL have agreed that
they will, prior to the effective time of the merger, carry on their respective
businesses in the usual, regular and ordinary course of business consistent
with past practice and use their reasonable best efforts to preserve intact
their current business organizations and preserve their relationships with
lessees.
In addition, except as contemplated by the Merger Agreement, unless the other
party has agreed in writing, REGENCY and PACIFIC RETAIL have each agreed that
they will not, and will not permit any of their respective subsidiaries to:
(1) authorize for issuance, issue, or pledge any of their shares or the
shares of their subsidiaries, or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, or any
other securities (other than (a) the issuance of shares upon the
exercise of options outstanding on the date of the Merger Agreement or
pursuant to a 401(k) plan or (b) the issuance of securities in
connection with certain identified anticipated transactions);
(2) amend their organizational documents;
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(3) acquire or agree to acquire by merging with, or by purchasing a
substantial portion of the stock or assets of, any business;
(4) sell, lease, mortgage or otherwise encumber any of their assets that
are material, except transactions in the ordinary course of business
consistent with past practice;
(5) except for certain identified transactions, (a) incur or guarantee any
indebtedness, except for short-term borrowings in the ordinary course
of business consistent with past practice, or (b) make any loans or
capital contributions to any other person, other than wholly owned
subsidiaries;
(6) acquire any assets that are material, alone or in the aggregate, or
make any capital expenditures except in the ordinary course of
business consistent with past practice or in connection with certain
identified transactions;
(7) pay any claims (including claims of shareholders), except for the
payment of (a) liabilities in the ordinary course of business
consistent with past practice or in accordance with their terms as in
effect on the date of the Merger Agreement, (b) liabilities reserved
against in the most recent audited financial statements of such party,
or change in any material respect any existing contract, other than in
the ordinary course of business consistent with past practice;
(8) adopt or amend in any material respect (except as may be required by
law) any employee benefit plan or increase the compensation of any
employee other than increases for current employees in the ordinary
course of business consistent with past practices; pay any benefit not
required by any existing plan, grant any new termination arrangement
or increase or accelerate any benefits payable under any severance or
termination pay policies in effect on the date of the Merger
Agreement;
(9) change any material accounting principle used by them, except for such
changes as may be required pursuant to GAAP or rules and regulations
of the Securities and Exchange Commission;
(10) take any action that would result in any of their representations and
warranties in the Merger Agreement becoming untrue, or in any of the
conditions to the merger not being satisfied;
(11) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal,
state, local or foreign income tax liability; or
(12) authorize any of, or commit or agree to take any of, the foregoing
actions.
Other
REGENCY and PACIFIC RETAIL have agreed that:
(1) each will afford to the other party and its respective accountants,
counsel, financial advisors and other representatives full access during
normal business hours throughout the period prior to the closing to all
properties, books and records of such party, as appropriate, and, during
such period, each shall furnish promptly to the other a copy of each
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the Securities and Exchange Commission in
connection with the transactions contemplated by the Merger Agreement, and
such other information concerning its business, properties and personnel as
shall be reasonably requested;
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(2) REGENCY shall take any action required to be taken under applicable state
blue sky or securities laws in connection with the merger;
(3) they will use their respective reasonable best efforts to cause to be
delivered to the other party letters of their respective certified public
accountants, one dated a date within two business days before the date on
which REGENCY's registration statement filed with the Securities and
Exchange Commission becomes effective and one dated a date within two
business days before the closing date of the merger, each in form and
substance reasonably satisfactory to the other party and customary in scope
and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to REGENCY's
registration statement;
(4) they will use their respective reasonable best efforts to cause to be
delivered to the other party an opinion of their respective counsel, as to
due organization and existence, authorized capitalization, due
authorization, consents (to such firm's knowledge), violations of law (to
such firm's knowledge), litigation (to such firm's knowledge), in the case
of REGENCY's counsel, the valid issuance of REGENCY stock pursuant to the
merger, enforceability, and such other matters as counsel may reasonably
request;
(5) as soon as practicable following the date upon which REGENCY's registration
statement is declared effective by the Securities and Exchange Commission,
each party will use its reasonable best efforts to obtain the approval of
its shareholders required by the Merger Agreement; and
(6) they will cooperate and use their respective best efforts to cause to be
done, all things necessary or advisable under applicable laws and
regulations, and under contracts giving rise to the required consents, to
consummate the transactions contemplated by the Merger Agreement, including
using its reasonable best efforts to identify and obtain all necessary or
appropriate waivers, consents and approvals, to effect all necessary
registrations and filings and to lift any injunction or other legal bar to
the transactions contemplated by the Merger Agreement.
PACIFIC RETAIL also agreed to use its reasonable best efforts to take such
actions as may be reasonably requested by REGENCY to facilitate decisions and
subsequent actions by REGENCY to terminate or transition any of PACIFIC
RETAIL's benefit plans, stock option plans and similar matters, including
without limitation appropriate amendment of the PACIFIC RETAIL stock option
plans.
DISTRIBUTIONS
REGENCY and PACIFIC RETAIL have agreed that prior to the merger, they will not
make quarterly distributions in excess of their respective current quarterly
distribution amounts. REGENCY's current quarterly distributions are $0.44 per
share of REGENCY Common Stock and $0.54 per share of REGENCY Class B Non-Voting
Common Stock. PACIFIC RETAIL's current quarterly distributions are $0.1925 per
PACIFIC RETAIL Common Share, $0.1795 per PACIFIC RETAIL Series A Preferred
Share and $0.1925 per PACIFIC RETAIL Series B Preferred Share. After the
effective time of the merger, REGENCY intends to maintain its current quarterly
distribution policy and to pay stated quarterly dividends on the shares of
REGENCY Preferred Stock
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issued in the merger, subject to authorization by the REGENCY Board and the
availability of funds therefor.
REGENCY and PACIFIC RETAIL have agreed to coordinate with each other the
payment of distributions with respect to REGENCY stock and PACIFIC RETAIL
shares after the date of the Merger Agreement, with the intention that (1)
PACIFIC RETAIL pay whatever preclosing dividends shall be necessary to avoid
jeopardizing its status as a real estate investment trust under the Code, (2)
the shareholders of REGENCY and PACIFIC RETAIL be treated fairly in order to
avoid any "windfall" preclosing dividends, and (3) except as may be necessary
to accomplish the foregoing, holders of REGENCY Common Stock and PACIFIC RETAIL
Common Shares and PACIFIC RETAIL Preferred Shares will not receive two
distributions, or fail to receive one distribution, for any single calendar
quarter with respect to their PACIFIC RETAIL shares, on the one hand, and any
REGENCY stock that any such holder receives in the merger, on the other hand.
NO SOLICITATION OF TRANSACTIONS
Neither PACIFIC RETAIL or REGENCY nor any of their respective subsidiaries may
directly or indirectly:
(1) solicit, initiate or encourage (including by way of furnishing
information) proposals relating to:
. any purchase of a substantial amount of assets of such party or any
of its subsidiaries (other than in the ordinary course of business),
or
. any purchase of over 9.8% of any class of equity securities of such
party or any of its subsidiaries, or
. any tender offer (including a self tender offer) or exchange offer
that if consummated would result in any person beneficially owning
9.8% or more of any class of equity securities of such party or any
of its subsidiaries, or
. any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution
or similar transaction involving such party or any of its
subsidiaries, other than the transactions contemplated by the Merger
Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or
materially delay the merger,
(2) agree to or endorse any alternative proposal, or participate in any
discussions regarding any of the foregoing, or
(3) participate in any discussions regarding any of the foregoing, or
(4) furnish to any other person any information with respect to its
business or assets or otherwise cooperate in any way with any attempt
by any other person to do any of the foregoing.
However, the foregoing does not prohibit either party from:
(1) furnishing information concerning such party and its businesses or
assets (pursuant to an appropriate confidentiality agreement customary
under the circumstances) to a third party who has made an unsolicited
alternative proposal,
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(2) engaging in discussions or negotiations with a third party who has made
an unsolicited alternative proposal,
(3) following receipt of an unsolicited alternative proposal, taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
under the Securities Exchange Act of 1934 or otherwise making
disclosure to its shareholders,
(4) following receipt of an unsolicited alternative proposal, failing to
make or withdrawing or modifying its recommendation in favor of the
Merger Agreement and the transactions contemplated thereby, and/or
(5) engaging in discussions or negotiations with SC-USREALTY or its
controlling affiliates regarding an unsolicited alternative proposal
from a third party,
but in each case referred to in the foregoing clauses (1) through (4) (not in
the case of the foregoing clause (5) above) only if and to the extent that such
party's Board has concluded in good faith, after consulting with and
considering the advice of outside counsel, that such action is required by the
Board in the exercise of its legal or fiduciary duties to such party's
shareholders under applicable law. Neither REGENCY nor PACIFIC RETAIL may take
any of the actions referred to in clauses (1) through (4) (but not clause (5)
above) until after giving at least one business day's advance notice to the
other party. In addition, if PACIFIC RETAIL or REGENCY receives an unsolicited
alternative proposal, then the party receiving the proposal must promptly
inform the other party in writing of the material terms of such proposal and
the identity of the person (or group) making it. PACIFIC RETAIL and REGENCY
must immediately cease and cause to be terminated all existing activities,
discussions or negotiations, if any, with any parties (other than SC-USREALTY)
conducted heretofore with respect to any of the foregoing.
TERMINATION
The Merger Agreement may be terminated at any time prior to the effective time
of the merger, whether before or after approval by the shareholders of REGENCY
and PACIFIC RETAIL, under the following circumstances:
(1) by mutual written consent of REGENCY and PACIFIC RETAIL;
(2) by REGENCY or PACIFIC RETAIL, if the merger shall not have been
consummated on or before March 31, 1999 (other than by reason of a
breach by the party seeking to terminate the Merger Agreement or its
obligations thereunder);
(3) by REGENCY or PACIFIC RETAIL, if any preliminary or permanent
injunction or other order is in effect and has become final and
nonappealable; provided that the party seeking to terminate the Merger
Agreement has used its reasonable best efforts to have such injunction
or order lifted; and
(4) unilaterally by REGENCY or PACIFIC RETAIL (a) if the other party (x)
fails to perform any covenant in the Merger Agreement in any material
respect, and does not cure the failure in all material respects within
15 business days after notice of the alleged failure or (y) fails to
fulfill a condition to the obligations of the terminating party (which
condition is not waived) by reason of a breach of the non-terminating
party's obligations under the Merger Agreement or (b) if any condition
to the obligations of the terminating party is not satisfied
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(other than by reason of a breach by that party of its obligations under
the Merger Agreement), and it reasonably appears that the condition
cannot be satisfied prior to March 31, 1999.
Additionally, the Merger Agreement may be terminated by REGENCY or PACIFIC
RETAIL, if (each, a "Termination Event"):
(1) the other party has exercised a right with respect to an alternative
proposal and has, directly or through representatives, continued
discussions with any third party concerning such alternative proposal
relating to the other party for more than 15 business days after
receipt thereof; or
(2) (A) a publicly disclosed alternative proposal relating to the other
party has been commenced, publicly proposed or communicated to such
other party which contains a proposal as to price (whether a specific
price or a range of potential prices) and (B) such other party has not
rejected such proposal within 15 business days of its receipt or, if
sooner, the date its existence first becomes publicly disclosed.
The Merger Agreement may also be terminated (1) by PACIFIC RETAIL, if the
PACIFIC RETAIL Board of Trustees withdraws or modifies its approval or
recommendation of the merger and (2) by REGENCY, if the REGENCY Board of
Directors withdraws or modifies its approval or recommendation of the merger.
Any termination of the Merger Agreement as described above requires the
approval of the Special Committee of the Board of the terminating party.
TERMINATION AMOUNT
In the event that PACIFIC RETAIL or REGENCY terminates the Merger Agreement
because such party's Board has recommended that its shareholders accept or
approve an alternative proposal, then, concurrently with any such termination,
such party will pay to the other party a $20 million termination fee.
In the event that:
(1) REGENCY or PACIFIC RETAIL terminate the Merger Agreement due to a
Termination Event caused by the other party, and
(2) prior to the one year anniversary of such termination, the non-
terminating party enters into any letter of intent, agreement in
principle, acquisition agreement or similar agreement relating to any
alternative proposal,
then the non-terminating party will pay to the terminating party, within two
business days after the date such agreement is entered into, a $20 million
termination fee.
Reduction of Termination Amount
In general, under the REIT provisions of the Code, at least 75% of a REIT's
gross income for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property (the
"75% income test"), and at least 95% of a REIT's gross income for
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each taxable year must be derived from such real property investments and from
certain categories of investment income (the "95% income test"). The Merger
Agreement provides for a reduction in the $20 million termination fee
("Termination Amount") payable to REGENCY or PACIFIC RETAIL if necessary to
prevent such amount from causing REGENCY or PACIFIC RETAIL, as the case may be,
to fail these REIT income requirements. Specifically, the Merger Agreement
provides that, notwithstanding anything to the contrary set forth in the Merger
Agreement, in the event that any party is obligated to pay the other party the
Termination Amount, the paying party will pay to the other party an amount
equal to the lesser of:
(1) the Termination Amount and
(2) the sum of
(a) the maximum amount that can be paid to the other party without
causing that party to fail to meet the requirements of the 75%
income test and the 95% income test determined as if the
Termination Amount did not constitute qualifying income
("Qualifying Income") for purposes of the 75% income test and the
95% income test, plus
(b) in the event that the other party receives either a ruling from the
IRS or an opinion of its counsel that the Termination Amount would
constitute Qualifying Income or would be excluded from gross income
for purposes of the 75% income test and the 95% income test, an
amount equal to the Termination Amount, less the amount payable
under clause (a) above.
INDEMNIFICATION
REGENCY has agreed that all rights to indemnification and exculpation from
liabilities or acts or omissions occurring at or prior to the effective time of
the merger existing on the date of the Merger Agreement in favor of the current
or former trustees or officers of PACIFIC RETAIL and its subsidiaries as
provided in their organizational documents and any indemnification agreements
or arrangements of PACIFIC RETAIL and its subsidiaries will survive the merger,
will be assumed and performed by REGENCY, and will continue in accordance with
their terms with respect to matters arising before the effective time of the
merger. REGENCY will pay any expenses of any of the foregoing indemnified
persons in advance of the final disposition of any action, proceeding or claim
relating to any act or omission to the fullest extent permitted under the
Florida Act upon receipt from the indemnified person to whom advances are to be
advanced of an undertaking to repay such advances required under the Florida
Act. In addition, from and after the effective time of the merger, trustees or
officers of PACIFIC RETAIL who become directors or officers of REGENCY will be
entitled to the same indemnity rights and protections as are afforded to other
directors and officers of REGENCY.
AMENDMENT AND WAIVER
The Merger Agreement may not be amended except in writing signed by both
REGENCY and PACIFIC RETAIL and in compliance with applicable law. The Merger
Agreement may not be amended in any material respect following approval by
REGENCY shareholders or PACIFIC RETAIL shareholders. At any time prior to the
closing, REGENCY or PACIFIC RETAIL may
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(1) extend the time for the performance of any of the obligations of the other
party, (2) waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto, and (3) waive
compliance with any of the agreements or conditions contained therein. The
approval of each of the Special Committees will be required for an amendment or
modification of the Merger Agreement and the approval of the Special Committee
of the Board of the extending or waiving party will be required for any
extension of the time of the performance of any obligations by the other party
and any waiver of any of the other party's obligations under the Merger
Agreement.
APPROVAL OF THE REGENCY ARTICLES AMENDMENT
THE MEMBERS OF THE REGENCY BOARD OF DIRECTORS, OTHER THAN SC-USREALTY'S
REPRESENTATIVES, WHO ABSTAINED, HAVE UNANIMOUSLY APPROVED, AND RECOMMEND THAT
REGENCY SHAREHOLDERS VOTE "FOR" THE APPROVAL OF, THE REGENCY ARTICLES
AMENDMENT. Assuming the presence of a quorum, the affirmative vote of a
majority of the REGENCY Common Stock voted with respect to the matter is
required to approve this proposal.
The approval and consummation of the merger is a condition to the approval and
adoption of the REGENCY Articles Amendment. Approval of the REGENCY Articles
Amendment is a condition to approval and consummation of the merger.
The following description, which summarizes the most significant changes in the
REGENCY Articles Amendment, is qualified in its entirety by reference to the
form of REGENCY Articles Amendment attached as Annex D.
The REGENCY Board has authorized, subject to consummation of the merger, the
creation of two new series of Preferred Stock, which will be issued in the
merger in exchange for the two outstanding series of PACIFIC RETAIL Preferred
Shares. REGENCY shareholders do not have the right to vote on the issuance of
the two new series of REGENCY Preferred Stock. See "Description of REGENCY
Securities--REGENCY Preferred Stock" for a summary of the terms of the two new
series.
DESCRIPTION OF AMENDMENT
Increase in Special Shareholder Limit
At the request of SC-USREALTY, the REGENCY Board has proposed to amend Section
5.1(r) of the REGENCY Articles to increase the special ownership limit for SC-
USREALTY, its affiliates, any bona fide financial institution to whom capital
stock is transferred in connection with any bona fide indebtedness of any of
the foregoing or any person that acquires beneficial ownership from any of the
foregoing, except through open market purchases (collectively, the "Special
Shareholders") to enable the Special Shareholders to acquire the REGENCY Common
Stock issuable to it in the merger. The proposed amendment to Section 5.1(r) of
the REGENCY Articles would increase the Special Shareholder Limit (as defined
in the REGENCY Articles) from 45% to 60% of the REGENCY Common Stock on a fully
diluted basis. Under the proposed amendment, the Special Shareholder Limit
would return to 49% of the REGENCY Common Stock on a fully diluted basis at
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such time as the ownership of the Special Shareholders falls below 45% of the
REGENCY Common Stock on a fully diluted basis for a continuous period of 180
days.
In order to maintain REGENCY's status as a REIT, the Special Shareholder Limit
will continue to be subject to reduction if an individual (or an entity treated
as an individual) which owns an interest in SC-USREALTY and its affiliates is
treated as owning, after application of certain constructive ownership rules,
more than 9.8% of the outstanding shares of REGENCY's capital stock. The
Special Shareholder Limit also will continue to be subject to reduction in the
future under certain circumstances if SC-USREALTY were to transfer all or a
portion of its shares of REGENCY capital stock in a privately negotiated
transaction.
Continued Limitations on Ownership by Non-U.S. Persons
At the request of SC-USREALTY, the REGENCY Board of Directors also has proposed
to amend Section 5.14 of the REGENCY Articles to make it clear that SC-USREALTY
has the right to acquire the shares of REGENCY Common Stock issuable to it in
the merger even though such issuance will cause more than 50% of the fair
market value of REGENCY's outstanding capital stock to be owned by Non-U.S.
Persons. Without this amendment, SC-USREALTY could have waived or revised the
limitations contained in Section 5.14 upon prior written notice to the REGENCY
Board.
A domestically controlled REIT is a REIT more than 50% of the value of the
capital stock of which is held by U.S. Persons. A Non-U.S. Person is defined in
the REGENCY Articles as any person who is not (1) a citizen or resident of the
United States, (2) a partnership or corporation organized in the United States
or under the laws of the United States or any state therein (including the
District of Columbia) or (3) any estate or trust (other than a foreign estate
or trust within the meaning of Section 7701(a)(31) of the Code).
Section 5.14 of the REGENCY Articles presently prohibits any transfer of
REGENCY capital stock that would result in 50% or more of the fair market value
of REGENCY capital stock being held by Non-U.S. Persons. Non-U.S. Persons who
hold 5% or more by value of the outstanding capital stock of a domestically
controlled REIT may not be required to pay U.S. federal income tax on any gain
when they sell such stock. Section 5.14 of the REGENCY Articles as presently in
effect voids any transfer that would cause REGENCY to cease to qualify as a
domestically controlled REIT.
Non-U.S. Persons who have not owned more than 5% by value of REGENCY's
outstanding capital stock at any time during the five years preceding the date
of sale of their REGENCY stock may not be required to pay U.S. federal income
tax on any gain from such sale even if the sale takes place at a time when
REGENCY does not qualify as a domestically controlled REIT.
To the knowledge of SC-USREALTY, PACIFIC RETAIL and REGENCY, no shareholder of
PACIFIC RETAIL other than SC-USREALTY is a Non-U.S. Person who would receive
REGENCY capital stock in the merger constituting more than 5% of the fair
market value of REGENCY's capital stock immediately following the merger. To
the knowledge of SC-USREALTY and REGENCY, no person other than SC-USREALTY
presently holds more than 5% of the fair market value of REGENCY's outstanding
capital stock.
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SC-USREALTY is willing for REGENCY to cease to qualify as a domestically
controlled REIT provided that the shares issuable to SC-USREALTY in the merger
are not deemed to be void by reason of the transfer restrictions presently
contained in Section 5.14 of the REGENCY Articles. The proposed amendment to
Section 5.14(a) of the REGENCY Articles would allow the Special Shareholders to
own more than 50% by value of REGENCY's outstanding capital stock even though
the Special Shareholders are Non-U.S. Persons.
Initial Restrictions After the Merger
Under the proposed amendment, SC-USREALTY and any other Special Shareholder
would be allowed to increase their ownership of REGENCY capital stock after the
merger, subject to the Special Shareholder Limit described above. However, in
order to preserve the flexibility for REGENCY to return to the status of a
domestically controlled REIT, the proposed amendment to Section 5.14(a) of the
REGENCY Articles would prohibit any transfer of REGENCY capital stock to any
Non-U.S. Person (other than a Special Shareholder) at any time that Non-U.S.
Persons (including the Special Shareholders, who will be presumed to be Non-
U.S. Persons) directly or indirectly own 50% or more of the fair market value
of REGENCY's outstanding capital stock. Any transfer in violation of this
prohibition would be deemed void ab initio.
Restrictions After Return to Status as a Domestically Controlled REIT
Under proposed Section 5.14(b) of the REGENCY Articles, once Non-U.S. Persons
(including the Special Shareholders, who will be presumed to be Non-U.S.
Persons) cease to own 50% or more of the fair market value of REGENCY's
outstanding capital stock, transfer restrictions will take effect that are
similar, although not identical, to those presently contained in Section 5.14
of the REGENCY Articles. The transfer restrictions in proposed Section 5.14(b)
are designed to preserve REGENCY's status as a domestically controlled REIT at
such time after the merger that REGENCY again becomes a domestically controlled
REIT. Under the Code, Non-U.S. Persons must cease to own 50% or more by value
of REGENCY's outstanding capital stock for a continuous period of five years
before being eligible for favorable tax treatment on the sale of their shares
under the domestically controlled REIT provisions of the Code.
The proposed amendment to Section 5.14(b) of the REGENCY Articles would void
the transfer of REGENCY capital stock by any person (other than a Special
Shareholder) to any person (including the Special Shareholders) after Non-U.S.
Persons cease to own 50% or more of the fair market value of REGENCY's
outstanding capital stock, if:
(1) the transfer occurs before the Special Shareholders have ceased to own
10% of the REGENCY Common Stock on a fully diluted basis for a
continuous period of 180 days and if as a result of the transfer the
fair market value of REGENCY capital stock owned directly or indirectly
by Non-U.S. Persons other than the Special Shareholders would comprise
4.9% or more of the fair market value of REGENCY's outstanding capital
stock, or
(2) the fair market value of REGENCY capital stock owned directly or
indirectly by Non-U.S. Persons including the Special Shareholders (who
will be presumed to be Non-U.S. Persons) would comprise 50% or more of
the fair market value of REGENCY's outstanding capital stock.
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Under Section 5.14 of the REGENCY Articles as presently in effect, if the
transfer occurs before the Special Shareholders have ceased to own 15% (as
opposed to 10% in the proposed amendment) of REGENCY Common Stock on a fully
diluted basis for a continuous period of 180 days, a transfer to a person other
than a Special Shareholder is invalidated if it would result in the fair market
value of REGENCY capital stock owned directly or indirectly by persons other
than the Special Shareholders constituting 5% (as opposed to 4.9% in the
proposed amendment) of the fair market value of REGENCY's outstanding capital
stock.
Under Section 5.14 as presently in effect and as proposed to be amended, if a
transfer restriction in Section 5.14 is held to be invalid, the shares acquired
by the transferee in violation of the invalidated restrictions will be deemed
held in trust for the benefit of REGENCY, will not be entitled to dividends or
other distributions and will not be entitled to vote. The Special Shareholders
will continue to have the ability to waive or alter the applicability of the
transfer restrictions in Section 5.14 to themselves or to any other person, in
their sole discretion, upon written notice to REGENCY.
POSSIBLE EFFECT OF PROPOSED AMENDMENT
Qualification as a REIT does not depend on the extent to which the REIT's
capital stock is owned by U.S. persons. However, as a result of the merger,
REGENCY expects no longer to qualify as a domestically controlled REIT for U.S.
federal income tax purposes. REGENCY believes that SC-USREALTY is the only
person who may be adversely affected by REGENCY losing its status as a
domestically controlled REIT. See "The Merger--Material Federal Income Tax
Consequences--Tax Treatment of Non-U.S. Holders" for a detailed discussion
regarding the impact of REGENCY not qualifying as a domestically controlled
REIT.
With or without the proposed amendment, the acquisition of REGENCY capital
stock is not a suitable investment for Non-U.S. Persons other than SC-USREALTY.
With or without the proposed amendment, REGENCY is precluded from raising
capital from Non-U.S. Persons without a waiver from SC-USREALTY. Under the
proposed amendment, prior to the Domestic REIT Requalification Date, any
transfer (other than acquisitions from a Special Shareholder) of REGENCY
capital stock by a Non-U.S. Person (other than a Special Shareholder) will be
void.
AMENDMENT TO THE REGENCY INCENTIVE PLAN
THE MEMBERS OF THE REGENCY BOARD OF DIRECTORS, OTHER THAN SC-USREALTY'S
REPRESENTATIVES, WHO ABSTAINED, HAVE UNANIMOUSLY APPROVED, AND RECOMMEND THAT
REGENCY SHAREHOLDERS VOTE "FOR" THE APPROVAL OF, THE PROPOSAL TO AMEND THE
REGENCY INCENTIVE PLAN. The affirmative vote of a majority of the REGENCY
Common Stock voted with respect to the matter is required to approve this
proposal (provided that more than 50% of the votes entitled to be cast are
voted on the proposal). The approval and consummation of the merger is a
condition to the approval of the amendments to the REGENCY Incentive Plan. The
approval of the amendments to the REGENCY Incentive Plan is a condition to the
approval and consummation of the merger.
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GENERAL
The REGENCY Board of Directors and shareholders approved the REGENCY Incentive
Plan on September 29, 1993. The REGENCY Board has adopted, subject to
shareholder approval, an amendment to the REGENCY Incentive Plan to increase
the number of shares available for award from 1,029,983 to 3,549,983 and to
permit the grant of substitute options in lieu of severance compensation to
three departing senior executives of PACIFIC RETAIL even though they will not
be employed by, or perform services for, REGENCY after the merger.
INCREASE IN NUMBER OF SHARES
The first change to the REGENCY Incentive Plan would increase the number of
shares available for award by (1) 2,520,000, the number of shares authorized
under PACIFIC RETAIL's long-term incentive plan multiplied by an exchange ratio
of 0.48. The REGENCY Board has proposed the amendment to the REGENCY Incentive
Plan in order to allow REGENCY (1) to grant substitute options to PACIFIC
RETAIL officers and employees and non-employee directors in the merger and (2)
to continue to provide incentives to REGENCY officers and employees and non-
employee directors after the merger. The number of shares of REGENCY Common
Stock reserved for issuance under the REGENCY Incentive Plan initially was 6%
of the shares outstanding upon consummation of REGENCY's initial public
offering in November 1993. The number of shares reserved for issuance is
increased each December 31 by 2% of the shares outstanding on that date (plus
6% of any shares issued in any public offering during the preceding 365 days),
with the maximum number of shares limited to the lesser of (1) 12% of the
shares of REGENCY Common Stock outstanding on the prior December 31, or (2) 3
million shares. As of September 30, 1998, the number of shares reserved for
issuance under the REGENCY Incentive Plan was 1,029,983. The terms and
conditions of the REGENCY Incentive Plan are summarized below.
As of September 30, 1998, there were 1,455,256 shares subject to options
granted under the REGENCY Incentive Plan, 59,000 shares issued under the
restricted stock program of the REGENCY Incentive Plan and 865,589 shares
remaining available for award. As of September , 1998, after applying the 0.48
exchange ratio, there were 1,165,773 shares subject to options granted under
PACIFIC RETAIL's long-term incentive plan and 1,354,227 shares remaining
available for award. If the number of shares available for award under the
REGENCY Incentive Plan is not increased, it would not be possible to grant at
the effective time of the merger to all PACIFIC RETAIL officers and employees
and non-employee directors who become REGENCY officers, employees or directors
upon the effective time of the merger, and to certain departing executives
described below, substitute options to replace the PACIFIC RETAIL options that
are outstanding and unexercised immediately prior to the effective time of the
merger. REGENCY has agreed in the Merger Agreement to issue such substitute
options upon consummation of the merger. In addition, there would only be a
maximum possible 762,398 additional shares available for future awards under
the REGENCY Incentive Plan by reason of the 3 million share cap, significantly
fewer than the number (as adjusted for the 0.48 exchange ratio) currently
available under PACIFIC RETAIL's incentive plan.
Assuming approval of the amendment, the number of shares of REGENCY Common
Stock which may be awarded under the REGENCY Incentive Plan may not exceed
4,787,602 shares in the
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aggregate, which upon issuance would constitute 7.1% of the fully diluted
shares of REGENCY immediately after the merger.
DESCRIPTION OF THE PLAN
REGENCY Common Stock issued under the REGENCY Incentive Plan may be authorized
and unissued shares or treasury shares. In the event of certain transactions
affecting the type or number of outstanding shares, the number of shares
subject to the REGENCY Incentive Plan, the number or type of shares subject to
outstanding awards and the exercise price thereof may be appropriately
adjusted. The REGENCY Incentive Plan authorizes the establishment of options,
stock appreciation rights and share purchase programs, authorizes the award of
share grants (any of which may be subject to restrictions), provides for
options for outside directors and payment of their fees in shares unless the
director elects payment in cash, and allows for the establishment of other
types of stock-based incentive programs. The Compensation Committee administers
the REGENCY Incentive Plan. All key employees of REGENCY or any of its
affiliates designated by the Compensation Committee are eligible to participate
in the REGENCY Incentive Plan. As of September 30, 1998, approximately 50
persons were eligible to participate. An additional 50 persons are expected to
become eligible as a result of the merger. Subject to the terms of the REGENCY
Incentive Plan, the Compensation Committee determines which employees are
eligible to receive awards, and the type, amount, price, timing, vesting
schedules and other terms and conditions applicable to awards. Non-employee
directors are eligible to participate in formula-based option and directors'
fee programs under the REGENCY Incentive Plan.
Options
Options awarded under the REGENCY Incentive Plan may be either incentive stock
options within the meaning of Section 422 of the Code, which permits the
deferral of taxable income related to the exercise of such options, or
nonqualified options not entitled to such deferral. No participant may receive
options or stock appreciation rights under the REGENCY Incentive Plan for an
aggregate of more than 900,000 shares. The exercise price and term of each
option or stock appreciation right is fixed by the Compensation Committee,
except that the exercise price for options must be at least equal to the fair
market value of the stock on the date of grant and the term of the options
cannot exceed 10 years. The aggregate fair market value (determined at the time
the option is granted) of shares with respect to which incentive stock options
may be granted to any one individual under the REGENCY Incentive Plan, or any
other plan of REGENCY or any parent or subsidiary, which stock options are
exercisable for the first time during any calendar year, may not exceed
$100,000. An optionee may, with the consent of the Compensation Committee,
elect to pay for the shares to be received upon exercise of his or her options
in cash or shares of REGENCY Common Stock or any combination thereof.
The holder of an incentive option generally recognizes no income for federal
income tax purposes at the time of the grant or exercise of the option.
However, the spread between the exercise price and the fair market value of the
underlying shares on the date of exercise generally will constitute a tax
preference item for purposes of the alternative minimum tax. The optionee
generally will be entitled to long term capital gain treatment upon the sale of
shares acquired pursuant to the exercise of an incentive stock option, if the
shares have been held for more than two years from the date of the
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option grant and for more than one year after exercise. Generally, if the
optionee disposes of the stock before the expiration of either of these holding
periods (a "disqualifying disposition"), the gain realized on disposition will
be compensation income to the optionee to the extent the fair market value of
the underlying stock on the date of exercise exceeds the applicable exercise
price. REGENCY will not be entitled to an income tax deduction in connection
with the exercise of an incentive stock option but will generally be entitled
to a deduction equal to the amount of any ordinary income recognized by an
optionee upon a disqualifying disposition.
Grant of Substitute Non-Qualified Options
Subject to shareholder approval, concurrently with the merger, officers and
employees and non-employee directors who become officers or employees or non-
employee directors of REGENCY and hold unexercised PACIFIC RETAIL options
immediately prior to the effective time of the merger will receive substitute
REGENCY options under the REGENCY Incentive Plan. The number of substitute
options to be issued to a PACIFIC RETAIL optionee in place of each PACIFIC
RETAIL option held by such person and the exercise price of such options will
be adjusted based on the relative fair market value of the PACIFIC RETAIL
Common Shares and REGENCY Common Stock immediately prior to the effective time
such that the PACIFIC RETAIL optionee will be entitled to purchase upon
exercise of his or her options, at an aggregate exercise price equal to the
aggregate exercise price of his or her PACIFIC RETAIL options, the number of
shares of REGENCY Common Stock that he or she would have received had such
person exercised all of his or her options (assuming that all were fully vested
as of such date) immediately prior to the merger and participated in the merger
as a holder of the number of PACIFIC RETAIL shares issuable upon such exercise.
The substitute options will be non-qualified options, like the PACIFIC RETAIL
options they replace, and will have the same vesting and termination dates and,
except for the adjusted exercise price, will have the same terms and conditions
as the PACIFIC RETAIL options they replace. Of the substitute REGENCY options,
597,766 will vest 25% on the second through fifth anniversaries of the original
date of the PACIFIC RETAIL grant, and except for substitute options for
departing PACIFIC RETAIL executives or non-employee directors the remainder
will vest 40% on grant, 13.33% on October 20, 1999, 20.00% on October 20, 2000
and 26.67% on October 20, 2001. The substitute options will terminate 10 years
after the date of the original PACIFIC RETAIL grant.
Like the PACIFIC RETAIL options that have dividend equivalent units, the
corresponding substitute options will include the right to receive dividend
equivalent units, which will be subject to the same vesting schedule as the
options and will be payable when the options are exercised, unless the
participant elects to defer receipt, or the options expire. Generally, each
participant will be credited with dividend equivalent units at the end of each
calendar year in an amount equal to (1) the average dividend yield during such
year with respect to a share of REGENCY Common Stock that is in excess of the
S&P 500 average dividend yield for such year, multiplied by (2) the number of
shares of REGENCY Common Stock underlying the participant's outstanding options
that were granted with dividend equivalent units. Each dividend equivalent unit
also accumulates additional dividend equivalent units on an annual basis. All
dividend equivalent units will be paid in the form of REGENCY Common Stock at
the rate of one share of REGENCY Common Stock per dividend equivalent unit.
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The participants will have no rights as shareholders with respect to the shares
subject to their options until the options are exercised. No income will be
recognized by a participant at the time the substitute options or the dividend
equivalent units are granted. The exercise of a non-qualified stock option will
generally be a taxable event that requires the participant to recognize, as
ordinary income, the difference between the fair market value of the shares at
the time of exercise and the option exercise price. Receipt of a dividend
equivalent unit by the participant will generally be a taxable event that will
require the participant to recognize, as ordinary income, the fair market value
of the shares at the time of receipt. REGENCY ordinarily will be entitled to
claim a federal income tax deduction on account of the exercise of a non-
qualified option and payment of dividend equivalent units. The amount of the
deduction will equal the ordinary income recognized by the participant. REGENCY
has adopted the provisions of Statement of Financial Accounting Standards No.
123 "Accounting for Stock Based Compensation." Under the provisions of this
statement, REGENCY will continue to account for its share options under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations.
AMENDMENT TO ALLOW SUBSTITUTE OPTIONS FOR DEPARTING PACIFIC RETAIL EXECUTIVES
The amendment adopted by REGENCY's Board of Directors, subject to shareholder
approval, also provides for amending the REGENCY Incentive Plan to permit three
departing executives of PACIFIC RETAIL to receive substitute REGENCY options
upon consummation of the merger even though such persons will not be officers
or employees of REGENCY. The REGENCY Incentive Plan currently requires that
participants be key employees or non-employee directors. The substitute REGENCY
options to be granted to the departing PACIFIC RETAIL executives will be in
lieu of any other severance compensation from REGENCY or PACIFIC RETAIL.
Under the proposed amendment, Dennis H. Alberts, President of PACIFIC RETAIL,
Jane E. Mody, Managing Director and Chief Financial Officer of PACIFIC RETAIL,
and Joshua M. Brown, Managing Director of PACIFIC RETAIL, who are expected to
become executives of an affiliate of Security Capital Group after the merger,
will receive fully vested substitute options of REGENCY which will terminate if
they cease to be employed by Security Capital Group or any affiliate. Except
for the vesting provisions applicable to the substitute options of these three
departing PACIFIC RETAIL executive officers, the options issued to the
departing PACIFIC RETAIL executives will be similar to the substitute options
of continuing employees. For additional information concerning the substitute
options to be granted to the departing executives, see "--Grant of Substitute
Non-Qualified Options" and "--Substitute Options After the Merger."
SUBSTITUTE OPTIONS AFTER THE MERGER
The following table shows the outstanding option awards under the REGENCY
Incentive Plan, assuming consummation of the merger, held by (1) the three most
highly compensated executive officers of PACIFIC RETAIL who will become
executive officers of REGENCY, (2) all such executive officers as a group, (3)
all employees of PACIFIC RETAIL who are expected to become REGENCY employees,
including all officers who are not executive officers, as a group, (4) non-
employee trustees of PACIFIC RETAIL who will continue as REGENCY non-employee
directors as a group, and (5) the three departing executives of PACIFIC RETAIL.
With the exception of the
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2,000-option formula grant to each PACIFIC RETAIL representative joining
REGENCY's Board, all the options shown on the table will be substitute options
for outstanding awards under the PACIFIC RETAIL incentive plan. In addition to
the options shown on the table, REGENCY anticipates that its Compensation
Committee will award options to Mary Lou Rogers following the merger in an
amount commensurate with her responsibilities as President and Chief Operating
Officer. The Compensation Committee has not yet considered the amount of such
grant.
<TABLE>
<CAPTION>
DOLLAR VALUE OPTION AWARDS
OF SHARES -----------------------------------------
SUBJECT TO NUMBER EXERCISE EXPIRATION
NAME AND TITLE OPTIONS (1) OF SHARES (2) PRICE($)(2) DATE (3)
- -------------- ------------ ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Executive Officers And
Employees:
James G. Buis......... $ 2,900,000 121,916 $23.79 5/1/06-11/20/07
Managing Director --
Investments
(Southwest)
John S. Delatour ..... $ 2,250,000 90,280 $24.92 1/7/07-11/20/07
Managing Director--
Operations (West)
Brian M. Smith........ $ 1,850,000 70,923 $26.08 2/10/07-4/3/08
Managing Director--
Operations (Pacific)
All executive officers $ 7,000,000 283,119 $24.72 5/1/06-4/3/08
as a group
(3 persons)..........
All employees,
including all
officers who are not
executive officers,
as a group
(48 persons)......... $10,009,000 387,847 $25.81 5/1/06-7/1/08
Non-employee directors 247,102 9,735 $25.38 8/7/01-6/24/03
as a group
(4 persons)..........
Departing Executives of
PACIFIC RETAIL:
Dennis H. Alberts(4).. $ 6,041,625 254,420 $23.75 5/1/06-11/20/07
Jane E. Mody.......... $ 3,850,000 159,972 $24.07 5/1/06-11/20/07
Joshua M. Brown....... $ 2,500,000 100,280 $24.93 1/7/07-11/20/07
</TABLE>
- --------
(1) Based on the $20.8125 closing price of REGENCY Common Stock on the New York
Stock Exchange on October 7, 1998.
(2) The exercise price shown is the weighted average exercise price for shares
subject to options. Includes 1,182,738 non-qualified substitute options,
145,846 with dividend equivalent units to purchase shares, vesting 25% on
each of the second through fifth anniversaries of grant, subject to certain
conditions. The vesting schedule is based on the original date of grant by
PACIFIC RETAIL. Includes 144,000 non-qualified substitute options vesting
40.00% on the date of grant (based on original vesting dates under the
PACIFIC RETAIL plan of May 1, 1996 and October 20, 1998), 13.33% on October
20, 1999, 20.00% on October 20, 2000 and 26.67% on October 20, 2001. The
vesting schedule is based on the original date of grant. Mr. Buis will
receive 14,400 fully vested options. All the options of the three departing
executives will be fully vested.
(3) Ten years from the original date of grant.
(4) Includes 2,000 non-director employee options.
OTHER REGENCY INCENTIVE PLAN PROGRAMS
Stock Purchase Program
To align the interest of management with REGENCY's shareholders, the
Compensation Committee has implemented a stock purchase plan ("SPP") as part of
the REGENCY Incentive Plan to encourage stock ownership by management.
Management purchased 226,000 shares under this program during 1993 and 1996 at
fair market value at the time of purchase. The stock purchases
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were funded by SPP loans from REGENCY (averaging 92% of the purchase price) and
cash provided directly by management. These SPP loans are fully secured by a
portion of the stock purchased, are fully recourse to management, are interest
only (due quarterly) with fixed rates of interest of 7.34% to 7.79%, and mature
in 10 years. As part of the program, a portion of the loans may be forgiven
annually based on annual per share funds from operations growth of greater than
7%, total annual shareholder return of at least 15%, and cumulative total
annual shareholder return of 20% or more since January 1, 1996.
In 1997, the Compensation Committee granted the executive officers the option
for two years to purchase approximately 198,000 shares ("SPP Shares") at $25.25
per share, the stock price on the grant date, 65,300 of which are subject to
certain financial performance goals or to approval of the Compensation
Committee. REGENCY loans the participants 95% of the purchase price at an
interest rate equal to the lower of 6% or the dividend rate. On January 12,
1998, the executive officers exercised 132,700 SPP Shares. The loans are
secured by stock, are fully recourse to the employee, and mature in 10 years.
The 1997 SPP loan does not provide for loan forgiveness.
In 1997, the Compensation Committee granted the executive officers 396,000
matching options ("SPP Matching Options") expiring in 10 years that provide
incentives to SPP participants to purchase and maintain a long-term investment
in REGENCY of at least five years following an SPP grant. These options vest
after nine years. The vesting may be accelerated if the executive exercises the
options to purchase the SPP Shares and then holds those shares in accordance
with the plan over five years. The Compensation Committee also granted 95,100
options to the executive officers in 1997 based upon 1996 performance ("Annual
Options"). Annual Options vest over five years and expire after 10 years. The
SPP Matching Options and the Annual Options have an exercise price equal to
$25.25 per share, the stock price on the grant date. Annual options accrue
dividends (dividend equivalents) based on REGENCY's annual dividend less the
average dividend yield of the S&P 500 for the corresponding year. Dividend
equivalents are converted into REGENCY Common Stock immediately and vest over
five years.
Performance Stock Plan
In 1995, the Compensation Committee established a one-time performance stock
program whereby executive officers could earn a specified number of shares of
restricted stock as a result of achieving a compounded annual total return to
shareholders of 15% over a three-year period beginning with the average closing
price of the fourth quarter of 1994. At December 31, 1997, the three-year
compounded annual shareholder return as determined by the plan was 25%, and
accordingly, remaining unissued performance shares were issued. Currently,
issued shares are 33% vested, and become fully vested by January 2000.
Non-Employee Directors
Under the REGENCY Incentive Plan, non-employee directors receive, upon their
initial election to the Board of Directors, a nonqualified option to purchase
2,000 shares of REGENCY Common Stock. In addition, on December 31 of each year,
each non-employee director receives a nonqualified option to purchase 1,000
shares. All such options become exercisable 1 year from the date of grant, have
a term of 10 years, and have an exercise price equal to the greater of the fair
market value of
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the shares on the date of grant or the average trading price of the REGENCY
Common Stock on the 20 business days preceding the date of grant.
The REGENCY Incentive Plan also provides for the payment of non-employee
directors' fees in the form of shares or, if the director elects, in cash. Such
payments are made in arrears on a quarterly basis with the number of shares
granted determined by dividing the dollar amount of the retainer due by the
greater of the fair market value of the shares on the first business day
following the payment period or the average trading price of the REGENCY Common
Stock on the 20 business days ending on such date.
INFORMATION CONCERNING EXECUTIVE OFFICERS
AND DIRECTORS OF REGENCY AFTER THE MERGER
Upon consummation of the merger, Mary Lou Rogers, currently an SC-USREALTY
representative serving on the REGENCY Board and a trustee of PACIFIC RETAIL,
will become the President and Chief Operating Officer of REGENCY. Ms. Rogers
will continue to serve on the REGENCY Board, but will no longer be deemed an
SC-USREALTY designee.
Upon consummation of the merger, PACIFIC RETAIL will have the right to
designate three representatives to the REGENCY Board. Likewise, SC-USREALTY
will be entitled to designate two additional representatives to the REGENCY
Board. The REGENCY Board has voted to expand the number of directors by five,
effective upon the merger, and to fill such vacancies with the nominees of
PACIFIC RETAIL and SC-USREALTY. REGENCY anticipates that five current directors
of REGENCY will resign in order to return the size of the REGENCY Board to 13
members. Under Florida law, directors elected by the Board to fill vacancies
will be required to stand for re-election at the next annual meeting of
REGENCY's shareholders, at which time their terms of office will be made the
same as those of the other directors of the relevant class. The Board of
Directors has delegated to management the designation of which class each
director so elected to take office upon the effective date of the merger will
fill after the next annual meeting, subject to the requirement of Florida law
that each class be as nearly equal in number as possible.
Information concerning PACIFIC RETAIL's nominees to the REGENCY Board is set
forth below.
DENNIS H. ALBERTS (age 49) is President and Chief Executive Officer and a
trustee of PACIFIC RETAIL. Prior to joining PACIFIC RETAIL in 1995, Mr. Alberts
was Chief Executive Officer of Madison Property Corporation, a privately held
neighborhood infill shopping center company. In 1992, Mr. Alberts was President
and Chief Operating Officer of First Union Real Estate Equity and Investments,
a New York Stock Exchange-listed REIT. From 1987 to 1991, Mr. Alberts was the
President and Chief Executive Officer of Rosewood Property Company, a privately
held real estate company. From 1984 to 1987, Mr. Alberts was President and
Managing Partner of Trammell Crow Residential Companies. From 1973 to 1983, Mr.
Alberts was Executive Vice President of Interfirst Bank in Dallas. Mr. Alberts
received his B.S. and M.B.A. degrees from the University of Missouri.
JOHN C. SCHWEITZER (age 54) is a member of PACIFIC RETAIL's Board of Trustees.
Mr. Schweitzer is a Trustee of Archstone Communities Trust and a Director of
Homestead Village Incorporated (ownership and development of extended-stay
lodging properties). Mr. Schweitzer is
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President of Westgate Corporation and the Managing Partner of Continental
Properties Company, which holds investments in real estate and gas pipeline
operations. Mr. Schweitzer has served as a director or officer of many public
companies and financial institutions, including Franklin Federal Bancorp, Elgin
Clock Company, El Paso Electric Company, MBank El Paso, the Circle K
Corporation and Enerserv Products. Mr. Schweitzer currently serves as a Trustee
of St. John's College, Santa Fe. Mr. Schweitzer received his M.B.A. in Finance
and his B.A. in Economics from the University of Missouri.
TERRY N. WORRELL (age 54) is a member of PACIFIC RETAIL's Board of Trustees.
Mr. Worrell is an investor in commercial properties and invests in various
other business ventures. From 1974 to 1989, Mr. Worrell was President and CEO
of Sound Warehouse of Dallas, Inc. In 1984 Sound Warehouse conducted its
initial public offering. Mr. Worrell remained with Sound Warehouse until 1989
when it was purchased by Blockbuster Music. From 1971 to 1974, Mr. Worrell was
an investment broker. From 1968 to 1971, he was employed by Ford Motor Company.
Mr. Worrell received his B.B.A. from Midwestern University and his M.B.A. from
North Texas University.
Information concerning SC-USREALTY's two new nominees to the REGENCY Board is
set forth below.
JEFFREY A. COZAD (age 34) is a member of PACIFIC RETAIL's Board of Trustees.
Mr. Cozad has been a Director of Security Capital U.S. Realty since June 1996
and of Security Capital Holdings since April 1997. Mr. Cozad has been the
Managing Director of Security Capital U.S. Realty and Security Capital Holdings
since June 1996, where he is responsible for the day-to-day investment and
operating oversight. Previously, he was Senior Vice President of Security
Capital Markets Group Incorporated in its New York office from June 1995 to
June 1996, where he was head of capital markets activities and from December
1991 to June 1995 he was Vice President, where he provided capital markets
services for affiliates of Security Capital Group. Prior to joining Security
Capital Group, Mr. Cozad was with LaSalle Partners Incorporated, where he
provided corporate real estate services to major institutions. Mr. Cozad
received his M.B.A. from the University of Chicago Graduate School of Business
and his B.A. in Economics and Management from DePauw University.
JOHN T. KELLEY (age 58) is the Chairman of PACIFIC RETAIL's Board of Trustees.
Mr. Kelly is a Trustee of Archstone Communities Trust (ownership and
development of multi-family properties), an Advisory Trustee of Prologis Trust
(ownership and development of industrial parks) and a Director of Security
Capital Group Incorporated. Mr. Kelley is also Vice-Chairman of LaSalle
Advisors and a member of the Investment Committee. From 1960 through 1988, he
was associated with the Rouse Company in several different capacities including
Vice President, Manager, and Chief Executive Officer of Rouse Real Estate
Finance (RREF). During this time, he served as Chairman of the Columbia Parks
and Recreation Association, Chairman of Howard County General Hospital and a
Director of Columbia Bank. Mr. Kelley has also been President of Trustees at
the Marvelwood School in Cornwall, Connecticut, and a Trustee of Howard Health
Services. He was a member of the Board of Governors of the Mortgage Bankers
Association and was President of RREF from 1971-1988. Mr. Kelley is currently a
Director of Columbia Real Estate Investment. He received his B.S. in Finance
from New York University and has attended the American Institute of Real Estate
Appraisers as well as the School of Mortgage Banking at Northwestern
University.
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Following is information regarding the executive officers of PACIFIC RETAIL who
will become executive officers of REGENCY upon consummation of the merger.
JAMES G. BUIS (age 53) is a Managing Director of PACIFIC RETAIL. Prior to
joining PACIFIC RETAIL in October 1995, Mr. Buis was Executive Vice President
of Madison Property Corporation from 1993 to 1995. From 1989 to 1993, Mr. Buis
was Senior Vice President of Rosewood Property Company. From 1979 to 1989, Mr.
Buis was a Senior Partner with Lincoln Property Company, a privately held real
estate company where he had overall responsibility for acquisitions,
development, marketing and management of its Retail Division. From 1972 to
1979, Mr. Buis was a retail broker with Hank Dickerson & Company Realtors in
Dallas. Mr. Buis received his B.B.A. degree from the University of Texas at
Arlington.
JOHN S. DELATOUR (age 39) is a Managing Director of PACIFIC RETAIL. Prior to
joining PACIFIC RETAIL in June 1996, Mr. Delatour was Senior Vice President of
Retail Operations for Lincoln Property Company from 1983 to 1996, where he was
responsible for management, leasing and development for Texas, Oklahoma,
Georgia and Florida. Mr. Delatour began his career as an accountant with Peat,
Marwick, Mitchell & Co. He received his B.A. degree in accounting from the
University of Texas at Austin.
BRIAN M. SMITH (age 44) is a Managing Director of PACIFIC RETAIL. Prior to
joining PACIFIC RETAIL in February 1997, Mr. Smith was Senior Vice President of
Lowe Enterprises, Inc. From 1984 to 1994, Mr. Smith was Executive Vice
President and Managing Director for the Trammell Crow Company where he had
overall responsibility for acquisitions, development, marketing and management
of its Pacific Retail Division. Prior thereto, Mr. Smith was a Cryptology
Officer in the U.S. Navy. Mr. Smith received his B.S. degree from the U.S.
Naval Academy; M.A. degree from Pepperdine University; and M.B.A. degree from
Stanford University.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by PACIFIC
RETAIL for services rendered during the 1997 fiscal year to PACIFIC RETAIL's
three most highly compensated executive officers who will continue as officers
of REGENCY. The Chief Executive Officer and the two other most highly
compensated executive officers of PACIFIC RETAIL will not be continuing as
officers of REGENCY.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
UNDER-
RESTRICTED LYING
NAME AND OTHER ANNUAL SHARES OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
------------------ ------- ------- ------------ ---------- ---------- ------- ------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
James G. Buis........... 185,000 100,000 -- -- -- -- --
Managing Director
John S. Delatour........ 171,154 100,000 -- -- -- -- --
Managing Director
Brian M. Smith.......... 145,962 40,000 -- -- -- -- --
Managing Director
</TABLE>
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During 1997, options for 318,589 PACIFIC RETAIL Common Shares were granted to
22 officers and employees. The following table sets forth certain information
with respect to individual grants of options to each of the persons identified
in the foregoing table.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF SHARE
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------- ---------------
SHARES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ----------- ---------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James G. Buis........... 38,462 12.1% $13.00 11/20/07 $25,000 $50,000
John S. Delatour........ 38,462 12.1% $13.00 11/20/07 $25,000 $50,000
Brian M. Smith.......... 20,833 6.5% $12.00 02/10/07 $12,500 $25,000
7,962 2.5% $13.00 11/20/07 $ 5,000 $10,000
</TABLE>
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THE SPECIAL MEETINGS OF SHAREHOLDERS
THE REGENCY SPECIAL MEETING
Purpose of the Meeting
At the REGENCY special meeting of shareholders, the holders of REGENCY Common
Stock will be asked to consider and vote upon (1) a proposal to approve the
merger and the Merger Agreement, (2) a proposal to approve the REGENCY Articles
Amendment, and (3) a proposal to amend the REGENCY Incentive Plan as described
herein. Copies of the Merger Agreement and the REGENCY Articles Amendment are
set forth as Annex A and Annex D, respectively, to this Joint Proxy Statement
and Prospectus, and are incorporated herein by reference.
Date, Time and Place; Record Date
The REGENCY special meeting of shareholders is scheduled to be held at ,
Eastern Standard Time, on Friday, December 18, 1998, at the . The REGENCY
Board has fixed the close of business on October 13, 1998, as the record date
for the determination of holders of REGENCY Common Stock entitled to notice of
and to vote at the REGENCY special meeting. On there were shares of
REGENCY Common Stock outstanding which were held by approximately record
holders. As of , SC-USREALTY and REGENCY's directors and executive
officers beneficially owned an aggregate of shares of REGENCY Common Stock
or approximately % of the outstanding REGENCY Common Stock. SC-USREALTY has
agreed, subject to certain conditions, and each of such other persons has
indicated his or her intent, to vote his or her REGENCY Common Stock in favor
of each of the merger and the Merger Agreement, the REGENCY Articles Amendment
and the amendment to the REGENCY Incentive Plan. Assuming that SC-USREALTY, as
well as such directors and executive officers, vote in favor of such proposals,
the approval of the proposals is assured.
Voting Rights
The presence, either in person or by proxy, of the holders of a majority of the
outstanding REGENCY Common Stock is necessary to constitute a quorum at the
REGENCY special meeting. Assuming the presence of a quorum, (1) the affirmative
vote of the holders of at least a majority of the outstanding REGENCY Common
Stock is required to approve the Merger Agreement and (2) the affirmative vote
of a majority of the REGENCY Common Stock voted with respect to the matter is
required to approve the REGENCY Articles Amendment. The affirmative vote of a
majority of the REGENCY Common Stock voted with respect to the amendment to the
REGENCY Incentive Plan is required for approval (provided that more than 50% of
the votes entitled to be cast are voted on the proposal). Holders of record of
REGENCY Common Stock on the REGENCY record date are entitled to one vote per
share of REGENCY Common Stock at the REGENCY special meeting.
REGENCY has outstanding 2,500,000 shares of a class of Special Common Stock
designated as Class B Non-Voting Common Stock (the "Class B Common Stock"),
which is held by a single institutional investor. The Class B Common Stock is
not entitled to vote on any of the matters being submitted to a vote at the
REGENCY special meeting. Unless the context specifically indicates otherwise,
all references to REGENCY Common Stock do not refer to the Class B Common
Stock.
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Proxies
If a shareholder attends the REGENCY special meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the REGENCY
special meeting, the REGENCY Board is soliciting proxies so that each holder of
REGENCY Common Stock on the REGENCY record date has the opportunity to vote on
the proposals to be considered at the REGENCY special meeting. When a proxy
card is returned properly signed and dated, the REGENCY Common Stock
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not return a signed proxy card, his or her
REGENCY Common Stock will not be voted and thus will have the effect of a vote
"against" the merger and the Merger Agreement. Similarly, a broker non-vote or
an abstention will have the effect of a vote "against" the merger and the
Merger Agreement. A broker non-vote or an abstention will have no effect on the
vote with respect to the REGENCY Articles Amendment or the amendment to the
REGENCY Incentive Plan (provided that, in the case of the amendment to the
REGENCY Incentive Plan, more than 50% of the votes entitled to be cast are
voted on the proposal).
Shareholders are urged to mark the box on the proxy card to indicate how their
REGENCY Common Stock is to be voted. If a shareholder returns a signed proxy
card, but does not indicate how his or her REGENCY Common Stock is to be voted,
the REGENCY Common Stock represented by the proxy card will be voted "FOR" the
merger and the Merger Agreement, the REGENCY Articles Amendment and the
amendment to the REGENCY Incentive Plan. The proxy card also confers
discretionary authority on the individuals appointed by the REGENCY Board and
named on the proxy card to vote the REGENCY Common Stock represented thereby on
any other matter that is properly presented for action at the REGENCY special
meeting of shareholders. Such discretionary authority will not be used to vote
for adjournment of the REGENCY special meeting to permit further solicitation
of proxies if the shareholder votes against any proposal.
Any REGENCY shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (1) notifying in writing the Secretary
of REGENCY at 121 West Forsyth Street, Suite 200, Jacksonville, Florida 32202,
(2) granting a subsequent proxy or (3) appearing in person and voting at the
REGENCY special meeting. Attendance at the REGENCY special meeting will not in
and of itself constitute revocation of a proxy.
Other Matters
REGENCY is not aware of any business or matter other than those indicated above
which may be properly presented at the REGENCY special meeting of shareholders.
If, however, any other matter properly comes before the REGENCY special
meeting, the proxy holders will, in their discretion, vote thereon in
accordance with their best judgment.
THE PACIFIC RETAIL SPECIAL MEETING
Purpose of the Meeting
At the PACIFIC RETAIL special meeting, the holders of PACIFIC RETAIL Common
Shares and PACIFIC RETAIL Preferred Shares will be asked to consider and vote
upon a proposal to approve
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the merger and the Merger Agreement. A copy of the Merger Agreement is set
forth as Annex A to this Joint Proxy Statement and Prospectus, which is
incorporated herein by reference.
Date, Time and Place; Record Date
The PACIFIC RETAIL special meeting is scheduled to be held at on , ,
1998, at the offices of PACIFIC RETAIL, 8140 Walnut Hill Lane, Suite 400,
Dallas, Texas 75231. The PACIFIC RETAIL Board has fixed the close of business
on , 1998 as the record date for the determination of holders of PACIFIC
RETAIL shares entitled to notice of and to vote at the PACIFIC RETAIL special
meeting. On September 30, 1998 there were 64,060,619 PACIFIC RETAIL Common
Shares outstanding which were held by approximately 281 record holders. On
September 30, 1998, there were 3,130,276 PACIFIC RETAIL Preferred Shares
outstanding, all of which were held by Opportunity Capital Partners Limited
Partnership, an entity controlled by the State of Oregon Public Retirement
System ("OCP"). As of September 30, 1998, SC-USREALTY and PACIFIC RETAIL's
trustees and executive officers beneficially owned an aggregate of 47,483,591
PACIFIC RETAIL Common Shares or approximately 70.7% of the votes entitled to be
cast at the special meeting. SC-USREALTY has agreed, subject to certain
conditions, and each of such other persons has indicated his or her intent, to
vote his or her PACIFIC RETAIL Common Shares in favor of the merger and the
Merger Agreement. Assuming that SC-USREALTY, as well as such trustees and
officers, vote in favor of the merger, the approval of the proposals is
assured.
Voting Rights
Assuming the existence of a quorum, the affirmative vote of the holders of at
least a majority of the votes entitled to be cast by holders of PACIFIC RETAIL
Common Shares and PACIFIC RETAIL Preferred Shares entitled to cast a majority
of the votes entitled to be cast on the matter, voting together as a single
class, is required to approve the merger and the Merger Agreement. Holders of
record of PACIFIC RETAIL Common Shares on the PACIFIC RETAIL record date are
entitled to one (1) vote per PACIFIC RETAIL Common Share at the PACIFIC RETAIL
special meeting. Holders of record of PACIFIC RETAIL Preferred Shares on the
PACIFIC RETAIL record date are entitled to that number of votes equal to the
number of PACIFIC RETAIL Common Shares into which their PACIFIC RETAIL
Preferred Shares are ultimately convertible, currently one (1) PACIFIC RETAIL
Common Share for each PACIFIC RETAIL Preferred Share. The presence, either in
person or by proxy, of the holders of a majority of the votes entitled to be
cast by holders of PACIFIC RETAIL shares is necessary to constitute a quorum at
the PACIFIC RETAIL special meeting.
If a shareholder attends the PACIFIC RETAIL special meeting, he or she may vote
by ballot. However, since many shareholders may be unable to attend the PACIFIC
RETAIL special meeting, the PACIFIC RETAIL Board is soliciting proxies so that
each holder of PACIFIC RETAIL shares on the PACIFIC RETAIL record date has the
opportunity to vote on the proposals to be considered at the PACIFIC RETAIL
special meeting. When a proxy card is returned properly signed and dated, the
PACIFIC RETAIL shares represented thereby will be voted in accordance with the
instructions on the proxy card. If a shareholder does not return a signed proxy
card, his or her PACIFIC RETAIL shares will not be voted and thus will have the
effect of a vote "against" the merger and the Merger Agreement. Similarly,
broker non-votes and abstentions have the effect of a vote "against" the merger
and the Merger Agreement. Shareholders are urged to mark the box on the proxy
card to
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indicate how their PACIFIC RETAIL shares are to be voted. If a shareholder
returns a signed proxy card, but does not indicate how his or her PACIFIC
RETAIL shares are to be voted, the PACIFIC RETAIL shares represented by the
proxy card will be voted "FOR" the merger and the Merger Agreement. The proxy
card also confers discretionary authority on the individuals appointed by the
PACIFIC RETAIL Board and named on the proxy card to vote the PACIFIC RETAIL
shares represented thereby on any other matter that is properly presented for
action at the PACIFIC RETAIL special meeting. Such discretionary authority will
not be used to vote for adjournment of the PACIFIC RETAIL special meeting to
permit further solicitation of proxies if the shareholder votes against any
proposal.
Any PACIFIC RETAIL shareholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by (1) notifying in writing the
Secretary of PACIFIC RETAIL at 8140 Walnut Hill Lane, Suite 400, Dallas, Texas
75231, (2) granting a subsequent proxy or (3) appearing in person and voting at
the PACIFIC RETAIL special meeting. Attendance at the PACIFIC RETAIL special
meeting will not in and of itself constitute revocation of a proxy.
Other Matters
PACIFIC RETAIL is not aware of any business or matter other than those
indicated above which may be properly presented at the PACIFIC RETAIL special
meeting. If, however, any other matter properly comes before the PACIFIC RETAIL
special meeting, the proxy holders will, in their discretion, vote thereon in
accordance with their best judgment.
COMPARISON OF SHAREHOLDER RIGHTS
REGENCY is organized as a corporation under the laws of the State of Florida
and PACIFIC RETAIL is organized as a REIT under the laws of the State of
Maryland. As a Florida corporation, REGENCY is subject to the Florida Act,
which is a general corporation statute dealing with a wide variety of matters,
including election, tenure, duties, liabilities and indemnification of
directors and officers, dividends and other distributions, meetings and voting
rights of shareholders, and extraordinary actions, such as amendments to the
charter, mergers, sales of all or substantially all of the assets and
dissolution. As a Maryland REIT, PACIFIC RETAIL is governed by the Maryland
REIT Law and certain other provisions of the Annotated Code of Maryland. The
Maryland REIT Law covers some of the same matters covered by the Florida Act,
including liabilities of the trust, shareholders, trustees and officers,
amendment of the declaration of trust, and mergers of a REIT with other
entities. The Maryland REIT Law specifically incorporates certain provisions of
the Maryland Act, which governs corporations organized under the laws of
Maryland. There are many matters that are addressed in the Florida Act that are
not dealt with in the Maryland REIT Law, and it is the general practice of
Maryland REITs to address some of these matters through provisions in the
declaration of trust.
Certain differences between (1) the Florida Act and the Maryland REIT Law and
(2) the REGENCY Amended and Restated Articles of Incorporation (the "REGENCY
Articles") and bylaws and the PACIFIC RETAIL Second Amended and Restated
Declaration of Trust, as amended (the "PACIFIC RETAIL Declaration") and bylaws
are discussed below. However, the discussion of the comparative
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rights of shareholders of REGENCY and shareholders of PACIFIC RETAIL set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Florida Act and the Maryland REIT Law and also to
the REGENCY Articles and bylaws and to the PACIFIC RETAIL Declaration and
bylaws. Copies of the REGENCY Articles and bylaws have been filed as exhibits
to the registration statement filed by REGENCY of which this Joint Proxy
Statement and Prospectus is a part.
AUTHORIZED SHARES
Under the PACIFIC RETAIL Declaration, the number of shares of beneficial
interest of PACIFIC RETAIL authorized for issuance is 150,000,000, par value
$0.01 per share. Under the PACIFIC RETAIL Declaration, the PACIFIC RETAIL Board
may amend the PACIFIC RETAIL Declaration, without the consent of the
shareholders of PACIFIC RETAIL, to increase or decrease the aggregate number of
shares or the number of shares of any class which PACIFIC RETAIL has the
authority to issue. The PACIFIC RETAIL Declaration provides further that the
PACIFIC RETAIL Board may classify or reclassify any unissued shares from time
to time by setting or changing the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption. To date, the PACIFIC RETAIL Board has
classified 1,130,276 shares of beneficial interest as Series A Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest (all of which
are issued and outstanding) and has classified 6,130,276 shares of beneficial
interest as Series B Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest (2,000,000 of which are issued and outstanding).
The REGENCY Articles authorize the issuance of 150,000,000 shares of REGENCY
Common Stock, 10,000,000 shares of Special Common Stock and 10,000,000 shares
of Preferred Stock. The REGENCY Board may classify or reclassify any unissued
shares of Special Common Stock and Preferred Stock from time to time by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms and
conditions of redemption of stock. Any increase in the aggregate number of
shares which REGENCY has the authority to issue would require an amendment to
the REGENCY Articles which must first be approved by REGENCY's shareholders. To
date, the REGENCY Board has classified 1,600,000 shares of its preferred stock
as 8.125% Series A Cumulative Redeemable Preferred Stock and has designated
2,500,000 of its Special Common Stock as Class B Non-Voting Common Stock.
SPECIAL MEETINGS OF SHAREHOLDERS
The PACIFIC RETAIL Declaration provides that a majority of the trustees or any
officer of PACIFIC RETAIL may call a special meeting of PACIFIC RETAIL's
shareholders and a special meeting must be called at the written request of not
less than 25% of the shareholders entitled to vote. The REGENCY bylaws provide
that the REGENCY Board, the Chairman of the Board or the President may call a
special meeting of REGENCY's shareholders. The REGENCY bylaws provide that a
special meeting must be called at the written request of shareholders entitled
to cast 10% of all the votes entitled to be cast at the meeting.
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LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Maryland REIT Law provides that a Maryland REIT's charter may include a
provision eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for any money damages except (1)
to the extent that it is proved that the person actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property, or services actually received or (2) to the
extent that a court finds that the person's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The PACIFIC RETAIL Declaration provides
that its directors and officers have no personal liability to PACIFIC RETAIL or
its shareholders for money damages to the maximum extent permitted by Maryland
law.
The Florida Act generally provides that a director is not personally liable for
monetary damages to the corporation or any other person for any act or omission
as a director unless the director breached or failed to perform his duties as a
director and such breach or failure (1) constitutes a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful, (2) constitutes
a transaction from which the director derived an improper personal benefit, (3)
results in an unlawful distribution, (4) in a derivative action or an action by
a shareholder, constitutes conscious disregard for the best interests of the
corporation or willful misconduct or (5) in a proceeding other than a
derivative action or an action by a shareholder, constitutes recklessness or an
act or omission which was committed in bad faith or with malicious purpose or
in a manner exhibiting wanton and willful disregard of human rights, safety or
property.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the PACIFIC RETAIL Declaration, the PACIFIC RETAIL Board is
comprised of between three and 15 trustees (the actual number being determined
by the PACIFIC RETAIL Board), each of whom serves a term of one year, and are
elected or re-elected at the annual meeting of shareholders each year. The
PACIFIC RETAIL Declaration provides that the trustees may provide that in any
subsequent election the PACIFIC RETAIL Board will be divided into classes with
terms of not more than three years and at least one class expiring each year.
Pursuant to the REGENCY Articles, the directors of REGENCY are divided into
classes with terms of three years, with the term of one class of directors
expiring at the annual meeting of shareholders in each year.
REMOVAL OF DIRECTORS
Maryland REIT Law provides that unless the declaration of trust provides
otherwise, the shareholders of a Maryland REIT may remove any trustee, with or
without cause, by the affirmative vote of a majority of all of the votes
entitled to be cast for the election of trustees. The PACIFIC RETAIL
Declaration provides that trustees may be removed with or without cause, by the
affirmative vote of two-thirds of all of the votes entitled to be cast in the
election of trustees, or by two-thirds of the trustees then in office. The
Florida Act permits a director to be removed by the shareholders with or
without cause unless the articles of incorporation of the corporation provide
that directors may be removed only for cause (which the REGENCY Articles do
not).
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STANDARD OF CONDUCT FOR DIRECTORS AND TRUSTEES
The Maryland REIT Law contains no statutory standard of conduct for trustees of
a Maryland REIT, but Maryland courts may look to the Maryland Act, which
contains a provision concerning standards of conduct of directors of Maryland
corporations. The Maryland Act requires a director of a Maryland corporation to
perform his or her duties in good faith, with a reasonable belief that his or
her actions are in the best interest of the corporation and with the care of an
ordinarily prudent person in a like position under simular circumstances.
The Florida Act requires a director of a Florida corporation, such as REGENCY,
to perform his duties as a director in good faith, in a manner he or she
reasonably believes to be in the best interests of the corporation and with the
care that an ordinary person in a like position would use under similar
circumstances.
BOARD COMMITTEES
The Maryland REIT Law contains no provision for or limitation on the
composition of or delegation of powers to committees of the board of trustees
of a Maryland REIT. Under the PACIFIC RETAIL Declaration, the PACIFIC RETAIL
Board may designate one or more committees which shall consist of one or more
trustees. Such committees shall have and may exercise such powers as shall be
conferred or authorized by the resolution of the PACIFIC RETAIL Board.
The Florida Act permits the board of a Florida corporation, such as REGENCY, to
delegate to a committee of two or more directors any of its powers except the
power to recommend to the shareholders any action which requires shareholder
approval, fill vacancies on the REGENCY Board, authorize or approve the
issuance or sale of shares, or determine the designation and relative rights,
preferences and limitations of a voting group except within limits specifically
prescribed by the board, amend the bylaws or approve the reacquisition of
shares unless pursuant to a general formula or method specified by the board.
AMENDMENT OF PACIFIC RETAIL DECLARATION OR THE REGENCY ARTICLES
The Maryland REIT Law requires the approval of shareholders of a Maryland REIT
for any amendment to the declaration of trust, with certain exceptions. As
permitted by the Maryland REIT Law, the PACIFIC RETAIL Declaration permits the
PACIFIC RETAIL Board, without any action by the shareholders, to amend the
PACIFIC RETAIL Declaration to increase or decrease the aggregate number of
shares of beneficial interest or the number of shares of beneficial interest of
any class that PACIFIC RETAIL has authority to issue. Also, as permitted by the
Maryland REIT Law, the PACIFIC RETAIL Declaration permits the PACIFIC RETAIL
Board, by a two-thirds vote, to amend the PACIFIC RETAIL Declaration to qualify
as a real estate investment trust under the Code or under the Maryland REIT
Law. In addition, as permitted by the Maryland REIT Law, the PACIFIC RETAIL
Declaration provides that, except as specifically provided otherwise, an
amendment to PACIFIC RETAIL Declaration must be approved by a majority of the
shareholders entitled to vote thereon.
The Florida Act requires the approval of shareholders of a Florida corporation,
such as REGENCY, for any amendment to the articles of incorporation, except
that certain immaterial amendments
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specified in the Florida Act may be made by the board of directors. Unless a
specific section of the Florida Act or a Florida corporation's articles of
incorporation require a greater vote, an amendment to a Florida corporation's
articles of incorporation generally must be approved by a majority of the votes
cast on the amendment. The REGENCY Articles do not include any provision
requiring greater than a majority of votes to amend its Articles of
Incorporation.
SHAREHOLDER INSPECTION OF BOOKS AND RECORDS
Under the Maryland REIT Law, any shareholder of a real estate investment trust
may inspect and copy the bylaws of the trust, minutes of proceedings of
shareholders, and annual statements of affairs of the trust. In addition, any
shareholder of record of the trust who has owned at least five percent of the
outstanding shares of any class of beneficial interest for at least six months
is entitled to inspect and copy the trust's books of account and share ledger
and to require the trust to prepare and deliver a verified list of the name and
address of, and the number of shares owned by, each shareholder of the trust.
The PACIFIC RETAIL Declaration permits any shareholder the right, at any
reasonable time, to inspect and copy the books and records of the trust for any
purpose reasonably related to his or her interests as a shareholder upon
written demand.
Under the Florida Act, a shareholder is entitled to inspect and copy, during
regular business hours, the articles of incorporation, bylaws, certain board
and shareholder resolutions, certain written communications to shareholders, a
list of the names and business addresses of the corporation's directors and
officers, and the corporation's most recent annual report, if the shareholder
gives at least five business days' prior written demand to the corporation. In
addition, a shareholder of a Florida corporation is entitled to inspect and
copy certain other books and records of the corporation during regular business
hours if the shareholder gives at least five business days' prior written
demand to the corporation and (1) the shareholder's demand is made in good
faith and for a proper purpose, (2) the demand describes with particularity its
purpose and the records to be inspected or copied and (3) the requested records
are directly connected with such purpose. The Florida Act also provides that a
corporation may deny certain demands for inspection if such demand was made for
an improper purpose or if the demanding shareholder has, within two years
preceding such demand, sold or offered for sale any list of shareholders of the
corporation or any other corporation, has aided or abetted any person in
procuring a list of shareholders for such purpose or has improperly used any
information secured through any prior examination of the records of the
corporation or any other corporation.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Maryland REIT Law contains no limitations on the payment of dividends or
other distributions by a Maryland REIT. The PACIFIC RETAIL Declaration provides
that the trustees, subject to the provisions of any class or series of
outstanding shares, may declare and pay dividends or other distributions as the
trustees in their discretion shall determine.
The Florida Act provides that no dividend or other distribution may be paid to
shareholders of a Florida corporation unless, after payment of the
distribution, the corporation is able to pay its debts as they become due in
the usual course of business and the corporation's total assets at least equal
the sum of its liabilities and, unless the articles of incorporation permit
otherwise (which the
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REGENCY Articles do not), the amount that would be needed to satisfy the
preferential rights on dissolution of shareholders whose preferential rights on
dissolution are superior to the shareholders receiving the distribution.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland REIT, the Maryland REIT Law
requires that PACIFIC RETAIL hold, either directly or indirectly, at least 75%
of the value of its assets in real estate assets, mortgages or mortgage related
securities, government securities, cash and cash equivalent items, including
high-grade short-term securities and receivables. The Maryland REIT Law also
prohibits using or applying land for farming, agriculture, horticulture or
similar purposes. There is no such requirement for a Florida corporation, such
as REGENCY.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under the PACIFIC RETAIL bylaws, any action required or permitted to be taken
at a meeting of shareholders may be taken without a meeting if all shareholders
entitled to vote on the matter consent to the action in writing and any
shareholder entitled to notice of the meeting but not entitled to vote at it
provides a written waiver of any right to dissent.
Consistent with the Florida Act, the REGENCY bylaws allow shareholders to take
any action without a meeting, without prior notice and without a vote, upon the
written consent of shareholders having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
APPRAISAL RIGHTS
The Maryland REIT Law provides that objecting shareholders of a merging
Maryland REIT have the same rights to demand and receive payment of the "fair
value" of their shares as objecting stockholders of a Maryland corporation
under the Maryland Act. However, except as otherwise provided by the provisions
of the Maryland Act regarding certain business combinations with interested
shareholders and certain control share acquisitions, shareholders do not have
appraisal rights if, among other things, the stock is listed on a national
securities exchange on the record date for determining shareholders entitled to
vote on the merger. PACIFIC RETAIL shareholders will have appraisal rights in
the merger. See "The Merger--Dissenters' Rights."
A shareholder of a Florida corporation, with certain exceptions, has the right
to dissent from, and obtain payment of the fair value of his shares in the
event of (1) a merger or consolidation to which the corporation is a party, (2)
a sale or exchange of all or substantially all of the corporation's property
other than in the usual and ordinary course of business, (3) the approval of a
control share acquisition, (4) a statutory share exchange to which the
corporation is a party as the corporation whose shares will be acquired, (5)
certain amendments to the articles of incorporation if the shareholder is
entitled to vote on the amendment and the amendment would adversely affect the
shareholder and (6) any corporate action taken to the extent that the articles
of incorporation provide for dissenters' rights with respect to such action.
The Florida Act provides that unless a corporation's articles of incorporation
provide otherwise, which the REGENCY Articles do not, a shareholder does
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not have dissenters' rights with respect to a plan of merger, share exchange or
proposed sale or exchange of property if the corporation's shares are either
registered on a national securities exchange, designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or held of record by 2,000 or more shareholders.
INDEMNIFICATION
The Maryland REIT Law provides that a Maryland REIT may indemnify or advance
expenses to trustees, officers, employees and agents of the trust to the same
extent as is permitted for directors, officers, employees and agents of a
Maryland corporation under the Maryland Act. The PACIFIC RETAIL Declaration
provides that PACIFIC RETAIL shall indemnify trustees and officers to the
fullest extent permitted by Maryland law.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the Maryland Act for directors and officers
of Maryland corporations. The Maryland Act permits a corporation to indemnify
its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the Maryland Act, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that personal benefit was improperly received, unless in
either case a court orders indemnification and then only for expenses. In
addition, the Maryland Act permits a corporation to advance reasonable expenses
to a director or officer upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the corporation and
(b) a written undertaking by him or on his behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
The PACIFIC RETAIL Declaration provides further that PACIFIC RETAIL will
indemnify any other persons permitted to be indemnified by the Maryland Act,
including employees and agents, to the extent such indemnification is
authorized and determined to be appropriate by the PACIFIC RETAIL trustees, the
majority of shareholders entitled to vote on the matter or special legal
counsel appointed by the PACIFIC RETAIL trustees.
PACIFIC RETAIL has entered into indemnification agreements with each of its
trustees and officers. The indemnification agreements require, among other
things, that PACIFIC RETAIL indemnify its trustees and officers to the fullest
extent permitted by law.
Under the Florida Act, a corporation may generally indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement
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of any proceedings (other than derivative actions), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in derivative actions, except that
indemnification may be made only for (1) expenses (including attorneys' fees)
and certain amounts paid in settlement, and (2) in the event the person seeking
indemnification has been adjudicated liable, amounts deemed proper, fair and
reasonable by the appropriate court upon application thereto. The Florida Act
provides that to the extent that such persons have been successful in defense
of any proceeding, they must be indemnified by the corporation against expenses
actually and reasonably incurred in connection therewith. Additionally, the
Florida Act provides that, unless a corporation's articles of incorporation
provide otherwise, if a corporation does not so indemnify such persons, they
may seek, and a court may order, indemnification under certain circumstances
even if the board of directors or shareholders of the corporation have
determined that the persons are not entitled to indemnification. The REGENCY
Articles and the REGENCY bylaws generally provide that directors and officers
will be indemnified to the fullest extent permitted by law.
REGENCY currently has indemnification agreements with each of its directors and
executive officers.
BUSINESS COMBINATIONS
Generally, under the Maryland REIT Law, the approval by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter is required for
mergers of a Maryland REIT, unless the declaration of trust increases or
reduces the vote to not less than a majority. The PACIFIC RETAIL Declaration
reduces the vote required to the affirmative vote of the holders of not less
than a majority of the shares then outstanding and entitled to vote thereon.
Under the Maryland Act, as applicable to Maryland real estate investment
trusts, certain "business combinations" (including certain mergers,
consolidations, share exchanges and asset transfers and certain issuances and
reclassifications of equity securities) between a Maryland real estate
investment trust and any person who beneficially owns 10% or more of the voting
power of the trust's shares or an affiliate of the trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then outstanding voting shares
of beneficial interest of the trust (an "Interested Shareholder") or an
affiliate of the Interested Shareholder are prohibited for five years after the
most recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the board of trustees of such trust and approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of the trust and (b) two-thirds of the votes
entitled to be cast by holders of voting shares of the trust other than shares
held by the Interested Shareholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
trust's common shareholders receive a minimum price (as defined in the Maryland
Act) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Shareholder for its shares.
The PACIFIC RETAIL Declaration provides that these provisions of the Maryland
Act do not apply to any business combination between PACIFIC RETAIL and any
entity in which Security Capital Group or a wholly owned subsidiary of Security
Capital Group then owns an equity interest.
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The Florida Act contains an affiliated transactions statute which provides that
certain transactions involving a corporation and a shareholder owning 10% or
more of the corporation's outstanding voting shares (an "affiliated
shareholder") must generally be approved by the affirmative vote of the holders
of two-thirds of the voting shares other than those owned by the affiliated
shareholders. The transactions covered by the statute include, with certain
exceptions, (1) mergers and consolidations to which the corporation and the
affiliated shareholders are parties, (2) sales or other dispositions of
substantial amounts of the corporations' assets to the affiliated shareholder,
(3) issuances by the corporation of substantial amounts of its securities to
the affiliated shareholder, (4) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the affiliated shareholder, (5) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated shareholder, and (6) the receipt by the affiliated shareholder of
certain loans or other financial assistance from the corporation. These special
shareholder approval requirements do not apply in any of the following
circumstances: (1) if the transaction was approved by a majority of the
corporation's disinterested directors, (2) if the corporation did not have more
than 300 shareholders of record at any time during the preceding three years,
(3) if the affiliated shareholder has been the beneficial owner or at least 80%
of the corporation's outstanding voting shares for the past five years, (4) if
the affiliated shareholder is the beneficial owner of at least 90% of the
corporation's outstanding voting shares, exclusive of those acquired in a
transaction not approved by a majority of disinterested directors or (5) if the
consideration received by each shareholder in connection with transaction
satisfies the "fair price" provisions of the statute. This statute applies to
any Florida corporation unless the original articles of incorporation or an
amendment to the articles of incorporation or bylaws contain a provision
expressly electing not to be governed by this statue. Such an amendment to the
articles of incorporation or bylaws must be approved by the affirmative vote of
a majority of disinterested shareholders and is not effective until 18 months
after approval. The REGENCY Articles do not contain a provision electing not to
be governed by the statute and, accordingly, REGENCY is governed by the
statute.
CONTROL SHARE ACQUISITIONS
The Maryland Act, as applicable to Maryland real estate investment trusts,
provides that "control shares" of a Maryland real estate investment trust
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of beneficial interest owned by the acquiror, by
officers or by trustees who are employees of the trust. "Control Shares" are
voting shares of beneficial interest which, if aggregated with all other such
shares of beneficial interest previously acquired by the acquiror, or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority or
more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust
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to call a special meeting of shareholders to be held within 50 days of demand
to consider the voting rights of the shares. If no request for a meeting is
made, the trust may itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply (a) to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
The PACIFIC RETAIL Declaration provides that these provisions of the Maryland
Act shall not apply to any shares owned by Security Capital Group or any person
in which Security Capital Group or any wholly-owned subsidiary of Security
Capital Group then directly holds an equity interest.
The Florida Act also contains a control share acquisition statute which
provides that a person who acquires shares in an issuing public corporation in
excess of certain specified thresholds will generally not have any voting
rights with respect to such shares unless the voting rights are approved by a
majority of the shares entitled to vote, excluding interested shares. This
statute does not apply to acquisitions of shares of a corporation if, prior to
the pertinent acquisition of shares, the acquisition is approved by the board
of directors or the corporation's articles of incorporation or bylaws provide
that the corporation shall not be governed by the statute. This statute also
permits a corporation to adopt a provision in its articles of incorporation or
bylaws providing for the redemption by the corporation of such acquired shares
in certain circumstances. Unless otherwise provided in the corporation's
articles of incorporation or bylaws prior to the pertinent acquisition of
shares, in the event that such shares are accorded full voting rights by the
shareholders of the corporation and the acquiring shareholder acquires a
majority of the voting power of the corporation, all shareholders who did not
vote in favor of according voting rights to such acquired shares are entitled
to dissenters' rights to receive the fair value of their shares as provided in
the Florida Act. The REGENCY Articles and the REGENCY bylaws do not contain any
provisions with respect to this statute.
OTHER CONSTITUENCIES
The Florida Act provides that directors of a Florida corporation, in
discharging their duties to the corporation, may, in addition to considering
the effects of any corporate action on the shareholders and the corporation,
consider the social, economic, legal or other effects of the corporate action
on employees, suppliers and customers of the corporation or its subsidiaries
operate. The Maryland REIT Law does not have a comparable statutory provision.
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DESCRIPTION OF REGENCY SECURITIES
REGENCY COMMON STOCK
The authorized REGENCY Common Stock consists of 150,000,000 shares, par value
$0.01 per share. The holders of REGENCY's Common Stock are entitled to one vote
per share on all matters voted on by shareholders, including elections of
directors, and, except as otherwise required by law or provided in any
resolution adopted by the REGENCY Board with respect to any series of preferred
stock establishing the powers, designations, preferences and relative,
participating, option or other special rights of such series, the holders of
REGENCY Common Stock (together with the holders of any class or series of
Special Common Stock of REGENCY that does not have limited voting rights)
exclusively possess all voting power. The REGENCY Articles do not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of preferred stock, the holders of REGENCY
Common Stock are entitled to such dividends as may be declared from time to
time by the REGENCY Board from funds legally available therefor, and upon
liquidation are entitled to receive pro rata all assets of REGENCY available
for distribution to such holders.
All shares of REGENCY stock offered hereby, upon issuance in exchange for
PACIFIC RETAIL shares, will be fully paid and nonassessable and the holders
thereof will not have preemptive rights.
REGENCY's Common Stock is listed on the New York Stock Exchange under the
symbol "REG." The Transfer Agent and Registrar for the REGENCY Common Stock is
First Union National Bank.
SPECIAL COMMON STOCK
General
Under the REGENCY Articles, the REGENCY Board is authorized, without further
shareholder action, to provide for the issuance of up to 10,000,000 shares of
Special Common Stock from time to time in one or more classes or series. The
Special Common Stock will bear dividends in such amounts as the REGENCY Board
may determine with respect to each class or series. All such dividends must be
pari passu with dividends on the REGENCY Common Stock. Upon the liquidation,
dissolution or winding up of REGENCY, the Special Common Stock will participate
pari passu with the REGENCY Common Stock in liquidating distributions. Shares
of Special Common Stock will have one vote per share and vote together with the
holders of REGENCY Common Stock (and not separately as a class except where
otherwise required by law), unless the Board of Directors creates classes or
series with more limited voting rights or without voting rights. The Board will
have the right to determine whether shares of Special Common Stock may be
converted into shares of any other class or series or be redeemed, and, if so,
the redemption price and the other terms and conditions of redemption, and to
determine such other rights as may be allowed by law. Holders of Special Common
Stock will not be entitled, as a matter of right, to preemptive rights. As all
Special Common Stock is expected to be closely held, it is anticipated that
most classes or series would be convertible into REGENCY Common Stock for
liquidity purposes.
Class B Common Stock
REGENCY has outstanding 2,500,000 shares of a non-voting class of Special
Common Stock in the form of Class B Common Stock, which was issued in a private
placement to an institutional investor.
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The Class B Common Stock receives dividends pari passu with the REGENCY Common
Stock at a rate equivalent to 1.03 times the dividend that would be paid on the
REGENCY Common Stock issuable upon conversion of the Class B Common Stock and
participates pari passu with the REGENCY Common Stock in any liquidation of
REGENCY. The Class B Common Stock may be converted into REGENCY Common Stock at
the election of the holder under certain circumstances. A total of 2,975,468
shares of REGENCY Common Stock are issuable upon conversion of the Class B
Common Stock.
REGENCY PREFERRED STOCK
Under the REGENCY Articles, the REGENCY Board is authorized, without further
shareholder action, to provide for the issuance of up to 10,000,000 shares of
Preferred Stock. The Preferred Stock authorized by the Articles may be issued,
from time to time, in one or more series, in such amounts and with such
designations, powers, preferences or other rights, qualifications, limitations
and restrictions as may be fixed by the REGENCY Board. REGENCY has no shares of
Preferred Stock outstanding as of the date hereof but has authorized the
issuance of 1,600,000 shares of 8.125% Series A Cumulative Redeemable Preferred
Stock (the "8.125% Preferred Stock"). The 8.125% Preferred Stock is issuable
beginning in June 2003 (and earlier under certain circumstances) in exchange
for preferred units of limited partnership interest held by an institutional
investor in Regency Centers, L.P. The 8.125% Preferred Stock will bear
cumulative 8.125% preferential dividends and will have a liquidation preference
of $50 per share. The 8.125% Preferred Stock will be pari passu as to dividends
and liquidation with the REGENCY Preferred Stock to be issued in the merger.
The REGENCY Board has authorized, subject to consummation of the merger, the
issuance of two new series of REGENCY Preferred Stock in exchange for the two
existing series of PACIFIC RETAIL Preferred Shares. The two new series
designated by the REGENCY Board, which will be issued in the merger to a single
institutional investor, are: (1) Series 1 Cumulative Convertible Redeemable
Preferred Stock, consisting of 542,532 shares (the "Series 1 Preferred Stock"),
and (2) the Series 2 Cumulative Convertible Redeemable Preferred Stock,
consisting of 1,502,532 to be authorized shares (the "Series 2 Preferred
Stock"). The principal terms of each series (together, the "New REGENCY
Preferred"), are summarized below. The Articles of Amendment designating the
New REGENCY Preferred are included as Annex F. The following summary is
qualified in its entirety by reference to that Annex.
Series 1 Preferred Stock
Dividends and Liquidation Preference. The REGENCY Series 1 Preferred Stock will
have rights, preferences, and limitations identical to the rights, preferences
and limitations of the PACIFIC RETAIL Series A Preferred Shares, except that
the shares will be capital stock of a Florida corporation. See "Comparison of
Shareholder Rights." The Series 1 Preferred Stock will be entitled to receive
cumulative quarterly cash dividends in an amount equal to the greater of (1)
$0.2083 per share, (2) 65% of REGENCY's highest funds from operations (as
defined) per share per year beginning December 31, 1996, divided by 4, and (3)
$0.02708 less than the per share dividend on the REGENCY Common Stock. The
Series 1 Preferred Stock will be entitled to a liquidation preference
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of $20.8333 per share. No cash dividends or liquidating distributions may be
paid to any holders of REGENCY shares junior as to dividends or liquidation, as
the case may be, unless the holders of Series 1 Preferred Stock have received
the full amounts to which they are entitled.
Conversion. Subject to customary provisions for adjustment to prevent dilution,
each share of Series 1 Preferred Stock will be convertible, at any time and
from time to time, on a one-for-one basis into shares of Series 2 Preferred
Stock. However, if the holder elects to convert prior to October 20, 2000, the
holder must pay to REGENCY an amount in cash arrived at by multiplying (i)
0.0052 times (ii) the quotient obtained by dividing (A) the actual number of
days that will elapse beginning on and including the date on which the
conversion is deemed to have been effected and ending on and including October
20, 2000 by (B) 365 times (iii) the difference between (X) the aggregate
liquidation preference (excluding accrued and unpaid dividends) of the shares
of REGENCY Series 1 Preferred Stock being converted and (Y) the aggregate
amount of accrued and unpaid dividends on the shares of REGENCY Series 1
Preferred Stock being converted (provided that the amount determined pursuant
to this clause (iii) shall not be less than zero). In addition, immediately
after the dividend payment record date next following the conversion date with
respect to the REGENCY Series 2 Preferred Stock into which the REGENCY Series 1
Preferred Stock is convertible (or the REGENCY Common Stock into which such
REGENCY Series 2 Preferred Stock convertible, whichever is applicable), the
holder of the REGENCY Series 1 Preferred Stock shall pay to REGENCY an amount,
if any, necessary to ensure that the holder has received an aggregate amount of
$0.0278 per share being converted less than the dividend payable on REGENCY
Common Stock for the dividend period during which the conversion was effected.
Optional Redemption by REGENCY. Beginning October 20, 2010, REGENCY will have
the right, at its option, to redeem the Series 1 Preferred Stock, in whole at
any time, or in part from time to time, at a redemption price of $20.8333, plus
any accrued but unpaid dividends.
Voting. The Series 1 Preferred Stock will vote together with the Series 2
Preferred Stock and the REGENCY Common Stock, and generally not separately as a
class. However, if 12 consecutive quarterly dividends on the Series 1 Preferred
Stock (or any series or class of shares on a parity with the Series 1 Preferred
Stock) are in arrears, the number of directors constituting the REGENCY Board
of Directors shall be increased by one, and the holders of the Series 1
Preferred Stock, together with the holders of shares of every other such series
of parity shares, voting as a single class (the "Voting Preferred Shares"),
shall be entitled to elect the additional director until all such outstanding
dividend arrearages have been paid. In addition to any other voting rights to
which the Series 1 Preferred Stock may be entitled as a matter of law under the
Florida Act, the affirmative vote of at least 66 2/3% of the votes entitled to
be cast by the holders of the Series 1 Preferred Shares and the holders of the
other Voting Preferred Shares, acting as a single class, shall be required (1)
for a share exchange affecting the Series 1 Preferred Stock, or a consolidation
or merger to which REGENCY is a party unless the Series 1 Preferred Stock
remains outstanding without a material and adverse change or the Series 1
Preferred Stock is converted into or exchanged for convertible preferred stock
of the surviving entity having identical terms to the Series 1 Preferred Stock
(except for changes that do not materially and adversely affect the holders of
the Series 1 Preferred Stock), (2) the authorization, or creation of, or
increase in the amount of any security ranking prior to the Series 1 Preferred
Stock, or (3) any amendment or repeal of any provisions of the REGENCY Articles
that materially and adversely affect the voting powers, rights or preferences
of such holders.
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If any such amendment, alteration or repeal would materially and adversely
affect any voting powers, rights or preferences of the Series 1 Preferred Stock
that are not enjoyed by some or all of the other series of Voting Preferred
Shares, the affirmative vote of at least 66 2/3% of the votes entitled to be
cast by the holders of all series similarly affected shall be required.
Series 2 Preferred Stock
The REGENCY Series 2 Preferred Stock will have rights, preferences, and
limitations identical to the rights, preferences and limitations of the PACIFIC
RETAIL Series B Preferred Shares, except that shares will be capital stock of a
Florida corporation. See "Comparison of Shareholder Rights." The terms of the
Series 2 Preferred Stock will be the same as the terms of Series 1 Preferred
Stock except as set forth below. The cumulative quarterly cash dividend payable
on the Series 2 Preferred Stock will be equal to the greater of (1) $0.2083 per
share, (2) 65% of REGENCY's highest amount of funds from operations (as
defined) per share per year beginning December 31, 1996, divided by 4 and (3)
the per share dividend on the REGENCY Common Stock. The Series 2 Preferred
Stock will be convertible at any time in whole or in part on a one-for-one
basis into REGENCY Common Stock. There will be no penalty for conversion of the
Series 2 Preferred Stock.
RESTRICTIONS ON OWNERSHIP
Restrictions Relating to REIT Qualification
For REGENCY to qualify as a REIT under the Code, not more than 50% in value of
its outstanding capital stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year, its stock must be beneficially owned (without
reference to attribution rules) by 100 or more persons during at least 335 days
in a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and certain other requirements must be satisfied.
To assure that five or fewer individuals do not Beneficially Own (as defined in
the REGENCY Articles to include ownership through the application of certain
stock attribution provisions of the Code) more than 50% in value of REGENCY's
outstanding capital stock, the REGENCY Articles provide that, subject to
certain exceptions, no holder may own, or be deemed to own (by virtue of
certain of the attribution provisions of the Code), more than 7% by value of
REGENCY's outstanding capital stock. Certain existing holders specified in the
REGENCY Articles and those to whom Beneficial Ownership of their capital stock
is attributed, whose Beneficial Ownership of capital stock exceeds the
Ownership Limit, may continue to own such percentage by value of outstanding
capital stock and may increase their respective Existing Holder Limits (as
defined in the REGENCY Articles) through benefit plans of REGENCY, dividend
reinvestment plans, additional asset sales or capital contributions to REGENCY
or acquisitions from other Existing Holders (as defined in the REGENCY
Articles). However, they may not acquire additional shares from such sources
such that the five largest Beneficial Owners of capital stock hold more than
49.5% by value of the outstanding capital stock, and in any event may not
increase their respective Existing Holder Limits through acquisition of capital
stock from any other sources. In addition, because rent from a related tenant
(any tenant 10% of which is owned, directly or constructively, by the REIT) is
not qualifying rent for purposes of the gross income tests under the Code, the
REGENCY Articles
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provide that no constructive owner of stock in REGENCY who owns, directly or
indirectly, a 10% interest in any tenant of REGENCY may own, or constructively
own by virtue of certain of the attribution provisions of the Code (which
differ from the attribution provisions applied to determine Beneficial
Ownership), more than 9.8% by value of the outstanding capital stock of
REGENCY.
The REGENCY Board of Directors may waive the Ownership Limit, the Existing
Holder Limit and the Related Tenant Limit (each as defined in the REGENCY
Articles) if evidence satisfactory to the REGENCY Board is presented that such
ownership will not then or in the future jeopardize REGENCY's status as a REIT.
As a condition of such waiver, the REGENCY Board may require opinions of
counsel satisfactory to it and/or an undertaking from the applicant with
respect to preserving the REIT status of REGENCY.
Limitations on Foreign Ownership
Section 5.14 of the REGENCY Articles contains provisions prohibiting certain
issuances or transfers of REGENCY capital stock directly or indirectly to Non-
U.S. Persons. These provisions will be made more stringent by the proposed
REGENCY Articles Amendment. See "Approval of the REGENCY Articles Amendment."
As amended by the REGENCY Articles Amendment, Section 5.14 is not expected to
prevent any PACIFIC RETAIL shareholder from acquiring REGENCY stock in the
merger. However, as amended by the REGENCY Articles Amendment, Section 5.14
will prohibit any Non-U.S. Person from acquiring any REGENCY capital stock
after the merger until SC-USREALTY and its affiliates, together with all other
Non-U.S. Persons, own directly or indirectly less than 50% of the fair market
value of REGENCY's outstanding capital stock. Thereafter and until SC-USREALTY
and its affiliates have ceased to own 10% of REGENCY's Common Stock on a fully
diluted basis for a continuous period of 180 days, certain, but not necessarily
all, direct or indirect acquisitions of REGENCY capital stock by Non-U.S.
Persons will be prohibited.
See "Approval of the REGENCY Articles Amendment" for a description of the
restrictions on transfers of REGENCY capital stock to Non-U.S. Persons both
before and after the REGENCY Articles Amendment. Any shares issued or
transferred in violation of these restrictions will be void, or if such remedy
is invalid, will be subject to the provisions for "excess shares" described
below.
Remedies
If (1) shares of capital stock in excess of the applicable Ownership Limit,
Existing Holder Limit, or Related Tenant Limit, or (2) shares are issued or
transferred to any person or retained by any person after becoming a Related
Tenant Owner which (a) would cause the REIT to be beneficially owned by fewer
than 100 persons (without application of the attribution rules), (b) would
result in REGENCY being "closely held" within the meaning of Section 856(h) of
the Code, or (c) would violate the restrictions on foreign ownership described
above (see "--Limitations on Foreign Ownership" above), such issuance,
transfer, or retention shall be null and void to the intended holder, and the
intended holder will have no rights to the stock. Capital stock transferred,
proposed to be transferred, or retained in excess of the Ownership Limit, the
Existing Holder Limit, or the Related Tenant Limit or which would otherwise
jeopardize REGENCY's REIT status or violate the restrictions on foreign
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ownership ("excess shares") will be deemed held in trust on behalf of and for
the benefit of REGENCY.
The REGENCY Board of Directors will, within six months after receiving notice
of such actual or proposed transfer, either (1) direct the holder of such
shares to sell all shares held in trust for REGENCY for cash in such manner as
the REGENCY Board directs, or (2) redeem such shares for a price equal to the
lesser of (a) the price paid by the holder from whom shares are being redeemed
and (b) the average of the last reported sales prices on the New York Stock
Exchange of the relevant class of capital stock on the 10 trading days
immediately preceding the date fixed for redemption by the REGENCY Board of
Directors, or if such class of capital stock is not then traded on the New York
Stock Exchange, the average of the last reported sales prices of such class of
capital stock (or, if sales prices are not reported, the average of the closing
bid and asked prices) on the 10 trading days immediately preceding the relevant
date as reported on any exchange or quotation system over which such class of
capital stock may be traded, or if such class of capital stock is not then
traded over any exchange or quotation system, then the price determined in good
faith by the REGENCY Board as the fair market value of such class of capital
stock on the relevant date.
If the REGENCY Board of Directors directs the intended holder to sell the
shares, the holder shall receive such proceeds as the trustee for REGENCY and
pay REGENCY out of the proceeds of such sale all expenses incurred by REGENCY
in connection with such sale, plus any remaining amount of such proceeds that
exceeds the amount originally paid by the intended holder for such shares. The
intended holder shall not be entitled to distributions, voting rights or any
other benefits with respect to such excess shares except the amounts described
above. Any dividend or distribution paid to an intended holder on excess shares
pursuant to the REGENCY Articles must be repaid to REGENCY upon demand.
Miscellaneous
All certificates representing capital stock will bear a legend referring to the
restrictions described above. The transfer restrictions described above shall
not preclude the settlement of any transaction entered through the facilities
of the New York Stock Exchange.
The REGENCY Articles provide that every shareholder of record of more than 5%
of the outstanding capital stock and every Actual Owner (as defined in the
REGENCY Articles) of more than 5% of the outstanding capital stock held by a
nominee must give written notice to REGENCY of information specified in the
REGENCY Articles within 30 days after December 31 of each year. In addition,
each Beneficial Owner of capital stock and each person who holds capital stock
for a Beneficial Owner must provide to REGENCY such information as REGENCY may
request, in good faith, in order to determine REGENCY's status as a REIT.
The ownership limitations described above may have the effect of precluding
acquisition of control of REGENCY by a third party even if the Board of
Directors determines that maintenance of REIT status is no longer in the best
interests of REGENCY. The Board of Directors has the right under the REGENCY
Articles (subject to contractual restrictions, including covenants made with
SC-USREALTY) to revoke the REIT status of REGENCY if the Board of Directors
determines that it is no longer in the best interest of REGENCY to attempt to
qualify, or to continue to qualify, as a
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REIT. In the event of such revocation, the ownership limitations in the REGENCY
Articles will remain in effect. Any change in the ownership limitations would
require an amendment to the REGENCY Articles.
STAGGERED BOARD OF DIRECTORS
The REGENCY Articles and bylaws divide the REGENCY Board into three classes of
directors, with each class constituting approximately one-third of the total
number of directors and with classes serving staggered three-year terms. The
classification of directors will have the effect of making it more difficult
for shareholders to change the composition of the REGENCY Board. REGENCY
believes, however, that the longer time required to elect a majority of a
classified Board of Directors helps to insure continuity and stability of
REGENCY's management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of REGENCY's stock or attempting to
obtain control of REGENCY, even though such an attempt might be beneficial to
REGENCY and its shareholders. Accordingly, shareholders could be deprived of
certain opportunities to sell their shares of capital stock at a higher market
price than might otherwise be the case.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
REGENCY's bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or to bring other business
before any meeting of shareholders of REGENCY. Any shareholder nomination or
proposal for action at an upcoming shareholder meeting must be delivered to
REGENCY no later than the deadline for submitting shareholder proposals
pursuant to Rule 14a-8 under the Exchange Act. The presiding officer at any
shareholder meeting is not required to recognize any proposal or nomination
which did not comply with such deadline.
The purpose of requiring shareholders to give REGENCY advance notice of
nominations and other business is to afford the REGENCY Board a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the REGENCY Board, to inform shareholders and make
recommendations about such qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of shareholders. Although
REGENCY's bylaws do not give the REGENCY Board any power to disapprove timely
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring the third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal.
CERTAIN PROVISIONS OF FLORIDA LAW
REGENCY is subject to several anti-takeover provisions under Florida law that
apply to a public corporation organized under Florida law unless the
corporation has elected to opt out of such provisions in its articles of
incorporation or (depending on the provision in question) its bylaws. REGENCY
has not elected to opt out of these provisions. See "Comparison of Shareholder
Rights--Business Combinations" and "--Control Share Acquisitions."
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PRINCIPAL SHAREHOLDERS OF PACIFIC RETAIL
The following table sets forth, as of September 30, 1998, the beneficial
ownership for (1) each person known to PACIFIC RETAIL to have been the
beneficial owner of more than 5% of each class of PACIFIC RETAIL equity
securities on that date, (2) each trustee of PACIFIC RETAIL, (3) each PACIFIC
RETAIL named executive officer and (4) all trustees and executive officers of
PACIFIC RETAIL as a group. Unless otherwise indicated in the footnotes, all of
the PACIFIC RETAIL Shares are owned directly and the indicated person or entity
has sole voting and dispositive power. The number and percent of PACIFIC RETAIL
Common Shares beneficially owned by a person assume that all options held by
that person which are exercisable within 60 days have been exercised, but that
no options held by other persons have been exercised. Unless otherwise noted,
the mailing address for each person identified below is c/o Pacific Retail
Trust, 8140 Walnut Hill Lane, Suite 400, Dallas, Texas 75231.
<TABLE>
<CAPTION>
NUMBER PERCENT PERCENT OF
BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED OF CLASS TOTAL VOTE
---------------- ------------------------- ------------------ -------- ----------
<S> <C> <C> <C> <C>
Security Capital Holding
S.A. 69 route d'Esch
Luxembourg............. Common Shares 46,985,459 73.3% 69.9%
Opportunity Capital
Partners Limited
Partnership
c/o LaSalle Advisors
Limited
100 E. Pratt St. 20th
Floor
Baltimore, MD 21202.... Series A Preferred Shares 1,130,276(1) 100% 1.7%
Opportunity Capital
Partners Limited
Partnership
c/o LaSalle Advisors
Limited
100 E. Pratt St. 20th
Floor
Baltimore, MD 21202.... Series B Preferred Shares 2,000,000(1) 100% 2.9%
Dennis H. Alberts....... Common Shares 181,670(2) 0.3% 0.3%
Jeffrey A. Cozad........ Common Shares 7,348(3) * *
John T. Kelley III...... Common Shares 6,957(4) * *
Mary Lou Rogers......... Common Shares 6,201(5) * *
John C. Schweitzer...... Common Shares 5,638(6) * *
Walter F. Terry III..... Common Shares 8,160(7) * *
Terry N. Worrell........ Common Shares 772,433(8) 1.2% 1.1%
Joshua M. Brown......... Common Shares 75,702 0.1% 0.1%
James G. Buis........... Common Shares 91,781(9) * *
John S. Delatour........ Common Shares 55,606 * *
Jane E. Mody............ Common Shares 113,238(10) 0.2% 0.2%
Brian M. Smith.......... Common Shares 50,000 * *
All trustees and execu-
tive officers as a
group (12 persons)..... Common Shares 1,374,414 2.1% 2.0%
</TABLE>
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- --------
* Less than 1/10 of 1%
(1) All of these shares are beneficially owned by the State of Oregon Public
Retirement System.
(2) Includes options to acquire 50,000 PACIFIC RETAIL Common Shares which are
currently exercisable and options to acquire an additional 6,670 PACIFIC
RETAIL Common Shares which are exercisable within 60 days.
(3) Includes 1,660 PACIFIC RETAIL Common Shares earned, but not issued under
the PACIFIC RETAIL Deferred Fee Plan for Trustees, and options to acquire
5,668 PACIFIC RETAIL Common Shares which are currently exercisable.
(4) Includes 1,660 PACIFIC RETAIL Common Shares earned, but not issued under
the PACIFIC RETAIL Deferred Fee Plan for Trustees, and options to acquire
5,297 PACIFIC RETAIL Common Shares which are currently exercisable.
(5) Includes 1,368 PACIFIC RETAIL Common Shares earned, but not issued under
the PACIFIC RETAIL Deferred Fee Plan for Trustees, and 4,000 options to
acquire PACIFIC RETAIL Common Shares which are currently exercisable.
(6) Includes 1,368 shares earned, but not issued under the PACIFIC RETAIL
Deferred Fee Plan for Trustees, and 4,000 options to acquire PACIFIC
RETAIL Common Shares which are currently exercisable.
(7) Includes 1,660 shares earned, but not issued under the PACIFIC RETAIL
Deferred Fee Plan for Trustees, and 6,000 options to acquire PACIFIC
RETAIL Common Shares which are currently exercisable.
(8) Includes 1,660 shares earned, but not issued under the PACIFIC RETAIL
Deferred Fee Plan for Trustees, and options to acquire 5,297 PACIFIC
RETAIL Common Shares which are currently exercisable. Also includes
765,000 limited partnership units in Retail Property Partners Limited
Partnership which are exchangeable on a one-for-one basis for PACIFIC
RETAIL Common Shares which are owned of record by two companies controlled
by Mr. Worrell.
(9) Includes options to acquire 25,000 PACIFIC RETAIL Common Shares which are
currently exercisable and options to acquire an additional 3,335 PACIFIC
RETAIL Common Shares which are exercisable within 60 days.
(10) Includes options to acquire 25,000 PACIFIC RETAIL Common Shares which are
currently exercisable and options to acquire an additional 3,335 PACIFIC
RETAIL Common Shares which are exercisable within 60 days.
114
<PAGE>
CERTAIN PACIFIC RETAIL RELATIONSHIPS AND TRANSACTIONS
INVESTOR AGREEMENT
Pursuant to an Investor Agreement dated October 20, 1995 (the "Investor
Agreement") between PACIFIC RETAIL and SC-USREALTY, as long as SC-USREALTY owns
25% or more of PACIFIC RETAIL's outstanding shares on a fully diluted basis,
SC-USREALTY is entitled to nominate such number of trustees as corresponds to
its percentage ownership of the outstanding shares on a fully diluted basis. If
PACIFIC RETAIL's shares are registered under Section 12 of the Exchange Act, so
long as SC-USREALTY owns 10% or more of the outstanding shares on a fully
diluted basis, SC-USREALTY will be entitled to nominate such number of trustees
as corresponds to its percentage ownership of the outstanding shares.
SC-USREALTY may participate pro rata (based on its percentage ownership of the
outstanding shares on a fully diluted basis) in any offering by PACIFIC RETAIL
of shares or convertible securities until such time as PACIFIC RETAIL's Common
Shares are registered under the Securities Exchange Act of 1934 and SC-USREALTY
ownership falls below 10% of the outstanding PACIFIC RETAIL Common Shares.
As long as SC-USREALTY owns 25% or more of PACIFIC RETAIL's outstanding Common
Shares on a fully diluted basis, SC-USREALTY has the right to approve the
following matters proposed by PACIFIC RETAIL: (i) the annual operating budget
and operating plan, (ii) any acquisition or disposition of assets in a single
transaction or series of related transactions where the purchase price paid or
received by PACIFIC RETAIL exceeds $15,000,000, (iii) any incurrence,
renegotiation or repayment of indebtedness of which the amount involved exceeds
$15,000,000, (iv) any property management contract relating to a property owned
by PACIFIC RETAIL whose value represents 5% or more of PACIFIC RETAIL's
properties based on cost, (v) any service contracts involving aggregate
payments in one year equal to or in excess of 5% of PACIFIC RETAIL's annual
expenses in the preceding fiscal year, (vi) any sales of shares or other
securities convertible into shares where such shares or securities would equal
or exceed 5% (in number or value) of the outstanding PACIFIC RETAIL Common
Shares and (vii) appointments and dismissals of executive officers. As long as
SC-USREALTY owns 10% or more of PACIFIC RETAIL Common Shares on a fully diluted
basis, PACIFIC RETAIL must provide to SC-USREALTY quarterly and annual reports
containing financial information prepared in accordance with generally accepted
accounting principles.
SC-USREALTY is required to use PACIFIC RETAIL as its primary vehicle for
investment in neighborhood infill retail properties located in the States of
Arizona, Colorado, Oklahoma, New Mexico and Texas.
The Investor Agreement will be terminated upon consummation of the merger.
REGISTRATION RIGHTS AGREEMENTS
PACIFIC RETAIL has agreed to file a registration statement upon SC-USREALTY's
request with respect to the PACIFIC RETAIL Common Shares owned by SC-USREALTY.
Realty if the shares are not registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 on or prior to October 20, 1999. Beginning one
year after the shares are registered under the Securities Exchange
115
<PAGE>
Act of 1934, PACIFIC RETAIL has agreed to file a shelf registration statement
covering SC-USREALTY's shares upon SC-USREALTY's request. SC-USREALTY is
responsible for paying all expenses of a registration discussed in this
paragraph, except for PACIFIC RETAIL's legal and accounting fees. SC-USREALTY
is restricted from selling through the facilities of any stock exchange PACIFIC
RETAIL Common Shares in excess of 2% of the outstanding PACIFIC RETAIL Common
Shares during any calendar quarter. Additionally, SC-USREALTY may not sell any
such shares if, as result of such sale (1) in the case of a sale prior to the
time the shares are registered under the Securities Exchange Act of 1934, such
person's ownership of shares would equal or exceed 9.8% of the PACIFIC RETAIL
Common Shares on a fully diluted basis and (2) in the case of sale after such
time, such person's ownership would equal or exceed 5% of the PACIFIC RETAIL
Common Shares then outstanding.
In connection with the PACIFIC RETAIL's August 1996, April 1997 and December
1997 private offerings PACIFIC RETAIL entered into Transfer and Registration
Rights Agreements with each person purchasing securities in such offerings,
including SC-USREALTY. Pursuant to such agreements, investors holding at least
10% of the PACIFIC RETAIL Common Shares purchased in such offering, have the
right to elect to request that PACIFIC RETAIL file a registration statement
with respect to any or all of the PACIFIC RETAIL Common Shares owned by such
investor if the shares are not registered under the Securities Exchange Act of
1934 on or prior to third anniversary of the date of the relevant agreement.
The investors requesting registration are responsible for paying all expenses
of a registration pursuant to such agreement.
SHAREHOLDERS AGREEMENT
In connection with the acquisition of PACIFIC RETAIL's initial portfolio of
properties in October 1995, PACIFIC RETAIL issued 1,130,276 Series A Preferred
Shares to OCP and entered into a Shareholders' Agreement (the "Shareholders'
Agreement") with OCP and SC-USREALTY. PACIFIC RETAIL and OCP also entered into
a registration rights agreement with OCP, which agreement contained
substantially the same terms as the registration rights agreement entered into
between PACIFIC RETAIL and SC-USREALTY. OCP subsequently purchased 2,000,000
Series B Preferred Shares in August 1996 pursuant to the Shareholders
Agreement. Under the terms of the Shareholders' Agreement, OCP has the right,
for so long as it owns at least 10% of the outstanding shares (on a fully
diluted basis), to nominate one trustee of PACIFIC RETAIL, and SC-USREALTY has
agreed to vote its shares for such nominee. If and when, after the PACIFIC
RETAIL Common Shares are registered under the Securities Exchange Act of 1934,
OCP owns less than 10% of the outstanding PACIFIC RETAIL Common Shares (on a
fully diluted basis), OCP's rights under the Shareholders Agreement will
terminate. The Shareholders Agreement will terminate in accordance with its
terms upon consummation of the merger.
PRIVATE OFFERINGS
In PACIFIC RETAIL's $200 million August 1996 private offering, SC-USREALTY
committed to purchase $100 million of PACIFIC RETAIL Common Shares at $11 per
share. In connection with the same private offering, Security Capital Markets
Group Incorporated, an affiliate of SC-USREALTY, received a fee of $2 million.
116
<PAGE>
In PACIFIC RETAIL's $150 million April 1997 private offering, SC-USREALTY
committed to purchase approximately $114.6 million of PACIFIC RETAIL Common
Shares at $12 per share. In connection with the same private offering, Security
Capital Markets Group Incorporated received a fee of $1.5 million.
In PACIFIC RETAIL's $150 million December 1997 private offering, SC-USREALTY
committed to purchase approximately $108.2 million of PACIFIC RETAIL Common
Shares at $13 per share. In connection with the same offering, Security Capital
Markets Group Incorporated received a fee of $1.5 million.
All such subscriptions were made on the same terms and at the same times as
made available to other investors.
PARTNERSHIP AFFILIATION
In connection with the formation of Retail Property Partners Limited
Partnership, certain previously unaffiliated parties controlled by Terry N.
Worrell, currently a trustee of PACIFIC RETAIL, agreed to contribute certain
properties to Retail Property Partners Limited Partnership in exchange for the
issuance by such partnership of approximately 765,000 partnership units.
The limited partners controlled by Mr. Worrell have the right to consent to the
sale or other disposition of the property contributed by them to the
partnership (other than through a tax-free exchange or a pledge to secure a
financing).
The partnership agreement governing the partnership grants to limited partners
the right to exchange each partnership unit for a PACIFIC RETAIL Common Share
beginning on the first anniversary of the date the partner was admitted to the
partnership. Limited partners are also entitled to fully cumulative quarterly
distributions equal to the quarterly distributions paid in respect of a share
and any unpaid distributions will bear interest at prime plus 1%. Until the
10th anniversary of the date of the partnership agreement, upon any exchange of
partnership units for shares, limited partners are entitled to receive all
cumulated and unpaid distributions (together with interest thereon). After the
10th anniversary of the date the limited partner was admitted to the
partnership, limited partners are not entitled to receive cumulated and unpaid
distributions (or interest thereon) upon any exchange of partnership units for
shares unless the fair market value of a share for which a unit is exchangeable
is less than 110% of the amount paid by a partner for a unit. All cash flow
available after payment of distributions to limited partners will be
distributed to PACIFIC RETAIL, as general partner. In the event that the
partnership sells any of its properties, PACIFIC RETAIL, as general partner is
entitled to a distribution of all net proceeds from such sale after payment to
the limited partners of any cumulated and unpaid distributions if the sale is
made prior to the tenth anniversary of the partnership agreement.
SHARE PURCHASE PROGRAM
Pursuant to the PACIFIC RETAIL Employee Share Purchase Program portion of the
1996 Share Incentive Plan, certain executive officers and employees have
purchased PACIFIC RETAIL Common Shares. PACIFIC RETAIL loaned such officers and
employees approximately 95% of the purchase price for such securities. The
loans are secured by the underlying securities and bear interest at 6.0%
117
<PAGE>
annually. At June 30, 1998, Messrs. Buis, Delatour and Smith were indebted to
PACIFIC RETAIL in the amount of $591,066, $591,066 and $592,166, respectively,
under such loans.
LEGAL MATTERS
The validity of the REGENCY Common Stock and REGENCY Preferred Stock offered to
holders of PACIFIC RETAIL Common Shares and PACIFIC RETAIL Preferred Shares,
respectively, by this Joint Proxy Statement and Prospectus has been passed upon
for REGENCY by Foley & Lardner, Jacksonville, Florida. An opinion as to
continued REIT qualification following the merger has been rendered for REGENCY
and PACIFIC RETAIL by Foley & Lardner. An opinion as to the tax aspects of the
merger has been rendered for REGENCY and PACIFIC RETAIL by Mayer, Brown &
Platt. Mayer, Brown & Platt has in the past represented and currently
represents PACIFIC RETAIL and SC-USREALTY and their respective affiliates.
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The consolidated financial statements and financial statement schedule of
REGENCY as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997, have been incorporated by reference
herein and in the Registration Statement on Form S-4 filed by REGENCY in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The financial statements of PACIFIC RETAIL as of December 31, 1997 and 1996,
and for each of the years in the two-year period ended December 31, 1997, and
the period from PACIFIC RETAIL's inception through December 31, 1995 included
in this Joint Proxy Statement and Prospectus and the financial statement
schedule included in the Registration Statement on Form S-4 filed by REGENCY
have been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
EXPENSES OF SOLICITATION
All fees and expenses (including financial advisory and other professional
services fees) incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except that those fees and expenses incurred in connection with
filing, printing and distributing this Joint Proxy Statement and Prospectus
will be shared ratably by REGENCY and PACIFIC RETAIL in proportion to the
number of copies of this Joint Proxy Statement and Prospectus mailed by each.
The costs of solicitation of proxies from REGENCY shareholders will be borne by
REGENCY. The costs of solicitation of proxies from PACIFIC RETAIL shareholders
will be borne by PACIFIC RETAIL. REGENCY and PACIFIC RETAIL will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-
pocket expenses incurred in sending this Joint Proxy Statement and Prospectus
and other proxy materials to, and obtaining instructions relating to such
materials from, REGENCY and PACIFIC RETAIL shareholders. REGENCY shareholder
proxies may be solicited by directors or officers of REGENCY
118
<PAGE>
in person, by letter or by telephone or telegram. PACIFIC RETAIL shareholder
proxies may be solicited by trustees or officers of PACIFIC RETAIL in person,
by letter or by telephone or telegram.
REGENCY has also retained Security Capital Markets Group to solicit shareholder
proxies on behalf of REGENCY. The solicitation fee of $250,000 will be paid by
REGENCY. Security Capital Markets Group is an affiliate of SC-USREALTY.
REGENCY will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of its stock in accordance
with regulations of the Securities and Exchange Commission and the New York
Stock Exchange.
SHAREHOLDER PROPOSALS
Any proposal by a REGENCY shareholder intended to be presented at the 1999
annual meeting of shareholders must be received by REGENCY at its principal
executive offices located at 121 West Forsyth Street, Suite 200, Jacksonville,
Florida 32202, not later than December 16, 1998 for inclusion in REGENCY's
proxy statement and form of proxy relating to REGENCY's 1999 annual meeting of
shareholders. Notice to REGENCY of a shareholder proposal submitted otherwise
than pursuant to Rule 14a-8 will be considered untimely if received by REGENCY
after March 1, 1999, and the persons named in proxies solicited by the REGENCY
Board for its 1999 Annual Meeting of shareholders may exercise discretionary
voting power with respect to any such proposal as to which REGENCY does not
receive timely notice.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REGENCY REALTY CORPORATION: Unaudited Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998..... FS-3
Notes to Pro Forma Condensed Consolidated Balance Sheet................ FS-4
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1998............................................ FS-5
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1997............................................... FS-6
Notes to Pro Forma Consolidated Statements of Operations............... FS-7
PACIFIC RETAIL TRUST: Unaudited Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998..... FS-9
Notes to Pro Forma Condensed Consolidated Balance Sheet................ FS-10
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1998............................................ FS-11
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1997............................................... FS-12
Notes to Pro Forma Condensed Statements of Operations.................. FS-13
PACIFIC RETAIL TRUST: Consolidated Financial Statements
Report of Independent Accountants...................................... FS-16
Consolidated Balance Sheets as of December 31, 1997 and 1996........... FS-17
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996......................................................... FS-18
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997 and 1996................................ FS-19
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996......................................................... FS-20
Notes to Consolidated Financial Statements............................. FS-21
Report of Independent Accountants...................................... FS-34
Balance Sheet as of December 31, 1995.................................. FS-35
Statement of Operations for the period from April 27, 1995 (Inception)
to December 31, 1995.................................................. FS-36
Statement of Shareholders' Equity for the period from April 27, 1995
(Inception) to December 31, 1995...................................... FS-37
Statement of Cash Flows for the period from April 27, 1995 (Inception)
to December 31, 1995.................................................. FS-38
Notes to Financial Statements ......................................... FS-39
Consolidated Balance Sheet as of June 30, 1998 (Unaudited)............. FS-47
Consolidated Statements of Operations for the six months ended June 30,
1998 and 1997 (Unaudited)............................................. FS-48
Consolidated Statements of Changes in Shareholders' Equity for the six
months ended June 30, 1998 (Unaudited)................................ FS-49
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (Unaudited)............................................. FS-50
Notes to Consolidated Financial Statements............................. FS-51
</TABLE>
FS-1
<PAGE>
REGENCY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
("Combined Company") is based upon the June 30, 1998 pro forma consolidated
balance sheet of Regency Realty Corporation ("REGENCY") as contained in
REGENCY's Form 8-K dated October 7, 1998, and the pro forma condensed
consolidated balance sheet of Pacific Retail Trust ("PACIFIC RETAIL")
contained elsewhere herein, as if the merger of PACIFIC RETAIL and REGENCY
occurred on June 30, 1998.
The following unaudited pro forma condensed consolidated statements of
operations of the Combined Company are based upon the pro forma consolidated
statements of operations for the six-month period ended June 30, 1998 and the
year ended December 31, 1997 of REGENCY as contained in Form 8-K dated October
7, 1998, and PACIFIC RETAIL contained elsewhere herein. These statements are
presented as if the merger of PACIFIC RETAIL and REGENCY occurred as of
January 1, 1997. These unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the REGENCY Form 10-K for the
year ended December 31, 1997 and Form 10-Q filed for the period ended June 30,
1998, and also in conjunction with the PACIFIC RETAIL financial statements
included elsewhere herein.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations of the Combined Company would have been at June 30, 1998 or
December 31, 1997 assuming that the merger of PACIFIC RETAIL and REGENCY had
been completed as set forth above, nor does it purport to represent the
financial position or results of operations of the Combined Company in future
periods.
FS-2
<PAGE>
REGENCY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
REGENCY PACIFIC RETAIL COMPANY
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
Real estate investments,
at cost................ $1,086,595 1,058,812 16,621 (a)(b) 2,162,028
Construction in pro-
gress.................. 31,133 15,247 -- 46,380
Less: accumulated depre-
ciation................ (46,160) (30,122) 30,122 (a) (46,160)
---------- --------- ------- ---------
1,071,568 1,043,937 46,743 2,162,248
Investments in real es-
tate partnerships...... 22,401 -- -- 22,401
---------- --------- ------- ---------
Net real estate in-
vestments............ 1,093,969 1,043,937 46,743 2,184,649
---------- --------- ------- ---------
Cash and cash equiva-
lents.................. 12,733 8,466 (7,500)(a) 13,699
Tenant receivables, net
of allowance for
uncollectible accounts. 10,684 12,016 -- 22,700
Deferred costs, less ac-
cumulated amortization. 4,497 4,499 (4,499)(b) 4,497
Other assets............ 8,708 10,698 (10,698)(b) 8,708
---------- --------- ------- ---------
Total Assets.......... $1,130,591 1,079,616 24,046 2,234,253
========== ========= ======= =========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Mortgage loans payable.. $ 317,796 90,236 -- 408,032
Acquisition and develop-
ment line of credit.... 27,224 238,297 -- 265,521
Notes payable........... 100,000 -- -- 100,000
---------- --------- ------- ---------
Total debt............ 445,020 328,533 -- 773,553
Accounts payable and
other liabilities...... 17,064 10,141 -- 27,205
Tenant's security and
escrow deposits........ 2,763 3,124 -- 5,887
---------- --------- ------- ---------
Total liabilities..... 464,847 341,798 -- 806,645
---------- --------- ------- ---------
Exchangeable preferred
units.................. 78,800 -- -- 78,800
Exchangeable operating
partnership units...... 26,912 9,470 382 (a) 36,764
Limited partners' inter-
est in consolidated
partnerships........... 7,520 -- -- 7,520
---------- --------- ------- ---------
113,232 9,470 382 123,084
Preferred stock and paid
in capital............. -- 31,303 3,740 (a) 35,043
Common stock and addi-
tional paid in capital. 567,014 706,068 10,901 (a) 1,283,983
Distributions in excess
of net income.......... (14,502) (9,023) 9,023 (a) (14,502)
---------- --------- ------- ---------
Total stockholders'
equity............... 552,512 728,348 23,664 1,304,524
---------- --------- ------- ---------
Total liabilities and
stockholders' equi-
ty.................. $1,130,591 1,079,616 24,046 2,234,253
========== ========= ======= =========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
FS-3
<PAGE>
REGENCY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
(a) Merger of Pacific Retail Trust and Regency Realty Corporation
Pacific Retail Trust will be merged with and into Regency Realty
Corporation, with Regency being the surviving entity. Each issued and
outstanding Pacific Common Share will be exchanged for 0.48 shares of Regency
Common Stock, and each issued and outstanding Pacific Preferred Share will be
converted into 0.48 shares of a corresponding series of Regency Preferred
Stock.
Regency will also become the sole general partner of Retail Property
Partners Limited Partnership ("PRT Partnership"). Thereafter, PRT Partnership
may merge into Regency Centers, L.P. (the "Regency Partnership") at such time
as Regency determines appropriate.
The total cost to acquire Pacific Retail is $1,111,162 based on the value of
Regency shares and partnership units expected to be issued including the
assumption of $341,798 outstanding debt and other liabilities of Pacific
Retail, and estimated closing costs of $7,500. The price per share and
partnership unit used to determine the purchase price is $23.325 based upon
the five day average of the closing stock price of Regency's common stock as
listed on the New York Stock Exchange immediately before, during and after the
date the terms of the merger were agreed to and announced to the public.
The following summarizes the total costs paid by Regency related to the
merger:
<TABLE>
<CAPTION>
PACIFIC RETAIL REGENCY SHARES REGENCY
SHARES AND UNITS EXCHANGE AND UNITS VALUE ACQUISITION
OUTSTANDING RATIO ISSUED PER SHARE COSTS
---------------- -------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Common stock............ 64,038 0.48 30,738 $23.325 716,969
Preferred stock......... 3,130 0.48 1,502 $23.325 35,043
Partnership units....... 880 0.48 422 $23.325 9,852
------ ------ ----------
68,048 32,662 761,864
====== ======
Pacific Retail
outstanding debt
assumed................ 328,533
Other Pacific Retail
liabilities assumed.... 13,265
Estimated closing costs. 7,500
----------
Total acquisition costs. $1,111,162
==========
</TABLE>
The following summarizes the adjustment necessary to record the merger of
Pacific Retail and Regency under purchase accounting.
<TABLE>
<S> <C> <C>
Net book value of Pacific Retail common equity............. $697,045
Value of Regency common stock issued....................... 716,969 $19,924
-------- -------
Net book value of Pacific Retail Preferred stock........... 31,303
Value of Regency preferred stock issued.................... 35,043 3,740
-------- -------
Net book value of PRT Partnership minority interest........ 9,470
Value of Regency Partnership units issued.................. 9,852 382
-------- -------
Subtotal of adjustments to minority interest and
stockholder's equity...................................... 24,046
Estimated cash payments for closing costs.................. 7,500
-------
Adjustment to record real estate investments under purchase
accounting................................................ 31,546
Adjustments to deferred and other assets under purchase
accounting................................................ 15,197
-------
Net increase to real estate investments.................... $46,743
=======
</TABLE>
(b) To adjust deferred and other assets under purchase accounting.
FS-4
<PAGE>
REGENCY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
----------------------------------------------
REGENCY PACIFIC RETAIL COMBINED
PRO FORMA PRO FORMA ADJUSTMENTS COMPANY
--------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Minimum rent................... $53,951 50,032 -- 103,983
Percentage rent................ 1,808 766 -- 2,574
Recoveries from tenants........ 11,830 13,005 -- 24,835
Management, leasing and broker-
age fees...................... 5,406 -- -- 5,406
Equity in income of investments
in real estate partnerships... 146 -- -- 146
------- ------ ---- -------
73,141 63,803 -- 136,944
------- ------ ---- -------
Operating expenses:
Depreciation and amortization.. 12,651 11,926 584 (c) 25,161
Operating and maintenance...... 8,966 7,712 -- 16,678
General and administrative..... 7,673 4,589 -- 12,262
Real estate taxes.............. 6,679 7,155 -- 13,834
------- ------ ---- -------
35,969 31,382 584 67,935
------- ------ ---- -------
Interest expense (income):
Interest expense............... 14,467 10,330 -- 24,797
Interest income................ (966) (388) -- (1,354)
------- ------ ---- -------
13,501 9,942 -- 23,443
------- ------ ---- -------
Income before minority interest
and gain on sale of real es-
tate investments.............. 23,671 22,479 (584) 45,566
Gain on sale of real estate in-
vestments....................... 1,410 -- -- 1,410
Minority interest................ (893) (131) 6 (1,018)
------- ------ ---- -------
Net income..................... 24,188 22,348 (578) 45,958
Preferred distributions.......... (3,250) (1,176) -- (4,426)
------- ------ ---- -------
Net income for shareholders.... $20,938 21,172 (578) 41,532
======= ====== ==== =======
Net income per share (note (d)):
Basic.......................... $ 0.73 $ 0.70
======= =======
Diluted........................ $ 0.72 $ 0.69
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated statements of
operations.
FS-5
<PAGE>
REGENCY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------
REGENCY PACIFIC RETAIL COMBINED
PRO FORMA PRO FORMA ADJUSTMENTS COMPANY
--------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Minimum rent.................. $103,175 93,199 -- 196,374
Percentage rent............... 2,813 1,233 -- 4,046
Recoveries from tenants....... 23,394 25,563 -- 48,957
Management, leasing and bro-
kerage fees.................. 9,057 -- -- 9,057
Equity in income of invest-
ments in real estate partner-
ships........................ 33 -- -- 33
-------- ------- ------ -------
138,472 119,995 -- 258,467
-------- ------- ------ -------
Operating expenses:
Depreciation & amortization... 23,754 21,069 1,169 (c) 45,992
Operating and maintenance..... 17,047 15,679 -- 32,726
General and administrative.... 12,723 7,790 -- 20,513
Real estate taxes............. 12,734 13,100 -- 25,834
-------- ------- ------ -------
66,258 57,638 1,169 125,065
-------- ------- ------ -------
Interest expense (income):
Interest expense.............. 36,876 34,379 -- 71,255
Interest income............... (1,033) (481) -- (1,514)
-------- ------- ------ -------
35,843 33,898 -- 69,741
-------- ------- ------ -------
Income before minority inter-
est and gain on sale of real
estate investments........... 36,371 28,459 (1,169) 63,661
Gain on sale of real estate in-
vestments...................... -- -- -- --
Minority interest............... (1,719) (76) 12 (1,783)
-------- ------- ------ -------
Net income.................... 34,652 28,383 (1,157) 61,878
Preferred distributions......... (6,500) (2,195) -- (8,695)
-------- ------- ------ -------
Net income for shareholders... $ 28,152 26,188 (1,157) 53,183
======== ======= ====== =======
Net income per share (note (d)):
Basic......................... $ 1.32 $ 1.31
======== =======
Diluted....................... $ 1.23 $ 1.25
======== =======
</TABLE>
See accompanying notes to pro forma condensed consolidated statements of
operations.
FS-6
<PAGE>
REGENCY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(c) To increase depreciation expense as a result of the adjustment to real
estate investments under purchase accounting:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Adjustment to record real estate investments at fair
market value........................................ $46,743 46,743
Allocation to land................................... (9,349) (9,349)
------- ------
Allocation to building............................... 37,394 37,394
Estimated useful life in years....................... 32 32
------- ------
Depreciation expense................................. $ 584 1,169
======= ======
</TABLE>
(d) The following summarizes the calculation of basic and diluted earnings
per share for the six-month period ended June 30, 1998 and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding
Regency Pro Forma prior to merger................ 24,837 17,424
Regency Common Shares issued to Pacific Retail... 30,738 19,283
------- -------
Adjusted weighted average common shares
outstanding....................................... 55,575 36,707
======= =======
Net income for common stockholders per Combined Pro
Forma............................................. $41,532 $53,183
Less: dividends paid on Class B common stock....... (2,689) (5,140)
------- -------
Net income for Basic EPS........................... $38,843 $48,043
======= =======
Basic EPS............................................ $ 0.70 $ 1.31
======= =======
Diluted Earnings Per Share (EPS) Calculation:
Weighted average common shares outstanding for
Basic EPS......................................... 55,575 36,707
Regency exchangeable operating partnership units... 1,135 1,243
Pacific Retail exchangeable operating partnership
units............................................. 422 422
Incremental shares to be issued under common stock
options using the Treasury method
Regency.......................................... 27 80
Pacific Retail................................... 116 46
Contingent shares for the acquisition of real
estate............................................ 428 955
------- -------
Total Diluted Shares............................. 57,703 39,453
======= =======
Net income for Basic EPS........................... $38,843 $48,043
Add: minority interest of operating partnership
units............................................. 824 1,290
------- -------
Net income for Diluted EPS......................... $39,667 $49,333
======= =======
Diluted EPS.......................................... $ 0.69 $ 1.25
======= =======
</TABLE>
FS-7
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet is
based upon the historical consolidated balance sheet of Pacific Retail as of
June 30, 1998 as if Pacific Retail had completed the acquisition of four
properties as of June 30, 1998.
The following unaudited pro forma consolidated statements of operations of
Pacific Retail Trust ("PACIFIC RETAIL") are based upon the historical
consolidated statements of operations for the six-month period ended June 30,
1998 and the year ended December 31, 1997. These statements are presented as
if PACIFIC RETAIL had acquired all of its properties as of January 1, 1997.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations of PACIFIC RETAIL would have been at June 30, 1998 or December 31,
1997 assuming the transactions had been completed as set forth above, nor does
it purport to represent the financial position or results of operations of
PACIFIC RETAIL in future periods.
FS-8
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
ASSETS
------
<S> <C> <C> <C>
Real estate investments, at cost........... $ 994,115 64,697(a) 1,058,812
Construction in progress................... 15,247 -- 15,247
Less: accumulated depreciation............. 30,122 -- 30,122
---------- ------ ----------
Real estate rental property, net......... 979,240 64,697 1,043,937
---------- ------ ----------
Cash and cash equivalents.................. 8,466 -- 8,466
Tenant receivables, net of allowance for
uncollectible accounts.................... 12,016 -- 12,016
Deferred costs, less accumulated
amortization.............................. 4,499 -- 4,499
Other assets............................... 10,698 -- 10,698
---------- ------ ----------
Total Assets............................. $1,014,919 64,697 $1,079,616
========== ====== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Mortgage loans payable..................... $ 90,236 -- 90,236
Acquisition and development line of credit. 173,600 64,697(a) 238,297
---------- ------ ----------
Total debt............................... 263,836 64,697 328,533
Accounts payable and other liabilities..... 10,141 -- 10,141
Tenant's security and escrow deposits...... 3,124 -- 3,124
---------- ------ ----------
Total liabilities........................ 277,101 64,697 341,798
---------- ------ ----------
Minority interest.......................... 9,470 -- 9,470
---------- ------ ----------
Preferred stock............................ 31,303 -- 31,303
Common stock and additional paid in
capital................................... 706,068 -- 706,068
Distributions in excess of net income...... (9,023) -- (9,023)
---------- ------ ----------
Total stockholders' equity............... 728,348 -- 728,348
---------- ------ ----------
Total liabilities and stockholders'
equity.................................. $1,014,919 64,697 1,079,616
========== ====== ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
FS-9
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
(a) Acquisitions of Shopping Centers:
Subsequent to June 30, 1998, PACIFIC RETAIL acquired four properties for an
aggregate purchase price of $64.7 million which is reflected in the proforma
balance sheet. The shopping centers were acquired using funds drawn on its
acquisition and development line of credit (the Line). The following table
represents the properties acquired:
<TABLE>
<CAPTION>
ACQUISITION PURCHASE
DATE PRICE
----------- --------
<S> <C> <C>
Sherwood Market Center................................. 7/15/98 $18,961
Murrayhill Marketplace................................. 7/15/98 17,069
Cherry Park Market..................................... 7/15/98 18,883
Sunnside 205........................................... 7/15/98 9,784
-------
$64,697
=======
</TABLE>
FS-10
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1998
-------------------------------
ACQUISITION PRO
HISTORICAL PROPERTIES FORMA
---------- ----------- -------
<S> <C> <C> <C>
Revenues:
Minimum rent................................. $45,374 4,658 (b) 50,032
Percentage rent.............................. 766 -- 766
Recoveries from tenants...................... 12,064 941 (b) 13,005
Management, leasing and brokerage fees....... -- -- --
------- ----- -------
58,204 5,599 63,803
------- ----- -------
Operating expenses:
Depreciation and amortization................ 10,910 1,016 (c) 11,926
Operating and maintenance.................... 6,823 889 (b) 7,712
General and administrative................... 4,427 162 (b) 4,589
Real estate taxes............................ 6,726 429 (b) 7,155
------- ----- -------
28,886 2,496 31,382
------- ----- -------
Interest expense (income):
Interest expense............................. 6,538 3,792 (d) 10,330
Interest income.............................. (388) -- (388)
------- ----- -------
6,150 3,792 9,942
------- ----- -------
Income before minority interest.............. 23,168 (689) 22,479
Minority interest.............................. (286) 155 (131)
------- ----- -------
Net income................................... 22,882 (534) 22,348
Preferred distributions........................ (1,176) -- (1,176)
------- ----- -------
Net income for common shareholders........... $21,706 (534) 21,172
======= ===== =======
Net income per share (note (e)):
Basic........................................ $ 0.34 $ 0.33
======= =======
Diluted...................................... $ 0.34 $ 0.33
======= =======
</TABLE>
See accompanying notes to pro forma condensed dated statements of operations.
FS-11
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
ACQUISITION
HISTORICAL PROPERTIES PRO FORMA
------------ ------------- -------------
<S> <C> <C> <C>
Revenues:
Minimum rent.................. $ 60,869 32,330(b) 93,199
Percentage rent............... 1,233 -- 1,233
Recoveries from tenants....... 17,291 8,272(b) 25,563
Management, leasing and
brokerage fees............... -- -- --
------------ ----------- -------------
79,393 40,602 119,995
------------ ----------- -------------
Operating expenses:
Depreciation & amortization... 14,715 6,354(c) 21,069
Operating and maintenance..... 9,708 5,971(b) 15,679
General and administrative.... 6,542 1,248(b) 7,790
Real estate taxes............. 10,031 3,069(b) 13,100
------------ ----------- -------------
40,996 16,642 57,638
------------ ----------- -------------
Interest expense (income):
Interest expense.............. 11,667 22,712(d) 34,379
Interest income............... (481) -- (481)
------------ ----------- -------------
11,186 22,712 33,898
------------ ----------- -------------
Income before minority
interest..................... 27,211 1,248 28,459
Minority interest............... (490) 414 (76)
------------ ----------- -------------
Net income.................... 26,721 1,662 28,383
Preferred distributions......... (2,195) -- (2,195)
------------ ----------- -------------
Net income for common
shareholders................. $ 24,526 1,662 26,188
============ =========== =============
Net income per share (note (e)):
Basic......................... $ 0.61 $ 0.65
============ =============
Diluted....................... $ 0.61 $ 0.64
============ =============
</TABLE>
See accompanying notes to pro forma condensed consolidated statements of
operations.
FS-12
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(b) Reflects revenues and certain expenses for the Acquisition Properties
for the period from January 1, 1998 to the earlier of the respective
acquisition date of the property or June 30, 1998, and for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
--------------------------------------------------------------------------
PROPERTY ACQUISITION MINIMUM RECOVERIES OPERATING AND REAL GENERAL AND
NAME DATE RENT FROM TENANTS MAINTENANCE ESTATE TAXES ADMINISTRATIVE
-------- ----------- ------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Twin Peaks.............. 1/15/98 $ 231 $ 32 $ 25 $ 8 $ 8
Woodman--Van Nuys....... 1/30/98 78 10 22 12 5
Pine Lake Village....... 3/6/98 327 62 47 24 12
Sammamish Highlands..... 3/6/98 348 100 71 31 14
Inglewood Plaza......... 3/6/98 71 19 15 6 2
Oakbrook Plaza.......... 3/30/98 180 44 10 14 9
Diablo Plaza............ 5/14/98 434 191 69 76 29
Thomas Lake............. 5/21/98 400 65 26 37 7
Sherwood Market Center.. 7/15/98 700 157 97 83 20
Murrayhill Marketplace.. 7/15/98 878 93 280 51 22
Cherry Park Market...... 7/15/98 518 77 97 30 15
Sunnside 205............ 7/15/98 493 91 130 57 19
------ ---- ---- ---- ----
$4,658 $941 $889 $429 $162
====== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
PROPERTY ACQUISITION MINIMUM RECOVERIES OPERATING AND REAL GENERAL AND
NAME DATE RENT FROM TENANTS MAINTENANCE ESTATE TAXES ADMINISTRATIVE
-------- ----------- ------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Market @ Preston Forest. 3/11/97 $ 259 $ 90 $ 49 $ 51 $ 21
North Hills............. 4/7/97 619 133 89 127 29
West Park Plaza......... 4/9/97 219 72 49 32 9
Woodside Central........ 4/9/97 344 99 64 24 13
South Point Plaza....... 4/9/97 410 174 125 55 18
Walker Center........... 4/9/97 293 104 61 29 12
Heritage Plaza.......... 7/1/97 1,196 259 296 123 44
Friars Mission.......... 7/31/97 1,531 314 140 71 74
Morningside Plaza....... 8/1/97 930 146 44 48 4
Pima Crossing........... 9/22/97 2,031 578 312 252 53
El Camino............... 9/29/97 1,259 401 129 143 49
San Leandro............. 10/1/97 726 240 138 46 43
Rona Plaza.............. 10/10/97 479 81 76 24 25
Sequoia Station......... 11/19/97 3,244 743 442 292 4
Loehmann's Plaza........ 12/18/97 1,206 325 348 137 75
Arden Square............ 12/23/97 1,219 276 189 80 43
Newland Center.......... 12/30/97 2,092 435 424 167 90
Plaza Hermosa........... 1/1/98 1,113 658 291 107 72
Twin Peaks.............. 1/15/98 2,678 386 313 100 95
Woodman--Van Nuys....... 1/30/98 1,092 362 772 166 73
Pine Lake Village....... 3/6/98 1,259 321 154 165 59
Sammamish Highlands..... 3/6/98 1,380 491 193 190 70
Inglewood Plaza......... 3/6/98 324 94 43 38 13
Oakbrook Plaza.......... 3/30/98 636 136 112 27 33
Diablo Plaza............ 5/14/98 1,266 449 263 223 124
Thomas Lake............. 5/21/98 359 31 41 4 6
Sherwood Market Center.. 7/15/98 1,283 297 150 158 34
Murrayhill Marketplace.. 7/15/98 1,769 360 444 101 25
Cherry Park Market...... 7/15/98 131 20 17 1 3
Sunnside 205............ 7/15/98 983 197 203 88 35
------- ------ ------ ------ ------
$32,330 $8,272 $5,971 $3,069 $1,248
======= ====== ====== ====== ======
</TABLE>
FS-13
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(c) Depreciation expense is based on an estimated life of up to forty years
for the buildings and ten years for the improvements of the properties
acquired. In addition, the six month period ended June 30, 1998 and year ended
December 31, 1997 calculations reflect depreciation expense on the properties
from January 1, 1997 to the earlier of the respective acquisition date of the
property or June 30, 1998.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JUNE 30, 1998
-----------------------------------------
PROPERTY BUILDING AND YEAR BUILDING DEPRECIATION
NAME IMPROVEMENTS BUILT/RENOVATED ADJUSTMENT
- -------- ------------ --------------- ------------
<S> <C> <C> <C>
Twin Peaks............................ $24,726 1988 $ 16
Woodman -- Van Nuys................... 5,920 1992 14
Pine Lake Village..................... 10,326 1989 47
Sammamish Highlands................... 7,391 1992 36
Inglewood Plaza....................... 1,830 1985 8
Oakbrook Plaza........................ 5,926 1982 42
Diablo Plaza.......................... 7,362 1982 71
Thomas Lake........................... 9,940 1998 103
Sherwood Market Center................ 18,960 1995 187
Murrayhill Marketplace................ 17,069 1988 183
Cherry Park Market.................... 18,883 1997 201
Sunnside 205.......................... 9,784 1988 108
------
Acquisition Properties pro forma
depreciation adjustment............. $1,016
======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
PROPERTY BUILDING AND YEAR BUILDING DEPRECIATION
NAME IMPROVEMENTS BUILT/RENOVATED ADJUSTMENT
- -------- ------------ --------------- ------------
<S> <C> <C> <C>
Market @ Preston Forest............... $10,645 1990 $ 50
North Hills........................... 18,540 1995 135
West Park Plaza....................... 4,619 1996 36
Woodside Central...................... 8,624 1993 62
South Point Plaza..................... 9,753 1997 68
Walker Center......................... 6,244 1987 52
Heritage Plaza........................ 25,672 1981 305
Friars Mission........................ 25,781 1989 405
Morningside Plaza..................... 12,832 1996 246
Pima Crossing......................... 24,341 1996 511
El Camino............................. 9,675 1995 259
San Leandro........................... 7,724 1982 164
Rona Plaza............................ 4,243 1989 86
Sequoia Station....................... 17,709 1996 403
Loehmann's Plaza...................... 8,225 1983 228
Arden Square.......................... 7,290 1994 226
Newland Center........................ 11,704 1985 341
Plaza Hermosa......................... 9,255 1984 247
Twin Peaks............................ 24,726 1988 393
Woodman -- Van Nuys................... 5,920 1992 166
Pine Lake Village..................... 10,326 1989 285
Sammamish Highlands................... 7,391 1992 213
Inglewood Plaza....................... 1,830 1985 50
Oakbrook Plaza........................ 5,926 1982 170
Diablo Plaza.......................... 7,362 1982 212
Thomas Lake........................... 9,940 1998 51
Sherwood Market Center................ 18,961 1995 374
Murrayhill Marketplace................ 17,069 1988 366
Cherry Park Market.................... 18,883 1997 34
Sunnside 205.......................... 9,784 1988 216
------
Acquisition Properties pro forma
depreciation adjustment............. $6,354
======
</TABLE>
FS-14
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(d) To reflect interest expense on the Line required to complete the
acquisition of the Acquisition Properties at the average interest rate
afforded PACIFIC RETAIL (7.07%). The six month period ended June 30, 1998 and
year ended December 31, 1997 calculation reflects interest expense on the
properties from January 1, 1997 to the respective acquisition date of the
property.
<TABLE>
<S> <C>
Pro forma interest adjustment for the six-month period ended June
30, 1998.......................................................... $ 3,792
=======
Pro forma interest adjustment for the year ended December 31, 1997. $22,712
=======
</TABLE>
(e) The following summarizes the calculation of basic and diluted earnings
per share for the six-month period ended June 30, 1998 and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Basic Earnings Per Share (EPS) Calculation:
Weighted average common shares
outstanding.............................. 64,037 40,173
======= =======
Proforma net income for Basic EPS......... $21,172 $26,188
======= =======
Basic EPS................................... $ 0.33 $ 0.65
======= =======
Proforma net income for Basic EPS......... 21,172 26,188
Add: minority interest for operating
partnership units........................ 131 76
------- -------
Proforma net income for Diluted EPS....... 21,303 26,264
======= =======
Diluted Earnings Per Share (EPS)
Calculation:
Weighted average common shares outstanding
for Basic EPS............................ 64,037 40,173
Operating partnership units............... 880 880
Incremental shares to be issued under
common stock options using the Treasury
method................................... 241 95
------- -------
Total Diluted Shares.................... 65,158 41,148
======= =======
Diluted EPS................................. $ 0.33 $ 0.64
======= =======
</TABLE>
FS-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Pacific Retail Trust
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Pacific Retail Trust and its consolidated investments at December 31, 1997
and 1996, and results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
January 23, 1998
FS-16
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
Real estate investments................................. $851,458,212 $380,070,040
Less: accumulated depreciation.......................... (19,680,694) (5,358,128)
------------ ------------
831,777,518 374,711,912
------------ ------------
Cash and cash equivalents............................... 4,496,896 1,954,131
Accounts receivable, net................................ 7,814,026 2,979,600
Escrow deposits......................................... 2,582,250 16,669,667
Other assets, net....................................... 10,573,762 3,860,612
------------ ------------
Total assets.......................................... $857,244,452 $400,175,922
------------ ------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Lines of credit....................................... $ 13,600,000 $ 75,000,000
Bridge loan........................................... -- 26,500,000
Notes payable......................................... 84,943,050 11,393,978
Accounts payable and accrued expenses................. 8,140,425 3,982,168
Accrued real estate taxes............................. 6,859,847 3,762,617
Deferred income....................................... 1,820,900 667,091
Tenant security deposits.............................. 2,653,923 1,281,817
Other liabilities..................................... 95,388 48,798
------------ ------------
Total liabilities................................... 118,113,533 122,636,469
Commitments and contingencies (Note 9)
Minority interest....................................... 7,681,400 7,709,527
Shareholders' equity:
Shares of beneficial interest, $0.01 par value;
150,000,000 shares authorized
Series A preferred shares (1,130,276 authorized,
issued and outstanding; stated liquidation
preference of $10 per share plus declared and
unpaid dividends).................................. 11,302,760 11,302,760
Series B preferred shares (6,130,276 authorized;
2,000,000 issued and outstanding; stated
liquidation preference of $10 per share plus
declared and unpaid dividends)..................... 20,000,000 20,000,000
Common shares (64,022,671 shares issued and
outstanding at December 31, 1997; 23,959,979 shares
issued and outstanding at December 31, 1996)....... 640,227 239,598
Additional paid-in capital........................... 713,511,243 240,013,905
Employee share notes................................. (7,930,780) --
Distributions in excess of net earnings.............. (6,073,931) (1,726,337)
------------ ------------
Total shareholders' equity.......................... 731,449,519 269,829,926
------------ ------------
Total liabilities and shareholders' equity......... $857,244,452 $400,175,922
------------ ------------
</TABLE>
See accompanying notes to financial statements.
FS-17
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Income:
Rental income......................................... $78,985,279 $27,512,702
Interest and other income............................. 889,477 168,659
----------- -----------
79,874,756 27,681,361
----------- -----------
Expenses:
Rental expenses....................................... 8,569,986 2,712,809
Depreciation and amortization......................... 14,715,334 5,082,601
General and administrative............................ 6,541,521 3,566,528
Interest.............................................. 11,667,415 2,249,507
Insurance and real estate taxes....................... 11,169,298 4,005,949
----------- -----------
52,663,554 17,617,394
----------- -----------
Earnings from operations............................ 27,211,202 10,063,967
Minority interest....................................... 490,173 192,637
----------- -----------
Net earnings............................................ 26,721,029 9,871,330
Less: Series A preferred share dividends.............. 755,024 646,518
Series B preferred share dividends................. 1,440,000 530,609
----------- -----------
Net earnings attributable to common shares.......... $24,526,005 $ 8,694,203
=========== ===========
Weighted average common shares outstanding............ 40,173,476 16,041,024
=========== ===========
Weighted average diluted common shares outstanding.... 40,268,452 16,049,423
=========== ===========
Basic earnings per share............................ $ 0.61 $ 0.54
Diluted earnings per share.......................... $ 0.61 $ 0.54
</TABLE>
See accompanying notes to financial statements.
FS-18
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST
(150,000,000 SHARES AUTHORIZED) RETAINED
------------------------------------ EARNINGS
SERIES A SERIES B COMMON EMPLOYEE ADDITIONAL (DISTRIBUTIONS TOTAL
PREFERRED PREFERRED SHARES SHARES PAID-IN IN EXCESS OF SHAREHOLDERS'
SHARES SHARES AT PAR VALUE NOTES CAPITAL EARNINGS) EQUITY
----------- ----------- ------------ ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $11,302,760 -- $ 54,001 -- $ 53,928,999 $ (311,009) $ 64,974,751
Sale of shares, net..... $20,000,000 185,597 186,084,906 206,270,503
Shareholder
distributions.......... (11,286,658) (11,286,658)
Net earnings............ 9,871,330 9,871,330
----------- ----------- -------- ----------- ------------ ------------ ------------
Balance at December 31,
1996................... 11,302,760 20,000,000 239,598 -- 240,013,905 (1,726,337) 269,829,926
----------- ----------- -------- ----------- ------------ ------------ ------------
Sale of shares, net..... 400,629 $(7,934,400) 473,497,338 465,963,567
Shareholder
distributions.......... 3,620 (31,068,623) (31,065,003)
Net earnings............ 26,721,029 26,721,029
----------- ----------- -------- ----------- ------------ ------------ ------------
Balance at December 31,
1997................... $11,302,760 $20,000,000 $640,227 $(7,930,780) $713,511,243 $ (6,073,931) $731,449,519
=========== =========== ======== =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
FS-19
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Operating activities
Net earnings.................................... $ 26,721,029 $ 9,871,330
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................. 14,715,334 5,082,601
Minority interest............................. (28,127) 192,637
Changes in operating assets and liabilities:
Accounts receivable......................... (4,834,426) (2,119,330)
Escrow deposits............................. 14,087,417 (16,419,567)
Other assets................................ (7,105,918) (2,841,000)
Accounts payable and accrued expenses....... 4,158,257 3,246,573
Accrued real estate taxes................... 3,097,230 2,473,505
Deferred income............................. 1,153,809 604,074
Tenant security deposits.................... 1,372,106 1,118,930
Other liabilities........................... 46,590 (710,251)
------------- ------------
Net cash provided by operating activities....... 53,383,301 499,502
------------- ------------
Investing activities:
Construction of and acquisition of real estate
investments.................................... (396,469,436) (297,204,259)
------------- ------------
Net cash used in investing activities........... (396,469,436) (297,204,259)
------------- ------------
Financing activities:
Principal payments on notes payable............. (1,369,664) (31,350)
Proceeds from line of credit.................... -- 74,398,960
Payments on lines of credit..................... (61,400,000) --
Proceeds from bridge loan....................... -- 26,500,000
Payments on bridge loan......................... (26,500,000) --
Proceeds from sales of shares, net of expenses.. 473,897,967 206,270,503
Employee share notes............................ (7,934,400) --
Payments on employee share notes................ 3,620 --
Distributions paid to shareholders.............. (31,068,623) (11,286,658)
------------- ------------
Net cash provided by financing activities....... 345,628,900 295,851,455
------------- ------------
Not increase (decrease) in cash and cash
equivalents...................................... 2,542,765 (853,302)
Cash and cash equivalents at beginning of period.. 1,954,131 2,807,433
------------- ------------
Cash and cash equivalents at end of period........ $ 4,496,896 $ 1,954,131
------------- ------------
Supplemental cash flow information:
Interest paid................................... $ 11,123,133 $ 1,848,451
------------- ------------
Noncash investing and financing activities:
Acquisition of real estate for assumption of
notes payable.................................. $ 74,918,736 $ 11,425,329
------------- ------------
Acquisition of real estate for minority interest
partnership units (Note 4)..................... $ -- $ 7,650,000
------------- ------------
</TABLE>
See accompanying notes to financial statements.
FS-20
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation
Pacific Retail Trust ("PACIFIC RETAIL") was organized as a Maryland real
estate investment trust on April 27, 1995 (originally named Southwest Retail
Trust) for the purpose of acquiring, developing, managing and owning
neighborhood infill retail properties in a nine state region of the western
United States. On August 23, 1995 the Declaration of Trust was amended and
restated to change the name to Pacific Retail Trust. At December 31, 1997,
69.2% of PACIFIC RETAIL's outstanding shares of beneficial interest are
constructively owned by Security Capital Holdings, S.A. ("HOLDINGS"), a
wholly-owned subsidiary of Security Capital U.S. Realty ("USREALTY").
Opportunity Capital Partners Limited Partnership ("OCP"), through its
partnership Madison Property I, LP (MPI), acquired preferred shares of PACIFIC
RETAIL as partial consideration for a pool of properties sold to PACIFIC
RETAIL by MPI on October 20, 1995. At December 31, 1997, OCP owned 6.1% of
PACIFIC RETAIL's outstanding shares of beneficial interest.
Principles of Consolidation
The consolidated financial statements include the accounts of PACIFIC
RETAIL, its 81.6% ownership in Retail Property Partners Limited Partnership
and its 95% ownership in PRT Development Corporation (Note 4).
Revenue Recognition
Minimum rents are recognized on a straight-line basis; as such, the rental
revenues for leases which contain rent abatements and contractual increases
are recognized on a straight-line basis over the initial term of the related
lease. Property operating cost recoveries from tenants of common area
maintenance, real estate taxes and other recoverable costs, are recognized in
the period when the recoveries are earned. In addition, certain tenants pay
percentage rental amounts based upon their sales volume and these percentage
rents are recognized when billed.
Real Estate Assets and Related Depreciation
Costs related directly to the acquisition, development and improvement of
real estate, including tenant improvements, are capitalized; ordinary repairs
and maintenance are expensed as incurred. Costs incurred in connection with
unsuccessful acquisitions are expensed at the time acquisition efforts are
terminated. Depreciation is computed on a straight-line basis over the
expected economic useful lives, which are principally 10 to 40 years for
buildings and improvements.
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes impairment losses
on property whenever events and changes in circumstances indicate that the
carrying amount of long-lived assets, on an individual property basis, may not
be recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net cash
flows to the carrying amount of the asset. Impairment losses are recognized in
operating income as they are determined. As of December 31, 1997 no impairment
losses have been incurred.
Interest
PACIFIC RETAIL capitalizes interest as part of the cost of real estate
projects during construction periods. During the years ended December 31, 1997
and 1996, $1,567,444 and $317,563, respectively, in interest was capitalized.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less.
FS-21
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Loan Fees
Included in other assets as of December 31, 1997 and 1996 are net costs of
$1,668,710 and $924,680, respectively, associated with obtaining financing.
Deferred loan fees are amortized to interest expense over the life of the loan
and extensions, which is currently three years, using the straight-line
method. Amortization of deferred loan fees for the years ended December 31,
1997 and 1996 were $773,952 and $270,345, respectively.
Income Taxes
PACIFIC RETAIL elected real estate investment trust ("REIT") status in 1995
under the Internal Revenue Code of 1986, as amended. REITs are not required to
pay federal income taxes if minimum distribution, income, asset and
shareholder tests are met and, accordingly, no provision has been made for
federal income taxes in the accompanying financial statements. PRT Development
Corporation will be taxed as a separate entity.
Earnings per Share
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), which establishes standards for computing and presenting
earnings per share (EPS). Basic EPS excludes the effect of potentially
dilutive securities while diluted EPS reflects the potential dilution that
would occur if dilutive securities or other contracts to issue common shares
were exercised, converted into, or resulted in the issuance of common shares
that then shared in the earnings of the company. The following table
summarizes the information required under SFAS 128:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1997
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common
shares.................................. $24,526,005 40,173,476 $0.61
----------- ---------- -----
EFFECT OF DILUTIVE SECURITIES
Options.................................. 93,583
Deferred trustee shares.................. 1,393
----------
DILUTED EPS
Income available to common shares and
assumed conversions..................... $24,526,005 40,268,452 $0.61
----------- ---------- -----
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1996
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common
shares.................................. $ 8,694,203 16,041,024 $0.54
----------- ---------- -----
EFFECT OF DILUTIVE SECURITIES
Options.................................. 8,399
----------
DILUTED EPS
Income available to common shares and
assumed conversions..................... $ 8,694,203 16,049,423 $0.54
----------- ---------- -----
</TABLE>
FS-22
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumed conversion of Series A preferred shares of beneficial interest,
Series B preferred shares of beneficial interest and minority interest are not
dilutive and have therefore been excluded from the calculation. Options to
purchase 326,923 common shares at $13 per share were outstanding during the
fourth quarter of 1997 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the estimated fair market
value of the common shares. The options, which expire 10 years from the date
of grant, or earlier upon termination of employment or death, were outstanding
at December 31, 1997.
Use of Estimates
PACIFIC RETAIL has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in accordance
with generally accepted accounting principles. Actual results could differ
from those estimates.
Fair value
PACIFIC RETAIL has estimated the fair value of its financial instruments at
December 31, 1997 and 1996 as required by Statement of Financial Accounting
Standards No. 107. The Company believes the carrying values of the Company's
financial instruments are reasonable estimates of their fair values.
2. REAL ESTATE INVESTMENTS
As of December 31, 1997, PACIFIC RETAIL owned fifty-six properties. Twenty
properties are located in three major metropolitan markets in Texas: the
Dallas-Fort Worth metroplex, Austin and Houston. Shopping centers in the
Dallas-Fort Worth metroplex generated approximately 40% of the total revenues
of the portfolio for the year ended December 31, 1997. Twenty-five shopping
centers are located in California and comprise approximately 39% of the total
revenues for the year ended December 31, 1997. The remaining properties are
located in Arizona, Colorado, Washington, and Oregon.
The following summarizes real estate investments:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Improved land....................................... $229,092,191 $107,247,415
Land held for development........................... 1,062,657 233,770
Land under development.............................. 12,544,434 --
Buildings and improvements.......................... 549,244,562 243,925,431
Land improvements and parking lots.................. 46,348,990 27,532,794
Properties under development........................ 13,165,378 1,130,630
------------ ------------
Total real estate investments..................... 831,458,212 380,070,040
Less accumulated depreciation..................... (19,680,694) (5,538,128)
------------ ------------
Net real estate investments..................... $831,777,518 $374,711,912
============ ============
</TABLE>
Properties Under Development
In July 1996, PACIFIC RETAIL acquired Hancock Center in Austin, Texas for
the purpose of redeveloping it as a grocery anchored infill shopping center.
PACIFIC RETAIL immediately embarked upon the redevelopment program. As of
December 31, 1997 and 1996, PACIFIC RETAIL has incurred $8,447,883 and
$846,000, respectively, in design and demolition costs and construction
associated with the redevelopment.
FS-23
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1996, PACIFIC RETAIL acquired Valley Ranch Shopping Center in
Coppell, Texas. A tract of undeveloped land was included as part of this
purchase. As of December 31, 1997, the land was being developed into
approximately 6,000 square feet of retail space at a cost of approximately
$570,890, including tenant improvement costs.
Land Held for Development
In March 1996, PACIFIC RETAIL acquired Harwood Hills Shopping Center in
Bedford, Texas. Between March and November of 1996, PACIFIC RETAIL completed
the construction of an additional 20,300 square fact of retail space at a cost
of approximately $1,857,000. As of December 31, 1997 and December 31, 1996,
approximately 2.9 acres of land remained for additional development.
In January 1997, PACIFIC RETAIL acquired Plaza de Hacienda in La Puenta,
California. Associated with this shopping center were approximately 3.63 acres
of land for additional development. As of December 31, 1997, no development
has taken place.
Land Under Development
In August 1997, PACIFIC RETAIL acquired Prestonwood Park which consists of
24.55 acres of land in Dallas, Texas for future development into a grocery
anchored shopping center. As of December 31, 1997, construction has not
commenced.
In November 1997, PRT Development Corporation acquired Hebron Park which
consists of 7.77 acres of land in Carrollton, Texas for development into a
grocery anchored shopping center. As of December 31, 1997, construction has
not commenced.
3. BORROWINGS
Lines of Credit--Secured
On December 27, 1995, PACIFIC RETAIL entered into a credit agreement with a
group of lenders to provide a secured line of credit up to a maximum of $50
million. On July 17,1996, the credit agreement was amended to increase the
secured line of credit to a maximum of $75 million. The lenders determine the
secured net borrowing base by using the lesser of 65% of the lenders'
appraised value on ten of the properties or the permanent loan estimate for
each property. As of December 31, 1997, the secured net borrowing base was
$75 million. On November 14, 1997, the secured line of credit agreement was
amended. Under the amended credit agreement, borrowings bear interest at the
greater of prime or federal funds rate plus .50% or, at PACIFIC RETAIL's
option, LIBOR plus a margin of 1.25%, if the ratio of total liabilities to
gross asset value is less than .35 to one, or 1.40% if the ratio of total
liabilities to gross asset value is greater than or equal to .35 to one.
Additionally, there is a fee of .125% per annum of the average daily unfunded
line of credit balance, or a fee of .25% per annum of the average daily
unfunded line of credit balance if the average daily balance for both the
secured and unsecured lines of credit is greater than $100 million. Interest
is paid monthly based on the unpaid principal balance. The weighted average
interest rates for the years ended December 31, 1997 and 1996 were 7.4% and
7.9%, respectively. The interest rates at December 31, 1997 and 1996 were 8.5%
and 7.9%, respectively.
The amended termination date of the credit agreement is March 28, 1999, but
it may be extended for successive one-year periods, if acceptable to the
lenders, for a .10% extension fee. All debt incurrences are subject to
covenants, as more fully described in the credit agreement. PACIFIC RETAIL has
utilized the line of credit to help finance the acquisition and development of
neighborhood shopping centers and for general working capital purposes during
1997 and 1996.
FS-24
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lines of Credit--Unsecured
On March 28, 1997, PACIFIC RETAIL entered into a credit agreement with a
group of lenders to provide an unsecured line of credit up to a maximum of $75
million. On November 14, 1997, the unsecured line of credit was increased to a
maximum of $125 million. Borrowings bear interest at the greater of prime or
federal funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a
margin of 1.25%, if the ratio of total liabilities to gross asset value is
less than .35 to one, or 1.40% if the ratio of total liabilities to gross
asset value is greater than or equal to .35 to one. Interest is paid monthly
based on the unpaid principal balance. The weighted average interest rate for
the period from March 28, 1997 to December 31, 1997 was 7.7%. There were no
borrowings outstanding under the unsecured line of credit at December 31,
1997.
The termination date of the credit agreement is March 28, 1999, but it may
be extended for successive one-year periods, if acceptable to the lenders, for
a .10% extension fee. All debt incurrences are subject to covenants, as more
fully described in the credit agreement. PACIFIC RETAIL has utilized the
unsecured line of credit to help finance the acquisition of neighborhood
shopping centers and for general working capital purposes during 1997.
Bridge Loan
On December 19, 1996, PACIFIC RETAIL entered into a credit agreement
("Bridge Loan") with a group of lenders. The agreement, amended on December
27, 1996, provided for an unsecured line of credit up to $32,500,000.
Borrowings under the Bridge Loan bore interest at the same rate as the
original secured line of credit. PACIFIC RETAIL entered into a "negative
pledge" agreement whereby it pledged not to encumber certain of its properties
with any debt until after the repayment of the funds borrowed under the Bridge
Loan. The interest rate at December 31, 1996 was 8.0%. The Bridge Loan was
repaid in January 1997.
Notes Payable
In March 1996, PACIFIC RETAIL acquired Harwood Hills Village Shopping Center
subject to an existing note payable of $6,900,000. The note bears interest at
8.58% and payments are interest only until maturity on July 1, 1998.
In September 1996, PACIFIC RETAIL acquired Paseo Village subject to an
existing note payable of $4,525,329. The note bears interest at 7.5% and
payments of principal and interest in the amount of $38,668 are due monthly
until the note matures on May 1, 2001.
In January 1997, PACIFIC RETAIL acquired Mills Pointe and Preston Park
Village subject to an existing note payable of $32,750,000. The note bears
interest at 7.23% and payments of principal and interest in the amount of
$264,578 are due monthly until the note matures on July 1, 2000.
In January 1997, PACIFIC RETAIL acquired Plaza de Hacienda subject to an
existing note payable of $6,842,984. The note bears interest at 9% and
payments of principal and interest in the amount of $57,128 are due monthly
until the note matures on June 10, 2012.
In February 1997, PACIFIC RETAIL acquired Market at Round Rock subject to an
existing note payable of $7,617,490. The note bears interest at 8.625% and
payments of principal and interest in the amount of $63,059 we due monthly
until maturity in December 2005.
In April 1997, PACIFIC RETAIL acquired North Hills Town Center subject to an
existing note payable of $9,372,661. The note bears interest at 7.37% and
payments of principal and interest in the amount of $76,974 are due monthly
until maturity on January 1, 2014.
FS-25
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1997, PACIFIC RETAIL acquired Friar's Mission subject to an existing
note payable of $16,990,218 and capital improvement municipal tax bonds
payable totaling $1,345,366. The note bears interest at 9.5% and payments of
principal and interest in the amount of $152,006 are due monthly until
maturity on June 10, 2005. The tax bonds bear interest at rates between 7.3%
and 7.9% with annual payments from $161,177 to $168,131 in two installments on
March 2 and September 2 through September 2, 2015.
Principal repayments of notes payable are due approximately as follows:
<TABLE>
<S> <C>
1998................................................................ $ 8,518,951
1999................................................................ 1,877,173
2000................................................................ 31,225,210
2001................................................................ 4,834,124
2002................................................................ 981,541
2003 and after...................................................... 37,506,051
-----------
$84,943,050
===========
</TABLE>
4. MINORITY INTEREST
Minority interest represents limited partners' interests in Retail Property
Partners Limited Partnership (the Partnership), a limited partnership
controlled by PACIFIC RETAIL, and PRT Development Corporation (PRT
Development), a Delaware corporation controlled by PACIFIC RETAIL.
Retail Property Partners Limited Partnership
In September 1996, PACIFIC RETAIL formed the Partnership by contributing
cash to the Partnership in exchange for a 50.2% controlling general
partnership interest in the Partnership, which invested in two retail centers
in Dallas, Texas. On December 1, 1996, PACIFIC RETAIL contributed the Blossom
Valley Shopping Center in Mountain View, California to the Partnership. The
assets and liabilities of Blossom Valley were transferred at book value as the
transfer was between entities under common control. The value of the
contributed property was $17,354,543, which increased PACIFIC RETAIL's
investment in the Partnership to 76.6%.
On July 31, 1997, PACIFIC RETAIL contributed $8.9 million to the
Partnership. With this contribution, PACIFIC RETAIL's investment in the
Partnership increased to 81.6%. The Partnership used this contribution to
purchase the Heritage Plaza land. Limited partners are entitled to exchange
each partnership unit for one common share of beneficial interest in PACIFIC
RETAIL beginning in August 1998. As of December 31, 1997 and December 31, 1996
there were 765,000 limited partnership units outstanding in the Partnership.
The limited partners' interests will be reflected as minority interest in the
consolidated financial statements until the units are exchanged for PACIFIC
RETAIL shares.
PRT Development Corporation
On November 20, 1997, PRT Development Corporation was organized as a
Delaware corporation for the purpose of acquiring land and developing and
selling the developed neighborhood infill retail shopping centers. The
authorized capital of PRT Development consists of 2,000,000 shares of common
stock. 100,000 of the shares will be issued as Class A voting shares. The
remaining 1,900,000 shares will be Class B nonvoting. As of December 31, 1997,
3,250 shares of Class A common stock were issued and outstanding. All of the
Class A common stock is constructively owned by USREALTY, and is represented
in minority interest. PACIFIC RETAIL owned 61,750 shares of Class B common
stock issued and outstanding at December 31, 1997. The Class B common stock is
generally entitled to 95% of all distributions made by PRT Development, and
the
FS-26
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Class A common stock is generally entitled to 5% of all distributions made by
PRT Development. PACIFIC RETAIL has consolidated the operations of PRT
Development based on the control exerted in the ordinary course of business
over the operating decisions of PRT Development.
5. SHAREHOLDERS' EQUITY
Offerings
Between October 20, 1995 and July 16, 1996, PACIFIC RETAIL closed on a
series of private offerings to HOLDINGS which resulted in the sale of 20
million common shares of beneficial interest at $10 per share for a total
amount of $200 million.
On October 20, 1995, as a partial acquisition price for five properties
acquired from OCP, PACIFIC RETAIL issued 1,130,276 Series A preferred shares
of beneficial interest to MPI at a stated liquidation preference of $10 per
share plus declared and unpaid dividends resulting in outstanding Series A
Preferred shares valued at $11,302,760.
On December 22, 1995, PACIFIC RETAIL completed an offering of 100,000 common
shares at a price of $10 per share. Net proceeds, after offering costs, to
PACIFIC RETAIL were $982,000.
On August 6, 1996, OCP acquired 2,000,000 shares of Series B preferred
shares of beneficial interest at a stated liquidation preference of $10 per
share plus declared and unpaid dividends resulting in Series B preferred
shares valued at $20 million.
On August 30. 1996, OCP acquired one million common shares of beneficial
interest in PACIFIC RETAIL at $10 per share for a total of $10 million.
On August 31, 1996, PACIFIC RETAIL completed a private offering of
18,182,305 common shares of beneficial interest at $11 per share resulting in
a total equity investment of $200,005,350. The first funding call took place
on September 16, 1996 resulting in 2,860,197 shares being issued for net
proceeds of $29,414,529. On January 9, 1997 and January 27, 1997, two funding
calls took place resulting in a total of 10,214,738 shares being issued for
net proceeds of $112,355,838. The final funding call took place on May 15,
1997 resulting in 5,107,370 shares being issued for net proceeds of
$56,181,060.
On April 30, 1997, PACIFIC RETAIL completed a private offering of 12,500,000
common shares of beneficial interest at $12 per share resulting in a total
expected equity investment of $150,000,000. The first funding call took place
on May 15, 1997 resulting in 1,898,100 shares being issued for net proceeds of
$21,277,205. The second funding call took place on September 18, 1997
resulting in 3,180,570 shares being issued for net proceeds of $38,158,904. On
October 1, November 11, and November 28, three funding calls took place
resulting in a total of 4,342,300 shares being issued for net proceeds of
$52,107,598. The final funding call took place on December 26, 1997 resulting
in 3,079,030 shares being issued for net proceeds of $36,948,358.
On December 29, 1997, PACIFIC RETAIL completed and fully funded a private
offering of 11,538,462 common shares of beneficial interest at $13 per share
for net proceeds of $148,474,528.
Trustee Compensation
On March 11, 1997, PACIFIC RETAIL granted 4,305 shares to the board of
trustees as part of their compensation.
FS-27
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective March 14, 1997, PACIFIC RETAIL adopted the Deferred Fee Plan for
nonemployee trustees. Under this plan, trustees can defer receipt of cash and
equity compensation otherwise payable to the trustee by PACIFIC RETAIL.
Interest and dividends are earned on the deferred compensation. An election
must be made by each trustee to defer their compensation, and this election
shall remain in effect until modified or revoked by the trustee. Each trustee
must specify when the payment of deferred compensation is to take place. The
compensation may be deferred to a specific date of at least two years past the
time the compensation is earned, or the compensation may become payable on the
last day of the calendar year in which the trustee terminates service with
PACIFIC RETAIL, or the compensation can become payable on the earlier of such
dates.
As of December 31, 1997, 4,825 shares have been deferred under this plan.
Shares of Beneficial Interest
As of December 31, 1997, 150,000,000 shares of beneficial interest, $.01 par
value per share, were authorized. PACIFIC RETAIL's board of trustees is
authorized to issue, from the authorized but unissued shares of PACIFIC
RETAIL, preferred shares in series and to establish from time to time the
number of preferred shares to be included in such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemptions of the shares of such series.
Common Shares
The outstanding common shares ("Shares") do not have redemption or
conversion rights or the benefit of any sinking fund. In the event of
liquidation, dissolution or winding up of PACIFIC RETAIL, the holders of
Shares are entitled to receive ratably the assets remaining after satisfaction
of all liabilities and payment of preferences and accrued dividends, if any,
on PACIFIC RETAIL's shares ranking senior to the Shares (including the
preferred shares). The rights of holders of Shares are subject to the rights
and preferences established by PACIFIC RETAIL's board of trustees for any
preferred shares which have been or may subsequently be issued.
Preferred Shares
The Series A preferred shares, the Series B preferred shares (together
referred to as "Preferred Shares") and Shares vote together as a single class
with respect to all matters presented to PACIFIC RETAIL's shareholders for a
vote. If twelve consecutive quarterly dividends on the Preferred Shares are in
arrears, the holders of Preferred Shares will be entitled to nominate and
elect an additional trustee until such time as all arrearages have been paid.
The Preferred Shares are entitled to a liquidation preference of $10 per share
plus an amount equal to all dividends declared but unpaid to the date of final
distribution. PACIFIC RETAIL may redeem the Preferred Shares any time after
October 20, 2010 at a price of $10 per share, plus all declared but unpaid
dividends.
Series A Preferred Shares
Series A preferred shares are convertible into Series B preferred shares on
a one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series A preferred
shares were entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share or (ii) $0.013 less than the dividend on the Shares.
For fiscal years beginning on or after January 1, 1997, Series A preferred
shares are entitled to quarterly dividends in an amount equal to the greater
of (1) $0.10 per share, (ii) 65% of the highest funds from operations per
Share for any preceding fiscal year and (iii) $0.013 less than
FS-28
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the dividend on the Shares. Dividends on the Series A preferred shares are
cumulative from the original issue date. PACIFIC RETAIL is restricted from
paying any dividends on any Shares or shares ranking on a parity with, or
ranking junior to, the Series A preferred shares, unless all cumulative
dividends are simultaneously paid on the Series A preferred shares.
Series B Preferred Shares
The board of trustees has authorized up to 6,130,276 Series B preferred
shares for issuance. Series B preferred shares are convertible into Shares on
a one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series B preferred
shares were entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share or (ii) the dividend on the Shares. For fiscal years
beginning on and after January 1, 1997, Series B preferred shares are entitled
to quarterly dividends in an amount equal to the greater of (i) $0.10 per
share, (ii) 65% of the highest funds from operations per Share for any
preceding fiscal year or (iii) the dividend on the Shares. Dividends on the
Series B preferred shares are cumulative from the original issue date. PACIFIC
RETAIL is restricted from paying any dividends on any Shares or shares ranking
on a parity with, or ranking junior to, the Series B preferred shares, unless
all cumulative dividends are simultaneously paid on the Series B preferred
shares.
Investor Agreement
On October 20, 1995, HOLDINGS, and PACIFIC RETAIL entered into an investor
agreement whereby HOLDINGS agreed to purchase up to 20 million Shares at $10
per share, net of the original shares purchased, before October 20, 1997. As
of December 31, 1996, HOLDINGS had completed the purchase of 20 million
Shares. As long as HOLDINGS owns at least 25% of the outstanding common shares
of PACIFIC RETAIL it will have certain rights regarding appointment of
trustees to the board of trustees and regarding approval of budgets, property
operations, property acquisitions, changes in executive officers and sales of
shares.
Shareholders' Agreement
On October 20, 1995, OCP entered into a shareholders' agreement with
HOLDINGS and PACIFIC RETAIL. Among other provisions of the agreement, OCP was
to acquire two million shares of Series B preferred shares at $10 per share at
its own request or if required by PACIFIC RETAIL. On August 6, 1996, OCP
purchased the two million shares of Series B preferred shares.
As part of the August 9, 1996 amendment to the shareholders' agreement,
HOLDINGS and OCP shall each have the right to participate pro rata, based upon
percentage ownership of the Shares on a fully diluted basis, in any offerings
by PACIFIC RETAIL of any capital shares or securities convertible into capital
shares on the same terms and at the same time as other offerees. The
respective rights terminate at such time as the holder shall own less than 10%
of the Shares on a fully diluted basis.
Shareholder Ownership Limitations
PACIFIC RETAIL's Declaration of Trust seeks to preserve its REIT status by
restricting any shareholder from owning more than 9.8% of PACIFIC RETAIL's
shares of beneficial interest, other than HOLDINGS or OCP. PACIFIC RETAIL
intends to adopt a shareholder rights plan pursuant to which one purchase
right will be issued as a dividend for each outstanding Share. Each purchase
right will entitle the holder to purchase one share at a fixed exercise price
and, under certain circumstances, to purchase at the exercise price shares or
securities of an acquiring company having a market value equal to some
multiple of the exercise price. The purchase rights would be exercisable only
upon the occurrence of certain triggering events and purchase rights held by
the acquiring person would not be exercisable. HOLDINGS and OCP would be
exempted from this shareholder rights plan.
FS-29
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INCENTIVE STOCK PROGRAMS
PACIFIC RETAIL has authorized 1,875,000 Shares for a share incentive plan
(the "Plan"). On September 24, 1997 the Plan was amended to increase the
number of shares authorized to 5,250,000. Additionally, the Plan was amended
to award "dividend equivalent units" with all option grants (other than
matching options). Participants who are awarded dividend equivalent units will
be credited with these units annually based on a calculated dividend yield,
multiplied by the number of options outstanding. Matching options and a loan
provision have also been added to the common share purchase portion of the
Plan. This provision allows the compensation committee to award, for each
common share purchased, one or more matching options. Matching options do not
receive dividend equivalent units. Further, PACIFIC RETAIL may offer
participants loans for the entire purchase price of any common shares
purchased under the share purchase program. Any loans will be fully recourse
to the participant and be for a maximum of 10 years, subject to an
acceleration in the event of termination of employment or sale of the common
shares. Participants will be required to pledge any common shares to secure
the loan from PACIFIC RETAIL. Under all plans, the option exercise price
represents the estimated fair market value at the date of grant. Vesting of
the options commences no more than two years from grant date and options are
fully vested no more than five year from grant date. Options expire in 10
years from the date of grant or earlier upon termination of employment or
death.
On October 30, 1997, 696,000 Shares at a price of $12 per share were issued
under the amended Plan. Loans were issued for 95% of the total purchase amount
and the remaining 5% was received in cash from the participants.
On August 6, 1996, the board of trustees adopted the 1996 Trustees Plan (the
"Trustees Plan"). Under the Trustees Plan, nonemployee trustees received
options to purchase Shares at an exercise price equal to the market price on
the date of the grant. Options granted under the Trustees Plan are immediately
vested. These options expire in 5 years from the date of grant or earlier upon
resignation from the board of trustees or death.
PACIFIC RETAIL applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. No compensation has been recognized for the Plan as
PACIFIC RETAIL has issued the options at an exercise price which represents
the fair market value at the date of grant. Had compensation cost for the Plan
been determined based on the fair market value at the grant dates for awards,
consistent with the method provided by Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), the Company's pro forma net earnings for the
years ended December 31, 1997 and 1996 would have been:
<TABLE>
<CAPTION>
FOR THE FOR THE YEAR
YEAR ENDED ENDED
DECEMBER DECEMBER 31,
31, 1997 1996
----------- ------------
<S> <C> <C> <C>
Net earnings.............................. As reported $26,721,029 $9,871,330
Pro Forma $26,641,918 9,806,206
Per share net earnings attributable to
common shares............................ As reported $ 0.61 $ 0.54
Pro forma $ 0.61 $ 0.54
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the "minimum value" calculation stipulated by SFAS No. 123 for nonpublic
companies. PACIFIC RETAIL has assumed the following in estimating the fair
value of the options:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Expected life (years)................................................ 5 5
Risk-free rate....................................................... 5.8% 6.1%
Dividend yield....................................................... 5.0% 5.0%
</TABLE>
FS-30
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes activity under all programs:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE SHARES
-------------- ---------
<S> <C> <C>
Outstanding at January 1, 1996....................... -- --
Granted............................................ $10.04 327,282
------ ---------
Outstanding at December 31, 1996..................... $10.04 327,282
Granted............................................ 11.98 2,149,863
Exercised.......................................... (11.00) (2,000)
Canceled........................................... (10.57) (11,273)
------ ---------
Outstanding at December 31, 1997..................... $11.73 2,463,872
------ ---------
Options exercisable at December 31, 1997............. $10.26 118,282
------ ---------
Weighted average fair value of options granted during
1997................................................ $ 2.25
------
</TABLE>
7. DIVIDENDS AND FUNDS FROM OPERATIONS FOR DISTRIBUTION TO SHAREHOLDERS
PACIFIC RETAIL's current dividend policy is to pay dividends to shareholders
based upon funds from operations and aggregating annually at least 95% of its
taxable income. Funds from operations are not to be construed as a substitute
for "net earnings" in evaluating operating results nor as a substitute for
"cash flow" in evaluating liquidity. Funds from operations for the years ended
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Net earning attributable to common shares.............. $24,526,005 $ 8,694,203
Add:
Depreciation of real estate property.................. 14,467,598 5,014,085
Minority interest..................................... 490,173 192,637
----------- -----------
Funds from operations attributable to common shares... $39,483,776 $13,900,925
----------- -----------
Funds from operations per common share................ .96 $ .85
----------- -----------
Weighted average common shares outstanding, including
minority interest.................................... 40,938,476 16,287,663
----------- -----------
</TABLE>
Net earnings attributable to common shares includes $2,333,189 and $796,963
of straight-line rent for the years ended December 31, 1997 and 1996,
respectively.
8. OPERATING LEASES
PACIFIC RETAIL receives rental income from the properties under operating
leases with terms ranging from less than one year to 24 years. The minimum
future rental under operating leases as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 70,672,996
1999.............................................................. 64,320,969
2000.............................................................. 56,303,689
2001.............................................................. 47,212,842
2002.............................................................. 40,144,332
Thereafter........................................................ 248,609,475
-------------
$ 527,264,303
=============
</TABLE>
FS-31
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A regional grocery chain leases space in nine of the retail centers. As of
December 31, 1997, minimum future rentals under current lease agreements with
this tenant account for $52,779,529 or 10% of the contracted minimum future
rentals shown above. No other tenant account for more than 10% of the
contracted minimum future rentals beginning in 1998.
9. COMMITMENTS AND CONTINGENCIES
PACIFIC RETAIL is subject to environmental regulations related to the
ownership, operation, development and acquisition of real estate properties.
As part of due diligence procedures, PACIFIC RETAIL has obtained or conducted
Phase I environmental assessments on each property prior to acquisition.
PACIFIC RETAIL is not aware of any environmental condition on any of its
properties which is likely to have a materially adverse effect on PACIFIC
RETAIL's financial condition or results of operations.
10. SUBSEQUENT EVENTS
In January 1998, primarily using proceeds from the lines of credit, PACIFIC
RETAIL and PRT Development acquired separate parcels of Twin Peaks in Poway,
California, for a total purchase price of $29,750,000, In addition, PACIFIC
RETAIL acquired Plaza Hermosa in Hermosa Beach, California for a total
purchase price of $13,335,000.
Also in January 1998, PRT Development purchased approximately 38.2 acres of
undeveloped land. The purchase price of approximately $11,646,000 includes
$2,087,230 placed in escrow for future development on the purchased land.
FS-32
<PAGE>
[PRICE WATERHOUSE LOGO]
PACIFIC RETAIL TRUST
FINANCIAL STATEMENTS
PERIOD FROM APRIL 27, 1995 (INCEPTION) TO DECEMBER 31, 1995
FS-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Pacific Retail Trust
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Pacific Retail Trust at December
31, 1995 and the results of its operations and its cash flows for the period
from April 27, 1995 (Inception) to December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 9, 1996
Dallas, Texas
FS-34
<PAGE>
PACIFIC RETAIL TRUST
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER
ASSETS 31, 1995
------ -----------
<S> <C>
Real estate....................................................... $63,790,452
Less accumulated depreciation..................................... (344,043)
-----------
63,446,409
Cash and cash equivalents......................................... 2,807,433
Accounts receivable............................................... 860,270
Other assets...................................................... 1,338,229
-----------
Total assets.................................................... $68,452,341
===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Liabilities:
Note payable.................................................... $ 601,040
Accounts payable and accrued expenses........................... 1,891,597
Deferred income................................................. 63,017
Tenant security deposits........................................ 162,887
Other liabilities............................................... 759,049
-----------
Total liabilities............................................. 3,477,590
Commitments and contingencies
Shareholders' Equity:
Shares of beneficial interest, $0.01 par value;
150,000,000 shares authorized
Common shares (5,400,100 authorized and issued)............... 54,001
Series A preferred shares (1,130,276 authorized and issued;
stated liquidation preference of $10 per share plus declared
and unpaid dividends)........................................ 11,302,760
Series B preferred shares (6,130,276 authorized; none issued). --
Additional paid-in-capital...................................... 53,928,999
Distributions in excess of net earnings......................... (311,009)
-----------
Total shareholders' equity.................................... 64,974,751
-----------
Total liabilities and shareholders' equity.................... $68,452,341
===========
</TABLE>
See accompanying notes to financial statements.
FS-35
<PAGE>
PACIFIC RETAIL TRUST
STATEMENT OF OPERATIONS
PERIOD FROM APRIL 27, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Income:
Rental income..................................................... $1,816,684
Interest and other income......................................... 40,718
----------
Total income.................................................... 1,857,402
----------
Expenses:
Rental expenses................................................... 153,672
Depreciation and amortization..................................... 349,599
General and administrative........................................ 511,528
Interest.......................................................... 128,770
Insurance and real estate taxes................................... 319,333
----------
1,462,902
----------
Net earnings.................................................... 394,500
Less: Series A preferred share dividends.......................... 111,897
----------
Net earnings attributable to common shares...................... $ 282,603
==========
Weighted average common shares outstanding........................ 1,536,245
==========
Weighted average diluted common shares outstanding................ 1,536,245
==========
Basic earnings per share........................................ $ 0.18
Diluted earnings per share...................................... $ 0.18
</TABLE>
See accompanying notes to financial statements.
FS-36
<PAGE>
PACIFIC RETAIL TRUST
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM APRIL 27, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
(150,000,000 SHARES
AUTHORIZED)
-------------------
SERIES A
PREFERRED
SHARES AT COMMON DISTRIBUTIONS
AGGREGATE SHARES ADDITIONAL IN EXCESS OF TOTAL
LIQUIDATION AT PAR PAID-IN NET SHAREHOLDERS'
PREFERENCE VALUE CAPITAL EARNINGS EQUITY
----------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 27,
1995 (Inception).......
Sale of shares for
initial capitalization. $53,001 $52,947,999 $53,001,000
Issuance of shares in
partial payment of
property acquisition... $11,302,760 11,302,760
Sale of shares on
December 22, 1995...... 1,000 981,000 982,000
Cash distributions...... $(705,509) (705,509)
Net earnings............ 394,500 394,500
----------- ------- ----------- --------- -----------
Balance at December 31,
1995................... $11,302,760 $54,001 $53,928,999 $(311,009) $64,974,751
=========== ======= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
FS-37
<PAGE>
PACIFIC RETAIL TRUST
STATEMENT OF CASH FLOWS
PERIOD FROM APRIL 27, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<S> <C>
Operating Activities:
Net income....................................................... $ 394,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 349,599
Straightline rent............................................... (38,187)
Changes in operating assets and liabilities:
Accounts receivable............................................ (860,270)
Other assets................................................... (1,305,596)
Accounts payable and accrued expenses.......................... 1,891,597
Deferred income................................................ 63,017
Other liabilities.............................................. 759,049
Tenant security deposits....................................... 162,887
-----------
Net cash used in operating activities............................. 1,416,596
-----------
Investing Activities:
Acquisition of real estate....................................... (52,487,694)
-----------
Net cash provided by operating activities......................... (52,487,694)
-----------
Financing Activities:
Proceeds from line of credit..................................... 601,040
Proceeds from sale of shares, net of expenses.................... 53,983,000
Distributions paid to shareholders............................... (705,509)
-----------
Net cash provided by financing activities......................... (53,878,531)
-----------
Net increase in cash and cash equivalents......................... 2,807,433
Cash and cash equivalents at beginning of period.................. --
-----------
Cash and cash equivalents at end of period........................ $22,807,433
-----------
</TABLE>
<TABLE>
<S> <C>
Supplemental cash flow information:
Interest paid................................................... $ 128,770
------------
Noncash investing and financing activities:
Acquisition of real estate for Series A preferred shares........ $(11,302,760)
------------
Issuance of shares as partial acquisition price.................. $ 11,302,760
------------
</TABLE>
See accompanying notes to financial statements.
FS-38
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Formation
Pacific Retail Trust ("PACIFIC RETAIL") was organized as a Maryland real
estate investment trust on April 27, 1995 as Southwest Retail Trust for the
purpose of acquiring, developing, managing and owning neighborhood infill
retail properties in a nine state region of the western United States. On
August 23, 1995 the Declaration of Trust was amended and restated to change
the name to Pacific Retail Trust. PACIFIC RETAIL intends to elect tax status
as a real estate investment trust for 1995. Currently, 81% of PACIFIC RETAIL's
outstanding shares of beneficial interest are constructively owned by Security
Capital Holdings, S.A. ("HOLDINGS"), a wholly-owned subsidiary of Security
Capital U.S. Realty ("USREALTY"). Opportunity Capital Partners Limited
Partnership ("OCP"), through its partnership Madison Property I, LP (MPI),
acquired 17% of the outstanding shares as partial consideration for a pool of
properties sold to PACIFIC RETAIL by MPI on October 20, 1995 (Note 5). PACIFIC
RETAIL intends to acquire additional shopping centers with proceeds from
additional capital contributions and borrowings. As of December 31, 1995
PACIFIC RETAIL had signed contracts and deposited earnest money for the
acquisition of one neighborhood center in the Dallas area and two neighborhood
centers in California and was involved in the final due diligence analysis
prior to closing on the purchase of the centers (Note 9).
For financial reporting purposes, the properties acquired were recorded by
PACIFIC RETAIL at their acquisition costs which represents fair market value
at the time of acquisition.
Revenue Recognition
Minimum rents are recognized on a straight-line basis; as such, the rental
revenues for leases which contain rent abatements and contractual increases
are recognized on a straight-line basis over the initial term of the related
lease. Property operating cost recoveries from tenants of common area
maintenance, real estate taxes and other recoverable costs, are recognized in
the period when the recoveries are earned. In addition, certain tenants pay
percentage rental amounts based upon their sales volume and these percentage
rents are recognized when billed.
Real Estate Assets and Related Depreciation
Costs related directly to the acquisition, development and improvement of
real estate are capitalized. Interest costs incurred during construction
periods are capitalized. There was no interest capitalized during the period
from April 27, 1995 to December 31, 1995. Costs incurred with regard to
unsuccessful acquisitions are expensed at the time such acquisition is deemed
terminated.
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes impairment losses
on property whenever events and changes in circumstances indicate that the
carrying amount of long-lived assets, on an individual property basis, may not
be recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net cash
flows to the carrying amount of the asset. Impairment losses are recognized in
operating income as they are determined. As of December 31, 1995, no
impairment losses had been incurred.
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized and depreciated over their
estimated useful lives. Depreciation is computed on a straight-line basis over
the expected economic useful lives, which are principally 10 to 40 years for
buildings and improvements.
FS-39
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less.
Deferred Loan Fees
Included in other assets as of December 31, 1995 are costs of $613,808
associated with obtaining financing (Note 3) which have been capitalized.
Deferred loan fees are amortized to interest expense over the life of the loan
and extensions which is currently three years using the straight-line method.
There was no amortization of the capitalized costs in 1995 as the loan and
associated costs were not entered into until December 27, 1995.
Income Taxes
PACIFIC RETAIL intends to elect real estate investment trust ("REIT") status
for 1995 under the Internal Revenue Code of 1986, as amended. REIT's are not
required to pay federal income taxes if minimum distribution and income, asset
and shareholder tests are met and, accordingly, no provision has been made for
federal income taxes in the accompanying financial statements.
Earnings per Share
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), which establishes standards for computing and presenting
earnings per share (EPS). Basic EPS excludes the effect of potentially
dilutive securities while diluted EPS reflects the potential dilution that
would occur if dilutive securities or other contracts to issue common shares
were exercised, converted into, or resulted in the issuance of common shares
that then shared in the earnings of the company. The following table
summarizes the information required under SFAS 128:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM APRIL 27, 1995
(INCEPTION) TO DECEMBER 31, 1995
-----------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS
Net earnings attributable to common
shares................................... $282,603 1,536,245 $0.18
-------- --------- -----
Diluted EPS
Income available to common shares and
assumed conversions...................... $282,603 1,536,245 $0.18
-------- --------- -----
</TABLE>
The assumed conversion of Series A preferred shares of beneficial interest are
not dilutive and have therefore been excluded from the calculation.
2. REAL ESTATE INVESTMENTS
PACIFIC RETAIL acquired the following properties between August 30 and
October 20, 1995, all of which are located within 100 miles of the Dallas-Ft.
Worth area:
<TABLE>
<CAPTION>
GROSS
LEASABLE
SQUARE
RETAIL CENTER LOCATION FEET
- ------------- -------- --------
<S> <C> <C>
Arapaho Village South............................... Richardson, Texas 108,816
Ridglea Plaza....................................... Fort Worth, Texas 197,627
Southpark Shopping Center........................... Tyler, Texas 146,225
The Village Shopping Center......................... Duncanville, Texas 95,208
Cooper Street Plaza................................. Arlington, Texas 133,288
Northview Plaza..................................... Dallas, Texas 117,034
</TABLE>
FS-40
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following summarizes real estate investments as of December 31, 1995:
<TABLE>
<S> <C>
Land............................................................... $10,148,477
Buildings and improvements......................................... 47,377,965
Land improvements and parking lots................................. 6,264,010
-----------
Total real estate................................................ 63,790,452
Less accumulated depreciation.................................... (344,043)
-----------
Net real estate................................................ $63,446,409
===========
</TABLE>
3. LINE OF CREDIT
On December 27, 1995 PACIFIC RETAIL entered into a credit agreement with
Wells Fargo Realty Advisors Funding, Incorporated, as agent for a group of
lenders, to provide a secured line of credit up to a maximum of $50 million.
As of December 31, 1995, the secured net borrowing base was $29,865,000. The
lenders determine the secured net borrowing base by using 65% of the lenders'
appraised value on five of the properties, excluding Cooper Street Plaza, less
an $880,000 reserve for the repair work to be done to the Ridglea Plaza roof
(Notes 4 and 10). Borrowings bear interest at the greater of prime or federal
funds rate plus 1/2% or at PACIFIC RETAIL's option, LIBOR plus 1.75%.
Additionally, there is a fee of .125% per annum of the unfunded line of credit
balance.
The termination date of the credit agreement is December 27, 1998, but it
may be extended for successive one year periods if acceptable to the lenders,
for a .25% extension fee. All debt incurrences are subject to covenants, as
more fully described in the credit agreement. The only borrowings made under
the credit line in 1995 were for the lender fees.
A summary of PACIFIC RETAIL's line of credit borrowings is as follows:
<TABLE>
<S> <C>
Total line of credit............................................... $50,000,000
Net borrowing base available....................................... $29,866,000
Borrowings outstanding at December 31, 1995........................ $ 601,040
Weighted average interest rate at December 31, 1995................ 8.5%
</TABLE>
4. OTHER LIABILITIES
Other liabilities include $669,549 of insurance proceeds for repair of a
hail damaged roof on the Ridglea Plaza Shopping Center. Repair work has not
been commenced on the roof. It is anticipated that these insurance proceeds
will be sufficient to cover the costs of the necessary repairs. Additional
other liabilities include escrow holdbacks set up at the acquisition of two of
the retail properties for additional repairs.
5. SHAREHOLDERS' EQUITY
Offerings
On December 22, 1995 PACIFIC RETAIL completed an offering of 100,000 shares
of beneficial interest at a price of $10 per share. Net proceeds, after
offering costs, to PACIFIC RETAIL were $982,000.
On October 20, 1995 PACIFIC RETAIL closed a private offering to HOLDINGS of
5,300,000 shares of beneficial interest at $10 per share for a total amount of
$53,000,000.
On October 20, 1995, as a partial acquisition price for five properties
acquired from OCP, PACIFIC RETAIL issued 1,130,276 Series A Preferred shares
of beneficial interest to MPI at a stated liquidation preference of $10 per
share plus declared and unpaid dividends resulting in outstanding Series A
Preferred shares valued at $11,302,760.
FS-41
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Shares of Beneficial Interest
As of December 31, 1995, 150,000,000 Shares of Beneficial Interest, $.01 par
value per share, were authorized. PACIFIC RETAIL's Board of Trustees is
authorized to issue, from the authorized but unissued shares of PACIFIC
RETAIL, preferred shares in series and to establish from time to time the
number of preferred shares to be included in such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemptions of the shares of such series.
Common Shares
The outstanding common shares ("Shares") do not have redemption or
conversion rights or the benefit of any sinking fund. In the event of
liquidation, dissolution or winding up of PACIFIC RETAIL, the holders of
Shares are entitled to receive ratably the assets remaining after satisfaction
of all liabilities and payment of preferences and accrued dividends, if any,
on PACIFIC RETAIL's shares ranking senior to the Shares (including the
Preferred Shares). The rights of holders of Shares are subject to the rights
and preferences established by PACIFIC RETAIL's Board of Trustees for any
preferred shares which have been or may subsequently be issued.
Preferred Shares
The Series A Preferred Shares, the Series B Preferred Shares (together
referred to as "Preferred Shares") and Shares vote together as a single class
with respect to all matters presented to PACIFIC RETAIL's shareholders for a
vote. If twelve consecutive quarterly dividends on the Preferred Shares are in
arrears, the holders of Preferred Shares will be entitled to nominate and
elect an additional trustee until such time as all arrearages have been paid.
The Preferred Shares are entitled to a liquidation preference of $10.00 per
share plus an amount equal to all dividends declared but unpaid to the date of
final distribution. PACIFIC RETAIL may redeem the Preferred Shares any time
after October 20, 2010 at a price of $10.00 per share, plus all accrued and
unpaid dividends.
Series A Preferred Shares
Series A Preferred Shares are convertible into Series B Preferred Shares on
a one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series A Preferred
Shares are entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share and (ii) $0.013 less than the dividend on the Shares.
For fiscal years beginning on or after January 1, 1997, Series A Preferred
Shares are entitled to quarterly dividends in an amount equal to the greater
of (i) $0.10 per share, (ii) 65% of the highest funds from operations per
Share for any preceding fiscal year and (iii) $0.013 less than the dividend on
the Shares. Dividends on the Series A Preferred Shares are cumulative from the
original issue date. PACIFIC RETAIL is restricted from paying any dividends on
any Shares or shares ranking on a parity with, or ranking junior to, the
Series A Preferred Shares, unless all cumulative dividends are simultaneously
paid on the Series A Preferred Shares.
Series B Preferred Shares
The Board of Trustees has authorized up to 6,130,276 Series B Preferred
Shares for issuance. Series B Preferred Shares are convertible into Shares on
a one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series B Preferred
Shares are entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share and (ii) the dividend on the Shares.
For fiscal years beginning on and after January 1, 1997, Series B Preferred
Shares are entitled to quarterly dividends in an amount equal to the greater
of (i) $0.10 per share, (ii) 65% of the highest funds from operations per
Share for any preceding fiscal year and (iii) the dividend on the Shares.
Dividends on the Series B Preferred
FS-42
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Shares are cumulative from the original issue date. PACIFIC RETAIL is
restricted from paying any dividends on any Shares or shares ranking on a
parity with, or ranking junior to, the Series B Preferred Shares, unless all
cumulative dividends are simultaneously paid on the Series B Preferred Shares.
No Series B Preferred Shares are currently issued or outstanding.
Investor Agreement
On October 20, 1995 HOLDINGS and PACIFIC RETAIL entered into an investor
agreement whereby HOLDINGS agreed to purchase up to 20 million Shares at $10
per share, net of the original shares purchased, before October 20, 1997. As
long as HOLDINGS owns at least 25% of the outstanding common shares of PACIFIC
RETAIL it will have certain rights regarding appointment of trustees to the
Board of Trustees and regarding approval of budgets, property operations,
property acquisitions, changes in executive officers and sales of shares.
Shareholders' Agreement
On October 20, 1995 OCP entered into a shareholders' agreement with HOLDINGS
and PACIFIC RETAIL. Among other provisions of the agreement, OCP is to acquire
an additional 2 million shares of Series B Preferred Shares at $10 per share
at its own request or if required by PACIFIC RETAIL. In the event neither
party requests the additional capital call, this provision expires on October
20, 1996. PACIFIC RETAIL intends to make an equity call for the entire $20
million before October 20, 1996. As long as OCP owns at least 10% of the
outstanding common shares of PACIFIC RETAIL, it will have the right to
nominate one Trustee.
OCP has also agreed to attempt to sell the remaining three properties it
owns and to utilize the proceeds for additional share acquisitions. If a sale
of the properties is consummated before March 31, 1996, all proceeds will be
used to acquire Series B Preferred Shares at $10 per share. Subsequent to
March 31, 1996 but prior to December 7, 1996, the proceeds of a sale shall be
used to acquire common shares at the fair market value, as defined, at the
time of acquisition.
Under the shareholders' agreement OCP has the right to have PACIFIC RETAIL
return the properties acquired from OCP in the event that either (i) PACIFIC
RETAIL has not acquired total real estate assets totaling $200 million by
October 20, 1999, or (ii) prior to achieving $200 million in total real estate
assets, PACIFIC RETAIL registers its Shares pursuant to Section 12(b) or 12(g)
of the Exchange Act. In the event OCP does exercise its option to reacquire
the properties, it will surrender its share holdings and $42,100,000, plus the
cost of all capital improvements made to the properties which have been
approved by OCP's nominee to the Board of Trustees.
OCP also has the right to purchase up to a total of 5 million Series B
Preferred Shares at $10 per share, including any shares issued in conjunction
with the sale of its three remaining properties and the shares issued upon
funding of its equity commitment of 1,130,276 Series A Preferred Shares. This
right expires on March 31, 1996.
OCP also has the option to acquire up to 5 million common shares at $10 per
share, including any shares issued in conjunction with the sale of its three
remaining properties and the shares issued upon funding of its equity
commitment of 1,130,276 Series A Preferred Shares. This option expires on the
earlier of (i) the date HOLDINGS' equity commitment is fully funded or (ii)
October 20, 1997.
Shareholder Ownership Limitations
PACIFIC RETAIL's Declaration of Trust seeks to preserve its anticipated REIT
status by restricting any shareholder from owning more than 9.8% of PACIFIC
RETAIL's shares of beneficial interest, other than
FS-43
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
HOLDINGS or OCP. PACIFIC RETAIL intends to adopt a shareholder rights plan
prior to becoming a public company pursuant to which one purchase right will be
issued as a dividend for each outstanding Share. Each purchase right will
entitle the holder to purchase one Share at a fixed exercise price and, under
certain circumstances, to purchase at the exercise price Shares or securities
of an acquiring company having a market value equal to some multiple of the
exercise price. The purchase rights would be exercisable only upon the
occurrence of certain triggering events and purchase rights held by the
acquiring person would not be exercisable. HOLDINGS and OCP would be exempted
from this shareholder rights plan.
6. DIVIDENDS AND FUNDS FROM OPERATIONS FOR DISTRIBUTION TO SHAREHOLDERS
PACIFIC RETAIL's current dividend policy is to pay dividends to shareholders
based upon funds from operations and aggregating annually at least 95% of its
taxable income. Funds from operations is not to be construed as a substitute
for "net earnings" in evaluating operating results nor as a substitute for
"cash flow" in evaluating liquidity. Funds from operations for the period from
April 27, 1995 through December 31, 1995 were as follows:
<TABLE>
<S> <C>
Net earnings attributable to common shares.......................... $ 282,603
Add (deduct):
Depreciation of real estate property.............................. 344,043
Rent leveling..................................................... (38,187)
---------
Funds from operations attributable to common shares............... 588,459
Distributions paid to common shareholders......................... (593,611)
---------
Deficit of funds from operations after distributions.............. $ (5,152)
=========
Weighted average shares outstanding............................... 1,536,245
=========
</TABLE>
7. OPERATING LEASES
PACIFIC RETAIL receives rental income from the properties under operating
leases with terms ranging from less than one year to eighteen years. The
minimum future rentals under operating leases as of December 31, 1995, are as
follows:
<TABLE>
<S> <C>
1996................................................................ $ 5,998,000
1997................................................................ 5,541,000
1998................................................................ 4,938,000
1999................................................................ 4,368,000
2000................................................................ 3,831,000
Thereafter.......................................................... 25,388,000
-----------
$50,064,000
===========
</TABLE>
Tom Thumb Food Stores (Tom Thumb), a regional grocery chain, leases space in
three of the retail centers owned by PACIFIC RETAIL. Beginning in 1996 minimum
future rentals under current lease agreements with Tom Thumb (one expiring in
2007 and two expiring in 2010) will account for $17,212,000 or 34.4% of the
contracted minimum future rentals shown above. No other tenant accounts for
more than 15% of the minimum future rentals beginning in 1996. PACIFIC RETAIL
anticipates that due to acquisitions to be made during the next twelve months,
no single tenant will account for more than 10% of minimum future rentals
beginning in 1997.
FS-44
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. FAIR VALUE
PACIFIC RETAIL has estimated the fair value of its financial instruments at
December 31, 1995 as required by Statement of Financial Accounting Standards
No. 107. The carrying values of the Company's financial instruments are
reasonable estimates of their fair values.
9. COMMITMENTS AND CONTINGENCIES
PACIFIC RETAIL is subject to environmental regulations related to the
ownership, operation, development and acquisition of real estate properties. As
part of due diligence procedures, PACIFIC RETAIL has acquired or conducted
Phase I environmental assessments on each property prior to acquisition.
PACIFIC RETAIL is not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on PACIFIC
RETAIL's financial condition or results of operations.
10. SUBSEQUENT EVENTS
On January 16, 1996, utilizing $14,457,000 of its credit line, PACIFIC RETAIL
acquired The Promenade, a neighborhood infill retail center in Sacramento,
California. The Promenade contains 136,022 square feet and is 95% leased. The
acquisition will increase the secured net borrowing base, but the amount of the
increase has not yet been determined by the lenders.
In January 1996, Cooper Street Plaza was approved by the lender to be added
to the secured net borrowing base. With the addition of Cooper Street Plaza,
the secured net borrowing base increased to $37,145,000.
FS-45
<PAGE>
PACIFIC RETAIL TRUST
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
FS-46
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
(UNAUDITED)
ASSETS
------
<S> <C>
Real estate investments........................................ $1,009,361,996
Less: accumulated depreciation................................. (30,121,697)
--------------
979,240,299
Cash and cash equivalents...................................... 8,465,513
Accounts receivable, net....................................... 8,611,649
Escrow deposits................................................ 5,136,628
Other assets, net.............................................. 13,464,406
--------------
Total assets................................................. $1,014,918,495
==============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Liabilities:
Lines of credit............................................... $ 173,600,000
Notes payable................................................. 90,235,760
Accounts payable and accrued expenses......................... 5,386,942
Accrued real estate taxes..................................... 4,262,198
Deferred income............................................... 475,802
Tenant security deposits...................................... 3,124,213
Other liabilities............................................. 15,982
--------------
Total liabilities............................................ 277,100,897
Commitments and contingencies (Note 9)......................... --
Minority interest.............................................. 9,469,516
Shareholders' equity:
Shares of beneficial interest, $0.01 par value;
150,000,000 shares authorized
Series A preferred shares (1,130,276 authorized, issued and
outstanding;
stated liquidation preference of $10 per share plus declared
and unpaid dividends)....................................... 11,302,760
Series B preferred shares (6,130,276 authorized; 2,000,000
issued and
outstanding; stated liquidation preference of $10 per share
plus declared
and unpaid dividends)....................................... 20,000,000
Common shares (64,038,312 shares issued and outstanding at
June 30, 1998).............................................. 640,383
Additional paid-in capital.................................... 713,624,750
Employee share notes.......................................... (8,196,440)
Distributions in excess of net earnings....................... (9,023,371)
--------------
Total shareholders' equity................................... 728,348,082
--------------
Total liabilities and shareholders' equity.................. $1,014,918,495
==============
</TABLE>
See accompanying notes to financial statements.
FS-47
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Income:
Rental income......................................... $58,171,209 $32,921,347
Interest and other income............................. 420,726 393,248
----------- -----------
58,591,935 33,314,595
----------- -----------
Expenses:
Rental expenses....................................... 6,286,820 3,401,644
Depreciation and amortization......................... 10,909,802 6,318,374
General and administrative............................ 4,426,994 3,243,886
Interest.............................................. 6,538,480 4,420,679
Insurance and real estate taxes....................... 7,262,140 5,000,866
----------- -----------
35,424,236 22,385,449
----------- -----------
Earnings from operations............................ 23,167,699 10,929,146
Minority interest....................................... 286,224 268,942
----------- -----------
Net earnings............................................ 22,881,475 10,660,204
Less: Series A preferred share dividends.............. 405,770 377,512
Series B preferred share dividends................. 770,000 720,000
----------- -----------
Net earnings attributable to common shares.......... $21,705,705 $ 9,562,692
=========== ===========
Weighted average common shares outstanding............ 64,036,808 35,846,932
=========== ===========
Weighted average diluted common shares outstanding.... 64,278,218 35,920,509
=========== ===========
Basic earnings per share............................ $ .34 $ .27
Diluted earnings per share.......................... $ .34 $ .27
</TABLE>
See accompanying notes to financial statements.
FS-48
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST
(150,000,000 SHARES AUTHORIZED)
------------------------------------
RETAINED
EARNINGS
SERIES A SERIES B COMMON ADDITIONAL (DISTRIBUTIONS TOTAL
PREFERRED PREFERRED SHARES EMPLOYEE PAID-IN IN EXCESS OF SHAREHOLDERS'
SHARES SHARES AT PAR VALUE SHARE NOTES CAPITAL EARNINGS) EQUITY
----------- ----------- ------------ ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 11,302,760 20,000,000 640,227 (7,930,780) 713,511,243 (6,073,931) 731,449,519
Sale of shares, net..... 1,223 (1,510,500) 1,559,713 50,436
Redemption of shares.... (1,067) 1,212,894 (1,446,206) (234,379)
Shareholder
distributions.......... 31,946 (25,830,915) (25,798,969)
Net earnings............ 22,881,475 22,881,475
----------- ----------- -------- ----------- ------------ ----------- ------------
Balance at June 30, 1998
(Unaudited)............ $11,302,760 $20,000,000 $640,383 $(8,196,440) $713,624,750 $(9,023,371) $728,348,082
=========== =========== ======== =========== ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
FS-49
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Operating activities
Net earnings................................... $ 22,881,475 $ 10,660,204
Adjustments to reconcile net earnings to net
cash
provided by operating activities:
Depreciation and amortization................ 10,662,932 6,318,374
Minority interest............................ 1,788,116 131,242
Changes in operating assets and liabilities:
Accounts receivable........................ (797,623) (815,306)
Escrow deposits............................ (2,554,378) 14,992,625
Other assets............................... (3,112,573) (2,000,387)
Accounts payable and accrued expenses...... (2,753,483) (1,859,713)
Accrued real estate taxes.................. (2,597,649) (452,805)
Deferred income............................ (1,345,098) 212,373
Tenant security deposits................... 470,290 582,998
Other liabilities.......................... (79,406) 24,882
------------- -------------
Net cash provided by operating activities...... 22,562,603 27,794,487
------------- -------------
Investing activities:
Construction of and acquisition of real estate
investments................................... (151,702,499) (153,923,316)
------------- -------------
Net cash used in investing activities.......... (151,702,499) (153,923,316)
------------- -------------
Financing activities:
Principal payments on notes payable............ (908,575) (547,163)
Proceeds from line of credit................... 160,000,000 --
Payments on lines of credit.................... -- (24,700,000)
Payments on bridge loan........................ -- (26,500,000)
Proceeds from sales of shares, net of expenses. 50,436 189,884,919
Redemption of shares........................... (234,379) --
Distributions paid to shareholders............. (25,798,969) (6,709,593)
------------- -------------
Net cash provided by financing activities...... 133,108,513 131,428,163
------------- -------------
Net increase in cash and cash equivalents........ 3,968,617 5,299,334
Cash and cash equivalents at beginning of period. 4,496,896 1,954,131
------------- -------------
Cash and cash equivalents at end of period....... $ 8,465,513 $ 7,253,465
============= =============
Supplemental cash flow information:
Interest paid.................................. $ 6,549,721 $ 4,509,821
============= =============
Noncash investing and financing activities:
Acquisition of real estate for assumption of
notes payable................................. $ 6,201,285 $ 56,583,135
============= =============
Exchange of employee share notes for shares.... $ 1,510,500 $ --
============= =============
Payments on employee share notes from
shareholder distributions..................... $ 31,946 $ --
============= =============
Redemption of shares........................... $ 1,212,894 $ --
============= =============
</TABLE>
See accompanying notes to financial statements.
FS-50
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and formation
Pacific Retail Trust ("PACIFIC RETAIL") was organized as a Maryland real
estate investment trust on April 27, 1995 (originally named Southwest Retail
Trust) for the purpose of acquiring, developing, managing and owning
neighborhood infill retail properties in a nine state region of the western
United States. On August 23, 1995 the Declaration of Trust was amended and
restated to change the name to Pacific Retail Trust. At June 30, 1998, 69.0%
of PACIFIC RETAIL's outstanding shares of beneficial interest are
constructively owned by Security Capital Holdings, S.A. ("HOLDINGS"), a
wholly-owned subsidiary of Security Capital U.S. Realty ("USREALTY").
Opportunity Capital Partners Limited Partnership ("OCP"), through its
partnership Madison Property I, LP (MPI), acquired preferred shares of PACIFIC
RETAIL as partial consideration for a pool of properties sold to PACIFIC
RETAIL by MPI on October 20, 1995. At June 30, 1998, OCP owned 6.1% of PACIFIC
RETAIL's outstanding shares of beneficial interest.
Principles of consolidation
The consolidated financial statements include the accounts of PACIFIC
RETAIL, its 84.2% ownership in Retail Property Partners Limited Partnership
and its 95.0% ownership in PRT Development Corporation (Note 4).
Basis of presentation
The accompanying consolidated balance sheet at June 30, 1998 and the
consolidated statements of operations, changes in shareholders' equity and
cash flows for the six months ended June 30, 1998 and 1997 are unaudited.
These financial statements should be read in conjunction with PACIFIC RETAIL's
audited financial statements for the year ended December 31, 1997. In the
opinion of company management, the unaudited consolidated financial statements
include all adjustments, consisting only of normal recurring accruals, which
PACIFIC RETAIL considers necessary for a fair presentation of the financial
position of the Company as of June 30, 1998, and the results of operations for
the six months ended June 30, 1998 and 1997.
Revenue recognition
Minimum rents are recognized on a straight-line basis; as such, the rental
revenues for leases which contain rent abatements and contractual increases
are recognized on a straight-line basis over the initial terms of the related
leases. Property operating cost recoveries from tenants of common area
maintenance, real estate taxes and other recoverable costs, are recognized in
the period when the recoveries are earned.
Real estate assets and related depreciation
Costs related directly to the development and improvement of real estate,
including tenant improvements, are capitalized; ordinary repairs and
maintenance are expensed as incurred. Depreciation is computed on a straight-
line basis over the expected economic useful lives, which are principally 10
to 40 years for buildings and improvements.
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"). Under SFAS 121, PACIFIC RETAIL recognizes impairment losses
on property whenever events and changes in circumstances indicate that the
carrying amount of long-lived assets, on an individual property basis, may not
be recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net cash
flows to the carrying amount of the asset. Impairment losses are recognized in
operating income as they are determined. As of June 30, 1998, no impairment
losses have been incurred.
FS-51
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adoption of recent accounting pronouncement
In March 1998, the Emerging Issues Task Force (EITF) finalized Issue 97-11,
requiring all internal costs associated with acquiring operating properties to
be expensed as incurred. PACIFIC RETAIL has applied this policy prospectively.
In July 1998, the EITF finalized Issue 98-9, requiring contingent rent based
on the lessee's sales volume to be recognized when specified targets are met.
PACIFIC RETAIL has applied this policy prospectively since May 1998.
Interest
PACIFIC RETAIL capitalizes interest as part of the cost of real estate
projects during construction periods. During the six months ended June 30, 1998
and 1997 and the year ended December 31, 1997, $1,174,618, $719,130 and
$1,567,444, in interest was capitalized, respectively.
Cash and cash equivalents
Cash and cash equivalents include all cash and cash equivalent investments
with original maturities of three months or less.
Reclassification
Certain reclassifications have been made to prior year financial statements
to conform to current year presentation.
Deferred loan fees
Included in other assets as of June 30, 1998 are net costs of $2,453,941
associated with obtaining financing. Deferred loan fees are amortized to
interest expense over the life of the loan and extensions, which is currently
three years, using the straight-line method. Amortization of deferred loan fees
for the six months ended June 30, 1998 and 1997 was $323,218 and $239,322,
respectively.
Income taxes
PACIFIC RETAIL elected real estate investment trust ("REIT") status in 1995
under the Internal Revenue Code of 1986, as amended. REITs are not required to
pay federal income taxes if minimum distribution, income, asset and shareholder
tests are met and, accordingly, no provision has been made for federal income
taxes in the accompanying financial statements. PRT Development Corporation and
Retail Property Partners Limited Partnership are taxed as separate entities.
FS-52
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings per share
PACIFIC RETAIL has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), which establishes standards for computing and presenting
earnings per share (EPS). Basic EPS excludes the effect of potentially dilutive
securities while diluted EPS reflects the potential dilution that would occur
if dilutive securities or other contracts to issue common shares were
exercised, converted into, or resulted in the issuance of common shares that
then shared in the earnings of the Company. The following tables summarize the
information required under SFAS 128:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE
30, 1998
--------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- ---------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common shares.. $21,705,705 64,036,808 $0.34
-----
EFFECT OF DILUTIVE SECURITIES
Options..................................... -- 235,470
Deferred trustee shares..................... -- 5,940
----------- ----------
DILUTED EPS
Income available to common shares and as-
sumed conversions.......................... $21,705,705 64,278,218 $0.34
=========== ========== =====
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE
30, 1997
--------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- ---------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common shares.. $ 9,562,692 35,846,932 $0.27
-----
EFFECT OF DILUTIVE SECURITIES
Options..................................... -- 73,577
----------- ----------
DILUTED EPS
Income available to common shares and as-
sumed conversions.......................... $ 9,562,692 35,920,509 $0.27
=========== ========== =====
</TABLE>
The assumed conversion of Series A preferred shares of beneficial interest,
Series B preferred shares of beneficial interest and minority interest are not
dilutive and have therefore been excluded from the calculation of
FS-53
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
diluted EPS. Options to purchase 583,539 common shares at $13 per share were
outstanding during the second quarter of 1998 and options to purchase 37,500
common shares at $12 per share were outstanding during the second quarter of
1997, but were not included in the computation of diluted EPS because the
options' exercise price was equal to the estimated fair market value of the
common shares. The options expire 10 years from the date of grant, or earlier
upon termination of employment or death.
Use of estimates
PACIFIC RETAIL has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in accordance with generally
accepted accounting principles. Actual results could differ from those
estimates.
Fair value
PACIFIC RETAIL has estimated the fair value of its financial instruments at
June 30, 1998 as required by Statement of Financial Accounting Standards No.
107. The Company believes the carrying values of the Company's financial
instruments are reasonable estimates of their fair values.
2. REAL ESTATE INVESTMENTS
As of June 30, 1998, PACIFIC RETAIL owned sixty-eight properties. Twenty-one
properties are located in three major metropolitan markets in Texas: the
Dallas-Fort Worth metroplex, Austin and Houston. Shopping centers in the
Dallas-Fort Worth metroplex generated approximately 24% of the total revenues
of the portfolio for the six months ended June 30, 1998. Thirty-two shopping
centers are located in California and comprise approximately 49% of the total
revenues for the six months ended June 30, 1998. The remaining properties are
located in Arizona, Colorado, Washington, and Oregon.
The following summarizes real estate investments:
<TABLE>
<CAPTION>
JUNE 30,
1998
--------------
<S> <C>
Improved land................................................... $ 276,490,996
Land held for development....................................... 1,062,657
Land under development.......................................... 28,190,273
Buildings and improvements...................................... 637,292,181
Land improvements and parking lots.............................. 51,079,111
Properties under development.................................... 15,246,778
--------------
Total real estate investments................................. 1,009,361,996
Less accumulated depreciation................................. (30,121,697)
--------------
Net real estate investments................................. $ 979,240,299
==============
</TABLE>
Land held for development
In March 1996, PACIFIC RETAIL acquired Harwood Hills Shopping Center in
Bedford, Texas. Between March and November of 1996, PACIFIC RETAIL completed
the construction of an additional 20,300 square feet of retail space at a cost
of approximately $1,857,000. As of June 30, 1998, approximately 2.9 acres of
land remained for additional development.
FS-54
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1997, PACIFIC RETAIL acquired Plaza de Hacienda in La Puenta,
California. Associated with this shopping center were approximately 3.63 acres
of land for additional development. As of June 30, 1998, no development has
taken place.
Land under development
In August 1997, PACIFIC RETAIL acquired Prestonwood Park which consists of
24.55 acres of land in Dallas, Texas for future development into a grocery
anchored shopping center. As of June 30, 1998, construction has not commenced.
In November 1997, PRT Development Corporation acquired Hebron Park which
consists of 7.77 acres of land in Carrollton, Texas for development into a
grocery anchored shopping center. As of June 30, 1998, construction has not
commenced.
In January 1998, PRT Development Corporation acquired MacArthur Park which
consists of 38.2 acres of land in Irving, Texas for development into a shopping
center. As of June 30, 1998, PRT Development Corporation has incurred
$4,485,815 in design and construction costs associated with the development
which is included in land under development.
In March 1998, PACIFIC RETAIL acquired Hawthorne Plaza in Hawthorne,
California, which consists of 10.4 acres of land and an existing shopping
center. PACIFIC RETAIL plans to demolish the existing structure and rebuild a
grocery anchored shopping center. As of June 30, 1998, PACIFIC RETAIL has
incurred $447,723 in development costs.
Properties under development
In July 1996, PACIFIC RETAIL acquired Hancock Center in Austin, Texas for the
purpose of redeveloping it as a grocery anchored infill shopping center.
PACIFIC RETAIL immediately embarked upon the redevelopment program. As of June
30, 1998, $4,164,874 in design and demolition costs and construction associated
with the redevelopment remained.
In July 1996, PACIFIC RETAIL acquired Casa Linda in Dallas, Texas. During
1997, significant rehabilitation work began on the property. As of June 30,
1998, PACIFIC RETAIL has incurred $2,026,225 in rehabilitation costs.
Three other properties have incurred significant development activity
totaling $2,626,635 as of June 30, 1998.
3. BORROWINGS
Lines of credit--secured
On December 27, 1995, PACIFIC RETAIL entered into a credit agreement with a
group of lenders to provide a secured line of credit up to a maximum of $50
million. On July 17, 1996, the credit agreement was amended to increase the
secured line of credit to a maximum of $75 million. The lenders determine the
secured net borrowing base by using the lesser of 65% of the lenders' appraised
value on ten of the properties or the permanent loan estimate for each
property. As of December 31, 1997, the secured net borrowing base was
$75 million. On November 14, 1997, the secured line of credit agreement was
amended. Under the amended
FS-55
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
credit agreement, borrowings bear interest at the greater of prime or federal
funds rate plus .50% or, at PACIFIC RETAIL's option, LIBOR plus a margin of
1.25%, if the ratio of total liabilities to gross asset value is less than .35
to one, or 1.40% if the ratio of total liabilities to gross asset value is
greater than or equal to .35 to one. Additionally, there is a fee of .125% per
annum of the average daily unfunded line of credit balance, or a fee of .25%
per annum of the average daily unfunded line of credit balance if the average
daily balance for both the secured and unsecured lines of credit is greater
than $100 million. Interest is paid monthly based on the unpaid principal
balance. On May 18, 1998, the credit agreement was amended; the secured line of
credit was paid in full and terminated through the use of funds from the
unsecured line of credit. The weighted averaged interest rates for the period
from January 1, 1998 to May 18, 1998 and the year ended December 31, 1997 were
6.98% and 7.4%, respectively. The interest rate at December 31, 1997 was 8.5%.
Lines of credit--unsecured
On March 28, 1997, PACIFIC RETAIL entered into a credit agreement with a
group of lenders to provide an unsecured line of credit up to a maximum of $75
million. On November 14, 1997, the unsecured line of credit was increased to a
maximum of $125 million. On May 18, 1998, the credit agreement was amended and
the unsecured line of credit was increased to $350 million. Borrowings bear
interest at the greater of prime or federal funds rate plus .50% or, at PACIFIC
RETAIL's option, LIBOR plus a margin of 1.25%, if the ratio of total
liabilities to gross asset value is less than .35 to one, or 1.40% if the ratio
of total liabilities to gross asset value is greater than or equal to .35 to
one and less than .5 to one. Additionally, there is a fee of .125% per annum of
the average daily unfunded line of credit balance, or a fee of .25% per annum
of the average daily unfunded line of credit balance if the average daily
balance is greater than $175 million. Interest is paid monthly based on the
unpaid principal balance. The weighted average interest rate for the six months
ended June 30, 1998 and the period from March 28, 1997 to December 31, 1997
were 7.03% and 7.7%, respectively. There were no borrowings outstanding under
the unsecured line of credit at December 31, 1997. The interest rate at June
30, 1998 was 7.07%.
The termination date of the amended credit agreement is March 28, 2000, but
it may be extended for successive one-year periods, if acceptable to the
lenders, for a .10% extension fee. All debt incurrences are subject to
covenants, as more fully described in the credit agreement. PACIFIC RETAIL has
utilized the unsecured line of credit to help finance the acquisition of
neighborhood shopping centers and for general working capital purposes during
the six months ended June 30, 1998.
Bridge loan
On December 19, 1996, PACIFIC RETAIL entered into a credit agreement ("Bridge
Loan") with a group of lenders. The agreement, amended on December 27, 1996,
provided for an unsecured line of credit up to $32,500,000. The Bridge Loan was
repaid in January 1997.
FS-56
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable
Notes payable consisted of the following at June 30, 1998:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
INTEREST MATURITY PAYMENTS/ BALANCE AT BALANCE AT
MARKET RATE DATE PERIOD 6/30/98 12/31/97
---------- -------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Notes Payable:
Harwood Hills Village
Shopping Center...... Texas 8.58% 7/1/98 $ 49,335(1) $ 6,900,000 $ 6,900,000
Paseo Village......... Arizona 7.50 5/1/01 38,668(2) 4,293,054 4,362,548
Mills Pointe & Preston
Park Village(4)...... Texas 7.23 7/1/00 264,578(2) 31,549,779 31,987,449
Plaza de Hacienda..... California 9.00 6/10/12 57,128(2) 6,724,902 6,764,017
Market at Round Rock.. Texas 8.63 12/31/05 63,059(2) 7,467,823 7,522,739
North Hills Town
Center............... Texas 7.37 1/1/14 76,974(2) 9,068,643 9,193,610
Friar's Mission....... California 9.50 6/10/05 152,006(2) 16,770,826 16,901,320
Woodman Van-Nuys...... California 8.80 9/15/15 57,745(2) 6,139,034 --
Municipal Tax Bonds
Payable:
Friar's Mission....... California 7.30- 9/2/15 161,177- 1,321,699 1,311,367
7.90 168,131(3)
----------- -----------
$90,235,760 $84,943,050
----------- -----------
</TABLE>
Principal repayments of notes payable are due approximately as follows:
<TABLE>
<S> <C>
Six months remaining in 1998....................................... $ 7,720,855
1999............................................................... 2,043,316
2000............................................................... 31,406,578
2001............................................................... 5,032,113
2002............................................................... 1,197,673
2003 and after..................................................... 42,835,225
-----------
$90,235,760
===========
</TABLE>
- --------
(1) Payments are interest only payable monthly with the full principal balance
due at maturity.
(2) Payments are interest and principal payable monthly.
(3) Annual payments of principal and interest payable in two semiannual
installments. Amount disclosed is the applicable annual payment range.
(4) Mills Pointe & Preston Park Village are subject to one mortgage note
payable.
4. MINORITY INTEREST
Minority interest represents limited partners' interests in Retail Property
Partners Limited Partnership (the Partnership), a limited partnership
controlled by PACIFIC RETAIL, and PRT Development Corporation (PRT
Development), a Delaware corporation controlled by PACIFIC RETAIL.
Retail Property Partners Limited Partnership
In September 1996, PACIFIC RETAIL formed the Partnership by contributing cash
to the Partnership in exchange for a 50.2% controlling general partnership
interest in the Partnership, which invested in two retail
FS-57
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
centers in Dallas, Texas. On December 1, 1996, PACIFIC RETAIL contributed the
Blossom Valley Shopping Center in Mountain View, California to the Partnership.
The assets and liabilities of Blossom Valley were transferred at book value as
the transfer was between entities under common control. The value of the
contributed property was $17,354,543, which increased PACIFIC RETAIL's
investment in the Partnership to 76.6%.
On July 31, 1997, PACIFIC RETAIL contributed $8.9 million to the Partnership.
With this contribution, PACIFIC RETAIL's investment in the Partnership
increased to 81.6%. The Partnership used this contribution to purchase the
Heritage Plaza land. On May 21, 1998, PACIFIC RETAIL contributed $14,273,244 to
the Partnership. With this contribution, PACIFIC RETAIL's investment in the
Partnership increased to 84.2%. The Partnership used this contribution to
purchase the Thomas Lake property in May 1998.
Limited partners are entitled to exchange each partnership unit for one
common share of beneficial interest in PACIFIC RETAIL beginning in August 1998.
As of December 31, 1997, there were 765,000 limited partnership units
outstanding in the Partnership. On May 21, 1998, an additional 115,385
partnership units were issued in association with the acquisition of Thomas
Lake. The limited partners' interests will be reflected as minority interest in
the consolidated financial statements until the units are exchanged for PACIFIC
RETAIL shares.
PRT Development Corporation
On November 20, 1997, PRT Development Corporation was organized as a Delaware
corporation for the purpose of acquiring land and developing and selling the
developed neighborhood infill retail shopping centers. The authorized capital
of PRT Development consists of 2,000,000 shares of common stock. 100,000 of the
shares will be issued as Class A voting shares. The remaining 1,900,000 shares
will be Class B nonvoting. As of June 30, 1998 and December 31, 1997, 33,892
and 3,250 shares, respectively, of Class A common stock were issued and
outstanding. All of the Class A common stock is constructively owned by
USREALTY, and is represented in minority interest. PACIFIC RETAIL owned 643,958
shares of Class B common stock issued and outstanding at June 30, 1998. The
Class B common stock is generally entitled to 95% of all distributions made by
PRT Development, and the Class A common stock is generally entitled to 5% of
all distributions made by PRT Development. PACIFIC RETAIL has consolidated the
operations of PRT Development based on the control exerted in the ordinary
course of business over the operating decisions of PRT Development.
5. SHAREHOLDERS' EQUITY
Offerings
Between October 20, 1995 and July 16, 1996, PACIFIC RETAIL closed on a series
of private offerings to HOLDINGS which resulted in the sale of 20 million
common shares of beneficial interest at $10 per share for a total amount of
$200 million.
On October 20, 1995, as a partial acquisition price for five properties
acquired from OCP, PACIFIC RETAIL issued 1,130,276 Series A preferred shares of
beneficial interest to MPI at a stated liquidation preference of $10 per share
plus declared and unpaid dividends resulting in outstanding Series A Preferred
shares valued at $11,302,760.
On December 22, 1995, PACIFIC RETAIL completed an offering of 100,000 common
shares at a price of $10 per share. Net proceeds, after offering costs, to
PACIFIC RETAIL were $982,000.
On August 6, 1996, OCP acquired 2,000,000 shares of Series B preferred shares
of beneficial interest at a stated liquidation preference of $10 per share plus
declared and unpaid dividends resulting in Series B preferred shares valued at
$20 million.
FS-58
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 30, 1996, OCP acquired 1,000,000 common shares of beneficial
interest in PACIFIC RETAIL at $10 per share for a total of $10 million.
On August 31, 1996, PACIFIC RETAIL completed a private offering of 18,182,305
common shares of beneficial interest at $11 per share resulting in a total
equity investment of $200,005,350. The first funding call took place on
September 16, 1996 resulting in 2,860,197 shares being issued for net proceeds
of $29,414,529. On January 9, 1997 and January 27, 1997, two funding calls took
place resulting in a total of 10,214,738 shares being issued for net proceeds
of $112,355,838. The final funding call took place on May 15, 1997 resulting in
5,107,370 shares being issued for net proceeds of $56,181,060.
On April 30, 1997, PACIFIC RETAIL completed a private offering of 12,500,000
common shares of beneficial interest at $12 per share resulting in a total
expected equity investment of $150,000,000. The first funding call took place
on May 15, 1997 resulting in 1,898,100 shares being issued for net proceeds of
$21,277,205. The second funding call took place on September 18, 1997 resulting
in 3,180,570 shares being issued for net proceeds of $38,158,904. On October 1,
November 11, and November 28, three funding calls took place resulting in a
total of 4,342,300 shares being issued for net proceeds of $52,107,598. The
final funding call took place on December 26, 1997 resulting in 3,079,030
shares being issued for net proceeds of $36,948,358.
On December 29, 1997, PACIFIC RETAIL completed and fully funded a private
offering of 11,538,462 common shares of beneficial interest at $13 per share
for net proceeds of $148,474,528.
Trustee compensation
On March 11, 1997, PACIFIC RETAIL granted 4,305 shares to the board of
trustees as part of their compensation.
Effective March 14, 1997, PACIFIC RETAIL adopted the Deferred Fee Plan for
nonemployee trustees. Under this plan, trustees can defer receipt of cash and
equity compensation otherwise payable to the trustee by PACIFIC RETAIL.
Interest and dividends are earned on the deferred compensation. An election
must be made by each trustee to defer their compensation, and this election
shall remain in effect until modified or revoked by the trustee. Each trustee
must specify when the payment of deferred compensation is to take place. The
compensation may be deferred to a specific date of at least two years past the
time the compensation is earned, or the compensation may become payable on the
last day of the calendar year in which the trustee terminates service with
PACIFIC RETAIL, or the compensation can become payable on the earlier of such
dates.
As of June 30, 1998, 8,055 shares have been deferred under this plan.
Shares of beneficial interest
As of June 30, 1998, 150,000,000 shares of beneficial interest, $.01 par
value per share, were authorized. PACIFIC RETAIL's board of trustees is
authorized to issue, from the authorized but unissued shares of PACIFIC RETAIL,
preferred shares in series and to establish from time to time the number of
preferred shares to be included in such series and to fix the designation and
any preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemptions of the shares of such series.
FS-59
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common shares
The outstanding common shares ("Shares") do not have redemption or conversion
rights or the benefit of any sinking fund. In the event of liquidation,
dissolution or winding up of PACIFIC RETAIL, the holders of Shares are entitled
to receive ratably the assets remaining after satisfaction of all liabilities
and payment of preferences and accrued dividends, if any, on PACIFIC RETAIL's
shares ranking senior to the Shares (including the preferred shares). The
rights of holders of Shares are subject to the rights and preferences
established by PACIFIC RETAIL's board of trustees for any preferred shares
which have been or may subsequently be issued.
Preferred shares
The Series A preferred shares, the Series B preferred shares (together
referred to as "Preferred Shares") and Shares vote together as a single class
with respect to all matters presented to PACIFIC RETAIL's shareholders for a
vote. If twelve consecutive quarterly dividends on the Preferred Shares are in
arrears, the holders of Preferred Shares will be entitled to nominate and elect
an additional trustee until such time as all arrearages have been paid. The
Preferred Shares are entitled to a liquidation preference of $10 per share plus
an amount equal to all dividends declared but unpaid to the date of final
distribution. PACIFIC RETAIL may redeem the Preferred Shares any time after
October 20, 2010 at a price of $10 per share, plus all declared but unpaid
dividends.
Series A preferred shares
Series A preferred shares are convertible into Series B preferred shares on a
one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series A preferred
shares were entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share or (ii) $0.013 less than the dividend on the Shares. For
fiscal years beginning on or after January 1, 1997, Series A preferred shares
are entitled to quarterly dividends in an amount equal to the greater of (i)
$0.10 per share, (ii) 65% of the highest funds from operations per Share for
any preceding fiscal year and (iii) $0.013 less than the dividend on the
Shares. Dividends on the Series A preferred shares are cumulative from the
original issue date. PACIFIC RETAIL is restricted from paying any dividends on
any Shares or shares ranking on a parity with, or ranking junior to, the Series
A preferred shares, unless all cumulative dividends are simultaneously paid on
the Series A preferred shares.
Series B preferred shares
The board of trustees has authorized up to 6,130,276 Series B preferred
shares for issuance. Series B preferred shares are convertible into Shares on a
one-for-one basis and contain provisions for adjustment to prevent dilution.
For fiscal years beginning before January 1, 1997, the Series B preferred
shares were entitled to a quarterly dividend in an amount equal to the greater
of (i) $0.10 per share or (ii) the dividend on the Shares. For fiscal years
beginning on and after January 1, 1997, Series B preferred shares are entitled
to quarterly dividends in an amount equal to the greater of (i) $0.10 per
share, (ii) 65% of the highest funds from operations per Share for any
preceding fiscal year or (iii) the dividend on the Shares. Dividends on the
Series B preferred shares are cumulative from the original issue date. PACIFIC
RETAIL is restricted from paying any dividends on any Shares or shares ranking
on a parity with, or ranking junior to, the Series B preferred shares, unless
all cumulative dividends are simultaneously paid on the Series B preferred
shares.
Investor agreement
On October 20, 1995, HOLDINGS, and PACIFIC RETAIL entered into an investor
agreement whereby HOLDINGS agreed to purchase up to 20 million Shares at $10
per share, net of the original shares purchased,
FS-60
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
before October 20, 1997. As of December 31, 1996, HOLDINGS had completed the
purchase of 20 million Shares. As long as HOLDINGS owns at least 25% of the
outstanding common shares of PACIFIC RETAIL it will have certain rights
regarding appointment of trustees to the board of trustees and regarding
approval of budgets, property operations, property acquisitions, changes in
executive officers and sales of shares.
Shareholders' agreement
On October 20, 1995, OCP entered into a shareholders' agreement with HOLDINGS
and PACIFIC RETAIL. Among other provisions of the agreement, OCP was to acquire
two million shares of Series B preferred shares at $10 per share at its own
request or if required by PACIFIC RETAIL. On August 6, 1996, OCP purchased the
two million shares of Series B preferred shares.
As part of the August 9, 1996 amendment to the shareholders' agreement,
HOLDINGS and OCP shall each have the right to participate pro rata, based upon
percentage ownership of the Shares on a fully diluted basis, in any offerings
by PACIFIC RETAIL of any capital shares or securities convertible into capital
shares on the same terms and at the same time as other offerees. The respective
rights terminate at such time as the holder shall own less than 10% of the
Shares on a fully diluted basis.
Shareholder ownership limitations
PACIFIC RETAIL's Declaration of Trust seeks to preserve its REIT status by
restricting any shareholder from owning more than 9.8% of PACIFIC RETAIL's
shares of beneficial interest, other than HOLDINGS or OCP. PACIFIC RETAIL
intends to adopt a shareholder rights plan pursuant to which one purchase right
will be issued as a dividend for each outstanding Share. Each purchase right
will entitle the holder to purchase one share at a fixed exercise price and,
under certain circumstances, to purchase at the exercise price shares or
securities of an acquiring company having a market value equal to some multiple
of the exercise price. The purchase rights would be exercisable only upon the
occurrence of certain triggering events and purchase rights held by the
acquiring person would not be exercisable. HOLDINGS and OCP would be exempted
from this shareholder rights plan.
6. INCENTIVE STOCK PROGRAMS
PACIFIC RETAIL has authorized 1,875,000 Shares for a share incentive plan
(the "Plan"). On September 24, 1997, the Plan was amended to increase the
number of shares authorized to 5,250,000. Additionally, the Plan was amended to
award "dividend equivalent units" with all option grants (other than matching
options). Participants who are awarded dividend equivalent units will be
credited with these units annually based on a calculated dividend yield,
multiplied by the number of options outstanding. Matching options and a loan
provision have also been added to the common share purchase portion of the
Plan. This provision allows the compensation committee to award, for each
common share purchased, one or more matching options. Matching options do not
receive dividend equivalent units. Further, PACIFIC RETAIL may offer
participants loans for the entire purchase price of any common shares purchased
under the share purchase program. Any loans will be fully recourse to the
participant and be for a maximum of 10 years, subject to an acceleration in the
event of termination of employment or sale of the common shares. Participants
will be required to pledge any common shares to secure the loan from PACIFIC
RETAIL. Under all plans, the option exercise price represents the estimated
fair market value at the date of grant. Vesting of the options commences no
more than two years from grant date and options are fully vested no more than
five years from grant date. Options expire in 10 years from the date of grant
or earlier upon termination of employment or death.
FS-61
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 30, 1997, 696,000 Shares at a price of $12 per share were issued
under the amended Plan. Additional shares totaling 17,692 and 104,615 at a
price of $13 per share were issued under the amended plan on January 15, 1998
and April 3, 1998, respectively. Loans were issued for 95% of the total
purchase amount and the remaining 5% was received in cash from the
participants.
On March 31, 1998, 106,667 shares issued at a price of $12 per share were
repurchased at a market price of $13 per share. Loans totaling $1,212,894 were
retired at the date of the repurchase. A cash payment of $173,773 was paid to
the shareholders representing the difference between the loan balance at the
time of the repurchase and the market value of the shares repurchased.
On June 30, 1998, 10,000 shares issued at a price of $12 per share were
repurchased at a market price of $13 per share. Loans totaling $113,485 were
retired at the date of the repurchase. A cash payment of $16,515 was paid to
the shareholders representing the differences between the loan balance at the
time of the repurchase and the market value of the shares repurchased.
On August 6, 1996, the board of trustees adopted the 1996 Trustees Plan (the
"Trustees Plan"). Under the Trustees Plan, nonemployee trustees received
options to purchase Shares at an exercise price equal to the market price on
the date of the grant. Options granted under the Trustees Plan are immediately
vested. These options expire in 5 years from the date of grant or earlier upon
resignation from the board of trustees or death.
PACIFIC RETAIL applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. No compensation has been recognized for the Plan as
PACIFIC RETAIL has issued the options at an exercise price which represents the
fair market value at the date of grant. Had compensation cost for the Plan been
determined based on the fair market value at the grant dates for awards,
consistent with the method provided by Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), the Company's pro forma net earnings for the
six months ended June 30, 1998 and 1997 would have been:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C> <C>
Net earnings.............................. As reported $22,881,475 $10,660,204
Pro forma $22,397,772 $10,615,448
Per share net earnings.................... As reported $ .34 $ .27
attributable common shares............... Pro forma $ .33 $ .27
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the "minimum value" calculation stipulated by SFAS No. 123 for nonpublic
companies. PACIFIC RETAIL has assumed the following in estimating the fair
value of the options: expected lives of 5 years, dividend yield of 5%, expected
volatility of 0%, and risk-free interest rates ranging from 6.56% to 5.5%.
FS-62
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes activity under all programs:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE PRICE OPTIONS
-------------- ---------
<S> <C> <C>
Outstanding at December 31, 1997..................... $11.73 2,463,872
Granted............................................ 13.00 256,616
Exercised.......................................... -- --
Cancelled.......................................... (12.00) (231,062)
------ ---------
Outstanding at June 30, 1998......................... $11.82 2,489,426
------ ---------
Options exercisable at June 30, 1998................. $10.51 130,282
------ ---------
Weighted average fair value of options granted during
1998................................................ $ 3.22
------
</TABLE>
7. DIVIDENDS AND FUNDS FROM OPERATIONS FOR DISTRIBUTION TO SHAREHOLDERS
PACIFIC RETAIL's current dividend policy is to pay dividends to shareholders
based upon funds from operations and aggregating annually at least 95% of its
taxable income. Funds from operations are not to be construed as a substitute
for "net earnings" in evaluating operating results nor as a substitute for
"cash flow" in evaluating liquidity. Funds from operations for the six months
ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Net earnings attributable to common shares............. $21,705,705 $ 9,562,692
Add:
Depreciation of real estate property................. 10,679,538 6,189,568
Minority interest.................................... 286,224 268,942
----------- -----------
Funds from operations attributable to common shares.. $32,671,467 $16,021,202
----------- -----------
Funds from operations per common share............... $ .50 $ .45
----------- -----------
Weighted average common shares outstanding, including
minority interest................................... 64,827,945 35,846,932
----------- -----------
</TABLE>
Net earnings attributable to common shares includes $1,071,668, and $601,637
of straight-line rent for the six months ended June 30, 1998 and 1997,
respectively.
8. OPERATING LEASES
PACIFIC RETAIL receives rental income from the properties under operating
leases with terms ranging from less than one year to 24 years. The minimum
future rentals under operating leases as of June 30, 1998 are as follows:
<TABLE>
<S> <C>
Six months remaining in 1998...................................... $ 44,019,263
1999.............................................................. 82,507,273
2000.............................................................. 72,707,551
2001.............................................................. 61,738,312
2002.............................................................. 53,131,424
Thereafter........................................................ 344,206,732
------------
$658,310,555
============
</TABLE>
FS-63
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Randall's Food & Drug, Inc. and its subsidiary, Tom Thumb Stores, Inc.
(Randall's/Tom Thumb), a regional grocery chain, leases space in ten of the
retail centers. Beginning in July 1998, minimum future rentals under current
lease agreements with Randall's/Tom Thumb account for $66,732,765 or 10.1% of
the contracted minimum future rentals shown above. No other tenants account for
more than 10% of the minimum future rentals.
9. COMMITMENTS AND CONTINGENCIES
PACIFIC RETAIL is subject to environmental regulations related to the
ownership, operation, development and acquisition of real estate properties. As
part of due diligence procedures, PACIFIC RETAIL has obtained or conducted
Phase I environmental assessments on each property prior to acquisition.
PACIFIC RETAIL is not aware of any environmental condition on any of its
properties which is likely to have a materially adverse effect on PACIFIC
RETAIL's financial condition or results of operations.
10. SUBSEQUENT EVENTS
In July 1998, using proceeds from the line of credit, PACIFIC RETAIL
contributed cash to Retail Property Partners Limited Partnership (the
Partnership) for the purpose of acquiring 4 shopping centers in Oregon. The
properties purchased and their approximate purchase prices were as follows:
Sunnyside 205--$9,500,000, Cherry Park Market Center--$17,900,000, Murrayhill
Marketplace--$16,720,000, Sherwood Market Center--$16,910,000. Approximately
$1,656,403 limited partnership units were issued and $38,947,682 in debt was
assumed in connection with the acquisitions.
On July 10, 1998, the Partnership formed a limited liability company called
PRT Sunnyside, LLC for the purpose of owning, holding, managing, operating,
leasing, or selling the property commonly referred to as Sunnyside 205. The
property was purchased by the Partnership and then conveyed to PRT Sunnyside
LLC subject to a note payable in the amount of $5,806,994.
On July 1, 1998, PACIFIC RETAIL paid in full the remaining principal balance
on the mortgage payable for Harwood Hills Village Shopping Center.
FS-64
<PAGE>
PACIFIC RETAIL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COSTS CAPITALIZED DECEMBER 31, 1997
------------------- SUBSEQUENT ------------------------------------- YEAR
ENCUM- BUILDINGS & TO BUILDINGS & ACCUMULATED CONSTRUCTED/
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
---------- ------- ------ ------------ ----------- ---------- -------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES
Austin, Texas Area:
Market @ Round
Rock............ $ 7,523 $2,000 $ 8,978 $ 9 $ 2,000 $ 8,988 $ 10,988 $ (236) 1997
North Hills...... 9,194 4,900 18,484 56 4,900 18,540 23,440 (406) 1997
Dallas/Ft. Worth
Area:
Arapaho Village
South........... 837 7,083 328 837 7,411 8,248 (569) 1995
Casa Linda Plaza. 4,515 23,190 4,260 4,515 27,450 31,965 (1,120) 1996
Cooper Street
Plaza........... 2,079 10,419 78 2,079 10,497 12,576 (690) 1995
Harwood Hills
Phase I & II.... 6,900 2,618 6,475 2,004 2,618 8,478 11,096 (692) 1996,1996
Hillcrest
Village......... 1,600 1,752 1,600 1,752 3,352 (65) 1996
Market @ Preston
Forest.......... 4,400 10,643 4,400 10,643 15,043 (248) 1997
Mills Pointe..... 6,078 2,000 11,432 177 2,000 11,610 13,610 (334) 1997
Mockingbird
Commons......... 3,000 9,335 32 3,000 9,367 12,367 (398) 1996
Northview Plaza.. 1,957 7,999 263 1,957 8,262 10,219 (627) 1995
Preston Park
Village......... 25,910 6,400 45,957 9 6,400 45,966 52,366 (1,143) 1997
Ridglea Plaza.... 1,675 12,609 71 1,675 12,680 14,355 (978) 1995
Southpark Center. 3,078 8,720 38 3,078 8,758 11,836 (662) 1995
Valley Ranch
Phase I & II.... 2,593 6,276 3,989 3,021 9,837 12,858 (414) 1996,1996
The Village...... 522 6,809 38 522 6,847 7,369 (520) 1995
Denver Area:
Boulevard Center. 3,659 9,382 47 3,659 9,429 13,088 (375) 1996
Buckley Square... 3,270 4,248 (265)(b) 2,970 4,283 7,253 (180) 1996
Leetsdale Center. 3,420 9,150 432 3,420 9,582 13,002 (417) 1996
Littleton Square. 2,030 8,060 58 2,030 8,118 10,148 (241) 1996
Houston Area:
Champion Forest.. 2,666 7,943 22 2,666 7,965 10,631 (258) 1997
Los Angeles County
Area:
El Camino........ 7,600 9,671 7,600 9,671 17,271 (86) 1997
</TABLE>
S-1
<PAGE>
PACIFIC RETAIL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--CONTINUED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COSTS CAPITALIZED DECEMBER 31, 1997
-------------------- SUBSEQUENT ------------------------------------ YEAR
ENCUM- BUILDINGS & TO BUILDINGS & ACCUMULATED CONSTRUCTED/
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
---------- ------- ------- ------------ ----------- ---------- ------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES
Plaza de
Hacienda....... $ 6,764 $ 4,230 $ 9,744 $ 3 $ 4,230 $ 9,747 $ 13,977 $ (349) 1997
Redondo Village. 1,313 3,810 1,313 3,810 5,123 (252) 1996
Ventura Village. 4,300 6,135 32 4,300 6,167 10,467 (311) 1996
Orange County
Area:
Heritage Plaza.. 8,907 25,732 46 8,907 25,778 34,685 (370) 1997
Morningside
Plaza.......... 4,300 12,819 3 4,300 12,823 17,123 (176) 1997
Newland Center.. 12,500 11,686 12,500 11,686 24,186 1997
Rona Plaza...... 1,500 4,239 2 1,500 4,240 5,740 (29) 1997
Santa Ana
Downtown Plaza. 4,240 7,105 13 4,240 7,118 11,358 (369) 1996
Phoenix Area:
Paseo Village... 4,363 2,550 6,652 100 2,550 6,752 9,302 (284) 1996
Pima Crossing... 5,800 24,208 98 5,800 24,306 30,106 (181) 1997
Portland Area:
Walker Center... 3,840 6,244 3,840 6,244 10,084 (155) 1997
Sacramento Area:
Arden Square.... 3,140 7,271 3,140 7,271 10,411 1997
The Promenade... 2,526 12,244 18 2,526 12,263 14,789 (664) 1996
San Diego County
Area:
Costa Verde..... 12,740 21,991 261 12,740 22,253 34,993 (1,249) 1996
El Norte Parkway
Plaza.......... 2,834 6,121 1 2,834 6,122 8,956 (431) 1996
Friars Mission.. 18,213 6,660 25,754 6,660 25,754 32,414 (289) 1997
San Francisco Bay
Area:
Blossom Valley.. 7,804 9,848 31 7,804 9,880 17,683 (451) 1996
Country Club
Village........ 3,000 11,117 170 3,000 11,287 14,287 (353) 1996
Encina Grande... 5,040 10,117 6 5,040 10,123 15,163 (306) 1997
Loehmann's
Plaza.......... 5,420 8,044 5,420 8,044 13,464 1997
San Leandro..... 1,300 7,689 1,300 7,689 8,989 (55) 1997
Sequoia Station. 9,100 17,697 9,100 17,697 26,797 1997
Strawflower
Village........ 4,060 6,867 15 4,060 6,882 10,943 (301) 1996
Tassajara
Crossing....... 8,560 14,526 47 8,560 14,573 23,133 (766) 1996
Westpark Plaza.. 5,840 4,398 37 5,840 4,434 10,274 (109) 1997
Woodside Central
Plaza.......... 3,500 8,623 3,500 8,623 12,123 (187) 1997
</TABLE>
S-2
<PAGE>
PACIFIC RETAIL TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--CONTINUED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
INITIAL COSTS COSTS DECEMBER 31, 1997
--------------------- CAPITALIZED ----------------------------------- YEAR
ENCUM- BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED CONSTRUCTED/
PROPERTIES BRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED
---------- ------- -------- ------------ -------------- ---------- ------------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
Seattle Area:
Lake Meridian
Marketplace....... $ 6,510 $ 11,557 $ 119 $ 6,510 $ 11,676 $ 18,186 $ (355) 1996
South Point Plaza. 5,000 9,697 37 5,000 9,735 14,735 (205) 1997
Southcenter Plaza. 1,300 12,022 74 1,300 12,096 13,396 (357) 1996
Totem Hill Plaza.. 1,100 3,124 15 1,100 3,139 4,239 (105) 1997
-------- -------- ------- ---------- ---------- ---------- --------
TOTAL OPERATING
PROPERTIES.......... $84,943 215,732 571,699 12,773 215,861 584,347 800,205 (19,315)
------- -------- -------- ------- ---------- ---------- ---------- --------
REDEVELOPMENT
PROPERTIES
Austin, Texas Area:
Hancock Center.... 8,232 4,150 5 8,232 4,155 12,386 (348) 1996
Orange County Area:
Bristol and
Warner............ 5,000 7,095 5,000 7,095 12,095 (18) 1997
------- -------- -------- ------- ---------- ---------- ---------- --------
TOTAL REDEVELOPMENT
PROPERTIES.......... -- 13,232 11,245 4 13,232 11,249 24,481 (366)
------- -------- -------- ------- ---------- ---------- ---------- --------
LAND UNDER
DEVELOPMENT
Dallas/Ft. Worth
Area:
Hebron Parkway
Plaza............. 2,378 2,378 2,378 1997
Prestonwood Park.. 10,166 10,166 10,166 1997
-------- -------- ------- ---------- ---------- ---------- --------
TOTAL LAND UNDER
DEVELOPMENT......... 12,543 -- -- 12,544 -- 12,544 --
-------- -------- ------- ---------- ---------- ---------- --------
LAND HELD FOR
DEVELOPMENT
Dallas/Ft. Worth
Area:
Harwood Hills..... 234 1 235 235 1996
Los Angeles Area:
Plaza de Hacienda. 770 58 828 828 1997
-------- -------- ------- ---------- ---------- ---------- --------
TOTAL LAND HELD FOR
DEVELOPMENT......... 1,004 -- 59 1,063 -- 1,063 --
-------- -------- ------- ---------- ---------- ---------- --------
GRAND TOTAL..... $84,943 $242,512 $582,944 $12,837 $ 242,700 $ 595,596 $ 838,293 $(19,681)
======= ======== ======== ======= ========== ========== ========== ========
</TABLE>
(a) Reconciliation of total cost to balance sheet caption at December 31, 1997
(in thousands):
<TABLE>
<S> <C>
Total per Schedule III............................................. $838,293
Construction in process............................................ 13,165
--------
Total real estate.................................................. $851,458
========
</TABLE>
(b) Pad site was sold in 1997 to the tenant under a right of first refusal
existing at time center was purchased. Sales price was $300,000 which was
equal to the cost of the pad site.
S-3
<PAGE>
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 23, 1998
BY AND BETWEEN
REGENCY REALTY CORPORATION
AND
PACIFIC RETAIL TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS.................................................... 2
Section 1.1 Definition................................................. 2
ARTICLE II. THE MERGER................................................... 5
Section 2.1 The Merger. ............................................... 5
Section 2.2 The Closing. .............................................. 6
Section 2.3 Effective Time. ........................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF EAST....................... 6
Section 3.1 Organization and Qualification. ........................... 6
Section 3.2 Capitalization. ........................................... 7
Section 3.3 Authority; Non-contravention; Approvals. .................. 8
Section 3.4 Disclosure and Financial Statements. ...................... 9
Section 3.5 Absence of Certain Changes or Events. ..................... 10
Section 3.6 Registration Statement and Proxy Statement and
Prospectus. ........................................................... 10
Section 3.7 Taxes. .................................................... 10
Section 3.8 Absence of Undisclosed Liabilities. ....................... 12
Section 3.9 Litigation. ............................................... 12
Section 3.10 No Violation of Law. ...................................... 13
Section 3.11 East Properties. .......................................... 13
Section 3.12 Labor Matters. ............................................ 14
Section 3.13 Employee Benefit Plans. ................................... 14
Section 3.14 Intellectual Property. .................................... 14
Section 3.15 East Material Contracts. .................................. 14
Section 3.16 Environmental Matters. .................................... 14
Section 3.17 Insurance. ................................................ 15
Section 3.18 Brokers and Finders. ...................................... 15
Section 3.19 Investment Company Act. ................................... 15
Section 3.20 HSR Act. .................................................. 16
Section 3.21 State Antitakeover Laws Not Applicable. ................... 16
Section 3.22 Required East Vote. ....................................... 16
Section 3.23 Board Recommendation. ..................................... 16
Section 3.24 Opinion Of Financial Advisor. ............................. 16
Section 3.25 Disclosure. ............................................... 16
Section 3.26 Definition of East's Knowledge. ........................... 16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF WEST........................ 17
Section 4.1 Organization And Qualification. ........................... 17
Section 4.2 Capitalization. ........................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.3 Authority; Non-contravention; Approvals. .................. 18
Section 4.4 Disclosure And Financial Statements. ...................... 20
Section 4.5 Absence Of Certain Changes Or Events. ..................... 20
Section 4.6 Registration Statement And Proxy Statement And
Prospectus. ........................................................... 20
Section 4.7 Taxes. .................................................... 20
Section 4.8 Absence Of Undisclosed Liabilities. ....................... 22
Section 4.9 Litigation. ............................................... 22
Section 4.10 No Violation Of Law. ...................................... 23
Section 4.11 West Properties. .......................................... 23
Section 4.12 Labor Matters. ............................................ 23
Section 4.13 Employee Benefit Plans. ................................... 24
Section 4.14 Intellectual Property. .................................... 24
Section 4.15 West Material Contracts. .................................. 24
Section 4.16 Environmental Matters. .................................... 25
Section 4.17 Insurance. ................................................ 25
Section 4.18 Brokers and Finders. ...................................... 25
Section 4.19 Investment Company Act. ................................... 26
Section 4.20 HSR Act. .................................................. 26
Section 4.21 State Antitakeover Laws Not Applicable. ................... 26
Section 4.22 Required West Vote. ....................................... 26
Section 4.23 Board Recommendation. ..................................... 26
Section 4.24 Opinion of Financial Advisor. ............................. 26
Section 4.25 Disclosure. ............................................... 26
Section 4.26 Definition of West's Knowledge. ........................... 27
ARTICLE V. CONDUCT OF BUSINESSES PENDING THE CLOSING...................... 27
Section 5.1 Conduct Of Business By East. .............................. 27
Section 5.2 Conduct Of Business By West. .............................. 29
Section 5.3 Coordination of Dividends. ................................ 31
Section 5.4 No Solicitation. .......................................... 31
ARTICLE VI. ADDITIONAL AGREEMENTS......................................... 34
Section 6.1 Access To Information. .................................... 34
Section 6.2 Registration Statements And Proxy Statement And
Prospectus. ........................................................... 34
Section 6.3 Letters of Accountants. ................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 6.4 Legal Opinions. ........................................... 35
Section 6.5 Shareholders Approval. .................................... 35
Section 6.6 Affiliate Agreements. ..................................... 35
Section 6.7 Exchange. ................................................. 35
Section 6.8 Expenses. ................................................. 36
Section 6.9 Agreement to Cooperate. ................................... 36
Section 6.10 Coordination of Employee Benefit Plans. ................... 36
Section 6.11 West Nominees to East Board of Directors. ................. 36
Section 6.12 Public Statements. ........................................ 36
Section 6.13 Corrections to the Proxy Statement and Prospectus and
Registration Statement. ..................................... 37
Section 6.14 Updated Schedules. ........................................ 37
Section 6.15 Standstill Agreements; Confidentiality Agreements. ........ 37
Section 6.16 Indemnification. .......................................... 37
ARTICLE VII. CONDITIONS................................................... 38
Section 7.1 Conditions To Each Party's Obligations for East/West
Merger. ............................................................... 38
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER........................... 39
Section 8.1 Termination. .............................................. 39
Section 8.2 Effect of Termination. .................................... 40
Section 8.3 Payment Upon Certain Terminations. ........................ 41
Section 8.4 Payment of Termination Amount. ............................ 42
Section 8.5 Amendment and Waiver. ..................................... 43
ARTICLE IX. GENERAL PROVISIONS............................................ 43
Section 9.1 Nonsurvival of Representations and Warranties. ............ 43
Section 9.2 Notices. .................................................. 43
Section 9.3 Interpretation. ........................................... 44
Section 9.4 Miscellaneous. ............................................ 44
Section 9.5 Counterparts. ............................................. 45
Section 9.6 Parties In Interest. ...................................... 45
Section 9.7 Limitation Of Liability. .................................. 45
Section 9.8 No Presumption Against Drafter. ........................... 45
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
September 23, 1998 by and between Pacific Retail Trust, a Maryland real estate
investment trust ("West"), and Regency Realty Corporation, a Florida
corporation ("East").
WHEREAS, the Board of Trustees of West and the Board of Directors of East have
approved, and deem it advisable and in the best interests of their respective
companies and shareholders to consummate, (a) a merger of West with and into
East (the "East/West Merger" or the "Merger") and (b) a merger of Retail
Property Partners Limited Partnership, a Delaware limited partnership ("West
Operating Partnership"), with and into Regency Centers, L.P., a Delaware
limited partnership ("East Operating Partnership") (the "Operating Partnership
Merger") with East and East Operating Partnership as the respective successors
to the merger upon the terms and subject to the conditions set forth in this
Agreement, provided that the East/West Merger shall not be conditioned upon the
simultaneous closing of the Operating Partnership Merger;
WHEREAS, the Board of Trustees of West and Board of Directors of East believe
that it would be in the best interests of their respective companies and
shareholders for PRT Development Corporation, a Delaware corporation ("West
Management Company"), to merge with and into Regency Realty Group, Inc., a
Florida corporation ("East Management Company") (the "Management Company
Merger"), with East Management Company being the successor in the merger,
provided that the simultaneous closing of the Management Company Merger shall
not be a condition to the East/West Merger);
WHEREAS, the East/West Merger and this Agreement and the matters contemplated
hereby require approval by the affirmative vote of holders of the outstanding
shares of West Voting Stock (as defined herein) that are entitled to cast a
majority of the votes on the matter, and the affirmative vote of holders of a
majority of the outstanding shares of common stock, $.01 par value per share,
of East ("East Common Stock") entitled to vote thereon (the "West Shareholders
Approval" and "East Shareholders Approval," respectively);
WHEREAS, concurrently with the execution of this Agreement, Security Capital
U.S. Realty and its wholly-owned subsidiary, Security Capital Holdings S.A.
("SCH" and collectively with Security Capital U.S. Realty, "Shareholder"), are
entering into an agreement with East and West providing, among other things,
that SCH will vote or cause to be voted at the shareholder meetings at which
the East Shareholders Approval and West Shareholders Approval are solicited all
of the shares of East Common Stock and West Common Stock beneficially owned by
SCH at such time in favor of the Merger; and
WHEREAS, for United States federal income tax purposes it is intended that,
with respect to the East/West Merger and the Management Company Merger, such
mergers shall each qualify as a reorganization under the provisions of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be and is adopted as a plan of reorganization within
the meaning of Section 368 of the Code, and it is further intended that the
Operating Partnership Merger shall be a transaction governed by Section 721 of
the Code.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I.
Definitions
Section 1.1 Definition. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Articles of Merger" shall have the meaning set forth in Section 2.1.
"Closing" and "Closing Date" shall have the respective meanings set forth in
Section 2.2.
"DGCL" shall have the meaning set forth in Section 2.3.
"East Affiliated Group" shall have the meaning set forth in Section 3.7.
"East Alternative Proposals" shall have the meaning set forth in Section
5.4(a).
"East Benefit Plans" shall have the meaning set forth in Section 3.13.
"East Board" shall mean the Board of Directors of East.
"East Class B Common Stock" shall mean the non-voting Class B Common Stock of
East.
"East Common Stock" shall have the meaning set forth in the Recitals.
"East Disclosure Schedule" shall mean the schedule of disclosures, delivered by
East to West prior to the execution of this Agreement, setting forth those
items the disclosure of which is necessary or appropriate in relation to any or
all of East's representations and warranties herein.
"East Investor Agreement" shall mean that certain Stockholders Agreement dated
July 10, 1996, as amended, among East, The Regency Group, Inc. and Shareholder.
"East Management Company" shall have the meaning set forth in the Recitals.
"East Merging Entities" shall mean East, East Operating Partnership and East
Management Company.
"East Operating Partnership" shall have the meaning set forth in the Recitals.
"East Organizational Documents" shall have the meaning set forth in Section
3.1.
"East Required Consents" shall have the meaning set forth in Section 3.3(b).
"East Required Statutory Approvals" shall have the meaning set forth in Section
3.3(c).
"East SEC Documents" shall have the meaning set forth in Section 3.4.
"East SEC Financial Statements" shall have the meaning set forth in Section
3.4.
A-2
<PAGE>
"East Shareholders Approval" shall have the meaning set forth in the Recitals.
"East Stock Options" shall mean options to purchase East Common Stock granted
pursuant to East's Long-Term Omnibus Plan.
"East Restricted Stock Plan" shall mean the restricted stock plan that is a
part of East's Long-Term Omnibus Plan.
"East Subsidiaries" shall mean the entities listed as East's subsidiaries in
the East Disclosure Schedule.
"East/West Merger" shall have the meaning set forth in the Recitals.
"Effective Time" shall have the meaning set forth in Section 2.3.
"Environmental Laws" shall mean the Resource Conservation and Recovery Act, as
amended, and the Comprehensive Environmental Response Compensation and
Liability Act, as amended, and other federal laws governing the environment as
in effect on the date of this Agreement, together with their implementing
regulations as of the date of this Agreement, and all state, regional, county,
municipal and other local laws, regulations and ordinances as in effect on the
date hereof that are equivalent or similar to such federal laws or that purport
to regulate Hazardous Materials.
"Exchange" shall mean the New York Stock Exchange.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FBCA" shall have the meaning set forth in Section 2.3.
"Hazardous Materials" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
polychlorinated biphenyls and, only to the extent it exists at levels which are
considered hazardous to human health, radon gas and (b) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants" or words of similar import, under any applicable Environmental
Laws.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, patent licenses, trade names, trademarks, trade names and
trademark registrations (and applications therefor), copyrights and copyright
registrations (and applications therefor), trade secrets, inventions,
processes, designs, know-how and formulae.
"Liens" shall mean pledges, claims, liens, charges, encumbrances, and security
interests of any kind or nature.
"Maryland REIT Law" shall have the meaning set forth in Section 2.3.
"Management Company Merger" shall have the meaning set forth in the Recitals.
A-3
<PAGE>
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in the Articles of
Merger.
"Operating Partnership Merger" shall have the meaning set forth in the
Recitals.
"Proxy Statement and Prospectus" shall mean the definitive joint proxy
statement and prospectus to be filed with the SEC as a part of the Registration
Statement.
"Registration Statement" shall mean the registration statement on Form S-4 of
East, of which the Proxy Statement and Prospectus will form a part, to be filed
with the Commission in connection with the transactions contemplated hereby.
"Representatives" shall have the meaning set forth in Section 6.1.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder" shall have the meaning set forth in the recitals.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, imposed by
the United States, or any state, local or foreign government or subdivision or
agency thereof, whether computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any interest, fines, penalties
or additional amounts attributable or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments.
"Tax Returns" shall mean any return, report or other document or information
required to be supplied to a taxing authority in connection with Taxes.
"Termination Date" shall have the meaning set forth in Section 8.1.
"West Affiliated Group" shall have the meaning set forth in 0.
"West Alternative Proposals" shall have the meaning set forth in Section
5.4(b).
"West Benefit Plans" shall have the meaning set forth in Section 4.13.
"West Board" shall mean the Board of Trustees of West.
"West Common Stock" shall mean the common shares of beneficial interest, $.01
par value per share, of West.
"West Disclosure Schedule" shall mean the schedule of disclosures, delivered by
West to East prior to the execution of this Agreement, setting forth those
items the disclosure of which is necessary or appropriate in relation to any or
all of West's representations and warranties herein.
"West Financial Statements" shall have the meaning set forth in Section 4.4.
"West Investor Agreement" shall mean that certain Investor Agreement dated as
of October 20, 1995 between West and Security Capital Holdings S.A. as amended.
"West Management Company" shall have the meaning set forth in the Recitals.
A-4
<PAGE>
"West Merging Entities" shall mean West, West Operating Partnership and West
Management Company.
"West Operating Partnership" shall have the meaning set forth in the Recitals.
"West Organizational Documents" shall have the meaning set forth in Section 4.1
"West Permitted Changes" shall have the meaning set forth in Section 5.2(b).
"West Pre-Termination Alternative Proposal Event" shall have the meaning set
forth in Section 8.3(f).
"West Properties" shall have the meaning set forth in Section 4.11.
"West Required Consents" shall have the meaning set forth in Section 4.3(c).
"West Required Statutory Approvals" shall have the meaning set forth in Section
4.3(c).
"West Series A Preferred Stock" shall mean the Series A Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share,
of West.
"West Series B Preferred Stock" shall mean the Series B Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest, $.01 par value per share,
of West.
"West Shareholders Approval" shall have the meaning set forth in the Recitals.
"West Stock Options" shall mean options to purchase West Common Stock,
including dividend equivalent units, pursuant to West's 1996 Share Incentive
Plan and West's 1996 Trustees Plan.
"West Subsidiaries" shall mean the entities listed as West's subsidiaries in
the West Disclosure Schedule.
"West Voting Stock" shall mean the outstanding shares of West Common Stock,
West Series A Preferred Stock and West Series B Preferred Stock entitled to
vote on the transaction contemplated hereby, voting together as a single class.
ARTICLE II.
The Merger
Section 2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, West and East shall each take all actions necessary to cause (a)
West to be merged with and into East, which shall be the successor in such
Merger, on the terms and conditions set forth in articles of merger
substantially in the form of Exhibit A hereto (the "Articles of Merger"), (b)
West Operating Partnership to be merged into East Operating Partnership, which
shall be the successor in such Merger, on the terms and conditions set forth in
the articles of merger substantially in the form of Exhibit B hereto, and (c)
West Management Company to be merged into East Management Company, which shall
be the successor in such Merger, on the terms and conditions set forth in the
articles of merger substantially in the form of Exhibit C hereto.
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Section 2.2 The Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the East/West Merger (the "East/West
Closing") will take place as soon as practicable after satisfaction or waiver
of the conditions set forth in Section 7.1 (the "Closing Date") at 10:00 a.m.,
Jacksonville, Florida time at the offices of Foley & Lardner, 200 North Laura
Street, Jacksonville, Florida, unless another date, time or place is agreed to
in writing by the parties hereto. The Closing of the Management Company Merger
and the Operating Partnership Merger will take place as soon as practical
following satisfaction or waiver of the conditions set forth in their
respective articles of merger. The closing of the East/West Merger shall not be
conditioned upon the simultaneous closing of either of the other mergers.
Section 2.3 Effective Time. On the Closing Date, the parties hereto shall file
the Articles of Merger for the East/West Merger executed in accordance with the
relevant provisions of the Florida Business Corporations Act (the "FBCA") and
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland (the "Maryland REIT Law") and shall make all other filings or
recordings required under the FBCA and the Maryland REIT Law. The East/West
Merger shall become effective at such time as provided by applicable law or
such other time as specified in the Articles of Merger (the time when the
East/West Merger becomes effective being the "Effective Time").
ARTICLE III.
Representations and Warranties of East
East represents and warrants to West as follows:
Section 3.1 Organization and Qualification. Each of East and the East
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each of East and the East Subsidiaries is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, alone or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole, or
prevent, hinder or materially delay the ability of East to consummate the
transactions contemplated by this Agreement. True, accurate and complete copies
of each of (a) the Second Amended and Restated Articles of Incorporation, as
amended, and Bylaws of East, (b) the Second Amended and Restated Agreement of
Limited Partnership of East Operating Partnership and (c) the Articles of
Incorporation and Bylaws of East Management Company (collectively, the "East
Organizational Documents"), as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to West.
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Section 3.2 Capitalization.
(a) The authorized capital stock of East consists of 170,000,000 shares. As of
the date of this Agreement, there are (i) 25,503,066 shares of East Common
Stock and 2,500,000 shares of East Class B Common Stock issued and outstanding,
(ii) no shares of East Common Stock or East Class B Common Stock held by any
East Subsidiary; (iii) 890,095 shares of East Common Stock reserved for
issuance upon exercise of authorized but unissued East Stock Options; (iv)
1,318,507 shares of East Common Stock issuable upon exercise of outstanding
East Stock Options; (v) 59,000 shares of East Common Stock issued and
outstanding (and included in the number stated in clause (i) above) subject to
restrictions under the East Restricted Stock Plan; and (vi) 161,177 shares of
East Common Stock reserved for issuance as employer matching contributions
under East's 401(k) Savings Plan. As of the date of this Agreement, there are
(i) 692,432 Original Limited Partnership and Class A Units of East Operating
Partnership outstanding, (ii) 400,927 Class 2 Units of East Operating
Partnership outstanding, (iii) 25,503,066 Class B Units of East Operating
Partnership outstanding and (iv) 1,600,000 8.125% Series A Cumulative
Redeemable Preferred Units of East Operating Partnership outstanding. Except as
set forth above or on the East Disclosure Schedule, no shares of capital stock
or other equity securities of East or East Operating Partnership are issued,
reserved for issuance, or outstanding. All of the issued and outstanding
securities of East and East Operating Partnership are, and all equity
securities of East and East Operating Partnership issued pursuant to this
Agreement will be when so issued, duly authorized, validly issued, fully paid,
nonassessable, and free of preemptive rights. All shares of East Common Stock
issuable pursuant to this Agreement will be, when so issued, registered under
the Securities Act for such issuance and registered under the Exchange Act,
registered or exempt from registration under any applicable state securities
laws for such issuance, and listed on the Exchange, subject to official notice
of issuance.
(b) Except as set forth in Section 3.2(a), as contemplated by this Agreement,
or as set forth in the East Disclosure Schedule, as of the date hereof there
are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating East or East Operating Partnership to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other equity interests or obligating East or East Operating
Partnership to grant, extend or enter into any such agreement or commitment;
provided, however, that the foregoing shall not apply to the amendment by East
of any incentive plan providing for grants of options or restricted shares to
directors and employees nor to any grant of options or restricted shares
thereunder. Except for the East Investor Agreement or as contemplated by this
Agreement or as set forth in the East Disclosure Schedule, there are no voting
trusts, proxies or other agreements or understandings to which East or East
Operating Partnership is a party or by which East or East Operating Partnership
is bound with respect to the voting of any of its respective voting securities.
There are no outstanding bonds, debentures, notes or other indebtedness or
other securities of East or East Operating Partnership having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of East or limited partners of East
Operating Partnership may vote. Other than East Stock Options or as set forth
in the East Disclosure Schedule, there are no outstanding contractual
obligations, commitments, understandings or arrangements of East or any East
Subsidiary to repurchase, redeem or otherwise acquire or make any payment in
respect of or measured or determined based on the value or market
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price of any shares of capital stock of East or any East Subsidiary. Except as
set forth in the East Disclosure Schedule, there are no agreements or
arrangements pursuant to which East is or could be required to register shares
of East Common Stock or other securities under the Securities Act, on behalf of
any person other than Shareholder.
(c) All of the outstanding shares of capital stock of the East Subsidiaries
have been validly issued and are fully paid and nonassessable and, except as
set forth in the East Disclosure Schedule, are owned by East free and clear of
all Liens. Except for shares of East Subsidiaries, East does not own, directly
or indirectly, any capital stock or other equity or ownership interest in any
entities. East owns good and marketable title to the stock of each East
Subsidiary owned by it and each East Subsidiary owns good and marketable title
to the securities of each other East Subsidiary owned by it, in each case free
and clear of all Liens.
(d) Except as contemplated by this Agreement or as set forth in the East
Disclosure Schedule, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement obligating East or the East
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of any East Subsidiary or obligating
East or any East Subsidiary to grant, extend or enter into any such agreement
or commitment. There are no voting trusts, proxies or other agreements or
understandings to which East or any East Subsidiary is a party or is bound with
respect to the voting of any shares of the East Subsidiaries.
Section 3.3 Authority; Non-contravention; Approvals.
(a) East has full power, corporate or otherwise, and authority to enter into
this Agreement and, subject to the East Shareholders Approval and East Required
Statutory Approvals, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by East and the consummation by the
East Merging Entities of the transactions contemplated hereby have been duly
authorized by the East Board and the Board of Directors of East Management
Company and no other proceedings on the part of the East Merging Entities are
necessary to authorize the execution and delivery of this Agreement by East and
the consummation by the East Merging Entities of the transactions contemplated
hereby, except for obtaining of the East Shareholders Approval and East
Required Statutory Approvals. This Agreement has been duly and validly executed
and delivered by East, and, assuming the due authorization, execution and
delivery hereof by West, constitutes a valid and binding agreement of East
enforceable against East in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally or (ii) general equitable principles.
(b) The execution and delivery of this Agreement by East do not, and the
consummation by the East Merging Entities of the transactions contemplated
hereby will not, violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
result in the acceleration of any obligations under or the performance required
by, or result in a right of termination or acceleration or any "put" right
under, or result in the creation of any Lien upon any of the properties
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or assets of the East Merging Entities under any of the terms, conditions or
provisions of, (i) subject to obtaining the East Shareholders Approval and the
consent of the holder of East's Class B Common Stock, the East Organizational
Documents, (ii) subject to obtaining the East Shareholders Approval and East
Required Statutory Approvals, any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court or
governmental authority applicable to East or any East Subsidiary or any of
their respective properties, or (iii) subject to obtaining any consent or
waiver set forth in the East Disclosure Schedule (the "East Required
Consents"), any loan or credit agreement, note, bond, mortgage, indenture, deed
of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which East or any East
Subsidiary is now a party or by which East or any East Subsidiary may be bound,
excluding from the foregoing clauses (ii) and (iii) such violations, conflicts,
breaches, defaults, terminations, accelerations, put rights, or creations of
Liens that would not, alone or in the aggregate, be reasonably expected to have
a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of East and
the East Subsidiaries, taken as a whole, or prevent, hinder or materially delay
the ability of the East Merging Entities to consummate the transactions
contemplated by this Agreement.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the Proxy
Statement and Prospectus, with the SEC pursuant to the Securities Act and the
Exchange Act, and the declaration of the effectiveness thereof by the SEC and
any filings that may be required with various state blue sky authorities, (iii)
the filing of the Articles of Merger with, and the acceptance thereof for
recording by, the appropriate state authorities and (iv) any required filings
with or approvals from applicable federal or state environmental authorities
(the filings and approvals referred to in clauses (i) through (iv) are
collectively referred to as the "East Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by East or the
consummation by the East Merging Entities of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not, alone or in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of East and
the East Subsidiaries, taken as a whole or prevent, hinder or materially delay
the ability of the East Merging Entities to consummate the transactions
contemplated by this Agreement.
Section 3.4 Disclosure and Financial Statements. East has filed all required
reports, schedules, forms, registration statements and other documents with the
SEC since October 29, 1993 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
the "East SEC Documents"). As of their respective dates, the East SEC Documents
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to the East SEC Documents, and none of
the East SEC Documents (including any and all financial statements included
therein) as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The
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consolidated financial statements of East included in the East SEC Documents
(the "East SEC Financial Statements") comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated
in the notes thereto) and fairly present the consolidated financial position of
East and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal year-
end audit adjustments).
Section 3.5 Absence of Certain Changes or Events. Since December 31, 1997
through the date hereof, except as set forth in the East Disclosure Schedule or
disclosed in any East SEC Documents there has not been (a) any material adverse
change or any event which would reasonably be expected to result in a material
adverse change, individually or in the aggregate, in the business, operations,
properties, assets, liabilities, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole;
provided, however, that a material adverse change shall not include any (i)
changes, effects, conditions, events or circumstances that affect the real
estate industry generally (including tax, legal and regulatory changes) and do
not affect East and the East Subsidiaries, taken as a whole, in a materially
more adverse manner than the real estate industry generally or (ii) changes
arising from the consummation of the Merger or the announcement of the
execution of this Agreement; or (b) any event which, if it had taken place
after the date hereof, would not have been permitted by Section 5.1 without the
prior consent of West.
Section 3.6 Registration Statement and Proxy Statement and Prospectus. None of
the information supplied or to be supplied by East for inclusion or
incorporation by reference in (a) the Registration Statement or (b) the Proxy
Statement and Prospectus will, in the case of the Proxy Statement and
Prospectus or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and Prospectus and any amendments thereof or
supplements thereto, and at the time of the meetings of the shareholders of
East and West to be held in connection with the transactions contemplated by
this Agreement or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by East with respect to
information supplied by West for inclusion or incorporation therein. The
Registration Statement and Proxy Statement and Prospectus will comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and Exchange Act and the rules and regulations
promulgated thereunder.
Section 3.7 Taxes. Except as set forth in the East Disclosure Schedule:
(a) Each of East and the East Subsidiaries has timely filed, or shall timely
file, with the appropriate governmental authorities all Tax Returns required to
be filed by it (either separately or as a member of any affiliated group within
the meaning of Section 1504 of the Code or any similar group defined under a
similar provision of state, local or foreign law (an "East Affiliated Group"))
for all periods ending on or prior to the Closing Date, except to the extent of
any Tax Returns for which an
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extension of time for filing has been properly filed. Each such return and
filing is complete and correct in all material respects. All Taxes shown on a
Tax Return as owed by East or the East Subsidiaries have been paid. No material
issues have been raised in any examination by any taxing authority with respect
to the businesses and operations of East or the East Subsidiaries which (i)
reasonably could be expected to result in an adjustment to the liability for
Taxes for such period examined or (ii), by application of similar principles,
reasonably could be expected to result in an adjustment to the liability for
Taxes for any other period not so examined. All Taxes which East or the East
Subsidiaries are required by law to withhold or collect, including Taxes
required to have been withheld in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party
and sales, gross receipts and use taxes, have been duly withheld or collected
and, to the extent required, have been paid over to the proper governmental
authorities or are held in separate bank accounts for such purpose. There are
no Liens for Taxes upon the assets of East or the East Subsidiaries except for
statutory Liens for Taxes not yet due.
(b) None of East, the East Subsidiaries or the East Affiliated Group has filed
for an extension of a statute of limitations with respect to any Tax and no
governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of East, the East
Subsidiaries and the East Affiliated Group are not being and have not been
examined or audited by any taxing authority for any past year or periods. None
of East, the East Subsidiaries or the East Affiliated Group is a party to any
pending action or any formal or informal proceeding by any taxing authority for
a deficiency, assessment or collection of Taxes, and no claim for any
deficiency, assessment or collection of Taxes has been asserted, or, to the
knowledge of East, threatened against it, including claims by any taxing
authority in a jurisdiction where East and the East Subsidiaries do not file
tax returns that any of them is or may be subject to taxation in that
jurisdiction.
(c) Each of East and the East Subsidiaries has properly accrued on its
respective financial statements all Taxes due for which East or the East
Subsidiaries may be liable, whether or not shown on any Tax Return as being due
(including by reason of being a member of an East Affiliated Group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). East and the East
Subsidiaries have established (and until the Closing Date shall continue to
establish and maintain) on its books and records reserves that are adequate for
the payment of all Taxes not yet due and payable.
(d) Neither East nor the East Subsidiaries (i) has filed a consent under
Section 341(f) of the Code concerning collapsible corporations, or (ii) is a
party to any Tax allocation or sharing agreement.
(e) The East Affiliated Group of which East and any East Subsidiary is or was a
member has duly and timely filed all Tax Returns that it was required to file
for each taxable period during which East and any such East Subsidiary was a
member of the group. All such Tax Returns were complete and correct in all
material respects and all Taxes owed by the East Affiliated Group, whether or
not shown on any Tax Return, have been paid for each taxable period during
which East and any East Subsidiary was a member of the group.
(f) East does not have any liability for the Taxes of any person other than
East and the East Subsidiaries and the East Subsidiaries do not have any
liability for the Taxes of any person other
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than East and the East Subsidiaries (A) under Treasury Regulation Section
1.15026 (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract, or (D) otherwise. Neither East nor
the East Subsidiaries has made any payments, is obligated to make any payments,
or is a party to an agreement that could obligate it to make any payments that
will not be deductible under Section 280G of the Code. East and the East
Subsidiaries have disclosed to the IRS all positions taken on its federal
income tax returns which could give rise to a substantial understatement of tax
under Section 6662 of the Code.
(h) For all taxable years commencing with the taxable year ended December 31,
1993 through the taxable year ended December 31, 1997, East has been organized
in conformity with the qualifications as a REIT (within the meaning of the
Code) and has satisfied all requirements to qualify as a REIT for such years.
East has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for the tax year ending December 31, 1998, and has not taken
or omitted to take any action which would reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or, to
East's knowledge, threatened. Each East Subsidiary that is a partnership, joint
venture or limited liability company has been treated during and since its
formation and continues to be treated for federal income tax purposes as (i) a
partnership, (ii) a qualified REIT subsidiary under the Code or (iii) an entity
that may be disregarded as an entity separate from its owner under Treasury
Regulation (S) 301.7701-3. Each East Subsidiary that is both (i) a corporation
for federal income tax purposes and (ii) with respect to which all of the
outstanding capital stock is owned solely by East (or solely by an East
Subsidiary that is a corporation wholly owned by East) is a "qualified REIT
subsidiary" as defined in Section 856(i) of the Code.
Section 3.8 Absence of Undisclosed Liabilities. Neither East nor any East
Subsidiary had, at December 31, 1997, and neither has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating expenses
consistent with past practices) except (a) liabilities, obligations or
contingencies which are accrued or reserved against in the East SEC Financial
Statements or reflected in the notes thereto, (b) as incurred in connection
with the transactions contemplated by this Agreement, and (c) any liabilities,
obligations or contingencies which (i) would not, alone or in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole, or
prevent, hinder or materially delay the ability of East to consummate the
transactions contemplated by this Agreement or (ii) have been discharged or
paid in full prior to the date hereof.
Section 3.9 Litigation. Except as disclosed in the East SEC Documents or the
East Disclosure Schedule, there are no claims, suits, actions or proceedings
pending or, to East's knowledge, threatened, against, relating to or affecting
East or any East Subsidiary or any of their respective properties or assets
before or by any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that would reasonably be
expected to have, alone or in the aggregate with all such claims, actions or
proceedings, a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
East and the East Subsidiaries, taken as a whole, or to prevent, hinder or
materially delay the ability of East to consummate the transactions
contemplated by this Agreement. Neither East nor any East Subsidiary is subject
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or
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restricts the consummation of the transactions contemplated hereby or would
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of East and
the East Subsidiaries, taken as a whole or prevent, hinder or materially delay
the ability of, East to consummate the transactions contemplated by this
Agreement.
Section 3.10 No Violation of Law. Neither East nor any East Subsidiary is in
violation of or has been given notice or been charged with any violation of any
law, statute, order, rule, regulation, ordinance or judgment (including any
applicable environmental law, ordinance or regulation) of any governmental or
regulatory body or authority, except for violations which, alone or in the
aggregate, would not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of East and the East Subsidiaries,
taken as a whole, or prevent, hinder or materially delay the ability of, East
to consummate the transactions contemplated by this Agreement. No investigation
or review of East or any East Subsidiary by any governmental or regulatory body
or authority is pending or, to the knowledge of East, threatened, nor has any
governmental or regulatory body or authority indicated to East or any East
Subsidiary an intention to conduct the same, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, would not, alone or
in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole, or prevent, hinder or materially delay the ability of, East to
consummate the transactions contemplated by this Agreement. Each of East and
the East Subsidiaries has all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct its business as presently conducted and as
proposed by East or any East Subsidiary to be conducted, except for permits,
licenses, franchises, variances, exemptions, orders, authorizations, consents
and approvals the absence of which, alone or in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of East and the East Subsidiaries, taken as a whole, or
prevent, hinder or materially delay the ability of, East to consummate the
transactions contemplated by this Agreement.
Section 3.11 East Properties. Except as disclosed in the East SEC Documents or
the East Disclosure Schedule, each of East and the East Subsidiaries (i) has
good and marketable title to all the properties and assets reflected in the
latest audited balance sheet included in the East SEC Documents as being owned
by East or one of the East Subsidiaries or acquired after the date thereof
which are, alone or in the aggregate, material to East's business on a
consolidated basis (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of (A) all
Liens except (1) statutory Liens securing payments not yet due and (2) such
imperfections or irregularities of title or other Liens (other than real
property mortgages or deeds of trust) as do not materially affect the use of
the properties or assets subject thereto or affected thereby or otherwise
materially impair the business operations presently conducted at such
properties, and (B) all real property mortgages and deeds of trust, and (ii) is
the lessee of all leasehold estates reflected in the latest audited financial
statements included in the East SEC Documents or acquired after the date
thereof which are, alone or in the aggregate, material to its business on a
consolidated basis and is in possession of the properties purported to be
leased thereunder, and each such lease is valid without default thereunder by
the lessee or, to East's knowledge, the lessor.
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Section 3.12 Labor Matters. Neither East nor any East Subsidiary is a party to,
or bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is East or any
East Subsidiary the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment nor
is there any strike, work stoppage or other labor dispute involving East or any
East Subsidiary pending, or, to East's knowledge, threatened, any of which
would, alone or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of East and the East
Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of, East to consummate the transactions contemplated by this Agreement.
Section 3.13 Employee Benefit Plans. Each employee benefit plan maintained by
East or any East Subsidiary that provides retirement, pension, health care,
long-term disability income, workers compensation, life insurance and any other
postretirement benefits that, as of the date hereof, covers any director,
officer or employee of East or the East Subsidiaries (collectively, the "East
Benefit Plans") complies and has been administered in form and in operation in
all material respects with all requirements of law to the extent applicable and
no notice has been issued by any governmental authority questioning or
challenging such compliance. Neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated hereby
constitutes or will constitute an event under any East Benefit Plan that may
result in any payment by East or any East Subsidiary, any restriction or
limitation upon the assets of any East Benefit Plan, any acceleration of
payment or vesting, increase in benefits or compensation, or forgiveness of any
loan from or other commitment to East or any East Subsidiary.
Section 3.14 Intellectual Property. East and the East Subsidiaries own, free of
Liens, or have a valid license to use, all of the Intellectual Property used in
the conduct of the businesses of East and the East Subsidiaries. None of such
Intellectual Property has been or is the subject of any pending, or to the
knowledge of East, threatened adverse claim, litigation or claim of
infringement based on the use thereof by East or any East Subsidiary or a third
party. Neither East nor any East Subsidiary has received any notice contesting
East's or the East Subsidiaries' right to use any of such Intellectual Property
and, to the knowledge of East, neither East nor any East Subsidiary has
infringed upon or misappropriated any intellectual property rights of third
parties. The consummation of the Merger will not result in the loss of any
rights by East or any East Subsidiaries of any of its or their rights in such
Intellectual Property.
Section 3.15 East Material Contracts. Except as disclosed in the East SEC
Documents filed prior to the date hereof, neither East nor any East Subsidiary:
is a party to or bound by (a) any "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC), or (b) any non-competition
agreement or any other agreement or obligation that purports to limit in any
respect the manner in which, or the localities in which, all or any substantial
portion of the business of East or the East Subsidiaries would be conducted.
Section 3.16 Environmental Matters. Except as set forth in the East Disclosure
Schedule and the East SEC Documents, East has no knowledge of (a) any violation
of Environmental Laws relating to any property of East or any East Subsidiary,
(b) the release or potential release of Hazardous Materials on or from any such
property, (c) underground storage tanks located on any property, or
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(d) asbestos in or on any such property which would, alone or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise), results of
operations or prospects of East and the East Subsidiaries, taken as a whole, or
prevent, hinder or materially delay the ability of East to consummate the
transactions contemplated by this Agreement. Except as set forth in the East
Disclosure Schedule, neither East nor any East Subsidiary, nor to East's
knowledge, any tenant of such property, has manufactured, introduced, released
or discharged from or onto any such property any Hazardous Materials or any
toxic wastes, substances or materials (including asbestos) in violation of any
Environmental Laws, and neither East nor any East Subsidiary, nor to East's
knowledge, any tenant of such property, has used any such property or any part
thereof for the generation, treatment, storage, handling or disposal of any
Hazardous Materials, in violation of any Environmental Laws which would, alone
or in the aggregate, reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
otherwise), results of operations or prospects of East and the East
Subsidiaries, taken as a whole, or prevent, hinder or materially delay the
ability of East to consummate the transactions contemplated by this Agreement.
Section 3.17 Insurance. East or the East Subsidiaries maintain insurance
coverage for East and the East Subsidiaries and their respective properties and
assets of the types and in amounts typical of similar companies engaged in the
respective businesses in which East and the East Subsidiaries are engaged. All
such insurance policies (a) are in full force and effect, and with respect to
all policies neither of East nor any East Subsidiary is delinquent in the
payment of any premiums thereon, and no notice of cancellation or termination
has been received with respect to any such policy, and (b) are sufficient for
compliance with all requirements of law and of all agreements to which East or
the East Subsidiaries are a party or otherwise bound and are valid,
outstanding, collectable, and enforceable policies and will remain in full
force and effect through their respective policy periods, except, in the case
of either clause (a) or (b), in such manner as would not, alone or in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of East and the East Subsidiaries, taken as
a whole, or prevent, hinder or materially delay the ability of the East Merging
Entities to consummate the transactions contemplated by this Agreement. Neither
East nor any East Subsidiary has received written notice within the last 12
months from any insurance company or board of fire underwriters of any defects
or inadequacies that would materially adversely affect the insurability of, or
cause any material increase in the premiums for, insurance covering, either
East or any East Subsidiary or any of their respective properties or assets
that have not been cured or repaired to the satisfaction of the party issuing
the notice.
Section 3.18 Brokers and Finders. East has not employed any broker, finder,
other intermediary, or financial advisor in connection with the transactions
contemplated by this Agreement which would be entitled to any brokerage,
finder's or similar fee or commission, or financial advisory fee, in connection
with this Agreement or the transactions contemplated hereby, other than
Prudential Securities Incorporated, the fees and expenses of which will be paid
by East.
Section 3.19 Investment Company Act. Neither East nor any of the East
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, nor an "investment adviser" within the meaning
of the Investment Advisers Act of 1940, as amended.
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Section 3.20 HSR Act. For purposes of determining compliance with the HSR Act,
East confirms that except for the business of East Management Company, the
conduct of its businesses consists solely of investing in, owning, operating
and developing real estate for the benefit of its shareholders.
Section 3.21 State Antitakeover Laws Not Applicable. Neither Sections 607.0901
or 607.0902 of the FBCA applies to this Agreement or the Merger or the other
transactions contemplated hereby. Other than Sections 607.0901 or 607.0902 of
the FBCA, no state takeover statute or similar statute or regulation of the
State of Florida (and, to the knowledge of East, of any other state or
jurisdiction) applies or purports to apply to this Agreement or the Merger or
other transactions contemplated hereby.
Section 3.22 Required East Vote. The East Shareholders Approval, being the
affirmative vote of a majority of the outstanding shares of East Common Stock
entitled to vote, is the only vote of the holders of any class or series of the
securities of the East Merging Entities necessary to approve this Agreement,
the Merger and the other transactions contemplated hereby.
Section 3.23 Board Recommendation. The East Board, at a meeting duly called and
held, has by a unanimous vote of those directors present and participating (who
constituted 69% of the directors then in office, with two directors absent and
the two Shareholder representatives abstaining), including the unanimous vote
of the "Independent Directors" (as defined in East's Bylaws), (i) determined
and declared that this Agreement and the transactions contemplated hereby,
including the Merger, are advisable and fair to and in the best interests of
East and the shareholders of East, and (ii) resolved to recommend that the
holders of East Common Stock approve this Agreement and the transactions
contemplated herein, including the Merger.
Section 3.24 Opinion Of Financial Advisor. A special committee of the East
Board composed exclusively of "Independent Directors" (as defined in East's
Bylaws) has received the opinion of Prudential Securities Incorporated, dated
the date of this Agreement, to the effect that the Merger Consideration is
fair, from a financial point of view, to the holders of East Common Stock other
than the Shareholder.
Section 3.25 Disclosure. No representation or warranty contained in this
Article III, as qualified by the East Disclosure Schedule, or in any Schedule
or Exhibit hereto or any closing certificate furnished or to be furnished by
East to West pursuant to this Agreement or in connection with the Merger
contains any untrue statement of a material fact, or, to the knowledge of East,
omits to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances under which they were made,
not misleading.
Section 3.26 Definition of East's Knowledge. All references in this Agreement
to "East's knowledge" or words of similar import shall refer only to the actual
knowledge of those persons identified in the East Disclosure Schedule and shall
not be construed to refer to the knowledge of any other officer, agent or
employee of East or any affiliate thereof. There shall be no personal liability
on the part of any of the persons identified in the East Disclosure Schedule
arising out of any representations or warranties made herein. Without limiting
the foregoing, in no event shall the knowledge of Shareholder or any of its
agents, officers or employees be attributed to East.
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ARTICLE IV.
Representations And Warranties Of West
West represents and warrants to East as follows:
Section 4.1 Organization And Qualification. Each of West and the West
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has the requisite power, corporate
or otherwise, and authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted and as it is proposed
by it to be conducted. Each of West and the West Subsidiaries is qualified to
do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would, alone or in the aggregate, not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of West and the West Subsidiaries, taken as a whole, or
prevent, hinder or materially delay the ability of West to consummate the
transactions contemplated by this Agreement. True, accurate and complete copies
of each of (a) the Second Amended and Restated Declaration of Trust of West, as
amended and supplemented (the "Declaration of Trust"), and Amended and Restated
Bylaws of West, (b) the Agreement of Limited Partnership of West Operating
Partnership and (c) the Articles of Incorporation and Bylaws of West Management
Company (collectively, the "West Organizational Documents") as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered
to East.
Section 4.2 Capitalization.
(a) The authorized capital of West consists of 150,000,000 shares of beneficial
interest. As of the date of this Agreement, except as set forth in the West
Disclosure Schedule, there are (i) 64,060,619 shares of West Common Stock,
1,130,276 shares of West Series A Preferred Stock, and 2,000,000 shares of West
Series B Preferred Stock issued and outstanding, (ii) no shares of West Common
Stock, West Series A Preferred Stock, or West Series B Preferred Stock that
have been acquired by West or by any West Subsidiary; (iii) 2,821,308 shares of
West Common Stock reserved for issuance upon exercise of authorized but
unissued West Stock Options; (iv) 2,428,692 shares of West Common Stock
issuable upon exercise of outstanding West Stock Options and (v) 8,055 shares
of West Common Stock reserved for issuance under West's Deferred Plan for
Trustees. As of the date of this Agreement there are 1,640,849 units of limited
partnership interest in the West Operating Partnership outstanding. The
authorized capital of West Management Company is 100,000 shares of voting
common stock, par value $0.01 per share, and 1,900,000 shares of non-voting
common stock, par value $0.01 per share. As of the date of this Agreement,
there are 33,892 shares of voting common stock and 643,958 shares of non-voting
common stock of West Management Company outstanding. Except as set forth above
or in the West Disclosure Schedule, no shares of capital stock or other equity
securities of the West Merging Entities are issued, reserved for issuance, or
outstanding. All of the issued and outstanding securities of the West Merging
Entities are duly authorized, validly issued, fully paid, and, except as set
forth on the West Disclosure Schedule, nonassessable and free of preemptive
rights.
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(b) Except as set forth in Section 4.2(a), or as contemplated by this
Agreement, or as set forth in the West Disclosure Schedule, as of the date
hereof there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating a West Merging Entity to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity interests or obligating a West Merging Entity to
grant, extend or enter into any such agreement or commitment. Except for the
West Investor Agreement or as contemplated by this Agreement or as set forth in
the West Disclosure Schedule, there are no voting trusts, proxies or other
agreements or understandings to which a West Merging Entity is a party or by
which a West Merging Entity is bound with respect to the voting securities of a
West Merging Entity. Except for the West Voting Stock and as set forth in the
West Disclosure Schedule, there are no outstanding bonds, debentures, notes or
other indebtedness or other securities of a West Merging Entity having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which shareholders or limited partners, as
applicable, of a West Merging Entity may vote. Other than the West Stock
Options, except as set forth in the West Disclosure Schedule, there are no
outstanding contractual obligations, commitments, understandings or
arrangements of West or any West Subsidiary to repurchase, redeem or otherwise
acquire or make any payment in respect of or measured or determined based on
the value or market price of any shares of capital stock of West or any West
Subsidiary. Except as set forth in the West Disclosure Schedule, there are no
agreements or arrangements pursuant to which West is or could be required to
register shares of West Common Stock or other securities under the Securities
Act on behalf of any person.
(c) All of the outstanding shares of capital stock of the West Subsidiaries
have been validly issued and are fully paid and nonassessable, and are owned,
except as set forth in the West Disclosure Schedule, by West free and clear of
all Liens. Except for shares of the West Subsidiaries or as set forth in the
West Disclosure Schedule, West does not own, directly or indirectly, any
capital stock or other equity or ownership interest in any entities. West owns
good and marketable title to the stock of each of the West Subsidiaries owned
by it and each West Subsidiary owns good and marketable title to the securities
of each other West Subsidiary owned by it, in each case free and clear of all
Liens.
(d) Except as set forth in the West Disclosure Schedule, there are no
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating West or the West Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the West
Subsidiaries or obligating West or the West Subsidiaries to grant, extend or
enter into any such agreement or commitment. There are no voting trusts,
proxies or other agreements or understandings to which West or the West
Subsidiaries is a party or is bound with respect to the voting of any shares of
the West Subsidiaries.
Section 4.3 Authority; Noncontravention; Approvals.
(a) West has full power, trust or otherwise, and authority to enter into this
Agreement and, subject to the West Shareholders Approval and West Required
Statutory Approvals, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by West and the
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consummation by the West Merging Entities of the transactions contemplated
hereby have been duly authorized by the West Board and the Board of Directors
of West Management Company and no other proceedings on the part of the West
Merging Entities are necessary to authorize the execution and delivery of this
Agreement by West and the consummation by the West Merging Entities of the
transactions contemplated hereby, except for the obtaining of the West
Shareholders Approval and the West Required Statutory Approvals. This Agreement
has been duly and validly executed and delivered by West, and, assuming the due
authorization, execution and delivery hereof by East, constitutes a valid and
binding agreement of West enforceable against West in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally or (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by West do not, and the
consummation by the West Merging Entities of the transactions contemplated
hereby will not, violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
result in the acceleration of any obligations under or the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of West under any of
the terms, conditions or provisions of, (i) subject to obtaining the West
Shareholders Approval, the West Organizational Documents, (ii) subject to
obtaining the West Required Statutory Approvals and West Shareholders Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to West or any West Subsidiary or any of their respective properties
or (iii) subject to obtaining any consent or waiver set forth in the West
Disclosure Schedule (the "West Required Consents"), any loan or credit
agreement, note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or
agreement of any kind to which West or any West Subsidiary is now a party or by
which West or any West Subsidiary may be bound, excluding from the foregoing
clauses (ii) and (iii) such violations, conflicts, breaches, defaults,
terminations, accelerations, put rights, or creations of Liens that would not,
alone or in the aggregate, be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of West and the West Subsidiaries,
taken as a whole, or prevent, hinder or materially delay the ability of the
West Merging Entities to consummate the transactions contemplated by this
Agreement.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Articles of Merger with, and the acceptance
thereof for recording by, the appropriate state authorities, and (iii) any
required filings with or approvals from applicable federal or state
environmental authorities (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "West Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by West
or the consummation by the West Merging Entities of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, alone or in the aggregate, be reasonably
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expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of West and the West Subsidiaries, taken as a whole, or prevent,
hinder or materially delay the ability of the West Merging Entities to
consummate the transactions contemplated by this Agreement.
Section 4.4 Disclosure And Financial Statements. The consolidated financial
statements of West for the period from April 27, 1995 to December 31, 1995 and
the two years ended December 31, 1997 and for the six months ended June 30,
1998 (the "West Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of West and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).
Section 4.5 Absence Of Certain Changes Or Events. Since December 31, 1997
through the date hereof, and except as set forth in the West Disclosure
Schedule, there has not been (a) any material adverse change or any event which
would reasonably be expected to result in a material adverse change,
individually or in the aggregate, in the business, operations, properties,
assets, liabilities, condition (financial or other), results of operations or
prospects of West and the West Subsidiaries, taken as a whole, provided,
however, that a material adverse change shall not include any (i) changes,
effects, conditions, events or circumstances that affect the real estate
industry generally (including tax, legal and regulatory changes) and do not
affect West and the West Subsidiaries, taken as a whole, in a materially more
adverse manner than the real estate industry generally or (ii) changes arising
from the consummation of the Merger or the announcement of the execution of
this Agreement; or (b) any event which, if it had taken place after the date
hereof, would not have been permitted by Section 5.2 without the prior consent
of East.
Section 4.6 Registration Statement And Proxy Statement And Prospectus. None of
the information supplied or to be supplied by West for inclusion or
incorporation by reference in (a) the Registration Statement or (b) the Proxy
Statement and Prospectus will, in the case of the Proxy Statement and
Prospectus or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and Prospectus and any amendments thereof or
supplements thereto, and at the time of the meetings of the shareholders of
East and West to be held in connection with the transactions contemplated by
this Agreement or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by West with respect to
information supplied by East for inclusion or incorporation therein. The Proxy
Statement (insofar as it relates to the solicitation of proxies by West) will
comply as to form in all material respects with all applicable laws, including
the applicable provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder.
Section 4.7 Taxes. Except as set forth in the West Disclosure Schedule:
(a) Each of West and the West Subsidiaries has timely filed, or shall timely
file, with the appropriate governmental authorities all Tax Returns required to
be filed by it (either separately or as a member
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of any affiliated group within the meaning of Section 1504 of the Code or any
similar group defined under a similar provision of state, local or foreign law
(a "West Affiliated Group")) for all periods ending on or prior to the Closing,
except to the extent of any Tax Returns for which an extension of time for
filing has been properly filed. Each such return and filing is complete and
correct in all material respects. All Taxes shown on a Tax Return as owed by
West or the West Subsidiaries have been paid. No material issues have been
raised in any examination by any taxing authority with respect to the
businesses and operations of West or the West Subsidiaries which (i) reasonably
could be expected to result in an adjustment to the liability for Taxes such
period examined, or (ii) by application of similar principles, reasonably could
be expected to result in an adjustment to the liability for Taxes for any
period not so examined. All Taxes which West or any West Subsidiary is required
by law to withhold or collect, including Taxes required to have been withheld
in connection with amount paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party and sales, gross
receipts and use taxes, have been duly withheld or collected and, to the extent
required, have been paid over to the proper governmental authorities or are
held in separate bank accounts for such purpose. There are no Liens for Taxes
upon the Assets of West or the West Subsidiaries except for statutory Liens for
Taxes not yet due.
(b) None of West, the West Subsidiaries or the West Affiliated Group has filed
for an extension of a statute of limitations with respect to any Tax and no
governmental authorities have requested an extension of the statute of
limitations with respect to any Tax. The Tax Returns of West, the West
Subsidiaries and the West Affiliated Group are not being and have not been
examined or audited by any taxing authority for any past year or periods. None
of West, the West Subsidiaries or the West Affiliated Group is a party to any
pending action or any formal or informal proceeding by any taxing authority for
a deficiency, assessment or collection of Taxes, and no claim for any
deficiency, assessment or collection of Taxes has been asserted, or, to the
knowledge of West, threatened against it, including claims by any taxing
authority in a jurisdiction where West and the West Subsidiaries do not file
tax returns that any of them is or may be subject to taxation in that
jurisdiction.
(c) Each of West and the West Subsidiaries has properly accrued on its
respective financial statements all Taxes due for which West or the West
Subsidiaries may be liable, whether or not shown on any Tax Return as being due
(including by reason of being a member of a West Affiliated Group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). West and the West
Subsidiaries have established (and until the Closing Date shall continue to
establish and maintain) on its books and records reserves that are adequate for
the payment of all Taxes not yet due and payable.
(d) Neither West nor the West Subsidiaries (i) has filed a consent under
Section 341(f) of the Code concerning collapsible corporations, or (ii) is a
party to any Tax allocation or sharing agreement.
(e) The West Affiliated Group of which West and any West Subsidiary is or was a
member has duly and timely filed all Tax Returns that it was required to file
for each taxable period during which West and any such West Subsidiary was a
member of the group. All such Tax Returns were complete and correct in all
material respects and all Taxes owed by the West Affiliated Group, whether or
not shown on any Tax Return, have been paid for each taxable period during
which West and any West Subsidiary was a member of the group.
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(f) Except as set forth in the West Disclosure Schedule, West does not have any
liability for the Taxes of any person other than West and the West Subsidiaries
and the West Subsidiaries do not have any liability for the Taxes of any person
other than West and the West Subsidiaries (A) under Treasury Regulation Section
1.15026 (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract, or (D) otherwise.
(g) Neither West nor the West Subsidiaries has made any payments, is obligated
to make any payments, or is a party to an agreement that could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
West and the West Subsidiaries have disclosed to the IRS all positions taken on
its federal income tax returns which could give rise to a substantial
understatement of tax under Section 6662 of the Code.
(h) For all taxable years commencing with the taxable year ended December 31,
1995 through the taxable year ended December 31, 1997, West has been organized
in conformity with the qualifications as a REIT (within the meaning of the
Code) and has satisfied all requirements to qualify as a REIT for such years.
West has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for the tax period ending on the Closing Date, and has not
taken or omitted to take any action which would reasonably be expected to
result in a challenge to its status as a REIT, and no such challenge is pending
or, to West's knowledge, threatened. Each West Subsidiary that is a
partnership, joint venture or limited liability company has been treated during
and since its formation and continues to be treated for federal income tax
purposes as (i) a partnership, (ii) a qualified REIT subsidiary under the Code
or (iii) an entity that may be disregarded as an entity separate from its owner
under Treasury Regulation (S) 301.7701-3. Each West Subsidiary that is both (i)
a corporation for federal income tax purposes and (ii) with respect to which
all of the outstanding capital stock is owned solely by West (or solely by a
West Subsidiary that is a corporation wholly owned by West) is a "qualified
REIT subsidiary" as defined in Section 856(i) of the Code.
Section 4.8 Absence Of Undisclosed Liabilities. Neither West nor any West
Subsidiary had, at December 31, 1997, and neither has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating expenses
consistent with past practices), except (a) liabilities, obligations or
contingencies which are accrued or reserved against in the West Financial
Statements or reflected in the notes thereto, (b) as incurred in connection
with the transactions contemplated by this Agreement, and (c) for any
liabilities, obligations or contingencies which (i) would not be, alone or in
the aggregate, reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of West and the West Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement, or (ii) have been
discharged or paid in full prior to the date hereof.
Section 4.9 Litigation. Except as disclosed in the West Disclosure Schedule,
there are no claims, suits, actions or proceedings pending or, to West's
knowledge, threatened, against, relating to or affecting West or any West
Subsidiary or any of their respective properties or assets before or by any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that would reasonably be expected to have, alone
or in the aggregate with all such claims, actions or proceedings, a material
adverse effect on the business, operations, properties, assets, condition
(financial or other) results of operations or prospects of West or the West
Subsidiaries, taken as a
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whole, or to prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement. Neither West nor
any West Subsidiary is subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits or restricts
the consummation of the transactions contemplated hereby or would have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of West and
the West Subsidiaries, taken as a whole or prevent, hinder or materially delay
the ability of West to consummate the transactions contemplated by this
Agreement.
Section 4.10 No Violation Of Law. Neither West nor any West Subsidiary is in
violation of or has been given notice or been charged with any violation of any
law, statute, order, rule, regulation, ordinance or judgment (including any
applicable environmental law, ordinance or regulation) of any governmental or
regulatory body or authority, except for violations which, alone or in the
aggregate, would not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of West and the West Subsidiaries,
taken as a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement. No investigation or
review of West or any West Subsidiary by any governmental or regulatory body or
authority is pending or, to the knowledge of West, threatened, nor has any
governmental or regulatory body or authority indicated to West or any West
Subsidiary an intention to conduct the same, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, would not, alone or
in the aggregate, reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of West and the West Subsidiaries, taken as
a whole or prevent, hinder or materially delay the ability of West to
consummate the transactions contemplated by this Agreement. Each of West and
the West Subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct its business as presently conducted and as
proposed by West or any West Subsidiary to be conducted, except for permits,
licenses, franchises, variances, exemptions, orders, authorizations, consents
and approvals the absence of which, alone or in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of West and the West Subsidiaries, taken as a whole or
prevent, hinder or materially delay the ability of West to consummate the
transactions contemplated by this Agreement.
Section 4.11 West Properties. Except as disclosed in the West Disclosure
Schedule, each of West and the West Subsidiaries (i) has good and marketable
title to all the properties and assets reflected in the latest audited balance
sheet included in the West Financial Statements as being owned by West or one
of the West Subsidiaries or acquired after the date thereof ("West Properties")
which are, alone or in the aggregate, material to West's business on a
consolidated basis (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of (A) all
Liens except (1) statutory Liens securing payments not yet due and (2) such
imperfections or irregularities of title or other Liens (other than real
property mortgages or deeds of trust) as do not materially affect the use of
the properties or assets subject thereto or affected thereby or otherwise
materially impair the business operations presently conducted at such
properties, and (B) all real property mortgages and deeds of trust, and (ii) is
the lessee of all
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leasehold estates reflected in the latest audited West Financial Statements or
acquired after the date thereof which are, alone or in the aggregate, material
to its business on a consolidated basis and is in possession of the properties
purported to be leased thereunder, and each such lease is valid without default
thereunder by the lessee or, to West's knowledge, the lessor.
Section 4.12 Labor Matters. Neither West nor any West Subsidiary is a party to,
or bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is West or any
West Subsidiary the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment nor
is there any strike, work stoppage or other labor dispute involving West or any
West Subsidiary pending, or, to West's knowledge, threatened, any of which
would, alone or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of West and the West
Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of West to consummate the transactions contemplated by this Agreement.
Section 4.13 Employee Benefit Plans. Each employee benefit plan maintained by
West or any West Subsidiary that provides retirement, pension, health care,
long-term disability income, workers compensation, life insurance and any other
postretirement benefits that, as of the date hereof, covers any director,
trustee, officer or employee of West or the West Subsidiaries (collectively,
"West Benefit Plans") complies and has been administered in form and in
operation in all material respects with all applicable requirements of law and
no notice has been issued by any governmental authority questioning or
challenging such compliance. Neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated hereby
constitutes or will constitute an event under any West Benefit Plan that may
result in any payment by West or any West Subsidiary, any restriction or
limitation upon the assets of any West Benefit Plan, any acceleration of
payment or vesting, increase in benefits or compensation, or forgiveness of any
loan or other commitment to West or any West Subsidiary.
Section 4.14 Intellectual Property. West and the West Subsidiaries own, free of
Liens, or have a valid license to use, all of the Intellectual Property used in
the conduct of the businesses of West and the West Subsidiaries. None of such
Intellectual Property has been or is the subject of any pending, or to the
knowledge of West, threatened adverse claim, litigation or claim of
infringement based on the use thereof by West or any West Subsidiary or a third
party. Neither West nor any West Subsidiary has received any notice contesting
West's or the West Subsidiaries' right to use any of such Intellectual
Property, and, to the knowledge of West, neither West nor any West Subsidiary
has infringed upon or misappropriated any intellectual property rights of third
parties. The consummation of the Merger will not result in the loss by West or
any West Subsidiaries of any of its or their rights in such Intellectual
Property.
Section 4.15 West Material Contracts. Except as disclosed in the West
Disclosure Schedule, neither West nor any West Subsidiary is a party to or
bound by (a) any "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), or (b) any non-competition agreement
or any other agreement or obligation that purports to limit in any respect the
manner in
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which, or the localities in which, all or any substantial portion of the
business of West or the West Subsidiaries would be conducted.
Section 4.16 Environmental Matters. Except as set forth in the West Disclosure
Schedule, West has no knowledge of (a) any violation of Environmental Laws
relating to any property of West or any West Subsidiary, (b) the release or
potential release of Hazardous Materials on or from any such property, (c)
underground storage tanks located on any property, or (d) asbestos in or on any
such property which would, alone or in the aggregate, reasonably be expected to
have a material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), results of operations or prospects of East
and the East Subsidiaries, taken as a whole, or prevent, hinder or materially
delay the ability of East to consummate the transactions contemplated by this
Agreement. Except as set forth in West Disclosure Schedule, neither West nor
any West Subsidiary, nor to West's knowledge, any tenant of such property, has
manufactured, introduced, released or discharged from or onto any such property
any Hazardous Materials or any toxic wastes, substances or materials (including
asbestos) in violation of any Environmental Laws, and neither West nor any West
Subsidiary, nor to West's knowledge, any tenant of such property, has used any
such property or any part thereof for the generation, treatment, storage,
handling or disposal of any Hazardous Materials, in violation of any
Environmental Laws which would, alone or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise), results of operations
or prospects of West and the West Subsidiaries, taken as a whole, or prevent,
hinder or materially delay the ability of West to consummate the transactions
contemplated by this Agreement.
Section 4.17 Insurance. West or the West Subsidiaries maintain insurance
coverage for West and the West Subsidiaries and their respective properties and
assets of the types and in amounts typical of similar companies engaged in the
respective businesses in which West and the West Subsidiaries are engaged. All
such insurance policies (a) are in full force and effect, and with respect to
all policies neither West nor any West Subsidiary is delinquent in the payment
of any premiums thereon, and no notice of cancellation or termination has been
received with respect to any such policy, and (b) are sufficient for compliance
with all requirements of law and of all agreements to which West or the West
Subsidiaries are a party or otherwise bound and are valid, outstanding,
collectable, and enforceable policies and will remain in full force and effect
through the Closing Date, except, in the case of either clause (a) or (b), in
such manner as would not, alone or in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations properties, assets,
condition (financial or other), results of operations or prospects of West and
West Subsidiaries, taken as a whole or prevent, hinder or materially delay the
ability of the West Merging Entities to consummate the transactions
contemplated by this Agreement. Neither West nor any West Subsidiary has
received written notice within the last 12 months from any insurance company or
board of fire underwriters of any defects or inadequacies that would materially
adversely affect the insurability of, or cause any material increase in the
premiums for insurance covering, either West or any West Subsidiary or any of
their respective properties or assets that have not been cured or repaired to
the satisfaction of the party issuing the notice.
Section 4.18 Brokers and Finders. West has not employed any broker, finder,
other intermediary, or financial advisor in connection with the transactions
contemplated by this Agreement
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that would be entitled to any brokerage, finder's or similar fee or commission,
or financial advisory fee, in connection with this Agreement or the
transactions contemplated hereby, other than Goldman, Sachs & Co., whose fees
and expenses will be paid by West.
Section 4.19 Investment Company Act. None of West nor any of the West
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, nor an "investment adviser" within the meaning
of the Investment Advisers Act of 1940, as amended.
Section 4.20 HSR Act. For purposes of determining compliance with the HSR Act,
West confirms that, except for the business of West Management Company, the
conduct of its businesses consists solely of investing in, owning, operating
and developing real estate for the benefit of its shareholders.
Section 4.21 State Antitakeover Laws Not Applicable. By virtue of provisions in
West's Declaration of Trust, Bylaws or resolutions of the West Board validly
adopted under Section 3-603(e)(1) or Section 3-702(b) of the Corporations and
Associations Article of the Annotated Code of Maryland ("MGCL"), neither
Section 3-602 of the MGCL nor Subtitle 7 of the MGCL (Sections 3-701 through 3-
709 of the MGCL) applies to this Agreement or the Merger or the other
transactions contemplated hereby. Other than Section 3-602 and Subtitle 7 of
the MGCL, no state takeover statute or similar statute or regulation of the
State of Maryland (and, to the knowledge of West, of any other state or
jurisdiction) applies or purports to apply to this Agreement or the Merger or
other transactions contemplated hereby.
Section 4.22 Required West Vote. The West Shareholders Approval, being the
affirmative vote of outstanding shares of West Voting Stock that are entitled
to cast a majority of the votes on the matter of the holders of any class or
series of the securities of the West Merging Entities necessary to approve this
Agreement, the East/West Merger and the other transactions contemplated hereby.
Section 4.23 Board Recommendation. The West Board, at a meeting duly called and
held, has by a unanimous vote of those trustees present (who constituted 100%
of the trustees then in office), (i) determined and declared that this
Agreement and the transactions contemplated hereby, including the East/West
Merger, are advisable and fair to and in the best interests of West and the
shareholders of West and (ii) resolved to recommend that the holders of West
Voting Stock approve this Agreement and the transactions contemplated herein,
including the East/West Merger.
Section 4.24 Opinion of Financial Advisor. A special committee of the West
Board has received the opinion of Goldman, Sachs & Co., dated the date of this
Agreement, to the effect that the Merger Consideration in the East/West Merger
is fair, from a financial point of view, to the holders of West Common Stock
other than the Shareholder.
Section 4.25 Disclosure. No representation or warranty contained in this
Article IV, as qualified by the West Disclosure Schedule, or in any Schedule or
Exhibit hereto or any closing certificate furnished or to be furnished by West
to East pursuant to this Agreement or in connection with the Merger contains
any untrue statement of a material fact, or, to the knowledge of West, omits to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
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Section 4.26 Definition of West's Knowledge. All references in this Agreement
to "West's knowledge" or words of similar import shall refer only to the actual
knowledge of those persons identified in the West Disclosure Schedule and shall
not be construed to refer to the knowledge of any other officer, agent or
employee of West or any affiliate thereof. There shall be no personal liability
on the part of any of the persons identified in the West Disclosure Schedule
arising out of any representations or warranties made herein. Without limiting
the foregoing, in no event shall the knowledge of Shareholder or any of its
agents, officers or employees be attributed to West.
ARTICLE V.
Conduct Of Businesses Pending The Closing
Section 5.1 Conduct Of Business By East. From the date of this Agreement to the
Effective Time (except as otherwise specifically required by the terms of this
Agreement), East shall, and shall cause the East Subsidiaries to, act and carry
on their respective businesses in the usual, regular and ordinary course of
business consistent with past practice and, to the extent consistent therewith,
use their reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, lessors,
lessees, and others having business dealings with them, to the end that their
goodwill and ongoing businesses shall not be impaired in any material respect
at the Effective Time. Without limiting the generality of the foregoing, from
the date of this Agreement to the Effective Time, East shall not, and shall not
permit any of the East Subsidiaries to, without the prior consent of the West:
(a) (i) except as contemplated by Section 5.3, or as disclosed in the East
Disclosure Schedule with respect to dividends by East Management Company,
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of its capital stock, other than dividends and distributions by
a direct or indirect wholly owned East Subsidiary to its parent and the
declaration and payment by East of regular quarterly cash dividends on East
Common Stock in an amount not in excess of $.44 per share and regular quarterly
cash dividends on East Class B Common Stock in an amount not exceeding $.54 per
share, and the payment by East Operating Partnership of (A) regular quarterly
distributions on its units of partnership interest in an amount not exceeding
$.44 per unit to holders of limited partnership interest other than 8.125%
Series A Cumulative Redeemable Preferred Units of East Operating Partnership,
(B) regular quarterly distributions to the holders of 8.125% Series A
Cumulative Redeemable Preferred Units of East Operating Partnership in
accordance with their terms and (C) quarterly distributions to East, as general
partner, in accordance with the terms of the East Organizational Documents, in
each case with usual record and payment dates for such dividends or
distributions in accordance with East's past dividend practices, (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of East or any East Subsidiary or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities, in each case other than in accordance with East's
Long-Term Omnibus Plan or as set forth in the East Disclosure Schedule;
(b) authorize for issuance, issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock or the capital stock of any East Subsidiary,
any other voting securities or any securities
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convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights), or
contractual obligation valued or measured by the value or market price of East
Common Stock (other than (y) the issuance of East Common Stock upon the
exercise of East Stock Options outstanding on the date of this Agreement and in
accordance with their present terms or pursuant to East's 401(k) Savings Plan
and in accordance with its terms or (z) with respect to anticipated issuances
set forth in the East Disclosure Schedule, such issuances being referred to
herein as "East Permitted Changes");
(c) amend its articles or certificate of incorporation, bylaws or other
comparable charter or organizational documents, except as contemplated by this
Agreement or as required to allow for the consummation of the Merger;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof except for
acquisitions involving single asset entities where such acquisitions are
permitted by Section 5.1(g);
(e) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material, alone
or in the aggregate, to East and the East Subsidiaries, taken as a whole,
except sales, leases, mortgages, or other encumbrances or Liens of properties
or assets in the ordinary course of business consistent with past practice;
(f) except in connection with financing for the acquisition and development of
properties as permitted in Section 5.1(g), (i) incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of East or any East Subsidiary, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to East or any direct or indirect
wholly owned East Subsidiary;
(g) acquire or agree to acquire any assets that are material, alone or in the
aggregate, to East and the East Subsidiaries, taken as a whole, or make or
agree to make any capital expenditures except in either case in the ordinary
course of business consistent with past practice or in connection with the
acquisition or development of properties referred to in the East Disclosure
Schedule; pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of (i) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, and (ii) liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated audited financial
statements (or the notes thereof) of East included in the East SEC Documents,
or waive, release, grant, or transfer any rights of material value or modify or
change in any material respect any existing license, lease, contract or other
document, other than in the ordinary course of business consistent with past
practice;
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(h) adopt or amend in any material respect (except as may be required by law or
as contemplated by this Agreement) any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any employee, director or former director or employee;
increase the compensation or fringe benefits of any director, employee or
former director or employee, other than increases for current employees in the
ordinary course of business consistent with past practice; pay any benefit not
required by any existing plan, arrangement or agreement, grant any new or
modified severance or termination arrangement or increase or accelerate any
benefits payable under any severance or termination pay policies in effect on
the date hereof, other than any such increase or acceleration provided for
under the East Benefit Plans as in effect on the date of this Agreement;
(i) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles or rules and
regulations of the SEC promulgated following the date hereof;
(j) take any action that would, or is reasonably likely to, result in any of
its representations and warranties in this Agreement becoming untrue, or in any
of the conditions to the Merger set forth in Article VII not being satisfied;
(k) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign income tax liability; or
(l) authorize any of, or commit or agree to take any of, the foregoing actions.
Section 5.2 Conduct Of Business By West. From the date of this Agreement to the
Effective Time (except as otherwise specifically required by the terms of this
Agreement), West shall, and shall cause the West Subsidiaries to, act and carry
on their respective businesses in the usual, regular and ordinary course of
business consistent with past practice and, to the extent consistent therewith,
use their reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, lessors,
lessees, and others having business dealings with them, to the end that their
goodwill and ongoing businesses shall not be impaired in any material respect
at the Effective Time. Without limiting the generality of the foregoing, from
the date of this Agreement to the Effective Time, West shall not, and shall not
permit any of West Subsidiaries to, without the prior consent of East:
(a) (i) except as contemplated by Section 5.3, declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by a direct or indirect wholly
owned West Subsidiary to its parent and the declaration and payment by West of
regular quarterly cash dividends on West Common Stock in an amount not in
excess of $.1925 per share and regular quarterly cash dividends on West Series
A Preferred Stock and West Series B Preferred Stock in amounts not exceeding
$.1795 and $.1925, respectively, per share, in each case with usual record and
payment dates for such dividends or distributions in accordance with West's
past dividend practices, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of
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its capital stock, or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of West or any West Subsidiary or any other securities thereof or
any rights, warrants, or options to acquire any such shares or other securities
in each case other than as set forth in the West Disclosure Schedule or
pursuant to the terms of the West Share Incentive Plan;
(b) except as set forth in the West Disclosure Schedule, authorize for
issuance, issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock or the capital stock of any West Subsidiary, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or any other securities or equity equivalents (including without
limitation stock appreciation rights), or contractual obligation valued or
measured by the value or market price of West Common Stock (other than the
issuance of West Common Stock upon the exercise of West Stock Options
outstanding on the date of this Agreement and in accordance with their present
terms or pursuant to West's 401(k) Savings Plan and in accordance with its
terms, such issuances being referred to herein as "West Permitted Changes");
(c) amend its Declaration of Trust or bylaws, except as contemplated by this
Agreement or as required to allow for the consummation of the Merger;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(e) except as set forth in the West Disclosure Schedule, sell, lease, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of any of its
properties or assets that are material, alone or in the aggregate, to West and
the West Subsidiaries, taken as a whole, except sales, leases, mortgages, or
other encumbrances or Liens of properties or assets in the ordinary course of
business consistent with past practice;
(f) except as permitted in Section 5.2(g) or as set forth in the West
Disclosure Schedule and except in connection with financing for the acquisition
and development of properties set forth in the West Disclosure Schedule (i)
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of West or any West Subsidiary, guarantee any
debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for shortterm borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to West or
any direct or indirect wholly owned West Subsidiary;
(g) acquire or agree to acquire any assets that are material, alone or in the
aggregate, to West and the West Subsidiaries, taken as a whole, or make or
agree to make any capital expenditures, in either case except in the ordinary
course of business consistent with past practice or in connection with the
acquisition or development of properties referred to in the Disclosure
Schedule; pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, of
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(i) liabilities or obligations in the ordinary course of business consistent
with past practice or in accordance with their terms as in effect on the date
hereof, and (ii) liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated audited financial statements (or the notes
thereof) of West or waive, release, grant, or transfer any rights of material
value or modify or change in any material respect any existing license, lease,
contract or other document, other than in the ordinary course of business
consistent with past practice;
(h) adopt or amend in any material respect (except as may be required by law or
as contemplated by this Agreement) any bonus, profit sharing, compensation,
share option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any employee, director, trustee, or former director,
trustee, or employee; increase the compensation or fringe benefits of any
director, trustee, employee or former director, trustee or employee, other than
increases for current employees in the ordinary course of business consistent
with past practice; pay any benefit not required by any existing plan,
arrangement or agreement, grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under any severance
or termination pay policies in effect on the date hereof, other than any such
increase or acceleration provided for under the West Benefit Plans as in effect
on the date of this Agreement;
(i) change any material accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to generally accepted accounting principles promulgated
following the date hereof;
(j) take any action that would, or is reasonably likely to, result in any of
its representations and warranties in this Agreement becoming untrue, or in any
of the conditions to the Merger set forth in Article VII not being satisfied;
(k) except in the ordinary course of business and consistent with past
practice, make any tax election or settle or compromise any federal, state,
local or foreign income tax liability; or
(l) authorize any of, or commit or agree to take any of, the foregoing actions.
Section 5.3 Coordination of Dividends. West and East shall coordinate with each
other regarding the payment of dividends with respect to West Voting Stock and
East Common Stock after the date hereof, it being the intention of the parties
that (a) West shall pay whatever preclosing dividends shall be necessary to
avoid jeopardizing its status as a "real estate investment trust" under the
Code, (b) the shareholders of East and West shall be treated fairly in order to
avoid any "windfall" preclosing dividends, and (c) except as may be necessary
to accomplish the foregoing, holders of West Voting Stock and East Common Stock
shall not receive two dividends, or fail to receive one dividend, for any
single calendar quarter with respect to their shares of West Voting Stock or
East Common Stock or any shares of East Common Stock that any such holder
receives in exchange for shares of West Voting Stock in the Merger.
Section 5.4 No Solicitation.
(a) Neither East nor any of the East Subsidiaries shall, nor shall East or any
of the East Subsidiaries authorize or permit any of its or their officers,
directors, agents, representatives, advisors or
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subsidiaries to, directly or indirectly (a) solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate the submission of inquiries, proposals or offers from any person
relating to any acquisition or purchase of a substantial amount of assets of
East or any of the East Subsidiaries (other than in the ordinary course of
business) or of over 9.8% of any class of equity securities of East or any of
the East Subsidiaries or any tender offer (including a self tender offer) or
exchange offer that if consummated would result in any person beneficially
owning 9.8% or more of any class of equity securities of East or any of the
East Subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving East or any of the East Subsidiaries, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which would or could reasonably be expected to impede,
interfere with, prevent or materially delay the Merger (collectively, "East
Alternative Proposals") or agree to or endorse any East Alternative Proposal,
or (b) enter into or participate in any discussions or negotiations regarding
any of the foregoing, or furnish to any other person any information with
respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing; provided, however, that the foregoing shall not prohibit East from
(i) furnishing information concerning East and its businesses, properties or
assets (pursuant to an appropriate confidentiality agreement customary under
the circumstances) to a third party who has made an unsolicited East
Alternative Proposal, (ii) engaging in discussions or negotiations with a third
party who has made an unsolicited East Alternative Proposal, (iii) following
receipt of an unsolicited East Alternative Proposal, taking and disclosing to
its shareholders a position contemplated by Rule 14e-2(a) under the Exchange
Act or otherwise making disclosure to its shareholders, (iv) following receipt
of an unsolicited East Alternative Proposal, failing to make or withdrawing or
modifying its recommendation referred to in Section 6.5, and/or (v) engaging in
discussions or negotiations with Shareholder or its controlling affiliates
regarding an unsolicited East Alternative Proposal from a third party, but in
each case referred to in the foregoing clauses (i) through (iv) (not in the
case of the foregoing clause (v)) only if and to the extent that the East Board
shall have concluded in good faith, after consulting with and considering the
advice of outside counsel, that such action is required by the East Board in
the exercise of its legal duties to the shareholders of East under applicable
law; provided, further, that the Board of Directors of East shall not take any
of the foregoing actions referred to in clauses (i) through (iv) (but not
clause (v)) until after giving at least one business day's advance notice to
West with respect to any of the actions specified in the foregoing clauses (i)
through (iv) that it shall take. In addition, if the East Board receives an
unsolicited East Alternative Proposal, then East shall promptly inform West in
writing of the material terms of such proposal and the identity of the person
(or group) making it. East will immediately cease and cause to be terminated
all existing activities, discussions or negotiations, if any, with any parties
(other than Shareholder) conducted heretofore with respect to any of the
foregoing. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in this Section 5.4(a) by any director or
executive officer of East or any of its subsidiaries or by any investment
banker, financial adviser, attorney, accountant, or other representative of
East or any of its subsidiaries shall be deemed to be a breach of this Section
by East.
(b) Neither West nor any of the West Subsidiaries shall, nor shall West or any
of the West Subsidiaries authorize or permit any of its or their officers,
trustees, directors, agents, representatives,
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advisors or subsidiaries to, directly or indirectly (a) solicit, initiate or
encourage (including by way of furnishing information), or take any other
action to facilitate the submission of inquiries, proposals or offers from any
person relating to any acquisition or purchase of a substantial amount of
assets of West or any of the West Subsidiaries (other than in the ordinary
course of business) or of over 9.8% of any class of equity securities of West
or any of the West Subsidiaries or any tender offer (including a self tender
offer) or exchange offer that if consummated would result in any person
beneficially owning 9.8% or more of any class of equity securities of West or
any of the West Subsidiaries, or any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving West or any of the West
Subsidiaries, other than the transactions contemplated by this Agreement, or
any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the Merger
(collectively, "West Alternative Proposals") or agree to or endorse any West
Alternative Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or
seek any of the foregoing; provided, however, that the foregoing shall not
prohibit West from (i) furnishing information concerning West and its
businesses, properties or assets (pursuant to an appropriate confidentiality
agreement customary under the circumstances) to a third party who has made an
unsolicited West Alternative Proposal, (ii) engaging in discussions or
negotiations with a third party who has made an unsolicited West Alternative
Proposal, (iii) following receipt of an unsolicited West Alternative Proposal,
taking and disclosing to its shareholders a position contemplated by Rule 14e-
2(a) under the Exchange Act or otherwise making disclosure to its shareholders,
(iv) following receipt of an unsolicited West Alternative Proposal, failing to
make or withdrawing or modifying its recommendation referred to in Section 6.5,
and/or (v) engaging in discussions or negotiations with Shareholder or its
controlling affiliates regarding an unsolicited West Alterative Proposal from a
third party, but in each case referred to in the foregoing clauses (i) through
(iv) (not in the case of the foregoing clause (v)) only if and to the extent
that the West Board shall have concluded in good faith, after consulting with
and considering the advice of outside counsel, that such action is required by
the West Board in the exercise of its legal duties to the shareholders of West
under applicable law; provided, further, that the West Board shall not take any
of the foregoing actions referred to in clauses (i) through (iv) (but not
clause (v)) until after giving at least one business day's advance notice to
East with respect to any of the actions specified in the foregoing clauses (i)
through (iv) that it shall take. In addition, if the Board of Trustees of West
receives an unsolicited West Alternative Proposal, then West shall promptly
inform East in writing of the material terms of such proposal and the identity
of the person (or group) making it. West will immediately cease and cause to be
terminated existing activities, discussions or negotiations, if any, with any
parties (other than Shareholder) conducted heretofore with respect to any of
the foregoing. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 5.4(b) by any trustee
or executive officer of West or any of its subsidiaries or by any investment
banker, financial adviser, attorney, accountant, or other representative of
West or any of its subsidiaries shall be deemed to be a breach of this Section
by West.
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ARTICLE VI.
Additional Agreements
Section 6.1 Access To Information. Each of the parties shall afford to the
other party and its respective accountants, counsel, financial advisors and
other representatives (the "Representatives") full access during normal
business hours throughout the period prior to the Closing to all properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) of such party, as appropriate, and, during such period, each shall
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the SEC in connection with the transactions
contemplated by this Agreement, and (b) such other information concerning its
business, properties and personnel as shall be reasonably requested; provided
that no investigation pursuant to this Section 6.1 shall affect any
representation or warranty made herein or the respective conditions to the
obligations of the parties hereto to consummate the transactions contemplated
hereby. Each party shall promptly advise each other party in writing of any
change or the occurrence of any event after the date of this Agreement having,
or which, insofar as can reasonably be foreseen, in the future may have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of such
party or its subsidiaries taken as a whole.
Section 6.2 Registration Statements And Proxy Statement And Prospectus. East
shall file with the SEC as soon as is reasonably practicable after the date
hereof the Proxy Statement and Prospectus, shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC as promptly as
practicable, and shall take any action required to be taken under applicable
state blue sky or securities laws in connection with the Merger. West and East
shall promptly furnish to each other all information, and take such other
actions as may reasonably be requested in connection with any action by either
of them in connection with this Section and shall cooperate with one another
and use their respective reasonable best efforts to facilitate the expeditious
consummation of the transactions contemplated by this Agreement.
Section 6.3 Letters of Accountants.
(a) East shall use its reasonable best efforts to cause to be delivered to West
two letters of KPMG Peat Marwick LLP, East's independent public accountants,
one dated a date within two business days before the date on which the
Registration Statement shall become effective and one dated a date within two
business days before the Closing Date, each addressed to West, in form and
substance reasonably satisfactory to West and customary in scope and substance
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(b) West shall use its reasonable best efforts to cause to be delivered to East
two letters of Price Waterhouse LLP, West's independent public accountants, one
dated a date within two business days before the date on which the Registration
Statement shall become effective and one dated a date within two business days
before the Closing Date, each addressed to East, in form and substance
reasonably satisfactory to East and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
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Section 6.4 Legal Opinions.
(a) East shall use its reasonable best efforts to cause to be delivered to West
at the East/West Closing an opinion of Foley & Lardner, counsel to East, with
respect to the East Merging Entities, as to due organization and existence,
authorized capitalization, due authorization, consents (to such firm's
knowledge), violations of law (to such firm's knowledge), litigation (to such
firm's knowledge), the valid issuance of East Common Stock pursuant to this
transaction, enforceability, and such other matters as counsel to West may
reasonably request. (It being understood that the delivery of such opinion
shall not be deemed a condition to the East/West Closing).
(b) West shall use its reasonable best efforts to cause to be delivered to East
at the East/West Closing an opinion of Mayer, Brown & Platt, counsel for West,
with respect to West and the West Subsidiaries, as to due organization and
existence, authorized capitalization, due authorization, consents (to such
firm's knowledge), violations of law (to such firm's knowledge), litigation (to
such firm's knowledge), enforceability and such other matters as counsel to
East may reasonably request. (It being understood that the delivery of such
opinion shall not be deemed a condition to the East/West Closing).
Section 6.5 Shareholders Approval. As soon as practicable following the date
upon which the Registration Statement is declared effective by the SEC, West
shall use its reasonable best efforts to obtain the West Shareholders Approval,
and East shall use its reasonable best efforts to obtain the East Shareholders
Approval, including the requisite shareholder approval of the amendments to
East's Articles of Incorporation necessary to consummate the Merger. The West
Board and East Board shall recommend to their respective shareholders the
approval of this Agreement and the Merger and the other transactions
contemplated hereby; provided, however, that (a) prior to the meeting of
shareholders of East, the East Board may withdraw, modify or amend such
recommendation to the extent permitted by the first proviso to Section 5.4(a)
and subject to compliance with Section 5.4(a), and (b) prior to the meeting of
shareholders of West, the West Board may withdraw, modify or amend such
recommendation to the extent permitted by the first proviso to Section 5.4(b)
and subject to compliance with Section 5.4(b).
Section 6.6 Affiliate Agreements. West shall use its reasonable best efforts to
cause each principal executive officer, each Trustee, and each other person who
is an "affiliate," as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act (including Shareholder), of West to deliver to East on
or prior to the Closing Date a written agreement (an "Affiliate Agreement") to
the effect that such person will not offer to sell, sell or otherwise dispose
of any East Common Stock issued in the Merger, except, in each case, pursuant
to an effective registration statement or in compliance with Rule 145, as
amended from time to time, or in a transaction which, in the opinion of legal
counsel satisfactory to East, is exempt from the registration requirements of
the Securities Act.
Section 6.7 Exchange. East shall use its reasonable best efforts to effect, at
or before the Closing Date, authorization for listing on the Exchange, upon
official notice of issuance, the East Common Stock (i) to be issued in the
Merger and (ii) which will be issuable upon conversion of East Series B
Preferred Stock (including East Series B Stock issuable upon conversion of East
Series A Preferred Stock) or redemption of units of limited partnership
interest of East Operating Partnership issued pursuant to the Merger.
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Section 6.8 Expenses. Except as provided in Section 8.3, whether or not the
Merger is consummated, all fees and expenses (including financial advisory and
other professional services fees) incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that those fees and expenses incurred in connection with
filing, printing and distributing the Proxy Statement and Prospectus shall be
shared ratably by West and East in proportion to the number of copies of the
Proxy Statement and Prospectus mailed by each.
Section 6.9 Agreement to Cooperate. Subject to the terms and conditions herein
provided, the parties hereto shall cooperate and use its respective reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations, and under contracts giving rise to the East Required Consents or
West Required Consents, to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable best efforts to
identify and obtain all necessary or appropriate waivers, consents and
approvals, to effect all necessary registrations, filings and submissions
(including, but not limited to, the East Required Statutory Approvals, West
Required Statutory Approvals, any filings under federal and state securities
laws and the HSR Act) and to lift any injunction or other legal bar to the
transactions contemplated hereby (and, in such case, to proceed with such
transactions as expeditiously as possible), subject, however, to obtaining the
East Shareholders Approval and West Shareholders Approval. In addition, each of
West and East agrees to use all reasonable efforts to cause each of the
East/West Merger and the Management Company Merger to qualify as a
reorganization within the meaning of Section 368 of the Code, to cause the
Operating Partnership Merger to qualify under Section 721 of the Code, to
maintain the status of East as a "real estate investment trust" under the Code,
and to obtain the tax opinions contemplated in Section 7.1(e) and Section
7.1(f).
Section 6.10 Coordination of Employee Benefit Plans. West shall use its
reasonable best efforts to take such actions as may be reasonably requested by
East to facilitate decisions and subsequent actions by East to terminate or
transition any of West's Benefit Plans, stock option plans and similar matters,
including without limitation appropriate amendment of the West stock option
plans. East shall use its reasonable best efforts to take such actions as may
be necessary to modify East's stock option plan to permit the West senior
executives identified on the West Disclosure Schedule to retain their stock
options following termination of their employment upon consummation of the
East/West Merger.
Section 6.11 West Nominees to East Board of Directors. East shall use its
reasonable best efforts to cause three members of the West Board of Directors
designated by West in the West Disclosure Schedule to be added as additional
members of the East Board of Directors immediately following the East/West
Closing.
Section 6.12 Public Statements. The parties shall consult with each other prior
to issuing any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby and shall not issue any
such press release or written public statement prior to review and approval by
the other parties, except that prior review and approval shall not be required
if, in the reasonable judgment of the party seeking to issue such release or
public statement, prior
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review and approval would prevent the timely dissemination of such release or
announcement in violation of any applicable law, rule or regulation or any
policy of the Exchange.
Section 6.13 Corrections to the Proxy Statement and Prospectus and Registration
Statement. Prior to the date of the East Shareholders Approval and West
Shareholders Approval, each of West and East shall correct promptly any
information provided by it to be used specifically in the Proxy Statement and
Prospectus and Registration Statement or relating to it and incorporated by
reference into the Proxy Statement and Prospectus and Registration Statement
that shall have become false or misleading in any material respect and shall
take all steps necessary to file with the SEC and have declared effective or
cleared by the SEC any amendment or supplement to the Proxy Statement and
Prospectus or the Registration Statement so as to correct the same and to cause
the Proxy Statement and Prospectus as so corrected to be disseminated to the
shareholders of East and West, in each case to the extent required by
applicable law.
Section 6.14 Updated Schedules. Each party shall deliver to the other party at
least two days prior to the Closing Date updated schedules to this Agreement
reflecting any changes in such party's scheduled items occurring from the date
hereof to the Closing Date. No information provided to a party pursuant to this
Section 6.11 shall be deemed to cure any breach of any representation, warranty
or covenant made in this Agreement.
Section 6.15 Standstill Agreements; Confidentiality Agreements. During the
period from the date of this Agreement through the Effective Time, each of West
and East shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its subsidiaries
is a party. During such period, each of West and East shall enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreement, including by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
federal or state court having jurisdiction.
Section 6.16 Indemnification.
(a) East agrees that all rights to indemnification and exculpation from
liabilities or acts or omissions occurring at or prior to the Effective Time
now existing in favor of the current or former trustees, directors or officers
of West and the West Subsidiaries as provided in their respective declaration
of trust or articles of incorporation or bylaws (or comparable organizational
documents) and any indemnification agreements or arrangements of West and the
West Subsidiaries shall survive the Merger, shall be assumed and performed by
East, and shall continue in full force and effect in accordance with their
terms with respect to matters arising before the Effective Time. East shall pay
any expenses of any indemnified person under this Section 6.16 in advance of
the final disposition of any action, proceeding or claim relating to any such
act or omission to the fullest extent permitted under the FBCA upon receipt
from the applicable indemnified person to whom advances are to be advanced of
any undertaking to repay such advances required under the FBCA. In addition,
from and after the Effective Time, trustees or officers of West who become
directors or officers of East will be entitled to the same indemnity rights and
protections as are afforded to other directors and officers of East.
(b) In the event that East or any of its successors or assigns (i) consolidates
with or merges into any other person and is not the continuing or surviving
corporation or entity of such consolidation or
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merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision will be
made so that the successors and assigns of East will assume the obligations set
forth in this Section.
(c) The provisions of this Section 6.16 are intended to be for the benefit of,
and will be enforceable by, each indemnified party, his or her heirs and his or
her representatives and are in addition to, and not in substitution for, any
other rights to indemnification or contribution that any such person may have
by contract or otherwise. The provisions of this Section 6.16 shall survive the
Merger and are in addition to any other rights to which an indemnified party
may be entitled. To the maximum extent permitted by law, all rights of
indemnification for the benefit of any indemnified party shall be mandatory
rather than permissive.
ARTICLE VII.
Conditions
Section 7.1 Conditions To Each Party's Obligations for East/West Merger. The
respective obligations of each party to effect the East/West Merger shall be
subject to the fulfillment or waiver at or prior to the East/West Closing of
the following conditions:
(a) The other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the East/West Closing and the representations and warranties of the other party
shall be true and correct in all material respects on and as of (i) the date
made and (ii) the East/West Closing Date with the same effect as if made on
that date; provided, however, that if any representation and warranty is
already qualified in any respect by materiality or as to material adverse
effect, the materiality qualification immediately before this proviso shall not
apply; and the other party shall have delivered a certificate of its chief
executive officer or a co-chairman to that effect;
(b) Each of the West Shareholders Approval and the East Shareholders Approval
(including the requisite approval by East's shareholders of the amendment to
the East Articles of Incorporation set forth in the East/West Articles of
Merger) shall have been obtained;
(c) The Registration Statement shall have become effective in accordance with
the Securities Act, and no stop order suspending such effectiveness shall have
been issued and remain in effect and no proceeding for that purpose shall have
been initiated or threatened by the Commission;
(d) The shares of East Common Stock issuable in the East/West Merger or upon
redemption of units of limited partnership interest in East Operating
Partnership issued in connection with the East/West Merger or upon conversion
of the East Preferred stock issued in the East/West Merger shall have been
approved for listing on the Exchange, subject to notice of issuance;
(e) Each of West, East and Shareholder shall have received a favorable opinion
(in form and substance reasonably satisfactory to West, East and Shareholder,
respectively) from Mayer, Brown & Platt to the effect that for United States
federal income tax purposes (i) the East/West Merger will qualify as a
reorganization within the meaning of Section 368 of the Code and that each of
West and
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East will be a party to such reorganization within the meaning of Section
368(b) of the Code, (ii) no gain or loss will be recognized by holders of West
Common Stock, West Series A Preferred Stock or West Series B Preferred Stock
except to the extent of cash received pursuant to the Merger or pursuant to the
exercise of dissenters' rights, and (iii) no gain or loss will be recognized by
East or West pursuant to the Merger. In providing the foregoing opinions,
counsel may rely upon (i) customary factual representations made by West and
East and (ii) the tax opinion of Foley & Lardner as described in Section (f)
below regarding the status of East as a "real estate investment trust" under
the Code.
(f) Each of West, East and Shareholder shall have received a favorable opinion
(in form and substance reasonably satisfactory to West, East and Shareholder,
respectively) from Foley & Lardner (who may rely upon customary factual
representations made by West and East) to the effect that the consummation of
the Merger and the performance of this Agreement will not jeopardize the status
of East as a "real estate investment trust" under the Code;
(g) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the East/West Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable best efforts to have any such injunction, order or decree lifted);
(h) Each of the East Required Stantory Approvals described in Section (c)(i)
and (ii) and the West Merger Required Statutory Approvals described in Section
(c)(i) and (ii) shall have been obtained and be in effect at the Closing;
(i) Each of the East Required Consents which have been specifically identified
as a mandatory precondition to closing of the East/West Merger in the East
Disclosure Schedule and the West Required Consents which have been specifically
identified as a mandatory precondition to closing of the East/West Merger in
the West Disclosure Schedule, shall have been obtained and be in effect at the
Closing;
(j) The holders of more than 10% of the issued and outstanding West Voting
Stock shall not have duly perfected a demand for dissenter's rights in
accordance with the MGCL; and
(k) Each party shall have received any additional documents that such party may
reasonably require for the proper consummation of the East/West Merger.
ARTICLE VIII.
Termination, Amendment And Waiver
Section 8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of
West and East:
(a) by mutual written consent of West and East;
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(b) by West or East, if the Merger shall not have been consummated on or before
March 31, 1999 (the "Termination Date") (other than by reason of a breach by
the party seeking to terminate this Agreement of its obligations hereunder);
(c) by West or East, if an injunction, order or decree described in Section
7.1(g) shall be in effect and shall have become final and nonappealable,
provided that the party seeking to terminate this Agreement has used its
reasonable best efforts to have such injunction, order, or decree lifted;
(d) unilaterally by West or East (i) if the other party (A) fails to perform
any covenant or agreement in this Agreement in any material respect, and does
not cure the failure in all material respects within 15 business days after the
terminating party delivers written notice of the alleged failure or (B) fails
to fulfill or complete a condition to the obligations of the terminating party
(which condition is not waived) by reason of a breach by the non-terminating
party of its obligations hereunder or (ii) if any condition to the obligations
of the terminating party is not satisfied (other than by reason of a breach by
that party of its obligations hereunder), and it reasonably appears that the
condition cannot be satisfied prior to the Termination Date;
(e) by West, if (1) East shall have exercised a right specified in the first
proviso to Section 5.4(a) with respect to an East Alternative Proposal and
shall, directly or through Representatives, continue discussions with any third
party concerning such East Alternative Proposal for more than 15 business days
after the date of receipt of such East Alternative Proposal; or (2) (A) an East
Alternative Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to East which contains a proposal as to price
(without regard to whether such proposal specifies a specific price or a range
of potential prices) and (B) East shall not have rejected such proposal within
15 business days of its receipt or, if sooner, the date its existence first
becomes publicly disclosed;
(f) by East, if East validly exercises, pursuant to Section 5.4(a), the right
specified in clause (iv) of the first proviso to Section 5.4(a);
(g) by East, if (1) West shall have exercised a right specified in the first
proviso to Section 5.4(b) with respect to a West Alternative Proposal and
shall, directly or through Representatives, continue discussions with any third
party concerning such West Alternative Proposal for more than 15 business days
after the date of receipt of such West Alternative Proposal; or (2) (A) a West
Alternative Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to West which contains a proposal as to price
(without regard to whether such proposal specifies a specific price or a range
of potential prices) and (B) West shall not have rejected such proposal within
15 business days of its receipt or, if sooner, the date its existence first
becomes publicly disclosed; or
(h) by West, if West validly exercises, pursuant to Section 5.4(b), the right
specified in clause (iv) of the first proviso to Section 5.4(b);
provided, however, that any termination of this Agreement pursuant to this
Section 8.1 shall require the approval of the Special Committee of the Board of
the terminating party.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement, as provided in Section 8.1, this Agreement shall forthwith become,
void and there shall be no further obligation on
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the part of any party hereto or their respective officers or directors or
trustees (except as set forth in this Section 8.2 and in Section 6.8 and
Section 8.3). Nothing in this Section 8.2 shall relieve any party from
liability for any breach of this Agreement.
Section 8.3 Payment Upon Certain Terminations.
(a) In the event that this Agreement is terminated by East pursuant to Section
8.1(f), then, concurrently with any such termination, East shall pay West, in
accordance with Section 8.4, a fee equal to $20 million by wire transfer of
same day funds.
(b) In the event that (A) a East Pre-Termination Alternative Proposal Event (as
defined below) shall occur and thereafter this Agreement is terminated by West
pursuant to Section 8.1(e) and (B) prior to the date that is 12 months after
the date of such termination East enters into any letter of intent, agreement
in principle, acquisition agreement or similar agreement relating to any East
Alternative Proposal, then East shall promptly, but in no event later than two
business days after the date such agreement is entered into, pay West, in
accordance with Section 8.4, a fee equal to $20 million by wire transfer of
same day funds.
(c) for purposes of Section 8.3(b), an "East Pre-Termination Alternative
Proposal Event" shall be deemed to occur if an East Alternative Proposal shall
have been made known to East or has been made directly to its shareholders
generally or any person shall have publicly announced an intention (whether or
not conditional) to make an East Alternative Proposal. East acknowledges that
the agreements contained in Section 8.3(a) and Section 8.3(b) are an integral
part of the transactions contemplated by this Agreement, and that the amounts
to be paid pursuant to Section 8.3(a) and Section 8.3(b)constitute liquidated
damages and not a penalty.
(d) In the event that this Agreement is terminated by West pursuant to Section
8.1(h), then, concurrently with any such termination, West shall pay East, in
accordance with Section 8.4, a fee equal to $20 million by wire transfer of
same day funds.
(e) In the event that (A) a West PreTermination Alternative Proposal Event (as
defined below) shall occur and thereafter this Agreement is terminated by East
pursuant to Section 8.1(g) and (B) prior to the date that is 12 months after
the date of such termination West enters into any letter of intent, agreement
in principle, acquisition agreement or similar agreement relating to any West
Alternative Proposal, then West shall promptly, but in no event later than two
business days after the date such agreement is entered into, pay East, in
accordance with Section 8.4, a fee equal to $20 million by wire transfer of
same day funds.
(f) For purposes of Section 8.3(a), a "West PreTermination Alternative Proposal
Event" shall be deemed to occur if a West Alternative Proposal shall have been
made known to West or has been made directly to its shareholders generally or
any person shall have publicly announced an intention (whether or not
conditional) to make a West Alternative Proposal. West acknowledges that the
agreements contained in Section 8.3(d) and (b) are an integral part of the
transactions contemplated by this Agreement, and that the amounts to be paid
pursuant to Section 8.3(d) and (b) constitute liquidated damages and not a
penalty.
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Section 8.4 Payment of Termination Amount.
(a) In the event that West or East (for purposes of this Section, the "Paying
Party") is obligated to pay an amount pursuant to Section 8.3 (the "Section 8.3
Amount"), the Paying Party shall pay to the other party hereto (for purposes of
this Section, the "Receiving Party"), from the applicable Section 8.3 Amount
deposited into escrow in accordance with the next sentence, an amount equal to
the lesser of (m) the Section 8.3 Amount or (n) the sum of (1) the maximum
amount that can be paid to the Receiving Party without causing the Receiving
Party to fail to meet the requirements of Sections 856(c)(2) and (3) of the
Code determined as if the payment of such amount did not constitute income
described in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by the Receiving Party's certified public
accountants, plus (2) in the event the Receiving Party receives either (X) a
letter from the Receiving Party's counsel indicating that the Receiving Party
has received a ruling from the U.S. Internal Revenue Service ("IRS") described
in Section 8.4(b)(ii) or (Y) an opinion from the Receiving Party's counsel as
described in Section 8.4(b)(ii), an amount equal to the Section 8.3 Amount less
the amount payable under clause (1) above. To secure the Paying Party's
obligation to pay these amounts, the Paying Party shall deposit into escrow an
amount in cash equal to the Section 8.3 Amount with an escrow agent selected by
the Receiving Party and on such terms (subject to Section 8.4(b)) as shall be
agreed upon by the Receiving Party and the escrow agent. The payment of deposit
into escrow of the Section 8.3 Amount pursuant to this Section (a) shall be
made on the date payment is due under Section 8.3 by wire transfer of same day
funds.
(b) The escrow agreement shall provide that the Section 8.3 Amount in escrow or
any portion thereof shall not be released to the Receiving Party unless the
escrow agent receives any one or combination of the following: (i) a letter
from the Receiving Party's certified public accountants indicating the maximum
amount that can be paid by the escrow agent to the Receiving Party without
causing the Receiving Party to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income or a subsequent letter from the Receiving
Party's accountants revising that amount, in which case the escrow agent shall
release such amount to the Receiving Party, or (ii) a letter from the Receiving
Party's counsel indicating that the Receiving Party received a ruling from the
IRS holding that the receipt by the Receiving Party of the Section 8.3 Amount
would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Sections 856(c)(2) and (3) of the Code (or
alternatively, the Receiving Party's legal counsel has rendered a legal opinion
to the effect that the receipt by the Receiving Party of the Section 8.3 Amount
would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Section 856(c)(2) and (3) of the Code), in which
case the escrow agent shall release the remainder of the Section 8.3 Amount to
the Receiving Party. West agrees to amend this Section 8.4 at the request of
the Receiving Party in order to (x) maximize the portion of the Section 8.3
Amount that may be distributed to the Receiving Party hereunder without causing
the Receiving Party to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code, (y) improve the Receiving Party's chances of securing a
favorable ruling described in this Section 8.4(b) or (z) assist the Receiving
Party in obtaining a favorable legal opinion from its counsel as described in
this Section 8.4(b); provided that the Receiving Party's legal counsel has
rendered a legal opinion to the Receiving Party to the effect that such
amendment would not cause the Receiving Party to fail to meet the requirements
of Section 856(c)(2) or (3) of the
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<PAGE>
Code. The escrow agreement shall also provide that any portion of the
Section 8.3 Amount held in escrow for five years shall be released by the
escrow agent to the Paying Party. The Paying Party shall not be a party to such
escrow agreement and shall not bear any cost of or have liability resulting
from the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this Agreement, in
the event that the Receiving Party is required to file suit to seek all or a
portion of an amount pursuant to Section 8.3, it shall be entitled to all
expenses, including attorneys' fees and expenses, which it has incurred in
enforcing its rights hereunder, provided that payment of such expenses shall be
subject to the limitations of Section 8.4(a) (determined as if such expenses
were included in the Section 8.3 Amount).
Section 8.5 Amendment and Waiver. This Agreement may not be amended except by
an instrument in writing signed on behalf of both of the parties hereto and in
compliance with applicable law; provided, that, (a) this Agreement may not be
amended in any material respect following the West Shareholders Approval or
East Shareholders Approval; (b) at any time prior to the Closing, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein (any agreement on the part of a party hereto to any
such extension or waiver being valid if set forth in an instrument in writing
signed on behalf of such party); and (c) the approval of each of the Special
Committees shall be required for an amendment or modification of this Agreement
and the approval of the Special Committee of the Board of the extending or
waiving party shall be required for any extension by East or West of the time
of the performance of any obligations or other acts of West or East and any
waiver of any of West's or East's obligations under this Agreement.
ARTICLE IX.
General Provisions
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile with confirmed receipt to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) If to West, to:
Pacific Retail Trust
8140 Walnut Hill Lane
Dallas, Texas 75231
Attention: Dennis H. Alberts
Fax: (214) 696-9512
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<PAGE>
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
and to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071-1560
Attention: R. Gregory Morgan
Fax: (213) 687-3702
(b) If to East, to:
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, FL 32202
Attention: Martin E. Stein, Jr.
Fax: (904) 634-3428
with a copy to:
Foley & Lardner
200 Laura Street
Jacksonville, FL 32202
Attention: Linda Y. Kelso
Fax: (904) 359-8700
and to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: Cornelius T. Finnegan, III
Fax: (212) 728-8111
Section 9.3 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 9.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (b) shall not be assigned by operation of law or otherwise;
and (c) shall be
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governed in all respects, including validity, interpretation and effect, by the
laws of the State of Florida (without giving effect to the provisions thereof
relating to conflicts of law).
Section 9.5 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
Section 9.6 Parties In Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto. Except as provided in Section 6.16,
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
Section 9.7 Limitation Of Liability. Any obligation or liability whatsoever of
East or West which may arise at any time under this Agreement or any obligation
or liability which may be incurred by it pursuant to any other instrument,
transaction or undertaking contemplated hereby shall be satisfied, if at all,
only out of East's or West's assets respectively. No such obligation or
liability shall be personally binding upon, nor shall resort for the
enforcement thereof be had to, the property of any of its shareholders,
trustees, officers, employees or agents, regardless of whether such obligation
or liability is in the nature of contract, tort or otherwise.
Section 9.8 No Presumption Against Drafter. Each of the parties hereto have
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties
hereto and no presumptions or burdens of proof shall arise favoring any party
by virtue of the authorship of any of the provisions of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the date first
written above.
Pacific Retail Trust
/s/ Dennis H. Alberts
By: _________________________________
Print name: Dennis H. Alberts
Its: President and Chief
Executive Officer
Regency Realty Corporation
/s/ Martin E. Stein, Jr.
By: _________________________________
Print name: Martin E. Stein, Jr.
Its: Chairman and Chief Executive
Officer
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<PAGE>
EXHIBIT A TO ANNEX A
(REIT MERGER)
ARTICLES OF MERGER AND PLAN OF MERGER
MERGING
PACIFIC RETAIL TRUST
(A REAL ESTATE INVESTMENT TRUST OF THE STATE OF MARYLAND)
WITH AND INTO
REGENCY REALTY CORPORATION
(A CORPORATION OF THE STATE OF FLORIDA)
Pursuant to Sections 607.1101 and 607.1108, Florida Statutes and Sections 3-109
and 8-501.1 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended.
Regency Realty Corporation, a corporation organized and existing under the laws
of the State of Florida ("East"), and Pacific Retail Trust, a real estate
investment trust organized and existing under the laws of the State of Maryland
("West"), agree that West shall be merged with and into East, the latter of
which is to survive the merger, and hereby adopt the following Articles of
Merger. The terms and conditions of the merger and the mode of carrying the
same into effect are as herein set forth in these Articles of Merger.
FIRST: The parties to these Articles of Merger are West, a real estate
investment trust organized and existing under the laws of the State of
Maryland, and East, a corporation organized and existing under the laws of the
State of Florida. East was incorporated on July 9, 1993 under the Florida
Business Corporation Act (the "Florida Act").
SECOND: West shall be merged with and into East in accordance with Title 8 of
the Corporations and Associations Article of the Annotated Code of Maryland
(the "Maryland Code") and the Florida Act and East shall survive the merger and
continue under its present name (the "Surviving Entity"). At the effective time
of the merger (the "Effective Time"), the separate existence of West shall
cease in accordance with the provisions of the Maryland Code. From and after
the Effective Time, the Surviving Entity shall continue its existence as a
corporation under the Florida Act, shall succeed to all of the rights,
privileges, properties, real, personal and mixed, liabilities and other assets
without the necessity of any separate deed or other transfer and shall be
subject to all of the liabilities and obligations of West without further
action by either of the parties hereto, and will continue to be governed by the
laws of the State of Florida. If at any time after the Effective Time the
Surviving Entity shall consider or be advised that any deeds, bills of sale,
assignments or assurances or any other acts or things are necessary, desirable
or proper (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Entity, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of West acquired
or to be acquired as a result of the merger, or (b) otherwise to carry out the
purposes of these Articles, the Surviving Entity and its officers and directors
or their designees shall be authorized to execute and deliver, in the name and
on behalf of West, all deeds, bills of sale, assignments and assurances, and to
do, in the name and on behalf of West, all other acts or things necessary,
desirable or proper to vest, perfect or confirm the Surviving Entity's right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of West acquired or to be acquired as a result
of the merger and otherwise to carry out the purposes of these Articles.
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<PAGE>
THIRD: The principal office of West in the State of Maryland is located at 11
East Chase Street, Baltimore, Maryland. The name and address of the registered
agent of East is . The principal office of East is located at 121 W.
Forsyth Street, Suite 200, Jacksonville, Florida 32202. Neither East nor West
owns any interest in land in any county in the State of Maryland.
FOURTH: The terms and conditions of the transaction set forth in these Articles
of Merger were advised, authorized and approved by each party to these Articles
of Merger in the manner and by the vote required by East's articles of
incorporation and the Florida Act or West's declaration of trust and the
Maryland Code, as the case may be.
FIFTH: The merger was duly (a) advised by the board of directors of East by the
adoption of a resolution declaring that the merger set forth in these Articles
of Merger was advisable on substantially the terms and conditions set forth in
the resolution and directing that the proposed merger be submitted, together
with the board's recommendation, for consideration at a special meeting of the
shareholders of East and (b) approved by the shareholders of East on , 1998
by the vote required by its articles of incorporation and the Florida Act. The
only voting group of East entitled to vote on the adoption of the Plan was the
holders of East Common Stock. The number of votes cast by such voting group was
sufficient for approval by that group.
SIXTH: The merger was duly (a) advised by the board of trustees of West by the
adoption of a resolution declaring that the merger set forth in these Articles
of Merger was advisable on substantially the terms and conditions set forth or
referred to in the resolution and directing that the proposed merger be
submitted for consideration at a special meeting of the shareholders of West
and (b) approved by the shareholders of West on , 1998 by the vote required
by its declaration of trust and the Maryland Code.
SEVENTH: The total number of shares of beneficial interest of all classes which
West has authority to issue is 150,000,000 shares of beneficial interest, of
the par value of $.01 each, all such shares having an aggregate par value of
$1,500,000. Of such shares of beneficial interest, 142,739,448 shares are
classified as common shares ("West Common Stock"), 1,130,276 shares have been
classified as Series A Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest ("West Series A Preferred Stock"), and 6,130,276 shares
have been classified as Series B Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest ("West Series B Preferred Stock").
Immediately before the Effective Time, the total number of shares of stock of
all classes which East had authority to issue is 170,000,000 shares, of the par
value of $.01 each, all such shares having an aggregate par value of
$1,700,000. Of such 170,000,000 shares, 150,000,000 shares were classified as
common stock ("East Common Stock"), 10,000,000 shares were classified as
Special Common Stock (of which 2,500,000 have been classified as Class B Non-
Voting Stock) and 10,000,000 shares were classified as Preferred Stock (of
which 1,600,000 have been classified as 8.125% Series A Cumulative Redeemable
Preferred Stock). Immediately after the Effective Time, the total number of
shares of stock of all classes which East has authority to issue is 170,000,000
shares, of the par value of $0.01 each, all such shares having an aggregate par
value of $1,700,000. Of such 170,000,000 shares, 150,000,000 shares are
classified as East Common Stock, 10,000,000 shares are classified as Special
Common Stock (of which 2,500,000 are classified as Class B Non-Voting Common
Stock)
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<PAGE>
and 10,000,000 shares are classified as Preferred Stock (of which 542,532
shares have been classified as Series A Cumulative Convertible Redeemable
Preferred Stock and 960,000 shares have been classified as Series B Cumulative
Convertible Redeemable Preferred Stock and 1,600,000 have been classified as
8.125% Series A Cumulative Redeemable Preferred Stock).
EIGHTH: As of the Effective Time, by virtue of the Merger and without any
action on the part of East, West, or any holder of any of the following
securities:
(a) CANCELLATION OF TREASURY STOCK AND EAST-OWNED WEST CAPITAL STOCK. Each
share of capital stock of West that is owned by West or any subsidiary of West
or East or any subsidiary of East shall automatically be cancelled and retired
and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor.
(b) CONVERSION OF WEST COMMON STOCK. Each issued and outstanding share of West
Common Stock, other than shares cancelled pursuant to paragraph (a) of this
Article or shares as to which a demand for dissenter's rights has been duly
perfected in accordance with the Maryland Code, shall be converted into the
right to receive 0.48 validly issued, fully paid, and nonassessable shares of
East Common Stock. The consideration to be issued to the holders of West Common
Stock is referred to herein as the "Common Stock Merger Consideration." No
fractional shares shall be issued as part of the Common Stock Merger
Consideration.
(c) CONVERSION OF WEST SERIES A PREFERRED STOCK. Each issued and outstanding
share of West Series A Preferred Stock, other than shares cancelled pursuant to
paragraph (a) of this Article or shares as to which a demand for dissenters
rights has been duly perfected in accordance with the Maryland Code, shall be
converted into the right to receive 0.48 validly issued, fully paid and
nonassessable shares of Series A Cumulative Convertible Redeemable Preferred
Stock of East ("East Series A Preferred Stock"). The consideration to be issued
to holders of West Series A Preferred Stock is referred to as the "Series A
Merger Consideration."
(d) CONVERSION OF WEST SERIES B PREFERRED STOCK. Each issued and outstanding
share of West Series B Preferred Stock, other than shares cancelled pursuant to
paragraph (a) of this Article or shares as to which a demand for dissenters
rights has been duly perfected in accordance with the Maryland Code, shall be
converted into the right to receive 0.48 validly issued, fully paid and
nonassessable shares of Series B Cumulative Convertible Redeemable Preferred
Stock of East ("East Series B Preferred Stock"). The consideration to be issued
to holders of West Series B Preferred Stock is referred to as the "Series B
Merger Consideration." The Common Stock Merger Consideration, Series A Merger
Consideration and Series B Merger Consideration are referred to collectively
herein as the "Merger Consideration."
(e) NO FRACTIONAL SHARES. Each holder of West Common Stock, West Series A
Preferred Stock or West Series B Preferred Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of (i) East Common Stock, (ii) East Series A Preferred Stock or (iii) East
Series B Preferred Stock, as the case may be (after taking into account all
shares of West Common Stock, West Series A Preferred Stock or West Series B
Preferred Stock held of record by such holder at the Effective Time), shall
receive, in lieu of such fraction of a share, cash in an amount arrived at by
multiplying such fraction times the average closing price of a share of East
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<PAGE>
Common Stock on the New York Stock Exchange on the ten (10) consecutive trading
days ending on the fifth day immediately preceding the Effective Time.
(f) CANCELLATION AND RETIREMENT OF WEST CAPITAL STOCK. As of the Effective
Time, all shares of West capital stock converted into the right to receive the
applicable Merger Consideration pursuant to this Article shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of West
capital stock shall cease to have any rights with respect thereto, except the
right to receive the applicable Merger Consideration in accordance with this
Article, and any cash in lieu of fractional shares of East Common Stock paid in
cash by East based on the average of the closing price of the East Common Stock
on the New York Stock Exchange for the ten (10) consecutive trading days ending
on the fifth day immediately preceding the Effective Time.
(g) CONVERSION OF WEST STOCK OPTIONS. Each option granted by West to purchase
shares of West Common Stock (a "West Stock Option") which is outstanding and
unexercised immediately prior to the Effective Time shall cease to represent a
right to acquire such shares and shall be converted into an option to purchase
shares of East Common Stock (a "East Stock Option") in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
and conditions of East's Long-Term Omnibus Plan and the agreements evidencing
grants thereunder, but having the same vesting, exercise, and termination dates
that such West Stock Options had immediately prior to the Effective Time except
that departing officers' options shall fully vest and not terminate until the
"date of termination" within the meaning of West's plan.
(i) the number of shares of East Common Stock to be subject to the new East
Stock Option will be equal to the product of (A) the number of shares of West
Common Stock subject to the existing West Stock Option immediately prior to the
Effective Time and (B) the ratio of the value per share of West Common Stock
immediately prior to the Effective Time to the value per share of East Common
Stock immediately after the Effective Time, and
(ii) the exercise price per share of East Common Stock under the new East Stock
Option will be equal to (A) the value per share of East Common Stock
immediately after the Effective Time multiplied by (B) the ratio of the
exercise price per share of West Common Stock to the value per share of West
Common Stock immediately prior to the Effective Time.
NINTH: The parties hereto intend that the execution of these Articles of Merger
constitute the adoption of a "plan of reorganization" within the meaning of
Section 368 of the Internal Revenue Code of 1996, as amended.
TENTH: The merger shall be effective at 12:01 a.m. on , 1998.
ELEVENTH: The merger may be abandoned at any time prior to the Effective Time
by either West or the Surviving Entity, without further shareholder action by
filing a Notice of Abandonment with each state authority with which these
Articles of Merger are filed.
TWELFTH: The Articles of Incorporation of East shall continue to be the
Articles of Incorporation of East on and after the Effective Time, except for
the following amendments:
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(a) The Articles of Incorporation of East are hereby amended to add the
Certificate of Designations, Rights, Preferences and Limitations of Series A
Cumulative Convertible Redeemable Preferred Stock of East attached hereto as
Exhibit A. [REPRODUCED AS ANNEX F TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS.]
(b) The Articles of Incorporation of East are hereby amended to add the
Certificate of Designations, Rights, Preferences and Limitations of Series B
Cumulative Convertible Redeemable Preferred Stock of East attached hereto as
Exhibit B. [REPRODUCED AS ANNEX F TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS.]
(c) Article V of the Articles of Incorporation of East is hereby amended as set
forth in Exhibit C hereto.
IN WITNESS WHEREOF, , a Florida corporation, and , a Maryland real estate
investment trust, the entities parties to the merger, have caused these
Articles of Merger to be signed in their respective names and on their behalf
and witnessed or attested all as of the day of , 1998. Each of the
individuals signing these Articles of Merger on behalf of or
acknowledges these Articles of Merger to be the act of such respective entity
and, as to all other matters or facts required to be verified under oath, that
to the best of his or her knowledge, information and belief, these matters are
true in all material respects and that this statement is made under the
penalties for perjury.
Regency Realty Corporation,
a Florida corporation
By: _________________________________
, President
Attest:
_____________________________________
, Secretary
Pacific Retail Trust,
a Maryland real estate investment
trust
By: _________________________________
, President
Attest:
_____________________________________
, Secretary
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<PAGE>
ANNEX B
PRUDENTIAL SECURITIES
INCORPORATED
One New York Plaza, New
York, NY 10292
(212) 778-1000
PRIVATE AND CONFIDENTIAL
September 23, 1998
The Special Committee of the Board of Directors
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, FL 32202
Members of the Special Committee of the Board of Directors:
We understand that Regency Realty Corporation, a Florida corporation (the
"Company" or "Regency"), and Pacific Retail Trust, a Maryland real estate
investment trust ("Pacific"), propose to enter into an Agreement and Plan of
Merger (the "Agreement") pursuant to which Pacific will merge with and into the
Company (the "Merger"). In the Merger, (a) each outstanding share of beneficial
interest, par value $.01 per share, of Pacific will be converted into the right
to receive 0.48 (the "Exchange Ratio") shares of Common Stock, par value $.01
per share, of the Company ("Company Common Stock"), (b) each outstanding share
of Pacific Series A Preferred Stock will be converted into the right to receive
0.48 shares of Series A Cumulative Convertible Redeemable Preferred Stock of
the Company, and (c) each outstanding share of Pacific Series B Preferred Stock
will be converted into the right to receive 0.48 shares of Series B Cumulative
Convertible Redeemable Preferred Stock of the Company. Furthermore, we
understand that Security Capital U.S. Realty and its wholly-owned subsidiary,
Security Capital Holdings S.A. (collectively, "Security Capital") owns
approximately 11.7 million shares of Regency, approximately 47.0 million shares
of Pacific, and will own approximately 34.3 million shares of Regency after
giving effect to the Merger.
You have requested our opinion as to the fairness to the Company's shareholders
(other than Security Capital) from a financial point of view of the
consideration to be paid by the Company in the Merger.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and considered such financial and other factors as
we deemed relevant under the circumstances, including:
(i) a draft, dated September 21, 1998, of the Agreement, including the
exhibits thereto relating to the mergers of the Company's and Pacific's
operating partnerships and management companies (together with the Merger,
the "Transaction");
(ii) certain publicly available historical financial and operating data for
the Company including, but not limited to (a) the Annual Report to
shareholders and Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, (b) the Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998, (c) Reports on Forms 8-K, dated March 19, 1998
and July 20, 1998, and (d) the Proxy Statement relating to the Annual
Meeting of Shareholders held on May 26, 1998;
(iii) historical stock market prices and trading volume for the Company
Common Stock;
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<PAGE>
(iv) certain historical results of operations of Pacific provided to us by
the management of Regency;
(v) certain information relating to the Company, including projected income
statement data for the fiscal years ending December 31, 1998 through
December 31, 2001, prepared by the management of the Company;
(vi) certain information relating to Pacific, including financial forecasts
for the fiscal years ending December 31, 1998 through December 31, 2001,
prepared by the management of Pacific and adjusted by the management of
Regency;
(vii) projected consolidated financial forecasts, after giving effect to
the Transaction, for the fiscal years ending December 31, 1998 through
December 31, 2001, prepared by the management of Regency;
(viii) publicly available financial, operating, and stock market data
concerning certain companies engaged in businesses we deemed comparable to
Pacific or otherwise relevant to our inquiry;
(ix) the financial terms of certain recent transactions we deemed relevant
to our inquiry;
(x) the pro forma financial impact of the Transaction on Regency's
earnings; and
(xi) such other financial studies, analyses and investigations that we
deemed appropriate.
We have assumed, with your consent, that the draft of the Agreement which we
reviewed will conform in all material respects to that document when in final
form.
We have met with the senior management of Regency and Pacific to discuss (i)
the prospects for their respective businesses, (ii) their estimates of such
businesses' future financial performance, (iii) the financial impact of the
Transaction on the respective companies and (iv) such other matters that we
deemed relevant.
In connection with our review and analysis and in arriving at our opinion, we
have relied upon the accuracy and completeness of the financial and other
information provided to us by Regency and Pacific and have not undertaken any
independent verification of such information or any independent valuation or
appraisal of any of the assets or liabilities of the Company or Pacific.
With respect to certain financial forecasts provided to us by the Company for
the Company and Pacific, we have assumed that such information (and the
assumptions and bases therefor) represents the Company's best currently
available estimate as to the future financial performance of the Company and
Pacific. Our opinion is predicated on the Merger qualifying (i) as a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended, and (ii) for purchase accounting treatment. Further, our
opinion is necessarily based on economic, financial and market conditions as
they exist and can only be evaluated as of the date hereof.
Our opinion does not address nor should it be construed to address the relative
merits of the Transaction or alternative business strategies that may be
available to the Company. In addition, this opinion does not in any manner
address the prices at which the Company Common Stock will trade following
consummation of the Transaction.
As you know, we have been retained by the Company to render this opinion and
provide other financial advisory services in connection with the Transaction
and will receive a fee for such
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services, a portion of which fee is contingent upon the consummation of the
Merger. In the ordinary course of business we may actively trade the shares of
Company Common Stock for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
As you are aware, Prudential Securities Incorporated provides equity research
coverage on Regency and acted as lead-manager for the secondary offering of
Company Common Stock on July 10, 1997.
This letter and the opinion expressed herein are for the use of the Special
Committee of the Board of Directors of the Company. This opinion does not
constitute a recommendation to the shareholders of the Company as to how such
shareholders should vote in connection with the Merger or as to any other
action such shareholders should take regarding the Merger. This opinion may not
be reproduced, summarized, excerpted from or otherwise publicly referred to or
disclosed in any manner, without our prior written consent; except that the
Company may include this opinion in its entirety in any proxy statement or
information statement relating to the Transaction sent to the Company's
shareholders or in a related registration statement filed with the Securities
and Exchange Commission.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the consideration to be paid by the Company in the Merger is fair
to the Company's shareholders (other than Security Capital) from a financial
point of view.
Very truly yours,
Prudential Securities Incorporated
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FORM OF OPINION OF GOLDMAN, SACHS & CO.
APPENDIX C
PERSONAL AND CONFIDENTIAL
September 23, 1998
Special Committee of the Board of Trustees
Pacific Retail Trust
100 Congress Avenue
Suite 930
Austin, TX 78701
GENTLEMEN:
You have requested our opinion as to the fairness from a financial point of
view to the holders (excluding Security Capital U.S. Realty ("USREALTY"), a
Luxembourg corporation) of the outstanding common shares of beneficial
interest, par value $.01 per share (the "Shares"), of Pacific Retail Trust (the
"Company") of the exchange ratio of .480 shares of common stock, par value $.01
per share (the "Regency Common Stock") of Regency Realty Corporation
("Regency") to be received for each Share (the "Exchange Ratio") pursuant to
the Agreement and Plan of Merger, dated as of September 23, 1998 by and between
Regency and the Company (the "Agreement").
Goldman, Sachs & Co., as a part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Regency, having acted as (i) lead-managing underwriter of an
offering of $100 million of 7.125% notes due 2005 in July 1998 and (ii) co-
managing underwriter of an offering of 2,415,000 shares of Regency Common Stock
in July 1997, and may provide investment banking services to Regency in the
future. We are familiar with USREALTY, having acted as (i) lead-managing
underwriter of an offering of $350 million of 2.000% convertible notes due 2003
in May 1998, (ii) lead-managing underwriter of an offering of 5,735,493 common
shares of USREALTY in December 1997, and (iii) lead-managing underwriter of an
offering of 16,733,800 common shares of USREALTY in November 1996, and may
provide investment banking services to USREALTY in the future. In addition,
Goldman, Sachs & Co. is familiar with Security Capital Group ("SCG") which has
an equity investment in USREALTY, having rendered significant investment
banking services to SCG and certain of its affiliates from time to time,
including having acted as principal in certain transactions and we may provide
investment banking services or act as principal in certain transactions with
SCG and its affiliates in the future. Goldman, Sachs & Co. provides a full
range of financial advisory and securities services and, in the course of its
normal trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of Regency, USREALTY, or SCG for
its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; audited financial statements for the Company for the three years
ended December 31, 1997; Annual Reports to Shareholders and Annual Reports on
Form 10-K of Regency for the five years ended December
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31, 1997; certain interim reports and unaudited quarterly reports to
shareholders of the Company and certain interim reports and Quarterly Reports
on Form 10-Q of Regency; certain internal financial analyses and forecasts for
the Company prepared by the managements of the Company and Regency; and certain
internal financial analyses and forecasts for Regency prepared by the
management of Regency. We also have held discussions with members of the senior
management of the Company and Regency regarding the strategic rationale for,
and the potential benefits of, the transaction contemplated by the Agreement
and the past and current business operations, financial condition and future
prospects of their respective companies. In addition, we have reviewed the
reported price and trading activity for the Regency Common Stock, compared
certain financial information for the Company and financial and stock market
information for Regency with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the real estate industry, and performed
such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed, with your consent, that the financial forecasts for the Company and
Regency have been reasonably prepared on a basis reflecting the best currently
available judgments and estimates of the management of the Company and Regency.
In addition, we have not made an independent evaluation or appraisal of the
assets and liabilities of the Company or Regency or any of their subsidiaries,
and we have not been furnished with any such evaluation or appraisal. We were
not requested to solicit, and did not solicit, interest from other parties with
respect to an acquisition of or other business combination with the Company.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Special Committee of the Board of Trustees of
the Company in connection with its consideration of the transaction
contemplated by the Agreement, and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Shares (excluding USREALTY).
Sincerely,
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ANNEX D
AMENDMENT TO ARTICLES OF INCORPORATION
OF
REGENCY REALTY CORPORATION
This corporation was incorporated on July 8, 1993 effective July 9, 1993 under
the name Regency Realty Corporation. Pursuant to Sections 607.1001, 607.1003,
607.1004 and 607.1006 of the Florida Business Corporation Act, amendments to
Section 5.1(r) and Section 5.14 of the Articles of Incorporation of Regency
Realty Corporation were approved by the Board of Directors at a meeting held on
September 23, 1998, and adopted by the shareholders of the corporation on
[ ], 1998.
Section 5.1(r) is hereby amended in its entirety as follows:
(r) "Special Shareholder Limit" for a Special Shareholder shall initially mean
60% of the outstanding shares of Common Stock, on a fully diluted basis, of the
Corporation; provided, however, that if at any time after the effective date of
this Amendment a Special Stockholder's ownership of Common Stock, on a fully
diluted basis, of the Corporation shall have been below 45% for a continuous
period of 180 days, then the definition of "Special Shareholder Limit" shall
mean 49% of the outstanding shares of Common Stock, on a fully diluted basis,
of the Corporation. After any adjustment pursuant to Section 5.8, the
definition of "Special Shareholder Limit" shall mean the percentage of the
outstanding Common Stock as so adjusted, and the definition of "Special
Shareholder Limit" shall also be appropriately and equitably adjusted in the
event of a repurchase of shares of Common Stock of the Corporation or other
reduction in the number of outstanding shares of Common Stock of the
Corporation. Notwithstanding the foregoing, if any Person and its Affiliates
(taken as a whole), other than the Special Shareholder, shall directly or
indirectly own in the aggregate more than 45% of the outstanding shares of
Common Stock, on a fully diluted basis, of the Corporation, the definition of
"Special Shareholder Limit" shall be revised in accordance with Section 5.8 of
the Stockholders Agreement. Notwithstanding the foregoing provisions of this
definition, if, as the result of any Special Shareholder's ownership (taking
into account for this purpose constructive ownership under Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code) of shares of Capital
Stock, any Person who is an individual within the meaning of Section 542(a)(2)
of the Code (taking into account the ownership attribution rules under Section
544 of the Code, as modified by Section 856(h) of the Code) and who is the
Beneficial Owner of any interest in a Special Shareholder would be considered
to Beneficially Own more than 9.8% of the outstanding shares of Capital Stock,
then unless such individual reduces his or her interest in the Special
Shareholder so that such Person no longer Beneficially Owns more than 9.8% of
the outstanding shares of Capital Stock, the Special Shareholder Limit shall be
reduced to such percentage as would result in such Person not being considered
to Beneficially Own more than 9.8% of the outstanding Shares of Capital Stock.
Notwithstanding anything contained herein to the contrary, in no event shall
the Special Shareholder Limit be reduced below the Ownership Limit. At the
request of the Special Shareholders, the Secretary of the Corporation shall
maintain and, upon request, make available to each Special Shareholder a
schedule which sets forth the then current Special Shareholder Limits for each
Special Shareholder.
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Section 5.14 is hereby amended in its entirety as follows:
Section 5.14 Certain Transfers to Non-U.S. Persons Void.
(a) At any time that Non-U.S. Persons (including Special Shareholders who will
at all times be presumed to be Non-U.S. Persons) own directly or indirectly 50%
or more of the fair market value of the issued and outstanding shares of
Capital Stock of the Corporation, any Transfer of shares of Capital Stock of
the Corporation by any Person (other than a Special Shareholder) to any Non-
U.S. Person (other than a Special Shareholder) on or after the effective date
of this Amendment shall be void ab initio to the fullest extent permitted under
applicable law and the intended transferee shall be deemed never to have had an
interest therein.
(b) At any time that Non-U.S. Persons (including Special Shareholders who will
at all times be presumed to be Non-U.S. Persons) own directly or indirectly
less than 50% of the fair market value of the issued and outstanding shares of
Capital Stock of the Corporation, any Transfer of shares of Capital Stock of
the Corporation by any Person (other than a Special Shareholder) to any Person
on or after the effective date of this Amendment shall be void ab initio to the
fullest extent permitted under applicable law and the intended transferee shall
be deemed never to have had an interest therein if such Transfer
(i) occurs prior to the 10% Termination Date and results in the fair market
value of the shares of Capital Stock of the Corporation owned directly or
indirectly by Non-U.S. Persons (other than Special Shareholders) comprising
4.9 percent (4.9%) or more of the fair market value of the issued and
outstanding shares of Capital Stock of the Corporation; or
(ii) results in the fair market value of the shares of Capital Stock of the
Corporation owned directly or indirectly by Non-U.S. Persons (including
Special Shareholders who will at all times be presumed to be Non-U.S.
Persons) comprising fifty percent (50%) or more of the fair market value of
the issued and outstanding shares of Capital Stock the Corporation.
(c) If any of the foregoing provisions is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the shares of
Capital Stock of the Corporation held or purported to be held by the transferee
shall, automatically and without the necessity of any action by the Board of
Directors or otherwise:
(i) be prohibited from being voted;
(ii) not be entitled to dividends with respect thereto;
(iii) be considered held in trust by the transferee for the benefit of the
Corporation and shall be subject to the provisions of Section 5.3(c) as if
such shares of Capital Stock were the subject of a Transfer that violates
Section 5.2; and
(iv) not be considered outstanding for the purpose of determining a quorum
at any meeting of shareholders.
(d) The Special Shareholders may, in their sole discretion, with prior notice
to the Board of Directors, waive, alter or revise in writing all or any portion
of the Transfer restrictions set forth in this Section 5.14 from and after the
date on which such notice is given, on such terms and conditions as they in
their sole discretion determine.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Chairman of this corporation has executed
these Articles of Amendment this day of , 1998.
_____________________________________
Martin E. Stein, Jr.
Chairman and Chief Executive Officer
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ANNEX E
AMENDMENT NO. 3 TO STOCKHOLDERS AGREEMENT
THIS AMENDMENT NO. 3 TO STOCKHOLDERS AGREEMENT (the "Amendment"), dated as of
September 23, 1998, is made by and among Regency Realty Corporation, a Florida
corporation (the "Company"), Security Capital U.S. Realty, a Luxembourg
corporation, and Security Capital Holdings S.A., a Luxembourg corporation
(together with Security Capital U.S. Realty and others specified in the
Stockholders Agreement, "Investor").
BACKGROUND:
WHEREAS, the Company, Investor and The Regency Group, Inc. entered into a
Stockholders Agreement, dated as of July 10, 1996, as amended by Amendment No.
1 to Stockholders Agreement dated as of February 10, 1997 and by Amendment No.
2 to Stockholders Agreement dated as of December 4, 1997 (as amended, the
"Stockholders Agreement"); and
WHEREAS, simultaneously with the execution hereof, the Company and Pacific
Retail Trust, a Maryland real estate investment trust ("West"), have entered
into that certain Agreement and Plan of Merger of even date herewith (the
"Merger Agreement") pursuant to which, among other things and subject to the
terms and conditions set forth in the Merger Agreement, West will merge with
and into the Company at the Effective Time (as defined in the Merger
Agreement); and
WHEREAS, the parties wish to amend the Stockholders Agreement in connection
with the Merger, and such amendment is a condition to the Merger and has been
agreed to by West; and
WHEREAS, pursuant to the Merger Agreement, at the meeting of the Company's
stockholders at which the Merger is considered (the "Stockholders Meeting"),
the Company stockholders will also be asked to amend the Company's Articles of
Incorporation to be substantially in the form attached as Exhibit C to the
Articles of Merger and Plan of Merger, which is attached as Exhibit A to the
Merger Agreement, merging West with and into the Company (the "Amended
Charter") and the Company's stockholders will also be asked to approve the
Stockholders Agreement as amended hereby to be effective from and after the
consummation of the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement
2. Investments in Shopping Center Properties and Purchases of Interests in
Shopping Center Companies.
Section 1.20 is hereby restated in its entirety as follows:
"Geographic Region" shall mean the United States of America.
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3. Investor Nominees to the Board.
Section 2.1(a) of the Stockholders Agreement is hereby amended by deleting the
first sentence thereof and replacing it with the following sentence:
From and after the Effective Time (as defined in the Merger Agreement)
until the next annual or special meeting of stockholders of the Company at,
or the next taking of action by written consent of stockholders of the
Company with respect to, which any Directors are to be elected, Investor
shall have the right (but not the obligation) to have on the Board three
Directors (such Directors, the "Investor Nominees"), and the Company shall
cause such Investor Nominees to become members of the Board.
Section 2.1(a) of the Stockholders Agreement is hereby further amended by
deleting the word "two" each time it appears in such section and replacing it
with the word "three".
4. Voting Rights. Section 4.1 of the Stockholders is hereby amended by deleting
the last two sentences thereof and replacing them in their entirety as follows:
With regard to (i) any amendment to the Company Charter or the By-laws of
the Company which would reasonably be expected to materially adversely
affect Investor, and (ii) any Extraordinary Transaction submitted to a vote
of the stockholders of the Company, Investor will vote all shares of
Company Common Stock owned by it that represent ownership of in excess of
49% of the outstanding shares of Company Common Stock, in one of the
following two manners, at its option: (x) in accordance with the
recommendation of the Board, or (y) proportionately in accordance with the
votes of the other holders of Company Common Stock. With regard to any
Extraordinary Transaction submitted to a vote of the stockholders of the
Company which requires the affirmative vote of holders of two-thirds of the
shares of Company Common Stock, Investor will vote all shares of Company
Common Stock owned by it that represent ownership of in excess of 32% of
the outstanding shares of Company Common Stock, in one of the following two
manners, at its option: (x) in accordance with the recommendation of the
Board, or (y) proportionately in accordance with the votes of the other
holders of Company Common Stock.
5. Participation Rights.
(a) Investor hereby waives any Participation Right it might have under Section
4.2 of the Stockholders Agreement to acquire Company Common Stock as a result
of the Merger and the transactions contemplated under the Merger Agreement.
(b) Section 4.2 of the Stockholders Agreement is hereby further amended by
deleting the reference to "37.5%" in such section and replacing it with "49%".
6. Standstill Period; Ownership Limit.
(a) Section 5.1(x) is hereby deleted.
(b) The Company hereby waives the applicability of the restrictions set forth
in Section 5.2 of the Stockholders Agreement to the Merger, the Merger
Agreement and the transactions contemplated thereby or hereby and agrees that
such restrictions shall not be violated by the Merger, the Merger Agreement or
the transactions contemplated thereby or hereby.
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(c) Section 5.2(a)(iii) is hereby restated in its entirety as follows:
(iii) purchase or otherwise acquire shares of Company Common Stock (or
options, rights or warrants or other commitments to purchase and securities
convertible into (or exchangeable or redeemable for) shares of Company
Common Stock) as a result of which, after giving effect to such purchase or
acquisition, Investor will own more than 60% of the outstanding shares of
Company Common Stock, on a fully diluted basis; provided, however, that if
at any time after the Effective Time (as defined in the Merger Agreement)
Investor's ownership of Company Common Stock on a fully diluted basis shall
have been below 45% for a continuous period of 180 days, then from and
after such time the foregoing reference in this clause (iii) to "60% of the
outstanding shares of Company Common Stock, on a fully diluted basis,"
shall be reduced to "49% of the shares of Company Common Stock, on a fully
diluted basis".
(d) Section 5.8 of the Stockholders Agreement is hereby amended by deleting the
reference in the first sentence thereof to "45% of the outstanding shares of
Company Common Stock" and replacing it with "60% of the outstanding shares of
Company Common Stock, or if the limitation in Section 5.2(a)(iii) of this
Agreement shall have been reduced from 60% to 49%, 49% of the outstanding
shares of Company Common Stock".
7. Termination Dates. Section 1.18 of the Stockholders Agreement is hereby
amended by deleting all references therein to "15%" and replacing them with
"10%." Section 1.45 of the Stockholders Agreement is hereby amended by deleting
all references therein to "20%" and replacing them with "15%." Accordingly, all
references in the Stockholders Agreement to the "15% Termination Date" are
hereby deleted and replaced with references to the "10% Termination Date" and
all references in the Stockholders Agreement to the "20% Termination Date" are
hereby deleted and replaced with references to the "15% Termination Date".
8. Application of Section 5.14 of Company Charter. Section 2 of Amendment No. 2
to the Stockholders Agreement (as referenced in the definition of the
Stockholders Agreement) is no longer applicable and is hereby deleted.
9. Certain Tax Matters.
(a) Section 6.1(a)(ii)(B) and Section 6.1(b) of the Stockholders Agreement are
hereby amended by deleting each reference to "30%" in each such section and
replacing it with "22%".
(b) Section 6.1 of the Stockholders Agreement and Schedule 6.1(c) to the
Stockholders Agreement are hereby amended by deleting each reference therein to
"Section 1296", "Section 1296(a)" and "Section 1296(c)" of the Code and
replacing each such reference with "Section 1297", "Section 1297(a)" and
"Section 1297(c)" of the Code, respectively, and by deleting each reference to
"Section 1297", "Section 1297(a)" and "Section 1297(c)" of the Code and
replacing each such reference with "Section 1298", "Section 1298(a)" and
"Section 1298(c)" of the Code, respectively.
10. Restriction on Property Portfolio. Investor hereby waives the applicability
of the limitations with respect to shopping centers greater than 350,000 square
feet set forth in Section 6.1(a)(C) of the Stockholders Agreement to the extent
the limitations in such Section are exceeded as a result of the Merger, the
Merger Agreement or the transactions contemplated thereby.
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11. Condition Precedent. The effectiveness of this Amendment is subject to the
consummation of the Merger and the approval and adoption of the Amended Charter
by the Company stockholders at the Stockholders Meeting, except that Section
6(b) of this Amendment shall be effective upon execution hereof. The Company
shall not agree or consent to any amendment to the Merger Agreement, nor grant
any waiver thereunder, without in each case the express written consent of
Investor. The Company shall not in any event consummate the Merger or otherwise
effect the transactions contemplated by the Merger Agreement without each of
this Amendment and the Amended Charter simultaneously becoming effective.
12. No Effect on Consistent Terms. All terms of the Stockholders Agreement not
inconsistent with this Amendment shall remain in place and in full force and
effect and shall be unaffected by this Amendment, and shall continue to apply
(i) to the Stockholders Agreement as amended hereby and (ii) to this Amendment.
From and after the date hereof, each reference to the Stockholders Agreement in
any other instrument or document shall be deemed a reference to the
Stockholders Agreement as amended by Amendment No. 1, Amendment No. 2 and as
amended hereby, unless the context otherwise requires.
13. Headings. The headings contained in this Amendment are inserted for
convenience of reference only and shall not affect the meaning or
interpretation of this Amendment.
14. Counterparts. This Amendment may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other party.
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<PAGE>
IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of
the parties hereto as of the day first above written.
Regency Realty Corporation
/s/ Martin E. Stein, Jr.
By: _________________________________
Name: Martin E. Stein, Jr.
Title: Chairman and Chief
Executive Officer
Security Capital Holdings S.A.
/s/ Susan P. S. Liow
By: _________________________________
Name: Susan P. S. Liow
Title: Vice President
Security Capital U.S. Realty
/s/ Susan P. S. Liow
By: _________________________________
Name: Susan P. S. Liow
Title: Vice President
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APPENDIX F
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF
REGENCY REALTY CORPORATION
DESIGNATING THE PREFERENCES, RIGHTS AND
LIMITATIONS OF 542,532 SHARES OF
SERIES 1 CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
$0.01 PAR VALUE
Pursuant to Section 607.0602 of the Florida Business Corporation Act ("FBCA"),
Regency Realty Corporation, a Florida corporation (the "Corporation"), does
hereby certify that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors of
the Corporation by Section 4.2 of the Restated Articles of Incorporation of the
Corporation, as amended (the "Charter") and Section 607.0602 of the FBCA, the
Board of Directors of the Corporation, by resolutions duly adopted on September
23, 1998 has classified 542,532 shares of the authorized but unissued Preferred
Stock par value $.01 per share (the "Series 1 Preferred Stock") as a separate
class of Preferred Stock, authorized the issuance of a maximum of 542,532
shares of such class of Series 1 Preferred Stock, set certain of the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of redemption
and other terms and conditions of such class of Series 1 Preferred Stock.
Shareholder approval was not required under the Charter with respect to such
designation.
SECOND: The class of Series 1 Preferred Stock of the Corporation created by the
resolutions duly adopted by the Board of Directors of the Corporation shall
have the following designation, number of shares, preferences, conversion and
other rights, voting powers, restrictions and limitation as to dividends,
qualifications, terms and conditions of redemption an other terms and
conditions.
Section 1. Number of Shares and Designation. The number of shares of Series 1
Preferred Stock which shall constitute such series shall not be more than
542,532 shares, par value $0.01 per share, which number may be decreased (but
not below the number thereof then outstanding plus the number required to
fulfill the Corporation's obligations under certain agreements, options,
warrants or similar rights issued by the Corporation) from time to time by the
Board of Directors of the Corporation. Except as otherwise specifically stated
herein, the Series 1 Preferred Stock shall have the same rights and privileges
as Common Stock under Florida law.
Section 2. Definitions. For purposes of the Series 1 Preferred Stock, the
following terms shall have the meanings indicated:
"Board" shall mean the Board of Directors of the Corporation or any committee
authorized by such Board of Directors to perform any of its responsibilities
with respect to the Series 1 Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which state or federally chartered banking institutions in New York City, New
York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders required
under subparagraph (d) of Section 5 as the Call Date.
"Common Stock" shall mean the common capital stock of the Corporation, par
value $0.01 per share.
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"Constituent Person" shall have the meaning set forth in paragraph (c) of
Section 6 hereof.
"Dividend Payment Date" shall mean the last calendar day of March, June,
September and December, in each year, commencing on March 31, 1999; provided,
however, that if any Dividend Payment Date falls on any day other than a
Business Day, the dividend payment due on such Dividend Payment Date shall be
paid on the Business Day immediately following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on April 1,
July 1, October 1 and January 1 of each year and ending on and including the
day preceding the first day of the next succeeding Dividend Period.
"Fully Junior Stock" shall mean any class or series of capital stock of the
Corporation now or hereafter issued and outstanding over which the Series 1
Preferred Stock has preference or priority in both (i) the payment of dividends
and (ii) the distribution of assets on any liquidation, dissolution or winding
up of the Corporation.
"Funds from Operations per Share" shall mean the amount determined by dividing
(a) the net income of the Corporation before extraordinary items (determined in
accordance with generally accepted accounting principles) as reported by the
Corporation in its year-end audited financial statements, minus gains (or
losses) from debt restructuring and sales of property, plus real property
depreciation and amortization and amortization of capitalized leasing expenses
and tenant allowances or improvements (to the extent such allowances or
improvements are capital items), and after adjustments for unconsolidated
partnerships, corporations and joint ventures (such items of depreciation and
amortization and such gains, losses and adjustments as determined in accordance
with generally accepted accounting principles and as reported by the
Corporation in its year-end audited financial statements) by (b) the weighted
average number of shares of capital stock of the Corporation outstanding as
reported by the Corporation in its year-end audited financial statements.
Adjustments for unconsolidated partnerships, corporations and joint ventures
shall be calculated to reflect Funds from Operations per Share on the same
basis. If the Corporation shall after the Issue Date (A) pay a dividend or make
a distribution in shares of capital stock on its outstanding shares of capital
stock, (B) subdivide its outstanding shares of capital stock into a greater
number of shares, (C) combine its outstanding Common Stock into a smaller
number of shares or (D) issue any shares of capital stock by reclassification
of its outstanding shares of capital stock, the Funds from Operations per Share
shall be appropriately adjusted to give effect to such events.
"Issue Date" shall mean the first date on which the Series 1 Preferred Stock is
issued.
"Junior Stock" shall mean the Common Stock and any other class or series of
capital stock of the Corporation now or hereafter issued and outstanding over
which the Series 1 Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
"Minimum Amount" shall mean the greater of (A) $0.2083 and (B) 65% of the
highest amount of Funds from Operations per Share for any preceding fiscal year
beginning with the fiscal year ending December 31, 1996, divided by four.
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"Non-Electing Share" shall have the meaning set forth in paragraph (c) of
Section 6 hereof.
"Parity Stock" shall have the meaning set forth in paragraph (b) of Section 8.
"Person" shall mean any individual, firm, partnership, corporation, or trust or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"PRT Issue Date" means October 20, 1995.
"Series 1 Preferred Stock" shall have the meaning set forth in Article FIRST
hereof.
"Series 2 Preferred Stock" shall mean the Series 2 Cumulative Convertible
Redeemable Preferred Stock of the Corporation, par value $0.01 per share.
"set apart for payment" shall be deemed to include, without any action other
than the following, the recording by the Corporation in its accounting ledgers
of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board, the allocation of
funds to be so paid on any series or class of capital stock of the Corporation;
provided, however, that if any funds for any class or series of Junior Stock,
Fully Junior Stock or any class or series of shares of capital stock ranking on
a parity with the Series 1 Preferred Stock as to the payment of dividends are
placed in a separate account of the Corporation or delivered to a disbursing,
paying or other similar agent, then "set apart for payment" with respect to the
Series 1 Preferred Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Transaction" shall have the meaning set forth in paragraph (c) of Section 6
hereof.
"Transfer Agent" means initially the Corporation and shall include such other
agent or agents of the Corporation as may be designated by the Board or their
designee as the transfer agent for the Series 1 Preferred Stock.
"Voting Preferred Stock" shall have the meaning set forth in Section 9 hereof.
Section 3. Dividends.
(a) The holders of Series 1 Preferred Stock shall be entitled to receive, when,
as and if declared by the Board out of funds legally available for that
purpose, quarterly dividends payable in cash in an amount per share equal to
the greater of (i) the Minimum Amount or (ii) an amount equal to $0.02708 less
than the dividends (determined on each Dividend Payment Date) on a share of
Common Stock, or portion thereof, into which a share of Series 2 Preferred
Stock is convertible upon conversion of a share of Series 1 Preferred Stock.
For purposes of clause (ii) of the preceding sentence, such dividends shall
equal the number of shares of Common Stock, or portion thereof, into which a
share of Series 2 Preferred Stock is convertible upon conversion of a share of
Series 1 Preferred Stock, multiplied by the most current quarterly dividend
paid or payable on a share of Common Stock on or before the applicable Dividend
Payment Date. Dividends on the Series 1 Preferred Stock shall begin to accrue
and shall be fully cumulative from the Issue Date, whether or not for any
Dividend Period or Periods there shall be funds of the Corporation legally
available for the payment of such dividends, and shall be payable quarterly,
when, as and if declared by the Board,
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in arrears on Dividend Payment Dates, commencing on the first Dividend Payment
Date after the Issue Date. Each dividend on the Series 1 Preferred Stock shall
be payable to the holders of record of Series 1 Preferred Stock, as they appear
on the stock records of the Corporation at the close of business on such record
dates as shall be fixed by the Board. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time and for such interim
periods, without reference to any regular Dividend Payment Date, to holders of
record on such date as may be fixed by the Board.
(b) The amount of dividends payable for any dividend period shorter or longer
than a full Dividend Period, on the Series 1 Preferred Stock shall be computed
on the basis of twelve 30-day months and a 360-day year. Holders of Series 1
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of current and cumulative but unpaid
dividends, as herein provided, on the Series 1 Preferred Stock. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series 1 Preferred Stock that may be in arrears.
(c) So long as any Series 1 Preferred Stock is outstanding, no dividends,
except as described in the immediately following sentence, shall be declared or
paid or set apart for payment on any class or series of Parity Stock for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series 1 Preferred Stock for all Dividend Periods
terminating on or prior to the Dividend Payment Date on such class or series of
Parity Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon Series 1
Preferred Stock and all dividends declared upon any other class or series of
Parity Stock shall be declared ratably in proportion to the respective amounts
of dividends accumulated and unpaid on the Series 1 Preferred Stock and
accumulated and unpaid on such Parity Stock.
(d) So long as any Series 1 Preferred Stock is outstanding, no dividends (other
than dividends or distributions paid solely in shares of, or options, warrants
or rights to subscribe for or purchase shares of, Fully Junior Stock) shall be
declared or paid or set apart for payment or other distribution declared or
made upon Junior Stock, nor shall any Junior Stock be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
Common Stock made for purposes of an employee incentive or benefit plan of the
Corporation or any subsidiary) for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Fully Junior Stock), unless in each case (i) the full
cumulative dividends on all outstanding Series 1 Preferred Stock and any other
Parity Stock of the Corporation shall have been paid or declared and set apart
for payment for all past Dividend Periods with respect to the Series 1
Preferred Stock and all past dividend periods with respect to such Parity Stock
and (ii) sufficient funds shall have been paid or declared and set apart for
the payment of the dividend for the current Dividend Period with respect to the
Series 1 Preferred Stock and the current dividend period with respect to such
Parity Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or
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surplus) shall be made to or set apart for payment to the holders of Junior
Stock or Fully Junior Stock, the holders of the Series 1 Preferred Stock shall
be entitled to receive $20.8333 per share of Series 1 Preferred Stock plus an
amount equal to all dividends declared but unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the Series 1 Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any other
shares of any class or series of Parity Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of Series 1 Preferred
Stock and any such other Parity Stock ratably in accordance with the respective
amounts that would be payable on such Series 1 Preferred Stock and any such
other Parity Stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation
with one or more Persons, (ii) a sale or transfer of all or substantially all
of the Corporation's assets or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or class or
classes of shares of capital stock ranking on a parity with or prior to the
Series 1 Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the holders of the Series 1 Preferred Stock, as
provided in this Section 4, any other series or class or classes of Junior
Stock or Fully Junior Stock shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Series 1 Preferred
Stock shall not be entitled to share therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series 1 Preferred Stock shall not be redeemable by the Corporation
prior to October 20, 2010. On and after October 20, 2010, the Corporation, at
its option, may redeem the Series 1 Preferred Stock, in whole at any time or
from time to time in part at the option of the Corporation at a redemption
price of $20.8333 per share of Series 1 Preferred Stock, plus the amounts
indicated in Section 5(b).
(b) Upon any redemption of Series 1 Preferred Stock pursuant to this Section 5,
the Corporation shall pay in full any and all accrued and unpaid dividends
(without interest or sum of money in lieu of interest) for any and all Dividend
Periods ending on or prior to the Call Date. If the Call Date falls after a
dividend payment record date and prior to the corresponding Dividend Payment
Date, then each holder of Series 1 Preferred Stock at the close of business on
such dividend payment record date shall be entitled to the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
redemption of such shares before such Dividend Payment Date.
(c) If full cumulative dividends on the Series 1 Preferred Stock and any other
class or series of Parity Stock of the Corporation have not been paid or
declared and set apart for payment, the Series 1 Preferred Stock may not be
redeemed under this Section 5 in part and the Corporation may not purchase or
acquire shares of Series 1 Preferred Stock, otherwise than pursuant to a
voluntary purchase or exchange offer made on the same terms to all holders of
Series 1 Preferred Stock.
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(d) Notice of the redemption of any Series 1 Preferred Stock under this Section
5 shall be mailed by first-class mail to each holder of record of Series 1
Preferred Stock to be redeemed at the address of each such holder as shown on
the Corporation's record, not less than 30 nor more than 90 days prior to the
Call Date. Neither the failure to mail any notice required by this paragraph
(d), nor any defect therein or in the mailing thereof, to any particular
holder, shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given on the date mailed whether or not the holder receives the
notice. Each such mailed notice shall state, as appropriate: (1) the Call Date;
(2) the number of shares of Series 1 Preferred Stock to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (3) the place or places at which
certificates for such shares are to be surrendered; and (4) that dividends on
the shares to be redeemed shall cease to accrue on such Call Date except as
otherwise provided herein. Notice having been mailed as aforesaid, from and
after the Call Date (unless the Corporation shall fail to make available an
amount of cash necessary to effect such redemption), (i) except as otherwise
provided herein, dividends on the Series 1 Preferred Stock so called for
redemption shall cease to accrue, (ii) said shares shall no longer be deemed to
be outstanding and (iii) all rights of the holders thereof as holders of Series
1 Preferred Stock of the Corporation shall cease (except the rights to convert
and to receive cash payable upon such redemption, without interest thereon,
upon surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to provide
cash in accordance with the preceding sentence shall be deemed fulfilled if, on
or before the Call Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office in
the Borough of Manhattan, City of New York, and that has, or is an affiliate of
a bank or trust company that has, capital and surplus of at least $50,000,000,
sufficient cash necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series 1
Preferred Stock so called for redemption. No interest shall accrue for the
benefit of the holders of Series 1 Preferred Stock to be redeemed on any cash
so set aside by the Corporation. Subject to applicable escheat laws and other
unclaimed property laws, any such cash unclaimed at the end of two years from
the Call Date shall revert to the general funds of the Corporation, after which
reversion the holders of such shares so called for redemption shall look only
to the general funds of the Corporation for the payment of such cash.
Notwithstanding the above, at any time after such redemption notice is received
and on or prior to the Call Date, any holder may exercise its conversion rights
under Section 6 below.
As promptly as practicable after the surrender in accordance with said notice
of the certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and if the notice
shall so state), such shares shall be exchanged for any cash (including
accumulated and unpaid dividends but without interest thereon) for which such
shares have been redeemed. If fewer than all the outstanding Series 1 Preferred
Stock is to be redeemed, shares to be redeemed shall be selected by the
Corporation from outstanding Series 1 Preferred Stock not previously called for
redemption by lot or pro rata (as nearly as may be) or by any other method
determined by the Corporation in its sole discretion to be equitable. If fewer
than all the Series 1 Preferred Stock represented by any certificate is
redeemed, then new certificates representing the unredeemed shares shall be
issued without cost to the holder thereof.
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Section 6. Conversion. Subject to subparagraph (f) of this Section 6, holders
of Series 1 Preferred Stock shall have the right, at any time and from time to
time, to convert all or a portion of such shares into Series 2 Preferred Stock,
as follows:
(a) Subject to and upon compliance with the provisions of this Section 6, a
holder of Series 1 Preferred Stock shall have the right, at such holder's
option, at any time to convert each share of Series 1 Preferred Stock into
one fully paid and non-assessable share of Series 2 Preferred Stock by
surrendering such shares to be converted, such surrender to be made in the
manner provided in paragraph (b) of this Section 6. In addition, upon
conversion of Series 1 Preferred Stock any holder may elect to
simultaneously convert the Series 2 Preferred Stock issuable upon such
conversion into that number of shares of Common Stock into which such
Series 2 Preferred Stock is then convertible pursuant to the terms of the
Series 2 Preferred Stock.
(b) In order to exercise the conversion right, the holder of each share of
Series 1 Preferred Stock to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Corporation that the holder thereof elects to convert such Series 1
Preferred Stock and payment of the amount, if any, determined pursuant to
subparagraph (f) of this Section 6. Unless the shares issuable on
conversion are to be issued in the same name as the name in which such
Series 1 Preferred Stock is registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).
Holders of Series 1 Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividend payable on such
shares on the corresponding dividend payment date notwithstanding the
conversion thereof following such dividend payment record date and on or prior
to such dividend payment date. In no event shall a holder of Series 1 Preferred
Stock be entitled to receive a dividend payment on Series 2 Preferred Stock
issued or issuable upon conversion of Series 1 Preferred Stock if such holder
is entitled to receive a dividend in respect of the Series 1 Preferred Stock
surrendered for conversion. The Corporation shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the Series 2 Preferred Stock issued upon such conversion, except
as contemplated pursuant to subparagraph (f) of this Section 6.
As promptly as practicable after the surrender of certificates for Series 1
Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at
such office to such holder, or such holder's written order, a certificate or
certificates for the number of full shares of Series 2 Preferred Stock issuable
upon the conversion of such shares in accordance with provisions of this
Section 6.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the certificates for Series 1 Preferred
Stock shall have been surrendered and such notice (together with the
undertaking described below if such conversion occurs on or prior to the fifth
anniversary of the PRT Issue Date) received by the Corporation as aforesaid,
and the person or persons in whose name or names any certificate or
certificates for Series 2 Preferred Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of
the
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shares represented thereby at such time on such date unless the stock transfer
books of the Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open. Concurrently with the delivery of any notice of
conversion prior to the fifth anniversary of the PRT Issue Date, any holder
converting its Series 1 Preferred Stock shall deliver to the Corporation an
undertaking to pay the amount, if any, pursuant to the last sentence of
subparagraph (f) of this Section 6.
(c) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all Series 2 Preferred Stock, sale of
all or substantially all of the Corporation's assets or recapitalization of
the Series 2 Preferred Stock) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which all or
substantially all Series 2 Preferred Stock is converted into the right to
receive stock, securities or other property (including cash or any
combination thereof) of another Person, each share of Series 1 Preferred
Stock, which is not converted into a Series 2 Preferred Share prior to such
Transaction, shall thereafter be convertible into the kind and amount of
shares of stock, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction
by a holder of that number of shares of Series 2 Preferred Stock into which
one share of Series 1 Preferred Stock was convertible immediately prior to
such Transaction, assuming such holder of Series 2 Preferred Stock (i) is
not a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such
sale or transfer was made, as the case may be ("Constituent Person"), or an
affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that
if the kind or amount of stock, securities and other property (including
cash) receivable upon such Transaction is not the same for each share of
Series 2 Preferred Share held immediately prior to such Transaction by
other than a Constituent Person or an affiliate thereof and in respect of
which such rights of election shall not have been exercised ("Non-Electing
Share"), then for the purpose of this paragraph (c) the kind and amount of
stock, securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares).
The Corporation shall not be a party to any Transaction unless the terms of
such Transaction are consistent with the provisions of this paragraph (c),
and it shall not consent or agree to the occurrence of any Transaction
until the Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the holders of
the Series 1 Preferred Stock that will contain provisions enabling the
holders of the Series 1 Preferred Stock that remain outstanding after such
Transaction to convert into the consideration received by holders of Series
2 Preferred Stock at the conversion price in effect immediately prior to
such Transaction. The provisions of this paragraph (c) shall similarly
apply to successive Transactions.
(d) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Series 2 Preferred Stock, for the purpose
of effecting conversion of the Series 1 Preferred Stock, the full
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number of shares of Series 2 Preferred Stock deliverable upon the
conversion of all outstanding Series 1 Preferred Stock not theretofore
converted.
The Corporation covenants that any shares of Series 2 Preferred Stock issued
upon conversion of the Series 1 Preferred Stock shall be validly issued, fully
paid and non-assessable.
Prior to the delivery of any securities that the Corporation shall be obligated
to deliver upon conversion of the Series 1 Preferred Stock, the Corporation
shall endeavor to comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or any approval
of or consent to the delivery thereof by, any governmental authority.
(e) The Corporation will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Series 2
Preferred Stock or other securities or property on conversion of the Series
1 Preferred Stock pursuant hereto; provided, however, that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Series 2 Preferred Stock or
other securities or property in a name other than that of the holder of the
Series 1 Preferred Stock to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or established, to
the reasonable satisfaction of the Corporation, that such tax has been
paid.
(f) In the event that any holder of Series 1 Preferred Stock shall exercise
its right to convert such shares into Series 2 Preferred Stock prior to the
fifth anniversary of the PRT Issue Date, upon any such conversion, the
holder of the Series 1 Preferred Stock surrendered for conversion shall pay
an amount in cash to the Corporation equal to the amount obtained by
multiplying (i) 0.0052 times (ii) the quotient obtained by dividing (A) the
actual number of days that will elapse beginning on and including the date
on which the conversion is deemed to have been effected and ending on and
including the fifth anniversary of the PRT Issue Date by (B) 365 times
(iii) the difference between (X) the aggregate liquidation preference
(excluding accrued and unpaid dividends) of the Series 1 Preferred Stock
being converted and (Y) the aggregate amount of accrued and unpaid
dividends on the Series 1 Preferred Stock being converted (provided that
the amount determined pursuant to this clause (iii) shall not be less than
zero). In addition, immediately after the dividend payment record date next
following the conversion date with respect to the Series 2 Preferred Stock
into which the Series 1 Preferred Stock is convertible (or the Common Stock
into which such Series 2 Preferred Stock is convertible, whichever is
applicable), the holder of the Series 1 Preferred Stock shall pay to the
Corporation an amount, if any, necessary to ensure that the holder has
received an aggregate amount of $0.0278 per share being converted less than
the dividend payable on Common Stock for the dividend period during which
the conversion was effected.
Section 7. Shares to Be Retired. All shares of Series 1 Preferred Stock which
shall have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of
the Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
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(a) prior to the Series 1 Preferred Stock, as to the payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding
up, if the holders of such class or series shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
Series 1 Preferred Stock;
(b) on a parity with the Series 1 Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
liquidation prices per share thereof shall be different from those of the
Series 1 Preferred Stock, if the holders of such class or series and the
Series 1 Preferred Stock shall be entitled to the receipt of dividends and
of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority one over
the other ("Parity Stock");
(c) junior to the Series 1 Preferred Stock, as to the payment of dividends
or as to the distribution of assets upon liquidation, dissolution or
winding up, if such class or series shall be Junior Stock; and
(d) junior to the Series 1 Preferred Stock, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or
winding up, if such class or series shall be Fully Junior Stock.
Section 9. Voting.
(a) Each issued and outstanding share of Series 1 Preferred Stock shall entitle
the holder thereof to the number of votes per share of Common Stock into which
a share of Series 2 Preferred Stock is convertible upon conversion of a share
of Series 1 Preferred Stock (as of the close of business on the record date for
determination of shareholders entitled to vote on a matter) on all matters
presented for a vote of shareholders of the Corporation and, except as required
by applicable law and subject to the further provisions of this Section 9, the
Series 1 Preferred Stock shall be voted together with all issued and
outstanding Common Stock and Series 2 Preferred Stock voting as a single class.
(b) If and whenever twelve consecutive quarterly dividends payable on the
Series 1 Preferred Stock or any series or class of Parity Stock shall be in
arrears (which shall, with respect to any such quarterly dividend, mean that
any such dividend has not been paid in full), whether or not earned or
declared, the number of directors then constituting the Board shall be
increased by one and the holders of Series 1 Preferred Stock, together with the
holders of shares of every other series of Parity Stock, including the Series 2
Preferred Stock (any such other series, the "Voting Preferred Stock"), voting
as a single class regardless of series, shall be entitled to elect, at a
special meeting of the holders of the Series 1 Preferred Stock and the Voting
Preferred Stock called as hereinafter provided, the additional director to
serve on the Board. Whenever all arrearages in dividends on the Series 1
Preferred Stock and the Voting Preferred Stock then outstanding shall have been
paid and dividends thereon for the current quarterly dividend period shall have
been paid or declared and set apart for payment, then the right of the holders
of the Series 1 Preferred Stock and the Voting Preferred Stock to elect such
additional director shall cease (but subject always to the same provision for
the vesting
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of such voting rights in the case of any similar future arrearages in twelve
quarterly dividends), and the terms of office of the person elected as director
by the holders of the Series 1 Preferred Stock and the Voting Preferred Stock
shall forthwith terminate and the number of members of the Board shall be
reduced accordingly. At any time after such voting power shall have been so
vested in the holders of Series 1 Preferred Stock and the Voting Preferred
Stock (or if any vacancy shall occur in respect of the director previously
elected by the holders of the Series 1 Preferred Stock and the Voting Preferred
Stock), the secretary of the Corporation shall call a special meeting of the
holders of the Series 1 Preferred Stock and of the Voting Preferred Stock for
the election of the director to be elected by them as herein provided, such
call to be made by notice similar to that provided in the Bylaws of the
Corporation for a special meeting of the shareholders or as required by law. If
any such special meeting required to be called as above provided shall not be
called by the secretary within 30 days after the end of the most recent
Dividend Period during which the right to elect such additional director arose
or such vacancy occurred, then any holder of Series 1 Preferred Stock may call
such meeting, upon the notice above provided, and for that purpose shall have
access to the stock records of the Corporation. The director elected at any
such special meeting shall hold office until the next annual meeting of the
shareholders or special meeting held in lieu thereof if such office shall not
have previously terminated as above provided.
(c) So long as any Series 1 Preferred Stock is outstanding, in addition to any
other vote or consent of shareholders required by law or by the Charter, the
affirmative vote of at least 66 2/3% of the votes entitled to be cast by the
holders of the Series 1 Preferred Stock, together with the holders of Voting
Preferred Stock, at the time outstanding, acting as a single class regardless
of series, given in person or by proxy, either in writing without a meeting or
by vote at any meeting called for the purpose, shall be necessary for effecting
or validating:
(i) Any amendment, alteration or repeal of any of the provisions of the
Charter or these Articles of Amendment that materially and adversely
affects the voting powers, rights or preferences of the holders of the
Series 1 Preferred Stock or the Voting Preferred Stock; provided, however,
that the amendment of the provisions of the Charter so as to authorize or
create or to increase the authorized amount of any Fully Junior Stock,
Junior Stock that is not senior in any respect to the Series 1 Preferred
Stock, or any stock of any class ranking on a parity with the Series 1
Preferred Stock or the Voting Preferred Stock shall not be deemed to
materially adversely affect the voting powers, rights or preferences of the
holders of Series 1 Preferred Stock; and provided, further, that if any
such amendment, alteration or repeal would materially and adversely affect
any voting powers, rights or preferences of the Series 1 Preferred Stock or
another series of Voting Preferred Stock that are not enjoyed by some or
all of the other series otherwise entitled to vote in accordance herewith,
the affirmative vote of at least 66 2/3% of the votes entitled to be cast
by the holders of all series similarly affected, similarly given, shall be
required in lieu of the affirmative vote of at least 66 2/3% of the votes
entitled to be cast by the holders of the Series 1 Preferred Stock and the
Voting Preferred Stock otherwise entitled to vote in accordance herewith;
or
(ii) A share exchange that affects the Series 1 Preferred Stock, a
consolidation with or merger of the Corporation into another Person, or a
consolidation with or merger of another Person into the Corporation, unless
in each such case each share of Series 1 Preferred Stock (A) shall remain
outstanding without a material and adverse change to its terms and rights
or (B) shall be
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converted into or exchanged for convertible preferred stock of the
surviving entity having preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms
or conditions of redemption thereof identical to that of a share of
Series 1 Preferred Stock (except for changes that do not materially and
adversely affect the holders of the Series 1 Preferred Stock); or
(iii) The authorization or creation of, or the increase in the authorized
amount of, any shares of any class or any security convertible into shares
of any class ranking prior to the Series 1 Preferred Stock in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation or in the payment of dividends.
(d) For purposes of voting in respect to those matters referred to in
subparagraphs (b) and (c) of this Section 9, unless otherwise provided under
applicable law, each share of Series 1 Preferred Stock shall have one (1) vote
per share, except that when any other series of Preferred Stock shall have the
right to vote with the Series 1 Preferred Stock as a single class on any
matter, then the Series 1 Preferred Stock and such other series shall have with
respect to such matters one (1) vote per $20.8333 of stated liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the Series 1 Preferred Stock shall not have any relative,
participating, optional or other special voting rights and powers other than as
set forth herein, and the consent of the holders thereof shall not be required
for the taking of any trust action.
Section 10. Record Holders. The Corporation and the Transfer Agent may deem and
treat the record holder of any shares of Series 1 Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
Section 11. Sinking Fund. The Series 1 Preferred Stock shall not be entitled to
the benefits of any retirement or sinking fund.
THIRD: The Series A Preferred Stock has been classified and designated by the
Board of Directors under the authority contained in the Charter.
FOURTH: These Articles of Amendment have been approved by the Board of
Directors in the manner and by the vote required by law.
FIFTH: The undersigned Executive Vice President of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
Executive Vice President acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
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<PAGE>
In Witness Whereof, the Corporation has caused these Articles of Amendment to
be executed under seal in its name and on its behalf by its Executive Vice
President and attested to by its Secretary on this day of , 1998.
Regency Realty Corporation
By: _________________________________
Name: Bruce M. Johnson
Title: Executive Vice President
[SEAL]
ATTEST:
___________________________________
Name: J. Christian Leavitt
Title: Secretary
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<PAGE>
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF
REGENCY REALTY CORPORATION
DESIGNATING THE PREFERENCES, RIGHTS AND
LIMITATIONS OF 1,502,532 SHARES OF
SERIES 2 CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
$0.01 PAR VALUE
Pursuant to Section 607.0602 of the Florida Business Corporation Act ("FBCA"),
Regency Realty Corporation, a Florida corporation (the "Corporation"), does
hereby certify that:
FIRST: Pursuant to the authority expressly vested in the Board of Directors of
the Corporation by Section 4.2 of the Restated Articles of Incorporation of the
Corporation, as amended (the "Charter") and Section 607.0602 of the FBCA, the
Board of Directors of the Corporation, by resolutions duly adopted on September
23, 1998 has classified 1,502,532 shares of the authorized but unissued
Preferred Stock par value $.01 per share (the "Series 2 Preferred Stock") as a
separate class of Preferred Stock, authorized the issuance of a maximum of
1,502,532 shares of such class of Series 2 Preferred Stock, set certain of the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of redemption
and other terms and conditions of such class of Series 2 Preferred Stock.
Shareholder approval was not required under the Charter with respect to such
designation.
SECOND: The class of Series 2 Preferred Stock of the Corporation created by the
resolutions duly adopted by the Board of Directors of the Corporation shall
have the following designation, number of shares, preferences, conversion and
other rights, voting powers, restrictions and limitation as to dividends,
qualifications, terms and conditions of redemption an other terms and
conditions:
Section 1. Number of Shares and Designation. The number of shares of Series 2
Preferred Stock which shall constitute such series shall not be more than
1,502,532 shares, par value $0.01 per share, which number may be decreased (but
not below the number thereof then outstanding plus the number required to
fulfill the Corporation's obligations under certain agreements, options,
warrants or similar rights issued by the Corporation) from time to time by the
Board of Directors of the Corporation. Except as otherwise specifically stated
herein, the Series 2 Preferred Stock shall have the same rights and privileges
as Common Stock under Florida law.
Section 2. Definitions. For purposes of the Series 2 Preferred Stock, the
following terms shall have the meanings indicated:
"Board" shall mean the Board of Directors of the Corporation or any
committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series 2 Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which state or federally chartered banking institutions in New York City,
New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders required
under subparagraph (d) of Section 5 as the Call Date.
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<PAGE>
"Common Stock" shall mean the common capital stock of the Corporation, par
value $0.01 per share.
"Constituent Person" shall have the meaning set forth in paragraph (e) of
Section 6 hereof.
"Conversion Price" shall mean the conversion price per share of Common
Stock for which the Series 2 Preferred Stock is convertible, as such
Conversion Price may be adjusted pursuant to Section 6. The initial
conversion price shall be $20.8333 (equivalent to a conversion rate of one
(1) share of Common Stock for each share of Series 2 Preferred Stock).
"Current Market Price" of publicly traded Common Stock or any other class
of capital stock or other security of the Corporation or any other issuer
for any day shall mean the last reported sales price on such day, regular
way, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange ("NYSE") or, if such security is
not listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted for
trading or, if not listed or admitted for trading on any national
securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
as reported by the National Quotation Bureau, Incorporated, or, if not so
reported, the average of the closing bid and asked prices as furnished by
any member of the National Association of Securities Dealers, Inc. selected
from time to time by the Corporation for such purpose, or, if no such
prices are furnished, the fair market value of the security as determined
in good faith by the Board.
"Dividend Payment Date" shall mean the last calendar day of March, June,
September and December, in each year, commencing on March 31, 1999;
provided, however, that if any Dividend Payment Date falls on any day other
than a Business Day, the dividend payment due on such Dividend Payment Date
shall be paid on the Business Day immediately following such Dividend
Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on
April 1, July 1, October 1 and January 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period.
"Fully Junior Stock" shall mean any class or series of capital stock of the
Corporation now or hereafter issued and outstanding over which the Series 2
Preferred Stock has preference or priority in both (i) the payment of
dividends and (ii) the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
"Funds from Operations per Share" shall mean the amount determined by
dividing (a) the net income of the Corporation before extraordinary items
(determined in accordance with generally accepted accounting principles) as
reported by the Corporation in its year-end audited financial statements,
minus gains (or losses) from debt restructuring and sales of property, plus
real property depreciation and amortization and amortization of capitalized
leasing expenses and tenant allowances or improvements (to the extent such
allowances or improvements are capital items), and after adjustments for
unconsolidated partnerships, corporations and joint ventures
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<PAGE>
(such items of depreciation and amortization and such gains, losses and
adjustments as determined in accordance with generally accepted accounting
principles and as reported by the Corporation in its year-end audited
financial statements) by (b) the weighted average number of shares of
capital stock of the Corporation outstanding as reported by the Corporation
in its year-end audited financial statements. Adjustments for
unconsolidated partnerships, corporations and joint ventures shall be
calculated to reflect Funds from Operations per Share on the same basis. If
the Corporation shall after the Issue Date (A) pay a dividend or make a
distribution in shares of capital stock on its outstanding shares of
capital stock, (B) subdivide its outstanding shares of capital stock into a
greater number of shares, (C) combine its outstanding Common Stock into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its outstanding shares of capital stock, the Funds from
Operations per Share shall be appropriately adjusted to give effect to such
events.
"Issue Date" shall mean the first date on which the Series 2 Preferred
Stock is issued and sold.
"Junior Stock" shall mean the Common Stock and any other class or series of
capital stock of the Corporation now or hereafter issued and outstanding
over which the Series 2 Preferred Stock has preference or priority in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
"Minimum Amount" shall mean the greater of (A) $0.2083 and (B) 65% of the
highest amount of Funds from Operations per Share for any preceding fiscal
year, beginning with the fiscal year ending December 31, 1996, divided by
four.
"Non-Electing Share" shall have the meaning set forth in paragraph (e) of
Section 6 hereof.
"Parity Stock" shall have the meaning set forth in paragraph (b) of Section
8.
"Person" shall mean any individual, firm, partnership, corporation, or
trust or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Securities" and "Security" shall have the meanings set forth in paragraph
(d)(iv) of Section 6 hereof.
"Series 1 Preferred Stock" shall mean the Series 1 Cumulative Convertible
Redeemable Preferred Stock of the Corporation, par value $0.01 per share.
"Series 2 Preferred Stock" shall have the meaning set forth in Article
FIRST hereof.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board,
the allocation of funds to be so paid on any series or class of capital
stock of the Corporation; provided, however, that if any funds for any
class or series of Junior Stock, Fully Junior Stock or any class or series
of shares of capital stock ranking on a parity with the Series 2 Preferred
Stock as to the payment of dividends are placed in a separate account of
the Corporation or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series 2 Preferred
Stock shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Transaction" shall have the meaning set forth in paragraph (e) of Section
6 hereof.
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<PAGE>
"Transfer Agent" means initially the Corporation and shall include such
other agent or agents of the Corporation as may be designated by the Board
or their designee as the transfer agent for the Series 2 Preferred Stock.
"Voting Preferred Stock" shall have the meaning set forth in Section 9
hereof.
Section 3. Dividends.
(a) The holders of Series 2 Preferred Stock shall be entitled to receive, when,
as and if declared by the Board out of funds legally available for that
purpose, quarterly dividends payable in cash in an amount per share equal to
the greater of (i) the Minimum Amount or (ii) an amount equal to the dividend
(determined on each Dividend Payment Date) on a share of Common Stock, or
portion thereof, into which a share of Series 2 Preferred Stock is convertible.
For purposes of clause (ii) of the preceding sentence, such dividends shall
equal the number of shares of Common Stock, or portion thereof, into which a
share of Series 2 Preferred Stock is convertible, multiplied by the most
current quarterly dividend paid or payable on a share of Common Stock on or
before the applicable Dividend Payment Date. Dividends on the Series 2
Preferred Stock shall begin to accrue and shall be fully cumulative from the
Issue Date, whether or not for any Dividend Period or Periods there shall be
funds of the Corporation legally available for the payment of such dividends,
and shall be payable quarterly, when, as and if declared by the Board, in
arrears on Dividend Payment Dates, commencing on the first Dividend Payment
Date after the Issue Date. Each dividend on the Series 2 Preferred Stock shall
be payable to the holders of record of Series 2 Preferred Stock, as they appear
on the stock records of the Corporation at the close of business on such record
dates as shall be fixed by the Board. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time and for such interim
periods, without reference to any regular Dividend Payment Date, to holders of
record on such date as may be fixed by the Board.
(b) The amount of dividends payable for any dividend period shorter or longer
than a full Dividend Period, on the Series 2 Preferred Stock shall be computed
on the basis of twelve 30-day months and a 360-day year. Holders of Series 2
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of current and cumulative but unpaid
dividends, as herein provided, on the Series 2 Preferred Stock. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series 2 Preferred Stock that may be in arrears.
(c) So long as any Series 2 Preferred Stock is outstanding, no dividends,
except as described in the immediately following sentence, shall be declared or
paid or set apart for payment on any class or series of Parity Stock for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series 2 Preferred Stock for all Dividend Periods
terminating on or prior to the Dividend Payment Date on such class or series of
Parity Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon Series 2
Preferred Stock and all dividends declared upon any other class or series of
Parity Stock shall be declared ratably in proportion to the respective amounts
of dividends accumulated and unpaid on the Series 2 Preferred Stock and
accumulated and unpaid on such Parity Stock.
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<PAGE>
(d) So long as any Series 2 Preferred Stock is outstanding, no dividends (other
than dividends or distributions paid solely in shares of, or options, warrants
or rights to subscribe for or purchase shares of, Fully Junior Stock) shall be
declared or paid or set apart for payment or other distribution declared or
made upon Junior Stock, nor shall any Junior Stock be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
Common Stock made for purposes of an employee incentive or benefit plan of the
Corporation or any subsidiary) for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Fully Junior Stock), unless in each case (i) the full
cumulative dividends on all outstanding Series 2 Preferred Stock and any other
Parity Stock of the Corporation shall have been paid or declared and set apart
for payment for all past Dividend Periods with respect to the Series 2
Preferred Stock and all past dividend periods with respect to such Parity Stock
and (ii) sufficient funds shall have been paid or declared and set apart for
the payment of the dividend for the current Dividend Period with respect to the
Series 2 Preferred Stock and the current dividend period with respect to such
Parity Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for payment to the holders of Junior Stock or
Fully Junior Stock, the holders of the Series 2 Preferred Stock shall be
entitled to receive $20.8333 per share of Series 2 Preferred Stock plus an
amount equal to all dividends declared but unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the Series 2 Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any other
shares of any class or series of Parity Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of Series 2 Preferred
Stock and any such other Parity Stock ratably in accordance with the respective
amounts that would be payable on such Series 2 Preferred Stock and any such
other Parity Stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation
with one or more Persons, (ii) a sale or transfer of all or substantially all
of the Corporation's assets or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or class or
classes of shares of capital stock ranking on a parity with or prior to the
Series 2 Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the holders of the Series 2 Preferred Stock, as
provided in this Section 4, any other series or class or classes of Junior
Stock or Fully Junior Stock shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Series 2 Preferred
Stock shall not be entitled to share therein.
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<PAGE>
Section 5. Redemption at the Option of the Corporation.
(a) The Series 2 Preferred Stock shall not be redeemable by the Corporation
prior to October 20, 2010. On and after October 20, 2010, the Corporation, at
its option, may redeem the Series 2 Preferred Stock, in whole at any time or
from time to time in part, at the option of the Corporation at a redemption
price of $20.8333 per share of Series 2 Preferred Stock, plus the amounts
indicated in Section 5(b).
(b) Upon any redemption of Series 2 Preferred Stock pursuant to this Section 5,
the Corporation shall pay in full any and all accrued and unpaid dividends
(without interest or sum of money in lieu of interest) for any and all Dividend
Periods ending on or prior to the Call Date. If the Call Date falls after a
dividend payment record date and prior to the corresponding Dividend Payment
Date, then each holder of Series 2 Preferred Stock at the close of business on
such dividend payment record date shall be entitled to the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
redemption of such shares before such Dividend Payment Date.
(c) If full cumulative dividends on the Series 2 Preferred Stock and any other
class or series of Parity Stock of the Corporation have not been paid or
declared and set apart for payment, the Series 2 Preferred Stock may not be
redeemed under this Section 5 in part and the Corporation may not purchase or
acquire shares of Series 2 Preferred Stock, otherwise than pursuant to a
voluntary purchase or exchange offer made on the same terms to all holders of
Series 2 Preferred Stock.
(d) Notice of the redemption of any Series 2 Preferred Stock under this Section
5 shall be mailed by first-class mail to each holder of record of Series 2
Preferred Stock to be redeemed at the address of each such holder as shown on
the Corporation's record, not less than 30 nor more than 90 days prior to the
Call Date. Neither the failure to mail any notice required by this paragraph
(d), nor any defect therein or in the mailing thereof, to any particular
holder, shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice which
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given on the date mailed whether or not the holder receives the
notice. Each such mailed notice shall state, as appropriate: (1) the Call Date;
(2) the number of shares of Series 2 Preferred Stock to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (3) the place or places at which
certificates for such shares are to be surrendered; and (4) that dividends on
the shares to be redeemed shall cease to accrue on such Call Date except as
otherwise provided herein. Notice having been mailed as aforesaid, from and
after the Call Date (unless the Corporation shall fail to make available an
amount of cash necessary to effect such redemption), (i) except as otherwise
provided herein, dividends on the Series 2 Preferred Stock so called for
redemption shall cease to accrue, (ii) said shares shall no longer be deemed to
be outstanding and (iii) all rights of the holders thereof as holders of Series
2 Preferred Stock of the Corporation shall cease (except the rights to convert
and to receive cash payable upon such redemption, without interest thereon,
upon surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to provide
cash in accordance with the preceding sentence shall be deemed fulfilled if, on
or before the Call Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office in
the Borough of Manhattan, City of New York, and that has, or is an affiliate of
a bank or trust company that has, capital and surplus of at least $50,000,000,
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<PAGE>
sufficient cash necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series 2
Preferred Stock so called for redemption. No interest shall accrue for the
benefit of the holders of Series 2 Preferred Stock to be redeemed on any cash
so set aside by the Corporation. Subject to applicable escheat laws and other
unclaimed property laws, any such cash unclaimed at the end of two years from
the Call Date shall revert to the general funds of the Corporation, after which
reversion the holders of such shares so called for redemption shall look only
to the general funds of the Corporation for the payment of such cash.
Notwithstanding the above, at any time after such redemption notice is received
and on or prior to the Call Date, any holder may exercise its conversion rights
under Section 6 below.
As promptly as practicable after the surrender in accordance with said notice
of the certificates for any such shares so redeemed (properly endorsed or
assigned for transfer, if the Corporation shall so require and if the notice
shall so state), such shares shall be exchanged for any cash (including
accumulated and unpaid dividends but without interest thereon) for which such
shares have been redeemed. If fewer than all the outstanding Series 2 Preferred
Stock is to be redeemed, shares to be redeemed shall be selected by the
Corporation from outstanding Series 2 Preferred Stock not previously called for
redemption by lot or pro rata (as nearly as may be) or by any other method
determined by the Corporation in its sole discretion to be equitable. If fewer
than all the Series 2 Preferred Stock represented by any certificate is
redeemed, then new certificates representing the unredeemed shares shall be
issued without cost to the holder thereof.
Section 6. Conversion. Holders of Series 2 Preferred Stock shall have the
right, at any time and from time to time, to convert all or a portion of such
shares into Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of this Section 6, a
holder of Series 2 Preferred Stock shall have the right, at such holder's
option, at any time to convert each share of Series 2 Preferred Stock into
the number of fully paid and non-assessable shares of Common Stock obtained
by dividing the aggregate liquidation preference of such shares by the
Conversion Price (as in effect at the time and on the date provided for in
the last paragraph of paragraph (b) of this Section 6) by surrendering such
shares to be converted, such surrender to be made in the manner provided in
paragraph (b) of this Section 6.
(b) In order to exercise the conversion right, each holder of shares of
Series 2 Preferred Stock to be converted shall surrender the certificate
representing such shares, duly endorsed or assigned to the Corporation or
in blank, at the office of the Transfer Agent, accompanied by written
notice to the Corporation that the holder thereof elects to convert such
Series 2 Preferred Stock. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such Series 2 Preferred
Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid).
Holders of Series 2 Preferred Stock at the close of business on a dividend
payment record date shall be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
conversion thereof following such dividend payment record date and on or
prior to such dividend payment date. In no event shall a holder of Series B
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preferred Stock be entitled to receive a dividend payment on Common Stock
issued or issuable upon conversion of Series B Preferred Stock if such
holder is entitled to receive a dividend in respect of the Series Preferred
Stock Surrendered for conversion. The Corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted
shares or for dividends on the Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for Series 2
Preferred Stock as aforesaid, the Corporation shall issue and shall deliver
at such office to such holder, or such holder's written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a Common Stock
arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 6.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for Series 2
Preferred Stock shall have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or names
any certificate or certificates for Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such time on such
date unless the stock transfer books of the Corporation shall be closed on
that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the
next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date on which
such shares shall have been surrendered and such notice received by the
Corporation.
(c) No fractional shares or scrip representing fractions of Common Stock
shall be issued upon conversion of the Series 2 Preferred Stock. Instead of
any fractional interest in a share of Common Stock that would otherwise be
deliverable upon the conversion of a share of Series 2 Preferred Stock, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of Common Stock on the Business Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of Series 2 Preferred Stock
so surrendered.
(d) The Conversion Price shall be adjusted from time to time as follows:
(i) If the Corporation shall (A) pay a dividend or make a distribution
in shares of Common Stock on its Common Stock, (B) subdivide its
outstanding shares of Common Stock into a greater number of shares, (C)
combine its outstanding shares of Common Stock into a smaller number of
shares or (D) issue any shares of Common Stock by reclassification of
its Common Stock, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
shareholders entitled to receive such dividend or distribution or at
the opening of business on the Business Day next following the day on
which such subdivision, combination or reclassification becomes
effective, as the case may be, shall be adjusted so that the holder of
any Series 2 Preferred Stock
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thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that such holder would have owned or
have been entitled to receive after the happening of any of the events
described above as if such Series 2 Preferred Stock had been converted
immediately prior to the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the opening
of business on the Business Day next following the record date (except
as provided in paragraph (g) below) in the case of a dividend or
distribution and shall become effective immediately after the opening
of business on the Business Day next following the effective date in
the case of a subdivision, combination or reclassification.
(ii) If the Corporation shall issue after the Issue Date rights,
options or warrants to subscribe for or purchase Common Stock, or to
subscribe for or purchase any security convertible into Common Stock,
and the price per share for which Common Stock is issuable upon
exercise of such rights, options or warrants, or upon the conversion or
exchange of such convertible securities, is less than the lesser of the
Conversion Price then in effect and the Current Market Price per share
of Common Stock on the date such rights, options or warrants are
issued, then the Conversion Price in effect at the opening of business
on the Business Day next following such issue date shall be adjusted to
equal the price determined by multiplying (A) the Conversion Price in
effect immediately prior to the opening of business on the date for
such issuance by (B) a fraction, the numerator of which shall be the
sum of (I) the number of shares of Common Stock outstanding immediately
prior to such issuance and (II) the number of shares that the aggregate
proceeds to the Corporation from the exercise of such rights, options
or warrants for Common Stock, or in the case of rights to purchase
convertible securities, the aggregate proceeds from the exercise of
such rights, options or warrants and the subsequent conversion of such
convertible securities, would purchase at such Conversion Price or
Current Market Price, as applicable, and the denominator of which shall
be the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance and (B) the number of additional
shares of Common Stock offered for subscription or purchase pursuant to
such rights, options or warrants. Such adjustment shall become
effective immediately after the opening of business on the day next
following such issue date (except as provided in paragraph (g) below).
In determining whether any rights, options or warrants entitle the
holders of Common Stock to subscribe for or purchase Common Stock or
any security convertible into or exchangeable for Common Stock at less
than such Conversion Price or Current Market Price, as applicable,
there shall be taken into account any consideration received by the
Corporation upon issuance and upon exercise of such rights, options or
warrants, and in the case of rights, options or warrants to subscribe
for or purchase convertible securities, upon the subsequent conversion
of such securities, the value of such consideration, if other than
cash, to be determined in good faith by the Board. In the event that
the securities referenced in this subparagraph (ii) are only issued to
all holders of Common Stock, no adjustment shall be made to the
Conversion Price under this subparagraph (ii) if the Corporation shall
issue to all holders of Series 2 Preferred Stock, the same number of
rights, options or warrants to subscribe for or purchase Common Stock
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or any security convertible into or exchangeable for Common Stock, as
those issued to holders of Common Stock, based upon the number of
shares of Common Stock into which each Series 2 Preferred Stock is then
convertible.
(iii) If the Corporation shall issue after the Issue Date any shares of
capital stock or security convertible or exchangeable for Common Stock
(excluding rights, options or warrants referred to in subparagraph (ii)
above) and the price per share for which Common Stock is issuable upon
the conversion or exchange of such convertible or exchangeable
securities is less than the lesser of the Conversion Price then in
effect and the Current Market Price per Common Stock on the date such
convertible or exchangeable securities are issued, then the Conversion
Price in effect at the opening of business on the Business Day next
following such issue date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the opening of business on the Business Day next
following the issue date by (B) a fraction, the numerator of which
shall be the sum of (I) the number of shares of Common Stock
outstanding on the close of business on the Business Day immediately
preceding the issue date and (II) the number of shares of Common Stock
that the aggregate proceeds to the Corporation from the conversion into
or in exchange for Common Stock would purchase at such Conversion Price
or Current Market Price, as applicable, and the denominator of which
shall be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the Business Day immediately
preceding the issue date and (B) the number of additional shares of
Common Stock issuable upon conversion or exchange of such convertible
or exchangeable securities. Such adjustment shall become effective
immediately after the opening of business on the day next following
such issue date (except as provided in paragraph (g) below). In
determining whether any securities are convertible for or exchangeable
into Common Stock at less than such Conversion Price or Current Market
Price, as applicable, there shall be taken into account any
consideration received by the Corporation upon issuance and upon
conversion or exchange of such convertible or exchangeable securities,
the value of such consideration, if other than cash, to be determined
in good faith by the Board.
(iv) If the Corporation shall distribute to all holders of its Common
Stock any shares of capital stock of the Corporation (other than Common
Stock) or evidence of its indebtedness or assets (excluding cash
dividends or distributions) or rights, options or warrants to subscribe
for or purchase any of its securities (excluding those rights, options
and warrants referred to in subparagraph (ii) above and excluding those
convertible or exchangeable securities referred to in subparagraph
(iii) above (any of the foregoing being hereinafter in this
subparagraph (iv) collectively called the "Securities" and individually
a "Security"), then in each such case the Conversion Price shall be
adjusted so that it shall equal the price determined by multiplying (A)
the Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders
entitled to receive such distribution by (B) a fraction, the numerator
of which shall be the lesser of the Conversion Price then in effect and
the Current Market Price per share of Common Stock on the record date
mentioned below less the then fair market value (as determined in good
faith by the Board), of the portion of the shares of capital stock or
assets or evidences of indebtedness so distributed or of such rights,
options or warrants applicable to one share of Common
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Stock, and the denominator of which shall be the lesser of the
Conversion Price then in effect and the Current Market Price per share
of Common Stock on the record date mentioned below. Such adjustment
shall become effective immediately at the opening of business on the
Business Day next following (except as provided in paragraph (g) below)
the record date for the determination of shareholders entitled to
receive such distribution. For the purposes of this clause (iv), the
distribution of a Security, which is distributed not only to the
holders of the Common Stock on the date fixed for the determination of
shareholders entitled to such distribution of such Security, but also
is distributed with each share of Common Stock delivered to a Person
converting Series 2 Preferred Stock after such determination date,
shall not require an adjustment of the Conversion Price pursuant to
this clause (iv); provided that on the date, if any, on which a Person
converting a share of Series 2 Preferred Stock would no longer be
entitled to receive such Security with a share of Common Stock (other
than as a result of the termination of all such Securities), a
distribution of such Securities shall be deemed to have occurred and
the Conversion Price shall be adjusted as provided in this clause (iv)
(and such day shall be deemed to be "the date fixed for the
determination of the shareholders entitled to receive such
distribution" and "the record date" within the meaning of the two
preceding sentences).
(v) No adjustment in the Conversion Price shall be required unless such
adjustment would require a cumulative increase or decrease of at least
1% in such price; provided, however, that any adjustments that by
reason of this subparagraph (v) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
until made; and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this Section 6
(other than this subparagraph (v)) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to
the holders of Common Stock. Notwithstanding any other provisions of
this Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common Stock
pursuant to (A) any plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the investment of
additional optional amounts in Common Stock under such plan or (B) any
right, option or warrant to acquire Common Stock granted to any
employee (as such term is defined in General Instruction A to Form S-8
under the Securities Act) of the Corporation under a plan providing for
the granting of such securities to employees; provided, however, that
such plan is approved by the shareholders and the aggregate amount of
Common Stock issuable under the rights, options and warrants granted
under such plan shall not exceed 20% of the shares of Common Stock
issued and outstanding on the date such plan is approved by
shareholders. In addition, the Corporation shall not be required to
make any adjustment of the Conversion Price for the issuance of any
Common Stock or any other class or series of shares of capital stock
pursuant to the terms of that certain Shareholders' Agreement among the
Corporation, Security Capital Holdings S.A. and Opportunity Capital
Partners Limited Partnership. All calculations under this Section 6
shall be made to the nearest cent (with $.005 being rounded upward) or
to the nearest one-tenth of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this
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paragraph (d), as it in its discretion shall determine to be advisable
in order that any share dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights,
options or warrants to purchase stock or securities, or a distribution
of other assets (other than cash dividends) hereafter made by the
Corporation to its shareholders shall not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all Common Stock, sale of all or
substantially all of the Corporation's assets or recapitalization of the
Common Stock and excluding any transaction as to which subparagraph (d)(i)
of this Section 6 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which all or substantially
all shares of Common Stock are converted into the right to receive stock,
securities or other property (including cash or any combination thereof) of
another Person, each share of Series 2 Preferred Stock, which is not
converted into the right to receive stock, securities or other property of
such Person prior to such Transaction (and each share of Series 2 Preferred
Stock issuable after such Transaction upon conversion of securities
convertible into Series 2 Preferred Stock), shall thereafter be convertible
into the kind and amount of shares of stock, securities and other property
(including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of shares of
Common Stock into which one share of Series 2 Preferred Stock was
convertible immediately prior to such Transaction, assuming such holder of
Common Stock (i) is not a Person with which the Corporation consolidated or
into which the Corporation merged or which merged into the Corporation or
to which such sale or transfer was made, as the case may be ("Constituent
Person"), or an affiliate of a Constituent Person and (ii) failed to
exercise his rights of election, if any, as to the kind or amount of stock,
securities and other property (including cash) receivable upon such
Transaction (provided that if the kind or amount of stock, securities and
other property (including cash) receivable upon such Transaction is not the
same for each share of Common Stock held immediately prior to such
Transaction by other than a Constituent Person or an affiliate thereof and
in respect of which such rights of election shall not have been exercised
("Non-Electing Share"), then for the purpose of this paragraph (e) the kind
and amount of stock, securities and other property (including cash)
receivable upon such Transaction by each Non-Electing Share shall be deemed
to be the kind and amount so receivable per share by a plurality of the
Non-Electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series 2 Preferred Stock (and securities
convertible into Series 2 Preferred Stock) that will contain provisions
enabling the holders of the Series 2 Preferred Stock that remain
outstanding (or are issuable upon conversion of securities convertible into
Series 2 Preferred Stock) after such Transaction to convert into the
consideration received by holders of Common Stock at the Conversion Price
in effect immediately prior to such Transaction. The provisions of this
paragraph (e) shall similarly apply to successive Transactions.
(f) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly mail notice of such adjustment of the Conversion
Price to each holder of Series 2 Preferred Stock at such holder's last
address as shown on the share records of the Corporation.
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(g) In any case in which paragraph (d) of this Section 6 provides that an
adjustment shall become effective on the day next following the record date
for an event, the Corporation may defer until the occurrence of such event
(A) issuing to the holder of any Series 2 Preferred Stock converted after
such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 6.
(h) There shall be no adjustment of the Conversion Price in case of the
issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the adjustment that yields the highest absolute value.
(i) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock, for the purpose of effecting
conversion of the Series 2 Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding Series 2
Preferred Stock not theretofore converted. For purposes of this paragraph
(i), the number of shares of Common Stock that shall be deliverable upon
the conversion of all outstanding Series 2 Preferred Stock shall be
computed as if at the time of computation all such outstanding shares were
held by a single holder.
The Corporation covenants that any shares of Common Stock issued upon
conversion of the Series 2 Preferred Stock shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Stock deliverable upon conversion of the Series 2 Preferred Stock,
the Corporation will take any trust action that, in the opinion of its
counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common Stock at such
adjusted Conversion Price.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series 2 Preferred Stock, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with,
or any approval of or consent to the delivery thereof by, any governmental
authority.
(j) The Corporation will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common
Stock or other securities or property on conversion of the Series 2
Preferred Stock pursuant hereto; provided, however, that the Corporation
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of Common Stock or other
securities or property in a name other than that of the holder of the
Series 2 Preferred Stock to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or established, to
the reasonable satisfaction of the Corporation, that such tax has been
paid.
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Section 7. Shares to Be Retired. All shares of Series 2 Preferred Stock which
shall have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of
the Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
(a) prior to the Series 2 Preferred Stock, as to the payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding
up, if the holders of such class or series shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
Series 2 Preferred Stock;
(b) on a parity with the Series 2 Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
liquidation prices per share thereof shall be different from those of the
Series 2 Preferred Stock, if the holders of such class or series and the
Series 2 Preferred Stock shall be entitled to the receipt of dividends and
of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority one over
the other ("Parity Stock");
(c) junior to the Series 2 Preferred Stock, as to the payment of dividends
or as to the distribution of assets upon liquidation, dissolution or
winding up, if such class or series shall be Junior Stock; and
(d) junior to the Series 2 Preferred Stock, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or
winding up, if such class or series shall be Fully Junior Stock.
Section 9. Voting.
(a) Each issued and outstanding share of Series 2 Preferred Stock shall entitle
the holder thereof to the number of votes per share of Common Stock into which
such share of Series 2 Preferred Stock is convertible (as of the close of
business on the record date for determination of shareholders entitled to vote
on a matter) on all matters presented for a vote of shareholders of the
Corporation and, except as required by applicable law and subject to the
further provisions of this Section 9, the Series 2 Preferred Stock shall be
voted together with all issued and outstanding Common Stock and Series 1
Preferred Stock voting as a single class.
(b) If and whenever twelve consecutive quarterly dividends payable on the
Series 2 Preferred Stock or any series or class of Parity Stock shall be in
arrears (which shall, with respect to any such quarterly dividend, mean that
any such dividend has not been paid in full), whether or not earned or
declared, the number of directors then constituting the Board shall be
increased by one and the holders of Series 2 Preferred Stock, together with the
holders of shares of every other series of Parity Stock, including the Series 1
Preferred Stock (any such other series, the "Voting Preferred Stock"), voting
as a single class regardless of series, shall be entitled to elect, at a
special meeting of the holders of the Series 2 Preferred Stock and the Voting
Preferred Stock called as hereinafter provided, the additional director to
serve on the Board. Whenever all arrearages in dividends on the Series 2
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Preferred Stock and the Voting Preferred Stock then outstanding shall have been
paid and dividends thereon for the current quarterly dividend period shall have
been paid or declared and set apart for payment, then the right of the holders
of the Series 2 Preferred Stock and the Voting Preferred Stock to elect such
additional director shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearages
in twelve quarterly dividends), and the terms of office of the person elected
as director by the holders of the Series 2 Preferred Stock and the Voting
Preferred Stock shall forthwith terminate and the number of members of the
Board shall be reduced accordingly. At any time after such voting power shall
have been so vested in the holders of Series 2 Preferred Stock and the Voting
Preferred Stock (or if any vacancy shall occur in respect of the director
previously elected by the holders of the Series 2 Preferred Stock and the
Voting Preferred Stock), the secretary of the Corporation shall call a special
meeting of the holders of the Series 2 Preferred Stock and of the Voting
Preferred Stock for the election of the director to be elected by them as
herein provided, such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the shareholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the secretary within 30 days after the end of
the most recent Dividend Period during which the right to elect such additional
director arose or such vacancy occurred, then any holder of Series 2 Preferred
Stock may call such meeting, upon the notice above provided, and for that
purpose shall have access to the stock records of the Corporation. The director
elected at any such special meeting shall hold office until the next annual
meeting of the shareholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided.
(c) So long as any Series 2 Preferred Stock is outstanding, in addition to any
other vote or consent of shareholders required by law or by the Charter, the
affirmative vote of at least 66 2/3% of the votes entitled to be cast by the
holders of the Series 2 Preferred Stock, together with the holders of Voting
Preferred Stock, at the time outstanding, acting as a single class regardless
of series, given in person or by proxy, either in writing without a meeting or
by vote at any meeting called for the purpose, shall be necessary for effecting
or validating:
(i) Any amendment, alteration or repeal of any of the provisions of the
Charter or these Articles of Amendment that materially and adversely
affects the voting powers, rights or preferences of the holders of the
Series 2 Preferred Stock or the Voting Preferred Stock; provided, however,
that the amendment of the provisions of the Charter so as to authorize or
create or to increase the authorized amount of, any Fully Junior Stock,
Junior Stock that is not senior in any respect to the Series 2 Preferred
Stock, or any stock of any class ranking on a parity with the Series 2
Preferred Stock or the Voting Preferred Stock shall not be deemed to
materially adversely affect the voting powers, rights or preferences of the
holders of Series 2 Preferred Stock; and provided, further, that if any
such amendment, alteration or repeal would materially and adversely affect
any voting powers, rights or preferences of the Series 2 Preferred Stock or
another series of Voting Preferred Stock that are not enjoyed by some or
all of the other series otherwise entitled to vote in accordance herewith,
the affirmative vote of at least 66 2/3% of the votes entitled to be cast
by the holders of all series similarly affected, similarly given, shall be
required in lieu of the affirmative vote of at least 66 2/3% of the votes
entitled to be cast by the holders of the Series 2 Preferred Stock and the
Voting Preferred Stock otherwise entitled to vote in accordance herewith;
or
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(ii) A share exchange that affects the Series 2 Preferred Stock, a
consolidation with or merger of the Corporation into another Person, or a
consolidation with or merger of another Person into the Corporation, unless
in each such case each share of Series 2 Preferred Stock (A) shall remain
outstanding without a material and adverse change to its terms and rights
or (B) shall be converted into or exchanged for convertible preferred stock
of the surviving entity having preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption thereof identical to that of a share
of Series 2 Preferred Stock (except for changes that do not materially and
adversely affect the holders of the Series 2 Preferred Stock); or
(iii) The authorization or creation of, or the increase in the authorized
amount of, any shares of any class or any security convertible into shares
of any class ranking prior to the Series 2 Preferred Stock in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation or in the payment of dividends.
(d) For purposes of voting in respect to those matters referred to in
subparagraphs (b) and (c) of this Section 9, unless otherwise provided under
applicable law, each Series 2 Preferred Stock shall have one (1) vote per
share, except that when any other series of Preferred Stock shall have the
right to vote with the Series 2 Preferred Stock as a single class on any
matter, then the Series 2 Preferred Stock and such other series shall have with
respect to such matters one (1) vote per $20.8333 of stated liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the Series 2 Preferred Stock shall not have any relative,
participating, optional or other special voting rights and powers other than as
set forth herein, and the consent of the holders thereof shall not be required
for the taking of any trust action.
Section 10. Record Holders. The Corporation and the Transfer Agent may deem and
treat the record holder of any shares of Series 2 Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
Section 11. Sinking Fund. The Series 2 Preferred Stock shall not be entitled to
the benefits of any retirement or sinking fund.
THIRD: The Series 2 Preferred Stock has been classified and designated by the
Board of Directors under the authority contained in the Charter.
FOURTH: These Articles of Amendment have been approved by the Board of
Directors in the manner and by the vote required by law.
FIFTH: The undersigned Executive Vice President of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
Executive Vice President acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
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In Witness Whereof, the Corporation has caused these Articles of Amendment to
be executed under seal in its name and on its behalf by its Executive Vice
President and attested to by its Secretary on this day of , 1998.
Regency Realty Corporation
By:
----------------------------------
Name: Bruce M. Johnson
Title: Executive Vice President
[SEAL]
ATTEST:
- -------------------------------------
Name: J. Christian Leavitt
Title: Secretary
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APPENDIX G
CODE OF MARYLAND
CORPORATIONS AND ASSOCIATIONS.
TITLE 8. REAL ESTATE INVESTMENT TRUSTS.
Subtitle 5. Amendments and Termination of Existence.
SECTION 8-501.1 MERGER.
***
(i) Objecting shareholders.--Each shareholder of a Maryland real estate
investment trust objecting to a merger of the Maryland real estate investment
trust shall have the same rights as an objecting stockholder of a Maryland
corporation under Subtitle 2 of Title 3 of this article and under the same
procedures.
***
ANNOTATED CODE OF MARYLAND
CORPORATIONS AND ASSOCIATIONS.
TITLE 3. CORPORATIONS IN GENERAL--EXTRAORDINARY ACTIONS.
Subtitle 2. Rights of Objecting Stockholders.
SECTION 3-201 "SUCCESSOR" DEFINED.
(a) Corporation amending charter.--In this subtitle, except as provided in
subsection (b) of this section, "successor" includes a corporation which amends
its charter in a way which alters the contract rights, as expressly set forth
in the charter, of any outstanding stock, unless the right to do so is reserved
by the charter of the corporation.
(b) Corporation whose stock is acquired.--When used with reference to a share
exchange, "successor" means the corporation the stock of which was acquired in
the share exchange.
SECTION 3-202 RIGHT TO FAIR VALUE OF STOCK.
(a) General rule.--Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action under
section 3-105 (d) of this title;
(4) The corporation amends its charter in a way which alters the contract
rights, as expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, unless the right
to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by section 3-602 of this title or exempted
by section 3-603 (b) of this title.
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(b) Basis of fair value.--(1) Fair value is determined as of the close of
business:
(i) With respect to a merger under section 3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the day notice is
given or waived under section 3-106; or
(ii) With respect to any other transaction, on the day the stockholders
voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value may not
include any appreciation or depreciation which directly or indirectly results
from the transaction objected to or from its proposal.
(3) In any transaction governed by section 3-602 of this title or exempted by
section 3-603 (b) of this title, fair value shall be value determined in
accordance with the requirements of section 3-603 (b) of this title.
(c) When right to fair value does not apply.--Unless the transaction is
governed by section 3-602 of this title or is exempted by section 3-603 (b) of
this title, a stockholder may not demand the fair value of his stock and is
bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange or is designated
as a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under section 3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the date notice is
given or waived under section 3-106; or
(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected
to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly set
forth in the charter, and the charter does not reserve the right to do
so; or
(ii) The stock is to be changed or converted in whole or in part in the
merger into something other than either stock in the successor or cash,
scrip, or other rights or interests arising out of provisions for the
treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940
and the value placed on the stock in the transaction is its net asset
value.
SECTION 3-203 PROCEDURE BY STOCKHOLDER.
(a) Specific duties.--A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under section 3-106 of this title of a 90
percent or more owned subsidiary into its parent, within 30 days after
notice is given or waived under section 3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered;
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(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment for his stock,
stating the number and class of shares for which he demands payment.
(b) Failure to comply with section.--A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share
exchange, transfer of assets, or charter amendment.
SECTION 3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
section 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that stock,
except the right to receive payment of its fair value.
SECTION 3-205 WITHDRAWAL OF DEMAND.
A demand for payment may be withdrawn only with the consent of the successor.
SECTION 3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS.
(a) When rights restored.--The rights of a stockholder who demands payment are
restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by
this subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration.--The restoration of a stockholder's rights entitles
him to receive the dividends, distributions, and other rights he would have
received if he had not demanded payment for his stock. However, the restoration
does not prejudice any corporate proceedings taken before the restoration.
SECTION 3-207 NOTICE AND OFFER TO STOCKHOLDERS.
(a) Duty of successor.--(1) The successor promptly shall notify each objecting
stockholder in writing of the date the articles are accepted for record by the
Department.
(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each offer
shall be accompanied by the following information relating to the corporation
which issued the stock:
(i) A balance sheet as of a date not more than six months before the date
of the offer;
(ii) A profit and loss statement for the 12 months ending on the date of
the balance sheet; and
(iii) Any other information the successor considers pertinent.
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(b) Manner of sending notice.--The successor shall deliver the notice and offer
to each objecting stockholder personally or mail them to him by certified mail,
return receipt requested, bearing a postmark from the United States Postal
Service, at the address he gives the successor in writing, or, if none, at his
address as it appears on the records of the corporation which issued the stock.
SECTION 3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS.
(a) Petition for appraisal.--Within 50 days after the Department accepts the
articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have
a principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors.--(1) If more than one
appraisal proceeding is instituted, the court shall direct the consolidation of
all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an appraisal
proceeding.
SECTION 3-209 NOTATION ON STOCK CERTIFICATE.
(a) Submission of certificate.--At any time after a petition for appraisal is
filed, the court may require the objecting stockholders parties to the
proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) Transfer of stock bearing notation.--If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
SECTION 3-210 APPRAISAL OF FAIR VALUE.
(a) Court to appoint appraisers.--If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Report of appraisers--Filing.--Within 60 days after their appointment,
unless the court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) Same--Contents.--The report shall state the reasons for the conclusion and
shall include a transcript of all testimony and exhibits offered.
(d) Same--Service; objection.--(1) On the same day that the report is filed,
the appraisers shall mail a copy of it to each party to the proceedings.
G-4
<PAGE>
(2) Within 15 days after the report is filed, any party may object to it and
request a hearing.
SECTION 3-211 ACTION BY COURT ON APPRAISERS' REPORT.
(a) Order of court.--The court shall consider the report and, on motion of any
party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) Procedure after order.--(1) If the appraisers' report is confirmed or
modified by the order, judgment shall be entered against the successor and in
favor of each objecting stockholder party to the proceeding for the appraised
fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms and
conditions it considers proper.
(c) Judgment includes interest.--(1) Except as provided in paragraph (2) of
this subsection, a judgment for the stockholder shall award the value of the
stock and interest from the date as at which fair value is to be determined
under section 3-202 of this subtitle.
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under section 3-207 of this
subtitle was arbitrary and vexatious or not in good faith. In making this
finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings.--(1) The costs of the proceedings, including
reasonable compensation and expenses of the appraisers, shall be set by the
court and assessed against the successor. However, the court may direct the
costs to be apportioned and assessed against any objecting stockholder if the
court finds that the failure of the stockholder to accept an offer for the
stock made under section 3-207 of this subtitle was arbitrary and vexatious or
not in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable fees and
expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under section 3-207
of this subtitle; or
(ii) The value of the stock determined in the proceeding materially exceeds
the amount offered by the successor.
G-5
<PAGE>
(e) Effect of judgment.--The judgment is final and conclusive on all parties
and has the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over any
mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
SECTION 3-212 SURRENDER OF STOCK.
The successor is not required to pay for the stock of an objecting stockholder
or to pay a judgment rendered against it in a proceeding for an appraisal
unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it, indorsed
in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished.
SECTION 3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(a) General rule.--A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under section 3-202 of this subtitle.
(b) Successor in transfer of assets.--After acquiring the stock of an objecting
stockholder, a successor in a transfer of assets may exercise all the rights of
an owner of the stock.
(c) Successor in consolidation, merger, or share exchange.--Unless the articles
provide otherwise, stock in the successor of a consolidation, merger, or share
exchange otherwise deliverable in exchange for the stock of an objecting
stockholder has the status of authorized but unissued stock of the successor.
However, a proceeding for reduction of the capital of the successor is not
necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
G-6
<PAGE>
APPENDIX H
REGENCY REALTY CORPORATION
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS FOR
SPECIAL MEETING OF SHAREHOLDERS--DECEMBER 18, 1998
The undersigned, having received the Notice of Special Meeting of Shareholders
and accompanying Joint Proxy Statement and Prospectus, appoints Martin E.
Stein, Jr. and Bruce M. Johnson, and each or either of them, as proxies, with
full power of substitution and resubstitution, to represent the undersigned and
to vote all shares of Common Stock of Regency Realty Corporation which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Company to be held on December 18, 1998 and any and all adjournments thereof,
in the manner specified.
1. Approval of the Merger Agreement dated September 23, 1998, between Pacific
Retail Trust and Regency Realty Corporation, and the transactions contemplated
thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
Approval of Proposal 1 is conditioned on approval of Proposals 2 and 3.
2. Approval of Amendments to Sections 5.1 and 5.14 of Articles of
Incorporation.
[_] FOR [_] AGAINST [_] ABSTAIN
Approval of Proposal 2 is conditioned on approval of Proposal 1.
3. Approval of Amendment No. 1 to the Regency Realty Corporation 1993 Long Term
Omnibus Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
Approval of Proposal 3 is conditioned on approval of Proposal 1.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" EACH PROPOSAL.
SHOULD ANY OTHER MATTERS REQUIRING A VOTE OF THE SHAREHOLDERS ARISE, INCLUDING
MATTERS INCIDENT TO THE CONDUCT OF THE MEETING, THE ABOVE NAMED PROXIES ARE
AUTHORIZED TO VOTE THE SAME IN ACCORDANCE WITH THEIR BEST JUDGMENT IN THE
INTEREST OF THE COMPANY. THE BOARD OF DIRECTORS IS NOT AWARE OF ANY MATTER
WHICH IS TO BE PRESENTED FOR ACTION AT THE MEETING OTHER THAN THE MATTERS SET
FORTH HEREIN.
DATED: , 1998
_______________________________(SEAL)
_______________________________(SEAL)
(Please sign exactly as name or
names appear hereon. Executors,
administrators, trustees or other
representatives should so indicate
when signing.)
H-1
<PAGE>
APPENDIX I
PACIFIC RETAIL TRUST
PROXY SOLICITED ON BEHALF OF BOARD OF TRUSTEES FOR SPECIAL MEETING
OF SHAREHOLDERS -- , 1998
The undersigned shareholder of Pacific Retail Trust, a Maryland real estate
investment trust ("Pacific Retail"), hereby appoints Dennis H. Alberts, Jane
E. Mody and James G. Buis, and each or any of them, as proxies for the
undersigned, with full power of substitution and resubstitution in each of
them, to attend the Special Meeting of Shareholders of Pacific Retail to be
held on , , at a.m., central time, at the offices of Pacific
Retail, 8140 Walnut Hill Lane, Suite 400, Dallas, Texas 75231 and any and all
adjournments or postponements thereof, to cast on behalf of the undersigned
all votes that the undersigned is entitled to cast at such meeting and
otherwise to represent the undersigned at the meeting with all powers
possessed by the undersigned if personally present at the meeting. The
undersigned hereby revokes any proxy previously given with respect to such
meeting.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and accompanying Joint Proxy Statement and Prospectus.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS INSTRUCTED
BELOW. IF THIS PROXY IS EXECUTED BUT NO INSTRUCTION IS GIVEN, THE VOTES
ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST "FOR" THE MERGER AND IN
THE DISCRETION OF THE PROXY HOLDER ON ANY OTHER MATTER THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
1. Approval and adoption of the Merger Agreement, dated September 23, 1998,
between Pacific Retail Trust and Regency Realty Corporation, and the
transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To vote and otherwise represent the undersigned on any other matter which
may properly come before the meeting or any adjournment or postponement
thereof in the discretion of the Proxy holder.
THE BOARD OF TRUSTEES IS NOT AWARE OF ANY MATTER WHICH IS TO BE PRESENTED FOR
ACTION AT THE MEETING OTHER THAN THE MATTERS SET FORTH HEREIN.
Dated: , 1998
_____________________________________
_____________________________________
(Please sign exactly as name or
names appear hereon. If the shares
are held jointly, each holder should
sign. When signing as attorney,
executor, administrator, trustee,
guardian or as an officer signing
for a corporation, please give full
title under signature.
I-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
REGENCY's officers and directors are and will be indemnified under Florida law
and the charter and by-laws of REGENCY.
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the
corporation in related capacities) for liabilities, including legal expenses,
arising by reason of service in such capacity if such person shall have acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and in any criminal proceeding if such
person had no reasonable cause to believe his conduct was unlawful. However, in
the case of actions brought by or in the right of the corporation, no
indemnification may be made with respect to any matter as to which such
director or officer shall have been adjudged liable, except in certain limited
circumstances.
Article X of REGENCY's bylaws provides that REGENCY shall indemnify directors
and executive officers to the fullest extent now or hereafter permitted by the
Florida Act. In addition, REGENCY has entered into Indemnification Agreements
with its directors and executive officers in which REGENCY has agreed to
indemnify such persons to the fullest extent now or hereafter permitted by the
Florida Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits to this Registration Statement are listed in the Exhibit Index,
which appears immediately after the signature page and is incorporated herein
by this reference.
(b) Financial Statement Schedules
Schedule III of REGENCY: Real Estate and Accumulated Depreciation as of
December 31, 1997 (found at page S-2 of REGENCY's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and incorporated herein by
reference.
The Independent Auditors' Report on the above-referenced schedule of REGENCY is
found at page S-1 of REGENCY's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 and incorporated herein by reference.
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements of REGENCY or
notes thereto incorporated herein by reference.
Schedule III of PACIFIC RETAIL: Real Estate and Accumulated Depreciation as of
December 31, 1997 on page S-2 of this Registration Statement.
The Independent Auditors' Report on the above-referenced schedule of PACIFIC
RETAIL at page S-1 of this Registration Statement.
II-1
<PAGE>
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements of Pacific Retail
or notes thereto incorporated herein by reference.
(c) Reports, Opinions and Appraisals
Not Applicable.
ITEM 22. Undertakings
The undersigned Company hereby undertakes that, for the purposes of determining
any liability under the Securities Act of 1933, each filing of the annual
report of a Company pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of REGENCY
pursuant to the provisions discussed in Item 20 or otherwise, REGENCY has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Company of expenses incurred or
paid by a director, officer or controlling person of REGENCY in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, REGENCY will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Company hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed after the effective date of this Registration Statement through the date
of responding to the request.
The undersigned Company hereby undertake to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, REGENCY HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF JACKSONVILLE, STATE OF FLORIDA, ON
OCTOBER 8, 1998.
Regency Realty Corporation
/s/ Martin E. Stein, Jr.
By: _________________________________
MARTIN E. STEIN, JR.,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the
Signature Page to this Registration Statement constitutes and appoints Martin
E. Stein, Jr., Bruce M. Johnson and J. Christian Leavitt, and each or any of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
and all Registration Statements filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits hereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and grants unto said attorneys-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
October 8, 1998 /s/ Martin E. Stein, Jr.
_____________________________________
Date: _______________________________ MARTIN E. STEIN, JR.,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
October 8, 1998 /s/ Bruce M. Johnson
_____________________________________
Date: _______________________________ BRUCE M. JOHNSON,
MANAGING DIRECTOR AND PRINCIPAL
FINANCIAL OFFICER
October 8, 1998 /s/ J. Christian Leavitt
_____________________________________
Date: _______________________________ J. CHRISTIAN LEAVITT,
VICE PRESIDENT, SECRETARY,
TREASURER AND PRINCIPAL ACCOUNTING
OFFICER
II-3
<PAGE>
October 8, 1998 /s/ Joan W. Stein
_____________________________________
Date: _______________________________ JOAN W. STEIN,
CHAIRMAN EMERITUS AND DIRECTOR
October 8, 1998 /s/ Richard W. Stein
_____________________________________
Date: _______________________________ RICHARD W. STEIN,
DIRECTOR
October 8, 1998 /s/ Edward L. Baker
_____________________________________
Date: _______________________________ EDWARD L. BAKER,
DIRECTOR
October 8, 1998 /s/ Raymond L. Bank
_____________________________________
Date: _______________________________ RAYMOND L. BANK,
DIRECTOR
October 8, 1998 /s/ J. Alexander Branch III
_____________________________________
Date: _______________________________ J. ALEXANDER BRANCH III,
DIRECTOR
October 8, 1998 /s/ A.R. Carpenter
_____________________________________
Date: _______________________________ A.R. CARPENTER,
DIRECTOR
October 8, 1998 /s/ J. Dix Druce, Jr.
_____________________________________
Date: _______________________________ J. DIX DRUCE, JR.,
DIRECTOR
October 8, 1998 /s/ Albert Ernest, Jr.
_____________________________________
Date: _______________________________ ALBERT ERNEST, JR.,
DIRECTOR
October 8, 1998 /s/ Douglas S. Luke
_____________________________________
Date: _______________________________ DOUGLAS S. LUKE,
DIRECTOR
October 8, 1998 /s/ Mary Lou Rogers
_____________________________________
Date: _______________________________ MARY LOU ROGERS,
DIRECTOR
October 8, 1998 /s/ Jonathan Smith
_____________________________________
Date: _______________________________ JONATHAN SMITH,
DIRECTOR
October 8, 1998 /s/ Lee S. Wielansky
_____________________________________
Date: _______________________________ LEE S. WIELANSKY,
DIRECTOR
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated September 23, 1998 (attached as
Annex A to the Joint Proxy Statement and Prospectus included in this
Registration Statement).
3.1 Restated Articles of Incorporation of Regency Realty Corporation as
amended to date (filed as an exhibit to REGENCY's Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by reference).
3.1(a) Form of Articles of Amendment to Articles of Incorporation Designating
the Preferences, Rights and Limitations of Series 1 Cumulative
Convertible Redeemable Preferred Stock (attached as Annex F to the
Joint Proxy Statement).
3.1(b) Form of Articles of Amendment to Articles of Incorporation Designating
the Preferences, Rights and Limitations of Series 2 Cumulative
Convertible Redeemable Preferred Stock (attached as Annex F to the
Joint Proxy Statement).
3.2 Restated bylaws of Regency Realty Corporation (filed as an exhibit to
REGENCY's Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference).
4. See exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and bylaws of Regency Realty Corporation defining rights
of security holders.
5. Opinion of Foley & Lardner as to legality of securities.
8.1. Opinion of Mayer, Brown & Platt as to tax matters relating to the
merger.
8.2 Opinion of Foley & Lardner as to REIT status.
9.1. Shareholder Voting Agreement among Security Capital U.S. Realty,
Security Capital Holdings S.A., Regency Realty Corporation and Pacific
Retail Trust dated September 23, 1998 (filed as an exhibit to
Amendment to Schedule 13D of Security Capital U.S. Realty and
incorporated herein by reference).
9.2 Transfer Restriction Agreement among Security Capital Holdings S.A.
and Regency Realty Corporation dated as of September 23, 1998 (filed
as an exhibit to Amendment 8 to Schedule 13D of Security Capital U.S.
Realty and incorporated herein by reference).
10. Amendment No. 1 to REGENCY 1993 Long Term Omnibus Plan.
12. Statements regarding computation of ratios.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Foley & Lardner (included in Exhibits 5 and 8.2).
23.4 Consent of Mayer, Brown & Platt (included in Exhibit 8.1).
23.5 Consent of Prudential Securities Incorporated.
23.6 Consent of Goldman, Sachs & Co. (to be filed by amendment)
23.7 Consent of John T. Kelley
23.8 Consent of John C. Schweitzer
23.9 Consent of Terry N. Worrell
23.10 Consent of Jeffrey A. Cozad
23.11 Consent of Dennis H. Alberts
</TABLE>
<PAGE>
EXHIBIT 5
FOLEY & LARDNER
CHICAGO POST OFFICE BOX 240 SACRAMENTO
DENVER JACKSONVILLE, FLORIDA 32201-0240 SAN DIEGO
JACKSONVILLE THE GREENLEAF BUILDING SAN FRANCISCO
LOS ANGELES 200 LAURA STREET TALLAHASSEE
MADISON JACKSONVILLE, FLORIDA 32202-3510 TAMPA
MILWAUKEE TELEPHONE (904) 359-2000 WASHINGTON, D.C.
ORLANDO FACSIMILE (904) 359-8700 WEST PALM BEACH
October 8, 1998
The Board of Directors
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
Re: Regency Realty Corporation Registration on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Regency Realty Corporation, a Florida
corporation ("Regency"), in connection with the proposed issuance of the
following securities (the "Securities") of Regency in connection with the
merger of Pacific Retail Trust, a Maryland real estate investment trust
("Pacific Retail"), with and into Regency pursuant to the Agreement and Plan
of Merger between Regency and Pacific Retail dated September 23, 1998 (the
"Merger Agreement"), as described in Regency's Registration Statement on Form
S-4 filed with the Securities and Exchange Commission (the "Registration
Statement"): 31,763,350 shares of common stock, par value $0.01 per share (the
"Common Stock"), 54,253 shares of Series 1 Cumulative Convertible Redeemable
Preferred Stock, par value $0.01 per share (the "Series 1 Preferred Stock")
and 960,000 shares of Series 2 Cumulative Convertible Redeemable Preferred
Stock, par value $0.01 per share (the "Series 2 Preferred Stock" and, together
with the Series 1 Preferred Stock, the "Preferred Stock").
The Securities are to be issued under Articles of Merger in substantially
the form set forth as part of Annex A to the Registration Statement (the
"Articles of Merger") and Regency's Amended and Restated Articles of
Incorporation, as amended by (i) the Articles of Amendment relating to the
REIT provisions thereof (the "Articles Amendment"), (ii) the Articles of
Amendment Designating the Preferences, Rights and Limitations of Series 1
Preferred Stock (the "Series 1 Preferred Stock Designation"), and (iii) the
Articles of Amendment Designating the Preferences, Rights and Limitations of
the Series 2 Preferred Stock (the "Series 2 Preferred Stock Designation" and,
together with the Series 1 Preferred Stock Designation, the "Preferred Stock
Designations"), all to be filed with the Florida Secretary of State
immediately prior to the effective time of the merger. Copies of the Articles
Amendment and the Preferred Stock Designations are included as Annex D and
Annex F, respectively, to the Joint Proxy Statement and Prospectus which
constitutes a part of the Registration Statement.
<PAGE>
FOLEY & LARDNER
The Board of Directors
October 8, 1998
Page 2
As counsel for Regency, we have examined and are familiar with the
Registration Statement, the Merger Agreement, Regency's Amended and Restated
Articles of Incorporation, as amended to date and filed in the Office of the
Secretary of State of the State of Florida, Regency's Bylaws, the proceedings
of Regency's Board of Directors and committees thereof in connection with or
with respect to the merger and the authorization and issuance of the Securities
registered by the Registration Statement, and such Regency records,
certificates, and other documents and matters of law as we deemed to be
pertinent. As to factual matters we have relied in part upon certificates of
officers of Regency and upon certificates of public officials.
Based upon our examination of such documents and our familiarity with such
proceedings, it is our opinion that, subject to the approval of Regency's
shareholders of the Merger Agreement and the Articles Amendment, by the
requisite votes described in the Registration Statement, and upon the filing of
the Articles of Amendment, Preferred Stock Designations and the Articles of
Merger with the Office of the Secretary of State of the State of Florida:
(1) the Common Stock has been duly authorized and, when and if delivered
in the manner described in the Merger Agreement, will be legally issued,
fully paid and nonassessable; and
(2) the Preferred Stock has been duly authorized and, when and if
delivered in the manner described in the Merger Agreement, will be legally
issued, fully paid and nonassessable.
We hereby consent to the inclusion of this opinion as Exhibit 5 in the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Joint Proxy Statement and Prospectus. In giving this
consent we do not hereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules or regulations of the Securities and Exchange Commission
promulgated thereunder.
Sincerely,
FOLEY & LARDNER
<PAGE>
EXHIBIT 8.1
October 8, 1998
Pacific Retail Trust
8140 Walnut Hill Lane
Dallas, Texas 75231
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
Re: Material Federal income tax consequences of the Merger of Pacific
Retail Trust with and into Regency Realty Corporation
Ladies and Gentlemen:
In connection with the merger (the "Merger") of Pacific Retail Trust, a
Maryland real estate investment trust ("Pacific"), with and into Regency Realty
Corporation, a Florida corporation ("Regency"), pursuant to the Agreement and
Plan of Merger dated as of September 23, 1998 by and between Regency and
Pacific (the "Merger Agreement"), you have requested our opinion that the
summaries of Federal income tax consequences set forth in the joint proxy
statement and prospectus (the "Proxy Statement and Prospectus") included as
part of the registration statement on Form S-4 (the "Registration Statement")
under the headings "The Merger--Material Federal Income Tax Consequences--Tax
Treatment of PACIFIC RETAIL, REGENCY and United States Holders" and "The
Merger--Material Federal Income Tax Consequences--Tax Treatment of Non-U.S.
Holders" are accurate in all material respects as to matters of law and legal
conclusions.
Pursuant to the Merger, each common share of beneficial interest, $0.01 par
value per share, of Pacific shall be converted into the right to receive 0.48
shares of common stock, $0.01 par value per share, of Regency, each Series A
Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01
par value per share, of Pacific shall be converted into the right to receive
0.48 shares of Series 1 Cumulative Convertible Redeemable Preferred Stock,
$0.01 par value per share, of Regency, and each Series B Cumulative Convertible
Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share,
of Pacific shall be converted into the right to receive 0.48 shares of Series 2
Cumulative Convertible Redeemable Preferred Stock, $0.01 par value per share,
of Regency.
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Merger Agreement and the exhibits thereto, (ii)
the Articles of Amendment Designating the Preferences, Rights and Limitations
of Series 1 Preferred Stock, (iii) the Articles of Amendment Designating the
Preferences, Rights and Limitations of the Series 2 Preferred Stock, (iv) the
description of the transaction as set forth in the Proxy Statement and
Prospectus included as part of the Registration Statement and the exhibits
thereto, (v) the representations provided by Pacific concerning certain facts
underlying and relating to the Merger and its qualification as a
<PAGE>
Pacific Retail Trust
Regency Realty Corporation
October 8, 1998
Page 2
"real estate investment trust", (vi) the representations provided by Regency
concerning certain facts underlying and relating to the Merger, (vii) the
representations provided by Security Capital Holdings S.A. concerning certain
facts underlying and related to the Merger, and (viii) the tax opinion of Foley
& Lardner dated the date hereof regarding the status of Regency as a "real
estate investment trust".
Based upon and subject to the foregoing, it is our opinion that the summaries
of Federal income tax consequences set forth in the Proxy Statement and
Prospectus under the headings "The Merger--Material Federal Income Tax
Consequences--Tax Treatment of PACIFIC RETAIL, REGENCY and United States
Holders" and "The Merger--Material Federal Income Tax Consequences--Tax
Treatment of Non-U.S. Holders" are accurate in all material respects as to
matters of law and legal conclusions.
This opinion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
and the interpretation of the Code and such regulations by the courts and the
Internal Revenue Service, as they are in effect and exist at the date of this
opinion. It should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. A material change that is made after
the date hereof in any of the foregoing bases for our opinion could adversely
affect our conclusions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to this firm under the headings
"Summary--Material Federal Income Tax Consequences" and "The Merger--Material
Federal Income Tax Consequences" in the Proxy Statement and Prospectus.
Sincerely,
MAYER, BROWN & PLATT
WAL/TCS
<PAGE>
FOLEY & LARDNER
EXHIBIT 8.2
CHICAGO POST OFFICE BOX 240 SACRAMENTO
DENVER JACKSONVILLE, FLORIDA 32201-0240 SAN DIEGO
JACKSONVILLE THE GREENLEAF BUILDING SAN FRANCISCO
LOS ANGELES 200 LAURA STREET TALLAHASSEE
MADISON JACKSONVILLE, FLORIDA 32202-3510 TAMPA
MILWAUKEE TELEPHONE (904) 359-2000 WASHINGTON, D.C.
ORLANDO FACSIMILE (904) 359-8700 WEST PALM BEACH
October 8, 1998
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
Re: REIT Qualification Following Merger
Ladies and Gentlemen:
You have requested our opinion that the performance of the Agreement and Plan
of Merger (the "Merger Agreement") dated September 23, 1998, by and between
Pacific Retail Trust ("Pacific Retail") and Regency Realty Corporation
("Regency") will not jeopardize the status of Regency as a "real estate
investment trust" under the Internal Revenue Code of 1986, as amended (the
"Code").
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Merger Agreement and the exhibits thereto, (ii)
the description of the transaction as set forth in the Joint Proxy Statement
and Prospectus included as part of the Registration Statement on Form S-4 (the
"Registration Statement") and the exhibits thereto, (iii) representations
provided by Pacific Retail concerning certain facts underlying and relating to
the Merger and its qualification as a "real estate investment trust" and (iv)
representations provided by Regency concerning certain facts underlying and
relating to the merger, its qualification as a "real estate investment trust"
and the Regency Board of Directors' adoption of the Amendment to Articles of
Incorporation of Regency described in the Registration Statement.
<PAGE>
Based upon and subject to the foregoing, it is our opinion that the performance
of the Merger Agreement will not jeopardize the status of Regency as a "real
estate investment trust" under the Code.
This opinion is based on current provisions of the Code, the Treasury
regulations promulgated thereunder, and interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, as they are in
effect and exist at the date of this opinion. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the bases for our
opinion could adversely affect our conclusions.
We hereby consent to the inclusion of this opinion as Exhibit 8.2 to the
Registration Statement and to the reference to this firm under the caption "The
Merger--Material Federal Income Tax Consequences" and "Legal Matters" in the
Joint Proxy Statement and Prospectus. In giving this consent we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules or
regulations of the Securities and Exchange Commission promulgated thereunder.
Sincerely,
FOLEY & LARDNER
<PAGE>
EXHIBIT 10
AMENDMENT NO. 1 TO
REGENCY REALTY CORPORATION
1993 LONG TERM OMNIBUS PLAN
WHEREAS, Regency Realty Corporation ("Regency") has entered into an
Agreement and Plan of Merger dated September 23, 1998 (as it may be amended,
the "Merger Agreement") with Pacific Retail Trust ("PRT"), pursuant to which
PRT will be merged into Regency, and
WHEREAS, pursuant to the Merger Agreement, Regency has agreed (a) to provide
PRT officers and employees and continuing non-employee directors who hold PRT
options and become Regency officers or employees or non-employee directors
with substitute options and (b) to grant substitute options in lieu of
severance compensation to three departing PRT executives even though they will
not be employed by Regency after the merger, and
WHEREAS, in order to satisfy its obligations under the Merger Agreement, the
Board of Directors hereby amends the 1993 Long Term Omnibus Plan (the "Plan")
as set forth herein pursuant to Section 13.1 of the Plan, and
WHEREAS, capitalized terms used and not defined herein have the meanings
assigned thereto in the Plan.
(1) Section 2.10 is hereby amended and restated in its entirety as follows
(added language is underscored:
2.10 KEY EMPLOYEE means any officer or other key employee of the
Company or of any Affiliate who is responsible for or contributes to
the management, growth, or profitability of the business of the Company
or any Affiliate as determined by the Committee. For purposes of the
grant of substitute options pursuant to the Agreement and Plan of
Merger dated September 23, 1998 between the Company and Pacific Retail
Trust (as it may be amended, the "Merger Agreement"), each of Dennis H.
Alberts, Jane E. Mody and Joshua M. Brown shall be deemed to be a Key
Employee even though such person is not a Key Employee of the Company
or of any Affiliate provided that within 15 days of the effective date
of the merger contemplated by the Merger Agreement such person becomes
an officer or other key employee of, or performs material services for,
Security Capital Group Incorporated ("SCG") OR OF ANY ENTITY THAT IS A
"SUBSIDIARY" CORPORATION AS THAT TERM IS DEFINED IN CODE SECTION 424(F)
WITH RESPECT TO SCG OR ANY OTHER AFFILIATE OF SCG DESIGNATED AS SUCH BY
SCG ("RELATED COMPANY") AND PROVIDED FURTHER THAT THE SUBSTITUTE
OPTIONS GRANTED TO ANY SUCH PERSON SHALL EXPIRE, TO THE SAME EXTENT
THAT THE PACIFIC RETAIL TRUST OPTIONS REPLACED BY SUCH SUBSTITUTE
OPTIONS WOULD HAVE EXPIRED, FOLLOWING THE DATE ON WHICH SUCH PERSON
BOTH CEASES TO BE AN EMPLOYEE OF, AND TO PERFORM MATERIAL SERVICES FOR,
SCG AND THE RELATED COMPANIES.
(2) Section 4.1 is hereby amended and restated in its entirety as follows
(added language is underscored):
4.1 NUMBER OF SHARES AVAILABLE. The maximum number of Shares which
may be issued under the Plan and as to which Awards may be granted is 6
percent of the Shares
<PAGE>
issued and outstanding on the Registration Date, plus 6 percent of any
Shares issued pursuant to the exercise by the underwriters of an over-
allotment option described in the Registration Statement, increased on
December 31 of each year by the sum of (i) 6 percent of any increase in
the number of Shares outstanding for such year as a result of any
subsequent public offering of Shares, and (ii) 2 percent of the number
of Shares outstanding on such December 31 prior to the application of
this formula. In no event, however, except as subject to adjustment as
provided hereunder, shall more than the lesser of (i) 12 percent of all
Shares outstanding on December 31 of the immediately preceding year, or
(ii) 3 million Shares be cumulatively available for issuance under the
Plan. In addition to the number of Shares available under the Plan
pursuant to the foregoing, there may be issued under the Plan an
additional 2,520,000 Shares (the number of shares originally authorized
under Pacific Retail Trust's long-term incentive plan multiplied by
0.48). Shares available for Awards which are not awarded in one
particular year may be awarded in subsequent years. Any and all Shares
may be issued in respect of any of the types of Awards. The Shares to
be offered under the Plan may be authorized and unissued Shares or
treasury Shares. The number of Shares covered by an Award under the
Plan, or to which such Award relates, shall be counted on the date of
grant of such Award against the number of Shares available for granting
Awards under the Plan.
(3) In the event that the Merger Agreement shall be terminated prior to any
merger, or in the event that this Amendment No. 1 shall not be approved
by shareholders of the Company within one year after the date of
adoption hereof, this Amendment No. 1 shall be null and void. This
Amendment No. 1 shall take effect simultaneously with the effectiveness
of the merger contemplated by the Merger Agreement.
2
<PAGE>
EXHIBIT 12
REGENCY REALTY CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
JUN-98 JUN-97 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Pretax net income....... 30,354 8,764 27,402 9,907 4,994 5,101
Plus fixed charges...... 17,948 10,478 21,563 11,916 10,299 6,564
Less gain on sale....... (10,746) -- (451) -- -- --
Less preferred stock
dividend............... -- -- -- (58) (591) (283)
Less capitalized
interest............... (2,282) (257) (1,896) (381) (285) (216)
------- ------ ------ ------ ------ ------
Earnings................ 35,274 18,985 46,618 21,384 14,417 11,166
Preferred stock
dividend............... -- -- -- 58 591 283
Interest expense........ 15,666 10,221 19,667 11,477 9,423 6,065
Capitalized interest.... 2,282 257 1,896 381 285 216
------- ------ ------ ------ ------ ------
Total fixed charges..... 17,948 10,478 21,563 11,916 10,299 6,564
Ratio................... 2.0 1.8 2.2 1.8 1.4 1.7
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Regency Realty Corporation
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Jacksonville, Florida
October 8, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Regency Realty Corporation of our reports
dated January 23, 1998 relating to the financial statements of Pacific Retail
Trust for the years ended December 31, 1997 and 1996 and dated February 9, 1996
relating to the financial statements of Pacific Retail Trust for the period
from April 27, 1995 (Inception) to December 31, 1995, which appear in such
Prospectus. We also consent to the application of the report dated January 23,
1998 to the Financial Statement Schedule for the year ended December 31, 1997
listed under Item 21(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Dallas, Texas
October 5, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF PRUDENTIAL SECURITIES, INC.
October 6, 1998
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, FL 32202
Dear Sirs:
We hereby consent to the use of our opinion letter to the Special Committee
of the Board of Directors of Regency Realty Corporation ("Regency") included
as Annex B to the Joint Proxy Statement and Prospectus which forms a part of
the Registration Statement on Form S-4 of Regency relating to the proposed
merger of Pacific Retail Trust with and into Regency, and to the references to
such opinion in such Joint Proxy Statement and Prospectus under the captions
"The Merger--Opinion of Financial Advisor of REGENCY;" "The Merger--Background
of The Merger," "The Merger--Reasons For The Merger; Recommendations Of The
REGENCY Board;" and "The Merger--Opinion of REGENCY's Financial Advisor." In
giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
/s/ Allen S. Morton
By:____________________________________
Managing Director
<PAGE>
EXHIBIT 23.7
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of Regency
Realty Corporation where it appears in this Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.
/s/ John T. Kelley
_____________________________________
John T. Kelley
<PAGE>
EXHIBIT 23.8
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of Regency
Realty Corporation where it appears in this Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.
/s/ John C. Schweitzer
_____________________________________
John C. Schweitzer
<PAGE>
EXHIBIT 23.9
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of Regency
Realty Corporation where it appears in this Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.
/s/ Terry N. Worrell
_____________________________________
Terry N. Worrell
<PAGE>
EXHIBIT 23.10
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of Regency
Realty Corporation where it appears in this Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.
/s/ Jeffrey A. Cozad
_____________________________________
Jeffrey A. Cozad
<PAGE>
EXHIBIT 23.11
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of Regency
Realty Corporation where it appears in this Registration Statement, including
the Prospectus constituting a part thereof, and any amendments thereto.
/s/ Dennis H. Alberts
_____________________________________
Dennis H. Alberts
