<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
REGISTRATION NO. 333-65491
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
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 MICHAEL T. BLAIR
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. [_]
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>
REGENCY REALTY CORPORATION
[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 , 1999
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 share of Regency common stock and (iii) each outstanding
Pacific Retail preferred share will be converted into the right to
receive 0.48 share 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. ("SC-USRealty"), 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 December 18, 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 Incentive Plan is required to approve Proposal 3
(provided that more than 50% of the votes entitled to be cast are voted on the
<PAGE>
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 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
December , 1998
<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
January 29, 1999 at 8:30 a.m., 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 Holdings S.A., 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 share of Regency common stock and (iii) each outstanding
Pacific Retail preferred share will be converted into the right to
receive 0.48 share of Regency preferred stock of a comparable series,
all as more fully described in the accompanying Joint Proxy Statement
and Prospectus; and
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
December , 1998
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROPOSED MERGER
YOUR VOTE IS IMPORTANT
THE BOARD OF DIRECTORS OF REGENCY REALTY CORPORATION AND THE BOARD OF TRUSTEES
OF PACIFIC RETAIL TRUST SOLICIT YOUR VOTE WITH RESPECT TO THE MERGER OF PACIFIC
RETAIL INTO REGENCY.
J EXCHANGE RATIO:
Each Pacific Retail share will be converted into .48 of a
Regency share.
J Based on the closing price of Regency common stock on the New York Stock
Exchange on , 1998, the equivalent value of a Pacific Retail common share
on such date was $ . Regency common stock is traded on the New York Stock
Exchange under the symbol "REG." We encourage you to get updated Regency
stock quotations.
J Based on the ownership of Security Capital Holdings S.A. and management in
Regency and Pacific Retail, the approval of the merger and each other
proposal is assured.
<TABLE>
<CAPTION>
% OF REGENCY VOTING STOCK
MAXIMUM SHARES OWNED BY PACIFIC RETAIL
ISSUABLE IN MERGER SHAREHOLDERS AFTER MERGER
------------------ -------------------------
<S> <C> <C>
Regency common stock 30,749,097 53.3%
Regency preferred
stock (1 holder) 1,502,532 2.6%
</TABLE>
J Upon completion of the merger, Security Capital Holdings S.A. will own 52.3%
of the Regency common stock.
J SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF RISKS RELATING TO
THE MERGER.
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>
MERGER SUMMARY............................................................ 1
Historical Financial Data of Regency...................................... 10
Historical Financial Data of Pacific Retail............................... 12
Regency Pro Forma Summary Financial Data.................................. 13
Comparative Market and Per Share Data..................................... 15
Disclosure Regarding Forward-Looking Statements........................... 16
INCORPORATION BY REFERENCE................................................ 17
RISK FACTORS.............................................................. 19
Risk Factors Relating to the Merger..................................... 19
Risk Factors Relating to Ownership of Regency Common Stock.............. 20
REGENCY................................................................... 28
Operating and Investment Philosophy..................................... 28
Grocery-Anchored Infill Strategy........................................ 29
Research Driven Market Selection........................................ 29
Retail Operating System................................................. 29
Acquisition Track Record................................................ 30
Capital Strategy........................................................ 31
Available Information................................................... 31
PACIFIC RETAIL............................................................ 32
Description of Business................................................. 32
Properties.............................................................. 33
Tenants................................................................. 33
Leases and Rental Revenues.............................................. 34
Historical Financial Data of Pacific Retail............................. 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 37
Investment Policies of Pacific Retail................................... 43
THE COMBINED COMPANY...................................................... 48
THE MERGER................................................................ 50
Terms of the Merger..................................................... 50
The Subsidiary Mergers.................................................. 50
Background of the Merger................................................ 51
Reasons for the Merger; Recommendations of the Regency Board............ 57
Opinion of Regency's Financial Advisor.................................. 59
Reasons for the Merger; Recommendations of the Pacific Retail Board..... 65
Opinion of Pacific Retail's Financial Advisor........................... 67
Interests of Certain Parties............................................ 73
Voting Agreement........................................................ 73
Transfer Restriction Agreements......................................... 74
Amendment to Stockholders Agreement..................................... 74
Material Federal Income Tax Consequences................................ 77
Accounting Treatment.................................................... 82
Restrictions on Sales by Affiliates..................................... 82
Dissenters' Rights...................................................... 82
THE MERGER AGREEMENT...................................................... 84
Regency Board Recommendation............................................ 84
Pacific Retail Board Recommendation..................................... 84
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General................................................................. 84
Effective Time of the Merger............................................ 84
Exchange of Pacific Retail Share Certificates........................... 85
Conditions to the Merger................................................ 86
Representations and Warranties.......................................... 87
Certain Covenants....................................................... 87
Distributions........................................................... 90
No Solicitation of Transactions......................................... 90
Termination............................................................. 91
Termination Amount...................................................... 92
Indemnification......................................................... 93
Amendment And Waiver.................................................... 94
APPROVAL OF THE REGENCY ARTICLES AMENDMENT................................ 94
Description of Amendment................................................ 94
Possible Effect of Proposed Amendment................................... 97
AMENDMENT TO THE REGENCY INCENTIVE PLAN................................... 98
General................................................................. 98
Increase in Number of Shares............................................ 98
Possible Effect of Proposed Increase.................................... 99
Description of the Plan................................................. 99
Amendment to Allow Substitute Options for Departing Pacific Retail
Executives............................................................. 101
Substitute Options After the Merger..................................... 102
Other Regency Incentive Plan Programs................................... 103
INFORMATION CONCERNING EXECUTIVE OFFICERS AND DIRECTORS OF REGENCY AFTER
THE MERGER............................................................... 104
Executive Compensation.................................................. 106
THE SPECIAL MEETINGS OF SHAREHOLDERS...................................... 108
The Regency Special Meeting............................................. 108
The Pacific Retail Special Meeting...................................... 109
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 111
Authorized Shares....................................................... 112
Special Meetings of Shareholders........................................ 112
Shareholder Nominations and Proposals................................... 112
Limitation of Personal Liability of Directors........................... 113
Classified Board of Directors........................................... 113
Removal of Directors.................................................... 113
Standard of Conduct for Directors and Trustees.......................... 114
Board Committees........................................................ 114
Amendment of Pacific Retail Declaration or the Regency Articles......... 114
Shareholder Inspection of Books and Records............................. 115
Dividends and Other Distributions....................................... 115
Maryland Asset Requirements............................................. 116
Action by Written Consent of Shareholders............................... 116
Appraisal Rights........................................................ 116
Indemnification......................................................... 117
Business Combinations................................................... 118
Control Share Acquisitions.............................................. 119
Other Constituencies.................................................... 120
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF REGENCY SECURITIES...................................... 121
Regency Common Stock................................................. 121
Special Common Stock................................................. 121
Regency Preferred Stock.............................................. 122
Restrictions on Ownership............................................ 124
Staggered Board of Directors......................................... 127
Advance Notice Provisions for Shareholder Nominations and Shareholder
Proposals........................................................... 127
Certain Provisions of Florida Law.................................... 128
PRINCIPAL SHAREHOLDERS OF PACIFIC RETAIL............................... 128
CERTAIN PACIFIC RETAIL RELATIONSHIPS AND TRANSACTIONS.................. 130
Investor Agreement................................................... 130
Registration Rights Agreements....................................... 130
Shareholders Agreement............................................... 131
Private Offerings.................................................... 131
Partnership Affiliation.............................................. 132
Share Purchase Program............................................... 132
LEGAL MATTERS.......................................................... 133
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS............................. 133
EXPENSES OF SOLICITATION............................................... 133
SHAREHOLDER PROPOSALS.................................................. 134
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
Amendment to Articles of Incorporation of Regency Realty Corporation. 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>
MERGER 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. Page references are provided in this summary
to assist your review.
THE MERGING COMPANIES
121 West Forsyth Street
REGENCY (see page 28) Suite 200
Jacksonville, Florida 32202
(904) 356-7000
Regency acquires, owns, develops and manages grocery-anchored, neighborhood
shopping centers in the eastern United States. With the completion of its
initial public offering in 1993, Regency became a real estate investment trust.
It was previously part of the real estate business of The Regency Group, Inc.
which began in 1963.
8140 Walnut Hill Lane
PACIFIC RETAIL (see page 32) Dallas, Texas 75231
(214) 696-9500
Pacific Retail acquires, owns, develops and manages primarily grocery-anchored,
neighborhood shopping centers in the western United States. It was formed as a
Maryland real estate investment trust in 1995.
THE TERMS OF THE MERGER (see page 50)
When the merger becomes effective upon satisfaction of certain conditions, the
following will occur:
[_] Pacific Retail will merge into Regency.
[_] Each outstanding Pacific Retail common share will convert into the
right to receive 0.48 share of Regency common stock.
Regency Series 1 and Regency Series 2 preferred stock will be issued based on a
0.48 exchange ratio to Opportunity Capital Partners Limited Partnership, the
sole holder of Pacific Retail preferred shares and the holder of 1,000,000
Pacific Retail common shares. The Regency preferred stock will be
1
<PAGE>
convertible into a maximum of 1,502,532 shares of common stock, which would
represent 2.6% of the common stock if outstanding as of December 18, 1998.
Opportunity Capital Partners Limited Partnership also owns 1,804,730 shares of
Regency common stock and will receive 480,000 shares of Regency common stock in
the merger in exchange for Pacific Retail common shares. Through its ownership
of Regency common and preferred stock, it will control 6.6% of the vote of
Regency shareholders after the merger.
Regency shareholders will continue to own their existing shares after the
merger.
DISSENTERS' RIGHTS
REGENCY
Because the Regency common stock is listed on the New York Stock Exchange,
Regency shareholders do not have dissenters' rights under Florida law.
PACIFIC RETAIL (see page 82)
If you own Pacific Retail common or 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 the procedures outlined
under Maryland law. This includes filing a written objection to the merger
before or at the Pacific Retail special meeting and not voting in favor of the
merger. Failure to follow the procedures under Maryland law will result in you
losing your right to receive cash for the fair value of your shares. The merger
agreement provides that if holders of more than 10% of the Pacific Retail
shares dissent from the merger, the merger may not close.
THE COMBINED COMPANY
DIVIDEND DISTRIBUTIONS (see page 90)
Regency expects to continue its present dividend policy after the merger,
although such distributions are dependent upon Regency's cash flow available
for distribution and are determined in the discretion of Regency's board of
directors.
Based on Regency's 1998 annual distribution of $1.76 per share and the 0.48
exchange ratio, holders of Pacific Retail common shares would have received an
equivalent distribution of $0.8448 per Pacific Retail common share giving
effect to the merger, a 9.7% increase over Pacific Retail's 1998 annual
distribution of $0.77 per share. No assurance can be given that past
distribution levels will be maintained.
2
<PAGE>
PRIMARY BENEFITS OF MERGING (see page 48)
The merger will create the largest national REIT that focuses predominantly on
grocery-anchored shopping centers. Management expects this to generate greater
funds from operation per share than would be generated by the separate
companies because the combined company can:
[_] Use the combined research capacities to identify acquisition,
development and leasing opportunities throughout the U.S., including
expansion opportunities for leading grocery chains and national
retailers with which the separate companies have relationships.
[_] Create operating and financial efficiencies of over $5 million
annually by the year 2000, primarily from:
. more favorable terms for debt and equity offerings because of size
and geographic diversification, and
. cost savings by reducing common overhead.
POTENTIAL DETRIMENTS OF MERGING (see page 48)
[_] The exchange ratio was fixed at the time the merger agreement was
signed. At the time shares are exchanged, Regency shares may have a
greater value, to the detriment of Regency shareholders, or a lower
value, to the detriment of Pacific Retail's shareholders, than the
fixed value. The value to be received by Pacific Retail shareholders
cannot be guaranteed.
[_] The large size of the combining companies may make rapid integration
of Regency and Pacific Retail more difficult, and the efficiencies
expected to result from the merger may be delayed.
[_] SC-USRealty will own 59.4% of Regency's common stock, or 52.3% fully
diluted. Any change of control of Regency would be extremely unlikely
after the merger, unless SC-USRealty concurs. SC-USRealty will
control the vote of Regency's shareholders after the merger if SC-
USRealty's standstill agreement ends and SC-USRealty continues to own
more than 50% of the Regency common stock.
[_] Holders of Regency and Pacific Retail shares will each become subject
to the real estate risks of the markets in which the other company
currently operates.
3
<PAGE>
VOTING CONTROL OF MERGING COMPANIES BY SC-USREALTY & MANAGEMENT
REGENCY
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 proposal. As of the
Regency record date, Regency's directors and executive officers, all of whom
have indicated that they will vote their Regency common stock in favor of each
proposal, owned approximately 7.8% of the outstanding Regency common stock.
Assuming that SC-USRealty and such directors and executive officers vote in
favor of each proposal, each proposal will be approved.
PACIFIC RETAIL
SC-USRealty owns 69.9% of the total number of votes entitled to be cast and has
agreed to vote all of its Pacific Retail shares in favor of the merger.
Assuming that SC-USRealty votes in favor of the merger, the merger will be
approved. As of the Pacific Retail record date, Pacific Retail's trustees and
executive officers, all of whom have indicated that they will vote their
Pacific Retail shares in favor of the merger, owned approximately 0.7% of the
total number of votes entitled to be cast.
RECOMMENDATION OF EACH COMPANY'S BOARD
Pacific Retail's board has unanimously approved the merger. The members of
Regency's board present at the meeting, other than SC-USRealty's
representatives, who abstained from the vote, unanimously approved the merger.
BOTH BOARDS RECOMMEND THAT THEIR SHAREHOLDERS VOTE "FOR" THE MERGER.
OPINION OF REGENCY'S FINANCIAL ADVISOR (see page 59)
In the opinion of Prudential Securities Incorporated dated September 23, 1998,
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. Regency
has agreed to pay Prudential Securities $350,000 upon consummation of the
merger, in addition to a $250,000 fee already paid, and to indemnify them
against certain liabilities arising out of their service as Regency's financial
advisor.
You are urged to read their complete opinion in Annex B and the more detailed
description of their opinion and its scope beginning on page 59.
4
<PAGE>
OPINION OF PACIFIC RETAIL'S FINANCIAL ADVISOR (see page 67)
In the opinion of Goldman, Sachs & Co. dated September 23, 1998, the exchange
ratio of 0.48 share 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. No part of Goldman Sachs' $500,000
fee is dependent upon completion of the merger. Pacific Retail has agreed to
indemnify Goldman Sachs for certain liabilities arising out of their service as
Pacific Retail's financial advisor.
You are urged to read their complete opinion in Annex C and the more detailed
description of their opinion and its scope beginning on page 67.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (see page 77)
In the opinion of Mayer, Brown & Platt, based on certain factual
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,
J 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,
J no gain or loss will be recognized by Regency shareholders, and
J no gain or loss will be recognized by the merging companies.
In the opinion of Foley & Lardner, based on certain factual 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.
INFORMATION ABOUT THE MERGER AGREEMENT
We encourage you to read the merger agreement, attached as Annex A, in its
entirety.
EFFECTIVE TIME OF THE MERGER
We currently expect the merger to become effective at 11:59 p.m., Eastern
Standard Time, on , 1999 if all conditions to the merger are met.
5
<PAGE>
CONDITIONS TO MERGER (see page 86)
The completion of the merger depends upon meeting a number of conditions,
including:
1. Approval of the merger by the shareholders of Pacific Retail and
Regency.
2. Approval by Regency's shareholders of Regency's articles amendment.
3. Approval by Regency's 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
preferred shares together 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 for tax purposes.
Any of the conditions to closing may be waived by the parties other than the
shareholder approval conditions in 1, 2 and 3 above. If a material condition to
the merger is waived, we will amend this Joint Proxy Statement and Prospectus
and resolicit your votes.
TERMINATION (see page 91)
Regency and 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 consent of the other, to terminate the
merger agreement, if:
1. The merger has not been completed 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
because, for example, it receives an offer for a better deal, 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.
6
<PAGE>
MERGER TERMINATION FEE (see page 92)
Pacific Retail or Regency may be required to pay a $20 million termination fee
under the following circumstances:
J If a party terminates the merger agreement because its board
withdraws or modifies its recommendation that shareholders approve
the merger, because, for example, it receives an offer for a better
deal, then it must pay $20 million to the other party.
J If (a) the merger agreement is terminated by one party because the
other party receives another offer and (b) within one year of
termination the party receiving the offer agrees to a similar
transaction, then it must pay the $20 million termination fee.
THE SPECIAL MEETINGS OF SHAREHOLDERS
THE PACIFIC RETAIL SPECIAL MEETING (see page 109)
J The Pacific Retail special meeting of shareholders is scheduled to be
held at 8:30 a.m., central time, on , 1999, at the offices of
Pacific Retail at 8140 Walnut Hill Lane, Suite 400, Dallas, Texas
75231.
J The Pacific Retail Board of Trustees 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
meeting.
THE PACIFIC RETAIL VOTE
J Merger approval requires the affirmative vote of a majority of the
votes entitled to be cast by holders Pacific Retail common and
preferred shares, voting together as one class.
THE REGENCY SPECIAL MEETING (see page 108)
J The Regency special meeting of shareholders is scheduled to be held
at a.m., eastern standard time, EST on , 1999, at .
J The Regency Board of Directors fixed the close of business on
December 18, 1998 as the record date for determination of holders of
Regency common stock entitled to notice of and to vote at the
meeting.
7
<PAGE>
OTHER REGENCY MEETING MATTERS
In addition to the merger, Regency shareholders are being asked to vote on
amendments to Regency's articles of incorporation and Regency's employee
incentive plan.
AMENDMENT OF REGENCY ARTICLES OF INCORPORATION (see page 94)
[_] The Regency articles amendment will 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 common stock to be owned by
non-U.S. persons.
[_] The proposed Regency articles amendment contains prohibitions on the
transfer of Regency stock to non-U.S. persons which 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;
and
. ensure that once Regency returns to the status of a
domestically controlled REIT, it will remain a domestically
controlled REIT unless such restrictions are waived by SC-
USRealty.
Benefits and Detriments of the Amendment
[_] The approval of the Regency articles amendment is a condition to the
merger and was necessary to induce SC-USRealty to agree to vote its
shares of Regency common stock in favor of the merger. Regency's
ability to requalify as a domestically controlled REIT and its
ability to remain a domestically controlled REIT if it does requalify
are not expected to otherwise benefit any current shareholder of
Regency other than SC-USRealty.
[_] The transfer restrictions described above will limit the ability of
shareholders other than SC-USRealty to transfer their shares to
foreign persons.
[_] We have attached a copy of the Regency articles amendment as Annex D.
AMENDMENT NO 1. TO REGENCY INCENTIVE PLAN (see page 98)
[_] 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, adjusted for the merger, authorized under the
corresponding Pacific Retail option plan.
8
<PAGE>
J The Regency board is also 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.
Benefits and Detriments of the Amendment
J The amendment to the Regency Incentive Plan will provide the
following benefits to Regency:
. Shares will not otherwise be available to provide substitute
options to employees or trustees of Pacific Retail who become
employees or directors of Regency;
. The ability to grant options improves Regency's ability to attract
and maintain qualified personnel.
J However, the Amendment to the Regency Incentive Plan may cause
dilution to Regency's shareholders.
THE REGENCY VOTE (see page 108)
The following affirmative votes are required to approve each proposal:
<TABLE>
<C> <S>
PROPOSAL VOTE REQUIRED
-------- -------------
J Merger Majority of common stock outstanding
J Articles Amendment Majority of shares of common stock voting,
assuming a quorum
J Amendment to Incentive Plan Majority of shares of common stock voting, if
more than 50% of stock outstanding has voted
</TABLE>
The approval of each proposal is a condition to the approval of each other
proposal.
9
<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
nine months ended September 30, 1998 and September 30, 1997 and the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 (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 included in Regency's Quarterly Report on Form 10-Q for
the nine months ended September 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
PROPERTIES
NINE MONTHS PERIOD PERIOD
ENDED ENDED ENDED
SEPTEMBER 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....... $93,717 62,840 89,306 43,433 31,555 25,673 3,094 7,375
Management, leasing
and brokerage fees... 8,023 6,289 8,448 3,444 2,426 2,332 572 2,247
Equity in income of
real estate
partnership
investments.......... 511 20 33 70 4 17 3 18
------- ------ ------ ------ ------ ------ ----- ------
Total revenues...... 102,251 69,149 97,787 46,948 33,985 28,022 3,669 9,640
------- ------ ------ ------ ------ ------ ----- ------
Operating expenses:
Operating, maintenance
and real estate
taxes................ 22,128 16,016 22,904 12,065 8,683 7,140 862 3,365
General and
administrative....... 10,638 7,762 9,964 6,048 4,894 4,531 736 2,835
Depreciation and
amortization......... 17,985 11,502 16,303 8,059 5,854 5,266 679 1,564
------- ------ ------ ------ ------ ------ ----- ------
Total operating
expenses........... 50,751 35,280 49,171 26,172 19,431 16,937 2,277 7,764
------- ------ ------ ------ ------ ------ ----- ------
Interest expense net of
income................. 18,320 14,020 18,667 10,811 8,969 5,701 496 3,937
------- ------ ------ ------ ------ ------ ----- ------
Income before minority
interests.............. 33,180 19,849 29,949 9,965 5,585 5,384 895 (2,061)
Minority interests of
partnership units...... (3,112) (1,776) (2,042) -- -- -- -- --
Minority interest of
limited partners....... (390) (566) (505) -- -- -- -- 126
Equity in loss of
unconsolidated
partnership............ -- -- -- -- -- -- -- (111)
Other non-recurring
income, net............ 10,737 -- -- -- -- -- -- 3,291
------- ------ ------ ------ ------ ------ ----- ------
Net income.............. 40,415 17,507 27,402 9,965 5,585 5,384 895 1,245
Preferred stock
dividends.............. -- -- -- 58 591 283 -- --
------- ------ ------ ------ ------ ------ ----- ------
Net income for common
stockholders........... $40,415 17,507 27,402 9,907 4,994 5,101 895 1,245
======= ====== ====== ====== ====== ====== ===== ======
Earnings per share
(EPS):
Basic................. $ 1.45 .89 1.28 0.82 0.75 0.80 0.14 N/A
Diluted............... 1.42 .87 1.23 0.82 0.75 0.80 0.14 N/A
Distributions per common
share.................. 1.32 1.26 1.68 1.62 1.58 1.50 -- --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
REGENCY REALTY CORPORATION
---------------------------------------------------------------
REGENCY
PROPERTIES
NINE MONTHS PERIOD PERIOD
ENDED ENDED ENDED
SEPTEMBER 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>
OTHER DATA:
Common stock
outstanding including
Class B common if
converted............ 28,479 26,226 26,967 13,590 9,704 6,455 6,333 N/A
Exchangeable
partnership units
outstanding to
minority interests... 1,307 574 574 29 -- -- -- --
Consolidated ratios of
earnings to combined
fixed charges and
preferred stock
dividends............ 2.0 2.0 2.2 1.8 1.4 1.7 N/A N/A
Company owned gross
leasable area........ 14,170 9,365 9,981 5,512 3,981 3,182 2,337 1,145
Number of properties
owned (at end of
period).............. 125 87 89 50 36 30 23 8
BALANCE SHEET DATA:
Real estate
investments at cost.. $1,177,030 789,712 834,402 393,403 279,046 217,539 152,821 N/A
Total assets.......... 1,173,037 778,650 826,849 386,524 271,005 214,082 153,653 N/A
Total debt............ 478,679 240,108 278,050 171,607 115,617 107,998 53,521 N/A
Stockholders' equity.. 552,067 498,056 513,627 206,726 147,007 101,760 97,416 N/A
<CAPTION>
</TABLE>
11
<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 nine months ended September 30, 1998 and September 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>
NINE MONTHS ENDED YEAR ENDED PERIOD
SEPTEMBER 30, DECEMBER 31, ENDED
------------------- ---------------- DECEMBER 31,
1998 1997 1997 1996 1995
---------- ------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues............ $ 90,500 54,092 79,002 27,513 1,816
Management, leasing and
brokerage fees............ 46 352 392 53 11
---------- ------- ------- ------- ------
Total revenues......... 90,546 54,444 79,394 27,566 1,827
---------- ------- ------- ------- ------
Operating expenses:
Operating, maintenance and
real estate taxes......... 21,393 13,385 19,739 6,719 473
General and administrative. 6,937 4,767 6,542 3,566 511
Depreciation and
amortization 17,058 10,210 14,715 5,083 350
---------- ------- ------- ------- ------
Total operating
expenses.............. 45,388 28,362 40,996 15,368 1,334
---------- ------- ------- ------- ------
Interest expense net of
income...................... 11,013 7,580 11,187 2,134 98
Income before minority
interests................... 34,145 18,502 27,211 10,064 395
Minority interests of
redeemable operating
partnership units........... 606 354 491 193 --
Minority interest of
development subsidiary...... (28) -- (1) -- --
---------- ------- ------- ------- ------
Net income................... 33,567 18,148 26,721 9,871 395
Preferred share dividends.... 1,764 1,646 2,195 1,177 112
---------- ------- ------- ------- ------
Net income for common
shareholders................ $ 31,803 16,502 24,526 8,694 283
========== ======= ======= ======= ======
Earnings per share (EPS):
Basic...................... $ 0.50 0.44 0.61 0.54 0.18
Diluted.................... $ 0.49 0.44 0.61 0.54 0.18
Distributions per common
share....................... $ 0.58 0.54 0.72 0.62 0.11
OTHER DATA:
Common stock outstanding... 64,059 44,367 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............. 8,085 6,164 6,806 3,718 798
Number of properties owned
at end of period.......... 71 48 56 29 6
BALANCE SHEET DATA:
Real estate investments.... $1,080,740 748,649 851,458 380,070 63,790
Total assets............... $1,073,637 750,237 857,244 400,176 68,452
Total debt................. $ 328,159 248,399 118,114 122,636 3,478
Minority interest.......... $ 19,346 7,650 7,681 7,710 --
Shareholders' equity....... $ 726,131 494,188 731,450 269,830 64,975
</TABLE>
12
<PAGE>
REGENCY PRO FORMA SUMMARY FINANCIAL DATA
The following table sets forth unaudited pro forma condensed financial
information as of and for the nine months ended September 30, 1998 and the year
ended December 31, 1997 (amounts in thousands except per share data and
property data), giving effect, where appropriate, to (1) the acquisition of
certain properties and (2) the merger. 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 and pro
forma 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>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 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....... $103,300 96,100 199,400 131,648 119,995 251,643
Management, leasing
and brokerage fees... 8,023 45 8,068 9,057 -- 9,057
Equity in income of
real estate
partnership
investments.......... 511 -- 511 33 -- 33
-------- ------ ------- ------- ------- -------
Total revenues...... 111,834 96,145 207,979 140,738 119,995 260,733
Operating expenses:
Operating, maintenance
and real estate
taxes................ 23,922 22,710 46,632 30,273 28,779 59,052
General and
administrative....... 11,125 7,099 18,224 12,813 7,790 20,603
Depreciation and
amortization......... 19,705 18,074 38,688 24,270 21,069 46,551
-------- ------ ------- ------- ------- -------
Total operating
expenses........... 54,752 47,883 103,544 67,356 57,638 126,206
Interest expense net of
income................. 19,374 14,635 34,009 37,095 35,061 72,156
-------- ------ ------- ------- ------- -------
Income before minority
interests.............. 37,708 33,627 70,426 36,287 27,296 62,371
Minority interest of
partnership units...... (6,449) (427) (6,867) (8,244) (430) (8,662)
Other non-recurring
income, net............ 1,401 -- 1,401 -- -- --
-------- ------ ------- ------- ------- -------
Net income.............. 32,660 33,200 64,960 28,043 26,866 53,709
Preferred stock
dividends.............. -- (1,764) (1,764) -- (2,195) (2,195)
-------- ------ ------- ------- ------- -------
Net income for common
stockholders........... $ 32,660 31,436 63,196 28,043 24,671 51,514
======== ====== ======= ======= ======= =======
Earnings per share
(EPS):
Basic................. $ 1.14 0.49 1.06 1.31 0.61 1.26
Diluted............... 1.13 0.48 1.04 1.22 0.60 1.21
Distributions per common
share.................. 1.32 0.58 1.32 1.68 0.72 1.68
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 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>
OTHER DATA:
Common stock
outstanding including
Class B common and
Series 2 preferred if
converted............ 28,479 67,189 60,730 26,967 67,153 N/A
Exchangeable
partnership units
outstanding to
minority interests... 1,307 1,641 2,095 574 765 N/A
Consolidated ratios of
earnings to combined
fixed charges and
preferred stock
dividends............ 2.1 2.5 2.3 1.7 1.5 1.6
Company owned gross
leasable area........ 14,170 8,085 22,255 9,981 6,806 16,787
Number of properties
owned (at end of
period).............. 125 71 196 89 56 145
BALANCE SHEET DATA:
Real estate
investments ......... $1,196,230 1,080,740 2,289,528 N/A N/A N/A
Total assets.......... 1,192,237 1,073,637 2,291,028 N/A N/A N/A
Total debt............ 497,879 308,563 806,442 N/A N/A N/A
Stockholders' equity.. 552,067 726,132 1,304,326 N/A N/A N/A
</TABLE>
14
<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>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 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............ $ 1.45 .50 1.28 .61 .82 .54 .75 .18
Pro forma prior to
merger(1)............ 1.14 .48 1.31 .61 -- -- -- --
Combined pro forma.... 1.06 -- 1.26 -- -- -- -- --
0.48 combined pro
forma................ -- .51 -- .60 -- -- -- --
Diluted:
Historical............ 1.42 .49 1.23 .61 .82 .54 .75 .18
Pro forma prior to
merger(1)............ 1.13 .48 1.22 .60 -- -- -- --
Combined pro forma.... 1.04 -- 1.21 -- -- -- -- --
0.48 combined pro
forma................ -- .50 -- .58 -- -- -- --
Distributions per common
share:
Historical............ 1.32 .58 1.68 .72 1.62 .62 1.58 .11
Combined pro forma.... 1.32 -- 1.68 -- -- -- -- --
0.48 combined pro
forma................ -- .63 -- .81 -- -- -- --
Book value per common
share (at end of
period):
Historical............ 21.65 10.85 21.41 10.94 19.47 9.96 21.84 9.94
Pro forma prior to
merger(1)............ 21.65 10.85 -- -- -- -- -- --
Combined pro forma.... 22.56 -- -- -- -- -- -- --
0.48 combined pro
forma................ -- 10.83 -- -- -- -- -- --
</TABLE>
- -------
(1)Reflects the pro forma effect of acquisitions by Regency and Pacific Retail
as described on pages FS-2 and FS-8.
15
<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.
16
<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) and will be provided by first class mail within one business
day of receipt of such request. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, YOU MUST REQUEST THE INFORMATION BY , 1999.
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 Quarterly Report on Form 10-Q for the quarter ended September
30, 1998;
(e) 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;
(f) Regency's Current Report on Form 8-K dated January 14, 1998 and filed
July 20, 1998;
(g) Regency's Current Report on Form 8-K dated and filed September 24,
1998;
(h) Regency's Current Report on Form 8-K dated and filed October 7, 1998;
and
(i) 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.
17
<PAGE>
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
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 the date 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.
18
<PAGE>
RISK FACTORS
You should consider carefully the factors set forth below in evaluating the
merger, which describe the material risks of completing the merger and
exchanging interests in Pacific Retail for interests in Regency.
RISK FACTORS RELATING TO THE MERGER
MERGER CONSIDERATION IS FIXED AND WILL NOT REFLECT A CHANGE IN STOCK VALUE AT
CLOSING
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. For example, if the market price of Regency
common stock decreases, Pacific Retail shareholders will not receive additional
consideration at closing to compensate for this decrease. Likewise, even if the
value of Pacific Retail declines, Regency will issue the same number of shares
at closing. 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.
FAIRNESS OPINIONS WILL NOT BE UPDATED
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 COULD INFLUENCE FAIRNESS OF MERGER
J 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, the parties may have had an
incentive to structure the merger in a manner that would favor
SC-USRealty's larger investment in Pacific Retail in order to induce SC-
USRealty to vote for the merger. If the parties structured the merger in
this manner, the result would have been an exchange ratio that
attributes a higher value to Pacific Retail, to the detriment of
Regency's public shareholders.
J 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. As a result, such officers and trustees may have
an incentive to pursue the merger even if the merger were not in the
best interest of all Pacific Retail shareholders.
. 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. Regency
anticipates granting options to Ms. Rogers following the merger but
has not yet determined the number to be granted.
. 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.
19
<PAGE>
. Messrs. Schweitzer, Worrell, Cozad, Alberts and Kelley, each
trustees of Pacific Retail, will become directors of Regency after
the merger and will be granted options to acquire 2,000 shares each
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.
SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
The merger may not be completed. If the merger is not completed, Regency and
Pacific Retail will have incurred substantial expenses. If a party receives a
proposal for a better deal and its board withdraws its recommendation as a
result, the party terminating the merger agreement will be required to pay the
other party a $20 million termination fee. In addition, if a party receives an
alternative proposal that leads the other party to terminate the agreement, the
recipient must pay a $20 million termination fee if it signs a letter of intent
or agrees to an alternative proposal within one year after termination. See
"The Merger Agreement--Termination Amount."
SHAREHOLDERS OF REGENCY HAVE DIFFERENT RIGHTS THAN SHAREHOLDERS OF PACIFIC
RETAIL
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 Regency may differ materially and
adversely from the rights of shareholders of Pacific Retail. For example the
Regency bylaws contain deadlines for delivery of any shareholder nomination or
proposal for action at a shareholder meeting. See "Comparison of Shareholder
Rights--Shareholder Nominations and Proposals." This deadline may prevent
shareholders from making director nominations and other shareholder proposals
if the shareholder does not meet the appropriate deadline.
In addition, Regency's board, unlike Pacific Retail's board, is divided into
three classes of directors. The terms of the classes expire in 1999, 2000 and
2001, respectively. As the term of each class expires, directors for that class
will be elected for a three-year term and the directors in the other two
classes will continue in office. The staggered terms for directors may delay or
defer the shareholders' ability to change control of Regency without the
consent of its board of directors, even if a majority of the shareholders
believe a change of control transaction is in their interest, including
transactions in which the shareholders might receive a premium for their
shares. See "Comparison of Shareholder Rights--Classified Board of Directors."
RISK FACTORS RELATING TO OWNERSHIP OF REGENCY COMMON STOCK
PRINCIPAL SHAREHOLDER'S OWNERSHIP POSITION WILL MAKE CHANGE OF CONTROL
EXTREMELY UNLIKELY
As of September 23, 1998, SC-USRealty beneficially owned 46.0% of the
outstanding Regency common stock, or 37.5% on a fully diluted basis, and 69.9%
of the outstanding Pacific Retail voting shares. As a result, SC-USRealty
currently controls approximately 46.0% of the Regency vote and 69.9% of the
Pacific Retail vote on the merger. If the merger is consummated, SC-USRealty
will own approximately 59.4% of the outstanding Regency stock, or 52.3% on a
fully diluted basis.
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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. 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 majority ownership position and influence on the board will make
a change of control of Regency extremely unlikely without SC-USRealty's
concurrence. If the standstill ends, SC-
USRealty would be able to freely vote all of its shares of Regency common stock
and so long as it maintains its majority position to elect all the directors on
Regency's board. 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.
SC-USREALTY CONTRACTUAL LIMITATIONS MAY ADVERSELY AFFECT OPERATIONS
Regency has agreed with SC-USRealty to certain limitations on Regency's
operations, including restrictions relating to:
. incurrence of total indebtedness exceeding 60% of the gross book value
of Regency's consolidated assets,
. investments in properties other than certain shopping centers,
. the amount of assets that it owns indirectly through other entities,
. the amount of assets managed by third parties,
. the amount of passive income produced by Regency, and
. entering into joint ventures or similar arrangements.
These restrictions, which are intended to permit SC-USRealty to comply with
certain requirements of the Internal Revenue Code, and other countries' tax
laws applicable to foreign investors, limit somewhat Regency's flexibility to
structure transactions that might otherwise be advantageous to Regency.
Although Regency does not believe that the limitations imposed on its
activities will materially impair its ability to conduct its business, there
can be no assurance that those limitations will not adversely affect Regency's
operations in the future.
SALES OF REGENCY STOCK BY SC-USREALTY MAY ADVERSELY AFFECT STOCK PRICE
So long as SC-USRealty owns more than 15% of Regency's common stock on a fully
diluted basis, SC-USRealty may not dispose of its Regency shares except:
. to certain affiliates or financial institutional pledgees,
. in transactions that meet the volume limitations and other requirements
of Rule 144 under the Securities Act of 1933,
. in registered public offerings, or
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. in privately negotiated transactions, which must be approved by Regency,
in its sole discretion, where a private sale would result in the
transferee holding more than 9.8% of Regency's common stock.
Public sales by SC-USRealty of large amounts of Regency common stock could
adversely affect the market price of the stock.
PROHIBITIONS ON INVESTMENT BY NON-U.S. INVESTORS LIMITS SALE OF SHARES
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.
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 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 will no longer qualify as a domestically
controlled REIT for U.S. federal income tax purposes, and any sale or exchange
of Regency's capital stock by a non-U.S. person during the period beginning on
the closing date and ending five years after Regency has continually qualified
as a domestically controlled REIT could be subject to taxation under the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). For a detailed
discussion regarding FIRPTA, see "The Merger--Material Federal Income Tax
Consequences--Tax Treatment of Non-U.S. Holders."
The Regency Articles Amendment prohibits the transfer by any person other than
SC-USRealty and certain related parties of Regency capital stock that will
result in such stock being owned directly or indirectly by non-U.S. persons
other than SC-USRealty and such related parties 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 and such related parties) 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.
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."
Regency's failure to qualify as a domestically controlled REIT is not expected
to have an adverse effect on any current shareholder other than SC-USRealty.
However, the transfer restrictions
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summarized above will limit Regency's ability to raise capital from non-U.S.
persons and also will limit the ability of shareholders other than SC-USRealty
to transfer their shares to foreign persons.
SIGNIFICANT OWNERSHIP BY ANOTHER INSTITUTIONAL INVESTOR
Opportunity Capital Partners Limited Partnership together with Opportunity
Capital Partnership II will have beneficial ownership of 3,931,386 shares of
Regency voting stock upon completion of the merger, or 6.8% of the shares
outstanding, including the 1,502,532 shares of Regency preferred stock that
they will receive in the merger. The investments of Opportunity Capital
Partners Limited Partnerships, which are investment partnerships with a pension
plan, are directed by their general partner, Opportunity Capital Corporation,
which is a wholly-owned subsidiary of LaSalle Advisors Limited. LaSalle
Advisors Limited also is the beneficial owner, on behalf of unrelated clients,
of Regency's Class B Common Stock and 172,100 shares of Regency common stock.
The Class B Common Stock will become convertible as a result of the merger into
2,975,468 shares of Regency common stock. As a result of the merger, LaSalle
Advisors Limited will have voting and investment control over approximately
11.7% of Regency's common stock.
LOSS OF REVENUES FROM MAJOR TENANT COULD REDUCE FUTURE CASH FLOW OF REGENCY
Regency derives significant revenues from anchor tenants such as Kroger or
Publix that occupy more than one center. Kroger and Publix accounted for 3.0%
and 7.7%, respectively, of Regency's rental revenues for the year ended
December 31, 1997 and 8.8% and 7.1%, respectively, for the nine months ended
September 30, 1998. Regency could be adversely affected by the loss of revenues
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 revenues generated by 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.
REGENCY COULD BE ADVERSELY AFFECTED BY POOR MARKET CONDITIONS WHERE PROPERTIES
ARE GEOGRAPHICALLY CONCENTRATED
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.
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RAPID GROWTH THROUGH ACQUISITIONS PLACES STRAIN ON REGENCY'S RESOURCES
Regency has pursued extensive growth opportunities. Regency invested $395.7
million in acquisitions during 1997 and has invested an additional $317.2
million as of September 30, 1998. This expansion has placed significant demands
on its operational, administrative and financial resources. At the time of its
initial public offering in 1993, Regency had 102 employees and assets of $150
million. However, as of December 31, 1997, Regency had 360 employees, an
increase of 350%, and assets of $827 million, an increase of 550%.
In addition, the acquisition of properties using borrowed funds increases
Regency's ratio of total indebtedness to total assets at cost, although Regency
has historically maintained a ratio of less than 50% in accordance with its
internal policy. As of September 30, 1998, the ratio of Regency's total debt to
total assets was 40.8%. You can expect the growth of Regency's real estate
portfolio, including growth by reason of the merger, to continue to place a
significant strain on Regency's operational, administrative and financial
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. Accordingly, Regency may not be able to
maintain its historic rate of growth.
PARTNERSHIP STRUCTURE MAY LIMIT FLEXIBILITY TO MANAGE REGENCY'S ASSETS
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 limited partners who contribute
properties to the partnership to defer some, if not all, of the income tax that
they would incur if they sold the property.
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 on refinancing or resale 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 by preventing it from reducing mortgage debt or selling a property when
such a transaction might be in Regency's best interests in order to reduce
interest costs or dispose of an under-performing property.
UNSUCCESSFUL DEVELOPMENT ACTIVITIES COULD REDUCE CASH FLOW
Regency intends to pursue development activities as opportunities arise. Such
development activities generally require various government and other
approvals. Regency may not recover its investment in development projects for
which approvals are not received.
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 and the investment in such developments may be lost;
2. the risk that construction costs of a project may exceed original
estimates, possibly making the project unprofitable;
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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.
REGENCY FACES COMPETITION FROM NUMEROUS SOURCES
The ownership of shopping centers is highly fragmented, with less than 10%
owned by REITs. Regency faces competition from other REITs in the acquisition,
ownership and leasing of shopping centers as well as from numerous small
owners. Regency competes in the development of shopping centers with other
REITs engaged in development activities as well as with local, regional and
national real estate developers.
Regency competes in the acquisition of properties through proprietary research
that identifies opportunities in markets with high barriers to entry and
higher-than-average population growth and household income. Regency seeks to
maximize rents per square foot by establishing relationships with supermarket
chains that are first or second in their markets and leasing non-anchor space
in multiple centers to national or regional tenants. Regency competes in the
development of properties by applying its proprietary research methods to
identify development and leasing opportunities and by pre-leasing an average of
85% of a center before beginning construction.
There can be no assurance, however, that other real estate owners or developers
will not utilize similar research methods and target the same markets and
anchor tenants that Regency targets or that such entities will successfully
control these markets and tenants to the exclusion of Regency.
INCREASED MARKET INTEREST RATES COULD REDUCE 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.
LOSS OF PROPERTY MANAGEMENT CONTRACTS COULD REDUCE DISTRIBUTIONS TO
SHAREHOLDERS
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 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.
LACK OF REFINANCING MAY REDUCE REGENCY'S CASH FLOW
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
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make balloon payments when due could cause the mortgage lenders to foreclose on
the properties securing such indebtedness, which would reduce the cash flow
available for distributions to shareholders. 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, which would also reduce
Regency's cash flow.
As of September 30, 1998, 47.0% of Regency's properties were encumbered by debt
in the amount of $311.3 million. Regency also had $167.4 million of unsecured
debt outstanding as of September 30, 1998. Substantially all of Regency's debt
is cross-defaulted, but not cross-collateralized. Regency's line of credit also
imposes certain covenants which may limit Regency's flexibility in obtaining
other financing, such as limitations on floating rate debt and a prohibition on
negative pledge agreements. See "Regency--Capital Strategy."
Pacific Retail's unsecured line of credit will be consolidated with Regency's
after the merger. As of September 30, 1998, Pacific Retail had $211.5 million
outstanding under this line, together with mortgage debt of $97.1 million,
including $1.3 million of tax exempt bond financing. Substantially all of
Pacific Retail's mortgage debt is cross-defaulted, but not cross
collateralized. Regency will assume all of Pacific Retail's indebtedness upon
completion of the merger.
INCREASED INTEREST RATES MAY REDUCE REGENCY'S CASH FLOW
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 reduce cash flow and the Company's ability to
service its debt and pay expected dividends to stockholders. As of September
30, 1998, Regency had outstanding debt of $58.6 million subject to floating
interest rates, or 12.2% of its total indebtedness as of that date. Regency was
a party to interest rate swap agreements with respect to $1.9 million of this
floating rate debt, which matures on December 31, 1998. In the event of a
significant increase in interest rates, Regency would consider entering into
interest rate swap or cap agreements with respect to all or a portion of its
remaining floating rate debt. Additionally, Regency is prohibited by the terms
of its unsecured line of credit from incurring other floating rate debt in
excess of 25% of the gross asset value of its assets unless it obtains interest
rate swaps, caps or collars which prevent the effective interest rate on the
portion of such other debt in excess of 25% from increasing above 9% per year.
Although swap agreements would enable Regency to convert floating rate
liabilities to fixed rate liabilities and cap agreements would enable Regency
to cap its maximum interest rate, they would expose Regency to the risk that
the counterparties to such hedge agreements may not perform, which could
increase Regency's exposure to rising interest rates. Generally, however, the
counterparties to hedging agreements that Regency would enter into would be
major financial institutions. If Regency enters into any swap agreements in the
future, decreases in interest rates thereafter would increase Regency's
interest expense as compared to the underlying floating rate debt and could
result in Regency's making payments to unwind such agreements, such as in
connection with a prepayment of the floating rate debt. Cap agreements would
not protect Regency from increases up to the capped rate.
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COSTS OF ENVIRONMENTAL REMEDIATION COULD REDUCE DISTRIBUTIONS TO SHAREHOLDERS
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.
Regency has approximately 31 properties and Pacific Retail has approximately 8
properties that will require or are currently undergoing varying levels of
environmental remediation. These remediations are not expected to have a
material financial effect on the combined company due to financial statement
reserves and various state-regulated programs that shift the responsibility and
cost for remediation to the state.
REGENCY'S SHAREHOLDERS WILL ACQUIRE UNSEASONED PACIFIC RETAIL PORTFOLIO
Pacific Retail acquired 25 of its 67 properties in 1997 for $440.1 million.
Additionally, as of September 30, 1998, 73.73% of Pacific Retail's properties
had been owned for less than one year, or if owned for more than one year, had
not reached 93% occupancy. Accordingly, after the merger, Regency's
shareholders will participate in the risks of absorbing a relatively new
portfolio with a significant number of properties that have not yet achieved
full occupancy.
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REGENCY
Regency acquires, owns, develops and manages neighborhood shopping centers in
targeted infill markets in the eastern half of the United States. As of
September 30, 1998, Regency owned, directly or indirectly, 125 properties,
containing approximately 14.2 million square feet of gross leasable area
("GLA"). As of September 30, 1998, Regency had an investment in real estate of
approximately $1.1 billion.
As of September 30, 1998, approximately 60% of Regency's 14.2 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
September 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,
. an average remaining grocery-anchor lease term of 13 years, and
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. 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 September 30, 1998, 88
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
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to closing. Property 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 $317.2 million through September 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. Upon identifying an acquisition target, Regency utilizes
expertise from all of its functional
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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.
As of September 30, 1998, 47.0% of Regency's properties were encumbered by debt
in the amount of $311.3 million. Regency also has $167.4 million of unsecured
debt outstanding as of September 30, 1998. Substantially all of Regency's debt
is cross-defaulted, but not cross-collateralized. Pursuant to Regency's $300
million unsecured line of credit, Regency is required to comply with certain
financial and other covenants customary with this type of unsecured financing.
These financial covenants include (i) maintenance of minimum net worth, (ii)
ratio of total liabilities to gross asset value, (iii) ratio of secured
indebtedness to gross asset value, (iv) ratio of EBITDA to interest expense,
(v) ratio of EBITDA to debt service and reserve for replacements, and (vi)
ratio of unencumbered net operating income to interest expense on unsecured
indebtedness. In addition, Regency may not enter into a negative pledge
agreement with another lender and may not incur other floating rate debt in
excess of 25% of gross asset value without interest rate protection. The line
is used primarily to finance the acquisition and development of real estate,
but is available for general working capital purposes.
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 utilization by Regency Centers,
L.P. 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.
31
<PAGE>
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 September 30, 1998, Pacific Retail's operating properties contained 7.5
million square feet of GLA and were 96.1% leased. 65 of the properties are
neighborhood infill shopping centers, of which 55 are grocery anchored and 29
are drug store anchored. The properties are located primarily in California
(42.3% of GLA), Texas (30.8% of GLA), Arizona-Colorado (9.8% of GLA) and
Washington-Oregon (17.1% of GLA). As of September 30, 1998, there were two
revenue generating properties, one in Texas and one in California, that were
classified as redevelopments and are not included as operating properties.
These properties contain a total of 536,209 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.
32
<PAGE>
PROPERTIES
The following table provides an overview of Pacific Retail's operating property
portfolio by market as of September 30, 1998. No individual property, or group
of properties operated as a single 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 3.1 $ 25,461,415 2.5 91.5 89.9 2
San Francisco Bay Area.. 1,023,576 13.6 167,170,260 16.6 96.9 93.6 11
Los Angeles County Area. 669,079 8.9 82,317,025 8.2 97.2 95.8 7
Orange County Area...... 641,783 8.5 93,918,459 9.3 96.3 92.5 5
San Diego County Area... 610,356 8.1 107,579,358 10.7 99.1 98.5 4
Seattle Area............ 762,560 10.1 103,444,235 10.3 97.0 96.6 8
Portland Area........... 530,125 7.0 72,975,487 7.3 90.7 90.7 5
Dallas/Ft. Worth Area... 1,948,534 25.8 222,380,475 22.1 94.3 92.6 14
Houston Area............ 114,416 1.5 11,160,659 1.1 97.0 97.0 1
Austin Area............. 266,763 3.5 34,701,138 3.5 99.6 97.9 2
Denver Area............. 417,862 5.5 44,028,140 4.4 99.4 99.4 4
Phoenix Area............ 326,984 4.3 40,504,962 4.0 99.0 97.8 2
--------- ----- -------------- ----- ---- ---- ---
Total Operating
Portfolio.............. 7,548,367 100.0% $1,005,641,613 100.0% 96.1% 94.5% 65
========= ===== ============== ===== ==== ==== ===
</TABLE>
- --------
Note: A significant portion (73.73%) 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.
33
<PAGE>
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............................................................... 94.5%
</TABLE>
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.
34
<PAGE>
Tenant Lease Expirations and Renewals
The following table sets forth, for leases in place as of September 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...... 96 196,681 $ 2,901,653 $14.75 2.71%
1999...... 229 420,350 $ 7,360,502 $17.51 5.79%
2000...... 293 770,290 $13,249,944 $17.20 10.62%
2001...... 283 689,840 $10,783,318 $15.63 9.51%
2002...... 226 654,335 $ 9,874,166 $15.09 9.02%
2003...... 254 749,947 $11,129,838 $14.84 10.34%
2004...... 54 303,827 $ 4,158,441 $13.69 4.19%
2005...... 49 331,064 $ 4,179,340 $12.62 4.56%
2006...... 54 360,638 $ 5,641,761 $15.64 4.97%
2007...... 46 381,314 $ 4,225,126 $11.08 5.26%
</TABLE>
35
<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 nine months ended September 30, 1998 and September 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>
NINE MONTHS PERIOD
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------- ---------------- ------------
1998 1997 1997 1996 1995
---------- ------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenues............ $ 90,500 54,092 79,002 27,513 1,816
Management, leasing and
brokerage fees............ 46 352 392 53 11
---------- ------- ------- ------- ------
Total revenues......... 90,546 54,444 79,394 27,566 1,827
---------- ------- ------- ------- ------
Operating expenses:
Operating, maintenance and
real estate taxes......... 21,393 13,385 19,739 6,719 473
General and administrative. 6,937 4,767 6,542 3,566 511
Depreciation and
amortization 17,058 10,210 14,715 5,083 350
---------- ------- ------- ------- ------
Total operating
expenses.............. 45,388 28,362 40,996 15,368 1,334
---------- ------- ------- ------- ------
Interest expense net of
income..................... 11,013 7,580 11,187 2,134 98
Income before minority
interests.................. 34,145 18,502 27,211 10,064 395
Minority interests of
redeemable operating
partnership units.......... 606 354 491 193 --
Minority interest of
development subsidiary..... (28) -- (1) -- --
---------- ------- ------- ------- ------
Net income.................. 33,567 18,148 26,721 9,871 395
Preferred share dividends... 1,764 1,646 2,195 1,177 112
---------- ------- ------- ------- ------
Net income for common
shareholders............... $ 31,803 16,502 24,526 8,694 283
========== ======= ======= ======= ======
Earnings per share (EPS):
Basic...................... $ 0.50 0.44 0.61 0.54 0.18
Diluted.................... $ 0.49 0.44 0.61 0.54 0.18
Distributions per common
share....................... $ 0.58 0.54 0.72 0.62 0.11
OTHER DATA:
Common stock outstanding.... 64,059 44,367 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....................... 8,085 6,164 6,806 3,718 798
Number of properties owned
at end of period........... 71 48 56 29 6
BALANCE SHEET DATA:
Real estate investments..... $1,080,740 748,649 851,458 380,070 63,790
Total assets................ $1,073,637 750,237 857,244 400,176 68,452
Total debt.................. $ 328,159 248,399 118,114 122,636 3,478
Minority interest........... $ 19,346 7,650 7,681 7,710 --
Shareholders' equity........ $ 726,131 494,188 731,450 269,830 64,975
</TABLE>
36
<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"). Future Factors
include: (i) changes in general economic conditions in its target markets 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 development 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 nine-month period ended September 30, 1998 were $33.6
million ($0.50 per share) as compared to $18.1 million ($0.44 per share) for
the same period in 1997. As of September 30, 1998, Pacific Retail had 65
operating properties as compared to 47 operating properties in the first three
quarters of 1997. The increase in operating properties resulted in increases in
rental revenues ($36.1 million), rental expenses ($4.9 million), real estate
taxes ($3.1 million) and depreciation ($6.8 million) in the nine-month period
ended September 30, 1998 as compared to the same period in 1997.
Interest expense in the nine-month period ended September 30, 1998 was $11.6
million as compared to $7.8 million for the nine-month period ended September
30, 1997. The increase in interest expense of $3.8 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 three quarters of 1998 was 7.03% as compared to 7.56% in the first three
quarters 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.
37
<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 Pacific Retail 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.
The application of this policy has resulted in Pacific Retail expensing
approximately $269,000 in costs which would have been capitalized through
September 30, 1998.
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. By not
recognizing contingent rent until specific targets are met Pacific Retail has
not accrued approximately $244,400 in additional income through September 30,
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
38
<PAGE>
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 (1.98%). The primary reason for the decrease in 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 $197.4 million,
$396.5 million, $297.2 million and $52.5 million of cash for the nine-month
period ended September 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 $150.7 million,
$345.6 million, $295.9 million and $53.9 million for the nine-month period
ended September 30, 1998, the years ended December 31, 1997 and 1996 and the
period ended December 31, 1995, respectively. Combined proceeds from equity
offerings of $0.07 million in the nine-month period ended September 30, 1998,
$466.0 million, net of expenses, in 1997, $206.3 million in 1996, and $54.0
million in 1995 were the
39
<PAGE>
primary source of financing funds. Proceeds from line of credit borrowings, net
of repayments, were $197.9 million in the nine-month period ended September 30,
1998, $74.4 million in 1996 and $0.6 million in 1995. For the year ended
December 31, 1997, net repayments exceeded borrowings by $61.4 million.
First Three Quarters of 1998 Investing and Financing Activities. During the
three quarters of 1998, Pacific Retail's additional investment in real estate
aggregated $197.4 million, primarily as a result of 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 8.3 million
square feet at September 30, 1998 (7.5 million square feet of GLA of operating
properties and 0.8 million square feet of GLA of properties under construction
and in planning). The additional investment during the first three quarters 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 September 30, 1998, Pacific Retail had $77.1 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.
40
<PAGE>
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.
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 7.11% 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 nine months ended September 30, 1998 and the period from March 28, 1997 to
December 31, 1997 were 7.01% and 7.7% respectively. There were no borrowings
outstanding under the unsecured line of credit at December 31, 1997. The
outstanding borrowings at September 30, 1998 were $211.5 million and the
interest rate was 6.87%.
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.
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Mortgage Debt. At September 30, 1998, Pacific Retail had approximately $95.7
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 8.8% and an average maturity of 7.86
years, thus providing Pacific Retail with favorable and conservative financial
leverage on the investment in the properties associated with such debt.
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, on
June 30, 1998 Pacific Retail paid a quarterly distribution of $0.1925 per share
for shares outstanding throughout the second quarter and on September 30, 1998
Pacific Retail paid a quarterly distribution of $0.1925 per share for shares
outstanding throughout the third quarter. The distributions paid in total
aggregated approximately $38.7 million for the first three quarters of 1998.
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 $49.1 million and $26.9 million for the nine-month
periods ended September 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
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December 31, 1995, respectively. The aggregate increases corresponded with the
increased number of properties in operation in each year.
For the nine-month periods ended September 30, 1998 and 1997, operating cash
flow was $42.7 million and $42.1 million, respectively, while financing
activities provided $150.7 million and $252.7 million, respectively, in
additional cash. Acquisition activities for the same periods used $197.4
million and $293.7 million, respectively, resulting in a net cash decrease of
$4.1 million and a net cash increase of $1.1 million for the nine-month periods
ended September 30, 1998 and 1997, respectively. For the years ended December
31, 1997 and 1996 and the period ended December 31, 1995, operating cash flow
was $53.4 million, $0.5 million and $1.4 million, respectively, while financing
activities provided an additional $345.6 million, $295.8 million and $53.9
million, respectively. Acquisition activities for the same periods used $396.5
million, $297.2 million and $52.5 million, respectively, resulting in a net
cash increase of $2.5 million, a net cash decrease of $0.9 million and a net
cash increase of $2.8 million for the years ended December 31, 1997 and 1996
and the period ended December 31, 1995.
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 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, remerchandising 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;
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. 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 45%; 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.
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 45%. 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
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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 August 1995, Pacific Retail has closed on over $1.0 billion of
acquisitions and has expanded its management team in California and the Pacific
Northwest. Acquisitions in 1997 totaled $453.7 million. As of September 30,
1998, Pacific Retail owned 65 neighborhood infill shopping centers containing
approximately 7.5 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 September 30, 1998, the operating properties
owned by Pacific Retail were 96.1% leased. As of September 30, 1998, Pacific
Retail employed approximately 131 people.
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
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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.
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.
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.
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For federal income tax purposes, distributions may consist of ordinary income,
capital gains, non-taxable return of capital or a combination thereof.
Distributions that exceed Pacific Retail's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather
than a dividend and reduce the shareholder's basis in the common shares. To the
extent that a distribution exceeds both current and accumulated earnings and
profits and the shareholder's basis in the Pacific Retail common shares, it
will generally be treated as gain from the sale or exchange of that
shareholder's Pacific Retail common shares. Pacific Retail annually notifies
shareholders of the taxability of distributions paid during the preceding year.
The following summarizes the taxability of distributions paid in 1995, 1996 and
1997 on the common shares:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Per Common Share:
Ordinary Income............................................ 0.673 0.576 0.058
Capital Gains.............................................. 0.000 0.000 0.000
Return of Capital.......................................... 0.045 0.046 0.051
------ ----- -----
Total.................................................... $0.719 0.622 0.110
</TABLE>
Under federal income tax rules, Pacific Retail's earnings and profits are first
allocated to its preferred shares, which increases the portion of the Pacific
Retail common shares distribution classified as return of capital. The portion
of distributions characterized as return of capital results primarily from the
excess of distributions over earnings primarily because non-cash charges such
as depreciation are added to earnings in determining distribution levels.
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 280 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 grocery-anchored infill retail centers throughout
the U.S.;
. 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 which can be expanded on a national basis;
. ""preferred customer" initiatives with top retailer shop space
tenants to create multiple leasing opportunities throughout the U.S.
beyond each company's current regional focus;
. operating and financial efficiencies of over $5 million annually by
the year 2000, primarily from:
. more favorable access to debt and equity markets because of size
and geographic diversification;
. cost savings by reducing common overhead; 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.
. 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 59.4% of the outstanding Regency common stock (52.3% on
a fully diluted basis) as a result of the merger. A change in control
without SC-USRealty's concurrence will be impossible after the
merger. Additionally, public sales by SC-USRealty of Regency common
stock after the merger could adversely affect the market price of the
stock due to the large number of shares that SC-USRealty will hold.
. The size of the transaction may make rapid integration of Regency and
Pacific Retail more difficult.
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. 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.
The potential benefits and detriments may affect the value of shares in the
combined company and should therefore be considered in voting for or against
the merger.
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) with 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 share of Regency common
stock, and
. each issued and outstanding Pacific Retail preferred share will be
converted into the right to receive 0.48 share 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 REIT qualification purposes. Regency and SC-USRealty are
negotiating the terms of the merger of these two
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subsidiaries. The consideration to be received by the shareholders of PRT
Development Corporation will depend 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, but
which Regency anticipates will be less than $1 million. 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 did not permit it to own a material amount of assets in those states.
See "The Merger--Amendment to Stockholders Agreement". 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
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
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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. Although Regency considered a
number of other potential candidates for a business combination, no offers were
made or received.
Regency decided to explore a transaction with Pacific Retail as the closing of
the Midland transaction began to approach which would expand its presence in
the Midwest. Regency management believed that the next logical step was to
broaden Regency's base to the West Coast in order to become a national rather
than regional REIT.
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
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on the recommendation of the committee chairman. The Regency Special Committee
also 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 by 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 (1) the net
asset value of Pacific Retail's retail centers in protected, high growth
Western markets, (2) Pacific Retail's low leverage, and (3) the 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 expectations
concerning 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.
Discussions of the transaction focused on a stock-for-stock merger due to the
high transaction costs of transferring assets, including real estate transfer
costs in many states. As due diligence took place during the course of
negotiations, Regency's management became increasingly comfortable that the
risk of assumed liabilities in a merger was outweighed by the time and expense
that would be required in an asset acquisition.
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.
The Pacific Retail Special Committee did not seek any business combination
proposals from third parties. However, the committee discussed with management
and Goldman Sachs whether they were aware, based on their knowledge of the
industry, of other companies with whom Pacific Retail might enter into a
business combination and achieve the same or better benefits to Pacific
Retail's shareholders as those achievable in the proposed merger with Regency.
Those discussions did not reveal any other potential business combination
partner that the committee believed would offer the same or better benefits as
the proposed merger with Regency.
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
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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 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 on 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 share of Regency common stock for each Pacific Retail common
share. Because Pacific Retail is a privately held company, it was not possible
to negotiate the exchange ratio based on the relative trading prices of Regency
and Pacific Retail common stock. Pacific Retail had sold shares to investors in
a private transaction in December 1997 at a price of $13 per share and
initially sought an exchange ratio that would value Pacific Retail common
shares at no less than such amount. Regency believed that this methodology was
unfair to Regency's shareholders because as a private REIT, Pacific Retail had
not faced the general share price decline experienced since December 1997 by
public REITs, including Regency.
Accordingly, the exchange ratio ultimately was negotiated based on the relative
contributions that both companies are expected to make to the combined company,
using several different measures. As
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discussed in greater detail below under "--Opinion of Regency's Financial
Advisor" and "--Opinion of Pacific Retail's Financial Advisor," based on
relative anticipated contributions to funds from operations of the combined
company for 1998, 1999 and 2000, the exchange ratio would range from 0.45 to
0.48 share of Regency common stock for each Pacific Retail common share. Based
on relative net asset values as of June 30, 1998, the exchange ratio would be
0.50. The parties considered various exchange ratios in this range and after
completion of the due diligence process and lengthy negotiations, the parties
agreed to an exchange ratio of 0.48 of a share of Regency common stock for each
share of Pacific Retail common stock.
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 share 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 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
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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, with SC-USRealty representatives
abstaining, 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. A national presence is expected to provide the
development, leasing and capital markets advantages described below.
(2) Having a national presence will allow the combined entity to offer
development opportunities outside each company's own regional markets
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 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 an 8.75% 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. Based on Pacific Retail's balance sheet at
September 30, 1998, 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.
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(7) 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.
(8) 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.
(9) 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 Retail been a public company
and the Pacific Retail common shares suffered the same decline in
trading price 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 52.3% 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. Despite the standstill, SC-USRealty may exercise
substantial influence over Regency's affairs. See "Risk Factors--
Principal Shareholder's Ownership Position Will Make Change of Control
Extremely Unlikely." Events that will cause a termination of the
standstill include:
(i) the acquisition by any person or group of the beneficial ownership
of more than 9.8% of Regency's voting power (subject to certain
exceptions and excluding the acquisition by LaSalle Advisors Limited
of Regency common stock in the merger); (ii) any person or group
having, or having the power to elect, at least as many directors on
the Regency Board as SC-USRealty; (iii) a material default by Regency
under any indebtedness;
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(iv) the authorization by the Regency Board (with the nominees of SC-
USRealty abstaining or voting against) any business combination or
change of control excluding transactions in which Regency is the
surviving corporation and the businesses or assets so acquired would
reasonably not be expected to have a value greater than 50% of
Regency's assets; (v) the submission by any person or group to the
Regency Board of a proposal relating to a change of control or
business combination unless the Regency Board determines as soon as
practicable that such proposal is not in the best interest of
Regency's shareholders; or (vi) the removal of any rights plan or
certain amendments to Regency's Articles which may make an
unsolicited change of control more difficult.
The term of the standstill will expire on September 10, 2001, or any
subsequent anniversary date, if SC-USRealty gives at least 270 days
prior notice of non-renewal.
(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.
Based on the factors outlined above, the Board determined that the merger
price was fair to Regency's shareholders from a financial point of view and
that the merger is in the best interests of Regency's shareholders. The
positive factors outlined above are expected to translate into greater growth
in funds from operations per share than Regency would achieve independently,
for the following reasons. Having a national presence in high growth markets
will enable the combined company to increase revenues through development and
leasing opportunities with national tenants that would not be available to
Regency as a regional REIT. Greater size and geographic diversification are
expected to translate into access to the debt and equity markets on more
favorable terms, resulting in reduced borrowing costs and a higher share
multiple. Additionally, the combined company is expected to achieve cost
savings through the elimination of duplicate overhead.
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
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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 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;
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. 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,
. 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.
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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 of Regency and Pacific
Retail. In addition, Prudential Securities reviewed the following operating
projections for Pacific Retail supplied by Regency in connection with its
overall analysis of the merger: for the years ended 1998, 1999 and 2000
projected funds from operations (defined as net income plus depreciation and
amortization, excluding gains on sales of property, non-recurring charges, and
other extraordinary items) per share of $1.01, $1.12 and $1.24 respectively,
and for the years ended 1998, 1999 and 2000 projected adjusted funds from
operations (defined as funds from operations minus capital expenditures)
("AFFO") per share of $0.94, $1.04 and $1.16, respectively. 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") 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.
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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 FFO 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. The exchange ratio of
0.48 falls within these implied ranges, which Prudential Securities believes
supports the Prudential Securities Opinion.
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.,
(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. The
exchange ratio of 0.48 falls within these implied ranges, which Prudential
Securities believes supports the Prudential Securities Opinion.
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
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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 and 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. The exchange ratio of 0.48 falls within this implied range, which
Prudential Securities believes supports the Prudential Securities Opinion.
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 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 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 compared to the exchange ratio of
0.48, which Prudential Securities believes supports the Prudential Securities
Opinion.
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
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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. In this regard, the Pacific Retail Board of Trustees
noted that 26.7% and 47.8% of Pacific Retail's portfolio (based on cost)
were located in Texas and California, respectively. Giving effect to the
merger, 14.4% and 21.6%, respectively, of the combined company's
portfolio will be located in those states.
2. The Pacific Retail Board of Trustees believes that the combined company
will achieve an improved credit profile, reduced cost of capital and
increased access to capital, each of which the Board believes will
result in increased shareholder value.
3. Pacific Retail shareholders will receive an immediate increase of 9.7%
in their annual distribution rate. Based on Pacific Retail's current
distribution rate of $0.77 per share, Regency's current dividend of
$1.76 per share and the exchange ratio of 0.48, the holders of Pacific
Retail common shares will receive a dividend of $0.8448.
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.
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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. 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.
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. The Pacific Retail Board believed that the
potentially positive factors outweighed the potentially negative factors and
that the proposed merger was in the best interest of Pacific Retail
shareholders.
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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.
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
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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.
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
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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 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.
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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.
Goldman Sachs is familiar with Regency, having acted as (i) lead managing
underwriter of an offering of $100 million of 7 1/8% 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.
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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.
CERTAIN INFORMATION PROVIDED TO FINANCIAL ADVISORS
Regency and Pacific Retail provided certain internal forecasts and projections
to Prudential Securities and Goldman Sachs in connection with their services as
financial advisors. See "--Opinion of Regency's Financial Advisor" and "--
Opinion of Pacific Retail's Financial Advisor." Neither Regency nor Pacific
Retail makes public its internal forecasts or projections as a matter of course
with respect to their future financial performance. The projections provided to
the financial advisors were solely for the purpose of assisting such advisors
in rendering their fairness opinions. The projections set forth below have been
included in this Joint Proxy Statement and Prospectus for the limited purpose
of giving shareholders access to key financial projections reviewed by the
financial advisors for purposes of their fairness opinions. Such projections
were not prepared with a view to public disclosure or in compliance with
published guidelines of the Securities and Exchange Commission or the American
Institute of Certified Public Accountants regarding projections. The
independent auditors of Regency and Pacific Retail have not examined, compiled,
or otherwise applied procedures to the projections presented herein, and
accordingly, do not express an opinion or any form of assurance on them.
The projections involved numerous estimates and assumptions, including those
discussed below, which Regency and Pacific Retail believe are reasonable.
However, projections are necessarily subject to uncertainties, many of which
are beyond the control of management. See "Disclosure Regarding Forward-Looking
Statements." Because of such uncertainties, actual results will differ from
projections, and such differences could be material. Accordingly, shareholders
should not place undue reliance on the projections. Neither Regency nor Pacific
Retail intends to update the projections to reflect future circumstances or
events.
Regency projected FFO per share for 1999 and 2000 of $2.43 and $2.66,
respectively. Pacific Retail projected FFO per share for 1999 and 2000 of $1.12
and $1.24 per share, respectively. Based on these projections, Regency
projected FFO per share for the combined company for 1999 and 2000 of $2.45 and
$2.72, or per share accretion in 1999 and 2000 of $0.021 and $0.057,
respectively.
FFO, as defined by Regency and Pacific Retail, based on the National
Association of Real Estate Investment Trusts' definition, is net income
(computed in accordance with generally accepted
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accounting principles) excluding gains or losses from debt restructuring and
sales of income producing property held for investment, plus depreciation and
amortization of real estate, and after adjustments for unconsolidated
investments in real estate partnerships and joint ventures. Adjustments for
investments in real estate partnerships are calculated to reflect FFO on the
same basis.
In making the FFO projections, Regency and Pacific Retail made certain
assumptions, including:
.revenue increases of 5% per year for both companies;
.increases in same property net operating income of 2% per year for both
companies;
. $300 million of acquisitions per year for both companies;
. new developments of $150 million and $180 million by Regency in 1999 and
2000, and $71.7 million and $148.7 million by Pacific Retail in 1999 and
2000, in each case with a stabilized capitalization rate of 10.25% for
Regency and 10.25% to 11.5% for Pacific Retail;
. the issuance of 1.8 million and 5.5 million shares of common stock or
common stock equivalents by Regency in 1999 and 2000, respectively;
. the issuance of 7.9 million and 7.1 million shares of common stock or
common stock equivalents by Pacific Retail in 1999 and 2000, respectively;
and
. the issuance of 0.7 million and 9.5 million shares of common stock or
common stock equivalents by the combined company in 1999 and 2000,
respectively.
Regency also projected general and administrative cost savings from the merger
in 1999 and 2000 of $2.3 million and $2.4 million, respectively. This
projection was based on the assumption that salaries and related expenses would
increase 5% per year and other general and administrative expenses would
increase 3% per year. The assumed savings consist primarily of the elimination
of duplicate personnel at the officer level, and non-payroll savings for office
rent and other operating expenses for such personnel.
Projected cost savings from the merger also include $2.7 million and $5.0
million in 1999 and 2000, respectively, from lower costs of debt and equity
capital. These projected cost savings are based primarily on Pacific Retail's
lower ratio of debt to assets, resulting in a more favorable cost of capital
and the elimination of a common stock offering in 1999 that Regency projected
as a stand-alone company. In projecting these savings, Regency made certain
assumptions, including::
. Libor of 6% per year,
. a 6.9% per year interest rate on seven-to-ten year unsecured debt
securities of $300 million issued in each of 1999 and 2000, and
. an annual dividend rate of 8.5% on $100 million and $125 million of
preferred stock sold in 1999 and 2000, respectively.
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INTERESTS OF CERTAIN PARTIES
If the merger is consummated, Mary Lou Rogers, Managing Director of Security
Capital Group, a trustee of Pacific Retail and a director of Regency, will
become President and Chief Operating Officer of Regency. Regency anticipates
granting options to Ms. Rogers following the merger but has not yet determined
the number to be granted. 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 Trustees,
Dennis H. 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 non-employee director, 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 non-employee director, officer or employee will receive
substitute options to acquire Regency common stock upon completion of the
merger. Dennis H. Alberts, President and Chief Executive Officer of Pacific
Retail, and Jane E. Mody, Managing Director and Chief Financial Officer of
Pacific Retail, who are expected to become executives of an affiliate of
Security Capital Group after the merger, and Joshua M. Brown, Managing Director
of Pacific Retail, will receive fully vested options of Regency. Mr. Alberts'
and Ms. Mody's options will expire 10 years from the original date of grant,
and Mr. Brown will have three years from the consummation of the merger to
exercise his options. Except for the vesting and expiration provisions
applicable to the options of these three departing Pacific Retail executive
officers, the options issued to former Pacific Retail non-employee director,
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.
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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 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 Amendment No. 3 to the Stockholders Agreement (the
"Stockholders Amendment") that will take effect simultaneously with the merger.
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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
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.
Limits on Ownership and Transfer 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 52.3%
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.
SC-USRealty will own approximately 52.3% of Regency's common stock on a fully
diluted basis immediately after the merger. SC-USRealty will have the right to
acquire additional shares from time to time after the merger in the open market
or in private negotiated transactions, up to a maximum of 60% on a fully
diluted basis, so long as its ownership does not fall below 45% on a fully
diluted basis for a continuous period of 180 days.
Under the Stockholders Agreement, so long as SC-USRealty owns more than 15% of
Regency's common stock on a fully diluted basis (10% upon effectiveness of the
Stockholders Amendment), SC-USRealty may not dispose of its Regency shares
except (1) to certain affiliates or financial institutional pledgees, (2) in
transactions that meet the volume limitations and other requirements of Rule
144 under the Securities Act of 1933, (3) in registered public offerings, or
(4) in privately negotiated transactions, which must be approved by Regency, in
its sole discretion, where a private sale would result in the transferee
holding more than 9.8% of Regency's common stock. Public sales by SC-USRealty
of large amounts of Regency common stock could adversely affect the market
price of the stock.
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.
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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.
Voting
On most matters, during its standstill 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
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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.
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. Holders" 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
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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.
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
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or any state,
(3) an estate whose income is includible in gross income for United States
tax purposes regardless of source or
(4) a "United States Trust."
A United States Trust includes a trust if, and only if, a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
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 factual
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.
In the opinion of Mayer, Brown & Platt, based on certain factual
representations of Pacific Retail, Regency and SC-USRealty, 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.
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In the opinion of Mayer, Brown & Platt, based on certain factual
representations of Pacific Retail, Regency and SC-USRealty, 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 or 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 or 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 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
(1) is not involved in directing corporate affairs,
(2) holds a minimal interest in Pacific Retail and
(3) 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
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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
In the opinion of Mayer, Brown & Platt, based on certain factual
representations of Pacific Retail, Regency and SC-USRealty,
(1) immediately after the merger, Regency will be a United States real
property holding corporation ("USRPHC") as defined in Section 897(c)(2)
of the Code and will not qualify as a domestically controlled REIT as
defined in Section 897(h) of the Code, and
(2) assuming a Non-U.S. Holder fulfills all applicable filing requirements
under Treasury regulation section 1.897-5T(d)(1)(iii),
no gain or loss will be recognized by a Non-U.S. Holder 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 FIRPTA as a sale of a United States real
property interest ("USRPI") as defined in Section 897(c) of the Code. If,
contrary to Mayer, Brown & Platt's opinion, immediately after the merger
Regency does not qualify as a USRPHC or qualifies as a domestically controlled
REIT or if a Non-U.S. Holder does not fulfill all applicable filing
requirements under Treasury regulation section 1.897-5T(d)(1)(iii), 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.
No income, gain or loss will be recognized by a Non-U.S. Holder of Regency
common stock pursuant to the merger. The tax basis and holding period of the
Regency common stock owned by a Non-U.S. Holder will not change as a result of
the merger.
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. Immediately after the
merger, Regency will no longer qualify as a domestically controlled REIT. A
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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. 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
(1) 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
(2) the selling Non-U.S. Holder held 5% or less of the class of stock sold
or exchanged during a specified period (generally five years).
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, contrary to Mayer, Brown & Platt's opinion,
immediately after the merger, Regency qualifies as a domestically controlled
REIT, 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 would not be
subject to taxation under Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") as a sale of a USRPI.
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.
Regency's Qualification as a REIT
It is the opinion of Foley & Lardner that:
(1) Regency has qualified as a REIT for its taxable years ended December
31, 1993 through December 31, 1997,
(2) Regency has been organized in conformity with the requirements for
qualification and taxation as a REIT; and
(3) Regency's method of operation has enabled it and will continue to
enable it to meet the requirements for qualification and taxation as a
REIT under the Code.
It must be emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by Regency as to factual matters
including, but not limited to, those concerning its business and properties,
and certain matters relating to Regency's manner of operation. Foley & Lardner
is not aware of any facts or circumstances that are inconsistent with these
representations and assumptions. The qualification and taxation as a REIT
depends upon Regency's ability to meet, through actual annual operating
results, the various income, asset, distribution, stock ownership and other
tests for qualification as a REIT set forth in the Code, the results of which
will
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not be reviewed by nor be under the control of Foley & Lardner. Accordingly, no
assurance can be given that the actual results of Regency's operation for any
particular taxable year will satisfy the requirements under the Code for
qualification and taxation as a REIT.
Consequences of the Merger on Regency's Qualification as a REIT
In the opinion of Foley & Lardner, based upon certain factual representations
of Pacific Retail and Regency, the consummation of the merger will not
jeopardize the status of Regency as a REIT under the Code. Moreover, it is the
opinion of Foley & Lardner that Regency's failure to qualify as a domestically
controlled REIT will not jeopardize the status of Regency as a REIT. Regency
intends to operate in a manner which permits it to satisfy the 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.
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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 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 and
who have not received payment for their shares, should file a petition for an
appraisal to determine the fair value of their shares with a court of equity in
Baltimore City, Maryland, within 50 days after the Articles of Merger are
accepted for record by the SDAT.
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
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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 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
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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
, 1999.
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 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.
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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 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;
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(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 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.
With the consent of the waiving party's special committee, any of the
conditions to closing may be waived by the parties other than waiver of the
shareholder approval conditions in 2, 3, 6 and 7. To the extent that a material
condition to the merger is waived by Regency or Pacific Retail, we will notify
you and resolicit your votes in the manner and to the extent required by law.
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 anti-takeover 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
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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;
(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.
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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;
(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.
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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 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
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(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,
(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
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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 (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,
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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 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 Business Corporation Act (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
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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 (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
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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. The Special Shareholders will own approximately 52.3% of
Regency's common stock on a fully diluted basis after the merger. The Special
Shareholders will have the right to acquire additional shares from time to time
after the merger in the open market or in privately negotiated transactions, up
to a maximum of 60% 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 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 directly or indirectly 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
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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 Non-U.S. Person other than
SC-USRealty presently holds, directly or indirectly, more than 5% of the fair
market value of Regency's outstanding capital stock.
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 by any
person other than a Special Shareholder that would result in such stock being
owned directly or indirectly by 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:
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(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.
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. Likewise, Regency's ability to requalify as a
domestically controlled REIT and its ability to remain a domestically
controlled REIT if it does requalify are not expected to benefit or
disadvantage any current shareholder of Regency other than SC-USRealty. 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 Regency's requalification as a domestic REIT, any
transfer (other than acquisitions from a Special Shareholder) of Regency
capital stock will be void if it will result in such stock being owned directly
or indirectly by a Non-U.S. Person (other than a Special Shareholder).
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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.
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 3,000,000 to 5,520,000 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)
3,000,000 shares. As of September 30, 1998, the number of shares reserved for
issuance under the Regency Incentive Plan was 3,000,000. The terms and
conditions of the Regency Incentive Plan are summarized below.
As of September 30, 1998, there were 1,405,718 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 935,290 shares
remaining available for award. As of December , 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
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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 289,969 additional shares available for
future awards under the Regency Incentive Plan by reason of the 3,000,000 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
5,520,000 shares in the aggregate, which upon issuance would constitute 8.1% of
the fully diluted shares of Regency immediately after the merger.
POSSIBLE EFFECT OF PROPOSED INCREASE
Without the increase of shares under the Regency Incentive Plan, shares will
not otherwise be available to provide substitute options to employees or
trustees of Pacific Retail who become employees or directors of Regency.
Regency believes that the ability to grant options improves Regency's ability
to attract and maintain qualified personnel. However, authorizing the
additional shares under the Regency Incentive Plan may cause dilution to
Regency's current shareholders.
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
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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 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
(other than with respect to the three departing Pacific Retail executives) 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
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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.
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,
and Jane E. Mody, Managing Director and Chief Financial Officer of Pacific
Retail, who are expected to become executives of an affiliate of Security
Capital Group after the merger, and Joshua M. Brown, Managing Director of
Pacific Retail, will receive fully vested substitute options of Regency. Mr.
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Alberts' and Ms. Mody's options will expire 10 years from the original date of
grant, and Mr. Brown will have three years from the consummation of the merger
to exercise his options. Except for the vesting and expiration 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 the same as the substitute options of continuing employees.
For example, the exercise price of the substitute options of the departing
executives will be adjusted by the 0.48 exchange ratio, as will 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 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,
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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 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.
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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 one 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 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.
Pacific Retail has the right to designate three representatives who will serve
on the Regency Board upon consummation of the merger. Likewise, SC-USRealty
will be entitled to designate two new representatives to the Regency Board in
addition to Jonathan L. Smith, currently an SC-USRealty representative. 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 the following directors of Regency
will resign in order to return the size of the Regency Board to 13 members:
Edward L. Baker, J. Alexander Branch, Albert Ernest, Jr., Richard W. Stein and
Joan W. Stein. 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
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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.
Following the merger, the Board of Directors will consist of Martin E. Stein,
Jr., Chairman, Mary Lou Rogers, Lee S. Wielansky, Raymond L. Bank, J. Dix
Druce, Jr., Douglas S. Luke, A.R. Carpenter, Jonathan L. Smith, plus the
individuals listed below.
Information concerning Pacific Retail's three 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 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
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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. From 1987 to 1991, Mr. Kelley was Chairman of the
Board of Kelley-Harris Company, Inc., a real estate investment company, and
from 1968 to 1987, Managing Director of LaSalle Partners Limited, specializing
in corporate real estate services.
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 one of the other most highly
compensated executive officers of Pacific Retail will not be continuing as
officers of Regency.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ------------------------------
AWARDS PAYOUTS
---------------------- -------
SECURITIES
RESTRICTED UNDER-LYING
NAME AND OTHER ANNUAL SHARES OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
------------------ ------- ------- ------------ ---------- ----------- ------- ------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
James G. Buis........... 185,000 100,000 -- -- 38,462 -- --
Managing Director
John S. Delatour........ 171,154 100,000 -- -- 38,462 -- --
Managing Director
Brian M. Smith.......... 145,962 40,000 -- -- 28,795 -- --
Managing Director
</TABLE>
During 1997, options for 318,589 Pacific Retail common shares were granted to
22 officers and employees. The following table sets forth certain information
with respect to individual grants of options to each of the persons identified
in the foregoing table.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF SHARE
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------- ---------------
SHARES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/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 , , 1999, at the . The Regency Board
has fixed the close of business on December 18, 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 December 18, 1998 there were
shares of Regency common stock outstanding which were held by approximately
record holders. As of December 18, 1998, 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 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.
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Date, Time and Place; Record Date
The Pacific Retail special meeting is scheduled to be held at 8:30 a.m.,
central time, on , 1999, 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 December , 1998 there were 64,058,952
Pacific Retail common shares outstanding which were held by approximately 280
record holders. On December , 1998, there were 3,130,276 Pacific Retail
preferred shares outstanding, all of which were held by Opportunity Capital
Partners Limited Partnership. As of December , 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 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
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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 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, the Maryland REIT Law and the Maryland Act, as
well as 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.
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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.
SHAREHOLDER NOMINATIONS AND PROPOSALS
The Pacific Retail Declaration and bylaws do not contain a deadline for
submission of shareholder nominations and proposals.
The Regency bylaws contain deadlines for delivery of any shareholder nomination
or proposal for action at a shareholder meeting. These deadlines are the
deadlines for submitting shareholder proposals pursuant to Securities and
Exchange Commission Regulations Section 240.14a-8. Generally, a shareholder
nomination or proposal for an annual meeting must be received at least 120
calendar days prior to the date the company first mailed its proxy statement to
shareholders for the
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prior year's annual meeting. A shareholder typically can find notice of the
specific deadline in the company's proxy statement for the prior year's annual
meeting. A shareholder must submit a proposal for a meeting of shareholders
other than a regularly scheduled annual meeting at least a reasonable time
before the company begins to print and mail its proxy materials.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Maryland REIT Law provides that a Maryland REIT's declaration of trust 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 limits the personal liability of Pacific Retail's trustees,
officers, employees and agents 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 is
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
three 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
The 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
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two-thirds of the outstanding shares, 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).
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
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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 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.
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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 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
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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 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 and 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 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 of any proceedings (other than
derivative actions), if they acted in good faith and in a manner they
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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,
on the communities and society in which the corporation or its subsidiaries
operate and on the economy of the state and the nation. 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, optional 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 LaSalle Advisors
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Limited Partnership. 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 beginning December 20, 1998,
but generally the holder may not at any time be the beneficial owner of more
than 4.9% of the outstanding common stock. Accelerated conversion may take
place under certain circumstances, including if Regency's debt exceeds a
specified threshold. The Class B Common Stock will be convertible in full upon
the effectiveness of the merger. 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 in
exchange for preferred units of limited partnership interest held by an
institutional investor in Regency Centers, L.P. (i) on or after June 2008, (ii)
on or after June 2001 if the holder's ownership of the preferred limited
partnership units would cause it to be an "investment company" for tax
purposes, (iii) at any time distributions in respect of the preferred limited
partnership units are in arrears for six quarters and (iv) at any time Regency
Centers, L.P. is or is likely to become a "publicly traded partnership" for tax
purposes. 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
Opportunity Capital Partners Limited Partnership, the only holder of Pacific
Retail preferred shares and the holder of 1,000,000 Pacific Retail common
shares, 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 authorized shares (the "Series 2 Preferred Stock"). The Regency
preferred stock is convertible into a maximum of 1,502,532 shares of common
stock, which would represent 2.6% of the common stock if converted as of
December , 1998. Opportunity Capital Partners Limited Partnership also owns
1,804,730 shares of Regency common stock and will receive 480,000 shares of
Regency common stock in the merger in exchange for its Pacific Retail common
shares. Through its ownership of Regency common and preferred stock, it will
control 6.6% of the vote of Regency shareholders. 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.
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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 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
$0.02708 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%
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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. 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
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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 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
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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 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
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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 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.
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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."
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 on that date of more than 5% of each class of Pacific Retail
equity securities, (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 and
Opportunity Capital
Partnership II
c/o LaSalle Advisors
Limited Series A preferred shares 1,130,276(1) 100% 1.7%
100 E. Pratt St. 20th
Floor Series B preferred shares 2,000,000(1) 100% 2.9%
Baltimore, MD 21202.... Common shares 4,130,276(1) 6.1% 6.1%
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%
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 (11 persons)..... Common shares 1,374,414 2.1% 2.0%
</TABLE>
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- --------
* Less than 1/10 of 1%
(1) Opportunity Capital Corporation, a wholly-owned subsidiary of LaSalle
Advisors Limited, is the general partner of both shareholders. Opportunity
Capital Partners Limited Partnership ("OCP I") is the beneficial owner of
the Series A preferred shares (which are convertible into Series B
preferred shares, which are convertible in turn into common shares) and
1,000,000 common shares. Opportunity Capital Partnership II ("OCP II") is
the beneficial owner of the Series B preferred shares. Accordingly, the
4,130,276 common shares consist of the 1,000,000 common shares owned by
OCP I, 1,130,276 common shares issuable to OCP I upon conversion of the
Series A preferred shares and 2,000,000 common shares issuable to OCP II
upon conversion of the Series B preferred shares.
(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.
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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
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 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
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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 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 offerings, 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.
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
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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%
annually. At September 30, 1998, Messrs. Buis, Delatour and Smith were indebted
to Pacific Retail in the amount of $589,686, $589,686 and $591,237,
respectively, under such loans.
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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. Attorneys with Foley & Lardner
representing Regency with respect to this transaction beneficially owned
approximately 4,100 shares of Regency common stock as of the date of this Joint
Proxy Statement and Prospectus. 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 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.
133
<PAGE>
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 upon completion of the merger. 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.
134
<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 September 30,
1998.................................................................. FS-3
Notes to Pro Forma Condensed Consolidated Balance Sheet................ FS-4
Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1998....................................... FS-5
Pro Forma Condensed Consolidated Statements 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 September 30,
1998.................................................................. FS-9
Pro Forma Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1998....................................... FS-10
Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1997............................................... FS-11
Notes to Pro Forma Condensed Consolidated Statements of Operations..... FS-12
PACIFIC RETAIL TRUST: CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants...................................... FS-15
Consolidated Balance Sheets as of December 31, 1997 and 1996........... FS-16
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996......................................................... FS-17
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997 and 1996................................ FS-18
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996......................................................... FS-19
Notes to Consolidated Financial Statements............................. FS-20
Report of Independent Accountants...................................... FS-32
Balance Sheet as of December 31, 1995.................................. FS-33
Statement of Operations for the period from April 27, 1995 (Inception)
to December 31, 1995.................................................. FS-34
Statement of Shareholders' Equity for the period from April 27, 1995
(Inception) to December 31, 1995...................................... FS-35
Statement of Cash Flows for the period from April 27, 1995 (Inception)
to December 31, 1995.................................................. FS-36
Notes to Financial Statements ......................................... FS-37
Consolidated Balance Sheet as of September 30, 1998 (Unaudited)........ FS-45
Consolidated Statements of Operations for the nine months ended
September 30, 1998 and 1997 (Unaudited)............................... FS-46
Consolidated Statement of Changes in Shareholders' Equity for the nine
months ended September 30, 1998 (Unaudited)........................... FS-47
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (Unaudited)............................... FS-48
Notes to Consolidated Financial Statements............................. FS-49
</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 September 30, 1998 pro forma
consolidated balance sheet of Regency Realty Corporation ("Regency") as
contained in Form 10-Q dated November 16, 1998, and the pro forma consolidated
balance sheet of Pacific Retail Trust ("Pacific Retail") contained elsewhere
herein, as if the merger of Pacific and Regency occurred on September 30,
1998.
The following unaudited pro forma consolidated statements of operations of
the Combined Company are based upon the pro forma consolidated statements of
operations for the nine-month period ended September 30, 1998 and the year
ended December 31, 1997 of Regency as contained in Form 10-Q dated November
16, 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 as of and
for the three years ended December 31, 1997 and Form 10-Q filed for the period
ended September 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 September 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
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 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.................. $1,147,470 1,059,083 12,558 (a) 2,219,111
Construction in progress.. 23,947 21,657 -- 45,604
Less: accumulated depre-
ciation................ (52,411) (35,942) 35,942 (a) (52,411)
---------- --------- ------- ---------
1,119,006 1,044,798 48,500 2,212,304
Investments in real estate
partnerships............. 24,813 -- -- 24,813
---------- --------- ------- ---------
Net real estate invest-
ments.................. 1,143,819 1,044,798 48,500 2,237,117
---------- --------- ------- ---------
Cash and cash equivalents. 18,401 389 (7,500)(a) 11,290
Tenant receivables, net of
allowance for
uncollectible accounts... 16,565 12,604 -- 29,169
Deferred costs, less accu-
mulated amortization..... 5,616 5,317 (5,317)(b) 5,616
Other assets.............. 7,836 10,529 (10,529)(b) 7,836
---------- --------- ------- ---------
Total Assets............ $1,192,237 1,073,637 25,154 2,291,028
========== ========= ======= =========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C>
Notes payable............. $ 432,748 97,063 -- 529,811
Acquisition and develop-
ment line of credit...... 65,131 211,500 -- 276,631
---------- --------- ------- ---------
Total debt.............. 497,879 308,563 -- 806,442
Accounts payable and other
liabilities.............. 26,778 16,188 -- 42,966
Tenant's security and es-
crow deposits............ 2,928 3,408 -- 6,336
---------- --------- ------- ---------
Total liabilities....... 527,585 328,159 -- 855,744
---------- --------- ------- ---------
Series A preferred units.. 78,800 -- -- 78,800
Exchangeable operating
partnership units........ 26,153 19,346 (973)(a) 44,526
Limited partners' interest
in consolidated
partnerships............. 7,632 -- -- 7,632
---------- --------- ------- ---------
112,585 19,346 (973) 130,958
Preferred stock........... -- 31,303 3,740 (a) 35,043
Common stock and addi-
tional paid in capital... 569,060 706,086 11,130 (a) 1,286,276
Distributions in excess of
net income............... (16,993) (11,257) 11,257 (a) (16,993)
---------- --------- ------- ---------
Total stockholders' eq-
uity................... 552,067 726,132 26,127 1,304,326
---------- --------- ------- ---------
Total liabilities and
stockholders' equity.. $1,192,237 1,073,637 25,154 2,291,028
========== ========= ======= =========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
FS-3
<PAGE>
REGENCY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
(a) Merger of Pacific Retail and Regency
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 exchanged for 0.48 shares of Regency common stock, and each issued and
outstanding Pacific Retail 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 Pacific Retail
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 $1,106,291 based on the value of
Regency shares and partnership units expected to be issued including the
assumption of $328,159 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
SHARES AND REGENCY REGENCY
UNITS EXCHANGE SHARES AND UNITS VALUE ACQUISITION
OUTSTANDING RATIO ISSUED PER SHARE COSTS
-------------- -------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Common stock............ 64,059 0.48 30,749 $23.325 $ 717,216
Preferred stock......... 3,130 0.48 1,502 $23.325 35,043
Partnership units....... 1,641 0.48 788 $23.325 18,373
------ ------ ----------
68,830 33,039 770,632
====== ======
Pacific Retail outstanding debt assumed.......................... 308,563
Other Pacific Retail liabilities assumed......................... 19,596
Estimated closing costs.......................................... 7,500
----------
Total acquisition costs.......................................... $1,106,291
==========
</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............ $694,829
Value of Regency common stock issued...................... 717,216 $22,387
-------- -------
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....... 19,346
Value of Regency units issued............................. 18,373 (973)
-------- -------
Subtotal of adjustments to minority interest and stock-
holder's equity.......................................... 25,154
Estimated cash payments for closing costs................. 7,500
-------
Adjustment to record real estate investments under pur-
chase accounting......................................... 32,654
Adjustments to deferred and other assets under purchase
accounting............................................... 15,846
-------
Net increase to real estate investments................... $48,500
=======
</TABLE>
(b) To adjust deferred and other assets under purchase accounting.
FS-4
<PAGE>
REGENCY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
------------------------------------------------------------------
REGENCY PACIFIC RETAIL COMBINED
PRO FORMA PRO FORMA ADJUSTMENTS COMPANY
------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Minimum rent............ $ 82,639 75,393 -- 158,032
Percentage rent......... 2,008 1,002 -- 3,010
Recoveries from tenants. 18,653 19,705 -- 38,358
Management, leasing and
brokerage fees......... 8,023 45 -- 8,068
Equity in income of
investments in real
estate partnerships.... 511 -- -- 511
------------- ------------ ---------- -------------
111,834 96,145 -- 207,979
------------- ------------ ---------- -------------
Operating expenses:
Depreciation and amorti-
zation................. 19,705 18,074 909 (c) 38,688
Operating and mainte-
nance.................. 13,812 12,087 -- 25,899
General and administra-
tive................... 11,125 7,099 -- 18,224
Real estate taxes....... 10,110 10,623 -- 20,733
------------- ------------ ---------- -------------
54,752 47,883 909 103,544
------------- ------------ ---------- -------------
Interest expense (income):
Interest expense........ 20,759 15,216 -- 35,975
Interest income......... (1,385) (581) -- (1,966)
------------- ------------ ---------- -------------
19,374 14,635 -- 34,009
------------- ------------ ---------- -------------
Income before minority
interest and gain on
sale of real estate
investments............ 37,708 33,627 (909) 70,426
Gain on sale of real es-
tate investments......... 1,401 -- -- 1,401
Preferred distributions... (1,764) -- (1,764)
Minority interest......... (6,449) (427) 9 (6,867)
------------- ------------ ---------- -------------
Net income for common
stockholders........... $ 32,660 31,436 (900) 63,196
============= ============ ========== =============
Net income per share (note
(d)):
Basic................... $ 1.14 $0.49 $ 1.06
============= ============ ========== =============
Diluted................. $ 1.13 $0.48 $ 1.04
============= ============ ========== =============
</TABLE>
See accompanying notes to pro forma consolidated statements of operations.
FS-5
<PAGE>
REGENCY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 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................... $104,918 93,199 -- 198,117
Percentage rent................ 2,823 1,233 -- 4,056
Recoveries from tenants........ 23,907 25,563 -- 49,470
Management, leasing and broker-
age fees...................... 9,057 -- -- 9,057
Equity in income of investments
in real estate partnerships...
33 -- -- 33
-------- ------- ------ -------
140,738 119,995 -- 260,733
-------- ------- ------ -------
Operating expenses:
Depreciation & amortization.... 24,270 21,069 1,212(c) 46,551
Operating and maintenance...... 17,339 15,698 -- 33,037
General and administrative..... 12,813 7,790 -- 20,603
Real estate taxes.............. 12,934 13,081 -- 26,015
-------- ------- ------ -------
67,356 57,638 1,212 126,206
-------- ------- ------ -------
Interest expense (income):
Interest expense............... 38,128 35,542 -- 73,670
Interest income................ (1,033) (481) -- (1,514)
-------- ------- ------ -------
37,095 35,061 -- 72,156
-------- ------- ------ -------
Income before minority interest
and gain on sale of real
estate investments............ 36,287 27,296 (1,212) 62,371
Gain on sale of real estate in-
vestments....................... -- -- -- --
Preferred distributions.......... -- (2,195) -- (2,195)
Minority interest................ (8,244) (430) 12 (8,662)
-------- ------- ------ -------
Net income for common stock-
holders....................... $ 28,043 24,671 (1,200) 51,514
======== ======= ====== =======
Net income per share (note (d)):
Basic.......................... $ 1.31 $ 0.61 $ 1.26
======== ======= =======
Diluted........................ $ 1.22 $ 0.60 $ 1.21
======== ======= =======
</TABLE>
See accompanying notes to pro forma consolidated statements of operations.
FS-6
<PAGE>
REGENCY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(c) To increase depreciation expense as a result of the adjustment of real
estate investments to fair market value:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Adjustment to record real estate invest-
ments at fair market value............... $48,500 48,500
Allocation to land........................ (9,700) (9,700)
------- ------
Allocation to building.................... 38,800 38,800
Estimated useful life in years............ 32 32
------- ------
Depreciation expense...................... $ 909 1,212
======= ======
</TABLE>
(d) The following summarizes the calculation of basic and diluted earnings
per share for the nine-month period ended September 30, 1998 and the year
ended December 31, 1997:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Basic Earnings Per Share (EPS)
Calculation:
Weighted average common shares
outstanding
Regency Pro Forma prior to merger..... 25,045 17,424
Regency Common Shares issued to
Pacific Retail....................... 30,749 19,283
-------- --------
Adjusted weighted average common shares
outstanding............................ 55,794 36,707
======== ========
Net income for common stockholders per
Combined Pro Forma..................... $ 63,196 $ 51,514
Less: dividends paid on Class B common
stock................................ (4,033) (5,140)
-------- --------
Net income for Basic EPS................ $ 59,163 $ 46,374
======== ========
Basic EPS................................. $ 1.06 $ 1.26
======== ========
Diluted Earnings Per Share (EPS)
Calculation:
Weighted average common shares
outstanding for Basic EPS.............. 55,794 36,707
Regency exchangeable operating
partnership units...................... 1,193 1,243
Pacific Retail exchangeable operating
partnership units...................... 788 788
Incremental shares to be issued under
common stock options using the Treasury
method
Regency............................... -- 80
Pacific Retail........................ 103 46
Contingent shares for the acquisition of
real estate............................ 418 955
-------- --------
Total Diluted Shares.................. 58,296 39,819
======== ========
Net income for Basic EPS................ $ 59,163 $ 46,374
Add: minority interest of operating
partnership units.................... 1,611 1,644
-------- --------
Net income for Diluted EPS.............. $ 60,774 $ 48,018
======== ========
Diluted EPS............................... $ 1.04 $ 1.21
======== ========
</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 Trust
(the Company) as of September 30, 1998. The following unaudited pro forma
condensed consolidated statements of operations of the Company are based upon
the historical consolidated statements of operations for the nine-month period
ended September 30, 1998 and the year ended December 31, 1997. These
statements are presented as if the Company 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 the Company would have been at September 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 the Company in future periods.
FS-8
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
ASSETS
------
<S> <C> <C> <C>
Real estate investments, at cost........... $1,059,083 -- 1,059,083
Construction in progress................... 21,657 -- 21,657
Less: accumulated depreciation........... 35,942 -- 35,942
---------- --- ----------
Real estate rental property, net....... 1,044,798 -- 1,044,798
---------- --- ----------
Cash and cash equivalents.................. 389 -- 389
Tenant receivables, net of allowance for
uncollectible accounts.................... 12,604 -- 12,604
Deferred costs, less accumulated amortiza-
tion...................................... 5,317 -- 5,317
Other assets............................... 10,529 -- 10,529
---------- --- ----------
Total assets........................... $1,073,637 -- $1,073,637
========== === ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Mortgage loans payable..................... $ 97,063 -- 97,063
Acquisition and development line of credit. 211,500 -- 211,500
---------- --- ----------
Total debt............................. 308,563 -- 308,563
Accounts payable and other liabilities..... 16,188 -- 16,188
Tenant's security and escrow deposits...... 3,408 -- 3,408
---------- --- ----------
Total liabilities...................... 328,159 -- 328,159
---------- --- ----------
Minority interest.......................... 19,346 -- 19,346
---------- --- ----------
Preferred stock............................ 31,303 -- 31,303
Common stock and additional paid in capi-
tal....................................... 706,086 -- 706,086
Distributions in excess of net income...... (11,257) -- (11,257)
---------- --- ----------
Total stockholders' equity............. 726,132 -- 726,132
---------- --- ----------
Total liabilities and stockholders'
equity.............................. $1,073,637 -- 1,073,637
========== === ==========
</TABLE>
FS-9
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
------------------------------------------------------------
ACQUISITION
HISTORICAL PROPERTIES PRO FORMA
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues:
Minimum rent.......... $ 70,735 4,658 (a) 75,393
Percentage rent....... 1,002 -- 1,002
Recoveries from
tenants.............. 18,764 941 (a) 19,705
Management, leasing
and brokerage fees... 45 -- 45
----------------- --------------- ----------------
90,546 5,599 96,145
----------------- --------------- ----------------
Operating expenses:
Depreciation and
amortization......... 17,058 1,016 (b) 18,074
Operating and
maintenance.......... 11,198 889 (a) 12,087
General and
administrative....... 6,937 162 (a) 7,099
Real estate taxes..... 10,194 429 (a) 10,623
----------------- --------------- ----------------
45,387 2,496 47,883
----------------- --------------- ----------------
Interest expense (in-
come):
Interest expense...... 11,594 3,622 (c) 15,216
Interest income....... (581) -- (581)
----------------- --------------- ----------------
11,013 3,622 14,635
----------------- --------------- ----------------
Income before minority
interest............. 34,146 (519) 33,627
Minority interest....... (579) 152 (427)
----------------- --------------- ----------------
Net income............ 33,567 (367) 33,200
Preferred distributions. (1,764) -- (1,764)
----------------- --------------- ----------------
Net income for common
shareholders......... $ 31,803 (367) 31,436
================= =============== ================
Net income per share
(note (e)):
Basic................. $ 0.50 $ 0.49
================= ================
Diluted............... $ 0.49 $ 0.48
================= ================
</TABLE>
See accompanying notes to pro forma consolidated statements of operations.
FS-10
<PAGE>
PACIFIC RETAIL TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 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 PRO
HISTORICAL PROPERTIES FORMA
---------- ----------- -------
<S> <C> <C> <C>
Revenues:
Minimum rent................................. $60,869 32,330 (a) 93,199
Percentage rent.............................. 1,233 -- 1,233
Recoveries from tenants...................... 16,899 8,272 (a) 25,171
Management, leasing and brokerage fees....... 392 -- 392
------- ------ -------
79,393 40,602 119,995
------- ------ -------
Operating expenses:
Depreciation and amortization................ 14,715 6,354 (b) 21,069
Operating and maintenance.................... 9,727 5,971 (a) 15,698
General and administrative................... 6,542 1,248 (a) 7,790
Real estate taxes............................ 10,012 3,069 (a) 13,081
------- ------ -------
40,996 16,642 57,638
------- ------ -------
Interest expense (income):
Interest expense............................. 11,667 23,875 (c) 35,542
Interest income.............................. (481) -- (481)
------- ------ -------
11,186 23,875 35,061
------- ------ -------
Income before minority interest.............. 27,211 85 27,296
Minority interest.............................. (490) 60 (430)
------- ------ -------
Net income..................................... 26,721 145 26,866
Preferred distributions........................ (2,195) -- (2,195)
------- ------ -------
Net income for common shareholders............. $24,526 145 24,671
======= ====== =======
Net income per share (note (e)):
Basic........................................ $ 0.61 $ 0.61
======= =======
Diluted...................................... $ 0.61 $ 0.60
======= =======
</TABLE>
See accompanying notes to pro forma consolidated statements of operations.
FS-11
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(a) 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 September 30, 1998, and for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED SEPTEMBER 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
======== ======= ======= ======= =======
<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-12
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(b) 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 nine month period ended September 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 September 30, 1998.
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED SEPTEMBER 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................ 14,860 1995 187
Murrayhill Marketplace................ 14,664 1988 183
Cherry Park Market.................... 15,934 1997 201
Sunnside 205.......................... 8,585 1988 108
-------
Acquisition Properties pro forma de-
preciation 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................ 14,860 1995 374
Murrayhill Marketplace................ 14,664 1988 366
Cherry Park Market.................... 15,934 1997 34
Sunnside 205.......................... 8,585 1988 216
-------
Acquisition Properties pro forma de-
preciation adjustment.............. $ 6,354
=======
</TABLE>
FS-13
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(c) To reflect interest expense on the Line required to complete the
acquisition of the Acquisition Properties at the interest rate afforded the
Company at September 30, 1998 (6.87%). The nine month period ended September
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 nine-month period ended
September 30, 1998............................................... $ 3,622
========
Pro forma interest adjustment for the year ended December 31,
1997............................................................. $ 23,875
========
</TABLE>
(d) The following summarizes the calculation of basic and diluted earnings
per share for the nine-month period ended September 30, 1998 and the year
ended December 31, 1997:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Basic Earnings Per Share (EPS) Calcula-
tion:
Weighted average common shares outstand-
ing.................................... 64,045 40,173
======== ========
Proforma net income for Basic EPS....... $ 31,436 $ 24,671
======== ========
Basic EPS................................. $ 0.49 $ 0.61
======== ========
Proforma net income for Basic EPS....... 31,436 24,671
Add: minority interest for operating
partnership units...................... 427 430
-------- --------
Proforma net income for Diluted EPS..... 31,863 25,101
======== ========
Diluted Earnings Per Share (EPS) Calcula-
tion:
Weighted average common shares outstand-
ing for Basic EPS...................... 64,045 40,173
Operating partnership units............. 1,641 1,641
Incremental shares to be issued under
common stock options using the Treasury
method................................. 215 95
-------- --------
Total Diluted Shares.................. 65,901 41,909
======== ========
Diluted EPS............................... $ 0.48 $ 0.60
======== ========
</TABLE>
FS-14
<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.
PricewaterhouseCoopers LLP
Dallas, Texas
January 23, 1998
FS-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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 feet 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-23
<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 are 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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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. 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-30
<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.
8. 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.
9. 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-31
<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.
PricewaterhouseCoopers LLP
February 9, 1996
Dallas, Texas
FS-32
<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-33
<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-34
<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-35
<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 provided by operating activities......................... 1,416,596
-----------
Investing Activities:
Acquisition of real estate....................................... (52,487,694)
-----------
Net cash used in investing 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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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. 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-42
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. 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.
8. 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.
9. 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-43
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
FS-44
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1998
--------------
(UNAUDITED)
ASSETS
------
<S> <C>
Real estate investments........................................ $1,080,739,840
Less: accumulated depreciation................................. (35,941,954)
--------------
1,044,797,886
Cash and cash equivalents...................................... 388,870
Accounts receivable, net....................................... 8,600,273
Escrow deposits................................................ 4,319,177
Other assets, net.............................................. 15,530,465
--------------
Total assets................................................. $1,073,636,671
==============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Liabilities:
Lines of credit............................................... $ 211,500,000
Notes payable................................................. 97,062,997
Accounts payable and accrued expenses......................... 8,051,085
Accrued real estate taxes..................................... 7,439,065
Deferred income............................................... 659,426
Tenant security deposits...................................... 3,407,801
Other liabilities............................................. 38,737
--------------
Total liabilities............................................ 328,159,111
Commitments and contingencies (Note 10)........................
Minority interest.............................................. 19,346,292
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 (64,058,952 shares issued and outstanding at
September 30, 1998)......................................... 640,589
Additional paid-in capital.................................... 713,892,877
Employee share notes.......................................... (8,447,524)
Distributions in excess of net earnings....................... (11,257,434)
--------------
Total shareholders' equity................................... 726,131,268
--------------
Total liabilities and shareholders' equity.................. $1,073,636,671
==============
</TABLE>
See accompanying notes to financial statements.
FS-45
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Income:
Minimum rent....................................... $70,734,572 $42,331,227
Percentage rent.................................... 1,001,725 577,749
Recoveries from tenants............................ 18,763,861 11,183,597
Management, leasing and brokerage fees............. 45,536 351,658
----------- -----------
90,545,694 54,444,231
----------- -----------
Operating Expenses:
Operating and maintenance.......................... 11,197,977 6,277,508
Depreciation and amortization...................... 17,058,178 10,210,065
General and administrative......................... 6,937,115 4,767,096
Real estate taxes.................................. 10,193,588 7,107,638
----------- -----------
45,386,858 28,362,307
----------- -----------
Interest expense (income):
Interest expense................................... 11,594,080 7,803,632
Interest income.................................... (580,677) (223,664)
----------- -----------
11,013,403 7,579,968
----------- -----------
Earnings before minority interest and gain on sale
of real estate investments........................ 34,145,433 18,501,956
Gain on sale of real estate investments.............. -- --
Minority interest.................................... (578,510) (353,573)
----------- -----------
Net earnings......................................... 33,566,923 18,148,383
Less:
Series A preferred share dividends............... 608,658 566,268
Series B preferred share dividends............... 1,155,000 1,080,000
----------- -----------
Net earnings attributable to common shares......... $31,803,265 $16,502,115
=========== ===========
Weighted average common shares outstanding......... 64,044,753 37,373,491
=========== ===========
Weighted average diluted common shares outstanding. 64,259,819 37,451,707
=========== ===========
Basic earnings per share......................... $ .50 $ .44
Diluted earnings per share....................... $ .49 $ .44
</TABLE>
See accompanying notes to financial statements.
FS-46
<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..... 1,546 (1,909,500) 1,979,390 71,436
Redemption of shares.... (1,184) 1,345,263 (1,597,756) (253,677)
Shareholder
distributions.......... 47,493 (38,750,426) (38,702,933)
Net earnings............ 33,566,923 33,566,923
----------- ----------- -------- ----------- ------------ ------------ ------------
Balance at September 30,
1998 (Unaudited)....... $11,302,760 $20,000,000 $640,589 $(8,447,524) $713,892,877 $(11,257,434) $726,131,268
</TABLE>
See accompanying notes to financial statements.
FS-47
<PAGE>
PACIFIC RETAIL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Operating activities
Net earnings..................................... $ 33,566,923 $ 18,148,383
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization.................. 17,058,178 10,210,065
Minority interest.............................. 278,860 (59,527)
Changes in operating assets and liabilities:
Accounts receivable.......................... (786,247) (2,650,168)
Escrow deposits.............................. (1,736,927) 15,542,081
Other assets................................. (5,753,621) (3,428,104)
Accounts payable and accrued expenses........ (89,340) 373,543
Accrued real estate taxes.................... 579,218 2,614,787
Deferred income.............................. (1,161,474) 293,677
Tenant security deposits..................... 753,878 1,084,693
Other liabilities............................ (56,651) 17,754
------------ ------------
Net cash provided by investing activities........ 42,652,797 42,147,184
------------ ------------
Investing activities:
Construction of and acquisition of real estate
investments..................................... (197,443,350) (293,660,395)
------------ ------------
Net cash used in investing activities............ (197,443,350) (293,660,395)
------------ ------------
Financing activities:
Principal payments on notes payable.............. (8,332,299) (940,403)
Proceeds from line of credit..................... 197,900,000 73,900,000
Payments on lines of credit...................... -- --
Payments on bridge loan.......................... -- (26,500,000)
Proceeds from sales of shares, net of expenses... 71,436 228,015,482
Redemption of shares............................. (253,677) --
Distributions paid to shareholders............... (38,702,933) (21,806,268)
------------ ------------
Net cash provided by financing activities........ 150,682,527 252,668,811
------------ ------------
Net (decrease) increase in cash and cash
equivalents....................................... (4,108,026) 1,155,600
Cash and cash equivalents at beginning of period... 4,496,896 1,954,131
------------ ------------
Cash and cash equivalents at end of period......... $ 388,870 $ 3,109,731
============ ============
Supplemental cash flow information:
Interest paid.................................... $ 11,577,427 $ 7,272,919
============ ============
Noncash investing and financing activities:
Acquisition of real estate for assumption of
notes payable................................... $ 20,452,246 $ 74,918,736
============ ============
Acquisition of real estate in exchange for
minority interest partnership units............. $ 11,386,032 $ --
============ ============
Exchange of employee share notes for shares...... $ 1,909,500 $ --
============ ============
Payments on employee shares notes from
shareholder distributions....................... $ 47,493 $ --
============ ============
Redemption of employee share notes............... $ 1,345,263 $ --
============ ============
</TABLE>
See accompanying notes to financial statements.
FS-48
<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 September 30, 1998,
69.9% 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 September 30, 1998, OCP owned 6.0% of Pacific Retail's
outstanding shares of beneficial interest.
Principles of consolidation
The consolidated financial statements include the accounts of Pacific
Retail, its 81.9% 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 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 September 30, 1998, no
impairment losses have been incurred.
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.
FS-49
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest
Pacific Retail capitalizes interest as part of the cost of real estate
projects during construction periods. During the nine months ended September
30, 1998 and 1997, $2,205,621 and $971,736, 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.
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 September 30, 1998 are net costs of
$1,291,585 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 nine months ended September 30, 1998 and 1997 was
$539,581, and $368,477, 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-50
<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 NINE MONTHS ENDED
SEPTEMBER 30, 1998
(UNAUDITED)
--------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- ---------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common shares.. $31,803,265 64,044,753 $0.50
-----
EFFECT OF DILUTIVE SECURITIES
Options..................................... -- 208,348
Deferred trustee shares..................... -- 6,718
----------- ----------
DILUTED EPS
Income available to common shares and
assumed conversions........................ $31,803,265 64,259,819 $0.49
=========== ========== =====
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED)
--------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- ---------- ---------
<S> <C> <C> <C>
BASIC EPS
Net earnings attributable to common shares.. $16,502,115 37,373,491 $0.44
-----
EFFECT OF DILUTIVE SECURITIES
Options..................................... -- 77,622
Deferred trustee shares..................... -- 594
----------- ----------
DILUTED EPS
Income available to common shares and
assumed conversions........................ $16,502,115 37,451,707 $0.44
=========== ========== =====
</TABLE>
FS-51
<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 of diluted EPS.
Options to purchase 625,078 common shares at $13 per share were outstanding
during the third quarter of 1998 and options to purchase 41,667 common shares
at $12 per share were outstanding during the third quarter of 1997, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than or 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, and related revenues and expenses, 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
September 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 September 30, 1998, Pacific Retail owned seventy-one 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 23% of the total
revenues of the portfolio for the nine months ended September 30, 1998.
Thirty-three shopping centers are located in California and comprise
approximately 49% of the total revenues for the nine months ended September
30, 1998. The remaining properties are located in Arizona, Colorado,
Washington, and Oregon.
The following summarizes real estate investments:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C>
Improved land................................................... $ 272,059,415
Land held for development....................................... 1,062,657
Land under development.......................................... 28,190,273
Buildings and improvements...................................... 677,672,174
Land improvements and parking lots.............................. 47,823,281
Construction in process......................................... 21,656,899
Redevelopment properties........................................ 32,275,141
--------------
Total real estate investments................................. 1,080,739,840
Less accumulated depreciation................................. (35,941,954)
--------------
Net real estate investments................................. $1,044,797,886
==============
</TABLE>
FS-52
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 30, 1998, 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 September 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 September 30, 1998, construction has not
commenced.
In November 1997, PRT Development Corporation acquired Hebron Parkway Plaza,
which consists of 7.77 acres of land in Carrollton, Texas for development into
a grocery anchored shopping center. As of September 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 September 30, 1998, PRT Development Corporation has
incurred $4,418,993 in design and construction costs associated with the
development, which is included in construction in process.
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 September 30, 1998, Pacific Retail has
incurred $986,735 in development costs associated with the development, which
is included in construction in process.
Redevelopment properties
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. On April
1, 1998, a portion of the project representing $7,322,949 in redevelopment
costs was completed and capitalized. As of September 30, 1998, $6,672,175 in
design and demolition costs and construction associated with the redevelopment
remained in construction in process.
In November 1997, Pacific Retail acquired Bristol & Warner Shopping Center
in Santa Ana, California. During 1998, significant rehabilitation work began
on the property. As of September 30, 1998, Pacific Retail has incurred
$4,130,826 in design, demolition and construction costs.
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
FS-53
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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 rate for the period from January 1,
1998 to May 18, 1998 was 7.1%.
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 nine
months ended September 30, 1998 was 7.01%. The interest rate at September 30,
1998 was 6.87%.
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 nine months ended September 30, 1998.
FS-54
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable
Notes payable consisted of the following at September 30, 1998 (unaudited):
<TABLE>
<CAPTION>
PRINCIPAL
INTEREST MATURITY PAYMENTS/ BALANCE AT
MARKET RATE DATE PERIOD 9/30/98
---------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Mortgage Notes Payable:
Paseo Village........... Arizona 7.50 5/1/01 $ 38,668(2) $ 4,257,322
Mills Pointe & Preston
Park Village(4)........ Texas 7.23 7/1/00 264,578(2) 31,324,957
Plaza de Hacienda....... California 9.00 6/10/12 57,128(2) 6,704,676
Market at Round Rock.... Texas 8.63 12/31/05 63,059(2) 7,439,467
North Hills Town Center. Texas 7.37 1/1/14 76,974(2) 9,004,416
Friar's Mission......... California 9.50 6/10/05 152,006(2) 16,712,657
Woodman Van-Nuys........ California 8.80 9/15/15 57,745(2) 6,100,577
Sunnyside 205........... Oregon 9.38 1/15/00 52,401(2) 5,792,294
Murryhill Marketplace... Oregon 8.05 5/1/19 69,762(2) 8,404,932
Municipal Tax Bonds
Payable:
Friar's Mission......... California 7.30- 9/2/15 161,177- 1,321,699
7.90 168,131(3)
-----------
$97,062,997
-----------
</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.
Principal repayments of notes payable are due approximately as follows:
<TABLE>
<S> <C>
Three months remaining in 1998..................................... $ 399,328
1999............................................................... 2,303,848
2000............................................................... 37,268,527
2001............................................................... 5,230,349
2002............................................................... 1,412,470
2003 and after..................................................... 50,448,475
-----------
$97,062,997
===========
</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
FS-55
<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.
On July 10, 1998, Pacific Retail contributed $37,026,419 to the Partnership.
The partnership used this contribution to purchase the Sherwood Market Center,
Murrayhill Marketplace, Cherry Park Market and Sunnyside 205 properties in
July 1998. Pacific Retail's investment in the Partnership at September 30,
1998 was 81.9%.
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. On July 10, 1998, an additional 760,464 partnership units were issued in
association with the acquisitions of the Sherwood Market Center, Murrayhill
Marketplace, Cherry Park Market and Sunnyside 205 properties. The limited
partners' interests will be reflected as minority interest in the consolidated
financial statements until the units are exchanged for Pacific Retail shares.
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.
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 property. 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 September 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 and 61,750
shares of Class B common stock issued and outstanding at September 30, 1998
and December 31, 1997, respectively. 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.
FS-56
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 September 30, 1998 and December 31, 1997, 9,668 and 4,825 shares,
respectively, have been deferred under this plan.
FS-57
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Shares of beneficial interest
As of September 30, 1998 and 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 redemption's 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 (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
FS-58
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED 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.
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.
6. MERGER
On September 23, 1998, Pacific Retail entered into a merger agreement with
Regency Realty Corporation (Regency), a publicly owned real estate investment
trust. The merger, already approved by the board of trustees of Pacific Retail
and the board of directors of Regency, would result in the acquisition of
Pacific Retail by Regency with Regency being the surviving entity. The merger
is expected to close on December 31, 1998. Each outstanding Common and
Preferred share of Pacific Retail would be converted into 0.48 shares of
Regency Common and Preferred stock, respectively.
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 operations of The Regency Group, Inc., which began operations in
1963. Regency acquires, owns, develops and manages neighborhood shopping
centers in targeted infill markets primarily in the eastern half of the United
States. The merged company would have a total market
FS-59
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
capitalization of approximately $2.2 billion, owning over 195 shopping
centers, consisting of approximately 22.5 million square feet in 22 states and
Washington, D.C., including 13 shopping centers under development.
USRealty is the largest shareholder of Regency, owning approximately 46.0%
of the outstanding Regency Common Stock. USRealty has already approved the
merger and will vote for the merger when both companies have their respective
shareholder meetings. Those shareholders meetings and accompanying vote with
regard to the merger are expected to occur in mid-December 1998. After the
merger USRealty will own approximately 59.3% of the outstanding Regency Common
Stock (52.5% on a fully diluted basis). It is anticipated that after the
merger Regency will continue to be taxed as a real estate investment trust
under the Internal Revenue Code and continue to be organized as a corporation
under the laws of the state of Florida. Regency's headquarters are in
Jacksonville, Florida.
7. 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.
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 five years from the date of grant or earlier
upon resignation from the board of trustees or death.
FS-60
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pacific Retail applies APB Opinion No. 25 and related Interpretations in
accounting for both the Trustees Plan and the employee share incentive plan.
No compensation has been recognized for the plans 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 plans 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 nine months ended
September 30, 1998 and 1997 would have been:
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net earnings...................... As reported $33,566,923 $18,148,383
Pro forma (unaudited) $32,788,374 $18,045,954
Per share net earnings............ As reported $ .50 $ .44
attributable to common shares.... Pro forma (unaudited) $ .48 $ .44
Diluted per share net earnings.... As reported $ .49 $ .44
attributable to common shares.... Pro forma (unaudited) $ .48 $ .44
</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 five years, dividend yield of 5%,
expected volatility of 0%, and risk-free interest rates ranging from 6.56% to
5.48%.
The following table summarizes activity under all programs:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE NUMBER OF
PRICE OPTIONS
-------- ---------
<S> <C> <C>
Outstanding at December 31, 1997............................ $ 11.73 2,463,872
Granted.................................................... 13.00 348,155
Exercised.................................................. -- --
Cancelled.................................................. (11.88) (406,668)
------- ---------
Outstanding at September 30, 1998........................... 11.87 2,405,359
======= =========
Options exercisable at September 30, 1999................... $ 10.51 130,282
======= =========
Weighted average net value of options granted during 1998... $ 3.20
=======
</TABLE>
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 September 30, 1998 are as follows:
<TABLE>
<S> <C>
Three months remaining in 1998.................................... $ 24,289,843
1999.............................................................. 90,904,809
2000.............................................................. 80,548,312
2001.............................................................. 68,759,426
2002.............................................................. 59,220,811
Thereafter........................................................ 377,360,451
------------
$701,083,652
============
</TABLE>
FS-61
<PAGE>
PACIFIC RETAIL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
FS-62
<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 4 8,232 4,154 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>
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.
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"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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<PAGE>
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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<PAGE>
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 , 1999
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 , 1999 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 1,502,532 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 , 1999.
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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<PAGE>
(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 , 1999. 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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(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
[ ], 1999.
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) on or after
the effective date of this Amendment that results in such shares being owned
directly or indirectly by a Non-U.S. Person (other than a Special Shareholder)
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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IN WITNESS WHEREOF, the undersigned Chairman of this corporation has executed
these Articles of Amendment this day of , 1999.
_____________________________________
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 Agreement 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 and 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 (other than
the initial Dividend Period, which shall commence on the Issue Date).
"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 Common 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 Common Stock on its outstanding shares of Common
Stock, (B) subdivide its outstanding shares of Common 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 Common 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. Accrued and unpaid dividends on shares of Series 1
Preferred Stock shall include any accrued and unpaid dividends on the Series A
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest of
Pacific Retail Trust which are exchanged by operation of law into such shares
of Series 1 Preferred Stock pursuant to the merger of Pacific Retail Trust into
the Corporation. 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.
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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 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
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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.
(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 shares of Series 1
Preferred Stock are 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
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determined by the Corporation in its sole discretion to be equitable. If fewer
than all shares of the Series 1 Preferred Stock represented by any certificate
are redeemed, then new certificates representing the unredeemed shares shall be
issued without cost to the holder thereof.
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
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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 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.
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(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 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.
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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 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.
The Corporation's Series 2 Cumulative Convertible Redeemable Preferred Stock
and the Corporation's 8.125% Series A Cumulative Redeemable Preferred Stock
shall constitute Parity 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,
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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 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
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(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 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 corporate 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 Section 4.2 of 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 Managing Director and 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 Managing Director and 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 Managing Director
and Executive Vice President and attested to by its Secretary on this day of
, 1999.
Regency Realty Corporation
By: _________________________________
Name: Bruce M. Johnson
Title: Managing Director and
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 and 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 (other than the initial Dividend Period, which shall commence on the
Issue Date).
"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
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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 Common 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 Common Stock on its outstanding shares of Common
Stock, (B) subdivide its outstanding shares of Common 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 Common Stock by
reclassification of its outstanding shares of Common 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.
"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. Accrued and unpaid dividends on shares of Series 2
Preferred Stock shall include any accrued and unpaid dividends on the Series B
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest of
Pacific Retail Trust which are exchanged by operation of law into such shares
of Series 2 Preferred Stock pursuant to the merger of Pacific Retail Trust into
the Corporation. 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
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<PAGE>
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.
(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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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 shares of Series 2
Preferred Stock are 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 shares of Series 2 Preferred Stock represented by any certificate
are 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 2
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Preferred Stock be entitled to receive a dividend payment on Common Stock
issued or issuable upon conversion of Series 2 Preferred Stock if such
holder is entitled to receive a dividend in respect of the Series 2
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 share of
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 a share 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 after the Issue Date (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 shares of Series 2 Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the
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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 shares of 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
or any security convertible into or exchangeable for Common Stock, as
those issued to
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holders of Common Stock, based upon the number of shares of Common
Stock into which each share of 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 share of 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 Stock, and the
denominator of which shall be the lesser of the Conversion Price then
in
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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
Pacific Retail Trust (to which the Corporation is successor by merger),
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 paragraph (d),
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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 Corporate 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 Preferred 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.
The Corporation's Series 1 Cumulative Convertible Redeemable Preferred Stock
and the Corporation's 8.125% Series A Cumulative Redeemable Preferred Stock
shall constitute Parity 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 Section 4.2 of 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 Managing Director and 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 Managing Director and 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 Managing Director
and Executive Vice President and attested to by its Secretary on this day
of , 1999.
Regency Realty Corporation
By:
----------------------------------
Name: Bruce M. Johnson
Title: Managing Director and
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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<PAGE>
(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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<PAGE>
(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.
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(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.
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(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.
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APPENDIX H
REGENCY REALTY CORPORATION
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS FOR
SPECIAL MEETING OF SHAREHOLDERS-- , 1999
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 , 1999 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 the Articles of
Incorporation (a) to permit SC-USRealty to acquire the shares issuable to it in
the merger and (b) to preserve Regency's ability to requalify as, and maintain
its status at that time as, a domestically controlled REIT if stock ownership
by Non-U.S. Persons permits.
[_] 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 to increase the number of shares available for award under the
Plan in order to permit Regency to grant substitute options to Pacific Retail
employees, officers and non-employee directors.
[_] 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: , 199
_______________________________(SEAL)
_______________________________(SEAL)
(Please sign exactly as name or
names appear hereon. Executors,
administrators, trustees or other
representatives should so indicate
when signing.)
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APPENDIX I
PACIFIC RETAIL TRUST
PROXY SOLICITED ON BEHALF OF BOARD OF TRUSTEES FOR SPECIAL MEETING
OF SHAREHOLDERS --JANUARY 29, 1999
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 January 29, 1999, , 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.
[_] FOR [_] AGAINST
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: , 19
_____________________________________
_____________________________________
(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-1 of this Registration Statement.
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<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 registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
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.
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<PAGE>
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-3
<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
DECEMBER 21, 1998.
Regency Realty Corporation
*
By: _________________________________
MARTIN E. STEIN, JR.,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
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.
*
December 21, 1998 _____________________________________
Date: _______________________________ MARTIN E. STEIN, JR.,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ Bruce M. Johnson
December 21, 1998 _____________________________________
Date: _______________________________ BRUCE M. JOHNSON,
MANAGING DIRECTOR AND PRINCIPAL
FINANCIAL OFFICER
/s/ J. Christian Leavitt
December 21, 1998 _____________________________________
Date: _______________________________ J. CHRISTIAN LEAVITT,
VICE PRESIDENT, SECRETARY,
TREASURER AND PRINCIPAL ACCOUNTING
OFFICER
II-4
<PAGE>
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ JOAN W. STEIN
CHAIRMAN EMERITUS AND DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ RICHARD W. STEIN,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ EDWARD L. BAKER,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ RAYMOND L. BANK,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ J. ALEXANDER BRANCH III,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ A.R. CARPENTER,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ J. DIX DRUCE, JR.,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ ALBERT ERNEST, JR.,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ DOUGLAS S. LUKE,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ MARY LOU ROGERS,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ JONATHAN SMITH,
DIRECTOR
/s/ *
December 21, 1998 _____________________________________
Date: _______________________________ LEE S. WIELANSKY,
DIRECTOR
/s/ Bruce M. Johnson
_____________________________________
BRUCE M. JOHNSON
ATTORNEY-IN-FACT
II-5
<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 8 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
99.1 Road Show Slide Presentation
</TABLE>
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* Previously filed
<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
December 21, 1998
Regency Realty Corporation
121 West Forsyth Street, Suite 200
Jacksonville, Florida 32202
Re: Regency Realty Corporation
Qualification as Real Estate Investment Trust
Ladies and Gentlemen:
You have requested our opinions with respect to qualification of Regency Realty
Corporation ("Regency") as a real estate investment trust (a "REIT") for
federal income tax purposes and, specifically, 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 will not
jeopardize the status of Regency as a REIT under the Internal Revenue Code of
1986, as amended, (the "Code"), as required by Section 7.1(f) of the Merger
Agreement.
In providing this opinion, we have relied on (i) representations provided by
Regency concerning certain facts underlying and relating to its qualification
as a "real estate investment trust," certain facts underlying and relating to
the merger, and the Regency Board of Directors' adoption of the Amendment to
Articles of Incorporation of Regency described in the Registration Statement on
Form S-4 (the "Registration Statement"), (ii) the description of the
transaction as set forth in the Merger Agreement and the exhibits thereto,
(iii) the description of the transaction as set forth in the Joint Proxy
Statement and Prospectus included as part of the Registration Statement and the
exhibits thereto, and (iv) representations provided by Pacific Retail
concerning certain facts underlying and relating to (x) the Merger and (y) its
qualification as a "real estate investment trust."
In connection with the opinions rendered below, we have assumed generally that:
1. each of the documents referred to above has been duly authorized,
executed, and delivered; is authentic, if an original, or is accurate,
if a copy; and has not been amended;
2. during its short taxable year ended December 31, 1993 and subsequent
taxable years, Regency has operated and will continue to operate in such
a manner that makes and will continue to make the factual
representations contained in a certificate, dated as of the date hereof
and executed by a duly appointed officer of Regency (the "Officer's
Certificate"), true for such years;
<PAGE>
3. Regency will not make any amendments to its organizational documents or
to the organizational documents of Regency Realty Group, Inc., a Florida
corporation ("Management Company"), or Regency Centers, L.P., after the
date of this opinion that would affect its qualification as a REIT for
any taxable year;
4. no actions will be taken by Regency, or Management Company after the
date hereof that would have the effect of altering the facts upon which
the opinion set forth below is based.
In connection with the opinions rendered below, we also have relied upon the
correctness of the factual representations contained in the Officer's
Certificate.
Based solely on the documents and assumptions set forth above and the
representations set forth in the Officer's Certificate, and without further
investigation, we are of the opinion that:
1. Regency has qualified to be taxed as a REIT pursuant to sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), for its taxable years ended, December 31, 1993 through December
31, 1997, and Regency's organization and current and proposed method of
operation has enabled it and will continue to enable it to continue to
satisfy the requirements for qualification as a REIT provided Regency
meets and continues to meet the asset composition, source of income,
shareholder diversification, distribution and other requirements of the
Code necessary for Regency to qualify as a REIT. We have performed no
due diligence and have made no efforts to verify the accuracy and
genuineness of the documents and assumptions set forth above, and the
representations set forth in the Officer's Certificate. We will not
review on a continuing basis Regency's compliance with such documents,
assumptions or representations. Accordingly, no assurance can be given
that the actual results of Regency's operations for its 1998 and
subsequent taxable year, will satisfy the requirements for qualification
and taxation as a REIT.
2. Regency's failure to qualify as a domestically controlled REIT as
defined in section 897(h) of the Code will not jeopardize the status of
Regency as a "real estate investment trust" under the Code.
3. 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.
<PAGE>
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" 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 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
December 21, 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
December 21, 1998
<PAGE>
EXHIBIT 99.1
[LOGO OF REGENCY REALTY APPEARS HERE]
[Collage of Color Photographs of Shopping Centers]
The First National Operating, Ownership and Services Company
Focused on Grocery-Anchored Infill Retail Centers
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
In addition to historical information, this presentation contains
forward-looking statements under the Federal Securities Law. These statements
are based on current expectations, estimates, and propositions about the
industry and markets in which Pacific Retail Trust and Regency Realty operate,
management's beliefs and assumptions made by management.
Forward-looking statements are not guarantees of future performance and involve
certain credit risks and uncertainties, which are difficult to predict.
Actual operating results may be affected by changes in national and local
economic conditions, competitive market conditions, weather, obtaining
government approvals, and meeting development schedules, and therefore may
differ materially from what is expressed or forecasted in the presentation.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
SUMMARY OF MERGER
. Share Exchange Ratio 0.48:1.0
. Name Regency Realty Corporation
. Total Market Capitalization(1) $2.030 Billion
. Total Book Assets $2.184 Billion
. Board Composition 4 Independent from Regency, 3 Independent
from Pacific Retail, 3 from Management, 3
from Security Capital U.S. Realty
. Senior Management Martin Stein, Jr. - Chairman and Chief
Executive Officer
Mary Lou Rogers - President and Chief
Operating Officer
. Headquarters Jacksonville, Florida
. Regional Offices Atlanta, Cincinnati, Denver, Dallas, Los
Angeles, St. Louis, San Francisco, Seattle
. Proposed Time Table Joint Proxy Statement filed -- October 9,
1998
Mail Joint Proxy Statement to Shareholders --
January 21, 1999
Shareholder Vote / Closing -- February 1999
(1) Equity market capitalization based on October 9, 1998 share price of $20.50.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
RATIONALE FOR MERGER
. Favorable financial impact
. Enhanced and more sustainable FFO growth rate
. Strengthened capital structure
. Immediate and long-term accretion
. Creates a national platform
. Grocery-anchored infill strategy
. Research-based Retail Operating System
. Customer-driven development program
. Enhanced management team
. Similar systems and cultures
. Operating and development capabilities
. Customer relationships
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
FINANCIAL IMPACT OF MERGER
. Higher FFO growth rate
. Strengthened capital structure
. Doubles total book assets to $2.2 billion
. Reduces debt from 35.8% to 30.7%
. Provides $600 million of credit capacity
. Immediate and long-term accretion
. Financial and operating synergies of $5.1 million
. FFO accretion of $0.03 in 1999 and $0.06 in 2000
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
CREATING A NATIONAL PLATFORM
--------------------------------------------------
194 Centers Operating or Under Development
$2.2 Billion Total Assets
22.5 Million Square Feet
--------------------------------------------------
[Map indicating locations of Regency and Pacific
Retail Properties and Targeted Markets]
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
NEIGHBORHOOD INFILL RETAIL CENTERS
------
[Aerial Photograph of [Color photograph of [Illustration of
Shopping Center Kroger Anchor Store] Shopping Center
Location] Layout]
Protected Infill Necessity-driven Retenanting/
------ Demand Remerchandising
Locations (Grocery Anchors) Opportunities
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Research-Driven Investment Strategy
Regency National
Average/(1)/ Average
------------ --------
Population 75,000 N/A
Average Household Income $66,660 $53,473
Projected 5-Year Population Growth 10.4% 4.3%
(1) For population within 3-mile radius of Regency retail centers. Includes
Pacific Retail centers.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Attractive Trade Area Demographics
[Color photograph of Hyde Primary Trade Area Analysis
Park Kroger] ---------------------------
Household Income $55,245
Case Study: Hyde Park Plaza Population 113,185
Cincinnati, Ohio Kroger/Thriftway Sales $68.2 Million
Weekly Shopper Visits 43,400
[Color Map of
Hyde Park
Trade Area]
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
DOMINANT GROCERS = FRANCHISE VALUE
Primary Trade Area (PTA)
. Grocer is primary traffic generator
. Consumers average 2.2 trips per week to
[Color Map Showing grocery store
North Hills Primary
Trade Area] . Focus on dominant grocers in the
submarket (ranked #1 or #2 in PTA)
. Target grocery chain's top stores
North Hills Plaza ---
Austin, Texas
Note: Ranked by gross sales.
Source: Trade Dimensions.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
DOMINANT GROCERS = FRANCHISE VALUE
Number of Regency Chain
Stores Average/(1)(2)/ Average/(2)(3)/
--------- --------------- ---------------
Publix 25 $22,623 $19,534
Kroger 23 $25,536 $17,336
Safeway/Vons 18 $23,777 $15,547
Winn-Dixie 14 $12,827 $11,700
Tom Thumb/Randall's 10 $24,099 $20,211
Albertsons/Max Foods 9 $18,034 $17,076
Fred Meyer/QFC/Ralphs/
Food 4 Less/Hughes 7 $19,992 $15,661
------- -------
AVERAGE/(4)/ $21,000 $17,500
$21 Million Annual Sales Translates into 14,000 Shopper Visits Each Week
(1) Based on stores reporting sales.
(2) In thousands.
(3) Source: Trade Dimensions and companies' financial reports.
(4) Includes all stores in portfolio reporting sales.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
DOMINANT GROCERS = FRANCHISE VALUE
Regency Chain
Average/(1)/ Average/(2)/
Number of (Per Square (Per Square
Stores Foot) Foot)
--------- ------------ ------------
Publix 25 $518.98 $436.00
Kroger 23 $438.02 $403.00
Safeway/Vons 18 $554.11 $495.08
Winn-Dixie 14 $286.94 $278.00
Tom Thumb/Randall's 10 $466.85 $457.13
Albertsons/Max Foods 9 $356.73 $417.60
Fred Meyer/QFC/Ralphs/
Food 4 Less/Hughes 7 $415.81 $419.58
------- -------
AVERAGE/(3)/ $437,09 $398.21
(1) Based on stores reporting sales.
(2) Source: Trade Dimensions and companies' financial reports.
(3) Includes all stores in portfolio reporting sales.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Cycle-Resistant Property Type
. Grocery anchors
Grocery Sales
. Provide daily use goods
. Sustainable sales per square foot
. Credit tenants
. Long-term leases [Graph Showing Amount of Grocery Sales
By Year]
. Limited supply
. Infill locations
. Highly fragmented industry
. Lack of institutional capital
Source: Progressive Grocer Annual Report.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Adding Value through Retenanting/
Remerchandising Opportunities
Trade Area Analysis Remerchandising Plan
[Color Map Showing Northeast [Illustration Showing Casa Linda
Dallas Trade Area] Remerchandising Plan]
Northeast Dallas Casa Linda Plaza
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Creating Value through Regency's
Preferred Customer Initiative
. Multiple locations with 79 leading retailers nationwide
. Regency's PCI program builds a national brand
. National roll-out of innovative new retail concepts
[Color Photographs of Preferred Customer Signs]
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
CUSTOMER-DRIVEN DEVELOPMENT
. $446 million developments/redevelopments
. Development driven by leading
grocery anchors
. 50%-75% pre-leasing
before construction
------ [Map Showing
Development Property Locations]
. 10.5%+ average yield
on current development
projects
. 11 Kroger-anchored shopping center
developments in process or under contract
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
Customer-Driven Redevelopment
. Excellent infill location in high-growth market
. Anticipated completion in February 1999
[Aerial Photograph of
Roswell Village] . Projected stabilized yield of 10.5%
. 6 additional Publix-anchored shopping center
developments in process or under contract
[Illustration of Roswell Village]
Roswell Village
Roswell (Atlanta), Georgia
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
THIRD-PARTY SERVICES
23 Eckerd build-to-suits in process
or under contract
[Color Photograph of Eckerd Store]
[Color Photograph of Stein Mart]
16 new stores identified
or opened for Stein Mart in 1998
Generating $7 million of gross profits in 1998
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
FFO PER SHARE GROWTH
[Bar Graph Showing FFO Per Share Growth By Year]
(1) First Call consensus estimates.
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
ATTRACTIVE VALUATION/(1)/
1999 FFO Multiples
[Bar Graph Showing Peer Group FFO Multiples]
(1) Stock prices as of October 9, 1998. First Call consensus estimates.
$23 Stock Price at 9.3x Average Multiple for Peer Group
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
EXPERIENCED MANAGEMENT TEAM
Name Title Years in Industry
---- ----- -----------------
Martin E. Stein, Jr. Chairman and Chief Executive Officer 21
Mary Lou Rogers President and Chief Operating Officer 20
Bruce Johnson Chief Financial Officer 26
James Buis Managing Director - Investments Southwest 26
John Delatour Managing Director - Operations West 15
Bob Gillander Managing Director - Investments Atlantic 19
Brian Smith Managing Director - Investments Pacific 15
Jim Thompson Managing Director - Operations East 17
Lee Wielansky Managing Director - Investments Midwest 15
Total of 40 Officers with an Average of 18 Years Experience
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
[Color Photograph Collage of Shopping Centers]
THE FIRST NATIONAL OPERATING, OWNERSHIP AND SERVICES COMPANY
FOCUSED ON GROCERY-ANCHORED INFILL RETAIL CENTERS
<PAGE>
[LOGO OF REGENCY REALTY APPEARS HERE]
FINANCIAL SUMMARY/(1)/
In thousands
(except per share data) Regency Pacific Combined
------- ------- --------
Total Book Assets $1,139,258 $1,045,040 $2,184,298
Equity Market Capitalization/(2)/ $ 681,759 $ 749,712 $1,278,905
Common Shares Outstanding/(3)/ 29,722 68,048 62,386
Preferred Stock $ 80,000 $ 0 $ 80,000
Line of Credit Outstanding $ 89,731 $ 173,600 $ 263,331
Term Debt $ 317,796 $ 90,236 $ 408,032
Total Debt/Total Book Assets 35.8% 25.3% 30.7%
Dividend Per Share $ 1.76 $ 0.76 $ 1.76
Fully Diluted FFO Per Share/(4)/ $ 2.25 $ 1.01 NA
Payout Ratio 78.2% 75.3% 75 - 78%
(1) As of June 30, 1998.
(2) Equity market capitalization based on October 9, 1998 share price of $20.50.
(3) Includes redeemable operating partnership units outstanding and Pacific
Retail's preferred stock which is convertible 1:1.
(4) Regency Realty FFO based on First Call consensus estimate.
