<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE
[X] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
ALEXANDER HAAGEN PROPERTIES, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Alexander Haagen Properties, Inc. (the "Company") to be held on ,
, 1997, at local time, at The Radisson Hotel, Suite
, 1400 Parkview Avenue, Manhattan Beach, California.
As described in the accompanying Proxy Statement, the Company has entered
into a Stock Purchase Agreement with two affiliates of Lazard Freres Real
Estate Investors, LLC, LF Strategic Realty Investors, L.P. and Prometheus
Western Retail, LLC (together "LFREI"), providing for LFREI to invest a total
of up to $235 million in the Company (the "Transaction"). The Board of
Directors and management believe that the Transaction represents an
opportunity to improve long-term stockholder value by providing the Company
with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to
it, thereby enhancing the Company's short-term and long-term growth prospects
and better positioning it to capitalize on shopping center opportunities in
the western United States.
At the Special Meeting, you will be asked to approve the Transaction as well
as a related proposal which provides for the approval of The Amended and
Restated 1993 Stock Option and Incentive Plan (the "Restated Plan"), as
amended to increase the number of shares subject to the Restated Plan by
650,000 shares, to accelerate the vesting of options and restricted stock
granted to Tom Bradley, James Hankla and Warren Fix, and to make certain other
clarifying revisions to the Restated Plan. Details of the proposals are set
forth in the accompanying Proxy Statement, which I urge you to read carefully.
The matters to be considered and voted upon at the Special Meeting are of
great importance to your investment and the future of the Company. Your Board
of Directors has carefully reviewed and considered the terms and conditions of
the Transaction. Your Board of Directors also has received the opinion of its
financial advisor, Prudential Securities Incorporated, to the effect that the
consideration to be paid to the Company pursuant to the Transaction is fair to
the Company and its stockholders from a financial point of view. A copy of
that opinion is attached to the accompanying Proxy Statement.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSALS BEING
SUBMITTED FOR APPROVAL BY THE STOCKHOLDERS AT THE SPECIAL MEETING AND HAS
DETERMINED THAT THEY ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE PROPOSALS.
Your vote is important, as approval of the Transaction is conditioned upon
the affirmative vote of a majority of the shares, present in person or
represented by proxy at the Special Meeting (other than shares owned by
LFREI). I hope that you will be able to attend the meeting in person. However,
whether or not you plan to attend the meeting, please indicate your vote,
sign, date and return the enclosed proxy card promptly. A prepaid envelope is
provided for this purpose. Your shares will be voted at the meeting in
accordance with your proxy, if given.
I look forward to seeing you at the Special Meeting.
Sincerely,
Alexander Haagen, Sr.
Chairman of the Board of Directors
President and Chief Executive Officer
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
----------------
NOTICE AND PROXY STATEMENT
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Alexander Haagen Properties, Inc., a Maryland corporation (the
"Company"), will be held on , 1997, at for the following purposes:
To consider and vote upon two related proposals (the "Proposals") described
in the accompanying Proxy Statement, which provide for:
1. Approval of the transactions (collectively, the "Transaction")
contemplated by a Stock Purchase Agreement (the "Stock Purchase Agreement")
among the Company, LF Strategic Realty Investors, L.P. and Prometheus Western
Retail, LLC, a wholly-owned subsidiary of LF Strategic Realty Investors, L.P.
(together with LF Strategic Realty Investors, L.P., "LFREI"), including (i)
the investment of up to an aggregate of $235 million in the Company by LFREI,
to be effected through the sale by the Company of up to 15,666,666 shares of
common stock, par value $.01 per share ("Common Stock"), at a purchase price
of $15.00 per share, such investment being comprised of (A) the sale by the
Company to LFREI, completed on July , 1997, of 1,306,434 shares of Common
Stock, representing an aggregate investment of approximately $19.6 million,
and (B) the sale by the Company from time to time following stockholder
approval of up to an additional 14,360,232 shares of Common Stock,
representing an additional aggregate investment of approximately $215.4
million, as more fully described in the attached Proxy Statement; (ii) the
grant to LFREI, under certain circumstances, of a right to nominate for
election by stockholders four members of the Board of Directors of the Company
(subject to increase as a result of an increase in the size of the Board of
Directors or decrease as a result of a reduction in LFREI's percentage
ownership of the Common Stock); (iii) the grant to LFREI of certain rights to
information regarding the Company; (iv) provisions that limit the ability of
LFREI in certain circumstances to acquire additional shares of the Company's
capital stock, exercise its voting rights in its own discretion and engage in
certain other actions during an initial five-year standstill period, subject
to certain extensions; (v) limitations during the standstill period on the
Company's ability to engage in certain corporate transactions without the
consent of LFREI; (vi) provisions that restrict LFREI from transferring its
shares of the Company's capital stock except in accordance with applicable
securities laws and subject to the generally applicable ownership limits in
the Company's charter, as amended, and to certain other restrictions; (vii)
the grant to LFREI of rights to purchase, under certain circumstances, shares
of the Company's capital stock in connection with future issuances by the
Company; and (viii) the grant to LFREI of certain registration rights to
enable LFREI to resell its shares of the Company's capital stock to the public
under certain conditions (Proposal 1);
2. Approval of The Amended and Restated 1993 Stock Option and Incentive Plan
(the "Restated Plan"), as amended to increase the number of shares available
for grants under the Restated Plan from 1,350,000 to 2,000,000, to accelerate
the vesting of options and restricted stock granted to Tom Bradley, James
Hankla and Warren Fix, and to make certain other clarifying revisions to the
Restated Plan (Proposal 2);
THE EFFECTIVENESS OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL
OF BOTH OF THE PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE
EITHER OF THE PROPOSALS MAY RESULT IN THE INEFFECTIVENESS OF BOTH OF THE
PROPOSALS.
3. Transacting such other business as may properly come before the Special
Meeting.
Holders of record of common stock, par value $.01 per share (the "Common
Stock"), of the Company as of the close of business on , 1997 are
entitled to receive notice of, and to vote at, the Special Meeting. The
outstanding Common Stock constitutes the only class of securities of the
Company entitled to vote
<PAGE>
at the Special Meeting, and each share of Common Stock entitles the holder
thereof to one vote. At the close of business on , 1997, there were
shares of Common Stock issued and outstanding.
We urge you to review carefully the enclosed materials. Your vote is
important. All stockholders are urged to attend the meeting in person or by
proxy. If you receive more than one proxy card because your shares are
registered in different names or at different addresses, please indicate your
vote, sign, date and return each proxy card so that all of your shares will be
represented at the Special Meeting.
By Order of the Board of Directors,
STEVEN JAFFE
Secretary
, 1997
IT IS IMPORTANT THAT ALL PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE INDICATE YOUR VOTE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU
MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED,
INCLUDING BY VOTING AT THE MEETING.
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
----------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
, 1997
This Proxy Statement is furnished to stockholders of Alexander Haagen
Properties, Inc., a Maryland corporation (the "Company"), in connection with
the solicitation of proxies in the form enclosed herewith for use at the
Special Meeting of Stockholders (the "Special Meeting") of the Company to be
held on , , 1997 at . Such proxies will be
used for the following purposes:
To consider and vote upon two related proposals (the "Proposals") described
in the accompanying Proxy Statement, which provide for:
1. Approval of the transactions (collectively, the "Transaction")
contemplated by a Stock Purchase Agreement (the "Stock Purchase Agreement")
among the Company, LF Strategic Realty Investors, L.P. and Prometheus Western
Retail, LLC, a wholly-owned subsidiary of LF Strategic Realty Investors, L.P.
(together with LF Strategic Realty Investors, L.P., "LFREI"), including (i)
the investment of up to an aggregate of $235 million in the Company by LFREI,
to be effected through the sale by the Company of up to 15,666,666 shares of
common stock, par value $.01 per share (the "Common Stock"), at a purchase
price of $15.00 per share, such investment being comprised of (A) the sale by
the Company to LFREI, completed on July , 1997, of 1,306,434 shares of
Common Stock, representing an aggregate investment of approximately $19.6
million, and (B) the sale by the Company from time to time following
stockholder approval of up to an additional 14,360,232 shares of Common Stock,
representing an additional aggregate investment of approximately
$215.4 million, as more fully described in the attached Proxy Statement; (ii)
the grant to LFREI, under certain circumstances, of a right to nominate for
election by stockholders four members of the Board of Directors of the Company
(subject to increase as a result of an increase in the size of the Board of
Directors or decrease as a result of a reduction in LFREI's percentage
ownership of the Common Stock); (iii) the grant to LFREI of certain rights to
information regarding the Company; (iv) provisions that limit the ability of
LFREI in certain circumstances to acquire additional shares of the Company's
capital stock, exercise its voting rights in its own discretion and engage in
certain other actions during an initial five-year standstill period, subject
to certain extensions; (v) limitations during the standstill period on the
Company's ability to engage in certain corporate transactions without the
consent of LFREI; (vi) provisions that restrict LFREI from transferring its
shares of the Company's capital stock except in accordance with applicable
securities laws and subject to the generally applicable ownership limits in
the Company's charter, as amended, and to certain other restrictions; (vii)
the grant to LFREI of rights to purchase, under certain circumstances, shares
of the Company's capital stock in connection with future issuances by the
Company; and (viii) the grant to LFREI of certain registration rights to
enable LFREI to resell its shares of the Company's capital stock to the public
under certain conditions (Proposal 1);
2. Approval of The Amended and Restated 1993 Stock Option and Incentive Plan
(the "Restated Plan"), as amended to increase the number of shares available
for grants under the Restated Plan from 1,350,000 to 2,000,000, to accelerate
the vesting of options and restricted stock granted to Tom Bradley, James
Hankla and Warren Fix, and to make certain other clarifying revisions to the
Restated Plan (Proposal 2);
THE EFFECTIVENESS OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL
OF BOTH OF THE PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE
EITHER OF THE PROPOSALS MAY RESULT IN THE INEFFECTIVENESS OF BOTH OF THE
PROPOSALS.
3. Transacting such other business as may properly come before the Special
Meeting.
The approximate date on which this Proxy Statement and accompanying form of
proxy will first be sent to the Company's stockholders is , 1997.
<PAGE>
This solicitation is made on behalf of the Board of Directors of the
Company. Costs of the solicitation will be borne by the Company. Directors,
officers and employees of the Company and its affiliates may also solicit
proxies by telephone, telegraph, fax or personal interview. The Company has
retained the services of Corporate Investor Communication, Inc. for a fee
estimated at $3,000 plus out-of-pocket expenses, to assist in the solicitation
of proxies. The Company will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them
in sending proxy material to stockholders.
Holders of record of common stock, par value $.01 per share, of the Company
as of the close of business on , 1997 are entitled to receive
notice of, and to vote at, the Special Meeting. The outstanding Common Stock
constitutes the only class of securities of the Company entitled to vote at
the Special Meeting, and each share of Common Stock entitles the holder
thereof to one vote. At the close of business on , 1997, there were
shares of Common Stock issued and outstanding.
Unless contrary instructions are indicated on the proxy, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted at the Special Meeting FOR the
Proposals. With respect to any other business which may properly come before
the Special Meeting and be submitted to a vote of stockholders, proxies
received by the Board of Directors will be voted in accordance with the best
judgment of the designated proxy holders. A stockholder may revoke his or her
proxy at any time before exercise by delivering to the Secretary of the
Company a written notice of such revocation, by filing with the Secretary of
the Company a duly executed proxy bearing a later date, or by voting in person
at the Special Meeting.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee which are represented at the Special
Meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Proposal 1 requires the approval of a majority of the Non-LFREI shares,
present in person or represented by proxy at the Special Meeting, providing
that a quorum is present. Proposal 2 requires the approval of a majority of
the shares present in person or represented by proxy at the Special Meeting
(including votes by LFREI), providing that a quorum is present. Therefore, as
to any particular proposal, abstentions will have the same effect as a vote
against that proposal and broker non-votes will not be counted as votes for or
against the proposal, and will not be included in counting the number of votes
necessary for approval of the proposal. See "The Special Meeting."
The principal executive offices of the Company are located at 3500 Sepulveda
Boulevard, Manhattan Beach, California 90266. The Company's telephone number
is (310) 546-4520.
----------------
IN DETERMINING WHETHER TO APPROVE THE PROPOSALS, STOCKHOLDERS SHOULD
CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT.
----------------
The date of this Proxy Statement is , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY................................................................... 1
The Special Meeting..................................................... 1
General............................................................... 1
Vote by Proxy......................................................... 2
Voting of Shares; Quorum; Appraisal Rights............................ 2
Votes Required........................................................ 2
The Transaction......................................................... 3
Background of the Transaction......................................... 3
Background of the Company............................................. 4
Background of LFREI................................................... 4
Terms of the Transaction.............................................. 5
Potential Beneficial Effects of the Transaction....................... 9
Potential Adverse Effects of the Transaction.......................... 10
Conflicts of Interest; Interests of Certain Persons................... 11
Potential Effects of Stockholder Approval of the Transaction.......... 12
Opinion of Financial Advisor.......................................... 12
Recommendation of the Board; Factors and Conclusions of the Board
Involved in Its Determination........................................ 12
Approval of The Amended and Restated 1993 Stock Option and
Incentive Plan, as amended (Proposal 2)................................ 12
THE SPECIAL MEETING....................................................... 14
Outstanding Shares and Voting Rights.................................... 14
Record Date........................................................... 14
Quorum................................................................ 14
Voting Rights......................................................... 14
No Appraisal Rights................................................... 14
Reasons for Seeking Stockholder Approval.............................. 14
Vote Required........................................................... 14
Vote Required to Approve the Transaction (Proposal 1)................. 14
Vote Required to Approve the Restated Plan, as amended (Proposal 2)... 14
Proxies................................................................. 15
APPROVAL OF THE TRANSACTION (Proposal 1).................................. 16
Information About the Company........................................... 16
Information About LFREI................................................. 16
Background of the Transaction........................................... 17
Terms of the Transaction................................................ 18
Parties............................................................... 18
LFREI Investment...................................................... 18
Use of Proceeds....................................................... 19
Stockholders Agreement................................................ 19
Registration Rights Agreement......................................... 23
Conditions to Closing................................................. 23
No Solicitation of Competing Transactions............................. 23
Expenses; Break-Up Fee................................................ 24
Amendment or Termination of the Stock Purchase Agreement.............. 24
Related Agreements.................................................... 25
Potential Beneficial Effects of the Transaction......................... 25
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Potential Adverse Effects of the Transaction............................ 26
Conflicts of Interest; Interests of Certain Persons..................... 27
Potential Effects of Stockholder Approval of the Transaction............ 29
Certain Federal Income Tax Considerations............................... 30
Description of Opinion of the Company's Financial Advisor............... 31
Recommendation of the Board; Factors and Conclusions of the Board
Involved in Its Determination.......................................... 34
Beneficial Ownership of Common Stock Prior to and After the Transaction. 36
Required Vote and Related Matters....................................... 38
APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK OPTION AND INCENTIVE PLAN,
AS AMENDED (Proposal 2).................................................. 39
Summary of the Third Amendment to the Amended and Restated 1993 Stock
Option and Incentive Plan.............................................. 39
Summary of the Fourth Amendment to the Amended and Restated 1993 Stock
Option and Incentive Plan.............................................. 39
Reasons for Adoption of the Third Amendment to the Plan................. 40
Reasons for Adoption of the Fourth Amendment to the Restated Plan....... 41
Description of the Amended and Restated 1993 Stock Option and Incentive
Plan................................................................... 41
New Plan Benefits....................................................... 42
Administration.......................................................... 44
Eligibility To Receive Options and Restricted Stock..................... 44
Awards under the Restated Plan.......................................... 45
Consideration........................................................... 47
Exercise of Options..................................................... 47
Acceleration and Termination Upon Corporate Events and Transactions..... 48
Miscellaneous Provisions................................................ 50
Amendment and Termination............................................... 51
Federal Income Tax Consequences......................................... 51
Required Vote and Related Matters....................................... 53
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING.. 54
OTHER MATTERS............................................................. 54
</TABLE>
<TABLE>
<C> <S> <C>
APPENDICES
Appendix A Stock Purchase Agreement..................................... A-1
Appendix B Stockholders Agreement....................................... B-1
Appendix C Registration Rights Agreement................................ C-1
Appendix D Third Amendment to the Amended and Restated 1993 Stock Option
and Incentive Plan........................................... D-1
Appendix E Form of Fourth Amendment to the Amended and Restated 1993
Stock Opinion and Incentive Plan............................. E-1
Appendix F Opinion of Prudential Securities Incorporated................ F-1
</TABLE>
ii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. The summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information set forth elsewhere in
this Proxy Statement and the appendices attached hereto. Stockholders are urged
to read this Proxy Statement in its entirety. As used herein, the term the
"Company" means Alexander Haagen Properties, Inc. and/or its subsidiaries and
the term "LFREI" means LF Strategic Realty Investors, L.P. and Prometheus
Western Retail, LLC, collectively or individually, as the context requires.
Certain capitalized terms used in this Summary are defined elsewhere in this
Proxy Statement.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board"). The proxies
will be used at the Special Meeting to be held on , ,
1997, at local time, at The Radisson Hotel, Suite , 1400 Parkview
Avenue, Manhattan Beach, California, and at any adjournment thereof.
At the Special Meeting, and at any adjournments thereof, stockholders of the
Company will be asked to consider and vote upon the transactions contemplated
by the Stock Purchase Agreement, including the investment of up to an aggregate
of $235 million in the Company by LFREI, to be effected through the sale by the
Company of up to 15,666,666 shares of Common Stock at a purchase price of
$15.00 per share (Proposal 1). See "Approval of the Transaction." The
investment of $235 million is comprised of (i) the sale by the Company to
LFREI, completed on July , 1997, of 1,306,434 shares, representing an
aggregate investment of approximately $19.6 million, as more fully described
herein, and (ii) the sale by the Company from time to time following
stockholder approval of up to an additional 14,360,232 shares of Common Stock,
representing an additional aggregate investment of approximately $215.4
million, as more fully described herein. As of July , 1997, the record date
for the Special Meeting (the "Record Date"), LFREI owned approximately 9.8% of
the outstanding Common Stock (4.6% after giving effect to the conversion of all
of the securities outstanding that are convertible into Common Stock, which is
defined herein as a "Fully Diluted Basis"). After the subsequent closings (the
"Subsequent Closings") (assuming no other changes in the number of outstanding
shares and that LFREI purchases all 14,360,434 shares that may be purchased at
such Subsequent Closings) LFREI will own approximately 56.6% of the outstanding
Common Stock and 36.9% of the outstanding Common Stock on a Fully Diluted
Basis.
The Transaction also involves a number of additional terms established
pursuant to the Stock Purchase Agreement, dated as of June 1, 1997, by and
among the Company, Prometheus Western Retail, LLC, and LF Strategic Realty
Investors, L.P., the related Stockholders Agreement, dated as of June 1, 1997,
by and among the Company, Lazard Freres Real Estate Investors, LLC, LF
Strategic Realty Investors, L.P., and Prometheus Western Retail, LLC (the
"Stockholders Agreement") and Registration Rights Agreement, dated as of June
1, 1997, by and among the Company and Prometheus Western Retail, LLC (the
"Registration Rights Agreement"), including, among others: (i) the grant to
LFREI, under certain circumstances, of a right to nominate for election by
stockholders four members of the Board of Directors of the Company (subject to
increase as a result of an increase in the size of the Board of Directors or
decrease as a result of a reduction in LFREI's percentage ownership of the
Common Stock); (ii) the grant to LFREI of certain rights to information
regarding the Company; (iii) provisions that limit the ability of LFREI to
acquire additional shares of the Company's capital stock, exercise its voting
rights in its own discretion and engage in certain other actions during an
initial five-year standstill period, subject to certain extensions; (iv)
limitations during the standstill period on the Company's ability to engage in
certain corporate transactions without the consent of LFREI; (v) limitations on
LFREI's ability to transfer its shares of Company capital stock except in
accordance with the securities laws and subject
1
<PAGE>
to the generally applicable ownership limitations in the Company's Amended and
Restated Articles of Incorporation (the "Charter"), and to certain other
restrictions; (vi) the grant to LFREI of certain additional rights to purchase,
under certain circumstances, shares of the Company's capital stock in
connection with future issuances by the Company; and (vii) the grant to LFREI
of certain registration rights to enable LFREI to resell its shares of Company
capital stock to the public under certain conditions. Copies of the Stock
Purchase Agreement, the Stockholders Agreement and the Registration Rights
Agreement are attached hereto as Appendix A, Appendix B and Appendix C,
respectively.
LFREI has informed the Company that it intends to designate four individuals
as its initial nominees to the Company's Board of Directors. In addition, the
Company's management team will be expanded to include a to-be-named real estate
executive recruited by the Company and LFREI to serve as President of the
Company and to provide a clear succession plan for the Haagen Family. The
appointee for President of the Company shall be named by the unanimous vote of
the Nominating Committee of the Board, and such President shall become Chief
Executive Officer at such time as the Nominating Committee (in consultation
with Alexander Haagen, Sr.) shall unanimously determine. See "Approval of the
Transaction--Terms of the Transaction."
At the Special Meeting, stockholders also will be asked to approve a proposal
to approve The Amended and Restated 1993 Stock Option and Incentive Plan (the
"Restated Plan"), as amended by the First Amendment, the Second Amendment, the
Third Amendment, and the Fourth Amendment, (each as defined, together, "As
Amended"), to increase the number of shares available for grants under the Plan
from 1,350,000 to 2,000,000, to accelerate the vesting of options and
restricted stock granted to Tom Bradley, James Hankla and Warren Fix, and to
make certain other clarifying revisions to the Restated Plan (Proposal 2). See
"Approval of the Amended and Restated 1993 Stock Option and Incentive Plan, As
Amended."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TRANSACTION AND THE THIRD
AMENDMENT AND FOURTH AMENDMENT TO THE RESTATED PLAN, AS AMENDED AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF BOTH OF THE PROPOSALS.
VOTE BY PROXY
A proxy card is enclosed for use at the Special Meeting. Unless otherwise
instructed, shares represented by proxy will be voted FOR all of the proposals
described herein. The proxy may be revoked at any time before it is voted by
(i) filing prior to the Special Meeting a written notice of revocation bearing
a later date with Steven M. Jaffe, Senior Vice President, General Counsel and
Secretary, Alexander Haagen Properties, Inc., 3500 Sepulveda Boulevard,
Manhattan Beach, California 90266, (ii) delivering to the Company a duly
executed proxy bearing a later date, or (iii) attending the Special Meeting and
voting in person.
VOTING OF SHARES; QUORUM; APPRAISAL RIGHTS
Only stockholders of record of the Common Stock at the close of business on
, 1997, are entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. At the close of business on the Record Date, the
Company had outstanding shares of Common Stock. The securities that
can be voted at the Special Meeting consist of shares of issued
and outstanding Common Stock, with each share entitling its owner to one vote
on all matters. The presence, in person or by proxy, at the Special Meeting of
stockholders entitled to cast a majority of all votes entitled to be cast at
such meeting, shall constitute a quorum.
Stockholders are not entitled under Maryland law to appraisal rights with
respect to the Transaction.
VOTES REQUIRED
Pursuant to the Stock Purchase Agreement, approval of the Transaction
(Proposal 1) requires the affirmative vote of a majority of the total number of
shares present in person or represented by proxy at the Special Meeting
2
<PAGE>
(other than shares owned by LFREI), provided that the total number of shares
present in person or represented by proxy at the Special Meeting (including
shares owned by LFREI) represent over 50% of the shares of Common Stock issued
and outstanding on the Record Date. For the purpose of determining the outcome
of the vote, abstentions will have the same effect as a vote against Proposal 1
and broker non-votes will not be counted as votes for or against Proposal 1,
and will not be included in counting the number of votes necessary for approval
of Proposal 1. Approval of the Transaction by the requisite vote of the
stockholders of the Company is a condition to consummation of the Transaction
(except for the Initial Purchase by LFREI of 1,306,434 shares on July ,
1997).
Approval of the Restated Plan, As Amended, (Proposal 2) requires the
affirmative vote of a majority of the total number of shares present in person
or represented by proxy at the Special Meeting (including shares owned by
LFREI). For the purpose of determining the outcome of the vote, abstentions
will have the same effect as a vote against Proposal 2 and broker non-votes
will not be counted as votes for or against Proposal 2, and will not be
included in counting the number of votes necessary for approval of Proposal 2.
THE EFFECTIVENESS OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL
OF BOTH OF THE PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE
EITHER OF THE PROPOSALS WILL RESULT IN THE INEFFECTIVENESS OF BOTH OF THE
PROPOSALS, UNLESS SUCH CONDITION IS WAIVED BY THE BOARD OF DIRECTORS OF THE
COMPANY.
Alexander Haagen, Sr., Chairman of the Board of the Company, Alexander Haagen
III, Vice Chairman of the Board of the Company, Charlotte Haagen, Vice
President of the Company, and certain other stockholders of the Company who are
related to them (the "Haagen Family Stockholders"), who as of the Record Date
collectively owned 3.2% of the outstanding shares of Common Stock, have
executed a Stockholders' Voting Agreement with LFREI (the "Stockholders Voting
Agreement"), pursuant to which they have agreed to vote all of their shares in
favor of the transactions contemplated by the Stock Purchase Agreement, and
they intend to vote in favor of both Proposal 1 and Proposal 2. LFREI, which as
of the Record Date held 1,306,434 shares of Common Stock, representing 9.8% of
the total outstanding Common Stock, is expected to vote its shares in favor of
both Proposals, however the shares voted by LFREI will not be considered in
determining the outcome of Proposal 1, other than in determining the presence
of a quorum.
THE TRANSACTION
BACKGROUND OF THE TRANSACTION
The Company believes that the success of a real estate investment trust
("REIT") is largely dependent on its ability to access capital markets
consistently on favorable terms and that this access will depend upon the
REIT's asset size, operational sophistication, experience and operational
history. Accordingly, the Company, which was aware of the reputation of LFREI
in the real estate industry, was receptive to LFREI's expression of interest in
exploring an affiliation between the Company and LFREI. Representatives of the
Company had an introductory meeting in February 1997 with officers of LFREI.
During the next several months, the parties exchanged information and had a
number of meetings and telephone discussions concerning strategy, philosophy,
and possible structure and price. On April 9, 1997, the parties met in New York
and LFREI outlined a proposed structure for a strategic investment by an
affiliate of LFREI in the Company. The next week, negotiations between the
Company and LFREI were suspended as a result of disagreements among the parties
as to certain terms of the Transaction. Concurrently, the Company was
approached by another investor who expressed an interest in doing a similarly
structured transaction. Over the next several weeks the Company met and
discussed with the other investor the terms of a possible investment by the
other investor in the Company. On May 9, 1997, LFREI proposed to the Company
terms of an investment that in the business judgment of the Board of Directors
of the Company were superior to terms being discussed with the other investor.
The Company and LFREI resumed negotiations on the terms of the proposed
transaction, including price.
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During the ensuing two and a half weeks, transaction document drafts were
prepared and numerous revised drafts circulated, with representatives of the
Company and LFREI and their respective counsel conducting detailed negotiations
concerning legal and business points in the documentation. At a meeting on May
30, 1997, after receiving a written fairness opinion from Prudential Securities
Incorporated ("Prudential Securities") relating to the consideration to be
received in the Transaction, the Board of Directors approved the proposed
transaction terms and voted unanimously in favor of the Transaction. See
"Approval of the Transaction--Description of the Opinion of the Company's
Financial Advisor."
On May 30, 1997, the last trading day before the Transaction was publicly
announced, the closing sale price for the Common Stock as reported on the AMEX
Composite Tape was $14.00. For the 60 trading days prior to June 2, 1997, the
day the Transaction was announced, the average closing sale price for Common
Stock was $13.99, and on , 1997 the closing sale price was $ .
Concurrently with the Company's negotiation with LFREI, the Compensation
Committee of the Company's Board of Directors negotiated the terms of (i)
employment agreements with Alexander Haagen, Sr. (Chairman of the Board and
Chief Executive Officer), Alexander Haagen III (Vice Chairman), and Charlotte
Haagen (Vice President) (the "Employment Agreements"), (ii) a registration
rights agreement providing certain registration rights to the Haagen Family
Stockholders (the "Haagen Registration Rights Agreement"), and (iii) a
stockholders agreement with the Haagen Family Stockholders providing them with
rights to participate in purchasing additional shares of Common Stock of the
Company in certain circumstances (the "Haagen Stockholders Agreement"). At a
meeting on May 30, 1997, the Compensation Committee unanimously recommended
that the Board of Directors approve such agreements, and the Board of Directors
unanimously approved such agreements.
BACKGROUND OF THE COMPANY
The Company is a self-administered and self-managed REIT engaged in the
ownership, management, leasing, acquisition, development and redevelopment of
retail shopping centers in California and other western states. The Company
currently owns a portfolio comprised of interests in 38 retail shopping
centers. The Properties consist of 14 neighborhood/ community shopping centers,
14 single tenant centers, eight promotional/ power centers and two regional
shopping malls, containing in the aggregate approximately 8.2 million square
feet of gross leasable area, approximately 6.5 million square feet of which is
owned by the Company and the balance of which is owned by certain anchor
retailers. The Company conducts substantially all of its operations through
Alexander Haagen Properties Operating Partnership, L.P., a California limited
partnership (the "Operating Partnership"). The Company is the sole general
partner of the Operating Partnership and as of March 31, 1997 owned a 73.7%
interest therein.
BACKGROUND OF LFREI
Established in 1848, Lazard Freres & Co., LLC is a leading private investment
bank, with extensive experience in principal investments, real estate, asset
management, mergers and acquisitions and corporate finance. Operating through
affiliated entities in six countries throughout the world, Lazard Freres & Co.,
LLC advises numerous corporations, financial institutions and governments on
strategic and financial transactions. Lazard Freres & Co., LLC also provides
investment management services to institutional and individual investors
worldwide, managing more than $53 billion of capital.
Lazard Freres Real Estate Investors, LLC is a real estate investment
affiliate of Lazard Freres & Co., LLC. Lazard Freres Real Estate Investors, LLC
manages several realty investment funds including LF Strategic Realty
Investors, LP, a strategic investment fund capitalized with almost $1 billion,
which is committing to the investment in the Company. Since its inception,
Lazard Freres Real Estate Investors, LLC has acquired sizable
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investment stakes in a select group of leading real estate operating companies,
including American Apartment Communities; RF&P Corporation (renamed
Commonwealth Atlantic Properties); Dermody Properties; and Bell Atlantic
Properties (renamed Atlantic American Properties Trust).
The Real Estate Investment Banking Group at Lazard Freres & Co., LLC is a
recognized leader in the business of advising real estate companies on the
process of recapitalizing, restructuring and expanding their companies and
portfolios. Select clients include Corporate Property Investors, Mobil Corp.,
Olympia & York (World Financial Properties), Prudential Insurance Company, the
Rockefeller Group, Rodamco, N.V. and the Wright Runstad Company.
Neither LFREI nor any of its controlled affiliates currently own a material
interest in any company whose business involves the ownership of unenclosed
shopping centers in the states of Arizona, California, Nevada, Oregon,
Washington, New Mexico or Utah (the "Geographic Region"), or own any material
interest in any company that owns assets that currently compete with the
Company's investments or properties. Until a Termination Event under the
Stockholders Agreement, LFREI and its controlled affiliates have committed that
they will not, directly or indirectly, own any equity interest of more than 25%
in the aggregate in any public or private real estate company (i) the primary
business of which is the acquisition, development or management of unenclosed
shopping centers in the Geographic Region and (ii) which owns at least 60% of
its real estate assets (based on book value) located in the Geographic Region,
unless 75% of the directors of the Company (other than the LFREI's Nominees)
have consented to such ownership.
TERMS OF THE TRANSACTION
LFREI Investment. Pursuant to the Stock Purchase Agreement, the Company will
sell an aggregate of up to 15,666,666 shares of Common Stock to LFREI at a
price of $15.00 per share, for an aggregate purchase price of up to $235
million (the "Total Equity Commitment"). The purchase price per share was
determined as a result of arm's length negotiations between the Company and its
advisors on the one hand and LFREI and its advisors on the other hand. At the
Initial Closing, the Company sold 1,306,434 shares to LFREI at $15.00 per share
(the "Initial Purchase"), for an aggregate purchase price of approximately
$19.6 million. As of the Record Date, LFREI owned approximately 9.8% of the
outstanding Common Stock.
Subject to stockholder approval, the Company is required to sell 14,360,232
additional shares of Common Stock, from time to time, as it chooses, to LFREI
at a price of $15.00 per share, for an aggregate purchase price of
approximately $215.4 million (the "Remaining Equity Commitment"). Of the
Remaining Equity Commitment, the Company must sell at least 5,360,233 shares,
in addition to the 1,306,434 shares sold in the Initial Purchase, within six
months of stockholder approval and must sell the entire Remaining Equity
Commitment not later than the earlier of (i) eighteen months after stockholder
approval and (ii) March 14, 1999. If the Company has not drawn the Remaining
Equity Commitment by such dates, LFREI will have the right on such dates to
purchase such shares from the Company, at a price of $15.00 per share. If LFREI
acquires all of the shares represented by the Remaining Equity Commitment (and
assuming no other change in the number of outstanding shares), LFREI will own
approximately 56.6% of the outstanding Common Stock (36.9% on a Fully Diluted
Basis).
Use of Proceeds. The net proceeds of the investment by LFREI will be used (i)
to repay certain indebtedness of the Company, and (ii) to make additional
investments in shopping centers in the Geographic Region.
Management of the Company; Representation on the Board and Certain Board
Committees. Under the Stockholders Agreement, four persons designated by LFREI
will become directors of the Company immediately after the approval of the
Transaction by the stockholders of the Company. In order to effect the
appointment of the LFREI designees to the Board of Directors, it is anticipated
that three of the current members of the Board
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of Directors (Tom Bradley, Warren D. Fix and James Hankla) will resign. Mr.
Bradley will become Director Emeritus and will continue to advise the Board of
Directors. Immediately prior to the resignation of Messrs. Bradley, Fix and
Hankla from the Board, such directors shall become fully vested in their stock
options and restricted stock. In addition, Messrs. Fix and Hankla shall become
entitled to severance compensation in the amount of one year of director's
fees.
Thereafter, LFREI will have the right, during the Standstill Period and any
Standstill Extension Term (each as defined below), at each annual or special
meeting of stockholders of the Company at, or the taking of action by written
consent of stockholders of the Company with respect to which any class of
directors is to be elected, to designate nominees to the Board such that LFREI
shall have on the Board of Directors:
(i) four representatives, so long as LFREI owns (a) a number of shares of
Common Stock equal to at least 50% of the aggregate number of shares to be
acquired pursuant to the Stock Purchase Agreement, and (b) LFREI owns a
number of shares of Common Stock equal to at least 20% of the outstanding
Common Stock, on a Fully Diluted Basis;
(ii) two representatives, if LFREI does not meet the minimum ownership
criteria of either clause (i)(a) or (i)(b) above, but (a) LFREI owns a
number of shares of Common Stock equal to less than 50% of the aggregate
number of shares to be acquired pursuant to the Stock Purchase Agreement,
but equal to or more than 25% of such aggregate number, and (b) LFREI owns
a number of shares of Common Stock equal to less than 20% of the
outstanding Common Stock on a Fully Diluted Basis, but equal to or more
than 15% of the outstanding Common Stock on a Fully Diluted Basis;
(iii) one representative, if LFREI does not meet the minimum ownership
criteria in any of clause (i)(a), (i)(b), (ii)(a) or (ii)(b) above, but
owns a number of shares of Common Stock equal to less than 15% of the
outstanding Common Stock on a Fully Diluted Basis, but equal to or more
than 10% of the outstanding Common Stock on a Fully Diluted Basis; and
(iv) no representatives, if LFREI does not meet any of the minimum
ownership criteria in any of clauses (i)(a), (i)(b), (ii)(a) or (ii)(b) or
(iii) above.
If LFREI's right to nominate directors to the Board is reduced, LFREI shall
cause the applicable number of its nominees to immediately resign (regardless
of the remaining term, if any) from the Board. So long as the Standstill Period
or any Standstill Extension Term is in effect, the Stockholders Agreement
prohibits LFREI from seeking additional representation on the Board. In
addition, so long as LFREI has the right to nominate at least two directors to
the Board (or at least one in the case of the Nominating Committee), LFREI has
the right, subject to certain limitations, to have one of the directors whom it
nominated serve on each of the Board's key committees.
In addition to the four LFREI designees on the Board of Directors, three
members of the Board will be designees of management of the Company and three
members will be independent directors designated by the Nominating Committee.
LFREI will assist the Company in recruiting a candidate to serve as President
of the Company, and the new President shall also be an additional member of the
Board of Directors.
Information Rights. From the date of the Stockholder Agreement and until the
date on which the Remaining Equity Commitment is zero and the Buyer no longer
owns both (i) at least 25% of the shares it purchased pursuant to the Stock
Purchase Agreement, and (ii) at least 15% of the Common Stock on a Fully
Diluted Basis (the "Termination Date"), the Company will have the obligation
(a) to provide to LFREI certain financial statements and operating information,
generally limited to information provided to the Company's senior management
and the Board, copies of all other information distributed by the Company to
the Board, and a copy of any filing made by the Company pursuant to any federal
or state securities law, and (b) to consult with the designated representative
of LFREI, prior to approval by the Board or entering into any definitive
agreement, in connection with proposals relating to certain extraordinary or
material transactions, including the acquisition in a single transaction or
group of related transactions of any assets or business having a value
exceeding $10 million or the disposition in a single transaction or group of
related transactions of any assets or business having a value exceeding $20
million. However, the Board shall have no obligation to accept or comply with
any advice offered
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by LFREI. LFREI will be obligated to comply with the Company's insider trading
policy. The Company and LFREI also will afford each other a reasonable
opportunity to review in advance any filing by it pursuant to any federal or
state securities or other laws or any press release that mentions the other.
Participation Rights. From the date of the Stockholder Agreement and until
the Termination Date, in the event that the Company issues or sells shares of
capital stock for cash, LFREI will be entitled (except in certain
circumstances) to a participation right to purchase or subscribe for, either as
part of such issuance or in a concurrent issuance, that portion of the total
number of shares to be issued equal to LFREI's proportionate holdings of Common
Stock prior to such issuance (but not to exceed 37.5% of the offering).
Limitations on Corporate Actions. From the date of the Stockholder Agreement
and until the Termination Date, the Company will be subject to certain
limitations on its operations, including restrictions relating to (i) the
incurrence of additional indebtedness such that total consolidated indebtedness
exceeds 50% of the sum of the market value of the Company's equity (including
Operating Partnership Units as if converted) and the Company's total
consolidated indebtedness, provided that the Company may borrow up to $90
million under the Company's existing secured revolving credit facility, (ii)
engaging in a material business other than the ownership, management and
development of shopping centers in the Geographic Region, and (iii) termination
of the federal income tax status of the Company as a REIT. The Company believes
that these limitations are generally consistent with its operating strategies
and does not believe that they will materially restrict its operations or have
a material adverse effect on its financial condition or results of operations.
Failure of the Company to comply with these limitations could result in early
termination of the standstill provisions described below.
Restrictions on Voting Rights. During the Standstill Period and any
Standstill Extension Term, LFREI has agreed to vote any shares it owns in favor
of directors nominated by the Board of Directors of the Company and independent
directors nominated by the Nominating Committee, and, on any other matters,
will vote any shares it owns that represent aggregate ownership of in excess of
40% of the outstanding shares of Common Stock, at its option in accordance with
the recommendation of the Company's Board or proportionally in accordance with
the votes of the other holders of the Common Stock. However, LFREI may vote all
of the shares of Common Stock that it owns, in its sole and absolute
discretion, with regard to the election of its nominees to the Board.
Standstill Provisions. For a period of five years following stockholder
approval (the "Standstill Period") and during any Standstill Extension Term (as
defined below), LFREI and its affiliates may not (i) acquire beneficial
ownership of more than 49.9% of the outstanding shares of Common Stock, on an
Adjusted Fully Diluted Basis (as defined below), (ii) sell, transfer or
otherwise dispose of any shares of Common Stock except in accordance with
certain specified limitations (including a requirement that the Company, in its
sole and absolute discretion, approve any transfer in a negotiated transaction
that would result in the transferee beneficially owning more than 9.8% of the
Company's capital stock), (iii) act in concert with any other person or group
by becoming a member of any group within the meaning of Section 13(d) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") (other
than such a group comprised exclusively of LFREI and one or more of its
affiliates), (iv) solicit, encourage, or propose to effect or negotiate certain
business combination transactions other than pursuant to the Stock Purchase
Agreement, (v) solicit, encourage, initiate, or participate in any
"solicitation" of "proxies" or become a "participant" in any "election contest"
(as such terms are defined or used in Regulation 14A under the Exchange Act,
disregarding certain provisions thereof), (vi) seek Board representation or a
change in the composition or size of the Board, except as permitted by the
Stockholders Agreement, (vii) request an amendment or waiver of the foregoing
limitations or of the ownership limitations of the Charter, or (viii) assist or
encourage any person or entity with respect to any of the foregoing
(collectively, the "Standstill Provisions"). As used herein, the term Adjusted
Fully Diluted Basis shall mean on a Fully Diluted Basis, except that shares of
Common Stock issuable upon conversion of the Company's outstanding convertible
debt or upon exercise of options granted under management benefit plans shall
not be included. After giving effect to the sale of 15,666,666 shares to LFREI
in the Transaction, and assuming no other
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change in the number of outstanding shares, LFREI will own 49.0% of the Common
Stock on an Adjusted Fully Diluted Basis. In the event that the number of
outstanding shares were to increase for any reason (including as a result of
issuance of Common Stock upon conversion or exercise of the outstanding
convertible debt or management stock options), then LFREI would be able to
acquire additional shares of Common Stock, up to 49.9% on an Adjusted Fully
Diluted Basis.
After expiration of the Standstill Period, the Standstill Provisions will be
extended for successive one-year periods (each a "Standstill Extension Term"),
subject at any time to LFREI's ability to terminate a Standstill Extension Term
upon a 90 day written notice of cancellation. The Standstill Period or a
Standstill Extension Term, as the case may be, will be automatically terminated
upon the occurrence of certain actions taken or not taken by the Company. See
"Approval of the Transaction--Terms of the Transaction."
Registration Rights. Pursuant to the Registration Rights Agreement, the
Company has granted certain registration rights to LFREI that will enable LFREI
to resell in registered offerings certain shares of Common Stock and other
securities of the Company acquired by it to the public under certain
conditions. The shares issued to LFREI pursuant to the Stock Purchase Agreement
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available.
Conditions to Closing. Each of the Company's and LFREI's obligations to
effect the Subsequent Closings are subject to various mutual and unilateral
conditions, including, without limitation, the following: (i) the Company shall
continue to qualify as a REIT for federal income tax purposes; (ii) the
stockholders shall have approved the Transaction (Proposal 1); (iii) the
Company shall continue to qualify as a domestically controlled REIT for federal
income tax purposes; and (iv) various other customary conditions. In addition,
at the time of the first Subsequent Purchase following stockholder approval of
the Transaction (the "Second Closing"), LFREI's obligations are subject to the
continuing correctness of the Company's representations and warranties in the
Stock Purchase Agreement and the receipt of any consents necessary for the
Transaction.
No Solicitation of Competing Transactions. Unless and until the Stock
Purchase Agreement is terminated in accordance with its terms, the Company may
not solicit proposals or indications of interest from, provide information to,
or negotiate with any person, with respect to certain alternative transactions
(each a "Competing Transaction"). However, the Board may take such actions as
may be required by the Board's fiduciary obligations to the stockholders as
determined in good faith by the Board on the advice of outside counsel.
Expenses; Break-Up Fee. If the Transaction is submitted to a vote of the
stockholders and the stockholders fail to approve the Transaction (or in the
event that the Company has failed to convene a meeting of stockholders for such
purpose on or before December 31, 1997), the Company will pay to LFREI
$1,762,500 to reimburse LFREI for its expenses in connection with the
transactions (including opportunity costs). If either (i) a Competing
Transaction is publicly proposed prior to the Record Date and, under certain
circumstances, the stockholders do not approve the Transaction or (ii) the
Transaction does not close as the result of the Company's wilful breach of the
Stock Purchase Agreement, the Company will pay to LFREI a break-up fee of
$8,225,000, reduced by the expense payment described above.
Put Option. In the event that the Company shall not have received stockholder
approval of the Transaction prior to December 31, 1997, LFREI has an option
under the Stock Purchase Agreement to require that the Company repurchase the
shares of Common Stock acquired in the Initial Purchase at a price equal to the
purchase price therefor, together with accrued dividends (the "Put Option"). If
stockholder approval is not obtained, this option may be exercised at any time
until 11 months after the Initial Purchase; provided that the Company shall not
be required to pay for the shares of Common Stock to be so repurchased until
the earlier to occur of (i) 18 months after the Initial Purchase and (ii) the
consummation by the Company of an issuance of debt or equity securities or a
sale of assets that yields net proceeds to the Company of at least $50 million.
The
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Company does not have the right to require LFREI to exercise the Put Option.
Therefore, in the event that stockholder approval of the Transaction is not
obtained and LFREI does not exercise the Put Option, the shares of Common Stock
issued to LFREI in the Initial Purchase will remain outstanding.
POTENTIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, represents an
opportunity to improve long-term stockholder value by providing the Company
with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to
it, thereby enhancing the Company's short-term and long-term growth prospects
and better positioning it to capitalize on shopping center acquisition and
development opportunities in the Geographic Region. In particular, the Company
believes that the Transaction may have a number of beneficial effects on the
Company and its stockholders, including the following:
Large, Timely Infusion of Capital at Reasonable Cost. The Transaction is
expected to enable the Company to accomplish its financing objectives for 1997
and 1998 in a single transaction on favorable terms compared with those that
might have been available in the public markets. Because the purchase price for
the Common Stock to be acquired by LFREI is fixed, the Transaction protects the
Company against the risks of a decline in the stock market as a whole and the
market for REIT shares in particular. In addition, the Company will not pay any
underwriting discount or commission in connection with the sales to LFREI and
expects that its out-of-pocket expenses in connection with such sales will be
substantially less than the costs it would have incurred in selling a similar
number of shares in one or more firm commitment underwritings. Moreover, the
Company is not exposed to the risk of a decline in the market price of its
shares that is commonly observed in advance of such offerings. Additionally,
the Transaction will enable management to focus on acquisitions and intensively
managing the Company's existing properties instead of being required to divert
management time and attention to the process of raising capital.
Association with LFREI. LFREI is highly-regarded as a sophisticated investor
in real estate. Four individuals to be nominated by LFREI will become directors
of the Company immediately after approval by the Company's stockholders of the
Transaction. The Company believes that it will benefit significantly from its
association with LFREI and its access to the market knowledge, operating
experience and capital market capabilities of LFREI.
Improved Future Access to Capital. The Company believes that, as a result of
the Transaction, it will have greater access to the capital markets and a lower
cost of capital because the Transaction will (i) increase its equity market
capitalization and total capitalization; (ii) establish an association with a
highly-regarded institutional investor, LFREI, which should enhance the
Company's access and attractiveness to significant institutional investors; and
(iii) through the participation rights granted to LFREI under the Stockholders
Agreement, provide a potential buyer for substantial portions of future
offerings by the Company of its equity securities or debt securities
convertible into equity. Moreover, because of its substantial investment in the
Company, LFREI will have significant incentives to make available its
resources, experience and advice regarding access to capital markets and
assisting the Company to achieve a lower cost of capital. The Company believes
that improved access to the capital markets should enhance its ability to grow
and increase stockholder value.
Potential Enhancement of Stockholder Value. The Transaction will not result
in any direct return to stockholders of cash or other consideration. The
Company, however, believes that the Transaction offers stockholders an
opportunity to realize long-term value. The Company intends to use a portion of
the capital raised in the Transaction to reduce its outstanding debt levels. In
addition, the Company's strategic plan calls for the application of the
significant capital to be raised in the Transaction to execute an attractive
growth strategy for the purpose of increasing the Company's asset base and cash
flow in a controlled but significant fashion over
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a relatively short period of time. Management's goal is to increase funds from
operations and cash available for distribution to stockholders through the
strategic deployment of the capital and other resources to be made available to
the Company through its affiliation with LFREI.
It should be noted, however, that there is no assurance that the Company will
realize all or any of the potential benefits described above, which are forward
looking statements that are subject to numerous risks and uncertainty. The
Company's ability to enhance stockholder value will depend upon a number of
circumstances, many of which are outside the control of management, including
the availability of attractive acquisition and development opportunities; the
Company's continuing ability to identify, perform due diligence with respect
to, acquire and effectively manage a large number of shopping center
properties; the state of the capital markets generally and prevailing interest
rates; uncertainty concerning the Company's ability to refinance its
indebtedness at favorable interest rates as it becomes due; and risks relating
to the ownership of real estate generally, including the risks of bankruptcy,
insolvency or the downturn in business of or failure to renew leases by the
Company's anchor tenants, potential liability for unknown environmental
matters, and the risk of uninsured losses.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, could have certain
adverse effects on the Company and its stockholders, including the following:
Concentration of Ownership of Common Stock. LFREI will be entitled to own up
to 49.9% of the Company's Common Stock, on an Adjusted Fully Diluted Basis, and
will be the largest single stockholder of the Company. LFREI will have the
right to nominate up to four directors of the Company's Board. Although certain
Standstill Provisions will preclude LFREI from increasing its percentage
interest in the Company for a period of at least five years (subject to certain
exceptions), and LFREI will be subject to certain limitations on its voting
rights with respect to its shares of Common Stock during that time, LFREI
nonetheless will have a substantial influence over the affairs of the Company
as a result of the Transaction and the effective ability to block any
combination transaction with a third party. This concentration of ownership in
one stockholder could be disadvantageous to other stockholders' interests.
LFREI could own as much as 49.9% of the Company's total common equity on an
Adjusted Fully Diluted Basis. If the Standstill Period or any Standstill
Extension Term terminates and the securities and Operating Partnership Units
convertible into the Company's Common Stock (the "Convertible Securities") are
not converted into shares of Common Stock (in which case LFREI's shares would
constitute 56.6% of the outstanding Common Stock), LFREI could be in a position
to control the election of the Board or the outcome of any corporate
transaction or other matter submitted to the stockholders for approval
(assuming no other changes in the number of outstanding shares of Common
Stock).
Anti-Takeover Effect of the Transaction. LFREI's acquisition of up to 56.6%
of the outstanding Common Stock (36.9% on a Fully Diluted Basis) and the
director nomination, voting and other rights granted to LFREI under the
Stockholders Agreement, although subject to certain limitations during the
Standstill Period by reason of the Standstill Provisions (including a 40%
voting restriction as described in "Approval of the Transaction--Terms of the
Transaction"), may make it more difficult for other stockholders to challenge
the Company's director nominees, elect their own nominees as directors, or
remove incumbent directors and may render the Company a less attractive target
for an unsolicited acquisition by an outsider. In addition, under Maryland law,
a merger or consolidation involving the Company requires the affirmative
approval of two-thirds of the shares entitled to vote. Accordingly, LFREI would
have sufficient voting power to block any such transaction, even after taking
into account the limitations on LFREI's voting rights set forth in the
Stockholders Agreement.
Potential Dilution. While the Company generally has the ability to control
the timing of the Subsequent Closings and any additional investments by LFREI,
if the proceeds from sales of securities to LFREI are not invested in a timely
or accretive manner, there would be dilution of earnings per share and funds
from operations
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per share to the existing stockholders of the Company. The Company does not
intend to change its careful acquisition criteria, and it may temporarily have
excess cash on its balance sheet if sufficient acquisitions are not completed
within six months and eighteen months after stockholder approval (unless the
Company and LFREI agree to extend these dates).
Limitations on Corporate Actions. Pursuant to the Stockholders Agreement, the
Company has agreed to certain limitations on its operations during the
Standstill Period and any Standstill Extension Term, including restrictions
relating to (i) the incurrence of additional indebtedness such that total
consolidated indebtedness exceeds 50% of the sum of the market value of the
Company's equity (including Operating Partnership Units as if converted) and
the Company's total consolidated indebtedness, provided that the Company may
borrow up to $90 million under its revolving credit facility, (ii) engaging in
a material business other than the ownership, management and development of
shopping centers in the Geographic Region, and (iii) termination of the federal
income tax status of the Company as a REIT. Although the Company believes that
these limitations are consistent with its operating strategies and does not
believe that they will materially restrict its operations or have a material
adverse effect on its financial condition or results of operations, there can
be no assurance that these limitations will not do so in the future. Failure of
the Company to comply with these limitations could result in early termination
of the standstill provisions described above.
CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS
In connection with the Transaction and the recruitment of a new President to
provide a clear succession plan for the Haagen family, as discussed above, the
Company has entered into certain agreements with the Haagen Family Stockholders
including (i) the Employment Agreements, (ii) the Haagen Registration Rights
Agreement, and (iii) the Haagen Stockholders Agreement. The Employment
Agreements set forth the terms and conditions of employment for Alexander
Haagen, Sr. as Chairman of the Board and Chief Executive Officer, Alexander
Haagen III as Vice Chairman of the Board and Chairman of the Executive
Committee, and Charlotte Haagen as Vice President, at annual salaries of
$200,000, $100,000, and $25,000 respectively, with an annual stock grant of
10,000 shares to each of Messrs. Haagen, Sr. and Haagen III. Effectiveness of
the Employment Agreements is conditioned upon approval of the Transaction by
the stockholders. Pursuant to the Haagen Registration Rights Agreement, the
Company will grant the Haagen Family Stockholders certain demand registration
rights to facilitate the resale of the Common Stock owned by them under certain
conditions and certain piggyback rights to sell a portion of their shares in
connection with certain offerings of securities by the Company. Pursuant to the
Haagen Stockholders Agreement, the Haagen Family Stockholders are granted the
right to participate in the Company's future equity offerings for cash by
purchasing their proportionate share. In addition, LFREI has agreed to support
the continued election of Alexander Haagen, Sr. as Chairman and Chief Executive
Officer and Alexander Haagen, III as Vice Chairman and successor Chairman of
the Company. See "Approval of the Transaction--Conflicts of Interests."
Under the Stockholders' Voting Agreement, the Haagen Family Stockholders have
agreed to vote for the Transaction. In the Tag-Along Agreement by and among the
Company, LFREI and the Haagen Family Stockholders, dated as of June 1, 1997
(the "Tag-Along Agreement"), LFREI and the Haagen Family Stockholders agreed to
offer each other certain rights to participate in a transfer of their shares in
the event that the other transfers some or all of its shares.
In connection with the Transaction, the Compensation Committee of the
Company's Board of Directors has also granted certain incentive stock options
to members of the Company's senior management. The Compensation Committee, on
May 30, 1997, made stock option grants to six members of the Company's senior
management for an aggregate of 470,000 shares. The stock options granted have a
$15 exercise price, and one-third of the shares will vest in each of the next
three years if the grantee remains employed by the Company. In addition, the
closing price of the Common Stock must exceed certain target levels for periods
of 90 consecutive days before the options become exercisable. See "Approval of
the Amended and Restated 1993 Stock Option and Incentive Plan, As Amended."
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POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OF THE TRANSACTION
Approval of the Transaction by the stockholders will constitute approval of
all of the various terms set forth in the Stock Purchase Agreement, the
Stockholders Agreement and the Registration Rights Agreement and the
transactions contemplated thereby.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction, including potential claims alleging violations of the Board's
duties to stockholders. Under Maryland law, the fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary duty claims against directors.
OPINION OF FINANCIAL ADVISOR
The Company engaged Prudential Securities as its financial advisor in
connection with the Transaction. On May 30, 1997, Prudential Securities
delivered to the Board a written opinion to the effect that, as of such date
and based upon and subject to certain matters stated therein, the consideration
to be received by the Company pursuant to the Stock Purchase Agreement is fair
to the Company from a financial point of view. A copy of Prudential Securities'
opinion, which sets forth the assumptions made, matters considered and limits
on the review undertaken, is attached hereto as Appendix F. STOCKHOLDERS SHOULD
READ PRUDENTIAL SECURITIES' OPINION CAREFULLY IN ITS ENTIRETY. The opinion of
Prudential Securities does not constitute a recommendation as to how any
stockholder should vote at the Special Meeting.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined that
the Transaction is in the best interests of the Company and its stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
TRANSACTION.
The recommendation of the Board is based on its belief that the Transaction
represents an opportunity to improve long-term stockholder value by providing
the Company with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to
it, thereby enhancing the Company's short-term and long-term growth prospects
and positioning it to better capitalize on shopping center opportunities in the
Geographic Region. See "Approval of the Transaction--Recommendation of the
Board; Factors and Conclusions of the Board Involved in its Determination."
APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK
OPTION AND INCENTIVE PLAN, AS AMENDED (PROPOSAL 2)
In connection with the Transaction, the Company granted certain incentive
stock options to members of the Company's senior management. The Compensation
Committee of the Board of Directors, on May 30, 1997, made stock option grants
to six members of the Company's senior management for an aggregate of 470,000
shares. The stock options, which have a $15 exercise price, are not exercisable
unless the closing price of the Common Stock exceeds the following target
levels for periods of 90 consecutive days: (i) 40% of the shares are
exercisable when the Common Stock exceeds $20 per share; (ii) 30% of the shares
are exercisable when the Common Stock exceeds $22 per share; and (iii) 30% of
the shares are exercisable when the Common Stock exceeds $24 per share. In
addition, one-third of the shares will vest in each of the next three years if
the grantee remains employed by the Company.
After giving effect to the stock options granted on May 30, 1997, only
194,001 shares remain available for grant under the existing Plan. In Proposal
2, the Company seeks to amend the Restated Plan to increase the number of
shares available for grant under the Plan to provide for future grants to key
employees, including the new President that the Company anticipates hiring, to
accelerate the vesting of options and restricted stock granted to Tom Bradley,
James Hankla and Warren Fix and to make certain other clarifying revisions to
the Plan.
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The Committee has approved the Third Amendment to the Amended and Restated
1993 Stock Option and Incentive Plan to increase the number of shares available
for grants under the Plan from 1,350,000 to 2,000,000 and the Board has
approved the Fourth Amendment to the Restated Plan to accelerate the vesting of
options and restricted stock granted to Tom Bradley, James Hankla and Warren
Fix and to make certain other clarifying revisions to the Restated Plan. THE
BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
RESTATED PLAN, AS AMENDED.
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THE SPECIAL MEETING
OUTSTANDING SHARES AND VOTING RIGHTS
Record Date. Only stockholders of record at the close of business on the
Record Date are entitled to notice of and to vote at the Special Meeting or
any adjournment thereof.
Quorum. The Company's Bylaws provide that a majority of the issued and
outstanding shares of Common Stock, present in person or represented by proxy
at the Special Meeting, shall constitute a quorum. Shares represented by
proxies that reflect abstentions or broker non-votes will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. Proposal 1 requires the approval of a majority of the number of
shares present in person or represented by proxy at the Special Meeting (other
than LFREI shares), providing that a quorum is present. Proposal 2 requires
the approval of a majority of the number of shares present in person or
represented by proxy at the Special Meeting (including LFREI shares),
providing that a quorum is present. Therefore, as to any particular proposal,
abstentions will have the same effect as a vote against that proposal and
broker non-votes will not be counted as votes for or against that proposal,
and will not be included in counting the number of votes necessary for
approval of that proposal.
Voting Rights. The securities that can be voted at the Special Meeting
consist of issued and outstanding shares of Common Stock, with each share
entitling its owner to one vote on all matters. At the close of business on
the Record Date, the Company had outstanding shares of Common Stock.
Stockholders' votes will be tabulated by the persons appointed by the Chairman
of the Special Meeting to act as inspectors of election for the Special
Meeting.
No Appraisal Rights. Stockholders are not entitled under Maryland law to
appraisal rights with respect to the Transaction.
Reasons for Seeking Stockholder Approval. Approval of the Transaction is not
required by Maryland law, the Charter, the Bylaws or the rules of the American
Stock Exchange. Instead, the Company is opting to seek stockholder approval of
the Transaction to validate the determination of the Board of Directors that
the Transaction is in the best interests of the Company and its stockholders.
VOTE REQUIRED
Vote Required to Approve the Transaction (Proposal 1). Pursuant to the Stock
Purchase Agreement, the affirmative vote of a majority (other than LFREI's
shares) of the number of shares present in person or represented by proxy at
the Special Meeting, provided that the number of shares present in person or
represented by proxy at the Special Meeting (including LFREI's shares)
represents over 50% of the shares of Common Stock issued and outstanding on
the Record Date, is required to approve the Transaction (Proposal 1).
Abstentions will have the same effect as a vote against the Transaction and
broker non-votes will not be counted as votes for or against the Transaction,
and will not be included in counting the number of votes necessary for
approval of the Transaction. The Haagen Stockholders, who as of the Record
Date collectively owned % of the outstanding shares of Common Stock, have
executed a Stockholders' Voting Agreement with LFREI, pursuant to which they
have agreed to vote all of their shares in favor of the Transaction. LFREI,
which as of the Record Date held 1,306,434 shares of Common Stock,
representing 9.8% of the total outstanding Common Stock, is expected to vote
its shares in favor of Proposal 1, however the shares voted by LFREI will be
counted only for determining a quorum, not for determining the outcome of the
vote. Approval of the Transaction by the requisite vote of the stockholders of
the Company is a condition to consummation of the Transaction (except for the
Initial Purchase by LFREI of 1,306,434 shares on July , 1997).
Vote Required to Approve the Restated Plan, As Amended (Proposal 2). The
affirmative vote of a majority of the number of shares, present in person or
represented by proxy at the Special Meeting (including shares owned by LFREI),
is required to approve the Amended and Restated 1993 Stock Option and
Incentive Plan, As Amended (Proposal 2). Abstentions will have the same effect
as a vote against the approval of the Restated Plan,
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As Amended, and broker non-votes will not be counted as votes for or against
the Restated Plan, As Amended, and will not be included in counting the number
of votes necessary for approval of the Restated Plan, As Amended.
THE EFFECTIVENESS OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL
OF BOTH OF THE PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE
ANY ONE OF THE PROPOSALS WILL RESULT IN THE INEFFECTIVENESS OF BOTH OF THE
PROPOSALS, UNLESS SUCH CONDITION IS WAIVED BY THE BOARD OF DIRECTORS OF THE
COMPANY.
PROXIES
The shares represented by each properly executed proxy not subsequently
revoked will be voted at the Special Meeting in accordance with the
instructions contained therein. If no specification is made, the proxy will be
voted (i) FOR Proposal 1 to approve the Transaction and (ii) FOR Proposal 2 to
approve the Amended and Restated 1993 Stock Option and Incentive Plan, As
Amended.
A stockholder giving a proxy in the form accompanying this Proxy Statement
has the power to revoke the proxy prior to its exercise by (i) prior to the
Special Meeting filing a written notice of revocation bearing a later date
with Steven M. Jaffe, Senior Vice President, General Counsel and Secretary,
Alexander Haagen Properties, Inc., 3500 Sepulveda Boulevard, Manhattan Beach,
California 90266, (ii) delivering to the Company a duly executed proxy bearing
a later date, or (iii) attending the Special Meeting and voting in person.
If necessary, the holders of the proxies may vote in favor of a proposal to
adjourn the Special Meeting to permit further solicitation of proxies in order
to obtain sufficient votes to approve any of the matters being considered at
the Special Meeting. If the Special Meeting is adjourned for any reason, at
any subsequent reconvening of the Special Meeting all proxies may be voted in
the same manner as such proxies would have been voted at the original
convening of the Special Meeting (except for any proxies that have theretofore
effectively been revoked or withdrawn).
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone or
facsimile transmission by officers, directors, and employees of the Company,
who will not be specifically compensated for such solicitation activities,
and/or by Corporate Investor Communications, Inc., a third party solicitor who
the Company intends to engage for this purpose and who will receive a fee
estimated at $3,000 (plus out-of-pocket expenses) for its services for
soliciting such proxies. Arrangements also will be made with brokerage houses
and other custodians, nominees and fiduciaries for forwarding solicitation
materials to the beneficial owners of shares of Common Stock held of record by
such persons, and the Company will reimburse such persons for their reasonable
expenses incurred in that connection.
STOCKHOLDERS ARE REQUESTED TO INDICATE THEIR VOTE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE POSTAGE-PAID
ENVELOPE THAT HAS BEEN PROVIDED. THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE TRANSACTION AND FOR THE RESTATED PLAN,
AS AMENDED.
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APPROVAL OF THE TRANSACTION
(PROPOSAL 1)
The following discussion summarizes the material aspects of the Transaction,
as set forth in the Stock Purchase Agreement and the various exhibits thereto,
including the Stockholders Agreement and the Registration Rights Agreement.
This summary is not intended to be a complete description of the Stock
Purchase Agreement or the exhibits thereto and is subject to, and qualified in
its entirety by, reference to the Stock Purchase Agreement, the Stockholders
Agreement and the Registration Rights Agreement, copies of which are attached
hereto as appendices and incorporated herein by reference.
INFORMATION ABOUT THE COMPANY
The Company is a self-administered and self-managed REIT engaged in the
ownership, management, leasing, acquisition, development and redevelopment of
retail shopping centers in California and other western states. The Company
currently owns a portfolio comprised of interests in 38 retail shopping
centers. The Properties consist of 14 neighborhood/community shopping centers,
14 single tenant centers, eight promotional/power centers and two regional
shopping malls, containing in the aggregate approximately 8.2 million square
feet of gross leasable area, approximately 6.5 million square feet of which is
owned by the Company and the balance of which is owned by certain anchor
retailers. The Company conducts substantially all of its operations through
the Operating Partnership. The Company is the sole general partner of the
Operating Partnership and as of March 31, 1997 owned a 73.7% interest therein.
The Company is incorporated in Maryland. Its executive offices are located
at 3500 Sepulveda Boulevard, Manhattan Beach, California 90266, and its
telephone number is (310) 546-4520.
INFORMATION ABOUT LFREI
Established in 1848, Lazard Freres & Co., LLC is a leading private
investment bank, with extensive experience in principal investments, real
estate, asset management, mergers and acquisitions and corporate finance.
Operating through affiliated entities in six countries throughout the world,
Lazard Freres & Co., LLC advises numerous corporations, financial institutions
and governments on strategic and financial transactions. Lazard Freres & Co.,
LLC also provides investment management services to institutional and
individual investors worldwide, managing more than $53 billion of capital.
Lazard Freres Real Estate Investors, LLC is a real estate investment
affiliate of Lazard Freres & Co., LLC. Lazard Freres Real Estate Investors,
LLC manages several realty investment funds including LF Strategic Realty
Investors, LP, a strategic investment fund capitalized with almost $1 billion,
which is committing to the investment in the Company. Since its inception,
Lazard Freres Real Estate Investors, LLC has acquired sizable investment
stakes in a select group of leading real estate operating companies, including
American Apartment Communities; RF&P Corporation (renamed Commonwealth
Atlantic Properties); Dermody Properties; and Bell Atlantic Properties
(renamed Atlantic American Properties Trust).
The Real Estate Investment Banking Group at Lazard Freres & Co., LLC is a
recognized leader in the business of advising real estate companies on the
process of recapitalizing, restructuring and expanding their companies and
portfolios. Select clients include Corporate Property Investors, Mobil Corp.,
Olympia & York (World Financial Properties), Prudential Insurance Company, the
Rockefeller Group, Rodamco, N.V. and the Wright Runstad Company.
Neither LFREI nor any of its controlled affiliates currently has a
substantial direct investment in any unenclosed shopping center in the
Geographic Region or owns any material interest in any company that owns
assets that currently compete with the Company's investments or properties.
Until a Termination Event under the Stockholders Agreement, LFREI and its
controlled affiliates have committed that they will not, directly or
indirectly, own any equity interest of more than 25% in the aggregate in any
public or private real estate company
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(i) the primary business of which is the acquisition, development or
management of unenclosed shopping centers in the Geographic Region and
(ii) which owns at least 60% of its real estate assets (based on book value)
located in the Geographic Region, unless 75% of the directors of the Company
(other than the LFREI's Nominees) have consented to such ownership.
BACKGROUND OF THE TRANSACTION
The Company believes that commercial real estate in the United States will
increasingly be held by publicly held REITs that are fully integrated
operating companies. Since 1993, a record volume of capital has been invested
in the initial public offerings of REITs. It is the Company's view that, as
the real estate securitization process continues, the success of a REIT is
largely dependent on its ability to access capital markets consistently on
favorable terms and that this access will depend upon the REIT's asset size,
operational sophistication, experience and performance history.
In February 1997, representatives of LFREI and the Company held preliminary
discussions concerning the possibility of an affiliate of LFREI making an
investment in the Company. The Company was aware of LFREI's reputation in the
real estate industry and was receptive to LFREI's expression of interest in
exploring an affiliation between the Company and LFREI. Representatives of the
Company had an introductory meeting in February 1997 with officers of LFREI,
and LFREI executed a confidentiality and standstill agreement. Management of
the Company briefed the Board of Directors on the contacts with LFREI at a
Board meeting held on February 28, 1997. In early March 1997, the Company's
senior management contacted Prudential Securities with respect to a possible
LFREI proposal, as a result of which the Company retained Prudential
Securities to serve as financial advisor in connection with evaluating any
proposed transaction.
During the next several months, the parties exchanged information and had a
number of telephone discussions concerning strategy, philosophy, and possible
structure and price. Initially, the parties discussed a purchase by LFREI of a
convertible preferred stock issued by the Company. In early April 1997, the
parties began discussing an investment by LFREI in the Common Stock of the
Company.
On April 9, the parties and their counsel and advisors met in New York City
to discuss the proposed Common Stock investment. The next week, negotiations
were suspended as a result of disagreements among the parties as to certain
terms of the transaction. Concurrently, the Company was approached by another
interested investor who expressed an interest in doing a similarly structured
transaction. Over the next several weeks the Company met and discussed with
the other investor the terms of a possible investment by the investor. At
special Board of Directors meetings on April 17 and April 24, management
briefed the Board on the status of negotiations with LFREI and the other
investor. The Board authorized management to proceed with discussions with
both potential investors.
On May 9, 1997, LFREI met with management of the Company and presented a
revised proposal for the terms of the transaction, in an effort to recommence
negotiations. Shortly thereafter, on May 14, 1997, a publicly traded REIT
approached the Company and expressed an interest in beginning discussions on a
possible combination transaction between the Company and such REIT.
On May 15, 1997, management briefed the Board on the status of discussions
with the various parties. The Board authorized management to continue
discussions with LFREI, based upon the revised terms proposed by LFREI.
Detailed negotiations continued during the following two weeks between
representatives of the Company and LFREI and their respective counsel
concerning legal and business points in the draft documentation, with numerous
revised drafts being circulated. Officers of LFREI also made tours of certain
of the Company's properties and performed preliminary due diligence during
this period.
Prior to the Board of Directors' May 30, 1997 meeting, management
distributed a report setting forth the financial analysis underlying the
Prudential Securities opinion referred to below, a summary term sheet prepared
by the Company's counsel and complete drafts of the Stock Purchase Agreement,
Stockholders Agreement and
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Registration Rights Agreement. On May 30, 1997, the Board of Directors held a
special meeting to discuss the LFREI transaction. Two members of the Board of
Directors (Tom Bradley and Warren D. Fix) were absent. Management discussed
the potential advantages and disadvantages of, and alternatives to, the
transaction, emphasizing the opportunity to raise a large amount of capital in
a single transaction at reasonable cost, the certainty of amount but
flexibility as to timing, the accretion to earnings and increase in
stockholder value expected by management to result from the transaction, and
the ability to obtain continuing access to LFREI's strategic advice and
capital markets expertise. Prudential Securities presented the financial
analysis underlying its opinion referred to below to the Board of Directors.
Among other things, the Board discussed with Prudential Securities the fact
that the per share price of $15.00 was higher than the 30-day average closing
sale price of the Common Stock on the AMEX. The LFREI price per share compared
favorably with alternative means of raising the same capital because of the
significant underwriting commissions and other transaction costs of a public
offering. Prudential Securities also noted that the LFREI price per share
compared favorably to comparable transactions by other companies. Prudential
Securities also delivered its written opinion to the Board at the meeting. See
"--Opinion of the Company's Financial Advisor."
After a discussion concerning the advantages and disadvantages of, and
alternatives to, the transaction and a summary by Company counsel of the terms
of the documentation, the Board voted unanimously to approve the Stock
Purchase Agreement and the transactions contemplated thereby, subject to final
negotiation of definitive documents by management. After final negotiations
and redrafting, the Stock Purchase Agreement, the Registration Rights
Agreement, and the Stockholders Agreement were executed on June 1, 1997.
On May 30, 1997, the last trading day before the Transaction was publicly
announced, the closing sale price for Common Stock as reported on the AMEX
Composite Tape was $14.00. For the 60 trading days prior to June 2, 1997, the
day the Transaction was announced, the average closing sale price for Common
Stock was $13.99, and on , 1997 the closing sale price was $ .
Concurrently with the Company's negotiation with LFREI, the Compensation
Committee of the Company's Board of Directors negotiated the terms of (i) the
Employment Agreements with Alexander Haagen, Sr. (Chairman of the Board and
Chief Executive Officer), Alexander Haagen III (Vice Chairman), and Charlotte
Haagen (Vice President), (ii) the Haagen Registration Rights Agreement
providing certain registration rights to the Haagen Family Stockholders, and
(iii) the Haagen Stockholders Agreement with the Haagen Family Stockholders
providing them with rights to participate in purchasing additional shares of
Common Stock of the Company in certain circumstances. At a meeting on May 30,
1997, the Compensation Committee unanimously recommended that the Board of
Directors approve such agreements, and the Board of Directors unanimously
approved such agreements.
TERMS OF THE TRANSACTION
Parties. Prometheus Western Retail, LLC ("Prometheus"), a wholly-owned
subsidiary of LF Strategic Realty Investors, L.P. ("LFSRI"), will acquire the
shares issued in connection with the Transaction. LFSRI has a contractual
obligation to advance to Prometheus the funds to purchase the shares as
required pursuant to the Stock Purchase Agreement, and has guaranteed the
performance by Prometheus of its obligations under the Stock Purchase
Agreement. Lazard Freres Real Estate Investors, LLC is the general partner of
LFSRI.
LFREI Investment. Pursuant to the Stock Purchase Agreement, the Company will
sell an aggregate of up to 15,666,666 shares of Common Stock to LFREI at a
price of $15.00 per share, for an aggregate purchase price of up to $235
million. The purchase price per share was determined as a result of arm's
length negotiations between the Company and its advisors on the one hand and
LFREI and its advisors on the other hand. At the closing of the Initial
Purchase, the Company sold 1,306,434 shares to LFREI at $15.00 per share, for
an aggregate purchase
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price of approximately $19.6 million. As of the Record Date, LFREI owned
approximately 9.8% of the outstanding Common Stock.
Subject to stockholder approval, the Company may, from time to time, as it
chooses, sell 14,360,232 additional shares of Common Stock to LFREI at a price
of $15.00 per share, in exchange for the Remaining Equity Commitment. Of the
Remaining Equity Commitment, the Company must sell at least 5,360,233 shares,
in addition to the 1,306,434 shares sold in the Initial Purchase, within six
months of stockholder approval and must sell the entire Remaining Equity
Commitment not later than the earlier of (i) eighteen months after stockholder
approval and (ii) March 14, 1999. If the Company has not drawn the Remaining
Equity Commitment by such dates, LFREI will have the right on such dates to
purchase such shares from the Company, at a price of $15.00 per share. If LFREI
acquires all of the shares represented by the Remaining Equity Commitment (and
assuming no other change in the number of outstanding shares), LFREI will own
approximately 56.6% of the outstanding Common Stock (36.9% on a Fully Diluted
Basis).
Use of Proceeds. The net proceeds of the investment by LFREI will be used (i)
to repay certain indebtedness of the Company, and (ii) to make additional
investments in shopping center properties in the Geographic Region.
Stockholders Agreement. Concurrently with the execution of the Stock Purchase
Agreement, LFREI and the Company entered into the Stockholders Agreement, which
grants certain rights to and imposes certain restrictions on LFREI with respect
to the shares purchased by it pursuant to the Stock Purchase Agreement. Many of
these rights terminate on the Termination Date. These rights and restrictions
include the following:
(A) Management of the Company; Representation on the Board and Certain Board
Committees. Under the Stockholders Agreement, four individuals to be identified
by LFREI will become directors of the Company immediately after the approval of
the Transaction by the stockholders of the Company. In order to effect the
appointment of the LFREI designees to the Board of Directors, it is anticipated
that three of the current members of the Board of Directors (Tom Bradley,
Warren D. Fix and James Hankla) will resign. Mr. Bradley will become Director
Emeritus and will continue to advise the Board of Directors. Immediately prior
to the resignation of Messrs. Bradley, Fix and Hankla from the Board, such
directors shall become fully vested in their stock options and restricted
stock. In addition, Messrs. Fix and Hankla shall become entitled to severance
compensation in the amount of one year of director's fees. The Board will then
elect the four LFREI nominees to fill the three vacancies and an existing
vacancy on the Board of Directors. Under Maryland law, directors elected by the
Board to fill vacancies will be required to stand for re-election at the next
annual meeting of the Company's stockholders.
If the stockholders approve the Transaction, the Company shall amend its
Bylaws, and the Company and LFREI will take all actions necessary, to cause the
Board to be structured to consist of eleven members, of which three members
will be designees of management of the Company (the "Management Nominees") (one
in each class of the Board), four members will be designees of LFREI (at least
one in each class of the Board) (the "LFREI Nominees"), three members will be
independent directors designated by the Nominating Committee (the "Independent
Nominees") (one in each class of the Board) and one member will be the new
President of the Company (such director, the "President Nominee"), and the
Company and LFREI will take all actions necessary to cause such nominees to
become members of the Board as soon as practicable after the stockholders'
approval of the Transaction. During the Standstill Period and Standstill
Extension Term, if any, at each annual or special meeting of stockholders of
the Company at, or the taking of action by written consent of stockholders of
the Company with respect to which any class of directors is to be elected,
LFREI shall have the right (but not the obligation) to designate nominees to
the Board such that LFREI shall have on the Board of Directors:
(i) a total of four representatives, so long as LFREI owns (A) a number
of shares of Common Stock equal to at least 50% of the aggregate number of
Shares to be acquired pursuant to the Stock Purchase Agreement, and (B)
LFREI owns a number of shares of Common Stock equal to at least 20% of the
outstanding Common Stock, on a Fully Diluted Basis;
(ii) a total of two representatives, if LFREI does not meet the minimum
ownership criteria of either clause (i)(A) or (i)(B) above, but (A) LFREI
owns a number of shares of Common Stock equal to less than 50% of the
aggregate number of Shares to be acquired pursuant to the Stock Purchase
Agreement, but equal
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to or more than 25% of such aggregate number, and (B) LFREI owns a number
of shares of Common Stock equal to less than 20% of the outstanding Common
Stock on a Fully Diluted Basis, but equal to or more than 15% of the
outstanding Common Stock on a Fully Diluted Basis;
(iii) a total of one representative, if LFREI does not meet the minimum
ownership criteria in any of clause (i)(A), (i)(B), (ii)(A) or (ii)(B)
above, but owns a number of shares of Common Stock equal to less than 15%
of the outstanding Common Stock on a Fully Diluted Basis, but equal to or
more than 10% of the outstanding Common Stock on a Fully Diluted Basis; and
(iv) no representatives, if LFREI does not meet any of the minimum
ownership criteria in any of clauses (i)(A), (i)(B), (ii)(A) or (ii)(B) or
(iii) above.
In the event that the total size of the Board is increased above eleven
members, LFREI is entitled to a proportionate increase in Board
representation, as set forth in Stockholders Agreement.
During the Standstill Period and Standstill Extension Term, if any, at each
annual or special meeting of stockholders of the Company or the taking of
action by written consent of stockholders of the Company with respect to which
any class of directors is to be elected, management of the Company and the
Nominating Committee shall each have the right (but not the obligation) to
designate three nominees to the Board, and the President of the Company shall
be designated as a nominee to the Board, and LFREI has agreed to vote its
shares of Common Stock in favor of such nominees.
In addition, so long as LFREI has the right to nominate two directors to the
Board (or one in the case of the Nominating Committee) and at least one
director nominated by LFREI is serving thereon, LFREI has the right, subject
to certain limitations, to have one of its nominees on each of the Board's
Audit Committee, Nominating Committee, Compensation Committee, and Executive
Committee, as well as any other key committees. LFREI also has the right to
name an individual to serve on the board of directors or comparable governing
body of each subsidiary of the Company so long as LFREI has the right to
nominate at least one director to the Board.
The Nominating Committee of the Board shall be responsible for selecting
Independent Nominees to the Board, which selection shall be by unanimous vote
of the Nominating Committee. The Nominating Committee shall be composed of
three members (an LFREI Nominee, an Independent Nominee, and a Management
Nominee). The appointee for President of the Company shall also be named by
the unanimous vote of the Nominating Committee, and such President shall
become Chief Executive Officer at such time as the Nominating Committee (in
consultation with Alexander Haagen, Sr.) shall unanimously determine.
(B) Information Rights. Until the Termination Date, the Company will have
the obligation (i) to provide to LFREI certain financial statements and
operating information, generally limited to information provided to the
Company's senior management and the Board, copies of all other information
distributed by the Company to the Board, and a copy of any filing made by the
Company pursuant to any federal or state securities law, and (ii) to consult
with the designated representative of LFREI, prior to approval by the Board or
entering into any definitive agreement, in connection with proposals relating
to (a) any acquisition or business combination having a value in excess of $10
million, (b) any sale or disposition of assets, whether by sale of stock or
assets or by any business combination, having a value in excess of $20
million, (c) the incurrence or issuance of indebtedness, or the entering into
a guaranty or any other financing arrangement, in excess of $20 million, (d)
the annual operating budget of the Company, (e) material changes in executive
management of the Company, (f) new material agreements with members of the
executive management of the Company, (g) except in certain circumstances, any
issuance by the Company or any subsidiary of any capital stock or other equity
interests, (h) any change in the Company's dividend policy, (i) amendments to
joint venture and other material agreements, and (j) any request by the
Company for a Subsequent Purchase pursuant to the Stock Purchase Agreement. In
circumstances in which the Company is required under the Stockholders
Agreement to consult with the designated representatives of LFREI, management
of the Company will discuss with such representatives the proposal at issue
prior to presenting it to the Board. The Board will have no obligation to
accept or comply with the views of, or follow the recommendations of, LFREI.
The Company and LFREI also will afford each other a
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reasonable opportunity to review in advance any filing by it pursuant to any
federal or state securities or other law or any press release that describes
or mentions the other. LFREI will be obligated to comply with the Company's
insider trading policy and to keep confidential all information obtained from
the Company.
(C) Participation Rights. Until a Termination Event, in the event that the
Company issues or sells shares of capital stock (including securities
convertible into or exchangeable or redeemable for capital stock of the
Company and including capital stock to be issued pursuant to the conversion,
exchange or redemption of other securities), LFREI will be entitled to a
participation right to purchase or subscribe for that proportion of the total
number of shares to be issued, including shares to be issued to LFREI pursuant
to the rights described in this paragraph, equal to LFREI's proportionate
holdings of Common Stock outstanding prior to such issuance (but not to exceed
37.5% of the capital stock issued). Notwithstanding the foregoing, LFREI shall
have no right to participate in (i) the issuance or sale by the Company of any
of its capital stock issued to the Company or any of its subsidiaries or
pursuant to options, rights or warrants or other commitments or securities in
effect or outstanding on the date of the Stock Purchase Agreement, or (ii) the
issuance of capital stock pursuant to the conversion, exchange or redemption
of any other capital stock, or (iii) the issuance of capital stock for
consideration other than cash. LFREI will be entitled to participate in the
issuance of capital stock by the Company pursuant to benefit, option, stock
purchase or similar plans, including upon the exercise of options, rights,
warrants or other securities, but any participation rights which arise as a
result thereof shall be deferred until such time as participation rights shall
otherwise arise. All purchases pursuant to such participation rights will be
at the same price and on the same terms and conditions as are applicable to
other purchasers.
(D) Limitations on Corporate Actions. From the date of the Stockholder
Agreement and until the Termination Date, the Company will be subject to
certain limitations on its operations, including restrictions relating to (i)
the incurrence of additional indebtedness such that total consolidated
indebtedness exceeds 50% of the sum of the market value of the Company's
equity (including Operating Partnership Units as if converted) and the
Company's total consolidated indebtedness, provided that the Company may
borrow up to $90 million under the Company's existing secured revolving credit
facility, (ii) engaging in a material business other than the ownership,
management and development of shopping centers in the Geographic Region, and
(iii) termination of the federal income tax status of the Company as a REIT
(collectively, the "Corporate Action Covenants"). The Company has certain
specified rights to cure certain failures to comply with the Corporate Action
Covenants. Failure of the Company to comply with these limitations could
result in early termination of the standstill provisions described below.
The Company believes that these limitations are generally consistent with
its operating strategies and does not believe that they will materially
restrict its operations or have a material adverse effect on its financial
condition or results of operations, though there can be no assurance that they
will not do so in the future.
(E) Restriction on Voting Rights. During the Standstill Period and any
Standstill Extension Term, LFREI has agreed to vote any shares it owns in
favor of Management Nominees and Independent Nominees. LFREI will vote any
shares it owns that represent aggregate ownership of in excess of 40% of the
outstanding shares of Common Stock, at its option in accordance with the
recommendation of the Company's Board or proportionally in accordance with the
votes of the other holders of the Common Stock. However, LFREI may vote all of
the shares of Common Stock that it owns, in its sole and absolute discretion,
with regard to the election of the LFREI Nominees to the Board. During the
Standstill Period and any Standstill Extension Term, LFREI has agreed to
support the continued election of Alexander Haagen, Sr. as Chairman and Chief
Executive Officer of the Company, and Alexander Haagen, III as Vice-Chairman
of the Company (and successor Chairman of the Board to Alexander Haagen, Sr.
upon his retirement) and Chairman of the Executive Committee of the Board.
(F) Standstill Provisions. For a period of five years after the stockholder
approval date and during any Standstill Extension Term, subject to earlier
termination as described below, LFREI may not: (i) acquire more than 49.9% of
the outstanding shares of Common Stock, on an Adjusted Fully-Diluted Basis;
(ii) act in concert with any other person or group by becoming a member of any
group acquiring, holding, voting, or disposing of voting securities pursuant
to Section 13(d) of the Exchange Act (other than such a group comprised
exclusively of LFREI and one or more of its affiliates); (iii) solicit or
propose to effect or negotiate certain business
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combination transactions other than pursuant to the Stock Purchase Agreement;
(iv) solicit, initiate, or participate in any "solicitation" of "proxies" or
become a "participant" in any "election contest" (as such terms are defined or
used in Regulation 14A under the Exchange Act, disregarding certain provisions
thereof); call, or participate in a call for, any special meeting of
stockholders; request, or take any action to obtain any list of holders of any
securities of the Company; or initiate, propose, participate in the making of,
or solicit stockholders for the approval of any stockholder proposal; (v) seek
Board representation or a change in the composition or size of the Board,
except as permitted by the Stockholders Agreement; (vi) request an amendment
or waiver of the foregoing limitations or of the ownership limitations in the
Charter; or (vii) assist or encourage any person with respect to any of the
foregoing. After giving effect to the sale of 15,666,666 shares to LFREI in
the Transaction, and assuming no other change in the number of outstanding
shares, LFREI will own 49.0% of the Common Stock on an Adjusted Fully Diluted
Basis. In the event that the number of outstanding shares were to increase for
any reason (including as a result of issuance of Common Stock upon conversion
or exercise of the outstanding convertible debt or management stock options),
then LFREI would be able to acquire additional shares of Common Stock, up to
49.9% on an Adjusted Fully Diluted Basis.
For a period of five years after the stockholder approval date or, if
earlier, until a Termination Event, LFREI may not sell any shares of Common
Stock except (a) in transactions pursuant to Rule 144 under the Securities
Act, (b) in negotiated transfers to third parties, subject to certain
conditions, including that it not result in a person beneficially owning more
than 9.8% of the outstanding Common Stock, (c) to certain affiliates who agree
to be bound by the terms of the Stockholders Agreement, (d) in accordance with
the registration rights agreement in a bona fide public offering and (e)
subject to certain conditions, to bona fide financial institutions for the
purpose of securing bona fide indebtedness.
(G) Extension and Termination of Stockholders Agreement. The Standstill
Period will be extended for successive one-year periods, subject at any time
to LFREI's ability to terminate a Standstill Extension Term upon 90 days
written notice of cancellation. However, the Standstill Period will be
automatically terminated, during the Standstill Period or any Standstill
Extension Term, if any of the following events occurs: (i) the occurrence of a
default under any debt agreement that would reasonably be expected to result
in a Material Adverse Effect (as defined in the Stockholders Agreement) and
which cannot be cured by the Company within the applicable cure period under
such debt agreement; (ii) the acquisition by any other person or group of 9.8%
or more of the voting power of the outstanding voting securities of the
Company unless the shares representing in excess of such 9.8% ("Excess
Shares") are deprived of voting rights pursuant to any applicable ownership
limitations in the Charter or any other enforceable agreement, or if the
Excess Shares do not constitute more than 5.2% of the voting power of the
outstanding voting securities, unless the transferee does not divest itself of
the Excess Shares within the applicable cure period; (iii) any person or group
having, or having the right to elect, a number of directors on the Board equal
to or greater than the number of directors which LFREI is entitled to
nominate; (iv) the authorization by the Company or the Board, with all LFREI
nominees abstaining or voting against, of the solicitation of offers,
proposals, or indications of interest with respect to certain mergers, sales
of assets, or other similar extraordinary transactions (each a "Covered
Transaction"); (v) the written submission by any person or group of a proposal
with respect to a Covered Transaction (unless as soon as practicable after
receipt of such proposal the Board determines that such proposal is not in the
best interests of the Company and its stockholders, and the Board continues to
reject such proposal as a result of such determination); (vi) in connection
with an actual or proposed Covered Transaction, the removal of any rights
plan, staggered board provisions, supermajority vote provisions, excess share
provisions, or similar impediments to the consummation thereof, or, whether or
not in connection with an actual or proposed Covered Transaction, any
modification or waiver of the ownership restrictions contained in Article 7 of
the Charter (except under certain circumstances); (vii) the failure of the
Company to timely cure any breach of the Stock Purchase Agreement or the
Stockholders Agreement which would reasonably be expected to materially
adversely affect LFREI or have a Material Adverse Effect; or (viii) the
occurrence of any material violation of any of the Corporate Action Covenants
described above.
(H) Exclusive Investment Vehicle for Shopping Center Properties and Shopping
Center Companies. Until a Termination Event, LFREI and its controlled
affiliates will not, directly or indirectly, acquire any equity interest
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of more than 25% in the aggregate in any public or private real estate company
(i) the primary business of which is the acquisition, development or
management of unenclosed shopping centers in the Geographic Region and (ii)
which owns at least 60% of its real estate assets (based on book value)
located in the Geographic Region, unless 75% of the directors of the Company
(other than the LFREI's Nominees) have consented to such ownership.
Registration Rights Agreement. Concurrent with the Stock Purchase Agreement,
the Company and LFREI entered into the Registration Rights Agreement, pursuant
to which the Company is obligated to file up to six demand registration
statements (no more than two of which may be requested in any two-year period)
under the Securities Act for the resale by LFREI of all or a portion of the
Company securities owned by it. Because the Common Stock issued to LFREI was
not registered and because LFREI may be deemed to be an "underwriter" for
purposes of the Securities Act, the shares of Common Stock and other
securities of the Company owned by it may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available.
The Registration Rights Agreement provides, among other things, that, at any
time after June 1, 1998, LFREI will have the right, from time to time, to
require the Company to file a registration statement (any such filing, the
"Demand Registration") under the Securities Act for any or all shares acquired
by LFREI pursuant to the Stock Purchase Agreement and the Stockholders
Agreement, and any securities issued or issuable with respect to any such
shares ("Registrable Securities"). The right to a Demand Registration is
limited, however, in that (i) it may be invoked in each instance only with
respect to a number of shares having a fair market value equal or greater than
$10 million, (ii) the Company is not required to effect more than six Demand
Registrations, and (iii) the Company will have the right from time to time to
require LFREI not to sell under the Demand Registration or to postpone or
suspend the effectiveness thereof in certain circumstances. LFREI also will
have the right, with respect to most registrations of Common Stock by the
Company for its own account, to require the Company to include Registrable
Securities in such registration. The Registration Rights Agreement provides
that the Company will pay the expenses, other than underwriting discounts and
fees, relating to the first three Demand Registrations requested by LFREI, and
LFREI will pay for any further Demand Registrations. The Registration Rights
Agreement otherwise contains terms that are generally customary for
registration rights agreements of its type.
Conditions to Closing. Each of the Company's and LFREI's obligations to
effect the Subsequent Closings are subject to various mutual and unilateral
conditions, including, without limitation, the following: (i) the Company
shall continue to qualify as a REIT for federal income tax purposes; (ii) the
stockholders shall have approved the Transaction (Proposal 1); (iii) the
Company shall continue to qualify as a domestically controlled REIT for
federal income tax purposes; and (iv) various other customary conditions. In
addition, at the time of the Second Closing, LFREI's obligations are subject
to the continuing correctness of the Company's representations and warranties
in the Stock Purchase Agreement and the receipt of any consents necessary for
the Transaction.
No Solicitation of Competing Transactions. Unless and until the Stock
Purchase Agreement is terminated in accordance with its terms, none of the
Company or its subsidiaries shall, directly or indirectly, through any
officer, director, agent or otherwise, initiate, solicit or knowingly
encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries
or the making of any proposal that constitutes, or may reasonably be expected
to lead to, any Competing Transaction, or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to endorse any
Competing Transaction, or authorize or knowingly permit any of the officers,
directors or employees of such party or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by such party or any of such party's subsidiaries to
take any such action, and the Company shall notify LFREI orally (within one
business day) and in writing (as promptly as practicable) of all of the
relevant details relating to all inquiries and proposals which any officer or
director of the Company may receive relating to any such matters and if such
inquiry or proposal is in writing, the Company shall deliver to LFREI a copy
of such inquiry or proposal; provided,
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however, that nothing contained in this provision shall prohibit the Board
from complying with Rule 14e-2 promulgated under the Exchange Act with regard
to a tender or exchange offer or prohibit the Board from taking such other
actions as may be required to comply with its fiduciary obligations. If the
Board determines with the advice of counsel that failure to do so could be
held to violate its fiduciary duties, it may provide information in response
to an unsolicited proposal. If the Company receives a bona fide proposal for a
Competing Transaction that the Board determines in good faith (based on the
advice of a nationally recognized financial advisor) may provide greater value
to the Company and its stockholders than the Agreement, it may enter into
negotiations with respect to such proposal. The Company will notify LFREI of
any such superior proposal not less than two business days prior to entering
into any definitive agreement with respect to a Competing Transaction;
provided, however, that in no event shall the Company enter into a definitive
agreement with respect to a Competing Transaction less than five business days
after the Company's initial notification to LFREI of an inquiry or proposal
relating to a Competing Transaction. Within the two-business-day or five-
business-day period referred to above, LFREI may propose an improved
transaction.
Expenses; Break-Up Fee. If the Transaction is submitted to a vote of the
stockholders and the stockholders fail to approve the Transaction (or in the
event that the Company has failed to convene a meeting of stockholders for
such purpose on or before December 31, 1997), the Company will pay to LFREI
$1,762,500 to reimburse LFREI for its expenses in connection with the
transactions (including opportunity costs). Provided that LFREI is not in
material default under the Stock Purchase Agreement, has not breached any of
its representations and warranties in any material respect, and has satisfied
in all material respects its covenants relating to the Initial Purchase, the
Company will pay LFREI a fee in the amount of $8,225,000 (the "Breakup Fee")
in the event that either (i) the Transaction shall have been submitted to a
vote of the Company's stockholders (or in the event the Company shall fail to
submit such matters to a vote of its stockholders by December 31, 1997), a
Competing Transaction shall have been publicly proposed prior to such
submission to a vote of the Company's stockholders (or December 31, 1997,
should the Company fail to submit such matters), and the stockholders shall
not, for any reason (other than as a result of LFREI's breach of any of its
material obligations hereunder) have approved the Stock Purchase Agreement and
the transactions contemplated thereby by the requisite vote; provided,
however, that the Company shall not be required to pay the Breakup Fee unless
the Company consummates such Competing Transaction within twelve months after
the earlier of the date on which the stockholders fail to approve the Stock
Purchase Agreement and December 31, 1997; or (ii) the transactions
contemplated by the Stock Purchase Agreement do not close as a result of the
Company's willful breach of a representation, warranty or covenant contained
therein. Any prior payment of the $1,762,500 will be credited against the
Breakup Fee payment.
Put Option. In the event that the Company shall not have received Stockholder
Approval prior to December 31, 1997, LFREI has an option under the Stock
Purchase Agreement to require that the Company repurchase the shares of Common
Stock acquired in the Initial Purchase at a price equal to the purchase price
therefor, together with accrued dividends (the "Put Option"). If stockholder
approval is not obtained, this option may be exercised at any time until 11
months after the Initial Purchase; provided that the Company shall not be
required to pay for the shares of Common Stock to be so repurchased until the
earlier to occur of (i) 18 months after the Initial Purchase and (ii) the
consummation by the Company of an issuance of debt or equity securities or a
sale of assets that yields net proceeds to the Company of at least $50 million.
The Company does not have the right to require LFREI to exercise the Put Option.
Therefore, in the event that stockholder approval of the Transaction is not
obtained and LFREI does not exercise the Put Option, the shares of Common Stock
issued to LFREI in the Initial Purchase will remain outstanding.
Amendment or Termination of the Stock Purchase Agreement. Although the Board
reserves the right to amend the provisions of the Stock Purchase Agreement
without approval of the stockholders, either before or after approval by the
stockholders of the Transaction and the transactions contemplated thereby, the
Company intends to solicit further approval of the stockholders in the event
that any such amendment would change the Transaction in a way that would be
materially adverse to stockholders. In addition, any amendment would require
the consent of LFREI. The Board also reserves the right to terminate the Stock
Purchase Agreement without
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obtaining further approval of the stockholders. The Board does not anticipate
either the amendment of the terms of, or the termination of, the Stock
Purchase Agreement.
Related Agreements. In connection with the Stock Purchase Agreement, LFREI
also entered into both a Tag-Along Agreement and a Stockholders' Voting
Agreement with the Haagen Family Stockholders. Pursuant to the Tag-Along
Agreement, each of LFREI and the Haagen Family Stockholders agreed that in the
event they were to transfer Common Stock, then on the terms and conditions
provided therein, the other party could participate in such transfer in
certain circumstances. Pursuant to the Stockholders' Voting Agreement, the
Haagen Family Stockholders agreed to vote the Common Stock owned by them in
favor of the Transaction.
POTENTIAL BENEFICIAL EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, represents an
opportunity to improve long-term stockholder value by providing the Company
with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to
it, thereby enhancing the Company's short-term and long-term growth prospects
and better positioning it to capitalize on shopping center acquisition and
development opportunities in the Geographic Region. In particular, the Company
believes that the Transaction may have a number of beneficial effects on the
Company and its stockholders, including the following:
Large, Timely Infusion of Capital at Reasonable Cost. The Transaction is
expected to enable the Company to accomplish its financing objectives for 1997
and 1998 in a single transaction on favorable terms compared with those that
might have been available in the public markets. Because the purchase price
for the Common Stock to be acquired by LFREI is fixed, the Transaction
protects the Company against the risks of a decline in the stock market as a
whole and the market for REIT shares in particular. In addition, the Company
will not pay any underwriting discount or commission in connection with the
sales to LFREI and expects that its out-of-pocket expenses in connection with
such sales will be substantially less than the costs it would have incurred in
selling a similar number of shares in one or more firm commitment
underwritings. Moreover, the Company is not exposed to the risk of a decline
in the market price of its shares that is commonly observed in advance of such
offerings. Additionally, the Transaction will enable management to focus on
acquisitions and intensively managing the Company's existing properties
instead of being required to divert management time and attention to the
process of raising capital.
Association with LFREI. LFREI is highly-regarded as a sophisticated investor
in real estate. Four individuals to be nominated by LFREI will become
directors of the Company immediately after approval by the Company's
stockholders of the Transaction. The Company believes that it will benefit
significantly from its association with LFREI and its access to the market
knowledge, operating experience and capital market capabilities of LFREI.
Improved Future Access to Capital. The Company believes that, as a result of
the Transaction, it will have greater access to the capital markets and a
lower cost of capital because the Transaction will (i) increase its equity
market capitalization and total capitalization; (ii) establish an association
with a highly-regarded institutional investor, LFREI, which should enhance the
Company's access and attractiveness to significant institutional investors;
and (iii) through the participation rights granted to LFREI under the
Stockholders Agreement, provide a potential buyer for substantial portions of
future offerings by the Company of its equity securities or debt securities
convertible into equity. Moreover, because of its substantial investment in
the Company, LFREI will have significant incentives to make available its
resources, experience and advice regarding access to capital markets and
assisting the Company to achieve a lower cost of capital. The Company believes
that improved access to the capital markets should enhance its ability to grow
and increase stockholder value.
Potential Enhancement of Stockholder Value. The Transaction will not result
in any direct return to stockholders of cash or other consideration. The
Company, however, believes that the Transaction offers stockholders an
opportunity to realize long-term value. The Company intends to use a portion
of the capital raised in the Transaction to reduce its outstanding debt
levels. In addition, the Company's strategic plan calls for
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the application of the significant capital to be raised in the Transaction to
execute an attractive growth strategy for the purpose of increasing the
Company's asset base and cash flow in a controlled but significant fashion
over a relatively short period of time. Management's goal is to increase funds
from operations and cash available for distribution to stockholders through
the strategic deployment of the capital and other resources to be made
available to the Company through its affiliation with LFREI.
It should be noted, however, that there is no assurance that the Company
will realize all or any of the potential benefits described above, which are
forward looking statements that are subject to numerous risks and uncertainty.
The Company's ability to enhance stockholder value will depend upon a number
of circumstances, many of which are outside the control of management,
including the availability of attractive acquisition and development
opportunities; the Company's continuing ability to identify, perform due
diligence with respect to, acquire and effectively manage a large number of
shopping center properties; the state of the capital markets generally and
prevailing interest rates; uncertainty concerning the Company's ability to
refinance its indebtedness at favorable interest rates as it becomes due; and
risks relating to the ownership of real estate generally, including the risks
of bankruptcy, insolvency or the downturn in business of or failure to renew
leases by the Company's anchor tenants, potential liability for unknown
environmental matters, and the risk of uninsured losses.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, will have certain
potential adverse effects on the Company and its stockholders, including the
following:
Concentration of Ownership of Common Stock. LFREI will be entitled to own up
to 49.9% of the Company's Common Stock, on an Adjusted Fully Diluted Basis,
and will be the largest single stockholder of the Company. LFREI will have the
right to nominate up to four directors of the Company's Board. Although
certain Standstill Provisions will preclude LFREI from increasing its
percentage interest in the Company for a period of at least five years
(subject to certain exceptions), and LFREI will be subject to certain
limitations on its voting rights with respect to its shares of Common Stock
during that time, LFREI nonetheless will have a substantial influence over the
affairs of the Company as a result of the Transaction. This concentration of
ownership in one stockholder could be disadvantageous to other stockholders'
interests.
LFREI could own as much as 49.9% of the Company's total common equity on an
Adjusted Fully Diluted Basis. If the Standstill Period or any Standstill
Extension Term terminates and the Convertible Securities are not converted
into shares of Common Stock (in which case LFREI's shares would constitute
56.6% of the outstanding Common Stock), LFREI could be in a position to
control the election of the Board or the outcome of any corporate transaction
or other matter submitted to the stockholders for approval (assuming no other
changes in the number of outstanding shares of Common Stock).
Anti-Takeover Effect of the Transaction. LFREI's acquisition of up to 56.6%
of the outstanding Common Stock (36.9% on a Fully Diluted Basis) and the
director nomination, voting and other rights granted to LFREI under the
Stockholders Agreement, although subject to certain limitations during the
Standstill Period by reason of the Standstill Provisions, may make it more
difficult for other stockholders to challenge the Company's director nominees,
elect their own nominees as directors, or remove incumbent directors and may
render the Company a less attractive target for an unsolicited acquisition by
an outsider. In addition, under Maryland law, a merger or consolidation
requires the affirmative approval of two-thirds of the shares entitled to
vote. Accordingly, LFREI would have sufficient voting power to block any such
transaction, even after taking into account the limitations on LFREI's voting
rights set forth in the Stockholders Agreement.
Potential Dilution. While the Company generally has the ability to control
the timing of the Subsequent Closings and any additional investments by LFREI,
if the proceeds from sales of securities to LFREI are not invested in a timely
or accretive manner, there would be dilution of earnings per share and funds
from operations per share to the existing stockholders of the Company. The
Company does not intend to change its careful acquisition criteria, and it may
temporarily have excess cash on its balance sheet if sufficient acquisitions
are not completed within six months and eighteen months after stockholder
approval (unless the Company and LFREI agree to extend these dates).
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Limitations on Corporate Actions. Pursuant to the Stockholders Agreement,
the Company has agreed to certain limitations on its operations during the
Standstill Period and any Standstill Extension Term, including restrictions
relating to (i) the incurrence of additional indebtedness such that total
consolidated indebtedness exceeds 50% of the sum of the market value of the
Company's equity (including Operating Partnership Units as if converted) and
the Company's total consolidated indebtedness, provided that the Company may
borrow up to $90 million under its revolving credit facility, (ii) engaging in
a material business other than the ownership, management and development of
shopping centers in the Geographic Region, and (iii) termination of the
federal income tax status of the Company as a REIT. Although the Company
believes that these limitations are consistent with its operating strategies
and does not believe that they will materially restrict its operations or have
a material adverse effect on its financial condition or results of operations,
there can be no assurance that these limitations will not do so in the future.
Failure of the Company to comply with these limitations could result in early
termination of the standstill provisions described above.
CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS
In connection with the Transaction, the Compensation Committee of the Board
of Directors recommended, and the Board of Directors approved, a series of
related agreements between the Company and the Haagen Family Stockholders. The
agreements include the Haagen Stockholders Agreement among the Haagen Family
Stockholders, the Company, and LFREI, the Haagen Registration Rights Agreement
among the Company and the Haagen Family Stockholders, an employment agreement
between the Company, Haagen Property Management Inc., ("HPMI") and Alexander
Haagen, Sr. (the "CEO Employment Agreement"), an employment agreement between
the Company, HPMI and Alexander Haagen III (the "Vice Chairman Employment
Agreement"), and an employment agreement between the Company, HPMI and
Charlotte Haagen (the "Vice President Employment Agreement"). Approval of all
of these agreements by the Compensation Committee was made contingent upon the
approval of the Transaction by the Company's Board of Directors.
Haagen Stockholders Agreement. Concurrently with the execution of the Stock
Purchase Agreement, the Company entered into the Haagen Stockholders
Agreement, which provides that until a Termination Event (as defined in the
Stockholders Agreement), in the event that the Company issues or sells shares
of capital stock (including securities convertible into or exchangeable or
redeemable for capital stock of the Company and including capital stock to be
issued pursuant to the conversion, exchange or redemption of other
securities), the Haagen Family Stockholders will be entitled to a
participation right to purchase or subscribe for that proportion of the total
number of shares to be issued, including shares to be issued to the Haagen
Family Stockholders pursuant to the rights described in this paragraph, equal
to the Haagen Family Stockholders's proportionate holdings of Common Stock
outstanding prior to such issuance (after giving effect to the conversion or
exercise of all outstanding securities convertible into or exercisable for
shares of Common Stock). Notwithstanding the foregoing, the Haagen Family
Stockholders shall have no right to participate in (i) the issuance or sale by
the Company of any of its capital stock issued to the Company or any of its
subsidiaries or pursuant to options, rights or warrants or other commitments
or securities in effect or outstanding on the date of the Stock Purchase
Agreement, (ii) the issuance of capital stock pursuant to the conversion,
exchange or redemption of any other capital stock, or (iii) the issuance of
capital stock for consideration other than cash. The Haagen Family
Stockholders will be entitled to participate in the issuance of capital stock
by the Company pursuant to benefit, option, stock purchase or similar plans,
including upon the exercise of options, rights, warrants or other securities,
but any participation rights which arise as a result thereof shall be deferred
until such time as participation rights shall otherwise arise. All purchases
pursuant to such participation rights will be at the same price and on the
same terms and conditions as are applicable to other purchasers.
Haagen Registration Rights Agreement. Concurrent with the Stock Purchase
Agreement, the Company and the Haagen Family Stockholders entered into the
Haagen Registration Rights Agreement. Because the Common Stock issued to the
Haagen Family Stockholders was not registered and because the Haagen Family
Stockholders may be deemed to be "underwriters" for purposes of the Securities
Act, the shares of Common Stock and other securities of the Company owned by
them may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available.
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The Haagen Registration Rights Agreement provides, among other things, that,
at any time after June 1, 1998, the Haagen Family Stockholders will have the
right, from time to time, to require the Company to file a registration
statement (any such filing, the "Haagen Demand Registration") under the
Securities Act for any or all shares held or acquired by the Haagen Family
Stockholders ("Haagen Registrable Securities"). The right to a Haagen Demand
Registration is limited, however, in that (i) the Company is not required to
effect more than three Haagen Demand Registrations, and (ii) the Company will
have the right from time to time to require the Haagen Family Stockholders not
to sell under the Haagen Demand Registration or to postpone or suspend the
effectiveness thereof for up to approximately 90 days in certain
circumstances. The Haagen Family Stockholders also will have the right, with
respect to most registrations of Common Stock by the Company for its own
account, to require the Company to include Haagen Registrable Securities in
such registration. The Haagen Registration Rights Agreement provides that the
Company will pay the expenses (other than underwriting discounts and
commissions) relating to the first Haagen Demand Registration requested by the
Haagen Family Stockholders, expenses of the second Haagen Demand Registration
will be split equally between the Company and the Haagen Family Stockholders,
and expenses of the third Haagen Demand Registration will be paid by the
Haagen Family Stockholders. The Haagen Registration Rights Agreement otherwise
contains terms that are generally customary for registration rights agreements
of its type.
CEO Employment Agreement. The Company, together with HPMI, entered into the
CEO Employment Agreement, effective upon approval by the stockholders of the
Transaction, with Alexander Haagen, Sr. with respect to his employment as
Chairman of the Board and Chief Executive Officer. The CEO Employment
Agreement provides for a five year term (subject to early termination as
described below) and a compensation package consisting of a base annual salary
of $200,000 (subject to annual cost of living adjustments) as well as other
miscellaneous benefits (including expense reimbursement, health insurance,
automobile allowance and annual grants of 10,000 shares of stock). The CEO
Employment Agreement provides that the executive shall report solely to the
Board and allows the executive to devote such reasonable amount of time as he
shall determine to certain business activities, including real estate
development, other than his service to the Company. The CEO Employment
Agreement may be terminated by either the Company or the executive upon 36
month's written notice (subject to the right to terminate the CEO Employment
Agreement early upon payment of severance benefits described below). The
executive may terminate his employment without 36 month's notice for "good
reason" (as defined in the CEO Employment Agreement) which includes reasons
such as removal from his position, the Company's breach of the employment
agreement, or an adverse change in the executive's title or a material
diminution in his duties. In the event that, at any time, the Company
terminates the executive's employment or the executive voluntarily terminates
his employment for good reason, the Company will be obligated to (i) pay the
executive the sum of $1,000,000 and (ii) continue to pay, for the shorter of
36 months and the remaining term of the agreement, the executive all of the
compensation and benefits provided for in the CEO Employment Agreement.
Vice Chairman Employment Agreement. The Company, together with HPMI, entered
into the Vice Chairman Employment Agreement, effective upon approval by the
stockholders of the transaction, with Alexander Haagen III with respect to his
employment as Vice Chairman of the Board and Chairman of the Executive
Committee of the Board, and his succession of Alexander Haagen, Sr. as
Chairman of the Board upon Mr. Haagen, Sr.'s retirement. The Vice Chairman
Employment Agreement provides for a five year term (subject to early
termination as described below) and a compensation package consisting of a
base annual salary of $100,000 (subject to annual cost of living adjustments)
as well as other miscellaneous benefits (including expense reimbursement,
health insurance, automobile allowance and annual grants of 10,000 shares of
stock). The Vice Chairman Employment Agreement provides that the executive
shall report solely to the Chairman of the Board and allows the executive to
devote such reasonable amount of time as he shall determine to certain
business activities, including real estate development, other than his service
to the Company. The Vice Chairman Employment Agreement may be terminated by
either the Company or the executive upon 36 month's written notice (subject to
the right to terminate the Vice Chairman Employment Agreement early upon
payment of severance benefits described below). The executive may terminate
his employment without 36 month's notice for "good reason" (as defined in the
Vice Chairman Employment Agreement) which includes reasons such as
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removal from his position, the Company's breach of the employment agreement,
or an adverse change in the executive's title or a material diminution in his
duties. In the event that, at any time, the Company terminates the executive's
employment or the executive voluntarily terminates his employment for good
reason, the Company will be obligated to (i) pay the executive the sum of
$500,000 and (ii) continue to pay, for the shorter of 36 months and the
remaining term of the agreement, the executive all of the compensation and
benefits provided for in the Vice Chairman Employment Agreement.
Vice President Employment Agreement. The Company, together with HPMI,
entered into the Vice President Employment Agreement, effective upon approval
by the stockholders of the Transaction, with Charlotte Haagen with respect to
her employment as Vice President of the Company. The Vice President Employment
Agreement provides for a five year term (subject to early termination as
described below) and a compensation package consisting of a base annual salary
of $25,000 (subject to annual cost of living adjustments) as well as other
miscellaneous benefits (including expense reimbursement, health insurance,
automobile allowance). The Vice President Employment Agreement provides that
the executive shall report solely to the Chairman of the Board and allows the
executive to devote such reasonable amount of time as she shall determine to
certain business activities, including real estate development, other than her
service to the Company. The Vice President Employment Agreement may be
terminated by either the Company or the executive upon 36 month's written
notice (subject to the right to terminate the Vice President Employment
Agreement early upon payment of severance benefits described below). The
executive may terminate her employment without 36 month's notice for "good
reason" (as defined in the Vice President Employment Agreement) which includes
reasons such as removal from her position, the Company's breach of the
employment agreement, or an adverse change in the executive's title or a
material diminution in her duties. In the event that, at any time, the Company
terminates the executive's employment or the executive voluntarily terminates
her employment for good reason, the Company will be obligated to continue to
pay, for the shorter of 36 months and the remaining term of the agreement, the
executive all of the compensation and benefits provided for in the Vice
President Employment Agreement.
Incentive Stock Option Grants. In connection with the Transaction, the
Company granted certain incentive stock options to members of the Company's
senior management. The Compensation Committee of the Board of Directors, on
May 30, 1997, made stock option grants to six members of the Company's senior
management for an aggregate of 470,000 shares. The stock options granted have
a $15 exercise price, and one-third of the shares will vest in each of the
next three years if the grantee remains employed by the Company. In addition,
the closing price of the Common Stock must exceed certain target levels for
periods of 90 consecutive days before the options become exercisable.
POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OF THE TRANSACTION
Approval of the Transaction by the stockholders will constitute approval of
all of the various terms of the Transaction set forth in the Stock Purchase
Agreement, the Stockholders Agreement and the Registration Rights Agreement
and the transactions contemplated thereby.
Such approval also may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the
Transaction, including potential claims, if any, alleging violations of the
Board's duties to stockholders. Under Maryland law, the fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary duty claims against directors.
As described in "--Terms of the Transaction--Conditions to Closing" above,
approval of the Transaction is a condition to consummation of the Transaction,
but there also are numerous other conditions that must be satisfied in order
for the Transaction to be consummated. There can be no assurance that all of
these conditions will be satisfied, or that the Transaction will be
consummated.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations resulting from the Transaction that may be relevant to the
Company and the Company's current stockholders. This discussion does not
address the federal income tax considerations resulting from the Transaction
that may be relevant to LFREI or its investors, and does not address the
state, local, or foreign tax considerations resulting from the Transaction
that may be relevant to the Company, LFREI, or their respective investors. The
Company has not sought an opinion of counsel that the Company will qualify as
a REIT following the Transaction. This discussion is based on the current
provisions of the Internal Revenue Code (the "Code"), the applicable Treasury
regulations promulgated thereunder, administrative rulings, court decisions,
certain factual assumptions related to the ownership and operation of the
Company, and certain representations made by the Company and LFREI. No
assurance can be given that the legal authorities on which this discussion is
based will not change, perhaps retroactively, that the factual assumptions and
representations underlying this discussion will continue to be accurate, or
that there will not be a change in the future in the circumstances of the
Company or LFREI that would affect this discussion.
No Recognition of Taxable Gain. The Company believes that neither the
Company nor any of the Company's current stockholders will recognize taxable
gain as a result of the Transaction.
Taxation of the Company as a REIT. The Company made an election to be taxed
as a REIT under sections 856 through 860 of the Code, effective for its short
taxable year ended December 31, 1993. The Company believes that, commencing
with such taxable year, it has been organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code, and the Company
intends to continue to operate in such a manner. Qualification and taxation as
a REIT depends upon the Company's ability to meet on a continuing basis
(through actual annual operating results, distribution levels and diversity of
share ownership) the various qualification tests imposed under the Code.
Accordingly, no assurance can be given that the Company has operated in a
manner so as to qualify, or will operate in a manner so as to continue to
qualify, as a REIT.
As a result of the Transaction, it is expected that LFREI would own in
excess of 50% of the aggregate outstanding Common Stock of the Company. Such
ownership would violate the limits on ownership of Common Stock set forth in
the Company's Charter, which limits are intended to protect the Company's tax
status as a REIT. It is anticipated that the Company's Board of Directors will
grant to LFREI an exception to the ownership limits, based on certain
representations made by LFREI (to its best knowledge), as to the actual and
constructive ownership of certain interests by LFREI and the ownership of
interests in LFREI. Assuming the facts regarding the ownership interests set
forth in such representations are accurate, the Company believes that the
Transaction will not have an adverse affect on the Company's ability to
qualify for taxation as a REIT. In the event such facts are not accurate, the
Company's Charter provides (and the exception to the ownership limits granted
to LFREI will provide) that shares of Common Stock held by LFREI will be
exchanged for "excess stock" (as defined in the Charter), which shares would
be required to be sold in a manner which did not violate the ownership limits.
These provisions are intended to preserve the Company's tax status as a REIT
in the event the ownership of Common Stock would otherwise jeopardize such
status. However, such Charter provisions are untested and no assurance can be
given that they will protect the Company's tax status as a REIT. If the
Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or
distribution to stockholders of the Company because of the additional tax
liability to the Company for the years involved. In addition, distributions to
stockholders of the Company would no longer be required to be made.
Possible Impact of the Transaction on Subsequent Sales of Stock by Non-U.S.
Stockholders. Generally, a sale of stock in the Company by a "Non-U.S. Holder"
will not be subject to United States taxation under the Foreign Investment in
Real Property Tax Act of 1980 ("FIRPTA") unless such stock constitutes a
United States
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Real Property Interest ("USRPI"). As used herein, the term "Non-U.S. Holder"
means a holder of shares of Common Stock who is not (for United States federal
income tax purposes) (i) a citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized in the United
States or under the laws of the United States or of any state thereof, (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust, if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust. Stock in the Company will not
constitute a USRPI if the Company is a "domestically controlled REIT," defined
generally as a REIT in which, at all times during a specified testing period,
less than 50% in value of its stock was held directly or indirectly by Non-
U.S. Holders. In the event that, either at the time of the Transaction or at
any time thereafter, direct or indirect stockholders of the Company (including
owners of interest in LFREI) who are Non-U.S. Holders own collectively 50% or
more, in value, of the outstanding capital stock of the Company, the Company
would cease to be a domestically controlled REIT.
If the Company does not qualify as a domestically controlled REIT, a Non-
U.S. Holder's sale of stock in the Company generally still will not be subject
to United States tax under FIRPTA, provided that (i) the stock is "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market, and (ii) the selling Non-U.S. Holder held 5% or less of the
Company's outstanding stock at all times during a specified testing period.
The Company presently believes the Common Stock would be considered to be
"regularly traded" for this purpose.
If gain on the sale of stock in the Company were subject to taxation under
FIRPTA, a Non-U.S. Holder would be subject to the same treatment as a United
States stockholder with respect to such gain (subject to applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals, and the possible application of the 30% branch
profits tax in the case of non-U.S. corporations), and the purchaser of the
stock could be required to withhold 10% of the purchase price and remit such
amount to the Internal Revenue Service.
DESCRIPTION OF OPINION OF THE COMPANY'S FINANCIAL ADVISOR
On May 30, 1997, Prudential Securities delivered its written opinion (the
"Opinion") to the Company's Board that, as of such date, the consideration to
be received by the Company pursuant to the Transaction is fair to the Company
from a financial point of view. Prior to its presentation to the Board,
Prudential Securities provided to each director a report setting forth the
analysis underlying the Opinion. This analysis, as presented to the Board, is
summarized herein. Members of the Board were present at the meeting and had an
opportunity to ask questions of Prudential Securities. Prudential Securities
discussed with the Board the information in the report, and the financial data
and other factors considered by Prudential Securities in conducting its
analysis, all of which are summarized herein.
In requesting the Opinion, the Board did not give any special instructions
to Prudential Securities or impose any limitations upon the scope of the
investigation that Prudential Securities deemed necessary to enable it to
deliver the Opinion. A copy of the Opinion, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is attached to
this Proxy Statement as Appendix F and is incorporated herein by reference.
The summary of the Opinion set forth below is qualified in its entirety by
reference to the full text of the Opinion. The Company's stockholders are
urged to read the Opinion in its entirety. The Opinion is directed only to the
fairness of the consideration to be received by the Company from a financial
point of view and does not constitute a recommendation to any stockholder as
to how such stockholder should vote at the Special Meeting.
In conducting its analysis and arriving at the Opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as Prudential Securities deemed relevant under the
circumstances, including: (i) the Company's Annual Report on Form 10-K and the
related financial information for the fiscal year ended December 31, 1996 and
the Company's Quarterly Report on Form 10-Q and the related
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unaudited financial information for the quarterly period ended March 31, 1997;
(ii) certain information, including financial projections, relating to the
business, earnings, cash flow, assets and prospects of the Company, furnished
to Prudential Securities by the Company's management; (iii) the historical
market prices and trading activity for the Company's Common Stock and certain
publicly traded companies which Prudential Securities deemed to be reasonably
similar to the Company; (iv) the historical and certain future earnings
estimates of selected companies Prudential Securities deemed to be reasonably
similar to the Company; (v) the financial terms and conditions of certain
recent transactions Prudential Securities deemed relevant; (vi) drafts, dated
May 27, 1997, of the Stock Purchase Agreement, Stockholders Agreement and
Registration Rights Agreement; and (vii) such other financial studies,
analyses and investigations as Prudential Securities deemed necessary.
Prudential Securities discussed with senior management of the Company: (i) the
prospects for their business, (ii) their estimate of such business' future
financial performance, (iii) the potential financial impact of the Transaction
on the Company, and (iv) such other matters as Prudential Securities deemed
relevant. Prudential Securities also visited selected properties owned by the
Company. The Opinion is necessarily based on economic, financial and market
conditions as they existed and could be evaluated as of the date of the
Opinion.
In connection with its review and analysis and in arriving at the Opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the financial and other information provided to Prudential Securities or which
was publicly available, and did not undertake to verify independently any such
information. Prudential Securities neither made nor obtained any independent
valuations or appraisals of any of the Company's assets. With respect to
certain financial projections of the Company provided to Prudential Securities
by the Company, Prudential Securities assumed that the information was
reasonably prepared and that the projections represented management's best
currently available estimate as to the future financial performance of the
Company.
Prudential Securities expressed no opinion as to what the value of the
Company's Common Stock will be when issued to LFREI or the prices at which the
Common Stock will trade after the Transaction. In addition, the Opinion does
not evaluate the relative merits of the Transaction as compared to any other
strategic plan or business combination or opportunity which might be presented
to the Company.
Prudential Securities compared the Transaction to various funding
alternatives (including public and private equity offerings) with respect to
timing, amount, certainty of completion and cost. Prudential Securities
observed that the Transaction would give the Company immediate access to
significant capital at a price which was at a premium to the market price
prior to the announcement of the Transaction. Prudential Securities considered
the Company management's belief that the Company should benefit from its
association with LFREI and that a strategic partnership arrangement with LFREI
should be viewed positively by the public equity markets.
In arriving at the Opinion, Prudential Securities performed a variety of
financial analyses, including those summarized herein. The summary set forth
herein of the analyses presented to the Board at the May 30, 1997 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 circumstances
and, therefore, such an opinion is not necessarily susceptible to partial
analysis or summary description. Prudential Securities believes that its
analysis must be considered as a whole and that selecting portions thereof or
portions of the factors considered by it, without considering all the analyses
and factors, could create an incomplete view of the evaluation process
underlying the 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 the Company. 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 securities
actually may be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
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Subject to the foregoing, the following is a summary of the material
financial analyses performed by Prudential Securities in arriving at the
Opinion.
Comparable Transactions Analysis. Prudential Securities compared the
purchase price per share of the Company's Common Stock pursuant to the
Transaction to selected historical trading prices of the Company's Common
Stock. Prudential Securities analyzed the percentage difference between the
purchase price of $15.00 per share and the closing price of the Company's
Common Stock one day, one week, and one month prior to May 28, 1997. The
purchase price pursuant to the Transaction represented a 9.1%, 10.1%, and
13.2% premium to the Company's Common Stock price one day, one week, and one
month prior to May 28, 1997, respectively. Prudential Securities compared
these premiums with a group of eight completed strategic investments which
Prudential Securities considered to be reasonably comparable to the
Transaction for the purpose of its analysis. The transactions considered were
strategic investments in: (i) Storage USA, Inc.; (ii) Carr Realty Corporation;
(iii) Felcor Suite Hotels, Inc.; (iv) Crocker Realty Trust, Inc.; (v) Essex
Property Trust, Inc.; (vi) Koger Equity, Inc.; (vii) Regency Realty
Corporation; and (viii) Regency Realty Corporation II. Such transactions were
found to have the following low to high ranges of percentage difference
between the transaction purchase price and the historical trading price one
day, one week and one month prior to announcement of the transactions: (10.2%)
to 4.2%; (9.4%) to 13.2%; and (9.4%) to 13.2%, respectively.
Comparable Company Analysis. Prudential Securities compared selected
financial ratios for the Company with a group of nineteen publicly traded
companies engaged in the acquisition, operation and management of retail
properties which Prudential Securities considered to be reasonably comparable
to the Company for purposes of its analysis. The companies considered were:
(i) Agree Realty Corporation; (ii) Bradley Real Estate, Inc.; (iii) Burnham
Pacific Properties, Inc.; (iv) Developers Diversified Realty Corporation; (v)
Excel Realty Trust, Inc.; (vi) Federal Realty Investment Trust; (vii) IRT
Property Company; (viii) JDN Realty Corporation; (ix) Kimco Realty
Corporation; (x) Kranzco Realty Trust; (xi) Mid-America Realty Investments,
Inc.; (xii) Mid-Atlantic Realty Trust; (xiii) New Plan Realty Trust; (xiv)
Regency Realty Corporation; (xv) Saul Centers, Inc.; (xvi) Sizeler Property
Investors; (xvii) The Price REIT, Inc.; (xviii) Weingarten Realty Investors;
and (xix) Western Investment Real Estate Trust (collectively, the "Comparable
Companies").
Prudential Securities calculated a transaction multiple based on LFREI's
purchase price of $15 per share and the Company's estimated 1997 and 1998
funds from operations ("FFO") per share ("FFO/Share") (each a "Transaction
Multiple") and compared it to the Comparable Companies' stock price to
estimated 1997 and 1998 FFO/Share multiples (each, an "FFO Multiple").
Prudential Securities separated the Comparable Companies into companies with
an equity market capitalization greater than $400 million (the "Large Market
Capitalization Segment") and companies with an equity market capitalization
less than $400 million (the "Small Market Capitalization Segment"). As of May
28, 1997, the Large Market Capitalization Segment was found to have an equity
market capitalization range of between $403.1 million and $1,380.2 million. As
of May 28, 1997, the Small Market Capitalization Segment was found to have an
equity market capitalization range of between $67.6 million and $398.2 million
(with Haagen at $224.3 million). For the Large Market Capitalization Segment,
the range of 1997 FFO Multiples was estimated to be equal to 9.9x to 13.2x,
and the range of 1998 FFO Multiples was estimated to be equal to 9.1x to
12.4x. For the Small Market Capitalization Segment, the range of 1997 FFO
Multiples was estimated to be equal to 7.9x to 11.0x (with Haagen at 10.6x),
and the range of 1998 FFO Multiples was estimated to be equal to 7.6x to 10.1x
(with Haagen at 9.8x). Prudential Securities noted that the Company's 1997 and
1998 Transaction Multiples were in the high end of the range for the Small
Market Capitalization Segment and the low end of the range for the Large
Market Capitalization Segment.
Prudential Securities also separated the Comparable Companies into companies
with high leverage (the "High Leverage Segment") and companies with low
leverage (the "Low Leverage Segment"). As of March 31, 1997, the High Leverage
Segment had a range of debt to total market capitalization percentage of 50.4%
to 68.6% (with Haagen at 65.0%); the Low Leverage Segment had a range of debt
to total market capitalization percentage of 18.6% to 44.4%. Prudential
Securities noted that the Company's 1997 and 1998 Transaction Multiples of
10.6x and 9.8x, respectively were above the 1997 and 1998 FFO Multiple ranges
of 7.9x to 10.0x and 7.6x to 9.6x, respectively for the High Leveraged
Segment, and within the range for the Low Leverage
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Segment FFO Multiples for 1997 and 1998 which range from 8.2x to 13.2x and
8.8x to 12.4x, respectively. Prudential Securities also observed a negative
correlation between FFO trading multiples and the ratio of debt to total
market capitalization. The FFO estimates utilized in this analysis were from
First Call, an on-line data service available to subscribers which compiles
estimates developed by equity research analysts. The estimates published by
First Call were not prepared in connection with the Investment or at
Prudential Securities' request.
Pro Forma FFO Per Share Analysis. Prudential Securities also analyzed the
pro forma effect of the Transaction on the Company's FFO per share based on
projections provided by management. An analysis of the anticipated future
results based on projections provided by the Company's management (assuming
anticipated acquisition opportunities which can be pursued using the proceeds
of the equity Transaction) indicated that the Transaction results in an
increase in the Company's FFO per share on a Fully-Diluted Basis. Projected
financial and other information concerning the Company and the impact of the
Transaction upon the stockholders of the Company is not necessarily indicative
of future results. All projected financial information is subject to numerous
contingencies beyond the control of the Company's management.
The Company retained Prudential Securities to render a fairness opinion and
to provide other financial advisory services in connection with the
Transaction because it is an internationally recognized investment banking
firm engaged in the valuation of businesses and their securities in connection
with mergers, acquisitions and other purposes, and has substantial experience
in transactions similar to the Transaction. The engagement letter with
Prudential Securities provides that the Company will pay Prudential Securities
an advisory fee equal to $600,000 payable as follows: (i) $75,000 retainer
fee; (ii) $225,000 upon delivery of the Opinion; and (iii) $300,000 upon the
Company's receipt of stockholder approval in connection with the Transaction.
In addition, the engagement letter with Prudential Securities provides that
the Company will reimburse Prudential Securities for its out-of-pocket
expenses and will indemnify Prudential Securities and certain related persons
against certain liabilities, including liabilities under securities laws,
arising out of the Transaction or its engagement.
In the ordinary course of business, Prudential Securities may actively trade
the Company's Common Stock for its own account and for the accounts of
customers, and accordingly, may at any time hold a long or short position in
such securities.
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN
ITS DETERMINATION
The Board of Directors of the Company has unanimously approved the
Transaction and has determined that the Transaction is in the best interests
of the Company and its stockholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE TRANSACTION.
The Board believes that the Transaction is in the best interests of the
Company and its stockholders because, if consummated, it represents an
opportunity to improve long-term stockholder value by providing the Company
with access to significant equity capital at an attractive cost and
additionally provides strategic resources not otherwise readily available to
it, thereby enhancing the Company's short-term and long-term growth prospects
and positioning it to better capitalize on shopping center opportunities in
the Geographic Region. See "-- Potential Beneficial Effects of the
Transaction" above.
While the Board believes that the Transaction is in the best interests of
the Company and its stockholders, the consummation of the Transaction may have
certain adverse effects that stockholders should consider. These
considerations include: (i) the substantial amount of stock that will be
concentrated in one stockholder of the Company, as well as certain rights
being granted to LFREI in connection with the Transaction (including rights
with respect to Board representation and information), which rights will allow
LFREI to exercise substantial influence over the affairs of the Company even
during the Standstill Period and might discourage other persons from offering
to acquire a significant interest in the Company, (ii) the possibility that
LFREI will gain control of the Company if the Standstill Period or any
Standstill Extension Term terminates, and (iii) the possible dilution of
earnings per share to stockholders as a result of the Transaction. See "--
Potential Adverse Effects of the Transaction" above.
34
<PAGE>
In reaching its determination that the Transaction is in the best interests
of the Company and its stockholders, the Board considered the following
material factors in addition to those discussed above under "Potential
Beneficial Effects of the Transaction" and "Potential Adverse Effects of the
Transaction."
. Substantial Stockholder. The Board considered that, as a result of the
Transaction, LFREI will be the largest single stockholder of the Company,
owning as much as 49.9% of the outstanding Common Stock on an Adjusted Fully
Diluted Basis, while the Charter will continue to prohibit certain persons
from owning more than 9.8% by value of the Company's capital stock (subject to
certain exceptions set forth in the Charter or approved by the Board) in order
to facilitate the Company's continued qualification as a REIT. The Board
considered that LFREI also will have substantial information rights, the right
to nominate Board members, and numerous other rights as set forth above in "--
Terms of the Transaction." Although the Board believes that this concentration
of ownership in one stockholder could potentially be disadvantageous to the
other stockholders' interests, the Board also believes that certain provisions
of the Stockholders Agreement should reduce, to some extent, the impact of
such concentration of ownership by imposing various limitations on LFREI with
regard to its ownership, transfer and voting of Common Stock, including: (i)
provisions that prohibit LFREI from acquiring greater than 49.9% of the
Company's Common Stock on an Adjusted Fully Diluted Basis, (ii) provisions
that limit to four the number of directors nominated to the Company's Board of
Directors by LFREI during the Standstill Period or any Standstill Extension
Term, and (iii) provisions that restrict LFREI from transferring shares of
Common Stock except in accordance with applicable securities laws and the
generally applicable ownership limitations in the Charter and subject to the
requirement that the Company approve, in its sole and absolute discretion, any
transfer in a negotiated transaction that would result in the transferee
beneficially owning more than 9.8% of the Company's capital stock. While the
Board recognizes the potentially negative aspects of the concentration of
substantial ownership in a single stockholder, the Board believes that, on
balance, the potentially negative aspects are outweighed by the potential
benefits of obtaining in a timely way such a large amount of capital at a
reasonable cost, the indirect affiliation with LFREI and the other potential
benefits of the Transaction.
. Impact on Other Investments. The Board believes that the limitations on
the Company's ability to engage in certain corporate actions without the
consent of LFREI, the composition of the Board following the stockholder
approval of the Transaction (and thereafter) and the likelihood that the size
of LFREI's investment (notwithstanding related restrictions on LFREI, as
discussed above), certain provisions of the Code limiting ownership of REITs
and certain provisions of the Code and other countries' tax laws applicable to
foreign investors, might discourage other persons from offering to acquire a
significant interest in the Company (or all or a significant interest in the
assets of the Company). As a result, the Board considers this to be a negative
factor. However, the Board believes that this factor is outweighed by the
positive factors outlined above.
The members of the Board evaluated the factors referred to above in light of
their knowledge of the business and operations of the Company, their business
judgment and the advice of Prudential Securities. In view of the wide variety
of factors considered in connection with the Board's evaluation of the
Transaction, the Board did not find it practicable to, and did not, quantify
or attempt to assign relative weights to the specific factors considered in
reaching its determination.
35
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK PRIOR TO AND AFTER THE TRANSACTION
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock outstanding as of the Record Date and
immediately following the final Subsequent Closing of the Transaction
(assuming that an aggregate of 14,360,232 shares are issued pursuant to the
Subsequent Closings), by (i) each person or group known to the Company who
owns or who will own more than 5% of the outstanding shares of Common Stock,
and (ii) each of the directors and the executive officers of the Company.
Unless otherwise indicated in the footnotes, all of such interests are owned
directly, and the indicated person has sole voting and investment power. The
number of shares represents the number of shares of Common Stock the person
holds, including shares that may be issued upon the exercise of options that
are exercisable within 60 days of the Record Date. Information presented in
the table and related notes has been obtained from the beneficial owner and/or
from reports filed by the beneficial owner with the Securities and Exchange
Commission pursuant to Section 13 of the Exchange Act.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
ON MARCH 31, 1997 ADJUSTED FOR SUBSEQUENT CLOSINGS
--------------------------------------- -------------------------------------
AMOUNT AND AMOUNT AND
NATURE NATURE
OF OF
BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(A)(B) OF CLASS(C) OWNERSHIP OF CLASS(K)
- ------------------------ --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Prometheus Western Retail, LLC.......... 1,306,434(1) 9.8% 15,666,666 56.6%
Thirty Rockefeller Plaza
63rd Floor
New York, NY 10020
Merrill Lynch & Co., Inc................ 1,645,225(d)(j) 12.3% 1,645,225(d)(j) 5.9%
World Financial Center
North Tower
250 Vesey Street
New York, NY 10281
Alex Brown Investment................... 1,058,000(e) 7.9% 1,058,000(e) 3.8%
Management
1345 East Baltimore Street
Baltimore, MD 21202
Prudential Insurance Company of America. 955,550(d) 7.2% 955,550(d) 3.5%
Prudential Plaza
Newark, New Jersey 07102-3777
Morgan Stanley Group, Inc............... 891,800(d) 5.0% 891,800(d) 3.2%
1585 Broadway
New York, NY 10036
Alexander Haagen, Sr. .................. 1,676,233(b)(f) 11.3% 1,676,233(b)(f) 5.7%
Charlotte Haagen........................ 1,653,323(b)(f) 11.2% 1,653,323(b)(f) 5.7%
Alexander Haagen III.................... 221,500(b)(f) 1.6% 221,500(b)(f) *
Fred W. Bruning......................... 310,458(b)(f) 2.3% 310,458(b)(f) 1.1%
Stuart J.S. Gulland..................... 20,625(g) * 20,625(g) *
Steven M. Jaffe......................... 807(h) * 807(h) *
R. Bruce Andrews........................ 12,850(i) * 12,850(i) *
Tom Bradley............................. 5,850(i) * 5,850(i) *
Warren D. Fix........................... 9,850(i) * 9,850(i) *
James Hankla............................ -- * -- *
Warner Heineman......................... 14,850(i) * 14,850(i) *
Fred L. Riedman......................... 7,850(i) * 7,850(i) *
All Directors and Executive
Officers as a group (12 persons)....... 3,942,997(b)(f)(g)(h)(i) 23.4% 3,942,997(b)(f)(g)(h)(i) 12.6%
</TABLE>
36
<PAGE>
- --------
* Less than 1%
(a) For purposes of this Proxy Statement, beneficial ownership of securities
is defined in accordance with the rules of the Securities and Exchange
Commission and means generally the power to vote or exercise investment
discretion with respect to securities, regardless of any economic
interests therein. Except as otherwise indicated, the Company believes
that the beneficial owners of shares of Common Stock listed in this table
have sole investment and voting power with respect to such shares, subject
to community property laws where applicable.
(b) Includes shares of Common Stock issuable upon exchange of partnership
units ("Operating Partnership Units") in Alexander Haagen Properties
Operating Partnership, L.P. which are exchangeable within 60 days. As of
March 31, 1997, the number of Operating Partnership Units owned by the
executive officers of the Company was as follows: Alexander Haagen, Sr.--
1,419,642, Charlotte Haagen--1,419,642, Alexander Haagen III--140,664, and
Fred W. Bruning--262,333.
(c) Based on 12,024,522 shares of Common Stock outstanding as of March 31,
1997, plus 1,306,434 shares of Common Stock issued to LFREI in the Initial
Purchase.
(d) The Schedule 13G filed by the stockholder indicates shared investment and
dispositive power with respect to all shares.
(e) Although the stockholder has not filed a Schedule 13G, the Company
believes that the stockholder owns the number of shares indicated and has
sole voting and dispositive power with respect to a majority of such
shares.
(f) Includes options to purchase 48,125 shares of Common Stock which are
exercisable within 60 days, but does not include options to purchase
34,375 shares of Common Stock outstanding as of March 31, 1997 which are
not exercisable within 60 days.
(g) Includes options to purchase 20,625 shares of Common Stock which are
exercisable within 60 days, but does not include options to purchase
61,875 shares of Common Stock outstanding as of March 31, 1997 which are
not exercisable within 60 days.
(h) Includes options to purchase 807 shares of Common Stock which are
exercisable within 60 days, but does not include options to purchase
28,623 shares of Common Stock outstanding as of March 31, 1997 which are
not exercisable within 60 days.
(i) Includes options to purchase 4,850 shares of Common Stock which are
exercisable within 60 days. Does not include options to purchase 9,350
shares of Common Stock outstanding as of March 31, 1997 which are not
exercisable within 60 days.
(j) Includes shares that the holder has the right to acquire through the
exchange of 7 1/4% exchangeable subordinated debentures due in 2003.
(k) As adjusted for the issuance of 14,360,232 additional shares.
37
<PAGE>
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of a majority of the non-LFREI shares present in person
or represented by proxy at the Special Meeting, providing that the total
number of shares present in person or represented by proxy at the Special
Meeting (including votes cast by LFREI) represents over 50% of the shares of
Common Stock issued and outstanding, is required to approve the Transaction.
Approval of the Transaction by the requisite vote of the stockholders of the
Company is a condition to consummation of the Transaction (except for the
Initial Purchase by LFREI of 1,306,434 shares on July , 1997).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
38
<PAGE>
APPROVAL OF
THE AMENDED AND RESTATED 1993 STOCK OPTION AND INCENTIVE PLAN,
AS AMENDED
(Proposal 2)
On May 30, 1997, the Compensation Committee approved the Third Amendment to
the Restated Plan and the Board approved and ratified such approval. On July
, 1997, the Board approved the Fourth Amendment to the Restated Plan. The
Board and the Compensation Committee recommend the approval by the
stockholders of the Restated Plan, as amended by the First Amendment to the
Restated Plan (the "First Amendment"), the Second Amendment to the Restated
Plan (the "Second Amendment"), the Third Amendment to the Restated Plan (the
"Third Amendment") and the Fourth Amendment to the Restated Plan (the "Fourth
Amendment"). The Restated Plan, as amended by the First Amendment and the
Second Amendment, was approved by the stockholders on May 15, 1997. The only
revisions to the Restated Plan that have been made since the Restated Plan was
approved on May 15, 1997 are pursuant to the Third Amendment and the Fourth
Amendment, which are described below and attached hereto as Appendix D and
Appendix E respectively. If the Restated Plan, as amended, is not approved by
stockholders, the Restated Plan shall continue in effect as it existed
immediately prior to the approval of the Third Amendment.
SUMMARY OF THE THIRD AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK OPTION
AND INCENTIVE PLAN
On September 21, 1993, the Company's Board of Directors adopted The 1993
Stock Option and Incentive Plan for Officers, Directors and Key Employees of
Alexander Haagen Properties, Inc., Alexander Haagen Properties Operating
Partnership, L.P. and Haagen Property Management, Inc. (the "Original Plan").
The Original Plan was amended on August 14, 1995, subject to stockholder
approval. The Original Plan was amended and restated in the form of the
Restated Plan on February 28, 1996, subject to stockholder approval, and the
Restated Plan was approved by stockholders on May 24, 1996. The Restated Plan
was amended on November 19, 1996 in the form of the First Amendment and the
Restated Plan was amended on February 27, 1997, subject to stockholder
approval, in the form of the Second Amendment. The First Amendment amended
provisions of the Restated Plan regarding the composition of the committee
that administers the Restated Plan, revised provisions regarding the transfer
of shares upon the exercise of an option and the Company's contributions to
the Operating Partnership with respect to the exercise of such options and
revised certain timing requirements with respect to the payment of the
exercise price or withholding taxes. The Second Amendment increased the number
of shares subject to the Restated Plan by 500,000, provided each Independent
Director (as such term is defined in the Restated Plan) 1,000 shares of
restricted stock as of February 27, 1997 which vest in three installments on
February 27, 1998, February 27, 1999 and February 27, 2000 (subject to
continued service as a member of the Board of Directors) and provided that the
Board in its sole and absolute discretion may grant restricted stock awards to
Independent Directors and may determine the number of shares to be subject
thereto and the terms and conditions thereof, consistent with the Restated
Plan. The Restated Plan, as amended by the First Amendment and the Second
Amendment, was approved by the stockholders on May 15, 1997. The summary of
the Restated Plan, which incorporates the changes made pursuant to the First
Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment
(collectively, the "Amendments"), is qualified by reference to the Restated
Plan itself and the Amendments. Copies of the Restated Plan and the First
Amendment and the Second Amendment may be obtained by making a written request
to the Company's Secretary. The Third Amendment is summarized below, but such
summary is qualified by reference to the Third Amendment itself, which appears
as Appendix D to this Proxy Statement.
Subject to stockholder approval, the Third Amendment increases the number of
shares available for grants under the Restated Plan from 1,350,000 to
2,000,000. The Third Amendment appears as Appendix D to this Proxy Statement.
Copies of the Third Amendment will be available at the Special Meeting. The
Fourth Amendment is summarized below, but such summary is qualified by
reference to the Fourth Amendment itself, which appears as Appendix E to this
Proxy Statement.
39
<PAGE>
SUMMARY OF THE FOURTH AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK OPTION
AND INCENTIVE PLAN
Subject to stockholder approval, the Fourth Amendment (i) provides for
accelerated vesting of the options and restricted stock issued to Tom Bradley,
James Hankla and Warren Fix; (ii) revises provisions regarding the Company's
contributions to Alexander Haagen Operating Partnership, L.P. (the "Operating
Partnership") with respect to the exercise of options (such provisions are
described below under the heading "Exercise of Options"); and (iii) revises
the provisions regarding the eligibility for restricted stock awards to
clarify that, pursuant to the Restated Plan, such awards are not subject to
the Award Limit (as such term is defined in the Restated Plan). The Fourth
Amendment appears as Appendix E to this Proxy Statement. Copies of the Fourth
Amendment will be available at the Special Meeting.
REASONS FOR ADOPTION OF THE THIRD AMENDMENT TO THE RESTATED PLAN
The Compensation Committee has determined that it is advisable to continue
to provide stock-based compensation to key employees and directors, thereby
providing such employees and directors with additional incentive to further
the growth, development and financial success of the Company and to enable the
Company, the Operating Partnership, HPMI and their respective subsidiaries to
obtain and retain the services of such key employees and directors.
Accordingly, on May 30 1997, the Compensation Committee, subject to
stockholder approval, amended the Restated Plan to increase the number of
shares subject to the Restated Plan by 650,000 shares and the Board ratified
such approval.
In connection with the Transaction, on May 30, 1997, the Compensation
Committee, approved option grants to the following officers: Alexander Haagen
III--200,000 shares; Fred W. Bruning--100,000 shares; Stuart J.S. Gulland--
60,000 shares; Steven M. Jaffe--60,000 shares; Patricia A. DeAngelis--25,000;
Christopher J. Fahey--25,000 shares. These options have an exercise price of
$15.00 per share, are granted for a term of 10 years. Unless the
exercisability of the options is accelerated, such options may not be
exercised until the satisfaction of the conditions set forth in both of the
following items (a) and (b): (a) subject to continued employment, the terms of
this condition are satisfied in the following three (3) cumulative
installments : (i) with respect to thirty-three and one-third percent (33
1/3%) of the shares covered by the option, on the first anniversary of the
date of grant; (ii) with respect to thirty-three and one-third percent (33
1/3%) of the shares covered by the option, on the second anniversary of the
date of grant; and (iii) with respect to thirty-three and one-third percent
(33 1/3%) of the shares covered by the option, on the third anniversary of the
date of grant; and (b) subject to continued employment, the terms of this
condition are satisfied in the following three (3) cumulative installments:
(i) with respect to forty percent (40%) of the shares covered by the option,
on the date on which the closing price of the Common Stock on the principal
exchange on which shares of Common Stock are then trading exceeds twenty
dollars ($20.00) per share for a period of ninety (90) consecutive trading
days following the date of grant; (ii) with respect to thirty percent (30%) of
the shares covered by the option, on the date on which the closing price of
the Common Stock on the principal exchange on which shares of Common Stock are
then trading exceeds twenty-two dollars ($22.00) per share for a period of
ninety (90) consecutive trading days following the date of grant and (c) with
respect to thirty percent (30%) of the shares covered by the option, on the
date on which the closing price of the Common Stock on the principal exchange
on which shares of Common Stock are then trading exceeds twenty-four dollars
($24.00) per share for a period of ninety (90) consecutive trading days
following the date of grant.
The Compensation Committee believes that such options create a strong
incentive for the employees to whom options were granted to further the
growth, development and financial success of the Company by personally
benefiting through the ownership of Company stock which recognizes such
growth, development and financial success.
Following the grants of the options described above, only 194,001 shares
remain available for grants under the authorization of the Restated Plan.
Subject to stockholder approval, the Committee has amended the Restated Plan
to increase the number of shares available for grants under the Restated Plan
in order to enable the
40
<PAGE>
Compensation Committee and the Board to make future grants to current and
future key employees and directors who are eligible for grants under the
Restated Plan, including the new President that the Company anticipates
hiring.
REASONS FOR ADOPTION OF THE FOURTH AMENDMENT TO THE RESTATED PLAN
Subject to stockholder approval, in connection with the Transaction, the
Board has determined that it is advisable to amend the Restated Plan to fully
vest the options and restricted stock held by Tom Bradley, James Hankla and
Warren Fix immediately prior to their resignation from the Board. The Board
has also determined that it is advisable to revise the restricted stock
eligibility provisions of the Restated Plan to reflect the fact that pursuant
to the amendment and restatement of the Original Plan in the form of the
Restated Plan, the Award Limit applies only to grants of options, and not to
restricted stock awards. Accordingly, subject to stockholder approval, the
Board has amended the Restated Plan to delete the reference to the Award Limit
in the provisions regarding eligibility to receive restricted stock awards. In
addition, the Board has decided that it is necessary to revise certain
provisions of the Restated Plan regarding the Company's contributions to the
Operating Partnership with respect to the exercise of options. Subject to
stockholder approval, the Board has amended the Restated Plan accordingly.
DESCRIPTION OF THE AMENDED AND RESTATED 1993 STOCK OPTION AND INCENTIVE PLAN
The Restated Plan consists of three plans: (i) one for the benefit of the
key employees of the Company and its subsidiaries; (ii) one for the benefit of
Independent Directors and (iii) one for the benefit of key employees of the
Operating Partnership and its subsidiaries, the key employees of HPMI and its
subsidiaries and the HPMI Directors.
The principal purposes of the Restated Plan are to provide incentives for
officers, key employees and directors of the Company, the Operating
Partnership and HPMI and their respective subsidiaries through granting of
options and restricted stock thereby providing them with incentive to further
the Company's development and financial success, and to enable the Company,
HPMI and the Operating Partnership to obtain and retain the services of
directors and key employees considered essential to the long range success of
the Company.
Under the Restated Plan prior to the Third Amendment, not more than
1,350,000 shares of Common Stock (initially shares of the Company's Common
Stock, par value $.01 per share, as presently constituted) are authorized for
issuance upon exercise of options or as restricted stock awards. The Third
Amendment, if approved by stockholders, would increase the number of shares so
authorized by 650,000, bringing the total number of shares so authorized to
2,000,000. Furthermore, the maximum number of shares which may be subject to
options granted under the Restated Plan to any individual in any three-year
period cannot exceed 270,000. As of December 31, 1996, 245,396 shares remained
available for future awards under the Restated Plan. As of December 31, 1996,
a total of 604,268 shares were subject to outstanding stock options held by
approximately 113 officers, directors, and key employees, of which 297,449
were exercisable. As of December 31, 1996, options for 336 shares were
exercised. Such options are currently outstanding under the Restated Plan.
41
<PAGE>
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
AMENDED AND RESTATED
1993 STOCK OPTION AND
INCENTIVE PLAN
------------------------
DOLLAR NUMBER
NAME AND POSITION VALUE ($)(a) OF UNITS(#)
- ----------------- ------------ -----------
<S> <C> <C>
Alexander Haagen, Sr.(b).............................. -- --
Chairman, Chief Executive Officer
and President
Alexander Haagen III(b)............................... -- --
Vice Chairman
Fred W. Bruning(b).................................... -- --
Senior Vice President--Major Tenant
Leasing and Development
Stuart J.S. Gulland(b)................................ -- --
Senior Vice President--Chief
Financial Officer and Treasurer
Steven M. Jaffe(b).................................... -- --
Senior Vice President
and General Counsel
Charlotte Haagen(b)................................... -- --
Vice President
Seymour Kreshek(b)(c)................................. -- --
Former Senior Vice President--Chief
Financial Officer and Treasurer
Executive Group(b).................................... -- --
Non-Executive Director (b)............................ -- 86,000(d)
Group
Non-Executive Officer (b)............................. -- --
Employee Group
</TABLE>
- --------
(a) The dollar value of the benefits is not determinable and depends on the
fair market value of the Company's Common Stock on the date of exercise of
the option or vesting of the restricted stock as compared to the fair
market value of the Company's Common Stock on the date of grant.
(b) Except with respect to the non-executive director group, the benefits or
amounts to be received under the Restated Plan by such individual or group
are not determinable. The benefits or amounts to be received by the non-
executive director group are determinable only to the extent the Restated
Plan provides for automatic grants to such individuals; such individuals
may also receive discretionary grants of restricted stock, the benefits or
amounts of which are not determinable.
(c) Mr. Kreshek resigned from the Company effective February 28, 1997.
(d) Options for 15,000 shares (3,000 per Independent Director) having an
exercise price of $18 per share were granted on February 9, 1994, at which
time the fair market value of the Common Stock was less than $18 per
share. Options for 1,000 shares (200 per Independent Director) having an
exercise price of $15.875 per share were granted on January 1, 1995, at
which time the fair market value of the Common Stock was $15.875 per
share. Options for 50,000 shares (10,000 per Independent Director) having
an exercise price of $11.625 per share were granted on August 14, 1995, at
which time the fair market value of the Common Stock was $11.625 per
share. Options for 5,000 shares (1,000 per Independent Director) having an
exercise price of $12.25 per share were granted on January 1, 1996, at
which time the fair market value of the Common Stock, for purposes of the
Restated Plan, was $12.25 per share. Options for 6,000 shares (1,000 per
Independent Director) having an exercise price of $14.75 per share were
granted to Independent Directors on January 1, 1997, at which time the
fair market value of the Common Stock, for purposes of the Restated Plan,
was $14.75 per share. In addition, 6,000 shares (1,000 per Independent
Director) of restricted stock having a purchase price of $.01 per share
were granted to Independent Directors on February 27, 1997 at which time
the fair market value of the Common Stock, for purposes of the Restated
Plan, was $15.50. James Hankla received an option for 3,000 shares of
Common Stock having an exercise price of $13.50 per share on May 15, 1997,
at which time the fair market value of the Common Stock, for purposes of
the Restated Plan was $13.50.
42
<PAGE>
The options and shares of restricted stock received by each of the following
individuals and groups of individuals under the Restated Plan since its
adoption are as follows:
(1) As of December 31, 1996, each of the following Named Executive
Officers have received aggregate options for 82,500 shares: Mr. Alexander
Haagen, Sr., Chairman, Chief Executive Officer and President; Mr. Alexander
Haagen III, Vice Chairman; Fred W. Bruning, Senior Vice President-Major
Tenant Leasing and Development; Charlotte Haagen, Vice President; and
Stuart J.S. Gulland Senior Vice President-Chief Financial Officer and
Treasurer. In addition, Alexander Haagen, Sr. received 30,000 shares of
restricted stock; Alexander Haagen III received 20,000 shares of restricted
stock; Fred W. Bruning received 5,000 shares of restricted stock; Charlotte
Haagen received 10,000 shares of restricted stock; and Stuart J.S. Gulland
received 5,000 shares of restricted stock. In addition, on May 30, 1997,
Alexander Haagen III received options for 200,000 shares, Fred W. Bruning
received options for 100,000 shares and Stuart J.S. Gulland received
options for 60,000 shares;
(2) Steven M. Jaffe, Senior Vice President, General Counsel and
Secretary, has received options for 89,430 shares and 5,000 shares of
restricted stock;
(3) all current executive officers as a group have received aggregate
options for 861,930 shares;
(4) all current directors who are not officers as a group have received
aggregate options for 83,000 and 6,000 shares of restricted stock;
(5) all employees other than executive officers have received aggregate
options for 147,972 shares.
On May 5, 1995, options for 20,000 shares were granted to non-officer
employees (such options are included in the options set forth in item (5)
above). On August 14, 1995, options for 192,500 shares were granted to seven
officers of the Company (such options are included in the options set forth in
items (1) and (3) above) and options previously granted to non-officer
employees on December 30, 1994 were repriced. No options were granted in 1996.
On May 15, 1997, options for 40,000 shares were granted to specified non-
officer employees (such options are included in the options set forth on item
(5) above). On May 30, 1997, options for 470,000 shares were granted to six
officers of the Company (such options are included in the options set forth in
items (1), (2) and (3) above. On , 1997, the closing price of a
share of the Company's Common Stock on the American Stock Exchange was $
. .
The shares available under the Restated Plan upon exercise of stock options,
and for issuance as restricted stock, may be either previously unissued shares
or treasury shares, and may be equity securities of the Company other than
Common Stock, excluding any preferred stock and any warrants, options or other
rights to purchase Common Stock. Initially, such Common Stock shall be shares
of the Company's common stock, par value $.01 per share. Subject to certain
limitations, the Restated Plan provides for appropriate adjustments in the
number and kind of shares issuable under the Restated Plan, under the Award
Limit and subject to outstanding grants under the Restated Plan, and to the
exercise price of options, in the event that the Compensation Committee (or
the Board, in the case of awards granted to Independent Directors) determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock or
other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Committee's discretion (or in the case
of awards granted to Independent Directors, the Board's discretion), affects
the Common Stock such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Restated Plan or
with respect to an option or restricted stock award.
Subject to the Restated Plan's limit on the maximum number of shares which
may be issued under the Restated Plan, the following shares shall continue to
be, or shall again become, available for issuance under the Restated Plan: (i)
any shares which were subject to the unexercised portion of a stock option
that expires or is
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cancelled; (ii) any shares of restricted stock that are forfeited by the
grantee or repurchased by the Company; (iii) shares of Common Stock which are
delivered to or withheld by the Company upon the exercise of any option, in
payment of the exercise price thereof; and (iv) any shares subject to options
which are adjusted pursuant to certain corporate transactions or events and
become exercisable with respect to shares of stock of another corporation;
provided, however, that no shares shall again be available for issuance if such
action would cause an option intended to be an incentive stock option under
Section 422 of the Code to fail to so qualify.
ADMINISTRATION
As amended by the First Amendment, the Restated Plan is administered by the
Compensation Committee, or another committee or a subcommittee of the Board
assuming the functions of the Compensation Committee under the Restated Plan,
(any such committee administering the Restated Plan is hereinafter referred to
as the "Committee") consisting solely of two or more directors appointed by and
holding office at the pleasure of the Board, each of whom is both a "non-
employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code.
The Committee is authorized to select from among the eligible employees and
HPMI Directors the individuals to whom options and restricted stock are to be
granted and to determine the number of shares to be subject thereto and the
terms and conditions thereof, consistent with the Restated Plan.
Pursuant to the Second Amendment, the Board is authorized to select from the
Independent Directors the individuals to whom restricted stock is to be granted
and to determine the number of shares to be subject to such awards and the
terms and conditions thereof, consistent with the Restated Plan.
The Committee is also authorized to interpret the Restated Plan and the
options and restricted stock thereunder, to adopt such rules for the
administration, interpretation and application of the Restated Plan as are
consistent therewith and to interpret, amend or revoke any such rules. The
Board shall conduct the general administration of the Restated Plan with
respect to awards granted to Independent Directors. In addition, the Board, in
its absolute discretion, may at any time exercise any and all rights or duties
of the Committee under the Restated Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules
issued thereunder, are required to be determined in the sole and absolute
discretion of the Committee.
Members of the Committee will receive such compensation for their services as
may be determined by the Board. All expenses and liabilities that the members
of the Committee incur in connection with the administration of the Restated
Plan will be borne by the Company.
ELIGIBILITY TO RECEIVE OPTIONS AND RESTRICTED STOCK
Subject to the Award Limit and the Ownership Limit (as such term is defined
in the Restated Plan), HPMI Directors are eligible to receive options and
officers and other employees of the Company, HPMI, the Operating Partnership or
any of their respective subsidiaries who are determined by the Committee to be
key employees are eligible to receive options and restricted stock grants under
the Restated Plan. If the Property Management Agreement between the Operating
Partnership and HPMI, or any successor agreement thereto, is terminated, HPMI
Directors and employees of HPMI will no longer be eligible to receive awards
under the Restated Plan. Subject to the Award Limit and the Ownership Limit,
each Independent Director of the Company shall be eligible to be granted
options as described below. Pursuant to the Second Amendment, subject to the
Award Limit and the Ownership Limit, each Independent Director of the Company
became eligible to be awarded restricted stock and each Independent Director as
of February 27, 1997 received 1,000 shares of restricted stock.
The approximate number of individuals in each class eligible to participate
in the Restated Plan is as follows: (i) six officers and other employees of the
Company and its subsidiaries (except the Operating Partnership and HPMI); (ii)
107 officers and other employees of HPMI and its subsidiaries; (iii) 5 HPMI
Directors; (iv) zero officers and other employees of the Operating Partnership
and its subsidiaries (except HPMI); and (v) five Independent Directors.
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More than one option may be granted to a key employee or HPMI Director, but
the options granted may not exceed the Award Limit or the Ownership Limit and
the restricted stock granted may not exceed the Ownership Limit. Pursuant to
the Second Amendment, more than one award of restricted stock may be granted
to an Independent Director but such awards may not exceed the Ownership Limit.
AWARDS UNDER THE RESTATED PLAN
Awards to Employees and HPMI Directors
The Restated Plan provides that, subject to the Award Limit and the
Ownership Limit, the Committee may grant stock options, to any eligible
employee whom the Committee determines is a key employee or any HPMI Director.
In addition, subject to the Ownership Limit, the Committee may grant
restricted stock to any eligible employee whom the Committee determines is a
key employee. Each grant or issuance will be set forth in a separate agreement
between the person receiving the award and the Company and will indicate the
type, terms and conditions of the award, as determined by the Committee
consistent with the Restated Plan.
Options granted to employees of the Company or its subsidiaries (other than
the Operating Partnership, HPMI and their subsidiaries) may be either
nonqualified stock options ("NQSOs") or incentive stock options ("ISOs"). Any
option granted to any employee of HPMI or its subsidiaries, any HPMI Director
or any employee of the Operating Partnership or its subsidiaries shall be a
NQSO.
NQSOs will provide for the right to purchase Common Stock at a specified
price which may be less than fair market value on the date of grant (but not
less than par value unless otherwise permitted by applicable state law (if
state law permits, the exercise price may be zero)). NQSOs may be granted for
any term specified by the Committee.
The exercise price per share of Common Stock subject to options intended to
qualify as performance-based compensation for purposes of Section 162(m) of
the Code shall not be less than 100% of the fair market value of a share of
Common Stock on the date the option is granted.
ISOs will be designed to comply with the applicable provisions of the Code
and will be subject to restrictions contained in the Code but may be
subsequently modified to disqualify them from treatment as an ISO. The
exercise price of an ISO shall equal at least 100% of fair market value of
Common Stock on the grant date; provided, however, in the case of an ISO
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
the Company's stock (or the stock of any subsidiary or any parent corporation
of the Company), the price per share must be at least 110% of the fair market
value of such share on the date the option is granted. The term of ISOs shall
not be more than ten years from the date granted, or five years from such date
if the ISO is granted to an individual then owning more than 10% of the total
combined voting power described in the preceding sentence.
Options usually will become exercisable (in the discretion of the Committee)
in one or more installments after the grant date. Unless the Committee
otherwise provides, no option held by an employee or HPMI Director subject to
Section 16 of the Exchange Act ("Section 16") may be exercised during the
first six months and one day after such option is granted. The Committee may
accelerate the time at which options granted to employees and HPMI Directors
become exercisable.
Each option granted with an exercise price equal to or greater than fair
market value on the date of grant is intended to qualify as "qualified
performance-based compensation" for purposes of Section 162(m) of the Code,
unless the Committee determines that an option shall not so qualify.
Restricted stock may be sold to eligible employees (but not to HPMI
Directors) at various prices (but not below par value unless otherwise
permitted by applicable state law (if state law permits, the purchase price
may be zero)). Restricted stock may be made subject to such restrictions as
may be determined by the Committee. Unless the Committee otherwise provides,
no share of restricted stock granted to a person subject to Section 16 shall
be sold, assigned or otherwise transferred until at least six months and one
day have elapsed from the date
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on which the restricted stock was issued. Restricted stock, typically, may be
repurchased by the Company immediately upon a restricted stockholder's
termination of employment at the original purchase price if the conditions or
restrictions are not then met. In addition, unless provided otherwise by the
Committee, if no consideration was paid by the restricted stockholder upon
issuance, a restricted stockholder's rights in unvested restricted stock shall
lapse upon termination of employment. In general, restricted stock may not be
sold, or otherwise transferred or hypothecated, until restrictions are removed
or expire. Unless otherwise provided by the Committee, purchasers of
restricted stock, unlike recipients of options, will have voting rights and
will receive dividends prior to the time when the restrictions lapse, subject
to the restrictions in his or her restricted stock agreement, except that in
the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions applicable to the
restricted stock.
Awards to Independent Directors
Independent Directors receive options pursuant to the formula provisions of
the Restated Plan. All options granted to Independent Directors are NQSOs.
Subject to the Award Limit and the Ownership Limit, when a person is initially
elected to the Board and is then an Independent Director, he or she
automatically receives an option to purchase 3,000 shares of Common Stock
(subject to adjustments as described above) on the date of his or her election
to the Board. During the term of the Restated Plan, each Independent Director
automatically receives, on January 1 of each year, an option to purchase 1,000
shares of Common Stock (subject to adjustments as described above). In
addition, on August 14, 1995 each then current Independent Director received
an option to purchase 10,000 shares of Common Stock (subject to adjustment as
described above). Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not receive
an option grant provided to Independent Directors upon their initial election
to the Board, but to the extent that they are otherwise eligible, will
receive, after retirement from employment with the Company, annual option
grants and, if such a member was an Independent Director on August 14, 1995,
such member received on such date options issued to Independent Directors on
such date.
The exercise price of options granted to Independent Directors equals 100%
of the fair market value of a share of Common Stock on the date the option is
granted, except that the price of each option granted to the Independent
Directors upon their election to the Board shortly after the initial public
offering of the Common Stock was $18.00 per share.
The term of options granted to Independent Directors is ten years from the
date the option is granted, and options granted to Independent Directors
become exercisable in cumulative annual installments of 25% on each of the
first, second, third and fourth anniversaries of the date of option grant,
without variation or acceleration except as described below with respect to
certain corporate transactions.
Restricted stock may be sold to Independent Directors at various prices (but
not below par value unless otherwise permitted by applicable state law (if
state law permits, the purchase price may be zero)); provided, however, that
the purchase price of each share of restricted stock awarded to an Independent
Director on February 27, 1997 shall be $.01 per share. Restricted stock may be
made subject to such restrictions as may be determined by the Board; provided,
however, that each share of restricted stock awarded to Independent Directors
on February 27, 1997 (including any shares received by holders thereof with
respect to shares of Restricted Stock as a result of stock dividends, stock
splits or any other form of recapitalization) shall be subject to the
following restrictions until such restrictions lapse: neither the restricted
stock nor any interest or right therein or part thereof shall be liable for
the debts, contracts, or engagements of the restricted stockholder or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that, subject to the
Ownership Limit, such restrictions shall not prevent transfers by will or by
the applicable laws of descent and distribution. Such restrictions on each
share of restricted stock awarded to Independent Directors on February 27,
1997 (including any shares received by holders thereof with respect to shares
of restricted stock as a result of
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stock dividends, stock splits or any other form of recapitalization) shall
lapse in the following cumulative installments provided that the Independent
Director has not had a termination of directorship prior to the relevant
vesting date: (i) with respect to 333 of such shares on February 27, 1998,
(ii) with respect to 333 of such shares on February 27, 1999, and (iii) with
respect to 334 of such shares on February 27, 2000. Unless the Board otherwise
provides, no share of restricted stock granted to an Independent Director
shall be sold, assigned or otherwise transferred until at least six months and
one day have elapsed from the date on which the restricted stock was issued.
Restricted stock, typically, may be repurchased by the Company immediately
upon a restricted stockholder's termination of employment at the original
purchase price if the conditions or restrictions are not then met. In
addition, unless provided otherwise by the Board, if no consideration were
paid by the Independent Director upon issuance, a restricted stockholder's
rights in unvested restricted stock shall lapse upon termination of
employment. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire. Unless
otherwise provided by the Board, purchasers of restricted stock, unlike
recipients of options, will have voting rights and will receive dividends
prior to the time when the restrictions lapse, subject to the restrictions in
his or her restricted stock agreement, except that in the discretion of the
Board, any extraordinary distributions with respect to the Common Stock shall
be subject to the restrictions applicable to the restricted stock.
CONSIDERATION
Except as the Committee (or the Board in the case of awards to Independent
Directors) may otherwise provide, in consideration of the granting of a stock
option or restricted stock, the employee, HPMI Director or Independent
Director must agree in the written award agreement to remain in the employ of,
or to continue as a director for, the Company, HPMI, or the Operating
Partnership, or a subsidiary thereof, for at least one year (or such shorter
period as may be fixed in the agreement or by actions of the Committee or the
Board following the grant) after the award is granted (or until the next
annual meeting of the stockholders of the Company, in the case of an
Independent Director or HPMI Director).
EXERCISE OF OPTIONS
Options may be exercised only on the first business day of every month. An
option is not exercisable if, in the sole and absolute discretion of the
Committee, the exercise of such option would likely result in any of the
following: (i) the optionee's ownership of Common Stock in violation of the
Ownership Limit; (ii) income to the Company that could impair the Company's
status as a real estate investment trust, within the meaning of Sections 856
through 860 of the Code; or (iii) a transfer, at any one time, of more than
.1% (measured in value or in number of shares, whichever is more restrictive)
of the Company's total Common Equity Stock (as defined in the Charter) from
the Company to the Operating Partnership pursuant to the provisions of the
Restated Plan regarding the transfer of shares to employees of HPMI and the
Operating Partnership and to HPMI Directors. In addition, optionees have no
rights under the Restated Plan to acquire Common Stock which would otherwise
be prohibited under the Company's Charter.
To the extent that the aggregate fair market value of stock with respect to
which ISOs are first exercisable during any calendar year (and all other
incentive stock option plans of the Company, any subsidiary and any parent
corporation) exceeds $100,000, such options shall be treated as NQSOs. The
rule set forth in the preceding sentence shall be applied by taking options
into account in the order in which they were granted. For this purpose, the
fair market value of the stock shall be determined as of the time the option
with respect to such stock is granted.
Options may be exercised by compliance with certain prescribed procedures.
The option price must be paid in cash unless the Committee (or the Board, in
the case of options granted to Independent Directors) in its discretion allows
payment through delivery of shares of Common Stock with a fair market value on
the date of delivery equal to the aggregate option price or (subject to
certain timing requirements if the option was granted prior to November 19,
1996) through the surrender of shares issuable upon exercise of the option. In
addition, in the case of options granted to employees, the Committee may allow
a delay in payment for up to thirty days or
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through the delivery of other property or by a combination of these methods.
The Committee may make loans to employees in connection with the exercise or
receipt of options or the issuance of restricted stock.
The Committee (or the Board, in the case of options granted to Independent
Directors) may, as a condition of the exercise of any option, require that the
optionee deliver such representations and documents as it deems necessary to
effect compliance with applicable federal and state securities laws and
regulations. The Committee or Board may also take whatever action it deems
appropriate to effect such compliance.
Upon the exercise of an option by an employee of HPMI, the Operating
Partnership or their respective subsidiaries, or by an HPMI Director, the
Company will transfer to such optionees only a number of shares with an
aggregate fair market value equal to the exercise price paid by the optionee.
Pursuant to the First Amendment, the Company will sell to the Operating
Partnership the remainder of shares subject to the portion of the option being
exercised. If the optionee at issue is an employee of the Operating
Partnership or its subsidiaries, the Operating Partnership shall transfer such
shares to the optionee at no additional cost, as additional compensation. If
the optionee at issue is an employee of HPMI or its subsidiaries or is an HPMI
Director, the Operating Partnership shall transfer such shares to HPMI, and
HPMI shall transfer such shares to the optionee at no additional cost, as
additional compensation. The value of any options, restricted stock and other
benefits provided by the Operating Partnership to HPMI under the Restated Plan
are deemed to constitute an additional management fee to HPMI from the
Operating Partnership under the Property Management Agreement between the
Operating Partnership and HPMI equal to the value of such options, restricted
stock and other benefits.
Pursuant to the Fourth Amendment, as soon as practicable after receipt by
the Company of payment for the shares with respect to the exercise of an
option and the purchase price from the Operating Partnership described in the
preceding paragraph, the Company may contribute to the Operating Partnership
an amount of cash equal to such payment and the Operating Partnership shall
issue an additional General Partnership Interest (i.e. an ownership interest
in the Operating Partnership that is a general partnership interest and
includes any and all benefits to which the holder of such an interest may be
entitled as provided in the Agreement of Limited Partnership of Alexander
Haagen Properties Operating Partnership, L.P. (the "Partnership Agreement"),
together with all obligations of such holder to comply with the terms and
provisions of such agreement) to the Company on the terms set forth in the
Partnership Agreement.
No option granted to any Independent Director may be exercised to any extent
by anyone after the first to occur of the following events: (i) ten years from
the date of option grant, or (ii) three months from the date of termination of
directorship (for any reason other than death or disability), or (iii) one
year from the date of such Independent Director's death or disability. The
Committee shall provide, in the terms of each individual option granted to an
employee or HPMI Director, when such option expires and becomes unexercisable
and, except as limited by the Code and the regulations and rulings thereunder
with respect to ISOs, the Committee may expand the term of any option granted
to an employee or HPMI Director.
ACCELERATION AND TERMINATION UPON CORPORATE EVENTS AND TRANSACTIONS
In the event of any corporate transaction or other event described above
with respect to the adjustment provisions of the Restated Plan or any unusual
or nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate, or
of changes in applicable laws, regulations, or accounting principles, the
Committee (or the Board, in the case of awards granted to Independent
Directors) may take any one or more of the following actions whenever the
Committee (or the Board, in the case of awards granted to Independent
Directors) determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Restated Plan or with respect to any option, or
restricted stock, to facilitate such transactions or events or to give effect
to such changes in laws, regulations or principles:
(i) Provide for either the purchase of any such option or restricted
stock for an amount of cash equal to the amount that could have been
attained upon the exercise of such option or award or realization of the
optionee's rights had such option or award been currently exercisable or
the replacement of such option or award with other rights or property
selected by the Committee (or the Board, in the case of awards granted to
Independent Directors) in its sole discretion;
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(ii) Provide that the option or restricted stock cannot vest or be
exercised after such event;
(iii) Provide that for a specified period of time prior to such
transaction or event, such option shall be exercisable as to all shares
covered thereby, notwithstanding anything to the contrary in the provisions
of the Restated Plan or such option regarding the exercisability of the
option;
(iv) Provide that upon such event, such option or award be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof, or
shall be substituted for by similar options or awards covering the stock of
the successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices;
(v) Make adjustments in the number and type of shares of Common Stock (or
other securities or property) subject to outstanding options, and in the
number and kind of outstanding restricted stock and/or in the terms and
conditions of (including the exercise price), and the criteria included in,
outstanding options and restricted stock and options and restricted stock
which may be granted in the future; and
(vi) Provide that for a period prior to such event, the restrictions
imposed upon some or all shares of restricted stock terminate, and that
some or all shares of such restricted stock cease to be subject to
repurchase or forfeiture after such transaction or event.
None of the foregoing discretionary terms of the Restated Plan, however, are
permitted with respect to options and restricted stock granted to Independent
Directors to the extent that such discretion would be inconsistent with the
applicable exemptive conditions of Rule 16b-3 of the Exchange Act ("Rule 16b-
3"). In the event of a Change in Control or a Corporate Transaction (each
defined below), to the extent that the Board does not have the ability under
Rule 16b-3 to take or to refrain from taking the discretionary actions set
forth in item (iii) above, each option granted to an Independent Director
shall be exercisable as to all shares covered thereby upon such Change in
Control or during the five days immediately preceding the consummation of such
Corporate Transaction and subject to such consummation, notwithstanding
anything to the contrary in the Restated Plan or options regarding the vesting
schedule of such options. In the event of a "Corporate Transaction," to the
extent that the Board does not have the ability under Rule 16b-3 to take or to
refrain from taking the discretionary actions set forth in item (ii) above, no
option granted to an Independent Director may be exercised following such
Corporate Transaction; provided, however, that such termination shall not
occur if, in connection with the Corporate Transaction, such option is either
assumed by the successor or survivor corporation (or parent or subsidiary
thereof) or replaced with a comparable right with respect to shares of the
capital stock of the successor or survivor corporation (or parent or
subsidiary thereof).
For purposes of the Restated Plan, "Corporate Transaction" means any of the
following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change
the state in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon the Restated Plan and all
options are assumed by the successor entity; (ii) the sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company,
in complete liquidation or dissolution of the Company in a transaction not
covered by the exceptions to clause (i), above; or (iii) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than 50% of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those who
held such securities immediately prior to such merger. For purposes of the
Restated Plan, "Change in Control" shall mean a change in ownership or control
of the Company effected through either of the following transactions: (a) any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made directly to
the Company's stockholders which the Board does not recommend such
stockholders to accept or (b) there is a change in the composition of the
Board over a period of thirty-six consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole
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number) ceases, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (1) have been Board
members continuously since the beginning of such period or (2) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (1) who were still
in office at the time such election or nomination was approved by the Board.
With respect to ISOs and options intended to qualify as performance-based
compensation under Section 162(m) of the Code, no adjustment or action
described above or in any other provision of the Restated Plan shall be
authorized to the extent that such adjustment or action would cause the
Restated Plan to violate Section 422(b)(1) of the Code or would cause such
option to fail to so qualify under Section 162(m). Furthermore, no such
adjustment or action shall be authorized to the extent such adjustment or
action would result in short-swing profits liability under Section 16 or
violate the exemptive conditions of Rule 16b-3 unless the Committee (or the
Board, in the case of awards granted to Independent Directors) determines that
the option or restricted stock is not to comply with such exemptive
conditions.
MISCELLANEOUS PROVISIONS
For purposes of the Restated Plan, if Common Stock is traded on an exchange,
the fair market value of a share of the Common Stock as of a given date will
be the closing price of a share of Common Stock on the principal exchange on
which such shares are then trading, or as reported on any composite index
which includes such principal exchange, on such date, or, if the shares are
not traded on such date, then on the next preceding trading date on which a
trade occurred. The Restated Plan provides for alternative definitions of fair
market value of Common Stock in the event that the Common Stock ceases to be
traded on an exchange.
No option or restricted stock granted under the Restated Plan may be
assigned or transferred by the grantee, except by will or the laws of descent
and distribution or pursuant to a Qualified Domestic Relations Order (as such
term is defined in the Restated Plan), although the shares underlying
restricted stock may be transferred if all applicable restrictions have
lapsed. During the lifetime of the optionee, the option may be exercised only
by the optionee unless such option has been disposed of pursuant to a
Qualified Domestic Relations Order. No option or interest or right therein or
part thereof will be liable for the debts, contracts or engagements of the
optionee or the optionee's successors in interest or will be subject to
disposition by transfer, alienation, pledge, encumbrance, assignment or any
other means, whether voluntary, involuntary or by operation of law.
Optionees will not be, nor have any of the rights or privileges of, a
stockholder of the Company as to shares covered by the option until such
shares are issued by the Company and delivered to such optionees.
Restricted Stock and shares acquired through the exercise of an option shall
be subject to the restrictions on ownership and transfer set forth in the
Company's Charter. The Committee (or the Board, in the case of awards to
Independent Directors), in its discretion, may impose such restrictions on the
transferability of shares purchasable upon exercise of an option as it deems
appropriate. Any such restriction shall be set forth in the respective stock
option agreement and may be referred to on the certificates evidencing such
shares. The Committee may require the employee to give prompt notice of any
disposition of shares of Common Stock, acquired by exercise of an ISO, within
two years from the date of granting such option or one year after the transfer
of such shares to such employee.
The Company requires participants to discharge withholding tax obligations
in connection with the exercise of any option granted under the Restated Plan,
or the lapse of restrictions on restricted stock, as a condition to the
issuance or delivery of stock or payment of other compensation pursuant
thereto. Shares held by or to be issued to a participant may also be used to
discharge tax withholding obligations related to exercise of options or
receipt of other awards, subject to the discretion of the Committee to
disapprove such use and certain other conditions.
50
<PAGE>
AMENDMENT AND TERMINATION
Generally, the Restated Plan can be amended, modified, suspended or
terminated by the Board or the Committee. Without approval of the Company's
stockholders given within twelve months before or after the action by the
Committee or the Board, however, no action of the Committee or the Board may
increase the limits imposed on the maximum number of shares which may be
issued under the Restated Plan or modify the Award Limit (except for
adjustments as described above), and no action of the Committee or the Board
may be taken that would otherwise require stockholder approval as a matter of
applicable law, regulation or rule. In addition, except as permitted by the
applicable exemptive conditions of Rule 16b-3, the provisions of the Restated
Plan relating to the formula option grants to Independent Directors, including
the amount, price and timing thereof, may not be amended more than once in any
six-month period other than to comport with changes in the Code, the Employee
Retirement Income Security Act, as amended, or the respective rules
thereunder, and such amendments must be adopted by action of the Board.
Amendments to the Restated Plan will not, without the consent of the
participant, affect such person's rights under an award previously granted,
unless the award itself otherwise expressly so provides. No termination date
is specified for the Restated Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material U.S. federal
income tax consequences to U.S. participants in the Restated Plan, and is
intended for general information only. The discussion is based on the Code,
regulations thereunder, rulings and decisions now in effect, all of which are
subject to change. Alternative minimum tax and state and local income taxes
are not discussed, and may vary depending on individual circumstances and from
locality to locality. Depending on the interaction of Section 83(a) of the
Code with the provisions of Rule 16b-3 which apply to the Restated Plan at the
time of the grant of options and restricted stock, the tax consequences to
persons subject to Section 16 may be different from the general consequences
described below.
Section 162(m). Under Section 162(m) of the Code, income tax deductions of
publicly-traded companies may be limited to the extent total annual
compensation for certain executive officers exceeds $1 million (less the
amount of any "excess parachute payments" as defined in Section 280G of the
Code) in any one year. However, under Section 162(m), the deduction limit does
not apply to certain "qualified performance-based compensation" established by
an independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options will satisfy the
performance-based exception if the awards are made by a qualifying
compensation committee under a plan that has been approved by the Company's
stockholders, the plan sets the maximum number of shares that can be granted
to any particular employee within a specified period and the compensation is
based solely on an increase in the stock price after the grant date (i.e. the
option exercise price is equal to or greater than the fair market value of the
stock subject to the award on the grant date). Restricted stock granted under
the Restated Plan will not qualify as "qualified performance-based
compensation" for purposes of Section 162(m) unless such restricted stock
vests upon preestablished objective performance goals, the material terms of
which are disclosed to and approved by the stockholders of the Company. Thus,
the Company expects that restricted stock granted under the Restated Plan will
not constitute "qualified performance-based compensation" for purposes of
Section 162(m).
It is the practice of the Committee to attempt to have all compensation
treated as tax-deductible compensation wherever, in the judgment of the
Committee, to do so would be consistent with the objectives of the
compensation plan under which the compensation is paid. Accordingly, the Board
of Directors is asking stockholders to approve the Restated Plan in compliance
with requirements of Section 162(m). In general, the Company intends to comply
with other requirements of the performance-based compensation exclusion under
Section 162(m) with respect to option grants, including option pricing
requirements and requirements governing the administration of the Restated
Plan, so that, upon stockholder approval of the Restated Plan, the
deductibility of compensation paid to top executives pursuant to options
issued thereunder is not expected to be disallowed.
51
<PAGE>
Nonqualified Stock Options. For federal income tax purposes, the recipient
of NQSOs granted under the Restated Plan will not have taxable income upon the
grant of the option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of NQSOs the optionee will realize ordinary income,
in an amount equal to the difference between the option exercise price and the
fair market value of the stock at the date of exercise. Subject to the
deductibility limits of Section 162(m), upon exercise of a NQSO by an employee
of the Company or a Company subsidiary or by an Independent Director, the
Company will be entitled to a deduction in an amount equal to such difference.
An optionee's basis for the stock for purposes of determining his gain or loss
on his subsequent disposition of the shares generally will be the fair market
value of the stock on the date of exercise of the NQSO.
The tax consequence resulting from the exercise of a NQSO through delivery
of already-owned Company shares are not completely certain. In published
rulings, the Internal Revenue Service has taken the position that, to the
extent an equivalent value of shares is acquired, the optionee will recognize
no gain and the employee's basis in the stock acquired upon such exercise is
equal to the employee's basis in the surrendered shares, that any additional
shares acquired upon such exercise are compensation to the employee taxable
under the rules described above and that the employee's basis in any such
additional shares is their then-fair market value.
Incentive Stock Options. There is no taxable income to an optionee when an
ISO is granted to him or when that option is exercised; provided, however,
that upon exercise the optionee's alternative minimum taxable income will
generally include an amount equal to the difference between the option
exercise price and the fair market value at the time of exercise. Gain
realized by an optionee upon sale of stock issued on exercise of an ISO is
taxable at capital gains rates, and no tax deduction is available to the
Company, unless the optionee disposes of the shares within two years after the
date of grant of the option or within one year of the date the shares were
transferred to the optionee. In such event, the difference between the option
exercise price and the fair market value of the shares on the date of the
option's exercise will be taxed at ordinary income rates, and, subject to the
deductibility limits of Section 162(m), the Company will be entitled to a
deduction to the extent the employee must recognize ordinary income. An ISO
exercised more than three months after an optionee's termination of
employment, other than by reason of death or disability, will be taxed as a
NQSO, with the optionee deemed to have received income upon such exercise
taxable at ordinary income rates. Subject to the deductibility limits of
Section 162(m), the Company will be entitled to a tax deduction equal to the
ordinary income, if any, realized by the optionee.
The tax consequences resulting from the exercise of an ISO through delivery
of already-owned shares of Common stock are not completely certain. In
published rulings and proposed regulations, the Internal Revenue Service has
taken the position that generally the employee will recognize no income upon
such stock-for-stock exercise, that, to the extent an equivalent number of
shares is acquired, the employee's basis in the shares acquired upon such
exercise is equal to the employee's basis in the surrendered shares increased
by any compensation income recognized by the employee, that the employee's
basis in any additional shares acquired upon such exercise is zero and that
any sale or other disposition of the acquired shares within the one- or two-
year period described above will be viewed first as a disposition of the
shares with the lowest basis.
Restricted Stock. An employee or Independent Director to whom restricted
stock is issued will not have taxable income upon issuance and the Company
will not then be entitled to a deduction. However, when restrictions on shares
of restricted stock lapse, such that the shares are no longer subject to
repurchase by the Company, the grantee will realize ordinary income and,
subject to the deductibility limits of Section 162(m), the Company will be
entitled to a deduction in an amount equal to the fair market value of the
shares at the date such restrictions lapse, less the purchase price therefor.
Grantees of restricted stock may not make an election under Section 83(b) of
the Code.
52
<PAGE>
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of a majority of the total shares, present in person or
represented by proxy at the Special Meeting (including LFREI shares), is
required to approve the Restated Plan, as amended by the First Amendment, the
Second Amendment, the Third Amendment and the Fourth Amendment thereto.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2.
53
<PAGE>
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any stockholder intending to submit to the Company a proposal for inclusion
in the Company's proxy materials relating to the 1998 Annual Meeting must
submit such proposal so that it is received by the Company no later than
December 5, 1997.
OTHER MATTERS
The Company is not aware of any matters that may be presented for action by
the stockholders at the Special Meeting other than those set forth above. If
any other matter shall properly come before the Special Meeting, the persons
named in the accompanying form of proxy intend to vote thereon in accordance
with their best judgment.
STOCKHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED
IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
STEVEN JAFFE
Secretary
, 1997
Manhattan Beach, California
54
<PAGE>
APPENDIX A
----------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
PROMETHEUS WESTERN RETAIL, LLC
AND
LF STRATEGIC REALTY INVESTORS, L.P.
AND
ALEXANDER HAAGEN PROPERTIES, INC.
DATED AS OF
JUNE 1, 1997
----------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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ARTICLE 1
Definitions
<TABLE>
<S> <C>
Section 1.1 "Action"....................................................... 1
Section 1.2 "ADA".......................................................... 1
Section 1.3 "Advancing Party".............................................. 2
Section 1.4 "Affiliate".................................................... 2
Section 1.5 "Agreement".................................................... 2
Section 1.6 "Army Corps of Engineers"...................................... 2
Section 1.7 "Benefit Arrangements"......................................... 2
Section 1.8 "Blue Sky Laws"................................................ 2
Section 1.9 "Board"........................................................ 2
Section 1.10 "Breaching Matters"............................................ 2
Section 1.11 "Breakup Fee".................................................. 2
Section 1.12 "Business Day"................................................. 2
Section 1.13 "Buyer"........................................................ 2
Section 1.14 "Capital Expenditure Budget and Schedule"...................... 2
Section 1.15 "CERCLA"....................................................... 2
Section 1.16 "Claim"........................................................ 2
Section 1.17 "Closing"...................................................... 2
Section 1.18 "Closing Date"................................................. 2
Section 1.19 "Code"......................................................... 2
Section 1.20 "Commitment"................................................... 2
Section 1.21 "Company"...................................................... 2
Section 1.22 "Company Charter".............................................. 3
Section 1.23 "Company Common Stock"......................................... 3
Section 1.24 "Company Environmental Reports"................................ 3
Section 1.25 "Company Leases"............................................... 3
Section 1.26 "Company Plans"................................................ 3
Section 1.27 "Company Preferred Stock"...................................... 3
Section 1.28 "Company Properties"........................................... 3
Section 1.29 "Company Registration Statement"............................... 3
Section 1.30 "Company Reports".............................................. 3
Section 1.31 "Company Stock"................................................ 3
Section 1.32 "Competing Transaction"........................................ 3
Section 1.33 "Controlled Group Liability"................................... 3
Section 1.34 "Convertible Debt"............................................. 3
Section 1.35 "Cure Notice".................................................. 3
Section 1.36 "Debt Instruments"............................................. 4
Section 1.37 "Development Budget and Schedule".............................. 4
Section 1.38 "Development Properties"....................................... 4
Section 1.39 "Employee Benefit Plans"....................................... 4
Section 1.40 "Employees".................................................... 4
Section 1.41 "Employment Agreements"........................................ 4
Section 1.42 "Environmental Claim".......................................... 4
Section 1.43 "Environmental Laws"........................................... 4
Section 1.44 "Environmental Permits"........................................ 4
Section 1.45 "ERISA"........................................................ 4
Section 1.46 "ERISA Affiliates"............................................. 4
Section 1.47 "Exchange Act"................................................. 4
</TABLE>
i
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<TABLE>
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<S> <C>
Section 1.48 "Fully Diluted Basis"........................................ 4
Section 1.49 "GAAP" ...................................................... 4
Section 1.50 "Government Authority"....................................... 4
Section 1.51 "Ground Leases".............................................. 4
Section 1.52 "Indemnified Party".......................................... 5
Section 1.53 "Initial Closing"............................................ 5
Section 1.54 "Initial Number of Shares"................................... 5
Section 1.55 "Insurance Policies"......................................... 5
Section 1.56 "IRS"........................................................ 5
Section 1.57 "Liabilities"................................................ 5
Section 1.58 "Liens"...................................................... 5
Section 1.59 "Loss and Expenses".......................................... 5
Section 1.60 "Material Adverse Effect".................................... 5
Section 1.61 "Material Company Leases".................................... 6
Section 1.62 "Materials of Environmental Concern"......................... 6
Section 1.63 "1998 and 1999 Preliminary Capital Expenditure Budgets and
Schedules".................................................. 6
Section 1.64 "Other Filings".............................................. 6
Section 1.65 "OP Units"................................................... 6
Section 1.66 "Operating Area"............................................. 6
Section 1.67 "Pension Plans".............................................. 6
Section 1.68 "Per Share Purchase Price"................................... 6
Section 1.69 "Permitted Liens"............................................ 6
Section 1.70 "person"..................................................... 7
Section 1.71 "Projects"................................................... 7
Section 1.72 "Property Restrictions"...................................... 7
Section 1.73 "Proxy Statement"............................................ 7
Section 1.74 "Purchase Price"............................................. 7
Section 1.75 "Purchased Shares"........................................... 7
Section 1.76 "Registration Rights Agreement".............................. 7
Section 1.77 "Regulatory Filings"......................................... 7
Section 1.78 "REIT"....................................................... 7
Section 1.79 "Release".................................................... 7
Section 1.80 "Remaining Equity Commitment"................................ 7
Section 1.81 "Rent Roll".................................................. 7
Section 1.82 "Repurchase Payment"......................................... 7
Section 1.83 "SEC"........................................................ 7
Section 1.84 "Second Closing"............................................. 7
Section 1.85 "Securities Act"............................................. 8
Section 1.86 "Securities Laws"............................................ 8
Section 1.87 "Stock Purchase"............................................. 8
Section 1.88 "Stockholders Agreement"..................................... 8
Section 1.89 "Stockholder Approval"....................................... 8
Section 1.90 "Subsequent Closing"......................................... 8
Section 1.91 "Subsequent Purchase Price".................................. 8
Section 1.92 "Subsequent Purchases"....................................... 8
Section 1.93 "Subsidiaries"............................................... 8
Section 1.94 "Tax"........................................................ 8
Section 1.95 "Tax Return"................................................. 8
Section 1.96 "Title Policies"............................................. 8
Section 1.97 "Total Equity Commitment".................................... 8
Section 1.98 "Voting Agreements".......................................... 9
Section 1.99 "Welfare Plans".............................................. 9
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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ARTICLE 2
Purchase and Sale of Shares; Closing
<S> <C>
Section 2.1 Purchase and Sale............................................ 9
Section 2.2 Consideration................................................ 9
Section 2.3 Initial Closing.............................................. 9
Section 2.4 Subsequent Purchases and Sales............................... 9
Section 2.5 Additional Agreements and Closing Deliveries................. 10
Section 2.6 Time and Place of Closings................................... 11
Section 2.7 Right to Assign.............................................. 11
Section 2.8 Verification of Representations and Warranties............... 11
Section 2.9 Limited Put Option........................................... 12
ARTICLE 3
Representations and Warranties of the Company
Section 3.1 Organization and Qualification; Subsidiaries................. 12
Section 3.2 Authority Relative to Agreements; Board Approval............. 13
Section 3.3 Capital Stock................................................ 14
Section 3.4 No Conflicts; No Defaults; Required Filings and Consents..... 14
Section 3.5 SEC and Other Documents; Financial Statements; Undisclosed
Liabilities.................................................. 15
Section 3.6 Litigation; Compliance With Law.............................. 16
Section 3.7 Absence of Certain Changes or Events......................... 16
Section 3.8 Tax Matters; REIT and Partnership Status..................... 17
Section 3.9 Compliance with Agreements; Material Agreements.............. 19
Section 3.10 Financial Records; Company Charter and By-laws; Corporate
Records...................................................... 21
Section 3.11 Properties................................................... 21
Section 3.12 Environmental Matters........................................ 27
Section 3.13 Employees and Employee Benefit Plans......................... 30
Section 3.14 Labor Matters................................................ 32
Section 3.15 Affiliate Transactions....................................... 32
Section 3.16 Insurance.................................................... 32
Section 3.17 Proxy Statement.............................................. 33
Section 3.18 Maryland Takeover Law........................................ 33
Section 3.19 Vote Required................................................ 33
Section 3.20 Brokers or Finders........................................... 33
Section 3.21 Knowledge Defined............................................ 33
ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Section 4.1 Organization................................................. 34
Section 4.2 Due Authorization............................................ 34
Section 4.3 Conflicting Agreements and Other Matters..................... 34
Section 4.4 Acquisition for Investment; Sophistication................... 35
Section 4.5 Resources.................................................... 36
Section 4.6 Proxy Statement.............................................. 36
Section 4.7 Brokers or Finders........................................... 36
Section 4.8 REIT Qualification Matters................................... 36
Section 4.9 Investment Company Matters................................... 36
Section 4.10 Ownership of Tenants......................................... 36
Section 4.11 Foreign Ownership............................................ 37
</TABLE>
iii
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<TABLE>
<CAPTION>
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ARTICLE 5
Covenants Relating to Closings
<S> <C>
Section 5.1 Taking of Necessary Action..................................... 37
Section 5.2 Registration Rights Agreement.................................. 38
Section 5.3 Stockholders Agreement......................................... 38
Section 5.4 Public Announcements; Confidentiality.......................... 38
Section 5.5 Conduct of the Business........................................ 39
Section 5.6 No Solicitation of Transactions................................ 40
Section 5.7 Information and Access......................................... 41
Section 5.8 Notification of Certain Matters................................ 41
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale......................................................... 42
Section 6.2 Use of Funds................................................... 42
Section 6.3 REIT Compliance................................................ 42
Section 6.4 REIT Status.................................................... 42
Section 6.5 Guarantee...................................................... 42
ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing...................... 42
Section 7.2 Conditions to Purchase at Second Closing....................... 44
Section 7.3 Conditions of Purchase at All Closings......................... 45
Section 7.4 Conditions of Sale............................................. 46
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival....................................................... 47
Section 8.2 Indemnification by Buyer or the Company........................ 48
Section 8.3 Third-Party Claims............................................. 49
ARTICLE 9
Termination
Section 9.1 Termination.................................................... 49
Section 9.2 Procedure and Effect of Termination............................ 50
Section 9.3 Expenses....................................................... 50
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts.................................................. 52
Section 10.2 Governing Law................................................. 52
Section 10.3 Entire Agreement.............................................. 52
Section 10.4 Notices....................................................... 52
Section 10.5 Successors and Assigns........................................ 53
Section 10.6 Headings...................................................... 53
Section 10.7 Amendments and Waivers........................................ 53
Section 10.8 Interpretation; Absence of Presumption........................ 54
</TABLE>
iv
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<TABLE>
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<S> <C>
Section 10.9 Severability................................................. 54
Section 10.10 Further Assurances........................................... 54
Section 10.11 Specific Performance......................................... 54
Section 10.12 Joint and Several Liability.................................. 54
Section 10.13 Interpretation of Schedules.................................. 54
</TABLE>
v
<PAGE>
SCHEDULES
<TABLE>
<C> <S>
Schedule 1.69 Permitted Liens
Schedule 3.1(d) Subsidiaries
Schedule 3.3(a) Capital Stock Commitments
Schedule 3.3(b) Other Equity Interests
Schedule 3.4(d)-A Consents for Initial Closing
Schedule 3.4(d)-B Consents for Second Closing
Schedule 3.5(a) Company Registration Statements and Company Reports
Schedule 3.6(a) Pending Litigation
Schedule 3.7 Absence of Certain Changes or Events
Schedule 3.8(a) Tax Matters
Schedule 3.8(c) Excess Parachute Payments
Schedule 3.8(d) Employee Remuneration
Schedule 3.9(c) Indebtedness; Joint Venture and Partnership Agreements
Schedule 3.9(d) Development, Construction, Management and Leasing Agreements
Schedule 3.9(e) Other Material Agreements
Schedule 3.9(f) Conflict Policies and Agreements; Waivers
Schedule 3.9(g) Change of Control Provisions
Schedule 3.10(b) Corporate Records
Schedule 3.11(a) Property Title Summary
Schedule 3.11(b) Properties Violations/Engineering Reports
Schedule 3.11(d) Company Properties in Flood Plain Areas
Schedule 3.11(e) ADA Status
Schedule 3.11(f) Material Company Lease Information
Schedule 3.11(g) Letters of Intent or Similar Understandings
Schedule 3.11(h) Rights of First Refusal
Schedule 3.11(i) Non-Compliance and Capital Expenditure Budget and Schedule
Schedule 3.11(j) Developed, Undeveloped, or Rehabilitated Land of Company
Property
Schedule 3.11(k) Ground Leases
Schedule 3.12(a) Environmental Permits
Schedule 3.12(e) Environmental Concerns
Schedule 3.12(f) Environmental Reports
Schedule 3.13(a) Employment Agreements
Schedule 3.13(b) Company Plans
Schedule 3.13(c) Company Plan Liabilities
Schedule 3.13(d) New Employee Benefit Plans
Schedule 3.13(g) Termination and Retirement Benefits
Schedule 3.13(k) Employee Benefits Triggered or Accelerated
Section 3.14 Collective Bargaining; Labor Union Agreements
Schedule 3.15 Affiliate Transactions
Schedule 4.10 Tenants
Schedule 6.5(a) Property Management Activities and Reorganizational Matters
</TABLE>
vi
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit A Registration Rights Agreement
Exhibit B Stockholders Agreement
Exhibit C Resolutions regarding Maryland Takeover Law
Exhibit D Form of Employment Agreement
</TABLE>
vii
<PAGE>
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 1, 1997,
is made by and between Alexander Haagen Properties, Inc., a Maryland
corporation (the "Company"), LF Strategic Realty Investors, L.P., a Delaware
limited partnership (the "Advancing Party"), and Prometheus Western Retail,
LLC, a Delaware limited liability company and an affiliate of the Advancing
Party ("Buyer").
RECITALS:
WHEREAS, Buyer wishes to purchase from the Company, and the Company wishes
to sell to Buyer, up to an aggregate of 15,666,666 shares of the Company's
common stock, par value $0.01 per share (the "Company Common Stock"), at a
purchase price of $15.00 per share; and
WHEREAS, Buyer, the Advancing Party, and the Company are entering into this
Agreement to provide for such purchase and sale and to establish various
rights and obligations in connection therewith; and
WHEREAS, the Company and Buyer believe that the combination in a strategic
alliance of the leadership, expertise and experience in retail development and
operations of the Company and the proven investment and capital markets
expertise and access to capital of Buyer and its affiliates will significantly
enhance the Company's ability to pursue its growth and operating strategies;
WHEREAS, by separate agreement (the "Voting Agreements"), certain
stockholders of the Company have agreed to support and vote in favor of this
Agreement;
NOW, THEREFORE, in consideration of the promises and the representations,
warranties, covenants and agreements contained herein, 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:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
Section 1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Government Authority.
Section 1.2 "ADA" shall have the meaning set forth in Section 3.11(e).
Section 1.3 "Advancing Party" shall have the meaning set forth in the first
paragraph hereof.
Section 1.4 "Affiliate" shall have the meaning ascribed thereto in Rule 12b-
2 promulgated under the Exchange Act, and as in effect on the date hereof.
Section 1.5 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
Section 1.6 "Army Corps of Engineers" shall have the meaning set forth in
Section 3.11(d).
Section 1.7 "Benefit Arrangements" shall have the meaning set forth in
Section 3.13(h).
Section 1.8 "Blue Sky Laws" shall have the meaning set forth in Section
3.4(e).
Section 1.9 "Board" shall mean the Board of Directors of the Company.
Section 1.10 "Breaching Matters" shall have the meaning set forth in Section
2.8(a).
<PAGE>
Section 1.11 "Breakup Fee" shall have the meaning set forth in Section
9.3(c).
Section 1.12 "Business Day" shall mean any day other than a Saturday, a
Sunday or a bank holiday in New York, N.Y.
Section 1.13 "Buyer" shall have the meaning set forth in the first paragraph
hereof.
Section 1.14 "Capital Expenditure Budget and Schedule" shall have the
meaning set forth in Section 3.11(i).
Section 1.15 "CERCLA" shall have the meaning set forth in Section 3.12(e).
Section 1.16 "Claim" shall have the meaning set forth in Section 3.12(g)(i).
Section 1.17 "Closing" shall mean the consummation of any Stock Purchase.
Section 1.18 "Closing Date" shall mean, with respect to the consummation of
any Stock Purchase, the date on which the conditions set forth herein with
respect thereto shall be satisfied or duly waived, or if the Company and Buyer
mutually agree on a different date, the date upon which they have mutually
agreed.
Section 1.19 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.20 "Commitment" shall have the meaning set forth in Section 3.7.
Section 1.21 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.22 "Company Charter" shall mean the Articles of Amendment and
Restatement of the Company and any amendment or supplement thereto, as in
effect on the date hereof.
Section 1.23 "Company Common Stock" shall have the meaning set forth in the
second paragraph hereof.
Section 1.24 "Company Environmental Reports" shall have the meaning set
forth in Section 3.12(f).
Section 1.25 "Company Leases" shall have the meaning set forth in Section
3.11(f).
Section 1.26 "Company Plans" shall have the meaning set forth in Section
3.13(b).
Section 1.27 "Company Preferred Stock" shall have the meaning set forth in
Section 3.3(a).
Section 1.28 "Company Properties" shall have the meaning set forth in
Section 3.11(a).
Section 1.29 "Company Registration Statement" shall have the meaning set
forth in Section 3.5(a).
Section 1.30 "Company Reports" shall have the meaning set forth in Section
3.5(a).
Section 1.31 "Company Stock" shall mean, collectively, the Company Common
Stock and any other shares of capital stock of the Company.
Section 1.32 "Competing Transaction" shall mean (i) any acquisition in any
manner, directly or indirectly (including through any option, right to acquire
or other beneficial ownership), of more than 15% of the equity securities, on
a Fully Diluted Basis, of the Company, or assets representing a material
portion of the assets of the Company, other than any of the transactions
contemplated by this Agreement or (ii) any merger, consolidation, sale of
assets, share exchange, recapitalization, other business combination,
liquidation, or other action out of the ordinary course of business of the
Company, other than any of the transactions contemplated by this Agreement.
2
<PAGE>
Section 1.33 "Controlled Group Liability" shall have the meaning set forth
in Section 3.13(h).
Section 1.34 "Convertible Debt" shall mean the Company's 7 1/2% Convertible
Subordinated Debentures due 2001, Series A and Series B and the 7 1/4%
Exchangeable Subordinated Debentures due 2003 of Alexander Haagen Properties
Operating Partnership, L.P.
Section 1.35 "Cure Notice" shall have the meaning set forth in Section
2.8(b).
Section 1.36 "Debt Instruments" shall mean all notes, loan agreements,
mortgages, deeds of trust or similar instruments which evidence or secure any
indebtedness owing by the Company or any of its Subsidiaries.
Section 1.37 "Development Budget and Schedule" shall have the meaning set
forth in Section 3.11(j).
Section 1.38 "Development Properties" shall have the meaning set forth in
Section 3.11(j).
Section 1.39 "Employee Benefit Plans" shall have the meaning set forth in
Section 3.13(h).
Section 1.40 "Employees" shall have the meaning set forth in Section
3.13(h).
Section 1.41 "Employment Agreements" shall have the meaning set forth in
Section 3.7.
Section 1.42 "Environmental Claim" shall have the meaning set forth in
Section 3.12(g)(ii).
Section 1.43 "Environmental Laws" shall have the meaning set forth in
Section 3.12(g)(iii).
Section 1.44 "Environmental Permits" shall have the meaning set forth in
Section 3.12(a).
Section 1.45 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor thereto.
Section 1.46 "ERISA Affiliates" shall mean any entity which is under "common
control" with the Company, within the meaning of Section 4001(b)(1) of ERISA.
Section 1.47 "Exchange Act" shall have the meaning set forth in Section
3.4(e).
Section 1.48 "Fully Diluted Basis" shall mean then outstanding Company
Common Stock plus Company Common Stock issuable in exchange for OP Units,
Company Common Stock issuable under the Convertible Debt, and Company Common
Stock issuable under option or other equity-incentive plans listed on Schedule
3.13(b) and awards issued pursuant thereto.
Section 1.49 "GAAP" shall have the meaning set forth in Section 3.5(b).
Section 1.50 "Government Authority" shall mean any government or state (or
any subdivision thereof) of or in the United States, or any agency, authority,
bureau, commission, department or similar body or instrumentality thereof, or
any governmental court or tribunal.
Section 1.51 "Ground Leases" shall have the meaning set forth in Section
3.11(k).
Section 1.52 "Indemnified Party" shall mean Buyer or the Company, as the
context may require.
Section 1.53 "Initial Closing" shall mean the first Closing, which shall
occur either (a) twenty-two Business Days after the execution of this
Agreement (or as soon thereafter as practicable that all conditions to Closing
shall have been satisfied) if Buyer does not deliver a notice of Breaching
Matters pursuant to Section 2.8(a) or (b) if such notice is delivered, upon
delivery by the Company of the Cure Notice pursuant to Section 2.8(b) (or as
soon thereafter as practicable that all conditions to Closing shall have been
satisfied).
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Section 1.54 "Initial Number of Shares" shall mean 1,306,434 shares of
Company Common Stock.
Section 1.55 "Insurance Policies" shall have the meaning set forth in
Section 3.16.
Section 1.56 "IRS" shall mean the Internal Revenue Service.
Section 1.57 "Liabilities" shall mean, as to any person, all debts, adverse
claims, liabilities and obligations, direct, indirect, absolute or contingent
of such person, whether known or unknown, accrued, vested or otherwise,
whether in contract, tort, strict liability or otherwise and whether or not
actually reflected, or required by GAAP to be reflected, in such person's or
entity's balance sheets or other books and records, including without
limitation (i) obligations arising from non-compliance with any law, rule or
regulation of any Government Authority or imposed by any court or any
arbitrator of any kind, (ii) all indebtedness or liability of such person for
borrowed money, or for the purchase price of property or services (including
trade obligations), (iii) all obligations of such person as lessee under
leases, capital or other, (iv) liabilities of such person in respect of plans
covered by Title IV of ERISA, or otherwise arising in respect of plans for
Employees or former Employees or their respective families or beneficiaries,
(v) reimbursement obligations of such person in respect of letters of credit,
(vi) all obligations of such person arising under acceptance facilities, (vii)
all liabilities of other persons or entities, directly or indirectly,
guaranteed, endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse by such person or with respect
to which the person in question is otherwise directly or indirectly liable,
(viii) all obligations secured by any Lien on property of such person, whether
or not the obligations have been assumed, and (ix) all other items which have
been, or in accordance with GAAP would be, included in determining total
liabilities on the liability side of the balance sheet.
Section 1.58 "Liens" shall mean all liens, mortgages, deeds of trust, deeds
to secure debt, security interests, pledges, claims, charges, easements and
other encumbrances of any nature whatsoever.
Section 1.59 "Loss and Expenses" shall have the meaning set forth in Section
8.2(a).
Section 1.60 "Material Adverse Effect" shall mean a material adverse effect
on the financial condition, results of operations or business of the Company
and its Subsidiaries (to the extent of the Company's interests therein) taken
as a whole.
Section 1.61 "Material Company Leases" shall have the meaning set forth in
Section 3.11(f).
Section 1.62 "Materials of Environmental Concern" shall have the meaning set
forth in Section 3.12(g)(iv).
Section 1.63 "1998 and 1999 Preliminary Capital Expenditure Budgets and
Schedules" shall have the meaning set forth in Section 3.11(i).
Section 1.64 "Other Filings" shall have the meaning set forth in Section
5.1(b).
Section 1.65 "OP Units" shall mean the limited partnership units in
Alexander Haagen Properties Operating Partnership, L.P.
Section 1.66 "Operating Area" shall mean Arizona, California, Nevada, New
Mexico, Oregon, Utah and Washington.
Section 1.67 "Pension Plans" shall have the meaning set forth in Section
3.13(h).
Section 1.68 "Per Share Purchase Price" shall mean the price of $15.00 per
share for the Company Common Stock.
Section 1.69 "Permitted Liens" shall mean (i) Liens (other than Liens
imposed under ERISA or any Environmental Law or in connection with any
Environmental Claim) for taxes or other assessments or charges
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of Governmental Authorities that are not yet delinquent or that are being
contested in good faith by appropriate proceedings, in each case, with respect
to which adequate reserves are being maintained by the Company or its
Subsidiaries to the extent required by GAAP, (ii) statutory Liens of
landlords, carriers, warehousemen, mechanics, materialmen and other Liens
(other than Liens imposed under ERISA or any Environmental Law or in
connection with any Environmental Claim) imposed by law and created in the
ordinary course of business for amounts not yet overdue or which are being
contested in good faith by appropriate proceedings, in each case, with respect
to which adequate reserves or other appropriate provisions are being
maintained by the Company or its Subsidiaries to the extent required by GAAP
and which, to the extent same do not relate to work or materials provided for
in the Capital Expenditure Budget and Schedule, the 1997 and 1998 Preliminary
Capital Expenditure Budgets and Schedules or the Development Budget and
Schedule, do not exceed $400,000 in the aggregate (excluding from such
calculation, any amounts disclosed in writing by the Company to Buyer which
(a) are fully covered by insurance held by the Company under which the Company
reasonably expects full recovery of such amounts, or (b) for which an adequate
escrow has been established and is, at the relevant time, maintained), (iii)
the Company Leases and any leases entered into after March 31, 1997 in the
ordinary course of business on commercially reasonable terms, (iv) easements,
rights-of-way, covenants and restrictions which are customary and typical for
properties similar to the Company Properties and which do not (x) interfere
materially with the ordinary conduct of any Company Property or the business
of the Company and its Subsidiaries as a whole or (y) detract materially from
the value or usefulness of the Company Properties to which they apply, (v) the
Liens which were granted by the Company or any of its Subsidiaries to lenders
pursuant to credit agreements in existence on the date hereof which are
described in Schedule 3.9(c), (vi) the other Liens, if any, described in
Schedule 1.69, and (vii) such imperfections of title and encumbrances, if any,
as would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
Section 1.70 "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or Government Authority.
Section 1.71 "Projects" shall have the meaning set forth in Section 3.11(j).
Section 1.72 "Property Restrictions" shall have the meaning set forth in
Section 3.11(a).
Section 1.73 "Proxy Statement" shall have the meaning set forth in Section
5.1(b).
Section 1.74 "Purchase Price" shall mean the Per Share Purchase Price
multiplied by the number of shares of Company Common Stock to be purchased and
sold at a particular Closing.
Section 1.75 "Purchased Shares" shall have the meaning set forth in Section
2.1.
Section 1.76 "Registration Rights Agreement" shall have the meaning set
forth in Section 2.5(a).
Section 1.77 "Regulatory Filings" shall have the meaning set forth in
Section 3.4(e).
Section 1.78 "REIT" shall have the meaning set forth in Section 3.8(b).
Section 1.79 "Release" shall have the meaning set forth in Section
3.12(g)(v).
Section 1.80 "Remaining Equity Commitment" shall mean, on any given date
after the Initial Closing, the Total Equity Commitment minus the sum of the
Initial Purchase Price and, if any Subsequent Purchases shall have occurred,
minus the Subsequent Purchase Prices. The Remaining Equity Commitment shall be
deemed to be zero on the earlier of (i) the date that the Remaining Equity
Commitment equals zero pursuant to the previous sentence, or (ii) eighteen
months after the Stockholder Approval, but not later than March 14, 1999
(unless otherwise extended by Buyer and the Company in their sole discretion).
Section 1.81 "Rent Roll" shall have the meaning set forth in Section
3.11(f).
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Section 1.82 "Repurchase Payment" shall have the meaning set forth in
Section 2.9.
Section 1.83 "SEC" shall have the meaning set forth in Section 3.5(a).
Section 1.84 "Second Closing" shall mean the Closing next following
Stockholder Approval.
Section 1.85 "Securities Act" shall have the meaning set forth in Section
3.4(e).
Section 1.86 "Securities Laws" shall have the meaning set forth in Section
3.5(a).
Section 1.87 "Stock Purchase" shall have the meaning set forth in Section
2.1.
Section 1.88 "Stockholders Agreement" shall have the meaning set forth in
Section 2.5(a).
Section 1.89 "Stockholder Approval" shall have the meaning set forth in
Section 7.2(b).
Section 1.90 "Subsequent Closing" shall mean each Closing of a Subsequent
Purchase.
Section 1.91 "Subsequent Purchase Price" shall mean the Per Share Purchase
Price multiplied by the number of Purchased Shares purchased by Buyer in a
Subsequent Purchase.
Section 1.92 "Subsequent Purchases" shall have the meaning set forth in
Section 2.4(a).
Section 1.93 "Subsidiaries" shall mean with respect to any person, any
corporation, partnership, limited liability company, joint venture, business
trust or other entity, of which such person, directly or indirectly, owns or
controls 50% or more of the securities or other interests entitled to vote in
the election of directors or others performing similar functions with respect
to such corporation or other organization, or to otherwise control such
corporation, partnership, limited liability company, joint venture, business
trust or other entity. Without limiting the generality of the foregoing, the
Company's Subsidiaries include each of the entities set forth on Schedule
3.1(d).
Section 1.94 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-
on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not. The term
"Tax" also includes any amounts payable pursuant to any tax sharing agreement
to which any relevant entity is liable as a successor or pursuant to contract.
Section 1.95 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
Section 1.96 "Title Policies" shall have the meaning set forth in Section
3.11(a).
Section 1.97 "Total Equity Commitment" shall mean the amount of
$235,000,000.00.
Section 1.98 "Voting Agreements" shall have the meaning set forth in the
fifth paragraph hereof.
Section 1.99 "Welfare Plans" shall have the meaning set forth in Section
3.13(h).
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ARTICLE 2
Purchase and Sale of Shares; Closing
Section 2.1 Purchase and Sale. Subject to the terms and conditions hereof,
from time to time after the date hereof, at each Closing, the Company will
sell, convey, assign, transfer, and deliver, and Buyer will purchase and
acquire from the Company, an aggregate of up to 15,666,666 shares of Company
Common Stock (the "Purchased Shares"). Each Closing at which Buyer purchases
any Purchased Shares is herein referred to as a "Stock Purchase."
Section 2.2 Consideration. Subject to the terms and conditions hereof, at
each Closing, Buyer shall deliver to the Company the Purchase Price with
respect to the number of shares of Company Common Stock to be purchased and
sold at such Closing by wire transfer of immediately available funds in U.S.
dollars to the account or accounts specified by the Company.
Section 2.3 Initial Closing. Subject to the terms and conditions hereof, at
the Initial Closing, at which time the applicable conditions set forth in
Sections 7.1, 7.3 and 7.4 shall have been satisfied or duly waived, Buyer will
purchase and acquire (and the Advancing Party shall advance sufficient funds
for such purchase) from the Company, and the Company will sell, convey,
assign, transfer and deliver to Buyer, the Initial Number of Shares of Company
Common Stock, and Buyer will pay to the Company the Purchase Price for such
shares of Company Common Stock.
Section 2.4 Subsequent Purchases and Sales.
(a) Subject to the terms and conditions hereof, following the Initial
Closing, the Company shall have the right to require, subject to satisfaction
or waiver of the applicable conditions set forth in Sections 7.2, in the case
of the Second Closing and 7.3, in the case of other Subsequent Closings, Buyer
to purchase (and to require the Advancing Party to advance sufficient funds
for such purchase) from the Company from time to time at one or more
Subsequent Closings, up to an aggregate of 14,360,232 Purchased Shares (each
referred to as a "Subsequent Purchase" and, together, the "Subsequent
Purchases"). Subject to the terms and conditions hereof, the Closing of any
Subsequent Purchase shall occur as soon as possible following the date on
which the applicable conditions set forth in Sections 7.2 or 7.3, as
applicable, and 7.4 shall have been satisfied or duly waived.
(b) At least 20 Business Days prior to a Subsequent Purchase, the Company
shall notify (which notice shall be in writing and irrevocable) Buyer the
anticipated date of the Subsequent Closing and the number of Purchased Shares
the Company is requiring Buyer to purchase, which shall not be fewer than 2
million Purchased Shares.
(c) If less than 6,666,667 of the Purchased Shares shall have been issued
and sold at all Closings prior to six months after Stockholder Approval, then
Buyer shall, subject to the satisfaction or waiver of the applicable
conditions set forth in Sections 7.3 and 7.4, make a Subsequent Purchase of
the number of Purchased Shares equal to 6,666,667 less the number of Purchased
Shares purchased prior to such date, from the Company (and the Company shall
sell to Buyer) on or before the date six months after the date of Stockholder
Approval, or as soon thereafter as all conditions to the parties' obligations
to effect the Subsequent Purchase hereunder shall have been satisfied or
waived; provided, however, that Buyer may waive the foregoing requirement that
such shares be purchased by such date.
(d) If less than all Purchased Shares shall have been issued and sold at any
and all Closings on or before the earlier of eighteen months after the
Stockholder Approval and March 14, 1999, then Buyer shall, subject to the
satisfaction or waiver of the applicable conditions set forth in Sections 7.3
and 7.4, make a Subsequent Purchase of all such remaining shares from the
Company (and the Company shall sell to Buyer) on or before the earlier of
eighteen months after Stockholder Approval and March 14, 1999, or as soon
thereafter as all conditions to Buyer's obligation to effect the Subsequent
Purchase hereunder shall have been satisfied or waived; provided, however,
that Buyer may waive the foregoing requirement that such shares be purchased
by such date.
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(e) If the condition set forth in Section 7.3(d) is not satisfied (which
determination shall be made by Buyer, in its sole discretion) or waived at any
time when a Closing would otherwise occur, the relevant Closing will be
effected as to the number of Purchased Shares, if any, as will not result in
such condition failing to be satisfied, and Buyer shall acquire any remaining
Purchased Shares as soon thereafter as such condition to Buyer's obligation to
effect the Subsequent Purchase shall have been, as determined in Buyer's sole
discretion, satisfied or waived.
Section 2.5 Additional Agreements and Closing Deliveries.
(a) Concurrently with the execution of this Agreement, the Company, Buyer
and the Advancing Party shall enter into a registration rights agreement
substantially in the form attached as Exhibit A (the "Registration Rights
Agreement"), and the Company, Buyer and the Advancing Party shall enter into a
stockholders agreement substantially in the form attached as Exhibit B (the
"Stockholders Agreement").
(b) In addition to the other things required to be done hereby, at each
Closing, the Company shall deliver, or cause to be delivered, to Buyer the
following: (i) certificates representing the number of shares of Company
Common Stock to be issued and delivered at such Closing, free and clear of all
Liens (unless created by Buyer or any of its Affiliates), with all necessary
share transfer and other documentary stamps attached, (ii) a certificate,
dated the relevant Closing Date and validly executed on behalf of the Company,
as contemplated by Section 7.1(a), as to the Initial Closing only, by Section
7.2(a), as to the Second Closing only and by Section 7.3(a) as to other
Subsequent Closings, (iii) evidence or copies of any consents, approvals,
orders, qualifications or waivers required pursuant to Section 7.1, as to the
Initial Closing only and pursuant to Section 7.2, as to the Second Closing,
(iv) all certificates and other instruments and documents required by this
Agreement to be delivered by the Company to Buyer at or prior to each Closing,
and (v) such other instruments reasonably requested by Buyer, as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
(c) In addition to the delivery of the Purchase Price and the other things
required to be done hereby, at each Closing, Buyer shall deliver, or cause to
be delivered, to the Company the following: (i) a certificate, dated the
relevant Closing Date and validly executed by Buyer, as contemplated by
Section 7.4(a), (ii) if not previously delivered to the Company, all other
certificates, documents, instruments and writings required pursuant hereto to
be delivered by or on behalf of Buyer at or before each Closing, and (iii)
such other instruments reasonably requested by the Company, as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
Section 2.6 Time and Place of Closings. Each Closing shall take place at
9:00 a.m. Los Angeles time on the relevant Closing Date at Latham & Watkins,
633 W. Fifth Street, Suite 4000, Los Angeles, California, or at such other
place and time as the Company and Buyer shall mutually agree.
Section 2.7 Right to Assign. Buyer may assign its rights and delegate its
obligations created hereby to purchase Company Common Stock in accordance with
the provisions of Section 10.5.
Section 2.8 Verification of Representations and Warranties.
(a) From the date hereof until the date that is 20 Business Days from the
date hereof, Buyer may conduct such investigation as it deems appropriate to
confirm the accuracy of the representations and warranties of the Company
contained herein. No later than the second Business Day after the last day of
such twenty-Business-Day period, Buyer shall deliver to the Company a written
notice setting forth in reasonable detail any matters as to which Buyer has
knowledge (if any) and that render any of the Company's representations and
warranties contained herein untrue or incorrect in such a way as would,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect (the "Breaching Matters").
(b) If Buyer shall have set forth one or more Breaching Matters in any
notice delivered pursuant to Section 2.8(a), within 30 Business Days after
receipt of such notice the Company shall attempt, to the extent
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commercially reasonable and practicable, to cause the Breaching Matters
identified by Buyer in such notice to be true or correct so as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect and, if the Company cures all such Breaching Matters,
the Company shall deliver to Buyer written notice (the "Cure Notice") stating
that all Breaching Matters identified by Buyer in Buyer's notice have been
cured to the extent required and describing the manner in which such Breaching
Matters were so cured. If the Company fails to so cure and to deliver the Cure
Notice within 30 Business Days after its receipt of Buyer's notice, Buyer
shall have 10 Business Days to terminate this Agreement without liability to
any party, subject to the provisions of Section 9.3(a). If Buyer does not
timely terminate this Agreement pursuant to the preceding sentence, Buyer
shall be deemed to have waived the relevant Breaching Matters as conditions to
any Closing or as a basis for indemnification hereunder. If Buyer obtains
actual knowledge of any Breaching Matter during the twenty-Business-Day period
from the date hereof, but fails to include such Breaching Matter in its notice
pursuant to Section 2.8(a), Buyer shall also be deemed to have waived such
Breaching Matter.
Section 2.9 Limited Put Option.
(a) In the event that the Company does not receive Stockholder Approval by
December 31, 1997 (other than as a result of Buyer's material breach of any of
its obligations hereunder), the Buyer will have the right to require the
Company to repurchase all or any part of the Initial Number of Shares pursuant
to the terms described below at a price in cash equal to the Purchase Price
thereof plus accrued but unpaid dividends, if any, thereon to the date of
purchase (the "Repurchase Payment"). After December 31, 1997 and no later than
eleven months following the date of this Agreement, the Buyer may, at its sole
option, exercise its right to cause the Company to repurchase all or any part
of the Initial Number of Shares by surrendering to the Company the
certificates for the shares it is causing the Company to repurchase.
(b) If Buyer chooses to cause the Company to repurchase some or all of the
Initial Number of Shares, the Company will pay Buyer the Repurchase Payment
upon the earlier of (i) 18 months after the date of this Agreement and (ii)
the consummation by the Company of an issuance of debt or equity securities or
a sale of assets that yields net proceeds to the Company of at least $50
million.
ARTICLE 3
Representations and Warranties of the Company
The Company hereby represents and warrants to Buyer as follows:
Section 3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Maryland. The Company has all
requisite corporate power and authority to own, operate, lease and encumber
its properties and carry on its business as now conducted, and to enter into
this Agreement, the Registration Rights Agreement, and the Stockholders
Agreement and to perform its obligations hereunder and thereunder.
(b) Each of the Subsidiaries of the Company is a corporation, partnership or
limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has the corporate, partnership or limited liability company
power and authority to own its properties and to carry on its business as it
is now being conducted.
(c) Each of the Company and its Subsidiaries is duly qualified to do
business and in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such qualification,
except for any failures to be so qualified or to be in good standing as would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
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(d) Schedule 3.1(d) sets forth the name of each Subsidiary of the Company
(whether owned, directly or indirectly, through one or more intermediaries).
All of the outstanding shares of capital stock of, or other equity interest
in, each of the Subsidiaries owned by the Company are duly authorized, validly
issued, fully paid and nonassessable, and are owned, directly or indirectly,
by the Company free and clear of all Liens, except as set forth in Schedule
3.1(d). The following information for each Subsidiary is set forth in Schedule
3.1(d), if applicable: (i) its name and jurisdiction of incorporation or
organization, (ii) the type of and percentage interest held by the Company in
the Subsidiary and the names of and percentage interest held by the other
interest holders, if any, in the Subsidiary, and (iii) any loans from the
Company to, or priority payments due to the Company from, the Subsidiary, and
the rate of return thereon. Except as contemplated hereby and as set forth on
Schedule 3.1(d), there are no existing options, warrants, calls,
subscriptions, convertible securities or other rights, agreements or
commitments which obligate the Company or any of the Subsidiaries to issue,
transfer or sell any shares of capital stock or equity interests in any of the
Subsidiaries except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
Section 3.2 Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Stockholders Agreement have been duly
and validly authorized by all necessary corporate action on the part of the
Company, subject only to the approval of the issuance of Company Common Stock
pursuant to this Agreement and of the Company Charter by the Company's
stockholders. This Agreement, the Registration Rights Agreement and the
Stockholders Agreement have been duly executed and delivered by the Company
for itself and constitute the valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights or general principles of equity.
(b) The Board of Directors of the Company has, as of the date hereof,
approved this Agreement, the Registration Rights Agreement, the Stockholders
Agreement and the transactions contemplated hereby and thereby, and determined
to recommend that the stockholders of the Company vote in favor of and approve
the issuance of Company Common Stock pursuant to this Agreement subject to the
fiduciary duty provisions of Section 5.8.
(c) The shares of Company Common Stock to be acquired pursuant to this
Agreement have been duly authorized for issuance, and upon issuance will be
duly and validly issued, fully paid and nonassessable.
(d) The issue and sale of the shares of Company Common Stock hereunder will
not give any stockholder of the Company the right to demand payment for its
shares under Maryland law or give rise to any preemptive or similar rights.
Section 3.3 Capital Stock.
(a) The authorized capital stock of the Company as of the date hereof
consists of 50,000,000 shares of Company Common Stock, par value $0.01 per
share, 25,000,000 shares of excess stock, par value $0.01 per share, and
5,000,000 shares of Preferred Stock, par value $0.01 per share. As of March
31, 1997, there are 12,024,522 shares of Company Common Stock issued and
outstanding; to the Company's knowledge no shares of excess stock, par value
$.01 per share, issued and outstanding; and no shares of Preferred Stock, par
value $.01 per share ("Company Preferred Stock"), issued and outstanding. All
such issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth on Schedule 3.3(a), the Company has no outstanding
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or which are convertible into or exercisable for securities the
holders of which have the right to vote) with the stockholders of the Company
on any matter. As of the date hereof, except as set forth in Schedule 3.3(a)
to this Agreement, there are no existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company to issue, transfer or sell any shares
of capital stock or other equity interests of the Company.
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(b) Except for interests in the Subsidiaries of the Company and except as
set forth in Schedule 3.3(b), none of the Company or any of its Subsidiaries
owns directly or indirectly any interest or investment (whether equity or
debt) in any corporation, partnership, limited liability company, joint
venture, business, trust or entity (other than investments in short-term
investment securities).
Section 3.4 No Conflicts; No Defaults; Required Filings and Consents.
Neither the execution and delivery by the Company hereof nor the consummation
by the Company of the transactions contemplated hereby in accordance with the
terms hereof, will:
(a) conflict with or result in a breach of any provisions of the Company
Charter or by-laws of the Company;
(b) result in a breach or violation of, a default under, or the
triggering of any payment or other obligations pursuant to, or, except as
set forth in Schedule 3.9(g), accelerate vesting under, any of the Amended
and Restated 1993 Stock Option and Incentive Plan, as amended, or similar
compensation plan or any grant or award made under any of the foregoing;
(c) violate or conflict with any statute, regulation, judgment, order,
writ, decree or injunction applicable to the Company or its Subsidiaries,
except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect;
(d) subject to the Company obtaining the third party consents set forth
in Schedule 3.4(d)-A (with respect to the Initial Closing), and Schedule
3.4(d)-B (with respect to each Subsequent Closing), violate or conflict
with or result in a breach of any provision of, or constitute a default (or
any event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination
or cancellation of, or accelerate the performance required by, or result in
the creation of any Lien upon any of the properties of the Company or its
Subsidiaries under, or result in being declared void, voidable or without
further binding effect, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company or its Subsidiaries is a party, or by which
the Company or its Subsidiaries or any of their properties is bound or
affected, except for any of the foregoing matters which would not
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Government Authority, other than any
filings required under the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or state securities laws ("Blue Sky Laws") (collectively,
the "Regulatory Filings"), and any filings required to be made with the
Secretary of State of Maryland or any national securities exchange on which
the Company Common Stock is listed, except as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
Section 3.5 SEC and Other Documents; Financial Statements; Undisclosed
Liabilities.
(a) The Company has delivered or made available to Buyer the registration
statement of the Company filed with the Securities and Exchange Commission
("SEC") in connection with the Company's initial public offering of Company
Common Stock, and all exhibits, amendments and supplements thereto
(collectively, the "Company Registration Statement"), and each registration
statement, report, proxy statement or information statement and all exhibits
thereto prepared by it or relating to its properties since the effective date
of the Company Registration Statement, which are set forth in Schedule 3.5(a),
each in the form (including exhibits and any amendments thereto) filed with
the SEC (collectively, the "Company Reports"). Except as set forth in Schedule
3.5(a), the Company Reports were filed with the SEC in a timely manner and
constitute all forms, reports and documents required to be filed by the
Company under the Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder (the "Securities Laws"). As of their
respective dates, the Company Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not contain
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any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. There is no unresolved violation asserted by any Government
Authority with respect to any of the Company Reports.
(b) Each of the balance sheets included in or incorporated by reference into
the Company Reports (including the related notes and schedules) fairly
presented the financial position of the entity or entities to which it relates
as of its date and each of the statements of operations, stockholders' equity
(deficit) and cash flows included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presented
the results of operations, retained earnings or cash flows, as the case may
be, of the entity or entities to which it relates for the periods set forth
therein, in each case in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein and except, in the case of the
unaudited statements, normal recurring year-end adjustments which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(c) Except as and to the extent set forth in the Company Reports and the
Company's financial statements filed with the SEC or in any Schedule hereto,
to the Company's knowledge, none of the Company or any of its Subsidiaries has
any Liabilities (nor do there exist any circumstances) that would,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
Section 3.6 Litigation; Compliance With Law.
(a) Except as set forth on Schedule 3.6, there are no Actions pending or, to
the Company's knowledge, threatened against the Company or any of its
Subsidiaries that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, or which question the
validity hereof or any action taken or to be taken in connection herewith.
Except as disclosed in Schedule 3.6(a), there are no continuing orders,
injunctions or decrees of any Government Authority to which the Company or any
of its Subsidiaries is a party or by which any of its properties or assets are
bound.
(b) None of the Company or its Subsidiaries is in violation of any statute,
rule, regulation, order, writ, decree or injunction of any Government
Authority or any body having jurisdiction over them or any of their respective
properties which, if enforced, would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in the
Company Reports filed with the SEC prior to the date hereof or in Schedule 3.7
and except for entering into employment agreements (the "Employment
Agreements"), a registration rights agreement and a stockholders agreement
with the employees listed on Schedule 3.7, since December 31, 1996, the
Company and each of its Subsidiaries has conducted its business only in the
ordinary course and has acquired real estate and entered into financing
arrangements in connection therewith only in the ordinary course of such
business, and there has not been (a) any change, circumstance or event that
would reasonably be expected to result in a Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution
with respect to the Company Common Stock, except in accordance with Section
5.5, (c) any commitment, contractual obligation, borrowing, capital
expenditure or transaction (each, a "Commitment") entered into by the Company
or any of its Subsidiaries, other than Commitments which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, or (d) any change in the Company's accounting
principles, practices or methods which would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
Section 3.8 Tax Matters; REIT and Partnership Status.
(a) The Company and each of its Subsidiaries has timely filed with the
appropriate taxing authority all Tax Returns required to be filed by it or has
timely requested extensions and any such request has been granted and has not
expired. Each such Tax Return is complete and accurate in all respects. All
Taxes shown as owed by the
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Company or any of its Subsidiaries on any Tax Return have been paid or
accrued, except for Taxes being contested in good faith and for which adequate
reserves have been taken. The Company and each of its Subsidiaries has
properly accrued all Taxes for such periods subsequent to the periods covered
by such Tax Returns as required by GAAP. None of the Company or any of its
Subsidiaries has executed or filed with the IRS or any other taxing authority
any agreement now in effect extending the period for assessment or collection
of any Tax. Except as set forth in Schedule 3.8(a), none of the Company or any
of its Subsidiaries is being audited or examined by any taxing authority with
respect to any Tax or is a party to any pending action or proceedings by any
taxing authority for assessment or collection of any Tax, and no claim for
assessment or collection of any Tax has been asserted against it. True and
complete copies of all federal, state and local income or franchise Tax
Returns filed by the Company and each of its Subsidiaries for 1994 and 1995
and all communications relating thereto have been delivered to Buyer or made
available to representatives of Buyer prior to the date hereof. No claim has
been made in writing or, to the Company's knowledge, otherwise by an authority
in a jurisdiction where the Company or any of its Subsidiaries does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
Except as set forth in Schedule 3.8(a), there is no dispute or claim
concerning any Tax liability of the Company or any of its Subsidiaries, (i)
claimed or raised by any taxing authority in writing or (ii) as to which the
Company or any of its Subsidiaries has knowledge. To the Company's knowledge,
as of the date hereof, (i) the Company is a domestically controlled REIT
within the meaning of Code Section 897(h)(4)(B). To the Company's knowledge,
except as set forth in Schedule 3.8(a), no person or entity which would be
treated as an "individual" for purposes of Section 542(a)(2) of the Code (as
modified by Section 856(h) of the Code) owns or would be considered to own
(taking into account the constructive ownership rules of Section 544 of the
Code, as modified by Section 856(h) of the Code) in excess of 9.8% of the
value of the outstanding equity interests in the Company. Except as
contemplated by this Agreement or as set forth in Schedule 3.8(a), the Board
of Directors has not exempted any Person from the Ownership Limit or otherwise
waived any of the provisions of Article 7 of the Company Charter (as all
capitalized terms used in this sentence are defined in the Company Charter).
The Ownership Limit (as such term is defined in the Company Charter) has not
been modified. Each ownership interest that the Company and each of its
Subsidiaries has in an entity formed as a partnership (or which files federal
income tax returns as a partnership) qualified, and since the date of its
formation qualified, to be treated as a partnership for federal income tax
purposes or as a "qualified REIT subsidiary" within the meaning of Section
856(i)(2) of the Code.
(b) The Company (i) intends in its federal income tax return for the tax
year that will end on December 31, 1997 to be taxed as a real estate
investment trust within the meaning of Section 856 of the Code ("REIT") and
has complied (or will comply) with all applicable provisions of the Code
relating to a REIT, for 1997, (ii) has operated, and intends to continue to
operate, in such a manner as to qualify as a REIT for 1997, (iii) 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, to the Company's
knowledge, no such challenge is pending or threatened, and (iv) to the
Company's knowledge, and assuming the accuracy of Buyer's representations in
Sections 4.8 and 4.10 (disregarding the qualification relating to Buyer's and
the Advancing Party's knowledge and assuming no exceptions are set forth in
Schedule 4.10-B), will not be rendered unable to qualify as a REIT for federal
income tax purposes as a consequence of the transactions contemplated hereby.
(c) Except as set forth on Schedule 3.8(c), any amount or other entitlement
that could be received (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated hereby by any
Employee, officer, or director of the Company or any of its Affiliates who is
a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or plan currently in effect would
not be characterized as an "excess parachute payment" (as such term is defined
in Section 280G(b)(1) of the Code).
(d) Except as set forth on Schedule 3.8(d), the disallowance of a deduction
under Section 162(m) of the Code for employee remuneration will not apply to
any amount paid or payable by the Company or any of its Subsidiaries under any
contract, stock plan, program, arrangement or understanding currently in
effect.
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(e) The Company was eligible to and did validly elect to be taxed as a REIT
for federal income tax purposes for calendar year 1993 and all subsequent
taxable periods and was in compliance with all applicable laws, rules and
regulations, including the Code, necessary to permit it to be taxed as a REIT
for all such periods. Each Subsidiary of the Company organized as a
partnership (and any other Subsidiary that files Tax Returns as a partnership
for federal income tax purposes) was and continues to be classified as a
partnership for federal income tax purposes or as a "qualified REIT
subsidiary" within the meaning of Section 856(i)(2) of the Code.
(f) For purposes of this Section 3.8, no representation set forth in Section
3.8 shall be deemed to be untrue or incorrect unless such untruths or
inaccuracies would, individually or in the aggregate, be reasonably expected
to result in a Material Adverse Effect.
Section 3.9 Compliance with Agreements; Material Agreements.
(a) Neither the Company nor any of its Subsidiaries is in default under or
in violation of any provision of the Company Charter or the By-laws of the
Company (or equivalent documents), except for such defaults or violations
which would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
(b) The Company and each of its Subsidiaries have filed all material
reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file with any
Government Authority and all other material reports and statements required to
be filed by them, including any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States, and have paid
all fees or assessments due and payable in connection therewith, except for
such failures to file or pay which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
There is no unresolved violation asserted by any regulatory agency of which
the Company has received written notice with respect to any report or
statement relating to an examination of the Company or any of its Subsidiaries
which, if resolved in a manner unfavorable to the Company or such Subsidiary,
would, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(c) The Company Reports or Schedule 3.9(c) set forth (i) a description of
all material indebtedness of the Company and each of its Subsidiaries, whether
unsecured, or secured or collateralized by mortgages, deeds of trust or other
security interests in the Company Properties or any other assets of the
Company and each of its Subsidiaries, or otherwise and (ii) each Commitment
entered into by the Company or any of its Subsidiaries (including any
guarantees of any third party's debt or any obligations in respect of letters
of credit issued for the Company's or any Subsidiary's account) which may
result in total payments or liability in excess of $400,000, excluding
Commitments made in the ordinary course of business with a maturity of less
than one year or that are terminable on 30 days or less notice, and excluding
Commitments the breach of which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. True and
complete copies of the documents relating to the foregoing have been delivered
or made available to Buyer prior to the date hereof. Neither the Company nor
any of its Subsidiaries is in default, and, to the Company's knowledge, no
event has occurred which, with the giving of notice or the lapse of time or
both, would constitute a default, under any of the documents described in
clause (i) or (ii) of this paragraph or in respect of any payment obligations
thereunder except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. All joint venture and
partnership agreements to which the Company or any of its Subsidiaries is a
party as of the date hereof are set forth in Schedule 3.9(c), all of which are
in full force and effect as against the Company or such Subsidiary and, to the
Company's knowledge, as against the other parties thereto, and none of the
Company or any of its Subsidiaries is in default, and, to the Company's
knowledge, no event has occurred which, with the giving of notice or the lapse
of time or both, would constitute a default, with respect to any obligations
thereunder, except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. To the Company's
knowledge, the other parties to such agreements are not in breach of any of
their respective obligations thereunder, except as would not, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect. To the Company's knowledge, there is no condition with respect to the
Company's Subsidiaries (including with respect to the partnership agreements
for the Company's
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Subsidiaries that are partnerships) that would, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(d) Except as disclosed in the Company Reports or any other Schedule hereto,
Schedule 3.9(d) sets forth a complete and accurate list of all material
agreements entered into by the Company or any of its Subsidiaries as of the
date hereof relating to the development or construction of, additions or
expansions to, or management or leasing services for retail shopping centers
or other real properties which are currently in effect and under which the
Company or any of its Subsidiaries currently has, or expects to incur, any
material obligation. True and complete copies of such agreements will be made
available to Buyer.
(e) Except as disclosed in the Company Reports and except for (i) agreements
made in the ordinary course of business with a maturity of less than one year
or that are terminable on 30 days or less notice, and (ii) agreements the
breach or non-fulfillment of which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect,
Schedule 3.9(e) sets forth a complete and accurate list of all material
agreements entered into by the Company as of the date hereof which are not
listed in any other Schedule hereto, including material Debt Instruments. Each
agreement set forth in Schedule 3.9(e) is in full force and effect as against
the Company and, to the Company's knowledge, as against the other parties
thereto, no payments, if any, thereunder are delinquent, the Company is not in
default thereunder, and no notice of default thereunder has been sent or
received by the Company or any of its Subsidiaries, except where the same
would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect. To the Company's knowledge, no event has
occurred which, with notice or lapse of time or both, would constitute a
default by the Company under any agreement set forth in Schedule 3.9(e),
except as would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect. To the Company's knowledge, the other
parties to such agreements are not in breach of their respective obligations
thereunder, except as would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. True and complete copies
of each such agreement have been made available to Buyer prior to the date
hereof.
(f) Schedule 3.9(f) sets forth a complete and accurate list of all
agreements and policies of the Company in effect on the date hereof relating
to transactions with affiliates and potential conflicts of interest. Each
agreement or arrangement set forth in Schedule 3.9(f) is in full force and
effect, and the Company, each of its Subsidiaries, and, to the Company's
knowledge, the other parties thereto are in compliance with such agreements
and policies, or such compliance has been waived by the Company's Board of
Directors as set forth in Schedule 3.9(f). True and complete copies of each
such agreement or arrangement will be made available to Buyer.
(g) Except as set forth on Schedule 3.9(g), there are no change of control
or similar provisions in any employment, severance, stock option, stock
incentive, or similar agreement or arrangement which would be triggered by the
transactions contemplated by this Agreement. Schedule 3.9(g) identifies the
obligations (including any payment or other obligation, forgiveness of debt,
other release from obligations, or acceleration of vesting) which are created,
accelerated or triggered by the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
Section 3.10 Financial Records; Company Charter and By-laws; Corporate
Records.
(a) The books of account and other financial records of the Company and each
of its Subsidiaries are in all respects true and complete, have been
maintained in accordance with good business practices, and are accurately
reflected in all respects in the financial statements included in the Company
Reports, except, in each case, as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(b) The Company has previously delivered or made available to Buyer true and
complete copies of the Company Charter and the By-laws of the Company, as
amended to date, and the charter, by-laws, organization documents, partnership
agreements and joint venture agreements of its Subsidiaries, and all
amendments thereto. All such documents are listed in Schedule 3.10(b).
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(c) The minute books and other records of corporate or partnership
proceedings of the Company and each of its Subsidiaries contain in all
material respects accurate records of all meetings and accurately reflect in
all material respects all other corporate action of the stockholders and
directors and any committees of the Board of Directors of the Company and
their Subsidiaries which are corporations and all actions of the partners of
the Subsidiaries which are partnerships, except for documentation of
discussions relating to or in connection with the transactions contemplated
hereby or matters related hereto, and except as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
Section 3.11 Properties.
(a) Schedule 3.11(a) sets forth a complete and accurate list and the address
of all real property owned or leased by the Company or any of its Subsidiaries
or otherwise used by the Company or its Subsidiaries in the conduct of their
business or operations (collectively, and together with the land at each
address referenced in Schedule 3.11(a) and all buildings, structures and other
improvements and fixtures located on or under such land and all easements,
rights and other appurtenances to such land, the "Company Properties"). The
Company, or in the case of Company Properties owned by Subsidiaries that are
not wholly owned Subsidiaries of the Company, to the Company's knowledge, such
Subsidiaries, owns or own, as the case may be, good and insurable fee simple
title (or, if so indicated in Schedule 3.11(a), leasehold title) to each of
the Company Properties, in each case free and clear of any Liens, title
defects, contractual restrictions or covenants, laws, ordinances or
regulations affecting use or occupancy (including zoning regulations and
building codes) or reservations of interests in title (collectively, "Property
Restrictions"), except for (i) Permitted Liens and (ii) Property Restrictions
imposed or promulgated by law or by any Government Authority which are
customary and typical for similar properties. To the Company's knowledge, none
of the matters described in clauses (i) and (ii) of the immediately preceding
sentence materially interferes with, impairs, or is violated by, the existence
of any building or other structure or improvement which constitutes a part of,
or the present use, occupancy or operation (or, if applicable, development)
of, the Company Properties taken as a whole, and such matters do not,
individually or in the aggregate, have a Material Adverse Effect. American
Land Title Association policies of title insurance (or marked title insurance
commitments having the same force and effect as title insurance policies) have
been issued by national title insurance companies insuring the fee simple or
leasehold, as applicable, title of the Company or its Subsidiaries, as
applicable, to each of the Company Properties in sufficient amounts to avoid
co-insurance statutes, subject only to the matters set forth therein (the
"Title Policies"), and, to the Company's knowledge, the Title Policies are
valid and in full force and effect and no claim has been made under any such
policy. The Company will make available to Buyer true and complete copies of
all such policies and of the most recent surveys of the Company Properties,
and true and complete copies of all material exceptions referenced in such
policies and the most recent title reports for and surveys (to the extent not
previously delivered or made available to Buyer) of each of the Company
Properties available to the Company or any of its Subsidiaries for inspection
by Buyer or its representatives within five Business Days of Buyer's request
therefor.
(b) Except as set forth in Schedule 3.11(b), and except for matters which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect or to materially and adversely affect the use or
occupancy (or, if applicable, development) of the Company Properties taken as
a whole, the Company has no knowledge (i) that any currently required
certificate, permit or license (including building permits and certificates of
occupancy for tenant spaces) from any Government Authority having jurisdiction
over any Company Property or any agreement, easement or other right which is
necessary to permit the lawful use, occupancy or operation of the existing
buildings, structures or other improvements which constitute a part of any of
the Company Properties or which are necessary to permit the lawful use and
operation of utility service to any Company Property or of any existing
driveways, roads or other means of egress and ingress to and from any of the
Company Properties has not been obtained or is not in full force and effect,
or of any pending modification or cancellation of any of same, or (ii) of any
violation by any Company Property of any federal, state or municipal law,
ordinance, order, regulation or requirement, including any applicable zoning
law or building code, as a result of the use or occupancy of such Company
Property or otherwise. Except as set forth in Schedule
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3.11(b), the Company has no knowledge of uninsured physical damage to any
Company Property in excess of $400,000 in the aggregate. To the Company's
knowledge, except for repairs identified in the Capital Expenditure Budget and
Schedule, each Company Property, (i) is in good operating condition and repair
and is structurally sound and free of defects, with no material alterations or
repairs being required thereto under applicable law or insurance company
requirements, and (ii) consists of sufficient land, parking areas, driveways
and other improvements and lawful means of access and utility service and
capacity to permit the use thereof in the manner and for the purposes to which
it is presently devoted (or, in the case of the Development Property, for the
development and operation thereon of the applicable Project), except, in each
such case, to the extent that failure to meet such standards would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or to materially and adversely affect the use or occupancy of
the Company Properties taken as a whole (or, in the case of the Development
Property, the development and operation thereon of the applicable Project).
The Company will make available to Buyer true and complete copies of all
engineering reports, inspection reports, maintenance plans and other documents
relating to the condition of any Company Property prepared for the Company
since the Company's Initial Public Offering.
(c) The Company has no knowledge (i) that any condemnation, eminent domain
or rezoning proceedings are pending or threatened with respect to any of the
Company Properties, (ii) that any road widening or change of grade of any road
adjacent to any Company Property is underway or has been proposed, (iii) of
any proposed change in the assessed valuation of any Company Property other
than customarily scheduled revaluations, (iv) of any special assessment made
or threatened against any Company Property, or (v) that any of the Company
Properties is subject to any so-called "impact fee" or to any agreement with
any Government Authority to pay for sewer extension, oversizing utilities,
lighting or like expenses or charges for work or services by such Government
Authority, except, in the case of each of the foregoing, to the extent that
same would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect or to materially and adversely affect the use
or occupancy (or, if applicable, development) of the Company Properties taken
as a whole.
(d) To the Company's knowledge, each of the Company Properties is an
independent unit which does not rely on any facilities located on any property
not included in such Company Property to fulfill any municipal or governmental
requirement or for the furnishing to such Company Property of any essential
building systems or utilities, other than facilities the benefit of which
inures to the Company Properties pursuant to one or more valid easements. Each
of the Company Properties is served by public water and sanitary systems and
all other utilities, and, to the Company's knowledge, each of the Company
Properties has lawful access to public roads, in all cases sufficient for the
current use and occupancy of each Company Property (or, in the case of the
Development Property, for the development and operation thereon of the
applicable Project). To the Company's knowledge, all parcels of land included
in each Company Property that purport to be contiguous are contiguous and are
not separated by strips or gores. Except as set forth in Schedule 3.11(d), to
the Company's knowledge, no portion of any Company Property includes any
wetlands or vegetation or species protected by any applicable laws. Except as
set forth on Schedule 3.11(d) or the Title Policies or surveys, none of the
Company Properties lies in any 100-year flood plain area, as established by
the U.S. Army Corps of Engineers. The improvements on each Company Property
which lies in a flood plain area, if any, comply with applicable building
codes and other relevant laws and regulations, and the Company or its
Subsidiaries carry and presently maintain in full force and effect flood
insurance in connection with such Company Properties as required by applicable
law and as accurately described in Schedule 3.11(d). To the Company's
knowledge, no improvements constituting a part of any Company Property
encroach on real property not constituting a part of such Company Property. No
representation set forth in this subsection (d) shall be deemed to be untrue
unless such untruths are, individually or in the aggregate, reasonably
expected to have a Material Adverse Effect or to materially and adversely
affect the use or occupancy of the Company Properties taken as a whole.
(e) Schedule 3.11(e) contains a complete and accurate list of each survey,
study or report prepared by or for the Company or any Subsidiary since the
Company's initial public offering, in connection with any Company Property's
compliance or non-compliance with the requirements of the Americans with
Disabilities Act (the
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"ADA"), other than routine correspondence or memoranda. Except for matters
addressed in the Capital Expenditure Budget and Schedule, to the knowledge of
the Company, no Company Property fails to comply with the requirements of the
ADA except for such non-compliance as the Company believes will not,
individually or in the aggregate, have a Material Adverse Effect.
(f) The Company has provided to Buyer an accurate rent roll for each Company
Property as of March 31, 1997 (the "Rent Roll"), which accurately describes
each lease of space in each Company Property (collectively, the "Company
Leases"). The Company has delivered to Buyer profiles of the Company Leases
(the "Lease Profiles"), which have been prepared in the ordinary course of
business. The Company will make available to Buyer a true and complete copy of
each Company Lease, including all amendments and modifications thereto. With
respect to each Company Lease for premises larger than 20,000 square feet of
rentable space (collectively, the "Material Company Leases"), except as set
forth in Schedule 3.11(f) and except for matters which are not, individually
or in the aggregate, reasonably expected to have a Material Adverse Effect,
(i) each of the Material Company Leases is valid and subsisting and in full
force and effect as against the Company or the Subsidiary, as applicable, and,
to the Company's knowledge, as against the tenant, and the information on the
Rent Roll with respect to the Material Company Leases is accurate, (ii) the
tenant under each of the Material Company Leases is in actual possession of
the premises leased thereunder, (iii) no tenant under any Material Company
Lease is more than 30 days in arrears in the payment of rent, (iv) none of the
Company or any of its Subsidiaries has received any written notice from any
tenant under any Material Company Lease of its intention to vacate, (v) none
of the Company or any of its Subsidiaries has collected payment of rent under
any Material Company Lease (other than security deposits) accruing for a
period which is more than one month in advance, (vi) no notice of default has
been sent or received by the landlord under any Material Company Lease which
remains uncured as of the date hereof, no default has occurred under any
Material Company Lease and, to the Company's knowledge, no event has occurred
and is continuing which, with notice or lapse of time or both, would
constitute a default under any Material Company Lease, (vii) except as
disclosed on the Lease Profiles or Schedule 3.11(f) or any other schedule
hereto, no tenant under any of the Material Company Leases has any purchase
options or kick-out rights or is entitled to any concessions, allowances,
abatements, setoffs, rebates or refunds, (viii) none of the Material Company
Leases and none of the rents or other amounts payable thereunder has been
mortgaged, assigned, pledged or encumbered by any party thereto or otherwise,
except in connection with financing secured by the applicable Company Property
which is described in Schedule 3.9(c), (ix) (A) as of the date hereof, except
as set forth in Schedule 3.11(f), no brokerage or leasing commission or other
compensation is due or payable to any person with respect to or on account of
any of the Material Company Leases or any extensions or renewals thereof
incurred after the date hereof, and (B) any brokerage or leasing commission or
other compensation due or payable to any person with respect to or on account
of any of the Material Company Leases or any extensions or renewals thereof
have been incurred in the ordinary course of business of the Company
consistent with past practice and market terms, (x) no space of a material
size in any Company Property is occupied by a tenant rent-free, (xi) no tenant
under any of the Material Company Leases has asserted any claim which is
likely to affect the collection of rent from such tenant, (xii) other than as
would be customary or consistent with commercially reasonable retail leasing
business practices, no tenant under any of the Material Company Leases has any
right to remove material improvements or fixtures that have at any time been
affixed to the premises leased thereunder, (xiii) each tenant under the
Material Company Leases is required thereunder to maintain or to cause to be
maintained, at its cost and expense, public liability and property damage
insurance with liability limits which reasonably relate to the value of the
contingent liabilities being insured thereby or in the alternative, consistent
with commercially reasonable retail leasing business practices, tenants may
self-insure or the Company may provide such coverage to tenants and (xiv) the
landlord under each Material Company Lease has fulfilled all of its
obligations thereunder in respect of tenant improvements and capital
expenditures. Other than the tenants identified in the Rent Roll and parties
to easement agreements which constitute Permitted Liens, no third party has
any right to occupy or use any portion of any Company Property. Budgets for
all material tenant improvements and similar material work required to be made
by the lessor under each of the Material Company Leases is incorporated in
Schedule 3.11(i).
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(g) Schedule 3.11(g) sets forth a complete and accurate list of all material
commitments, letters of intent or similar written understandings made or
entered into by the Company or any of its Subsidiaries as of the date hereof
(x) to lease any space larger than 25,000 rentable square feet at any of the
Company Properties, (y) to sell, mortgage, pledge or hypothecate any Company
Property or Properties, which, individually or in the aggregate, are material,
or to otherwise enter into a material transaction in respect of the ownership
or financing of any Company Property, or (z) to purchase or to acquire an
option, right of first refusal or similar right in respect of any real
property, which, individually or in the aggregate, are material, which, in any
such case, has not yet been reduced to a written lease or contract, and sets
forth with respect to each such commitment, letter of intent or other
understanding the principal terms thereof. The Company will make available to
Buyer a true and complete copy of each such commitment, letter of intent or
other understanding. Schedule 3.11(g) also sets forth a complete and accurate
list of all agreements to purchase real property to which the Company or any
Subsidiary is a party.
(h) Except as set forth in Schedule 3.11(h), none of the Company Properties
is subject to any outstanding purchase options nor has the Company or any of
its Subsidiaries entered into any outstanding contracts with others for the
sale, mortgage, pledge, hypothecation, assignment, sublease, lease or other
transfer of all or any part of any Company Property, and no person has any
right or option to acquire, or right of first refusal with respect to, the
Company's or any of its Subsidiaries' interest in any Company Property or any
part thereof. Except as set forth in Schedule 3.11(h) or 3.11(g), none of the
Company or any of its Subsidiaries has any outstanding options or rights of
first refusal or has entered into any outstanding contracts with others for
the purchase of any real property.
(i) Schedule 3.11(i) sets forth the Company's or any Subsidiary's capital
expenditure budget and schedule for each Company Property, which describes the
capital expenditures which the Company or any Subsidiary has budgeted for such
Company Property for the period running through December 31, 1997 (the
"Capital Expenditure Budget and Schedule"), and the Company's or any
Subsidiary's preliminary capital expenditure budget and schedule for each
Company Property, which describes the capital expenditures which the Company
or any Subsidiary has budgeted for such Company Property for the period
commencing January 1, 1998 and running through December 31, 1999 (the "1998
and 1999 Preliminary Capital Expenditure Budgets and Schedules"). Each of the
Capital Expenditure Budget and the 1998 and 1999 Preliminary Capital
Expenditure Budgets and Schedules also describes other capital expenditures as
are necessary, to the Company's knowledge, in order to bring such Company
Property into compliance with applicable laws, ordinances, codes, health and
safety regulations and insurance requirements (including in respect of fire
sprinklers, compliance with the ADA (except to the extent that (x) a tenant
under any Company Lease is contractually responsible and liable for such ADA
compliance under its Company Lease or (y) with respect to shopping center
properties, any work required to cause such compliance is not material and the
related expenditures are, in the aggregate with all other such expenditures,
less than $400,000), and asbestos containing material) or which the Company
otherwise plans or expects to make in order to cure or remedy any
construction, electrical, mechanical or other defects, to renovate,
rehabilitate or modernize such Company Property, or otherwise, excluding,
however, any tenant improvements required to be made under any Company Lease.
To the Company's knowledge, the costs and time schedules for 1997 set forth in
the Capital Expenditure Budget and Schedule are reasonable estimates and
projections. To the Company's knowledge, the costs and time schedules for 1998
and 1999 set forth in the 1998 and 1999 Preliminary Capital Expenditure
Budgets and Schedules are reasonable estimates and projections based upon
information available to the Company at the time that the 1998 and 1999
Preliminary Capital Expenditure Budgets and Schedules were prepared, and,
nothing has come to the attention of the Company since such time which would
indicate that the 1998 and 1999 Preliminary Capital Expenditure Budgets and
Schedules are inaccurate or misleading in any material respect. Except as set
forth in Schedule 3.11(i), there are no outstanding or, to the Company's
knowledge, threatened requirements by any insurance company which has issued
an insurance policy covering any Company Property, or by any board of fire
underwriters or other body exercising similar functions, requiring any repairs
or alterations to be made to any Company Property that would, individually or
in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
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(j) Schedule 3.11(j) contains a list of each Company Property which consists
of or includes undeveloped land or which is in the process of being developed
or redeveloped (collectively, the "Development Properties") and a brief
description of the development or redevelopment intended by the Company or any
Subsidiary to be carried out or completed thereon (collectively, the
"Projects"), including any budget and development schedule therefor prepared
by or for the Company or any Subsidiary (collectively, the "Development Budget
and Schedule"). Except as disclosed in Schedule 3.11(j), each Development
Property is zoned for the lawful development or redevelopment thereon of the
applicable Project, and the Company or its Subsidiaries have obtained all
permits, licenses, consents and authorizations required for the lawful
development or redevelopment thereon of such Project, except only for such
failure to meet the foregoing standards as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect. Except as
set forth in Schedule 3.11(j), to the Company's knowledge, there are no
material impediments to or constraints on the development or redevelopment of
any Project in all material respects within the time frame and for the cost
set forth in the Development Budget and Schedule applicable thereto. In the
case of each Project the development of which has commenced, to the Company's
knowledge, the costs and expenses incurred in connection with such Project and
the progress thereof are, except as set forth in Schedule 3.11(j), consistent
and in compliance in all material respects with the Development Budget and
Schedule applicable thereto. The Company will make available to Buyer all
feasibility studies, soil tests, due diligence reports and other studies,
tests or reports performed by or for the Company at any time since the
Company's initial public offering, which relate to the Development Properties
or the Projects.
(k) The ground leases underlying the leased Company Properties referenced in
Schedule 3.11(a) (collectively, the "Ground Leases") are accurately described
in Schedule 3.11(k). Each of the Ground Leases is valid, binding and in full
force and effect as against the Subsidiary and, to the Company's knowledge, as
against the other party thereto. Except as indicated in Schedule 3.11(k), none
of the Ground Leases is subject to any mortgage, pledge, Lien, sublease,
assignment, license or other agreement granting to any third party any
interest therein, collateral or otherwise, or any right to the use or
occupancy of any premises leased thereunder. True and complete copies of the
Ground Leases (including all amendments, modifications and supplements
thereto) have been delivered to Buyer prior to the date hereof. To the
Company's knowledge, except as set forth in Schedule 3.11(k), there is no
pending or threatened proceeding which is reasonably likely to interfere with
the quiet enjoyment of the tenant under any of the Ground Leases. Except as
set forth in Schedule 3.11(k), as of the last day of the month preceding the
date hereof and as of the last day of the month preceding the date of the
Initial Closing, no payments under any Tenancy Lease are delinquent and no
notice of default under any Ground Lease has been sent or received by the
Company or any of its Subsidiaries. There does not exist under any of the
Ground Leases any default, and, to the Company's knowledge, no event has
occurred which, with notice or lapse of time or both, would constitute such a
default, except as would not, individually or in the aggregate, be reasonably
expected to result in a Material Adverse Effect.
(l) The Company and each of its Subsidiaries have good and sufficient title
to all the personal and non-real properties and assets reflected in their
books and records as being owned by them (including those reflected in the
balance sheets of the Company and its Subsidiaries as of December 31, 1996,
except as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all Liens, except for Permitted Liens which are
not, individually or in the aggregate, reasonably expected to have a Material
Adverse Effect.
(m) The Company has provided to Buyer historical operating expense
information (the "Historical Expense Information"), which has been prepared in
the ordinary course of business. The Historical Expense Information is
accurate in all material respects.
Section 3.12 Environmental Matters.
(a) To the Company's knowledge, each of the Company and its Subsidiaries has
obtained, and now maintains as currently valid and effective, all permits,
certificates of financial responsibility and other governmental authorizations
required to be obtained by the Company or any Subsidiary under the
Environmental Laws (the "Environmental Permits") in connection with the
operation of its businesses and properties, all of
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which are listed in Schedule 3.12(a). To the Company's knowledge, except as
disclosed in the Company Environmental Reports, each of the Company and its
Subsidiaries, and each Company Property is and has been in compliance with all
terms and conditions of the Environmental Permits and all Environmental Laws,
except only to an extent which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. The Company has
no knowledge of any circumstances or conditions that may prevent or interfere
with such compliance in the future.
(b) Each of the Company and its Subsidiaries has provided or made available
to Buyer all formal communications, oral or written (whether from a Government
Authority, citizens' group, employee or other person), which the Company has
received regarding (x) alleged or suspected noncompliance of any of the
Company Properties with any Environmental Laws or Environmental Permits or (y)
alleged or suspected Liability of the Company or its Subsidiaries under any
Environmental Law, which noncompliance or Liability would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) There are no liens or encumbrances on any of the Company Properties
which arose pursuant to or in connection with any Environmental Law or
Environmental Claim and, to the Company's knowledge, no government actions
have been taken or threatened to be taken or are in process which are
reasonably likely to subject any Company Property to such liens or other
encumbrances.
(d) Except as disclosed in Schedule 3.12(e) (none of which matters would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect), or set forth in the Company Environmental Reports, no
Environmental Claim has been asserted or, to the Company's knowledge,
threatened that may impose a liability in excess of $400,000 with respect to
the operations or the businesses of the Company or its Subsidiaries, or with
respect to the Company Properties. To the Company's knowledge, except as set
forth on the Company Environmental Reports, no circumstances, past or present
actions, conditions, events or incidents which exist with respect to the
Company or its Subsidiaries or the Company Properties that would reasonably be
expected to result in any such Environmental Claim in excess of $400,000 being
asserted, in any such case, against (i) the Company or its Subsidiaries, or
(ii) to the Company's knowledge, any person whose liability for any
Environmental Claims the Company or its Subsidiaries has or may have retained
or assumed either contractually or by operation of law.
(e) Except as disclosed in Schedule 3.12(e) (none of which matters would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect), or set forth in the Company Environmental Reports, (i) none
of the Company or its Subsidiaries has been notified or anticipates being
notified of potential responsibility in connection with any site that has been
placed on, or proposed to be placed on, the National Priorities List or its
state or foreign equivalents pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et
seq., or analogous state laws, (ii) to the Company's knowledge, no Materials
of Environmental Concern are present on, in or under any Company Property in a
manner or condition that is reasonably likely to give rise to an Environmental
Claim which would reasonably be expected to result in a Material Adverse
Effect, (iii) to the Company's knowledge, none of the Company or its
Subsidiaries has Released or arranged for the Release of any Materials of
Environmental Concern at any location to an extent or in a manner which would
reasonably be expected to result in a Material Adverse Effect, (iv) to the
Company's knowledge, no underground storage tanks, surface impoundments,
disposal areas, pits, ponds, lagoons, open trenches or disused industrial
equipment is present at any Company Property in a manner or condition that is
reasonably likely to give rise to an Environmental Claim which would
reasonably be expected to result in a Material Adverse Effect, (v) to the
Company's knowledge, no transformers, capacitors or other equipment containing
fluid with more than 50 parts per million polychlorinated biphenyls are
present at any Company Property in a manner or condition that is reasonably
likely to give rise to an Environmental Claim which would reasonably be
expected to result in a Material Adverse Effect, except for any such
transformers, capacitors or other equipment owned by any utility company, and
(vi) to the Company's knowledge, no friable asbestos and no friable asbestos-
containing material is present at any Company Property and no Employee, agent,
contractor or subcontractor of the Company or its Subsidiaries or any other
person is now or has in the past been exposed to friable asbestos at any
Company Property, except, in the case of each of the matters set forth in this
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subpart (vi), for such matters as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(f) Schedule 3.12(f) contains a list of each environmental report prepared
for the Company or its Subsidiaries or otherwise in the possession of any of
them with respect to the environmental condition of any Company Property
(collectively, the "Company Environmental Reports"). The Company has
previously delivered or made available to Buyer true and complete copies of
(i) the executive summary or conclusion included in each Company Environmental
Report and (ii) each Company Environmental Report which constitutes a "Phase
II" (or higher) environmental report or which is otherwise more detailed or
in-depth than a typical "Phase I" environmental report. To the Company's
knowledge, none of the matters disclosed by the Company Environmental Reports
would, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. The Company has no knowledge of any facts or
circumstances relating to the environmental condition of any property owned,
leased or otherwise held by the Company that is not a Company Property that
are reasonably likely to result in a Material Adverse Effect.
(g) For purposes hereof, the terms listed below shall have the following
meanings:
(i) "Claim" shall mean all actions, causes of action, suits, judgments,
executions, claims, Liabilities and demands whatsoever, in law or equity.
(ii) "Environmental Claim" shall mean any Claim investigation or notice
by any person alleging potential liability (including potential liability
for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or
fatalities, or penalties) arising out of, based on or resulting from (A)
the presence, generation, transportation, treatment, use, storage, disposal
or Release of Materials of Environmental Concern or the threatened Release
of Materials of Environmental Concern at any location, or (B) activities or
conditions forming the basis of any violation, or alleged violation of, or
liability or alleged liability under, any Environmental Law.
(iii) "Environmental Laws" shall mean federal, state, and local laws,
ordinances, common law, orders, statutes, and regulations relating to the
pollution or protection of the environment or of flora or fauna or their
habitat or of human health and safety, or to the cleanup or restoration of
the environment.
(iv) "Materials of Environmental Concern" shall mean all chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum or any
fraction thereof, petroleum products and hazardous substances or solid or
hazardous wastes as now defined and regulated under any Environmental Laws.
(v) "Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration.
Section 3.13 Employees and Employee Benefit Plans.
(a) Schedule 3.13(a) sets forth a complete and accurate list of all
employment agreements between the Company or any of its Subsidiaries and
employees of the Company or any of its Subsidiaries. Except for the employees
who are parties to such employment agreements, all of the employees of the
Company and each of its Subsidiaries are employed on an at-will basis (except
for restrictions or limitations on the at-will basis of such employees imposed
by law or equity or general principles of law or equity).
(b) The Company Reports or Schedule 3.13(b) sets forth a complete and
accurate list of all Employee Benefit Plans and all material Benefit
Arrangements which cover Employees of the Company or any of its Subsidiaries
with respect to their employment relationship with the Company or any of its
Subsidiaries (the "Company Plans"). With respect to each Company Plan, the
Company will make available to Buyer true and complete copies of: (i) the
plans and related trust documents and amendments thereto, (ii) the most recent
summary plan descriptions, if any, and the most recent annual report, if any,
and (iii) the most recent actuarial valuation (to the extent applicable).
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(c) With respect to each Company Plan, (i) the Company and each of its
Subsidiaries is in compliance in all material respects with the terms of each
Company Plan and with the requirements prescribed by all applicable statutes,
orders or governmental rules or regulations, (ii) the Company and each of its
Subsidiaries has contributed to each Pension Plan included in the Company
Plans not less than the amounts accrued for such plan for all plan periods for
which payment is due, and (iii) none of the Company or any of its Subsidiaries
has any funding commitment or other accrued liabilities except as set forth on
Schedule 3.13(c) or as reserved for in the financial statements in or
incorporated by reference into the Company Reports, and in the case of each of
clauses (i), (ii), and (iii), except for such matters as would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(d) Except as set forth on Schedule 3.13(d), none of the Company or any of
its Subsidiaries has made any commitment to establish any new Employee Benefit
Plan, to modify any Employee Benefit Plan, or to increase benefits or
compensation of Employees of the Company or any of its Subsidiaries (except
for normal increases in compensation consistent with past practices), and to
the Company's knowledge, no intention to do so has been communicated to
Employees of the Company or any of its Subsidiaries.
(e) There are no pending or, to the Company's knowledge, anticipated claims
(excluding claims for benefits incurred in the ordinary course of Company Plan
activities) against or otherwise involving any of the Company Plans or any
fiduciaries thereof with respect to their duties to the Company Plans and no
suit, action or other litigation (excluding claims for benefits incurred in
the ordinary course of Company Plan activities) has been brought against or
with respect to any such Company Plans.
(f) Neither the Company nor any of the ERISA Affiliates has, at any time
after September 25, 1980, contributed to, or been required to contribute to,
any "multiemployer plan" (as defined in Sections 3(37) and 4001(a)(3) of
ERISA).
(g) Except as required by the continuation coverage requirements of Section
601 et seq. of ERISA and Section 4980B of the Code or requirements of state
law and regulations and except as set forth on Schedule 3.13(g), the Company
and its Subsidiaries do not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance, medical or
other employee welfare benefits described in Section 3(1) of ERISA to any
Employee or former Employee following his retirement or termination of
employment and, to the Company's knowledge, the Company and its Subsidiaries
have never represented, promised or contracted (whether in oral or written
form) to any Employee or former Employee that such benefits would be provided.
(h) For purposes hereof, "Employee Benefit Plans" means each and all
"employee benefit plans" as defined in Section 3(3) of ERISA maintained or
contributed to by the Company or a Subsidiary or in which the Company or a
Subsidiary participates or participated and which provides benefits to
Employees, including (i) any such plans that are "employee welfare benefit
plans" as defined in Section 3(1) of ERISA, including retiree medical and life
insurance plans ("Welfare Plans"), and (ii) any such plans that constitute
"employee pension benefit plans" as defined in Section 3(2) of ERISA ("Pension
Plans"). "Benefit Arrangements" means life and health insurance,
hospitalization, savings, bonus, deferred compensation, incentive
compensation, holiday, vacation, severance pay, sick pay, sick leave,
disability, tuition refund, service award, company car, scholarship,
relocation, patent award, fringe benefit, individual employment, consultancy
or severance contracts and other polices or practices of the Company or a
Subsidiary providing employee or executive compensation or benefits to
Employees maintained or contributed to by the Company or a Subsidiary, other
than Employee Benefit Plans. "Employees" mean all current employees, former
employees and retired employees of the Company or any of its Subsidiaries,
including employees on disability, layoff or leave status. "Controlled Group
Liability" means any and all liabilities (other than such liabilities that
arise solely out of, or relate solely to, the Company Plans) of the ERISA
Affiliates (other than the Company and its Subsidiaries) under (i) Title IV of
ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, and (v) corresponding or similar provisions of
foreign laws or regulations.
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(i) To the Company's knowledge, with respect to each Company Plan that is
subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the
Code: (i) there does not exist any accumulated funding deficiency within the
meaning of Section 412 of the Code or Section 302 of ERISA, whether or not
waived, (ii) the fair market value of the assets of such plan equals or
exceeds the actuarial present value of all accrued benefits under such plan,
on a termination basis, (iii) no reportable event within the meaning of
Section 4043(c) of ERISA has occurred, with respect to which notice has not
been waived, and the consummation of the transactions contemplated by this
Agreement will not result in the occurrence of any such reportable event, and
(iv) all premiums due to the Pension Benefit Guaranty Corporation have been
timely paid in full.
(j) There does not now exist, nor do any circumstances exist that could
result in, any Controlled Group Liability that would be a liability of the
Company following the Closing. Without limiting the generality of the
foregoing, neither the Company nor any ERISA Affiliate has engaged in any
transaction described in Section 4069 or Section 4204 of ERISA.
(k) Except as set forth in Schedule 3.13(k), neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (either alone or in conjunction with any other event
other than a termination of employment with respect to which the employee
being terminated receives payments or benefits that he would have received if
he had terminated or been terminated and without regard to the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby) result in, cause the accelerated vesting or delivery of,
or increase the amount or value of, any payment or benefit to any employee of
the Company.
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14, none of
the Company or any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. Except for the matters set
forth in Schedule 3.14 (none of which matters would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect), there is
no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries. To the knowledge of the Company, there are no organizational
efforts with respect to the formation of a collective bargaining unit
presently being made or threatened involving employees of the Company or any
of its Subsidiaries.
Section 3.15 Affiliate Transactions. Schedule 3.15 sets forth a complete and
accurate list of all transactions, series of related transactions or currently
proposed transactions or series of related transactions entered into by the
Company or any of its Subsidiaries since January 1, 1997 which are of the type
required to be disclosed by the Company pursuant to Item 404 of Regulation S-K
of the Securities Laws. A true and complete copy of all agreements or
contracts relating to any such transaction will be made available to Buyer
prior to the date hereof.
Section 3.16 Insurance. The Company maintains insurance policies, including
liability policies, covering the assets, business, equipment, properties,
operations, employees, officers and directors of the Company and each of its
Subsidiaries (collectively, the "Insurance Policies"), which are of a type and
in amounts customarily carried by persons conducting businesses similar to
those of the Company. There is no material claim by the Company or any of its
Subsidiaries pending under any of the material Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies.
Section 3.17 Proxy Statement. The Proxy Statement and all of the information
included or incorporated by reference therein (other than any information
supplied or to be supplied by Buyer for inclusion or incorporation by
reference therein) will not, as of the date such Proxy Statement is first
mailed to the stockholders of the Company and as of the time of the meeting of
the stockholders of the Company in connection with the transactions
contemplated hereby, 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
are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
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Section 3.18 Maryland Takeover Law. The terms of Sections 3-602 and 3-702 of
the Maryland General Corporation Law will not apply to Buyer, any Stock
Purchase or any other transaction contemplated hereby. The resolutions in the
form of Exhibit C hereto have been adopted by the Company and have not been
rescinded and revoked.
Section 3.19 Vote Required. The affirmative vote of the holders of a
majority (including LFREI and its Controlled Affiliates (as defined in the
Stockholders Agreement) for purposes of determining a quorum, but not for
purposes of determining a majority) of the outstanding shares of Company
Common Stock entitled to vote hereon and duly present in person or by proxy at
a meeting duly called to vote hereon (and with each share of Company Common
Stock entitled to one vote per share) is the only vote of the holders of any
class or series of Company Stock necessary to approve this Agreement, the
Registration Rights Agreement, the Stockholders Agreement and the transactions
contemplated hereby and thereby.
Section 3.20 Brokers or Finders. Other than Prudential Securities, Inc., no
agent, broker, investment banker or other firm or person, including any of the
foregoing that is an Affiliate of the Company, is or will be entitled to any
broker's or finder's fee or any other commission or similar fee from the
Company in connection with this Agreement or any of the transactions
contemplated hereby for which Buyer or any of its Affiliates will be
responsible.
Section 3.21 Knowledge Defined. As used herein, the phrase "to the Company's
knowledge" (or words of similar import) means the actual knowledge of any of
Alexander Haagen, Sr., Charlotte Haagen, Alexander Haagen III, Fred W.
Bruning, Stuart J.S. Gulland, Steven M. Jaffe, Patricia DeAngelis and Chris
Fahey includes any facts, matters or circumstances set forth in any written
notice from any Government Authority or any other material written notice
received by the Company or any of its Subsidiaries, and also including any
matter of which Buyer informs the Company in writing.
ARTICLE 4
Representations and Warranties of Buyer and the Advancing Party
Buyer and the Advancing Party hereby jointly and severally represent and
warrant to the Company as follows:
Section 4.1 Organization.
(a) Buyer is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. Buyer has all
requisite corporate power and authority to own, operate, lease and encumber
its properties and to carry on its business as now conducted, and to enter
into this Agreement, the Registration Rights Agreement and the Stockholders
Agreement and to perform its obligations hereunder and thereunder.
(b) The Advancing Party is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Advancing Party has all requisite corporate power and authority to own,
operate, lease and encumber its properties and to carry on its business as now
conducted, and to enter into this Agreement, the Registration Rights Agreement
and the Stockholders Agreement and to perform its obligations hereunder and
thereunder.
Section 4.2 Due Authorization. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, and the Stockholders
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Buyer and the Advancing Party. This Agreement has been
duly executed and delivered by each of Buyer and the Advancing Party for
itself and constitutes the valid and legally binding obligations of Buyer and
the Advancing Party, enforceable against Buyer or the Advancing Party, as the
case
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may be, in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights or
general principles of equity.
Section 4.3 Conflicting Agreements and Other Matters. Neither the execution
and delivery of this Agreement nor the performance by Buyer or the Advancing
Party, as the case may be, of its obligations hereunder will conflict with,
result in a breach of the terms, conditions or provisions of, constitute a
default under, result in the creation of any mortgage, security interest,
encumbrance, lien or charge of any kind upon any of the properties or assets
of Buyer or the Advancing Party, as the case may be, pursuant to, or require
any consent, approval or other action by or any notice to or filing with any
Government Authority pursuant to, the organizational documents or agreements
of Buyer or the Advancing Party, as the case may be, or any agreement,
instrument, order, judgment, decree, statute, law, rule or regulation by which
Buyer or the Advancing Party, as the case may be, is bound, except for filings
after any Closing under Section 13(d) or Section 16 of the Exchange Act.
Section 4.4 Acquisition for Investment; Sophistication; Source of Funds.
(a) Buyer is acquiring the Company Common Stock being purchased by it for
its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof, and Buyer has no present
intention or plan to effect any distribution of shares of Company Common
Stock, provided that the disposition of Company Common Stock owned by Buyer
shall at all times be and remain within its control, subject to the provisions
of this Agreement and the Registration Rights Agreement. The certificate(s)
representing the Purchased Shares shall bear a prominent legend with respect
to the restrictions on transfer under the Securities Act and under applicable
state securities laws. Prior to any proposed transfer of the Purchased Shares,
unless such transfer is made pursuant to an effective registration statement
under the Securities Act, Buyer will deliver to the Company an opinion of
counsel, reasonably satisfactory in form and substance to the Company, to the
effect that the Purchased Shares may be sold or otherwise transferred without
registration under the Securities Act. The Company will remove the legend
relating to Securities Act restrictions from any Purchased Shares at any time
two years after issuance if Buyer delivers to the Company an opinion of
counsel, reasonably satisfactory in form and substance to the Company, to the
effect that such Purchased Shares are no longer subject to transfer
restrictions under the Securities Act. Upon original issuance thereof, and
until such time as the same shall have been registered under the Securities
Act or sold pursuant to Rule 144 promulgated thereunder (or any similar rule
or regulation) each stock certificate for the Purchased Shares shall bear any
restricted securities legend required pursuant to the Stockholders Agreement,
unless such legend is no longer required thereunder. Buyer is able to bear the
economic risk of the acquisition of Company Common Stock pursuant hereto and
can afford to sustain a total loss on such investment, and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the proposed investment.
(b) At the Initial Closing and at each subsequent Closing, the Advancing
Party shall have available and shall advance to Buyer all of the funds
necessary to satisfy Buyer's obligations hereunder and to pay any related fees
and expenses in connection with the foregoing. The Advancing Party has, and at
each Closing will have either cash, written, enforceable subscriptions from
its investors or line of credit commitments sufficient, in any such case, to
advance the necessary funds to Buyer as will enable Buyer to purchase the
requisite Purchased Shares at each Closing, in accordance with this Agreement.
The Advancing Party has provided to the Company a true and correct copy of the
form of the subscription agreement executed by the Advancing Party's
investors.
(c) Each of Buyer and the Advancing Party is an "accredited investor" as
such term is defined in Regulation D promulgated under the Securities Act.
(d) Each of Buyer and the Advancing Party has previously delivered to the
Company an audited balance sheet for Buyer, and the Advancing Party, as the
case may be, as of December 31, 1996, which was certified by an officer of
Buyer, and the Advancing Party, as the case may be, and which fairly presented
the financial position of Buyer, and the Advancing Party, as the case may be,
as of its date in accordance with GAAP. Such balance sheet discloses either on
its face or by footnote, all material liabilities of the Buyer, and the
Advancing
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Party, as the case may be, required to be disclosed under GAAP. The Company
agrees to keep such information confidential to the same extent that Buyer is
obligated to keep information confidential pursuant to Section 5.4(b).
Section 4.5 Resources. Buyer and the Advancing Party have requisite cash,
cash equivalents, equity commitments or other sources of financing available
to consummate the transactions contemplated hereby.
Section 4.6 Proxy Statement. None of the information supplied or to be
supplied by Buyer for inclusion or incorporation by reference in the Proxy
Statement will, as of the date the Proxy Statement is first mailed to the
stockholders of the Company and as of the time of the meeting of the
stockholders of the Company in connection with the transactions contemplated
hereby, 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 are made,
not misleading.
Section 4.7 Brokers or Finders. No agent, broker, investment banker or other
firm or person, including any of the foregoing that is an Affiliate of Buyer,
or the Advancing Party, is or will be entitled to any broker's or finder's fee
or any other commission or similar fee from Buyer or the Advancing Party in
connection with this Agreement or any of the transactions contemplated hereby
for which the Company or any of its Affiliates will be responsible.
Section 4.8 REIT Qualification Matters. To Buyer's and the Advancing Party's
knowledge, no person who would be treated as an "individual" for purposes of
Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code)
owns, actually or beneficially (determined through the application of the
constructive ownership rules of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code), in excess of 9.8% of the value of the
outstanding equity interests in Buyer or the Advancing Party.
Section 4.9 Investment Company Matters. Neither the Advancing Party nor
Buyer is, and after giving effect to the purchase of Company Common Stock
contemplated hereby neither will be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended.
Section 4.10 Ownership of Tenants. To Buyer's and the Advancing Party's
knowledge and except as set forth in Schedule 4.10-B, neither Buyer nor the
Advancing Party owns, actually or constructively (determined through the
application of the constructive ownership rules of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code), any stock, securities, or other
ownership interest in any of the tenants of the Company, as set forth in
Schedule 4.10-A. Capitalized terms used but not defined in this Section 4.10
shall have the meaning assigned to them in the Company Charter. The Company
shall advise Buyer and the Advancing Party within a reasonable period of time
before the Closing of any material changes to Schedule 4.10-A. The Company may
update Schedule 4.10-A from time to time, and Buyer and the Advancing Party
agree to promptly notify the Company, to their knowledge as to their actual
and constructive ownership (determined through the application of the
constructive ownership rules of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code) of any additional tenants of the Company, as
may be set forth on such updated schedule.
Section 4.11 Foreign Ownership. To Buyer's and the Advancing Party's
knowledge, not more than 10% of the interests in Buyer and the Advancing Party
are held, directly or indirectly, by "foreign persons" (as described in
Section 897(h)(4)(B) of the Code.
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ARTICLE 5
Covenants Relating to Closings
Section 5.1 Taking of Necessary Action.
(a) Each party hereto agrees to use its commercially reasonable best efforts
promptly to take or cause to be taken all action and promptly to do or cause
to be done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, the Registration Rights Agreement and the Stockholders
Agreement, subject to the terms and conditions hereof and thereof, including
all actions and things necessary to cause all conditions precedent set forth
in Article 7 to be satisfied.
(b) As promptly as practicable after the date hereof, the Company shall
prepare and file with the SEC a preliminary proxy statement (the "Proxy
Statement") by which the Company's stockholders will be asked to approve,
among other things, the issuance of shares of Company Common Stock
contemplated hereby. The Proxy Statement as initially filed with the SEC, as
it may be amended and refiled with the SEC and as it may be mailed to the
Company's stockholders, shall be in form and substance reasonably satisfactory
to Buyer. The Company shall use its reasonable efforts to respond to any
comments of the SEC, and to cause the Proxy Statement to be mailed to the
Company's stockholders at the earliest practicable time. As promptly as
practicable after the date hereof, the Company shall prepare and file any
other filings required of the Company or its Subsidiaries under the Exchange
Act, the Securities Act or any other federal, state or local laws relating to
this Agreement and the transactions contemplated hereby, and state takeover
laws (the "Other Filings"). The Company and Buyer will notify each other
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other government officials for
amendments or supplements to the Proxy Statement or any Other Filing or for
additional information and will supply each other with copies of all
correspondence between each of them or any of their respective
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement
or any Other Filing. The Proxy Statement and any Other Filing shall comply in
all material respects with all applicable requirements of law. Buyer shall
provide the Company all information about Buyer required to be included or
incorporated by reference in the Proxy Statement or any Other Filing and shall
otherwise cooperate with the Company in taking the actions described in this
paragraph. Whenever any event occurs which is required to be set forth in an
amendment or supplement to the Proxy Statement or any Other Filing, the
Company or Buyer, as the case may be, shall promptly inform the other party of
such occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company, such
amendment or supplement. Subject to the provisions of Section 5.6, the Proxy
Statement shall include the recommendation of the Board of Directors of the
Company that the stockholders of the Company vote in favor of and approve the
Amended Company Charter and the issuance of Company Common Stock pursuant to
this Agreement.
(c) The Company shall call a meeting of its stockholders to be held as
promptly as practicable (and in no event later than December 31, 1997) for the
purpose of voting upon the transactions (including the issuance of Company
Common Stock) contemplated hereby; provided that should a quorum not be
obtained at such meeting of the stockholders, the meeting of the stockholders
shall be postponed or adjourned (but in no event to a date later than December
31, 1997) in order to permit additional time for soliciting and obtaining
additional proxies or votes.
(d) The Company shall use its commercially reasonable best efforts to obtain
the consents set forth in each of Schedules 3.4(d)-A and 3.4(d)-B.
(e) Except as provided on Schedule 5.1(e), from the date hereof until the
sooner to occur of (A) the date on which the Investor Nominees (as defined in
the Stockholders Agreement) first become members of the Board, and (B) if the
Stockholder Approval vote fails, the date of the stockholder meeting at which
the Stockholder Approval failed, (i) no grant or award of options or other
similar equity-related or incentive compensation shall
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be made pursuant to or by amendment to the agreements listed on Schedule
3.9(g), and (ii) any employment, stock option or other agreement entered into
and which contains a change-of-control or similar provision shall contain only
a change-of-control provision in the form included in the form of employment
agreement attached hereto as Exhibit D.
Section 5.2 Registration Rights Agreement. Concurrent with the execution of
this Agreement, the Company, the Advancing Party and Buyer shall enter into
the Registration Rights Agreement.
Section 5.3 Stockholders Agreement. Concurrent with the execution of this
Agreement, the Company, Lazard Freres Real Estate Investors, LLC, the
Advancing Party and Buyer shall enter into the Stockholders Agreement.
Section 5.4 Public Announcements; Confidentiality.
(a) Subject to each party's disclosure obligations imposed by law and any
stock exchange or similar rules and the confidentiality provisions contained
in Section 5.4(b), the Company and Buyer will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement, the Registration Rights Agreement
the Stockholders Agreement and any of the transactions contemplated hereby or
thereby. If a party is required by law or any stock exchange or similar rule
to issue a news release or other public announcement, it shall advise the
other party in advance thereof and use reasonable best efforts to cause a
mutually agreeable release or announcement to be issued.
(b) Buyer agrees that all information provided to Buyer or any of its
representatives pursuant to this Agreement shall be kept confidential, and
Buyer shall not (x) disclose such information to any persons other than the
directors, officers, employees, financial advisors, investors, lenders, legal
advisors, accountants, consultants and affiliates of Buyer who reasonably need
to have access to the confidential information and who are advised of the
confidential nature of such information or (y) use such information in a
manner which would be detrimental to the Company; provided, however, the
foregoing obligation of Buyer shall not (i) relate to any information that (1)
is or becomes generally available other than as a result of unauthorized
disclosure by Buyer or by persons to whom Buyer has made such information
available, (2) is or becomes available to Buyer on a non-confidential basis
from a third party that is not, to Buyer's knowledge, bound by any other
confidentiality agreement with the Company, or (ii) prohibit disclosure of any
information if required by law, rule, regulation, court order or other legal
or governmental process.
Section 5.5 Conduct of the Business. Except for transactions contemplated
hereby, during the period from the date hereof to the sooner to occur of (A)
the date on which the Investor Nominees (as defined in the Stockholders
Agreement) first become members of the Board, and (B) if the Stockholder
Approval vote fails, the date of the stockholder meeting at which the
Stockholder Approval failed, each of the Company and each Subsidiary, except
as otherwise consented to or approved by Buyer in writing or as permitted or
required hereby, (x) has conducted and will conduct the business and has
engaged and will engage in transactions only in the ordinary course consistent
with past practice, and (y) will not:
(i) change any provision of the Amended Company Charter or the Bylaws of
the Company in a manner that would be adverse to Buyer;
(ii) except for (A) issuances of shares of Company Common Stock in
consideration for the acquisition of assets by the Company in bona fide
arm's length transactions and subject to the limitations set forth in the
Company Charter (and which issuances in any event shall not exceed 10% of
the shares of Company Common Stock outstanding, on a pro forma basis,
assuming the consummation of each of the Subsequent Closings contemplated
by this Agreement), (B) grants of options or the issuance or reacquisition
of shares of Company Common Stock pursuant to the agreements listed on
Schedule 3.13(b) or the awards listed on Schedule 3.3(a) or automatic
awards pursuant to the terms of the Amended and Restated 1993 Stock Option
and Incentive Plan, change the number of shares of the authorized or issued
capital stock of the Company or issue or grant any option, warrant, call,
commitment, subscription, right to purchase or agreement of any
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character relating to the authorized or issued capital stock of the
Company, or any securities convertible into shares of such stock, or split,
combine or reclassify any shares of the capital stock of the Company or
declare, set aside or pay any extraordinary dividend (except as may be
required to comply with the requirements to maintain the Company's REIT
status), other distribution (whether in cash, stock or property or any
combination thereof) in respect of the capital stock of the Company, or
redeem or otherwise acquire any shares of such capital stock (provided,
however, that in connection with any transaction described in clauses (A)
and (B), Buyer shall be entitled, to the extent so provided in Section 4.2
of the Stockholders Agreement, to a participation right on the terms set
forth in Section 4.2 of the Stockholders Agreement as if all of the
Purchased Shares were issued and owned by Buyer at the time of such
transaction, with any additional shares of capital stock (as such term is
used in Section 4.2 of the Stockholders Agreement) which Buyer shall have
the right to purchase by virtue of such participation right to be issued
and purchased only at the time of the Subsequent Closing, and subject to
the satisfaction or waiver of the conditions applicable to the purchase of
Purchased Shares thereat);
(iii) take any action or permit any of its Subsidiaries to take any
action which would violate any of the Corporate Action Covenants under (and
as defined in) the Stockholders Agreement;
(iv) purchase or enter into a binding agreement to purchase any real
property without Investor's prior written consent, including the purchase
of any of the properties which are the subject of the purchase agreements,
letters of intent or other arrangements described in Schedule 3.11(g) or
the other Schedules hereto; or
(v) enter into any employment agreement, or permit any of its
Subsidiaries to enter into any employment agreement with any officer or
other employee except for entry into the Employment Agreements pursuant to
Section 3.7 of this Agreement.
Section 5.6 No Solicitation of Transactions. Unless and until this Agreement
is terminated in accordance with its terms, none of the Company or its
Subsidiaries shall, directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit or knowingly encourage (including by way
of furnishing non-public information or assistance), or take any other action
to facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate
with any person or entity in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or knowingly permit any of the officers, directors or employees of
such party or any of its Subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by such party
or any of such party's Subsidiaries to take any such action, and the Company
shall notify Buyer orally (within one Business Day) and in writing (as
promptly as practicable) of all of the relevant details relating to all
inquiries and proposals which any officer or director of the Company may
receive relating to any of such matters and if such inquiry or proposal is in
writing, the Company shall deliver to Buyer a copy of such inquiry or
proposal; provided, however, that nothing contained in this Section shall
prohibit the Board from complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer or prohibit the Board
from taking such other actions as may be required to comply with its fiduciary
obligations. If the Board determines with the advice of counsel that failure
to do so could be held to violate its fiduciary duties, it may provide
information in response to an unsolicited proposal. If the Company receives a
bona fide proposal for a Competing Transaction that the Board determines in
good faith (based on the advice of a nationally recognized financial advisor)
may provide greater value to the Company and its stockholders than the
Agreement, it may enter into negotiations with respect to such proposal. The
Company will notify Buyer of any such superior proposal not less than two
Business Days prior to entering into any definitive agreement with respect to
a Competing Transaction; provided, however, that in no event shall the Company
enter into a definitive agreement with respect to a Competing Transaction less
than five Business Days after the Company's initial notification to Buyer of
an inquiry or proposal relating to a Competing Transaction. Within the two-
Business-Day or five-Business-Day period referred to above, Buyer may propose
an improved transaction.
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Section 5.7 Information and Access. From the date hereof until the date on
which the Remaining Equity Commitment shall be zero, (i) the Company and its
Subsidiaries shall afford to Buyer and Buyer's accountants, counsel and other
representatives full and reasonable access during normal business hours (and
at such other times as the parties may mutually agree) to its properties,
books, contracts, commitments, records and personnel and, during such period,
shall furnish promptly to Buyer (1) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of the
Securities Laws, and (2) all other information concerning their businesses,
personnel and the Company Properties as Buyer may reasonably request, and (ii)
without limiting the generality of the foregoing, Buyer shall have the right
to (1) conduct or cause to be conducted an environmental, physical,
structural, electrical, mechanical and other inspection and review of any
Company Properties, for which inspection Buyer will and hereby does indemnify
and hold the Company harmless from any and all damages whatsoever caused by
such inspection, or (2) request that the Company update, at Buyer's expense,
any existing reports, reviews or inspections thereof, in which case the
Company shall promptly so update its reports, reviews and inspections and
cause them to be certified to Buyer by the firm or person who prepared such
report or conducted such review or inspection. Buyer and its accountants,
counsel and other representatives shall, in the exercise of the rights
described in this Section, not unduly interfere with the operation of the
businesses of the Company or its Subsidiaries.
Section 5.8 Notification of Certain Matters. Each of Buyer and the Company
shall use its good faith efforts to notify the other party in writing of its
discovery of any matter that would render any of such party's or the other
party's representations and warranties contained herein untrue or incorrect in
any material respect, but the failure of either party to so notify the other
party shall not be deemed a breach of this Agreement.
ARTICLE 6
Certain Additional Covenants
Section 6.1 Resale. Buyer acknowledges and agrees that the Company Common
Stock that Buyer will acquire in any Stock Purchase will not be registered
under the Securities Act and may only be sold or otherwise disposed of in one
or more transactions registered under the Securities Act and, where
applicable, relevant state securities laws or as to which an exemption from
the registration requirements of the Securities Act and, where applicable,
such state securities laws is available, and Buyer agrees that the
certificates representing such Common Stock shall bear a legend to that effect
and a legend as to its status as restricted securities.
Section 6.2 Use of Funds. The Company shall use the funds received from
Stock Purchases to reduce indebtedness of the Company and for the acquisition,
development and redevelopment of retail properties in the Operating Area;
provided that the Company shall be allowed to hold the funds in short term
investments pending such use.
Section 6.3 REIT Compliance. Buyer and the Advancing Party will make
available to the Company information known to Buyer and the Advancing Party
regarding the ownership of interests in Buyer and the Advancing Party, as
requested by the Company and reasonably necessary for the Company to review
the accuracy of the representations set forth in Sections 4.8, 4.10 and 4.11.
Section 6.4 REIT Status. From and after the date hereof and so long as Buyer
owns 10% or more of the outstanding Company Common Stock unless the Directors
on the Board nominated by the Buyer consent to doing otherwise, the Company
will elect to be taxed as a REIT in its federal income tax returns, will
comply with all applicable laws, rules and regulations of the Code relating to
a REIT, and will not take any action or fail to take any action which would
reasonably be expected to, alone or in conjunction with any other factors,
result in the loss of its status as a REIT for federal income tax purposes.
Section 6.5 Guarantee. The Advancing Party hereby unconditionally and
irrevocably guarantees and agrees to be responsible for the payment and
performance of all of Buyer's obligations hereunder.
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ARTICLE 7
Conditions to Closings
Section 7.1 Conditions of Purchase at Initial Closing. The obligation of
Buyer to purchase and pay for the Purchased Shares at the Initial Closing is
subject to satisfaction or waiver of each of the following conditions
precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Company contained herein shall have been true and correct
in all respects on and as of the date hereof, and shall be true and correct
in all respects on and as of the date of such Initial Closing, with the
same effect as though such representations and warranties had been made on
and as of the date of such Initial Closing (except for representations and
warranties that speak as of a specific date or time other than the date of
the Initial Closing (which need only be true and correct in all respects as
of such date or time)), other than, in all such cases, such failures to be
true and/or correct as would not in the aggregate reasonably be expected to
have a Material Adverse Effect; provided, however, that if any of the
representations and warranties is already qualified in any respect by
materiality or as to Material Adverse Effect for purposes of this Section
7.1(a) such materiality or Material Adverse Effect qualification will be in
all respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants
and agreements of the Company to be performed on or before the date of the
Initial Closing in accordance with this Agreement shall have been duly
performed in all respects, other than (except for the Company's obligation
to deliver the relevant shares of Company Common Stock at the Initial
Closing, and for the covenants set forth in Sections 5.1(e), 5.2 and 5.3,
as to which the proviso set forth in this other-than clause shall not
apply) for such failures to have been performed as would not in the
aggregate reasonably be expected to have a Material Adverse Effect
(provided, however, that if any such covenant or agreement is already
qualified in any respect by materiality or as to Material Adverse Effect
for purposes of determining whether this condition has been satisfied, such
materiality or Material Adverse Effect qualification will be in all
respects ignored and such covenant or agreement shall have been performed
in all respects without regard to such qualification (but subject to the
overall exception as to Material Adverse Effect set forth immediately prior
to this proviso)). The Company shall have delivered to Buyer at the Initial
Closing a certificate of an appropriate officer in form and substance
reasonably satisfactory to Buyer dated the date of the Initial Closing to
such effect.
In making any determination as to Material Adverse Effect under this
Section 7.1(a), the matters set forth in such Section shall be aggregated
and considered together.
(b) No Material Adverse Change. Since March 31, 1997 there shall not have
been any change, circumstance or event which has had or would reasonably be
expected to have a Material Adverse Effect.
(c) Consents. The Company shall have obtained the consents set forth in
Schedule 3.4(d)-A.
(d) Ownership Limit Waiver. Buyer's ownership of up to the Initial Number
of Shares shall have been exempted on a continuing basis subject to
continuing validity of the representations and warranties of the Buyer and
the Advancing Party in Article 4 hereof (disregarding the qualification in
Sections 4.8 and 4.10 relating to Buyer's and the Advancing Party's
knowledge and assuming no exceptions are set forth in Schedule 4.10-B) and
provided such exemption does not otherwise jeopardize the Company's tax
status as a REIT, from the ownership limit provisions of Article VII
Section 2 of the Company Charter and the Board of Directors of the Company
shall have taken such action provided for under Article VII of the Company
Charter to grant such exemption to Buyer. For purposes of this paragraph
(d), references to Buyer, shall also be deemed to be references to any
Person who would be an Investor within the meaning of the Stockholders
Agreement, provided such Person has made the representations and warranties
of the Buyer in Article 4 hereof.
(e) Voting Agreements. Buyer shall have entered into the Voting
Agreements with Alexander Haagen, Sr., Charlotte Haagen and Alexander
Haagen III.
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Section 7.2 Conditions to Purchase at Second Closing. The obligations of
Buyer to purchase and pay for the Purchased Shares at the Second Closing are
subject to satisfaction or waiver of each of the following conditions
precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Company contained herein shall have been true and correct
in all respects on and as of the date hereof, and shall be true and correct
in all respects on and as of the date of the Second Closing, with the same
effect as though such representations and warranties had been made on and
as of the date of the Second Closing (except for representations and
warranties that speak as of a specific date or time other than the date of
the Second Closing (which need only be true and correct in all respects as
of such date or time)), other than, in all such cases, such failures to be
true and/or correct as would not in the aggregate reasonably be expected to
have a Material Adverse Effect; provided, however, that if any of the
representations and warranties is already qualified in any respect by
materiality or as to Material Adverse Effect for purposes of this Section
7.2(a) such materiality or Material Adverse Effect qualification will be in
all respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants
and agreements of the Company to be performed on or before the date of the
Second Closing in accordance with this Agreement shall have been duly
performed in all respects, other than (except for the Company's obligation
to deliver the relevant shares of Company Common Stock at the Second
Closing, as to which the proviso set forth in this other-than clause shall
not apply) for such failures to have been performed as would not in the
aggregate reasonably be expected to have a Material Adverse Effect
(provided, however, that if any such covenant or agreement is already
qualified in any respect by materiality or as to Material Adverse Effect
for purposes of determining whether this condition has been satisfied, such
materiality or Material Adverse Effect qualification will be in all
respects ignored and such covenant or agreement shall have been performed
in all respects without regard to such qualification (but subject to the
overall exception as to Material Adverse Effect set forth immediately prior
to this proviso)). The Company shall have delivered to Buyer at the Second
Closing a certificate of an appropriate officer in form and substance
reasonably satisfactory to Buyer dated the date of the Second Closing to
such effect.
For purposes of the foregoing condition, any Breaching Matters waived by
Buyer or cured by the Company in accordance with the provisions of Section
2.8(b) shall not be taken into account.
(b) Stockholder Approval. The issuance of Company Common Stock pursuant
to this Agreement shall have been approved by the majority vote of the
Company's stockholders other than Buyer (the "Stockholder Approval").
(c) Consents. The Company shall have obtained the consents set forth in
Schedule 3.4(d)-B.
Section 7.3 Conditions of Purchase at All Closings. The obligations of Buyer
to purchase and pay for the Purchased Shares at each Closing (including the
Initial Closing and any Subsequent Closing, except where otherwise indicated)
are subject to satisfaction or waiver of each of the following conditions
precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Company contained in Sections 3.1(a), 3.1(b), 3.1(c),
3.2, the second and third sentences of 3.3(a), 3.4, 3.8(b) and 3.18 shall
be true and correct in all respects on and as of the relevant Closing Date
with the same effect as though such representations and warranties had been
made on and as of the Closing Date (except for representations and
warranties that speak as of a specific date or time other than such Closing
Date (which need only be true and correct in all respects as of such date
or time)), other than, in all such cases, such failures to be true and/or
correct as would not in the aggregate reasonably be expected to have a
Material Adverse Effect; provided, however, that if any of the
representations and warranties is already qualified in any respect by
materiality or as to Material Adverse Effect for purposes of this Section
7.3(a) such materiality or Material Adverse Effect qualification will be in
all respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants
and agreements of the Company to be performed on or before the relevant
Closing Date in accordance with this Agreement shall have been duly
performed in all respects, other than (except for the Company's obligation
to deliver the relevant shares of Company Common Stock at the relevant
Closing, as to which the proviso
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set forth in this other-than clause shall not apply) for such failures to
have been performed as would not in the aggregate reasonably be expected to
have a Material Adverse Effect (provided, however, that if any such
covenant or agreement is already qualified in any respect by materiality or
as to Material Adverse Effect for purposes of determining whether this
condition has been satisfied, such materiality or Material Adverse Effect
or qualification will be in all respects ignored and such covenant or
agreement shall have been performed in all respects without regard to such
qualification (but subject to the overall exception as to Material Adverse
Effect set forth immediately prior to this proviso)). As to each Closing
other than the Initial Closing, no condition to the obligations of Buyer to
purchase and pay for the Purchased Shares at the Initial Closing, and that
was not duly waived by Buyer, shall have failed to be satisfied as of the
Initial Closing. The Company shall have delivered to Buyer at the relevant
Closing a certificate of an appropriate officer in form and substance
reasonably satisfactory to Buyer dated the relevant Closing Date to such
effect.
For purposes of the foregoing condition, any Breaching Matters waived in
accordance with the provisions of Section 2.8(b) shall not be taken into
account.
(b) No Material Breach. The Company shall be in compliance in all
material respects with its covenants and other obligations under this
Agreement, the Stockholders Agreement and the Registration Rights
Agreement. The Company shall have satisfied the conditions of (i) Section
7.1(a) at the Initial Closing, (ii) Section 7.2(a) at the Second Closing,
and (iii) Section 7.3(a) at all Closings, except in each case for any
Breaching Matters waived by Buyer in accordance with the terms hereof.
(c) No Injunction. There shall not be in effect any final order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits consummation of the transactions contemplated hereby and there
shall be no pending Actions which would reasonably be expected to have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby or to issue the Purchased Shares.
(d) REIT Status. The Company shall have elected to be taxed as a REIT in
its most recent federal income tax return, and shall be in compliance with
all applicable laws, rules and regulations, including the Code, necessary
to permit it to be taxed as a REIT, unless the Investor Nominees (as
defined in the Stockholders Agreement) shall have voted to change such
election. The Company shall not have taken any action or have failed to
take any action which would reasonably be expected to, alone or in
conjunction with any other factors, result in the loss of its status as a
REIT for federal income tax purposes, unless the Investor Nominees shall
have voted to take or omit to take such action.
(e) Domestically Controlled REIT. Assuming the accuracy of the
representations set forth in Section 4.11 (disregarding the qualification
relating to Buyer's and the Advancing Party's knowledge), to the Company's
knowledge, the Company is, and after giving effect to the relevant Closing
will be, a "domestically-controlled" REIT within the meaning of Code
Section 897(h)(4)(B).
(f) Asset Test. The Board shall have determined that the Company
satisfied the "5% asset test" of Section 856(c)(5) of the Code for the
quarters ended September 30, 1996 and December 31, 1996.
Section 7.4 Conditions of Sale. The obligation of the Company to issue and
sell any Purchased Shares at any Closing (including the Initial Closing and
each Subsequent Closing, except where otherwise indicated below) is subject to
satisfaction or waiver of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The representations and
warranties of Buyer and the Advancing Party contained herein shall have been
true and correct in all respects on and as of the date hereof, and shall be
true and correct in all respects on and as of the relevant Closing Date with
the same effect as though such representations and warranties had been made on
and as of the relevant Closing Date (except for representations and warranties
that speak as of a specific date or time other than such Closing Date (which
need only be true and correct in all respects as of such date or time)), other
than, in all such cases, such failures to be true and/or correct as would not
in the aggregate reasonably be expected to have a Material Adverse Effect on
the Company or Buyer's ability to consummate the transactions contemplated
hereby; provided, however, that if
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any of the representations and warranties is already qualified in any respect
by materiality or as to Material Adverse Effect for purposes of this Section
7.4(a) such materiality or Material Adverse Effect qualification will be in
all respects ignored (but subject to the overall standard as to Material
Adverse Effect set forth immediately prior to this proviso). The covenants and
agreements of Buyer to be performed on or before the relevant Closing Date in
accordance with this Agreement shall have been duly performed in all respects,
other than (except for Buyer's obligation to pay the relevant Purchase Price
at the relevant Closing, and, as to the Initial Closing, except for Buyer's
covenants set forth in Sections 5.2 and 5.3, as to which the proviso set forth
in this other-than clause shall not apply) for such failures to have been
performed as would not in the aggregate reasonably be expected to have a
Material Adverse Effect on the Company or Buyer's ability to consummate the
transactions contemplated hereby (provided, however, that if any such covenant
or agreement is already qualified in any respect by materiality or as to
Material Adverse Effect for purposes of determining whether this condition has
been satisfied, such materiality or Material Adverse Effect qualification will
be in all respects ignored and such covenant or agreement shall have been
performed in all respects without regard to such qualification (but subject to
the overall exception as to Material Adverse Effect set forth immediately
prior to this proviso)). Buyer shall have delivered to the Company at the
relevant Closing a certificate of an appropriate officer in form and substance
reasonably satisfactory to the Company dated the relevant Closing Date to such
effect.
(b) Stockholder Approval. Except in the case of the Initial Closing, the
issuance of the Company Common Stock pursuant to this Agreement shall have
received Stockholder Approval.
(c) No Injunction. There shall not be in effect any final order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits consummation of the transactions contemplated hereby and there
shall be no pending Actions which would reasonably be expected to have a
material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby or to acquire the Purchased Shares.
(d) Consents. The Company shall have obtained the consents set forth in
Schedule 3.4(d)-A in the case of the Initial Closing, in Schedule 3.4(d)-B
in the case of the Second Closing, and in Schedule 3.4(d)-C in the case of
each other Subsequent Closing.
ARTICLE 8
Survival; Indemnification
Section 8.1 Survival. Other than the representations contained in Sections
4.8, 4.10, and 4.11 (which shall survive for as long as the Buyer owns
Purchased Shares) and the representation contained in Section 3.8(e) (which
shall survive indefinitely), all representations, warranties and (except as
provided by the last sentence of this Section 8.1) covenants and agreements of
the parties contained herein, including indemnity or indemnification
agreements contained herein, or in any Schedule or Exhibit hereto, or any
certificate, document or other instrument delivered in connection herewith
shall survive the Initial Closing and any Subsequent Closing until the first
anniversary of the latest of the Initial Closing and any Subsequent Closing.
No Action or proceeding may be brought with respect to any of the
representations and warranties, or any of the covenants or agreements which
survive until such first anniversary, unless written notice thereof, setting
forth in reasonable detail the claimed misrepresentation or breach of warranty
or breach of covenant or agreement, shall have been delivered to the party
alleged to have breached such representation or warranty or such covenant or
agreement prior to such first anniversary; provided, however, that, if Buyer
shall have complied with this Section 8.1, the damages for breach by the
Company of any of the representations and warranties, or any of the covenants
or agreements which survive until such first anniversary, shall be measured
with respect to all of Buyer's purchases of Company Common Stock hereunder and
not with respect only to Buyer's purchases hereunder made prior to such first
anniversary, but such measurement shall not in any event include any shares of
Company Stock that Buyer may have purchased other than from the Company. Those
covenants or agreements that contemplate or may involve actions to be taken or
obligations in effect after the Initial Closing shall survive in accordance
with their terms.
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Section 8.2 Indemnification by Buyer or the Company.
(a) Subject to Section 8.1, from and after any Closing Date, Buyer shall
indemnify and hold harmless the Company, its successors and assigns, from and
against any and all damages, claims, losses, expenses, costs, obligations, and
liabilities, including liabilities for all reasonable attorneys' fees and
expenses (including attorney and expert fees and expenses incurred to enforce
the terms of this Agreement) (collectively, "Loss and Expenses") suffered,
directly or indirectly, by the Company by reason of, or arising out of, (i)
any breach as of the date made or deemed made or required to be true of any
representation or warranty made by Buyer in or pursuant to this Agreement, or
(ii) any failure by Buyer or the Advancing Party to perform or fulfill any of
its covenants or agreements set forth herein. Notwithstanding any other
provision of this Agreement to the contrary, in no event shall Loss and
Expenses include a party's incidental or consequential damages.
(b) Subject to Section 8.1, from and after any Closing Date, the Company
shall indemnify and hold harmless Buyer, its successors and assigns, from and
against any and all Loss and Expenses, suffered, directly or indirectly, by
Buyer by reason of, or arising out of, (i) any breach as of the date made or
deemed made or required to be true of any representation or warranty made by
the Company in or pursuant to this Agreement and any statements made in any
certificate delivered pursuant to this Agreement, or (ii) any failure by the
Company to perform or fulfill any of its covenants or agreements set forth
herein. Notwithstanding any other provision of this Agreement to the contrary,
in no event shall Loss and Expenses include a party's incidental or
consequential damages.
(c) Notwithstanding the foregoing, (i) neither Buyer nor the Company shall
be responsible for any Loss and Expenses as provided by paragraphs (a) and
(b), respectively, of this Section 8.2 until the cumulative aggregate amount
of such Loss and Expenses suffered by Buyer or the Company, as the case may
be, exceeds $500,000, in which case Buyer or the Company, as the case may be,
shall then be liable for all such Loss and Expenses, and (ii) the cumulative
aggregate indemnity obligation of each of Buyer and the Company under this
Section 8.2 shall in no event exceed the actual aggregate amount paid by Buyer
for the shares of Company Common Stock purchased by it from the Company
pursuant to this Agreement. Except with respect to third-party claims being
defended in good faith or claims for indemnification with respect to which
there exists a good faith dispute, the indemnifying party shall satisfy its
obligations hereunder within 30 days of receipt of a notice of claim under
this Article 8.
Section 8.3 Third-Party Claims. If a claim by a third party is made against
an Indemnified Party and if such Indemnified Party intends to seek indemnity
with respect thereto under this Article, such Indemnified Party shall promptly
notify the indemnifying party in writing of such claims setting forth such
claims in reasonable detail; provided, however, the foregoing notwithstanding,
the failure of any Indemnified Party to give any notice required to be given
hereunder shall not affect such Indemnified Party's right to indemnification
hereunder except to the extent the indemnifying party from whom such indemnity
is sought shall have been prejudiced in its ability to defend the claim or
action for which such indemnification is sought by reason of such failure. The
indemnifying party shall have 20 days after receipt of such notice to
undertake, through counsel of its own choosing and at its own expense, the
settlement or defense thereof, and the Indemnified Party shall cooperate with
it in connection therewith; provided, however, that the Indemnified Party may
participate in such settlement or defense through counsel chosen by such
Indemnified Party, provided that the fees and expenses of such counsel shall
be borne by such Indemnified Party. The Indemnified Party shall not pay or
settle any claim which the indemnifying party is contesting. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay or settle any
such claim, provided that in such event it shall waive any right to indemnity
therefor by the indemnifying party. If the indemnifying party does not notify
the Indemnified Party within 20 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to undertake
the defense thereof, the Indemnified Party shall have the right to contest,
settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement.
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ARTICLE 9
Termination
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Initial Closing by:
(i) the mutual consent of the Company and Buyer;
(ii) Buyer (if it is not in breach of any of its material obligations
hereunder) in the event of a breach or failure by the Company that is
material in the context of the transactions contemplated hereby of any
representation, warranty, covenant or agreement by the Company contained
herein for which Buyer gives Company notice pursuant to Section 2.8 within
20 Business Days of the date of this Agreement;
(iii) the Company (if it is not in breach of any of its material
obligations hereunder) in the event of a breach or failure by Buyer that is
material in the context of the transactions contemplated hereby of any
representation, warranty, covenant or agreement by Buyer contained herein
which has not been, or cannot be, cured within 30 Business Days after
written notice of such breach is given to Buyer; or
(iv) either the Company or Buyer, if the Initial Closing shall not occur
prior to August 15, 1997, unless the failure of such occurrence shall be
due to the failure of the party seeking to terminate this Agreement to
perform or observe any material covenant or agreement set forth herein
required to be performed or observed by such party on or before the date of
the Initial Closing.
(b) This Agreement may be terminated at any time by:
(i) either the Company or Buyer, in the event that the stockholders of
the Company vote upon and fail to approve the issuance of Company Common
Stock contemplated hereby (it being understood that the Initial Closing
shall have occurred prior to the date of the meeting of holders of shares
of Company Stock to so approve); or
(ii) Buyer, (1) if the Board of Directors of the Company shall have
withdrawn, modified or failed to make or refrained from making its
recommendation that the stockholders of the Company approve the issuance of
Company Common Stock pursuant to this Agreement as provided for in Section
3.2(b) and Section 5.1(b) or (2) if the Board of Directors of the Company
at any time refuses to reaffirm, at Buyer's request, such recommendation
and its determination to make such recommendation to the stockholders of
the Company, except, in each case, as permitted by Section 5.6, or (3) if
no meeting at which the stockholders of the Company are asked to vote upon
the transactions contemplated by this Agreement shall have duly occurred on
or prior to December 31, 1997.
(iii) Company, if the Board in compliance with Section 5.6 hereof
determines in good faith to terminate in favor of a Competing Transaction,
subject to the Company's obligation to pay Buyer certain fees pursuant to
Section 9.3 hereof.
Section 9.2 Procedure and Effect of Termination. In the event of termination
of this Agreement by either or both of the Company and Buyer pursuant to
Section 9.1, written notice thereof shall forthwith be given by the
terminating party to the other party hereto, and this Agreement shall
thereupon terminate and become void and have no effect, and the transactions
contemplated hereby shall be abandoned without further action by the parties
hereto, except that the provisions of Sections 5.4 (Public Announcements;
Confidentiality), 9.3 (Expenses), 10.2 (Governing Law), and 10.4 (Notices),
and, in the event of any termination following any Closing hereunder, the
provisions of Article 8 (Survival; Indemnification), and any related
definitional, interpretive or other provisions necessary for the logical
interpretation of such provisions, shall survive the termination of this
Agreement; provided, however, that such termination shall not relieve any
party hereto of any liability for any breach of this Agreement.
Section 9.3 Expenses.
(a) Except as set forth in this Agreement, whether or not any Stock Purchase
is consummated, all legal and other costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby
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shall be paid by the party incurring such costs and expenses (which in the
case of the Company, shall include stockholder solicitation costs); provided
however, that if Closing does not occur due to Buyer's termination of this
Agreement in accordance with Section 2.8, then the Company shall pay Buyer's
reasonable out of pocket expenses, which shall serve as liquidated damages and
be Buyer's sole remedy in such event.
(b) In addition to the rights of Buyer pursuant to Section 2.9 of this
Agreement, if the Company's stockholders shall have failed for any reason
(other than as a result of Buyer's breach of any of its material obligations
hereunder) to approve this Agreement and the transactions contemplated hereby
by the requisite vote (as set forth in the definition of the term "Shareholder
Approval") at the Company's stockholders' meeting held in accordance with the
terms hereof, or the Company shall have failed to duly convene such
stockholders' meeting on or prior to December 31, 1997 (provided that Buyer is
not in material default under this Agreement, that Buyer has not breached any
of its representations and warranties in any material respect, and that Buyer
has satisfied in all material respects its covenants relating to the Second
Closing and contemplated by the terms hereof to be performed at or prior to
the time of the Company's stockholders' meeting), the Company shall make
payment to Buyer within five Business Days after the earlier of (i) the date
on which the stockholders fail to approve this Agreement and (ii) December 31,
1997, (by wire transfer) of the amount of $1,762,500, as reimbursement and
compensation for Buyer's costs and expenses (including opportunity costs)
incurred in connection with this Agreement and the transactions contemplated
hereby.
(c) The Company shall pay Buyer a fee in the amount of $8,225,000 (the
"Breakup Fee"), provided that Buyer is not in material default under this
Agreement, that Buyer has not breached any of its representations and
warranties in any material respect, and that Buyer has satisfied in all
material respects its covenants relating to the Initial Closing and
contemplated by the terms hereof to be performed at or prior to the time of
the Company's stockholders' meeting in the event that:
(i) (x) this Agreement and the transactions contemplated hereby shall
have been submitted to a vote of the Company's stockholders (or in the
event the Company shall fail to submit such matters to a vote of its
stockholders by December 31, 1997), (y) a Competing Transaction shall have
been publicly proposed prior to such submission to a vote of the Company's
stockholders (or December 31, 1997, should the Company fail to so submit
such matters), and (z) the stockholders shall not, for any reason (other
than as a result of Buyer's breach of any of its material obligations
hereunder), have approved this Agreement and the transactions contemplated
hereby by the requisite vote; provided, however, that the Company shall not
be required to pay the Breakup Fee unless the Company consummates such
Competing Transaction within twelve months after the earlier of the date on
which the stockholders fail to approve the Agreement and December 31, 1997;
or
(ii) the transactions contemplated by this Agreement do not close as the
result of the Company's wilful breach of a representation, warranty or
covenant contained herein;
provided, further, that any prior payment of the $1,762,500 will be credited
against the Breakup Fee payment. Upon payment to the Buyer of the Breakup Fee,
the Company shall have no further liability to Buyer arising out of any
Competing Transaction or the Company's wilful breach of a representation,
warranty or covenant contained herein.
ARTICLE 10
Miscellaneous
Section 10.1 Counterparts. This Agreement 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. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service
shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
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Section 10.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 10.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement
is not intended to confer upon any person not a party hereto (and their
successors and assigns) any rights or remedies hereunder. The confidentiality
agreement dated February 26, 1997, between Lazard Freres Real Estate
Investors, LLC and the Company is superseded hereby.
Section 10.4 Notices. All notices and other communications hereunder shall
be sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to
the Company shall be addressed to:
Alexander Haagen Properties, Inc.
3500 Sepulveda Boulevard
Manhattan Beach, CA 90266-3696
Attention: Alexander Haagen, Sr.
Telecopy Number: (310) 545-6354
with a copy to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: John M. Newell, Esq.
Telecopy Number: (213) 891-8763
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Lazard Freres Real Estate Investors LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Arthur P. Solomon and Anthony E. Meyer
Telecopy Number: (212) 632-6052
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Kevin Grehan, Esq.
Telecopy Number: (212) 474-3700
Section 10.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors. Except as specifically provided hereby, Buyer shall not be
permitted to assign any of its rights hereunder to any third party, other than
to one or more Affiliates of Buyer or the Advancing Party of which Buyer and
the Advancing Party collectively, directly or indirectly, Beneficially Own (as
that term is defined in the Stockholders Agreement) 98% or more of the voting
power and the economic interests, provided that such Affiliates make the
representations set forth in Article 4 hereof and agree to be bound hereby and
by the Stockholders Agreement, and provided that Buyer and the Advancing Party
shall remain liable hereunder, and provided that any bona fide financial
institution to which any Buyer, the Advancing Party
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or any permitted transferee has Transferred (as that term is used in the
Stockholders Agreement) (including upon foreclosure of a pledge) shares of
Company Stock for the purpose of securing bona fide indebtedness of any Buyer
and which has agreed to be bound by this Agreement and the Stockholders
Agreement shall also be entitled to enforce the rights of Buyer and the
Advancing Party hereunder.
Section 10.6 Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 10.7 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought.
Either party hereto may, only by an instrument in writing, waive compliance by
the other party hereto with any term or provision hereof on the part of such
other party hereto to be performed or complied with. The waiver by any party
hereto of a breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
Section 10.8 Interpretation; Absence of Presumption.
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of
the Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Exhibit and Schedule references
are to the Articles, Sections, paragraphs, Exhibits and Schedules to this
Agreement unless otherwise specified, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 10.9 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
Section 10.10 Further Assurances. The Company and Buyer agree that, from
time to time, whether before, at or after any Closing Date, each of them will
execute and deliver such further instruments of conveyance and transfer and
take such other action as may be necessary to carry out the purposes and
intents hereof.
Section 10.11 Specific Performance. Buyer and the Company each acknowledge
that, in view of the uniqueness of the parties hereto, the parties hereto
would not have an adequate remedy at law for money damages in the event that
this Agreement were not performed in accordance with its terms, and therefore
agree that the parties hereto shall be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which the parties hereto may
be entitled at law or in equity.
Section 10.12 Joint and Several Liability. The obligations and liabilities
of Buyer and the Advancing Party under or in connection with this Agreement
are joint and several.
Section 10.13 Interpretation of Schedules. Any matter set forth on any
Schedule shall be deemed to be referred to on all other Schedules to which
such matter logically relates and where such reference would be appropriate
and can reasonably be inferred from the matters disclosed on the first
Schedule as if set forth on such other Schedules.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day first above written.
ALEXANDER HAAGEN PROPERTIES, INC.
/s/ Alexander Haagen, Sr.
By:__________________________________
Name: Alexander Haagen, Sr.
Title: Chairman, President and
Chief Executive Officer
PROMETHEUS WESTERN RETAIL, LLC
by: LF Strategic Realty
Investors, L.P., its member
by: Lazard Freres Real Estate
Investors, LLC, its general
partner
/s/ Anthony E. Meyer
By:__________________________________
Name: Anthony E. Meyer
Title: Chief Investment Officer
LF STRATEGIC REALTY INVESTORS L.P.
by: Lazard Freres Real Estate
Investors, LLC, its general
partner
/s/ Anthony E. Meyer
By:__________________________________
Name: Anthony E. Meyer
Title: Chief Investment Officer
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APPENDIX B
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STOCKHOLDERS AGREEMENT
BY AND AMONG
LAZARD FRERES REAL ESTATE INVESTORS, LLC,
LF STRATEGIC REALTY INVESTORS, L.P.,
PROMETHEUS WESTERN RETAIL, LLC
AND
ALEXANDER HAAGEN PROPERTIES, INC.
DATED AS OF
JUNE 1, 1997
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TABLE OF CONTENTS
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ARTICLE 1--Definitions..................................................... 1
Section 1.1 "Adjusted Fully Diluted"..................................... 1
Section 1.2 "Affiliate".................................................. 2
Section 1.3 "Affiliate Arrangements"..................................... 2
Section 1.4 "Agreement".................................................. 2
Section 1.5 "Beneficially Own"........................................... 2
Section 1.6 "Board"...................................................... 2
Section 1.7 "Buyer"...................................................... 2
Section 1.8 "Code"....................................................... 2
Section 1.9 "Company".................................................... 2
Section 1.10 "Company Charter"........................................... 2
Section 1.11 "Company Common Stock"...................................... 2
Section 1.13 "Convertible Debt".......................................... 2
Section 1.14 "Corporate Action Covenants"................................ 3
Section 1.15 "Covered Transaction"....................................... 3
Section 1.16 "Director".................................................. 3
Section 1.17 "Early Standstill Termination Event"........................ 3
Section 1.18 "Excess Shares"............................................. 3
Section 1.19 "Exercise Notice"........................................... 3
Section 1.20 "Extraordinary Transaction"................................. 3
Section 1.21 "fully diluted"............................................. 3
Section 1.22 "Geographic Region"......................................... 3
Section 1.23 "Government Authority"...................................... 3
Section 1.24 "Group"..................................................... 3
Section 1.25 "Independent Nominees"...................................... 4
Section 1.26 "Investor".................................................. 4
Section 1.27 "Investor Nominees"......................................... 4
Section 1.28 "Key Committees"............................................ 4
Section 1.29 "management"................................................ 4
Section 1.30 "Management Nominees"....................................... 4
Section 1.31 "1933 Act".................................................. 4
Section 1.32 "1934 Act".................................................. 4
Section 1.33 "Nominating Committee"...................................... 4
Section 1.34 "Operating Partnership"..................................... 4
Section 1.35 "Participation Notice"...................................... 4
Section 1.36 "person".................................................... 4
Section 1.37 "Securities Filings"........................................ 5
Section 1.38 "Shareholder Approval"...................................... 5
Section 1.39 "Shareholder Approval Date"................................. 5
Section 1.40 "Standstill Extension Term"................................. 5
Section 1.41 "Standstill Period"......................................... 5
Section 1.42 "Stock Purchase Agreement".................................. 5
Section 1.43 "Termination Event"......................................... 5
Section 1.44 "13D Group"................................................. 5
Section 1.45 "Transfer".................................................. 5
Section 1.46 "Voting Securities"......................................... 5
ARTICLE 2--Board of Directors.............................................. 6
Section 2.1 Members of the Board......................................... 6
Section 2.2 Committee Representation; Subsidiary Boards.................. 8
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Section 2.3 Vacancies................................................... 9
Section 2.4 Officers.................................................... 9
ARTICLE 3--Information Rights............................................. 10
Section 3.1 Operating Statements; Public Company Status................. 10
Section 3.2 Advice of Actions........................................... 10
ARTICLE 4--Voting and Participation Rights................................ 12
Section 4.1 Voting Rights............................................... 12
Section 4.2 Participation Rights........................................ 12
ARTICLE 5--Standstill Provisions.......................................... 15
Section 5.1 Standstill Periods.......................................... 15
Section 5.2 Restrictions During Standstill Period and Standstill
Extension Term......................................................... 17
Section 5.3 Restrictions on Transfer.................................... 18
Section 5.4 Notice to Company........................................... 19
Section 5.5 Compliance with Insider Trading Policy...................... 19
Section 5.6 Compliance with Article VII of the Company Charter.......... 19
Section 5.7 Investment Company Matters.................................. 19
Section 5.8 Waiver of Restrictions and Limits........................... 19
Section 5.9 REIT Qualification.......................................... 20
ARTICLE 6--Additional Covenants........................................... 21
Section 6.1 Limitations on Corporate Actions............................ 21
Section 6.2 Conduct of Business......................................... 21
Section 6.3 Restrictions on Investments................................. 22
ARTICLE 7--Miscellaneous.................................................. 22
Section 7.1 Counterparts................................................ 22
Section 7.2 Governing Law............................................... 23
Section 7.3 Entire Agreement............................................ 23
Section 7.4 Expenses.................................................... 23
Section 7.5 Notices..................................................... 23
Section 7.6 Successors and Assigns...................................... 24
Section 7.7 Headings.................................................... 24
Section 7.8 Amendments and Waivers...................................... 24
Section 7.9 Interpretation; Absence of Presumption...................... 24
Section 7.10 Severability............................................... 25
Section 7.11 Further Assurances......................................... 25
Section 7.12 Specific Performance....................................... 25
Section 7.13 Investor Breach............................................ 25
Section 7.14 Confidentiality............................................ 25
Section 7.15 Public Releases and Announcements.......................... 26
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THIS STOCKHOLDERS AGREEMENT (the "Agreement"), dated as of June 1, 1997, is
made by and between Lazard Freres Real Estate Investors, LLC, a Delaware
limited liability company ("LFREI"), LF Strategic Realty Investors, L.P., a
Delaware limited partnership (the "Advancing Party"), Prometheus Western
Retail, LLC, a Delaware limited liability company ("Buyer"), and Alexander
Haagen Properties, Inc., a Maryland corporation (the "Company"). Capitalized
terms not otherwise defined herein have the meaning ascribed to them in the
Stock Purchase Agreement (as hereinafter defined).
RECITALS:
WHEREAS, the Company, Buyer and the Advancing Party have entered into a
Stock Purchase Agreement, dated as of June 1, 1997 (the "Stock Purchase
Agreement"), pursuant to which the Company has agreed to sell, and Buyer has
agreed to purchase, certain shares of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock") upon the terms and subject to the
conditions set forth therein; and
WHEREAS, it is a condition to the transactions contemplated by the Stock
Purchase Agreement and the parties believe it to be in their best interests
that they enter into this Agreement and provide for certain rights and
restrictions with respect to the investment by Investor (as hereinafter
defined) in the Company and the corporate governance of the Company; and
WHEREAS, the Company and Buyer believe that the combination in a strategic
partnership of the leadership, expertise and experience in retail development
and operations of the Company and the investment and capital markets expertise
and access to capital of Buyer and its Affiliates will significantly enhance
the Company's ability to pursue its growth and operating strategies;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and for 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:
ARTICLE 1
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
Section 1.1 "Adjusted Fully Diluted" basis shall mean on a fully diluted
basis, except that shares of Common Stock issuable upon conversion of the
Convertible Debt or upon exercise of options granted under management benefit
plans shall not be included.
Section 1.2 "Affiliate" shall have the meaning ascribed thereto in Rule 12b-
2 promulgated under the 1934 Act, and as in effect on the date hereof.
Section 1.3 "Affiliate Arrangements" shall mean the agreements and
arrangements described in Schedule 3.9(f) of the Stock Purchase Agreement or
which are disclosed in public filings of the Company.
Section 1.4 "Agreement" shall have the meaning set forth in the first
paragraph hereof.
Section 1.5 "Beneficially Own" shall mean, with respect to any security,
having direct or indirect (including through any Subsidiary or Affiliate)
"beneficial ownership" of such security, as determined pursuant to Rule 13d-3
under the 1934 Act, including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that all of the
shares of Company Common Stock which Buyer has agreed to purchase under the
Stock Purchase Agreement but which have not yet been purchased shall be deemed
to be Beneficially Owned by Investor until the Remaining Equity Commitment is
zero.
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Section 1.6 "Board" shall mean the board of directors of the Company.
Section 1.7 "Buyer" shall have the meaning set forth in the first paragraph
hereof.
Section 1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and any successor thereto, including all of the rules and regulations
promulgated thereunder.
Section 1.9 "Company" shall have the meaning set forth in the first
paragraph hereof.
Section 1.10 "Company Charter" shall have the meaning set forth in the Stock
Purchase Agreement.
Section 1.11 "Company Common Stock" shall have the meaning set forth in the
second paragraph hereof.
Section 1.12 "Control" shall mean with respect to any person, the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise.
"Controlled" shall have a correlative meaning.
Section 1.13 "Convertible Debt" shall mean the Company's 7 1/2% Convertible
Subordinated Debentures due 2001, Series A and B, and the Operating
Partnership's 7 1/4% Exchangeable Subordinated Debentures due 2003.
Section 1.14 "Corporate Action Covenants" shall have the meaning set forth
in Section 6.1.
Section 1.15 "Covered Transaction" shall have the meaning set forth in
Section 5.1(a)(iv).
Section 1.16 "Director" shall mean a member of the Board.
Section 1.17 "Early Standstill Termination Event" shall have the meaning set
forth in Section 5.1(a).
Section 1.18 "Excess Shares" shall have the meaning set forth in Section
5.1(a)(ii).
Section 1.19 "Exercise Notice" shall have the meaning set forth in Section
4.2(b).
Section 1.20 "Extraordinary Transaction" shall mean (a) any merger,
consolidation, sale of a material portion of the Company's assets,
recapitalization, other business combination, liquidation, or other similar
action out of the ordinary course of business of the Company, or (b) any
issuance of securities to any person or Group requiring shareholder approval
in accordance with the guidelines of the American Stock Exchange (or any other
stock exchange on which the Company Common Stock is then listed) as to such
matters, as in effect as of the date of the Stock Purchase Agreement.
Section 1.21 "fully diluted" shall mean, with respect to the Company Stock,
the total number of outstanding shares of Company Stock (for such purposes,
treating as outstanding Company Stock all options or warrants to purchase and
securities convertible into (or exchangeable or redeemable for) Company Common
Stock, in each case outstanding as of the date of the Stock Purchase Agreement
and that remain outstanding as of the relevant measurement date, assuming
exercise, conversion, exchange or redemption of such other securities
(including, without limitation, the Convertible Debentures and the Operating
Partnership units)).
Section 1.22 "Geographic Region" shall mean the states of Arizona,
California, Nevada, Oregon, Washington, New Mexico and Utah.
Section 1.23 "Government Authority" shall mean any government or state (or
any subdivision thereof) of or in the United States, or any agency, authority,
bureau, commission, department or similar body or instrumentality thereof, or
any governmental court or tribunal.
Section 1.24 "Group" shall mean a "group" as such term is used in Section
13(d)(3) of the 1934 Act.
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Section 1.25 "Independent Nominees" shall have the meaning set forth in
Section 2.1(a).
Section 1.26 "Investor" shall mean Buyer, and shall also include any
Affiliate of Buyer of which Buyer collectively, directly or indirectly,
Beneficially Owns 98% or more of the voting power and economic interests, or,
for purposes only of (i) Section 5.8 with regard to ownership of shares of
Company Common Stock by such Person and (ii) the provisions of the
Registration Rights Agreement, any bona fide financial institution to which
any Investor has Transferred (including upon foreclosure of a pledge) shares
of Company Stock for the purpose of securing bona fide indebtedness of any
Investor and which has agreed to be bound by this Agreement.
Section 1.27 "Investor Nominees" shall have the meaning set forth in Section
2.1(a).
Section 1.28 "Key Committees" shall have the meaning set forth in Section
2.2(a).
Section 1.29 "management" of the Company shall include, without limitation,
the Company's Chairman and Vice-Chairman.
Section 1.30 "Management Nominees" shall have the meaning set forth in
Section 2.1(a). Management Nominees may be, but need not be, members of
management of the Company.
Section 1.31 "1933 Act" shall mean the Securities Act of 1933, as amended.
Section 1.32 "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.33 "Nominating Committee" shall mean a committee of the Board
composed of three members (an Investor Nominee, an Independent Nominee and a
Management Nominee). The initial members of the Nominating Committee shall be
Arthur P. Solomon, Alexander Haagen III and Fred L. Riedman.
Section 1.34 "Operating Partnership" shall mean Alexander Haagen Operating
Partnership, L.P., a California limited partnership.
Section 1.35 "Participation Notice" shall have the meaning set forth in
Section 4.2(b).
Section 1.36 "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or Government Authority.
Section 1.37 "Securities Filings" shall have the meaning set forth in
Section 3.1(a)(iii).
Section 1.38 "Shareholder Approval" shall have the meaning set forth in the
Stock Purchase Agreement.
Section 1.39 "Shareholder Approval Date" shall mean the date on which a duly
called and held meeting of shareholders of the Company is held at which
meeting (i) a quorum is present and (ii) Shareholder Approval is obtained.
Section 1.40 "Standstill Extension Term" shall have the meaning set forth in
Section 5.1(b).
Section 1.41 "Standstill Period" shall have the meaning set forth in Section
5.1(a).
Section 1.42 "Stock Purchase Agreement" shall have the meaning set forth in
the second paragraph hereof.
Section 1.43 "Termination Event" shall mean the date on which the Remaining
Equity Commitment is zero and the Buyer no longer Beneficially Owns both (i)
at least 25% of the Purchased Shares, and (ii) at least 15% of the Company
Common Stock on a fully diluted basis.
Section 1.44 "13D Group" shall mean any group of persons acquiring, holding,
voting or disposing of Voting Securities which would be required under Section
13(d) of the 1934 Act and the rules and regulations
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thereunder (as in effect, and based on legal interpretations thereof existing,
on the date hereof) to file a statement on Schedule 13D with the Securities
and Exchange Commission as a "person" within the meaning of Section 13(d)(3)
of the 1934 Act if such group beneficially owned Voting Securities
representing more than 5% of any class of Voting Securities then outstanding.
Section 1.45 "Transfer" shall have the meaning set forth in Section 5.3.
Section 1.46 "Voting Securities" shall mean at any time shares of any class
of capital stock of the Company which are then entitled to vote generally in
the election of Directors.
ARTICLE 2
Board of Directors
Section 2.1 Members of the Board
(a) Subject to right of the Nominating Committee to approve nominees for
Director as set forth in Section 2.2(a), from and after the Shareholder
Approval Date, if any, the Company shall amend its By-laws, and the Company
and Investor will take all actions necessary, to cause the Board to be
structured to consist of eleven members, of which three members will be
designees of management of the Company (the "Management Nominees") (one in
each class of the Board), four members will be designees of Investor (at least
one in each class of the Board) (the "Investor Nominees"), three members will
be independent directors designated by the Nominating Committee (the
"Independent Nominees") (one in each class of the Board) and one member will
be the new President of the Company (such Director, the "President Nominee"),
and the Company and Investor will take all actions necessary to cause such
nominees to become members of the Board as soon as practicable after the
Shareholder Approval Date. If necessary to effectuate the placement of the
Investor Nominees on the Board, the Company shall solicit the resignations of
the appropriate number of Directors to the extent necessary to permit the
Investor Nominees to serve. Thereafter, during the Standstill Period and
Standstill Extension Term, if any, at each annual or special meeting of
stockholders of the Company at, or the taking of action by written consent of
stockholders of the Company with respect to which any class of Directors is to
be elected, Investor shall have the right (but not the obligation) pursuant to
this Agreement and pursuant to the By-laws of the Company to designate
nominees to the Board (subject to right of the Nominating Committee to approve
nominees for Director as set forth in Section 2.2(a)) such that Investor shall
have on the Board of Directors:
(i) a total of four representatives, so long as Investor Beneficially
Owns (A) a number of shares of Company Common Stock equal to at least 50%
of the aggregate number of Purchased Shares to be acquired pursuant to the
Stock Purchase Agreement, and (B) Investor Beneficially Owns a number of
shares of Company Common Stock equal to at least 20% of the outstanding
Common Stock, on a fully diluted basis;
(ii) a total of two representatives, if Investor does not meet the
minimum ownership criteria of either clause (a)(i)(A) or (a)(i)(B) above,
but (A) Investor Beneficially Owns a number of shares of Company Common
Stock equal to less than 50% of the aggregate number of Purchased Shares to
be acquired pursuant to the Stock Purchase Agreement, but equal to or more
than 25% of such aggregate number, and (B) Investor Beneficially Owns a
number of shares of Company Common Stock equal to less than 20% of the
outstanding Company Common Stock on a fully diluted basis, but equal to
ormore than 15% of the outstanding Company Common Stock on a fully diluted
basis;
(iii) a total of one representative, if Investor does not meet the
minimum ownership criteria in any of clause (a)(i)(A), (a)(i)(B),
(a)(ii)(A) or (a)(ii)(B) above, but Beneficially Owns a number of shares of
Company Common Stock equal to less than 15% of the outstanding Company
Common Stock on a fully diluted basis, but equal to or more than 10% of the
outstanding Company Common Stock on a fully diluted basis; and
(iv) no representatives, if Investor does not meet any of the minimum
ownership criteria in any of clauses (a)(i)(A), (a)(i)(B), (a)(ii)(A) or
(a)(ii)(B) or (a)(iii) above.
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During the Standstill Period and Standstill Extension Term, if any, at each
annual or special meeting of stockholders of the Company at, or the taking of
action by written consent of stockholders of the Company with respect to which
any class of Directors is to be elected, management of the Company and the
Nominating Committee shall each have the right (but not the obligation)
pursuant to this Agreement and pursuant to the By-laws of the Company to
designate three nominees to the Board (subject to the right of the Nominating
Committee to approve nominees for Director as set forth in Section 2.2(a)),
and the President of the Company shall be designated as a nominee to the
Board.
(b) Investor will not name any person as an Investor Nominee if (i) such
person is not reasonably experienced in business, financial or real estate
matters, (ii) such person has been convicted of, or has pled nolo contendere
to, a felony, (iii) the election of such person would violate any law, or (iv)
any event required to be disclosed pursuant to Item 401(f) of Regulation S-K
of the 1934 Act has occurred with respect to such person. Investor shall use
its reasonable efforts to afford the independent directors of the Company a
reasonable opportunity to meet any individual that Investor is considering
naming as an Investor Nominee.
(c) Subject to the right of the Nominating Committee to approve nominees for
Director as set forth in Section 2.2(a), the Company will support the
nomination of and the election of each Investor Nominee, each Management
Nominee and each Independent Nominee to the Board, and the Company will
exercise all authority under applicable law to cause each Investor Nominee,
each Management Nominee and each Independent Nominee to be elected to the
Board. Without limiting the generality of the foregoing, with respect to each
meeting of shareholders of the Company at which Directors are to be elected,
the Company shall use its reasonable efforts to solicit from the shareholders
of the Company eligible to vote in the election of Directors proxies in favor
of each Investor Nominee, each Management Nominee and each Independent
Nominee.
(d) During the period under this Agreement that Investor shall be entitled
pursuant to Section 2.1(a)(i) to designate four Director representatives, if
the total size of the Board is increased to thirteen or more members, Investor
shall then be entitled to five Director representatives, and if the total size
of the Board is increased to fifteen or more members, Investor shall then be
entitled to six Director representatives, and if the total size of the Board
is increased to seventeen members, Investor shall then be entitled to seven
Director representatives. During the period under this Agreement that Investor
shall be entitled pursuant to Section 2.1(a)(ii) to designate two Director
representatives, if the total size of the Board is increased to fifteen or
more members, Investor shall be entitled to three Director representatives.
The Board of Directors shall not exceed seventeen members at any time, without
Investor's consent.
(e) If Investor's right to nominate directors to the Board is reduced,
Investor shall cause the applicable number of its Investor Nominees to
immediately resign (regardless of the remaining term, if any) from the Board.
Section 2.2 Committee Representation; Subsidiary Boards
(a) During such time as Investor is entitled pursuant to Section 2.1(a) to
have at least two Investor Nominees on the Board, the Company shall amend its
By-laws to provide that, unless Investor chooses not to exercise its rights
under this Section 2.2(a), at least one Director who is an Investor Nominee
shall serve on each of the audit committee, the compensation committee, the
executive committee, any special committee(s) of the Board, and any other
committees which shall be charged with exercising substantial authority on
behalf of the Board (other than any committee charged with the approval of the
transactions contemplated by the Stock Purchase Agreement or this Agreement,
or any committee charged with evaluating any Competing Transaction) (the
foregoing, the "Key Committees").
During such time as Investor is entitled to have at least one Investor
Nominee on the Board, unless Investor chooses not to exercise its rights under
this Section 2.2(a), at least one Director who is an Investor Nominee shall
serve on the Nominating Committee of the Board. The Company's By-laws shall be
amended to provide that the nomination of Independent Nominees for election as
Directors shall be by unanimous vote of such Nominating Committee; provided,
however, that the Investor Nominee who is a member of the Nominating
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Committee will not oppose the continuation of the terms of the independent
directors of the Company serving on the Board as of the date of this Agreement
until the expiration of their respective terms as Directors. In addition, the
Company's By-laws shall be amended to provide that the unanimous consent of
the Nominating Committee shall be required prior to the appointment of a
Chairman, Chief Executive Officer or President of the Company. The Company's
By-laws shall be amended to provide that (i) the Board of Directors of the
Company shall not make any recommendation or appointment for Directors who are
Independent Nominees or Chairman, Chief Executive Officer or President without
the unanimous approval of the Nominating Committee as set forthherein and (ii)
any Board seat vacated by a Director who was an Independent Nominee shall be
filled only by a person unanimously approved by the Nominating Committee.
Notwithstanding the foregoing, if none of the Directors who are Investor
Nominees would be considered "independent" of the Company, "disinterested,"
"non-employee directors" and "outside directors" (i) for purposes of any
applicable rule of the American Stock Exchange or any other securities
exchange or other self-regulating organization (such as the National
Association of Securities Dealers) requiring that members of the audit
committee of the Board be independent of the Company, (ii) for purposes of any
law or regulation that requires, in order to obtain or maintain favorable tax,
securities, corporate law or other material legal benefits with respect to any
plan or arrangement for employee compensation or benefits, that the members of
the committee of the Board charged with responsibility for such plan or
arrangement be "independent" of the Company, "disinterested," "non-employee
directors" or "outside directors," or (iii) for purposes of any special
committee formed in connection with any transaction or potential transaction
involving the Company and any of Investor, its Affiliates or any Group of
which Investor is a member or such other transaction or potential transaction
which would involve an actual or potential conflict of interest on the part of
the Directors who are Investor Nominees, then a Director who is an Investor
Nominee shall not be required to be appointed to any such committee; provided,
however, that the committees of the Board shall be organized such that, to the
extent practicable, the only items to be considered by a Key Committee on
which no Director who is an Investor Nominee may serve will be those items
which prevent the Director who is an Investor Nominee from serving on such Key
Committee. Any members of any Key Committee who are Investor Nominees shall,
in the event of any vacancy in such membership, be replaced by a Director who
is an Investor Nominee elected by a majority of the Directors who are Investor
Nominees.
(b) During such time as Investor is entitled pursuant to Section 2.1(a) to
have at least one Investor Nominee on the Board, unless Investor chooses not
to exercise its rights under this Section 2.2(b), one individual designated by
Investor shall serve as a member of the board of directors or comparable
governing body of each Subsidiary of the Company, if any, that is a
corporation or other person with a board of directors or board of trustees.
Section 2.3 Vacancies. In the event that any Investor Nominee shall cease to
serve as a Director for any reason other than the fact that Investor no longer
has a right to nominate a Director, as provided in Section 2.1(a), the vacancy
resulting thereby shall be filled by an Investor Nominee designated by
Investor; provided, however, that any Investor Nominee so designated shall
satisfy the qualification requirements set forth in Section 2.1(b).
Section 2.4 Officers. During the Standstill Period and any Standstill
Extension Term, if any, the Investor agrees, subject to applicable law, that
the InvestorNominees shall support the continued election of Alexander Haagen,
Sr. as Chairman and Chief Executive Officer of the Company, and Alexander
Haagen III as Vice-Chairman of the Company (and successor Chairman to
Alexander Haagen, Sr. upon his retirement) and Chairman of the Executive
Committee of the Board subject to the terms of the Employment Agreements. The
appointee for President of the Company shall be named by the unanimous vote of
the Nominating Committee, and the President shall become Chief Executive
Officer at such time as the Nominating Committee (in consultation with
Alexander Haagen, Sr.) shall unanimously determine.
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ARTICLE 3
Information Rights
Section 3.1 Operating Statements; Public Company Status
(a) From and after the date of this Agreement until the Termination Event,
if any, the Company will:
(i) deliver to Investor, as soon as practicable after the end of each
month or other reporting period, any operating and financial statements and
management reports (x) of the Company, and (y) of each Subsidiary not
consolidated with the Company, which are regularly provided to the senior
management of the Company, each as, at and for the end of such month or
other reporting period, and such other statements or reports as are
reasonably requested by Investor, all in such form as are prepared by the
Company for internal use by management (including, as applicable, by e-
mail);
(ii) deliver to Investor copies of all other information distributed by
the Company to the Board;
(iii) deliver to Investor, as promptly as practicable following filing, a
copy of each report, schedule or other document filed by the Company
pursuant to the requirements of any federal or state securities laws
(collectively, the "Securities Filings"); and
(iv) continue to comply in all material respects with the reporting
requirements of Section 13 or 15(d) of the 1934 Act.
(b) Until a Termination Event, the Company and Investor will afford one
another a reasonable opportunity to review any Securities Filing, any other
filing with a Government Authority and any press release or similar public
announcement which refers to, describes or mentions such other party or any
Affiliate of such other party prior to the time that such filing is filed with
or sent to the applicable Government Authority or such announcement is
disseminated.
Section 3.2 Advice of Actions. From and after the date of this Agreement
until the Termination Event, if any, without first having consulted with the
representative of Investor designated by Investor pursuant to this Section
3.2, the Company will not seek approval by the Board of any proposal, or enter
into any definitive agreement, relating to:
(a) the acquisition in a single transaction or group of related
transactions, whether by merger, consolidation, purchase of stock or assets
or other business combination, of any business or assets having a value in
excess of $10,000,000;
(b) the sale or disposal in a single transaction or group of related
transactions of any assets, whether by merger, consolidation, sale of stock
or assets or other business combination having a value in excess of
$20,000,000;
(c) the incurrence or issuance of indebtedness in a single transaction or
group of related transactions, the entering into a guaranty, or the
engagement in any other financing arrangement in excess of $20,000,000;
(d) the annual operating budget for the Company;
(e) a material change in the executive management of the Company;
(f) any new material agreements or arrangements with any members of the
executive management of the Company;
(g) the issuance by the Company of capital stock of the Company or of
options, rights or warrants or other commitments to purchase or securities
convertible into (or exchangeable or redeemable for) shares of capital
stock of the Company, or the issuance by a Subsidiary of any equity
interests, other than, (i) to the Company or a wholly owned Subsidiary
thereof, and (ii) to directors or employees of the Company or a Subsidiary
in connection with any employee benefit plan approved by the shareholders
of the Company;
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(h) any change in the Company's dividend policy;
(i) amendments to joint venture and other material agreements; or
(j) any request by the Company for a Subsequent Purchase pursuant to the
Stock Purchase Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by Investor or its designated
representative in any consultation referred to in this Section 3.2. The
designated representative of Investor, for purposes of this Section 3.2,
initially shall be Arthur P. Solomon. Investor shall provide the Company with
ten days prior written notice of any replacement of the designated
representative.
ARTICLE 4
Voting and Participation Rights
Section 4.1 Voting Rights. Subject to the provisions of this Section 4.1,
Investor may vote the shares of Company Stock which it owns in its sole and
absolute discretion. During the Standstill Period, and any Standstill
Extension Term, if any, LFREI, the Advancing Party, Buyer and Investor and any
of their Controlled Affiliates will vote all shares of Company Common Stock
owned by any of them that represent aggregate ownership of in excess of 40% of
the outstanding shares of Company Common Stock, in one of the following two
manners, at their option: (x) in accordance with the recommendation of the
Board, or (y) proportionally in accordance with the votes of the other holders
of Company Common Stock. Notwithstanding anything to the contrary in the
foregoing, during the Standstill Period and any Standstill Extension Term, if
any, LFREI, the Advancing Party, Buyer and Investor and any of their
Controlled Affiliates shall vote all shares of Company Common Stock owned by
any of them in favor of the election of Directors nominated by the Nominating
Committee or the Board, as set forth in Section 2.1(a).
Section 4.2 Participation Rights
(a) Right to Participate. From and after the date hereof until a Termination
Event, if any, Investor shall be entitled to a participation right to purchase
or subscribe for up to that number of additional shares of capital stock
(including as "capital stock" for purposes of this Section 4.2, any security,
option, warrant, call, commitment, subscription, right to purchase or other
agreement of any character that is convertible into or exchangeable or
redeemable for shares of capital stock of the Company or any Subsidiary (and
all references in this Section 4.2 to capital stock shall, as appropriate, be
deemed to be references to any such securities), and also including additional
shares of capital stock to be issued pursuant to the conversion, exchange or
redemption of any security, option, warrant, call, commitment, subscription,
right to purchase or other agreement of any character that is convertible into
or exchangeable or redeemable for shares of capital stock, as if the price at
which such additional shares of capital stock is issued pursuant to any such
conversion, exchange or redemption were the market price on the date of such
issuance) to be issued or sold by the Company which represents the same
proportion of the total number of shares of capital stock to be issued or sold
by the Company (including the shares of capital stock to be issued to Investor
upon exercise of its participation rights hereunder; it being understood and
agreed that the Company will accordingly be required to either increase the
number of shares of capital stock to be issued or sold so that Investor may
purchase additional shares to maintain its proportionate interest, or to
reduce the number of shares of capital stock to be issued or sold to Persons
other than Investor) as is represented by the number of shares of Company
Common Stock owned by Investor prior to such sale or issuance (and including
for this purpose any shares of Company Common Stock to be acquired pursuant to
the Stock Purchase Agreement, but not yet issued) relative to the numberof
shares of Company Common Stock outstanding prior to such sale or issuance (and
including for this purpose any shares of Company Common Stock to be acquired
pursuant to the Stock Purchase Agreement, but not yet issued) (but in no event
more than 37.5% of the total number of shares of capital stock to be issued or
sold by the Company at all subsequent offerings); provided, however, that the
provisions of this Section 4.2 shall not apply to (i) the issuance or sale by
the
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Company of any of its capital stock issued to the Company or any of its
Subsidiaries or pursuant to options, rights or warrants or other commitments
or securities in effect or outstanding on the date of the Stock Purchase
Agreement (including, without limitation, the Convertible Debt and any options
issued or to be issued pursuant to the Employment Agreements), (ii) the
issuance of capital stock pursuant to the conversion, exchange or redemption
of any other capital stock, but shall, without limitation, apply to the
issuance by the Company of any of its capital stock pursuant to benefit,
option, stock purchase, or other similar plans or arrangements, including
pursuant to or upon the exercise of options, rights, warrants, or other
securities or agreements (including those issued pursuant to the Company's
benefit plans), and (iii) the issuance of capital stock for consideration
other than cash. Notwithstanding the foregoing, any participation rights
provided for in this Section which arise as a result of the exception
contained in clause (ii) of the preceding sentence shall be deferred until
such time as participation rights shall otherwise arise under this Section.
(b) Notice. In the event the Company proposes to issue or sell any shares of
capital stock in a transaction giving rise to the participation rights
provided for in this Section, the Company shall send a written notice (the
"Participation Notice") to Investor setting forth the number of shares of such
capital stock of the Company that the Company proposes to sell or issue, the
price (before any commission or discount) at which such shares are proposed to
be issued (or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participation Notice is given,
the method of determining such price and an estimate thereof), and all other
relevant information as to such proposed transaction as may be necessary for
Investor to determine whether or not to exercise the rights granted in this
Section. At any time within 20 days after its receipt of the Participation
Notice, Investor may exercise its participation rights to purchase or
subscribe for shares of such shares of capital stock, as provided for in this
Section, by so informing the Company in writing (an "Exercise Notice"). Each
Exercise Notice shall state the percentage of the proposed sale or issuance
that the Investor elects to purchase. Each Exercise Notice shall be
irrevocable, subject to the conditions to the closing of the transaction
giving rise to the participation right provided for in this Section.
(c) Abandonment of Sale or Issuance. The Company shall have the right, in
its sole discretion, at all times prior to consummation of any proposed sale
or issuance giving rise to the participation right granted by this Section, to
abandon, rescind, annul, withdraw or otherwise terminate such sale or
issuance, whereupon all participation rights in respect of such proposed sale
or issuance pursuant to thisSection shall become null and void, and the
Company shall have no liability or obligation to Investor or any Affiliate
thereof who has acquired shares of Company Stock pursuant to the Stock
Purchase Agreement or from Investor with respect thereto by virtue of such
abandonment, rescission, annulment, withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by Investor or an Affiliate
thereof, as the case may be, pursuant to this Section shall be on the same
price and other terms and conditions, including the date of sale or issuance,
as are applicable to the purchasers or subscribers of the additional shares of
capital stock of the Company whose purchases or subscriptions give rise to the
participation rights (except that the price to Investor to make such purchase
or subscription shall be net of payment of any underwriting, placement agent
or similar fee associated with such purchase or subscription), which price and
other terms and conditions shall be substantially as stated in the relevant
Participation Notice (which standard shall be satisfied if the price, in the
case of a negotiated transaction, is not greater than 110% of the estimated
price set forth in the relevant Participation Notice or, in the case of an
underwritten or privately placed offering, is not greater than the greater of
(i) 110% of the estimated price set forth in the relevant Participation
Notice, and (ii) the most recent closing price on or prior to the date of the
pricing of the offering); provided, however, that in the event the purchases
or subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the 1933 Act and in which offering it
is not legally permissible for the securities to be purchased by Investor to
be included, such securities to be purchased by Investor will be purchased in
a concurrent private placement.
(e) Timing of Sale. If, with respect to any Participation Notice, Investor
fails to deliver an Exercise Notice within the requisite time period, the
Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which to sell not more than
110% of the number of shares of capital stock of the Company described in the
Participation Notice (plus, in the event such shares are to be sold
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in an underwritten public offering, an additional number of shares of capital
stock of the Company, not in excess of 15% of 110% of the number of shares of
capital stock of the Company described in the Participation Notice, in respect
of any underwriters overallotment option) and not less than 90% of the number
of shares of capital stock of the Company described in the Participation
Notice at a price of not less than 90% of the estimated price set forth in the
Participation Notice. If, at the end of 120 days following the expiration of
the time in which the Exercise Notice is required to be delivered, the Company
has not completed the sale or issuance of capital stock of the Company in
accordance with the terms described in the Participation Notice (or at a price
which is at least 90% of the estimated price set forth in the Participation
Notice), or in the event of any contemplated sale or issuance within such 120-
day period but outside such price parameters, the Company shall again be
obligated to comply with the provisions of this Section with respect to, and
provide the opportunity to participate in, any proposed sale or issuance of
shares of capital stock of the Company; provided,however, that notwithstanding
the foregoing, if the price at which such capital stock is to be sold in an
underwritten offering (or a privately placed offering in which the price is
not less than 97% of the most recent closing price at the time of the pricing
of the offering) is not at least 90% of the estimated price set forth in the
Participation Notice, the Company may inform Investor of such fact and
Investor shall be entitled to elect, by written notice delivered within two
Business Days following such notice from the Company, to participate in such
offering in accordance with the provisions of this Section 4.2.
ARTICLE 5
Standstill Provisions
Section 5.1 Standstill Periods
(a) The "Standstill Period" shall be the period commencing on the date of
this Agreement and ending on the earlier of (x) the fifth anniversary of the
Shareholder Approval Date, and (y) the earliest of:
(i) the occurrence of any event of default on the part of the Company or
any Subsidiary under any debt agreements, instruments, or arrangements
which event of default would reasonably be expected to result in a Material
Adverse Effect and, in the case of a non-monetary event of default, which
event of default cannot be, or is not, cured by the Company within the
applicable cure period under such debt agreement, instrument or
arrangement;
(ii) the acquisition by any person or Group other than Investor or any
Affiliate thereof or any person or Group acting in concert with or at the
direction or request of the Investor or any Affiliate thereof of Beneficial
Ownership of more than 9.8% of the voting power of the outstanding shares
of Voting Securities (any such shares acquired in excess of such 9.8%, the
"Excess Shares"), unless (x) the Excess Shares are at or immediately
following their acquisition deprived of all voting rights pursuant to
limitations on ownership of shares contained in the Company Charter, as in
effect at the relevant time, or in any other legal, valid and enforceable
agreement, plan or other right in effect as such time, or (y) provided the
Excess Shares represent no more than 5.2% of the voting power of the
outstanding Voting Securities, the Company, no later than the earlier of
(aa) sixty days after the date of such acquisition, and (bb) the record
date for the first meeting of shareholders after such record date, has
caused such person or Group to cease, or such person or Group otherwise
ceases, having Beneficial Ownership of the Excess Shares;
(iii) any person or Group having a number of Directors on the Board, or
having the right or power to elect a number of Directors on the Board,
equal to or greater than the number of Directors to which Investor is
entitled;
(iv) the authorization by the Company or the Board or any committee
thereof (with all Investor Nominees abstaining or voting against) of the
solicitation of offers or proposals or indications of interest with respect
to any merger, consolidation, other business combination, liquidation, sale
of the Company or all or substantially all of the assets of the Company or
any other change of control of the Company or similar extraordinary
transaction, but excluding any merger, consolidation or other business
combination in which the Company is the surviving and acquiring corporation
and in which the businesses or assets so
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acquired do not, or would not reasonably be expected to, have a value
greater than 50% of the assets of the Company prior to such merger,
consolidation or other business combination (any of the foregoing, a
"Covered Transaction");
(v) the written submission by any person or Group other than Investor or
any Affiliate thereof of a proposal to the Company (including to the Board
or any agent, representative or Affiliate of the Company) with respect to,
or otherwise expressing an interest in pursuing, a Covered Transaction;
provided, however, that the Standstill Period shall not terminate pursuant
to this Section 5.1(a)(v) if, as soon as practicable after receipt of any
such proposal, the Board determines that such proposal is not in the best
interest of the Company and its shareholders and for so long as the Board
continues to reject such proposal as a result of such determination;
(vi) in connection with any actual or proposed Covered Transaction, the
removal of any rights plan, provisions of the Company Charter relating to
staggered terms of office for directors, provisions of the Company Charter
or the By-laws of the Company relating to supermajority voting of the
Company's shareholders, "excess share" provisions of the Company Charter or
the By-laws of the Company, or any other similar arrangements, agreements,
commitments or provisions in the Company Charter or the Bylaws of the
Company which would reasonably be expected to impede the consummation of
such actual or proposed Covered Transaction by action of any Government
Authority, the Board, the shareholders of the Company or otherwise, or, in
connection with any actual or proposed Covered Transaction, any
modification, amendment, waiver or repeal of the ownership restrictions in
Article VII of the Company Charter (except as may be necessary to allow any
acquisition of Company Stock that would not constitute an Early Standstill
Termination Event under Section 5.1(a)(ii));
(vii) 90 days after the occurrence of a Termination Event;
(viii) any material violation of any Corporate Action covenant;
(ix) any breach by the Company of the Stock Purchase Agreement which is
neither cured nor desisted from within 30 days of receipt of written notice
from Investor of such breach and which would reasonably be expected to
materially adversely affect Investor or cause a Material Adverse Effect; or
(x) any breach of this Agreement by the Company which is neither cured
nor desisted from within 30 days of receipt of written notice from Investor
of such breach and which would reasonably be expected to materially
adversely affect Investor or cause a Material Adverse Effect.
Any event set forth in subsection (i), (ii), (iii), (iv), (v), (vi), (vii),
(viii), (ix) or (x) of this Section 5.1(a) shall be an "Early Standstill
Termination Event."
(b) If the Standstill Period shall not have been terminated prior to the
fifth anniversary of the Shareholder Approval Date, the Standstill Period and
any Standstill Extension Term shall automatically be extended for successive
one-year periods (each such period, a "Standstill Extension Term"). Any
Standstill Extension Term will be terminated upon the earlier of (i) the first
anniversary thereof, (ii) the occurrence of an Early Standstill Termination
Event, and (iii) 90 days after the Investor either provides to the Company
written notice that Investor elects to terminate the Standstill Extension Term
or elects that a Standstill Extension Term not commence.
Section 5.2 Restrictions During Standstill Period and Standstill Extension
Term
(a) During the Standstill Period, if any, and any Standstill Extension Term,
LFREI, the Advancing Party, Buyer, and Investor will not, will cause each of
their Controlled Affiliates not to, directly or indirectly:
(i) act in concert with any other person or Group by becoming a member of
a 13D Group, other than any 13D Group comprised exclusively of Investor and
one or more of its Affiliates;
(ii) 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,
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LFREI, the Advancing Party, Buyer, and Investor and their Controlled
Affiliates will Beneficially Own in the aggregate more than 49.9% of the
outstanding shares of Company Common Stock, on an Adjusted Fully Diluted
basis;
(iii) solicit, encourage or propose to effect or negotiate any Covered
Transaction;
(iv) solicit, initiate, encourage or participate in any "solicitation" of
"proxies" or become a "participant" in any "election contest" (as such
terms are defined or used in Regulation 14A under the 1934 Act,
disregarding clause (iv) of Rule 14a-1(l)(2) and including an exempt
solicitation pursuant to Rule 14a-2(b)(1)); call, or in any way encourage
or participate in a call for, any special meeting of shareholders of the
Company (or take any action with respect to acting by written consent of
the shareholders of the Company); request, or take any action to obtain or
retain any list of holders of any securities of the Company; or initiate or
propose any shareholder proposal or participate in or encourage the making
of, or solicit shareholders of the Company for the approval of, one or more
shareholder proposals; provided, however, that Investor shall not be
prohibited from communicating with a securityholder who is engaged in any
"solicitation" of "proxies" or who is a "participant" in any "election
contest";
(v) seek representation on the Board or a change in the composition or
size of the Board other than as permitted by Article 2;
(vi) request the Company or any of its directors, officers, employees or
agents to amend or waive any provisions of this Section 5.2 or Article VII
of the Company Charter or seek to challenge the legality or effect thereof;
or
(vii) assist, advise, encourage or act in concert with any person with
respect to, or seek to do, any of the foregoing.
Section 5.3 Restrictions on Transfer. Until the earlier of (i) a Termination
Event, or (ii) five years after the Shareholder Approval Date, LFREI, the
Advancing Party, Buyer, and Investor will not, and will cause each of their
Controlled Affiliates not to, directly or indirectly sell, transfer or
otherwise dispose of (collectively, "Transfer") any shares of Company Common
Stock except for: (a) Transfers made in compliance with the requirements of
Rule 144 of the 1933 Act, (b) Transfers pursuant to negotiated transactions
with third parties, provided the transferee acknowledges that it is subject to
the provisions of Article 5 of this Agreement to which Investor is subject,
(c) Transfers pursuant to or in accordance with the Registration Rights
Agreement in a bona fide public offering, (d) Transfers to one or more
Controlled Affiliates of Investor who agree to be bound by the terms and
conditions of this Agreement, who make the representations set forth In
Sections 4.8, 4.10 and 4.11 of the Stock Purchase Agreement and who satisfy
the ownership criteria in the definition of "Investor", and (e) Transfers to a
bona fide financial institution for the purpose of securing bona fide
indebtedness of any Investor; provided, that no such Transfer shall result in
the bona fide financial institution having Beneficial Ownership (or
"Beneficial Ownership" or "Constructive Ownership," as such terms are defined
in theCompany Charter) of more than 9.8% of the Company Stock unless such bona
fide financial institution acknowledges that it is subject to the provisions
of Article 5 of this Agreement to which Investor is subject and the Company
receives representations and covenants from such transferee requested by the
Company relating to the Company's status as a REIT. Notwithstanding the
foregoing, no Transfer under Section 5.3(a), (b) or (c), which would result in
the applicable transferee having Beneficial Ownership (or "Beneficial
Ownership" or "Constructive Ownership," as such terms are defined in the
Company Charter) of more than 9.8% of the Company Stock or which would
otherwise be in violation of the Charter shall occur unless the Company, in
its sole discretion, approves such Transfer and receives representations and
covenants from such transferee requested by the Company relating to the
Company's status as a REIT.
Section 5.4 Notice to Company. During the period specified in Section 5.3,
if any party wishes to sell pursuant to subsection 5.3(a), (b) or (c) any
shares of Company Common Stock, such party shall give the Company 15 days'
prior written notice of such proposed sale, setting forth the number of shares
of Company Common Stock that such party proposes to sell, the expected timing
of the proposed sale, and the expected selling price of such sale, in order to
enable the Company to make an offer to purchase such shares. During the
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period described in the preceding sentence, such party shall also notify the
Company if such party reaches a formal board-level decision to sell shares of
Company Common Stock representing more than 2% of the then outstanding shares
of Company Common Stock.
Section 5.5 Compliance with Insider Trading Policy. For as long as LFREI,
the Advancing Party, Buyer or Investor Beneficially Owns any shares of Company
Common Stock, such parties will, and will use their commercially reasonable
efforts to cause their directors, officers, employees, agents, and
representatives to, comply with the written policy of the Company reasonably
designed to prevent violations of insider trading and similar laws.
Section 5.6 Compliance with Article VII of the Company Charter. For as long
as LFREI, the Advancing Party, Buyer or Investor Beneficially Owns any shares
of Company Common Stock (unless the Standstill Period or any Standstill
Extension Term is terminated by any of the actions set forth in Section
5.1(a)(iv), (v) or (vi) (or unless any such action occurs following the
termination of the Standstill Period or any Standstill Extension Term) or by
any other willful action by the Company which constitutes an Early Standstill
Termination Event (or would constitute an Early Standstill Termination Event
during the Standstill Period or any Standstill Extension Term)), such parties
will comply with Article VII of the Company Charter and will not seek to
challenge the legality or effect thereof.
Section 5.7 Investment Company Matters. From and after the Shareholder
Approval Date, if any, until a Termination Event, if any, Investor shall use
its reasonable best efforts to not be or become an "investment company" or an
entity "controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
Section 5.8 Waiver of Restrictions and Limits. Provided that Shareholder
Approval is obtained, subject to the provisions of Section 5.9, the Company
shall take all actions, including by providing any necessary conditional
exemptions from or amendments to (A) any restrictions or limits contained in
Article VII of the Company Charter or (B) any agreement or instrument which
governs ownership of shares of Company Stock by any person, necessary to
permit Investor to Beneficially Own up to and including the greater of (i)
49.9% of the outstanding shares of Company Common Stock on an Adjusted Fully
Diluted basis and (ii) the percentage which represents the number of shares of
Company Common Stock purchased pursuant to the Stock Purchase Agreement
relative to the outstanding shares of Company Common Stock. If any third party
shall be given the right to Beneficially Own more than 49.9% of the
outstanding shares of Company Common Stock on an Adjusted Fully Diluted basis,
the Company shall take all actions (including by providing the foregoing
exemptions and amendments) to waive any and all restrictions or limits on
Investor provided that such waiver does not result in the disqualification of
the Company as a REIT. From and after a Termination Event, if any, the Company
shall take all actions, including by providing any necessary exemptions from
or amendments to (A) any restrictions or limits contained in Article VII of
the Company Charter or (B) any agreement or instrument which governs ownership
of shares of Company Stock by any person, necessary to permit Investor to
Beneficially Own up to and including 15% of the outstanding shares of Company
Common Stock, but shall not be required to take any action to permit Investor
to Beneficially Own more than 15% of the outstanding shares of Company Common
Stock. From and after the first date on which Investor does not own at least
9.8% of the outstanding shares of Company Common Stock, if any, the Company
shall take all actions, including by providing any necessary exemptions from
or amendments to (A) the ownership limits contained in Article VII of the
Company Charter or (B) any agreement or instrument which governs ownership of
shares of Company Stock by any person, necessary to permit Investor to
Beneficially Own up to and including 9.8% of the outstanding shares of Company
Common Stock, but shall not be required to take any action to permit Investor
to Beneficially Own more than 9.8% of the outstanding shares of Company Common
Stock. Notwithstanding the foregoing, Investor or the Company may at any time
acquire Beneficial Ownership of the securities of such other party or its
Affiliates to the extent permitted by applicable law and the provisions of the
organizational documents of such party or its Affiliates, as applicable, and
other agreements from time to time governing the ownership of such securities.
Section 5.9 REIT Qualification. At any time Investor owns, or has the right
to own, Company Common Stock in violation of the ownership limit provisions of
the Charter, Investor shall immediately inform the
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Company if it believes that (i) any of the representations set forth in
Sections 4.8, 4.10 or 4.11 of the Stock Purchase Agreement are not true at
that time or have not been true at any time (taking into account the revised
Schedule 4.10-A provided by the Company to Investor from time to time and
disregarding the qualification relating to Buyer's or the Advancing Party's
knowledge) or (ii) the Investor's ownership of interests in the Company may
otherwise jeopardize the Company's tax status as a REIT. Investor shall from
time to time, as reasonably required by the Company, cooperate (including by
providing such information and documentation as may be reasonably required by
the Company and available to Investor) with the Company toenable the Company
to determine whether the above covenant has been and is being satisfied. In
addition, Investor understands and agrees that the Company's grant to Investor
of an exception to the ownership limit provisions of the Charter shall be
conditioned upon the continuing accuracy of the representations set forth in
Sections 4.8, 4.10 and 4.11 of the Stock Purchase Agreement (disregarding the
qualification relating to Buyer's or the Advancing Party's knowledge and
assuming no exceptions are set forth in Schedule 4.10-B) and upon such
exception otherwise not causing the Company to fail to qualify as a REIT for
income tax purposes.
ARTICLE 6
Additional Covenants
Section 6.1 Limitations on Corporate Actions
The Company agrees that from and after the date of this Agreement, until a
Termination Event, if any, it will not, and will not permit any of its
Subsidiaries to:
(a) incur any additional indebtedness such that total consolidated
indebtedness for money borrowed (including for this purpose any
indebtedness evidenced by notes, debentures, bonds or other similar
instruments, or secured by any lien on any property or asset, all
obligations issued or assumed as the deferred purchase price of property,
conditional sale obligations, obligations under any title retention
agreement (but excluding trade accounts payable and other accrued current
liabilities arising in the ordinary course of business), obligations under
letters of credit, or similar credit transactions, and obligations which
are required to be accounted for as capital leases) in an amount in excess
of 50% of the sum of (i) the product of the number of outstanding shares of
Common Stock of the Company and the number of outstanding OP Units times
the then current market price of a share of Common Stock of the Company,
and (ii) the total consolidated indebtedness for money borrowed (as
described above); provided, however, that notwithstanding the foregoing,
the Company shall be permitted to incur at any time indebtedness under a
revolving line of credit up to a maximum amount outstanding of $90 million;
(b) engage in any material business other than the ownership, management
and development of shopping center properties in the Geographic Region; or
(c) in the case of the Company, (1) terminate its eligibility for
treatment as a real estate investment trust, as defined in the Code, or (2)
take any action or fail to take any action which would reasonably be
expected to, alone or in conjunction with any other factors, result in the
loss of such eligibility, unless in the case of a failure to take action,
such action is taken within thirty days.
From and after the date of this Agreement, the Company shall take all action
necessary to amend its by-laws to provide that (i) the taking of any action
specified in Section 3.2(d) through (j) of this Agreement shall require the
approval of the Board of Directors, and (ii) the taking of any action
specified in Section 3.2(a) through (c) (without regard to the dollar
thresholds set forth therein) of this Agreement shall require the approval of
the Board of Directors if any such transaction has a value at that time in
excess of 1% of the Company's total assets.
The agreements of the Company set forth in this Section 6.1 and in Section
6.2 shall be the "Corporate Action Covenants."
Section 6.2 Conduct of Business. During the period from the date hereof to
the sooner to occur of (A) the date on which the Remaining Equity Commitment
shall be zero, and (B) if the Shareholder Approval vote fails,
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the date of the shareholder meeting at which the Shareholder Approval failed,
each of the Company and each Subsidiary, except as otherwise consented to or
approved by Buyer in writing or as permitted or required hereby will not:
(a) pursuant to or within the meaning of any bankruptcy law: (i) commence
a voluntary case, (ii) consent to the entry of an order for relief against
it in an involuntary case, (iii) consent to the appointment of a custodian
of it or for all or substantially all of its property, (iv) make a general
assignment for the benefit of its creditors; or
(b) subject to the right of the Company to terminate the Stock Purchase
Agreement pursuant to Section 9.1(b)(iii) thereof, allow (i) the sale,
lease, transfer, conveyance or other disposition (other that by way of
merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, or (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation)
the result of which is that any "person" (as defined above), other than the
Buyer, becomes the "beneficial owner" (as such term is defined in Rule 13d-
3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of stock
having more than 50% of the voting power of the Company.
Section 6.3 Restrictions on Investments. From the date of this Agreement
until the occurrence of a Termination Event, LFREI, the Advancing Party,
Buyer, Investor and their Controlled Affiliates shall not, directly or
indirectly, own any equity interest of more than 25% in the aggregate in any
public or private real estate company (i) the primary business of which is the
acquisition, development or management of unenclosed shopping centers in the
Geographic Region and (ii) which owns at least 60% of its real estate assets
(based on book value) located in the Geographic Region, unless 75% of the
Directors of the Company (other than the Investor Nominees) have consented to
such ownership.
ARTICLE 7
Miscellaneous
Section 7.1 Counterparts. This Agreement 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
of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of
this Section, provided receipt of copies of such counterparts is confirmed.
Section 7.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 7.3 Entire Agreement. This Agreement (including agreements
incorporated herein) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement
is not intended to confer upon any person not a party hereto (and their
successors and assigns) any rights or remedies hereunder, except that the
persons named in Section 2.4 shall be express third party beneficiaries of
such Section.
Section 7.4 Expenses. Except as set forth in the Stock Purchase Agreement,
all legal and other costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses. Without limiting the foregoing, the Company
shall pay all costs and expenses incurred in connection with the solicitation
of votes of shareholders of the Company to approve the transactions
contemplated by the Stock Purchase Agreement.
15
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Section 7.5 Notices. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to
the Company shall be addressed to:
Alexander Haagen Properties, Inc.
3500 Sepulveda Boulevard
Manhattan Beach, CA 90266-3696
Attention: Alexander Haagen, Sr.
Telecopy: (310) 545-6354
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: John M. Newell, Esq.
Telecopy: (213) 891-8763
or at such other address and to the attention of such other person as the
Company may designate by written notice to Investor. Notices to LFREI, the
Advancing Party, Buyer or Investor shall be addressed to:
Lazard Freres Real Estate Investors, LLC
30 Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Arthur P. Solomon
Telecopy: (212) 632-6052
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Kevin J. Grehan, Esq.
Telecopy: (212) 474-3700
Section 7.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
(including, in the case LFREI, any successor to the principal business of
LFREI). Neither party shall be permitted to assign any of its rights hereunder
to any third party, except that any Investor shall be permitted to assign its
rights hereunder to the same extent as Buyer or the Advancing Party is
permitted to assign its rights under the Stock Purchase Agreement, provided
that such person agrees to be bound by this Agreement.
Section 7.7 Headings. The Section, Article and other headings contained in
this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
Section 7.8 Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, only by an instrument in writing, waive compliance by
another party hereto with any term or provision hereof on the part of such
other party hereto to be performed orcomplied with. The waiver by any party
hereto of a breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
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Section 7.9 Interpretation; Absence of Presumption
(a) For the purposes hereof, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms "hereof",
"herein", and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of
the Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Article, Section, paragraph, Schedule and Exhibit references
are to the Articles, Sections, paragraphs, Schedules and Exhibits to this
Agreement unless otherwise specified, (iii) the word "including" and words of
similar import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall
apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 7.10 Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
Section 7.11 Further Assurances. The Company and Investor agree that, from
time to time, each of them will, and will cause their respective Affiliates
to, execute and deliver such further instruments and take such other action as
may be necessary to carry out the purposes and intents hereof.
Section 7.12 Specific Performance. The Company and Investor each acknowledge
that, in view of the uniqueness of arrangements contemplated by this
Agreement, the parties hereto would not have an adequate remedy at law for
money damages in the event that this Agreement were not performed in
accordance with its terms, and therefore agree that the parties hereto shall
be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which the parties hereto may be entitled at law or in equity.
Section 7.13 Investor Breach. In the event Investor shall have breached (i)
its obligation to effect a purchase of Company Common Stock pursuant to the
Stock Purchase Agreement which breach is neither cured nor desisted from
within 30 days of receipt of written notice of such breach, or (ii) any of its
obligations under this Agreement which breach is neither cured nor desisted
from within 30 days of receipt of written notice of such breach and which
would reasonably be expected to materially adversely affect the Company, the
Company shall no longer be required to perform any of its obligations
hereunder.
Section 7.14 Confidentiality. LFREI, the Advancing Party, Buyer and Investor
agree that all information provided to any of them or any of their
representatives pursuant to this Agreement shall be kept confidential, and
such parties shall not (x) disclose such information to any persons other than
the directors, officers, employees, financial advisors, legal advisors,
accountants, consultants and affiliates of such parties who reasonably need to
have access to the confidential information and who are advised of the
confidential nature of such information or (y) use such information in a
manner which would be detrimental to the Company; provided, however, the
foregoing obligation of such parties shall not (a) relate to any information
that (i) is or becomes generally available other than as a result of
unauthorized disclosure by such parties or by persons to whom such parties
have made such information available, (ii) is or becomes available to such
parties on a non-confidential basis from a third party that is not, to such
parties' knowledge, bound by any other confidentiality agreement with the
Company, or (b) prohibit disclosure of any information if required by law,
rule, regulation, court order or other legal or governmental process.
Section 7.15 Public Releases and Announcements. The Company agrees that
until a Termination Event, it shall endeavor to provide to Investor advance
copies of, or, in the case of oral announcements, advance notice of, any
public release or announcement concerning the Company to be issued, released
or made by the Company or any of its Affiliates, in each case, if possible, at
least one Business Day prior to such release or announcement.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day first above written.
PROMETHEUS WESTERN RETAIL, LLC
By: LF STRATEGIC REALTY INVESTORS, L.P.
Its: Member
By: LAZARD FRERES REAL ESTATE INVESTORS,
LLC
Its: General Partner
By: Anthony E. Meyer
Its: Chief Investment Officer
LAZARD FRERES REAL ESTATE INVESTORS, LLC
By: Anthony E. Meyer
Its: Chief Investment Officer
LF STRATEGIC REALTY INVESTORS, L.P.
By: LAZARD FRERES REAL ESTATE INVESTORS,
LLC
Its: General Partner
By: Anthony E. Meyer
Its: Chief Investment Officer
ALEXANDER HAAGEN PROPERTIES, INC.
By: Alexander Haagen, Sr.
Its: Chairman, Chief Executive Officer
and President
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APPENDIX C
----------------------------------------------
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
ALEXANDER HAAGEN PROPERTIES, INC.
AND
PROMETHEUS WESTERN RETAIL, LLC
DATED AS OF
JUNE 1, 1997
----------------------------------------------
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TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
Section 1. Definitions.................................................... 1
(a) "Agreement"....................................................... 1
(b) "Buyer"........................................................... 1
(c) "Commencement Date"............................................... 1
(d) "Commission"...................................................... 1
(e) "Company"......................................................... 1
(f) "Company Registration Expenses"................................... 1
(g) "Demand Registration"............................................. 2
(h) "Exchange Act".................................................... 2
(i) "NASD"............................................................ 2
(j) "Registrable Securities".......................................... 2
(k) "Registration Expenses"........................................... 2
(l) "Registration Suspension Period".................................. 2
(m) "Securities Act".................................................. 2
(n) "Stock Purchase Agreement"........................................ 3
(o) "Suspension Notice"............................................... 3
(p) "Underwritten/Placed Offering".................................... 3
Section 2. Demand Registration............................................ 3
(a) Obligation to File................................................ 3
(b) Black-Out Periods of Buyer........................................ 4
(c) Number of Demand Registrations.................................... 4
(d) Size of Demand Registration....................................... 4
(e) Notice............................................................ 5
(f) Expenses.......................................................... 5
(g) Selection of Underwriters......................................... 5
Section 3. Incidental Registrations....................................... 5
(a) Notification and Inclusion........................................ 5
(b) Cut-back Provisions............................................... 6
(c) Expenses.......................................................... 6
(d) Duration of Effectiveness......................................... 6
Section 4. Registration Procedures........................................ 7
Section 5. Requested Underwritten Offerings............................... 9
Section 6. Preparation; Reasonable Investigation.......................... 10
Section 7. Indemnification................................................ 10
(a) Indemnification by the Company.................................... 10
(b) Indemnification by Buyer.......................................... 11
(c) Notices of Claims, etc............................................ 11
(d) Other Indemnification............................................. 12
(e) Indemnification Payments.......................................... 12
(f) Contribution...................................................... 12
Section 8. Covenants Relating to Rule 144................................. 12
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 9. Miscellaneous.................................................. 13
(a) Counterparts...................................................... 13
(b) Governing Law..................................................... 13
(c) Entire Agreement.................................................. 13
(d) Notices........................................................... 13
(e) Successors and Assigns............................................ 14
(f) Headings.......................................................... 14
(g) Amendments and Waivers............................................ 14
(h) Interpretation; Absence of Presumption............................ 14
(i) Severability...................................................... 15
</TABLE>
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REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of June 1, 1997,
by and among Alexander Haagen Properties, Inc., a Maryland corporation (the
"Company") and Prometheus Western Retail, LLC, a Delaware limited liability
corporation ("Buyer"). Capitalized terms not otherwise defined herein have the
meaning ascribed to them in the Stock Purchase Agreement (as herein after
defined).
WHEREAS, the Company, LF Strategic Realty Investors L.P., and Buyer have
entered into a Stock Purchase Agreement, dated as of June 1, 1997 (the "Stock
Purchase Agreement"), that provides for the purchase by Buyer and sale by the
Company to Buyer of shares of Company Common Stock; and
WHEREAS, in order to induce Buyer to enter into the Stock Purchase
Agreement, the Company has agreed to provide the registration rights set forth
herein;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, 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:
Section 1. Definitions. As used herein, the following terms shall have the
following meanings:
(a) "Agreement" shall have the meaning set forth in the first paragraph
hereof.
(b) "Buyer" shall mean Buyer, and shall also include any Affiliate of
Buyer of which Buyer or LF Strategic Realty Investors, L.P., directly or
indirectly, Beneficially Owns 98% or more of the voting power and of the
economic interests, or any bona fide financial institution to which any
Buyer has Transferred (including upon foreclosure of a pledge) shares of
Company Stock for the purpose of securing bona fide indebtedness of any
Buyer. (Capitalized terms used in this definition and not defined herein
shall have the meanings ascribed to them in the Stockholders Agreement).
(c) "Commencement Date" shall mean the first anniversary of the date of
this Agreement.
(d) "Commission" shall mean the Securities and Exchange Commission, and
any successor thereto.
(e) "Company" shall have the meaning set forth in the first paragraph
hereof.
(f) "Company Registration Expenses" shall mean the fees and disbursements
of counsel and independent public accountants for the Company incurred in
connection with the Company's performance of or compliance with
thisAgreement, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, and any premiums and other costs of policies of insurance
obtained by the Company against liabilities arising out of the sale of any
securities.
(g) "Demand Registration" shall have the meaning set forth in Section
2(a).
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor thereto, and the rules and regulations
thereunder.
(i) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(j) "Registrable Securities" shall mean (i) any and all shares of Company
Common Stock acquired by Buyer pursuant to the Stock Purchase Agreement,
(ii) any and all securities acquired by Buyer pursuant to Section 4.2 of
the Stockholders Agreement, and (iii) any securities issued or issuable
with respect to any Company Common Stock or other securities referred to in
clause (i) or (ii) by way of conversion, exchange, stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Securities, once issued such securities shall cease
to be Registrable Securities when (A) a registration statement with respect
to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (B) such securities shall have
been sold in accordance with Rule 144 (or any successor provision) under
the Securities Act or (C) such securities are eligible to be resold
pursuant to Rule 144(k).
<PAGE>
(k) "Registration Expenses" shall mean all registration, filing and stock
exchange or NASD fees, all fees and expenses of complying with securities
or blue sky laws, all printing expenses, messenger and delivery expenses,
any fees and disbursements of any separate counsel retained by Buyer, and
transfer taxes, if any, and any premiums and other costs of policies of
insurance obtained by Buyer against liabilities arising out of the public
offering of securities, including Company Registration expenses, but
specifically excludes any fees and disbursements of underwriters
customarily paid by sellers of securities who are not the issuers of such
securities and all underwriting discounts and commissions.
(l) "Registration Suspension Period" shall have the meaning set forth in
Section 2(b).
(m) "Securities Act" shall mean the Securities Act of 1933, as amended,
and any successor thereto, and the rules and regulations thereunder.
(n) "Stock Purchase Agreement" shall have the meaning set forth in the
second paragraph hereof.
(o) "Suspension Notice" shall have the meaning set forth in Section 2(b).
(p) "Underwritten/Placed Offering" shall mean a sale of securities of the
Company to an underwriter or underwriters for reoffering to the public or
on behalf of a person other than the Company through an agent for sale to
the public.
Section 2. Demand Registration
(a) Obligation to File. At any time following the Commencement Date,
promptly upon the written request of Buyer, the Company will use its
reasonable best efforts to file with the Commission a registration
statement under the Securities Act for the offering of all of the
Registrable Securities which Buyer requests to be registered (the "Demand
Registration"). The Demand Registration shall be on an appropriate form and
the Demand Registration and any form of prospectus included therein shall
reflect such plan of distribution or method of sale as Buyer notifies the
Company, including the sale of some or all of the Registrable Securities in
a public offering or, if requested by Buyer, subject to receipt by the
Company of such information (including information relating to purchasers)
as the Company reasonably may require, (i) in a transaction constituting an
offering outside the United States which is exempt from the registration
requirements of the Securities Act in which the seller undertakes to effect
registration after the completion of such offering in order to permit such
shares to be freely tradeable in the United States, (ii) in a transaction
constituting a private placement under Section 4(2) of the Securities Act
in connection with which the seller undertakes to effect a registration
after the conclusion of such placement to permit such shares to be freely
tradeable by the purchasers thereof, or (iii) in a transaction under Rule
144A of the Securities Act in connection with which the seller undertakes
to effect a registration after the conclusion of such transaction to permit
such shares to be freely tradeable by the purchasers thereof. The Company
shall use its reasonable best efforts to cause the Demand Registration to
become effective, and, upon the request of Buyer, keep the Demand
Registration effective for up to 90 days, unless the distribution of
securities registered thereunder has been earlier completed; provided,
however, that if such Demand Registration will require the Company to
prepare or file audited financial statements with respect to any fiscal
year by a date prior to the date on which the Company would otherwise be
required to prepare and file such audited financial statements, then Buyer
must notify the Company at least thirty days in advance of the date upon
which such audited financial statements will be required to be filed.
During the period during which the Demand Registration is effective, the
Company shall supplement or make amendments to the Demand Registration, if
required by the Securities Act or if reasonably requested by Buyer or an
underwriter of Registrable Securities, including to reflect any specific
plan of distribution or method of sale, and shall use its reasonable best
efforts to have such supplements and amendments declared effective, if
required, as soon as practicable after filing.
(b) Black-Out Periods of Buyer. Notwithstanding anything herein to the
contrary, (i) the Company shall have the right from time to time to require
Buyer not to sell under the Demand Registration or to suspend the
effectiveness thereof during the period starting with the date 30 days
prior to the Company's good faith estimate, as certified in writing by an
executive officer of the Company to Buyer, of the proposed date of
2
<PAGE>
filing of a registration statement or a preliminary prospectus supplement
relating to an existing shelf registration statement, in either case,
pertaining to an underwritten public offering of equity securities of the
Company for the account of the Company, and ending on the date 75 days
following the effective date of such registration statement or the date of
filing of the final prospectus supplement, and (ii) the Company shall be
entitled to require Buyer not to sell under the Demand Registration or to
suspend the effectiveness thereof (but not for a period exceeding 75 days
in any calendar year) if the Company determines, in its good faith
judgment, that such offering or continued effectiveness would interfere
with any material financing, acquisition, disposition, corporate
reorganization or other material transaction involving the Company or any
of its subsidiaries or public disclosure thereof would be required prior to
the time such disclosure might otherwise be required, or when the Company
is in possession of material information that it deems advisable not to
disclose in a registration statement.
Once any registration statement filed pursuant to this Section 2 or in
which Registrable Securities are included pursuant to Section 3 has been
declared effective, any period during which the Company fails to keep such
registration statement effective and usable for resale of Registrable
Securities for the period required by Section 4(b) shall be referred to as
a "Registration Suspension Period". A Registration Suspension Period shall
commence on and include the date that the Company gives written notice to
Buyer of its determination that such registration statement is no longer
effective or usable for resale of Registrable Securities (the "Suspension
Notice") to and including the date when the Company notifies Buyer that the
use of the prospectus included in such registration statement may be
resumed for the disposition of Registrable Securities.
(c) Number of Demand Registrations. The Company shall be obligated to
effect, under this Section 2, only six Demand Registrations (no more than
two of which may be requested in any two-year period). A Demand
Registration shall not be deemed to have been effected, nor shall it be
sufficient to reduce the number of Demand Registrations available to Buyer
under this Section 2, if such registration cannot be used by Buyer for more
than 60 days as a result of any stop order, injunction or other order of
the Commission or other Government Authority for any reason other than an
act or omission of Buyer and all the Registerable Securities registered
thereunder are not sold.
(d) Size of Demand Registration. The Company shall not be required to
effect a Demand Registration of less than a fair market value, based on the
closing market price on the trading day immediately prior to the date of
notice (as reported in the Wall Street Journal), of $10,000,000, except
that if the fair market value,based on the closing market price on the
trading day immediately prior to the date of notice (as reported in the
Wall Street Journal), of the Registrable Securities outstanding is less
than $10,000,000, then the Company shall be required to effect a Demand
Registration of all of the remaining Registrable Securities outstanding.
(e) Notice. The Company shall give Buyer prompt notice in the event that
the Company has suspended sales of Registrable Securities under Section
2(b).
(f) Expenses. All Registration Expenses incurred in connection with the
first three Demand Registrations which may be requested under this Section
2 shall be borne by the Company, with Buyer only paying underwriting fees
and discounts. All Registration Expenses and underwriting fees and
discounts incurred in connection with any further Demand Registrations
which may be requested under this Section 2 shall be borne by Buyer.
(g) Selection of Underwriters. Any and all underwriters or other agents
involved in any sale of Registrable Securities pursuant to a registration
statement contemplated by this Section 2 shall include such underwriter(s)
or other agent(s) as selected by Buyer and approved of by the Company,
which approval shall not be unreasonably withheld; provided that any
Affiliate of Buyer shall in all events be approved by the Company.
3
<PAGE>
Section 3. Incidental Registrations
(a) Notification and Inclusion. If the Company proposes to register for
its own account any common equity securities of the Company or any
securities convertible into common equity securities of the Company under
the Securities Act (other than a registration relating solely to the sale
of securities to participants in a dividend reinvestment plan, a
registration on Form S-4 relating to a business combination or similar
transaction permitted to be registered on such Form S-4, a registration on
Form S-8 relating solely to the sale of securities to participants in a
stock or employee benefit plan, a registration permitted under Rule 462
under the Securities Act registering additional securities of the same
class as were included in an earlier registration statement for the same
offering, and declared effective), the Company shall, at each such time
after the Commencement Date until Buyer no longer holds Registerable
Securities, promptly give written notice of such registration to Buyer.
Upon the written request of Buyer given within 10 days after receipt of
such notice by Buyer, the Company shall seek to include in such proposed
registration such Registrable Securities as Buyer shall request be so
included and shall use its reasonable best efforts to cause a registration
statement covering all of the Registrable Securities that Buyer has
requested to be registered to become effective under the Securities Act.
The Company shall be under no obligation to complete any offering of
securities it proposes to make under this Section 3 and shall incur no
liability to Buyer for its failure to do so. If, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Companyshall determine for any reason not to register or
to delay registration of such securities, the Company may, at its election,
give written notice of such determination to Buyer and, thereupon, (i) in
the case of a determination not to register, the Company shall be relieved
of its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the Registration
Expenses incurred in connection therewith) and (ii) in the case of a
determination to delay registering, the Company shall be permitted to delay
registering any Registrable Securities for the same period as the delay in
registering such other securities.
(b) Cut-back Provisions. If a registration pursuant to this Section 3
involves an Underwritten/Placed Offering of the securities so being
registered, whether or not solely for sale for the account of the Company,
which securities are to be distributed by or through one or more
underwriters of recognized standing under underwriting terms customary for
such transaction, and the underwriter or the managing underwriter, as the
case may be, of such Underwritten/ Placed Offering shall inform the Company
of its belief that the amount of securities requested to be included in
such registration or offering exceeds the amount which can be sold in (or
during the time of) such offering without delaying or jeopardizing the
success of the offering (including the price per share of the securities to
be sold), then the Company will include in such registration (i) first, all
the securities of the Company which the Company proposes to sell for its
own account or the account of others (other than Buyer) requesting
inclusion in such registration pursuant to rights to registration on
request, and (ii) second, to the extent of the amount which the Company is
so advised can be sold in (or during the time of) such offering,
Registrable Securities and other securities requested to be included in
such registration, pro rata among Buyer and others exercising incidental
registration rights, on the basis of the shares of Company Common Stock
owned by all such persons.
(c) Expenses. The Company shall bear and pay all Company Registration
Expenses incurred in connection with any registration of Registrable
Securities pursuant to this Section 3 for Buyer, and all Registration
Expenses incurred in connection with any registration of any securities for
the Company's own account referred to in the first sentence of Section
3(a), and Buyer shall bear and pay all Registration Expenses (other than
Company Registration Expenses) and all underwriting fees and discounts
incurred in connection with any registration of Registrable Securities
pursuant to this Section 3 for Buyer.
(d) Duration of Effectiveness. At the request of Buyer, the Company
shall, subject to Section 2(b), use its reasonable best efforts to keep any
registration statement for which Registrable Securities are included under
this Section 3 effective and usable for up to 90 days (subject to extension
for the length of any Registration Suspension Period), unless the
distribution of securities registered thereunder has been earlier
completed; provided, however, that in no event will the Company be required
to prepare or file audited
4
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financial statements with respect to any fiscal yearby a date prior to the
date on which the Company would be so required to prepare and file such
audited financial statements if such registration statement were no longer
effective and usable.
Section 4. Registration Procedures. In connection with the filing of any
registration statement as provided in Section 2 or 3, the Company shall use
its reasonable best efforts to, as expeditiously as reasonably practicable:
(a) prepare and file with the Commission the requisite registration
statement (including a prospectus therein) to effect such registration and
use its reasonable best efforts to cause such registration statement to
become effective, provided that before filing such registration statement
or any amendments or supplements thereto, the Company will furnish to the
counsel selected by Buyer copies of all such documents proposed to be
filed, which documents will be subject to the review of such counsel before
any such filing is made, and the Company will comply with any reasonable
request made by such counsel to make changes in any information contained
in such documents relating to Buyer;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such
registration and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement until the earlier of such time as all of such securities have
been disposed of and the date which is 90 days after the date of initial
effectiveness of such registration statement;
(c) furnish to Buyer such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained
in such registration statements (including each complete prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, including documents incorporated by reference, as
Buyer may reasonably request;
(d) register or qualify all Registrable Securities under such other
securities or blue sky laws of such jurisdictions as Buyer shall reasonably
request, to keep such registration or qualification in effect for so long
as such registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable Buyer to
consummate the disposition in such jurisdictions of the securities owned by
Buyer, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
paragraph be obligated to be so qualified, or to consent to general service
of process in any such jurisdiction, or to subject the Company to any
material tax in any such jurisdiction where it is not then so subject;
(e) cause all Registrable Securities covered by such registration
statement to be registered with or approved by such other Government
Authority as may be reasonably necessary to enable Buyer to consummate the
disposition of such Registrable Securities;
(f) furnish to Buyer a signed counterpart, addressed to Buyer (and the
underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance
to Buyer, and
(ii) to the extent permitted by then applicable rules of professional
conduct, a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, all as are
customarily covered in opinions
5
<PAGE>
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities;
(g) immediately notify Buyer at any time when the Company becomes aware
that a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of Buyer promptly prepare and
furnish to Buyer a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they
were made;
(h) comply or continue to comply in all material respects with the
Securities Act and the Exchange Act and with all applicable rules and
regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, but not more than 18 months, beginning with
the first full calendar month after the effectivedate of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act, and not file any amendment or supplement to
such registration statement or prospectus to which Buyer shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities
Act, having been furnished with a copy thereof at least five Business Days
prior to the filing thereof;
(i) provide a transfer agent and registrar for all Registrable Securities
covered by such registration statement not later than the effective date of
such registration statement; and
(j) list all Company Common Stock covered by such registration statement
on any securities exchange on which any of the Company Common Stock is then
listed.
Buyer shall furnish in writing to the Company such information regarding Buyer
(and any of its affiliates), the Registrable Securities to be sold, the
intended method of distribution of such Registrable Securities, and such other
information requested by the Company as is necessary for inclusion in the
registration statement relating to such offering pursuant to the Securities
Act and the rules of the Commission thereunder. Such writing shall expressly
state that it is being furnished to the Company for use in the preparation of
a registration statement, preliminary prospectus, supplementary prospectus,
final prospectus or amendment or supplement thereto, as the case may be.
Buyer agrees by acquisition of the Registrable Securities that upon receipt
of any notice from the Company of the happening of any event of the kind
described in paragraph (g) of this Section 4, Buyer will forthwith discontinue
its disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until Buyer's receipt of the
copies of the supplemented or amended prospectus contemplated by paragraph (g)
of this Section 4.
Section 5. Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offerings by Buyer, under a registration
requested pursuant to Section 2(a), the Company will enter into a customary
underwriting agreement with such underwriters for such offering, to contain
such representations and warranties by the Company and such other terms as are
customarily contained in agreements of this type, including indemnities to the
effect and to the extent provided in Section 7. Buyer shall be a party to such
underwriting agreement and may, at its option, require that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of Buyer.
Buyer shall not be required to make any representations or warranties to or
agreement with the Company or the underwriters other than representations,
warranties or agreements regarding Buyer and Buyer's intended method of
distribution and any other representation or warranty required by law.
6
<PAGE>
Section 6. Preparation; Reasonable Investigation. In connection with the
preparation and filing of the registration statement under the Securities Act,
the Company will give Buyer, its underwriters, if any, and their respective
counsel, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers, its counsel and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of Buyer's and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning
of the Securities Act.
Section 7. Indemnification
(a) Indemnification by the Company. In the event of any registration of
any Registrable Securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless Buyer, each
other person who participates as an underwriter in the offering or sale of
such securities and each other person who controls any such underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which Buyer or any such
underwriter or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and the
Company will reimburse Buyer and each such underwriter and controlling
person for any reasonable legal or any other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
liability, action or proceedings; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by Buyer or any other person
who participates as an underwriter in the offering or sale of such
securities, in either case, specifically stating that it is for use in the
preparation thereof, and provided, further, that the Company shall not be
liable to any person who participates as an underwriter in the offering or
sale of Registrable Securities or any other person, if any, who controls
such underwriter within the meaning of the Securities Act in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such person's
failure to send or give a copy of the final prospectus orsupplement to the
persons asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such person if such statement or omission
was corrected in such final prospectus or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of Buyer or any such underwriter or controlling person and shall
survive the transfer of such securities by Buyer.
(b) Indemnification by Buyer. The Buyer will, and hereby does, indemnify
and hold harmless (in the same manner and to the same extent as set forth
in paragraph (a) of this Section 7) the Company, each director of the
Company, each officer of the Company and each other person, if any, who
controls the Company within the meaning of the Securities Act, and each
other person who participates as an underwriter in the offering or sale of
such securities and each other person who controls any such underwriter
within the meaning of the Securities Act, with respect to any untrue
statement or alleged untrue statement of a material fact in or omission or
alleged omission to state a material fact from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by Buyer
7
<PAGE>
specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer, or controlling person and shall
survive the transfer of such securities by Buyer.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraphs of this Section 7, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of
this Section 7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding paragraphs of this Section 7 (with appropriate modifications)
shall be given by the Company and Buyer with respect to any required
registration or other qualification of securities under any federal or
state law or regulation of Governmental Authority other than the Securities
Act.
(e) Indemnification Payments. The indemnification required by this
Section 7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received
or expense, loss, damage or liability is incurred.
(f) Contribution. If, for any reason, the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, then
the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of the expense, loss, damage or
liability, (i) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and the indemnified party
on the other (determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission relates
to information supplied by the indemnifying party or the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission), or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in the proportion as is appropriate to
reflect not only the relative fault of the indemnifying party and the
indemnified party, but also the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other,
as well as any other relevant equitable considerations. No indemnified
party guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent misrepresentation.
Section 8. Covenants Relating to Rule 144. The Company will file in a timely
manner (taking into account any extensions granted by the Commission),
information, documents and reports in compliance with the Exchange Act and
will, at its expense, forthwith upon the request of Buyer, deliver to Buyer a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b)
the Company's Internal Revenue Service identification number, (c) the
Company's Commission file number, (d) the number of shares of Company Common
Stock and the number of shares of Company Preferred Stock outstanding as shown
by the most recent report or statement published by the Company, and (e)
whether the Company has filed the reports required to be filed under the
Exchange Act for a
8
<PAGE>
period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder. If at any time the Company is not required to file reports in
compliance with either Section 13 or Section 15(d) of the Exchange Act, the
Company will, at its expense, forthwith upon the written request of Buyer,
make available adequate current public information with respect to theCompany
within the meaning of paragraph (c)(2) of Rule 144 of the General Rules and
Regulations promulgated under the Securities Act.
Section 9. Miscellaneous
(a) Counterparts. This Agreement 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 of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts for
purposes of this Section 9, provided receipt of copies of such counterparts
is confirmed.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
(c) Entire Agreement. This Agreement (including agreements incorporated
herein) contains the entire agreement between the parties with respect to
the subject matter hereof and there are no agreements or understandings
between the parties other than those set forth or referred to herein. This
Agreement is not intended to confer upon any person not a party hereto (and
their successors and assigns) any rights or remedies hereunder.
(d) Notices. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below. Notices to
the Company shall be addressed to:
Alexander Haagen Properties, Inc.
3500 Sepulveda Boulevard
Manhattan Beach, CA 90266-3696
Attention: Alexander Haagen, Sr.
Telecopy Number: (310) 545-6354
with a copy to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: John M. Newell, Esq.
Telecopy Number: (213) 891-8763
9
<PAGE>
or at such other address and to the attention of such other person as the
Company may designate by written notice to Buyer. Notices to Buyer shall be
addressed to:
Prometheus Western Retail, LLC
c/o Lazard Freres Real Estate Investors, LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020
Attention: Arthur P. Solomon
Telecopy Number: (212) 632-6052
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Kevin Grehan, Esq.
Telecopy Number: (212) 474-3700
(e) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors.
Neither party shall be permitted to assign any of its rights hereunder to
any third party, except that if (i) Buyer transfers or pledges any or all
Registrable Securities to a bona fide financial institution as security for
any bona fide indebtedness of any Buyer and such financial institution
agrees to be bound by the Stockholders Agreement, the pledgee of the
Registrable Securities shall be considered an intended beneficiary hereof
and may exercise all rights of Buyer hereunder, and (ii) any person
included within the definition of the term Buyer shall be permitted to
assign its rights hereunder to any other person included within such
definition.
(f) Headings. The Section and other headings contained in this Agreement
are inserted for convenience of reference only and will not affect the
meaning or interpretation of this Agreement. All references to Sections or
other headings contained herein mean Sections or other headings of this
Agreement unless otherwise stated.
(g) Amendments and Waivers. This Agreement may not be modified or amended
except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought.
Either party hereto may, only by an instrument in writing, waive compliance
by the other party hereto with any term or provision hereof on the part of
such other party hereto to be performed or complied with. The waiver by any
party hereto of a breach of any term or provision hereof shall not be
construed as a waiver of any subsequent breach.
(h) Interpretation; Absence of Presumption. For the purposes hereof, (i)
words in the singular shall be held to include the plural and vice versa
and words ofone gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof", "herein", and "herewith" and
words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section, paragraph or other references are to the
Sections, paragraphs, or other references to this Agreement unless
otherwise specified, (iii) the word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation,"
unless the context otherwise requires or unless otherwise specified, (iv)
the word "or" shall not be exclusive, and (v) provisions shall apply, when
appropriate, to successive events and transactions.
This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
(i) Severability. Any provision hereof which is invalid or unenforceable
shall be ineffective to the extent of such invalidity or unenforceability,
without affecting in any way the remaining provisions hereof.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the day first above written.
ALEXANDER HAAGEN PROPERTIES, INC.
/s/ Alexander Haagen Sr.
By: _________________________________
Name: Alexander Haagen, Sr.
Title: Chairman, President and
Chief Executive Officer
PROMETHEUS WESTERN RETAIL, LLC
by: LF Strategic Realty
Investors, L.P., its member
by: Lazard Freres Real Estate
Investors, LLC, its
general partner
/s/ Anthony E. Meyer
By: _________________________________
Name: Anthony E. Meyer
Title: Chief Investment Officer
11
<PAGE>
APPENDIX D
THIRD AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK OPTION
AND INCENTIVE PLAN FOR OFFICERS, DIRECTORS AND
KEY EMPLOYEES OF ALEXANDER HAAGEN PROPERTIES, INC.,
ALEXANDER HAAGEN PROPERTIES OPERATING PARTNERSHIP, L.P.
AND
HAAGEN PROPERTY MANAGEMENT, INC.
Alexander Haagen Properties, Inc., a Maryland corporation, adopted The 1993
Stock Option and Incentive Plan for Officers, Directors and Key Employees of
Alexander Haagen Properties, Inc., Alexander Haagen Properties Operating
Partnership, L.P. and Haagen Property Management, Inc., effective December 10,
1993. Such plan was amended on August 14, 1995 and was amended and restated on
February 28, 1996 (such amended and restated plan is hereinafter referred to
as the "Plan"). An amendment to the Plan was authorized by a resolution of the
Board of Directors of the Company on November 19, 1996 (such amendment to the
Plan is hereinafter referred to as the "First Amendment"). An additional
amendment was authorized by a resolution of the Compensation Committee of the
Board of Directors of the Company on February 27, 1997 (such amendment to the
Plan is hereinafter referred to as the "Second Amendment"). The Plan consists
of three plans: (i) one for the benefit of the key employees of Alexander
Haagen Properties, Inc. and the Company Subsidiaries (as defined in the Plan),
(ii) one for the benefit of the Independent Directors (as defined in the Plan)
and (iii) one for the benefit of key employees of Alexander Haagen Properties
Operating Partnership, L.P., a California limited partnership, and the
Operating Partnership Subsidiaries (as defined in the Plan), Haagen Property
Management, Inc., a California corporation, and the HPMI Subsidiaries (as
defined in the Plan) and the directors of Haagen Property Management, Inc.
As allowed by Section 9.2 of the Plan, this amendment to the Plan (the
"Third Amendment") was authorized by a resolution of the Compensation
Committee of the Board of Directors of the Company on May 30, 1997, subject to
and effective upon stockholder approval. This Third Amendment, together with
the Plan, the First Amendment and the Second Amendment, constitutes the entire
Plan as amended to date.
Section 2.1(a) of the Plan is hereby amended and restated in its entirety as
follows:
(a) The shares of stock subject to Options or Restricted Stock Awards
shall be Common Stock, initially shares of the Company's common stock, par
value $.01 per share, as presently constituted, and the aggregate number of
such shares which may be issued upon exercise of such Options or upon any
such awards under the Plan shall not exceed 2,000,000 (which amount
includes (i) the original 850,000 shares authorized to be issued upon
exercise of such Options or upon any such awards under the Plan, (ii) an
additional 500,000 shares authorized to be issued upon exercise of such
Options or upon any such awards under the Plan by a resolution of the
Committee on February 27, 1997 and (iii) an additional 650,000 shares
authorized to be issued upon exercise of such Options or upon any such
awards under the Plan by a resolution of the Committee on May 30, 1997).
The shares of Common Stock issuable upon exercise or grant of an Option, or
as Restricted Stock, may be either previously authorized but unissued
shares or treasury shares.
Executed at Manhattan Beach, California, this day of ,
1997.
By __________________________________
President
By __________________________________
Secretary
<PAGE>
APPENDIX E
FORM OF
FOURTH AMENDMENT TO THE AMENDED AND RESTATED 1993 STOCK
OPTION AND INCENTIVE PLAN FOR OFFICERS, DIRECTORS AND
KEY EMPLOYEES OF ALEXANDER HAAGEN PROPERTIES, INC.,
ALEXANDER HAAGEN PROPERTIES OPERATING PARTNERSHIP, L.P.
AND
HAAGEN PROPERTY MANAGEMENT, INC.
Alexander Haagen Properties, Inc., a Maryland corporation, adopted The 1993
Stock Option and Incentive Plan for Officers, Directors and Key Employees of
Alexander Haagen Properties, Inc., Alexander Haagen Properties Operating
Partnership, L.P. and Haagen Property Management, Inc., effective December 10,
1993. Such plan was amended on August 14, 1995 and was amended and restated on
February 28, 1996 (such amended and restated plan is hereinafter referred to
as the "Plan"). An amendment to the Plan was authorized by a resolution of the
Board of Directors of the Company on November 19, 1996 (such amendment to the
Plan is hereinafter referred to as the "First Amendment"). An additional
amendment was authorized by a resolution of the Compensation Committee of the
Board of Directors of the Company on February 27, 1997 (such amendment to the
Plan is hereinafter referred to as the "Second Amendment"). A third amendment
to the Plan was authorized by a resolution of the Compensation Committee of
the Board of Directors of the Company on May 30, 1997 (such amendment to the
Plan is hereinafter referred to as the "Third Amendment"). The Plan consists
of three plans: (i) one for the benefit of the key employees of Alexander
Haagen Properties, Inc. and the Company Subsidiaries (as defined in the Plan),
(ii) one for the benefit of the Independent Directors (as defined in the Plan)
and (iii) one for the benefit of key employees of Alexander Haagen Properties
Operating Partnership, L.P., a California limited partnership, and the
Operating Partnership Subsidiaries (as defined in the Plan), Haagen Property
Management, Inc., a California corporation, and the HPMI Subsidiaries (as
defined in the Plan) and the directors of Haagen Property Management, Inc.
As allowed by Section 9.2 of the Plan, this amendment to the Plan (the
"Fourth Amendment") was authorized by a resolution of the Board of Directors
of the Company on July , 1997, subject to and effective upon stockholder
approval. This Fourth Amendment, together with the Plan, the First Amedment,
the Second Amendment and the Third Amendment, constitutes the entire Plan as
amended to date.
1. Section 4.4(a) of the Plan is hereby amended and restated in its entirety
as follows:
(a) The period during which the right to exercise an Option in whole or
in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in
part for a specified period after it is granted; provided, however, that,
unless the Committee otherwise provides in the terms of the Option or
otherwise, no Option shall be exercisable by any Optionee who is then
subject to Section 16 of the Exchange Act within the period ending six
months and one day from the date the Option is granted; and provided,
further, that except as provided in this Section 4.4(a) Options granted to
Independent Directors shall become exercisable in cumulative annual
installments of 25% on each of the first, second, third and fourth
anniversaries of the date of Option grant, without variation or
acceleration hereunder except as provided in Section 9.3(b). At any time
after grant of an Option, the Committee may, in its sole and absolute
discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option (except an Option granted to
an Independent Director) vests. Notwithstanding any provision of this
Section 4.4(a) or the Plan to the contrary, Options awarded to Tom Bradley,
James Hankla and Warren Fix prior to the approval by the stockholders of
the transactions contemplated by the Stock Purchase Agreement with LF
Strategic Realty Investors, L.P. and Prometheus Western Retail, LLC. shall
become fully exercisable on the date of such shareholder approval.
<PAGE>
2. Section 5.7 of the Plan is hereby amended and restated in its entirety as
follows:
5.7 Transfer of Payment to the Operating Partnership. As soon as
practicable after receipt by the Company (i) of the amount described in
Section 5.3(d), (ii) the HPMI Partnership Purchase Price described in
Section 5.5 and (iii) the Partnership Purchase Price described in Section
5.6, the Company may contribute to the Operating Partnership an amount of
cash equal to such payment and the Operating Partnership shall issue
additional General Partner Interests to the Company on the terms set forth
in the Partnership Agreement.
3. Section 5.12(c) is hereby amended to revise the reference to "Section
5.6(a)(ii)" to refer instead to "Section 5.5."
4. Section 6.1 of the Plan is hereby amended and restated in its entirety as
follows:
6.1 Eligibility. Subject to the Ownership Limit, Restricted Stock may be
awarded to any Employee whom the Committee, pursuant to Section 3.4(a)(i),
determines is a key Employee and to any Independent Director as the Board,
in its sole and absolute discretion, and subject to applicable limitations
of this Plan, deems appropriate. Subject to the Award Limit and the
Ownership Limit, each Independent Director shall also be eligible to be
awarded Restricted Stock at the time and in the manner set forth in Section
6.2(d) of this Plan.
5. Section 7.4(c) of the Plan is hereby amended and restated in its entirety
as follows:
(c) Notwithstanding any provision of this Section 7.4 to the contrary,
the restrictions imposed pursuant to Section 7.4(b) on each share of
Restricted Stock awarded to an Independent Director pursuant to
Section 6.2(d) of the Plan (including any shares received by holders
thereof with respect to shares of Restricted Stock as a result of stock
dividends, stock splits or any other form of recapitalization) shall lapse
in the following cumulative installments: (i) such restrictions shall lapse
with respect to 333 of such shares on February 27, 1998, provided that the
Independent Director has not had a Termination of Directorship prior to
such date, (ii) such restrictions shall lapse with respect to 333 of such
shares on February 27, 1999, provided that the Independent Director has not
had a Termination of Directorship prior to such date, and (iii) such
restrictions shall lapse with respect to 334 of such shares on February 27,
2000, provided that the Independent Director has not had a Termination of
Directorship prior to such date; provided, however, that notwithstanding
any provision of this Section 7.4(c) or the Plan to the contrary, the
restrictions imposed pursuant to Section 7.4(b) on each share of Restricted
Stock awarded to Tom Bradley, James Hankla and Warren Fix pursuant to
Section 6.2(d) of the Plan (including any shares received by holders
thereof with respect to shares of Restricted Stock as a result of stock
dividends, stock splits or any other form of recapitalization) shall lapse
upon the date that the stockholders of the Company approve the transactions
contemplated by the Stock Purchase Agreement with LF Strategic Realty
Investors, L.P. and Prometheus Western Retail, LLC.
Executed at Manhattan Beach, California, this day of , 1997.
By
___________________________________
President
By
___________________________________
Secretary
2
<PAGE>
[LETTERHEAD OF PRUDENTIAL SECURITIES]
APPENDIX F
Board of Directors
Alexander Haagen Properties, Inc.
3500 Sepulveda Boulevard
Manhattan Beach, California 90266May 30, 1997
Gentlemen:
We understand that Alexander Haagen Properties, Inc. a Maryland corporation
(the "Company"), and Lazard Freres Real Estate Investors, LLC, a New York
Limited Liability Company (the "Investor"), propose to enter into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which, among
other things, the Investor (through affiliated partnership(s) managed by the
Investor) will invest up to $235 million in the Company (the "Investment") by
purchasing from the Company 15,666,666 newly issued shares of the Company's
common stock, par value $.01, (the "Common Stock") for cash at a price of
$15.00 per share (the "Consideration").
You have asked us whether, in our opinion, the proposed Consideration to be
received by the Company as a result of the Investment is fair to the
stockholders of the Company from a financial point of view.
In conducting our analysis and arriving at the opinion set forth below, we
have reviewed such materials and considered such financial and other factors,
including:
1. the Company's Annual Report, the Form 10-K and related financial
information for the fiscal year ended December 31, 1996 and the Company's Form
10-Q and the related unaudited financial information for the quarterly period
ended March 31, 1997;
2. certain information, including projections, relating to the business,
earnings, cash flow, assets and prospects of the Company, furnished to us by
the Company;
3. the historical market prices and trading activity for the Common Stock and
certain publicly traded companies we deemed to be reasonably similar to the
Company and the historical and projected results of operations of the Company
and historical and certain future earnings estimates of selected companies we
deemed to be reasonably similar to the Company;
4. publicly available financial, operating and stock market data concerning
certain companies engaged in businesses we deemed comparable to the Company or
otherwise relevant to our inquiry;
5. the financial terms of certain recent transactions we deemed relevant;
6. drafts, dated May 27, 1997, of the Stock Purchase Agreement, Stockholders
Agreement and the Registration Rights Agreement (collectively, the
"Agreements"); and
7. such other financial studies, analyses and investigations and such other
matters we deemed necessary.
We have assumed, with your consent, that the drafts of the Agreements which
we reviewed will conform in all material respects to those documents when in
final form.
<PAGE>
[LETTERHEAD OF PRUDENTIAL SECURITIES]
We have met with senior management of the Company and the Investor to
discuss: (i) the prospects for their business, (ii) their estimate of such
businesses' future financial performance, (iii) the financial impact of the
Investment on the Company, and (iv) such other matters as we deemed relevant.
We have also visited selected Company properties.
In preparing our opinion, we have relied on the accuracy and completeness of
publicly available information and all of the information supplied or otherwise
made available to us by the Company and the Investor, and we have not
independently verified such information or undertaken an independent appraisal
of the assets of the Company. With respect to the projections furnished by the
Company, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's management
as to the expected future financial performance of the Company.
As you know, we have been retained by the Company to render this opinion and
other financial advisory services in connection with the Investment and will
receive a fee for such service, a portion of which fee is contingent upon the
stockholders of the Company approving the Investment. We may actively trade the
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.
This letter and the opinion expressed herein may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in
any manner, without our prior written consent; provided, the Company may set
forth in full this letter in any proxy statement relating to the Investment
sent to the Company's stockholders.
Our advisory services and the opinion expressed herein is solely for the
benefit of the Board of Directors of the Company in the evaluation of the
Investment, and our opinion is not intended to be, and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote in connection with the Investment.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the Company pursuant
to the Investment is fair to the stockholders from a financial point of view.
Very truly yours,
/s/ Prudential Securities Incorporated
Prudential Securities Incorporated
<PAGE>
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ALEXANDER HAAGEN PROPERTIES, INC.
SPECIAL MEETING OF STOCKHOLDERS-- , 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P The undersigned stockholder of Alexander Haagen Properties, Inc. does
hereby nominate, constitute and appoint Alexander Haagen III and Steven
R Jaffe or either of them, the true and lawful proxies, agents and attorneys
of the undersigned, with full power of substitution, to vote for the
O undersigned all of the common stock of said corporation standing in the name
of the undersigned on its books at the close of business on July , 1997 at
X the Special Meeting of Stockholders to be held at The Radisson Hotel, Suite
, 1400 Parkview Avenue, Manhattan Beach, California, on , 1997 or
Y at any adjournment thereof, with all of the powers which would be possessed
by the undersigned if personally present as follows on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
-----------------------
SEE REVERSE SIDE
-----------------------
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[X] Please mark votes as in this example.
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
TRANSACTION AND FOR THE APPROVAL OF THE AMENDED AND RESTATED 1993 STOCK OPTION
AND INCENTIVE PLAN, AS AMENDED.
1. Approval of the Transactions contemplated by the Stock Purchase Agreement:
FOR [_] AGAINST [_]
2. Approval of the Amended and Restated 1993 Stock Option and Incentive Plan
as amended: FOR [_] AGAINST [_]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark here for address change and note below [_]
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders dated , 1997 and the Proxy Statement furnished
therewith.
Signature: Date:
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Signature: Date:
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NOTE: Please sign name exactly as your
name (or names) appear on the stock
certificate. When signing as attorney,
executor, administrator, trustee or
guardian please give full title. If more
than one trustee, all should sign. All
joint owners must sign.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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