<PAGE> 1
DRAFT - OCTOBER 24, 2000
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
</TABLE>
FIRST WASHINGTON REALTY TRUST, 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):
[_] No fee required.
[X] 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:
Common Stock, par value $.01 per share ("common stock"), and Series A Cumulative
Participating Convertible Preferred Stock, par value $.01 per share ("preferred
stock"), each of First Washington Realty Trust, Inc. (the "Company").
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 10,480,020
outstanding shares of the common stock, plus (i) 1,254,633 shares underlying
outstanding options to purchase shares of common stock and (ii) 150,000
contingent shares of common stock; and 1,954,004 outstanding shares of the
preferred stock, plus 85,760 shares of
<PAGE> 2
preferred stock issuable upon conversion of preferred units of limited
partnership interest in the Company's operating partnership (the "preferred
units").
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): The filing fee was based upon
the sum of: (a) the product of 10,480,020 shares of common stock and the
estimated transaction consideration of $26 per share of common stock; (b) the
product of 2,039,764 shares of preferred stock (assuming conversion of the
preferred units) and the estimated transaction consideration of $33.33 per share
of preferred stock; (c) the difference between $26 per share of common stock and
the exercise price per share of each of the 1,254,633 outstanding options; and
(d) $3,900,000 paid in settlement of the 150,000 contingent shares of our common
stock. In accordance with Rule 0-11(c), the fee was calculated to be
one-fiftieth of one percent of the amount calculated pursuant to the preceding
sentence.
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $351,565,854
---------------------------------------------------------------------------
(5) Total fee paid: $70,313
---------------------------------------------------------------------------
[ ] 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> 3
FIRST WASHINGTON REALTY TRUST, INC.
4350 EAST-WEST HIGHWAY, SUITE 400
BETHESDA, MARYLAND 20814
[______], 2000
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of First Washington Realty Trust, Inc. to be held at
[_______________________________], at [10:00 a.m.], local time, on
[_______________], 2000. At the Special Meeting, you will be asked to consider
and approve the Company's plan of liquidation and, in connection with it, the
disposition of substantially all of our assets to, and the merger with and into,
affiliates of U.S. Retail Partners, LLC, a Delaware limited liability company
and joint venture affiliate of the California Public Employees' Retirement
System, in the following manner: (1) the sale of 57 of 63 of the properties and
certain other assets indirectly owned by First Washington Realty Trust to USRP
I, LLC, a Delaware limited liability company; (2) the conversion of First
Washington Realty Trust's general partnership interest (including both common
units and preferred units) in First Washington Realty Limited Partnership,
which is First Washington Realty Trust's operating partnership, into a 1%
general partnership interest and Series A Common Units of limited partnership
interest representing the Company's remaining interest in the operating
partnership; (3) the sale of this new converted limited partnership interest by
First Washington Realty Trust to USRP LP, LLC, a Delaware limited liability
company; (4) the merger of First Washington Realty Trust into USRP GP, LLC, a
Delaware limited liability company; and (5) the merger of the operating
partnership with and into US Retail Partners Limited Partnership, a Delaware
limited partnership.
The foregoing proposed transactions are governed by: a master
agreement, dated September 27, 2000, among First Washington Realty Trust, the
operating partnership and their subsidiaries and U.S. Retail Partners and
certain of its affiliates; a real estate purchase agreement, dated September
27, 2000, among First Washington Realty Trust, the operating partnership and
certain of their affiliates and USRP I, LLC; a limited partnership interest
purchase and sale agreement, dated as of September 27, 2000, between First
Washington Realty Trust and USRP LP, LLC; and an agreement and plan of merger,
dated as of September 27, 2000, among First Washington Realty Trust, the
operating partnership, US Retail Partners Limited Partnership and USRP GP, LLC.
You should read carefully all of these agreements, a copy of each of which is
attached as Exhibits A, B, C and D, respectively, to the accompanying proxy
statement. Upon completion of the proposed transactions, the holders of each
issued and outstanding share of our common stock, par value $.01 per share, will
be entitled to receive approximately $26.00 per share, and the holders of each
issued and outstanding share of our Series A Cumulative Participating
Convertible Preferred Stock, par value $.01 per share, will be entitled to
receive approximately $33.33 per share, in cash, without interest; however, the
actual amounts paid may vary according to a number of factors, including, but
not limited to, transaction expenses, First Washington Realty Trust's
operations prior to the closing of the transactions and certain closing
adjustments. The affirmative vote of holders of shares of common stock entitled
to cast a majority of the votes entitled to be cast at the Special Meeting is
necessary to approve the plan of liquidation and the transactions.
<PAGE> 4
Acting upon the recommendation and unanimous approval of the
transactions by a special committee of our Board of Directors consisting of
independent directors, which committee was organized to evaluate and review the
fairness of the transactions, our Board of Directors unanimously approved the
transactions and concluded that the transactions are advisable and in the best
interests of our stockholders and unanimously recommends that our stockholders
approve the transactions. Among the factors considered by our Board of Directors
in evaluating the transactions was the opinion, dated September 27, 2000, of
Chase Securities Inc., our financial advisor, to the effect that, as of such
date, and based upon and subject to the various qualifications and assumptions
set forth in the opinion, that (i) the consideration to be paid by USRP I, LLC
pursuant to the real estate purchase agreement, including the assumption of
certain liabilities as provided therein, was fair, from a financial point
of view, to the operating partnership and (ii) the consideration to be paid by
USRP GP, LLC and US Retail Partners Limited Partnership pursuant to the merger
agreement and the consideration to be paid by USRP I, LLC pursuant to the real
estate purchase agreement, taken together as a whole and not separately, was
fair, from a financial point of view, to First Washington Realty Trust and its
stockholders and the operating partnership and its partners. The written opinion
of Chase Securities Inc. is attached as Appendix E to the accompanying proxy
statement and should be read carefully and in its entirety.
The accompanying proxy statement provides you with a summary of the
transactions and additional information about the parties involved. If the
transactions are approved by the requisite holders of our common stock, the
closing of the transactions will occur as soon after the Special Meeting as all
of the other conditions to the closing of the transactions are satisfied or
waived.
Please give all of this information your careful attention. Whether
or not you plan to attend the Special Meeting, you are requested to promptly
complete, sign and date the enclosed proxy card and return it in the envelope
provided. This will not prevent you from voting your shares in person if you
subsequently choose to attend the Special Meeting.
Sincerely,
/s/ Stuart D. Halpert
---------------------
Stuart D. Halpert
Chairman
/s/ William J. Wolfe
--------------------
William J. Wolfe
President and Chief Executive
Officer
2
<PAGE> 5
FIRST WASHINGTON REALTY TRUST, INC.
4350 EAST-WEST HIGHWAY, SUITE 400
BETHESDA, MARYLAND 20814
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [_______], 2000
To our Stockholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
First Washington Realty Trust, Inc., a Maryland corporation, will be held at
[__________________], on [________, ________ __,] 2000, at 10:00 a.m., local
time, for the following purposes:
1. to consider and approve the adoption of First Washington Realty
Trust's plan of liquidation and, in connection with it, the
disposition of substantially all of our assets to, and the merger
with and into, affiliates of U.S. Retail Partners, LLC, a Delaware
limited liability company and a joint venture of the California Public
Employees' Retirement System, pursuant to a master agreement, dated
September 27, 2000, among First Washington Realty Trust, First
Washington Realty Limited Partnership, a Maryland limited partnership
(First Washington Realty Trust's operating partnership), and their
subsidiaries and U.S. Retail Partners and certain of its affiliates,
attached as Exhibit A to the enclosed proxy statement, and additional
transaction agreements contemplated therein and attached as exhibits
B, C, and D, respectively, to the enclosed proxy statement, in the
following manner: (1) the sale of 57 of 63 of the properties and
certain other assets owned by First Washington Realty Trust and its
subsidiaries to USRP I, LLC, a Delaware limited liability company;
(2) the conversion of First Washington Realty Trust's general
partnership interest (including both common units and preferred
units) in the operating partnership into a 1% general partnership
interest and Series A Common Units of limited partnership interest
representing the Company's remaining interest in the Operating
Partnership; (3) the sale of the new limited partnership interest
by First Washington Realty Trust to USRP LP, LLC, a Delaware limited
liability company; (4) the merger of First Washington Realty Trust
into USRP GP, LLC, a Delaware limited liability company; and (5) the
merger of the operating partnership with and into US Retail Partners
Limited Partnership, a Delaware limited partnership; and
2. to transact any other business as may properly come before the Special
Meeting and any adjournments or postponements of that meeting or
matters incidental thereto.
Our Board of Directors has fixed the close of business on [_______],
2000 as the record date for the Special Meeting. Accordingly, only stockholders
of record on that date will be entitled to notice of and to vote at the Special
Meeting and any adjournment or postponement of that meeting. A form of proxy and
a proxy statement containing more detailed information with respect to matters
to be considered at the Special Meeting accompany and are a part of this notice.
<PAGE> 6
All stockholders are cordially invited to attend the Special
Meeting. To ensure your representation at the Special Meeting, however, you are
urged to complete, date, sign and return the enclosed proxy as promptly as
possible. We have enclosed a postage-prepaid envelope for that purpose. If you
attend the Special Meeting, you may vote in person even if you have already
returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
by: /s/ Jeffrey S. Distenfeld
------------------------------
Name: Jeffrey S. Distenfeld
Title: Secretary
[_________], 2000
2
<PAGE> 7
FIRST WASHINGTON REALTY TRUST, INC.
4350 EAST-WEST HIGHWAY, SUITE 400
BETHESDA, MARYLAND 20814
----------------------------------------------
PROXY STATEMENT
----------------------------------------------
Special Meeting of Stockholders
To Be Held On [____________], 2000
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this
proxy statement and may not contain all of the information that is important to
you. To understand the transactions fully and for a more complete description of
the legal terms of the transactions, you should carefully read this entire
document, as well as the additional documents to which we refer you, including
the transaction agreements attached as Exhibits A, B, C and D. We have included
page references in parentheses to direct you to a more complete description of
the topics presented in this summary. This proxy statement is first being mailed
to our stockholders on or about [_________], 2000.
PARTIES TO THE TRANSACTIONS (page [__])
- First Washington Realty Trust, Inc. We are a Maryland corporation
qualified as a real estate investment trust with expertise in
acquisitions, property management, leasing, renovation and development
of principally supermarket-anchored neighborhood shopping centers. We
conduct substantially all of our operations through our operating
partnership, First Washington Realty Limited Partnership, which is
described below. We refer to ourselves throughout this proxy statement
as the "Company," "we" or "us." Our principal office is located at
4350 East-West Highway, Suite 400, Bethesda, Maryland 20814 and the
telephone number of our offices is (301) 907-7800.
- First Washington Realty Limited Partnership. First Washington Realty
Limited Partnership, referred to throughout this proxy statement as
the Operating Partnership, is the Maryland limited partnership through
which the Company conducts substantially all of the operations of the
Company and its subsidiaries. The Operating Partnership's principal
office is located at 4350 East-West Highway, Suite 400, Bethesda,
Maryland 20814 and the telephone number of its offices is (301)
907-7800.
- The USRP Entities. The acquiring parties, referred to throughout this
proxy statement as the "USRP Entities", consist of USRP GP, LLC, a
Delaware limited
<PAGE> 8
liability company, which we refer to throughout this proxy statement
as "MergerCo", US Retail Partners Limited Partnership, a Delaware
limited partnership, which we refer to throughout this proxy as
"MergerLP", USRP LP, LLC, a Delaware limited liability company, USRP
I, LLC, a Delaware limited liability company, and U.S. Retail
Partners, LLC, a Delaware limited liability company. MergerCo,
MergerLP, USRP LP, LLC and USRP I, LLC have been formed solely for the
purpose of engaging in the transactions. U.S. Retail Partners, LLC is
a joint venture affiliate of the California Public Employees'
Retirement System ("CalPERS"), which is the largest public pension
fund in the United States, with over $177 billion in assets as of
August 31, 2000, and National Retail Partners, LLC, a Delaware limited
liability company. The principal office of each of the USRP Entities
is: 10135 SE Sunnyside Road, Ste. 250, Clackamas, Oregon 97015 and the
telephone number of its offices is (503) 513-4660.
THE TRANSACTIONS (page [__])
- In a series of transactions, we will sell substantially all of our
assets and merge with and into MergerCo, pursuant to four transaction
agreements attached hereto as exhibits A, B, C and D, all of which are
incorporated herein by reference. In connection with the transaction
agreements and the transactions, we are proposing for adoption by the
holders of our common stock the plan of liquidation attached hereto as
Exhibit F.
- Management estimates that the net proceeds of these transactions,
after the payment of debt, transaction expenses and other liabilities,
will result in the distribution to each holder of our common stock,
par value $.01 per share, which we refer to throughout this proxy
statement as our "common stock", of approximately $26.00 per share,
and to each holder of Series A Cumulative Participating Convertible
preferred stock, par value $.01 per share, which we refer to
throughout this proxy statement as our "Series A preferred stock", of
approximately $33.33 per share. However, the actual amount paid to the
holders of such stock may vary according to a number of factors,
including, but not limited to, transaction expenses, the Company's
operations prior to the closing of the transactions and certain
closing adjustments.
- The transactions will occur in the following order:
- the Company and its subsidiaries will sell 57 of our 63
properties and certain other assets to USRP I, LLC and distribute
the cash proceeds of this sale to the Operating Partnership's
partners and our stockholders;
- except for a 1% general partnership interest, which we will
retain, the Operating Partnership will convert all of our general
partnership interest (including both common units and preferred
units) in the Operating Partnership into Series A Common Units of
limited partnership interest in the Operating Partnership, and we
will then sell this limited partnership interest to USRP LP, LLC
in exchange for a promissory note; and
2
<PAGE> 9
- we will merge with and into MergerCo (the "Company Merger")
simultaneously with the Operating Partnership merging with and
into MergerLP (the "Partnership Merger"), in each case, for cash,
except to the extent the Operating Partnership's limited partners
elect to receive preferred units of limited partnership interest
in MergerLP.
- After the completion of the transactions, we will cease to exist as a
separate legal entity and our stockholders will have no continuing
interest in, and will not share in the future earnings, dividends or
growth, if any, of the surviving corporation, MergerCo. In addition,
after the transactions have been completed, our common stock and
Series A preferred stock will no longer be listed on the New York
Stock Exchange or registered with the Securities and Exchange
Commission.
FAIRNESS OPINION (page [__])
- Chase Securities Inc., which we refer to throughout this proxy
statement as "Chase", has acted as our financial advisor in connection
with the transactions. Chase delivered to our Board of Directors an
opinion to the effect that, as of September 27, 2000, and based upon
and subject to the various qualifications and assumptions set forth in
the opinion (i) the consideration to be paid by USRP I, LLC pursuant
to the real estate purchase agreement, including the assumption of
certain liabilities as provided therein, was fair, from a financial
point of view, to the Operating Partnership and (ii) the
consideration to be paid by MergerCo and MergerLP pursuant to the
merger agreement and the consideration to be paid by USRP I, LLC
pursuant to the real estate purchase agreement, taken together as a
whole and not separately, was fair, from a financial point of view,
to the Company and its stockholders and the Operating Partnership
and its partners.
- The full text of the written opinion of Chase, dated September 27,
2000, which sets forth the assumptions made, procedures followed,
matters considered and limits of the review performed by Chase in
arriving at its opinion, is attached as Exhibit E to, and is
incorporated by reference in, this proxy statement. Chase's opinion
does not constitute a recommendation as to how any stockholder should
vote with respect to the transactions. You should carefully read the
opinion in its entirety.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS AND
REASONS FOR THE TRANSACTIONS (page [__])
- After an evaluation of a variety of business, financial and market
factors and consultation with our legal and financial advisors, at a
meeting on September 25, 2000, both a special committee of independent
directors organized to review and evaluate the fairness of the
transactions, which we refer to throughout this proxy statement as the
"special committee", and our entire Board of Directors determined that
the transactions were fair to, and in the best interests of, the
Company and its stockholders, unanimously approved the liquidation of
the Company and the transactions and the transaction agreements, and
unanimously recommended that our stockholders approve the liquidation
of the Company and the transactions.
3
<PAGE> 10
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS (page [__])
- Certain of our directors, executive officers and employees have
interests in the transactions that may differ from your interests as a
stockholder. Our Board and the special committee were aware of these
interests and considered them, among other matters, in approving and
recommending the transactions and the transaction agreements.
- Severance Payments. Mr. Halpert's and Mr. Wolfe's employment
agreements with the Company will result in Messrs. Halpert and
Wolfe each receiving a cash severance payment, as well as a
gross-up payment to offset any federal excise tax incurred on the
receipt of severance and other payments resulting from the
transactions.
- Retention Bonuses. The Company will pay retention bonuses to
members of senior management other than Messrs. Halpert and Wolfe
and to other employees.
- Restricted and/or Contingent Stock. Members of our management
hold restricted shares of our common stock, which will become
fully vested and unrestricted as a result of the transactions. In
addition, Messrs. Halpert and Wolfe hold contingent shares of our
common stock, which will be settled in cash as a result of the
transactions.
- Stock Options. Members of our management, as well as other
employees and directors, hold options on our common stock, which
will be accelerated and settled in cash in an amount with respect
to each option equal to the excess of the aggregate transaction
consideration payable for the underlying stock over the
applicable aggregate exercise price.
- Management Agreement. Messrs. Halpert and Wolfe and their
jointly-owned company, FRW, Inc., a Maryland corporation, entered
into a management agreement with USRP I, LLC and MergerLP,
which we refer to herein as the "management agreement", pursuant
to which FRW, Inc. has agreed (i) to manage the properties to be
acquired by USRP I LLC and Merger LP for a three-year period,
(ii) to acquire the furniture, fixtures and equipment of the
Company's current management company and (iii) to assume certain
liabilities relating to the Company's employee benefits plans
and similar plans and certain liabilities with respect to leases
entered into by the Company's current management company, and
FRW, Inc. and Messrs. Halpert and Wolfe have agreed to a
covenant not to compete. Messrs. Halpert and Wolfe have each
personally agreed to a number of additional covenants with
respect to the services they will render under the management
agreement, including to provide consulting services to U.S.
Retail Partners, LLC, as needed, to help implement CalPERS' East
Coast shopping center strategy. In exchange for these covenants
and services, the management agreement provides for: (i)
retention payments to Messrs. Halpert and Wolfe of $4,000,000
each, subject to forfeiture and
4
<PAGE> 11
reimbursement if specified duties are not satisfied during the
initial three-year term; (ii) retention payments to other members
of our senior management of $4,500,000 in the aggregate; and
(iii) fees for services, including property management fees,
acquisition fees, leasing fees and other similar fees and
incentives described therein and in "Terms of the Transactions -
Management Agreement with FRW, Inc.".
THE SPECIAL MEETING (page [__])
- The Special Meeting of our stockholders will be held at
[___________________], on [_________, _______ __], 2000, at 10:00
a.m., local time. At the Special Meeting, the holders of our common
stock will be asked to consider and vote upon a proposal to approve
the transactions.
RECORD DATE AND VOTING POWER (page [__])
- Our Board of Directors has fixed the close of business on [___], 2000
as the record date for determining stockholders entitled to notice of,
and to vote at, the Special Meeting. On the record date, we had (a)
[10,480,020] outstanding shares of our common stock held by
approximately [_______] stockholders of record and (b) [1,954,004]
outstanding shares of our Series A preferred stock held by
approximately [___] stockholders of record. Holders of outstanding
shares of our Series A preferred stock are not entitled to vote on the
transactions. We have no other class of voting securities outstanding.
- Stockholders of record on the record date will be entitled to one vote
per share of our common stock on any matter that may properly come
before the Special Meeting and any adjournment or postponement of that
meeting.
QUORUM AND VOTE REQUIRED (page [__])
- Our charter and bylaws require (a) the presence, in person or by duly
executed proxy, of stockholders entitled to cast at least a majority
of the votes entitled to be cast at the Special Meeting in order to
constitute a quorum and (b) the affirmative vote of stockholders
entitled to cast a majority of the votes entitled to be cast at
the Special Meeting in order to approve the transactions.
PROXIES, VOTING AND REVOCATION (page [__])
- Shares of our common stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special
Meeting, and not revoked, will be voted at the Special Meeting, and
at any adjournments or postponements of that meeting, in accordance
with those instructions on the proxies. If a proxy is duly
executed and submitted without instructions, the shares of our
common stock represented by that proxy will be voted "For" the
approval of the transactions. Proxies are being solicited on
behalf of our Board of Directors.
5
<PAGE> 12
- A proxy may be revoked by the person who executed it at, or before,
the Special Meeting by: (a) delivering to our secretary a written
notice of revocation of a previously delivered proxy bearing a later
date than the proxy; (b) duly executing, dating and delivering to our
secretary a subsequent proxy; or (c) attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not, in and
of itself, constitute revocation of a proxy.
CLOSINGS AND THE EFFECTIVE TIME (page [__])
- The transactions will take place in the required order on the same
day. The mergers, the last step in the transactions, will become
effective as of the date and time that the State Department of
Assessments and Taxation of Maryland has accepted for record the
articles of merger for both mergers and the Secretary of State of the
State of Delaware has accepted for record the certificates of merger
for both mergers. Though we cannot require the USRP Entities to
complete the transactions until all of the conditions to their
obligations under the transaction agreements have been satisfied or
waived, management is working to close the transactions in January
2001.
EXCHANGE OF STOCK CERTIFICATES (page [__])
- Prior to the effective time of the mergers, MergerCo will deposit with
American Stock Transfer & Trust Company, which is acting as the
exchange agent, cash in the amount of the aggregate consideration to
be paid to stockholders pursuant to our merger with and into MergerCo.
Promptly after the effective time of the mergers, the exchange agent
will send to each stockholder a letter of transmittal and detailed
instructions specifying the procedures to be followed for surrendering
stock certificates and receiving the merger consideration. You should
not send your stock certificates to us or anyone else until you
receive these instructions.
CONDITIONS TO THE TRANSACTIONS (page [__])
- The obligations of the USRP Entities to complete the transactions are
subject to a number of conditions, including, but not limited to: the
approval of our stockholders of the transactions; the material
accuracy of our representations and warranties and the performance in
all material respects of our obligations under the transaction
agreements; the receipt of estoppel certificates from specified major
tenants and specified percentages of other tenants; the new management
agreement among our senior management, USRP I, LLC and MergerLP
remaining in full force and effect; and the lack of any material
adverse change in our business, operations or financial condition
between June 30, 2000 and the closings of the transactions.
- Our obligations to complete the transactions are subject to a number
of conditions, including, but not limited to: the approval of our
stockholders of the transactions; the material accuracy of the USRP
Entities' representations and warranties; and the
6
<PAGE> 13
performance in all material respects of the USRP Entities' obligations
under the transaction agreements.
SOLICITATION OF PROPOSALS FROM OTHER PARTIES (page [__])
- In accordance with the master agreement, the Company and its
subsidiaries have agreed that, until the termination of the master
agreement or the effective time of the mergers, they will not
authorize or permit any of their respective officers, directors,
employees, investment bankers, financial advisors, attorneys,
accountants or other representatives to solicit, initiate, facilitate
or encourage any inquiries related to or proposals for any of the
following transactions or any similar transaction:
- a merger, consolidation or similar transaction involving the
Company or any of its subsidiaries;
- the sale, lease or other disposition, directly or indirectly, of
10% or more of the consolidated assets of the Company and its
subsidiaries;
- the issuance, sale or other disposition by the Company or the
Operating Partnership of securities representing 10% or more of
the votes associated with the outstanding securities of the
Company or the Operating Partnership; or
- a tender offer or an exchange offer for 10% or more of the
outstanding shares of our common stock.
- We must promptly notify MergerCo in writing within one business day of
the material terms and conditions of any inquiry or proposal that we
or any of our subsidiaries receive concerning any of the transactions
mentioned above.
- However, prior to the approval of the transactions by our
stockholders, if we receive an unsolicited proposal that our Board of
Directors determines, in good faith, is reasonably likely to lead to a
transaction that is more favorable to our stockholders and the
Operating Partnership's partners than the proposed transactions, then
we may furnish information to the third party making the unsolicited
proposal, and participate in negotiations concerning that proposal, so
long as (1) our Board of Directors has determined in good faith,
after consultation with and consistent with the advice of its legal
counsel and financial advisors, that such action is consistent with
its duties to our stockholders and to the Operating Partnership's
partners under applicable Maryland law and (2) the third party
enters into a confidentiality/standstill agreement with the Company
and its subsidiaries that is satisfactory to the USRP Entities.
TERMINATION OF THE TRANSACTION AGREEMENTS (page [__])
- The transaction agreements may be terminated at any time prior to the
effective time of the mergers by, among other things, the mutual
written consent of the parties or, after the occurrence of certain
events or actions, by one of the parties acting
7
<PAGE> 14
independently. For example, either we, or the USRP Entities may
independently terminate the transaction agreements if:
- the transactions are not consummated before September 30, 2001;
or
- the transactions fail to receive the requisite affirmative vote
of our common stockholders.
- The USRP Entities may terminate the transaction agreements if our
Board of Directors has withdrawn or changed its recommendation of the
transactions or has recommended or publicly remained neutral to an
alternative business combination proposed by a third party.
- Prior to the Special Meeting, we generally may terminate the
transaction agreements if our Board of Directors determines to accept
another business combination proposal that it determines in good faith
will be more favorable to our stockholders and the Operating
Partnership's partners.
TERMINATION FEE; USRP EXPENSES (page [__])
- Termination Fee. The Company and its subsidiaries must pay a
termination fee of $18,000,000, plus up to $3,000,000 of the USRP
Entities' expenses incurred in connection with the transactions, if
the transaction agreements are terminated in certain circumstances,
including the following:
- the Company or any of its subsidiaries has willfully breached any
representation, warranty, covenant or agreement, such that the
conditions to closing are incapable of being satisfied by
September 30, 2001, and, within one year of such termination, the
Company accepts a proposal for a business combination with a
third party;
- our Board of Directors has modified or withdrawn its
recommendation or determined to accept a third party proposal for
an alternative business combination; or
- the transactions are not approved by our stockholders or the
Operating Partnership's limited partners after a competing
proposal has been delivered to the Company or publicly disclosed
and, within one year after the consequent termination of the
transaction agreements, our Board of Directors recommends, or
agrees to recommend, a third party business combination.
- USRP Expenses. The Company and its subsidiaries must reimburse the
USRP Entities for up to $3,000,000 of expenses incurred by the USRP
Entities in connection with the transactions, if the transaction
agreements are terminated in the following circumstances:
8
<PAGE> 15
- the Company or any of its subsidiaries has breached any
representation, warranty, covenant or agreement such that the
conditions to closing are incapable of being satisfied by
September 30, 2001, and such termination does not obligate the
Company to pay the termination fee;
- the transactions fail to receive the required approval of either
our common stockholders or the Operating Partnership's limited
partners; or
- the transactions fail to close by September 30, 2001 due to the
failure of the Company and its subsidiaries to have certain
non-permitted encumbrances removed.
WAIVER AND AMENDMENT (page [__])
- The transaction agreements may be amended by the parties in writing by
action of their respective boards, but, after approval of the
transactions by our stockholders, no amendment may be made for which
approval of our stockholders or the Operating Partnership's partners
is required without obtaining such approvals.
APPRAISAL RIGHTS (page [__])
- No appraisal rights are available to stockholders in connection with
any of the transactions.
FEDERAL INCOME TAX CONSEQUENCES (page [__])
- If the transactions are completed, the receipt of the distribution of
the proceeds from the sale of the 57 properties, as well as the
exchange of our common stock and Series A preferred stock by any of
our stockholders will be taxable transactions under the Internal
Revenue Code. Because of the complexities of the tax laws, we urge you
to consult with your own tax advisors concerning the federal, state,
local, foreign or other tax consequences resulting from the
transactions.
REGULATORY AND OTHER APPROVALS (page [__])
- No federal or state regulatory requirements remain to be complied with
in order to complete the transactions other than the filing of the
articles of merger with the State Department of Assessments and
Taxation of Maryland and the certificates of merger with the Secretary
of State of Delaware, in each case with respect to the Company Merger
and the Partnership Merger.
9
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY TERM SHEET.....................................................1
INTRODUCTION..........................................................13
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS..........................13
WHO CAN HELP ANSWER YOUR QUESTIONS....................................18
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION..........19
THE PARTIES TO THE TRANSACTIONS.......................................20
FIRST WASHINGTON REALTY TRUST, INC..............................20
FIRST WASHINGTON REALTY LIMITED PARTNERSHIP.....................20
THE USRP ENTITIES...............................................20
THE TRANSACTIONS......................................................22
SUMMARY OF THE TRANSACTIONS.....................................22
BACKGROUND OF THE TRANSACTIONS..................................23
OPINION OF FINANCIAL ADVISOR....................................29
PROPERTY PURCHASE CONSIDERATION.................................36
RECOMMENDATION OF THE SPECIAL COMMITTEE AND OUR BOARD OF
DIRECTORS AND REASONS FOR THE TRANSACTIONS...................39
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS................43
DIRECTORS' COMPENSATION.........................................44
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS..45
VOTING AGREEMENTS WITH SENIOR MANAGEMENT........................46
CERTAIN EFFECTS OF THE TRANSACTIONS.............................46
METHOD OF ACCOUNTING............................................47
</TABLE>
10
<PAGE> 17
<TABLE>
<S> <C>
THE SPECIAL MEETING...................................................48
DATE, TIME AND PLACE OF THE SPECIAL MEETING.....................48
PURPOSE OF THE SPECIAL MEETING..................................48
RECORD DATE AND VOTING POWER....................................48
QUORUM AND VOTE REQUIRED........................................48
PROXIES, VOTING AND REVOCATION..................................49
SOLICITATION OF PROXIES AND EXPENSES............................49
TERMS OF THE TRANSACTIONS.............................................50
CLOSINGS AND THE EFFECTIVE TIME.................................50
ASSET SALE......................................................50
INTEREST SALE...................................................51
COMPANY MERGER..................................................52
PARTNERSHIP MERGER..............................................53
CONDUCT OF THE BUSINESS PRIOR TO THE TRANSACTIONS...............55
CONDITIONS TO THE TRANSACTIONS..................................57
REPRESENTATIONS AND WARRANTIES..................................59
SOLICITATION OF PROPOSALS FROM OTHER PARTIES....................60
TERMINATION OF THE TRANSACTION AGREEMENTS.......................61
TERMINATION FEE; USRP EXPENSES..................................62
EXPENSES........................................................63
EMPLOYMENT PROGRAMS.............................................64
INDEMNIFICATION.................................................64
WAIVER AND AMENDMENT............................................65
MANAGEMENT AGREEMENT WITH FRW, INC..............................65
APPRAISAL RIGHTS......................................................67
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................68
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES...................68
</TABLE>
11
<PAGE> 18
<TABLE>
<S> <C>
GENERAL.........................................................69
CONSEQUENCES TO U.S. STOCKHOLDERS...............................70
CONSEQUENCES TO NON-U.S. STOCKHOLDERS...........................70
WITHHOLDING.....................................................71
REGULATORY APPROVALS..................................................72
OTHER MATTERS.........................................................72
PROPOSALS BY OUR STOCKHOLDERS.........................................72
WHERE YOU CAN FIND MORE INFORMATION...................................72
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................73
</TABLE>
PROXY
EXHIBITS
Exhibit A - Master Agreement
Exhibit B - Real Estate Purchase Agreement
Exhibit C - Limited Partnership Interest Purchase and Sale Agreement
Exhibit D - Agreement and Plan of Merger
Exhibit E - Opinion of Chase Securities Inc.
Exhibit F - Plan of Liquidation
12
<PAGE> 19
INTRODUCTION
This proxy statement is being furnished to holders of (a) shares of
common stock, par value $.01 per share, which we refer to herein as our "common
stock", and (b) shares of Series A Cumulative Participating Convertible
Preferred Stock, par value $.01 per share, which we refer to herein as our
"Series A preferred stock", of First Washington Realty Trust, Inc., a Maryland
corporation, which we refer to herein as the "Company", "we" or "us", in
connection with the solicitation of proxies by our Board of Directors for use at
the Special Meeting of Stockholders to be held at [_________________], on
[_________, _________ __], 2000, at 10:00 a.m., local time, and any adjournments
or postponements of that meeting (the "Special Meeting"). The purpose of the
Special Meeting is for our common stockholders to consider and vote upon a
proposal to approve a series of transactions pursuant to which U.S. Retail
Partners, LLC, a Delaware limited liability company, which we refer to herein
as "U.S. Retail Partners LLC", which is a joint venture of the California Public
Employees' Retirement System, which we refer to herein as "CalPERS" and its
affiliates will acquire substantially all of the Company's assets and the
Company will merge with and into USRP GP, LLC, a Delaware limited liability
company and affiliate of U.S. Retail Partners, LLC, which we refer to herein as
"MergerCo". Our Board of Directors has fixed the close of business on
[________], 2000 as the record date for the Special Meeting. Accordingly, only
stockholders of record on that date will be entitled to notice of, and, in the
case of holders of our common stock, to vote at, the Special Meeting.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHO ARE THE PARTIES ACQUIRING THE COMPANY AND ITS ASSETS?
A: The parties acquiring the Company and its assets are affiliates
of U.S. Retail Partners, LLC, a joint venture of National Retail Partners, LLC,
a Delaware limited liability company, which we refer to herein as "National
Retail Partners", and CalPERS, which, with assets as of August 31, 2000 of over
$177 billion, is the largest public pension fund in the United States. The
acquiring partners consist of USRP I, LLC, a Delaware limited liability
company, which we refer to herein as "USRP I, LLC", MergerCo, US Retail
Partners Limited Partnership, a Delaware limited partnership, which we refer to
herein as "MergerLP", and USRP LP, LLC, a Delaware limited liability company,
which we refer to herein as "USRP LP, LLC". We refer herein to U.S. Retail
Partners, LLC, USRP I, LLC, MergerLP, MergerCo and USRP LP, LLC, collectively,
as the "USRP Entities."
Q: WHAT WILL I RECEIVE IN THE TRANSACTIONS?
A: Management estimates that the net proceeds of these transactions,
after the payment of debt, transaction expenses and other liabilities, will
result in the distribution to each holder of our common stock of approximately
$26.00 per share, and to each holder of our Series A preferred stock of
approximately $33.33 per share. However, the actual amounts paid to our
stockholders may vary according to a number of factors, including, but not
limited to, transaction expenses, the Company's operations prior to the closing
of the transactions and certain closing adjustments.
13
<PAGE> 20
Q: WHY HAVE THE TRANSACTIONS BEEN PROPOSED?
A: Our Board of Directors, after consulting with its financial and
legal advisors and acting upon the unanimous recommendation of the special
committee of independent directors organized to review and evaluate the fairness
of the transactions (the "special committee"), has unanimously approved the
transactions and recommends that you vote "For" the transactions. Our Board of
Directors has proposed the transactions because it believes that the
transactions represent a strategic initiative that is in the best interest of
our stockholders. The consideration paid to stockholders in connection with the
transactions represents a significant premium to the historical and recent value
of our common stock and Series A preferred stock, allowing the Company to
achieve in the short run its long-term objective of a substantially higher
valuation of its shares. The estimated amount to be distributed of $26.00 per
share of common stock represents a premium of 25.3% over the closing price of
our common stock on the day before the transactions were announced, and a 28.6%
premium to our common stock's average closing price for the 52-week period ended
that day. Our Board of Directors and the special committee have determined that
this strategic initiative is likely to be more favorable to our stockholders
than any other available strategic initiative, including continuing to operate
as an independent company.
Q: HOW ARE THE TRANSACTIONS STRUCTURED?
A: The transactions described in this proxy statement are structured
in multiple steps occurring in the required order on the same day. In the first
step of the transactions, referred to throughout this proxy statement as the
Asset Sale, the Company and its subsidiaries will sell 57 of their 63 properties
(which represent all of their properties other than the six properties discussed
in answer to the next question below), in addition to working capital and
certain other assets, to USRP I, LLC for cash and the assumption of debt and
distribute the net proceeds of this sale to their stockholders and partners,
respectively. Following the Asset Sale and distribution of the net proceeds, the
Operating Partnership's assets will consist only of the six retained properties
and $3,000,000 in cash. Following a number of additional steps as described in
more detail in this proxy statement, the Company and the Operating Partnership
will simultaneously merge with and into MergerCo and MergerLP, respectively,
after which the Company will cease to exist. Each of the steps of the
transactions is scheduled to be consummated in the required order on the same
day.
Q: WHY ARE THE TRANSACTIONS STRUCTURED IN MULTIPLE STEPS?
A: Each of the six properties excluded from the Asset Sale is
subject to an agreement that prohibits its sale, even in connection with the
merger or sale of all or substantially all of the assets of the Company and its
subsidiaries, unless the sale is pursuant to a tax-free exchange or disposition
such that no taxable gain would be incurred by those persons who contributed
such property to the Operating Partnership. Consequently, these properties are
not part of the properties sold in the Asset Sale.
Q: WHAT VOTE IS REQUIRED OF THE STOCKHOLDERS TO APPROVE THE
TRANSACTIONS?
14
<PAGE> 21
A: Approval of the transactions requires the affirmative vote of
holders of shares of our common stock entitled to cast a majority of the
votes entitled to be cast on the matter. We urge you to complete, execute and
return the enclosed proxy card to assure the representation of your shares at
the Special Meeting.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: We are working to complete the transactions during January of
2001. We cannot, however, require the USRP Entities to complete the transactions
until all conditions to their obligations to consummate the transactions are
satisfied or waived. There are several significant conditions to closing,
including: approval of the transactions by our common stockholders; receipt of a
specific level of estoppel certificates from tenants; subject to qualifications
for materiality, the continuing accuracy of our representations and warranties;
and the absence of any material adverse change to the business, operations or
financial condition of the Company and its subsidiaries.
Q: IF THE TRANSACTIONS ARE COMPLETED, WHEN CAN I EXPECT TO
RECEIVE THE CONSIDERATION FOR MY SHARES OF STOCK?
A: Promptly after the mergers are completed, you will receive
detailed instructions regarding the surrender of your stock certificates. You
should not send your stock certificates to us or anyone else until you receive
these instructions. The Company will arrange for the payment of the merger
consideration to be sent to you as promptly as practicable following the receipt
of your stock certificates and other required documents.
Q: WHY WAS THE SPECIAL COMMITTEE APPOINTED?
A: Due to the potential conflicts of interest existing with respect
to the transactions, our Board of Directors appointed a special committee of
independent directors to review and evaluate the fairness of the transactions.
Potential conflicts of interest include: (i) Mr. Halpert's and Mr. Wolfe's
employment agreements with the Company, which will result in Messrs. Halpert and
Wolfe each receiving a cash severance payment, as well as a gross-up payment to
offset any federal excise tax incurred on the receipt of severance and other
payments resulting from the transactions; (ii) retention payments by the Company
to other members of senior management and to other employees; (iii) full vesting
of restricted shares of our common stock, and settling of our obligations with
respect to contingent shares of our common stock, held by members of our senior
management; and (iv) accelerating and settling in cash outstanding options for
our common stock, many of which are held by our management. For further
information see, "The Transactions -- Interests of Certain Persons in the
Transactions". Separately, Messrs. Halpert and Wolfe and their jointly owned
company, FRW, Inc., a Maryland corporation ("FRW, Inc."), have entered into a
new management agreement with USRP I, LLC and MergerLP, which we refer to herein
as the "management agreement", pursuant to which FRW, Inc. has agreed (i) to
manage the properties to be acquired by USRP I LLC and MergerLP for a
three-year period, (ii) to acquire the furniture, fixtures and equipment of
the Company's current management company and
15
<PAGE> 22
(iii) to assume certain liabilities relating to the Company's employee benefits
plans and similar plans and certain liabilities with respect to leases entered
into by the Company's current management company, and FRW, Inc. and Messrs.
Halpert and Wolfe have agreed to a covenant not to compete. Messrs. Halpert and
Wolfe have each personally agreed to a number of additional covenants with
respect to the services they will render under the management agreement,
including to provide consulting services to U.S. Retail Partners, LLC, as
needed, to help implement CalPERS' East Cost shopping center strategy. In
exchange for these covenants and services, the management agreement provides
for: (i) retention payments to Messrs. Halpert and Wolfe of $4,000,000 each,
subject to pro rata forfeiture and reimbursement if specified duties are not
satisfied during the initial three-year term; (ii) retention payments to other
members of our management of $4,500,000 in the aggregate; and (iii) fees to
FRW, Inc. for services, including property management fees, acquisition fees,
leasing fees and other similar fees and incentives described therein and in
"Terms of the Transactions - Management Agreement with FRW, Inc.". The special
committee considered all of these potential conflicts of interest in making its
recommendation to our Board of Directors.
Q: WHAT WILL HAPPEN TO MY QUARTERLY DIVIDENDS?
A: The Company will pay its next regular quarterly dividend on
November 15, 2000. The Company anticipates that the transactions will close in
January, 2001, which is prior to the payment date of the next regular quarterly
dividend on February 15, 2001. However, until the transactions are consummated,
the Company expects to pay regular quarterly dividends generally not to exceed
$0.4875 per share of our common stock in accordance with normal payment
schedules, and dividends with respect to our Series A preferred stock as and
when required by the Company's Charter.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS TO ME?
A: Your receipt of the transaction consideration will be a taxable
transaction for federal income tax purposes. To review the tax consequences of
the transactions in greater detail, see "Certain Federal Income Tax
Consequences" below. Your tax consequences will depend on your personal
situation. You should consult your own tax advisors for a full understanding of
the tax consequences of the transactions to you.
Q: HOW CAN I LEARN MORE?
A: This proxy statement contains important information regarding the
transactions and the transaction agreements, as well as information about the
Company, the Operating Partnership and the USRP Entities. It also contains
important information about what our Board of Directors considered in approving
the transactions.
Q: WHAT HAPPENS IF I SELL MY SHARES BEFORE THE SPECIAL MEETING?
A: The record date for the Special Meeting is earlier than the
expected completion date of the transactions. If you held your shares of common
stock on the record date but have transferred those shares after the record date
and before the transactions, you will retain your right to vote at the Special
Meeting but not the right to receive the transaction consideration. The right to
receive the transaction consideration with respect to common stock and Series A
16
<PAGE> 23
preferred stock will pass to the person to whom you transferred your shares of
common stock and/or Series A preferred stock.
Q: IF MY SHARES OF COMMON STOCK ARE HELD IN "STREET NAME" BY MY
BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will not vote your shares of common stock unless you
provide instructions on how to vote. You should instruct your broker how to vote
your shares of common stock by following the directions your broker will
provide. If you do not provide instructions to your broker, your shares of
common stock will not be voted and this will have the same effect as a vote
against the proposal to approve the transactions.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes, you can change your vote by sending in a later dated, signed
proxy card or a written revocation before the Special Meeting or by attending
the Special Meeting and voting in person. Your attendance at the meeting will
not, by itself, revoke your proxy. If you have instructed a broker to vote your
shares, you must follow the directions received from your broker to change those
instructions.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE TRANSACTIONS?
A: You can vote against the transactions by indicating a vote
against the proposal on your proxy card and signing and mailing your proxy card,
or by voting against the transactions in person at the Special Meeting. You are
not, however, entitled to any appraisal rights under Maryland law.
Q: WHAT WILL HAPPEN TO MY SHARES OF STOCK AFTER THE TRANSACTIONS?
A: Following effectiveness of the mergers, your shares of common
stock and/or Series A preferred stock will represent solely the right to receive
the transaction consideration and will otherwise cease to exist. Trading in both
our common stock and our Series A preferred stock on the New York Stock Exchange
will cease. Price quotations for our common stock and our Series A preferred
stock will no longer be available, and we will cease filing periodic reports
with the Securities and Exchange Commission under the Securities Exchange Act of
1934.
Q: HOW DO I VOTE?
A: If you are a holder of shares of common stock, just indicate on
your proxy card how you want to vote, sign your proxy card and mail it in the
enclosed postage-paid return envelope as soon as possible so that your shares of
common stock will be represented at the Special Meeting. You may attend the
Special Meeting and vote your shares of common stock in person, rather than
voting by proxy. In addition, prior to the taking of the vote on the plan of
liquidation and the transactions, you may withdraw your proxy up to, and
including, the day of the Special Meeting and either submit a subsequent proxy
to change your vote or attend the Special Meeting and vote in person. You should
be aware that the failure to vote, an abstention or a broker non-vote will
17
<PAGE> 24
have the same effect as a vote against the transactions. Holders of our Series A
preferred stock are not entitled to vote on the transactions.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this proxy statement, or
if you would like to ask any additional questions about the transactions, you
should contact: [First Washington Realty Trust, Inc., 4350 East-West
Highway, Suite 400, Bethesda, Maryland 20814, Attention: James G. Blumenthal,
Executive Vice President and Chief Financial Officer, or Jeffrey S. Distenfeld,
Executive Vice President and General Counsel, (301) 907-7800.]
18
<PAGE> 25
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement contains certain forward-looking statements.
Those statements include statements regarding the intent, belief or current
expectations of the Company and its subsidiaries and members of their respective
management teams, as well as the assumptions on which those statements are
based. Those forward-looking statements are not guarantees of future performance
and involve certain risks and uncertainties, and actual results may differ
materially from those contemplated by the forward-looking statements. Important
factors currently known to management of the Company and its subsidiaries that
could cause actual results to differ materially from those in forward-looking
statements include, but are not limited to, the risks discussed elsewhere in
this proxy statement. The Company and its subsidiaries undertake no obligation
to update or revise forward-looking statements in this proxy statement to
reflect changes in assumptions, the occurrence of unanticipated events, or
changes in future operating results over time.
19
<PAGE> 26
THE PARTIES TO THE TRANSACTIONS
FIRST WASHINGTON REALTY TRUST, INC.
We are a Maryland corporation qualified as a real estate investment
trust, which we refer to herein as a "REIT", and are a fully-integrated real
estate organization with expertise in acquisitions, property management,
leasing, renovation and development of principally supermarket-anchored
neighborhood shopping centers. We conduct substantially all of our operations
through the Operating Partnership. We are the sole general partner of and
currently own approximately 74% of the economic interests in the Operating
Partnership. Our principal office is located at 4350 East-West Highway, Suite
400, Bethesda, Maryland 20814, and the telephone number of our offices is (301)
907-7800.
FIRST WASHINGTON REALTY LIMITED PARTNERSHIP
The Operating Partnership is a Maryland limited partnership through
which the Company conducts substantially all of the operations of the Company
and its subsidiaries. As of the date of this proxy statement, the Operating
Partnership, together with the Company, owns 63 properties throughout the
Mid-Atlantic region and the Chicago, Illinois and Milwaukee, Wisconsin
metropolitan areas. The properties are principally supermarket-anchored
neighborhood shopping centers that are used by residents of the surrounding
communities for their day-to-day necessities. This shopping center portfolio
consists of approximately seven million square feet of gross leasable area.
The Operating Partnership's principal office is located at 4350
East-West Highway, Suite 400, Bethesda, Maryland 20814 and the telephone number
of its offices is (301) 907-7800.
THE USRP ENTITIES
The USRP Entities consist of MergerCo, MergerLP, USRP I, LLC,
USRP LP, LLC, and U.S. Retail Partners, LLC.
MergerCo, MergerLP, USRP I, LLC and USRP LP, LLC have been formed
solely for the purpose of engaging in the transactions. U.S. Retail Partners,
LLC is a joint venture of CalPERS and National Retail Partners.
As of the date of this proxy statement, U.S. Retail Partners, LLC
owns 43 non-regional mall retail properties located in California, Colorado,
Connecticut, Maryland, Minnesota, Nevada, Illinois, Oregon, Texas and Washington
with an estimated total value of approximately $800 million and an aggregate of
approximately 6.3 million square feet of rentable space. As of September 30,
2000, U.S. Retail Partners, LLC had total debt of less than $300 million. The
acquisition, management, leasing and disposition functions of U.S. Retail
Partners, LLC are managed by National Retail Partners.
20
<PAGE> 27
National Retail Partners is a newly-formed limited liability company
owned by James W. Gaube (managing partner), John Waters (senior partner), James
Kilcoyne, John Reinholt, Jeffrey Fisher and Mark Mayer. National Retail Partners
currently has 25 employees. CalPERS has a 10% ownership interest in National
Retail Partners, but is not a manager of either National Retail Partners or U.S.
Retail Partners, LLC. National Retail Partners' principal office is located at
10135 SE Sunnyside Road, Suite 250, Clackamas, Oregon 97015 and the telephone
number of its offices is (503) 513-4660.
CalPERS is the largest public pension fund in the United States,
with over $177 billion in total assets as of August 31, 2000. CalPERS already
owns more than $6.3 billion of core real estate assets, including $1.5 billion
of retail property. CalPERS provides retirement and health benefits to more than
1.2 million members, including active workers and retirees and their families
and beneficiaries. CalPERS is headquartered in Sacramento, California.
MergerCo, the sole general partner of MergerLP, is a wholly owned
subsidiary of National Retail Partners. As of the date of this proxy statement,
USRP LP, LLC is the sole limited partner of MergerLP and a wholly owned
subsidiary of U.S. Retail Partners, LLC. Together, as of the date of this proxy
statement, MergerCo and USRP LP, LLC own 100% of MergerLP. USRP I, LLC is a
wholly owned subsidiary of U.S. Retail Partners, LLC.
The principal office of each of the USRP Entities is: 10135 SE
Sunnyside Road, Ste. 250, Clackamas, Oregon 97015 and the telephone number of
its offices is (503) 513-4660.
21
<PAGE> 28
THE TRANSACTIONS
SUMMARY OF THE TRANSACTIONS
On September 28, 2000, the Company announced that it had entered
into various transaction agreements (as set forth in "Terms of the
Transactions") pertaining to the transactions, including, without limitation,
the sale and disposition of substantially all of the Company's assets, as well
as our merger with and into MergerCo, all of which were unanimously approved on
September 25, 2000 by our Board of Directors and the special committee. Pursuant
to the transaction agreements, the USRP Entities will pay in connection with the
transactions approximately $796.7 million, which amount includes the assumption
of certain indebtedness, plus an additional amount for working capital and
certain other items estimated by our management; it is expected that such
amounts, together with cash available for distribution to stockholders from
sources other than the transactions, will equal approximately $805 million.
Management estimates that the net proceeds of these transactions, after the
payment of debt, transaction expenses and other liabilities, will result in the
distribution to each holder of our common stock of approximately $26.00 per
share, and to each holder of our Series A preferred stock of approximately
$33.33 per share. However, the actual amount paid to our stockholders in
connection with the transactions may vary according to a number of factors,
including, but not limited to, transaction expenses, the Company's operations
prior to the closing of the transactions and certain closing adjustments. The
plan of liquidation attached hereto as exhibit F, which we refer to herein as
the "plan of liquidation", contemplates the liquidation of the Company in the
manner set forth in the transaction agreements.
The transactions will occur in the following order:
- The Company and its subsidiaries will sell 57 of their 63 properties
and certain other assets to USRP I, LLC (the "Asset Sale").
- The Operating Partnership will then distribute the net proceeds of the
Asset Sale to the partners of the Operating Partnership, and the
Company will distribute a liquidating distribution to its
stockholders.
- Following the Asset Sale, and the distribution of the net proceeds to
the Operating Partnership's partners and our stockholders, the six
retained properties will continue to be held by the Company and its
subsidiaries.
- The Operating Partnership will then convert the Company's general
partnership interest (currently, including both common units and
preferred units, an approximately 74% interest) in the Operating
Partnership into a 1% general partnership interest and Series A common
units of limited partnership interest (referred to throughout this
proxy statement as "Series A common units") representing the Company's
remaining interest in the Operating Partnership.
- The Company will then sell its new Series A common units to USRP LP,
LLC in exchange for a promissory note (the "Interest Sale").
- The Company will merge with and into MergerCo (the "Company Merger"),
and the Operating Partnership will merge with and into MergerLP (the
"Partnership Merger"
22
<PAGE> 29
and, together with the Company Merger, referred to throughout this
proxy statement as the "mergers"). As a result of the mergers, the
separate legal existence of each of the Company and the Operating
Partnership will cease, and all of the subsidiaries of the Company and
the Operating Partnership will be owned by MergerCo and MergerLP,
respectively.
All consideration received by our stockholders will be paid in cash.
Limited partners of the Operating Partnership will receive the distribution of
the net proceeds from the Asset Sale (representing approximately 81.7% of their
total transaction consideration) in cash, and will be entitled to elect whether
the remaining consideration (paid pursuant to the Partnership Merger) is paid to
them in cash or preferred units of limited partnership interest in MergerLP.
BACKGROUND OF THE TRANSACTIONS
In the Spring of 1999, Stuart D. Halpert, our Chairman, and William
J. Wolfe, our President and CEO, with the advice and consent of our Board of
Directors, were introduced by Chase to a representative of U.S. Retail Partners,
LLC to consider a possible joint venture between the Company and CalPERS to
pursue the acquisition of neighborhood shopping centers in the Mid-Atlantic
area. Limited information was exchanged at that time and discussions were
terminated before they reached a substantive stage.
On October 16, 1999, Messrs. Halpert and Wolfe reviewed the current
state of the capital markets with our Board of Directors. Messrs. Halpert and
Wolfe advised our Board that, while the Company currently had sufficient capital
resources to pursue its ongoing business initiatives and continue its active
acquisition program, they nonetheless believed there was a benefit in creating a
long-term relationship with an active institutional investor of real estate. The
Company believed that pursuing an institutional joint venture represented a
potentially attractive alternative to accessing the capital markets in order to
permit the Company and the Operating Partnership to augment the funding of its
acquisition program and to continue to sustain long-term growth. Consequently,
our Board of Directors considered the possibility of sponsoring an equity joint
venture with an institutional investor as a supplement to its continuing
acquisition program, and to that end, considered the retention of Chase to
assist the Company in identifying and evaluating suitable partners and
structures. Messrs. Halpert and Wolfe discussed with our Board of Directors the
fact that a number of REITs had embarked on a variety of joint ventures, and our
Board of Directors endorsed the plan to explore similar opportunities. On
October 25, 1999, Messrs. Halpert and Wolfe met with Chase to review in more
detail the potential for an institutional joint venture. On November 5, 1999,
the Company formally engaged Chase for this purpose.
Over the next two months, the Company worked with Chase to develop a
potential joint venture structure and to identify potential institutional joint
venture partners. At our regular Board meeting on January 14, 2000, Messrs.
Halpert and Wolfe informed our Board of Directors that Chase had delivered an
outline of a potential joint venture structure to a number of institutional
candidates, that it had received indications of interest from a number of such
candidates, and that it had commenced the scheduling of formal meetings. Also at
that Board
23
<PAGE> 30
meeting, Messrs. Halpert and Wolfe informed our Board of Directors that they had
negotiated a new three-year credit facility for the Company with First Union
National Bank to replace the Company's current facility which was set to expire
on January 31, 2001. The Board was apprised of the terms and conditions of the
new facility and of the increase in the level of the facility from the current
level of $51 million to $100 million. Senior management indicated that it
believed the new and extended credit facility would provide sufficient capital
for the foreseeable future for the Company's ongoing operations, including its
renovation and expansion program and its ongoing acquisition program.
On January 19, 2000, Messrs. Halpert and Wolfe joined Chase in New
York for a day of meetings with potential joint venture candidates. One of those
meetings was with a representative of CalPERS. At that meeting the parties
discussed the possibility of establishing a joint venture equity program between
U.S. Retail Partners, LLC and the Company. In addition, CalPERS expressed an
interest in expanding CalPERS' East Coast presence in the neighborhood shopping
center sector, and inquired whether the Company would be interested in selling
all of its assets to U.S. Retail Partners, LLC and whether the Company's senior
management might agree to continue to manage the acquired properties and to
assist U.S. Retail Partners, LLC, as needed, in further implementing CalPERS'
East Coast shopping center strategy.
Messrs. Halpert and Wolfe indicated to CalPERS that the Company had
enjoyed sound growth over the years in both its funds from operations and in the
size and value of its portfolio; that the Company had ample capital to conduct
its business and sustain its growth; that the Company was primarily interested
in pursuing its current business plan, which was to continue its independent
growth and pursue a longer-term institutional joint venture; and that,
therefore, at that time, its plans did not contemplate a sale of the Company.
CalPERS inquired further as to whether a sale might nonetheless be
given consideration if it were to generate a substantial premium to stockholders
over their current share price. Messrs. Halpert and Wolfe responded that the
Company's ability to recognize a current and substantial increase in stockholder
value would always be given due consideration. Messrs. Halpert and Wolfe
therefore said that they would be willing to engage in preliminary discussions
with respect to a potential acquisition, provided that CalPERS understood that
the Company would nonetheless continue to pursue the matter of an institutional
joint venture relationship, together with its ongoing core business plans.
Following these meetings, the Company confirmed that it would begin
the sharing of information on portfolio and Company operations with CalPERS.
Based on Chase's growing familiarity with the Company in connection with the
exploration of potential joint venture transactions, and given the quality of
their work to date, the Company selected Chase to represent the Company in
connection with its exchange of information with, and discussions with respect
to an acquisition by, CalPERS through U.S. Retail Partners, LLC. On January 26,
2000, the Company executed a second engagement letter with Chase to also act as
exclusive financial advisor to the Company in connection with a potential
transaction with CalPERS. On February 17, 2000, the Company and CalPERS
executed a confidentiality agreement with respect to the sharing of information
about the Company and its properties.
24
<PAGE> 31
Over the next several months, Chase and the Company met with a
number of additional institutional investors to explore potential joint
ventures, and, on March 10, 2000, the Company reviewed with our Board of
Directors the results of its meetings with prospective institutional partners,
including U.S. Retail Partners, LLC and CalPERS, and our Board confirmed its
interest in having management continue both the exploration of potential joint
venture transactions and the sharing of information with U.S. Retail Partners,
LLC.
Between late March and mid-May of 2000, U.S. Retail Partners, LLC
conducted a preliminary review of the Company's financial information.
Representatives of CalPERS, U.S. Retail Partners, LLC, the Company and Chase
held a number of discussions with respect to the Company's portfolio information
and the potential for a transaction between U.S. Retail Partners, LLC and the
Company. At the Company's annual Board meeting on May 12, 2000, in Bethesda,
Maryland, Messrs. Halpert and Wolfe provided our Board of Directors with a
detailed review of the Company's meetings with potential joint venture investors
as well as its continuing discussions with U.S. Retail Partners, LLC. The Board
of Directors endorsed continued work on both initiatives.
On May 24, 2000, at the International Council of Shopping Centers
annual convention in Las Vegas, Mr. Halpert, Mr. Wolfe and Chase met with U.S.
Retail Partners, LLC. At this meeting, U.S. Retail Partners, LLC informed
Messrs. Halpert and Wolfe that, based upon their initial review of the
information provided, CalPERS had a continued interest in, and it had obtained
formal authority for U.S. Retail Partners, LLC to pursue, its East Coast
shopping center strategy through a potential acquisition of the Company. U.S.
Retail Partners, LLC emphasized their confidence in the Company's neighborhood
shopping center strategy, the Company's management and the strength of the
markets in which the Company's properties are located, and U.S. Retail Partners,
LLC emphasized its desire that our senior management agree to manage and lease
the portfolio and to assist U.S. Retail Partners, LLC, as needed, with the
implementation of CalPERS' East Coast shopping center strategy. At this meeting
U.S. Retail Partners, LLC agreed it would have its representatives inspect the
Company's portfolio in person over the next several weeks.
Beginning on June 1, 2000, representatives of U.S. Retail Partners,
LLC began site inspections of the Company's portfolio of properties and reported
back their favorable impressions. Following these site inspections, the Company
and U.S. Retail Partners, LLC began discussions regarding the performance of the
properties and the potential structure of an acquisition transaction. In
addition, the Company and U.S. Retail Partners, LLC discussed the circumstances
under which the Company's management would consider agreeing to provide
management and leasing services, transition assistance and ongoing services to
assist U.S. Retail Partners, LLC, as needed, in implementing CalPERS' East
Coast shopping center strategy after the consummation of the proposed
transactions. U.S. Retail Partners, LLC reiterated that it was only interested
in acquiring the Company and its subsidiaries if it could also retain the
services of our senior management for this purpose.
On June 14, 2000, at its regularly scheduled Board meeting, Messrs.
Halpert and Wolfe reported to our Board of Directors that U.S. Retail Partners,
LLC continued to indicate a
25
<PAGE> 32
serious interest in moving forward with the transaction. U.S. Retail Partners,
LLC continued its review of the Company and its properties for the next several
weeks and reported to the Company its general parameters for valuing the
Company's assets, as well as its basic conditions with respect to management's
role going forward. At the Company's regularly scheduled Board meeting on July
14, 2000, Messrs. Halpert and Wolfe reported to the Board on the status of
discussions. Based on the potential for conflicts of interests among senior
management and the Company and the Operating Partnership, our Board of
Directors, at the July 14th meeting, appointed Matthew J. Hart, William M.
Russell and Heywood Wilansky (the "Independent Directors") to the special
committee to assist in the review and evaluation of a potential transaction with
U.S. Retail Partners, LLC.
In early August 2000, U.S. Retail Partners, LLC and the Company
began to discuss the optimal acquisition structure for the proposed
transactions. The Company recommended structuring the proposed transaction to
allow all the limited partners of the Operating Partnership to rollover their
units of limited partnership interest in the Operating Partnership tax free into
partnership interests in the surviving entity. U.S. Retail Partners, LLC
objected to this structure due in part to its desire to own 100% of the
properties and its reluctance to pursue transactions that would result in U.S.
Retail Partners, LLC or any of its affiliates having outside limited partners.
At the insistence of the Company, U.S. Retail Partners, LLC agreed to review
further with its in-house and outside legal counsel the possibility of allowing
all limited partners in the Operating Partnership to rollover in the
transaction. After such review, U.S. Retail Partners, LLC indicated it would
allow only a very limited rollover of the Operating Partnership's limited
partners. Specifically, U.S. Retail Partners, LLC reported that it would allow a
rollover of limited partners only with respect to properties that had tax
protection agreements which by their terms expressly provided for tax protection
to survive a sale of all or substantially all the assets of the Company (i.e.,
the six properties not to be sold in the Asset Sale). U.S. Retail Partners, LLC
further indicated that it would not permit the rollover of limited partners with
respect to properties whose tax protection agreements had either expired or by
their terms did not extend tax protection in the case of the merger or sale of
all or substantially all of the assets.
Based on the foregoing, U.S. Retail Partners, LLC proposed a
structure consisting of (i) a sale of the 57 properties not subject to surviving
tax protection agreements, followed by (ii) a merger of the Company and its
subsidiaries owning the remaining six properties that were subject to surviving
tax protection agreements. In the merger, the limited partners would be offered
the opportunity to receive cash or to rollover their preferred units of limited
partnership interest in MergerLP. U.S. Retail Partners, LLC indicated that this
structure was the only structure upon which it would proceed with the
transaction. After consultation with the special committee, the Company
indicated that it was prepared to negotiate terms and conditions for a potential
transaction based upon the structure proposed by U.S. Retail Partners, LLC.
U.S. Retail Partners, LLC also indicated in early August 2000 that
it was prepared to retain third parties to complete its diligence on the
portfolio with respect to, among other things, environmental and structural
matters, lease review, financial information, title and surveys, but only if the
Company would reimburse its expenses in the event the Company did not
26
<PAGE> 33
elect to proceed with the transaction. After negotiation between the Company
and U.S. Retail Partners, LLC, on August 24, 2000, the Company entered into a
reimbursement agreement with U.S. Retail Partners, LLC, pursuant to which the
Company agreed to reimburse CalPERS and U.S. Retail Partners, LLC for up to
$1,000,000 of expenses incurred in connection with the proposed transactions if
(1) the Company discussed potential business combinations with any third party
prior to September 15, 2000 and subsequently consummated a transaction with such
party or (2) if the Company refused to accept an offer by U.S. Retail Partners,
LLC to acquire the Company and its assets based upon U.S. Retail Partners, LLC's
proposed structure and preliminary pricing parameters. U.S. Retail Partners, LLC
indicated that it expected to complete its final due diligence review by
September 8, 2000.
Between August 15, 2000 and September 8, 2000, the Company, Chase
and U.S. Retail Partners, LLC and their respective counsel negotiated many of
the terms of the definitive documentation. Negotiations focused on a variety of
subjects, including the scope of the Company's representations and warranties,
the covenants governing the Company's operations between signing and closing,
including, without limitation, the Company's ability to discuss alternative
business combinations with third parties, the conditions to the parties'
respective obligations to close, the events giving rise to the parties'
respective rights to terminate the agreement and the circumstances in which a
termination fee would be paid, as well as the terms of the partnership agreement
to govern MergerLP.
In addition, between August 15, 2000 and September 8, 2000, Messrs.
Halpert and Wolfe and their independent counsel negotiated with U.S. Retail
Partners, LLC the basic terms and conditions under which senior management would
manage the acquired assets for a three-year period following the closing of the
Transactions and would assist U.S. Retail Partners, LLC, as needed, in
implementing CalPERS' East Coast shopping center strategy. By September 8, 2000,
Messrs. Halpert and Wolfe had reached an agreement with U.S. Retail Partners,
LLC with respect to the structure of the management arrangement and the duties
of senior management, as well as many of the terms of the compensation and
non-compete obligations for senior management.
On September 8, 2000, a special meeting of our Board of Directors
was held at which members of management and the Company's financial and legal
advisors also were present. At this meeting, Chase provided an overview of the
proposed transactions and discussed the current real estate capital market
environment and various strategic initiatives available to the Company and the
Operating Partnership, including continuing with the Company's existing business
plan, pursuing joint venture equity, pursuing a corporate acquisition strategy,
merging the Company and the Operating Partnership with another public company
and selling the Company and the Operating Partnership to a strategic buyer or
sector consolidator. Chase also reviewed with our Board of Directors certain
financial aspects of the proposed transaction.
At this meeting, the Company's outside legal counsel made general
presentations concerning the transaction agreements, the status of negotiations
and certain issues that remained to be resolved. Mr. Halpert also discussed with
our Board of Directors the basic terms and
27
<PAGE> 34
conditions of senior management's post-closing management arrangements with U.S.
Retail Partners, LLC and its affiliates.
The special committee and its independent legal counsel then met in
a closed session to discuss and evaluate the current state of negotiations of
the proposed transactions as presented at the meeting. Based upon their review
and analysis, the special committee unanimously recommended that the Company
proceed to negotiate final transaction terms with U.S. Retail Partners, LLC.
During the period from September 8 through September 25, 2000, the
parties and their representatives continued to negotiate economic terms, as well
as the definitive documentation. During this period, U.S. Retail Partners, LLC
also completed its final due diligence, including obtaining third party reports
with respect to environmental and structural matters. Business discussions
continued to be held with respect to the economic terms and conditions of the
proposed transactions, including the estimated cost of addressing environmental,
structural, financial and other matters identified during the course of U.S.
Retail Partners, LLC's due diligence investigation. During this period, the
parties' discussions with respect to the documentation focused on the scope of
restrictions on the Company's ability to communicate with third party bidders
and the scope and size of the termination fee, as well as the scope of the
Company's representations and warranties. During this period, our Board of
Directors and the special committee were kept informed by their advisors. By the
morning of September 25, 2000, the terms and conditions of U.S. Retail Partners,
LLC's proposal were substantially final.
On September 25, 2000, at a telephonic special meeting, our Board of
Directors received updates from the Company's management, financial advisors and
legal counsel on the status of the negotiations concerning the transactions
proposed by U.S. Retail Partners, LLC. Chase summarized its financial analyses
of the transactions, which are described in "The Transactions--Opinion of
Financial Advisor". Chase then delivered to our Board of Directors its oral
opinion to the effect that, as of that date, based upon facts and circumstances
as Chase understood to exist at that time, and subject to various qualifications
and assumptions, (i) the consideration proposed to be paid by USRP I, LLC
pursuant to the real estate purchase agreement was fair, from a financial point
of view, to the Operating Partnership and (ii) the consideration proposed to be
paid by MergerCo and MergerLP pursuant to the merger agreement and the
consideration proposed to be paid by USRP I, LLC pursuant to the real estate
purchase agreement, taken together as a whole and not separately, was fair, from
a financial point of view, to the Company and its stockholders and the Operating
Partnership and its partners.
The Company's outside legal counsel then made a presentation to our
Board of Directors in which it reviewed the duties of the directors in
connection with the proposed transactions and explained the final terms of the
definitive documentation as proposed by U.S. Retail Partners, LLC, including
closing conditions, termination rights and provisions regarding break-up fees
and termination expenses. The special committee then met in a closed session to
review and evaluate the proposed transactions, including the liquidation of the
Company. The factors considered by both the special committee and our Board of
Directors are described in more detail in the section entitled
28
<PAGE> 35
"Recommendation of the Special Committee and our Board of Directors and Reasons
for the Transactions."
Based on these and previous deliberations, the special committee
unanimously approved the proposed transactions, the liquidation of the Company
as contemplated by the plan of liquidation and contracts substantially on the
terms discussed at the meeting and recommended to our Board of Directors that
it approve the proposed transactions and contracts as well. After its own
deliberation, our Board of Directors approved the proposed transactions and the
liquidation of the Company as contemplated by the plan of liquidation and
authorized management to complete and execute the definitive agreements and to
complete the liquidation of the Company on terms as presented to our Board of
Directors and our special committee. Between September 25, 2000 and September
27, 2000, the parties finalized the definitive agreements. On September 27,
2000, Chase delivered its written fairness opinion confirming, as of such date,
its oral opinion previously delivered at the September 25th meeting of our
Board, and the Company and its subsidiaries and the USRP Entities executed the
definitive transaction agreements. On September 28, 2000, the Company and
CalPERS publicly announced the transactions.
OPINION OF FINANCIAL ADVISOR
The Company retained Chase to act as our financial advisor in
connection with the transactions. In connection with its engagement, we
requested that Chase evaluate the fairness, from a financial point of view, (i)
to the Operating Partnership of the consideration to be paid by USRP I, LLC
pursuant to the real estate purchase agreement, including the assumption of
certain liabilities as provided in the real estate purchase agreement, which we
refer to as the "Property Purchase Consideration", and (ii) to the Company and
its stockholders and the Operating Partnership and its partners of the
consideration to be paid by MergerCo and MergerLP pursuant to the merger
agreement and the Property Purchase Consideration, taken together as a whole and
not separately. On September 25, 2000, at a meeting of our Board of Directors,
Chase delivered an oral opinion to the effect that as of such date and based
upon and subject to various qualifications and assumptions, (i) the Property
Purchase Consideration to be paid by USRP I, LLC pursuant to the real estate
purchase agreement was fair, from a financial point of view, to the Operating
Partnership and (ii) the consideration to be paid by MergerCo and MergerLP
pursuant to the merger agreement and the Property Purchase Consideration, taken
together as a whole and not separately, was fair, from a financial point of
view, to the Company and its stockholders and the Operating Partnership and its
partners. Chase's opinion was subsequently confirmed in a written opinion dated
September 27, 2000.
THE FULL TEXT OF CHASE'S OPINION DATED SEPTEMBER 27, 2000 IS
ATTACHED AS EXHIBIT E TO THIS PROXY STATEMENT AND IS INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT. OUR STOCKHOLDERS ARE URGED TO READ CHASE'S OPINION IN
ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITS OF THE REVIEW BY CHASE IN ARRIVING AT ITS OPINION. REFERENCES TO THE
OPINION AND THE SUMMARY OF THE OPINION CONTAINED HEREIN ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE FULL TEXT OF CHASE'S OPINION.
Chase's opinion is directed only to the fairness, from a financial
point of view, to the Operating Partnership of the Property Purchase
Consideration to be paid by USRP I, LLC
29
<PAGE> 36
pursuant to the real estate purchase agreement and to the fairness, from a
financial point of view, to the Company and its stockholders and the Operating
Partnership and its partners of the consideration to be paid by MergerCo and
MergerLP pursuant to the merger agreement and the Property Purchase
Consideration, taken together as a whole and not separately, in each case as of
the date of Chase's opinion. Chase's opinion does not constitute a
recommendation to our Board in connection with the transactions and does not
address the merits of the underlying decision by the Company and the Operating
Partnership to engage in the transactions or the future trading value of our
common stock or the Operating Partnership's units or the amounts that may
ultimately be distributed to our stockholders or the Operating Partnership's
limited partners in connection with the proposed liquidation of the Company as
contemplated by the transactions. Chase's opinion does not constitute a
recommendation to any holder of equity interests in the Company or the Operating
Partnership as to how that holder should vote with respect to the transactions.
No limitations were imposed by the Company upon Chase with respect to the
investigations made or procedures followed by it in rendering its opinion. The
Company and the Operating Partnership, on the one hand, and USRP I, LLC,
MergerCo and MergerLP, on the other hand, determined the Property Purchase
Consideration and the consideration payable pursuant to the merger agreement in
arm's length negotiations.
In connection with rendering its opinion, Chase, among other things:
- reviewed drafts of the transaction agreements, as well as the
voting agreements described in "--Voting Agreements with
Senior Management" (which we refer to, collectively with the
transaction agreements, as the "Agreements");
- reviewed certain publicly available business and financial
information Chase deemed relevant relating to the Company and
the Operating Partnership and the industries in which they
operate;
- reviewed certain internal non-public financial and operating
data provided to Chase by the management of the Company and
the Operating Partnership relating to their businesses,
including certain forecast and projection information as to
future financial results of those businesses;
- discussed with members of senior managements and
representatives of the Company and the Operating Partnership
the Company's and the Operating Partnership's operations,
historical financial statements and future prospects, as well
as other matters Chase deemed necessary or appropriate;
- compared the financial and operating performance of the
Company and the Operating Partnership with publicly available
information concerning certain other companies and businesses
Chase deemed comparable and reviewed the relevant stock market
information for such other companies; and
30
<PAGE> 37
- reviewed the financial terms of certain recent business
combinations and acquisition transactions Chase deemed
reasonably comparable to the transactions and otherwise
relevant to its inquiry.
In addition, Chase made other analyses and examinations as it deemed
necessary or appropriate.
For purposes of its opinion, Chase assumed and relied upon, without
assuming any responsibility for independent verification, the accuracy and
completeness of all financial and other information provided to, discussed with,
or received by or for Chase, or publicly available. Chase relied upon the
assurances of the managements of the Company and the Operating Partnership that
they were not aware of any facts that would make that information inaccurate or
misleading. Chase did not make or obtain any independent evaluations or
appraisals of the assets or liabilities of the Company or the Operating
Partnership, nor did it conduct a physical inspection of the properties and
facilities of the Company or the Operating Partnership. Chase assumed that the
financial forecast and projection information provided to or discussed with it
was reasonably determined on bases reflecting the best currently available
estimates and judgments of the managements of the Company and the Operating
Partnership as to the future financial performance of the Company and the
Operating Partnership. Chase expressed no view as to the forecast or projection
information or the assumptions upon which it was based.
In connection with the preparation of its opinion, Chase was not
authorized by the Company or the Operating Partnership to solicit, nor did Chase
solicit, offers from third parties for the acquisition of all or any part of the
equity or assets of the Company or the Operating Partnership.
For purposes of rendering its opinion, Chase assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the Agreements are true and correct, that each party
will perform all of the covenants and agreements required to be performed by it
under the Agreements and that all conditions to the consummation of the
transactions will be satisfied without being waived. Chase also assumed that all
material governmental, regulatory or other consents and approvals will be
obtained and that, in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either the Company or the Operating
Partnership is a party, as contemplated by the Agreements, no restrictions will
be imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits to the Company or the
Operating Partnership of the transactions. In its review and analysis and in
arriving at its opinion, Chase did not attempt to value any of the non-cash
consideration being offered under the merger agreement to the holders of limited
partnership interests in the Operating Partnership and did not render any
opinion with respect to any non-cash consideration. Accordingly, for purposes of
its opinion, Chase assumed that all of the limited partners of the Operating
Partnership will elect to receive cash consideration under the merger agreement.
Chase based its opinion on market, economic and other conditions as they existed
and could be evaluated on the date of its opinion, and did not
31
<PAGE> 38
predict or take into account any changes which may occur, or information which
may become available, after the date of its opinion.
The following summarizes the material analyses performed by Chase in
connection with providing its opinion to our Board. We have presented some of
the summaries in tabular format. In order to understand the financial analyses
used by Chase more fully, you should read the tables together with the text of
each summary. The tables alone do not constitute a complete description of
Chase's financial analyses.
AGGREGATE CONSIDERATION
For purposes of its analysis, Chase assumed that the aggregate
consideration to be paid by USRP I, LLC, MergerCo and MergerLP pursuant to the
real estate purchase agreement and the merger agreement, taken together as a
whole and not separately, including the Company's projected total debt of $304
million, and including projected amounts payable for working capital, in each
case for a projected closing in January 2001, together with the First Washington
Entities' projected cash available for distribution to stockholders at such
closing from sources other than the transactions, all of which were based on
estimates of the Company's management, which we refer to collectively as the
"Aggregate Consideration", would equal approximately $805 million. Taking into
account the Company's projected total debt described above, net working capital,
transaction expenses and other payments required to be made in connection with
the transactions, as estimated by the Company's management, the analysis assumed
an estimated total market capitalization of the Company implied by the
transactions of approximately $767 million, which, after subtracting the
projected total debt of $304 million described above, implies an equity value of
approximately $463 million. Based on this implied equity value, the analysis
assumed the amount of the Aggregate Consideration that would be available for
distribution to stockholders would be approximately $26.00 to $26.50 per share.
For purposes of the summary of Chase's analysis set forth below, the $26.25
assumed per share amount of Aggregate Consideration that would be available for
distribution to stockholders refers to the midpoint of Chase's range of assumed
per share amounts.
Historical Stock Performance. Chase reviewed the trading price of
the shares of our common stock. This stock performance review indicated that for
the period from January 4, 1999 to August 31, 2000, the high, average and low
closing prices for shares of our common stock were $24.00, $20.99 and $17.75,
respectively.
Comparable Company Analysis. Chase reviewed and compared the
operating performance and financial condition of ten selected publicly traded
REITs, which we refer to collectively as the "Comparable Companies", using
publicly available information with that of the operating performance and
financial condition of the Company. Such comparable companies consisted of the
following:
<TABLE>
<S> <C>
- KIMCO Realty Corp. - Developers Diversified Realty Corp.
- New Plan Excel Realty Trust - Federal Realty Investment Trust
</TABLE>
32
<PAGE> 39
<TABLE>
<S> <C>
- Regency Realty Corporation - IRT Property Company
- Weingarten Realty Investors - Pan Pacific Retail Properties, Inc.
- Ramco-Gershenson Properties Trust - Saul Centers, Inc.
</TABLE>
Chase's analysis included, among other things, a review of: (i)
equity market value, assuming the conversion of all of the Operating
Partnership's units; (ii) total market capitalization, calculated by adding
equity market value and total debt, preferred units and preferred stock; (iii)
ratios of price per share to funds from operations, "FFO", per share; (iv)
ratios of total market capitalization to earnings before interest expense,
depreciation and amortization, "EBITDA", and (v) implied capitalization rates,
which equal net operating income divided by total market capitalization. Chase
calculated the ratio of price per share as of September 22, 2000 to FFO per
share using projected 2000 and 2001 FFO per share, as provided by First Call, a
national data service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of interest to
institutional investors, and total market capitalization to EBITDA using
projected 2000 and 2001 EBITDA, based on Wall Street research reports.
These analyses showed the following:
<TABLE>
<CAPTION>
RANGE FOR IMPLIED
COMPARABLE MULTIPLES FOR
COMPANIES THE TRANSACTIONS
------------- ----------------
<S> <C> <C>
Price as compared to estimated 2000 FFO 8.0x - 9.5x 10.2x
Price as compared to estimated 2001 FFO 7.5x - 9.0x 9.5x
Total market capitalization to 9.5x - 11.0x 10.9x
estimated 2000 EBITDA
Total market capitalization to 9.0x - 10.0x 9.9x
estimated 2001 EBITDA
</TABLE>
The implied multiples for the transactions were calculated using the
$26.25 assumed per share amount of the Aggregate Consideration that would be
available for distribution to stockholders. If the $805 million Aggregate
Consideration for the transactions were used for the EBITDA multiples rather
than the $767 million market capitalization implied by the transactions, the
Aggregate Consideration to estimated 2000 and 2001 EBITDA would be 11.4 and
10.4, respectively. Based on these analyses and the Company's estimated 2000
FFO, estimated 2001 FFO, estimated 2000 EBITDA and estimated 2001 EBITDA, Chase
calculated that the total market capitalization implied by the transactions
based on the multiples of the Comparable Companies was $665 million to $775
million.
None of the Comparable Companies were identical to the Company or
the Operating Partnership and, accordingly, an analysis of the foregoing
necessarily involved complex considerations and judgments concerning the
differences in financial and operational
33
<PAGE> 40
characteristics of the companies involved and other factors that could affect
the companies compared to the Company and the Operating Partnership.
Precedent Transaction Analysis. Chase analyzed the purchase price
and transaction value multiples for the transactions based upon an analysis of
publicly available information relating to nine selected corporate transactions
involving the sale or merger of the entire target company, which we refer to
collectively as the "Precedent Corporate Transactions". The Precedent Corporate
Transactions were chosen based on a review of target companies that had general
business, operating and financial characteristics representative of companies in
the industry in which the Company operates. The Precedent Corporate Transactions
reviewed were:
<TABLE>
<CAPTION>
ANNOUNCED
DATE ACQUIROR TARGET
---------------- --------------------------- -------------------------
<S> <C> <C>
8/22/00 Pan Pacific Retail Western Properties Trust
Properties, Inc.
5/15/00 Heritage Property Bradley Real Estate,
Investors Inc. Inc.
4/17/00 Kimco, Various Philips International
Realty Inc.
6/1/98 Bradley Real Estate, Inc. Mid-America Realty
Investments
5/14/98 Excel Realty Trust Inc. New Plan Realty Trust
1/14/98 Kimco Realty Corp. Price REIT Inc.
11/13/97 Prime Retail Inc. Horizon Group Inc.
10/30/95 Bradley Real Estate, Inc. Tucker Properties Corp.
3/14/95 Horizon Outlet Centers McArthur/Glen Realty
Corp.
</TABLE>
In connection with its analysis, Chase calculated for each of the
Precedent Corporate Transactions: (i) the purchase price, assuming the
conversion of any operating partnership units, calculated using stock prices
five and twenty days prior to the announcement date; (ii) total transaction
value calculated by adding purchase price, total debt, preferred units and
preferred stock; (iii) ratios of offer price per share to FFO per share; (iv)
ratios of total transaction value to EBITDA; (v) implied capitalization rates
applied to net operating income; and (vi) the offer price's premium to the
unaffected stock price of the target 20 days prior to announcement of the
transaction. Chase calculated the ratio of offer price per share to FFO per
share using projected FFO for the end of the year in which the applicable
Precedent Corporate Transaction was announced and total transaction value to
EBITDA using projected EBITDA for the end of the year in which the applicable
Precedent Corporate Transaction was announced. The results of this comparison
were as follows:
34
<PAGE> 41
<TABLE>
<CAPTION>
IMPLIED
MEASURES
RANGE FOR PRECEDENT FOR THE
CORPORATE TRANSACTIONS TRANSACTIONS
---------------------------- -----------------
<S> <C> <C>
Offer price to 8.5x - 10.0x 10.2x
projected FFO
Total transaction value 10.0x - 11.5x 10.9x
compared to projected
EBITDA
Premium to unaffected 10.0% - 25.0% 22.8%
stock price 20 days prior
to announcement
</TABLE>
The implied multiples and premium percentage for the transactions
were calculated using the $26.25 assumed per share amount of the Aggregate
Consideration that would be available for distribution to stockholders. If the
$805 million Aggregate Consideration were used for the EBITDA multiples rather
than the $767 million market capitalization implied by the transactions, the
Aggregate Consideration to estimated 2000 EBITDA would be 11.4. Based on the
Company's estimated 2000 FFO and EBITDA and the premium to the Company's stock
price 20 days prior to announcement, Chase calculated that total market
capitalization implied by the transactions ranged from $690 million to $810
million.
None of the selected Precedent Corporate Transactions reviewed were
identical to the transactions and, accordingly, an analysis of the foregoing
necessarily involved complex considerations and judgments concerning differences
in financial and operational characteristics of the companies involved and other
factors, including the general market conditions prevailing in the equity
capital markets at the time of the transaction, that could affect the Precedent
Corporate Transactions compared to the transactions.
Wall Street Net Asset Value. Chase performed a review of net asset
value estimates by Wall Street research analysts for the Company and used the
range of those estimates to calculate an implied total market capitalization for
the Company. Chase calculated the implied total market capitalization based on a
range of net asset value estimates of $24.00 per share to $26.50 per share was
$730 million to $770 million.
Dividend Discount Analysis. Chase performed a dividend discount
analysis for the Company based upon projections and assumptions provided by the
Company's management of projected FFO per common share and projected annual
dividend payouts per share for the years ending December 31, 2001 to December
31, 2006. Under the dividend discount model methodology, implied equity values
are projected by discounting dividends per share for the years 2001 through 2006
using discount rates reflecting an expected equity total return and calculating
a terminal value by applying exit multiples on projected 2006 FFO for the
Company. Chase used discount rates ranging from 14.0% to 17.0% and terminal
multiples of 8.0x to 9.0x. Chase selected these ranges of discount rates and
terminal value multiples based on a review of companies that Chase deemed
comparable to the Company. The present value of the dividends and the terminal
value were added together to determine a range of equity values for the Company.
The debt balance projected at
35
<PAGE> 42
the closing of the transactions as provided by the Company's management was
added to the range of equity values to determine the implied total market
capitalization, which ranged from $660 million to $745 million.
PROPERTY PURCHASE CONSIDERATION
For purposes of its analysis, Chase assumed that the Property
Purchase Consideration equals approximately $674 million, including our
projected debt of approximately $257 million at closing in January 2001
allocated to the portfolio of properties to be sold in the Asset Sale, which was
based upon estimates of our management. To calculate the projected allocated
debt, Chase included the mortgage debt secured by these properties and a portion
of the Company's debt under its line of credit.
Comparable Company Analysis. In connection with its analysis of the
Property Purchase Consideration, Chase reviewed and compared the operating
performance and financial performance of the Comparable Companies, using
publicly available information with that of the properties to be sold under the
real estate purchase agreement. Chase's methodology for analyzing the Comparable
Companies is described above under "Aggregate Consideration--Comparable Company
Analysis". The comparison of the Comparable Companies with the properties to be
sold showed the following:
<TABLE>
<CAPTION>
RANGE FOR IMPLIED
COMPARABLE MULTIPLES FOR
COMPANIES THE ASSET SALE
------------------- -----------------
<S> <C> <C>
Price as compared to estimated 2000 FFO 8.0x - 9.5x 11.6x
Price as compared to estimated 2001 FFO 7.5x - 9.0x 11.1x
Capitalization rate on estimated 9.0% - 11.0% 8.8%
2000 net operating income
</TABLE>
Based on estimated 2000 FFO, estimated 2001 FFO and the range of
capitalization rates applied to estimated 2000 net operating income, in each
case for the properties to be sold, Chase calculated that the implied Property
Purchase Consideration based on the Comparable Companies' statistics was $535
million to $660 million. To calculate the projected 2000 and 2001 FFO for the
Property Purchase Consideration, Chase made pro-rata adjustments to the
estimated 2000 and estimated 2001 FFO, as provided by First Call.
Precedent Transaction Analysis. In addition to its review of the
Precedent Corporate Transactions, in connection with its analysis of the
Property Purchase Consideration, Chase analyzed the purchase price and
transaction value multiples for the sale of the properties to be sold under the
real estate purchase agreement based upon an analysis of publicly available
information relating to eight selected transactions involving acquisitions of
shopping community center assets that had been completed since 1995, which we
refer to collectively, as the "Precedent Asset Transactions". The Precedent
Asset Transactions were chosen based on a review of acquired assets that had
general business, operating and financial characteristics
36
<PAGE> 43
representative of assets subject to the real estate purchase agreement. The
Precedent Asset Transactions reviewed were:
<TABLE>
<CAPTION>
ANNOUNCED DATE ACQUIROR SELLER
---------------- --------------------------- -------------------------
<S> <C> <C>
9/5/00 Developers Diversified Burnham Pacific
Realty Corp. and Coventry Properties, Inc.
Real Estate Partners
4/17/00 Kimco, Various Philips International
Realty Inc.
3/9/99 BPP Retail, which is now AMB Properties
known as U.S. Retail
Partners, LLC
9/24/98 Regency Realty Corp. Pacific Retail
5/20/98 Developers Diversified Hermes Portfolio
Realty Corp.
2/25/98 Developers Diversified Continental Real Estate
Realty Corp.
1/12/98 Regency Realty Corp. Midland Group Properties
2/10/97 Regency Realty Corp. Branch Portfolio
</TABLE>
Chase's methodology for analyzing the Precedent Asset Transactions
is described above under "Aggregate Consideration-Precedent Transaction
Analysis". The comparisons of the Precedent Asset Transactions with the Property
Purchase Consideration are shown in the following table. In the table, the
implied "capitalization rate on estimated 2000 net operating income--corporate"
was derived from Precedent Corporate Transactions and the implied
"capitalization rates on estimated net operating income--asset" was derived from
Precedent Asset Transactions.
<TABLE>
<CAPTION>
IMPLIED
RANGE FOR PRECEDENT ASSET MEASURES FOR
TRANSACTIONS THE ASSET SALE
---------------------------- -----------------
<S> <C> <C>
Capitalization rate on 9.0% - 10.0% 8.8%
estimated 2000 net
operating income--corporate
Capitalization rate on 8.75% - 9.5% 8.8%
estimated 2000 net
operating income--asset
</TABLE>
Based on these comparisons and on applying a range of capitalization
rates to estimated 2000 net operating income, Chase observed the Property
Purchase Consideration valuation to range from $590 million to $675 million.
Third Party Surveys. Chase reviewed market surveys conducted by
third-party experts from RERC Real Estate Report, PricewaterhouseCoopers Korpacz
Real Estate and CB Richard Ellis. These surveys reflect the capitalization
rates expected to be realized in prospective shopping center transactions by
participants, including pension funds, REITs, and insurance
37
<PAGE> 44
companies. Chase applied this range of capitalization rates to the estimated
2000 net operating income of the portfolio of properties to be sold in the Asset
Sale to arrive at a valuation range as shown below:
<TABLE>
<CAPTION>
SURVEY MEAN RANGE
---------------------------------------- -------- -----------
<S> <C> <C>
RERC Real Estate Report--first quarter
of 2000 9.3% 8.5% - 11.0%
PricewaterhouseCoopers Korpacz Real
Estate Survey--third quarter of 2000 9.8% 8.5% - 12.0%
CB Richard Ellis National Investor
Survey--fourth quarter of 1999 9.3% 7.5% - 10.0%
</TABLE>
The capitalization rates listed above yielded an average range of
8.5% to 11.0%. Applying those capitalization rates to the estimated 2000 net
operating income of the portfolio of properties being sold in the Asset Sale,
Chase arrived at an implied value for the Property Purchase Consideration to be
between $540 million and $700 million.
Discounted Cash Flow Analysis. Chase performed a discounted cash
flow analysis of the portfolio of properties to be sold in the Asset Sale based
on projections provided by our management for the years 2001 to 2006. After
calculating the net present value of the cash flows of the portfolio of
properties to be sold in the Asset Sale for the applicable periods using a range
of discount rates from 11.0% to 13.0%, a terminal value was calculated based
upon a range of exit capitalization rates from 9.0% to 11.0%. The capitalization
and discount rates were based on a review of companies and real estate
portfolios that Chase deemed comparable. Based on these ranges, Chase determined
that the implied value for the Property Purchase Consideration was between $575
million and $705 million.
The preparation of a fairness opinion is a complex process and
involves various judgments and determinations as to the most appropriate and
relevant assumptions and financial analyses and the application of these methods
to the particular circumstances involved. Such an opinion is therefore not
readily susceptible to partial analyses or summary description and taking
portions of the analyses set out above, without considering the analyses as a
whole, would, in the opinion of Chase, create an incomplete and misleading
picture of the processes underlying the analyses considered in rendering Chase's
opinion. Chase did not form an opinion as to whether any individual analysis,
considered in isolation, supported or failed to support Chase's opinion. In
arriving at its opinion, Chase considered the results of all such analyses and
did not assign specific weights to particular analyses. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold, and such estimates are inherently
subject to uncertainty. The analyses performed by Chase, particularly those
based on forecasts, are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Such
38
<PAGE> 45
analyses were prepared solely as a part of Chase's analysis of the fairness,
from a financial point of view, (i) to the Operating Partnership of the Property
Purchase Consideration to be paid by USRP I, LLC pursuant to the real estate
purchase agreement and (ii) to the Company and its stockholders and the
Operating Partnership and its partners of the consideration to be paid by
MergerCo and MergerLP pursuant to the merger agreement and the Property Purchase
Consideration to be paid by USRP I, LLC pursuant to the real estate purchase
agreement, taken together as a whole and not separately. The foregoing summary
is qualified in its entirety to reference to the full text of Chase's opinion.
Our Board of Directors retained Chase based upon its experience and
expertise. Chase, as part of its financial advisory business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and valuations for estate, corporate and other
purposes. Chase and its affiliates, including The Chase Manhattan Corporation,
in the ordinary course of business, have from time to time, provided, and in the
future may continue to provide, for customary compensation, commercial and
investment banking services to the Company and U.S. Retail Partners, LLC and
their respective affiliates, including, in the case of U.S. Retail Partners,
LLC, CalPERS. In the ordinary course of business, Chase or its affiliates may
trade in the debt or equity of the Company and affiliates of U.S. Retail
Partners, LLC, including CalPERS, for their own accounts and for the accounts of
their customers and, accordingly, may at any time hold a long or short position
in such securities.
The terms of our engagement of Chase are set forth in a letter
agreement, dated January 26, 2000, between Chase and the Company. Pursuant to
the terms of the letter agreement, upon the closing of the transactions, we have
agreed to pay Chase a fee equal to 0.49% of the consideration paid to the
Company and its stockholders and affiliates in connection with the transactions,
calculated according to the terms of the letter agreement, including amounts
paid in respect of convertible securities, stock appreciation rights and options
and including all assumed indebtedness. Chase has been paid $1.4 million, which
amount became payable upon execution of the Agreements and which shall be
credited against the fee described above. In addition, we have agreed to
reimburse Chase for its reasonable out-of-pocket expenses and to indemnify Chase
and specified related parties against certain liabilities relating to or arising
out of its engagement, including liabilities under the federal securities laws.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS AND
REASONS FOR THE TRANSACTIONS
As described above in the section entitled "Background of the
Transactions," our Board of Directors, and the special committee of independent
directors appointed by our Board to review and evaluate the fairness of the
transactions, each unanimously approved the terms and conditions of the
transactions and the transaction agreements and the liquidation of the Company
as contemplated by the plan of liquidation, at meetings held on September 25,
2000. Our Board and the special committee believe that the terms of the
transactions and the transaction agreements are fair to, and in the best
interests of, the Company and its stockholders and the Operating Partnership and
its partners. Accordingly, the special committee and our Board of Directors
recommend approval of the transactions and the liquidation plan by our
stockholders.
The Special Committee. In reaching its conclusion to approve the
transactions and the transaction agreements and the liquidation of the Company
as contemplated by the plan of liquidation, the special committee consulted with
our management and its own independent, outside legal counsel and considered the
advice of Chase, our financial advisor with respect to the transactions. In
addition, the special committee considered the short-term and
39
<PAGE> 46
long-term interests of the Company and its stockholders and the Operating
Partnership and its partners. In particular, the special committee considered
the following factors, all of which it deemed favorable, in reaching its
decision to approve the transactions, the transaction agreements and the
liquidation of the Company as contemplated by the plan of liquidation:
Value of Aggregate Consideration under the Transactions as
Compared to Historical and Recent Market Price of the Company's Common
Stock. The consideration to be received by our common stockholders in the
transactions represents a premium of:
- 25.3% over our common stock's closing price of $20.75 on September
27, 2000, which was the last trading day prior to the public
announcement of the transactions, and
- 28.6% over average closing price for the 52-week period ended
September 27, 2000.
Business, Financial Condition and Prospects. The special
committee believes that the transactions represent a more desirable
alternative for our stockholders than continuing to operate as an
independent public company under the current business plan. The
transactions will allow the Company in the short run to achieve our
long-term objective of a substantially higher valuation of our common
stock.
The special committee noted that, like other shopping center
REITs, the Company has experienced stock pricing levels below net asset
value for the past two years. In the 52-week period ended September 27,
2000, the closing price of our common stock was below $22 on 96% of the
trading days. In addition, the Company's management discussed with the
special committee the potential impact of the current state of the capital
markets on our long-term growth objectives.
The special committee also took into consideration the
increasingly prevalent view that institutional REIT investors are becoming
more focused on companies with larger market capitalizations that offer
greater liquidity. The current state of the capital markets, which has
been ongoing for the last two years, along with our obligation as a REIT
to distribute most of our cash flow to stockholders, could make it
difficult for us over the long term to raise the capital necessary to
increase our size, scale and market capitalization. The special committee
believes that this potential inability to significantly increase our size
over the long term could further impair our ability to raise equity
capital or to refinance on acceptable terms our debt obligations as they
mature.
Other Strategic Initiatives Available to Us. The special
committee also considered other strategic initiatives to the transactions
that might be available, including: diversifying the business of the
Company and its subsidiaries into new geographical markets and/or property
types; pursuing other business combination transactions such as a
merger-of-equals or a large acquisition in which the Company and the
Operating Partnership would be the surviving entities; and entering into
joint ventures with institutional investors and other sources of private
equity capital.
40
<PAGE> 47
After considering the potential benefits and risks to the
Company and its stockholders and the Operating Partnership and its
partners, the special committee determined that the transactions
represented a strategic initiative that is in the best interests of the
our stockholders and the Operating Partnership's partners.
Chase Fairness Opinion. The special committee considered
as favorable to its determination, the fairness opinion of Chase
described in "--Fairness Opinion" above.
The Financial Ability and Willingness of the USRP Entities to
Consummate the Transaction. The special committee considered the
affiliation of the USRP Entities with CalPERS, the largest domestic
pension fund in the United States, with more than $177 billion in total
assets as of August 31, 2000. In addition, U.S. Retail Partners, LLC, with
a net worth represented to be over $250 million, has committed, subject to
the terms and conditions set forth in the transaction agreements, to
closing the transactions. Based on the foregoing, the special committee
viewed the USRP Entities as likely to be able consummate the transactions.
Termination Rights in the Event of a Superior Acquisition
Proposal and Termination Fee. The master agreement permits the Board of
Directors to receive unsolicited inquiries and proposals regarding other
potential business combinations and, if consistent with its duties to the
stockholders of the Company and the partners of the Operating Partnership
under applicable law, to negotiate and provide information to third
parties with respect to proposals reasonably likely to lead to a more
favorable transaction to our stockholders and the Operating Partnership's
partners and, subject to the satisfaction of certain conditions, enter
into an agreement with respect to a more favorable transaction with a
third party, subject to the prior payment of an $18 million termination
fee to the USRP Entities plus the USRP Expenses, up to a maximum of $3
million, as described in "Terms of the Transactions--Termination Fee; USRP
Expenses" below.
The special committee also considered the following potentially
negative factors in its deliberations concerning the transactions, the
transaction agreements and the liquidation of the Company as contemplated by the
plan of liquidation:
Stockholders and the Operating Partnership's Partners Unable
to Share in Future Growth. The special committee acknowledged that the
transactions would preclude our stockholders and the Operating
Partnership's partners (other than, to a limited extent, the limited
partners electing to receive a portion of their consideration in the form
of preferred units of limited partnership interest in MergerLP) from
having the opportunity to participate in the future growth of the assets
of the Company and its subsidiaries.
The Tax Consequences to Our Stockholders and the Operating
Partnership's Partners. The special committee considered that the
transactions (with the possible exception of the Partnership Merger to the
extent the limited partners elect to receive a portion of their
consideration in the form of limited partnership interests in
41
<PAGE> 48
MergerLP) will be a taxable transaction to our stockholders and the
Operating Partnership's partners.
Significant Costs Involved. The special committee considered
the significant costs involved in connection with completing the
transactions and the substantial management time and effort required to
effectuate the transactions.
The special committee also considered the potential benefits to
certain directors and officers discussed in the sections entitled "Terms of the
Transactions--Management Agreement with FRW, Inc." and "--Interests of Certain
Persons in the Transactions," including the severance payments to be paid to
Stuart D. Halpert and William J. Wolfe under their employment agreements, the
acceleration of the vesting of all outstanding options to acquire our common
stock and the vesting and removal of restrictions on contingent and/or
restricted shares of our common stock.
In the opinion of the special committee, the above factors represent
the principal potential adverse factors related to the transactions. In
considering the transactions, the special committee considered the impact of
these factors on our stockholders and the Operating Partnership's partners.
In view of the wide variety of factors considered by the special
committee, the special committee did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered. The special committee viewed its position and recommendation as
being based on the totality of the information presented to, and considered by,
it. After taking into consideration all the factors set forth above, the special
committee determined that the potential benefits of the transactions outweighed
the potential detriments associated with the transactions.
The Board of Directors. In determining to approve and recommend the
transactions and the liquidation of the Company as contemplated by the
liquidation plan, and in reaching its determination that the transactions and
such liquidation are fair to, and in the best interests of the Company and its
stockholders and the Operating Partnership and its partners, our Board consulted
with senior management and its financial and legal advisors and considered the
same factors that were considered by the special committee. Our Board
unanimously adopted the recommendations of the special committee and approved
the transactions and the liquidation of the Company as contemplated by the
liquidation plan.
Alternatives to the Transactions. In the event the transactions are
not completed for any reason, the Company and its subsidiaries will continue to
pursue their business objectives of:
- maximizing funds from operations and cash available for
distributions to our stockholders and the Operating Partnership's
partners; and
- increasing the value of the properties of the Company and its
subsidiaries by continuing growth through the active management,
expansion and redevelopment of existing shopping centers and
selective development, redevelopment and acquisition of new shopping
centers.
42
<PAGE> 49
In addition, the Company and its subsidiaries may seek to enter into
other acquisition or business combination opportunities or to issue additional
debt or equity financing. Specifically, in the event the transactions are not
completed due to a failure to receive the requisite consent of the Operating
Partnership's limited partners, the Company and its subsidiaries and the USRP
Entities may seek to restructure the transactions and carry out the Asset Sale,
i.e. the sale of 57 of the 63 properties owned by the Company and its
subsidiaries, independently of the other transactions. In such event, the Asset
Sale would not require any consent of the Operating Partnership's limited
partners.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Pursuant to their respective employment agreements with the Company,
Stuart D. Halpert and William J. Wolfe each are entitled to a cash severance
payment if his employment is terminated by the Company for any other reason than
for cause, as defined in the employment agreement. Prior to the consummation of
the transactions, Mr. Halpert's and Mr. Wolfe's employment with the Company, and
each of their related employment agreements, will be terminated, in each case
other than with respect to his covenant not to compete, and, as a result,
Messrs. Halpert and Wolfe will each be entitled to a cash severance payment of
approximately $3,475,000 immediately prior to the closing of the transactions.
These payments will be in addition to each of their regular bonuses for 2000,
which the Company anticipates will equal approximately $350,000 for each of
Messrs. Halpert and Wolfe.
Furthermore, because payments made to Messrs. Halpert and Wolfe in
connection with the transactions become subject to an excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
Messrs. Halpert and Wolfe each will be entitled under his employment agreement
to an additional payment, referred to as a gross-up payment, in order to pay any
excise tax due, so that he will retain, as a result of receiving the gross-up
payment, the amount of payments in connection with the transactions that he
would have received if such payments were not subject to any excise tax.
Although we cannot definitively calculate the amount of the gross-up payments at
this time, we currently estimate that such payments will be approximately
$2,526,000 for each of Messrs. Halpert and Wolfe.
In addition, pursuant to the merger agreement, the Company will pay
retention bonuses of approximately $2,080,000 in the aggregate to other members
of senior management and approximately $1,000,000 in the aggregate to other
employees. These bonuses will be paid in order to retain key employees and
facilitate completing the transactions.
Immediately prior to the closing of the transactions, each
restricted share of our common stock outstanding, whether or not then vested or
restricted, will become fully vested and unrestricted. Each of the following
persons will have the following restricted shares of our common stock made fully
vested and unrestricted as a result of the transactions: Mr. Halpert, 126,584
shares; Mr. Wolfe, 126,584 shares; James G. Blumenthal, 2,300 shares; Jeffrey S.
Distenfeld, 2,300 shares; James G. Pounds, 2,300 shares.
Immediately prior to the closing of the transactions, all
obligations with respect to contingent shares of our common stock will be
settled in cash. The Company estimates that
43
<PAGE> 50
settling these obligations will require approximately $3,900,000, which will be
paid $1,950,000 each to Messrs. Halpert and Wolfe.
Immediately prior to the closing of the transactions, all of the
outstanding options, under the Company's stock option plan and employment
agreements, to purchase our common stock will become fully vested and
exercisable. In full settlement of these options, the Operating Partnership will
make a cash payment to each option holder prior to the closing equal to the
product of (1) the number of shares of our common stock provided for in such
option and (2) the excess, if any, of the total amount per share of common stock
to be received by our stockholders in connection with the transactions over the
exercise price per share provided for in such option. The Company estimates that
accelerating and cashing out all outstanding stock options will require payments
of approximately $7,200,000 in the aggregate. In settlement of outstanding stock
options held by the following directors and officers of the Company, such
officers and directors will receive approximately the following amounts: Mr.
Halpert, $3,020,200; Mr. Wolfe, $3,020,200; James G. Blumenthal, $93,345;
Jeffrey S. Distenfeld, $93,345; James G. Pounds, $93,345; Matthew J. Hart,
$44,000; William M. Russell, $44,000; and Heywood Wilansky, $60,250.
See also "Terms of the Transactions--Management Agreement with FRW,
Inc." and "Terms of the Transactions--Employment Programs" below for terms of
the new management agreement pursuant to which senior management will receive
retention payments in addition to fees for services thereunder. In addition,
under the terms of the merger agreement, the Company will be responsible for
payment of all wages and satisfaction of benefits relating to the period prior
to the effective time of the mergers, and the Company's directors and officers
will be entitled to indemnification in certain circumstances, as more fully
described in the section entitled "Terms of the Transactions--Indemnification."
DIRECTORS' COMPENSATION
Each Independent Director receives a retainer of $18,000 per annum
for his or her services as a director of our Board. In addition, the chairman of
each committee of our Board of Directors is paid $1,000 for each meeting which
he attends and chairs. The chairman of our Board's Compensation Committee
receives an additional $10,000 per year (paid in quarterly installments) for
additional services provided to the Company in such capacity. Each Independent
Director also is reimbursed for expenses incurred in attending meetings. Under
our stock option plan, each Independent Director receives, upon initial election
to our Board of Directors, an option to purchase 2,500 shares of our common
stock at an exercise price equal to the fair market value of a share of our
common stock on the grant date. Pursuant to the amendment to our stock option
plan approved by our stockholders at the most recent annual meeting, our Board
of Directors has discretion to make annual grants of options to each Independent
Director (at an exercise price equal to the fair market value of a share of our
common stock on the date of grant). Neither employees of the Company who are
directors nor Lester Zimmerman are paid director fees nor do they receive
options for their service as directors. In exchange for serving on the special
committee, each Independent Director received
44
<PAGE> 51
a retainer of $25,000. Mr. Wilansky received an additional $10,000 for his
services as chairman of the special committee.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding beneficial
ownership of the shares of our common stock as of October 19, 2000 by (i) our
Chief Executive Officer and each of the other four most highly compensated
executive officers (collectively, the "Named Executive Officers"), (ii) each
director of the Company, (iii) the Company's officers and directors as a group
and (iv) all persons known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of our common stock. 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 the securities
listed below have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Unless otherwise indicated,
the business address for each of the individuals listed below is c/o First
Washington Realty Trust, Inc., 4350 East-West Highway, Suite 400, Bethesda,
Maryland 20814.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------------------
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class (2)
------------------------ ------------------------ --------------------
<S> <C> <C>
Stuart D. Halpert (3)(4) 646,394 6.00%
William J. Wolfe (3)(4) 646,394 6.00%
Lester Zimmerman 94,471 0.90%
James G. Blumenthal (3)(4) 35,391 *
Jeffrey S. Distenfeld (3)(4) 35,391 *
James G. Pounds (3)(4) 35,391 *
Matthew J. Hart (5) 15,832 *
William M. Russell (5) 14,832 *
Heywood Wilansky (5) 11,832 *
All executive officers and
directors as a group (9 persons) 1,535,928 13.77%
T. Rowe Price
Associates, Inc. (6)(7) 863,300 8.24%
100 East Pratt Street
Baltimore, MD 21202
----------------------------------
* = less than 1%
</TABLE>
(1) Includes shares of our common stock issuable upon conversion of
common units of limited partnership interest in the Operating Partnership which
are convertible within 90 days. As of October 19, 2000, common units owned by
the Named Executive Officers and Directors were as follows: Stuart D. Halpert -
3,198, William J. Wolfe - 3,198, Lester Zimmerman - 2,318, James G. Blumenthal -
3,077, Jeffrey S. Distenfeld - 3,077, and James G. Pounds - 3,077.
45
<PAGE> 52
(2) Based on 10,480,020 shares of our common stock outstanding as of
October 19, 2000, plus the shares of our common stock issuable upon conversion
of all common units and the options to purchase shares of our common stock
(which are exercisable within 90 days) held by such beneficial owner.
(3) Includes options to purchase shares of our common stock (which
are exercisable within 90 days) as follows: Stuart D. Halpert - 283,140, William
J. Wolfe - 283,140, James G. Blumenthal - 18,462, Jeffrey S. Distenfeld -
18,462, and James G. Pounds - 18,462.
(4) Includes restricted shares of our common stock (not vested) held
by Stuart D. Halpert - 151,584, William J. Wolfe - 151,584, James G. Blumenthal
- 3,700, Jeffrey S. Distenfeld - 3,700, and James G. Pounds - 3,700.
(5) For Mr. Wilansky only, includes options to purchase 11,832
shares of our common stock (which are exercisable within 90 days). For Mr.
Hart and Mr. Russell only, includes options to purchase 9,332 shares of
our common stock (which are exercisable within 90 days).
(6) Reflects beneficial ownership as of December 31, 1999, as
reported to the Company on Schedule 13G filed in February, 2000. The Company is
not aware of any change in ownership since this filing.
(7) These securities are owned by various individual and
institutional investors for which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment advisor with power to direct investments
and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed
to be a beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
VOTING AGREEMENTS WITH SENIOR MANAGEMENT
MergerCo has entered into a voting agreement with each of Stuart D.
Halpert and William J. Wolfe. In these agreements, Messrs. Halpert and Wolfe
each agreed to vote 256,329 shares of our common stock in favor of the
transactions and to vote these shares against any transaction or other proposal
that could hinder or impede the completion of the transactions. Finally, these
officers agreed not to transfer or pledge those shares before the consummation
of the transactions. The 512,658 shares of our common stock, in the aggregate,
subject to the two voting agreements represent less than 5% of the issued and
outstanding shares of our common stock.
CERTAIN EFFECTS OF THE TRANSACTIONS
If the transactions are completed, holders of shares of our
common stock and Series A preferred stock will not have an opportunity to
continue their equity interest in the surviving company as an ongoing company,
and, therefore, will not have the opportunity to share
46
<PAGE> 53
in their future earnings, dividends or growth, if any. In addition, upon
completion of the transactions, our common stock and Series A preferred stock
will cease to exist (other than as the right to receive the consideration in
connection with the transactions), will no longer be listed on the New York
Stock Exchange and will cease to be registered with the Securities and Exchange
Commission.
METHOD OF ACCOUNTING
The transactions will be accounted for under the purchase method of
accounting.
47
<PAGE> 54
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held at [___________________], on
[___________, _________ __], 2000, at 10:00 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, you will be asked to consider and vote upon
a proposal to consider and approve the transactions set forth in this proxy
statement, including the disposition of substantially all of our assets to, and
the merger with and into, affiliates of U.S. Retail Partners, LLC, in the manner
set forth in "The Transactions--Structure of the Transactions" and "Terms of the
Transactions". As a result of the transactions, the separate corporate existence
of the Company will cease and all of our subsidiaries will become subsidiaries
of MergerCo.
RECORD DATE AND VOTING POWER
Our Board of Directors has fixed the close of business on [___],
2000 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting. As of the record date, there were
[10,480,020] outstanding shares of common stock held by approximately [__]
stockholders of record and [1,954,004] outstanding shares of Series A preferred
stock held by approximately [___] stockholders of record. Our common stock and
Series A preferred stock are our only outstanding classes of stock. Common
stockholders of record on the record date will be entitled to one vote per share
of our common stock on any matter that properly comes before the Special Meeting
and any adjournment or postponement of that meeting. The holders of Series A
preferred stock are not entitled to vote their shares of Series A preferred
stock with respect to the approval of the transactions.
QUORUM AND VOTE REQUIRED
Our charter and bylaws require (a) the presence, in person or by
duly executed proxy, of the stockholders entitled to cast at least a majority of
the votes entitled to be cast at the Special Meeting in order to constitute a
quorum and (b) the affirmative vote of stockholders entitled to cast a majority
of the votes entitled to be cast at the Special Meeting in order to approve the
transactions. For purposes only of determining the presence or absence of a
quorum for the transaction of business, we intend to count abstentions and
broker non-votes as present at the Special Meeting. Abstentions and broker
non-votes will not, however, be counted as votes and, therefore, have the same
effect as votes against the proposal. Broker non-votes are proxies from brokers
or other nominees indicating that they have not received instructions from the
beneficial owner or other person entitled to vote the shares which are the
subject of the proxy on a particular matter with respect to which the broker or
other nominee does not have discretionary voting power.
48
<PAGE> 55
PROXIES, VOTING AND REVOCATION
Shares of our common stock represented at the Special Meeting by
properly executed proxies received prior to, or at, the Special Meeting, and not
revoked, will be voted at the Special Meeting, and at any adjournment or
postponement of that meeting, in accordance with the instructions on those
proxies. If a proxy is duly executed and submitted without instructions, the
shares of our common stock represented by that proxy will be voted "For" the
approval of the plan of liquidation, the transactions and the transaction
agreements. Proxies are being solicited on behalf of our Board.
A proxy may be revoked at any time before it is voted at the Special
Meeting. A proxy may be revoked by the person who executed it at, or before, the
Special Meeting by:
- delivering to our secretary a written notice of revocation of a
previously-delivered proxy bearing a later date than the proxy;
- duly executing, dating and delivering to our secretary a subsequent
proxy; or
- attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not, in and of itself,
constitute revocation of a previously delivered proxy. Any written notice
revoking a proxy should be delivered to First Washington Realty Trust, Inc.,
4350 East-West Highway, Suite 400, Bethesda, Maryland 20841, Attention:
Jeffrey S. Distenfeld, Secretary.
SOLICITATION OF PROXIES AND EXPENSES
We will bear the entire cost of solicitation of proxies from our
stockholders. [We have retained [____________] to assist in soliciting proxies
and will pay approximately $[_____] plus reasonable out-of-pocket expenses in
connection with the solicitation.] Copies of solicitation materials will be
furnished to brokerage houses, fiduciaries and custodians holding in their names
shares of our common stock or Series A preferred stock beneficially owned by
others to forward to those beneficial owners. We will reimburse persons
representing beneficial owners of the shares of our common stock and Series A
preferred stock for their expenses in forwarding solicitation materials to those
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone or personal solicitation by our directors, officers or other
regular employees of the Company. No additional compensation will be paid to our
directors, officers or other regular employees for these services.
49
<PAGE> 56
TERMS OF THE TRANSACTIONS
The terms of the transactions are included in the following
transaction agreements: (1) a master agreement, dated as of September 27, 2000,
among USRP I, LLC, MergerCo, USRP LP, LLC, U.S. Retail Partners, LLC, MergerLP,
the Company, the Operating Partnership and certain subsidiaries of the Company
and the Operating Partnership, which is attached hereto as Exhibit A and is
incorporated herein by reference; (2) the real estate purchase agreement, dated
as of September 27, 2000, among the Operating Partnership, the Company, certain
subsidiaries of the Company and the Operating Partnership and USRP I, LLC, which
is attached hereto as Exhibit B and is incorporated herein by reference; (3) a
Limited Partnership Interest Purchase and Sale Agreement, dated as of September
27, 2000, between the Company and USRP LP, LLC, which is attached hereto as
Exhibit C and is incorporated herein by reference; and (4) an agreement and plan
of merger (referred to throughout this proxy statement as the "merger
agreement"), dated as of September 27, 2000, among MergerCo, MergerLP, the
Company and the Operating Partnership, which is attached hereto as Exhibit D and
is incorporated herein by reference. The plan of liquidation contemplates the
liquidation of the company in the manner set forth in the transaction
agreements.
CLOSINGS AND THE EFFECTIVE TIME
The transactions described in this proxy statement will be
consummated after the fulfillment or waiver of all of the conditions to the
transactions, but no earlier than January 12, 2001. See "- Conditions to the
Transactions". The mergers, the last step in the transactions, will become
effective when (1) the State Department of Assessments and Taxation of Maryland
has accepted for record (x) the Articles of Merger for the Company Merger in
accordance with the Maryland General Corporation Law, and (y) the Articles of
Merger for the Partnership Merger in accordance with the Maryland Revised
Uniform Limited Partnership Act, and (2) the Secretary of State of the State of
Delaware has accepted for record (x) the Certificate of Merger for the Company
Merger in accordance with the Delaware Limited Liability Company Act, as
amended, and (y) the Certificate of Merger for the Partnership Merger in
accordance with the Delaware Revised Uniform Limited Partnership Act, as
amended. At that time, the Company and the Operating Partnership will be merged
with and into MergerCo and MergerLP, respectively, and will cease to exist as
separate entities, and all of our subsidiaries will become subsidiaries of
MergerCo.
The transaction agreements currently require that all conditions to
each step of the transactions be satisfied or waived before any step of the
transactions can be consummated. In addition, a default under any of the
transaction agreements will allow the non-defaulting party to terminate all of
the transaction agreements.
ASSET SALE
Pursuant to the real estate purchase agreement, the Company and
certain of its subsidiaries have agreed to sell and USRP I, LLC has agreed to
purchase 57 properties, the working capital and certain other assets in
consideration of a purchase price of $673,987,783, less the outstanding
principal balance (including any accrued and unpaid interest) as of the date
50
<PAGE> 57
of the closing of the Asset Sale of loans encumbering any of the 57 properties,
subject to adjustments set forth in the master agreement. Such adjustments
generally (i) allocate the expense and benefit of owning and operating the
properties (including the properties to be sold pursuant to the mergers rather
than the Asset Sale) to the Company and its subsidiaries with respect to the
period ending on the date immediately preceding the date on which the closing of
the transactions occurs, and to the USRP Entities thereafter, (ii) compensate
the Company and its subsidiaries for certain working capital and certain
accounts receivable to be assigned to the USRP Entities at the closing of the
transactions and (iii) allocate certain expenses incurred in connection with the
transactions. Items that will be adjusted to allocate the expense and benefit of
owning and operating the properties include taxes and assessments, tenant
deposits, leasing costs, rents and other customary items of income and expense.
Expenses of the transactions allocated among the Company and its subsidiaries
and the USRP Entities include (a) recording fees, (b) transfer taxes, deed
stamps and similar amounts, (c) title insurance update costs and premiums, (d)
escrow charges, (e) fees, additional premiums, reductions in refunds of unused
prepaid premiums and other costs payable as a result of any early termination of
insurance policies, (f) the costs of obtaining the required consent of any
lender whose loan is assumed by the USRP Entities and (g) prepayment fees, yield
maintenance amounts, defeasance costs or similar amounts paid in connection with
certain loans which are not assumed by the USRP Entities but are instead paid
off at the closing of the transactions. The purchase price to be paid by USRP I,
LLC for the 57 properties will also be (x) reduced by an agreed amount in the
event that certain tenants at the properties exercise rights to purchase
portions of such properties pursuant to existing rights held by such tenants;
(y) increased pursuant to an agreed formula in the event that certain portions
of the properties that are subject to existing binding sale contracts are not
sold pursuant to such contracts prior to the closing of the transactions
(subject to certain conditions and limitations); and/or (z) increased by the
reasonably anticipated cost to complete and/or pay for certain construction
projects not completed and fully paid prior to the closing of the transactions.
After the consummation of the Asset Sale, the Operating Partnership
will use (a) approximately $58,000,000 of the cash proceeds received from USRP
I, LLC pursuant to the real estate purchase agreement to repay its line of
credit and other mortgages to be repaid pursuant to the transaction agreements,
(b) approximately $6,000,000 of the proceeds to pay for transfer taxes resulting
from the transactions, (c) approximately $6,950,000 of the proceeds to pay cash
severance payments pursuant to employment agreements, (d) approximately
$5,052,000 of the proceeds to pay excise tax "gross-up" payments pursuant to
employment agreements, (e) approximately $2,080,000 of the proceeds to pay
retention bonuses to members of senior management, (f) approximately $1,000,000
of the proceeds to pay retention bonuses to other employees, (g) approximately
$3,900,000 of the proceeds to settle obligations pursuant to employment
agreements with respect to contingent shares of our common stock, (h)
approximately $7,200,000 of the proceeds to cash out all outstanding options for
our common stock, and (i) approximately $10,824,000 of the proceeds to pay for
transaction expenses incurred as a result of the transactions.
Prior to the consummation of the Interest Sale, the Operating
Partnership will distribute the net proceeds of the Asset Sale to its partners,
and the Company will make a liquidating distribution, including the amount of
the net proceeds received from the Operating Partnership, to its stockholders in
accordance with the Company's Charter.
INTEREST SALE
Immediately after the consummation of the Asset Sale and the
distributions of the net proceeds described above, the Operating Partnership
will convert the Company's general partnership interest (currently, including
both common units and preferred units, an approximately 74% interest) in the
Operating Partnership into a 1% general partnership interest, with the remainder
of the Company's interest in the Operating Partnership being converted into
Series A Common Units of limited partnership interest. The Company will then
sell these Series A common units to USRP LP, LLC, the limited partner of
MergerLP, in exchange for a promissory note in the amount of the product of (i)
$83,166,740, adjusted as set forth in the "--Partnership Merger" for any change
in the balance of certain assumed loans, multiplied by (ii)
51
<PAGE> 58
the percentage interest in the Operating Partnership represented by the Series A
Common Units immediately prior to the closing of the Interest Sale.
COMPANY MERGER
Pursuant to the merger agreement, simultaneously with the
consummation of the Partnership Merger, the Company will merge with and into
MergerCo. In the Company Merger, each share of our common stock and Series A
preferred stock issued and outstanding immediately prior to the effective time
of the Company Merger will be canceled, retired and converted into the right to
receive the Company Merger consideration. As a result of the Company Merger, the
separate legal existence of the Company will cease and all of its subsidiaries
will become subsidiaries of MergerCo.
Effect on Common Stock and Series A Preferred Stock. At the
effective time of the mergers, without any further action,
- each share of our common stock issued and outstanding immediately
prior to the effective time of the Company Merger will be converted
into the right to receive an amount in cash, without any interest
thereon, equal to (x) $83,166,740, adjusted as set forth below for
any change in the balance of certain assumed loans, divided by (y)
the number of shares of our common stock that would be outstanding
immediately prior to the effective time of the mergers if all holders
(other than the Company) of our Series A preferred stock and the
Operating Partnership's partnership interests had converted their
Series A preferred stock (including accrued but unpaid dividends
thereon) and/or partnership units (including accrued but unpaid
distributions thereon) into our common stock immediately prior to the
effective time of the mergers (the "Common Stock Consideration"); and
- each share of our Series A preferred stock issued and outstanding
immediately prior to the effective time of the mergers will be
converted into the right to receive an amount in cash equal to the sum
of (x) 1.282051282051 multiplied by the Common Stock Consideration and
(y) any accrued and unpaid dividends on such share of Series A
preferred stock.
In determining the amount paid per common unit, the $83,166,740 will
be increased by the excess of (1) the total outstanding balance (including
principal and any accrued and unpaid interest) of loans specified in a schedule
to the merger agreement and assumed in connection with the properties retained
after the Asset Sale over (2) the total outstanding balance of such loans at the
effective time of the mergers, excluding a $3,000,000 loan specified in the
merger agreement and relating to the Woodmoor Shopping Center, one of the
retained properties, provided that, if the amount described in clause (1) is
less than clause (2), the amount of the difference will be subtracted from
rather than added to the $83,166,740 amount.
The result of the distribution of the net proceeds of the Asset Sale
to our stockholders made immediately prior to the Interest Sale and the payment
of the Company Merger consideration will be that holders of our Series A
preferred stock will receive an amount
52
<PAGE> 59
equal to the amount such holder would have received had such holder converted
its shares of our Series A preferred stock into common stock immediately prior
to the consummation of the transactions.
Exchange of Stock Certificates. Prior to the effective time of the
mergers, MergerCo will deposit with American Stock Transfer & Trust Company,
which is acting as the exchange agent, cash in the amount of the aggregate
consideration to be paid to stockholders in consideration of the Company Merger.
Promptly after the effective time of the mergers, the exchange agent will send
to each stockholder a letter of transmittal and detailed instructions specifying
the procedures to be followed for surrendering stock certificates and receiving
the merger consideration. You should not send your stock certificates to us or
anyone else until you receive these instructions.
Appraisal Rights. No appraisal rights will be available to our
stockholders with respect to the transactions.
PARTNERSHIP MERGER
Pursuant to the merger agreement, simultaneously with the
consummation of the Company Merger, the Operating Partnership will merge with
and into MergerLP. After the Partnership Merger, each partnership interest in
the Operating Partnership will automatically cease to exist and will represent
only the right to receive the Partnership Merger consideration described below.
Effect on Partnership Interests. The effect of the Partnership
Merger on the partnership interests held by the Operating Partnership's limited
partners will depend on the election made by each limited partner with respect
to the form of merger consideration. Each of the Operating Partnership's limited
partners electing to receive all cash consideration, will receive cash in the
following amounts:
- with respect to each common unit of limited partnership interest, the
amount obtained by dividing (i) $83,166,740, adjusted as set forth in
"--Company Merger", above, for any change in the balance of certain
assumed loans, by (ii) the number of shares of our common stock that
would be outstanding immediately prior to the effective time of the
mergers if all holders (other than the Company) of our Series A
preferred stock and the partnership interests in the Operating
Partnership had converted their Series A preferred stock (including
accrued but unpaid dividends thereon) and partnership interests
(including accrued but unpaid distributions thereon) into our common
stock immediately prior to the effective time of the mergers; and
- with respect to each preferred unit of limited partnership interest,
an amount equal 1.282051282051 multiplied by the amount determined
above with respect to each common unit.
53
<PAGE> 60
Each limited partner electing to receive part of his, her or its
merger consideration in partnership interests will receive, in addition to the
distribution of the net proceeds from the Asset Sale:
- for each common unit, one preferred unit of limited partnership
interest in MergerLP; and
- for each preferred unit, 1.282051282051 preferred units of limited
partnership interest in MergerLP.
Each Series A Common Unit owned by USRP LP, LLC will be exchanged
for and converted into one common unit of limited partnership of MergerLP. The
common units of limited partnership interest received by USRP LP, LLC as merger
consideration will constitute 100% of the common units of limited partnership
interest in MergerLP.
Payment of Exiting Partner Consideration. Prior to the effective
time of the mergers, MergerLP will deposit with the exchange agent cash in the
amount of the aggregate consideration to be paid to the limited partners who
have elected to receive the merger portion of their consideration in cash.
Promptly after the effective time of the mergers, the exchange agent will send
to each such limited partner a letter of transmittal and detailed instructions
specifying the procedures to be followed for receiving the applicable amount of
the merger consideration.
Appraisal Rights. Limited partners of the Operating Partnership who
have, prior to [_______, 2000], which is 20 business days after the date of the
consent solicitation memorandum distributed to the Operating Partnership's
limited partners, filed written objections to the Partnership Merger, who have
not consented to the Partnership Merger, and who subsequently have perfected (in
accordance with Title 3, Subtitle 2 of the Maryland General Corporation Law, as
applicable to limited partners of a Maryland limited partnership by virtue of
Section 10-208(f) of the Maryland Revised Uniform Limited Partnership Act) their
appraisal rights, will not be entitled to receive any distribution in connection
with the transactions, but rather will be entitled to receive the fair value of
such partnership interests determined in accordance with the applicable
provisions of Maryland law. Each limited partner who becomes entitled to receive
such payment will be paid by MergerLP after the effective time of the
Partnership Merger and such limited partner's partnership interests will be
canceled.
Alternate Structure. Prior to the effective time of the Partnership
Merger, MergerLP has the right, at its election, to restructure the Partnership
Merger so that, rather than merging directly with and into MergerLP, the
Operating Partnership would merge with and into a limited liability company that
is wholly owned by MergerLP; provided that MergerLP will not be able to
restructure the Partnership Merger in this manner if such restructuring would
have an adverse financial effect on our stockholders or the Operating
Partnership's limited partners.
54
<PAGE> 61
CONDUCT OF THE BUSINESS PRIOR TO THE TRANSACTIONS
The Company and its subsidiaries have agreed that, prior to
consummation of the transactions, except as otherwise contemplated by the
transaction agreements, they will:
- conduct their respective businesses only in the ordinary course of
business consistent with past practice and use commercially reasonable
efforts to preserve intact their business organizations, goodwill and
ongoing business;
- confer on a regular basis with the representatives of the USRP
Entities with respect to material operational matters and related
proposals and certain tax and regulatory matters, and promptly notify
the USRP Entities of any material developments or changes in the
business;
- do all things necessary to ensure that the Company continues to meet
the requirements to maintain its status as a REIT within the meaning
of the Code; and
- comply in all material respects with all easements, covenants,
conditions, restrictions and other encumbrances affecting their real
property.
In addition, the master agreement specifically prohibits the Company
and its subsidiaries, except with the consent of the USRP Entities or as
otherwise contemplated by the transaction agreements, from, among other things,
taking any of the following actions:
- submit any written communication or filing to any state environmental
authority (the USRP Entities' consent not to be unreasonably
withheld);
- acquire, enter into an option to acquire or exercise an option to
acquire, additional real property, incur additional indebtedness,
encumber assets or commence construction of, or enter into any
agreement to develop any type of real estate projects other than in
the ordinary course of business consistent with past practice;
- pay dividends or make distributions, other than (1) regular quarterly
dividends paid in accordance with normal payment schedules, but not to
exceed $0.4875 per share of our common stock or common unit of limited
partnership interest in the Operating Partnership, except to the
extent a greater amount is required to prevent the Company from having
positive REIT taxable income and (2) with respect to our Series A
preferred stock or preferred units of limited partnership interest in
the Operating Partnership as required by our Charter or the Operating
Partnership's partnership agreement, as applicable;
- amend any of their organizational documents or our rights agreement
with American Stock Transfer & Trust Company, dated as of October 10,
1998;
- except pursuant to the exercise of options, warrants, conversion
rights and other contractual rights existing as of September 27, 2000
and disclosed in the transaction
55
<PAGE> 62
agreements, issue any shares of their stock or partnership or other
interests, as applicable, or effect any split, recapitalization or
similar transaction or grant any option or other right not existing on
September 27, 2000 to acquire shares of their stock or partnership or
other interests, as applicable;
- redeem, purchase or otherwise acquire any shares of their stock or
partnership or other interests, as applicable;
- increase any compensation or enter into or amend any employment
agreement with any of their present or future officers or directors;
- except with respect to the adoption of a retention plan described in
the master agreement, adopt any new employment benefit plan or amend
any existing plan in any material respect more favorable to the
participants;
- sell, or otherwise dispose of any properties or portion thereof,
shares of their stock or partnership or other interests, as
applicable, or, except in the ordinary course of business, any of
their assets;
- make any loans or capital contributions to, or investments in, any
individual or entity;
- pay or satisfy any claims, liabilities or obligations other than
payment or satisfaction in the ordinary course of business consistent
with past practice or in accordance with their terms of liabilities
incurred in the ordinary course of business or reflected in certain of
our financial statements;
- enter into any agreement or obligation that may result in total
liability of the Company and its subsidiaries in excess of $25,000,
except for the renewal of certain insurance policies in the ordinary
course of business;
- enter into any agreement or obligation with any officer, director,
consultant or affiliate of the Company and its subsidiaries or any
family member thereof;
- terminate any employee under circumstances that would result in
severance payments to such employee, or pay any severance benefits to
any employee on account of such employee's termination, other than in
accordance with an exhibit to the merger agreement;
- generally take or fail to take any action that would cause their
representations and warranties made in the transaction agreements to
cease to be true and correct in any material respect;
- amend or modify the terms or conditions of, or documents evidencing or
securing, any of the loans set forth on an exhibit to the master
agreement and being assumed
56
<PAGE> 63
by the USRP Entities (for which consent by the USRP Entities will not
unreasonably be withheld or delayed);
- amend or modify the terms of any contribution agreement or insurance
policy; or
- execute or modify any leases pertaining to premises in excess of 3,000
rentable square feet without consent of the USRP Entities, provided
that the USRP Entities must be reasonable in determining whether or
not to consent to execution or modification of these leases.
CONDITIONS TO THE TRANSACTIONS
Before the transactions can occur, several conditions must be
fulfilled, or, alternatively, waived by the appropriate party or parties. The
conditions that remain outstanding include the following:
- obtaining the requisite approval of our stockholders and the Operating
Partnership's limited partners;
- no preliminary or permanent injunction or other order having been
issued by any court of competent jurisdiction or governmental,
regulatory or administrative agency or commission and no other legal
restraint or prohibition making the transactions illegal, or otherwise
materially restricting, preventing or prohibiting the transactions,
being in effect;
- obtaining any governmental or regulatory consents that are necessary
to complete the transactions;
- each party having performed and complied in all material respects with
all of the terms of the transaction agreements to be complied with by
such party prior to the closings of the transactions;
- the representations and warranties made by each party continuing to be
true as of the closing date of the transactions, subject to
qualifications for materiality, provided that representations and
warranties made by the Company and its subsidiaries will not be deemed
to be breached to the extent that the USRP Entities had actual
knowledge of such breach as of September 27, 2000;
- the willingness of LandAmerica Title Insurance Company, upon payment
and performance by the USRP Entities of their obligations under the
transaction agreements, to issue appropriate title insurance policies;
- receiving estoppel certificates that do not allege any material
defaults by the Company or any of its subsidiaries from (1) each
Major Tenant (as defined in the master agreement), (2) tenants
leasing more than 80% of the gross leasable area of specified leases
that demise from 5,000 to 15,000 gross leasable square feet and (3)
57
<PAGE> 64
tenants leasing more than 60% of the gross leasable area of - all of
the properties under leases demising less than 5,000 gross leasable
square feet;
- obtaining the other third party consents required by the transaction
agreements;
- from June 30, 2000 through the closing date of the transactions, there
having not occurred any change or changes that, individually or
collectively with all other changes, has had, or is reasonably likely
to have, a material adverse effect on the business, results of
operations, financial condition or operating income of the Company and
its subsidiaries, taken as a whole;
- obtaining certificates from executive officers of USRP I, LLC, on the
one hand, and the Company, on the other hand, to the effect that
certain conditions set forth above have been met;
- the new management agreement, described in "--Management Agreement
with FRW, Inc.", remaining in full force and effect;
- Messrs. Halpert and Wolfe having sold all of the shares of capital
stock in First Washington Management, Inc., a District of Columbia
corporation and the Company's management company, to the USRP
Entities;
- terminating the employment of all employees of the Company as of the
effective time of the mergers and making or providing for payment of
wages, salaries, benefits and other claims related thereto described
in the merger agreement and "The Transactions--Interests of Certain
Person in the Transactions";
- each restricted share of our common stock having become fully vested
and unrestricted and each option having become fully vested,
exercisable and settled;
- the Operating Partnership having paid all expenses related to the
negotiation and preparation of the transactions incurred or otherwise
required to be paid by the Company or the Operating Partnership;
- the Operating Partnership repaying all indebtedness under its credit
facility;
- the Operating Partnership having borrowed $3,000,000 of qualified,
non-recourse financing related to the Woodmoor Shopping Center;
- obtaining an opinion from the Company's counsel relating to the
Company's qualification as a REIT under the Code and the treatment of
our subsidiaries as partnerships rather than associations taxable as
corporations or publicly traded partnerships for federal income tax
purposes;
58
<PAGE> 65
- paying all accrued liabilities of the First Washington Entities other
than contingent liabilities and certain accounts payable, accrued
expenses and other liabilities specified in the Contracts; and
- assigning the First Washington Entities' employee benefit plans and
similar plans to FRW, Inc., on terms and conditions reasonably
acceptable to MergerCo, or terminating such plans without any further
liabilities on the part of the Company or its subsidiaries or the USRP
Entities.
REPRESENTATIONS AND WARRANTIES
In the master agreement, the Company and its subsidiaries made
customary representations and warranties, subject to qualifications for
materiality and exceptions disclosed to the USRP Entities, concerning their
business and assets. The representations and warranties must be true and
correct, subject to customary qualifications for materiality, at the closing
date of the transactions, or the USRP Entities will not be required to complete
the transactions. These representations and warranties include, among others:
- that the Company and its subsidiaries are validly existing and in good
standing and that the issued and outstanding shares of stock and
partnership and other equity interests, as the case may be, of the
Company and its subsidiaries are fully paid and nonassessable;
- that the businesses of the Company and its subsidiaries are not in
violation of laws;
- that our Board of Directors authorized signing the transaction
agreements and the performance of the Transactions;
- that neither the execution and delivery of the transaction agreements
nor the performance of the transactions will conflict with or breach
the Company's and its subsidiaries' organizational documents, employee
benefit plans, agreements or similar obligations or require any
consent from or registration with any governmental entity;
- that except as otherwise disclosed, there are no material suits or
actions filed or threatened against the Company and its subsidiaries;
- that we have, for each taxable year since the formation of the
Company, been subject to taxation as a REIT within the meaning of the
Code and have satisfied the requirements to qualify as a REIT and have
operated and intend to continue to operate consistent with the
requirements for qualification and taxation as a REIT through the end
of the taxable year ending at the effective time of the mergers;
- that since June 30, 2000, there has not been any change that,
individually or collectively with all other such changes, has had or
is reasonably likely to have a
59
<PAGE> 66
material adverse effect on the business, results of operations,
financial condition or operating income of the Company and its
subsidiaries, taken as a whole; and
- that the Company and its subsidiaries have attached as an exhibit to
the master agreement rent rolls that, taken as a whole, are true and
correct in all material respects.
The master agreement also contains customary representations and
warranties, subject to qualifications for materiality, of the USRP Entities
relating to various aspects of their business, including:
- that the USRP Entities are validly existing and in good standing and
that the issued and outstanding shares of capital stock and
partnership and other equity interests of the USRP Entities are fully
paid and nonassessable;
- that the members or general partner, as the case may be, of each USRP
Entity authorized the signing of the transaction agreements and
performance of the transactions;
- that neither the execution and delivery of the transaction agreements
nor the performance of the transactions will conflict with or breach
the USRP Entities' organizational documents, agreements or similar
obligations or require any consent from or registration with any
governmental entity; and
- that the USRP Entities will have sufficient funds to consummate the
transactions.
SOLICITATION OF PROPOSALS FROM OTHER PARTIES
In accordance with the master agreement, the Company and its
subsidiaries have agreed that, until the termination of the master agreement or
the effective time of the mergers, they will not authorize or permit any of
their respective officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants, or other representatives to solicit, initiate,
facilitate or encourage any inquiries related to or proposals for:
- a merger, consolidation or similar transaction involving the Company
or any of its subsidiaries;
- the sale, lease or other disposition, directly or indirectly, of 10%
or more of the consolidated assets of the Company and its
subsidiaries;
- the issuance, sale or other disposition by the Company or the
Operating Partnership of securities representing 10% or more of the
votes associated with the outstanding securities of the Company or the
Operating Partnership;
- a tender offer or an exchange offer for 10% or more of the outstanding
shares of our common stock; or
60
<PAGE> 67
- a similar transaction.
We must promptly notify MergerCo in writing within one business day
of the material terms and conditions of any inquiry or proposal that the we or
any of our subsidiaries receive concerning any of the transactions mentioned
above.
Prior to the approval of the transactions by our stockholders and
the Operating Partnership's limited partners, if we receive an unsolicited
proposal concerning any of the transactions mentioned above, and our Board of
Directors determines, in good faith, that the proposal is reasonably likely to
lead to a transaction that is more favorable to our stockholders and the
partners of the Operating Partnership than the proposed transactions, then the
transaction agreements permit the Company and its subsidiaries to furnish
information to the third party making the unsolicited proposal, and to
participate in negotiations concerning that proposal, so long as (1) our Board
of Directors has determined in good faith, after consultation with and
consistent with the advice of its legal counsel and financial advisors, that
such action is consistent with its duties to our stockholders and to the
partners of the Operating Partnership under applicable Maryland law and (2) the
third party enters into a confidentiality/standstill agreement with the Company
and its subsidiaries in customary form and providing, in a form satisfactory to
the USRP Entities, that the USRP Entities have third party beneficiary rights
thereunder.
Our Board of Directors may also approve or recommend, or enter into
an agreement with respect to, another business combination after determining in
good faith, after consultation with and consistent with the advice of its
outside legal counsel and financial advisors, that it has received a superior
proposal, and that such action is consistent with its duties to our stockholders
and to the partners of the Operating Partnership under applicable Maryland law
and, at the same time, withdraw or modify its approval and recommendation of the
transactions if such withdrawal or modification is required to satisfy its
duties, if any, under applicable Maryland law. In this circumstance, the Company
or the USRP Entities will have the right to terminate the transaction
agreements, provided that prior to any such termination the Company and its
subsidiaries will pay to the USRP Entities a termination fee of $18 million plus
the USRP Entities, expenses as described in "--Termination of the Transaction
Agreements" and "--Termination Fee; USRP Expenses."
TERMINATION OF THE TRANSACTION AGREEMENTS
The transaction agreements may be terminated, whether before or
after receiving approval of the Company's stockholders and the Operating
Partnership's limited partners:
- by mutual written consent of the USRP Entities and the Company and its
subsidiaries;
- if any United States federal or state court of competent jurisdiction
or other governmental entity issues an order, decree or ruling or
takes any other action permanently enjoining or prohibiting the
transactions, provided that the terminating party has used reasonable
best efforts to appeal such order, decree, ruling or action;
61
<PAGE> 68
- if the non-terminating party has breached any representation,
warranty, covenant or agreement in the transaction agreements, or any
representation and warranty becomes untrue, in either case such that
the conditions to closing are incapable of being satisfied by
September 30, 2001;
- by the USRP Entities, if (i) our Board of Directors has failed to
approve or recommend, or has withdrawn or changed its approval or
recommendation of, any of the transactions, (ii) the Company has
failed to include the favorable recommendation of our Board of
Directors of the transactions in the proxy statement sent to our
stockholders to solicit their votes in connection with a special
meeting held to approve the transactions and the transaction
agreements, (iii) our Board of Directors has recommended that our
stockholders accept another business combination proposal that it
determines, in good faith, will be more favorable to our stockholders
and the partners of the Operating Partnership, (iv) the Company or our
Board has publicly remained neutral toward any business combination
proposed by a third party; or (v) the Company or our Board has
resolved to do any of the foregoing;
- by the Company, prior to the Special Meeting, after providing the USRP
Entities with at least four business days' notice, during which they
may submit a new proposal, if our Board of Directors determines (x) to
accept another business combination proposal that - it determines in
good faith (consistent with the advice of its outside legal and
financial advisors) will be more favorable to our stockholders and the
partners of the Operating Partnership and (y) - that termination of
the transaction agreements is consistent with its duties to our
stockholders and the partners of the Operating Partnership under
applicable Maryland law;
- the transactions fail to receive the requisite vote for approval and
adoption by our stockholders or the requisite consent of the Operating
Partnership's limited partners; or
- the transactions are not completed by September 30, 2001.
TERMINATION FEE; USRP EXPENSES
Termination Fee. The Company and its subsidiaries must pay a
termination fee, plus certain of the USRP Entities' out-of-pocket costs and
expenses, if the transaction agreements are terminated in the following
circumstances:
- by the USRP Entities, if the Company or any of our subsidiaries has
willfully breached any representation, warranty, covenant or agreement
in the transaction agreements such that the conditions to closing are
incapable of being satisfied by September 30, 2001, if, within one
year of such termination, the Company accepts a proposal for a
business combination with a third party;
- by the USRP Entities, due to our Board of Directors' modification or
withdrawal of its recommendation of the transactions or our Board's
recommendation of, or public
62
<PAGE> 69
neutrality with respect to, an alternative business combination
proposal from a third party;
- by the Company, in connection with a decision by our Board of
Directors to accept a proposal for a business combination from a third
party; or
- if (i) a proposal by a third party for a business combination with the
Company has, prior to the Special Meeting, been received by the
Company or publicly disclosed, (ii) the transactions fail to obtain
the required approval of either our stockholders or the limited
partners of the Operating Partnership and (iii) within one year after
termination of the transaction agreements due to such failure to
obtain required stockholder or partner approvals, our Board of
Directors recommends, or agrees to recommend, a third party business
combination.
The transaction agreements specify that the termination fee payable
in the circumstances described above will be equal to $18,000,000, plus the sum
of the out-of-pocket costs and expenses, up to a maximum of $3,000,000, incurred
by or on the behalf of the USRP Entities in connection with the transactions,
except that the USRP Entities will not be entitled to the expenses if and to the
extent they have previously been paid as described below.
USRP Expenses. The Company and its subsidiaries must reimburse the
USRP Entities in an amount, up to $3,000,000, equal to the expenses incurred by
the USRP Entities in connection with the transactions, if the transaction
agreements are terminated in the following circumstances:
- by the USRP Entities, if the Company or any of its subsidiaries has
breached any representation, warranty, covenant or agreement in the
transaction agreements such that the conditions to closing are
incapable of being satisfied by September 30, 2001, and such
termination does not obligate the Company to pay the termination fee;
- if the transactions fail to receive the required approval of either
our stockholders or the Operating Partnership's limited partners; or
- the transactions failed to close by September 30, 2001 due to the
failure of the Company and its subsidiaries to have certain
non-permitted encumbrances removed.
EXPENSES
Generally, each party must pay all fees, costs and expenses incurred
by it in connection with the transaction agreements and the transactions.
However, if the transaction agreements are terminated in certain circumstances
described in "--Termination Fee; USRP Expenses", the Company and its
subsidiaries will pay the USRP Expenses. In addition, if the transactions are
consummated, some of these fees, costs and expenses will be deducted from the
purchase price paid in connection with the Asset Sale in accordance with the
terms of the real estate purchase agreement.
63
<PAGE> 70
EMPLOYMENT PROGRAMS
The merger agreement provides that the employment of all employees
of the Company and employees of our subsidiaries shall be terminated prior to
the effective time of the mergers. The Company has agreed to pay all wages and
all medical, dental, health or life benefits, workers' compensation and
disability claims incurred by any employee prior to the effective time of the
mergers. The Company has also agreed to pay all accrued vacation, holiday, sick
or personal time and all bonuses and commissions to which any employee is
entitled. The Company has agreed to extinguish or otherwise assign to FRW, Inc.
all liabilities and obligations, if any, to former employees of the Company and
its subsidiaries who retired or terminated employment prior to the effective
time of the mergers. Pursuant to its management agreement with USRP I, LLC and
MergerLP (see "--Management Agreement with FRW, Inc."), FRW, Inc. has agreed to
assume all assets, obligations and liabilities relating to the employee benefit
plans and to indemnify MergerLP and USRP I, LLC and their affiliates with
respect to any claims relating to such assets, obligations and liabilities
relating to the employee benefit plans prior to the effective time of the
mergers, regardless of whether such events giving rise to such claims occurred
before or after the effective time of the mergers. The USRP Entities will not be
obligated to assume any liabilities or satisfy any employee claims in connection
with the transactions.
Prior to the effective time of the mergers, the Company has agreed
to pay all accrued benefits to participants or retirees and extinguish all
contingent benefits, such as stock options outstanding with respect to our
common stock and all restricted and contingent stock awards pursuant to the
employment programs, including severance, or to have such accrued benefits and
contingent benefits assumed by FRW, Inc. on terms acceptable to MergerCo. As a
result of the closing of the transactions, all restricted shares of our common
stock will become fully vested and unrestricted and the Company will extinguish
obligations with respect to all contingent shares of our common stock. The
estimated cost of cashing out the outstanding options, assuming a price of
$26.00 per share, is $7,200,000. The estimated cost of cashing out the
contingent stock awards, assuming a price of $26.00 per share, is $3,900,000.
Pursuant to their respective employment agreements with the Company, the Company
will pay Stuart D. Halpert and William J. Wolfe severance benefits of
approximately $3,475,000 each. In addition, pursuant to the new management
agreement and the merger agreement, a retention bonus plan has been created in
order to retain employees of the Company until the effective date of the
mergers. The plan provides for aggregate retention payments of up to
approximately $2,080,000 to the Company's senior management (other than Messrs.
Halpert and Wolfe) and retention payments totaling up to $1,000,000 to be
distributed among other employees. Those employees accepting a retention bonus
will execute a release that will release the Company and all related entities or
successors from all further employee claims or liability, or FRW, Inc. will
indemnify the USRP Entities from any such employment-related claims and
liabilities.
INDEMNIFICATION
The merger agreement provides that, in the event of any threatened
or actual claim, proceeding or investigation, whether civil, criminal or
administrative, in which any person who is or has been or, prior to the
effective time of the mergers, has become a director or officer
64
<PAGE> 71
of the Company or any of our subsidiaries is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to, the fact that the person was a director or officer of the Company
or any of our subsidiaries (or, at the request of the Company and its
subsidiaries, of any other entity), the Company and its subsidiaries and the
USRP Entities will cooperate and use reasonable best efforts to defend that
person. After the effective time of the mergers, MergerCo will indemnify and
hold harmless that person to the full extent permitted by our Charter and Bylaws
against any liability or expense incurred in connection with any of these claims
or proceedings. MergerCo further agreed to promptly pay the expenses of these
indemnified parties in advance of a final disposition, subject to that person
undertaking to reimburse the advances in the event of a final non-appealable
determination by a court of competent jurisdiction that the person is not
entitled to the payment of expenses. The merger agreement further provides that
MergerCo will extend, for six years after the effective time of the mergers, all
rights of indemnification existing in favor of, and all limitations on liability
of, the directors and officers of the Company and its subsidiaries provided for
in our Charter and Bylaws. Prior to the closing of the transactions, the Company
will purchase directors' and officers' liability insurance providing the
officers and directors with not less than the existing coverage for the six
years after the effective time of the mergers.
WAIVER AND AMENDMENT
At any time prior to the effective time of the mergers, the parties
may:
- extend the time for the performance of any of the obligations or other
acts of the other parties set forth in the transaction agreements;
- waive any inaccuracies in the representations and warranties contained
in the transaction agreements or in any document delivered pursuant to
the transaction agreements; or
- waive compliance with any of the agreements or conditions contained in
the transaction agreements.
Any such waiver or extension must be in writing and signed by the
party against whom enforcement of the waiver or extension is sought. The
transaction agreements may be amended by the parties in writing following
authorization by our Board of Directors, but, after approval of the transactions
by our stockholders, no amendment may be made for which approval of our
stockholders or the Operating Partnership's partners is required without
obtaining such approval.
MANAGEMENT AGREEMENT WITH FRW, INC.
MergerLP and USRP I, LLC have entered into a management agreement,
dated as of September 27, 2000, with Stuart D. Halpert, William J. Wolfe and
FRW, Inc., pursuant to which USRP I, LLC and MergerLP have appointed FRW, Inc.
as the exclusive manager of the properties being acquired by the USRP Entities
for a term of three years
65
<PAGE> 72
beginning on the effective date of the mergers. Pursuant to the management
agreement, FRW, Inc. has covenanted (i) to acquire the current management
company's furniture, fixtures and equipments for the appraised fair market value
of $50,000 and to assume the office leases; and (ii) to assume liabilities and
obligations with respect to the Company's employee benefit plans and similar
plans and certain liabilities with respect to leases entered into by the
Company's current management company and to obtain releases, or indemnify the
USRP Entities, with respect to certain other liabilities, and FRW, Inc. and
Messrs. Halpert and Wolfe have agreed generally not to manage or own, directly
or indirectly, for a period of three years after the effective date of the
mergers, any shopping center property located within one and a half miles of any
properties owned by MergerLP or USRP I, LLC. In addition, Messrs. Halpert and
Wolfe each personally agreed (x) to provide consulting services to U.S. Retail
Partners, LLC and its affiliates, as needed, regarding CalPERS' East Coast
shopping center strategy, (y) to act as an officer, director and/or employee of
FRW, Inc., and (z) to devote the time, effort and skill necessary to ensure that
FRW, Inc. meets its management obligations under the management agreement,
including, without limitation, by assisting with respect to transition issues
arising from the transfer of the properties, monitoring the existing tax
protection agreements, maintaining relationships with the former limited
partners of the Operating Partnership holding preferred units of limited
partnership interest in MergerLP and advising MergerLP with respect to its
financial and tax reporting requirements with respect to such limited partners.
Under the management agreement, FRW, Inc. will receive: a management
fee equal to three percent of gross monthly collections; a fee for acquiring new
properties equal to one percent of the purchase price of any such properties; a
fee for leases procured averaging 4% of the minimum rent payable over the first
ten years of the lease (or a share of the fee averaging 5.5% of such minimum
rent if a third party broker assisted in the procurement of the lease); a
leasing renewal fee of 2% of the minimum rent payable over ten years (except
that, if a third-party broker is involved, FRW, Inc. shares in an aggregate 3%
fee); construction supervision fees equal to 3% of the aggregate capital
expenditures, not to exceed $100,000 for any one renovation, expansion or
capital project; development fees ranging from 2%-3% of development costs; an
annual asset management fee of $4,000 per property; if the portfolio meets
certain performance thresholds, an annual incentive fee generally equal to
$4,000 per property; and reimbursement of certain expenses. As an inducement to
enter into the management agreement for the initial three-year term, in addition
to the fees for services and expenses, USRP I, LLC will pay to FRW, Inc.: (i)
$4,500,000, which FRW, Inc. will use to retain specified members of senior
management; and (ii) $8,000,000, which will be paid in equal shares to each of
Messrs. Halpert and Wolfe in order to retain their services. The $8,000,000
payment to Messrs. Halpert and Wolfe is subject to a pro-rated forfeiture and
reimbursement to the USRP Entities if the management agreement is terminated
prior to the end of the initial three-year term under circumstances set forth in
the management agreement or if Messrs. Halpert or Wolfe breach any of their
separate obligations under the management agreement.
66
<PAGE> 73
APPRAISAL RIGHTS
No appraisal rights are available to our stockholders in connection
with the Company Merger or any of the transactions contemplated by the
transaction agreements because our common stock and Series A preferred stock are
listed on the New York Stock Exchange. The Operating Partnership's limited
partners have appraisal rights in accordance with applicable Maryland law as
described in "Terms of the Transaction--Partnership Merger".
67
<PAGE> 74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income
tax consequences of the transactions generally relevant to holders of our common
stock and our Series A preferred stock. We refer in this discussion to our
common stock and our Series A preferred stock as our "capital stock". This
discussion is based on the Internal Revenue Code of 1986, as amended, existing
and proposed Treasury Regulations promulgated thereunder, and current
administrative interpretations and court decisions. No assurance can be given
that future legislation, Treasury Regulations, administrative interpretations
and court decisions will not significantly change the current law or adversely
affect existing interpretations of current law. Any such change could apply
retroactively to the transactions. We do not plan to obtain any rulings from the
Internal Revenue Service concerning tax issues with respect to the transactions.
Thus, no assurance can be provided that the statements set forth herein will not
be challenged by the Internal Revenue Service or will be sustained by a court if
so challenged.
The discussion below does not address all U.S. federal income tax
consequences of the transactions. The tax treatment of a holder of our capital
stock may vary based on the individual circumstances of a particular stockholder
in light of his or her personal investment or tax circumstances. In addition,
stockholders subject to special treatment under the U.S. federal income tax laws
may be subject to special rules not discussed below. These stockholders include:
- traders and dealers in securities,
- tax-exempt entities,
- insurance companies and other financial institutions,
- persons subject to alternative minimum tax,
- persons who hold our capital stock as part of a straddle, hedge, a
constructive sale transaction or a conversion transaction,
- persons that have a functional currency other than the U.S. dollar,
- persons who acquired our capital stock pursuant to the exercise of an
employee stock option or right or otherwise as compensation and
- non-U.S. Stockholders, other than as set forth below.
Generally, when we use the term "U.S. Stockholder," we mean a
holder of our capital stock who, for U.S. federal income tax purposes:
- is a citizen or resident of the United States;
68
<PAGE> 75
- is a domestic corporation, including entities treated as corporations
for U.S. federal income tax purposes, created or organized under the
laws of the United States or any state thereof or the District of
Columbia;
- is an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
- is a trust whose administration is subject to the primary supervision
of a U.S. court and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as U.S.
persons prior to this date, that elect to be treated as U.S. persons, shall also
be considered U.S. Stockholders. In addition, if an entity treated as a
partnership for U.S. federal income tax purposes holds our capital stock, the
tax treatment of each partner of such a partnership will generally depend upon
the status of the partner and upon the activities of the partnership. If you are
a partner of a partnership which holds our capital stock, you should consult
your tax advisor.
An individual may, subject to certain exceptions, be deemed to be a
resident of the United Sates, as opposed to a nonresident alien, by virtue of
being present in the U.S. for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year, counting for these purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year
and one-sixth of the days present in the second preceding year.
The following description is general in nature and is not exhaustive
of all possible tax considerations. Holders of our capital stock are urged to
consult their own tax advisors, attorneys or accountants with specific reference
to their own tax situation and potential changes in the applicable law. This
discussion does not include any description of the tax laws of any state or
local government or of any foreign government that may be applicable to holders
of our capital stock. The discussion set forth below is based upon the
assumption that our capital stock is held as a capital asset. EACH STOCKHOLDER
IS STRONGLY URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO HIM OF THE TRANSACTIONS.
GENERAL
The receipt of cash by our stockholders as a result of the
liquidating distribution and the exchange of our capital stock in the Company
Merger will be a taxable transaction. In addition, because the liquidating
distribution and the Company Merger are contingent on each other and will occur
pursuant to the same plan, a holder of our capital stock will be treated as if
he or she exchanged our capital stock for the aggregate cash consideration
received as a result of the liquidating distribution and as a result of the
Company Merger. The amount of this consideration is referred to as the "Cash
Consideration."
69
<PAGE> 76
CONSEQUENCES TO U.S. STOCKHOLDERS
If you are a U.S. Stockholder who holds our capital stock, you will
recognize gain or loss in the transactions equal to the difference between the
Cash Consideration you receive and your adjusted tax basis in your shares of our
capital stock. This gain or loss will be capital gain or loss and this gain or
loss will be long-term capital gain or loss if you have held our capital stock
for more than one year. In general, if you recognize loss in the transaction and
you have held our capital stock for six months or less, after applying certain
holding period rules, the loss you recognize will be treated as long-term
capital loss, to the extent you received distributions from us which were
required to be treated as long-term capital gain, or to the extent of your share
of any designated retained capital gains.
In the case of stockholders who hold multiple blocks of our capital
stock (that is stock acquired separately at different times or prices), gain or
loss must be calculated and accounted for separately for each block of our
stock.
CONSEQUENCES TO NON-U.S. STOCKHOLDERS
For U.S. federal income tax purposes, the transactions will be
treated as if we sold all of our assets and redeemed your capital stock in
exchange for the Cash Consideration you receive. Under the Foreign Investment in
Real Property Tax Act of 1980, also referred to as "FIRPTA", if you are a
non-U.S. Stockholder you will be subject to U.S. federal income tax at regular
graduated rates on the amount of the Cash Consideration that you receive that is
attributable to gain on the disposition of our United States real property
interests (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, a non-U.S. Stockholder that is a
corporation may be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty (the
"Branch Profits Tax"). We are required to withhold 35% of the amount of the Cash
Consideration that a non-U.S. Stockholder would otherwise receive that is
attributable to gain on the disposition of our assets. The amount we withhold
will be creditable against a non-U.S. Stockholder's U.S. federal income tax
liability.
If our capital stock is treated as a United States real property
interest, then under FIRPTA a non-U.S. Stockholder will be subject to U.S.
federal income tax at regular graduated rates on the gain recognized in the
transactions (subject to a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the Branch Profits
Tax in the case of foreign corporations). In addition, in this case withholding
at a rate of 10% will apply to the difference between (i) the Cash Consideration
you receive in the transactions and (ii) the amount, if any, subject to 35%
withholding as described above. In general, the gain recognized in the
transactions would not be subject to this tax if we are a domestically
controlled REIT within the meaning of the Internal Revenue Code. We will be a
domestically controlled REIT if non-U.S. Stockholders hold less than 50% of the
value of our stock at all times during the five-year period ending with the
closing of the transactions. In addition, gain recognized on the disposition of
our common stock or Series A preferred would not be subject to this tax if such
class of stock is stock regularly traded on an established securities market
within the meaning of
70
<PAGE> 77
the Internal Revenue Code and you do not own, actually or constructively under
attribution rules provided in the Internal Revenue Code, in excess of 5% of the
fair market value of our common stock and Series A preferred stock at any time
during the shorter of the five-year period preceding the transactions or your
holding period of such stock. We believe that our common stock and our Series A
preferred stock are each regularly traded on an established securities market
with the meaning of the Internal Revenue Code. However, we cannot assure you
whether, if they are so traded, they will continue to be so traded; nor can we
assure you that we are a domestically controlled REIT or will be a domestically
controlled REIT as of the closing of the transactions. Non-U.S. Stockholders are
urged to consult their tax advisors concerning the potential applicability of
these provisions discussed in the two preceding paragraphs and the consequences
of a sale or other disposition of their capital stock in advance of the
transactions.
WITHHOLDING
To avoid FIRPTA withholding, U.S. Stockholders must certify under
penalties of perjury their non-foreign status by completing the certification
form that will be included with the letter of transmittal.
The exchange of our capital stock for the Cash Consideration will be
reported to the Internal Revenue Service. Back-up withholding at a rate of 31%
will apply to payments made to a U.S. Stockholder, other than a corporation or
other exempt recipient, unless the U.S. Stockholder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from back-up withholding and meets certain other requirements. A
non-U.S. Stockholder will be exempt from backup withholding provided that
certain certification requirements are satisfied. If backup withholding applies,
the amount withheld is not an additional tax, but is allowed as a refund or
credit against that stockholder's U.S. federal income tax liability, provided
the required information is furnished to the Internal Revenue Service on a
timely basis.
71
<PAGE> 78
REGULATORY APPROVALS
No federal or state regulatory requirements remain to be complied
with in order to complete the transactions other than the filing of the articles
of merger with the State Department of Assessments and Taxation of Maryland and
the certificates of merger with the Secretary of State of Delaware, in each case
with respect to the Company Merger and the Partnership Merger.
OTHER MATTERS
Our management knows of no other business to be presented at the
Special Meeting. If other matters do properly come before the Special Meeting,
or any adjournment or postponement of that meeting, it is the intention of the
persons named in the proxy to vote on these matters according to their
discretion unless the authority to do so is withheld in such proxy.
PROPOSALS BY OUR STOCKHOLDERS
If we complete the transactions, we will cease to exist. If we do
not complete the transactions when currently anticipated, any proposal intended
to be presented by a stockholder at the next annual meeting of our stockholders
must be received by the Company at our principal executive offices not later
than December 15, 2000, in order to be included in our proxy statement and form
of proxy relating to that meeting. In addition, our Bylaws as currently in
effect provide that in order for a stockholder to nominate a candidate for
election as a director at an annual meeting of stockholders or propose business
for consideration at such meeting, notice must generally be stated in writing
and given to the Secretary of the Company no less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting. The
fact that the Company may not insist upon compliance with these requirements
should not be construed as a waiver of our right to do so at any time in the
future.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the information filing requirements of the
Securities Exchange Act of 1934 and, in accordance with that act, is obligated
to file with the Securities and Exchange Commission (the "Commission") periodic
reports, proxy statements and other information relating to our business,
financial condition and other matters. These reports, proxy statements and other
information may be inspected at the Commission's office at the public reference
facilities of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549,
and are also available for inspection at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
these materials can be obtained, upon payment of the Commission's customary
charges, by writing to the Commission's principal office at 450 Fifth Street,
NW, Room 1024 Washington, D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements and other
information. The information is also available at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Neither the Operating
Partnership nor any of the USRP Entities is subject to the information filing
requirements of the Securities Exchange Act of 1934.
72
<PAGE> 79
You should rely only on the information contained in this document
to vote your shares of common stock at the Special Meeting. We have not
authorized anyone to provide you with information that is different from what is
contained in this document. This document is dated October [_______], 2000. You
should not assume that the information contained in this document is accurate as
of any date other than that date, and the mailing of this document to
stockholders does not create any implication to the contrary. This document does
not constitute a solicitation of a proxy in any jurisdiction where, or to or
from any person to whom, it is unlawful to make such solicitation in that
jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating herein by reference each document we file with
the Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") after the date of this proxy statement and prior to the Special
Meeting. All such documents will be deemed to be incorporated by reference
into this proxy statement and to be a part of the proxy statement from the date
of filing such documents.
We also are incorporating herein by reference the documents listed
below which have been filed with the Commission under the Exchange Act:
1) our Annual Report on Form 10-K (File No. 0-25230) for the fiscal
year ended December 31, 1999;
2) our Current Report on Form 8-K (File No. 0-25230) filed September
28, 2000;
3) our Quarterly Report on Form 10-Q (File No. 0-25230) for the
fiscal quarter ended June 30, 2000; and
4) our Definitive Proxy Statement on Schedule 14-A, filed on March 31,
2000.
Documents incorporated by reference are available from us without
charge, excluding all exhibits (unless we have specifically incorporated by
reference an exhibit into this proxy statement). You may obtain documents
incorporated by reference by requesting them in writing or by telephone as
follows:
First Washington Realty Trust, Inc.
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attention: Secretary
Telephone: (301) 907-7800
If you would like to request documents from us, please do so by
[___________], 2000 in order to ensure timely receipt before the Special
Meeting.
73
<PAGE> 80
PROXY
FIRST WASHINGTON REALTY TRUST, INC.
4350 EAST-WEST HIGHWAY, SUITE 400
BETHESDA, MARYLAND 20814
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF FIRST WASHINGTON REALTY TRUST,
INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [___________,
______________ __, 2000]
The undersigned stockholder of First Washington Realty Trust, Inc.,
a Maryland corporation (the "Company"), hereby constitutes and appoints William
J. Wolfe and Jeffrey S. Distenfeld, and each of them, as proxies (the "Proxy
Holders") for the undersigned, with full power of substitution in each, to
attend the Special Meeting of Stockholders of the Company to be held at
[____________________] on [___________ __], 200[_] at 10:00 a.m., local time,
and any adjournment or postponement thereof (the "Special Meeting"), to cast on
behalf of the undersigned all votes that the undersigned is entitled to cast at
such meeting and otherwise to represent the undersigned at the Special Meeting
with all powers possessed by the undersigned if personally present at the
Special Meeting.
When properly executed, this Proxy will be voted in the manner
directed herein by the undersigned stockholder(s). If this Proxy is executed,
but no direction is given, this Proxy will be voted FOR the proposal set forth
in Paragraph 1 on the reverse side hereof. THE PROXY HOLDERS ARE EACH AUTHORIZED
TO VOTE, IN THE DISCRETION OF THE PROXY HOLDERS, UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENT OR POSTPONEMENT
THEREOF OR MATTERS INCIDENTAL THERETO. Stockholders who plan to attend the
Special Meeting may revoke their proxy by attending and casting their vote at
the Special Meeting in person.
The undersigned hereby acknowledge(s) receipt of a copy of the
accompanying Notice of Special Meeting of Stockholders and the proxy statement
with respect thereto and hereby revoke(s) any proxy or proxies heretofore given
with respect to such meeting.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON REVERSE SIDE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE.
Please mark your
votes as in this
X example.
The Board of Directors recommends a
vote FOR the proposal set forth in
<PAGE> 81
Paragraph 1 below.
FOR AGAINST ABSTAIN
1. Approval of the adoption of the Company's plan of liquidation, which
is attached to the accompanying proxy statement as exhibit F, and,
in connection with it, the disposition of substantially all of the
Company's assets to, and the mergers with and into, affiliates of
U.S. Retail Partners, LLC, a Delaware limited liability company and
a joint venture of the California Public Employees' Retirement
System ("U.S. Retail Partners, LLC"), pursuant to a master
agreement, dated September 27, 2000, among the Company, First
Washington Realty Limited Partnership, a Maryland limited
partnership and the Company's operating partnership (the "Operating
Partnership"), and their subsidiaries and U.S. Retail Partners, LLC
and certain of its affiliates, and additional transaction agreements
contemplated therein and attached as exhibits B, C, and D,
respectively, to the accompanying proxy statement, in the following
manner: (1) the sale of 57 of 63 of the properties and certain other
assets owned by the Company and its subsidiaries to USRP I, LLC, a
Delaware limited liability company; (2) the conversion of the
Company's general partnership interest (including both common units
and preferred units) in the Operating Partnership into a 1% general
partnership interest and Series A Common Units of limited
partnership interest representing the Company's remaining interest
in the Operating Partnership; (3) the sale of the newly converted
limited partnership interest by the Company to USRP LP, LLC, a
Delaware limited liability company; (4) the merger of the Company
into USRP GP, LLC, a Delaware limited liability company; and (5) the
merger of the Operating Partnership with and into US Retail Partners
Limited Partnership, a Maryland limited partnership, all as more
fully described in the accompanying proxy statement; and
2. To transact any other business as may properly come before the
Special Meeting and any adjournment or postponement of that meeting
or matters incidental thereto in the discretion of the Proxy
Holders.
[_] CHECK HERE ONLY IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON.
Please be sure to sign and date this Proxy.
Date:
------------------------------
Stockholder(s) signature(s):
------------------------------------
------------------------------------
2
<PAGE> 82
Please sign name exactly as shown on reverse. Where there is more
than one holder, each should sign. When signing as an attorney, administrator,
executor, guardian or trustee or in another representative capacity, please add
your title as such. If executed by a corporation or partnership, the proxy
should be executed in the full corporate or partnership name and signed by a
duly authorized person, stating his or her title or authority.
PLEASE, SIGN, DATE AND PROMPTLY MAIL YOUR PROXY.
3
