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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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PRICE ENTERPRISES, INC.
(NAME OF SUBJECT COMPANY)
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PRICE ENTERPRISES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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741444 202
AND
741444 103
(CUSIP NUMBER OF CLASS OF SECURITIES)
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JACK MCGRORY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRICE ENTERPRISES, INC.
4649 MORENA BLVD.
SAN DIEGO, CALIFORNIA 92117
(858) 581-4679
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
SIMON M. LORNE, ESQ.
MUNGER, TOLLES & OLSON LLP
355 SOUTH GRAND AVENUE
35TH FLOOR
LOS ANGELES, CALIFORNIA 90071-1560
(213) 683-9100
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates to an exchange offer by Excel Legacy Corporation, a
Delaware corporation ("Legacy"), to purchase any and all outstanding shares of
common stock, par value $.0001 per share, of Price Enterprises, Inc., a Maryland
corporation ("Enterprises"), upon the terms and subject to the conditions set
forth in the Offer to Exchange/ Prospectus dated October 6, 1999 ("Offer to
Exchange") and in the related Letter of Transmittal, and is intended to satisfy
the reporting requirements of Section 14(d) of the Securities Exchange Act of
1934, as amended. Copies of the Offer to Exchange and the Letter of Transmittal
are filed with this Schedule 14D-9 as Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Price Enterprises, Inc., a Maryland
corporation, and the address of its principal executive office is 4649 Morena
Blvd., San Diego, California 92117. This Schedule 14D-9 relates to Enterprises'
common stock, par value $.0001 per share ("Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to an exchange offer by Legacy to purchase any
and all outstanding shares of Common Stock (the "Shares"). Legacy's principal
executive offices are located at 16955 Via Del Campo, Suite 100, San Diego,
California 92127.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Enterprises, which is the person
filing this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Except as described or referred to below, there exists on the date
hereof no material contract, agreement, arrangement or understanding and no
actual or potential conflict of interest between Enterprises or its affiliates
and (i) Enterprises or its executive officers, directors or affiliates, or (ii)
Legacy or its executive officers, directors or affiliates.
Enterprises Agreement. Enterprises and Legacy entered into an agreement on
June 2, 1999 (the "Company Agreement"). The complete text of such agreement is
filed as Exhibit (c)(1) hereto and incorporated herein by reference, and the
summary of such agreement set forth in "Description of the Agreements -- The
Company Agreement" and "Description of the Agreements -- Termination of the
Agreements and Liquidated Damages" in the Offer to Exchange, which is attached
hereto as Exhibit (a)(1), is incorporated herein by reference.
Arrangements With Executive Officers and Directors. The information set
forth in "Description of the Agreements" and "Benefits to Enterprises' Insiders
in the Exchange Offer" in the Offer to Exchange, which is attached hereto as
Exhibit (a)(1), is incorporated herein by reference. Certain contracts,
agreements, arrangements and understandings between Enterprises and its
executive officers and directors are described under Items 10, 11, 12 and 13 of
Enterprises' Annual Report on Form 10-K/A for the year ended December 31, 1998,
which Items are attached hereto as Exhibit (c)(26) and incorporated herein by
reference.
Pursuant to the terms of the Company Agreement, Legacy agreed to cause
Enterprises to maintain directors and officers' liability insurance insuring all
persons who are or were directors or officers of Enterprises in an amount not
less than that in effect on April 30, 1999, for a period of at least three years
following the closing of the Offer, and to cause Enterprises to indemnify each
such person against all liability relating to their actions as directors or
officers of Enterprises.
Enterprises' Articles of Incorporation and Bylaws require it to indemnify
its directors, officers and certain other parties to the fullest extent
permitted from time to time by Maryland law. The Articles of Incorporation and
Bylaws of Enterprises are filed as Exhibits (c)(5), (c)(6) and (c)(7) hereto and
incorporated herein by
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reference. In addition, Enterprises has entered into individual indemnity
agreements with each of its directors and executive officers which provide that
Enterprises shall indemnify each such person to the fullest extent provided by
law. The indemnity agreements specify procedures for determining entitlement to
indemnification and advancement of expenses and contain various other provisions
designed to clarify the rights of directors and officers to indemnity. A form of
indemnity agreement is filed as Exhibit (c)(12) hereto and incorporated herein
by reference.
Note Purchase Agreement. Legacy and Sol Price, as trustee of The Sol and
Helen Price Trust, entered into a note purchase agreement on September 1, 1999.
The complete text of such agreement is filed as Exhibit (c)(4) hereto and
incorporated herein by reference, and the summary of such agreement set forth in
"Prospectus Summary -- Recent Developments" in the Offer to Exchange, which is
attached hereto as Exhibit (a)(1), is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting held on September 29, 1999, the Board of Directors of
Enterprises unanimously approved the Offer and recommended that holders of
Shares accept the Offer and exchange their Shares pursuant to the Offer.
Accordingly, the Board unanimously recommends that the stockholders of
Enterprises exchange their Shares pursuant to the Offer. A copy of a letter to
the stockholders of Enterprises communicating the Board's recommendation is
filed as Exhibit (a)(4) hereto and is incorporated herein by reference.
(b)(1) BACKGROUND.
The information set forth in the section captioned "The Exchange
Offer -- Background of the Exchange Offer" of the Offer to Exchange, a copy of
which is attached as Exhibit (a)(1) hereto, is incorporated herein by reference.
(2) REASONS FOR RECOMMENDATIONS.
The information set forth in the section captioned "The Exchange
Offer -- Enterprises' Reasons for the Exchange Offer" of the Offer to Exchange,
a copy of which is attached as Exhibit (a)(1) hereto, is incorporated herein by
reference.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Neither Enterprises nor any person acting on its behalf has or currently
intends to employ, retain or compensate any person to make solicitations or
recommendations to the holders of Shares with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth below, during the past 60 days, neither Enterprises
nor any subsidiary of Enterprises nor any executive officer, director or
affiliate of Enterprises has effected a transaction in the Shares.
On September 23, 1999, the following members of the Board of Directors of
Enterprises received the following grants of Shares from Enterprises in lieu of
cash as compensation for serving as outside directors on (or, in the case of
Paul Peterson, as Vice Chairman of) the Board of Directors: (i) Paul Peterson --
2,256 shares of Common Stock; (ii) James Cahill -- 903 shares of Common Stock;
(iii) Anne Evans -- 903 shares of Common Stock; and (iv) Murray Galinson -- 903
shares of Common Stock.
(b) To the best of Enterprises' knowledge, the executive officers,
directors and affiliates of Enterprises intend to exchange their Shares pursuant
to the Offer. No subsidiary of Enterprises owns, beneficially or otherwise, any
Shares. Each of the directors and certain executive officers and affiliates of
Enterprises are parties to a stockholders agreement with Legacy pursuant to
which each of them has agreed to exchange their shares pursuant to the Offer and
has placed such Shares in an escrow account for such purpose. The
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information set forth in the section captioned "Description of the
Agreements -- The Stockholders Agreement" of the Offer to Exchange, which is
attached hereto as Exhibit (a)(1), is incorporated herein by reference. The
complete text of the stockholders agreement is filed as Exhibit (c)(2) hereto
and incorporated herein by reference.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Other than as set forth in Items 3 or 4 of this Schedule 14D-9, no
negotiation is being undertaken or is underway by Enterprises in response to the
Offer which relates to or would result in (i) an extraordinary transaction, such
as a merger or reorganization, involving Enterprises or any subsidiary of
Enterprises; (ii) a purchase, sale or transfer of a material amount of assets by
Enterprises or any subsidiary of Enterprises; (iii) a tender offer for or other
acquisition of securities by or of Enterprises; or (iv) any material change in
the present capitalization or dividend policy of Enterprises.
(b) Other than as set forth in Items 3 or 4 of this Schedule 14D-9, there
are no transactions, board resolutions, agreements in principle or signed
contracts in response to the Offer which relate to and would result in one or
more of the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Exchange and the related Letter of
Transmittal which are attached as Exhibits (a)(1) and (a)(2), respectively, and
are incorporated herein by reference in their entirety.
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
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(a)(1) Offer to Exchange/Prospectus of Excel Legacy Corporation,
dated October 6, 1999 (incorporated by reference to Exhibit
(a)(1) to Legacy's Schedule 14D-1 and Schedule 13D/A dated
October 6, 1999 (the "Schedule 14D-1").
(a)(2) Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule 14D-1).
(a)(3) Press release issued jointly by Excel Legacy Corporation and
Price Enterprises, Inc., dated October 6, 1999 (incorporated
by reference to Exhibit (a)(8) to the Schedule 14D-1).
(a)(4) Letter to stockholders of Enterprises dated October 6, 1999.
(a)(5) Summary Advertisement dated October 6, 1999 (incorporated by
reference to Exhibit (a)(9) to the Schedule 14D-1).
(b) Not applicable.
(c)(1) Agreement dated June 2, 1999, as amended, by and among Excel
Legacy Corporation and Price Enterprises, Inc. (incorporated
by reference to Exhibit 10.2 to Excel Legacy Corporation's
Registration Statement on Form S-4, filed with the SEC on
June 9, 1999 (File no. 333-80339)).
(c)(2) Agreement dated as of May 12, 1999, as amended, by and among
Excel Legacy Corporation and the other individuals and
entities listed on the signature pages thereto (incorporated
by reference to Exhibit 10.1 to Excel Legacy Corporation's
Registration Statement on Form S-4, filed with the SEC on
June 9, 1999 (File no. 333-80339)).
(c)(3) Letter dated June 2, 1999, from Excel Legacy Corporation to
Price Enterprises, Inc., regarding the status of Price
Enterprises, Inc. as a REIT (incorporated by reference to
Exhibit 10.3 to Excel Legacy Corporation's Registration
Statement on Form S-4, filed with the SEC on June 9, 1999
(File no. 333-80339)).
(c)(4) Form of Note Purchase Agreement by and between Excel Legacy
Corporation and The Sol and Helen Price Trust (incorporated
by reference to Exhibit 10.4 to Excel Legacy Corporation's
Registration Statement on Form S-4, filed with the SEC on
October 1, 1999 (File no. 333-80339)).
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<TABLE>
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(c)(5) Articles of Incorporation of Price Enterprises, Inc.
(incorporated by reference to Exhibit 3.1 to Transition
Report on Form 10-K of Price Enterprises, Inc., filed with
the SEC on March 27, 1998 (File no. 0-20449)).
(c)(6) Articles Supplementary of Price Enterprises, Inc.
(incorporated by reference to Exhibit 3.2 to Registration
Statement on Form 8-A of Price Enterprises, Inc., filed with
the SEC on August 7, 1998 (File no. 0-20449)).
(c)(7) Bylaws of Price Enterprises, Inc. (incorporated by reference
to Exhibit 3.2 to Transition Report on Form 10-K of Price
Enterprises, Inc., filed with the SEC on March 27, 1998
(File no. 0-20449)).
(c)(8) Employment Agreement dated June 18, 1997, by and between
Price Enterprises, Inc. and Jack McGrory (incorporated by
reference to Exhibit 10.6 to Annual Report on Form 10-K of
Price Enterprises, Inc., filed with the SEC on November 26,
1997 (File no. 0-20449)).
(c)(9) Amendment No. 1 to Employment Agreement dated as of August
27, 1997, by and between Price Enterprises, Inc. and Jack
McGrory (incorporated by reference to Exhibit 10.7 to Annual
Report on Form 10-K of Price Enterprises, Inc., filed with
the SEC on November 26, 1997 (File no. 0-20449)).
(c)(10) Amendment No. 2 to Employment Agreement dated as of February
2, 1999, by and between Price Enterprises, Inc. and Jack
McGrory (incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K of Price Enterprises, Inc., filed
with the SEC on March 29, 1999 (File no. 0-20449)).
(c)(11) Employment Agreement dated January 6, 1998 by and between
Price Enterprises, Inc. and Gary W. Nielson (incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q
of Price Enterprises, Inc., filed with the SEC on May 14,
1998 (File no. 0-20449)).
(c)(12) Form of Indemnity Agreement (incorporated by reference to
Exhibit 10.1 to Quarterly Report on Form 10-Q of Price
Enterprises, Inc., filed with the SEC on May 14, 1998 (File
no. 0-20449)).
(c)(13) The Price Enterprises 1995 Combined Stock Grant and Stock
Option Plan (the "Stock Plan") (incorporated by reference to
Exhibit 10.23 to Registration Statement on Form 10 of Price
Enterprises, Inc., filed with the SEC on December 13, 1994
(File no. 0-20449)).
(c)(14) Form of Incentive Stock Option Agreement under the Stock
Plan (incorporated by reference to Exhibit 4.2 of the
Current Report on Form S-8 of Price Enterprises, Inc., filed
with the SEC on July 13, 1995 (File no. 33-60999)).
(c)(15) Form of Non-Qualified Stock Option Agreement under the Stock
Plan (incorporated by reference to Exhibit 4.3 of the
Current Report on Form S-8 of Price Enterprises, Inc., filed
with the SEC on July 13, 1995 (File no. 33-60999)).
(c)(16) The Price Enterprises Directors' 1995 Stock Option Plan (the
"Directors' Plan") (incorporated by reference to Exhibit
10.24 to Registration Statement on Form 10 of Price
Enterprises, Inc., filed with the SEC on December 13, 1994
(File no. 0-20449)).
(c)(17) Form of Non-Qualified Stock Option Agreement under the
Directors' Plan (incorporated by reference to Exhibit 4.5 of
the Current Report on Form S-8 of Price Enterprises, Inc.,
filed with the SEC on July 13, 1995 (File no. 33-60999)).
(c)(18) First Amendment to the Directors' Plan (incorporated by
reference to Exhibit 4.7 to Transition Report on Form 10-K
of Price Enterprises, Inc., filed with the SEC on March 27,
1998 (File no. 0-20449)).
(c)(19) First Amendment to the Stock Plan (incorporated by reference
to Exhibit 4.2 to Registration Statement on Form S-8 of
Price Enterprises, Inc., filed with the SEC on September 2,
1998 (File no. 333-62723)).
(c)(20) Second Amendment to the Directors' Plan (incorporated by
reference to Exhibit 4.5 to Registration Statement on Form
S-8 of Price Enterprises, Inc., filed with the SEC on
September 2, 1998 (File no. 333-62723)).
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(c)(21) Form of Amended and Restated Non-Qualified Stock Option
Agreement under the Stock Plan (incorporated by reference to
Exhibit 4.6 to Registration Statement on Form S-8 of Price
Enterprises, Inc., filed with the SEC on September 2, 1998
(File no. 333-62723)).
(c)(22) Form of Amended and Restated Non-Qualified Stock Option
Agreement under the Directors' Plan (incorporated by
reference to Exhibit 4.7 to Registration Statement on Form
S-8 of Price Enterprises, Inc., filed with the SEC on
September 2, 1998 (File no. 333-62723)).
(c)(23) Settlement and Termination Agreement dated May 24, 1999, by
and between Price Enterprises, Inc. and Gary W. Nielson
(incorporated by reference to Exhibit 10.5 to Quarterly
Report on Form 10-Q of Price Enterprises, Inc., filed with
the SEC on August 4, 1999 (File no. 0-20449)).
(c)(24) Second Amendment to the Stock Plan (incorporated by
reference to Exhibit 10.6 to Quarterly Report on Form 10-Q
of Price Enterprises, Inc., filed with the SEC on August 4,
1999 (File no. 0-20449)).
(c)(25) Third Amendment to the Directors' Plan (incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form 10-Q
of Price Enterprises, Inc., filed with the SEC on August 4,
1999 (File no. 0-20449)).
(c)(26) Copies of pages 2 through 15 of the Form 10-K/A of Price
Enterprises, Inc. for the Fiscal Year Ended December 31,
1998.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
PRICE ENTERPRISES, INC.
By: /s/ JACK MCGRORY
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Jack McGrory
President and Chief Executive
Officer
Dated as of October 6, 1999
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EXHIBIT (a)(4)
PRICE ENTERPRISES, INC.
4649 MORENA BLVD.
SAN DIEGO, CALIFORNIA 92117
October 6, 1999
To the Common Stockholders of Price Enterprises, Inc.:
Excel Legacy Corporation has commenced an exchange offer to purchase all
outstanding shares of Price Enterprises common stock. The terms of the Offer, as
well as related agreements between Price Enterprises and Legacy and between
certain stockholders of Price Enterprises and Legacy, are described in the Offer
to Exchange dated October 6, 1999. The Offer is also discussed in the Letter of
Transmittal, which is included in this package sent to you by Legacy.
If you choose to exchange your shares of common stock in the Offer, for
each share exchanged you will receive a total of $4.25 in cash, $2.75 in
principal amount of Legacy's 9% Convertible Redeemable Subordinated Secured
Debentures due 2004, and $1.50 in principal amount of Legacy's 10% Senior
Redeemable Secured Notes due 2004. You should note that the Offer (and your
ability to exchange your shares) will expire at 12:00 Midnight, New York City
time, on November 3, 1999. The enclosed Letter of Transmittal gives you detailed
instructions as to how to exchange your shares.
In addition to the Offer to Exchange and Letter of Transmittal of Legacy,
you are also receiving a copy of our Solicitation/Recommendation Statement on
Schedule 14D-9, which was filed by us with the Securities and Exchange
Commission. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND
RECOMMENDS THAT YOU ACCEPT THE OFFER AND EXCHANGE YOUR SHARES PURSUANT TO THE
OFFER.
Please read each of the enclosed materials carefully.
The management and directors of Price Enterprises, Inc. thank you for the
support you have given the Company. If you have any questions about the Offer,
please feel free to call the information agent at (800) 659-6590.
Sincerely,
[JACK MCGRORY SIGNATURE]
Jack McGrory
President and Chief Executive Officer
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EXHIBIT (c)(26)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth certain information regarding our
existing directors, including the name, position with the Company (if any) and
age of each director:
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NAME AGE TITLE
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Robert E. Price 56 Chairman of the Board
Jack McGrory 49 President, Chief Executive Officer and
Director
Paul A. Peterson 71 Vice Chairman of the Board
Murray L. Galinson 61 Director
James F. Cahill 44 Director
Anne L. Evans 66 Director
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Robert E. Price has been Chairman of the Board of the Company since July
28, 1994. Mr. Price was President and Chief Executive Officer of the Company
from July 28, 1994 to August 29, 1997. Mr. Price was Chairman of the Board of
Price/Costco, Inc. from October 1993 to December 1994. From 1976 to October
1993, he was Chief Executive Officer and a Director of The Price Company. Mr.
Price served as Chairman of the Board of The Price Company from January 1989 to
October 1993, and as its President from 1976 until December 1990. In addition to
his role in Price Enterprises, Mr. Price serves as Chairman of the Board of
PriceSmart, Inc.
Jack McGrory became a Director of the Company on August 29, 1997. Mr.
McGrory also became the President and Chief Executive Officer of the Company on
September 2, 1997. Prior to September 2, 1997, Mr. McGrory served as City
Manager of the City of San Diego from March 1991 through August 1997.
Paul A. Peterson is a lawyer and is a senior member of the law firm of
Peterson & Price in San Diego. He was a Director of Price/Costco, Inc. from
October 1993 until December 1994. From 1976 to October 1993, he was Secretary
and, except for a period of eleven months in 1982, a Director of The Price
Company. Mr. Peterson served as Vice Chairman of the Board of The Price Company
from November 1991 to October 1993. Mr. Peterson has served as a Director of the
Company since July 28, 1994.
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Murray L. Galinson has been Chairman of the Board of San Diego National
Bank and SDNB Financial Corp. since May 1996 and a Director of both entities
since their inception in 1981. In addition, Mr. Galinson was Chief Executive
Officer of both entities from September 1984 until September 1997. Mr. Galinson
served as President of both entities from September 1984 until May 1996. Mr.
Galinson has served as a Director of the Company since August 28, 1994.
James F. Cahill has been Executive Vice President of Price Entities
since January 1987. In this position he has been responsible for the oversight
and investment activities of the financial portfolio of Sol Price, founder of
The Price Company, and related entities. He was a Director of Neighborhood
National Bank, located in San Diego, from 1992 through January 1998. Prior to
his current position, Mr. Cahill was employed at The Price Company for ten years
with his last position being Vice President of Operations. Mr. Cahill became a
Director of the Company on August 29, 1997.
Anne L. Evans has been the Chairman of Evans Hotels since April 1984.
Ms. Evans also served as its President from April 1984 until March 1993. She
served as a member of the Board of Directors of the Los Angeles Branch of the
Federal Reserve Bank of San Francisco from October 1992 through December 1998
and was the Chairman during 1997 and 1998. Ms. Evans became a Director of the
Company on October 16, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, directors, executive officers
and beneficial owners of 10% or more of our Common Stock or Preferred Stock
("Reporting Persons") are required to report to the Securities and Exchange
Commission on a timely basis the initiation of their status as a Reporting
Person and any changes with respect to their beneficial ownership of the Common
Stock and/or Preferred Stock, as the case may be. Based solely on its review of
such forms received by it, we believe that all of the Section 16(a) filings
required to be made by Reporting Persons with respect to 1998 were made on a
timely basis except that (i) one report of initial statement of beneficial
ownership of securities on Form 3 with respect to one transaction was filed late
by Gary W. Nielson, the Executive Vice President and Chief Financial Officer of
the Company and (ii) one report of changes of beneficial ownership of securities
on Form 4 with respect to one transaction was filed late by each of Paul A.
Peterson, Anne L. Evans and Murray L. Galinson, Directors of the Company.
EXECUTIVE OFFICERS
For information about the identification and business experience of the
executive officers of our Company please see Item 4A of our Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 29, 1999.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF THE COMPANY'S DIRECTORS
In lieu of cash as annual compensation for serving on the Board of
Directors, each outside Director of Price Enterprises (other than Mr. Peterson)
received two thousand three hundred six (2,306) shares of Common Stock in 1998.
In 1999 each outside Director of Price Enterprises (other than Mr. Peterson)
will receive three thousand six hundred twelve (3,612) shares of Common Stock
for such services. In addition, each outside Director will receive an additional
$5,000 per year for serving as chairman of any committee of the Board. In lieu
of cash as annual compensation for his services as Vice Chairman of the Board
and as chairman or member of any committee of the Board, Mr. Peterson received
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five thousand seven hundred sixty-two (5,762) shares of Common Stock in 1998. In
1999, Mr. Peterson will receive nine thousand twenty-four (9,024) shares of
Common Stock for such services. In addition, outside Directors (other than Mr.
Peterson) who serve on committees of the Board (in a capacity other than
chairman of a committee) receive $500 for each meeting attended. The chairman or
vice chairman of any committee may receive additional compensation to be fixed
by the Board. Each non-employee Director is eligible to receive stock grants and
stock options pursuant to the Price Enterprises Directors' 1995 Stock Option
Plan, as amended. Employee Directors are eligible to receive stock grants and
stock options pursuant to The Price Enterprises 1995 Combined Stock Grant and
Stock Option Plan. Robert E. Price, who became eligible for the foregoing
non-employee Director compensation on August 29, 1997 upon his resignation as
President and Chief Executive Officer of the Company, has declined annual
compensation for services as a Director.
COMMITTEES OF THE BOARD OF DIRECTORS
In January 1998, the Board of Directors resolved to restructure the
composition of the various committees it had previously established. The result
was the establishment of the following three committees: the Executive and
Nominating Committee; the Compensation and Audit Committee; and the Finance and
Investment Committee.
EXECUTIVE AND NOMINATING COMMITTEE. The Executive and Nominating
Committee, which consists of Messrs. Galinson, Peterson, Price and McGrory, held
no meetings in 1998. The Executive and Nominating Committee has been established
with all powers and rights necessary to exercise the full authority of the Board
of Directors in the management of the business and affairs of Price Enterprises,
except as provided in the Maryland General Corporation Law or the Bylaws of
Price Enterprises. The Executive and Nominating Committee also recommends
candidates to fill vacancies on the Board of Directors or any committee thereof,
which vacancies may be created by the departure of any Directors, or the
expansion of the number of members of the board. The Executive and Nominating
Committee will give appropriate consideration to qualified persons recommended
by stockholders for nomination as Directors provided that such recommendations
are accompanied by information sufficient to enable the Executive and Nominating
Committee to evaluate the qualifications of the nominee.
COMPENSATION AND AUDIT COMMITTEE. The Compensation and Audit Committee,
which consists of Messrs. Peterson, Price and Galinson and Ms. Evans, held four
meetings during 1998. The Compensation and Audit Committee reviews salaries,
bonuses and stock options of senior officers of Price Enterprises and
administers Price Enterprises' executive compensation policies and stock option
plans. The Compensation and Audit Committee also reviews the annual audits of
Price Enterprises' independent public accountants, Ernst & Young, LLP; reviews
and evaluates internal accounting controls; recommends the selection of the
Company's independent public accountants; reviews and passes upon (or ratifies)
related party transactions; and conducts such reviews and examinations as it
deems necessary with respect to the practices and policies of, and the
relationship between, Price Enterprises and its independent public accountants.
FINANCE AND INVESTMENT COMMITTEE. The Finance and Investment Committee,
which consists of Messrs. Cahill, McGrory and Peterson, held two meetings in
1998. The Finance and Investment Committee reviews and makes recommendations
with respect to (i) annual budgets, (ii) investments, (iii) financing
arrangements and (iv) the creation, incurrence, assumption or guaranty by Price
Enterprises of any indebtedness, obligation or liability, except, in each case,
for any such transactions entered into in the ordinary course of business of
Price Enterprises.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Audit Committee consists, and during 1998
consisted, of Messrs. Peterson, Price and Galinson and Ms. Evans.
Mr. Robert E. Price, the Company's Chairman of the Board and a member of
the Compensation and Audit Committee, served as the Company's President and
Chief Executive Officer from July 1994 through August 1997.
As described in Item 13 below, the Company separated its core real
estate business and its merchandising businesses in August 1997 pursuant to a
spin-off in which the stockholders of the Company received common stock of
PriceSmart, Inc. ("PriceSmart") through a distribution (the "Distribution").
Pursuant to the Distribution, PriceSmart acquired the merchandising businesses
and the Company retained the real estate business. Mr. Price, who beneficially
owns approximately 19.2% of the Company's outstanding voting stock also
beneficially owns approximately 24.7% of PriceSmart's common stock and also
serves as Chairman of the Board of PriceSmart.
In connection with the Distribution, the Company and PriceSmart entered
into a number of agreements governing the Distribution and the provision of
services between the two companies after the Distribution. In addition,
PriceSmart leases space from the Company for its corporate offices in San Diego,
CA and the Company acquired approximately 15 acres of land in Fresno, CA from
PriceSmart in July 1998. For more information with respect to these agreements
and transactions please see Item 13 below.
The on-going relationships between PriceSmart and the Company may
present certain conflict situations for Mr. Price. The Company and PriceSmart
have adopted and will continue to adopt appropriate policies and procedures to
be followed by the Board of Directors of each company to limit the involvement
of Mr. Price in conflict situations, including matters relating to contractual
relationships or litigation between PriceSmart and the Company. Such procedures
include requiring Mr. Price to abstain from voting as a director of both
companies with respect to matters that present a significant conflict of
interest between the companies.
In addition, the Company acquired an office complex in Sacramento, CA in
May 1998 from a company controlled by Sol Price, Robert E. Price's father. Mr.
Robert E. Price did not participate in or vote on any matters related to this
acquisition. This transaction is further described in Item 13 below.
5
<PAGE> 5
EXECUTIVE COMPENSATION
The following table shows, for the year ended December 31, 1998 and 1997
and the 12 months ended August 31, 1997 and 1996, the compensation earned by the
Chief Executive Officer and all of the individuals who served as our executive
officers at any time during 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Awards
Securities
Underlying All Other
Name and Principal Fiscal Year Options/SARs compensation
Position(s) Ended Salary($) Bonus($) (#)(7) ($)(1)
<S> <C> <C> <C> <C> <C>
Jack McGrory, (2) 12/31/98 214,585 50,000 -0- 4,125
President and Chief 12/31/97 57,778 -0- 236,329 -0-
Executive Officer
Gary W. Nielson, (3) 12/31/98 153,125 31,500 50,000 -0-
Executive Vice
President and Chief
Financial Officer
Joseph R. Satz, (4) 12/31/98 150,000 35,000 -0- 9,850
Executive Vice 12/31/97 130,288 25,000 32,000 9,312
President, General 8/31/97 125,000 (6) -0- 9,312
Counsel and Secretary 8/31/96 125,000 25,000 -0- 3,176
Kathleen M. Hillan, (5) 12/31/98 100,000 23,500 -0- 7,660
Senior Vice President 12/31/97 81,090 20,000 40,000 4,994
- - Finance 8/31/97 75,000 (6) -0- 4,994
8/31/96 65,000 10,000 -0- 1,917
</TABLE>
- ---------------
(1) The amounts shown for the years ended August 31 and December 31, 1997
constitute the same contributions to The Price Enterprises Profit Sharing and
401(k) Plan and the Company's 401(k) matching contribution for 1997 on behalf of
each Named Executive Officer. The amounts shown for the year ended August 31,
1996 constitute contributions to The Price Enterprises Profit Sharing and 401(k)
Plan for the period of September 4, 1995 through December 31, 1995, and the
Company's 401(k) matching contribution of $250 for the year ended August 31,
1996 on behalf of each Named Executive Officer. During the year ended August 31,
1996, the "plan year" for The Price Enterprises Profit Sharing and 401(k) Plan
was converted to a fiscal year ended December 31 from a fiscal year ended August
31.
(2) Mr. McGrory became President and Chief Executive Officer of the Company on
September 2, 1997. Annual compensation for the year ended December 31, 1997
reflects Mr. McGrory's partial year of employment.
(3) Mr. Nielson became Executive Vice President and Chief Financial Officer of
the Company on February 2, 1998. Annual compensation for the year ended December
31, 1998 reflects Mr. Nielson's partial year of employment.
(4) Mr. Satz became Executive Vice President, General Counsel and Secretary on
October 16, 1997.
(5) Ms. Hillan became Senior Vice President - Finance on October 16, 1997.
(6) Mr. Satz and Ms. Hillan received bonuses for their services to the Company
for the period from January 1, 1997 to December 31, 1997. Some portion of the
bonuses received by Mr. Satz and Ms. Hillan for this twelve month period are
attributable to the period from January 1, 1997 to August 31, 1997; however, to
6
<PAGE> 6
avoid double counting the Company has listed the full amount of such bonus only
on the entry for the fiscal year ended December 31, 1997.
(7) As a result of the distribution of the Preferred Stock described below under
the caption "--Stock Options," each option listed in the table above represents
the right to purchase one share of Common Stock and one share of Preferred
Stock.
STOCK OPTIONS
On August 17, 1998 we distributed one share of our newly created 8 3/4%
Series A Cumulative Redeemable Preferred Stock, par value $.0001 per share, for
each share of Common Stock held by the stockholders of record on July 30, 1998.
In order to put optionees who held options to acquire the Common Stock
on July 30, 1998 (the record date for the distribution which occurred on August
17, 1998) in the same position as stockholders of the Company after the
distribution of the Preferred Stock, each such optionee was granted the right to
receive one share of Preferred Stock for each share of Common Stock acquired
pursuant to the exercise of an outstanding stock option. Therefore, in order to
calculate the value and potential value of the stock options, the value of the
Preferred Stock must be taken into consideration.
The following table sets forth information regarding the grant of stock
options during the year ended December 31, 1998 to the Named Executive Officers.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM (1)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
NAME UNDERLYING GRANTED TO PRICE PER EXPIRATION 5%($) 10%($)
OPTIONS EMPLOYEES IN SHARE ($/SH) DATE
GRANTED(#) 1998(%)
<S> <C> <C> <C> <C> <C> <C>
Jace McGrory 0 N/A N/A N/A N/A N/A
Gary W. Nielson 50,000(2) 72.7 19.875 2/3/04(3) 337,970 766,739
Joseph R. Satz 0 N/A N/A N/A N/A N/A
Kathleen M. Hillan 0 N/A N/A N/A N/A N/A
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at the
assumed compounded market appreciation rates of 5% and 10% as required by the
Securities and Exchange Commission over a six-year term and, therefore, are not
intended to forecast possible future appreciation, if any, of the stock price.
(2) As a result of the distribution of the Preferred Stock described above, each
option held by Mr. Nielson represents the right to purchase one share of Common
Stock and one share of Preferred Stock for a combined exercise price of $19.875.
In the aggregate, Mr. Nielson's options represent the right to purchase 50,000
shares of Common Stock and 50,000 shares of Preferred Stock.
(3) The options become exercisable at 20% per year over a period of five years
from the date of grant and expire six years from the date of grant.
7
<PAGE> 7
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year ended
December 31, 1998 and unexercised options held as of December 31, 1998.
OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
NUMBER OF DECEMBER 31, 1998 AT DECEMBER 31, 1998
SHARES VALUE
ACQUIRED ON REALIZED (#)(1) ($) (2)
NAME EXERCISE(#) ($) EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Jack McGrory 0 0 47,265/189,064 7,799/31,196
Gary W. Nielson 0 0 0/50,000 0/0
Joseph R. Satz 0 0 19,746/34,498 134,850/93,426
Kathleen M. Hillan 2,372 20,351 8,000/36,746 3,000/55,982
</TABLE>
- ------------------
(1) Each option listed in this column represents the right to purchase one share
of Common Stock and one share of Preferred Stock for a single exercise price.
Accordingly, to determine the value of the in-the-money options, the Company
compares the sum of the closing sales prices for the Common Stock and Preferred
Stock to the combined exercise price of the option.
(2) Based on a price of $5.3125 and $13.8125 per share, the last reported sales
price of the Common Stock and Preferred Stock on December 31, 1998, as listed on
The Nasdaq Stock Market-Registered Trademark-.
PROFIT SHARING AND 401(K) PLAN
The Board of Directors of Price Enterprises adopted The Price
Enterprises, Inc. Profit Sharing and 401(k) Plan, as amended (the "Plan"), in
January 1995.
The Plan is a profit-sharing plan designed to be a "qualified" plan
under applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), covering all non-union employees who have completed one year of
service, as that term is defined in the Plan. Under the Plan, the Company may,
in its discretion, make annual contributions which shall not exceed for each
participant the lesser of: (a) 25% of the participant's compensation for such
year or (b) the greater of (i) 25% of the defined benefit dollar limitation then
in effect under section 415(b)(1) of the Code or (ii) $30,000. In addition,
participants may make voluntary contributions. The Plan also permits employees
to defer (in accordance with section 401(k) of the Code) a portion of their
salary and contribute those deferrals to the Plan.
All participants in the Plan are fully vested in their voluntary
contributions and earnings thereon. Vesting in the remainder of a participant's
account is based upon his or her years of service with the Company. A
participant initially is 20% vested after the completion of two years of service
with the Company, an additional 20% vested after the completion of three years
of service, and an additional 20% vested after the completion of each of his or
her next three years of service, so that the participant is 100% vested after
the completion of six years of service.
Regardless of years of service, a participant becomes fully vested in
his or her entire account upon retirement due to permanent disability,
attainment of age 65 or death. In addition, the Plan provides that the Board of
Directors of the Company may at any time declare the Plan partially or
completely
8
<PAGE> 8
terminated, in which event the account of each participant with respect to whom
the Plan is terminated will become fully vested.
The Board of Directors also has the right at any time to discontinue
contributions to the Plan. If the Company fails to make one or more substantial
contributions to the Plan for any period of three consecutive years in each year
of which the Company realized substantial current earnings, such failure will
automatically be deemed a complete discontinuance of contributions. In the event
of such a complete discontinuance of contributions, the account of each
participant will become fully vested.
During the year ended August 31, 1996, the "plan year" for The Price
Enterprises Profit Sharing and 401(k) Plan was converted to a fiscal year ended
December 31 from a fiscal year ended August 31.
EMPLOYMENT CONTRACTS
Jack McGrory became Chief Executive Officer of the Company on September
2, 1997. Mr. McGrory entered into an employment agreement with the Company on
June 18, 1997 for a term of three years commencing September 2, 1997. Mr.
McGrory's employment agreement was amended on August 27, 1997 and again on
February 2, 1999. Pursuant to this agreement, Mr. McGrory received a base annual
salary of $200,000 and a bonus in the amount of $50,000 for his first year of
employment. During Mr. McGrory's second and third years of employment, he will
receive a base annual salary of $250,000 and will be eligible to participate in
the Company's bonus plan. In addition, pursuant to this agreement, Mr. McGrory
received a stock option grant for 236,329 shares of Common Stock, which
represented 1% of the Company's outstanding Common Stock as of October 6, 1997.
Such stock option grant is exercisable at a price equal to the fair market value
of the Common Stock on October 6, 1997 and vests at 20% per year over a five
year period. All such stock options expire on October 7, 2003. As a result of
the distribution of the Preferred Stock described above, in the aggregate, Mr.
McGrory's options represent the right to purchase 236,239 shares of Common Stock
and 236,329 shares of Preferred Stock.
Mr. McGrory may not engage in any activities, with or without
compensation, that would interfere with the performance of his duties or that
would be adverse to the Company's interests, without the prior written consent
of the Company. The agreement provides that Mr. McGrory will receive all other
benefits offered to officers under the Company's standard benefits practices and
plans. Mr. McGrory may terminate the agreement at any time on 90 days' prior
written notice. The Company may terminate the agreement for cause upon immediate
notice thereof, or upon the death or disability of Mr. McGrory. In the event
that the Company terminates the agreement for any reason other than cause, Mr.
McGrory shall be entitled to the continuation of his base salary for the
remainder of the term of the agreement payable in conformity with the Company's
normal payroll period. The foregoing severance benefits are the exclusive
benefits that would be payable to Mr. McGrory by reason of his termination, and
the Company is not obligated to segregate any assets or procure any investment
in order to fund such severance benefits. The agreement also contains
confidentiality provisions and other terms and conditions customary to executive
employment agreements.
Gary W. Nielson became Executive Vice President and Chief Financial
Officer of the Company on February 2, 1998. Mr. Nielson entered into an
employment agreement with the Company for a term of two years commencing
February 2, 1998. Pursuant to this agreement, Mr. Nielson receives a base annual
salary of $175,000 and is eligible to participate in the Company's bonus plan.
In addition, pursuant to this agreement, Mr. Nielson received a stock option
grant for 50,000 shares of the Common Stock. Such stock option grant is
exercisable at a price equal to the fair market value of the Common Stock on
February 2, 1998 and vests at 20% per year over a five year period. All such
stock options expire on February 3, 2004. As a result of the distribution of the
Preferred Stock described above, in the aggregate,
9
<PAGE> 9
Mr. Nielson's options represent the right to purchase 50,000 shares of Common
Stock and 50,000 shares of Preferred Stock.
Mr. Nielson may not engage in any activities, with or without
compensation, that would interfere with the performance of his duties or that
would be adverse to the Company's interests, without the prior written consent
of the Company. The agreement provides that Mr. Nielson will receive all other
benefits offered to officers under the Company's standard benefits practices and
plans. Mr. Nielson may terminate the agreement at any time on 90 days' prior
written notice. The Company may terminate the agreement for cause upon immediate
notice thereof, or upon the death or disability of Mr. Nielson. In the event
that the Company terminates the agreement for any reason other than cause or
upon the death or disability of Mr. Nielson, Mr. Nielson shall be entitled to
the greater of (i) the continuation of his base salary for the remainder of the
term of the agreement payable in conformity with the Company's normal payroll
period or (ii) $175,000. The foregoing severance benefits are the exclusive
benefits that would be payable to Mr. Nielson by reason of his termination, and
the Company is not obligated to segregate any assets or procure any investment
in order to fund such severance benefits. The agreement also contains
confidentiality provisions and other terms and conditions customary to executive
employment agreements.
10
<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of shares of our Common Stock and Preferred Stock as of February 28,
1999 (unless described otherwise) by (i) the Company's Named Executive Officers
and Directors, (ii) all of the Company's executive officers and Directors as a
group and (iii) all other stockholders known by the Company to own beneficially
more than five percent of the Common Stock or Preferred Stock. Beneficial
ownership of Directors, officers and stockholders owning more than 5% or more of
the Company's Common Stock or Preferred Stock includes both outstanding shares
of Common Stock and Preferred Stock and shares of Common Stock issuable upon
exercise of options that are currently exercisable or will become exercisable
within 60 days after the date of this table.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON PREFERRED
SHARES SHARES PERCENT OF CLASS(%)
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(2) OWNED OWNED(1) COMMON PREFERRED VOTING
<S> <C> <C> <C> <C> <C>
Robert E. Price (3).......... 2,632,005 3,809,585 19.80 16.03 19.23
Paul A. Peterson (4)......... 328,624 374,254 2.47 1.57 2.33
James F. Cahill (5).......... 140,107 1,257,881 1.05 5.29 1.70
Anne L. Evans (6)............ 24,515 22,709 * * *
Murray L. Galinson (7)....... 119,442 1,210,216 * 5.09 1.53
Jack McGrory (8)............. 59,265 59,265 * * *
Gary W. Nielson (9).......... 10,000 10,000 * * *
Joseph R. Satz (10).......... 26,044 31,044 * * *
Kathleen M. Hillan (11)...... 10,373 10,373 * * *
Sol Price (12)............... 2,608,469 7,032,090 19.62 29.60 21.13
Charles T. Munger (13)....... 0 2,000,000 * 8.42 1.28
All executive officers and 3,350,375 4,590,167 24.98 19.22 24.11
Directors as a group
(9 persons) (14)..........
</TABLE>
- ------------------
* Less than 1% beneficially owned.
(1) Robert E. Price, James F. Cahill, Murray L. Galinson and Sol Price are
directors of The Price Family Charitable Fund (the "Fund"). As such, for
purposes of this table, they are each deemed to beneficially own the
1,097,580 shares of Preferred Stock held by the Fund. Each of Robert E.
Price, James F. Cahill, Murray L. Galinson and Sol Price has shared voting
and dispositive powers with respect to, and disclaims beneficial
11
<PAGE> 11
ownership of, the shares held by the Fund. If the percent of the Company's
Preferred Stock beneficially owned by Robert E. Price, James F. Cahill,
Murray L. Galinson and Sol Price were calculated without regard to the
shares held by the Fund, they would own 11.41%, 0.67%, 0.47% and 24.98%,
respectively, of the Company's Preferred Stock and 18.53%, 1.00%, 0.83% and
20.43%, respectively, of the Company's voting stock.
(2) The address for all persons listed, other than Sol Price and Charles T.
Munger, is c/o the Company, 4649 Morena Boulevard, San Diego, California
92117. The address for Sol Price is c/o The Price Entities, 7979 Ivanhoe
Avenue, Suite 520, La Jolla, California 92037. The address for Charles T.
Munger is 355 South Grand Avenue, Suite 3400, Los Angeles, California
90071.
(3) Includes 2,626,598 shares of Common Stock and 2,706,598 shares of Preferred
Stock held by trusts of which Mr. Price is a trustee. Mr. Price has shared
voting and dispositive power with respect to such shares. Also includes
5,112 shares of Common Stock and 5,112 shares of Preferred Stock held by
Mr. Price as custodian of his minor children under the California Uniform
Transfer to Minors Act ("CUTMA"). Also includes 1,097,580 shares of
Preferred Stock held by the Fund. Mr. Price disclaims beneficial ownership
of the shares held by the Fund.
(4) Includes 14,358 shares of Common Stock and 14,358 shares of Preferred Stock
subject to currently exercisable non-qualified stock options. Excludes
12,358 shares of Common Stock and 12,358 shares of Preferred Stock subject
to non-qualified stock options that are not presently exercisable. Also
includes 76,000 shares of Common Stock and 96,695 shares of Preferred Stock
held by Mr. Peterson's wife. Mr. Peterson disclaims beneficial ownership of
the shares held by his wife.
(5) Includes 2,000 shares of Common Stock and 4,000 shares of Preferred Stock
held by Mr. Cahill as custodian for his minor children under CUTMA. Also
includes 67,580 shares of Common Stock and 67,580 shares of Preferred Stock
held by trusts in which Mr. Cahill is a trustee. Mr. Cahill has shared
voting and dispositive power with respect to, and disclaims beneficial
ownership of, the shares held by the trusts. Also includes 2,471 shares of
Common Stock and 2,471 shares of Preferred Stock subject to currently
exercisable non-qualified stock options. Also includes 1,097,580 shares of
Preferred Stock held by the Fund. Mr. Cahill disclaims beneficial ownership
of the shares held by the Fund. Excludes 9,887 shares of Common Stock and
9,887 shares of Preferred Stock subject to non-qualified stock options that
are not presently exercisable.
12
<PAGE> 12
(6) Includes 2,000 shares of Common Stock and 2,000 shares of Preferred Stock
subject to currently exercisable non-qualified stock options. Excludes
8,000 shares of Common Stock and 8,000 shares of Preferred Stock subject
to non-qualified stock options that are not presently exercisable.
(7) Includes 9,886 shares of Common Stock and 9,886 shares of Preferred Stock
subject to currently exercisable non-qualified stock options. Also
includes 1,500 shares of Common Stock and 1,500 shares of Preferred Stock
held by a partnership for the benefit of Mr. Galinson's adult children,
over which Mr. Galinson exercises sole investment power. Mr. Galinson
disclaims beneficial ownership of the shares held by the partnership. Also
includes 1,097,580 shares of Preferred Stock held by the Fund. Mr.
Galinson disclaims beneficial ownership of the shares held by the Fund.
Excludes 2,472 shares of Common Stock and 2,472 shares of Preferred Stock
subject to non-qualified stock options that are not presently exercisable.
(8) Includes 47,265 shares of Common Stock and 47,265 shares of Preferred
Stock subject to currently exercisable non-qualified stock options.
Excludes 189,064 shares of Common Stock and 189,064 shares of Preferred
Stock subject to non-qualified stock options that are not presently
exercisable. Also includes 2,000 shares of Common Stock and 2,000 shares
of Preferred Stock held by Mr. McGrory as custodian for his minor children
under CUTMA. Mr. McGrory disclaims beneficial ownership of such shares.
(9) All 10,000 shares of Common Stock and 10,000 shares of Preferred Stock are
subject to currently exercisable non-qualified stock options. Excludes
40,000 shares of Common Stock and 40,000 shares of Preferred Stock subject
to non-qualified stock options that are not presently exercisable.
(10) Includes 24,195 shares of Common Stock and 24,195 shares of Preferred
Stock subject to currently exercisable non-qualified stock options.
Excludes 30,049 shares of Common Stock and 30,049 shares of Preferred
Stock subject to non-qualified stock options that are not presently
exercisable. Also includes 1,000 shares of Preferred Stock held by a trust
in which Mr. Satz is a co-trustee. Mr. Satz has shared voting and
dispositive power with respect to, and disclaims beneficial ownership of,
the shares held by the trust.
(11) Includes 10,373 shares of Common Stock and 10,373 shares of Preferred
Stock subject to currently exercisable non-qualified stock options.
Excludes 34,373 shares of Common Stock and 34,373 shares of Preferred
Stock subject to non-qualified stock options that are not presently
exercisable.
(12) Includes 2,608,469 shares of Common Stock and 5,934,510 shares of
Preferred Stock held by trusts of which Mr. Price is a trustee. Of such
shares, Mr. Price has sole voting and dispositive power with respect to
2,521,619 shares of Common Stock and 5,733,660 shares of Preferred Stock
and shared voting and dispositive power with respect to 86,850 shares of
Common Stock and 200,850 shares of Preferred Stock. Mr. Price disclaims
beneficial ownership of the 86,850 shares of Common Stock and 200,850
shares of Preferred Stock held
13
<PAGE> 13
by trusts as to which he shares voting and dispositive power. Also
includes 1,097,580 shares of Preferred Stock held by the Fund. Mr. Price
disclaims beneficial ownership of the shares held by the Fund.
(13) Includes 15,000 shares of Preferred Stock owned by Mr. Charles T. Munger,
as to which Mr. Charles T. Munger has sole voting and dispositive power.
Also includes 92,115 shares of Preferred Stock owned by Mr. Philip B.
Munger, as to which Mr. Philip B. Munger has sole voting and dispositive
power. Also includes 1,275,000 shares of Preferred Stock held by NBACTMC
Partnership, a California general partnership, as to which NBACTMC
Partnership has sole voting and dispositive power. Also includes 287,040
shares of Preferred Stock held by Alfred C. Munger Trusts, as to which
Alfred C. Munger Trusts have sole voting and dispositive power. Also
includes 330,845 shares of Preferred Stock held by Charles T. and Nancy B.
Munger Trusts, as to which Charles T. and Nancy B. Munger Trusts have sole
voting and dispositive power. All information concerning Mr. Charles T.
Munger, Mr. Philip B. Munger, NBACTMC Partnership, Alfred C. Munger Trusts
and Charles T. and Nancy B. Munger Trusts is based upon information
contained in a Schedule 13G filed with the Securities and Exchange
Commission on behalf of the foregoing entities on February 5, 1999. The
Schedule 13G indicates that each of Mr. Philip B. Munger, NBACTMC
Partnership, Alfred C. Munger Trusts and Charles T. and Nancy B. Munger
Trusts often rely on the advice of Charles T. Munger with respect to
issues of voting and disposition.
(14) See Notes (1) and (3) - (11). The shares of Preferred Stock held by the
Fund were counted only once for purposes of these calculations.
14
<PAGE> 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH PRICESMART, INC.
On August 29, 1997 (the "Distribution Date") the Company separated its
core real estate business and its merchandising businesses pursuant to a
spin-off in which the stockholders of the Company received common stock of
PriceSmart through the Distribution. Pursuant to the Distribution, PriceSmart
acquired the merchandising businesses and the Company retained the real estate
business. Sol Price beneficially owns approximately 33.5% of PriceSmart's common
stock. Robert E. Price, who beneficially owns approximately 19.2% of the
Company's outstanding voting stock and is the Chairman of the Board of the
Company also beneficially owns approximately 24.7% of PriceSmart's common stock
and is PriceSmart's Chairman of the Board.
For the purpose of governing certain of the ongoing relationships
between PriceSmart and the Company after the Distribution and to provide
mechanisms for an orderly transition, PriceSmart and the Company entered into
the various agreements and adopted the policies described below.
PriceSmart and the Company entered into the Distribution Agreement,
which provides for, among other things, (i) the division between PriceSmart and
the Company of certain assets and liabilities; (ii) the Distribution; and (iii)
certain other agreements governing the relationship between PriceSmart and the
Company following the Distribution.
The Company and PriceSmart entered into an Asset Management and
Disposition Agreement, dated as of August 26, 1997, calling for the Company to
provide asset management services with respect to certain properties owned by
PriceSmart. PriceSmart pays the Company management fees, leasing fees,
disposition fees and developer's fees for providing these services. This
agreement has a two-year term that expires in August 1999; however, either the
Company or PriceSmart may terminate the agreement with 60 days written notice.
The Company charged PriceSmart $201,000 for asset management services during
1998.
PriceSmart and the Company entered into a Transitional Services
Agreement, dated as of August 26, 1997, pursuant to which the Company and
PriceSmart provided certain services to one another. The fees for such
transitional services were based on hourly rates designed to reflect the costs
(including indirect costs) of providing such services. The Transitional Services
Agreement terminated on June 30, 1998.
The Company and PriceSmart entered into a Tax Sharing Agreement, dated
as of August 26, 1997, defining the parties' rights and obligations with respect
to tax returns and tax liabilities, for taxable years and other taxable periods
ending on or before the Distribution Date. In general, pursuant to the terms of
this agreement the Company is responsible for (i) filing all Federal and state
income tax returns of the Company, PriceSmart and any of their subsidiaries for
all taxable years ending on or before or including the Distribution Date and
(ii) paying the taxes relating to such returns (including any deficiencies
proposed by applicable taxing authorities), to the extent attributable to
pre-Distribution Date periods. The Company and PriceSmart are each responsible
for filing its own returns and paying its own taxes for post-Distribution Date
periods.
The on-going relationships between PriceSmart and the Company may
present certain conflict situations for Robert E. Price who serves as Chairman
of the Board of PriceSmart and Chairman of the Board of the Company. The Company
and PriceSmart have adopted and will continue to adopt appropriate policies and
procedures to be followed by the Board of Directors of each company to limit the
15
<PAGE> 15
involvement of Mr. Price in conflict situations, including matters relating to
contractual relationships or litigation between PriceSmart and the Company. Such
procedures include requiring Mr. Price to abstain from voting as a director of
both companies with respect to matters that present a significant conflict of
interest between the companies.
PriceSmart leases space from the Company for its corporate offices in
San Diego. The lease expires August 31, 1999. The Company recorded $590,000 in
revenue related to this lease in 1998.
OTHER RELATED PARTY TRANSACTIONS
In May 1998, the Company acquired an office complex in Sacramento, CA
for $35.6 million. The Company acquired this property from Ivanhoe-Bradshaw,
L.L.C. ("Ivanhoe-Bradshaw"), a company controlled by Sol Price. In addition,
James F. Cahill, a member of the Board of Directors, served as Manager of
Ivanhoe-Bradshaw and previously held membership interests in Ivanhoe-Bradshaw.
The purchase price for the office complex was approximately 8% below the value
determined by an independently prepared appraisal commissioned at the request of
the Board of Directors other than Robert E. Price and James F. Cahill. Messrs.
Price and Cahill did not participate in any discussions regarding this
transaction and abstained from voting on the transaction.
In July 1998, the Company acquired approximately 15 acres of land in
Fresno, CA from PriceSmart for $4.0 million.
16
