<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. (Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [NO FEE REQUIRED] for the
fiscal year ended December 31, 1998.
Transitional report pursuant to Section 13 or 15(d) of the
/ / Securities Exchange Act of 1934 [NO FEE REQUIRED] for the
transition period from ___________ to ____________.
COMMISSION FILE NUMBER: 0-20449
PRICE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 33-0628740
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4649 MORENA BOULEVARD, SAN DIEGO, CALIFORNIA 92117
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (619) 581-4530
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.0001 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant as of March 15, 1999 was $38,847,455 based
on the last reported sale price of $5.00 per share on March 15, 1999.
The number of outstanding shares of the Registrant's common stock as of
March 15, 1999 was 13,293,456.
<PAGE>
PART I
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended December 31, 1998. The annual meeting
originally scheduled for May 18, 1999 has been postponed and we have not yet set
a new date for the 1999 annual meeting of stockholders.
PART III
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:
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
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
</TABLE>
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
3
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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.
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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
Compensation
Annual Compensation Awards
Securities
Name and Fiscal Underlying All Other
Principal Year Options/ Compensation
Position(s) Ended Salary ($) Bonus ($) SARs (#)(7) ($)(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
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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 $.0001 per share, for
each share of Common Stock held by the stockholders of record on July 30, 1998.
In order to put optionees who held options to acquire the Common Stock
on July 30, 1998 (the record date for the distribution which occurred on August
17, 1998) in the same position as stockholders of the Company after the
distribution of the Preferred Stock, each such optionee was granted the right to
receive one share of Preferred Stock for each share of Common Stock acquired
pursuant to the exercise of an outstanding stock option. Therefore, in order to
calculate the value and potential value of the stock options, the value of the
Preferred Stock must be taken into consideration.
The following table sets forth information regarding the grant of stock
options during the year ended December 31, 1998 to the Named Executive Officers.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
----------------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION
NAME UNDERLYING OPTIONS GRANTED PRICE FOR OPTION TERM (1)
OPTIONS TO EMPLOYEES IN PER SHARE EXPIRATION ---------------------------
GRANTED (#) 1998 (%) ($/SH) DATE 5% ($) 10% ($)
- ---------------------- --------------- ------------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jack 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 $19.875. In the aggregate, Mr. Nielson's options represent the
right to purchase 50,000 shares of Common Stock and 50,000 shares of
Preferred Stock.
(3) The options become exercisable at 20% per year over a period of five years
from the date of grant and expire six years from the date of grant.
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The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year ended
December 31, 1998 and unexercised options held as of December 31, 1998.
OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
NUMBER OF ----------------------- -----------------------
SHARES (#)(1) ($)(2)
NAME ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
ON EXERCISE (#) ($) 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
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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,
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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.
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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 COMMON NUMBER OF PREFERRED PERCENT OF CLASS (%)
SHARES BENEFICIALLY SHARES 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
Directors as a group
(9 persons) (14).......... 3,350,375 4,590,167 24.98 19.22 24.11
</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
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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.
(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.
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<PAGE>
(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 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.
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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
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<PAGE>
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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRICE ENTERPRISES, INC.
DATED: April 27, 1999 By: /s/ JACK MCGRORY
-------------------------------
Name: Jack McGrory
Title: President and Chief Executive
Officer (Chief Executive Officer)
DATED: April 27, 1999 By: /s/ GARY W. NIELSON
-------------------------------
Name: Gary W. Nielson
Title: Executive Vice President and
Chief Financial Officer (Chief
Financial Officer)
16
