Filed Pursuant to Rule 424(b)(3)
Registration No. 333-61622
OFFER TO EXCHANGE
SHARES OF
8 3/4% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
OF
PRICE ENTERPRISES, INC.
FOR
ANY AND ALL OUTSTANDING
9% CONVERTIBLE REDEEMABLE SUBORDINATED SECURED DEBENTURES DUE 2004
AND
10% SENIOR REDEEMABLE SECURED NOTES DUE 2004
OF
EXCEL LEGACY CORPORATION
AND
SOLICITATION OF CONSENTS FOR
AMENDMENT OF THE RELATED INDENTURES
THE EXCHANGE OFFER AND CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON SEPTEMBER 11, 2001, UNLESS EXTENDED.
Price Enterprises, Inc. is offering to exchange shares of its 8 3/4%
Series A Cumulative Redeemable Preferred Stock for all outstanding 9%
Convertible Redeemable Subordinated Secured Debentures due 2004 and 10% Senior
Redeemable Secured Notes due 2004 of Excel Legacy Corporation. For purposes of
the exchange offer, the Legacy debentures and Legacy notes are valued at their
face value and the Enterprises Series A preferred stock is being valued at
$15.00 per share. As a result, 66.67 shares of Enterprises Series A preferred
stock are being offered for each $1,000 in principal amount of Legacy debentures
and Legacy notes tendered.
The board of directors of Enterprises is also soliciting the consents of
holders of Legacy debentures and Legacy notes to amend the indentures governing
the Legacy debentures and Legacy notes to release the collateral securing these
securities. Holders of Legacy debentures and Legacy notes who tender their
securities in the exchange offer will be deemed to have consented to the
proposed amendments. The Enterprises Series A preferred stock is traded on the
Nasdaq National Market under the symbol "PRENP." On August 3, 2001, the closing
price of the Enterprises Series A preferred stock was $15.81 per share.
The boards of directors of Enterprises and Legacy have unanimously approved,
and are asking their respective stockholders to approve, a merger in which
Legacy would become a wholly-owned subsidiary of Enterprises. As a result of the
merger, each share of Legacy common stock outstanding immediately prior to the
merger will be converted into 0.6667 of a share of Enterprises common stock. The
merger agreement obligates Enterprises to commence the exchange offer and
consent solicitation. Completion of the exchange offer and consent solicitation
is conditioned on completion of the merger and other general conditions
described in this consent solicitation statement/prospectus.
As a result of the various proposed transactions, you must decide between
two alternatives. First, you may keep your Legacy debentures and Legacy notes,
which, assuming these transactions are completed, (1) will be debt obligations
of Legacy, a subsidiary of Enterprises, (2) in the case of the Legacy
debentures, will be convertible into Enterprises common stock at an effective
price of $8.25 per share and (3) if the proposed amendments to the indentures
are approved, will be unsecured obligations of Legacy. Second, you may exchange
your Legacy debentures and Legacy notes for shares of Enterprises Series A
preferred stock.
YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS"
COMMENCING ON PAGE 18 OF THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS BEFORE
TENDERING YOUR LEGACY DEBENTURES AND LEGACY NOTES AND CONSENTING TO THE PROPOSED
AMENDMENTS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS OR DETERMINED IF THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This consent solicitation statement/prospectus is dated August 7, 2001 and
is expected to be first mailed to holders of Legacy debentures and Legacy notes
on or about August 10, 2001.
SOURCES OF ADDITIONAL INFORMATION
This consent solicitation statement/prospectus incorporates important
business and financial information about Enterprises and Legacy that is not
included or delivered with the document. This information is available without
charge to holders of Legacy debentures and Legacy notes upon written or oral
request to the appropriate party.
You may contact the information agent with respect to the exchange offer as
follows:
Mellon Investor Services LLC
44 Wall Street, 7th Floor
New York, New York 10005
(800) 335-7842
You may contact Enterprises as follows:
Price Enterprises, Inc.
17140 Bernardo Center Drive, Suite 300
San Diego, California 92128
(858) 675-9400
You may contact Legacy as follows:
Excel Legacy Corporation
17140 Bernardo Center Drive, Suite 300
San Diego, California 92128
(858) 675-9400
TO OBTAIN TIMELY DELIVERY BEFORE THE EXPIRATION OF THE EXCHANGE OFFER AND
CONSENT SOLICITATION, YOU SHOULD REQUEST THE INFORMATION NO LATER THAN SEPTEMBER
4, 2001, WHICH IS FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE EXCHANGE
OFFER AND CONSENT SOLICITATION.
You may access documents filed by Enterprises and Legacy with the SEC at the
SEC's website at www.sec.gov. Please refer to "Where You Can Find More
Information" in this consent solicitation statement/prospectus.
SUMMARY TERM SHEET
THIS SUMMARY TERM SHEET HIGHLIGHTS SELECTED INFORMATION FROM THIS CONSENT
SOLICITATION STATEMENT/ PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. ENTERPRISES URGES YOU TO CAREFULLY READ THE ENTIRE
DOCUMENT BEFORE YOU DECIDE TO TENDER YOUR LEGACY DEBENTURES AND LEGACY NOTES AND
TO CONSENT TO THE PROPOSED AMENDMENTS. SEE "WHERE YOU CAN FIND MORE INFORMATION"
ON PAGE 130.
THE COMPANIES (PAGES 60-74)
- Price Enterprises, Inc., a Maryland corporation, is a real estate
investment trust, or REIT. Its principal business is to own, operate,
lease, manage, acquire and develop retail real property.
- Excel Legacy Corporation, a Delaware corporation, pursues a wide variety
of real estate opportunities including owning, acquiring, developing and
managing mixed-use and retail properties and real estate related operating
companies throughout the United States and Canada.
- In November 1999, Legacy completed an exchange offer for the Enterprises
common stock. In the Legacy exchange offer, Legacy acquired approximately
91.3% of the Enterprises common stock, which represents approximately
77.3% of the voting power of Enterprises. The Enterprises common stock
currently held by Legacy serves as the collateral securing the Legacy
debentures and Legacy notes. At the close of the Legacy exchange offer,
Legacy took over daily management of Enterprises, including property
management and finance.
THE EXCHANGE OFFER (PAGES 41-53)
- Enterprises is offering to exchange shares of Enterprises Series A
preferred stock for all outstanding Legacy debentures and Legacy notes. If
the exchange offer is completed, you will receive 66.67 shares of
Enterprises Series A preferred stock for each $1,000 in principal amount
of 9% Convertible Redeemable Subordinated Secured Debentures due 2004 and
10% Senior Redeemable Secured Notes due 2004 of Legacy you choose to
exchange. Interest on the Legacy debentures and Legacy notes tendered will
continue to accrue and be payable on the normal interest payment date of
August 15, 2001, but will not accrue or be payable from that date to the
date of exchange. Instead, you will be deemed a holder of Enterprises
Series A preferred stock as of August 16, 2001 with respect to the payment
of future distributions on the Enterprises Series A preferred stock. In
addition, instead of fractional shares of Enterprises Series A preferred
stock, holders who tender their Legacy debentures and Legacy notes will
receive cash.
- All of the Legacy debentures and Legacy notes properly tendered and not
withdrawn will be exchanged at the exchange rate, on the terms and subject
to the conditions of the exchange offer. Enterprises will promptly return
any tendered Legacy debentures and Legacy notes if the conditions to the
exchange offer are not met.
- In addition, in connection with the exchange offer, Enterprises will seek
the consent of the holders of the Legacy debentures and Legacy notes to
release the collateral securing these securities. However, the exchange
offer is not contingent on obtaining the requisite consent to release the
collateral.
- Enterprises and Legacy have entered into a merger agreement, which
provides that a wholly-owned subsidiary of Enterprises will merge with and
into Legacy and Legacy will become a wholly-owned subsidiary of
Enterprises. The merger agreement obligates Enterprises to commence the
exchange offer and consent solicitation.
- Enterprises has also entered into agreements to sell 19,666,754 shares of
a new class of Enterprises preferred stock, 9% Series B Junior Convertible
Redeemable Preferred Stock, and
i
warrants to purchase 2,733,679 shares of Enterprises common stock with an
exercise price of $8.25 per share to Warburg, Pincus Equity Partners, L.P.
and some other persons.
THE ENTERPRISES SERIES A PREFERRED STOCK (PAGES 106-108)
- The Enterprises Series A preferred stock:
- is senior to Enterprises common stock and will be senior to Enterprises
Series B preferred stock with respect to dividends and distributions
upon liquidation, dissolution or winding up,
- has cumulative dividends payable in cash in an amount equal to $1.40
per annum, payable quarterly,
- has a liquidation preference of $16.00 per share,
- is redeemable by Enterprises within 90 days after a change in control
of Enterprises or after August 15, 2003, and
- entitles the holder to 1/10 of one vote per share on all matters
properly brought before holders of Enterprises common stock.
- In addition, in the event the merger and the sale of the Enterprises
Series B preferred stock are completed, holders of Enterprises Series A
preferred stock will be entitled to elect four of the eight directors of
the combined company, Price Legacy Corporation, until the occurrence of
some events, and to vote, together with the Enterprises common stock, to
elect two additional directors.
THE CONSENT SOLICITATION (PAGES 41-53)
- Enterprises is soliciting the consents of holders of Legacy debentures and
Legacy notes to approve the proposed amendments.
- If approved, the proposed amendments will not become effective unless the
conditions of the exchange offer and consent solicitation are met and will
become effective promptly following the closing of the exchange offer and
consent solicitation.
- Holders of the Legacy debentures and Legacy notes who tender their
securities in the exchange offer will be deemed to have consented to the
proposed amendments.
THE PROPOSED AMENDMENTS (PAGE 43)
- The proposed amendments will amend the indentures governing the Legacy
debentures and Legacy notes to:
- release the collateral securing the securities,
- terminate the associated pledge agreements which pledge the collateral
for the benefit of the holders of Legacy debentures and Legacy notes,
- delete definitions and cross-references from the indentures which would
be rendered inapplicable as a result of the proposed amendments
described above, and
- change the name of the securities to reflect that they are not secured
obligations of Legacy.
- If the proposed amendments become effective, the Legacy debentures and
Legacy notes not tendered will become unsecured obligations of Legacy, a
subsidiary of Price Legacy. These amendments will have the same effect on
all holders regardless of whether they consent to the amendments.
THE RIGHTS OF HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES WILL CHANGE (PAGES
114-129)
- The rights of stockholders of Legacy are governed by Delaware General
Corporation Law, or the DGCL, and Legacy's charter and bylaws. Currently,
holders of the Legacy debentures may
ii
become stockholders of Legacy through the conversion of the Legacy
debentures into Legacy common stock.
- After tendering your Legacy debentures and Legacy notes, your rights as a
holder of Enterprises Series A preferred stock will be governed by
Maryland General Corporation Law, or the MGCL, and Price Legacy's charter
and bylaws.
- In addition, if you fail to tender your Legacy debentures, you may become
a stockholder of Price Legacy through the conversion of the Legacy
debentures into Enterprises common stock. In this instance, your rights
will be governed by the MGCL and Price Legacy's charter and bylaws.
Stockholders' rights under the MGCL differ from those under the DGCL. For
example, under the MGCL, the board of directors of some corporations,
including Price Legacy, may elect to classify the board and designate the
directors to serve in each class without stockholder approval, and
stockholders do not have appraisal rights with respect to stock that is
not entitled to vote on the transaction that gave rise to the appraisal
rights.
- Following these transactions, Price Legacy is expected to qualify as a
REIT. To qualify as a REIT, Price Legacy must distribute at least 90% of
its REIT taxable income to its stockholders (determined without regard to
the dividends paid deduction and excluding capital gains), and will be
subject to tax to the extent it distributes less than 100% of its REIT
taxable income. Price Legacy is expected to distribute in excess of this
minimum requirement, or approximately 100% of its REIT taxable income, to
its stockholders following the transactions. As a result, holders of
Enterprises common stock will receive distributions only if Price Legacy's
REIT taxable income exceeds $43.7 million, which is the aggregate amount
of annual distributions initially payable on the Enterprises Series A
preferred stock and Enterprises Series B preferred stock.
- Based on the pro forma financial information of Price Legacy, holders of
Enterprises common stock would not have been entitled to any distributions
for the quarter ended March 31, 2001 after giving effect to the
transactions.
iii
CONSENT SOLICITATION STATEMENT/PROSPECTUS
TABLE OF CONTENTS
PAGE
--------
SUMMARY..................................................... 1
RISK FACTORS................................................ 18
Risks Relating to the Exchange Offer...................... 18
Risks Relating to the Business and Operations of Price
Legacy.................................................. 21
FORWARD-LOOKING STATEMENTS.................................. 30
BACKGROUND AND REASONS FOR THE TRANSACTIONS................. 31
Background of the Transactions............................ 31
Enterprises' Reasons for the Transactions................. 37
Negative Factors Considered by Enterprises' Board......... 38
Recommendation of Enterprises' Board...................... 39
Legacy's Reasons for the Transactions..................... 39
Negative Factors Considered by Legacy's Board............. 40
Recommendation of Legacy's Board.......................... 40
THE EXCHANGE OFFER AND CONSENT SOLICITATION................. 41
General................................................... 41
Board Recommendation...................................... 41
Terms of the Exchange Offer and Consent Solicitation...... 41
The Proposed Amendments................................... 43
Conversion Agreement...................................... 44
Required Consents......................................... 44
Conditions to the Exchange Offer and Consent
Solicitation............................................ 44
Termination of the Exchange Offer and Consent
Solicitation............................................ 45
Expiration Date........................................... 45
Material United States Federal Income Tax
Considerations.......................................... 45
Regulatory Matters........................................ 45
Accounting Treatment...................................... 45
Appraisal Rights.......................................... 45
Acceptance for Exchange of Legacy Debentures and Legacy
Notes; Acceptance of Consents........................... 46
Procedures for Exchanging Legacy Debentures and Legacy
Notes and Delivering Consents........................... 47
Withdrawal of Tendered Legacy Debentures and Legacy Notes
and Revocation of Consents.............................. 51
The Exchange Agent and the Information Agent.............. 52
Fees and Expenses......................................... 52
Restrictions on Sales of Shares by Affiliates of Legacy
and Enterprises......................................... 52
Use of Proceeds........................................... 53
Listing of Enterprises Series A Preferred Stock to be
Issued in the Exchange Offer............................ 53
Miscellaneous............................................. 53
THE MERGER, THE SALE OF ENTERPRISES SERIES B PREFERRED STOCK
AND RELATED TRANSACTIONS.................................. 54
The Merger................................................ 54
Structure of Merger....................................... 54
Enterprises Merger Charter Amendments..................... 55
Conditions to the Merger.................................. 55
Termination of the Merger Agreement....................... 56
iv
PAGE
--------
Stockholder Agreements.................................... 56
The Sale of the Enterprises Series B Preferred Stock...... 57
Enterprises Issuance Charter Amendments................... 57
Voting Agreement.......................................... 58
Enterprises' Offer to Purchase............................ 58
Directors and Officers of Enterprises and Legacy have
Conflicts of Interest in the Merger..................... 59
INFORMATION ABOUT ENTERPRISES............................... 60
INFORMATION ABOUT LEGACY.................................... 69
UNAUDITED PRO FORMA OPERATING AND FINANCIAL INFORMATION..... 75
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF ENTERPRISES................................. 82
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF LEGACY...................................... 84
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS OF THE EXCHANGE OFFER...................... 85
MATERIAL FEDERAL INCOME TAX CONSEQUENCES RELATED TO
PRICE LEGACY.............................................. 93
DESCRIPTION OF ENTERPRISES CAPITAL STOCK.................... 104
COMPARISON OF STOCKHOLDER RIGHTS............................ 114
LEGAL MATTERS............................................... 130
EXPERTS..................................................... 130
WHERE YOU CAN FIND MORE INFORMATION......................... 130
FINANCIAL STATEMENTS OF THE SWERDLOW PROPERTIES............. F-1
EXHIBITS
ANNEX A Form of Supplemental Indenture for Legacy
Debentures................................................ A-1
ANNEX B Form of Supplemental Indenture for Legacy
Notes..................................................... B-1
v
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHAT IS THE EXCHANGE OFFER?
A: Enterprises is offering to exchange shares of Enterprises Series A
preferred stock for all outstanding Legacy debentures and Legacy notes.
Q: WHAT IS THE CONSENT SOLICITATION?
A: Enterprises is soliciting the consents of holders of Legacy debentures
and Legacy notes to amend the indentures governing the Legacy debentures and
Legacy notes to release the collateral securing these securities. Any holder of
Legacy debentures and Legacy notes who wants to tender their securities in the
exchange offer must consent to the proposed amendments. If you validly tender
your Legacy debentures and Legacy notes you will be deemed to have delivered
your consent to the proposed amendments with respect to the securities tendered.
Q: WHY IS ENTERPRISES COMMENCING THE EXCHANGE OFFER AND CONSENT
SOLICITATION?
A: Enterprises and Legacy have entered into a merger agreement, which
provides that a wholly-owned subsidiary of Enterprises will merge with and into
Legacy and Legacy will become a wholly-owned subsidiary of Enterprises. The
merger agreement obligates Enterprises to commence the exchange offer and
consent solicitation.
Q: WHAT IS THE PURPOSE OF THE EXCHANGE OFFER AND CONSENT SOLICITATION?
A: The purpose of the exchange offer is to improve and simplify the capital
structure of Price Legacy by reducing its outstanding indebtedness. In addition,
by obtaining the consents of holders of Legacy debentures and Legacy notes to
release the collateral securing these securities, Price Legacy will be able to
cancel the Enterprises common stock currently held by Legacy, which will further
simplify its capital structure.
Q: WHAT WOULD I RECEIVE IN EXCHANGE FOR MY LEGACY DEBENTURES AND LEGACY
NOTES?
If the exchange occurs:
- you will receive 66.67 shares of Enterprises Series A preferred stock for
each $1,000 in principal amount of Legacy debentures and Legacy notes you
choose to exchange,
- interest on the Legacy debentures and Legacy notes tendered will continue
to accrue and be payable on the normal interest payment date of
August 15, 2001, but will not accrue or be payable from that date to the
date of exchange. Instead, you will be deemed a holder of Enterprises
Series A preferred stock as of August 16, 2001 with respect to the payment
of future distributions on the Enterprises Series A preferred stock, and
- you will receive cash in lieu of fractional shares of Enterprises
Series A preferred stock.
Q: HOW WAS THE EXCHANGE RATIO CALCULATED?
A: The exchange ratio of 66.67 shares of Enterprises Series A preferred
stock for each $1,000 in principal amount of Legacy debentures and Legacy notes
was calculated by:
- valuing the Legacy debentures and Legacy notes at face value, and
- valuing the Enterprises Series A preferred stock at $15.00 per share for
purposes of the exchange.
The Enterprises Series A preferred stock was valued at $15.00 per share
based on its then-current market price. The Legacy debentures and Legacy notes
were valued at face value to provide the holders of these securities an
attractive, yet fair, price in the exchange offer.
Q: WHAT HAPPENS IF I FAIL TO TENDER MY LEGACY DEBENTURES AND LEGACY NOTES
PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER?
A: If you fail to tender your Legacy debentures and Legacy notes and the
proposed
amendments do not become effective, the indentures and the Legacy debentures and
Legacy notes will not be modified, except that the Legacy debentures will be
convertible into Enterprises common stock as a result of the merger. However, if
you fail to tender your Legacy debentures and Legacy notes and the proposed
amendments become effective, the Legacy debentures and Legacy notes not tendered
will become unsecured obligations of Legacy, a subsidiary of Price Legacy. These
amendments will have the same effect on all holders regardless of whether they
consent to the amendments.
Q: WHAT CONSENT IS NECESSARY TO APPROVE THE PROPOSED AMENDMENTS?
A: The consent of the holders of a majority of the outstanding principal
amount of the Legacy debentures is required to approve the proposed amendments
to the indenture governing the Legacy debentures. The consent of the holders of
a majority of the outstanding principal amount of the Legacy notes is required
to approve the proposed amendments to the indenture governing the Legacy notes.
Holders of approximately $13.5 million in principal amount of Legacy
debentures, representing approximately 40.6% of the outstanding principal
amount, and of approximately $7.4 million in principal amount of Legacy notes,
representing approximately 40.8% of the outstanding principal amount, have
agreed to consent to the proposed amendments.
Q: CAN I CHANGE MY MIND AFTER I TENDER MY LEGACY DEBENTURES AND LEGACY NOTES
AND DELIVER MY CONSENT?
A: Yes. You may withdraw tenders of your Legacy debentures and Legacy notes
and revoke your consent any time before the expiration date. If you change your
mind again, you can re-tender your Legacy debentures and Legacy notes and
re-submit your consent prior to the expiration date.
Q: DO I DO ANYTHING IF I WANT TO RETAIN MY LEGACY DEBENTURES AND LEGACY
NOTES?
A: No. If you want to retain your Legacy debentures and Legacy notes, you do
not need to take any action.
Q: CAN I TENDER MY LEGACY DEBENTURES AND LEGACY NOTES WITHOUT CONSENTING TO
THE PROPOSED AMENDMENTS?
A: No. If you tender your Legacy debentures and Legacy notes, you will be
deemed to have consented to the proposed amendments with respect to the
securities tendered. However, you can consent to the proposed amendments without
tendering your Legacy debentures and Legacy notes.
Q: WHO SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the exchange offer or consent
solicitation or wish to request additional documents, you may call the
information agent, Mellon Investor Services LLC, at (800) 335-7842. You may also
call Graham R. Bullick, Ph.D., Senior Vice President--Capital Markets of
Enterprises and Legacy, at (858) 675-9400X316.
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. ENTERPRISES URGES YOU TO CAREFULLY READ THE ENTIRE DOCUMENT
BEFORE YOU DECIDE TO TENDER YOUR LEGACY DEBENTURES AND LEGACY NOTES AND TO
CONSENT TO THE PROPOSED AMENDMENTS. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGE 130.
THE COMPANIES
PRICE ENTERPRISES, INC. (PAGES 60-68)
17140 Bernardo Center Drive, Suite 300
San Diego, California 92128
(858) 675-9400
Price Enterprises, Inc., a Maryland corporation, is a self-administered,
self-managed REIT. Its principal business is to own, operate, lease, manage,
acquire and develop retail real property. In addition, it owns four self storage
facilities and has a 50% interest in three joint ventures. Enterprises was
originally incorporated in July 1994 as a Delaware corporation and began
operations as a wholly-owned subsidiary of Costco Companies, Inc., formerly
Price/ Costco, Inc. In 1994, Costco spun-off Enterprises and transferred to
Enterprises, as part of a voluntary exchange offer, substantially all of the
real estate assets which historically formed Costco's non-club real estate
business segment, merchandising business entities and other assets. In
August 1997, Enterprises' merchandising businesses, real estate properties held
for sale and various other assets were spun-off to PriceSmart, Inc. Through a
stock distribution, PriceSmart became a separate public company. Since that
time, Enterprises has engaged in a combination of acquiring, developing, owning,
managing and/or selling real estate assets, primarily shopping centers. The
PriceSmart distribution resulted in Enterprises becoming eligible to elect
federal tax treatment as a REIT, which allows Enterprises to substantially
eliminate its obligation to pay taxes on income.
EXCEL LEGACY CORPORATION (PAGES 69-74)
17140 Bernardo Center Drive, Suite 300
San Diego, California 92128
(858) 675-9400
Excel Legacy Corporation, a Delaware corporation, was formed on
November 17, 1997 as a wholly-owned subsidiary of Excel Realty Trust, Inc., a
Maryland corporation and a REIT. On March 31, 1998, Excel Realty Trust effected
a spin-off of Legacy's business through a special dividend of all of its
outstanding common stock to holders of the Excel Realty Trust common stock.
Excel Realty Trust effected this spin-off to allow Legacy to pursue a wider
variety of real estate opportunities including owning, acquiring, developing and
managing mixed-use and retail properties and real estate related operating
companies throughout the United States and Canada.
RELATIONSHIP OF ENTERPRISES AND LEGACY
In November 1999, Legacy completed its exchange offer for the Enterprises
common stock. In the Legacy exchange offer, Legacy acquired approximately 91.3%
of the Enterprises common stock, which represents approximately 77.3% of the
voting power of Enterprises. The Enterprises common stock currently held by
Legacy serves as the collateral securing the Legacy debentures and Legacy notes.
At the close of the Legacy exchange offer, Legacy took over daily management
of Enterprises, including property management and finance.
THE MERGER (PAGES 54-56)
Enterprises and Legacy have entered into a merger agreement, which provides
that a wholly-owned subsidiary of Enterprises will merge with and into Legacy
and Legacy will become a wholly-owned subsidiary of Enterprises. The merger
agreement obligates Enterprises to commence the exchange offer and consent
solicitation. The exchange offer and consent solicitation are expected to close
concurrently with the merger.
In the merger, each share of Legacy common stock outstanding immediately
prior to the merger will be exchanged for 0.6667 of a share of Enterprises
common stock. The merger exchange ratio was determined by comparing the
1
fair value per common share of the companies' net assets and upside potential
associated with their development and other projects, as estimated by management
without third party appraisals. The Legacy debentures and Legacy notes not
tendered in the exchange offer will remain outstanding after the merger. As a
result of the merger, the Legacy debentures will be convertible into Enterprises
common stock. The number of shares of Enterprises common stock into which the
Legacy debentures will be convertible and the conversion price will be
appropriately adjusted to reflect the merger exchange ratio.
THE SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK (PAGES 57-58)
Enterprises has also entered into agreements to sell 19,666,754 shares of a
new class of Enterprises preferred stock, 9% Series B Junior Convertible
Redeemable Preferred Stock, and warrants to purchase 2,733,679 shares of
Enterprises common stock with an exercise price of $8.25 per share to Warburg
Pincus and some other persons.
If the merger is approved and the other customary closing conditions are
satisfied, the merger and the sale will occur contemporaneously. Enterprises may
elect not to complete the merger if, immediately prior to the merger, its board
is not satisfied that the sale of the Enterprises Series B preferred stock will
occur.
THE EXCHANGE OFFER (PAGES 41-53)
Enterprises is offering to exchange shares of Enterprises Series A preferred
stock for all outstanding Legacy debentures and Legacy notes. If the exchange
offer is completed, you will receive 66.67 shares of Enterprises Series A
preferred stock for each $1,000 in principal amount of Legacy debentures and
Legacy notes you choose to exchange. Interest on the Legacy debentures and
Legacy notes tendered will continue to accrue and be payable on the normal
interest payment date of August 15, 2001, but will not accrue or be payable from
that date to the date of exchange. Instead, you will be deemed a holder of
Enterprises Series A preferred stock as of August 16, 2001 with respect to the
payment of future distributions on the Enterprises Series A preferred stock. In
addition, holders who tender their Legacy debentures and Legacy notes will
receive cash in lieu of fractional shares of Enterprises Series A preferred
stock.
If holders of all of the Legacy debentures and Legacy notes accept the
exchange offer, Enterprises will issue approximately 3,420,636 shares of
Enterprises Series A preferred stock.
All of the Legacy debentures and Legacy notes properly tendered and not
withdrawn will be exchanged at the exchange rate, on the terms and subject to
the conditions of the exchange offer. Enterprises will promptly return any
tendered Legacy debentures and Legacy notes if the conditions to the exchange
offer are not met.
THE ENTERPRISES SERIES A PREFERRED STOCK (PAGES 106-108)
The Enterprises Series A preferred stock:
- is senior to Enterprises common stock and will be senior to Enterprises
Series B preferred stock with respect to dividends and distributions upon
liquidation, dissolution or winding up,
- has cumulative dividends payable in cash in an amount equal to $1.40 per
annum, payable quarterly,
- has a liquidation preference of $16.00 per share,
- is redeemable by Enterprises within 90 days after a change in control of
Enterprises or after August 15, 2003, and
- entitles the holder to 1/10 of one vote per share on all matters properly
brought before holders of Enterprises common stock.
In addition, in the event the merger and the sale of the Enterprises
Series B preferred stock are completed, holders of Enterprises Series A
preferred stock will be entitled to elect four of the eight directors of Price
Legacy. Until the occurrence of some events, and to vote, together
2
with the Enterprises common stock, to elect two additional directors.
THE CONSENT SOLICITATION (PAGES 41-53)
Enterprises is soliciting the consents of holders of Legacy debentures and
Legacy notes to approve the proposed amendments. The proposed amendments will
not become effective unless the conditions of the exchange offer and consent
solicitation are met and will become effective immediately following the
exchange offer and consent solicitation.
On August 3, 2001, 12,154,289 shares of Enterprises common stock were held
by Legacy and pledged as collateral for the Legacy debentures and Legacy notes.
If Enterprises receives the consent of holders of a majority of the outstanding
principal amount of both the Legacy debentures and Legacy notes to approve the
proposed amendments, Enterprises will cancel the Enterprises common stock held
by Legacy.
THE PROPOSED AMENDMENTS (PAGE 43)
The proposed amendments will amend the indentures governing the Legacy
debentures and Legacy notes to:
- release the collateral securing the securities,
- terminate the associated pledge agreements which pledge the collateral for
the benefit of holders of Legacy debentures and Legacy notes,
- delete definitions and cross-references from the indentures which would be
rendered inapplicable as a result of the proposed amendments described
above, and
- change the name of the securities to reflect that they are not secured
obligations of Legacy.
If the proposed amendments become effective, the Legacy debentures and
Legacy notes not tendered will become unsecured obligations of Legacy, a
subsidiary of Price Legacy. These amendments will have the same effect on all
holders regardless of whether they consent to the amendments.
REQUIRED CONSENTS (PAGE 44)
The consent of the holders of a majority of the outstanding principal amount
of Legacy debentures is required to approve the proposed amendments to the
indenture governing the Legacy debentures. The consent of the holders of a
majority of the outstanding principal amount of the Legacy notes is required to
approve the proposed amendments to the indenture governing the Legacy notes.
Holders of approximately $13.5 million in principal amount of Legacy
debentures, representing approximately 40.6% of the outstanding principal
amount, and of approximately $7.4 million in principal amount of Legacy notes,
representing approximately 40.8% of the outstanding principal amount, have
agreed to consent to the proposed amendments.
As of August 3, 2001, Enterprises' and Legacy's directors and executive
officers beneficially owned approximately $0.8 million in principal amount of
Legacy debentures, representing approximately 2.3% of the outstanding principal
amount of Legacy debentures, and approximately $0.4 million in principal amount
of Legacy notes, representing approximately 2.3% of the outstanding principal
amount of Legacy notes. Enterprises and Legacy have been advised that all of
their directors and executive officers intend to exchange their Legacy
debentures and Legacy notes in the exchange offer.
Holders of Legacy debentures and Legacy notes who tender their securities in
the exchange offer will be deemed to have consented to the proposed amendments
with respect to the securities tendered.
CONDITIONS TO THE EXCHANGE OFFER AND CONSENT SOLICITATION (PAGES 44-45)
The exchange offer and consent solicitation are conditioned on the
completion of the merger and other general conditions described in this consent
solicitation statement/prospectus.
3
TERMINATION OF THE EXCHANGE OFFER AND CONSENT SOLICITATION (PAGE 45)
The exchange offer and consent solicitation may be terminated at any time
prior to the expiration date if the merger agreement is terminated.
EXPIRATION DATE OF THE EXCHANGE OFFER AND CONSENT SOLICITATION (PAGE 45)
The exchange offer and the consent solicitation will expire at 5:00 p.m.,
New York City time, on September 11, 2001, unless extended.
PROCEDURES FOR TENDERING LEGACY DEBENTURES AND LEGACY NOTES AND DELIVERING
CONSENTS (PAGES 47-50)
If you want to tender your Legacy debentures and Legacy notes in the
exchange offer and deliver your consent in the solicitation you should either:
- if you hold physical certificates evidencing your Legacy debentures and
Legacy notes, complete and sign the enclosed consent and letter of
transmittal (or a facsimile thereof) in accordance with the instructions
in that document, have your signature guaranteed if required by
Instruction 1 of the consent and letter of transmittal and send or deliver
your manually signed consent and letter of transmittal (or manually signed
facsimile thereof), together with the certificates evidencing the Legacy
debentures and Legacy notes being tendered and any other required
documents to the exchange agent, or
- if you hold your Legacy debentures and Legacy notes in book-entry form,
request your broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you.
If you own Legacy debentures and Legacy notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, you
must contact that broker, dealer, commercial bank, trust company or other
nominee if you desire to tender your Legacy debentures and Legacy notes and
deliver consents.
If you are tendering your Legacy debentures and Legacy notes by book-entry
transfer to the exchange agent's account at the Depository Trust Company, or
DTC, you can execute the tender through DTC's Automated Tender Offer Program, or
ATOP, for which the transaction will be eligible. DTC participants that are
accepting the exchange offer must transmit their acceptance to DTC, which will
verify the acceptance and execute a book-entry delivery to the exchange agent's
account at DTC. DTC will then send an agent's message to the exchange agent for
its acceptance. If you tender your Legacy debentures and Legacy notes by book-
entry transfer, you will be deemed to have delivered your consent to the
proposed amendments with respect to the securities tendered.
If you desire to tender your Legacy debentures and Legacy notes in the
exchange offer and cannot comply with the procedures described in this consent
solicitation statement/ prospectus for tender or delivery on a timely basis or
if your Legacy debentures and Legacy notes are not immediately available, you
may tender your Legacy debentures and Legacy notes using the procedures for
guaranteed delivery described in this consent solicitation statement/
prospectus.
If you desire to consent to the proposed amendments without tendering your
Legacy debentures and Legacy notes, you must execute and deliver a consent and
letter of transmittal on or prior to the expiration date.
WITHDRAWAL RIGHTS AND REVOCATION OF CONSENTS (PAGES 51-52)
Tenders of Legacy debentures and Legacy notes and consents may be withdrawn
at any time prior to the expiration date. A withdrawal of tendered Legacy
debentures and Legacy notes effected on or prior to the expiration date will be
deemed a revocation of any related consent. In addition, a revocation of a
consent effected on or prior to the expiration date will be deemed a withdrawal
of any related Legacy debentures and Legacy notes.
4
ACCEPTANCE OF TENDERED LEGACY DEBENTURES AND LEGACY NOTES (PAGES 46-47)
Upon the terms of the exchange offer and consent solicitation and upon
satisfaction or waiver of the conditions to the exchange offer and consent
solicitation, Enterprises will accept for exchange Legacy debentures and Legacy
notes validly tendered and not withdrawn on or prior to the expiration date.
Only if you validly tender your Legacy debentures and Legacy notes (including a
properly completed, executed and delivered consent and letter of transmittal) on
or prior to the expiration date (and do not withdraw your tender or revoke your
consent) will you receive the exchange offer consideration. Enterprises will
make payment of the exchange offer consideration by depositing the appropriate
number of shares of Enterprises Series A preferred stock with the exchange
agent, who will act as agent for the tendering holders of Legacy debentures and
Legacy notes, for the purpose of exchanging shares of Enterprises Series A
preferred stock for Legacy debentures and Legacy notes. Assuming satisfaction or
waiver of all required conditions, Enterprises expects the exchange to be made
promptly following its acceptance of Legacy debentures and Legacy notes in the
exchange offer.
EXCHANGE AGENT AND INFORMATION AGENT (PAGE 52)
Mellon Investor Services LLC is serving as exchange agent and information
agent in connection with the exchange offer and consent solicitation. Its
address and telephone numbers are located on the back cover of this consent
solicitation statement/prospectus.
LEGACY DEBENTURES AND LEGACY NOTES NOT TENDERED IN THE EXCHANGE OFFER
(PAGES 18-20)
If you fail to tender your Legacy debentures and Legacy notes in the
exchange offer, they will remain outstanding. However, as a result of the
merger, the Legacy debentures will be convertible into Enterprises common stock.
If the requisite consents for the proposed amendments are received and the
proposed amendments become effective, the Legacy debentures and Legacy notes not
tendered will become unsecured obligations of Legacy, a subsidiary of Price
Legacy.
In addition, as a result of the completion of the exchange offer, the
aggregate principal amount of the Legacy debentures and Legacy notes that are
outstanding will be significantly reduced, which may adversely affect the
liquidity of and, consequently, the market price for the Legacy debentures and
Legacy notes, if any, that remain outstanding after completion of the exchange
offer.
THE RIGHTS OF HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES WILL CHANGE
(PAGES 114-129)
The rights of stockholders of Legacy are governed by Delaware General
Corporation Law, or the DGCL, and Legacy's charter and bylaws. Currently,
holders of the Legacy debentures may become stockholders of Legacy through the
conversion of the Legacy debentures into Legacy common stock. After tendering
your Legacy debentures and Legacy notes, your rights as a holder of Enterprises
Series A preferred stock will be governed by Maryland General Corporation Law,
or the MGCL, and Price Legacy's charter and bylaws. In addition, if you fail to
tender your Legacy debentures, you may become a stockholder of Price Legacy
through the conversion of the Legacy debentures into Enterprises common stock.
In this instance, your rights will be governed by the MGCL and Price Legacy's
charter and bylaws. Stockholders' rights under the MGCL differ from those under
the DGCL. For example, under the MGCL, the board of directors of some
corporations, including Price Legacy, may elect to classify the board and
designate the directors to serve in each class without stockholder approval, and
stockholders do not have appraisal rights with respect to stock that is not
entitled to vote on the transaction that gave rise to the appraisal rights.
Following these transactions, Price Legacy is expected to qualify as a REIT.
To qualify as a REIT, Price Legacy must distribute at least 90% of its REIT
taxable income to its stockholders (determined without regard to the dividends
paid deduction and excluding capital gains), and
5
will be subject to tax to the extent it distributes less than 100% of its REIT
taxable income. Price Legacy is expected to distribute in excess of this minimum
requirement, or approximately 100% of its REIT taxable income, to its
stockholders following the transactions. As a result, holders of Enterprises
common stock will receive distributions only if Price Legacy's REIT taxable
income exceeds $43.7 million, which is the aggregate amount of annual
distributions initially payable on the Enterprises Series A preferred stock and
Enterprises Series B preferred stock. Based on the pro forma financial
information of Price Legacy, holders of Enterprises common stock would not have
been entitled to any distributions for the quarter ended March 31, 2001 after
giving effect to the transactions.
TRADING OF THE ENTERPRISES SERIES A PREFERRED STOCK (PAGE 53)
The Enterprises Series A Preferred stock is currently traded on the Nasdaq
National Market under the symbol "PRENP." The shares of Enterprises Series A
preferred stock issued in the exchange offer will be listed on the Nasdaq
National Market.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE OFFER
(PAGES 85-92)
Enterprises and Legacy expect that the exchange of Enterprises Series A
preferred stock for Legacy debentures and Legacy notes will be a taxable
transaction for United States federal income tax purposes and may also be
taxable under applicable state, local and foreign tax laws. Tax matters are very
complicated and the tax consequences of the exchange offer and consent
solicitation to you will depend on your own personal circumstances. You should
consult your tax advisors for a full understanding of all of the tax
consequences of the exchange offer and consent solicitation to you.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 45)
For accounting purposes, neither Enterprises nor Legacy will recognize a
gain or loss as a result of the exchange offer or consent solicitation. The
amount on Legacy's accounts related to the Legacy debentures and Legacy notes
exchanged will be reclassified to the Enterprises Series A preferred stock
caption on the Price Legacy balance sheet.
REGULATORY MATTERS (PAGE 45)
Enterprises is not aware of any federal or state regulatory approvals that
must be obtained in connection with the exchange offer or consent solicitation.
NO APPRAISAL RIGHTS (PAGE 45)
Holders of Legacy debentures and Legacy notes will not have appraisal rights
as a result of the exchange offer or consent solicitation.
USE OF PROCEEDS (PAGE 53)
The Enterprises Series A preferred stock issued in connection with the
exchange offer is being issued only in exchange for Legacy debentures and Legacy
notes. Enterprises will not receive any cash proceeds from the issuance of the
Enterprises Series A preferred stock in the exchange offer.
BOARD RECOMMENDATION (PAGE 41)
AFTER CAREFUL CONSIDERATION, LEGACY'S BOARD HAS DETERMINED THAT THE EXCHANGE
OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, HOLDERS OF LEGACY DEBENTURES AND
LEGACY NOTES AND UNANIMOUSLY RECOMMENDS THAT YOU ACCEPT THE EXCHANGE OFFER AND
TENDER YOUR LEGACY DEBENTURES AND LEGACY NOTES AND CONSENT TO THE PROPOSED
AMENDMENTS.
RECENT DEVELOPMENTS
On July 30, 2001, Enterprises and Legacy released estimated second quarter
earnings. Enterprises expects that net income for the quarter ended June 30,
2001 will be $2.6 million as compared to $0.2 million for the quarter ended
June 30, 2000. Net income per common share (BASIC AND DILUTED) is expected to be
$0.19 per share for the quarter ended June 30, 2001 as compared to $0.01 per
share for the quarter ended June 30, 2000.
6
Legacy expects that net income for the quarter ended June 30, 2001 will be
$0.9 million as compared to a net loss of ($0.2) million for the quarter ended
June 30, 2000. Net income per share (BASIC AND DILUTED) is expected to be $0.01
per share for the quarter ended June 30, 2001 as compared to ($0.01) per share
for the quarter ended June 30, 2000. Legacy also announced that it is revising
its 2000 earnings to reflect a $16.2 million non-cash impairment in the fourth
quarter of fiscal year 2000 in an investment made by Legacy in a publicly-traded
company, Mace Security International, Inc. As a result of this adjustment, net
income (loss) for the twelve-month period ended December 31, 2000 will change
from $1.2 million or $0.03 per share BASIC to ($15.0) million or ($0.36) per
share BASIC and from $0.02 per share DILUTED to ($0.36) per share DILUTED as
compared to a net loss of ($0.8) million or ($0.02) per share BASIC and DILUTED
in the twelve-month period ended December 31, 1999.
On May 14, 2001, Enterprises, Swerdlow Real Estate Group, Inc. and entities
affiliated with Swerdlow entered into a purchase and sale agreement effective as
of May 7, 2001. Subject to the terms and conditions set forth in the purchase
agreement, as subsequently amended, Enterprises has the right to acquire from
Swerdlow and its affiliates up to five properties located in Florida for
aggregate consideration of $247.3 million, subject to adjustment, including the
assumption of mortgage indebtedness.
The properties are primarily retail centers that contain an aggregate of
approximately 2.4 million square feet of gross leasable area. As of May 14,
2001, four properties were operating and were approximately 97% leased to
approximately 215 tenants and one property was under development. The top five
tenants of the Swerdlow properties as of May 14, 2001, representing
approximately 31% of the gross leasable area, were Home Depot, Kmart, Ross, BJ's
Wholesale Club and Regal Cinemas.
The transaction is subject to satisfactory completion of Enterprises' due
diligence investigation of the Swerdlow properties and other customary closing
conditions. If the necessary conditions are satisfied, the transaction is
expected to be completed in the third quarter of 2001. However, no assurance can
be given that the transaction will be completed on the terms described in the
purchase agreement or in this consent solicitation statement/prospectus or at
all.
ASSUMPTIONS
Enterprises and Legacy make several assumptions throughout this consent
solicitation statement/prospectus in calculating share numbers, voting power,
distributions payable and related matters. Unless stated otherwise, Enterprises
and Legacy assume that:
- no outstanding shares of Enterprises common stock are repurchased by
Enterprises in the tender offer,
- no shares of Enterprises Series A preferred stock are exchanged for Legacy
debentures or Legacy notes in the exchange offer,
- the 12,154,289 shares of Enterprises common stock held by Legacy are
cancelled in connection with the consent solicitation,
- the Legacy promissory note payable to an affiliate of Sol Price, The Price
Group LLC, of approximately $9.3 million is converted into 1,681,142
shares of Enterprises Series B preferred stock immediately after the
closing,
- the warrants to purchase 2,733,679 shares of Enterprises common stock that
will be issued to Warburg Pincus and The Price Group have not been
exercised,
- no additional shares of Enterprises Series B preferred stock have yet been
issued as distributions on the 19,666,754 shares of Enterprises Series B
preferred stock initially sold to Warburg Pincus and The Price Group at or
immediately after the closing, and
- distributions on the Enterprises Series B preferred stock are determined
on an annualized (rather than cumulative) basis, by multiplying the first
quarter distributions payable after the closing by four.
7
STRUCTURE OF ENTERPRISES AND LEGACY
BEFORE THE MERGER AND THE SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK
Organizational chart containing the following:
Two boxes, one of which contains the text: "Legacy Common Stock (publicly
held)," and the other of which contains the text: "Legacy Debentures and Legacy
Notes (publicly held)" (footnote 1 below), that are connected by lines to a box
containing the text: "Legacy," which in turn is connected by a line (which says
"91.3% of Enterprises Common Stock" (footnote 3 below)) to a box containing the
text: "Enterprises (REIT)."
Also connected to the box containing the text: "Enterprises (REIT)," are two
other boxes, one of which contains the text: "Enterprises Series A Preferred
Stock (publicly held)," and the other of which contains the text: "Enterprises
Common Stock (publicly held)" (footnote 2 below), with the line to such box
saying "8.7% of Enterprises Common Stock."
FOLLOWING THE MERGER AND THE SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK
Organizational chart containing the following:
Three boxes, one of which contains the text: "Price Legacy Common Stock
(publicly held)," another of which contains the text: "Price Legacy Series A
Preferred Stock (publicly held)," and the last of which contains the text:
"Price Legacy Series B Preferred Stock" (footnote 4 below), that are connected
by lines to a box containing the text: "Price Legacy Corporation (REIT)," which
in turn is connected by a line to a box containing the text: "Legacy."
Also connected to the box containing the text: "Legacy," are two other boxes,
one of which contains the text "Legacy Debentures and Legacy Notes (publicly
held)," and the other of which contains the text: "Excel Legacy Holdings
(taxable REIT subsidiary)."
Footnotes:
1 ENTERPRISES IS OFFERING TO EXCHANGE SHARES OF ENTERPRISES SERIES A PREFERRED
STOCK FOR ALL OUTSTANDING LEGACY DEBENTURES AND LEGACY NOTES IN THE EXCHANGE
OFFER.
2 THE SHARES OF ENTERPRISES COMMON STOCK CURRENTLY HELD BY LEGACY SERVE AS THE
COLLATERAL SECURING THE LEGACY DEBENTURES AND LEGACY NOTES. ENTERPRISES IS
SEEKING THE CONSENT OF HOLDERS OF THE LEGACY DEBENTURES AND LEGACY NOTES TO
RELEASE THE COLLATERAL. IF THE REQUISITE CONSENT IS OBTAINED, THESE SHARES
WILL BE CANCELLED AND THE LEGACY DEBENTURES AND LEGACY NOTES WILL BECOME
UNSECURED OBLIGATIONS OF LEGACY.
3 ENTERPRISES IS OFFERING TO PURCHASE ALL OUTSTANDING SHARES OF ENTERPRISES
COMMON STOCK (OTHER THAN THOSE SHARES CURRENTLY HELD BY LEGACY AND THOSE
SHARES ISSUED IN THE MERGER) IN THE TENDER OFFER.
4 ISSUED TO WARBURG PINCUS, ITS AFFILIATES AND THE PRICE GROUP.
8
SELECTED SUMMARY HISTORICAL AND SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following tables present (1) summary historical consolidated financial
information of Enterprises, (2) summary historical consolidated financial
information of Legacy and (3) consolidated condensed summary pro forma operating
and financial information of Price Legacy, which reflects the merger, the sale
of the Enterprises Series B preferred stock, the tender offer and the
acquisition of the Swerdlow properties.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ENTERPRISES
The following table sets forth the summary historical consolidated financial
and operating information of Enterprises. Except for the three month periods
ended March 31, 2001 and 2000, the four months ended December 31, 1996 and the
funds from operations for all periods presented, the summary historical
financial information is derived from audited consolidated financial statements
of Enterprises for each period presented. The summary historical data is only a
summary, and you should read it in conjunction with the historical financial
statements and related notes contained in the annual and quarterly reports of
Enterprises which have been incorporated by reference in this consent
solicitation statement/prospectus.
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------
2001 2000 2000 1999 1998 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
SELECTED INCOME
STATEMENT DATA
Rental revenues........... $17,781 $17,471 $70,771 $66,667 $62,485 $56,067
Operating income.......... 10,244 10,501 41,847 35,143 31,393 23,289
Income from continuing
operations.............. 8,739 9,171 34,292 32,671 29,429 29,003
Discontinued operations... -- -- -- -- -- (1,625)
Net income................ 8,739 9,171 34,292 32,671 29,429 27,378
Net income (loss) from
continuing operations
per share:
Basic................... 0.03 0.06 0.07 (0.05) 0.97 1.23
Diluted................. 0.03 0.06 0.07 (0.05) 0.96 1.23
Weighted average number of
shares of common stock
outstanding:
Basic................... 13,309 13,309 13,309 13,309 21,688 23,480
Diluted................. 13,309 13,309 13,309 13,309 22,010 23,480
Cash dividends per share:
Common stock............ -- -- -- -- -- 1.25
Series A preferred
stock................. 0.35 0.35 1.40 1.40 1.40 --
OTHER DATA
Funds from operations
(a)..................... 2,957 3,151 10,566 6,516 34,093 41,428
Cash flow provided by
operating activities.... 8,302 8,733 35,223 43,660 40,427 39,057
Cash flow (used in)
provided by investing
activities.............. (43,080) (21,178) (36,005) (1,275) (72,127) 33,904
Cash flow provided by
(used in) financing
activities.............. 11,369 11,681 48,633 (43,931) 8,388 (81,789)
FOUR MONTHS
ENDED YEAR ENDED
DECEMBER 31 AUGUST 31
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
SELECTED INCOME
STATEMENT DATA
Rental revenues........... $18,170 $18,941 $56,838 $56,221
Operating income.......... 9,045 8,178 22,422 5,829
Income from continuing
operations.............. 17,508 7,590 19,085 8,340
Discontinued operations... -- (3,235) (4,860) (8,250)
Net income................ 17,508 4,355 14,225 90
Net income (loss) from
continuing operations
per share:
Basic................... 0.74 0.33 0.82 0.36
Diluted................. 0.73 0.32 0.82 0.36
Weighted average number of
shares of common stock
outstanding:
Basic................... 23,675 23,298 23,354 23,262
Diluted................. 23,919 23,620 23,354 23,380
Cash dividends per share:
Common stock............ 0.35 0.30 1.20 --
Series A preferred
stock................. -- -- -- --
OTHER DATA
Funds from operations
(a)..................... 13,204 14,092 42,315 40,342
Cash flow provided by
operating activities.... 13,269 10,847 36,635 22,612
Cash flow (used in)
provided by investing
activities.............. (18,906) 16,088 68,898 8,548
Cash flow provided by
(used in) financing
activities.............. (7,360) (6,562) (80,991) (15,702)
9
AS OF
MARCH 31 AS OF DECEMBER 31 AS OF AUGUST 31
-------- ----------------------------------------- -------------------
2001 2000 1999 1998 1997 1997 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR NUMBER OF PROPERTIES)
SELECTED BALANCE SHEET DATA
Real estate assets, net................. $570,323 $545,800 $550,869 $418,507 $353,056 $337,139 $337,098
Total assets............................ 682,820 662,405 562,558 457,352 408,478 403,757 540,325
Mortgages and notes payable............. 150,591 150,709 8,841 8,911 -- -- --
Series A preferred stock................ 353,404 353,404 353,404 353,404 -- -- --
Stockholders' equity.................... 464,235 463,109 461,260 344,811 406,624 396,476 532,899
Number of properties at the end of each
period (b)............................ 31 31 32 32 28 27 25
--------------------------
(a) Enterprises measures its economic profitability based on funds from
operations, or FFO. Enterprises' management believes that FFO provides
investors with an additional basis to evaluate Enterprises' ability to
service debt and to fund acquisitions and other capital expenditures. The
Board of Governors of the National Association of Real Estate Investment
Trusts, or NAREIT, defines FFO as net income in accordance with accounting
principles generally accepted in the United States, or GAAP, excluding
depreciation and amortization expense, and gains (losses) from sales of
depreciable operating real estate. Enterprises calculates FFO in accordance
with the NAREIT definition, as further adjusted for provisions for asset
impairments and gain (losses) from sales of investments and income taxes for
periods prior to August 31, 1997, the date Enterprises became a REIT. FFO
does not represent cash flows from operations as defined by GAAP, may not be
comparable to similarly titled measures of other companies and should not be
construed by investors as an alternative to operating income or cash flow.
Excluded from FFO are significant components in understanding and assessing
Enterprises' financial performance. Below is a reconciliation of FFO:
THREE MONTHS FOUR MONTHS
ENDED ENDED
MARCH 31 YEAR ENDED DECEMBER 31 DECEMBER 31
------------------- ----------------------------------------- -------------------
2001 2000 2000 1999 1998 1997 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Net income................ $8,739 $9,171 $34,292 $32,671 $29,429 $27,378 $17,508 $ 4,355
Depreciation and
amortization............ 2,226 2,289 9,558 11,825 12,471 9,877 3,326 3,299
Enterprises' share of
depreciation of joint
ventures................ 259 15 240 -- -- -- -- --
(Gain) loss on sale/
impairment of real
estate and
investments............. 91 -- (164) (4,717) -- 2,179 -- (2,071)
Other (primarily income
taxes).................. -- -- -- -- 509 1,984 (7,630) 8,509
Preferred dividends....... (8,358) (8,324) (33,360) (33,263) (8,316) -- -- --
------ ------ ------- ------- ------- ------- ------- -------
FFO....................... $2,957 $3,151 $10,566 $ 6,516 $34,093 $41,418 $13,204 $14,092
====== ====== ======= ======= ======= ======= ======= =======
YEAR ENDED
AUGUST 31
-------------------
1997 1996
-------- --------
Net income................ $14,225 $ 90
Depreciation and
amortization............ 9,860 10,071
Enterprises' share of
depreciation of joint
ventures................ -- --
(Gain) loss on sale/
impairment of real
estate and
investments............. 107 16,136
Other (primarily income
taxes).................. 18,123 14,045
Preferred dividends....... -- --
------- -------
FFO....................... $42,315 $40,342
======= =======
(b) Excludes real estate held by joint ventures which are not consolidated on
Enterprises' financial statements.
10
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LEGACY
The following table sets forth the summary historical consolidated financial
and operating information of Legacy. Except for the earnings before
depreciation, amortization and deferred taxes information and the financial
information for the three month periods ended March 31, 2001 and 2000, the
summary historical financial information is derived from audited consolidated
financial statements of Legacy for each period presented. The summary historical
data is only a summary, and you should read it in conjunction with the
historical financial statements and related notes contained in the annual and
quarterly reports of Legacy which have been incorporated by reference in this
consent solicitation statement/prospectus.
THREE MONTHS YEAR ENDED FIVE MONTHS PERIOD FROM
ENDED DECEMBER 31 ENDED NOVEMBER 17,
MARCH 31 --------------------- DECEMBER 31 1997 TO JULY 31,
------------------- 2000 ------------ -----------------
2001 2000 (RESTATED) 1999 1998 1998
-------- -------- ---------- -------- ------------ -----------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
SELECTED STATEMENT OF OPERATIONS DATA
Total revenue.................................... $ 3,666 $ 3,693 $18,497 $25,917 $15,010 $ 8,145
Total operating expenses......................... (4,859) (6,170) (43,378) (25,436) (13,754) (5,267)
Gain (loss) from real estate sales and write-off
of real estate related costs................... 114 1,880 8,715 (1,765) -- --
-------- ------- ------- ------- ------- --------
Net income (loss) before income taxes............ (1,079) (597) (16,166) (1,284) 1,256 2,878
(Provision) benefit of income taxes.............. 506 224 1,167 507 (535) (1,143)
-------- ------- ------- ------- ------- --------
Net income (loss)................................ (573) (373) (14,999) (777) 721 1,735
======== ======= ======= ======= ======= ========
Net income (loss) per share:
Basic.......................................... (0.01) (0.01) (0.36) (0.02) 0.02 0.11
Diluted........................................ (0.01) (0.01) (0.36) (0.02) 0.01 0.07
Weighted average number of shares:
Basic.......................................... 61,541 36,893 41,847 33,985 33,458 15,842
Diluted........................................ 61,541 36,893 61,553 33,985 54,768 25,984
Other Data
Earnings before depreciation, amortization and
deferred taxes (c)............................. 1,363 2,049 (5,781) 3,674 2,712 2,994
Cash dividends paid............................ -- -- -- -- -- --
Cash flow (used in) provided by operating
activities................................... (2,269) (268) (296) 79 (4,045) 3,385
Cash flow (used in) investing activities....... (17,409) (6,418) (5,101) (13,658) (8,681) (116,751)
Cash flow provided by financing activities..... 19,283 7,693 5,099 13,959 2,622 124,857
AS OF MARCH 31 AS OF DECEMBER 31
--------------- -------------------------------- AS OF JULY 31
2001 2000 --------------
(RESTATED) (RESTATED) 1999 1998 1998
--------------- ---------- -------- -------- --------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF PROPERTIES)
SELECTED BALANCE SHEET DATA
Net real estate.................................... $106,042 $ 96,133 $102,191 $190,878 $175,756
Total assets....................................... 324,501 308,369 328,153 261,296 246,916
Mortgages and notes payable........................ 131,672 112,389 137,806 90,986 72,714
Stockholders' equity............................... 177,708 178,383 180,039 166,640 165,919
Number of properties at the end of each period
(d).............................................. 8 9 16 31 30
------------------------------
(c) Legacy measures its economic profitability based on earnings before
depreciation, amortization and deferred taxes, or EBDADT. Legacy's
management believes that EBDADT provides investors with an additional basis
to evaluate Legacy's ability to service debt and to fund acquisitions and
other capital expenditures. Legacy defines EBDADT consistent with the NAREIT
definition of FFO except it does not exclude gains (losses) from sales of
depreciable operating real estate since it considers real estate sales part
of its operating business, and it excludes deferred tax expense since this
is a non-cash item. EBDADT does not represent cash flows from operations as
defined by GAAP, may not be comparable to similarly titled measures of other
companies and should not be construed by investors as an alternative to
operating income or cash flow.
11
Excluded from EBDADT are significant components in understanding and
assessing Legacy's financial performance. Below is a reconciliation of
EBDADT:
THREE MONTHS YEAR ENDED FIVE MONTHS PERIOD FROM
ENDED DECEMBER 31 ENDED NOVEMBER 17,
MARCH 31 --------------------- DECEMBER 31 1997 TO JULY 31,
------------------- 2000 ------------ ----------------
2001 2000 (RESTATED) 1999 1998 1998
-------- -------- ---------- -------- ------------ ----------------
(IN THOUSANDS)
Net income (loss)................................. $ (573) $ (373) $ (14,999) $ (777) $ 721 $1,735
Depreciation and amortization..................... 338 411 1,562 3,220 1,918 1,057
Legacy share of depreciation and amortization from
equity investments:
Enterprises..................................... 2,032 2,090 8,726 992 -- --
Other........................................... 133 194 696 121 -- --
Less depreciation of non-real estate assets....... (55) (49) (211) (83) (43) (7)
Deferred tax expense.............................. (512) (224) (1,555) 201 116 209
------ ------ --------- -------- ------ ------
EBDADT............................................ $1,363 $2,049 $ (5,781) $ 3,674 $2,712 $2,994
====== ====== ========= ======== ====== ======
------------------------------
(d) Excludes real estate held by joint ventures which are not consolidated on
Legacy's financial statements.
12
CONSOLIDATED CONDENSED SUMMARY PRO FORMA OPERATING AND FINANCIAL INFORMATION OF
PRICE LEGACY
The following tables set forth summary consolidated pro forma operating and
financial information of Price Legacy as of March 31, 2001 and for the year
ended December 31, 2000 and the three months ended March 31, 2001 as if the
merger, the sale of the Enterprises Series B preferred stock, the tender offer
and the acquisition of the Swerdlow properties had occurred on March 31, 2001
for balance sheet data and January 1, 2000 for income statement data. The pro
forma data may not be indicative of the actual results or financial position had
the merger, the sale of the Enterprises Series B preferred stock, the tender
offer and the acquisition of the Swerdlow properties occurred on the dates
indicated. The summary consolidated pro forma operating and financial
information is only a summary, and you should read it in conjunction with the
consolidated historical financial statements and related notes contained in the
annual and quarterly reports of Enterprises and Legacy which have been
incorporated by reference in this consent solicitation statement/prospectus. See
"Unaudited Pro Forma Operating and Financial Information" for a more detailed
explanation of this analysis.
SUMMARY PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
AS OF
MARCH 31, 2001
--------------
(IN THOUSANDS)
ASSETS
Real estate, net............................................ $ 950,712
Cash........................................................ 60,893
Investment in real estate joint ventures.................... 36,495
Investment in securities.................................... 2,741
Accounts receivable, net.................................... 4,510
Notes receivable............................................ 59,598
Other assets................................................ 40,687
----------
Total assets.............................................. $1,155,636
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable............................... $ 435,352
Senior notes and convertible debentures................... 51,307
Other liabilities......................................... 16,316
----------
502,975
----------
Minority interests........................................ 595
Stockholders' equity:
Series A preferred stock.................................. 353,404
Series B preferred stock.................................. 105,262
Common stock.............................................. 4
Additional paid-in capital................................ 202,501
Warrants.................................................. 3,085
Accumulated deficit....................................... (2,502)
Notes receivable--purchase of shares...................... (9,688)
----------
Total stockholders' equity.............................. 652,066
----------
Total liabilities and stockholders' equity.............. $1,155,636
==========
See "Unaudited Pro Forma Operating and Financial Information--Notes and
Management's Assumptions to Pro Forma Consolidated Condensed Financial
Information--Unaudited."
13
SUMMARY PRO FORMA CONSOLIDATED CONDENSED INCOME STATEMENT (UNAUDITED)
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 2000 MARCH 31, 2001
----------------- --------------
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
Revenues:
Rental and other operating income......................... $109,881 $ 26,649
Interest and other........................................ 8,809 2,400
-------- --------
Total revenue........................................... 118,690 29,049
-------- --------
Expenses:
Provision for investment impairment....................... 18,993 --
Property and other expenses............................... 32,193 8,103
Interest.................................................. 35,279 8,232
Depreciation and amortization............................. 14,910 3,493
General and administrative................................ 5,870 1,575
-------- --------
107,245 21,403
-------- --------
Income before gain on sale of real estate and investments,
net....................................................... 11,445 7,646
Gain on sale of real estate and investments, net............ 6,999 23
-------- --------
Income before income taxes.................................. 18,444 7,669
Benefit for income taxes.................................. 1,919 506
-------- --------
Net income.................................................. 20,363 8,175
Dividends to preferred stockholders......................... (43,193) (10,816)
-------- --------
Net loss applicable to common stockholders.................. $(22,830) $ (2,641)
-------- --------
Basic net loss per common share............................. $ (0.56) $ (0.06)
-------- --------
Diluted net loss per common share........................... $ (0.56) $ (0.06)
======== ========
Pro forma weighted average number of common shares:
Basic..................................................... 41,036 41,024
Diluted................................................... 61,618 62,764
See "Unaudited Pro Forma Operating and Financial Information--Notes and
Management's Assumptions to Pro Forma Consolidated Condensed Financial
Information--Unaudited."
14
COMPARATIVE PER SHARE DATA
The following table summarizes certain historical per share data of
Enterprises and Legacy and the combined per share data on an unaudited pro forma
basis. You should read the information below along with the selected historical
consolidated financial information and the unaudited pro forma consolidated
condensed financial information included elsewhere in this consent solicitation
statement/ prospectus. The pro forma consolidated condensed financial
information is not necessarily indicative of the operating results of future
operations or the actual results that would have occurred at the beginning of
the periods presented.
THREE MONTHS ENDED MARCH 31, 2001 YEAR ENDED DECEMBER 31, 2000
----------------------------------------- -----------------------------------------
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA(1) EQUIVALENT(2) HISTORICAL PRO FORMA(1) EQUIVALENT(2)
---------- ------------ ------------- ---------- ------------ -------------
Book value per share of common
stock:
Enterprises (3)............... $8.33 $4.63 $ -- $8.24 $ -- $ --
Legacy........................ 2.89 -- 3.09 2.90 -- --
Cash dividends per share of
common stock (4):
Enterprises................... -- -- -- -- -- --
Legacy........................ -- -- -- -- -- --
Net income (loss) per share of
common stock--basic:
Enterprises................... 0.03 (0.06) -- 0.07 (0.56) --
Legacy........................ (0.01) -- (0.04) (0.36) -- (0.37)
Net income (loss) per share of
common stock--diluted:
Enterprises................... 0.03 (0.06) -- 0.07 (0.56) --
Legacy........................ (0.01) -- (0.04) (0.36) -- (0.37)
------------------------
(1) See "Unaudited Pro Forma Operating and Financial Information."
(2) The equivalent pro forma share amounts of Legacy are calculated by
multiplying the pro forma consolidated book value and net income (loss) per
share by the merger exchange ratio of 0.6667 per share of Enterprises common
stock for each share of Legacy common stock.
(3) Book value per share of common stock was calculated using stockholders'
equity as reflected in the historical and pro forma financial statements
less the book value of the Enterprises Series A preferred stock, the
Enterprises Series B preferred stock and the warrants (pro forma) divided by
the number of shares of Enterprises common stock outstanding.
(4) In the three months ended March 31, 2001 and year ended December 31, 2000,
no distributions were made to common stockholders. Enterprises is required
to make cash distributions in future years to maintain its REIT status if
certain income levels are met.
15
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Enterprises' ratios of earnings to combined fixed charges and preferred
stock dividends are as follows for the periods indicated:
PERIOD FROM
THREE MONTHS NOVEMBER 12
ENDED YEAR ENDED THROUGH YEAR ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999 1998
------------ ------------ ------------ ------------
Ratios of Earnings to combined fixed charges
and preferred stock dividends............. 1.00x 0.98x 5.14x 2.82x
The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated by dividing earnings by fixed charges and preferred
stock dividends. Earnings is calculated by adding net income and fixed charges
less capitalized interest. Fixed charges includes expense and capitalized
interest.
16
COMPARATIVE PER SHARE MARKET INFORMATION
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of the Enterprises common stock, Enterprises
Series A preferred stock, Legacy common stock, Legacy debentures and Legacy
notes. The Enterprises common stock and the Enterprises Series A preferred stock
are listed on the Nasdaq National Market under the symbols "PREN" and "PRENP,"
respectively. The Legacy common stock, the Legacy debentures and the Legacy
notes are listed on the American Stock Exchange under the symbols "XLG,"
"XLG9K04" and "XLG10K04," respectively.
ENTERPRISES
ENTERPRISES SERIES A LEGACY LEGACY LEGACY
COMMON STOCK PREFERRED STOCK COMMON STOCK DEBENTURES NOTES
------------------- ------------------- ------------------- ------------------- --------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH
-------- -------- -------- -------- -------- -------- -------- -------- --------
1999
First Quarter............... $6.000 $4.344 $15.125 $13.500 $4.063 $3.063 -- -- --
Second Quarter.............. 8.000 4.875 15.500 14.313 5.688 2.875 -- -- --
Third Quarter............... 8.063 7.250 16.250 14.625 4.750 3.500 -- -- --
Fourth Quarter.............. 8.375 6.406 15.688 13.813 4.750 3.000 94.000 82.000 --
2000
First Quarter............... 7.625 7.063 14.625 13.250 4.000 3.000 84.000 76.000 85.000
Second Quarter.............. 7.500 6.500 15.375 13.625 3.500 2.500 82.000 77.000 80.000
Third Quarter............... 6.875 4.500 15.063 14.313 3.000 2.125 83.000 80.125 83.375
Fourth Quarter.............. 5.250 3.625 14.938 14.000 2.500 1.875 83.875 83.000 83.750
2001
First Quarter............... 7.000 4.875 15.375 14.375 2.750 2.100 88.250 81.000 90.000
Second Quarter.............. 6.990 6.700 15.780 14.812 2.390 2.000 90.000 88.000 92.125
Third Quarter (through
August 3, 2001)........... 6.990 6.350 16.100 15.600 2.100 2.000 97.000 90.000 97.000
LEGACY
NOTES
--------
LOW
--------
1999
First Quarter............... --
Second Quarter.............. --
Third Quarter............... --
Fourth Quarter.............. --
2000
First Quarter............... 75.000
Second Quarter.............. 72.500
Third Quarter............... 78.000
Fourth Quarter.............. 80.000
2001
First Quarter............... 81.125
Second Quarter.............. 88.000
Third Quarter (through
August 3, 2001)........... 91.250
RECENT CLOSING PRICES
The following table sets forth the last sales prices per share of
Enterprises common stock, Enterprises Series A preferred stock and Legacy common
stock as reported on the Nasdaq National Market or the American Stock Exchange,
as applicable, on (1) March 21, 2001, the last full trading day prior to the
public announcement that Enterprises and Legacy had entered into the merger
agreement and that Enterprises had entered into the securities purchase
agreement and (2) August 3, 2001, the most recent practicable date prior to the
printing of this consent solicitation statement/prospectus.
EQUIVALENT MARKET
ENTERPRISES VALUE FOR EACH
ENTERPRISES SERIES A LEGACY SHARE OF LEGACY
DATE COMMON STOCK PREFERRED STOCK COMMON STOCK COMMON STOCK
---- ------------ --------------- ------------ -----------------
March 21, 2001...................... $5.750 $14.875 $2.156 $3.834
August 3, 2001...................... $6.750 $15.810 $2.050 $4.500
17
RISK FACTORS
IN CONSIDERING WHETHER TO TENDER YOUR LEGACY DEBENTURES AND LEGACY NOTES IN
THE EXCHANGE OFFER AND CONSENT TO THE PROPOSED AMENDMENTS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS.
RISKS RELATING TO THE EXCHANGE OFFER
A FAILURE TO EXCHANGE YOUR LEGACY DEBENTURES AND LEGACY NOTES COULD
ADVERSELY AFFECT YOUR INVESTMENT.
The Legacy debentures and Legacy notes not tendered in the exchange offer
will remain outstanding obligations of Legacy, which will be a subsidiary of
Price Legacy. If the proposed amendments become effective, the Legacy debentures
and Legacy notes not tendered will be unsecured obligations of Legacy. The
release of the collateral securing the Legacy debentures and Legacy notes could
increase the credit risks faced by the holders of Legacy debentures and Legacy
notes, adversely affect the market price of these securities or otherwise be
adverse to the holders of the remaining Legacy debentures and Legacy notes.
THE ENTERPRISES SERIES A PREFERRED STOCK MAY BE SUBJECT TO GREATER RISKS
THAN THE LEGACY DEBENTURES AND LEGACY NOTES.
The Enterprises Series A preferred stock will be an equity security of Price
Legacy and is therefore subordinate to any indebtedness of Price Legacy.
Consequently, in the event of bankruptcy, dissolution, liquidation,
reorganization or similar proceeding, Price Legacy will be obligated to satisfy
the obligations of its indebtedness before any payment can be made on the
Enterprises Series A preferred stock. Instead of benefiting from the covenants
contained in the indentures governing the Legacy debentures and Legacy notes,
the rights of Price Legacy's stockholders will be governed by the MGCL and
Price Legacy's charter and bylaws.
THE REDUCED TRADING MARKET FOR THE LEGACY DEBENTURES AND LEGACY NOTES NOT
TENDERED IN THE EXCHANGE OFFER COULD ADVERSELY AFFECT THE MARKET PRICE OF THESE
SECURITIES.
If Legacy debentures and Legacy notes are tendered and accepted for exchange
in the exchange offer, the trading market could become further reduced for any
remaining Legacy debentures and Legacy notes. A debt security with a smaller
outstanding principal amount available for trading may command a lower price
than would a comparable debt security with a greater public float. Accordingly,
the market price of any Legacy debentures and Legacy notes not tendered in the
exchange offer could be adversely affected. In addition, the reduced public
float could cause the market price of these securities to become more volatile.
THE HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES WILL RECEIVE 66.67 SHARES
OF ENTERPRISES SERIES A PREFERRED STOCK FOR EACH $1,000 IN PRINCIPAL AMOUNT
TENDERED DESPITE CHANGES IN THE MARKET VALUE OF THE LEGACY DEBENTURES, LEGACY
NOTES OR ENTERPRISES SERIES A PREFERRED STOCK.
Each $1,000 in principal amount of Legacy debentures and Legacy notes
tendered will be exchanged for 66.67 shares of Enterprises Series A preferred
stock in the exchange offer. This exchange ratio is fixed and will not be
adjusted for changes in the market price of the Legacy debentures, Legacy notes
or Enterprises Series A preferred stock.
Consequently, the specific dollar value of the Enterprises Series A
preferred stock to be received by Legacy's debtholders will depend on the market
value of the Enterprises Series A preferred stock at the date of exchange and
may decrease from the date that you tender your Legacy debentures and Legacy
notes. You are urged to obtain recent market quotations for the Legacy
debentures, Legacy notes and Enterprises Series A preferred stock. Enterprises
cannot predict or give any assurances as to the market price of the Enterprises
Series A preferred stock at any time before or after the exchange offer.
18
THE MARKET PRICE OF THE ENTERPRISES COMMON STOCK, INTO WHICH THE OUTSTANDING
LEGACY DEBENTURES WILL BE CONVERTIBLE, AND THE ENTERPRISES SERIES A PREFERRED
STOCK MAY DECLINE AS A RESULT OF THE TRANSACTIONS.
The market price of the Enterprises common stock and the Enterprises
Series A preferred stock may decline as a result of the merger and the sale of
the Enterprises Series B preferred stock for a number of reasons, including if:
- the integration of Enterprises and Legacy is not completed in a timely and
efficient manner,
- Price Legacy does not achieve the perceived benefits of the merger as
rapidly or to the extent anticipated by financial or industry analysts,
- the effect of the transactions on Price Legacy's financial results is not
consistent with the expectations of financial or industry analysts, or
- significant stockholders of Price Legacy decide to dispose of their shares
following the transactions.
THE MARKET PRICE OF THE ENTERPRISES COMMON STOCK, INTO WHICH THE OUTSTANDING
LEGACY DEBENTURES WILL BE CONVERTIBLE, MAY HAVE INCREASED AS A RESULT OF THE
ANNOUNCEMENT OF THE TENDER OFFER AND MAY DECLINE FOLLOWING THE COMPLETION OF THE
TENDER OFFER AND THE ISSUANCE OF ADDITIONAL SHARES OF ENTERPRISES COMMON STOCK
IN THE MERGER.
The closing price of the Enterprises common stock increased from $5.75 per
share on March 21, 2001 (the day immediately prior to the public announcement of
the merger agreement) to $6.83 per share on March 22, 2001. On August 3, 2001,
the closing price of the Enterprises common stock was $6.75 per share.
Enterprises and Legacy believe that this increase in market price is largely a
result of the announcement of Enterprises' offer to purchase all outstanding
shares of Enterprises common stock (other than those shares currently held by
Legacy and those shares issued in the merger) at a cash price of $7.00 per
share. As a result, the market price of the Enterprises common stock may decline
following the completion of the tender offer and the issuance of additional
shares of Enterprises common stock in the merger.
THE EXCHANGE OF ENTERPRISES SERIES A PREFERRED STOCK FOR LEGACY DEBENTURES
AND LEGACY NOTES IS A TAXABLE TRANSACTION.
Enterprises and Legacy expect that the exchange of Enterprises Series A
preferred stock for Legacy debentures and Legacy notes will be a taxable
transaction for United States federal income tax purposes and may also be
taxable under applicable state, local and foreign tax laws. If you tender Legacy
debentures and Legacy notes in the exchange offer, you may be required to pay
income tax on any gain realized in the exchange. The circumstances of individual
holders may vary, so it is important that you consult your own tax advisor
regarding the tax consequences of tendering Legacy debentures and Legacy notes
in the exchange offer.
THE INTERNAL REVENUE SERVICE MAY CHALLENGE THE TAX-FREE NATURE OF THE
ADOPTION OF THE PROPOSED AMENDMENTS AND, IF THIS CHALLENGE WERE SUCCESSFUL,
HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES WHO DO NOT TENDER THEIR SECURITIES
IN THE EXCHANGE OFFER MAY BE REQUIRED TO PAY INCOME TAX ON ANY GAIN REALIZED AS
A RESULT OF THE ADOPTION OF THE PROPOSED AMENDMENTS.
Legacy has not obtained an opinion of counsel and will not seek a ruling
from the Internal Revenue Service that the adoption of the proposed amendments
to the indentures governing the Legacy debentures and Legacy notes (1) will not
cause a deemed exchange of the Legacy debentures and Legacy notes for new Legacy
debentures and Legacy notes and, as a result, (2) will be tax-free to holders of
Legacy debentures and Legacy notes. As a result, the Internal Revenue Service
may later challenge the tax-free nature of the adoption of the proposed
amendments. If so, holders of Legacy debentures and Legacy notes who do not
tender their Legacy debentures and Legacy notes in the
19
exchange offer may be required to pay income tax on any gain realized as a
result of the adoption of the proposed amendments. The circumstances of
individual holders may vary, so it is important that you consult your own tax
advisor regarding the tax consequences of the adoption of the proposed
amendments.
IF THE TRANSACTIONS ARE COMPLETED, HOLDERS OF ENTERPRISES COMMON STOCK, INTO
WHICH THE OUTSTANDING LEGACY DEBENTURES WILL BE CONVERTIBLE, WILL RECEIVE
DISTRIBUTIONS ONLY IF PRICE LEGACY'S REIT TAXABLE INCOME EXCEEDS THE
DISTRIBUTIONS IT IS REQUIRED TO PAY TO THE HOLDERS OF ENTERPRISES SERIES A
PREFERRED STOCK AND ENTERPRISES SERIES B PREFERRED STOCK.
After the transactions, the rights of holders of Enterprises common stock
will be subject to the existing senior rights of holders of Enterprises
Series A preferred stock and to senior rights of holders of the newly-issued
Enterprises Series B preferred stock. Holders of Enterprises Series B preferred
stock will have preferential rights with respect to Enterprises common stock in
the case of distributions, as well as distributions upon a liquidation of, and
some business combinations involving, Price Legacy. These preferential rights
are in addition to the rights already granted to holders of Enterprises
Series A preferred stock. Accordingly, no distributions upon liquidation may be
made to holders of Enterprises common stock until holders of Enterprises
Series A preferred stock and Enterprises Series B preferred stock have been paid
their respective liquidation preferences. As a result, it is possible that, upon
liquidation, all amounts available for holders of Price Legacy capital stock
would be paid to holders of Enterprises Series A preferred stock and, to the
extent any available funds are then remaining, to Enterprises Series B preferred
stock, with holders of Enterprises common stock receiving little or no payment
at all.
In addition, to qualify as a REIT, Price Legacy must distribute at least 90%
of its REIT taxable income to its stockholders (determined without regard to the
dividends paid deduction and by excluding capital gains), and will be subject to
tax to the extent it distributes less than 100% of its REIT taxable income.
Price Legacy is expected to distribute in excess of this minimum requirement, or
approximately 100% of its REIT taxable income, to its stockholders following the
transactions. As a result, holders of Enterprises common stock will receive
distributions only if Price Legacy's REIT taxable income exceeds $43.7 million,
which is the aggregate amount of annual distributions initially payable on the
Enterprises Series A preferred stock and Enterprises Series B preferred stock.
Following the completion of the transactions, affiliates of Price Legacy
will hold approximately 71.3% of Price Legacy's preferred stock, entitling them
to an aggregate of approximately $26.1 million per year in distributions. In
addition, the voting power and distributions payable to these stockholders will
increase as a result of the additional shares of Enterprises Series B preferred
stock payable to them as distributions.
Based on the pro forma financial information of Price Legacy, holders of
Enterprises common stock would not have been entitled to any distributions for
the quarter ended March 31, 2001 after giving effect to the transactions.
HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES WHO TENDER THEIR SECURITIES IN
THE EXCHANGE OFFER WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSED AMENDMENTS.
Holders who tender their Legacy debentures and Legacy notes in the exchange
offer will be deemed to have consented to the proposed amendments to release the
collateral securing these securities. If the proposed amendments become
effective, the Legacy debentures and Legacy notes not tendered will become
unsecured obligations of Legacy, a subsidiary of Price Legacy. Holders may not
tender their securities without providing their consent. Approval of the
amendments may be more likely as a result of this deemed consent mechanism.
20
LEGACY'S BOARD DID NOT OBTAIN AN OPINION AS TO THE FAIRNESS OF THE
CONSIDERATION OFFERED BY ENTERPRISES IN THE EXCHANGE OFFER.
The exchange ratio of 66.67 shares of Enterprises Series A preferred stock
for each $1,000 in principal amount of Legacy debentures and Legacy notes was
determined by management of Enterprises and Legacy. While Legacy's board
obtained an opinion from Appraisal Economics, Inc. as to the fairness of the
merger from a financial point of view, it did not obtain any such opinion with
respect to the exchange offer. Appraisal Economics' opinion does not address the
fairness of the exchange offer. Accordingly, no third party assurance has been
given that the exchange offer is fair from a financial point of view.
RISKS RELATING TO THE BUSINESS AND OPERATIONS OF PRICE LEGACY
REAL PROPERTY INVESTMENTS ARE SUBJECT TO VARYING DEGREES OF RISK THAT MAY
AFFECT THE PERFORMANCE AND VALUE OF PRICE LEGACY'S PROPERTIES.
Price Legacy's revenue and the performance and value of its properties may
be adversely affected by a number of factors, including:
- changes in the national, regional and local economic climates,
- local conditions such as an oversupply of space or a reduction in demand
for similar or competing properties in the area,
- changes in interest rates which may render the sale and/or refinancing of
a property difficult or unattractive,
- changes in consumer spending patterns,
- the attractiveness of its properties to tenants,
- competition from other available space,
- its ability to provide adequate maintenance and insurance, and
- increased operating costs.
In addition, some significant operating expenses associated with Price
Legacy's properties, such as debt payments, maintenance, tenant improvement
costs and taxes, generally are not reduced when gross income from properties is
reduced. For example, for the three months ended March 31, 2001, Price Legacy,
on a pro forma basis, would have had property operating costs and interest
expense of $16.3 million. If Price Legacy's properties do not generate revenue
sufficient to meet operating expenses, Price Legacy may have to borrow
additional amounts to cover costs, which could harm its ability to make
distributions to its stockholders.
PRICE LEGACY FACES SIGNIFICANT COMPETITION FROM DEVELOPERS, OWNERS AND
OPERATORS OF REAL ESTATE PROPERTIES, WHICH MAY ADVERSELY AFFECT THE SUCCESS OF
ITS BUSINESS.
Price Legacy will compete in the acquisition of real estate properties with
over 200 publicly-traded REITs as well as other public and private real estate
investment entities, including mortgage banks and pension funds, and other
institutional investors, as well as individuals. Competition from these entities
may impair Price Legacy's financial condition and materially harm its business
by reducing the number of suitable investment opportunities offered to Price
Legacy and increasing the bargaining power of prospective sellers of property,
which often increases the price necessary to purchase a property. Many of Price
Legacy's competitors in the real estate sector are significantly larger than
Price Legacy and may have greater financial resources and more experienced
managers than Price Legacy.
21
In addition, a large portion of Price Legacy's developed properties will be
located in areas where competitors maintain similar properties. Price Legacy
will need to compete for tenants based on rental rates, attractiveness and
location of properties, as well as quality of maintenance and management
services. Competition from these and other properties may impair Price Legacy's
financial condition and materially harm its business by:
- interfering with Price Legacy's ability to attract and retain tenants,
- increasing vacancies, which lowers market rental rates and limits Price
Legacy's ability to negotiate favorable rental rates, and
- impairing Price Legacy's ability to minimize operating expenses.
DEVELOPMENTS IN THE RETAIL INDUSTRY COULD ADVERSELY AFFECT PRICE LEGACY'S
ABILITY TO LEASE SPACE IN ITS SHOPPING CENTERS, WHICH WOULD HARM PRICE LEGACY'S
BUSINESS.
Price Legacy will derive a substantial portion of income from tenants in the
retail industry. The market for retail space and the general economic or local
conditions of the retail industry can significantly affect the financial
performance of Price Legacy. A number of recent developments have heightened
competitive pressures in the market for retail space, including:
- consolidation among retailers,
- the financial distress of large retailers in some markets, including the
bankruptcy of some retailers,
- a proliferation of new retailers,
- a growing consumer preference for value-oriented shopping alternatives,
such as internet commerce, and
- in some areas of the country, an oversupply of retail space.
As a result of these developments, many companies in the retail industry
have encountered significant financial difficulties. Since Price Legacy will
have no control over the occurrence of these developments, Price Legacy cannot
make any assurance that its business or financial results will not be adversely
affected by these developments and the competitive pressures they create.
PRICE LEGACY WILL RELY ON COSTCO FOR 14% OF ITS REVENUE, AND ANY FINANCIAL
DIFFICULTIES FACED BY THIS TENANT MAY HARM PRICE LEGACY'S BUSINESS AND IMPAIR
ITS STOCK PRICE.
Price Legacy's financial position, results of operations and its ability to
make distributions to its stockholders may be adversely affected by financial
difficulties experienced by any of its major tenants, including Costco Wholesale
Corporation and The Sports Authority. Although failure on the part of a tenant
to materially comply with the terms of a lease, including failure to pay rent,
would give Price Legacy the right to terminate the lease, repossess the property
and enforce the payment obligations under the lease, Price Legacy could
experience substantial delays and costs in doing so. Price Legacy may not be
able to enforce the payment obligations against the defaulting tenant, find
another tenant or, if another tenant were found, enter into a new lease on
favorable terms.
After the merger, Price Legacy's largest tenant will be Costco, which
accounted for approximately 18.7% of Enterprises' total annual minimum rental
revenue for 2000 and would have accounted for approximately 11.2% of Price
Legacy's total annual minimum rental revenue for 2000 on a pro forma basis. In
addition to Price Legacy's four properties where Costco will be the major
tenant, Costco warehouses will be adjacent to an additional 12 of its
properties. If Costco or any other major tenant chooses to terminate or not to
renew its lease, the financial condition and business of Price Legacy could be
materially harmed.
22
TERMINATION OF A LEASE BY COSTCO MAY ALLOW SOME TENANTS TO REDUCE OR
TERMINATE THEIR LEASES.
If Costco were to terminate a lease with Price Legacy or a lease for space
adjacent to one or more of Price Legacy's properties, some of Price Legacy's
other tenants at these properties would have rights to reduce their rent or
terminate their leases. As of March 31, 2001, five leases, accounting for
approximately 5.1% of Enterprises' gross minimum rent, contained these types of
provisions. In addition, tenants at these properties, including those with
termination rights, could elect not to extend or renew their lease at the end of
the lease term. If any of these events occur, the financial condition and
business of Price Legacy could be materially harmed.
PRICE LEGACY'S FINANCIAL PERFORMANCE DEPENDS ON REGIONAL ECONOMIC CONDITIONS
SINCE MANY OF ITS PROPERTIES AND INVESTMENTS ARE LOCATED IN CALIFORNIA AND
ARIZONA.
Of Price Legacy's properties and real estate related investments, 28 will be
located in two states: 23 in California and five in Arizona. With such a large
number of properties and real estate related investments in these states, Price
Legacy may be exposed to greater economic risks than if they were located in
several geographic regions. Price Legacy's revenue from, and the value of, the
properties and investments located in these states may be affected by a number
of factors, including an oversupply of, or reduced demand for, real estate
properties and downturns in the local economic climate caused by high
unemployment, business downsizing, industry slowdowns, changing demographics and
other factors. A general downturn in the economy or real estate conditions in
California or Arizona could impair Price Legacy's financial condition and
materially harm its business. Further, due to the relatively high cost of real
estate in the southwestern United States, the real estate market in that region
may be more sensitive to fluctuations in interest rates and general economic
conditions than other regions of the United States. Price Legacy will not have
any limitations or targets for the concentration of the geographic location of
its properties and, accordingly, the risks associated with this geographic
concentration will increase if Price Legacy acquires additional properties in
California and Arizona.
PRICE LEGACY'S INCOME DEPENDS ON RENTAL INCOME FROM REAL PROPERTY.
The majority of Price Legacy's income will be derived from rental income
from real property. Accordingly, Price Legacy's income and funds available for
distribution would be adversely affected if a significant number of its tenants
were unable to meet their obligations to Price Legacy or if Price Legacy was
unable to lease a significant amount of space in its properties on economically
favorable lease terms. Price Legacy cannot make any assurance that any tenant
whose lease expires in the future will renew their lease or that Price Legacy
will be able to re-lease space on economically advantageous terms, if at all.
In addition, the ability of Price Legacy to lease or re-lease vacant space
will be affected by many factors, including the existence of covenants typically
found in shopping center tenant leases, such as those requiring the use of space
at the shopping center not to be competitive with another tenant. Price Legacy's
ability to lease or re-lease its properties may cause fluctuations in its cash
flow, potentially affecting the cash available for distributions to
stockholders.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS MAY MAKE IT DIFFICULT FOR PRICE
LEGACY TO SELL PROPERTIES IN RESPONSE TO MARKET CONDITIONS.
Equity real estate investments are relatively illiquid and therefore will
tend to limit Price Legacy's ability to vary its portfolio promptly in response
to changing economic or other conditions. To the extent the properties are not
subject to triple net leases, and as of March 31, 2001, on a pro forma basis, 4%
of Price Legacy's leases would not have been subject to such leases, some
significant expenditures such as real estate taxes and maintenance costs are
generally not reduced when circumstances cause a reduction in income from the
investment. Should these events occur, Price Legacy's income and funds available
for distribution could be adversely affected.
23
In addition, REIT requirements may subject Price Legacy to confiscatory
taxes on gain recognized from the sale of property if the property is considered
to be held primarily for sale to customers in the ordinary course of Price
Legacy's trade or business. To prevent these taxes, Price Legacy may comply with
safe harbor rules relating to the number of properties sold in a year, how long
Price Legacy owned the properties, their tax bases and the cost of improvements
made to those properties. However, Price Legacy cannot make any assurance that
it will be able to successfully comply with these safe harbors and, in the event
that compliance is possible, the safe harbor rules may restrict Price Legacy's
ability to sell assets in the future.
PRICE LEGACY'S SUBSTANTIAL LEVERAGE MAY BE DIFFICULT TO SERVICE AND COULD
ADVERSELY AFFECT ITS BUSINESS.
As of March 31, 2001, on a pro forma basis, Price Legacy would have had
outstanding borrowings of approximately $486.7 million, requiring an annual debt
service of approximately $38.4 million. Price Legacy is expected to be exposed
to the risks normally associated with debt financing, which may materially harm
its business, including the following:
- Price Legacy's cash flow may be insufficient to meet required payments of
principal and interest on borrowings and this insufficiency may leave
Price Legacy with insufficient cash resources to pay operating expenses,
- Price Legacy may not be able to refinance debt at maturity, and
- if refinanced, the terms of refinancing may not be as favorable as the
original terms of the debt.
RISING INTEREST RATES MAY ADVERSELY AFFECT PRICE LEGACY'S CASH FLOW AND
BUSINESS.
A large portion of Price Legacy's debt will bear interest at variable rates.
Variable rate debt creates higher debt payments if market interest rates
increase. Price Legacy may incur additional debt in the future that also bears
interest at variable rates. Higher debt payments as a result of an increase in
interest rates could adversely affect Price Legacy's cash flows, cause it to
default under some debt obligations or agreements, and materially harm its
business.
A DEFAULT ON THE LEGACY DEBENTURES OR LEGACY NOTES COULD RESULT IN
SIGNIFICANT DILUTION TO PRICE LEGACY'S STOCKHOLDERS.
The Legacy debentures and Legacy notes are secured by the Enterprises common
stock currently held by Legacy. On August 3, 2001, 12,154,289 shares of
Enterprises common stock were held by Legacy and pledged as collateral for the
Legacy debentures and Legacy notes. Although Enterprises is seeking the consent
of holders of the Legacy debentures and Legacy notes to release these shares in
connection with the exchange offer, Enterprises cannot make any assurance that
such consent will be obtained. If not obtained, these shares of Enterprises
common stock will continue to serve as collateral for the Legacy debentures and
Legacy notes. If Legacy is unable to meet its obligations under the Legacy
debentures or Legacy notes, the debtholders will have the right to take
ownership of these shares, which would cause these shares to become outstanding
voting securities equivalent in all respects to the shares of Enterprises common
stock issued in the merger. This would cause significant dilution to Price
Legacy's stockholders and require Price Legacy to issue additional shares of
Enterprises Series B preferred stock to Warburg Pincus, under the terms of the
securities purchase agreement, causing further dilution.
PRICE LEGACY FACES RISKS ASSOCIATED WITH ITS EQUITY INVESTMENTS IN AND WITH
THIRD PARTIES BECAUSE OF ITS LACK OF CONTROL OVER THE UNDERLYING REAL ESTATE
ASSETS.
As part of Price Legacy's growth strategy, it may invest, through Legacy, in
shares of REITs or other entities that invest in real estate assets. In these
cases, Price Legacy will be relying on the assets, investments and management of
the REIT or other entity in which it is investing. These entities and their
properties will be exposed to the risks normally associated with the ownership
and operation of
24
real estate. Price Legacy, through Legacy, also may invest in or with other
parties through partnerships and joint ventures. In these cases, Price Legacy
will not be the only entity making decisions relating to the property,
partnership, joint venture or other entity. Risks associated with investments in
partnerships, joint ventures or other entities include:
- the possibility that Price Legacy's partners might experience serious
financial difficulties or fail to fund their share of required investment
contributions,
- the partners might have economic or other business interests or goals
which are inconsistent with Price Legacy's business interests or goals,
resulting in impasse or decisions which are contrary to Price Legacy's
business interests or goals, and
- the partners may take action contrary to Price Legacy's instructions or
requests and adverse to its policies and objectives, including Price
Legacy's policy with respect to maintaining its qualification as a REIT.
Any substantial loss or action of this nature could potentially harm Price
Legacy's business or jeopardize its ability to qualify as a REIT. In addition,
Price Legacy may in some circumstances be liable for the actions of its
third-party partners or co-venturers.
PRICE LEGACY COULD INCUR SIGNIFICANT COSTS AND EXPENSES RELATED TO
ENVIRONMENTAL PROBLEMS.
Under various federal, state and local laws and regulations, a current or
previous owner or operator of real property, and parties that generate or
transport hazardous substances that are disposed of on real property, may be
liable for the costs of investigating and remediating these substances on or
under the property. These laws often impose liability without regard to whether
the owner or operator of the property was responsible for or even knew of the
presence of the hazardous substances. The presence of or failure to properly
remediate hazardous or toxic substances may impair Price Legacy's ability to
rent, sell or borrow against a property.
These laws and regulations also impose liability on persons who arrange for
the disposal or treatment of hazardous or toxic substances at another location
for the costs of removal or remediation of these hazardous substances at the
disposal or treatment facility. These laws often impose liability regardless of
whether the entity arranging for the disposal ever owned or operated the
disposal facility. In addition, even if more than one person was responsible for
the contamination, each person covered by the environmental laws may be held
responsible for the clean-up costs incurred. Other environmental laws and
regulations impose liability on owners or operators of property for injuries
relating to the release of asbestos-containing materials into the air.
As an owner and operator of property and as a potential arranger for
hazardous substance disposal, Price Legacy may be liable under these laws and
regulations for removal or remediation costs, governmental penalties, property
damage, personal injuries and related expenses. Payment of these costs and
expenses, which can exceed the value of the subject property, could impair Price
Legacy's financial condition, materially harm its business and have a material
adverse effect on its ability to make distributions to its stockholders. In
addition, environmental laws may impose restrictions on the manner in which
Price Legacy uses its properties or operates its business, and these
restrictions may require expenditures to achieve compliance.
THE COSTS OF COMPLIANCE WITH REGULATORY REQUIREMENTS, INCLUDING THE
AMERICANS WITH DISABILITIES ACT, COULD ADVERSELY AFFECT PRICE LEGACY'S BUSINESS.
Price Legacy's properties will be subject to various federal, state and
local regulatory requirements, including the Americans with Disabilities Act of
1990 which requires all public accommodations and commercial facilities to meet
federal requirements relating to access and use by persons with disabilities.
Compliance with the Americans with Disabilities Act requirements could involve
removal of structural barriers from disabled persons' entrances on Price
Legacy's properties. Other federal, state
25
and local laws may require modifications to or restrict further renovations of
Price Legacy's properties to provide this access. Noncompliance with the
Americans with Disabilities Act or related laws or regulations could result in
the United States government imposing fines or private litigants being awarded
damages against Price Legacy, or could result in an order to correct any
non-complying feature, which could result in substantial capital expenditures.
If Price Legacy incurs these costs and expenses, its financial condition and its
ability to make distributions to its stockholders could be impaired. In
addition, Price Legacy cannot be assured that regulatory requirements will not
be changed or that new regulatory requirements will not be imposed that would
require significant unanticipated expenditures by Price Legacy or its tenants.
Unexpected expenditures could adversely affect Price Legacy's net income and
cash available for distributions to its stockholders.
THE SUCCESS OF PRICE LEGACY'S BUSINESS DEPENDS ON THE SERVICES PROVIDED BY
ITS KEY PERSONNEL, THE LOSS OF WHOM COULD HARM ITS BUSINESS.
The success of the business of Price Legacy will depend to a large extent on
the contributions and performance of its senior management team, particularly
Gary B. Sabin, for strategic business direction and real estate experience. In
connection with the merger, Price Legacy will assume the current employment
agreements that Legacy maintains with some of its executives, which extend
through 2003 with automatic one-year renewal periods unless terminated by their
terms. Neither Enterprises nor Legacy has, and Price Legacy is not expected to
obtain, key-man life insurance for any of its senior management. If Price Legacy
loses the services of Mr. Sabin or any other members of its senior management,
its business and future development could be materially harmed.
A SMALL NUMBER OF STOCKHOLDERS WILL BE ABLE TO EXERT SIGNIFICANT INFLUENCE
OVER PRICE LEGACY, WHICH COULD MAKE IT DIFFICULT FOR PRICE LEGACY TO COMPLETE
SOME CORPORATE TRANSACTIONS WITHOUT THEIR SUPPORT.
Sol Price, Robert E. Price and individuals and entities affiliated with
them, including The Price Group, beneficially owned as of August 3, 2001 an
aggregate of 11,613,667 shares, or approximately 47.7%, of the outstanding
Enterprises Series A preferred stock. Individuals and entities affiliated with
these stockholders also beneficially own approximately $21.9 million in
principal amount of Legacy debentures and Legacy notes which are expected to be
tendered in the exchange offer for approximately 1,461,673 shares of Enterprises
Series A preferred stock. In addition, The Price Group will obtain 1,681,142
shares, or 8.5%, of Enterprises Series B preferred stock upon the conversion of
a $9.3 million Legacy promissory note, together with a warrant to purchase an
additional 233,679 shares of Enterprises common stock, and will be issued
666,080 additional shares of Enterprises Series B preferred stock over
45 months as distributions on the Enterprises Series B preferred stock.
Following the merger and the sale of the Enterprises Series B preferred
stock, Sol Price, Robert E. Price and individuals and entities affiliated with
them will control, in the aggregate, approximately 10.5% of the voting power
with respect to matters submitted to the holders of Enterprises common stock and
Enterprises Series A preferred stock, voting together as a single class. In
addition, they will control approximately 47.7% of the voting power with respect
to matters submitted solely to the holders of Enterprises Series A preferred
stock.
As a result, these stockholders could effectively control the outcome of
matters submitted solely to the holders of Enterprises Series A preferred stock
for approval, including the election of four directors to Price Legacy's board,
and significantly influence other matters submitted to the holders of
Enterprises common stock for approval. Together with Warburg Pincus, these
stockholders will have significant influence over matters brought before Price
Legacy's board, and will have the ability to influence some corporate
transactions, which may delay, discourage, deter or prevent a change of control
of Price Legacy and may make some transactions more difficult or impossible to
complete without their support. The ability of these stockholders to assert this
significant influence may depress the stock price of Price Legacy.
26
PRICE LEGACY'S CHARTER CONTAINS ANTI-TAKEOVER PROVISIONS WHICH MAY LIMIT THE
ABILITY OF A THIRD PARTY TO ACQUIRE CONTROL AND MAY PREVENT STOCKHOLDERS FROM
RECEIVING A PREMIUM FOR THEIR SHARES.
Some of the provisions of Price Legacy's charter and bylaws could delay,
discourage, deter or prevent an acquisition of its business at a premium price
and could make removal of its management more difficult. These provisions could
reduce the opportunities for Price Legacy's stockholders to participate in
tender offers, including tender offers that are priced above the then-current
market price of its common stock. In particular, Price Legacy's charter will
permit its board of directors to issue shares of preferred stock in one or more
series without stockholder approval, which could, depending on the terms of the
preferred stock, delay, discourage, deter or prevent a change in control of
Price Legacy. In addition, the MGCL will impose restrictions on mergers and
other business combinations between Price Legacy and any holder of 10% or more
of the voting power of Price Legacy's outstanding shares.
REIT RULES LIMIT THE AMOUNT OF CASH PRICE LEGACY WILL HAVE AVAILABLE FOR
OTHER BUSINESS PURPOSES, INCLUDING AMOUNTS TO FUND ITS FUTURE GROWTH, AND COULD
REQUIRE PRICE LEGACY TO BORROW FUNDS OR LIQUIDATE INVESTMENTS ON A SHORT-TERM
BASIS IN ORDER TO COMPLY WITH THE REIT DISTRIBUTION REQUIREMENT.
To qualify as a REIT, Price Legacy must distribute at least 90% of its REIT
taxable income to its stockholders (determined without regard to the dividends
paid deduction and excluding capital gains), and is subject to tax to the extent
it fails to distribute at least 100% of its REIT taxable income.
This distribution requirement will limit Price Legacy's ability to
accumulate capital for other business purposes, including amounts to fund future
growth. While Price Legacy expects its cash flow from operations to generally be
sufficient in both the short and long term to fund its operations, this
distribution requirement could cause Price Legacy:
- to sell assets in adverse market conditions,
- to distribute amounts that represent a return of capital,
- to distribute amounts that would otherwise be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt, or
- to borrow funds, issue capital stock or sell assets on a short-term basis.
In addition, from time to time, Price Legacy may not have sufficient cash or
other liquid assets to meet this distribution requirement due to differences in
timing between the recognition of taxable income and the actual receipt of cash.
For example, with respect to the partnerships and limited liability companies in
which Price Legacy will own an interest, Price Legacy may be required to
distribute a portion of its share of income from these entities regardless of
whether it receives distributions from these entities.
PRICE LEGACY'S CHARTER WILL CONTAIN RESTRICTIONS ON THE OWNERSHIP AND
TRANSFER OF PRICE LEGACY'S CAPITAL STOCK.
Due to limitations on the concentration of ownership of stock of a REIT
imposed by the Internal Revenue Code of 1986, as amended, or the Code, Price
Legacy's charter will prohibit any stockholder from (1) actually or beneficially
owning more than 5% of Price Legacy's issued and outstanding capital stock and
(2) actually or constructively owning more than 9.8% of Price Legacy's issued
and outstanding capital stock, except for stockholders who have received a
waiver from these ownership limits from Price Legacy's board. These ownership
limits also apply separately to each class of Price Legacy's preferred stock,
including the Enterprises Series A preferred stock and the Enterprises Series B
preferred stock.
Price Legacy's charter will also prohibit anyone from buying shares if the
purchase would result in Price Legacy losing its REIT status. This could happen
if a share transaction results in (1) fewer than
27
100 persons owning all of Price Legacy's shares, (2) five or fewer persons
owning 50% or more of the value of Price Legacy's shares or (3) Price Legacy
having a related party tenant.
If a stockholder acquires shares in violation of the charter by way of
transfer or otherwise, the shares which cause the owner to violate the ownership
limitations will be automatically transferred to a trust for the benefit of a
qualified charitable organization. Following such transfer, the stockholder will
have no right to vote these shares or be entitled to dividends or other
distributions with respect to these shares. Within 20 days after receiving
notice from Price Legacy of the transfer of shares to the trust, the trustee of
the trust will sell the excess shares and generally will distribute to such
stockholder an amount equal to the lesser of the price paid by the stockholder
for the excess shares (except in the case of a gift or similar transfer, in
which case, an amount equal to the market price) or the sale proceeds received
by the trust for the shares.
ENTERPRISES' FAILURE TO DISTRIBUTE ITS C CORPORATION EARNINGS AND PROFITS IN
1997 COULD CAUSE ENTERPRISES TO FAIL TO QUALIFY AS A REIT.
At the end of any taxable year, a REIT may not have any undistributed
earnings and profits attributable to a C corporation taxable year (i.e., a year
in which a corporation is neither a REIT nor an S corporation). Enterprises was
a C corporation prior to the time it elected to be taxed as a REIT commencing
with its short taxable year ending December 31, 1997. Accordingly, by the end of
1997, Enterprises was required to distribute to its stockholders its C
corporation earnings and profits. Enterprises believes that it did not have any
C corporation earnings and profits in its first taxable year as a REIT. However,
the determination of earnings and profits for federal income tax purposes is
extremely complex and Enterprises' computations of its C corporation earnings
and profits are not binding on the Internal Revenue Service. Should the Internal
Revenue Service successfully assert that Enterprises had C corporation earnings
and profits at the end of its first taxable year as a REIT, Enterprises may fail
to qualify as a REIT.
IF ENTERPRISES OR PRICE LEGACY FAILS TO QUALIFY AS A REIT UNDER THE CODE,
THAT FAILURE COULD MATERIALLY HARM ITS BUSINESS.
Enterprises believes that it has been organized and has operated in a manner
which allows it to qualify for taxation as a REIT under the Code commencing with
its short taxable year ended December 31, 1997. After the transactions, Price
Legacy is expected to qualify as a REIT under the Code. Qualification as a REIT
requires a company to satisfy numerous requirements, which are highly technical
and complex. In addition, legislation, new regulations, administrative
interpretations or court decisions may adversely affect, possibly retroactively,
Enterprises' or Price Legacy's ability to qualify as a REIT for federal income
tax purposes. For example, one of the REIT requirements, the "five-fifty test,"
requires that no more than 50% of the value of a REIT's outstanding capital
stock may be owned directly or indirectly, applying various constructive
ownership rules, by five or fewer individuals at any time during the last half
of a REIT's taxable year. While Legacy owns 91.3% of the Enterprises common
stock, it only owns approximately 17.4% of the value of Enterprises' outstanding
capital stock. Because Legacy is a corporation, its ownership of the Enterprises
common stock is not taken into account for purposes of the five-fifty test.
Instead, stock owned by Legacy is treated as owned proportionately by Legacy
stockholders. Enterprises believes that the indirect ownership of its stock by
the Legacy stockholders will not prevent it from satisfying the five-fifty test.
Enterprises' charter provides for, and Price Legacy's charter will provide for,
restrictions regarding ownership and transfer of shares that are intended to
assist it in continuing to satisfy the five-fifty test. These restrictions,
however, may not ensure that Enterprises has satisfied or Price Legacy will be
able to satisfy, in all cases, the five-fifty test. If Enterprises or Price
Legacy fails to satisfy the five-fifty test, its status as a REIT may terminate.
Other REIT requirements restrict the type of assets that a REIT may own and
the type of income that a REIT may receive. These restrictions will apply to all
of Price Legacy's assets and income,
28
including the assets it acquires from Legacy and the income derived from those
assets. However, these asset and income requirements do not apply to assets
Price Legacy elects to hold in a taxable REIT subsidiary. Legacy currently holds
certain assets and derives income from certain of its businesses and assets
which, if held or received by Price Legacy directly, could jeopardize Price
Legacy's status as a REIT. To maintain Price Legacy's status as a REIT,
(1) Legacy will transfer these assets and businesses to Excel Legacy
Holdings, Inc., a wholly-owned subsidiary of Legacy, prior to the effective time
of the merger, and (2) Legacy Holdings is expected to elect to be treated as a
taxable REIT subsidiary of Price Legacy effective at the time of the merger.
If a company fails to qualify as a REIT in any taxable year, including
failing to comply with the REIT distribution requirements, it may, among other
things:
- not be allowed a deduction for distributions to stockholders in computing
its taxable income,
- be subject to federal income tax, including any applicable alternative
minimum tax, on its taxable income at regular corporate rates,
- not be required to make distributions to stockholders,
- be subject to increased state and local taxes, and
- be disqualified from treatment as a REIT for the taxable year in which it
lost its qualification and the four taxable years following the year in
which it lost its qualification.
As a result of these factors, Enterprises' or Price Legacy's failure to
qualify as a REIT also could impair its ability to expand its business and raise
capital, could substantially reduce the funds available for distribution to its
stockholders, could reduce the trading price of Price Legacy's stock following
the merger and materially harm Price Legacy's business. If Enterprises failed to
qualify as a REIT prior to the merger, Price Legacy would be required to pay any
resulting tax, and such tax could be material. See "Material Federal Income Tax
Consequences Related to Price Legacy--Taxation of Price Legacy--General."
29
FORWARD-LOOKING STATEMENTS
Any statements in this consent solicitation statement/prospectus and the
documents incorporated by reference in this consent solicitation
statement/prospectus about Enterprises', Legacy's or Price Legacy's
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and are forward-looking statements. These
statements are often, but not always, made through the use of words or phrases
such as "believe," "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intend," "plan," "projection," "would" and "outlook."
Accordingly, these statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
them. Any forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this consent solicitation
statement/prospectus. The following cautionary statements identify important
factors that could cause Enterprises', Legacy's and Price Legacy's actual
results to differ materially from those projected in the forward-looking
statements made in this document. Among the key factors that have a direct
bearing on Enterprises', Legacy's and Price Legacy's results of operations are:
- the effect of economic, credit and capital market conditions in general
and on real estate companies in particular, including changes in interest
rates,
- Price Legacy's ability to compete effectively,
- developments in the retail industry,
- greater than expected costs related to the merger or Price Legacy's
failure to achieve the expected benefits of the merger,
- government approvals, actions and initiatives, including the need for
compliance with environmental requirements,
- Price Legacy's ability to qualify as a REIT, and
- other risk factors described under "Risk Factors" in this consent
solicitation statement/ prospectus.
These factors could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements made by Enterprises,
Legacy or Price Legacy, and you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and Enterprises, Legacy and Price Legacy
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. In addition, Enterprises and
Legacy cannot assess the impact of each factor on their business or the business
of Price Legacy or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statements contained in this consent solicitation
statement/prospectus.
30
BACKGROUND AND REASONS FOR THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
In late June 2000, Gary B. Sabin, Chairman, President and Chief Executive
Officer of Legacy and President and Chief Executive Officer of Enterprises and
Richard B. Muir, Executive Vice President, Chief Operating Officer and Secretary
of Legacy and Executive Vice President and Chief Operating Officer of
Enterprises, at the request of Melvin L. Keating, President of Kadeca Consulting
Corporation, a real estate consulting firm, acting on behalf of E.M. Warburg,
Pincus & Co., LLC, met with Reuben S. Leibowitz of Warburg Pincus and
Mr. Keating in New York City to discuss a possible investment by Warburg Pincus
in Legacy. Specifically, the parties discussed a potential investment of
approximately $100 million by a Warburg Pincus investment partnership in
exchange for shares of either common stock or a new preferred stock of Legacy.
At the conclusion of the meeting, each party indicated an initial willingness to
further pursue such a transaction.
Representatives of Legacy and Warburg Pincus did not meet again until
August 3, 2000. On that date, at the request of Mr. Keating, Mr. Sabin and other
senior management of Legacy and Enterprises met with Messrs. Leibowitz and
Keating in San Diego to further discuss the potential Warburg Pincus investment
in Legacy. The parties discussed, among other things, the potential terms of the
investment and various aspects of Legacy's and Enterprises' respective
businesses. Mr. Sabin indicated to Warburg Pincus that he would discuss the
potential investment with Legacy's board.
On September 18, 2000, Legacy held a board meeting at which time Mr. Sabin
described his discussions with Warburg Pincus to date. After a discussion of the
potential terms of such a transaction, Legacy's board directed Mr. Sabin to
continue to move forward with the Warburg Pincus investment, if such an
investment could be made on favorable terms. Mr. Sabin agreed to report back to
Legacy's board and update the board with any significant progress. Following
this meeting, Warburg Pincus began to visit Legacy's and Enterprises' properties
to begin its due diligence.
Between September 21 and September 28, 2000, Mr. Keating and Ian C. Morgan,
an associate at Warburg Pincus, visited existing properties of Enterprises in
San Diego, California, development sites of Enterprises in Pentagon City,
Virginia, and development sites of Legacy in Anaheim, California, Cincinnati,
Ohio, and Phoenix, Arizona. During this period, Messrs. Keating and Morgan
discussed the status of these development projects, as well as the corporate
structure of both Legacy and Enterprises, with Graham R. Bullick, Senior Vice
President--Capital Markets of Legacy and Enterprises, James Y. Nakagawa, Chief
Financial Officer of Legacy and Enterprises, Kelly D. Burt, former Executive
Vice President--Development of Legacy and Enterprises, and Messrs. Sabin and
Muir.
On October 3, 2000, Mr. Keating visited the Willowbrook Plaza in Wayne, New
Jersey. On October 5, 2000, Mr. Keating visited the development site in Pentagon
City, Virginia and met with Helen Haerle, a representative of Legacy's joint
venture partner for that property, to discuss relocation of a current facility
and related future development in Pentagon City.
On October 19, 2000, Messrs. Keating and Morgan discussed the rent roll of
both Legacy and Enterprises with Messrs. Sabin and Bullick.
On November 2, 2000, Messrs. Keating, Morgan, Sabin and Muir held a
teleconference to discuss Legacy's plans to acquire a portion of a professional
sports team and to develop an arena in the Phoenix area. On that call,
Messrs. Keating, Morgan, Sabin and Muir also discussed the development of self
storage facilities by Enterprises.
On November 6, 2000, Messrs. Keating and Sabin discussed a potential
investment by Warburg Pincus and the due diligence process relating to such
investment.
Between November 13 and November 15, 2000, Messrs. Keating and Morgan
visited existing facilities in San Diego, including Enterprises' self storage
facilities, and a development site in Temecula,
31
California. Mr. Keating also visited a development site in Bend, Oregon and met
with William Smith, a representative of Legacy's joint venture partner in that
project, to discuss the status of the project and the leases relating to the
project.
Also between November 13 and November 15, 2000, Messrs. Keating and Morgan
met with Mr. Sabin and senior management of Legacy in San Diego as part of
Warburg Pincus' due diligence investigation of Legacy. During that time,
Messrs. Morgan and Keating discussed in greater detail the terms and conditions
of the proposed investment. In particular, Messrs. Morgan and Keating proposed
an investment in a new preferred stock to be issued by Legacy, which would be
convertible into Legacy common stock and have a dividend initially payable in
additional shares of preferred stock. The parties also discussed Legacy's
property development opportunities, risks associated with the transaction and
potential structures for the investment.
Between December 5, 2000 and January 9, 2001, numerous and regular
teleconferences took place between Messrs. Sabin, Leibowitz, Keating and senior
management of Legacy and Enterprises, most of which were initiated by Warburg
Pincus. During these teleconferences, the parties discussed a number of business
points, including the anticipated capital structure of Legacy following the
Warburg Pincus investment and the rights and preferences of the new preferred
stock to be issued to Warburg Pincus. Also during this time, representatives of
Warburg Pincus visited many of Legacy's and Enterprises' properties around the
country as part of their due diligence investigation.
On December 13, 2000, Mr. Sabin, Jack McGrory, Chairman of Enterprises and a
director of Legacy, and James F. Cahill, a director of Enterprises, traveled
together to visit one of Legacy's properties. In addition to discussing various
pending acquisitions and dispositions of real estate properties by Enterprises
and Legacy, they discussed for the first time since the Legacy exchange offer in
1999 the possibility of a merger and/or business combination of the two
companies. In particular, they discussed the potential benefits of such a
transaction to both companies, particularly in light of the soon to be enacted
REIT Modernization Act, which allowed for the creation of taxable REIT
subsidiaries, and the potential Warburg Pincus investment. Among the potential
benefits discussed was the possibility that the combined company, Price Legacy
Corporation, would be able to compete more effectively for investments, have
greater access to capital markets and have a more diverse portfolio. They agreed
that they would pursue the possibility of such a transaction with the boards of
directors of both Enterprises and Legacy.
On that same date, Enterprises' board held a special telephonic meeting
during which the possibility of a merger with Legacy, as well as the status of
the potential Warburg Pincus investment, was discussed at length. Enterprises'
board discussed, among other things, whether such a transaction could have any
adverse effect on its REIT status and the potential ramifications of the REIT
Modernization Act. Enterprises' board did not reach a conclusion on any of these
issues, but agreed that these issues, and the potential for a merger
transaction, should be explored more fully. Enterprises' board then directed
Messrs. McGrory and Cahill to have further discussions with Legacy.
On December 14, 2000, Messrs. McGrory and Cahill called Mr. Sabin to discuss
in greater detail the potential advantages of these transactions. They
discussed, among other things, how such transactions could facilitate various
business initiatives of both Enterprises and Legacy. They also discussed the
need to structure the transaction in such a way as to maximize value for all
stockholders while protecting the rights of holders of Enterprises Series A
preferred stock and holders of Legacy debentures and Legacy notes.
On December 15, 2000, Legacy held a special telephonic board meeting during
which the proposed merger concept was discussed at length. Particular attention
was given in the meeting as to the course of action which would produce the best
value for Legacy's stockholders and the potential strategic benefits of such a
transaction. Mr. Sabin had provided Legacy's board with a detailed memorandum
regarding the proposed merger with Enterprises. In connection with that
discussion, Mr. Sabin created
32
a special independent merger committee consisting of board members Robert S.
Talbott, Richard J. Nordlund, Robert E. Parsons, Jr. and John H. Wilmot to study
and consider merger issues. The special independent merger committee met after
the board meeting to discuss further the proposed merger.
On December 23, 2000, Mr. Sabin telephoned Messrs. McGrory and Cahill and
agreed to move forward in a more structured way with the merger transaction,
subject to agreement on key merger terms.
In late December 2000, Legacy engaged Latham & Watkins to represent it in
connection with these potential transactions and to begin preparation of the
merger agreement.
In early January 2001, Enterprises engaged Munger, Tolles & Olson LLP to
represent it in connection with these potential transactions and, in connection
with such engagement, Simon M. Lorne, a partner with Munger, Tolles & Olson and
a director of Enterprises, resigned from Enterprises' board. Murray Galinson was
appointed to fill the vacancy. At this time, Messrs. McGrory and Cahill had
various discussions with Munger, Tolles & Olson to explore potential structures
for a merger transaction in light of, among other things, the existing rights of
holders of Enterprises Series A preferred stock and holders of Legacy debentures
and Legacy notes. Also at this time, Latham & Watkins delivered an initial draft
of a merger agreement to Munger, Tolles & Olson on behalf of Legacy.
On January 3, 2001, Mr. Sabin initiated a meeting with Messrs. Leibowitz and
Keating, senior management of Legacy and Enterprises, members of Enterprises'
and Legacy's boards and Sol Price in San Diego to further develop the terms of
the Warburg Pincus investment and to discuss the possibility of the merger. The
parties focused on transforming the proposed Warburg Pincus investment in Legacy
into an investment in Price Legacy.
On January 9, 2001, Warburg Pincus forwarded to Mr. Sabin a draft term sheet
that reflected many of the deal points which formed the basis for the Warburg
Pincus investment.
Between January 10 and January 31, 2001, Messrs. Sabin, McGrory and Cahill,
other members of senior management of Enterprises and Legacy, and attorneys from
Latham & Watkins and Munger, Tolles & Olson held several conference calls to
discuss the potential transactions and, in particular, the structure of the
merger. These conference calls were mutually initiated by both Enterprises and
Legacy as part of an effort by the two parties, and their respective counsel, to
determine a mutually acceptable structure for effecting the transactions.
Specifically, on January 10, 2001, Messrs. Sabin, McGrory and Cahill and
attorneys from Latham & Watkins and Munger, Tolles & Olson met telephonically to
discuss, among other things, the different structures that could be used to
effect the proposed merger, the implications that each of such structures might
have with respect to Enterprises' REIT status, the rights of holders of
Enterprises Series A preferred stock and holders of Legacy debentures and Legacy
notes, and the potential capital structure of Price Legacy after the proposed
merger. Similar follow-up telephonic meetings occurred on January 12,
January 16, January 17, January 19, January 23 and January 25, 2001, all of
which were attended by Messrs. Sabin, McGrory and Cahill and attorneys from
Latham & Watkins and Munger, Tolles & Olson. During these follow-up meetings,
the parties continued their discussion of the post-merger capital structure of
Price Legacy and the different possible merger structures, including whether to
include an offer to purchase all outstanding shares of Enterprises common stock
not owned by Legacy in order to simplify the post-merger capital structure of
Price Legacy and whether to include an exchange offer to enable holders of
Legacy debentures and Legacy notes to exchange these securities for shares of
Enterprises Series A preferred stock. During these follow-up meetings, Legacy's
representatives also updated Enterprises' representatives on the status of
Legacy's ongoing negotiations with Warburg Pincus.
33
During this period, attorneys from both Latham & Watkins and Munger,
Tolles & Olson held additional discussions between themselves to analyze various
legal issues relating to the proposed transactions; in particular, issues
related to REIT requirements.
During this same period, Messrs. Sabin and McGrory held several discussions
regarding the potential merger exchange ratio that focused principally on the
relative fair value of the companies' net assets. Due to the low trading volume
of the Legacy common stock and the Enterprises common stock, Messrs. Sabin and
McGrory believed that the fair value per common share of the companies' net
assets provided a better indication of the companies' overall value than did the
market price of their securities. The management of Legacy and Enterprises
estimated the fair value of the two companies to be in the range of $3.00 to
$4.00 per share for Legacy and $4.50 to $5.50 per share for Enterprises, based
on the fair value of the companies' properties and the upside potential
associated with their development and other projects. In determining the upside
potential of the companies' properties, the management of Legacy and Enterprises
considered (1) the present development state of the projects, (2) approval of
the projects by various local and regional governmental agencies and the public,
if necessary, (3) government subsidies that have been granted, (4) levels of
interest expressed by potential tenants, (5) projected operating income, (6)
financing risks and (7) potential sales value. Although management had a
conflict of interest in estimating these values, they did not obtain third party
appraisals or representation for any unaffiliated stockholders, believing that
management had the requisite expertise and familiarity with the assets to
determine these values in a fair and equitable manner without such assistance.
Based on this analysis, Messrs. Sabin and McGrory agreed to propose to the
respective board of directors of each company, subject to receiving appropriate
fairness opinions, that each share of Legacy common stock be valued at
approximately two-thirds of the value of each share of Enterprises common stock.
In mid-January 2001, at the initiation of Mr. McGrory, he and Mr. Sabin
first discussed the possibility of converting a Legacy promissory note payable
to an affiliate of Sol Price of approximately $9.3 million into the same
securities, at the same financial terms, to be received by Warburg Pincus in the
proposed investment. Following this discussion, they decided to raise this
potential transaction with the boards of both Enterprises and Legacy.
On January 18, 2001, Enterprises held a board meeting and further discussed
the status of the Warburg Pincus investment, as well as the status of the
proposed merger transaction. Enterprises' board concurred with the terms of the
Warburg Pincus investment set forth in the term sheet and directed Mr. Sabin to
continue to proceed with the due diligence process and to continue to cooperate
with Warburg Pincus. Enterprises' board also created a special independent
merger committee consisting of Messrs. Cahill and Galinson. This independent
merger committee met separately after the board meeting to discuss further the
Warburg Pincus investment and the proposed merger transaction.
Also on January 18, 2001, Legacy's board held a regularly scheduled meeting
at which time it directed Mr. Sabin to continue to proceed with the merger
discussions and to engage a firm to analyze the transaction in order to provide
a fairness opinion on the merger consideration to the board. Legacy's
independent merger committee met separately after the regular board meeting to
further discuss the merger-related issues addressed at the board meeting.
On January 26, 2001, Latham & Watkins delivered a revised draft of the
merger agreement to Munger, Tolles & Olson reflecting the proposed merger
structure and the additional transactions that Enterprises and Legacy had agreed
upon.
On January 29, 2001, Mr. Sabin on behalf of Legacy and Enterprises agreed
with Warburg Pincus on the principal terms for the Warburg Pincus preferred
stock investment. On January 29 and 30, Legacy and Enterprises, respectively,
entered into exclusivity agreements with Warburg Pincus to negotiate exclusively
with respect to any transactions involving the sale of assets, the business or
the capital stock of either Enterprises or Legacy until March 15, 2001.
34
On February 2, 2001, as a result of the numerous discussions between the
companies and their respective counsel, and after concluding that the proposed
transactions should not have an adverse effect on Enterprises' REIT status,
Enterprises and Legacy agreed in principle to pursue a merger transaction having
the structure described in this consent solicitation statement/prospectus, in
which a subsidiary of Enterprises would merge with and into Legacy, Enterprises
would become the parent corporation of Legacy and holders of Legacy common stock
would receive 0.6667 of a share of Enterprises common stock for each share of
Legacy common stock they owned. The companies also agreed, at the insistence of
Messrs. McGrory and Cahill, that the merger agreement be signed concurrently
with the Warburg Pincus securities purchase agreement and that the transactions
close concurrently.
In connection with their agreement to pursue this merger structure,
Enterprises and Legacy also agreed to engage in several other transactions
involving holders of their outstanding securities. For one, they agreed that, at
the same time that each of them was soliciting its respective stockholders'
approvals relating to the merger, Enterprises would make an offer to purchase
all outstanding shares of Enterprises common stock not owned by Legacy, with the
closing of the offer to purchase to be contingent on the closing of the merger.
The principal purpose of this transaction is to enable each public holder of
shares of Enterprises common stock, which currently has a low trading market, to
decide whether to remain a stockholder of Price Legacy or receive a cash payment
for his or her shares. Enterprises proposed, and Legacy ultimately agreed, that,
based on the merger exchange ratio and the then-current market price of the
Enterprises common stock (which was generally in the range of $3.63 to $6.75 per
share during the six-month period preceding these discussions), a price of $7.00
per share would present an attractive, yet fair, price to the public holders of
these shares who might prefer to sell their shares instead of holding an
investment in Price Legacy. Enterprises and Legacy also agreed that Enterprises
would, during this same solicitation period, offer to exchange shares of
Enterprises Series A preferred stock for all outstanding Legacy debentures and
Legacy notes, with the closing of the offer to exchange to be contingent on the
closing of the merger. Enterprises proposed, and Legacy ultimately agreed, that,
based on the then-current market price of the Enterprises Series A preferred
stock (which was generally in the range of $14.00 to $15.06 per share during the
six-month period preceding these discussions), valuing such shares at $15.00 per
share and valuing the Legacy debentures and Legacy notes at face value would
present an attractive, yet fair, price to the holders of Legacy debentures and
Legacy notes in the exchange offer. Enterprises and Legacy further agreed, in
order to simplify the post-closing capital structure of Price Legacy, to seek
the consent of holders of Legacy debentures and Legacy notes to release the
collateral (which consists of the shares of Enterprises common stock owned by
Legacy) securing these securities in connection with the exchange offer.
During the first and second weeks of February 2001, Enterprises, Legacy and
their respective legal counsel had regular telephonic discussions, all initiated
by Enterprises. These discussions were primarily informational in nature and
largely focused on an analysis of Legacy's financial statements and related
information in order to better understand the effects of the proposed
transactions on the balance sheet of Price Legacy.
On February 12, 2001, at the initiation of Mr. Sabin, he and Mr. Keating met
in San Diego to further discuss the terms of the proposed investment and the
proposed merger. They also discussed the status of certain property development
projects and certain planned acquisitions and dispositions of real property by
Legacy.
On February 15, 2001, Warburg Pincus' counsel, Willkie Farr & Gallagher,
sent initial drafts of the securities purchase agreement and related agreements
to Latham & Watkins to distribute to Legacy and Enterprises.
35
During the week of February 20, 2001, Willkie Farr & Gallagher conducted
additional due diligence in Enterprises' office in San Diego.
On February 28, 2001, Mr. Sabin attended a dinner with Messrs. Leibowitz and
Keating in San Diego during which the general economic environment and other
issues with respect to the proposed Warburg Pincus investment were discussed.
Also on this date, Legacy and Enterprises retained independent financial
advisors Appraisal Economics, Inc. and American Appraisal Associates, Inc.,
respectively, to review the fairness of the merger consideration from a
financial point of view. Enterprises also retained American Appraisal to review
the fairness of the price to be offered in the tender offer by Enterprises for
its publicly-owned common stock. Neither of these financial advisors were
retained to review the fairness of the consideration to be offered in the
exchange offer by Enterprises for the Legacy debentures and Legacy notes.
Throughout late February and early March 2001, representatives from
Latham & Watkins and Willkie Farr & Gallagher exchanged and negotiated numerous
drafts of the securities purchase agreement and related agreements.
On March 1, 2001, Mr. Sabin initiated another meeting with Mr. Keating in
San Diego to conduct a further discussion regarding the transactions and to
attempt to resolve certain pending transaction issues. The discussion focused on
resolving what, if any, termination fee should be paid by Enterprises to Warburg
Pincus in the event of a termination of the proposed Warburg Pincus investment,
and what specific rights and preferences should be included in the terms of the
securities to be issued to Warburg Pincus.
On March 8, 2001, at the request of Warburg Pincus, Mr. Sabin met with
various representatives of Warburg Pincus, including Messrs. Leibowitz and
Morgan, to discuss the terms of the securities purchase agreement. The parties
again discussed at length the proposal by Warburg Pincus to include in the
agreement a termination fee payable by Enterprises, as well as the price to be
offered in the tender offer by Enterprises for its publicly-owned common stock.
The parties agreed on a potential termination fee payable by Enterprises of
between $1 million and $4 million, as further described in this consent
solicitation statement/prospectus, and Warburg Pincus approved the price of
$7.00 per share in the Enterprises tender offer. As a further result of this and
the other discussions previously described, Enterprises and Warburg Pincus
agreed that Enterprises would issue 17,985,612 shares of a new class of
Enterprises preferred stock, 9% Series B Junior Convertible Redeemable Preferred
Stock, and warrants to purchase an aggregate of 2,500,000 shares of Enterprises
common stock with an exercise price of $8.25 per share, in exchange for Warburg
Pincus investing $100 million in cash.
On March 13, 2001, at the request of Mr. Leibowitz, Mr. Sabin and various
representatives of Warburg Pincus, including Messrs. Leibowitz, Morgan and
Keating, met in New York and agreed to extend the terms of the Legacy and
Enterprises exclusivity agreements with Warburg Pincus until March 29, 2001.
On March 19, 2001, Legacy's board held a special telephonic meeting to
discuss the status of final negotiations regarding the merger agreement and the
securities purchase agreement. No action was taken awaiting delivery of the
fairness opinion and independent board questions. Legacy's independent merger
committee again met separately after the board meeting to discuss the
merger-related issues discussed during the board meeting.
Also on March 19, 2001, Enterprises held a special board meeting to discuss
the status of, and final negotiations regarding, the merger agreement and the
securities purchase agreement. Mr. Sabin distributed to each of the board
members a summary of the terms of each of these agreements and responded to
questions from the board members regarding such terms. In addition, American
Appraisal presented their final analysis and various information to serve as the
basis for evaluating the merger exchange ratio. American Appraisal advised
Enterprises' board that the merger exchange ratio was fair to the unaffiliated
stockholders of Enterprises from a financial point of view. Following this
presentation, Enterprises' independent merger committee met separately and
discussed the terms of the
36
proposed transactions and the analysis and opinion of American Appraisal.
Enterprises' independent merger committee concluded that the merger agreement
and the securities purchase agreement were fair to Enterprises' stockholders and
that the proposed transactions were in the best interests of Enterprises and its
stockholders. Enterprises' independent merger committee then recommended that
Enterprises' board approve the proposed transactions. Accordingly, Enterprises'
board unanimously approved each of the merger and the merger agreement, the sale
of the Series B preferred stock and the warrant to Warburg Pincus and the
related securities purchase agreement and all related documents. In addition,
Enterprises' board authorized management of Enterprises to proceed with the
execution of the merger agreement and the securities purchase agreement.
On March 21, 2001, Legacy's independent merger committee met and discussed
the terms of the proposed transactions and the analysis and opinion of Appraisal
Economics, in which it determined that the merger exchange ratio was fair to
Legacy's stockholders from a financial point of view. Legacy's independent
merger committee concluded that the merger agreement was fair to Legacy's
stockholders and that the proposed merger was in the best interests of Legacy
and its stockholders. Legacy's independent merger committee then recommended
that Legacy's board approve the proposed merger. Later that day, Legacy's board
held a special telephonic meeting at which time Appraisal Economics responded to
all questions concerning its final opinion. Taking into account the view of its
independent merger committee, Legacy's board unanimously approved the merger and
the merger agreement and related documents and authorized management to proceed
with the execution of the merger agreement.
Also on March 21, 2001, Enterprises held another special board meeting and
re-affirmed its approval of the merger and the Warburg Pincus investment.
During the evening of March 21, 2001 Legacy and Enterprises executed the
definitive merger agreement and securities purchase agreement.
The transactions were jointly announced by Legacy and Enterprises on the
morning of March 22, 2001.
On April 12, 2001, Enterprises and an affiliate of Sol Price entered into a
conversion agreement, consented to by Legacy and Warburg Pincus, pursuant to
which the $9.3 million Legacy promissory note will, immediately after the sale
of the Enterprises Series B preferred stock to Warburg Pincus, be converted into
shares of Enterprises Series B preferred stock and warrants to purchase
Enterprises common stock at the same per share price agreed to in the securities
purchase agreement.
ENTERPRISES' REASONS FOR THE TRANSACTIONS
Enterprises' board of directors unanimously approved the merger agreement
and the securities purchase agreement and determined to recommend that
Enterprises' stockholders approve the issuance of the merger consideration and
the sale of the Enterprises Series B preferred stock. Enterprises' board also
approved the tender offer for its publicly-owned common stock and the offer to
exchange shares of Enterprises Series A preferred stock for Legacy debentures
and Legacy notes. In reaching its conclusions, Enterprises' board consulted with
its management, as well as Enterprises' legal and financial advisors, and
considered the following factors, each of which had a positive effect on the
board's determination:
- the transactions should be an effective way of implementing and
accelerating Enterprises' growth strategy consistent with its business
goals,
- the transactions should enable Enterprises to significantly expand the
size and geographic diversity of its property portfolio, thereby reducing
the potential adverse impact on the overall portfolio of fluctuations in
local economies,
37
- the transactions should enable Enterprises to use Legacy as a vehicle to
acquire non-traditional properties, such as those requiring significant
restructuring or redevelopment while continuing to acquire traditional,
fully-developed properties, such as shopping centers, through Enterprises,
- Enterprises' management believes that Legacy's development properties have
strong growth potential, providing Enterprises with the opportunity to
increase its earnings,
- Enterprises' management believes that the increased size of its portfolio
as a result of the transactions may provide it with greater liquidity,
including expanded access to the capital markets at a reduced cost,
enabling Enterprises to improve its results of operations and financial
position,
- the transactions should strengthen Enterprises' balance sheet and give it
the financial flexibility to retire debt,
- the transactions should allow Price Legacy to complete existing
development projects and to pursue additional property acquisitions,
- Price Legacy should have greater liquidity in the trading of its common
stock and Series A preferred stock than Enterprises does,
- the holders of publicly-owned Enterprises common stock would have the
opportunity to have Enterprises repurchase their shares at a premium over
the market price at the time the transactions were agreed upon and
announced, or retain their shares,
- the exchange offer should improve and simplify the capital structure of
Price Legacy by reducing its outstanding indebtedness. In addition, the
Enterprises common stock currently held by Legacy serves as the collateral
securing the Legacy debentures and Legacy notes. If the requisite consent
is obtained to release the collateral, Price Legacy will be able to cancel
these securities, which will further simplify its capital structure, and
- Warburg Pincus' substantial experience in providing the companies in which
it invests with financial and managerial advisory services should bring
value to Enterprises and improve operational, managerial and financial
performance.
In addition, Enterprises' board retained American Appraisal to evaluate the
fairness of the merger consideration from a financial point of view. That firm
issued an opinion that Enterprises' board viewed as favorable.
NEGATIVE FACTORS CONSIDERED BY ENTERPRISES' BOARD
Enterprises' board also considered potentially negative factors that could
arise or do arise from the proposed transactions, including the following:
- Enterprises will likely incur significant costs of up to $650,000 in
connection with the transactions, and the transactions will require
substantial management time and effort to effectuate,
- Enterprises faces a significant risk that the anticipated benefits of the
transactions might not be fully realized,
- holders of Enterprises common stock will receive distributions only if
Price Legacy's REIT taxable income exceeds $43.7 million, which is the
aggregate amount of annual distributions initially payable on the
Enterprises Series A preferred stock and Enterprises Series B preferred
stock,
- based on pro forma financial information of Price Legacy, holders of
Enterprises common stock would not have been entitled to receive any
distributions for the quarter ended March 31, 2001 after giving effect to
the transactions,
38
- Enterprises faces a significant risk due to possible fluctuations in
interest rates as a result of Legacy's substantial leverage,
- Price Legacy's substantial leverage may be difficult to service and could
adversely affect its business,
- Enterprises will use up to $8.1 million of its cash on hand to repurchase
the publicly-owned Enterprises common stock if holders accept its offer,
- Enterprises' pro forma book value would decrease from $8.33 per share at
March 31, 2001 to $4.63 per share on a pro forma basis at March 31, 2001
due to the dilutive effect of the Enterprises common stock issued in the
merger, and
- the significant influence that Warburg Pincus and some other stockholders
will be able to exert on Price Legacy, which may delay, discourage, deter
or prevent a change in control of Price Legacy and make some transactions
more difficult or impossible to complete without their support.
RECOMMENDATION OF ENTERPRISES' BOARD
The foregoing discussion of the information and factors considered by
Enterprises' board is not intended to be exhaustive but is believed to include
all material factors considered by it. In reaching its determination,
Enterprises' board concluded that the potential benefits outweighed the
potential risks, but did not, in view of the wide variety of information and
factors considered, assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors. Although directors and officers of Enterprises had interests in the
merger, as described in "The Merger, the Sale of the Enterprises Series B
Preferred Stock and Related Transactions--Directors and Officers of Enterprises
and Legacy have Conflicts of Interest in the Merger," Enterprises' board did not
consider the potential benefits to be received by these individuals as a factor
in reaching its decision, nor did it consider the interests of unaffiliated
stockholders separately from the interests of Enterprises' stockholders as a
whole.
FOR THE REASONS DISCUSSED ABOVE, ENTERPRISES' BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE SECURITIES PURCHASE AGREEMENT
AND UNANIMOUSLY RECOMMENDED APPROVAL OF THE ISSUANCE OF THE MERGER
CONSIDERATION, THE SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK AND THE
RELATED CHARTER AMENDMENTS TO ITS STOCKHOLDERS.
LEGACY'S REASONS FOR THE TRANSACTIONS
Legacy's board of directors unanimously approved the merger agreement and
determined to recommend that Legacy's stockholders approve the merger agreement.
Legacy's board of directors also determined that the exchange offer is fair to,
and in the best interests of, holders of Legacy debentures and Legacy notes and
determined to recommend that holders of Legacy debentures and Legacy notes
accept the exchange offer and tender their securities and consent to the
proposed amendments. In reaching its conclusions, Legacy's board consulted with
its management, as well as Legacy's legal and financial advisors, and considered
the following factors, each of which had a positive effect on the board's
determination:
- the transactions will provide an opportunity for holders of Legacy common
stock to share in any future stock price appreciation of Enterprises since
the merger is a "stock-for-stock" merger, and should enable holders of
Legacy common stock to convert their shares into Enterprises common stock
on a tax-free basis (except with respect to any cash received for
fractional shares),
- the transactions should allow Price Legacy to compete more effectively for
shopping center investments,
- Legacy's management believes that Enterprises has a portfolio of high
quality properties,
39
- Price Legacy should have greater visibility in capital markets and greater
liquidity in the trading of its common stock than Legacy does,
- Price Legacy should be viewed by rating agencies and lenders as having a
stronger credit profile than Legacy alone,
- Price Legacy should have greater access to capital in equity and debt
markets than Legacy alone, and
- holders of Legacy debentures and Legacy notes should benefit from the
increased liquidity that Legacy's management believes the holders of
Enterprises Series A preferred stock will have and should benefit in
holding equity in a company with significantly greater total assets than
Legacy.
In addition, Legacy's board retained Appraisal Economics to evaluate the
merger from a financial point of view. That firm issued an opinion that Legacy's
board viewed as favorable. Legacy's board did not retain a financial advisor to
evaluate the fairness of the consideration to be offered in the exchange offer
by Enterprises for the Legacy debentures and Legacy notes.
NEGATIVE FACTORS CONSIDERED BY LEGACY'S BOARD
Legacy's board of directors also considered potentially negative factors
that could arise or do arise from the proposed transactions, including the
following:
- Legacy will likely incur significant costs of up to $850,000 in connection
with the transactions, and the transactions will require substantial
management time and effort to effectuate,
- Legacy faces a significant risk that the anticipated benefits of the
transactions might not be fully realized,
- a decline in the value of Enterprises common stock reduces the value of
the consideration to be received by holders of Legacy common stock in the
merger since the merger exchange ratio is fixed,
- the rights of Enterprises common stock issued in the merger will be junior
to the rights of Enterprises Series A preferred stock and Enterprises
Series B preferred stock, including with respect to distributions,
- Warburg Pincus and a small number of other stockholders, including Robert
E. Price, Sol Price and their affiliates, will be able to exert
significant influence over Price Legacy,
- Legacy faces a risk of the financial market's perception of the
transactions, and the effect of the uncertainty on the trading price of
its common stock, and
- if the proposed amendments become effective, the Legacy debentures and
Legacy notes not tendered will no longer be secured obligations of Legacy.
RECOMMENDATION OF LEGACY'S BOARD
The foregoing discussion of the information and factors considered by
Legacy's board is not intended to be exhaustive but is believed to include all
material factors considered by it. In reaching its determination, Legacy's board
did not, in view of the wide variety of information and factors considered,
assign any relative or specific weights to the foregoing factors, and individual
directors may have given differing weights to different factors. Although
directors and officers of Legacy had interests in the merger, as described in
"The Merger, the Sale of the Enterprises Series B Preferred Stock and Related
Transactions--Directors and Officers of Enterprises and Legacy have Conflicts of
Interest in the Merger," Legacy's board did not consider the potential benefits
to be received by these individuals as a factor in reaching its decision, nor
did it consider the interests of unaffiliated stockholders separately from the
interests of Legacy's stockholders as a whole.
FOR THE REASONS DISCUSSED ABOVE, LEGACY'S BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE EXCHANGE OFFER AND THE MERGER AGREEMENT, UNANIMOUSLY RECOMMENDS
APPROVAL OF THE MERGER AGREEMENT TO ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF LEGACY DEBENTURES AND LEGACY NOTES ACCEPT THE EXCHANGE OFFER
AND CONSENT TO THE PROPOSED AMENDMENTS.
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THE EXCHANGE OFFER AND CONSENT SOLICITATION
THIS SECTION OF THE CONSENT SOLICITATION STATEMENT/PROSPECTUS DESCRIBES THE
PROPOSED EXCHANGE OFFER AND CONSENT SOLICITATION. WHILE ENTERPRISES AND LEGACY
BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF THE EXCHANGE OFFER AND
CONSENT SOLICITATION, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE OTHER
DOCUMENTS REFERENCED IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS
CAREFULLY. IN ADDITION, IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT EACH
OF ENTERPRISES AND LEGACY IS INCORPORATED BY REFERENCE IN THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS. YOU MAY OBTAIN THE INFORMATION INCORPORATED
BY REFERENCE IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS WITHOUT CHARGE BY
FOLLOWING THE INSTRUCTIONS IN THE SECTION ENTITLED "WHERE YOU CAN FIND MORE
INFORMATION."
GENERAL
Enterprises is offering to exchange shares of Enterprises Series A preferred
stock for all outstanding Legacy debentures and Legacy notes. If holders of all
of the Legacy debentures and Legacy notes accept the exchange offer, Enterprises
will issue approximately 3,420,636 shares of Enterprises Series A preferred
stock. The Legacy debentures and Legacy notes acquired in the exchange offer
will be cancelled.
The exchange offer is open to all holders of Legacy debentures and Legacy
notes. Enterprises is sending this consent solicitation statement/prospectus and
related exchange offer documents to persons who held Legacy debentures or Legacy
notes at the close of business on August 3, 2001. On that date, there were
$33.2 million in principal amount of Legacy debentures outstanding, held by 68
holders, and $18.1 million in principal amount of Legacy notes outstanding, held
by 31 holders.
In connection with the exchange offer, Enterprises is soliciting consents
from holders of Legacy debentures and Legacy notes to amend the indentures
governing the Legacy debentures and Legacy notes to release the collateral
securing these securities.
On August 3, 2001, 12,154,289 shares of Enterprises common stock were held
by Legacy and pledged as collateral for the Legacy debentures and Legacy notes.
If Enterprises receives the consent of holders of Legacy debentures and Legacy
notes to approve the proposed amendments, Enterprises will cancel the
Enterprises common stock held by Legacy.
Enterprises is obligated to commence the exchange offer and consent
solicitation pursuant to the terms of the merger agreement. The exchange offer
and consent solicitation are expected to close concurrently with the merger.
BOARD RECOMMENDATION
AFTER CAREFUL CONSIDERATION, LEGACY'S BOARD OF DIRECTORS HAS DETERMINED THAT
THE EXCHANGE OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, HOLDERS OF LEGACY
DEBENTURES AND LEGACY NOTES AND UNANIMOUSLY RECOMMENDS THAT YOU ACCEPT THE
EXCHANGE OFFER AND TENDER YOUR LEGACY DEBENTURES AND LEGACY NOTES AND CONSENT TO
THE PROPOSED AMENDMENTS.
TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
For purposes of the exchange offer, the Legacy debentures and Legacy notes
are being valued at their face value and the Enterprises Series A preferred
stock is being valued at $15.00 per share. The Enterprises Series A preferred
stock was valued at $15.00 per share based on its then-current market price. The
Legacy debentures and Legacy notes were valued at face value to provide the
holders of these securities an attractive, yet fair, price in the exchange
offer. Thus, if the exchange is completed, Enterprises will issue 66.67 shares
of Enterprises Series A preferred stock for each $1,000 in principal amount of
Legacy debentures and Legacy notes validly tendered and accepted for exchange.
Interest on the Legacy debentures and Legacy notes tendered will continue to
accrue and be payable on the
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normal interest payment date of August 15, 2001, but will not accrue or be
payable from that date to the date of exchange. Instead, you will be deemed a
holder of Enterprises Series A preferred stock as of August 16, 2001 with
respect to the payment of future distributions on the Enterprises Series A
preferred stock. In addition, instead of issuing fractional shares of
Enterprises Series A preferred stock, holders who tender their Legacy debentures
and Legacy notes will receive cash. For a description of the Enterprises
Series A preferred stock, see "Description of Enterprises Capital
Stock--Enterprises Series A Preferred Stock."
A new quarterly distribution period for the Enterprises Series A preferred
stock commenced on August 1, 2001. As a result of becoming a holder of
Enterprises Series A preferred stock as of August 16, 2001 (15 days after the
commencement date), you will receive a partial distribution payment on the next
distribution payment date of November 15, 2001, prorated to reflect the shorter
distribution period.
All of the Legacy debentures and Legacy notes properly tendered and not
withdrawn will be exchanged at the exchange rate, on the terms and subject to
the conditions of the exchange offer. Enterprises will promptly return any
tendered Legacy debentures and Legacy notes if the conditions to the exchange
offer are not met.
Holders who desire to tender their Legacy debentures and Legacy notes in the
exchange offer are required to consent to the proposed amendments. As a result,
if you tender your Legacy debentures and Legacy notes, you will be deemed to
have consented to the proposed amendments with respect to the securities
tendered. Enterprises will accept consents to the proposed amendments from
holders who are not also tendering their Legacy debentures and Legacy notes in
the exchange offer, but holders who consent to the proposed amendments and do
not tender their Legacy debentures and Legacy notes will receive no
consideration for consenting.
Enterprises' obligation to accept and exchange Legacy debentures and Legacy
notes validly tendered in the exchange offer is conditioned upon (1) the
completion of the merger and (2) the general conditions described in this
consent solicitation statement/prospectus. See "--Conditions to the Exchange
Offer and Consent Solicitation."
Subject to applicable securities laws and the terms and conditions in this
consent solicitation statement/prospectus, Enterprises reserves the right, on or
prior to the expiration of the exchange offer, to:
- waive any and all conditions to the exchange offer and consent
solicitation,
- extend or terminate the exchange offer and consent solicitation, or
- otherwise amend the exchange offer and consent solicitation in any
respect.
Any extension, amendment or termination will be followed promptly by a
public announcement. In the case of an extension of the exchange offer, the
announcement will be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration of the exchange
offer. Without limiting the manner in which any public announcement may be made,
Enterprises will have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by issuing a release to the
Dow Jones News Service. During any extension, all Legacy debentures and Legacy
notes tendered and not withdrawn will remain tendered, subject to the right of a
tendering debtholder to withdraw tendered Legacy debentures and Legacy notes.
If the consent solicitation is amended on or prior to the expiration date in
a manner determined by Enterprises, in its reasonable discretion, to constitute
a material adverse change to you, Enterprises promptly will disclose that
amendment and, if necessary, extend the consent solicitation for those Legacy
debentures and Legacy notes for a period deemed by Enterprises to be adequate to
permit you to withdraw your Legacy debentures and Legacy notes and revoke your
consents. In addition, Enterprises may, if it deems appropriate, extend the
consent solicitation for any other reason.
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If Enterprises makes a material change in the terms of the exchange offer or
the information concerning the exchange offer or waives a material condition of
the exchange offer, Enterprises will disseminate additional exchange offer
materials and extend the exchange offer to the extent required by law. In
addition, Enterprises may, if it deems appropriate, extend the exchange offer
for any other reason. If the consideration to be paid in the exchange offer is
increased or decreased or the principal amount of Legacy debentures and Legacy
notes subject to the exchange offer is decreased, the exchange offer will remain
open at least ten business days from the date Enterprises first gives notice to
you, by public announcement or otherwise, of that increase or decrease.
THE PROPOSED AMENDMENTS
This section sets forth a brief description of the proposed amendments for
which Enterprises is seeking consents in the consent solicitation. The indenture
governing the Legacy debentures and the indenture governing the Legacy notes are
substantially identical with respect to the provisions governing the treatment
of collateral, and the corresponding pledge agreements are also substantially
identical. The proposed amendments constitute a single proposal with respect to
each of the Legacy debentures and Legacy notes and if you tender and consent,
you must consent to the proposed amendments as an entirety and may not consent
selectively to specific proposed amendments. The valid tender by you of Legacy
debentures and Legacy notes in the exchange offer on or prior to the expiration
date will be deemed to constitute your consent to the proposed amendments with
respect to the securities tendered.
The proposed amendments to the indentures governing the Legacy debentures
and Legacy notes will be effected by executing supplemental indentures. The
supplemental indentures will become effective once they are approved by the
required number of holders of Legacy debentures and Legacy notes, as described
below, and once they are signed by Legacy and the trustee promptly after the
expiration date. The proposed amendments, however, will not become effective
until Enterprises accepts the Legacy debentures and Legacy notes for exchange in
the exchange offer. After that time, the proposed amendments will be binding on
all non-tendering holders of Legacy debentures and Legacy notes. The indentures
will remain in effect, without giving effect to the proposed amendments, until
the proposed amendments become effective. If the exchange offer is terminated or
withdrawn, or the Legacy debentures and Legacy notes are not accepted for
exchange, the proposed amendments will not become effective.
The following summary of the amendments to the indentures governing the
Legacy debentures and Legacy notes, respectively, set forth below are qualified
in their entirety by reference to the full and complete terms contained in the
supplemental indentures, forms of which are attached to this consent
solicitation statement/prospectus as Annexes A and B, respectively. Accordingly,
careful review of the proposed supplemental indentures is encouraged.
The proposed amendments to the indentures will:
- release the collateral securing the Legacy debentures and Legacy notes,
- terminate the associated pledge agreements which pledge the collateral for
the benefit of holders of Legacy debentures and Legacy notes,
- delete definitions and cross-references from the indentures which would be
rendered inapplicable as a result of the proposed amendments described
above, and
- change the name of the securities to reflect that they are not secured
obligations of Legacy.
The amendments to the Legacy debentures and Legacy notes will not become
effective until the supplemental indentures become effective.
The proposed amendments to the Legacy debentures and Legacy notes will
remove any references to the securities being secured, including changing the
name of the securities to reflect that they are not secured obligations of
Legacy.
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CONVERSION AGREEMENT
Enterprises and Sol Price, a significant stockholder of Enterprises and
Legacy through various entities, agreed to convert an existing Legacy promissory
note payable to an affiliate of Sol Price, The Sol and Helen Price Trust, of
approximately $9.3 million into 1,681,142 shares, or 8.5%, of Enterprises
Series B preferred stock and a warrant to purchase 233,679 shares of Enterprises
common stock at $8.25 per share immediately after the sale of the Enterprises
Series B preferred stock to Warburg Pincus, which represents the same financial
terms agreed to in the securities purchase agreement with Warburg Pincus. This
Legacy promissory note, together with the right to receive the Enterprises
Series B preferred stock and the warrant, was subsequently assigned to The Price
Group.
The conversion agreement, which effects the conversion of the Legacy
promissory note into Enterprises Series B preferred stock, provides that The
Price Group will, along with Warburg Pincus, become a party to a registration
rights agreement with all rights of an investor under the agreement other than
those relating to demand registrations. The conversion agreement does not
provide The Price Group with any of the other rights, such as representations,
warranties, covenants, indemnities and termination fees, provided to Warburg
Pincus in the securities purchase agreement. Warburg Pincus has consented to
this transaction.
The $9.3 million Legacy promissory note is currently secured by the same
collateral securing the Legacy debentures and Legacy notes, the Enterprises
common stock held by Legacy. Upon the closing of the $9.3 million Legacy
promissory note conversion, the Legacy promissory note will be cancelled, the
collateral securing the Legacy promissory note will be released and the
associated pledge agreement will be terminated.
REQUIRED CONSENTS
The consent of the holders of a majority of the outstanding principal amount
of Legacy debentures is required to approve the proposed amendments to the
indenture governing the Legacy debentures. The consent of the holders of a
majority of the outstanding principal amount of the Legacy notes is required to
approve the proposed amendments to the indenture governing the Legacy notes.
Holders of approximately $13.5 million in principal amount of Legacy
debentures, representing approximately 40.6% of the outstanding principal
amount, and of approximately $7.4 million in principal amount of Legacy notes,
representing approximately 40.8% of the outstanding principal amount, have
agreed to consent to the proposed amendments.
As of August 3, 2001, Enterprises' and Legacy's directors and executive
officers beneficially owned approximately $0.8 million in principal amount of
Legacy debentures, representing approximately 2.3% of the outstanding principal
amount of Legacy debentures, and approximately $0.4 million in principal amount
of Legacy notes, representing approximately 2.3% of the outstanding principal
amount of Legacy notes. Enterprises and Legacy have been advised that all of
their directors and executive officers intend to exchange their Legacy
debentures and Legacy notes in the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER AND CONSENT SOLICITATION
Notwithstanding any other provisions of the exchange offer and consent
solicitation and in addition to (and not in limitation of) Enterprises' rights
to extend and/or amend the exchange offer and consent solicitation, Enterprises
shall not be required to accept for exchange or exchange, and may delay the
acceptance for exchange of, or exchange of, any tendered Legacy debentures and
Legacy notes, in each event subject to Rule 14e-l(c) under the Securities
Exchange Act of 1934, as amended, and may terminate the exchange offer and
consent solicitation, if:
- the merger has not been completed, or
- the general conditions described below have not been satisfied.
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The "general conditions" are set forth in paragraphs (1) and (2) below, and
will be deemed to have been satisfied if:
(1) the registration statement of which this consent solicitation
statement/prospectus is a part is declared effective and no stop order
suspends the effectiveness of the registration statement, and no
proceeding for that purpose is initiated or threatened by the SEC, and
(2) there is no order, ruling or injunction or statute or regulation
preventing the completion of the exchange offer or the consent
solicitation.
The foregoing conditions are for Enterprises' sole benefit and Enterprises
may assert them in its reasonable discretion, regardless of the circumstances
giving rise to any such condition (including any action or inaction by
Enterprises) and Enterprises may waive such conditions, in whole or in part, at
any time and from time to time, in its reasonable discretion, whether any other
condition of the exchange offer and consent solicitation is also waived.
Enterprises' failure at any time to exercise any of the foregoing rights will
not be deemed a waiver of any other right and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
TERMINATION OF THE EXCHANGE OFFER AND CONSENT SOLICITATION
The exchange offer and consent solicitation may be terminated at any time
prior to the expiration date if the merger agreement is terminated.
EXPIRATION DATE
The exchange offer and consent solicitation will expire at 5:00 p.m., New
York City time, on September 11, 2001, unless extended.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Enterprises and Legacy expect that the exchange of Enterprises Series A
preferred stock for Legacy debentures and Legacy notes will be a taxable
transaction for United States federal income tax purposes and may also be
taxable under applicable state, local and foreign tax laws. You should carefully
read the summary of the federal income tax consequences of the exchange offer,
and of acquiring, owning and disposing of Enterprises Series A preferred stock
under "Material Federal Income Tax Considerations of the Exchange Offer" and are
urged to consult with your own tax advisors as to the federal, state, local and
foreign tax consequences in your particular circumstance.
REGULATORY MATTERS
Enterprises is not aware of any federal or state regulatory approvals that
must be obtained in connection with the exchange offer or consent solicitation.
ACCOUNTING TREATMENT
For accounting purposes, neither Enterprises nor Legacy will recognize a
gain or loss as a result of the exchange offer or consent solicitation. The
amount on Legacy's accounts related to the Legacy debentures and Legacy notes
exchanged will be reclassified to the Enterprises Series A preferred stock
caption on the Price Legacy balance sheet.
APPRAISAL RIGHTS
Holders of Legacy debentures and Legacy notes will not have appraisal rights
as a result of the exchange offer or consent solicitation.
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ACCEPTANCE FOR EXCHANGE OF LEGACY DEBENTURES AND LEGACY NOTES; ACCEPTANCE OF
CONSENTS
Upon the terms and subject to the conditions of the exchange offer
(including if the exchange offer is extended or amended, the terms and
conditions of any such extension or amendment) and applicable law, Enterprises:
- will exchange shares of Enterprises Series A preferred stock for all
Legacy debentures and Legacy notes validly tendered (and not withdrawn)
under the exchange offer on or prior to the expiration date that are
coupled with consents validly delivered or deemed delivered (and not
revoked) under the consent solicitation on or prior to the expiration
date, and
- accept all consents validly delivered or deemed delivered (and not
revoked) under the consent solicitation on or prior to the expiration
date.
This exchange will be made by the deposit by Enterprises of shares of
Enterprises Series A preferred stock constituting the exchange offer
consideration with the exchange agent as soon as practicable after the
expiration date so that the exchange of shares of Enterprises Series A preferred
stock representing the exchange offer consideration may be delivered to you as
soon as practicable after the expiration date.
The exchange agent will act as agent for you for the purpose of delivering
shares of Enterprises Series A preferred stock in exchange for Legacy debentures
and Legacy notes and associated consents.
Enterprises expressly reserves the right, subject to Rule 14e-l(c) under the
Exchange Act, to delay acceptance for exchange of, or the exchange of, Legacy
debentures and Legacy notes in order to comply, in whole or in part, with any
applicable law. See "--Conditions to the Exchange Offer and Consent
Solicitation."
In all cases, exchange by the exchange agent of shares of Enterprises
Series A preferred stock for Legacy debentures and Legacy notes accepted for
exchange under the exchange offer will be made only after timely receipt by the
exchange agent of:
- certificates representing your Legacy debentures and Legacy notes or
timely confirmation of a book-entry transfer of your Legacy debentures and
Legacy notes into the exchange agent's account at the Depository Trust
Company, or DTC. See "--Procedures for Exchanging Legacy Debentures and
Legacy Notes and Delivering Consents,"
- a properly completed and duly executed consent and letter of transmittal
(or a manually signed facsimile thereof), and
- any other documents required by the consent and letter of transmittal.
For purposes of the exchange offer, validly tendered Legacy debentures and
Legacy notes (or defectively tendered Legacy debentures and Legacy notes for
which Enterprises has waived that defect) will be deemed to have been accepted
for exchange by Enterprises if, as and when it gives written notice thereof to
the exchange agent. For purposes of the consent solicitation, consents delivered
to the exchange agent will be deemed to have been accepted by Enterprises if, as
and when Legacy and the trustee execute the supplemental indentures after the
expiration date.
If the exchange offer is terminated or withdrawn, or the Legacy debentures
and Legacy notes are not accepted for exchange, no exchange offer consideration
will be paid or payable. If any tendered Legacy debentures and Legacy notes are
not exchanged under the exchange offer for any reason, or certificates are
submitted evidencing more Legacy debentures and Legacy notes than are tendered,
those Legacy debentures and Legacy notes not exchanged will be returned, without
expense, to you (or, in the case of Legacy debentures and Legacy notes tendered
by book-entry transfer, those Legacy debentures and Legacy notes will be
credited to the account maintained at DTC from which those Legacy debentures and
Legacy notes were delivered) unless otherwise requested by you under the
46
heading "Special Delivery Instructions" in the consent and letter of
transmittal, promptly after the expiration date or termination of the exchange
offer.
PROCEDURES FOR EXCHANGING LEGACY DEBENTURES AND LEGACY NOTES AND DELIVERING
CONSENTS
In order to receive the exchange offer consideration you must:
- tender your Legacy debentures and Legacy notes under the exchange offer,
and
- deliver consents to the proposed amendments with respect to those Legacy
debentures and Legacy notes on or prior to the expiration date.
In addition, on or prior to the expiration date, Enterprises will accept
consents to the proposed amendments from holders who are not tendering their
Legacy debentures and Legacy notes in the exchange offer.
The method of delivery of Legacy debentures and Legacy notes, consents and
letters of transmittal, any required signature guarantees and all other required
documents, including delivery through DTC and any acceptance of an agent's
message transmitted through ATOP, is at your election and risk. Except as
otherwise provided in the consent and letter of transmittal, delivery will be
deemed made only when actually received by the exchange agent. If delivery is by
mail, Enterprises suggests that you use properly insured, registered mail with
return receipt requested, and that the mailing be made sufficiently in advance
of the expiration date.
All Enterprises Series A preferred stock will be delivered in physical
certificate form or in book-entry transfer form through DTC, depending on your
method of tendering.
TENDERS OF LEGACY DEBENTURES AND LEGACY NOTES AND DELIVERY OF
CONSENTS. Your tender of Legacy debentures and Legacy notes and delivery of
consents (and subsequent acceptance by Enterprises) by one of the procedures set
forth below will constitute a binding agreement between you and Enterprises in
accordance with the terms and subject to the conditions set forth in this
consent solicitation statement/prospectus, in the consent and letter of
transmittal and, if applicable, in the notice of guaranteed delivery.
TENDERS OF LEGACY DEBENTURES AND LEGACY NOTES HELD IN PHYSICAL FORM. To
effectively tender Legacy debentures and Legacy notes held in physical form (and
deliver the related consents):
- you must properly complete and duly execute a consent and letter of
transmittal (or a facsimile thereof) and any other documents required by
the consent and letter of transmittal, and those documents must be
received by the exchange agent at its address set forth on the back cover
of this consent solicitation statement/prospectus, and
- you must ensure that certificates representing those Legacy debentures and
Legacy notes are received by the exchange agent at that address on or
prior to the expiration date.
Consents and letters of transmittal and Legacy debentures and Legacy notes
should be sent only to the exchange agent and should not be sent to Enterprises,
Legacy or the trustee.
If your Legacy debentures and Legacy notes are registered in the name of a
person other than the signatory to the consent and letter of transmittal, then,
in order to tender those Legacy debentures and Legacy notes under the exchange
offer, the Legacy debentures and Legacy notes must be endorsed or accompanied by
an appropriate written instrument or instruments of transfer signed exactly as
that name appears on the Legacy debentures and Legacy notes, with the signature
on the Legacy debentures and Legacy notes or instruments of transfer guaranteed
as provided below. If these procedures are followed by a beneficial owner
tendering Legacy debentures and Legacy notes on or prior to the expiration date,
the registered holder of these Legacy debentures and Legacy notes must sign a
valid proxy as set forth in the consent and letter of transmittal.
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TENDERS OF LEGACY DEBENTURES AND LEGACY NOTES HELD THROUGH A CUSTODIAN. If
your Legacy debentures and Legacy notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and if you wish to
tender Legacy debentures and Legacy notes and deliver a consent and letter of
transmittal, you should contact that registered holder promptly and instruct him
or her or it to tender your Legacy debentures and Legacy notes and deliver a
consent and letter of transmittal on your behalf. A letter of instructions is
enclosed in the solicitation materials provided along with this consent
solicitation statement/prospectus which may be used by you in this process to
instruct the registered holder to tender your Legacy debentures and Legacy notes
and deliver consents. If you wish to tender those Legacy debentures and Legacy
notes and deliver consents yourself, you must, prior to completing and executing
the consent and letter of transmittal and delivering those Legacy debentures and
Legacy notes, either make appropriate arrangements to register ownership of the
Legacy debentures and Legacy notes in your name or follow the procedures
described in the immediately preceding paragraph. The transfer of record
ownership may take considerable time.
TENDERS OF LEGACY DEBENTURES AND LEGACY NOTES HELD THROUGH DTC. To
effectively tender Legacy debentures and Legacy notes (and deliver the related
consents) that are held through DTC, if you are a DTC participant, you should
either:
- properly complete and duly execute the consent and letter of transmittal
(or a facsimile thereof), together with any other documents required by
the consent and letter of transmittal, and mail or deliver the consent and
letter of transmittal and those other documents to the exchange agent, or
- electronically transmit your acceptance through ATOP (and thereby tender
Legacy debentures and Legacy notes), for which the transaction will be
eligible. Upon receipt of your acceptance through ATOP, DTC will edit and
verify the acceptance and send an agent's message (as described below) to
the exchange agent for its acceptance.
Delivery of tendered Legacy debentures and Legacy notes must be made to the
exchange agent subject to the book-entry delivery procedures set forth below, or
you must comply with the guaranteed delivery procedures set forth below.
Except as provided below, unless the Legacy debentures and Legacy notes
being tendered are deposited with the exchange agent on or prior to the
expiration date, Enterprises may, at its option, treat that tender as defective
for purposes of the right to receive the exchange offer consideration. Exchange
for the Legacy debentures and Legacy notes will be made only against deposit of
the tendered Legacy debentures and Legacy notes and delivery of any other
required documents.
BOOK-ENTRY DELIVERY PROCEDURES. The exchange agent will establish accounts
with respect to the Legacy debentures and Legacy notes at DTC for purposes of
the exchange offer within three business days after the date of this consent
solicitation statement/prospectus. Any financial institution that is a
participant in DTC may make book-entry delivery of Legacy debentures and Legacy
notes by causing DTC to transfer those Legacy debentures and Legacy notes into
the exchange agent's account in accordance with DTC's procedures for that
transfer.
Although delivery of Legacy debentures and Legacy notes may be effected
through book-entry transfer into the exchange agent's account at DTC, the
manually signed consent and letter of transmittal (or a manually signed
facsimile thereof) with any required signature guarantees, or an agent's message
(as described below) in connection with a book-entry transfer, and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at one or more of its addresses set forth on the back cover of
this consent solicitation statement/prospectus on or prior to the expiration
date in connection with the tender of those Legacy debentures and Legacy notes.
Delivery of documents to DTC does not constitute delivery to the exchange agent.
48
The confirmation of a book-entry transfer into the exchange agent's account
at DTC as described above is referred to in this consent solicitation
statement/prospectus as a "book-entry confirmation." The term "agent's message"
means a message transmitted by DTC to, and received by, the exchange agent and
forming a part of the book-entry confirmation, which states that DTC has
received an express acknowledgment from a DTC participant that such participant
has received the consent and letter of transmittal and agrees to be bound by the
terms of the consent and letter of transmittal.
SIGNATURE GUARANTEES. Signatures on all consents and letters of transmittal
must be guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, unless your tender of Legacy debentures and Legacy notes and
delivery of consents are tendered and delivered:
- by a registered holder of Legacy debentures and Legacy notes (or by a
participant in DTC whose name appears on a security position listing as
the owner of those Legacy debentures and Legacy notes) who has not
completed any of the boxes entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the consent and letter of transmittal,
or
- for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States (which entities, including any
recognized participant in the Securities Transfer Medallion Program,
Enterprises refers to as "eligible institutions").
If your Legacy debentures and Legacy notes are registered in the name of a
person other than the signatory to the consent and letter of transmittal or if
Legacy debentures and Legacy notes not accepted for exchange or not tendered are
to be returned to a person other than the registered holder, then the signature
on the consent and letter of transmittal accompanying the tendered Legacy
debentures and Legacy notes must be guaranteed. See Instructions 1 and 5 of the
consent and letter of transmittal.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If you desire to tender
Legacy debentures and Legacy notes, but the certificates evidencing those Legacy
debentures and Legacy notes have been mutilated, lost, stolen or destroyed, you
should contact the trustee to receive information about the procedures for
obtaining replacement certificates for Legacy debentures and Legacy notes at the
following address or telephone number: Wells Fargo Bank Minnesota, N.A.,
Corporate Trust Services, MAC N9303-110, 6th & Marquette, Minneapolis, Minnesota
55479, Attention: Michael Lechner, telephone (612) 316-4305.
GUARANTEED DELIVERY. If you want to tender Legacy debentures and Legacy
notes under the exchange offer prior to the expiration date and:
- your certificates representing those Legacy debentures and Legacy notes
are not immediately available,
- time will not permit your consent and letter of transmittal, the
certificates representing your Legacy debentures and Legacy notes and all
other required documents to reach the exchange agent on or prior to the
expiration date, or
- the procedures for book-entry transfer (including delivery of an agent's
message) cannot be completed on or prior to the expiration date,
you may nevertheless tender your Legacy debentures and Legacy notes with the
effect that your tender will be deemed to have been received on or prior to the
expiration date if all the following conditions are satisfied:
- the tender is made by or through an eligible institution,
49
- a properly completed and duly executed notice of guaranteed delivery or an
agent's message with respect to guaranteed delivery that is accepted by
Enterprises is received by the exchange agent on or prior to the
expiration date as provided below, and
- the certificates for the tendered Legacy debentures and Legacy notes, in
proper form for transfer (or a book-entry confirmation of the transfer of
those Legacy debentures and Legacy notes into the exchange agent's account
at DTC as described above), together with a consent and letter of
transmittal (or a facsimile thereof) that is properly completed and duly
executed, with any signature guarantees and any other documents required
by the consent and letter of transmittal, or a properly transmitted
agent's message, are received by the exchange agent within three business
days after the date of execution of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible institution in the form set forth in the notice of guaranteed delivery.
The exchange offer consideration for Legacy debentures and Legacy notes
tendered under the guaranteed delivery procedures will be the same as for Legacy
debentures and Legacy notes delivered to the exchange agent prior to the
expiration date, even if the Legacy debentures and Legacy notes to be delivered
subject to the guaranteed delivery procedures are not so delivered to the
exchange agent, and therefore exchange by the exchange agent on account of those
Legacy debentures and Legacy notes is not made, until after the exchange date.
BACKUP UNITED STATES FEDERAL INCOME TAX WITHHOLDING. To prevent backup
Federal income tax withholding you must provide the exchange agent with your
current taxpayer identification number and certify that you are not subject to
backup federal income tax withholding by completing the Substitute Form W-9
included in the consent and letter of transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Legacy
debentures and Legacy notes or consents subject to any of the procedures
described above will be determined by Enterprises, in its reasonable discretion
(which determination shall be final and binding).
Enterprises reserves the right to reject any or all tenders of any Legacy
debentures and Legacy notes or consents that it determines not to be in proper
form or, in the case of Legacy debentures and Legacy notes, if the acceptance
for tender of those Legacy debentures and Legacy notes may, in the opinion of
its counsel, be unlawful. Enterprises also reserves the right to waive any of
the conditions of the exchange offer or any defect or irregularity in any tender
of your Legacy debentures and Legacy notes or delivery of your consents, whether
or not similar defects or irregularities are waived in the case of other holders
of Legacy debentures and Legacy notes.
Enterprises' interpretation of the terms and conditions of the exchange
offer and consent solicitation (including the consent and letter of transmittal
and the instructions thereto) will be final and binding. Neither Enterprises,
the exchange agent, the information agent, the trustee or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or will incur any liability for failure to give any such notification.
If Enterprises waives its right to reject a defective tender of Legacy
debentures and Legacy notes, you will be entitled to the exchange offer
consideration.
DELIVERY OF CONSENTS WITHOUT TENDERING LEGACY DEBENTURES AND LEGACY
NOTES. In order to validly deliver a consent to the proposed amendments without
tendering your Legacy debentures and Legacy notes, you must complete, execute
and deliver the consent and letter of transmittal prior to the expiration date.
Holders who consent to the proposed amendments and do not tender their Legacy
debentures and Legacy notes will receive no consideration for consenting.
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WITHDRAWAL OF TENDERED LEGACY DEBENTURES AND LEGACY NOTES AND REVOCATION OF
CONSENTS
You may withdraw tenders of Legacy debentures and Legacy notes at any time
on or prior to the expiration date, but the exchange offer consideration will
not be payable on withdrawn Legacy debentures and Legacy notes. You may revoke
consents at any time on or prior to the expiration date.
A valid withdrawal of tendered Legacy debentures and Legacy notes effected
on or prior to the expiration date will constitute the concurrent valid
revocation of your related consents. In order to revoke a consent, you must
withdraw any related tendered Legacy debentures and Legacy notes.
Tenders of Legacy debentures and Legacy notes may be validly withdrawn if
the exchange offer is terminated without any Legacy debentures and Legacy notes
being exchanged thereunder. In this case, the Legacy debentures and Legacy notes
tendered under the exchange offer will be promptly returned to you, the proposed
amendments will not become effective and the consents will be deemed revoked.
For a withdrawal of tendered Legacy debentures and Legacy notes or the
revocation of consents, as the case may be, to be effective, a written or
facsimile transmission notice of withdrawal or revocation must be received by
the exchange agent on or prior to the expiration date at its address set forth
on the back cover of this consent solicitation statement/prospectus. Any such
notice of withdrawal must:
- specify the name of the person who tendered the Legacy debentures and
Legacy notes to be withdrawn or to which the revocation of consents
relates,
- contain the description of the Legacy debentures and Legacy notes to be
withdrawn and identify the certificate number or numbers shown on the
particular certificates evidencing those Legacy debentures and Legacy
notes (unless those Legacy debentures and Legacy notes were tendered by
book-entry transfer) and the aggregate principal amount represented by
those Legacy debentures and Legacy notes, and
- be signed in the same manner as the original signature on the consent and
letter of transmittal by which those Legacy debentures and Legacy notes
were tendered (including any required signature guarantees) or the related
consent was given, or be accompanied by evidence sufficient to the
exchange agent that the person withdrawing the tender or revoking the
consent has succeeded to the beneficial ownership of the Legacy debentures
and Legacy notes.
If the Legacy debentures and Legacy notes to be withdrawn have been
delivered or otherwise identified to the exchange agent, a signed notice of
withdrawal is effective immediately upon written or facsimile notice of that
withdrawal even if physical release is not yet effected.
A valid revocation of consents effected on or prior to the expiration date
will constitute the concurrent valid withdrawal of the Legacy debentures and
Legacy notes to which those consents relate. Any permitted withdrawal of Legacy
debentures and Legacy notes and revocation of consents may not be rescinded, and
any Legacy debentures and Legacy notes properly withdrawn will thereafter be
deemed not validly tendered and any consents revoked will be deemed not validly
delivered for purposes of the exchange offer. Withdrawn Legacy debentures and
Legacy notes may, however, be re-tendered and revoked consents may be
re-delivered by again following one of the appropriate procedures described in
this consent solicitation statement/prospectus at any time on or prior to the
expiration date.
If Enterprises extends the exchange offer or if for any reason (whether
before or after any Legacy debentures and Legacy notes have been accepted for
tender) the acceptance for tender of Legacy debentures and Legacy notes is
delayed or if Enterprises is unable to accept the tender of Legacy debentures
and Legacy notes under the exchange offer, then, without prejudice to its rights
under the exchange offer, tendered Legacy debentures and Legacy notes may be
retained by the exchange agent on its behalf and may not be withdrawn (subject
to Rule 14e-l(c) under the Exchange Act, which
51
requires that an offeror pay the consideration offered or return the securities
deposited by or on behalf of the investor promptly after the termination or
withdrawal of a tender offer), except as otherwise provided in this section. The
time between the initial expiration date and the final expiration date will be
known as the "subsequent offering period."
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal and revocation of consents will be determined
by Enterprises, in its reasonable discretion (which determination shall be final
and binding). Neither Enterprises, the exchange agent, the information agent,
the trustee or any other person will be under any duty to give notification of
any defects or irregularities in any notice of withdrawal or revocation of
consents, or incur any liability for failure to give any such notification.
THE EXCHANGE AGENT AND THE INFORMATION AGENT
Mellon Investor Services has been appointed as exchange agent for the
exchange offer and consent solicitation. Consents and letters of transmittal and
all correspondence in connection with the exchange offer and consent
solicitation should be sent or delivered by you or your broker, dealer,
commercial bank, trust company or other nominee to the exchange agent at the
addresses and telephone number set forth on the back cover of this consent
solicitation statement/prospectus.
Mellon Investor Services has also been appointed as information agent for
the exchange offer and consent solicitation. You may direct questions and
requests for assistance or additional copies of this consent solicitation
statement/prospectus, the consent and letter of transmittal or the notice of
guaranteed delivery to the information agent at its address and telephone
numbers set forth on the back cover of this consent solicitation
statement/prospectus. You may also contact your broker, dealer, commercial bank
or trust company for assistance concerning the exchange offer or consent
solicitation.
FEES AND EXPENSES
The information agent and the exchange agent will receive reasonable and
customary fees for their services and reimbursement for their reasonable
out-of-pocket expenses in connection therewith. Brokerage houses and other
custodians, nominees and fiduciaries will be reimbursed for their reasonable
out-of-pocket expenses incurred in forwarding copies of this consent
solicitation statement/ prospectus and related documents to the beneficial
owners of Legacy debentures and Legacy notes. Enterprises will pay all such fees
and expenses.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF LEGACY AND ENTERPRISES
The shares of Enterprises Series A preferred stock to be issued in
connection with the exchange offer will be registered under the Securities Act
of 1933, as amended, and will be freely transferable under the Securities Act,
except for shares of Enterprises Series A preferred stock issued to any person
who is deemed to be an "affiliate" of either of Legacy or Enterprises under the
Securities Act at the time of the exchange offer. Persons who may be deemed to
be "affiliates" include individuals or entities that control, are controlled by
or are under common control of either Legacy or Enterprises and may include some
of the officers, directors or principal stockholders of Legacy or Enterprises.
Affiliates may not sell their shares of Enterprises Series A preferred stock
acquired in connection with the exchange offer except by means of:
- an effective registration statement under the Securities Act covering the
resale of those shares,
- an exemption under paragraph (d) of Rule 145 under the Securities Act, or
- any other applicable exemption under the Securities Act.
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Enterprises' registration statement on Form S-4, of which this consent
solicitation statement/ prospectus forms a part, does not cover the resale of
shares of Enterprises Series A preferred stock to be received by these
affiliates in the exchange offer.
USE OF PROCEEDS
The Enterprises Series A preferred stock issued in connection with the
exchange offer is only being issued in exchange for Legacy debentures and Legacy
notes. Enterprises will not receive any cash proceeds from the issuance of
Enterprises Series A preferred stock in the exchange offer.
LISTING OF ENTERPRISES SERIES A PREFERRED STOCK TO BE ISSUED IN THE EXCHANGE
OFFER
The Enterprises Series A preferred stock is currently traded on the Nasdaq
National Market under the symbol "PRENP." The shares of Enterprises Series A
preferred stock issued in the exchange offer will be listed on the Nasdaq
National Market.
MISCELLANEOUS
Enterprises is making the exchange offer and consent solicitation to all
holders of Legacy debentures and Legacy notes. Enterprises is not aware of any
jurisdiction in which the making of the exchange offer and consent solicitation
is not in compliance with applicable law. If Enterprises becomes aware of any
jurisdiction in which the making of the exchange offer and consent solicitation
would not be in compliance with applicable law, Enterprises will make a good
faith effort to comply with any such law. If, after such good faith effort,
Enterprises cannot comply with any such law, the exchange offer and consent
solicitation will not be made to (nor will tenders of Legacy debentures and
Legacy notes and consents be accepted from or on behalf of) the holders of
Legacy debentures and Legacy notes residing in such jurisdiction. In any
jurisdiction where the securities, blue sky or other laws require the exchange
offer to be made by a licensed broker or dealer, the exchange offer shall be
deemed to be made on behalf of Enterprises by one or more registered brokers or
dealers licensed under the laws of that jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF ENTERPRISES NOT CONTAINED IN THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS OR IN THE CONSENT AND LETTER OF TRANSMITTAL
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
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THE MERGER, THE SALE OF THE ENTERPRISES
SERIES B PREFERRED STOCK AND RELATED TRANSACTIONS
THIS SECTION OF THE CONSENT SOLICITATION STATEMENT/PROSPECTUS SUMMARIZES THE
PROPOSED MERGER, THE PROPOSED SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK
AND RELATED TRANSACTIONS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION
THAT IS IMPORTANT TO YOU. INFORMATION ABOUT THE MERGER, THE SALE OF THE
ENTERPRISES SERIES B PREFERRED STOCK AND RELATED TRANSACTIONS IS MORE FULLY SET
FORTH IN THE JOINT PROXY STATEMENT/PROSPECTUS THAT IS BEING DISTRIBUTED TO
ENTERPRISES' AND LEGACY'S STOCKHOLDERS. YOU ARE ENCOURAGED TO CAREFULLY READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND RELATED DOCUMENTS.
THE MERGER
The merger agreement provides that, at the effective time of the merger, PEI
Merger Sub, Inc., a wholly-owned subsidiary of Enterprises, will merge with and
into Legacy, with Legacy continuing in existence as the surviving corporation.
Each share of Legacy common stock issued and outstanding at the effective time
will be converted into 0.6667 of a share of Enterprises common stock. Upon
completion of the merger, Legacy will be a wholly-owned subsidiary of
Enterprises and the Legacy common stock will be delisted from the American Stock
Exchange and deregistered under the Exchange Act.
On August 3, 2001, the closing price for the Legacy common stock was $2.05
per share, and the closing prices of the Enterprises common stock and
Enterprises Series A preferred stock were $6.75 and $15.81 per share,
respectively. The closing price of the Enterprises common stock increased from
$5.75 per share on March 21, 2001 (the day immediately prior to the public
announcement of the merger agreement) to $6.83 per share on March 22, 2001.
Enterprises and Legacy believe that this increase in market price is largely a
result of the announcement of Enterprises' offer to purchase all outstanding
shares of Enterprises common stock (other than those shares currently held by
Legacy and those shares issued in the merger) at a cash price of $7.00 per
share.
Based on (1) $4.89 per share for the Enterprises common stock, which is
equal to the closing price of $5.75 per share on March 21, 2001 (the day
immediately prior to the public announcement of the merger agreement), less a
15% discount to reflect the low trading volume of the Enterprises common stock,
and (2) the 61,540,849 shares of Legacy common stock outstanding on August 3,
2001, Enterprises will issue approximately 41,029,284 shares of Enterprises
common stock in the merger for total merger consideration of approximately
$200.7 million, or the equivalent of $3.26 for each share of Legacy common
stock.
The merger exchange ratio was determined by comparing the fair value per
common share of the companies' net assets and upside potential associated with
their development and other projects, as estimated by management without third
party appraisals.
Following the transactions, the holders of Legacy common stock will control
approximately 63.8% of the voting power of Price Legacy.
STRUCTURE OF MERGER
PEI Merger Sub will merge with and into Legacy. As a result of the merger:
- the separate corporate existence of PEI Merger Sub will cease and Legacy
will survive the merger as a wholly-owned subsidiary of Price Legacy,
- the Enterprises common stock and Enterprises Series A preferred stock will
remain outstanding after the merger. However, Enterprises has agreed to
commence an offer to purchase all outstanding shares of Enterprises common
stock (other than those shares currently held by Legacy and those shares
issued in the merger) for $7.00 per share in cash,
- each share of Legacy common stock will be converted into 0.6667 of a share
of Enterprises common stock. Instead of fractional shares of Enterprises
common stock, Legacy's stockholders
54
will receive cash, based on the average closing price for the Enterprises
common stock for the five trading days prior to the effective time of the
merger,
- each outstanding option to purchase Legacy common stock will automatically
become an option to purchase Enterprises common stock. The number of
shares of Enterprises common stock which may be purchased under such
option and the exercise price will be appropriately adjusted to reflect
the merger exchange ratio, and
- the Legacy debentures and Legacy notes not tendered in the exchange offer
will remain outstanding after the merger as obligations of Legacy. As a
result of the merger, the Legacy debentures will be convertible into
Enterprises common stock. The number of shares of Enterprises common stock
into which the Legacy debentures will be convertible and the conversion
price will be appropriately adjusted to reflect the merger exchange ratio.
ENTERPRISES MERGER CHARTER AMENDMENTS
As a condition to Legacy's obligation to complete the merger, Enterprises is
required to amend its charter to:
- change the name of Enterprises to Price Legacy Corporation,
- increase the number of authorized shares of capital stock from 100,000,000
to 150,000,000, and
- increase the number of directors of Enterprises to seven, with four
directors to be elected by the holders of Enterprises Series A preferred
stock and three directors to be elected by the holders of Enterprises
Series A preferred stock and Enterprises common stock, voting together as
a single class.
These amendments to Enterprises' charter are sometimes referred to in this
consent solicitation statement/prospectus as the Enterprises merger charter
amendments.
The Enterprises merger charter amendments will only be effected if the
issuance of the merger consideration, the Enterprises merger charter amendments
and the Price Enterprises, Inc. 2001 Stock Option and Incentive Plan, as
described in the Joint Proxy Statement/Prospectus, are approved. If the issuance
of the merger consideration, the sale of the Enterprises Series B preferred
stock, the Enterprises merger charter amendments, the Enterprises issuance
charter amendments, as described below, and the Enterprises option plan are
approved, then Enterprises' charter will be amended and restated in its entirety
as described in "--Enterprises Issuance Charter Amendments" and the Enterprises
merger charter amendments will not be effected. If neither the issuance of the
merger consideration nor the sale of the Enterprises Series B preferred stock is
approved, then no amendments to Enterprises' charter will be effected. For
additional information regarding the effect of the proposed Enterprises merger
charter amendments, see "Description of Enterprises Capital Stock" and
"Comparison of Stockholder Rights."
CONDITIONS TO THE MERGER
The completion of the merger depends on the satisfaction or waiver of a
number of conditions, including the following:
- approval of the issuance of the merger consideration, the Enterprises
merger charter amendments and the adoption of the Enterprises option plan
by the stockholders of Enterprises,
- approval of the merger agreement by the stockholders of Legacy,
- absence of any law or any injunction that effectively prohibits the
merger,
- receipt of legal opinions regarding the treatment of the merger as a
tax-free reorganization, and
- other customary contractual conditions specified in the merger agreement.
55
Unless prohibited by law, either Enterprises or Legacy may elect to waive a
condition in its favor that has not been satisfied and complete the merger
anyway. In the event material conditions are waived, Enterprises and Legacy
intend to amend and recirculate the Joint Proxy Statement/Prospectus.
If the merger is approved and the other customary closing conditions are
satisfied, the merger and the sale of the Enterprises Series B preferred stock
will occur contemporaneously. Enterprises may elect not to complete the merger
if, immediately prior to the merger, its board is not satisfied that the sale of
the Enterprises Series B preferred stock will occur.
TERMINATION OF THE MERGER AGREEMENT
Enterprises and Legacy can mutually agree to terminate the merger agreement
without completing the merger, and either Enterprises or Legacy can terminate
the merger agreement upon the occurrence of a number of events, including if:
- the merger is not completed by November 21, 2001, so long as the party
seeking to terminate did not prevent the completion of the merger by
failing to perform any of its obligations under the merger agreement,
- Enterprises' stockholders do not approve the issuance of the merger
consideration, the Enterprises merger charter amendments and the adoption
of the Enterprises option plan,
- Legacy's stockholders do not approve the merger agreement,
- any governmental entity issues a nonappealable final order that makes the
merger illegal,
- the other party materially breaches any of its representations or
warranties or fails to perform any of its covenants or agreements in the
merger agreement, which breach or failure to perform is incapable of being
cured or is not cured within ten business days of written notice, or
- the other party knowingly and materially breaches its covenant not to
solicit takeover proposals or participates in discussions relating to a
takeover proposal, except as specifically permitted by the merger
agreement.
The merger agreement does not require either party to pay a termination fee
if the merger agreement is terminated.
STOCKHOLDER AGREEMENTS
In connection with the execution and delivery of the merger agreement,
Enterprises entered into stockholder agreements with some stockholders of Legacy
under which those stockholders have agreed to vote their shares, representing
approximately 20% of the Legacy common stock, in favor of the merger agreement.
The stockholder agreements prohibit, subject to limited exceptions, any
stockholder from selling, transferring, pledging, encumbering, assigning or
otherwise disposing of any shares of Legacy common stock, except in accordance
with the terms of the merger. Each stockholder may sell, transfer, pledge,
encumber, assign or otherwise dispose of an aggregate of 10% of the shares of
Legacy common stock held of record by the stockholder as of March 21, 2001, the
date of the stockholder agreements, without complying with the restrictions on
transfer contained in the stockholder agreements.
Except as noted below, the stockholder agreements terminate upon the earlier
to occur of the effective time or the termination of the merger agreement in
accordance with its terms.
The stockholder agreements entered into by The Price Group, Sol Price and
Robert E. Price terminate upon the earliest to occur of the effective time, the
termination of the merger agreement in accordance with its terms or the
termination of the securities purchase agreement. In the stockholder agreements
entered into by Sol Price and Robert E. Price, they each agreed, in their
capacities as holders of the Legacy debentures and Legacy notes, to consent to
the release of the shares of Enterprises common stock serving as collateral for
these securities. As of August 3, 2001, Sol Price and
56
Robert E. Price beneficially owned approximately $13.5 million in principal
amount of Legacy debentures, representing approximately 40.6% of the outstanding
principal amount of Legacy debentures, and approximately $7.4 million in
principal amount of Legacy notes, representing approximately 40.8% of the
outstanding principal amount of Legacy notes.
THE SALE OF THE ENTERPRISES SERIES B PREFERRED STOCK
Enterprises entered into a securities purchase agreement with Warburg,
Pincus Equity Partners, L.P. and some of its affiliates, which provides that
Enterprises will sell 17,985,612 shares, or 91.5%, of a new class of Enterprises
preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, and
a warrant to purchase an aggregate of 2,500,000 shares of Enterprises common
stock with an exercise price of $8.25 per share to Warburg Pincus for
$100 million in cash.
Also, Enterprises and Sol Price, a significant stockholder of Enterprises
and Legacy through various entities, have agreed to convert an existing Legacy
promissory note payable to an affiliate of Sol Price, The Price Group, of
approximately $9.3 million into 1,681,142 shares, or 8.5%, of Enterprises
Series B preferred stock and a warrant to purchase 233,679 shares of Enterprises
common stock with an exercise price of $8.25 per share immediately after the
sale of the Enterprises Series B preferred stock to Warburg Pincus, which
represents the same financial terms agreed to in the securities purchase
agreement. For a description of the conversion agreement, see "The Exchange
Offer and Consent Solicitation--Conversion Agreement."
For the first 45 months after issuance, all distributions on the Enterprises
Series B preferred stock will be payable in additional shares of Enterprises
Series B preferred stock. Enterprises will issue an additional 7,792,101 shares
of Enterprises Series B preferred stock in the form of distributions, resulting
in a total of 27,458,855 shares of Enterprises Series B preferred stock
outstanding after 45 months. This increase in the number of outstanding shares
of Enterprises Series B preferred stock will also increase the aggregate amount
of cash distributions payable on the Enterprises Series B preferred stock,
resulting in less cash available for distributions on the Enterprises common
stock. For example, once Enterprises has issued all 27,458,855 shares of
Enterprises Series B preferred stock, holders of Enterprises common stock will
receive distributions only if Price Legacy's REIT taxable income exceeds
$47.6 million, which is the aggregate amount of cash distributions payable on
the Enterprises Series A preferred stock and Enterprises Series B preferred
stock after 45 months.
As of August 3, 2001, Warburg Pincus had no control over the voting power of
Enterprises and Sol Price controlled approximately 5.4% of the voting power of
Enterprises. Following the completion of the merger and the sale of the
Series B preferred stock, Warburg Pincus will control approximately 28% of the
voting power of Price Legacy and Sol Price will control approximately 9.4% of
the voting power of Price Legacy. In addition, the voting power of Warburg
Pincus and Sol Price will increase after 45 months to approximately 35.2% and
10.3%, respectively, as a result of the additional shares of Enterprises
Series B preferred stock payable to them as distributions.
Following the completion of the transactions, affiliates of Price Legacy
will hold approximately 71.3% of Price Legacy's preferred stock, entitling them
to an aggregate of approximately $26.1 million per year in distributions. In
addition, the voting power and distributions payable to these stockholders will
increase as a result of the additional shares of Enterprises Series B preferred
stock payable to them as distributions.
ENTERPRISES ISSUANCE CHARTER AMENDMENTS
As a condition to Warburg Pincus' obligation to purchase the Enterprises
Series B preferred stock, Enterprises is required to amend and restate its
charter to:
- change the name of Enterprises to Price Legacy Corporation,
- increase the number of authorized shares of capital stock from 100,000,000
to 150,000,000,
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- designate the Enterprises Series B preferred stock,
- increase the number of directors of Enterprises to eight, with four
directors to be elected by the holders of Enterprises Series A preferred
stock, two directors to be elected by the holders of Enterprises Series A
preferred stock and Enterprises common stock, voting together as a single
class, and two directors to be elected by Warburg Pincus,
- permit Enterprises' board to increase or decrease the number of shares of
Enterprises' authorized capital stock without stockholder approval,
- provide the directors elected by Warburg Pincus with specified approval
rights, and
- limit appraisal rights.
These amendments to Enterprises' charter are sometimes referred to in this
consent solicitation/ prospectus as the Enterprises issuance charter amendments.
The Enterprises issuance charter amendments will only be effected if the
merger, the sale of the Enterprises Series B preferred stock, the Enterprises
merger charter amendments, the Enterprises issuance charter amendments and the
Enterprises option plan are approved. If the merger, the Enterprises merger
charter amendments and the Enterprises option plan are approved, but the sale of
the Enterprises Series B preferred stock and/or the Enterprises issuance charter
amendments are not approved, Enterprises' charter will be amended only to effect
the Enterprises merger charter amendments. If neither the merger nor the sale of
the Enterprises Series B preferred stock is approved, then no amendments to
Enterprises' charter will be effected, regardless of whether any such amendments
are approved. For additional information regarding the effect of the proposed
Enterprises issuance charter amendments, see "Description of Enterprises Capital
Stock" and "Comparison of Stockholder Rights."
VOTING AGREEMENT
Concurrently with Enterprises' execution of the securities purchase
agreement, Legacy entered into a voting agreement with Warburg Pincus pursuant
to which Legacy agreed to vote the shares of Enterprises common stock it holds
in favor of (1) the Enterprises issuance charter amendments, (2) the issuance of
the Enterprises common stock in connection with the merger agreement and
(3) any other matter necessary to complete the transactions contemplated by the
merger agreement and the securities purchase agreement. In addition to Legacy's
agreement to vote in favor of these voting proposals, Legacy agreed to conduct
its business only in the usual, regular and ordinary course before the closing
of the sale of the Enterprises Series B preferred stock with limitations on its
business comparable to those agreed to by Enterprises.
The voting agreement contains customary representations and warranties by
Enterprises, Legacy and Warburg Pincus and an indemnification by Enterprises in
favor of Legacy for any damages resulting from Legacy's execution of the voting
agreement or its performance of its obligations under the voting agreement. The
voting agreement may be terminated by the written consent of the parties or
automatically upon the earlier of the closing of the sale of the Enterprises
Series B preferred stock and the termination of the securities purchase
agreement.
ENTERPRISES' OFFER TO PURCHASE
The merger agreement obligates Enterprises to commence an offer to purchase
all outstanding shares of Enterprises common stock (other than those shares
currently held by Legacy and those shares issued in the merger) at a cash price
of $7.00 per share. Enterprises' obligation to purchase the shares is
conditioned on the completion of the merger. The tender offer is expected to
close concurrently with the merger.
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Enterprises is making the tender offer through an Offer to Purchase which is
being distributed to holders of Enterprises common stock. Holders of Enterprises
common stock are encouraged to carefully read the Offer to Purchase and the
related letter of transmittal.
DIRECTORS AND OFFICERS OF ENTERPRISES AND LEGACY HAVE CONFLICTS OF INTEREST IN
THE MERGER
When considering the recommendations of Legacy's and Enterprises' boards of
directors, you should be aware that some Legacy and Enterprises directors and
officers have interests in the merger that are different from, or are in
addition to, yours. These interests include the relationship of several
directors to The Price Group, a significant stockholder of both companies, the
post-merger membership of some Legacy directors and Enterprises directors on
Price Legacy's board of directors, Legacy officers and Enterprises officers
serving as officers of Price Legacy and the indemnification of directors and
officers of Legacy against some liabilities both before and after the merger.
The merger exchange ratio was determined by comparing the fair value per
common share of the companies' net assets and upside potential associated with
their development and other projects, as estimated by management without third
party appraisals. Although management had a conflict of interest in estimating
these values, they did not obtain third party appraisals or representation for
any unaffiliated stockholders.
As of August 3, 2001, Enterprises' directors and executive officers
controlled approximately 2.3% of the voting power of Enterprises, and Legacy's
directors and executive officers controlled approximately 19% of the voting
power of Legacy. After completion of the merger, the directors and executive
officers of Price Legacy will control approximately 15% of the voting power of
Price Legacy.
As of August 3, 2001, Enterprises' and Legacy's directors and executive
officers also beneficially owned approximately $0.8 million in principal amount
of Legacy debentures, representing approximately 2.3% of the outstanding
principal amount of Legacy debentures, and approximately $0.4 million in
principal amount of Legacy notes, representing approximately 2.3% of the
outstanding principal amount of Legacy notes. These Legacy debentures and Legacy
notes are expected to be tendered in the exchange offer for approximately 79,537
shares of Enterprises Series A preferred stock.
As of August 3, 2001, The Price Group, an affiliate of Enterprises,
controlled approximately 8.5% of the voting power of Legacy. After completion of
the merger, The Price Group will control approximately 8.2% of the voting power
of Price Legacy.
As a result of the merger, Legacy's directors and executive officers will
receive options to purchase an aggregate of approximately 156,006 shares of
Enterprises common stock in exchange for their Legacy stock options and an
aggregate of approximately 4,304,945 shares of Enterprises common stock in
exchange for their shares of Legacy common stock. In addition, The Price Group
will receive approximately 3,500,175 shares of Enterprises common stock in the
merger.
In addition, in January 2001, Legacy's officers and directors cancelled
options with exercise prices in excess of current trading prices to purchase a
total of 4,049,000 shares of Legacy common stock. Enterprises agreed in the
merger agreement to consider the number of options cancelled by these
individuals in determining the size of future option grants, if any, to these
individuals following the closing of the transactions. However, no specific
agreement or commitment as to the amount or timing of any future option grants
has been made.
Other than as described above and payments made to directors and officers in
their capacities as such, no payments or benefits will be paid to Enterprises'
or Legacy's directors or officers as a result of the merger or related
transactions.
59
INFORMATION ABOUT ENTERPRISES
GENERAL
Price Enterprises, Inc., a Maryland corporation, is a self-administered,
self-managed REIT. Its principal business is to own, operate, lease, manage,
acquire and develop retail real property. In addition, it owns four self storage
facilities and has a 50% interest in three joint ventures. Enterprises was
originally incorporated in July 1994 as a Delaware corporation and began
operations as a wholly-owned subsidiary of Costco Companies, Inc., formerly
Price/Costco, Inc. In 1994, Costco spun-off Enterprises and transferred to
Enterprises, as part of a voluntary exchange offer, substantially all of the
real estate assets which historically formed Costco's non-club real estate
business segment, merchandising business entities and other assets.
In August 1997, Enterprises' merchandising businesses, real estate
properties held for sale and various other assets were spun-off to
PriceSmart, Inc. Through a stock distribution, PriceSmart became a separate
public company. Since that time, Enterprises has engaged in a combination of
acquiring, developing, owning, managing and/or selling real estate assets,
primarily shopping centers. The PriceSmart distribution resulted in Enterprises
becoming eligible to elect federal tax treatment as a REIT, which allows
Enterprises to substantially eliminate its obligation to pay taxes on income.
In November 1999, Legacy completed its exchange offer for the Enterprises
common stock. In the Legacy exchange offer, Legacy acquired approximately 91.3%
of the Enterprises common stock, which represents approximately 77.3% of the
voting power of Enterprises. Enterprises' stockholders who tendered their shares
of Enterprises common stock in the Legacy exchange offer received from Legacy a
total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the
Legacy debentures and $1.50 in principal amount of the Legacy notes for each
share of Enterprises common stock.
ACQUISITION, FINANCING AND OPERATING POLICIES
Enterprises' primary investment strategy is to identify and purchase
well-located income-producing shopping centers. Enterprises seeks to achieve
income growth and enhance the cash flow potential of its property through a
program of expansion, renovation, leasing, re-leasing and improving the tenant
mix. Enterprises minimizes development risks by generally purchasing existing
income-producing properties. Enterprises regularly reviews its portfolio and
from time to time considers the sale of some of its properties.
Enterprises has generally acquired properties for cash. Enterprises'
management believes that its ability to purchase available properties for cash
enhances its negotiating position in obtaining attractive purchase prices. In a
few instances properties have been acquired subject to existing mortgages.
Enterprises intends to finance future acquisitions with the most
advantageous sources of capital available to it at that time, which may include
the sale of common stock, preferred stock or debt securities through public
offerings or private placements, the incurrence of additional indebtedness
through secured or unsecured borrowings, and the reinvestment of proceeds from
the disposition of assets. Enterprises' financing strategy is to maintain a
strong and flexible financial position by (1) maintaining a prudent level of
leverage, (2) maintaining a large pool of unencumbered properties, (3) managing
its variable rate exposure, (4) amortizing existing mortgages over the term of
the leases for such mortgaged properties and (5) maintaining a low distribution
payout ratio (i.e., distributions paid in respect of a year as a percentage of
FFO for such year).
60
Enterprises' objective is to provide stockholders with long-term stable cash
flow balanced with consistent growth. Enterprises seeks to achieve this
objective through the following business and growth strategies:
- owning, operating and acquiring shopping centers primarily in markets with
strong economic and demographic characteristics in order to establish and
maintain a diverse, high-quality portfolio of shopping centers,
- developing local and regional market expertise through the hands-on
participation of senior management in property operations and leasing in
order to capitalize on market trends, retailing trends and acquisition
opportunities, and
- maintaining a diversified and complementary tenant mix with an emphasis on
retailers that provide day-to-day consumer necessities in order to provide
consistent rental revenue.
Enterprises implements these strategies by:
- analyzing regional and submarket demographic, economic and retailing
trends,
- developing relationships with key industry participants such as retailers,
real estate brokers and financial institutions,
- emphasizing tenant satisfaction and retention through its proactive
communication with tenants, community oriented marketing activities and
comprehensive maintenance programs, and
- capitalizing on cost reduction and economy of scale opportunities arising
from the size and proximity of its properties within each region.
Virtually all operating and administrative functions, such as leasing, data
processing, finance, accounting and construction, are centrally managed at
Enterprises' headquarters. Following the Legacy exchange offer, Legacy took over
daily management of Enterprises, including most of these functions. On-site
functions, such as security, maintenance, landscaping and other similar
activities are either performed by Enterprises or subcontracted. The cost of
these functions are passed through to tenants to the extent permitted by the
respective leases. Enterprises' properties are generally leased on a triple-net
basis, which requires tenants to pay their pro rata share of all real property
taxes, insurance and property operating expenses.
ENTERPRISES' PROPERTIES
At March 31, 2001, Enterprises owned 34 commercial real estate properties
and held one property with a 19-year ground lease, in addition to land in
Tucson, Arizona, Temecula, California, and San Diego/Pacific Beach, California
held for future development. These properties encompass approximately
4.8 million square feet of gross leasable area, or GLA, and were 93% leased. The
five largest properties include 1.6 million square feet of GLA that generate
annual minimum rent of $26.4 million, based on leases existing as of March 31,
2001.
Included in the properties Enterprises owned at March 31, 2001 are four self
storage facilities, one of which is located on the same site as Enterprises' San
Diego, California commercial property. Enterprises' commercial property located
in Azusa, California was sold during the year, but it retained the self storage
facility. The other two self storage facilities are stand-alone properties. At
year end, these facilities had 0.7 million square feet of GLA and were 96%
occupied.
Enterprises also has a 50% interest in three joint ventures which own retail
properties in Fresno, California, Bend, Oregon, and Westminster, Colorado.
The following table describes Enterprises' portfolio of real estate
properties as of March 31, 2001. Amounts shown for annual minimum rents are
based on executed leases at March 31, 2001. Enterprises
61
made no allowances for contractually-based delays to the commencement of rental
payments. Due to the nature of real estate investments, Enterprises' actual
rental income may differ from amounts shown in the table below. Self storage
properties as of March 31, 2001 are shown separately from Enterprises'
commercial portfolio.
% OF
ANNUAL ANNUAL CENTER LEASE
NUMBER GLA MINIMUM RENT/ LEASED BY EXPIRATION OF
OF (SQ.FT.) PERCENT RENT (1) SQ. FT. PRINCIPAL PRINCIPAL PRINCIPAL
COMMERCIAL PROPERTIES TENANTS (000) LEASED ($000) ($) TENANT TENANT TENANT
--------------------- -------- -------- -------- --------- -------- --------------- --------- -------------
Westbury, NY................ 8 398.6 100% 7,765.0 19.48 Costco 37% 2009
Pentagon City, VA........... 8 336.8 98% 6,802.8 20.20 Costco 50 2009
Westminster, CO(2).......... 10 228.7 94% 4,425.8 19.35 AMC 48 2018
Wayne, NJ(3)................ 5 348.1 93% 4,368.7 12.55 Costco 43 2009
Philadelphia, PA............ 21 305.3 97% 3,070.3 10.06 Home Depot 36 2009
Roseville, CA............... 19 188.5 100% 2,422.2 12.85 The Sports 23 2016
Authority
Signal Hill, CA............. 14 154.8 100% 2,416.7 15.62 Home Depot 67 2014
Sacramento/Bradshaw, CA..... 2 156.0 100% 2,415.7 15.48 AT&T 100 2006
San Diego/Morena, CA(4)..... 4 322.2 98% 2,091.9 6.49 Costco 57 2009
Seekonk, MA................. 12 213.9 98% 1,962.0 9.17 Don Mar 24 2004
Creations
Glen Burnie, MD............. 10 154.6 89% 1,688.4 10.92 The Sports 26 2011
Authority
San Diego/Rancho San Diego, 19 98.4 97% 1,302.3 13.24 Ross 24 2004
CA........................
Fresno, CA(2)............... 4 85.5 100% 1,225.3 14.32 Bed & Bath 43 2010
Scottsdale, AZ.............. 23 65.7 79% 1,045.5 15.91
San Diego/Carmel Mountain, 6 35.0 100% 952.6 27.22 Claim Jumper 30 2013
CA........................
Inglewood, CA............... 1 119.9 100% 926.6 7.73 Home Base 100 2009
Moorestown, NJ (leased 3 177.1 37% 738.0 4.17 The Sports 24 2013
land)..................... Authority
Northridge, CA.............. 2 22.0 100% 734.0 33.37 Barnes & Noble 64 2003
New Britain, CT............. 1 112.4 100% 671.1 5.97 Wal-Mart 100 2002
Middletown, OH.............. 1 126.4 100% 626.5 4.96 Lowe's 100 2013
San Juan Capistrano, CA..... 6 56.4 100% 599.4 10.62 PetsMart 47 2011
Terre Haute, IN............. 1 104.3 100% 557.8 5.35 Lowe's 100 2013
Smithtown, NY............... 1 55.6 100% 500.7 9.01 Levitz 100 2014
Hampton, VA................. 2 45.6 100% 452.4 9.92 The Sports 92 2013
Authority
San Diego/Rancho Bernardo, 1 82.2 100% 450.0 5.48 Excel Legacy 100
CA(5)..................... Corp.
Redwood City, CA............ 2 49.4 100% 418.8 8.47 Orchard Supply 100 2009
Hardware
Bend, OR (2)................ 2 40.1 100% 416.3 10.39 Regal Cinemas 97 2015
Tucson, AZ.................. 11 40.1 100% 408.1 10.18 PetsMart 64 2011
San Diego/Southeast, CA..... 2 8.9 100% 150.4 16.95 Navy Federal 61 2004
Credit Union
Chula Vista/Rancho del Rey, 1 3.2 100% 75.0 23.44 Burger King 100 2018
CA........................
--- ------- --- ---------
TOTAL(6).................... 202 4,135.7 95% $51,680.3
=== ======= === =========
------------------------------
(1) Annual minimum rent does not include percentage rents and expense
reimbursements.
(2) Legacy owns a 50% interest in these properties. Properties are shown with
100% of the annual minimum rent.
(3) Includes 27,477 sq. ft. of vacant storage space.
(4) Price Self Storage is also located at this property.
(5) This property is being master leased to Legacy.
(6) Table excludes land not currently under development in Tucson, Arizona.
62
AS OF MARCH 31, 2001
--------------------------
GROSS LEASEABLE PERCENT
SELF STORAGE PROPERTIES AREA (SQ. FT.) LEASED
----------------------- --------------- --------
(IN THOUSANDS)
San Diego/Murphy Canyon, CA................................. 250.8 99%
San Diego, CA(1)............................................ 89.6 99%
Azusa, CA................................................... 84.3 99%
Solana Beach, CA(2)......................................... 238.0 91%
----- --
TOTAL SELF STORAGE PROPERTIES............................... 662.7 96%
===== ==
------------------------
(1) GLA of this facility is also included in GLA for the San Diego, California
commercial property location listed above.
(2) Expansion of this facility was completed during the year and includes
100,000 sq. ft. of indoor RV and boat storage.
The annual gross potential rent for the four operating self storage
facilities is $7.2 million. Gross potential rent equals the GLA times the
average rent per square foot. Revenues from Enterprises' self storage properties
contributed 8.7% of total revenues during the year ended March 31, 2001.
Enterprises also owns land in Temecula, California currently under
development with Wal-Mart as a principal tenant. Enterprises' 50% interest in
three joint ventures located in Fresno, California, Bend, Oregon, and
Westminster, Colorado are also under various stages of development.
As of March 31, 2001 Enterprises owned the following properties in each of
the states listed:
ANNUAL PERCENT OF
NUMBER GLA MINIMUM SCHEDULED
OF PERCENT (SQ.FT.) RENT(1) ANNUAL MINIMUM
PROPERTIES LEASED (000) ($000) RENT
---------- -------- -------- --------- --------------
Arizona(2).............. 2 89.5% 105.8 1,453.6 2.8%
California(3,4,5)....... 14 99.6% 1,382.4 16,181.1 31.3%
Colorado(3)............. 1 94.1% 228.7 4,425.8 8.6%
Connecticut............. 1 100.0% 112.4 671.1 1.3%
Indiana................. 1 100.0% 104.3 557.8 1.1%
Maryland................ 1 89.0% 154.6 1,688.4 3.3%
Massachusetts........... 1 98.1% 213.9 1,962.0 3.8%
New Jersey(6)........... 2 65.2% 525.2 5,106.6 9.9%
New York................ 2 100.0% 454.2 8,265.6 16.0%
Ohio.................... 1 100.0% 126.4 626.5 1.2%
Oregon(3)............... 1 100.0% 40.1 416.3 0.8%
Pennsylvania............ 1 96.9% 305.3 3,070.3 5.9%
Virginia................ 2 99.0% 382.4 7,255.2 14.0%
-- ----- -------- --------- -----
TOTAL................... 30 94.7% 4,135.7 $51,680.3 100.0%
== ===== ======== ========= =====
------------------------
(1) Annual minimum rent does not include percentage rents and expense
reimbursements.
(2) Table excludes land not currently under development in Arizona.
(3) Legacy owns a 50% interest in properties located in these states. Properties
are shown with 100% of the annual minimum rent.
(4) Price Self Storage is also located at a property in this state.
(5) A property is being master leased to Legacy.
(6) A property in this state includes 27,477 sq. ft. of vacant storage space.
63
ACQUISITION AND DISPOSITION ACTIVITIES
The following table summarizes Enterprises' acquisition and disposition
activities from January 1, 2000 through March 31, 2001:
GLA ACQUISITION/ DATE OF
PROPERTY (SQ. FT.) CITY STATE DISPOSITION TRANSACTION
-------- --------- --------------- ---------- ------------ -----------
Denver/Aurora.................. 164,250 Aurora Colorado Disposition 01/15/01
Fountain Valley................ 119,037 Fountain Valley California Disposition 11/20/00
Sacramento/Stockton............ 50,194 Sacramento California Disposition 11/20/00
Littleton...................... 26,377 Littleton Colorado Disposition 11/03/00
Fresno Pad(1).................. N/A Fresno California Disposition 11/03/00
Scottsdale City Center(2)...... 65,700 Scottsdale Arizona Acquisition 10/23/00
Sacramento/Bradshaw............ 138,375 Littleton California Disposition 09/18/00
Azusa.......................... 224,317 Azusa California Disposition 08/25/00
San Diego/Pacific Beach(1)..... N/A San Diego California Acquisition 07/31/00
Excel Centre(2,3).............. 82,200 San Diego California Acquisition 02/25/00
Lowe's(2)...................... 126,400 Middletown Ohio Acquisition 02/09/00
Lowe's(2)...................... 104,259 Terre Haute Indiana Acquisition 02/09/00
---------
TOTAL.......................... 1,101,109
=========
------------------------
(1) Property consists of raw land.
(2) Property purchased from Legacy.
(3) Property is being master leased to Legacy.
ENTERPRISES' PRINCIPAL TENANTS
Enterprises' eight largest tenants accounted for approximately 45% of its
total GLA and approximately 53% of its total annualized rental revenues as of
March 31, 2001. The table below presents certain information about these
tenants:
PERCENT OF
PERCENT OF ANNUAL TOTAL ANNUAL
NUMBER OF GLA TOTAL MINIMUM RENT MINIMUM
TENANT LEASES (SQ. FT.) GLA ($000) RENT
------ --------- --------- ---------- ------------ ------------
Costco............................... 4 618,192 16% 8,484.7 18.7%
The Sports Authority................. 7 298,217 8% 3,720.4 8.2%
The Home Depot....................... 2 214,173 5% 2,775.2 6.1%
AT&T Wireless........................ 1 156,576 4% 2,415.7 5.3%
Kmart................................ 1 110,054 3% 2,027.2 4.5%
Marshalls............................ 2 87,968 2% 1,889.5 4.2%
Borders.............................. 2 62,999 2% 1,655.7 3.7%
Lowe's............................... 2 230,659 6% 1,207.8 2.7%
-- --------- -- --------- ----
TOTAL................................ 21 1,778,838 45% $24,176.2 53.4%
== ========= == ========= ====
ENTERPRISES' EMPLOYEES
Enterprises does not currently have any employees. At the close of the
Legacy exchange offer in 1999, Legacy took over daily management of Enterprises,
including property management and finance. Enterprises reimburses Legacy for
these services based on its historical costs for similar expenses.
ENTERPRISES' HEADQUARTERS
Enterprises' principal executive offices are located at 17140 Bernardo
Center Drive, Suite 300, San Diego, California 92128 and its telephone number is
(858) 675-9400.
64
ENTERPRISES' MANAGEMENT
The table below indicates the name, position with Enterprises and ages of
its directors, executive officers and other key employees as of August 3, 2001.
NAME POSITION WITH ENTERPRISES AGE
---- ------------------------------------------------ --------
Jack McGrory.............................. Chairman 51
Gary B. Sabin............................. Director, President and Chief Executive Officer 47
Richard B. Muir........................... Director, Executive Vice President and Chief
Operating Officer 45
James F. Cahill........................... Director 45
Murray Galinson........................... Director 63
S. Eric Ottesen........................... Senior Vice President, General Counsel and
Secretary 45
James Y. Nakagawa......................... Chief Financial Officer 35
Graham R. Bullick, Ph.D................... Senior Vice President--Capital Markets 50
Mark T. Burton............................ Senior Vice President--Acquisitions 40
John A. Visconsi.......................... Senior Vice President--Leasing/Asset Management 56
William J. Stone.......................... Senior Vice President--Retail Development 57
Susan M. Wilson........................... Senior Vice President--Mixed Use/Development 43
In the event the merger is approved and completed, Enterprises will be
obligated to appoint two additional directors to its board. In this event, Keene
Wolcott will be appointed as an Enterprises Series A preferred stock nominee and
Graham R. Bullick, Ph.D. will be appointed as an Enterprises Series A preferred
stock and Enterprises common stock nominee. These additional directors will be
appointed by Enterprises' board without the approval of Enterprises'
stockholders.
In the event the merger and the sale of the Enterprises Series B preferred
stock are approved and completed, instead of appointing two additional
directors, as described above, Enterprises will be obligated to appoint three
additional directors to its board. In this event, Reuben S. Leibowitz and Melvin
L. Keating will be appointed as Warburg Pincus nominees and Keene Wolcott will
be appointed as an Enterprises Series A preferred stock nominee. These
additional directors will be appointed by Enterprises' board without the
approval of Enterprises' stockholders. In this instance, the holders of
Enterprises Series A preferred stock will no longer have the right to elect a
majority of Enterprises' board of directors.
The biographies of the above named individuals are set forth below.
JACK MCGRORY has served as Chairman of the Board of Enterprises and a
director of Legacy since November 1999. Since September 2000, Mr. McGrory has
also served as President and Chief Executive Officer of Downtown
Development Inc., an entity which manages the construction of San Diego's new
ballpark and adjacent commercial real estate, and President and Chief Executive
Officer of San Diego Revitalization, a non-profit organization focused on real
estate development in City Heights. Mr. McGrory has also been the Managing
Director of The Price Group LLC, which is engaged in securities and real estate
investments, since August 2000. Mr. McGrory served as Chief Operating Officer of
the San Diego Padres from October 1999 to August 2000. Mr. McGrory served as
President and Chief Executive Officer of Enterprises from September 1997 to
November 1999 and as City Manager of the City of San Diego from March 1991 to
August 1997.
GARY B. SABIN has served as President and Chief Executive Officer and a
director of Enterprises since November 1999. Mr. Sabin also has served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Legacy since its formation in November 1997. Mr. Sabin served as director and
President of New Plan Excel Realty Trust, Inc. (New Plan Excel) from
September 1998 to
65
April 1999 and as Chairman, President and Chief Executive Officer of Excel
Realty Trust from January 1989 to September 1998. In addition, Mr. Sabin has
served as Chief Executive Officer of various companies since his founding of
Excel Realty Trust's predecessor company and its affiliates starting in 1977. He
has been active for over 20 years in diverse aspects of the real estate
industry, including the evaluation and negotiation of real estate acquisitions,
management, financing and dispositions.
RICHARD B. MUIR has served as Executive Vice President, Chief Operating
Officer and a director of Enterprises since November 1999. Mr. Muir also has
served as director, Executive Vice President and Secretary of Legacy since its
formation and as Legacy's Chief Operating Officer since November 1999. Mr. Muir
served as a director, Executive Vice President and Co-Chief Operating Officer of
New Plan Excel from September 1998 to April 1999 and served as director,
Executive Vice President and Secretary of Excel Realty Trust from January 1989
to September 1998. In addition, Mr. Muir served as an officer and director of
various affiliates of Excel Realty Trust since 1978, primarily in administrative
and executive capacities, including direct involvement in and supervision of
asset acquisitions, management, financing and dispositions.
JAMES F. CAHILL has served as a director of Enterprises since August 1997
and as a director of PriceSmart, Inc. since November 1999. He has also served as
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.
MURRAY GALINSON has served as a director of Enterprises since January 2001
and was previously a director of Enterprises from August 1994 until the closing
of the Legacy exchange offer in 1999. Mr. Galinson has also served as Chairman
of the Board of San Diego National Bank and SDNB Financial Corp. since May 1996
and as a director of both entities since their inception in 1981. Mr. Galinson
served as President of both entities from September 1984 until May 1996 and as
Chief Executive Officer of both entities from September 1984 to September 1997.
S. ERIC OTTESEN has served as Senior Vice President, General Counsel and
Secretary of Enterprises since November 1999. Mr. Ottesen also has served as
Senior Vice President, General Counsel and Assistant Secretary of Legacy since
its formation. Mr. Ottesen served as Senior Vice President--Legal Affairs and
Secretary of New Plan Excel from September 1998 to April 1999. Mr. Ottesen
served as Senior Vice President, General Counsel and Assistant Secretary of
Excel Realty Trust from September 1996 to September 1998. From 1987 to 1995,
Mr. Ottesen was a senior partner in a San Diego law firm.
JAMES Y. NAKAGAWA has served as Chief Financial Officer of Enterprises since
November 1999. Mr. Nakagawa also has served as Chief Financial Officer and
Treasurer of Legacy since October 1998. From March 1998 to October 1998,
Mr. Nakagawa served as Controller of Legacy. Mr. Nakagawa served as Controller
of Excel Realty Trust and then New Plan Excel from September 1994 to
April 1999. Prior to joining Excel Realty Trust, Mr. Nakagawa was a manager at
Coopers & Lybrand LLP. Mr. Nakagawa is a certified public accountant.
GRAHAM R. BULLICK, PH.D., has served as Senior Vice President--Capital
Markets of Enterprises since November 1999 and in the same position with Legacy
since its formation. Mr. Bullick served as Senior Vice President--Capital
Markets of Excel Realty Trust and then New Plan Excel from January 1991 to
April 1999. Previously, Mr. Bullick was associated with Excel Realty Trust as a
director from 1991 to 1992. From 1985 to 1991, Mr. Bullick served as Vice
President and Chief Operations Officer for a real estate investment firm, where
his responsibilities included acquisition and financing of investment real
estate projects.
66
MARK T. BURTON has served as Senior Vice President--Acquisitions of
Enterprises since November 1999 and in the same position with Legacy since its
formation. Mr. Burton served as Senior Vice President--Acquisitions with Excel
Realty Trust and then New Plan Excel from October 1995 to April 1999. He also
served as a Vice President of Excel Realty Trust from January 1989 to
October 1995. Mr. Burton was associated with Excel Realty Trust and its
affiliates beginning in 1983, primarily in the evaluation and selection of
property acquisitions.
JOHN A. VISCONSI has served as Senior Vice President--Leasing/Asset
Management of Enterprises since November 1999 and in the same position with
Legacy since May 1999. Mr. Visconsi served as Vice President--Leasing with Excel
Realty Trust and then New Plan Excel from January 1995 to April 1999. He also
served as Senior Vice President of Enterprises from January 1994 to March 1995.
From 1981 to 1994, Mr. Visconsi was director of Leasing and Land Development of
Ernest W. Hahn, Inc.
WILLIAM J. STONE has served as a Senior Vice President--Retail Development
of Enterprises and Legacy since December 1999. From November 1994 to
December 1999, Mr. Stone served as the Executive Vice President of DDR/Oliver
McMillan, where he oversaw the development of urban retail/ entertainment
redevelopment projects. Prior to joining DDR/Oliver McMillan and since 1975,
Mr. Stone was an executive with several nationally recognized firms in the
regional shopping center industry, most recently with TrizecHahn, Inc.
SUSAN M. WILSON has served as Senior Vice President--Mixed Use/Development
of Enterprises and Senior Vice President--Office/Industrial/Hospitality of
Legacy since December 1999. Ms. Wilson joined Legacy in May 1998. From May 1992
to May 1998, Ms. Wilson owned and operated her own real estate development and
property management firm specializing in office, industrial and multi-family
projects.
KEENE WOLCOTT has served as President of Wolcott Investments, Inc., a
private investment company, since 1975 and is currently a director of Prusser's
of the West Indies Ltd., a company which owns and operates restaurants.
Mr. Wolcott served as a director of Price REIT, Inc. from January 1995 until
1998. From 1969 to 1973, Mr. Wolcott served as Chief Executive Officer of the
Colorado Corporation, which managed investor funds in oil and gas exploration.
Prior to 1969 he served as Senior Vice President of Hayden, Stone and Company, a
securities brokerage firm.
MELVIN L. KEATING has served as President of Kadeca Consulting Corporation,
a real estate consulting firm, since 1997. From 1995 to 1997, Mr. Keating served
as President of Sunbelt Management Company, Delray Beach, Florida. Sunbelt
Management is an owner and operator of commercial and retail real estate in
North America. From 1986 to 1995, Mr. Keating served as Senior Vice President of
various entities controlled by the Reichmann family, including Reichmann
International Companies and Olympia & York Companies, U.S.A., which were engaged
in the real estate development business, including the development and
construction of major urban office buildings and other commercial property.
Mr. Keating is a director of Plymouth Rubber Company, Inc., Canton,
Massachusetts.
REUBEN S. LEIBOWITZ is a Managing Director of E.M. Warburg, Pincus & Co.,
LLC, a private equity investment firm. He has been associated with Warburg
Pincus since 1984. He is also a director of Chelsea Property Group, Inc. and a
number of private companies. Mr. Leibowitz has served as a director of Grubb &
Ellis Co. since 1993 and currently serves as the Chairman of the Board.
Mr. Leibowitz is a member of the New York State Bar and a Certified Public
Accountant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following completion of the Legacy exchange offer in 1999, Gary B. Sabin,
Chairman, President and Chief Executive Officer of Legacy, became Enterprises'
President and Chief Executive Officer, and
67
certain other Legacy executives became Enterprises executives. Legacy also took
over daily management of Enterprises, including property management and finance.
Enterprises reimburses Legacy for these services. Enterprises expensed
$3 million for these services for the year ended December 31, 2000, which was
based on historical costs for similar expenses. Enterprises expensed $249,000
for these services during the period of November 12, 1999 through December 31,
1999.
During 2000, Enterprises purchased two retail buildings and two office
buildings properties from Legacy. They were funded through advances on
Enterprises unsecured revolving credit facility, by assuming mortgages and notes
payable, and with the proceeds from a property sold in 2000 in a tax-deferred
exchange transaction.
Enterprises also purchased a 50% interest in a real estate development joint
venture in Westminster, Colorado from Legacy for an initial payment of
$8.1 million. The purchase price was based on the property's existing operating
income, with additional payments estimated to be $4.8 million due through the
completion of construction.
In March 2000, Enterprises executed a $15 million note receivable with
Legacy due December 2002. The note was amended in September 2000 to allow Legacy
to borrow up to $40 million on the note. The note bears an interest rate of
LIBOR plus 375 basis points (10.23% at December 31, 2000) on the first
$15 million. Amounts borrowed in excess of $15 million bear interest at a fixed
rate of 12.5% per year. As of December 31, 2000, Legacy owed $25.4 million on
this note at a weighted average interest rate of 11.2%.
On March 21, 2001, Enterprises, PEI Merger Sub, a wholly-owned subsidiary of
Enterprises, and Legacy entered into the merger agreement. The merger agreement
provides that, at the effective time of the merger, PEI Merger Sub will merge
with and into Legacy, with Legacy continuing in existence as the surviving
corporation. Each share of Legacy common stock issued and outstanding at the
effective time will be converted into 0.6667 of a share of Enterprises common
stock.
On April 12, 2001, Enterprises and Sol Price, a significant stockholder of
Enterprises and Legacy through various entities, agreed to convert an existing
Legacy promissory note payable to an affiliate of Sol Price, The Sol and Helen
Price Trust, of approximately $9.3 million into 1,681,142 shares, or 8.5%, of
Enterprises Series B preferred stock and a warrant to purchase 233,679 shares of
Enterprises common stock with an exercise price of $8.25 per share immediately
after the sale of the Enterprises Series B preferred stock to Warburg Pincus,
which represents the same financial terms agreed to in the securities purchase
agreement. This Legacy promissory note, together with the right to receive the
Enterprises Series B preferred stock and the warrant, was subsequently assigned
to The Price Group. The conversion agreement, which effects this transaction,
provides that The Price Group will, along with Warburg Pincus, become a party to
a registration rights agreement with all rights of an investor under the
agreement other than those relating to demand registrations. The conversion
agreement does not provide The Price Group with any of the other rights, such as
representations, warranties, covenants, indemnities and termination fees,
provided to Warburg Pincus in the securities purchase agreement. Warburg Pincus
has consented to this transaction.
In May 2001, Enterprises agreed in principle to master lease its existing
four self storage properties to some of its officers, including Kelly D. Burt,
Executive Vice President--Development, and William J. Hamilton, Senior Vice
President--Self Storage. Effective as of the date of the agreement, the officers
ceased being employees of Enterprises and Legacy. The initial rent paid under
this agreement will be $5.1 million per year. As part of the agreement,
Enterprises will have the right to require the lessee to purchase the properties
from it at a price based upon the properties' net operating income as defined by
the agreement. In addition, Enterprises intends to develop four additional self
storage properties that the lessees will have the right to acquire from
Enterprises upon completion and stabilization of the properties. The final terms
of the transaction are subject to the negotiation and execution of a definitive
agreement, and other customary closing conditions. No assurance can be given
that the transaction will be completed on the terms described above or at all.
68
INFORMATION ABOUT LEGACY
GENERAL
Excel Legacy Corporation, a Delaware corporation, was formed on
November 17, 1997 as a wholly-owned subsidiary of Excel Realty Trust, Inc., a
Maryland corporation and a REIT. On March 31, 1998, Excel Realty Trust effected
a spin-off of Legacy's business through a special dividend of all of its
outstanding common stock to holders of Excel Realty Trust common stock. Excel
Realty Trust effected this spin-off to allow Legacy to pursue a wider variety of
real estate opportunities including owning, acquiring, developing and managing
mixed-use and retail properties and real estate related operating companies
throughout the United States and Canada.
ACQUISITION, FINANCING AND OPERATING POLICIES
In connection with this spin-off, Excel Realty Trust transferred real
properties, notes receivable and related assets and liabilities to Legacy. In
addition to operating assets obtained from the spin-off, Legacy intends to
pursue signature real estate projects that have unique locations, concepts or
significant entry barriers associated with them, including:
- developing mixed-use entertainment projects that have the potential for
substantial capital gains but which may take several years to fully
develop,
- investing in securities of real estate related operating companies where
significant influence may be exerted to enhance the value of the
companies,
- investing in properties requiring significant restructuring or
redevelopment to create substantial value, such as changing the use,
tenant mix or focus of a property, and
- opportunistic buying and selling of commercial properties or real estate
related and other companies.
Legacy intends to finance its investments through both public and private
secured and unsecured debt financings, as well as public and private placements
of its equity securities. Legacy does not have a policy limiting the number or
amount of mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on such properties.
There are currently no restrictions on the amount of debt that Legacy may incur.
Legacy may continue to seek variable rate financing from time to time if
such financing appears advantageous in light of then-prevailing market
conditions. In that case, Legacy will consider hedging against interest rate
risk through interest rate protection agreements, interest rate swaps or other
means. Legacy does not plan to make distributions on its capital stock for the
foreseeable future, which will permit it to accumulate for reinvestment cash
flow from investments, disposition of investments and other business activities.
LEGACY'S INVESTMENTS
In addition to Legacy's ownership of 91.3% of the Enterprises common stock,
at March 31, 2001, Legacy's business consisted of the following portfolio of
real properties, notes receivable and investments in real estate-related
ventures:
- ownership interests in a number of real estate related ventures,
including:
- a 65% ownership interest in a joint venture that is developing a retail
project in Newport, Kentucky scheduled for completion in 2001,
- a 65% ownership interest in a joint venture which owns and operates a
hotel, dinner theater and retail shop located near the Grand Canyon in
northern Arizona,
69
- an 80% ownership interest in a joint venture (Millennia) which owns
stock in Mace, a publicly-traded company. The operating agreement for
Millennia allows the holder of the 20% interest in Millennia to
increase its ownership percentage to 50% if returns on Legacy's
investment exceed 35% per year,
- a 55% ownership interest in a development company which owns Newport
Centre, a retail and office facility located in Winnipeg, Canada, and
- a number of additional investments in notes totaling approximately
$5 million,
- five notes receivable relating to real estate projects in Arizona,
California and Utah with an aggregate outstanding balance of approximately
$40.5 million as of March 31, 2001, of which the largest note relates to a
project in Scottsdale, Arizona,
- two properties located in Arizona including restaurant space and vacant
land in Scottsdale,
- four properties located in California including a development project in
Anaheim, a project in Palm Springs and land held for sale/development in
Yosemite, and
- a hospitality property under development in Bermuda scheduled for opening
in 2001.
The following table describes Legacy's portfolio of real estate properties
as of March 31, 2001. Amounts shown for annual rents are based on executed
leases at March 31, 2001. Legacy makes no allowances for contractually-based
delays to the commencement of rental payments. Due to the nature of real estate
investments, Legacy's actual rental income may differ from amounts shown in the
table below. The following table does not include real estate properties held by
Enterprises.
PROPERTY TENANTS GLA (SQ. FT.) ANNUAL RENT
----------------------------------- ------------------------------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Arizona
Brio Land...................... Roaring Fork Restaurant 3.7 $ 104.3
Grand Hotel.................... (1) (1) (1)
California
Desert Fashion Plaza(2)........ Saks Fifth Avenue/various 96.1 461.5
Yosemite....................... (3) (3) (3)
Residential Property........... (4) (4) (4)
Anaheim Land................... (5) (5) (5)
Florida
International Business Park.... (6) (6) (6)
Indiana
Indianapolis................... (2) (2) (2)
Kentucky
Newport on the Levee........... (7) (7) (7)
Bermuda
Daniel's Head Bermuda.......... (8) (8) (8)
Winnipeg, Canada
Newport Centre(9).............. Bank of Montreal/various 156.1 1,594.0
------- --------
TOTAL.............................. 255.9 $2,159.8
======= ========
------------------------
(1) Legacy holds a 65% ownership interest in Grand Tusayan LLC which owns and
operates a 120-room hotel and restaurant.
(2) Property consists of land held for development. Legacy holds a 23.7%
ownership interest.
(3) Properties consist of vacant land currently held for development or sale.
70
(4) Legacy owns a residential property located in Coto de Caza, California.
(5) Property is a residential property that consists of 3,930 sq. ft., and
Legacy has not yet determined its rent. Legacy holds an 88% ownership
interest.
(6) Legacy holds a 50% ownership interest in this property.
(7) In addition to land leased to an aquarium which provided $1.1 million in
revenue related to that lease in 2001, property consists of land under
development and scheduled for completion in 2001. Legacy holds a 65%
ownership interest. This land currently has no GLA or rent.
(8) Property under development and has no GLA or rent.
(9) Property is owned by a Nova Scotia company of which Legacy holds a 55%
ownership interest.
RECENT ACQUISITION AND DISPOSITION ACTIVITIES
The following table summarizes Legacy's acquisition and disposition
activities from January 1, 2000 through March 31, 2001:
GLA ACQUISITION/ DATE OF
PROPERTY NAME (SQ.FT.) CITY STATE DISPOSITION TRANSACTION
------------- ---------------- ---------------- ---------------- ------------ -----------
Scottsdale land(1)................. N/A Scottsdale Arizona Disposition 02/01/01
Telluride, Colorado(1)............. N/A Telluride Colorado Disposition 12/20/00
Scottsdale City Center(2).......... 65,700 Scottsdale Arizona Disposition 10/23/00
Scottsdale Galleria................ 674,179 Scottsdale Arizona Disposition 07/05/00
4-S Ranch land(1).................. N/A San Diego California Disposition 05/01/00
Orlando land(1).................... N/A Orlando Florida Acquisition 03/01/00
Excel Centre(2).................... 82,200 San Diego California Disposition 02/25/00
Lowe's(2).......................... 104,259 Terre Haute Indiana Disposition 02/09/00
Lowe's(2).......................... 126,400 Middletown Ohio Disposition 02/09/00
----------------
TOTAL.............................. 1,052,738
================
--------------------------
(1) Property consists of raw land.
(2) Property sold to Enterprises.
LEGACY'S PRINCIPAL TENANT
As of March 31, 2001, a ground lease with an aquarium in Newport, Kentucky
accounted for approximately 6% of Legacy's total revenues. Legacy had no other
tenants at March 31, 2001 that accounted for a significant amount of its
revenues.
LEGACY'S EMPLOYEES
As of August 3, 2001, Legacy and its subsidiaries had approximately 263
employees.
LEGACY'S HEADQUARTERS
Legacy's executive offices are located at 17140 Bernardo Center Drive, Suite
300, San Diego, California 92128 and its telephone number is (858) 675-9400.
Legacy also has an office in West Bountiful, Utah, which coordinates its
acquisitions and dispositions, and property management offices in Fountain
Valley, California, San Diego, California, and Fairfax, Virginia.
71
LEGACY'S MANAGEMENT
The table below indicates the name, position with Legacy and ages of the
directors, executive officers and other key employees of Legacy as of August 3,
2001.
NAME POSITION WITH LEGACY AGE
---- -------------------------------------------------------- --------
Gary B. Sabin.............. Chairman, President and Chief Executive Officer 47
Richard B. Muir............ Director, Executive Vice President, Chief Operating 45
Officer and Secretary
Jack McGrory............... Director 51
Richard J. Nordlund........ Director 56
Robert E. Parsons, Jr...... Director 45
Robert S. Talbott.......... Director 47
John H. Wilmot............. Director 58
Graham R. Bullick, Ph.D.... Senior Vice President--Capital Markets 50
Mark T. Burton............. Senior Vice President--Acquisitions 40
S. Eric Ottesen............ Senior Vice President, General Counsel and Assistant 45
Secretary
James Y. Nakagawa.......... Chief Financial Officer 35
William J. Stone........... Senior Vice President--Retail Development 57
John A. Visconsi........... Senior Vice President--Leasing/Asset Management 56
For information on the above named directors, officers and other key
employees, excluding Messrs. Nordlund, Parsons, Talbott and Wilmot, see
"Information about Enterprises--Enterprises' Management." For information on the
other above named directors, officers and other key employees, see below.
RICHARD J. NORDLUND has served as a director of Legacy since Legacy's
formation and as President of RJN Management, a real estate firm in Santa
Barbara, California, since 1985. From 1978 through 1988, Mr. Nordlund served as
President of First Corporate Services, an investment banking firm in
Minneapolis, Minnesota. He is also associated with Miller & Schroeder
Financial, Inc. Mr. Nordlund's business experience includes 28 years in the
investment banking and mortgage banking industries.
ROBERT E. PARSONS, JR. has served as a director of Legacy since Legacy's
formation. He served as a director of Excel Realty Trust and then New Plan Excel
from January 1989 to April 1999. Mr. Parsons is presently Executive Vice
President and Chief Financial Officer of Host Marriott Corporation, a company he
joined in 1981. He also serves as a director and officer of several Host
Marriott subsidiaries, and as a director of Merrill Financial Corporation, a
privately-held real estate company.
ROBERT S. TALBOTT has served as a director of Legacy since Legacy's
formation. Mr. Talbott is an attorney and has served as President of Holrob
Investments, LLC, a company engaged in the acquisition, development, management
and leasing of real property, since 1997. From 1985 through 1997, Mr. Talbott
served as Executive Vice President and President of Horne Properties, Inc.,
where he was involved in the acquisition and development of over 100 shopping
centers. He also serves as a member of the Public Building Authority of
Knoxville, Tennessee, as a member of the Knoxville Industrial Development Board,
as a director of the Knoxville Chamber of Commerce and as Chairman of the St.
Mary's Foundation.
JOHN H. WILMOT has served as a director of Legacy since Legacy's formation.
He served as a director of Excel Realty Trust and then New Plan Excel from 1989
to April 1999. Mr. Wilmot, individually and through his wholly-owned
corporations, develops and manages real property, including office buildings,
shopping centers and residential projects primarily in the Phoenix/Scottsdale
area, and has been active in that business since 1976.
72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BUSINESS RELATIONSHIPS
Following completion of the Legacy exchange offer in 1999, Gary B. Sabin,
Chairman, President and Chief Executive Officer of Legacy, became Enterprises'
President and Chief Executive Officer, and certain other Legacy executives
became Enterprises executives. Legacy also took over daily management of
Enterprises, including property management and finance. Enterprises reimburses
Legacy for these services. Enterprises expensed $3 million for these services
for the year ended December 31, 2000, which was based on historical costs for
similar expenses. Enterprises expensed $249,000 for these services during the
period of November 12, 1999 through December 31, 1999.
During 2000, Enterprises purchased two retail buildings and two office
buildings properties from Legacy. They were funded through advances on
Enterprises unsecured revolving credit facility, by assuming mortgages and notes
payable, and with the proceeds from a property sold in 2000 in a tax-deferred
exchange transaction.
Enterprises also purchased a 50% interest in a real estate development joint
venture in Westminster, Colorado from Legacy for an initial payment of
$8.1 million. The purchase price was based on the property's existing operating
income, with additional payments estimated to be $4.8 million due through the
completion of construction.
In March 2000, Enterprises executed a $15 million note receivable with
Legacy due December 2002. The note was amended in September 2000 to allow Legacy
to borrow up to $40 million on the note. The note bears an interest rate of
LIBOR plus 375 basis points (10.23% at December 31, 2000) on the first
$15 million. Amounts borrowed in excess of $15 million bear interest at a fixed
rate of 12.5% per year. As of December 31, 2000, Legacy owed $25.4 million on
this note at a weighted average interest rate of 11.2%.
On March 21, 2001, Enterprises, PEI Merger Sub, a wholly-owned subsidiary of
Enterprises, and Legacy entered into the merger agreement. The merger agreement
provides that, at the effective time of the merger, PEI Merger Sub will merge
with and into Legacy, with Legacy continuing in existence as the surviving
corporation. Each share of Legacy common stock issued and outstanding at the
effective time will be converted into 0.6667 of a share of Enterprises common
stock.
On April 12, 2001, Enterprises and Sol Price, a significant stockholder of
Enterprises and Legacy through various entities, agreed to convert an existing
Legacy promissory note payable to an affiliate of Sol Price, The Sol and Helen
Price Trust, of approximately $9.3 million into 1,681,142 shares, or 8.5%, of
Enterprises Series B preferred stock and a warrant to purchase 233,679 shares of
Enterprises common stock with an exercise price of $8.25 per share immediately
after the sale of the Enterprises Series B preferred stock to Warburg Pincus,
which represents the same financial terms agreed to in the securities purchase
agreement. This Legacy promissory note, together with the right to receive the
Enterprises Series B preferred stock and the warrant, was subsequently assigned
to The Price Group. The conversion agreement, which effects this transaction,
provides that The Price Group will, along with Warburg Pincus, become a party to
a registration rights agreement with all rights of an investor under the
agreement other than those relating to demand registrations. The conversion
agreement does not provide The Price Group with any of the other rights, such as
representations, warranties, covenants, indemnities and termination fees,
provided to Warburg Pincus in the securities purchase agreement. Warburg Pincus
has consented to this transaction.
INDEBTEDNESS OF MANAGEMENT
In 1998, Legacy loaned to some of its officers, in connection with their
purchase of Legacy common stock, approximately 50% of the purchase price of the
stock (an aggregate amount of $10.9 million). These loans bear interest at the
rate of 7.0% per annum, mature in 2003 and are
73
secured by some of the officers' Legacy common stock. The total interest
receivable at March 31, 2001 from these loans totaled $2 million. The following
table lists the largest aggregate amount outstanding (including interest) during
2000 and the aggregate amount outstanding as of August 3, 2001 for the loans to
the officers identified therein.
LARGEST AGGREGATE AGGREGATE
AMOUNT AMOUNT
OUTSTANDING DURING OUTSTANDING AS OF SHARES HELD AS
NAME AND POSITION 2000 AUGUST 3, 2001 COLLATERAL
----------------- ------------------ ----------------- --------------
Gary B. Sabin.................................. $4,185,895 $4,326,077 1,525,348
Chairman, President and Chief Executive
Officer
Richard B. Muir................................ 1,401,463 1,448,190 512,119
Executive Vice President, Chief Operating
Officer and Secretary
Graham R. Bullick, Ph.D........................ 1,407,297 1,454,024 459,018
Senior Vice President--Capital Markets
S. Eric Ottesen................................ 1,407,297 1,454,024 462,906
Senior Vice President, General Counsel and
Assistant Secretary
Mark T. Burton................................. 1,407,297 1,454,024 514,534
Senior Vice President--Acquisitions
In September 2000, Legacy entered into agreements with certain officers to
assume $5.1 million in personal debt obligations of the officers in exchange for
their rights in 2,050,000 shares of Legacy common stock. The effective price of
the transaction was $2.50 per share, tied to the market price on the day of the
transaction. The officer debts were entered into in connection with their
original share purchase. By assuming these third-party debts, Legacy also
obtained a first lien on all remaining shares currently held by the officers,
which will serve as security for the officers' notes to Legacy. Legacy paid
$4.3 million of the above personal debt in October 2000, upon which Legacy
recorded 1,710,000 shares as repurchased.
74
UNAUDITED PRO FORMA OPERATING AND FINANCIAL INFORMATION
The following unaudited pro forma operating and financial information gives
effect to the merger, the sale of the Enterprises Series B preferred stock, the
tender offer and the acquisition of five properties located in Florida from
Swerdlow. The unaudited pro forma consolidated condensed balance sheet is based
on the individual historical balance sheets of Enterprises and Legacy and has
been prepared to reflect the merger, the sale of the Enterprises Series B
preferred stock, the tender offer and the acquisition of the Swerdlow properties
at March 31, 2001. The unaudited pro forma consolidated condensed statements of
income are based on the individual historical statements of income of
Enterprises and Legacy and have been prepared to reflect the merger, the sale of
the Enterprises Series B preferred stock, the tender offer and the acquisition
of the Swerdlow properties at January 1, 2000.
The unaudited pro forma operating and financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations of Price Legacy that would have occurred had
the merger, the sale of the Enterprises Series B preferred stock, the tender
offer and the acquisition of the Swerdlow properties been completed as of the
dates indicated. In addition, the unaudited pro forma operating and financial
information are not necessarily indicative of the future financial condition or
operating results of Price Legacy.
The unaudited pro forma operating and financial information should be read
in conjunction with the historical financial statements and related notes
contained in the annual and quarterly reports of Enterprises and Legacy which
have been incorporated by reference in this consent solicitation
statement/prospectus.
The unaudited pro forma operating and financial information does not give
effect to the exchange offer since the actual amount of Legacy debentures and
Legacy notes to be exchanged is not known at this time.
75
PRICE LEGACY CORPORATION
UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2001
(IN THOUSANDS)
PRO FORMA PRO FORMA
ENTERPRISES LEGACY MERGER SWERDLOW PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITION TENDER OFFER
----------- ----------- ---------------- ----------- ------------
ASSETS
Real Estate, net............................ $570,323 $ 106,042 $ 27,037 (2E1) $247,310 (2G) $ --
Cash........................................ 26,587 1,074 (500)(2C) (57,185)(2G) (8,083)(2F)
Investment in real estate joint ventures.... 16,019 15,989 4,487 (2E2) -- --
Investment in securities.................... -- 117,057 (113,499)(2C) -- --
(817)(2E3)
Accounts receivable, net.................... 3,627 883 -- -- --
Notes receivable............................ 13,898 45,700 -- -- --
Notes receivable from Legacy................ 39,782 -- (39,782)(2D) -- --
Other assets................................ 12,584 37,756 (9,653)(2E4) -- --
-------- ----------- --------- -------- -------
Total assets.............................. $682,820 $ 324,501 $(132,727) $190,125 $(8,083)
======== =========== ========= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable............... $150,591 $ 27,503 $ -- $190,125 (2G) $ --
Notes payable to Enterprises.............. -- 39,782 (39,782)(2D) -- --
Revolving line of credit.................. 63,400 13,080 -- -- --
Convertible debentures.................... -- 33,240 -- -- --
Senior notes.............................. -- 18,067 -- -- --
Accounts payable, accrued
expenses and other liabilities.......... 4,594 14,526 (2,804)(2E5) -- --
-------- ----------- --------- -------- -------
218,585 146,198 (42,586) 190,125 --
-------- ----------- --------- -------- -------
Minority interests.......................... -- 595 -- -- --
Stockholders' equity:
Series A preferred stock.................. 353,404 -- -- -- --
Series B preferred stock.................. -- -- -- -- --
Common stock.............................. 1 615 (612)(2C) -- --
Additional paid-in capital................ 113,332 201,471 23,858 (2E) -- (8,083)(2F)
(128,077)(2C)
Warrants.................................. -- -- -- -- --
Accumulated other comprehensive (loss)
income, net of tax...................... -- (797) 797 (2C) -- --
Accumulated (deficit) earnings............ (2,502) (13,893) 13,893 (2C) -- --
Notes receivable--purchase of shares...... -- (9,688) -- -- --
-------- ----------- --------- -------- -------
Total stockholders' equity.............. 464,235 177,708 (90,141) -- (8,083)
-------- ----------- --------- -------- -------
Total liabilities and stockholders'
equity................................ $682,820 $ 324,501 $(132,727) $190,125 $(8,083)
======== =========== ========= ======== =======
PRO FORMA
SALE OF SERIES B PRO FORMA
PREFERRED STOCK TOTALS
---------------- ----------
ASSETS
Real Estate, net............................ $ -- $ 950,712
Cash........................................ 99,000(2B) 60,893
Investment in real estate joint ventures.... -- 36,495
Investment in securities.................... -- 2,741
Accounts receivable, net.................... -- 4,510
Notes receivable............................ -- 59,598
Notes receivable from Legacy................ -- --
Other assets................................ -- 40,687
-------- ----------
Total assets.............................. $ 99,000 $1,155,636
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable............... $ (9,347)(2B) $ 358,872
Notes payable to Enterprises.............. -- --
Revolving line of credit.................. -- 76,480
Convertible debentures.................... -- 33,240
Senior notes.............................. -- 18,067
Accounts payable, accrued
expenses and other liabilities.......... -- 16,316
-------- ----------
(9,347) 502,975
-------- ----------
Minority interests.......................... -- 595
Stockholders' equity:
Series A preferred stock.................. -- 353,404
Series B preferred stock.................. 105,262 (2B) 105,262
Common stock.............................. -- 4
Additional paid-in capital................ -- 202,501
Warrants.................................. 3,085 (2B) 3,085
Accumulated other comprehensive (loss)
income, net of tax...................... -- --
Accumulated (deficit) earnings............ -- (2,502)
Notes receivable--purchase of shares...... -- (9,688)
-------- ----------
Total stockholders' equity.............. 108,347 652,066
-------- ----------
Total liabilities and stockholders'
equity................................ $ 99,000 $1,155,636
======== ==========
See "--Notes and Management's Assumptions to Pro Forma Consolidated Condensed
Financial Information--Unaudited."
76
PRICE LEGACY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
PRO FORMA PRO FORMA PRO FORMA
ENTERPRISES LEGACY MERGER SWERDLOW SALE OF SERIES B PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITION PREFERRED STOCK TOTALS
----------- ---------- ---------------- ----------- ---------------- ----------
Revenues:
Rental and other operating
income.................. $70,771 $ 11,687 $ (375)(3B) $27,798(3J) $ -- $109,881
Interest and other........ 3,212 6,810 (1,213)(3B) -- -- 8,809
------- -------- ------- ------- -------- --------
Total revenue........... 73,983 18,497 (1,588) 27,798 -- 118,690
------- -------- ------- ------- -------- --------
Expenses:
Provision for investment
impairment............ -- 18,993 -- -- -- 18,993
Property and other
expenses.............. 16,281 9,178 (375)(3B) 7,109(3J) -- 32,193
Interest(3K)............ 10,931 10,860 (1,213)(3B) 15,552(3J) (851)(3A) 35,279
Depreciation and
amortization.......... 9,558 1,562 (229)(3H) 4,019(3J) -- 14,910
General and
administrative........ 3,085 2,785 -- (3I) -- -- 5,870
------- -------- ------- ------- -------- --------
39,855 43,378 (1,817) 26,680 (851) 107,245
------- -------- ------- ------- -------- --------
Income (loss) before gain
on sale of real estate
and investments, net.... 34,128 (24,881) 229 1,118 851 11,445
Gain on sale of real
estate and investments,
net..................... 164 8,715 (1,880)(3C) -- -- 6,999
------- -------- ------- ------- -------- --------
Income (loss) before
income taxes............ 34,292 (16,166) (1,651) 1,118 851 18,444
Benefit for income
taxes................. -- 1,167 752 (3C) -- -- 1,919
------- -------- ------- ------- -------- --------
Net income (loss)......... 34,292 (14,999) (899) 1,118 851 20,363
Dividends to preferred
stockholders(3K)........ (33,360) -- -- -- (9,833)(3A) (43,193)
------- -------- ------- ------- -------- --------
Net income (loss)
applicable to common
stockholders............ $ 932 $(14,999) $ (899) $ 1,118 $ (8,982) $(22,830)
======= ======== ======= ======= ======== ========
Basic net income per
common share............ $ 0.07 $ (0.36) $ (0.56)
======= ======== ========
Diluted net income per
common share............ $ 0.07 $ (0.36) $ (0.56)
======= ======== ========
Historical basic weighted
average number of common
shares outstanding...... 13,309 41,847 -- --
Historical diluted
weighted average number
of common shares
outstanding............. 13,309 61,553 -- --
Pro forma basic weighted
average number of common
shares outstanding...... 13,309 61,553 (3E) (33,826)(3D) -- 41,036
Pro forma diluted weighted
average number of common
shares outstanding...... 13,309 61,553 (3E) (33,826)(3D) 18,823 (3F) 61,618
1,759 (3G)
See "--Notes and Management's Assumptions to Pro Forma Consolidated Condensed
Financial Information--Unaudited."
77
PRICE LEGACY CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
PRO FORMA PRO FORMA PRO FORMA
ENTERPRISES LEGACY MERGER SWERDLOW SALE OF SERIES B
HISTORICAL HISTORICAL ADJUSTMENTS ACQUISITION PREFERRED STOCK
----------- ---------- ---------------- ----------- ----------------
Revenues:
Rental and other operating
income...................... $17,781 $ 2,037 $ (113)(3B) $6,944(3J) $ --
Interest and other............ 1,984 1,629 (1,213)(3B) -- --
------- ------- ------- ------ -------
Total revenue............... 19,765 3,666 (1,326) 6,944 --
------- ------- ------- ------ -------
Expenses:
Property and other expenses... 4,444 1,814 (113)(3B) 1,958(3J) --
Interest(3K).................. 3,398 1,999 (878)(3B) 3,888(3J) (175)(3A)
Depreciation and
amortization................ 2,226 338 (76)(3H) 1,005(3J) --
General and administrative.... 867 708 -- (3I) -- --
------- ------- ------- ------ -------
10,935 4,859 (1,067) 6,851 (175)
------- ------- ------- ------ -------
Income (loss) before gain on
sale of real estate and
investments, net.............. 8,830 (1,193) (259) 93 175
Gain on sale of real estate and
investments, net.............. (91) 114 -- -- --
------- ------- ------- ------ -------
Income (loss) before income
taxes......................... 8,739 (1,079) (259) 93 175
Provision for income taxes.... -- 506 -- -- --
------- ------- ------- ------ -------
Net income (loss)............... 8,739 (573) (259) 93 175
Dividends to preferred
stockholders(3K).............. (8,358) -- -- -- (2,458)(3A)
------- ------- ------- ------ -------
Net income (loss) applicable to
common stockholders........... $ 381 $ (573) $ (259) $ 93 $(2,283)
======= ======= ======= ====== =======
Basic net income (loss) per
common share.................. $ 0.03 $ (0.01)
======= =======
Diluted net income (loss) per
common share.................. $ 0.03 $ (0.01)
======= =======
Historical basic weighted
average number of common
shares outstanding............ 13,309 61,541 --
Historical diluted weighted
average number of common
shares outstanding............ 13,309 61,541 --
Pro forma basic weighted average
number of common shares
outstanding................... 13,309 61,541 (3E) (33,826)(3D) --
Pro forma diluted weighted
average number of common
shares outstanding............ 13,309 61,541 (3E) (33,826)(3D) 19,881 (3F)
1,859 (3G)
PRO FORMA
TOTALS
----------
Revenues:
Rental and other operating
income...................... $ 26,649
Interest and other............ 2,400
--------
Total revenue............... 29,049
--------
Expenses:
Property and other expenses... 8,103
Interest(3K).................. 8,232
Depreciation and
amortization................ 3,493
General and administrative.... 1,575
--------
21,403
--------
Income (loss) before gain on
sale of real estate and
investments, net.............. 7,646
Gain on sale of real estate and
investments, net.............. 23
--------
Income (loss) before income
taxes......................... 7,669
Provision for income taxes.... 506
--------
Net income (loss)............... 8,175
Dividends to preferred
stockholders(3K).............. (10,816)
--------
Net income (loss) applicable to
common stockholders........... $ (2,641)
========
Basic net income (loss) per
common share.................. $ (0.06)
========
Diluted net income (loss) per
common share.................. $ (0.06)
========
Historical basic weighted
average number of common
shares outstanding............ --
Historical diluted weighted
average number of common
shares outstanding............ --
Pro forma basic weighted average
number of common shares
outstanding................... 41,024
Pro forma diluted weighted
average number of common
shares outstanding............ 62,764
See "--Notes and Management's Assumptions to Pro Forma Consolidated Condensed
Financial Information--Unaudited."
78
PRICE LEGACY CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION--UNAUDITED
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. SUMMARY OF ACCOUNTING TREATMENT
The exchange of Legacy common stock for Enterprises common stock in
connection with the merger is being accounted for as a purchase of Legacy by
Enterprises. As such, the assets and liabilities of Legacy have been adjusted to
fair value in connection with the application of purchase accounting.
The purchase price is calculated based on $4.89 per share for the
Enterprises common stock, which is equal to the closing price of $5.75 per share
on March 21, 2001 (the day immediately prior to the public announcement of the
merger agreement), less a 15% discount to reflect the low trading volume of the
Enterprises common stock:
Shares to be issued......................................... 41,035
Price per share............................................. $ 4.89
--------
200,661
Merger related estimated accounting legal, printing and
other costs............................................... 1,500
--------
Purchase price.............................................. $202,161
========
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
Certain reclassifications have been made to the historical balance sheets of
Enterprises and Legacy in order to conform to the desired pro forma consolidated
condensed balance sheet presentation.
(A)
Book value of Legacy's net assets at March 31, 2001......... $178,303
Adjustments to assets and liabilities to reflect fair value
(see 2E).................................................. 23,858
--------
Purchase price.............................................. $202,161
========
(B) To reflect: 1) the proceeds of the sale of the Enterprises Series B
preferred stock invested in cash accounts. The ultimate use of the proceeds
is not known at this time. The proceeds are net of $1,000 of estimated
expenses in connection with the sale of the Enterprises Series B preferred
stock. Net proceeds have been allocated to the $8.25 warrants at $1.1388 per
share issued using the Black-Scholes model with the following assumptions:
expected volatility of 20%, risk-free interest rate of 4.77% and expected
life of seven years and 2) the potential conversion of the Legacy promissory
note payable to The Price Group into Enterprises Series B preferred stock.
ADDITIONAL
SERIES B PAID-IN CAPITAL
PREFERRED STOCK (WARRANTS)
------------------- ---------------
Warburg gross proceeds..................... $100,000 $ 97,153 $2,847
Estimated expenses......................... (1,000) (972) (28)
-------- -------- ------
99,000 96,181 2,819
Conversion of the
Legacy promissory note..................... 9,347 9,081 266
-------- ------
$105,262 $3,085
======== ======
If the merger is approved and the other customary closing conditions are
satisfied, the merger and the sale of the Enterprises Series B preferred stock
will occur contemporaneously.
79
PRICE LEGACY CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION--UNAUDITED (CONTINUED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (CONTINUED)
(C) To reflect the elimination of Legacy's investment in the Enterprises common
stock and equity accounts to reflect purchase accounting as a result of the
merger and $1,500 of estimated expenses in connection with the merger.
(D) To reflect the elimination of debt between Enterprises and Legacy.
(E) To record the net assets and liabilities acquired at fair value. Enterprises
estimated the fair value of Legacy's net assets based upon management's
evaluation of the individual assets and liabilities of Legacy. The
adjustments are:
(1) The adjustment to reflect real estate at fair value......... $ 27,037
(2) The adjustment to reflect net investment in partnerships at
fair value.................................................. 4,487
(3) To reflect Legacy's investment in the common shares of Mace
at fair market value:
Number of shares held....................................... 3,750
Price per share at March 31, 2001........................... $ 0.688
-------
2,580
Book value at March 31, 2001................................ 3,397
-------
Adjustment to investment in securities...................... (817)
(4) Adjustment to other assets:
To eliminate Legacy's net deferred tax asset................ $(7,827)
To eliminate capitalized management contracts related to
Legacy's acquisition of Tenant First........................ (1,254)
To eliminate Legacy's deferred financing costs.............. (572)
-------
(9,653)
(5) To eliminate deferred gains on assets sold in 2000.......... 2,804
--------
$ 23,858
========
(F) To reflect the purchase of all 1,154 shares of Enterprises common stock not
currently owned by Legacy at $7.00 per share. Management has assumed that all
shares of Enterprises common stock will be tendered in the tender offer since
the tender price of $7.00 per share is greater than the market price on
August 3, 2001. The actual number of shares that will be tendered is not
currently known.
(G) To reflect the acquisition of the Swerdlow properties and assuming existing
assumable mortgages with the balance of the consideration being paid in
cash.
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
Certain reclassifications have been made to the historical income statements
of Enterprises and Legacy in order to conform to the desired pro forma
consolidated condensed statement of income presentation.
(A) To reflect 1) pro forma effect of distributions related to the sale of the
Enterprises Series B preferred stock and 2) the pro forma effect of the
conversion of the Legacy promissory note into Enterprises Series B preferred
stock.
(B) To reflect the elimination of interest income and interest expense
recognized between Enterprises and Legacy and the master lease of an office
building between the two companies.
(C) To eliminate the gain recognized by Legacy and related income taxes on the
sale of certain properties to Enterprises.
80
PRICE LEGACY CORPORATION
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION--UNAUDITED (CONTINUED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(CONTINUED)
(D) To reflect:
1) the purchase of shares of the Enterprises common stock not
currently owned by Legacy at $7.00 per share. The actual
number of shares that will be tendered is not currently
known....................................................... (1,154)
2) the conversion of the Legacy common stock into Enterprises
common stock assuming an exchange ratio of 0.6667 of a share
of Enterprises common stock for each share of Legacy common
stock....................................................... (20,518)
3) the cancellation of the Enterprises common stock currently
owned by Legacy............................................. (12,154)
========
(33,826)
========
(E) To reflect the conversion of the Legacy Series B preferred stock as if the
conversion occurred on January 1, 2000.
(F) To reflect the pro forma weighted average diluted effect of the Enterprises
Series B preferred stock during the first year of issuance.
(G) To reflect the pro forma weighted average diluted effect of converting the
Legacy promissory note into Enterprises Series B preferred stock.
(H) To eliminate the amortization of certain Legacy intangible assets that will
be eliminated for purchase accounting. The assets consist of management
contracts Legacy acquired in conjunction with its purchase of Tenant First.
(I) Any combined general and administrative savings as a result of the merger
have not been reflected as this amount is not known at this time.
(J) To reflect the acquisition of the Swerdlow properties and assuming existing
assumable mortgages with the balance of the consideration being paid in
cash. The interest assumed on the mortgages are reflective of the actual
historical interest rate of 8.18%.
(K) The pro forma statements do not reflect the potential conversion of Legacy
debentures and Legacy notes into Enterprises Series A preferred stock
because the actual amount of debt that will be converted is unknown. If all
of the outstanding Legacy debentures and Legacy notes convert into
Enterprises Series A preferred stock, interest expense would have decreased
by $4,798 and $1,200 for the year ended December 31, 2000 and the three
months ended March 31, 2001, respectively, and dividends to preferred
stockholders would have increased by $4,789 and $1,197 for the year ended
December 31, 2000 and the three months ended March 31, 2001, respectively.
81
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF ENTERPRISES
The following table sets forth certain information regarding beneficial
ownership of shares of Enterprises common stock and Enterprises Series A
preferred stock as of August 3, 2001 (unless described otherwise) by
Enterprises' directors and executive officers, all of Enterprises' directors and
executive officers as a group and all other stockholders known by Enterprises to
beneficially own more than five percent of the Enterprises common stock or the
Enterprises Series A preferred stock. Beneficial ownership of directors,
executive officers and five percent stockholders includes both outstanding
shares of Enterprises common stock and Enterprises Series A preferred stock and
shares of the Enterprises Series A preferred stock issuable upon exercise of
options that are currently exercisable or will become exercisable within
60 days after the date of this table.
NUMBER OF NUMBER OF
SHARES OF SHARES OF
COMMON STOCK PREFERRED STOCK PERCENT OF TOTAL (%)
BENEFICIALLY BENEFICIALLY -------------------------------
NAME AND ADDRESS(1) OWNED OWNED(2) COMMON PREFERRED VOTING
------------------- ------------ --------------- -------- --------- --------
Excel Legacy Corporation................. 12,154,289 -- 91.3 * 77.3
Sol Price(3)(4).......................... -- 8,507,135 * 35.2 5.4
Robert E. Price(3)(5).................... -- 5,779,230 * 23.9 3.7
James F. Cahill(3)(6).................... -- 3,302,153 * 13.6 2.1
Murray Galinson(3)(7).................... 412 3,274,215 * 13.5 2.1
Jack McGrory(3)(8)....................... -- 3,278,794 * 13.5 2.1
Charles T. Munger(9)..................... -- 2,000,000 * 8.3 1.3
Keene Wolcott............................ -- -- * * *
Graham R. Bullick, Ph.D.................. -- -- * * *
Melvin L. Keating........................ -- -- * * *
Reuben S. Leibowitz...................... -- -- * * *
Gary B. Sabin............................ -- -- * * *
Richard B. Muir.......................... -- -- * * *
S. Eric Ottesen.......................... -- -- * * *
James Y. Nakagawa........................ -- -- * * *
Mark T. Burton........................... -- -- * * *
John A. Visconsi......................... -- -- * * *
William J. Stone......................... -- -- * * *
Susan M. Wilson.......................... -- -- * * *
All executive officers and directors as a
group (12 persons)..................... 412 3,591,232 * 14.8 2.3
------------------------
* Less than 1% beneficially owned.
(1) The address for all persons listed, other than James F. Cahill, Jack
McGrory, Charles T. Munger, Robert E. Price and Sol Price is c/o Price
Enterprises, Inc., 17140 Bernardo Center Drive, Suite 300, San Diego,
California 92128. The address for James F. Cahill, Jack McGrory, Robert E.
Price and 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, 34th Floor, Los Angeles, California 90071.
(2) Includes the following shares issuable upon the exercise of outstanding
stock options that are exercisable within 60 days of August 3, 2001:
Mr. Cahill--12,358; Mr. McGrory--134,829; and all executive officers and
directors as a group (12 persons)--147,187.
(3) Sol Price, Robert E. Price, James F. Cahill, Murray Galinson and Jack
McGrory are directors of The Price Family Charitable Fund and co-managers of
The Price Group LLC. As such, for
82
purposes of this table, they are each deemed to beneficially own 2,281,680
shares of Enterprises Series A preferred stock held by the Charitable Fund
and 850,285 shares of Enterprises Series A preferred stock held by The Price
Group. Each of Sol Price, Robert E. Price, James F. Cahill, Murray Galinson
and Jack McGrory has shared voting and dispositive power with respect to,
and disclaims beneficial ownership of, the shares held by the Charitable
Fund and The Price Group. If the percent of the Enterprises Series A
preferred stock beneficially owned by Sol Price, Robert E. Price, James F.
Cahill, Murray Galinson and Jack McGrory were calculated without regard to
the shares held by the Charitable Fund or The Price Group, they would own
22.3%, 10.9%, 0.7%, 0.6% and 0.6%, respectively, of the Enterprises
Series A preferred stock.
(4) Includes 5,375,170 shares of Enterprises Series A preferred stock held by
trusts of which Sol Price is a trustee, and as to which Sol Price has sole
voting and dispositive power.
(5) Includes 2,646,118 shares of Enterprises Series A preferred stock held by
trusts of which Robert E. Price is a trustee. Mr. Price has shared voting
and dispositive power with respect to such shares. Also includes 295 shares
of Enterprises Series A preferred stock held by Mr. Price through
Enterprises' 401(k) plan and 852 shares of Enterprises Series A preferred
stock held by Mr. Price as custodian of his minor children under the
California Uniform Transfer to Minors Act, or the CUTMA.
(6) Includes 4,000 shares of Enterprises Series A preferred stock held by
Mr. Cahill as custodian for his minor children under CUTMA. Also includes
67,850 shares of Enterprises Series A 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.
(7) Includes 100,000 shares of Enterprises Series A preferred stock held by
Galinson Holdings, 20,000 shares of Enterprises Series A preferred stock
held by the Galinson Foundation, 14,000 shares of Enterprises Series A
preferred stock held by the Galinson Charitable Remainder Trust 1, 4,500
shares of Enterprises Series A preferred stock held by the Galinson
Charitable Remainder Trust 2, 1,500 shares of Enterprises Series A preferred
stock held by Mr. Galinson as custodian for his minor children under CUTMA
and 2,250 shares of Enterprises Series A preferred stock held by the Murray
and Elaine Galinson Family Trust. Mr. Galinson disclaims beneficial
ownership of such shares.
(8) Includes 2,000 shares of Enterprises Series A preferred stock held by
Mr. McGrory as custodian for his minor children under CUTMA. Mr. McGrory
disclaims beneficial ownership of such shares.
(9) Includes 15,000 shares of Enterprises Series A preferred stock owned by
Charles T. Munger, as to which Charles T. Munger has sole voting and
dispositive power. Also includes 92,115 shares of Enterprises Series A
preferred stock owned by Philip B. Munger, as to which Philip B. Munger has
sole voting and dispositive power. Also includes 1,275,000 shares of
Enterprises Series A 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 Enterprises
Series A 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 Enterprises Series A 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
Charles T. Munger, 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 SEC on behalf of the foregoing
individuals and entities on February 5, 1999. The Schedule 13G indicates
that each of 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.
83
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF LEGACY
The following table sets forth certain information regarding the ownership
of shares of Legacy common stock as of August 3, 2001 (unless described
otherwise) by Legacy's directors and executive officers, all of Legacy's
directors and executive officers as a group and all other stockholders known by
Legacy to beneficially own more than five percent of the Legacy common stock.
Beneficial ownership of directors, executive officers and five percent
stockholders includes both outstanding shares of Legacy common stock and shares
of Legacy common stock issuable upon exercise of options that are currently
exercisable or will become exercisable within 60 days of the date of this table.
NUMBER OF SHARES
OF COMMON STOCK
NAME AND ADDRESS(1) BENEFICIALLY OWNED (2) PERCENT OF TOTAL(%)
------------------- ---------------------- -------------------
Longleaf Partners Realty Fund(3)......................... 16,880,000 27.4
Jack McGrory(4).......................................... 5,252,000 8.5
Sol Price(4)............................................. 5,250,000 8.5
Robert E. Price(4)....................................... 5,250,000 8.5
James F. Cahill(4)....................................... 5,250,000 8.5
Murray Galinson(4)....................................... 5,250,000 8.5
Gary B. Sabin(5)......................................... 3,971,215 6.4
Richard B. Muir.......................................... 639,517 1.0
Mark T. Burton........................................... 563,365 *
Graham R. Bullick, Ph.D.................................. 496,154 *
S. Eric Ottesen.......................................... 491,906 *
John H. Wilmot(6)........................................ 125,336 *
Richard J. Nordlund(7)................................... 63,468 *
James Y. Nakagawa........................................ 45,020 *
Robert S. Talbott(8)..................................... 32,000 *
Robert E. Parsons, Jr.(9)................................ 27,123 *
William J. Stone......................................... -- *
John A. Visconsi......................................... -- *
All executive officers and directors as a group (13
persons)............................................... 11,707,104 19.0
------------------------
* Less than 1% beneficially owned.
(1) Except as otherwise indicated, each individual named has a business address
of 17140 Bernardo Center Drive, Suite 300, San Diego, California 92128, and
has sole investment and voting power with respect to the securities shown.
(2) Includes the following shares issuable upon the exercise of outstanding
stock options that are exercisable within 60 days of August 3, 2001:
Mr. Sabin--43,000; Mr. Muir--40,000; Mr. Burton--30,000;
Mr. Bullick--30,000; Mr. Ottesen--27,000; Mr. Wilmot--13,000; Mr.
Nordlund--13,000; Mr. Nakagawa--12,000; Mr. Talbott--13,000;
Mr. Parsons--13,000; and all executive officers and directors as a group (13
persons)--234,000.
(3) Longleaf Partners Realty Fund's business address is c/o Southeastern Asset
Management, Inc., 6410 Poplar Avenue, 9th Floor, Memphis, Tennessee 38119.
(4) Jack McGrory, Sol Price, Robert E. Price, James F. Cahill and Murray
Galinson are co-managers of The Price Group LLC. As such, for purposes of
this table, they are each deemed to beneficially own 5,250,000 shares of
Legacy common stock held by The Price Group. Each of Jack McGrory, Sol
Price, Robert E. Price, James F. Cahill and Murray Galinson has shared
voting and dispositive power with respect to, and disclaims beneficial
ownership of, the shares held by The Price Group.
(5) Includes shares of Legacy common stock held by EIC, of which Gary Sabin is
the controlling stockholder.
(6) Mr. Wilmot's business address is 7201 E. Camelback Rd., #222, Phoenix,
Arizona 85018.
(7) Mr. Nordlund's business address is 615 Hot Springs Road, Santa Barbara,
California 93108.
(8) Mr. Talbott's business address is 2607 Kingston Pike, Knoxville, Tennessee
37919.
(9) Mr. Parson's business address is Host Marriott Corporation, 10400 Fernwood
Road, Bethesda, MD 20058.
84
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS OF THE EXCHANGE OFFER
The following discussion is a summary of the material United States federal
income tax considerations generally relevant to:
- the exchange of Enterprises Series A preferred stock for Legacy debentures
and Legacy notes, and
- the acquisition, ownership and disposition of Enterprises Series A
preferred stock.
This discussion is limited to federal income tax considerations relevant to
U.S. holders of Legacy debentures and Legacy notes participating in the exchange
offer, and does not address tax considerations relevant to subsequent holders of
Enterprises Series A preferred stock.
This summary is based on the Code, existing and proposed Treasury
Regulations promulgated thereunder, published rulings, administrative
pronouncements and judicial decisions, all as in effect as of the date of this
consent solicitation statement/prospectus and all of which are subject to
changes which could affect the tax consequences described below, possibly on a
retroactive basis.
This summary addresses only the Legacy debentures and Legacy notes
transferred in the exchange offer and the Enterprises Series A preferred stock
received in the exchange offer. In addition, this summary addresses only tax
considerations relevant to U.S. holders of Legacy debentures, Legacy notes and
Enterprises Series A preferred stock who hold those securities as capital assets
within the meaning of Section 1221 of the Code. It does not discuss all of the
tax consequences that may be relevant to a holder of Legacy notes, Legacy
debentures or Enterprises Series A preferred stock in light of his or her
particular circumstances or tax issues that may be significant to holders of
Legacy notes, Legacy debentures or Enterprises Series A preferred stock who are
subject to special rules, such as:
- financial institutions,
- insurance companies,
- REITs or regulated investment companies,
- "S" corporations,
- expatriates,
- foreign entities and individuals who are not citizens or residents of the
United States,
- pension plans and other tax-exempt entities,
- brokers or dealers in securities,
- persons whose functional currency is other than the United States dollar,
- persons who are subject to the alternative minimum tax provisions of the
Code, or
- persons who acquired Legacy debentures, Legacy notes or Enterprises
Series A preferred stock as part of an integrated investment, such as a
"straddle," "hedge" or other risk reduction transaction.
This summary may not be applicable with respect to Legacy notes, Legacy
debentures or Enterprises Series A preferred stock acquired as compensation.
This summary also does not address
85
the state, local or foreign tax consequences of participating in the exchange
offer or acquiring, owning and disposing of Enterprises Series A preferred
stock.
As used in the discussion below, the term "earnings and profits" refers to
Enterprises' current or accumulated earnings and profits as determined under the
Code. There is no assurance that Enterprises will have earnings and profits for
any particular taxable year.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH REGARD TO THE APPLICATION OF
THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICIPATION IN THE EXCHANGE
OFFER AND THE ACQUISITION, OWNERSHIP AND DISPOSITION OF ENTERPRISES SERIES A
PREFERRED STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR LAWS GOVERNING ESTATE AND GIFT
TAX CONSIDERATIONS.
The following discussion is limited to United States federal income tax
consequences applicable to U.S. holders, and does not address the consequences
that may apply to persons that are not U.S. holders. As used in the discussion
below, the term "U.S. holder," means a holder of Legacy debentures, Legacy notes
or Enterprises Series A preferred stock who, for United States federal income
tax purposes:
- is a citizen or resident of the United States,
- is a corporation, partnership, limited liability company or other entity
created or organized in or under the laws of the United States or of any
state thereof or in the District of Columbia, unless, in the case of a
partnership or limited liability company, Treasury Regulations provide
otherwise,
- is an estate the income of which is subject to United States federal
income taxation regardless of its source, or
- is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust, or
that was in existence on August 20, 1996 and has made a valid election to
continue to be treated as a United States person.
If a holder is a partnership (or an entity treated as a partnership) for
United States federal income tax purposes, the tax treatment of each partner of
such partnership will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner in a partnership that holds
Legacy debentures, Legacy notes or Enterprises Series A preferred stock, you
should consult your tax advisor.
TREATMENT OF THE EXCHANGE OFFER
TENDERING U.S. HOLDERS. Although not free from doubt, Enterprises and
Legacy expect that an exchange of Enterprises Series A preferred stock for
Legacy debentures and Legacy notes in the exchange offer by a U.S. holder will
be a taxable transaction for United States federal income tax purposes and may
also be a taxable transaction under applicable state, local or foreign tax laws.
Assuming the exchange is treated as a taxable exchange, in general, for United
States federal income tax purposes, each U.S. holder will recognize capital gain
(subject to the market discount rules discussed below) or loss on the exchange
of a Legacy debenture or Legacy note in an amount equal to the difference
between:
- the sum of (1) fair market value of the Enterprises Series A preferred
stock received for the exchanged Legacy debenture or Legacy note and
(2) cash received for a fractional share of
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Enterprises Series A preferred stock (other than the portion of such sum
that is properly allocable to accrued and previously unrecognized original
issue discount and accrued and unpaid interest, which will be taxed as
ordinary income), and
- the holder's "adjusted tax basis" in the exchanged Legacy debenture or
Legacy note at the time of the exchange.
Gain or loss will be separately computed for each block of Legacy debentures
and Legacy notes exchanged by a U.S. holder. Such capital gain or loss will be
long-term if the U.S. holder held the Legacy debenture or the Legacy note for
more than one year at the time of the exchange. U.S. holders should consult
their tax advisors with respect to applicable rates and holding periods, and
netting rules for capital losses. Generally, a U.S. holder's "adjusted tax
basis" for a Legacy debenture or Legacy note will be equal to the cost of the
Legacy debenture or the Legacy note to such holder, less payments (other than
interest payments) received on the Legacy debenture or the Legacy note. If
applicable, a U.S. holder's tax basis in a Legacy debenture or Legacy note also
would be increased by any original issue discount or market discount previously
included in income by such holder (in the case of market discount, pursuant to
an election to include it in gross income currently as it accrues), and would be
reduced by the accrual of any amortizable bond premium which the holder has
previously elected to deduct from gross income on an annual basis. Certain
limitations exist on the deduction of capital losses by both corporations and
individual taxpayers.
As described above, the amount of taxable gain or loss for each U.S. holder
would vary depending on a number of factors, including, among others, the fair
market value of the Enterprises Series A preferred stock at the time of the
exchange as well as the holder's acquisition cost of the Legacy debentures or
Legacy notes being exchanged and any elections made by such holder with respect
to any market discount. Whether any U.S. holder acquired the Legacy debentures
or Legacy notes being exchanged at a market discount would generally depend on
the price paid therefor. Assuming that neither the Legacy debentures nor the
Legacy notes being exchanged were issued with original issue discount, the
following examples illustrate how gain or loss would be computed for U.S.
holders of the Legacy debentures or Legacy notes participating in the exchange.
If the fair market value of the Enterprises Series A preferred stock is $15 per
share at the time of the consummation of the exchange offer, assuming no
rounding off with respect to fractional shares and no accrued and unpaid
interest, a U.S. holder would receive consideration equal to the principal
amount of the Legacy debentures or Legacy notes being exchanged. If a U.S.
holder of the Legacy debentures or Legacy notes being exchanged acquired them
for cash at 100% of their principal amount, such holder would generally have a
tax basis in the Legacy debentures or Legacy notes equal to the price paid
(i.e., 100% of their principal amount). Accordingly, the U.S. holder would
likely not have any gain or loss recognized upon the exchange of the Legacy
debentures or Legacy notes being exchanged for Enterprises Series A preferred
stock. If, under the same facts, a U.S. holder acquired the Legacy debentures or
Legacy notes being exchanged at 90% of their principal amount, the adjusted tax
basis of the Legacy debentures or Legacy notes would generally be equal to the
price paid (i.e., 90% of their principal amount) unless the holder made an
election to accrue market discount (generally corresponding to the 10% discount
from the principal amount) currently as income. If so, the U.S. holder would
generally realize gain in an amount equal to the principal amount of the Legacy
debentures or Legacy notes minus the adjusted tax basis (i.e., under the above
example, 90% of the principal amount). A portion of such gain representing
market discount accrued (generally based on ratable accrual or, at the election
of the U.S. holder, on a constant rate basis) while the U.S. holder held the
Legacy debentures or Legacy notes would generally result in ordinary income.
An exception to the capital gain treatment described above may apply to a
U.S. holder who purchased a Legacy debenture or a Legacy note at a "market
discount." Subject to a statutory DE MINIMIS exception, market discount is the
excess of the stated redemption price at maturity of the
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Legacy debenture or the Legacy note over the U.S. holder's tax basis in the
Legacy debenture or the Legacy note immediately after such holder's acquisition
of the Legacy debenture or the Legacy note. In general, unless the U.S. holder
has elected to include market discount in income currently as it accrues, any
gain realized by a holder on the exchange of a Legacy debenture or Legacy note
having market discount in excess of a DE MINIMIS amount will be treated as
ordinary income to the extent of the market discount that has accrued (on a
straight line basis or, at the election of the holder, on a constant yield
basis) while the Legacy debenture or the Legacy note was held by the holder.
TREATMENT OF NON-TENDERING HOLDERS. Legacy believes and intends to take the
position that the proposed amendments, if adopted, would not cause a deemed
exchange of Legacy debentures or Legacy notes for new Legacy debentures or new
Legacy notes. Assuming there is no deemed exchange, a U.S. holder who does not
tender its Legacy debentures or Legacy notes pursuant to the exchange offer
would not recognize any gain or loss as a result of the adoption of the proposed
amendments. However, Legacy has not obtained an opinion of counsel and will not
seek a ruling from the Internal Revenue Service that the adoption of the
proposed amendments would not cause a deemed exchange of the Legacy debentures
or Legacy notes for new Legacy debentures ("amended Legacy debentures") or new
Legacy notes ("amended Legacy notes"). As a result, the Internal Revenue Service
may later challenge the position that the adoption of the proposed amendments
would not cause a deemed exchange. If this challenge were successful, a U.S.
holder that does not tender all of its Legacy debentures and Legacy notes in the
exchange offer could realize gain or loss on the deemed exchange of its Legacy
debentures and Legacy notes that were not tendered in the exchange offer. This
gain or loss would be equal to the difference between (1) the issue price of the
amended Legacy debentures and amended Legacy notes deemed received in exchange
for the Legacy debentures and Legacy notes that were not tendered in the
exchange offer (which generally should equal the fair market value of the Legacy
debentures or Legacy notes on the date the proposed amendments become effective
assuming the Legacy debentures and Legacy notes continue to be publicly traded
as of such date) and (2) the adjusted basis of the Legacy debentures and Legacy
notes that were not tendered in the exchange offer.
ENTERPRISES SERIES A PREFERRED STOCK--TAXATION OF TAXABLE U.S. HOLDERS GENERALLY
DISTRIBUTIONS GENERALLY. As long as Enterprises qualifies as a REIT,
distributions out of its current or accumulated earnings and profits, other than
capital gain dividends discussed below, will constitute dividends taxable to its
taxable U.S. holders as ordinary income. As long as it qualifies as a REIT,
these distributions will not be eligible for the dividends-received deduction in
the case of U.S. holders that are corporations. For purposes of determining
whether distributions to holders of Enterprises Series A preferred stock are out
of current or accumulated earnings and profits, Enterprises' earnings and
profits will be allocated first to the Enterprises Series A preferred stock and
Enterprises Series B preferred stock and then to the Enterprises common stock.
To the extent that Enterprises makes distributions in excess of its current
and accumulated earnings and profits, these distributions will be treated first
as a tax-free return of capital to each U.S. holder. This treatment will reduce
the adjusted tax basis which each U.S. holder has in his shares of stock for tax
purposes by the amount of the distribution, but not below zero. Distributions in
excess of a U.S. holder's adjusted tax basis in his shares will be taxable as
capital gains, provided that the shares have been held as a capital asset, and
will be taxable as long-term capital gain if the shares have been held for more
than one year. Dividends Enterprises declares in October, November or December
of any year and payable to a stockholder of record on a specified date in any of
these months shall be treated as both paid by Enterprises and received by the
stockholder on December 31 of that year, provided Enterprises actually pays the
dividend on or before January 31 of the following calendar year.
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Stockholders may not include in their own income tax returns any of Enterprises'
net operating losses or capital losses.
CAPITAL GAIN DISTRIBUTIONS. Distributions that Enterprises properly
designates as capital gain dividends will be taxable to U.S. holders as gains
from the sale or disposition of a capital asset to the extent that such gains do
not exceed its actual net capital gain for the taxable year. Depending on the
characteristics of the assets which produced these gains, and on certain
designations, if any, which Enterprises may make, these gains generally will be
taxable to non-corporate U.S. holders at a 20% or 25% rate. U.S. holders that
are corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. For a discussion of the manner in which that
portion of any dividends designated as capital gain dividends will be allocated
among the holders of the Enterprises' preferred stock and the Enterprises common
stock, see "Description of Enterprises Capital Stock--Series A Preferred Stock."
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS. Distributions
made by Enterprises and gain arising from the sale or exchange by a U.S. holder
of its shares will not be treated as passive activity income. As a result, U.S.
holders generally will not be able to apply any "passive losses" against this
income or gain. Distributions made by Enterprises, to the extent they do not
constitute a return of capital, generally will be treated as investment income
for purposes of computing the investment interest limitation. Gain arising from
the sale or other disposition of the U.S. holders' shares, however, will not be
treated as investment income under certain circumstances.
RETENTION OF NET LONG-TERM CAPITAL GAINS. Enterprises may elect to retain,
rather than distribute as a capital gain dividend, its net long-term capital
gains. If it makes this election, it would pay tax on its retained net long-term
capital gains. In addition, to the extent designated by Enterprises, a U.S.
holder generally would:
- include its proportionate share of Enterprises' undistributed long-term
capital gains in computing its long-term capital gains in its return for
its taxable year in which the last day of Enterprises' taxable year falls,
subject to certain limitations as to the amount that is includable,
- be deemed to have paid the capital gains tax imposed on Enterprises on the
designated amounts included in the U.S. holder's long-term capital gains,
- receive a credit or refund for the amount of tax deemed paid by it,
- increase the adjusted basis of its Enterprises Series A preferred stock by
the difference between the amount of includable gains and the tax deemed
to have been paid by it, and
- in the case of a U.S. holder that is a corporation, appropriately adjust
its earnings and profits for the retained capital gains in accordance with
Treasury Regulations to be prescribed by the Internal Revenue Service.
DISPOSITIONS OF ENTERPRISES SERIES A PREFERRED STOCK. If you are a U.S.
holder and you sell or dispose of your shares of Enterprises Series A preferred
stock, you will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be capital
if you have held the Enterprises Series A preferred stock as a capital asset.
This gain or loss will be long-term capital gain or loss if you have held the
Enterprises Series A preferred stock for more than one year. In general, if you
are a U.S. holder and you recognize loss upon the sale or other disposition of
Enterprises Series A preferred stock that you have held for six months or less,
after applying certain holding period rules, the loss you
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recognize will be treated as a long-term capital loss to the extent you received
distributions from Enterprises which were required to be treated as long-term
capital gains.
REDEMPTION OF SERIES A PREFERRED STOCK. A redemption of a U.S. holder's
shares of Enterprises Series A preferred stock will be treated under
Section 302 of the Code as a distribution taxable as a dividend (to the extent
of Enterprises' current and accumulated earnings and profits) at ordinary income
rates unless the redemption satisfies one of the tests set forth in
Section 302(b) of the Code and is therefore treated as a sale or exchange of the
redeemed shares. The redemption will be treated as a sale or exchange to the
U.S. holder if it (1) is "substantially disproportionate" with respect to the
holder, (2) results in a "complete termination" of the holder's stock interest
in Enterprises or (3) is "not essentially equivalent to a dividend" with respect
to the holder, all within the meaning of Section 302(b) of the Code. In
determining whether any of these tests have been met, shares of capital stock
(including the Enterprises common stock, the Series A preferred stock and the
Series B preferred stock and other equity interests in Enterprises) considered
to be owned by the U.S. holder by reason of certain constructive ownership rules
set forth in the Code, as well as shares of capital stock actually owned by the
holder, must generally be taken into account. Because the determination as to
whether any of the alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular U.S. holder of Enterprises Series A
preferred stock depends upon the facts and circumstances at the time that the
determination must be made, prospective holders of Enterprises Series A
preferred stock are advised to consult their own tax advisors to determine such
tax treatment.
If a redemption of shares of Enterprises Series A preferred stock is not
treated as a distribution taxable as a dividend to a particular U.S. holder, it
will be treated, as to that holder, as a taxable sale or exchange. As a result,
such holder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (1) the amount of cash and the fair
market value of any property received (less any portion thereof attributable to
accumulated and declared but unpaid dividends, which will be taxable as a
dividend to the extent of Enterprises' current and accumulated earnings and
profits) and (2) the holder's adjusted basis in the shares of Enterprises
Series A preferred stock for tax purposes. Such gain or loss will be capital if
the shares have been held as a capital asset. Such gain or loss will be
long-term capital gain or loss if such shares have been held for more than one
year. In general, any loss recognized by a U.S. holder upon a redemption treated
as a sale or exchange of shares of Enterprises Series A preferred stock that
have been held for six months or less (after applying certain holding period
rules) will be treated as long-term capital loss, to the extent of distributions
received by such holder from Enterprises which were required to be treated as
long-term capital gains.
If a redemption of a U.S. holder's shares of Enterprises Series A preferred
stock is treated as a distribution taxable as a dividend, the amount of the
distribution will be measured by the amount of cash and the fair market value of
any property received by the holder. The U.S. holder's adjusted basis in the
redeemed shares of Enterprises Series A preferred stock for tax purposes will be
transferred to the holder's remaining shares of capital stock in Enterprises, if
any. If the U.S. holder owns no other shares of capital stock in Enterprises,
such basis may, under certain circumstances, be transferred to a related person
or it may be lost entirely.
ENTERPRISES SERIES A PREFERRED STOCK--TAXATION OF TAX-EXEMPT STOCKHOLDERS
The Internal Revenue Service has ruled that amounts distributed as dividends
by a REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder,
except certain tax-exempt stockholders described below, has not held its shares
as "debt-financed property" within the meaning of the Code, and the shares are
not otherwise used in a trade or business, dividend income from Enterprises and
gain from the sale of shares will not constitute unrelated business taxable
income to a tax-exempt stockholder. Generally,
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debt-financed property is property, the acquisition or holding of which was
financed through a borrowing by the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in Enterprises' shares will constitute unrelated business taxable
income unless the organization is able to properly claim a deduction for amounts
set aside or placed in reserve for certain purposes so as to offset the income
generated by its investment in Enterprises' shares. These prospective investors
should consult their own tax advisors concerning these set aside and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as unrelated business taxable income as to
certain types of trusts which hold more than 10%, by value, of the interests in
the REIT. A REIT will not be a "pension-held REIT" if it is able to satisfy the
"not closely held" requirement without relying upon the "look-through" exception
with respect to certain trusts. As a result of certain limitations on the
transfer and ownership of stock contained in Enterprises' charter, it does not
expect to be classified as a "pension-held REIT," and as a result, the tax
treatment described above should be inapplicable to its stockholders.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A U.S. holder of Legacy debentures or Legacy notes participating in the
exchange offer may be subject to backup withholding at a maximum rate of 31%
with respect to "reportable payments" unless the U.S. holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. "Reportable payments" include:
- interest payments on Legacy debentures and Legacy notes,
- under some circumstances, principal payments on Legacy debentures and
Legacy notes,
- the gross proceeds payable in the exchange offer--i.e., the Enterprises
Series A preferred stock and cash received instead of a fractional share
of Enterprises Series A preferred stock,
- dividend payments on the Enterprises Series A preferred stock, and
- the proceeds of a taxable sale, exchange or redemption of the Enterprises
Series A preferred stock.
The payor will be required to deduct and withhold the prescribed amounts if:
- the payee fails to furnish a taxpayer identification number, or TIN, to
the payor in the manner required by the Code and applicable Treasury
regulations or otherwise fails to establish its exempt status,
- the Internal Revenue Service notifies the payor that the TIN furnished by
the payee is incorrect,
- there has been a "notified payee underreporting" described in
Section 3406(c) of the Code, or
- there has been a failure of the payee to certify under penalty of perjury
that the payee is not subject to withholding under Section 3406(a)(1)(C)
of the Code.
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In such an event, Enterprises will be required to withhold an amount up to
31% from any interest payment made with respect to the U.S. holder's Legacy
debentures and Legacy notes, the gross proceeds payable to the U.S. holder in
the exchange offer, any dividend payment made with respect to the U.S. holder's
Enterprises Series A preferred stock, any payment of proceeds to the U.S. holder
of a taxable sale, exchange or redemption of Enterprises Series A preferred
stock, or any other "reportable payments." Enterprises will report to U.S.
holders transferring Legacy debentures and Legacy notes in the exchange offer,
to U.S. holders of Enterprises Series A preferred stock other than U.S. holders
exempt from information reporting rules and to the Internal Revenue Service the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to payment on the securities. A person
transferring Legacy debentures or Legacy notes in the exchange offer or a holder
of Enterprises Series A preferred stock who does not provide the payor with his
correct taxpayer identification number may be subject to penalties imposed by
the Internal Revenue Service. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the U.S. holder's
United States federal income tax liabilities, so long as the required
information is provided to the Internal Revenue Service.
THE FOREGOING DISCUSSION IS NOT MEANT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX CONSEQUENCES RELATED TO THE EXCHANGE OFFER OR
THE OWNERSHIP AND DISPOSITION OF THE ENTERPRISES SERIES A PREFERRED STOCK. THUS,
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO
YOU OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE ENTERPRISES
SERIES A PREFERRED STOCK, INCLUDING TAX RETURN REPORTING REQUIREMENTS, FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
If you participate in the exchange offer, you will receive Enterprises
Series A preferred stock. In addition, if you fail to tender your Legacy
debentures in the exchange offer, you may become a stockholder of Enterprises
through the conversion of the Legacy debentures into Enterprises common stock.
The rights of Enterprises' stockholders are governed by special rules applicable
to REITs. As a result of these rules: (1) Enterprises is required to distribute
at least 90% of its REIT taxable income annually to its stockholders, and is
subject to tax to the extent it distributes less than 100% of its REIT taxable
income, (2) after all required distributions are paid to the holders of
Enterprises Series A preferred stock and Enterprises Series B preferred stock,
Enterprises' common stockholders will be entitled to the remaining balance (if
any) of any distributions that Enterprises makes, including any distributions it
must make to satisfy the 90% distribution requirement, and (3) Enterprises'
charter limits the amount of Enterprises' stock that can be owned or considered
owned by any one stockholder to 5% (by value or number, whichever is more
restrictive). In addition, because Enterprises must distribute at least 90% of
its REIT taxable income to its stockholders to maintain its qualification as a
REIT, Enterprises depends to a significant extent on borrowings to raise the
capital needed to grow its business. See "Material Federal Income Tax
Considerations Related to Price Legacy" for a more detailed discussion of the
federal income taxation of Price Legacy.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES RELATED TO PRICE LEGACY
THE FOLLOWING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS NOT
TAX ADVICE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF PRICE LEGACY'S ELECTION TO BE TAXED AS A REIT,
INCLUDING ANY STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
GENERAL
In connection with the merger, Legacy will become a wholly-owned subsidiary
of Enterprises, and Enterprises will change its name to Price Legacy
Corporation. After the merger, Legacy will be a disregarded entity for federal
income tax purposes and will be treated as a not-separately-incorporated
division of Price Legacy.
In this section, "Price Legacy" refers to Enterprises, which after the
merger will be known as Price Legacy Corporation and means the corporation
whether before, on or after the merger.
TAXATION OF PRICE LEGACY
GENERAL. Enterprises elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its short taxable year ended
December 31, 1997. Enterprises believes it has been organized and has operated
in a manner which allows it to qualify for taxation as a REIT under the Code
commencing with its short taxable year ended December 31, 1997. Price Legacy
intends to continue to operate in a manner that will enable it to continue to
meet the requirements for qualification and taxation as a REIT. However, neither
Enterprises nor Legacy can assure you that Enterprises has operated, or that
Price Legacy will continue to operate, in a manner so as to qualify or remain
qualified as a REIT. See "--Failure to Qualify."
Price Legacy's qualification and taxation as a REIT depends upon its ability
to meet (through actual annual operating results, asset diversification,
distribution levels and diversity of stock ownership) the various qualification
tests imposed under the Code and discussed below, the satisfaction of which has
not been and will not be reviewed by its tax counsel. Accordingly, it cannot
assure you that the actual results of its operation during any particular
taxable year have satisfied, or will satisfy, such requirements. See "--Failure
to Qualify." Further, the anticipated income tax treatment described in this
consent solicitation statement/prospectus or in any consent solicitation
statement/prospectus supplement or supplements may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time.
The sections of the Code that relate to qualification and operation as a
REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and Treasury Regulations promulgated
under the Code, and administrative and judicial interpretations of the Code and
these rules and regulations.
If Price Legacy qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (once at the corporate level when earned and once again at the
stockholder level when distributed) that generally results from investment in a
C corporation (i.e., generally a corporation subject to full corporate-level
tax). However, Price Legacy will be subject to federal income tax as follows:
First, it will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
Second, it may be subject to the "alternative minimum tax" on its items of
tax preference under some circumstances.
Third, if it has (1) net income from the sale or other disposition of
"foreclosure property" (defined generally as property it acquired through
foreclosure or after a default on a loan secured by the
93
property or a lease of the property) which is held primarily for sale to
customers in the ordinary course of business or (2) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on this income.
Fourth, it will be subject to a 100% tax on any net income from prohibited
transactions (which are, in general, sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business other
than foreclosure property).
Fifth, if it fails to satisfy the 75% gross income test or the 95% gross
income test discussed below, but nonetheless maintains its qualification as a
REIT because certain other requirements are met, it will be subject to a tax
equal to (1) the greater of (A) the amount by which 75% of its gross income
exceeds the amount qualifying under the 75% gross income test, and (B) the
amount by which 90% of its gross income exceeds the amount qualifying under the
95% gross income test, multiplied by (2) a fraction intended to reflect its
profitability.
Sixth, it will be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if it fails to distribute
during each calendar year at least the sum of (1) 85% of its REIT ordinary
income for the year, (2) 95% of its REIT capital gain net income for the year
and (3) any undistributed taxable income from prior periods.
Seventh, if it acquires any asset, each a "built-in gain asset," from a
corporation which is or has been a C corporation in a transaction in which the
basis of the built-in gain asset in its hands is determined by reference to the
basis of the asset in the hands of the C corporation, and it subsequently
recognizes gain on the disposition of the asset during the ten-year period (the
"Recognition Period") beginning on the date on which it acquired the asset, then
it will be subject to tax at the highest regular corporate tax rate on this gain
to the extent of the built-in gain (i.e., the excess of (1) the fair market
value of the asset over (2) its adjusted basis in the asset, in each case
determined as of the beginning of the Recognition Period). The results described
in this paragraph with respect to the recognition of built-in gain assume that
Price Legacy will make an election under Treasury Regulation
Section 1.337(d)-5T to be treated in this manner on its tax return for the year
in which it acquires an asset from a C corporation. Price Legacy intends to make
such an election with respect to the assets it acquires from Legacy in the
merger.
Eighth, it will be subject to a 100% tax on any "redetermined rents,"
"redetermined deductions" or "excess interest." In general, redetermined rents
are rents from real property that are overstated as a result of services
furnished by a "taxable REIT subsidiary" of Price Legacy to any of its tenants.
See "--Taxation of Price Legacy--Ownership of Interests in Taxable REIT
Subsidiaries." Redetermined deductions and excess interest represent amounts
that are deducted by a taxable REIT subsidiary of Price Legacy for amounts paid
to Price Legacy that are in excess of the amounts that would have been deducted
based on arm's length negotiations.
REQUIREMENTS FOR QUALIFICATION AS A REIT. The Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors,
(2) that issues transferable shares or transferable certificates to evidence
its beneficial ownership,
(3) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code,
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions of the Code,
(5) that is beneficially owned by 100 or more persons,
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of each
taxable year, and
94
(7) that meets certain other tests, described below, regarding the nature of
its income and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (5) and (6) do not apply until
after the first taxable year for which an election is made to be taxed as a
REIT. For purposes of condition (6), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception with
respect to pension funds. Enterprises believes that it has satisfied, and Price
Legacy intends to satisfy, each of the above conditions.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Enterprises has and Price Legacy will have a calendar
taxable year.
OWNERSHIP LIMITATIONS. As set forth in the fifth and sixth conditions
above, to qualify as a REIT, (1) Price Legacy's outstanding shares of capital
stock must be held by 100 or more persons during at least 335 days of a taxable
year of twelve months (or during a proportionate part of a taxable year of less
than twelve months) (the "100-person requirement") and (2) no more than 50% in
value of Price Legacy's outstanding shares of capital stock may be owned,
directly or constructively under the applicable attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (the "five-fifty test"). Price
Legacy is expected to take all necessary measures within its control to ensure
that the beneficial ownership of Price Legacy will at all times be held by 100
or more persons. In addition, Enterprises' charter contains, and Price Legacy's
charter will contain, certain restrictions on the ownership and transfer of
Price Legacy's stock which are designed to help ensure that Price Legacy will be
able to satisfy the five-fifty test. These restrictions (the "ownership limits")
provide that, subject to some exceptions, no person may beneficially own, or be
deemed to own, more than 5% (by number or value, whichever is more restrictive)
of either the outstanding stock of Price Legacy, the outstanding shares of
Enterprises Series A preferred stock, or the outstanding shares of Enterprises
Series B preferred stock.
Enterprises' charter provides, and Price Legacy's charter will provide, that
its board may exempt a person or persons from the ownership limits if the
procedures set forth in the charter are complied with and the board has
determined that the exemption will not cause Enterprises or Price Legacy to fail
to qualify as a REIT. Enterprises' board has waived the above ownership limits
(1) with respect to the Price family and affiliated entities and with respect to
Legacy, and (2) contingent on the merger and sale of the Enterprises Series B
preferred stock, for certain stockholders of Legacy and for Warburg Pincus.
By reason of the grant of these exemptions and the Price family's
substantial ownership interest in Price Legacy, there can be no assurance that
the ownership limits will enable Price Legacy to satisfy the five-fifty test.
For example, while Price Legacy believes that it has at all times satisfied the
five-fifty test, it is possible that (1) one or more persons has beneficially
owned, or will beneficially own less than 5% of Enterprises outstanding stock
and (2) such beneficial ownership has caused or could cause Price Legacy to fail
to satisfy the five-fifty test. To assist Price Legacy in preserving its REIT
status in such a situation, Enterprises' charter provides, and Price Legacy's
charter will provide, without exception, that no person may actually,
beneficially or constructively own shares of stock of Price Legacy that would
result in Price Legacy violating the five-fifty test or otherwise cause Price
Legacy to fail to qualify as a REIT. In addition, Enterprises' charter provides,
and Price Legacy's charter will provide, that if any transfer of shares of stock
of Price Legacy occurs which, if effective, would result in any person actually,
beneficially, or constructively owning shares of stock of Price Legacy in excess
or in violation of the above transfer or ownership limitations, then the number
of shares of stock of Price Legacy which otherwise would cause the person to
violate the above transfer or ownership limitations would be subject to a number
of remedies designed to prevent Price Legacy from violating the five-fifty test
or otherwise failing to qualify as a REIT. These remedies are described in
"Description of Enterprises
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Capital Stock--Restrictions on Transfer." However, there can be no assurance
that such remedies would allow Price Legacy to satisfy the five-fifty test.
If Price Legacy fails to satisfy the 100-person requirement or the
five-fifty test, its status as a REIT will terminate. However, if it complies
with the rules contained in applicable Treasury Regulations that require it to
ascertain the actual ownership of its shares and it does not know, or would not
have known through the exercise of reasonable diligence, that it failed to meet
the five-fifty test, it will be treated as having satisfied the test. See
"--Failure to Qualify."
OWNERSHIP OF INTERESTS IN PARTNERSHIPS, LIMITED LIABILITY COMPANIES AND
QUALIFIED REIT SUBSIDIARIES. In the case of a REIT which is a partner in a
partnership or a member in a limited liability company, Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership or limited liability company, as the case may be.
Also, the REIT will be deemed to be entitled to the income of the partnership or
the limited liability company attributable to its proportionate share. The
character of the assets and gross income of the partnership or limited liability
company retains the same character in the hands of the REIT for purposes of
Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, Price Legacy's proportionate share of the assets and items of
income of the partnerships and limited liability companies in which it owns an
interest will be treated as its assets and items of income for purposes of
applying the requirements described in this consent solicitation
statement/prospectus (including the income and asset tests described below). A
brief summary of the rules governing the federal income taxation of partnerships
and limited liability companies is included below in "--Tax Aspects of the
Partnerships and Limited Liability Companies."
Price Legacy has direct control of some partnerships and limited liability
companies and will continue to operate each of them consistent with the
requirements for qualification as a REIT. However, Price Legacy is a limited
partner or non-managing member in certain of its partnerships and limited
liability companies. If a partnership or limited liability company takes or
expects to take actions which could jeopardize Price Legacy's status as a REIT
or subject it to tax, Price Legacy may be forced to dispose of its interest in
such entity. In addition, it is possible that a partnership or limited liability
company could take an action which could cause Price Legacy to fail a REIT
income or asset test, and that Price Legacy would not become aware of such
action in a time frame which would allow it to dispose of its interest in the
entity or take other corrective action on a timely basis. In such a case, it
could fail to qualify as a REIT.
After the merger, Price Legacy will own 100% of the stock of five
subsidiaries (including Legacy) that will be qualified REIT subsidiaries, each a
QRS, and may acquire stock of one or more new subsidiaries. A corporation will
qualify as a QRS if 100% of its stock is held by Price Legacy and it is not a
"taxable REIT subsidiary" (as described below). A QRS will not be treated as a
separate corporation, and all assets, liabilities and items of income, deduction
and credit of a QRS will be treated as assets, liabilities and such items (as
the case may be) of Price Legacy for all purposes of the Code, including the
REIT qualification tests. For this reason, references under "Material Federal
Income Tax Consequences Related to Price Legacy" to Price Legacy's income and
assets shall include the income and assets of any QRS. A QRS will not be subject
to federal income tax, and Price Legacy's ownership of the voting stock of a QRS
will not violate the restrictions against ownership of securities of any one
issuer which constitute more than 10% of the voting power or value of such
issuer's securities or more than 5% of the value of Price Legacy's total assets,
as described below under "--Taxation of Price Legacy--Asset Tests."
OWNERSHIP OF INTERESTS IN TAXABLE REIT SUBSIDIARIES. A taxable REIT
subsidiary of Price Legacy is a corporation other than a REIT in which Price
Legacy directly or indirectly holds stock and that has made a joint election
with Price Legacy to be treated as a taxable REIT subsidiary. A taxable REIT
subsidiary also includes any corporation other than a REIT with respect to which
a taxable REIT subsidiary of Price Legacy owns securities possessing more than
35% of the total voting power or value
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of the outstanding securities of such corporation. Other than some activities
relating to lodging and health care facilities, a taxable REIT subsidiary may
generally engage in any business, including the provision of customary or
non-customary services to tenants of its parent REIT. A taxable REIT subsidiary
is subject to federal income tax, and state and local income tax where
applicable, as a regular C corporation. In addition, a taxable REIT subsidiary
of Price Legacy may be prevented from deducting interest on debt funded directly
or indirectly by Price Legacy if certain tests regarding the taxable REIT
subsidiary's debt-to-equity ratio and interest expense are satisfied.
Enterprises does not hold (and does not expect to hold) an interest in any
taxable REIT subsidiary prior to the merger. After the merger, Price Legacy will
hold an indirect interest in Excel Legacy Holdings, Inc., a wholly-owned
subsidiary of Legacy, that will elect, together with Price Legacy, to be treated
as a taxable REIT subsidiary of Price Legacy effective no later than the
effective time. See "--Taxation of Price Legacy--Asset Tests."
INCOME TESTS. Price Legacy must satisfy two gross income requirements
annually to maintain its qualification as a REIT. First, in each taxable year it
must derive directly or indirectly at least 75% of its gross income (excluding
gross income from prohibited transactions) from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, each taxable year it must derive at least 95% of its gross
income (excluding gross income from prohibited transactions) from these real
property investments, dividends, interest and gain from the sale or disposition
of stock or securities (or from any combination of the foregoing). The term
"interest" generally does not include any amount received or accrued (directly
or indirectly) if the determination of the amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales.
Rents Price Legacy receives from a tenant will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if the following conditions are met:
- the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally
will not be excluded from the term "rents from real property" solely by
reason of being based on a fixed percentage or percentages of receipts or
sales,
- rents received from a tenant will not qualify as "rents from property" in
satisfying the gross income tests if Price Legacy, or an actual or
constructive owner of 10% or more of its stock, actually or constructively
owns 10% or more of the interests in such tenant (a "related party
tenant"). Rents received from a "related party tenant" that is a taxable
REIT subsidiary, however, will not be excluded from the definition of
"rents from real property" if at least 90% of the space at the property to
which the rents relate is leased to third parties, and the rents paid by
the taxable REIT subsidiary are comparable to rents paid by the REIT's
other tenants for comparable space,
- rent attributable to personal property, leased in connection with a lease
of real property, is not greater than 15% of the total rent received under
the lease. If this condition is not met, then the portion of rent
attributable to personal property will not qualify as "rents from real
property," and
- Price Legacy must not operate or manage the property or furnish or render
services to the tenants of the property (subject to a 1% DE MINIMIS
exception), other than through an independent contractor from whom it
derives no revenue. Price Legacy may, however, directly perform certain
services that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. In addition, Price Legacy may
employ a taxable REIT subsidiary to provide both customary and
non-customary services to its tenants without causing the rent Price
Legacy
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receives from those tenants to fail to qualify as "rents from real
property." Any amounts received by Price Legacy from a taxable REIT
subsidiary with respect to the taxable REIT subsidiary's provision of
non-customary services will, however, be nonqualified income under the 75%
gross income test and, except to the extent received through the payment
of dividends, the 95% gross income test.
Price Legacy generally has not and expects not to take actions it believes
will cause it to fail to satisfy the rental conditions described above.
Notwithstanding the foregoing, it may intentionally fail to satisfy these
conditions to the extent the failure will not, based on the advice of its tax
counsel, jeopardize its tax status as a REIT.
Income derived from development, property management, administrative and
miscellaneous services generally does not qualify under either the 75% or the
95% gross income test. Price Legacy's taxable REIT subsidiaries may provide
certain services in exchange for a fee or derive other income which would not
qualify under the REIT gross income tests. Such fees and other income do not
accrue to Price Legacy, but it would derive dividend income from the taxable
REIT subsidiaries. Such dividend income qualifies under the 95%, but not the
75%, REIT gross income test. In addition, one or more of the partnerships or
limited liability companies in which Price Legacy owns an interest may provide
certain development, property management or administrative services to third
parties or Price Legacy's affiliates in exchange for a fee. The fees derived by
these partnerships and limited liability companies as a result of the provision
of such services will be nonqualifying income to Price Legacy under both the 75%
and 95% gross income tests. The amount of such dividend and fee income will
depend on a number of factors which cannot be determined with certainty,
including the level of services provided by the taxable REIT subsidiaries, the
partnerships and the limited liability companies. Price Legacy will monitor the
amount of the dividend income from the taxable REIT subsidiaries and the fee
income described above, and will take actions intended to keep this income (and
any other nonqualifying income) within the limitations of the REIT income tests.
However, there can be no assurance that such actions will in all cases prevent
it from violating a REIT income test.
If Price Legacy fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for the year
if it is entitled to relief under certain provisions of the Code. Generally, it
may avail itself of the relief provisions if:
- its failure to meet these tests was due to reasonable cause and not due to
willful neglect,
- it attaches a schedule of the sources of its income to its federal income
tax return, and
- any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether in all circumstances Price
Legacy would be entitled to the benefit of these relief provisions. For example,
if it fails to satisfy the gross income tests because nonqualifying income that
it intentionally incurs exceeds the limits on nonqualifying income, the Internal
Revenue Service could conclude that its failure to satisfy the tests was not due
to reasonable cause. If these relief provisions do not apply to a particular set
of circumstances, it will not qualify as a REIT. As discussed above in
"--Taxation of Price Legacy--General," even if these relief provisions apply,
and Price Legacy retains its status as a REIT, a tax would be imposed with
respect to its excess net income. Price Legacy may not always be able to
maintain compliance with the gross income tests for REIT qualification despite
periodic monitoring of its income.
PROHIBITED TRANSACTION INCOME. Any gain realized by Price Legacy on the
sale of any property held as inventory or other property held primarily for sale
to customers in the ordinary course of business (including its share of any such
gain realized by its partnerships or limited liability companies) will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. This prohibited transaction income may also adversely affect its
ability to satisfy the income tests for qualification as a REIT. Under existing
law, whether property is held as inventory or primarily for sale to customers in
the ordinary course of a trade or business is a question of fact that depends on
all the facts and
98
circumstances surrounding the particular transaction. Price Legacy intends to
hold its properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing and owning its properties and to
make occasional sales of the properties consistent with its investment
objectives. However, the Internal Revenue Service may contend that one or more
of these sales is subject to the 100% penalty tax.
REDETERMINED RENTS. Any redetermined rents, redetermined deductions or
excess interest generated by Price Legacy will be subject to a 100% penalty tax.
In general, redetermined rents are rents from real property that are overstated
as a result of services furnished by a taxable REIT subsidiary of Price Legacy
to any of its tenants, and redetermined deductions and excess interest represent
amounts that are deducted by a taxable REIT subsidiary for amounts paid to it
that are in excess of the amounts that would have been deducted based on arm's
length negotiations. Rents received by Price Legacy will not constitute
redetermined rents if they qualify for the safe harbor provisions contained in
the Code. Safe harbor provisions are provided where (1) amounts are received by
a REIT for services customarily furnished or rendered in connection with the
rental of real property, (2) amounts are excluded from the definition of
impermissible tenant service income as a result of satisfying the 1% DE MINIMIS
exception, (3) the taxable REIT subsidiary renders a significant amount of
similar services to unrelated parties and the charges for such services are
substantially comparable, (4) rents paid to the REIT by tenants who are not
receiving services from the taxable REIT subsidiary are substantially comparable
to the rents paid by the REIT's tenants leasing comparable space who are
receiving such services from the taxable REIT subsidiary and the charge for the
services is separately stated or (5) the taxable REIT subsidiary's gross income
from the service is not less than 150% of the subsidiary's direct cost in
furnishing the service.
ASSET TESTS. At the close of each quarter of its taxable year, Price Legacy
must also satisfy four tests relating to the nature and diversification of its
assets. First, at least 75% of the value of its total assets must be represented
by real estate assets, cash, cash items and government securities. For purposes
of this test, real estate assets include stock or debt instruments that are
purchased with the proceeds of a stock offering or a long-term (at least five
years) public debt offering, but only for the one-year period beginning on the
date such proceeds are received. Second, not more than 25% of its total assets
may be represented by securities, other than those securities includable in the
75% asset test. Third, of the investments included in the 25% asset class, and
except for investments in REITs, QRSs and taxable REIT subsidiaries, the value
of any one issuer's securities may not exceed 5% of the value of Price Legacy's
total assets, Price Legacy may not own more than 10% of any one issuer's
outstanding voting securities and Price Legacy may not own more than 10% of the
total value of the outstanding securities of any one issuer. Fourth, not more
than 20% of the value of Price Legacy's total assets may be represented by the
securities of one or more taxable REIT subsidiaries. The 10% value limitation
and the 20% asset test are part of recently enacted legislation and are
effective for taxable years ending after December 31, 2000.
Enterprises does not expect to hold an interest in any taxable REIT
subsidiary prior to the merger. After the merger, Price Legacy will own
indirectly 100% of the outstanding stock of Legacy Holdings. It is expected that
Legacy Holdings will elect, together with Price Legacy, to be treated as a
taxable REIT subsidiary of Price Legacy effective no later than the effective
time. So long as Legacy Holdings qualifies as a taxable REIT subsidiary, Price
Legacy will not be subject to the 5% asset test, 10% voting securities
limitation or 10% value limitation with respect to its ownership of securities
in Legacy Holdings. Price Legacy or Legacy Holdings may acquire securities in
other taxable REIT subsidiaries in the future. Price Legacy believes that the
aggregate value of its taxable REIT subsidiaries will not exceed 20% of the
aggregate value of its gross assets. With respect to each issuer in which it
currently owns an interest that does not qualify as a REIT, a QRS or a taxable
REIT subsidiary, Price Legacy expects that (1) the value of the securities of
any such issuer does not exceed 5% of the total value of its assets and (2) its
ownership of the securities of any such issuer complies with the 10% voting
securities limitation and 10% value limitation. No independent appraisals have
been obtained to
99
support these conclusions. In addition, there can be no assurance that the
Internal Revenue Service will not disagree with its determinations of value.
The asset tests must be satisfied not only on the date that Price Legacy
(directly or through its partnerships or limited liability companies) acquires
securities in the applicable issuer, but also each time it increases its
ownership of securities of such issuer, including as a result of increasing its
interest in a partnership or limited liability company. For example, Price
Legacy's indirect ownership of securities of an issuer may increase as a result
of its capital contributions to a partnership or limited liability company.
After initially meeting the asset tests at the close of any quarter, Price
Legacy will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If it
fails to satisfy an asset test because it acquires securities or other property
during a quarter (including as a result of an increase in its interests in a
partnership or limited liability company), it can cure this failure by disposing
of sufficient nonqualifying assets within 30 days after the close of that
quarter. Although Price Legacy expects to satisfy the asset tests and plans to
take steps to ensure that it satisfies such tests for any quarter with respect
to which retesting is to occur, there can be no assurance that such steps will
always be successful or will not require a reduction in its overall interest in
an issuer (including in one or more of the taxable REIT subsidiaries). If Price
Legacy fails to timely cure any noncompliance with the asset tests, it would
cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. To maintain its qualification as a REIT,
Price Legacy is required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount at least equal to the sum of 90% of
its "REIT taxable income" (computed without regard to the dividends paid
deduction and its net capital gain) and 90% of its net income (after tax), if
any, from foreclosure property, minus the excess of the sum of certain items of
noncash income (i.e., income attributable to leveled stepped rents, original
issue discount on purchase money debt, cancellation of indebtedness or a
like-kind exchange that is later determined to be taxable) over 5% of "REIT
taxable income" as described above. Dividends paid with respect to Price
Legacy's outstanding preferred stock and common stock may be used to satisfy
this requirement. This distribution requirement was 95% for taxable years
beginning prior to January 1, 2001.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared during the last three
months of the taxable year and paid during January of the following year. In
addition, at Price Legacy's election, a distribution for a taxable year may be
declared before Price Legacy timely files its tax return for such year and paid
on or before the first regular dividend payment after such declaration. These
elective distributions are taxable to Price Legacy's stockholders (other than
tax-exempt entities, as discussed below) in the year in which paid. This is so
even though these distributions relate to the prior year for purposes of its
distribution requirement. The amount distributed must not be preferential (i.e.,
every stockholder of the class of stock to which a distribution is made must be
treated the same as every other stockholder of that class, and no class of stock
may be treated otherwise than in accordance with its dividend rights as a
class). To the extent that Price Legacy does not distribute all of its net
capital gain or distribute at least 90%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. Price Legacy believes it has made
and intends to continue to make timely distributions sufficient to satisfy these
annual distribution requirements.
Price Legacy expects that its REIT taxable income will be less than its cash
flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, it anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. However, from time to time, it may
not have sufficient cash or other liquid assets to meet these distribution
requirements due to timing differences between the actual receipt of income and
actual payment of deductible expenses, and the inclusion of income and deduction
of expenses in arriving at its taxable income. If these timing differences
occur, in order to
100
meet the distribution requirements, Price Legacy may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under some circumstances, Price Legacy may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in its deduction for
dividends paid for the earlier year. Thus, it may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, it will be required to
pay interest to the Internal Revenue Service based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, Price Legacy would be subject to a 4% excise tax on the excess
of the required distribution over the amounts actually distributed if it should
fail to distribute during each calendar year (or in the case of distributions
with declaration and record dates falling in the last three months of the
calendar year, by the end of January immediately following such year) at least
the sum of 85% of its REIT ordinary income for such year, 95% of its REIT
capital gain income for the year and any undistributed taxable income from prior
periods. Any REIT taxable income and net capital gain on which this excise tax
is imposed for any year is treated as an amount distributed during that year for
purposes of calculating such tax.
Price Legacy has, and may in the future, dispose of properties in
transactions intended to qualify as like-kind exchanges under the Code,
resulting in the deferral of gain for federal income tax purposes. The failure
of any such transaction to qualify as a like-kind exchange could subject Price
Legacy to federal income tax, possibly including the 100% prohibited transaction
tax, depending on the facts and circumstances surrounding the particular
transaction.
EARNINGS AND PROFITS DISTRIBUTION REQUIREMENT. In order to qualify as a
REIT, Price Legacy cannot have at the end of any taxable year any undistributed
"earnings and profits" that are attributable to a C corporation taxable year
(i.e., a year in which a corporation is neither a REIT nor an S corporation).
Enterprises became a separate public company in 1994 when its parent, Costco
Companies, Inc. (formerly Price/Costco, Inc.), distributed the stock of
Enterprises to its stockholders. As a result of this distribution, known as a
tax-free spin-off, and in accordance with Treasury Regulations, a portion of
Costco's C corporation earnings and profits was allocated to Enterprises. In
addition, in 1997 and prior to Enterprises' first taxable year as a REIT,
Enterprises distributed the stock of PriceSmart, Inc. to its stockholders in a
taxable distribution. Enterprises believes that this distribution reduced its C
corporation earnings and profits to zero. As a result, Enterprises had no C
corporation earnings and profits in its first taxable year as a REIT. However,
the determination of earnings and profits for federal income tax purposes is
extremely complex and Enterprises' computations of its C corporation earnings
and profits are not binding on the Internal Revenue Service. Should the Internal
Revenue Service successfully assert that Enterprises had C corporation earnings
and profits at the end of its first taxable year as a REIT, Enterprises may fail
to qualify as a REIT. See "--Failure to Qualify." In addition, in connection
with the merger, Price Legacy will succeed to various tax attributes of Legacy
(if the merger is treated as a tax-free reorganization under the Code),
including any undistributed C corporation earnings and profits of Legacy. Legacy
believes that it will not have any undistributed C corporation earnings and
profits at the time of the merger. However, the Internal Revenue Service may
contend otherwise on a subsequent audit of Price Legacy or Legacy. If Legacy did
have undistributed C corporation earnings and profits at the time of the merger,
then Price Legacy would have acquired undistributed C corporation earnings and
profits that, if not distributed by Price Legacy prior to the end of its 2001
taxable year, would require Price Legacy to pay a "deficiency dividend" to its
stockholders, and interest to the Internal Revenue Service, to distribute any
remaining earnings and profits. A failure to make this deficiency dividend would
prevent Price Legacy from qualifying as a REIT. See "--Failure to Qualify." This
deficiency dividend procedure was not available in 1997 and, therefore, could
not be used to prevent Enterprises' failure to qualify as a REIT, in the event
Enterprises had C corporation earnings and profits at the end of its first
taxable year as a REIT, as discussed above.
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FAILURE TO QUALIFY
If Price Legacy fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, it will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which it fails to qualify
will not be deductible by it, and it will not be required to distribute any
amounts to its stockholders. As a result, Price Legacy's failure to qualify as a
REIT would reduce the cash available for distribution to its stockholders. In
addition, if it fails to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of its current and accumulated
earnings and profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends-received deduction. Unless
entitled to relief under specific statutory provisions, Price Legacy will also
be disqualified from taxation as a REIT for the four taxable years following the
year during which it lost its qualification. It is not possible to state whether
in all circumstances Price Legacy would be entitled to this statutory relief.
TAX ASPECTS OF THE PARTNERSHIPS AND LIMITED LIABILITY COMPANIES
GENERAL. Price Legacy holds some of its investments indirectly through
partnerships and limited liability companies. In general, entities that are
classified as partnerships for federal income tax purposes are "pass-through"
entities which are not subject to federal income tax. Rather, partners or
members of such entities are allocated their proportionate shares of the items
of income, gain, loss, deduction and credit of the entity, and are potentially
subject to tax thereon, without regard to whether the partners or members
receive a distribution from the entity. Price Legacy will include in its income
its proportionate share of the foregoing items for purposes of the various REIT
income tests and in the computation of its REIT taxable income. Moreover, for
purposes of the REIT asset tests, it will include its proportionate share of
assets held by the partnerships and limited liability companies. See "--Taxation
of Price Legacy--Ownership of Interests in Partnerships, Limited Liability
Companies and Qualified REIT Subsidiaries."
ENTITY CLASSIFICATION. Price Legacy's interests in the partnerships and
limited liability companies involve special tax considerations, including the
possibility of a challenge by the Internal Revenue Service of the status of a
partnership or a limited liability company as a partnership, as opposed to an
association taxable as a corporation, for federal income tax purposes. If a
partnership or a limited liability company were treated as an association, it
would be taxable as a corporation and therefore be subject to an entity-level
tax on its income. In such a situation, the character of Price Legacy's assets
and items of gross income would change and preclude it from satisfying the asset
tests and possibly the income tests. See "--Taxation of Price Legacy--Asset
Tests" and "--Taxation of Price Legacy--Income Tests." This, in turn, would
prevent Price Legacy from qualifying as a REIT. See "--Failure to Qualify" for a
discussion of the effect of its failure to meet these tests for a taxable year.
In addition, a change in the partnership's or limited liability company's status
for tax purposes might be treated as a taxable event. If so, Price Legacy might
incur a tax liability without any related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997 provide that a domestic business entity not otherwise classified
as a corporation and which has at least two members, an "eligible entity," may
elect to be taxed as a partnership for federal income tax purposes. Unless it
elects otherwise, an eligible entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification Treasury Regulations in effect prior to this
date. In addition, an eligible entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. Each of Price
Legacy's partnerships and limited liability companies intends to claim
classification as a partnership under the current regulations, and, as a result,
Price Legacy believes that such partnerships and limited liability companies
will be classified as partnerships for federal income tax purposes.
102
OTHER TAX CONSEQUENCES
Price Legacy may be required to pay tax in various state or local
jurisdictions, including those in which it transacts business, and its
stockholders may be required to pay tax in various state or local jurisdictions,
including those in which they reside. Price Legacy's state and local tax
treatment may not conform to the federal income tax consequences discussed
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your tax advisors regarding the effect of state and local tax laws on an
investment in Price Legacy's shares.
103
DESCRIPTION OF ENTERPRISES CAPITAL STOCK
THE FOLLOWING IS A DESCRIPTION OF THE MATERIAL TERMS OF THE CAPITAL STOCK OF
ENTERPRISES. BECAUSE IT IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. FOR A COMPLETE DESCRIPTION, YOU ARE
REFERRED TO THE MGCL, ENTERPRISES' CHARTER AND BYLAWS, THE ENTERPRISES ISSUANCE
CHARTER AMENDMENTS AND THE ENTERPRISES MERGER CHARTER AMENDMENTS AS DESCRIBED IN
"THE MERGER, THE SALE OF ENTERPRISES SERIES B PREFERRED STOCK AND RELATED
TRANSACTIONS--ENTERPRISES ISSUANCE CHARTER AMENDMENTS" AND "THE MERGER, THE SALE
OF THE ENTERPRISES SERIES B PREFERRED STOCK AND RELATED
TRANSACTIONS--ENTERPRISES MERGER CHARTER AMENDMENTS," RESPECTIVELY.
GENERAL
Enterprises' charter authorizes a total of 100,000,000 shares of stock,
consisting of 74,000,000 shares of Enterprises common stock, $0.0001 par value
per share, and 26,000,000 shares of Enterprises Series A preferred stock,
$0.0001 par value per share. As of August 3, 2001, 13,309,006 shares of
Enterprises common stock and 24,186,890 shares of Enterprises Series A preferred
stock were issued and outstanding. Under Maryland law, stockholders generally
are not liable for the corporation's debts or obligations.
If either the Enterprises merger charter amendments or the Enterprises
issuance charter amendments are approved, Enterprises will be authorized to
issue a total of 150,000,000 shares of stock. If the Enterprises merger charter
amendments are approved, Enterprises will be authorized to issue up to
122,150,229 shares of Enterprises common stock and 27,849,771 shares of
Enterprises Series A preferred stock. If the Enterprises issuance charter
amendments are approved, Enterprises will be authorized to issue up to
94,691,374 shares of Enterprises common stock, 27,849,771 shares of Enterprises
Series A preferred stock and 27,458,855 shares of Enterprises Series B preferred
stock, par value $0.0001 per share. In addition, if the Enterprises issuance
charter amendments are approved, Enterprises' board may, without stockholder
approval, increase or decrease the authorized number of shares of stock of
Enterprises or the authorized number of shares of stock of any class or series
of Enterprises, provided that the approval by Enterprises' board of any increase
or decrease in the authorized number of shares includes the approval of the
Warburg Pincus nominees.
ENTERPRISES COMMON STOCK
All issued and outstanding shares of Enterprises common stock are duly
authorized, validly issued, fully paid and non-assessable. The rights of holders
of Enterprises common stock are subject to the preferential rights of any other
class or series of stock of Enterprises and to the provisions of Enterprises'
charter regarding the restrictions on transfer of Enterprises' stock.
RANKING. The Enterprises common stock ranks, relating to distributions and
upon liquidation, dissolution or winding up:
- senior to all of Enterprises' stock that Enterprises' board may authorize
in the future with terms that specifically provide that such stock rank
junior to the Enterprises common stock,
- on a parity with all of Enterprises' stock that Enterprises' board may
authorize in the future with terms that specifically provide that such
stock rank on a parity with the Enterprises common stock, and
- junior to the Enterprises Series A preferred stock, the Enterprises
Series B preferred stock, if and when authorized, and to all of
Enterprises' stock that Enterprises' board may authorize in the future
with terms that specifically provide that such stock rank senior to the
Enterprises common stock.
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DISTRIBUTIONS. Holders of Enterprises common stock are entitled to receive
distributions if, as and when authorized and declared by Enterprises' board out
of assets legally available for the payment of distributions. Shares of
Enterprises common stock have equal distribution rights. To the extent that any
distributions (whether payable in cash or stock) on Enterprises common stock are
treated as nonpreferential dividends for federal income tax purposes, they may
be used to satisfy Enterprises' 90% REIT distribution requirement. See "Material
Federal Income Tax Consequences Related to Price Legacy--Taxation of Price
Legacy--Annual Distribution Requirements."
Unless full dividends on the Enterprises Series A preferred stock and, if
approved and issued, the Enterprises Series B preferred stock have been paid for
all past dividend periods, no dividends may generally be paid on the Enterprises
common stock. As discussed below, (1) holders of Enterprises Series A preferred
stock are entitled to receive (when and if declared by Enterprises' board out of
assets legally available for that purpose), quarterly cumulative distributions
payable in cash in an amount per share equal to $1.40 per annum and (2) holders
of Enterprises Series B preferred stock are entitled to receive (when and if
declared by Enterprises' board out of assets legally available for that purpose)
quarterly cumulative distributions payable in shares of Enterprises Series B
preferred stock in an amount per share equal to 9% of the original issue price
of the Enterprises Series B preferred stock ($5.56), or $.50 per share, per
annum (subject to customary adjustments) for the first 45 months after the
Enterprises Series B preferred stock is issued, and payable in cash in an amount
equal to 10% of the original issue price of the Enterprises Series B preferred
stock ($5.56), or $.56 per share, per annum (subject to customary adjustments)
thereafter.
To qualify as a REIT, Price Legacy must distribute at least 90% of its REIT
taxable income to its stockholders (determined without regard to the dividends
paid deduction and by excluding capital gains), and will be subject to tax to
the extent it distributes less then 100% of its REIT taxable income. Price
Legacy is expected to distribute in excess of this minimum requirement, or
approximately 100% of its REIT taxable income, to its stockholders following the
transactions. As a result, holders of Enterprises common stock will receive
distributions only if Price Legacy's REIT taxable income exceeds $43.7 million,
which is the aggregate amount of annual distributions initially payable on the
Enterprises Series A preferred stock and Enterprises Series B preferred stock.
Based on the pro forma financial information of Price Legacy, holders of
Enterprises common stock would not have been entitled to any distributions for
the quarter ended March 31, 2001 after giving effect to the transactions.
LIQUIDATION. In the event of the liquidation, dissolution or winding up of
Enterprises, after payment of or adequate provision for all of Enterprises'
known debts and liabilities, holders of Enterprises common stock are entitled to
share ratably in Enterprises' assets legally available for distribution to its
stockholders. Shares of Enterprises common stock have equal liquidation rights.
REDEMPTION. Holders of Enterprises common stock have no sinking fund or
redemption rights.
VOTING. Each outstanding share of Enterprises common stock is entitled to
one vote on all matters generally submitted to a vote of stockholders, including
the election of directors. Enterprises' charter, and the Enterprises merger
charter amendments, if approved, provide that, subject to the right of holders
of Enterprises Series A preferred stock to elect a majority of Enterprises'
directors, which right will terminate if the Enterprises issuance charter
amendments are approved as described in "--Enterprises Series A Preferred
Stock--Voting," holders of Enterprises Series A preferred stock and Enterprises
common stock, voting together as a single class, are entitled to elect the
remaining directors. If the Enterprises issuance charter amendments are
approved, holders of Enterprises Series A preferred stock and Enterprises common
stock, voting together as a single class, will be entitled to elect two
directors of Price Legacy's eight member board. There is no cumulative voting in
the election of directors.
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PROTECTIVE PROVISIONS. Under the MGCL, a Maryland corporation generally
cannot dissolve, amend its charter, merge, sell all or substantially all of its
assets, engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
two-thirds of all the stockholder votes entitled to be cast on the matter,
unless a greater or lesser proportion of votes (but not less than a majority of
all votes entitled to be cast) is specified in the charter. Enterprises' charter
provides that any action, which would include an amendment to Enterprises'
charter, shall be valid and effective if approved by the affirmative vote of the
holders of shares entitled to cast a majority of the votes entitled to be cast
on the matter, rather than two-thirds as otherwise provided for under the MGCL.
If the Enterprises issuance charter amendments are approved, any resolution to
amend Enterprises' charter must be approved by a majority of Enterprises' board,
which majority must include the Warburg Pincus nominees.
CONVERSION. Holders of Enterprises common stock have no conversion rights.
PREEMPTIVE RIGHTS. Holders of Enterprises common stock have no preemptive
rights.
ENTERPRISES SERIES A PREFERRED STOCK
RANKING. The Enterprises Series A preferred stock ranks, relating to
distributions and upon liquidation, dissolution or winding up:
- senior to the Enterprises common stock, the Enterprises Series B preferred
stock, if and when authorized and issued, and to all of Enterprises' stock
that Enterprises' board may authorize in the future with terms that
specifically provide that such stock rank junior to the Enterprises
Series A preferred stock,
- on a parity with all of Enterprises' stock that Enterprises' board may
authorize in the future with terms that specifically provide that such
stock rank on a parity with the Enterprises Series A preferred stock, and
- junior to all of Enterprises' stock that Enterprises' board may authorize
in the future with terms that specifically provide that such stock rank
senior to the Enterprises Series A preferred stock.
DISTRIBUTIONS. Holders of Enterprises Series A preferred stock are entitled
to receive, when, as and if authorized and declared by Enterprises' board out of
assets legally available for that purpose, cumulative distributions payable in
cash in an amount per share equal to $1.40 per annum, payable quarterly in
arrears on the 15th day, or next succeeding business day, of February, May,
August and November of each year. To the extent that these distributions are
treated as dividends for federal income tax purposes, they may be used to
satisfy Enterprises' 90% REIT distribution requirement. See "Material Federal
Income Tax Consequences Related to Price Legacy--Taxation of Price Legacy--
Annual Distribution Requirements." No dividends or other distributions, except
in shares of stock junior to the Enterprises Series A preferred stock, may be
paid on any stock ranking on parity with or junior to the Enterprises Series A
preferred stock until full distributions have been or contemporaneously are
declared and paid, or set aside for payment, on the Enterprises Series A
preferred stock.
LIQUIDATION. In the event of the liquidation, dissolution or winding up of
Enterprises, after payment of or adequate provision for all of Enterprises'
known debts and liabilities, holders of Enterprises Series A preferred stock are
entitled to receive $16.00 per share of Enterprises Series A preferred stock,
together with any accrued but unpaid dividends, before any payment or
distribution is made on any junior shares.
REDEMPTION. Shares of Enterprises Series A preferred stock may be redeemed
by Enterprises within 90 days after a change in control of Enterprises or after
August 15, 2003 at a price per share of $16.00, together with any accrued but
unpaid dividends.
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VOTING. In any matter in which the Enterprises Series A preferred stock is
entitled to be voted, each share of Enterprises Series A preferred stock is
entitled to 1/10 of one vote, except that when any other class or series of
preferred stock has the right to vote together with the Series A preferred
stock, the Series A preferred stock shall be entitled to one vote per $16.00 of
stated liquidation preference. Enterprises' charter, and the Enterprises merger
charter amendments, if approved, provide that holders of Enterprises Series A
preferred stock, voting separately as a class, are entitled to elect a majority
of Enterprises' directors, which majority cannot be greater than one director,
and holders of Enterprises Series A preferred stock and Enterprises common
stock, voting together as a single class, are entitled to elect the remaining
directors. Enterprises' board of directors has unanimously approved a resolution
providing that the right of holders of Enterprises Series A preferred stock to
elect a majority of Enterprises' board will terminate if the Enterprises
issuance charter amendments are approved at the Enterprises annual meeting. If
and when the Enterprises issuance charter amendments are approved, holders of
Enterprises Series A preferred stock will be entitled, voting separately as a
class, to elect four directors, until such time as such voting rights terminate
pursuant to the terms of the Enterprises issuance charter amendments.
The right of holders of Enterprises Series A preferred stock to elect
directors as a separate class will terminate on the date any of the following
occur:
- less than 2,000,000 shares of Enterprises Series A preferred stock remain
outstanding,
- Enterprises, Legacy or any of their affiliates makes an offer to purchase
any and all outstanding shares of Enterprises Series A preferred stock at
a cash price of $16.00 per share, and purchases all shares duly tendered
and not withdrawn,
- Enterprises' board (1) issues or agrees to issue any equity securities or
securities convertible or exchangeable into or exercisable for equity
securities, in any case, without the unanimous approval of all of the
members of Enterprises' board or (2) fails to pay distributions on the
Enterprises common stock in an amount equal to 100% of Enterprises'
taxable income or an amount necessary to maintain its status as a REIT, or
in an amount equal to the excess, if any, of Enterprises' funds from
operations, less the Enterprises Series A preferred stock distributions,
over $7.5 million, or
- Enterprises' board, by unanimous vote, approves a resolution terminating
the right of holders of Enterprises Series A preferred stock to elect
members of Enterprises' board as a separate class.
PROTECTIVE PROVISIONS. So long as any shares of Enterprises Series A
preferred stock are outstanding, Enterprises will not, without the affirmative
vote of at least two-thirds of the outstanding Enterprises Series A preferred
stock,
- authorize or create, or increase the authorized or issued amount of, any
class or series of shares of capital stock of Enterprises ranking prior or
senior to the Enterprises Series A preferred stock with respect to the
payment of distributions or the distribution of assets upon liquidation,
dissolution or winding-up or reclassify any authorized shares of capital
stock of Enterprises into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to
purchase any of such shares, or
- amend, alter or repeal the provisions of Enterprises' charter, whether by
merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Enterprises
Series A preferred stock or holders of Enterprises Series A preferred
stock; provided, however, that so long as shares of Enterprises Series A
preferred stock, or shares of any equivalent class or series of stock
issued by the surviving corporation in a merger, consolidation or share
exchange to which Enterprises is a party, remain outstanding with their
terms materially unchanged, no amendment, alteration or repeal of
provisions of Enterprises' charter will be deemed to adversely affect the
rights, preferences, privileges or voting power of
107
the Enterprises Series A preferred stock. In addition, an increase in the
amount of the authorized or issued shares of any class or security
convertible into any shares ranking on a parity with or junior to the
Enterprises Series A preferred stock with respect to the payment of
distributions or the distribution of assets upon liquidation, dissolution
or winding up will not be deemed to adversely affect such rights,
preferences, privileges or voting powers.
CONVERSION. Holders of Enterprises Series A preferred stock have no
conversion rights.
PREEMPTIVE RIGHTS. Holders of Enterprises Series A preferred stock have no
preemptive rights.
ENTERPRISES SERIES B PREFERRED STOCK
If the sale of the Enterprises Series B preferred stock and the Enterprises
issuance charter amendments are approved at the Enterprises annual meeting, and
if the Enterprises Series B preferred stock is to be issued to Warburg Pincus in
accordance with the securities purchase agreement, Enterprises will designate a
class of preferred stock with the following material terms.
RANKING. The Enterprises Series B preferred stock will rank, relating to
distributions and upon liquidation, dissolution or winding up:
- senior to the Enterprises common stock, and to all of Enterprises' stock
that Enterprises' board may authorize in the future with terms that
specifically provide that such stock rank junior to the Enterprises
Series B preferred stock,
- on a parity with all of Enterprises' stock that Enterprises' board may
authorize in the future with terms that specifically provide that such
stock rank on a parity with the Enterprises Series B preferred stock, and
- junior to the Enterprises Series A preferred stock, and to all of
Enterprises' stock that Enterprises' board may authorize in the future
with terms that specifically provide that such stock rank senior to the
Enterprises Series B preferred stock.
DISTRIBUTIONS. Holders of Enterprises Series B preferred stock will be
entitled to receive, when, as and if authorized and declared by Enterprises'
board out of funds legally available for that purpose, cumulative distributions
payable in shares of Enterprises Series B preferred stock in an amount per share
equal to 9% of the original issue price of the Enterprises Series B preferred
stock ($5.56), or $.50 per share, per annum (subject to customary adjustments)
for the first 45 months after the Enterprises Series B preferred stock is
issued, and payable in cash in an amount equal to 10% of the original issue
price of the Enterprises Series B preferred stock ($5.56), or $.56 per share,
per annum (subject to customary adjustments) thereafter. Such distributions will
be payable quarterly in arrears on the 15th day, or next succeeding business
day, of February, May, August and November of each year. To the extent that
these distributions (whether payable in cash or Enterprises Series B preferred
stock) are treated as dividends for federal income tax purposes, they may be
used to satisfy Enterprises' 90% REIT distribution requirement. See "Material
Federal Income Tax Consequences Related to Price Legacy--Taxation of Price
Legacy--Annual Distribution Requirements." No dividends or other distributions,
except in shares of stock junior to the Enterprises Series B preferred stock,
may be paid on any stock ranking on parity with or junior to the Enterprises
Series B preferred stock without the affirmative vote or consent of the holders
of at least 66 2/3% of the outstanding shares of Enterprises Series B preferred
stock; provided, however, that if full distributions have been or
contemporaneously are declared and paid, or set aside for payment, on the
Enterprises Series B preferred stock, Enterprises may make such distributions
(1) if the amount of all distributions on all classes of Enterprises' capital
stock for the fiscal year does not exceed 100% of Enterprises' REIT taxable
income for such fiscal year or (2) if required to protect Enterprises' status as
a REIT.
108
LIQUIDATION. In the event of the liquidation, dissolution or winding up of
Enterprises or, in some cases, a merger, consolidation, share exchange or sale
of all or substantially all of Enterprises' assets, after payment of or adequate
provision for all known debts and liabilities of Enterprises and payment of any
liquidation preference with respect to any shares of Enterprises' capital stock
ranking senior to the Enterprises Series B preferred stock as to liquidation
preference, holders of Enterprises Series B preferred stock are entitled to
receive $5.56 per share (subject to customary adjustments), together with any
accrued but unpaid dividends, before any payment or distribution is made on any
junior shares.
REDEMPTION. Shares of Enterprises Series B preferred stock may be redeemed
by Enterprises after 60 months from the issuance of the Enterprises Series B
preferred stock if the average closing price of the Enterprises common stock for
the preceding 40 consecutive trading days is less than $7.50 per share and
Enterprises has elected, within the 60-day period following the date that is
60 months from initial issuance date of the Enterprises Series B preferred
stock, to effect such redemption. Such redemption will be effected over a
five-year period at a price of $5.56 per share, plus accrued and unpaid
dividends.
VOTING. Each share of Enterprises Series B preferred stock will be entitled
to that number of votes equal to the number of shares of Enterprises common
stock into which such share is then convertible. Holders of Enterprises
Series B preferred stock will be entitled to vote on all matters submitted to a
vote of stockholders, other than the election of directors.
PROTECTIVE PROVISIONS. So long as any shares of Enterprises Series B
preferred stock are outstanding, Enterprises will not, without the affirmative
vote of the holders of at least two-thirds of the outstanding Enterprises
Series B preferred stock,
- other than in connection with (1) Enterprises' offer to exchange shares of
Enterprises Series A preferred stock for Legacy debentures and Legacy
notes or (2) an offer to purchase shares of Enterprises Series A preferred
stock that is financed through the issuance of perpetual preferred stock
with a coupon of 8 3/4% or less, debt with an interest rate of 8 3/4% or
less and a term of seven years or more, or any other financing arrangement
that costs Enterprises no more than the cost to maintain the Series A
preferred stock then outstanding and that Enterprises' board of directors
deems to be at least as beneficial as the terms of the Series A preferred
stock, authorize or create, or increase the authorized or issued amount of
any shares of, any class or any security convertible into shares of any
class ranking senior to the Enterprises Series B preferred stock with
respect to the payment of distributions or the distribution of assets upon
liquidation, dissolution or winding up, or
- amend, alter or repeal the provisions of Enterprises' charter, whether by
merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Enterprises
Series B preferred stock or of holders of Enterprises Series B preferred
stock; provided, however, that so long as shares of Enterprises Series B
preferred stock, or shares of any equivalent class or series of stock
issued by the surviving corporation in a merger, consolidation or share
exchange to which Enterprises is a party, remain outstanding with their
terms materially unchanged, no amendment, alteration or repeal of
provisions of Enterprises' charter will be deemed to adversely affect the
rights, preferences, privileges or voting power of the Enterprises
Series B preferred stock. In addition, an increase in the amount of the
authorized preferred stock or creation or issuance of any other shares of
Enterprises Series B preferred stock or securities convertible into any
shares ranking on a parity with or junior to the Enterprises Series B
preferred stock with respect to the payment of distributions or the
distribution of assets upon liquidation, dissolution or winding up will
not be deemed to adversely affect such rights, preferences, privileges or
voting powers.
CONVERSION. Each share of Enterprises Series B preferred stock may be
converted by its holder, at any time after the date which is 24 months from the
initial date of issuance of the Enterprises Series B
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preferred stock and prior to the date any shares of Enterprises Series B
preferred stock are redeemed or Enterprises is liquidated, into the number of
shares of Enterprises common stock obtained by dividing $5.56 by the conversion
price then in effect, initially $5.56 and subject to customary anti-dilution
adjustments.
In addition, at the option of Enterprises, all, but not less than all, of
the Enterprises Series B preferred stock is convertible at any time prior to its
redemption by Enterprises into the number of shares of Enterprises common stock
obtained by dividing $5.56 by the conversion price then in effect, initially
$5.56 and subject to customary anti-dilution adjustments. If, however, the
average closing price of the Enterprises common stock for the 40 consecutive
trading days prior to the date three days before Enterprises provides notice of
its intent to convert the Enterprises Series B preferred stock is less than
$7.50 per share, the conversion price then in effect will be adjusted so that
each share of Enterprises Series B preferred stock will convert into the number
of shares of Enterprises common stock otherwise issuable multiplied by a
fraction equal to $8.25 divided by the average closing price of the Enterprises
common stock over such 40 trading day period. Upon any conversion of the
Enterprises Series B preferred stock, each holder of Enterprises Series B
preferred stock shall be entitled to receive any dividends accrued and unpaid
prior to the date of conversion.
ANTI-DILUTION. The conversion price used to determine the number of shares
of Enterprises common stock issuable upon conversion of the Enterprises
Series B preferred stock is subject to anti-dilution adjustment in the event
Enterprises takes specific actions, including issuances of stock at below-market
prices, stock dividends, subdivisions of the Enterprises common stock and
capital reorganizations or reclassifications of Enterprises' capital stock.
PREEMPTIVE RIGHTS. Holders of Enterprises Series B preferred stock have no
preemptive rights.
POWER TO RECLASSIFY UNISSUED SHARES OF ENTERPRISES' STOCK
Enterprises' charter authorizes Enterprises' board to classify or reclassify
any unissued shares of Enterprises' stock of any class or series. Prior to the
issuance of shares of each class or series, Enterprises' board is required by
the MGCL and Enterprises' charter to set (subject to the provisions of
Enterprises' charter regarding the restrictions on transfer of stock) the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class or series. In addition, if the
Enterprises issuance charter amendments are approved, Enterprises' board may,
without stockholder approval, increase or decrease the authorized shares of
stock of Enterprises or the authorized shares of stock of any class or series of
Enterprises, provided that the approval by Enterprises' board of any increase or
decrease in the authorized number of shares includes the approval of the Warburg
Pincus nominees.
POWER TO ISSUE ADDITIONAL SHARES OF ENTERPRISES' STOCK
Enterprises believes that the power of Enterprises' board to authorize and
issue additional shares of Enterprises common stock or preferred stock and to
classify or reclassify unissued shares of common or preferred stock of
Enterprises will provide Enterprises with increased flexibility to structure
possible future financings and acquisitions and to meet other needs which might
arise from time to time in the future. The additional classes or series, as well
as the Enterprises common stock, will be available for issuance without
stockholder approval, unless such issuance is limited by the terms of any then
outstanding class or series of Enterprises' stock or approval is required by
applicable law or the rules of any stock exchange or automated quotation system
on which Enterprises' securities may be listed or traded. Although Enterprises'
board has no intention at the present time of doing so, it could authorize
Enterprises to issue a class or series that could, depending upon the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of Enterprises that might involve a premium price for holders of
Enterprises common stock or otherwise be in their best interest.
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RESTRICTIONS ON TRANSFER
Enterprises' charter contains restrictions on the ownership and transfer of
its stock, which are intended to assist it in complying with the Code's
requirements for qualification as a REIT. For Enterprises to qualify as a REIT
under the Code, among other things, not more than 50% in value of its
outstanding capital stock may be owned, actually or constructively, by five or
fewer individuals during the last half of a taxable year. Also, shares of
Enterprises capital stock must be beneficially owned by 100 or more persons
during the last 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year.
As permitted by the MGCL, for purposes of maintaining Enterprises' REIT
status under the Code, Enterprises' charter provides that, subject to some
exceptions, no person may:
- actually or beneficially own, or be deemed to own, more than 5% (by number
or value, whichever is more restrictive) of either the outstanding stock
of Enterprises, the outstanding shares of Enterprises Series A preferred
stock or, if the Enterprises issuance charter amendments are approved, the
outstanding shares of Enterprises Series B preferred stock, or
- actually or constructively own, or be deemed to own, more than 9.8% (by
number or value, whichever is more restrictive) of either the outstanding
stock of Enterprises, the outstanding shares of Enterprises Series A
preferred stock or, if the Enterprises issuance charter amendments are
approved, the outstanding shares of Enterprises Series B preferred stock.
Because Enterprises has different classes of stock, mere fluctuations in the
value of Enterprises' stock could cause a stockholder's ownership of
Enterprises' stock to increase to a percentage that is in violation of either of
the above ownership limits. As a result, a stockholder whose ownership of
Enterprises' stock approaches either of the above ownership limits should
carefully monitor fluctuations in stock value.
Enterprises' charter provides that Enterprises' board may, in its sole
discretion, exempt a person or persons from the above ownership limits, provided
that the procedures set forth in Enterprises' charter are complied with and
Enterprises' board has determined that the exemption will not cause Enterprises
to fail to qualify as a REIT. The person seeking an exemption may be required to
represent to the satisfaction of Enterprises' board that it will not violate
such restrictions and agree that any violation or attempted violation of any of
the restrictions in Enterprises' charter will result in the automatic transfer
to a trust of the shares of stock causing the violation. In addition, as a
condition to an exemption, Enterprises' board may require a ruling from the
Internal Revenue Service or an opinion of counsel, in either case in form and
substance satisfactory to Enterprises' board in its sole discretion, in order to
determine or ensure Enterprises' status as a REIT.
Enterprises' board has waived the above ownership limits with respect to the
Price family and affiliated entities (who as of August 3, 2001, beneficially
owned approximately 38.9% of the value of Enterprises' stock), and with respect
to Legacy. Under Legacy's waiver (which will terminate upon the completion of
the merger), Legacy may own either actually, constructively or beneficially up
to 13,309,006 shares of Enterprises common stock. Enterprises' board has also,
contingent on the merger and the sale of the Enterprises Series B preferred
stock, waived the above ownership limits for certain stockholders of Legacy and
for Warburg Pincus, with respect to Enterprises' stock received in connection
with the merger and the sale of the Enterprises Series B preferred stock,
respectively. Enterprises conditioned these waivers upon the receipt of
undertakings and representations from each of these persons which it believed
were reasonably necessary for it to conclude that the waivers would not cause it
to fail to qualify as a REIT.
Enterprises' charter further prohibits, without exception:
- any person from actually, beneficially or constructively owning shares of
stock of Enterprises that would result in Enterprises being "closely held"
under Section 856(h) of the Code or otherwise cause Enterprises to fail to
qualify as a REIT, and
111
- any person from transferring shares of stock of Enterprises if such
transfer would result in all classes and series of stock of Enterprises
being beneficially owned by fewer than 100 persons.
Enterprises' charter provides that any person who acquires or attempts or
intends to acquire beneficial or constructive ownership of shares of stock of
Enterprises that will or may violate any of the foregoing restrictions on
transferability and ownership is required to give notice immediately to
Enterprises and provide Enterprises with such other information as Enterprises
may request in order to determine the effect of such transfer on Enterprises'
status as a REIT.
The foregoing restrictions on transferability and ownership will not apply
if Enterprises' board determines that it is no longer in the best interests of
Enterprises to attempt to qualify, or to continue to qualify, as a REIT. Except
as otherwise described above, any change in the applicable ownership limit would
require an amendment to Enterprises' charter, which requires the affirmative
vote of a majority of the votes entitled to be cast on the amendment.
If any transfer of shares of stock of Enterprises occurs which, if
effective, would result in any person actually, beneficially or constructively
owning shares of stock of Enterprises in excess or in violation of the above
transfer or ownership limitations, such person a "prohibited owner," then
Enterprises' charter provides that:
- the number of shares of stock of Enterprises the actual, beneficial or
constructive ownership of which otherwise would cause the prohibited owner
to violate the ownership limitations (rounded to the nearest whole share)
be automatically transferred to a trust for the exclusive benefit of one
or more charitable beneficiaries, and the prohibited owner shall not
acquire any rights in such shares,
- the automatic transfer is deemed to be effective as of the close of
business on the business day prior to the date of the violative transfer,
and the shares of Enterprises' stock held in the trust are issued and
outstanding shares of stock of Enterprises,
- the prohibited owner has no economic benefit from ownership of any shares
of Enterprises' stock held in the trust, has no rights to distributions
and has no rights to vote or rights otherwise attributable to the shares
of Enterprises' stock held in the trust,
- the trustee of the trust is to have all voting rights and rights to
dividends or other distributions with respect to shares of Enterprises'
stock held in the trust, which rights shall be exercised for the exclusive
benefit of the charitable beneficiary,
- any dividend or other distribution paid prior to the discovery by
Enterprises that shares of Enterprises' stock have been transferred to the
trustee must be paid by the recipient of the dividend or distribution to
the trustee upon demand and any dividend or other distribution authorized
but unpaid is required by the terms of Enterprises' charter to be paid
when due to the trustee (any dividend or distribution so paid to the
trustee is required by the terms of Enterprises' charter to be held in
trust for the charitable beneficiary), and
- the prohibited owner has no voting rights with respect to shares of stock
held in the trust and, subject to Maryland law, effective as of the date
that the shares of Enterprises' stock have been transferred to the trust,
the trustee will have the authority (at the trustee's sole discretion)
(1) to rescind as void any vote cast by a prohibited owner prior to the
discovery by Enterprises that such shares have been transferred to the
trust and (2) to recast such vote in accordance with the desires of the
trustee acting for the benefit of the charitable beneficiary; provided,
however, that if Enterprises has already taken irreversible corporate
action, then Enterprises' charter provides that the trustee shall not have
the authority to rescind and recast such vote.
Enterprises' charter provides that, within 20 days of receiving notice from
Enterprises that shares of stock of Enterprises have been transferred to the
trust, the trustee shall sell the shares of stock held in the trust to a person,
designated by the trustee, whose ownership of the shares will not violate the
ownership limitations set forth in Enterprises' charter. Upon the sale of the
shares of Enterprises'
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stock, the interest of the charitable beneficiary in the shares sold terminates
and the trustee is to distribute the net proceeds of the sale to the prohibited
owner and to the charitable beneficiary as follows:
- the prohibited owner receives the lesser of (1) the price paid by the
prohibited owner for the shares or, if the prohibited owner did not give
value for the shares in connection with the event causing the shares to be
held in the trust (e.g., a gift, devise or other such transaction), the
market price, determined in accordance with Enterprises' charter, of such
shares on the day of the event causing the shares to be held in the trust
and (2) the price per share received by the trustee from the sale or other
disposition of the shares held in the trust, and
- any net sale proceeds in excess of the amount payable to the prohibited
owner is to be paid immediately to the charitable beneficiary.
If, prior to the discovery by Enterprises that shares of Enterprises' stock
have been transferred to the trust, such shares are sold by a prohibited owner,
then (1) such shares will be deemed to have been sold on behalf of the trust and
(2) to the extent that the prohibited owner received an amount for such shares
that exceeds the amount that such prohibited owner was entitled to receive
pursuant to the aforementioned requirement, the excess will be paid to the
trustee upon demand. If, for any reason, the transfer of the shares of stock of
Enterprises to the trust is not automatically effective, to prevent violation of
the applicable ownership limit or any other limit provided in Enterprises'
charter or imposed by Enterprises' board, then Enterprises' charter provides
that the transfer of such shares will be null and void.
In addition, shares of stock of Enterprises held in the trust are deemed to
have been offered for sale to Enterprises, or its designee, at a price per share
equal to the lesser of (1) the price per share in the transaction that resulted
in such transfer to the trust or, in the case of a devise or gift, the market
price at the time of such devise or gift and (2) the market price on the date
Enterprises, or its designee, accepts such offer. Enterprises has the right to
accept such offer until the trustee has sold the shares of stock held in the
trust. Upon such a sale to Enterprises, the interest of the charitable
beneficiary in the shares sold terminates and the trustee is to distribute the
net proceeds of the sale to the prohibited owner.
If any attempted transfer of shares would cause Enterprises to be
beneficially owned by fewer than 100 persons, Enterprises' charter provides that
the transfer will be null and void in its entirety and the intended transferee
will acquire no rights to the stock.
Enterprises' charter requires that all certificates representing shares of
Enterprises common stock and Enterprises preferred stock bear a legend referring
to the restrictions described above.
The terms of Enterprises' charter also require that every owner of
Enterprises' stock, or person holding on behalf of such owner, provide to
Enterprises, upon demand, a completed questionnaire containing the information
regarding the ownership of their shares, as set forth in the Code or the
Treasury Regulations, and such information as Enterprises may request, in good
faith, in order to determine Enterprises' status as a REIT and to comply with
the requirements of any taxing authority or governmental authority or to
determine such compliance.
These ownership limits could delay, defer or prevent a transaction or a
change in control of Enterprises that might involve a premium price for the
Enterprises common stock or otherwise be in the best interest of the
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Enterprises common stock and the
Enterprises Series A preferred stock is, and for the Enterprises Series B
preferred stock will be, Mellon Investor Services LLC.
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COMPARISON OF STOCKHOLDER RIGHTS
THE RIGHTS OF STOCKHOLDERS OF LEGACY ARE GOVERNED BY THE DGCL AND LEGACY'S
CHARTER AND BYLAWS. HOLDERS OF THE LEGACY DEBENTURES MAY BECOME STOCKHOLDERS OF
LEGACY THROUGH THE CONVERSION OF THE LEGACY DEBENTURES INTO LEGACY COMMON STOCK.
UPON TENDERING YOUR LEGACY DEBENTURES AND LEGACY NOTES IN THE EXCHANGE OFFER,
YOU WILL BE ENTITLED TO RECEIVE THE ENTERPRISES SERIES A PREFERRED STOCK.
FOLLOWING THE MERGER, OUTSTANDING LEGACY DEBENTURES WILL BE CONVERTIBLE INTO
ENTERPRISES COMMON STOCK. THE FOLLOWING DISCUSSION COMPARES YOUR EXISTING RIGHTS
AS A POTENTIAL STOCKHOLDER OF LEGACY WITH THOSE AS A STOCKHOLDER, OR POTENTIAL
STOCKHOLDER, OF ENTERPRISES. THIS SUMMARY OF COMPARATIVE RIGHTS OF LEGACY'S
STOCKHOLDERS AND ENTERPRISES' STOCKHOLDERS MAY NOT BE COMPLETE AND IS SUBJECT TO
AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DGCL, LEGACY'S CHARTER AND
BYLAWS, THE MGCL, ENTERPRISES' CHARTER AND BYLAWS AND THE ENTERPRISES ISSUANCE
CHARTER AMENDMENTS AND THE ENTERPRISES MERGER CHARTER AMENDMENTS, AS DESCRIBED
IN "THE MERGER, THE SALE OF ENTERPRISES SERIES B PREFERRED STOCK AND RELATED
TRANSACTIONS--ENTERPRISES ISSUANCE CHARTER AMENDMENTS" AND "THE MERGER, THE SALE
OF THE ENTERPRISES SERIES B PREFERRED STOCK AND RELATED TRANSACTION--ENTERPRISES
MERGER CHARTER AMENDMENTS," RESPECTIVELY.
FORM OF ORGANIZATION AND PURPOSE
ENTERPRISES. Enterprises is a Maryland corporation. Under Enterprises'
charter, Enterprises is authorized to engage in any lawful act or activity for
which corporations may be organized under the MGCL.
LEGACY. Legacy is a Delaware corporation. Under Legacy's charter, Legacy is
authorized to engage in any lawful acts or activities for which corporations may
be organized under the DGCL.
CAPITALIZATION
ENTERPRISES. Enterprises' charter authorizes a total of 100,000,000 shares
of stock, consisting of 74,000,000 shares of Enterprises common stock, $0.0001
par value per share, and 26,000,000 shares of Enterprises Series A preferred
stock, $0.0001 par value per share. As of August 3, 2001, 13,309,006 shares of
Enterprises common stock and 24,186,890 shares of Enterprises Series A preferred
stock were issued and outstanding.
If either the Enterprises merger charter amendments or the Enterprises
issuance charter amendments are approved, Enterprises will be authorized to
issue a total of 150,000,000 shares of stock. If the Enterprises merger charter
amendments are approved, Enterprises' will be authorized to issue up to
122,150,229 shares of Enterprises common stock and 27,849,771 shares of
Enterprises Series A preferred stock. If the Enterprises issuance charter
amendments are approved, Enterprises will be authorized to issue up to
94,691,374 shares of Enterprises common stock, 27,849,771 shares of Enterprises
Series A preferred stock and 27,458,855 shares of Enterprises Series B preferred
stock, par value $0.0001 per share. If the Enterprises issuance charter
amendments are approved, Enterprises' board may, without stockholder approval,
increase or decrease the authorized shares of stock of Enterprises or the
authorized shares of stock of any class or series of Enterprises, provided that
the approval by Enterprises' board of any increase or decrease in the authorized
number of shares includes the approval of the Warburg Pincus nominees.
LEGACY. Legacy's charter authorizes a total of 200,000,000 shares of stock
consisting of 150,000,000 shares of Legacy common stock, $0.01 par value per
share, and 50,000,000 shares of Legacy preferred stock, $0.01 par value per
share. A certificate of designation classifies 25,000,000 shares of Legacy's
preferred stock as Series B preferred stock. As of August 3, 2001, 61,540,849
shares of Legacy common stock and no shares of Legacy Series B preferred stock
were issued and outstanding.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER OF STOCK
ENTERPRISES. As permitted by the MGCL, for purposes of maintaining
Enterprises' REIT status under the Code, Enterprises' charter provides that,
subject to some exceptions, no person may:
- actually or beneficially own, or be deemed to own, more than 5% (by number
or value, whichever is more restrictive) of either the outstanding stock
of Enterprises, the outstanding shares of Enterprises Series A preferred
stock or, if the Enterprises issuance charter amendments are approved, the
outstanding shares of Enterprises Series B preferred stock, or
- actually or constructively own, or be deemed to own, more than 9.8% (by
number or value, whichever is more restrictive) of either the outstanding
stock of Enterprises, the outstanding shares of Enterprises Series A
preferred stock or, if the Enterprises issuance charter amendments are
approved, the outstanding shares of Enterprises Series B preferred stock.
Enterprises' charter provides that Enterprises' board may, however, in its
sole discretion, exempt a person or persons from the above ownership limits,
provided that the procedures set forth in Enterprises' charter are complied with
and Enterprises' board has determined that the exemption will not cause
Enterprises to fail to qualify as a REIT. Enterprises' board has waived the
above ownership limits with respect to the Price family and affiliated entities,
and with respect to Legacy. Enterprises' board has also, contingent on the
merger and the sale of the Enterprises Series B preferred stock, waived the
above ownership limits for certain stockholders of Legacy and for Warburg
Pincus, with respect to Enterprises' stock received in connection with the
merger and the sale of the Enterprises Series B preferred stock, respectively.
Enterprises' charter further prohibits, without exception:
- any person from actually, beneficially or constructively owning shares of
stock of Enterprises that would result in Enterprises being "closely held"
under Section 856(h) of the Code or otherwise cause Enterprises to fail to
qualify as a REIT, and
- any person from transferring shares of stock of Enterprises if such
transfer would result in all classes and series of stock of Enterprises
being beneficially owned by fewer than 100 persons.
LEGACY. Although permitted by the DGCL, neither Legacy's charter nor
Legacy's bylaws provide for restrictions on the transfer of Legacy securities.
In addition, under the DGCL no restriction is binding with respect to
securities issued prior to adoption of the restriction unless the holders of the
securities are parties to an agreement or voted in favor of the restriction. A
restriction on the transfer of securities of a corporation is permitted under
the DGCL if, among other things, it prohibits the transfer of the restricted
securities to designated persons or classes of persons, and the designation is
not manifestly unreasonable. Any other lawful restriction on the transfer of
securities is also permitted under the DGCL. The DGCL expressly provides that
any restriction on the transfer of shares imposed for the purpose of maintaining
a tax advantage to the corporation is conclusively presumed to be for a
reasonable purpose.
AMENDMENT OF ENTERPRISES' CHARTER AND LEGACY'S CHARTER
ENTERPRISES. Under the MGCL, in order to amend the charter of a
corporation, the board of directors must adopt a resolution setting forth and
declaring advisable the proposed amendment and direct that the proposed
amendment be submitted to stockholders for their consideration either at an
annual or special meeting of stockholders. The proposed amendment must then be
approved by the affirmative vote of two-thirds of all the stockholder votes
entitled to be cast on the matter, unless a greater or lesser proportion of
votes (but not less than a majority of all votes entitled to be cast) is
specified in the charter. Enterprises' charter provides that any action, which
would include an amendment to Enterprises' charter, shall be valid and effective
if approved by the affirmative vote of a
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majority of all the stockholder votes entitled to be cast on the matter, rather
than two-thirds as otherwise provided for under the MGCL. If the Enterprises
issuance charter amendments are approved, any resolution to amend Enterprises'
charter must be approved by a majority of Enterprises' board, which majority
must include the Warburg Pincus nominees.
LEGACY. Under the DGCL, a corporation's charter may be amended if the
amendment is approved by the board of directors, by a majority of the
outstanding stock entitled to vote on the amendment and by a majority of the
outstanding stock of each class entitled to vote on the amendment. Under the
DGCL, the holders of the outstanding shares of a class are entitled to vote as a
separate class on a proposed amendment, whether or not entitled to vote thereon
by the charter, that would increase or decrease the aggregate number of
authorized shares of that class, increase or decrease the par value of the
shares of that class or alter or change the powers, preferences or special
rights of the shares of that class so as to affect them adversely. If any
proposed amendment would adversely affect one or more series by altering or
changing the powers, preferences or special rights of the series, but would not
so affect the entire class, then only the shares of the series so affected by
the amendment is entitled to vote as a separate class on the amendment. Legacy's
charter provides that Legacy reserves the right to amend, alter, change or
repeal any provision of Legacy's charter in the manner prescribed by statute and
that all rights granted to Legacy's stockholders in Legacy's charter are granted
subject to such reservation.
STOCKHOLDER VOTING RIGHTS GENERALLY
ENTERPRISES. Under the MGCL, unless the charter provides for a greater or
lesser number of votes per share or limits or denies voting rights, each
outstanding share of common stock is entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. A stockholder may vote the
stock the stockholder owns either in person or by proxy. A proxy is not valid
for more than eleven months after its date, unless it provides otherwise. Unless
the MGCL or charter specify a different voting requirement, a majority of all
the votes cast at a duly held meeting at which a quorum is present and entitled
to vote on the subject matter is deemed to be the act of the stockholders.
Additionally, unless the MGCL or charter provide otherwise, if two or more
classes of stock are entitled to vote separately on any matter for which the
MGCL requires approval by two-thirds of all the votes entitled to be cast, the
matter must be approved by two-thirds of all the votes of each class. As
permitted by the MGCL, Enterprises' charter provides that any action which would
otherwise require a greater proportion is valid and effective if authorized by
the affirmative vote of a majority of the holders of shares entitled to be cast
on the matter.
Holders of Enterprises Series A preferred stock are entitled to 1/10 of one
vote per share on all matters submitted to a vote of stockholders, including the
general election of directors. Enterprises' charter, and the Enterprises merger
charter amendments, if approved, provide that holders of Enterprises Series A
preferred stock, voting separately as a class, are entitled to elect a majority
of Enterprises' directors, which majority cannot be greater than one director,
and holders of Enterprises Series A preferred stock and Enterprises common
stock, voting together as a single class, are entitled to elect the remaining
directors.
So long as any shares of Enterprises Series A preferred stock are
outstanding, Enterprises will not, without the affirmative vote of at least
two-thirds of the outstanding Enterprises Series A preferred stock,
- authorize or create, or increase the authorized or issued amount of, any
class or series of shares of capital stock of Enterprises ranking senior
to the Enterprises Series A preferred stock with respect to the payment of
distributions or the distribution of assets upon liquidation, dissolution
or winding-up or reclassify any authorized shares of capital stock of
Enterprises into such shares,
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or create, authorize or issue any obligation or security convertible into
or evidencing the right to purchase any of such shares, or
- amend, alter or repeal the provisions of Enterprises' charter, whether by
merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Enterprises
Series A preferred stock or of holders of the Enterprises Series A
preferred stock.
So long as any shares of Enterprises Series B preferred stock are
outstanding, Enterprises will not, without the affirmative vote of the holders
of at least two-thirds of the outstanding Enterprises Series B preferred stock,
- other than in connection with (1) Enterprises' offer to exchange shares of
Enterprises Series A preferred stock for Legacy debentures and Legacy
notes or (2) an offer to purchase shares of Enterprises Series A preferred
stock that is financed on particular terms, authorize or create, or
increase the authorized or issued amount of any shares of, any class or
any security convertible into shares of any class ranking senior to the
Enterprises Series B preferred stock with respect to the payment of
distributions or the distribution of assets upon liquidation, dissolution
or winding up, or
- amend, alter or repeal the provisions of Enterprises' charter, whether by
merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Enterprises
Series B preferred stock or of holders of the Enterprises Series B
preferred stock.
If the Enterprises issuance charter amendments are approved, each share of
Enterprises Series B preferred stock will be entitled to that number of votes
equal to the number of shares of Enterprises common stock into which such share
is then convertible, and holders of Enterprises Series B preferred stock will be
entitled to vote on all matters generally submitted to a vote of stockholders,
other than the election of directors. In addition, if the Enterprises issuance
charter amendments are approved, holders of Enterprises Series A preferred stock
and Enterprises common stock, voting together as a single class, will be
entitled to elect two members of Enterprises' board, holders of Enterprises
Series A preferred stock will be entitled, voting separately as a class, to
elect four members of Enterprises' board and Warburg Pincus, or its affiliates,
voting separately as a class, will be entitled to elect two directors for so
long as Warburg Pincus, or its affiliates, beneficially own 10% or more of the
outstanding shares of Enterprises common stock or the right to acquire 10% or
more of the Enterprises common stock (including through the ownership of the
Enterprises Series B preferred stock).
LEGACY. Under the DGCL, unless otherwise provided in the charter and
subject to some provisions of the DGCL, each stockholder is entitled to one vote
for each share of capital stock held by him. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize others to act for him by
proxy, but no proxy may be voted or acted upon after three years from its date,
unless the proxy specifically provides for its effectiveness for a longer
period. The DGCL further provides that in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present is
deemed to be the act of the stockholders, unless the DGCL, the charter or the
bylaws specify a different voting requirement. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, constitutes a quorum
entitled to take action with respect to that vote on that matter, and the
affirmative vote of the majority of shares of the class or classes present in
person or represented by proxy at the meeting is the act of that class. Holders
of Legacy Series B preferred stock are entitled to one vote per share, voting
together with holders of Legacy common stock, on all matters that holders of
Legacy common stock are entitled to vote on.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
ENTERPRISES. Under the MGCL, any action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting if the following are
filed with the records of stockholders meetings:
- an unanimous written consent which sets forth the action and is signed by
each stockholder entitled to vote on the matter, and
- a written waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote at it.
In addition, the holders of any stock of a Maryland corporation, other than
common stock entitled to vote generally in the election of directors, may take
action or consent to any action by the written consent of the stockholders
entitled to cast not less than the minimum number of votes that would be
necessary to authorize or take action at a stockholders meeting if the
corporation gives notice of the action to each stockholder not later than ten
days after the effective time of the action, unless the terms of the charter
requires otherwise, which Enterprises' charter does not.
LEGACY. Under the DGCL, unless otherwise provided in a corporation's
charter, any action that may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action, is signed by
stockholders having at least that number of votes that would have been necessary
to authorize or take the action at a meeting at which all shares entitled to
vote were present and voted.
SPECIAL STOCKHOLDER MEETINGS
ENTERPRISES. Enterprises' bylaws provide that special meetings of
stockholders may be called by:
- the chairman of the board,
- the president,
- a majority of the board of directors by vote at a meeting or in writing,
or
- the secretary at the written request of stockholders entitled to cast at
least a majority of the votes entitled to be cast at the meeting.
LEGACY. Legacy's bylaws provide that special meetings of stockholders may
be called by:
- the chairman,
- the vice chairman,
- the president,
- any vice president,
- the secretary,
- any assistant secretary,
- at the written request of a majority of the entire board of directors, or
- at the written request of stockholders owning a majority of the capital
stock of Legacy and entitled to vote.
INSPECTION RIGHTS
ENTERPRISES. One or more persons who have been holders of record for more
than six months of at least 5% of the outstanding stock of any class of a
Maryland corporation are entitled to inspect and
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copy the corporation's books of account and stock ledger and receive a written
statement of the corporation's affairs and a verified list of stockholders. Any
stockholder of a Maryland corporation, holder of a voting trust certificate in a
corporation, or his or her agent may inspect and copy during usual business
hours the bylaws, minutes of the proceedings of the stockholders, annual
statement of affairs and voting trust agreements on file at the corporation's
principal office.
LEGACY. A stockholder of a Delaware corporation may inspect the stockholder
list and any stockholder making a written demand may inspect any other corporate
books and records for any purpose reasonably related to such person's interest
as a stockholder.
NUMBER AND ELECTION OF DIRECTORS
ENTERPRISES. The minimum number of directors of a Maryland corporation is
one. The number of directors is provided by the charter until changed by the
bylaws. The bylaws may both alter the number of directors set by the charter and
authorize a majority of the entire board of directors to alter within specified
limits the number of directors set by the charter or the bylaws, but the action
may not affect the tenure of office of any director.
In addition, the MGCL permits, but does not require, the board of directors
to be classified. If the directors are divided into classes, the term of office
may be provided in the bylaws, except that the term of office of a director may
not be longer than five years or, except in the case of an initial or substitute
director, shorter than the period between annual meetings. The term of office of
at least one class must expire each year. Each share of stock may be voted for
as many individuals as there are directors to be elected and for whose election
the share is entitled to be voted. Unless the charter or bylaws provide
otherwise, a plurality of all the votes cast at a meeting at which a quorum is
present is sufficient to elect a director.
Enterprises' charter provides that the number of directors shall be six,
which number may be increased or decreased in accordance with Enterprises'
bylaws, provided that the total number of directors may not be less than the
minimum number permitted by the MGCL. Under Enterprises' bylaws, the number of
directors is fixed by Enterprises' board within the limits set forth in
Enterprises' charter, provided that there may not be more than 25 directors. The
current number of directors is five. If the Enterprises merger charter
amendments are approved, the number of directors will be increased to seven and,
if the Enterprises issuance charter amendments are approved, the number of
directors will be increased to eight.
Notwithstanding anything in its charter or bylaws to the contrary, the board
of directors of a Maryland corporation which has a class of securities
registered under the Exchange Act and has at least three independent directors
may elect to provide that the number of directors may only be set by the board
of directors and may, without a vote of the stockholders, elect to classify the
board and designate the directors to serve in each class.
LEGACY. The minimum number of directors of a Delaware corporation is one.
The DGCL provides that the number of directors shall be fixed by, or in the
manner provided in, the bylaws, unless the charter fixes the number of
directors, in which case the number of directors may be changed only by
amendment of the charter. In addition, the DGCL permits, but does not require, a
classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. Directors of a Delaware corporation are elected by a plurality
vote of the shares present in person or represented by proxy at a stockholders
meeting and entitled to vote on the election of directors. Legacy's bylaws
provide that Legacy's board determines the number of directors comprising the
board of directors, but that there must not be less than three directors. The
current number of directors is eight.
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REMOVAL OF DIRECTORS
ENTERPRISES. Enterprises' charter provides that, subject to the rights of
one or more classes or series of preferred stock to remove one or more
directors, any director or the entire board of directors may be removed only for
cause and only by the affirmative vote of stockholders holding at least a
majority of all the votes entitled to be cast in the election of those
directors.
Notwithstanding anything in its charter or bylaws to the contrary, the board
of directors of a Maryland corporation which has a class of securities
registered under the Exchange Act and has at least three independent directors
may elect to provide that any director or the entire board of directors may be
removed only for cause and only by the affirmative vote of stockholders holding
at least two-thirds of all the votes entitled to be cast generally in the
election of directors.
LEGACY. A director of a Delaware corporation may be removed with or without
cause by the holders of a majority of shares then entitled to vote at an
election of directors, provided that:
- when a corporation has a classified board of directors, a director may be
removed only for cause, unless the charter provides otherwise,
- if a corporation has cumulative voting for the election of directors and
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire board of
directors or, if there is more than one class of directors, at an election
of the class of directors of which he is a member, and
- whenever the stockholders of any class or series are entitled to elect one
or more directors by the charter, a director elected by a class or series
may be removed by the affirmative vote of a majority of all the votes of
that class or series and not the vote of the outstanding shares as a
whole.
VACANCIES ON THE BOARD OF DIRECTORS
ENTERPRISES. Enterprises' bylaws provide that subject to the rights of the
holders of any class of stock separately entitled to elect one or more
directors, the stockholders may elect a successor to fill a vacancy on
Enterprises' board resulting from the removal of a director. Subject to the
rights of the holders of any class of stock separately entitled to elect one or
more directors, a majority of the remaining directors, whether or not sufficient
to constitute a quorum, may fill a vacancy which results from any cause, except
that a vacancy which results from an increase in the number of directors may be
filled by a majority of the entire board of directors.
If a vacancy occurs with respect to a director elected by the holders of
Enterprises Series A preferred stock, the vacancy may be filled by a majority of
the entire board of directors upon the nomination of a majority of the directors
elected by the holders of Enterprises Series A preferred stock. If a vacancy
occurs with respect to a director elected by the holders of Enterprises
Series A preferred stock and Enterprises common stock, voting together as a
single class, the vacancy may be filled by a majority of the entire board of
directors. If the Enterprises issuance charter amendments are approved, a
vacancy may be filled by vote of:
- Warburg Pincus, or its affiliates, or the remaining directors elected by
such holders, if the vacancy occurs with respect to a director elected
separately by such holders,
- the remaining directors separately elected by holders of Enterprises
Series A preferred stock, or the holders of such stock if the vacancy is
caused by removal, if the vacancy occurs with respect to a director
elected by holders of Enterprises Series A preferred stock, and
- the remaining directors elected by holders of Enterprises Series A
preferred stock and Enterprises common stock, voting together as a single
class, or the holders of such stock if the
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vacancy is caused by removal, if the vacancy occurs with respect to a
director elected by holders of Enterprises Series A preferred stock and
Enterprises common stock, voting together as a single class.
Notwithstanding anything in its charter or bylaws to the contrary, the board
of directors of a Maryland corporation which has a class of securities
registered under the Exchange Act and has at least three independent directors
may elect to provide that any vacancy may be filled only by the affirmative vote
of the remaining directors in office, even if the remaining directors constitute
less than a quorum.
LEGACY. As permitted by the DGCL, Legacy's bylaws provide that vacancies
and newly-created directorships resulting from any increase in the authorized
number of directors elected by all of the stockholders having the right to vote
as a single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. However, if the
charter directs that a particular class is to elect a director, the vacancy may
be filled only by the other directors elected by that class. If, at the time of
filling any vacancy or newly-created directorship, the directors then in office
constitute less than a majority of the whole board as constituted immediately
prior to the increase, the Delaware Court of Chancery may, upon application of
stockholders holding at least ten percent of the total number of shares
outstanding having the right to vote for such directors, order an election to be
held to fill the vacancy or newly-created directorship or to replace the
director chosen by the directors then in office. Under the DGCL, unless
otherwise provided in the charter or bylaws, when one or more directors resigns
from the board, effective at a future date, a majority of the directors then in
office, including those who have resigned, have the power to fill the vacancy or
vacancies, with that vote to take effect when such resignation or resignations
becomes effective, and each director so chosen shall hold office as provided in
the DGCL for the filling of other vacancies.
STANDARD OF CONDUCT
ENTERPRISES. The standards of conduct for directors of Maryland
corporations are governed by the MGCL. Section 2-405.1 of the MGCL requires that
a director of a Maryland corporation perform his duties:
- in good faith,
- in a manner he reasonably believes to be in the best interests of the
corporation, and
- with the care an ordinarily prudent person in a like position would use
under similar circumstances.
LEGACY. Under Delaware law, the standards of conduct for directors have
developed through written opinions of the Delaware courts in cases decided by
them. Generally, directors of Delaware corporations are subject to a duty of
loyalty and a duty of care. The duty of loyalty has been said to require
directors to refrain from self-dealing and the duty of care requires directors
to use that amount of care which ordinarily careful and prudent persons would
use in similar circumstances. Gross negligence has been established as the test
for breach of the standard for the duty of care in the process of
decision-making by directors of Delaware corporations.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND OF NEW BUSINESS PROPOSALS
ENTERPRISES. Enterprises' bylaws provide that with respect to an annual
meeting of stockholders, nominations of persons for election to Enterprises'
board and the proposal of business to be considered by stockholders may be made
only:
- pursuant to Enterprises' notice of meeting,
- by or at the direction of the board of directors, or
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- by a stockholder who was a stockholder of record both at the time of
giving notice provided for in Enterprises' bylaws and at the time of the
annual meeting, and who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in Enterprises'
bylaws.
The advance notice provisions contained in Enterprises' bylaws generally
require that stockholders deliver nominations and new business proposals to
Enterprises' secretary not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day before the date on which
Enterprises first mailed its proxy materials for the prior year's annual meeting
of stockholders.
LEGACY. Legacy's bylaws do not provide for advance notice of director
nominations or new business proposals.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
ENTERPRISES. Unless a corporation's charter provides otherwise, which
Enterprises' charter does not, the MGCL requires a corporation to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to advance reasonable expenses
to a director or officer. A corporation may indemnify its present and former
directors and officers, among others, against:
- judgments,
- penalties,
- fines,
- settlements, and
- reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities.
The MGCL does not permit a corporation to indemnify its present and former
directors and officers if it is established that:
- the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty,
- the director or officer actually received an improper personal benefit in
money, property or services, or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under the MGCL, a Maryland corporation generally may not indemnify for an
adverse judgment in a suit by or in the right of the corporation. Also, a
Maryland corporation generally may not indemnify for a judgment of liability on
the basis that personal benefit was improperly received. In either of these
cases, a Maryland corporation may indemnify for expenses only if a court so
orders. Enterprises' charter obligates Enterprises to indemnify its directors
and officers, whether serving Enterprises or at its request any other entity, to
the full extent required or permitted by the MGCL, including the advancement of
expenses under the procedures and to the full extent permitted by law, and other
employees and agents to such extent as authorized by its board of directors and
bylaws and as may be permitted by law. Enterprises' bylaws specify the
procedures for indemnification and advancement of expenses.
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
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improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a final
judgment establishes that the dishonesty is material to the cause of action.
Enterprises' charter contains a provision which eliminates liability of
directors and officers to the maximum extent permitted by the MGCL.
LEGACY. Under the DGCL, directors may be indemnified for liabilities
incurred in connection with specified actions (other than any action brought by
or in the right of the corporation), if they acted in good faith and in a manner
they reasonably believed to be in and not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. The same standard of
conduct is applicable for indemnification in the case of derivative actions
brought by or in the right of the corporation, except that in such cases the
DGCL authorizes indemnification only for expenses (including attorneys' fees)
incurred in connection with the defense or settlement of such cases. Moreover,
the DGCL requires court approval before there can be any such indemnification
where the person seeking indemnification has been found liable to the
corporation in a derivative action. To the extent that a present or former
director or officer has been successful in defense of any action, suit or
proceeding, the DGCL provides for indemnification for expenses (including
attorneys' fees). The DGCL states expressly that the indemnification provided by
or granted under the DGCL is not deemed exclusive of any non-statutory
indemnification rights existing under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
Legacy's charter and bylaws provide that every director, officer and
employee of Legacy shall be indemnified against all expenses and liabilities,
including attorneys' fees, reasonably incurred by or imposed upon him by reason
of his being or having been a director, officer or employee of Legacy.
Under Legacy's charter, no director shall be liable to Legacy or its
stockholders for monetary damages, for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law,
- under Section 174 of the DGCL (concerning unlawful payment of dividend or
unlawful stock purchase or redemption), or
- for any transaction from which the directors derived an improper personal
benefit.
DECLARATION OF DISTRIBUTIONS
ENTERPRISES. Under the MGCL, if authorized by its board of directors, a
Maryland corporation may declare and pay distributions subject to any
restriction in its charter unless, after giving effect to the distribution:
- the corporation would not be able to pay indebtedness of the corporation
as the indebtedness becomes due in the usual course of business, or
- the corporation's total assets would be less than the sum of the
corporation's total liabilities plus, unless the charter permits
otherwise, the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of the stockholders whose preferential rights on
dissolution are superior to those receiving the distribution.
Holders of the Enterprises Series A preferred stock are entitled to receive,
when, as and if authorized and declared by Enterprises' board out of assets
legally available for that purpose, cumulative distributions payable in cash in
an amount per share equal to $1.40 per annum. Holders of
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the Enterprises Series B preferred stock will be entitled to receive, when, as
and if authorized and declared by Enterprises' board out of funds legally
available for that purpose, cumulative distributions payable in shares of
Enterprises Series B preferred stock in an amount per share equal to 9% of the
original issue price of the Enterprises Series B preferred stock ($5.56), or
$.50 per share, per annum (subject to customary adjustments) for the first
45 months after the Enterprises Series B preferred stock is issued, and payable
in cash in an amount equal to 10% of the original issue price of the Enterprises
Series B preferred stock ($5.56), or $.56 per share, per annum (subject to
customary adjustments) thereafter. Holders of the Enterprises common stock are
entitled to receive distributions if, as and when authorized and declared by
Enterprises' board out of assets legally available for the payment of
distributions.
LEGACY. Under the DGCL, a corporation is permitted to declare and pay
distributions out of surplus (as defined in the DGCL) or, if there is no
surplus, out of net profits for the fiscal year in which the distribution is
declared and/or for the preceding fiscal year as long as the amount of capital
of the corporation following the declaration and payment of the distribution is
not less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. Distributions may be paid in cash, property or shares of a corporation's
capital stock. In addition, the DGCL generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation.
CONVERSION
ENTERPRISES. Holders of Enterprises common stock and Enterprises Series A
preferred stock have no conversion rights. Each share of Enterprises Series B
preferred stock may be converted by its holder, at any time after the date which
is twenty-four months from the initial date of issuance of the Enterprises
Series B preferred stock and prior to the date any shares of Enterprises
Series B preferred stock are redeemed or Enterprises is liquidated, into the
number of shares of Enterprises common stock obtained by dividing $5.56 by the
conversion price then in effect, initially $5.56 and subject to customary
anti-dilution adjustments.
LEGACY. Holders of Legacy common stock have no conversion rights.
REDEMPTION
ENTERPRISES. Shares of Enterprises Series A preferred stock may be redeemed
by Enterprises within 90 days after a change in control of Enterprises or after
August 15, 2003 at a price per share of $16.00, together with any accrued but
unpaid dividends. Shares of Enterprises Series B preferred stock may be redeemed
by Enterprises after 60 months from the issuance of the Enterprises Series B
preferred stock if the average closing price of the Enterprises common stock for
the preceding 40 consecutive trading days is less than $7.50 per share and
Enterprises has elected, within the 60-day period following the date that is
60 months from initial issuance date of the Enterprises Series B preferred
stock, to effect such redemption. Such redemption will be effected over a
five-year period at a price of $5.56 per share, plus accrued and unpaid
dividends. Holders of the Enterprises common stock have no redemption rights.
LEGACY. Holders of Legacy common stock have no redemption rights.
LIQUIDATION RIGHTS
ENTERPRISES. In the event of the liquidation, dissolution or winding up of
Enterprises, after payment of or adequate provision for all of Enterprises'
known debts and liabilities, holders of the Enterprises Series A preferred stock
are entitled to receive $16.00 per share of Enterprises Series A
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preferred stock, together with any accrued but unpaid dividends, before any
payment or distribution is made on any junior shares, including the Enterprises
Series B preferred stock and the Enterprises common stock. After payment of or
adequate provision for all of Enterprises' known debts and liabilities, and
distributions to classes or series of stock ranking senior to the Enterprises
Series B preferred stock, including the Enterprises Series A preferred stock,
holders of the Enterprises Series B preferred stock are entitled to receive
$5.56 per share (subject to customary adjustments), together with any accrued
but unpaid dividends, before any payment or distribution is made on any junior
shares, including the Enterprises common stock. After payment of or adequate
provision for all of Enterprises' known debts and liabilities, and distributions
to classes or series of stock ranking senior to the Enterprises common stock,
holders of the Enterprises common stock are entitled to share ratably in
Enterprises' assets legally available for distribution to its stockholders.
LEGACY. In the event of the liquidation, dissolution or winding up of
Legacy, after payment of or adequate provision for all of Legacy's known debts
and liabilities, holders of the Legacy common stock are entitled to share
ratably in Legacy's assets legally available for distribution to its
stockholders.
APPRAISAL RIGHTS
ENTERPRISES. Under the MGCL, a stockholder of a Maryland corporation has
the right to demand and receive payment of the fair value of the stockholder's
stock from the corporation if the corporation consolidates or merges with
another corporation, the corporation sells all of its assets or, if not
permitted by its charter, the corporation amends its charter to substantially
affect the stockholders' contract rights, unless:
- the stock is listed on a national securities exchange or is designated as
a national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or is designated for
trading on the Nasdaq Small Cap Market,
- the stock is that of the successor in a merger, unless the merger alters
the contract rights of the stock as expressly set forth in the charter,
and the charter does not reserve the right to do so, or the stock is to be
changed or converted in whole or in part in the merger into something
other than either stock in the successor or cash, scrip, or other rights
or interests arising out of the provisions for the treatment of fractional
shares of stock in the successor,
- the stock is not entitled to be voted on the transaction or the
stockholder did not own the shares of stock on the record date for
determining stockholders entitled to vote on the transaction, or
- the charter provides that holders of the stock are not entitled to
exercise the rights of objecting stockholders, which the Enterprises
issuance charter amendments will provide for all stock of Enterprises,
other than the Enterprises Series A preferred stock.
LEGACY. Under the DGCL, the right to receive the fair value of dissenting
shares is made available to stockholders of a constituent corporation in a
merger or consolidation effected under the DGCL. Appraisal rights are not
available for the shares of any class or series of stock, if the stock, or
depository receipts in respect thereof, were at the record date fixed to
determine stockholders entitled to receive notice and vote on such transaction,
either:
- listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Security Dealers, Inc., or
- held of record by more than 2,000 holders.
Further, no appraisal rights are available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as provided
by the DGCL. Notwithstanding the foregoing, unless limited or held
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of record by more than 2,000 persons, appraisal rights under the DGCL are
available for the shares of any class or series of stock of a corporation if the
holders of the shares are required by the terms of an agreement of merger or
consolidation under the DGCL to accept for such stock anything except:
- shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof,
- shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts in respect
thereof will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.,
or held of record by more than 2,000 holders,
- cash in lieu of fractional shares, or
- any combination of the shares of stock, depository receipts and cash in
lieu of such fractional shares.
MERGER, CONSOLIDATION, SHARE EXCHANGE AND TRANSFER OF ALL OR SUBSTANTIALLY ALL
ASSETS
ENTERPRISES. The MGCL generally provides that mergers, consolidations,
share exchanges or transfers of assets must first be advised by a majority of
the board of directors and thereafter approved by the affirmative vote of
two-thirds of all the stockholder votes entitled to be cast on the matter,
unless a greater or lesser proportion of votes (but not less than a majority of
all votes entitled to be cast) is specified in the charter. However, some
mergers may be accomplished without a vote of stockholders. For example, no
stockholder vote is required for a merger of a subsidiary of a Maryland
corporation into its parent, provided the parent owns at least 90% of the
subsidiary. In addition, a merger need not be approved by stockholders of a
Maryland successor corporation if the merger does not reclassify or change the
outstanding shares or otherwise amend the charter, and the number of shares to
be issued or delivered in the merger is not more than 20% of the number of its
shares of the same class or series outstanding immediately before the merger
becomes effective. A share exchange need be approved by a Maryland successor
only by its board of directors and by any other action required by its charter.
Enterprises' charter requires that any merger, consolidation, share exchange or
transfer of assets requiring stockholder approval be approved by the affirmative
vote of the holders of shares entitled to cast a majority of the votes entitled
to be cast on the matter.
LEGACY. Under the DGCL, the principal terms of a merger or consolidation
generally require the approval of the stockholders of each of the constituent
corporations. Unless otherwise required in a corporation's charter, the DGCL
does not require a stockholder vote of the surviving corporation in a merger if:
- the agreement of merger does not amend in any respect the charter of the
corporation,
- each share of stock of the corporation outstanding immediately prior to
the effective time is to be an identical outstanding or treasury share of
the surviving corporation after the effective time, and
- either (1) no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into common stock are to be
issued or delivered under the merger or (2) the number of authorized
unissued shares or the treasury shares of common stock of the surviving
corporation to be issued or delivered under the merger, plus those
initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under the plan, do not exceed 20% of
the number of shares of common stock outstanding immediately prior to the
effective time, or
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- the merger is of a subsidiary into a parent, provided the parent owns at
least 90% of the subsidiary.
When a stockholder vote is required under the DGCL to approve a merger or
consolidation, unless the charter provides otherwise (which Legacy's charter
does not), the affirmative vote of a majority of the outstanding stock entitled
to vote on the merger or consolidation shall be required to approve the merger
or consolidation. If multiple classes of stock are entitled to vote on the
merger or consolidation as separate classes, then a majority of each class
entitled to vote to approve the merger or consolidation, voting separately as a
class, shall be required to approve the merger or consolidation.
The board of directors or governing body of a Delaware corporation may take
action to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including the corporation's goodwill and corporate
franchises, upon such terms and conditions and for such consideration, which may
consist of money or other property, including shares of stock or other
securities of any other corporation as it deems expedient and for the best
interests of the corporation, when authorized by the holders of a majority of
the outstanding stock of the corporation entitled to vote on the matter.
CHANGE IN CONTROL
ENTERPRISES. Under the MGCL, "business combinations" between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder generally
includes:
- any person who beneficially owns 10% or more of the voting power of the
corporation's shares, or
- an affiliate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or
more of the voting power of the then outstanding voting stock of the
corporation.
A person is not an interested stockholder under the statute if the board of
directors approved in advance the transaction by which he otherwise would have
become an interested stockholder.
After the five-year prohibition, any business combination between the
Maryland corporation and an interested stockholder generally must be recommended
by the board of directors of the corporation and approved by two super-majority
stockholder votes, unless, among other conditions, the holders of common stock
receive a minimum price, as defined by the MGCL, for their shares and the
consideration is received in cash or in the same form as previously paid by the
interested stockholder for its common stock. None of these provisions of the
MGCL will apply, however, to business combinations that are approved or exempted
by the board of directors of the corporation prior to the time that the
interested stockholder becomes an interested stockholder.
Also under the MGCL, "control shares" of a Maryland corporation acquired in
a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter.
Shares of stock owned by the acquiror, by officers or by directors who are
employees of the corporation are excluded from shares entitled to vote on the
matter. "Control shares" are voting shares of stock which, if aggregated with
all other shares of stock owned by the acquiror or shares of stock for which the
acquiror is able to exercise or direct the exercise of voting
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power except solely by virtue of a revocable proxy, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power:
- one-tenth or more but less than one-third,
- one-third or more but less than a majority, or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. Except
as otherwise specified in the statute, a "control share acquisition" means the
acquisition of control shares.
Once a person who has made or proposes to make a control share acquisition
has undertaken to pay expenses and satisfied other conditions, the person may
compel the board of directors to call a special meeting of stockholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made the corporation may itself present the question at
any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to the conditions and limitations in the statute, the corporation may
redeem any or all of the control shares for fair value, except for control
shares for which voting rights previously have been approved. Fair value is
determined without regard to the absence of voting rights for control shares, as
of the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of control shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of these appraisal rights may not
be less than the highest price per share paid in the control share acquisition.
Some of the limitations and restrictions otherwise applicable to the exercise of
appraisal rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
Under the MGCL, Enterprises' board has adopted a resolution providing that
the "business combination" provisions of Maryland law shall not apply to any
"business combination" with Enterprises. Enterprises' bylaws contain a provision
exempting from the control share acquisition statute any and all acquisitions by
any person of shares of stock of Enterprises. There can be no assurance,
however, that Enterprises' board will not rescind the resolution or amend its
bylaws in the future to provide that the "business combination" and "control
share acquisition" provisions of the MGCL apply to Enterprises, except that
Enterprises' board has irrevocably exempted Legacy from the operation and effect
of the business combination provisions of the MGCL.
LEGACY. Section 203 of the DGCL provides that, subject to exceptions
specified therein, a corporation will not engage in any business combination
with any "interested stockholder" for a three-year period following the time
that such stockholder becomes an interested stockholder unless:
- prior to such time the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder,
- upon the closing of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced (excluding for purposes of
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determining the number of shares outstanding those shares owned by persons
who are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer), or
- at or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Except as specified in Section 203 of the DGCL, an interested stockholder is
defined to include any person that:
- is the owner of 15% or more of the outstanding voting stock of the
corporation,
- is an affiliate or associate of the corporation and was the owner of 15%
or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder,
or
- the affiliates and associates of such person.
Section 203(b)(4) of the DGCL exempts from the restrictions in Section 203 a
corporation that does not have a class of voting stock that is:
- listed on a national securities exchange,
- authorized for quotation on The Nasdaq Stock Market, or
- held of record by more than 2,000 stockholders,
unless any of the foregoing results from action taken, directly or indirectly,
by an interested stockholder or from a transaction in which a person becomes an
interested stockholder.
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LEGAL MATTERS
The validity of the Enterprises Series A preferred stock offered hereby will
be passed upon for Enterprises by Ballard Spahr Andrews & Ingersoll, LLP,
Baltimore, Maryland. Enterprises is represented in connection with the merger
and the exchange offer by Munger, Tolles & Olson LLP, Los Angeles, California.
Legacy is represented in connection with the merger and the exchange offer by
Latham & Watkins, San Diego, California. As of the date of this consent
solicitation statement/ prospectus, attorneys at Munger, Tolles & Olson LLP who
are representing Enterprises owned an aggregate of 29,550 shares of Enterprises
Series A preferred stock and no shares of Enterprises common stock. It is a
condition to the completion of the merger that Enterprises receives an opinion
from Munger, Tolles & Olson LLP and Legacy receives an opinion from Latham &
Watkins in each case to the effect that the merger will be treated as a
reorganization under Section 368(a) of the Code.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Enterprises'
consolidated financial statements and schedules included in its Annual Report on
Form 10-K for the year ended December 31, 2000, as set forth in their report,
which is incorporated by reference in this consent solicitation
statement/prospectus and elsewhere in the registration statement. Enterprises'
financial statements and schedules are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements and schedules of Legacy incorporated in this
consent solicitation statement/prospectus by reference to Legacy's Annual Report
on Form 10-K for the year ended December 31, 2000, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent auditors,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the Swerdlow properties for the year ended
December 31, 2000 included in this consent solicitation statement/prospectus
have been so included in reliance on the report of Squire & Company PC,
independent auditors, given on the authority of said firm as experts in auditing
and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Enterprises and Legacy are subject to the informational requirements of the
Exchange Act, and file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports, proxy
statements and other information Enterprises and Legacy file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
You may also access filed documents at the SEC's web site at www.sec.gov.
This consent solicitation statement/prospectus incorporates important
business and financial information about Enterprises and Legacy that is not
included in or delivered with this consent solicitation statement/prospectus.
Enterprises has filed a registration statement on Form S-4 and related exhibits
with the SEC under the Securities Act. The registration statement contains
additional information about Enterprises and Legacy and the securities offered
hereby. You may inspect the registration statement and exhibits without charge
and obtain copies from the SEC at prescribed rates at the locations above.
The SEC allows Enterprises and Legacy to incorporate by reference the
information they file with it, which means that they can disclose important
information to you by referring to those documents. The information incorporated
by reference is an important part of this consent solicitation statement/
prospectus, and information that Enterprises and Legacy file later with the SEC
will automatically
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update and supersede this information. Enterprises and Legacy incorporate by
reference the following documents which they have filed with the SEC:
ENTERPRISES' SEC FILINGS (FILE NO. 0-20449):
- Enterprises' Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as amended by Amendment No. 1 on Form 10-K/A and
Amendment No. 2 on Form 10-K/A,
- Enterprises' Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001, as amended by Amendment No. 1 on Form 10-Q/A,
- Enterprises' Current Report on Form 8-K filed with the SEC on March 23,
2001,
- the description of the Enterprises Series A preferred stock contained in
Enterprises' Registration Statement on Form 8-A filed with the SEC on
August 7, 1998, and
- all documents filed by Enterprises with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this consent
solicitation statement/prospectus and before the termination of the
exchange offer.
LEGACY'S SEC FILINGS (FILE NO. 0-23503):
- Legacy's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as amended by Amendment No. 1 on Form 10-K/A, Amendment
No. 2 on Form 10-K/A and Amendment No. 3 on Form 10-K/A,
- Legacy's Quarterly Report on Form 10-Q for the quarter ended March 31,
2001, as amended by Amendment No. 1 on Form 10-Q/A and Amendment No. 2 on
Form 10-Q/A,
- Legacy's Current Reports on Form 8-K filed with the SEC on March 23, 2001
and July 31, 2001, and
- all documents filed by Legacy with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this consent solicitation
statement/prospectus and before the termination of the exchange offer.
The information incorporated by reference is deemed to be part of this
consent solicitation statement/prospectus. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this consent
solicitation statement/prospectus will be deemed modified, superseded or
replaced for purposes of this consent solicitation statement/prospectus to the
extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies,
supersedes or replaces such statement. Any statement so modified, superseded or
replaced will not be deemed, except as so modified, superseded or replaced, to
constitute a part of this consent solicitation statement/prospectus.
This consent solicitation statement/prospectus is accompanied by
Enterprises' Annual Report on Form 10-K for the year ended December 31, 2000, as
amended, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2001,
as amended.
Enterprises has supplied all such information contained or incorporated by
reference in this consent solicitation statement/prospectus relating to
Enterprises and Legacy has supplied all information relating to Legacy.
You may have already received some of the documents incorporated by
reference, but you can obtain any of them through Enterprises, Legacy or the
SEC. Documents incorporated by reference are available from Enterprises or
Legacy without charge, excluding all exhibits, unless Enterprises or Legacy has
specifically incorporated by reference an exhibit in this consent solicitation
statement/
131
prospectus, the exhibit will also be provided without charge. You may obtain
documents incorporated by reference in this consent solicitation
statement/prospectus by requesting them in writing or by telephone from the
appropriate party at the following addresses:
Price Enterprises, Inc. Excel Legacy Corporation
17140 Bernardo Center Drive, Suite 300 17140 Bernardo Center Drive, Suite 300
San Diego, California 92128 San Diego, California 92128
(858) 675-9400 (858) 675-9400
You may also contact the information agent for the exchange offer and
consent solicitation at the following address:
Mellon Investor Services LLC
44 Wall Street
7th Floor
New York, NY 10005
Toll Free: (800) 335-7842
To obtain timely delivery before the expiration of the exchange offer and
consent solicitation, you should request the information no later than September
4, 2001, which is five business days prior to the expiration of the exchange
offer and consent solicitation.
You should rely only on the information incorporated by reference or
provided in this consent solicitation statement/prospectus. Neither Enterprises
nor Legacy has authorized anyone to give you any information or to make any
representations about the transactions discussed in this consent solicitation
statement/prospectus other than those contained herein. If you are given any
information or representations about these matters that is not discussed, you
should not rely on that information.
This consent solicitation statement/prospectus is not an offer to sell or a
solicitation of an offer to buy securities anywhere or to anyone where or to
whom Enterprises or Legacy is not permitted to offer or sell securities under
applicable law. The delivery of this consent solicitation statement/prospectus
does not, under any circumstances, mean that there has not been a change in the
affairs of Enterprises or Legacy since the date hereof. It also does not mean
that the information in this consent solicitation statement/prospectus is
correct after this date.
132
FINANCIAL STATEMENTS OF THE SWERDLOW PROPERTIES
INDEX TO FINANCIAL STATEMENTS
PROPERTIES TO BE ACQUIRED
Cross County Plaza:
Report of Independent Accountants--Squire & Co.............. F-2
Historical Summary of Operating Revenues and Direct
Operating Expenses for the Three Months Ended March 31,
2001 (Unaudited) and the Year Ended December 31, 2000..... F-3
Notes to Historical Summary of Operating Revenues and Direct
Operating Expenses for the Property Proposed to be
Acquired by Price Enterprises, Inc........................ F-4
Cypress Creek Station:
Report of Independent Accountants--Squire & Co.............. F-6
Historical Summary of Operating Revenues and Direct
Operating Expenses for the Three Months Ended March 31,
2001 (Unaudited) and the Year Ended December 31, 2000..... F-7
Notes to Historical Summary of Operating Revenues and Direct
Operating Expenses for the Property Proposed to be
Acquired by Price Enterprises, Inc........................ F-8
Kendale Lakes Plaza:
Report of Independent Accountants--Squire & Co.............. F-10
Historical Summary of Operating Revenues and Direct
Operating Expenses for the Three Months Ended March 31,
2001 (Unaudited) and the Year Ended December 31, 2000..... F-11
Notes to Historical Summary of Operating Revenues and Direct
Operating Expenses for the Property Proposed to be
Acquired by Price Enterprises, Inc........................ F-12
Oakwood Business Center:
Report of Independent Accountants--Squire & Co.............. F-14
Historical Summary of Operating Revenues and Direct
Operating Expenses for the Three Months Ended March 31,
2001 (Unaudited) and the Year Ended December 31, 2000..... F-15
Notes to Historical Summary of Operating Revenues and Direct
Operating Expenses for the Property Proposed to be
Acquired by Price Enterprises, Inc........................ F-16
Oakwood Plaza:
Report of Independent Accountants--Squire & Co.............. F-18
Historical Summary of Operating Revenues and Direct
Operating Expenses for the Three Months Ended March 31,
2001 (Unaudited) and the Year Ended December 31, 2000..... F-19
Notes to Historical Summary of Operating Revenues and Direct
Operating Expenses for the Property Proposed to be
Acquired by Price Enterprises, Inc........................ F-20
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying Historical Summary of Operating Revenues
and Direct Operating Expenses For The Property Proposed to be Acquired by Price
Enterprises, Inc. for the year ended December 31, 2000. This summary is the
responsibility of Price Enterprises, Inc. and Cross County Associates Limited
Partnership. Our responsibility is to express an opinion on this summary based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the summary
is free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the summary. We
believe that our audit of the summary provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying summary was prepared in conformity
with accounting principles prescribed by the Securities and Exchange Commission
which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America, and is not intended to be a
complete presentation of the property's revenues and expenses.
In our opinion, the summary referred to above presents fairly, in all
material respects, the operating revenues and direct operating expenses of the
property proposed to be acquired by Price Enterprises, Inc. for the year ended
December 31, 2000, on the basis of accounting described in Note 1.
This report is intended solely for the information and use of the Board of
Directors and management of Price Enterprises, Inc. and for filing with the
Securities and Exchange Commission and should not be used for any other purpose.
Squire & Company, PC
Orem, Utah
June 27, 2001
F-2
PRICE ENTERPRISES, INC. AND CROSS COUNTY ASSOCIATES LIMITED PARTNERSHIP
HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
OPERATING REVENUES:
Base rents............................................... $1,053,747 $4,092,944
Expense reimbursements................................... 287,281 1,108,228
---------- ----------
Total operating revenues............................... 1,341,028 5,201,172
DIRECT OPERATING EXPENSES:
Administrative and office expense........................ 33,649 136,294
Repairs and maintenance.................................. 105,093 339,584
Utilities................................................ 11,005 35,150
Property taxes........................................... 173,901 615,636
Insurance................................................ 28,352 116,930
Management fees.......................................... 41,138 140,598
---------- ----------
Total direct operating expenses........................ 393,138 1,384,192
---------- ----------
Net operating income................................. $ 947,890 $3,816,980
========== ==========
The accompanying notes are an integral part of this summary.
F-3
PRICE ENTERPRISES, INC. AND CROSS COUNTY ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT
OPERATING EXPENSES FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY
PRICE ENTERPRISES, INC.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of this Historical Summary. The Historical Summary and notes are
representations of Price Enterprises, Inc. and Cross County Associates Limited
Partnership, whose management are responsible for the integrity and objectivity
of this Historical Summary.
BUSINESS ACTIVITY--Price Enterprises, Inc. (the Company) is headquartered in
San Diego, California. The Company is a self-administered, self-managed equity
real estate investment company which owns and manages income-producing
properties.
The acquired property is operated as a shopping center in the location below
with the anchor stores listed.
PROPERTY LOCATION ANCHOR STORES
------------------ ------------------- ----------------------------------------
Cross County Plaza West Palm Beach, FL Ross, Winn-Dixie, Kmart, Linens N Things
Cross County Associates Limited Parternship has owned and managed the
property. Retail space is rented to tenants under noncancelable leases ranging
from three to twenty years, with renewal options available.
FORM OF PRESENTATION--The Historical Summary is presented in conformity with
Rule 3-14 of the Securities and Exchange Commission. Accordingly, certain
expenses of the property are not included in the summary, i.e., depreciation and
interest.
Management has determined that after reasonable inquiry, it is not aware of
any material factors relating to the property reported on in the accompanying
Historical Summary which would cause the reported financial information not to
be indicative of future operating results.
REVENUE RECOGNITION--Base rental income from leases is recorded when due
from tenants. Some of the leases include percentage rents and overage rents
based on the level of sales of the lessee. Percentage rents and overage rents
are recognized as revenue during the period tenants incur sales in excess of
base amounts. Leases generally provide for tenant reimbursements of common area
maintenance. These reimbursements are included in the accompanying Historical
Summary as expense reimbursements.
ACCOUNTING ESTIMATES--The preparation of the Historical Summary includes
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-4
PRICE ENTERPRISES, INC. AND CROSS COUNTY ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT
OPERATING EXPENSES FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY
PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS
Retail space is leased to tenants under noncancelable operating leases. The
following is a schedule of future minimum rentals for the next five years under
the noncancelable leases after 2000:
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
Ross Stores, Inc................... $ 266,969 $ 266,969 $ 279,849 $ 281,020 $ 281,020
Brown Group Retail................. 80,370 80,370 80,370 82,975 84,835
Planet Smoothie, Inc............... 23,920 24,639 25,379 26,140 26,923
Winn Dooe Stores, Inc.............. 470,260 470,260 470,260 470,260 470,260
Dots, Inc.......................... 53,910 53,910 53,910 56,830 59,301
Millennium Dollar Stores, Inc...... 54,392 56,296 58,266 60,305 62,416
Linens N Things, Inc............... 402,552 402,552 402,552 402,552 402,552
Kmart Corporation.................. 982,857 982,857 982,857 982,857 982,857
Yasney Realty...................... 44,424 45,756 47,127 48,537 49,998
Nutrition Wholesale Center, Inc.... 27,531 27,531 27,875 19,472 --
Howroyd Wright Employment
Agency, Inc...................... 35,065 35,926 36,786 37,647 9,466
Rosario Troia...................... 61,896 64,146 68,648 71,399 64,522
Yangtze Dragon, Inc................ 138,214 138,214 138,214 138,214 138,214
Fashion Bug, Inc................... 114,772 114,772 114,772 114,772 114,772
Party City, Inc.................... 176,464 176,464 177,935 194,110 194,110
The Rag Shop/Hollywood, Inc........ 183,750 183,750 183,750 194,063 195,000
David's Bridal of West Palm,
Inc.............................. 227,520 227,520 227,520 236,620 254,820
Just for Feet, Inc................. 389,880 389,880 394,380 407,880 407,880
Hung Nguyen........................ 26,334 26,334 26,334 28,529 28,728
Creative Hairdressers.............. 36,270 36,270 36,270 36,270 37,781
Mitchell's Inc..................... 33,720 33,720 35,008 35,125 35,125
Einstein Bros. Bagel............... 43,600 46,000 48,800 56,000 57,600
Sav-on Dry Cleaners................ 18,000 18,000 18,045 18,586 19,144
Tandy Corp......................... 36,984 40,252 42,258 44,354 34,482
Pearl Vision....................... 66,999 66,999 66,999 66,999 73,141
Sprint PCS......................... 77,809 80,143 82,547 85,024 87,575
---------- ---------- ---------- ---------- ----------
$4,074,462 $4,089,530 $4,126,711 $4,196,540 $4,172,522
========== ========== ========== ========== ==========
The schedule of future minimum rentals is based on the actual noncancelable
lease terms in effect as of December 31, 2000. Many of the tenant leases contain
terms for renewal options, percentage rents and overage rents, and adjustments
based on changes in the consumer price index. These renewal options, percentage
rents and overage rents, and adjustments based on changes in the consumer price
index have not been reflected in the above noncancelable lease schedule.
All percentage rents and overage rents are contingent based on the tenant
achieving certain levels of sales. Not all of the leases have a provision for
percentage rents.
F-5
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying Historical Summary of Operating Revenues
and Direct Operating Expenses For The Property Proposed to be Acquired by Price
Enterprises, Inc. for the year ended December 31, 2000. This summary is the
responsibility of Price Enterprises, Inc. and Cypress Creek Associates Limited
Partnership. Our responsibility is to express an opinion on this summary based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the summary
is free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the summary. We
believe that our audit of the summary provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying summary was prepared in conformity
with accounting principles prescribed by the Securities and Exchange Commission
which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America, and is not intended to be a
complete presentation of the property's revenues and expenses.
In our opinion, the summary referred to above presents fairly, in all
material respects, the operating revenues and direct operating expenses of the
property proposed to be acquired by Price Enterprises, Inc. for the year ended
December 31, 2000, on the basis of accounting described in Note 1.
This report is intended solely for the information and use of the Board of
Directors and management of Price Enterprises, Inc. and for filing with the
Securities and Exchange Commission and should not be used for any other purpose.
Squire & Company, PC
Orem, Utah
June 27, 2001
F-6
PRICE ENTERPRISES, INC. AND CYPRESS CREEK ASSOCIATES LIMITED PARTNERSHIP
HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
OPERATING REVENUES:
Base rents............................................... $ 779,606 $3,156,499
Expense reimbursements................................... 227,297 881,834
---------- ----------
Total operating revenues............................... 1,006,903 4,038,333
DIRECT OPERATING EXPENSES:
Administrative and office expense........................ 33,191 159,429
Repairs and maintenance.................................. 70,796 278,785
Utilities................................................ 10,641 38,765
Property taxes........................................... 139,476 499,097
Insurance................................................ 15,362 43,334
Management fees.......................................... 29,014 112,931
---------- ----------
Total direct operating expenses........................ 298,480 1,132,341
---------- ----------
Net operating income................................. $ 708,423 $2,905,992
========== ==========
The accompanying notes are an integral part of this summary.
F-7
PRICE ENTERPRISES, INC. AND CYPRESS CREEK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of this Historical Summary. The Historical Summary and notes are
representations of Price Enterprises, Inc. and Cypress Creek Associates Limited
Partnership, whose management are responsible for the integrity and objectivity
of this Historical Summary.
BUSINESS ACTIVITY--Price Enterprises, Inc. (the Company) is headquartered in
San Diego, California. The Company is a self-administered, self-managed equity
real estate investment company which owns and manages income-producing
properties.
The acquired property is operated as a shopping center in the location below
with the anchor stores listed.
PROPERTY LOCATION ANCHOR STORES
--------------------- ------------------- ---------------------------
Cypress Creek Station Fort Lauderdale, FL Regal Cinemas, Office Depot
Cypress Creek Associates Limited Parternship has owned and managed the
property. Retail space is rented to tenants under noncancelable leases ranging
from three to twenty years, with renewal options available.
FORM OF PRESENTATION--The Historical Summary is presented in conformity with
Rule 3-14 of the Securities and Exchange Commission. Accordingly, certain
expenses of the property are not included in the summary, i.e., depreciation and
interest.
Management has determined that after reasonable inquiry, it is not aware of
any material factors relating to the property reported on in the accompanying
Historical Summary which would cause the reported financial information not to
be indicative of future operating results.
REVENUE RECOGNITION--Base rental income from leases is recorded when due
from tenants. Some of the leases include percentage rents and overage rents
based on the level of sales of the lessee. Percentage rents and overage rents
are recognized as revenue during the period tenants incur sales in excess of
base amounts. Leases generally provide for tenant reimbursements of common area
maintenance. These reimbursements are included in the accompanying Historical
Summary as expense reimbursements.
ACCOUNTING ESTIMATES--The preparation of the Historical Summary includes
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-8
PRICE ENTERPRISES, INC. AND CYPRESS CREEK ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS
Retail space is leased to tenants under noncancelable operating leases. The
following is a schedule of future minimum rentals for the next five years under
the noncancelable leases after 2000:
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
CD Warehouse....................... $ 25,879 $ 26,655 $ 27,455 $ 28,278 $ 29,127
China to Go........................ 23,795 24,747 25,737 26,766 27,837
Regal Cinemas...................... 667,264 695,066 733,990 733,990 733,990
Champps Americana.................. 275,000 289,323 309,375 309,375 309,375
Hooters of Cypress Creek........... 67,500 67,500 67,500 67,500 67,500
Barnies Coffee & Tea............... 57,500 57,500 59,167 60,000 60,000
Pearle Vision...................... 63,000 69,300 78,750 88,200 97,650
Carlucci's Italian Grille.......... 62,396 65,516 68,792 72,231 75,843
Dunkin Donuts...................... 31,228 32,164 33,129 34,123 35,147
Clean Masters of Cypress Creek..... 31,862 33,136 34,462 35,840 37,274
Salon 100.......................... 31,165 32,100 33,063 34,055 35,076
Eastern Financial Federal Credit
Union............................ 65,437 68,378 71,319 55,144 --
The Luggage Gallery................ 52,476 53,990 55,550 57,157 58,811
Office Depot....................... 480,077 480,077 480,077 480,077 480,077
Bambino's Deli & Cafe.............. 33,600 35,952 37,632 37,632 37,632
BellSouth Mobility................. 168,592 173,650 178,860 184,225 189,752
General Nutrition.................. 30,400 33,440 34,960 34,960 34,960
Moes Gourmet Bagels................ 55,773 57,446 59,169 60,944 62,773
Sweet Tomatoes..................... 90,353 90,353 90,353 90,353 90,353
Longhorn Steaks.................... 85,000 88,333 95,000 95,000 95,000
Footstar........................... 316,793 342,760 342,760 342,760 342,760
Starlite Diner..................... 85,000 85,000 95,200 95,200 95,200
---------- ---------- ---------- ---------- ----------
$2,800,090 $2,902,386 $3,012,300 $3,023,810 $2,996,137
========== ========== ========== ========== ==========
The schedule of future minimum rentals is based on the actual noncancelable
lease terms in effect as of December 31, 2000. Many of the tenant leases contain
terms for renewal options, percentage rents and overage rents, and adjustments
based on changes in the consumer price index. These renewal options, percentage
rents and overage rents, and adjustments based on changes in the consumer price
index have not been reflected in the above noncancelable lease schedule.
All percentage rents and overage rents are contingent based on the tenant
achieving certain levels of sales. Not all of the leases have a provision for
percentage rents.
F-9
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying Historical Summary of Operating Revenues
and Direct Operating Expenses For The Property Proposed to be Acquired by Price
Enterprises, Inc. for the year ended December 31, 2000. This summary is the
responsibility of Price Enterprises, Inc. and Kendale Associates Limited
Partnership. Our responsibility is to express an opinion on this summary based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the summary
is free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the summary. We
believe that our audit of the summary provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying summary was prepared in conformity
with accounting principles prescribed by the Securities and Exchange Commission
which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America, and is not intended to be a
complete presentation of the property's revenues and expenses.
In our opinion, the summary referred to above presents fairly, in all
material respects, the operating revenues and direct operating expenses of the
property proposed to be acquired by Price Enterprises, Inc. for the year ended
December 31, 2000, on the basis of accounting described in Note 1.
This report is intended solely for the information and use of the Board of
Directors and management of Price Enterprises, Inc. and for filing with the
Securities and Exchange Commission and should not be used for any other purpose.
Squire & Company, PC
Orem, Utah
June 27, 2001
F-10
PRICE ENTERPRISES, INC. AND KENDALE ASSOCIATES LIMITED PARTNERSHIP
HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
OPERATING REVENUES:
Base rents............................................... $ 959,629 $3,921,399
Expense reimbursements................................... 218,648 840,335
--------- ----------
Total operating revenues............................... 1,178,277 4,761,734
DIRECT OPERATING EXPENSES:
Administrative and office expense........................ 29,503 106,434
Repairs and maintenance.................................. 39,155 196,295
Utilities................................................ 3,055 13,832
Property taxes........................................... 138,960 479,411
Insurance................................................ 33,289 127,865
Management fees.......................................... 37,982 128,958
--------- ----------
Total direct operating expenses........................ 281,944 1,052,795
--------- ----------
Net operating income................................. $ 896,333 $3,708,939
========= ==========
The accompanying notes are an integral part of this summary.
F-11
PRICE ENTERPRISES, INC. AND KENDALE ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT
OPERATING EXPENSES FOR THE PROPERTY PROPOSED TO BE ACQUIRED
BY PRICE ENTERPRISES, INC.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of this Historical Summary. The Historical Summary and notes are
representations of Price Enterprises, Inc. and Kendale Associates Limited
Partnership, whose management are responsible for the integrity and objectivity
of this Historical Summary.
BUSINESS ACTIVITY--Price Enterprises, Inc. (the Company) is headquartered in
San Diego, California. The Company is a self-administered, self-managed equity
real estate investment company which owns and manages income-producing
properties.
The acquired property is operated as a shopping center in the location below
with the anchor stores listed.
PROPERTY LOCATION ANCHOR STORES
------------------------ ------------------------ ------------------------
Kendale Lakes Plaza Miami, FL Kmart, Marshall's,
Petsmart,
OfficeMax, Sym's Corp
Kendale Associates Limited Parternship has owned and managed the property.
Retail space is rented to tenants under noncancelable leases ranging from three
to twenty years, with renewal options available.
FORM OF PRESENTATION--The Historical Summary is presented in conformity with
Rule 3-14 of the Securities and Exchange Commission. Accordingly, certain
expenses of the property are not included in the summary, i.e., depreciation and
interest.
Management has determined that after reasonable inquiry, it is not aware of
any material factors relating to the property reported on in the accompanying
Historical Summary which would cause the reported financial information not to
be indicative of future operating results.
REVENUE RECOGNITION--Base rental income from leases is recorded when due
from tenants. Some of the leases include percentage rents and overage rents
based on the level of sales of the lessee. Percentage rents and overage rents
are recognized as revenue during the period tenants incur sales in excess of
base amounts. Leases generally provide for tenant reimbursements of common area
maintenance. These reimbursements are included in the accompanying Historical
Summary as expense reimbursements.
ACCOUNTING ESTIMATES--The preparation of the Historical Summary includes
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-12
PRICE ENTERPRISES, INC. AND KENDALE ASSOCIATES LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT
OPERATING EXPENSES FOR THE PROPERTY PROPOSED TO BE ACQUIRED
BY PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS
Retail space is leased to tenants under noncancelable operating leases. The
following is a schedule of future minimum rentals for the next five years under
the noncancelable leases after 2000:
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
Kmart Corporation.................. $ 283,300 $ 283,300 $ 283,300 $ 283,300 $ 283,300
OfficeMax, Inc..................... 293,750 293,750 293,750 293,750 97,917
Petsmart........................... 280,000 280,000 280,000 280,000 285,000
Fashion Bug, Inc................... 106,500 106,500 106,500 107,683 120,700
Syms Corp.......................... 240,000 240,000 240,000 240,000 240,000
The Party Supermarket, Inc......... 132,269 141,908 141,908 142,856 140,517
The Rag Shop/Port Richey, Inc...... 136,917 136,917 136,917 136,917 125,507
Kmart Corporation.................. 1,208,000 1,208,000 1,208,000 1,208,000 1,208,000
Marshall's of West Miami, Florida,
Inc.............................. 286,144 286,144 307,417 314,508 314,508
Payless Shoesource, Inc............ 103,500 103,500 103,500 103,500 25,875
Clothestime Stores, Inc............ 71,320 71,320 71,320 71,320 23,773
Sesame Step Company, Inc........... 44,893 46,689 48,550 50,494 52,519
KFC National Management Company.... 47,610 23,805 -- -- --
Kendale Lakes Restaurant, Inc...... 126,500 126,500 126,500 126,500 126,500
Magnifique Parfums and Cosmetics,
Inc.............................. 83,475 91,425 91,425 91,425 91,425
Supercuts, Inc..................... 23,438 -- -- -- --
Omaha Steaks International, Inc.... 25,875 25,969 27,000 24,750 --
Check Cashing USA, Inc............. 80,625 83,648 92,719 92,719 92,719
Kikusui, Inc....................... 36,094 36,094 36,094 36,094 18,047
Ernesto Rochetti................... 50,023 50,023 53,024 53,024 28,103
Healthy Nutritional Choice, Inc.... 26,801 27,605 28,433 29,286 27,651
Creative Hairdressers, Inc......... 26,213 26,999 27,804 28,637 24,458
Gary Uneberg....................... 13,725 14,274 14,845 15,439 16,056
NCNB National Bank of Florida...... 75,000 75,000 75,000 75,000 75,000
Kendale Lakes Travel, Inc.......... 13,860 13,860 13,860 13,860 6,930
G&B Wholesalers.................... 44,164 45,489 46,853 48,259 49,707
---------- ---------- ---------- ---------- ----------
$3,859,996 $3,838,719 $3,854,719 $3,867,321 $3,474,212
========== ========== ========== ========== ==========
The schedule of future minimum rentals is based on the actual noncancelable
lease terms in effect as of December 31, 2000. Many of the tenant leases contain
terms for renewal options, percentage rents and overage rents, and adjustments
based on changes in the consumer price index. These renewal options, percentage
rents and overage rents, and adjustments based on changes in the consumer price
index have not been reflected in the above noncancelable lease schedule.
All percentage rents and overage rents are contingent based on the tenant
achieving certain levels of sales. Not all of the leases have a provision for
percentage rents.
F-13
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying Historical Summary of Operating Revenues
and Direct Operating Expenses For The Property Proposed to be Acquired by Price
Enterprises, Inc. for the year ended December 31, 2000. This summary is the
responsibility of Price Enterprises, Inc. and Oakwood Business Center Limited
Partnership. Our responsibility is to express an opinion on this summary based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the summary
is free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the summary. We
believe that our audit of the summary provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying summary was prepared in conformity
with accounting principles prescribed by the Securities and Exchange Commission
which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America, and is not intended to be a
complete presentation of the property's revenues and expenses.
In our opinion, the summary referred to above presents fairly, in all
material respects, the operating revenues and direct operating expenses of the
property proposed to be acquired by Price Enterprises, Inc. for the year ended
December 31, 2000, on the basis of accounting described in Note 1.
This report is intended solely for the information and use of the Board of
Directors and management of Price Enterprises, Inc. and for filing with the
Securities and Exchange Commission and should not be used for any other purpose.
Squire & Company, PC
Orem, Utah
June 27, 2001
F-14
PRICE ENTERPRISES, INC. AND OAKWOOD BUSINESS CENTER LIMITED PARTNERSHIP
HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
OPERATING REVENUES:
Base rents............................................... $392,023 $1,502,231
Expense reimbursements................................... 154,941 637,497
-------- ----------
Total operating revenues............................... 546,964 2,139,728
DIRECT OPERATING EXPENSES:
Administrative and office expense........................ 27,216 84,918
Repairs and maintenance.................................. 46,276 174,783
Utilities................................................ 8,132 31,215
Property taxes........................................... 79,266 280,273
Insurance................................................ 12,361 46,770
Management fees.......................................... 14,744 62,573
-------- ----------
Total direct operating expenses........................ 187,995 680,532
-------- ----------
Net operating income................................. $358,969 $1,459,196
======== ==========
The accompanying notes are an integral part of this summary.
F-15
PRICE ENTERPRISES, INC. AND OAKWOOD BUSINESS CENTER LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of this Historical Summary. The Historical Summary and notes are
representations of Price Enterprises, Inc. and Oakwood Business Center Limited
Partnership, whose management are responsible for the integrity and objectivity
of this Historical Summary.
BUSINESS ACTIVITY--Price Enterprises, Inc. (the Company) is headquartered in
San Diego, California. The Company is a self-administered, self-managed equity
real estate investment company which owns and manages income-producing
properties.
The acquired property is operated as a business park in the location below
with the major tenants listed.
PROPERTY LOCATION MAJOR TENANTS
----------------------- ----------- ----------------------------------
Oakwood Business Center Orlando, FL Kos Pharmaceuticals, C'est Papier,
Trader Publishing Company
Oakwood Business Center Limited Partnership has owned and managed the
property. Retail space is rented to tenants under noncancelable leases ranging
from three to twenty years, with renewal options available.
FORM OF PRESENTATION--The Historical Summary is presented in conformity with
Rule 3-14 of the Securities and Exchange Commission. Accordingly, certain
expenses of the property are not included in the summary, i.e., depreciation and
interest.
Management has determined that after reasonable inquiry, it is not aware of
any material factors relating to the property reported on in the accompanying
Historical Summary which would cause the reported financial information not to
be indicative of future operating results.
REVENUE RECOGNITION--Rental income from leases is recorded when due from
tenants. Leases generally provide for tenant reimbursements of common area
maintenance. These reimbursements are included in the accompanying Historical
Summary as expense reimbursements.
ACCOUNTING ESTIMATES--The preparation of the Historical Summary includes
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-16
PRICE ENTERPRISES, INC. AND OAKWOOD BUSINESS CENTER LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS
Retail space is leased to tenants under noncancelable operating leases. The
following is a schedule of future minimum rentals for the next five years under
the noncancelable leases after 2000:
YEARS ENDING DECEMBER 31,
--------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- -------- -------- --------
AMTL Corporation....................... $ 53,020 $ 55,152 $ 52,392 $ -- $ --
Office Pavilion of South Florida....... 92,946 55,631 -- -- --
Ameridata.............................. 73,745 37,415 -- -- --
AMTL Corporation....................... 48,776 50,818 25,907 -- --
Telecommunications Systems
Management........................... 28,965 30,124 31,329 -- --
BWG Associates......................... 36,994 14,286 -- -- --
Mantech Advanced Systems............... 123,251 126,946 86,344 -- --
IMAX................................... 31,049 31,049 32,601 34,229 2,986
Triangle Industries.................... 15,739 16,528 17,358 18,223 15,813
Business Wire.......................... 45,626 47,908 50,303 79,857 55,450
Eview Technologies..................... 27,813 29,203 30,661 32,203 5,410
Ohio Savings Bank...................... 22,176 23,061 23,984 24,954 14,896
Household Automotive Finance Group..... 49,776 49,776 37,332 -- --
Pool Fact.............................. 30,849 -- -- -- --
Paging Network of Florida.............. 4,394 -- -- -- --
Sub Zero Distributors.................. 88,339 92,756 97,388 102,272 106,868
Kos Pharmaceuticals.................... 57,622 -- -- -- --
Kos Pharmaceuticals.................... 55,081 -- -- -- --
Trader Publishing Company.............. 199,101 165,918 -- -- --
Acosta Sales Co........................ 55,625 58,125 60,625 5,208 --
Kos Pharmaceuticals.................... 177,340 186,207 195,515 187,384 --
C'est Papier........................... 154,725 141,831 -- -- --
---------- ---------- -------- -------- --------
$1,472,952 $1,212,734 $741,739 $484,330 $201,423
========== ========== ======== ======== ========
The schedule of future minimum rentals is based on the actual noncancelable
lease terms in effect as of December 31, 2000. Many of the tenant leases contain
terms for renewal options and adjustments based on changes in the consumer price
index. These renewal options and adjustments based on changes in the consumer
price index have not been reflected in the above noncancelable lease schedule.
F-17
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying Historical Summary of Operating Revenues
and Direct Operating Expenses For The Property Proposed to be Acquired by Price
Enterprises, Inc. for the year ended December 31, 2000. This summary is the
responsibility of Price Enterprises, Inc. and Oakwood Plaza Limited Partnership.
Our responsibility is to express an opinion on this summary based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the summary
is free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the summary. We
believe that our audit of the summary provides a reasonable basis for our
opinion.
As described in Note 1, the accompanying summary was prepared in conformity
with accounting principles prescribed by the Securities and Exchange Commission
which is a comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America, and is not intended to be a
complete presentation of the property's revenues and expenses.
In our opinion, the summary referred to above presents fairly, in all
material respects, the operating revenues and direct operating expenses of the
property proposed to be acquired by Price Enterprises, Inc. for the year ended
December 31, 2000, on the basis of accounting described in Note 1.
This report is intended solely for the information and use of the Board of
Directors and management of Price Enterprises, Inc. and for filing with the
Securities and Exchange Commission and should not be used for any other purpose.
Squire & Company, PC
Orem, Utah
June 27, 2001
F-18
PRICE ENTERPRISES, INC. AND OAKWOOD PLAZA LIMITED PARTNERSHIP
HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES FOR THE
PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
OPERATING REVENUES:
Base rents............................................... $2,306,764 $9,358,520
Expense reimbursements................................... 564,423 2,300,369
---------- ----------
Total operating revenues............................... 2,871,187 11,658,889
DIRECT OPERATING EXPENSES:
Administrative and office expense........................ 65,853 238,599
Repairs and maintenance.................................. 99,377 434,839
Utilities................................................ 28,109 90,052
Property taxes........................................... 427,362 1,470,112
Insurance................................................ 80,597 305,574
Management fees.......................................... 95,953 321,972
---------- ----------
Total direct operating expenses........................ 797,251 2,861,148
---------- ----------
Net operating income................................. $2,073,936 $8,797,741
========== ==========
The accompanying notes are an integral part of this summary.
F-19
PRICE ENTERPRISES, INC. AND OAKWOOD PLAZA LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of this Historical Summary. The Historical Summary and notes are
representations of Price Enterprises, Inc. and Oakwood Plaza Limited
Partnership, whose management are responsible for the integrity and objectivity
of this Historical Summary.
BUSINESS ACTIVITY--Price Enterprises, Inc. (the Company) is headquartered in
San Diego, California. The Company is a self-administered, self-managed equity
real estate investment company which owns and manages income-producing
properties.
The acquired property is operated as a shopping center in the location below
with the anchor stores listed.
PROPERTY LOCATION ANCHOR STORES
------------- ------------- ------------------------------------
Oakwood Plaza Hollywood, FL PetSmart, Old Navy, Kmart, OfficeMax
Oakwood Plaza Limited Parternship has owned and managed the property. Retail
space is rented to tenants under noncancelable leases ranging from three to
twenty years, with renewal options available.
FORM OF PRESENTATION--The Historical Summary is presented in conformity with
Rule 3-14 of the Securities and Exchange Commission. Accordingly, certain
expenses of the property are not included in the summary, i.e., depreciation and
interest.
Management has determined that after reasonable inquiry, it is not aware of
any material factors relating to the property reported on in the accompanying
Historical Summary which would cause the reported financial information not to
be indicative of future operating results.
REVENUE RECOGNITION--Base rental income from leases is recorded when due
from tenants. Some of the leases include percentage rents and overage rents
based on the level of sales of the lessee. Percentage rents and overage rents
are recognized as revenue during the period tenants incur sales in excess of
base amounts. Leases generally provide for tenant reimbursements of common area
maintenance. These reimbursements are included in the accompanying Historical
Summary as expense reimbursements.
ACCOUNTING ESTIMATES--The preparation of the Historical Summary includes
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-20
PRICE ENTERPRISES, INC. AND OAKWOOD PLAZA LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS
Retail space is leased to tenants under noncancelable operating leases. The
following is a schedule of future minimum rentals for the next five years under
the noncancelable leases after 2000:
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
Barnes and Noble Superstores,
Inc.............................. $ 257,812 $ 257,812 $ 257,812 $ 257,812 $ 64,453
Petstuff, Inc...................... 315,000 315,000 315,000 315,000 335,000
Magnifique Parfumes & Cosmetics,
Inc.............................. 74,160 74,160 74,160 74,160 43,260
Brown Group Retail, Inc............ 112,016 112,016 112,016 102,681 --
KB Toy of Florida, Inc............. 101,563 107,889 116,756 116,756 --
Eddison Brothers Apparel Stores,
Inc.............................. 50,932 50,932 50,932 51,356 56,019
Dollar Star of Oakwood Plaza,
Inc.............................. 55,650 55,650 55,650 60,619 60,619
Payless Shoesource, Inc............ 57,500 57,500 57,500 52,708 --
Linen Supermarket.................. 150,000 150,000 150,000 125,000 --
Old Navy........................... 256,205 256,205 256,205 260,177 280,038
G&G Shops of N. Carolina, Inc...... 48,000 53,500 54,000 54,000 45,000
The Party Supermarket, Inc......... 133,000 133,000 133,000 133,000 33,250
Creative Hairdressers, Inc......... 28,000 28,000 29,000 29,000 --
Supercuts, Inc..................... 35,234 36,172 37,109 38,047 16,016
Oakwood Mattress Giant Corp........ 248,860 260,741 260,741 260,741 86,914
Arch Wireless...................... 47,564 36,732 -- -- --
LAF Company of Broward, Inc........ 50,425 50,425 50,425 50,425 16,808
Nat. Bank, FSA..................... 108,485 108,485 108,485 108,485 90,404
United Retail Incorporated......... 75,030 75,030 75,030 75,030 84,200
Kmart Corporation.................. 858,750 858,750 858,750 858,750 858,750
OfficeMax, Inc..................... 296,100 296,100 296,100 298,920 313,020
Builder's Square, Inc.............. 988,112 988,112 988,112 1,001,400 1,067,838
Home Depot USA, Inc................ 730,000 730,000 730,000 730,000 730,000
H.J. Wilson Co., Inc............... 425,000 425,000 425,000 425,000 70,833
Marshall's......................... 255,056 255,056 255,056 255,056 21,255
Ross Stores, Inc................... 249,228 249,228 249,228 249,228 249,228
Rag Shop East Hollywood, Inc....... 95,466 95,466 95,466 79,555 --
PNS Stores, Inc.................... 188,000 188,000 188,000 191,967 211,800
Movies for Sale.................... 51,000 51,250 54,000 54,000 49,500
America Gnl. Life & Ins. Co........ 55,216 56,880 58,590 60,357 62,164
Footstar........................... 381,216 381,216 381,216 381,216 422,712
Taco Bell Corp..................... 71,502 71,502 71,502 71,520 75,556
Modular Restaurant Franchises,
Inc.............................. 81,808 82,410 84,255 84,870 86,783
Dave & Buster, Inc................. 394,646 401,821 401,821 401,821 401,821
Pearl Vision, Inc.................. 69,000 78,488 79,350 79,350 79,350
Verizon Wireless................... 73,124 75,324 77,595 32,728 --
Regal Cinemas, Inc................. 727,810 727,810 727,810 727,810 727,810
MexMasters of Hwd. Inc............. 121,000 121,000 121,000 121,000 122,007
F-21
PRICE ENTERPRISES, INC. AND OAKWOOD PLAZA LIMITED PARTNERSHIP
NOTES TO HISTORICAL SUMMARY OF OPERATING REVENUES AND DIRECT OPERATING EXPENSES
FOR THE PROPERTY PROPOSED TO BE ACQUIRED BY PRICE ENTERPRISES, INC.
NOTE 2. MINIMUM FUTURE RENTALS (CONTINUED)
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
Garden Fresh Restaurant, Corp...... 90,000 90,000 90,000 90,000 90,000
TGI Fridays, Inc................... 100,000 100,000 100,000 100,000 100,000
Hollywood Ale House & Raw Bar,
Inc.............................. 209,500 219,956 230,412 230,412 230,412
Renaissance Submarines, Inc........ 25,750 26,525 27,313 28,138 28,988
Creative Hairdressers, Inc......... 25,000 25,000 25,000 25,208 27,500
Hollywood Fitness Partners, Inc.... 147,753 152,023 157,148 157,148 158,856
Hollywood Diamond & Jewelry Exch... 144,460 144,460 144,460 146,868 173,352
Sal's Italian Ristorante........... 43,220 43,220 43,220 43,364 44,949
---------- ---------- ---------- ---------- ----------
$9,103,153 $9,153,846 $9,154,225 $9,090,665 $7,616,465
========== ========== ========== ========== ==========
The schedule of future minimum rentals is based on the actual noncancelable
lease terms in effect as of December 31, 2000. Many of the tenant leases contain
terms for renewal options, percentage rents and overage rents, and adjustments
based on changes in the consumer price index. These renewal options, percentage
rents and overage rents, and adjustments based on changes in the consumer price
index have not been reflected in the above noncancelable lease schedule.
All percentage rents and overage rents are contingent based on the tenant
achieving certain levels of sales. Not all of the leases have a provision for
percentage rents.
F-22
ANNEX A
FORM OF SUPPLEMENTAL INDENTURE FOR LEGACY DEBENTURES
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
, 2001 between Excel Legacy Corporation, a Delaware corporation (the
"Company"), and Wells Fargo Bank Minnesota, N.A. (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into an Indenture, dated as of
November 5, 1999 (the "Indenture"), pursuant to which the Company has originally
issued its 9.0% Convertible Redeemable Subordinated Secured Debentures due
November 5, 2004 (the "Securities");
WHEREAS, Section 9.02 of the Indenture provides that, subject to certain
conditions stated therein, the Company and the Trustee may amend the Indenture
or the Securities with the written consent of the Holders of a majority in
principal amount of the then outstanding Securities (the "Requisite Consents");
WHEREAS, the Company deems it desirable to make certain amendments to the
Indenture; and
WHEREAS, the Company has determined that all things necessary to make this
Supplemental Indenture a valid indenture and agreement according to its terms,
including without limitation the receipt of the Requisite Consents, have been
done, and the Company has delivered to the Trustee an Officer's Certificate and
Opinion of Counsel stating that all conditions precedent provided for in the
Indenture relating to executing this Supplemental Indenture have been complied
with.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto mutually covenant and agree for the equal and ratable benefit of the
Holders of the Securities as follows:
ARTICLE ONE
AMENDMENTS TO INDENTURE
1.1 GENERAL AMENDMENTS. The Indenture is amended by deleting the term
"9.0% Convertible Redeemable Subordinated Secured Debentures due November 5,
2004" and substituting the following term therefor:
"9.0% Convertible Redeemable Subordinated Debentures due November 5,
2004."
1.2 AMENDMENTS TO ARTICLE 1.
(a) Section 1.01 of the Indenture is amended by deleting the following
definitions in their entirety:
"Collateral Agent"
"Pledge Agreement"
"Pledged Collateral"
(b) Section 1.01 of the Indenture is amended by deleting the definition
of "Securities" in its entirety and substituting the following
therefor:
"Securities" means the 9.0% Convertible Redeemable Subordinated
Debentures due 2004 issued under this Indenture in the form of Exhibit A
hereto.
A-1
1.3 AMENDMENTS TO ARTICLE 6. Section 6.01 of the Indenture is amended by
deleting subsection (3) and substituting the following therefor:
"(3) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the
Default continues for the period and after the notice specified below,
whether or not such payments shall be prohibited by Article 11;"
1.4 AMENDMENTS TO ARTICLE 11. Section 11.01 of the Indenture is amended to
read in its entirety as follows:
"The Company agrees, and each Securityholder by accepting a Security
agrees, that the indebtedness evidenced by the Securities is subordinated in
right of payment, to the extent and in the manner provided in this Article,
to the prior payment in full of all Senior Debt, and that the subordination
is for the benefit of the holders of Senior Debt."
1.5 AMENDMENTS TO ARTICLE 12. Article 12 of the Indenture is amended to
read in its entirety as follows:
"Article 12. [Intentionally Omitted.]"
1.6 AMENDMENTS TO ARTICLE 13. Section 13.08 of the Indenture is amended to
read in its entirety as follows:
"A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by
excepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities."
1.7 AMENDMENTS TO EXHIBIT A.
(a) Exhibit A is amended by deleting the term "9.0% Convertible
Redeemable Subordinated Secured Debentures due 2004" and substituting
the following therefor:
"9.0% Convertible Redeemable Subordinated Debentures due 2004."
(b) Paragraph 4 of Exhibit A is amended to read in its entirety as
follows:
"4. Indenture. The Company issued the Securities under an Indenture
dated as of November 5, 1999 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the
date of the Indenture. The Securities are subject to, and qualified by, all
such terms, certain of which are summarized hereon, and Securityholders are
referred to the Indenture and such Act for a statement of such terms. The
Securities are general obligations of the Company limited to $36,599,767 in
aggregate principal amount."
1.8 AMENDMENTS TO EXHIBIT B. Exhibit B is hereby terminated in its
entirety.
ARTICLE TWO
MISCELLANEOUS
2.1 Upon the execution and delivery of this Supplemental Indenture by each
of the Company and the Trustee, the Indenture shall be amended and supplemented
in accordance herewith, and this Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered under the Indenture shall be bound hereby,
as hereby amended and supplemented.
A-2
2.2 This Supplemental Indenture is supplemental to the Indenture and does
and shall be deemed to form a part of, and shall be construed in connection with
and as part of, the Indenture for any and all purposes. Except as specifically
modified herein, the Indenture and the Securities are in all respects ratified
and confirmed and shall remain in full force and effect in accordance with their
terms, with all capitalized terms used herein without definition having the same
respective meanings ascribed to them as in the Indenture.
2.3 Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
2.4 THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
2.5 The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of such executed
copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
A-3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
EXCEL LEGACY CORPORATION,
a Delaware corporation
By:
--------------------------------------------------------------------------------
WELLS FARGO BANK MINNESOTA, N.A.
By:
--------------------------------------------------------------------------------
A-4
ANNEX B
FORM OF SUPPLEMENTAL INDENTURE FOR LEGACY NOTES
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
, 2001 between Excel Legacy Corporation, a Delaware corporation (the
"Company"), and Wells Fargo Bank Minnesota, N.A. (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee entered into an Indenture, dated as of
November 5, 1999 (the "Indenture"), pursuant to which the Company has originally
issued its 10.0% Senior Redeemable Secured Notes due November 5, 2004 (the
"Securities");
WHEREAS, Section 9.02 of the Indenture provides that, subject to certain
conditions stated therein, the Company and the Trustee may amend the Indenture
or the Securities with the written consent of the Holders of a majority in
principal amount of the then outstanding Securities (the "Requisite Consents");
WHEREAS, the Company deems it desirable to make certain amendments to the
Indenture; and
WHEREAS, the Company has determined that all things necessary to make this
Supplemental Indenture a valid indenture and agreement according to its terms,
including without limitation the receipt of the Requisite Consents, have been
done, and the Company has delivered to the Trustee an Officer's Certificate and
Opinion of Counsel stating that all conditions precedent provided for in the
Indenture relating to executing this Supplemental Indenture have been complied
with.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto mutually covenant and agree for the equal and ratable benefit of the
Holders of the Securities as follows:
ARTICLE ONE
AMENDMENTS TO INDENTURE
1.1 GENERAL AMENDMENTS. The Indenture is amended by deleting the term
"10.0% Senior Redeemable Secured Notes due November 5, 2004" and substituting
the following term therefor:
"10.0% Senior Redeemable Notes due November 5, 2004."
1.2 AMENDMENTS TO ARTICLE 1.
(a) Section 1.01 of the Indenture is amended by deleting the following
definitions in their entirety:
"Collateral Agent"
"Pledge Agreement"
"Pledged Collateral"
(b) Section 1.01 of the Indenture is amended by deleting the definition
of "Securities" in its entirety and substituting the following
therefor:
"Securities" means the 10.0% Senior Redeemable Notes due 2004 issued
under this Indenture in the form of Exhibit A hereto.
B-1
1.3 AMENDMENTS TO ARTICLE 6. Section 6.01 of the Indenture is amended by
deleting subsection (3) and substituting the following therefor:
(3) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the
Default continues for the period and after the notice specified below;
1.4 AMENDMENTS TO ARTICLE 10. Article 10 of the Indenture is amended to
read in its entirety as follows:
"Article 10. [Intentionally Omitted.]"
1.5 AMENDMENTS TO ARTICLE 11. Section 11.08 of the Indenture is amended to
read in its entirety as follows:
"A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by
excepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities."
1.6 AMENDMENTS TO EXHIBIT A.
(a) Exhibit A is amended by deleting the term "10.0% Senior Redeemable
Secured Notes due 2004" and substituting the following therefor:
"10.0% Senior Redeemable Notes due 2004."
(b) Paragraph 4 of Exhibit A is amended to read in its entirety as
follows:
"4. Indenture. The Company issued the Securities under an Indenture
dated as of November 5, 1999 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the
date of the Indenture. The Securities are subject to, and qualified by, all
such terms, certain of which are summarized hereon, and Securityholders are
referred to the Indenture and such Act for a statement of such terms. The
Securities are general obligations of the Company limited to $19,963,509 in
aggregate principal amount."
1.7 AMENDMENTS TO EXHIBIT B. Exhibit B is hereby terminated in its
entirety.
ARTICLE TWO
MISCELLANEOUS
2.1 Upon the execution and delivery of this Supplemental Indenture by each
of the Company and the Trustee, the Indenture shall be amended and supplemented
in accordance herewith, and this Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered under the Indenture shall be bound hereby,
as hereby amended and supplemented.
2.2 This Supplemental Indenture is supplemental to the Indenture and does
and shall be deemed to form a part of, and shall be construed in connection with
and as part of, the Indenture for any and all purposes. Except as specifically
modified herein, the Indenture and the Securities are in all respects ratified
and confirmed and shall remain in full force and effect in accordance with their
terms, with all capitalized terms used herein without definition having the same
respective meanings ascribed to them as in the Indenture.
B-2
2.3 Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
2.4 THIS SUPPLEMENTAL INDENTURE WILL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
2.5 The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of such executed
copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
B-3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
EXCEL LEGACY CORPORATION,
a Delaware corporation
By:
-----------------------------------------
WELLS FARGO BANK MINNESOTA, N.A.
By:
-----------------------------------------
B-4
Facsimile copies of the consent and letter of transmittal, properly
completed and duly executed, will be accepted. The consent and letter of
transmittal, Legacy debentures and Legacy notes and any other required documents
should be sent or delivered by each holder or its broker, dealer, commercial
bank, trust company or other nominee to the exchange agent at its addresses set
forth below.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER AND CONSENT SOLICITATION IS:
MELLON INVESTOR SERVICES LLC
BY MAIL: BY HAND: BY OVERNIGHT DELIVERY:
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop -- Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
BY FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(201) 296-4293
CONFIRM FACSIMILE BY TELEPHONE ONLY:
(201) 296-4860
Any questions or requests for assistance or additional copies of this
consent solicitation statement/ prospectus, the consent and letter of
transmittal or the notice of guaranteed delivery may be directed to the
information agent at the telephone number and location listed below. You may
also contact your broker, dealer, commercial bank or trust company or nominee
for assistance concerning the exchange offer and consent solicitation.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER AND CONSENT SOLICITATION IS:
MELLON INVESTOR SERVICES LLC
44 Wall Street
7th Floor
New York, NY 10005
Toll Free: (800) 335-7842