SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, For Use of the Commission Only
[ ] Definitive proxy statement (as permitted by Rule 14a-6(e)(2)) Definitive
[ ] Additional Materials Soliciting Materials Pursuant
to Rule 14a-11(c) or Rule 14a-12
EQUITY ONE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing proxy statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
common stock, par value $0.01 per share, of Equity One, Inc.
(2) Aggregate number of securities to which transaction applies:
10,500,000 shares of Equity One common stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): $11.645 (based on the average of
the high and low prices of the Equity One common stock as quoted on the New York
Stock Exchange on June 20, 2001).
(4) Proposed maximum aggregate value of transaction: $122,272,500
(5) Total fee paid: $24,454.50 (by wire transfer on June 21, 2001, CIK
Number 1042810)
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date Filed:
EQUITY ONE, INC.
1696 N.E. MIAMI GARDENS DRIVE
NORTH MIAMI BEACH, FLORIDA 33179
July 31, 2001
TO OUR STOCKHOLDERS:
You are cordially invited to attend a special meeting of stockholders
of Equity One, Inc. to be held on Thursday, September 6, 2001, at 10:00 a.m.,
local time, in the Banyan Room at the Sheraton Bal Harbor, 9701 Collins Avenue,
Bal Harbor, Florida 33154.
At the special meeting, you will be asked to approve the issuance of
10,500,000 shares of our common stock, subject to reduction for various
adjustments, in connection with our acquisition of all of the outstanding common
stock of Centrefund Realty (U.S.) Corporation, or CEFUS, a Delaware corporation.
The acquisition would take place pursuant to a stock exchange agreement, dated
as of May 18, 2001, by and among us, Centrefund Realty Corporation, or
Centrefund, an Ontario corporation and the indirect parent entity of CEFUS, and
First Capital America Holding Corp., or First Capital, an Ontario corporation
and the wholly-owned subsidiary of Centrefund which controls CEFUS. The stock
exchange agreement is attached as APPENDIX A to the enclosed proxy statement and
you should read it carefully and completely.
A special committee of our board of directors, consisting of five
independent directors, was formed to investigate, consider and evaluate the
acquisition. The special committee has recommended to our board of directors
that the acquisition and related agreements be approved, and based upon that
recommendation, our board has granted its approval. In connection with its
evaluation of the acquisition, the special committee engaged UBS Warburg LLC to
render a fairness opinion. UBS Warburg has rendered its opinion that, as of May
8, 2001, based upon and subject to the considerations set forth in their
opinion, the consideration to be paid by us pursuant to the stock exchange
agreement is fair from a financial point of view to our unaffiliated
stockholders. The written opinion of UBS Warburg is attached as APPENDIX B to
the enclosed proxy statement and you should read it carefully and completely.
Because the number of shares that we will issue in connection with the
acquisition will exceed 20% of our currently outstanding common stock, the rules
of the New York Stock Exchange require that the issuance of common stock be
approved by the affirmative vote of a majority of the votes cast at the special
meeting, provided that the total votes cast represent over 50% of all shares of
our common stock entitled to vote at the special meeting. Our chairman and chief
executive officer, Chaim Katzman, who, as of the record date, controls directly
and indirectly, approximately 66.7% of the outstanding shares of our common
stock, has expressed his intention to cause those shares to be voted for
approval of the issuance of our common stock. If our stockholders approve the
issuance of common stock and the acquisition is approved by the unaffiliated
stockholders of Centrefund, the closing of the acquisition will occur as soon
after the special meeting as all of the other conditions to the closing of the
acquisition are satisfied.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS
OF THE PROPOSED TRANSACTION ARE FAIR TO, AND IN THE BEST INTERESTS OF, OUR
STOCKHOLDERS AND RECOMMEND THAT YOU APPROVE OUR ISSUANCE OF COMMON STOCK IN THE
ACQUISITION PURSUANT TO THE TERMS OF THE STOCK EXCHANGE AGREEMENT.
The accompanying proxy statement provides you with a summary of the
acquisition and additional information about the parties involved and their
interests. Please give all this information your careful attention. Whether or
not you plan to attend, it is important that your shares are represented at the
special meeting. A failure to vote or a vote to abstain could have the same
effect as a vote against the issuance of common stock. Accordingly, you are
requested to promptly complete, sign and date the enclosed proxy and return it
in the envelope provided.
/s/ CHAIM KATZMAN
----------------------------------
Chaim Katzman
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
EQUITY ONE, INC.
1696 N.E. MIAMI GARDENS DRIVE
NORTH MIAMI BEACH, FLORIDA 33179
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 6, 2001
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TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Equity
One, Inc. will be held at 10:00 a.m., local time, on Thursday, September 6,
2001, in the Banyan Room at the Sheraton Bal Harbor, 9701 Collins Avenue, Bal
Harbor, Florida 33154, for the following purposes:
1. To approve the issuance of 10,500,000 shares of our common
stock, subject to reduction for various adjustments, in
connection with our acquisition of all of the outstanding
common stock of Centrefund Realty (U.S.) Corporation, or
CEFUS.
2. To transact such other business as may properly come
before the meeting.
Our board of directors has determined that only stockholders of record
at the close of business on July 25, 2001 are entitled to notice of, and to vote
at, the special meeting and any adjournments or postponements of the meeting.
Our stock transfer books will not be closed prior to the meeting.
YOUR VOTE IS IMPORTANT
TO ENSURE THAT YOUR VOTE WILL BE COUNTED, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED
ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS VOTED, BY FILING WITH OUR SECRETARY A WRITTEN REVOCATION, BY SUBMITTING A
PROXY BEARING A LATER DATE OR BY ATTENDING AND VOTING IN PERSON AT THE MEETING.
By Order of the board of directors,
/s/ CHAIM KATZMAN
----------------------------------
Chaim Katzman
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
July 31, 2001
North Miami Beach, Florida
EQUITY ONE, INC.
1696 N.E. MIAMI GARDENS DRIVE
NORTH MIAMI BEACH, FLORIDA 33179
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PROXY STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 6, 2001
INTRODUCTION
This proxy statement is being furnished to the stockholders of Equity
One, Inc. in connection with the solicitation by our board of directors of
proxies to be used at a special meeting of stockholders to be held on Thursday,
September 6, 2001 at 10:00 a.m., local time, in the Banyan Room at the Sheraton
Bal Harbor, 9701 Collins Avenue, Bal Harbor, Florida 33154, and at any
adjournments or postponements of that meeting. The date of this proxy statement
is July 31, 2001, and this proxy statement, the notice of special meeting of
stockholders and the enclosed proxy card are first being mailed to our
stockholders on or about July 31, 2001.
The special meeting has been called to approve the issuance of
10,500,000 shares of our common stock, subject to reduction for various
adjustments, in connection with our acquisition of all of the outstanding common
stock of Centrefund Realty (U.S.) Corporation, or CEFUS, a Delaware corporation.
The acquisition would take place pursuant to a stock exchange agreement, dated
as of May 18, 2001, by and among us, Centrefund Realty Corporation, or
Centrefund, an Ontario corporation and the indirect parent entity of CEFUS, and
First Capital America Holding Corp., or First Capital, an Ontario corporation
and the wholly-owned subsidiary of Centrefund which controls CEFUS.
Because some of our directors have a financial interest in the
acquisition by virtue of their affiliations with Centrefund, the board of
directors appointed a special committee of disinterested directors to consider
and make recommendations with respect to the acquisition. The special committee
and our board approved the acquisition on May 8, 2001 and May 18, 2001.
Because the number of shares that we will issue in connection with the
acquisition will exceed 20% of our currently outstanding common stock, the rules
of the New York Stock Exchange require that the issuance of common stock be
approved by the affirmative vote of a majority of the votes cast at the special
meeting, provided that the total votes cast represent over 50% of all shares of
our common stock entitled to vote at the special meeting. Our chairman and chief
executive officer, Chaim Katzman, who, as of the record date, controls, directly
and indirectly, 8,681,306, or approximately 66.7%, of the outstanding shares of
our common stock has expressed his intention to cause those shares to be voted
for approval of the issuance of our common stock. The consummation of the
acquisition is subject to a number of conditions, and, accordingly, even if our
stockholders approve the issuance of common stock, there can be no assurance
that the acquisition will be consummated.
The special committee and our board believe that the terms of the
acquisition are fair to, and in the best interests of, our unaffiliated
stockholders and recommend that the stockholders approve the issuance of common
stock in the acquisition.
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THE PROPOSED TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
WHAT YOU NEED TO DO NOW
Please promptly complete, sign and date the enclosed proxy card and
return it in the envelope provided. A failure to vote or a vote to abstain could
have the same legal effect as a vote against the issuance of common stock. If
your shares are held in "street name" by your broker, then you should instruct
your broker how to vote your shares. If you do not provide instructions to your
broker, your shares will not be voted and they will be counted as votes against
the approval of the issuance of common stock.
(ii)
TABLE OF CONTENTS
PAGE
Introduction......................................................................................................i
Questions and Answers About the Acquisition.......................................................................1
Summary...........................................................................................................3
Risk Factors.....................................................................................................13
The Special Meeting..............................................................................................17
Proxy Solicitation..........................................................................................17
Purpose of the Special Meeting; the Acquisition.............................................................17
Record Date and Quorum Requirement..........................................................................17
Voting Procedures; Required Vote............................................................................18
Dissenters' Rights..........................................................................................18
Voting and Revocation of Proxies............................................................................18
Special Factors..................................................................................................19
Background of the Acquisition...............................................................................19
The Special Committee's and the Board's Recommendation......................................................21
Opinion of UBS Warburg......................................................................................22
Conflicts of Interest and Certain Business Relationships....................................................26
The Acquisition..................................................................................................27
Basic Terms of Acquisition..................................................................................27
CEFUS Distributions.........................................................................................27
Representations and Warranties..............................................................................27
Covenants...................................................................................................28
Non-solicitation Covenant...................................................................................31
Indemnification and Survival................................................................................31
Conditions..................................................................................................32
Registration Rights.........................................................................................34
Termination, Amendment and Waiver...........................................................................34
Expenses....................................................................................................35
Regulatory Approvals........................................................................................35
Accounting Treatment........................................................................................35
Rights of Dissenting Stockholders................................................................................35
Material Federal Income Tax Consequences.........................................................................35
Business of CEFUS................................................................................................37
Overview....................................................................................................37
Recent Developments.........................................................................................38
Properties..................................................................................................40
Selected Financial Data of CEFUS.................................................................................45
Management's Discussion and Analysis of Results of Operations and Financial Condition of CEFUS...................46
General.....................................................................................................46
Gross Rental Income.........................................................................................46
Results of Operations.......................................................................................47
Cash Flow...................................................................................................50
Liquidity and Capital Resources.............................................................................51
Mortgage Indebtedness.......................................................................................51
Effects of Inflation and Economic Conditions................................................................52
(iii)
PAGE
Market Price and Related Matters of CEFUS Common Stock...........................................................52
Unaudited Pro forma Selected Financial Data......................................................................53
Certain Forward Looking Information..............................................................................59
Principal Stockholders and Stock Ownership of Management.........................................................60
Market Prices of Common Stock and Dividends......................................................................62
Legal Matters....................................................................................................62
Experts..........................................................................................................62
Other Business...................................................................................................63
Documents Incorporated by Reference..............................................................................63
Available Information............................................................................................63
Index to Consolidated Financial Statements......................................................................F-1
APPENDICES
APPENDIX A - Stock Exchange Agreement
APPENDIX B - Opinion of UBS Warburg LLC
(iv)
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q: WHAT IS THE PURPOSE OF THE MEETING?
A: At the special meeting, stockholders will vote to approve the issuance
of 10,500,000 shares of our common stock, subject to reduction for
various adjustments, in connection with our acquisition of all of the
outstanding common stock of Centrefund Realty (U.S.) Corporation.
Q: WHO IS ENTITLED TO VOTE AT THE MEETING?
A: Only stockholders of record at the close of business on the record
date, July 25, 2001, are entitled to receive notice of the special
meeting and to vote the shares of common stock that they held on that
date at the meeting, or any postponements or adjournments of the
meeting.
Q: WHAT ARE THE VOTING RIGHTS OF STOCKHOLDERS?
A: Each stockholder will be entitled to one vote for each share of our
common stock held by the stockholder.
Q: WHO MAY ATTEND THE MEETING?
A: All stockholders as of the record date, or their duly appointed
proxies, may attend the meeting.
Q: WHAT CONSTITUTES A QUORUM?
A: The presence at the meeting, in person or by the proxy, of the holders
of a majority of the shares of common stock outstanding on the record
date will constitute a quorum, permitting the meeting to conduct its
business. As of the record date, 13,011,901 shares of our common stock
were outstanding. Proxies received but marked as abstentions and broker
non-votes will be included in the calculation of the number of shares
considered to be present at the special meeting.
Q: HOW DO I VOTE?
A: If you complete and properly sign the accompanying proxy card and
return it to us, it will be voted as you direct. If you are a
registered stockholder and attend the meeting, you may deliver your
completed proxy card in person.
Q: WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
A: APPROVAL OF THE ISSUANCE OF COMMON STOCK. Because the number of shares
that we will issue in connection with the acquisition will exceed 20%
of our currently outstanding common stock, the rules of the New York
Stock Exchange require that the issuance of common stock be approved by
the affirmative vote of a majority of the votes cast at the special
meeting, provided that the total votes cast represent over 50% of all
shares of our common stock entitled to vote at the special meeting.
Accordingly, broker non-votes and abstentions would have the same
effect as a negative vote if such abstentions and broker non-votes,
together with shares not present at the special meeting, were to cause
the number of votes cast on the proposal to be less than a majority of
our outstanding common stock.
OTHER ITEMS. For each other item, the affirmative vote of a majority of
the shares voted on the item will be required for its approval.
However, we know of no other items that will be considered at the
special meeting. In particular, we are not seeking your vote regarding
our previously announced merger with United Investors Realty Trust.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: No. Your broker will vote your shares only if you provide instruction
on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares.
Q: CAN I CHANGE MY VOTE OR REVOKE MY PROXY AFTER I HAVE MAILED MY SIGNED
PROXY CARD?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can
send written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose
either of these methods, you must timely submit your notice of
revocation or your new proxy card to us at
1
the address shown below. Third, you can attend the special meeting and
vote in person. Simply attending the meeting, however, will not revoke
your proxy. If you have instructed a broker to vote your shares, you
must follow directions received from your broker to change your vote.
Q: WHAT ARE THE BENEFITS OF THE ACQUISITION?
A: We believe that the acquisition will allow us to realize important
benefits. By acquiring CEFUS, we would increase the properties owned
and operated by us by approximately 100% based on gross leasable area.
In addition, because we already manage some of these properties, we are
familiar with the tenants and prospects and can acquire ownership with
little incremental overhead expenses. In addition, we expect to be able
to take advantage of enhanced opportunities and capabilities due to our
broader geographic presence. As a result, we believe that the
acquisition should increase stockholder value for you.
Q: WHAT DO I NEED TO DO NOW?
A: After you read and consider carefully the information contained in this
proxy statement, please fill out and sign your proxy card. Then mail
your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting.
Q: WHEN DO YOU EXPECT THE ACQUISITION TO BE COMPLETED?
A: We are working towards completing the transaction as soon as possible.
For the acquisition to occur, our stockholders must approve the
issuance of common stock and the requisite stockholders of Centrefund
must approve the transaction. If the stockholders of both companies
approve the transaction, the closing of the acquisition will occur as
soon after the special meeting as all of the other conditions to
closing of the acquisition are satisfied. We currently anticipate that
the acquisition will be completed in the third quarter of 2001.
Q: WHAT ARE THE TAX CONSIDERATIONS OF THE TRANSACTION?
A: You should not recognize either gain or loss for U.S. federal income
tax purposes as a result of the acquisition. To review the tax
considerations of the transaction in greater detail, see pages 35 to
36.
Q: WHAT IS THE BOARD'S RECOMMENDATION?
A: The board's recommendation is set forth together with the description
of that recommendation in this proxy statement. In summary, the board
recommends a vote "FOR" the issuance of our common stock pursuant to
the terms of the stock exchange agreement. If you sign and return your
proxy card, unless you give other instructions, the persons named as
proxy holders on the proxy card will vote in accordance with the
recommendation of our board of directors.
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the board of
directors or, if no recommendation is given, in their own discretion.
Q: WHO WILL PAY FOR THE PREPARATION OF THE PROXY?
A: We will pay the cost of preparing, assembling and mailing the proxy
statement, notice of meeting and enclosed proxy card. In addition to
the use of mail, our employees may solicit proxies personally and by
telephone. Our employees will receive no compensation for soliciting
proxies other than their regular salaries. We may request banks,
brokers and other custodians, nominees and fiduciaries to forward
copies of the proxy material to the beneficial owners of our common
stock and to request authority for the execution of proxies and we may
reimburse such persons for their expenses incurred in connection with
these activities.
2
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. TO UNDERSTAND THE TRANSACTIONS AND THE STOCKHOLDER PROPOSALS MORE FULLY,
BEFORE VOTING YOU SHOULD CAREFULLY READ, IN THEIR ENTIRETY, THIS PROXY STATEMENT
AND ITS APPENDICES AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of Equity One, Inc., or Equity One, will be held on
Thursday, September 6, 2001, at 10:00 a.m., local time, in the Banyan Room at
the Sheraton Bal Harbor, 9701 Collins Avenue, Bal Harbor, Florida 33154.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to approve the issuance of
10,500,000 shares of our common stock, subject to reduction for various
adjustments, in connection with our acquisition of all of the outstanding common
stock of Centrefund Realty (U.S.) Corporation, or CEFUS, a Delaware corporation.
The acquisition would take place pursuant to a stock exchange agreement, dated
as of May 18, 2001, by and among us, Centrefund Realty Corporation, or
Centrefund, an Ontario corporation and the indirect parent entity of CEFUS, and
First Capital America Holding Corp., or First Capital, an Ontario corporation
and the wholly-owned subsidiary of Centrefund which controls CEFUS. The stock
exchange agreement is attached as APPENDIX A to this proxy statement, and you
should carefully read it in its entirety.
RECORD DATE AND QUORUM
Our board of directors has fixed the close of business on July 25, 2001
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the special meeting and any adjournments or postponements of
that meeting. Each holder of record of common stock at the close of business on
the record date is entitled to one vote for each share then held on each matter
submitted to a vote of stockholders. At the close of business on the record
date, there were 13,011,901 shares of common stock outstanding. The holders of a
majority of the outstanding shares of common stock entitled to vote at the
special meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business.
VOTE REQUIRED
Because the number of shares that we will issue in connection with the
acquisition will exceed 20% of our currently outstanding common stock, the rules
of the New York Stock Exchange require that the issuance of common stock be
approved by the affirmative vote of a majority of the votes cast at the special
meeting, provided that the total votes cast represent over 50% of all shares of
our common stock entitled to vote at the special meeting. Thus, a failure to
vote or a vote to abstain could have the same legal effect as a vote cast
against approval. In addition, brokers who hold shares of common stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners. A broker non-vote could have
the same effect as a vote against the acquisition.
Chaim Katzman, who is our chairman and chief executive officer and who
as of the record date controls, directly and indirectly, 8,681,306, or
approximately 66.7%, of the outstanding shares of our common stock has expressed
his intention to cause those shares to be voted for approval of the issuance of
common stock.
PARTIES TO THE ACQUISITION
EQUITY ONE
We are a self-administered, self-managed real estate investment trust,
or REIT, organized under the corporation laws of the State of Maryland. We
principally acquire, renovate, develop and manage community and neighborhood
shopping centers anchored by national and regional supermarket chains. As of
March 31, 2001, our portfolio consisted of 33 properties, including 24
supermarket-anchored shopping centers, one drugstore-anchored shopping center,
two other retail-anchored properties, five commercial properties and one
development site. These
3
properties are located primarily in metropolitan areas of Florida, and contain
an aggregate of approximately 3.3 million square feet of gross leasable area, or
GLA.
Our principal executive offices are located at 1696 N.E. Miami Gardens
Drive, North Miami Beach, Florida 33179. Our telephone number is (305) 947-1664.
CEFUS
CEFUS, a Delaware corporation, is controlled by First Capital, which is
a wholly-owned subsidiary of Centrefund. CEFUS owns all of the U.S. real
property interests of Centrefund. As of March 31, 2001, CEFUS owned a portfolio
of 28 shopping centers and other retail and commercial properties located in
Florida and Texas which contained an aggregate of approximately 3.2 million
square feet of GLA and owned joint venture interests in nine other properties in
Florida and Texas. See "THE BUSINESS OF CEFUS."
The executive offices of CEFUS are located at 161 Bay Street, Suite
2820, Toronto, Ontario M5J 2S1. The telephone number of CEFUS is (416) 504-4114.
CENTREFUND
Centrefund is a real estate investment company organized under the laws
of Ontario, Canada. Its common shares are publicly traded on The Toronto Stock
Exchange. Centrefund concentrates on the ownership of neighborhood and community
supermarket-anchored shopping centers in high-growth areas. As of March 31,
2001, Centrefund had interests in and operated a portfolio of 72 shopping
centers located in Canada and the United States which contained an aggregate of
approximately 9.4 million square feet of GLA, including the CEFUS properties
described above.
The executive offices of Centrefund are located at 161 Bay Street,
Suite 2820, Toronto, Ontario M5J 2S1. The telephone number of Centrefund is
(416) 504-4114.
FIRST CAPITAL
First Capital is a corporation organized under the laws of Ontario,
Canada. First Capital is a wholly-owned subsidiary of Centrefund and controls
all of the outstanding common stock of CEFUS.
The executive offices of First Capital are located at 161 Bay Street,
Suite 2820, Toronto, Ontario M5J 2S1. The telephone number of First Capital is
(416) 504-4114.
THE ACQUISITION
We will acquire all of the outstanding common stock of CEFUS. In
connection with, and in consideration of, the acquisition of CEFUS common stock,
we will issue 10,500,000 shares of our common stock, subject to reduction for
various adjustments.
REASONS FOR THE ACQUISITION
The special committee found the following factors to be positive
factors supporting its determination that the acquisition is fair to, and in the
best interest of, our stockholders:
o The acquisition would nearly double our size, increasing both the
number of properties owned as well as the gross leasable area of our
portfolio;
o The acquisition of CEFUS' Florida properties would strengthen our
Florida portfolio, making us the third largest owner of shopping
centers in Florida among public REITs.
o We will acquire properties that are generally located in areas of
higher population growth than ours;
o The acquisition of properties in Texas would diversify our overall
portfolio and make us less vulnerable to regional economic effects;
4
o We can acquire CEFUS, its business and properties with very limited
incremental overhead expenses; and
o The acquisition will decrease our economic exposure to any one
particular tenant.
CLOSING OF THE ACQUISITION
The closing of the transactions contemplated by the stock exchange
agreement is currently expected to occur as soon as practicable after the
special meeting, subject to satisfaction or waiver of the terms and conditions
of the stock exchange agreement. We currently expect that the acquisition will
be completed in the third quarter of 2001.
THE SPECIAL COMMITTEE'S AND BOARD'S RECOMMENDATION
Because of the potential conflicts of interests of certain members of
our board of directors who may be deemed to beneficially own shares of both our
common stock and Centrefund common stock, the board established a special
committee to act on behalf of our unaffiliated stockholders for the purpose of
negotiating the price and other terms of the acquisition with Centrefund and
evaluating the fairness of the stock exchange agreement. The special committee
is composed of Noam Ben Ozer, Robert Cooney, Ronald Chase, Peter Linneman and
Shaiy Pilpel, all of whom are independent directors. Mr. Cooney served as
chairman of the special committee.
The special committee and the board of directors have each determined
that the terms of the stock exchange agreement, which were established through
arm's-length negotiations between us and Centrefund, and the acquisition are
fair to, and in the best interests of, us and our unaffiliated stockholders.
Accordingly, the special committee and the board of directors have approved the
stock exchange agreement and recommend that you vote "FOR" approval of the
issuance of common stock in connection with the acquisition.
OPINION OF FINANCIAL ADVISOR
UBS Warburg provided its opinion to the special committee that, as of
the date of their opinion, the acquisition is fair from a financial point of
view to our unaffiliated stockholders.
The full text of the written opinion of UBS Warburg, dated as of May 8,
2001, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with that opinion, is attached to this proxy
statement as APPENDIX B and is incorporated in this proxy statement by
reference. The opinion of UBS Warburg does not constitute a recommendation as to
how any holder of our shares should vote with respect to the issuance of common
stock. However, holders of shares of common stock are urged to, and should, read
the opinion in its entirety.
We have agreed to pay UBS Warburg aggregate fees of $600,000 in
connection with its services as financial advisor and in rendering its opinion.
We have also agreed to reimburse UBS Warburg for its reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify it against certain
liabilities, including certain liabilities under the federal securities laws.
CONFLICTS OF INTEREST AND CERTAIN BUSINESS RELATIONSHIPS
In considering the board's recommendation that you vote for our
issuance of common stock in the acquisition, you should be aware that certain of
our directors have interests that may be different from those of our
unaffiliated stockholders. You should also be aware that certain of our
directors and affiliates and associates of these directors have interests in
connection with the acquisition which may present them with actual or potential
conflicts of interest.
Chaim Katzman, the chairman of our board and our chief executive
officer, may be deemed to be the beneficial owner of approximately 67.4% of our
outstanding common stock and may also be deemed to be the beneficial owner of
approximately 68.1% of the outstanding common stock of Centrefund. Consummation
of the acquisition will, therefore, likely increase Mr. Katzman's beneficial
ownership of us. For additional information regarding conflicts of interest, see
"SPECIAL FACTORS - Conflicts of Interest and Certain Business Relationships." In
addition, our director, Nathan Hetz, is a director of Centrefund and a director
and significant shareholder of A. H. Holdings Canada Ltd. which owns
approximately 19% of the outstanding common stock of
5
Centrefund. Dori Segal, another of our directors, is a director and the
president and chief executive officer of Centrefund, and he and his family own
common stock of an affiliate of Gazit-Globe (1982) Ltd. which owns common stock
of Equity One and Centrefund.
CONDITIONS TO THE ACQUISITION, TERMINATION AND EXPENSES
CONDITIONS. Each party's obligation to effect the acquisition is
subject to satisfaction of a number of conditions, including with respect to one
or both parties:
o the issuance of our common stock in connection with the acquisition
shall have been approved by holders of our common stock at the
special meeting;
o the stock exchange agreement and the acquisition shall have been
approved by the unaffiliated stockholders of Centrefund; and
o the representations and warranties of the parties shall be true and
correct in all material respects as of the closing except as
contemplated by the stock exchange agreement.
Any or all of the conditions that have not been satisfied may be waived
(other than the conditions that the issuance of our common stock shall have been
approved by our stockholders and the acquisition be approved by the requisite
Centrefund stockholders). Even if the stockholders of both companies approve the
transactions, there can be no assurance that the acquisition will be
consummated.
TERMINATION. The stock exchange agreement may be terminated without
completing the acquisition as follows:
o The parties may mutually agree to terminate the agreement at any
time prior to the closing.
o We and the Centrefund parties may terminate the agreement if the
other party breaches its representations or covenants contained in
the agreement and does not cure those breaches within the time
permitted or if the transaction has not closed by September 28,
2001.
EXPENSES. Except as otherwise specified in the stock exchange
agreement, each of the parties will bear its own costs and expenses incurred in
connection with the acquisition.
RIGHTS OF DISSENTING STOCKHOLDERS
The acquisition does not entitle our stockholders to dissenters'
rights.
ACCOUNTING TREATMENT
The acquisition will be partially accounted for on a "push-down" basis
and partially in a manner similar to a pooling of interests.
RECENT DEVELOPMENTS AND FINANCIAL RESULTS
UIRT ACQUISITION. On May 31, 2001, we entered into an agreement and
plan of merger with United Investors Realty Trust, or UIRT, a Texas real estate
investment trust. The merger agreement, as subsequently amended and restated,
provides for our acquisition of UIRT. UIRT is a real estate investment trust
formed under the laws of the State of Texas to acquire, develop and operate
neighborhood and community shopping centers. As of March 31, 2001, UIRT owned
controlling interests in 24 shopping centers and a 50% non-controlling interest
in a limited partnership that owns one other project. These 24 shopping centers
comprised approximately 2.2 million square feet of gross leaseable area.
In connection with the acquisition, the shareholders of UIRT may elect
to receive cash or shares of our common stock for total consideration of
approximately $66 million. However, we are not required to pay more than half of
the consideration in cash, but we may, at our option and if the UIRT
shareholders so elect, pay more than half of the consideration in stock. The
actual number of shares of our common stock to be issued by us per each common
share of UIRT will depend on the 20-day weighted average trading price of our
common stock as of the
6
day immediately prior to the closing of the acquisition. The acquisition will
cost us approximately $155 million, including the assumption of approximately
$80 million in debt, the payment of approximately $66 million in consideration
and the payment of transaction costs.
M.G.N. (USA), Inc., a wholly owned subsidiary of Gazit-Globe (1982)
Ltd., which is controlled by our chairman and chief executive officer, Chaim
Katzman, and is an affiliate of ours, currently owns approximately 9.8% of the
outstanding common shares of UIRT.
The UIRT acquisition is subject to the approval of the shareholders of
UIRT as well as other customary conditions, and is expected to close after the
acquisition of CEFUS in the third quarter of 2001.
You are not being asked to vote with respect to our acquisition of
UIRT. We currently expect that no vote of our stockholders will be necessary to
approve the UIRT acquisition.
RECENT FINANCIAL RESULTS. On July 25, 2001, we announced our financial
results for the three months ended June 30, 2001. Revenues increased
approximately 24.3% to approximately $9.9 million compared to approximately $8.0
million for the three months ended June 30, 2000. Net income for the three
months ended June 30, 2001 was approximately $3.2 million, or approximately
$0.24 per diluted share, compared with net income of $2.8 million, or
approximately $0.24 per diluted share for the three months ended June 30, 2000.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000 % INCREASE
(Unaudited) (Unaudited)
Total revenue........................... $9,932 $7,991 24.3%
Net income.............................. $3,167 $2,787 13.6%
Per share (basic).................... $0.25 $0.24
Per share (diluted).................. $0.24 $0.24
Weighted average common shares
Basic................................ 12,707 11,480
Diluted.............................. 13,448 11,684
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, 2001 MARCH 31, 2001
------------- --------------
(Unaudited) (Unaudited)
Investments in real estate (before
accumulated depreciation)............. $248,536 $243,062
Total assets............................. $244,419 $239,042
Mortgage notes payable................... $124,690 $121,675
Credit facility.......................... $5,572 $4,243
Total liabilities........................ $140,391 $134,788
Stockholders' equity..................... $104,028 $104,254
Total liabilities and stockholders'
equity................................ $244,419 $239,042
7
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
EQUITY ONE
We are providing the following financial information of Equity One to
aid you in your analysis of the financial aspects of the merger. We derived this
information from Equity One's historical audited consolidated financial
statements, as of and for the years ended December 31, 1996 through 2000. In
addition, the financial information at and for the three months ended March 31,
2001 and 2000 have been derived from the unaudited financial statements of
Equity One. The following information should be read together with the
consolidated financial statements and financial statement notes of Equity One
incorporated by reference in this proxy statement/prospectus. See "Documents
Incorporated by Reference" beginning on page 63.
(In thousands)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenues....................... $9,827 $8,104 $34,442 $30,977 $25,626 $20,545 $16,714
Operating expenses............. 2,733 2,178 9,184 7,082 5,965 5,245 4,370
Depreciation and amortization.. 1,220 980 4,217 3,502 2,881 2,392 2,067
Interest....................... 2,082 1,726 7,411 5,086 5,014 5,681 5,380
General and administrative
expenses.................... 718 573 2,361 1,622 1,381 1,029 977
Put option expense............. -- -- -- -- 1,320 -- --
Minority interest in earnings
of consolidated subsidiary.. -- 24 -- 96 -- -- --
------ ------ ------- ------- ------- ------- -------
Total expense............... 6,753 5,481 23,173 17,388 16,561 14,347 12,794
====== ====== ======= ======= ======= ======= =======
Net income..................... $3,074 $2,623 $11,269 $13,589 $ 9,065 $ 6,198 $ 3,920
====== ====== ======= ======= ======= ======= =======
Basic earnings per share....... $ 0.24 $ 0.23 $ 0.97 $ 1.26 $ 1.01 $ 0.96 $ 0.79
====== ====== ======= ======= ======= ======= =======
Diluted earnings per share..... $ 0.23 $ 0.23 $ 0.95 $ 1.26 $ 1.00 $ 0.87 $ 0.69
====== ====== ======= ======= ======= ======= =======
MARCH 31, DECEMBER 31,
------------------ ------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- ------- -------
BALANCE SHEET DATA:
Total rental properties before
accumulated depreciation.... $247,444 $222,004 $243,062 $216,588 $148,087 $126,441 $106,706
Total assets................... 242,750 217,350 239,042 212,497 152,955 126,903 111,822
Mortgage notes payable......... 125,540 103,577 121,675 97,752 67,145 71,004 66,831
Total liabilities.............. 138,623 123,527 134,788 121,068 71,737 73,323 68,727
Stockholders' equity........... 104,127 93,823 104,254 91,429 81,218 53,580 43,095
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- ------- -------
OTHER DATA:
Cash flow from:
Operating activities........ $4,875 $4,929 $13,611 $20,169 $3,697 $8,843 $6,680
Investing activities........ (4,382) (5,427) (19,201) (62,239) (23,824) (6,173) (18,277)
Financing activities........ (32) 263 5,485 40,903 19,123 (2,023) 12,778
Gross leasable area (square
feet at end of period)...... 3,282 2,835 3,169 2,836 2,078 2,004 1,807
8
CEFUS
We are providing the following financial information of CEFUS to aid
you in your analysis of the financial aspects of the acquisition. We derived
this information from CEFUS' historical financial statements as of and for the
years ended December 31, 1998 through 2000. In addition, the financial
information as of and for the three months ended March 31, 2001 and 2000 have
been derived from the unaudited financial statements of CEFUS. Earnings per
share data have not been provided because CEFUS has been a wholly-owned
subsidiary of Centrefund. The following information should be read together with
the financial statements and financial statement notes of CEFUS contained in
this proxy statement beginning on page F-2. CEFUS, as the subsidiary of a
Canadian company, has historically prepared its financial statements in
accordance with Canadian generally accepted accounting principles. Although all
financial data for CEFUS provided in this proxy statement have been prepared on
the basis of U.S. generally accepted accounting principles, Selected Financial
Data for CEFUS for the years ended December 31, 1997 and 1996 have been omitted
because the data necessary to prepare financial statements in accordance with
U.S. generally accepted accounting principles is not available. We believe that
the omitted data would not be material to our stockholders in light of the more
recent data presented.
(In thousands)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
2001 2000 2000 1999 1998
------- ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $9,884 $11,334 $41,169 $40,791 $27,955
Operating expenses................................ 3,093 3,453 12,858 12,849 8,792
Depreciation...................................... 1,559 1,858 6,984 6,330 4,325
Interest.......................................... 3,099 3,356 15,558 14,205 9,380
Corporate expenses................................ 183 114 642 1,795 1,140
Management fee to parent.......................... 650 908 3,632 -- --
Equity (income) loss of joint ventures............ (127) 134 (293) (659) (204)
Previous management's incentive
and other fees................................. -- -- 14,944 -- --
Termination of advisory services.................. -- -- -- 8,204 --
Income and other taxes............................ 505 620 (4,601) (644) 239
Other............................................. -- -- -- -- 3,531
------ ------- ------- ------- -------
Total expenses................................. 8,962 10,443 49,724 42,080 27,203
------ ------- ------- ------- -------
Net income (loss)................................. $ 922 $ 891 $(8,555) $(1,289) $ 752
====== ======= ======= ======= =======
MARCH 31, DECEMBER 31,
------------------- --------------------------------
2001 2000 1999 1998
------------------- ------- ------- -------
BALANCE SHEET DATA:
Total rental properties before accumulated
depreciation.................................. $255,773 $254,514 $262,318 $243,360
Total assets..................................... 272,863 296,556 289,922 275,455
Mortgage notes payable........................... 161,956 162,257 141,286 108,252
Total liabilities................................ 177,108 224,050 208,861 216,536
Stockholder's equity............................. 95,755 72,506 81,061 58,919
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
2001 2000 2000 1999 1998
------- ------- ------- ------- -------
OTHER DATA:
Cash flow from:
Operating activities.......................... $3,962 $4,794 $(4,081) $11,780 $3,334
Investing activities.......................... (952) 2,535 (23,294) (32,345) (110,660)
Financing activities.......................... (2,029) (5,253) 20,971 9,849 124,177
Gross leasable area (square feet at end of period) 3,223 3,457 3,223 3,538 3,416
9
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following summary unaudited pro forma financial data reflect the
proposed combination of Equity One with CEFUS and the proposed combination of
Equity One and CEFUS with UIRT. The unaudited pro forma combined operations data
for the year ended December 31, 2000 and the three months ended March 31, 2001
have been presented as if the transactions occurred on January 1, 2000. The
unaudited pro forma combined balance sheet information as of March 31, 2001 has
been presented as if the transaction occurred on March 31, 2001.
The proposed combination of Equity One and CEFUS is being accounted for
as a combination of entities under common control. Gazit-Globe (1982) Ltd., a
63.4% stockholder of Equity One through the ownership of affiliated entities,
acquired a 68.1% interest in Centrefund Realty Corporation, the 100% indirect
owner of CEFUS, in August 2000. The summary unaudited pro forma financial
information reflects the push-down of Gazit-Globe's basis in CEFUS, to the
extent of its 68.1% ownership. The remaining 31.9% was recorded in a manner
similar to a pooling of interests and the basis in the assets, liabilities and
results of operations of CEFUS are reflected at their historical amounts.
The summary pro forma financial information for Equity One and CEFUS
with UIRT reflects the acquisition of UIRT using the purchase method of
accounting.
The information is only a summary and you should read it together with
Equity One's historical financial statements incorporated in this proxy
statement by reference, CEFUS' and UIRT's historical financial statements
beginning on page F-2 and F-25, and Equity One's pro forma condensed
consolidated financial statements and corresponding notes included in this proxy
statement beginning on page 53.
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA FOR
EQUITY ONE AND CEFUS
(In thousands other than per share data)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
STATEMENT OF OPERATIONS DATA:
Revenues
Rental income....................................... $18,735 $73,075
Management fee income............................... 107 223
Investment and other income......................... 450 2,255
------- -------
Total revenues................................... 19,292 75,553
------- -------
Expenses
Operating expenses.................................. 5,540 21,973
Depreciation and amortization....................... 2,635 10,174
Interest expense.................................... 5,173 18,310
General and administrative.......................... 768 2,660
Equity income from investments in joint ventures.... (127) (293)
-------- --------
Total expenses.................................... 13,989 52,824
------- -------
Net income............................................. $ 5,303 $22,729
======= =======
Basic earnings per share............................... $ 0.23 $ 1.03
======= =======
Diluted earnings per share............................. $ 0.22 $ 1.02
======= =======
Weighted average shares outstanding
Basic............................................... 23,206 22,151
======= =======
Diluted............................................. 23,732 22,386
======= =======
MARCH 31, 2001
--------------
BALANCE SHEET DATA:
Net rental property investments.............................. $495,781
Total assets................................................. 541,044
Mortgage notes payable....................................... 282,282
Total liabilities............................................ 301,387
Stockholders' equity......................................... 239,657
10
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA FOR EQUITY ONE
AND CEFUS WITH UIRT
(In thousands other than per share data)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
STATEMENT OF OPERATIONS DATA:
Revenues
Rental income....................................... $24,720 $94,926
Management fee income............................... 107 223
Investment and other income......................... 605 2,634
------- -------
Total revenues................................... 25,432 97,783
------- -------
Expenses
Operating expenses.................................. 7,115 28,372
Depreciation and amortization....................... 3,339 12,739
Interest expense.................................... 7,360 26,395
General and administrative.......................... 1,124 4,377
Equity income from investments in joint ventures.... (127) (293)
------- -------
Total expenses.................................... 18,811 72,590
------- -------
Net income............................................. $ 6,621 $25,193
------- -------
Basic earnings per share............................... $ 0.25 $ 0.98
======= =======
Diluted earnings per share............................. $ 0.24 $ 0.97
======= =======
Weighted average shares outstanding
Basic............................................... 26,884 25,829
======= =======
Diluted............................................. 27,410 26,064
======= =======
MARCH 31, 2001
--------------
BALANCE SHEET DATA:
Net rental property investments.............................. $649,030
Total assets................................................. 697,547
Mortgage notes and capital lease obligations................. 340,934
Credit agreements............................................ 49,793
Total liabilities............................................ 414,464
Stockholders' equity......................................... 283,083
11
COMPARATIVE MARKET AND PER SHARE DATA
We have summarized below the per share information for the respective
companies on an historical basis, combined pro forma basis and combined
equivalent pro forma basis. The combined pro forma summary amounts are based on
a method of accounting which accounts for the transaction partially on a
"push-down" basis and partially on a method similar to a pooling of interests.
The CEFUS per share combined pro forma equivalents are calculated by multiplying
the combined pro forma per share amounts by 89,743.59 and 76,086.96 based on an
assumed issuance of 10,500,000 shares of our common stock in exchange for the
117 and 138 outstanding shares of CEFUS common stock on December 31, 2000 and
March 31, 2001, respectively. The following information should be read together
with the historical and pro forma financial statements included or incorporated
by reference in this proxy statement.
On May 18, 2001, the last trading day prior to the announcement of the
signing of the stock exchange agreement, the closing price of an Equity One
common share was $11.49. The equivalent per share value of the CEFUS common
share on that date, applying the exchange ratio per share, was $874,339.13.
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2000 MARCH 31, 2001
----------------- ------------------
Equity One:
Historical per common share--
Net income ............................... $0.88 $0.24
Dividends paid............................ $1.04 $0.26
Book value (1)............................ $8.15 $8.09
Pro forma combined per Equity One common
share--
Net income ............................... $0.98 $0.23
Dividends paid............................ $0.57 $0.14
Book value (1)............................ $10.13 $10.26
CEFUS:
Historical per common share--
Net income/(loss) ........................ $(73,120) $6,681
Dividends paid............................ N/A N/A
Book value (1)............................ $619,709 $693,877
Pro forma combined per equivalent CEFUS
common share (2) (3)--
Net income ............................... $87,949 $17,500
Dividends paid............................ $51,154 $10,652
Book value (1)............................ $909,107 $780,653
- ----------------------
(1) Calculated by dividing stockholders' equity by total shares outstanding
at period end.
(2) Calculated by multiplying Equity One pro forma combined amounts by
89,743.59 for the year ended December 31, 2000.
(3) Calculated by multiplying Equity One pro forma combined amounts by
76,086.96 for the three months ended March 31, 2001.
12
RISK FACTORS
IN ADDITION TO THE RISKS RELATING TO OUR BUSINESS AND THE OTHER
INFORMATION INCLUDED IN THIS PROXY STATEMENT, INCLUDING THE MATTERS ADDRESSED IN
"CERTAIN FORWARD LOOKING INFORMATION" ON PAGE 59, YOU SHOULD CAREFULLY REVIEW
THE FOLLOWING RISK FACTORS CONSIDERED BY US, BASED ON THE INFORMATION AVAILABLE
TO US, TO BE MATERIAL TO THE ISSUANCE OF SHARES IN CONNECTION WITH THE
ACQUISITION.
THE MARKET VALUE OF THE SHARES OF OUR COMMON STOCK ISSUED IN CONNECTION WITH THE
ACQUISITION MAY INCREASE PRIOR TO THE CLOSING AND, THEREFORE, WE MAY PAY MORE
THAN WE INTENDED FOR CEFUS.
The number of shares of our common stock to be issued in exchange for
all of the outstanding shares of CEFUS common stock in the acquisition was fixed
at the time of the signing of the stock exchange agreement and is not subject to
adjustment based on changes in the trading price of our common stock before the
closing of the acquisition. Therefore, the market value of the shares of our
common stock issued in the acquisition will likely fluctuate through the closing
of the acquisition and thereafter. As a result, the value of the acquisition, as
reflected in the relative market price of our common stock, may vary
significantly from the date of execution of the stock exchange agreement, the
date of this proxy statement and the date the acquisition is completed. This
variance may arise due to, among other things:
o changes in our business, operations and prospects;
o market assessments of the likelihood that the acquisition will be
completed;
o demand for leasing space in our markets;
o the financial condition of current or prospective tenants; and
o interest rates, general market and economic conditions and other
factors.
Substantially all of these factors are beyond our control. It should be noted
that during the 12-month period ending on June 29, 2001, the closing per share
price of our common stock varied from a low of $9.38 to a high of $12.53 and
ended that period at $11.24. Historical trading prices are not necessarily
indicative of future performance. In addition, our acquisition of UIRT could
affect our stock price because, among other things, we will issue additional
freely tradable shares of our common stock to UIRT's shareholders.
OUR OPERATIONS MAY NOT BE INTEGRATED SUCCESSFULLY WITH THOSE OF CEFUS AND, IF
THE UIRT ACQUISITION IS COMPLETED, THOSE OF UIRT, AND THE INTENDED BENEFITS OF
THE CEFUS ACQUISITION MAY NOT BE REALIZED, WHICH COULD HAVE A NEGATIVE IMPACT ON
THE MARKET PRICE OF OUR COMMON STOCK AFTER THE ACQUISITION
Based on anticipated savings in expenses and other factors, the
acquisition is expected to have an accretive, rather than a negative, effect on
our funds from operations on a pro forma basis for the next twelve months. The
acquisition also is expected to have an accretive effect on funds from
operations for future periods. However, no assurance can be given that the
anticipated expense reductions or other operating synergies will be realized or
that unanticipated costs will not arise as a result of the acquisition. For
example, although we believe that we have reasonably estimated the likely costs
of integrating the operations of our company and CEFUS and, if the UIRT
acquisition is completed, those of UIRT, as well as the incremental costs of
operating as a combined company, it is possible that unexpected transaction
costs, such as transfer taxes, consent fees or professional expenses, or
unexpected future operating expenses, such as increased personnel costs,
increased property taxes or increased administrative expenses, could have a
material adverse effect on our results of operations and financial condition
after the acquisition. If the expected savings are not realized or unexpected
costs are incurred, the acquisition could have a significant negative effect on
our funds from operations and on our ability to pay dividends at historical
levels.
In addition, the completion of the acquisition poses risks for our
ongoing operations , including that:
13
o the diversion of our management's attention to the integration of
the operations of CEFUS, and, if the UIRT acquisition is completed,
those of UIRT could have an adverse effect on our revenues, expenses
and operating results; and
o the CEFUS portfolio may not perform as well we anticipate due to
various factors, including changes in macro-economic conditions and
the demand for leasing space in Florida and Texas.
SOME OF OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE INTERESTS IN THE
COMPLETION OF THE ACQUISITION THAT CONFLICT WITH YOUR INTERESTS
In considering the recommendation of our board with respect to the
principal terms of the acquisition as well as the stock exchange agreement, you
should be aware that some of our directors and executive officers have interests
in, and will receive benefits from, the acquisition that differ from, or are in
addition to, and, therefore, may conflict with your interests generally. For
instance, one of our directors, Chaim Katzman, owns shares of our common stock,
as well as common stock of Centrefund. Therefore, his percentage beneficial
ownership of our common stock, upon completion of the acquisition, will likely
increase. In addition, Dori Segal, one of our directors, and members of his
family own common stock of an affiliate of Gazit-Globe (1982) Ltd. which owns
common stock of Equity One and Centrefund. Mr. Segal is president and chief
executive officer of Centrefund and president of Gazit-Globe (1982) Ltd.
Finally, our director, Nathan Hetz, is also a director of Centrefund and a
director and significant shareholder of Alony Hetz Properties & Investments Ltd.
which owns shares of our common stock, and a director and significant
shareholder of A.H. Holdings Canada Ltd. which owns common stock of Centrefund.
WE WILL INCUR SUBSTANTIAL EXPENSES AND PAYMENTS EVEN IF THE ACQUISITION DOES NOT
OCCUR
There can be no assurance that the acquisition will be completed. We
and CEFUS have incurred substantial expenses in connection with the transactions
described in this proxy statement. If the acquisition is not completed, these
expenses could have an adverse impact on our ability to pay future distributions
to our stockholders or could otherwise harm the results of our operations.
WE MAY NOT BE ABLE TO CONTINUE TO GROW OUR OPERATIONS
After the acquisition is completed, we will have an asset base in
excess of $500 million, which is significantly larger than the asset base
managed by our management team in the past. In addition, the UIRT acquisition
would increase our asset base even further. Although this larger asset base is
expected to be advantageous to us, we may be forced to temporarily limit our
acquisition, development and leasing activities as we attempt to integrate the
two companies' operations. Accordingly, there can be no assurances that our
external growth rate will equal or exceed either our or CEFUS' historical
external growth rates.
YOU WILL EXPERIENCE A REDUCTION IN PERCENTAGE OWNERSHIP AND VOTING POWER WITH
RESPECT TO OUR COMMON STOCK AS A RESULT OF THE ACQUISITION
Holders of our common stock, except those stockholders who hold common
stock in both us and Centrefund, will experience a substantial reduction in
their respective percentage ownership interests and effective voting power
relative to their respective percentage ownership interests in our common stock
prior to the acquisition. We also intend to issue shares in the UIRT merger
further diminishing your percentage ownership, and, in the future, we may issue
additional shares of common stock in public offerings, in connection with
share-for-share mergers and acquisitions, redemptions of operating partnership
units, or otherwise, which would further reduce the percentage ownership
interests of you and our other stockholders.
WITH THE ACQUISITION OF CEFUS, OUR BUSINESS IS ENTERING NEW MARKETS AND WE MAY
NOT BE SUCCESSFUL OPERATING IN THOSE MARKETS
CEFUS owns 16 properties in the state of Texas. We do not currently own
any properties outside of the State of Florida and, therefore, as a result of
the acquisition, we will enter new markets. In addition, following the
acquisition, we intend to make other selective investments in these markets from
time to time and may also make other selective investments in markets outside of
our current market areas if appropriate opportunities arise.
14
Although we have significant management expertise in Florida, this expertise may
not assist us in our management of CEFUS' Texas properties and our expansion
into new markets. Like the risks associated with the addition of a substantial
number of new shopping centers, our entry into new market areas will require,
among other things, that we successfully apply our experience to these new
market areas. Because of our expansion into new market areas, we may be exposed
to risks associated with, among other things:
o a lack of market knowledge and understanding of the local economy;
o an inability to attract new tenants or maintain relationships with
existing tenants;
o an inability to identify property acquisition opportunities;
o sudden adverse shifts in supply and demand factors; and
o an unfamiliarity with local governmental and permitting procedures.
IN CONNECTION WITH THE ACQUISITION WE WILL ASSUME THE EXISTING DEBT OF CEFUS AND
WILL FACE THE RISKS ASSOCIATED WITH HIGHER LEVERAGE
Our ratio of debt to total market capitalization on March 31, 2001 was
47.1%, based on the $10.49 closing price of our common stock as of that date. On
a pro forma basis as of March 31, 2001, our ratio of debt to total market
capitalization would have been approximately 53.0%. In addition, we could be
required to incur debt to support our operations, to expand our business and
acquire additional shopping centers, or to acquire additional businesses, in the
future. Therefore, we will be subject to the risks normally associated with
higher levels of debt financing, including the risk that our cash flow will be
insufficient to meet required payments of principal and interest. Because we
anticipate that only a small portion of the principal of our indebtedness will
be repaid prior to maturity, it is expected that it will be necessary for us to
refinance that debt. Accordingly, there is a risk that existing indebtedness
will not be able to be refinanced or that the terms of any refinancing will not
be as favorable as the terms of the existing indebtedness.
Historically, CEFUS has incurred, and we may incur in the future,
variable rate indebtedness under credit facilities or in connection with the
acquisition or construction of shopping centers, as well as for other purposes,
to a greater degree than we have previously incurred. Accordingly, increases in
interest rates may increase our overall interest costs.
AS A RESULT OF THE ACQUISITION, WE MAY BE REQUIRED TO REPAY IN FULL SOME OR ALL
OF THE OUTSTANDING DEBT OF CEFUS OR ITS SUBSIDIARIES
CEFUS and its subsidiaries currently have debt outstanding of
approximately $160 million. A number of the debt agreements under which these
loans were made to CEFUS and its subsidiaries require that the outstanding
principal balances and accrued interest be repaid in full upon completion of the
acquisition or otherwise require the consent of the appropriate lenders prior to
completion of the acquisition. As a result, we may be required to repay or
refinance the outstanding balances of these loans following the acquisition of
CEFUS. There is no assurance that we will be able to refinance these loans on
favorable terms, if at all. In addition, if we cannot repay or refinance these
loans, we may default under our other credit facilities. Any default, therefore,
may have an adverse effect on our financial performance and our stock price.
WE MAY BE SUBJECT TO CORPORATE TAX ON ANY BUILT-IN GAIN IF WE DISPOSE OF CEFUS'
ASSETS WITHIN TEN YEARS AFTER THE ACQUISITION
Because CEFUS is not a REIT for U.S. federal income tax purposes, if we
were to dispose of any of its assets in a taxable transaction during the ten
years following the acquisition, we would be subject to U.S. federal corporate
income tax, contrary to the normal rules applicable to a REIT. In general, we
would be subject to tax at the highest regular corporate tax rate on any
built-in gain that existed with respect to the CEFUS' assets at the time of the
acquisition. The gain recognized on such a disposition, net of any tax payable
by us, would also be subject to stockholder tax under the normal rules
applicable to gains recognized by a REIT.
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IF WE FAIL TO QUALIFY AS A REIT, AS A RESULT OF THE ACQUISITION OR OTHERWISE, WE
WOULD INCUR SIGNIFICANT TAX LIABILITIES
Prior to the consummation of the acquisition, we have operated in a
manner that allows us to qualify as a REIT under the Code. It is intended that
after the acquisition we will operate our combined business in a manner so that
we will continue to qualify as a REIT. Although we expect that CEFUS will be
restructured so that when combined with us we will continue to be organized and
operate in such a manner, no assurance can be given that we will remain
qualified as a REIT following the acquisition. Qualification as a REIT involves
the application of highly technical and complex provisions of the Internal
Revenue Code for which there are only limited judicial or administrative
interpretations and involves the determination of various factual matters and
circumstances not entirely within our control. If we fail to qualify as a REIT,
we will be subject to federal income tax at regular corporate rates. In this
event, we could be subject to potentially significant tax liabilities, and the
amount of cash available for distribution to stockholders would be reduced and
possibly eliminated. Unless entitled to relief under certain statutory
provisions, we would also be disqualified from treatment as a REIT for the four
taxable years following the year in which we failed to qualify.
16
THE SPECIAL MEETING
PROXY SOLICITATION
This proxy statement is being delivered to our stockholders in
connection with the solicitation by our board of proxies to be voted at a
special meeting to be held on Thursday, September 6, 2001 at 10:00 a.m., local
time, in the Banyan Room at the Sheraton Bal Harbor, 9701 Collins Avenue, Bal
Harbor, Florida 33154. We will pay all expenses incurred in connection with
solicitation of the enclosed proxy. Our officers, directors and regular
employees, who will receive no additional compensation for their services, may
solicit proxies by telephone or personal call. We may request banks, brokers and
other custodians, nominees and fiduciaries to forward copies of the proxy
material to their principals and to request authority for the execution of
proxies. We may reimburse those persons for their expenses in doing so. This
proxy statement and the accompanying proxy card are being mailed to stockholders
on or about July 31, 2001.
PURPOSE OF THE SPECIAL MEETING; THE ACQUISITION
At the special meeting, you will be asked to approve the issuance of
10,500,000 shares of our common stock, subject to reduction for various
adjustments, in connection with our acquisition of all of the outstanding common
stock of Centrefund Realty (U.S.) Corporation, or CEFUS, pursuant to a stock
exchange agreement, dated as of May 18, 2001, by and between us, Centrefund, an
Ontario corporation and an indirect parent entity of CEFUS, and First Capital,
an Ontario corporation, a wholly owned subsidiary of Centrefund, which controls
CEFUS.
We know of no other business to be brought before the special meeting
other than the issuance of common stock in connection with the acquisition. In
particular, we are not seeking your vote regarding our previously announced
merger with UIRT. If any other business should properly come before the special
meeting, the persons named in the proxy will vote in their discretion. We do not
expect representatives of our independent accountants to be present at the
special meeting.
THE SPECIAL COMMITTEE AND THE BOARD HAVE APPROVED THE STOCK EXCHANGE
AGREEMENT AND THE ACQUISITION AND RECOMMEND THAT YOU APPROVE THE ISSUANCE OF OUR
COMMON STOCK IN CONNECTION WITH THE STOCK EXCHANGE AGREEMENT.
RECORD DATE AND QUORUM REQUIREMENT
Our common stock is our only outstanding voting security. The board has
fixed the close of business on July 25, 2001 as the record date for the
determination of stockholders entitled to notice of, and to vote at, the special
meeting. Each holder of record of common stock at the close of business on the
record date is entitled to one vote for each share then held on each matter
submitted to a vote of stockholders. At the close of business on the record
date, there were 13,011,901 shares of common stock issued and outstanding held
by an estimated 200 holders of record and by an estimated 1,700 persons or
entities holding in nominee name.
Prior to the special meeting, we will select one or more inspectors of
election for the meeting. Such inspectors shall determine the number of shares
of common stock represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive, count and tabulate ballots
and votes and determine the results thereof.
The holders of a majority of the outstanding shares entitled to vote at
the special meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business. Abstentions and shares
referred to as "broker or nominee non-votes" that are represented at the special
meeting (shares held by brokers or nominees as to which instructions have not
been received from the beneficial owners or other persons entitled to vote and
the broker or nominee does not have discretionary voting power on a particular
matter) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. If less than a majority of outstanding
shares of common stock are represented at the special meeting, holders of a
majority of the shares so represented may adjourn the meeting to another date,
time or place, and notice need not be given of the new date or time.
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VOTING PROCEDURES; REQUIRED VOTE
Because the number of shares that we will issue in connection with the
acquisition will exceed 20% of our currently outstanding common stock, the rules
of the New York Stock Exchange require that the issuance of common stock be
approved by the affirmative vote of a majority of the votes cast at the special
meeting, provided that the total votes cast represent over 50% of all shares of
our common stock entitled to vote at the special meeting. Brokers and, in many
cases, nominees will not have discretionary power to vote on the proposal to be
presented at the special meeting. Failures to vote, votes to abstain and broker
or nominee non-votes could have the same legal effect as votes cast against
approval if they should cause the total votes cast on the matter to be less than
the 50% requirement described above. Accordingly, beneficial owners of shares
should instruct their brokers or nominees how to vote.
Chaim Katzman, who is our chairman and chief executive officer and who
as of the record date controls, directly and indirectly, 8,681,306, or
approximately 66.7%, of the outstanding shares of our common stock has expressed
his intention to cause those shares to be voted for approval of the issuance of
common stock.
Under Section 2-419 of the Maryland General Corporation Law, the
acquisition constitutes an "interested director transaction" due to the fact
that Chaim Katzman, Nathan Hetz and Dori Segal, three of our directors, each has
a material financial interest in Centrefund. An interested director transaction
is void or voidable if the transaction is not approved in compliance with
certain guidelines. According to Section 2-419, an interested director
transaction is not void or voidable, by reason of such interest as long as
EITHER of the following is true:
o the nature of the interest is disclosed to the board or the
applicable committee, and the disinterested directors or committee
members approve the transaction by a majority vote or the nature of
the interest is disclosed to the stockholders entitled to vote on
the transaction and a majority of the disinterested stockholders
approve the transaction, or
o the transaction is fair and reasonable to the corporation.
The special committee, composed entirely of disinterested members, has approved
the acquisition by a unanimous vote. In addition, we believe, based in part on
the opinion of UBS Warburg, that the transaction is fair and reasonable to the
corporation.
DISSENTERS' RIGHTS
Under Maryland law, our stockholders have no dissenters' rights with
respect to their shares in connection with the acquisition.
VOTING AND REVOCATION OF PROXIES
The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Stockholders have an
unconditional right to revoke their proxy at any time prior to the exercise
thereof, either in person at the special meeting or by filing with our secretary
at our headquarters a written revocation or duly executed proxy bearing a later
date; however, no such revocation will be effective until written notice of the
revocation is received by us at or prior to the special meeting. Subject to such
revocation, all shares represented by each properly executed proxy received by
our secretary will be voted in accordance with the instructions indicated on the
proxy, and if no instructions are indicated, will be voted to approve the
acquisition and in such manner as the persons named on the enclosed proxy card
in their discretion determine upon such other business as may properly come
before the special meeting.
The shares represented by the accompanying proxy card and entitled to
vote will be voted if the proxy card is properly signed and received by our
secretary prior to the special meeting.
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SPECIAL FACTORS
BACKGROUND OF THE ACQUISITION
On August 18, 2000, Gazit-Globe (1982) Ltd., an Israeli public company,
and a group of its affiliated companies, which we refer to collectively as the
Gazit Group, acquired a controlling interest in Centrefund Realty Corporation
through a public tender offer. Gazit-Globe is one of our principal stockholders
and is under the control of our chairman and chief executive officer, Chaim
Katzman. Upon completion of the tender offer, Mr. Katzman became chairman of the
board of directors of Centrefund.
Effective as of August 18, 2000, we were retained by CEFUS as asset
manager for 28 of CEFUS' properties in Texas and Florida until November 30, 2000
and thereafter for all of the Texas properties and one property in Florida. In
addition, effective December 1, 2000, we became property manager for 11 of
CEFUS' Florida properties under a separate property management agreement.
Effective January 1, 2001, we became asset manager for the nine joint venture
properties in which CEFUS had an equity investment. In July 2001, after CEFUS'
purchase of one of the Florida joint venture properties, we became the property
manager for that property.
Mr. Katzman believed that it would be in our best interest to expand
our property portfolio in the southern United States. It was believed that
CEFUS' Florida properties would fit well with our existing portfolio while
CEFUS' Texas properties offered geographic diversification and potentially
higher rates of growth. Accordingly, Mr. Katzman, together with members of our
management, began during the third and fourth quarters of 2000 to consider an
acquisition by us of the U.S. properties of Centrefund, which were all owned by
CEFUS.
At our November 13, 2000 board meeting, Mr. Katzman formally proposed
to our board that an acquisition of CEFUS be explored and an initial discussion
of the merits of this transaction was conducted. In addition, our board, with
the assistance of our legal counsel, also reviewed potential conflicts of
interest arising from the fact that three of our directors, Messrs. Katzman,
Hetz and Segal, were directors, and in the case of Messrs. Katzman and Segal,
members of management of Centrefund, as well as holders of significant interests
in the equity of both us and Centrefund. As a result, the board created a
special committee, composed of Messrs. Ben Ozer, Chase, Cooney (as chairman of
the special committee), Linneman and Pilpel. The special committee was directed
to review the proposed acquisition of CEFUS by us, to retain independent
financial advisors to advise the special committee as to the fairness of the
proposed transaction to our unaffiliated stockholders, to retain counsel, to
direct the negotiation of the price and terms of the proposed acquisition of
CEFUS and to report its findings and recommendations to our board.
In evaluating the scope of its duties, the special committee believed
that it would be appropriate for it to consider and approve the property
management agreement and the asset management agreement with CEFUS. At its
initial meeting, on November 13, 2000, the special committee considered and
approved the terms of those agreements. In addition, UBS Warburg made a
presentation to the special committee regarding its qualifications to act as
independent financial advisor to the special committee and Greenberg Traurig,
P.A. made a similar presentation with respect to its qualifications to serve as
legal counsel to the committee.
Financial, accounting and legal due diligence of CEFUS and its
properties commenced immediately after the November 13, 2000 meeting of the
special committee. On December 4, 2000, Equity One and Centrefund entered into a
confidentiality agreement and our due diligence review continued. From January 8
through 11, 2001, members of our senior management and representatives of our
legal advisors and independent accountants met in North Miami Beach with
representatives of Centrefund and its legal advisors and independent accountants
for initial discussions regarding the structure, financial terms and procedural
aspects of the transaction. In the meantime, both parties continued their due
diligence reviews. UBS Warburg was formally engaged as the special committee's
financial advisor on February 14, 2001.
At its meeting on February 23, 2001, the board of directors discussed
the general status of the proposed transaction with Centrefund. The special
committee also met separately to discuss the status of the transaction, and at
that meeting received presentations from representatives of UBS Warburg and our
management regarding CEFUS' properties, financial position and value, as well as
the impact of the acquisition on our business from a financial point of view. At
a telephonic meeting held on February 26, 2001, the special committee met with
members of our management and representatives of UBS Warburg and its legal
advisors to discuss valuation issues
19
and to instruct management with respect to pending negotiations with Centrefund.
Initial negotiations between members of our management and representatives of
Centrefund were held in North Miami Beach on February 28, 2001. Messrs. Katzman,
Segal and Hetz were excluded from all meetings and deliberations of our
management regarding the acquisition and all meetings and deliberations of the
special committee and were not provided any of the materials or analyses
prepared by the financial advisors to the special committee or by our
management, at the request of the special committee on advice of counsel.
During March 2001, members of our management conducted additional
discussions with representatives of Centrefund regarding the structure, pricing
and terms of the proposed transaction, as well as the relative net asset values
of us and CEFUS. In addition, each side continued its due diligence review of
the other. The special committee met telephonically seven more times between
February 28 and April 2, 2001 to receive reports from members of our management
and, in some cases, representatives of UBS Warburg, on the status of the
transaction, the due diligence reviews and the relative values of us and CEFUS,
and to instruct management regarding the negotiations.
An initial draft of the stock exchange agreement was distributed to
Centrefund's counsel on April 4, 2001. On April 5, 2001, discussions between our
management and representatives of Centrefund resulted in a tentative agreement
on the number of shares to be issued by us as well as a tentative agreement on
other economic terms and adjustments.
Between April 11 and April 26, 2001, comments on and revised drafts of
the stock exchange agreement were exchanged by the parties' respective counsel.
Also during this period, the special committee held three telephonic meetings,
together with its counsel and representatives of UBS Warburg, to receive updates
on the status of the negotiations of the stock exchange agreement, the results
of the ongoing due diligence review of CEFUS, as well as open business issues
and procedural aspects of the proposed transaction. Legal counsel received
specific instructions from the special committee on the issues still being
negotiated.
On April 30 and May 1, our legal counsel and Centrefund's legal counsel
met in Miami, Florida to further negotiate the terms of the stock exchange
agreement with telephonic participation by our and CEFUS' management. During
these discussions additional adjustments to the financial terms were tentatively
agreed upon.
Negotiation of the terms of the transaction and drafting of the stock
exchange agreement continued until May 8, 2001. At a meeting on that date,
members of our senior management updated the special committee on the status and
terms of the proposed transaction and the proposed stock exchange agreement.
Representatives of UBS Warburg discussed UBS Warburg's financial analyses
relating to the proposed transaction. Our legal advisors also reviewed in detail
the terms of the stock exchange agreement and other legal aspects of the
proposed transaction. In addition, UBS Warburg delivered its oral opinion,
subsequently confirmed in writing as of that date, that, subject to and based on
the considerations in its opinion, the consideration to be paid by us pursuant
to the stock exchange agreement is fair from a financial point of view to our
unaffiliated stockholders. After discussion, the special committee unanimously
determined that the transaction was in our best interests, that the transaction
was fair to our unaffiliated stockholders, to approve the transaction and that
the special committee should recommend to our board of directors that it approve
the proposed acquisition of CEFUS and recommend the transaction to our
stockholders.
Final approval of the proposed transaction was held in abeyance until
May 18, 2001 while Centrefund reviewed the transaction. On that date, at a
special telephonic meeting of our board of directors, the findings of the
special committee were reported to the board and representatives of UBS Warburg
confirmed to the board the fairness opinion previously delivered to the special
committee. After discussion, the board determined to accept the special
committee's report and that the stock exchange agreement and the acquisition of
CEFUS were in our best interests and the best interests of our unaffiliated
stockholders. The board also resolved to recommend that our stockholders approve
the issuance of 10,500,000 shares of our common stock, subject to reduction for
various adjustments, in connection with our acquisition of all of the
outstanding common stock of CEFUS.
Equity One, Centrefund and First Capital executed the stock exchange
agreement on May 18, 2001 and press releases announcing the transaction were
issued.
20
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
GENERAL. The special committee and the board have each determined that
the acquisition is fair to, and in the best interests of, our unaffiliated
stockholders. Upon the special committee's recommendation, the board has
approved and adopted the stock exchange agreement and recommended that the
stockholders approve our issuance of common stock pursuant to the terms of that
agreement. Certain members of the board will have a financial interest in the
acquisition that may present them with actual or potential conflicts of interest
as discussed under "--Conflicts of Interest."
PRINCIPAL FACTORS. The material factors the special committee evaluated
in determining that the acquisition is fair to, and in the best interests of,
our unaffiliated stockholders are described below. Except as noted below, the
special committee considered the following factors to be positive factors
supporting its determination that the acquisition is fair to, and in the best
interests of, our unaffiliated stockholders:
o INCREASE OUR SIZE. After the acquisition, we would wholly own 61
properties, increasing our gross leasable area from 3.3 million
square feet to 6.5 million square feet. In addition, we will own
partial interests in nine other properties.
o IMPROVE OUR FLORIDA PORTFOLIO. The acquisition of CEFUS' Florida
properties would strengthen our Florida portfolio, making us the
third largest shopping center owner in Florida among the public
REITs.
o IMPROVE OUR LONG-TERM GROWTH POTENTIAL. CEFUS' portfolio properties
are generally located in areas of higher population growth than ours
and have higher vacancy rates which may provide greater marketing
potential.
o INCREASE DIVERSIFICATION. Because all of our properties are located
in Florida, the acquisition of properties in Texas would diversify
our overall portfolio and make us less vulnerable to a single
region's economic conditions. In addition, our economic exposure to
the success of any one tenant will be reduced.
o OPERATIONAL SYNERGIES. Because we manage a number of CEFUS'
properties, we can acquire its business and properties with very
limited incremental overhead expenses.
In addition, the special committee considered the following factors as risks to
be balanced against the positive factors listed above:
o NEW MARKET RISKS. Acquiring the Texas properties may place stress on
our existing management because of the distance of its operations
and different market risk.
o PORTFOLIO SPECIFIC RISKS. Two of the CEFUS properties are affected
by environmental clean up issues. In addition, the value of the
acquisition depends on the sale or repositioning of several Texas
properties to increase their operating performance.
o DEVELOPMENTAL RISKS. We currently have minimal development
activities; however, we would assume several projects which are
being developed by CEFUS.
o STOCK OVERHANG. Although Centrefund is receiving restricted
securities which it cannot immediately sell, it has the right to
demand that we register its shares on up to four occasions, and we
anticipate that it will likely sell some of its shares over time
which could depress the price of our stock.
o INCREASED LEVERAGE. CEFUS has more debt as a percent of its assets
than we currently do. Therefore, the acquisition will likely
decrease our ratio of operating income to interest expense.
o CAPITAL REQUIREMENTS -- DEFERRED MAINTENANCE COSTS AND ENVIRONMENTAL
CLEAN-UP. CEFUS' properties may require up to approximately $1.6
million in deferred maintenance and up to approximately $2.3 million
in environmental-related costs, such as legal expenses and costs of
environmental clean-up.
21
Based on the foregoing, on May 8, 2001, the special committee
determined that the acquisition is fair to, and in the best interests of, our
unaffiliated stockholders and recommended that the board approve the acquisition
and recommended that our stockholders approve the issuance of our common stock
pursuant to the terms of the stock exchange agreement.
The board approved the acquisition on May 18, 2001 and determined that
the acquisition is fair to, and in the best interests of, our unaffiliated
stockholders and resolved to recommend that our stockholders approve the
issuance of our common stock pursuant to the terms of the stock exchange
agreement.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE ISSUANCE OF THE
10,500,000 SHARES OF OUR COMMON STOCK IN ACCORDANCE WITH THE STOCK EXCHANGE
AGREEMENT.
OPINION OF UBS WARBURG
Our special committee retained UBS Warburg to provide it with a
financial fairness opinion in connection with the acquisition of CEFUS. The
special committee selected UBS Warburg to provide the opinion based on UBS
Warburg's qualifications, expertise and reputation and its knowledge of our
business and affairs. At the meeting of the special committee on May 8, 2001,
UBS Warburg rendered its oral opinion, subsequently confirmed in writing as of
that date, that as of May 8, 2001, and subject to and based on the
considerations in its opinion, the consideration to be paid by us pursuant to
the stock exchange agreement is fair from a financial point of view to our
stockholders other than Gazit-Globe (1982) Ltd. and its affiliates.
The full text of UBS Warburg's opinion, dated as of May 8, 2001, which
sets forth, among other things, the assumptions made, procedures followed,
matters considered and limitations on the review undertaken by UBS Warburg, is
attached as APPENDIX B to this proxy statement. We urge you to read this opinion
carefully and in its entirety. This summary is qualified in its entirety by
reference to the full text of the opinion.
UBS Warburg's opinion, which was directed to the special committee,
addresses only the fairness from a financial point of view of the consideration
to be paid by us pursuant to the stock exchange agreement, and does not address
any other aspect of the acquisition. UBS Warburg acted solely as a provider of
the fairness opinion to the special committee in connection with the
acquisition. UBS Warburg did not participate in negotiations with respect to the
stock exchange agreement and did not determine the consideration to be paid by
us.
UBS Warburg's opinion did not address our underlying business decision
to effect the stock exchange or constitute a recommendation to any of our
stockholders as to how a stockholder should vote with respect to the stock
exchange. At our direction, UBS Warburg was neither asked to nor did it offer
any opinion as to the material terms of the stock exchange agreement or the form
of the stock exchange. Furthermore, UBS Warburg expressed no opinion as to what
the value of our stock will be when issued pursuant to the stock exchange
agreement or the prices at which it will trade in the future. In rendering its
opinion, UBS Warburg assumed, with our consent, that each of us, Centrefund and
CEFUS will comply with all the material terms of the stock exchange agreement.
In arriving at its opinion, UBS Warburg, among other things:
o reviewed certain publicly available business and historical
financial information relating to each of us, Centrefund and CEFUS;
o reviewed certain internal financial information and other data
relating to our business and financial prospects, including
estimates and financial forecasts prepared by our management, that
were provided to UBS Warburg by us and not publicly available;
o reviewed certain internal financial information and other data
relating to the business and financial prospects of CEFUS, including
estimates and financial forecasts prepared by our management and the
management of CEFUS and not publicly available;
o conducted discussions with members of our senior management and the
senior management of Centrefund concerning the businesses and
financial prospects of us and CEFUS;
22
o reviewed publicly available financial and stock market data with
respect to other companies in lines of business they believe to be
generally comparable to ours;
o compared the financial terms of the acquisition with the publicly
available financial terms of certain other transactions which UBS
Warburg believed to be generally relevant;
o considered certain pro forma effects of the stock exchange on our
financial statements;
o reviewed drafts of the stock exchange agreement; and
o conducted such other financial studies, analyses and investigations,
and considered such other information, as UBS Warburg deemed
necessary or appropriate.
In connection with its review, at our direction, UBS Warburg did not
assume any responsibility for independent verification for any of the
information reviewed by it for the purpose of its opinion and, with our consent,
relied on such information being complete and accurate in all material respects.
In addition, at our direction, UBS Warburg did not make any independent
evaluation or appraisal of any of the assets or liabilities, contingent or
otherwise, of us or CEFUS. With respect to the financial forecasts, estimates
and pro forma effects referred to above, UBS Warburg assumed, at our direction,
that they were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of each company as to the
future performance of their respective companies. In addition, UBS Warburg
assumed with our approval that the future financial results referred to above
will be achieved at the times and in the amounts projected by our management.
UBS Warburg also assumed that all governmental, regulatory or other consents and
approvals necessary for the consummation of the stock exchange will be obtained
without any material adverse effect on us, Centrefund, CEFUS and/or the
acquisition. Further, UBS Warburg assumed with our consent that our REIT status
will be maintained following completion of the stock exchange. UBS Warburg's
opinion was necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to it as of, the date of its
opinion.
No company, transaction or business used in the analyses described
below is identical to us, CEFUS or the proposed acquisition. Accordingly, the
analysis of the results necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors.
The following is a summary of the material financial analyses performed
by UBS Warburg in connection with its opinion. These summaries of financial
analyses alone do not constitute a complete description of the financial
analyses.
CONTRIBUTION ANALYSIS. Using our 2001 performance projections for us
and CEFUS, UBS Warburg prepared contribution analyses based on net asset value,
funds from operations, real estate revenue, net operating income and earnings
before interest, taxes, depreciation and amortization, or EBITDA. A range for
net asset value was calculated based on combinations of our lowest estimates to
the highest estimates of CEFUS and vice versa. The ranges for the remaining
earnings figures were determined from the difference between 2001 and 2002
projected performance results, as provided by us. Following the proposed
transaction, Centrefund will control 42.1% of the resulting entity and CEFUS
will contribute 39.2% to 43.6% of net asset value, 43.4% of funds from
operations, 50.1% of real estate revenue, 47.8% of net operating income, and
49.5% of EBITDA, based on 2001 estimates provided by us.
NET ASSET VALUATION ANALYSIS. Using our projections of CEFUS'
performance results for the year 2001, UBS Warburg calculated the net asset
value for CEFUS. In so doing, UBS Warburg applied a range of capitalization
rates from 10.59% to 10.09% to our projections of CEFUS' 2001 net operating
income, assuming no additional net operating income from future acquisitions or
developments.
The resulting gross real estate value was added to the gross value of
CEFUS' other assets, including developments in progress, land, cash, and certain
other assets, less CEFUS' outstanding debt, adjustments for deferred maintenance
and anticipated environmental clean up and related legal fees, and certain other
liabilities, to
23
arrive at an equity net asset value. This analysis indicated a net asset value
range of between $113.0 million and $125.1 million.
COMPARABLE COMPANIES ANALYSIS. UBS Warburg compared various publicly
available information of CEFUS with publicly traded companies that share similar
characteristics with us and CEFUS. These companies included:
IRT Property Company
JDN Realty Corporation
Mid-Atlantic Realty Trust
Regency Centers Corporation
Weingarten Realty Investors
UBS Warburg arrived at a range of comparable company funds from
operation multiples by dividing each comparable company's share price, using
closing share prices as of May 4, 2001, by consensus 2001 and 2002 funds from
operations per share estimates from First Call Corporation. First Call
Corporation is a Thompson Financial company that specializes in the compilation
and statistical summarization of equity earnings estimates by institutional
research houses. UBS Warburg's calculations resulted in a selected range of 2001
funds from operations multiples from 7.4x to 9.2x and a range of 2002 funds from
operations multiples from 6.8x to 8.5x. In comparison, UBS Warburg observed 2001
and 2002 funds from operations multiples for CEFUS of 8.5 and 7.7, respectively,
based on our projections of 2001 and 2002 funds from operations per share
estimates provided by CEFUS, our closing share price as of May 4, 2001 of $11.30
and an assumed issuance of 10,500,000 shares of our common stock.
COMPARABLE TRANSACTIONS ANALYSIS. UBS Warburg reviewed comparable
transactions involving REITs from 1996 to the date of its opinion. Five
comparable transactions with equity values in excess of $100 million were
selected. The comparable transactions include the following pending and
completed transactions:
o Kranzco Realty Trust and CV REIT
o Bradley Real Estate, Inc. and Heritage Properties Investment Trust,
Inc.
o Western Properties Trust and Pan Pacific Retail Properties
o First Washington Realty Trust Inc. and CalPERS
o Burnham Pacific Properties, Inc. and Weingarten Realty Investors
For each closed transaction, UBS Warburg calculated the forward funds
from operations multiple at the closing of the respective transaction defined as
the price of the target company on the closing date of the transaction divided
by the most recent consensus funds from operations estimate at the time of the
closing. UBS Warburg observed a range of forward funds from operations multiples
at closing from 4.4x to 10.1x compared to an assumed 8.5x forward multiple for
CEFUS, based on an assumed price of $11.20 for our stock divided by our estimate
of forward funds from operations for CEFUS.
For each transaction, UBS Warburg determined EBITDA multiples,
calculated by dividing the enterprise value, or the equity consideration plus
debt assumed less cash assumed, by EBITDA produced by the target company over
the last quarter annualized. UBS Warburg observed a range of EBITDA multiples
from 10.1x to 11.9x compared to an assumed EBITDA multiple of 9.8x for CEFUS,
based on an assumed price of $11.20 for our stock and on reported EBITDA for
CEFUS for the first quarter of 2001.
PRO FORMA MERGER ANALYSIS. UBS Warburg analyzed the effect of the stock
exchange on, among other things, the estimated First Call funds from operations
per fully diluted share of our common stock, for the years ending December 31,
2001 and 2002. In doing so, UBS Warburg combined the projected operating results
for us and CEFUS as well as additional costs related to the transaction in
accordance with estimates provided by our management. UBS Warburg observed a
total projected post-acquisition incremental accretion of less than $0.0035 and
$0.0259 per share for 2001 and 2002, respectively. The analysis assumed a
transaction closing date of September 30, 2001.
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UBS Warburg also analyzed the effect of the stock exchange on our pro
forma equity market capitalization, total market capitalization and leverage
ratios. In this regard, UBS Warburg noted that:
o our pro forma equity market capitalization would be approximately
$278.9 million, assuming a share price of $11.20 and assuming
approximately 24.9 million shares of our common stock are
outstanding after completion of the stock exchange, and the pro
forma total market capitalization would be approximately $552.4
million; and
o our debt to total market capitalization ratio, based on the
assumptions noted above, would rise, upon completion of the stock
exchange, from 41.9% before the stock exchange to 49.5% after the
assumption of CEFUS' outstanding debt and for the payment of the
transaction costs.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, UBS Warburg considered the results of all of its
analyses as a whole and did not attribute any particular weight to any analysis
or factor considered by it. UBS Warburg believes that the summary provided and
the analyses described above must be considered as a whole and that selecting
portions of these analyses, without considering all of them, would create an
incomplete view of the process underlying its analyses and opinion. In addition,
UBS Warburg may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting from
any particular analysis described above should therefore not be taken to be UBS
Warburg's view of the actual value of CEFUS or us.
In performing its analyses, UBS Warburg made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond our control and the control of CEFUS.
Any estimates contained in UBS Warburg's analysis are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by these estimates. The analyses performed were
prepared solely as a part of UBS Warburg's analysis of the fairness from a
financial point of view of the consideration to be paid by us pursuant to the
stock exchange agreement and were conducted in connection with the delivery by
UBS Warburg of its opinion dated May 8, 2001, to the special committee. UBS
Warburg's analyses do not purport to be appraisals or to reflect the prices at
which shares of our common stock might actually trade. The consideration to be
paid by us in the stock exchange agreement was determined through negotiations
between us and CEFUS and was approved by our special committee. UBS Warburg did
not recommend any specific consideration to us or that any given consideration
constituted the only appropriate consideration for the acquisition of CEFUS.
UBS Warburg's opinion was one of the many factors taken into
consideration by the special committee in making its determination to approve
the acquisition of CEFUS. UBS Warburg's analyses summarized above should not be
viewed as determinative of the opinion of the special committee with respect to
the value of CEFUS or of whether the special committee would have been willing
to agree to a different form of consideration.
UBS Warburg is an internationally recognized investment banking and
advisory firm. UBS Warburg, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the past, UBS Warburg and its affiliates have provided financial
advisory and financing services to us and our affiliates and have received
customary fees for the rendering of these services. Specifically, in August
2000, UBS Warburg represented Gazit (1997), Inc., a Canadian holding company
controlled by Chaim Katzman, in its successful acquisition of Centrefund. In the
ordinary course of business, UBS Warburg may from time to time trade in the
securities of or indebtedness of us and Centrefund for its own account, the
accounts of investment funds and other clients under the management of UBS
Warburg and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities or indebtedness.
We have agreed to pay UBS Warburg aggregate fees of $600,000 in
connection with the issuance of its opinion. We have also agreed to reimburse
UBS Warburg for its expenses incurred in performing its services and to
indemnify UBS Warburg and its affiliates, their respective directors, officers,
agents and employees and each person, if any, controlling UBS Warburg or any of
its affiliates against certain liabilities and expenses, including
25
certain liabilities under federal securities laws, related to or arising out of
UBS Warburg's engagement and any related transactions.
CONFLICTS OF INTEREST AND CERTAIN BUSINESS RELATIONSHIPS
In considering the board's recommendation that you approve the issuance
of our common stock pursuant to the terms of the stock exchange agreement, you
should be aware that at least three of our directors have interests that are
different from yours as an unaffiliated stockholder.
Chaim Katzman is our chairman of the board and chief executive officer.
As a result of his direct and indirect interests in several companies, he may
currently be deemed to be the beneficial owner of approximately 67.4% of our
outstanding common stock. Mr. Katzman is also the chairman of the board of
Centrefund and may be deemed to be the beneficial owner of approximately 68.1%
of the outstanding common stock of Centrefund. Consummation of the acquisition
will, therefore, likely increase Mr. Katzman's beneficial ownership of our
company to approximately 82%. Mr. Katzman acquired his position and his
controlling interest in Centrefund as a result of a public tender offer
completed on August 18, 2000 by Gazit-Globe (1982) Ltd., an Israeli public
company, and a group of its affiliated companies. Gazit-Globe (1982) Ltd. is one
of our principal stockholders and is under the control of Mr. Katzman who is its
chairman and chief executive officer and who is chairman and chief executive
officer of certain of its affiliates.
Dori Segal is a member of our board and the president and a director of
Gazit-Globe (1982) Ltd. He is also the president and chief executive officer and
a director of Centrefund. In addition, Dori Segal and members of his family own
common stock of an affiliate of Gazit-Globe (1982) Ltd. which owns common stock
of Centrefund and us.
Nathan Hetz is a member of our board as well as a member of the board
of directors of Centrefund. Mr. Hetz is chief executive officer of, and may be
deemed to jointly control, Alony Hetz Properties & Investments, Ltd., which is a
significant stockholder in our company. He is also a director and significant
shareholder of A.H. Holdings Canada Ltd. which owns approximately 19% of the
outstanding common stock of Centrefund. Alony Hetz Properties & Investments Ltd.
currently owns or has the right to acquire approximately 20% of the outstanding
shares of our company, including 925,000 shares that Alony Hetz is obligated to
purchase on August 17, 2001.
As part of the transaction with Alony Hetz Properties & Investments
Ltd., we agreed to expand our board of directors to include two directors
designated by them, one of whom is Nathan Hetz and another of whom must be an
independent director. Alony Hetz has appointed Peter Linneman as its independent
designee.
CEFUS and Equity One Realty & Management, Inc., our wholly owned
subsidiary, are parties to an asset management agreement that was effective as
of August 18, 2000 and a property management agreement that was effective as of
December 1, 2000. Pursuant to these agreements, Equity One Realty & Management
currently provides asset management services to CEFUS for its properties in
Texas and one Florida property and property management services to CEFUS for
eleven of its properties in Florida. Equity One Realty & Management is entitled
to receive quarterly asset management fees equal to 0.1% of the book value of
enumerated properties and a monthly property management fee equal to 3% of the
minimum and percentage rents collected by it. Additionally, under the property
management agreement, Equity One Realty & Management is entitled to a $3.00 per
square foot lease commission for each lease to a new tenant and $1.00 per square
foot commission for each renewal of any existing lease. It is responsible for
administering lease agreements for CEFUS and is paid fees for these services.
Currently, the fees range between $750 and $4,500 per lease. For each lease
assignment, renewal or amendment during its service as property manager, Equity
One Realty & Management is to be paid a fee of $1,000 for lease administration.
In the event that any of the CEFUS properties are sold during the term of the
agreement, Equity One Realty & Management is to receive a sales advisory fee of
one-quarter of one percent of the gross sales price. Additionally, if any of the
CEFUS properties are financed or refinanced, CEFUS shall pay a mortgage advisory
fee of one-quarter of one percent of the principal amount of the loan. The terms
of these agreements, including the amounts of fees payable, were determined by
arm's-length negotiations, and we believe that the fees are consistent with fees
charged by other third-party asset and property managers. Through March 31,
2001, we have received approximately $831,000 in fees from these agreements.
These agreements will terminate on December 31, 2001, unless terminated earlier
pursuant to their terms. If these agreements continue after closing of the
acquisition, the revenues attributed to them will be eliminated when we
consolidate CEFUS' financial results with our own.
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THE ACQUISITION
BASIC TERMS OF ACQUISITION
The stock exchange agreement provides that we will acquire all of the
outstanding common stock of CEFUS in exchange for 10,500,000 shares of our
common stock, subject to reduction for various adjustments, and that following
the acquisition, CEFUS will be a wholly-owned subsidiary of ours.
The terms of and conditions to the acquisition are contained in the
stock exchange agreement which is included in full as APPENDIX A to this proxy
statement and is incorporated herein by reference. The discussion in this proxy
statement of the acquisition and the summary description of the principal terms
of the stock exchange agreement are subject to and qualified in their entirety
by reference to the more complete information set forth in the stock exchange
agreement.
CEFUS DISTRIBUTIONS
Centrefund and First Capital agreed that, from January 1, 2001 through
and including the closing date of the acquisition, Centrefund and First Capital
shall have been entitled to receive from CEFUS and its subsidiaries:
o distributions payable in cash, shares, stock or property from CEFUS
and its subsidiaries equal to amounts advanced or contributed to
CEFUS and its subsidiaries, whether by way of equity or debt, from
January 1, 2001 through the closing date of the acquisition; PLUS
o $4,760,000, if the acquisition closes on or before September 14, or
$7,490,000 if it closes after September 14, 2001, subject, in both
cases, to some adjustments set forth in the stock exchange
agreement; MINUS
o all fees, costs and expenses, including legal and accounting fees,
costs and expenses, paid or incurred by CEFUS in connection with or
related to the CEFUS restructuring contemplated in the stock
exchange agreement.
Due to the fact that some of these items will not be determinable at
closing, the parties agreed to make an estimate of them and, if appropriate,
reduce the number of our shares being issued at closing accordingly or make a
cash payment to CEFUS. Within 45 days after the closing, the parties have agreed
to make a definitive reconciliation of these amounts and, if any amounts are
owing to CEFUS, Centrefund and First Capital have agreed to promptly make a
payment in cash of the amounts owing.
REPRESENTATIONS AND WARRANTIES
The Centrefund parties, which include Centrefund, CEFUS and First
Capital, made representations and warranties in the stock exchange agreement
regarding, among other things, their authority to enter into the stock exchange
agreement, the absence of violations of, conflicts with or defaults under
applicable laws, their organizational documents and material agreements of
theirs, their investment in our common stock, the shares of CEFUS common stock
to be acquired by us, the accuracy of information supplied to us, the receipt of
a fairness opinion by Centrefund's board of directors, absence of brokers' fees,
as well as representation and warranties regarding the business of CEFUS,
including, its due organization, qualification to do business and good standing,
its subsidiaries, material governmental compliance, title to real property,
financial statements, absence of certain changes since December 31, 2000,
absence of undisclosed liabilities, compliance with applicable laws, solvency,
tax matters, personal property assets, material contracts, existing debt,
insurance, litigation, employees, employee benefits, environmental and health
and safety matters, related party transactions and intellectual property.
In addition, we made representations and warranties in the stock
exchange agreement regarding, among other things, our organization and good
standing, capitalization, authority to enter into the transaction, receipt of a
fairness opinion, the absence of violations of, conflicts with or defaults under
applicable laws, our organizational documents and material agreements of ours,
absence of brokers' fees, the accuracy of information supplied by us and
provided in reports required to be filed with the Securities and Exchange
Commission, our investment in CEFUS common stock, litigation, undisclosed
liabilities, the listing of our common stock on the New York Stock Exchange,
title to our real property, subsidiaries, financial statements, absence of
certain changes since
27
December 31, 2000, material governmental compliance, tax matters, personal
property assets, material contracts, existing debt, insurance, employee
benefits, labor matter, environmental and health and safety matters and related
party transactions.
The representations and warranties of the parties in the stock exchange
agreement will survive the consummation of the acquisition, and each of the
parties shall indemnify the other parties for any adverse consequence suffered
by the indemnified parties as a result of a breach of those representations and
warranties. See "THE ACQUISITION --- Indemnification and Survival."
COVENANTS
The parties to the stock exchange agreement agreed as follows with
respect to the period between the execution of the agreement and the closing of
the acquisition:
o The Centrefund parties agreed to deliver to us unaudited
consolidated balance sheets and statements of income, changes in
stockholders' equity, and cash flow of CEFUS as of and for the three
months ended March 31, 2001.
o We agreed to deliver to Centrefund all pro forma financial
statements and all audited consolidated financial statements
included in this proxy statement along with the form of this proxy
statement.
o We also agreed to deliver to Centrefund the pro forma financial
statements and data included in the financial statements included in
this proxy statement for the period ended December 31, 2000
reconciled to Canadian GAAP.
o Each of the parties agreed to use commercially reasonably efforts to
take all actions and to do all things necessary, proper, or
advisable in order to consummate the acquisition.
o We agreed to hold the special meeting to approve the issuance of our
common stock pursuant to the stock exchange agreement and Centrefund
agreed to call a meeting of its stockholders for the purpose of
obtaining the approval of the acquisition by its unaffiliated
stockholders.
o Each of the parties agreed to cooperate to identify all necessary
and appropriate notices and consents of third parties required to be
given or obtained in connection with the acquisition and to give all
the notices and use commercially reasonable efforts to obtain all
consents which the other party reasonably requests.
o We agreed to use reasonable efforts to keep our businesses,
properties, business organizations and goodwill substantially
intact, including our present operations, physical facilities,
working conditions, and relationships with lessors, tenants,
licensors, suppliers, developers, customers, and employees, and not
to
- except in the ordinary course of business, redeem, purchase, or
otherwise offer to purchase or acquire any of our common stock or
otherwise take any action out of the ordinary course of business;
- except in the ordinary course of business, amend or propose to
amend our formation documents, by-laws, existing option plans or
the terms of any outstanding options, warrants, calls, conversion
privileges or rights of any kind to acquire capital stock;
- except as disclosed in our public filings, issue, sell, transfer,
mortgage, or encumber any additional shares of, or any options,
warrants, calls, conversion privileges or rights to acquire
shares of our common stock or, except in the ordinary course of
business, any of our assets or real or personal properties;
- split, combine or reclassify any of our common stock;
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- declare, set aside or pay any dividend or other distribution,
except for our normal quarterly distributions to stockholders;
- reorganize, amalgamate or merge us or any of our subsidiaries
with any other company;
- incur any indebtedness for borrowed money or assume, guarantee or
become liable for the obligations of any other company, or issue
or sell any debt securities or grant any security of any material
assets except for enumerated existing commitments and the
incurrence of indebtedness in connection with acquisitions of
real property in the ordinary course of business; or
- enter into any transaction which is material to us, including any
material acquisition of all of the stock or substantially all of
the assets of another company.
o The Centrefund parties agreed to use commercially reasonable efforts
to keep CEFUS' businesses, properties, business organizations and
goodwill substantially intact, including its present operations,
physical facilities, working conditions, and relationships with
lessors, tenants, licensors, suppliers, developers, customers, and
employees, and not to cause or permit CEFUS or any of its
subsidiaries to
- issue, redeem, purchase, or otherwise acquire any of its common
stock or otherwise take any action out of the ordinary course of
business;
- amend or propose to amend its constating documents or by-laws;
- issue, sell, transfer, mortgage, or encumber any additional
shares of, or any options, warrants, calls, conversion privileges
or rights to acquire shares of its common stock or any of its
assets or real or personal properties;
- split, combine or reclassify any of its common stock;
- declare, set aside or pay any dividend or other distribution,
except as otherwise permitted by the stock exchange agreement;
- reorganize, amalgamate or merge CEFUS or any of its subsidiaries
with any other company;
- incur any indebtedness for borrowed money or assume, guarantee or
become liable for the obligations of any other company, or issue
or sell any debt securities or grant any security of any material
assets except borrowing for working capital in the ordinary
course of its business, enumerated existing commitments and the
incurrence of indebtedness in connection with acquisitions of
real property in the ordinary course of business; or
- enter into any transaction which is material to CEFUS, including
any material acquisition of all of the stock or substantially all
of the assets of another company.
o The Centrefund parties agreed to keep us apprised of the actions
being taken with respect to the winding up of two of the
subsidiaries of CEFUS and agreed not to take any actions, except for
certain permitted actions, with respect to the winding up of those
subsidiaries other than in accordance with the related agreements,
without our prior approval, which approval may not be unreasonably
withheld or delayed.
o The Centrefund parties agreed to permit our representatives to have
full access to the premises, properties, personnel, books, records,
contracts, and documents pertaining to CEFUS. In addition, we agreed
to permit representatives of the Centrefund parties to have full
access to our premises, properties, personnel, books, records,
contracts, and documents pertaining to us.
29
o Each party agreed to give prompt written notice to the other parties
of any breach of any of its own representations, warranties or
covenants under the stock exchange agreement.
o The Centrefund parties will consult with us regarding the actions
contemplated to effect a proposed restructuring of CEFUS and will
cause that restructuring to be completed prior to the closing of the
acquisition.
o The Centrefund parties agreed to cause each of the CEFUS
subsidiaries that has earnings and profits to distribute them so
each would not have any earnings and profits for U.S. federal income
tax purposes as of the closing date. They also agreed to cause CEFUS
to make distributions to its parent company in an amount to be
estimated and agreed upon by all of the parties in order to prevent
it from having any earnings and profits for U.S. federal income tax
purposes as of the closing date.
o The parties also agreed to consult with each other in issuing any
press releases or making any other public communications or
statements in respect of the agreement or the acquisition.
The parties also agreed as follows with respect to the period following the
closing of the acquisition:
o We agreed to use our reasonable commercial efforts to maintain the
listing of our outstanding common stock on the New York Stock
Exchange.
o Each of the parties agreed to provide information and to take such
further action as any other party reasonably may request that is
necessary or desirable to carry out the purposes of the stock
exchange agreement. In addition, the Centrefund parties acknowledge
and agree that we will be entitled to possession of all documents,
books, records, agreements and financial data relating to CEFUS, and
we agreed to provide the Centrefund parties with reasonable access
to our documents, books and records for tax or corporate compliance
purposes.
o Each of the parties agreed to cooperate with any other party and its
counsel in the contest or defense of any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in
connection with the acquisition or any situation, circumstance or
event on or prior to the closing of the acquisition involving CEFUS
and will make available its personnel, and provide such testimony
and access to its books and records as shall be necessary or
desirable in connection with the contest or defense or situation,
circumstance or event.
o None of the Centrefund parties will take any action that is
designed, intended or likely to have the effect of discouraging any
lessor, tenant, licensor, customer, developer, supplier, or other
business associate of CEFUS or any of its subsidiaries from
maintaining the same business relationships with CEFUS and its
subsidiaries after the closing of the acquisition as it maintained
with them prior to the closing. The Centrefund parties will refer
all customer inquiries relating to the businesses of CEFUS to us
from and after the closing of the acquisition.
o Each of the parties agreed to treat and hold all confidential
information provided or made available by the other parties, refrain
from using any confidential information except in connection with
the stock exchange agreement, and if the acquisition is terminated,
deliver to the other or destroy all confidential information which
is in their possession.
o After the closing of the acquisition, each party shall, at the
request of any other party authorize CEFUS' past and present
independent auditors and accounting personnel to make available all
financial information, including the examination of all working
papers pertaining to audits or reviews made by such auditors, and
provide reasonable cooperation in connection with any audit or
review of CEFUS and its subsidiaries.
o The Centrefund parties agreed not to take any action, or fail to
take any action, with respect to corporate taxes, if that action or
inaction would have an adverse effect on us on or after the closing
of the acquisition.
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o We agreed to use commercially reasonable efforts to operate in a
manner that will not cause us to be classified other than as a REIT.
o We agreed that for so long as the Centrefund parties own at least
20% of our common stock, we will provide to Centrefund copies of our
consolidated quarterly unaudited financial statements prepared in
accordance with Canadian GAAP and our consolidated annual unaudited
financial statements prepared in accordance with Canadian GAAP.
o We agreed that our present intention is to use commercially
reasonable efforts to continue to pay dividends in respect of our
common stock at levels at least equal to those paid in the past.
o We agreed that, for a period of one year after the closing of the
acquisition, we will not dispose of more than two thirds of the
assets of CEFUS, in a manner that would constitute the
discontinuance of CEFUS' historic business or the failure to use
CEFUS' business assets in our business, within the meaning of the
applicable regulations.
o Each of the parties acknowledged and agreed that to the extent there
is any refund of applicable taxes paid by CEFUS or its subsidiaries,
the refund shall be paid to such company, regardless of the time
such refund is made.
o We covenanted and agreed to use commercially reasonable efforts
after the closing not to take any action, or fail to take any
action, if that action or inaction would cause the transaction to
fail to constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
NON-SOLICITATION COVENANT
We, CEFUS and First Capital agreed that each of us will not solicit,
initiate, or encourage the submission of any proposal or offer from any other
company relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of CEFUS or its
subsidiaries or us or our subsidiaries or participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
company to do or seek any similar kind of acquisition proposal; provided that we
may continue discussions with respect to acquisitions of the capital stock or
assets of other public companies as long as we do not enter into any transaction
without the prior written consent of Centrefund. Each party has agreed to notify
the other parties immediately if any company makes any acquisition proposal,
offer, inquiry, or contact.
INDEMNIFICATION AND SURVIVAL
The stock exchange agreement provides that all of the representations,
warranties, covenants and agreements of the parties shall survive the closing of
the acquisition for the applicable statutes of limitations. However, no claim
for indemnification for a breach of a representation or warranty under the
agreement, other than representations regarding corporate authority and
organization, tax and capitalization, shall be made after the date 18 months
after the closing of the acquisition. Claims for indemnification for breaches of
representations regarding corporate authority and organization, tax and
capitalization may be made at any time following the closing prior to the
expiration of the applicable statute of limitations.
In the event that a Centrefund party breaches any of its
representations, warranties, covenants and agreements contained in the stock
exchange agreement, the Centrefund parties shall jointly and severally indemnify
us and each of our officers, directors, employees, representatives and
affiliates from and against adverse consequences suffered as a result of the
breach. In addition, the Centrefund parties shall jointly and severally
indemnify us and our officers, directors, employees, representatives and
affiliates from and against any adverse consequences suffered as a result of any
liability of CEFUS for any corporate taxes with respect to any tax year or
portion of a year ending on or before the closing of the acquisition, to the
extent those taxes are not reflected in the reserve for tax liability shown on
the face of the financial statements of CEFUS, as of December 31, 2000, and for
any taxes payable by CEFUS or its subsidiaries because the acquisition failed to
qualify as a reorganization within the meaning of the tax code by reason of any
action of the Centrefund parties.
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The Centrefund parties have no obligation to indemnify us for any
adverse consequences resulting from breaches of the representations and
warranties of the Centrefund parties regarding real property, events subsequent
to December 31, 2000, undisclosed liabilities, compliance with laws, material
contracts, power of attorney, insurance, litigation, and environmental, health
and safety matters if the circumstances or events giving rise to the adverse
consequences:
o occurred after August 15, 2000,
o related to the properties managed by us; and
o were not actually known by the present directors or officers of the
Centrefund parties.
If we breach any of our representations, warranties, covenants or
agreements contained in the stock exchange agreement, then we must indemnify the
Centrefund parties and each of their officers, directors, employees,
representatives and affiliates from and against any adverse consequences
suffered as result of the breach.
The indemnification provisions contained in the stock exchange
agreement are in addition to any statutory, equitable, or common law remedy any
party may have with respect to CEFUS or the acquisition.
CONDITIONS
Each party's respective obligation to effect the acquisition is subject
to the satisfaction, at or prior to the closing, of each of the following
conditions, any or all of which may be waived at the appropriate party's
discretion, to the extent permitted by applicable law:
o our stockholders shall have approved the issuance of the shares of
our common stock pursuant to the terms of the stock exchange
agreement;
o the Centrefund parties shall have received the requisite approval of
the Centrefund stockholders other than the Gazit-Globe (1982) Ltd.
and its affiliates; and
o the restructuring of CEFUS, incorporating the elimination of all
related party debt, shall have been completed and all consents
required to effect the restructuring shall have been obtained.
Our obligations to close the acquisition are further subject to
satisfaction or waiver at or prior to the closing of the following conditions:
o the representations and warranties made by the Centrefund parties in
the stock exchange agreement shall be true and correct, in all
material respects with respect to those representations and
warranties that are not qualified by materiality and true and
correct in all respects with respect to those which are qualified by
materiality, at and as of the closing;
o there shall not have occurred any event or circumstance having a
material adverse effect on CEFUS;
o the Centrefund parties and CEFUS shall have performed and complied
in all material respects with all of their covenants under the stock
exchange agreement;
o Centrefund and CEFUS shall have executed and delivered an assignment
and indemnity agreement under which, in consideration of the
assignment by CEFUS to Centrefund of all of its rights under the
advisory agreement with CEFUS' former advisor, Centrefund agrees to
assume all the obligations of CEFUS and indemnify CEFUS and its
affiliates from liability arising under the advisory agreement,
including the payment of any incentive fees owing to the advisor and
the property manager under the terms of the advisory agreement;
o no governmental requirement shall have been proposed, enacted,
promulgated or applied and no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, that could prevent the
consummation of the acquisition or impose material limitations or
conditions on the
32
acquisition or our right to own CEFUS' common stock, or cause the
acquisition to be rescinded following consummation, or have a
material adverse effect on CEFUS;
o Torys, counsel to Centrefund, as well as Centrefund's Florida
counsel, shall have each delivered an opinion addressed to us with
respect to certain legal matters dated as of the closing date;
o all actions required to be taken by the Centrefund parties pursuant
to the stock exchange agreement and all certificates, opinions,
instruments, and other documents required to effect the acquisition
shall have been delivered and are reasonably satisfactory in form
and substance to us;
o the Centrefund parties shall have caused CEFUS' subsidiaries to
distribute all earnings and profits and CEFUS to distribute the
estimated earnings and profit amount as required under the stock
exchange agreement;
o all management and advisory arrangements between Centrefund and
CEFUS shall have been terminated on or prior to the closing; and
o Our counsel, Greenberg Traurig, shall have delivered an opinion
addressed to us with respect to certain tax matters, dated as of the
closing date.
The obligations of the Centrefund parties to close the acquisition are
further subject to satisfaction or waiver at or prior to the closing of the
following conditions:
o the representations and warranties made by us in the stock exchange
agreement shall be true and correct, in all material respects with
respect to those representations and warranties that are not
qualified by materiality and true and correct in all respects with
respect to those which are qualified by materiality, at and as of
the closing;
o there shall not have occurred any event or circumstance having a
material adverse effect on us;
o we shall have performed and complied in all material respects with
all of our covenants and agreements in the stock exchange agreement;
o no governmental requirement shall have been proposed, enacted,
promulgated or applied and no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, which could prevent
consummation of the acquisition or impose material limitations or
conditions on the acquisition or the right of the Centrefund parties
to own or exercise full rights of ownership of the shares of our
common stock, or cause the acquisition to be rescinded following
consummation or have a material adverse effect on us;
o Our counsel, Greenberg Traurig, P.A., shall have delivered an
opinion addressed to the Centrefund parties with respect to certain
legal matters dated as of the closing date;
o all actions to be taken by us in connection with consummation of the
acquisition and all certificates, opinions, instruments, and other
documents required to effect the acquisition shall have been
delivered and are reasonably satisfactory in form and substance to
the Centrefund parties;
o certificates representing the shares of our common stock to be
issued in connection with the acquisition shall have been delivered
at closing and those shares shall have been listed and approved for
trading on the New York Stock Exchange upon issuance; and
o Torys, counsel to Centrefund, shall have delivered an opinion
addressed to Centrefund with respect to certain tax matters, dated
as of the closing date.
33
REGISTRATION RIGHTS
Following the closing of the acquisition, the Centrefund parties may
require us, on up to four occasions, to file a registration statement under the
Securities Act of 1933, as amended, permitting the resale of the common stock
issued in connection with the acquisition for twelve consecutive months. Each
demand for registration must be for the registration of no fewer than one
million shares. These registration rights will be subject to our right to delay
the filing of a registration statement for not more than three months if we
notify the Centrefund parties that the registration would reasonably be expected
to have an adverse effect on any business plan of ours. After execution of the
stock exchange agreement, Centrefund agreed not to exercise its registration
rights for at least 12 months after the closing of the acquisition.
In addition, the Centrefund parties have "piggyback" registration
rights. If we propose to register any common stock under the Securities Act, the
Centrefund parties may require us to include in the registration all or a
portion of the shares of common stock issued by us in connection with the
acquisition. However, the managing underwriter, if any, of that offering has the
right to limit the number of shares of common stock proposed to be included in
the registration on a pro rata basis among First Capital and the other holders
of our common stock who have requested to be included in such underwritten
offering.
Our registration obligations will be suspended and tolled for the time
necessary, but not to exceed 120 days, so that the registered resale of the
shares issued in connection with the acquisition does not commence within 90
days after the commencement of an underwritten primary public offering of our
equity securities. In addition, we are required to bear all registration
expenses incurred in connection with these registrations. However, the holders
of shares registered by us will pay all underwriting discounts and selling
commissions applicable to the sale of their common stock. We also agreed to
indemnify these holders for any damage they suffer due to any untrue statement
or omission that we make in a registration statement covering their shares.
The registration rights of the Centrefund parties will terminate when
all of the shares issued in connection with the acquisition may be transferred
without registration under the Securities Act pursuant to Rule 144(k).
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the closing of the acquisition, the stock exchange
agreement may be terminated by the mutual written consent of us and the
Centrefund parties.
In addition, we may terminate the stock exchange agreement at any time
prior to the closing in the event the Centrefund parties have breached any
representation, warranty or covenant contained in the stock exchange agreement
in any material respect with respect to those representations and warranties
that are not qualified by materiality and in any respect with respect to those
representations and warranties that are qualified by materiality, and the breach
has continued without cure for a period of 30 days after the notice of breach or
if the closing shall not have occurred on or before September 28, 2001, because
of the failure of any of our conditions to close to be satisfied.
The Centrefund parties may terminate the stock exchange agreement at
any time prior to the closing in the event we have breached any representation,
warranty, or covenant contained in this Agreement in any material respect with
respect to those representations and warranties that are not qualified by
materiality and in any respect with respect to those representations and
warranties that are qualified by materiality and the breach has continued
without cure for a period of 30 days after the notice of breach, or if the
Centrefund parties do not receive the requisite approval of the Centrefund
stockholders, or if the Closing shall not have occurred on or before September
28, 2001, because of the failure of any of the Centrefund parties' conditions to
close to be satisfied.
No provision of the stock exchange agreement may be amended unless both
we and First Capital agree in writing.
34
EXPENSES
To the extent not specifically set forth below, each of the parties and
CEFUS will bear its own costs and expenses incurred in connection with the stock
exchange agreement and the acquisition, and the parties have agreed that the
expenses allocated to CEFUS shall be determined reasonably and in good faith.
See "SPECIAL FACTORS--Opinion of UBS Warburg for a description of the
fees to be paid by us to UBS Warburg in connection with its engagement.
REGULATORY APPROVALS
We are not aware of any license or regulatory permit which is required
in connection with the acquisition or of any approval or other action by any
state, federal or foreign government or governmental agency that would be
required prior to effecting the acquisition.
ACCOUNTING TREATMENT
The proposed combination of us and CEFUS is being accounted for as a
combination of entities under common control. Gazit-Globe (1982) Ltd., which for
accounting purposes may be deemed to be a 63.4% stockholder of our company,
acquired, for accounting purposes, a 68.1% interest in Centrefund, the parent of
CEFUS, in August 2000. This means that we will record on our consolidated
financial statements 68.1% of the assets and liabilities of CEFUS as recorded on
the books of Gazit-Globe (1982) Ltd., and the remaining 31.9% of the assets and
liabilities will be carried forward to our consolidated financial statements at
their recorded amounts on CEFUS' books. For the period commencing August 18,
2000, the date Gazit-Globe acquired control of Centrefund, to the date we
complete our acquisition of CEFUS, our consolidated financial statements will be
restated to include all of CEFUS' income or loss adjusted to give effect to
Gazit-Globe's purchase accounting adjustments.
RIGHTS OF DISSENTING STOCKHOLDERS
The acquisition does not entitle our stockholders to dissenters'
rights.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income
tax considerations that are relevant to you arising from our acquisition of the
CEFUS stock. This discussion is not exhaustive of all possible tax
considerations and does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, the following discussion is intended to
address only those U.S. federal income tax considerations that are generally
applicable to all stockholders and does not discuss all of the aspects of U.S.
federal income taxation that may be relevant to particular stockholders in light
of their specific circumstances or to stockholders who are subject to special
treatment under U.S. federal income tax law.
This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended, or the Internal Revenue Code and its legislative
history, existing, temporary and proposed Treasury Regulations under the
Internal Revenue Code, existing administrative rulings and practices of the
Internal Revenue Service and judicial decisions. No assurance can be given that
legislative, judicial or administrative changes will not affect the accuracy of
any statements in this proxy statement with respect to transactions entered into
or contemplated prior to the effective date of any such changes. In addition, we
have not requested and do not plan to request any rulings from the Internal
Revenue Service concerning the tax considerations arising from our acquisition
of the CEFUS stock. Accordingly, no assurance can be given that the statements
set forth in this section, which do not bind the Internal Revenue Service or the
courts, will not be challenged by the Internal Revenue Service or sustained by
the courts if so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. EACH HOLDER OF OUR SHARES IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISER REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF OUR PROPOSED
ACQUISITION OF CEFUS, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES THAT MAY APPLY TO THAT HOLDER.
35
TAX CONSEQUENCES OF THE ACQUISITION
Whether or not our acquisition of CEFUS qualifies as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code, you will not
realize any gain or loss for U.S. federal income tax purposes as a result of the
acquisition, and we will not realize any gain or loss as a result of the
acquisition.
Our acquisition of CEFUS is intended to qualify as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code. Greenberg
Traurig, P.A., our counsel, and Torys, counsel to the Centrefund parties, as a
condition to the acquisition, will deliver opinions to us and to First Capital
that the acquisition should qualify as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code, based on certain factual
assumptions and on certain representations made by Centrefund, First Capital and
us. Provided the acquisition qualifies as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code, CEFUS should not recognize any gain
or loss for U.S. federal income tax purposes as a result of the acquisition.
DISTRIBUTIONS
If CEFUS, which is not a REIT, were to have any earnings and profits
for U.S. federal income tax purposes at the time we acquire its stock, we would
be required, in order to maintain our status as a REIT for U.S. federal income
tax purposes, to distribute an amount equal to those earnings and profits before
the end of our taxable year in which the acquisition takes place. You would
receive a portion of any such distribution, even though the distribution would
not represent any income earned by us while you held our shares, and your share
of that required distribution would be taxable to you as ordinary income. The
stock exchange agreement requires CEFUS to calculate its earnings and profits
and to distribute an amount at least equal to those earnings and profits prior
to the completion of the acquisition. Accordingly, so long as CEFUS' calculation
is correct, we should not be required to make any distribution in respect of
CEFUS' earnings and profits. If for any reason CEFUS' calculation is incorrect,
we would be required to make such a distribution, and you would realize ordinary
income accordingly.
TAXABLE DISPOSITIONS OF CEFUS' ASSETS WITHIN TEN YEAR PERIOD AFTER THE
ACQUISITION
Because CEFUS is not a REIT for U.S. federal income tax purposes, if we
were to dispose of any of its assets in a taxable transaction during the ten
years following the acquisition, we would be subject to U.S. federal corporate
income tax, contrary to the normal rules applicable to a REIT. In general, we
would be subject to tax at the highest regular corporate tax rate on any
built-in gain that existed with respect to the CEFUS' assets at the time of the
acquisition. The gain recognized on such a disposition, net of any tax payable
by us, would also be subject to stockholder tax under the normal rules
applicable to gains recognized by a REIT.
CONSEQUENCES OF THE ACQUISITION ON OUR QUALIFICATION AS A REAL ESTATE INVESTMENT
TRUST
As a condition to the acquisition, Greenberg Traurig will deliver an
opinion to Centrefund and First Capital in substance that, we have in effect a
valid election to be treated as a REIT and satisfied all requirements for
qualification as a REIT and that, to their knowledge, the acquisition will not
result in the termination or revocation of that election or otherwise cause us
to cease to be treated as a REIT. This opinion will rely on customary
representations made by us about factual matters relating to our organization
and operation. In addition, this opinion will be based on factual
representations by us concerning our income, business and properties and the
income, business and properties of CEFUS. If any of the factual assumptions or
representations relied on in the opinion of counsel is inaccurate, the opinion
may not accurately describe our qualification as a REIT.
We intend to continue to operate in a manner to qualify as a REIT
following the acquisition of CEFUS, but there is no guarantee that we will
qualify or remain qualified as a REIT. Qualification and taxation as a REIT
depend on our ability to meet, through annual, or, in some cases, quarterly,
operating results, requirements relating to income, asset ownership,
distribution levels and diversity of share ownership, and the various REIT
qualification requirements imposed under the Internal Revenue Code. Greenberg
Traurig will not review our compliance with these tests on a continuing basis.
Given the complex nature of the REIT qualification requirements, the ongoing
importance of factual determinations and the possibility of future changes in
our circumstances, we cannot guarantee that our actual operating results will
satisfy the requirements for taxation as a REIT under the Internal Revenue Code
for any particular taxable year.
36
BUSINESS OF CEFUS
OVERVIEW
CEFUS concentrates its business on the acquisition and ownership of
community and neighborhood shopping centers anchored by national and regional
tenants, including supermarkets. As an indirect, wholly-owned subsidiary of
Centrefund, it owns all of the U.S. real property assets of Centrefund.
CEFUS' primary investment objective is to create value by maximizing
cash flow from, and capital appreciation of, its real estate portfolio. This
objective is achieved by overseeing the management of its properties and by
seeking appropriate, opportunistic acquisitions of additional properties. As of
March 31, 2001, CEFUS owned 28 properties that included 15 supermarket-anchored
shopping centers, two drugstore-anchored shopping centers, ten other retail
properties, and one commercial property. The CEFUS properties are located
primarily in metropolitan areas of Florida and Texas, contain an aggregate of
3.2 million square feet of gross leasable area, or GLA, and were 83% occupied as
of March 31, 2001.
In addition, in 1997 CEFUS entered into an exclusive partnership
arrangement with North American Shopping Center Corp., or North American, for
the development of neighborhood and community shopping centers in the United
States. This partnership operates under the name Centrefund Development Group,
or CDG. As a result of the CDG partnership, CEFUS owns interests in nine
separate joint ventures. Each of these joint ventures owns, is developing or
intends to develop retail and other commercial properties in Florida and Texas.
In connection with these activities, CEFUS has advanced loans to its development
partner, North American, to partially finance North American's investment in
these joint ventures. As of March 31, 2001, CEFUS had advanced approximately
$12.5 million to North American. These loans bear interest at rates varying from
CEFUS' cost of funds to 10% per annum and will be repaid from cash flows
generated from the development properties and from North American's share of
proceeds generated from refinancing or sales. CEFUS is contingently liable for
certain of the obligations of the joint ventures and all of the assets of the
joint ventures are available for the purpose of satisfying those obligations and
guarantees. For more information, see note 3 to the consolidated financial
statements of CEFUS included in this proxy statement. Subsequent to year end, in
accordance with the terms of the CDG partnership agreements, the partners agreed
to wind up the joint ventures on an orderly basis. Any properties not purchased
by the partners will be sold to third parties. See " - Recent Developments"
below.
CEFUS' supermarket-anchored centers are anchored by national and
regional tenants such as Albertson's, Kroger, Randall's, Minyard Food Stores and
Publix. Other anchor tenants include such national retailers as Walgreens,
Eckerd, Bed Bath & Beyond, Office Depot, T.J. Maxx, Barnes and Noble and Bealls
Department Stores. Non-anchor tenants include national and regional businesses
such as Bank of America, First Union National Bank, Subway, Blockbuster Video,
Chili's, Pizza Hut, General Nutrition Center, Radio Shack and JoAnn's Fabrics.
CEFUS believes that its anchor tenants offer daily necessity items which
generate regular consumer traffic and enhance the performance and stability of
its properties.
Since its acquisition in 1994 by Centrefund, CEFUS has focused its
efforts on acquiring and operating supermarket-anchored and other
retail-anchored shopping centers in Florida and Texas. To manage its day to day
activities and supervise its operations, it has historically engaged third-party
property managers and asset managers, including third parties affiliated with
Centrefund and its former controlling parties. Effective August 2000, CEFUS
engaged our wholly-owned subsidiary, Equity One Realty & Management, as the
asset manager for its U.S. properties. Effective December 1, 2000, CEFUS engaged
Equity One Realty & Management as the property manager for eleven of its Florida
properties and its role as asset manager for all but one of these Florida
properties was terminated. Equity One Realty & Management continues to be the
asset manager for CEFUS' 16 Texas properties. In addition, effective January 1,
2001, Equity One Realty & Management became the asset manager for CEFUS' nine
joint venture interests.
CEFUS has relied principally upon its parent entities and outside
managers to conduct its business and operations. We expect that following our
acquisition of CEFUS, its real estate investment policies will be managed
consistently with our current policy to invest primarily in supermarket-anchored
centers capable of generating stable cash flows and maintaining long-term value.
37
RECENT DEVELOPMENTS
WINDING-UP OF CDG
As discussed above, in accordance with the CDG partnership agreement,
we and North American agreed to wind up the operations of the joint ventures. In
accordance with the CDG partnership agreement, North American was entitled to
purchase the three remaining undeveloped sites owned by CDG at cost, with 30% of
the purchase price required to be paid in cash at closing and the balance funded
in the form of financing by CEFUS. The loans bear interest at 10% per annum,
which is payable quarterly, in arrears, for 18 months, at which time the entire
principal balance is due and payable.
On June 15, 2001, North American acquired all of CEFUS' interest in the
undeveloped sites known as Thornbridge Crossing, Grand Parkway and Fry and
Donald Ross & Military for a total consideration of approximately $8.3 million,
of which approximately $2.5 million in cash was paid to CEFUS at the closing and
the balance was paid in the form of promissory notes in the aggregate principal
amount of approximately $5.8 million. Each note issued by North American is
guaranteed by the pledge of its interest in the underlying real property or the
entity owning the real property. The material terms of the sales are as follows:
THORNBRIDGE CROSSING: The purchase price was approximately $2.3 million, payable in cash of
approximately $700,000 and a secured promissory note in the principal
amount of approximately $1.6 million;
GRAND PARKWAY AND FRY: The purchase price was approximately $1.7 million, net of an existing
deed of trust in the approximate amount of $800,000, payable in cash
of approximately $500,000 and a secured promissory note in the
principal amount of approximately $1.2 million; and
DONALD ROSS & MILITARY: The purchase price was approximately $4.3 million, payable in cash of
approximately $1.3 million and a secured promissory note in the
principal amount of approximately $3.0 million.
In connection with each of these transactions, North American purchased
CEFUS' interest in the CDG joint venture that owned each of the properties. As
consideration for its joint venture interests, CEFUS received an assignment of
the entire $8.3 million net purchase price, one half of which, in the amount of
$4.15 million, represented CEFUS' share of the purchase price and the other
one-half, in the amount of $4.15 million, represented repayment toward North
American's obligations to CEFUS.
Also on June 15, 2001, CEFUS acquired from North American all of North
American's interest in two developed sites, Cashmere Corners and Oak Square. The
material terms of the sales are as follows:
Cashmere Corners: The purchase price was approximately $3.2 million, net of an existing
mortgage and other costs of approximately $5.7 million; and
Oak Square: The purchase price was $2.3 million, net of an existing mortgage and
other costs of approximately $8.5 million.
North American received no cash proceeds from these transactions for
its share of the interests and all of North American's share of the
consideration was credited against its outstanding obligations to CEFUS. From
Cashmere Corners, approximately $1.6 million, which is one-half of the
consideration, was credited against North
38
American's outstanding obligations. From Oak Square, approximately $1.1 million,
which is one-half of the consideration, was credited against North American's
outstanding obligations.
As a result of all of the foregoing transactions, the $12.5 million
amount advanced by CEFUS to North American to partially finance North American's
investment in the joint ventures was reduced by one half of the consideration.
Therefore, North American's obligation to CEFUS after the foregoing
transactions, subject to interest and other cost adjustments accruing subsequent
to March 31, 2001, is $5.65 million in connection with the CDG partnerships and
$5.8 million of secured promissory notes.
REFINANCING
BOCA VILLAGE SQUARE. On April 23, 2001, Boca Village Square completed
an $8.5 million refinancing with Prudential Mortgage Capital Company LLC at an
interest rate of 7.20%. The loan has a 30-year amortization and the outstanding
balance is due on May 1, 2011. The loan is non recourse to CEFUS other than
matters related to fraud and environmental issues.
SAWGRASS PROMENADE. On April 23, 2001, Sawgrass Promenade completed an
$8.5 million refinancing with Prudential Mortgage Capital Company LLC at an
interest rate 7.20%. The loan has a 30-year amortization and the outstanding
balance is due on May 1, 2011. The loan is non recourse to CEFUS other than
matters related to fraud and environmental issues.
SALE OF HARBOUR FINANCIAL
On March 5, 2001, The Harbor Center, Inc., a wholly owned subsidiary of
CEFUS, entered into a purchase and sale agreement with Lendan, Inc., to sell the
property known as Harbour Financial Center for a purchase price of $21 million.
Subject to the purchaser's assumption of the existing mortgage with First Union
of approximately $12.6 million, the closing of the sale is anticipated to be in
the third quarter of 2001, after the acquisition of CEFUS. CEFUS currently
anticipates that the net proceeds from the sale will be used to acquire one or
more qualifying properties in a 1031 tax free exchange.
39
PROPERTIES
As of March 31, 2001, the CEFUS properties consisted primarily of
supermarket-anchored shopping centers and other shopping centers, and contained
an aggregate of 3.2 million square feet of GLA. No single property of CEFUS
represents ten percent or more of CEFUS' total consolidated assets nor did any
single CEFUS property generate ten percent or more of CEFUS' consolidated gross
revenue for the fiscal year ended December 31, 2000. All of CEFUS' properties
are subject to competition in their immediate vicinity. The following table
provides a brief description of each of the CEFUS properties:
Net
Operating Average
Income Minimum
GLA for the Rent Per Percent
(Sq. Ft.) Quarter Leased Sq. Leased
at Ended Ft. at at
Acquired March 31, Number of March 31, March 31, March 31,
Property Date 2001 Tenants (1) 2001 2001 2001 Certain Tenants (2)
- ----------------------- ----------- --------- ----------- ----------- -------------- ---------- -------------------
FLORIDA PROPERTIES
- ------------------
Bluff's Square Shoppes January 137,395 53 $312,280 $11.69 94.9% Publix, Walgreens,
Jupiter, Florida 1990 Mailboxes etc., Sun
Trust, Century 21
Boca Village Square June 1998 93,428 25 295,902 $13.26 99.3% Publix, Eckerd,
Boca Raton, Florida Sylvan Learning,
United Bank, Center,
Mailboxes, etc.
Boynton Plaza January 99,324 30 211,039 $10.47 100.0% Publix, Eckerd, H&R
Boynton Beach, Florida 1988 Block, Amtrust Bank,
Radio Shack
Harbour Financial Center September 119,083 41 554,704 $19.57 97.5% Delta Airlines, Inc.,
Palm Beach Gardens, 1992 Carmine's, Fidelity
Florida Brokerage
Kirkman Shoppes October 88,820 32 267,006 $17.21 92.4% Eckerd, Starbuck's,
Orlando, Florida 1988 GNC, J.B.'s
Restaurant,
Chick-Fil-A
Marco Town Center May 1998 109,574 45 350,027 $16.19 84.0% Publix
Oakbrook Square December 225,073 37 473,077 $9.02 88.4% Publix, Eckerd's,
North Palm Beach, 1996 First Union,
Florida Jacobson's
Prosperity Centre July 1997 122,106 9 403,283 $14.70 100.0% Bed Bath & Beyond;
Palm Beach Gardens, Office Depot;
Florida T.J. Maxx
Ross Plaza July 1998 85,903 20 160,852 $9.01 97.3% Ross, Chili's,
Tampa, Florida Walgreens, GTE
Sawgrass Promenade March 1989 107,092 29 295,069 $11.11 98.0% Publix, Blockbuster,
Deerfield Beach, Walgreens
Shoppes of Jonathan's February 26,820 13 120,574 $15.87 100.0% Albertson's(3),
Landing 1998 Einstein Bros., Dairy
Jupiter, Florida Queen, Blockbuster
Video
The Shoppes at Westburry February 33,706 21 125,755 $17.41 100.0% Dairy Queen, Pizza
Miami-Dade, Florida 1998 Hut, Pollo Tropical
---------- --- ---------- ------ -----
TOTAL/WEIGHTED AVERAGE
FLORIDA PROPERTIES 1,248,324 355 $3,569,568 $12.98 94.7%
40
Net
Operating Average
Income Minimum
GLA for the Rent Per Percent
(Sq. Ft.) Quarter Leased Sq. Leased
at Ended Ft. at at
Acquired March 31, Number of March 31, March 31, March 31,
Property Date 2001 Tenants (1) 2001 2001 2001 Certain Tenants (2)
- ----------------------- ----------- --------- ----------- ----------- -------------- ---------- -------------------
TEXAS PROPERTIES
Beechcrest June 1998 90,797 15 $204,778 $ 8.71 98.4% Randall's Food
Houston, Texas Market*, (Viet Ho),
Walgreens*, Pizza Hut
Benbrook Square June 1998 247,422 26 25,076 3.05 59.3% Salvation Army,
Benbrook, Texas Family Dollar,
JoAnn's Fabrics
Copperfield Crossing December 160,695 36 139,298 12.27 47.1% Subway, Nextel,
Houston, Texas 1995 Allstate, JoAnn's
Fabrics
Grogan's Mill September 118,398 28 359,654 11.81 97.7% Randall's Food
Spring, Texas 1998 Market, Petco
Minyard's June 1999 58,695 1 83,403 6.40 100.0% Minyard's Food Store
Dallas, Texas
Mission Bend September 129,675 27 320,439 8.22 90.3% Randall's Food
Houston, Texas 1998 Market, Dollar Tree,
Wells Fargo
Plymouth Park East / April 1996 56,432 10 32,678 4.16 100.0% Kroger, Subway
Kroger Plaza
Irving, Texas
Plymouth Park North April 1996 444,362 60 407,062 8.05 55.2% KFC, Taco Bell,
Irving, Texas Payless Shoes,
Blockbuster, Radio
Shack
Plymouth Park South / April 1996 49,102 7 66,677 6.71 88.5% Betcha Bingo, State
Eckerd Plaza of Texas
Irving, Texas
Plymouth Park West April 1996 178,930 16 191,696 5.37 84.7% La Grand Bulgar,
Irving, Texas Bank of America
Steeplechase September 104,002 26 308,241 11.04 100.0% Randall's, GNC,
Houston, Texas 1998 Little Caesars
Sterling Plaza October 65,206 16 217,023 13.09 91.5% Music Warehouse
Irving, Texas 1998 Ent., Bank One,
Pizza Hut
Townsend Square March 1998 140,262 39 265,096 9.92 79.9% Albertson's(3),
DeSoto, Texas Beall's Dept. Store,
Family Dollar
Village by the Parks December 44,547 12 156,434 22.78 72.5% Toys R'2Us(3),
Arlington, Texas 1997 Pier 1(3), Petco
Woodforest September 12,741 4 81,830 22.50 100.0% Hollywood Video
Houston, Texas 1998
Wurzbach February 63,100 3 24,344 2.71 100.0% Albertson's,
San Antonio, Texas 1999 Popeye's Chicken
--------- --- ---------- ------ -----
TOTAL/WEIGHTED AVERAGE
TEXAS PROPERTIES 1,974,349 326 $2,883,732 $8.41 75.6%
========= === ========== ====== =====
TOTAL/WEIGHTED AVERAGE
ALL PROPERTIES 3,212,693 681 $6,456,301 $10.49 83.1%
========= === ========== ====== =====
- ------------------------
(1) Number of tenants includes both leased and vacant units.
(2) Certain tenants include anchor tenants and certain non-anchor tenants.
(3) Adjoining parcel, separately owned by a third party.
* Indicates a tenant that has closed its store and ceased to operate at the
property, but continues to pay rent under its lease. The subtenant, if any,
is shown in parentheses.
41
Additional information is presented below about each of the 28 CEFUS
properties as of March 31, 2001.
BEECHCREST. Beechcrest is a 90,797 square foot supermarket center
occupied by 14 tenants located in Houston, Texas. Beechcrest is situated on 7.17
acres and is anchored by Viet Ho (on a sub-let from Randall's Food Market) and a
vacant Walgreens.
BENBROOK SQUARE. Benbrook Square is a 247,422 square foot shopping
center occupied by 16 tenants located in Benbrook, Texas. Benbrook Square is
situated on 22.43 acres and is anchored by JoAnn's Fabrics.
BLUFF'S SQUARE SHOPPES. Bluff's Square Shoppes is a 137,395 square foot
supermarket center occupied by 37 tenants located in Jupiter, Florida. Bluff's
Square Shoppes is situated on 15.58 acres and is anchored by Publix and
Walgreens.
BOCA VILLAGE SQUARE. Boca Village Square is a 93,428 square foot
supermarket center occupied by 24 tenants located in West Palm Beach, Florida.
Boca Village is situated on 9.77 acres and is anchored by Publix and Eckerd.
BOYNTON PLAZA. Boynton Plaza is a 99,324 square foot supermarket center
occupied by 30 tenants located in Boynton Beach, Florida. Boynton Plaza is
situated on 10.40 acres and is anchored by Publix and Eckerd.
COPPERFIELD CROSSING. Copperfield Crossing is a 160,695 square foot
shopping center occupied by 29 tenants located in Houston, Texas. Copperfield
Crossing is situated on 18.92 acres and is anchored by Clothworld.
GROGAN'S MILL. Grogan's Mill is an 118,398 square foot shopping center
occupied by 26 tenants located in Spring, Texas. Grogan's Mill is situated on
11.96 acres and is anchored by Randall's Food Market and Petco.
HARBOUR FINANCIAL CENTER. Harbour Financial Center is an 119,083 square
foot mixed-use office/retail property occupied by 39 tenants located in Palm
Beach Gardens, Florida. Harbour Financial Center is situated on 9.95 acres and
is under a contract for sale. See " - Recent Developments."
KIRKMAN SHOPPES. Kirkman Shoppes is an 88,820 square foot shopping
center occupied by 29 tenants located in Orlando, Florida. Kirkman Shoppes is
situated on 11.46 acres and is anchored by Eckerd.
MARCO TOWN CENTER. Marco Island Town Center is an 109,574 square foot
supermarket center occupied by 30 tenants located in Marco Island, Florida.
Marco Town Center is situated on 10.21 acres and is anchored by Publix.
MINYARD'S. Minyard's is 58,695 square foot free-standing supermarket
located in Dallas, Texas. Minyard's is situated on approximately 5.6 acres.
MISSION BEND. Mission Bend is an 129,675 square foot supermarket center
occupied by 24 tenants located in Houston, Texas. Mission Bend is situated on
10.92 acres and is anchored by Randall's Food Market.
OAKBROOK SQUARE. Oakbrook Square is a 225,073 square foot supermarket
center occupied by 27 tenants located in North Palm Beach, Florida. Oakbrook is
situated on 20.35 acres and is anchored by Jacobson's, Publix and Eckerd.
PLYMOUTH PARK EAST / KROGER PLAZA. Plymouth Park East / Kroger Plaza is
a 56,435 square foot supermarket center occupied by ten tenants located in
Irving, Texas. Plymouth Park East/Kroger Plaza is situated on 5.2 acres and is
anchored by Kroger.
PLYMOUTH PARK NORTH. Plymouth Park North is a 444,362 square foot
shopping center occupied by 43 tenants located in Irving, Texas. Plymouth Park
North is situated on 34.87 acres.
PLYMOUTH PARK SOUTH / ECKERD PLAZA. Plymouth Park South/Eckerd Plaza is
a 49,102 square foot shopping center occupied by five tenants located in Irving,
Texas. Plymouth Park South/Eckerd Plaza is situated on 4.49 acres and is
anchored by Eckerd.
42
PLYMOUTH PARK WEST. Plymouth Park West is an 178,930 square foot
shopping center occupied by twelve tenants located in Irving, Texas. Plymouth
Park West is situated on 16.53 acres and is anchored by La Gran Bulgar Bazaar.
PROSPERITY CENTRE. Prosperity Centre is an 122,106 square foot shopping
center occupied by 9 tenants located in Palm Beach Gardens, Florida. Prosperity
Centre is situated on 11.35 acres and is anchored by Bed Bath & Beyond, Office
Depot and T.J. Maxx.
ROSS PLAZA. Ross Plaza is an 85,903 square foot shopping center
occupied by 18 tenants located in Tampa, Florida. Ross Plaza is situated on 8.3
acres and is anchored by Ross Dress for Less and Walgreens.
SAWGRASS PROMENADE. Sawgrass Promenade is a 107,092 square foot
supermarket center occupied by 27 tenants located in Deerfield Beach, Florida.
Sawgrass Promenade is situated on 12.0 acres and is anchored by Publix and
Walgreens.
SHOPPES AT WESTBURY. Shoppes at Westbury is a 33,706 square foot
shopping center occupied by 21 tenants located in Miami-Dade County, Florida.
Shoppes at Westbury is situated on 2.40 acres.
SHOPPES OF JONATHAN'S LANDING. Shoppes of Jonathan's Landing is a
26,820 square foot supermarket center occupied by 13 tenants located in Jupiter,
Florida. Shoppes of Jonathan's Landing is situated on 4.43 acres and is anchored
by Albertson's. Albertson's is located on property contiguous to CEFUS' property
and is not owned by CEFUS.
STEEPLECHASE. Steeplechase is an 104,002 square foot supermarket center
occupied by 26 tenants located in Houston, Texas. Steeplechase is situated on
9.52 acres and is anchored by Randall's Food Market.
STERLING PLAZA. Sterling Plaza is a 65,206 square foot shopping center
occupied by 15 tenants and is located in Irving, Texas. Sterling Plaza is
situated on 7.36 acres and is anchored by Music Warehouse and BankOne.
TOWNSEND SQUARE. Townsend Square is an 140,262 square foot supermarket
center occupied by 35 tenants located in Desoto, Texas. Townsend Square is
situated on 11.65 acres and is anchored by Albertson's and Bealls. Albertson's
is located on property contiguous to CEFUS' property and is not owned by CEFUS.
VILLAGE BY THE PARKS. Village by the Parks is a 44,547 square foot
shopping center occupied by eight tenants located in Arlington, Texas. Village
by the Parks is situated on 4.62 acres and is anchored by Toys R Us and Pier
One. Both Toys R Us and Pier One are located on property contiguous to CEFUS'
property and neither are owned by CEFUS.
WOODFOREST. Woodforest is an 12,741 square foot shopping center
occupied by four tenants located in Houston, Texas. Woodforest is situated on
2.32 acres and is anchored by Hollywood Video.
WURZBACH. Wurzbach is a 63,100 square foot supermarket center occupied
by three tenants and is located in San Antonio, Texas. Wurzbach is situated on
6.48 acres and is anchored by Albertson's.
Information is presented below about the nine CEFUS' joint venture
interests as of March 31, 2001.
ABACOA PLAZA. Abacoa Plaza is a 62,270 square foot supermarket center
occupied by 6 tenants located in Jupiter, Florida. Abacoa is situated on 14.73
acres and is anchored by Publix. CEFUS and North American Shopping Center Corp.
have 50.1% and 49.9% interests in the CDG joint venture which in turn has a 50%
interest in a partnership which owns this asset. Cenross, Ltd. owns the
remaining 50%.
CASHMERE CORNERS. Cashmere Corners is a 97,136 square foot supermarket
center occupied by 12 tenants and located in Port St. Lucie, Florida. Cashmere
is situated on 10.96 acres and is anchored by Albertson's. The property also
includes two undeveloped outparcels of land and an adjoining 4.12 acre parcel.
For a discussion of CEFUS' recent acquisition of its partner's interest in
Cashmere Corners, see " - Recent Developments."
CITY CENTER. City Center is a 93,461 square foot mixed use
office/retail building occupied by 12 tenants in Palm Beach Gardens, Florida.
City Center is situated on 13.18 acres and has the potential for expansion for a
43
75,000 square foot office tower. CEFUS and North American have 50.1% and 49.9%
interests in the CDG joint venture which in turn has a 50% interest in a
partnership which owns this asset. PGA II Ltd. owns the remaining 50%. CEFUS and
North American have 50.1% and 49.9% interests in a CDG partnership which in turn
has a 50% interest in a partnership which owns a parcel contiguous to City
Center available for the development of the 75,000 square foot office building.
Peter Brock and Andrew Brock own the remaining 50%.
DONALD ROSS & MILITARY. Donald Ross & Military is a 45 acre development
site in Palm Beach Gardens, Florida. For a discussion of CEFUS' recent sale of
its interest in Donald Ross & Military, see " - Recent Developments."
GRAND PARKWAY AND FRY. This is an 8.8 acres development site in
Houston, Texas. For a discussion of CEFUS' recent sale of its interest in Grand
Parkway and Fry, see " - Recent Developments."
NORTHMIL PLAZA. Northmil Plaza is an 81,337 square foot supermarket
center occupied by 5 tenants located in Palm Beach Gardens, Florida. Northmil
Plaza is situated on 11.57 acres and is anchored by Albertson's. CEFUS and North
American have 50.1% and 49.9% interests in the CDG joint venture which in turn
has a 50% interest in a partnership which owns this asset. Northlake II, Ltd.
owns the remaining 50%.
OAK SQUARE. Oak Square is an 119,300 square foot shopping center
located in Gainesville, Florida. Oak Square is situated on 9.44 acres and is
anchored by Bed Bath & Beyond, Office Depot, Just For Feet and Borders Books.
Gainesville Development, L.L.C. owns 50% of this property. For a discussion of
CEFUS' recent acquisition of North American's interest in Oak Square, see " -
Recent Developments."
PLANO PARKWAY. Plano Parkway is an 133,370 square foot shopping center,
currently under construction and located in Plano, Texas. Plano Parkway is
situated on 13.37 acres and is anchored by Office Max and Bed Bath & Beyond,
each of which is expected to open in the third quarter of 2001, and Walgreens,
which is currently open. CEFUS and North American have 50.1% and 49.9% interests
in the CDG joint venture which owns this asset.
THORNBRIDGE CROSSING. Thornbridge Crossing is an 8.89 acres development
site in North Richland Hills, Texas. For a discussion of CEFUS' recent sale of
its interest in Thornbridge Crossing, see " - Recent Developments."
44
SELECTED FINANCIAL DATA OF CEFUS
We are providing the following financial information of CEFUS to aid
you in your analysis of the financial aspects of the acquisition. We derived
this information from CEFUS' historical financial statements as of and for the
years ended December 31, 1998 through 2000. In addition, the financial
information as of and for the three months ended March 31, 2001 and 2000 have
been derived from the unaudited financial statements of CEFUS. Earnings per
share data have not been provided because CEFUS has been a wholly-owned
subsidiary of Centrefund. The following information should be read together with
the financial statements and financial statement notes of CEFUS contained in
this proxy statement beginning on page F-2. CEFUS, as the subsidiary of a
Canadian company, has historically prepared its financial statements in
accordance with Canadian generally accepted accounting principles. Although all
financial data for CEFUS provided in this proxy statement have been prepared on
the basis of U.S. generally accepted accounting principles, Selected Financial
Data for CEFUS for the years ended December 31, 1997 and 1996 have been omitted
because the data necessary to prepare financial statements in accordance with
U.S. generally accepted accounting principles is not available. We believe that
the omitted data would not be material to our stockholders in light of the more
recent data presented.
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------
2001 2000 2000 1999 1998
------ ------- ------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $9,884 $11,334 $41,169 $40,791 $27,955
------ ------- ------- ------- -------
Operating expenses............................... 3,093 3,453 12,858 12,849 8,792
Depreciation..................................... 1,559 1,858 6,984 6,330 4,325
Interest......................................... 3,099 3,356 15,558 14,205 9,380
Corporate expenses............................... 183 114 642 1,795 1,140
Management fee to parent......................... 650 908 3,632 -- --
Equity (income) loss of joint ventures........... (127) 134 (293) (659) (204)
Previous management's incentive
and other fees................................ -- -- 14,944 -- --
Termination of advisory services................. -- -- -- 8,204 --
Income and other taxes........................... 505 620 (4,601) (644) 239
Other............................................ -- -- -- -- 3,531
------ ------- ------- ------- -------
Total expenses................................ 8,962 10,443 49,724 42,080 27,203
------ ------- ------- ------- -------
Net income (loss)................................ $ 922 $ 891 $(8,555) $(1,289) $ 752
====== ======= ======= ======= =======
MARCH 31, DECEMBER 31,
---------------- ---------------------------------
2001 2000 1999 1998
---------------- -------- -------- --------
BALANCE SHEET DATA:
Total rental properties before accumulated
depreciation.................................. $255,773 $254,514 $262,318 $243,360
Total assets..................................... 272,863 296,556 289,922 275,455
Mortgage notes payable........................... 161,956 162,257 141,286 108,252
Total liabilities................................ 177,108 224,050 208,861 216,536
Stockholder's equity............................. 95,755 72,506 81,061 58,919
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------
2001 2000 2000 1999 1998
----- ----- -------- ------- ------
OTHER DATA:
Cash flow from:
Operating activities.......................... 3,962 4,794 $(4,081) $11,780 $3,334
Investing activities.......................... (952) 2,535 (23,294) (32,345) (110,660)
Financing activities.......................... (2,029) 5,253 20,971 9,849 124,177
Gross leasable area (square feet at end of
period)....................................... 3,202 3,457 3,202 3,538 3,416
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF CEFUS
GENERAL
CEFUS is an indirect, wholly-owned subsidiary of Centrefund. CEFUS,
directly and through its subsidiaries, invests primarily in shopping centers
located in Texas and Florida with the objective of maximizing long-term
operating cash flow and generating long-term capital appreciation. CEFUS has
historically obtained advisory and property management services from companies
related to certain of Centrefund's stockholders and directors, subject to the
overall supervision of CEFUS' and Centrefund's boards of directors. On January
18, 2000, stockholders of Centrefund approved a transaction to internalize
management of Centrefund, including CEFUS, by employing certain employees of its
related company advisor directly. As a result of this decision, the advisory
agreement with the advisor was amended, effective January 1, 2000, to terminate
the advisory fee and revise the incentive fee payable to the related company
advisor and property manager. Centrefund's former chairman, president and chief
executive officer continued to provide his services through the amended advisory
agreement.
On August 18, 2000, the Gazit Group purchased a controlling interest in
Centrefund pursuant to the terms of a tender offer. Prior to the acquisition of
control by the Gazit Group, the advisor and property manager of CEFUS were
entitled to certain incentive fees pursuant to the advisory and other
agreements. As more fully described below, with the acquisition of control by
the Gazit Group and termination of these agreements, all of the incentive fees
became payable in cash. However, in accordance with the stock exchange
agreement, Centrefund has agreed, in consideration of the assignment by CEFUS to
Centrefund of all of its rights under these agreements, to assume the obligation
to pay the incentive fees and indemnify CEFUS for any liabilities arising from
these obligations if our acquisition of CEFUS is completed.
Historically, CEFUS has experienced significant growth through the
acquisition of additional shopping centers. Since CEFUS' acquisition by
Centrefund in 1994, CEFUS has expanded its initial portfolio of six shopping
centers containing approximately 630,000 square feet of gross leasable area to
28 properties containing approximately 3.2 million square feet of gross leasable
area as of December 31, 2000. This growth has been substantially financed
through mortgage debt and loans or equity from Centrefund.
In 1997, CEFUS entered into a memorandum of partnership, in connection
with the formation of CDG, in order to develop neighborhood and community
shopping centers in the United States through various joint ventures with North
American. In 2001, a decision was made to wind up the partnership on an orderly
basis. See "BUSINESS OF CEFUS - Recent Developments."
GROSS RENTAL INCOME
A substantial portion of CEFUS' growth can be attributed to the
acquisition of additional shopping centers. The following chart summarizes the
sources of CEFUS' growth and the impact of this growth on gross rental income
over the past five years, in thousands of dollars.
-----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
1994 Acquisitions $10,948 $10,875 $10,426 $9,747 $10,007
1995 Acquisitions 1,829 3,145 1,929 1,875 1,588
1996 Acquisitions 6,692 5,661 5,282 4,683 1,460
1997 Acquisitions 3,031 3,049 2,857 995
1998 Acquisitions 16,605 15,991 6,876
1999 Acquisitions 546 274
2000 Acquisitions -
------- ------- ------- ------- -------
Annual gross rental income $39,651 $38,995 $27,370 $17,300 $13,055
======= ======= ======= ======= =======
Number of shopping centers
acquired during the year 0 2 13 2 2
-----------------------------------------------------------------------------------------
46
Until fiscal 2000, CEFUS had expanded its portfolio in each year of its
existence. The full impact of these acquisitions is only fully reflected in the
years after the properties are acquired or completed. The year ended December
31, 2000 was one of transition in which no properties were acquired.
CEFUS' business involves the redevelopment and remerchandising of
retail space. As a result, it is common for CEFUS to generate income from
payments received from tenants as compensation for the cancellation of leases.
In 2000, CEFUS received net lease cancellation payments of $1.7 million as
compared to $1.9 million in 1999 and $100,000 in 1998. These payments, which
were received from tenants, were included in gross rental income in the
respective periods.
RESULTS OF OPERATIONS
Prior to the Gazit Group's acquisition of control of Centrefund, the
former advisor and property manager of CEFUS were entitled to receive incentive
fees pursuant to advisory and other agreements. Upon termination of the advisory
agreement, in accordance with its terms, the advisor became entitled to receive
an incentive fee equal to 20% of the excess of the fair market value of CEFUS'
shopping center portfolio and other related assets over the book value of those
assets, as adjusted for certain payments and other adjustments. Upon the
Gazit-Group's acquisition of control of Centrefund, the advisory agreement was
terminated and all of the incentive fees became payable in cash.
Former management of CEFUS, which included the Centrefund's former
chairman, president and chief executive officer and who also controlled the
former advisor and is currently a partner in CDG, calculated the incentive fee
to be $8.8 million. This amount was accrued after the Gazit Group's offer to
acquire a controlling interest in CEFUS was made in June 2000. As of December
31, 2000, $3.7 million of the incentive fee had been paid. The unpaid amount is
secured by a fixed and floating charge over two Centrefund shopping centers in
Canada. The incentive fee, as calculated by the advisor, was based on the
advisor's estimate of the fair market value of CEFUS' shopping center portfolio.
Centrefund and CEFUS are disputing the calculation of the termination
incentive fee, including amounts that have been advanced. When the dispute is
resolved, the termination incentive fee could be significantly different from
the amount recorded. However, as noted in " - General" above, Centrefund will
assume all responsibilities for the termination fee and will be entitled to any
refund that might be agreed upon if CEFUS is actually acquired by us.
The previous management's incentive fees and certain other costs,
primarily associated with CEFUS' consideration of the Gazit Group's offer, and
the cost of canceling the property management contract as it pertains to the
Florida property portfolio in accordance with a settlement agreement dated
August 15, 2000, totaled $14.9 million, as disclosed in Note 14 of the notes to
CEFUS' consolidated financial statements.
A provision for the advisory termination transaction was recorded in
the financial statements at December 31, 1999 totaling $8.2 million. The payment
was in respect of the termination of the advisory fee and acquisition and
disposition fee components of the advisory agreement and third-party
professional and consulting costs in connection with the internalization of
management of Centrefund effective January 1, 2000.
CEFUS believes that the provisions for previous management's incentive
and other fees, described above and in Note 14 resulting from the termination of
the related company advisory agreement and the termination of advisory services
described above and in Note 12(d) resulting from the internalization of
Centrefund prior management of the notes to the consolidated financial
statements of CEFUS included in this proxy statement, should be considered
separately, as non-recurring charges, when evaluating CEFUS' financial
performance.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS
ENDED MARCH 31, 2000
Operating income before income taxes for the three months ended March
31, 2001 was $1.4 million compared to $1.5 million for the same period in 2000.
Net earnings in both 2001 and 2000 were $0.9 million.
These financial results were generated from gross rental income for the
three months ended March 31, 2001 of $9.6 million compared to $10.9 million for
the same period in 2000. Rental income, which is net of property operating
costs, was $6.5 million for the current year period compared to $7.4 million in
the 2000 period. In the
47
three-month period ending March 31, 2000, a lease termination fee of $1.2
million was received from the anchor tenant in Woodforest Center in Houston. No
comparable lease termination occurred in the 2001 three-month period. The anchor
tenant subsequently purchased its former premises in this center. In addition,
Kingwood Centre, in Houston, which contributed $100,000 of gross rental income
in the three months ended March 31, 2000, was sold in December 2000.
Mortgage interest expense in the 2001 period was $3.1 million compared
to $2.5 million in 2000. Interest costs increased as a result of borrowings
incurred to fund property development and payments made in 2000 for the
termination of advisory services and previous management's incentive and other
fees.
Interest expense on amounts due to affiliated entities was zero for the
March 31, 2001 period as compared to $900,000 for the 2000 period. The interest
bearing advances were repaid effective January 2001.
Depreciation decreased from $1.9 million in 2000 to $1.6 million in
2001, due in part to the sale of Kingwood Center and the partial sale of
Woodforest Center.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED
DECEMBER 31, 1999
Operating income for the year ended December 31, 2000, before provision
for previous management's incentive and other fees, was $1.8 million compared to
$6.3 million before a provision for the termination of advisory services for the
same period in 1999. The decrease in 2000 primarily reflects the $3.6 million
management fee to Centrefund resulting from the allocation to CEFUS' operations
of the cost of the internalized management.
In fiscal 2000, CEFUS incurred an operating loss before income and
other taxes of $13.2 million reflecting the impact of $14.9 million in incentive
and other fees payable to former management discussed above as well as the lower
operating income discussed above. This compares to an operating loss before
income and other taxes in 1999 of $1.9 million reflecting a provision for the
termination of advisory services in the amount of $8.2 million discussed above.
Net loss for fiscal 2000 was $8.6 million as compared to a net loss of $1.3
million for the year ended December 31, 1999 reflecting the factors discussed
above, partially offset by a deferred tax benefit in 2000 of $4.6 million as
compared to a deferred tax benefit in 1999 of $1.2 million.
These financial results were generated from gross rental income of
$39.7 million in 2000, which represents a 1.8% increase above the $39.0 million
in gross rental income reported in 1999. This was more than offset by increased
interest costs as a result of borrowings incurred to fund property acquisition
and development and payments made in 1999 and in 2000 for the termination of
advisory services and previous management's incentive and other fees.
Interest expense on mortgages increased in 2000 by $2.0 million to $12
million from $10 million, substantially as a result of the increase in the level
of borrowings by CEFUS primarily to fund the payment of the previous management
incentive and other fees and for property redevelopment. In addition to the
$21.0 million net increase in borrowing during 2000, CEFUS incurred a full
year's interest on additional mortgage financing that was entered into during
1999. The average fixed interest rate on CEFUS' mortgage payable, increased from
7.3% in 1999 to 7.8% in 2000.
Depreciation for the year ended December 31, 2000 of $7.0 million was
$0.7 million higher than the prior year. This primarily results from
redevelopment of shopping centers in 2000 and 1999, new acquisitions in 1999 and
higher amortization of tenant inducements and financing fees consistent with
increases in CEFUS' leasing and financing activities.
Interest and other income totaled $1.5 million in fiscal 2000 and $1.8
million in 1999. CEFUS earns interest income from funds invested in two types of
investments: short-term deposits and advances made to CEFUS' development
partner. The decrease in interest and other income in 2000 over the level earned
in 1999 results from lower cash balances in fiscal 2000.
Included in interest and other income in 2000 were $100,000 in gains
from the sale of Kingwood Center and the partial sale of Woodforest Center,
which no longer met CEFUS' investment criteria.
48
Corporate expenses, expressed in thousands of dollars, are composed of
the following:
2000 1999
--------- --------
Advisory and base incentive fees
paid to former advisor $201 $1,583
Asset management fees 349 --
Other general and administrative costs 92 212
--------- --------
Total $642 $1,795
========= ========
Advisory fees of $1.8 million incurred in 1999 were replaced in 2000
upon the internalization of management by a $400,000 base incentive fee,
together with management fees to Centrefund. The base incentive fee terminated
after the acquisition of control by Gazit Group.
In fiscal 2000 and fiscal 1999, $200,000 of the advisory and base
incentive fees incurred were capitalized to shopping centers under
redevelopment.
Under the terms of an asset management agreement effective August 18,
2000, Equity One Realty & Management was retained by CEFUS as an asset manager
of CEFUS' portfolio until November 30, 2000 and thereafter for the Texas
portfolio and one Florida property. The annualized asset management fee is 0.4%
of the book value of assets managed and the agreement is cancellable on 30 days
notice. Equity One earned $349,000 in fiscal 2000 under the terms of the
agreement.
During 1999, CEFUS repaid its outstanding debentures in full. As a
result, no interest was incurred on debentures in 2000 compared to $400,000 in
1999.
Current taxes amounted to $25,000 in fiscal 2000 and $595,000 in 1999.
No minimum taxes were paid in 2000 as a result of the net loss reported during
the year.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED
DECEMBER 31, 1998
Operating income for the year ended December 31, 1999, before a
provision for the termination of advisory services, was $6.3 million compared to
$1.0 million for the year ended December 31, 1998.
In fiscal 1999, net earnings and operating income were reduced by a
provision for the termination of advisory services in the amount of $8.2 million
as more fully discussed above. Accordingly, CEFUS had an operating loss in 1999,
before income and other taxes, of $1.9 million. This compares to operating
income before income and other taxes in 1998 of $1.0 million. Net loss for 1999
was $1.3 million as compared to net earnings of $800,000 for the year ended
December 31, 1998.
These financial results were generated from gross rental income of
$39.0 million in 1999, which represents a 42.5% increase above the $27.4 million
in gross rental income reported in 1998. This was offset by increased interest
costs as a result of borrowings incurred to fund property acquisition and
development expenses incurred in 1998 and in 1999.
The increase of $3.4 million in interest on mortgages incurred in 1999
as compared to 1998 is substantially a result of the increase in the level of
borrowings by CEFUS incurred to fund the acquisition of two shopping centers and
shopping center redevelopment. In addition to the $33.0 million net increase in
borrowing during 1999, CEFUS incurred a full year's interest on the increase in
mortgage financing entered into during 1998. The average fixed interest rate on
CEFUS' mortgage borrowings decreased from 7.6% in 1998 to 7.3% in 1999.
Depreciation for the year ended December 31, 1999 was $6.3 million, $2
million higher than the prior year. This primarily results from the
redevelopment of shopping centers in 1999 and 1998, new acquisitions and higher
49
amortization of tenant inducements and financing fees consistent with increases
in CEFUS' leasing and financing activities.
Interest and other income totaled $1.8 million in fiscal 1999 and
$600,000 in 1998. CEFUS earns interest income from funds invested in two types
of investments: short-term deposits and advances made to CEFUS' development
partner. The increase in interest and other income in 1999 over the level earned
in 1998 results primarily from higher advances made to CEFUS' development
partner.
Corporate expenses, expressed in thousands of dollars, are composed of
the following:
1999 1998
------ ------
Advisory fees paid to former advisor $1,583 $ 876
Other general and administrative costs 212 264
------ ------
Total $1,795 $1,140
====== ======
Advisory fees increased from $900,000 in 1998 to $1.6 million in 1999 consistent
with the increased value of CEFUS' assets primarily from shopping center
acquisitions completed in 1998.
Interest on CEFUS' outstanding 7.5% debentures was $400,000 in 1999
compared to $500,000 in 1998 due to the repayment of the debentures during the
fourth quarter of 1999.
During 1998, CEFUS entered into interest rate contracts in which it
incurred a loss of $3.5 million.
Current taxes amount to $595,000 in fiscal 1999 and $800,000 in 1998
and are comprised primarily of Federal and State minimum taxes.
CASH FLOW
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS
ENDED MARCH 31, 2000
The net cash generated by operations of approximately $4.0 million for
the period ended March 31, 2001 included net income of approximately $900,000,
adjustments for non-cash items of $1.9 million and a net decrease in operating
assets and liabilities of $1.2 million, compared to net cash generated by
operations of approximately $4.8 million for the period ended March 31, 2000,
which included net income of approximately $900,000, adjustment for non-cash
items of $2.5 million and a net decrease in operating assets and liabilities of
$1.4 million.
Net cash used by investing activities of approximately $1.0 million for
the period ended March 31, 2001 included the expansion and redevelopment of
shopping centers, compared to net cash generated by investing activities of
approximately $2.5 million for the period ended March 31, 2000, which included
the expansion and redevelopment of shopping centers for $1.1 million, proceeds
from disposition of one shopping center of $5.0 million, net contributions to
joint ventures of $3.0 million, advances to development partner for $2.8 million
and proceeds from investment in mortgages for $4.4 million.
Net cash used in financing activities of approximately $2.0 million for
the period ended March 31, 2001 included repayment of amounts due to affiliated
entities of $1.7 million and repayment of mortgages of $300,000, compared to net
cash used in financing activities of approximately $5.3 million for the period
ended March 31, 2000, which included the proceeds of mortgage financings of
$32.7 million and repayment of mortgages of $38 million.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED
DECEMBER 31, 1999
The net cash used by operations of approximately $4.1 million for the
year ended December 31, 2000 included a net loss of $8.6 million, adjustments
for non-cash items of $2.0 million and a net decrease in operating assets and
liabilities of $2.5 million, compared to net cash provided from operations of
approximately $11.8 million for the year ended December 31, 1999, which included
a net loss of $1.3 million, adjustment for non-cash items of $4.4 million and a
net decrease in operating assets and liabilities of $8.7 million.
50
Net cash used in investing activities of approximately $23.3 million
for the year ended December 31, 2000 included the expansion and redevelopment of
shopping centers for $5.4 million, proceeds from disposition of one shopping
center and a portion of another center for $14.0 million, net contributions to
joint ventures of $2.1 million, advances to development partner of $3.0 million,
proceeds from mortgage investment of $4.5 million and investment of amounts due
from affiliated entities of $31.3 million, compared to $32.3 million for the
year ended December 31, 1999, which included the acquisition of two shopping
centers for $7.1 million, the expansion and redevelopment of shopping centers
for $7.8 million, net contributions to joint ventures of $7.5 million, advances
to development partner of 5.4 million and investment in a mortgage of $4.5
million.
Net cash provided by financing activities of $21.0 million for the year
ended December 31, 2000 included proceeds of mortgage financings of $75.7
million and repayment of mortgages of $54.7 million, compared to $9.8 million
for the year ended December 31, 1999, which included the proceeds of mortgage
financings of $44.7 million, repayment of mortgages of $11.7 million, cash from
issuance of common shares of $23.4 million, repayment of amounts due to
affiliated entities of $40.0 million and repayment of debentures of $6.6
million.
LIQUIDITY AND CAPITAL RESOURCES
Historically, funding for CEFUS' operations has been generated by
operating cash flows, mortgage loans and the issuance of equity or debt to
CEFUS' parent. CEFUS' main uses of cash are acquisition and redevelopment
activities, maintenance repair and tenant improvements relating to existing
properties, and debt service and repayment obligations.
As of December 31, 2000, mortgages payable equalled 54.7% of the total
book value of CEFUS' assets, excluding deferred income tax assets, as compared
to 48.7% in 1999. A significant portion of this increase was required to fund
payment for the prior year's provision for termination of advisory services and
the previous management's incentive and other fees paid in fiscal 2000.
As of December 31, 2000, 88% of the outstanding mortgage liabilities
bear interest at fixed interest rates compared to 63% in 1999. Of the $19.5
million in floating rate financing, $18.5 million represents lines of credit or
interim financing on projects under construction or redevelopment.
CEFUS had fixed rate mortgages outstanding as at December 31, 2000 in
the aggregate amount of $142.7 million bearing interest at an average interest
rate of 7.8% as compared to $88.4 million in outstanding fixed rate mortgages
with an average interest rate of 7.3% at the end of 1999. The increase in
outstanding balance of mortgages resulted from the net effect of $54.7 million
in repayments and the assumption of $75.7 million in mortgages related to the
redevelopment of shopping centers and refinancings.
As of March 31, 2001, CEFUS had cash and short-term investments of $3.0
million. Management believes that CEFUS has sufficient resources to meet its
operational requirements in the near term. Capital for new investing activities
in the near term will be generated from operating cash flows and by the sale of
some of CDG's assets. Refinancing of projects in the coming year is expected to
add to available cash. The actual level of future borrowings will be determined
based upon the level of liquidity required, the prevailing interest rate and
debt market conditions.
MORTGAGE INDEBTEDNESS
For information regarding CEFUS' mortgage indebtedness see note 8 to
CEFUS' consolidated financial statements included in this proxy statement.
Of the mortgages payable to a company under common control described in
note 8, as explained in the section entitled " - Recent Developments" above, the
mortgages in respect of the Boca Village Square and Sawgrass Promenade
properties have been refinanced with a third party institutional lender. The
remaining mortgages payable to a company under common control have been funded
by the common control companies primarily with loans from third party
institutional lenders. As a condition to the closing of the acquisition, these
remaining mortgages payable will be restructured, and as a result, CEFUS will be
indebted directly to the third party institutional lenders on financial terms
which are expected to be no less favorable than those of the current company
under common control financing.
51
EFFECTS OF INFLATION AND ECONOMIC CONDITIONS
Inflation has remained relatively low since Centrefund acquired CEFUS
in March 1994. As a result, inflation has had a minimal impact on CEFUS'
operating performance to date. Nevertheless, most of CEFUS' long-term leases
contain provisions designed to mitigate the adverse impact of inflation. These
provisions include a pass-through of operating costs, including realty taxes and
most management expenses, which insulates CEFUS from inflationary price
increases. In addition, most leases include clauses that allow CEFUS to receive
percentage rents based on tenants' gross sales, which generally increase as
prices rise. Most of CEFUS' long-term leases include rent escalation clauses,
which increase rental rates over the term of the lease at either prenegotiated
levels or levels determined by reference to increases in the Consumer Price
Index. Many of CEFUS' non-anchor leases are for terms of five years or less,
providing CEFUS with the opportunity to achieve rent increases on renewal or
when re-renting the space.
The economic conditions in the markets in which CEFUS operates can have
a significant impact on CEFUS' financial success. Adverse changes in general or
local economic conditions can result in some retailers being unable to sustain
viable businesses and meet their lease obligations to CEFUS, and may also limit
CEFUS' ability to attract new or replacement tenants. However, CEFUS' shopping
centers are generally less susceptible to economic downturns, as they cater to
the basic needs of the retail customer by having food supermarkets, drug stores,
financial services, discount department stores and promotional retailers as
tenants. In addition, the impact of economic conditions on the overall portfolio
has been mitigated through the long-term nature of its existing leases and
through geographic diversification
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This management's discussion and analysis contains forward-looking
statements relating to CEFUS' operations and the environment in which it
operates that are based on management's expectations, estimates, forecasts and
projections. These statements are not guarantees of future performance and
involve risks and uncertainties that are difficult to control or predict.
Therefore, actual outcomes and results may differ from those expressed in these
forward-looking statements. Readers, therefore, should not place undue reliance
on such forward-looking statements. Further, a forward-looking statement speaks
only as of the date on which such statement is made. CEFUS undertakes no
obligations to publicly update any such statements or to reflect new information
or the occurrence of new events or circumstances.
MARKET PRICE AND RELATED MATTERS OF CEFUS COMMON STOCK
There is no established public trading market for the common stock of
CEFUS. All of the outstanding CEFUS common stock is held indirectly by
Centrefund. Accordingly, dividend information is not meaningful.
52
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
The following unaudited pro forma financial statements reflect the
proposed combination of Equity One with CEFUS and the proposed acquisition of
UIRT. The unaudited pro forma combined statements of operations for the year
ended December 31, 2000 and the three months ended March 31, 2001 have been
presented as if the transactions occurred on January 1, 2000. The unaudited pro
forma combined balance sheet as of March 31, 2001 has been presented as if the
transaction occurred on March 31, 2001.
The proposed combination of Equity One and CEFUS is being accounted for
as a combination of entities under common control. Gazit-Globe (1982) Ltd., a
63.4% stockholder of Equity One through the ownership of affiliated entities,
acquired a 68.1% interest in Centrefund, an indirect parent of CEFUS, in August
2000. The unaudited pro forma financial statements reflect the push-down of
Gazit-Globe's basis in CEFUS, to the extent of its 68.1% ownership. The
remaining 31.9% was recorded in a manner similar to a pooling of interests and
the basis in the assets, liabilities and results of operations of CEFUS are
reflected at their historical amounts.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
EQUITY ONE CEFUS -------------- COMBINED UIRT ------------------ COMBINED
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ------ ------- ---------- ---------- ------- ------- ----------
REVENUES
Rental income...... $33,424 $39,651 $73,075 $25,533 $3,682 (k) $94,926
Management fee
income.......... 635 412 (a) 223 -- 223
Investment and
other income.... 383 1,872 2,255 379 2,634
------- ----------- ------- ------- ------- ------ ------ ------- -------
Total
revenues... 34,442 41,523 412 75,553 25,912 3,682 97,783
EXPENSES
Operating expenses. 9,184 12,858 69 (a) 21,973 7,075 676 (k) 28,372
Depreciation and
amortization.... 4,217 6,984 1,027 (b) 10,174 4,539 1,479 (b) 12,739
495 (k)
Interest expense... 7,411 15,558 4,659 (c) 18,310 7,913 1,516 (h) 27,395
344 (k)
General &
administrative.. 2,361 642 343 (a) 2,660 1,717 4,377
Management fee to
parent.......... -- 3,632 3,632 (e) -- -- --
Advisory fee....... -- -- -- 1,160 1,160 (i) --
Litigation......... -- -- -- 228 228 (j) --
Equity income from
investments in
joint ventures.. -- (293) (293) -- (293)
Impairment loss.... -- -- -- 6,000 6,000 (j) --
Previous
management
incentive and
other fees...... -- 14,944 14,944 (f) -- -- --
------- ----------- ------- ------- ------- ------ ------ ------- -------
Total
expenses... 23,173 54,325 24,674 52,824 28,632 1,516 10,382 72,590
------- ----------- ------- ------- ------- ------ ------ ------- -------
Income (loss)
before minority
interest, gain
on sale of real
estate and
income tax
expense.......... 11,269 (12,802) 412 24,674 22,729 (2,720) 5,198 10,382 25,193
Minority interest
in losses of
consolidated
partnerships..... -- -- -- 42 42 (l) --
Gain (loss) on the
sale of real
estate........... -- (354) 354 (d) -- 1,425 1,425 (k) --
------- ----------- ------- ------- ------- ------ ------ ------- -------
Income (loss)
before income
tax expense...... 11,269 (13,156) 412 25,028 22,729 (1,253) 6,665 10,382 25,193
Income tax expense
(benefit)........ -- --
Current............ -- 25 25 (g) -- -- --
Deferred........... -- (4,626) 4,626 (g) -- -- --
------- ----------- ------- ------- ------- ------ ------ ------- -------
Total income
tax expense
(benefit) -- (4,601) 4,626 25 -- -- --
------- ----------- ------- ------- ------- ------ ------ ------- -------
Net income (loss)... $11,269 $(8,555) $5,038 $25,053 $22,729 $(1,253) $6,665 $10,382 $25,193
======= =========== ======= ======= ======= ====== ====== ======= =======
Per share
Basic.............. $0.97 $(73,119.66) $1.03 $(0.14) $0.98
======= =========== ======= ======= ======= ====== ====== ======= =======
Diluted............ $0.95 $(73,119.66 $1.02 $(0.14) $0.97
======= =========== ======= ======= ======= ====== ====== ======= =======
53
Weighted average
shares
outstanding
Basic.............. 11,651 * * 10,500 (m) 22,151 8,919 8,919 3,678 (n) 25,829
======= ======= ======= ====== ====== ======= =======
Diluted............ 11,886 * * 10,500 (m) 22,386 8,919 8,919 3,678 (n) 26,064
======= =========== ======= ======= ======= ====== ====== ======= =======
* 0.117 shares.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
(a) To eliminate asset and property management fees earned by Equity One from
CEFUS for the period August 18, 2000 to December 31, 2000.
(b) To adjust depreciation to reflect the purchase adjusted basis of rental
property and depreciation policies of Equity One.
(c) To eliminate interest expense on loans paid off by CEFUS prior to
combination with Equity One, including the restructuring of certain loans
payable to a company under common control which will be restructured to
eliminate any net-inter company debt and will become direct obligations to
the underlying third-party lenders.
(d) To eliminate loss on sale of rental property to reflect change in purchase
basis.
(e) To eliminate management fees paid by CEFUS to its indirect parent,
Centrefund.
(f) To eliminate incentive and other fees paid under management agreements no
longer in force.
(g) To eliminate CEFUS income tax provisions, due to Equity One's REIT status.
(h) To increase interest expense to reflect borrowings under Equity One's
credit agreement and other borrowings for the cash portion of UIRT purchase
price. The estimated amount is based on additional borrowings of $24,257 at
a variable interest rate of 6.25%. If the underlying floating rate were to
increase or decrease by 0.125%, the associated interest would change by
$30.
(i) To eliminate advisory fees under agreements terminated upon Gazit-Globe's
acquisition of Centrefund.
(j) To eliminate non-recurring expenses incurred by UIRT.
(k) To eliminate gain on sale and eliminate revenue and expenses on properties
sold in 2000 and 2001.
(l) To eliminate minority interest.
(m) To record the elimination of 0.117 CEFUS shares and reflect the issuance of
10,500 Equity One shares in the acquisition of CEFUS.
(n) To record the elimination of 8,919 UIRT shares and reflect the issuance of
3,678 Equity One shares representing the sum of 925 shares issued under the
commitment with Alony Hetz Properties & Investments Ltd. and 2,753 shares
issued to UIRT shareholders in connection with the merger transaction. The
2,753 shares represents an exchange ratio of .60131 Equity One shares for
50% of each of the 9,143 outstanding UIRT shares which represents (i) 8,561
outstanding common shares of beneficial interest, (ii) 254 UIRT common
shares reserved for issuance upon the exercise of stock options and (iii)
239 operating partnership units which are convertible into UIRT common
shares. The exchange ratio is based on an Equity One stock price of $12.12.
54
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2001
(IN THOUSANDS)
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
EQUITY ONE CEFUS ----------------- COMBINED UIRT ------------------ COMBINED
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ------ ------- ---------- ---------- ------- ------- ----------
ASSETS
Net rental property
investments......... $230,400 $235,969 $29,412 (a) $495,781 $147,797 $5,452 (f) $649,030
Investment in joint
ventures............ -- 11,834 11,834 -- 11,834
Cash and cash equivalents 783 3,006 3,789 206 3,995
Restricted cash........ 4,356 -- 4,356 4,438 4,356 (g) 4,438
Securities available for
sale................ 1,564 -- 1,564 -- 1,564
Accounts and other
receivables, net.... 913 14,221 15,134 -- 15,134
Due from related parties 12 -- 12 -- 12
Deposits............... 1,505 -- 1,505 -- 1,505
Prepaid and other assets 1,185 6,565 2,713 (c) 5,037 4,898 1,932 (f) 8,003
Deferred expenses, net. 1,401 -- 1,401 -- 1,401
Deferred income tax
assets.............. -- 1,268 1,268 (c) -- -- --
Goodwill, net.......... 631 -- 631 -- 631
-------- -------- -------- -------- -------- -------- ------- ------- --------
TOTAL ASSETS........... $242,750 $272,863 $29,412 $3,981 $541,044 $157,339 $5,452 $6,288 $697,547
======== ======== ======== ======== ======== ======== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes payable 125,540 161,956 5,214 (b) 282,282 48,956 331,238
Credit agreement...... 3,772 -- 3,772 21,764 24,257 (g) 49,793
Capital lease obligation -- -- -- 9,696 9,696
Construction note
payable............ -- -- -- 4,878 4,878
Accounts payable and
accrued expenses... 3,067 11,352 5,330 (c) 9,089 4,905 1,379 (f) 12,615
Tenant security deposits 1,666 -- 1,666 -- 1,666
Deferred rental income 709 -- 709 -- 709
Due to related parties -- 3,800 3,800 (b) -- -- --
Minority interest in
equity of
consolidated
subsidiary......... 3,869 -- 3,869 -- 3,869
-------- -------- -------- -------- -------- -------- ------- ------- --------
Total liabilities...... 138,623 177,108 14,344 301,387 90,199 1,379 24,257 414,464
Minority Interest in
Equity of
Consolidated
Partnerships........ -- -- 2,088 2,088 (k) --
Stockholders' Equity
Common Stock.......... 129 97,396 97,396 (e) 105 (d) 234 87,281 28,613 (g) 28 (i) 272
33,366 (i)
10,059 (j)
16,076 (h) 9 (j)
1,932 (f) 5,452 (f)
5,569 (h) 1,379 (f)
584 (h) 2,088 (k)
Additional Paid-in
Capital............ 106,171 10,143 29,412 (a) 241,596 -- 33,338 (i) 284,984
105 (d) 9,014 (b) 10,050 (j)
2,713 (c)
11,704 (e) 5,330 (c)
1,268 (c) 97,396 (e)
Retained Earnings
(Deficit).......... 131 (11,784) 11,784 (e) 131 (16,076) 16,076 (h) 131
Accumulated other
comprehensive income (150) -- (150) (150)
Unamortized restricted
stock compensation. (1,609) -- (1,609) (1,609)
Treasury stock, at
cost, 873 shares in
2001............... -- -- -- (5,569) 5,569 (h) --
Note receivable from
issuance of common
stock.............. (545) -- (545) (584) 584 (h) (545)
-------- -------- -------- -------- -------- -------- ------- ------- --------
Total shareholders'
equity.............. 104,127 95,755 113,266 153,041 239,657 65,052 96,199 74,573 283,083
-------- -------- -------- -------- -------- -------- ------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. $242,750 $272,863 $127,610 $153,041 $541,044 $157,339 $99,666 $98,830 $697,547
======== ======== ======== ======== ======== ======== ======= ======= ========
55
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
(a) To record the push-down of 68.1% of the basis of the common parent,
Gazit-Globe, in CEFUS.
(b) To reflect the elimination of inter-company balances of CEFUS which will be
converted to capital prior to the combination.
(c) To eliminate CEFUS deferred income tax asset and amounts due for certain
fees to be paid prior to the combination.
(d) To reclassify the par value of stock issued in the combination with CEFUS
from additional paid in capital.
(e) To eliminate retained deficit and common stock of CEFUS to additional paid
in capital.
(f) To adjust rental property and other assets and liabilities of UIRT to
estimated fair value.
(g) To reflect cash and borrowings by Equity One under its credit agreement for
cash portion of the purchase price of UIRT.
(h) To eliminate shareholders' equity accounts of UIRT.
(i) To record the fair market value of the estimated number of Equity One
shares issued to UIRT shareholders based on market price of $12.12 on the
date of announcement, May 30, 2001.
(j) To record 925 shares at a sales price of $10.875 per share to be issued
under the commitment with Alony Hetz Properties and Investments, Ltd.
Proceeds from the issuance of these shares will be used to fund part of the
cash portion of the purchase price of UIRT.
(k) To eliminate minority interest due to conversion of operating partnership
units to UIRT common equity and then to Equity One stock or cash.
56
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
EQUITY ONE CEFUS ----------------- COMBINED UIRT ------------------ COMBINED
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ------ ------- ---------- ---------- ----- ------- ---------
REVENUES
Rental income......... $9,165 $9,570 $18,735 $6,258 $273 (g) $24,720
Management fee income. 526 -- 419 (a) 107 -- 107
Investment and other income 136 314 450 155 605
------- -------- ---- ------ ------- ------ ------ ------ -------
Total revenues.. 9,827 9,884 419 19,292 6,413 273 25,432
EXPENSES
Operating expenses.... 2,733 3,093 286 (a) 5,540 1,666 91 (g) 7,115
Depreciation and
amortization....... 1,220 1,559 144 (b) 2,635 1,053 288 (b) 3,339
61 (g)
Interest expense...... 2,082 3,099 8 (c) 5,173 1,844 36 (g) 7,360
379 (h)
General & administrative 718 183 133 (a) 768 356 1,124
Management fees to parent -- 650 650 (d) -- -- --
Advisory fees......... -- -- -- 213 213 (e) --
Litigation............ -- -- -- 478 478 (e) --
Strategic alternative
review expense..... -- -- -- 250 250 (e) --
Equity income from
investments in joint
ventures........... -- (127) (127) -- (127)
------- -------- ---- ------ ------- ------ ------ ------ -------
Total expenses.. 6,753 8,457 1,221 13,989 5,860 379 1,417 18,811
------- -------- ---- ------ ------- ------ ------ ------ -------
Income before minority
interest, gain on sale
of real estate and
income tax expense.. 3,074 1,427 419 1,221 5,303 553 652 1,417 6,621
Minority interest in losses
of consolidated
partnerships........ -- -- -- (14) 14 (i) --
Gain on the sale of real
estate.............. -- -- -- 4 (4) (g) --
------- -------- ---- ------ ------- ------ ------ ------ -------
Income before income tax
expense............. 3,074 1,427 419 1,221 5,303 543 652 1,427 6,621
Income and other taxes --
Current............... -- 50 50 (k) -- -- --
Deferred.............. -- 455 455 (k) -- -- --
------- -------- ---- ------ ------- ------ ------ ------ -------
Total income tax
expense -- 505 505 -- --
------- -------- ---- ------ ------- ------ ------ ------ -------
Net income............. $3,074 $922 $419 $1,726 $5,303 $543 $652 $1,427 $6,621
======= ======== ==== ====== ======= ====== ====== ====== =======
Per share
Basic................. $0.24 6,681.16 $0.23 $0.06 $0.25
======= ======== ==== ====== ======= ====== ====== ====== =======
Diluted............... $0.23 6,681.16 $0.22 $0.06 $0.24
======= ======== ==== ====== ======= ====== ====== ====== =======
Weighted average shares
outstanding.........
Basic................. 12,706 * 10,500 (f) 23,206 8,652 8,652 3,678 (j) 26,884
======= ======== ==== ====== ======= ====== ====== ====== =======
Diluted............... 13,232 * 10,500 (f) 23,732 8,652 8,652 3,678 (j) 27,410
======= ======== ==== ====== ======= ====== ====== ====== =======
* 0.138 shares
57
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE DATA)
(a) To eliminate asset and property management fees earned by Equity One from
CEFUS.
(b) To adjust depreciation to reflect the purchase adjusted basis of rental
property and depreciation policies of Equity One.
(c) To eliminate interest expense on loans paid off by CEFUS prior to
combination with Equity One including the restructuring of certain loans
payable to a company under common control which will be restructured to
eliminate any net inter-company debt and will become direct obligations of
the underlying third-party lenders.
(d) To eliminate management fees paid by CEFUS to its indirect parent,
Centrefund.
(e) To eliminate non-recurring expenses incurred by UIRT.
(f) To record the elimination of 0.138 CEFUS shares and reflect the issuance of
10,500 Equity One shares issued in the acquisition of CEFUS.
(g) To eliminate gain on sale and eliminate revenue and expenses on properties
sold prior to Equity One's acquisition of UIRT.
(h) To increase interest expense to reflect borrowings under Equity One's
credit agreement and other borrowings for the cash portion of UIRT purchase
price. The estimated amount is based on an additional borrowings of $24,257
at an interest rate of 6.25%. If the underlying floating rate were to
increase or decrease by 0.125%, the associated interest costs would change
by $30.
(i) To eliminate minority interest.
(j) To record the elimination of 8,652 UIRT shares and reflect the issuance of
3,678 Equity One shares representing the sum of 925 shares issued under the
commitment with Alony Hetz Properties and Investment, 2,753 shares issued
to UIRT shareholders in connection with the merger transaction. The 2,753
shares represents an exchange ratio of .60131 Equity One shares for 50% of
each of the 9,143 outstanding UIRT shares which represents (i) 8,561
outstanding common shares of beneficial interest, (ii) 254 UIRT common
shares reserved for issuance upon the exercise of stock options and (iii)
239 operating partnership units which are convertible into UIRT common
shares. The exchange ratio is based on an Equity One stock price of $12.12.
(k) To eliminate CEFUS income tax provisions, due to Equity One's REIT status.
58
CERTAIN FORWARD LOOKING INFORMATION
Certain statements made in this proxy statement may constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements include statements regarding our
intent, belief or current expectations and those of our management and involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: maintaining REIT status, general economic and business conditions,
the ability to achieve synergies and cost savings by combining our operations
with CEFUS and UIRT, the ability to manage properties in areas outside our
traditional geographic markets, our ability to manage a significantly greater
number of properties, which will, among other things, affect the demand for
retail rental space, availability and creditworthiness of prospective tenants,
lease rents and the terms and availability of financing; adverse changes in the
real estate markets including, among other things, competition with other
companies; risks of real estate markets including, development and acquisition;
governmental actions and initiatives; and environment/safety requirements.
59
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of our common stock as of July 25, 2001, by the following individuals
or groups:
o each person or entity who is known by us to own beneficially more
than 5% of our outstanding stock;
o our chief executive officer and four of our most highly compensated
executive officers;
o each of our directors; and
o all directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals
listed in the table is c/o Equity One, Inc., 1696 N.E. Miami Gardens Drive,
North Miami Beach, Florida 33179. Except as otherwise indicated, and subject to
community property laws where applicable, to our knowledge the persons named in
the table have sole voting and investment power with respect to all shares of
common stock held by them.
The number of shares beneficially owned by each individual or group is
based upon information in documents filed by such person with the Securities and
Exchange Commission, other publicly available information or information
available to us. Percentage ownership in the following table is based on
13,011,901 shares of common stock outstanding as of July 25, 2001. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of our common stock subject to options that are
presently exercisable or exercisable within 60 days of July 25, 2001 are deemed
to be outstanding and beneficially owned by the person holding the options for
the purpose of computing the percentage of ownership of that person, but are not
treated as outstanding for the purpose of computing the percentage of any other
person.
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES OWNED
- ------------------------------------ -------------------- ------------------------
Chaim Katzman (1).............................. 8,969,290 67.44%
Gazit-Globe (1982) Ltd. (2).................... 8,245,239 63.37%
M.G.N. (USA), Inc.............................. 3,851,672 29.60%
Gazit (1995), Inc.............................. 3,274,749 25.17%
Nathan Hetz (3)................................ 2,985,000 19.95%
Alony Hetz Properties & Investments, Ltd. (4).. 2,981,000 19.92%
Doron Valero (5)............................... 562,940 4.25%
Howard M. Sipzner (6).......................... 83,499 *
Noam Ben-Ozer (7).............................. 23,502 *
Shaiy Pilpel (8)............................... 23,500 *
Barbara Miller (9)............................. 21,304 *
Alan J. Marcus (10)............................ 20,002 *
Robert L. Cooney (11).......................... 20,000 *
Ronald S. Chase (12)........................... 17,000 *
Alan Merkur.................................... 15,400 *
Peter Linneman................................. 4,000 *
Dori Segal..................................... 4,000 *
All executive officers and directors of Equity
One as a group (13 persons).................... 12,749,437 81.57
- --------------------------
* Represents ownership of less than 1.0%
1. Includes (i) 3,274,749 shares of common stock owned by Gazit (1995), Inc.
("Gazit (1995)") which Mr. Katzman may be deemed to control; (ii) 3,851,672
shares of common stock owned by M.G.N. (USA), Inc. ("M.G.N.") which Mr.
Katzman may be deemed to control; (iii) 1,118,818 shares of common stock
owned by Gazit-Globe (1982) Ltd. ("Gazit-Globe (1982)"); (iv) 371,034
shares of common stock owned by Mr. Katzman; (v) 287,984 shares of common
stock issuable to Mr. Katzman upon the exercise of options granted
60
under our 1995 Stock Option Plan, which options are all currently
exercisable; and (vi) 65,033 shares of common stock for which Mr. Katzman
is custodian for his minor children.
2. Includes (i) 1,118,818 shares of common stock owned by Gazit-Globe (1982);
(ii) 3,851,672 shares of common stock owned by M.G.N.; and (iii) 3,274,749
shares of common stock owned by Gazit (1995).
3. Includes (i) 1,031,000 shares of common stock owned by Alony Hetz
Properties & Investments, Ltd. ("Alony Hetz") which Mr. Hetz may be deemed
to jointly control; (ii) 375,000 shares of common stock issuable to Alony
Hetz upon the exercise of warrants owned by Alony Hetz and exercisable
through December 31, 2001; (iii) 650,000 shares of common stock issuable to
Alony Hetz upon the exercise of warrants owned by Alony Hetz and
exercisable through December 31, 2002; (iv) 4,000 shares of common stock
owned by Mr. Hetz; and (v) 925,000 shares of common stock which we are
obligated to sell and Alony Hetz is obligated to purchase on August 17,
2001.
4. Includes (i) 1,031,000 shares of common stock owned by Alony Hetz; (ii)
375,000 shares of common stock issuable to Alony Hetz upon the exercise of
warrants owned by Alony Hetz and exercisable through December 31, 2001;
(iii) 650,000 shares of common stock issuable to Alony Hetz upon the
exercise of warrants owned by Alony Hetz and exercisable through December
31, 2002; and (iv) 925,000 shares of common stock which we are obligated to
sell and Alony Hetz is obligated to purchase on August 17, 2001.
5. Includes (i) 317,593 shares of common stock owned by Mr. Valero; and (ii)
245,347 shares of common stock issuable to Mr. Valero upon the exercise of
options granted to Mr. Valero under our 1995 Stock Option Plan, which
options are currently exercisable.
6. Includes (i) 39,749 shares of common stock owned by Mr. Sipzner; and (ii)
43,750 shares of common stock issuable to Mr. Sipzner upon the exercise of
options granted to Mr. Sipzner under our 1995 Stock Option Plan, which
options are currently exercisable.
7. Includes (i) 4,002 shares of common stock owned by Mr. Ben-Ozer; and (ii)
19,500 shares of common stock issuable to Mr. Ben-Ozer upon the exercise of
options granted to Mr. Ben-Ozer under our 1995 Stock Option Plan, which
options are currently exercisable.
8. Includes (i) 4,000 shares of common stock owned by Mr. Pilpel; and (ii)
19,500 shares of common stock issuable to Mr. Pilpel upon the exercise of
options granted to Mr. Pilpel under our 1995 Stock Option Plan, which
options are currently exercisable.
9. Includes (i) 6,304 shares of common stock owned by Ms. Miller; and (ii)
15,000 shares of common stock issuable to Ms. Miller upon the exercise of
options granted to Ms. Miller under our 1995 Stock Option Plan, which
options are currently exercisable.
10. Includes (i) 5,002 shares of common stock owned by Mr. Marcus; and (ii)
15,000 shares of common stock issuable to Mr. Marcus upon the exercise of
options granted to Mr. Marcus under our 1995 Stock Option Plan, which
options are currently exercisable.
11. Includes (i) 7,000 shares of common stock owned by Mr. Cooney; and (ii)
13,000 shares of common stock issuable to Mr. Cooney upon the exercise of
options granted to Mr. Cooney under our 1995 Stock Option Plan, which
options are currently exercisable.
12. Includes (i) 7,000 shares of common stock owned by Mr. Chase; and (ii)
10,000 shares of common stock issuable to Mr. Chase upon the exercise of
options granted to Mr. Chase under our 1995 Stock Option Plan, which
options are currently exercisable.
61
MARKET PRICES OF COMMON STOCK AND DIVIDENDS
Our common stock began trading on the New York Stock Exchange, or NYSE,
on May 18, 1998, under the symbol "EQY." On July 25, 2001, we had an estimated
200 stockholders of record representing an estimated 1,700 beneficial owners.
The following table sets forth for the periods indicated the high and low sales
prices as reported by the NYSE and the distributions declared by us:
DISTRIBUTIONS
HIGH LOW DECLARED
---- --- --------
First Quarter, 1999....................................... $ 9.69 $8.63 $0.25
Second Quarter, 1999...................................... 11.00 8.57 0.25
Third Quarter, 1999....................................... 12.13 9.75 0.26
Fourth Quarter, 1999...................................... 10.63 9.50 0.26
First Quarter, 2000....................................... 10.75 9.19 0.26
Second Quarter, 2000...................................... 10.00 9.00 0.26
Third Quarter, 2000....................................... 10.69 9.50 0.26
Fourth Quarter, 2000...................................... 10.63 9.38 0.32
First Quarter, 2001....................................... 11.00 9.94 0.26
Second Quarter, 2001...................................... 12.53 10.01 0.26
Dividends paid during 2000 and 1999 totaled approximately $13.2 million
and $11.2 million. Dividends paid during the first and second quarter of 2001
totaled approximately $6.7 million. Included in the $0.32 distribution for the
fourth quarter of 2000 was a special distribution of $0.06 attributable to the
$1.53 million termination fee received by us on account of the termination of a
lease by one of our tenants. Future declaration of dividends will be made by us
at the discretion of our board of directors and will depend upon our earnings,
our financial condition and such other factors as our board of directors deems
relevant. In order to qualify for the beneficial tax treatment accorded to real
estate investment trusts under the Internal Revenue Code of 1986, as amended, we
are currently required to make distributions to holders of our shares in an
amount at least equal to 90% of our "real estate investment trust taxable
income," as defined in Section 857 of the Code.
LEGAL MATTERS
The validity of our common stock issued in connection with the
acquisition will be passed upon for us by Greenberg Traurig, P.A., our legal
counsel.
The qualification of the acquisition as a reorganization under section
368(a) of the Internal Revenue Code and our qualification as a REIT for federal
income tax purposes will also be passed upon for us by Greenberg Traurig, P.A.
The qualification of the acquisition as a reorganization under section
368(a) of the Internal Revenue Code will be passed upon for the Centrefund
parties by Torys, counsel to the Centrefund parties.
EXPERTS
The consolidated financial statements and the related financial
statement schedules incorporated by reference into this proxy statement from
Equity One's Annual Report on Form 10-K for the year ended December 31, 2000
have been audited by Deloitte & Touche, LLP, independent auditors, as stated in
their report, which is incorporated herein by reference and have been so
incorporated herein by reference in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
62
The financial statements of Centrefund Realty (U.S.) Corporation
included in this proxy statement have been audited by Deloitte & Touche LLP,
chartered accountants, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited UIRT's
consolidated financial statements at December 31, 2000 and 1999, and for each of
the three years in the period ended December 31, 2000, as set forth in their
report. We have included their financial statements in the proxy statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
OTHER BUSINESS
Our board knows of no other business to be brought before the special
meeting. If, however, any other business should properly come before the special
meeting, it is the intention of the persons named in the accompanying proxy to
vote proxies as in their discretion they may deem appropriate, unless they are
directed by a proxy to do otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Securities Exchange
Commission by us (File No. 001-13499) are incorporated by reference in this
proxy statement:
Annual Report on Form 10-K for the year ended December 31, 2000, as
filed on March 30, 2001 and amended on April 20, 2001, July 18, 2001 and July
26, 2001; and
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2001, as filed on May 14, 2001 and amended on July 18, 2001 and July 26, 2001.
These documents are being provided with this proxy statement and should
be read in their entirety before you cast your vote. In addition following
documents are also incorporated by reference in this proxy statement.
Current Report on Form 8-K filed May 14, 2001;
Current Report on Form 8-K filed May 25, 2001; and
Current Report on Form 8-K filed June 4, 2001.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this proxy statement and prior to
the special meeting and any adjournment or postponement thereof, shall be deemed
to be incorporated by reference in this proxy statement and to be a part hereof
for purposes of the Exchange Act from the date of the filing of such documents.
Any statement contained in this proxy statement, in a supplement to this proxy
statement or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this proxy statement to the extent that a statement contained herein or in any
subsequently filed supplement to this proxy statement or in any document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this proxy
statement.
AVAILABLE INFORMATION
We and UIRT are subject to the informational requirements of the
Exchange Act, and in accordance therewith we both file reports, proxy
statements, and other information with the Commission. The reports, proxy
statements, and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
Regional Offices of the Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Commission maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
63
electronically with the Commission, including the Company. The same information
is also available on the Internet at http://www.FreeEDGAR.com.
No person has been authorized to give any information or make any
representation in connection with the solicitation of proxies made hereby other
than those contained or incorporated by reference in this proxy statement, and,
if given or made, such information or representation must not be relied upon as
having been authorized by us. This proxy statement does not constitute a
solicitation of a proxy in any jurisdiction where, or to or from any person to
whom, it is unlawful to make such proxy solicitation in such jurisdiction. The
delivery of this proxy statement shall not, under any circumstances, create any
implication that there has been no change in our affairs since the date hereof
or that the information contained or incorporated by reference herein is correct
as of any time subsequent to its date. Information in this proxy statement about
us has been provided by us and information about CEFUS has been provided by
CEFUS.
By order of the board of directors
/s/ CHAIM KATZMAN
---------------------------------
Chaim Katzman
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
July 31, 2001
North Miami Beach, Florida
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CENTREFUND REALTY (U.S.) CORPORATION
Report of Deloitte & Touche LLP...................................................................... F-2
Consolidated Balance Sheets.......................................................................... F-3
Consolidated Statements of Operations................................................................ F-4
Consolidated Statements of Shareholder's Equity...................................................... F-5
Consolidated Statement of Cash Flows................................................................. F-6
Notes to Consolidated Financial Statements........................................................... F-7
UNITED INVESTORS REALTY TRUST
Report of Ernst & Young LLP.......................................................................... F-25
Consolidated Balance Sheets.......................................................................... F-26
Consolidated Statements of Operations................................................................ F-27
Consolidated Statements of Shareholders' Equity...................................................... F-28
Consolidated Statement of Cash Flows................................................................. F-29
Notes to Consolidated Financial Statements........................................................... F-30
Unaudited Consolidated Balance Sheets................................................................ F-46
Unaudited Consolidated Statement of Operations....................................................... F-47
Unaudited Consolidated Statement of Cash Flows....................................................... F-48
Notes to Unaudited Consolidated Financial Statements................................................. F-49
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Centrefund Realty (U.S.) Corporation
We have audited the accompanying consolidated balance sheets of Centrefund
Realty (U.S.) Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholder's equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We have conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ DELOITTE & TOUCHE LLP
Chartered Accountants
Toronto, Canada
March 19, 2001, except as to Note 17 which is
as of May 18, 2001
F-2
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
March 31, December 31, December 31,
2001 2000 1999
----------------- ------------------ -------------------
(unaudited)
ASSETS
Shopping centres (Note 2) $ 235,969 $ 236,512 $251,509
Investments in joint ventures (Note 3) 11,834 11,707 9,279
Cash and cash equivalents (Note 4) 3,006 2,025 8,429
Amounts receivable (Note 5) 14,221 15,719 16,529
Other assets (Note 6) 6,565 6,725 4,176
Due from affiliated entities (Note 7) -- 22,145 -
Deferred income tax assets (Note 15) 1,268 1,723 -
----------------- ------------------ -------------------
$ 272,863 $ 296,556 $289,922
================= ================== ===================
LIABILITIES
Mortgages payable (Note 8) $161,956 $162,257 $141,286
Accounts payable and
accrued liabilities (Note 9) 11,352 11,793 14,670
Due to affiliated entities (Note 7) 3,800 50,000 50,000
Deferred income tax liabilities (Note 15) -- -- 2,905
177,108 224,050 208,861
CONTINGENCIES (Notes 14 and 16)
SHAREHOLDER'S EQUITY 95,755 72,506 81,061
----------------- ------------------ -------------------
$272,863 $296,556 $289,922
================= ================== ===================
See accompanying notes to the consolidated financial statements.
F-3
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
Three months ended Year ended
------------------------------- -----------------------------------------------
March 31, March 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
---------------- -------------- --------------- ------------------------------
(unaudited) (unaudited)
GROSS RENTAL INCOME $ 9,570 $ 10,872 $ 39,651 $ 38,995 $ 27,370
PROPERTY OPERATING COSTS 3,093 3,453 12,858 12,849 8,792
---------------- -------------- --------------- ------------------------------
RENTAL INCOME 6,477 7,419 26,793 26,146 18,578
INTEREST AND OTHER INCOME 314 462 1,518 1,796 585
---------------- -------------- --------------- ------------------------------
6,791 7,881 28,311 27,942 19,163
---------------- -------------- --------------- ------------------------------
INTEREST AND OTHER EXPENSES
(INCOME)
Interest
Mortgages (Note 11) 3,099 2,466 11,996 10,030 6,589
Affiliated entities -- 890 3,562 3,793 2,279
Debentures -- -- -- 382 512
---------------- -------------- --------------- ------------------------------
3,099 3,356 15,558 14,205 9,380
Corporate expenses 183 114 642 1,795 1,140
Management fee to parent 650 908 3,632 -- --
Depreciation 1,559 1,858 6,984 6,330 4,325
Equity (income) loss from investments
in joint ventures (127) 134 (293) (659) (204)
Other -- -- -- -- 3,531
---------------- -------------- --------------- ------------------------------
5,364 6,370 26,523 21,671 18,172
---------------- -------------- --------------- ------------------------------
OPERATING INCOME BEFORE THE
UNDERNOTED 1,427 1,511 1,788 6,271 991
PREVIOUS MANAGEMENT'S
INCENTIVE AND OTHER FEES
(Note 14) -- -- 14,944 -- --
TERMINATION OF ADVISORY
SERVICES (Note 12(d)) -- -- -- 8,204 --
---------------- -------------- --------------- ------------------------------
OPERATING (LOSS) INCOME BEFORE
INCOME AND OTHER TAXES 1,427 1,511 (13,156) (1,933) 991
---------------- -------------- --------------- ------------------------------
INCOME AND OTHER TAXES (Note 15)
Current 50 95 25 595 835
Deferred 455 525 (4,626) (1,239) (596)
---------------- -------------- --------------- ------------------------------
505 620 (4,601) (644) 239
---------------- -------------- --------------- ------------------------------
NET EARNINGS (LOSS) FOR THE PERIOD $ 922 $ 891 $ (8,555) $ (1,289) $ 752
================ ============== =============== ==============================
See accompanying notes to the consolidated financial statements.
F-4
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
Common Shares Additional Total
------------------------- Paid-In Shareholder's
YEARS ENDED Number Amount Capital Deficit Equity
- ----------- -------- -------- ---------- -------- -------------
(Note 10)
BALANCE,
DECEMBER 31, 1997 30 $ 19,391 $ 10,143 $ (3,614) $ 25,920
ISSUANCE OF COMMON SHARES 50 32,247 -- -- 32,247
NET EARNINGS -- -- -- 752 752
-------- -------- -------- -------- --------
BALANCE,
DECEMBER 31, 1998 80 51,638 10,143 (2,862) 58,919
ISSUANCE OF COMMON SHARES 37 23,431 -- -- 23,431
NET LOSS -- -- -- (1,289) (1,289)
-------- -------- -------- -------- --------
BALANCE,
DECEMBER 31, 1999 117 75,069 10,143 (4,151) 81,061
NET LOSS -- -- -- (8,555) (8,555)
-------- -------- -------- -------- --------
BALANCE,
DECEMBER 31, 2000 117 $ 75,069 $ 10,143 $(12,706) $ 72,506
======== ======== ======== ======== ========
Common Shares Additional Total
------------------------- Paid-In Shareholder's
THREE MONTHS ENDED Number Amount Capital Deficit Equity
-------- -------- ------------ ----------- -----------
(Note 10) (unaudited) (unaudited) (unaudited)
(unaudited)
BALANCE,
JANUARY 1, 2000 117 $ 75,069 $ 10,143 $ (4,151) $ 81,061
NET EARNINGS -- -- -- 891 891
-------- -------- -------- -------- --------
BALANCE,
MARCH 31, 2000 117 $ 75,069 $ 10,143 $ (3,260) $ 81,952
======== ======== ======== ======== ========
BALANCE,
JANUARY 1, 2001 117 $ 75,069 $ 10,143 $(12,706) $ 72,506
ISSUANCE OF COMMON SHARES 21 22,327 -- -- 22,327
NET EARNINGS -- -- -- 922 922
-------- -------- -------- -------- --------
BALANCE,
MARCH 31, 2001 138 $ 97,396 $ 10,143 $(11,784) $ 95,755
======== ======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
F-5
CENTREFUND REALTY (U.S.) CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
Three months ended Year ended
-------------------------- -------------------------------------------
March 31, March 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
--------- --------- ------------ -------------- ------------
(unaudited) (unaudited)
NET (OUTFLOW) INFLOW OF CASH
RELATED TO THE FOLLOWING
ACTIVITIES
OPERATING
Net earnings (loss) $ 922 $ 891 $ (8,555) $ (1,289) $ 752
Items not affecting cash
Depreciation 1,559 1,858 6,984 6,330 4,325
Loss (gain) on sale of real estate -- 22 (71) -- --
Deferred income taxes 455 525 (4,626) (1,239) (596)
Equity income from investments in
joint ventures (127) 134 (293) (659) (204)
Change in assets and liabilities
Amounts receivable 1,498 1,361 8,422 621 (1,590)
Other assets 96 40 (3,065) (161) (3,071)
Accounts payable and accrued
liabilities (441) (37) (2,877) 8,177 3,718
--------- --------- --------- --------- ---------
3,962 4,794 (4,081) 11,780 3,334
--------- --------- --------- --------- ---------
INVESTING
Acquisition of shopping centres -- -- -- (7,143) (100,124)
Expansion and redevelopment of shopping
centres (952) (1,121) (5,402) (7,852) (7,105)
Proceeds on disposition of shopping
centres -- 5,000 14,000 -- --
Distributions from joint ventures -- -- 3,667 839 --
Contributions to joint ventures -- (2,981) (5,802) (8,357) (1,357)
Advances to development partner -- (2,833) (2,968) (5,362) (2,074)
Investment in mortgages -- 4,470 4,470 (4,470) --
Due from affiliated entities -- -- (31,259) -- --
--------- --------- --------- --------- ---------
(952) 2,535 (23,294) (32,345) (110,660)
--------- --------- --------- --------- ---------
FINANCING
Issue of common shares -- -- -- 23,431 32,247
Due to affiliated entities (1,728) -- -- (40,037) 22,400
Proceeds from mortgage financings -- 32,664 75,725 44,743 70,971
Repayment of mortgages payable (301) (37,917) (54,754) (11,709) (546)
Repayment of debentures -- -- (6,579) (895)
--------- --------- --------- --------- ---------
(2,029) (5,253) 20,971 9,849 124,177
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 981 2,076 (6,404) (10,716) 16,851
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,025 8,429 8,429 19,145 2,294
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,006 $ 10,505 $ 2,025 $ 8,429 $ 19,145
========= ========= ========= ========= =========
SUPPLEMENTARY INFORMATION
Cash income taxes paid $ -- $ -- $ 25 $ 836 $ 1,037
Cash interest paid $ 3,159 $ 2,647 $ 13,697 $ 13,335 $ 6,864
See accompanying notes to the consolidated financial statements.
F-6
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under the laws of the state of Delaware on
October 6, 1988, to engage in the business of acquiring, expanding, developing
and redeveloping, and owning neighborhood and community shopping centres. The
Company is an indirect wholly-owned subsidiary of Centrefund Realty Corporation
("CRC") which is itself indirectly controlled by Gazit Inc.
The Company's financial statements are presented in accordance with
accounting principles generally accepted in the United States and its
significant accounting policies are as follows:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
financial position, results of operations and cash flows of the Company and its
wholly-owned subsidiaries. The Company also has three non-controlling interests
in three separate unconsolidated real estate joint ventures, which are accounted
for under the equity method. All significant intercompany amounts have been
eliminated.
SHOPPING CENTRES AND SHOPPING CENTRES UNDER REDEVELOPMENT
Shopping centres are stated at cost less accumulated depreciation.
Shopping centres under redevelopment are stated at cost. In the event that there
is an impairment, the carrying value of the property is reduced to its estimated
fair value. Cost includes all expenditures incurred in connection with the
acquisition and redevelopment of the properties. These expenditures include
acquisition costs, construction costs, other direct costs, building improvement
costs and carrying costs. Carrying costs (including property taxes and interest
on both specific and general debt, net of operating results) are capitalized
into the cost of the properties until the property changes from non-operating to
operating (which is based on achieving a satisfactory occupancy level within a
predetermined time limit no later than one year from cessation of major
construction activities). At that time, costs are no longer capitalized.
The book values are reviewed for impairment on a property-by-property
basis whenever events or changes in circumstances indicate that the carrying
amount of a property may not be recoverable. Impairment is recognized when
estimated future cash flows (undiscounted and without interest charges) to be
received from the ongoing use and residual worth of the properties are less than
the carrying amount of the property. These projections take into account the
specific business plan for each property and management's best estimate of the
most probable set of economic conditions anticipated in its market area.
If impairment analysis assumptions change, then adjustments to the
carrying amount of the Company's assets could occur. To the extent that a
property is impaired, the excess of the carrying amount of the property over its
estimated fair value is charged to income. There was no impairment charges
recorded to the carrying value of the shopping centres and shopping centres
under redevelopment for the periods ended March 31, 2001 and 2000, and December
31, 2000, 1999 and 1998.
F-7
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation of the Company's buildings and improvements is provided
for using the straight-line method over the estimated useful lives of the assets
which is typically 40 years, except for building improvements related to tenant
improvements which are amortized over the lesser of the asset's useful lives or
the terms of the related leases.
Leasing fees and tenant inducements incurred on securing leases are
amortized over the term of such leases on a straight-line basis.
The Company amortizes commitment fees and other costs incurred in
connection with debt financing over the term of such financing.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company considers
certificates of deposit with an initial maturity of three months or less to be
cash equivalents.
INVESTMENTS IN JOINT VENTURES
The Company accounts for its investments in joint ventures using the
equity method. Should management determine that an investment has suffered a
decline in value which it considered to be other than temporary, the investment
would be written down to estimated realizable value.
GROSS RENTAL INCOME
Gross rental income includes rents earned from tenants under lease
agreements and incidental income.
INCOME TAXES
Income taxes are accounted for using the liability method. Under this
method, deferred income taxes are recognized for the expected future tax
consequences of differences between the carrying amount of balance sheet items
and their corresponding tax values.
Deferred income taxes are computed using enacted corporate income tax
rates for the years in which the differences are expected to reverse.
OTHER COMPREHENSIVE INCOME
A statement for other comprehensive income has not been prepared as
there are no components of other comprehensive income.
F-8
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments is estimated
based on the amount at which these instruments could be exchanged in a
transaction between knowledgeable and willing parties. Fair value is estimated
using market values where available or using present value techniques and
assumptions concerning the amount and the timing of expected future cash flows
and discount rates which reflect the appropriate level of risk of the
instrument. The estimated fair values may differ from those which could be
realized in an immediate settlement of the instruments. The fair value of cash
and cash equivalents approximates their carrying value.
Certain amounts receivable, other assets, and accounts payable and
accrued liabilities, are assumed to have a fair value that approximates their
historical cost carrying amount due to their short-term nature.
The fair value of the loans and mortgages receivable, and mortgages
payable has been determined by discounting the cash flows of these financial
obligations using market rates for debt of similar corresponding terms and risk.
The Company may periodically enter into interest rate swap transactions
to fix interest rates on debt or to lock in rates on anticipated debt issuances.
These derivative financial instruments are designated as hedges and are
effective in meeting the risk reduction objectives of the Company by generating
cash flows which offset the cash flows related to the debt in respect of amount
and timing. The initial cost of entering into such transactions is recorded as
interest expense over the term of the debt. Any ongoing difference payable or
receivable on such transactions is recorded as an adjustment to interest
expense.
NEW ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001, the Company will be adopting FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), and the corresponding amendments under FASB Statement No. 138 ("SFAS
138"). FAS 133 requires that all derivative financial instruments be recognized
in the financial statements and measured at fair value regardless of the purpose
or intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or shareholder's equity
(as a component of comprehensive income), depending on whether the derivative is
designated as a hedge and whether it is being used to hedge changes in fair
value or cash flows. SFAS 138 amends certain provisions of SFAS 133 to clarify
four areas causing difficulties in implementation. As of March 31, 2001 and
January 1, 2001, the cumulative effect of adopting SFAS 133, as amended by SFAS
138, did not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
F-9
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the balance sheet date and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from such estimates.
2. SHOPPING CENTRES
Shopping centres consist of the following:
March 31, December 31, December 31,
2001 2000 1999
--------------- -------------- ---------------
(unaudited)
Shopping centres in operation
Land $ 46,758 $ 46,758 $ 49,035
Buildings and improvements 200,805 199,678 207,271
--------- --------- ---------
Deferred leasing costs 8,210 8,078 6,012
255,773 254,514 262,318
Accumulated depreciation (23,031) (21,536) (16,315)
--------- --------- ---------
232,742 232,978 246,003
--------- --------- ---------
Shopping centres under redevelopment
Acqusition costs 2,460 2,460 2,258
Development costs 4 690 2,135
Interest costs 234 140 600
Other net carrying costs 529 244 513
3,227 3,534 5,506
--------- --------- ---------
$ 235,969 $ 236,512 $ 251,509
========= ========= =========
F-10
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
3. INVESTMENTS IN JOINT VENTURES
Investments in joint ventures consist of the following:
March 31, 2001
----------------------------------------------------------------------------------------
(unaudited)
Balance, Net Income
Beginning of for Balance,
Period the Period Distributions Contributions End of Period
------------ ------------ ------------- ------------- -------------
Cashmere Developments
Joint Venture $ 1,313 $ 10 $ -- $ -- $ 1,323
Centrefund Development
Group LLC 6,986 42 -- -- 7,028
Centrefund Development
Group II LLC 3,408 75 -- -- 3,483
------- ----- ------ ------- -------
$ 11,707 $ 127 $ -- $ -- $ 11,834
======= ===== ====== ======= =======
December 31, 2000
----------------------------------------------------------------------------------------
Balance, Net Income
Beginning of (Loss) for Balance,
Period the Period Distributions Contributions End of Period
------------ ------------ ------------- ------------- -------------
Cashmere Developments
Joint Venture $ 1,765 $ 11 $ (463) $ -- $ 1,313
Centrefund Development
Group LLC 4,193 (339) -- 3,132 6,986
Centrefund Development
Group II LLC 3,321 621 (3,204) 2,670 3,408
------- ----- ------ ------- -------
$ 9,279 $ 293 $ (3,667) $ 5,802 $ 11,707
======= ===== ====== ======= =======
December 31, 1999
----------------------------------------------------------------------------------------
Balance, Net Income
Beginning of (Loss) for Balance,
Period the Period Distributions Contributions End of Period
------------ ------------ ------------- ------------- -------------
Cashmere Developments
Joint Venture $ 443 $ 139 $ (610) $ 1,793 $ 1,765
Centrefund Development
Group LLC -- 194 -- 3,999 4,193
Centrefund Development
Group II LLC 659 326 (229) 2,565 3,321
------- ----- ------ ------- -------
$ 1,102 $ 659 $ (839) $ 8,357 $ 9,279
======= ===== ====== ======= =======
F-11
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
3. INVESTMENTS IN JOINT VENTURES (CONTINUED)
The Company has non-controlling interests in three separate
unconsolidated equity investment joint ventures. These ventures own land,
shopping centres and shopping centres under development and are primarily
engaged in the development of neighborhood and community-sized shopping centres.
The Company holds a 50.1% non-controlling interest in two of the joint
ventures (Centrefund Development Group LLC and Centrefund Development Group II
LLC) with North American Shopping Center Corp. ("NASCC") holding the remaining
49.9% interest. NASCC is indirectly controlled by the Company's Property Manager
and two of the Company's former directors. The Company holds a 50% interest in
Cashmere Developments Joint Venture with NASCC and another unrelated party each
holding 25%.
Subsequent to year end, in accordance with the terms of the partnership
agreements, the partners agreed to wind up the partnerships on an orderly basis.
Any properties not purchased by the partners will be sold to third parties.
The Company has advanced at March 31, 2001 $12.5 million ($12.2 million
and $9.2 million at December 31, 2000 and 1999, respectively) in loans to its
development partner, NASCC, to partially finance its investment in the
development partnership. The loans bear interest at rates varying from the
Company's cost of funds to 10%. For the period ended March 31, 2001, the Company
earned interest of $ 0.4 million ($1.3 million and $0.7 million at December 31,
2000 and 1999, respectively) from loans to the development partner which will be
repaid from cash flows generated from the development properties and from the
development partner's share of proceeds generated from refinancing or sales.
The Company is contingently liable for certain of the obligations of
the partnership ventures and all of the assets of the partnership ventures are
available for the purpose of satisfying such obligations and guarantees (See
Note 16).
The following amounts represent condensed combined financial
information on the partnership interests:
March 31, December 31, December 31,
2001 2000 1999
------------ --------------- --------------
(unaudited)
Assets $ 58,607 $ 56,374 $ 36,071
Liabilities $ 37,935 $ 35,011 $ 18,411
Revenues $ 991 $ 2,578 $ 1,373
Expenses $ 737 $ 1,992 $ 55
Cash flows provided by (used in)
Operating activities $ (438) $ 829 $ 1,752
Financing activities $ 3,898 $ 19,873 $ 21,818
Investing activities $ (3,520) $(20,746) $(23,469)
F-12
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
March 31, December 31, December 31,
2001 2000 1999
---------- ------------ ------------
(unaudited)
Cash $3,006 $2,025 $2,321
Certificates of deposit -- -- 6,108
------ ------ ------
$3,006 $2,025 $8,429
====== ====== ======
5. AMOUNTS RECEIVABLE
Amounts receivable consist of the following:
March 31, December 31, December 31,
2001 2000 1999
---------- ------------ ------------
(unaudited)
Amounts receivable $ 1,742 $ 3,715 $ 3,117
Loans receivable from
development partner (a) 12,511 12,213 9,245
Mortgage receivable (b) -- -- 4,470
Allowance for doubtful accounts (32) (209) (303)
-------- -------- --------
$ 14,221 $ 15,719 $ 16,529
======== ======== ========
(a) Pursuant to a memorandum of agreement dated September 15, 1997, the
Company has advanced amounts to fund development activities in
partnerships with NASCC and affiliates (see Note 3), to finance a
portion of its capital requirements in the development
partnerships. The loans bear interest at rates varying from the
Company's cost of funds to 10% and are repayable from the
development partner's share of proceeds generated from refinancings
or sales. The Company has taken assignments of the development
partner's debt and equity interests in the development partnerships
as security for the loans receivable.
(b) The mortgage receivable due, from one of the partnership ventures
(see Note 3), bore interest at the rate of 10% and was repaid in
2000. In 2000, the Company earned interest income in the amount of
$0.4 million (1999 - $0.4 million).
The fair value of the loans and mortgage receivable at March 31, 2001,
December 31, 2000 and 1999 approximate their carrying amounts.
The Company is exposed to credit risk to the extent that debtors fail
to meet their obligations. This risk is alleviated by minimizing the amount of
exposure the Company has to any one tenant, ensuring a diversified tenant mix,
acquiring properties in superior geographic locations, and by the hypothecated
properties.
F-13
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
6. OTHER ASSETS
Other assets consist of the following:
March 31, December 31, December 31,
2001 2000 1999
---------- ------------ ------------
(unaudited)
Deferred financing costs $ 2,583 $ 2,330 $ 1,180
Prepaid expenses and other assets 3,982 4,395 2,996
-------- -------- --------
$ 6,565 $ 6,725 $ 4,176
======== ======== ========
7. DUE FROM/TO AFFILIATED ENTITIES
Amounts due from/to entities under common control bear interest at
varying rates, are unsecured and are repayable on demand. The fair value of the
amounts due to affiliated entities at March 31, 2001, December 31, 2000 and 1999
approximate their carrying values.
Effective January 2, 2001, $27.7 million of amounts due to and from
affiliates were offset and $22.3 million due to an affiliated entity was settled
in return for the issuance of 21 common shares of the Company.
F-14
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
8. MORTGAGES PAYABLE
Mortgages payable secured by shopping centres consist of the following:
Interest March 31, December 31, December 31,
Property Rate Maturity Date 2001 2000 1999
---------------- --------------------- ------------ -------------- ---------------
(unaudited)
Harbour Center 7.0 October 1, 2013 $ 12,610 $ 12,645 $ 12,770
Arlington/Village
by the Parks 8.18 June 1, 2002 3,786 3,805 3,881
Plymouth Park - North 8.25 August 1, 2010 8,993 9,040 --
Plymouth Park - West 8.25 August 1, 2010 2,569 2,583 --
Eckerd Plaza - South 8.25 August 1, 2010 642 646 --
Kroger Plaza - East 8.25 August 1, 2010 642 646 --
Sterling Plaza 8.75 September 1, 2005 4,239 4,260 4,337
Townsend Square 8.5 October 1, 2005 5,036 5,051 5,108
Minyards/Garland 8.32 November 1, 2010 2,599 2,607 --
Wurzbach Centre Variable December 31, 2004 1,061 1,064 --
Boynton Plaza 8.03 July 1, 2010 7,663 7,676 4,752
Prosperity Centre 7.875 March 1, 2009 7,261 7,332 7,604
Westburry 7.3 October 1, 2008 2,348 2,352 2,376
Jonathans Landing 8.05 May 1, 2010 2,979 2,984 --
Turkey Lake/Kirkman 8.74 June 1, 2010 9,705 9,719 --
Ross/West Hills 8.74 June 1, 2010 6,769 6,779 --
Bluffs Square Shoppes 8.74 June 1, 2010 10,278 10,292 --
-------- -------- ---------
89,180 89,481 40,828
-------- -------- ---------
Mortgages payable to a company under common control
Copperfield 6.615 October 31, 2003 9,350 9,350 9,350
Steeplechase 7.005 February 1, 2004 6,935 6,935 6,935
Mission Bend 7.005 February 1, 2004 7,007 7,007 7,007
Grogan's Mill 7.005 February 1, 2004 8,794 8,794 8,794
Beechcrest 7.005 February 1, 2004 4,362 4,362 4,362
Kingwood 7.005 February 1, 2004 -- -- 6,077
Marco Island LIBOR + 1.625 November 1, 2003 9,790 9,790 9,790
Oakbrook LIBOR + 1.625 February 1, 2003 8,663 8,663 8,663
Sawgrass LIBOR + 1.625 June 1, 2005 8,580 8,580 6,490
Boca Village LIBOR + 1.625 June 1, 2005 9,295 9,295 7,508
Woodforest/Eastbelt 7.005 February 1, 2004 -- -- 5,077
Turkey Lake/Kirkman LIBOR + 1.625 June 1, 2010 -- -- 6,985
Ross/West Hills LIBOR + 1.625 June 1, 2010 -- -- 4,565
Bluffs Square Shoppes LIBOR + 1.625 June 1, 2010 -- -- 8,855
72,776 72,776 100,458
-------- -------- ---------
$161,956 $162,257 $ 141,286
======== ======== =========
Included in mortgage interest expense at March 31, 2001 and 2000 is $ 1.3
million and $ 1.9 million, respectively, (December 31, 2000 - $6.7 million; 1999
- - $6.8 million; 1998 - $3.2 million) paid on mortgages to a company under common
control.
F-15
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
8. MORTGAGES PAYABLE (CONTINUED)
As at December 31, 2000, principal repayments of mortgages payable are
due as follows:
Year ending December 31,
2001 $ 1,315
2002 5,415
2003 20,288
2004 28,083
2005 34,878
Thereafter 72,278
--------
$162,257
========
The fair value of mortgages payable at March 31, 2001, December 31,
2000 and 1999 approximate their carrying values.
The Company is exposed to financial risks arising from fluctuations in
interest rates that could cause a variation in earnings. The Company
periodically enters into interest rate swap transactions to fix interest rates
on current or future outstanding debt. The Company has entered into interest
rate swap contracts on $18.2 million of debt included in mortgages payable,
effectively converting the debt from variable rate debt into fixed rate debt
maturing in 2001.
As part of its risk management program, the Company endeavors to
maintain an appropriate mix of fixed rate and floating rate debt and strives to
match the nature and timing of lease inflows to financing thereon.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
March 31, December 31, December 31,
2001 2000 1999
--------------- ---------------- -----------------
(unaudited)
Accounts payable $ 3,928 $ 4,647 $ 5,502
Accrued liabilities 5,802 5,448 7,639
Security deposits 1,622 1,698 1,529
-------- -------- --------
$ 11,352 $ 11,793 $ 14,670
======== ======== ========
F-16
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
10. SHARE CAPITAL
The share capital of the Company consists of the following:
March 31, December 31, December 31,
2001 2000 1999
--------------- ---------------- -----------------
(unaudited)
Authorized
3,000 common shares without par value
Issued
138 common shares (December 31,
2000 and 1999 - 117
common shares) $ 97,396 $ 75,069 $ 75,069
======== ======== ========
Effective January 2, 2001, the Company issued 21 common shares to an
affiliated entity with a value of $22.3 million in consideration for
the settlement of amounts due to affiliated entities in the amount of
$22.3 million.
11. INTEREST EXPENSE ON MORTGAGES
Interest expense incurred on mortgages consists of the following:
Three months ended Year ended
----------------------------- ----------------------------------------------
March 31, March 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited)
Total interest cost $ 3,160 $ 2,494 $ 12,250 $ 10,592 $ 7,250
Less interest capitalized on
Shopping centres
under development (61) (28) (254) (562) (661)
------- ------- -------- -------- -------
$ 3,099 $ 2,466 $ 11,996 $ 10,030 $ 6,589
======= ======= ======== ======== =======
12. RELATED PARTY TRANSACTIONS - ADVISOR'S FEES
Dawsco Realty Advisory Corp. (the "Advisor"), a private Ontario
corporation controlled by two of the ultimate parent company's former directors,
one of whom was the Chairman, President and Chief Executive Officer of the
parent company until August 18, 2000, was responsible for managing and
administering all the affairs of the Company, pursuant to an Advisory Agreement
made February 15, 1994 (the "Advisory Agreement") and subsequently revised
effective January 1, 2000.
F-17
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
12. RELATED PARTY TRANSACTIONS - ADVISOR'S FEES (CONTINUED)
The fees paid, advanced, or accrued to the Advisor, expressed in
thousands of dollars, are summarized as follows:
Three months ended Year ended
---------------------------- ---------------------------------------------
March 31, March 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
------------- -------------- -------------- -------------- --------------
(unaudited) (unaudited)
Advisory fees(a) $ -- $ -- $ -- $ 1,763 $ 1,056
Acquisition and disposition fees(b) -- -- -- 122 818
Annual incentive fees(c) -- 368 550 482 210
Advisory termination fees(d) -- -- (968) 8,204 --
Fair value incentive amount and
other fees (Note 14) -- -- 13,694 -- --
Annual base incentive fees(d)(ii) -- 155 362 -- --
--------- --------- -------- -------- -------
Total $ -- $ 523 $ 13,638 $ 10,571 $ 2,084
========= ========= ======== ======== =======
(a) Advisory Fees
Until December 31, 1999 (see Note 12 (d)), the Advisor was paid an
annual advisory fee equal to 0.6% of the total cost of the Company's assets.
During 1999, $0.18 million (1998 - $0.18 million) in advisory fees were
capitalized to shopping centres under redevelopment and land and shopping
centres under development.
(b) Acquisition and Disposition Fees
Until December 31, 1999 (see Note 12 (d)), the Advisor was also paid an
acquisition fee of 1.5% of the total acquisition price upon the purchase of any
property by the Company and a disposition fee of 0.5% of the aggregate sale
price of any property sold by the Company.
(c) Annual Incentive Fees
Until August 17, 2000 (see Note 14), the Advisor was entitled to earn
an annual incentive fee equal to 20% of the amount by which the aggregate net
property cash flow and the aggregate net sale proceeds generated by the
Company's shopping center portfolio, and other related assets, exceed 10% of the
aggregate equity invested in such portfolio and other assets.
F-18
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
12. RELATED PARTY TRANSACTIONS - ADVISOR'S FEES (CONTINUED)
(d) Advisory Termination Fees
In November 1999, the Board of Directors of the Company approved a
transaction to terminate the advisory fee and acquisition and disposition fee
components and revise the incentive fee provisions of the Advisory Agreement.
Pursuant to the transaction, the amended Advisory Agreement could be terminated
by the Company at the expiration of the current term on March 29, 2004, subject
to obtaining shareholder approval or upon the expiration of any subsequent term.
In addition, the Advisor agreed to continue to provide the strategic services of
the parent company's Chairman, President and Chief Executive Officer. The
transaction took effect on January 1, 2000.
If the amended Advisory Agreement was terminated March 29, 2004, then:
Effective January 1, 2000 and for the balance of the term, the annual
incentive fees (see Note 12 (c)) would be calculated solely with reference to
the shopping center portfolio and related assets owned by the Company as at
September 30, 1999;
The Fair Value Incentive Amount (see Note 14), payable upon termination
of the amended Advisory Agreement, would be calculated solely with reference to
the shopping center portfolio and related assets owned by the Company as at
September 30, 1999;
The Company would have the option to satisfy the Fair Value Incentive
Amount in a combination of cash and common shares of CRC, provided that the cash
portion of such combined payment represented at least 50% thereof, the common
shares forming part of such combined payment were issued on a tax-deferred basis
to the Advisor and certain other conditions were met; and
The property management agreement would be terminated effective March
29, 2004 (see Note 13).
As consideration for the amendments to the Advisory Agreement and in
consideration for the Advisor continuing to provide the strategic services of
the Company's Chairman, President and Chief Executive Officer, the Advisor was
to receive the following:
(i) An advisory termination fee of $6.4 million (Cdn. $9.5 million)
plus interest to the payment date in the amount of $0.27 million.
(ii) An annual base incentive fee. An amount of $0.36 million was paid
under this agreement in 2000. On the change of control (see Note
14), under the terms of the amended Advisory Agreement, the total
amount payable to the end of the contract term was accelerated
and resulted in a further $2.7 million payment.
F-19
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
12. RELATED PARTY TRANSACTIONS - ADVISOR'S FEES (CONTINUED)
(iii) A stock appreciation package, which effectively represented at the
time of issue the appreciation in the value of 1,500,000 common
shares of CRC measured with reference to a base price of Cdn. $14
per share, which would be satisfied by the payment of:
(A) a fee of $1.5 million (Cdn. $2.2 million) which would, except
in certain circumstances, be used to purchase incentive
warrants of CRC ("Incentive Warrants") entitling the holder
thereof to purchase an aggregate of up to 3,600,000 common
shares of CRC at an exercise price of Cdn. $14 per share (as
adjusted), having a term expiring on January 1, 2005; and
(B) if applicable, a fee of $550 thousand (Cdn. $800 thousand)
which would, except in certain circumstances, be used to
purchase common share purchase warrants of CRC having a term
of five years from the date of their issuance and
representing a right to subscribe for up to 3,600,000 common
shares of CRC less the aggregate number of common shares of
CRC acquired by the holders of the Incentive Warrants for an
exercise price equal to the greater of the fair market value
of the common shares on the date of issuance of such warrants
and Cdn. $14 per share (as adjusted).
On the change of control, under the terms of the amended Advisory
Agreement, the stock appreciation package became payable in cash as fair value
and annual incentive amendment fees totaling $2.2 million (Cdn. $3.0 million).
Pursuant to a fee sharing agreement, the Property Manager received a
portion of all of the consideration received by the Advisor, except for the
annual base incentive fee.
A provision for the advisory termination transaction was recorded in
the financial statements at December 31, 1999 totaling $8.20 million. The
payment was in respect of the termination of the advisory fee and acquisition
and disposition fee components of the Advisory Agreement and third party
professional and consulting costs. The Advisory Agreement was terminated in
August 18, 2000 in accordance with its terms (see Note 14).
13. PROPERTY MANAGEMENT AND ASSET MANAGEMENT FEES
Centrecorp Management Services Limited (the "Property Manager"), a
private Ontario corporation controlled by two of the parent company's former
directors, acts as the Company's property manager pursuant to a Property
Management Agreement made February 15, 1994. The Property Management Agreement
expires March 29, 2004. The Property Manager has also been retained by the joint
venture partnerships to act as the partnership's property manager, investment
advisor and consultant with respect to the acquisition, development and
retention of property, pursuant to an agreement effective January 1, 2000. The
Property Manager is responsible for all property management functions, including
property administration, maintenance and leasing. This agreement was cancelled
effective December 1, 2000 (see Note 14).
F-20
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
13. PROPERTY MANAGEMENT AND ASSET MANAGEMENT FEES (CONTINUED)
The fees earned by the Property Manager are summarized as follows:
Three months ended Year ended
---------------------------------------- -------------------------
March 31, March 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
----------- ----------- ------------ ----------- ------------
(unaudited) (unaudited)
Property and asset
management fees $ 381 $ 290 $1,530 $ 143 $ 780
Construction supervision fees 49 23 295 283 271
Leasing fees 288 160 947 1,005 617
Overhead cost reimbursements 1 46 140 106 125
------ ------ ------ ------ ------
Total $ 719 $ 519 $2,912 $1,537 $1,793
====== ====== ====== ====== ======
The property manager also received a portion of the acquisition and
disposition fees and annual incentive fees paid to the Advisor.
Under the terms of an asset management agreement effective August 15,
2000, Equity One Realty & Management Inc. ("Equity One"), a wholly-owned
subsidiary of Equity One, Inc., a publicly traded company controlled by the
Company's ultimate controlling shareholder, was retained by the Company as an
asset manager of the Company's United States portfolio until November 30, 2000
and thereafter for the Texas portfolio. The agreement is cancelable on 30 days
notice. Equity One earned an amount of $0.35 million in 2000 under the terms of
the agreement.
Under the terms of a property management agreement effective December
1, 2000, Equity One was retained as property manager of the majority of the
Company's Florida property portfolio. The agreement is cancelable on 120 days
notice. Equity One earned an amount of $0.05 million in 2000 under the terms of
the agreement.
14. PREVIOUS MANAGEMENT'S INCENTIVE AND OTHER FEES
On August 18, 2000, the Gazit Group purchased a controlling interest in
the parent company, pursuant to the terms of a take-over bid (the "Offer").
Prior to this change in control, the former management had a number of
incentives in place pursuant to advisory and certain other agreements as
outlined in Note 12.
F-21
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
14. PREVIOUS MANAGEMENT'S INCENTIVE AND OTHER FEES (CONTINUED)
On the acquisition of control, in accordance with the terms of the
amended Advisory Agreement, all of the incentive fees became payable in cash and
the Advisory Agreement was terminated. On termination of the Advisory Agreement,
in accordance with its terms, the Advisor also became entitled to receive a fair
value incentive amount equal to 20% of the excess of the fair market value of
the Company's shopping center portfolio and other related assets over the
aggregate of: (i) the recorded cost of such portfolio and assets, determined at
the termination date, and (ii) the aggregate amount required to have provided
the Company since March 29, 1994 with a 10% compound, cumulative annual return
on the average aggregate equity allocable to such portfolio and assets, net of
annual incentive fees paid to the Advisor and after taking into consideration
aggregate net property cash flow and aggregate net sale proceeds received with
respect to such portfolio and assets.
Former management of the Company, which included the Company's former
Chairman, President and Chief Executive Officer and who also controlled the
Advisor, calculated and accrued the fair value incentive amount to be $8.8
million. This amount was recorded after an offer by the Gazit Group to acquire a
controlling interest in the parent company in June 2000. At December 31, 2000,
$3.7 million of the fair value incentive amount had been advanced. The unpaid
amount, if any, is secured by a fixed and floating charge over two of the
Company's shopping centres. The fair value incentive amount, as calculated by
the Advisor, was based on the Advisor's estimate of the fair market value of the
Company's shopping center portfolio.
Current management of the Company is disputing the calculation of the
fair value incentive amount, including amounts that have been advanced. When the
dispute is resolved, the fair value incentive amount could be significantly
different from the amount recorded.
The previous management's incentive fees and certain other costs,
primarily associated with the parent company's consideration of the Offer, and
the cost of canceling the property management contract as it pertains to the
Florida property portfolio, in accordance with a settlement agreement dated
August 18, 2000, are summarized as follows:
Fair value incentive amount, as calculated and
accrued by previous management and currently under dispute $ 8,818
-------
Acceleration of annual base incentive fee (Note 12 (d) (ii)) 2,687
Fair value and annual incentive amendment fees (Note 12 (d) (iii)) 2,189
13,694
Property management cancellation fees 1,250
-------
$14,944
=======
F-22
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
15. INCOME TAXES
The Company's activities are carried out directly and through operating
subsidiaries and partnership ventures in the United States.
The income tax provision (recovery) reflected in the consolidated
statements of operations differs from the amounts computed by applying
the federal statutory rate of approximately 35% to income (loss) before
income and other taxes as follows:
Three months ended Year ended
March 31, March 31, December December December
2001 2000 31, 2000 31, 1999 31, 1998
(unaudited) (unaudited)
Federal income tax provision
(recovery) at statutory rate $ 499 $ 529 $(4,605) $ (698) 347
Increase (decrease) in taxes resulting
from State income taxes, net of
federal impact 36 38 (329) (27) 25
Other (30) 53 333 81 (133)
------- ------- ------- ------- -------
$ 505 $ 620 $(4,601) $ (644) $ 239
======= ======= ======= ======= =======
The Company's deferred income tax assets and liabilities are summarized
as follows:
March 31, December 31, December 31,
2001 2000 1999
---------- ---------- ----------
(unaudited)
Deferred income tax assets
Losses available for carry-forward $ 5,722 $ 6,177 $ -
Other assets 2,143 2,143 3,358
U.S. state taxes and minimum tax credits 1,380 1,380 1,053
---------- ---------- ----------
9,245 9,700 4,411
Deferred income tax liabilities
Shopping centres 7,977 7,977 7,316
---------- ---------- ----------
Deferred income tax assets (liabilities), net $ 1,268 $ 1,723 $ (2,905)
========== ========== ==========
As at March 31, 2001, the Company has tax loss carry-forwards for income
tax purposes of approximately $15 million ($16 million and $Nil at
December 31, 2000 and 1999, respectively), which have been recognized as
deferred income tax assets and are available to reduce future taxable
income. These tax loss carry-forwards expire on December 31, 2020.
F-23
CENTREFUND REALTY (U.S.) CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 IS UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
16. CONTINGENCIES
(a) The Company monitors its properties for the presence of hazardous
or toxic substances. The Company is involved in a legal action
relating to an environmental liability with respect to two of its
properties. In management's opinion, the liability, if any, that
may ultimately result from this environmental issue is not expected
to have a material adverse effect on the Company's business assets
or results of operations. The Company is not aware of any other
environmental liability with respect to the properties. However,
there can be no assurance that any other material environmental
liabilities do not exist. The existence of any such material
environmental liability would have an adverse effect on the
Company's results of operations and cash flows.
(b) The Company has provided guarantees at March 31, 2001 for
approximately $ 35.0 million (December 31, 2000 and 1999 of $32.7
million and $19.1 million, respectively) to various lenders in
connection with loans advanced to Centrefund Development Group.
(c) The Company is also contingently liable for letters of credit at
March 31, 2001 in the amount of $ 2.3 million (December 31, 2000
and 1999 of $2.3 million and $0.7 million, respectively) issued in
the ordinary course of business.
17. SUBSEQUENT EVENT
The Company's indirect parent, Centrefund Realty Corporation
("Centrefund") entered into an agreement on May 18, 2001 to sell all of
the outstanding shares of the Company to Equity One, Inc., ("Equity One")
in exchange for 10,500,000 shares of common stock of Equity One. The
transaction is subject to, among other things, the approval of the
minority shareholders of Centrefund. Centrefund and Equity One share a
common indirect parent company.
F-24
REPORT OF INDEPENDENT AUDITORS
The Board of Trust Managers and Shareholders
United Investors Realty Trust
We have audited the accompanying consolidated balance sheets of United
Investors Realty Trust and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, redeemable preferred shares
and common shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Investors Realty Trust and subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Dallas, Texas
February 2, 2001, except for Notes 12, 16 and 17
as to which the date is March 29, 2001
F-25
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------------------
ASSETS 2000 1999
------------ ------------
Investment real estate:
Land $ 45,720,241 $ 48,964,963
Buildings and improvements....................................................... 116,772,876 127,232,647
Property under development....................................................... 70,893 1,105,343
------------ -------------
162,564,010 177,302,953
Less accumulated depreciation.................................................... (12,483,005) (11,164,573)
------------ -------------
Investment real estate, net...................................................... 150,081,005 166,138,380
Cash and cash equivalents............................................................. 297,567 1,807,791
Accounts receivable, net of allowance of $240,034 and $112,047 in 2000 and
1999, respectively................................................................. 2,789,559 2,876,523
Other assets ......................................................................... 6,814,779 4,143,068
------------ -------------
Total assets................................................................ $159,982,910 $ 174,965,762
============- =============
LIABILITIES, MINORITY INTEREST, AND COMMON
SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable............................................................ $ 48,362,796 $ 50,043,083
Short-term notes and line of credit............................................... 23,044,800 22,953,000
Capital lease obligations......................................................... 9,724,084 11,529,745
Construction note payable......................................................... 4,878,132 5,198,132
Accounts payable--trade............................................................ 2,740,934 2,604,242
Accrued property taxes............................................................ 2,764,535 2,463,128
Security deposits................................................................. 755,942 820,363
Distributions payable............................................................. 1,945,673
------------ ------------
--
Total liabilities................................................................. 92,271,223 97,557,366
------------ ------------
Minority interest in consolidated partnerships......................................... 2,104,775 2,745,791
Commitments and contingencies
Common shareholders' equity:
Common shares of beneficial interest, no par value, 500,000,000 shares
authorized; 9,525,289 shares issued; 8,652,292 and 9,043,892 shares
outstanding at December 31, 2000 and 1999, respectively........................ 87,281,424 87,233,173
Accumulated deficit............................................................... (15,493,672) (8,517,310)
------------ ------------
71,787,752 78,715,863
Less:
Treasury shares, at cost, 872,997 and 470,997 at December 31, 2000 and
1999, respectively............................................................. (5,568,484) (3,238,227)
Shareholder notes receivable...................................................... (612,356) (815,031)
------------ ------------
Total common shareholders' equity............................................ 65,606,912 74,662,605
------------ ------------
Total liabilities, minority interest, and common shareholders'
Equity.................................................................... $ 159,982,910 $174,965,762
============= ============
See accompanying notes.
F-26
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Base rents......................................................... $ 19,398,661 $ 19,572,159 $ 13,231,250
Percentage rents................................................... 137,851 315,400 322,633
Lease termination fees............................................. 380,000 -- --
Expense reimbursements............................................. 5,616,479 5,759,883 3,769,885
Interest and other income.......................................... 378,968 348,113 426,402
------------ ------------ ------------
Total revenues................................................ 25,911,959 25,995,555 17,750,170
------------ ------------ ------------
Expenses:
Property operating................................................. 2,889,505 2,852,058 1,854,467
Property taxes..................................................... 3,971,406 3,681,844 2,485,915
Property management fees........................................... 213,497 272,272 307,783
General and administrative......................................... 1,716,955 1,621,654 1,016,508
Advisory fees...................................................... 1,160,477 1,207,189 794,043
Litigation......................................................... 227,926 -- --
Interest (including write-off of $2,240,652 in unamortized
bridge financing costs in 1998)................................. 7,913,175 6,680,730 6,079,889
Depreciation and amortization...................................... 4,538,730 4,256,972 2,907,855
Impairment loss.................................................... 6,000,000 -- --
------------ ------------ ------------
Total expenses................................................ 28,631,671 20,572,719 15,446,460
Income (loss) before minority interest, gain on sale of real estate,
extraordinary item and preferred share distribution
requirements......................................................... (2,719,712) 5,422,836 2,303,710
Minority interest in losses (earnings) of consolidated
Partnerships......................................................... 41,939 (145,977) (126,111)
Gain on sale of real estate............................................. 1,425,123 -- --
------------ ------------ ------------
Income (loss) before extraordinary item and preferred share
distribution requirements............................................ (1,252,650) 5,276,859 2,177,599
Extraordinary item-prepayment penalties incurred on early
extinguishment of debt............................................... -- (36,477) (232,532)
Net income (loss)....................................................... (l,252,650) 5,240,382 1,945,067
Preferred share distribution requirements............................... -- -- (20,670)
------------ ------------ ------------
Net income (loss) available for common shareholders..................... $ (1,252,650) $ 5,240,382 $ 1,924,397
============ ============ ============
Net income (loss) before extraordinary item and preferred share
distribution requirement per common share............................ $ (0.14) $ 0.56 $ 0.28
Extraordinary item per common share..................................... -- -- (0.03)
Preferred share distribution requirement per common share............... -- -- --
------------ ------------ ------------
Net income (loss) per common share (basic and diluted).................. $ (0.14) $ 0.56 $ 0.25
============ ============ ============
Weighted average shares outstanding..................................... 8,919,312 9,433,883 7,702,709
============ ============ ============
See accompanying notes.
F-27
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
SHARES AND COMMON SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
PREFERRED SHARES OF COMMON SHARES OF
BENEFICIAL INTEREST BENEFICIAL INTEREST TREASURY SHARES
------------------------ ------------------------- ACCUMULATED --------------------------
NUMBER AMOUNT NUMBER AMOUNT DEFICIT NUMBER AMOUNT
--------- ------------ ---------- ------------ ------------ ------------ ------------
Balance at December 31, 1997 10,737 $ 914,889 $8,345,077 $ (1,490,484) -- $ -- --
Issuance of common shares of
beneficial interest, net
of offering costs of $7,189,750 -- -- 8,600,000 78,810,250 -- -- --
Redeemable preferred shares of
beneficial interest
distributions, $9.00 per share -- -- -- -- (20,670) -- --
Preferred share retirement (10,737) (1,068,226) -- -- -- -- --
Treasury share purchases -- -- -- -- -- (80,000) (584,219)
Income before preferred share
distribution requirements -- -- -- -- 1,945,067 -- --
Distributions ($0.645 per share) -- -- -- -- (6,135,702) -- --
--------- ------------ ---------- ------------ ------------ ------------ ------------
Balance at December 31, 1998 -- -- 9,514,889 87,155,327 (5,701,789) (80,000) (584,219)
Treasury share purchases -- -- -- -- -- (469,500) (3,210,686)
Share grant -- -- -- -- -- 2,000 14,250
Stock options exercised -- -- -- 220,103 -- 81,503 594,928
Offering expenses -- -- -- (142,257) -- -- --
Share forfeiture -- -- -- -- -- (5,000) (52,500)
Distributions ($0.86 per share) -- -- -- -- (8,055,903) -- --
Net income -- -- -- -- -- --
--------- ------------ ---------- ------------ ------------ ------------ ------------
5,240,382
------------
Balance at December 31, 1999 -- -- 9,514,889 87,233,173 (8,517,310) (470,997) (3,238,227)
Issuance of common shares of
beneficial interest -- -- 10,400 55,180 -- -- --
Treasury share purchases -- -- -- -- -- (402,000) (2,330,257)
Offering expenses -- -- -- (6,929) -- -- --
Shareholder note payments -- -- -- -- -- -- --
Shareholder note forgiveness -- -- -- -- -- -- --
Distributions ($0.645 per share) -- -- -- -- (5,723,712) -- --
Net income (loss) -- -- -- -- -- -- --
--------- ------------ ---------- ------------ ------------ ------------ ------------
Balance at December 31, 2000 -- $ -- 9,525,289 87,281,424 $(15,493,672) (872,997) $ (5,568,484)
--------- ============ ========== ============ ============ ============ ============
SHAREHOLDER
NOTES
RECEIVABLE TOTAL
------------ ------------
Balance at December 31, 1997 $ 7,922,819 1,068,226
Issuance of common shares of
beneficial interest, net
of offering costs of $7,189,750 -- 78,810,250
Redeemable preferred shares of
beneficial interest
distributions, $9.00 per share -- (20,670)
Preferred share retirement -- (1,068,226)
Treasury share purchases -- (584,219)
Income before preferred share
distribution requirements -- 1,945,067
Distributions ($0.645 per share) --
------------ ------------
(6,135,702)
------------
Balance at December 31, 1998 -- 80,869,319
Treasury share purchases -- (3,210,686)
Share grant -- 14,250
Stock options exercised (815,031) --
Offering expenses -- (142,257)
Share forfeiture -- (52,500)
Distributions ($0.86 per share) -- (8,055,903)
Net income
------------ ------------
-- 5,240,382
------------ ------------
Balance at December 31, 1999 (815,031) 74,662,605
Issuance of common shares of
beneficial interest -- 55,180
Treasury share purchases -- (2,330,257)
Offering expenses -- (6,929)
Shareholder note payments 39,669 39,669
Shareholder note forgiveness 163,006 163,006
Distributions ($0.645 per share) -- (5,723,712)
Net income (loss) (1,252,650) (1,252,650)
------------ ------------
Balance at December 31, 2000 $ (612,356) $ 65,606,912
============ ============
See accompanying notes.
F-28
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ (1,252,650) $ 5,240,382 $ 1,945,067
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 4,353,932 4,143,685 2,812,320
Amortization 622,901 290,250 134,565
Impairment loss 6,000,000 -- --
Gain on sale of real estate (1,425,123) -- --
Forgiveness of shareholder notes receivable 163,006 -- --
Extraordinary item -- 36,477 232,532
Amortization of bridge financing costs -- -- 2,240,652
Minority interest in net (loss) earnings of consolidated
partnerships
(41,939) 145,977 126,111
Share forfeiture -- (52,500) --
Payment of common shares for services -- 14,250 --
(Increase) decrease in accounts receivable 86,964 419,047 (1,935,374)
Increase (decrease) in accounts payable-trade 92 (37,623) 1,208,212
Changes in other operating assets and liabilities (2,777,880) (178,084) (554,193)
------------ ------------ ------------
Net cash provided by operating activities 5,729,303 10,021,861 6,209,892
------------ ------------ ------------
Cash flows from investing activities:
Purchase of and capital improvements to investment real estate (4,787,081) (15,885,181) (59,654,366)
Proceeds from sale of real estate 5,247,370 -- --
Receipts from (fundings to) escrow deposits (200,000) 181,378 1,503,389
------------ ------------ ------------
Net cash provided by (used in) investing activities 260,289 (15,703,803) (58,150,977)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from bridge financing -- -- 53,689,913
Payments on bridge financing -- -- (53,689,913)
Preferred share retirement -- -- (1,068,226)
Proceeds from mortgage notes payable 3,650,000 -- --
Convertible note retirement -- -- (212,400)
Proceeds from short-term notes payable 4,054,800 15,453,000 7,550,000
Principal payments on mortgage notes payable (781,867) (5,205,354) (16,931,241)
Principal payments on short-term notes payable (3,963,000) -- (3,275,000)
Principal payments on capital lease obligations (1,727,461) (92,509) --
Proceeds from (repayments of) construction note payable (320,000) 3,976,739 1,221,393
Collections from shareholder notes receivable 39,669 -- --
Preferred share distribution -- -- (20,670)
Proceeds from public offering 55,180 -- 86,000,000
Offering costs (6,929) (142,257) (7,189,750)
Payment of prepayment penalties -- (36,477) (232,532)
Payment of bridge financing costs -- -- (2,240,652)
Payment of distributions (7,669,385) (8,155,932) (4,090,000)
Purchase of treasury shares (326,100) (3,210,686) (584,219)
Purchase of minority interest (130,665) -- --
Distributions to holders of minority interests (233,284) (225,470) (1,697,883)
Payment of loan acquisition costs (140,774) (357,416) (147,789)
------------ ------------ ------------
Net cash provided by (used in) financing activities (7,499,816) 2,003,638 57,081,031
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,510,224) (3,678,304) 5,139,946
Cash and cash equivalents at beginning of year 1,807,791 5,486,095 346,149
------------ ------------ ------------
Cash and cash equivalents at end of year $ 297,567 $ 1,807,791 $ 5,486,095
============ ============ ============
See accompanying notes.
F-29
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
United Investors Realty Trust and Subsidiaries (the "Company"), a Texas
real estate investment trust ("REIT") is engaged in the acquisition,
development, and management of neighborhood and community shopping centers in
the Sunbelt states. The tenants of the Company's shopping centers include
national and regional supermarkets and drug stores and other national, regional,
and local retailers that provide basic necessity and convenience goods and
services to the surrounding population.
The Company operated from 1989 until 1998 as a private REIT. On March 13,
1998, the Company completed an initial public offering (the "IPO") of 7,600,000
common shares of beneficial interest. In April 1998, the Company issued another
1,000,000 common shares of beneficial interest pursuant to the exercise of the
underwriters' overallotment options. Prior to the IPO, the Company had
outstanding approximately 915,000 shares.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and entities in which it owns controlling
interests. All significant intercompany balances have been eliminated. Minority
interests in the accompanying financial statements represent the allocable share
of equity and earnings of consolidated partnerships attributable to interests
held by third parties.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVESTMENT REAL ESTATE
Investment real estate, consisting of 25 shopping centers, is recorded at
cost less accumulated depreciation. The cost of real estate acquired by the
issuance of shares of beneficial interest or other securities is determined by
the estimated value of the securities issued or the real estate acquired. The
allocation of cost between land and building is based on the estimated fair
value at the time of the purchase. Depreciation is computed using the
straight-line method over the estimated useful lives of 20 to 40 years for the
shopping centers and over the lease term for tenant improvements (generally 5 to
15 years).
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant betterments are capitalized.
When assets are sold, their costs and related accumulated depreciation are
removed from the accounts, with the resulting gains or losses reflected in
operations for the period.
Recoverability of an investment in a particular shopping center is
evaluated when events or circumstances indicate a possible inability to recover
its carrying amount. Recoverability is determined on a property-by-property
basis utilizing the undiscounted cash flow method. If undiscounted cash flows
would be insufficient to recover the carrying amount of the real estate, the
real estate is reduced to fair value. Assets held for sale are recorded at the
lower of cost or fair value, less anticipated selling costs. During 2000, the
Company recognized a $6,000,000 loss on impairment related to one of its
properties.
F-30
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
INTANGIBLES
Deferred leasing costs at December 31, 2000 and 1999 were $673,667, net of
amortization of $260,274, and $518,154, net of amortization of $229,356,
respectively. Deferred leasing costs are amortized over the life of the
respective lease.
Deferred financing costs at December 31, 2000 and 1999 were $442,578, net
of amortization of $626,095 and $739,909, net of amortization of $200,068
respectively. Deferred financing costs are amortized over the life of the
respective mortgage note or line of credit.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
individual leases. Reimbursements from tenants for their share of taxes,
insurance and common area maintenance costs are estimated and accrued over the
lease year. Percentage rents are accrued when the tenants' sales exceed the
level that requires rental payments in excess of base rents.
NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income available
for common shareholders by the weighted average number of shares of beneficial
interest outstanding during the year. The assumed conversion of redeemable debt
and redeemable preferred shares would be antidilutive in all years presented.
CONCENTRATION OF RISK
The Company's primary business activity is investing in income-producing
real property. The Company's retail shopping center properties are located in
Austin, Dallas, Houston and San Antonio, Texas; Lenoir City and Athens,
Tennessee; Phoenix and Yuma, Arizona; and Tampa and Pembroke Pines, Florida.
During 2000, revenues were comprised of 66.5% in Texas, 11.6% in Florida, 13.9%
in Arizona, and 3.0% in Tennessee.
No single tenant currently accounts for more than 10% of rental revenue.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
provides that all derivative instruments be recognized as either assets or
liabilities depending on the rights or obligations under the contract and that
all derivative instruments be measured at fair value. The Company is required to
adopt SFAS No. 133 effective January 1, 2001. The adoption of SFAS No. 133 will
not have an immediate impact on the Company since the Company does not presently
invest in derivative instruments.
F-31
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. INVESTMENT REAL ESTATE
At December 31, 2000, the Company owned controlling interest in 25 shopping
center properties containing approximately 3,049,000 square feet of gross
leaseable area ("GLA"), of which the Company owned approximately 2,253,000
square feet of GLA. In addition, the Company owns a non-controlling 50% interest
in a limited partnership that owns one property.
Of the Company's 25 operating properties, 21 are 100% owned by the Company
either directly or through single purpose, wholly-owned subsidiaries. Two of the
properties (with an aggregate carrying value of $9,639,654) are owned through
limited partnerships in which the Company holds at least 96% of the partnership
interests. Two of the properties are owned pursuant to capital lease
arrangements that have transferred virtually all risks and rewards of ownership
to the Company.
During the fourth quarter of 1999, the Company's Board of Trust Managers
elected to pursue strategies that included the possible disposition of one or
more properties in order to generate funds for recurring capital expenditures,
development and acquisition of new properties, redevelopment of existing
properties, and payment of distributions to shareholders. Since then, management
has evaluated whether certain properties have the investment characteristics
that the Company presently desires. Those properties that do not have such
characteristics have been evaluated for appropriate asset strategies, including
redevelopment, continued operation, and/or disposition.
At December 31, 1999, five properties were identified which the Company
believed no longer had investment characteristics consistent with the Company's
objectives. Three properties were sold during 2000. On May 31, 2000, the 29,000
square foot Autobahn Center in San Antonio, Texas was sold resulting in a gain
on sale of approximately $718,000 and on December 1, 2000, the Company sold the
El Campo Shopping Center in El Campo, Texas for an amount that resulted in a
gain on sale of approximately $464,000.
The Company completed the sale of its University Park Shopping Center
("UPSC") on September 29, 2000 by exchanging the center (and $130,000 in cash)
for common shares of UIRT and operating partnership units convertible into UIRT
common shares, the assumption of debt, and cash. UPSC, located in College
Station, Texas, included approximately 92,000 square feet of GLA, of which
80,500 square feet is leased to Albertson's through 2023, and an adjacent 1.3
acre vacant lot. As of the closing date, the Company's carrying value of UPSC
approximated $6,500,000, and the mortgage loan balance, which the purchaser
assumed, was approximately $4,548,000.
As required by generally accepted accounting principles, the 337,400 shares
received in exchange for the net equity in the property were recorded based on
the market value of the shares on the date the parties agreed to the terms of
the transaction. On that date, UIRT's shares closed at $5.94, for an aggregate
value of approximately $2,004,000. In addition to the common shares, the
purchaser surrendered 43,555 downREIT partnership units that were convertible
into UIRT common shares, and paid approximately $115,000 in cash. The
partnership units were valued at $9.50 per unit, which represented the price
those units could be put back to the Company by the unit holder after January 1,
2001.
The transaction resulted in a potential gain on sale of approximately
$323,000. The Company deferred $200,000 of this potential gain and deposited
$200,000 cash into an escrow account pending the execution of a ground lease for
a portion of the property. Should the prospective lessee execute the lease, the
escrowed amount will be released to the Company and the deferred gain
recognized.
Prior to closing, the Company, its trust managers and executive officers
and the purchaser of UPSC were served with a lawsuit that, among other things
attempted to enjoin the Company and the purchaser from completing the
transaction (see Note 16--Litigation). The plaintiff also filed a Lis Pendens,
which effectively notifies any person examining title records that the property
is the subject of a lawsuit. As part of the terms of the sale, the Company has
agreed with the purchaser to use its best efforts to defend the lawsuit and to
remove the Lis Pendens.
F-31
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
As of the quarter ended June 30, 2000, management determined that certain
conditions and events at one of the Company's properties indicated that
estimated future cash flows will not be sufficient to allow the Company to
recover its carrying amount. This impairment of value was a result of several
market factors that had recently developed.
Several large tenants had vacated, or had given notice of intent to vacate
in the near future. The occupancy of the center had declined to approximately
63%, and is expected to decline further as leases expire. A newly developed
competing shopping center had recently opened within the same market area.
Certain tenants that previously occupied space in the Company's center have
relocated to the new center. One such tenant has relocated despite the fact that
it is obligated to continue paying rent to the Company for several years.
In order to compete effectively for tenants that will pay acceptable rental
rates, the Company would be required to incur substantial costs to redevelop the
center or subdivide and build out existing space. Moreover, there is no
assurance that the market demand will support such newly redeveloped or
rehabilitated space at profitable rental rates. Because of the size and layout
of the center, the costs necessary to prepare the center for new tenants, and
the effect on potential rental rates of the newly opened competing center,
management determined that the future cash flows from operating the shopping
center will be less than its carrying value.
As a result of this impairment, a loss of $6,000,000 was recorded during
the second quarter of 2000 to reduce the carrying amount of the shopping center
to its estimated fair value. Fair value was estimated based on management's
assessment, after consultation with local real estate brokers, of the sales
price that might be achieved in an orderly sale to an unrelated buyer. Results
of operations for the property included in net earnings were as follows:
YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
-------------- ------------- -------------
Property revenues (including $380,000 lease termination
Fee and $75,000 rent settlement in 2000)............................ $2,617,900 $ 2,601,198 $ 2,278,056
---------- ----------- -----------
Property operating expenses............................................ 861,328 767,813 578,894
Advisory fees.......................................................... 114,177 122,216 115,543
Interest expense....................................................... 1,099,015 1,111,673 864,384
Depreciation........................................................... 354,853 441,755 334,664
Amortization........................................................... 27,685 16,885 7,778
---------- --------- ------------
Subtotal.......................................................... 2,457,058 2,460,342 1,901,263
---------- --------- ------------
Operating income from impaired property................................ $ 160,842 $ 140,856 $ 376,793
========= ========== =========
3. DEBT
CAPITAL LEASE OBLIGATIONS
Property under capital leases, consisting of two shopping centers,
aggregated $13.8 million at December 31, 2000 (three shopping centers and $19.1
million at December 31, 1999) and is included in buildings and improvements.
Depreciation of the property under capital leases is combined with depreciation
of owned properties in the accompanying financial statements. Future minimum
lease payments under these capital leases for each of the next five years ending
December 31 and thereafter are as follows:
2001.............................................. $ 821,055
2002.............................................. 821,055
2003.............................................. 821,055
2004.............................................. 821,055
2005.............................................. 821,055
Thereafter........................................ 10,492,832
------------
$ 14,598,107
The amount of these total payments representing interest is approximately
$4.9 million.
F-33
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
MORTGAGE NOTES PAYABLE
The Company's mortgage notes payable consist of fixed-rate debt of
$48,362,796 and $50,043,083 at December 31, 2000 and 1999, respectively. As of
December 31, 2000, the interest rates range from 7.50% to 9.25% with payments of
principal and interest due monthly. The notes mature at various times through
2010. The notes are collateralized by first lien mortgages on properties with an
aggregate carrying value of approximately $65,547,608, net of $3,766,300 of
accumulated depreciation.
Aggregate annual maturities of fixed rate mortgage notes payable for each
of the next five years ending December 31 and thereafter are as follows:
2001......................................... $ 719,938
2002......................................... 3,025,949
2003......................................... 844,212
2004......................................... 917,545
2005......................................... 10,185,889
Thereafter................................... 32,669,263
------------
$ 48,362,796
============
CONSTRUCTION NOTE PAYABLE
The Company has a construction note collateralized by the Lake St. Charles
Shopping Center, which was substantially completed in 1999. The note has a
balance at December 31, 2000 of $4,878,132, requires monthly interest payments
at 175 points over LIBOR and is due June 15, 2001. The note is also
collateralized by the $1,264,000 letter of credit described in the Letter of
Credit section below.
PROPERTY FINANCING TRANSACTION
The Company received $1,450,000 as sales proceeds in return for an
approximately 35% interest in a property. Because the sales agreement provides
that the purchaser may require the Company, upon 90 days notice, to reacquire
the property, the transaction was accounted for as a financing and the
$1,450,000 in proceeds is included in short-term notes and line of credit. The
Company is obligated to distribute, on a monthly basis, the purchaser's pro rata
portion of the property's operating income or 10% per annum of the $1,450,000
proceeds, whichever is higher.
REVOLVING CREDIT AGREEMENT
The Company has a credit agreement with a bank under which it had borrowed
approximately $21,600,000 as of December 31, 2000. Borrowings under the
agreement are collateralized by first lien mortgages on six of the Company's
shopping centers and accrue interest (payable monthly) at 155 basis points over
LIBOR. The agreement had a scheduled expiration of January 31, 2001.
Subsequent to December 31, 2000, the lender agreed to extend the maturity
of the agreement to July 31, 2001, at which time all advances will be due unless
the agreement is further extended. As part of the modification to extend the
maturity to July 31, 2001, the interest rate was increased to 175 basis points
over LIBOR and collateral release prices were increased to 100% (with certain
minimums) of the proceeds of any sale or refinancing of the collateral
properties. In addition, the Company agreed to reduce the advances by 50% of any
sale or refinancing proceeds from certain other non-collateral shopping centers,
and obtain the lender's approval before increasing its borrowings from any
source.
F-34
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Management intends to continue to reduce the outstanding advances with
proceeds from possible property sales. The Company sold its Twin Lakes Shopping
Center in February 2001 and used $1,300,000 in proceeds to reduce the advances.
Management is also exploring alternative lending sources.
Management believes that, if the borrowings have not been repaid by July
31, 2001, it will be able to negotiate a further extension with the bank.
However, should such an extension not be possible or desirable, management
believes that the Company has sufficient borrowing capacity and collateral value
to refinance the bank borrowings through other lenders.
LETTERS OF CREDIT AND CONTINGENT OBLIGATIONS
The Company issued an irrevocable letter of credit under the revolving
credit facility in the approximate amount of $1,686,000 as collateral for a bank
loan, the proceeds of which were used for the development of the Lake St.
Charles neighborhood shopping center in Tampa, Florida. The property was
completed during 1999 and the Company acquired 100% of the interest in the
limited liability company which owns the property. The letter of credit amount
was reduced to approximately $1,264,000 and expires June 15, 2001.
In conjunction with the acquisitions in 1998 of three shopping centers, the
Company is obligated to purchase approximately 6,016 square feet of additional
retail shop space for an aggregate price equal to approximately $361,000 if the
seller obtains acknowledgement from a State agency that certain environmental
contamination at these centers has been remediated. As of December 31, 2000, the
Company has been notified by the seller's engineering consultants that the
contamination has been remediated and that the State agency is reviewing the
engineering reports.
The Company has guaranteed $2,155,000 of a $5,200,000 loan from a bank to a
partnership in which the Company owns a 50% non-controlling interest. The loan
is collateralized by a first lien mortgage on a newly developed 60,000 square
foot shopping center. Upon three months of fully occupied operations
(anticipated by June 2001), the Company's guaranty will be released.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's mortgage notes payable, construction note
payable, and revolving line of credit are estimated based on the current rates
available to the Company for debt of the same remaining maturities. Variable
rate notes payable, and the line of credit are considered to be at fair value
since the interest rates on such instruments reprice based on current market
conditions. The Company considers the carrying value of the fixed rate notes
payable to be a reasonable estimation of their fair value based on the fact that
the rates of such notes are similar to rates available to the Company for debt
of the same terms.
4. SHARES OF BENEFICIAL INTEREST
REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST
In 1995, the Company authorized 20,000, $100 par value, 9% redeemable
preferred shares of beneficial interest ("preferred shares") and issued 5,750
preferred shares at par value and 4,987 shares through conversion from the 9%
redeemable convertible subordinated notes. Distributions on the preferred shares
were cumulative from date of issuance and payable on a quarterly basis.
The Company purchased and redeemed 100% of the preferred shares outstanding
at a redemption price equal to par value plus a 3% premium in March 1998 with
proceeds from the IPO.
F-35
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
COMMON SHARES OF BENEFICIAL INTEREST
In 2000, the Company issued 10,400 common shares in connection with the
dividend reinvestment plan. An additional 64,600 shares were repurchased by the
Company pursuant to its share repurchase plan. In addition, along with 43,555
operating partnership units convertible into UIRT common shares, the assumption
of debt, and cash, 337,400 common shares were received in exchange for the
University Park Shopping Center (see Note 2).
5. EARNINGS PER SHARE DATA
Basic earnings per share is computed based upon the weighted average number
of common shares outstanding during the period presented. Diluted earnings per
share is computed based upon the weighted average number of common shares and
dilutive common share equivalents outstanding during the periods presented. The
number of diluted shares related to outstanding share options is computed by
application of the Treasury share method. The following table sets forth the
computation of basic and diluted earnings per share:
YEAR ENDED DECEMBER 31,
--------------------------------------------
WEIGHTED AVERAGE SHARES 2000 1999 1998
------------ ---------- ------------
Basic EPS.............................................................. 8,919,312 9,433,883 7,702,709
Effect of dilutive securities:
Employee share options................................................. -- -- --
---------- ---------- ----------
Diluted EPS............................................................ 8,919,312 9,433,883 7,702,709
========== ========== ==========
Distributions per share declared....................................... $ 0.645 $ 0.86 $ 0.645
========== ========== ==========
6. MINORITY INTEREST
In connection with certain properties acquired, the Company has issued
downREIT partnership units to third party owners in addition to assuming the
existing mortgage debt on the shopping centers and making cash payments to the
sellers. Holders of the partnership units are paid a distribution equivalent to
distributions paid on the Company's common shares, and may convert their
partnership units to REIT shares after one year. All partnership units, totaling
238,594 at December 31, 2000, are currently convertible.
The initial value of the units and subsequent income allocated and
distributions paid to the minority partners are reflected in minority interest
in consolidated partnerships.
As previously described in Note 3, 43,555 convertible downREIT partnership
units were redeemed on September 29, 2000 along with other consideration, in
exchange for the University Park Center.
7. REAL ESTATE VENTURE
In November 1999, the Company entered into a joint venture with affiliates
of the Stuart S. Golding Company ("Golding") to develop grocery-anchored
shopping centers in the central Florida area. The Company accounts for this
investment using the equity method of accounting. During 1999 and 2000, a
partnership formed pursuant to the joint venture arrangement developed the Shops
at FishHawk, a 60,000 square foot grocery-anchored shopping center in a Tampa,
Florida suburb. The anchor tenant took possession of its leased space in
November 2000 and the remaining leaseable area was occupied subsequent to
December 31, 2000.
F-36
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
8. FEDERAL INCOME TAXES
The Company operates in such a manner so as to qualify as a "real estate
investment trust" under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended, and the Treasury Regulations promulgated thereunder. Under
those Sections, the Company will not be taxed on that portion of its income
distributed to shareholders so long as at least 90 percent of the Company's
otherwise taxable income is distributed to shareholders each year and other
requirements of a qualified real estate investment trust are met. Management
believes the Company has satisfied the income distribution and other
requirements through the year ended December 31, 2000 and believes all other
requirements of a qualified real estate investment trust have been met.
The Company has approximately $545,000 of net operating losses that may be
carried forward to offset future taxable income. However, in 1998, sales of
shares of beneficial interest resulted in a change of ownership for federal
income tax purposes. As a result of the ownership change, the amount of net
operating losses generated prior to the ownership change, which may be used to
offset federal taxable income, is subject to an annual limitation imposed by the
Internal Revenue Code. These net operating losses expire from 2009 through 2016.
The tax status of per-share distributions paid relating to common shares of
beneficial interest attributable to the years presented is as follows:
2000 1999 1998
---------- --------- ------
Ordinary income.......................................................... $ 0.37 $0.70 $0.19
====== ===== =====
Return of capital........................................................ $ 0.22 $0.16 $0.24
====== ===== =====
Long Term Capital Gain................................................... $ 0.06 $0.00 $0.00
====== ===== =====
Long Term Section 1250 Gain.............................................. $ 0.21 $0.00 $0.00
====== ===== =====
9. PROPERTY OPERATING EXPENSES
The Company classifies as property operating expenses those direct expenses
that are specifically identifiable with particular properties. Certain other
expenses incurred by the Company that are necessary for the operations of the
Company, but that are not specifically identifiable with particular properties,
are classified as general and administrative expenses. These other expenses (see
note 10 below) include the salaries, benefits and travel expenses of leasing,
property management and certain accounting personnel.
Property operating expenses include the following:
YEAR ENDED
DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1999 1998
------------------ --------------- ---------
2000
Repairs and maintenance.............................................. $ 587,900 $ 569,997 $ 474,601
Utilities............................................................ 697,079 603,785 328,766
Landscaping 372,668 326,120 206,586
Waste disposal....................................................... 190,759 170,914 90,162
Insurance ........................................................... 365,085 362,283 275,110
Ground lease 135,472 133,705 134,329
Bad debt expense..................................................... 187,740 398,728 108,075
Other ............................................................... 352,802 286,526 236,838
---------- ---------- ----------
Total...................................................... $2,889,505 $2,852,058 $1,854,467
========== ========== ==========
F-37
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
10. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include the following:
YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
-------------- ------------ ------------
Salaries and benefits................................................ $ 716,812 $ 701,590 $ 299,385
Professional fees.................................................... 461,120 348,021 264,272
Rent and office administration....................................... 122,663 120,799 --
Travel and entertainment............................................. 81,903 137,879 61,498
Other ............................................................... 334,457 313,365 391,353
----------- ----------- -----------
Total...................................................... $ 1,716,955 $ 1,621,654 $ 1,016,508
=========== =========== ===========
11. COMMITMENTS
TENANT LEASES
The Company is the lessor of commercial retail space generally under
operating leases which provide for minimum base rentals plus contingent rentals
based upon a percentage of gross receipts. Most leases also provide that the
tenant must pay as additional rent a pro rata share of real property taxes,
insurance and common area maintenance.
The future minimum base rents for the operating leases in existence at
December 31, 2000, are as follows:
2001....................................... $ 16,623,361
2002....................................... 14,053,965
2003....................................... 11,016,706
2004....................................... 8,374,443
2005....................................... 6,437,770
Thereafter................................. 33,803,153
-------------
$90,309,398
=============
GROUND LEASE
The Company has a 40-year ground lease for Park Northern Shopping Center
with an unrelated third party. Rent of $8,333 plus 5% of total gross revenues is
payable monthly through the year 2035. The Company has an option to extend this
lease for four consecutive periods of ten years each. Future minimum lease
payments are as follows:
YEARS AMOUNT
----- -----------
2001...................................... $ 100,000
2002...................................... 100,000
2003...................................... 100,000
2004...................................... 100,000
2005 through 2035......................... 3,100,000
----------
$3,500,000
==========
Ground rental expense included in the statement of operations was $135,472,
$133,705 and $134,329 in 2000, 1999 and 1998, respectively.
F-38
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
12. ADVISORY AGREEMENT AND RELATED PARTY TRANSACTIONS
The Company is managed for a fee, pursuant to an agreement (the "Advisory
Agreement") by FCA Corp., the Investment Manager. The Company's Chairman of the
Board of Trust Managers is also the principal shareholder and Chief Executive
Officer of FCA Corp. From January 1, 1998 through June 30, 1999, the advisory
fee was 6.8% of adjusted funds from operations ("AFFO"). Effective July 1, 1999,
the rate was reduced to 6.5% of AFFO. AFFO is defined in the Advisory Agreement
as net income excluding gains or losses from debt restructuring and property
sales plus real estate related depreciation and amortization and provisions for
potential losses, including impairment losses, related to depreciable operating
property, as adjusted by adding back interest expense and the advisory fee.
In the years ended December 31, 2000, 1999 and 1998, the Company incurred
advisory fee expense of $1,160,477, $1,207,189 and $794,043, respectively.
Included in these amounts were $66,000, $66,000 and $0, respectively, of loan
forgiveness expense as described in Note 15. In addition to the advisory fee,
the Company reimburses the Investment Manager for the salaries, benefits, and
occupancy costs of certain employees who perform property management, leasing,
accounting, and other operational duties for the Company. The amounts of these
reimbursements were approximately $742,000, $710,000, and $279,000 in 2000,
1999, and 1998, respectively.
As a result of a shareholder derivative lawsuit filed in August 2000, the
Board established a Special Litigation Committee (the "SLC") to investigate,
among other matters, whether the reimbursement of such salaries, benefits, and
other costs was in accordance with the terms of the Advisory Agreement (see Note
16). On March 22, 2001, the SLC delivered its report regarding the claims
asserted in the lawsuit wherein the SLC concluded that the Investment Manager
may have charged the Company for the salaries, benefits, and other costs of
employees that, in accordance with the terms of the Advisory Agreement, should
have been borne by the Investment Manager.
The Company has not yet determined the aggregate amount of such excess
charges, if any, the periods during which they occurred, or whether there may be
any offsetting amounts due to expenses that the Investment Manager should have
charged to the Company but did not.
Total fees paid to independent trust managers were $101,083, $38,000 and
$44,433 in 2000, 1999 and 1998, respectively.
F-39
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the statement of cash
flows:
2000 1999 1998
-------------- ----------- ------------
Assumption of mortgage notes payable for acquisition of investment
real estate.............................................................. -- -- $ 57,167,233
Minority interest granted in exchange for investment real estate
Contributed.............................................................. -- -- 2,794,440
Net liabilities assumed in acquisition of investment real estate............ -- $ 102,001 1,372,396
Distribution declared but not paid.......................................... -- 1,945,673 2,045,702
Capital lease obligation on real estate acquired............................ -- 1,708,200 --
Receivable from land sale................................................... -- 562,500 --
Environmental remediation liability on real estate acquired................. -- 272,500 --
Shareholder notes receivable upon exercise of stock options................. -- 815,031 --
Reduction of capital lease obligation....................................... $ 78,200 -- --
Sale of property in exchange for treasury shares, minority interest
partnership units and assumption of mortgage note payable:
Treasury shares received............................................... 2,004,156 -- --
Minority interest partnership units received........................... 235,128 -- --
Mortgage note payable assumed.......................................... 4,548,420 -- --
---------- ---------- ------------
Total non-cash consideration for property................................... $6,787,704 -- --
Cash paid for interest, net of $130,390, $34,263 and $23,000 of
capitalized interest in 2000, 1999 and 1998 respectively, and
including $2,240,652 in bridge financing costs written off in
1998 $7,359,122 $6,556,717 $ 6,079,889
14. ENVIRONMENTAL ISSUES
Certain tenants in the Company's properties conduct activities that require
the sale or use of hazardous substances, including petroleum products and dry
cleaning chemicals. Should such tenants misuse or inappropriately dispose of
such substances, the Company may become liable for a portion or all of the
remediation costs. The Company attempts to mitigate this risk by limiting the
number of tenants that conduct such operations, requiring such tenants to
maintain environmental risk insurance, and monitoring the operations of such
tenants.
As part of the Company's due diligence investigation of three shopping
centers acquired in December 1998, the Company discovered that a portion of each
such shopping center was contaminated with varying levels of dry cleaning
substances. As a result of the Company's discovery, the Company acquired only
the portions of the properties that, based on environmental engineering reports,
were not contaminated. The sellers of such properties have placed in escrow
amounts sufficient, based on the engineering reports, to remediate the
contamination. Upon completion by the seller of such remediation, as evidenced
by written confirmation of state environmental authorities, the Company is
obligated to purchase the remaining portions of the shopping centers.
The Company is aware that a dry cleaning company tenant in one of the
Florida shopping centers had allowed hazardous substances to contaminate a
portion of the Company's property prior to the time the Company acquired the
property. The tenant is currently enrolled in the State of Florida Department of
Environmental Protection ("FDEP") Drycleaning Solvent Cleanup Program which
provides assessment and cleanup funds for dry cleaning facilities. The Company
has recently submitted to the FDEP an engineering report prepared by a third
party estimating clean up costs that range from $250,000 to $1.3 million. There
is no assurance, however, that the FDEP Program will have funds available at the
time the property is selected for clean up. The Company believes that the actual
cost of clean up will be well below the maximum estimate and has purchased an
insurance policy that limits the Company's exposure to approximately $300,000.
At December 31, 2000, the Company has escrowed $300,000 related to this
remediation, which is held by the servicing agent for the lender.
F-40
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
15. STOCK OPTION PLAN
During 1998, the Company granted options to purchase 337,000 common shares
to certain officers, employees, Trust Managers, and the Investment Manager. The
recipients are eligible to exercise 25% of their options each January 1,
beginning in 1999. The exercise price is $10.00 per share, up to 100% of which
may be borrowed from the Company, subject to Board approval. The total amount
borrowed in 1999 by the recipients is included in shareholder notes receivable
at December 31, 1999. Loans are repayable over four years and require annual
payments of 25% of the initial principal and interest calculated at the
Applicable Federal Rate published by the IRS. The Applicable Federal Rate as of
January 1, 1999 was 4.64%.
With respect to options that became exercisable on January 1, 1999, the
Board of Trust Managers elected to forgive 80% of the borrowed amount. The loan
will be forgiven in equal installments over a four-year period, at the rate of
20% per year, conditioned upon continued employment by the Company or the
Investment Manager. Included in general and administrative expenses for each of
2000 and 1999 is approximately $97,000, which represents the accrual of such
loan forgiveness with respect to loans made to the Company's officers and
employees. Included in advisory fees for each of 2000 and 1999 is $66,000, which
represents the accrual of such loan forgiveness with respect to loans made to
the Investment Manager.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its Plan. Opinion No.
25 measures compensation cost using the intrinsic value based method of
accounting. Under this method, compensation cost is the excess of the quoted
market price of the stock at the date of grant over the amount an employee must
pay to acquire the stock. Accordingly, the Company recognized no compensation
expense related to the issuance of these options.
If the Company had measured compensation cost using the fair value method
prescribed in SFAS 123, "Accounting for Stock-Based Compensation", the impact on
the Company's consolidated net income and earnings per share would have been
less than 3% in each of 2000, 1999, and 1998. The fair value of each option was
estimated at the date of grant using the Black-Scholes calculation with the
following assumptions:
Risk-free interest rate..................... 5.36-5.57%
Dividend yield.............................. 8.6%
Weighted average option life................ 5-6 years
Volatility.................................. 0.189
The following table summarizes the stock option activity for the periods
presented:
WEIGHTED
OPTIONS OPTIONS AVERAGE
GRANTED EXERCISABLE EXERCISE PRICE
------- ----------- --------------
Options granted in connection with IPO............................... 334,000 81,500 $ 10.00
-------- --------- -------
Options outstanding at December 31, 1998............................. 334,000 -- $ 10.00
Options granted during 1999.......................................... 8,000 8,000 $ 6.75
Options exercised.................................................... (81,500) -- $ 10.00
Options forfeited.................................................... (12,000) -- $ 6.75
-------- --------- -------
Options outstanding at December 31, 1999............................. 248,500 4,000 $ 9.95
Options granted during 2000.......................................... 12,000 12,000 $ 5.07
Options forfeited.................................................... (6,719) -- 9.00
-------- --------- -------
Options outstanding at December 31, 2000............................. 253,781 101,500 $ 9.84
======== ======== =======
On January 1, 2001 an additional 81,500 options out of the 334,000 IPO
options became exercisable. The Company has committed to make loans representing
100% of the exercise price of such options ($10.00 per share) but has elected
not to extend the annual forgiveness provisions to any such loans.
In addition, each non-employee Trust Manager is entitled to receive options
to acquire 2,000 common shares on the date he or she becomes a
F-41
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Trust Manager and on each anniversary date of such Trust Manager becoming a
Trust Manager. These options are exercisable upon grant at an exercise price
equal to the fair market value of the underlying common shares on the date of
grant and expire after four years.
16. LITIGATION
The Company is a nominal defendant in a shareholder derivative action (the
"Lawsuit") brought by Southwest Securities, Inc. ("Southwest"), which is pending
in the District Court of Dallas County, Texas (the "Court"). The Lawsuit was
originally filed on August 14, 2000, seeking an injunction to prevent the sale
by UIRT of one of its properties, the University Park Shopping Center ("UPSC"),
to UIRT Investors, L.P. ("Investors"), an entity representing a group of
shareholders of UIRT. Southwest named as defendants in the Lawsuit: FCA Corp.
("FCA"), which serves as the Company's Investment Manager pursuant to the
Advisory Agreement; all of the then-members of UIRT's Board of Trust Managers;
certain UIRT officers; the UIRT subsidiary that owned University Park; and
Investors and two affiliated entities.
Upon filing the Lawsuit, Southwest obtained a temporary restraining order
to prevent the sale of University Park. Thereafter, on August 28, 2000, a
temporary injunction hearing was held in the Dallas District Court. Following
this hearing, the Court denied the requested temporary injunction, and the sale
of University Park closed on September 29, 2000.
On September 27, 2000, Southwest amended its petition to additionally
allege that the Investment Manager has charged excessive fees for its services
to the Company, has charged the Company for salaries and other expenses that
should have been paid by the Investment Manager, and that the Investment Manager
and the officers and certain trust managers of UIRT have mismanaged the
Company's assets. Southwest seeks recission of the Advisory Agreement and the
sale of UPSC, a declaration that the Advisory Agreement and sale of UPSC are
void, an accounting, a constructive trust, inspection of the Company's books and
records, injunctive relief or, alternatively, unspecified compensatory damages
alleged to be not less than $10,000,000 and punitive damages in an amount not
less than $20,000,000, attorneys' fees and costs.
On December 12, 2000, three new members were named to the Company's Board
of Trust Managers ("Board"). Thereafter, these three new Board members were
appointed to serve as a special litigation committee (the "SLC") to investigate
the allegations made by Southwest in the Lawsuit. The SLC has retained
independent counsel to assist it in this investigation, and counsel has retained
an economic consulting firm to serve as consultants to the SLC's counsel.
On December 8, 2000, the Court stayed further proceedings in the Lawsuit
for 60 days to allow the SLC to complete its investigation, which stay was
subsequently extended to March 21, 2001. On February 19, 2001, between the
expiration of the original stay and the extension granted by the Court,
Southwest filed its Plaintiff's Second Amended Petition and Application for
Permanent Injunction ("Petition").
Pursuant to the Texas Business Corporation Act, the SLC is composed of
three "independent" and "disinterested" Trust Managers, who have been charged
with determining whether the continuation of the Lawsuit is "in the best
interests" of the Company's shareholders. The SLC must make this determination
"in good faith, after conducting a reasonable inquiry and based on the factors
[the SLC] deems appropriate under the circumstances." Accordingly, the SLC has
attempted, in general terms, to consider (1) the potential benefits and costs
associated with pursuing the claims in the Lawsuit, and (2) the available
alternative to litigation, including internal corrective action.
Based on its investigation and analysis, the SLC has determined that
continuation of the Lawsuit is not in the best interests of the Company's
shareholders. The SLC has concluded that, under the applicable legal standards,
a finding of liability on the part of any of the defendants is very unlikely.
Indeed, in the case of several of the defendants, the SLC has not found evidence
of even slight culpability.
The SLC concluded that the Investment Manager may have charged the Company
for the salaries, benefits, and other costs of employees that, in accordance
with the Advisory Agreement, should have been borne by the Investment Manager.
The Company has not yet determined the aggregate amount of such excess charges,
the
F-42
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
periods during which they occurred, or whether there may be any offsetting
amounts due to expenses that the Investment Manager should have charged to the
Company but did not.
The SLC believes that the amount of any potential recovery does not appear
to justify the substantial costs of litigation (especially given our obligation
to indemnify a number of the defendants) or the disruption of the Company's
business activities. This is particularly true in light of the fact that the
Company's Board has recently instructed its financial advisor, First Union
Securities, Inc. to explore a possible sale of UIRT or its assets. In the event
a sale of UIRT or its assets is not consummated, the SLC believes that any
deficiencies in the procedures by which the Company's corporate affairs have
been handled in the past can be readily remedied by the current Board.
Accordingly, the Company has filed a motion with the Court to dismiss the
Lawsuit. Southwest has the right to limited discovery with respect to the SLC's
investigation, but management believes it is likely that the Court will grant
the motion and dismiss the Lawsuit.
On March 21, 2001, Southwest filed a separate lawsuit against the Company
in the District Court of Harris County, Texas. In this suit, Southwest seeks
from the Court: (a) a declaration that a certain provision of the Company's
bylaws is invalid; (b) an injunction to keep the Company from electing trust
managers using the standards set forth in the bylaws and to compel the Company
to reform the bylaws to include one uniform vote requirement as to all trust
manager nominees; and (c) an order to compel the Company to provide certain
information about our shareholders.
At a temporary injunction hearing held on March 26, 2001, the Court denied
Southwest's requests for declaration and injunction. Prior to the hearing, the
Company reached agreement with Southwest concerning the shareholder information.
Management believes this suit is without merit and is part of Southwest's plans
to submit its own nominees for election as trust managers at the Company's
annual shareholders meeting. Southwest has disclosed such plans in filings with
the Securities and Exchange Commission.
In April 2000, the Company's former President and Chief Executive Officer
filed a lawsuit against UIRT, the Investment Manager, and the Company's Chairman
and Chief Executive Officer, who is also the Investment Manager's Chief
Executive Officer. The former executive is seeking an unspecified severance
compensation package. It is management's position that the Investment Manager
was the employer of the former executive, and that the Company had no employment
relationship with him. The Investment Manager has indemnified the Company
against the costs of defending this lawsuit and any judgements. Management
believes the suit against us to be without merit and intends to vigorously
defend against these allegations, and has not recorded any loss provision with
respect thereto.
In June 2000, an individual who claims to be a client of the Investment
Manager's individual financial planning business amended a lawsuit originally
filed in July 1999 to include UIRT as a defendant. The original petition alleged
that the Investment Manager and one of its financial planning employees breached
certain duties in the management of the plaintiff's financial affairs. The
amended petition also alleges that UIRT is legally responsible for the acts of
the Investment Manager and its financial planning employee because they
allegedly all operate as a single business enterprise. The plaintiff seeks
unspecified monetary damages, attorney fees and costs. The Investment Manager
has indemnified the Company against the costs of defending this lawsuit and any
judgements. Management believes the suit against the Company to be without merit
and intends to vigorously defend against these allegations, and has not recorded
any loss provision with respect thereto.
The Company is a party to other legal proceedings that arise in the normal
course of business, which matters are generally covered by insurance. The
resolution of these matters cannot be predicted with certainty. However, in the
opinion of management, based upon currently available information, any
liabilities under such proceedings, either individually or in the aggregate,
will not have a materially adverse affect on the consolidated financial
statements taken as a whole.
F-43
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
17. SUBSEQUENT EVENTS
Subsequent to December 31, 2000, the Company's Board announced that it had
hired First Union Securities, Inc. ("FUSI") as financial advisor and based on
FUSI's initial recommendations, instructed FUSI to immediately begin exploring a
possible sale of the Company or substantially all of its assets. There is no
assurance that a sale of the Company or substantially all of its assets will
occur, or that if such a sale occurs, the sales price will be in excess of the
aggregate book value of the Company's assets.
The Company also established a shareholder rights plan designed to assure
that all of the Company's shareholders receive fair and equal treatment in the
event of any proposed takeover of the Company and to guard against abusive
tactics to gain control of the Company without paying all of the Company's
shareholders a premium for that control.
As discussed at Note 16, the Special Litigation Committee completed its
investigation into the allegations of a certain shareholder derivative lawsuit.
In February 2001, the Company sold the Twin Lakes Shopping Center for
approximately $1,300,000 cash and a first lien mortgage note in the amount of
$1,525,000. Proceeds were used to repay amounts under the credit facility.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (in thousands, except per
share amounts):
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
2000:
Revenues...................................................... $ 6,439 $ 6,709 $6,291 $6,473
Net income available to common shareholders................... $ 984 $ (4,236) $ 886 $1,113
Net income per common share--basic and diluted................. $ 0.11 $ (0.47) $ 0.10 $ 0.13
1999:
Revenues...................................................... $ 6,353 $ 6,299 $ 6,603 $ 6,741
Net income available to common shareholders................... $ 1,384 $ 1,318 $ 1,288 $ 1,250
Net income per common share--basic and diluted................. $ 0.15 $ 0.14 $ 0.14 $ 0.14
F-44
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
During the second quarter (ended June 30) of 2000, the Company
recognized an impairment loss of $6,000,000 (see Note 2).
Quarterly earnings per share do not sum to the annual earnings per share
amounts due to the effects of the timing of stock repurchases and fluctuations
in average price during the periods.
F-45
UNITED INVESTORS REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
----------- --------------
(UNAUDITED)
ASSETS
Investment real estate:
Land ............................................................ $ 45,956,678 $ 45,720,241
Building and improvements........................................ 114,288,814 116,772,876
Property under development....................................... 96,329 70,893
--------------- ---------------
160,341,821 162,564,010
Less accumulated depreciation.................................... (12,544,542) (12,483,005)
--------------- ---------------
Investment real estate, net...................................... 147,797,279 150,081,005
Cash and cash equivalents........................................... 206,281 297,567
Accounts receivable, net of allowance............................... 4,438,015 2,789,559
Prepaid expenses and other assets................................... 4,897,979 6,814,779
--------------- ---------------
Total Assets................................................... $ 157,339,554 $ 159,982,910
=============== ===============
LIABILITIES, MINORITY INTEREST, AND COMMON
SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable........................................... $ 48,956,470 $ 48,362,796
Capital lease obligations........................................ 9,695,625 9,724,084
Construction note payable........................................ 4,878,132 4,878,132
Short-term notes and lines of credit............................. 21,763,969 23,044,800
Accounts payable, accrued expenses and other liabilities......... 4,904,795 6,261,411
--------------- ---------------
Total liabilities.............................................. 90,198,991 92,271,223
--------------- ---------------
Minority interest in consolidated partnerships...................... 2,088,222 2,104,775
--------------- ---------------
Commitments and contingencies
Common shareholders' equity:
Common shares of beneficial interest no par value, 500,000,000
shares authorized; 9,525,289 shares issued; 8,652,292 shares
outstanding in 2001 and 2000................................... 87,281,216 87,281,424
Accumulated deficit.............................................. (16,075,912) (15,493,672)
--------------- ---------------
71,205,304 71,787,752
Less:
Treasury shares, at cost, 872,997 in 2001 and 2000, respectively. (5,568,484) (5,568,484)
Shareholder notes receivable..................................... (584,479) (612,356)
--------------- ---------------
Total common shareholders' equity.............................. 65,052,341 65,606,912
--------------- ---------------
Total liabilities, minority interest and common shareholders'
equity........................................................... $ 157,339,554 $ 159,982,910
=============== ===============
See accompanying notes.
F-46
UNITED INVESTORS REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
------------------------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Revenues:
Rental.......................................................... $ 4,511,360 $ 4,939,876
Lease termination fees.......................................... 467,176 -
Recoveries from tenants......................................... 1,279,684 1,421,533
Interest and other income....................................... 154,679 77,439
--------------- ---------------
Total revenues................................................ 6,412,899 6,438,848
--------------- ---------------
Expenses:
Property operating.............................................. 666,629 691,238
Property taxes.................................................. 951,727 986,394
Property management fees........................................ 47,886 51,442
General and administrative...................................... 356,318 464,718
Advisory fees................................................... 213,069 312,232
Litigation expenses............................................. 477,853 -
Expenses related to strategic alternatives review............... 250,000 -
Depreciation and amortization................................... 1,052,704 1,120,185
Interest........................................................ 1,843,657 1,921,571
--------------- ---------------
Total expenses................................................ 5,859,843 5,547,780
Income before minority interest and gain on sale of real estate.... 553,056 891,068
Minority interest in income of consolidated partnerships........... (14,464) (28,974)
Gain on sale of real estate........................................ 4,063 121,910
--------------- ---------------
Net income......................................................... $ 542,655 $ 984,004
=============== ===============
Basic and diluted per share amounts:
Net income per common share........................................ $ 0.06 $ 0.11
=============== ===============
Basic and diluted weighted average shares outstanding.............. 8,652,292 9,043,892
=============== ===============
See accompanying notes.
F-47
UNITED INVESTORS REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
-------------------------------------
MARCH 31, MARCH 31,
2001 2000
--------------- ---------------
Cash flows from operating activities:
Net income........................................................ $ 542,655 $ 984,004
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 1,017,489 1,086,665
Amortization.................................................... 125,960 81,095
Minority interest in income of consolidated partnerships........ 14,464 28,974
Gain on sale of real estate..................................... (4,063) (121,910)
Changes in operating assets and liabilities..................... 63,263 (1,766,240)
--------------- ---------------
Net cash provided by operating activities.................... 1,759,768 292,588
--------------- ---------------
Cash flows from investing activities:
Purchase of and capital improvements to investment real estate.... (1,452,508) (637,767)
Proceeds from sale of real estate................................. 1,274,260 493,375
Application of deposits........................................... 200,000 --
--------------- ---------------
Net cash provided by (used in) investing activities.......... 21,752 (144,392)
--------------- ---------------
Cash flows from financing activities:
Proceeds from mortgage note payable............................... 787,500 3,650,000
Proceeds from short-term notes payable............................ -- 2,604,800
Collections from shareholder notes receivable..................... 27,877 39,669
Principal payments on mortgage notes payable...................... (193,826) (195,801)
Payments on short-term notes payable.............................. (1,280,831) --
Payments on capital lease obligations............................. (28,459) (1,654,676)
Principal payments on construction note payable................... -- (320,000)
Offering costs.................................................... (208) (6,776)
Payment of distributions.......................................... (1,124,895) (1,945,673)
Distribution to holders of minority interests..................... (31,017) (60,662)
Payment of loan acquisition costs................................. (28,947) (64,385)
--------------- ---------------
Net cash provided by (used in) financing activities.......... (1,872,806) 2,046,496
--------------- ---------------
Increase (decrease) in cash and cash equivalents..................... (91,286) 2,194,692
Cash and cash equivalents at beginning of period..................... 297,567 1,807,791
--------------- ---------------
Cash and cash equivalents at end of period........................... $ 206,281 $ 4,002,483
=============== ===============
Supplemental disclosures:
Cash paid for interest............................................ $ 1,729,233 $ 1,875,707
Reduction of capital lease obligation............................. -- 78,200
Forgiveness of shareholder notes receivable....................... -- 163,006
Accrued distributions............................................. -- 1,944,436
Seller financed note receivable................................... 1,525,000 --
See accompanying notes.
F-48
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
United Investors Realty Trust and Subsidiaries (the "Company"), a Texas
real estate investment trust ("REIT") is engaged in the acquisition,
development, and management of neighborhood and community shopping
centers in the Sunbelt states. The tenants of the Company's shopping
centers include national and regional supermarkets and drug stores and
other national, regional, and local retailers that provide basic
necessity and convenience goods and services to the surrounding
population.
The Company operated from 1989 until 1998 as a private REIT. On March
13, 1998, the Company completed an initial public offering (the "IPO")
of 7,600,000 common shares of beneficial interest. In April 1998, the
Company issued another 1,000,000 common shares of beneficial interest
pursuant to the exercise of the underwriters' overallotment option.
Prior to the IPO, the Company had outstanding approximately 915,000
shares.
BASIS OF PRESENTATION
These unaudited consolidated financial statements include the accounts
of the Company, its subsidiaries and partnerships in which it owns
controlling interests. The accompanying consolidated financial
statements have been prepared by the Company's management in accordance
with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and do not include all
information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in
the Company's 2000 Annual Report on Form 10-K. In the opinion of
management, the financial statements contain all adjustments (which
consist of normal and recurring adjustments) necessary for a fair
presentation of financial results for the interim periods.
In January 2001, the Company's Board of Trust Managers engaged First
Union Securities, Inc. to advise it on strategic alternatives to
maximize shareholder value. First Union subsequently recommended, and
the Company commenced, an exploration of the sale of the Company or
substantially all of its assets. The Company is in the process of
discussing its potential sale with several prospective purchasers.
However, there is no assurance that a sale of the Company will occur,
or that any such sale will result in proceeds to shareholders in excess
of the aggregate net book value of the Company's assets.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, provides that all derivative instruments be recognized as
either assets or liabilities on the balance sheet and that all
derivative instruments be measured at fair value. The effective date of
SFAS No. 133 for the Company was January 1, 2001. The Company currently
does not invest in derivative instruments; therefore, the adoption of
SFAS No. 133 did not impact the Company.
F-49
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
2. INVESTMENT IN PROPERTIES
At March 31, 2001, the Company owned controlling interests in 24
shopping center properties containing approximately 3,000,000 total
square feet of gross leaseable area ("GLA"), of which the Company owned
approximately 2,200,000 square feet of GLA. In addition, at March 31,
2001 the Company owns a non-controlling 50% interest in a partnership
that owned one property.
As of March 31, 2001, 25% of the Company's owned GLA was in the
Houston, Texas area, 15% was in the Dallas, Texas area, 12% was
elsewhere in Texas, 28% was in Florida, 15% was in Arizona, and 5% was
in Tennessee.
On January 3, 2001, the Company exercised its option to purchase a
parcel of land adjacent to its Colony Plaza Center in Sugar Land, Texas
for approximately $1,100,000. The parcel was acquired in exchange for
cash and a $787,500 note.
On February 28, 2001, the 52,000 square foot Twin Lakes Center in
Lenoir City, Tennessee was sold in exchange for cash and a $1,525,000
note, which is included in accounts receivable. The note bears interest
at 9% per annum, is payable monthly based on 30-year amortization
schedule and is due in March 2006.
3. NOTES AND MORTGAGES PAYABLE
The Company's mortgage notes payable consist of fixed-rate debt with
outstanding principal balances aggregating $48,956,470 at March 31,
2001. The interest rates range from 7.5% to 10% with a weighted average
interest rate of 8.51%. The notes mature at various times through 2010
with a weighted average term to maturity of 5.8 years.
Included in mortgage notes payable at March 31, 2001 is the $787,500
note for the purchase of the Colony Plaza land parcel in January, 2001.
Interest at 10% is due monthly until maturity on January 1, 2003.
Property under capital leases, consisting of two shopping centers,
aggregated approximately $13.8 million at March 31, 2001 and is
included in investment real estate. Depreciation of the property under
capital leases is combined with depreciation of owned properties in the
accompanying financial statements. Future minimum lease payments under
these capital leases total approximately $14.4 million, with annual
payments due of approximately $.8 million in each of 2001 through 2005,
and $10.5 million thereafter. The amount of these total payments
representing interest is approximately $4.7 million.
The Company has a credit agreement with a bank under which it had
borrowed approximately $20,314,000 as of March 31, 2001. Borrowings
under the agreement are collateralized by first lien mortgages on five
of the Company's shopping centers and accrue interest (payable
monthly). The agreement had a scheduled expiration of January 31, 2001.
In January 2001, the lender agreed to extend the maturity of the
agreement to July 31, 2001, at which time all advances will be due
unless the agreement is further extended. As part of the modification
to extend the maturity, the interest rate was increased to 175 basis
points over LIBOR and collateral release prices were increased to 100%
(with certain minimums) of the proceeds of any sale or refinancing of
the collateral properties. In addition, the Company agreed to reduce
the advances by 50% of any sale or refinancing
F-50
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
proceeds from certain other non-collateral shopping centers, and obtain
the lender's approval before increasing its borrowings from any source.
The Company sold its Twin Lakes Shopping Center in February 2001 and
used $1,300,000 in proceeds to reduce the outstanding advances.
Advances were further reduced by $4,050,000 in April 2001 upon sale of
the Centennial Shopping Center. Management intends to continue to
reduce the advances with proceeds from possible property sales. The
Company is also exploring alternative lending sources.
Management believes that, if the borrowings have not been repaid by
July 31, 2001, it will be able to negotiate a further extension with
the bank. However, should such an extension not be possible or
desirable, management believes that the Company has sufficient
borrowing capacity and collateral value to refinance the bank
borrowings through other lenders.
In addition to the outstanding advances at March 31, 2001, the Company
is also contingently obligated under an unfunded letter of credit of
approximately $1,264,000. The letter of credit expires June 15, 2001.
4. PER SHARE DATA
Basic earnings per share is computed based upon the weighted average
number of common shares outstanding during the period presented.
Diluted earnings per share is computed based upon the weighted average
number of common shares and dilutive common share equivalents
outstanding during the periods presented. The number of dilutive shares
related to outstanding share options is computed by application of the
Treasury share method. The following table sets forth the computation
of basic and diluted earnings per share:
THREE MONTHS ENDED
--------------------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
WEIGHTED AVERAGE SHARES
Basic EPS 8,652,292 9,043,892
Effect of dilutive securities:
Employee share options -- --
--------- ---------
Diluted EPS 8,652,292 9,043,892
========= =========
Distributions per share declared $ 0.130 $ 0.215
========= =========
5. ADVISORY AGREEMENT
The Company is managed for a fee, pursuant to an agreement (the
"Advisory Agreement") by FCA Corp, the Investment Manager. The
Company's Chairman of the Board of Trust Managers is also the principal
shareholder and Chief Executive Officer of FCA Corp. From January 1,
1998 through June 30, 1999, the advisory fee was 6.8% of adjusted funds
from operations ("AFFO"). Effective July 1, 1999, the rate was reduced
to 6.5% of AFFO. AFFO is defined in the Advisory Agreement as net
income excluding gains or
F-51
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
losses from debt restructuring and property sales plus real estate
related depreciation and amortization and provisions for potential
losses, including impairment losses, related to depreciable operating
property, as adjusted by adding back interest expense and the advisory
fee.
During the three months ended March 31, 2001 and 2000, the Company
incurred advisory fee expense of $213,000 and $312,000, respectively.
Included in these amounts each quarter was $16,500 of loan forgiveness
expense. In addition to the advisory fee, the Company reimburses the
Investment Manager for the salaries, benefits, and occupancy costs of
certain employees who perform property management, leasing, accounting,
and other operational duties for the Company. The amounts of these
reimbursements were approximately $141,000 and $229,000 for the quarter
ended March 31, 2001 and 2000, respectively.
As a result of a shareholder derivative lawsuit filed in August 2000,
the Board established a Special Litigation Committee (the "SLC") to
investigate, among other matters, whether the reimbursement of such
salaries, benefits, and other costs was in accordance with the terms of
the Advisory Agreement (see Note 9). On March 22, 2001, the SLC
delivered its report regarding the claims asserted in the lawsuit
wherein the SLC concluded that the Investment Manager may have charged
the Company for the salaries, benefits, and other costs of employees
that, in accordance with the terms of the Advisory Agreement, should
have been borne by the Investment Manager.
The Company has not yet determined the aggregate amount of such excess
charges, if any, the periods during which they occurred, or whether
there may be any offsetting amounts due to expenses that the Investment
Manager should have charged to the Company but did not.
The Advisory Agreement is renewable annually upon determination by the
Company's independent trust managers that FCA Corp.'s performance has
been satisfactory. As part of the SLC's investigation, the Company and
FCA agreed to extend the deadline for determining whether to renew the
Advisory Agreement for calendar 2001 until May 31, 2001.
Total fees paid to independent trust managers were $83,900 and $9,800
in the three months ended March 31, 2001 and 2000, respectively.
6. INCENTIVE SHARE OPTION PLAN
During 1998, the Company granted options to purchase 337,000 common
shares to certain officers, employees, Trust Managers, and the
Investment Manager. The recipients become eligible to exercise 25% of
their options each January 1, beginning in 1999. The exercise price is
$10.00 per share, up to 100% of which may be borrowed from the Company.
Such loans are included in shareholder notes receivable. Loans are
repayable over four years and require annual payments of 25% of the
initial principal and interest calculated at the Applicable Federal
Rate published by the IRS. The Applicable Federal Rate as of January 1,
1999 was 4.64%.
With respect to options that became exercisable on January 1, 1999, the
Board of Trust Managers elected to forgive 80% of the borrowed amount.
The loan will be forgiven in equal annual installments over a four-year
period, at the rate of 20% per year, conditioned upon continued
employment by the Company or the Investment Manager. Included in
general and administrative expenses for the three months ended
F-52
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
March 31, 2001 and 2000 is $24,251 which represents the recognition of
such loan forgiveness with respect to loans made to the Company's
officers and employees. Included in advisory fees for the three months
ended March 31, 2001 and 2000 is $16,500, which represents the
recognition of such loan forgiveness with respect to loans made to the
Investment Manager.
7. Property Operating Expenses
The Company classifies as property operating expenses those direct
expenses that are specifically identifiable with particular properties.
Certain other expenses incurred by the Company that are necessary to
maintain the physical quality of and revenue from the properties, but
that are not specifically identifiable with particular properties, are
classified as general and administrative expenses. These other expenses
(see note 9 below) include the salaries, benefits and travel expenses
of leasing, property management and certain accounting personnel.
Property operating expenses include the following:
THREE MONTHS ENDED
--------------------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Repairs and maintenance......................... $ 133,580 $ 152,589
Utilities....................................... 168,149 167,166
Landscaping..................................... 67,831 108,914
Waste disposal.................................. 51,657 46,248
Insurance....................................... 103,797 88,658
Ground lease.................................... 34,091 34,151
Bad debt expense................................ 21,203 21,322
Other........................................... 86,321 72,190
---------- ----------
Total...................................... $ 666,629 $ 691,238
========== ==========
8. General and Administrative Expenses
General and administrative expenses include the following:
THREE MONTHS ENDED
--------------------------------
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
Salaries and benefits........................... $ 142,385 $ 216,905
Professional fees............................... 95,703 113,945
Rent and office administration.................. 22,500 36,291
Travel and entertainment........................ 14,358 30,661
Other........................................... 81,372 66,916
---------- ----------
Total...................................... $ 356,318 $ 464,718
========== ==========
9. Litigation
The Company is a nominal defendant in a shareholder derivative action
(the "Lawsuit") brought by Southwest Securities, Inc. ("Southwest"),
which is pending in the District Court of Dallas County, Texas (the
"Court"). The Lawsuit was originally filed on August 14, 2000, seeking
an injunction to prevent the
F-53
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
sale by UIRT of one of its properties, the University Park Shopping
Center ("UPSC"), to UIRT Investors, L.P. ("Investors"), an entity
representing a group of shareholders of UIRT. Southwest named as
defendants in the Lawsuit: FCA Corp. ("FCA"), which serves as the
Company's Investment Manager pursuant to the Advisory Agreement; all of
the then-members of UIRT's Board of Trust Managers; certain UIRT
officers; the UIRT subsidiary that owned University Park; and Investors
and two affiliated entities.
Upon filing the Lawsuit, Southwest obtained a temporary restraining
order to prevent the sale of University Park. Thereafter, on August 28,
2000, a temporary injunction hearing was held in the Dallas District
Court. Following this hearing, the Court denied the requested temporary
injunction, and the sale of University Park closed on September 29,
2000.
On September 27, 2000, Southwest amended its petition to additionally
allege that the Investment Manager has charged excessive fees for its
services to the Company, has charged the Company for salaries and other
expenses that should have been paid by the Investment Manager, and that
the Investment Manager and the officers and certain trust managers of
UIRT have mismanaged the Company's assets. Southwest seeks rescission
of the Advisory Agreement and the sale of UPSC, a declaration that the
Advisory Agreement and sale of UPSC are void, an accounting, a
constructive trust, inspection of the Company's books and records,
injunctive relief or, alternatively, unspecified compensatory damages
alleged to be not less than $10,000,000 and punitive damages in an
amount not less than $20,000,000, attorneys' fees and costs.
On December 12, 2000, three new members were named to the Company's
Board of Trust Managers ("Board"). Thereafter, these three new Board
members were appointed to serve as a special litigation committee (the
"SLC") to investigate the allegations made by Southwest in the Lawsuit.
The SLC has retained independent counsel to assist it in this
investigation, and counsel has retained an economic consulting firm to
serve as consultants to the SLC's counsel.
On December 8, 2000, the Court stayed further proceedings in the
Lawsuit for 60 days to allow the SLC to complete its investigation,
which stay was subsequently extended to March 21, 2001. On February 19,
2001, between the expiration of the original stay and the extension
granted by the Court, Southwest filed its Plaintiff's Second Amended
Petition and Application for Permanent Injunction ("Petition").
Pursuant to the Texas Business Corporation Act, the SLC is composed of
three "independent" and "disinterested" Trust Managers, who have been
charged with determining whether the continuation of the Lawsuit is "in
the best interests" of the Company's shareholders. The SLC must make
this determination "in good faith, after conducting a reasonable
inquiry and based on the factors [the SLC] deems appropriate under the
circumstances." Accordingly, the SLC has attempted, in general terms,
to consider (1) the potential benefits and costs associated with
pursuing the claims in the Lawsuit, and (2) the available alternative
to litigation, including internal corrective action.
Based on its investigation and analysis, the SLC has determined that
continuation of the Lawsuit is not in the best interests of the
Company's shareholders. The SLC has concluded that, under the
applicable legal standards, a finding of liability on the part of any
of the defendants is very unlikely. Indeed, in the case of several of
the defendants, the SLC has not found evidence of even slight
culpability.
The SLC concluded that the Investment Manager may have charged the
Company for the salaries, benefits, and other costs of employees that,
in accordance with the Advisory Agreement, should have been borne by
the Investment Manager. The Company has not yet determined the
aggregate amount of such excess
F-54
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
charges, the periods during which they occurred, or whether there may
be any offsetting amounts due to expenses that the Investment Manager
should have charged to the Company but did not.
The SLC believes that the amount of any potential recovery does not
appear to justify the substantial costs of litigation (especially given
the Company's obligation to indemnify a number of the defendants) or
the disruption of the Company's business activities. This is
particularly true in light of the fact that the Company's Board has
recently instructed its financial advisor, First Union Securities, Inc.
to explore a possible sale of UIRT or its assets. In the event a sale
of UIRT or its assets is not consummated, the SLC believes that any
deficiencies in the procedures by which the Company's corporate affairs
have been handled in the past can be readily remedied by the current
Board.
Accordingly, the Company has filed a motion with the Court to dismiss
the Lawsuit. Southwest has the right to limited discovery with respect
to the SLC's investigation, but management believes it is likely that
the Court will grant the motion and dismiss the Lawsuit.
On March 21, 2001, Southwest filed a separate lawsuit against the
Company in the District Court of Harris County, Texas. In this suit,
Southwest seeks from the Court: (a) a declaration that a certain
provision of the Company's bylaws is invalid; (b) an injunction to keep
the Company from electing trust managers using the standards set forth
in the bylaws and to compel the Company to reform the bylaws to include
one uniform vote requirement as to all trust manager nominees; and (c)
an order to compel the Company to provide certain information about our
shareholders.
At a temporary injunction hearing held on March 26, 2001, the Court
denied Southwest's requests for declaration and injunction. Prior to
the hearing, the Company reached agreement with Southwest concerning
the shareholder information. Management believes this suit is without
merit and is part of Southwest's plans to submit its own nominees for
election as trust managers at the Company's annual shareholders
meeting. Southwest has disclosed such plans in filings with the
Securities and Exchange Commission.
In April 2000, the Company's former President and Chief Executive
Officer filed a lawsuit against UIRT, the Investment Manager, and the
Company's Chairman and Chief Executive Officer, who is also the
Investment Manager's Chief Executive Officer. The former executive is
seeking an unspecified severance compensation package. It is
management's position that the Investment Manager was the employer of
the former executive, and that the Company had no employment
relationship with him. The Investment Manager has indemnified the
Company against the costs of defending this lawsuit and any judgments.
Management believes the suit against us to be without merit and intends
to vigorously defend against these allegations, and has not recorded
any loss provision with respect thereto.
In June 2000, an individual who claims to be a client of the Investment
Manager's individual financial planning business amended a lawsuit
originally filed in July 1999 to include UIRT as a defendant. The
original petition alleged that the Investment Manager and one of its
financial planning employees breached certain duties in the management
of the plaintiff's financial affairs. The amended petition also alleges
that UIRT is legally responsible for the acts of the Investment Manager
and its financial planning employee because they allegedly all operate
as a single business enterprise. The plaintiff seeks unspecified
monetary damages, attorney fees and costs. The Investment Manager has
indemnified the Company against the costs of defending this lawsuit and
any judgments. Management believes the suit against the Company to be
without merit and intends to vigorously defend against these
allegations, and has not recorded any loss provision with respect
thereto.
F-55
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The Company is a party to other legal proceedings that arise in the
normal course of business, which matters are generally covered by
insurance. The resolution of these matters cannot be predicted with
certainty. However, in the opinion of management, based upon currently
available information, any liabilities under such proceedings, either
individually or in the aggregate, will not have a materially adverse
affect on the consolidated financial statements taken as a whole.
10. Subsequent Events
Subsequent to March 31, 2001, the Company sold the Centennial Shopping
Center to an unrelated buyer for approximately $6,300,000.
F-56
APPENDIX A
EXECUTION COPY
--------------
STOCK EXCHANGE AGREEMENT
AMONG
EQUITY ONE, INC.,
CENTREFUND REALTY CORPORATION
AND
FIRST CAPITAL AMERICA HOLDING CORP.
MAY 18, 2001
TABLE OF CONTENTS
1. Definitions 1
2. Exchange Of Target Shares 8
2.1 Basic Transaction 8
2.2 Purchase Price 8
2.3 The Closing 8
2.4 Deliveries at Closing 8
3. Representations and Warranties of Centrefund and Shareholder 8
3.1 Authorization of Transaction 9
3.2 Noncontravention 9
3.3 Investment 9
3.4 Target Shares 10
3.5 Disclosure 10
3.6 Receipt of Valuation and Fairness Opinion 10
3.7 Organization, Qualification, and Corporate Power 10
3.8 Subsidiaries and Joint Ventures 11
3.9 Capitalization 11
3.10 Notices 11
3.11 Real Property 12
3.12 Brokers' Fees 12
3.13 Financial Statements 12
3.14 Events Subsequent to Most Recent Fiscal Year End 13
3.15 Undisclosed Non-Tax Liabilities 14
3.16 Compliance with Governmental Requirements and No Insolvency 14
3.17 Tax Matters 14
3.18 Personal Property Assets 17
3.19 Contracts 17
3.20 Existing Debt 17
3.21 Powers of Attorney 18
3.22 Insurance 18
3.23 Litigation 18
3.24 Employees 18
3.25 Employee Benefits 18
3.26 Environmental, Health, and Safety Matters 19
3.27 Related Party Transactions 20
3.28 Intellectual Property 20
4. Representations and Warranties of Equity One 20
4.1 Organization of Equity One 20
4.2 Capitalization of Equity One 21
4.3 Authorization of Transaction 21
4.4 Receipt of Fairness Opinion 22
4.5 Noncontravention 22
4.6 Brokers' Fees 22
4.7 Disclosure 22
4.8 Investment 23
4.9 Litigation 23
4.10 Undisclosed Liabilities 24
4.11 Listing of Equity One Shares 24
4.12 Real Property 24
4.13 Subsidiaries and Joint Ventures 24
4.14 Financial Statements 25
4.15 Events Subsequent to Most Recent Fiscal Year End 25
4.16 Compliance with Governmental Requirements and No Insolvency 26
4.17 Tax Matters 26
4.18 Personal Property Assets 28
4.19 Contracts 28
4.20 Existing Debt 28
4.21 Insurance 28
4.22 Employee Benefits 28
4.23 Equity One Labor Matters 29
4.24 Environmental, Health, and Safety Matters 29
4.25 Related Party Transactions 30
5. Pre-Closing Covenants29 31
5.1 Delivery of Financial Statements 31
5.2 General 32
5.3 Shareholder Meetings 32
5.4 Notices and Consents 32
5.5 Operation of Business by Equity One 32
5.6 Operation of Business by Target 34
5.7 CDG Windup 35
5.8 Full Access 35
5.9 Notice of Developments 35
5.10 Exclusivity 35
5.11 Target Restructuring 36
5.12 Undistributed REIT Earnings and Profits 36
5.13 Press Release 36
6. Post-Closing Covenants 36
6.1 NYSE Listing 36
6.2 General 36
6.3 Litigation Support 37
6.4 Transition 37
6.5 Confidentiality 37
6.6 Independent Accountants 38
6.7 Tax Matters 38
(ii)
6.8 Representation on Equity One's Board of Directors 38
6.9 Canadian GAAP Financial Statements 38
6.10 Equity One Dividends 38
6.11 Equity One Dispositions of Assets and Disposition Proceeds 39
6.12 Tax Refund 39
6.12 Tax Refund 39
7. Conditions to Obligation to Close 39
7.1 Conditions to Obligations of Equity One 39
7.2 Conditions to Obligation of the Shareholder 41
8. Survival; Remedies for Breaches of this Agreement 42
8.1 Survival of Representations and Warranties 42
8.2 Indemnification Provisions for Benefit of Equity One 43
8.3 Indemnification Provisions for Benefit of the Shareholder 44
8.4 Matters Involving Third Parties 44
8.5 Other Indemnification Provisions 45
9. Target Distributions 45
10. Tax Matters 46
10.1 Tax Periods Ending on or Before the Closing Date 46
10.2 Tax Periods Beginning Before and Ending After the Closing Date 47
10.3 Cooperation on Tax Matters 47
10.4 Certain Taxes 47
11. Registration Rights 48
12. Termination 51
12.1 Termination of Agreement 51
12.2 Effect of Termination 52
13. Miscellaneous 52
13.1 Press Releases and Public Announcements 52
13.2 No Third-Party Beneficiaries 52
13.3 Entire Agreement 53
13.4 Succession and Assignment 53
13.5 Counterparts 53
13.6 Headings 53
13.7 Notices 53
13.8 Governing Law 54
13.9 Amendments and Waivers 54
13.10 Severability 54
13.11 Expenses 55
13.12 Construction 55
13.13 Incorporation of Exhibits, Annexes, and Schedules 55
(iii)
13.14 Specific Performance 55
13.15 Submission to Jurisdiction 55
13.17 Prevailing Party 56
13.18 Waiver of Jury Trial 56
(iv)
STOCK EXCHANGE AGREEMENT
Agreement entered into as of May 18, 2001, by and among Equity One,
Inc., a Maryland corporation ("EQUITY ONE"), Centrefund Realty Corporation, an
Ontario corporation ("CENTREFUND"), and First Capital America Holding Corp.
(f/k/a Centrefund America Holding Corp.), an Ontario corporation (the
"SHAREHOLDER"), the sole shareholder of Centrefund Realty (U.S.) Corporation, a
Delaware corporation (the "TARGET"). Equity One, Centrefund and the Shareholder
are together referred to herein as the "PARTIES."
The Shareholder owns all of the issued and outstanding capital stock of
the Target and Centrefund owns all of the issued and outstanding capital stock
of the Shareholder.
This Agreement contemplates the exchange by Shareholder of all of the
issued and outstanding capital stock of Target for capital stock of Equity One.
The parties intend for the transfers contemplated herein to be treated
as a reorganization within the meaning of Section 368(a) of the Code (as that
term is hereafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADVERSE CONSEQUENCE" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, Liabilities, obligations, Taxes, Security Interests, losses,
expenses and fees, including court costs and reasonable attorneys fees and
expenses, and any other cost of enforcing a party's rights under this Agreement.
"ADVISORY AGREEMENT" means that certain agreement by and between Target
and Dawsco dated as of January 1, 2000, as amended on April 8, 2000.
"AFFILIATE" means, with regard to any Person, any Person, directly or
indirectly, controlled by, under common control of, or controlling such Person.
A Person shall be deemed to control another Person if such first Person
possesses, directly or indirectly, the power to direct, or cause the direction
of, the management and policies of the second Person, whether through the
ownership of voting securities or interests, by contract or otherwise.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"ASSET MANAGEMENT AGREEMENT" means that certain Asset Management
Agreement by and between Management Co. and Target, effective as of August 15,
2000.
"CANADIAN GAAP" means Canadian generally accepted accounting principles
as in effect from time to time.
"CDGI" means Centrefund Development Group, LLC.
"CDGII" means Centrefund Development Group II, LLC.
"CDG WIND-UP" means the sale of the shares or assets of any or all of
CDGI, CDGII or Cashmere Developments Inc. in accordance with Section 5.7.
"CENTREFUND APPROVAL" means a resolution authorizing Centrefund to
complete the Transaction, passed by the majority of the votes cast by the
holders of common shares of Centrefund specified by section 8.1 of Rule 61-501
made pursuant to the SECURITIES ACT (Ontario) and who are "minority security
holders" within the meaning of Policy No. Q-27 made under the SECURITIES ACT
(Quebec), at a meeting of the shareholders of Centrefund called to consider the
Transaction.
"CENTREFUND MANAGEMENT ARRANGEMENTS" means any advisory or management
arrangements between Centrefund and the Target pursuant to which Centrefund
provides advisory, administrative or management services to the Target in
consideration for management fees.
"CLOSING" has the meaning set forth in Section 2.3 below.
"CLOSING DATE" has the meaning set forth in Section 2.3 below.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the Regulations thereunder.
"CORPORATE TAX" means any federal (including under Code Section 59A),
state, local or foreign income, capital stock, franchise, profit, withholding,
alternative or add-on minimum tax, or any estimated taxes of any of the
foregoing, whether liability is imposed directly or pursuant to Treasury
Regulation Section 1.1502-6 (or any similar provision of any state, local or
foreign law), as a transferee or successor, by contract or otherwise (including,
without limitation, any liability imposed by reason of any election under
Section 338(g) or Section 338(h)(10) of the Code or any similar provision of
state, local or foreign law), including any interest, penalty or addition
thereto, whether disputed or not, and any obligations under any agreements or
arrangements with respect to any of the foregoing, and "CORPORATE TAXES" means
any or all of the foregoing collectively.
"COMMON STOCK" means the common stock, $.01 par value, of Equity One,
Inc.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the applicable entity that is not already generally
available to the public.
-2-
"DAWSCO" means, collectively, Dawsco Realty Advisory Corp. and Dawsco
Realty Advisory Partnership.
"DAWSCO INDEMNITY" means an assignment and indemnity granted on or
prior to the Closing by Centrefund in favor of the Target and its Affiliates in
respect of any Liability of the Target or any of its Affiliates arising under or
pursuant to the Advisory Agreement, the form of which is attached as EXHIBIT H.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or (e)
bonus, profit sharing or deferred profit sharing, performance compensation,
deferred or incentive compensation, stock compensation, phantom stock,
incentive, stock purchase, stock ownership, stock option, stock appreciation
right, severance, salary continuation, termination, change of control, vacation
plan or policy, sick pay plan or policy, or other material fringe benefit plan
or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any Hazardous
Materials (which, for purposes of this Agreement, shall mean any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation), each as amended and as
now or hereafter in effect.
"EQUITY ONE COMPANIES" means Equity One and its Subsidiaries.
"EQUITY ONE DISCLOSURE SCHEDULE" means the disclosure schedule
delivered by Equity One to the Shareholder and initialed by the Parties as the
Equity One Disclosure Schedule referred to in this Agreement.
"EQUITY ONE EXISTING DEBT" has the meaning given to that term in
Section 4.20.
"EQUITY ONE FINANCIAL STATEMENTS" means, collectively, the audited
consolidated financial statements of Equity One and the notes thereto for the
years ended December 31, 2000, 1999 and 1998, together with the auditors report
thereon, and the interim unaudited consolidated financial statements of Equity
One for the period ended March 31, 2001.
-3-
"EQUITY ONE LEASED PROPERTY" has the meaning given to that term in
Section 4.12.
"EQUITY ONE MATERIAL CONTRACTS" has the meaning given to that term in
Section 4.19.
"EQUITY ONE OWNED PROPERTY" has the meaning given to that term in
Section 4.12.
"EQUITY ONE PUBLIC FILINGS" means all Public Filings of Equity One made
from January 1, 1998 to the date hereof.
"EQUITY ONE REAL PROPERTY" has the meaning given to that term in
Section 4.12. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" means, in respect of any Person, (i) any corporation
included with such Person in a controlled group of corporations within the
meaning of Section 414(b) of the Code; (ii) any trade or business (whether or
not incorporated) which is under common control with such Person within the
meaning of Section 414(c) of the Code; (iii) any member of an affiliated service
group of which such Person is a member within the meaning of Section 414(m) of
the Code; or (iv) any other person or entity treated as an affiliate of such
Person under Section 414(o) of the Code.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOVERNMENTAL REQUIREMENTS" shall mean, in respect of any Person, all
laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the
United States, the state, the county, the city, or any other political
subdivision in which the Real Property of such Person is located, and any other
political subdivision, agency or instrumentality exercising jurisdiction over
such Person or its Real Property.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8.4 below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8.4 below.
"INTERCOMPANY DEBT" means all debt owing by or to any Target Company
from any Affiliates of the Target (other than Equity One or any Subsidiaries of
Equity One or any Subsidiaries of the Target).
"KNOWLEDGE" means, in respect of a Person, that of which such Person
has actual knowledge after having made reasonable inquiry under the
circumstances. In the case of a Person other than a natural Person, Knowledge
shall mean the actual knowledge, after having made reasonable inquiry under the
circumstances, of such Person's executive officers, directors and employees in
the relevant area and, in the case of Centrefund and the Shareholder, Target's
property and asset managers. Without in any way limiting or qualifying the
representations and warranties being made by Centrefund and the Shareholder in
this Agreement, Equity One acknowledges that Centrefund and the Shareholder are
relying on certificates delivered by the
-4-
Target's property and asset managers, Equity One Realty & Management Inc. and
Centrecorp Management Services Inc.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MANAGEMENT CO." means Equity One Realty & Management, Inc.
"MATERIAL ADVERSE EFFECT" means, in respect of any Person, individually
or together with other adverse effects, any matter or action that has an effect
that is, or would reasonably be expected to be, material and adverse to (i) the
assets, liabilities, results of operations, capitalization, business condition
(financial or otherwise) or prospects of such Person and its Subsidiaries, taken
as a whole, or (ii) to such Person's ability to consummate the Transaction.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NATIONAL SECURITIES EXCHANGE" shall have the meaning ascribed to that
term in the rules and regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act. "NOVA SCOTIA LOANS" means all
loans identified as Nova Scotia Loans on EXHIBIT I.
"ORDINARY COURSE OF BUSINESS" means, in respect of any Person, the
usual, ordinary and regular course of that Person's business consistent with its
past custom and practice.
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PROPERTY MANAGEMENT AGREEMENT" means that certain Property Management
Agreement by and between Management Co. and Target, effective as of December 1,
2000. "PUBLIC FILINGS" means, in respect of a Person, all documents filed by
such Person with the United States Securities and Exchange Commission.
"PURCHASE PRICE SHARES" has the meaning given to that term in Section
2.2.
"REAL PROPERTY" means all real property, whether owned or leased, and
all buildings, structures, improvements and appurtenances located thereon and
all rights related thereto.
"REIT" has the meaning given to that term in Section 4.17(g).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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"SECURITY INTEREST" means, in respect of any Person, any mortgage,
pledge, lien, encumbrance, charge, or other security interest on such Person's
property or assets, other than:
(a) construction, mechanic's, materialmen's, and similar liens
that could not reasonably be expected to have a Material Adverse Effect
on such Person;
(b) liens for Taxes not yet due and payable or for Taxes that
such Person is contesting in good faith through appropriate
proceedings, as reflected in such Person's most recent financial
statements;
(c) purchase money liens and liens securing rental payments
under capital lease arrangements which are disclosed in such Person's
most recent financial statements;
(d) statutory rights reserved or vested in any governmental
entity by the terms of any lease, license, franchise, grant or permit,
or by any statutory provision, to terminate the same, to take action
which results in an expropriation, to designate a purchaser of any Real
Property or to require annual or other payments as a condition to the
continuance thereof;
(e) good faith deposits made in the ordinary course of such
Person's business to secure the payment of utilities accounts, the
performance of bids, tenders, contracts (other than for the repayment
of borrowed money), leases, surety, customs, performance bonds and
other similar obligations;
(f) zoning restrictions, agreements, easements, rights of way
or other similar encumbrances or privileges in respect of any Real
Property which, either singly or in the aggregate, do not materially
impair the value or the use of such Real Property and which are not
violated in any material respect by any existing or proposed structures
or land use;
(g) all title exceptions and title defects set out in the
title insurance policies issued at the time of the acquisition of the
Real Property;
(h) liens related to Target Existing Debt or Equity One
Existing Debt, as applicable, and any other debt incurred after the
date hereof in accordance with and as permitted under the terms of this
Agreement; and
(i) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money, so long as such
liens could not reasonably be expected to have a Material Adverse
Effect on such Person.
"SHAREHOLDER" has the meaning set forth in the preface above.
"SUBSIDIARY" means, in respect of any Person, any corporation, limited
partnership, joint venture or other entity with respect to which such Person (or
a Subsidiary thereof) owns a
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majority of the ownership interests or has the power to vote or direct the
voting or otherwise control the major decisions thereof.
"TARGET" has the meaning set forth in the preface above.
"TARGET COMPANIES" means Target and all companies listed on EXHIBIT J.
"TARGET DISCLOSURE SCHEDULE" means the disclosure schedule delivered by
the Shareholder and Target to Equity One and initialed by the Parties as the
Target Disclosure Schedule referred to in this Agreement.
"TARGET DISTRIBUTION AMOUNT" means, for the period from January 1, 2001
to the Closing Date, $4,760,000, subject to any adjustments set forth in Section
9.
"TARGET EXISTING DEBT" means all debt disclosed on EXHIBIT C, which, as
at the date hereof, includes all of the Intercompany Debt.
"TARGET FINANCIAL STATEMENTS" means the audited consolidated financial
statements of the Target and the notes thereto for the financial years ended
December 31, 2000, 1999 and 1998 prepared in accordance with GAAP, together with
the auditors report thereon.
"TARGET LEASED PROPERTY" has the meaning given to that term in Section
3.11.
"TARGET MATERIAL CONTRACTS" has the meaning given to that term in
Section 3.19.
"TARGET OWNED PROPERTY" has the meaning given to that term in Section
3.11.
"TARGET REAL PROPERTY" has the meaning given to that term in Section
3.11.
"TARGET RESTRUCTURING" means, collectively, the entering into of the
Dawsco Indemnity and all other restructurings, equity issuances, financings,
dividends, distributions, and corporate reorganizations which are necessary in
order to (i) restructure the Nova Scotia Loans so that the amount of such loans
which was indirectly funded by arms length third parties is assumed directly by
the Target or any Subsidiary of the Target and the amount of such loans which
was funded by an Affiliate of Centrefund (which is not a Subsidiary of the
Target) is repaid or capitalized, (ii) to eliminate all Intercompany Debt, and
(iii) to distribute earnings and profits as described in Section 5.12.
"TARGET SHARE" means a share of the common stock, without par value, of
the Target.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, documentary
stamp, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
and whether liability is imposed directly or pursuant to Treasury Regulation
Section 1.1502-6 (or any similar provision of state,
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local or foreign law), as a transferee or successor, by contract or otherwise
(including, without limitation, any liability imposed by reason of any election
under Section 338(g) or Section 338(h)(10) of the Code or any similar provision
of state, local or foreign law), including any interest, penalty, or addition
thereto, whether disputed or not, and any obligations under any agreements or
arrangements with respect to any of the foregoing, and "TAXES" means any or all
of the foregoing collectively.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to any Tax, including any schedule
or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8.4.
"TRANSACTION" means the transaction contemplated in Section 2.1 of this
Agreement.
2. EXCHANGE OF TARGET SHARES.
2.1 BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, Equity One agrees to acquire from the Shareholder,
and the Shareholder agrees to transfer to Equity One, all of the Target Shares
for the consideration specified below in this Section 2.
2.2 PURCHASE PRICE. Equity One agrees to deliver to the
Shareholder at Closing 10,500,000 shares of Common Stock, as may be adjusted
pursuant to Article 9 (the "PURCHASE PRICE SHARES").
2.3 THE CLOSING. The closing of the Transaction (the
"CLOSING") shall take place at the offices of Greenberg Traurig, LLP in Miami,
Florida, commencing at 10:00 a.m. local time on August 28, 2001 or such other
date, time and place as the Parties may mutually determine (the "CLOSING DATE")
2.4 DELIVERIES AT CLOSING. At the Closing, (i) the Shareholder
and Centrefund will deliver to Equity One the various certificates, instruments,
and documents referred to in Section 7.1, (ii) Equity One will deliver to the
Shareholder the various certificates, instruments, and documents referred to in
Section 7.2, (iii) the Shareholder will deliver to Equity One stock certificates
representing all of the outstanding Target Shares, endorsed in blank or
accompanied by duly executed assignment documents and evidence of satisfaction
of all Intercompany Debt and completion of Target Restructuring, and (iv) Equity
One will deliver to the Shareholder stock certificates for the Purchase Price
Shares due on the Closing, issued in the name of the Shareholder.
3. REPRESENTATIONS AND WARRANTIES OF CENTREFUND AND SHAREHOLDER
Centrefund and the Shareholder jointly and severally represent and
warrant to Equity One that the statements contained in this Section 3, as
modified or supplemented by the information set out in the Target Disclosure
Schedule, are correct and complete as of the date of this Agreement.
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3.1 AUTHORIZATION OF TRANSACTION. Each of Centrefund and the
Shareholder has the full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder. Centrefund's board of directors has, upon consultation with its
financial and legal advisors and having received the recommendation of the
special committee of the board formed for the purposes of considering this
Transaction, determined that this Transaction is fair from a financial point of
view to the shareholders of Centrefund other than Gazit (1997) Inc. and its
Affiliates, and is in the best interests of those shareholders, and that it will
recommend that the Centrefund Approval be given. This Agreement constitutes the
valid and legally binding obligation of Centrefund and the Shareholder,
enforceable in accordance with its terms and conditions except to the extent
enforcement thereof may be limited by applicable bankruptcy, reorganization,
insolvency or moratorium laws, or other laws affecting the enforcement of
creditors' rights or by the principles governing the availability of equitable
remedies. Except as set forth in Section 3.1 of the Target Disclosure Schedule,
neither Centrefund nor the Shareholder needs to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency or any other Person, in order to consummate the
Transaction, other than, in the case of Centrefund, the Centrefund Approval and
other than any authorization, consent or approval which has been obtained or the
absence of which will not result in a Material Adverse Effect.
3.2 NONCONTRAVENTION. Except as set forth in Section 3.2 of
the Target Disclosure Schedule, and subject to obtaining the Centrefund
Approval, neither the execution and delivery of this Agreement, nor the
consummation of the Transaction, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
Centrefund, the Shareholder, or the Target Companies are subject, or violate any
provision of the charters or by-laws of Centrefund, Shareholder or any of the
Target Companies, or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, loan, note, mortgage, lease, license, instrument, or other
arrangement to which any of Centrefund, Shareholder or any of the Target
Companies is a party or by which any of them is bound or to which any of their
respective assets are subject, save and except, with respect to this subsection
3.2(B), where any such conflict, breach, default, contravention, acceleration,
termination, cancellation or modification will have been waived, cured or
otherwise consented to or will not result in a Material Adverse Effect on the
Target.
3.3 INVESTMENT. Each of Centrefund and the Shareholder (A)
understands that the offer and sale of the Purchase Price Shares have not been,
and will not be, registered under the Securities Act, or under any state or
provincial securities laws, and that such shares are being offered and sold in
reliance upon applicable federal, state or provincial exemptions for
transactions not involving any public offering, (B) understands that the
Purchase Price Shares are being acquired by the Shareholder solely for its own
account for investment purposes, and not with a view to the distribution
thereof, (C) has received certain information concerning Equity One and has had
the opportunity to obtain such additional information as it desires in order to
evaluate the merits and the risks inherent in the acquisition and ownership of
the Purchase Price
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Shares, (D) is able to bear the economic risk and lack of liquidity inherent in
holding Purchase Price Shares, and (E) is an Accredited Investor.
3.4 TARGET SHARES. The Shareholder holds of record and owns
beneficially all of the issued and outstanding Target Shares, as further
described in Section 3.9 hereof, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities laws
and any restrictions set out in the constating documents of the Target), Taxes,
Security Interests or other options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. The Shareholder is not a party to
any option, warrant, purchase right, or other contract or commitment that could
require the Shareholder to sell, transfer, or otherwise dispose of any capital
stock of the Target (other than this Agreement). The Shareholder is not a party
to any voting trust, proxy, shareholders agreement, or other agreement or
understanding with respect to the voting of any capital stock of the Target. On
Closing, the Shareholder will transfer to Equity One good and marketable title
to the Target Shares.
3.5 DISCLOSURE. Neither this Agreement nor any of the
Exhibits, Schedules, attachments, written statements, documents or certificates
prepared for or supplied to Equity One by Centrefund, the Shareholder or the
Target in connection with this Agreement contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. To the Knowledge of
Centrefund and the Shareholder, there is no fact which Centrefund or the
Shareholder has not disclosed to Equity One herein which could reasonably be
anticipated to have a Material Adverse Effect on the Target.
3.6 RECEIPT OF VALUATION AND FAIRNESS OPINION. Centrefund's
board of directors has received a formal valuation relating to the Transaction,
as required by applicable securities laws, together with an opinion from
Centrefund's financial advisors that the Transaction is fair from a financial
point of view to the Centrefund shareholders other than Gazit (1997) Inc. and
its Affiliates.
3.7 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Target is a corporation duly organized and validly existing under the laws of
the jurisdiction of its incorporation. The Target is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where failure to be so authorized or in good
standing would not result in a Material Adverse Effect on the Target. The Target
has full power and authority (including full corporate power and authority) and
all licenses, permits, and authorizations necessary to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it,
except where the failure to have such licenses, permits or authorizations would
not result in a Material Adverse Effect on the Target. All such permits,
licenses and authorizations are valid and in effect and will be unaffected by or
validly transferred pursuant to the Transaction. Correct and complete copies of
the charter and bylaws of Centrefund, the Shareholder and the Target (as amended
to the date of this Agreement) have been delivered to Equity One. The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of the Target are correct and complete in all
material respects and true and correct copies thereof have been made available
to Equity One.
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None of the Target Companies is in default under or in violation of any
provision of its charter or bylaws.
3.8 SUBSIDIARIES AND JOINT VENTURES. Section 3.8 of the Target
Disclosure Schedule sets forth a list of all of the wholly-owned Subsidiaries of
the Target and, to the Knowledge of Centrefund and the Shareholder, all
non-wholly owned Subsidiaries of the Target and all entities in which the Target
or any of its Subsidiaries has an equity interest (including all joint
ventures), the jurisdictions of formation of each such Subsidiary and joint
venture, and, to the Knowledge of Centrefund and the Shareholder, the percentage
interest of the Target in each Subsidiary and joint venture. To the Knowledge of
Centrefund and the Target, to the extent any such entity is not wholly owned by
Target or any Subsidiary, the names and interests of such other owners are also
listed. Each Subsidiary is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. To the Knowledge
of Centrefund and the Shareholder, correct and complete copies of all agreements
forming or governing the Target Companies that are not wholly owned by Target,
all of which are listed on Section 3.8 of the Target Disclosure Schedule, have
been made available to Equity One.
3.9 CAPITALIZATION. Subject to any share issuances to the
Shareholder resulting from the Target Restructuring, which shares shall be
delivered to Equity One at Closing as part of the consideration for the Purchase
Price Shares, the entire authorized capital stock of the Target consists of
3,000 common shares without par value, of which 117 Target Shares are issued and
outstanding. All of the issued and outstanding Target Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record and owned beneficially solely by the Shareholder. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, preemptive rights or other contracts
or commitments that could require the Target to issue, sell, or otherwise cause
to become outstanding any of its capital stock or securities convertible or
exchangeable for, or any options, warrants, or rights to purchase, any of such
capital stock. There are no outstanding obligations of Target to repurchase,
redeem or otherwise acquire any capital stock or any securities convertible into
or exchangeable for such capital stock or any options, warrants or rights to
purchase such capital stock or securities. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, transfer, dividend or
other rights (such as registration rights under the Securities Act) of the
capital stock of the Target.
3.10 NOTICES. Except as set forth in Section 3.10 of the
Target Disclosure Schedule, none of the Target Companies needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency, or to the Knowledge of
Centrefund and the Shareholder, any Person, in order for the Parties to
consummate the Transaction, save and except where the failure to do any of the
foregoing would not result in a Material Adverse Effect on the Target.
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3.11 REAL PROPERTY. To the Knowledge of Centrefund and
Shareholder:
(a) EXHIBIT A lists all of the real property owned by the
Target Companies (the "TARGET OWNED PROPERTY"), and all of the real
property leased (or subleased) to the Target Companies (the "TARGET
LEASED PROPERTY") and indicates which Target Company is the owner or
lessee, as applicable. The Target Owned Property and the Target Leased
Property is together referred to herein as the TARGET REAL PROPERTY.
(b) Each of the Target Companies indicated on EXHIBIT A
has good and marketable title to the applicable Target Owned Property
and valid leasehold interests in the applicable Target Leased Property
in the percentages indicated. Except as set forth in Section 3.11 of
the Target Disclosure Schedule, all such interests are free and clear
of all Security Interests.
(c) Except as set forth in Section 3.11 of the Target
Disclosure Schedule, there are no unpaid charges, debts, liabilities,
claims or obligations arising from the construction, occupancy,
ownership, use or operation of the Target Real Property which could
give rise to any Security Interests.
(d) No notice which relates to termination or
terminations of any leases of the Target Real Property which would
reasonably be expected to have a Material Adverse Effect on Target has
been received by Target, Centrefund or the Shareholder.
(e) All buildings, structures, improvements and
appurtenances located on the Target Real Property are in good operating
condition and repair in all material respects and do not encroach in
any material respect on any property not owned by a Target Company or
violate any Governmental Requirements in any material respect.
(f) Except as disclosed in Section 3.11 of the Target
Disclosure Schedule and except in connection with the CDG Wind-Up, no
Person has any right or option to purchase or acquire from any Target
Company any of the Target Real Property.
(g) Section 3.11 of the Target Disclosure Schedule sets
forth all title insurance policies issued covering the Real Properties.
3.12 BROKERS' FEES. No Target Company is obligated to pay any
fees or commissions to any broker, finder, or agent with respect to the
Transaction.
3.13 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are
the following financial statements of the Target (collectively the "FINANCIAL
STATEMENTS"): audited consolidated balance sheets as of the years ended December
31, 1999, and December 31, 2000 and statements of income, changes in
stockholders' equity, and cash flow for the years ended December 31, 1998, 1999
and 2000, including the audit report thereon prepared by Deloitte & Touche LLP.
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as otherwise stated therein) and present fairly the
consolidated financial position of the Target as of such dates and the results
of operations of the Target for such periods.
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3.14 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
for the CDG Wind-Up, the Target Restructuring, the Centrefund Management
Arrangements, the entering into this Agreement, the Transactions contemplated
hereby, and any matters disclosed in Section 3.14 of the Target Disclosure
Schedule, since December 31, 2000:
(a) no Target Company has sold, leased, transferred, or
assigned any of its assets, tangible or intangible, outside its
Ordinary Course of Business, other than transactions that have not had
and would not reasonably be expected to have a Material Adverse Effect
on the Target;
(b) no Target Company has entered into any agreement,
contract, lease or license outside its Ordinary Course of Business,
other than transactions that have not had and would not reasonably be
expected to have a Material Adverse Effect on the Target;
(c) no Person has accelerated, terminated, made material
modifications to, or cancelled any agreement, contract, lease or
license of any Target Company, other than transactions that have not
had and would not reasonably be expected to have a Material Adverse
Effect on the Target;
(d) no Target Company has made, outside its Ordinary Course
of Business, any capital investment in, any loan to (excluding interest
accrued on Target Existing Debt) or any acquisition of the securities
or assets of, any other Person, other than transactions that have not
had and would not reasonably be expected to have a Material Adverse
Effect on the Target;
(e) except as set forth on Section 3.14(e) of the Target
Schedule, no Target Company has issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation or otherwise, other
than the Target Existing Debt;
(f) except for the Intercompany Debt set forth on Section
3.14(f) of the Target Disclosure Schedule, no Target Company has made
any loan to, or entered into any other material transaction with any of
its direct or indirect shareholders, directors, officers, and
employees;
(g) no Target Company has made or pledged to make any
charitable or other contribution outside its Ordinary Course of
Business;
(h) no Target Company has issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other
rights to purchase or obtain any of such capital stock or securities;
(i) no Target Company has committed to do any of the
foregoing; and
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(j) there has not been any other occurrence, change, event,
incident, action, failure to act, or transaction which would reasonably
be expected to result in a Material Adverse Effect on the Target.
3.15 UNDISCLOSED NON-TAX LIABILITIES. Except in respect of
Taxes, which are addressed elsewhere in this Agreement, and except (i) as
provided for, disclosed or reserved against in the Target Financial Statements,
(ii) for Liabilities incurred in the Ordinary Course of Business, and (iii) as
disclosed in Section 3.15 of the Target Disclosure Schedule, the Target does not
have any material Non-Tax Liabilities.
3.16 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND NO
INSOLVENCY. The Target Companies have complied with all applicable Governmental
Requirements except for any non-compliance that has not had and would not
reasonably be expected to result in a Material Adverse Effect on the Target. No
bankruptcy, insolvency or receivership proceedings have been instituted or, to
the Knowledge of Centrefund or the Shareholder, threatened against any of the
Target Companies.
3.17 TAX MATTERS. As used in this Section 3.17, "TARGET
COMPANIES" includes all of the Persons in which the Target currently holds any
interest and all of the Persons in which the Target previously held any interest
but that have merged with or liquidated into or otherwise transferred
substantially all of their assets into any one or more other Persons in which
the Target currently holds any interest.
(a) Except as set forth in Section 3.17 of the Target
Disclosure Schedule, each of the Target Companies has filed all Tax
Returns in respect of Corporate Taxes that it was required to file,
and, to the Knowledge of Centrefund and the Target, each of the Target
Companies has filed all Tax Returns in respect of all other Taxes that
it was required to file. Except as set forth in Section 3.17 of the
Target Disclosure Schedule, all Corporate Taxes owed by any Target
Company (whether or not shown on any Tax Return and whether or not any
Tax Return was required) have been paid, and, to the Knowledge of
Centrefund and the Target, all other Taxes owed by any Target Company
(whether or not shown on any Tax Return and whether or not any Tax
Return was required) have been paid. Except as set forth in Section
3.17 of the Target Disclosure Schedule, no Target Company is currently
the beneficiary of any extension of time within which to file any Tax
Return in respect of Corporate Taxes and, to the Knowledge of
Centrefund and the Target, no Target Company is currently the
beneficiary of any extension of time within which to file any Tax
Return in respect of any other Taxes. No claim has ever been made by a
taxing authority in a jurisdiction where a Target Company does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction, and none of the Target Companies is aware of any basis
for any such claim. There are no Security Interests on any of the
assets of the Target Companies that arose in connection with any
failure (or alleged failure) to pay any Corporate Tax and, to the
Knowledge of Centrefund and the Target, there are no Security Interests
on any of the assets of the Target Companies that arose in connection
with any failure (or alleged failure) to pay any other Taxes, except in
each case for Taxes not yet due. None of the
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Target Companies has entered into any closing agreement with any
federal, state, local or foreign taxing authority.
(b) Each of the Target Companies has withheld and paid all
Corporate Taxes, and, to the Knowledge of Centrefund and the
Shareholder, each of the Target Companies has withheld and paid all
other Taxes, in each case in respect of Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third
party.
(c) There is no dispute or claim concerning any Corporate
Tax Liability of any Target Company either (i) claimed or raised by any
taxing authority in writing or (ii) as to which any of the Target
Companies has Knowledge. Except as set forth in Section 3.17 of the
Target Disclosure Schedule, Centrefund and the Shareholder do not have
any Knowledge of any dispute or claim concerning any other Tax
Liability of any Target Company, whether or not claimed or raised by
any taxing authority. Section 3.17 of the Target Disclosure Schedule
lists all federal, state, local and foreign income Tax Returns that
currently are the subject of audit or in respect of which any written
or unwritten notice of any audit or examination has been received by
any Target Company. Correct and complete copies of all Federal Income
Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by any of the Target Companies since
December 31, 1996 have been made available to Equity One.
(d) Except as disclosed in Section 3.17 of the Target
Disclosure Schedule, none of the Target Companies has waived any
statute of limitations in respect of Corporate Taxes or agreed to any
extension of time with respect to a Corporate Tax assessment or
deficiency, and, to the Knowledge of Centrefund and the Target, none of
the Target Companies has waived any statute of limitations in respect
of any Taxes (other than Corporate Taxes) or agreed to an extension of
time with respect to an assessment or deficiency of a Tax (other than a
Corporate Tax).
(e) None of the Target Companies has filed a consent under
Section 341(f) of the Code concerning collapsible corporations. Except
as disclosed to Equity One, none of the Target Companies has made any
payments, is obligated to make any payments or is a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Section 280G of the Code
or that would give rise to any obligation to indemnify any Person for
any excise tax payable pursuant to Section 4999 of the Code. The
Shareholder is a "foreign person" within the meaning of Sections 1445
and 7701 of the Code of 1986, as amended, and the Target is a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code. No Target Company is a party to any Tax
allocation or sharing agreement in respect of Corporate Taxes and, to
the Knowledge of Centrefund and the Shareholder, no Target Company is a
party to any Tax allocation or sharing agreement in respect of any
other Taxes. The Target is the common parent of an Affiliated Group
that files a consolidated Federal Income Tax Return and does not
include as a member any corporation that is not a Target Company (as
that term is defined without regard to the introductory language at the
beginning of this Section 3.17). No
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Target Company is liable for the Corporate Taxes of any Person (other
than another Target Company) under Treasury regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or as a member of an Affiliated
Group.
(f) In the case of the Target Companies, the unpaid
Corporate Taxes (i) did not, as of December 31, 2000, exceed the
reserve for Tax Liability (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth in the Target Financial Statements as of that date and (ii)
do not, and will not, exceed that reserve as adjusted for the passage
of time through the Closing Date in accordance with the past custom and
practice of the Target Companies in filing their Tax Returns for
Corporate Taxes.
(g) No Target Company shall be required to include in a
taxable period ending after the Closing Date taxable income
attributable to income that accrued in a prior taxable period but was
not recognized in any prior taxable period as a result of the
installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash
method of accounting or Section 481 of the Code or any comparable
provision of state, local or foreign Corporate Tax law.
(h) Except as set forth in Section 3.8 and Section 3.17(h)
of the Target Disclosure Schedule, no Target Company is a party to any
joint venture, partnership or other arrangement or contract that could
be treated as a partnership or as a disregarded entity for Federal
Income Tax purposes.
(i) To the Knowledge of Centrefund and the Shareholder,
except as set forth in Section 3.17(i) of the Target Disclosure
Schedule, no Target Company has entered into any sale leaseback or
leveraged lease transaction that fails to satisfy the requirements of
Revenue Procedure 75-21 (or similar provisions of foreign law) or any
safe harbor lease transaction.
(j) No Target Company has ever been an S corporation
(within the meaning of Section 1361(a)(1) of the Code).
(k) All material elections with respect to Corporate Taxes
affecting any Target Company, and, to the Knowledge of Centrefund and
the Target, all materials elections with respect to other Taxes, are
disclosed or attached to a Tax Return of the Target Company.
(l) All private letter rulings issued by the Internal
Revenue Service to any Target Company (and any corresponding ruling or
determination of any state, local or foreign taxing authority) have
been disclosed on Section 3.17(l) of the Target Disclosure Schedule,
and there are no pending requests for any such rulings (or
corresponding determinations).
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(m) The Transaction will not, by reason or as a result of
deferred intercompany transactions or excess loss accounts within the
meaning of the consolidated return regulations promulgated pursuant to
Section 1501 ET SEQ. of the Code, result in any Corporate Tax liability
to any Target Company or result in a reduction of the amount of any net
operating loss, net operating loss carryover, net capital loss, net
capital loss carryover, Tax credit, Tax credit carryover, excess
charitable contribution or basis of property that otherwise would be
available to a Target Company.
(n) No Target Company has been the distributing corporation
or the controlled corporation with respect to a transaction described
in Section 355 of the Code (without regard to Section 355(d) or Section
355(e) of the Code) within the three year period prior to the date of
this Agreement.
(o) As of the Closing Date, the Target will hold at least
90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets it held
immediately prior to the Transaction. Amounts used by the Target to pay
its expenses related to the Transaction and all redemptions and
distributions (except for regular, normal dividends) made by the Target
within the one-year period ending on the Closing Date will be treated
as assets of the Target to be taken into account for purposes of this
representation.
(p) As of the Closing Date, (i) the total adjusted basis of
the assets of (A) the Target and (B) the Target Companies collectively
will equal or exceed, respectively, (A) the sum of all of the
liabilities of the Target and all of the liabilities to which the
assets of the Target are subject and (B) the sum of all of the
liabilities of the Target Companies collectively and all of the
liabilities to which the assets of the Target Companies collectively
are subject, and (ii) the sum of all of the liabilities of each Target
Company and all of the liabilities to which the assets of such Target
Company are subject will be less than the fair market value of the
assets of such Target Company. Each of the liabilities referred to in
the preceding sentence was incurred by the Target or such Target
Company in the Ordinary Course of Business and is associated with the
assets of the Target or such Target Company. Target owns all of the
issued and outstanding stock of each Target Subsidiary that is a
corporation for federal income tax purposes.
3.18 PERSONAL PROPERTY ASSETS. To the Knowledge of Centrefund
and the Shareholder, all machinery, equipment, and other personal assets owned
by the Target Companies and situated on the Target Real Property have been
maintained in accordance with normal industry practice and are in good operating
condition and repair (subject to normal wear and tear).
3.19 CONTRACTS. Except as disclosed in Section 3.19 of the
Target Disclosure Schedule and except as related to the Target Existing Debt,
the Target Companies are not subject to any material agreements that are not
related to the ownership, operation, leasing, administration or management of
the Target Real Property. To the Knowledge of Centrefund and the Shareholder:
Section 3.19 of the Target Disclosure Schedule lists all of the material
contracts and agreements to which any of the Target Companies is a party (the
"TARGET MATERIAL
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CONTRACTS"); the Target Material Contracts are legal, valid, binding,
enforceable, and in full force and effect; each of the Target Companies has
performed its obligations under the Target Material Contracts in all material
respects; no other party is in breach or default thereunder in any material
respect, and no event has occurred which, with notice or lapse of time or both,
would constitute a material breach or default, or permit termination or
acceleration, under any Target Material Contract. To the Knowledge of Centrefund
and the Shareholder, other than as related to the CDG Wind-Up and excluding
matters of which any Equity One Company has actual Knowledge, Section 3.19 of
the Target Disclosure lists each currently outstanding bid or proposal, venture
or other matter submitted by any Target Company in excess of $25,000.
3.20 EXISTING DEBT. EXHIBIT C lists all existing indebtedness
of the Target Companies in connection with borrowings (including Intercompany
Debt) and the balances outstanding, as of the most recent practicable date (the
"TARGET EXISTING DEBT").
3.21 POWERS OF ATTORNEY. To the Knowledge of Centrefund and
the Shareholder, and except for powers of attorney granted pursuant to (i) the
Property Management Agreement, (ii) the Asset Management Agreement, and (iii)
any Target Existing Debt, there are no outstanding powers of attorney executed
on behalf of the Target or any of its Subsidiaries.
3.22 INSURANCE. To the Knowledge of Centrefund and the
Shareholder, the Target Companies and the Target Real Property are insured
against loss or damage and such other risks and in such amounts as are
reasonable for prudent owners of comparable assets or businesses, under
insurance policies which are in full force and effect and do not expire prior to
Closing. To the Knowledge of Centrefund and the Shareholder, the Target
Companies are not in default and no event has occurred which with notice or
lapse of time, or both, would constitute a breach or default, under any of the
provisions contained in such insurance policies.
3.23 LITIGATION. Except as disclosed in Section 3.23 of the
Target Disclosure Schedule there is no injunction, judgment, order, decree,
ruling, or charge, or any claim, action, suit, arbitration, proceeding, hearing,
or investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction which is pending,
or to the Knowledge of the Shareholder or Centrefund, threatened against or
involving any Target Company or any property or rights of any Target Company
that, individually or in the aggregate, if adversely determined, would result in
a Material Adverse Effect on the Target. Neither Centrefund, nor the Shareholder
has Knowledge of the existence of grounds for an action, suit, proceeding,
hearing or investigation which, if brought or initiated, would be reasonably
expected to have a Material Adverse Effect on the Target.
3.24 EMPLOYEES. Except as set forth on the Section 3.24 of the
Target Disclosure Schedule, none of the Target Companies has had any employees
since January 1, 2001.
3.25 EMPLOYEE BENEFITS. To the Knowledge of Centrefund and the
Shareholder, neither Target nor any ERISA Affiliate of the Target (i) maintains,
contributes to or ever has contributed to or has any Liability under or relating
to any Employee Benefit Plan, (ii) contributes to, ever has contributed to, or
ever has been required to contribute to any
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Multiemployer Plan or has any Liability (including withdrawal Liability) under
or relating to any Multiemployer Plan, (iii) maintains or contributes to, or has
ever been required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Section 4980B), or (iv) will be obligated to
pay separation, severance, termination or similar benefits as a result of the
Transaction, nor will any such transaction accelerate the time of payment or
vesting, or increase the amount of any benefit or other compensation due to, any
individual.
3.26 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. To the
Knowledge of Centrefund and the Shareholder, except as set forth in Section 3.26
of the Target Disclosure Schedule or in the environmental reports listed
thereon, and except as would not be reasonably expected to cause a Material
Adverse Effect on the Target:
(a) The Target Companies have complied and are in
compliance with all applicable Environmental, Health, and Safety
Requirements.
(b) Without limiting the generality of the foregoing, the
Target Companies have obtained and complied with, and are in compliance
with, all permits, licenses and other authorizations that are required
pursuant to Environmental, Health, and Safety Requirements for the use
and occupation of their properties and facilities; a list of all such
material permits, licenses and other authorizations is set forth on
Section 3.26 of the Target Disclosure Schedule.
(c) None of the Target Companies has received any written
notice, report or other information regarding any actual or alleged
violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential Liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to it or its facilities
arising under Environmental, Health, and Safety Requirements.
(d) None of the following exists at any property or
facility owned or operated by the Target Companies: (l) underground
storage tanks, (2) asbestos-containing material in friable form or
condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(e) None of the Target Companies has treated, stored,
disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any
hazardous substance, or owned or operated any property or facility (and
no such property or facility is contaminated by any such substance) in
a manner that has given or could reasonably be expected to give rise to
Liabilities, including any Liability for response costs, corrective
action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Solid
Waste Disposal Act, as amended, or any other applicable Environmental,
Health, and Safety Requirements.
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(f) Neither this Agreement nor the consummation of the
Transaction will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health, and Safety
Requirements.
(g) None of the Target Companies has, either expressly or
by operation of law, assumed or undertaken any Liability, including
without limitation any obligation for any assessment, corrective or
remedial action, of any other Person relating to Environmental, Health,
and Safety Requirements.
(h) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Target Companies
will prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements in all material respects, give rise to
any material investigatory, remedial or corrective obligations pursuant
to Environmental, Health, and Safety Requirements (whether on-site or
off-site), or give rise to any other material liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
3.27 RELATED PARTY TRANSACTIONS. Except for matters related to
the Target Restructuring, the Centrefund Management Arrangements, the Nova
Scotia Loans and the Intercompany Debt, and except as set forth in the Target
Financial Statements and Section 3.27 of the Target Disclosure Schedule, none of
Centrefund, the Shareholder, their Affiliates (other than Equity One and its
Subsidiaries), or any director or employee of any of the foregoing, has been
involved in any material business arrangement or relationship with any of the
Target Companies within the past 6 months, and none of Centrefund, the
Shareholder, their Affiliates (other than Equity One and its Subsidiaries) or
any director or employee of the Target owns, leases, licenses, or otherwise has
any interest in any material asset, tangible or intangible, which is used in the
business of any Target Company, or any material contract, loan, lease or
commitment to which any Target Company is a party.
3.28 INTELLECTUAL PROPERTY. To the Knowledge of Centrefund and
the Shareholder, neither the Shareholder, nor any of the Target Companies has
received any written notice that it is in conflict with or infringing upon the
asserted intellectual property rights of others relating to intellectual
property used by any of the Target Companies.
4. REPRESENTATIONS AND WARRANTIES OF EQUITY ONE.
Equity One represents and warrants to Centrefund and the Shareholder
that the statements contained in this Section 4, as modified or supplemented by
the information set out in the Equity One Disclosure Schedule and the Equity One
Public Filings, are correct and complete as of the date of this Agreement.
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4.1 ORGANIZATION OF EQUITY ONE. Equity One and each of its
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation. Equity One does
not have any Subsidiaries other than those disclosed in the Equity One Public
Filings. Each of Equity One and its Subsidiaries is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where failure to be so authorized or in good
standing would not result in a Material Adverse Effect on Equity One. Equity One
and each of its Subsidiaries has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it,
except where the failure to have such licenses, permits or authorizations would
not result in a Material Adverse Effect on Equity One. All such permits and
licenses are valid and in effect and will be unaffected by the Transaction.
Correct and complete copies of the charters and bylaws of Equity One and each of
its Subsidiaries (as amended to the date of this Agreement) have been made
available to Centrefund and the Shareholder. The minute books (containing the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors), the stock certificate books, and the
stock record books of Equity One and each of its Subsidiaries are correct and
complete in all material respects and true and correct copies thereof have been
made available to Centrefund and the Shareholder. Neither Equity One nor any of
its Subsidiaries is in default under or in violation of any provision of its
charter or bylaws.
4.2 CAPITALIZATION OF EQUITY ONE. As of the date hereof, the
entire authorized capital stock of Equity One consists of 40,000,000, par value
$0.01 per share, shares of Equity One common stock of which 13,011,901 are
issued and outstanding and 5,000,000 shares of preferred stock $.01 par value,
none of which is outstanding. The total capital stock of Equity One, determined
on a fully diluted basis in accordance with GAAP, is set out in the Equity One
Public Filings, as supplemented by Section 4.2 of the Equity One Disclosure
Schedule, together with all details necessary for determining such diluted
capital stock of Equity One (including particulars of the number, issue price
and exercise date of all outstanding options, warrants, purchase rights,
subscription rights, conversion rights and other similar rights). All of the
issued and outstanding common stock of Equity One has been duly authorized, is
validly issued, fully paid, and nonassessable and issued in compliance with all
applicable state and federal laws concerning the issuance of securities. Except
as disclosed in Section 4.2 of the Equity One Disclosure Schedule and in the
Equity One Public Filings, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, pre-emptive rights or other contracts or commitments that could require
Equity One or any of its Subsidiaries to issue, sell, or otherwise cause to
become outstanding any of its capital stock or securities convertible or
exchangeable for, or any options, warrants or rights to purchase, any of such
capital stock. Except as disclosed in Section 4.2 of the Equity One Disclosure
Schedule and in the Equity One Public Filings, there are no (i) outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to Equity One or any of its Subsidiaries, or (ii)
outstanding obligations of Equity One or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any capital stock or any securities convertible or
exchangeable for such capital stock or any options, warrants or rights to
purchase such capital stock or securities.
-21-
4.3 AUTHORIZATION OF TRANSACTION. Equity One has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. The special
committee of Equity One's board of directors, formed for the purpose of
considering this Transaction has, upon consultation with its financial and legal
advisors, determined that this Transaction is fair from a financial point of
view to the shareholders of Equity One, other than Gazit-Globe (1982) Ltd. and
its Affiliates, and that it will recommend that Equity One's shareholders
approve the issuance of the Purchase Price Shares pursuant to the terms of this
Agreement. This Agreement constitutes the valid and legally binding obligation
of Equity One, enforceable in accordance with its terms and conditions except to
the extent enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or by the principles governing the availability
of equitable remedies. The Purchase Price Shares are not subject to any
pre-emptive or other rights of any stockholders and, when issued in accordance
with the terms hereof, will be validly issued, fully paid and non-assessable and
will be free of encumbrances, save and except that the Purchase Price Shares may
be subject to restrictions or transfer under applicable state and/or federal
securities laws. Equity One need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency or any other Person, other than the approval of the
shareholders of Equity One of the issuance of the Purchase Price Shares, in
order to consummate the Transaction.
4.4 RECEIPT OF FAIRNESS OPINION. Equity One's board of
directors has received an opinion from its financial advisor that the
Transaction is fair from a financial point of view to the Equity One
shareholders other than Gazit-Globe (1982) Ltd. and its Affiliates.
4.5 NONCONTRAVENTION. Except as set forth in Section 4.5 of
the Equity One Disclosure Schedule or in the Equity One Public Filings, and
subject to the approval of the shareholders of Equity One of the issuance of the
Purchase Price Shares, neither the execution and delivery of this Agreement, nor
the consummation of the Transaction, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which any Equity
One Company is subject or violate any provision of the charter or bylaws of any
Equity One Company, or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, loan, note, mortgage, lease, license, instrument, or other
arrangement to which any Equity One Company is a party or by which any Equity
One Company is bound or to which any of its respective assets is subject (or
result in the imposition of any Security Interest upon any of its assets), save
and except where any such conflict, breach, default, contravention,
acceleration, termination, cancellation or modification will have been waived,
cured or otherwise consented to or will not result in a Material Adverse Effect
on Equity One.
4.6 BROKERS' FEES. No Equity One Company is obligated to pay
any fees or commissions to any broker, finder, or agent with respect to the
Transaction.
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4.7 DISCLOSURE. Neither this Agreement nor any of the
Exhibits, Schedules, attachments, written statements, documents, certificates or
other items prepared for or supplied to Centrefund, the Shareholder or the
Target by Equity One in connection with this Agreement, nor any of its Public
Filings (as of their respective filing dates), contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
each statement contained herein or therein not misleading. There is no fact
which Equity One has not disclosed in such documents of which Equity One is
aware and which could reasonably be anticipated to have a Material Adverse
Effect on Equity One after the Closing. Equity One has filed all forms,
schedules, statements, information, proxy circulars, reports and other documents
required to be filed by it since its inception pursuant to all applicable
Governmental Requirements, including all federal securities laws, the Securities
Act and the regulations thereunder, except for any non-compliance which would
not reasonably be expected to result in a Material Adverse Effect on Equity One.
All of Equity One's Public Filings were, as of the date of their filing, in
material compliance with all Governmental Requirements and no portion of the
Public Filings (including, without limitation, any financial statements or
schedules therein) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, as at the date of their dissemination. Notwithstanding anything
to the contrary in this Agreement, (i) the representations and warranties made
by Equity One in this Agreement do not cover or relate to any financial models
or projections provided by Equity One or any Affiliate of Equity One at the
request of Centrefund, Shareholder, Target or any of their respective advisors,
and (ii) neither Equity One nor any director, officer, employee, representative
or controlling person shall be responsible for any loss or damage resulting
therefrom.
4.8 INVESTMENT. Equity One (A) understands that the offer and
sale of the Target Shares have not been, and will not be, registered under the
Securities Act, or under any state or provincial securities laws, and that such
shares and are being offered and sold in reliance upon federal, state and
provincial exemptions for transactions not involving any public offering, (B) is
acquiring such Target Shares solely for its own account for investment purposes,
and not with a view to the distribution thereof, (C) has received certain
information concerning the Target and has had the opportunity to obtain such
additional information as it desired in order to evaluate the merits and the
risks inherent in the acquisition and ownership of the Target Shares, (D) is
able to bear the economic risk and lack of liquidity inherent in holding the
Target Shares, and (E) is an Accredited Investor.
4.9 LITIGATION. Except as disclosed in Section 4.9 of the
Equity One Disclosure Schedule or in the Equity One Public Filings, there is no
injunction, judgment, order, decree, ruling, or charge, or any claim, action,
suit, arbitration, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction which is pending, or to the Knowledge of Equity One,
threatened against or involving any Equity One Company or any property or rights
of any Equity One Company that, individually or in the aggregate, if adversely
determined, would result in a Material Adverse Effect on Equity One. Equity One
has no Knowledge of the existence of any grounds for any such action, suit,
proceeding, hearing, or investigation which, if brought or initiated, would
reasonably be expected to have a Material Adverse Effect on Equity One.
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4.10 UNDISCLOSED LIABILITIES. Except (i) as provided for or
reserved against in the Equity One Financial Statements, (ii) for Liabilities
incurred in the Ordinary Course of Business (none of which results from, arises
out of, relates to, or is in the nature of, or was caused by any breach of any
contract, tort, infringement or violation of law which could reasonably be
expected to result in a Material Adverse Effect on Equity One), and (iii) as
disclosed in the Equity One Public Filings, Equity One does not have any
material Liabilities.
4.11 LISTING OF EQUITY ONE SHARES. All outstanding shares of
the Common Stock have been listed and approved for trading on the NYSE and no
actions or proceedings have been taken or are pending or to the Knowledge of
Equity One, threatened which could result in the de-listing of the Common Stock
from the NYSE.
4.12 REAL PROPERTY.
(a) All of the real property owned by the Equity One
Companies (the "EQUITY ONE OWNED PROPERTY") is disclosed in the Equity
One Public Filings, as supplemented by EXHIBIT D. All of the real
property leased (or subleased) to the Equity One Companies (the "EQUITY
ONE LEASED PROPERTY") is disclosed in the Equity One Public Filings, as
supplemented by EXHIBIT D. The Equity One Owned Property and the Equity
One Leased Property is together referred to herein as the EQUITY ONE
REAL PROPERTY. With respect to those properties listed on EXHIBIT D,
the name of the applicable owner or lessee is also provided.
(b) Each of the Equity One Companies indicated in the
Equity One Public Filings or on EXHIBIT D has good and marketable title
to the applicable Equity One Owned Property and valid leasehold
interests in the applicable Equity One Leased Property in the
percentages indicated. Except as set forth in the Equity One Public
Filings or Section 4.12 of the Equity One Disclosure Schedule, all such
interests are free and clear of all Security Interests.
(c) Except as set forth in the Equity One Public Filings or
Section 4.12 of the Equity One Disclosure Schedule, there are no unpaid
charges, debts, liabilities, claims or obligations arising from the
construction, occupancy, ownership, use or operation of the Equity One
Real Property which could give rise to any Security Interests.
(d) All buildings, structures, improvements and
appurtenances located on the Equity One Real Property are in good
operating condition and repair in all material respects and do not
encroach in any material respect on any property not owned by an Equity
One Company or violate any Governmental Requirements in any material
respect.
(e) Except as disclosed in the Equity One Public Filings or
Section 4.12 of the Equity One Disclosure Schedule, no Person has any
right or option to purchase or acquire from any Equity One Company any
of the Equity One Real Property.
4.13 SUBSIDIARIES AND JOINT VENTURES. Section 4.13 of the
Equity One Disclosure Schedule sets forth (other than those disclosed in the
Equity One Public Filings) a list
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of all of the Subsidiaries of Equity One and entities in which Equity One or any
of its Subsidiaries has an equity interest (including all joint ventures), the
jurisdictions of formation of each Subsidiary and joint venture, and the
percentage interest of Equity One in each Subsidiary and joint venture. To the
extent any such entity is not wholly owned by Equity One or any Subsidiary, the
names and interests of such other owners are also listed. Correct and complete
copies of all agreements forming or governing any entity in which Equity One has
an equity interest have been made available to Centrefund and the Shareholder.
4.14 FINANCIAL STATEMENTS. The Equity One Financial Statements
(including the related notes thereto) comply in all material respects with
applicable accounting requirements and the published rules of the SEC with
respect thereto and have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as otherwise
stated therein), and present fairly the consolidated financial position of
Equity One and its Subsidiaries as of such dates and the consolidated results of
operations of Equity One and its Subsidiaries for such periods.
4.15 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except
for entering into this Agreement, the Transactions contemplated hereby, any
matters disclosed in the Equity One Public Filings or Section 4.15 of the Equity
One Disclosure Schedule, since December 31, 2000:
(a) no Equity One Company has sold, leased, transferred, or
assigned any of its assets, tangible or intangible, outside its
Ordinary Course of Business, other than transactions that have not had
and would not reasonably be expected to have a Material Adverse Effect,
on Equity One;
(b) no Equity One Company has entered into any agreement,
contract, lease or license outside its Ordinary Course of Business,
other than transactions that have not had and would not reasonably be
expected to have a Material Adverse Effect on Equity One;
(c) no Person has accelerated, terminated, made material
modifications to, or cancelled any agreement, contract, lease or
license of any Equity One Company, other than transactions which,
individually or in the aggregate, have not had and would not reasonably
be expected to have a Material Adverse Effect on Equity One;
(d) no Equity One Company has made, outside its Ordinary
Course of Business, any capital investment in, any loan to (excluding
interest accrued on Equity One Existing Debt) or any acquisition of the
securities or assets of, any other Person, other than transactions that
have not had and would not reasonably be expected to have a Material
Adverse Effect on Equity One;
(e) except for the Equity One Existing Debt and any
borrowings for working capital incurred in the Ordinary Course of
Business (including refinancing of mortgage debt) and debt incurred in
connection with acquisitions of Real Property, no Equity One Company
has issued any note, bond, or other debt security or created,
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incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation or otherwise;
(f) no Equity One Company has made any loan to, or entered
into any other material transaction with, any of its direct or indirect
shareholders, directors, officers, and employees;
(g) no Equity One Company has made or pledged to make any
charitable or other contribution outside its Ordinary Course of
Business;
(h) no Equity One Company has issued, sold, or otherwise
disposed of any of its capital stock or securities convertible into or
exchangeable for such stock, or granted any options, warrants, or other
rights to purchase or obtain any of such capital stock or securities,
except in the Ordinary Course of Business;
(i) no Equity One Company has committed to do any of the
foregoing; and
(j) there has not been any other occurrence, change, event,
incident, action, failure to act, or transaction which would reasonably
be expected to result in a Material Adverse Effect on Equity One.
4.16 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND NO
INSOLVENCY. The Equity One Companies have complied with applicable Governmental
Requirements except for any non-compliance which would not reasonably be
expected to result in a Material Adverse Effect on Equity One. No bankruptcy,
insolvency or receivership proceedings have been instituted or threatened
against any of the Equity One Companies.
4.17 TAX MATTERS.
(a) The Equity One Companies have filed all Tax Returns
that they were required to file. All Taxes owed by the Equity One
Companies (whether or not shown on any Tax Return and whether or not
any Tax Return was required) have been paid. No claim has ever been
made by a taxing authority in a jurisdiction where the Equity One
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no liens on any of the assets
of the Equity One Companies that arose in connection with any failure
(or alleged failure) to pay any Tax, except for liens for Taxes not yet
due. The Equity One Companies have not entered into any closing
agreement with any federal, state, local or foreign taxing authority.
(b) The Equity One Companies have withheld and paid in all
material respects all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) There is no dispute or claim concerning any Tax
Liability of any Equity One Company either (i) claimed or raised by any
taxing authority in writing or
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(ii) as to which any of the Equity One Companies has Knowledge. Section
4.17(c) of the Equity One Disclosure Schedule lists all federal, state,
local and foreign income Tax Returns that currently are the subject of
audit or in respect of which any written or unwritten notice of any
audit or examination has been received by the Equity One Companies.
Equity One has made available to Centrefund and the Shareholder correct
and complete copies of all Federal Income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by
the Equity One Companies since December 31, 1996.
(d) Except as disclosed in Section 4.17(d) of the Equity
One Disclosure Schedule, the Equity One Companies have not waived any
statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency.
(e) The Equity One Companies have not filed a consent under
Section 341(f) of the Code concerning collapsible corporations. Except
as disclosed in Section 4.17(e) of the Equity One Disclosure Schedule,
the Equity One Companies have not made any payments, are not obligated
to make any payments and are not a party to any agreement that under
certain circumstances could obligate them to make any payments that
will not be deductible under Section 280G of the Code or that would
give rise to any obligation to indemnify any Person for any excise tax
payable pursuant to Section 4999 of the Code. Equity One is a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code. No Equity One Company is a party to a lease
arrangement involving a defeasance of rent, interest or principal. No
Equity One Company is a party to any Tax allocation or sharing
agreement. Equity One (i) has not been a member of an Affiliated Group
filing a consolidated Federal Income Tax Return and (ii) has no
Liability for the Taxes of any Person under Treasury regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), as
a transferee or successor, by contract or otherwise.
(f) No Equity One Company shall be required to include in a
taxable period ending after the Closing Date taxable income
attributable to income that accrued in a prior taxable period but was
not recognized in any prior taxable period as a result of the
installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash
method of accounting or Section 481 of the Code or any comparable
provision of state, local or foreign tax law.
(g) Equity One has in effect a valid election to be treated
as a "real estate investment trust" within the meaning of Section 856
of the Code (a "REIT") and satisfies all of the requirements under the
Code to qualify as a REIT. To the Knowledge of Equity One, the
transactions contemplated under this Agreement shall not result in the
termination or revocation of such election or otherwise cause Equity
One to cease to be treated as a REIT.
(h) Equity One will acquire all of the Target Shares solely
in exchange for voting stock of Equity One. For purposes of this
representation, Target Shares
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redeemed for cash or other property furnished by Equity One will be
considered as acquired by Equity One. Further, no liabilities of the
Target, the Shareholder or any other Person will be assumed by Equity
One in connection with this Transaction, nor will any of the Target
Shares be subject to any liabilities. Equity One is not an investment
company within the meaning of Section 368(a)(2)(F)(iii) or (iv) of the
Code. Equity One has no present plan or intention to (i) reacquire any
of the Purchase Price Shares or (ii) to dispose of the Target Shares
acquired pursuant to this Agreement to a Person with whom the
Shareholder deals at arm's length (other than a person that is a
"foreign affiliate" of the Shareholder within the meaning of that term
under the Income Tax Act (Canada)).
4.18 PERSONAL PROPERTY ASSETS. All machinery, equipment, and
other tangible assets owned by the Equity One Companies and situated on the
Equity One Real Property have been maintained in accordance with normal industry
practice and are in good operating condition and repair (subject to normal wear
and tear).
4.19 CONTRACTS. All of the material contracts and agreements
to which any of the Equity One Companies is a party (the "EQUITY ONE MATERIAL
CONTRACTS") are legal, valid, binding, enforceable, and in full force and
effect. Each of the Equity One Companies has performed its obligations under the
Equity One Material Contracts in all material respects. To the Knowledge of
Equity One, no other party is in breach or default in any material respect, and
no event has occurred which with notice or lapse of time or both would
constitute a material breach or default, or permit termination or acceleration,
under any Equity One Material Contract.
4.20 EXISTING DEBT. EXHIBIT E lists all existing indebtedness
(other than that disclosed in the Equity One Public Filings) of the Equity One
Companies in connection with borrowings and the balances outstanding, as of the
most recent practicable date (the "EQUITY ONE EXISTING DEBT").
4.21 INSURANCE. The Equity One Companies and the Equity One
Real Property are insured against loss or damage and such other risks and in
such amounts as are reasonable for prudent owners of comparable assets or
businesses, and such insurance is in full force and effect and will continue
until Closing. The Equity One Companies are not in default in any material
respect under any of the provisions contained in such insurance policies.
4.22 EMPLOYEE BENEFITS. Section 4.22 of the Equity One
Disclosure Schedule sets forth (other than those disclosed in the Equity One
Public Filings) each Employee Benefit Plan sponsored or maintained by Equity One
or any ERISA Affiliate of Equity One or to which Equity One or any of its ERISA
Affiliates contribute or in which employees of Equity One or any of its ERISA
Affiliates participate. Each Employee Benefit Plan complies in all material
respects with all requirements of ERISA and the Code and with all other
applicable law and has been operated and administered in compliance with its
terms in all material respects. Each Employee Benefit Plan intended to qualify
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service as to its qualification under such Section
401(a) and to the Knowledge of Equity One and its ERISA Affiliates nothing has
occurred which could result in loss of such qualification. Neither Equity One
nor any ERISA Affiliate of Equity One (i) maintains, sponsors or contributes to,
or has maintained, sponsored or contributed in the
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past six years to, any "defined benefit plan" (within the meaning of Section
3(35) of ERISA) or any Multiemployer Plan, or (ii) maintains or contributes, or
has ever been required to maintain or contribute any Employee Welfare Benefit
Plan providing medical, health, life insurance or other welfare-type benefits to
former, retired or terminated employees, their spouses or dependents except as
specifically required under Section 4980B of the Code or Section 601 of ERISA.
Other than claims in the ordinary course for benefits, there are no actions,
suits or claims pending with respect to any Employee Benefit Plan, or, to the
Knowledge of Equity One and each of its ERISA Affiliates, any circumstances
which might give rise to any such action, suit or claim.
4.23 EQUITY ONE LABOR MATTERS. Except as disclosed in Section
4.23 of the Equity One Disclosure Schedule or the Equity One Public Filings,:
(a) No Equity One Company has amended any employment
agreement outside its Ordinary Course of Business.
(b) Equity One is not a party to any written or oral
agreement providing for severance or termination payments to any
director, officer or employee as a result of the Transaction.
(c) No promise or commitment to increase the benefits under
any Employee Benefit Plan or to adopt any additional Employee Benefit
Plan has been made except as required by law.
(d) No event has occurred which could subject any Person or
fund to any tax, penalty or fiduciary liability in connection with any
Employee Benefit Plan where such tax, penalty or fiduciary liability
would reasonably be expected to result in a Material Adverse Effect on
Equity One.
4.24 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Except as
otherwise set forth in the Equity One Disclosure Schedule or the Equity One
Public Filings, and except as would not be reasonably expected to cause a
Material Adverse Effect on Equity One:
(a) The Equity One Companies have complied and are in
compliance with all applicable Environmental, Health, and Safety
Requirements.
(b) Without limiting the generality of the foregoing, the
Equity One Companies have obtained and complied with, and are in
compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements
for the use and occupation of their properties and facilities; a list
of all such permits, licenses and other authorizations is set forth on
Section 4.24(b) of the Equity One Disclosure Schedule.
(c) None of the Equity One Companies has received any
written notice, report or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or
any Liabilities or potential Liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including
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any investigatory, remedial or corrective obligations, relating to it
or its facilities arising under Environmental, Health, and Safety
Requirements.
(d) None of the following exists at any property or
facility owned or operated by the Equity One Companies: (l) underground
storage tanks, (2) asbestos-containing material in friable form or
condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(e) None of the Equity One Companies has treated, stored,
disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any
hazardous substance, or owned or operated any property or facility (and
no such property or facility is contaminated by any such substance) in
a manner that has given or could reasonably be expected to give rise to
liabilities, including any Liability for response costs, corrective
action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Solid
Waste Disposal Act, as amended, or any other applicable Environmental,
Health, and Safety Requirements.
(f) Neither this Agreement nor the consummation of the
Transaction result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health, and Safety
Requirements.
(g) None of the Equity One Companies has, either expressly
or by operation of law, assumed or undertaken any liability, including
without limitation any obligation for any assessment, corrective or
remedial action, of any other Person relating to Environmental, Health,
and Safety Requirements.
(h) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Equity One
Companies will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements in all material
respects, give rise to any material investigatory, remedial or
corrective obligations pursuant to Environmental, Health, and Safety
Requirements (whether on-site or off-site), or give rise to any other
material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental, Health, and
Safety Requirements, including without limitation any relating to
onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or
natural resources damage.
4.25 RELATED PARTY TRANSACTIONS. Except as set forth in the
Equity One Financial Statements, the Equity One Public Filings or Section 4.25
of the Equity One Disclosure Schedule, no Equity One Company, their Affiliates
(other than Centrefund and its Subsidiaries) or any of their directors or
employees is, or has been within the past six months, involved in any material
business arrangement or relationship with any of the Equity One Companies or
their
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Affiliates (other than Centrefund and its Subsidiaries), and no Equity One
Company, their Affiliates (other than Centrefund and its Subsidiaries) or any of
their directors or employees owns, leases, licenses, or otherwise has any
interest in any material asset, tangible or intangible, which is used in the
business of any Equity One Company or their Affiliates or any material contract,
loan, lease or commitment to which any Equity One Company or their Affiliates is
a party.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
5.1 DELIVERY OF FINANCIAL STATEMENTS. (a) The Shareholder and
Centrefund covenant and agree to deliver to Equity One unaudited consolidated
balance sheets and statements of income, changes in stockholders' equity, and
cash flow of the Target (the "MOST RECENT FINANCIAL STATEMENTS") (i) as of and
for the three months ended March 31, 2001 as soon as practicable after the date
hereof, but in no event later than June 15, 2001 and, (ii) if the Closing has
not occurred by June 30, 2001, as of and for the six months ended June 30, 2001,
as soon as practicable but in no event later than September 1, 2001. By delivery
thereof, Centrefund and Shareholder represent and warrant hereunder, with the
same force and effect as though such representation and warranty was made
pursuant to Section 3 hereof, that the Most Recent Financial Statements have
been prepared in accordance with GAAP and in all material respects present
fairly the consolidated financial position of the Target as of such dates,
subject to normal year-end adjustments.
(b) Equity One covenants and agrees to deliver to Centrefund
all pro forma financial statements and all audited consolidated financial
statements which it intends to include with its proxy statement and form of
proxy to be mailed to Equity One's stockholders in connection with the meeting
to consider the Transaction (the "PROXY FINANCIAL STATEMENTS") as soon as
practicable after the date hereof, but in no event later than June 15, 2001. By
delivery thereof, Equity One represents and warrants hereunder, with the same
force and effect as though such representation and warranty was made pursuant to
Section 4 hereof, that the Proxy Financial Statements, except with respect to
information and numbers provided by Centrefund, the Shareholder or their agents,
and except with respect to the pro forma financial data, have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the consolidated financial position of Equity
One as of such dates, subject to normal year-end adjustments.
(c) Equity One covenants and agrees to deliver to Centrefund
its pro forma financial statements for the year ended December 31, 2000 and the
period March 31, 2001, reconciled to Canadian GAAP, as soon as practicable after
the date hereof, but in no event later than June 15, 2001, which reconciliation
shall be prepared at the expense of Centrefund.
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5.2 GENERAL. Each of the Parties will use its commercially
reasonably efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the Transaction (including
satisfaction, but not waiver, of the closing conditions set forth in Section 7
below) and to maintain the truth and accuracy of its representations and
warranties hereunder. Without limiting the generality of the foregoing, each of
the Parties agrees to deliver such customary representations as the other
Party's counsel may reasonably require for the purposes of delivering the
opinions contemplated by Sections 7.1(o) and 7.2(m).
5.3 SHAREHOLDER MEETINGS. Equity One agrees to hold a meeting
of its shareholders to consider and approve the issuance of the Purchase Price
Shares pursuant to the terms of this Agreement and Centrefund agrees to call a
meeting of its eligible shareholders for the purpose of obtaining the Centrefund
Approval, and, in that regard, each agrees to mail to its shareholders all
circulars and other materials necessary to hold a meeting as soon as reasonably
practicable, but in no event later than August 27, 2001. Each of Centrefund and
Equity One also agrees to provide the other with drafts of all circulars, proxy
statements, forms of proxy, and shareholder communications relating to this
Transaction prior to the mailing thereof, on a confidential basis, and to
provide the other party with a reasonable opportunity to review and provide
comments thereon on a confidential basis. The proxy statement and form of proxy
delivered by each of Equity One and Centrefund to their respective stockholders
shall include the recommendation by the Equity One special committee of the
issuance of the Purchase Price Shares pursuant to the terms of this Agreement
and of the Centrefund board of directors in favor of the Transaction unless
otherwise required by their applicable fiduciary duties, as determined by such
directors in good faith after consultation with and receipt of written advice
from reputable and experienced outside legal counsel.
5.4 NOTICES AND CONSENTS. The Parties will cooperate to
identify all necessary and appropriate notices and consents of third parties
required to be given or obtained in connection with the Transaction. Each Party
will give all notices and use commercially reasonable efforts to obtain (or
cause to be obtained) all consents which the other Party reasonably requests
that it give or obtain from time to time. The Parties agree to share all costs
incurred in connection with the foregoing. The Parties will use commercially
reasonable efforts to obtain, prior to June 15, 2001, any consents relating to
the Nova Scotia Loans as may be required in order to effect the Target
Restructuring.
5.5 OPERATION OF BUSINESS BY EQUITY ONE. Equity One will, and
will cause the Equity One Companies to use commercially reasonable efforts to,
keep their businesses, properties, business organizations and goodwill
substantially intact, including their present operations, physical facilities,
working conditions, and relationships with lessors, tenants, licensors,
suppliers, developers, customers, and employees, except to the extent that
failing to do so would not reasonably be expected to result in any Material
Adverse Effect on Equity One. Without limiting the generality of the foregoing,
except as specifically contemplated in this Agreement, or otherwise approved in
advance by Centrefund, which approval will not be unreasonably withheld, Equity
One will not, and will not cause or permit any other Equity One Company to,
engage in any practice, take any action, or enter into any transaction to:
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(a) except in its Ordinary Course of Business, redeem,
purchase, or otherwise offer to purchase or acquire any of its capital
stock or otherwise take any action or enter into any transaction of the
sort described in Section 4.15 (Events Subsequent to Most Recent Fiscal
Year End);
(b) except in its Ordinary Course of Business, amend or
propose to amend its formation documents, by-laws, existing option
plans or the terms of any outstanding options, warrants, calls,
conversion privileges or rights of any kind to acquire capital stock;
(c) except as disclosed in the Equity One Public Filings,
issue, sell, pledge, lease, transfer, mortgage, hypothecate, dispose
of, grant any interest in, encumber or agree to issue, sell, pledge,
lease, dispose of, grant any interest in or encumber:
(i) any additional shares of, or any options,
warrants, calls, conversion privileges or rights of any kind
to acquire any unit shares of any capital stock or any other
securities of any of the Equity One Companies other than (A)
the issuance of stock options consistent with past practices
and within the limits set forth in its existing incentive
plans, (B) the grant of restricted stock consistent with past
practices, (C) the issuance of shares upon the exercise of
outstanding stock option, warrants and restricted stock
agreements, as well as pursuant to Equity One's dividend
reinvestment and stock purchase plans disclosed in the Equity
One Public Filings and (D) the issuance of shares pursuant to
currently existing agreements disclosed in the Equity One
Public Filings.
(ii) any assets or properties, real, personal or
mixed, moveable or immovable, of any of the Equity One
Companies, outside its Ordinary Course of Business;
(d) split, combine or reclassify any of its outstanding
shares or other securities, as applicable;
(e) declare, set aside or pay any dividend or other
distribution payable in cash, shares, stock, property or otherwise,
except for quarterly distributions to shareholders consistent with its
dividend policy and past practices (which dividends equaled $.26 per
share of Common Stock in the last quarter);
(f) reorganize, amalgamate or merge any Equity One Company
with any other Person;
(g) except for commitments listed on Section 5.5(g) of the
Equity One Disclosure Schedule, incur or commit to incur any
indebtedness for borrowed money or assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any other
Person, or issue or sell any debt securities or grant any security of
any material assets except for the borrowing of working capital in its
Ordinary Course of
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Business (including through the refinancing of mortgage debt) and the
incurrence of indebtedness in connection with acquisitions of Real
Property; or
(h) enter into, or agree to enter into, any transaction
which is material to Equity One, including any material acquisition of
all of the stock or substantially all of the assets of another Person,
whether by merger or otherwise.
5.6 OPERATION OF BUSINESS BY TARGET. Centrefund and the
Shareholder will cause the Target Companies to use commercially reasonable
efforts to keep their businesses, properties, business organizations and
goodwill substantially intact, including their present operations, physical
facilities, working conditions, and relationships with lessors, tenants,
licensors, suppliers, developers, customers, and employees, except to the extent
that failing to do so would not reasonably be expected to result in any Material
Adverse Effect on the Target. Without the limiting the generality of the
foregoing, except in connection with the Target Restructuring or as otherwise
specifically contemplated in this Agreement or as approved in advance by Equity
One, which approval will not be unreasonably withheld, Centrefund and the
Shareholder will not cause or permit any Target Company to engage in any
practice, take any action, or enter into any transaction to:
(a) issue, redeem, purchase, or otherwise acquire any of
its capital stock or otherwise take any action or enter into any
transaction of the sort described in Section 3.14 (Events Subsequent to
Most Recent Fiscal Year End);
(b) amend or propose to amend its constating documents or
by-laws;
(c) issue, sell, pledge, lease, transfer, mortgage,
hypothecate, dispose of, grant any interest in, encumber or agree to
issue, sell, pledge, lease, dispose of, grant any interest in or
encumber:
(i) any additional shares of, or any options,
warrants, calls, conversion privileges or rights of any kind
to acquire any unit shares of any capital stock or any other
securities of any of the Target Companies; or
(ii) any assets or properties, real, personal or
mixed, moveable or immovable, of any of the Target Companies;
(d) split, combine or reclassify any of its outstanding
shares or other securities, as applicable;
(e) declare, set aside or pay any dividend or other
distribution payable in cash, shares, stock or property except for any
dividends, distributions or other payments made to Centrefund, the
Shareholder or any of their Affiliates (other than Subsidiaries of the
Target) which, in the aggregate, together with all such distributions
made from and after January 1, 2001, do not exceed the amounts
permitted to be distributed pursuant to Article 9 of this Agreement;
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(f) reorganize, amalgamate or merge any Target Company with
any other Person;
(g) except for commitments listed on Section 5.6(g) of the
Target Disclosure Schedule, incur or commit to incur any indebtedness
for borrowed money or assume, guarantee, endorse or otherwise become
liable or responsible for the obligations of any other Person, or issue
or sell any debt securities or grant any security of any material
assets except for the borrowing of working capital in its Ordinary
Course of Business (including through the refinancing of mortgage debt
which has matured) and the incurrence of indebtedness in connection
with acquisitions of Real Property; or
(h) enter into, or agree to enter into, any transaction
which is material to the Target, including any material acquisition of
all of the stock or substantially all of the assets of another Person,
whether by merger or otherwise.
5.7 CDG WINDUP. The Parties acknowledge that CDGI, CDGII and
Cashmere Developments, Inc. are in the process of being dissolved or wound up.
Centrefund and Shareholder agree to keep Equity One apprised of the actions
being taken with respect to the CDG Windup. Centrefund and Shareholder agree not
to take any actions, or cause the Target Companies to take any actions, relating
to the sale of CGDI, CDGII or Cashmere Developments Inc. or any of their
properties, without the prior written consent of Equity One, which consent will
not be unreasonably withheld or delayed; provided, however, that actions
pursuant to and permitted by the Memorandum of Agreement between Centrefund and
North American Development Corporation, dated September 15, 1997, as amended on
September 9, 1999, may be taken without the prior written consent of Equity One.
5.8 FULL ACCESS. Centrefund and the Shareholder will permit,
and will cause the Target to permit, representatives of Equity One to have full
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of the Target, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to the Target. Equity One will permit representatives of
Centrefund and the Shareholder to have full access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of Equity
One, to all premises, properties, personnel, books, records (including Tax
records), contracts, and documents pertaining to Equity One.
5.9 NOTICE OF DEVELOPMENTS. Each Party will give prompt
written notice to the other parties of any breach of any of its own
representations, warranties or covenants under this Agreement. No disclosure by
any Party pursuant to this Section 5.9, however, shall be deemed to amend or
supplement the Exhibits or any Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
5.10 EXCLUSIVITY. Each of the Shareholder, the Target and
Equity One agrees that it will not (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of any Target Company or Equity One Company (including any
acquisition
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structured as a merger, consolidation, or share exchange), or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing; provided
that Equity One may continue discussions with respect to acquisitions of the
capital stock or assets of other public companies provided that Equity One shall
not enter into any such transaction without the prior written consent of
Centrefund, which consent shall not be unreasonably withheld. Each Party will
notify the other party immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
5.11 TARGET RESTRUCTURING. Centrefund and Shareholder will
consult with Equity One regarding the actions contemplated to effect the Target
Restructuring and will use best efforts to cause the Target Restructuring to be
completed prior to the Closing.
5.12 UNDISTRIBUTED REIT EARNINGS AND PROFITS. Thirty days
before the anticipated Closing Date, Centrefund and Shareholder shall deliver to
Equity One a report of its independent public accountants setting forth the
computation of the relevant earnings and profits of the Target Companies. The
Parties shall then agree upon an estimate of the amount of distributions that
Target and the other Target Companies would be required to make on or prior to
the Closing Date such that none of the Target Companies would have any earnings
and profits for U.S. federal income tax purposes as of the Closing Date (the
"E&P Estimate"). Prior to the Closing Date, Centrefund and the Shareholder will
cause (i) each of the Target Companies, other than the Target, that has earnings
and profits to distribute an amount such that it will not have any earnings and
profits (including earnings and profits, if any, that arise as a result of any
distributions received pursuant to this sentence) for U.S. federal income tax
purposes as of the Closing Date and (ii) Target to distribute to Shareholder an
amount that is no less than the amount of the E&P Estimate. All distributions
pursuant to Article 9 hereof, to the extent they result in net reductions of
earnings and profits, shall be treated as distributions made pursuant to this
Section 5.12.
5.13 PRESS RELEASE. The Parties also agree to jointly issue a
press release immediately after the execution of this Agreement, in a mutually
agreeable form, announcing the Transaction and the entering into of this
Agreement. Without limiting the foregoing, the Parties agree to consult with
each other in issuing any press releases or making any other public
communications or statements in respect of this Agreement or the Transaction.
6. POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
6.1 NYSE LISTING. Equity One will use its commercially
reasonable efforts to maintain the listing of the outstanding Common Stock on
the NYSE.
6.2 GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement or
any Party requires any information in connection with preparing its financial
statements, satisfying its obligations under the applicable Governmental
Requirements (including applicable securities laws), or filing a
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prospectus or other offering document with any regulatory authority in
connection with an offering of securities, each of the Parties will provide such
information (including financial statements) and take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party may reasonably request, all at the sole cost and expense of
the requesting Party (subject to Section 11 and unless the requesting Party is
entitled to indemnification therefor under Section 8 below). Centrefund and the
Shareholder acknowledge and agree that from and after the Closing, Equity One
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Target, and
Equity One will provide Centrefund and Shareholder with such access as
Centrefund or the Shareholder may reasonably require from time to time to such
documents, books and records for tax or corporate compliance purposes or for the
purposes of complying with their obligations hereunder (including their
obligations under Section 6.7).
6.3 LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) the Transaction or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving the
Target, each of the other Parties will cooperate with it and its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary or desirable in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 8 below).
6.4 TRANSITION. Neither Centrefund nor the Shareholder will
take any action that is designed, intended or likely to have the effect of
discouraging any lessor, tenant, licensor, customer, developer, supplier, or
other business associate of the Target or any of its Subsidiaries from
maintaining the same business relationships with the Target and its Subsidiaries
after the Closing as it maintained with them prior to the Closing. Centrefund
and the Shareholder will promptly refer all customer inquiries relating to the
businesses of the Target Companies to Equity One from and after the Closing.
6.5 CONFIDENTIALITY. Subject to compliance with applicable
law, the Parties and their agents will treat and hold as such all of the
Confidential Information provided or made available by the other Parties,
refrain from using any such Confidential Information except in connection with
this Agreement, and if the Transaction is terminated, deliver promptly to the
other, or destroy, at the request and option of the other Party, all tangible
embodiments (and all copies) of such Confidential Information which are in their
possession or to which any of them has access. In the event that any Party is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, such Party will
notify the other Party promptly of the request or requirement so that such other
Party may seek an appropriate protective order or waive compliance with the
provisions of this Section 6.5. If, in the absence of a protective order or the
receipt of a waiver hereunder, either Party is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else stand
liable for contempt, such Party may disclose the Confidential Information to the
tribunal;
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provided, however, that such Party shall use its commercially reasonable efforts
to obtain, at the reasonable request of the other Party, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Party shall designate.
The foregoing provisions shall not apply to any Confidential Information which
is generally available to the public immediately prior to the time of
disclosure.
6.6 INDEPENDENT ACCOUNTANTS. After the Closing, each Party
shall, at the request of any other Party (i) authorize the Target's past and
present independent auditors and accounting personnel to make available to such
other Party and its representatives, all financial information, including to
permit such other Party's representatives to examine all working papers
pertaining to audits or reviews previously or hereafter made by such auditors,
and (ii) provide such reasonable cooperation as such other Party and its
representatives may request in connection with any audit or review of any of the
Target Companies that it may direct its representatives to make. Without
limiting the generality of the foregoing, Shareholder agrees that it will
cooperate with, and direct the Target's past and present independent auditors,
accounting personnel and other necessary persons to cooperate with Equity One in
the preparation of any documents filed by Equity One with the U.S. Securities
and Exchange Commission, to the extent information about the Target is required
therein.
6.7 TAX MATTERS. Centrefund and the Shareholder covenant and
agree not to take any action, or fail to take any action, if that action or
inaction would have an adverse effect on Equity One on or after the Closing Date
with respect to Corporate Taxes, including, without limitation, (i) amending or
otherwise supplementing any Tax Return or report of any of the Target Companies
with respect to any period prior to the Closing Date without the consent of
Equity One or (ii) causing the Transaction to fail to constitute a
reorganization within the meaning of Section 368(a) of the Code (including, but
not limited to, causing the Target to distribute assets (whether or not
otherwise permitted pursuant to this Agreement) so that as of the Closing Date
the Target holds less than "substantially all" of its assets, as that term has
been defined by the U.S. Treasury Department). Equity One will make the election
described in Treasury Regulation Section 1.337(d)-5T(b)(3) with respect to the
assets owned by the Target Companies in a timely manner prior to the Closing.
6.8 REIT STATUS. Equity One covenants and agrees to use
commercially reasonable efforts to operate in a manner that will not cause it to
be classified other than as a REIT.
6.9 Canadian GAAP Financial Statements. Equity One agrees that
for so long as the Shareholder and/or Centrefund directly or indirectly own at
least 20% of the Common Stock, it will, at the sole cost and expense of
Centrefund, provide to Centrefund (i) consolidated quarterly unaudited financial
statements of Equity One prepared in accordance with Canadian GAAP (subject to
normal year-end adjustments), and (ii) consolidated annual unaudited financial
statements of Equity One prepared in accordance with Canadian GAAP together with
the notes thereto.
6.10 EQUITY ONE DIVIDENDS. Subject to the sole and absolute
discretion of its board of directors to declare and pay dividends as they may
deem lawful and appropriate, Equity
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One agrees that its present intention is to use commercially reasonable efforts
to continue to pay dividends in respect of its Common Stock at levels at least
equal to those paid in the past.
6.11 EQUITY ONE DISPOSITIONS OF ASSETS AND DISPOSITION
PROCEEDS. Equity One agrees that, for a period of one year after the Closing
Date, it will not dispose of more than two thirds of the assets that the Target
Companies own on the Closing Date and the proceeds of those dispositions, in
dispositions that would not constitute the continuance of the Target's historic
business or the use of the Target's business assets in a business, in each case
within the meaning of Treasury Regulation Section 1.368-1(d).
6.12 TAX REFUND. The Parties acknowledge and agree that to the
extent there is any refund of Taxes paid by any Target Company, such refund
shall be paid to and inure to the benefit of the applicable Target Company,
regardless of the time such refund is made.
6.13 TAX TREATMENT. Equity One covenants and agrees to use
commercially reasonable efforts after the Closing not to take any action, or
fail to take any action, if that action or inaction would cause the Transaction
to fail to constitute a reorganization within the meaning of Section 368(a) of
the Code.
7. CONDITIONS TO OBLIGATION TO CLOSE.
7.1 CONDITIONS TO OBLIGATIONS OF EQUITY ONE. The obligation of
Equity One to consummate the Transaction is subject to satisfaction of the
following conditions:
(a) the representations and warranties made by Centrefund
and the Shareholder in this Agreement shall be true and correct, in all
material respects with respect to those representations and warranties
that are not qualified by materiality and true and correct in all
respects with respect to those which are so qualified, at and as of the
Closing Date (except for any changes resulting from transactions that
are permitted or required pursuant to this Agreement), as certified by
an officer's certificate executed by the President or Chief Financial
Officer of Centrefund and Shareholder and delivered to Equity One;
(b) there shall not have occurred any event or circumstance
giving rise to a Material Adverse Effect on the Target, as certified by
an officers' certificate delivered by Centrefund and Shareholder to
Equity One;
(c) Centrefund, the Shareholder and the Target shall have
performed and complied in all material respects with all of their
covenants hereunder, as certified by an officers' certificate delivered
by Centrefund and Shareholder to Equity One;
(d) the Centrefund Approval shall have been obtained, as
certified by an officers' certificate delivered by Centrefund and
Shareholder to Equity One;
(e) Centrefund and Target shall have executed and delivered
the Dawsco Indemnity;
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(f) no Governmental Requirement shall have been proposed,
enacted, promulgated or applied and no action, suit, or proceeding
shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of the Transaction or impose material limitations
or conditions on the Transaction or the right of Equity One to own or
exercise full rights of ownership of the Target Shares, (B) cause the
Transaction to be rescinded following consummation, or (C) have a
Material Adverse Effect on the Target;
(g) Torys shall have delivered an opinion in form and
substance as set forth in EXHIBIT F attached hereto, addressed to
Equity One and dated as of the Closing Date, provided that Torys may
rely on an opinion from Florida counsel as to matters of Florida law;
(h) the Target Restructuring shall have been completed and
all consents required to effect the Target Restructuring shall have
been obtained, as certified by an officers' certificate delivered by
Centrefund and Shareholder to Equity One;
(i) all actions required to be taken by Centrefund and the
Shareholder pursuant to this Agreement and all certificates, opinions,
instruments, and other documents required to effect the Transaction
will be reasonably satisfactory in form and substance to Equity One;
(j) Target shall have delivered a Secretary's Certificate
in such form as shall be reasonably acceptable to the Parties;
(k) Target shall have delivered certificates of good
standing issued by the appropriate authorities in their jurisdiction of
incorporation and those in which they are qualified to transact
business demonstrating that the Target Companies are in good standing
in those jurisdictions;
(l) the issuance of the Purchase Price Shares pursuant to
the terms of this Agreement shall have been approved by the
shareholders of Equity One;
(m) Centrefund and the Shareholder will have performed
their obligations pursuant to Section 5.12;
(n) all Centrefund Management Arrangements shall have been
terminated on or prior to the Closing;
(o) Equity One shall have received an opinion of Greenberg
Traurig, P.A., counsel to Equity One, on the Closing Date, based on
such assumptions as counsel may require, in form and substance
reasonably satisfactory to Equity One, dated as of such date and to the
effect that the acquisition by Equity One of the Target Shares for the
Purchase Price pursuant to this Agreement will qualify as a
reorganization within the meaning of Section 368(a) of the Code and
that neither Equity One nor the Target nor any
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of its Subsidiaries will recognize any gain or loss for Federal income
tax purposes as a result of that acquisition. In rendering that
opinion, Greenberg Traurig, P.A. shall be entitled to rely upon
customary representations reasonably requested by it and made by Equity
One, the Target, Centrefund and the Shareholder; and
(p) David Wiener, P.A. shall have delivered an opinion in
form and substance acceptable to Equity One and its counsel, addressed
to Equity One and dated as of the Closing Date.
Equity One may waive any condition specified in this Section 7.1 in
writing at or prior to the Closing.
7.2 CONDITIONS TO OBLIGATION OF THE SHAREHOLDER. The
obligation of the Shareholder to consummate the Transaction is subject to
satisfaction of the following conditions:
(a) the representations and warranties made by Equity One
in this Agreement shall be true and correct, in all material respects
with respect to those representations and warranties that are not
qualified by materiality and true and correct in all respects with
respect to those which are so qualified, at and as of the Closing Date
as though made on the Closing Date (except for any changes resulting
from transactions that are permitted or required pursuant to this
Agreement), as certified by an officer's certificate executed by the
President or Chief Financial Officer of Equity One and delivered to
Centrefund and Shareholder;
(b) there shall not have occurred any event or circumstance
giving rise to a Material Adverse Effect on Equity One, as certified by
an officers' certificate delivered by Equity One to Centrefund and
Shareholder;
(c) Equity One shall have performed and complied in all
material respects with all of its covenants and agreements hereunder,
as certified by an officers' certificate delivered by Equity One to
Centrefund and Shareholder;
(d) Centrefund shall have obtained the Centrefund Approval;
(e) no Governmental Requirement shall have been proposed,
enacted, promulgated or applied and no action, suit, or proceeding
shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction, or before any arbitrator, wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of the Transaction or impose material limitations
or conditions on the Transaction or the right of the Shareholder or
Centrefund to own or exercise full rights of ownership of the Purchase
Price Shares, (B) cause the Transaction to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect) or (C) have a Material Adverse Effect on
Equity One;
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(f) Greenberg Traurig, P.A. shall have delivered an opinion
in form and substance as set forth in EXHIBIT G attached hereto,
addressed to Centrefund and the Shareholder, and dated as of the
Closing Date;
(g) the stockholders of Equity One, Inc. shall have
approved the issuance of the Purchase Price Shares pursuant to the
terms of this Agreement, as certified by an officers' certificate
delivered by Equity One to Centrefund and Shareholder;
(h) the Target Restructuring shall have been completed and
all consents required to effect the Target Restructuring shall have
been obtained;
(i) all actions to be taken by Equity One in connection
with consummation of the Transaction and all certificates, opinions,
instruments, and other documents required to effect the Transaction
will be reasonably satisfactory in form and substance to Centrefund and
the Shareholder;
(j) Equity One shall have delivered a Secretary's
Certificate in such form as shall be reasonably acceptable to the
Parties;
(k) Equity One shall have delivered certificates of good
standing issued by the appropriate authorities in their jurisdiction of
incorporation and those in which they are qualified to transact
business demonstrating that the Equity One Companies are in good
standing in those jurisdictions;
(l) the Purchase Price Shares delivered at Closing shall
have been listed and approved for trading on the NYSE upon issuance;
and
(m) the Shareholder shall have received from Torys, counsel
to the Shareholder, on the Closing Date, an opinion, based on such
assumptions as counsel may require, in form and substance reasonably
satisfactory to the Shareholder, dated as of such date and to the
effect that the exchange of the Target Shares for the Purchase Price
Shares (i) will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code and (ii) will be treated for Canadian federal income tax
purposes as a disposition of Target Shares governed by subsection
85.1(3) of the Income Tax Act (Canada) with the result that the
Shareholder will not recognize any gain or loss for Canadian income tax
purposes. In rendering such opinion, such counsel shall be entitled to
rely upon customary representations reasonably requested by such
counsel and made by Equity One, the Target, Centrefund and the
Shareholder.
The Shareholder may waive any condition specified in this Section 7.2
in writing at or prior to the Closing.
8. SURVIVAL; REMEDIES FOR BREACHES OF THIS AGREEMENT.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements of the Parties contained
in this Agreement or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement shall
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survive the Closing hereunder and continue in full force and effect through all
statutes of limitations. Notwithstanding the foregoing, no claim for breach or
indemnification in respect of a breach of a representation or warranty shall be
made after the date eighteen (18) months after the Closing Date, except that (i)
a claim for breach or indemnification in respect of a breach of the
representations set forth in Sections 3.1 (Authorization), 3.4 (Target Shares),
3.7 (Organization, Qualification and Corporate Power), 3.9 (Capitalization),
3.17 (Tax Matters), 4.1 (Organization), 4.2 (Capitalization), 4.3
(Authorization) and 4.17 (Tax Matters) may be made at any time following the
Closing Date prior to the expiration of the applicable statute of limitations.
8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF EQUITY ONE.
(a) In the event that either Centrefund or the Shareholder
breaches (or in the event any third party alleges facts that, if true,
would mean Centrefund or the Shareholder has breached) any of its
representations, warranties (or any of such representatives or
warranties is untrue or inaccurate), covenants and agreements contained
herein or in any certificate, document, instrument or agreement
delivered pursuant to this Agreement and, provided that the Indemnified
Equity One Parties (as hereafter defined) make a written claim for
indemnification against Centrefund and/or the Shareholder pursuant to
Section 8.4 below within the applicable claim period provided in
Section 8.1 above, then Centrefund or the Shareholder shall jointly and
severally indemnify Equity One and each of its officers, directors,
employees, representatives and Affiliates (the "INDEMNIFIED EQUITY ONE
PARTIES") from and against the entirety of any Adverse Consequences the
Indemnified Equity One Parties may suffer (including any Adverse
Consequences the Indemnified Equity One Parties may suffer after the
end of any applicable claim period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged
breach).
(b) Centrefund and the Shareholder shall jointly and
severally indemnify the Indemnified Equity One Parties from and against
the entirety of any Adverse Consequences the Indemnified Equity One
Parties may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any Liability of the Target (a) for any
Corporate Taxes of the Target Companies with respect to any tax year or
portion thereof ending on or before the Closing Date or for any tax
year beginning before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with Section 10.2) to the
portion of such period beginning before and ending on the Closing Date
and to the extent such Taxes are not reflected in the reserve for Tax
Liability (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the
face of the most recent Financial Statements, (b) for the unpaid Taxes
of any Person (other than the Target) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise, or (c) for any Taxes payable
by any of the Target Companies by reason of the Transaction failing to
qualify as a reorganization within the meaning of Section 368(a) of the
Code by reason of any action of Shareholder.
(c) Notwithstanding anything to the contrary contained in
this Article 8, the Indemnified Equity One Parties shall not be
entitled to indemnification for
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any Adverse Consequences for any breaches of the representations and
warranties of Centrefund and Shareholder made in Section 3.11 (Real
Property), 3.14 (Events Subsequent to Most Recent Fiscal Year End),
3.15 (Undisclosed Liabilities) and 3.16 (Compliance with Laws)(but only
with respect to the first sentence thereof), 3.18 (Personal Property),
3.19 (Contracts), 3.21 (Power of Attorney), 3.22 (Insurance), 3.23
(Litigation), and 3.26 (Environmental, Health and Safety Matters) of
this Agreement if the circumstances or events giving rise to the
Adverse Consequences (i) occurred after August 15, 2000, (ii) related
to the properties managed by Management Co. pursuant to the Property
Management Agreement or the Asset Management Agreement, and (iii) were
not actually known by the present directors or officers of Centrefund
or the Shareholder.
8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF CENTREFUND AND
THE SHAREHOLDER. In the event Equity One breaches (or in the event any third
party alleges facts that, if true, would mean Equity One had breached) any of
its representations, warranties (or any of such representations or warranties is
untrue or inaccurate), covenants and agreements contained herein or in any
certificate, document, instrument or agreement delivered pursuant to this
Agreement, and, provided that the Shareholder or Centrefund makes a written
claim for indemnification against Equity One pursuant to Section 8.4 below
within the applicable claim period provided in Section 8.1 above, then Equity
One agrees to indemnify Centrefund, the Shareholder and each of their officers,
directors, employees, representatives and Affiliates (the "Indemnified
Centrefund Parties") from and against the entirety of any Adverse Consequences
the Indemnified Centrefund Parties may suffer (including any Adverse
Consequences the Indemnified Centrefund Parties may suffer after the end of any
applicable claim period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
8.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any party entitled to
indemnification hereunder (the "INDEMNIFIED PARTY") with respect to any
matter (a "THIRD PARTY CLAIM") which may give rise to a claim for
indemnification against any other Party (the "INDEMNIFYING Party")
under this Section 8, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced.
(b) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing within
15 days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party
from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will
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have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third
Party Claim involves only money damages and does not seek an injunction
or other equitable relief, (D) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business
interests of the Indemnified Party, (E) the named parties to the Third
Party Claim do not include both the Indemnified Party and the
Indemnifying Party, and (F) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8.4(b)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 8.4(b)
above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8.4.
8.5 OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy (including without limitation any
such remedy arising under Environmental, Health, and Safety Requirements) any
Party may have with respect to the Target or the Transaction.
9. TARGET DISTRIBUTIONS. Centrefund and the Shareholder covenant
and agree that from January 1, 2001 through and including the Closing Date,
Centrefund and the Shareholder shall have been entitled to receive from the
Target Companies:
(i) distributions payable in cash, shares, stock or
property from the Target Companies (including by repayment of
Intercompany Debt or return of capital) equal to such amounts
advanced or contributed to the Target Companies, whether by
way of equity or debt, from January 1, 2001 through the
Closing Date; plus
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(ii) the Target Distribution Amount, whether paid
under Centrefund Management Arrangements, dividends,
distributions (including those made pursuant to Section 5.12)
payable in cash, shares, stock or property, return of capital
or repayment of Intercompany Debt; provided, however, that if
the aggregate dividends declared or paid by Equity One from
the date hereof through the Closing Date exceed $.26 per share
of Common Stock, the Target Distribution Amount will be
increased by an amount equal to (a) the per share amount by
which the total dividends paid or declared during such period
exceeded $.26 per share of Common Stock, multiplied by (b)
10,500,000; minus
(iii) all fees, costs and expenses (including legal
and accounting fees, costs and expenses) paid or incurred by
Target in connection with or related to the Target
Restructuring (except for any costs and expenses incurred in
connection with the distributions made pursuant to Section
5.12) and all costs and expenses paid or incurred by Target
between January 1, 2001 and the Closing Date which are
properly attributable to Centrefund or Shareholder.
To the extent that payments or distributions in any form to Centrefund
or the Shareholder from January 1, 2001 to and including the Closing Date have
exceeded or are expected to exceed the sum of the items set forth above (the
"Estimated Excess Distribution") then, at the Closing, the number of Purchase
Price Shares shall be reduced by a corresponding number of shares, valued at its
Fair Market Value (as hereafter defined). No later than forty five (45) days
after the Closing Date, the Parties shall prepare a cash flow reconciliation
statement setting forth the amount, if any, by which payments or distributions
in any form from January 1, 2001 to and including the Closing Date exceeded the
sum of the items set forth above (the "Actual Excess Distribution"). If the
Actual Excess Distribution is greater than the Estimated Excess Distribution,
Centrefund and the Shareholder jointly and severally agree to promptly pay to
Target in cash an amount equal to the amount by which the Actual Excess
Distribution exceeds the Estimated Excess Distribution. "Fair Market Value" as
used herein shall mean average of the high and low quoted sale prices of a share
of Common Stock on the New York Stock Exchange during the 20 trading days
preceeding the date on which the E & P Estimate is made.
10. TAX MATTERS.
The following provisions shall govern the allocation of responsibility
as between Equity One and Shareholder for certain tax matters following the
Closing Date:
10.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The
Shareholder shall prepare or cause to be prepared and timely file or cause to be
timely filed all Tax Returns for the Target Companies which are filed after the
Closing Date and relate to periods ending on or prior to the Closing (the
"Pre-Closing Period"). Such Tax Returns shall be prepared by treating items on
such Tax Returns in a manner consistent with the past practices with respect to
such items, unless otherwise required by law. The Shareholder shall permit
Equity One to review and comment on each such Tax Return for all periods ending
on or prior to the Closing Date prior to filing.
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10.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING
DATE. Equity One shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Target for Tax periods which begin before the
Closing Date and end after the Closing Date. The portion of any such Tax that
relates to the portion of a taxable period ending on the Closing Date shall (x)
in the case of any Taxes other than Taxes based on or related to income or
receipts be deemed to be the amount of such Tax for the entire taxable period
multiplied by a fraction the numerator of which is the number of days in the
taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire taxable period, and (y) in the case of any Tax
based on or related to income or receipts be deemed equal to the amount that
would be payable if the relevant taxable period ended on the Closing Date. Any
credits shall be taken into account as though the relevant taxable period ended
on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Target and its Subsidiaries. Equity One shall permit Shareholder to
review and comment on each such Tax Return described in the preceding sentence
prior to filing.
10.3 COOPERATION ON TAX MATTERS.
(a) Equity One, the Target and Shareholder shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. Equity One agrees (A) to retain all books and records with
respect to Tax matters pertinent to the Target relating to any taxable
period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Shareholder, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing authority,
and (B) to give the other Parties reasonable written notice prior to
transferring, destroying or discarding any such books and records and,
if any other Party so requests, allow the other Party to take
possession of such books and records.
(b) Equity One and Shareholder further agree, upon request,
to use their commercially reasonable efforts to obtain any certificate
or other document from any governmental authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the
Transaction).
(c) Each Party further agrees, upon request, to provide
another Party with all information in its possession or control that
such other Party may be required to report pursuant to Section 6043 of
the Code and all Treasury Department Regulations promulgated
thereunder.
10.4 CERTAIN TAXES. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties,
interest and additions) incurred in
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connection with this Agreement, shall be paid by Equity One when due, and Equity
One will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees and, if required by applicable law,
Shareholder will, and will cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
11. REGISTRATION RIGHTS.
11.1 After the passage of nine months after the Closing Date
and upon receiving demands therefor from the Shareholder, from time to time,
Equity One shall use its commercially reasonable efforts to prepare and file
with the SEC, on up to four occasions, a registration statement and such other
documents as may be necessary in the opinion of both counsel for Equity One and
counsel for the Shareholder, in order to comply with the provisions of the
Securities Act so as to permit the registered resale of the Purchase Price
Shares for 12 consecutive months (each a "Demand Registration"). No Demand
Registration shall be made hereunder with respect to registration of the sale of
fewer than 1,000,000 shares of the Purchase Price Shares. Equity One may
postpone for up to three months the filing or the effectiveness of a
registration statement pursuant to a Demand Registration if Equity One notifies
the Shareholder that such Demand Registration would reasonably be expected to
have an adverse effect on any business plan of Equity One or any of its
Subsidiaries; provided that in such event, the Shareholder will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and that Equity One shall pay all registration expenses in connection
with such registration. In the event circumstances change and Demand
Registration would no longer have an adverse effect on any business plan of
Equity One or any of its Subsidiaries or upon the expiration of the three month
period (whichever occurs earlier), Equity One shall within 30 days file with the
SEC a registration statement and such other documents as may be necessary in the
opinion of both counsel for Equity One and counsel for the Shareholder, in order
to comply with the provisions of the Securities Act so as to permit the
registered resale of the Purchase Price Shares and, upon filing, Shareholder
will be deemed to have exercised one of its permitted Demand Registrations.
11.2 (a) If Equity One proposes to register any of the Common Stock
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Form S-4, S-8 or another form not available for
registering the Common Stock for sale to the public), each such time Equity One
will give written notice to the Shareholder of its intention to do so. Upon the
written request of the Shareholder to register any of its Purchase Price Shares,
which notice must be received by Equity One within 15 Business Days after Equity
One has given notice of the proposed registration to the Shareholder, Equity One
will use its reasonable commercial efforts to cause the Purchase Price Shares as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
Equity One, all to the extent required to permit the sale or other disposition
by the Shareholder (in accordance with such written request) of the Purchase
Price Shares so registered (a "Piggy-Back Registration"). Notwithstanding
anything to the contrary contained herein, Equity One may elect, at any time, to
register sale of the Purchase Price Shares, in which event the Shareholder
agrees to reasonably cooperate to facilitate such registration.
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(b) In the event that any registration pursuant to Section
11.2(a) shall be, in whole or in part, an underwritten public offering, the
number of shares of common stock of the Shareholder and the other holders of the
securities of Equity One requested to be included in such underwritten offering
(the "REQUESTING HOLDERS") may be reduced (pro-rata among the Shareholder and
the Requesting Holders based upon the number of securities held by the
Shareholder and the Requesting Holders) if and to the extent that the managing
underwriter believes that such inclusion would adversely affect the marketing of
the securities to be sold by Equity One therein. The Shareholder agrees to
execute and deliver a customary lock-up agreement as may be requested by the
managing underwriter; provided, however, that all Requesting Holders of similar
securities in an amount equal to or greater than that held by Shareholder shall
have agreed to execute such agreements.
11.3 The registration obligations of Equity One identified in
this Section 11 shall be suspended and tolled for such period of time as is
necessary, but in no event longer than 120 days, so that under no circumstances
shall the registered resale of the Purchase Price Shares, by the holders thereof
commence within ninety (90) days (the "REGISTRATION SUSPENSION PERIOD") after
the commencement of an underwritten primary public offering of Equity One's
equity securities (a "PUBLIC OFFERING"). The Shareholder acknowledges and agrees
that during the Registration Suspension Period it shall not resell any Purchase
Price Shares. The Shareholder further agrees that it shall, upon request, enter
into an agreement with the underwriter of a Public Offering, pursuant to which
the Shareholder shall agree not to resell any Purchase Price Shares during the
Registration Suspension Period.
11.4 Notwithstanding anything else in this Agreement to the
contrary, Equity One shall have no obligation to register the Purchase Price
Shares if and to the extent that they may be transferred without registration
under the Securities Act, pursuant to Rule 144(k) of the Act.
11.5 If and whenever Equity One is required by the provisions
of this Agreement to use its commercially reasonable efforts to effect the
registration of the Purchase Price Shares, Equity One will, as promptly as
possible:
(a) prepare and file with the SEC a registration statement
with respect to such securities and use its commercially reasonable
efforts to cause such registration statement to become and remain
effective;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the requirements of the
Securities Act and the rules and regulations promulgated by the SEC
thereunder relating to the sale or other disposition of the securities
covered by such registration statement;
(c) furnish to the Shareholder such numbers of copies of a
prospectus, including a preliminary prospectus, complying with the
requirements of the Securities Act, and such other documents as the
Shareholder may reasonably request in order to
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facilitate the public sale or other disposition of the Purchase Price
Shares owned by the Shareholder, but the Shareholder shall not be
entitled to use any selling materials other than a prospectus and such
other materials as may be approved by Equity One, which approval will
not be unreasonably withheld; and
(d) use its commercially reasonable efforts to register or
qualify the securities covered by such registration statement under
applicable state securities acts as the Shareholder shall reasonably
request, and do any and all such other acts and things as may be
necessary or advisable to enable the Shareholder to consummate the
public sale or other disposition of the Purchase Price Shares owned by
the Shareholder, in such states; provided, however, that Equity One
shall not be obligated to register or qualify such securities in any
jurisdiction in which such registration or qualification would require
Equity One to qualify as a foreign corporation or file any general
consent to service of process where it is not then so qualified or has
not theretofore so consented.
11.6 Except as provided below in this Section 11, the expenses
incurred by Equity One in connection with actions taken by Equity One to comply
with this Section 11, including, without limitation, all registration and filing
fees, printing and delivery expenses, accounting fees, fees and disbursements of
counsel to Equity One, consultant and expert fees, premiums for liability
insurance, if Equity One chooses to obtain such insurance, obtained in
connection with a registration statement filed to effect such compliance and all
expenses, including counsel fees, of complying with state securities acts, shall
be paid by Equity One. All fees and disbursements of any counsel, experts, or
consultants employed by the Shareholder shall be borne by the Shareholder.
Equity One shall not be obligated in any way in connection with any registration
pursuant to this Section 11 for any selling commissions or discounts payable by
the Shareholder to any underwriter or broker of securities to be sold by the
Shareholder. It shall be a condition precedent to the obligation of Equity One
to take any action pursuant to this Section 11 that Equity One shall have
received an undertaking satisfactory to it from the Shareholder to furnish or
cause to be furnished to Equity One specifically for use in the preparation of
the registration statement and prospectus written information concerning the
securities held by the Shareholder and also concerning any underwriter of such
securities and the intended method of disposition thereof and any additional
information or documentation as Equity One shall reasonably request and as may
be required by administrators of the Securities Act or state securities acts in
connection with the action to be taken by Equity One hereunder pursuant to such
registration.
11.7 In the event of any registration under the Securities Act
pursuant to this Section 11, Equity One will indemnify and hold harmless the
Shareholder, its officers, directors and each underwriter of such securities,
and any person who controls the Shareholder or underwriter within the meaning of
Section 15 of the Securities Act, against all claims, actions, losses, damages,
liabilities and expenses, joint or several, to which any of such persons may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the
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omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Shareholder, its officers, directors and each underwriter of
such securities, and each such controlling person or entity for any legal and
any other expenses reasonably incurred by the Shareholder, such underwriter, or
such controlling person or entity in connection with investigating or defending
any such loss, action, claim, damage, liability, or action; provided, however,
that Equity One will not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary prospectus or said
prospectus, or said amendment of supplement in reliance upon and in conformity
with written information furnished to Equity One by the Shareholder or such
underwriter specifically for use in the preparation thereof, and provided
further however, that Equity One will not be liable in any such case to the
extent that any such loss, claim, damage or liability or action arises out of or
is based upon an untrue or alleged untrue statement or omission or an alleged
omission made in any preliminary prospectus or final prospectus if (i) the
Shareholder failed to send or deliver a copy of the final prospectus or
prospectus supplement with or prior to the delivery of written confirmation of
the sale of the Purchase Price Shares, and (ii) the final prospectus or
prospectus supplement would have corrected such untrue statement or omission.
11.8 In the event of any registration of any securities under
the Securities Act pursuant to this Section 11, the Shareholder will, or will
furnish the written undertaking of such other person or entity as shall be
acceptable to Equity One to, indemnify and hold harmless Equity One, its
officers, directors and any person who controls it within the meaning of Section
15 of the Securities Act, against any losses, claims, damages, liabilities, or
actions, joint or several, to which Equity One, its officers, directors, or such
controlling person or entity may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities, or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent and only to the
extent that any such loss, claim, damage, liability, or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus or said prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to Equity One by the
Shareholder or any underwriter of the Shareholder's securities specifically for
use in the preparation thereof.
12. TERMINATION.
12.1 TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(a) Equity One and the Shareholder may terminate this
Agreement by mutual written consent at any time prior to the Closing;
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(b) Equity One may terminate this Agreement by giving
written notice to the Shareholder at any time prior to the Closing (A)
in the event the Shareholder has breached any representation, warranty,
or covenant contained in this Agreement in any material respect with
respect to those representations and warranties that are not qualified
by materiality and in any respect with respect to those representations
and warranties that are so qualified, and subject to changes resulting
from actions required or permitted to be taken pursuant to this
Agreement, Equity One has notified the Shareholder of the breach, and
the breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred on or
before September 28, 2001, by reason of the failure of any condition
precedent under Section 7.1 hereof (unless the failure results
primarily from Equity One itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(c) the Shareholder or Centrefund may terminate this
Agreement by giving written notice to Equity One at any time prior to
the Closing (A) in the event Equity One has breached any
representation, warranty, or covenant contained in this Agreement in
any material respect, with respect to those representations and
warranties that are not qualified by materiality and in any respect
with respect to those representations and warranties that are so
qualified, the Shareholder or Centrefund has notified Equity One of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach, or (B) if the Centrefund Approval is
not obtained, or (c) if the Closing shall not have occurred on or
before September 28, 2001, by reason of the failure of any condition
precedent under Section 7.2 hereof (unless the failure results
primarily from the Shareholder itself breaching any representation,
warranty, or covenant contained in this Agreement).
12.2 EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 12.1, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
13. MISCELLANEOUS.
13.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of Equity One and the Shareholder; provided, however, that any Party may make
any public disclosure it believes in good faith is required by applicable law or
any listing or trading agreement concerning its publicly-traded securities (in
which case the disclosing Party will use its commercially reasonable efforts to
advise the other Parties prior to making the disclosure and give the other
Parties a reasonable opportunity to consult as to the content and form of the
proposed disclosure).
13.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns and the Indemnified Parties.
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13.3 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
13.4 SUCCESSION AND ASSIGNMENT. This Agreement and all of the
provisions hereof, including this Section 13.4, shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of Equity One and Centrefund. Notwithstanding the foregoing, from and after
Closing, the Shareholder and Centrefund may, at any time and from time to time,
pledge, transfer or assign all or any of their rights under Section 11 of this
Agreement to one or more transferees or pledgees of at least one million of the
Purchase Price Shares, without the consent of any other Party but upon giving
notice of such assignment to Equity One; provided that no such transfer or
pledge shall affect the obligations of Equity One hereunder. Equity One agrees
to acknowledge in writing any such assignments or pledges made.
13.5 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
13.6 HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.7 NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Equity One: Copy to:
----------------- --------
N.E. Miami Gardens Drive Greenberg Traurig, P.A.
North Miami Beach, Florida 33179 Brickell Avenue
Attn: Howard Sipzner Miami, Florida 33131
Attn: Gary Epstein, Esq.
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If to Centrefund: Copy to:
----------------- --------
Attention: Dori Segal Torys
BCE Place, Canada Trust Tower Suite 3000, Maritime Life Tower
161 Bay Street, Ste. 2820 Box 270, Toronto-Dominion Centre
Toronto, Ontario, Canada Toronto, Ontario
M5J 2S1 M5K lN2
Attention: Pat Koval
If to Shareholder: Copy to:
------------------ --------
Attention: Dori Segal Torys
BCE Place, Canada Trust Tower Suite 3000, Maritime Life Tower
161 Bay Street, Ste. 2820 Box 270, Toronto-Dominion Centre
Toronto, Ontario, Canada Toronto, Ontario
M5J2S1 M5K lN2
Attention: Pat Koval
Any Party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the
address set forth above using any other means (including
personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered
by giving the other Parties notice in the manner herein set
forth.
13.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida.
13.9 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Equity One and the Shareholder. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
13.10 SEVERABILITY. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
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13.11 EXPENSES. Each of the Parties and Target will bear its
own costs and expenses incurred in connection with this Agreement and the
Transaction. The Parties agree that the expenses allocable to the Target shall
be determined reasonably and in good faith.
13.12 CONSTRUCTION. The Parties have participated jointly in
the negotiation of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
13.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, Schedules and Certificates identified in this Agreement are
incorporated herein by reference and made a part hereof.
13.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 13.15 below), in addition to any other remedy to which they may
be entitled, at law or in equity.
13.15 SUBMISSION TO JURISDICTION. Each of the Parties submits
to the jurisdiction of any state or federal court sitting in Dade County,
Florida, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other Party with respect thereto. Any Party may make service on any other
Party by sending or delivering a copy of the process to the Party to be served
at the address and in the manner provided for the giving of notices in Section
13.7. Nothing in this Section 13.15, however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
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13.16 PREVAILING PARTY. In any action or proceeding arising
out of or relating to this Agreement, the prevailing party shall be entitled to
recover reasonable attorney's fees and costs from the other party to the action
or proceeding.
13.18 WAIVER OF JURY TRIAL. THE PARTIES HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTION AND TO THE FULLEST EXTENT
PERMITTED BY LAW WAIVE ANY RIGHTS THAT THEY MAY HAVE TO CLAIM OR RECEIVE
CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTION.
(signatures on following page)
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Stock
Exchange Agreement as of the date first above written.
EQUITY ONE, INC.
By: /s/ Doron Valero
-----------------------------------------
DORON VALERO, President
CENTREFUND REALTY CORPORATION
By: /s/ Dori J. Segal
-----------------------------------------
Name: DORI J. SEGAL
-----------------------------------------
Title: President & CEO
-----------------------------------------
FIRST CAPITAL AMERICA HOLDING CORP.
By: /s/ Dori J. Segal
-----------------------------------------
Name: DORI J. SEGAL
-----------------------------------------
Title:
-----------------------------------------
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APPENDIX B
May 8, 2001
[UBS Warburg Letterhead]
Special Independent Committee of the Board of Directors
Equity One, Inc.
1696 NE Miami Gardens Drive
North Miami Beach, FL 33179
Gentlemen:
We understand that Equity One, Inc. (the "Company") is considering a transaction
(the "Transaction") with Centrefund Realty Corporation ("Centrefund"), a
Canadian-based real estate firm, whereby the Company will acquire certain or all
of Centrefund's US-based assets, Centrefund Realty (U.S.) Corporation ("CEFUS"
or the "Target").
Pursuant to the terms of the Stock Exchange Agreement, the Company will
undertake a series of transactions whereby CEFUS will become a wholly-owned
subsidiary of the Company. All of the issued and outstanding shares of the
capital stock of CEFUS, including all issued and outstanding options, warrants
or other stock issuance agreements, will be exchanged with Centrefund for, in
the aggregate, 10,500,000 shares of Common Stock, par value of $0.01 per share,
as may be adjusted per Section 9 of the Stock Exchange Agreement, of the Company
(the "Exchange"). No Company Common Stock will be issued to anyone other than
Centrefund. The terms and conditions of the Transaction are more fully set forth
in the Stock Exchange Agreement.
You have requested our opinion as to the fairness of the Exchange, from a
financial point of view, to the shareholders of the Company other than
Gazit-Globe (1982) Ltd. and its affiliates.
UBS Warburg LLC ("UBSW") has acted solely as a provider of the fairness opinion
to the Special Independent Committee of the Board of Directors of the Company in
connection with the Transaction. UBSW will receive a fee upon delivery of the
fairness opinion. In the past, UBSW and its predecessors have provided
investment banking services to Gazit, Inc., the parent of both the Company and
Centrefund, and received customary compensation for the rendering of such
services. In the ordinary course of business, UBSW, its successors and
affiliates may trade securities of the Company and Centrefund for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder of the
Company as to how such a shareholder should vote with respect to the
Transaction. At your direction, we have neither been asked to, nor do we offer
any opinion as to the material terms of the Stock Exchange Agreement or the form
of the Transaction. Furthermore, we express no opinion as to what the value of
the Company's stock will be when issued pursuant to the Transaction or the
prices at which it will trade in the future. In rendering this opinion, we have
assumed, with your consent, that the final executed form of the Stock Exchange
Agreement does not differ in any material respect from the draft that we have
examined, and that the Company, Centrefund and CEFUS will comply with all the
material terms of the Stock Exchange Agreement.
In arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and historical financial information relating to the
Company, Centrefund and CEFUS; (ii) reviewed certain internal financial
information and other data relating to the business and financial prospects of
the Company, including estimates and financial forecasts prepared by management
of the Company, that were provided to us by the Company and not publicly
available; (iii) reviewed certain internal financial information and other data
relating to the business and financial prospects of CEFUS, including estimates
and financial forecasts prepared by the management of the Company and CEFUS and
not publicly available; (iv) conducted discussions with members of the senior
management of the Company and Centrefund concerning the businesses and financial
prospects of the Company and CEFUS; (v) reviewed publicly available financial
and stock market data with respect to certain other companies in lines of
business we believe to be generally comparable to those of the Company; (vi)
compared the financial terms of the Transaction with the publicly available
financial terms of certain other transactions which we believe to be generally
relevant; (vii) considered certain pro forma effects of the Transaction on the
Company's financial statements; (viii) reviewed drafts of the Stock Exchange
Agreement; and (ix) conducted such other financial studies, analyses, and
investigations, and considered such other information as we deemed necessary or
appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on
such information being complete and accurate in all material respects. In
addition, at your direction, we have not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Company or Target. With respect to the financial forecasts, estimates, and pro
forma effects referred to above, we have assumed, at your direction, that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of each company as to the future
performance of their respective companies. In addition, we have assumed with
your approval that the future financial results referred to above will be
achieved at the times and in the amounts projected by management. We have also
assumed that all governmental, regulatory or other consents and approvals
necessary for the consummation of the Transaction will be obtained without any
material adverse effect on the Company, Centrefund, CEFUS and/or the
Transaction. Further, we have assumed with your consent that the Company's REIT
status is maintained following completion of the Transaction. Our opinion is
necessarily based on economic, monetary, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as the date
hereof, that the proposed Exchange is fair, from a financial point of view, to
the shareholders of the Company other than Gazit-Globe (1982) Ltd. and its
affiliates.
Very truly yours,
UBS WARBURG LLC
By: /s/ EDWARD M. CASAL By: /s/ RUSSELL H. BATES
----------------------- --------------------------
Edward M. Casal Russell H. Bates
Executive Director Director
EQUITY ONE, INC.
1696 N.E. Miami Gardens Drive
North Miami Beach, Florida 33179
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned holder of common stock of Equity One, Inc., a Maryland
corporation (the "Company"), hereby appoints Chaim Katzman and Howard Sipzner
and each of them, as proxies for the undersigned, each with full power of
substitution, for and in the name of the undersigned to act for the undersigned
and to vote, as designated on the reverse side of this proxy card, all of the
shares of stock of the Company that the undersigned is entitled to vote at the
Company's special meeting of stockholders, to be held on Thursday, September 6,
2001, at 10:00 a.m., in the Banyan Room at the Sheraton Bal Harbor, 9701 Collins
Avenue, Bal Harbor, Florida 33154, and at any adjournments or postponements
thereof.
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
1. Approval of the issuance of 10,500,000 shares of Equity One common
stock, subject to reduction for various adjustments, for the
acquisition of the outstanding common stock of Centrefund Realty (US)
Corporation.
[ ] For [ ] Against [ ] Abstain
2. In their discretion, upon such other business as may properly come
before the special meeting or any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE APPROVAL AND RATIFICATION OF THE ISSUANCE OF 10,500,000 SHARES
OF THE COMPANY'S COMMON STOCK.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED. NO POSTAGE NECESSARY IF MAILED WITHIN THE UNITED STATES.
The undersigned hereby acknowledges receipt of (i) the notice of
special meeting, and (ii) the proxy statement.
DATE
SIGNATURE
SIGNATURE (If held jointly)
Note: Please sign exactly as your name appears hereon and mail it promptly even
though you may plan to attend the meeting. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If
partnership, please sign in the partnership name by authorized person.