-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KzEGQPAhPtSicoPm0sa48fL3tGV7bY/wZWcrt+D/801kNkF+EPm5pd+3zTcoE32n kkcVfR5WRFTSkqcyg/Oqwg== 0000936392-99-000527.txt : 19990510 0000936392-99-000527.hdr.sgml : 19990510 ACCESSION NUMBER: 0000936392-99-000527 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCEL LEGACY CORP CENTRAL INDEX KEY: 0001050671 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 330781747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14609 FILM NUMBER: 99614306 BUSINESS ADDRESS: STREET 1: 16955 VIA DEL CAMPO STREET 2: SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194859400 MAIL ADDRESS: STREET 1: 16955 VIA DEL CAMPO STREET 2: 16955 VIA DEL CAMPO CITY: SAN DIEGO STATE: CA ZIP: 92127 10-Q 1 FORM 10-Q DATED MARCH 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended: MARCH 31, 1999 Commission File Number: 0-23503 EXCEL LEGACY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 33-0781747 - ------------------------------ ----------------------------------------- (State of incorporation) (IRS Employer Identification Number) 16955 VIA DEL CAMPO, SUITE 240, SAN DIEGO, CALIFORNIA 92127 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number: (619) 675-9400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Class Outstanding at May 7, 1999 - ------------------------------ ---------------------------- Common Stock, $.01 par value 33,457,804 2 EXCEL LEGACY CORPORATION INDEX FORM 10-Q ----------
PAGE ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Balance Sheets (Unaudited) March 31, 1999 December 31, 1998...............................................................3 Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 1999 and 1998......................................4 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Three Months Ended March 31, 1999 and 1998......................................5 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 1999 and 1998......................................6 Notes to Financial Statements (Unaudited)..........................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................................14 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................19 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...........................20 Item 5. Other Information.............................................................20 Item 6. Exhibits and Reports on Form 8-K..............................................21
2 3 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - UNAUDITED (in thousands, except share amounts) ----------
MARCH 31, DECEMBER 31, 1999 1998 --------- ------------ ASSETS Real estate: Land $ 54,915 $ 54,915 Buildings 137,685 136,118 Leasehold interests 2,351 2,351 Accumulated depreciation (3,503) (2,506) --------- --------- Net real estate 191,448 190,878 Cash 1,775 1,387 Accounts receivable, less allowance for bad debts of $104 and and $14 at March 31, 1999 and December 31, 1998, respectively 169 204 Notes receivable 23,239 23,204 Investment in partnerships 12,829 11,423 Interest receivable 6,187 5,341 Pre-development costs 19,302 13,569 Other assets 9,043 9,087 Deferred tax asset 6,146 6,203 --------- --------- $ 270,138 $ 261,296 ========= --------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage and notes payable $ 99,694 $ 90,986 Accounts payable and accrued liabilities 2,151 2,604 Other liabilities 631 220 --------- --------- Total liabilities 102,476 93,810 --------- --------- Commitments and contingencies -- -- Minority interests 848 846 --------- --------- Stockholders' equity: Series B Preferred stock, $.01 par value, 50,000,000 shares authorized, 21,281,000 shares issued and outstanding 213 213 Common stock, $.01 par value, 150,000,000 shares authorized, 33,457,804 shares issued and outstanding 335 335 Additional paid-in capital 174,508 174,508 Retained earnings 2,630 2,456 Notes receivable from affiliates for common shares (10,872) (10,872) --------- --------- Total stockholders' equity 166,814 166,640 --------- --------- $ 270,138 $ 261,296 ========= =========
The accompanying notes are an integral part of the financial statements 3 4 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME - UNAUDITED THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------
1999 1998 ------ ------ Revenue: Rental $3,312 -- Operating income 4,896 -- Interest income 858 -- Partnership income and other revenues 151 -- ------ ------ Total revenue 9,217 -- ------ ------ Operating expenses: Interest 2,025 66 Depreciation and amortization 1,196 47 Property operating expenses 482 -- Operating expenses 2,511 -- General and administrative 2,690 3 ------ ------ Total operating expenses 8,904 116 ------ ------ Income (loss) before income taxes 313 (116) Provision (benefit) for income taxes 139 (46) ------ ------ Net income (loss) $ 174 (70) ====== ====== Basic net income per share $ 0.01 $ -- ====== ====== Diluted net income per share $ 0.00 $ -- ====== ======
The accompanying notes are an integral part of the financial statements 4 5 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT NUMBER OF SHARES) ----------
PREFERRED STOCK COMMON STOCK ADDITIONAL AFFILIATE TOTAL ------------------- ------------------- PAID-IN RETAINED NOTES STOCKHOLDERS' NUMBER AMOUNT NUMBER AMOUNT CAPITAL EARNINGS RECEIVABLE EQUITY ---------- ------ ---------- ------ --------- -------- ---------- ------------- Three Months Ended March 31, 1999: Balance at January 1, 1999 21,281,000 $213 33,457,804 $335 $ 174,508 $ 2,456 $(10,872) $ 166,640 Net income -- -- -- -- -- 174 -- 174 ---------- ---- ---------- ---- --------- ------- -------- --------- Balance at March 31, 1999 21,281,000 $213 33,457,804 $ 33 5$174,508 $ 2,630 $(10,872) $ 166,814 ========== ==== ========== ==== ========= ======= ======== ========= Three Months Ended March 31, 1998: Balance at January 1, 1998 -- $ -- 100 $ -- $ -- $ -- $ -- $ -- Issuance of preferred stock 21,281,000 213 -- -- 106,192 -- -- 106,405 Issuance of common stock -- -- 32,607,704 326 67,469 -- -- 67,795 Notes receivable from officers for common shares -- -- -- -- -- -- (10,872) (10,872) Issuance costs -- -- -- -- (2,697) -- -- (2,697) Net income -- -- -- -- -- (70) -- (70) ---------- ---- ---------- ---- --------- ------- -------- --------- Balance at March 31, 1998 21,281,000 $213 32,607,804 $326 $ 170,964 $ (70) $(10,872) $ 160,561 ========== ==== ========== ==== ========= ======= ======== =========
The accompanying notes are an integral part of the financial statements 5 6 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (IN THOUSANDS) ----------
1999 1998 ------- --------- Cash flows from operating activities: Net income $ 174 $ (70) Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 1,196 47 Provision for bad debts 72 -- Minority interest in partnerships 2 -- Changes in accounts receivable and other assets (1,073) -- Changes in accounts payable and other liabilities 15 90 ------- --------- Net provided by operating activities 386 67 ------- --------- Cash flows from investing activities: Real estate acquired and construction costs paid (973) (18,571) Investment in partnership (1,406) -- Pre-development costs paid (5,733) -- ------- --------- Net cash used in investing activities (8,112) (18,571) ------- --------- Cash flows from financing activities: Proceeds from issuance of preferred stock -- 106,405 Proceeds from issuance of common stock -- 11,104 Issuance costs paid -- (2,697) Principal payments of mortgage payable (736) -- Borrowings from parent company -- 21,191 Borrowings from notes 8,850 -- ------- --------- Net cash provided by financing activities 8,114 136,003 ------- --------- Net increase in cash 388 117,499 Cash at January 1 1,387 -- ------- --------- Cash at March 31 $ 1,775 $ 117,499 ======= =========
The accompanying notes are an integral part of the financial statements 6 7 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements reflect all adjustments of a recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial statements. No adjustments were necessary which were not of a normal recurring nature. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the quarterly reporting rules of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company's July 31, 1998 Form 10-K. ORGANIZATION Excel Legacy Corporation (the "Company"), a Delaware corporation was formed on November 17, 1997. The Company was originally a wholly-owned subsidiary of Excel Realty Trust, Inc. ("Excel"), a Maryland corporation and a self-administered, self-managed real estate investment trust ("REIT"), now known as New Plan Excel Realty Trust, Inc. On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel (the "Spin-off"). The Company was formed to pursue opportunities available to those investors that are not restricted by the federal income tax laws governing REITs or influenced by Excel's investment and leverage guidelines. In connection with the Spin-off, certain real properties, notes receivable and related assets and liabilities were transferred to the Company from Excel (Note 2). Upon completion of the Spin-off, the Company ceased to be a wholly-owned subsidiary of Excel and began operating as an independent public company. CHANGE IN FISCAL YEAR By unanimous consent dated December 11, 1998, the Board of Directors of the Company adopted a fiscal year-end of December 31, beginning with a short fiscal year ending on December 31, 1998. The Company's previous fiscal year-end was July 31. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and all significantly owned affiliates. The Company uses the equity method of accounting to account for its investment in a Nova Scotia Company and the Company uses the cost method to account for its investment in EnterCitement LLC. REAL ESTATE Certain real estate assets were transferred to the Company from Excel and recorded at Excel's cost. Other real estate assets acquired subsequent to the Spin-off were recorded at the Company's cost. Depreciation is computed using the straight-line method over estimated useful lives of 40 years for buildings. Expenditures for maintenance and repairs are charged to expense as incurred and significant renovations are capitalized. 7 8 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: The Company assesses whether there has been a permanent impairment in the value of its real estate by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a lessee's ability to pay rent under the terms of the lease. If a property is leased at significantly lower rent, the Company may recognize an impairment loss if the income stream is not sufficient to recover its investment. PRE-DEVELOPMENT COSTS Pre-development costs that are directly related to specific construction projects are capitalized as incurred. The Company expenses these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued. MANAGEMENT CONTRACTS Management contracts are recorded at cost and amortized over a period of seven years. INCOME TAXES The Company uses the asset and liability method to account for income taxes. Deferred income tax assets have been recorded to reflect the future tax benefit of assets acquired from Excel that were recorded at Excel's cost for book purposes and fair market value for tax purposes. DEFERRED LEASING AND LOAN ACQUISITION COSTS Costs incurred in obtaining tenant leases and long-term financing are amortized to other property expense and interest expense, respectively, on the straight-line method over the terms of the related leases or debt agreements. REVENUE RECOGNITION Base rental revenue is recognized on the straight-line basis, which averages annual minimum rents over the terms of the leases. Certain of the leases provide for additional rental revenue by way of percentage rents to be paid based upon the level of sales achieved by the lessee. USE OF 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 date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. 8 9 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 2. SPIN-OFF: On March 31, 1998, Excel transferred certain real estate assets to the Company in exchange for 23,412,580 common shares of the Company, assumption of mortgage debt by the Company, and issuance of a note payable to Excel from the Company which was subsequently repaid. The Spin-off took place through a dividend distribution to Excel's common stockholders of all the Company's common stock (23,412,580 shares) held by Excel. The distribution consisted of one share of the Company's common stock for each share of Excel's common stock held on the record date of March 2, 1998. The fair market value of the distribution was approximately $55,956,000 or $2.39 per share. While the Company has recorded the acquisition of assets and liabilities at fair market value for tax purposes, the Company has recorded for book purposes, the assets and liabilities at Excel's original book value. The tax effect of the difference between fair market value and book value was $6,528,000 and was recorded as a deferred tax asset. 3. MORTGAGES AND NOTES PAYABLE: The Company had $99,694,000 in mortgage and notes payable outstanding at March 31, 1999 at 7.37% to 8.75% with an average interest rate of 7.87% and average maturity of approximately 12 years. The mortgages and notes are due on various dates through 2018 and monthly payments approximate $945,000. Except for the unsecured revolving credit facility below, the mortgages and notes are collateralized by real estate and an assignment of rents. The Company has a revolving credit facility of $20,000,000 from BankBoston, N.A. (the "Credit Facility") which carries an interest rate of LIBOR plus 2.5% (7.5% at March 31, 1999). The Credit Facility expires in October 1999. Through March 31, 1999, approximately $13,300,000 was outstanding under the Credit Facility. The principal payments required to be made on mortgages and notes payable over the next five years are as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------ 1999 (remaining nine months) $ 15,559 2000 4,889 2001 4,125 2002 4,461 2003 4,826 Thereafter 65,834 ------- $ 99,694 ========
9 10 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 4. INCOME TAXES: At March 31, 1999, the Company had a net deferred tax asset of $6,146,000. The deferred tax asset primarily relates to the difference between fair market value and book value of the real estate assets acquired from Excel in connection with the Spin-off (Note 2) and is non-current. The offsetting portion of the deferred asset relates to timing differences in recognizing revenue and expenses for tax purposes through operations of the Company. No valuation allowance has been provided against the deferred tax asset as the Company believes future taxable income is more likely than not. The provision for income taxes consists of the following:
FEDERAL STATE --------- --------- Current payable $ 62,000 $ 20,000 Deferred tax expense 54,000 3,000 -------- -------- Provision for income taxes $ 116,000 $ 23,000 ========= =========
5. CAPITAL STOCK: SERIES B PREFERRED SHARES At March 31, 1999, the Company had 21,281,000 shares of Series B Preferred Stock outstanding (the "Preferred B Shares"). Holders of the Preferred B Shares are entitled to receive, when, as and if declared by the Board of Directors, cumulative cash dividends payable in an amount per share equal to the cash dividends, if any, on the shares of common stock into which the Preferred B Shares are convertible. Holders of the Preferred B Shares are also entitled to a liquidation preference of $5.00 per share, plus a premium of 7% per annum, in the event of any liquidation, dissolution or other winding up of the affairs of the Company. The Preferred B Shares are convertible into common stock of the Company at the election of the holders at any time, on a one-for-one basis, subject to adjustment in certain circumstances. The Preferred B Shares also are convertible into common stock by the Company at any time and from time to time after the earlier to occur of (i) the date which is six months following the date on which the Company's common stock becomes listed or admitted for trading on a national securities exchange or (ii) March 31, 2000. The Company's common stock became listed on the American Stock Exchange on November 17, 1998. As a result, the Preferred B Shares will be convertible into common stock at the option of the Company any time after May 17, 1999. The Preferred B Shares were issued in March 1999 in exchange for all of the issued and outstanding shares of Series A Preferred Stock of the Company (the "Preferred A Shares"). Following such exchange, all Preferred A Shares were retired and restored to the status of authorized and unissued shares of preferred stock, without designation as to series, and may be reissued as shares of any series of preferred stock of the Company. 10 11 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 5. CAPITAL STOCK, CONTINUED: EARNINGS PER SHARE (EPS) A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts). Information regarding the three months ended March 31, 1998 is not provided as the Spin-off did not occur until March 31, 1998. Prior to the Spin-off, the Company was a wholly-owned subsidiary of Excel.
THREE MONTHS ENDED MARCH 31, 1999 ------------------ Basic EPS NUMERATOR: Net income $ 174 ======= DENOMINATOR: Weighted average of common shares outstanding 33,458 ======= EARNINGS PER SHARE: $ 0.01 ======= Diluted EPS NUMERATOR: Net income $ 174 ======= DENOMINATOR: Weighted average of common shares outstanding 33,458 Effect of diluted securities: Preferred B Shares 21,281 Options 8 ------- 54,747 ======= EARNINGS PER SHARE: $ 0.00 =======
6. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE: The amount paid for interest and income taxes in the three months ended March 31, 1999 was approximately $2,215,000 and $622,000, respectively. Additionally, the Company assumed $594,000 in debt related to the construction of an office building. In the three months ended March 31, 1998, the Company acquired certain assets in conjunction with the Spin-off (Note 2). 11 12 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 7. SEGMENT REPORTING: The Company has a joint venture arrangement with Millennia. As of March 31, 1999, Millennia owned eighteen car wash properties in Arizona and Texas. At March 31, 1999, the Company held 100% of the ownership interest in Millennia. Another party manages the daily operations of Millennia and can earn up to 50% of the ownership interest in Millennia based upon operating results exceeding a 35% return on the Company's investment. The accounts of Millennia are consolidated with the Company's financial statements. In March 1999, Millennia entered into an agreement to sell substantially all of its assets. The sale is subject to the occurrence of certain events, the receipt of certain approvals, and other customary closing conditions. The Company is a partner in a joint venture, Grand Tusayan, LLC ("Grand Hotel") for the operation of a hotel and dinner theater and retail shop situated near the south rim entrance to the Grand Canyon National Park in Tusayan, Arizona. At March 31, 1999, the Company's ownership in the Grand Hotel was 65% although the Company was entitled to approximately 98% of the Grand Hotel's net income based upon its equity contributed. The accounts of the Grand Hotel are consolidated with the Company's financial statements. . SFAS No. 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements, and requires that those enterprises report selected information about operating segments in interim financial reports to shareholders (Note 1). The following unaudited information has been provided in accordance with SFAS No. 131 for operations related to Millennia, the Grand Hotel, and all other real estate related activities as of and for the three months ended March 31, 1999 (in thousands):
Other Millennia Grand Hotel Real Estate Total --------- ----------- ----------- -------- Total revenues $ 4,274 $ 540 $ 4,403 $ 9,217 -------- -------- -------- -------- Interest 419 -- 1,606 2,025 Depreciation and amortization 334 161 701 1,196 General and administrative 1,909 -- 781 2,690 Operating expenses 1,809 703 481 2,993 -------- -------- -------- -------- Total operating expenses 4,471 864 3,569 8,904 -------- -------- -------- -------- Income (loss) before income taxes $ (197) $ (324) $ 834 $ 313 ======== ======== ======== ======== Real estate, net $ 30,058 $ 13,850 $147,540 $191,448 Other assets 5,617 1,835 71,238 78,690 -------- -------- -------- -------- Total assets $ 35,675 $ 15,685 $218,778 $270,138 ======== ======== ======== ======== Mortgages and notes payable $ 15,108 $ -- $ 84,586 $ 99,694 Other liabilities 730 377 1,675 2,782 -------- -------- -------- -------- Total liabilities $ 15,838 $ 377 $ 86,261 $102,476 ======== ======== ======== ========
12 13 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED ---------- 9. RELATED PARTY TRANSACTIONS: In connection with the sale of common stock to ten of the Company's officers and employees, the Company issued $10,872,000 of notes receivable due from certain of these officers. The notes bear interest at 7%, are recourse obligations of the note holders, and are due in March 2003. The total interest receivable at March 31, 1999 from these notes totaled $755,000. The notes have been offset against stockholders' equity on the Company's accompanying Consolidated Balance Sheet. Following the Spin-off, the Company shared certain employees with New Plan Excel Realty Trust, Inc. ("New Plan Excel"), formerly Excel. The shared employees were paid by New Plan Excel and reimbursed by the Company based upon an Administrative Services Agreement. In April 1999 the Administrative Services Agreement was terminated. See "Item 5. Other Information." 10. MINIMUM FUTURE RENTALS: The Company leases its operating properties, except the Millennia carwash properties and the Grand Hotel property, under noncancelable operating leases generally requiring the tenant to pay a minimum rent. The leases generally either (i) require the tenant to pay all expenses of operating the property such as insurance, property taxes, and structural repairs and maintenance, or (ii) require the tenant to reimburse the Company for the tenant's share of real estate taxes and other common area maintenance expenses or for the tenant's share of any increase in expenses over a base year. Minimum future rental revenue for the next five years for the real estate owned at March 31, 1999 and subject to noncancelable operating leases is as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------ 1999 (remaining nine months) $ 8,562 2000 11,425 2001 11,331 2002 11,125 2003 10,951 Thereafter 136,840
13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NATURE OF BUSINESS Excel Legacy Corporation (the "Company"), a Delaware Corporation, was formed on November 17, 1997. The Company was organized to create and realize value by identifying and making opportunistic real estate and other investments through the direct acquisition, rehabilitation, development, financing and management of real properties and/or participation in these activities through the purchase of debt instruments or equity interests of entities in real estate and other businesses. RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and the Notes thereto. The Company did not own any significant assets until March 31, 1998 and did not have any significant operating results in the three months ended March 31, 1998. Comparison of the three months ended March 31, 1999 to the three months ended March 31, 1998 Rental revenue was $3.3 million during the three months ended March 31, 1999. Twelve single tenant properties owned by the Company accounted for $2.5 million of rental revenue. Eight of these properties are leased to Wal-Mart Stores, Inc. ("Wal-Mart"), two of these properties are leased to Lowe's Home Centers, Inc. ("Lowe's") and two properties in Colorado are leased to AMC Multi-Cinema, Inc. ("AMC"). Additionally, $0.3 million of rental revenue was attributable to a shopping mall located in Palm Springs, California and the remaining $0.5 million of rental revenue was primarily attributable to three properties which were acquired by the Company in conjunction with a redevelopment project in Scottsdale, Arizona. There were no rental revenue in the three months ended March 31, 1998. Other operating income totaled $4.9 million in the three months ended March 31, 1999. Of this income, $4.3 million related to revenues recognized by Millennia which is under contract to be sold. The Company also recognized $0.5 million of other operating income by the Grand Hotel. The majority of revenues from this project is expected to be generated between the months of May and October. Finally, TenantFirst Real Estate Services, Inc., which the Company acquired in May 1998, accounted for $0.1 million of revenues from various management contracts. There was no other operating income in the three months ended March 31, 1998. Interest income was $0.9 million in the three months ended March 31, 1999 and primarily related to interest earned on the Company's outstanding notes receivable. There was no interest income in the three months ended March 31, 1998. Partnership income and other revenues totaled $0.2 million for the three months ended March 31, 1999 and primarily related to the Company's interest in a Nova Scotia unlimited liability company which owns an office building in Canada. There was no partnership income in the three months ended March 31, 1998. Interest expense was $2.0 million in the three months ended March 31, 1999 and primarily related to the $99.7 million of mortgage and notes payable outstanding at March 31, 1999. In the three months ended March 31, 1998, interest expense was $66,000 and related to short-term debt incurred in connection with the Spin-off of assets to the Company. Depreciation and amortization expense totaled $1.2 million and primarily related to the $137.7 million of buildings and the $2.4 million of leasehold interests held by the Company at March 31, 1999. In the three months ended March 31, 1998, depreciation and amortization was $47,000 and related to assets acquired with the Spin-off on March 31, 1998. Property operating expenses were $0.5 million in the three months ended March 31, 1999 and primarily 14 15 related to the three properties located in Scottsdale, Arizona and the property located in Palm Springs, California. The other real estate properties owned by the Company are subject to triple net leases whereby the Company does not incur any significant operating expenses. There were no property operating expenses incurred in the three months ended March 31, 1998. Other operating expenses were $2.5 million in the three months ended March 31, 1999. Expenses of $1.8 million related to Millennia and $0.7 million related to the Grand Hotel. Both of these investments were acquired subsequent to March 31, 1998 and as such, there were no other operating expenses in the three months ended March 31, 1998. General and administrative expenses were $2.7 million in the three months ended March 31, 1999. The general and administrative expenses include certain costs charged to the Company by New Plan Excel pursuant to an administrative services agreement providing for the sharing of certain facilities and services which was terminated in April 1999. Additionally, $1.9 million of the expenses related to Millennia. Provision for income taxes was $139,000 in the three months ended March 31, 1999 of which $82,000 was current expense and $57,000 was deferred expense primarily relating to the change in the deferred tax asset. The Company calculates Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDADT") as net income, plus depreciation and amortization on real estate and real estate related assets, amortized leasing commission costs and certain non-recurring items. EBDADT does not represent cash flows from operations as defined by generally accepted accounting principles, and may not be comparable to other similarly titled measures of other companies. The Company believes, however, that to facilitate a clear understanding of its operating results, EBDADT should be examined in conjunction with its net income as reductions for certain items are not meaningful in evaluating income-producing real estate. The following information is included to show the items included in the Company's EBDADT for the three months ended March 31, 1999 (in thousands): Net income $ 174 Depreciation and amortization (financial statements) 1,196 Less depreciation of non-real estate assets (22) Deferred tax expense 57 ------- EBDADT $ 1,405 ======= EBDADT per share - basic $ 0.04 ======= EBDADT per share - diluted $ 0.03 =======
LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the total mortgage debt and notes payable of the Company consisted of the following: (i) $24.4 million in mortgages on eight properties leased to Wal-Mart which have fixed interest rates of 7.9% to 8.5%. These mortgages are self-amortizing with the rent being paid by Wal-Mart directly to the mortgage holders. The mortgages will be entirely repaid when the initial terms of the leases with Wal-Mart expire (2008 to 2009). (ii) $7.5 million in mortgages on two properties leased to Lowe's which have fixed interest rates of 7.6% and 8.8%. These mortgages are also self-amortizing over the term of the leases with Lowe's and will be repaid when the leases expire (2003 and 2014). (iii) A $2.2 million mortgage securing an office building in Scottsdale, Arizona, monthly payments of which are approximately $25,000 with a balloon payment in the year 2006. (iv) $36.4 million in mortgages on two properties leased to AMC. These mortgages amortize over a period of twenty years which is equivalent to the term of the leases. The mortgages have fixed rates of 7.48% and 7.52%, respectively and mature in 2018. (v) $15.1 million in notes related to the Millennia acquisition of certain car wash properties. Of the notes, $14.6 million have fixed interest rates of 8.5% and are due in fifteen years and $0.4 million have fixed interest rates of 8.0% and are due in two years. These notes will be transferred to the pending buyer for these properties upon closing. (vi) $0.7 million outstanding on a $11.0 million construction loan related to the construction of an office 15 16 building. Interest on the construction loan varies based upon the Eurodollar and was 7.9% at March 31, 1999. All of the above mortgage debt and notes payable are non-recourse to the Company.(vii) $13.3 million outstanding on the Company's unsecured $20.0 million credit facility. The facility bears interest at LIBOR plus 2.5% (7.5% at March 31, 1999) and expires in October 1999. At March 31, 1999, the Company had 21,281,000 shares of Series B Preferred Stock outstanding (the "Preferred B Shares"). Holders of the Preferred B Shares are entitled to receive, when, as and if declared by the Board of Directors, cumulative cash dividends payable in an amount per share equal to the cash dividends, if any, on the shares of common stock into which the Preferred B Shares are convertible. Holders of the Preferred B Shares are also entitled to a liquidation preference of $5.00 per share, plus a premium of 7% per annum, in the event of any liquidation, dissolution or other winding up of the affairs of the Company. The Preferred B Shares are convertible into common stock of the Company at the election of the holders at any time, on a one-for-one basis, subject to adjustment in certain circumstances. The Preferred B Shares also are convertible into common stock by the Company at any time and from time to time after the earlier to occur of (i) the date which is six months following the date on which the Company's common stock becomes listed or admitted for trading on a national securities exchange or (ii) March 31, 2000. The Company's common stock became listed on the American Stock Exchange on November 17, 1998. As a result, the Preferred B Shares will be convertible into common stock at the option of the Company any time after May 17, 1999. The Preferred B Shares were issued in March 1999 in exchange for all of the issued and outstanding shares of Series A Preferred Stock of the Company (the "Preferred A Shares"). Following such exchange, all Preferred A Shares were retired and restored to the status of authorized and unissued shares of preferred stock, without designation as to series, and may be reissued as shares of any series of preferred stock of the Company. Eight of the Company's single tenant properties leased to Wal-Mart do not generate cash flow as rent payments are directly used to service outstanding debt obligations. The Company anticipates that existing cash flow from operations will be adequate to meet the current cash requirements of its operating properties. The Company expects to meet its long-term liquidity requirements, such as property acquisitions and development, mortgage debt maturities, and other investment opportunities, through the most advantageous sources of capital available to the Company at the time, which may include operating cash flows, the sale of common stock, preferred stock or debt securities through public offerings or private placements, entering into joint venture arrangements with financial partners, the incurrence of indebtedness through secured or unsecured borrowings and the reinvestment of proceeds from the disposition of assets. YEAR 2000 Some of the Company's information technology ("IT") systems were originally written using two digits rather than four to define the applicable year. As a result, those IT systems had time sensitive software that recognizes dates using "00" as the Year 1900 rather than the Year 2000. The Company has upgraded its existing computer software and IT systems and believes that they are able to recognize the Year 2000 and that the Year 2000 issue will not have a material impact on the Company's operations. The Year 2000 issue affects the Company's internal systems, including IT and non-IT systems. The Company is reviewing its utility systems (heat, light, telephones, etc.) and other non-IT systems for the impact of Year 2000. The Company has solicited assurances from its contractors, vendors and other third parties that their systems (including building management and mechanical systems) are currently Year 2000 compliant or will be made compliant before the advent of the Year 2000. No assurances can be made that all contractors and other third parties will comply with their assurances. The Company intends to take continuous steps to identify Year 2000 problems related to its vendors and to formulate a system of working with key third parties, including financial institutions and utility providers, to understand their ability to continue providing services and products through the change to Year 2000. The failure to correct a material 16 17 Year 2000 problem either within the Company or within a vendor or supplier could result in an interruption in, or a failure of, certain normal business activities or operations of the Company. Such interruptions or failures could materially adversely affect the Company's business, operating results and financial condition. The Company's Year 2000 project is expected to be complete by mid-1999, which is prior to any anticipated impact on the Company's IT systems. As of March 31, 1999, the Company had expended less than $50,000 and expects to expend less than $10,000 in additional costs in connection with its Year 2000 project, including the cost of identification, assessment, remediation and testing efforts. The cost of the Company's Year 2000 project, and the target date on which the Company expects the Year 2000 modifications to be complete are based upon a variety of assumptions of future events, including the continued availability of certain resources. No assurance can be made that these estimates will be achieved and actual results could materially differ from those anticipated. Specific factors that might cause material differences include, but are not limited to, the availability and costs of personnel trained in this area, the ability to locate and correct relevant computer codes and the timing and compliance by the Company's outside vendors and suppliers. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario, and such scenario has not yet been clearly identified. Since the Company has adopted a plan to address these Year 2000 issues, it has not developed a comprehensive contingency plan should Year 2000 issues fail to be addressed successfully or in their entirety. However, if the Company identifies significant risks or is unable to meet its anticipated time line, the Company will develop contingency plans as deemed necessary at that time. This discussion contains forward-looking statements and should be read in conjunction with the Company's disclosures under the heading "Certain Cautionary Statements" below. CERTAIN CAUTIONARY STATEMENTS Certain statements in this Form 10-Q may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a "safe harbor" for these types of statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, the following risks: Recently Formed Entity; Lack of Independent Operating History. The Company is a recently-formed entity with no prior operating history. There can be no assurance that the Company will not encounter financial, managerial or other difficulties as a result of its lack of operating history or inability to rely on the financial and other resources of New Plan Excel. Although the Company expects to be able to access capital markets or to seek other financing, there can be no assurance that it will be able to do so at all or in amounts or on terms acceptable to the Company. Reliance on Major Tenants. As of March 31, 1999, the Company's largest tenants were AMC, Wal-Mart, and Lowe's which accounted for approximately 14%, 10% and 3%, respectively, of the Company's total revenues in the three months ended March 31, 1999. The financial position of the Company may be adversely affected by financial difficulties experienced by any of such tenants, or any other major tenant of the Company, including a bankruptcy, insolvency or general downturn in business of any such tenant, or in the event any such tenant does not renew its leases as they expire. Control by Directors and Executive Officers. As of March 31, 1999, executive officers and directors of the Company beneficially owned or had the right to acquire approximately 30% of the Company's outstanding common stock. Accordingly, such persons should continue to have substantial influence over the Company and on the outcome of matters submitted to the Company's stockholders for approval. In addition, such ownership could have an anti-takeover effect, thus discouraging the acquisition of the common stock by potential investors and possibly depressing the trading price of the common stock. Difficulty of Locating Suitable Investments; Competition. Identifying, completing and realizing on real estate investments has from time to time been highly competitive, and involves a high degree of uncertainty. The 17 18 Company competes for investments with many public and private real estate companies, including financial institutions (such as mortgage banks, pension funds and REITs) and other institutional investors, as well as individuals. There can be no assurance that the Company will be able to locate and complete investments which will be profitable or that it will be able to fully invest its available capital. Many of those with whom the Company competes for investments are far larger than the Company, may have greater financial resources than the Company and may have management personnel with more experience than the officers of the Company. Acquired Properties May Fail to Perform as Expected and Capital Expenditures May Exceed Estimates. The Company intends to acquire existing properties to the extent they can be acquired on advantageous terms which meet the Company's investment criteria. Acquisitions of properties entail general investment risks associated with any real estate investment, including the risk that investments will fail to perform as expected, that estimates of the costs of improvements to bring an acquired property up to standards established for the intended market position may prove inaccurate and that occupancy rates and rents achieved may be less than anticipated. Uncertainty of Cash Flow from Development, Construction and Renovation Activities. The Company also intends to pursue the selective development, construction and renovation of properties for its own account or the account of, or through, entities in which it owns an equity interest as opportunities arise, including without limitation long-term, higher-risk, mixed-use retail entertainment projects and hospitality projects. Risks associated with the Company's development, construction and renovation activities include risks that: the Company may abandon development opportunities after expending resources to determine feasibility; construction and renovation costs of a project may exceed original estimates; occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; and development, construction, renovation and lease-up may not be completed on schedule (including risks beyond the control of the Company, such as weather or labor conditions or material shortages) resulting in increased debt service expense and construction costs. Development, construction and renovation activities also are subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of the project which could adversely affect the financial condition and results of operations of the Company. Dependence on Real Estate Conditions. The Company's financial condition and results of operations may be adversely affected by a number of factors affecting the real estate market generally, including downturns in the international and domestic general economic climate and local real estate conditions (including oversupply of or reduced demand for space and changes in market rental rates); energy and supply shortages; and increasing operating costs (including real estate taxes and utilities) which may not be passed through to tenants. Dependence on Rental Income from Real Property. The Company's cash flow, results of operations and value of its assets would be adversely affected if a significant number of tenants were unable to meet their lease obligations or if the Company or the owner of a property were unable to lease a significant amount of space in its properties on economically favorable lease terms. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that the Company will be able to re-lease space on economically advantageous terms. Illiquidity of Real Estate Investments. Equity real estate investments are relatively illiquid and therefore tend to limit the ability of the Company to vary its portfolio promptly in response to changes in economic or other conditions. In addition, mortgage payments and, to the extent the properties are not subject to triple net leases, certain significant expenditures such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, the Company's results of operations would be adversely affected. A portion of the Company's properties are mortgaged to secure payment of indebtedness, and if the Company were unable to meet its mortgage payments, a loss could be sustained as a result of foreclosure on such properties. 18 19 Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a major tenant or a number of smaller tenants may have an adverse impact on the properties affected and on the income produced by such properties. Under bankruptcy law, a tenant has the option of assuming (continuing) or rejecting (terminating) any unexpired lease. If the tenant assumes its lease with the Company, the tenant must cure all defaults under the lease and provide the Company with adequate assurance of its future performance under the lease. If the tenant rejects the lease, the Company's claim for breach of the lease would (absent collateral securing the claim) be treated as a general unsecured claim. The amount of the claim would be capped at the amount owed for unpaid pre-petition lease payments unrelated to the rejection, plus the greater of one years' lease payments or 15% of the remaining lease payments payable under the lease (but not to exceed the amount of three years' lease payments). Potential Environmental Liability Related to the Properties. Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property or disposed of by it, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not the Company knew of, or was responsible for, the presence of such hazardous or toxic substances. Changes in Policies Without Stockholder Approval. The investment, financing, borrowing and distribution policies of the Company and its policies with respect to all other activities, growth, debt, capitalization, and operations, are determined by the Company's Board of Directors. Although it has no present intention to do so, the Board of Directors may amend or revise these policies at any time and from time to time at its discretion without a vote of the stockholders of the Company. A change in these policies could adversely affect the Company's financial condition and results of operations. Dependence on Key Personnel. The Company is dependent on the efforts of its executive officers and other key personnel. While the Company believes that it could find replacements for these persons, the loss of their services could have a temporary adverse effect on the operations of the Company. There can be no assurance that the Company will be able to retain these persons or to attract suitable replacements or additional personnel if required. The Company has not obtained key-man insurance for any of its executive officers or other key personnel. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks relating to the Company's operations result primarily from changes in short-term LIBOR interest rates. The Company does not have any derivative instruments at March 31, 1999 or any other significant market risk. The Company's exposure to market risk for changes in interest rates relates primarily to the Credit Facility of which $13.3 million was outstanding at March 31, 1999. The Company has an additional $0.7 million of variable rate debt at March 31, 1999. The Company continuously evaluates the level of variable rate debt with respect to total debt and other factors. 19 20 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held its Annual Meeting of Stockholders on January 28, 1999. (b) See paragraph (c) below. (c) The matters voted upon at the meeting and the votes cast with respect thereto were as follows: Election of Directors
Nominee for Votes Votes Broker Director Cast For Withheld Abstentions Non-Votes ----------- -------- -------- ----------- --------- Gary B. Sabin 26,053,432 28,793 - - Richard B. Muir 26,052,932 29,293 - - Kelly D. Burt 26,053,310 28,915 - - Richard J. Nordlund 26,053,310 28,915 - - Robert E. Parsons, Jr. 26,053,110 29,115 - - Robert S. Talbott 26,053,310 28,915 - - John H. Wilmot 26,053,310 28,915 - -
ITEM 5. OTHER INFORMATION On April 21, 1999, the Company entered into a Master Separation Agreement with New Plan Excel and ERT Development Corporation. Under the terms of the Master Separation Agreement, the Company and New Plan Excel agreed, among other things, to modify the terms of certain of their existing agreements, including the termination of the Intercompany Agreement, dated as of March 31, 1998 (as amended, the "Intercompany Agreement"), and the Administrative Services Agreement, dated as of March 31, 1998 9as amended, the "Administrative Services Agreement"), in each case except as set forth in the Master Separation Agreement. In addition, the Master Separation Agreement provides for certain interim arrangements between the Company and New Plan Excel as to certain office facilities in California, as well as an agreement with respect to the non-solicitation of certain New Plan Excel employees during the 90-day period following the entering into of the Master Separation Agreement. The Master Separation Agreement also provides that each of the Company and New Plan Excel will, on the terms set forth in the Master Separation Agreement, refrain from acquiring any interest in the other or seeking to influence or control the other. The foregoing description of the Master Separation Agreement is qualified in its entirety by reference to the Master Separation Agreement, a copy of which is filed as an exhibit to this Form 10-Q and is incorporated by reference herein. Contemporaneously with the Company and New Plan Excel entering into the Master Separation Agreement, on April 21, 1999, six executives of the Company, including Gary B. Sabin, Richard B. Muir, Graham R. Bullick, Mark T. Burton, S. Eric Ottesen and Ronald H. Sabin, entered into separate Resignation and Release Agreements with New Plan Excel. The Resignation and Release Agreements provide for the resignation of the respective executives from New Plan Excel and its subsidiaries and affiliates, the mutual release by New Plan Excel and the executive of certain possible claims against the other, and the payment by New Plan Excel of certain severance benefits. 20 21 In connection with the foregoing matters, and in addition to the resignation of Gary B. Sabin and Richard B. Muir from the Board of Directors of New Plan Excel (as contemplated by their respective Resignation and Release Agreements), two non-executive directors of the Company, Robert E. Parsons, Jr. and John H. Wilmot, resigned from the Board of Directors of New Plan Excel. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Master Separation Agreement, dated as of April 21, 1999, among Excel Legacy Corporation, ERT Development Corporation and New Plan Excel Realty Trust, Inc. 27.1 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXCEL LEGACY CORPORATION (Registrant) DATE: May 7, 1999 By: /s/ Gary B. Sabin -------------------------------------- GARY B. SABIN President and Chief Executive Officer DATE: May 7, 1999 By: /s/ James Y. Nakagawa -------------------------------------- JAMES Y. NAKAGAWA Principal Financial Officer 21 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 MASTER SEPARATION AGREEMENT MASTER SEPARATION AGREEMENT, dated as of April 21, 1999 (this "Agreement"), by and among New Plan Excel Realty Trust, Inc., a Maryland corporation ("New Plan"), ERT Development Corporation, a Delaware corporation of which New Plan owns 100% of the outstanding preferred shares ("EDV"), and Excel Legacy Corporation, a Delaware corporation ("Legacy"). New Plan, EDV and Legacy are each referred to herein sometimes as a "Party" and collectively as the "Parties". WHEREAS, the Parties have previously entered into that certain Distribution Agreement, dated as of March 31, 1998 (the "Distribution Agreement"), providing for, among other things, the terms and conditions pursuant to which Excel Realty Trust, Inc. (the predecessor to New Plan, "ERT") distributed the outstanding shares of Legacy to ERT's stockholders as of the record date for such distribution (the "Spin-off"). WHEREAS, in connection with the Spin-off, ERT and Legacy entered into the following agreements: (i) Administrative Services Agreement, dated as of March 31, 1998, as amended by the Amendment to Administrative Services Agreement, dated as of May 14, 1998 (the "Administrative Services Agreement"); (ii) Tax Sharing Agreement, dated as of March 31, 1998 (the "Tax Sharing Agreement"); and (iii) Intercompany Agreement, dated as of March 31, 1998, as amended by the Amendment to Intercompany Agreement, dated as of May 14, 1998 (the "Intercompany Agreement"). WHEREAS, in connection with the execution and delivery of this Agreement, certain directors of New Plan shall resign (the "Resignations") and certain executive officers shall resign and enter into respective Resignation and Release Agreements with New Plan (collectively, the "Resignation and Release Agreements"). WHEREAS, in connection with the execution and delivery of this Agreement, NNRA, LLC ("NNRA"), EDV and Excel Interfinancial Corporation ("Interfinancial"), will enter into a Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which, among other things, NNRA shall purchase the common stock of EDV owned by Interfinancial. WHEREAS, the parties desire to amend their existing relationships as set forth herein. NOW THEREFORE, in consideration of the above premises and mutual agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be legally bound, and subject to the terms and conditions stated herein, the Parties hereby agree as follows: 2 ARTICLE I COVENANTS SECTION 1.1. Intercompany Agreement. The parties hereby agree that notwithstanding anything in the Intercompany Agreement to the contrary, but subject to the following proviso, the Intercompany Agreement shall terminate and be of no further force and effect simultaneously with the execution and delivery hereof; provided, however, that with respect to all REIT Opportunities (as defined in the Intercompany Agreement) that have been presented to a meeting of the New Plan Investment Committee prior to the date hereof, whether or not the New Plan Investment Committee elected to proceed with the REIT Opportunity at such time or thereafter (collectively, but excluding the entity known to New Plan and Legacy as "Nuts", the "New Plan Exclusive REIT Opportunities"), neither Legacy nor any of its subsidiaries or affiliates, or any of their respective directors, officers, employees or agents, shall, directly or indirectly, pursue or enter into negotiations with respect to any New Plan Exclusive REIT Opportunity or enter into any letter of intent, agreement in principle, or acquisition or other similar binding agreement to acquire or participate in all or a portion of such New Plan Exclusive REIT Opportunity, or otherwise take any action that could result in any of the foregoing as to any New Plan Exclusive REIT Opportunity. New Plan further agrees that neither it nor any of its subsidiaries or affiliates, or any of their respective directors, officers, employees or agents, shall, directly or indirectly, (i) pursue or enter into negotiations with respect to the transaction relating to the San Diego Naval Base that has been considered by New Plan and Legacy, or enter into any letter of intent, agreement in principle, or acquisition or other similar binding agreement to acquire or participate in all or a portion of such transaction by New Plan, or otherwise take any action that could result in any of the foregoing as to such transaction, unless in partnership or other business relationship with Legacy on an agreed basis, or (ii) raise any objection to Legacy entering into any letter of intent, agreement in principle, or acquisition or other similar binding agreement with that entity known to New Plan and Legacy as "Nuts". SECTION 1.2. Administrative Services Agreement. The Parties hereby agree that upon consummation of this Agreement the Administrative Services Agreement shall terminate and, thereafter shall have no further force and effect; provided, however, that, notwithstanding anything contained herein to the contrary, with respect to the Administrative Services Agreement, Legacy shall promptly, upon receipt of an invoice from New Plan, pay any portion of the payments and/or other amounts due to New Plan and accrued through the date hereof, whether for services, salaries or otherwise. SECTION 1.3. Airplane Interest. (a) New Plan hereby sells, assigns, conveys, transfers, delivers and confirms to Legacy all of its rights, title and interest in and to that certain 1/16th fractional interest in an airplane, acquired and governed by that certain agreement dated as of March 6, 1998, between Executive Jet Sales, Inc. and Excel Realty Trust, Inc. (the "Airplane Interest"), in exchange for Legacy's agreement to pay to New Plan the fair market value of the Airplane Interest (up to $250,000, and provided that if Legacy shall at any time hereafter sell, assign or transfer the Airplane Interest to any third party for -2- 3 consideration in excess of the amount paid to New Plan pursuant to this paragraph, Legacy shall promptly pay over to New Plan an amount equal to such excess), together with the amount of any prepayments, deposits or security previously paid in respect of the Airplane Interest (the "Airplane Interest Value"), all of which shall be due and payable on or before the date that is 30 days from the date hereof. (b) Legacy hereby purchases and acquires the Airplane Interest, and assumes all of the obligations and liabilities arising from or relating to the Airplane Interest, on and after the date hereof, and Legacy shall indemnify, hold harmless and defend New Plan from and against any and all liabilities, obligations, claims or expenses of whatever kind resulting from or relating to the Airplane Interest. SECTION 1.4. Deliveries. (a) At or prior to the execution of this Agreement, Legacy shall deliver, or shall cause to be delivered, to New Plan the following: (i) The Stock Purchase Agreement, executed by Interfinancial and EDV; (ii) The Resignation and Release Agreements, signed by each of the executive officers set forth on Schedule 1.4; (iii) The Resignations, in the form of Exhibit A hereto, of each of the directors set forth on Schedule 1.4, signed by such persons; and (iv) The Assignment Agreement (as defined in Section 4.2), signed by Legacy. (b) At or prior to the execution of this Agreement, New Plan shall deliver, or shall cause to be delivered, to Legacy the following: (i) The Stock Purchase Agreement, executed by NNRA; (ii) The Resignation and Release Agreements, signed by New Plan; and (iii) The Assignment Agreement, signed by New Plan. SECTION 1.5. Public Announcements. The Parties shall not make, or cause to be made, any press releases or public announcements in respect of this Agreement or the transactions contemplated hereby without prior notification of the other, and the parties shall cooperate as to the timing and content of any such announcement. ARTICLE II STANDSTILL AGREEMENT -3- 4 SECTION 2.1. Legacy Standstill. (a) Legacy (including its affiliates and any "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")) in which it or any of its affiliates is a member) shall not directly or indirectly acquire beneficial ownership or control of any equity securities of New Plan, nor shall Legacy or any of its affiliates or any group in which it or any of its affiliates is a member directly or indirectly acquire beneficial ownership or control of any equity securities of any affiliate of New Plan. (b) Legacy and its affiliates will not, directly or indirectly, acting alone or in concert with others, unless specifically requested in writing in advance by the Board of Directors of New Plan: (a) in any manner acquire or agree, attempt, seek or propose to acquire (or make any request for permission with respect thereto), by purchase, merger, through the acquisition of control of another person, by joining a partnership, limited partnership, syndicate or other group, or otherwise, ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any of the assets or businesses of New Plan or any securities issued by New Plan, or any rights or options to acquire such ownership (including from a third party), (b) make, or in any way cause or participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Regulation 14A under the Exchange Act), or communicate with, seek to advise, encourage or influence any person or entity, in any manner, with respect to the voting of, any voting securities of New Plan, or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 promulgated under the Exchange Act) with respect to New Plan, or execute any written consent with respect to New Plan, (c) make or cause to be made any proposal for the acquisition of New Plan or any assets or securities thereof or for any extraordinary transaction involving New Plan, including any merger, or other business combination, restructuring, recapitalization, liquidation or similar transaction, (d) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to New Plan or induce or attempt to induce any other person to initiate any stockholder proposal, or seek election to or seek to place a representative on the Board of Directors of New Plan or seek the removal of any member of the Board of Directors of New Plan, (e) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of New Plan, (f) otherwise act, alone or in concert with others, to seek to control or influence the management, the Board of Directors or the policies of New Plan, (g) disclose any intention, plan or arrangement, or make any public announcement inconsistent with the foregoing, (h) advise, assist or encourage or finance (or assist or arrange financing to or for) any other person in connection with any of the foregoing, (i) enter into any discussions, negotiations, arrangements or understandings with any other person in connection with any of the foregoing, or (j) request a waiver of any of the foregoing. SECTION 2.2. New Plan Standstill. (a) New Plan (including its affiliates and any group in which it or any of its affiliates is a member) shall not directly or indirectly acquire beneficial ownership or control of any equity securities of Legacy, nor shall New Plan or any of its affiliates or any group in which it or any of its affiliates is a member directly or -4- 5 indirectly acquire beneficial ownership or control of any equity securities of any affiliate of Legacy. (b) New Plan and its affiliates will not, directly or indirectly, acting alone or in concert with others, unless specifically requested in writing in advance by the Board of Directors of Legacy: (a) in any manner acquire or agree, attempt, seek or propose to acquire (or make any request for permission with respect thereto), by purchase, merger, through the acquisition of control of another person, by joining a partnership, limited partnership, syndicate or other group, or otherwise, ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange Act) of any of the assets or businesses of Legacy or any securities issued by Legacy, or any rights or options to acquire such ownership (including from a third party), (b) make, or in any way cause or participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Regulation 14A under the Exchange Act), or communicate with, seek to advise, encourage or influence any person or entity, in any manner, with respect to the voting of, any voting securities of Legacy, or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 promulgated under the Exchange Act) with respect to Legacy, or execute any written consent with respect to Legacy, (c) make or cause to be made any proposal for the acquisition of Legacy or any assets or securities thereof or for any extraordinary transaction involving Legacy, including any merger, or other business combination, restructuring, recapitalization, liquidation or similar transaction, (d) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to Legacy or induce or attempt to induce any other person to initiate any stockholder proposal, or seek election to or seek to place a representative on the Board of Directors of Legacy or seek the removal of any member of the Board of Directors of Legacy, (e) form, join or in any way participate in a group (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of Legacy, (f) otherwise act, alone or in concert with others, to seek to control or influence the management, the Board of Directors or the policies of Legacy, (g) disclose any intention, plan or arrangement, or make any public announcement inconsistent with the foregoing, (h) advise, assist or encourage or finance (or assist or arrange financing to or for) any other person in connection with any of the foregoing, (i) enter into any discussions, negotiations, arrangements or understandings with any other person in connection with any of the foregoing, or (j) request a waiver of any of the foregoing. ARTICLE III DISPARAGING COMMENTS SECTION 3.1. Disparaging Comments. From and after the date of this Agreement, except as may be required by a court or governmental body, each of New Plan and Legacy shall, and shall cause each of its subsidiaries and affliates, and use its reasonable efforts to cause each of its directors, officers and employees, to, refrain from taking actions or making statements, written or oral, which disparage or defame the goodwill or reputation of -5- 6 the other Party and its subsidiaries, affiliates, security holders, partners, agents and former and current directors, officers and employees or which are intended to, or may be reasonably expected to, adversely affect the morale of the employees of such Party, its subsidiaries or its affiliates. Each of New Plan and Legacy shall, and shall cause their respective subsidiaries and affiliates to, take reason-able steps to advise actively employed executive officers of such Party and its subsidiaries and affiliates, and members of their respective boards of directors, not to disparage or defame the reputation of such other Party. ARTICLE IV REAL PROPERTY MATTERS SECTION 4.1. Rancho Bernardo. (a) New Plan, as landlord, and Legacy, as tenant, hereby covenant and agree that certain of the space in the building owned by New Plan and located at 16955 Via Del Campo, Rancho Bernardo, California (the "Building"), which space shall be mutually agreed upon by New Plan and Legacy (the "Demised Premises"), shall be leased by New Plan to Legacy in accordance with the terms and conditions set forth on Exhibit B hereto. (b) The existing space lease between New Plan and Legacy, dated as of June 24, 1998, with respect to approximately 892 rentable square feet in the Building shall remain in full force and effect in accordance with its terms. SECTION 4.2. Excel Properties Ltd. (a) Pursuant to the Assignment and Assumption Agreement attached hereto as Exhibit C (the "Assignment Agreement"), New Plan shall, as of the date hereof, assign all of its right, title and interest as a general partner of Excel Properties, Ltd., a California limited partnership (the "Partnership Interest"), to Legacy or its designee, and Legacy (or such designee) shall assume all of New Plan's obligations and liabilities with respect to the Partnership Interest. (b) To the extent the assignment contemplated in Section 4.2(a) shall require the consent or waiver of any other party, neither this Agreement nor the Assignment Agreement shall constitute an agreement to assign such Partnership Interest without such consent or waiver. If any such required consent or waiver is not obtained, Legacy and New Plan shall, at Legacy's expense, cooperate in any reasonable arrangement requested by Legacy or New Plan and designed to provide Legacy with the benefit of the Partnership Interest (and all associated obligations or liabilities), including New Plan acting as Legacy's agent in order to obtain for Legacy the benefits therefor. Notwithstanding any such consents or assignment, Legacy agrees to indemnify, hold harmless and defend New Plan from and against any and all liabilities, obligations, claims or expenses of whatever kind resulting from or related to the Partnership Interest and the assignment and arrangements contemplated by this Section and the Assignment Agreement. -6- 7 SECTION 4.3. New Legacy Building. (a) Legacy agrees to sublease, as subtenant, from New Plan, as sublandlord, on identical terms to those set forth in the New Building Lease (as hereinafter defined), all of the space at those certain premises at the building owned (or to be constructed) by Legacy and located at Bernardo Center Drive, San Diego, California (the "New Legacy Building") and which New Plan, as tenant, has agreed to lease from Legacy, as landlord, pursuant to a lease, license or other occupancy agreement between them as tenant and landlord (the "New Building Lease"). Legacy, as the lessor under the New Building Lease, further agrees (i) to waive any and all defaults, events of default or breaches under such New Building Lease, as such may arise, from time to time, thereunder, and (ii) to indemnify, hold harmless and defend New Plan from and against any and all liabilities, obligations, claims or expenses of whatever kind resulting from or related to the New Building Lease. Promptly after the date hereof, the parties shall enter into a sublease reflecting the provisions of this Section 4.3. (b) Legacy and New Plan agree that, at such time as the termination of the New Building Lease would not result in a breach or default under the construction financing for the New Legacy Building, the New Building Lease and the sublease entered into in paragraph (a) above shall then terminate and be null, void and of no further force or effect. In addition, Legacy further agrees that it shall not include, make reference to, rely on or cause any other party to rely on the existence or continuation of the New Building Lease in connection with Legacy's procurement of financing for the New Legacy Building (other than the construction financing existing as of the date hereof). ARTICLE V EMPLOYEE MATTERS SECTION 5.1. Former Excel Employees. Each individual who is employed as of the date of this Agreement by New Plan at its Rancho Bernardo or Salt Lake City locations and who agrees to remain employed by New Plan following the transactions contemplated hereby (each such individual, a "Covered Employee") but who is terminated by New Plan within 180 days after the date of this Agreement other than for cause shall be entitled to severance pay (the "Severance Pay") equal to one week's base pay for each full Year of Service (as defined below) completed by such individual; provided that this obligation shall not apply to any of the employees listed on Schedule 5.1, none of whom shall be Covered Employees, nor to any Covered Employee who subsequently becomes an employee of Legacy or any of its affiliates or subsidiaries. For purposes of this Section 5.1, the term "Year of Service" means a period of 12 months of continuous employment with New Plan and/or any predecessor entities. SECTION 5.2. Non-Solicitation of Employees. (a) For a period commencing on the date hereof and continuing through the 90-day period thereafter, Legacy may offer em- -7- 8 ployment only to any of the New Plan employees listed on Schedule 5.1, and, during such period, neither Legacy nor any of its subsidiaries or affiliates, nor any of their respective directors, officers, employees or agents, shall, directly or indirectly, solicit or induce any other person who is an employee of New Plan as of the date hereof to become an employee or consultant of Legacy or any of its affiliates or subsidiaries or to leave the employ of New Plan. (b) For purposes of this Section 5.2, the term "employment" shall include rendering services in any capacity, and the term "employee" shall include any individual who is rendering services, in each case whether as an employee, officer, director, agent, consultant or independent contractor or otherwise. ARTICLE VI MISCELLANEOUS SECTION 6.1. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, or sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. any such notice shall be deemed given when so delivered personally, or sent by facsimile transmission or, if mailed, three (3) business days after the date of deposit in the United States mail, by certified mail return receipt requested (if also sent by facsimile if available at the office of the recipient), as follows: If to Legacy, to: Excel Legacy Corporation 16955 Via Del Campo, Suite 100 San Diego, California 92127 Attention: S. Eric Ottesen Telecopier: (619) 485-8530 With a copy to: Latham & Watkins 701 B Street Suite 2100 San Diego, California 92101-8197 Attention: Scott N. Wolfe, Esq. Telecopier: (619) 696-7419 If to New Plan or EDV, to: New Plan Excel Realty Trust, Inc. 1120 Avenue of the Americas -8- 9 New York, New York 10036 Attention: Steven F. Siegel, Esq. Telecopier: (212) 302-4776 With a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019-6150 Attention: Adam O. Emmerich, Esq. Telecopier: (212) 403-2000 Any Party, by notice given in accordance with this Section 6.1 to the other Parties, may designate another address or person for receipt of notices hereunder. SECTION 6.2. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived only by a written instrument signed by the Parties or in the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof except as expressly provided herein. No waiver on the part of any Party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, shall preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. SECTION 6.3. Governing Law; Enforcement. (a) This Agreement shall be governed by and construed in accordance with the substantive and procedural laws of the State of New York applicable to agreements made and to be performed entirely within such State (without giving effect to any conflict of laws principles which might require application of the law of a different jurisdiction). (b) Each of the Parties hereto (i) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York State court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (iii) agrees that it shall not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of New York or a New York State court. SECTION 6.4. Further Assurances. In addition to the covenants and agreements provided for in this Agreement, after the date hereof, each Party shall, and shall cause its affiliates to, from time to time, at the request of any other Party and without further cost or expense to such requesting Party, execute and deliver such other documents, -9- 10 instruments or agreements as are necessary or advisable to carry out the transactions contemplated by this Agreement. SECTION 6.5. Binding Effect; No Assignment; No Third Party Beneficiaries. Except as expressly provided herein, neither this Agreement, nor any right hereunder, may be assigned by any Party without the written consent of the other Parties. Any assignment or attempted assignment in violation of the foregoing shall be void. This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto and their permitted successors and assigns and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 6.6. Counterparts. This Agreement may be executed by the Parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the Parties. SECTION 6.7. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 6.8. Severability. If any term or other provision of this Agreement shall be deemed invalid, illegal or unenforceable, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon a determination that any term or other provision is invalid, illegal or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible. SECTION 6.9. Survival. All representations, warranties, covenants and agreements of the parties shall survive the consummation of the transactions contemplated by this Agreement. SECTION 6.10. Entire Agreement. This Agreement, the Stock Purchase Agreement, the Termination and Release Agreements, the Resignations and the other instruments or agreements entered into in connection with this Agreement or the transactions contemplated hereby constitute the entire agreement between the Parties hereto and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof; provided, however, that nothing herein shall relieve any Party hereto of any obligation or liability to any other Party hereto, or otherwise modify, amend or vary any such obligation or liability, other than as expressly provided herein. -10- 11 SECTION 6.11. Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "Affiliate" or "affiliates", as applied to any Person, shall mean any other Person directly or indirectly controlling, controlled by, or under common control with that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities or by contract or otherwise. (b) "Beneficially own" and "beneficial ownership" have the meanings given to these terms in Rule 13d-3 of the Rules and Regulations of the Securities and Exchange Commission under the Exchange Act, as in effect on the date hereof. (c) "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. SECTION 6.12. Interpretation; Absence of Presumption. As used in this Agreement, the following terms shall have the meanings set forth below: (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall apply, when appropriate,to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. SECTION 6.13. Expenses. Unless otherwise indicated in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses. SECTION 6.14. Specific Enforcement. The Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement -11- 12 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, subject to Section 6.3, the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any State having jurisdiction, this being in addition to any remedy to which they are entitled at law or in equity. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed on the date first above written. NEW PLAN EXCEL REALTY TRUST, INC. By: /s/ Arnold Laubich ---------------------------------------- Name: Arnold Laubich Title: Chief Executive Officer ERT DEVELOPMENT CORPORATION By: /s/ Richard B. Muir ---------------------------------------- Name: Richard B. Muir Title: Executive Vice President EXCEL LEGACY CORPORATION By: /s/ Gary B. Sabin ---------------------------------------- Name: Gary B. Sabin Title: Chairman, President and Chief Executive Officer -12- 13 EXHIBIT A TO MASTER SEPARATION AGREEMENT [FORM OF RESIGNATION] April 21, 1999 Board of Directors New Plan Excel Realty Trust, Inc. 1120 Avenue of the Americas New York, New York 10036 Gentlemen: I hereby resign as a Director of New Plan Excel Realty Trust, Inc. ("New Plan") and from any other office or position I may hold as a Director or otherwise with New Plan, New Plan Realty Trust, or any of their respective subsidiaries or affiliates, effective upon acceptance hereof by the Board of Directors, and after the execution and delivery of the Master Separation Agreement, dated as of the date hereof, among New Plan, ERT Development Corporation ("EDV") and Excel Legacy Corporation (the "Master Separation Agreement") and the consummation of the Closing, as defined in the Stock Purchase Agreement, dated as of the date hereof, among NNRA, LLC, EDV and Excel Interfinancial Corporation. --------------------------------------- Name: 14 EXHIBIT B TO MASTER SEPARATION AGREEMENT TERMS AND CONDITIONS OF SPACE LEASE 1. The term of this Lease shall commence on the date hereof and shall continue month-to-month at the option of Legacy (based upon calendar months), but in no event shall the term of this Lease extend beyond May 31, 2000. 2. The rent payable under this Lease shall be $1.75 per rentable square foot per month. Rent is to be paid by Legacy monthly in advance on the first day of each calendar month during the term hereof, at the main office of New Plan or as may be otherwise directed by New Plan in writing. In addition, Legacy agrees to pay as invoiced any operating expenses and real estate taxes for the Building on a pro rata basis, based on the relative square footage of the Demised Premises to the Building. 3. Legacy shall use the Demised Premises for office purposes only. 4. This Lease includes all equipment and furniture located in the Demised Premises as of the date hereof, and Legacy shall have the option, at the expiration of this Lease, to acquire, at a price to be mutually agreed between New Plan and Legacy, all equipment and furniture located in the Demised Premises and not required by New Plan for the conduct of its business. 5. Legacy shall not sublet the Demised Premises or any portion thereof, nor shall this Lease be assigned by Legacy, without the prior written consent of New Plan (which consent may be unreasonably withheld). 6. Legacy has examined the Demised Premises, and accepts them in their present "as is" condition. Legacy shall keep the Demised Premises in good repair and condition. Legacy shall quit and surrender the Demised Premises at the end of the term in as good condition as the reasonable use thereof will permit. Legacy shall not make any alterations, additions, or improvements to the Demised Premises without the prior written consent of New Plan. All alterations, additions, improvements and personal property, whether temporary or permanent in character, which may be made upon the Demised Premises either by New Plan or Legacy, except furniture, equipment or moveable trade fixtures installed at the expense of Legacy, shall be the property of New Plan and shall remain upon and be surrendered with the Demised Premises as a part thereof at the termination of this Lease, without compensation to Legacy (but subject to the purchase option described in Section 4 above). 7. New Plan shall provide utilities and services to the Demised Premises for the benefit of Legacy in a quality and manner consistent with New Plan's prior practice with respect to the Demised Premises. 15 8. Legacy agrees to observe and comply with all laws, ordinances, rules and regulations of any federal, state, county and municipal authorities applicable to the business to be conducted by Legacy in the Demised Premises. 9. In case of a breach or violation by Legacy of any of the covenants, agreements and conditions of this Lease, or of the rules and regulations now or hereafter to be reasonably established by New Plan, and upon failure to cure such breach or violation within ten days after written notice thereof given to Legacy, in addition to any other rights or remedies available to New Plan at law or in equity, this Lease shall thenceforth, at the option of New Plan, become null and void, and New Plan may reenter the Demised Premises without further notice or demand. 10. This Lease is subject and is hereby subordinated to all present and future mortgages, deeds of trust and other encumbrances affecting the Demised Premises or the property of which said premises are a part. 11. New Plan covenants that Legacy, subject to paying the rental and performing the covenants and conditions contained in this Lease contained, shall and may peaceably and quietly have, hold and enjoy the Demised Premises for the term set forth herein. B-2 16 EXHIBIT C TO MASTER SEPARATION AGREEMENT [FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT] THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, made as of April 21,1999 (this "Assignment Agreement"), between New Plan Excel Realty Trust, Inc., a Maryland corporation ("New Plan"), and Excel Legacy Corporation, a Delaware corporation ("Legacy"), is delivered pursuant to that certain Master Separation Agreement (the "Agreement"), dated as of April 21, 1999, among New Plan, Legacy and ERT Development Corporation. Capitalized terms used but not defined herein shall have their respective meanings as set forth in the Agreement. WITNESSETH WHEREAS, pursuant to the terms of the Agreement, New Plan has agreed to assign, transfer and dispose of, and Legacy has agreed to acquire and accept, all of New Plan's right, title and interest as a general partner of Excel Properties, Ltd., a California limited partnership (the "Partnership Interest"); and WHEREAS, pursuant to the Agreement, Legacy has agreed to assume all of New Plan's liabilities and obligations arising on or after the date hereof arising from or relating to the Partnership Interest. WHEREAS, the execution and delivery of this Assignment Agreement by the Parties is a condition to the obligation of the Parties to consummate the transactions contemplated by the Agreement. NOW, THEREFORE, in consideration of the premises set forth in this Assignment Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be legally bound, and subject to the terms and conditions stated herein, the Parties hereby agree as follows: I. Assignment. New Plan hereby assigns to Legacy all of New Plan's right, title and interest, on and after the date hereof, in and to the Partnership Interest. To the extent the assignment contemplated hereby shall require the consent or waiver of any other party, neither this Assignment Agreement nor the Agreement shall constitute an agreement to assign the Partnership Interest without such consent or waiver. If any such required consent or waiver is not obtained, Legacy and New Plan shall, at Legacy's expense, cooperate in any reasonable arrangement requested by Legacy or New Plan and designed to provide Legacy with the benefit of the Partnership Interest (and all associated obligations or liabilities), including New Plan acting as Legacy's agent in order to obtain for Legacy the benefits therefor. Notwithstanding any such consents or assignment, Legacy agrees to indemnify, hold harmless and defend New Plan from and against any and all liabilities, obligations, claims or expenses of whatever kind resulting from or related to the Partnership Interest and the assignment and arrangements contemplated by the Agreement and this Assignment Agreement. 17 II. Assumption. Legacy hereby assumes all of the liabilities and obligations arising on or after the date hereof arising from or relating to the Partnership Interest, and Legacy shall indemnify, hold harmless and defend New Plan from and against any and all liabilities, obligations, claims or expenses of whatever kind resulting from or relating to the Partnership Interest. III. Remedies. Nothing in this Assignment Agreement, express or implied, is intended or shall be construed to confer upon, or give to, any person, firm or corporation other than New Plan and Legacy and their respective successors and assigns, any remedy or claim under or by reason of this Assignment Agreement or any terms, covenants or condition hereof, and all the terms, covenants and conditions, promises and agreements contained in this Assignment Agreement shall be for the sole and exclusive benefit of New Plan and Legacy and their respective successors and assigns. IV. Miscellaneous. The agreements, covenants and terms contained herein shall be binding upon and inure to the benefit of New Plan and Legacy and their respective successors and assigns, and shall be construed and enforced according to the laws of the State of New York (without giving effect to choice of law principles thereof). Neither of the parties hereto may assign this Assignment Agreement to any party (other than an Affiliate) without the prior written consent of the other party. This Assignment Agreement may be executed in one or more counterparts each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have duly executed this Assignment Agreement as of the date first above written. NEW PLAN EXCEL REALTY TRUST, INC. By:_____________________________________ Name: Title: EXCEL LEGACY CORPORATION By:_____________________________________ Name: Title: C-2 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1999 MAR-31-1999 1,175,000 0 273,000 (104,000) 0 0 194,951,000 (3,503,000) 270,138,000 0 102,476,000 0 213 335 166,266,000 270,138,000 0 9,217,000 0 8,904,000 0 72,000 2,025,000 313,000 139,000 174,000 0 0 0 174,000 $0.01 $0.00
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