10-K405

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2001

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-20449

PRICE LEGACY CORPORATION
(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization) 33-0628740
(I.R.S. Employer
Identification No.)

17140 Bernardo Center Drive Suite 300, San Diego, California 92128
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 858-675-9400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $.0001 Par Value
8³/4% Series A Cumulative Redeemable
Preferred Stock $.0001 Par Value

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant as of March 15, 2002 was $57,308,648 based on the last reported sale price of $3.08 per share on March 15, 2002.

        The number of outstanding shares of the registrant's common stock as of March 15, 2002 was 40,726,191.

        DOCUMENTS INCORPORATED BY REFERENCE: Certain information called for by Part III of the Form 10-K will either be filed with the Commission under Regulation 14A under the Securities Exchange Act of 1934 or by amendment to this Form 10-K, in either case on or before April 30, 2002.

PRICE LEGACY CORPORATION

Annual Report on Form 10-K

for the Year Ended December 31, 2001

TABLE OF CONTENTS

PART I		4
	ITEM 1 — Business	4
	ITEM 2 — Properties	15
	ITEM 3 — Legal Proceedings	20
	ITEM 4 — Submission of Matters to a Vote of Security Holders	20
PART II		21
	ITEM 5 — Market for Registrant's Common Equity and Related Stockholder Matters	21
	ITEM 6 — Selected Financial Data	22
	ITEM 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	ITEM 7A. — Quantitative and Qualitative Disclosures About Market Risk	33
	ITEM 8 — Financial Statements and Supplementary Data	35
	ITEM 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
PART III		62
	ITEM 10 — Directors and Executive Officers of the Registrant	62
	ITEM 11 — Executive Compensation	62
	ITEM 12 — Security Ownership of Certain Beneficial Owners and Management	62
	ITEM 13 — Certain Relationships and Related Transactions	62
PART IV		62
	ITEM 14 — Exhibits, Financial Statement Schedules, and Reports on Form 8-K	62

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FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains certain "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. You can identify these forward-looking statements by forward-looking words such as "believe," "may," "could," "will," "estimate," "continue," "anticipate," "intend," "seek," "plan," "expect," "should," "would" and similar expressions in this Annual Report on Form 10-K. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about Price Legacy, including, among other things:

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the effect of economic, credit and capital market conditions in general and on real estate companies in particular, including changes in interest rates



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our ability to compete effectively



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developments in the retail industry



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the financial stability of Price Legacy's tenants, including our reliance on major tenants



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our ability to successfully complete real estate acquisitions, developments and dispositions



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our ability to achieve the expected benefits of our merger with Excel Legacy Corporation



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government approvals, actions and initiatives, including the need for compliance with environmental requirements



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our ability to continue to qualify as a real estate investment trust, or REIT

        The factors identified above are believed to be some, but not all, of the important factors that could cause actual events and results to be significantly different from those that may be expressed or implied in any forward-looking statements. Any forward-looking statements should also be considered in light of the information provided in "Factors That May Affect Future Performance" located elsewhere in this Form 10-K. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

        In this Form 10-K:

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"Company," "Price Legacy," "we," "our," and "us" means Price Legacy Corporation and its subsidiaries



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"PEI" means Price Enterprises, Inc.



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"Excel Legacy" means Excel Legacy Corporation



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"REIT" means real estate investment trust



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"GLA" means gross leasable area



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"FFO" means funds from operations



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"TRS" means Taxable REIT Subsidiary

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PART I

ITEM 1—Business

Formation of the Company and Subsequent Transactions

        Price Legacy was formed in September 2001 from the merger of PEI and Excel Legacy (the Merger). In 1994, PEI spun off from Costco Companies, Inc., formerly Price/Costco, Inc. PEI became a self-administered, self-managed REIT in September 1997, which acquires, operates and develops open-air retail properties throughout the United States. In 1998, Excel Legacy spun off from Excel Realty Trust, Inc., a REIT, to pursue a wider variety of real estate opportunities including acquiring, developing and managing mixed-use and retail properties and real estate related operating companies throughout the United States and Canada. In connection with the Merger, Excel Legacy became a wholly owned subsidiary of PEI, and PEI changed its name to Price Legacy Corporation.

        Price Legacy continues to operate as a REIT focused on open-air retail properties throughout the United States. Our current property portfolio mainly consists of open-air shopping centers leased to major retail tenants. At December 31, 2001, we owned 42 commercial real estate properties, three of which were held through majority-owned joint ventures, and one property with a 24-year ground lease. We also owned five parcels of land under development and five parcels of land held for future development or sale. In addition to the above property portfolio, we held 50-55% ownership interests in three joint ventures.

        Concurrently with the Merger, Price Legacy issued to Warburg, Pincus Equity Partners, L.P. and certain of its affiliates (Warburg Pincus), for an aggregate purchase price of $100 million (the Warburg Investment):

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17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, par value $0.0001 per share (Series B Preferred Stock), and



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a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share.

        In addition, Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, converted an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of Series B Preferred Stock and a warrant to purchase 233,679 shares of common stock at an exercise price of $8.25 per share.

        The Series B Preferred Stock is junior to our Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from the date of issuance. The 9% coupon will be paid with additional shares of Series B Preferred Stock, at $5.56 per share for the first 45 months from issuance. The Warburg Investment closed concurrently with the Merger.

        Holders of our Series A Preferred Stock have the right to elect four of the eight directors of our board of directors and Warburg Pincus has the right to elect two directors to our board. The remaining two directors of our board will be elected by the holders of our common stock and Series A Preferred Stock, voting together as a single class.

        Our subsidiaries include Excel Legacy Holdings, Inc. which acquired certain assets of Excel Legacy after the Merger and elected to be treated as a Taxable REIT Subsidiary (TRS). Other than certain activities related to lodging and health care facilities, a TRS may generally engage in any business. As a regular C corporation, a TRS is subject to federal income tax and state and local income taxes, where applicable.

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Overview of the Company's Business

        Our current property portfolio consists primarily of open-air shopping centers leased to major retail tenants including Costco, Kmart, The Sports Authority, The Home Depot, Marshall's, PETsMART, and Wal-Mart. We receive approximately 35% of annual minimum rents from tenants with investment grade credit ratings.

        For a description of our properties and of material developments during the year regarding these investments and our Company as a whole please refer to "Item 2—Properties" and "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" located elsewhere in this Form 10-K.

        Our business strategy is to continue to enhance the value and operating income of our portfolio by, among other things, completing the leasing of existing properties, acquiring new investment properties and completing the development of existing properties. In making new real estate investments, we emphasize acquiring well-located income-producing open-air shopping centers, principally occupied by credit rated tenants with attractive yields and potential for increases in income and capital appreciation. We will also, from time to time, consider disposing or exchanging existing investments in order to improve our investment portfolio or increase our funds from operations. We continuously evaluate our properties and review potential strategies of repositioning or redeveloping our properties in order to maximize FFO and enhance property values. Our investment and portfolio management goal is maximizing long-term FFO.

        We provide property management for all but three of our properties. Self-management enables us to more closely control leasing and management of our property. Internal property management also provides opportunities for operating efficiencies by enabling us to acquire additional properties without proportionate increases in property management expenses. Our property management program is implemented by property management and leasing professionals located in offices in San Diego, CA, Fountain Valley, CA, Scottsdale, AZ, Sterling, VA, and Hollywood, FL. We also have an office in Salt Lake City, UT which coordinates the acquisition and disposition of our properties.

        Our operating results depend on:

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performance and continuing viability of the existing tenants in our current real estate investment portfolio



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the existence of new replacement tenants



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competition from other retail centers and other forms of retail shopping, including internet commerce

        Our growth depends on:

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increased returns from our existing real estate investment properties



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availability of attractive new real estate investment opportunities



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cost of capital related to existing and new real estate investments

        Real estate industry cycles heavily influence our performance as a REIT. We discuss this further in "Factors That May Affect Future Performance" located elsewhere in this Form 10-K.

Competition

        We compete with a wide variety of corporate and individual real estate developers and REITs which have similar investment objectives and may have greater financial resources, larger staffs or longer operating histories than us.

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        We also compete with other property owners to obtain tenants for our retail shopping center properties. Our competitive advantages are primarily based on significant customer traffic generated by our national and regional tenants, competitive lease terms, relatively high occupancy rates, and relatively low occupancy costs associated with open-air centers. The closing or relocation of any anchor tenant could have a material adverse effect on the operation of a shopping center. We discuss this further in "Factors That May Affect Future Performance" located elsewhere in this Form 10-K.

Significant Tenants

        Our ten largest tenants account for approximately 40% of our total GLA and approximately 41% of our total annual minimum rent revenues. We show certain information about these tenants in the following table (dollars in thousands):

Tenant	Number of Leases	Area Under Lease (sq. ft)	Percent of GLA Under Lease		Annual Minimum Rent		Percent of Total Annual Minimum Rent
Costco	4	618,192	7.4	%	$	8,573.1	9.8	%
Price Self Storage	4	855,577	10.2	%		5,100.0	5.8	%
Kmart	4	461,829	5.5	%		4,107.1	4.7	%
The Sports Authority	7	306,722	3.7	%		3,780.2	4.3	%
The Home Depot	3	356,453	4.2	%		3,505.2	4.0	%
AMC Theaters	2	122,557	1.5	%		2,488.0	2.8	%
Marshall's	4	146,176	1.7	%		2,432.6	2.8	%
AT&T Wireless	1	126,005	1.5	%		2,056.4	2.3	%
PETsMART	7	169,890	2.0	%		2,020.7	2.3	%
BJ's Wholesale Club	2	218,505	2.6	%		1,921.5	2.2	%
	38	3,381,906	40.3	%	$	35,984.8	41.0	%

        It is not uncommon for economic conditions, market surpluses of retail space, internet purchasing and competitive pressures to negatively impact a retail operator's financial results, especially smaller retail operators. When a tenant files for bankruptcy we assess our alternatives for the potentially available space. Kmart, our third largest tenant, filed voluntary petitions for reorganization under Chapter 11 of the U. S. Bankruptcy Code on January 22, 2002. None of the Kmart store closings announced prior to this filing were located in any of our shopping centers. However, Kmart did reject the lease on a vacant Builder's Square at one of our properties. We are currently unable to determine the ultimate impact Kmart's bankruptcy will have on our operations. We discuss Kmart further in "Factors That May Affect Future Performance" located elsewhere in this Form 10-K.

Environmental Matters

        Our properties are affected by federal, state and local environmental laws. These laws relate to the discharge of materials and protection of the environment. We have made, and intend to continue to make, necessary expenditures for compliance with applicable laws. The properties listed below have required remediation and clean-up of certain past industrial activity:

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Azusa, CA



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Pentagon City, VA



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Signal Hill, CA



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New Britain, CT

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        Expenses related to monitoring and cleaning up these properties have not been material to our operations. While we cannot predict with certainty the future costs of such clean up activities, or operating costs for environmental compliance, we do not believe they will have a material effect on our capital expenditures, earnings or competitive position.

Seasonality

        Our real estate operations generally are less subject to seasonal fluctuations as our primary focus centers on tenants who offer basic goods.

Corporate Headquarters

        Our headquarters are located at 17140 Bernardo Center Drive Suite 300, San Diego, CA, 92128, and we believe that our current facilities meet our expected requirements over the next 12 months. Our telephone number is (858) 675-9400. As of March 1, 2002, we and our subsidiaries had approximately 176 employees.

Factors That May Affect Future Performance

Real property investments are subject to varying degrees of risk that may affect the performance and value of our properties. Our revenue and the performance and value of our properties may be adversely affected by a number of factors, including:

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changes in the national, regional and local economic climates



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local conditions such as an oversupply of space or a reduction in demand for similar or competing properties in the area



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changes in interest rates which may render the sale and/or refinancing of a property difficult or unattractive



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changes in consumer spending patterns



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the attractiveness of our properties to tenants



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competition from other available space



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our ability to provide adequate maintenance and insurance



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increased operating costs

        In addition, some significant operating expenses associated with our properties, such as debt payments, maintenance, tenant improvement costs and taxes, generally are not reduced when gross income from properties is reduced. If our properties do not generate revenue sufficient to meet operating expenses, we may have to borrow additional amounts to cover costs, which could harm our ability to make distributions to our stockholders.

Significant competition from developers, owners and operators of real estate properties may adversely affect the success of our business. We compete in the acquisition of real estate properties with over 200 publicly-traded REITs as well as other public and private real estate investment entities, including mortgage banks and pension funds, and other institutional investors, as well as individuals. Competition from these entities may impair our financial condition and materially harm our business by reducing the number of suitable investment opportunities offered to us and increasing the bargaining power of prospective sellers of property, which often increases the price necessary to purchase a property. Many of our competitors in the real estate sector are significantly larger than us and may have greater financial resources and more experienced managers. In addition, a large portion of our developed properties will be located in areas where competitors maintain similar properties. We will need to

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compete for tenants based on rental rates, attractiveness and location of properties, as well as quality of maintenance and management services. Competition from these and other properties may impair our financial condition and materially harm our business by:

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interfering with our ability to attract and retain tenants



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increasing vacancies, which lowers market rental rates and limits our ability to negotiate favorable rental rates



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impairing our ability to minimize operating expenses

Developments in the retail industry could adversely affect our ability to lease space in our shopping centers, which would harm our business. We derive a substantial portion of our income from tenants in the retail industry. The market for retail space and the general economic or local conditions of the retail industry can significantly affect our financial performance. A number of recent developments have heightened competitive pressures in the market for retail space, including:

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consolidation among retailers



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the financial distress of large retailers in some markets, including the bankruptcy of some retailers



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a proliferation of new retailers



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a growing consumer preference for value-oriented shopping alternatives, such as internet commerce



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an oversupply of retail space in some areas of the country

        As a result of these developments, many companies in the retail industry have encountered significant financial difficulties. Since we have no control over the occurrence of these developments, we cannot make any assurance that our business or financial results will not be adversely affected by these developments and the competitive pressures they create.

We rely on Costco for 9.8% of our annual minimum rent revenue, and any financial difficulties faced by this or any other significant tenant may harm our business and impair our stock price. Our financial position, results of operations and ability to make distributions to our stockholders may be adversely affected by financial difficulties experienced by any of our major tenants, including Costco, Kmart, and The Sports Authority. Although failure on the part of a tenant to materially comply with the terms of a lease, including failure to pay rent, would give us the right to terminate the lease, repossess the property and enforce the payment obligations under the lease, we could experience substantial delays and costs in doing so. We may not be able to enforce the payment obligations against the defaulting tenant, find another tenant or, if another tenant were found, enter into a new lease on favorable terms. Our largest tenant is Costco, which accounted for approximately 9.8% of our total annual minimum rent revenue in 2001. In addition to our four properties where Costco is the major tenant, Costco warehouses are adjacent to an additional 11 of our properties. If Costco or any other major tenant chooses to terminate or not to renew its lease, our financial condition and business could be materially harmed.

        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. Kmart, our third largest tenant, filed for Chapter 11 bankruptcy protection in January 2002.    Although none of the Kmart store closings announced prior to this filing were located in any of our shopping centers, we have four Kmart store leases that represented approximately 4.7% of our annualized base rental income at December 31, 2001. In addition, Kmart pays rent on a vacant Builder's Square at one of our properties. This lease has been rejected. House 2 Home, a tenant at our Inglewood, CA property, also filed for Chapter 11 bankruptcy protection in 2001 and has closed its store. Under bankruptcy law, a

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tenant has the option of assuming (continuing) or rejecting (terminating) any unexpired lease. If a tenant in bankruptcy assumes its lease with us, such tenant must cure all defaults under the lease and provide us with the adequate assurance of its future performance under the lease. If a tenant in bankruptcy rejects the lease, our claim for breach of the lease would (absent collateral securing the claim) be treated as a general unsecured claim. We may not receive all amounts owed to us under terms of a lease if a tenant rejects a lease in bankruptcy due to certain limits imposed by bankruptcy laws.

Termination of a lease by Costco or other significant tenant may allow some tenants to reduce or terminate their leases. If Costco or other significant tenants were to terminate a lease with us or a lease for space adjacent to one or more of our properties, some of our other tenants at these properties would have rights to reduce their rent or terminate their leases. In addition, tenants at these properties, including those with termination rights, could elect not to extend or renew their lease at the end of the lease term. If any of these events occur, our financial condition and business could be materially harmed.

Our financial performance depends on regional economic conditions since many of our properties and investments are located in California, Arizona, and Florida. Our properties and real estate related investments include 38 properties located in three states: 22 in California, nine in Arizona, and seven in Florida. With such a large number of properties and real estate related investments in these states, we may be exposed to greater economic risks than if they were located in several geographic regions. Our revenue from, and the value of, the properties and investments located in these states may be affected by a number of factors, including an oversupply of, or reduced demand for, real estate properties and downturns in the local economic climate caused by high unemployment, business downsizing, industry slowdowns, changing demographics and other factors. A general downturn in the economy or real estate conditions in California, Arizona, or Florida could impair our financial condition and materially harm our business. Further, due to the relatively high cost of real estate in the southwestern United States, the real estate market in that region may be more sensitive to fluctuations in interest rates and general economic conditions than other regions of the United States. We do not have any limitations or targets for the concentration of the geographic location of our properties and, accordingly, the risks associated with this geographic concentration will increase if we acquire additional properties in these states.

        Our income depends on rental income from real property.    The majority of our income is derived from rental income from real property. Accordingly, our income and funds available for distribution would be adversely affected if a significant number of our tenants were unable to meet their obligations to us or if we were unable to lease a significant amount of space in our properties on economically favorable lease terms. We cannot make any assurance that any tenant whose lease expires in the future will renew its lease or that we will be able to re-lease space on economically advantageous terms, if at all. In addition, our ability to lease or re-lease vacant space will be affected by many factors, including the existence of covenants typically found in shopping center tenant leases, such as those requiring the use of space at the shopping center not to be competitive with another tenant. Our ability to lease or re-lease our properties may cause fluctuations in our cash flow, potentially affecting the cash available for distributions to stockholders.

Illiquidity of real estate investments may make it difficult for us to sell properties in response to market conditions. Equity real estate investments are relatively illiquid and therefore will tend to limit our ability to vary our portfolio promptly in response to changing economic or other conditions. To the extent the properties are not subject to triple net leases, some significant expenditures such as real estate taxes and maintenance costs are generally not reduced when circumstances cause a reduction in income from the investment. Should these events occur, our income and funds available for distribution could be adversely affected. In addition, REIT requirements may subject us to confiscatory taxes on gain recognized from the sale of property if the property is considered to be held primarily for sale to

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customers in the ordinary course of our trade or business. To prevent these taxes, we may comply with safe harbor rules relating to the number of properties sold in a year, how long we owned the properties, their tax bases and the cost of improvements made to those properties. However, we cannot make any assurance that we will be able to successfully comply with these safe harbors and, in the event that compliance is possible, the safe harbor rules may restrict our ability to sell assets in the future.

Our leverage may be difficult to service and could adversely affect our business. As of December 31, 2001, we had outstanding borrowings of approximately $484.0 million, requiring an estimated annual debt service of approximately $27.4 million. We are exposed to the risks normally associated with debt financing, which may materially harm our business, including the following:

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our cash flow may be insufficient to meet required payments of principal and interest on borrowings and this insufficiency may leave us with insufficient cash resources to pay operating expenses



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we may not be able to refinance debt at maturity



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if refinanced, the terms of refinancing may not be as favorable as the original terms of the debt

Rising interest rates may adversely affect our cash flow and business. A large portion of our debt bears interest at variable rates. Variable rate debt creates higher debt payments if market interest rates increase. We may incur additional debt in the future that also bears interest at variable rates. Higher debt payments as a result of an increase in interest rates could adversely affect our cash flows, cause us to default under some debt obligations or agreements, and materially harm our business.

We face risks associated with our equity investments in and with third parties because of our lack of control over the underlying real estate assets. As part of our growth strategy, we may invest in shares of REITs or other entities that invest in real estate assets. In these cases, we will be relying on the assets, investments and management of the REIT or other entity in which we invest. These entities and their properties will be exposed to the risks normally associated with the ownership and operation of real estate. We may also invest in or with other parties through partnerships and joint ventures. In these cases, we will not be the only entity making decisions relating to the property, partnership, joint venture or other entity. Risks associated with investments in partnerships, joint ventures or other entities include:

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the possibility that our partners might experience serious financial difficulties or fail to fund their share of required investment contributions



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our partners might have economic or other business interests or goals which are inconsistent with our business interests or goals, resulting in impasse or decisions which are contrary to our business interests or goals



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our partners may take action contrary to our instructions or requests and adverse to our policies and objectives, including our policy with respect to maintaining our qualification as a REIT

        Any substantial loss or action of this nature could potentially harm our business or jeopardize our ability to qualify as a REIT. In addition, we may in some circumstances be liable for the actions of our third-party partners or co-venturers.

We could incur significant costs and expenses related to environmental problems. Under various federal, state and local laws and regulations, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating these substances on or under the property. These laws often impose liability without regard to whether the owner or operator of the property was responsible for or even knew of the presence of the hazardous substances. The presence of or failure to

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properly remediate hazardous or toxic substances may impair our ability to rent, sell or borrow against a property. These laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of these hazardous substances at the disposal or treatment facility. These laws often impose liability regardless of whether the entity arranging for the disposal ever owned or operated the disposal facility. In addition, even if more than one person was responsible for the contamination, each person covered by the environmental laws may be held responsible for the clean-up costs incurred. Other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing materials into the air. As an owner and operator of property and as a potential arranger for hazardous substance disposal, we may be liable under these laws and regulations for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses. Payment of these costs and expenses, which can exceed the value of the subject property, could impair our financial condition, materially harm our business and have a material adverse effect on our ability to make distributions to our stockholders. In addition, environmental laws may impose restrictions on the manner in which we use our properties or operate our business, and these restrictions may require expenditures to achieve compliance.

The costs of compliance with regulatory requirements, including the Americans with Disabilities Act, could adversely affect our business. Our properties will be subject to various federal, state and local regulatory requirements, including the Americans with Disabilities Act of 1990, which requires all public accommodations and commercial facilities to meet federal requirements relating to access and use by persons with disabilities. Compliance with the Americans with Disabilities Act requirements could involve removal of structural barriers from disabled persons' entrances on our properties. Other federal, state and local laws may require modifications to or restrict further renovations of our properties to provide this access. Noncompliance with the Americans with Disabilities Act or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against us, or could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. If we incur these costs and expenses, our financial condition and ability to make distributions to our stockholders could be impaired. In addition, we cannot be assured that regulatory requirements will not be changed or that new regulatory requirements will not be imposed that would require significant unanticipated expenditures by us or our tenants. Unexpected expenditures could adversely affect our net income and cash available for distributions to our stockholders.

        Terrorism and the Uncertainty of War May Adversely Affect the Company.    Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001 and other acts of violence or war may affect our operations and profitability, the market in which we operate, and the market on which our common stock trades. Further terrorist attacks against the United States or U.S. businesses may occur. The potential near-term and long-term effect these attacks may have on our customers, the market for our services, the market for our common stock and the U.S. economy are uncertain. The consequences of any terrorist attacks, or any armed conflicts which may result, are unpredictable and could materially harm our business and impair the value of our common stock. In addition, the aftermath of the September 11, 2001, attacks has resulted in higher operating costs for some of our properties due to heightened security measures. We are unable to predict whether these increased costs will abate over time, or whether we will be able to pass them through to our tenants. These and other long-term effects on our business of these attacks are unknown at the time, but could adversely affect our business and results of operations.

The success of our business depends on the services provided by our key personnel, the loss of whom could harm our business. The success of our business depends to a large extent on the contributions and performance of our senior management team, particularly Gary B. Sabin, Richard Muir, Graham Bullick, Jim Nakagawa, Mark Burton, and Eric Ottesen for strategic business direction and real estate

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experience. In connection with the Merger, we assumed the current employment agreements that Excel Legacy maintained with some of its executives, which extend through 2003 with automatic one-year renewal periods unless terminated by their terms. We do not have key-man life insurance for any of our senior management. If we lose the services of Mr. Sabin or any other members of senior management, our business and future development could be materially harmed.

A small number of stockholders can exert significant influence over our company, which could make it difficult for us to complete some corporate transactions without their support, which could depress the price of our stock. Holders of our common stock, Series A Preferred Stock and Series B Preferred Stock may generally vote together on all matters submitted to our stockholders for approval, other than the election of directors. Each share of common stock is entitled to one vote, each share of Series A Preferred Stock is entitled to one-tenth (1/10^th) of one vote and each share of Series B Preferred Stock is entitled to a number of votes equal to the number of shares of common stock into which a share of Series B Preferred Stock is then convertible, currently one vote.

        In the election of directors, (1) holders of Series A Preferred Stock, voting separately, have the right to elect four members of our board of directors, (2) holders of common stock and Series A Preferred Stock, voting together as a single class, have the right to elect two other members of our board of directors, and (3) Warburg Pincus, for so long as Warburg Pincus continues to hold shares representing at least 10% of our common stock on an as-converted basis, has the right to elect the two remaining members of our board of directors. Holders of Series A Preferred Stock also have the right to vote separately on matters relating to the Series A Preferred Stock, such as the creation of any class of stock senior to the Series A Preferred Stock or the amendment of our charter to materially and adversely affect the rights of the Series A Preferred Stock. Holders of Series B Preferred Stock have the right to vote separately on similar matters relating to the Series B Preferred Stock, as well as the right to vote separately on other matters, including mergers, acquisitions, dispositions and the incurrence of indebtedness.

        Sol Price, Robert E. Price and parties affiliated with them, including The Price Group, currently beneficially own an aggregate of approximately 11.3 million shares of Series A Preferred Stock, approximately 6.1 million shares of common stock, and approximately 1.7 million shares of Series B Preferred Stock. These shares represent approximately: (1) 40.7% of the voting power with respect to matters submitted solely to the holders of Series A Preferred Stock; (2) 8.5% of the voting power with respect to matters submitted solely to the holders of Series B Preferred Stock; (3) 16.5% of the voting power with respect to matters submitted to the holders of common stock and Series A Preferred Stock; and (4) 14.0% of the voting power with respect to matters submitted to the holders of common stock, Series A Preferred Stock and Series B Preferred Stock. In addition, The Price Group holds a warrant to purchase an additional 233,679 shares of common stock and will be issued 666,080 additional shares of Series B Preferred Stock over the 45 months following the issuance date of the Series B Preferred Stock as distributions on the Series B Preferred Stock. As a result of their stock holdings, these parties could effectively control the outcome of matters submitted solely to the holders of Series A Preferred Stock, including the election of four members of our board, and significantly influence matters submitted to the holders of common stock, Series A Preferred Stock and Series B Preferred Stock.

        Warburg Pincus currently beneficially owns an aggregate of approximately 5.0 million shares of common stock and approximately 18.0 million shares of Series B Preferred Stock. These shares represent approximately: (1) 91.5% of the voting power with respect to matters submitted solely to the holders of Series B Preferred Stock; and (2) 36.4% of the voting power with respect to matters submitted to the holders of common stock, Series A Preferred Stock and Series B Preferred Stock. In addition, Warburg Pincus holds a warrant to purchase an additional 2.5 million shares of common stock and will be issued approximately 7.1 million additional shares of Series B Preferred Stock over the 45 months following the issuance date of the Series B Preferred Stock as distributions on the Series B Preferred Stock. As a result of its stock holdings, Warburg Pincus could effectively control the outcome

12

of matters submitted solely to the holders of Series B Preferred Stock and significantly influence matters submitted to the holders of common stock, Series A Preferred Stock and Series B Preferred Stock. Warburg Pincus also has the right, mentioned above, to elect two members of our board.

        Together, these parties will have significant influence over matters brought before our board of directors and stockholders, and will have the ability to influence some corporate transactions, which may delay, discourage, deter or prevent a change of control and may make some transactions more difficult or impossible to complete without their support. The ability of these stockholders to assert this significant influence may depress the price of our stock.

Our charter contains anti-takeover provisions which may limit the ability of a third party to acquire control and may prevent stockholders from receiving a premium for our shares. Some of the provisions of our charter and bylaws could delay, discourage, deter or prevent an acquisition of our business at a premium price and could make removal of our management more difficult. These provisions could reduce the opportunities for our stockholders to participate in tender offers, including tender offers that are priced above the then-current market price of our common stock. In particular, our charter permits our board of directors to issue shares of preferred stock in one or more series without stockholder approval, which could, depending on the terms of the preferred stock, delay, discourage, deter or prevent a change in control of our company. In addition, the Maryland General Corporation Law will impose restrictions on mergers and other business combinations between us and any holder of 10% or more of the voting power of our outstanding shares.

REIT rules limit the amount of cash we will have available for other business purposes, including amounts to fund future growth, and could require us to borrow funds or liquidate investments on a short-term basis in order to comply with the REIT distribution requirement. To qualify as a REIT, we must distribute at least 90% of our REIT taxable income to our stockholders (determined without regard to the dividends paid deduction and excluding capital gains), and are subject to tax to the extent we fail to distribute at least 100% of our REIT taxable income. This distribution requirement will limit our ability to accumulate capital for other business purposes, including amounts to fund future growth. While we expect our cash flow from operations to generally be sufficient in both the short and long term to fund our operations, this distribution requirement could cause us:

•

to sell assets in adverse market conditions



•

to distribute amounts that represent a return of capital



•

to distribute amounts that would otherwise be spent on future acquisitions, unanticipated capital expenditures or repayment of debt



•

to borrow funds, issue capital stock or sell assets on a short-term basis

        In addition, from time to time, we may not have sufficient cash or other liquid assets to meet this distribution requirement due to differences in timing between the recognition of taxable income and the actual receipt of cash.

Our charter contains restrictions on the ownership and transfer of our capital stock. Due to limitations on the concentration of ownership of stock of a REIT imposed by the Internal Revenue Code, our charter prohibits any stockholder from (1) actually or beneficially owning more than 5% of our issued and outstanding capital stock and (2) actually or constructively owning more than 9.8% of our issued and outstanding capital stock, except for stockholders who have received a waiver from these ownership limits from our board. These ownership limits also apply separately to each class of our preferred stock, including the Series A Preferred Stock and the Series B Preferred Stock. Our charter also prohibits anyone from buying shares if the purchase would result in losing our REIT status. This could happen if a share transaction results in

•

fewer than 100 persons owning all of our shares

13

•

five or fewer persons owning 50% or more of the value of our shares



•

our company having a related party tenant

        If a stockholder acquires shares in violation of the charter by way of transfer or otherwise, the shares which cause the owner to violate the ownership limitations will be automatically transferred to a trust for the benefit of a qualified charitable organization. Following such transfer, the stockholder will have no right to vote these shares or be entitled to dividends or other distributions with respect to these shares. Within 20 days after receiving notice from us of the transfer of shares to the trust, the trustee of the trust will sell the excess shares and generally will distribute to such stockholder an amount equal to the lesser of the price paid by the stockholder for the excess shares (except in the case of a gift or similar transfer, in which case, an amount equal to the market price) or the sale proceeds received by the trust for the shares.

If we fail to qualify as a REIT under the Code, that failure could materially harm our business. We believe that we have been organized and have operated in a manner which allows us to qualify for taxation as a REIT under the Internal Revenue Code commencing with our short taxable year ended December 31, 1997. Qualification as a REIT requires a company to satisfy numerous requirements, which are highly technical and complex. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect, possibly retroactively, our ability to qualify as a REIT for federal income tax purposes. For example, one of the REIT requirements, the "five-fifty test," requires that no more than 50% of the value of a REIT's outstanding capital stock may be owned directly or indirectly, applying various constructive ownership rules, by five or fewer individuals at any time during the last half of a REIT's taxable year. Our charter provides for restrictions regarding ownership and transfer of shares that are intended to assist us in continuing to satisfy the five-fifty test. These restrictions, however, may not ensure that we will be able to satisfy, in all cases, the five-fifty test. If we fail to satisfy the five-fifty test, our status as a REIT may terminate. Other REIT requirements restrict the type of assets that a REIT may own and the type of income that a REIT may receive. These restrictions will apply to all of our assets and income. However, these asset and income requirements do not apply to assets we elect to hold in a Taxable REIT Subsidiary. We currently hold certain assets and derive income from certain of our businesses and assets which, if held or received by us directly, could jeopardize our status as a REIT. To maintain our status as a REIT, (1) we transferred these assets and businesses to Excel Legacy Holdings, Inc., a wholly-owned subsidiary of Excel Legacy, prior to the effective time of the Merger, and (2) Legacy Holdings elected to be treated as a Taxable REIT Subsidiary of Price Legacy effective at the time of the Merger. If a company fails to qualify as a REIT in any taxable year, including failing to comply with the REIT distribution requirements, it may, among other things:

•

not be allowed a deduction for distributions to stockholders in computing its taxable income



•

be subject to federal income tax, including any applicable alternative minimum tax, on its taxable income at regular corporate rates



•

not be required to make distributions to stockholders



•

be subject to increased state and local taxes



•

be disqualified from treatment as a REIT for the taxable year in which it lost its qualification and the four taxable years following the year in which it lost its qualification

        As a result of these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, could substantially reduce the funds available for distribution to our stockholders, could reduce the trading price of our stock and materially harm our business.

14

ITEM 2—Properties

Overview

        At December 31, 2001, we owned 42 commercial real estate properties including one property with a 24-year ground lease and two hospitality properties. These properties encompass approximately 8.0 million square feet of GLA and were 93% leased. The five largest properties include 2.3 million square feet of GLA that generate annual minimum rent of $32.4 million, based on leases existing as of December 31, 2001. We also have a 50% interest in two joint ventures which own retail properties in Fresno, CA and Bend, OR, as well as a 55% interest in a development company which owns a retail and office facility in Winnipeg, Canada. These properties generate annual minimum rent of $4.1 million and are 83% leased.

        We also own approximately 3,000 acres of land, either under development or held for future development or sale.

        The table below presents the geographic concentration of our properties at December 31, 2001, including our unconsolidated joint ventures and land held for development or sale.

State		Number of Properties	Percent of Annual Minimum Rent
Northeastern States
	New York	2	9	%
	Virginia	2	9	%
	New Jersey	2	6	%
	Pennsylvania	1	3	%
	Maryland	1	2	%
	Connecticut	1	1	%
Total Northeastern		9	30	%
Southeastern States
	Florida	7	26	%
Total Southeastern		7	26	%
Midwestern States
	Indiana	2	3	%
	Ohio	1	1	%
	Kentucky	1	3	%
Total Midwestern		4	7	%
Western States
	California	22	26	%
	Arizona	9	8	%
	Oregon	1	2	%
	Utah	1	—
Total Western		33	36	%
Outside US
	Bermuda	1	—
	Canada	1	1	%
Total Outside US		2	1	%
Total		55	100	%

15

        Included in our commercial properties are four properties in Southern California with self storage businesses which we master lease to former officers who managed that division for us. Three additional self storage properties are under development at year-end and will be master-leased once completed. As part of the master lease agreement, we have the right to require the lessee to purchase the properties from us at a price based upon the properties' net operating income as defined by the agreement.

Property Table

        Amounts shown for annual minimum rents are based on current leases as of December 31, 2001. Joint venture partnerships represent 100% of annual minimum rents for the property. We made no allowances for contractually-based delays to commencement of rental payments. Due to the nature of real estate investments, our actual rental income may differ from amounts shown in this schedule. The following table describes our portfolio of real estate properties as of December 31, 2001.

	Leases in Effect as of December 31, 2001
Real Estate Portfolio	Number Of Tenants	Gross Leasable Area (sq ft)	Percent Leased	Annual Minimum Rent(1)		Principal Tenants	% of G.L.A. (sq ft)		Lease Expires
		(000's)		($000's)
Commercial Properties
Hollywood/Oakwood Plaza, FL	45	868.6	99%	$	8,956.9	Home Depot	16	%	2019
						K-Mart	13	%	2019
						BJ's Wholesale	13	%	2019
						Dave and Buster's	7	%	2016
						Regal Cinemas	6	%	2015
Westbury, NY	8	398.6	100%		7,831.4	Costco	37	%	2009
						K-Mart	28	%	2013
						Marshall's	11	%	2009
						The Sports Authority	11	%	2013
						Borders Books	8	%	2019
Pentagon City, VA	9	337.4	100%		7,239.4	Costco	50	%	2009
						Marshall's	13	%	2010
						Best Buy	11	%	2010
						Linens 'n Things	10	%	2010
						Borders Books	10	%	2010
Wayne, NJ	5	348.1	95%		4,441.1	Costco	43	%	2009
(includes 16,535 sq. ft. of						Lackland Storage	17	%	2012
vacant storage space)						The Sports Authority	13	%	2012
						Nobody Beats the Wiz	11	%	2018
						Today's Man	10	%	2007
West Palm Beach, FL	24	357.5	97%		3,961.9	K-Mart	35	%	2018
						Winn-Dixie	15	%	2019
						Linens 'n Things	10	%	2010
						Ross Stores	8	%	2009
						Just For Feet	5	%	2013
Miami, FL	27	404.6	100%		3,803.8	K-Mart, Builder's Square, Marshall's
San Diego, CA	4	443.2	99%		3,091.4	Costco, Price Self Storage, Charlotte Russe
Philadelphia, PA	20	307.8	93%		3,059.8	The Home Depot, Babies R Us, AMC Theaters
Mesa, AZ	26	307.7	82%		3,027.8	Sports Authority, Circuit City, Michael's
Ft. Lauderdale, FL	24	229.0	95%		2,930.3	Regal Cinemas, Office Depot, Just for Feet
Newport, KY (2)	23	338.9	62%		2,769.7	AMC Theatres, Barnes and Noble
Tempe, AZ	23	248.0	98%		2,518.9	J. C. Penney, Circuit City, Designer Shoe Warehouse,

16

Roseville, CA	19	188.5	100%		2,487.3	The Sports Authority, Linens 'n Things, Ross Stores
Signal Hill, CA	14	154.8	100%		2,422.5	The Home Depot, PETsMART
San Diego/Murphy Canyon, CA	1	298.0	100%		2,405.5	Price Self Storage
Sacramento/Bradshaw, CA	1	126.0	100%		2,056.4	AT&T
Greensburg, IN	18	272.9	99%		1,870.6	Wal-Mart, Staples
San Diego/Rancho Bernardo, CA	13	82.2	100%		1,824.1	UBS Paine Webber, Medcell Biologics
Glen Burnie, MD	10	154.6	89%		1,750.5	The Sports Authority, PETsMART, Computer City, Staples
Orlando, FL	6	404.4	71%		1,616.4	BJ "s Wholesale, Expo Design Center, Home Depot
Hollywood/Oakwood Business, FL	21	141.1	93%		1,592.8	Trader Publishing Co., KOS Pharmaceuticals
San Diego/Rancho San Diego, CA	21	98.4	100%		1,292.7	Rite Aid, Ross Stores, Petco
Solana Beach, CA	1	316.0	100%		1,180.9	Price Self Storage
Scottsdale/City Center, AZ	23	65.8	86%		1,119.2	RAS Management, Greater Phoenix
Inglewood, CA	1	119.9	100%		926.6	House2Home
San Diego/Carmel Mountain, CA	5	35.0	96%		919.6	Claim Jumper, McMillin Realty, Islands
Northridge, CA	2	22.0	100%		781.0	Barnes & Noble, Fresh Choice
Moorestown, NJ (leased land)	3	201.4	33%		738.0	The Sports Authority (Lowe's lease commences 8/1/02)
New Britain, CT	1	112.4	100%		671.1	Wal-Mart (lease expires 7/24/02)
Middletown, OH	1	126.4	100%		650.0	Lowe's
San Juan Capistrano, CA	6	56.4	100%		643.2	PETsMART, Staples
Terre Haute, IN	1	104.3	100%		557.8	Lowe's
Azusa, CA	1	120.6	100%		529.7	Price Self Storage
Smithtown, NY	1	55.6	100%		500.7	Levitz Furniture
Hampton, VA	2	45.6	100%		452.4	The Sports Authority, BB&T Bank
Redwood City, CA	2	49.4	100%		418.8	Orchard Supply (ground lease)
Tucson, AZ	11	40.1	100%		414.1	PETsMART
Scottsdale/Brio, AZ	1	3.7	100%		115.7	Roaring Fork Restaurant (lease expires 5/28/02)
Chula Vista/Rancho del Rey, CA	1	6.7	100%		75.0	Burger King (ground lease)
Scottsdale/Studio B, AZ	1	2.2	100%		10.8	Studio B (lease expired 12/31/01)
	426	7,993.6	93%	$	83,655.9
Unconsolidated Joint Ventures
Bend, OR (50% ownership) (3)	22	152.0	69%		1,727.3	Regal Cinemas, Gap, Banana Republic
Fresno, CA (50% ownership)	4	85.4	100%		1,225.3	Bed, Bath & Beyond, Ross Stores, Pier 1 Imports
Winnipeg, Canada (55% ownership)	21	159.7	88%		1,111.6	Investors Syndicate, Province of Manito
	47	397.1	83%	$	4,064.2
Total Commercial Properties	473	8,390.7	93%	$	87,720.1

(1)

Annual Minimum Rent does not include percentage rents or expense reimbursements.

(2)

Represents a 65% ownership interest. The property opened in October 2001 and construction is expected to continue through March 2002.

(3)

The property opened in June 2001 and construction is expected to continue through the end of 2003.

17

        Not included in the above tables are two hospitality properties:

•

a 65% interest in Grand Tusayan LLC which owns and operates a 120-room hotel and restaurant in Arizona

•

a 55% interest in Daniel's Head Bermuda which operates an eco-tourism resort opened in 2001 in Bermuda

        The following table reflects land under development or held for development or sale:

Location	Acres
Orlando, FL (1)	2,700.0	held for development or sale
Farmington, UT	123.7	held for development or sale
Yosemite, CA	80.0	held for development or sale
Temecula, CA	47.5	under development
Anaheim, CA	16.1	under development
Tucson, AZ	15.0	held for development or sale
Walnut Creek, CA	3.3	under development
San Juan Capistrano, CA	3.1	under development
San Diego/Pacific Beach, CA	2.5	under development
Scottsdale, AZ	1.4	held for development or sale
Total	2,992.6

(1)

We own 50% of a limited liability company that owns this land

18

Debt Secured by Properties

        The following table summarizes outstanding debt secured by our properties as of December 31, 2001:

Lender	Property	Interest Rate		Maturity Date	Balance		Balance due at Maturity
					($000's)		($000's)
GMAC Commercial Mortgage(1)(3)	Westbury, NY; Signal Hill, CA; Philadelphia, PA; Wayne, NJ; and Roseville, CA	2.85%	(2)	6/28/04	$	121,375	$	121,375
GE Capital Loan Services, Inc.	Hollywood/Oakwood Plaza, FL	8.18%		2/1/09		66,681		61,167
GE Capital Loan Services, Inc.	West Palm Beach, FL	9.00%		1/1/10		32,312		29,888
GE Capital Loan Services, Inc.	Miami, FL	8.18%		2/1/09		28,986		26,589
Bank One(3)	Newport, KY	4.97%	(5)	10/01/02		26,706		(11	)
GE Capital Loan Services, Inc.	Ft. Lauderdale, FL	8.18%		2/1/09		23,351		21,420
City National Bank(3)	Orlando, FL	4.12%	(6)	4/4/03		21,675		21,675
New Phoenix Management(3)(4)	Greensburg, IN	7.36%		6/28/05		18,300		18,300
Jackson National Life (GMAC)	Tempe, AZ	3.92%	(7)	12/1/06		17,064		14,930	(12)
Jackson National Life (GMAC)	Mesa, AZ	3.92%	(7)	12/1/06		16,166		14,144	(12)
Rose Canyon Business Park(3)(4)	San Diego/Rancho Bernardo, CA	4.43%		12/8/04		11,572		11,750
GE Capital Loan Services, Inc.	Hollywood/Oakwood Business, FL	8.18%		2/1/09		10,188		9,345
GMAC Commercial Mortgage	San Diego/Murphy Canyon, CA	9.00%		7/1/04		8,682		8,437
Bank of Butterfield(3)	Daniel's Head, Bermuda	5.37%	(8)	5/1/12		6,000		—
Firstar, Inc.(3)	Newport, KY	5.25%	(9)	3/1/02		4,738		4,738
American General Realty Advisors	Terre Haute, IN	8.75%		6/1/03		3,440		3,323
Fifth Third Real Estate Capital	Middletown, OH	7.63%		2/1/14		3,429		—
San Diego National Bank(3)	San Juan Capistrano, CA	4.63%	(10)	4/1/03		3,364		(13	)
San Diego National Bank(3)	San Diego/Pacific Beach, CA	4.63%	(10)	4/1/03		2,586		(14	)
Keig Financial Corporation	Scottsdale, AZ	8.13%		2/1/06		1,834		1,087
San Diego National Bank(3)	Walnut Creek, CA	4.63%	(10)	4/1/03		1,217		(15	)
					$	429,666

1)

No prepayment on loan is allowed prior to July 2002.

2)

Interest based on LIBOR plus 98 basis points.

3)

Monthly payments are interest only.

4)

Capital lease arrangement whereby lease may be paid in full upon six month notice.

5)

Interest based on LIBOR plus 310 basis points.

6)

Interest based on LIBOR plus 225 basis points.

7)

Interest based on LIBOR plus 205 basis points.

8)

Interest based on LIBOR plus 350 basis points. Loan changes to principal and interest payments at a fixed rate of 9.25% beginning May 2002.

9)

Interest based on Prime plus 5 basis points.

10)

Interest based on 90-day LIBOR plus 275 basis points.

11)

Construction loan with a maximum draw of $46.2 million.

12)

Balance due at maturity is estimated.

13)

Construction loan with a maximum draw of $4.9 million.

14)

Construction loan with a maximum draw of $8.7 million

15)

Construction loan with a maximum draw of $8.5 million.

19

Pending Real Estate Transactions

        Since December 31, 2001, we have executed six leases, including one in an unconsolidated joint venture, for approximately 7,500 square feet of GLA. These new leases will generate $158,000 in annual minimum rents. We have also sold two parcels of undeveloped land for $2.1 million. We are currently in negotiations to sell additional commercial properties and land as well as evaluating various properties for acquisition.

ITEM 3—Legal Proceedings

        On or about February 13, 2001, Lewis P. Geyser filed a lawsuit against Excel Legacy in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by Excel Legacy and Mr. Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Mr. Geyser alleges that Excel Legacy breached its obligations under the Operating Agreement, by failing to contribute the funding required under the Agreement. Mr. Geyser also alleges that Excel Legacy misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. We believe the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from Excel Legacy in negotiations with Mr. Geyser which were underway prior to its filing. We intend to vigorously defend the lawsuit. Excel Legacy has also filed a cross-complaint against Mr. Geyser for breach of contract, fraud, breach of fiduciary duty and other related claims. The trial of this matter began February 26, 2002. On March 19, 2002, the trial judge dismissed both the complaint and cross-complaint on the grounds that Mr. Geyser was not the proper party under the Operating Agreement and therefore could not sue or be sued on any of the pending causes of action.

        We are not party to any other legal proceedings other than various claims and lawsuits arising in the ordinary course of business that, in the opinion of our management, are not individually or in the aggregate material to our business.

ITEM 4—Submission of Matters to a Vote of Security Holders

        No matter was submitted to a vote of security holders during the fourth quarter of 2001.

20

PART II

ITEM 5—Market for Registrant's Common Equity and Related Stockholder Matters

Stock Prices

        Prior to the Merger with Excel Legacy, our common stock was traded on the Nasdaq National Market under the symbol PREN. Following the Merger, our common stock is traded on the American Stock Exchange under the symbol XLG. Our Series A Preferred Stock trades on the Nasdaq National Market under the symbol PRENP. The table below provides the high and low sales prices of our common stock and Series A Preferred Stock for the period indicated, as reported by the American Stock Exchange and the Nasdaq National Market.

		Common Stock		Preferred Stock
		High	Low	High	Low
Calendar Year—2000 (1)
	First Quarter	7.625	7.063	14.625	13.250
	Second Quarter	7.500	6.500	15.375	13.625
	Third Quarter	6.875	4.500	15.063	14.313
	Fourth Quarter	5.250	3.625	14.938	14.000
Calendar Year—2001 (1)
	First Quarter	6.875	4.875	15.375	14.375
	Second Quarter	6.900	6.700	15.750	14.813
	Third Quarter through 9/18	6.990	6.350	16.050	13.875
Calendar Year—2001 (2)
	Third Quarter from 9/19	3.250	2.800	15.150	14.500
	Fourth Quarter	3.450	2.700	15.600	14.650

(1)

Common stock symbol PREN for Price Enterprises, Inc.

(2)

Common stock symbol XLG for Price Legacy Corporation

        On March 15, 2002, the last reported sales price per share of our common stock was $3.08, and we had approximately 480 common stockholders of record plus those who hold their shares in street name.

        In September 2001 in conjunction with the Merger with Excel Legacy, each outstanding share of Excel Legacy common stock was exchanged for 0.6667 share of PEI common stock. Also under the terms of the Merger Agreement, PEI commenced a tender offer for all outstanding shares of common stock (other than those held by Excel Legacy and those issued in the Merger) at a cash price of $7.00 per share. In connection with the tender offer, 807,583 shares were purchased at a total cost of $5.7 million. We now have approximately 40.7 million shares of common stock outstanding.

Dividends

        We intend to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) to maintain our qualification as a REIT.

        In connection with the Merger we assumed a net operating loss of approximately $18.7 million, which can be used to reduce our taxable income with certain limitations.

        During 2001, we declared and paid four quarterly dividends of $0.35 on each share of Series A Preferred Stock for a total of $1.40 per share or $34.6 million. We accrued $2.8 million in dividends on our Series B Preferred Stock in accordance with its terms, but have not yet declared these dividends.

21

For the first 45 months after issuance, all distributions declared on our Series B Preferred Stock will be payable in additional shares of Series B Preferred Stock. Any dividends required to be paid in excess of dividends paid on our Series A Preferred Stock and our Series B Preferred Stock will be paid to our common stockholders. We did not declare or pay any dividends on our common stock during 2001.

        During 2000, we declared and paid four quarterly dividends of $0.35 on each share of Series A Preferred Stock for a total of $1.40 per share or $33.4 million and we did not declare or pay any dividends on our common stock.

        It is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet our distribution requirements due to timing differences between (i) the actual receipt of such income and actual payment of deductible expenses and (ii) the inclusion of such income and deduction of such expenses in arriving at our taxable income. In the event that such timing differences occur, in order to meet these distribution requirements, we may find it necessary to arrange for short-term, or possibly long-term borrowings or to pay dividends in the form of taxable stock dividends.

ITEM 6—Selected Financial Data

        The following selected data should be read in conjunction with our financial statements and accompanying notes located elsewhere in this Form 10-K and "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations." (amounts in thousands, except per share data)

					Year Ended December 31
			2001		2000		1999			1998		1997(1)
Statement of Operations Data
	Rental revenues		$	82,932	$	70,771	$	66,667		$	62,485	$	56,067
	Operating income			45,374		41,847		35,143			31,393		23,289
	Income from continuing Operations			38,001		34,292		32,671			29,429		29,003
	Discontinued operations			—		—		—			—		(1,625	)
	Net income			38,001		34,292		32,671			29,429		27,378
	Net income (loss) per share from continuing operations—basic			.03		.07		(.05	)		.97		1.23
	Cash dividends per share
		Preferred share		1.40		1.40		1.40			.35		—
		Common share		—		—		—			1.05		1.25

(1)

Effective September 1, 1997, we changed our fiscal year end from August 31 to December 31 as required by the Internal Revenue Service for REITs. The four-month transition period ending December 31, 1997 bridged the gap between our old and new fiscal years. 1997 is shown on a calendar year basis for comparative purposes only.

		As of December 31
		2001		2000		1999		1998		1997
Balance Sheet Data
	Real estate assets, net	$	1,045,424	$	545,456	$	550,492	$	418,252	$	353,056
	Total assets		1,193,394		662,405		562,558		457,352		408,478
	Mortgages and notes payable		452,523		150,709		8,841		8,911		—
	Series A preferred stock		399,615		353,404		353,404		353,404		—
	Series B preferred stock		106,234		—		—		—		—
	Total stockholders' equity		689,770		463,109		461,260		344,811		406,624

22

ITEM 7—Management's Discussion and Analysis of Financial Condition and Results of Operations

        As you read Management's Discussion and Analysis, it may be helpful to refer to our financial statements and accompanying notes beginning on page 41. In Management's Discussion and Analysis we explain the changes in specific line items in the statements of operations. Where changes are due to more than one reason, we list the reasons in order of importance.

Introduction

        In Management's Discussion and Analysis of Financial Conditions and Results of Operations we explain our general financial condition and results of operations including:

•

results of operations



•

why revenues, costs and earnings changed from the prior period



•

funds from operations (FFO)



•

how we used cash for capital projects and dividends during 1999 through 2001 and how we expect to use cash in 2002



•

where we plan on obtaining cash for future dividend payments and future capital expenditures

        The results of Excel Legacy are included in operations beginning September 19, 2001.

        Because of Excel Legacy's acquisition of 91% of our common stock in 1999, we report operating results for the year ended December 31, 1999 divided between the periods of January 1, 1999 to November 11, 1999 and November 12, 1999 to December 31, 1999, due to a new basis of accounting as required by accounting principles generally accepted in the United States of America. For purposes of this discussion however, we combined these two periods of 1999 to make an equivalent twelve-month period in order to compare operating results with the year ended December 31, 2000.

Critical Accounting Policies and Estimates

General

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Preparation of our financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related notes. We believe that the following accounting policies are critical because they affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion on the application of these and other accounting policies, see Note One in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Consolidation

        We combine our financial statements with those of our wholly-owned subsidiaries as well as all affiliates in which we have a significant influence and present them on a consolidated basis. The consolidated financial statements do not include the results of transactions between us and our subsidiaries or among our subsidiaries.

23

Revenue Recognition

        Recognition of revenue is dependent upon the quality and ability of our tenants to pay their rent in a timely manner. Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which we accrue in the period in which the related expense occurs; and (3) percentage rents based on the level of sales achieved by the lessee are recognized when earned.

        Gain or loss on sale of real estate is recognized when the sales contract is executed, title has passed, payment is received, and we no longer have continuing involvement in the asset.

        We adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on our consolidated financial position or results of operations.

Real Estate Assets and Depreciation

        We record real estate assets at historical costs and adjust them for recognition of impairment losses. In following purchase accounting, we adjusted the historical costs of Excel Legacy's real estate assets to fair value at the time of the Merger. Our consolidated balance sheet at December 31, 2001 reflects the new basis of those real estate assets.

        We expense as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. We capitalize major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciate them over their estimated useful lives.

        We compute real estate asset depreciation on a straight-line basis over their estimated useful lives, as follows:

Land improvements	40 years
Building and improvements	40 years
Tenant improvements	Term of lease or 10 years
Fixtures and equipment	3-7 years

        We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if their expected associated future undiscounted cash flows are less than their carrying amounts.

        We capitalize interest incurred during the construction period of certain assets and this interest is depreciated over the lives of those assets.

        Pre-development costs that are directly related to specific construction projects are capitalized as incurred. We expense these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.

New Accounting Standards

        Derivative Instruments and Hedging Activities:    In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and in 1999 they voted to delay the effective date of this SFAS by one year. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities, where all derivatives must be recognized as assets and liabilities and measured at fair value. We adopted this standard on January 1, 2001 and it did not have a significant impact on our financial statements.

24

        Business Combinations:    In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations initiated after June 30, 2001. SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets other than those acquired in a business combination. SFAS No. 141 and SFAS No. 142 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated results of operations and financial position.

        Asset Impairment:    In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting for the impairment or disposal of long-lived assets and is effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated results of operations and financial position.

Results of Operations

Rental Revenues

	Rental Revenues		Change		Percent Change
2001—Year ended December 31	$	82,932	$	12,161	17	%
2000—Year ended December 31		70,771		—	—
2000—Year ended December 31		70,771		4,104	6	%
1999—Year ended December 31		66,667		—	—

        Revenues increased $12.2 million to $82.9 million in 2001 compared to 2000 because:

•

properties we acquired during 2000 and 2001 generated $14.0 million of additional revenues



•

properties acquired from Excel Legacy due to the Merger generated an additional $2.4 million in revenues



•

revenues from properties we owned in both 2000 and 2001 increased $1.4 million, primarily due to additional leasing activity and additional expense reimbursement revenue



•

partially offsetting these increases was the loss of $5.6 million in revenues generated in 2000 from properties sold during 2001

        Revenues increased $4.1 million to $70.8 million in 2000 compared to 1999 because:

•

revenues from properties we owned in both 1999 and 2000 increased $3.2 million, primarily due to additional leasing activity and additional expense reimbursement revenue



•

properties we acquired during 2000 generated $2.0 million of additional revenues



•

expansion of our self storage business provided an additional $1.2 million of revenues



•

partially offsetting these increases were:



•

the loss of $1.5 million in revenues generated in 1999 from two properties we sold in 1999



•

the loss of $0.8 million in revenues generated in 1999 from properties we sold during 2000

25

Expenses

	Amount		Change			Percent Change
2001—Year ended December 31	$	37,558	$	8,634		30	%
2000—Year ended December 31		28,924		—		—
2000—Year ended December 31		28,924		(2,600	)	- -8	%
1999—Year ended December 31		31,524		—		—

        Expenses increased $8.6 million to $37.6 million in 2001 compared to 2000 primarily due to:

•

properties we purchased in 2000 and 2001 contributed $4.4 million to expenses



•

properties acquired from Excel Legacy due to the merger contributed $3.9 million to expenses



•

an increase in general and administrative expenses of $1.3 million



•

bad debt expense increased $1.1 million, primarily due to a recovery in the prior year of amounts previously written off related to a former tenant



•

expenses on properties we owned in 2000 and 2001 increased $0.6 million



•

these increases in expenses were partially offset by:



•

a decrease in expenses of $1.7 million as a result of properties sold during the year



•

a decrease in expenses of $1.0 million for our self storage business as we began collecting rent net of expenses when we entered into a master lease arrangement on these properties

        Expenses decreased $2.6 million to $28.9 million in 2000 compared to 1999 primarily because:

•

depreciation expense decreased $1.9 million due to our change to Excel Legacy's accounting policy of depreciating real estate assets. Following the completion of Excel Legacy's exchange offer for our common stock, we adopted Excel Legacy's policy of depreciating real estate assets, to useful lives of 40 years for land improvements and buildings compared to 25 years in prior years



•

bad debt expense decreased $0.6 million, primarily due to a recovery of amounts previously written off related to the Homeplace bankruptcy, a former tenant



•

properties we sold during 2000 contributed an additional $0.9 million to expenses, including depreciation expense of $0.5 million, in 1999



•

properties we sold in the second quarter of 1999 contributed $0.6 million of expense in 1999



•

these decreases in expenses were partially offset by:



•

expansion of our self storage business, which increased expenses by $0.4 million



•

properties we acquired during 2000, which increased expenses by $0.7 million, including depreciation of $0.5 million



•

general and administrative expenses, which increased $0.3 million over the prior year

26

Operating Income

	Amount		Change		Percent Change
2001—Year ended December 31	$	45,374	$	3,527	8	%
2000—Year ended December 31		41,847		—	—
2000—Year ended December 31		41,847		6,704	19	%
1999—Year ended December 31		35,143		—	—

        Operating income increased for 2001 and 2000 compared to the same periods in the prior year primarily because of the changes in Rental Revenues and Expenses discussed above.

Interest Expense

	Amount		Change		Percent Change
2001—Year ended December 31	$	16,793	$	5,862	54	%
2000—Year ended December 31		10,931		—	—
2000—Year ended December 31		10,931		5,057	86	%
1999—Year ended December 31		5,874		—	—

        During 2001, interest expense increased $5.9 million compared to 2000 because:

•

our average debt outstanding in 2001 was $274.0 million compared to $148.5 million in 2000, which relates primarily to additional borrowings and assumptions of loans with the purchase of properties



•

the increase in interest expense due to the amount of debt outstanding was partially offset by a decrease in interest rates on our variable rate debt. The weighted average interest rate on our variable rate debt decreased to 3.6% on December 31, 2001 compared to 7.5% at December 31, 2000



•

interest expense is net of $1.6 million interest capitalized to real estate assets in 2001

        During 2000, interest expense increased $5.1 million compared to 1999 because:

•

our average debt outstanding in 2000 was $148.5 million compared to $90.0 million in 1999, which relates primarily to additional borrowings which were used to purchase properties and to provide loans to Excel Legacy and other real estate developers



•

the weighted average interest rate related to our credit facility increased from 7.5% at December 31, 1999 to 8.0% at December 31, 2000



•

we recorded $0.5 million of interest expense related to the assumptions of loans on the Terre Haute, IN, Middletown, OH, and Scottsdale, AZ properties purchased in 2000



•

interest expense is net of $2.1 million interest capitalized to real estate assets in 2000

        We discuss our outstanding debt further in "Liquidity and Capital Resources" located elsewhere in this Form 10-K.

27

Interest Income

	Amount		Change		Percent Change
2001—Year ended December 31	$	7,490	$	4,782	177	%
2000—Year ended December 31		2,708		—	—
2000—Year ended December 31		2,708		2,204	437	%
1999—Year ended December 31		504		—	—

        Interest income increased $4.8 million to $7.5 million in 2001 compared to 2000 primarily because:

•

Prior to the Merger in 2001, our note receivable with Excel Legacy earned additional interest of $1.9 million



•

our notes receivable with other real estate developers, including interest on notes acquired in the Merger, earned additional interest of $2.9 million

        Interest income increased $2.2 million to $2.7 million in 2000 compared to 1999 primarily because:

•

our note receivable with Excel Legacy earned interest of $1.0 million



•

our notes receivable with other real estate developers earned additional interest of $0.7 million



•

we recorded $0.5 million in additional interest income on higher cash balances

Gain on Sale of Real Estate and Investments (net)

	Amount		Change			Percent Change
2001—Year ended December 31	$	1,322	$	1,158		706	%
2000—Year ended December 31		164		—		—
2000 — Year ended December 31		164		(4,553	)	96	%
1999 — Year ended December 31		4,717		—		—

        During 2001, we sold the following properties for a net gain of $1.3 million:

Location	Description	Sold Date	Sales Price (000's)
Aurora, CO	Retail Building	1/11/01	$	1,592
Sacramento/Bradshaw, CA	Office Building (1)	6/1/01		5,125
San Diego/Southeast, CA	Retail Building	9/5/01		1,680
Palm Desert, CA	Shopping Center	11/16/01		17,022
Seekonk, MA	Shopping Center	12/28/01		15,250

(1)

Partial sale—one building remains

        We also sold our 50% ownership interest in a joint venture which owns a retail property in Westminster, CO, on December 14, 2001 for $13.5 million. We recognized no gain or loss on the sale.

28

        During 2000, we sold the following properties for a net gain of $0.2 million:

Location	Description	Date	Sales Price
Azusa, CA	Warehouse (1)	8/25/00	$	4,200
Sacramento\Bradshaw, CA	Office Buildings (2)	9/18/00		22,100
Littleton, CO	Retail Building	11/3/00		2,030
Fountain Valley/Stockton, CA	Retail Buildings	11/20/00		22,291

(1)

Partial sale—self storage remains

(2)

Partial sale—sold two of four buildings in office complex

Funds From Operations

		Year Ended December 31
		2001			2000			1999
Net income before provision for income taxes		$	38,001		$	34,292		$	32,671
Depreciation and amortization			11,268			9,558			11,825
Price Legacy's share of depreciation of joint ventures			757			371			—
Depreciation of non-real estate assets			(38	)		(137	)		(96	)
Gain on sale of real estate and investments, net			(1,322	)		(164	)		(4,717	)
	FFO before preferred dividends		48,666			43,920			39,683
Preferred dividends			(37,442	)(1)		(33,360	)		(33,263	)
	FFO	$	11,224		$	10,560		$	6,420
Net cash provided by operating activities		$	30,863		$	35,223		$	43,660
Net cash used by investing activities			(96,082	)		(36,005	)		(1,275	)
Net cash provided by (used by) financing activities			38,104			48,633			(43,931	)

(1)

Includes $2.8 million of non-cash dividends accrued on our Series B Preferred Stock

        Our Company, as well as real estate industry analysts, generally consider FFO as another measurement of economic profitability for real estate-oriented companies. The Board of Governors of the National Association for Real Estate Investment Trusts (NAREIT), defines FFO as net income in accordance with accounting principles generally accepted in the United States of America (GAAP), excluding depreciation and amortization expense and gains (losses) from depreciable operating real estate. We calculate FFO in accordance with the NAREIT definition and also exclude provisions for asset impairments and gains (losses) from the sale of investments when we calculate FFO. FFO does not represent the cash flows from operations defined by GAAP, may not be comparable to similarly titled measures of other companies and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Excluded from FFO are significant components in understanding our financial performance.

        FFO before preferred dividends during 2001 increased $4.7 million or 10.8% to $48.7 million compared to 2000 because:

•

properties we acquired during 2000 and 2001 increased FFO $11.2 million



•

interest income on our outstanding notes receivable and higher cash balances increased FFO $4.8 million



•

a net increase in FFO of $0.8 million for our self storage business as we began collecting rent net of expenses when we entered into a master lease arrangement on these properties

29

•

properties we owned in both 2000 and 2001 increased FFO $0.7 million



•

joint venture income contributed an additional $0.1 million to FFO in the current year



•

these increases to FFO were partially offset by:



•

additional interest expense which reduced FFO $5.9 million



•

properties sold during 2001 reduced FFO $4.6 million



•

additional bad debt expense and general and administrative expenses reduced FFO by $2.4 million

        FFO before preferred dividends during 2000 increased 10% to $43.9 million compared to 1999 because:

•

properties we owned in both 1999 and 2000 increased FFO $2.3 million



•

properties we acquired during 2000 increased FFO $1.6 million



•

interest income on our outstanding notes receivable and higher cash balances increased FFO $2.2 million



•

we expensed $1.8 million in merger costs in 1999 related to our transaction with Excel Legacy



•

expansion of our self storage business increased FFO $0.8 million



•

joint venture income contributed $0.5 million to FFO in the current year



•

these increases to FFO were partially offset by additional interest expense which reduced FFO $5.1 million

Liquidity and Capital Resources

        Liquidity refers to our ability to generate sufficient cash flows to meet the short and long-term cash requirements of our business operations. Capital resources represent those funds used or available to be used to support our business operations and consist of stockholders' equity and debt.

        Cash flow from operations has been the principal source of capital to fund our ongoing operations and dividend payments, while use of our credit facilities and mortgage financing have been the principal sources of capital required to fund our growth. While we are positioned to finance our business activities through a variety of sources, we expect to satisfy short-term liquidity requirements through net cash provided by operations and through borrowings.

        As discussed previously, concurrently with the Merger, we issued to Warburg Pincus and certain of its affiliates, for an aggregate purchase price of $100 million:

•

17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock)



•

a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share

        In addition, Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, converted an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of Series B Preferred Stock and a warrant to purchase 233,679 shares of common stock at an exercise price of $8.25 per share.

        The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from

30

the date of issuance. The 9% coupon will be paid in kind with additional shares of Series B Preferred Stock for the first 45 months from issuance. We used the net proceeds from this transaction to repay debt and pay costs associated with the Merger.

        Also in connection with the Merger, we completed a tender offer for our common stock (other than those shares held by Excel Legacy prior to the Merger and those shares issued in the Merger) at a cash price of $7.00 per share. A total of 807,583 shares were tendered for $5.7 million. The merger agreement further obligated us to commence an exchange offer in which holders of Excel Legacy's outstanding debentures and notes were offered shares of our Series A Preferred Stock in exchange for their debt securities valued at par. In the exchange, $30.4 million of the debentures and $15.8 million of the notes were exchanged for Series A Preferred Stock.

        Upon completion of the Merger, we obtained a $100.0 million unsecured credit facility with Fleet Bank as agent. The facility has a three year term with an initial interest rate of LIBOR plus 150 basis points. The rate may vary based on our leverage and other financial ratios. At December 31, 2001, we had $31.5 million outstanding on the facility at a 3.5% interest rate. In connection with obtaining the new credit facility, we repaid and terminated our then exi0sting $75 million facility in September 2001.

        Subsequent to the Merger, we no longer record interest income on notes receivable due from and rent revenues earned from master leases with Excel Legacy. Total interest income and rent revenues earned from Excel Legacy were $5.4 million for year ended December 31, 2001, which covers the period from January 1, 2001 through September 18, 2001.

        We have $55.2 million in notes receivable at December 31, 2001. These notes are primarily due from developers and are collateralized by the related projects or other real estate. Of these notes, $52.1 million do not require cash payments on the interest until specified future dates, typically when the projects are completed or sold.

        We continue to evaluate various properties for acquisition or development and continue to evaluate other investment opportunities. We anticipate borrowing available amounts on our credit facility to fund these acquisition and development opportunities. We anticipate obtaining construction loans to fund our development activities. During the year ended December 31, 2001, we purchased eleven properties for a total of $339.1 million. We used available cash, advances on our line of credit, proceeds from tax-deferred exchange transactions on properties sold in 2001 and 2000, and assumed loans of $237.1 million to fund these acquisitions.

        In February 2002 we filed a $500.0 million shelf registration statement pursuant to which we may issue debt securities, preferred stock, depositary shares, common stock, warrants or rights.

        From time to time we will consider selling properties to better align our portfolio with our geographic and tenant composition strategies. We may also participate in additional tax-deferred exchange transactions, which allow us to dispose of properties and reinvest the proceeds in a tax efficient manner. During the year ended December 31, 2001, we sold five properties from our portfolio for $40.7 million and our interest in a joint venture partnership for $13.5 million. When we sell a property, we anticipate a temporary reduction in operating income due to the time lag between selling a property and reinvesting the proceeds.

        We are contemplating purchasing various properties and selling certain other properties. As we sell properties, our cash flows from operations may decrease until the proceeds are reinvested into new properties. At December 31, 2001, we have $15.0 million cash awaiting reinvestment through a tax deferred exchange transaction.

        We have a significant retail project currently under development in Newport, Kentucky. The majority of the construction was completed in October 2001, with all of the primary buildings completed except for one out parcel yet to be leased. The project opened in October 2001. At present

31

the project is approximately 70% leased in addition to the space currently occupied by Firststar IMAX Theater and the Newport Aquarium.

        We also have two other significant retail development projects in which construction will continue through 2002. The Temecula, CA project is an open-air retail shopping center with Wal-Mart and other tenants. Total cost of the project is approximately $30.0 million, with an estimated cost of $11.5 million remaining to complete construction. We expect to fund the remaining cost through a construction loan. The Anaheim Garden Walk project in Anaheim, CA, located at the corner of Harbor Blvd. and Disney Way, will consist of an open-air retail center and three hotels. Total cost of the retail portion of this project is approximately $250 million with an estimated cost of $200 million remaining to complete construction over the next eight years. We expect to fund construction costs through a construction loan, sales of adjacent land parcels for hotels or potential joint venture investors.

        The following table summarizes all of our long-term contractual obligations, excluding interest, to pay third parties as of December 31, 2001:

		Contractual Cash Obligations
		2002		2003		2004		2005		2006		Thereafter		Total
Mortgages and notes payable		$	51,931	$	35,003	$	180,906	$	21,426	$	4,239	$	190,518	$	484,023
Capital lease obligations			796		796		796		796		796		16,252		20,232
	Total	$	52,727	$	35,799	$	181,702	$	22,222	$	5,035	$	206,770	$	504,255

        In 2002, we plan to use cash flow from operations to fund our principal payments due on mortgages and we plan to borrow on our unsecured line of credit to repay approximately $12.3 million of debt maturing in 2002.

Off-Balance Sheet Financing Matters

        Also related to our Newport, KY project discussed previously, the City of Newport, KY in 1999 issued two series of public improvement bonds related to the Newport development project. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2018 with interest at 8.375%; (b) $20.5 million maturing 2027 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by the Newport project, the Company, and the project's third party developers. As of December 31, 2001, Newport had drawn on $44.8 million of the bonds for construction incurred prior to that date.

        Summarized debt information for our unconsolidated joint ventures and the amount guaranteed by us at December 31, 2001 is as follows:

Joint Venture	December 31 2001		Debt Guaranteed
Orlando Business Park, LLC	$	10,136	$	10,136
Old Mill District Shops, LLC		17,243		13,666
Blackstone Ventures I		8,153		8,153
3017977 Nova Scotia Company		5,499		5,499
	$	41,031	$	37,454

        We also have guaranteed a $11.9 million note payable related to a development project in Scottsdale, AZ and have a note receivable with a participating interest.

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Transactions with Related and Certain Other Parties

        Prior to the Merger, Excel Legacy was responsible for our daily management, including property management, finance and administration. We reimbursed Excel Legacy for these services. We expensed $2.4 million during 2001 prior to the Merger and $3.0 million for these services during 2000, which was based on our historical costs for similar expenses.

        Also prior to the Merger, we executed a note receivable with Excel Legacy allowing them to borrow up to $40.0 million. During 2001, we recorded $2.9 million in interest income on this note prior to the Merger, and $1.0 million for 2000. As a result of the Merger, interest income is no longer recorded on this note.

        In conjunction with the purchase of the Anaheim land in the first quarter of 2001, we executed a ground lease agreement with Excel Legacy, which required payments of $2.8 million per year in rent. During 2001, we recorded $1.8 million in rental revenue from Excel Legacy related to this lease for the period of January 1 through September 18, 2001. Due to the Merger, rental revenue is no longer recorded on this lease.

        In connection with the Merger, we acquired notes receivable from certain affiliates of Excel Legacy, of which $9.4 million was outstanding at December 31, 2001. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2001 from these notes was $2.6 million. The notes have been offset against stockholders' equity on our accompanying Consolidated Balance Sheets.

Inflation

        Because a substantial number of our leases contain provisions for rent increases based on changes in various consumer price indices, based on fixed rate increases, or based on percentage rent if tenant sales exceed certain base amounts, we do not expect inflation to have a material impact on future net income or cash flow from developed and operating properties. In addition, substantially all leases are triple net, which means specific operating expenses and property taxes are passed through to the tenant.

ITEM 7A.—Quantitative and Qualitative Disclosures About Market Risk

        Market risks relating to our operations result primarily from changes in short-term LIBOR interest rates. We do not have any significant foreign exchange or other material market risk. We did not have any derivative financial instruments at December 31, 2001.

        Our exposure to market risk for changes in interest rates relates primarily to our variable interest rate debt. We enter into variable rate debt obligations to support general corporate purposes, including acquisitions, capital expenditures and working capital needs. We continuously evaluate our level of variable rate debt with respect to total debt and other factors, including our assessment of the current and future economic environment.

        We had $252.4 million in variable rate debt outstanding at December 31, 2001. Based upon these year-end debt levels, a hypothetical increase in interest rates by 100 basis points would increase interest expense by approximately $2.5 million on an annual basis, and likewise decrease our earnings and cash flows. We cannot predict market fluctuations in interest rates and their impact on our variable rate debt, nor can there be any assurance that fixed rate long-term debt will be available to us at favorable rates, if at all. Consequently, future results may differ materially from the estimated adverse changes discussed above.

        The following table presents the scheduled principal payments on notes receivable and the scheduled principal payments on mortgages payable over the next five years and thereafter. The table

33

also includes the average interest rates of the financial instruments during each respective year and the fair value of the notes receivable and mortgages payable. We determine the fair value of financial instruments through the use of discounted cash flows analysis using current interest rates for notes receivable with terms and credit characteristics similar to our existing portfolio and borrowings under terms similar to our existing mortgages payable. Accordingly, we have determined that the carrying value of our financial instruments at December 31, 2001 approximated fair value.

										Expected Maturity Date (dollar amounts in thousands)
	2002			2003			2004			2005			2006			Thereafter			Total			Fair Value
Notes receivable, including notes from affiliates	$	13,163		$	37,629		$	4,375			—			—			—		$	55,167		$	55,167
Average interest rate		17	%		12	%		—			—			—			—			12	%		—
Mortgages and notes payable	$	51,931		$	35,003		$	180,906		$	21,426		$	4,239		$	190,518		$	484,023		$	484,023
Average interest rate		6	%		5	%		4	%		7	%		7	%		7	%		6	%		—

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ITEM 8—Financial Statements and Supplementary Data

PRICE LEGACY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

ASSETS

			December 31
			2001			2000
Real estate assets
	Land and land improvements		$	419,151		$	247,470
	Building and improvements			618,222			302,915
	Construction in progress			27,471			4,436
				1,064,844			554,821
	Less accumulated depreciation			(19,420	)		(9,365	)
				1,045,424			545,456
Investment in real estate joint ventures				24,828			14,515
Cash and cash equivalents				22,881			49,996
Accounts receivable, net of allowance of $1,680 and $785				2,706			3,032
Notes receivable				55,167			13,388
Note receivable from affiliates				—			25,377
Deferred rents				6,427			3,352
Other assets				35,961			7,289
		Total assets	$	1,193,394		$	662,405
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
	Mortgages and notes payable		$	452,523		$	150,709
	Revolving line of credit			31,500			44,300
	Accounts payable and other liabilities			19,006			4,287
		Total liabilities		503,029			199,296
Commitments
Minority interests				595			—
Stockholders' equity
	Series A preferred stock, cumulative, redeemable, $0.0001 par value, 27,849,771 shares authorized, 27,413,467 and 23,868,808 shares issued and outstanding			399,615			353,404
	Series B preferred stock, junior, convertible, redeemable, $0.0001 par value, 27,458,855 shares authorized, 19,666,754 and 0 shares issued and outstanding			106,234			—
	Common stock, $0.0001 par value, 94,691,374 shares authorized, 40,726,191 and 13,309,006 issued and outstanding			4			1
	Additional paid-in capital			195,712			112,587
	Accumulated other comprehensive loss			(106	)		—
	Accumulated deficit			(2,324	)		(2,883	)
	Notes receivable from officers for common shares			(9,365	)		—
		Total stockholders' equity		689,770			463,109
	Total liabilities and stockholders' equity		$	1,193,394		$	662,405

See accompanying notes.

35

PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

												Predecessor Period from January 1 through November 11 1999
			Year Ended December 31						Period from November 12 through December 31 1999
			2001			2000
Rental revenues			$	82,932		$	70,771		$	9,251		$	57,416
Expenses
	Operating and maintenance			12,158			7,699			962			7,307
	Property taxes			9,821			8,582			1,412			7,252
	Depreciation and amortization			11,268			9,558			1,086			10,739
	General and administrative			4,311			3,085			268			2,498
		Total expenses		37,558			28,924			3,728			27,796
Operating income				45,374			41,847			5,523			29,620
Interest and other
	Interest expense			(16,793	)		(10,931	)		(848	)		(5,026	)
	Interest income			7,490			2,708			22			482
	Equity in earnings of joint ventures			608			504			—			—
	Merger related costs			—			—			—			(1,819	)
		Total interest and other		(8,695	)		(7,719	)		(826	)		(6,363	)
Income before gain on sale of real estate and investments, net				36,679			34,128			4,697			23,257
	Gain on sale of real estate and investments, net			1,322			164			—			4,717
Net income				38,001			34,292			4,697			27,974
Dividends to preferred stockholders				(37,442	)		(33,360	)		—			(33,263	)
Net income (loss) applicable to common stockholders			$	559		$	932		$	4,697		$	(5,289	)
Earnings (loss) per common share—basic and diluted			$	.03		$	.07		$	.35		$	(.40	)

See accompanying notes.

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PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

			Preferred Stock Series A		Preferred Stock Series B
							Common Stock
											Additional Paid-In Capital		Accumulated Comprehensive Loss		Accumulated Deficit		Notes Receivable
			Shares	Amount	Shares	Amount	Shares		Amount										Total
Balance at December 31, 1998			23,759	353,404	—	—	13,293		1		929		—		(9,523	)	—		344,811
	Net income		—	—	—	—	—		—		—		—		27,974		—		27,974
	Stock options exercised and stock grants		—	—	—	—	16		—		114		—		—		—		114
	Vesting of preferred stock options due to merger		—	—	—	—	—		—		934		—		—		—		934
	Cash dividends on preferred stock		—	—	—	—	—		—		—		—		(33,263	)	—		(33,263	)
Balance at November 11, 1999			23,759	353,404	—	—	13,309		1		1,977		—		(14,812	)	—		340,570
	Net income		—	—	—	—	—		—		—		—		4,697		—		4,697
	Purchase accounting adjustment		—	—	—	—	—		—		109,693		—		6,300		—		115,993
Balance at December 31, 1999			23,759	353,404	—	—	13,309		1		111,670		—		(3,815	)	—		461,260
	Net income		—	—	—	—	—		—		—		—		34,292		—		34,292
	Series A Preferred Stock options exercised		110	—	—	—	—		—		917		—		—		—		917
	Cash dividends on preferred stock		—	—	—	—	—		—		—		—		(33,360	)	—		(33,360	)
Balance at December 31, 2000			23,869	353,404	—	—	13,309		1		112,587		—		(2,883	)	—		463,109
	Comprehensive income:
		Net income	—	—	—	—	—		—		—		—		38,001		—		38,001
		Unrealized loss on marketable securities	—	—	—	—	—		—		—		(106	)	—		—		(106	)
	Total comprehensive income																		37,895
	Merger Activities:
		Tender Offer	—	—	—	—	(808	)	—		(5,653	)	—		—		—		(5,653	)
		Shares owned by Excel Legacy cancelled	—	—	—	—	(12,151	)	(1	)	—		—		—		—		(1	)
		New shares issued in Merger	—	—	—	—	40,376		4		82,032		—		—		(9,365	)	72,671
		Series B Preferred Stock and warrants issued	—	—	19,667	106,234	—		—		3,113		—		—		—		109,347
		Issuance costs associated with Merger and tender offer	—	—	—	—	—		—		(2,817	)	—		—		—		(2,817	)
		Series A Preferred Stock issued	3,081	46,211	—	—	—		—		—		—		—		—		46,211
	Series A Preferred Stock options exercised		463	—	—	—	—		—		6,450		—		—		—		6,450
	Dividends on Series A Preferred Stock		—	—	—	—	—		—		—		—		(34,618	)	—		(34,618	)
	Dividends on Series B Preferred Stock		—	—	—	—	—		—		—		—		(2,824	)	—		(2,824	)
	Balance at December 31, 2001		27,413	399,615	19,667	106,234	40,726		4		195,712		(106	)	(2,324	)	(9,365	)	689,770

See accompanying notes.

37

PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

												Predecessor Period from January 1 through November 11 1999
			Year Ended December 31						Period from November 12 through December 31 1999
			2001			2000
Operating activities
Net income			$	38,001		$	34,292		$	4,697		$	27,974
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		11,268			9,558			1,086			10,739
		Equity in earnings of joint ventures		(608	)		(504	)		—			—
		Gain on sale of real estate and investments, net		(1,322	)		(164	)		—			(4,717	)
		Merger related costs		—			—			—			1,440
	Changes in operating assets and liabilities:
		Accounts receivable and other assets		(8,167	)		(5,408	)		645			5,036
		Accounts payable and other liabilities		(5,234	)		230			774			(1,686	)
		Deferred rents		(3,075	)		(2,781	)		(571	)		(1,757	)
	Net cash provided by operating activities			30,863			35,223			6,631			37,029
Investing activities
		Additions to real estate assets		(124,838	)		(37,440	)		(1,511	)		(29,707	)
		Proceeds from sale of real estate assets		39,860			49,873			—			30,385
		Contributions to real estate joint ventures		(2,584	)		(6,328	)		(78	)		(364	)
		Distributions from real estate joint ventures		15,031			789			—			—
		Advances on notes receivable		(33,171	)		(48,642	)		—			—
		Payments on notes receivable		4,094			5,743			—			—
		Cash received in connection with merger		5,526			—			—			—
	Net cash (used in) provided by investing activities			(96,082	)		(36,005	)		(1,589	)		314
Financing activities
		Advances from revolving lines of credit and notes payable		151,013			217,357			6,000			81,900
		Repayments of revolving lines of credit and notes payable		(176,271	)		(136,281	)		(2,012	)		(96,670	)
		Proceeds from the issuance of Series B Preferred Stock and warrants		100,000			—			—			—
		Payments for common stock under tender offer		(5,653	)
		Payments for offering costs for merger and tender offer		(2,817	)		—			—			—
		Dividends paid		(34,618	)		(33,360	)		(8,316	)		(24,947	)
		Proceeds from exercise of stock options including tax benefits		6,450			917			—			114
	Net cash provided by (used in) financing activities			38,104			48,633			(4,328	)		(39,603	)
		Net (decrease) increase in cash		(27,115	)		47,851			714			(2,260	)
Cash and cash equivalents at beginning of period				49,996			2,145			1,431			3,691
Cash and cash equivalents at end of period			$	22,881		$	49,996		$	2,145		$	1,431

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PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)

									Predecessor Period from January 1 through November 11 1999
			Year Ended December 31				Period from November 12 through December 31 1999
			2001		2000
Supplemental disclosure:
	Cash paid for interest		$	14,334	$	8,885	$	566	$	5,777
	Net refunds received for income taxes			—		3,164		—		3,087
Supplemental schedule of noncash operating and financing activities:
	Purchase accounting adjustment			—		—		115,993		—
	Assumption of notes payable to acquire real estate assets			242,608		16,692		—		—
	Reduction of note receivable from Excel Legacy to acquire interest in real estate joint venture			919		4,134		—		—
	Reduction in senior notes and debentures for issuance of preferred stock			46,211		—		—		—
	Reduction in notes payable for issuance of preferred stock and warrants			9,347		—		—		—
	Purchase accounting adjustments associated with Merger:
		Real estate assets		181,949		—		—		—
		Other assets		79,214		—		—		—
		Notes payable		161,560		—		—		—
		Other liabilities		32,456		—		—		—

See accompanying notes.

39

PRICE LEGACY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Significant Accounting Policies

Organization

        Price Legacy Corporation (Price Legacy) operates as a real estate investment trust (REIT) incorporated in the State of Maryland. Our principal business is to operate, acquire, sell, and develop real property, primarily open-air shopping centers. On September 18, 2001, Price Legacy completed a merger between Price Enterprises, Inc. (PEI) and Excel Legacy Corporation (Excel Legacy) resulting in Excel Legacy becoming a wholly owned subsidiary of PEI (the Merger). The results of Excel Legacy are included in our operations beginning September 19, 2001.

        Our subsidiaries include Excel Legacy Holdings, Inc. which has elected to be treated as a Taxable REIT Subsidiary (TRS). Other than certain activities related to lodging and health care facilities, a TRS may generally engage in any business. As a regular C corporation, a TRS is subject to federal income tax and state and local income taxes, where applicable.

Accounting Principles

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). We follow the accounting standards established by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (SEC).

Consolidation

        We combine our financial statements with those of our wholly-owned subsidiaries as well as all affiliates in which we have significant influence and present them on a consolidated basis. The consolidated financial statements do not include the results of transactions between us and our subsidiaries or among our subsidiaries.

        We account for our investment in unconsolidated joint ventures using the equity method of accounting. Under the equity method of accounting, the net equity investment of the joint ventures is reflected on the consolidated balance sheets and the consolidated statements of operations includes our share of net income or loss from the unconsolidated joint ventures.

Real Estate Assets and Depreciation

        We record real estate assets at historical cost and adjust them for recognition of impairment losses. In following purchase accounting, we adjusted the historical costs of Excel Legacy's real estate assets to fair value at the time of the Merger. Our consolidated balance sheet at December 31, 2001 reflects the new basis of those real estate assets. See Note 2 for additional information on this transaction.

        We expense as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. We capitalize major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciate them over their estimated useful lives.

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        We compute real estate asset depreciation on a straight-line basis over their estimated useful lives, as follows:

Land improvements	40 years
Building and improvements	40 years
Tenant improvements	Initial term of lease or 10 years
Fixtures and equipment	3-7 years

        We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if their expected associated future undiscounted cash flows are less than their carrying amounts.

        We capitalize interest incurred during the construction period of certain assets and this interest is depreciated over the lives of those assets. The following table shows interest expense and the amount capitalized (amounts in thousands):

							Predecessor
	Year Ended December 31				Period from November 12 through December 31		Period from January 1 through November 11
	2001		2000		1999		1999
Interest incurred	$	18,379	$	13,018	$	1,079	$	5,971
Interest capitalized		1,586		2,087		231		944

        Pre-development costs that are directly related to specific construction projects are capitalized as incurred. We expense these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.

Investment in Securities

        We review our investments in securities for possible impairment whenever the market value of the securities falls below cost and, in our opinion, such decline represents an other than temporary impairment. Factors considered in this review include:

•

duration and extent, as well as reasons for which the market value has been less than cost



•

financial condition and near-term prospects of the investee, which includes consideration of proposed transactions known through Board of Directors participation



•

our ability and intent to retain the investment for a period of time to allow for a recovery in market value.

        When an other than temporary impairment loss on an individual investment is considered to have occurred, we write down the cost basis of the security, and the charge is recorded in earnings.

        Included in other assets on our consolidated balance sheet is an investment in Millennia Car Wash, LLC (Millennia) which owns approximately 3.8 million shares of common stock, and 62,500 common stock purchase warrants of Mace Security International (MACE) and 250,000 common shares of US Plastic Lumber Corporation (USPL). Our common shares in MACE are subject to certain sale

41

restrictions and one of our senior officers is a member of the MACE board of directors. In following GAAP, we account for Millennia's investment in MACE under the equity method of accounting and owned approximately 15% of MACE at December 31, 2001. We classify our investment in USPL as available-for-sale and recognize changes in the fair value of this investment in other comprehensive income.

Investment in USPL (in thousands):	December 31 2001
Cost	$	201
Unrealized (loss) gain		(106	)
Fair value	$	95

Revenue Recognition

        Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which we accrue in the period in which the related expense occurs; and (3) percentage rents based on the level of sales achieved by the lessee are recognized when earned.

        Gain or loss on sale of real estate is recognized when the sale contract is executed, title has passed, payment is received, and we no longer have continuing involvement in the asset.

        We adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on our consolidated financial position or results of operations.

Cash and Cash Equivalents

        We consider all highly liquid investments with a maturity of less than three months when purchased to be cash and cash equivalents.

        Our cash balance at December 31, 2001 includes $1.5 million of restricted funds which represent proceeds from the financing of a construction project. Funds are held in trust and released as work is completed.

Leasing Costs

        We capitalize costs associated with leasing space to tenants and amortize leasing costs using the straight-line method over the initial terms of the related tenant leases.

Financial Instruments

        The carrying amounts reflected in our balance sheets for cash and cash equivalents, receivables and all liabilities including minority interest approximate their fair values. In making these assessments we used estimates and market rates for similar instruments.

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Authorized Stock

        As of December 31, 2001, our Company's authorized stock consisted of 150 million shares of capital stock of which 94.7 million shares have been designated as common stock, par value $0.0001 per share; 27.8 million shares have been designated as 8³/4% Series A Cumulative Redeemable Preferred Stock, par value $.0001 per share; and 27.5 million shares have been designated as 9% Series B Junior Convertible Redeemable Preferred Stock, par value $.0001 per share.

Income Taxes

        We intend to continue to meet all conditions necessary to qualify as a REIT under the Internal Revenue Code. To qualify as a REIT, we are required to pay dividends of at least 90% of our REIT taxable income (95% for years beginning before January 1, 2001), determined without regard to the dividends-paid deduction and by excluding any net capital gain each year and meet certain other criteria. As a qualifying REIT, we will not be subject to tax on income distributed to our stockholders, but we will be subject to tax on our income to the extent it is not distributed. Also, if we sell properties that would result in a significant tax liability, we intend to use tax deferred exchange transactions so we will not be taxed on potential gains. The reported amounts of our net assets, as of December 31, 2001 and 2000 were more than their tax basis for Federal tax purposes by approximately $149.6 million and $195.8 million, respectively.

        The following table shows the tax status of our preferred dividend payments between ordinary income, return of capital and capital gains:

	Year Ended December 31
	2001		2000		1999
Ordinary income	97.1	%	91.7	%	73.7	%
Capital gain	2.9	%	—		13.9	%
Return of capital	—		8.3	%	12.4	%

Reclassifications

        Certain reclassifications have been reflected in the consolidated financial statements in order to conform with the current year presentation.

Use of Estimates

        Preparing financial statements in conformity GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We continually review our estimates and make adjustments as necessary, but actual results could differ from those envisioned when these estimates were made.

Stock-Based Compensation

        We follow Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and related interpretations, in accounting for our employee and non-employee director stock options instead of following Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock- Based Compensation." The alternative fair value accounting provided for under SFAS No. 123,

43

"Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. As a result, deferred compensation is recorded only in the event that the fair market value of the stock on the date of the option grant exceeds the exercise price of the options. Since the exercise price of our stock options equals the market price of our stock on the day the options are granted there is no related compensation expense.

Comprehensive Income

        In 1999, we adopted SFAS No. 130 "Reporting Comprehensive Income." This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The components of comprehensive income for us include net income and unrealized gains (losses) on investments.

New Accounting Standards

        Derivative Instruments and Hedging Activities:    Effective January 1, 2001, we adopted SFAS No. 133,"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities, where all derivatives must be recognized as assets and liabilities and measured at fair value. We adopted this standard and it did not have a significant impact on our consolidated financial statements.

        Business Combinations:    In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations initiated after June 30, 2001. SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets other than those acquired in a business combination. SFAS No. 141 and SFAS No. 142 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated financial statements.

        Asset Impairment:    In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting for the impairment or disposal of long-lived assets and is effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated financial statements.

Note 2—Merger and Significant Event

        On March 21, 2001, PEI, PEI Merger Sub, Inc., a Maryland corporation (Merger Sub), and Excel Legacy entered into an Agreement and Plan of Merger (the Merger Agreement). On September 18, 2001, Merger Sub was merged with and into Excel Legacy (the Merger), with Excel Legacy continuing as a wholly-owned subsidiary of PEI. On the effective date of the Merger, each outstanding share of Excel Legacy common stock was exchanged for 0.6667 of a share of PEI common stock, and each option to purchase shares of Excel Legacy common stock was exchanged for an option to purchase shares of PEI common stock. Following the Merger, PEI continues to operate as a REIT under the name Price Legacy Corporation. The Merger was structured to qualify as a tax-free reorganization, was approved by the stockholders of both PEI and Excel Legacy, and was accounted for as a purchase. The results of Excel Legacy are included in operations beginning September 19, 2001.

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        The purchase price of the Excel Legacy common stock in the Merger was calculated based on $4.89 per share for the PEI common stock, which is equal to the closing price of $5.75 per share on March 21, 2001 (the day immediately prior to the public announcement of the Merger), less a 15% discount to reflect the low trading volume of the PEI stock (amounts in thousands, except per share data):

Shares issued		40,376
Price per share	$	4.89
		197,439
Merger related accounting, legal, printing and other costs		1,425
Purchase price	$	198,864

        The purchase price of the Excel Legacy common stock resulted in an increase in the book value of the Excel Legacy assets acquired of approximately $26.0 million which has been primarily allocated to real estate and other assets.

        Also on March 21, 2001, PEI entered into a Securities Purchase Agreement with Warburg, Pincus Equity Partners, L.P. and certain of its affiliates (Warburg Pincus), pursuant to which PEI agreed to sell to Warburg Pincus for an aggregate purchase price of $100,000,000

•

17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock at $5.56 per share, par value $0.0001 per share (the Series B Preferred Stock)



•

a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share (the Warburg Investment)

        On April 12, 2001, PEI and Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, agreed to convert an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of the Series B Preferred Stock and a warrant to purchase 233,679 shares of our common stock at an exercise price of $8.25 per share. Price Legacy issued the Series B Preferred Stock and warrants to Warburg Pincus and Sol Price concurrently with the completion of the Merger.

        The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from the date of issuance. The 9% coupon will be paid with additional shares of Series B Preferred Stock at $5.56 per share for the first 45 months from issuance.

        In addition, under the terms of the Merger Agreement PEI commenced a tender offer for all outstanding shares of our common stock (other than those shares held by Excel Legacy and those shares issued in the Merger) at a cash price of $7.00 per share. In connection with the tender offer, 807,583 shares were purchased at a total cost of $5.7 million. Under terms of the Merger Agreement we also commenced an exchange offer in which holders of Excel Legacy's outstanding debentures and notes were offered shares of our Series A Preferred Stock in exchange for their debt securities. In connection with the exchange offer, we exchanged approximately $30.4 million in Excel Legacy

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debentures and $15.8 million in Excel Legacy notes. The tender offer and exchange offer also closed concurrently with the Merger.

        The exchange of Excel Legacy common stock for Price Legacy common stock in connection with the Merger is being accounted for as a purchase of Excel Legacy by Price Legacy. Under purchase accounting, the assets and liabilities of Excel Legacy have been adjusted to fair value.

        The following unaudited pro forma information for the years ended December 31, 2001 and 2000 have been presented as if the Merger had been completed on January 1, 2001 and 2000, respectively. It also reflects the Series B Preferred Stock dividends and exchange of Excel Legacy senior notes and convertible debentures into Series A Preferred Stock. It does not reflect any application of proceeds from the sale of Series B Preferred Stock. We present pro forma information for comparative purposes only and the pro forma information may not be indicative of our actual results of operations had the Merger been completed on January 1, 2001 or 2000 (amounts in thousands, except per share data):

	Year Ended December 31
	2001			2000
Total revenue	$	86,944		$	90,892
Net income		37,555			23,563
Preferred dividends		(50,510	)		(47,507	)
Net loss applicable to common stockholders	$	(12,955	)	$	(23,944	)

		Year Ended December 31
		2001			2000
Weighted average shares outstanding
	Basic		40,726			29,053
	Diluted		40,726			40,726
Earnings (loss) per common share
	Basic and diluted	$	(0.32	)	$	(0.82	)

Note 3—Net Income Per Share

        SFAS No. 128, "Earnings per Share," requires presentation of two calculations of earnings per common share. Basic earnings per common share equals net income applicable to common stockholders divided by weighted average common shares outstanding during the period. Diluted earnings per common share equals net income applicable to common stockholders divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised.

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All earnings per share amounts have been presented, and where appropriate, restated to reflect these calculations.

					Predecessor
		Year Ended December 31		Period from November 12 through December 31	Period from January 1 through November 11
		2001	2000	1999	1999
Weighted average shares outstanding		21,084,563	13,309,006	13,309,006	13,300,234
Effect of dilutive securities:
	Employee stock options	21,581	—	—	—
Weighted average shares outstanding—assuming dilution		21,106,144	13,309,006	13,309,006	13,300,234

        There were 19,666,754 shares of Series B Preferred Stock outstanding at December 31, 2001 which may be exchanged on a one-to-one basis into common stock, subject to adjustment, after 24 months if certain events occur.

Note 4—Real Estate Properties

        Our real estate properties are generally leased under noncancelable leases with remaining terms ranging from 1 to 24 years. Rental revenues include the following (amounts in thousands):

								Predecessor
		Year Ended December 31				Period from November 12 through December 31		Period from January 1 through November 11
		2001		2000		1999		1999
Minimum rent		$	62,558	$	55,050	$	7,088	$	44,848
Straight-line accrual of future rent			3,536		3,064		465		2,033
Expense reimbursements			14,078		12,276		1,695		10,172
Percentage rent			540		381		3		363
Other revenues			2,220		—		—		—
	Rental revenues	$	82,932	$	70,771	$	9,251	$	57,416

        Costco, our largest tenant, contributed 13.6% of minimum rent revenue from four leases in 2001. Rental revenues generated from Costco were as follows (amounts in thousands):

							Predecessor
	Year Ended December 31				Period from November 12 through December 31		Period from January 1 through November 11
	2001		2000		1999		1999
Costco rental revenues	$	8,500	$	8,400	$	1,100	$	7,200

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        As of December 31, 2001, future minimum rental income due under the terms of all noncancelable tenant leases is as follows (amounts in thousands):

2002	$	85,342
2003		84,387
2004		82,952
2005		78,848
2006		74,640
Thereafter		419,338

Acquisitions

        We acquired the following properties during 2001:

Location	Description	Acquired Date	Purchase Price (000's)		Mortgage Assumed (000's)
Walnut Creek, CA	Land	1/4/01	$	2,816	$	—
Anaheim, CA	Land	1/29/01		23,288		—
Tempe, AZ	Shopping Center	5/18/01		23,914		14,137
Mesa, AZ	Shopping Center	5/18/01		31,367		21,360
Greensburg, IN	Shopping Center	6/28/01		19,300		18,300	(1)
Hollywood, FL (Oakwood)	Shopping Center	11/01/01		90,112		66,734
West Palm Beach, FL (Cross County)	Shopping Center	11/01/01		40,697		32,332
Miami, FL (Kendale)	Shopping Center	11/01/01		36,050		29,009
Ft. Lauderdale, FL (Cypress Creek)	Shopping Center	11/01/01		28,800		23,370
Hollywood, FL (Oakwood Business)	Office Complex	11/01/01		13,334		10,196
Orlando, FL (Millenia)	Shopping Center	11/28/01		29,463		21,675

(1)

Capital lease

        We funded these acquisitions using the proceeds from tax-deferred exchange transactions on properties we sold in 2000 and by assuming mortgages and notes payable.

        We acquired the following properties during 2000:

Location	Description	Acquired Date	Purchase Price (000's)		Mortgage Assumed (000's)
Middletown, OH	Retail building (1)	2/9/00	$	6,709	$	3,726
Terre Haute, IN	Retail building (1)	2/9/00		5,762		3,598
San Diego/Rancho Bernardo, CA	Office building (1) (2)	2/25/00		16,025		11,025(3	)
San Diego/Pacific Beach, CA	Land (future development)	7/31/00		4,200		—
Scottsdale, AZ	Office building (1)	10/23/00		9,663		2,006

(1)

Property purchased from Excel Legacy

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(2)

Property master leased back to Excel Legacy

(3)

Indicates maximum construction loan balance. Balance assumed on date of acquisition was $7.4 million. Loan was refinanced in December 2000

        We funded these acquisitions through advances on our unsecured revolving credit facility, by assuming mortgages and notes payable, and with the proceeds from a property sold in 2000 in a tax-deferred exchange transaction.

Dispositions

        During 2001 we sold the following properties:

Location	Description	Date Sold	Sales Price (000's)
Aurora, CO	Retail Building	1/11/01	$	1,592
Sacramento/Bradshaw, CA	Office Building (1)	6/1/01		5,125
San Diego/Southeast, CA	Retail Building	9/5/01		1,680
Palm Desert, CA	Shopping Center	11/16/01		17,022
Westminster, CO (2)	Shopping Center	12/14/01		13,500
Seekonk, MA	Shopping Center	12/28/01		15,250

(1)

Partial sale—one building remains

(2)

We sold our 50% share of this joint venture

        As a result of the sales noted above, we recorded a gain of $1.3 million. We used the proceeds from the sale of the properties to repay debt or to purchase additional properties in tax-deferred exchange transactions.

        In May 2001, we executed a master lease of our existing four self-storage properties to a corporation owned by certain former officers. Effective as of the date of the agreement, the officers ceased being employees of PEI and Excel Legacy. The initial rent paid under this agreement is $5.1 million per year, and during 2001 we recorded $2.6 million in rental revenue related to this lease. As part of the agreement, we have the right to require the lessee to purchase the properties from us at a price based upon the properties' net operating income as defined by the agreement. In addition, three additional self-storage properties are under development and the lessees will have the right to acquire them from us upon completion and stabilization of the properties.

        During 2000, we sold the following properties:

Location	Description	Date Sold	Sales Price (000's)
Azusa, CA	Warehouse (1)	8/25/00	$	4,200
Sacramento/Bradshaw	Office buildings (2)	9/18/00		22,100
Littleton, CO	Retail building	11/03/00		2,030
Fountain Valley/Stockton CA	Retail buildings	11/20/00		22,291

(1)

Partial sale—self storage remains

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(2)

Partial sale—sold two of four buildings in office complex

        As a result of the sales noted above, we recorded a gain of $0.2 million. We used the proceeds from the sale of the properties to purchase additional properties in tax-deferred exchange transactions.

Note 5—Investments in Unconsolidated Real Estate Joint Ventures

        As of December 31, 2001 and 2000, we had the following investments in unconsolidated joint ventures which we account for under the equity method of accounting:

Joint Venture		Ownership %	December 31 2001		December 31 2000
Orlando Business Park LLC		50%	$	16,000		N/A
Old Mill District Shops, LLC		50%		3,340	$	2,350
3017977 Nova Scotia Company		55%		2,822		N/A
Blackstone Ventures I		50%		2,288		3,670
Other		Various		378		N/A
Westcol Center, LLC		50%		—		8,495
	Total		$	24,828	$	14,515

        Cash distributions and profits are typically allocated based on the above ownership percentages. The Orlando Business Park LLC assets consist primarily of land held for sale. The other joint ventures are primarily in the business of operating real estate. Their accounting principles are consistent with ours.

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        Summarized unaudited financial information for the joint ventures at December 31, 2001 and 2000 is as follows:

	Total Assets				Total Debt				Total Equity
As of December 31 (Unaudited)
	2001		2000		2001		2000		2001		2000
Orlando Business Park LLC (1)	$	26,069		N/A	$	10,136		N/A	$	15,879		N/A
Old Mill District Shops, LLC		23,300	$	13,119		17,243	$	5,325		5,976	$	6,271
3017977 Nova Scotia Company(1)		6,775		N/A		5,499		N/A		1,115		N/A
Blackstone Ventures I		11,075		11,956		8,153		7,620		2,721		4,016
Other(1)		378		N/A		—		N/A		378		N/A
Westcol Center, LLC(2)		N/A		43,828		N/A		17,861		N/A		24,899
	$	67,597	$	68,903	$	41,031	$	30,806	$	26,069	$	35,186

										Company's Share of Net Income (Loss)
	Total Revenues				Net Income (Loss)
Year ended December 31 (Unaudited)
	2001		2000		2001			2000		2001			2000
Orlando Business Park LLC(1)	$	—		N/A	$	—			N/A	$	—			N/A
Old Mill District Shops, LLC		1,094	$	226		(296	)	$	140		(146	)	$	70
3017977 Nova Scotia Company(1)		1,847		N/A		286			N/A		—			N/A
Blackstone Ventures I		1,296		1,136		376			125		183			63
Other(1)		—		N/A		—			N/A		—			N/A
Westcol Center, LLC(2)		3,591		2,168		1,143			742		571			371
	$	7,828	$	3,530	$	1,509		$	1,007	$	608		$	504

1)

Joint ventures acquired from Excel Legacy in the Merger. Net income shown is for the entire year, but we did not recognize our share of net income until the 4^th quarter of 2001.

2)

We sold our 50% share of this joint venture in December 2001 for $13.5 million and recognized no gain or loss on the sale. Revenues and net income shown for 2001 are through September.

        Prior to 2000, the joint ventures' results of operations were not significant.

Note 6—Notes Receivable

        We have $55.2 million in notes receivable outstanding at December 31, 2001 related to various projects. The notes bear interest ranging from 8% to 25% per year and are secured by the related projects or other real estate. Of these notes, $50.1 million involve entities controlled by one individual. Repayment of the notes is anticipated to occur from the completion of various development projects or other events. The largest note is for approximately $31.1 million related to a development project in Scottsdale, AZ. The remaining notes are all less than $10.0 million. The notes do not require cash payments on the interest until specified future dates, typically when the projects are completed or sold. The notes mature on various dates between 2002 and the earlier of the sale of the related projects, or 2003 to 2004.

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We had the following mortgages and notes payable outstanding at December 31, 2001 and December 31, 2000 (amounts in thousands):

		December 31
		2001		2000
Mortgages on five properties in Florida bearing interest ranging from 8.18% to 9.00%. The loans are collateralized by the properties and mature February 2009 and January 2010		$	161,517	$	—
Mortgage payable with GMAC Commercial Mortgage Corporation, bearing interest at LIBOR plus 98 basis points (2.85% at December 31, 2001). The mortgage is collateralized by five of our properties and matures June 2004			121,375		121,375
Mortgages and notes payable on eight properties bearing interest ranging from 6.59% to 9.00%. The loans are collateralized by the properties and mature on various dates between October 2001 and March 2014			62,928		17,873
Revolving $100.0 million credit facility bearing interest at LIBOR plus 150 to 185 basis points (3.56% at December 31, 2001), maturing September 2004			31,500		—
Construction loan outstanding on a $46.0 million facility bearing interest at LIBOR plus 310 basis points (4.97% at December 31, 2001). The loan is due October 2002 and is collateralized by a retail center in Newport, KY (see below)			26,706		—
Mortgage on a property in Orlando, FL bearing interest at LIBOR plus 225 basis points (4.12% at December 31, 2001). The loan is collateralized by the property and matures April 2003			21,675		—
Capital lease arrangement with an individual in conjunction with the Greensburg, IN shopping center. The capital lease has an effective interest rate of 7.36% and matures June 2005			18,300		—
Capital lease arrangement with an individual in conjunction with the San Diego/Rancho Bernardo, CA office building. The capital lease has an effective interest rate of 4.43% and matures in December 2004			11,572		11,461
Construction loans payable to a bank bearing interest at a 90-day LIBOR rate plus 275 basis points (4.63% at December 31, 2001). The loans are due April 2003 and are collateralized by the projects			7,167		—
Note payable to an individual bearing interest at 12.50% due April 2002			6,000		—
Note payable on IMAX equipment, no interest. The note is due on demand			5,451		—
Convertible Debentures and Senior Notes (see below)			5,095		—
Note payable outstanding on a $4.7 million facility related to Newport, KY (see below), bearing interest at Prime plus 50 basis points (5.25% at December 31, 2001), due March 2002			4,737		—
Revolving $75.0 million credit facility bearing interest at LIBOR plus 140 to 185 basis points, repaid in September 2001			—		44,300
	Total	$	484,023	$	195,009

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        We have a 65% interest in Newport on the Levee, LLC (Newport) that is developing a retail project in Newport, KY. In addition to the $26.7, $4.7 and $5.5 million notes in the above table, the City of Newport has issued two series of public improvement bonds. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2018 with interest at 8.375%; (b) $20.5 million maturing 2027 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by us, by Newport, and the third party co-developers of the project. Newport has drawn on $44.8 million of the bonds at December 31, 2001.

        Summarized debt information for our unconsolidated joint ventures and the amount guaranteed by us at December 31, 2001 is as follows:

Joint Venture	December 31 2001		Debt Guaranteed
Orlando Business Park, LLC	$	10,136	$	10,136
Old Mill District Shops, LLC		17,243		13,666
Blackstone Ventures I		8,153		8,153
3017977 Nova Scotia Company		5,499		5,499
	$	41,031	$	37,454

        We also have guaranteed an $11.9 million note payable related to a development project in Scottsdale, AZ and have a note receivable with a participating interest.

Convertible Debentures

        Prior to the Merger, Excel Legacy had $33.2 million in convertible debentures outstanding. As part of the Merger, $30.4 million of the debentures were exchanged for Series A Preferred Stock, with $2.8 million of debentures remaining. The debentures bear an interest rate of 9% per year and mature in November 2004. The holders of the debentures are entitled at any time before the day prior to the final maturity date, subject to prior redemption, to convert any debentures into common stock.

Senior Notes

        Prior to the Merger, Excel Legacy had $18.1 million in senior notes outstanding. As part of the Merger, $15.8 million of the notes were exchanged for Series A Preferred Stock, with $2.3 million of notes remaining. The notes bear an interest rate of 10% per year and mature in November 2004. The notes rank equal to future senior indebtedness and are senior to the debentures.

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        The amount of debt that becomes due in each of the next five years is as follows (amounts in thousands):

2002	$	51,931
2003		35,003
2004		180,906
2005		21,426
2006		4,239
Thereafter		190,518
	$	484,023

Note 8—Related Party Transactions

        Prior to the Merger, Excel Legacy was responsible for the daily management of PEI, including property management, finance and administration. We reimbursed Excel Legacy for these services. We expensed $2.4 million during 2001 prior to the Merger and $3.0 million for these services during 2000, which was based on our historical costs for similar expenses.

        Prior to the Merger, we executed a note receivable with Excel Legacy allowing them to borrow up to $40.0 million. During 2001 we recorded $2.9 million in interest income on this note prior to the Merger, and $1.0 million for 2000. As a result of the Merger, interest income is no longer recorded on this note.

        In conjunction with the purchase of the Anaheim land in the first quarter of 2001, we executed a ground lease agreement with Excel Legacy, which required payments of $2.8 million per year in rent. During 2001 we recorded $1.8 million in rental revenue from Excel Legacy related to this lease for the period of January 1 through September 18, 2001. Due to the Merger, rental revenue will no longer be recorded on this lease.

        In connection with the Merger, we acquired notes receivable from certain affiliates, of which $9.4 million was outstanding at December 31, 2001. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2001 from these notes was $2.6 million. The notes have been offset against stockholders' equity on our accompanying Consolidated Balance Sheets.

        We discuss other related party transactions in Note 2 and Note 4.

Note 9—Profit Sharing and 401(k) Plan

        In 2001, we adopted a new 401(k) Retirement Plan (the 401(k) Plan) covering most of our officers and employees. The 401(k) Plan permits participants to contribute, until termination of employment, up to a maximum of 15% of their compensation to the 401(k) Plan. In addition, we contribute 3% of each eligible employee's compensation.

        In 1999, prior to Excel Legacy taking over daily management of PEI, we contributed $119,000 to our profit sharing and $8,000 to our 401(k) Plan. We made no contributions for the year ended December 31, 2000.

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Note 10—Stock Option Plans

        In 2001, we established a Stock Option and Incentive Plan (the Plan) and we may grant stock options to any employee or director under this plan. We reserved 3,000,000 shares for issuance under the Plan. Options generally vest over three years and expire ten years after the grant date. Once exercisable, the employee or director can purchase shares of our stock at the market price on the date we granted the option.

        In connection with the Merger, each outstanding option to purchase Excel Legacy stock automatically became an option to purchase our common stock. The number of shares of our common stock, which may be purchased with these options, and the exercise price was adjusted to reflect the exchange ratio. You will see in the following table the activity in the common stock options and related weighted average exercise price per share. The quantity of stock options granted, exercised and cancelled for 2001 reflect only common stock options.

        The following table summarizes the activity for the Plan:

		Stock Options	Weighted Average Exercise Price Per Share
Outstanding at December 31, 2000		—		—
	Options assumed in connection with the Merger	282,006	$	5.04
	Granted	2,480,999		3.12
	Exercised	—		—
	Canceled	—		—
Outstanding at December 31, 2001		2,763,005		3.31

        As of December 31, 2001, options to purchase 1,527,392 shares were exercisable under the Plan and 236,995 shares of common stock remained available for future issuance in connection with the Plan.

        The following table summarizes information concerning options outstanding under the Plan as of December 31, 2001.

Range of Exercise Prices		Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Life in Years	Options Exercisable	Weighted Average Exercise Price of Options Exercisable
$	3.12-4.31	2,564,338	$	3.15	9.5	1,353,836	$	3.18
	5.25-5.62	183,335		5.33	7.8	163,335		5.30
	6.94-6.94	15,332		6.94	7.4	10,221		6.94
		2,763,005		3.32	9.4	1,527,392		3.43

        As we stated in Note 1, we follow the provisions for APB No. 25, "Accounting for Stock Issued to Employees." In 1997, we implemented the disclosure provisions required by SFAS No. 123, "Accounting for Stock-Based Compensation" for our stock option plans. SFAS No. 123 requires pro forma net income and earnings per share information, which is calculated assuming we had accounted for our stock option plans under the "fair value" method described in that statement. We estimated the fair

55

value using the Black-Scholes option pricing model, modified for dividends and using the following assumptions:

	Year Ended December 31 2001
Risk free interest rate	4.87	%
Annual dividend rate	0	%
Volatility factor of the stock price	31.11	%
Weighted average expected life (years)	10

        We do not record compensation expense for stock option grants. The following table summarizes results as if we had recorded compensation expense for the 2001 option grants.

		Year Ended December 31 2001
Net income:
	As reported	$	559
	Pro forma		(1,802	)
Net income per share — basic and diluted:
	As reported		.03
	Pro forma		(.09	)
Weighted average fair value of options granted during the year			1.60

        We also have a 1995 Employee Stock Option and Stock Grant Plan and a Director Stock Option Plan. In connection with Excel Legacy's exchange offer for our common stock in 1999, all options and rights to purchase our common stock and our preferred stock became fully vested and exercisable upon the closing of the exchange offer. Additionally, all options to purchase our Company's common stock at that time were canceled. Each outstanding option, which represented the right to purchase a share of both our common stock and our Series A preferred stock, was modified so that the holder was paid by Legacy an amount in cash and received a replacement option to purchase shares of our Series A preferred stock, fully exercisable and vested and will not expire for a period ending upon the earlier of:

•

two years following the closing of the exchange offer or such longer period as may be applicable to holders who remain employed by us or Excel Legacy after the exchange offer, or



•

such time as no shares of our preferred stock remain outstanding, at which time the option will represent the right to receive the redemption price for our preferred stock.

        Because our transaction with Excel Legacy resulted in the accelerated vesting of preferred stock options, we expensed $0.9 million during the period from January 1 through November 11, 1999 as

56

required by GAAP. The amount is included in merger related costs. The following table summarizes the activity for the Series A preferred stock options:

		Stock Options		Weighted Average Exercise Price Per Share
Outstanding at December 31, 1999		669,848		$	13.16
	Exercised	(109,352	)		8.39
Outstanding at December 31, 2000		560,496			14.08
	Exercised	(463,269	)		13.92
	Canceled	(64,028	)		14.99
Outstanding at December 31, 2001		33,199			14.49

Note 11—Stockholders' Equity

        The Series A Preferred Stock pays quarterly dividends at a rate of $1.40 per year and has a $16.00 per share liquidation preference. We have the right to redeem the Series A Preferred Stock anytime after August 16, 2003 at a redemption price of $16.00 per share plus accrued and unpaid dividends, if any. Holders of the Series A Preferred Stock have one-tenth of one vote per share, voting together with our common stock.

        For the first 45 months after issuance, all distributions on the Series B Preferred Stock will be payable in additional shares of Series B Preferred Stock.

        Included in Additional Paid-in Capital at December 31, 2001 are $3.1 million in warrants to purchase common stock at an exercise price of $8.25 per share.

        The total market value of the Series A Preferred Stock is based on the closing price on its first day of trading and is shown on the balance sheet as Series A Preferred Stock. We reduced additional paid in capital by the Series A Preferred Stock's value to reflect our change in capital structure.

Note 12—Commitments and Contingencies

        We own a property in New Jersey with a ground lease that has a remaining term of 24 years with three 15-year options to renew. Rent expense related to the ground lease is summarized below (amounts in thousands):

	Year Ended December 31 2001		Year Ended December 31 2000		Period from November 12 through December 31 1999		Predecessor Period from January 1 through November 11 1999
Ground lease rent expense	$	782	$	754	$	103	$	652

57

        Future minimum payments during the next five years and thereafter under this noncancelable lease at December 31, 2001 are as follows (amounts in thousands):

2002	$	796
2003		796
2004		796
2005		796
2006		796
After 2006		16,252
Total minimum payments	$	20,232

        The above property is subleased and as of year end, total future sublease revenues are $28.0 million, which are included in future minimum rental income amounts in Note 4.

        In February 2001, Lewis P. Geyser filed a lawsuit against Excel Legacy in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by Excel Legacy and Mr. Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Mr. Geyser alleges that Excel Legacy breached its obligations under the Operating Agreement, by failing to contribute the funding required under the Agreement. Mr. Geyser also alleges that Excel Legacy misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. We believe the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from Excel Legacy in negotiations with Mr. Geyser which were underway prior to its filing. We intend to vigorously defend the lawsuit. Excel Legacy has also filed a cross-complaint against Mr. Geyser for breach of contract, fraud, breach of fiduciary duty and other related claims. The trial of this matter began February 26, 2002. On March 19, 2002, the trial judge dismissed both the complaint and cross-complaint on the grounds that Mr. Geyser was not the proper party under the Operating Agreement and therefore could not sue or be sued on any of the pending causes of action.

58

Note 13—Quarterly Results of Operations (unaudited)

        The following is an unaudited summary of our quarterly results for the last two years (amounts in thousands, except per share data):

			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year ended December 31, 2001
	Revenues		$	17,781	$	19,148	$	19,921		26,082
	Operating income			10,244		11,244		11,817		12,069
	Net income			8,739		10,962		9,766		8,534
	Earnings (loss) per common share
		Basic and diluted		.03		.19		.06		(.08	)
			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Year ended December 31, 2000
	Revenues		$	17,471	$	17,455	$	17,976	$	17,869
	Operating income			10,501		10,672		10,486		10,188
	Net income			9,171		8,488		8,636		7,997
	Earnings (loss) per common share
		Basic and diluted		.06		.01		.02		(.03	)

Note 14—Subsequent Events

        In January 2002, we sold a parcel of land in Hollywood, FL for $1.4 million. We are using the proceeds from the sale to purchase additional properties in tax-deferred exchange transactions.

        In January 2002, we sold a parcel of land in Tucson, AZ for $0.7 million. We are using the proceeds from the sale to purchase additional properties in tax-deferred exchange transactions.

59

Report of Independent Accountants

To the Board of Directors and Shareholders
of Price Legacy Corporation:

        In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 62 present fairly, in all material respects, the financial position of Price Legacy Corporation and its subsidiaries at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) on page 62 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements of the Company as of December 31, 2000 and December 31, 1999 and for the year ended December 31, 2000, the period from November 12, 199 through December 31, 1999, and the period from January 1, 1999 through November 11, 1999 were audited by other independent accountants whose report dated January 19, 2001, except for Note 13, as to which the date is January 26, 2001 expressed an unqualified opinion on those statements.

        On September 18, 2001, Price Enterprises, Inc. acquired Excel Legacy Corporation (see Note 2).

PRICEWATERHOUSECOOPERS LLP

San Diego, California
January 25, 2002, except for Note 14,
as to which the date is January 31, 2002

60

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Price Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of Price Enterprises, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2000 and the period from November 12, 1999 through December 31, 1999, period from January 1, 1999 through November 11, 1999, and the year ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Price Enterprises, Inc. at December 31, 2000 and 1999 and the consolidated results of its operations and its cash flows for the year ended December 31, 2000 and the period from November 12, 1999 through December 31, 1999, period from January 1, 1999 through November 11, 1999, and the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

San Diego, California
January 19, 2001, except for Note 13, as to which the date is January 26, 2001

61

ITEM 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        As reported in our Form 8-K dated October 31, 2001, Ernst and Young LLP was not appointed to serve as our independent accountants for the year ending December 31, 2001. Effective October 25, 2001, PricewaterhouseCoopers LLP was engaged as our independent accountant. This decision was approved by the Audit Committee of our Board of Directors.

        There have been no disagreements with the independent accountants on any matter of accounting principles and practices, financial statement disclosures, or auditing scope or procedure.

PART III

        Note that in this Form 10-K, we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.

ITEM 10—Directors and Executive Officers of the Registrant

        Information about Directors of the Company is incorporated by reference from the discussion under the heading Enterprises' Directors and Officers in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

ITEM 11—Executive Compensation

        Information about executive compensation is incorporated by reference from the discussion under the heading Executive Compensation in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

ITEM 12—Security Ownership of Certain Beneficial Owners and Management

        Information about security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading Securities Ownership of Certain Beneficial Owners and Management in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

ITEM 13—Certain Relationships and Related Transactions

        Information about certain relationships and transactions with related parties is incorporated by reference from the discussion under the heading Certain Relationships and Related Transactions in our Proxy Statement for the 2002 Annual Meeting of Stockholders.

PART IV

ITEM 14—Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

List of Financial Statements and Financial Statement Schedules:

The following consolidated financial statements of Price Legacy Corporation are included in Item 8

					Page
(1)	(A)	Report of Independent Accountants			60
	(B)	Consolidated Financial Statements
			(i)	Consolidated Balance Sheets — December 31, 2001 and 2000	35

62

			(ii)	Consolidated Statements of Operations — Year ended December 31, 2001, Year ended December 31, 2000, and Period from November 12 through December 31, 1999, and Period from January 1 through November 11, 1999	36
			(iii)	Consolidated Statements of Stockholders' Equity — Year ended December 31, 2001, Year ended December 31, 2000, Period from November 12 through December 31, 1999, and Period from January 1 through November 11, 1999	37
			(iv)	Consolidated Statements of Cash Flows — Year ended December 31, 2001, Year ended December 31, 2000, Period from November 12 through December 31, 1999, and Period from January 1 through November 11, 1999	38
			(v)	Notes to Consolidated Financial Statements	40
(2)	Financial Statement Schedules:
	The following consolidated financial statement schedules of Price Legacy Corporation are included in Item 14(d):
		Schedule II — Valuation and Qualifying Accounts			64
		Schedule III — Real Estate and Accumulated Depreciation			65
	All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

(b)

Reports on Form 8-K

We filed reports on Form 8-K on October 31, 2001, November 8, 2001 and November 18, 2001.

(c)

Exhibits: For a list of exhibits filed with this annual report, refer to the exhibit index beginning on page 69.

63

PRICE LEGACY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2001
(amounts in thousands)

										Predecessor
	Year Ended December 31						Period from November 12 through December 31 1999			Period from January 1 through November 11 1999
Allowance for Uncollectible Accounts
	2001			2000
Balance at beginning of period	$	785		$	71		$	154		$	339
Additions
Charged to bad debt expense		1,030			752			(83	)		(51	)
Deductions
Accounts receivable written off		(135	)		(38	)		—			(134	)
Balance at end of period	$	1,680		$	785		$	71		$	154

64

PRICE LEGACY CORPORATION
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(amounts in thousands)

								Gross amount at which carried at close of period
		Initial Costs																	Depreciable Life
						Costs Capitalized Subsequent to Acquisition
Location (2)	Description	Land and Improvements		Building and Improvements				Land and Improvements		Building and Improvements		Total (1)		Accumulated Depreciation			Date of Construction	Date of Acquisition	Land Improvements	Buildings and Improvements	Tenant Improvements
Newport, KY	Shopping Center	$	—	$	95,450	$	11,402	$	8,240	$	98,612	$	106,852	$	(643	)	2001	2001	40	40	10
Hollywood, FL	Shopping Center		30,037		60,211		—		30,037		60,211		90,248		(251	)		2001	40	40	10
Westbury, NY	Shopping Center		41,784		—		43,875		56,956		28,703		85,659		(1,779	)	1992-93	1992	40	40	10
Pentagon City, VA	Shopping Center		24,742		14,473		33,816		29,576		43,455		73,031		(2,362	)	1993-94	1993	40	40	10
Anaheim, CA	Land		51,810		586		9,489		51,494		10,391		61,885		—			2001	—	—	—
Wayne, NJ	Shopping Center		19,760		6,912		20,475		26,524		20,623		47,147		(1,153	)	1991-93	1991	40	40	10
West Palm Beach, FL	Shopping Center		13,566		27,193		6		13,566		27,199		40,765		(113	)		2001	40	40	10
Miami, FL	Shopping Center		12,017		24,088		—		12,017		24,088		36,105		(100	)		2001	40	40	10
Mesa, AZ	Shopping Center		10,990		20,410		1,594		10,990		22,004		32,994		(298	)		2001	40	40	10
Philadelphia, PA	Shopping Center		8,649		4,382		18,620		10,641		21,010		31,651		(1,340	)	1992,1994-95	1991	40	40	10
Orlando, FL	Shopping Center		9,821		19,686		—		9,821		19,686		29,507		(41	)		2001	40	40	10
San Diego, CA	Warehouse/Office Building/Self Storage		5,244		7,990		15,939		6,971		22,202		29,173		(1,261	)		1981	40	40	10
Ft. Lauderdale, FL	Shopping Center		9,600		19,244		—		9,600		19,244		28,844		(80	)		2001	40	40	10
Signal Hill, CA	Shopping Center		5,872		—		21,899		14,267		13,504		27,771		(816	)	1992-93	1991	40	40	10
Roseville, CA	Shopping Center		9,173		8,165		8,618		7,641		18,315		25,956		(1,161	)		1997	40	40	10
San Diego/Murphy Canyon, CA	Self Storage		9,274		8,575		6,218		10,422		13,645		24,067		(852	)		1998	40	40	10
Tempe, AZ	Shopping Center		8,380		15,563		—		8,380		15,563		23,943		(227	)		2001	40	40	10
Greensburg, IN	Shopping Center		6,378		12,947		—		6,378		12,947		19,325		(162	)		2001	40	40	10
Temecula, CA	Land		12,622		—		5,909		12,736		5,795		18,531		—		2001	1999	—	—	—
Glen Burnie, MD	Shopping Center		1,795		—		14,755		5,247		11,303		16,550		(719	)	1990-92	1985	40	40	10
Sacramento/Bradshaw, CA	Office Building		1,243		15,281		790		2,033		15,281		17,314		(875	)		1998	40	40	10
San Diego/Rancho Bernardo, CA	Office Building		2,530		9,851		2,703		2,530		12,554		15,084		(891	)		2000	40	40	10
Solana Beach, CA	Self Storage		2,324		1,227		10,859		2,776		11,634		14,410		(537	)	1998	1998	40	40	10
San Diego/Rancho San Diego, CA	Shopping Center		4,424		6,889		2,599		5,165		8,747		13,912		(522	)		1998	40	40	10
Hollywood, FL-OBC	Office Complex		4,445		8,909		25		4,445		8,934		13,379		(37	)		2001	40	40	10
Tusayan, AZ	Hotel/Restaurant		—		13,227		1		—		13,228		13,228		(103	)		2001	40	40	10

65

PRICE LEGACY CORPORATION
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
December 31, 2001
(amounts in thousands)

									Gross amount at which carried at close of period
		Initial Costs																		Depreciable Life
						Costs Capitalized Subsequent to Acquisition
Location (2)	Description	Land and Improvements		Building and Improvements					Land and Improvements		Building and Improvements		Total (1)		Accumulated Depreciation			Date of Construction	Date of Acquisition	Land Improvements	Buildings and Improvements	Tenant Improvements
San Diego/Carmel Mtn., CA	Shopping Center		3,464		—		6,741			5,518		4,687		10,205		(270	)	1992-93	1991	40	40	10
Scottsdale, AZ	Office Building		3,353		6,310		84			3,353		6,394		9,747		(194	)		2000	40	40	10
Northridge, CA	Shopping Center		4,029		—		3,673			4,590		3,112		7,702		(169	)	1993-94	1988	40	40	10
San Diego/Pacific Beach, CA	Land		4,267		—		3,440			4,267		3,441		7,708		—		2001	2000	—	—	—
Daniel's Head, Bermuda	Resort		—		7,261		—			—		7,261		7,261		(187	)		2001	40	40	10
Farmington, UT	Land		7,000		—		—			7,000		—		7,000		—			2001	—	—	—
Inglewood, CA	Warehouse Building		1,438		—		5,390			2,205		4,623		6,828		(251	)	1989	1984	40	40	10
Moorsetown, NJ (leased land)	Shopping Center		Leased		—		6,781			—		6,781		6,781		(643	)	1989-91	1989	40	40	10
Middletown, OH	Retail Building		2,515		4,181		—			2,515		4,181		6,696		(200	)		2000	40	40	10
San Juan Capistrano, CA	Shopping Center		3,150		—		3,114			2,879		3,385		6,264		(216	)	1988-89, 94-95	1987	40	40	10
Terre Haute, IN	Retail Building		2,185		3,572		—			2,185		3,572		5,757		(171	)		2000	40	40	10
San Juan Capistrano, CA	Land		1,369		—		4,226			1,369		4,226		5,595		—		2001	2001	—	—	—
Smithtown, NY	Retail Building		721		—		4,646			2,409		2,958		5,367		(188	)	1988-89	1985	40	40	10
Walnut Creek, CA	Land		3,222		—		1,488			3,222		1,488		4,710		—		2001	2001	—	—	—
Azusa, CA	Self Storage		1,222		—		3,410			1,913		2,719		4,632		(185	)	1983, 1998	1983	40	40	10
Hampton, VA	Retail Building/Bank		1,132		—		3,497			2,248		2,381		4,629		(145	)	1992	1987	40	40	10
Tucson, AZ	Shopping Center		1,073		—		3,272			1,999		2,346		4,345		(163	)	1989-91	1988	40	40	10
Redwood City, CA	Retail Building		1,860		—		2,354			4,214		—		4,214		—			1982	—	—	—
New Britain, CT	Warehouse Building		3,640		—		378			2,230		1,788		4,018		(108	)		1991	40	40	10
Tucson/Marana, AZ	Land		2,635		—		426			2,635		426		3,061		—			1999	—	—	—
Scottsdale, AZ	Restaurant		563		1,046		—			563		1,046		1,609		(7	)		2001	40	40	10
Scottsdale, AZ	Land		1,567		—		—			1,566		—		1,566		—			2001	—	—	—
Yosemite, CA	Land		782		—		—			782		—		782		—			2001
Chula Vista/Rancho del Rey, CA	Land		915		—		(200	)		715		—		715		—			1993	—	—	—
Fountain Valley, CA	Land		321		—		—			321		—		321		—			1998	—	—	—
Total Investment Properties		$	358,903	$	423,629	$	282,312		$	419,151	$	645,693	$	1,064,844	$	(19,420	)

(1)    The aggregate cost for federal income tax purposes is $893,120.

(2)    Does not include our investments in unconsolidated joint ventures.

66

PRICE LEGACY CORPORATION
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)

				Year Ended December 31
Reconciliation to Reported Amounts
				2001			2000			1999
PROPERTY AND EQUIPMENT
	Balance at beginning of period			$	554,821		$	551,770		$	475,667
	Additions during the period:
		Purchases			367,446			54,115			31,114
		Assets acquired in the Merger			181,949			—			—
	Deductions during the period:
		Cost of properties sold			(39,372	)		(51,064	)		(30,578	)
			Subtotal		1,064,844			554,821			476,203
	Other:
		Purchase accounting adjustment to fair value			—			—			75,567
	Balance at end of period			$	1,064,844		$	554,821		$	551,770
ACCUMULATED DEPRECIATION
	Balance at beginning of period			$	9,365		$	1,278		$	57,024
	Depreciation expense				10,889			9,032			11,206	(1)
	Accumulated depreciation of properties sold				(834	)		(945	)		(4,188	)
			Subtotal		19,420			9,365			64,042
	Other:
		Purchase accounting adjustment to fair value			—			—			(62,764	)
	Balance at end of period			$	19,420		$	9,365		$	1,278

(1)

Combined depreciation expense for the periods January 1 through November 11 and November 12 through December 31, 1999.

67

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PRICE LEGACY CORPORATION
DATED: March 20, 2002	By:	/s/  GARY B. SABIN Gary B. Sabin Chief Executive Officer (Principal Executive Officer)
DATED: March 20, 2002	By:	/s/  JAMES Y. NAKAGAWA James Y. Nakagawa Chief Financial Officer (Principal Financial and Accounting Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/  JACK MCGRORY JACK McGRORY, Chairman of the Board of Directors	March 20, 2002 Date
/s/  GARY B. SABIN GARY B. SABIN, Co-Chairman of the Board of Directors and Chief Executive Officer	March 20, 2002 Date
/s/  RICHARD B. MUIR RICHARD B. MUIR, Director and Vice Chairman	March 20, 2002 Date
/s/  JAMES F. CAHILL JAMES F. CAHILL, Director	March 20, 2002 Date
/s/  MURRAY GALINSON MURRAY GALINSON, Director	March 20, 2002 Date
/s/  MELVIN L. KEATING MELVIN L. KEATING, Director	March 20, 2002 Date
/s/  RUEBEN S. LEIBOWITZ RUEBEN S. LEIBOWITZ, Director	March 20, 2002 Date
/s/  KEENE WOLCOTT KEENE WOLCOTT, Director	March 20, 2002 Date

68

EXHIBIT INDEX

Description

2.1	(1	)	Agreement and Plan of Merger, dated as of March 21, 2001, by and among Price Enterprises, Inc., PEI Merger Sub, Inc. and Excel Legacy Corporation
2.2	(2	)	Distribution Agreement dated as of August 26, 1997 between Price Enterprises, Inc. and PriceSmart, Inc.
2.3	(3	)	Distribution Agreement, dated as of March 31, 1998, by and among Excel Realty Trust, Inc., Excel Legacy Corporation and ERT Development Corporation
3.1	(4	)	Articles of Amendment and Restatement of Price Legacy Corporation
3.2	(5	)	Bylaws of Price Legacy Corporation
4.1	(4	)	Form of Common Stock Certificate
4.2	(6	)	Form of Series A Preferred Stock Certificate
4.3	(7	)	Form of Series B Preferred Stock Certificate
4.4	(8	)	Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004, including form of Debenture and form of Pledge Agreement
4.5	(9	)	First Supplemental Indenture, dated as of September 18, 2001, by and among Excel Legacy Corporation, Price Legacy Corporation and Wells Fargo Bank Minnesota, N.A. with respect to the 9% Convertible Redeemable Subordinated Secured Debentures due 2004 of Excel Legacy Corporation
4.6	(8	)	Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 10.0% Senior Redeemable Secured Notes due 2004, including form of Note and form of Pledge Agreement
4.7	(9	)	First Supplemental Indenture, dated as of September 18, 2001, by and between Excel Legacy Corporation and Wells Fargo Bank Minnesota, N.A. with respect to the 10% Senior Redeemable Secured Notes due 2004 of Excel Legacy Corporation
10.1	*		Amended and restated Price Legacy Corporation 2001 Stock Option and Incentive Plan
10.2	*		Form of Incentive Stock Option Agreement under the 2001 Plan
10.3	(10	)	The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan (the "1995 Plan")
10.4	(11	)	First Amendment to The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
10.5	(11	)	Form of Amended and Restated Non-Qualified Stock Option Agreement under the 1995 Plan, as amended
10.6	(13	)	Second Amendment to the Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
10.7	(14	)	Loan Agreement dated June 28, 2000 between Price Owner LLC and GMAC Commercial Mortgage Corporation, including form of Promissory Note, Mortgage and Security Agreement, Assignment of Leases and Rents, Guaranty of Recourse Obligations and Environmental Indemnity Agreement
10.8	(1	)	Securities Purchase Agreement, dated as of March 21, 2001, by and among Price Enterprises, Inc., and Warburg, Pincus Equity Partners, L.P., Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and Warburg, Pincus Netherlands Equity Partners III, C.V.
10.9	(15	)	Conversion Agreement, dated as of April 12, 2001, by and among Price Enterprises, Inc., The Sol and Helen Price Trust, Warburg, Pincus Equity Partners, L.P. and Excel Legacy Corporation

69

10.10	(4	)	Registration Rights Agreement, dated as of September 18, 2001, by and among Price Enterprises, Inc., Warburg, Pincus Equity Partners, L.P., Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and Warburg, Pincus Netherlands Equity Partners III, C.V.
10.11	(1	)	Form of Common Stock Purchase Warrant
10.12	(12	)	Revolving Credit Agreement dated as of September 19, 2001 among the Company and Fleet National Bank and the other banks which are party thereto
10.13	(15	)	Purchase and Sale Agreement, dated as of May 7, 2001, among SREG Operating Limited Partnership, SREG Oakwood Plaza, Inc., SREG OBC, Inc., SREG Hollywood Hills, Inc., SREG Cypress Creek, Inc., SREG Kendale, Inc., SREG Cross County, Inc., and SREG (Millenia), Inc., and Swerdlow Real Estate Group, Inc. and Price Enterprises, Inc.
10.14	(16	)	First Amended and Restated Operating Agreement dated as of July 29, 1998 of Newport on the Levee, LLC, a Delaware limited liability company
10.15	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Gary B. Sabin, an individual
10.16	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Richard B. Muir, an individual
10.17	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Graham R. Bullick, an individual
10.18	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and S. Eric Ottesen, an individual
10.19	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and John Visconsi, an individual
10.20	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and James Y. Nakagawa, an individual
10.21	(17	)	Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Mark T. Burton, an individual
10.22	(18	)	Form of Stock Purchase Agreement dated as of September 25, 2000, by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton
10.23	(18	)	Form of Loan Assumption Agreement dated as of September 25, 2000 by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton
12.1	*		Computation of ratio of earnings to fixed charges
21.1	*		Subsidiaries of Price Legacy Corporation
23.1	*		Consent of PricewaterhouseCoopers LLP
23.2	*		Consent of Ernst & Young LLP

*

Filed herewith.

(1)

Incorporated by reference to Current Report on Form 8-K filed with the SEC on March 23, 2001 (File No. 0-20449)

(2)

Incorporated by reference to Current Report on Form 8-K filed with the SEC on September 12, 1997 (File No. 0-20449)

(3)

Incorporated by reference to the Excel Legacy Corporation's Current Report on Form 8-K (File No. 0-23503) filed with the SEC on April 2, 1998

(4)

Incorporated by reference to Current Report on Form 8-K filed with the SEC on September 19, 2001 (File No. 0-20449)

(5)

Incorporated by reference to Transition Report on Form 10-K of Price Enterprises, Inc. filed with the SEC on March 27, 1998 (File No. 0-20449)

70

(6)

Incorporated by reference to Current Report on Form 8-A filed with the SEC on August 7, 1998 (File No. 0-20449)

(7)

Incorporated by reference to Registration Statement on Form S-3 of Price Legacy Corporation filed with the SEC on March 1, 2002 (File No. 333-83606)

(8)

Incorporated by reference to the Excel Legacy Corporation's Current Report on Form 8-K (File No. 0-23503) filed with the SEC on November 12, 1999

(9)

Incorporated by reference to Excel Legacy Corporation's Current Report on Form 8-K filed with the SEC on September 19, 2001 (File No. 0-23503)

(10)

Incorporated by reference to Registration Statement on Form 10 of Price Enterprises, Inc. filed with the SEC on December 13, 1994 (File No. 0-20449)

(11)

Incorporated by reference to Registration Statement on Form S-8 of Price Enterprises, Inc. filed with the SEC on September 2, 1998 (File No. 333-62723)

(12)

Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 filed with the SEC on November 14, 2001 (File No. 0-20449)

(13)

Incorporated by reference to Quarterly Report on Form 10-Q filed with the SEC on August 4, 1999 (File No. 0-20449)

(14)

Incorporated by reference to Current Report on Form 8-K filed with the SEC on July 26, 2000 (File No. 0-20449)

(15)

Incorporated by reference to Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2001 filed with the SEC on May 25, 2001 (File No. 0-20449)

(16)

Incorporated by reference to the Excel Legacy Corporation's Annual Report filed on Form 10-K (File No. 0-23503) filed with the SEC on October 28, 1998

(17)

Incorporated by reference to the Excel Legacy Corporation's Annual Report filed on Form 10-K (File No. 0-23503) filed with the SEC on March 30, 2000

(18)

Incorporated by reference to the Excel Legacy Corporation's Quarterly Report filed on Form 10-Q (File No. 0-23503) filed with the SEC on November 9, 2000

71

QuickLinks

PRICE LEGACY CORPORATION Annual Report on Form 10-K for the Year Ended December 31, 2001
FORWARD-LOOKING STATEMENTS
PART I
PART II
PRICE LEGACY CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
PRICE LEGACY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
REPORT OF INDEPENDENT AUDITORS
PART III
PART IV
PRICE LEGACY CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2001 (amounts in thousands)
PRICE LEGACY CORPORATION SCHEDULE III (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
SIGNATURES
EXHIBIT INDEX

EX-10.1

                                                                    Exhibit 10.1


                              AMENDED AND RESTATED
                            PRICE LEGACY CORPORATION
                      2001 STOCK OPTION AND INCENTIVE PLAN


                       (ORIGINALLY ADOPTED APRIL 12, 2001;
                 AMENDED AND RESTATED AS OF SEPTEMBER 20, 2001)

         Price Legacy Corporation (formerly Price Enterprises, Inc.), a Maryland
corporation, adopted the Price Enterprises, Inc. 2001 Stock Option and Incentive
Plan, effective April 12, 2001, for the benefit of its eligible Employees,
Consultants and Directors, subject to approval of the Plan by the Company's
stockholders. The date on which Options first became issuable under the Plan was
September 18, 2001. The Plan has been amended and restated as of September 20,
2001 and renamed the Amended and Restated Price Legacy Corporation 2001 Stock
Option and Incentive Plan (the "Plan").

         The purposes of the Plan are as follows:

         (1) To provide an additional incentive for Directors, key Employees and
Consultants (as such terms are defined below) to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.

         (2) To enable the Company to obtain and retain the services of
Directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.

                                    ARTICLE I.

                                   DEFINITIONS

         Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise. The
singular pronoun shall include the plural where the context so indicates.

         1.1.  "ADMINISTRATOR" shall mean the entity that conducts the general
administration of the Plan as provided herein. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 10.1.

         1.2.  "AWARD" shall mean an Option, a Restricted Stock award, a
Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock
Payment award or a Stock Appreciation Right which may be awarded or granted
under the Plan (collectively, "Awards").




         1.3.  "AWARD AGREEMENT" shall mean a written agreement executed by an
authorized officer of the Company and the Holder which shall contain such terms
and conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.

         1.4.  "AWARD LIMIT" shall mean 1,000,000 shares of Common Stock, as
adjusted pursuant to Section 11.3; PROVIDED, HOWEVER, that solely with respect
to Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean
$1,000,000.

         1.5.  "BOARD" shall mean the Board of Directors of the Company.

         1.6.  "CODE" shall mean the Internal Revenue Code of 1986, as amended.

         1.7.  "COMMITTEE" shall mean the Compensation Committee of the Board,
or another committee or subcommittee of the Board, appointed as provided in
Section 10.1.

         1.8.  "COMMON STOCK" shall mean the common stock of the Company, par
value $0.0001 per share.

         1.9.  "COMPANY" shall mean Price Legacy Corporation, a Maryland
corporation.

         1.10. "CONSULTANT" shall mean any consultant or adviser if:

               (a) The consultant or adviser renders bona fide services to
         the Company;

               (b) The services rendered by the consultant or adviser are not
         in connection with the offer or sale of securities in a capital-raising
         transaction and do not directly or indirectly promote or maintain a
         market for the Company's securities; and

               (c) The consultant or adviser is a natural person who has
         contracted directly with the Company to render such services.

         1.11. "DEFERRED STOCK" shall mean Common Stock awarded under Article
VIII of the Plan.

         1.12. "DIRECTOR" shall mean a member of the Board.

         1.13. "DIVIDEND EQUIVALENT" shall mean a right to receive the
equivalent value (in cash or Common Stock) of dividends paid on Common Stock,
awarded under Article VIII of the Plan.

         1.14. "DRO" shall mean a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.


                                       2




         1.15. "EMPLOYEE" shall mean any officer or other employee (as defined
in accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.

         1.16. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.

         1.17. "FAIR MARKET VALUE" of a share of Common Stock as of a given date
shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system,
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator acting in good faith.

         1.18. "HOLDER" shall mean a person who has been granted or awarded an
Award.

         1.19. "INCENTIVE STOCK OPTION" shall mean an option which conforms to
the applicable provisions of Section 422 of the Code and which is designated as
an Incentive Stock Option by the Administrator.

         1.20. "INDEPENDENT DIRECTOR" shall mean a member of the Board who is
not an Employee of the Company.

         1.21. "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
designated as an Incentive Stock Option by the Administrator.

         1.22. "OPTION" shall mean a stock option granted under Article IV of
the Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; PROVIDED, HOWEVER, that Options granted to Independent Directors and
Consultants shall be Non-Qualified Stock Options.

         1.23. "PERFORMANCE AWARD" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.

         1.24. "PERFORMANCE CRITERIA" shall mean the following business criteria
with respect to the Company, any Subsidiary or any division or operating unit:
(a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e)
earnings per share, (f) return on equity, (g) return on invested capital or
assets, (h) cost reductions or savings, (i) funds from operations, (j)
appreciation in the fair market value of Common Stock, and (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization.


                                       3




         1.25. "PLAN" shall mean this Amended and Restated Price Legacy
Corporation 2001 Stock Option and Incentive Plan.

         1.26. "RESTRICTED STOCK" shall mean Common Stock awarded under Article
VII of the Plan.

         1.27. "RULE 16B-3" shall mean Rule 16b-3 promulgated under the Exchange
Act, as such Rule may be amended from time to time.

         1.28. "SECTION 162(M) PARTICIPANT" shall mean any key Employee
designated by the Administrator as a key Employee whose compensation for the
fiscal year in which the key Employee is so designated or a future fiscal year
may be subject to the limit on deductible compensation imposed by Section 162(m)
of the Code.

         1.29. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.

         1.30. "STOCK APPRECIATION RIGHT" shall mean a stock appreciation right
granted under Article IX of the Plan.

         1.31. "STOCK PAYMENT" shall mean (a) a payment in the form of shares of
Common Stock, or (b) an option or other right to purchase shares of Common
Stock, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including without limitation, salary, bonuses
and commissions, that would otherwise become payable to a key Employee or
Consultant in cash, awarded under Article VIII of the Plan.

         1.32. "SUBSIDIARY" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

         1.33. "SUBSTITUTE AWARD" shall mean an Option granted under this Plan
upon the assumption of, or in substitution for, outstanding equity awards
previously granted by a company or other entity in connection with a corporate
transaction, such as a merger, combination, consolidation or acquisition of
property or stock; provided, HOWEVER, that in no event shall the term
"Substitute Award" be construed to refer to an award made in connection with the
cancellation and repricing of an Option.

         1.34. "TERMINATION OF CONSULTANCY" shall mean the time when the
engagement of a Holder as a Consultant to the Company or a Subsidiary is
terminated for any reason, with or without cause, including, but not by way of
limitation, by resignation, discharge, death or retirement, but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Administrator, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a


                                       4




Consultant's service at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.

         1.35. "TERMINATION OF DIRECTORSHIP" shall mean the time when a Holder
who is an Independent Director ceases to be a Director for any reason,
including, but not by way of limitation, a termination by resignation, failure
to be elected, death or retirement. The Board, in its sole and absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship with respect to Independent Directors.

         1.36. "TERMINATION OF EMPLOYMENT" shall mean the time when the
employee-employer relationship between a Holder and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for cause, and
all questions of whether a particular leave of absence constitutes a Termination
of Employment; PROVIDED, HOWEVER, that, with respect to Incentive Stock Options,
a leave of absence, change in status from an employee to an independent
contractor or other change in the employee-employer relationship shall
constitute a Termination of Employment if, and to the extent that, such leave of
absence, change in status or other change interrupts employment for the purposes
of Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section.

                                  ARTICLE II.

                             SHARES SUBJECT TO PLAN

         2.1.  SHARES SUBJECT TO PLAN.

               (a) The shares of stock subject to Awards shall be the
         Company's Common Stock. Subject to adjustment as provided in Section
         11.3, the aggregate number of such shares which may be issued upon
         exercise of such Options or rights or upon any such Awards under the
         Plan shall not exceed 3,000,000 (the "Aggregate Limit"). The shares of
         Common Stock issuable upon exercise of such Options or rights or upon
         any such awards may be either previously authorized but unissued shares
         or treasury shares.

               (b) The Aggregate Limit shall automatically increase on
         January 1 of each calendar year during the term of the Plan, commencing
         on January 1, 2002, by an amount equal to 10% of the Aggregate Limit in
         effect for


                                       5




         the immediately preceding calendar year; PROVIDED, HOWEVER, that in no
         event shall the Aggregate Limit exceed 5,000,000.

               (c) The maximum number of shares which may be subject to
         Awards granted under the Plan to any individual in any calendar year
         shall not exceed the Award Limit. To the extent required by Section
         162(m) of the Code, shares subject to Options which are canceled
         continue to be counted against the Award Limit.

         2.2.  ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other
right to acquire shares of Common Stock under any other Award under the Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by the Plan, the number of shares subject
to such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.

                                  ARTICLE III.

                               GRANTING OF AWARDS

         3.1.  AWARD AGREEMENT. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the Code.

         3.2.  PROVISIONS APPLICABLE TO SECTION 162(M) PARTICIPANTS.

               (a) The Committee, in its discretion, may determine whether an
         Award is to qualify as performance-based compensation as described in
         Section 162(m)(4)(C) of the Code.

               (b) Notwithstanding anything in the Plan to the contrary, the
         Committee may grant any Award to a Section 162(m) Participant,
         including


                                       6




         Restricted Stock the restrictions with respect to which lapse upon the
         attainment of performance goals which are related to one or more of the
         Performance Criteria and any performance or incentive award described
         in Article VIII that vests or becomes exercisable or payable upon the
         attainment of performance goals which are related to one or more of the
         Performance Criteria.

               (c) To the extent necessary to comply with the performance-based
         compensation requirements of Section 162(m)(4)(C) of the Code, with
         respect to any Award granted under Articles VII and VIII which may be
         granted to one or more Section 162(m) Participants, no later than
         ninety (90) days following the commencement of any fiscal year in
         question or any other designated fiscal period or period of service (or
         such other time as may be required or permitted by Section 162(m) of
         the Code), the Committee shall, in writing, (i) designate one or more
         Section 162(m) Participants, (ii) select the Performance Criteria
         applicable to the fiscal year or other designated fiscal period or
         period of service, (iii) establish the various performance targets, in
         terms of an objective formula or standard, and amounts of such Awards,
         as applicable, which may be earned for such fiscal year or other
         designated fiscal period or period of service, and (iv) specify the
         relationship between Performance Criteria and the performance targets
         and the amounts of such Awards, as applicable, to be earned by each
         Section 162(m) Participant for such fiscal year or other designated
         fiscal period or period of service. Following the completion of each
         fiscal year or other designated fiscal period or period of service, the
         Committee shall certify in writing whether the applicable performance
         targets have been achieved for such fiscal year or other designated
         fiscal period or period of service. In determining the amount earned by
         a Section 162(m) Participant, the Committee shall have the right to
         reduce (but not to increase) the amount payable at a given level of
         performance to take into account additional factors that the Committee
         may deem relevant to the assessment of individual or corporate
         performance for the fiscal year or other designated fiscal period or
         period of service.

               (d) Furthermore, notwithstanding any other provision of the
         Plan, any Award which is granted to a Section 162(m) Participant and is
         intended to qualify as performance-based compensation as described in
         Section 162(m)(4)(C) of the Code shall be subject to any additional
         limitations set forth in Section 162(m) of the Code (including any
         amendment to Section 162(m) of the Code) or any regulations or rulings
         issued thereunder that are requirements for qualification as
         performance-based compensation as described in Section 162(m)(4)(C) of
         the Code, and the Plan shall be deemed amended to the extent necessary
         to conform to such requirements.

         3.3.  LIMITATIONS APPLICABLE TO SECTION 16 PERSONS. Notwithstanding any
other provision of the Plan, the Plan, and any Award granted or awarded to any
individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such


                                       7




exemptive rule. To the extent permitted by applicable law, the Plan and Awards
granted or awarded hereunder shall be deemed amended to the extent necessary to
conform to such applicable exemptive rule.

         3.4.  CONSIDERATION. In consideration of the granting of an Award under
the Plan, the Holder shall agree, in the Award Agreement, to remain in the
employ of (or to consult for or to serve as an Independent Director of, as
applicable) the Company or any Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Award Agreement or by action of the
Administrator following grant of the Award) after the Award is granted (or, in
the case of an Independent Director, until the next annual meeting of
stockholders of the Company).

         3.5.  AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a Consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in a written employment agreement
between the Holder and the Company and any Subsidiary.

                                  ARTICLE IV.

                        GRANTING OF OPTIONS TO EMPLOYEES
                            AND INDEPENDENT DIRECTORS

         4.1.  ELIGIBILITY. Any Employee or Consultant selected by the Committee
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Section 4.5.

         4.2.  DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any then
existing Subsidiary or parent corporation (within the meaning of Section 422 of
the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.

         4.3.  QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock
Option shall be granted to any person who is not an Employee.

         4.4.  GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS.


               (a) The Committee shall from time to time, in its absolute
         discretion, and subject to applicable limitations of the Plan:

                  (i)    Determine which Employees are key Employees and select
           from among the key Employees or Consultants (including


                                       8




           Employees or Consultants who have previously received Awards under
           the Plan) such of them as in its opinion should be granted Options;

                  (ii)   Subject to the Award Limit, determine the number of
           shares to be subject to such Options granted to the selected key
           Employees or Consultants;

                  (iii)  Subject to Section 4.3, determine whether such Options
           are to be Incentive Stock Options or Non-Qualified Stock Options and
           whether such Options are to qualify as performance-based compensation
           as described in Section 162(m)(4)(C) of the Code; and

                  (iv)   Determine the terms and conditions of such Options,
           consistent with the Plan; PROVIDED, HOWEVER, that the terms and
           conditions of Options intended to qualify as performance-based
           compensation as described in Section 162(m)(4)(C) of the Code shall
           include, but not be limited to, such terms and conditions as may be
           necessary to meet the applicable provisions of Section 162(m) of the
           Code.

               (b) Upon the selection of a key Employee or Consultant to be
         granted an Option, the Committee shall instruct the Secretary of the
         Company to issue the Option and may impose such conditions on the grant
         of the Option as it deems appropriate.

               (c) Any Incentive Stock Option granted under the Plan may be
         modified by the Committee, with the consent of the Holder, to
         disqualify such Option from treatment as an "incentive stock option"
         under Section 422 of the Code.

         4.5.  GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS.

               (a) Each Independent Director who is elected or reelected to
         the Board at the 2001 annual meeting of the Company's stockholders
         shall be granted an Option to purchase 10,000 shares of Common Stock
         (subject to adjustment as provided in Section 11.3 of the Plan). Each
         other person who becomes an Independent Director during the term of the
         Plan shall be granted an Option to purchase 10,000 shares of Common
         Stock (subject to adjustment as provided in Section 11.3) on the date
         such Independent Director is first elected or appointed to the Board.

               (b) Commencing with each annual meeting of the Company's
         stockholders subsequent to the 2001 annual meeting of the Company's
         stockholders, each Independent Director who is reelected to the Board
         during the term of the Plan shall receive an Option to purchase 5,000
         shares of Common Stock (subject to adjustment as provided in Section
         11.3).


                                       9




         4.6.  OPTIONS IN LIEU OF CASH COMPENSATION. Options may be granted
under the Plan to Employees and Consultants in lieu of cash bonuses which would
otherwise be payable to such Employees and Consultants and to Independent
Directors in lieu of directors' fees which would otherwise be payable to such
Independent Directors, pursuant to such policies which may be adopted by the
Administrator from time to time.

                                   ARTICLE V.

                                TERMS OF OPTIONS

         5.1.  OPTION PRICE. The price per share of the shares subject to each
Option granted to Employees and Consultants shall be no less than 85% of the
Fair Market Value of a share of Common Stock on the date the Option is granted
and:

               (a) In the case of Options intended to qualify as
         performance-based compensation as described in Section 162(m)(4)(C) of
         the Code, such price shall not be less than 100% of the Fair Market
         Value of a share of Common Stock on the date the Option is granted;

               (b) In the case of Incentive Stock Options such price shall
         not be less than 100% of the Fair Market Value of a share of Common
         Stock on the date the Option is granted (or the date the Option is
         modified, extended or renewed for purposes of Section 424(h) of the
         Code);

               (c) In the case of Incentive Stock Options granted to an
         individual then owning (within the meaning of Section 424(d) of the
         Code) more than 10% of the total combined voting power of all classes
         of stock of the Company or any Subsidiary or parent corporation thereof
         (within the meaning of Section 422 of the Code), such price shall not
         be less than 110% of the Fair Market Value of a share of Common Stock
         on the date the Option is granted (or the date the Option is modified,
         extended or renewed for purposes of Section 424(h) of the Code).

         5.2.  OPTION TERM. The term of an Option granted to an Employee or
Consultant shall be set by the Committee in its discretion; PROVIDED, HOWEVER,
that, in the case of Incentive Stock Options, the term shall not be more than 10
years from the date the Incentive Stock Option is granted, or five years from
the date the Incentive Stock Option is granted if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code). Except as limited by requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment or Termination of
Consultancy of the Holder, or amend any other term or condition of such Option
relating to such a termination.


                                       10




         5.3.  OPTION VESTING.

               (a) The period during which the right to exercise, in whole or
         in part, an Option granted to an Employee or a Consultant vests in the
         Holder shall be set by the Committee and the Committee may determine
         that an Option may not be exercised in whole or in part for a specified
         period after it is granted. At any time after grant of an Option, the
         Committee may, in its sole and absolute discretion and subject to
         whatever terms and conditions it selects, accelerate the period during
         which an Option granted to an Employee or Consultant vests.

               (b) No portion of an Option granted to an Employee or
         Consultant which is unexercisable at Termination of Employment or
         Termination of Consultancy as applicable, shall thereafter become
         exercisable, except as may be otherwise provided by the Committee
         either in the Award Agreement or by action of the Committee following
         the grant of the Option.

               (c) To the extent that the aggregate Fair Market Value of
         stock with respect to which "incentive stock options" (within the
         meaning of Section 422 of the Code, but without regard to Section
         422(d) of the Code) are exercisable for the first time by a Holder
         during any calendar year (under the Plan and all other incentive stock
         option plans of the Company and any parent or subsidiary corporation,
         within the meaning of Section 422 of the Code) of the Company, exceeds
         $100,000, such Options shall be treated as Non-Qualified Stock Options
         to the extent required by Section 422 of the Code. The rule set forth
         in the preceding sentence shall be applied by taking Options into
         account in the order in which they were granted. For purposes of this
         Section 5.3(c), the Fair Market Value of stock shall be determined as
         of the time the Option with respect to such stock is granted.

         5.4.  TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The price per
share of the shares subject to each Option granted to an Independent Director
shall equal 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted. Options granted to Independent Directors shall be 100%
vested and immediately exercisable on the date the Option is granted. Subject to
Section 6.6, the term of each Option granted to an Independent Director shall be
10 years from the date the Option is granted.

         5.5.  SUBSTITUTE AWARDS. Notwithstanding the foregoing provisions of
this Article V to the contrary, in the case of an Option that is a Substitute
Award, the price per share of the shares subject to such Option may be less than
the Fair Market Value per share on the date of grant, PROVIDED, that the excess
of:

               (a) The aggregate Fair Market Value (as of the date such
         Substitute Award is granted) of the shares subject to the Substitute
         Award; over

               (b) The aggregate exercise price thereof;

does not exceed the excess of:


                                       11




               (c) The aggregate fair market value (as of the time immediately
         preceding the transaction giving rise to the Substitute Award, such
         fair market value to be determined by the Committee) of the shares of
         the predecessor entity that were subject to the grant assumed or
         substituted for by the Company; over

               (d) The aggregate exercise price of such shares.

                                  ARTICLE VI.

                               EXERCISE OF OPTIONS

         6.1.  PARTIAL EXERCISE. An exercisable Option may be exercised in whole
or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.

         6.2.  MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his or her office:

               (a) A written notice complying with the applicable rules
         established by the Administrator stating that the Option, or a portion
         thereof, is exercised. The notice shall be signed by the Holder or
         other person then entitled to exercise the Option or such portion of
         the Option;

               (b) Such representations and documents as the Administrator,
         in its absolute discretion, deems necessary or advisable to effect
         compliance with all applicable provisions of the Securities Act and any
         other federal or state securities laws or regulations. The
         Administrator may, in its absolute discretion, also take whatever
         additional actions it deems appropriate to effect such compliance
         including, without limitation, placing legends on share certificates
         and issuing stop-transfer notices to agents and registrars;

               (c) In the event that the Option shall be exercised pursuant
         to Section 11.1 by any person or persons other than the Holder,
         appropriate proof of the right of such person or persons to exercise
         the Option; and

               (d) Full cash payment to the Secretary of the Company for the
         shares with respect to which the Option, or portion thereof, is
         exercised. However, the Administrator may, in its discretion, (i) allow
         a delay in payment up to 30 days from the date the Option, or portion
         thereof, is exercised; (ii) allow payment, in whole or in part, through
         the delivery of shares of Common Stock which have been owned by the
         Holder for at least six months, duly endorsed for transfer to the
         Company with a Fair Market Value on the date of delivery equal to the
         aggregate exercise price of the Option or exercised portion thereof;
         (iii) allow payment, in whole or in part, through the surrender of
         shares of Common Stock


                                       12




         then issuable upon exercise of the Option having a Fair Market Value on
         the date of Option exercise equal to the aggregate exercise price of
         the Option or exercised portion thereof; (iv) allow payment, in whole
         or in part, through the delivery of property of any kind which
         constitutes good and valuable consideration; (v) allow payment, in
         whole or in part, through the delivery of a full recourse promissory
         note bearing interest (at no less than such rate as shall then preclude
         the imputation of interest under the Code) and payable upon such terms
         as may be prescribed by the Administrator; (vi) allow payment, in whole
         or in part, through the delivery of a notice that the Holder has placed
         a market sell order with a broker with respect to shares of Common
         Stock then issuable upon exercise of the Option, and that the broker
         has been directed to pay a sufficient portion of the net proceeds of
         the sale to the Company in satisfaction of the Option exercise price,
         PROVIDED that payment of such proceeds is then made to the Company upon
         settlement of such sale; or (vii) allow payment through any combination
         of the consideration provided in the foregoing subparagraphs (ii),
         (iii), (iv), (v) and (vi). In the case of a promissory note, the
         Administrator may also prescribe the form of such note and the security
         to be given for such note. The Option may not be exercised, however, by
         delivery of a promissory note or by a loan from the Company when or
         where such loan or other extension of credit is prohibited by law.

         6.3.  CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

               (a) The admission of such shares to listing on all stock
         exchanges on which such class of stock is then listed;

               (b) The completion of any registration or other qualification
         of such shares under any state or federal law, or under the rulings or
         regulations of the Securities and Exchange Commission or any other
         governmental regulatory body which the Administrator shall, in its
         absolute discretion, deem necessary or advisable;

               (c) The obtaining of any approval or other clearance from any
         state or federal governmental agency which the Administrator shall, in
         its absolute discretion, determine to be necessary or advisable;

               (d) The lapse of such reasonable period of time following the
         exercise of the Option as the Administrator may establish from time to
         time for reasons of administrative convenience; and

               (e) The receipt by the Company of full payment for such
         shares, including payment of any applicable withholding tax, which in
         the discretion of the Administrator may be in the form of consideration
         used by the Holder to pay for such shares under Section 6.2(d).


                                       13




         6.4.  RIGHTS AS STOCKHOLDERS. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.

         6.5.  OWNERSHIP AND TRANSFER RESTRICTIONS. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder, or (b) one year after the transfer of such shares to such
Holder.

         6.6.  LIMITATIONS ON EXERCISE OF OPTIONS GRANTED TO INDEPENDENT
DIRECTORS. Unless otherwise specified by the Board in the Award Agreement
evidencing the Option, no Option granted to an Independent Director may be
exercised to any extent by anyone after the first to occur of the following
events:

               (a) The expiration of 12 months from the date of the Holder's
         death;

               (b) The expiration of 12 months from the date of the Holder's
         Termination of Directorship by reason of his or her permanent and total
         disability (within the meaning of Section 22(e)(3) of the Code);

               (c) The expiration of three months from the date of the
         Holder's Termination of Directorship for any reason other than such
         Holder's death or his or her permanent and total disability, unless the
         Holder dies within said three-month period; or

               (d) The expiration of 10 years from the date the Option was
         granted.

         6.7.  ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Holders may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.


                                       14




                                  ARTICLE VII.

                            AWARD OF RESTRICTED STOCK

         7.1.  ELIGIBILITY. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee who the Committee determines is a key Employee or any
Consultant who the Committee determines should receive such an Award.

         7.2.  AWARD OF RESTRICTED STOCK.

               (a) The Committee may from time to time, in its absolute
         discretion:

                  (i)    Determine which Employees are key Employees and select
           from among the key Employees or Consultants (including Employees or
           Consultants who have previously received other awards under the Plan)
           such of them as in its opinion should be awarded Restricted Stock;
           and

                  (ii)    Determine the purchase price, if any, and other terms
         and conditions applicable to such Restricted Stock, consistent with the
         Plan.

               (b) The Committee shall establish the purchase price, if any,
         and form of payment for Restricted Stock; PROVIDED, HOWEVER, that such
         purchase price shall be no less than the par value of the Common Stock
         to be purchased, unless otherwise permitted by applicable state law. In
         all cases, legal consideration shall be required for each issuance of
         Restricted Stock.

               (c) Upon the selection of a key Employee or Consultant to be
         awarded Restricted Stock, the Committee shall instruct the Secretary of
         the Company to issue such Restricted Stock and may impose such
         conditions on the issuance of such Restricted Stock as it deems
         appropriate.

         7.3.  RIGHTS AS STOCKHOLDERS. Subject to Section 7.4, upon delivery of
the shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided by the Committee, all the rights of
a stockholder with respect to said shares, subject to the restrictions in his or
her Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; PROVIDED, HOWEVER, that
in the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions set forth in Section
7.4.

         7.4.  RESTRICTION. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights


                                       15




and transferability and restrictions based on duration of employment or
consultancy with the Company, Company performance and individual performance;
PROVIDED, HOWEVER, that except with respect to shares of Restricted Stock
granted to Section 162(m) Participants, by action taken after the Restricted
Stock is issued, the Committee may, on such terms and conditions as it may
determine to be appropriate, remove any or all of the restrictions imposed by
the terms of the Award Agreement. Restricted Stock may not be sold or encumbered
until all restrictions are terminated or expire. If no consideration was paid by
the Holder upon issuance, a Holder's rights in unvested Restricted Stock shall
lapse, and such Restricted Stock shall be surrendered to the Company without
consideration, upon Termination of Employment or, if applicable, upon
Termination of Consultancy with the Company; PROVIDED, HOWEVER, that the
Committee in its sole and absolute discretion may provide that such rights shall
not lapse in the event of a Termination of Employment following a "change of
control or ownership" (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Holder's death or disability; PROVIDED, FURTHER, except with respect to
shares of Restricted Stock granted to Section 162(m) Participants, the Committee
in its sole and absolute discretion may provide that no such lapse or surrender
shall occur in the event of a Termination of Employment, or a Termination of
Consultancy, without cause or following any change in control of the Company or
because of the Holder's retirement, or otherwise.

         7.5.  REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Holder the Restricted Stock then subject to
restrictions under the Award Agreement immediately upon a Termination of
Employment or, if applicable, upon a Termination of Consultancy between the
Holder and the Company, at a cash price per share equal to the price paid by the
Holder for such Restricted Stock; PROVIDED, HOWEVER, that the Committee in its
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment following a "change of
ownership or control" (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Holder's death or disability; PROVIDED, FURTHER, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants,
the Committee in its sole and absolute discretion may provide that no such right
of repurchase shall exist in the event of a Termination of Employment without
cause or following any change in control of the Company or because of the
Holder's retirement, or otherwise.

         7.6.  ESCROW. The Secretary of the Company or such other escrow holder
as the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.

         7.7.  LEGEND. In order to enforce the restrictions imposed upon shares
of Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.


                                       16




         7.8.  SECTION 83(B) ELECTION. If a Holder makes an election under
Section 83(b) of the Code, or any successor section thereto, to be taxed with
respect to the Restricted Stock as of the date of transfer of the Restricted
Stock rather than as of the date or dates upon which the Holder would otherwise
be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service. Notwithstanding the foregoing, the Administrator, in
its sole discretion, may provide in the Award Agreement underlying an award of
Restricted Stock that the Holder shall be unable to make an 83(b) election with
respect to the Restricted Stock, in which case the Holder shall be restricted
from making an 83(b) election with respect to such Restricted Stock.

                                 ARTICLE VIII.

                    PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
                         DEFERRED STOCK, STOCK PAYMENTS

         8.1.  ELIGIBILITY. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may
be granted to any Employee whom the Committee determines is a key Employee or
any Consultant whom the Committee determines should receive such an Award.

         8.2.  PERFORMANCE AWARDS.

               (a) Any key Employee or Consultant selected by the Committee
         may be granted one or more Performance Awards. The value of such
         Performance Awards may be linked to any one or more of the Performance
         Criteria or other specific performance criteria determined appropriate
         by the Committee, in each case on a specified date or dates or over any
         period or periods determined by the Committee. In making such
         determinations, the Committee shall consider (among such other factors
         as it deems relevant in light of the specific type of award) the
         contributions, responsibilities and other compensation of the
         particular key Employee or Consultant.

               (b) Without limiting Section 8.2(a), the Committee may grant
         Performance Awards to any 162(m) Participant in the form of a cash
         bonus payable upon the attainment of objective performance goals which
         are established by the Committee and relate to one or more of the
         Performance Criteria, in each case on a specified date or dates or over
         any period or periods determined by the Committee. Any such bonuses
         paid to 162(m) Participants shall be based upon objectively
         determinable bonus formulas established in accordance with the
         provisions of Section 3.2. The maximum amount of any Performance Award
         payable to a 162(m) Participant under this Section 8.2(b) shall not
         exceed the Award Limit with respect to any calendar year.

         8.3.  DIVIDEND EQUIVALENTS.

               (a) Any key Employee or Consultant selected by the Committee
         may be granted Dividend Equivalents based on the dividends declared


                                       17




         on Common Stock, to be credited as of dividend payment dates, during
         the period between the date a Stock Appreciation Right, Deferred Stock
         or Performance Award is granted, and the date such Stock Appreciation
         Right, Deferred Stock or Performance Award is exercised, vests or
         expires, as determined by the Committee. Such Dividend Equivalents
         shall be converted to cash or additional shares of Common Stock by such
         formula and at such time and subject to such limitations as may be
         determined by the Committee.

               (b) Any Holder of an Option who is an Employee or Consultant
         selected by the Committee may be granted Dividend Equivalents based on
         the dividends declared on Common Stock, to be credited as of dividend
         payment dates, during the period between the date an Option is granted,
         and the date such Option is exercised, vests or expires, as determined
         by the Committee. Such Dividend Equivalents shall be converted to cash
         or additional shares of Common Stock by such formula and at such time
         and subject to such limitations as may be determined by the Committee.

               (c) Any Holder of an Option who is an Independent Director
         selected by the Board may be granted Dividend Equivalents based on the
         dividends declared on Common Stock, to be credited as of dividend
         payment dates, during the period between the date an Option is granted
         and the date such Option is exercised, vests or expires, as determined
         by the Board. Such Dividend Equivalents shall be converted to cash or
         additional shares of Common Stock by such formula and at such time and
         subject to such limitations as may be determined by the Board.

               (d) Dividend Equivalents granted with respect to Options
         intended to be qualified performance-based compensation for purposes of
         Section 162(m) of the Code shall be payable, with respect to
         pre-exercise periods, regardless of whether such Option is subsequently
         exercised.

         8.4.  STOCK PAYMENTS. Any key Employee or Consultant selected by the
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.

         8.5.  DEFERRED STOCK. Any key Employee or Consultant selected by the
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with


                                       18




respect to such Deferred Stock until such time as the Award has vested and the
Common Stock underlying the Award has been issued.

         8.6.  TERM. The term of a Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.

         8.7.  EXERCISE OR PURCHASE PRICE. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock or
shares received as a Stock Payment; PROVIDED, HOWEVER, that such price shall not
be less than the par value of a share of Common Stock, unless otherwise
permitted by applicable state law.

         8.8.  EXERCISE UPON TERMINATION OF EMPLOYMENT, TERMINATION OF
CONSULTANCY OR TERMINATION OF DIRECTORSHIP. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Holder is an Employee, Consultant or Independent
Director, as applicable; PROVIDED, HOWEVER, that the Administrator in its sole
and absolute discretion may provide that the Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or
paid subsequent to a Termination of Employment following a "change of control or
ownership" (within the meaning of Section 1.162-27(e)(2)(v) or any successor
regulation thereto) of the Company; PROVIDED, FURTHER, that except with respect
to Performance Awards granted to Section 162(m) Participants, the Administrator
in its sole and absolute discretion may provide that Performance Awards may be
exercised or paid following a Termination of Employment, or a Termination of
Consultancy, without cause, or following a change in control of the Company, or
because of the Holder's retirement, death or disability, or otherwise.

         8.9.  FORM OF PAYMENT. Payment of the amount determined under Section
8.2 or 8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.

                                  ARTICLE IX.

                            STOCK APPRECIATION RIGHTS

         9.1.  GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
may be granted to any key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.

         9.2.  COUPLED STOCK APPRECIATION RIGHTS.

               (a) A Coupled Stock Appreciation Right ("CSAR") shall be
         related to a particular Option and shall be exercisable only when and
         to the extent the related Option is exercisable.


                                       19




               (b) A CSAR may be granted to the Holder for no more than the
         number of shares subject to the simultaneously or previously granted
         Option to which it is coupled.

               (c) A CSAR shall entitle the Holder (or other person entitled
         to exercise the Option pursuant to the Plan) to surrender to the
         Company unexercised a portion of the Option to which the CSAR relates
         (to the extent then exercisable pursuant to its terms) and to receive
         from the Company in exchange therefor an amount determined by
         multiplying the difference obtained by subtracting the Option exercise
         price from the Fair Market Value of a share of Common Stock on the date
         of exercise of the CSAR by the number of shares of Common Stock with
         respect to which the CSAR shall have been exercised, subject to any
         limitations the Committee may impose.

         9.3.  INDEPENDENT STOCK APPRECIATION RIGHTS.

               (a) An Independent Stock Appreciation Right ("ISAR") shall be
         unrelated to any Option and shall have a term set by the Committee. An
         ISAR shall be exercisable in such installments as the Committee may
         determine. An ISAR shall cover such number of shares of Common Stock as
         the Committee may determine. The exercise price per share of Common
         Stock subject to each ISAR shall be set by the Committee. An ISAR is
         exercisable only while the Holder is an Employee or Consultant;
         PROVIDED, that the Committee may determine that the ISAR may be
         exercised subsequent to Termination of Employment, or Termination of
         Consultancy, without cause, or following a change in control of the
         Company, or because of the Holder's retirement, death or disability, or
         otherwise.

               (b) An ISAR shall entitle the Holder (or other person entitled
         to exercise the ISAR pursuant to the Plan) to exercise all or a
         specified portion of the ISAR (to the extent then exercisable pursuant
         to its terms) and to receive from the Company an amount determined by
         multiplying the difference obtained by subtracting the exercise price
         per share of the ISAR from the Fair Market Value of a share of Common
         Stock on the date of exercise of the ISAR by the number of shares of
         Common Stock with respect to which the ISAR shall have been exercised,
         subject to any limitations the Committee may impose.

         9.4.  PAYMENT AND LIMITATIONS ON EXERCISE.

               (a) Payment of the amounts determined under Section 9.2(c) and
         9.3(b) above shall be in cash, in Common Stock (based on its Fair
         Market Value as of the date the Stock Appreciation Right is exercised)
         or a combination of both, as determined by the Committee. To the extent
         such payment is effected in Common Stock it shall be made subject to
         satisfaction of all provisions of Section 6.3 above pertaining to
         Options.


                                       20




               (b) Holders of Stock Appreciation Rights may be required to
         comply with any timing or other restrictions with respect to the
         settlement or exercise of a Stock Appreciation Right, including a
         window-period limitation, as may be imposed in the discretion of the
         Committee.

                                   ARTICLE X.

                                 ADMINISTRATION

         10.1. COMPENSATION COMMITTEE. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.

         10.2. DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules and to amend any Award Agreement provided that the rights
or obligations of the Holder of the Award that is the subject of any such Award
Agreement are not affected adversely. Any such grant or award under the Plan
need not be the same with respect to each Holder. Any such interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee under the Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options and Dividend Equivalents granted to Independent Directors.

         10.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.

         10.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board


                                       21




in good faith shall be final and binding upon all Holders, the Company and all
other interested persons. No members of the Committee or Board shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or Awards, and all members of the Committee and
the Board shall be fully protected by the Company in respect of any such action,
determination or interpretation.

         10.5. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Committee may, but
need not, delegate from time to time some or all of its authority to grant
Awards under the Plan to a committee consisting of one or more members of the
Committee or of one or more officers of the Company; PROVIDED, HOWEVER, that the
Committee may not delegate its authority to grant Awards to individuals (a) who
are subject on the date of the grant to the reporting rules under Section 16(a)
of the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.

                                  ARTICLE XI.

                            MISCELLANEOUS PROVISIONS

         11.1. NOT TRANSFERABLE.

               (a) No Award under the Plan may be sold, pledged, assigned or
         transferred in any manner other than by will or the laws of descent and
         distribution or, subject to the consent of the Administrator, pursuant
         to a DRO, unless and until such Award has been exercised, or the shares
         underlying such Award have been issued, and all restrictions applicable
         to such shares have lapsed. No Award or interest or right therein shall
         be liable for the debts, contracts or engagements of the Holder or his
         or her successors in interest or shall be subject to disposition by
         transfer, alienation, anticipation, pledge, encumbrance, assignment or
         any other means whether such disposition be voluntary or involuntary or
         by operation of law by judgment, levy, attachment, garnishment or any
         other legal or equitable proceedings (including bankruptcy), and any
         attempted disposition thereof shall be null and void and of no effect,
         except to the extent that such disposition is permitted by the
         preceding sentence.

               (b) During the lifetime of the Holder, only he or she may
         exercise an Option or other Award (or any portion thereof) granted to
         him or her under the Plan, unless it has been disposed of with the
         consent of the Administrator pursuant to a DRO. After the death of the
         Holder, any exercisable portion of an Option or other Award may, prior
         to the time when such portion becomes unexercisable under the Plan or
         the applicable Award Agreement, be exercised by his or her personal
         representative or by any person empowered to do


                                       22




         so under the deceased Holder's will or under the then applicable laws
         of descent and distribution.

         11.2. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within 12 months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
11.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan upon the exercise of any Incentive Stock
Options. No amendment, suspension or termination of the Plan shall, without the
consent of the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Incentive Stock Option be
granted under the Plan after the first to occur of the following events:

               (a) The expiration of 10 years from the date the Plan is first
         adopted by the Board; or

               (b) The expiration of 10 years from the date the Plan is
         approved by the Company's stockholders under Section 11.4.

         11.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.


               (a) Subject to Section 11.3(d), in the event that the
         Administrator determines that any dividend or other distribution
         (whether in the form of cash, Common Stock, other securities or other
         property), recapitalization, reclassification, stock split, reverse
         stock split, reorganization, merger, consolidation, split-up, spin-off,
         combination, repurchase, liquidation, dissolution, or sale, transfer,
         exchange or other disposition of all or substantially all of the assets
         of the Company, or exchange of Common Stock or other securities of the
         Company, issuance of warrants or other rights to purchase Common Stock
         or other securities of the Company, or other similar corporate
         transaction or event, in the Administrator's sole discretion, affects
         the Common Stock such that an adjustment is determined by the
         Administrator to be appropriate in order to prevent dilution or
         enlargement of the benefits or potential benefits intended to be made
         available under the Plan or with respect to an Award, then the
         Administrator shall, in such manner as it may deem equitable, adjust
         any or all of:

                  (i)    The number and kind of shares of Common Stock (or other
           securities or property) with respect to which Awards may be granted
           or awarded (including, but not limited to, adjustments of the
           limitations in Section 2.1 on the maximum number and kind of shares
           which may be issued and adjustments of the Award Limit);


                                       23




                  (ii)   The number and kind of shares of Common Stock (or other
           securities or property) subject to outstanding Awards; and

                  (iii)  The grant or exercise price with respect to any Award.

               (b) Subject to the terms and conditions of the respective
         Award Agreements and Sections 11.3(d), in the event of any transaction
         or event described in Section 11.3(a) or any unusual or nonrecurring
         transactions or events affecting the Company, any affiliate of the
         Company, or the financial statements of the Company or any affiliate,
         or of changes in applicable laws, regulations or accounting principles,
         the Administrator, in its sole and absolute discretion, and on such
         terms and conditions as it deems appropriate, either by the terms of
         the Award or by action taken prior to the occurrence of such
         transaction or event and either automatically or upon the Holder's
         request, is hereby authorized to take any one or more of the following
         actions whenever the Administrator determines that such action is
         appropriate in order to prevent dilution or enlargement of the benefits
         or potential benefits intended to be made available under the Plan or
         with respect to any Award under the Plan, to facilitate such
         transactions or events or to give effect to such changes in laws,
         regulations or principles:

                  (i)    To provide for either the purchase of any such Award
           for an amount of cash equal to the amount that could have been
           attained upon the exercise of such Award or realization of the
           Holder's rights had such Award been currently exercisable or payable
           or fully vested or the replacement of such Award with other rights or
           property selected by the Administrator in its sole discretion;

                  (ii)   To provide that the Award cannot vest, be exercised or
           become payable after such event;

                  (iii)  To provide that such Award shall be exercisable as to
           all shares covered thereby, notwithstanding anything to the contrary
           in Section 5.3 or 5.4 or the provisions of such Award;

                  (iv)   To provide that such Award be assumed by the successor
           or survivor corporation, or a parent or subsidiary thereof, or shall
           be substituted for by similar options, rights or awards covering the
           stock of the successor or survivor corporation, or a parent or
           subsidiary thereof, with appropriate adjustments as to the number and
           kind of shares and prices; and

                  (v)    To make adjustments in the number and type of shares of
           Common Stock (or other securities or property) subject to outstanding
           Awards, and in the number and kind of outstanding Restricted Stock or
           Deferred Stock and/or in the terms and conditions of (including the
           grant or exercise price), and the criteria included in, outstanding


                                       24




           options, rights and awards and options, rights and awards which may
           be granted in the future.

                  (vi)   To provide that, for a specified period of time prior
           to such event, the restrictions imposed under an Award Agreement upon
           some or all shares of Restricted Stock or Deferred Stock may be
           terminated, and, in the case of Restricted Stock, some or all shares
           of such Restricted Stock may cease to be subject to repurchase under
           Section 7.5 or forfeiture under Section 7.4 after such event.

               (c) Subject to Sections 11.3(d), 3.2 and 3.3, the Administrator
         may, in its discretion, include such further provisions and limitations
         in any Award, agreement or certificate, as it may deem equitable and in
         the best interests of the Company.

               (d) With respect to Awards which are granted to Section 162(m)
         Participants and are intended to qualify as performance-based
         compensation under Section 162(m)(4)(C), no adjustment or action
         described in this Section 11.3 or in any other provision of the Plan
         shall be authorized to the extent that such adjustment or action would
         cause such Award to fail to so qualify under Section 162(m)(4)(C), or
         any successor provisions thereto. No adjustment or action described in
         this Section 11.3 or in any other provision of the Plan shall be
         authorized to the extent that such adjustment or action would cause the
         Plan to violate Section 422(b)(1) of the Code. Furthermore, no such
         adjustment or action shall be authorized to the extent such adjustment
         or action would result in short-swing profits liability under Section
         16 or violate the exemptive conditions of Rule 16b-3 unless the
         Administrator determines that the Award is not to comply with such
         exemptive conditions. The number of shares of Common Stock subject to
         any Award shall always be rounded to the next whole number.

               (e) Notwithstanding the foregoing, in the event that the
         Company becomes a party to a transaction that is intended to qualify
         for "pooling of interests" accounting treatment and, but for one or
         more of the provisions of this Plan or any Award Agreement would so
         qualify, then this Plan and any Award Agreement shall be interpreted so
         as to preserve such accounting treatment, and to the extent that any
         provision of the Plan or any Award Agreement would disqualify the
         transaction from pooling of interests accounting treatment (including,
         if applicable, an entire Award Agreement), then such provision shall be
         null and void. All determinations to be made in connection with the
         preceding sentence shall be made by the independent accounting firm
         whose opinion with respect to "pooling of interests" treatment is
         required as a condition to the Company's consummation of such
         transaction.

               (f) The existence of the Plan, the Award Agreement and the
         Awards granted hereunder shall not affect or restrict in any way the
         right or power of the Company or the shareholders of the Company to
         make or authorize any


                                       25




         adjustment, recapitalization, reorganization or other change in the
         Company's capital structure or its business, any merger or
         consolidation of the Company, any issue of stock or of options,
         warrants or rights to purchase stock or of bonds, debentures, preferred
         or prior preference stocks whose rights are superior to or affect the
         Common Stock or the rights thereof or which are convertible into or
         exchangeable for Common Stock, or the dissolution or liquidation of the
         company, or any sale or transfer of all or any part of its assets or
         business, or any other corporate act or proceeding, whether of a
         similar character or otherwise.

         11.4. APPROVAL OF PLAN BY STOCKHOLDERS. The Plan will be submitted for
the approval of the Company's stockholders within 12 months after the date of
the Board's initial adoption of the Plan. Awards may be granted or awarded prior
to such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void. In
addition, if the Board determines that Awards other than Options or Stock
Appreciation Rights which may be granted to Section 162(m) Participants should
continue to be eligible to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to
and approved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved the Performance Criteria.

         11.5. TAX WITHHOLDING. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. Notwithstanding
any other provision of the Plan, the number of shares of Common Stock which may
be withheld with respect to the issuance, vesting, exercise or payment of any
Award (or which may be repurchased from the Holder of such Award within six
months after such shares of Common Stock were acquired by the Holder from the
Company) in order to satisfy the Holder's federal and state income and payroll
tax liabilities with respect to the issuance, vesting, exercise or payment of
the Award shall be limited to the number of shares which have a Fair Market
Value on the date of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding rates for federal
and state tax income and payroll tax purposes that are applicable to such
supplemental taxable income.

         11.6. LOANS. The Committee may, in its discretion, extend one or more
loans to key Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such loan
shall be set by the Committee.


                                       26




         11.7. FORFEITURE PROVISIONS. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument, that
(a)(i) any proceeds, gains or other economic benefit actually or constructively
received by the Holder upon any receipt or exercise of the Award, or upon the
receipt or resale of any Common Stock underlying the Award, must be paid to the
Company, and (ii) the Award shall terminate and any unexercised portion of the
Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.

         11.8. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption
of the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees, Directors or Consultants of the Company or any
Subsidiary, or (b) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.

         11.9. COMPLIANCE WITH LAWS. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To the
extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.

         11.10. TITLES. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.

         11.11. GOVERNING LAW. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Maryland without regard to conflicts of laws thereof.


                                       27




                                      * * *

         I hereby certify that the Plan was previously approved by the
stockholders of Price Legacy Corporation as of September 11, 2001, and the
amended and restated Plan was duly adopted by the Board of Directors of Price
Legacy Corporation as of September 20, 2001.

         Executed on this ____ day of _______________________.


                                         ________________________________
                                                    Secretary


                                       28

EX-10.2

                                                                    Exhibit 10.2


                        INCENTIVE STOCK OPTION AGREEMENT



         THIS AGREEMENT, dated _______________, 2001 ("Effective Date"), is made
by and between Price Legacy Corporation, a Maryland corporation hereinafter
referred to as "Company," and _______________________, hereinafter referred to
as "Optionee":

         WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $0.0001 par value Common Stock;

         WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and

         WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its stockholders to grant the Incentive Stock Option provided for herein to
the Optionee as an inducement to enter into or remain in the service of the
Company or its Subsidiaries and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option.

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:

                                    ARTICLE 1.
                                   DEFINITIONS

         Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates. All capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Plan.

         ARTICLE 1.1 CHANGE IN CONTROL.

                (a) any Person (as defined below) is or becomes the Beneficial
Owner (as defined below), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities. For purposes of this Agreement, (A) the
term "Person" is used as such term is used in Sections 13(d) and 14(d) of the
Exchange Act; provided, however, that the term shall not include the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, and any corporation owned, directly or indirectly, by the
stockholders of the Company, in substantially the same proportions as their
ownership of stock of the Company, and (B) the term




"Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under
the Exchange Act;

                (b) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in Sections 2(a), (c) or (d))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved
(hereinafter referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;

                (c) the Company consummates a merger or consolidation of the
Company with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or

                (d) complete liquidation of the Company or a sale or disposition
by the Company of all or substantially all of the Company's assets.

         ARTICLE 1.2 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Administrator.

         ARTICLE 1.3 OPTION. "Option" shall mean the incentive stock option to
purchase Common Stock of the Company granted under this Agreement.

         ARTICLE 1.4 PLAN. "Plan" shall mean the Amended and Restated Price
Legacy Corporation 2001 Stock Option and Incentive Plan.

         ARTICLE 1.5 SECRETARY. "Secretary" shall mean the Secretary of the
Company.

                                   ARTICLE 2.
                                 GRANT OF OPTION

         ARTICLE 2.1 GRANT OF OPTION. In consideration of the Optionee's
agreement to provide services to the Company or its Subsidiaries, and for other
good and valuable consideration, on the date hereof the Company irrevocably
grants to the Optionee the option to purchase any part or all of an aggregate of
____________ shares of its $0.0001 par value Common Stock upon the terms and
conditions set forth in this Agreement.




         ARTICLE 2.2 PURCHASE PRICE. The purchase price of the shares of stock
covered by the Option shall be $ per share without commission or other charge;
PROVIDED, HOWEVER, that the price per share of the shares subject to the Option
shall not be less than the greater of (i) 100% of the Fair Market Value of a
share of Common Stock on the Effective Date, or (ii) 110% of the Fair Market
Value of a share of Common Stock on the Effective Date in the case of an
Optionee then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code).

         ARTICLE 2.3 CONSIDERATION TO COMPANY. In consideration of the granting
of this Option by the Company, the Optionee agrees to render faithful and
efficient services to the Company or a Subsidiary, with such duties and
responsibilities as the Company shall from time to time prescribe, for a period
of at least one (1) year from the date this Option is granted. Nothing in this
Agreement or in the Plan shall confer upon the Optionee any right to continue in
the employ of the Company or any Subsidiary, or shall interfere with or restrict
in any way the rights of the Company and its Subsidiaries, which are hereby
expressly reserved, to discharge the Optionee at any time for any reason
whatsoever, with or without cause.

         ARTICLE 2.4 ADJUSTMENTS IN OPTION. The Committee shall make adjustments
with respect to the Option in accordance with the provisions of Section 11.3 of
the Plan.

                                   ARTICLE 3.
                            PERIOD OF EXERCISABILITY

         ARTICLE 3.1 COMMENCEMENT OF EXERCISABILITY.

                (a) Subject to subsection (b) and Section 3.4, the Option shall
become exercisable in installments as follows:

                   (i)  *The first installment consisting of fifty percent (50%)
of the shares covered by the Option shall become exercisable and vested on the
grant date.

                   (ii) The balance shall become exercisable and vested ratably
through December 31, 2003.

                (b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.

         ARTICLE 3.2 DURATION OF EXERCISABILITY.

         The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.




         ARTICLE 3.3 EXPIRATION OF OPTION.

         The Option may not be exercised to any extent by anyone after the first
to occur of the following events:

                (a) The expiration of ten (10) years and one day from the date
the Option was granted; or

                (b) The expiration of three (3) months from the date of the
Optionee's Termination of Employment unless such Termination of Employment
results from his death or his disability (within the meaning of Section 22(e)(3)
of the Code) provided that if the Optionee dies within said three (3) month
period, the period shall be extended to end twelve (12) months from the date of
Optionee's death; or

                (c) The expiration of twelve (12) months from the date of the
Optionee's Termination of Employment by reason of his disability (within the
meaning of Section 22(e)(3) of the Code) or death provided that if the Optionee
dies within said twelve (12) month period, the period shall be extended to end
twelve (12) months from the date of Optionee's death.

         ARTICLE 3.4 ACCELERATION OF EXERCISABILITY.

                (a) Notwithstanding Section 3.1(a), in the event of a Change in
Control, the Option shall, immediately prior to the effective date of the Change
in Control, automatically become fully exercisable for all of the shares of
Common Stock at the time subject to the Option, and may be exercised for any or
all of those shares as fully-vested shares of Common Stock.

                (b) The Committee may make such determinations and adopt such
rules and conditions as it, in its absolute discretion, deems appropriate in
connection with such acceleration of exercisability, including, but not by way
of limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated Change
in Control.

         ARTICLE 3.5 SPECIAL TAX CONSEQUENCES. The Optionee acknowledges that,
to the extent that the aggregate Fair Market Value of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code), including the Option, are
exercisable for the first time by the Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company, any
Subsidiary and any parent corporation thereof (within the meaning of Section 422
of the Code)) exceeds $100,000, the Option and such other options shall be
treated as not qualifying under Section 422 of the Code but rather shall be
taxed as non-qualified stock options. The Optionee further acknowledges that the
rule set forth in the preceding sentence shall be applied by taking options into
account in the order in which they were granted. For purposes of these rules,
the Fair




Market Value of stock shall be determined as of the time the option with respect
to such stock is granted.

                                   ARTICLE 4.
                               EXERCISE OF OPTION

         ARTICLE 4.1 PERSON ELIGIBLE TO EXERCISE. Except as provided in Section
5.2, during the lifetime of the Optionee, only he may exercise the Option or any
portion thereof. After the death of the Optionee, any exercisable portion of the
Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.

         ARTICLE 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or
the entire Option, if then wholly exercisable, may be exercised in whole or in
part at any time prior to the time when the Option or portion thereof becomes
unexercisable under Section 3.3; provided, however, that each partial exercise
shall be for whole shares only.

         ARTICLE 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion
thereof, may be exercised solely by delivery to the Secretary or his office of
all of the following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3:

                (a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion; and

                (b) Full cash payment to the Secretary of the Company for the
shares with respect to which such Option or portion is exercised; or

                    (i)    With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee for at least six months, duly
endorsed for transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or exercised
portion thereof, or (B) shares of the Company's Common Stock issuable to the
Optionee upon exercise of the Option, with a Fair Market Value on the date of
exercise of the Option or any portion thereof equal to the aggregate exercise
price of the Option or exercised portion thereof; or

                    (ii)   With the consent of the Committee, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Committee. The Committee may
also prescribe the form of such note and the security to be given for such note.
The Option may not be exercised, however, by delivery of a promissory note or by
a loan from the Company when or where such loan or other extension of credit is
prohibited by law; or





                    (iii)  With the consent of the Committee, property of any
kind which constitutes good and valuable consideration; or

                    (iv)   With the consent of the Committee, a notice that the
Optionee has placed a market sell order with a broker with respect to shares of
the Company's Common Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net proceeds of
the sale to the Company in satisfaction of the Option exercise price; or

                    (v)    With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (i), (ii), (iii), and
(iv); and

                (c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its sole
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Committee may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and

                (d) Full payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Committee, (i)
shares of the Company's Common Stock owned by the Optionee, duly endorsed for
transfer, with a Fair Market Value on the date of delivery equal to the sums
required to be withheld, or (ii) shares of the Company's Common Stock issuable
to the Optionee upon exercise of the Option with a Fair Market Value on the date
of exercise of the Option or any portion thereof equal to the sums required to
be withheld, may be used to make all or part of such payment; PROVIDED, that the
number of shares of Common Stock which may be withheld with respect to the
issuance, vesting, exercise or payment of any Option (or which may be
repurchased from the Optionee of such Option within six months after




such shares of Common Stock were acquired by the Optionee from the Company) in
order to satisfy the Optionee's federal and state income and payroll tax
liabilities with respect to the issuance, vesting, exercise or payment of the
Option shall be limited to the number of shares which have a Fair Market Value
on the date of withholding or repurchase equal to the aggregate amount of such
liabilities based on the minimum statutory withholding rates for federal and
state tax income and payroll tax purposes that are applicable to such
supplemental taxable income; and

                (e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.

         ARTICLE 4.4 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of
stock deliverable upon the exercise of the Option, or any portion thereof, may
be either previously authorized but unissued shares or issued shares which have
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:

                (a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and

                (b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its sole discretion, deem necessary or
advisable; and

                (c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and

                (d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
the Company (or other employer corporation) is required to withhold upon
exercise of the Option; and

                (e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.

         ARTICLE 4.5 RIGHTS AS STOCKHOLDER. The holder of the Option shall not
be, nor have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any part of the Option
unless and until certificates representing such shares shall have been issued by
the Company to such holder.




                                   ARTICLE 5.
                                OTHER PROVISIONS

         ARTICLE 5.1 ADMINISTRATION. The Committee shall have the power to
interpret the Plan and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. All actions taken
and all interpretations and determinations made by the Committee in good faith
shall be final and binding upon the Optionee, the Company and all other
interested persons. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Option. In its sole discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee under
the Plan and this Agreement except with respect to matters which under Rule
16b-3 or Section 162(m) of the Code, or any regulations or rules issued
thereunder, are required to be determined in the sole discretion of the
Committee.

         ARTICLE 5.2 OPTION NOT TRANSFERABLE. Neither the Option nor any
interest or right therein or part thereof shall be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution, unless and until such Option has been exercised, or the shares
underlying such Option have been issued, and all restrictions applicable to such
shares have lapsed. Notwithstanding the foregoing the Option may be transferred
by the Optionee, in writing and with prior written notice to the Committee, by
gift, without the receipt of any consideration, to a member of the Optionee's
immediate family, as defined in Rule 16a-1 under the Exchange Act, or to a trust
for the exclusive benefit of, or any other entity owned solely by, such members,
provided, that the Option shall continue to be subject to all of the terms and
conditions as applicable to the original Optionee, and the transferee shall
execute any and all such documents requested by the Committee in connection with
the transfer, including without limitation to evidence the transfer and to
satisfy any requirements for an exemption for the transfer under applicable
federal and state securities laws. Neither the Option nor any interest or right
therein or part thereof shall be liable for the debts, contracts or engagements
of the Optionee or his successors in interest or shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect, except to the extent that such
disposition is permitted by the preceding sentence.

         ARTICLE 5.3 SHARES TO BE RESERVED. The Company shall at all times
during the term of the Option reserve and keep available such number of shares
of stock as will be sufficient to satisfy the requirements of this Agreement.

         ARTICLE 5.4 NOTICES. Any notice to be given under the terms of this
Agreement to the Company shall be addressed to the Company in care of its
Secretary, and any notice to be given to the Optionee shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant to
this Section 5.4, either party may hereafter designate a different address




for notices to be given to him. Any notice which is required to be given to the
Optionee shall, if the Optionee is then deceased, be given to the Optionee's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 5.4. Any
notice shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service; provided, however, that any notice to be given by the Optionee relating
to the exercise of the Option or any portion thereof shall be deemed duly given
upon receipt by the Secretary or his office.

         ARTICLE 5.5 TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this
Agreement.

         ARTICLE 5.6 CONSTRUCTION. This Agreement shall be administered,
interpreted and enforced under the internal laws of the State of Maryland
without regard to conflicts of laws thereof.

         ARTICLE 5.7 CONFORMITY TO SECURITIES LAWS. The Optionee acknowledges
that the Plan is intended to conform to the extent necessary with all provisions
of the Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including,
without limitation, the applicable exemptive conditions of Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be administered,
and the Option is granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

         ARTICLE 5.8 AMENDMENTS. This Agreement and the Plan may be amended
without the consent of the Optionee provided that such amendment would not
impair any rights of the Optionee under this Agreement. No amendment of this
Agreement shall, without the consent of the Optionee, impair any rights of the
Optionee under this Agreement.

         ARTICLE 5.9 INVALID PROVISION. The invalidity or unenforceability of
any particular provision hereof shall not affect the other provisions hereof,
and this Agreement shall be construed in all respects as if such invalid or
unenforceable provision was omitted.

         ARTICLE 5.10 EFFECT OF OPTIONS UPON OTHER COMPENSATION PLANS. The
Option and any payments with respect thereto shall not constitute "compensation"
for purposes of any pension, welfare or other benefit plan or policy of the
Company unless provided for therein.

         ARTICLE 5.11 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

         ARTICLE 5.12 ASSIGNMENT. Except as otherwise provided herein, the
Company's rights and obligations hereunder may be assigned to any Company
Subsidiary or to any successor





pursuant to a merger, consolidation or similar event. Subject to the foregoing,
this Agreement and the respective rights and obligations of the parties hereto
shall inure to the benefit of and be binding upon, the successors and assigns of
the parties.

         ARTICLE 5.13 NOTIFICATION OF DISPOSITION. The Optionee shall give
prompt notice to the Company of any disposition or other transfer of any shares
of stock acquired under this Agreement if such disposition or transfer is made
(a) within two (2) years from the Date of Grant with respect to such shares or
(b) within one (1) year after the transfer of such shares to him. Such notice
shall specify the date of such disposition or other transfer and the amount
realized, in cash, other property, assumption of indebtedness or other
consideration, by the Optionee in such disposition or other transfer.





         IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.

                                        PRICE LEGACY CORPORATION



                                        By:
                                           -------------------------------------


                                        Its:
                                            ------------------------------------

- ------------------------------
         Optionee

- ------------------------------


- ------------------------------
         Address

Optionee's Taxpayer
Identification Number:


- ------------------------------

EX-12.1

                                                                    EXHIBIT 12.1

                            Price Legacy Corporation
                              Computation of Ratios
                          (in thousands, except ratios)




                                                                                                  Period from    Period from
                                                                                                  November 12     January 1
                                                                  Year Ended       Year Ended       through        through
                                                                 December 31      December 31     December 31    November 11
                                                                ---------------  --------------- -------------- ---------------
                                                                     2001             2000           1999            1999
                                                                ---------------  --------------- -------------- ---------------
                                                                                                   

EARNINGS
Income from continuing operations before income taxes                   $38,001          $34,292         $4,697         $27,974
Add:     fixed charges                                                   18,379           13,018          1,079           5,971
Less:    capitalized interest                                            (1,586)          (2,087)          (231)           (944)
                                                                ---------------  --------------- -------------- ---------------
    Income as adjusted                                                  $54,794          $45,223         $5,545         $33,001
                                                                ===============  =============== ============== ===============

FIXED CHARGES AND PREFERRED DIVIDENDS:

Fixed charges:
Interest costs                                                          $16,793          $10,931        $   848        $  5,027
Capitalized interest                                                      1,586            2,087            231             944
                                                                ---------------  --------------- -------------- ---------------
Total fixed charges                                                      18,379           13,018          1,079           5,971

Preferred stock dividends                                                37,442           33,360             --          33,263
                                                                ---------------  --------------- -------------- ---------------
Total fixed charges and preferred dividends                             $55,821          $46,378         $1,079         $39,234
                                                                ===============  =============== ============== ===============

Ratio of earnings to fixed charges                                         2.98             3.47           5.14            5.53
                                                                ===============  =============== ============== ===============

Ratio of earnings to combined fixed charges and preferred stock
dividends                                                                  0.98             0.98           5.14            0.84
                                                                ===============  =============== ============== ===============

EX-21.1

                                                                    EXHIBIT 21.1

SUBSIDIARIES OF PRICE LEGACY CORPORATION


NAME                                                                JURISDICTION
- ----                                                                ------------
Excel Legacy Corporation                                            Delaware
Excel Legacy Holdings, Inc.                                         Delaware
Tenant First Real Estate Services                                   California
Newport on the Levee, LLC.                                          Delaware
Millennia Car Wash, LLC.                                            Delaware
Orlando Business Park, LLC                                          Delaware
Entercitement LLC                                                   Indiana
Grand Tusayan, LLC                                                  Delaware
Destination Villages LLC                                            Delaware
Excel Pointe Anaheim, LLC                                           Delaware
Old Mill District Shops, LLC                                        Delaware
Price Self Storage, Inc                                             Delaware
Price Owner LLC                                                     Delaware
Price Owner Corp                                                    Delaware
Price-Legacy Groves, Ltd                                            California
Price-Legacy Mesa, Ltd                                              California
Oakwood Plaza Ltd                                                   Delaware
Oakwood Business Center Ltd Ptshp                                   Delaware
Cypress Creek Assoc Ltd Ptshp                                       Delaware
Cross County Ltd Ptshp                                              Delaware
Kendale Assoc Ltd Ptshp                                             Delaware
Millenia Plaza Assoc Ltd Ptshp                                      Delaware
Blackstone Ventures I                                               California
3017977 Nova Scotia Company                                         Nova Scotia

EX-23.1

                                                                    Exhibit 23.1


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-83606), S-4 (No. 333-69607), and S-8
(No. 333-62723) of Price Legacy Corporation of our report dated January 25,
2002, except for Note 14, as to which the date is January 31, 2002, relating
to the consolidated financial statements and financial statement schedules,
which appears in this Form 10-K.


PricewaterhouseCoopers LLP


San Diego, California
March 20, 2002

EX-23.2

                                                                    EXHIBIT 23.2


            CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-83606) of Price Legacy Corporation and in the related Prospectus; and
the incorporation by reference in the Registration Statement (Form S-8 Nos.
33-62723, 33-69607) pertaining to The Price Enterprises 1995 Combined Stock
Grant and Stock Option Plan, As Amended and The Price Enterprises Directors'
1995 Stock Option Plan, As Amended, The Price Enterprises, Inc. 2001 Stock
Option and Incentive Plan and The 1998 Stock Option Plan of Excel Legacy
Corporation of our report dated January 19, 2001 (except for Note 13, as to
which the date is January 26, 2001), with respect to the consolidated financial
statements and schedules of Price Enterprises, Inc., included in the Annual
Report (Form 10-K) for the year ended December 31, 2001.




                                               ERNST & YOUNG LLP


San Diego, California
March 21, 2002