<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-24123
HORIZON GROUP PROPERTIES, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its Charter)
MARYLAND 8-3407933
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
77 WEST WACKER DRIVE, SUITE 3900, CHICAGO , IL 60601
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(Address of principal executive offices) (Zip Code)
(312) 917-1500
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(Registrant's telephone number, including area code)
Not Applicable
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Former name, former address and former fiscal year, if changed
since last report
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 No X
--- ---
NUMBER OF COMMON SHARES OUTSTANDING AT AUGUST 14, 1998 2,761,863
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1
<PAGE>
HORIZON GROUP PROPERTIES, INC.
Index to Form 10-Q
June 30, 1998
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Statement of Operations of the Company
for the period June 15, 1998 to June 30, 1998 and
Combined Condensed Statements of Operations of the
Predecessor Properties for the periods
April 1, 1998 through June 14, 1998 and
the Three Months Ended June 30, 1997 . . . . . . . . . . . . . . .
Consolidated Condensed Statement of Operations of the Company
for the period June 15, 1998 to June 30, 1998 and
Combined Condensed Statements of Operations of the
Predecessor Properties for the periods
January 1, 1998 to June 14, 1998 and
the Six Months Ended June 30, 1997 . . . . . . . . . . . . . . . .
Consolidated Condensed Balance Sheet of the
Company at June 30, 1998 and
Combined Condensed Balance Sheet of the Predecessor
Properties at December 31, 1997 . . . . . . . . . . . . . . . . . .
Consolidated Condensed Statement of Cash Flows of the
Company for the period June 15, 1998 to
June 30, 1998 and the Combined Condensed Statements
of Cash Flows of the Predecessor Properties
for the periods January 1, 1998 to June 14, 1998
and for the Six Months Ended June 30, 1997 . . . . . . . . . . . .
Notes to Consolidated and Combined Condensed Financial Statements . .
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . .
Part II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . .
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . .
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . .
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .
Item 6. Exhibits or Reports on Form 8-K . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
Part 1: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
HORIZON GROUP PROPERTIES, INC.
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Horizon Group Predecessor Properties
Properties, Inc. for the for the period from Predecessor Properties
period from June 15, 1998 to April 1, 1998 to for the three months
June 30, 1998 June 14, 1998 ended June 30, 1997
---------------------------- ----------------------- ----------------------
(thousands, except per share data)
<S> <C> <C> <C>
REVENUE
Base rent $ 952 $ 4,170 $ 4,724
Percentage rent 1 13 (3)
Expense recoveries 150 1,335 1,502
Other 60 222 322
--------- ---------- ---------
Total Revenue 1,163 5,740 6,545
--------- ---------- ---------
--------- ---------- ---------
EXPENSES
Property Operating 199 1,332 1,301
Real Estate taxes 138 622 782
Land leases and other 22 476 124
Depreciation and amortization 244 2,185 2,064
General and administrative 226 613 629
Interest 370 2,654 2,512
--------- ---------- ---------
Total expenses 1,199 7,882 7,412
--------- ---------- ---------
--------- ---------- ---------
Income (loss) before minority interest
and extraordinary charge (36) (2,142) (867)
Minority interest 6 - -
--------- ---------- ---------
Net income (loss) before extraordinary charge (30) (2,142) (867)
Extraordinary charge on debt prepayment - - (763)
--------- ---------- ---------
Net income (loss) $ (30) $ (2,142) $ (1,630)
--------- ---------- ---------
--------- ---------- ---------
PER COMMON SHARE - BASIC AND DILUTED:
Net income (loss) $ (0.01)
---------
---------
Weighted average common shares outstanding
- - basic 2,761,863
---------
---------
</TABLE>
See accompanying notes to consolidated and combined
condensed financial statements.
<PAGE>
HORIZON GROUP PROPERTIES, INC.
CONSOLIDATED AND COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Horizon Group Predecessor Properties
Properties, Inc. for the for the period from Predecessor Properties
period from June 15, 1998 to January 1, 1998 to for the six months
June 30, 1998 June 14, 1998 ended June 30, 1997
---------------------------- ----------------------- ----------------------
(thousands, except per share data)
<S> <C> <C> <C>
REVENUE
Base rent $ 952 $ 9,167 $ 9,530
Percentage rent 1 44 39
Expense recoveries 150 2,631 3,226
Other 60 534 680
--------- ---------- ---------
Total Revenue 1,163 12,376 13,475
--------- ---------- ---------
--------- ---------- ---------
EXPENSES
Property Operating 199 2,634 2,845
Real Estate taxes 138 1,379 1,539
Land leases and other 22 785 376
Depreciation and amortization 244 4,640 4,104
General and administrative 226 1,101 1,239
Interest 370 5,684 4,902
--------- ---------- ---------
Total expenses 1,199 16,223 15,005
--------- ---------- ---------
--------- ---------- ---------
Income (loss) before minority interest
and extraordinary charge (36) (3,847) (1,530)
Minority interest 6 - -
--------- ---------- ---------
Net income (loss) before extraordinary charge (30) (3,847) (1,530)
Extraordinary charge on debt prepayment - - (763)
--------- ---------- ---------
Net income (loss) $ (30) (3,847) $ (2,293)
--------- ---------- ---------
--------- ---------- ---------
PER COMMON SHARE - BASIC AND DILUTED:
Net income (loss) $ (0.01)
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---------
Weighted average common shares outstanding
- - basic 2,761,863
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---------
</TABLE>
See accompanying notes to consolidated and combined
condensed financial statements.
<PAGE>
HORIZON GROUP PROPERTIES, INC.
CONSOLIDATED AND COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
Horizon Group Predecessor Properties
Properties, Inc. at at
June 30, 1998 December 31, 1997
------------------- ----------------------
(thousands)
<S> <C> <C>
ASSETS
REAL ESTATE - AT COST:
Land $ 12,197 $ 16,421
Buildings and improvements 128,766 200,058
Less accumulated depreciation (244) (17,951)
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Total net real estate 140,719 198,528
Cash and cash equivalents 3,008 3,729
Restricted Cash 3,602 -
Tenant accounts receivable 498 368
Due from joint venture 9,695 11,639
Assets held for sale 1,500 1,933
Deferred costs 917 4,696
Other assets 4,826 954
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Total assets $ 164,765 $ 221,847
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages and other debt $ 115,514 $ 139,636
Accounts payable and accrued expenses 4,677 4,790
Prepaid rents and other tenant liabilities 726 959
Other liabilities 3,319 1,272
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Total liabilities 124,236 146,657
NET ASSETS OF PREDECESSOR PROPERTIES $ 75,190
------------
MINORITY INTEREST 7,504 ------------
SHAREHOLDERS' EQUITY:
Common Shares 28
Additional paid-in capital 33,027
Accumulated deficit (30)
-------------
Total shareholders' equity 33,025
-------------
Total liabilities and
shareholders' equity $ 164,765
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-------------
See accompanying notes to consolidated and combined condensed financial statements.
</TABLE>
<PAGE>
HORIZON GROUP PROPERTIES, INC.
Consolidated and Combined Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Horizon Group Predecessor Predecessor
Properties, Inc. Properties Properties
for the period for the period for the six
from June 15, 1998 from January 1, 1998 months ended
to June 30, 1998 to June 14, 1998 June 30, 1997
------------------- ----------------------- -----------------
(thousands)
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) before minority interest
and extraordinary items $ (36) $ (3,847) $ (1,530)
Adjustments to reconcile net income (loss)
before extraordinary charge to net cash
provided by operating activities:
Depreciation and amortization 269 5,031 4,350
Provision for asset impairment - - 3
Changes in assets and liabilities:
Restricted Cash (65) - -
Tenant accounts receivable (437) (409) 217
Due from joint venture (88) 2,032 3,216
Deferred Costs and other assets (1,251) 409 575
Accounts payable and accrued expenses 1,494 (704) 799
Other liabilities (3) (47) (779)
Prepaid rents and other tenant expenses 49 (366) (467)
-------------- ----------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (68) 2,099 6,384
-------------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for real estate
and improvements (92) (2,305) (1,094)
-------------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (92) (2,305) (1,094)
-------------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contributions/distributions - (4,044) (16,962)
Proceeds from net increase in debt - 4,459 11,438
Debt issue costs - (140) 80
-------------- ----------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES - 275 (5,444)
-------------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (160) 69 (154)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3,168 3,729 4,511
-------------- ----------- ----------
END OF PERIOD $ 3,008 $ 3,798 $ 4,357
-------------- ----------- ----------
-------------- ----------- ----------
See accompanying notes to consolidated and combined condensed financial statements.
</TABLE>
<PAGE>
NOTE 1 - FORMATION OF THE COMPANY
Horizon Group Properties, Inc. (together with its subsidiaries "HGP" or the
"Company") is a self-administered and self-managed real estate investment
trust ("REIT") that was established in connection with the merger of Horizon
Group, Inc., a Michigan corporation ("Horizon") with and into Prime Retail,
Inc., a Maryland corporation ("Prime") which was consummated on June 15, 1998
("the Merger"). HGP's portfolio consists of 14 factory outlet centers and
one power center located in 12 states comprising an aggregate of
approximately 3,092,000 square feet of gross leasable area ("GLA"). Twelve
of the factory outlet centers and the power center were contributed to the
Company by Horizon immediately prior to the consummation of the Merger
pursuant to a Contribution Agreement entered into in connection with the
Merger (the "Contribution Agreement") and two factory outlet centers were
purchased by the Company from Prime immediately subsequent to the
consummation of the Merger.
Also in connection with the Merger and pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of February 1, 1998 by and among Prime,
Horizon, HGP and other parties thereto (the "Merger Agreement"), the common
shares of the Company were distributed to the holders of Prime common stock,
Prime Series B Preferred stock, Prime Series C Preferred stock and Horizon
common stock in accordance with the applicable exchange ratio for each such
security.
The operations of the Company are primarily conducted through a subsidiary
limited partnership, Horizon Group Properties, L.P. ("HGP LP") in which the
Company is the sole general partner and, as of June 30, 1998, owns
approximately 80% of the partnership interests (the "Common Units"). In
connection with the Merger, the Common Units were distributed to the original
holders (other than Prime) of partnership interests of a limited partnership
affiliate of Prime and a limited partnership affiliate of Horizon,
respectively, in accordance with the exchange ratios set forth in the Merger
Agreement. Common Units are exchangeable for shares of HGP common stock on a
one-for-one basis at any time (or for an equivalent cash amount at the
Company's election).
The Company owns Horizon's former administrative offices located in Norton
Shores, Michigan and the following centers which were owned by Horizon prior
to the Merger and contributed to the Company pursuant to the Contribution
Agreement (collectively, such assets are referred to as the "Predecessor
Properties" for periods prior to the Merger):
Bellport Outlet Center in Patchogue, New York (held in joint
ventures)
Dry Ridge Outlet Center in Dry Ridge, Kentucky
Horizon Outlet Center--Holland in Holland, Michigan
Horizon Outlet Center--Laughlin in Laughlin, Nevada
Horizon Outlet Center--Monroe in Monroe, Michigan
Horizon Outlet Center--Somerset in Somerset, Pennsylvania
Horizon Outlet Center--Traverse City in Traverse City, Michigan
Horizon Outlet Center--Tulare in Tulare, California
Lakeshore Marketplace in Norton Shores, Michigan
Medford Outlet Center in Medford, Minnesota
New Mexico Outlet Center in Algodones, New Mexico (vacant)
Sealy Outlet Center in Sealy, Texas
Warrenton Outlet Center in Warrenton, Missouri
Immediately after the Merger, the Company acquired the two properties listed
below. Each property was purchased from an affiliate of Prime.
<TABLE>
<CAPTION>
DATE ACQUIRED PROPERTY LOCATION TOTAL SQ. FEET APPROXIMATE
PURCHASE PRICE
<S> <C> <C> <C> <C>
June 15, 1998 Nebraska Crossing Gretna, Nebraska 192,000 $ 8,000,000
Factory Shops
June 15, 1998 Indiana Factory Daleville, Indiana 234,000 $18,015,000
Shops
---------------------------
Total 426,000 $26,015,000
</TABLE>
<PAGE>
HGP currently intends to elect to be treated as a REIT for Federal income tax
purposes and to operate in the manner required to qualify for and maintain
REIT status.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated and combined financial statements of
the Company have been prepared in accordance with generally accepted
accounting principles ("GAAP") for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, the consolidated
and combined financial statements contain all normal, recurring adjustments
necessary for a fair statement of financial results for the interim period
presented. The preparation of these financial statements requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
STATEMENTS OF PREDECESSOR PROPERTIES
The financial statements for the dates and periods prior to the Merger reflect
the results of operations, financial position, and cash flows of the
Predecessor Properties prior to the Merger as if the Company had been a
separate entity and owned such assets for all periods presented. The historical
results of operations and financial condition of the Predecessor Properties are
based on the manner in which Horizon historically managed such net assets.
Accordingly, the combined condensed financial statements of the Predecessor
Properties have been prepared using Horizon's historical basis of the assets
and liabilities and historical results of operations related to the Predecessor
Properties. In this regard, because Horizon owned the Predecessor Properties,
together with other properties which were not contributed to the Company prior
to the Merger, the Predecessor Properties were not insulated from the
obligations and commitments of Horizon. Certain assumptions relating to the
allocation of cash and cash equivalents, debt and financing costs, interest
expense and general and administrative expenses, all of which were historically
aggregated by Horizon, have been made in the combined financial statements for
the periods prior to the Merger. These statements have been combined based upon
the historical common ownership and management of the outlet centers.
These statements include an allocation of the aggregate debt balances of
Horizon (which had historically been secured by a pool of Horizon's assets)
based upon the proportionate use of debt proceeds by the Predecessor Properties
compared to Horizon's total historical portfolio of outlet centers. Financing
costs were allocated based upon the same ratio. Interest expense has been
estimated based upon the aforementioned proportionate debt balances and the
historical weighted average interest rate incurred by Horizon on its debt
balances. The allocation was made in this manner because management believes it
best represented the use of funds borrowed during the periods presented and
because allocating the debt in this manner results in the statements of
operations of the Predecessor Properties reflecting the stand-alone interest
cost of doing business.
General and administrative expenses of Horizon have been allocated to the
Predecessor Properties based upon the ratio of GLA of the Predecessor
Properties portfolio of outlet centers compared to Horizon's total historical
portfolio of outlet centers.
Cash and cash equivalents have been included in the combined condensed
financial statements of the Predecessor Properties based upon the respective
periods' ratio of GLA of the Predecessor Properties compared to Horizon's total
historical portfolio of outlet centers. Horizon considered all highly liquid
investments with a maturity of three months or less when purchased to be cash
and cash equivalents.
Net contributions (distributions) are the net amounts advanced from and repaid
to Horizon. Excess cash flows have been reflected as being distributed back to
Horizon. Net contributions represent Horizon's funding of the Predecessor
Properties' development cost needs in excess of cash flows generated from the
Predecessor Properties' operations.
<PAGE>
The aforementioned allocations may not reflect actual balances had the Company
existed as a separate entity.
REAL ESTATE AND DEPRECIATION
The carrying values of the Predecessor Properties for the period prior to the
Merger are stated at Horizon's historic cost, less accumulated depreciation.
For the period subsequent to the Merger, the Predecessor Properties are stated
on the books of the Company at fair value as of June 15, 1998, the date the
Predecessor Properties were contributed to the Company, less accumulated
depreciation. The two centers purchased from an affiliate of Prime are stated
at their purchase prices less accumulated depreciation. The carrying values as
of June 15, 1998 are preliminary. Costs incurred for the acquisition,
development, construction and improvement of properties, as well as significant
renovations and betterments to the properties, are capitalized. Maintenance and
repairs are charged to expense as incurred. Interest costs incurred with
respect to qualified expenditures relating to the construction of assets are
capitalized during the construction period.
In accordance with FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED-ASSETS TO BE DISPOSED OF, the financial
statements of HGP reflect impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. Impairment losses
are measured as the difference between carrying value and fair value for
assets to be held in the portfolio. For assets to be sold, impairment is
measured as the difference between carrying value and fair value, less costs
to dispose. Fair value is based on estimated cash flows discounted at a
risk-adjusted rate of interest or a value derived from comparable sales
transactions in the marketplace.
Periodically, in the course of reviewing the performance of its outlet
centers, management may determine that certain outlet centers no longer meet
the parameters set forth for its operating properties and accordingly, such
outlet centers will be classified as held for sale. As of December 31, 1997
and June 30, 1998 the Algodones, New Mexico outlet center is classified as
held for sale.
REVENUE RECOGNITION
Leases with tenants are accounted for as operating leases. Minimum annual
rentals are generally recognized on a straight-line basis over the term of the
respective lease. Rents which represent basic occupancy costs, including fixed
amounts and amounts computed as a function of sales, are classified as base
rent. Amounts which may become payable in addition to base rent and which are
computed as a function of sales in excess of certain thresholds are classified
as percentage rents. Expense recoveries based on common area maintenance
expenses and certain other expenses are accrued in the period in which the
related expense is incurred. For periods beginning on and after April 1, 1998,
percentage rents are accrued on the basis of reported tenant sales only after
the sales exceed the thresholds above which such rent is due. For periods
prior to April 1, 1998, percentage rents were accrued based upon an estimate of
total rent expected to be collected for the year.
OTHER REVENUE
Other revenue consists primarily of interest income and income related to
marketing services that is recovered from tenants pursuant to lease
agreements.
DEFERRED COSTS AND OTHER ASSETS
Leasing and deferred financing costs are capitalized at cost. Amortization is
recorded on the straight-line method over the life of the lease or the debt,
respectively.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
<PAGE>
The Company accounts for its investment in two joint ventures using the
equity method of accounting. Under this method of accounting, the net equity
investment of the Company is reflected on the balance sheet and the
statements of operations include the Company's share of the net income or
loss from such joint ventures.
INCOME TAXES
Commencing with the year ending December 31, 1998, the Company intends to
make an election to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. As a REIT, the Company generally
will not be subject to federal income tax if it distributes at least 95% of
its taxable income for each tax year to its shareholders. REITs are subject
to a number of organizational and operational requirements. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject
to federal income tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate tax rates. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to state and
local income taxes and to federal income tax and excise tax on its
undistributed income.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported
statements of the Predecessor Properties in order to provide comparability
with the Company's statements reported herein. These reclassifications have
not changed the previously reported results.
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Periods from
June 15, 1998 to June 30, 1998
<S> <C>
NUMERATOR:
Net income (loss) - basic $ (30)
Minority interest of Unitholders (6)
-------
Net income (loss) - diluted $ (36)
-------
-------
DENOMINATOR:
Weighted average common shares outstanding - basic 2,762
Effect of converting units to shares 628
-------
Weighted average common shares outstanding - diluted 3,390
-------
-------
Net income (loss) per share - basic and diluted $ (.01)
-------
-------
</TABLE>
Outstanding options were excluded because the effect of such items was
anti-dilutive for the periods presented.
NOTE 4 - LONG TERM STOCK INCENTIVE PLAN
The Company has adopted the HGP 1998 Long Term Stock Incentive Plan (the "HGP
Stock Plan") to advance the interests of the Company by encouraging and
enabling the acquisition of a financial interest in the Company by key
employees and officers of the Company and its subsidiaries through equity
awards. The Company reserved 338,900 common shares for issuance pursuant to
the HGP Stock Plan, an amount equal to approximately 10% of the aggregate of
the total outstanding common shares of the Company and outstanding Common
Units of HGP LP as of June 15, 1998.
NOTE 5 - MORTGAGE DEBT AND OTHER LIABILITIES
On June 15, 1998, certain wholly owned affiliates of the Company entered into
a credit facility (the "HGP Credit Facility") with Nomura Asset Capital
Corporation ("Nomura") providing for initial borrowings of
<PAGE>
$108,205,000. The HGP Credit Facility is guaranteed by HGP and HGP LP. The HGP
Credit Facility has a term of three years and bears interest at the 30-day
LIBOR Rate (as defined in the HGP Credit Facility) plus 1.90% per annum. The
HGP Credit Facility is cross-collateralized by mortgages on the Company's 12
wholly owned outlet centers and one power center. The HGP Credit Facility
requires monthly payments of interest. In addition, the HGP Credit Facility
requires principal payments totaling $1.5 million, $1.5 million and $2.0
million during the first, second and third years, respectively, payable in
equal monthly installments. An additional principal payment of $2.2 million is
due on September 1, 1998. It is likely that in order to meet this obligation,
the Company will borrow such amount from Prime, but Prime is not obligated to
make any such loan to the Company. The HGP Credit Facility has a prepayment
penalty of 1% of amounts repaid during the first loan year and 2% of amounts
repaid during the second and third loan years. The HGP Credit Facility contains
restrictions on the ability of HGP and HGP LP to incur additional indebtedness,
and under certain circumstances, requires the Company to enter into an interest
rate lock arrangement which would fix the interest rate on the full outstanding
amount of the HGP Credit Facility.
In connection with the HGP Credit Facility, the Company established certain
escrow accounts and cash collection accounts for the benefit of Nomura which
are classified on the balance sheet of the Company as restricted cash.
Prime has guaranteed approximately $12.2 million of obligations under the HGP
Credit Facility (the "Prime Guarantee"). In connection with the Prime
Guarantee, HGP has agreed to pay Prime a fee of $400,000 per annum until the
Prime Guarantee terminates. The Prime Guarantee will terminate if HGP raises
at least $50.0 million in new capital and uses at least $50.0 million of the
proceeds from such capital raised to reduce borrowings under the HGP Credit
Facility.
The Company has loans totaling $3.04 million as of June 30, 1998 secured by a
mortgage on the office building and related equipment which the Company
utilizes as a corporate office in Norton Shores, Michigan. This building was
previously owned by an affiliate of Horizon and was contributed to the
Company pursuant to the Contribution Agreement. The consent of the lender to
the previous owner of the property was required in connection with the
transfer of the property to the Company. The Company is currently seeking
such consent but as of August 14, 1998, such consent has not been obtained.
HGP also has a $4.0 million revolving credit facility that matured on August
1, 1998. The outstanding balance at June 30, 1998 was $4.0 million. Prime
has agreed to lend HGP sufficient funds, at a rate of 10% per annum, if HGP
is otherwise unable to repay in full its obligations under such facility.
HGP has also agreed that it will repay this replacement facility or other
related indebtedness on which Prime is contingently liable to the extent of
net proceeds from an equity offering or the sale of the Algodones, New Mexico
Outlet Center. The lender has verbally indicated that it is willing to
extend the term of the loan through August 15, 1998 and perhaps through
August 31, 1998 and is not currently seeking repayment of the facility. The
Company is currently negotiating to replace this facility with another
similar facility either from Prime or another lender.
Pursuant to the Contribution Agreement, the Company agreed to assume,
undertake to pay, satisfy and discharge when due in accordance with their
terms certain assumed liabilities (the "Assumed Liabilities"), which are
defined to include all liabilities of Horizon which arise from the ownership
and operation of the Predecessor Properties and include (i) all obligations
to indemnify present and former officers and directors of Horizon under
certificates or articles of incorporation, by-laws, partnership agreements,
employment agreements, indemnification agreements or otherwise, for any
matter existing or occurring after the Merger, (ii) all leases and related
contracts, and service contracts, relating to any Contributed Asset (as
defined in the Contribution Agreement) and (iii) certain other specified
obligations.
Also pursuant to the Contribution Agreement, certain partnership interests in
two joint ventures, MG Patchogue Limited Partnership and MG Patchogue II
Limited Partnership, which own the Bellport Factory Outlet Center, were
transferred from an affiliate of Horizon to HGP LP and an affiliate of HGP
LP. The Company is currently seeking the consents of the limited partners to
such transfers but as of August 14, 1998, such consents had not been
obtained. Additionally, the transfer of the general partnership interest in
MG Patchogue Limited Partnership pursuant to the Contribution Agreement
required the
<PAGE>
consent of MG Patchogue Limited Partnership's mortgage lender. The Company is
currently seeking such consent but, as of August 14, 1998, such consent had not
been obtained. The Company accounts for its investment in these partnerships
using the equity method of accounting.
MG Patchogue II Limited Partnership, of which the Company is 1% general
partner and 44% limited partner, is subject to indebtedness totaling
approximately $11.8 million which matures August 14, 1998. Nomura has issued
a commitment to lend the partnership $14 million under the HGP Credit
Facility on or before September 1, 1998. The consent of the limited partners
is required in order to complete such financing with Nomura. The Company is
currently seeking such consent, but as of August 14, 1998 such consent had
not been obtained. If completed, the Company will utilize the proceeds of
such financing to repay the existing indebtedness and make the $2.2 million
principal payment which is due September 1, 1998 under the HGP Credit
Facility. The Company accounts for its investment in this partnership
using the equity method of accounting.
The Company can give no assurances that it will be able to obtain the above
mentioned consents or that it will be able to finance or refinance its
indebtedness as it matures or that any such financing will be obtained will
be on favorable terms. Any such failure to obtain such consents or such
financings could have a material adverse effect upon the Company.
Prior to the Merger, Horizon entered into an agreement (the "PVH Agreement")
with Phillips Van Heusen, Inc. ("PVH") which deleted or delayed the effective
date of certain provisions of PVH leases in exchange for certain payments.
Prime is liable for future payments relating to the PVH Agreement. The Company
is obligated to reimburse Prime for two payments relating to the PVH Agreement
totaling $2,334,000, payable in the amounts of $1,167,000 on each of June 15,
1999 and June 15, 2000.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company utilizes Thilman & Philippini as agent for its insurance and risk
management programs. E. Thomas Thilman is a Director of the Company and a
partner in Thilman & Philippini. During the period June 15, 1998 to June 30,
1998, the Company paid premiums totaling approximately $200,000 on insurance
policies placed by Thilman & Philippini.
The Company leases office space for its senior executives at 77 W. Wacker,
Chicago, Illinois from Prime Group Realty Trust. Prime Group Realty Trust is
an affiliate of Michael W. Reschke, a Director of the Company.
NOTE 7 - PRO FORMA INFORMATION
The Pro Forma Consolidated Condensed Statements of Operations for the six
month periods ended June 30, 1997 and 1998 reflect the following
transactions, which occurred June 15, 1998, as if they had occurred on
January 1, 1997: (a) the acquisition of the Predecessor Properties and the two
centers from Prime; (b) the entry into the HGP Credit Facility; and (c) the
issuance of stock of HGP and Common Units.
The accompanying Pro Forma Consolidated Condensed Financial Statements are not
necessarily indicative of the results which would actually have been obtained
had the transactions described above been completed on the dates indicated or
which may be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
1998 1997
<S> <C> <C>
Total Revenue 16,748 17,005
Income Before Extraordinary Items
and Minority Interests 1,159 1,538
Net Income 944 1,253
Net Income per Share .34 .45
</TABLE>
NOTE 8 - NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities for the period ended June 30, 1998 are as follows:
The following summarizes the assets, liabilities and equity
contributed to and assumed by the Company pursuant to the Contribution
Agreement and the purchase of the two centers from Prime referred to
in Note 1:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Investment in real estate 140,872
Other Assets 22,388
---------------
163,260
---------------
---------------
Debt 115,514
Other liabilities 7,182
Minority Interests 7,510
Owners' equity 33,054
---------------
163,260
---------------
---------------
</TABLE>
The above allocations are preliminary.
NOTE 9 - WORKING CAPITAL AGREEMENT
In connection with the Merger, the Company entered into a Working Capital
Agreement with Prime (the "Working Capital Agreement"). The Working Capital
Agreement provides that Prime will transfer to the Company net working
capital of $545,000. This amount is net of the current assets and current
liabilities of the Predecessor Properties and the two centers which the
Company purchased from Prime as of the date of the Merger. Prime transferred
$3,000,000 to the Company at the closing of the Merger as a portion of the
estimated amount due under the Working Capital Agreement. The Company has
recorded a receivable from Prime for the balance of the amount due under the
Working Capital Agreement. This amount is preliminary and is subject to
Prime's review and approval but it is expected that the balance will be paid
during the third quarter of 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
INTRODUCTION
The following discussion and analysis of the consolidated financial condition
and results of operations of Horizon Group Properties, Inc. (together with
its subsidiaries "HGP" or the "Company") and the Predecessor Properties (as
herein after defined) should be read in conjunction with the Consolidated and
Combined Condensed Financial Statements and Notes thereto. The Company's
operations are conducted primarily through a subsidiary limited partnership,
Horizon Group Properties, L.P. ("HGP LP"). The Company is the sole general
partner of HGP LP and, as of June 30, 1998, owns approximately 80% of the
HGP LP partnership interests ("Common Units"). Common Units of HGP LP are
exchangeable for shares of HGP common stock on a one-for-one basis at any
time (or for an equivalent cash amount at the Company's election). The
Company controls HGP LP and is dependent on distributions or other payments
from HGP LP to meet its financial obligations.
CAUTIONARY STATEMENTS
The following discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which reflect management's current views with
respect to future events and financial performance. Such forward-looking
statements are subject to certain risks and uncertainties; including, but not
limited to, the effects of future events on the Company's financial
performance; the risk that the Company may be unable to finance its planned
acquisition and development activities; risks related to the retail industry
in which the Company's outlet centers compete, including the potential
adverse impact of external factors, such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; risks associated
with the Company's property acquisitions, such as the lack of
predictability with respect to financial returns; risks associated with
the Company's property development activities, such as the potential
for cost overruns, delays and the lack of predictability with respect to
the financial returns associated with these development activities; the
risk of potential increase in market interest rates from current levels; and
risks associated with real estate ownership, such as the potential adverse
impact of changes in local economic climate on the revenues and the value of
the Company's properties. For further information on factors which could
impact the Company and the statements contained herein, reference is made to
the Company's other filings with the Securities and Exchange Commission,
including the Company's Registration Statement on Form 10, as amended, dated
as of June 4, 1998, with respect to the Company's initial registration of its
common stock under the Securities Exchange Act of 1934, as amended and the
Sky Merger Corp. Registration Statement on Form S-4, as filed with the
Securities and Exchange Commission on May 12, 1998 (Registration No.
333-51285).
GENERAL OVERVIEW
The Company is a self-administered and self-managed real estate investment trust
("REIT") that was established in connection with the merger of Horizon Group,
Inc., a Michigan corporation ("Horizon") with and into Prime Retail, Inc., a
Maryland corporation ("Prime") which was consummated on June 15, 1998 ("the
Merger"). HGP's portfolio consists of 14 factory outlet centers and one power
center located in 12 states comprising an aggregate of approximately 3,092,000
square feet of gross leasable area ("GLA"). Twelve of the factory outlet
centers and the power center were contributed to the Company immediately prior
to the consummation of the
<PAGE>
Merger by Horizon pursuant to a Contribution Agreement entered into in
connection with the Merger (the "Contribution Agreement") and two factory
outlet centers were purchased by the Company from Prime immediately
subsequent to the consummation of the Merger.
RESULTS OF OPERATIONS
The statements for the period June 15, 1998, the date of the Company's
acquisition of the 12 outlet centers, one power center and Horizon's former
administrative office from Horizon (the "Predecessor Properties") pursuant to
the Contribution Agreement, through June 30, 1998 reflect the initial operation
of the Company as a separate entity with its current assets. The financial
statements of the Company for the period June 15, 1998 to and as of June 30,
1998 are not directly comparable to the statements of the Predecessor
Properties for periods prior to the Merger due to a number of factors,
including (1) a significant change in the indebtedness of the Company which
occurred in conjunction with the Merger; (2) the acquisition by the Company of
two additional outlet centers immediately after the Merger, the results of
which are not included in the financial statements of the Predecessor
Properties; (3) the fact that the outlet center in Algodones, New Mexico was
substantially occupied during the periods presented prior to the Merger but was
completely vacant during the period June 15, 1998 to June 30, 1998; and (4)
the carrying value of the Predecessor Properties for the periods prior to the
Merger are stated at Horizon's historic cost and depreciation expense is based
on those costs. For the period subsequent to the Merger, the Predecessor
Properties are stated at the fair value as of the date of the Merger, resulting
in a substantial decrease in value and a related decrease in depreciation
expense. For these and other reasons, the combination of the results of
operation for the periods prior to the Merger with those for the periods
subsequent to the Merger is not indicative of the ongoing results of the
Company for future periods.
The financial statements for the periods prior to the Merger reflect the
results of operations, financial position, and cash flows of the Predecessor
Properties prior to the Merger as if the Predecessor Properties had been a
separate entity which owned such assets for all periods presented. The
historical results of operations and financial condition of the Predecessor
Properties are based on the manner in which Horizon historically managed such
net assets. Accordingly, the combined condensed financial statements of the
Predecessor Properties have been prepared using Horizon's historical basis of
the assets and liabilities and historical results of operations related to
the Predecessor Properties. In this regard, because Horizon owned the
Predecessor Properties, together with other properties which were not
contributed to the Company, the Predecessor Properties were not insulated from
the obligations and commitments of Horizon. Certain assumptions relating to
the allocation of cash and cash equivalents, debt and financing costs,
interest expense and general and administrative expenses, all of which were
historically aggregated by Horizon, have been made in the combined financial
statements for the periods prior to the Merger. See Note 2 to the Financial
Statements. These statements have been combined based upon the historical
common ownership and management of the outlet centers.
Rental revenue for the Predecessor Properties (excluding the Algodones, New
Mexico Center which was vacant in 1998) for the six month period ended June
30, 1998 increased 7% compared to the same period in the prior year. Rental
revenue for the Algodones, New Mexico center totaled $748,000 for the six
months ended June 30, 1997. Operating expenses and real estate taxes for the
six months ended June 30, 1998 for the Predecessor Properties (excluding the
Algodones, New Mexico center) decreased slightly less than 1% compared to the
same period in the prior year. Operating expenses and real estate taxes for
the Algodones, New Mexico center were $273,000 for the six months ended June
30, 1997.
Rental revenue for the Predecessor Properties (excluding the New Mexico
center) for the three month period ended June 30, 1998 increased 6% compared
to the same period in the prior year. Rental revenue for the New Mexico
center totaled $363,000 for the three months ended June 30, 1997. Operating
expenses and real estate taxes for the three months ended June 30, 1998 for
the Predecessor Properties (excluding New Mexico) increased 8% compared to
the same period in the prior year. Operating expenses for the New Mexico
center were $117,000 for the three months ended June 30, 1997.
Average occupancy for the Predecessor Properties (excluding the Algodones,
New Mexico Center) for the six month period ended June 30, 1998 was 73.8%
compared to 75.37% for the same
<PAGE>
period in the prior year. Average occupancy for the Predecessor Properties
(excluding the New Mexico center) for the three month period ended June 30,
1998 was 76.08% compared to 73.98% for the same period in the prior year. As
of June 30, 1998, occupancy of the Company's total operating portfolio was
78.65%.
The Company operates primarily from the former headquarters of Horizon in
Norton Shores, Michigan in an office building previously owned by Horizon and
now owned by the Company. All employees of the Company, with the exception
of some of its senior management, were former employees of Horizon. In
connection with the Merger, a substantial number of former Horizon employees
were either not offered employment with the Company or offered continued
employment for a limited period of time. The Company has currently leased a
small portion of its office building to an unrelated tenant and is seeking
additional tenants to occupy the space not required by the Company to
accommodate its operations. The Company also leases office space in Chicago
for its senior management and leases office space in McLean, Virginia for its
leasing staff. The Company is currently seeking to cancel its lease in
Virginia and relocate to smaller offices. As a result of the above mentioned
factors, among others, the general and administrative expenses of the Company
for the period June 15, 1998 to June 30, 1998 are not necessarily
representative of the expenses which will be incurred on an ongoing basis.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's outstanding mortgages and other debt was
approximately $116 million. While the Company is contemplating the expansion
of the Tulare Outlet Center, during the remainder of 1998, the Company does not
plan to expand its other outlet centers. However, the Company does plan to
spend approximately $3 million for tenant allowances, capital improvements and
repairs to its outlet centers over the next twelve months, of which $1.2
million will come from an escrow which was established at the closing of the
HGP Credit Facility with Nomura (each as hereinafter defined). The Company
plans to fund the remaining costs with existing cash balances and cash flow
from operations.
In connection with the Merger, the Company entered into a Working Capital
Agreement with Prime (the "Working Capital Agreement"). The Working Capital
Agreement provides that Prime will transfer to the Company net working
capital of $545,000. This amount is net of the current assets and current
liabilities of the Predecessor Properties and the two centers which the
Company purchased from Prime as of the date of the Merger. Prime transferred
$3,000,000 to the Company at the closing of the Merger as a portion of the
estimated amount due under the Working Capital Agreement. The Company has
recorded a receivable from Prime for the balance of the amount due under the
Working Capital Agreement. This amount is preliminary and is subject to
Prime's review and approval but it is expected that the balance will be paid
during the third quarter of 1998.
The Company expects to meet its short-term liquidity requirements generally
through working capital and cash flows from operations. The Company expects
to meet its long-term requirements, such as tenant allowances for new leases
and capital improvements, through the additional borrowing of long-term debt
and the potential offering of equity securities in the private or public
capital markets. As a result of the Company's leverage, the Company's
ability to obtain additional financing sources is limited. There can be no
assurance that the Company will be able to successfully obtain such funding
sources or, if obtained, on favorable terms.
On June 15, 1998, certain wholly owned affiliates of the Company entered into
a credit facility (the "HGP Credit Facility") with Nomura Asset Capital
Corporation ("Nomura") providing for initial borrowings of $108,205,000. The
HGP Credit Facility is guaranteed by HGP and HGP LP. The HGP Credit Facility
has a term of three years and bears interest at the 30-day LIBOR Rate (as
defined in the HGP Credit Facility) plus 1.90% per annum. The HGP Credit
Facility is cross-
<PAGE>
collateralized by mortgages on the Company's 12 wholly owned outlet centers and
one power center. The HGP Credit Facility requires monthly payments of
interest. In addition, the HGP Credit Facility requires principal payments
totaling $1.5 million, $1.5 million and $2.0 million during the first, second
and third years, respectively, payable in equal monthly installments. An
additional principal payment of $2.2 million is due on September 1, 1998. It
is likely that in order to meet this obligation, the Company will borrow such
amount from Prime, but Prime is not obligated to make any such loan to the
Company. The HGP Credit Facility has a prepayment penalty of 1% of amounts
repaid during the first loan year and 2% of amounts repaid during the second
and third loan years. The HGP Credit Facility contains restrictions on the
ability of HGP and HGP LP to incur additional indebtedness, and under certain
circumstances, requires the Company to enter into an interest rate lock
arrangement which would fix the interest rate on the full outstanding amount of
the HGP Credit Facility.
Prime has guaranteed approximately $12.2 million of obligations under the HGP
Credit Facility (the "Prime Guarantee"). In connection with the Prime
Guarantee, HGP has agreed to pay Prime a fee of $400,000 per annum until the
Prime Guarantee terminates. The Prime Guarantee will terminate if HGP raises
at least $50.0 million in new capital and uses at least $50.0 million of the
proceeds from such capital raised to reduce borrowings under the HGP Credit
Facility.
The Company has loans totaling $3.04 million as of June 30, 1998 secured by a
mortgage on the office building and related equipment which the Company
utilizes as a corporate office in Norton Shores, Michigan. This building was
previously owned by an affiliate of Horizon and was contributed to the
Company pursuant to the Contribution Agreement. The consent of the lender to
the previous owner of the property was required in connection with the
transfer of the property to the Company. The Company is currently seeking
such consent but as of August 14, 1998, such consent has not been obtained.
HGP also has a $4.0 million revolving credit facility which matured on August
1, 1998. The outstanding balance at June 30, 1998 was $4.0 million. Prime
has agreed to lend HGP sufficient funds, at a rate of 10% per annum, if HGP
is otherwise unable to repay in full its obligations under such facility.
HGP has also agreed that it will repay this replacement facility or other
related indebtedness on which Prime is contingently liable to the extent of
net proceeds from an equity offering or the sale of the Algodones, New Mexico
Outlet Center. The lender has verbally indicated that it is willing to
extend the term of the loan through August 15, 1998 and perhaps through
August 31, 1998 and is not currently seeking repayment of the facility. The
Company is currently negotiating to replace this facility with another
similar facility either from Prime or another lender.
The transfer of the general partnership interest in MG Patchogue Limited
Partnership pursuant to the Contribution Agreement also required the consent
of MG Patchogue Limited Partnership's mortgage lender. The Company is
currently seeking such consent but, as of August 14, 1998, such consent had
not been obtained.
MG Patchogue II Limited Partnership, of which the Company is 1% general
partner and 44% limited partner, is subject to indebtedness totaling
approximately $11.8 million which matures August 14, 1998. Nomura has issued
a commitment to lend the partnership $14 million under the HGP Credit
Facility on or before September 1, 1998. The consent of the limited partners
is required in order to complete such financing with Nomura. The Company is
currently seeking such consent, but as of August 14, 1998 such consent had
not been obtained. If completed, the Company will utilize the proceeds of
such financing to repay the existing indebtedness and make the $2.2 million
principal payment which is due September 1, 1998 under the HGP Credit
Facility.
The Company can give no assurances that it will be able to obtain the above
mentioned consents or that it will be able to finance or refinance its
indebtedness as it matures or that any such financing will be obtained will
be on favorable terms. Any such failure to obtain such consents or such
financings could have a material adverse effect upon the Company.
Prior to the Merger, Horizon entered into an agreement (the "PVH Agreement")
with Phillips Van Heusen, Inc. ("PVH") which deleted or delayed the effective
date of certain provisions of PVH leases for the benefit of Horizon in
exchange for certain payments. Prime is liable for future
<PAGE>
payments relating to the PVH Agreement. The Company is obligated to
reimburse Prime for two payments relating to the PVH Agreement totaling
$2,334,000, payable in the amounts of $1,167,000 on each of June 15, 1999 and
June 15, 2000.
In order to qualify as a REIT for federal income tax purposes, the Company is
required to pay dividends to its shareholders of at least 95% of its REIT
taxable income in addition to satisfying other requirements. Although the
Company intends to make distributions to its shareholders in accordance with
the requirements of the Internal Revenue Code of 1986, as amended, it also
intends to retain such amounts as it considers necessary from time to time
for the acquisition or development of new properties as suitable
opportunities arise, for the expansion and renovation of its existing
properties and for the retirement of debt. As of June 30, 1998, HGP is not
required to pay a dividend to its shareholders in order to be in compliance
with the regulations applicable to REITs.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The Company does not believe that the impact of the recognition of the year
2000 by its information and operating technology systems will have a material
adverse effect on the Company's financial condition and results of
operations. The majority of any necessary system changes will be
accomplished and any upgrades made in the normal course of business. The
Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's interface systems
are vulnerable to those third parties' failure to remedy their own Year 2000
issues. There can be no guarantee that the systems of other companies, on
which the Company's systems rely, will be timely converted and would not have
an adverse effect on the Company's systems.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities
The Company has loans totaling $3.04 million as of June 30, 1998 secured by a
mortgage on the office building and related equipment which the Company
utilizes as a corporate office in Norton Shores, Michigan. This building was
previously owned by an affiliate of Horizon and was contributed to the Company
pursuant to the Contribution Agreement. The consent of the lender to the
previous owner of the property was required in connection with the transfer of
the property to the Company. The Company is currently seeking such consent but
as of August 14, 1998, such consent has not been obtained.
HGP also has a $4.0 million revolving credit facility which matured August 1,
1998. The outstanding balance at June 30, 1998 was $4.0 million. Prime has
agreed to lend HGP sufficient funds, at a rate of 10% per annum, if HGP is
otherwise unable to repay in full its obligations
<PAGE>
under such facility. HGP has also agreed that it will repay this replacement
facility or other related indebtedness on which Prime is contingently liable
to the extent of net proceeds from an equity offering or the sale of the
Algodones, New Mexico outlet center. The lender has verbally indicated that
it is willing to extend the term of the loan through August 15, 1998 and
perhaps through August 31, 1998 and is not currently seeking repayment of the
facility. The Company is currently negotiating to replace this facility with
another similar facility.
The transfer of the general partnership interest in MG Patchogue Limited
Partnership pursuant to the Contribution Agreement also required the consent
of MG Patchogue Limited Partnership's mortgage lender. The Company is
currently seeking such consent but, as of August 14, 1998, such consent had
not been obtained.
MG Patchogue II Limited Partnership, of which the Company is 1% general partner
and 44% limited partner, is subject to indebtedness totaling approximately
$11.8 million which matures August 14, 1998. Nomura has issued a commitment to
lend the partnership $14 million under the HGP Credit Facility on or before
September 1, 1998. The consent of the limited partners is required in order to
complete such financing with Nomura. The Company is currently seeking such
consent, but as of August 14, 1998 such consent had not been obtained. If
completed, the Company will utilize the proceeds of such financing to repay the
existing indebtedness and make the $2.2 million principal payment which is due
September 1, 1998 under the HGP Credit Facility.
The Company can give no assurances that it will be able to obtain the above
mentioned consents or that it will be able to finance or refinance its
indebtedness as it matures or that any such financing will be obtained will
be on favorable terms. Any such failure to obtain such consents or such
financings could have a material adverse effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
The Company entered into an employment agreement with Richard Berman and
a Working Capital Agreement with Prime Retail, Inc. See Exhibits 10.9 and
10.10, respectively.
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit 3(i) Articles of Incorporation of Horizon Group Properties, Inc.
(the "Company")(1)
Exhibit 3(ii) By-laws of the Company(1)
Exhibit 4.1 Specimen certificate for common stock, $.01 par value per
share, of the Company(1)
Exhibit 10.1 Sky Merger Corp. Registration Statement on Form S-4 (excluding
exhibits thereto), as filed with the Securities and Exchange
Commission on May 12, 1998 (Registration No. 333-51285)(1)
Exhibit 10.2 Amended and Restated Agreement and Plan of Merger by and among
Prime Retail, Inc., Prime Retail, L.P., Horizon Group, Inc.,
Sky Merger Corp., the Company, Horizon Group Properties, L.P.
and Horizon/Glen Outlet Centers Limited Partnership dated as
of February 1, 1998 (Incorporated by reference to Exhibit
10(a) to Horizon Group, Inc.'s current report on Form 8-K
dated February 1, 1998 (SEC File No. 1-12424)(1)
Exhibit 10.3 Form of 1998 Stock Option Plan of the Company(1)
Exhibit 10.4 Employment Agreement between Gary J. Skoien and the Company(1)
Exhibit 10.5 Employment Agreement between David R. Tinkham and the Company(1)
Exhibit 10.6 Form of Indemnification Agreement for the Board of Directors
of the Company(1)
Exhibit 10.7 Form of Registration Rights Agreement(1)
Exhibit 10.8 Form of Contribution Agreement (incorporated by reference to
Appendix E to Exhibit 10.1)(1)
Exhibit 10.9 Employment Agreement between Richard Berman and the Company
Exhibit 10.10 Working Capital Agreement with Prime Retail, Inc.
Exhibit 10.11 Loan Agreement dated as of June 15, 1998 by and among
Third Horizon Group Limited Partnership, Nebraska
Crossing Factory Shops, L.L.C., and Indiana Factory Shops,
L.L.C. and Nomura Asset Capital Corporation(2)
Exhibit 10.12 Form of Deed of Trust, Assignment of Leases and Rents and
Security Agreement with Nomura Asset Capital Corporation(2)
Exhibit 10.13 Form of Mortgage, Assignment of Leases and Rents and Security
Agreement by and between Horizon Group Properties, Inc. and
Nomura Asset Capital Corporation(2)
Exhibit 10.14 Form of Assignment of Leases and Rents by and between Horizon
Group Properties, Inc. and Nomura Asset Capital Corporation(2)
Exhibit 10.15 Guaranty dated as of June 15, 1998 by the Company and Horizon
Group Properties, L.P. to and for the benefit of Nomura Asset
Capital Corporation(2)
Exhibit 10.16 Guaranty and Indemnity Agreement dated as of June 15, 1998 by
and among the Company, Horizon Group Properties, L.P., Prime
Retail, Inc., and Prime Retail, L.P.(2)
Exhibit 10.17 Assignment and Assumption Agreement, dated as of June 15, 1998
by and among Prime Retail, Inc., Prime Retail, L.P.,
Indianapolis Factory Shops Limited Partnership, and Indiana
Factory Shops, L.L.C.
Exhibit 10.18 Assignment and Assumption Agreement, dated as of June 15, 1998
by and among Prime Retail, Inc., Prime Retail, L.P., Nebraska
Factory Shops Limited Partnership, and Nebraska Factory Shops
L.L.C.
Exhibit 10.19 Form of Option Agreement
Exhibit 27 Financial Data Schedule
Exhibit 99 Excerpt of Press Release issued by the Company on June 15, 1998
announcing the completion of the debt financing with Nomura
Asset Capital Corporation(2)
</TABLE>
1 Incorporated by reference to the Company's Registration Statement on Form 10,
as amended, dated as of June 4, 1998 (Commission file no. 0-24123).
2 Incorporated by reference to the Company's Current Report on Form 8-K dated
as of June 30, 1998.
<PAGE>
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 30, 1998 to announce the
completion of a debt financing with Nomura Asset Capital
Corporation totaling $108,205,000. No financial statements were
included.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON GROUP PROPERTIES, INC.
Registrant
Date: August 14, 1998 By: /s/ Gary J. Skoien
--------------------------- ------------------------------------
Gary J. Skoien, President and
Chief Executive Officer
Date: August 14, 1998 By: /s/ David R. Tinkham
--------------------------- ------------------------------------
David R. Tinkham, Chief Accounting
and Chief Financial Officer
<PAGE>
HORIZON GROUP PROPERTIES, INC.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT PAGE
----------- -------- ----
<S> <C> <C>
Exhibit 3(i) Articles of Incorporation of Horizon Group Properties,
Inc. (the "Company")(1)
Exhibit 3(ii) By-laws of the Company(1)
Exhibit 4.1 Specimen certificate for common stock, $.01 par value
per share, of the Company(1)
Exhibit 10.1 Sky Merger Corp. Registration Statement on Form S-4
(excluding exhibits thereto), as filed with the
Securities and Exchange Commission on May 12, 1998
(Registration No. 333-51285)(1)
Exhibit 10.2 Amended and Restated Agreement and Plan of Merger by
and among Prime Retail, Inc., Prime Retail, L.P.,
Horizon Group, Inc., Sky Merger Corp., the Company,
Horizon Group Properties, L.P. and Horizon/Glen
Outlet Centers Limited Partnership dated as of
February 1, 1998 (Incorporated by reference to
Exhibit 10(a) to Horizon Group, Inc.'s current
report on Form 8-K dated February 1, 1998 (SEC File
No. 1-12424)(1)
Exhibit 10.3 Form of 1998 Stock Option Plan of the Company(1)
Exhibit 10.4 Employment Agreement between Gary J. Skoien and the
Company(1)
Exhibit 10.5 Employment Agreement between David R. Tinkham and the
Company(1)
Exhibit 10.6 Form of Indemnification Agreement for the Board of Directors of
the Company(1)
Exhibit 10.7 Form of Registration Rights Agreement(1)
Exhibit 10.8 Form of Contribution Agreement (incorporated by
reference to Appendix E to Exhibit 10.1)(1)
Exhibit 10.9 Employment Agreement between Richard Berman and the Company
Exhibit 10.10 Working Capital Agreement with Prime Retail, Inc.
Exhibit 10.11 Loan Agreement dated as of June 15, 1998 by and among
Third Horizon Group Limited Partnership, Nebraska
Crossing Factory Shops, L.L.C., and Indiana Factory
Shops, L.L.C. and Nomura Asset Capital Corporation(2)
Exhibit 10.12 Form of Deed of Trust, Assignment of Leases and Rents
and Security Agreement with Nomura Asset Capital
Corporation(2)
Exhibit 10.13 Form of Mortgage, Assignment of Leases and Rents and
Security Agreement by and between Horizon Group
Properties, Inc. and Nomura Asset Capital
Corporation(2)
Exhibit 10.14 Form of Assignment of Leases and Rents by and between
Horizon Group Properties, Inc. and Nomura Asset
Capital Corporation(2)
Exhibit 10.15 Guaranty dated as of June 15, 1998 by the Company and
Horizon Group Properties, L.P. to and for the benefit
of Nomura Asset Capital Corporation(2)
Exhibit 10.16 Guaranty and Indemnity Agreement dated as of June 15,
1998 by and among the Company, Horizon Group
Properties, L.P., Prime Retail, Inc., and Prime Retail,
L.P.(2)
Exhibit 10.17 Assignment and Assumption Agreement, dated as of June 15,
1998 by and among Prime Retail, Inc., Prime Retail,
L.P., Indianapolis Factory Shops Limited Partnership,
and Indiana Factory Shops L.L.C.
Exhibit 10.18 Assignment and Assumption Agreement, dated as of June 15,
1998 by and among Prime Retail, Inc., Prime Retail,
L.P., Nebraska Factory Shops Limited Partnership, and
Nebraska Factory Shops L.L.C.
Exhibit 10.19 Form of Option Agreement
Exhibit 27 Financial Data Schedule
Exhibit 99 Excerpt of Press Release issued by the Company on
June 15, 1998 announcing the completion of the debt
financing with Nomura Asset Capital Corporation(2)
</TABLE>
1 Incorporated by reference to the Company's Registration Statement on Form 10,
as amended, dated as of June 4, 1998 (Commission file no. 0-24123).
2 Incorporated by reference to the Company's Current Report on Form 8-K dated
as of June 30, 1998.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this ____ day of June, 1998 by and between Horizon Group Properties, Inc.,
a Maryland corporation ("Employer") and Richard A. Berman, an individual
domiciled in the State of Illinois ("Executive").
WITNESSETH
WHEREAS, Employer is engaged primarily in the ownership, development,
construction, acquisition, leasing, marketing and management of factory
outlet centers throughout the United States.
WHEREAS, Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to its
management and operation.
WHEREAS, Executive wishes to commit himself to serve Employer in the
position set forth herein on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by each of the
parties hereto, Employer and Executive hereby agree as follows:
1. DUTIES. During the Employment Term (as defined in Section 2),
Employer agrees to employ Executive, and Executive agrees to be employed by
Employer, as General Counsel of Employer on the terms and conditions provided
in this Agreement. Executive shall conduct, operate, manage and promote the
business and business concept of Employer, and exercise such other powers and
authority as are customarily inherent in a similar position in a comparable
publicly-held entity or as provided by the By-laws of Employer ("By-laws").
The Board of Directors of Employer (the "Board") may from time to time, in
its sole discretion, further define and clarify Executive's duties and
services hereunder or under the By-laws in a manner consistent with the
offices for which he has been retained hereunder and the scope of work set
forth herein. Executive agrees to devote his best efforts and substantially
all of his business time, attention, energy and skill to perform his duties
under this Agreement.
2. TERM. The initial term of this Agreement (the "Initial Term")
shall commence on the closing date of the merger of Prime Retail, Inc. and
Horizon Group, Inc. (the "Effective Date") and expire on the third
anniversary of the Effective Date (the "Scheduled Termination Date");
provided, however, this Agreement shall automatically extend for one year
terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the
other party, prior to 120 days before the end of the respective Renewal Term,
written notice of its intention to terminate this Agreement.
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<PAGE>
3. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. During the Employment Term Employer agrees to pay to
Executive an annual salary of no less than $145,000 ("Base Salary"), payable
in accordance with the general policies and procedures for payment of
salaries to any other executive personnel of Employer (but no less frequently
than monthly), subject to withholding for applicable federal, state and local
taxes. Executive's Base Salary shall be subject to periodic review by the
Compensation Committee of the Board (the "Committee") based upon periodic
review of Executive's performance conducted on at least an annual basis and
may be periodically increased or decreased as a result thereof.
(b) PERFORMANCE BONUS. In addition to Base Salary, Executive shall
have the right to receive, and Employer agrees to pay to Executive, a
performance bonus ("Performance Bonus") for each calendar year during the
Employment Term, in such amounts as the Committee, in its sole discretion,
may determine. Any amount of Performance Bonus required to be paid to
Executive for a calendar year during the Employment Term shall be paid by
Employer to Executive during the pay period of Employer following
finalization of the audit for such calendar year and final review and
approval of the bonus calculation by the Committee, and, in all events, on or
before April 15 of the year immediately following the end of the calendar
year for which such Performance Bonus is attributable.
(c) BENEFITS. During the Employment Term and subject to the
limitations and affirmative rights set forth in this Section 3(c), Executive
and his eligible dependents shall have the right to participate in any
retirement, pension, life insurance, health, dental, vision and other medical
insurance benefit plans or programs that have been or are hereafter adopted
or maintained by Employer (or in which Employer participates) according to
the terms of such plan or program with all of the benefits, rights and
privileges as are enjoyed by any other senior executive officer of Employer.
If the participation of Executive would adversely affect the qualification
of a plan intended to be qualified under the Internal Revenue Code of 1986,
as amended (the "Code"), Employer shall have the right to exclude Executive
from that plan in return for his participation in (x) a nonqualified deferred
compensation plan or (y) an arrangement providing substantially comparable
benefits under a plan that is either a qualified or nonqualified plan under
the Code at Employer's option.
(d) VACATION AND LEAVES OF ABSENCE. Executive shall be entitled to
four weeks of paid vacation leave during each 12 month period and paid
holidays in accordance with Employer's established policies. Executive may
accrue unused vacation time if not used in any calendar year or years,
however, the maximum cumulative amount of vacation time that Executive may
accrue and carry over to the next year is four weeks. In addition to the
foregoing, Executive may be granted leaves of absence with or without pay for
such other reasons as shall be mutually agreed upon by the Board and
Executive.
(e) EXPENSES. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policy and procedures,
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for all reasonable and necessary expenses incurred by Executive in the
performance of his duties hereunder.
4. TERMINATION AND TERMINATION BENEFITS.
(a) TERMINATION BY EMPLOYER.
(i) WITHOUT CAUSE. Employer may terminate this Agreement and
Executive's employment at any time for any reason or for no reason at all
upon 30 days' prior written notice to Executive. In connection with the
termination of Executive's services pursuant to this Section 4(a)(i),
Executive shall be entitled to receive (A) all accrued but unpaid amounts of
the Base Salary through the effective date of termination, payable in
accordance with the provisions of Section 3(a); (B) a pro rata portion of any
Performance Bonus otherwise payable to Executive for the calendar year in
which such termination occurs up to the effective date of such termination
and, to the extent not previously paid, any Performance Bonus for any
calendar years prior to the calendar year in which such termination occurs;
(C) a termination distribution in an amount equal to the amount of the Base
Salary then applicable (the "Normal Termination Distribution"), payable
within 30 days of the effective date of termination; and (D) any vested
benefits or amounts pursuant to Sections 3(c), 3(d), 3(e) and 3(f) through
the effective date of termination, payable in accordance with the provisions
of any such plan(s). In addition, Executive and his eligible dependents
shall be entitled to receive (x) the health insurance benefits specified in
Section 3(c) for a period of 12 months following the effective date of
termination (the "Company Continuation Period"), and following such time
period, Executive shall be entitled to all rights afforded to him under the
federal Consolidated Omnibus Budget Reconciliation Act ("COBRA") to purchase
continuation coverage of such health insurance benefits for himself and his
dependents for the maximum period permitted by law and (y) the life insurance
benefits specified in Section 3(f) for a period of 12 months following the
effective date of termination. With respect to clause (x) of the preceding
sentence, to the extent required by applicable law, Executive shall be deemed
to have elected to exercise his rights under COBRA as of the first day of the
Company Continuation Period. In the event that Executive is terminated
without Cause pursuant to this Section 4(a)(i) and within 12 months from the
effective date of such termination there is a Change in Control of Employer
(as defined below), then Executive shall be entitled to receive the benefits
set forth in Section 4(e) to the extent and in the amount that such benefits
exceed the amounts paid or received by Executive pursuant to this Section
4(a)(i). For purposes of calculating Executive's pro rata portion of any
Performance Bonus, if termination takes place prior to receipt by Executive
of any Performance Bonus, the Performance Bonus a pro rata portion of which
Executive shall be entitled to receive shall be deemed to be 50% of
Executive's then annual Base Salary.
(ii) FOR CAUSE. Employer may terminate this Agreement for Cause
immediately upon written notice to Executive. In connection with the
termination of Executive's services pursuant to this Section 4(a)(ii),
Executive shall (A) be entitled to receive all accrued but unpaid amounts of
the Base Salary through the effective date of termination, payable in
accordance with the provisions of Section 3(a); (B) forfeit his entitlement
to any bonuses or other payments otherwise payable to him in accordance with
Section 3(b); and (C) be entitled to the vested benefits or amounts pursuant
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<PAGE>
to Sections 3(c), 3(d), 3(e) and 3(f) through the effective date of
termination, payable as otherwise provided in such sections; provided,
however, that Executive and his eligible dependents shall be entitled to
receive (x) the health insurance benefits specified in Section 3(c)(1) for a
period of three months (the "Company Continuation Period") following the
effective date of termination, and following such time period, Executive
shall be entitled to all rights afforded to him under COBRA to purchase
continuation coverage of such health insurance benefits for himself and his
dependents for the maximum period permitted by law and (y) the life insurance
benefits specified in Section 3(f) for a period of three months following the
effective date of termination. With respect to clause (x) of the preceding
sentence, to the extent required by applicable law, Executive shall be deemed
to have elected to exercise his rights under COBRA as of the first day of the
Company Continuation Period.
For purposes of this Agreement, "Cause" shall mean a finding by the
Board (A) that Executive has materially harmed Employer through an act of
dishonesty or material conflict of interest that relates to the performance
of Executive's duties hereunder, (B) of Executive's conviction of a felony
involving moral turpitude, fraud or embezzlement, (C) that Executive failed
to perform in any material respect his duties under this Agreement (other
than a failure due to disability) after written notice specifying the failure
and a reasonable opportunity to cure (it being understood that if Executive's
failure to perform is not of a type requiring a single action to fully cure,
then Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion) or (D) of a material
breach by Executive of any of his obligations hereunder and the failure of
Executive to cure such breach within thirty (30) days after receipt by
Executive of a written notice of Employer specifying in reasonable detail the
nature of the breach.
(iii) DISABILITY. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four
consecutive months to perform the duties required by this Agreement, Employer
may terminate this Agreement upon 30 days' written notice to Executive. In
such event, Executive shall receive (A) all accrued but unpaid amounts of the
Base Salary through the effective date of termination, payable in accordance
with the provisions of Section 3(a); (B) a pro rata portion of any
Performance Bonus otherwise payable to Executive for the calendar year in
which such termination occurs up to the effective date of such termination
and, to the extent not previously paid, any Performance Bonus for any
calendar years prior to the calendar year in which such termination occurs;
(C) the Normal Termination Distribution (defined in Section 4(a)(i)), payable
within 30 days of the effective date of termination; and (D) any vested
benefits or amounts pursuant to Sections 3(c), 3(d), 3(e) and 3(f) hereof
through the effective date of termination, payable in accordance with the
provisions of any such plan(s). In addition, Executive and his eligible
dependents shall be entitled to receive (x) the health insurance benefits
specified in Section 3(c)(1) above for a period of 12 months (the "Company
Continuation Period") following the effective date of termination and
following such time period, Executive shall be entitled to all rights
afforded to him under COBRA to purchase continuation coverage of such health
insurance benefits for himself and his dependents for the maximum period
permitted by law and (y) the life insurance benefits specified in Section
3(f) for a period of 12 months following the date of termination. With
respect to clause (x) of the preceding sentence, to the extent required by
applicable law, Executive shall be deemed to have elected to exercise his
rights under COBRA as of the first day of the Company
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<PAGE>
Continuation Period. This Section 4(a)(iii) shall not limit the entitlement
of Executive, his estate or beneficiaries to any disability or other benefits
available to Executive under any disability insurance or other benefits plan
or policy that is maintained by Employer for Executive's benefit. For
purposes of calculating Executive's pro rata portion of any Performance
Bonus, if termination takes place prior to receipt by Executive of any
Performance Bonus, the Performance Bonus a pro rata portion of which
Executive shall be entitled to receive shall be deemed to be 50% of
Executive's then annual Base Salary.
(b) TERMINATION BY EXECUTIVE.
(i) WITH GOOD REASON. Executive may terminate this Agreement with
Good Reason upon written notice to Employer. In connection with the
termination of this Agreement pursuant to this Section 4(b)(i), Executive
shall be entitled to receive (A) all accrued but unpaid amounts of the Base
Salary through the effective date of termination, payable in accordance with
the provisions of Section 3(a); (B) a pro rata portion of any Performance
Bonus otherwise payable to Executive for the calendar year in which such
termination occurs up to the effective date of such termination and, to the
extent not previously paid, any Performance Bonus for any calendar years
prior to the calendar year in which such termination occurs; (C) any vested
benefits or amounts pursuant to sections 3(c), 3(d), 3(e) and 3(f) hereof
through the effective date of termination, payable as otherwise provided in
such sections. In addition, the Executive and his eligible dependents shall
be entitled to receive (x) the health insurance benefits specified in Section
3(c)(1) for a period of 12 months following the effective date of termination
(the "Company Continuation Period") and following such time period, the
Executive shall be entitled to all rights afforded to him under COBRA to
purchase continuation coverage of such health insurance benefits for himself
and his dependents for the maximum period permitted by law and (y) the life
insurance benefits specified in Section 3(f) for a period of 12 months
following the date of termination. With respect to clause (x) of the
preceding sentence, to the extent required by applicable law, Executive shall
be deemed to have elected to exercise his rights under COBRA as of the first
day of the Company Continuation Period. Further, in connection with the
termination of Executive's services pursuant to this Section 4(b)(i),
Executive shall be entitled to receive the Normal Termination Distribution
(defined in Section 4(a)(i)), payable within 30 days of the effective date of
termination. For purposes of calculating Executive's pro rata portion of any
Performance Bonus, if termination takes place prior to receipt by Executive
of any Performance Bonus, the Performance Bonus a pro rata portion of which
Executive shall be entitled to receive shall be deemed to be 50% of
Executive's then annual Base Salary.
(ii) WITHOUT GOOD REASON. Executive may terminate this Agreement at
any time for any reason or for no reason at all upon 60 days' written notice
to Employer, during which period Executive shall continue to perform his
duties under this Agreement if Employer so elects. In connection with the
termination of Executive's services pursuant to this Section 4(b)(ii),
Executive shall be entitled to receive (A) all accrued but unpaid amounts of
the Base Salary through the effective date of termination, paid in accordance
with the provisions of Section 3(a); and (B) the vested benefits and amounts
set forth in Sections 3(c), 3(d), 3(e) and 3(f) through the effective date of
termination, payable in accordance with the provisions of such sections. In
addition, the
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<PAGE>
Executive and his eligible dependents shall be entitled to receive (x) the
health insurance benefits specified in Section 3(c)(1) for a period of six
months (the "Company Continuation Period") following the effective date of
termination and following such time period, the Executive shall be entitled
to all rights afforded to him under COBRA to purchase continuation coverage
of such health insurance benefits for himself and his dependents for the
maximum period permitted by law and (y) the life insurance benefits specified
in Section 3(f) for a period of three months following the date of
termination. With respect to clause (x) of the preceding sentence, to the
extent required by applicable law, Executive shall be deemed to have elected
to exercise his rights under COBRA as of the first day of the Company
Continuation Period.
(iii) GOOD REASON. For purposes of this Agreement, "Good
Reason" shall mean (A) the material breach by Employer of any of its
obligations hereunder (a bona fide dispute regarding the Performance Bonus
shall not be a material breach by Employer) and the failure of Employer to
cure such breach within 60 days after receipt by Employer of a written notice
from Executive specifying in reasonable detail the nature of the breach,
unless such breach requires a longer period to cure; (B) Executive's title or
scope of responsibilities and duties are materially diminished, or the
Company fails to provide Executive with adequate office facilities and
support services to perform such responsibilities and duties, (C) the amounts
payable to Executive as provided in this Agreement are materially reduced, or
(D) the Company fails to continue in effect any cash or stock-based incentive
or bonus plan, retirement plan, welfare benefit plan, or other benefit plan,
program or arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant) of all such compensation,
retirement and benefit plans, programs and arrangements provided to Executive
is not materially less than their aggregate value as of the date of this
Agreement (or as of the Change of Control, if greater).
(c) DEATH. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In this event,
Executive's estate shall be entitled to receive all accrued but unpaid
amounts of the Executive's Base Salary through the date of Executive's death,
payable in accordance with the provisions of Section 3(a). In addition, the
Executive's eligible dependents shall be entitled to receive the health
insurance benefits specified in Section 3(c)(1) above for a period of 12
months (the "Company Continuation Period") following the effective date of
termination and following such time period, such eligible decedents shall be
entitled to all rights afforded to them under COBRA to purchase continuation
coverage of such health insurance benefits for the maximum period permitted
by law. With respect to the preceding sentence, to the extent required by
applicable law, the Executive's dependents shall be deemed to have elected to
exercise their rights under COBRA as of the first day of the Company
Continuation Period. This Section 4(c) shall not limit the entitlement of
Executive under any insurance or other benefits plan or policy that is
maintained by Employer for Executive's benefit.
(d) TERMINATION FOLLOWING A CHANGE OF CONTROL. If, within 24 months
following a Change of Control, the Company terminates this Agreement and
Executive's services other than for Cause or Executive terminates this
Agreement with Good Reason, in either case by giving 30 days' prior written
notice, Executive shall be entitled to receive the following benefits and
payments:
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<PAGE>
(i) all accrued but unpaid amounts of the Base Salary through the
effective date of termination, payable in accordance with the provisions of
Section 3(a);
(ii) a pro rata portion of any Performance Bonus otherwise payable to
Executive for the calendar year in which such termination occurs up to the
effective date of such termination and, to the extent not previously paid, any
Performance Bonus for any calendar year prior to the calendar year in which such
termination occurs;
(iii) a termination distribution in an amount equal to the sum of
(A) Executive's then Base Salary and (B) Executive's last annualized Performance
Bonus (if the termination takes place prior to receipt by Executive of any
Performance Bonus, the Performance Bonus shall be deemed to be 50% of
Executive's then annual Base Salary), payable within 30 days of the effective
date of termination; and
(iv) any vested benefits or amounts pursuant to Sections 3(c), 3(d),
3(e) and 3(f) through the effective date of termination, payable in accordance
with the provisions of any such plan(s). In addition, the Executive and his
eligible dependents shall be entitled to receive (x) the health insurance
benefits specified in Section 3(c)(1) for a period of 24 months following the
effective date of termination (the "Company Continuation Period"), and following
such time period, the Executive shall be entitled to all rights afforded to him
under COBRA to purchase continuation coverage of such health insurance benefits
for himself and his dependents for the maximum period permitted by law and (y)
the life insurance benefits specified in Section 3(f) for a period of 24 months
following the effective date of termination. With respect to clause (x) of the
preceding sentence, to the extent required by applicable law, Executive shall be
deemed to have elected to exercise his rights under COBRA as of the first day of
the Company Continuation Period.
(v) Executive shall be fully vested in all amounts accrued or
accumulated on behalf of Executive under any nonqualified retirement plan
established or maintained by the Company, and the Company will promptly pay or
distribute all such amounts to Executive in accordance with the terms of such
plan as in effect on the date of this Agreement (or as of Executive's employment
termination, if more favorable to Executive). If Executive is not fully vested
in his accounts or benefits under the Company's qualified retirement plan at his
employment termination pursuant to this Section, the Company will make a cash
payment to Executive, within 30 days of Executive's employment termination,
equal to the amount of such account or benefit that is forfeited.
(vi) All stock awards or grants under the Horizon Group Properties,
Inc. 1998 Long-Term Stock Incentive Plan shall be fully vested and exercisable
as of Executive's employment termination.
For purposes of this Agreement, a "Change of Control" shall be deemed to
have occurred if (1) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee
or other fiduciary holding securities under an employee benefit plan of
Employer, a corporation owned directly or indirectly by the stockholders of
Employer
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<PAGE>
in substantially the same proportions as their ownership of stock of
Employer, Executive or Michael W. Reschke, or any of their respective
affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of Employer representing 50%
or more of the total voting power represented by Employer's then outstanding
securities that vote generally in the election of directors (referred to
herein as "Voting Securities"); (2) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board
and any new directors whose election by the Board or nomination for election
by Employer's stockholders was approved by a vote of at least two-thirds 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, cease for any reason to constitute a majority of the Board; (3) the
stockholders of Employer approve a merger or consolidation of Employer with
any other corporation, other than a merger or consolidation that would result
in the Voting Securities of Employer outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 50% of the
total voting power represented by the Voting Securities of Employer or such
surviving entity outstanding immediately after such merger or consolidation;
(4) the stockholders of Employer approve a plan of complete liquidation of
Employer or an agreement for the sale or disposition by Employer of (in one
transaction or a series of transactions) all or substantially all of
Employer's assets.
5. COVENANTS OF EXECUTIVE.
(a) NO CONFLICTS. Executive represents and warrants that he is not
personally subject to any agreement, order or decree that restricts his
acceptance of this Agreement and performance of his duties with Employer
hereunder.
(b) NON-COMPETITION. In return for the performance of the duties
described in Section 1, during the Employment Term and for a period of two
years thereafter in the event of the termination of this Agreement pursuant
to the provisions of Section 4(b)(ii) or one year thereafter in the event of
termination of this Agreement pursuant to the provisions of Sections 4(a)(i),
4(a)(ii), 4(a)(iii) or 4(b)(i), (the "Restrictive Period"), Executive shall
not, directly or indirectly, in any capacity whatsoever, either on his own
behalf or on behalf of any other person or entity with whom he may be
employed or associated, own any interest in, participate or engage in the
day-to-day supervision, management, development, marketing or operation of
any factory outlet centers or such other business as Employer may be engaged
in as of the date of the applicable Section 4 termination event (the
"Business") which is competitive with any of Employer's centers. For
purposes hereof, a center will be deemed competitive with one of Employer's
centers if such center is located within five miles of a center owned,
operated or managed by Employer or within five miles of a center which
Employer is developing or with respect to which Employer has signed a letter
of intent or term sheet or binding contract for the acquisition, development
or management thereof dated on or prior to the date of such termination.
Furthermore, for a period of two years after any applicable Section 4
termination event, Executive shall not, directly or indirectly, solicit, attempt
to hire or hire any employee of Employer. Notwithstanding the foregoing, nothing
herein shall prohibit Executive from owning 5%
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or less of any securities of a competitor engaged in the same Business if
such securities are listed on a nationally recognized securities exchange or
traded over-the-counter on the National Association of Securities Dealers
Automated Quotation System or otherwise.
(c) NONDISCLOSURE. During the Restrictive Period and in the
Restrictive Geographic Area, Executive shall not disclose or use, except in
the pursuit of the Business for or on behalf of the Group, any Trade Secret
(as hereinafter defined) of the Group, whether such Trade Secret is in
Executive's memory or embodied in writing or other physical form. For
purposes of this Section 5(c), "Trade Secret" means any information that
derives independent economic value, actual or potential, with respect to
Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances, including, but not
limited to, trade secrets, customer lists, sales records and other
proprietary commercial information. Said term, however, shall not include
general "know-how" information acquired by Executive during the course of his
service which could have been obtained by him from public sources without the
expenditure of significant time, effort and expense that does not relate to
Employer.
(d) RETURN OF DOCUMENTS. Upon termination of his services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and
other tangible property of Employer within Executive's possession or under
his control.
(e) EQUITABLE RELIEF. In the event of any breach by Executive of any
of the covenants contained in this Section 5, it is specifically understood
and agreed that Company shall be entitled, in addition to any other remedy
that it may have, to equitable relief by way of injunction, an accounting or
otherwise and to notify any employer or prospective employer of Executive as
to the terms and conditions hereof.
(f) ACKNOWLEDGMENT. Executive acknowledges that he will be directly
and materially involved as a senior executive in all important policy and
operational decisions of Company. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Company and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of
Section 5 are fair and reasonable, are minimally necessary to protect
Employer, its other stockholders and the public from the unfair competition
of Executive who, as a result of his performance of services on behalf of
Employer, will have had unlimited access to the most confidential and
important information of Employer, its business and future plans. Executive
further acknowledges that no unreasonable harm or injury will be suffered by
him from enforcement of the covenants contained herein and that he will be
able to earn a reasonable livelihood following termination of his services
notwithstanding enforcement of the covenants contained herein.
(g) INDEMNIFICATION. Subject to the provisions of this Agreement,
Executive shall indemnify Employer for any and all consequential damages,
costs and expenses (including legal
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fees) resulting from any of his acts or omissions that constitute bad faith,
willful or intentional conduct that cause harm to Employer's business or
reputation. Executive also shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from his acts of omission
constituting reckless disregard of his duties to Employer following notice
thereof by either Prime or the Operating Partnership after either becomes
aware of such conduct and Executive's failure to so cure within 30 days.
6. GROSS UP PAYMENTS. Anything in this Agreement to the contrary
notwithstanding, in the event that any payment by or on behalf of Employer to
or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
section) (the "Payments") is determined to be an "excess parachute payment"
pursuant to Code Section 280G or any successor or substitute provision of the
Code, with the effect that Executive is liable for the payment of the excise
tax described in Code Section 4999 or any successor or substitute provision
of the Code, or any interest or penalties are incurred by Executive with
respect to such Payments (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then Executive shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that after payment by Executive of all
taxes imposed upon the Gross-Up Payment, including, without limitation,
federal, state, local or other income taxes, FICA taxes, and additional
Excise Tax (and any interest and penalties imposed with respect to such
taxes), Executive retains a portion of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(a) DETERMINATION OF GROSS-UP. Subject to the provisions of Section
6(b), all determinations required to be made under this Section, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the public accounting firm that serves as
Employer's auditors (the "Accounting Firm"), which shall provide detailed
supporting calculations both to Employer and Executive within 15 business
days of the receipt of notice from Employer or Executive that there have been
Payments, or such earlier time as is requested by Employer. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, Executive shall
designate another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Employer. Any Gross-Up Payment, as
determined pursuant to this Section, shall be paid by Employer to Executive
within five days after the receipt by Employer and Executive of the
Accounting firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it shall furnish Executive with a written
opinion that failure to report the Excise Tax on Executive's applicable
federal income tax return would not result in the imposition of a negligence
or similar penalty. Any determination by the Accounting Firm shall be binding
upon Employer and Executive, except as provided in Section 6(b).
(b) IRS CLAIMS. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that
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the Internal Revenue Service or other agency will claim that a greater Excise
Tax is due, and thus a greater amount of Gross-Up Payment should have been
made by Employer than that determined pursuant to paragraph (a) above (an
"Underpayment"). In the event that Executive is required to make a payment
of any such Excise Tax, the Accounting Firm shall determine the amount of the
additional Gross-Up Payment due to Executive based on the Underpayment, and
such additional Gross-Up Payment shall be promptly paid by Employer to or for
the benefit of Executive. Executive shall notify Employer in writing of any
claim by the Internal Revenue Service or other agency that, if successful,
would require the payment by Employer of the Gross-Up Payment or an
Underpayment.
7. PRIOR AGREEMENT. This Agreement supersedes and is in lieu of any
and all other employment arrangements between Executive and Employer, and any
and all such employment or service agreements and arrangements are hereby
terminated and deemed of no further force or effect.
8. ASSIGNMENT. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. SUCCESSORS. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees and
Employer's successors and assigns. If Executive should die while any amounts
are still payable to Executive hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate. Employer will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of
Employer, as the case may be, by agreement in form and substance reasonably
satisfactory to Executive, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that Employer would be required to perform it if no such succession or
assignment had taken place. Any failure of Employer to obtain such agreement
prior to the effectiveness of any such succession or assignment shall be a
material breach of this Agreement.
10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered in person or
sent by any national overnight delivery service or by certified mail to the
following addresses (or to any other address that any party may designate by
notice to the other parties hereto):
(a) if to Executive, to:
Richard A. Berman
Horizon Group Properties, Inc.
5000 Hakes Drive
Norton Shores, Michigan 49441
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(b) if to Employer, to:
Board of Directors
Horizon Group Properties, Inc.
5000 Hakes Drive
Norton Shores, Michigan 49441
11. AMENDMENT. This Agreement may not be changed, modified or amended
except in writing signed by all of the parties hereto.
12. WAIVER OF BREACH. The waiver by any of the parties hereto of the
breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by any part.
13. SEVERABILITY. Employer and Executive each expressly agree and
contract that it is not the intention of any of the parties hereto to violate
any public policy, statutory or common law, and that if any sentence,
paragraph, clause or combination of the same of this agreement is in
violation of the law of any state where applicable, such sentence, paragraph,
clause or combination of the same shall be void in the jurisdictions where it
is unlawful, and the remainder of such paragraph and this Agreement shall
remain binding on the panics to make the covenants of this Agreement binding
only to the extent that it may be lawfully done under existing applicable
laws. In the event that any part of any covenant of this Agreement is
determined by a court of competent jurisdiction to be overly broad thereby
making the covenant unenforceable, the parties hereto agree, and it is their
desire that such court shall substitute a judicially enforceable limitation
in its place, and that as so modified the covenant shall be binding upon the
parties as if originally set forth herein.
14. OPPORTUNITY TO EMPLOY COUNSEL. Executive acknowledges receipt of a
copy of this Agreement prior to his execution of this Agreement with Employer
and also acknowledges that he has had ample time and opportunity to employ
counsel of his choice to provide advice concerning the terms and conditions
of this Agreement.
15. LEGAL FEES. If Employer materially breaches any of its obligations
to Executive under this Agreement and Executive brings any action, claim,
demand, suit or proceeding against Employer to enforce his rights under this
Agreement, Employer agrees that it will pay all reasonable legal fees and
related legal costs (collectively "Legal Fees") incurred by Executive no
later than 30 days following a judgment by a court of competent jurisdiction
that Employer materially breached its obligations to Executive under this
Agreement; provided, however, that if it is determined by a final judgment or
other final adjudication by a court of competent jurisdiction that Employer
did not materially breach any of its obligations to Executive under this
Agreement, Executive will pay to Company within 30 days from such final
judgment or adjudication the aggregate amount of legal fees and expenses
incurred by Company with respect to such action and the amount of any Legal
Fees that were previously paid to Executive by Employer pursuant to this
Section 15. Employer acknowledges the indemnification obligations of Prime
to Executive and the other officers of Prime as set forth in its By-laws, as
they may be amended from time to time.
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16. GOVERNING LAW. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of
Maryland, exclusive of the conflict of laws provisions of the State of
Maryland.
17. NOTICE OF FUTURE EMPLOYMENT. Executive agrees that during the 24
consecutive months immediately following the termination of this Agreement,
Executive will within 14 days of each instance of new employment notify
Employer in writing of the identity of his new employer and the job title
associated with such employment.
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18. BINDING EFFECT. This Agreement shall be binding and legally
enforceable against the parties hereto and their respective heirs, personal
representatives, successors and assigns, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
EMPLOYER:
EXECUTIVE: HORIZON GROUP PROPERTIES, INC.
/s/ Richard A. Berman
- ----------------------------- By: /s/ Gary J. Skoien
Richard A. Berman ------------------------------------
Title: President
---------------------------------
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Exhibit 10.10--Form of Working Capital Agreement by and between the Company
and Prime Retail, Inc.
WORKING CAPITAL AGREEMENT
This Working Capital Agreement (the "Agreement") is entered into this
15th day of June, 1998 by and between Prime Retail, Inc., a Maryland
corporation ("Prime"), Prime Retail, L.P., a Delaware limited partnership
("Prime L.P."), Horizon Group Properties, Inc., a Maryland corporation
("HGP") and Horizon Group Properties, L.P., a Delaware limited partnership
("HGP LP").
WHEREAS, the transactions contemplated by that certain Amended and
Restated Agreement of Merger dated as of February 1, 1998 (the "Merger
Agreement") by and among Prime Retail, Inc., a Maryland corporation, Prime
Retail, L.P., a Delaware limited partnership, Horizon Group, Inc. a Michigan
corporation ("Horizon"), Sky Merger Corp., a Maryland corporation ("Sky
Merger"), HGP, HGP LP and Horizon/Glen Outlet Centers Limited Partnership, a
Delaware limited partnership ("Horizon Partnership"), will be consummated
concurrently herewith;
WHEREAS, the parties hereto wish to set forth their understanding with
respect to various working capital and other matters in connection with the
consummation of the transactions contemplated by the Merger Agreement and the
Contribution Agreement (as defined in the Merger Agreement);
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
do hereby agree as follows:
1. WORKING CAPITAL FACILITY. HGP LP has assumed from Horizon
Partnership the obligations (the "Obligations") outstanding under or
otherwise existing pursuant to or as set forth in that certain Business Loan
Agreement dated as of August 1, 1996 (such agreement, as amended prior to the
date hereof, and the documents executed in connection therewith, the "Loan
Agreement") by and between Huntington National Bank and Horizon Partnership.
The Loan Agreement matures on August 1, 1998. HGP LP agrees to use its best
efforts to refinance the Obligations as soon as possible following the
Closing Date (as defined in the Merger Agreement); provided, however, any
such refinancing shall be on terms and conditions reasonably acceptable to
HGP LP. In the event that such Obligations are not refinanced prior to the
maturity date of the Loan Agreement, Prime and/or Prime LP agrees to enter
into a two year term loan with HGP LP pursuant to which Prime and/or Prime LP
will make available to HGP LP up to $4,000,000 in aggregate principal amount
of indebtedness, upon terms and conditions substantially the same as those
set forth in the Loan Agreement; provided that the interest rate shall be 10%
per annum and the loan will be repayable prior to the maturity date thereof
from the proceeds of (i) a sale of the outlet center in Algondones, New
Mexico to the extent it is not used to repay another obligation on which
Prime is contingently liable or (ii) a completion of an equity offering by
HGP or HGP LP.
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2. (a) WORKING CAPITAL ADJUSTMENT. The parties hereto understand and
agree that a definitive amount of Working Capital (as hereinafter defined) is
to be transferred to HGP, HGP LP and the other Horizon Entities (as
hereinafter defined) in connection with the transfer of the properties listed
on APPENDIX A hereto (the "Contributed Properties") and pursuant to the terms
of the Merger Agreement and the Contribution Agreement. Such working capital
is in consideration of, among other things, the assumption by the Horizon
Entities, of the known and unknown liabilities of the Contributed Properties
in connection with the Formation Transactions (as hereinafter defined). The
parties hereto agree that the amount of Working Capital to be transferred, in
the aggregate, to the Horizon Entities is $545,000 and that such amount shall
be calculated and adjusted as set forth herein. On the date hereof, Prime
shall transfer cash to HGP and fund the reserves set forth on the Settlement
Sheet attached hereto. The cash funding occurring on the date hereof is
seventy-five percent (75%) of the amount of cash anticipated to be required
to be made to HGP to comply with the working capital adjustment set forth
herein.
(b) PREPARATION OF FINAL STATEMENTS. As promptly as practicable
after the date hereof and in any event not later than forty-five (45) days
hereafter, HGP shall prepare and deliver to Prime an unaudited statement of
assets and liabilities of each of the Contributed Properties as of the date
hereof (the "Final Statements"). The delivery of the Final Statements shall
not create any presumption as to the accuracy or completion thereof. The
Final Statements shall be prepared in a manner consistent with Section 2(e)
hereof and in accordance with GAAP. Prime and its representatives and
auditors shall be afforded the opportunity to review all underlying financial
records and work papers pertaining to the preparation of the Final Statements
and HGP shall permit Prime and its representatives full access to the books
and records in HGP's possession relating to the Contributed Properties to
permit Prime to review the Final Statements. The aggregate Current Assets
and Current Liabilities of the Contributed Properties as shown on the Final
Statements prepared by HGP shall be final and binding for purposes of this
Agreement unless Prime shall give written notice to HGP of disagreement with
the values thereon involving more than $25,000 in the aggregate within thirty
(30) business days following its receipt of the Final Statements, specifying
in reasonable detail the nature and extent of such disagreement. If Prime
objects to the Final Statements and the parties are unable to resolve such
dispute within fifteen (15) days after HGP's receipt of such notice, the
dispute shall be submitted for determination to Ernst & Young. Such public
accounting firm shall review and decide the issues that are the subject of
such dispute as specified in such notice as soon as possible after such
submission and in any event within fifteen (15) days. The decision of such
accounting firm shall be set forth in writing and delivered to Prime and HGP.
The decision of such accounting firm shall be final and binding Prime and
HGP. The fees and costs of such public accounting firm shall be borne
equally by Prime and HGP.
(c) PAYMENTS. If the aggregate amount of Working Capital of the
Contributed Properties, as reflected on the Final Statements, shall exceed
$545,000, then the excess shall be paid in cash by HGP to Prime. If the
aggregate amount of Working Capital of the Contributed Properties, as
reflected on the Final Statements, shall be less than $545,000, then the
shortfall shall be paid in cash by Prime to HGP.
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(d) FEES AND EXPENSES. Prime and HGP shall each pay their own
costs incurred in preparing and/or reviewing the Final Statements, including
the fees and expenses of their auditors.
(e) DEFINITION OF CURRENT ASSETS AND CURRENT LIABILITIES.
APPENDIX B sets forth a hypothetical balance sheet of a Contributed Property
setting forth, for illustrative purposes only, the line items and categories
of assets and liabilities which shall be deemed to constitute "Current
Assets" and "Current Liabilities." For purposes of this Agreement, Current
Assets and Current Liabilities shall refer to items and categories of assets
and liabilities so identified on said APPENDIX B, together with other items
of a similar nature which may be reflected on the Final Statements and shall
include without limitation, as a type of current assets, the escrows being
funded by Prime on the date hereof and shall include as a type of current
liability, real estate taxes and accrued capital items such as tenant
improvement allowances and leasing commission for transactions entered into
prior to the date hereof. For the purposes hereof, (i) "Working Capital"
shall mean Current Assets Less Current Liabilities and (ii) "HGP Entities"
shall mean, collectively, HGP, HGP LP and the respective corporations,
limited liability companies and limited partnerships owned directly or
indirectly by HGP after giving effect to the consummation of all of the
transactions contemplated by the Merger Agreement (the "Formation
Transactions"). The parties agree that the matters set forth in Schedule 2.8
of the disclosure letter attached to the Merger Agreement and prepared by
Horizon Group, Inc. (other than that disclosed in numbered paragraph ten
thereof) shall be the obligations of Prime.
The parties agree that the benefits and obligations set forth in
the in the Guarantee and Indemnity Agreement among the parties hereto dated
the date hereof and the underlying indebtedness owed to third parties
referenced therein shall not be included as Current Assets or Current
Liabilities.
3. CONTROL. The parties understand and agree that to the extent of
any inconsistencies between this Agreement and the Merger Agreement or this
Agreement and the Contribution Agreement, the terms and provisions of this
Agreement shall control.
4. MODIFICATION OR AMENDMENT. The parties hereto may modify or amend
this Agreement by written agreement executed and delivered by authorized
officers of the respective parties.
5. COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart
being deemed to be an original instrument, and which counterparts shall
together constitute the same agreement.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS
THEREOF.
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7. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express
or other reputable next-day courier service or (iii) on the third business
day following the date of mailing if delivered by registered or certified
mail, return receipt requested, postage prepaid. All notices hereunder shall
be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice.
If to HGP or HGP LP:
Horizon Group Properties, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Attention: Gary J. Skoien
Fax: No.: (616) 798-5100
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Wayne D. Boberg, Esq.
Fax No.: (312) 558-5700
If to Prime or Prime LP:
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
Attention: Michael W. Reschke
Robert P. Mulreaney
C. Alan Schroeder
Fax No.: (410) 234-1703
With a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Steven J. Gavin
Fax No.: (312) 558-5700
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<PAGE>
8. ASSIGNMENT. Nothing contained in this Agreement or the agreements
referred to herein (except as otherwise expressly set forth therein) is
intended to confer on any person or entity other than the parties hereto and
their respective successors and permitted assigns any benefit, rights or
remedies under or by reason of this Agreement and such other agreements.
9. JOINT AND SEVERAL LIABILITY. The obligations of HGP and HGP LP on
the one hand and Prime and Prime LP on the other hand shall be joint and
several.
10. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in
Maryland this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself (without making such submission exclusive) to the
personal jurisdiction of any federal court located in Maryland in the event
any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement and (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for
leave from any such court.
[signature page follows]
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IN WITNESS WHEREOF the parties hereto have executed this instrument as
of the date and year first above written.
HORIZON GROUP PROPERTIES, INC.
By: /s/ Gary J. Skoien
-------------------------------
Its: President
------------------------------
HORIZON GROUP PROPERTIES, L.P.
By: Horizon Group Properties, Inc.
Its: General Partner
By: /s/ Gary J. Skoien
-------------------------------
Its: President
------------------------------
PRIME RETAIL, INC.
By: /s/ William H. Carpenter, Jr.
-------------------------------
Its: President
------------------------------
PRIME RETAIL, L.P.
By: Prime Retail, Inc.
Its: General Partner
By: /s/ William H. Carpenter, Jr.
-------------------------------
Its: President
------------------------------
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INDIANAPOLIS ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of June 15, 1998
(this "Agreement"), by and among Prime Retail, Inc., a Maryland corporation
and successor in interest to the entities merged into it pursuant to the
hereinafter defined Horizon/Subsidiary Merger and the Prime/Horizon Merger
("Prime"), Prime Retail, L.P., a Delaware limited partnership ("Prime
Partnership"), Indianapolis Factory Shops Limited Partnership, an Illinois
limited partnership ("Indianapolis Partnership"), and Indiana Factory Shops
L.L.C., a Delaware limited liability company ("Indianapolis LLC").
RECITALS
A. THE MERGER TRANSACTIONS. A formerly existing entity named Prime
Retail, Inc. which was combined to form Prime ("Old Prime"), Prime Partnership,
Horizon Group, Inc., a Michigan corporation ("Horizon"), Horizon/Glen Outlet
Centers limited partnership, a Delaware limited partnership ("Horizon
Partnership"), Sky Merger, a Maryland corporation ("Sky Merger"), Horizon Group
Properties, Inc., a Maryland corporation and Horizon Group Properties, L.P., a
Delaware limited partnership ("HGP LP") have entered into an Amended and
Restated Agreement and Plan of Merger, dated as of February 1, 1998 (the "Merger
Agreement"), providing for, among other things, (i) the merger of Horizon
Partnership with and into Prime Partnership, with Prime Partnership as the
surviving partnership (the "Partnership Merger"), (ii) the reincorporation of
Horizon as a Maryland corporation through the merger of Horizon with and into
Sky Merger, with Sky Merger as the surviving corporation (the
"Horizon/Subsidiary Merger"), and (iii) the merger of Old Prime with and into
Sky Merger, with Sky Merger as the surviving corporation which subsequently
changed its name to Prime Retail, Inc. (the "Prime/Horizon Merger") (the
Partnership Merger, the Horizon/Subsidiary Merger and the Prime/Horizon Merger
being, collectively, the "Mergers").
B. THE ASSIGNMENT AND ASSUMPTION. Immediately after the consummation of
the Mergers, Indianapolis Partnership expects to sell and assign the Purchased
Assets and the Purchased Business (each as hereinafter defined) to Indianapolis
LLC and to cause Indianapolis LLC to assume the Assumed Liabilities (as
hereinafter defined) (the "Assignment and Assumption").
C. PURPOSE. The purpose of the Assignment and Assumption is to
facilitate the transactions contemplated by the Merger Agreement by providing
for the transfer to Indianapolis LLC of certain properties, businesses and
operations. This Agreement sets forth or provides for certain agreements among
the parties hereto in connection with such transfer.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings (capitalized terms used but not defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement):
"Action" shall mean any suit, claim, action, arbitration, inquiry,
proceeding or investigation by or before any court, arbitral tribunal,
administrative agency or commission or other governmental, regulatory or
administrative agency or commission.
"Assumed Liabilities" shall mean all Liabilities of Indianapolis
Partnership, other than the Retained Liabilities, arising from the ownership or
operation of the Purchased Assets and shall include, without limitation, (i) all
obligations to indemnify present and former officers and directors of
Indianapolis Partnership under certificates or articles of incorporation,
by-laws, partnership agreements, employment agreements, indemnification
agreements or otherwise, for any matter occurring after the Time of Assignment
and Assumption, (ii) all Liabilities relating to the loans described on the
Schedule of Debt, and (iii) all leases (whether as lessor, lessee, sublessee,
sublessor or otherwise) and related contracts, and service contracts, relating
to the Purchased Assets.
"Indemnified Loss" shall mean, with respect to any claim by an Indemnified
Party for indemnification pursuant to Article III hereof, any and all losses,
Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable costs of investigation and attorneys' fees and expenses in
connection therewith) suffered by such Indemnified Party with respect to such
claim.
"Liabilities" shall mean, with respect to any Person, except as otherwise
provided herein, any and all liabilities and obligations of such Person, whether
absolute, accrued, contingent, reflected on a balance sheet (or in the notes
thereto) or otherwise, including, without limitation, those arising under any
law, rule, regulation, Action, order or consent decree of any governmental
entity or any judgment of any court of any kind or any award of any arbitrator
of any kind, and those arising under any contract, commitment or undertaking.
"Prime Partnership Group" shall mean, collectively, Prime, Prime
Partnership, and their Subsidiaries, including Indianapolis Partnership, after
giving effect to the Assignment and Assumption.
"Purchased Assets" shall mean, collectively, (i) all business, assets,
including cash, cash equivalents and other capital items, properties, interests
in property and rights of Indianapolis Partnership primarily related to the
ownership and operation of the retail outlet center listed on Schedule 1.1(a)
hereto; and (ii) the Purchased Proprietary Name Rights (as hereinafter defined).
2
<PAGE>
"Purchased Business" shall mean all business and operations of Indianapolis
Partnership relating to the Purchased Assets.
"Retained Liabilities" shall mean all Liabilities of the Prime Partnership
Group other than the Assumed Liabilities and shall include, without limitation,
all obligations to indemnify present and former officers and directors of Prime
Partnership Group under certificates or articles of incorporation or
organization, by-laws, partnership agreements, employment agreements,
indemnification agreements or otherwise arising for any matter occurring at or
prior to the Time of Assignment and Assumption.
"Schedule of Debt" shall mean the Indianapolis Partnership Schedule of Debt
attached as Schedule 1.1(b) hereto.
"Time of Assignment and Assumption" shall mean the time of consummation of
the Assignment and Assumption.
ARTICLE II
ASSIGNMENT AND ASSUMPTION
2.1 ASSIGNMENT AND ASSUMPTION OF ASSETS.
(a) Subject to Section 2.1(b) and to the satisfaction or waiver of
the conditions set forth in Article IV of this Agreement, immediately subsequent
to the Mergers, Indianapolis Partnership shall transfer, assign and convey to
Indianapolis LLC all of its respective right, title and interest in and to the
Purchased Assets and the Purchased Business in accordance with the documents
executed pursuant to Section 2.3 hereof.
(b) At the Time of Assignment and Assumption, Indianapolis LLC shall
issue to Indianapolis Partnership, in partial consideration for the Assignment
and Assumption, one hundred percent (100%) of the membership interests in
Indianapolis LLC.
2.2 ASSUMPTION OF LIABILITIES.
(a) Subject to Section 2.2(b) and effective as of the Time of
Assignment and Assumption, Indianapolis LLC, in partial consideration for the
Assignment and Assumption, hereby unconditionally assumes the Assumed
Liabilities.
(b) Notwithstanding Section 2.2(a), Indianapolis Partnership shall
retain, and Indianapolis LLC shall not assume and shall have no liability with
respect to, the Retained Liabilities.
3
<PAGE>
2.3 TRANSFER AND ASSUMPTION DOCUMENTATION. In furtherance of the
Assignment and Assumption, grant, conveyance, assignment, transfer and delivery
of the Purchased Assets and the assumption of the Assumed Liabilities set forth
in this Article III, at the Time of Assignment and Assumption or as promptly as
practicable thereafter (i) Indianapolis Partnership shall execute and deliver
such deeds, bills of sale, certificates of title, assignments of leases and
contracts and other instruments of sale, grant, conveyance, assignment, transfer
and delivery necessary to evidence such sale, grant, conveyance, assignment,
transfer and delivery and (ii) Indianapolis LLC shall execute and deliver such
instruments of assumption as and to the extent necessary to evidence such
assumption.
2.4 NONASSIGNABLE CONTRACTS. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
lease, license agreement, contract, agreement, sale order, purchase order, open
bid or other commitment or asset if an assignment or attempted assignment of the
same without the consent of the other party or parties thereto would constitute
a breach thereof or in any way impair the rights after the Assignment and
Assumption of Prime Partnership Group or Indianapolis LLC thereunder. Prime
Partnership Group shall, prior to the Time of Assignment and Assumption, use
reasonable best efforts (it being understood that such efforts shall not include
any requirement of Prime Partnership Group to expend money or offer or grant any
financial accommodation) as requested by Indianapolis LLC, and Indianapolis LLC
shall cooperate in all reasonable respects with Prime Partnership Group, to
obtain all consents and waivers and to resolve all impracticalities of
assignments or transfers necessary to convey to Indianapolis LLC the Purchased
Assets. If any such consent is not obtained or if an attempted assignment would
be ineffective or would impair either group's rights under any such lease,
license agreement, contract, agreement, sale order, purchase order, open bid or
other commitment or asset so that Indianapolis LLC would not receive all such
rights, then Prime Partnership Group shall use reasonable best efforts (it being
understood that such efforts shall not include any requirement of Prime
Partnership Group to expend money or offer or grant any financial accommodation)
to provide or cause to be provided to Indianapolis LLC, to the extent permitted
by law, the benefits of any such lease, license agreement, contract, agreement,
sale order, purchase order, open bid or other commitment or asset.
2.5 USE OF NAMES.
(a) Prior to the Assignment and Assumption, Prime Partnership Group
and Indianapolis LLC shall determine which of the names, trademarks, trade names
and other proprietary rights related to the Purchased Assets which Indianapolis
LLC shall have the sole and exclusive ownership of and right to use, as between
Indianapolis LLC, on the one hand, and Prime Partnership Group, on the other
hand, following the Time of Assignment and Assumption (the "Purchased
Proprietary Name Rights"). Following the Time of Assignment and Assumption,
Prime Partnership Group shall have the sole and exclusive ownership of and
right to use, as between Indianapolis LLC on the one hand, and the Prime
Partnership Group on the other hand, all names, trade marks, trade names,
service marks and other proprietary rights owned or used by Prime Partnership
Group immediately prior to the Time of Assignment and Assumption other than the
Purchased Proprietary Name Rights (the "Retained Proprietary Name Rights").
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(b) Following the Assignment and Assumption (i) Indianapolis LLC
shall take all action necessary to cease using, and change as promptly as
practicable (including by amending any charter documents), any corporate or
other names which are the same as or confusingly similar to any of the Retained
Proprietary Name Rights, and (ii) Prime shall, and shall cause its Subsidiaries
and other affiliates to, take all action necessary to cease using, and change as
promptly as practicable (including by amending any charter documents), any
corporate or other names which are the same as or confusingly similar to any of
the Purchased Proprietary Name Rights. From and after the Closing Date,
Indianapolis LLC shall cease holding itself out as having an affiliation with
Prime Partnership Group.
ARTICLE III
CERTAIN COVENANTS
3.1 INDEMNITY AS BETWEEN INDIANAPOLIS LLC AND PRIME WITH RESPECT TO
ASSUMED AND RETAINED LIABILITIES.
(a) Effective upon the Assignment and Assumption, Indianapolis LLC
agrees to indemnify and hold Prime, its affiliates, successors and assigns and
the officers, directors, employees, agents, advisors and representatives of any
of them, harmless from and against any and all Indemnified Losses arising out of
or related to the Assumed Liabilities.
(b) Effective upon the Assignment and Assumption, Prime agrees to
indemnify and hold Indianapolis LLC, its affiliates, successors and assigns and
the officers, directors, employees, agents, advisors and representatives of any
of them, harmless from and against any and all Indemnified Losses arising out of
or related to the Retained Liabilities.
3.2 PROCEDURE FOR THIRD PARTY INDEMNIFICATION.
(a) If a party entitled to be indemnified hereunder (an "Indemnified
Party") shall receive notice of the assertion by a person who is not a party to
this Agreement of any claim or of the commencement by any such person of any
Action (a "Third Party Claim") with respect to which a party hereto is obligated
to provide indemnification (an "Indemnifying Party"), such Indemnified Party
shall give such Indemnifying Party prompt notice thereof after becoming aware of
such Third Party Claim; provided that the failure of any Indemnified Party to
give notice as provided in this Section 3.2 shall not relieve the related
Indemnifying Party of its obligations under this Article III, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice. Such notice shall describe the Third Party Claim in reasonable
detail, and, if practicable, shall indicate the estimated amount of the
Indemnified Loss that has been or may be sustained by such Indemnified Party.
(b) An Indemnifying Party may elect to defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, any Third
Party Claim. If an Indemnifying
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Party elects to defend a Third Party Claim, it shall, within 30 days of notice
of such Third Party Claim (or sooner, if the nature of such Third Party Claim
so requires), notify the related Indemnified Party of its intent to do so and
acknowledge its liability therefor, and such Indemnified Party shall cooperate
in the defense of such Third Party Claim. After notice from an Indemnifying
Party to an Indemnified Party of its election to assume the defense of a Third
Party Claim, such Indemnifying Party shall not be liable to such Indemnified
Party under this Article III for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the defense thereof as
long as the Indemnifying Party pursues such defense diligently and in good
faith; provided that if, under applicable standards of professional conduct (as
advised by counsel to the Indemnifying Party), a conflict on any significant
issue between such Indemnified Party and such Indemnifying Party or between any
two or more Indemnified Parties may exist in respect of such claim, then the
Indemnifying Party shall pay the reasonable fees and expenses of one such
additional counsel as may be required to be retained in light of such conflict.
If an Indemnifying Party elects not to defend against a Third Party Claim, or
fails to notify an Indemnified Party of its election as provided in this
Section 3.2 within the time period specified, or fails to pursue the defense of
a Third Party Claim diligently and in good faith, such Indemnified Party may
defend, compromise and settle such Third Party Claim. Notwithstanding the
foregoing, (i) neither an Indemnifying Party nor an Indemnified Party, as the
party controlling the defense of a Third Party Claim, may compromise or settle
any claim or consent to the entry of any judgment for other than monetary
damages without the prior written consent of the other; provided that (upon
reasonable notice thereof) consent to compromise or settlement or the entry of
a judgment shall not be unreasonably withheld or delayed, and (ii) no
Indemnifying Party shall consent to the entry of any judgment or enter into any
compromise or settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party and
all other Indemnified Parties, as the case may be, subject to such Third Party
Claim of a full and final release from all liability in respect of such claim
or Action.
3.3 ADJUSTMENT FOR INSURANCE AND TAXES. The amount which either
Indianapolis LLC or Prime Partnership Group is required to pay to, for or on
behalf of the other pursuant to Sections 3.1 and 3.2, shall be adjusted
(including, without limitation, retroactively) (i) by any insurance proceeds
actually recovered by or on behalf of Indianapolis LLC, Prime Partnership Group
or the Indemnified Party, as the case may be, in reduction of the related
Indemnified Loss or Third Party Claim and (ii) reduced by the net difference
between (A) the present value of the amount of any tax savings resulting from
any tax benefit to Indianapolis LLC, Prime Partnership Group or the Indemnified
Party, as the case may be, as a result of the Indemnified Loss or Third Party
Claim, and (B) the present value of the amount of any tax due with respect to
the receipt of the indemnification payment itself. Amounts required to be paid,
as so adjusted, are hereafter sometimes called an "Indemnified Payment." If
Indianapolis LLC, Prime Partnership Group or the Indemnified Party, as the case
may be, shall have received or shall have had paid on its behalf an Indemnified
Payment in respect of an Indemnified Loss or Third Party Claim and shall
subsequently receive insurance proceeds in respect of such Indemnified Loss or
Third Party Claim, or realize any net tax benefit (as computed in clause (ii)
above) as a result of such Indemnified Loss or Third Party Claim, then
Indianapolis LLC, Prime Partnership Group or the Indemnified Party, as the case
may be, shall pay to Indianapolis LLC,
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Prime Partnership or the Indemnified Party, as the case may be, the amount of
such insurance proceeds or net tax benefit, or if less, the amount of the
Indemnified Payment.
3.4 RISK OF PURCHASED ASSETS. Each party understands and agrees that,
except as otherwise specifically provided herein, no party nor any of its
Affiliates is, in this Agreement or any other agreement or document,
representing or warranting to such party in any way as to the assets, business
or Liabilities transferred, retained or assumed as contemplated hereby or as to
any consents or approvals required in connection with the consummation of the
transactions contemplated by this Agreement, it being agreed and understood that
each party shall take or keep all of its assets "AS IS", "WHERE IS" and that it
shall bear the economic and legal risk that conveyance of such assets shall
prove to be insufficient or that the title to any assets shall be other than
good and marketable and free from encumbrances. ALL IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
ARE HEREBY EXPRESSLY DISCLAIMED.
3.5 TRANSFER OF EMPLOYEES. Effective as of the Partnership Merger
Effective Time, Indianapolis Partnership and Indianapolis LLC shall cooperate to
transfer to the employ of Indianapolis LLC, each person employed by Indianapolis
Partnership, (such employees and other persons who become employees of the
Indianapolis LLC after the Partnership Merger Effective Time in accordance with
this Section 3.5 shall be hereinafter referred to as the "Transferred
Employees"). With respect to the Transferred Employees, Indianapolis LLC shall
assume the liabilities and obligations with respect to, and continue to be
responsible for all liabilities and obligations whatsoever in connection with,
claims made by or on behalf of such persons in respect of salary, wages,
benefits, severance pay, salary continuation, COBRA continuation and similar
obligations relating to the continued employment, or the termination or alleged
termination of such persons' employment with the Indianapolis LLC by reason of
consummation of the transactions contemplated in this Agreement or the Merger
Agreement or otherwise and Indianapolis Partnership shall have no such
liability.
3.6 INSURANCE. The parties agree to cooperate with each other with
respect to the processing of any claims which are covered by any insurance
policy in existence prior to the Partnership Merger Effective Time. Without
limiting the generality of the foregoing, Indianapolis Partnership or Prime
Partnership Group shall have the right to process and pursue any claim for
insurance (including negotiating with the company issuing the insurance policy)
in connection with any liability of Prime Partnership Group, regardless of
whether the insurance policy under which such claim is made is transferred to
Indianapolis LLC pursuant to Section 2.1(a), and Indianapolis LLC shall have the
right to process and pursue any claim for insurance (including negotiating with
the company issuing the insurance policy) in connection with any liability of
Indianapolis LLC or any of its Affiliates, regardless of whether the insurance
policy under which such claim is made is retained by Indianapolis Partnership
pursuant to Section 2.1(b).
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3.7 TRANSFER AND GAINS TAXES. Indianapolis LLC shall pay or cause to be
paid the Transfer and Gains Taxes imposed in connection with or as a result of
the Assignment and Assumption.
ARTICLE IV
CONDITIONS
The obligations of the parties to consummate the Assignment and Assumption
shall be subject to the closing of the Mergers in accordance with Merger
Agreement.
ARTICLE V
ACCESS TO INFORMATION AND SERVICES
5.1 PROVISION OF CORPORATE RECORDS. At the Time of Assignment and
Assumption, Prime Partnership Group shall deliver, or cause to be delivered, to
Indianapolis LLC all corporate books and records which relate primarily to the
Purchased Assets, Purchased Business or the Assumed Liabilities, including,
without limitation, all active agreements, active litigation files and
government filings. From and after the Time of Assignment and Assumption, all
such books, records and copies shall be the property of Indianapolis LLC.
5.2 ACCESS TO INFORMATION. From and after the Time of Assignment and
Assumption (i) Prime Partnership Group shall afford to Indianapolis LLC and its
authorized accountants, counsel and other designated representatives reasonable
access (including, without limitation, using reasonable efforts to give access
to persons or firms possessing Information (as defined below)) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Prime Partnership Group's possession relating to
Indianapolis LLC, the Purchased Assets, the Purchased Businesses or the Assumed
Liabilities, insofar as such access is reasonably required by Indianapolis LLC,
and (ii) Indianapolis LLC shall afford to Prime Partnership Group and its
authorized accountants, counsel and other designated representatives reasonable
access (including, without limitation, using reasonable efforts to give access
to persons or firms possessing Information) and duplicating rights during normal
business hours to all Information within Indianapolis LLC's possession relating
to the Purchased Assets, the Purchased Businesses or the Assumed Liabilities,
insofar as such access is reasonably required by Prime Partnership Group.
Information may be requested under this Section 5.2 for, without limitation,
audit, accounting, claims, litigation and tax purposes, as well as for purposes
of fulfilling disclosure and reporting obligations.
5.3 PRODUCTION OF WITNESSES. From and after the Time of Assignment and
Assumption, each party shall use reasonable efforts to make available to the
other party, upon written request, its officers, directors, employees and agents
as witnesses to the extent that any such person may
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reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved.
5.4 RETENTION OF RECORDS. Except as otherwise required by law or agreed
to in writing, Prime shall cause Prime Partnership Group to, and Indianapolis
LLC shall, retain for a period of at least five years following the Time of
Assignment and Assumption, all significant or mutual Information relating to the
Purchased Assets, Assumed Liabilities, Retained Liabilities or Purchased
Business. Notwithstanding the foregoing, either Prime Partnership Group or
Indianapolis LLC may destroy or otherwise dispose of any of such Information at
any time, provided that, prior to such destruction or disposal (a) Prime
Partnership Group or Indianapolis LLC, as the case may be, shall cause the
Person seeking to destroy or otherwise dispose of any Information to provide no
less than 90 days' or more than 120 days' prior written notice to the parties
hereto, specifying the Information proposed to be destroyed or disposed of and
(b) if any party shall request in writing prior to the scheduled date for such
destruction or disposal that any of the Information proposed to be destroyed or
disposed of be delivered to the other party, such Person shall promptly arrange
for the delivery of such of the Information as was requested, at the expense of
the requesting party.
5.5 CONFIDENTIALITY. Each party shall hold, and shall cause its officers,
directors, employees, agents, consultants and advisors to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law or in order to comply with the requirements of a
binding stock exchange listing application or agreement or applicable stock
exchange rules, all non-public Information concerning the other party furnished
it by such other party or its representatives or otherwise in its possession
(except to the extent that such Information can be shown to have been (a)
available to such party on a nonconfidential basis prior to its disclosure by
the other party, (b) in the public domain through no fault of such party or (c)
later lawfully acquired from other sources by the party to which it was
furnished), and each party shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who have a need to know such Information and who
agree to be bound by the provisions of this Section 5.5.
ARTICLE VI
MISCELLANEOUS AND GENERAL
6.1 MODIFICATION OR AMENDMENT. The parties hereto may modify or amend
this Agreement by written agreement executed and delivered by authorized
officers of the respective parties.
6.2 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement.
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6.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to its
conflicts of law principles.
6.4 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express or
other reputable next-day courier service or (iii) on the third business day
following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
If to Indianapolis LLC:
Horizon Group Properties, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Attention: Gary J. Skoien
Fax: No.: (616) 798-5100
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Wayne D. Boberg, Esq.
Fax No.: (312) 558-5700
If to Prime, Prime Partnership, or Indianapolis Partnership
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
Attention: Michael W. Reschke
C. Alan Schroeder
Fax No.: (410) 234-1703
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With a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg
Steven J. Gavin
Fax No.: (312) 558-5700
6.5 CAPTIONS. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
6.6 ASSIGNMENT. Nothing contained in this Agreement or the agreements
referred to herein (except as otherwise expressly set forth therein) is intended
to confer on any person or entity other than the parties hereto and their
respective successors and permitted assigns any benefit, rights or remedies
under or by reason of this Agreement and such other agreements, except that the
provisions of Section 3.1 and 3.2 hereof shall inure to the benefit of the
Persons referred to therein.
6.7 FURTHER ASSURANCES. Subject to the terms and conditions hereof and,
as applicable, of the Merger Agreement, the parties will, and will cause their
respective affiliates to, do such additional things as are necessary or proper
to carry out and effectuate the intent of this Agreement or any part hereof or
the transactions contemplated hereby. The parties agree that if, after the Time
of Assignment and Assumption, either party holds assets or Liabilities which by
the terms hereof or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, the other party, such party shall promptly
assign and transfer or cause to be assigned and transferred such assets or
Liabilities to the applicable party.
6.8 ATTORNEY-CLIENT PRIVILEGE; WORK PRODUCT. Anything herein or in the
Merger Agreement notwithstanding, the transactions contemplated hereby and by
the Merger Agreement shall not be deemed to transfer to or vest in Indianapolis
LLC any right to waive, nor shall they be deemed to waive, any attorney-client
privilege between Prime Partnership Group and its legal counsel, with respect to
legal advice concerning the business or operations of Prime Partnership Group
including, without limitation, the Retained Liabilities or the transactions
contemplated hereby and by the Merger Agreement, in either case, concerning
privileged communications (or work product related thereto) at any time prior to
the Closing Date (as defined in the Merger Agreement). Prime shall assign to
Indianapolis LLC, and cause each member of Prime Partnership Group to assign to
Indianapolis LLC, its rights (if any) to any attorney-client privilege with
respect to legal advice concerning the business or operations of Indianapolis
LLC including, without limitation, the Assumed Liabilities or the transactions
contemplated hereby concerning privileged communications (or work product
related thereto) at any time prior the Closing Date. Prime Partnership Group
and their successors and assigns shall not be entitled to waive or have access,
nor shall they attempt to waive or seek access, to any privileged communications
(or work product related thereto) between
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Indianapolis LLC and its legal counsel with respect to legal advice concerning
the business or operations of the Indianapolis LLC, including the Assumed
Liabilities or the transactions contemplated hereby.
6.9 NO THIRD-PARTY BENEFICIARIES. Except as provided in Section 3.1 and
3.2 hereof, this Agreement, is not intended to confer upon any person other than
the parties hereto and their Affiliates any rights or remedies hereunder.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
PRIME RETAIL, INC.
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
PRIME RETAIL, L.P.
By: Prime Retail, Inc., its general partner
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
INDIANAPOLIS FACTORY SHOPS LIMITED PARTNERSHIP
By: Prime Retail, L.P., its general partner
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
INDIANA FACTORY SHOPS, L.L.C.
By: Indianapolis Factory Shops
Limited Patnership, its sole member
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
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SCHEDULE 1.1(a)
TO
INDIANAPOLIS ASSIGNMENT AND ASSUMPTION AGREEMENT
The Purchased Assets include, without limitation, the assets and business
of the retail outlet center located in Indianapolis, Indiana and known as
Indianapolis Factory Shops.
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SCHEDULE 1.1(b)
TO
INDIANAPOLIS ASSIGNMENT AND ASSUMPTION AGREEMENT
None.
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NEBRASKA ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of June 15, 1998
(this "Agreement"), by and among Prime Retail, Inc., a Maryland corporation and
successor in interest to the entities merged into it pursuant to the hereinafter
defined Horizon/Subsidiary Merger and the Prime/Horizon Merger ("Prime"), Prime
Retail, L.P., a Delaware limited partnership ("Prime Partnership"), Nebraska
Factory Shops Limited Partnership, an Illinois limited partnership ("Nebraska
Partnership"), and Nebraska Factory Shops L.L.C., a Delaware limited liability
company ("Nebraska LLC").
RECITALS
A. THE MERGER TRANSACTIONS. A formerly existing entity named Prime
Retail, Inc. which was combined to form Prime ("Old Prime"), Prime Partnership,
Horizon Group, Inc., a Michigan corporation ("Horizon"), Horizon/Glen Outlet
Centers limited partnership, a Delaware limited partnership ("Horizon
Partnership"), Sky Merger, a Maryland corporation ("Sky Merger"), Horizon Group
Properties, Inc., a Maryland corporation and Horizon Group Properties, L.P., a
Delaware limited partnership have entered into an Amended and Restated Agreement
and Plan of Merger, dated as of February 1, 1998 (the "Merger Agreement"),
providing for, among other things, (i) the merger of Horizon Partnership with
and into Prime Partnership, with Prime Partnership as the surviving partnership
(the "Partnership Merger"), (ii) the reincorporation of Horizon as a Maryland
corporation through the merger of Horizon with and into Sky Merger, with Sky
Merger as the surviving corporation (the "Horizon/Subsidiary Merger"), and
(iii) the merger of Old Prime with and into Sky Merger, with Sky Merger as the
surviving corporation which subsequently changed its name to Prime Retail, Inc.
(the "Prime/Horizon Merger") (the Partnership Merger, the Horizon/Subsidiary
Merger and the Prime/Horizon Merger being, collectively, the "Mergers").
B. THE ASSIGNMENT AND ASSUMPTION. Immediately after the consummation of
the Mergers, Nebraska Partnership shall sell and assign the Purchased Assets and
the Purchased Business (each as hereinafter defined) to Nebraska LLC and
Nebraska LLC shall assume the Assumed Liabilities (as hereinafter defined) (the
"Assignment and Assumption").
C. PURPOSE. The purpose of the Assignment and Assumption is to
facilitate the transactions contemplated by the Merger Agreement by providing
for the transfer to Nebraska LLC of certain properties, businesses and
operations. This Agreement sets forth or provides for certain agreements among
the parties hereto in connection with such transfer.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings (capitalized terms used but not defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement):
"Action" shall mean any suit, claim, action, arbitration, inquiry,
proceeding or investigation by or before any court, arbitral tribunal,
administrative agency or commission or other governmental, regulatory or
administrative agency or commission.
"Assumed Liabilities" shall mean all Liabilities of Nebraska Partnership,
other than the Retained Liabilities, arising from the ownership or operation of
the Purchased Assets and shall include, without limitation, (i) all obligations
to indemnify present and former officers and directors of Nebraska Partnership
under certificates or articles of incorporation, by-laws, partnership
agreements, employment agreements, indemnification agreements or otherwise, for
any matter occurring after the Time of Assignment and Assumption, (ii) all
Liabilities relating to the loans described on the Schedule of Debt, and (iii)
all leases (whether as lessor, lessee, sublessee, sublessor or otherwise) and
related contracts, and service contracts, relating to the Purchased Assets.
"Indemnified Loss" shall mean, with respect to any claim by an Indemnified
Party for indemnification pursuant to Article III hereof, any and all losses,
Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable costs of investigation and attorneys' fees and expenses in
connection therewith) suffered by such Indemnified Party with respect to such
claim.
"Liabilities" shall mean, with respect to any Person, except as otherwise
provided herein, any and all liabilities and obligations of such Person, whether
absolute, accrued, contingent, reflected on a balance sheet (or in the notes
thereto) or otherwise, including, without limitation, those arising under any
law, rule, regulation, Action, order or consent decree of any governmental
entity or any judgment of any court of any kind or any award of any arbitrator
of any kind, and those arising under any contract, commitment or undertaking.
"Prime Partnership Group" shall mean, collectively, Prime, Prime
Partnership, and their Subsidiaries, including Nebraska Partnership, after
giving effect to the Assignment and Assumption.
"Purchased Assets" shall mean, collectively, (i) all business, assets,
including cash, cash equivalents and other capital items, properties, interests
in property and rights of Nebraska Partnership primarily related to the
ownership and operation of the retail outlet center listed on Schedule 1.1(a)
hereto; and (ii) the Purchased Proprietary Name Rights (as hereinafter defined).
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"Purchased Business" shall mean all business and operations of Nebraska
Partnership relating to the Purchased Assets.
"Retained Liabilities" shall mean all Liabilities of the Prime Partnership
Group other than the Assumed Liabilities and shall include, without limitation,
all obligations to indemnify present and former officers and directors of Prime
Partnership Group under certificates or articles of incorporation or
organization, by-laws, partnership agreements, employment agreements,
indemnification agreements or otherwise arising for any matter occurring at or
prior to the Time of Assignment and Assumption.
"Schedule of Debt" shall mean the Nebraska Partnership Schedule of Debt
attached as Schedule 1.1(b) hereto.
"Time of Assignment and Assumption" shall mean the time of consummation of
the Assignment and Assumption.
ARTICLE II
ASSIGNMENT AND ASSUMPTION
2.1 ASSIGNMENT AND ASSUMPTION OF ASSETS.
(a) Subject to Section 2.1(b) and to the satisfaction or waiver of
the conditions set forth in Article IV of this Agreement, immediately subsequent
to the Mergers, Nebraska Partnership shall transfer, assign and convey to
Nebraska LLC all of its respective right, title and interest in and to the
Purchased Assets and the Purchased Business in accordance with the documents
executed pursuant to Section 2.3 hereof.
(b) At the Time of Assignment and Assumption, Nebraska LLC shall
issue to Nebraska Partnership, in partial consideration for the Assignment and
Assumption, one hundred percent (100%) of the membership interests in Nebraska
LLC.
2.2 ASSUMPTION OF LIABILITIES.
(a) Subject to Section 2.2(b) and effective as of the Time of
Assignment and Assumption, Nebraska LLC, in partial consideration for the
Assignment and Assumption, hereby unconditionally assumes the Assumed
Liabilities.
(b) Notwithstanding Section 2.2(a), Nebraska Partnership shall
retain, and Nebraska LLC shall not assume and shall have no liability with
respect to, the Retained Liabilities.
2.3 TRANSFER AND ASSUMPTION DOCUMENTATION. In furtherance of the
Assignment and Assumption, grant, conveyance, assignment, transfer and delivery
of the Purchased Assets and the
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assumption of the Assumed Liabilities set forth in this Article II, at the Time
of Assignment and Assumption or as promptly as practicable thereafter (i)
Nebraska Partnership shall execute and deliver such deeds, bills of sale,
certificates of title, assignments of leases and contracts and other
instruments of sale, grant, conveyance, assignment, transfer and delivery
necessary to evidence such sale, grant, conveyance, assignment, transfer and
delivery and (ii) Nebraska LLC shall execute and deliver such instruments of
assumption as and to the extent necessary to evidence such assumption.
2.4 NONASSIGNABLE CONTRACTS. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
lease, license agreement, contract, agreement, sale order, purchase order, open
bid or other commitment or asset if an assignment or attempted assignment of the
same without the consent of the other party or parties thereto would constitute
a breach thereof or in any way impair the rights after the Assignment and
Assumption of Prime Partnership Group or Nebraska LLC thereunder. Prime
Partnership Group shall, prior to the Time of Assignment and Assumption, use
reasonable best efforts (it being understood that such efforts shall not include
any requirement of Prime Partnership Group to expend money or offer or grant any
financial accommodation) as requested by Nebraska LLC, and Nebraska LLC shall
cooperate in all reasonable respects with Prime Partnership Group, to obtain all
consents and waivers and to resolve all impracticalities of assignments or
transfers necessary to convey to Nebraska LLC the Purchased Assets. If any such
consent is not obtained or if an attempted assignment would be ineffective or
would impair either group's rights under any such lease, license agreement,
contract, agreement, sale order, purchase order, open bid or other commitment or
asset so that Nebraska LLC would not receive all such rights, then Prime
Partnership Group shall use reasonable best efforts (it being understood that
such efforts shall not include any requirement of Prime Partnership Group to
expend money or offer or grant any financial accommodation) to provide or cause
to be provided to Nebraska LLC, to the extent permitted by law, the benefits of
any such lease, license agreement, contract, agreement, sale order, purchase
order, open bid or other commitment or asset.
2.5 USE OF NAMES.
(a) Prior to the Assignment and Assumption, Prime Partnership Group
and Nebraska LLC shall determine which of the names, trademarks, trade names and
other proprietary rights related to the Purchased Assets which Nebraska LLC
shall have the sole and exclusive ownership of and right to use, as between
Nebraska LLC, on the one hand, and Prime Partnership Group, on the other hand,
following the Time of Assignment and Assumption (the "Purchased Proprietary Name
Rights"). Following the Time of Assignment and Assumption, Prime Partnership
Group shall have the sole and exclusive ownership of and right to use, as
between Nebraska LLC on the one hand, and the Prime Partnership Group on the
other hand, all names, trade marks, trade names, service marks and other
proprietary rights owned or used by Prime Partnership Group immediately prior to
the Time of Assignment and Assumption other than the Purchased Proprietary Name
Rights (the "Retained Proprietary Name Rights").
(b) Following the Assignment and Assumption (i) Nebraska LLC shall
take all action necessary to cease using, and change as promptly as practicable
(including by amending any
4
<PAGE>
charter documents), any corporate or other names which are the same as or
confusingly similar to any of the Retained Proprietary Name Rights, and (ii)
Prime shall, and shall cause its Subsidiaries and other affiliates to, take all
action necessary to cease using, and change as promptly as practicable
(including by amending any charter documents), any corporate or other names
which are the same as or confusingly similar to any of the Purchased
Proprietary Name Rights. From and after the Closing Date, Nebraska LLC shall
cease holding itself out as having an affiliation with Prime Partnership Group.
ARTICLE III
CERTAIN COVENANTS
3.1 INDEMNITY AS BETWEEN NEBRASKA LLC AND PRIME WITH RESPECT TO ASSUMED
AND RETAINED LIABILITIES.
(a) Effective upon the Assignment and Assumption, Nebraska LLC agrees
to indemnify and hold Prime, its affiliates, successors and assigns and the
officers, directors, employees, agents, advisors and representatives of any of
them, harmless from and against any and all Indemnified Losses arising out of or
related to the Assumed Liabilities.
(b) Effective upon the Assignment and Assumption, Prime agrees to
indemnify and hold Nebraska LLC, its affiliates, successors and assigns and the
officers, directors, employees, agents, advisors and representatives of any of
them, harmless from and against any and all Indemnified Losses arising out of or
related to the Retained Liabilities.
3.2 PROCEDURE FOR THIRD PARTY INDEMNIFICATION.
(a) If a party entitled to be indemnified hereunder (an "Indemnified
Party") shall receive notice of the assertion by a person who is not a party to
this Agreement of any claim or of the commencement by any such person of any
Action (a "Third Party Claim") with respect to which a party hereto is obligated
to provide indemnification (an "Indemnifying Party"), such Indemnified Party
shall give such Indemnifying Party prompt notice thereof after becoming aware of
such Third Party Claim; provided that the failure of any Indemnified Party to
give notice as provided in this Section 3.2 shall not relieve the related
Indemnifying Party of its obligations under this Article III, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice. Such notice shall describe the Third Party Claim in reasonable
detail, and, if practicable, shall indicate the estimated amount of the
Indemnified Loss that has been or may be sustained by such Indemnified Party.
(b) An Indemnifying Party may elect to defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, any Third
Party Claim. If an Indemnifying Party elects to defend a Third Party Claim, it
shall, within 30 days of notice of such Third Party Claim (or sooner, if the
nature of such Third Party Claim so requires), notify the related Indemnified
5
<PAGE>
Party of its intent to do so and acknowledge its liability therefor, and such
Indemnified Party shall cooperate in the defense of such Third Party Claim.
After notice from an Indemnifying Party to an Indemnified Party of its election
to assume the defense of a Third Party Claim, such Indemnifying Party shall not
be liable to such Indemnified Party under this Article III for any legal or
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof as long as the Indemnifying Party pursues such defense
diligently and in good faith; provided that if, under applicable standards of
professional conduct (as advised by counsel to the Indemnifying Party), a
conflict on any significant issue between such Indemnified Party and such
Indemnifying Party or between any two or more Indemnified Parties may exist in
respect of such claim, then the Indemnifying Party shall pay the reasonable fees
and expenses of one such additional counsel as may be required to be retained in
light of such conflict. If an Indemnifying Party elects not to defend against a
Third Party Claim, or fails to notify an Indemnified Party of its election as
provided in this Section 3.2 within the time period specified, or fails to
pursue the defense of a Third Party Claim diligently and in good faith, such
Indemnified Party may defend, compromise and settle such Third Party Claim.
Notwithstanding the foregoing, (i) neither an Indemnifying Party nor an
Indemnified Party, as the party controlling the defense of a Third Party Claim,
may compromise or settle any claim or consent to the entry of any judgment for
other than monetary damages without the prior written consent of the other;
provided that (upon reasonable notice thereof) consent to compromise or
settlement or the entry of a judgment shall not be unreasonably withheld or
delayed, and (ii) no Indemnifying Party shall consent to the entry of any
judgment or enter into any compromise or settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party and all other Indemnified Parties, as the case may be, subject
to such Third Party Claim of a full and final release from all liability in
respect of such claim or Action.
3.3 ADJUSTMENT FOR INSURANCE AND TAXES. The amount which either Nebraska
LLC or Prime Partnership Group is required to pay to, for or on behalf of the
other pursuant to Sections 3.1 and 3.2, shall be adjusted (including, without
limitation, retroactively) (i) by any insurance proceeds actually recovered by
or on behalf of Nebraska LLC, Prime Partnership Group or the Indemnified Party,
as the case may be, in reduction of the related Indemnified Loss or Third Party
Claim and (ii) reduced by the net difference between (A) the present value of
the amount of any tax savings resulting from any tax benefit to Nebraska LLC,
Prime Partnership Group or the Indemnified Party, as the case may be, as a
result of the Indemnified Loss or Third Party Claim, and (B) the present value
of the amount of any tax due with respect to the receipt of the indemnification
payment itself. Amounts required to be paid, as so adjusted, are hereafter
sometimes called an "Indemnified Payment." If Nebraska LLC, Prime Partnership
Group or the Indemnified Party, as the case may be, shall have received or shall
have had paid on its behalf an Indemnified Payment in respect of an Indemnified
Loss or Third Party Claim and shall subsequently receive insurance proceeds in
respect of such Indemnified Loss or Third Party Claim, or realize any net tax
benefit (as computed in clause (ii) above) as a result of such Indemnified Loss
or Third Party Claim, then Nebraska LLC, Prime Partnership Group or the
Indemnified Party, as the case may be, shall pay to Nebraska LLC, Prime
Partnership or the Indemnified Party, as the case may be, the amount of such
insurance proceeds or net tax benefit, or if less, the amount of the Indemnified
Payment.
6
<PAGE>
3.4 RISK OF PURCHASED ASSETS. Each party understands and agrees that,
except as otherwise specifically provided herein, no party nor any of its
Affiliates is, in this Agreement or any other agreement or document,
representing or warranting to such party in any way as to the assets, business
or Liabilities transferred, retained or assumed as contemplated hereby or as to
any consents or approvals required in connection with the consummation of the
transactions contemplated by this Agreement, it being agreed and understood that
each party shall take or keep all of its assets "AS IS", "WHERE IS" and that it
shall bear the economic and legal risk that conveyance of such assets shall
prove to be insufficient or that the title to any assets shall be other than
good and marketable and free from encumbrances. ALL IMPLIED WARRANTIES,
INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
ARE HEREBY EXPRESSLY DISCLAIMED.
3.5 TRANSFER OF EMPLOYEES. Effective as of the Partnership Merger
Effective Time, Nebraska Partnership and Nebraska LLC shall cooperate to
transfer to the employ of Nebraska LLC, each person employed by Nebraska
Partnership, (such employees and other persons who become employees of Nebraska
LLC after the Partnership Merger Effective Time in accordance with this Section
3.5 shall be hereinafter referred to as the "Transferred Employees"). With
respect to the Transferred Employees, Nebraska LLC shall assume the liabilities
and obligations with respect to, and continue to be responsible for all
liabilities and obligations whatsoever in connection with, claims made by or on
behalf of such persons in respect of salary, wages, benefits, severance pay,
salary continuation, COBRA continuation and similar obligations relating to the
continued employment, or the termination or alleged termination of such persons'
employment with Nebraska LLC by reason of consummation of the transactions
contemplated in this Agreement or the Merger Agreement or otherwise and Nebraska
Partnership shall have no such liability.
3.6 INSURANCE. The parties agree to cooperate with each other with
respect to the processing of any claims which are covered by any insurance
policy in existence prior to the Partnership Merger Effective Time. Without
limiting the generality of the foregoing, Nebraska Partnership or Prime
Partnership Group shall have the right to process and pursue any claim for
insurance (including negotiating with the company issuing the insurance policy)
in connection with any liability of Prime Partnership Group, regardless of
whether the insurance policy under which such claim is made is transferred to
Nebraska LLC pursuant to Section 2.1(a), and Nebraska LLC shall have the right
to process and pursue any claim for insurance (including negotiating with the
company issuing the insurance policy) in connection with any liability of
Nebraska LLC or any of its Affiliates, regardless of whether the insurance
policy under which such claim is made is retained by Nebraska Partnership
pursuant to Section 2.1(b).
3.7 TRANSFER AND GAINS TAXES. Nebraska LLC shall pay or cause to be paid
the Transfer and Gains Taxes imposed in connection with or as a result of the
Assignment and Assumption.
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ARTICLE IV
CONDITIONS
The obligations of the parties to consummate the Assignment and Assumption
shall be subject to the closing of the Mergers in accordance with the Merger
Agreement.
ARTICLE V
ACCESS TO INFORMATION AND SERVICES
5.1 PROVISION OF CORPORATE RECORDS. At the Time of Assignment and
Assumption, Prime Partnership Group shall deliver, or cause to be delivered,
to Nebraska LLC all books and records which relate primarily to the Purchased
Assets, Purchased Business or the Assumed Liabilities, including, without
limitation, all active agreements, active litigation files and government
filings. From and after the Time of Assignment and Assumption, all such
books, records and copies shall be the property of Nebraska LLC.
5.2 ACCESS TO INFORMATION. From and after the Time of Assignment and
Assumption (i) Prime Partnership Group shall afford to Nebraska LLC and its
authorized accountants, counsel and other designated representatives reasonable
access (including, without limitation, using reasonable efforts to give access
to persons or firms possessing Information (as defined below)) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within Prime Partnership Group's possession relating to Nebraska
LLC, the Purchased Assets, the Purchased Businesses or the Assumed Liabilities,
insofar as such access is reasonably required by Nebraska LLC, and (ii) Nebraska
LLC shall afford to Prime Partnership Group and its authorized accountants,
counsel and other designated representatives reasonable access (including,
without limitation, using reasonable efforts to give access to persons or firms
possessing Information) and duplicating rights during normal business hours to
all Information within Nebraska LLC's possession relating to the Purchased
Assets, the Purchased Businesses or the Assumed Liabilities, insofar as such
access is reasonably required by Prime Partnership Group. Information may be
requested under this Section 5.2 for, without limitation, audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
5.3 PRODUCTION OF WITNESSES. From and after the Time of Assignment and
Assumption, each party shall use reasonable efforts to make available to the
other party, upon written request, its officers, directors, employees and agents
as witnesses to the extent that any such person may reasonably be required in
connection with any legal, administrative or other proceedings in which the
requesting party may from time to time be involved.
5.4 RETENTION OF RECORDS. Except as otherwise required by law or agreed
to in writing, Prime shall cause Prime Partnership Group to, and Nebraska LLC
shall, retain for a period of at least
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<PAGE>
five years following the Time of Assignment and Assumption, all significant or
mutual Information relating to the Purchased Assets, Assumed Liabilities,
Retained Liabilities or Purchased Business. Notwithstanding the foregoing,
either Prime Partnership Group or Nebraska LLC may destroy or otherwise dispose
of any of such Information at any time, provided that, prior to such
destruction or disposal (a) Prime Partnership Group or Nebraska LLC, as the
case may be, shall cause the Person seeking to destroy or otherwise dispose of
any Information to provide no less than 90 days' or more than 120 days' prior
written notice to the parties hereto, specifying the Information proposed to be
destroyed or disposed of and (b) if any party shall request in writing prior to
the scheduled date for such destruction or disposal that any of the Information
proposed to be destroyed or disposed of be delivered to the other party, such
Person shall promptly arrange for the delivery of such of the Information as
was requested, at the expense of the requesting party.
5.5 CONFIDENTIALITY. Each party shall hold, and shall cause its officers,
directors, employees, agents, consultants and advisors to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law or in order to comply with the requirements of a
binding stock exchange listing application or agreement or applicable stock
exchange rules, all non-public Information concerning the other party furnished
it by such other party or its representatives or otherwise in its possession
(except to the extent that such Information can be shown to have been (a)
available to such party on a nonconfidential basis prior to its disclosure by
the other party, (b) in the public domain through no fault of such party or (c)
later lawfully acquired from other sources by the party to which it was
furnished), and each party shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who have a need to know such Information and who
agree to be bound by the provisions of this Section 5.5.
ARTICLE VI
MISCELLANEOUS AND GENERAL
6.1 MODIFICATION OR AMENDMENT. The parties hereto may modify or amend
this Agreement by written agreement executed and delivered by authorized
officers of the respective parties.
6.2 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without reference to its
conflicts of law principles.
6.4 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
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business day following the date of dispatch if delivered by Federal Express or
other reputable next-day courier service or (iii) on the third business day
following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
If to Nebraska LLC:
Horizon Group Properties, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Attention: Gary J. Skoien
Fax: No.: (616) 798-5100
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Wayne D. Boberg, Esq.
Fax No.: (312) 558-5700
If to Prime, Prime Partnership, or Nebraska Partnership
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
Attention: Michael W. Reschke
C. Alan Schroeder
Fax No.: (410) 234-1703
With a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg
Steven J. Gavin
Fax No.: (312) 558-5700
10
<PAGE>
6.5 CAPTIONS. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
6.6 ASSIGNMENT. Nothing contained in this Agreement or the agreements
referred to herein (except as otherwise expressly set forth therein) is intended
to confer on any person or entity other than the parties hereto and their
respective successors and permitted assigns any benefit, rights or remedies
under or by reason of this Agreement and such other agreements, except that the
provisions of Section 3.1 and 3.2 hereof shall inure to the benefit of the
Persons referred to therein.
6.7 FURTHER ASSURANCES. Subject to the terms and conditions hereof and,
as applicable, of the Merger Agreement, the parties will, and will cause their
respective affiliates to, do such additional things as are necessary or proper
to carry out and effectuate the intent of this Agreement or any part hereof or
the transactions contemplated hereby. The parties agree that if, after the Time
of Assignment and Assumption, either party holds assets or Liabilities which by
the terms hereof or of the Merger Agreement were intended to be assigned and
transferred to, or retained by, the other party, such party shall promptly
assign and transfer or cause to be assigned and transferred such assets or
Liabilities to the applicable party.
6.8 ATTORNEY-CLIENT PRIVILEGE; WORK PRODUCT. Anything herein or in the
Merger Agreement notwithstanding, the transactions contemplated hereby and by
the Merger Agreement shall not be deemed to transfer to or vest in Nebraska LLC
any right to waive, nor shall they be deemed to waive, any attorney-client
privilege between Prime Partnership Group and its legal counsel, with respect to
legal advice concerning the business or operations of Prime Partnership Group
including, without limitation, the Retained Liabilities or the transactions
contemplated hereby and by the Merger Agreement, in either case, concerning
privileged communications (or work product related thereto) at any time prior to
the Closing Date (as defined in the Merger Agreement). Prime shall assign to
Nebraska LLC, and cause each member of Prime Partnership Group to assign to
Nebraska LLC, its rights (if any) to any attorney-client privilege with respect
to legal advice concerning the business or operations of Nebraska LLC including,
without limitation, the Assumed Liabilities or the transactions contemplated
hereby concerning privileged communications (or work product related thereto) at
any time prior the Closing Date. Prime Partnership Group and their successors
and assigns shall not be entitled to waive or have access, nor shall they
attempt to waive or seek access, to any privileged communications (or work
product related thereto) between Nebraska LLC and its legal counsel with respect
to legal advice concerning the business or operations of the Nebraska LLC,
including the Assumed Liabilities or the transactions contemplated hereby.
6.9 NO THIRD-PARTY BENEFICIARIES. Except as provided in Section 3.1 and
3.2 hereof, this Agreement, is not intended to confer upon any person other than
the parties hereto and their Affiliates any rights or remedies hereunder.
[SIGNATURE PAGE FOLLOWS]
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
PRIME RETAIL, INC.
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
PRIME RETAIL, L.P.
By: Prime Retail, Inc., its general partner
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
NEBRASKA CROSSING FACTORY SHOPS LIMITED
PARTNERSHIP
By: Prime Retail Finance Inc., its general
partner
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
NEBRASKA CROSSING FACTORY SHOPS, L.L.C.
By: Nebraska Crossing Factory Shops Limited
Partnership, its sole member
By: /s/William H. Carpenter, Jr.
-------------------------------
Name: William H. Carpenter, Jr.
Title: President
12
<PAGE>
SCHEDULE 1.1(a)
TO
NEBRASKA ASSIGNMENT AND ASSUMPTION AGREEMENT
The Purchased Assets include, without limitation, the assets and business
of the retail outlet center located in Nebraska Crossing, Nebraska and known as
Nebraska Crossing Factory Shops.
13
<PAGE>
SCHEDULE 1.1(b)
TO
NEBRASKA ASSIGNMENT AND ASSUMPTION AGREEMENT
SCHEDULE OF DEBT
None.
14
<PAGE>
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
UNDER
HORIZON GROUP PROPERTIES, INC. 1998 LONG-TERM STOCK INCENTIVE PLAN
This NONQUALIFIED STOCK OPTION AWARD AGREEMENT (the "Agreement") dated
this 15TH day of June, 1998, between Horizon Group Properties, Inc. (the
"Company"), and (the "Participant"), who is an officer, key employee or
director of the Company. Any term capitalized but not defined in this Agreement
will have the meaning set forth in the Horizon Group Properties, Inc. 1998
Long-Term Stock Incentive Plan (the "Plan").
1. AWARD. In accordance with the terms of the Plan, the Company hereby grants
to the Participant a Nonqualified Stock Option to purchase all or any part
of an aggregate of _____ Shares. This Award constitutes a Nonqualified
Stock Option and is not intended to be an Incentive Stock Option within the
meaning of Section 422 of the Code.
2. EXERCISE PRICE. The Exercise Price will be $_______ per Share, which is no
less than the Fair Market Value of a Share on the date of this Agreement.
3. MEDIUM AND TIME OF PAYMENT.
a. The Exercise Price must be paid in United States dollars, in cash or
by personal check payable to the order of the Company, at the time of
purchase.
b. Alternatively, the Exercise Price, or any part of it, may be paid
with: (i) Shares owned by the Participant duly endorsed for transfer
to the Company; (ii) Shares issuable to the Participant upon exercise
of the Option; or (iii) any combination of cash, personal check and
Shares meeting the requirements of clause (i) or (ii) above.
c. The Company will pay the amount of tax it is required to withhold on
account of exercise of all or part of the Award with Shares otherwise
issuable to the Participant upon exercise under the Award.
Notwithstanding the foregoing, if the Committee agrees, the
Participant may satisfy the Company's withholding obligation by paying
the amount of required withholding to the Company and, if he or she
does so, the Company will not withhold Shares as described in the
preceding sentence. If the Award has been transferred pursuant to
Section 6(b), the Participant must satisfy the Company's withholding
requirement by paying the Company the amount it is required to
withhold with: (i) United States dollars in cash or by personal
check; (ii) Shares owned by the Participant and duly endorsed for
transfer to the Company; or (iii) any combination of cash, personal
check, and Shares meeting the requirements of clause (ii) above. If
part or all of the Award has been transferred pursuant to Section
6(b), the withholding obligation may not be satisfied with Shares
issuable upon exercise of the Award.
<PAGE>
d. Shares used to satisfy the Exercise Price and/or any minimum required
withholding tax will be valued at their Fair Market Value as
determined by the Committee as of the date of exercise.
e. No Shares will be issued pursuant to the Award before the Exercise
Price and, if applicable, the withholding obligation, have been paid
in full.
4. TERM, VESTING AND EXERCISE OF THE AWARD.
a. The Award will expire ten years from the date of this Agreement.
b. The Award will vest and become exercisable (i) in accordance with the
vesting schedule set forth in paragraph (c) below or (ii) if earlier,
the Participant's death or Disability.
c. The vesting schedule for this Award is as follows:
<TABLE>
<CAPTION>
Anniversary of Agreement
Date Percent Vested
------------------------ --------------
<S> <C>
1st 33%
2nd 64%
3rd 100%
</TABLE>
d. Notwithstanding any other provision of this Agreement, the Participant
will forfeit his or her right to exercise the Award, whether or not it
has already vested, if the Participant's employment with the Company
is terminated for Cause.
e. After the Award has vested, and while it is exercisable, it may be
exercised in whole or in part by written notice to the Company
indicating the number of Shares being purchased. The notice must be
signed by the Participant and must be accompanied by full payment of
the Exercise Price plus, if applicable, any required withholding tax.
Notwithstanding the foregoing, the Award may not be exercised for
fewer than 100 Shares at any one time or, if fewer than 100 Shares
remain, all the then-remaining Shares. The Award must be exercised as
to a whole number of Shares.
5. TERMINATION OF EMPLOYMENT. After termination of employment, the
Participant's right to exercise the Award will be subject to the following
rules.
a. DISABILITY OR DEATH. If the Participant terminates employment through
Disability or death, the Award will immediately vest and become
exercisable. The Participant (or in the case of his or her death, the
Participant's estate) may exercise the Award within
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<PAGE>
the 12-month period following the termination, or, if earlier, by the
date the Award would otherwise have expired.
b. OTHER TERMINATION. If the Participant terminates employment for any
reason other than Disability, death, or termination for Cause, the
Participant (or, in the case of his or her subsequent death, the
Participant's estate): (i) may, within the 180-day period following
the termination, exercise the Award to the extent that it was vested
and exercisable on the date of the termination and (ii) will forfeit
the Award to the extent that it was not vested and exercisable on the
date of the termination.
c. CHANGE OF CONTROL. Notwithstanding the provisions of paragraphs (a)
and (b) above, if, within 24 months after a Change of Control, (i) the
Participant's employment with the Company and all Affiliates is
terminated for a reason other than Cause, or (ii) the Participant
terminates his or her employment with the Company and all Affiliates
for Good Reason, in either case by giving 30 days' prior written
notice, the Award will immediately vest and become fully exercisable,
and will remain exercisable until the date that is ten years after the
date of this Agreement unless otherwise specifically prohibited under
applicable law or by applicable rules and regulations of any
governmental agency or national securities exchange.
For purposes of this Agreement, a "Change of Control" shall be deemed
to have occurred if (1) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended),
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, a corporation owned directly or
indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, the
Participant or Michael W. Reschke, or any of their respective
affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the
Company's then outstanding securities that vote generally in the
election of directors (referred to herein as "Voting Securities"); (2)
during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company (the "Board") and any new directors whose election by the
Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds 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,
cease for any reason to constitute a majority of the Board; (3) the
stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or
consolidation that 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) at least 50% of the total voting
power represented by the Voting Securities of the Company or such
surviving
-3-
<PAGE>
entity outstanding immediately after such merger or consolidation;
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all
or substantially all of the Company's assets.
For purposes of this Agreement, "Good Reason" shall have the meaning
set forth in any unexpired employment or severance agreement between
the Participant and the Company and/or an Affiliate. In the absence
of any such agreement, "Good Reason" shall exist if, without the
Participant's written consent, (A) the Participant's title or scope of
responsibilities and duties are materially diminished, or the Company
fails to provide the Participant with adequate office facilities and
support services to perform such responsibilities and duties, (B) the
compensation payable to Executive for services to the Company is
materially reduced, or (C) the Company fails to continue in effect any
cash or stock-based incentive or bonus plan, retirement plan, welfare
benefit plan, or other benefit plan, program or arrangement, unless
the aggregate value (as computed by an independent employee benefits
consultant) of all such compensation, retirement and benefit plans,
programs and arrangements provided to Executive is not materially less
than their aggregate value as of the date of this Agreement (or as of
the Change of Control, if greater).
6. TRANSFERABILITY OF AWARD AND SHARES ACQUIRED UPON EXERCISE OF AWARD.
a. The Participant may not sell, transfer, pledge, assign or otherwise
alienate or hypothecate the Award, other than by will or the laws of
descent and distribution.
b. Notwithstanding any other provision of this Agreement, the Participant
may transfer any portion of this Award to: (i) the Participant's
spouse, children, step-children, grandchildren or step-grandchildren
("Immediate Family Members"); (ii) a trust or trusts for the exclusive
benefit of Immediate Family Members; (iii) a partnership in which
Immediate Family Members are the only partners; or (iv) an
organization exempt from taxation under Section 501(c)(3) of the Code.
Such a transfer is permitted only if there is no consideration for the
transfer, or the transfer is to a partnership in which Immediate
Family Members are the only partners and the Participant's sole
consideration for the transfer is an interest in the partnership.
Such a transfer will become effective only if the Participant gives
the Committee advance written notice of the transfer and complies with
any conditions imposed by the Committee. Following the transfer, the
transferee will be subject to the same terms and conditions to which
the Participant was subject immediately before the transfer, and the
term "Participant" as used in this Agreement will be deemed to refer
to the transferee, except for purposes of Sections 4(d) and 5, which
will continue to apply with respect to the original Participant. The
transferee of an Award may not transfer the Award except as provided
in paragraph (a).
-4-
<PAGE>
c. During the Participant's lifetime, only the Participant (or a
transferee pursuant to paragraph (b) above) or his or her guardian or
legal representative may exercise the Award. The Committee may, in
its discretion, require a guardian or legal representative to supply
it with the evidence the Committee reasonably deems necessary to
establish the authority of the guardian or legal representative to
exercise the Award on behalf of the Participant or transferee, as the
case may be.
d. Except as limited by applicable federal or state securities laws, the
requirements of any stock exchange or market upon which the Shares are
listed or traded at any given time, and the provisions of Section 7,
Shares acquired upon exercise of this Award will be freely
transferable.
7. SECURITIES LAW REQUIREMENTS.
a. If at any time the Committee determines that exercising the Award or
issuing Shares would violate applicable securities laws, the Award
will not be exercisable, and the Company will not be required to issue
Shares. The Committee may declare any provision of this Agreement or
action of its own null and void if it determines the provision or
action fails to comply with the short-swing trading rules. As a
condition to exercise, the Company may require the Participant to make
written representations it deems necessary or desirable to comply with
applicable securities laws.
b. No person who acquires Shares under this Agreement may sell the
Shares, unless the offer and sale are made pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
which is current and includes the Shares to be sold, or an exemption
from the registration requirements of that Act.
8. NO OBLIGATION TO EXERCISE AWARD. Neither the Participant nor his or her
transferee is or will be obligated by the grant of the Award to exercise
it.
9. NO LIMITATION ON RIGHTS OF THE COMPANY. The grant of the Award does not
and will not in any way affect the right or power of the Company to make
adjustments, reclassifications or changes in its capital or business
structure, or to merge, consolidate, dissolve, liquidate, sell or transfer
all or any part of its business or assets.
10. PLAN AND AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan nor this
Agreement is a contract of employment, and no terms of employment of the
Participant will be affected in any way by the Plan, this Agreement or
related instruments, except to the extent specifically expressed therein.
Neither the Plan nor this Agreement will be construed as conferring any
legal rights of the Participant to continue to be employed, nor will it
interfere with the Company's or any Affiliate's right to discharge the
Participant or to deal with him or her regardless of the existence of the
Plan, this Agreement or the Award.
-5-
<PAGE>
11. PARTICIPANT TO HAVE NO RIGHTS AS A STOCKHOLDER. Before the date as of
which he or she is recorded on the books of the Company as the holder of
any Shares underlying the Award, the Participant will have no rights as a
stockholder with respect to those Shares.
12. NOTICE. Any notice or other communication required or permitted under this
Agreement must be in writing and must be delivered personally, sent by
certified, registered or express mail, or sent by overnight courier, at the
sender's expense. Notice will be deemed given when delivered personally
or, if mailed, three days after the date of deposit in the United States
mail or, if sent by overnight courier, on the regular business day
following the date sent. Notice to the Company should be sent to Horizon
Group Properties, Inc., 77 West Wacker Drive, Suite 3900, Chicago, Illinois
60601, Attention: Corporate Secretary. Notice to the Participant should be
sent to the address set forth on the signature page below.
13. SUCCESSORS. All obligations of the Company under this Agreement will be
binding on any successor to the Company, whether the existence of the
successor results from a direct or indirect purchase of all or
substantially all of the business and/or assets of the Company, or a
merger, consolidation, or otherwise.
14 GOVERNING LAW. This Agreement will be construed and enforced in accordance
with, and governed by, the laws of the State of Maryland, determined
without regard to its conflict of law rules.
15. PLAN DOCUMENT CONTROLS. The rights granted under this Agreement are in all
respects subject to the provisions set forth in the Plan to the same extent
and with the same effect as if set forth fully in this Agreement. If the
terms of this Agreement conflict with the terms of the Plan document, the
Plan document will control.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company and the Participant have duly executed this
Agreement as of the date first written above.
HORIZON GROUP PROPERTIES, INC.
By: _________________________________
Its: ________________________________
____________________________________
(Participant's Signature)
Participant's Name and Address for notices
____________________________________
____________________________________
____________________________________
-7-
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,008
<SECURITIES> 0
<RECEIVABLES> 498
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 140,959
<DEPRECIATION> 244
<TOTAL-ASSETS> 164,765
<CURRENT-LIABILITIES> 0
<BONDS> 115,514
0
0
<COMMON> 28
<OTHER-SE> 32,997
<TOTAL-LIABILITY-AND-EQUITY> 164,765
<SALES> 0
<TOTAL-REVENUES> 13,539
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,054
<INCOME-PRETAX> (3,883)
<INCOME-TAX> 0
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