<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): JANUARY 5, 1999
HORIZON GROUP PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 0-24123 38-3407933
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
77 WEST WACKER DRIVE, SUITE 4200
CHICAGO, ILLINOIS 60601
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (312) 917-1500
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS, 60601
(Former name or former address, if changed since last report)
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Item 5. OTHER EVENTS.
On January 5, 1999, Horizon Group Properties, Inc. (the "Company")
received a proposal (the "Proposal") from Prime Capital Holdings, LLC ("PCH")
regarding a possible business combination with Company. PCH, through a
subsidiary, operates as a fully integrated real estate finance company
providing senior and mezzanine financing to the real estate industry with
production offices in New York, Chicago, and San Francisco.
The Proposal contemplates that PCH will contribute all of its assets and
liabilities to the Company in exchange for newly issued shares of the common
stock of the Company (or common units of Horizon Group Properties, L.P., a
Delaware limited partnership, through which the Company conducts
substantially all of its operations, which are convertible into common stock
of the Company) at a proposed valuation of $7.00 per share. In addition, the
Proposal provides that PCH will purchase $20,000,000 of additional shares of
common stock of the Company (or common units of Horizon Group Properties,
L.P.) for cash at $7.00 per share and would receive an option exercisable
within 180 days following the consummation of the transaction to purchase up
to an additional $30,000,000 of common stock of the Company (or common units
of Horizon Group Properties, L.P.) at a proposed exercise price of $7.00 per
share. The Proposal provides that, on a fully diluted basis, PCH would
beneficially own a total of approximately 71% of all outstanding common stock
of the Company subsequent to the transaction if the option is not exercised
and 79% of all outstanding common stock of the Company if the option is
exercised in full. After the transaction, the Company would be engaged in
two principal lines of business - real estate finance and the Company's
current business operations.
The consummation of the transaction contemplated by the Proposal is
subject to, among other things, (i) the satisfactory completion of due
diligence by both PCH and the Company with respect to the Company and its
assets and PCH and its assets, respectively, (ii) the negotiation and
execution of mutually acceptable definitive agreements regarding the
transactions contemplated in the Proposal, and (iii) obtaining all
third-party consents required to complete the transaction including the board
of directors and shareholders of the Company. PCH would also intend to review
whether the Company should elect real estate investment trust status under
the Internal Revenue Code of 1986, as amended, subsequent to the transaction.
Such decision could affect the Company's dividend policy. There can be no
assurance as to whether any transaction will result from such Proposal or as
to the value, timing or structure of any such transaction.
In connection with the transaction, it is anticipated that approval
would be sought for the appointment of additional directors of the Company
selected by PCH. Michael W. Reschke would serve as Chairman of the newly
constituted Board of Directors of the Company. In addition, PCH intends to
seek approval to amend the charter of the Company to change the name of the
Company to "Prime Capital Funding, Inc."
The full text of the Proposal is contained in a letter from PCH dated
January 5, 1999 and attached hereto as Exhibit 99.3. The press release with
respect to the Proposal is attached hereto as Exhibit 99.4.
2
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
99.3 Letter dated January 5, 1999 from Prime Capital Holding, LLC to the
Company
99.4 Press Release issued by the Company on January 7, 1999 regarding the
proposal by Prime Capital Holding, LLC of a business combination with
the Company
</TABLE>
3
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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 hereunto duly authorized.
HORIZON GROUP PROPERTIES, INC.
(Registrant)
Date: January 7, 1999
By: /s/ Gary J. Skoien
------------------------
Name: Gary J. Skoien
Title: President and Chief Executive Officer
4
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
99.3 Letter dated January 5, 1999 from Prime Capital Holding, LLC to the
Company
99.4 Press Release issued by the Company on January 7, 1999 regarding the
proposal by Prime Capital Holding, LLC of a business combination with
the Company
</TABLE>
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EXHIBIT 99.3
January 5, 1999
Gary Skoien
Chief Executive Officer
Horizon Group Properties
77 West Wacker Drive, Suite 3900
Chicago, IL 60601
Re: Proposed Business Combination with Horizon Group Properties, Inc.
("Horizon") and its affiliates
Dear Mr. Skoien:
The purpose of this letter is to propose a merger/business combination
transaction between Prime Capital Holding, LLC ("PCH") and Horizon. The
following will briefly describe PCH and will specifically address a number of
key terms of our offer.
Prime Capital Holding - PCH is a privately owned company, which through its
subsidiary, Prime Capital Funding, LLC ("PCF"), has 34 employees and operates
as a fully integrated real estate finance company with production offices in
New York, Chicago and San Francisco. The portfolio is serviced by PCF's loan
administration group in Chicago. PCH is owned 75% by The Prime Group Inc., a
diversified real estate company controlled by Michael W. Reschke, and 25% by
myself. Formed in September 1997, we have been active in providing senior and
mezzanine financing to the real estate industry since December of last year.
Our initial capitalization consisted of $45,000,000 of equity capital and two
warehouse lines of credit, which total $400,000,000.
To date, PCF has funded over $320,000,000 in mortgage loans. Over 80% of our
loan portfolio is comprised of shorter term, floating rate securitizable
loans. Because of our focus on the origination of floating-rate product, we
have avoided most of the inventory price declines experienced by fixed-rate
mortgage originators. PCF clearly has demonstrated that it fills a niche in
the marketplace as a full service real estate finance company.
THE PROPOSED TRANSACTION -
BUSINESS COMBINATION VALUATION - PCH will contribute all the assets and
liabilities of PCF, which has a current net asset value of $40,000,000 to
Horizon in exchange for 5,714,255 newly
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issued Horizon common shares (or OP units convertible into Horizon common
shares) at $7.00 per share, which represents a 75% premium to its current
market price of $4.00. In addition to the contribution of PCF assets, PCH
will purchase at closing an additional 2,857,127 of newly issued Horizon
common shares (or OP units convertible into Horizon shares) for a cash
purchase price of $20,000,000 ($7.00 per share) and will have the option to
purchase up to an additional $30,000,000 in Horizon stock (at $7.00 per
share) within 180 days after the closing of the transaction. Therefore, at a
minimum, PCH would beneficially own, on a fully diluted basis, a total of
8,571,383 common shares, representing approximately 71% of all outstanding
common shares and, if PCH exercises its above described option to purchase
the maximum additional shares, it would own 12,857,097 shares, which would
represent approximately 79% of all outstanding common shares.
TAX STATUS - We are currently studying the advantages and disadvantages of
the REIT vs. C-Corp. structure for the resulting company. A number of key
issues need to be resolved before a structure can be recommended. At this
time we anticipate that the resulting company will continue as a REIT.
CORPORATE STRUCTURE/MANAGEMENT - The resulting company will be engaged in two
principal lines of business, with each structured as separate operating
divisions and sharing common corporate level administrative support staff
(i.e., finance, accounting, legal, human resources, information technology,
etc.). This structure should produce G&A cost savings in excess of
$2,000,000. The first operating business is a fully integrated real estate
finance company. I will serve as the President-CEO of this operating
division. The second line of business is to continue its business plan of
maximizing value in its existing portfolio of outlet centers as well as to
seek additional acquisitions of undervalued retail properties for
repositioning and sale. You would continue as CEO of this division and I
would propose that we would serve as co-CEOs of the resulting company.
OTHER EMPLOYEES - Over the due diligence period, we will evaluate the
strengths and weaknesses of employees in redundant positions and select the
highest qualified person in each case.
BOARD COMPOSITION - At the closing, additional directors selected by PCH
shall be appointed to join the Board. A majority of the new Board shall be
"independent" as defined by the N.Y.S.E. Michael W. Reschke shall serve as
Chairman of the Board.
NAME CHANGE - At the closing, the Company shall change its name to
"Prime Capital Funding, Inc."
CONTINGENCIES - This offer is subject to (1) the satisfactory completion of
due diligence by both PCH and Horizon with respect to Horizon and its assets
and PCH and its assets, respectively, (2) the negotiation and execution of
mutually acceptable definitive agreements regarding the transactions
contemplated herein, and (3) obtaining all third-party consents required to
complete the transaction including the board and shareholders of Horizon and
the SEC.
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SCHEDULE - We are prepared to commit all necessary resources to completing
these transactions as expeditiously as possible. Assuming that we agree to
move forward, we would estimate a 30-day due diligence period after Board
approval of this proposal. During the 30-day due diligence period, the
parties would agree to negotiate and execute a definitive agreement, to
obtain all third party approvals, and to file proxy/registration material
with the SEC. The closing will occur upon receipt of shareholder approval.
This transaction will provide substantial benefits to the Horizon
shareholders.
TRANSACTION VALUES HORIZON AT A PREMIUM - Valuing Horizon at $7.00 per share
represents a 75% premium to its current market price of $4.00 per share.
INCREASES SHAREHOLDER VALUE - We believe the proposed transaction will create
substantial shareholder value. Based on our analysis of your public filings,
in combination with our business plan for PCH, we believe that the proposed
transaction will be accretive for the Horizon shareholders and that the
resulting company will benefit from an earnings multiple significantly better
than the current Horizon multiple.
LARGER CAPITAL BASE, INCREASED LIQUIDITY AND BROADER ACCESS TO THE CAPITAL
MARKETS - The investment of $60,000,000 equity (a minimum of $20,000,000 cash)
will provide new equity capital for growth. We are confident that the larger
capital base, the dynamic business plan, and tax efficiencies of the combined
companies will draw analyst coverage from the street and lead to improved
multiples for the company.
This letter supersedes all prior letters to you. I would like to reiterate my
strong conviction that this transaction is both accretive for Horizon
shareholders, and more importantly, positions the resulting company for
significant stock appreciation through FFO growth and multiple expansion. If
you have any questions, I can be reached at (212) 808-3037. I look forward
to working with you.
Sincerely,
/s/ James W. Roiter
James W. Roiter
President and Chief Executive Officer
cc: Michael W. Reschke
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EXHIBIT 99.4
FOR IMMEDIATE RELEASE CONTACT: Susan M. Crusoe
JANUARY 7, 1999 Senior Vice President
(312) 917-8877
HORIZON GROUP PROPERTIES RECEIVES PROPOSAL
REGARDING A POSSIBLE BUSINESS COMBINATION
PROPOSAL RECEIVED FROM PRIME CAPITAL HOLDING, LLC
(CHICAGO, ILLINOIS - JANUARY 7, 1999) -- Horizon Group Properties, Inc.
(HGP) (NASDAQ: HGPI), an owner, operator and developer of factory outlet and
power centers, today announced it has received a proposal from Prime Capital
Holding, LLC (PCH), a privately owned company, regarding a possible business
combination. The proposal states that PCH, through a subsidiary, operates as
a fully integrated real estate finance company providing senior and mezzanine
financing to the real estate industry with offices in New York, Chicago and
San Francisco.
The majority owner of PCH is The Prime Group, Inc., a privately owned
diversified real estate company led by Michael W. Reschke. Mr. Reschke is a
Director and a significant shareholder of HGP. Gary J. Skoien, Chairman of
the Board, President and Chief Executive Officer of HGP, is also an officer
of The Prime Group, Inc. with responsibility for business interests that are
not related to PCH.
PCH's proposal indicates that PCH will contribute all of its assets and
liabilities in exchange for newly issued shares of Horizon Group Properties,
Inc. common stock (or common units of Horizon Group Properties, L.P. which
are exchangeable for Horizon Group Properties, Inc. common stock) at a stated
value of $7 per share. The closing price for HGP common stock on January 6,
1999 was $3.875 per share. In addition, the proposal provides that PCH will
purchase additional shares of Horizon Group Properties, Inc. common stock (or
common units of Horizon Group Properties, L.P.) for $20 million of cash at a
price of $7.00 per share and receive an option to purchase up to an
additional $30 million of Horizon Group Properties, Inc. common stock (or
common units of Horizon Group Properties, L.P.) at $7.00 per share. This
option may be exercised within 180 days after the closing of the transaction.
The PCH proposal provides that on a fully diluted basis, and assuming the
option to purchase additional shares is exercised in full, PCH would own a
total of approximately 79% of all outstanding common shares of Horizon with
the resulting company engaged in two principal lines of business - real
estate finance and Horizon's current business operations.
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The Board of Directors of Horizon Group Properties, Inc., with Mr.
Reschke and Mr. Skoien abstaining, has authorized management to engage an
independent financial advisor to assist HGP in reviewing PCH's proposal and
in exploring other opportunities to enhance shareholder value. In addition,
based on the proposal from PCH, the Board of Directors of Horizon Group
Properties, Inc. has decided to delay seeking shareholder approval to not
elect REIT status as earlier announced by HGP on October 8, 1998.
There can be no assurances as to whether any transaction will result
from such arrangement or proposal or as to the value, timing or structure of
any such transaction.
Based in Chicago, Illinois, Horizon Group Properties, Inc. has 13
operating factory outlet centers and one power center in 11 states totaling
more than 2.9 million square feet.
###
SAFE HARBOR STATEMENT: THE STATEMENTS CONTAINED HEREIN WHICH ARE NOT
HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS BASED UPON ECONOMIC FORECASTS,
BUDGETS, AND OTHER FACTORS WHICH, BY THEIR NATURE, INVOLVE KNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF HORIZON GROUP PROPERTIES, INC. TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS IMPLIED BY SUCH STATEMENTS. IN PARTICULAR, AMONG THE
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE THE FOLLOWING:
BUSINESS CONDITIONS AND THE GENERAL ECONOMY, COMPETITIVE FACTORS, INTEREST RATES
AND OTHER RISKS INHERENT IN THE REAL ESTATE BUSINESS. FOR FURTHER INFORMATION
ON FACTORS WHICH COULD IMPACT THE COMPANY AND THE STATEMENTS CONTAINED HEREIN,
REFERENCE IS MADE TO THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
