Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HORIZON GROUP, INC.
(Exact name of registrant as specified in its
charter)
MICHIGAN 38-2559212
(State or other jurisdiction of
(IRS Employer
incorporation or organization) Identification No.)
5000 HAKES DRIVE
NORTON SHORES, MI 49441
(616) 798-9100
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
MR. RONALD L. PIASECKI
PRINCIPAL EXECUTIVE OFFICER
5000 HAKES DRIVE
NORTON SHORES,MI 49441
(616) 798-9100
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
Copies to:
HAL M. BROWN, ESQ.
RUDNICK & WOLFE
203 NORTH LASALLE STREET, SUITE 1800
CHICAGO, ILLINOIS 60601
(312) 368-4000
(312) 236-7516 (TELECOPIER)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
<square>
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.
<square><multiply>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. <square> _________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration Statement number of the earlier effective
registration statement for the same offering. <square> ________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. <square>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered registered maximum maximum registration fee{(1)}
offering price aggregate
per unit{ (1)} offering price{ (1)}
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,165,605 $12.6875 $27,476,114 $8,327
</TABLE>
(FOOTNOTES ON NEXT PAGE)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
(Footnotes for previous page)
(1) Pursuant to Rule 457(c), the proposed maximum aggregate offering price
and the filing fee with respect to shares of Common Stock issuable in
exchange for the interest in the venture have been calculated based on
the average of the high and low prices as reported on the New York
Stock Exchange on May 7, 1997.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 13, 1997
2,165,605 SHARES
HORIZON GROUP, INC.
COMMON STOCK
PROSPECTUS
This Prospectus relates to 2,165,605 shares (the "Shares") of common
stock, par value $.01 per share ("Common Stock"), of Horizon Group, Inc.,
a Michigan corporation (the "Company") that may be issued by the Company
upon the conversion of a membership interest in Finger Lakes Outlet
Center, LLC (the "Venture"). The Venture owns and operates the Finger
Lakes Outlet Center which was developed by the Company. The members of the
Venture are Horizon/Glen Outlet Centers Limited Partnership, a limited
partnership of which the Company is the sole general partner, and FLOC,
LLC (together with its successors and assigns, "FLOC"). FLOC's interest in
the Venture (the "Convertible Interest") is convertible into Common Stock
of the Company. Upon conversion of the Convertible Interest, the Company
would become the owner of the related Venture interest. (See "Conversion
and Put Option Agreement.").
If the Convertible Interest is converted into Common Stock, the Shares
may thereafter be offered or sold from time to time for the account of
FLOC on the New York Stock Exchange, other stock exchanges, or otherwise,
at prices and on terms then obtainable, in broker's transactions, special
offerings, exchange distributions, negotiated transactions, block
transactions, or otherwise. (See "Plan of Distribution.") The Company
will not realize any proceeds from the resale of the Shares.
The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol HGI. On May 12, 1997, the last reported sale price of
Common Stock on the New York Stock Exchange was $13.00.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS MAY ___, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the Shares. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For
further information pertaining to the securities offered hereby, reference
is made to the Registration Statement, including the exhibits filed as a
part thereof.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; and at its Regional Offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and Seven
World Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web
site is: http://www.sec.gov. Horizon Common Stock is listed on the New
York Stock Exchange ("NYSE") and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, OR INCORPORATED IN IT BY
REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION TO
OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO
THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF
THIS PROSPECTUS.
ALL DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS
BUT WHICH ARE NOT DELIVERED HEREWITH ARE AVAILABLE WITHOUT CHARGE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN) UPON REQUEST FROM HORIZON GROUP, INC., 5000 HAKES
DRIVE, NORTON SHORES, MICHIGAN 49441.
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
IN THIS PROSPECTUS
The following documents filed with the Commission by the Company
pursuant to the Exchange Act are hereby incorporated by reference in this
Prospectus:
(a) The Company's Annual Report on Form 10-K (File No. 1-12424) for
the fiscal year ended December 31, 1996.
(b) Description of the Company's Common Stock, par value $.01 per
share, contained in the Company's registration statement on Form 8-A dated
October 28, 1993.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Shares shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing such documents.
Any statement contained herein or in a document incorporated by
reference or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus or in any other subsequently
filed document that also is or is deemed to be incorporated by reference
in this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
<PAGE>
THIS PROSPECTUS, INCLUDING DOCUMENTS INCORPORATED BY REFERENCE,
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF
WHICH CANNOT BE PREDICTED WITH ACCURACY AND SOME OF WHICH MIGHT NOT EVEN
BE ANTICIPATED. FUTURE EVENTS AND ACTUAL RESULTS, FINANCIAL AND
OTHERWISE, MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION"
INCORPORATED BY REFERENCE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1996, WHICH IS INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
THE COMPANY
The Company is one of the largest developers, owners and operators of
outlet centers in the United States. At December 31, 1996, the Company
owned and operated 37 outlet centers containing an aggregate of
approximately 9.4 million square feet of total gross leasable area ("GLA")
located in 20 states.
Since its inception in 1984, the Company and it predecessors have
acquired or developed outlet centers containing over 9.0 million square
feet of GLA and have developed 34 of its 37 existing centers. Commencing
with its taxable year ended December 31, 1994, the Company has elected to
be a treated as a real estate investment trust (a "REIT") for federal
income tax purposes and the Company believes that it has been organized
and has operated in such a manner as to qualify for taxation as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"). The
Company intends to continue to operate in the manner required to continue
to be taxed as a REIT. The Company is self-administered and self-managed.
The Company's properties are held by, and all of the Company's
operations are conducted through, Horizon/Glen Outlet Centers Limited
Partnership, a Delaware limited partnership (the "Operating Partnership").
The Company is the general partner of the Operating Partnership and owns
approximately 81.6% of the units of partnership interest of the Operating
Company (the "Units") outstanding as of December 31, 1996. The Units are
redeemable, subject to certain limitations to protect the Company's status
as a REIT, into shares of Common Stock of the Company on a unit-for-share
basis.
The Company has grown, and plans to continue to grow, through
(i) developing new and expanding existing outlet centers and other retail
concepts, (ii) selectively acquiring outlet centers, portfolios and other
retail concepts, (iii) actively managing its portfolio to maintain
occupancies, increase rents, reduce occupancy costs and increase tenant
sales, (iv) utilizing an asset management approach to property operations
which includes intensive advertising and promotional efforts, and
maintaining a capital structure that facilitates growth.
The Company's executive offices are located at 5000 Hakes Drive,
Norton Shores, Michigan 49441, and its telephone number is (616) 798-9100.
DESCRIPTION OF COMMON STOCK
The following paragraphs summarize certain provisions of Michigan law
and the Company's Articles of Incorporation and Bylaws. The summary of
the terms of the Common Stock of the Company set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of the Company.
GENERAL
The Articles of Incorporation of the Company provide that the Company
may issue up to 60,000,000 shares of capital stock of the Company,
consisting of (i) 47,000,000 shares of Common Stock, par value $.01 per
share, (ii) 3,000,000 shares of Preferred Stock, par value $.01 per share,
and (iii) 10,000,000 shares of Excess Stock, par value $.01 per share. As
of February 14, 1997, there were 23,781,583 shares of Common Stock issued
and outstanding.
COMMON STOCK
All of the Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other
Stock or series of Stock and to the provisions of the Company's Articles
of Incorporation regarding conversion of Common Stock into Excess Stock,
holders of Common Stock will be entitled to receive distributions if, as
and when authorized and declared by the Board of Directors of the Company
out of assets legally available therefor and to share according to the
shareholders' respective rights and interests, in the assets of the
Company legally available for distribution to its shareholders in the
event of its dissolution after payment of, or adequate provision for, all
known debts and liabilities of the Company.
Subject to the provisions of the Articles of Incorporation regarding
conversion of Common Stock into Excess Stock, each outstanding share of
Common Stock entitles the holder to one vote on all matters submitted to a
vote of shareholders, including the election of directors, and, except as
otherwise required by law or except as provided with respect to any other
class or series of Stock, the holders of such Common Stock will possess
the exclusive voting power of the Company.
Holders of Common Stock have no conversion rights, sinking fund
rights, redemption rights, exchange rights, dividend rights, liquidation
preferences or preemptive rights to subscribe for any securities of the
Company.
Subject to the provisions of the Articles of Incorporation regarding
conversion of Common Stock into Excess Stock, shares of a particular class
of issued Common Stock will have equal dividend, distribution,
liquidation, voting and other rights.
Pursuant to the Michigan Business Corporation Act, as amended (the
"MBCA"), a Michigan corporation generally cannot dissolve, merge or sell
all or substantially all of its assets outside the ordinary course of
business unless approved by the affirmative vote of shareholders holding a
majority of the shares entitled to vote on the matter. The MBCA also
provides that a Michigan corporation cannot amend its articles of
incorporation unless approved by the affirmative vote of shareholders
holding a majority of the shares entitled to vote unless a larger
percentage is set forth in the corporation's articles of incorporation.
The Company's Articles of Incorporation provide that they may
generally be amended by the affirmative vote of holders of not less than a
majority of the Common Stock then outstanding and entitled to vote
thereon, although certain specified provisions thereof, such as those
pertaining to the removal of directors, related party transactions,
restriction on ownership of Common Stock, limitation of director
liability, indemnification, merger consolidation, dissolution or sale of
substantially all of the Company's assets and certain reorganizations of
the Company, may only be amended, altered or repealed by the affirmative
vote of holders of not less than two-thirds of the Common Stock then
outstanding and entitled to vote thereon. Notwithstanding the foregoing,
the Articles of Incorporation provide that, subject to the provisions of
any class or series of Stock at the time outstanding and subject to
approval by the affirmative vote of the holders of not less than a
majority of the Stock outstanding and entitled to vote thereon, the Board
of Directors has the power to cause the organization of an entity to take
over the property of the Company and to carry on the Company's affairs, to
merge the Company into such entity and to thereupon terminate the Company.
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF COMMON STOCK
For the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), for all years after the last taxable
year in which it elects to be taxed as such (i) not more than 50% in
number or value of its outstanding Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during
the last half of a taxable year and (ii) the Stock must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
12 months or during a proportionate part of a shorter taxable year.
Because the Board of Directors currently believes it will be essential for
the Company to continue to qualify as a REIT under the Code, the Board of
Directors has adopted provisions of the Articles of Incorporation imposing
restrictions on the transfer and ownership of Stock.
The Articles of Incorporation generally prohibit any shareholder from
having beneficial ownership, either directly or by virtue of the Code's
applicable rules, of more than 7% in value of the Company's outstanding
Stock (the "Ownership Limit"). Subject to certain limitations, the
directors may increase the Ownership Limit from time to time. Certain
persons have been designated "Existing Holders," and the directors may
designate additional persons as "Existing Holders" from time to time. An
Existing Holder is not subject to the Ownership Limit. Instead, the
Articles of Incorporation establish rules for determining the maximum
percentage of outstanding Stock, in number or value, of which any
particular Existing Holder may have beneficial ownership, either directly
or by virtue of the Code's applicable attribution rules, at any particular
time (the "Existing Holder Limit").
The ownership restrictions contained in the Articles of Incorporation
(i) prohibit any person who is not an Existing Holder from having
beneficial ownership of Stock, either directly or by virtue of the
applicable attribution rules, in excess of the Ownership Limit,
(ii) prohibit any Existing Holder from having beneficial ownership of
Stock, either directly or by virtue of the applicable rules, in excess of
the applicable Existing Holder Limit, (iii) prohibit the Stock from being
owned by less than 100 persons, and (iv) prohibit the Company from being
"closely held" within the meaning of Section 856(h) of the Code
(collectively, "Ownership Restrictions"). If the Ownership Restrictions
are violated by a sale or transfer, such sale or transfer is void AB
INITIO unless the Company determines such sale or transfer will not
jeopardize the Company's status as a REIT or agrees to increase the
applicable Ownership Limit or Existing Holder Limit, but in no event will
such limits be increased if such increase would create the possibility
that five or fewer persons could own more than 49.9% of the outstanding
shares. Any person who purports to transfer or proposes to transfer
shares in violation of the Ownership Restrictions is required to
immediately give written notice to the Company of such event or proposed
event in order for the Company to determine the effect of such event or
proposed event on the Company's status as a REIT.
In the absence of appropriate safeguards, certain events could result
in a violation of the Ownership Restrictions ("Triggering Events"). Thus,
the Company's Articles of Incorporation provide that, upon the occurrence
of a Triggering Event, certain shares of Common Stock or Preferred Stock
may automatically be converted into Excess Stock. All Excess Stock will
be deemed to be owned by the Company as trustee for the exclusive benefit
of the person to whom they are ultimately transferred, and the person who
would otherwise be the owner of the shares converted into such Excess
Stock shall have no rights to or in such shares of Excess Stock other than
the right, subject to certain limitations, to designate the person to whom
such Excess Stock is to be transferred. All shares of Excess Stock shall
be deemed to have been offered for sale to the Company or its designee at
a price per share equal to the lesser of (i) the price in the transaction
that results in the exchange of Common Stock or Preferred Stock into
excess Stock, or (ii) the Fair Market Value (which is defined in the
Articles of Incorporation by reference to the average closing sale price
of Common Stock as reported on the New York Stock Exchange) for the five
trading days immediately prior to the date upon which the Company or a
designee accepts such offer. Unless and until any Excess Stock shall have
been so transferred or redeemed, such Excess Stock shall remain Excess
Stock, and shall not confer upon any person any voting rights, dividend
rights or other distribution rights. Limitations are imposed on the
amount of consideration which a person may receive for designating the
third party to whom Excess Stock is to be transferred. Any person who
engages in a Triggering Event is required to immediately give written
notice of such event to the Company.
All certificates representing shares of Common Stock will bear a
legend referring to the Ownership Restrictions.
All persons who have beneficial ownership, directly or by virtue of
the attribution provisions of the Code, of more than 2.5% of the
outstanding Stock are required to file an affidavit with the Company
containing the information specified in the Articles of Incorporation
within 30 days after January 1 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Company such
information as the Board of Directors deems necessary to comply with the
provisions of the Code applicable to a real estate investment trust or to
comply with the requirements of any taxing authority or governmental
agency.
The Ownership Restrictions will not automatically be removed from the
Articles of Incorporation even if the real estate investment trust
provisions of the Code are changed so as to no longer contain any
ownership concentration limitation or if the ownership concentration
limitation is increased. Except as otherwise described above, any change
in the Ownership Restrictions would require an amendment to the Articles
of Incorporation. Such an amendment to the Articles of Incorporation
would require the affirmative vote of holders owning not less than two-
thirds of the Stock then outstanding and entitled to vote thereon. In
addition to preserving the Company's status as a real estate investment
trust, the Ownership Restrictions may have the effect of precluding an
acquisition of control of the Company without the approval of the
directors.
CONVERSION AND PUT OPTION AGREEMENT
The registration of the Shares pursuant to the Registration Statement
of which this Prospectus is a part is being effected pursuant to the terms
of that certain Conversion and Put Option Agreement dated as of
November 21, 1996, by and among the Operating Partnership, the Company,
Finger Lakes Outlet Center, LLC, and FLOC (the "Conversion and Put Option
Agreement"). The following summary does not purport to be complete and is
qualified in its entirety by reference to the Conversion and Put Option
Agreement. Pursuant to the terms of the Conversion and Put Option
Agreement, at any time on or after the date of such Agreement, FLOC has
the option to convert its Convertible Interest into the Shares. Upon
FLOC's conversion of the Convertible Interest, the Company shall be the
owner of FLOC's membership interest in the Venture. Under the Conversion
and Put Option Agreement, the Company agreed to prepare and file with the
Commission a registration statement registering the Shares and to use its
reasonable efforts to cause such registration statement to become
effective. The Shares acquired upon conversion of the Convertible
Interest will be tradeable without restriction under the Securities Act.
The Company has agreed to maintain the effectiveness of the
Registration Statement so long as FLOC's right to convert the Convertible
Interest into the Shares continues. Additionally, the Company has agreed
to pay all expenses incurred in connection with the registration of the
Shares. Notwithstanding the foregoing, the Company is not obligated to
maintain the effectiveness of the Registration Statement if FLOC can sell
the Shares pursuant to Rule 144 under the Securities Act or with respect
to Shares sold by FLOC.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the principal material federal income
tax considerations regarding the Company's Common Stock. The discussion
in this section is not tax advice, is for general information only and is
based on existing provisions of the Code, existing and proposed Treasury
Regulations promulgated under the Code ("Treasury Regulations"), existing
court decisions and rulings and other administrative rulings and
interpretations.
This discussion does not purport to deal with all aspects of taxation
that may be relevant to particular shareholders in light of their personal
investment or tax circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States) subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS, HER OR ITS OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, HER OR IT OF
THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK OF THE COMPANY, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
If certain detailed conditions imposed by the REIT provisions of the
Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes
as corporations, are generally not taxed at the corporate level on their
"real estate investment trust taxable income" that is currently
distributed to shareholders. This treatment substantially eliminates the
"double taxation" (i.e., at both the corporation and shareholder levels)
that generally results from the use of corporations. Commencing with its
taxable year ended December 31, 1994, and thereafter, the Company has
elected to be treated as a REIT for federal income tax purposes and the
Company believes that it has been organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code. The Company
intends to continue to operate in the manner required to continue to be
taxed as a REIT.
If the Company fails to qualify as a REIT in any taxable year,
however, it will be subject to federal income taxation as if it were a
domestic corporation, and its shareholders will be taxed in the same
manner as shareholders of ordinary corporations. In this event, the
Company could be subject to potentially significant tax liabilities, and,
therefore, the amount of cash available for distribution to its
shareholders would be reduced or eliminated.
Based upon certain representations described below, in the opinion of
Rudnick & Wolfe, counsel to the Company, the Company currently is and will
continue to be organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation as
represented by the Company will enable it to satisfy the requirements for
such qualification. This opinion is conditioned upon certain
representations made by the Company as to certain factual matters relating
to the Company's organization and manner of operations. In addition, this
opinion is based on the law existing and in effect on the date hereof.
The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet, on a continuing basis, through actual operating
results, distribution levels and diversity of stock ownership, the various
REIT qualification tests imposed under the Code. Counsel will not review
compliance with these tests on a continuing basis. No assurance can be
given that the Company will satisfy such tests on a continuing basis.
TAXATION OF THE COMPANY
GENERAL. If the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on its
taxable income that is currently distributed to its shareholders. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
An existing corporation will qualify as a REIT only if, at the close
of its taxable year, it has no earnings and profits accumulated with
respect to any taxable year during which it was not qualified as a real
estate investment trust.
Notwithstanding its qualifications as a REIT, the Company will be
subject to federal income tax in certain circumstances. First, the
Company will be taxed at regular corporate rates on any undistributed real
estate investment trust taxable income, including undistributed net
capital gains. Second, if during the 10-year period (a "Recognition
Period") beginning on the first day of the first taxable year for which
the Company qualified as a REIT, the Company recognizes gain on the
disposition of any asset (a "Recognition Asset") held by the Company as of
the beginning of such Recognition Period, then, the excess, if any, of
(a) the fair market value of such Recognition Asset as of the beginning of
such Recognition Period (the "Built-In Gain"), over (b) the REIT's
adjusted basis in such asset as of the beginning of the Recognition Period
will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations which have not yet been promulgated; provided,
however, that any such gain may be offset by the amount, if any, of any
losses recognized by the Company during the same taxable year on the
disposition of any Recognition Asset to the extent that (x) the Company's
adjusted basis in such Recognition Asset as of the beginning of such
Recognition Period exceeds (y) the fair market value of such Recognition
Asset upon its disposition (the "Built-In Loss"). Furthermore, the total
amount of Built-In Gain that may be recognized by the Company is limited
to the excess of (i) the fair market value of all of the assets of the
Company as of the beginning of the Recognition Period, over (ii) the
aggregate adjusted basis of such assets at such time (the "Net Unrealized
Built-In Gain"). Third, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level
tax) in a transaction in which the Company's basis in the asset is
determined by reference to the basis of the asset in the hands of the C
corporation, and the Company recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset
was acquired by the Company, then, to the extent the Built-In Gain on the
sale of such asset exceeds any Built-In Loss arising from the disposition
during the same taxable year of other assets acquired in the same
transaction, such gain will be subject to tax at the highest corporate
rate pursuant to Treasury Regulations that have not yet been promulgated.
The results described above with respect to the recognition of Built-In
Gain during such Recognition Period assumes the Company will make an
election to obtain such tax consequences pursuant to IRS Notice 88-19.
Fourth, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Fifth, if the
Company has (i) net income from the sale or other disposition of
"foreclosure property" which is generally real property and any personal
property incident to such real property acquired as a result of a default
either on a lease or on indebtedness by which such property is secured and
with respect to which an appropriate election is made, except that
property generally ceases to be foreclosure property after a two-year
period, or earlier, in certain cases or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Sixth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the
ordinary course of business other than foreclosure property), such income
will be subject to a 100% tax. Seventh, if the Company should fail to
satisfy either the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject
to a 100% tax on the net income attributable to the greater of the
respective amounts by which the Company fails the 75% or 95% test.
Eighth, if the Company fails to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
In order to qualify as a REIT, the Company must meet, among others,
the following requirements:
SHARE OWNERSHIP TESTS. The Company's Stock must be held by a minimum
of 100 persons for at least 335 days in each taxable year (or a
proportional number of days in any short taxable year). In addition, at
all times during the second half of each taxable year, no more than 50% in
value of the capital stock of the Company may be owned, directly or
indirectly and by applying certain constructive ownership rules, by five
or fewer individuals. For purposes of this test, any Company shareholder
which is a pension trust described in Section 401(a) of the Code will
generally not be treated as a single shareholder; instead, each
beneficiary of such trust will be treated as holding the Company Common
Stock in proportion to his actuarial interest in the trust. However, a
pension trust will be treated as a single shareholder for purposes of this
test if one or more "disqualified persons" with respect to such trust hold
in the aggregate 5% or more in value of the REIT's shares and the REIT has
accumulated earnings and profits attributable to any pre-REIT period. For
purposes of the foregoing rule, a disqualified person includes a fiduciary
of the trust, an employer any of whose employees are covered by the plan
of which the trust is a part, an employee organization any of whose
employees are covered by the plan of which the trust is a part, an owner
(direct or indirect) of 50% or more of an employer or employee
organization referred to above and certain other affiliates as of an
individual referred to above.
In order to ensure compliance with the foregoing stock ownership
tests, the Company has placed certain restrictions on the transfer of
Common Stock to prevent additional concentration of stock ownership.
Moreover, to evidence compliance with these requirements, under Treasury
Regulations, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligations
to maintain records, the Company must and will demand written statements
each year from the record holders of designated percentages of Common
Stock disclosing the actual owners of such Common Stock (as prescribed by
Treasury Regulations). Those persons failing or refusing to comply with
the Company's written demand must submit with his, her or its tax returns
a similar statement disclosing the actual ownership of Common Stock and
certain other information. In addition, the Company's Articles of
Incorporation provide restrictions regarding the transfer of its shares
that are intended to assist the Company in continuing to satisfy the
ownership requirements. See "Description of Capital Stock of the Company
-- Restrictions on Transfer and Ownership of Common Stock."
ASSET TESTS. At the close of each quarter of the Company's taxable
year, the Company must satisfy two tests relating to the nature of its
assets (determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total
assets must be represented by interests in real property, interest in
mortgages on real property, shares in other REITs, cash, cash items,
government securities and qualified temporary investments. Second,
although the remaining 25% of the Company's assets generally may be
invested without restriction, the value of securities in this class may
not exceed either (i) in the case of securities of any one non-government
issuer, 5% of the value of the Company's total assets or (ii) 10% of the
outstanding voting securities of any one such issuer. Where the Company
invests in a partnership (such as the Operating Partnership), it will be
deemed to own a proportionate share of the partnership's assets. See "--
Tax Aspects of the Company's Investments in the Operating Partnership --
General." Accordingly, the Company's investment in properties through its
interest in the Operating Partnership is intended to constitute qualified
assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting stock and 5% of
the voting stock of each of HGI Management Corp. (the "HGI Management
Company"), MG Third Party Services Corp. (the "MG Management Company") and
certain other C corporations (the "Financing Subsidiaries") that are the
sole general partners of certain financing partnerships that have entered
into loan transactions with various lenders. As described above, by
virtue of its partnership interest in the Operating Partnership, the
Company will be deemed to own a pro rata share of the securities of each
of the HGI Management Company, the MG Management Company and the Financing
Subsidiaries. Because the Operating Partnership owns only 5% of the
voting securities of each of the HGI Management Company, the MG Management
Company and the Financing Subsidiaries, the 10% limitation on holdings of
voting securities of any one issuer is not exceeded. In addition, based
upon its comparison of the total estimated value of the HGI Management
Company, the MG Management Company and the Financing Subsidiaries
securities owned by the Operating Partnership to the estimated value of
the total assets owned by the Operating Partnership and the Company, the
Company believes that limitation restricting the Company's ownership of
the securities of any one issuer to 5% of the value of the Company's total
assets is not exceeded. Counsel for the Company, in rendering its opinion
as to the qualification of the Company as a REIT, is relying on
representations of the Company with respect to the value of such
securities and assets. The 5% value limitation must be satisfied at the
end of any quarter in which the Company acquires securities (directly or
through the Operating Partnership), but also at the end of any quarter in
which the Company increases its interest in each of the HGI Management
Company, the MG Management Company, the Financing Subsidiaries or acquires
other property. In this respect, if any partner of the Operating
Partnership exercises its option to redeem or exchange Units for shares of
Common Stock, the Company will thereby increase its proportionate
(indirect) ownership interest in each of the HGI Management Company, the
MG Management Company and the Financing Subsidiaries, thus requiring the
Company to reassess its ability to meet the 5% test in any quarter in
which such exchange option is exercised. Although the Company plans to
take steps to ensure that it satisfies the 5% value test for any quarter
with respect to which reassessment is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction
in the Operating Partnership's overall interest in the HGI Management
Company, the MG Management Company or the Financing Subsidiaries.
GROSS INCOME TESTS. There are three separate percentage tests
relating to the sources of the Company's gross income which must be
satisfied for each taxable year. For purposes of these tests, where the
Company invests in a partnership, the Company will be treated as receiving
its allocable share of income and loss of the partnership, and the gross
income of the partnership will retain the same character in the hands of
the Company as it has in the hands of the partnership. See "- Tax Aspects
of the Company's Investment in the Operating Partnership - General." The
three tests are as follows:
* THE 75% TEST. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (as modified below); (ii) interest
on obligations secured by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's
trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs as well as gain from the sale of
such shares; (v) abatements and refunds of real property taxes;
(vi) income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of the mortgage secured by such
property ("foreclosure property"); and (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to
purchase or lease real property.
Rents received from a tenant will not qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the
Company, directly or constructively owns 10% or more of such tenant. In
addition, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent
received under the lease, the portion of rent attributable to such
personal property will not qualify as rents from real property. Moreover,
an amount received or accrued will not qualify as rents from real property
(or as interest income) for purposes of the 75% and 95% gross income tests
if it is based in whole or in part on the income or profits of any person,
although an amount received or accrued generally will not be excluded from
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, the Company generally
must not operate or manage the property or furnish or render services to
tenants, other than through an "independent contractor" from whom the
Company derives no income, except that the "independent contractor"
requirement does not apply to the extent that the services provided by the
Company are "usually or customarily rendered" in connection with the
rental of space for occupancy only, or are not otherwise considered
"rendered to the occupant for his convenience."
Each of the HGI Management Company and the MG Management Company (each
of which does not satisfy the independent contractor standard), as a
management agent for the Operating Partnership, provide certain services
with respect to properties that the Operating Partnership does not own or
in which it has a partial ownership interest. The Company believes that
all services provided by the HGI Management Company and the MG Management
Company to the Operating Partnership are and will continue to be of the
type usually or customarily rendered in connection with the rental of
space for occupancy only, and therefore, that the provision of such
services does not and will not cause the rents received with respect to
the properties to fail to qualify as rents from real property for purposes
of the 75% and 95% gross income tests.
* THE 95% TEST. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for
the taxable year must be derived from the above-described qualifying
income, or from dividends, interest, or gains from the sale or other
disposition of stock or other securities that are not dealer property.
Dividends and interest on any obligations not collateralized by an
interest in real property are included for purposes of the 95% test, but
not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75%
and 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Company for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made
thereto) are satisfied. See "- Taxation of the Company - General" and "-
Tax Aspects of the Company's Investment in the Operating Partnership -
General."
The Company believes that, for purposes of both the 75% and 95% gross
income tests, its investment in properties through the Operating
Partnership will give rise to qualifying income in the form of rents, and
that gains on sales of properties, or of the Company's interest in the
Operating Partnership, generally will also constitute qualifying income.
The HGI Management Company and the MG Management Company also receive
fee income in consideration of the performance of property management and
other services with respect to properties partially owned or not owned by
the Operating Partnership; however, substantially all of the income
derived by the Operating Partnership from the HGI Management Company and
the MG Management Company will be in the form of dividends on the HGI
Management Company stock and the MG Management Company stock owned by the
Operating Partnership. Although such dividends and interest income will
satisfy the 95%, but not the 75%, gross income test (as discussed above),
the Company anticipates that the amount of non-qualifying income on its
other investments, including such dividend and interest income, will not
result in the Company failing either the 75% or 95% gross income test.
Even if the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT
for such year if it is entitled to relief under certain provisions of the
Code. These relief provisions will generally be available if: (i) the
Company's failure to comply was due to reasonable cause and not willful
neglect; (ii) the Company reports the nature and amount of each item of
its income included in the tests on a schedule attached to its tax return;
and (iii) any incorrect information on this schedule is not due to fraud
with intent to evade tax. If these relief provisions apply, however, the
Company will nonetheless be subject to a 100% tax on the greater of the
amount by which it fails either the 75% or 95% gross income test,
multiplied by a fraction intended to reflect the Company's profitability.
THE 30% TEST. The Company must derive less than 30% of its gross
income for each taxable year from the sale or disposition of (i) real
property held for less than four years (other than foreclosure property
and property disposed of in involuntary conversions); (ii) stock or
securities held for less than one year; and (iii) property in a prohibited
transaction. The Company believes that it will not have difficulty in
complying with this test.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company is required to distribute dividends (other than capital gain
dividends) to its shareholders in an amount at least equal to (A) the sum
of (i) 95% of the "REIT taxable income" of the Company (computed without
regard to the dividends paid deduction and the Company's net capital gain)
and (ii) 95% of the net income (after tax), if any, from foreclosure
property, minus (B) the sum of certain items of noncash income. In
addition, if during the 10-year Recognition Period, the Company recognizes
gain on the disposition of any Recognition Asset held by the Company as of
the beginning of such Recognition Period, then the Company will be
required, pursuant to Treasury Regulations which have not yet been
promulgated in final form, to distribute to its shareholders at least 95%
of the excess (after the payment of any applicable taxes), of (a) the fair
market value of such Recognition Asset as of the beginning of such
Recognition Period over (b) the Company's adjusted basis in such
Recognition Asset as of the beginning of such Recognition Period;
provided, however, that any such excess amount may be offset by the
amount, if any, of any losses recognized by the Company during the same
taxable year on the disposition of any Recognition Asset to the extent
that (x) the Company's adjusted basis in such Recognition Asset as of the
beginning of such Recognition Period exceeds (y) the fair market value of
such Recognition Asset upon its disposition. Such distributions must be
paid in the taxable year to which they relate, or in the following taxable
year if declared before the Company timely files its tax return for such
year and if paid on or before the first regular dividend payment after
such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%,
of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed ordinary and capital gain income from prior periods, the
Company would be subject to a nondeductible 4% excise tax on the excess of
such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy all
annual distribution requirements.
It is possible that, from time to time, the Company may experience
timing differences between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of that income and
deduction of such expenses in arriving at the Company's REIT taxable
income. Further, it is possible that, from time to time, the Company may
be allocated a share of net capital gain attributable to the sale of
depreciable property which exceeds its allocable share of cash
attributable to that sale. If either of the foregoing situations arise,
the Company may have less cash available for distribution than is
necessary to meet its annual 95% distribution requirement or to avoid tax
with respect to capital gain or the excise tax imposed on certain
undistributed income. To meet the 95% distribution necessary to qualify
as a REIT or to avoid tax with respect to the capital gain or the excise
tax imposed on certain undistributed income, the Company may find it
appropriate to arrange for short-term (or possibly long-term) borrowings
to pay distributions or to pay distributions in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be
included in the Company's deduction for dividends paid for the earlier
year. Thus, the Company may be able to avoid being taxed on amounts
distributed as deficiency dividends; provided, however, the Company will
be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
FAILURE TO QUALIFY FOR TAXATION AS A REIT. If the Company fails to
qualify for taxation as a REIT in any taxable year, and the relief
provisions do not apply, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular
corporation rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will
be taxable as ordinary income, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions,
the Company will also be disqualified from taxation as a REIT for the four
taxable years following the year during which the Company ceased to
qualify as a REIT. It is not possible to state whether, in any
circumstance, the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
GENERAL. Substantially all of the Company's investments will be held
through the Operating Partnership. In general, partnerships are "pass-
through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of the partnership and without regard to
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution
from the partnership. The Company will include in its income its
proportionate share of the foregoing Operating Partnership items for
purposes of the various REIT income tests and in computation of its REIT
taxable income. Moreover, for purposes of the REIT asset tests, the
Company will include its proportionate share of assets held by the
Operating Partnership. See "Taxation of the Company - General."
ENTITY CLASSIFICATION. The Company's interest in the Operating
Partnership involves special tax considerations, including the
classification of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax
purposes. If the Operating Partnership is treated as an association, it
would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the Company's
assets and items of gross income would change, which would preclude the
Company from satisfying the asset tests and the income tests (see "-
Taxation of the Company - Asset Tests" and "- Gross Income Tests"), and in
turn would prevent the Company from qualifying as a REIT. See "- Taxation
of the Company - Failure to Qualify For Taxation as a REIT" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. In addition, any change in the Operating Partnership's
status for tax purposes might be treated as a taxable event in which case
the Company might incur a tax liability without any related cash
distributions. The Operating Partnership has not requested, and does not
intend to request, a ruling from the IRS that it will be treated as a
partnership for federal income tax purposes.
TAX CONSEQUENCES OF REDEMPTION/EXCHANGE OF UNITS
The partnership agreement of the Operating Partnership (the "Operating
Partnership Agreement") provides each Unit holder (other than the Company)
with the right, subject to certain limitations, to require the Operating
Partnership to redeem all or a portion of his, her or its Units for an
equal number of shares of Common Stock (subject to certain adjustments to
prevent dilution) or, at the option of the Company, the cash equivalent of
that number of shares of Common Stock. Alternatively, the Company can
assume the redemption obligation of the Operating Partnership and exchange
an equal number of shares of Common Stock or its cash equivalent for such
Units. (A Unit holder's right to require the redemption of Units is
referred to herein as the "Redemption Right").
ASSUMPTION OF REDEMPTION OBLIGATION BY THE COMPANY. If the Company
assumes and performs the redemption obligation, the Operating Partnership
Agreement provides that the redemption will be treated by the Company, the
Operating Partnership and the Unit holder as a sale of Units by such Unit
holder to the Company. In that event, such sale will be fully taxable to
the Unit holder, and such Unit holder will be treated as realizing for
federal income tax purposes an amount equal to the sum of the cash or the
value of the Common Stock received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the applicable Units at the
time of the transfer. The methodology used by the Operating Partnership
to allocate its liabilities to the Unit holders, which is based on
principles set forth in Treasury Regulations, will likely result in a
varying amount of such liabilities being allocated to different Unit
holders. Accordingly, it is possible that Unit holders who hold an
identical number of Units are allocated different amounts of liabilities
of the Operating Partnership for federal income tax purposes. The
determination of gain or loss will be based on the difference between the
amount realized by the Unit holder as described above and the adjusted tax
basis for such Units. The tax liability resulting from such gain could
exceed the amount of cash received upon disposition. Generally, a Unit
holder's adjusted basis for federal income tax purposes in his, her or its
Units will be equal to the amount of money and fair market value of
property he, she or it contributes to the Operating Partnership, plus (i)
his, her or its allocable share of the liabilities of the Operating
Partnership, plus (ii) his, her or its allocable share of the profits of
the Operating Partnership, less (iii) distributions to such Unit holder by
the Operating Partnership, less (iv) his, her or its allocable share of
the losses of the Operating Partnership.
REDEMPTION OF UNITS FOR CASH. If the Company does not elect to assume
the Operating Partnership's obligation to redeem, and the Operating
Partnership chooses to redeem a Unit holder's Units for cash that is not
contributed by the Company to effect the redemption, the redeeming Unit
holder would be treated as realizing an amount equal to the cash received
plus the amount of the Operating Partnership liabilities allocable to the
redeemed Units at the time of redemption. However, if the Operating
Partnership redeems less than all of a Unit holder's Units for cash that
is not contributed by the Company to effect the redemption, the Unit
holder would (i) recognize taxable gain only to the extent that the cash,
plus the amount of the Operating Partnership liabilities allocable to the
redeemed Units, exceeded the Unit holder's adjusted basis in all of such
Unit holder's Units immediately before the redemption, and (ii) not be
permitted to recognize any loss realized on the redemption.
REDEMPTION OF UNITS FOR COMMON STOCK. If the Company does not elect
to assume the Operating Partnership's obligation to redeem, and the
Operating Partnership redeems such Units for shares of Common Stock that
the Company contributes to the Operating Partnership to effect such
redemption, the redemption may be treated for tax purposes as a sale of
such Units to the Company in a fully taxable transaction, although there
is no authority that considers these facts in light of applicable legal
precedent, and thus the matter is not certain. In that event, the
redeeming Unit holder would be treated in the manner described in the
preceding paragraph (i.e., as realizing an amount equal to the value of
the shares of Common Stock received in the exchange plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units at the
time of the redemption).
If the redemption of the Units for Common Stock is not treated as a
sale for tax purposes as described above, the distribution of the Common
Stock to the Unit holder would, in general, be a taxable event only to the
extent the amount of Operating Partnership liabilities allocable to the
redeemed Units at the time of the redemption exceeded the Unit holder's
adjusted basis in his Units at the time of such redemption. However, a
redemption for a payment of Common Stock that is effected within five
years of (i) with respect to Unit holders who were former partners of
Horizon Outlet Centers Limited Partnership (the "Horizon Partnership"),
the consolidation of the Horizon Partnership and McG Outlet Centers
Limited Partnership ("McArthur/Glen Operating Partnership") effective as
of July 14, 1995, or (ii) with respect to Unit holders who were former
partners of the McArthur/Glen Operating Partnership, the date of the
organization of the McArthur/Glen Operating Partnership, could result in
the recognition of income to such Unit holder, in an amount equal to the
lesser of (A) the excess of the value of the Common Stock received over
the tax basis of the Unit holder in all of his, her or its Units, as such
basis is reduced by the amount of such Unit holder's share of the
Operating Partnership liabilities allocable to the redeemed Units or (B)
the Unit holder's share of pre-contribution appreciation in assets
previously contributed by such partner to such partner's PREVIOUS
partnership (i.e., the Horizon Partnership or McArthur/Glen Operating
Partnership) in exchange for an interest therein, determined as of the
time of such contribution. Except as described below, a redemption for
Common Stock that occurs more than five years after the above periods
should generally result in no gain or loss to a redeeming Unit holder,
except to the extent that gain would result if the Unit holder's share of
the Operating Partnership's liabilities allocable to the redeemed Units
exceeded the adjusted tax basis of the Unit holder in his, her or its
Units immediately before the redemption.
Moreover, even if gain is not recognized under the rules described in
the immediately preceding paragraph, Code Section 731(c) could be applied
to result in the recognition of gain to a Unit holder on the redemption of
all or a portion of his Units in exchange for a payment of Common Stock.
Under Code Section 731(c), distributions of marketable securities
generally are treated as cash distributions. In the case of the
distribution of Common Stock pursuant to the exercise by a Unit holder of
his Redemption Right, the Common Stock distributed would be considered to
be marketable securities treated as cash, but in that case, under Code
Section 731(c), the amount of gain that would otherwise be recognized by
the distributee Unit holder would be reduced (but not below zero) by an
amount equal to the excess of (i) the amount of gain that would have been
allocable to such Unit holder under the Operating Partnership Agreement if
all of the Common Stock had been sold by the Operating Partnership rather
than distributed to the Unit holder pursuant to the exercise of the
Redemption Right over (ii) such Unit holder's distributive share of the
net gain attributable to such marketable securities held by the Operating
Partnership after the distribution. Under this exception, a distribution
consisting solely of Common Stock to a Unit holder in connection with the
exercise of the Redemption Right may reduce, but may not eliminate, the
taxable gain that would otherwise be recognized by the Unit holder as a
result of such redemption.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable United
States shareholders out of current or accumulate earnings and profits (and
not designated as capital gain dividends) will be taken into account by
such United States shareholders as ordinary income and corporate
recipients will not be eligible for the dividends received deduction.
Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period
for which the shareholder has held its Common Stock. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a shareholder to
the extent that they do not exceed the adjusted basis of the shareholder's
Common Stock, but rather will reduce the adjusted basis of such shares.
To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a shareholder's Common
Stock, such distributions will be included in income as long-term capital
gain (or short-term capital gain if the shares have been held for one year
or less) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any distribution declared by the Company in
October, November or December of any year payable to a shareholder of
record on a specified date in any such month shall be treated as both paid
by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company
during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
shareholder who has held such shares for six months or less (after
applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to
be treated by such shareholder as long-term capital gain.
BACKUP WITHHOLDING. The Company will report to its United States
shareholders and the IRS the amount of distributions paid during each
calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a shareholder may be subject to backup withholding at
the rate of 31% with respect to distributions paid unless such holder
(a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide the Company
with its correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will
be credited against the shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain
distributions to any shareholders who fail to certify their nonforeign
status to the Company. See "- Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS. Distributions by the Company to
a shareholder that is a tax-exempt entity should not constitute "unrelated
business taxable income" ("UBTI"), as defined in Code Section 512(a),
provided that the tax-exempt entity has not financed the acquisition of
its shares with "acquisition indebtedness" within the meaning of the Code
and the shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity. Notwithstanding the foregoing, under certain
circumstances, a pension trust owning more than 10% of the Company's
Common Stock will be required to treat a percentage of its dividend income
from the Company as UBTI. The applicable percentage is equal to the
amount of gross income of the Company that would be treated as arising
from an unrelated trade or business if the Company were a pension trust,
divided by the total gross income of the Company. This dividend provision
will apply only if (i) the Company satisfied the five-or-fewer share
ownership test described above only by relying on the special rule that
treats beneficiaries of a pension trust as individual shareholders, as
opposed to the trust itself, and (ii) either one pension trust owns more
than 25% in value of the Company or a group of pension trusts individually
holding more than 10% of the value of the Company collectively owns more
than 50% of the value of the Company.
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing United States
federal income taxation of non-resident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex, and no attempt will
be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or
exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such
distributions will ordinarily be subject to a withholding tax equal to 30%
of the gross amount of the distribution unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in
the shares is treated as effectively connected with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the
same manner as United States shareholders are taxed with respect to such
distributions (and may also be subject to the 30% branch profits tax in
the case of a shareholder that is a foreign corporation). The Company
expects to withhold United States income tax at a rate of 30% on the gross
amount of any such distributions made to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies or (ii) the Non-U.S. Shareholder files an
IRS Form 4224 with the Company claiming that the distribution is
effectively connected income. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a
non-U.S. Shareholder to the extent that such distributions do not exceed
the adjusted basis of the non-U.S. Shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Shareholder's shares, such
distributions will give rise to tax liability if the Non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition
of his shares in the Company, as described below. If it cannot be
determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate
as dividends. However, amounts thus withheld are refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of
United States real property interests will be taxed to a Non-U.S.
Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, distributions
attributable to gain from sales of United States real property interests
are taxed to a Non-U.S. Shareholder as if such gain was effectively
connected with a United States business. Non-U.S. Shareholders would thus
be taxed at the normal capital gain rates applicable to United States
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Also, distributions subject to FIRPTA may be subject to a 30% branch
profits tax in the hands of a foreign corporate shareholder not entitled
to treaty exemption. The Company is currently required by applicable
Treasury Regulations to withhold 34% of any distribution that could be
designated by the Company as a capital gains dividend. This amount is
creditable against the Non-U.S. Shareholder FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during
a specified testing period less than 50% in value of the shares was held
directly or indirectly by foreign persons. It is currently anticipated
that the Company will be a "domestically controlled REIT," and therefore
the sale of shares will not be subject to taxation under FIRPTA. However,
gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as United States
Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder
is a nonresident alien individual who was present in the United States for
183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the gain on
the sale of shares were to be subject to taxation under FIRPTA, then, as
noted above, the Non-U.S. Shareholder will be subject to the same
treatment as United States shareholders with respect to such gain (subject
to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals).
OTHER TAX CONSIDERATIONS
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES.
Prospective shareholders should recognize that the present federal income
tax treatment of an investment in the Company may be modified by
legislative, judicial or administrative action at any time and that any
such action may affect investments and commitments previously made. The
rules dealing with federal income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the
Treasury Department, resulting in revisions of regulations and revised
interpretations of established concepts as well as statutory changes.
Revisions in federal tax laws and interpretations thereof could adversely
affect the tax consequences of an investment in the Company.
STATE AND LOCAL TAXES. The Company and its shareholders may be
subject to state or local taxation in various jurisdictions, including
those in which it or they transact business or reside. The state or local
tax treatment of the Company and its shareholders may not conform to the
federal income tax consequences discussed above. Consequently,
prospective shareholders should consult their own tax advisors regarding
the effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
Upon conversion of the Convertible Interest, the Company will issue
the Shares to FLOC in accordance with the terms of the Conversion and Put
Option Agreement. The Company will pay all of the expenses of the
preparation, printing and filing of the Registration Statement, any
amendments or supplements thereto, and prospectuses and revised
prospectuses as required to cover the transactions covered hereby, as well
as the Company's fees and disbursements of its counsel and accountants
relating to the Registration Statement, but the Company is not obligated
to pay any underwriting discounts and commissions, the legal fees and
expenses of FLOC, if any, relating to the issuance of the Shares to FLOC
or the sale or disposition of the Shares by FLOC.
FLOC may be deemed an underwriter of the Shares for purposes of the
Securities Act. To the extent that FLOC is deemed an underwriter, this
Prospectus also relates to the resale of the Shares by FLOC. FLOC may
offer and sell the Shares from time to time on the New York Stock
Exchange, other stock exchanges or otherwise, at prices and on terms then
obtainable, in broker's transactions, special offerings, exchange
distributions, negotiated transactions, block transactions or otherwise.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and a "disqualified person" under corresponding provisions of
the Code with respect to certain employee benefit plans. Certain
transactions between an employee benefit plan and a party in interest or a
disqualified person may result in "prohibited transactions" within the
meaning of ERISA and the Code, unless such transactions are effected
pursuant to an applicable exemption. Any employee benefit plan or other
entity subject to such provisions of ERISA or the Code proposing to invest
in the Offered Securities should consult its legal counsel.
LEGAL MATTERS
Certain legal matters in connection with the Shares, including the
validity of the Offered Securities, will be passed upon for the Company by
Rudnick & Wolfe, Chicago, Illinois. Attorneys of that firm who
participated in the preparation of this Prospectus own a total of 4,000
shares of Company Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company
incorporated by reference or included in the Company's Annual Report (Form
10-K) for the year ended December 31, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
incorporated by reference or included therein and incorporated herein by
reference. Such financial statements and schedule are, and audited
financial statements to be included in subsequently filed documents will
be, incorporated herein in reliance upon the reports of Ernst & Young LLP
pertaining to such financial statements ( to the extent covered by
consents filed with the Commission) given upon the authority of such firm
as experts in accounting and auditing.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the offering of the Offered Securities being registered.
All the amounts shown are estimates except the Securities and Exchange
Commission registration fee.
ITEM AMOUNT
Registration Fee - Securities and Exchange
Commission ......................................$8,327
New York Stock Exchange Listing Fee ...................1,500
Legal Fees and Expenses ..............................10,000
Accounting Fees and Expenses ..........................5,000
Printing and Engraving Expenses .......................1,000
Blue Sky Fees and Expenses ........................... - 0 -
Miscellaneous Expenses ................................4,173
Total ..........................................$30,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Michigan Business Corporation Act, as amended (the "MBCA")
permits a Michigan corporation to include in its articles of incorporation
a provision eliminating or limiting the liability of its directors to the
corporation or its shareholders for money damages for a breach of the
director's fiduciary duty, except for (i) receipt of an improper personal
benefit; (ii) breach of the duty of loyalty to the corporation or its
shareholders; (iii) acts or omissions not taken in good faith or that
involve intentional misconduct or knowing violations of the law; (iv) acts
or omissions occurring prior to the date when the provision becomes
effective; and (v) declaring a dividend or distribution, or granting a
loan to a shareholder, director or officer, in violation of the MBCA or
the corporation's articles of incorporation or bylaws. The Articles of
Incorporation of the Company include such a provision which eliminates
such liability to the fullest extent permitted by the MBCA.
The Articles of Incorporation of the Company authorize it to indemnify
its present and former officers and directors and to pay or reimburse
expenses in advance of the final disposition of the proceeding to the
maximum extent permitted from time to time by the laws of Michigan. It
further authorizes the Company's directors to indemnify any person with
whom the Company has dealings. The Bylaws of the Company obligate it to
indemnify, and advance expenses to, present and former directors and
officers to the maximum extent permitted by Michigan law. Under the MBCA,
a corporation has the power to indemnify its present or former directors
or officers against, among other things, expenses, including attorney's
fees, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with such action or
proceeding if: (i) the person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of
the corporation or its shareholders; and (ii) with respect to any criminal
action or proceeding, if the person had no reasonable cause to believe his
or her conduct was unlawful. In addition, the MBCA requires the Company,
as a condition to advancing expenses, to obtain (i) a written affirmation
by the person of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written statement by or on his or her
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met; and if
a determination is made that the facts then known to those making the
determination would not preclude indemnification under the MBCA.
The Company has entered into indemnification agreements with its
directors and officers. Such agreements provide for indemnification
against expenses incurred in connection with, as well as judgments, fines
and amounts paid in settlement resulting from, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is
or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, trustee, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise as long as such amounts have been actually and
reasonably incurred by the indemnitee.
ITEM 16. EXHIBITS
3.1 Amended and Restated Articles of Incorporation (Incorporated by
reference.)
3.2 Amended and Restated Bylaws (Incorporated by reference.)
4 Specimen Common Stock Certificate of Horizon Group, Inc. (Incorporated
by reference.)
5.1 Opinion of Rudnick & Wolfe
8.1 Opinion of Rudnick & Wolfe
23.1 Consent of Ernst & Young LLP
23.3 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
24 Power of Attorney
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant further undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
The Registrant further undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Muskegon, State of
Michigan, on May 13, 1997.
HORIZON GROUP, INC.
BY:/S/ RONALD L. PIASECKI
Ronald L. Piasecki
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
By:/S/ RONALD L. PIASECKI Director May 13, 1997
Ronald L. Piasecki (Principal Executive Officer)
Douglas Crocker II* Director May 13, 1997
William P. Dickey* Director May 13, 1997
Alan Glen* Director May 13, 1997
Edwin N. Homer* Director May 13, 1997
Martin Sherman* Director May 13, 1997
Francis T. Vincent, Jr.* Director May 13, 1997
Joseph Cattivera* Executive Vice President May 13, 1997
(Principal Financial Officer)
Richard Phillips* Vice President (Principal
Accounting Officer) May 13, 1997
*By:/S/ JOSEPH CATTIVERA Individually and as May 13, 1997
Joseph Cattivera Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation [Incorporated by
reference to Exhibit 3.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, SEC File No. 1-12424]
3.2 Amended and Restated Bylaws [Incorporated by reference to Exhibit 3.2
to Registration Statement No. 33-95730]
4 Specimen Common Stock Certificate of Horizon Group, Inc. [Incorporated
by reference to Exhibit 4 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, SEC File No. 1-12424]
5.1 Opinion of Rudnick & Wolfe*
8.1 Opinion of Rudnick & Wolfe*
23 Consent of Ernst & Young LLP*
23.3 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
24 Power of Attorney*
* Filed herewith.
<PAGE>
May 13, 1997
(312) 368-4012
The Board of Directors
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, MI 49441
Gentlemen:
We have examined the registration statement on Form S-3 filed with the
Securities and Exchange Commission on or about May 13, 1997, for
registration under the Securities Act of 1933, as amended, of 2,165,605
shares of common stock (the "Shares") of Horizon Group, Inc., a Michigan
corporation (the "Company"), par value of $.01 per share (the "Common
Stock"), which are to be issued pursuant to that certain Conversion and
Put Option Agreement between the Company, Horizon/Glen Outlet Centers
Limited Partnership, FLOC, LLC, and Finger Lakes Outlet Center, LLC (the
"Conversion and Put Option Agreement"). We have examined pertinent
corporate documents and records of the Company, including its Amended and
Restated Articles of Incorporation and its Amended and Restated By-Laws,
and we are familiar with the corporate proceedings had and contemplated in
connection with such issuance of shares of Common Stock by the Company.
We have also made such other examinations as we have deemed necessary or
appropriate as a basis for the opinion hereinafter expressed.
On the basis of the foregoing, we are of the opinion that, when issued
pursuant to the terms of the Conversion and Put Option Agreement, the
Shares will be duly authorized, legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
registration statement and to the reference to our firm in the
registration statement under the caption "Legal Matters."
Very truly yours,
RUDNICK & WOLFE
By: /S/ HAL M. BROWN
Hal M. Brown, a Partner
<PAGE>
May 13, 1997
(312) 368-4000
Horizon Group, Inc.
5000 Hakes Drive
Norton Shores, Michigan 49441
Re: TAX OPINION FOR S-3 REGISTRATION STATEMENT
Ladies and Gentlemen:
Pursuant to the Registration Statement on Form S-3 filed by Horizon
Group, Inc., a Michigan corporation ("Horizon" or the "Company"), with the
Securities and Exchange Commission on or about May 13, 1997 (the
"Registration Statement"), you have requested our opinion, as counsel to
Horizon, concerning (i) the qualification and taxation of Horizon as a
real estate investment trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) the information in the Prospectus
(the "Prospectus") as contained in the Registration Statement under the
heading "FEDERAL INCOME TAX CONSIDERATIONS." Unless otherwise
specifically defined herein, all capitalized terms have the meaning
assigned to them in the Prospectus.
In connection with rendering the opinions expressed below, we have
examined originals (or copies identified to our satisfaction as true
copies of the originals) of the following documents (collectively, the
"Reviewed Documents"):
(a) Amended and Restated Limited Partnership Agreement of
Horizon/Glen Outlet Centers Limited Partnership, a Delaware
limited partnership ("Horizon/Glen Operating Partnership"), dated
as of July 14, 1995, as amended (the "Partnership Agreement");
(b) The Registration Statement; and
(c) Such other documents as may have been presented to us by Horizon
from time to time.
In addition, we have relied upon Horizon's certificate (the "Officer's
Certificate"), executed by a duly appointed officer of Horizon, setting
forth certain representations relating to the organization and operation
of Horizon and Horizon/Glen Operating Partnership. For the purposes of
our opinion, we have not made an independent investigation of the facts
set forth in the documents we reviewed. We consequently have assumed that
the information presented in such documents or otherwise furnished to us
accurately and completely describes all material facts relevant to our
opinion. In the course of our representation of Horizon, no information
has come to our attention that would cause us to question the accuracy or
completeness of the representations contained in the Officer's Certificate
or of the Reviewed Documents in a material way.
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are
true and correct, and all of the obligations imposed by any such documents
on the parties thereto have been and will be performed or satisfied in
accordance with their terms. We have also assumed the genuineness of all
signatures, the proper execution of all documents, the authenticity of all
documents submitted to us as originals, the conformity to originals of
documents submitted to us as copies, and the authenticity of the originals
from which any copies were made.
In rendering these opinions, we have assumed that the transactions
contemplated by the Reviewed Documents will be consummated in accordance
with the terms and provisions of such documents, and that such documents
accurately reflect the material facts of such transactions. In addition,
the opinions are based on the correctness of the following specific
assumptions: (i) Horizon and Horizon/Glen Operating Partnership will each
be operated in the manner described in the Partnership Agreement or other
organizational documents and in the Prospectus, and all terms and
provisions of such agreements and documents will be complied with by all
parties thereto; (ii) Horizon/Glen Operating Partnership will be
classified as a partnership for federal income tax purposes; (iii) each
partner in Horizon/Glen Operating Partnership has been motivated in
acquiring its partnership interest by its anticipation of economic rewards
apart from tax considerations; (iv) Horizon is a validly organized and
duly incorporated corporation under the laws of the State of Michigan; and
(v) there has been no change in the applicable laws of the States of
Delaware or Michigan, or in the Code, the regulations promulgated
thereunder by the Treasury Department, and the interpretations of the Code
and such regulations by the courts and the Internal Revenue Service, all
as they are in effect and exist at the date of this letter. With respect
to the last assumption, it should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to
change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the foregoing
bases for our opinions could affect our conclusions. Moreover, Horizon's
qualification and taxation as a REIT depends upon Horizon's ability to
meet, through actual annual operating results, distribution levels and
diversity of share ownership and the various qualification tests imposed
under the Code, the results of which will not be reviewed by the
undersigned. Accordingly, no assurance can be given that the actual
results of Horizon's operations for any one taxable year will satisfy such
requirements.
Based upon and subject to the foregoing, it is our opinion that:
(1) Horizon was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code for its taxable
year ended December 31, 1996, and Horizon's proposed method of operation,
as described in the Prospectus and as represented in the Officer's
Certificate, will enable it to satisfy the requirements for qualification
and taxation as a REIT under the Code.
(2) The statement of federal income tax matters and consequences
described in the Prospectus under the heading "FEDERAL INCOME TAX
CONSIDERATIONS," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by us and is correct in all material
respects.
Other than as expressly stated above, we express no opinion on any
issue relating to Horizon and Horizon/Glen Operating Partnership, or to
any investment therein.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by
reference the discussion of federal income tax issues, which we assisted
in preparing, in the section of the Prospectus under the heading "Federal
Income Tax Considerations." We assume no obligation to advise you of any
changes in the foregoing subsequent to the date of this opinion letter,
and we are not undertaking to update the opinion letter from time to time.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This opinion may be incorporated by reference in
any subsequent abbreviated registration statement of Horizon to the extent
such incorporation is permitted under the Securities Act of 1933, as
amended. This opinion letter has been prepared solely for your use in
connection with the Registration Statement and should not be quoted in
whole or in part or otherwise be referred to, nor filed with or furnished
to any governmental agency or other person or entity, without the prior
written consent of this firm.
Very truly yours,
/S/ RUDNICK & WOLFE
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm
under the caption "Experts" in the Registration Statement (Form S-3) and
related Prospectus of Horizon Group, Inc. for the registration of
2,165,605 shares of its common stock and to the incorporation by reference
therein of our reports dated February 26, 1997, with respect to the
consolidated financial statements and schedule of Horizon Group, Inc.
incorporated by reference or included in its Annual Report (Form 10-K) for
the year ended December 31, 1996, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
May 12, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that
each of the undersigned, being a director or officer, or both, of HORIZON
GROUP, INC., a Michigan corporation (the "Company"), does hereby
constitute and appoint JEFFREY A. KERR, JOSEPH CATTIVERA and JAMES S.
O'BRIEN, with full power to each of them to act alone, as the true and
lawful attorneys and agents of the undersigned, with full power of
substitution and resubstitution to each of said attorneys to execute, file
or deliver any and all instruments and to do all acts and things which
said attorneys and agents, or any of them, deem advisable to enable the
Company to comply with the Securities Act of 1933, as amended, and any
requirements or regulations of the Securities and Exchange Commission in
respect thereof, in connection with the Company's filing with respect to
the registration under said Securities Act of shares of common stock
issuable or issued pursuant to Venture Agreement by and between
Horizon/Glen Outlet Centers Limited Partnership and Finger Lakes Outlet
Center, LLC, including specifically, but without limitation of the general
authority hereby granted, the power and authority to sign his name as a
director or officer or both, of the Company, as indicated below opposite
his signature, to the registration statement, and any amendment, post-
effective amendment, supplement or papers supplemental thereto, to be
filed with respect to said shares of common stock; and each of the
undersigned does hereby fully ratify and confirm all that said attorneys
and agents, or any of them, or the substitute of any of them, shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the
undersigned has subscribed these presents, as of this 25th day of
November, 1996.
/S/ DOUGLAS CROCKER II
Douglas Crocker II Director
/S/ WILLIAM P. DICKEY
William P. Dickey Director
/S/ ALAN GLEN
Alan Glen Director
/S/ EDWIN N. HOMER
Edwin N. Homer Director
/S/ MARTIN SHERMAN
Martin Sherman Director
/S/ FRANCIS T. VINCENT, JR.
Francis T. Vincent, Jr. Director
/S/ JOSEPH CATTIVERA
Joseph Cattivera Executive Vice President
(Principal Financial Officer)
/S/ RICHARD PHILLIPS Vice President (Principal
Accounting
Richard Phillips Officer)
