As filed with the Securities and Exchange Commission on June 17, 1997
Registration No. 333 - _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRIME RETAIL, INC.
(Exact name of registrant as specified in its charter
Maryland 52-1836258
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
(410) 234-0782
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Michael W. Reschke
Chairman of the Board
Prime Retail, Inc.
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
(410) 234-0782
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Wayne D. Boberg, Esq.
Steven J. Gavin, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box./ /
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. /X/
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./ /
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./ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to Registered (1) Offering Price (2)(3) Registration Fee
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock, $.01 par value per share (4)
Depositary Shares (5)........................
Preferred Stock Warrants.....................
Common Stock, $.01 par value per share (6)...
Common Stock Warrants........................
---------------------------------------------------------------------------------------------------------------
Total............................... $300,000,000(7) $ 70,872.18(7)
===============================================================================================================
(Footnotes on next page)
</TABLE>
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
(Footnotes continued from previous page)
(1) This Registration Statement also covers contracts which may be issued
by the Registrant under which the counterparty may be required to
purchase securities covered hereby. Such contracts would be issued with
the applicable securities covered hereby. In addition, Offered
Securities (as defined below) registered hereunder may be sold
separately, together or as units with other Offered Securities
registered hereunder.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more
foreign currencies or units of two or more foreign currencies or
composite currencies (such as European Currency Units).
(3) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Stock that is issued
upon conversion of Preferred Stock or Depositary Shares registered
hereunder or upon exercise of the Common Stock Warrants registered
hereunder, as the case may be. The aggregate maximum offering price of
all Offered Securities issued pursuant to this Registration Statement
will not exceed $300,000,000.
(4) Such indeterminate number of shares of Preferred Stock as may from time
to time be issued at indeterminate prices or issuable upon conversion
of Preferred Stock Warrants registered hereunder and which may be
issued in one or more series.
(5) To be evidenced by Depositary Receipts representing an interest in
a specified portion of a share of Preferred Stock.
(6) Such indeterminate number of shares of Common Stock as may from time to
time be issued at indeterminate prices or issuable upon conversion of
Preferred Stock or Depositary Shares registered hereunder or upon the
exercise of Common Stock Warrants registered hereunder, as the case may
be.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under
the Securities Act of 1933, as amended. Of the $300,000,000 of Offered
Securities registered hereby, $66,121,800 of such securities were
registered pursuant to Registration Statement 333-19505 and are
unissued as of the date hereof. A registration fee of $20,036.91 was
previously paid with respect to such securities.
Pursuant to Rule 429 under the Securities Act, the Prospectus filed as
part of this Registration Statement relates to the securities
registered hereby, including the remaining unsold $66,121,800 of
securities previously registered by Registrant under Registration
Statement on Form S-3 (File No. 333-19505). Such Registration Statement
is amended to reflect the information contained herein.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE ____, 1997
PROSPECTUS
$300,000,000
PRIME RETAIL, INC.
PREFERRED STOCK, DEPOSITARY SHARES, PREFERRED STOCK WARRANTS,
COMMON STOCK AND COMMON STOCK WARRANTS
Prime Retail, Inc. (the "Company") may from time to time offer in one
or more series (i) shares of preferred stock, $.01 par value per share
("Preferred Stock"), of the Company, (ii) shares of Preferred Stock represented
by depositary shares (the "Depositary Shares"), (iii) warrants to purchase
shares of Preferred Stock (the "Preferred Stock Warrants"), (iv) shares of
Common Stock, $.01 par value per share ("Common Stock"), of the Company, or (v)
warrants to purchase shares of Common Stock (the "Common Stock Warrants") with
an aggregate public offering price of up to $300,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Preferred
Stock, Depositary Shares, Preferred Stock Warrants, Common Stock and Common
Stock Warrants (collectively, the "Offered Securities") may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be set forth in one or more supplements to this Prospectus (each a
"Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, exchange, voting and other rights, and any initial
public offering price; (ii) in the case of Depositary Shares, the fractional
share of Preferred Stock represented by each such Depositary Share; (iii) in the
case of Preferred Stock Warrants, a description of the Preferred Stock for which
each warrant will be exercisable and the duration, offering price, exercise
price and detachability; (iv) in the case of Common Stock, any initial public
offering price; and (v) in the case of Common Stock Warrants, the duration,
offering price, exercise price and detachability. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
See "Risk Factors" beginning at page 6 of this Prospectus for a
description of certain factors that should be considered by purchasers of the
Offered Securities.
<PAGE>
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR 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.
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.
The date of this Prospectus is June _____, 1997
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained or
incorporated by reference in this Prospectus or an applicable Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any underwriter,
dealer or agent. This Prospectus and any applicable Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sale made hereunder shall under
any circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or thereof.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Registration
Statement as well as periodic reports, proxy statements and other information
filed by the Company with the Commission may be inspected at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60601 and Seven World Trade
Center, Suite 1300, New York, New York 10048. In addition, registration
statements and certain other documents filed with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules, which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission. The Registration Statement has
been filed with the Commission through EDGAR.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company under the Exchange Act
with the Commission are incorporated in this Prospectus by reference and are
made a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
2. Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
3. The Company's Current Reports on Form 8-K dated January 30,
1997, February 13, 1997, and the Company's Current Report on
Form 8-K dated November 1, 1996, as amended by Form 8-K/A-2
dated January 30, 1997.
Each document filed by the Company subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and
prior to termination of the offering of all Offered Securities to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and shall be a part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated 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 (in the case of a statement in a previously-filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Offered
Securities or in any other subsequently filed document that is also incorporated
or deemed to be incorporated by reference herein, 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 or
any accompanying Prospectus Supplement. Subject to the foregoing, all
information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
Copies of all documents which are incorporated by reference herein and
in any applicable Prospectus Supplement (not including the exhibits to such
information, unless such exhibits are specifically incorporated by reference in
such information) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus and such Prospectus Supplement are
delivered, upon written or oral request. Requests should be directed to the
Secretary of the Company, 100 East Pratt Street, Nineteenth Floor, Baltimore,
Maryland 21202 (telephone number: (410) 234-0782).
<PAGE>
THE COMPANY
The Company is a self-administered and self-managed REIT that develops,
owns and operates factory outlet centers in the United States. Based upon
industry publications, the Company believes it is one of the largest owners and
operators of factory outlet centers in the United States. As of March 31, 1997,
the Company's portfolio included 24 factory outlet centers in 18 states with 6.1
million square feet of gross leasable area ("GLA") that was 92% leased. As a
fully-integrated real estate firm, the Company provides development,
construction, finance, leasing, marketing and management services for all of its
properties (the "Properties"). The Properties are held and all of the Company's
business and operations are conducted through Prime Retail, L.P. (the "Operating
Partnership"). The Company controls the Operating Partnership as its sole
general partner and is dependent upon the distributions or other payments from
the Operating Partnership in order to meet its financial obligations.
As of March 31, 1997, the Company held all of the Senior Preferred
Units (the "Senior Preferred Units") and Convertible Preferred Units (the
"Convertible Preferred Units") of partnership interests in the Operating
Partnership. In addition, the Company owned 65.0% of the Common Units of
partnership interest in the Operating Partnership (the "Common Units"). The
balance of the Common Units were held by the limited partners of the Operating
Partnership (the "Limited Partners").
Each Senior Preferred Unit and Convertible Preferred Unit
(collectively, the "Preferred Units") entitles the Company to receive
distributions from the Operating Partnership in an amount equal to the dividend
declared or paid in respect of a share of the Company's Series A Senior
Preferred Stock, $.01 par value per share (the "Senior Preferred Stock") and
Series B Cumulative Participating Convertible Preferred Stock, $.01 par value
per share ("Convertible Preferred Stock"), respectively, prior to the payment by
the Operating Partnership of distributions in respect of Common Units. Pursuant
to the partnership agreement governing the Operating Partnership (the "Operating
Partnership Agreement"), the Operating Partnership must pay a preferential
distribution (the "Preferential Distribution") of $0.295 in each quarter (plus
any Preferential Distribution that is unpaid in any previous quarter) for each
Common Unit held by the Company (the amount of such units is equal to the number
of outstanding shares of Common Stock and totaled 15,794,951 as of March 31,
1997) before any distributions may be paid in respect of the Common Units held
by the Limited Partners of the Operating Partnership (which totaled 8,505,472 as
of March 31, 1997). The Operating Partnership Agreement provides that any
quarterly distributions made by the Operating Partnership in excess of the
Preferential Distribution must first be allocated pro rata among the Common
Units held by the Limited Partners up to $0.295 for each such Common Unit and
then be allocated pro rata among all of the Common Units. The Operating
Partnership Agreement further provides that the Preferential Distribution will
terminate only after the Operating Partnership has paid quarterly distributions
of at least $0.295 in respect of all of the Common Units during four successive
quarters without distributing more than 90% of its Funds from Operations ("FFO")
(calculated in the manner discussed below) in respect of the Convertible
Preferred Units and Common Units after payment in full of the distributions for
the Senior Preferred Units in any such quarter (the "Threshold Amount"). In
order to terminate the Preferential Distribution, the Company must generate FFO
on a quarterly basis in excess of the Threshold Amount for four consecutive
quarters. The Company believes that it has satisfied the distribution
requirement necessary to terminate the Preferential Distribution for each of the
three consecutive quarters ended March 31, 1997. Therefore, in order to
terminate the Preferential Distribution, the Company must generate FFO based on
the Old Definition (as defined herein) in excess of $11,234,604 for the quarter
ending June 30, 1997. Once the Preferential Distribution is terminated,
distributions with respect to the Common Units will be allocated pro rata among
all of the holders thereof.
In March 1995, the National Association of Real Estate Investment
Trusts ("NAREIT") established guidelines clarifying the definition of FFO (as so
modified, the "New Definition"). The Company reports FFO under both the old
definition employed by NAREIT (the "Old Definition") and the New Definition. The
primary difference between the Old Definition and the New Definition is that
under the New Definition amortization of capitalized debt costs and depreciation
of non-real estate assets are not added back to net income as determined under
generally accepted accounting principles ("GAAP"). For purposes of the Operating
Partnership Agreement and determining whether the Threshold Amount has been
achieved, FFO is calculated using the Old Definition and is defined as net
income (loss) (determined in accordance with GAAP) excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization after adjustments for unconsolidated partnerships and joint
ventures.
Subject to certain conditions, each Common Unit held by a Limited
Partner may be exchanged for one share of Common Stock (subject to adjustment)
or, at the option of the Company, cash equal to the fair market value of a share
of Common Stock at the time of exchange. Pursuant to the Operating Partnership
Agreement, 7,951,675, or approximately 93% of the Common Units held by the
Limited Partners, are prohibited from being exchanged into Common Stock (or
cash) until the termination of the Preferential Distribution without the consent
of the Company and Friedman, Billings, Ramsey & Co., Inc., the underwriter
engaged in the Company's initial public offering.
The Company is a Maryland corporation that was incorporated in July
1993. The Company's executive offices are located at 100 East Pratt Street,
Nineteenth Floor, Baltimore, Maryland 21202 and its telephone number is (410)
234-0782.
RISK FACTORS
Prospective investors should carefully consider, among other factors,
the matters described below.
<PAGE>
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
As of March 31, 1997, The Prime Group, Inc. ("PGI") owned Common Units
representing a 32.0% common equity interest in the Operating Partnership.
Because of PGI's ownership interest in the Operating Partnership and the fact
that Michael W. Reschke, Chairman of the Board and Director, and Glenn D.
Reschke, Executive Vice President, are owners of PGI, PGI may be in a position
to exercise significant influence over the affairs of the Company. PGI owns
substantial interests in income producing properties unrelated to the
Properties. Under the terms of his employment agreement with the Company,
Michael W. Reschke is permitted to devote a considerable portion of his time to
the management of such interests.
ADVERSE IMPACT OF THE FAILURE TO CONTINUE TO QUALIFY AS A REIT
The Company believes it qualifies and intends to continue to qualify as
a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). A REIT
generally is not subject to federal income tax at the corporate level on income
which it currently distributes to its stockholders so long as it distributes
currently to its stockholders at least 95% of its taxable income (excluding any
net capital gain) each year.
No assurance can be given that the Company will remain qualified as a
REIT. Qualification as a REIT involves the satisfaction of numerous requirements
(in certain instances, on an annual and quarterly basis) set forth in highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations, and may be affected by various factual
matters and circumstances not entirely within the Company's control. In the case
of a REIT such as the Company that holds its assets in partnership form, the
complexity of these Code provisions and of the applicable Treasury Regulations
that have been promulgated thereunder is even greater. Further, no assurance can
be given that future legislation, new Treasury Regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
If the Company were to fail to maintain qualification as a REIT in any
taxable year, the Company would not be allowed a deduction in computing its
taxable income for amounts distributed to its stockholders, and thus would be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate tax rates. Moreover, unless entitled
to relief under certain statutory provisions, the Company also would be
ineligible for qualification as a REIT for the four taxable years following the
year during which qualification was lost. Such disqualification would reduce the
net earnings of the Company available for investment or distribution to
stockholders due to the additional tax liability of the Company for the years
involved.
<PAGE>
EFFECT OF REIT DISTRIBUTION REQUIREMENTS
To maintain its status as a REIT for federal income tax purposes, the
Company generally will be required each year to distribute to its stockholders
at least 95% of its taxable income (excluding any net capital gain). In
addition, the Company will be subject to federal income tax to the extent it
distributes less than 100% of its taxable income, including any net capital
gain, and to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income plus 95% of its capital gain net income
plus 100% of its undistributed income from prior taxable years.
The Company intends to continue to pay distributions and dividends to
its stockholders to comply with the 95% distribution requirement of the Code and
to avoid the nondeductible excise tax described above. The Company anticipates
that cash flow from operations, including its share of distributions from the
Operating Partnership, will be sufficient to enable it to pay its operating
expenses and meet the distribution requirements of a REIT, but no assurance can
be given that this will be the case. The Company may be required from time to
time, under certain circumstances, to accrue as income for tax purposes rent or
interest earned but not yet received. In such event, or upon the repayment of
principal indebtedness, the Company could have taxable income without sufficient
cash to enable the Company to meet the REIT distribution requirements.
Accordingly, the Company could be required to borrow funds or liquidate
investments on adverse terms in order to comply with such requirements.
RISKS RELATED TO THE BRIEF HISTORY OF THE OUTLET CENTER INDUSTRY, THE
COMPETITION WITHIN THE INDUSTRY AND THE COMPANY'S LIMITED OPERATING HISTORY
AND RAPID GROWTH
THE RELATIVELY SHORT HISTORY OF THE OUTLET CENTER INDUSTRY. The outlet
center business is a relatively young and growing segment of the retailing
industry. There can be no assurance that this segment of the retail industry
will continue to grow in the future. Further, as this segment of the retailing
industry grows or matures, there can be no assurance that the advantages offered
by this business to consumers and manufacturers will continue. Growth in this
segment also may be limited by certain intrinsic characteristics of the outlet
market. The outlet center business depends, in part, on the pricing differential
between goods sold in the factory outlet centers and similar or identical goods
sold in traditional department stores or retail establishments. While this
pricing differential results in part because of lower operating costs resulting
from the elimination of distribution channels and the reduced rent and overhead
at factory outlet centers, there can be no assurance that traditional retailers
will not compete aggressively to regain sales nor can there be any assurance
that the outlet center business will not be adversely affected by other changes
in the distribution and sale of retail goods.
<PAGE>
COMPETITION FROM OTHER FACTORY OUTLET CENTERS. There are numerous
developers and real estate companies that are engaged in the development or
ownership of factory outlet centers and compete with the Company in seeking
merchants for factory outlet centers. This results in competition for prime
locations and for merchants who operate outlet center stores, particularly for
those manufacturers featuring quality and designer brand name merchandise with
proven customer drawing power.
Because several of the Company's factory outlet centers are located in
relatively undeveloped areas, there are often other potential sites near the
Company's factory outlet centers that may be developed into factory outlet
centers by competitors. As of March 31, 1997, five projects in the Company's
portfolio, Gulf Coast Factory Shops (Ellenton, Florida), Magnolia Bluff Factory
Shops (Darien, Georgia), Ohio Factory Shops (Jeffersonville, Ohio), Oxnard
Factory Outlet (Oxnard, California), and San Marcos Factory Shops (San Marcos,
Texas), were located within twelve miles of competing factory outlet centers and
thus are subject to existing competition. The development of an outlet center
with a more convenient location or lower rents may attract the Company's
merchants or cause them to seek more favorable lease terms at or prior to
renewal of their leases and, accordingly, may affect adversely the business,
revenues and/or sales volume of the Company's factory outlet centers.
COMPETITION FROM TRADITIONAL FULL PRICE RETAILERS AND OTHERS. Most of
the merchandise produced by manufacturers is sold through traditional full price
retail channels, such as large department stores and other mass merchandisers.
Manufacturers generally do not wish to jeopardize retail relationships by
locating their outlet stores in locations that directly compete with traditional
retailers. As a result, the Company's factory outlet centers are typically
constructed at least 20 miles from the nearest regional mall. These locations
are generally less attractive to consumers because they tend to require more
travel time. A reduction of pricing discounts by manufacturers, increased
competition by traditional retailers or a perception by consumers that such
pricing differentials are not significant would reduce the competitive advantage
offered by outlet stores to consumers and, consequently, adversely affect the
business, revenues and/or sales volume of the Company's factory outlet centers.
There can be no assurance that the factory outlet center business will not be
adversely affected by other changes in the distribution and sale of retail
goods, such as discount shopping clubs, "off-price" retailers, direct mail and
telemarketing.
LIMITED OPERATING HISTORY AND RAPID GROWTH. Since the Company opened
its first factory outlet center in 1989, its outlet center portfolio has
increased to approximately 6.1 million square feet of GLA as of March 31, 1997.
The Company expects to continue to experience growth through the development of
new factory outlet centers, the expansion of existing factory outlet centers and
the selective acquisition of factory outlet centers. The risk that the Company
may be unable to control and manage its growth effectively could have a material
adverse effect on the Company. There can be no assurance that any of the
Company's current development or expansion activities will ultimately result in
profitable operations or that the Company will be able to continue to achieve
its growth objectives.
<PAGE>
RISKS ASSOCIATED WITH THE RETAIL INDUSTRY. The factory outlet center
market is a component of the retail industry. The retail industry is subject to
external factors such as inflation, consumer confidence, unemployment rates and
consumer tastes and preferences. In the event that the retail industry
experiences down cycles, manufacturers and merchants of retail merchandise may
experience economic difficulties and/or may be less likely to renew existing
leases at factory outlet centers or to expand distribution channels into new
factory outlet centers.
RISKS OF DEVELOPMENT ACTIVITIES
The Company intends to continue to pursue development activities as
opportunities arise. The Company will incur risks in connection with such
development activities in addition to those applicable to the ownership and
operation of the Properties. These risks include the risks that development
opportunities explored by the Company may be abandoned or delayed, that
construction costs of a project may exceed original estimates, that occupancy
rates and rents at a completed project will not be sufficient to make the
project profitable, and that the Company may be unable to obtain any required
governmental approvals or permits. The occurrence of any of the foregoing may
adversely affect the ability of the Company to pay expected distributions or
dividends to stockholders.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
Following the initial public offering in 1994, the Company established
a policy of not incurring debt that would result in a debt to total market
capitalization of more than 50%. In 1995, the Company modified this policy to
increase such limit to 60%. Such increase responded primarily to the substantial
decline in the market prices of the Company's publicly traded equity securities
and the significant increase in the Company's total debt related to its property
development activities. There can be no assurance, however, that this policy
will not be further modified to enable the Company to become more highly
leveraged. Moreover, the organizational documents of the Company do not contain
any limitation on the amount of indebtedness the Company might incur. If the
Company were to become more highly leveraged, the resulting increase in the
Company's debt service obligations could adversely affect the Company's
available cash flow and ability to make expected distributions to stockholders
and increase the risk of default on the Company's obligations.
GENERAL REAL ESTATE INVESTMENT RISKS
GENERAL. Investments in the Company will be subject to the risks
incident to the ownership and operation of commercial retail real estate. These
include the risks normally associated with changes in national economic or local
market conditions, competition for merchants from other retail properties,
including other factory outlet centers, changes in market rental rates, and the
need to periodically renovate, repair and relet space and to pay the costs
thereof.
<PAGE>
Equity real estate investments are relatively illiquid compared to most
financial assets and, therefore, tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. Substantially all of the Properties are factory outlet centers. In
addition, certain significant expenditures associated with each equity
investment (such as debt service, real estate taxes and operating and
maintenance costs) are generally not reduced when circumstances cause a
reduction in income from the investment. If any of the Company's factory outlet
centers fails to succeed, either because the concept of the factory outlet
center has lost favor or because of poor results at an individual center, the
ability of the Company to convert the center to an attractive alternative use or
to sell the center to recoup the Company's investment may be limited. Should
such an event occur, the Company's income and available cash flow would be
adversely affected.
BANKRUPTCY OF MERCHANTS. Because rental income is a principal source of
operating revenue for the Company, the Company's financial condition and results
of operations would be adversely affected if a significant number of the
Company's merchants were unable to meet their lease obligations and if,
following such defaults, the Company was unable to relet the space to new
merchants on economically favorable terms. Moreover, the bankruptcy or
insolvency of a single major merchant may have an adverse effect on the income
produced by certain Properties. In the event of default by a lessee, the Company
may experience delays in enforcing its rights as landlord and may incur
substantial costs in protecting its investment and reletting such space in the
Properties.
RENEWAL OF LEASES AND RELETTING OF SPACE. The Company is subject to the
risks that, upon expiration of leases for space located in the Properties, the
leases may not be renewed, the space may not be relet or the terms of renewal or
reletting (including the cost of required renovations or concessions to
merchants) may be less favorable than current lease terms. In general, the
leases relating to the Company's factory outlet centers have a term of five to
seven years with an option to renew for a period equal to the length of the
initial term. Because substantially all of the Company's factory outlet centers
were constructed during the past five years, the Company does not have an
extensive history of lease renewals with respect to its current portfolio of
leases. If the Company is unable to promptly relet or renew its leases for all
or a substantial portion of the space currently leased, or if the rental rates
upon such renewal or reletting are significantly lower than expected rates, or
if the Company's reserves for renovations and concessions prove to be
inadequate, then the Company's cash flow and, consequently, the Company's
ability to pay expected dividends to stockholders may be adversely affected.
DEBT FINANCING. The Company is subject to the risks associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk that
the Company will not be able to refinance existing indebtedness on the
Properties or that the terms of such refinancing will not be as favorable to the
Company as the terms of existing indebtedness and the risk that necessary
capital expenditures for purposes such as renovations and reletting space will
not be able to be financed on favorable terms.
<PAGE>
UNINSURED LOSS. The Company carries comprehensive liability, fire,
flood, extended coverage and rental loss insurance with respect to the
Properties with policy specifications and insured limits customarily carried for
similar properties. There are, however, certain types of losses (such as from
wars or, in certain locations, earthquakes) that may be either uninsurable or
not economically viable. Should an uninsured loss occur, the Company could lose
its capital investment and/or the anticipated profits and cash flow from one or
more Properties.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removal or remediation of certain hazardous substances released on or
under its property. Such laws often impose liability without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous substances. The presence of environmentally hazardous substances, or
the failure to properly remediate such substances when released, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. The Company has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of the Properties, and the Company is not aware of any other environmental
condition with respect to any of the Properties that could materially adversely
affect the Company's financial condition or results of operations. Moreover,
such laws are subject to change and any such change may result in significant
unanticipated expenditures, which could adversely affect the Company's ability
to pay dividends to stockholders.
OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION
For the Company to maintain its qualification as a REIT, not more than
50% in value of the Company's outstanding capital stock may be owned, directly
or constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain tax-exempt
entities, other than, in general, qualified domestic pension funds) at any time
during the last half of any taxable year of the Company other than the first
taxable year for which the election to be taxed as a REIT has been made (the
"five or fewer" requirement). The Amended and Restated Articles of Incorporation
of the Company (the "Charter") contains certain restrictions on the ownership
and transfer of the Company's capital stock, described below, which are intended
to prevent concentration of stock ownership. These restrictions, however, do not
ensure that the Company will be able to satisfy the "five or fewer" requirement
primarily, though not exclusively, as a result of fluctuations in values among
the different classes of the Company's capital stock. If the Company fails to
satisfy the "five or fewer" requirement, the Company's status as a REIT will
terminate, and the Company will not be able to prevent such termination.
<PAGE>
If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates, and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Moreover, unless entitled to relief under
certain statutory provisions, the Company also would be ineligible for
qualification as a REIT for the four taxable years following the year during
which qualification was lost. Such disqualification would reduce the net
earnings of the Company available for investment or distribution to its
stockholders due to the additional tax liability of the Company for the years
involved.
The Charter currently prohibits ownership, either directly or under the
applicable attribution rules of the Code, of more than 9.9% of the outstanding
shares of Common Stock or the acquisition or beneficial ownership of shares of
Convertible Preferred Stock by a holder if, as a result of such acquisition or
beneficial ownership, such holder acquires or beneficially owns shares of
capital stock (including all classes) of the Company in excess of 9.9% of the
value of the Company's outstanding capital stock (the "Convertible Preferred
Stock Ownership Limit") or the ownership of more than 10.0% of the outstanding
shares of Senior Preferred Stock by any holder subject to certain important
exceptions.
The board of directors of the Company (the "Board of Directors" or the
"Board") may, subject to the receipt of certain representations as required by
the Charter and a ruling from the Internal Revenue Service (the "IRS") or an
opinion of counsel satisfactory to it, waive the ownership restrictions with
respect to a holder if such waiver will not jeopardize the Company's status as a
REIT. Any attempted transfer of shares to a person who, as a result of such
transfer, would violate the ownership limitations set forth in the Charter will
be deemed void and the shares purportedly transferred would be converted into
shares of a separate class of capital stock with no voting rights and no rights
to distributions. In addition, ownership, either directly or under the
applicable attribution rules of the Code, of the capital stock in excess of the
ownership limitations set forth in the Charter generally will result in the
conversion of those shares into shares of a separate class of capital stock with
no voting rights and no rights to distributions.
Limiting the ownership of more than 9.9% of the outstanding shares of
Common Stock, the acquisition or beneficial ownership of shares of Convertible
Preferred Stock in excess of the Convertible Preferred Stock Ownership Limit,
and the ownership of more than 10.0% of the outstanding shares of Senior
Preferred Stock by certain stockholders may (i) discourage a change of control
of the Company, (ii) deter tender offers for such stock, which offers may be
attractive to the Company's stockholders, or (iii) limit the opportunity for
stockholders to receive a premium for their stock that might otherwise exist if
an investor attempted to assemble a block of stock in excess of 9.9% of the
outstanding shares of Common Stock, the Convertible Preferred Stock Ownership
Limit, and 10.0% of the outstanding shares of Senior Preferred Stock or to
effect a change of control of the Company.
<PAGE>
USE OF PROCEEDS
The Company is required by the terms of the Operating Partnership
Agreement to invest the net proceeds of any sale of any Offered Securities in
exchange for Preferred Units or Common Units (or warrants to purchase such
units) with preferences and rights corresponding to such Offered Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the Company
intends to use the net proceeds from the sale of Offered Securities for general
corporate purposes, including the development or acquisition of additional
properties, the expansion and improvement of certain Properties, and the
repayment of certain indebtedness outstanding at such time. Further details
relating to the use of the net proceeds will be set forth in the applicable
Prospectus Supplement.
EXCESS OF COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS OVER EARNINGS
The following table sets forth the excess of fixed charges and
preferred stock dividends over earnings for the Company and Prime Retail
Properties, the predecessor to the Company (the "Predecessor"), for the periods
indicated (in thousands).
<TABLE>
<CAPTION>
The Company The Predecessor (1)
- ----------------------------------------------------------------- -----------------------------------------
Three Months
Ended March 31, Year Ended December 31, Period March 22 Period Jan. 1, Year Ended December 31,
- ------------------ ----------------------- to Dec. 31 to March 21 -----------------------
1997 1996 1996 1995 1994 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C>
$(475) $(2,813) $(10,629) $(11,312) $(8,185) $(2,366) $(4,423) $(7,500)
<FN>
- ----------------------------------------
(1) Reflects results of operations of eleven predecessor partnerships, the 40%
interest in predecessor partnerships that previously owned two of the Properties
and the management and development operations acquired by the Company in
connection with its initial public offering in March 1994.
</FN>
</TABLE>
For purposes of the foregoing computations, earnings consist of income
(loss) before minority interests less income from unconsolidated investment
partnerships, plus fixed charges (excluding capitalized interest). Combined
fixed charges and preferred stock dividends consist of interest costs whether
expensed or capitalized and amortization of debt issuance costs and preferred
stock dividends or distributions.
<PAGE>
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
The Company may offer under this Prospectus Preferred Stock, Depositary
Shares, Preferred Stock Warrants, Common Stock, Common Stock Warrants or any
combination of the foregoing, either individually or as units consisting of two
or more Offered Securities. The aggregate offering price of Offered Securities
offered by the Company will not exceed $300,000,000. If Offered Securities are
offered as units, the terms of the units will be set forth in a Prospectus
Supplement.
DESCRIPTION OF PREFERRED STOCK
As of March 31, 1997, the Company had issued and outstanding 2,300,000
shares of Preferred Stock designated as 10.5% Series A Senior Cumulative
Preferred Stock (the "Senior Preferred Stock") and 2,981,800 shares of Preferred
Stock designated as 8.5% Series B Cumulative Participating Convertible Preferred
Stock (the "Convertible Preferred Stock"). The Board has the authority to issue
14,824,200 additional shares of Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof.
Subject to the preferential rights of any series of Preferred Stock
ranking senior as to dividends to the Senior Preferred Stock and to the
provisions of the Company's Charter regarding Excess Stock (as defined therein),
holders of shares of the Senior Preferred Stock are entitled to receive, when
and as declared by the Board, out of funds legally available for the payment of
dividends, cumulative preferential cash dividends in an amount per share of
Senior Preferred Stock equal to $2.625 per annum. In the event of any
liquidation, dissolution or winding up of the Company, subject to the prior
rights of any series of capital stock ranking senior to the Senior Preferred
Stock, the holders of shares of Senior Preferred Stock will be entitled to be
paid out of the assets of the Company legally available for distribution to its
stockholders a liquidation preference equal to the sum of $25.00 per share plus
an amount equal to any accrued and unpaid dividends thereon (whether or not
earned or declared) to the date of payment. On and after March 31, 1999, the
Senior Preferred Stock may be redeemed for cash at the option of the Company, in
whole or in part, initially at a redemption price of $26.75 per share and
thereafter at prices declining ratably to $25.00 per share on and after March
31, 2004, plus in each case accrued and unpaid dividends, if any, to the
redemption date. The Senior Preferred Stock has no stated maturity and will not
be entitled to the benefit of any sinking fund. Holders of the Senior Preferred
Stock do not have any voting rights, except (i) whenever dividends on any shares
of the Senior Preferred Stock have been in arrears for six or more consecutive
quarterly periods, the holders of such shares of Senior Preferred Stock will be
entitled to vote for the election of two additional directors of the Company;
(ii) so long as any shares of the Senior Preferred Stock remain outstanding, the
Company will not, without the affirmative vote or consent of the holders of at
least a majority of the shares of the Senior Preferred Stock outstanding at the
time, authorize or create or increase the authorized or issued amount of, any
class or series of capital stock ranking senior to or on a parity with the
Senior Preferred Stock with respect to dividend and liquidation, dissolution and
winding up rights; or (iii) as otherwise
<PAGE>
from time to time required by law. In addition, so long as any shares of the
Senior Preferred Stock remain outstanding, the Company will not terminate the
Company's status as a REIT without the affirmative vote or consent of the
holders of at least a majority of the shares of Senior Preferred Stock,
Convertible Preferred Stock and Common Stock outstanding at the time, voting
together as a single class, given in person or by proxy, either in writing or at
a meeting. Subject to certain exceptions specified in the Charter, no holder may
own, either directly or constructively under the applicable attribution rules of
the Code, more than 10.0% of the outstanding shares of Senior Preferred Stock,
and no holder that owns an interest in any tenant under any lease of real
property owned, in whole or in part, directly or indirectly by the Company,
which exceeds, in the case of a tenant that is a corporation, 9.9% of the total
voting stock of such tenant or 9.9% of the total number of shares of all classes
of stock of such tenant, or in the case of a tenant that is not a corporation, a
9.9% interest in the assets or net profits of such tenant, may own, directly or
constructively under the applicable attribution rules of the Code, more than
9.9% of the outstanding shares of Senior Preferred Stock. See "Description of
Common Stock -- Restrictions on Ownership and Transfer."
Subject to the preferential rights of the Senior Preferred Stock and
any other series of Preferred Stock ranking senior as to dividends to the
Convertible Preferred Stock and to the provisions of the Charter regarding
Excess Stock, holders of shares of the Convertible Preferred Stock are entitled
to receive, when and as declared by the Board, out of funds legally available
for the payment of distributions and dividends, cumulative preferential cash
dividends in an amount per share of Convertible Preferred Stock equal to the
greater of (i) $2.125 per annum or (ii) the distributions and dividends on
number of shares of Common Stock (or fraction thereof) into which a share of
Convertible Preferred Stock is convertible. Shares of Convertible Preferred
Stock currently outstanding are quoted in the Nasdaq National Market under the
trading symbol "PRMEP". In the event of any liquidation, dissolution or winding
up of the Company, subject to the prior rights of any series of capital stock
ranking senior to the Convertible Preferred Stock, the holders of shares of
Convertible Preferred Stock will be entitled to be paid out of the assets of the
Company legally available for distribution to its stockholders a liquidation
preference equal to the sum of $25.00 per share plus an amount equal to any
accrued and unpaid dividends thereon (whether or not earned or declared) to the
date of payment. On and after March 31, 1999, the Convertible Preferred Stock
may be redeemed for cash at the option of the Company, in whole or in part,
initially at a redemption price of $27.125 per share and thereafter at prices
declining ratably to $25.00 per share on and after March 31, 2004, plus in each
case accrued and unpaid dividends, if any, to the redemption date. The
Convertible Preferred Stock has no stated maturity and will not be entitled to
the benefit of any sinking fund. Holders of the Convertible Preferred Stock do
not have any voting rights, except (i) whenever dividends on any shares of the
Convertible Preferred Stock have been in arrears for six or more consecutive
quarterly periods, the holders of such shares of Convertible Preferred Stock
will be entitled to vote for the election of two additional directors of the
Company; (ii) so long as any shares of the Convertible Preferred Stock remain
outstanding, the Company will not, without the affirmative vote or consent of
the holders of at least a majority of shares of the Convertible Preferred Stock
<PAGE>
outstanding at the time, authorize or create or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
Convertible Preferred Stock with respect to dividend and liquidation,
dissolution and winding up rights; or (iii) as otherwise from time to time
required by law. In addition, so long as any shares of the Convertible Preferred
Stock remain outstanding, the Company will not terminate the Company's status as
a REIT without the affirmative vote or consent of the holders of at least a
majority of the shares of Senior Preferred Stock, Convertible Preferred Stock
and Common Stock outstanding at the time, voting together as a single class,
given in person or by proxy, either in writing or at a meeting. Subject to
certain exceptions, holders of the Convertible Preferred Stock have the right,
as provided in the Charter, except in the case of Convertible Preferred Stock
called for redemption, to convert all or any of the Convertible Preferred Stock
into shares of Common Stock at the conversion price of $20.90 per share of
Common Stock, subject to adjustment upon the occurrence of certain events. The
number of shares of Common Stock or other assets issuable upon conversion and
the conversion price are subject to adjustment upon the occurrence of the
certain events. Subject to certain exceptions specified in the Charter, no
holder may acquire, either directly or constructively under the applicable
attribution rules of the Code, or beneficially own shares of Convertible
Preferred Stock if, as a result of such acquisition or beneficial ownership,
such holder beneficially owns shares of capital stock (including all classes) of
the Company in excess of 9.9% of the value of the Company's outstanding capital
stock. See "Description of Common Stock -- Restrictions on Ownership and
Transfer."
The preceding summary of the terms of the Senior Preferred Stock and
the Convertible Preferred Stock does not purport to be complete and is qualified
in its entirety by reference to the pertinent sections of the Charter.
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Charter and Bylaws (the "Bylaws") and any
applicable amendment to the Charter designating terms of a series of Preferred
Stock (a "Designating Amendment").
GENERAL
Subject to the limitations prescribed by Maryland law and the Charter,
the Board is authorized to fix the number of shares constituting each series of
Preferred Stock and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, including such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution of the Board or duly authorized committee thereof. The Preferred
Stock will, when issued, be fully paid and nonassessable by the Company.
<PAGE>
The Prospectus Supplement relating to any Preferred Stock offered
thereby will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock
offered, the liquidation preference per share and
the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment
date(s) or method(s) of calculation thereof
applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock
shall accumulate, if applicable;
(5) The procedures for any auction and remarketing, if
any, for such Preferred Stock;
(6) The provision for a sinking fund, if any, for such
Preferred Stock;
(7) The provision for redemption, if applicable, of such
Preferred Stock;
(8) Any listing of such Preferred Stock on any securities
exchange;
(9) The terms and conditions, if applicable, upon which
such Preferred Stock will be convertible into Common
Stock of the Company, including the conversion price
(or manner of calculation thereof) and conversion
period;
(10) Whether interests in such Preferred Stock will be
represented by Depositary Shares;
(11) Any other specific terms, preferences, rights,
limitations or restrictions of such Preferred
Stock;
(12) A discussion of certain material federal income tax
considerations applicable to such Preferred Stock;
(13) The relative ranking and preferences of such
Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs
of the Company;
(14) Any limitation on issuance of any series of Preferred
Stock ranking senior to or on a parity with such
series of Preferred Stock as to dividend rights and
rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(15) Any limitations on direct or beneficial ownership and
restrictions on transfer of such Preferred Stock, in
each case as may be appropriate to preserve the
status of the Company as a REIT.
<PAGE>
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock and any Excess Stock of such class, and to all
equity securities of the Company other than those referred to in clauses (ii)
and (iii) below; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock with respect to dividend rights and/or
rights upon liquidation, dissolution or winding up of the Company, as the case
may be; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights and/or rights upon
liquidation, dissolution or winding up of the Company, as the case may be. The
term "equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to
receive cash dividends, when, as and if declared by the Board, out of funds
legally available for the payment of, cash dividends at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each such
dividend shall be payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as shall be fixed by the
Board.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares
of Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the
<PAGE>
Preferred Stock of such series. When dividends are not paid in full (or
a sum sufficient for such full payment is not so set apart) upon Preferred Stock
of any series and the shares of any other series of Preferred Stock ranking on a
parity as to dividends with the Preferred Stock of such series, all dividends
declared upon Preferred Stock of such series and any other series of Preferred
Stock ranking on a parity as to dividends with such Preferred Stock shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Stock of such series and such other series of Preferred Stock shall in
all cases bear to each other the same ratio that accrued dividends per share on
the Preferred Stock of such series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Stock
does not have a cumulative dividend) and such other series of Preferred Stock
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Stock of
such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other equity
securities of the Company ranking junior to the Preferred Stock of such series
as to dividends and upon liquidation, dissolution or winding up of the Company)
shall be declared or paid or set aside for payment or other distribution or
shall be declared or made upon the Common Stock, Excess Stock or any other
equity securities of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, dissolution
or winding up of the Company, nor shall any shares of Common Stock, or any other
capital shares of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, dissolution
or winding up of the Company nor shall any Common Stock, Excess Stock or any
other equity securities of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, dissolution
or winding up of the Company, be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for other equity securities of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation, dissolution
or winding up of the Company).
If, for any taxable year, the Company elects to designate as "capital
gains dividends" (as defined in Section 857 of the Code) any portion (the
"Capital Gains Amount") of the dividends (within the meaning of the Code) paid
or made available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders of shares of Preferred Stock will be the
Capital
<PAGE>
Gains Amount multiplied by a fraction, the numerator of which shall be
the total dividends (within the meaning of the Code) paid or made available to
the holders of shares of Preferred Stock for the year and the denominator of
which shall be the Total Dividends.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of equity securities of the Company, the terms of such
Preferred Stock may provide that, if no such equity securities shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable equity securities
of the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of any
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof irrevocably set
apart for payment for all past dividend periods and the then current dividend
period, and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of any series of Preferred Stock shall be redeemed unless all outstanding
Preferred Stock of such series is simultaneously redeemed; provided, however,
that the foregoing shall not prevent the purchase or acquisition of shares of
Preferred Stock of such series to preserve the REIT status of the Company or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Stock of such series. In addition, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on all outstanding shares of any series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends on
<PAGE>
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for equity securities of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation, dissolution or winding up of the Company; provided, however,
that the foregoing shall not prevent the purchase or acquisition of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, such Preferred Stock shall no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Stock, Excess Stock or any other class or
series of equity securities of the Company ranking junior to the Preferred Stock
in the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of each series of Preferred Stock shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the
<PAGE>
applicable Prospectus Supplement), plus an amount equal to all dividends accrued
and unpaid thereon (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
equity securities of the Company ranking on a parity with the Preferred Stock in
the distribution of assets upon liquidation, dissolution or winding up of the
Company, then the holders of the Preferred Stock and all other such classes or
series of equity securities shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of equity
securities ranking junior to the Preferred Stock upon liquidation, dissolution
or winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears
for six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of Preferred
Stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board will be increased
by two directors.
<PAGE>
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of equity securities ranking senior to
such series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized securities of the Company into any such equity securities, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such equity securities; or (ii) amend,
alter or repeal the provisions of the Company's Charter or the Designating
Amendment for such series of Preferred Stock, whether by merger, consolidation
or otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Stock remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event, the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Stock and provided further that (x) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock, or (y) any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption and sufficient funds shall
have been irrevocably deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred
Stock is convertible into shares of Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
<PAGE>
RESTRICTION ON OWNERSHIP
As discussed below under "Description of Common Stock -- Restrictions
on Ownership and Transfer," for the Company to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock of the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain certain provisions restricting the ownership and transfer of the
Preferred Stock. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to a series of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
<PAGE>
the Depositary Receipts to be issued thereunder are summaries of
certain anticipated provisions thereof and do not purport to be complete and are
subject to, and qualified in their entirety by reference to, all of the
provisions of the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL
Upon surrender of the Depositary Receipts at the corporate trust office
of the applicable Preferred Stock Depositary (unless the related Depositary
Shares have previously been called for redemption or converted), the holders
thereof will be entitled to delivery at such office, to or upon each such
holder's order, of the number of whole or fractional shares of the applicable
Preferred Stock and any money or other property represented by the Depositary
Shares evidenced by such Depositary Receipts. Holders of Depositary Receipts
will be entitled to receive whole or fractional shares of the related Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the applicable Preferred Stock Depositary will be required to deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
<PAGE>
REDEMPTION
Whenever the Company redeems shares of Preferred Stock held by a
Preferred Stock Depositary, such Preferred Stock Depositary will be required to
redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided the Company
shall have paid in full to such Preferred Stock Depositary the redemption price
of the Preferred Stock to be redeemed plus an amount equal to any accrued and
unpaid dividends thereon to the date fixed for redemption. The redemption price
per Depositary Share will be equal to the redemption price and any other amounts
per share payable with respect to the Preferred Stock. If fewer than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected pro rata (as nearly as may be practicable without creating
fractional Depositary Shares) or by any other equitable method determined by the
Company that preserves the REIT status of the Company. See "Description of
Preferred Stock -- Redemption."
VOTING
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of each Depositary
Receipt will be entitled to the fraction of the liquidation preference accorded
each share of Preferred Stock represented by the Depositary Share evidenced by
such Depositary Receipt, as set forth in the applicable Prospectus Supplement.
<PAGE>
CONVERSION
The Depositary Shares, as such, will not be convertible into shares of
Common Stock or any other securities or property of the Company, except in
connection with certain conversions in connection with the preservation of the
Company's status as a REIT. See "Description of Preferred Stock -- Restrictions
on Ownership." Nevertheless, if so specified in the applicable Prospectus
Supplement relating to an offering of Depositary Shares, the Depositary Receipts
may be surrendered by holders thereof to the applicable Preferred Stock
Depositary with written instructions to such Preferred Stock Depositary to
instruct the Company to cause conversion of the Preferred Stock represented by
the Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, other shares of Preferred Stock of the Company or other shares of
stock, and the Company will agree that upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Stock
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
shares of Common Stock will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holder of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company
upon not less than 30 days' prior written notice to the applicable Preferred
Stock Depositary if (i) such termination is necessary to preserve the Company's
status as a REIT or (ii) a majority of each series of Preferred Stock affected
by such termination consents to such termination, whereupon
<PAGE>
such Preferred Stock Depositary will be required to deliver or make available to
each holder of Depositary Receipts, upon surrender of the Depositary Receipts
held by such holder, such number of whole or fractional shares of Preferred
Stock as are represented by the Depositary Shares evidenced by such Depositary
Receipts together with any other property held by such Preferred Stock
Depositary with respect to such Depositary Receipts. The Company will agree that
if a Deposit Agreement is terminated to preserve the Company's status as a REIT,
then the Company will use its best efforts to list the Preferred Stock issued
upon surrender of the related Depositary Shares on a national securities
exchange. In addition, a Deposit Agreement will automatically terminate if (i)
all outstanding Depositary Shares thereunder shall have been redeemed, (ii)
there shall have been a final distribution in respect of the related Preferred
Stock in connection with any liquidation, dissolution or winding up of the
Company and such distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares representing such Preferred
Stock or (iii) each share of the related Preferred Stock shall have been
converted into stock of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental
charges arising solely from the existence of a Deposit Agreement. In addition,
the Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
<PAGE>
Neither a Preferred Stock Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under a Deposit Agreement. The obligations
of the Company and a Preferred Stock Depositary under a Deposit Agreement will
be limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, such Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF COMMON STOCK
General
The authorized capital stock of the Company includes 75,000,000 shares
of Common Stock, par value $.01 per share. Each outstanding share of Common
Stock entitles the holder to one vote on all matters presented to shareholders
for a vote. Holders of Common Stock have no preemptive rights. As of March 31,
1997, there were 15,794,951 shares of Common Stock issued and outstanding,
8,505,472 shares of Common Stock reserved for issuance upon exchange of issued
and outstanding Common Units and 902,500 shares of Common Stock reserved for
issuance upon the exercise of outstanding stock options. Shares of Common Stock
currently outstanding are quoted in the Nasdaq National Market under the trading
symbol "PRME".
The Charter of the Company provides for the Board to be divided into
three classes of directors, each class to consist as nearly as possible of
one-third of the directors. At each annual meeting of shareholders, the class of
directors to be elected at such meeting will be elected for a three-year term
and the directors in the other two classes will continue in office. The overall
effect of the provisions in the Charter with respect to the classified board may
be to render more difficult a change of control of the Company or removal of
incumbent management. Holders of Common Stock have no right to cumulative voting
for the election of directors. Consequently, at each annual meeting of
shareholders, the holders of a majority of the shares of Common Stock are able
to elect all of the successors of the class of directors whose term expires at
that meeting.
<PAGE>
Subject to the right of the holders of Preferred Stock to elect
directors under certain circumstances, directors may be removed only for cause
and only by the affirmative vote of the holders of at least two-thirds of the
aggregate number of votes then entitled to be cast generally in the election of
directors.
All shares of Common Stock issued will be duly authorized, fully paid,
and non-assessable. Distributions may be paid to the holders of Common Stock if
and when declared by the Board out of funds legally available therefor. The
Company intends to continue to pay quarterly dividends.
Under Maryland law, shareholders are generally not liable for the
Company's debts or obligations. If the Company is liquidated, subject to the
right of any holders of Preferred Stock, if any, to receive preferential
distributions, each outstanding share of Common Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Charter contains certain restrictions on the number of shares of
Capital Stock, defined to include all classes of capital stock that the Company
shall have authority to issue, including Senior Preferred Stock, Convertible
Preferred Stock, Preferred Stock and Common Stock, that stockholders may own.
For the Company to continue to qualify as a REIT under the Code, not more than
50% in value of its outstanding capital stock may be owned, directly or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain tax-exempt entities
other than, in general, qualified domestic pension funds) at any time during the
last half of a taxable year (other than the first taxable year for which the
election to be taxed as a REIT has been made). The capital stock also 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 Company intends to continue to qualify as a REIT, the Charter
contains restrictions on the ownership and transfer of capital stock.
Subject to certain exceptions specified in the Charter, no holder may
own, either directly or constructively under the applicable attribution rules of
the Code, more than 9.9% of the outstanding shares of Common Stock (the "Common
Ownership Limit"). The Common Ownership Limit will not apply, however, to
holders of shares of Common Stock who acquire shares of Common Stock in excess
of the Common Ownership Limit solely by reason of the conversion of shares of
Convertible Preferred Stock owned by such holder into shares of Common Stock;
provided, however, that no such holder may own an interest in any tenant under
any lease of real property owned, in whole or in part, directly or indirectly by
the Company, which exceeds, in the case of a tenant that is a corporation, 9.9%
of the total voting stock of such tenant or 9.9% of the total number of shares
of all classes of stock of such tenant, or, in the case of a tenant that is not
a corporation, a 9.9% interest in the assets or net profits of such tenant.
<PAGE>
Subject to certain exceptions specified in the Charter, no holder may
acquire, either directly or constructively under the applicable attribution
rules of the Code, or beneficially own shares of Convertible Preferred Stock if,
as a result of such acquisition or beneficial ownership, such holder
beneficially owns shares of capital stock (including all classes) of the Company
in excess of 9.9% of the value of the Company's outstanding capital stock (the
"Convertible Preferred Ownership Limit"). There are no restrictions on the
ability of a holder of shares of Convertible Preferred Stock to convert such
shares into shares of Common Stock even if, as a result of such conversion, the
holder will own shares of Common Stock in excess of the Common Ownership Limit.
However, no person may acquire or own share of Convertible Preferred Stock or
shares of Common Stock to the extent that the aggregate of the shares of Common
Stock owned by such holder and the shares of Common Stock that would be issued
to such holder upon conversion of all the shares of Convertible Preferred Stock
then owned by such holder, assuming that all of the outstanding shares of
Convertible Preferred Stock were converted into Common Stock at such time,
exceeds 9.9% of the total shares of Common Stock on a fully diluted basis
(taking into account the shares of Common Stock actually outstanding and the
shares of Common Stock that would be issued if all of the outstanding shares of
Convertible Preferred Stock were converted into shares of Common Stock, but
without regard to the shares of Common Stock issuable in exchange for Common
Units).
Subject to certain exceptions specified in the Charter, no holder may
own, either directly or constructively under the applicable attribution rules of
the Code, more than 10.0% of the outstanding shares of Senior Preferred Stock,
and no holder that owns an interest in any tenant under any lease of real
property owned, in whole or in part, directly or indirectly by the Company,
which exceeds, in the case of a tenant that is a corporation, 9.9% of the total
voting stock of such tenant or 9.9% of the total number of shares of all classes
of stock of such tenant, or in the case of a tenant that is not a corporation, a
9.9% interest in the assets or net profits of such tenant, may own, directly or
constructively under the applicable attribution rules of the Code, more than
9.9% of the outstanding shares of Senior Preferred Stock (the "Senior Preferred
Ownership Limit"). The Senior Preferred Ownership Limit does not apply, however,
to holders who acquired shares of Senior Preferred Stock in excess of the Senior
Preferred Ownership Limit directly from Friedman, Billings, Ramsey & Co., Inc.
in connection with the Initial Public Offering ("Initial Senior Preferred
Holders"), provided, however, that (i) such holder may not own an interest in
any tenant under any lease of real property owned, in whole or in part, directly
or indirectly by the Company, which exceeds, in the case of a tenant that is a
corporation, 9.9% of the total voting stock of such tenant or 9.9% of the total
number of shares of all classes of stock of such tenant, or, in the case of a
tenant that is not a corporation, a 9.9% interest in the assets or net profits
of such tenant and (ii) such holder's ownership of Senior Preferred Stock does
not cause any "individual" (within the meaning of the Code) to beneficially or
constructively own shares of Senior Preferred Stock in excess of the Senior
Preferred Ownership Limit. Initial Senior Preferred Holders will not be able to
acquire additional shares of Senior Preferred Stock in excess of the Senior
Preferred Ownership Limit.
<PAGE>
Notwithstanding any of the foregoing ownership limits, no holder may
own or acquire, either directly or constructively under the applicable
attribution rules of the Code, any shares of any class of the Company's Stock if
such ownership or acquisition (i) would cause more than 50% in value of
Company's outstanding stock to be owned, either directly or constructively under
the applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain tax-exempt entities, other than, in
general, qualified domestic pension funds), (ii) would result in the Company's
Stock being beneficially owned by less than 100 persons (determined without
reference to any rules of attribution), or (iii) would otherwise result in the
Company failing to qualify as a REIT.
The Board may, subject to the receipt of certain representations as
required by the Charter and a ruling from the IRS or an opinion of counsel
satisfactory to it, waive the ownership restrictions with respect to a holder if
such waiver will not jeopardize the Company's status as a REIT. In addition,
under the Charter, certain parties will not be subject to the Common Stock
Ownership Limit in the event such parties (i) deliver to the Company either a
ruling from the IRS or an opinion from nationally recognized tax counsel that
such ownership will result in no individual (as defined in the Code)
beneficially or constructively owning in excess of 9.9% of the outstanding
Common Stock and (ii) represent to the Company that it does not and will not own
more than a 9.9% interest in any tenant of the Company.
If any stockholder purports to transfer capital stock to a person and
either the transfer would result in the Company failing to qualify as a REIT, or
such transfer would cause the transferee to hold capital stock in excess of an
applicable ownership restriction, the purported transfer shall be null and void,
the intended transferee will acquire no rights or economic interest in the
capital stock, and the stockholder will be deemed to have transferred the
capital stock to the Company in exchange for Excess Stock of the same class or
classes as were purportedly transferred, which Excess Stock will be deemed to be
held by the Company as trustee of a trust for the exclusive benefit of the
person or persons to whom the shares can be transferred without violating the
ownership restrictions. In addition, if any person owns, either directly or
under the applicable attribution rules of the Code, shares of capital stock in
excess of an applicable ownership restriction, such person will be deemed to
have exchanged the shares of capital stock that cause the applicable ownership
restriction to be exceeded for an equal number of shares of Excess Stock of the
appropriate class, which will be deemed to be held by the Company as trustee of
a trust for the exclusive benefit of the person or persons to whom the shares
can be transferred without violating the ownership restrictions. A person who
holds or transfers shares such that shares of capital stock shall have been
deemed to be exchanged for Excess Stock will not be entitled to vote the Excess
Stock and will not be entitled to receive any dividends or distributions (any
dividend or distribution paid on shares of capital stock prior to the discovery
by the Company that such shares have been exchanged for Excess Stock shall be
repaid to the Company upon demand, and any dividend or distribution declared but
unpaid shall be rescinded). Such person shall have the right to designate a
transferee of such Excess Stock so long as consideration received for
designating such transferee does not exceed a price (the "Limitation Price")
that is equal to the lesser of (i) in the case of a deemed exchange for Excess
Stock
<PAGE>
resulting from a transfer, the price paid for the shares in such transfer or, in
the case of a deemed exchange for Excess Stock resulting from some other event,
the fair market value, on the date of the deemed exchange, of the shares deemed
exchanged, or (ii) the fair market value of the shares for which such Excess
Stock will be deemed to be exchanged on the date of the designation of the
transferee (or, in the case of a purchase by the Company, on the date the
Company accepts the offer to sell). For these purposes, fair market value on a
given date is determined by reference to the average closing price for the five
preceding days. The shares of Excess Stock so transferred will automatically be
deemed reexchanged for the appropriate shares of capital stock. In addition, the
Company will have the right to purchase the Excess Stock for a period of 90 days
at a price equal to the Limitation Price.
An automatic redemption will occur to prevent any violation of the
Convertible Preferred Ownership Limit that would not have occurred but for a
conversion of Convertible Preferred Stock, or a redemption or open market
purchase of Convertible Preferred Stock by the Company (each a "Corporation
Induced Event"). In the event of any such automatic redemption, the redemption
price of each share of Convertible Preferred Stock redeemed will be (x) if a
purported acquisition of Convertible Preferred Stock in which full value was
paid for such Convertible Preferred Stock caused the redemption, the price per
share paid for the Convertible Preferred Stock, or (y) if the transaction that
resulted in the redemption was not an acquisition in which the full value was
paid for such Convertible Preferred Stock (e.g., a gift or Corporation Induced
Event relating to stock held by others), a price per share equal to the market
price on the date of the purported transfer that resulted in the redemption. Any
dividend or other distribution paid to a holder of redeemed shares of
Convertible Preferred Stock (prior to the discovery by the Company that such
shares have been automatically redeemed by the Company as described above) will
be required to be repaid to the Company upon demand. An automatic redemption
also will occur with respect to Senior Preferred Stock under similar
circumstances as those described above. The Board shall have authority at any
time to waive the requirements that Excess Stock is deemed to be outstanding, or
any such redemption would in the opinion of nationally recognized tax counsel
jeopardize the status of the Company as a REIT for federal income tax purposes.
If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decisions, statute, rule or regulation, then the
intended transferee of any Excess Stock may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Stock and to hold such Excess Stock on behalf of the Company.
All certificates representing shares of capital stock will bear a
legend referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by
the Code or regulations thereunder) of the issued and outstanding Senior
Preferred Stock, Convertible Preferred Stock or Common Stock must file a written
notice with the Company containing the information specified in the Charter no
later than January 30 of each year. Furthermore, each
<PAGE>
stockholder shall upon demand be required to disclose to the Company in writing
such information as the Company may request in order to determine the effect of
such stockholder's direct, indirect and constructive ownership of such capital
stock on the Company's status as a REIT.
The foregoing ownership limitations may have the effect of precluding
acquisition of control of the Company without the consent of the Board, and
consequently, stockholders may be unable to realize a premium for their shares
over the then prevailing market price which is customarily associated with such
acquisitions.
DESCRIPTION OF THE WARRANTS TO PURCHASE
COMMON STOCK OR PREFERRED STOCK
The Company has no Common Stock Warrants and Preferred Stock Warrants
(collectively, the "Warrants") outstanding. The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will be
issued; (4) the designation, terms and number of shares of Preferred Stock or
Common Stock purchasable upon exercise of such Warrants; (5) the designation and
terms of the Offered Securities, if any, with which such Warrants are issued and
the number of such Warrants issued with each such Offered Security; (6) the
date, if any, on and after which such Warrants and the related Preferred Stock
or Common Stock will be separately transferable; (7) the price at which each
share of Preferred Stock or Common Stock purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain Federal income tax considerations; and (12) any other
terms of such Warrants, including terms, procedures and limitations relating to
the exchange and exercise of such Warrants. The exercise of any such Warrants
will be subject to and limited by the transfer and ownership restrictions in the
Company's Charter. See "Description of Common Stock -- Restrictions on Ownership
and Transfer."
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell Offered Securities to or through one or more
underwriters, and also may sell Offered Securities directly to other purchasers
or through agents.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Offered Securities, underwriters may
receive compensation from the Company or from purchasers of Offered Securities,
for whom they may act as agents, in the form of discounts, concessions, or
commissions. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions, or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers, and agents that participate
in the distribution of Offered Securities may be deemed to be underwriters, and
any discounts or commissions they receive from the Company, and any profit on
the resale of Offered Securities they realize may be deemed to be underwriting
discounts and commissions, under the Securities Act. Any such underwriter or
agent will be identified, and any such compensation received from the Company
will be described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Offered Securities will be a new issue with no established trading
market, other than the Common Stock or the Convertible Preferred Stock which
have been authorized for inclusion in the Nasdaq National Market under the
trading symbol "PRME" and "PRMEP", respectively, subject to official notice of
issuance. The Company may elect to list any series of Preferred Stock,
Depositary Shares or Warrants on an exchange, but it is not obligated to do so.
It is possible that one or more underwriters may make a market in a series of
Offered Securities, but will not be obligated to do so and may discontinue any
market making at any time without notice. Therefore, no assurance can be given
as to the liquidity of the trading market for the Offered Securities.
Under agreements the Company may enter into, underwriters, dealers, and
agents who participate in the distribution of Offered Securities may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to contracts providing for
<PAGE>
payment and delivery on a future date. Institutions with which such contracts
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others,
but in all cases such institutions must be approved by the Company. The
obligations of any purchaser under any such contract will be subject to the
condition that the purchase of the Offered Securities shall not at the time of
delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
LEGAL OPINIONS
The legality of the Offered Securities will be passed upon for the
Company by Winston & Strawn, Chicago, Illinois. The Honorable James R. Thompson,
a partner in Winston & Strawn, is a director of the Company.
EXPERTS
The consolidated financial statements of Prime Retail, Inc. appearing
in the Company's Annual Report (Form 10-K) for the year ended December 31, 1996,
and the statements of revenue and certain expenses of Grove City Factory Shops
and the JMJ Acquired Properties for the year ended December 31, 1995 included in
the Prime Retail, Inc. Current Report on Form 8-K/A-2, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such reports 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.
Registration Fee............................................. $90,909.91
NASD Fee..................................................... 30,500.00
Printing and Engraving Expenses.............................. 85,000.00
Legal Fees and Expenses...................................... 150,000.00
Accounting Fees and Expenses................................. 100,000.00
Blue Sky Fees and Expenses................................... 20,000.00
Miscellaneous................................................ 23,590.09
-----------
Total............................................... $500,000.00
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter and Bylaws authorize the Company to indemnify its present
and former directors and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding to the maximum
extent permitted from time to time under Maryland law. The Maryland General
Corporation Law ("MGCL") provides that indemnification of a person who is a
party, or threatened to be made a party, to legal proceedings by reason of the
fact that such a person is or was a director, officer, employee or agent of a
corporation, or is or was serving as a director, officer, employee or agent of a
corporation or other firm at the request of a corporation, against expenses,
judgments, fines and amounts paid in settlement, is mandatory in certain
circumstances and permissive in others, subject to authorization by the Board,
so long as a person seeking indemnification acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to criminal proceedings, had no reason to believe
that his or her conduct was unlawful.
The Company's officers and directors are also indemnified pursuant to
the Operating Partnership Agreement and their respective employment agreements,
which agreements were filed in connection with the Company's Registration
Statement on Form S-11 (File No. 33-68536) pursuant to the Initial Public
Offering.
The Company has purchased an insurance policy which purports to insure
the officers and directors of the Company against certain liabilities incurred
by them in the discharge of their functions as such officers and directors
except for liabilities resulting from their own malfeasance.
<PAGE>
ITEM 16. EXHIBITS.
1.1......- Form of Underwriting Agreement for Equity Securities (1)
4.1......- Form of Common Stock Warrant Agreement (1)
4.2......- Form of Preferred Stock Warrant Agreement (1)
4.3......- Form of Articles Supplementary for the Preferred Stock (1)
4.4......- Form of Preferred Stock Certificate (1)
4.5......- Form of Deposit Agreement (1)
5.1......- Opinion of Winston & Strawn
23.1.....- Consent of Ernst & Young L.L.P.
23.2.....- Consent of Winston & Strawn (included in Exhibit 5.1)
24.1.....- Powers of Attorney (included on the signature page hereof)
- ----------------------------------------
(1)......To be filed by amendment or incorporated by reference in
connection with the offering of Offered Securities.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that 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 provisions described in Item 15 above, 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.
<PAGE>
The undersigned Registrant hereby 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; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b) of 17 C.F.R.) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(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 (1)(i) and (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 section 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 undersigned Registrant hereby further undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual reports pursuant to section
13(a) or section 15(d) of the Securities Exchange Act
<PAGE>
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 further undertakes that:
(a) For purposes of determining any liability under the
Securities Act of 1933, as amended (the "Act"), the information omitted
from the form of Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, on the 17th day of
June, 1997.
PRIME RETAIL, INC.
By: /s/ C. ALAN SCHROEDER
---------------------
C. Alan Schroeder
Senior Vice President and General Counsel
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Abraham Rosenthal, William H.
Carpenter, Jr., Robert P. Mulreaney and C. Alan Schroeder as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including posteffective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each said attorney-in-fact
and agent or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on June 17th, 1997 by the following
persons in the capacities indicated:
SIGNATURE TITLE
- ----------------------------- -----------------------------------
/s/ MICHAEL W. RESCHKE Chairman of the Board and Director
Michael W. Reschke
s/ ABRAHAM ROSENTHAL Chief Executive Officer (Principal
Abraham Rosenthal Executive Officer) and Director
/s/ WILLIAM H. CARPENTER, JR. President, Chief Operating Officer
William H. Carpenter, Jr. and Director
/s/ ROBERT P. MULREANEY Executive Vice President - Chief
Robert P. Mulreaney Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ TERENCE C. GOLDEN Director
Terence C. Golden.
/s/ KENNETH A. RANDALL Director
Kenneth A. Randall
/s/ JAMES R. THOMPSON Director
James R. Thompson
/s/ MARVIN S. TRAUB Director
Marvin S. Traub
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------- ----------
5.1 Opinion of Winston & Strawn as to the legality
of the securities being registered
23.1 Consent of Ernst & Young LLP
23.2 Consent of Winston & Strawn (included in their
opinion filed as Exhibit 5.1)
24.1 Powers of Attorney (included on the signature
page hereof)
EXHIBIT 5.1
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
June 17, 1997
Prime Retail, Inc.
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
We have acted as special counsel to Prime Retail, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission"). The Registration
Statement relates to the issuance and sale from time to time, pursuant to Rule
415 of the General Rules and Regulations promulgated under the Securities Act of
1933, as amended (the "Act"), of the following securities with an aggregate
initial offering price of up to $300,000,000 (or the equivalent thereof, based
on the applicable exchange rate at the time of sale, in one or more foreign
currencies, currency units or composite currencies as shall be designated by the
Company): (i) shares of preferred stock, $.01 par value per share ("Preferred
Stock"), of the Company, (ii) shares of Preferred Stock represented by
depositary shares (the "Depositary Shares"), (iii) warrants to purchase shares
of Preferred Stock (the "Preferred Stock Warrants"), with an aggregate public
offering price of up to $300,000,000 (or its equivalent in another currency
based on the exchange rate at the time of sale) in amounts, at prices and on
terms to be determined at the time of offering, (iv) shares of Common Stock,
$.01 par value per share ("Common Stock"), of the Company, or (v) warrants to
purchase shares of Common Stock (the "Common Stock Warrants"). The Preferred
Stock, Depositary Shares, Preferred Stock Warrants, Common Stock and Common
Stock Warrants are collectively referred to herein as the "Offered Securities."
This opinion is furnished in accordance with the requirements of Item 601(b)(5)
of Regulation S-K under the Act. Except as otherwise specified, capitalized
terms used herein shall have the same meanings as are ascribed to such terms in
the Registration Statement.
<PAGE>
Prime Retail, Inc.
June 17, 1997
Page 2
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of: (i) the
Registration Statement filed with the Commission on June 17, 1997 under the Act;
(ii) the Amended and Restated Articles of Incorporation of the Company as in
effect on the date hereof (the "Charter"); (iii) the By-laws of the Company as
in effect on the date hereof; and (iv) resolutions adopted by the Board of
Directors of the Company authorizing, among other things, the issuance and sale
of the Offered Securities and the proper officers and committee of the Board of
Directors of the Company designated to determine the final form and terms of the
Offered Securities (the "Board Resolutions"). We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of the Company and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties have the power, corporate or other,
to enter into and perform all obligations thereunder and have also assumed the
due authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof. As to any facts material to the opinions expressed herein that were not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the bar in the States of
Illinois and New York, and we do not express any opinion as to the laws of any
other jurisdiction other than the General Corporation Law of the State of
Maryland. The Offered Securities may be issued from time to time on a delayed or
continuous basis, and this opinion is limited to the laws, including the rules
and regulations, as in effect on the date hereof.
Based upon and subject to the foregoing, we are of the opinion
that:
1. When (i) the Registration Statement shall have become
effective under the Act, (ii) the Blue Sky or securities laws of certain states
shall have been complied with, (iii) if the Preferred Stock is to be sold
pursuant to a firm commitment underwritten offering, an
<PAGE>
Prime Retail, Inc.
June 17, 1997
Page 3
underwriting agreement (the "Underwriting Agreement") to be entered into by the
Company and one or more underwriters with respect to such Preferred Stock in the
form to be filed as an exhibit to the Registration Statement, any amendment
thereto or any document incorporated by reference therein has been duly
authorized, executed and delivered by the Company and the other parties thereto,
(iv) the Board of Directors, including any appropriate committee appointed
thereby, and appropriate officers of the Company have taken all necessary
corporate action to approve the issuance and terms of the shares of the
Preferred Stock and related matters, including the adoption of any Articles
Supplementary to the Charter of the Company designating terms of a series of
Preferred Stock (other than the Senior Preferred Stock or the Convertible
Preferred Stock) (a "Designating Amendment"), (v) the filing of a Designating
Amendment, if applicable, with the Secretary of State of the State of Maryland
has duly occurred, (vi) the terms of the Preferred Stock and of their issuance
and sale have been duly established in conformity with the Company's Charter,
including a Designating Amendment relating to the Preferred Stock, if
applicable, and the By-laws of the Company so as not to violate any applicable
law or the Company's Charter or By-laws or result in a default under or breach
of any agreement or instrument binding upon the Company and so as to comply with
any requirement or restriction imposed by any court or governmental body having
jurisdiction over the Company, (vii) certificates representing the shares of the
Preferred Sock are duly executed, countersigned, registered and delivered upon
payment of the agreed-upon consideration therefor, (viii) the Preferred Stock
shall have been (A) authorized, issued and sold in accordance with the related
underwriting agreements or any other applicable duly authorized, executed and
delivered purchase agreement and the Company shall have received consideration
therefor or (B) issued upon conversion or exchange of Preferred Stock which, by
their respective terms, are convertible into or exchangeable for shares of
Preferred Stock or upon exercise of Preferred Stock Warrants and the Company
shall have received any additional consideration which is payable upon such
conversion, exchange or exercise, the Preferred Stock will be validly issued,
fully paid and nonassessable, and (ix) the shareholders of the Company shall, to
the extent revised by the Charter and the General Corporation Law of the State
of Maryland, have approved the authorization and issuance of any shares of
Preferred Stock ranking senior to the Convertible Preferred Stock.
2. When (i) the Registration Statement shall have become
effective, (ii) the Blue Sky or securities laws of certain states shall have
been complied with, (iii) if the Depositary Shares are to be sold pursuant to a
firm commitment underwritten offering, the Underwriting Agreement with respect
to the Depositary Shares in the form to be filed as an exhibit to the
Registration Statement, any amendment thereto or any document incorporated by
reference therein has been duly authorized, executed and delivered by the
Company and the other parties thereto, (iv) the Board of Directors, including
any appropriate committee appointed thereby, and
<PAGE>
Prime Retail, Inc.
June 17, 1997
Page 4
appropriate officers of the Company have taken all necessary corporate action to
approve the issuance and terms of the Depositary Shares and related matters,
including the adoption of a Designating Amendment, if applicable, for the
related Preferred Stock, (v) the filing of a Designating Amendment, if
applicable, with the Secretary of State of the State of Delaware has duly
occurred, (vi) a deposit agreement relating to the Depositary Shares (the
"Deposit Agreement") in the form to be filed as an exhibit to the Registration
Statement, any amendment thereto or any document incorporated by reference
therein has been duly executed and delivered by the Company and a depositary,
(vii) the terms of the Depositary Shares and of their issuance and sale have
been duly established in conformity with the Deposit Agreement so as not to
violate any applicable law or the Charter or By-laws of the Company or result in
a default under or breach of any agreement or instrument binding upon the
Company and so as to comply with any requirement or restriction imposed by any
court or governmental body having jurisdiction over the Company, (viii) the
related Preferred Stock which is represented by the Depositary Shares has been
duly authorized, validly issued and delivered, if applicable, to the depositary
for deposit in accordance with the laws of the State of Maryland and any other
applicable jurisdiction, and (ix) the receipts evidencing the Depositary Shares
(the "Depositary Receipts") are duly issued against the deposit of the Preferred
Stock in accordance with the Deposit Agreement, such Receipts will be validly
issued and will entitle the holders thereof to the rights specified therein and
in the Deposit Agreement.
3. When (i) the Registration Statement shall have become
effective under the Act, (ii) the Blue Sky or securities laws of certain states
shall have been complied with, (iii) if the Common Stock is to be sold pursuant
to a firm commitment underwritten offering, an Underwriting Agreement with
respect to such Common Stock in the form to be filed as an exhibit to the
Registration Statement, any amendment thereto or any document incorporated by
reference therein has been duly authorized, executed and delivered by the
Company and the other parties thereto, (iv) certificates representing the shares
of the Common Stock are duly executed, countersigned, registered and delivered
upon payment of the agreed upon consideration therefor, (v) the Board of
Directors of the Company, including any appropriate committee appointed thereby,
and appropriate officers of the Company have taken all necessary corporate
action to approve the issuance of the Common Stock and related matters, (vi) the
terms of the issuance of the Common Stock have been duly established as
contemplated by the Board Resolutions in conformity with the Company's Charter
and By-laws so as not to violate any applicable law or the Charter or By-laws of
the Company or results in a default under or breach of any agreement or
instrument binding upon the Company and so as to comply with any requirement or
restriction imposed by any court or governmental body having jurisdiction over
the Company, and (vii) the Common Stock shall have been (A) authorized, issued
and sold in accordance with the related
<PAGE>
Prime Retail, Inc.
June 17, 1997
Page 5
Underwriting Agreement or any other applicable duly authorized, executed and
delivered purchase agreement and the Company shall have received consideration
therefor, provided that the amount of such consideration shall not be less than
the par value thereof, or (B) issued upon conversion or exchange of Preferred
Stock which, by their respective terms, are convertible into or exchangeable for
shares of Common Stock or upon exercise of Common Stock Warrants, and the
Company shall have received any additional consideration which is payable upon
such conversion or exchange, the Common Stock shall be validly issued, fully
paid and nonassessable.
4. When (i) the Registration Statement has become effective
under the Act, (ii) the Blue Sky or securities laws of certain states shall have
been complied with, (iii) if the Preferred Stock Warrants and Common Stock
Warrants (collectively, the "Warrants") are to be sold pursuant to a firm
commitment underwritten offering, the Underwriting Agreement with respect to
such Warrants in the form to be filed as an exhibit to the Registration
Statement, any amendment thereto or any document incorporated by reference
therein has been duly authorized, executed and delivered by the Company and the
other parties thereto, (iv) the warrant agreement relating to the Warrants (the
"Warrant Agreement") in the form to be filed as an exhibit to the Registration
Statement, any amendment thereto or any document incorporated by reference
therein has been duly authorized, executed and delivered by the Company and the
other parties thereto, (v) the terms of the Warrants and of their issuance and
sale have been duly established in conformity with the Warrant Agreement
relating to such Warrants so as not to violate any applicable law, the Charter
or By-laws of the Company or result in a default under or breach of any
agreement or instrument binding upon the Company and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over the Company, and (vi) the Warrants have been duly executed,
delivered and countersigned, in accordance with the Warrant Agreement relating
to such Warrants, and duly issued and sold in the applicable form to be filed as
an exhibit to the Registration Statement or any amendment thereto and in the
manner contemplated by the related Underwriting Agreement or any other duly
authorized, executed and delivered purchase agreement and the Company shall have
received consideration therefor, any such Warrants will constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except to the extent that enforcement thereof may be limited
by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (b) general principles of equity (regardless of
whether enforcement is considered in a proceeding of law or in equity).
<PAGE>
Prime Retail, Inc.
June 17, 1997
Page 6
To the extent that the obligations of the Company under a
Deposit Agreement relating to the Depositary Shares may be dependent upon such
matters, we have assumed for purposes of this opinion (i) that the applicable
depositary is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and is duly qualified to engage in the
activities contemplated by the Deposit Agreement, (ii) that such Deposit
Agreement has been duly authorized, executed and delivered by and constitutes
the legal, valid and binding obligation of such depositary enforceable in
accordance with its terms, (iii) that such depositary is in compliance,
generally and with respect to acting as a depositary under the Deposit Agreement
with all applicable laws and regulations, and (iv) that such depositary has the
requisite organizational and legal power and authority to perform its
obligations under the Deposit Agreement.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement. We also consent to the
reference to our firm under the caption "Legal Opinion" in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
/s/ Winston & Strawn
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of Prime Retail, Inc. and to the incorporation
by reference therein of our report dated January 30, 1997 (except for Note 14,
as to which the date is March 10, 1997), with respect to the consolidated
financial statements of Prime Retail, Inc., included in its Annual Report (Form
10-K) for the year ended December 31, 1996 and our reports dated January 30,
1996 and November 14, 1996, with respect to the statements of revenue and
certain expenses of Grove City Factory Shops and the JMJ Acquired Properties,
respectively, for the year ended December 31, 1995, included in the Prime
Retail, Inc. Current Report on Form 8-K/A-2 dated January 30, 1997, both filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Baltimore, Maryland
June 13, 1997
