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As filed with the Securities and Exchange Commission on October 13, 1998
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 38-2559212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
C. Alan Schroeder
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)
COPY TO:
Wayne D. Boberg
Steven J. Gavin
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
(312) 558-5600
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 delivery of the prospectus is expected to be made pursuant to Rule
434,
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please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================
TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
SECURITIES BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
---------------- ---------- -------------- -------------- ---
<S> <C> <C> <C> <C>
Series C
Cumulative
Convertible
Redeemable
Preferred Stock,
$0.01 par value
per share........ 4,363,636(1) $13.75(2) $59,999,995 $17,700
----------------- ------------------------------------------------------------
Common Stock,
$0.01 par value
per share (3).... 12,869,108 $8.00 (4) $68,043,776 (5) $20,073
- ------------------ ------------------------------------------------------------
Total.......... $128,043,771 $37,773
===============================================================================
</TABLE>
(1) Includes Series C Preferred Stock as may from time to time be issued
upon exchange of Series C Preferred Units of limited partnership
interest in Prime Retail, L.P., a Delaware limited partnership ("Prime
Partnership"). There is also registered hereunder such indeterminate
number of shares of Series C Preferred Stock as may be issuable upon any
stock split, combination, recombination, reclassification, merger or
other similar transaction which affects shares of Series C Preferred
Stock.
(2) Estimated using the liquidation value of the Series C Preferred Stock for
the purpose of calculating the registration fee pursuant to Rule 457(i).
(3) Includes 8,505,472 shares of Common Stock as may from time to time be
issued upon exchange of Common Units of limited partnership interest in
Prime Partnership. Includes 4,363,636 shares of Common Stock as may from
time to time be issued upon exchange of Series C Preferred Stock or
Series C Preferred Units of limited partnership interest in Prime
Partnership. There is also registered hereunder such indeterminate
number of shares of Common Stock as may be issuable upon any stock
split, combination, recombination, reclassification, merger or other
similar transaction which affects shares of Common Stock.
(4) Estimated using October 8, 1998 data solely for the purpose of
calculating the registration fee pursuant to Rule 457(c) under the
Securities Act of 1933, as amended.
(5) Proposed maximum offering price does not include 4,363,636 shares of
Common Stock issuable upon exchange of Series C Preferred Stock or
Series C Preferred Units.
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EXPLANATORY NOTE
This registration statement contains two prospectus front and back cover
pages. The first relates to Series C preferred stock and common stock of
Prime Retail, Inc. which may be sold by Security Capital Preferred Growth
Incorporated and/or its permitted transferees. The second relates to Common
Stock of Prime Retail, Inc. which may be sold by owners of common units of
limited partnership interest in Prime Retail, L.P. who have converted these
units into such common stock. Each prospectus is identical except for the
front and back covers.
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SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
Prime Retail, Inc.
4,363,636 Shares of Series C Cumulative Convertible Redeemable Preferred Stock,
$0.01 par value per share
4,363,636 Shares of Common Stock, $0.01 par value per share
This prospectus relates to the offer and sale by Security Capital
Preferred Growth Incorporated and/or its designees of shares of Series C
preferred stock and common stock of Prime Retail, Inc. Prime is registering
such shares to permit the selling shareholders to resell the Series C
preferred stock and common stock and to permit public secondary trading of
the common stock. Prime will not receive any of the proceeds from any sales
of the shares.
Security Capital received the Series C preferred securities in a private
transaction with Prime which closed in August and December 1997.
The common stock is listed on the New York Stock Exchange under the
symbol "PRT." The Series C preferred stock is not listed on any national
exchange or quoted in any national quotation system.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
This Prospectus is dated ______________, 1998
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
Prime Retail, Inc.
8,505,472 Shares of Common Stock, $0.01 par value per share
This prospectus relates to the offer and sale by selling shareholders of
shares of common stock of Prime Retail, Inc. The selling shareholders will be
identified in a supplement to this prospectus. Prime is registering the
common stock to permit selling shareholders to resell the common stock and to
permit public secondary trading of the common stock. Prime will not receive
any of the proceeds from any sales of the shares.
The common stock is listed on the New York Stock Exchange under the
symbol "PRT."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
This Prospectus is dated _______________, 1998
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy
statements and other information with the Commission. You may read and copy
the reports, statements or other information we file at the Commission's
public reference rooms in Washington, D.C. You can request copies of these
documents, upon payment of photocopying fees, by writing to the Securities
and Exchange Commission (the "Commission"). Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public
reference rooms. The Company's Commission filings are also available to the
public on the Commission's internet site (http://www.sec.gov). These
documents are also available for viewing at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed certain documents with the Commission and is
incorporating by reference the documents listed below and any future filings
made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until all of the securities under this
registration statement are sold. Incorporating them by reference means that
we are making the documents listed below a part of this prospectus by
referring to these documents and declaring that you should consider them to
be part of this prospectus as if they were fully copied in this prospectus.
1. The annual report of Prime Retail, Inc., a predecessor of the Company
("Former Prime"), on Form 10-K for the year ended December 31, 1997.
2. Former Prime's quarterly report on Form 10-Q for the quarter ended
March 31, 1998.
3. Former Prime's current report on Form 8-K dated February 1, 1998.
4. The information prescribed by Items 12, 13, 14, 15 and 16 of Form S-11
contained in Former Prime's Registration Statement on Form S-11 dated
June 28, 1996, as amended (Registration No. 333-01666).
5. The annual report of Horizon Group, Inc., a predecessor of the Company
("Horizon"), on Form 10-K for the year ended December 31, 1997.
6. Horizon's current report on Form 8-K dated February 1, 1998.
7. The Joint Proxy Statement of Former Prime and Horizon, Prospectus of
the Company and Information Statement of Horizon Group Properties,
Inc. on Form S-4 dated May 14, 1998.
8. The Company's current report on Form 8-K dated June 15, 1998.
9. The Company's current report on Form 8-K/A dated June 15, 1998.
10. The Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1998.
11. All documents subsequently filed by Former Prime or Horizon pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
date of any offer or sale of Offered Shares.
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<PAGE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Prime Retail, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Corporate Secretary
(410) 234-0782
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. We are not
making an offer of these securities in any state where the offer is permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of those documents.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR
CAUTIONARY STATEMENT
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN
CONTAIN "FORWARD-LOOKING" STATEMENTS, AS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, THAT ARE BASED ON CURRENT EXPECTATIONS,
ESTIMATES AND PROJECTIONS. STATEMENTS THAT ARE NOT HISTORICAL FACTS,
INCLUDING STATEMENTS ABOUT PRIME'S BELIEFS AND EXPECTATIONS, ARE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS CONTAIN POTENTIAL RISKS AND
UNCERTAINTIES AND, THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE.
IMPORTANT FACTS THAT MAY AFFECT THESE PROJECTIONS OR EXPECTATIONS
INCLUDE, BUT ARE NOT LIMITED TO: GENERAL ECONOMIC AND BUSINESS CONDITIONS,
WHICH WILL, AMONG OTHER THINGS, AFFECT DEMAND FOR OUTLET CENTER PROPERTIES,
AVAILABILITY AND CREDITWORTHINESS OF PROSPECTIVE TENANTS, LEASE RENTS AND THE
AVAILABILITY OF FINANCING; ADVERSE CHANGES IN THE REAL ESTATE MARKETS
INCLUDING, AMONG OTHER THINGS, COMPETITION WITH OTHER COMPANIES, RISKS OF
REAL ESTATE ACQUISITION AND DEVELOPMENT; GOVERNMENTAL ACTIONS AND
INITIATIVES; AND ENVIRONMENTAL REQUIREMENTS.
THE COMPANY
The Company is a self-administered and self-managed REIT engaged in the
ownership, development, and management of factory outlet centers in the
United States. The Company believes that it is the largest owner and
operator of factory outlet centers in the United States. As of September 30,
1998, the Company's portfolio consisted of 50 factory outlet centers in 26
states totaling approximately 14,029,000 square feet of gross leasable area.
As a fully-integrated real estate firm, the Company will provide development,
construction, finance, leasing, marketing and management services for all of
the properties (the "Properties"). The Properties are held and all of the
Company's business and operations are conducted through Prime Retail, L.P., a
Delaware limited partnership ("Prime Partnership"), through its ownership of
equity interests in various lower-tier partnerships (the "Property
Partnerships"). The Company controls Prime Partnership as its sole general
partner and is dependent upon the distributions or other payments from Prime
Partnership in order to meet its financial obligations.
The Company is a Maryland corporation that was incorporated on November 12,
1997. The Company, formerly known as Sky Merger Corp., is the surviving
company of the June 15, 1998 mergers (the "Mergers") of Former Prime and
Horizon into Sky Merger Corp. At the effective time of the Mergers, the
separate legal existences of each of Former Prime and Horizon ceased, and Sky
Merger Corp. was renamed "Prime Retail, Inc." Although, from a legal point
of view, Sky Merger Corp. was the surviving company of the Mergers, the
Company's business is largely conducted in the same manner as and under the
senior management of Former Prime.
Our executive offices are located at 100 East Pratt Street, Nineteenth
Floor, Baltimore, Maryland 21202, and our telephone number is (410) 234-0782.
USE OF PROCEEDS
The Company will not receive any proceeds from sales of the shares by
the selling shareholders. The Company has agreed to pay all expenses
relating to the registration of the shares (other than underwriting discounts
and commissions, the fees and disbursements of counsel representing such
selling shareholders, and transfer taxes, if any) pursuant to the Securities
Act of 1933, as amended.
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DESCRIPTION OF CAPITAL STOCK
SERIES C PREFERRED SHARES
DISTRIBUTIONS
The outstanding shares of Series C Cumulative Convertible Redeemable
Preferred Stock, $0.01 par value per share, of the Company (the "Series C
Preferred Shares") are fully paid and nonassessable. Subject to the
preferential rights of the holders of the Company's Series A Senior
Cumulative Preferred Stock, $0.01 par value per share ("Series A Preferred
Shares"), the Company's 8.5% Series B Cumulative Participating Convertible
Preferred Stock, $0.01 par value per share ("Series B Preferred Shares"), and
any other shares of preferred stock that rank senior in the payment of
distributions to Series C Preferred Shares, the holders of Series C Preferred
Shares shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of distributions,
cumulative preferential distributions payable in cash in an amount per share
equal to the greater of (i) the rate of $1.18 per annum per share or (ii) the
regular cash distributions (determined on each Series C Preferred
Distribution Payment Date referred to below) on the shares of the Company's
Common Stock, $0.01 par value per share (the "Common Shares"), or portion
thereof, into which a Series C Preferred Share is convertible. The
distributions referred to in clause (ii) of the preceding sentence shall
equal the number of Common Shares, or portion thereof, into which a Series C
Preferred Share is convertible, multiplied by the most current quarterly
distribution on a Common Share on or before the applicable Series C Preferred
Distribution Payment Date. If the Company pays a regular cash distribution on
Common Shares with respect to a Series C Preferred Distribution Period after
the date on which the Series C Preferred Distribution Payment Date is
declared and the distribution calculated with respect to such Series C
Preferred Distribution Period is greater than the distribution previously
declared on Series C Preferred Shares with respect to such Series C Preferred
Distribution Period, the Company shall pay an additional distribution to the
holders of Series C Preferred Shares on the date on which the distribution on
Common Shares is paid, in an amount equal to the difference between (y) the
distribution calculated pursuant to clause (ii) above and (z) the amount of
distributions previously declared on Series C Preferred Shares with respect
to such Series C Preferred Distribution Period.
Distributions with respect to the Series C Preferred Shares are
cumulative from the date of original issuance and begin to accrue from the
first day of the applicable Series C Preferred Distribution Period, whether
or not in any Series C Preferred Distribution Period or Periods there shall
be funds of the Company legally available for the payment of such
distributions, and shall be payable quarterly, when, as and if declared by
the Board of Directors, in arrears on the Series C Preferred Distribution
Payment Dates (as defined below). Each such distribution shall be payable in
arrears to the holders of record of Series C Preferred Shares as they appear
in the records of the Company at the close of business on such record dates,
not less than 10 nor more than 50 days preceding such Series C Preferred
Distribution Payment Dates, as shall be fixed by the Board of Directors
(each, a "Series C Preferred Distribution Payment Date"). Accrued and unpaid
distributions for any past Series C Distribution Periods may be declared and
paid at any time and for such interim periods, without reference to any
regular Series C Distribution Payment Date, to holders of record on such
date, not less than 10 nor more than 50 days preceding the payment date
thereof, as may be fixed by the Board of Directors. Any distribution payment
made on Series C Preferred Shares shall first be credited against the
earliest accrued but unpaid distribution due with respect to Series C
Preferred Shares which remains payable.
Distributions payable on Series C Preferred Shares for each full Series
C Distribution Period are computed by dividing the annual distribution rate
by four. The initial Series C Preferred Distribution Period for any Series C
Preferred Shares will include a partial distribution for the period from the
applicable initial issue date until the last day of the calendar quarter
immediately following such initial issue date. The amount of distributions
payable for such period, or any other period shorter than a full Series C
Preferred Distribution Period, on the Series C Preferred Shares shall be
computed by dividing the number of days in such period by 365 and multiplying
the result by the Series C Preferred Shares distribution rate determined as
set forth above. Holders of Series C Preferred Shares shall not be entitled
to any distributions, whether payable in cash, property or shares, in excess
of cumulative distributions, as herein provided, on Series C Preferred
Shares. No interest, or sum of money in lieu of interest, shall be payable in
respect of any distribution payment or payments on Series C Preferred Shares
which may be in arrears.
So long as any Series C Preferred Shares are outstanding, no distributions,
except as described in the immediately following sentence, shall be declared or
4
<PAGE>
paid or set apart for payment on any class or series of Parity Shares for any
period unless full cumulative distributions 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 Series C Preferred Shares for all
Series C Preferred Distribution Periods terminating on or prior to the Series
C Preferred Distribution Payment Date on such class or series of ranking on a
parity to Series C Preferred Shares. When distributions are not paid in full
or a sum sufficient for such payment is not set apart, as aforesaid, all
distributions declared upon Series C Preferred Shares and all distributions
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of distributions accumulated
and unpaid on Series C Preferred Shares and accumulated and unpaid on such
Parity Shares.
So long as any Series C Preferred Shares are outstanding, no
distributions (other than distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Fully Junior
Shares (as defined below)) shall be declared or paid or set apart for payment
or other distribution shall be declared or made or set apart for payment upon
Junior Shares (as defined below), nor shall any Junior Shares be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Shares made for purposes of an employee incentive or
benefit plan of the Company or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of
any Junior Shares) by the Company, directly or indirectly (except by
conversion into or exchange for Fully Junior Shares), unless in each case (i)
the full cumulative distributions on all outstanding Series C Preferred
Shares and any other Parity Shares shall have been or contemporaneously are
declared and paid or declared and set apart for payment for all past Series C
Preferred Distribution Periods with respect to Series C Preferred Shares and
all past Series C Preferred Distribution Periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the
distribution for the current Series C Preferred Distribution Period with
respect to Series C Preferred Shares and the current distribution period with
respect to such Parity Shares.
No distributions on Series C Preferred Shares shall be declared by the
Board of Directors or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including
any agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
Any class or series of shares of capital stock of the Company shall be
deemed to rank on a parity with the Series C Preferred Shares, as to the
payment of distributions and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the distribution rates,
distribution payment dates or redemption or liquidation prices per share
thereof shall be different from those of the Series C Preferred Shares, if
the holders of such class or series and the Series C Preferred Shares shall
be entitled to the receipt of distributions and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid distribution per share or liquidation
preferences, without preference or priority one over the other ("Parity
Shares"). As used herein, "Fully Junior Shares" shall mean the Common Shares
and any other class or series of shares of capital stock of the Company now
or hereafter issued and outstanding over which the Series C Preferred Shares
have preference or priority in both (i) the payment of distributions and (ii)
the distribution of assets on any liquidation, dissolution or winding up of
the Corporation; and "Junior Shares" shall mean the Common Shares and any
other class or series of capital stock of the Company now or hereafter issued
and outstanding over which the Series C Preferred Shares have preference or
priority in the payment of distributions or in the distribution of assets on
any liquidation, dissolution or winding up of the Company.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, subject to the prior preferences
and other rights of any series of capital stock ranking senior to Series C
Preferred Shares upon liquidation, distribution or winding up of the Company
(including the Series A Preferred Shares and the Series B Preferred Shares)
before any payment or distribution of the assets of the Company (whether
capital or surplus) shall be made to or set apart for the holders of Junior
Shares, the holders of the Series C Preferred Shares shall be entitled to
receive Thirteen Dollars and Seventy-Five Cents ($13.75) (the "Series C
Preferred Liquidation Preference Amount") per Series C Preferred Share plus
an amount equal to all distributions (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders;
but such holders shall not be entitled to any further payment; provided, that
the distribution payable with respect to the Series C Preferred Distribution
Period containing the date of final distribution shall be equal to the
greater of (i) the rate of $1.18 per annum per share or (ii) the regular cash
distributions on the Common Shares, or portion thereof, into which a Series C
Preferred Share is convertible for the preceding Series C Preferred
Distribution Period. If, upon any liquidation, dissolution or winding up of
the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of Series C Preferred Shares shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any
other shares of any class or series of Parity Shares, then such assets, or
the proceeds thereof, shall be distributed among the holders of Series C
Preferred Shares and any such other Parity Shares ratably in accordance with
the respective amounts that would be payable on such Series C Preferred
Shares and any such other Parity Shares if all amounts payable thereon were
paid in full. A consolidation or merger of the Company with one or more
corporations, real estate investment trusts or other entities, (ii) a sale,
lease or conveyance of all or substantially all of the Company's property or
business or (iii) a statutory share exchange shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
5
<PAGE>
Subject to the rights of the holders of shares of any series or class or
classes of shares of capital stock ranking on a parity with or prior to
Series C Preferred Shares upon liquidation, dissolution or winding up, upon
any liquidation, dissolution or winding up of the Company, after payment
shall have been made in full to the holders of Series C Preferred Shares, the
holders of Series C Preferred Shares shall have no other claim to the
remaining assets of the Company and any other series or class or classes of
Junior Shares shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of Series C Preferred Shares shall not
be entitled to share therein.
REDEMPTION
Series C Preferred Shares will not be redeemable by the Company prior to
August 8, 2007. On and after August 8, 2007, the Company, at its option, may
redeem Series C Preferred Shares, in whole at any time or from time to time
in part out of funds legally available therefor at a redemption price payable
in cash equal to 100% of the Series C Preferred Liquidation Preference Amount
per Series C Preferred Share (plus all accumulated, accrued and unpaid
distributions). Series C Preferred Shares have no stated maturity and will
not be entitled to the benefit of any sinking fund.
Notwithstanding the foregoing, if full cumulative dividends on the
Series C Preferred Shares and any other class or series of Parity Shares of
the Company have not been declared and paid or declared and set apart for
payment, the Company may not redeem the Series C Preferred Shares and the
Company may not purchase or acquire Series C Preferred Shares, other than
pursuant to a purchase or exchange offer made on the same terms to all
holders of Series C Preferred Shares.
The Company will mail notice of redemption of Series C Preferred Shares
not less than 30 nor more than 90 days prior to the redemption date (the
"Call Date") to each holder of record of Series C Preferred Shares being
redeemed at the address shown on the Company's records. Each such mailed
notice shall state, as appropriate: (1) the Call Date; (2) the number of
Series C Preferred Shares to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (3) the redemption price; (4) the place or places
at which certificates for such shares are to be surrendered; (5) the
then-current Series C Conversion Price; and (6) that distributions on the
shares to be redeemed shall cease to accrue on such Call Date except as
otherwise provided herein. Notice having been mailed as aforesaid, from and
after the Call Date (unless the Company shall fail to make available an
amount of cash necessary to effect such redemption), (i) distributions on the
Series C Preferred Shares so called for redemption shall cease to accrue,
(ii) such shares shall no longer be deemed to be outstanding, and (iii) all
rights of the holders thereof as holders of Series C Preferred Shares shall
cease (except the right to receive the redemption price). If the Company
redeems fewer than all the outstanding Series C Preferred Shares, the Company
will select the shares to be redeemed by lot or pro rata or by any other
method determined by the Company.
VOTING
Holders of Series C Preferred Shares do not have any voting rights, except
as set forth below or as otherwise from time to time required by law.
Whenever (i) distributions on any Series C Preferred Shares or any
series or class of Parity Shares have been in arrears for two consecutive
quarters, whether or not earned or declared, or (ii) for two consecutive
quarters, the Company fails to pay distributions on the Common Shares in an
amount per share at least equal to $0.25 (subject to adjustment if the
Conversion Price (as defined below) is adjusted), the number of directors
then constituting the Board of Directors shall be increased by one (unless
the then current Board of Directors consists of more than 10 directors in
which case it shall be increased by two) and the holders of Series C
Preferred Shares, together with the holders of shares of every other series
or class of Parity Shares (any such other series, the "Voting Preferred
Shares"), voting as a single class regardless of series, shall be entitled to
elect the one or two additional directors to serve on the Board of Directors
at any annual meeting of stockholders or special meeting held in place
thereof, or at a special meeting of the holders of Series C Preferred Shares
and Voting Preferred Shares. Each of such two directors will be elected to
serve until the earlier of (i) the election and qualification of such
director's successor or (ii) payment of the distribution arrearage for Series
C Preferred Shares, Voting Preferred Shares or Common Shares, as the case
may be.
So long as any Series C Preferred Shares are outstanding, in addition to
any other vote or consent of shareholders required by law or by the Charter,
the affirmative vote of at least two-thirds of the votes entitled to be cast
by the holders of Series C Preferred Shares given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating: (i) any amendment,
alteration or repeal of any of the provisions of the Charter or the Bylaws
that materially and adversely affects the voting powers, rights or
preferences of the holders of Series C Preferred Shares; provided, however,
that the amendment of the provisions of the Charter so as to authorize or
create or to increase the authorized amount of, any Fully Junior Shares,
Junior Shares that are not senior in any respect to the Series C Preferred
Shares or any Parity Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series C
Preferred Shares; (ii) a share exchange that affects Series C Preferred
Shares, a consolidation with or merger of the Company into another entity, or
a consolidation with or merger of another entity into the Company, unless in
each such case each Series C Preferred Share (a) shall remain outstanding
without a material and adverse change to its terms and rights or (b) shall be
converted into or exchanged for convertible preferred shares of the surviving
entity having preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms or
conditions of redemption thereof identical to that of a Series C Preferred
Share (except for changes that do not materially and adversely affect the
holders of Series C Preferred Shares); or (iii) the authorization,
reclassification or creation of, or the increase in the authorized amount of,
any shares of any class or any security convertible into shares of any class
ranking prior to Series C Preferred Shares in the distribution of assets on
any liquidation, dissolution or winding up of the Company or in the payment
of distributions; provided, however, that no such vote of the holders of
Series C Preferred Shares shall be required (x) for the Company in order to
sell up to 57,000,000 (before deducting underwriting
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discounts or commissions) of its Series B Preferred Shares at a price equal
to or greater than $22 per share (before deducting underwriting discounts or
commissions) as long as no modification has been made to the Charter
affecting the rights or privileges of such Series B Preferred Shares, or (y)
if, at or prior to the time when such amendment, alteration or repeal is to
take effect, or when the issuance of any such prior shares or convertible
security is to be made, as the case may be, provision is made for the
redemption of all Series C Preferred Shares at the time outstanding to the
extent such redemption is authorized by the Charter.
Each Series C Preferred Share shall have one (1) vote per share, except
that when any other series of Preferred Shares shall have the right to vote with
Series C Preferred Shares as a single class on any matter, then Series C
Preferred Shares and such other series shall have with respect to such matters
one (1) vote per $13.75 (or in some cases less) of stated liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the Series C Preferred Shares shall not have any relative,
participating, optional or other special voting rights and powers other than as
set forth herein, and the consent of the holders thereof shall not be required
for the taking of action by the Company.
CONVERSION
Subject to certain exceptions as set forth in the Charter, holders of
Series C Preferred Shares have the right, as provided in the Charter, to
convert all or a portion of such shares into the number of fully paid and
non-assessable Common Shares obtained by dividing the aggregate liquidation
preference of such shares (inclusive of accrued but unpaid distributions) by
the Series C Conversion Price (as in effect at the time) by surrendering such
shares to be converted. The initial conversion price of the Series C
Preferred Shares is equal to $13.75 which represents the initial purchase
price of such shares. In the case of Series C Preferred Shares called for
redemption, conversion rights will expire at the close of business on the
fifth business day immediately preceding the date fixed for redemption.
In order to exercise the conversion right, the holder of each Series C
Preferred Share to be converted shall surrender the certificate representing
such share, duly endorsed or assigned to the Company or in blank, at the
office of the transfer agent, accompanied by written notice to the Company
that the holder thereof irrevocably elects to convert such Series C Preferred
Shares. Unless the shares issuable on conversion are to be issued in the same
name as the name in which such Series C Preferred Share is registered, each
share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the holder or
such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the Company
demonstrating that such taxes have been paid).
Holders of Series C Preferred Shares at the close of business on a
distribution payment record date shall be entitled to receive the
distribution payable on such shares on the corresponding Series C Preferred
Distribution Payment Date notwithstanding the conversion thereof following
such distribution payment record date and prior to such Series C Preferred
Distribution Payment Date. However, Series C Preferred Shares surrendered for
conversion during the period between the close of business on any
distribution payment record date and the opening of business on the
corresponding Series C Preferred Distribution Payment Date (except shares
converted after the issuance of notice of redemption with respect to a "call
date" (as defined in the Charter) during such period, such Series C Preferred
Shares being entitled to such distribution on a Series C Preferred
Distribution Payment Date) must be accompanied by payment of an amount equal
to the distribution payable on such shares on such Series C Preferred
Distribution Payment Date. A holder of Series C Preferred Shares on a
distribution payment record date who (or whose transferee) tenders any such
shares for conversion into Common Shares on the corresponding Series C
Preferred Distribution Payment Date will receive the distribution payable by
the Company on such Series C Preferred Shares on such date, and the
converting holder need not include payment of the amount of such distribution
upon surrender of Series C Preferred Shares for conversion. Except as
provided above, the Company shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on converted shares or for
distributions on Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series C Preferred Shares as aforesaid, the Company shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable
upon the conversion of such shares in
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accordance with the Charter, and any fractional interest in respect of a
Common Share arising upon such conversion shall be settled as provided below.
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series C
Preferred Shares shall have been surrendered and such notice shall have been
received by the Company as aforesaid (and if applicable, payment of an amount
equal to the distribution payable on such shares shall have been received by
the Company as described above), and the person or persons in whose name or
names any certificate or certificates for Common Shares shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date and such
conversion shall be at the Series C Conversion Price in effect at such time
on such date unless the share transfer books of the Company shall be closed
on that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the next
succeeding day on which such share transfer books are open, but such
conversion shall be at the Series C Conversion Price in effect on the date on
which such shares shall have been surrendered and such notice received by the
Company.
No fractional shares or scrip representing fractions of Common Shares
shall be issued upon conversion of Series C Preferred Shares. Instead of any
fractional interest in a Common Share that would otherwise be deliverable
upon the conversion of a Series C Preferred Share, the Company shall pay to
the holder of such share an amount in cash based upon the current market
price of Common Shares on the trading day immediately preceding the date of
conversion. If more than one share shall be surrendered for conversion at one
time by the same holder, the number of full Common Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
Series C Preferred Shares so surrendered.
The number of Series C Preferred Shares or other assets issuable upon
conversion and the conversion price are subject to adjustment upon the
occurrence of, among other things, the following events: (i) the issuance of
Common Shares as a distribution on Common Shares; (ii) the subdivision,
combination or reclassification of the outstanding Common Shares, (iii) the
issuance to all holders of Common Shares of rights or warrants to subscribe
for or purchase Common Shares (or securities convertible into Common Shares)
at a price per share less than the then current market price per share, as
determined in accordance with the provisions of the Charter; (iv) the
distribution to all holders of Common Shares of evidences of indebtedness or
assets (including securities, but excluding cumulative cash distributions
paid with respect to Common Shares after December 31, 1996 which are not in
excess of the following: the sum of (A) the Company's cumulative
undistributed Funds from Operations at December 31, 1996, plus (B) the
cumulative amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1996, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Series C Preferred Shares or any
other class or series of preferred stock of the Company after the issue date
or rights, options or warrants to subscribe for or purchase any of its
securities (excluding those rights, options and warrants issued to all
holders of Common Shares entitling them for a period expiring within 45 days
after the record date referred to in subparagraph (iii) above to subscribe for
or purchase Common Shares, which rights and warrants are referred to in and
treated under subparagraph (iii) above); (v) the distribution to all holders
of Common Shares of rights or warrants to subscribe for securities (other
than those referred to in clause (iii) above); or (vi) the payment of
consideration per Common Share with a value greater than the current market
price of the Common Shares in a tender offer.
The Company will not be required to make any adjustment to the
Conversion Price unless the adjustment equals 1% or more of the Conversion
Price. The Company will carry forward any adjustments not required to be made
and take them into account in subsequent adjustments.
In the event that any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale, transfer or lease of all or substantially
all of its assets to another corporation, is effected in such a way that
holders of Common Shares will be entitled to receive stock, securities or
other assets with respect to or in exchange for Common Shares, then, as a
condition of such reorganization, reclassification, consolidation, merger,
sale, transfer or lease, the holder of Series C Preferred Shares shall have
the right immediately to convert such share into the kind and amount of
stock, securities or other assets which the holders of such shares would have
owned or been entitled to receive immediately after the transaction if such
holders had converted such shares immediately before the effective date of
the transaction, subject to further adjustment upon the occurrence of the
events described above.
FIXED CHARGE COVERAGE; LIMITATION ON ISSUANCE OF ADDITIONAL PREFERRED SHARES
AND INDEBTEDNESS
Without the written consent of the holders of two-thirds of the issued
and outstanding Series C Preferred Shares and Series C Preferred Units,
collectively, none of the Company, Prime Partnership, or any of their
subsidiaries may issue any additional preferred securities of any such entity
or incur any indebtedness (other than trade payables or accrued expenses
incurred in the ordinary course of business) if, immediately following such
issuance and after giving effect to such issuance and the application of the
net proceeds therefrom, such entity would be reasonably expected to not
satisfy one or both of the following ratios: (i) Total Debt (as defined
below) and liquidation value of non-convertible Preferred Shares to total
market capitalization of less than .65 to 1.0 or (ii) Consolidated EBITDA (as
defined below) to Consolidated Fixed Charges (as defined below) of at least
1.4 to 1.0. In the event that the Company fails to satisfy one or both of the
above tests for two consecutive quarters, the holders of Series C Preferred
Shares and Series C Preferred Units shall have the right to require that the
Company, to the extent that the Company shall have funds legally available
therefor, repurchase any or all of each holder's Series C Preferred Shares
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and Series C Preferred Units at a repurchase price payable in cash in an
amount equal to 100% of the liquidation preference thereof, plus accrued and
unpaid distributions whether or not declared, if any (the "Repurchase
Payment"), to the date of repurchase or the date payment is made available
(the "Repurchase Date"), pursuant to the offer described below (the
"Repurchase Offer").
Within 15 days following the second consecutive quarter that the Company
fails to satisfy one or both of the tests set forth above, the Company shall
mail by first class mail or overnight courier a notice to all holders of
Series C Preferred Shares and Series C Preferred Units stating (i) that the
Company failed to satisfy one or both of the tests (naming the test(s)
failed), (ii) that the holders of Series C Preferred Shares and Series C
Preferred Units have the right to require the Company to repurchase any or
all Series C Preferred Shares and Series C Preferred Units then held by such
holder in cash, (iii) the date of repurchase (which shall be a business day,
no earlier than 120 days and no later than 150 days from the date such notice
is mailed, or such later date as may be necessary to comply with the
requirements of the Exchange Act), (iv) the repurchase price for the
repurchase and (v) the instructions determined by the Company, consistent
with the Charter, that the holder must follow in order to have its Series C
Preferred Shares and Series C Preferred Units repurchased.
On the Repurchase Date, the Company will, to the extent lawful, accept
for payment Series C Preferred Shares and Series C Preferred Units or
portions thereof tendered pursuant to the Repurchase Offer and promptly mail
by first class mail or overnight courier or by wire transfer of immediately
available funds to the holder of Series C Preferred Shares and Series C
Preferred Units, as directed by such holder, payment in an amount equal to
the Repurchase Payment in respect of all Series C Preferred Shares and Series
C Preferred Units or portions thereof so tendered.
Notwithstanding anything else herein, to the extent they are applicable
to any Repurchase Offer, the Company will comply with any federal and state
securities laws, rules and regulations and all time periods and requirements
shall be adjusted accordingly.
For purposes of the tests described above, "Consolidated EBITDA" means
the consolidated net income of the Company (before extraordinary income or
gains) plus (i) all income and state franchise taxes paid or accrued by the
Company, (ii) all interest expense paid or accrued by the Company, (iii)
depreciation and depletion, (iv) amortization, and (v) any other non-cash
charges or discretionary prepayment penalties deducted from consolidated net
income. For purposes of such tests, "Consolidated Fixed Charges" means the
sum of (i) interest expense paid or accrued by the Company, (ii) preferred
share distributions required to be paid by the Company (whether or not
declared or paid), and (iii) regularly scheduled amortization of principal
amounts due or indebtedness (other than any balloon payments at maturity). In
addition, for purposes of such tests, "Total Debt" means the sum of any
indebtedness, except any such balance that constitutes an accrued expense or
trade payable, and also includes, to the extent not otherwise included, the
guarantee of items which would be included within this definition.
RANKING
Any class or series of shares of capital stock of the Company shall be
deemed to rank: (a) prior to the Series C Preferred Shares, as to the payment
of distributions and as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall be
entitled to the receipt of distributions or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Series C Preferred Shares; (b) on a parity with
the Series C Preferred Shares, as to the payment of distributions and as to
distribution of assets upon liquidation, dissolution or winding up, whether
or not the distribution rates, distribution payment dates or redemption or
liquidation prices per share thereof shall be different from those of the
Series C Preferred Shares, if the holders of such class or series and the
Series C Preferred Shares shall be entitled to the receipt of dividends and
of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions
per share or liquidation preferences, without preference or priority one over
the other; (c) junior to the Series C Preferred Shares, as to the payment of
distributions or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be junior shares; and (d) junior
to the Series C Preferred Shares, as to the payment of distributions and as to
the distribution of assets upon liquidation, dissolution or winding up, if
such class or series shall be junior shares.
TRANSFER AGENT
The transfer agent and registrar for the Series C Preferred Shares is the
Company.
COMMON SHARES
The outstanding Common Shares are fully paid and nonassessable. Subject
to the preferential rights of any other shares or series of shares and to the
provisions of the Charter regarding preferred shares, including Series A
Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and
Excess Stock, par value $0.01 per share ("Excess Shares"), holders of Common
Shares are entitled to receive distributions on such shares if, as and when
authorized and declared by the Company's Board of Directors out of assets
legally available therefor and to share ratably in the assets of legally
available for distribution to the stockholders in the event of the
liquidation, dissolution or winding-up of after payment of, or adequate
provision for, all known debts and liabilities of the Company.
The Company will not terminate the Company's status as a REIT without
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the affirmative vote or consent of the holders of at least a majority of the
shares of Series A Preferred Shares, Series B Preferred Shares, the Series C
Preferred Shares and Common Shares 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 the provisions of the Charter regarding Excess Shares,
Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares, each outstanding Common Share entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors and, except as otherwise required by law or except as provided with
respect to any other class or series of shares, the holders of such shares
will possess exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding Common Shares can elect all of the directors then standing for
election and the holders of the remaining shares will not be able to elect
any directors.
Holders of Common Shares have no conversion, sinking fund, redemption
rights or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Charter regarding Excess Shares,
shares of a particular class of issued Common Shares have equal dividend,
distribution, liquidation and other rights, and have no preference, appraisal
or exchange rights.
The transfer agent and registrar for the Common Shares is American Stock
Transfer & Trust Company.
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The Common Shares are listed on the NYSE under the trading symbol "PRT."
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 Series A Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares and Common Shares,
that shareholders 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 Common Shares (the "Common
Ownership Limit"). The Common Ownership Limit will not apply, however, to
holders of Common Shares who acquire Common Shares in excess of the Common
Ownership Limit solely by reason of the conversion of Series B Preferred
Shares owned by such holder into Common Shares; 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.
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
capital stock if such ownership or acquisition (i) would cause more than 50%
in value of the 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 shares 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 of Directors 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 Ownership Limit in the event such parties (i) deliver
to the Board of Directors 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 Shares and (ii) represent to the
Board of Directors that it does not and will not own more than a 9.9%
interest in any tenant of the Company.
If any shareholder 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 Shares of the same
class or classes as were purportedly transferred, which Excess Shares 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 Excess Shares of the appropriate class,
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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 Shares will not be entitled to vote Excess Shares
and will not be entitled to receive any distributions (any distribution paid
on shares of capital stock prior to the discovery by the Company that such
shares have been deemed exchanged for Excess Shares shall be repaid to the
Company upon demand, and any distribution declared but unpaid shall be
rescinded). Such person shall have the right to designate a transferee of
such Excess Shares 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 Shares
resulting from a transfer, the price paid for the shares in such transfer or,
in the case of a deemed exchange for Excess Shares 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 Shares 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. Excess Shares so transferred will
automatically be deemed re-exchanged for the appropriate shares of capital
stock. In addition, the Company will have the right to purchase Excess Shares
for a period of 90 days at a price equal to the Limitation Price.
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 Shares may be deemed, at the option of
the Company, to have acted as an agent on behalf of the Company in acquiring
such Excess Shares and to hold such Excess Shares 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 Treasury Regulations thereunder) of the issued and outstanding Series
A Preferred Shares, Series B Preferred Shares or Common Shares must file a
written notice with the Company containing the ownership information
specified in the Charter no later than January 30 of each year. Under
current Treasury Regulations, the ownership percentage threshold will be
between one-half of 1% and 5%, depending upon the number of record holders of
the Company's capital stock. Further, each 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, if any, of such
shareholder'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 of
Directors, 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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations of the ownership of Offered Shares to shareholders of the
Company. The following discussion was prepared based on consultation with
Winston & Strawn, special tax counsel to the Company. In the opinion of
Winston & Strawn, the following discussion, to the extent it constitutes
matters of law or legal conclusions, is accurate in all material respects.
Opinions of counsel are not binding on the IRS. Thus, there can be no
assurance that the IRS or a court will agree with the following discussion
and positions described therein, or that the IRS or a court will not seek to
challenge such positions, which challenge may be sustained.
The information set forth below is based on current provisions of the Code,
final, temporary and proposed regulations promulgated thereunder (such
regulations are hereafter referred to as the "Treasury Regulations"), current
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administrative interpretations, and court decisions as of the date hereof.
No assurance can be given that future legislation, Treasury Regulations,
administrative interpretations, and court decisions will not change the law,
and thereby affect the accuracy of this discussion. Any such change in law
could apply retroactively. This discussion does not constitute tax advice to
any person. The discussion contained herein does not address all aspects of
federal income taxation that may be relevant to particular holders in light
of their personal investment or tax circumstances, or to certain types of
holders (including, without limitation, insurance companies, financial
institutions, broker-dealers, persons whose functional currency is other than
the United States dollar, persons who hold the Offered Shares as part of a
straddle, hedging, or conversion transaction or, except as specifically
described herein, tax-exempt entities and foreign persons) who are subject to
special treatment under the federal income tax laws. In addition, this
discussion is generally limited to investors who will hold the Offered Shares
as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code.
The following summary is not intended to be comprehensive. Except where
indicated, the discussion below describes general federal income tax
considerations applicable to individuals who are citizens or residents of the
United States, and therefore has limited application to other holders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS, HER OR ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OR IT
OF THE ACQUISITION, OWNERSHIP AND SALE OF OFFERED SHARES AND OF THE COMPANY'S
ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
THE FOLLOWING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING.
TAXATION OF THE COMPANY
For any taxable year in which the Company qualifies as a REIT, it
generally will not be subject to federal corporate income tax on that portion
of its REIT taxable income or capital gain which is currently distributed to
its shareholders. The REIT provisions of the Code generally allow a REIT to
deduct dividends paid to its shareholders in calculating its taxable income.
This deduction for dividends paid to shareholders substantially eliminates
the "double taxation" on earnings (at both the corporate and shareholder
levels) that generally results from the use of corporate investment vehicles.
Even if the Company continues to qualify for taxation as a REIT, it may be
subject to federal income tax in certain circumstances. First, the Company
will be taxed at regular corporate rates on any undistributed "REIT taxable
income" and undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the corporate "alternative
minimum tax" on its items of tax preference, if any. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary
course of business or (ii) other nonqualifying income from foreclosure
property, the Company will be subject to tax on such income at the highest
regular corporate rate (currently 35%). Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), such income
will be subject to a 100% tax. Fifth, if the Company should fail to satisfy
the 75% gross income test or the 95% gross income test (as discussed below),
but nonetheless maintains its qualification as a REIT because certain other
requirements are met, the Company will be subject to a 100% tax on the
greater of the amount by which the Company fails the 75% or the 95% test,
multiplied by a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute for each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company will be subject
to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. However, to the extent the Company elects to
retain and pay income tax on net long-term capital gains it received during
the year such amounts will be treated as having been distributed for purposes
of the 4% excise tax. Finally, if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate level
tax) in a transaction in which
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the basis of the asset in the Company's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C
corporation, and the Company subsequently recognizes gain on the disposition
of such asset during the ten-year period (the "Recognition Period") beginning
on the date on which the asset was acquired by the Company, then, pursuant to
guidelines issued by the IRS, the C corporation from which the Company
acquired the asset will be taxable on the amount of gain that would have been
realized if the C corporation had liquidated on the last day before the date
on which the Company acquired the asset. Alternatively, the Company may
elect, in lieu of the treatment described above, to be subject to tax at the
highest regular corporate tax rate on the excess, if any, of (i) the fair
market value of the asset as of the beginning of the applicable Recognition
Period, over (ii) the Company's adjusted basis in such asset as of the
beginning of such Recognition Period (i.e., the "built-in gain"). The Company
also will be taxed on any built-in gains during the Recognition Period
attributed to the disposition of assets of an acquired corporation which is a
"qualified REIT subsidiary."
If the Company invests in properties in foreign countries, the Company's
profits from such investments will generally be subject to tax in the
countries where such properties are located. The precise nature and amount
of any such taxation will depend on the laws of the countries where the
properties are located. If the Company satisfies the annual distribution
requirements for qualification as a REIT and is therefore not subject to
federal corporate income tax on that portion of its ordinary income and
capital gain that is currently distributed to its shareholders, the Company
will generally not be able to recover the cost of any foreign tax imposed on
profits from its foreign investments by claiming foreign tax credits against
its U.S. tax liability on such profits. Moreover, a REIT is not able to pass
foreign tax credits through to its shareholders.
REQUIREMENTS FOR QUALIFICATION
In order to qualify as a REIT, the Company must have met and continue to
meet the requirements, discussed below, relating to the Company's
organization, the sources of its gross income, the nature of its assets, and
the level of distributions to its shareholders.
ORGANIZATIONAL REQUIREMENTS
The Code requires that a REIT be a corporation, trust, or association:
(i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation but for
compliance with the REIT Requirements;
(iv) which is neither a financial institution nor an insurance company
subject to certain special provisions of the Code;
(v) which uses the calendar year as its taxable year;
(vi) the beneficial ownership of which is held by 100 or more persons;
(vii) at any time during the last half of each taxable year not more
than 50% in value of the outstanding stock or shares of
beneficial interest of which is owned, directly or indirectly
through the application of certain attribution rules, by or for
five or fewer individuals (as defined in the Code to include
certain tax-exempt entities other than, in general, qualified
domestic pension funds);
(viii) files or has filed with its tax return an election to be a REIT
and such election has not been terminated or revoked; and
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(ix) which meets certain other tests, described below, regarding the
nature of its income and assets and distribution requirements.
The Code provides that conditions (i) through (v), inclusive, must be met during
the entire taxable year and that condition (vi) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months.
SHARE OWNERSHIP TEST. Shares of beneficial interest of the Company must
be held by a minimum of 100 persons for at least 335 days of a taxable year
that is 12 months, or during a proportionate part of a taxable year of less
than 12 months. In addition, no more than 50% in value of the shares of
beneficial interest of the Company may be owned, directly or indirectly and
by applying certain constructive ownership rules, by five or fewer
individuals during the last half of each taxable year (other than the first
taxable year for which the REIT election is made). The Company believes that
it has satisfied both of these tests, and that it will continue to do so. In
order to help comply with the second of these tests, the Company has placed
certain restrictions on the transfer of Common Shares and its preferred
shares that are intended to prevent further concentration of share ownership.
See "Description of Capital Stock -Restrictions on Ownership and Transfer."
OWNERSHIP OF A PARTNERSHIP INTEREST. In the case of a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT is
deemed to own its proportionate share of the assets of the partnership
corresponding to the REIT's capital interest in such partnership and is
deemed to earn such proportionate share of the income of the partnership. In
addition, the assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of the REIT Requirements,
including satisfying the gross income tests and the asset tests.
Accordingly, the Company's proportionate share of the assets, liabilities and
items of income of Prime Partnership, including the Prime Partnership's
proportionate share of the assets, liabilities and items of income of each
Property Partnership, are treated as assets, liabilities and items of income
of the Company for purposes of applying the REIT Requirements, provided that
the Prime Partnership and each of the Property Partnerships are treated as
partnerships for federal income tax purposes.
QUALIFIED REIT SUBSIDIARY. If a REIT owns a corporate subsidiary that
is a "qualified REIT subsidiary," within the meaning of section 856(i) of the
Code, that subsidiary is disregarded for federal income tax purposes, and all
assets, liabilities, and items of income, deduction, and credit of the
subsidiary are treated as assets, liabilities and such items of the REIT
itself. A "qualified REIT subsidiary" is a corporation all of the capital
stock of which is owned by the REIT. However, if an existing corporation is
acquired by a REIT and becomes a "qualified REIT subsidiary" of such REIT,
all of its pre-acquisition earnings and profits must be distributed before
the end of the REIT's taxable year. Any corporation formed directly by the
Company to act as a general partner in any of the Property Partnerships will
be a "qualified REIT subsidiary" and thus all of such subsidiary
corporation's assets, liabilities, and items of income, deduction, and credit
will be treated as assets, liabilities, and items of income, deduction and
credit of the Company.
ASSET TESTS. At the close of each quarter of its taxable year, the
Company also must satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets, including its
allocable share of assets held by the Prime Partnership and each Property
Partnership in which the Prime Partnership is a partner, must be represented
by real estate assets (which for this purpose includes stock or debt
instruments held for not more than one year purchased with proceeds of a
stock offering or a long-term (at least five years) debt offering of the
Company), cash, cash items and U.S. government securities. Second, not more
than 25% of the Company's total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments included in the
25% asset class, the value of any one issuer's securities owned by the
Company may not exceed 5% of the value of the Company's total assets, and the
Company may not own more than 10% of any one issuer's outstanding voting
securities. By virtue of its partnership interest in Prime Partnership, the
Company will be deemed to own for purposes of the three asset tests its pro
rata share of the assets of Prime Partnership, and the assets of each
Property Partnership in which Prime Partnership is a partner. Prime
Partnership or the Company owns equity interests in corporations other than
qualified REIT subsidiaries. The Company does not believe that its direct or
pro rata share of the stock or securities of such corporations
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exceeds 5% of the total value of the Company's assets or constitutes more
than 10% of any one issuer's outstanding voting securities. No independent
appraisals, however, will be obtained to support this conclusion.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy any of the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance.
INCOME TESTS. To maintain its qualification as a REIT, the Company must
satisfy two gross income requirements annually. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments and from dividends, interest, and
gain from the sale or disposition of stock or securities or from any combination
of the foregoing.
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only
if several conditions are met. First, the amount of rent received or accrued
with respect to any property must not be based in whole or in part on the
income or profits derived by any person from such property, although an
amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of gross receipts or gross sales. Rents received
from a tenant that are based on the tenant's income from the property will
not be treated as rents based on income or profits and thus excluded from the
term "rents from real property" if the tenant derives substantially all of
its income with respect to such property from the leasing or subleasing of
substantially all of such property, provided that the tenant receives from
subtenants only amounts that would be treated as rents from real property if
received directly by a REIT. Second, rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
the REIT, or an owner of 10% or more of the REIT, directly or constructively
owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, a REIT generally must not
operate or manage the property or furnish or render services to the tenants
of such property, other than through an "independent contractor" from whom
the REIT derives no income. However, the Company (or its affiliates) are
permitted to directly perform services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered rendered for the convenience of the occupant of the
property. A DE MINIMIS exception allows a REIT to provide non-customary
services to its tenants and not disqualify income as rents from real property
so long as the value of the impermissible services does not exceed 1% of the
gross income for the property. For these purposes, the amount the Company
receives that is attributable to impermissible services may not be valued at
less than 150% of the Company's direct cost of providing these services.
Substantially all of the gross income of the Company is attributable to
investments in real property and specifically to rents attributable to and gains
from the disposition of real property. The Company believes that it does not
receive rents based on the net income or profits of a tenant. Moreover, the
Company believes that it does not receive rents in excess of a DE MINIMIS amount
from a Related Party Tenant. The Company also believes that it does not receive
any rent attributable to personal property leased in connection with a lease of
real property that exceeds 15% of the total rents received under any such lease.
Prime Partnership provides certain services with respect to the
Properties, but does not satisfy the "independent contractor" requirements
described above. To the extent necessary to preserve the Company's status as a
REIT, Prime Partnership will arrange to have services provided by
independent contractors from whom the Company or Prime Partnership does not
derive or receive any income.
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Prime Partnership also receives fees in exchange for the
performance of certain usual and customary services relating to properties not
owned entirely by Prime Partnership. The ratable portion of these fees
attributable to the part of the property not owned by Prime Partnership
does not constitute qualifying income under the 75% or 95% gross income tests.
The remainder of these fees is ignored under the 75% and 95% gross income test
so long as the Company has a significant interest in such property. The Company
believes that the aggregate amount of such nonqualifying fees (and any other
nonqualifying income) in any taxable year will not exceed the limits on
nonqualifying income under the gross income tests described above.
Should the potential amount of nonqualifying income in the future create a
risk as to the qualification of the Company as a REIT, the Company intends to
take action to avoid not qualifying as a REIT. The Company may for instance
transfer certain nonqualifying activities to a taxable corporation
from which it would receive dividends. If this should occur,
Prime Partnership would be entitled to receive dividends as a
stockholder of such corporation. The amount of dividends available for
distribution to the Company would be reduced below the comparable amount of fee
income that would otherwise be received by Prime Partnership because
such a corporation would be subject to a corporate level tax on its taxable
income, thereby reducing the amount of cash available for distribution.
Furthermore, the Company would be required to structure the stock interest owned
by Prime Partnership in such a corporation to ensure that the various
asset tests described above were not violated (i.e., Prime Partnership
would not own more than 10% of the voting securities of such corporation and the
value of the stock interest would not exceed 5% of the value of the Company's
total assets).
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will be generally available if (i) the Company's failure
to meet such test(s) was due to reasonable cause and not due to willful neglect,
(ii) the Company reported the nature and amount of each item of its income
included in the test(s) for such taxable year on a schedule attached to its
return, and (iii) any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether, in all
circumstances, the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally earns exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. Even if these relief
provisions apply, the Company will still be subject to a 100% tax on the greater
of the amount by which the Company failed the 75% or the 95% test, multiplied by
a fraction intended to reflect the Company's profitability.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to make dividend distributions (other than capital gain
dividends) to its shareholders each year in an amount at least equal to (A) the
sum of (i) 95% of the Company's REIT taxable income (computed without regard to
the dividends paid deduction and the Company's net capital gain) and (ii) 95% of
the net income (after tax), if any, from foreclosure property, minus (B) the sum
of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. A
distribution which is not pro rata within a class of beneficial interest
entitled to a dividend or which is not consistent with the rights to
distributions between classes of beneficial interest (a "preferential dividend")
is not taken into consideration for the purpose of meeting the distribution
requirement. Accordingly, the payment of a preferential dividend could affect
the Company's ability to meet this distribution requirement.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its REIT taxable
income, as adjusted, it will be subject to tax on the undistributed amount at
regular capital gains or ordinary corporate tax rates, as the case may be.
Furthermore, if the Company should fail to distribute for each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, plus (iii) any undistributed
taxable income from prior periods, the Company will be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. However, to the extent the Company elects to retain and pay income
tax on net long-term capital gains it received during the year such amounts will
be treated as having been distributed for purposes of the 4% excise tax.
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The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, the Partnership
Agreement authorizes the Company, as general partner, to take such steps as
may be necessary to cause Prime Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution
requirements. It is possible that the Company may not have sufficient cash or
other liquid assets to meet the 95% dividend requirement due to, for example,
the payment of principal on debt or to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. The Company will closely
monitor the relationship between its REIT taxable income and cash flow and,
if necessary, will borrow funds (or cause Prime Partnership or other of its
subsidiaries to borrow funds) in order to satisfy the distribution
requirement.
FAILURE TO QUALIFY. If the Company fails to meet the 95% distribution
requirement as a result of an adjustment to the Company's tax return by the IRS
upon audit, the Company may retroactively cure the failure by paying "deficiency
dividends" to its shareholders in a later year, which may then be included in
the Company's deduction for dividends paid for the earlier year. The Company
may thus be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest to the IRS
based upon the amount of any deduction taken for deficiency dividends. If the
Company fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, the Company will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which the Company
fails to qualify as a REIT will not be required and, if made, will not be
deductible by the Company. As a result, the Company's failure to qualify as a
REIT will reduce the cash available for distribution by the Company to its
shareholders. In addition, if the Company fails to qualify as a REIT, all
distributions to the Company's shareholders will be taxable as ordinary dividend
income to the extent of the Company's then current and accumulated earnings and
profits, and, subject to certain limitations in the Code, corporate distributees
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, the Company also will be ineligible for
qualification as a REIT during the four taxable years following the year during
which qualification was lost. It is not possible to determine whether the
Company would be entitled to such statutory relief in all circumstances.
TAXATION OF THE COMPANY'S SHAREHOLDERS
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used herein, the term "U.S. Shareholder" means a holder of Offered
Shares who (for United States federal income tax purposes) (i) is a citizen or
resident of the United States, (ii) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) is a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust or (iv) is an estate subject to taxation
in the United States, regardless of its source of income.
As long as the Company qualifies as a REIT, distributions made to the
Company's U.S. Shareholders with respect to their shares out of current or
accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and will not
be eligible for the dividends received deduction for such shareholders that
are corporations. Dividends that are designated as capital gain dividends
generally will be taxed as long-term capital gains (to the extent that they
do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Offered
Shares (as defined in this Prospectus under the section entitled "Plan of
Distribution"). However, corporate shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income.
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To the extent that the Company makes distributions in excess of current
and accumulated earnings and profits, these distributions are treated first
as a tax-free return of capital to the holder of Offered Shares, reducing the
tax basis of such shareholder's securities by the amount of such distribution
(but not below zero), with distributions in excess of the shareholder's tax
basis taxable as capital gains (if the securities are held as a capital
asset). There can be no assurance, however, that the Company will have
sufficient earnings and profits to cover all distributions on any Offered
Shares, so that none of the distributions represent a return of capital. In
addition, any dividend declared by the Company in October, November or
December of any year and payable to a shareholder of record on a specific
date in any such month will be treated as both paid by the Company and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Company on or before January 31 of the
following calendar year. Holders of Offered Shares may not include in their
individual income tax returns any net operating losses or capital losses of
the Company.
For taxable years of the Company that begin on or after January 1, 1998,
the Company may elect to retain and pay income tax on its net long-term
capital gain attributable to such taxable year. If the Company makes this
election, its shareholders will be required to include in their income as
long-term capital gain their proportionate share of such amount so designated
by the Company. A shareholder will be treated as having paid his or her share
of the tax paid by the Company in respect of such amount so designated by the
Company, for which such shareholder will be entitled to a credit.
Additionally, each shareholder's adjusted basis in its shares of the Company
will be increased by the excess of the amount so includible in income over
the tax deemed paid on such amount. The Company must pay tax on its
designated long-term capital gain within 30 days of the close of any taxable
year in which it designates long-term capital gain pursuant to this rule, and
it must mail a written notice containing the relevant tax information to its
shareholders within 60 days of the close of the taxable year.
Upon any sale or other disposition of Offered Shares, the holder will
generally recognize gain or loss for federal income tax purposes in an amount
equal to the difference between (i) the amount of cash and the fair market
value of any property received on such sale or other disposition, and (ii)
the holder's adjusted basis in the shares. Such gain or loss will generally
be capital gain or loss. The characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against noncorporate
taxpayers' ordinary income only up to a maximum annual amount of $3,000.
Unused capital losses may be carried forward indefinitely by noncorporate
taxpayers. All net capital gain of a corporate taxpayer is subject to tax at
ordinary corporate rates. A corporate taxpayer can deduct capital losses
only to the extent of capital gains, with unused losses being carried back
three years and forward five years.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act"), which was recently passed by Congress and signed into law by the
President, alters the holding period for taxation of capital gain income for
individuals (and for certain trusts and estates). Pursuant to the Taxpayer
Relief Act of 1997 (the "1997 Act"), gain from the sale or exchange of
certain investments held for more than 18 months was taxed at a maximum
capital gain rate of 20%. Gain from the sale or exchange of those investments
held for 18 months or less, but for more than one-year, was taxed at a
maximum capital gain rate of 28%. The 1997 Act also provided for a maximum
rate of 25% for "unrecaptured section 1250 gain" recognized on the sale or
exchange of certain real estate assets. Pursuant to the 1998 Act, property
held for more than one-year (rather than 18 months) will be eligible for the
20% and 25% capital gains rates discussed above. The 1998 Act applies to
amounts taken into account on or after January 1, 1998. On November 10, 1997,
the IRS issued Notice 97-64, which provided generally that the Company may
classify portions of its designated capital gain dividends as (i) a 20% rate
gain distribution (which would be taxed as capital gain in the 20% group),
(ii) an unrecaptured Section 1250 gain distribution (which would be taxed as
capital gain in the 25% group), or (iii) a 28% rate gain distribution (which
would be taxed as capital gain in the 28% group). Under Notice 97-64, if no
designation is made, the entire designated capital gain dividend will be
treated as a 28% rate capital gain distribution. Notice 97-64 provides that a
REIT must determine the maximum amounts which it may designate as 20% and 25%
rate capital gain dividends by performing the computation required by the
Code as if the REIT were an individual whose ordinary income was subject to a
marginal tax rate of at least 28%. Notice 97-64 has not yet been modified to
incorporate the changes made to holding periods under the 1998 Act.
In general, any loss upon a sale or other disposition of securities by a
shareholder who has held such securities for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company received by such
shareholder were required to be treated by such holder of Offered Shares as
long-term capital gains.
TAXATION OF HOLDERS OF SERIES C PREFERRED SHARES
REDEMPTION OF SERIES C PREFERRED SHARES
A redemption of Series C Preferred Shares will be treated under Section
302 of the Code as a distribution taxable as a dividend (to the extent of the
Company's current and accumulated earnings and profits) at ordinary income
rates unless the redemption satisfies one of the tests set forth in Section
302(b) of the Code and is therefore treated as a sale or exchange of the
redeemed shares. The redemption will be treated as a sale or exchange if it
(i) is "substantially disproportionate" with respect to the holder,
(ii) results in a "complete termination" of the holder's stock interest
in the Company, or (iii) is "not essentially equivalent to a dividend" with
respect to the holder, all within the meaning of Section 302(b) of the Code.
In determining whether any of these tests have been met, shares of stock
(including Common Shares and other equity interest in the Company) considered
to be owned by the holder by reason of certain constructive ownership rules
set forth in the Code, as well as shares of stock actually owned by the
holder, must generally be taken into account. Because the determination as to
whether any of the alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular holder of Series C Preferred Shares
depends upon the facts and circumstances at the time that the
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determination must be made, prospective holders of Series C Preferred Shares
are advised to consult their own tax advisors to determine such tax treatment.
If a redemption of shares of Series C Preferred Shares is not treated as
a distribution taxable as a dividend to a particular holder, it will be
treated, as to that holder, as a taxable sale or exchange. As a result, such
holder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received (less any portion thereof attributable
to accumulated and declared but unpaid dividends, which will be taxable as a
dividend to the extent of the Company's current and accumulated earnings and
profits), and (ii) the holder's adjusted basis in the Series C Preferred
Shares for tax purposes. Such gain or loss will be capital gain or loss if
the Series C Preferred Shares have been held as a capital asset, and will be
long-term gain or loss if such shares have been held for more than one year.
If a redemption of Series C Preferred Shares is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
Series C Preferred Shares for tax purposes will be transferred to the
holder's remaining shares of stock in the Company, if any. If the holder owns
no other shares of stock in the Company, such basis may, under certain
circumstances, be transferred to a related person or it may be lost entirely.
CONVERSION OF SERIES C PREFERRED SHARES INTO COMMMON SHARES
In general, no gain or loss will be recognized for Federal income tax
purposes upon conversion of the Series C Preferred Shares solely into Common
Shares. The basis that a holder will have for tax purposes in the shares of
Common Shares received upon conversion will be equal to the adjusted basis of
such holder in the shares of Series C Preferred Shares so converted, and,
provided that the Series C Preferred Shares were held as a capital asset, the
holding period for the shares of Common Shares received would include the
holding period for the shares of Series C Preferred Shares converted. A
holder will, however, recognize gain or loss on the receipt of cash in lieu
of fractional shares of Common Shares in an amount equal to the differences
between the amount of cash received and the holder's adjusted basis in such
fractional shares for tax purposes. Futhermore, under certain circumstances,
a holder of shares of Series C Preferred Shares may recognize gain or
dividend income to the extent there are dividends in arrears on such shares
at the time of conversion into Common Shares.
ADJUSTMENTS TO CONVERSION PRICE
Adjustments in the conversion price (or the failure to make such
adjustments) pursuant to the antidilution provisions of the Series C
Preferred Shares or otherwise may result in constructive distributions to the
holders of Series C Preferred Shares that could, under certain circumstances,
be taxable to them as dividends pursuant to Section 305 of the Code. If such
a constructive distribution were to occur, a holder of Series C Preferred
Shares could be required to recognize ordinary income for tax purposes
without receiving a corresponding distribution of cash.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts, generally are not subject
to federal income tax except to the extent of their receipt of "unrelated
business taxable income" as defined in Section 512(a) of the Code ("UBTI").
Distributions by the Company to a shareholder that is a tax-exempt entity
should not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its securities with "acquisition indebtedness"
within the meaning of the Code and the securities are not otherwise used in
an unrelated trade or business of the tax-exempt entity. In addition, certain
pension trusts that own more than 10% of a "pension-held REIT" may be
required to report a portion of the distribution that they receive from such
a REIT as UBTI. The Company does not expect the Company to be treated as a
pension-held REIT for purposes of this rule. However, because the shares of
the Company will be publicly traded, no assurance can be given that the
Company is
20
<PAGE>
not or will not become a pension-held REIT.
TAXATION OF NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. federal income
tax consequences of the ownership and disposition of Offered Shares
applicable to Non-U.S. Shareholders of such securities. Non-U.S. Shareholders
include all holders other than U.S. Shareholders as defined above. This
summary discussion is based on current law and is for general information
only. NON-U.S. HOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN LEGAL
AND TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, AND LOCAL INCOME
TAX AND OTHER CONSEQUENCES OF CONTINUING TO HOLD THEIR SHARES.
In general, Non-U.S. Shareholders are subject to regular United States
income tax with respect to their investment in Offered Shares in the same manner
as a U.S. Shareholder if such investment is "effectively connected" with the
Non-U.S. Shareholder's conduct of a trade or business in the United States. A
corporate Non-U.S. Shareholder that receives income with respect to its
investment in Offered Shares that is (or is treated as) effectively connected
with the conduct of a trade or business in the United States also may be subject
to the 30% branch profits tax imposed by the Code, which is payable in addition
to regular United States corporate income tax. The following discussion
addresses only the United States taxation of Non-U.S. Shareholders whose
investment in Offered Shares is not effectively connected with the conduct of a
trade or business in the United States.
ORDINARY DIVIDENDS. Distributions made by the Company that are not
attributable to gain from the sale or exchange by the Company of United
States real property interests and that are not designated by the Company as
capital gain dividends will be treated as ordinary income dividends to the
extent made out of current or accumulated earnings and profits of the
Company. Generally, such ordinary income dividends will be subject to United
States withholding tax at the rate of 30% on the gross amount of the dividend
paid unless reduced or eliminated by an applicable United States income tax
treaty. The Company currently expects to withhold United States income tax
at the rate of 30% on the gross amount of any such dividends paid to a
Non-U.S. Shareholder unless a lower treaty rate applies and the Non-U.S.
Shareholder has filed an appropriate IRS Form with the Company, certifying
the Non-U.S. Shareholder's entitlement to treaty benefits. The IRS has
issued final regulations regarding the backup withholding rules as applied to
Non-U.S. Shareholders. These regulations alter the current system of backup
withholding compliance and are effective for distributions made after
December 31, 1999. The Company will withhold in accordance with these new
regulations when they become effective.
NON-DIVIDEND DISTRIBUTIONS. Unless Offered Shares constitute a United
States Real Property Interest (a "USRPI"), distributions made by the Company
in excess of its current and accumulated earnings and profits will be treated
first as a tax-free return of capital to each Non-U.S. Shareholder, reducing
the adjusted basis which such Non-U.S. Shareholder has in his Offered Shares
for U.S. tax purposes by the amount of such distribution (but not below
zero), with distributions in excess of a Non-U.S. Shareholder's adjusted
basis in his shares being treated as gain from the sale or exchange of such
shares, the tax treatment of which is described below. If it cannot be
determined at the time a distribution is made whether or not such
distribution will be in excess of the Company's current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to a dividend distribution. However, the Non-U.S.
Shareholder may seek a refund from the IRS of any amount withheld if it is
subsequently determined that such distribution was, in fact, in excess of the
Company's then current and accumulated earnings and profits.
If Offered Shares constitute a USRPI, such distributions will be subject to
10% withholding and taxed pursuant to the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA") at a rate of 35% to the extent such distributions
exceed a Non-U.S. Shareholder's basis in its Offered Shares. The Offered Shares
will not constitute a USRPI so long as the Company is a "domestically controlled
REIT." A "domestically controlled REIT" is a REIT in which, at all times during
a specified testing period, less than 50% in value of its stock or beneficial
interests are held directly or indirectly by Non-U.S. Shareholders. The Company
believes that it will be a "domestically controlled REIT," and therefore that
the Offered Shares will not be treated as USRPI's under FIRPTA. However,
because the Offered Shares will be publicly traded, no assurance can be given
that the Company is or will continue to be a "domestically-controlled REIT."
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If the Company did not constitute a "domestically-controlled REIT," the
Offered Shares would be treated as USRPI's subject to United States taxation
under FIRPTA unless (i) the Offered Shares are "regularly traded" (as defined in
the applicable Treasury Regulations) and (ii) the Non-U.S. Shareholder's
interest (after application of certain constructive ownership rules) in the
Company is 5.0% or less at all times during the five years preceding the sale or
exchange.
CAPITAL GAINS DIVIDENDS. As long as the Company continues to qualify as a
REIT, distributions made by the Company that are attributable to gain from the
sale or exchange by the Company of any USRPI will be taxed to a Non-U.S.
Shareholder under FIRPTA. Under FIRPTA, such distributions are taxed to a
Non-U.S. Shareholder as if such distributions were gains "effectively connected"
with the conduct of a trade or business in the United States. Accordingly, a
Non-U.S. Shareholder will be taxed on such distributions at the same capital
gain rates applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident alien individuals). Distributions subject to FIRPTA also may be
subject to the 30% branch profits tax in the case of a corporate Non-U.S.
Shareholder that is not entitled to treaty relief or exemption. The Company
will be required to withhold tax from any distribution to a Non-U.S. Shareholder
that could be designated by the Company as a USRPI capital gain dividend in an
amount equal to 35% of the gross distribution. The amount of tax withheld is
fully creditable against the Non-U.S. Shareholder's FIRPTA tax liability, and if
such amount exceeds the Non-U.S. Shareholder's federal income tax liability for
the applicable taxable year, the Non-U.S. Shareholder may seek a refund of the
excess from the IRS. In addition, if the Company designates prior distributions
as capital gain dividends, subsequent distributions, up to the amount of such
prior distributions, will be treated as capital gain dividends for purposes of
withholding.
Pursuant to Treasury Regulations effective through December 31, 1999,
dividends paid to an address in a country outside the United States are
generally presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding requirements discussed above and
the applicability of any treaty rate. Under revised Treasury Regulations
effective January 1, 2000, different presumptions and procedures apply to
determine whether or not a dividend is subject to withholding and whether a
possibly reduced treaty rate of withholding is available. In addition, new
rules apply to dividends to foreign entities, including partnerships and
other pass-through entities. Distributions in excess of current or
accumulated earnings and profits of the Company to a Non-U.S. Shareholder
may, to the extent they are not subject to 30% withholding or are subject to
a lower treaty rate, may nevertheless be subject to separate withholding at a
rate of 10% under the rules of Code Section 1445. NON-U.S. SHAREHOLDERS
SHOULD DISCUSS THESE NEW COMPLEX WITHHOLDING RULES WITH THEIR TAX ADVISORS.
DISPOSITIONS OF SECURITIES. Unless securities constitute a USRPI, a sale of
securities by a Non-U.S. holder generally will not be subject to
U.S. taxation under FIRPTA. The securities will not constitute a USRPI if the
Company is a "domestically controlled REIT." As discussed above, the Company
believes that it will be a domestically controlled REIT, and therefore, the
sale of securities by a Non-U.S. holder will not be subject to taxation under
FIRPTA. Because the securities will be publicly traded, however, no assurance
can be given the Company will continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of securities generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the securities are "regularly
traded" (as defined in the applicable Treasury Regulations) on an established
securities market and (ii) the selling Non-U.S. Holder held 5% or less (after
the application of certain constructive ownership rules) of the Company's
outstanding securities at all times during a specified testing period.
If gain on the sale of securities were subject to taxation under FIRPTA,
the Non-U.S. Holder would be subject to the same treatment as a
U.S. shareholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax
in the case of foreign corporations) and the purchaser of securities could be
required to withhold 10% of the purchase price and remit such amount to the
IRS. Additionally, in such case, distributions on the Offered Shares to the
extent they represent a return of capital or capital gain from the sale of
the Offered Shares, rather than dividends, would be subject to a 10%
withholding tax.
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<PAGE>
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in securities is effectively connected with a U.S. trade or business
conducted by such Non-U.S. Holder, the Non-U.S. Holder will be subject to the
same treatment as a U.S. shareholder with respect to such gain, or (ii) if the
Non-U.S. Holder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, the nonresident alien individual will be subject to a 30%
withholding tax on the amount of such individual's capital gain.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company will report to its U.S. Shareholders and to the IRS the
amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules,
a U.S. Shareholder may be subject to backup withholding at the rate of 31% on
dividends paid unless such U.S. Shareholder (i) is a corporation or falls
within certain other exempt categories and, when required, can demonstrate
this fact, or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A U.S. Shareholder
who does not provide the Company with his correct taxpayer identification
number also may be subject to penalties imposed by the IRS. Any amount paid
as backup withholding will be creditable against the U.S. Shareholder's
federal income tax liability. In addition, the Company may be required to
withhold a portion of any capital gain distributions made to U.S.
Shareholders who fail to certify their non-foreign status to the Company.
The IRS has issued final regulations regarding the backup withholding rules
as applied to Non-U.S. Shareholders. These regulations alter the current
system of backup withholding compliance and are effective for distributions
made after December 31, 1999. The Company will withhold in accordance with
these new regulations when they become effective.
Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders. NON-U.S.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY SUCH
INFORMATION REPORTING AND BACKUP WITHHOLDING REQUIREMENTS.
STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state or local
taxation in various jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in the Offered Shares of beneficial interest of the Company.
SELLING SHAREHOLDERS
SERIES C PREFERRED SHARES AND THE SCPGI COMMON SHARES
On the date of this Prospectus, Security Capital Preferred Growth
Incorporated ("SCPGI") owns all of the Series C Preferred Shares. The
3,636,363 Series C Preferred Shares owned by SCPGI were purchased from the
Company in a private transaction in December 1997 and are convertible into
3,636,363 Common Shares (the "SCPGI Common Shares") on the date of this
Prospectus. In addition, SCPGI owns all of the Series C Preferred Units of
limited partnership interest of Prime Partnership (the "Series C Preferred
Units"). The 727,273 Series C Preferred Units owned by SCPGI were purchased
from Prime Partnership and the Company in a private transaction in August 1997
and are convertible at the option of SCPGI into 727,273 SCPGI Common Shares or
727,273 Series C Preferred Shares on the date of this Prospectus. SCPGI and/or
its permitted transferees (the "SCPGI Selling Shareholders") may offer any
and all of the Series C Preferred Shares and the SCPGI Common Shares pursuant
to this Prospectus. If the SCPGI Selling Shareholders sell all of the Series C
Preferred Shares and the SCPGI Common Shares, SCPGI will not own any Series C
Preferred Shares or Common Shares after the completion of this offering.
Under the terms of the Registration Rights Agreement, dated as of
August 8, 1997, between the Company and SCPGI (the "SCPGI Registration Rights
Agreement"), the SCPGI Selling Shareholders may also include persons holding
SCPGI Common Shares as a result of a transfer or assignment to that person of
SCPGI Common Shares from SCPGI other than pursuant to an effective
registration or Rule 144. Any SCPGI Selling Shareholder other than SCPGI will
disclose information regarding its identity and stock ownership in a
supplement to this Prospectus.
COMMON OFFERED SHARES
On the date of this Prospectus, 8,505,472 Common Units are held by
limited partners of Prime Partnership (other than the Company). Such limited
partners (the "Common Selling Shareholders" and together with the SCPGI
Selling Shareholders, the "Selling Shareholders") may offer any and all of
such Common Shares (the "Common Offered Shares") pursuant to this Prospectus.
Under the terms of the Registration Rights Agreement, dated as of June
15, 1998 by the Company and Prime Partnership (together with the SCPGI
Registration Rights Agreement, the "Registration Rights Agreements"), the
Company is obligated to use its reasonable efforts to register the Common
Offered Shares.
Common Selling Shareholders of Common Offered Shares shall be disclosed
in a supplement or supplements to this Prospectus.
PLAN OF DISTRIBUTION
The Selling Shareholders may from time to time offer and sell the Series
C Preferred Shares, the SCPGI Common Shares and the Common Offered Shares
collectively, the "Offered Shares") on the NYSE, in the over-the-counter
market, or otherwise and they may sell the Offered Shares at market prices or
at negotiated prices. They may sell the Offered Shares in ordinary brokerage
transactions, in block transactions, in privately negotiated transactions,
through put or call transactions relating to the Offered Shares, through
short sales of the Offered Shares, pursuant to Rule 144 or otherwise. Those
transactions may or may not involve brokers or dealers. The Selling
Shareholders may include any donees or pledgees of the Selling Shareholders
after the date of this Prospectus. The SCPGI Selling Shareholders may include
Merrill Lynch International Private Finance Limited, a Delaware corporation
and pledgee of SCPGI. If the Selling Shareholders sell the Offered Shares
through brokers, they expect to pay customary brokerage commissions and
charges. The Company is registering the Offered Shares to permit the Selling
Shareholders to resell the Offered Shares and to permit public secondary
trading of the Offered Shares from time to time. The Company is required to
register the Offered Shares under the terms of the Registration Rights
Agreements.
The Company has agreed to pay all expenses (other than selling
commissions, underwriting discounts and fees and expenses of counsel to any
Selling Shareholder) of the Selling Shareholders in connection with the
registration and sale of the Offered Shares. The Company is indemnifying the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
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LEGAL OPINIONS
The legality of the Offered Shares offered hereby is being 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. and Horizon,
the combined financial statements of Horizon Group Properties, Inc. and the
statements of revenue and certain expenses of Prime Transferred Properties
for the year ended December 31, 1997 incorporated by reference in this
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon also incorporated by
reference. Such consolidated and combined financial statements and statements
of revenue and certain expenses are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
24
<PAGE>
No one (including any salesman or broker) is authorized to provide oral or
written information about this offering that is not included in this
Prospectus. If any person does make a statement that differs from what is in
this Prospectus, you should not rely on it. This Prospectus is not an offer
to sell, nor is it seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this Prospectus
is complete and accurate as of its date, but the information may change after
that date.
______________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 4
Certain Federal Income Tax Considerations. . . . . . . . . . . . . . . . 12
Taxation of the Company. . . . . . . . . . . . . . . . . . . . . . . . . 13
Requirements for Qualification . . . . . . . . . . . . . . . . . . . . . 14
Taxation of the Company's Shareholders . . . . . . . . . . . . . . . . . 18
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
Prime Retail, Inc.
4,363,636 Shares of Series C Cumulative Convertible Redeemable Preferred Stock,
$0.01 par value per share
4,363,636 Shares of Common Stock, $0.01 par value per share
______________________
P R O S P E C T U S
______________________
____________, 1998
<PAGE>
No one (including any salesman or broker) is authorized to provide oral or
written information about this offering that is not included in this
Prospectus. If any person does make a statement that differs from what is in
this Prospectus, you should not rely on it. This Prospectus is not an offer
to sell, nor is it seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this Prospectus
is complete and accurate as of its date, but the information may change after
that date.
______________________
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Where You Can Find More Information. . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . 4
Certain Federal Income Tax Considerations. . . . . . . . . . . . . . . 12
Taxation of the Company. . . . . . . . . . . . . . . . . . . . . . . . 13
Requirements for Qualification . . . . . . . . . . . . . . . . . . . . 14
Taxation of the Company's Shareholders . . . . . . . . . . . . . . . . 18
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 23
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 23
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
Prime Retail, Inc.
8,505,472 Shares of Common Stock, $0.01 par value per share
______________________
P R O S P E C T U S
______________________
____________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets
forth the costs and expenses payable by the Company, except any underwriters'
fees and expenses, in connection with the sale of the Securities being
registered hereby. All of the amounts shown are estimated, except the SEC
registration fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $37,773.00
Legal Fees and Expenses 25,000.00
Accounting Fees and Expenses 3,000.00
Blue Sky Fees and Expenses 5,000.00
Miscellaneous 4,227.00
----------
Total $75,000.00
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Maryland corporation. The Company's officers and
directors are and will be indemnified under Maryland law, the Charter, and the
Partnership Agreement against certain liabilities. The Charter provides that
the Company shall indemnify, to the fullest extent permitted by Maryland law, as
applicable from time to time, all persons who at any time were or are directors
or officers of the Company for any threatened, pending or completed action, suit
or proceeding (whether civil, criminal, administrative or investigative)
relating to any action alleged to have been taken or omitted in such capacity as
a director or an officer. The Company shall pay or reimburse all reasonable
expenses incurred by a present or former director or officer of the Company in
connection with any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) in which the present
or former director or officer is a party, in advance of the final disposition of
the proceeding, to the fullest extent permitted by, and in accordance with the
applicable requirements of, Maryland law, as applicable from time to time. The
Company may indemnify any other persons permitted but not required to be
indemnified by Maryland law, as applicable from time to time, if and to the
extent indemnification is authorized and determined to be appropriate, in each
case in accordance with applicable law, by the Board of Directors, the majority
of the stockholders of the Company entitled to vote thereon or special legal
counsel appointed by the Board of Directors. The Charter also provides that no
amendment of the Charter or repeal of any of its provisions shall limit or
eliminate any of the above benefits provided to directors or officers in respect
of any act or omission that occurred prior to such amendment or repeal.
The Amended and Restated Bylaws of the Company (the "Bylaws") also provide
for indemnification of the Company's officers and directors to the same extent
that indemnification is provided to officers and directors of the Company in the
Charter.
The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. The foregoing limits on indemnification
are expressly set forth in the Bylaws. However, under the MGCL, a Maryland
corporation
II-1
<PAGE>
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that a personal
benefit was improperly received, unless, in either case, a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer
of his good faith belief that he has met the standard of conduct necessary
for indemnification by the corporation and (b) written statement by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
The Company has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require, among
other things, that the Company indemnify its directors and executive officers to
the fullest extent permitted by law and advance to the directors and executive
officers all related expenses, subject tor reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, the
Company must also indemnify and advance all expenses incurred by directors and
executive officers seeking to enforce their rights under the indemnification
agreements and may cover directors and executive officers under the Company's
directors and officers' liability insurance. Although the form of
indemnification agreement offers substantially the same scope of coverage
afforded by law, as a traditional form of contract it may provide greater
assurance to directors and officers that indemnification will be available.
<TABLE>
<CAPTION>
<S> <C>
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
4.1 Amended and Restated Articles of Incorporation of Prime Retail, Inc.
[Incorporated by reference to Exhibit 3.1 in the Company's
registration statement on Form S-4 (Registration No. 333-51285)]
4.2 Amended and Restated Bylaws of Prime Retail, Inc. [Incorporated by
reference to Exhibit 3.2 in the Company's registration statement on
Form S-4 (Registration No. 333-51285)]
4.3 Form of Common Share Certificate, par value $0.01 per share
[Incorporated by reference to Exhibit 4.3 in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996]
4.4 Form of Series C Preferred Share Certificate, par value $0.01
per share
5 Opinion and consent of Winston & Strawn regarding legality of the
securities being registered
8 Opinion and consent of Winston & Strawn regarding tax matters
23.1 Consent of Ernst & Young LLP -- Baltimore
23.2 Consent of Ernst & Young LLP -- Chicago
23.3 Consent of Winston & Strawn (included in Exhibit 5)
23.4 Consent of Winston & Strawn (included in Exhibit 8)
24 Power of Attorney (included at pages II-4 and II-5)
</TABLE>
II-2
<PAGE>
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.
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 and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, such 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;
(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 further undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d)of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<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 October 13, 1998.
Prime Retail, Inc.
By: /s/ C. Alan Schroeder
-----------------------------------
Title: Executive Vice President,
General Counsel and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints each of Abraham Rosenthal, William H.
Carpenter, Jr., Robert P. Mulreaney and C. Alan Schroeder as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her or in his or her name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
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 in connection with such matters as fully to all intents
and purposes as he or she 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 the dates indicated by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Michael W. Reschke Chairman of the Board October 13, 1998
- ----------------------------- of Directors
Michael W. Reschke
/s/ Abraham Rosenthal Chief Executive Officer (Principal October 13, 1998
- ----------------------------- Executive Officer) and Director
Abraham Rosenthal
/s/ William H. Carpenter, Jr. President, Chief Operating October 13, 1998
- ----------------------------- Officer and Director
William H. Carpenter, Jr.
/s/ Glenn D. Reschke Executive Vice President- October 13, 1998
- -------------------------- Development and Acquisitions
Glenn D. Reschke and Director
II-4
<PAGE>
/s/ Robert P. Mulreaney Executive Vice President- October 13, 1998
- -------------------------- Chief Financial Officer and
Robert P. Mulreaney Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Terrence C. Golden Director October 13, 1998
- --------------------------
Terence C. Golden
/s/ Kenneth A. Randall Director October 13, 1998
- --------------------------
Kenneth A. Randall
/s/ James R. Thompson Director October 13, 1998
- --------------------------
James R. Thompson
/s/ Marvin S. Traub Director October 13, 1998
- --------------------------
Marvin S. Traub
/s/ Sharon Sharp Director October 13, 1998
- --------------------------
Sharon Sharp
/s/ Norman Perlmutter Director October 13, 1998
- --------------------------
Norman Perlmutter
/s/ Robert D. Perlmutter Director October 13, 1998
- --------------------------
Robert D. Perlmutter
/s/ William P. Dickey Director October 13, 1998
- --------------------------
William P. Dickey
</TABLE>
II-5
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF
MARYLAND
[NUMBER] [SHARES]
[Eagle]
PRIME RETAIL, INC.
THIS CERTIFIES THAT *** SPECIMEN *** IS THE OWNER OF
_____________________________________
__________________________________________ FULL PAID AND NON-ASSESSABLE
SHARES OF SERIES C CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK OF PRIME
RETAIL, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY
DULY AUTHORIZED, ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS,
THIS _____________________ DAY OF ______________, A.D. 19_______
____________________________ [SEAL] _______________________________
SECRETARY PRESIDENT
<PAGE>
FOR VALUE RECEIVED, ___ HEREBY SELL, ASSIGN AND TRANSFER UNTO
______________________________________________________________________________
_______________________________________________________________________SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE
AND APPOINT _________________________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED __________________ 19____
IN PRESENCE OF
__________________________________ ______________________________
<PAGE>
Exhibit 5
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60606
October 13, 1998
Prime Retail, Inc.
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
We are acting as counsel to Prime Retail, Inc., a Maryland
corporation (the "Company"), in connection with the shelf registration by the
Company of 8,505,472 shares (the "Common Offered Shares") of the Company's
Common Stock, par value $.01 per share (the "Common Shares") to be sold by
the Company and/or certain shareholders in connection with the exchange for
Common Shares of units (the "Common Units") of partnership interest of Prime
Retail, L.P., a Delaware limited partnership (the "Operating Partnership").
In addition, we are acting as counsel to the Company in connection with the
shelf registration by the Company of 4,363,636 shares of the Company's Series
C Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share
(the "Series C Preferred Shares"), to be sold by certain shareholders in
connection with the exchange for Series C Preferred Units of the Operating
Partnership ("Series C Preferred Units") or otherwise and 4,363,636 shares of
the Company's Common Shares (the "Shares") to be sold by certain shareholders
in connection with the exchange for Common Shares of Series C Preferred
Shares or Series C Preferred Units. The Common Offered Shares, the Series C
Preferred Shares and the Shares (collectively, the "Offered Stock") is the
subject of a Registration Statement, as amended (the "Registration
Statement"), filed by the Company on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act").
We have examined photostatic copies of the Company's Amended and
Restated Articles of Incorporation (the "Charter"), the Amended Restated
Bylaws and the Operating Partnership's Second Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement") and such other documents
and instruments as we have deemed necessary to enable us to render the
opinion set forth below. We have assumed the conformity to the originals of
all documents submitted to us as photostatic copies, the authenticity of the
originals of such documents, and the genuineness of all signatures appearing
thereon.
Based upon and subject to the foregoing, it is our opinion that:
(1) the Common Offered Shares have been duly authorized and, when
the Common Offered Shares are issued upon exchange of Common Units in
accordance with the Partnership Agreement, the Common Offered Shares will be
legally issued, fully paid and nonassessable;
(2) the Series C Preferred Shares have been duly authorized and
legally issued and are fully paid and nonassessable; and
(3) the Shares have been duly authorized and, when the Shares are
issued upon exchange of Series C Preferred Units in accordance with the
Partnership Agreement, or upon exchange of Series C Preferred Shares in
accordance with the Charter, the Shares will be legally issued, fully paid
and nonassessable.
We do not hold ourselves out as being conversant with the laws of
any jurisdiction other than those of the United States and the State of
Maryland and, therefore, this opinion is limited to the laws of those
jurisdictions. We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-3 filed under the Securities Act relating to
the Offered Stock.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
EXHIBIT 8
Winston & Strawn Tax Opinion
October 13, 1998
Prime Retail, Inc.
100 East Pratt Street
Nineteenth Floor
Baltimore, Maryland 21202
Re: QUALIFICATION OF PRIME RETAIL, INC. AS A REIT AND PROSPECTUS
FEDERAL INCOME TAX CONSIDERATIONS DISCLOSURE
Ladies and Gentlemen:
We have acted as special counsel to Prime Retail, Inc., a Maryland
Corporation (the "Company") in connection with the registration of its Common
Shares, par value $.01 per share (the "Common Shares") and its Series C
Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share
(the "Series C Preferred Shares"), as set forth in the Registration Statement
on Form S-3 (the "Registration Statement") filed with the Securities and
Exchange Commission on October 13, 1998 and the related Prospectuses
constituting a part thereof (the "Prospectus"). Capitalized terms used herein
and not otherwise defined herein shall have the meaning set forth in the
Prospectus.
You have requested our opinions concerning (i) whether the Company
is organized in conformity with the requirements for qualification as a real
estate investment trust ("REIT") for federal income tax purposes, (ii)
whether the Company's method of operation has enabled it to meet the
requirements for qualification and taxation as a REIT under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), (iii) whether
the Company's proposed method of operation will enable it to continue to meet
the requirements for qualification as a REIT and (iv) whether the discussion
in the Prospectus under the heading "Certain Federal Income Tax
Considerations" fairly summarizes the federal income tax considerations that
are likely to be material to a holder of the Common Shares or Series C
Preferred Shares.
In rendering these opinions, we have examined and relied upon, with
your consent, the descriptions of the Company, Prime Retail, L.P., a
Delaware limited partnership (the "Operating Partnership"), and the Property
Partnerships and their respective investments, activities, operations and
governance, as set forth in the following documents:
<PAGE>
Prime Retail, Inc.
October 13, 1998
Page 2
(1) the Registration Statement and Prospectus;
(2) the Amended and Restated Articles of Incorporation of the Company
as amended to the date hereof (the "Charter");
(3) the Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership as amended to the
date hereof;
(4) each of the Property Partnerships' operative agreements
as amended; and
(5) the Officer's Certificate dated as of the date hereof setting
forth certain representations,
together with such other documents, information, records and matters of law
as we have deemed relevant or necessary (these enumerated and unenumerated
documents are referred to as the "Relevant Documents"). We have assumed the
genuineness of all signatures on originals or copies, the legal capacity of
natural persons, the authority of any individual or individuals who executed
any such documents on behalf of any other person, the authenticity of all
documents submitted to us as originals, the accuracy of copies, and the
conformity to originals or certified copies of all copies submitted to us as
certified or reproduction copies.
With your permission, we are relying upon the Relevant Documents,
including the Officer's Certificate, dated as of the date hereof and executed
by a duly authorized officer of the Company, referring to certain legal
opinions regarding the REIT status of the predecessor to the Company and
setting forth certain factual representations relating to the formation,
ownership, operation, future method of operation, and compliance with the
REIT and partnership provisions of the Code with respect to the Company, the
Operating Partnership, each of the Property Partnerships, and the various
partnerships, qualified REIT subsidiaries, and other entities in which the
Company, the Operating Partnership or any Property Partnership own equity
interests. Our reliance upon this Officer's Certificate relates only to
matters of fact and the legal conclusions contained in the opinions
referenced therein concerning the predecessor to the Company and does not
otherwise relate to matters of law or legal conclusions. We have further
relied on and assumed the truth and correctness of (i) the Company's
representations in the Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership and (ii) the certificates of public
officials with respect to the formation of certain limited partnerships.
Moreover, for the purpose of rendering our opinion, we have assumed that no
partner in the Operating Partnership or any Property Partnership or any other
partnership in which the Company, the Operating Partnership, or any Property
Partnership has an equity interest has or will elect to be excluded from all
or part of subchapter K of the Code.
For the purposes of rendering these opinions, we have not made an
independent investigation of the facts set forth in any of the Relevant
Documents, including without limitation, the Registration Statement, the
Prospectus, and the Officer's Certificate. We have consequently relied upon
your factual representations that the information presented in the Relevant
Documents or otherwise furnished to us accurately and completely describes
all material facts relevant to these opinions. Furthermore, we have not
independently verified the accuracy of the legal opinions referred to in the
Officer's Certificate concerning the REIT status of the predecessor to the
Company which, for purposes of these opinions, we assume to be true and
correct.
<PAGE>
Prime Retail, Inc.
October 13, 1998
Page 3
In rendering these opinions, we have assumed that the transactions
contemplated by the Registration Statement and Prospectus will be consummated
in accordance with the Relevant Documents, and such documents accurately
reflect the material facts of such transactions. In addition, the opinions
set forth herein are based on the correctness of the following specific
assumptions: (i) each of the Company, the Operating Partnership, each
Property Partnership and each affiliate thereof or entity in which they have
an equity interest will operate in the manner described in the relevant
partnership agreement or other organizational documents and in the
Registration Statement and Prospectus and in accordance with applicable laws;
and (ii) each partner in the Operating Partnership and in each of the
Property Partnerships and in each partnership in which they or the Company or
any affiliate has an equity interest was motivated in acquiring its
respective partnership interest by such partner's anticipation of economic
rewards apart from tax considerations. Any alteration of such assumptions
may adversely affect our opinions.
Our opinions herein are based upon the current provisions of the
Code, as amended, currently applicable Treasury Regulations promulgated or
proposed thereunder, currently published administrative rulings, judicial
decisions and other applicable authorities, all as in effect on the date
hereof. All of the foregoing authorities are subject to change or new
interpretations, both prospectively and retroactively, and such changes or
interpretations, as well as any change in the facts as they have been
represented to us or assumed by us, could affect our opinions. Our opinions
are rendered only as of the date hereof and we take no responsibility to
update these opinions after this date. Our opinions do not foreclose the
possibility of a contrary determination by the Internal Revenue Service (the
"IRS") or by a court of competent jurisdiction, or of a contrary position by
the IRS or Treasury Department in regulations or rulings issued in the future.
Based on the foregoing, and subject to the limitations,
qualifications and exceptions set forth herein, we are of the opinion that
(i) the Company is organized in conformity with the requirements for
qualification as a REIT, (ii) the Company's method of operation has enabled
it to meet the requirements for qualification and taxation as a REIT under
the Code, (iii) the Company's proposed method of operation will enable it to
continue to meet the requirements for qualification as a REIT, and (iv) the
discussion in the Prospectus under the heading "Certain Federal Income Tax
Considerations" fairly summarizes the federal income tax considerations that
are likely to be material to a holder of the Common Shares or Series C
Preferred Shares.
The Company's qualification and taxation as a REIT (including the
Operating Partnership's qualification and taxation as a partnership and not a
publicly traded partnership taxable as a corporation) depend upon the
Company's ability to meet on a continuing basis, through actual annual
operating and other results, the various requirements under the Code and
described in the Registration Statement with regard to, among other things,
the sources of gross income, the composition of assets, the level of
distributions to stockholders, and the diversity of its stock ownership.
Winston & Strawn undertakes no responsibility to, and will not, review the
Company's compliance with these requirements on a continuing basis.
Accordingly, no assurance can be given that the actual results of the
Company's operations, the nature of its assets, the amount and types of its
gross income, the level of its distributions to stockholders and the
diversity of its stock ownership for any given taxable year will satisfy the
requirements under the Code for qualification and taxation as a REIT. In
particular, we would note that, although the Company's Charter contains
certain provisions which
<PAGE>
Prime Retail, Inc.
October 13, 1998
Page 4
restrict the ownership and transfer of the Company's capital stock and which
are intended to prevent concentration of stock ownership, such provisions do
not ensure that the Company will be able to satisfy the requirement set forth
in Code section 856(a)(6) that it not be "closely held" within the meaning of
Code section 856(h) for any given taxable year, primarily, though not
exclusively, as a result of fluctuations in value among the different classes
of the Company's capital stock.
Other than as expressly stated above, we express no opinion on any
issue relating to the Company or the Operating Partnership or to any
investment therein.
These opinions are being delivered only to you and may not be
quoted in whole or in part or otherwise referred to, used by, or relied upon,
nor be filed with, or furnished to, any other person or entity other than for
the benefit of the Shareholders of the Company, without our prior written
consent. Notwithstanding the foregoing, we hereby consent to the use of this
opinion as Exhibit 8 to the Registration Statement and the use of our name in
the Registration Statement. In giving this consent, we do not admit that we
are included in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-3)
pertaining to Prime Retail, Inc. of our reports (a) dated January 23, 1998,
with respect to the statements of revenue and certain expenses of Prime
Transferred Properties included in the Registration Statement (Form S-4 No.
333-51285) of Sky Merger Corp. and related Joint Proxy
Statement/Prospectus/Information Statement, and (b) dated January 23, 1998
(except for Note 15, as to which the date is February 1, 1998), with respect
to the consolidated financial statements and schedule of Prime Retail, Inc.,
included in its Annual Report (Form 10-K), both for the year ended December
31, 1997, filed with the Securities and Exchange Commission.
Baltimore, Maryland
October 7, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference in the Registration Statement (Form S-3)
and related Prospectuses of Prime Retail, Inc. of our report dated March 13,
1998 (except for the second paragraph of Note 3 and the fourth and fifth
paragraphs of Note 4, as to which the date is April 1, 1998), with respect to
the consolidated financial statements and schedule of Horizon Group, Inc.,
included in its Annual Report (Form 10-K/A) for the year ended December 31,
1997, and our report dated April 3, 1998 with respect to the combined
financial statements and schedule of Horizon Group Properties, Inc., included
in the Registration Statement (Form S-4 No. 333-51285) of Sky Merger Corp.
and the related Joint Proxy Statement/Prospectus/Information Statement, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Chicago, Illinois
October 7, 1998
