<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
COMMISSION FILE NUMBER: 0-23616
PRIME RETAIL, INC.
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(Exact name of Registrant as specified in its Charter)
MARYLAND 52-1836258
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
100 EAST PRATT STREET
BALTIMORE, MD 21202 (410) 234-0782
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(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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Common Stock, $0.01 par value
8.5% Series B Cumulative Participating Convertible Preferred Stock, $0.01 par
value
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(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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10.5% Series A Cumulative Preferred Stock, $0.01 par value
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(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant was approximately $383,835,248 on March 13, 1998 (based on the
closing price per share as reported on the New York Stock Exchange - Composite
Transactions).
The number of shares of the registrant's Common Stock outstanding as of March
13, 1998 was 27,294,951.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the registrant are incorporated herein by
reference:
DOCUMENT
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Proxy Statement for the 1998 annual meeting of
shareholders Part III of Form 10-K
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PRIME RETAIL, INC.
Form 10-K
December 31, 1997
TABLE OF CONTENTS
Part I Page
Item 1. Business.......................................................1
Item 2. Properties.....................................................8
Item 3. Legal Proceedings.............................................13
Item 4. Submission of Matters to a Vote of Security Holders...........13
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters......................................................13
Item 6. Selected Financial Data.......................................15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................17
Item 8. Financial Statements and Supplementary Data...................31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................31
Part III
Item 10. Directors and Executive Officers of the Registrant............31
Item 11. Executive Compensation........................................31
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................31
Item 13. Certain Relationships and Related Transactions................31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.....................................................32
Signatures....................................................38
<PAGE>
PART I
ITEM 1 -- BUSINESS
The Company
Prime Retail, Inc. (the "Company") was organized as a Maryland
corporation on July 16, 1993. The Company commenced operations upon completion
of its initial public offering (the "Initial Public Offering") on March 22,
1994. The Company is a self-administered and self-managed real estate investment
trust ("REIT"). Concurrent with the completion of the Initial Public Offering,
the Company became the general partner of Prime Retail, L.P. (the "Operating
Partnership") which owns interests in and provides development, leasing,
marketing and management services for 28 upscale factory outlet centers and
three community shopping centers (the "Properties") with a total of 7,217,000
and 424,000 square feet of gross leasable area ("GLA") at December 31, 1997,
respectively. The Properties are located throughout the United States, generally
near large metropolitan areas.
On November 1, 1994, the Company organized Prime Retail Services Limited
Partnership and Prime Retail Services, Inc. (collectively referred to as the
"Services Corporation"). The Services Corporation was formed primarily to
operate business lines of the Company that are not directly associated with the
collection of rents.
As used herein, unless the context otherwise requires, the term
"Company" shall mean the Company and those entities owned or controlled by the
Company.
On November 12, 1997 and as amended on February 1, 1998, the Company
entered into a definitive merger agreement ("Merger Agreement") with Horizon
Group, Inc. ("Horizon") for an aggregate consideration of approximately
$945,200, including the assumption of $556,900 of Horizon debt and transaction
costs. Upon completion of the transaction, the Company will own and operate 48
outlet centers totaling approximately 13,406,261 square feet of GLA. See Note 15
- - "Merger Agreement" of the Notes to the Consolidated Financial Statements for
additional information.
The Company's executive offices are located at 100 East Pratt Street,
Baltimore, Maryland 21202 (telephone 410-234-0782).
Tax Status
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT,
the Company generally will not be subject to federal income tax at the corporate
level on income it distributes to its stockholders so long as it distributes at
least 95% of its taxable income (excluding any net capital gain) each year.
Since the Initial Public Offering the Company believes that it has complied with
the tax regulations to maintain its REIT status. If the Company fails to qualify
as a REIT in any taxable year, the Company will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Even if the Company qualifies as a REIT, the Company
may be subject to certain state and local taxes on its income and property.
Business of the Company
The Company is engaged primarily in the ownership, development,
construction, acquisition, leasing, marketing and management of factory outlet
centers throughout the United States. Factory outlet centers have become an
established segment of the retail industry, enabling value-oriented shoppers to
purchase designer and brand-name products directly from manufacturers at
discounts generally ranging from 25% to 50% below regular department and
specialty store prices.
Since entering the factory outlet center business in 1988 (through the
retail division of The Prime Group, Inc. ("PGI"), from whom the Company acquired
certain Properties and management and development operations), the Company has
become one of the leading developers and operators in the industry having
successfully developed or acquired outlet centers containing approximately 7.2
million square feet of GLA at December 31, 1997, including approximately
1,221,000 square feet of GLA that was acquired and approximately 224,000 square
feet of GLA that was developed and completed during 1997.
The Company pursues acquisition and development strategies designed to
take advantage of growth opportunities in the factory outlet segment of the
retail industry and to distinguish itself among its competitors. The Company
strives to differentiate itself from competitors in the outlet center industry
by owning and operating larger outlet centers with highly accessible locations,
a larger and more diverse merchandising mix, extensive food and recreational
amenities and quality architecture and landscaping, all designed to create an
upscale environment in which to showcase merchandise and encourage shopping.
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The average outlet center in the Company's portfolio contains 257,750
square feet of GLA at December 31, 1997, compared to an industry average of
approximately 177,656 square feet as reported in January 1998 by Value Retail
News ("VRN") an industry trade magazine whose Advisory Board and executive
committee includes William H. Carpenter, Jr., President and Chief Operating
Officer of theCompany. Management believes that the considerable size of its
outlet centers, coupled with the Company's established base of national and
international manufacturers of designer and brand-name merchandise,
significantly enhances the competitive position of the Company's factory outlet
centers.
The Company's factory outlet centers feature a diversified mix of
nationally recognized manufacturers of designer and brand-name merchandise with
which the Company and its employees have established long-standing
relationships, including AnnTaylor/AnnTaylor Loft, Bose, Brooks Brothers,
Corning-Revere, Danskin, Donna Karan, Eddie Bauer, Ellen Tracy, Esprit, First
Choice/Escada, Guess?, J. Crew, Jones New York, Levi's/Dockers Outlet, Mikasa,
Nautica, Nike, Phillips-Van Heusen (including Bass, Gant, Geoffrey Beene, Izod
and Van Heusen), Polo/Ralph Lauren, Reading China & Glass, Reebok, Off-5th Saks
Fifth Avenue, Sara Lee (including Champion, Coach, L'eggs, Hanes, Bali, Playtex,
and Socks Galore), Sony, Springmaid-Wamsutta, Tommy Hilfiger and VF Corporation
(including Lee, Wrangler, Barbizon and Vanity Fair). As a group, the foregoing
merchants accounted for approximately 50.2% of the gross revenues of the Company
during the year ended December 31, 1997, and occupied approximately 48.9% of the
total leased GLA contained in the Company's outlet centers at December 31,
1997. During the year ended December 31, 1997, no group of merchants under
common control accounted for more than 5.74% of the gross revenues of the
Company or occupied more than 5.36% of the total leased GLA of the Company at
December 31, 1997.
Management has developed close working relationships with its merchants
to understand and better anticipate the merchants' immediate and long-term
merchandising strategies and retail space requirements. The Company established
The Manufacturers Forum(R), an organization of over 100 manufacturers that
conducts between three and six industry meetings per year--two of which meetings
are held at semi-annual conventions. The meetings are organized and hosted by
executives of the Company and are attended by senior executives from member
manufacturers. Industry experts are invited to attend as guest speakers to
discuss ideas, trends, data and other issues pertinent to the ongoing growth of
the factory outlet center business. The Manufacturers Forum(R) was developed as
an educational tool for both the Company and the member merchants, including new
manufacturers that are investigating opening factory outlet stores, and allows
both the Company and member merchants to stay up-to-date with changes in the
industry. Topics discussed at The Manufacturers Forum(R) lead to stronger
relationships with key merchants and a shared vision with the manufacturers as
to future growth of the industry.
Strategies For Growth
The Company intends, on a long-term basis, to increase its per share
funds from operations ("FFO") and the value of its portfolio of factory outlet
centers through the active management and expansion of existing factory outlet
centers and the selective acquisition and development of factory outlet centers.
FFO does not represent cash flow from operating activities in accordance with
generally accepted accounting principles ("GAAP"), is not indicative of cash
available to fund all of the Company's cash needs and should not be considered
as an alternative to net income or any other GAAP measure as an indicator of the
Company's performance or as an alternative to cash flow as a measure of
liquidity or the ability to service debt or pay dividends. See "Funds from
Operations" of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company intends to continue to increase its FFO per share over time
by (i) selectively acquiring, expanding, and developing factory outlet centers
that offer strong prospects for cash flow growth and capital appreciation,
subject to the availability of debt financing on favorable terms and additional
equity capital and (ii) managing, leasing and marketing its portfolio of retail
properties to increase consumer traffic, sales per square foot, tenant occupancy
levels, and the effective base and percentage rents. While no assurances can be
given that the Company will successfully implement the foregoing objectives, the
Company intends to employ the following strategies:
Acquisition of Existing Outlet Centers. The Company explores
opportunities to acquire factory outlet centers or interests
therein that are compatible with the Company's existing portfolio
and offer attractive yields, potential cash flow growth and capital
appreciation. The Company draws upon its development, leasing,
operating and marketing expertise to improve such centers through
expansion and/or remerchandising or reletting. Properties may be
acquired separately or as part of a portfolio, and may be acquired
for cash and/or in exchange for equity securities of the Company.
During 1997, the Company acquired seven centers totaling 1,221,000
square feet of GLA for an aggregate purchase price of $164,300.
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Planned Development of New Factory Outlet Centers. The Company
develops new factory outlet centers on sites with favorable
demographics, access to interstate highways, good visibility and
favorable market conditions that generally can accommodate a
minimum of 300,000 square feet of GLA over multiple phases. In
March 1997, the Company commenced construction on the Outlet
Village of Lebanon located east of Nashville, Tennessee. The Outlet
Village of Lebanon, which will contain approximately 208,000 square
feet of GLA, has a total expected development cost of approximately
$28,900 and is expected to open in the second quarter of 1998. In
October 1997, the Company commenced construction on the Outlet
Village of Hagerstown located west of Baltimore, Maryland and
northwest of Washington, D.C. The Outlet Village of Hagerstown,
which will contain approximately 216,000 square feet of GLA, has a
total expected development cost of approximately $29,300 and is
expected to open in the third quarter of 1998. Management believes
that there is sufficient demand for continued development of new
factory outlet centers and the expansion of existing outlet
centers.
Strategic Expansions of Existing Centers. The Company selectively
expands its existing factory outlet centers in phased developments
that respond to merchant and consumer demand, thereby maximizing
returns from these outlet centers through higher effective rents
from new merchants based on the proven success and customer drawing
power of existing phases. The Company expects to open approximately
327,000 square feet of GLA during 1998 in connection with planned
expansions of existing centers. As of February 28, 1998, the
Company owned, or held under long-term lease, land contiguous to
its outlet centers to construct additional phases totaling
approximately 1,500,000 square feet of GLA. The Company also holds
options to purchase property adjoining its existing factory outlet
centers upon which additional expansions could be constructed.
Active Property Management. The Company monitors and seeks to
enhance the operating performance of its centers through intensive
merchant and property management, and by providing experienced and
professional on-site management. Property managers and marketing
directors work with leasing representatives of the Company to
systematically review merchant performance, merchandising mix and
layout in order to improve sales per square foot. Through its
intensive management efforts, the Company attempts to reduce the
average occupancy cost on its outlet portfolio while at the same
time continuing to provide a high level of merchant and customer
service, maintenance and security.
Innovative Marketing and Promotion. The Company continuously seeks
to increase the sales performance of each factory outlet center and
markets its factory outlet centers with promotional materials and
advertising strategies that target and attract customers.
Substantially all factory outlet centers have an experienced
marketing director who creates and administers retail marketing
strategies that are designed to highlight each factory outlet
center's unique merchandising strengths, customized to the local
customer base and demographics. The Company advertises its centers
using a wide variety of media that can include television, radio
and print advertising, promotions, billboards, special events, and
an extensive public relations program. These activities are
supported by quantitative and qualitative market research based on
such information gathering techniques as focus groups and detailed
customer surveys. To better understand the needs and expectations
of its customers, the Company routinely conducts exit surveys, the
results of which are closely reviewed by senior management and,
when appropriate, merchants in the center. All of these activities
are monitored and reviewed at least quarterly by senior marketing
management of the Company.
Competition
The Company's outlet centers compete for customers primarily with
traditional shopping malls, "off-price" retailers and other outlet centers. The
Company carefully considers the degree of existing and planned competition in a
proposed trade area before developing a new outlet center. Merchants of outlet
centers carefully avoid direct competition with major retailers and their own
full-price stores. Generally, this is accomplished by locating outlet centers at
least 20 miles from the nearest regional mall. For this reason, the Company's
outlet centers compete only to a limited extent with traditional retail malls in
or near metropolitan areas.
The Company's outlet centers compete to a limited extent with various
full-price and off-price retailers in the highly fragmented retailing industry.
However, management believes that the majority of the Company's customers visit
outlet centers specifically for designer and brand-name goods at discounted
prices. Traditional full-price and off-price retailers are often unable to
provide such a variety of products at attractive prices.
<PAGE>
Because several of the Company's outlet centers are located in
relatively undeveloped areas, there are often other potential sites near the
Company's outlet centers that may be developed into outlet centers by
competitors. Seven projects in the Company's portfolio, Factory Outlets at Post
Falls (Post Falls, Idaho), Gulf Coast Factory Shops (Ellenton, Florida),
Magnolia Bluff Factory Shops (Darien, Georgia), Ohio Factory Shops
(Jeffersonville, Ohio), Oxnard Factory Outlet (Oxnard, California), Prime Retail
Outlets of Kittery (Kittery, Maine), and San Marcos Factory Shops (San Marcos,
Texas), are located within twelve miles of competing factory outlet centers and,
therefore, are subject to direct outlet competition. The existence or
development of an outlet center with a more convenient location or lower rents
may attract the Company's merchants or cause them to seek more favorable lease
terms at or prior to renewal of their leases and, accordingly, may affect
adversely the business, revenues and/or sales volume of the Company's outlet
centers.
The Company's community shopping centers compete with similar community
shopping centers located in the same geographic trade areas.
Relationship with Municipalities
Because of the favorable impact that the Company's properties may have
on a local community's economy by generating sales and property taxes and
increasing employment in the area, local communities often assist the Company
with respect to zoning, economic incentives or favorable business development
legislation. The Company explores opportunities to obtain incentives from local,
county and state governments in connection with the development of its factory
outlet centers. Such incentives often fund the cost of off-site sewer and water
services to the site, required highway improvements and, on occasion, the cost
of land and various on-site improvements.
Environmental Matters
Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous substances on their property. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous substances. The costs of remediation or removal may be substantial,
and the presence of the hazardous substances, or the failure to promptly
remediate them, may adversely affect the owner's ability to sell the real estate
or to borrow using the real estate as collateral. In connection with its
ownership and operation of the Properties, the Company may be potentially liable
for the costs of removal or remediation of hazardous substances.
The Company has no knowledge, nor has the Company been notified by any
governmental authority, of any material noncompliance, liability or claim
relating to hazardous substances in connection with any properties in which any
of such entities now has or heretofore had an interest. However, no assurances
can be given that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition of
the Properties will not be affected by merchants and occupants of the
Properties, by the condition of properties in the vicinity of the Properties
(such as the presence of underground storage tanks) or by third parties
unrelated to the Company.
Insurance
Management believes that each of the Properties is covered by adequate
fire, flood, and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
Employees
As of December 31, 1997, the Company had 560 employees. The Company
believes that its relations with its employees are satisfactory.
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Executive Officers
The following table sets forth the names, positions and, as of December
31, 1997, ages of the executive officers of the Company:
<TABLE>
<CAPTION>
Name Position Age
<S> <C> <C>
Michael W. Reschke Chairman of the Board, Director 42
Abraham Rosenthal Chief Executive Officer, Director 48
William H. Carpenter, Jr. President, Chief Operating Officer, Director 46
Glenn D. Reschke Executive Vice President, Development 46
and Acquisitions, Director
Robert P. Mulreaney Executive Vice President, Chief Financial 39
Officer and Treasurer
David G. Phillips Executive Vice President, Operations and Marketing 36
C. Alan Schroeder Executive Vice President, General Counsel 40
and Secretary
R. Bruce Armiger Senior Vice President, Development and Construction 52
Management Services
Steven S. Gothelf Senior Vice President, Finance 37
Anya T. Harris Senior Vice President, Marketing and Communications 31
John S. Mastin Senior Vice President, Leasing 51
Steven M. McGhee Senior Vice President, Operations 43
</TABLE>
Biographies of Executive Officers
Michael W. Reschke. Michael W. Reschke has been the Chairman of the Board
of Directors of the Company since the Company's inception. Mr. Reschke founded
PGI in 1981 and, since that time, has acted as PGI's Chairman, Chief Executive
Officer, and President. For the last 16 years, Mr. Reschke has directed and
managed the development, finance, construction, leasing, marketing, acquisition,
renovation, and property management activities of PGI. Mr. Reschke also is
Chairman of the Board of Directors of Prime Group Realty Trust (NYSE: PGE), a
real estate investment trust engaged in the ownership, operation, acquisition
and development of office and industrial properties, primarily in the greater
Chicago market, and is the successor in interest to the former office and
industrial divisions of PGI. Mr. Reschke also is Chairman of the Board of
Directors of Brookdale Living Communities, Inc. (NASD: BLCI), a corporation
engaged in the ownership, operation, acquisition, and development of senior
housing and assisted living facilities and is the successor in interest to the
former senior housing division of PGI. Mr. Reschke also is a member of the Board
of Directors of Ambassador Apartments, Inc. (NYSE: AAH), a real estate
investment trust engaged in the ownership, operation, acquisition and renovation
of multi-family residential projects and the successor in interest to the former
multi-family division of PGI. Mr. Reschke received a Juris Doctorate degree
(summa cum laude) from the University of Illinois after having received a B.A.
degree (summa cum laude) in Accounting from Northern Illinois University. Mr.
Reschke is licensed to practice law in the State of Illinois and is a certified
public accountant. Mr. Reschke is a member of the Chairman's Roundtable and the
Executive Committee of the National Realty Committee, as well as a full member
of the Urban Land Institute. Mr. Reschke is the brother of Glenn D. Reschke, an
executive officer of the Company.
Abraham Rosenthal. Abraham Rosenthal has been the Chief Executive Officer
and a Director of Prime Retail since the Company's inception. Prime Retail was
formed to succeed the retail division of PGI, which has been a developer of
retail and factory outlet centers since 1988. Mr. Rosenthal joined PGI in 1988,
serving as Vice President, Senior Vice President and, immediately prior to
joining the Company, as Executive Vice President. Mr. Rosenthal's
responsibilities with the Company include strategic planning, investor
relations, capital markets, financing, site selection, site planning and
building design, and new business development for the
<PAGE>
Company. Mr. Rosenthal has been involved in retail design and development for
the past 20 years. Prior to joining PGI, Mr. Rosenthal was Vice President,
Design and Construction of Cordish/Embry and Associates. Mr. Rosenthal received
a Bachelor of Architecture degree from the University of Maryland School of
Architecture, is a registered architect in the State of Maryland and is
certified by the National Council of Architectural Registration Board. Mr.
Rosenthal is a full member of the Urban Land Institute, the International
Council of Shopping Centers ("ICSC"), the National Realty Committee and National
Association of Real Estate Investment Trusts ("NAREIT"). Mr. Rosenthal is on the
executive committee of the Baltimore Museum of Art and chairs the organization's
Development, Marketing and Finance Committee. Mr. Rosenthal is also a member of
the Maryland/Israel Development Center and is on the board and a member of the
executive committee for Baltimore's Downtown Partnership. Mr. Rosenthal was
therecipient of the 1995 Entrepreneur of the Year Award for Maryland Real
Estate.
William H. Carpenter, Jr. William H. Carpenter, Jr. has been President,
Chief Operating Officer and a Director of the Company since the Company's
inception. Immediately prior to the Initial Public Offering, Mr. Carpenter was
associated with PGI. Mr. Carpenter joined PGI in 1989, serving as Senior Vice
President and, immediately prior to joining the Company, as Executive Vice
President. Mr. Carpenter's responsibilities with the Company include leasing,
marketing, operations and management, development, and construction for the
Company's retail projects. Prior to joining PGI, Mr. Carpenter was President of
D.I. Realty, Inc. (a division of Design International) from 1988 to 1989 and in
such capacity managed all aspects of retail leasing and development for D.I.
Realty, Inc., including property management, construction, and merchant
coordination. Mr. Carpenter previously was senior regional leasing director with
The Rouse Company and a partner with Cordish/Embry and Associates in Baltimore,
Maryland. In these positions, Mr. Carpenter directed the development and leasing
of a number of major urban projects in cooperation with city governments. Over
the last 23 years, Mr. Carpenter has been involved in over 57 major urban,
suburban and specialty projects throughout the United States. Mr. Carpenter
attended the University of Baltimore, is a member of the ICSC, a member of
Developers of Outlet Centers, a full member of the Urban Land Institute, sits on
the Board and the Executive Committee of the BSO and also sits on the ICSC/VRN
Executive Committee.
Glenn D. Reschke. Glenn D. Reschke is Executive Vice President of
Development and Acquisitions and a Director of the Company, where he is
responsible for site selection, design and construction for the Company's new
retail projects as well as the acquisition of existing outlet centers
nationwide. Mr. Reschke joined PGI in 1983 and, since that time, served as Vice
President, Senior Vice President and Executive Vice President of PGI, and was
responsible for PGI's multi-family, senior housing, single family and land
development divisions. Prior to that, Mr. Reschke was the Director of the EPA's
Automotive Emission Testing Laboratory in Ann Arbor, Michigan where he managed
the nation's automotive emission certification and fuel economy testing programs
for the Federal Government. Mr. Reschke received a Masters in Business
Administration from Eastern Michigan University with a specialization in finance
after receiving a Bachelor of Science degree with honors in Chemical Engineering
from Rose Hulman Institute of Technology in Terre Haute, Indiana. Mr. Reschke is
the brother of Michael W. Reschke, the Company's Chairman of the Board.
Robert P. Mulreaney. Robert P. Mulreaney is Executive Vice President, Chief
Financial Officer and Treasurer of the Company. Mr. Mulreaney joined the Company
in 1994. Mr. Mulreaney's responsibilities with the Company include capital
market activities, corporate budgeting, financial reporting, investor relations,
accounting, taxation, treasury, and management information systems. Prior to
joining the Company, Mr. Mulreaney was associated for 14 years with Ernst &
Young LLP, where he specialized in accounting and consulting issues related to
real estate and financial institutions. Mr. Mulreaney received a Bachelor of
Business Administration in Accounting in 1980 from Marshall University. Mr.
Mulreaney is a member of the American Institute of Certified Public Accountants,
the Maryland Association of Certified Public Accountants, and the West Virginia
Society of Certified Public Accountants.
David G. Phillips. David G. Phillips is Executive Vice President,
Operations and Marketing of the Company. Mr. Phillips joined PGI in 1989 and
served as Vice President, Senior Vice President, and Executive Vice President,
Leasing. Mr. Phillips' responsibilities with the Company include the management
and supervision of the Company's operations, marketing and advertising efforts
for all of the Company's outlet centers. Prior to joining PGI, Mr. Phillips was
a leasing representative at D.I. Realty, Inc., leasing a variety of retail
projects including outlet centers and traditional and specialty malls. Prior to
joining D.I. Realty, Inc., Mr. Phillips owned and operated Bowdoin Street
Contracting in Boston, Massachusetts. Mr. Phillips received a Masters of Science
in Real Estate Development at Johns Hopkins University and received a Bachelor
of Science degree in Business Administration from the University of Vermont. Mr.
Phillips is a member of the ICSC with a CLS (Certified Leasing Specialist)
designation and the Urban Land Institute.
C. Alan Schroeder. C. Alan Schroeder is Executive Vice President, General
Counsel and Secretary of the Company. From 1990 to 1994, Mr. Schroeder was an
Assistant General Counsel of PGI, responsible for legal matters relating to the
retail division of PGI and involved in the division's development, financing,
corporate, partnership, construction and management matters. Prior to joining
PGI, Mr. Schroeder was associated for four years with Hopkins & Sutter,
<PAGE>
a Chicago, Illinois based law firm, where he worked primarily on real estate and
financing matters. Mr. Schroeder received a Juris Doctorate degree from The
University of Chicago Law School. Mr. Schroeder received an A.B. degree in
Economics and Sociology from Bowdoin College in Brunswick, Maine. Mr. Schroeder
is licensed to practice law in Illinois.
R. Bruce Armiger. R. Bruce Armiger is Senior Vice President, Development
and Construction Management Services for the Company. Mr. Armiger's
responsibilities with the Company include supervision of project development and
construction for all of the Company's outlet centers. Mr. Armiger joined PGI in
1992, and since that time, acted as Vice President of the Retail Division of
PGI. Prior to joining PGI, Mr. Armiger was Vice President and Director of
Construction and Engineering of The Rouse Company for a period of 15 years. At
The Rouse Company, Mr. Armiger was responsible for all of the construction
activities of the company consisting of over 5,000,000 square feet of GLA during
his tenure. Mr. Armiger has a Bachelor of Arts degree and Masters of Business
Administration from Loyola College, Baltimore, Maryland.
Steven Gothelf. Steven Gothelf is Senior Vice President, Finance of the
Company. Mr. Gothelf joined PGI in 1990 and, since that time, served as Vice
President of Asset and Development Management. Mr. Gothelf's responsibilities
with the Company include financing, capital market activities, and the review
and analysis of potential outlet center acquisitions. For two years prior to
joining PGI, Mr. Gothelf was Vice President of Finance and Administration of
Clarion Development Inc. Before joining Clarion Development Inc., Mr. Gothelf
was a Market Maker for financial futures at the Chicago Board of Trade and prior
to that was a Manager of Real Estate Tax and Consulting for KPMG Peat Marwick
LLP. Mr. Gothelf received his B.S. degree in Accounting from the University of
Illinois and is a certified public accountant.
Anya T. Harris. Anya T. Harris is Senior Vice President, Marketing and
Communications of the Company. Ms. Harris began her tenure at the Company in
September 1994 as Director of Public Relations, responsible for media relations
and community outreach programs for the Company's various outlet centers
nationwide. In her present position, Ms. Harris oversees all aspects of the
Company's center marketing, public relations and corporate communications
programs in order to increase the Company's marketing power and reach in terms
of advertising, company identity and media relations. Prior to joining the
Company, Ms. Harris served as Senior Account Executive for Trahan, Burden &
Charles, Inc., an advertising and public relations firm in Baltimore. In this
capacity, Ms. Harris managed advertising, public relations and marketing
campaigns for numerous clients, including the Company. Formerly, she was Senior
Account Executive for New York-based Edelman Public Relations, responsible for
managing multi-million-dollar corporate communications and media relations for
clients such as Motts U.S.A. and Weight Watchers International. Ms. Harris
received her Bachelor of Arts in Political Science and Sociology from Goucher
College.
John S. Mastin. John S. Mastin is Senior Vice President, Leasing of the
Company. Mr. Mastin's responsibilities with the Company include supervision of
leasing and merchandising for all of the Company's outlet centers. Mr. Mastin
joined the Company in June of 1996. Prior to joining the Company, Mr. Mastin
spent 24 years with The Rouse Company. At The Rouse Company, Mr. Mastin began
his career as a Junior Leasing Representative and was promoted to Vice President
and Assistant Director of Leasing. Mr. Mastin led the leasing effort for The
Rouse Company with numerous regional malls as well as inner-city festival market
places which include Bayside in Miami, Florida, and the redevelopment of
Underground Atlanta in Atlanta, Georgia. Mr. Mastin was involved in the
releasing and remerchandising effort for the operating properties division of
The Rouse Company. Prior to The Rouse Company, Mr. Mastin was a Naval Aviator
for four years. Mr. Mastin received his Bachelor of Arts in English from Niagara
University. Mr. Mastin is a member of the ICSC.
Steven M. McGhee. Steven M. McGhee is Senior Vice President, Operations of
the Company. Mr. McGhee has been affiliated with PGI since October, 1989, most
recently as Vice President and Director of Operations. Prior to joining PGI, Mr.
McGhee was General Manager for CBL and Associates for two years where he
marketed and managed a portfolio of 1,500,000 square feet of retail properties.
Prior to that Mr. McGhee spent 15 years with the Melville Corporation, a
specialty retail chain were he was eventually responsible for the operations of
approximately 140 stores nationwide. Mr. McGhee attended the University of
Tennessee majoring in Business Administration. Mr. McGhee is a member of the
ICSC, Value Retail News and Building Owners and Managers Association (BOMA), and
Honorary Editorial Board Member for Specialty Retail Report. Mr. McGhee received
designation as a CSM, (certified shopping center manager) from the ICSC in
October 1995.
<PAGE>
ITEM 2 -- PROPERTIES
General
The Company's strategy is to build on its reputation and experience in
the factory outlet center business and to capitalize on the current trend
in value-oriented retailing through the selective acquisition and development of
factory outlet centers and the strategic expansion of its existing factory
outlet centers. As a fully-integrated real estate company, the Company provides
development, construction, finance, leasing, accounting, marketing and
management services for all of its properties. At December 31, 1997, the
Company's portfolio consisted of (i) 28 factory outlet centers aggregating
7,217,000 square feet of GLA (including 595,000 square feet of GLA at factory
outlet centers owned through joint venture partnerships), (ii) three community
shopping centers aggregating 424,000 square feet of GLA and (iii) 159,000 square
feet of GLA of office space.
The table set forth below summarizes certain information with respect to
the Company's existing centers as of December 31, 1997 (see "Note 7 -- Bonds and
Notes Payable" of the Notes to the Consolidated Financial Statements contained
herein for information with respect to mortgage indebtedness on the Company's
properties).
<TABLE>
Portfolio of Properties
December 31, 1997
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Niagara International Factory Outlets (2)--Niagara Falls, New York...... I July 1982 300,000 96%
II August 1985 234,000 79
-------- ---
534,000 88
Prime Retail Outlets of Kittery (3)--Kittery Maine...................... I April 1984 25,000 100
II May 1984 78,000 100
III August 1989 18,000 100
-------- ---
121,000 100
Latham Factory Outlets (3)--Latham, New York............................ I August 1987 43,000 100
Warehouse Row Factory Shops (4)--Chattanooga, Tennessee................. I November 1989 95,000 94
II August 1993 26,000 94
-------- ---
121,000 94
Oak Creek Factory Stores (5)--Sedona, Arizona .......................... I August 1990 82,000 100
San Marcos Factory Shops--San Marcos, Texas............................. I August 1990 177,000 99
II August 1991 70,000 100
III August 1993 117,000 98
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
-------- ---
419,000 99
Shasta Factory Stores (2)--Anderson, California......................... I August 1990 165,000 91
Factory Outlets at Post Falls (5)--Post Falls, Idaho ................... I July 1991 111,000 92
II July 1992 68,000 71
-------- ---
179,000 84
Gulf Coast Factory Shops--Ellenton, Florida............................. I October 1991 187,000 98
II August 1993 123,000 100
III October 1996 30,000 100
-------- ---
340,000 99
Triangle Factory Shops--Raleigh-Durham, North Carolina.................. I October 1991 181,000 99
II July 1996 6,000 100
-------- ---
187,000 99
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
December 31, 1997
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Coral Isle Factory Shops--Naples/Marco Island, Florida.................. I December 1991 94,000 100%
II December 1992 32,000 82
-------- ---
126,000 95
Castle Rock Factory Shops--Castle Rock, Colorado........................ I November 1992 181,000 97
II August 1993 94,000 99
III November 1993 95,000 100
IV August 1997 110,000 100
-------- ---
480,000 99
Bend Factory Outlets (5)--Bend, Oregon.................................. I December 1992 97,000 86
Ohio Factory Shops--Jeffersonville, Ohio................................ I July 1993 186,000 98
II November 1993 100,000 100
IIB November 1994 13,000 75
IIIA August 1996 35,000 100
IIIB March 1997 73,000 73
-------- ---
407,000 93
Gainesville Factory Shops--Gainesville, Texas........................... I August 1993 210,000 89
II November 1994 106,000 92
-------- ---
316,000 90
Nebraska Crossing Factory Stores (6)--Gretna, Nebraska.................. I October 1993 192,000 88
Rocky Mountain Factory Stores--Loveland, Colorado....................... I May 1994 139,000 100
II November 1994 50,000 100
III May 1995 114,000 100
IV May 1996 25,000 100
-------- ---
328,000 100
Oxnard Factory Outlet (7)--Oxnard, California........................... I June 1994 148,000 88
Grove City Factory Shops--Grove City, Pennsylvania...................... I August 1994 235,000 99
II November 1994 95,000 100
III November 1995 85,000 99
IV November 1996 118,000 99
-------- ---
533,000 99
Huntley Factory Shops--Huntley, Illinois................................ I August 1994 192,000 98
II November 1995 90,000 88
-------- ---
282,000 92
Florida Keys Factory Shops--Florida City, Florida....................... I September 1994 208,000 88
Indiana Factory Shops (6)--Daleville, Indiana........................... I November 1994 208,000 90
IIA November 1996 26,000 35
--------- ---
234,000 84
Kansas City Factory Outlets--Odessa, Missouri........................... I July 1995 191,000 100
II November 1996 105,000 66
--------- ---
296,000 88
Magnolia Bluff Factory Shops (8)--Darien, Georgia....................... I July 1995 238,000 89
IIA November 1995 49,000 99
IIB July 1996 20,000 100
--------- ---
307,000 91
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
December 31, 1997
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Factory Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arizona Factory Shops (9)--Phoenix, Arizona............................. I September 1995 217,000 98%
II September 1996 109,000 93
--------- ---
326,000 96
Gulfport Factory Shops (10)--Gulfport, Mississippi...................... I November 1995 228,000 97
IIA November 1996 40,000 82
IIB November 1997 38,000 38
--------- ---
306,000 88
Buckeye Factory Shops (11)--Burbank, Ohio............................... I November 1996 205,000 95
Carolina Factory Shops--Gaffney, South Carolina......................... I November 1996 235,000 95
--------- ---
Total Factory Outlet Centers (12)...................................... 7,217,000 94%
========= ===
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of December 31, 1997 as a
percent of square feet of GLA.
(2) The Company acquired this factory outlet center on December 2, 1997 from an
unrelated third party.
(3) The Company acquired this factory outlet center on October 29, 1997 from an
unrelated third party.
(4) The Company owns a 2% partnership interest as the sole general partner in
Phase I of this property but is entitled to 99% of the property's operating
cash flow and net proceeds from a sale or refinancing. An unrelated third
party holds a 35% limited partnership interest and the Company holds a 65%
general partnership interest in the partnership that owns Phase II of this
property. Phase I of this mixed-use development includes 154,000 square
feet of office space and Phase II includes 5,000 square feet of office
space. The total office space of 159,000 square feet is not included in
this table and such space was 78% leased as of December 31, 1997.
(5) The Company acquired this factory outlet center on February 13, 1997 from
an unrelated third party.
(6) Upon consummation of the Merger Agreement, the Company intends to sell this
factory outlet center (see Note 15 - "Merger Agreement" of the Notes to
Consolidated Financial Statements).
(7) On February 7, 1997, the Company purchased an additional 20% interest from
a joint venture partner, increasing the Company's ownership interest in
this property to 50%.
(8) The Company operates this property pursuant to a long-term ground lease
under which the Company receives the economic benefit of a 100% ownership
interest.
(9) The Company owns 50% of this factory outlet center in a joint venture
partnership with an unrelated third party.
(10) The real property on which this outlet center is located is subject to a
long-term ground lease. The Company receives the economic benefit of a 100%
ownership interest.
(11) On September 2, 1997, the Company purchased its joint venture partner's 25%
partnership interest in Buckeye Factory Shops Limited Partnership and now
owns 100% of this factory outlet center.
(12) The Company also owns three community centers not included in this table
containing 424,000 square feet of GLA in the aggregate that were 96% leased
as of December 31, 1997.
As of February 28, 1998, the Company owned, or held under long-term
leases, land contiguous to its outlet centers to construct additional phases
totaling approximately 1,500,000 square feet of GLA. The Company also holds
options to purchase property adjoining its existing factory outlet centers upon
which additional expansion could be constructed. Property held for sale by a
REIT is subject to significant restrictions imposed by the Code. Consequently,
it is the Company's intention to hold its undeveloped parcels for future
development, expansion or lease, rather than for sale.
Lease Terms
In general, the leases relating to the Company's outlet centers have a
term of five to seven years. Most leases provide for the payment of percentage
rents for annual sales in excess of certain thresholds. In addition, the typical
lease agreement provides for the recovery of all of a merchant's proportionate
share of actual common area maintenance ("CAM"), refuse removal, insurance, and
real estate taxes as well as a collection for advertising and promotion and
an administrative fee. CAM includes such items as common area utilities,
security, parking lot cleaning, maintenance and repair of common areas,
capital replacement reserves, landscaping, seasonal decorations, public
restroom maintenance and certain administrative expenses.
<PAGE>
The following table sets forth, as of December 31, 1997, tenant lease
expirations for the next 10 years at the Company's factory outlet centers
(assuming that none of the tenants exercise any renewal option and including
leases at factory outlet centers owned through joint venture partnerships):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Expirations -- Outlet Centers
--------------------------------------------------- % of Total
Annualized
Number of Approximate Annualized Minimum Rent
Leases GLA Minimum Rent of Represented by
Year Expiring (Sq. Ft.) Expiring Leases Expiring Leases
- ------ --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
1998 208 672,590 $ 8,676,382 8.95%
1999 282 951,096 13,884,059 14.32
2000 362 1,219,241 19,129,588 19.73
2001 386 1,318,768 20,735,895 21.39
2002 280 974,632 15,499,971 15.99
2003 67 309,794 4,904,704 5.06
2004 53 328,272 4,646,025 4.79
2005 46 272,619 4,268,191 4.40
2006 30 178,420 2,730,946 2.82
2007 9 36,262 552,230 0.57
====================================================================================================================================
</TABLE>
Tenants
In management's view, the tenant mix is one of the most important
factors in promoting an outlet center's success. Virtually all aspects of the
Company's outlet centers, ranging from site selection to architectural design,
are planned to attract and retain a diverse mix of nationally and
internationally recognized manufacturers of upscale designer and brand-name
products. Crucial to the development of a new outlet center is having lead
tenants committed to the outlet center early in the process. In management's
view, lead tenants are manufacturers that during the development of an outlet
center attract other high-quality manufacturers to the outlet center and provide
for a well-balanced and diversified mix of tenants that will attract consumers
to the outlet center. During the year ended December 31, 1997, no group of
tenants under common control accounted for more than 5.74% of the gross revenues
of the Company or occupied more than 5.36% of the total GLA of the Company.
<PAGE>
<TABLE>
The following list includes some of the lead tenants in the Company's
outlet centers based on leases executed as of December 31, 1997:
<CAPTION>
NUMBER OF % OF LEASED
TENANT STORES GLA
- ------ --------- -----------
<S> <C> <C>
PHILLIPS-VAN HEUSEN
BASS ............................................................................. 19 1.82%
VAN HEUSEN ....................................................................... 24 1.46
GEOFFREY BEENE ................................................................... 21 1.32
IZOD ............................................................................. 16 0.51
GANT ............................................................................. 6 0.25
--- ----
SUBTOTAL PHILLIPS-VAN HEUSEN................................................... 86 5.36
DRESS BARN, INC.
WESTPORT, LTD./WESTPORT WOMAN/DRESS BARN.......................................... 29 2.75
SBX............................................................................... 2 0.19
--- ----
SUBTOTAL DRESS BARN, INC....................................................... 31 2.94
SARA LEE
L'EGGS/HANES/BALI/PLAYTEX.......................................................... 22 1.46
CHAMPION........................................................................... 6 0.29
COACH.............................................................................. 11 0.42
SOCKS GALORE....................................................................... 3 0.06
--- ----
SUBTOTAL SARA LEE.............................................................. 42 2.24
CASUAL CORNER GROUP, INC.
CASUAL CORNER OUTLET.............................................................. 16 1.08
CASUAL CORNER WOMAN............................................................... 9 0.35
PETITE SOPHISTICATE .............................................................. 16 0.59
--- ----
SUBTOTAL CASUAL CORNER GROUP, INC. ............................................ 41 2.01
OFF 5TH-SAKS FIFTH AVENUE.............................................................. 8 2.39
LEVI'S OUTLET.......................................................................... 16 2.04
BUGLE BOY.............................................................................. 23 1.90
MIKASA................................................................................. 16 1.83
GAP.................................................................................... 12 1.74
REEBOK................................................................................. 12 1.57
OSHKOSH B'GOSH/GENUINE KIDS............................................................ 25 1.51
NIKE................................................................................... 9 1.49
SPRINGMAID-WAMSUTTA.................................................................... 14 1.46
CORNING-REVERE......................................................................... 20 1.44
JONES NEW YORK......................................................................... 33 1.42
DESIGN'S INC./BOSTON TRADER............................................................ 12 1.38
VANITY FAIR/LEE/WRANGLER/BARBIZON...................................................... 4 1.36
CARTERS................................................................................ 19 1.34
POLO/RALPH LAUREN...................................................................... 11 1.21
READING CHINA & GLASS.................................................................. 3 1.05
ANN TAYLOR............................................................................. 8 0.88
JOCKEY................................................................................. 16 0.82
EDDIE BAUER............................................................................ 7 0.80
LIZ CLAIBORNE.......................................................................... 5 0.73
AMERICAN OUTPOST....................................................................... 13 0.66
NINE WEST.............................................................................. 17 0.64
DANSKIN................................................................................ 9 0.64
ESPRIT................................................................................. 5 0.61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF % OF LEASED
TENANT STORES GLA
- ------ --------- -----------
<S> <C> <C>
GUESS?................................................................................. 7 0.58%
J. CREW................................................................................ 6 0.58
BROOKS BROTHERS........................................................................ 7 0.53
DONNA KARAN............................................................................ 8 0.50
BOSE................................................................................... 9 0.50
COUNTY SEAT............................................................................ 6 0.49
VILLEROY & BOCH........................................................................ 8 0.47
TOMMY HILFIGER......................................................................... 9 0.47
SONY................................................................................... 5 0.42
NAUTICA................................................................................ 6 0.29
NORDIC TRACK........................................................................... 6 0.24
ANNE KLEIN............................................................................. 3 0.14
ELLEN TRACY............................................................................ 2 0.10
FIRST CHOICE/ESCADA.................................................................... 2 0.05
--- -----
TOTAL.................................................................................. 601 48.80%
=== =====
</TABLE>
Lead tenants are placed in strategic locations designed to draw
customers into the outlet center and to encourage them to shop at more than one
store. The Company continually examines the placement of tenants within each
center and, in collaboration with its tenants, adjusts the size and location of
their space within the center to improve sales per square foot.
The Company strives to identify tenants with potential credit problems
at an early stage by closely monitoring tenant's performance. The Company has
worked successfully to limit its delinquencies and bad debt losses. During the
year ended December 31, 1997, total bad debt expense was approximately $970 or
.01% of total revenues. The Company has not lost any material revenue related to
tenant bankruptcies or other lease defaults.
ITEM 3 -- LEGAL PROCEEDINGS
The Company is involved in various legal matters incidental to its
business. The outcome of litigation is not susceptible to easy or certain
prediction. While an unfavorable outcome in a particular proceeding could have a
significant effect on the Company's consolidated results of operations in a
future reporting period, the Company believes ultimate resolution of these
matters would not, either singly or in the aggregate, significantly affect the
Company's results of operations, liquidity or financial position.
On December 10, 1997, a shareholder of Horizon filed a purported class
action lawsuit in the Circuit Court for Muskegon County, Michigan against
Horizon, the Company, and certain directors and former directors of Horizon
claiming, among other things, that Horizon's directors breached their fiduciary
duties to Horizon's shareholders in approving the merger of Horizon and the
Company and that the consideration to be paid to Horizon's shareholders in
connection with the merger is unfair and inadequate. The lawsuit requests that
such merger be enjoined or, in the event that the purported transaction is
consummated, that it be rescinded or unspecified damages be awarded to the class
members. On January 16, 1998, the defendants answered the complaint, denying
that the Horizon board of directors breached their fiduciary duties and denying
that such consideration is unfair or inadequate. Although the Company is named
as a defendant in the complaint, the substantive allegations focus on the
actions of Horizon and its board of directors and not on any actions of the
Company or its board of directors. Since this litigation is in the initial
phases of discovery, its outcome is not susceptible to easy or certain
prediction; however, the Company intends to defend itself vigorously.
ITEM 4 -- SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1997.
PART II
ITEM 5 -- MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock commenced trading on the New York Stock
Exchange ("NYSE") on August 27, 1997 under the trading symbol "PRT". Prior
thereto, the Common Stock was quoted in the Nasdaq National Market under the
trading symbol "PRME".
<PAGE>
The following table sets forth the quarterly high, low and end of period
closing sales prices per share of the Company's Common Stock as reported on the
NYSE and in the Nasdaq National Market, as the case may be, as well as the cash
distributions paid during the periods indicated:
<TABLE>
Market Price of Common Stock and Cash Dividends Paid Per Common Share
<CAPTION>
1997 1996
--------------------------------------------- ------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per common
share:
High $16.50 $15.63 $13.63 $13.38 $12.75 $12.25 $12.00 $12.50
Low 13.31 13.13 11.88 12.00 11.38 11.00 10.88 11.00
End of period close 14.19 15.63 13.44 13.00 12.50 12.00 11.31 11.50
Cash dividends paid per
common share $0.295 $0.295 $0.295 $0.295 $0.295 $0.440(1) $0.295 $0.295
===========================================================================================================================
</TABLE>
Note:
(1) Includes a special cash distribution of $0.145 per common share relating to
the Company's exchange offer completed in June 1996 (see Note 8 -- "Equity
Offerings and Other Transactions" of the Notes to Consolidated Financial
Statements).
Instruments governing the Company's indebtedness contain certain
covenants regarding the payment of dividends (see Note 7 -- "Bonds and Notes
Payable" of the Notes to Consolidated Financial Statements) if the Company's
debt service coverage ratio, as defined, falls below a minimum threshold. Based
on continuing favorable operations and available funds from operations,
management intends to continue to pay regular quarterly distributions.
The approximate number of holders of record of the Common Stock was 381
including participants in security position listings as of March 13, 1998. The
Company believes, however, they have in excess of 5,000 beneficial shareholders
as of March 13, 1998.
<PAGE>
<TABLE>
ITEM 6 -- SELECTED FINANCIAL DATA
(Amounts in thousands, except per share and per unit amounts)
<CAPTION>
Prime Retail
Prime Retail, Inc. Properties (Combined)
----------------------------------------------------------- ----------------------------
Period from Period from
March 22 to January 1 to Year ended
Year ended December 31 December 31 March 21 December 31
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Base rents............................... $ 78,046 $ 54,710 $ 46,368 $ 28,657 $ 3,670 $ 14,298
Percentage rents......................... 3,277 1,987 1,520 1,404 187 709
Tenant reimbursements.................... 37,519 25,254 22,283 11,858 2,113 5,370
Income from investment partnerships...... 103 1,239 1,729 453 336 821
Interest and other....................... 10,185 5,850 5,498 2,997 24 602
--------- --------- --------- --------- --------- ---------
Total revenues................ 129,130 89,040 77,398 45,369 6,330 21,800
Expenses
Property operating....................... 29,492 20,421 17,389 9,952 1,927 5,046
Real estate taxes........................ 9,417 5,288 4,977 2,462 497 1,558
Depreciation and amortization............ 26,715 19,256 15,438 9,803 2,173 7,632
Corporate general and administrative..... 5,603 4,018 3,878 2,710 -- --
Interest................................. 36,122 24,485 20,821 9,485 3,280 8,928
Property management fees................. -- -- -- -- 299 777
Other charges............................ 3,234 8,586 2,089 1,503 562 1,732
--------- --------- --------- --------- --------- ---------
Total expenses................ 110,583 82,054 64,592 35,915 8,738 25,673
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interests
and extraordinary item................ 18,547 6,986 12,806 9,454 (2,408) (3,873)
(Income) loss allocated to minority
interests............................ (10,581) 2,092 5,364 5,204 -- --
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item.. 7,966 9,078 18,170 14,658 (2,408) (3,873)
Extraordinary item....................... (2,061) (1,017) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss)........................ 5,905 8,061 18,170 14,658 $ (2,408) $ (3,873)
--------- --------- --------- --------- ========== ==========
Income allocated to preferred
shareholders.......................... 12,726 14,236 20,944 16,290
--------- --------- --------- ---------
Net loss applicable to common shares..... $ (6,821) $ (6,175) $ (2,774) $ (1,632)
========= ========= ========= =========
Net loss per common share-basic and
diluted (1)........................... $ (0.36) $ (0.75) $ (0.96) $ (0.57)
========= ========= ========= =========
Other Data
Funds from operations (2)................ $ 46,718 $ 27,637 $ 27,996 $ 21,996 $ 139 $ 4,351
Net cash provided by (used in) operating
activities............................ $ 49,856 $ 45,191 $ 36,399 $ 17,458 $ (1,873) $ 14,450
Net cash used in investing activities.... (229,956) (232,290) (81,978) (149,435) (1,239) (54,210)
Net cash provided by financing
activities............................ 182,549 176,096 57,547 134,936 4,087 39,907
Distributions declared per common share.. $ 1.18 $ 1.33(3) $ 1.18 $ 0.623 $ -- $ --
Reported merchant sales.................. $1,434,163 $ 1,044,348 $ 809,623 $ 497,624 $ 73,553 $ 303,833
Total factory outlet GLA at end of
period (4)......... .................. 7,217 5,780 4,331 3,382 1,839 1,839
Number of factory outlet centers at end
of period (4)......................... 28 21 17 14 7 7
</TABLE>
<TABLE>
<CAPTION>
Prime Retail
Prime Retail, Inc. Properties (Combined)
------------------------------------------------------- -----------------------------
December 31 March 21, December 31,
------------------------------------------------------- -----------------------------
1997 1996 1995 1994 1994 1993
- ---------------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Rental property (before accumulated
depreciation)......................... $904,782 $640,759 $454,480 $376,181 $180,170 $185,394
Net investment in rental property........ 822,749 583,085 414,290 349,513 164,159 169,674
Total assets............................. 904,183 666,803 462,405 385,930 186,034 190,685
Bonds and notes payable.................. 515,265 499,523 305,954 214,025 188,378 184,037
Total liabilities and minority interests. 559,655 527,594 340,921 258,279 198,244 197,400
Shareholders' equity (deficit)........... 344,528 139,209 121,484 127,651 (12,210) (6,715)
====================================================================================================================================
</TABLE>
<PAGE>
Notes:
(1) On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" (see Note 2 - "Summary of
Significant Accounting Policies - - Earnings per Share" of the Notes to
Consolidated Financial Statements). The adoption of SFAS No. 128 had no
impact on the Company's earnings per share computations for all periods
presented and, therefore, no restatement of prior period computations was
required.
(2) Management believes that in order to facilitate a clear understanding of
the consolidated historical operating results of the Company, Funds from
Operations ("FFO") should be considered in conjunction with net income
(loss) as presented in the financial statements included in this Annual
Report on Form 10-K. Management generally considers FFO to be an
appropriate measure of the performance of an equity REIT because industry
analysts have accepted it as a performance measure of equity REITs. FFO
represents net income (loss) (computed in accordance with generally
accepted accounting principles ("GAAP")), excluding gains or losses from
debt restructuring and sales of property, plus depreciation and
amortization and after adjustments for unconsolidated investment
partnerships and joint ventures. In March 1995, the National Association of
Real Estate Investment Trusts ("NAREIT") issued a clarification of its
definition of FFO. Prime cautions that the calculation of FFO may vary from
entity to entity and as such the presentation of FFO by the Company may not
be comparable to other similarly titled measures of other reporting
companies. FFO does not represent cash flow from operating activities in
accordance with GAAP and is not indicative of cash available to fund all of
the Company's cash needs. FFO should not be considered as an alternative to
net income or any other GAAP measure as an indicator of performance and
should not be considered as an alternative to cash flow as a measure of
liquidity or the ability to service debt or to pay dividends. A
reconciliation of income (loss) before allocation to minority interests and
preferred shareholders to FFO is as follows:
<TABLE>
<CAPTION>
Prime Retail
Prime Retail, Inc. Properties (Combined)
--------------------------------------------------------- ----------------------------
Period Period
from from
Year ended December 31 March 22 to January 1 to Year ended
------------------------------------------ December 31, March 21, December 31,
1997 1996 1995 1994 1994 1993
- --------------------------------------------------------------------------------------- ------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before allocations to
minority interests and preferred
shareholders.......................... $18,547 $ 6,986(i) $12,806 $ 9,454 $(2,408) $(3,873)
FFO Adjustments:
Depreciation and amortization............ 26,413 18,703 14,884 9,508 2,173 7,504
Unconsolidated joint venture
adjustments(ii)....................... 1,758 1,948 306 2,514 374 720
------- ------- ------- ------- ------- -------
FFO before allocation to minority
interests and preferred shareholders.. $46,718 $27,637 $27,996 $21,476 $ 139 $ 4,351
======= ======= ======= ======= ======= =======
====================================================================================================================================
</TABLE>
Notes:
(i) Includes a nonrecurring charge of $6,131 related to the prepayment of
long-term debt recorded during 1996.
(ii) Amounts include net preferential partner distributions from a joint venture
partnership of $162 and $2,538 for the year ended December 31, 1995 and the
period from March 22, 1994 to December 31, 1994, respectively.
(3) Includes a special cash distribution of $0.145 per common share relating to
the Company's exchange offer completed in June 1996 (see Note 8 -- "Equity
Offerings and Other Transactions" of the Notes to Consolidated Financial
Statements).
(4) Includes factory outlet centers operated under joint venture partnerships
with unrelated third parties as follows:
<TABLE>
<CAPTION>
Prime Retail
Prime Retail, Inc. Properties (Combined)
-------------------------------------------------- --------------------------
December 31 March 21 December 31
--------------------------------------------------------------------------------
1997 1996 1995 1994 1994 1993
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate GLA............................ 595 800 901 599 121 121
Number of factory outlet centers......... 3 4 4 3 1 1
===============================================================================================================================
</TABLE>
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except share, unit, and per square foot information)
Introduction
The following discussion and analysis of the consolidated financial
condition and results of operations of Prime Retail, Inc. (the "Company") should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Annual Report on Form 10-K. The Company's
operations are conducted through Prime Retail, L.P. (the "Operating
Partnership"). The Company controls the Operating Partnership as its sole
general partner and is dependent upon the distributions or other payments from
the Operating Partnership to meet its financial obligationS. Historical results
and percentage relationships set forth herein are not necessarily indicative of
future operations.
Cautionary Statements
The following discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which reflect management's current views with respect to future events and
financial performance. Such forward-looking statements are subject to certain
risks and uncertainties; including, but not limited to, the effects of future
events on the Company's financial performance; the risk that the Company may be
unable to finance its planned acquisition and development activities; risks
related to the retail industry in which the Company's outlet centers compete,
including the potential adverse impact of external factors such as inflation,
consumer confidence, unemployment rates and consumer tastes and preferences;
risks associated with the Company's property acquisition activities, such as the
lack of predictability with respect to financial returns; risks associated with
the Company's property development activities, such as the potential for cost
overruns, delays and lack of predictability with respect to the financial
returns associated with these development activities; the risk of potential
increase in market interest rates from current rates; and risks associated with
real estate ownership, such as the potential adverse impact of changes in the
local economic climate on the revenues and the value of the Company's
properties.
Portfolio Growth
The Company has grown by developing and acquiring factory outlet centers
and expanding its existing factory outlet centers. The Company's factory outlet
portfolio consisted of 28 operating factory outlet centers totaling 7,217,000
square feet of gross leasable area ("GLA") at December 31, 1997, compared to 21
factory outlet centers totaling 5,780,000 square feet of GLA at December 31,
1996 and 17 factory outlet centers totaling 4,331,000 square feet of GLA at
December 31, 1995.
During 1997, the Company purchased seven factory outlet centers
totaling 1,221,000 square feet of GLA and opened expansions to existing factory
outlet centers totaling 224,000 square feet of GLA. Additionally, the Company
acquired its joint venture partner's 25% ownership interest in Buckeye Factory
Shops Limited Partnership ("Buckeye") on September 2, 1997 and now owns 100% of
this factory outlet center with 205,000 square feet of GLA. During 1996, the
Company opened two new factory outlet centers and nine expansions, and acquired
two factory outlet centers from an unrelated third party, adding 1,449,000
square feet of GLA in the aggregate. Additionally, the Company purchased its
joint venture partner's first mortgage and 50% partnership interest in Grove
City Factory Shops Partnership on November 1, 1996 and owns 100% of this factory
outlet center with 533,000 square feet of GLA. The significant increases in the
number of the Company's operating properties and total GLA during 1996 and 1997
are collectively referred to as the "Portfolio Expansion."
<PAGE>
<TABLE>
Results of Operations
Table 1--Consolidated Statements of Operations
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Base rents......................................................................... $ 78,046 $ 54,710 $ 46,368
Percentage rents................................................................... 3,277 1,987 1,520
Tenant reimbursements.............................................................. 37,519 25,254 22,283
Income from investment partnerships................................................ 103 1,239 1,729
Interest and other................................................................. 10,185 5,850 5,498
--------- --------- ---------
Total revenues................................................................ 129,130 89,040 77,398
Expenses
Property operating................................................................. 29,492 20,421 17,389
Real estate taxes.................................................................. 9,417 5,288 4,977
Depreciation and amortization...................................................... 26,715 19,256 15,438
Corporate general and administrative............................................... 5,603 4,018 3,878
Interest........................................................................... 36,122 24,485 20,821
Other charges...................................................................... 3,234 8,586 2,089
--------- --------- ---------
Total expenses................................................................ 110,583 82,054 64,592
--------- --------- ---------
Income before minority interests and extraordinary item........................... 18,547 6,986 12,806
(Income) loss allocated to minority interests..................................... (10,581) 2,092 5,364
--------- --------- ---------
Income before extraordinary item.................................................. 7,966 9,078 18,170
Extraordinary item - loss on early extinguishment of debt,
net of minority interests in the amount of $0 in 1997 and $3,263 in 1996....... (2,061) (1,017) --
--------- --------- ---------
Net income........................................................................ 5,905 8,061 18,170
Income allocated to preferred shareholders........................................ 12,726 14,236 20,944
--------- --------- ---------
Net loss applicable to common shares.............................................. $ (6,821) $ (6,175) $ (2,774)
========= ========= =========
Earnings per common share - basic and diluted (1):
Loss before extraordinary item................................................. $ (0.25) $ (0.63) $ (0.96)
Extraordinary item............................................................. (0.11) (0.12) --
--------- --------- ---------
Net loss....................................................................... $ (0.36) $ (0.75) $ (0.96)
========= ========= =========
Weighted average common shares outstanding........................................ 19,189,000 8,221,000 2,875,000
========== ======== =========
=================================================================================================================================
</TABLE>
Note:
(1) On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" (see Note 2 - "Summary of
Significant Accounting Policies - - Earnings per Share" of the Notes to
Consolidated Financial Statements). The adoption of SFAS No. 128 had no
impact on the Company's earnings per share computations for all periods
presented and, therefore, no restatement of prior period computations was
required.
<PAGE>
<TABLE>
Table 2--Statements of Operations on a Weighted Average per Square Foot Basis
A summary of the operating results for the years ended December 31,
1997, 1996 and 1995 is presented in the following table, expressed in amounts
calculated on a weighted average occupied GLA basis.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLA at end of period (1)........................................................... 7,326 5,684 4,134
Weighted average occupied GLA (1).................................................. 5,735 4,075 3,458
Executed leases at end of period (GLA) (1)......................................... 6,854 5,252 3,950
Factory outlet centers in operation at end of period (2)........................... 28 21 17
New factory outlet centers opened (2).............................................. -- 2 3
Factory outlet centers expanded (2)................................................ 4 9 4
Factory outlet centers acquired.................................................... 7 2 --
Community centers in operation at end of period.................................... 3 3 3
States operated in at end of period................................................ 20 16 14
Portfolio weighted average per square foot (2):
Revenues
Base rents......................................................................... $13.61 $13.43 $13.41
Percentage rents................................................................... 0.57 0.49 0.44
Tenant reimbursements.............................................................. 6.54 6.20 6.44
Interest and other................................................................. 1.79 1.74 2.09
------ ------ ------
Total revenues..................................................................... 22.51 21.86 22.38
Expenses
Property operating................................................................. 5.14 5.01 5.03
Real estate taxes.................................................................. 1.64 1.30 1.44
Depreciation and amortization...................................................... 4.66 4.73 4.46
Corporate general and administrative............................................... 0.98 0.99 1.12
Interest........................................................................... 6.30 6.01 6.02
Other charges...................................................................... 0.56 2.11(4) 0.60
------ ------ ------
Total expenses..................................................................... 19.28 20.15 18.67
------ ------ ------
Income before minority interests and extraordinary item............................ $ 3.23 $ 1.71 $ 3.71
====== ====== ======
Factory outlet center weighted average per square foot (3):
Revenues
Base rents......................................................................... $14.19 $ 14.18 $14.36
Percentage rents................................................................... 0.63 0.55 0.51
Tenant reimbursements.............................................................. 6.96 6.75 7.16
Interest and other................................................................. 1.75 0.82 0.66
------ ------ ------
Total revenues..................................................................... 23.53 22.30 22.69
Expenses
Property operating................................................................. 5.40 5.45 5.54
Real estate taxes.................................................................. 1.67 1.29 1.46
Depreciation and amortization...................................................... 4.67 4.87 4.38
Interest........................................................................... 6.31 6.82 6.81
Other charges...................................................................... 0.43 0.81(5) 0.23
------ ------ ------
Total expenses..................................................................... 18.48 19.24 18.42
------ ------ ------
Income before minority interests, corporate general and administrative expenses,
and extraordinary item........................................................... $ 5.05 $ 3.06 $ 4.27
====== ====== ======
====================================================================================================================================
</TABLE>
Notes:
(1) Includes total GLA in which the Company receives substantially all of the
economic benefit.
(2) Includes factory outlet centers operated under unconsolidated joint venture
partnerships with unrelated third parties.
(3) Based on occupied GLA weighted by months of operation.
(4) Includes certain nonrecurring charges of $6,131, or $1.51 per square foot,
relating to the prepayment of long-term debt recorded during 1996.
(5) Includes certain nonrecurring charges of $1,806, or $0.51 per square foot,
relating to the prepayment of long-term debt recorded during 1996.
<PAGE>
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
For the year ended December 31, 1997, the Company reported net income of
$5,905. During the third quarter of 1997, the Company recorded an extraordinary
loss of $2,061 related to the pre-payment of certain long-term debt. For the
year ended December 31, 1997, the net loss applicable to common shareholders was
$6,821, or $0.36 per common share on a basic and diluted basis. For the year
ended December 31, 1996, the Company reported net income of $8,061. These
results included a nonrecurring charge and an extraordinary loss of $6,131 and
$1,017 (net of minority interests of $3,263), respectively, related to the
pre-payment of certain long-term debt. For the year ended December 31, 1996, the
net loss applicable to common shareholders was $6,175, or $0.75 per common share
on a basic and diluted basis.
Total revenues were $129,130 for the year ended December 31, 1997,
compared to $89,040 for the year ended December 31, 1996, an increase of
$40,090, or 45%. Base rents increased $23,336, or 42.7%, in 1997 compared to
1996. These increases are primarily due to the Portfolio Expansion, including
the effect of the acquisition of seven factory outlet centers from unrelated
third parties and the Company's purchase of its joint venture partner's 25%
partnership interest in a factory outlet center on September 2, 1997.
Straight-line rents (included in base rents) were $643 and $600 for the years
ended December 31, 1997 and 1996, respectively. The average base rent per square
foot for new factory outlet leases negotiated and executed by the Company was
$15.52 and $15.36 for the years ended December 31, 1997 and 1996, respectively.
Percentage rents, which represent rents based on a percentage of sales
volume above a specified threshold, increased $1,290, or 64.9%, during the year
ended December 31, 1997 compared to the same period in 1996. This increase was
attributable to higher reported merchant sales in 1997 and the Portfolio
Expansion.
As summarized in TABLE 3, merchant sales reported to the Company
increased by $389.9 million, or 37.3%, to $1,434.2 million from $1,044.3 million
for the years ended December 31, 1997 and 1996, respectively. The increase in
total reported merchant sales is primarily due to the Portfolio Expansion,
including the effect of the acquisition of certain properties in 1997. The
weighted average reported merchant sales per square foot increased by 3.1% to
$236.20 per square foot in 1997 from $229.08 per square foot in 1996. Total
merchant occupancy cost per square foot increased slightly from $21.12 in 1996
to $21.36 in 1997 but decreased as a percentage of reported sales from 8.64% to
8.39%, respectively. The decrease in the cost of merchant occupancy to reported
sales is primarily due to an increase in the weighted average reported merchant
sales per square foot for the Company's entire factory outlet portfolio.
<TABLE>
Table 3--Summary of Reported Merchant Sales(1) A summary of reported factory
outlet merchant sales and related data for 1997, 1996 and 1995 follows:
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total reported merchant sales (in millions)(1)................................................. $1,434.2 $1,044.3 $ 809.6
======== ======== =======
Weighted average reported merchant sales per square foot(2):
All store sales............................................................................ $ 236.20 $ 229.08 $235.99
======== ======== =======
Same-space sales........................................................................... $ 231.89 $ 232.45
======== ========
Total merchant occupancy cost per square foot(3)............................................... $ 21.36 $ 21.12 $ 21.64
======== ======== =======
Cost of merchant occupancy to reported sales(4)............................................... 9.04% 9.22% 9.17%
======== ======== =======
Cost of merchant occupancy (excluding marketing contributions) to reported sales(5)........... 8.39% 8.64% 8.48%
======== ======== =======
===================================================================================================================================
</TABLE>
Notes:
(1) Total reported merchant sales summarizes gross sales generated by merchants
and includes changes in merchant mix and the effect of new space created
from the acquisition and opening of new and expanded factory outlet
centers. Several of the Company's factory outlet centers were constructed,
expanded or acquired during the time periods contained in TABLE 3 and
therefore, reported sales for such new openings, expansions and
acquisitions were reported only for the partial period and were not
annualized. TABLE 3 should be read in conjunction with the information
summarized under the caption "Properties--Portfolio of Properties".
(2) Weighted average reported sales per square foot is based on reported sales
divided by the weighted average square footage occupied by the merchants
reporting those sales. Same-space sales is defined as the weighted average
reported merchant sales per square foot for space open since January 1,
1996.
(3) Total merchant occupancy cost per square foot includes base rents,
percentage rents and tenant reimbursements which includes tenant marketing
contributions.
(4) Computed as follows: total merchant occupancy cost per square foot divided
by total weighted average reported merchant sales per square foot.
(5) Computed as follows: total merchant occupancy cost per square foot
(excluding marketing contributions paid by merchants) divided by total
weighted average reported merchant sales per square foot.
<PAGE>
Tenant reimbursements, which represent the contractual recovery from
tenants of certain operating expenses, increased by $12,265, or 48.6%, in 1997
over 1996. These increases are primarily due to the Portfolio Expansion,
including the effect of the acquisition of seven factory outlet centers from
unrelated third parties and the Company's purchase of its joint venture
partner's 25% partnership interest in a factory outlet center on September 2,
1997.
As shown in TABLE 4, tenant reimbursements as a percentage of
recoverable property operating expenses and real estate taxes was 96.4% in 1997
compared to 98.2% in 1996. These levels reflect the Company's continued efforts
to contain operating expenses at its properties while requiring merchants to pay
their pro rata share of these expenses. TABLE 4 sets forth recoveries from
merchants as a percentage of total recoverable expenses for 1997, 1996 and 1995:
<TABLE>
Table 4--Tenant Recoveries as a Percentage of Total Recoverable Expenses
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Expenses
Year Recovered from Tenants(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1997................................................................................................ 96.4%
1996................................................................................................ 98.2%
1995................................................................................................ 99.6%
====================================================================================================================================
</TABLE>
Note:
(1) Total recoverable expenses include property operating expenses and real
estate taxes.
Income from investment partnerships decreased by $1,136, or 91.7%, to
$103 for the year ended December 31, 1997 compared to $1,239 for the year ended
December 31, 1996. This decrease reflects the Company's purchases of (i) its
joint venture partner's first mortgage and 50% partnership interest in Grove
City Factory Shops Partnership on November 1, 1996 and (ii) its joint venture
partner's first mortgage and 25% partnership interest in Buckeye Factory Shops
Partnership on September 2, 1997. As a result of these acquisitions, the Company
owns 100% of both Grove City Factory Shops and Buckeye Factory Shops. Prior to
the acquisition dates, the operating results of these factory outlet centers
were accounted for by the Company under the equity method of accounting.
Commencing with their respective acquisition dates, the operating results of
these factory outlet centers were included in the consolidated results of the
Company.
Interest and other income increased by $4,335, or 74.1%, to $10,185
during the year ended December 31, 1997 as compared to $5,850 for the year ended
December 31, 1996. The increase reflects higher (i) interest income of $2,954,
(ii) gains on sales of land of $988, (iii) municipal assistance income of $903,
(iv) push cart income of $304, (v) temporary tenant income of $218, (vi) lease
termination income of $213, and (vii) all other ancillary income of $63.
Partially offsetting these increases were reduced property development and
construction management fees and leasing commissions of $1,308. The increase in
interest income was primarily due to interest earnings on the Company's
expansion loan escrow account included in restricted cash.
Property operating expense increased by $9,071, or 44.4%, to $29,492 in
1997 compared to $20,421 in 1996. Real estate taxes expense increased by $4,129,
or 78.1%, to $9,417 in 1997 from $5,288 in 1996. Depreciation and amortization
expense increased by $7,459, or 38.7%, to $26,715 in 1997, compared to $19,256
in 1996. The increases in property operating, real estate taxes, and
depreciation and amortization expense are primarily due to the Portfolio
Expansion, including the acquisition of seven factory outlet centers from an
unrelated third parties and the Company's purchase of its joint venture
partner's partnership interest in two factory outlet centers.
<TABLE>
Table 5--Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense for 1997, 1996
and 1995 are summarized as follows:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Building and improvements................................................................. $13,987 $ 9,471 $ 8,159
Land improvements......................................................................... 2,838 2,161 1,440
Tenant improvements....................................................................... 7,372 5,165 3,563
Furniture and fixtures.................................................................... 858 671 554
Leasing commissions(1).................................................................... 1,660 1,788 1,722
------- ------- -------
Total............................................................................... $26,715 $19,256 $15,438
======= ======= =======
===================================================================================================================================
</TABLE>
Note:
(1) In accordance with generally accepted accounting principles ("GAAP"),
leasing commissions are classified as intangible assets. Therefore, the
amortization of leasing commissions is reported as a component of
depreciation and amortization expense.
<PAGE>
As shown in TABLE 6, interest expense increased by $11,637, or 47.5%, to
$36,122 in 1997 compared to $24,485 in 1996. This increase reflects higher
interest incurred of $12,241, a reduction in interest earned on interest rate
protection contracts of $86, an increase in amortization of deferred financing
costs of $11, and an increase in amortization of interest rate protection
contracts of $7. Partially offsetting these items was an increase in the amount
of interest capitalized in connection with development projects of $708.
The increase in interest incurred is primarily attributable to an
increase of $166,015 in the Company's average debt outstanding during 1997
compared to 1996. The increase in interest incurred also reflects a slightly
higher weighted average interest rate for the year ended December 31, 1997
compared to the same period in 1996. The weighted average interest rates were
7.36% and 7.22% for 1997 and 1996, respectively.
<TABLE>
Table 6--Components of Interest Expense
The components of interest expense for 1997, 1996 and 1995 are
summarized as follows:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest incurred...................................................................... $36,551 $24,310 $19,354
Interest capitalized................................................................... (4,056) (3,348) (2,336)
Interest earned on interest rate protection contracts.................................. (115) (201) (721)
Amortization of deferred financing costs............................................... 2,352 2,341 3,248
Amortization of interest rate protection contracts..................................... 1,390 1,383 1,276
------- ------- -------
Total............................................................................ $36,122 $24,485 $20,821
======= ======= =======
==================================================================================================================================
</TABLE>
Other charges decreased by $5,352 to $3,234 in 1997 compared to $8,586
for 1996. The 1996 amount reflects a nonrecurring loss of $6,131 related to the
prepayment of certain long-term debt. Excluding this nonrecurring loss, other
charges increased by $779, or 31.2%, in 1997. This increase reflects higher
marketing costs of $272, an increase in the provision for uncollectible accounts
receivable of $260, a higher provision for potentially unsuccessful
pre-development efforts of $150, and an increase in other miscellaneous charges
of $97.
<TABLE>
Table 7--Capital Expenditures
The components of capital expenditures for 1997, 1996 and 1995 are
summarized as follows:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New developments.................................................................. $ 34,175 $ 33,787 $59,222
Property acquisitions, net......................................................... 191,345(1) 131,593(2) --
Expansions and renovations......................................................... 37,941 20,428 19,237
Re-leasing tenant allowances....................................................... 561 473 616
-------- --------- -------
Total............................................................................ $264,022 $ 186,281 $79,075
======== ========= =======
=================================================================================================================================
</TABLE>
Notes:
(1) Includes the net assets acquired by the Company during 1997 consisting of
(i) the purchase of seven factory outlet centers ($166,987) and (ii) the
purchase of the Company's joint venture partner's partnership interest in
Buckeye Factory Shops ($24,358).
(2) Includes the net assets acquired by the Company during 1996 consisting of
(i) the purchase of two factory outlet centers ($71,770) and (ii) the
purchase of the Company's joint venture partner's partnership interest in
Grove City Factory Shops ($57,094).
<PAGE>
<TABLE>
<CAPTION>
Table 8--Consolidated Quarterly Summary of Operations
-----------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------- --------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues...................... $36,206 $31,549 $31,213 $30,162 $25,928 $21,831 $20,150 $21,131
Total expenses...................... 28,826 27,458 27,630 26,669 22,224 17,656 24,100 18,074
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interests and extraordinary item. 7,380 4,091 3,583 3,493 3,704 4,175 (3,950) 3,057
(Income) loss allocated to
minority interests............... (2,778) (2,540) (2,672) (2,591) (2,568) (1,810) 4,993 1,477
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary item.... 4,602 1,551 911 902 1,136 2,365 1,043 4,534
Extraordinary item--loss on early
extinguishment of debt, net of
minority interests in the amount
of $0 in 1997 and $3,263 in 1996. -- (2,061) -- -- -- -- (1,017) --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)................... 4,602 (510) 911 902 1,136 2,365 26 4,534
Income allocated to preferred
shareholders..................... 3,446 3,094 3,093 3,093 3,000 3,000 3,000 5,236
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to
common shares.................... $ 1,156 $(3,604) $(2,182) $(2,191) $(1,864) $ (635) $(2,974) $ (702)
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share
basic and diluted (1):
Income (loss) before
extraordinary item............ $ 0.04 $ (0.08) $ (0.14) $ (0.15) $ (0.14) $ (0.05) $ (0.62) $ (0.24)
Extraordinary item............. -- (0.11) -- -- -- -- (0.32) --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 0.04 $ (0.19) $ (0.14) $ (015) $ (0.14) $ (0.05) $ (0.94) $ (0.24)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding...................... 27,295 19,159 15,795 14,344 13,405 13,322 3,171 2,875
======= ======= ======= ======= ======= ======= ======= =======
Distributions paid per common share.. $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.440(2) $ 0.295 $ 0.295
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
</TABLE>
Notes:
(1) On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" (see Note 2 - "Summary of
Significant Accounting Policies - - Earnings per Share" of the Notes to
Consolidated Financial Statements). The adoption of SFAS No. 128 had no
impact on the Company's earnings per share computations for all periods
presented and, therefore, no restatement of prior period computations was
required.
(2) Includes a special cash distribution of $0.145 per common share relating to
the Company's exchange offer completed in June 1996 (see Note 8 -- "Equity
Offerings and Other Transactions" of the Notes to Consolidated Financial
Statements).
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
For the year ended December 31, 1996, the Company reported net income of
$8,061 on total revenues of $89,040. These results include a nonrecurring charge
and an extraordinary loss of $6,131 and $1,017 (net of minority interests of
$3,263), respectively, related to a binding loan commitment that the Company
obtained on June 5, 1996 resulting in the pre-payment of certain long-term debt.
For the year ended December 31, 1996, the net loss applicable to common
shareholders was $6,175, or $0.75 per common share on a basic and diluted basis.
For the year ended December 31, 1995, the Company reported net income of $18,170
on total revenues of $77,398. For the year ended December 31, 1995, the net loss
applicable to common shareholders was $2,774, or $0.96 per common share on a
basic and diluted basis.
<PAGE>
Total revenues were $89,040 for the year ended December 31, 1996, as
compared to $77,398 for the year ended December 31, 1995, an increase of
$11,642, or 15.0%. Base rents increased $8,342, or 18.0%, in 1996 compared to
1995. These increases were primarily due to the Portfolio Expansion, including
the effect of the acquisition of two factory outlet centers from an unrelated
third party on November 1, 1996 and the Company's purchase of its joint venture
partner's 50% partnership interest in a factory outlet center on November 1,
1996. Straight-line rents (included in base rents) were $600 and $931 for the
years ended December 31, 1996 and 1995, respectively. The average base rent per
square foot for new factory outlet leases negotiated and executed by the Company
was $15.36 and $14.90 for the years ended December 31, 1996 and 1995,
respectively.
As summarized in TABLE 3, merchant sales reported to the Company
increased by $234.7 million, or 29.0%, to $1,044.3 million from $809.6 million
for the years ended December 31, 1996 and 1995, respectively. The increase in
total reported merchant sales was primarily due to the Portfolio Expansion,
including the effect of the acquisition of certain properties in 1996. However,
the weighted average reported merchant sales per square foot decreased by 2.9%
to $229.08 per square foot from $235.99 per square foot for the years ended
December 31, 1996 and 1995, respectively. The Company's factory outlet centers
(including centers operated under partnerships with unrelated third parties)
contained an average of 275,238 and 254,765 square feet of GLA at December 31,
1996 and 1995, respectively. The increase in the cost of merchant occupancy to
reported sales was primarily due to a decrease in the weighted average reported
merchant sales per square foot for the Company's entire factory outlet
portfolio.
Tenant reimbursements, which represent the contractual recovery from
tenants of certain operating expenses, increased by $2,971, or 13.3%, in 1996
over 1995. This increase was primarily due to the Portfolio Expansion, including
the effect of the acquisition of two factory outlet centers from an unrelated
third party and the Company's purchase of its joint venture partner's first
mortgage and 50% partnership interest in a factory outlet center on November 1,
1996.
As shown in TABLE 4, tenant reimbursements as a percentage of
recoverable operating expenses were 98.2% in 1996 compared to 99.6% in 1995.
These levels reflect the Company's continued efforts to contain operating
expenses at its properties while requiring merchants to pay their pro rata share
of these expenses. TABLE 4 highlights the trend of recoveries from merchants as
a percentage of total recoverable expenses.
Income from investment partnerships decreased by $490, or 28.3%, to
$1,239 for the year ended December 31, 1996 compared to $1,729 for the year
ended December 31, 1995. This decrease reflected the Company's purchase of its
joint venture partner's first mortgage and 50% partnership interest in Grove
City Factory Shops Partnership on November 1, 1996. As a result of its
acquisition, the Company owns 100% of this factory outlet center and, therefore,
commencing November 1, 1996, its operations were included in the consolidated
results of the Company. Prior to November 1, 1996, the Company accounted for its
interest under the equity method of accounting. The decrease in income from
investment partnerships in 1996 compared to 1995 was offset, in part, by the
openings of Arizona Factory Shops (Phase II-September 1996) and Buckeye Factory
Shops (Phase I-November 1996).
Interest and other income increased by $352, or 6.4%, to $5,850 during
the year ended December 31, 1996 as compared to the year ended December 31,
1995. The increase reflected higher temporary and customer service income, lease
termination income, and property management fees of $736, $620, and $149,
respectively, partially offset by lower leasing commissions, real estate
brokerage commissions, ancillary income, interest income, municipal assistance
income, and construction and development management fees of $364, $278, $139,
$115, $104 and $47, respectively. Also offsetting this increase was a $106 gain
on the sale of land during the year ended December 31, 1995.
Property operating expense increased by $3,032, or 17.4%, to $20,421 in
1996 compared to $17,389 in 1995. Real estate taxes expense increased by $311,
or 6.2%, to $5,288 in 1996 from $4,977 in 1995. Depreciation and amortization
expense increased by $3,818, or 24.7%, to $19,256 in 1996, compared to $15,438
in 1995. The increases in property operating expense and real estate taxes
expense, and depreciation and amortization expense were primarily due to the
Portfolio Expansion, including the acquisition of two factory outlet centers
from an unrelated third party and the Company's purchase of its joint venture
partner's 50% partnership interest in a factory outlet center on November 1,
1996.
As shown in TABLE 6, interest expense increased by $3,664, or 17.6%, to
$24,485 in 1996 compared to $20,821 in 1995. This increase reflected higher
interest incurred of $4,956, an increase in amortization of interest rate
protection contracts of $107 and a reduction in interest earned on interest rate
protection contracts of $520, partially offset by a decrease in amortization of
deferred financing costs of $907 and an increase in the amount of interest
capitalized in connection with development projects of $1,012.
The increase in interest incurred was primarily attributable to an
increase of approximately $86,256 in the Company's average debt outstanding
during 1996 compared to 1995. Additionally, the increase in interest incurred
was offset by a decrease of 0.59% in the weighted average interest rate for the
year ended December 31, 1996 compared to the same period in 1995. The weighted
average interest rates were 7.22% and 7.81% for 1996 and 1995, respectively.
<PAGE>
The decrease in amortization of deferred financing costs was primarily
attributable to reduced amortization expense related to certain deferred
financing costs which were written-off in 1996. These costs were part of the
$10,411 nonrecurring loss recorded in the second quarter of 1996 related to a
binding loan commitment that the Company obtained on June 5, 1996 in connection
with the Company's refinancing approximately $253,000 of debt.
Other charges increased by $6,497 to $8,586 in 1996 compared to $2,089
for 1995. This increase was primarily due to the nonrecurring loss of $6,131
described above. Excluding this nonrecurring charge, other charges increased by
$366, or 17.5%, to $2,455 in 1996 reflecting a higher provision for
uncollectible accounts receivable of $364, an increase in ground lease expense
of $228, offset by a lower provision for potentially unsuccessful
pre-development efforts of $204 and a decline in miscellaneous other charges of
$22.
Liquidity and Capital Resources
Sources and Uses of Cash
For the year ended December 31, 1997, net cash provided by operating
activities was $49,856, net cash used in investing activities was $229,956, and
net cash provided by financing activities was $182,549.
The primary uses of cash for investing activities during 1997 included (i)
costs associated with the acquisition of seven factory outlet centers and the
purchase of an unrelated joint venture partner's 25% equity interest in a
factory outlet center, (ii) costs associated with development and construction
of expansions to existing factory outlet centers aggregating 224,000 square feet
of GLA which opened during 1997, (iii) costs associated with the completion of
factory outlet centers and expansions to existing factory outlet centers
aggregating 930,000 square feet of GLA which opened during 1996, and (iv) costs
for pre-development activities associated with future developments.
The sources of cash from financing activities during 1997 included: (i) net
proceeds from public and private equity offerings totaling $242,729 and (ii)
proceeds from new borrowings of $160,057. Such proceeds were partially offset by
(i) principal repayments on notes payable of $175,683, (ii) preferred and common
stock distributions of $33,605, and (iii) distributions to minority interests
(including distributions to limited partners of the Operating Partnership) of
$10,366.
Sources and Uses of Cash -- Equity Offerings
On January 10, 1997, the Company filed a Form S-3 Registration Statement
(the "January 1997 Shelf Registration") with the Securities and Exchange
Commission (the "SEC") to register $100,000 of the Company's equity securities.
On February 20, 1997, the Company completed a public offering by issuing
2,080,000 shares of its Common Stock at $12.50 per share and 175,800 shares of
its Series B Cumulative Participating Convertible Preferred Stock (the "Series
B Convertible Preferred Stock") at $22.75 per share. In addition, on March 10,
1997, the underwriter of the public offering exercised its overallotment
option to purchase 310,300 shares of the Company's Common Stock at $12.50 per
share. As a result of the public offering and the exercise of the overallotment
option, the Company received net proceeds of $31,754 that were used to (i)
repay certain outstanding indebtedness aggregating $26,500, (ii) fund
development and construction activities, and (iii) fund general corporate
expenditures.
On June 17, 1997, the Company filed a Form S-3 Registration Statement
(the "June 1997 Shelf Registration") with the SEC to register $300,000 of the
Company's equity securities, including $66,122 of the Company's equity
securities that remained available under the January 1997 Shelf Registration.
On August 8, 1997, the Company entered into a purchase agreement with an
institutional investor providing for the issuance of a new series of cumulative
convertible non-voting preferred securities (the "Series C Preferred
Securities") at $13.75 per unit, or an aggregate of $60,000 in cash (the
"Private Placement"). The Series C Preferred Securities pay dividends equivalent
to the amount being paid on the Company's Common Stock, with an annual minimum
equal to $1.18 per security. In addition, the Company, subject to certain
conditions, has agreed to waive the ownership limitations otherwise applicable
to the Common Stock to permit the investor to own, at any one time, the shares
of Common Stock issuable upon conversion of the Series C Preferred Securities.
The Company has the right to call the Series C Preferred Securities, at par,
after ten years. Subject to certain conditions, the Series C Preferred
Securities may be issued in the form of shares of preferred stock in the Company
or preferred units of partnership interest in Prime Retail, L.P. (the "Operating
Partnership") that are exchangeable for shares of preferred stock or Common
Stock on a one-to-one basis. The Series C Preferred Securities may be
converted into shares of Common stock on a one-to-one basis commencing
August 8, 1998 (or earlier subject to certain conditions). See Note 8 - "Equity
Offerings and Other Transactions" of the Notes to the Consolidated Financial
Statements for additional information.
<PAGE>
In September 1997, the Company completed a public offering of 11,500,000
shares (including 1,500,000 shares related to exercise of underwriters'
overallotment option) of its Common Stock at $14.00 per share (the "September
1997 Offering"). In addition, on September 8, 1997, the Company issued 727,273
Series C Preferred Securities at $13.75 per unit pursuant to the initial sale
under the Private Placement. As a result of the September 1997 Offering and the
initial sale under the Private Placement (collectively, the "September Capital
Transactions"), the Company received net proceeds of $161,930 after commissions
and underwriting discounts. A portion of the net proceeds from the September
Capital Transactions were used (i) to repay certain outstanding corporate
indebtedness aggregating $113,410 and (ii) to acquire the 25% ownership interest
of the Company's joint venture partner in Buckeye for $23,148 (including $22,642
of mortgage indebtedness relating to such property). The remaining net proceeds
from the September Capital Transactions of $26,192 were used (i) to fund
development and construction activities, (ii) to fund property acquisitions, and
(iii) for general corporate purposes.
As a result of the September Offering, as of December 31, 1997, the
Company had $139,000 of availability under the June 1997 Shelf Registration.
From time to time, the Company will consider issuing additional equity
securities under the June 1997 Shelf Registration for the development or
acquisition of additional properties, the expansion and improvement of existing
properties, repayment of indebtedness, and for general corporate purposes.
On December 2, 1997 the Company issued 3,636,363 shares of its Series C
Preferred Securities at $13.75 per share pursuant to the final sale under
the Private Placement. As a result of this issuance, the Company received
net proceeds of $49,045 that were used in the acquisition of Niagara
International Factory Outlets and Shasta Factory Stores.
Sources and Uses of Cash -- Property Acquisitions
On February 13, 1997, the Company, acquired Oak Creek Factory Stores,
Bend Factory Outlets and Factory Outlets at Post Falls from an unrelated third
party for an aggregate purchase price of $37,250. The Company financed the
purchase with loan proceeds from a financial institution and a $4,000 promissory
note issued to the seller. The operating results of the Company for 1997 include
the results of these acquisitions effective with the closing on February 13,
1997.
Oak Creek Factory Outlets is located in Sedona, Arizona, which is north
of Phoenix and south of the Grand Canyon. Oak Creek Factory Outlets contains
approximately 82,000 square feet of GLA and was 100% executed at December 31,
1997. Bend Factory Outlets is located in Bend, Oregon, which is east of Eugene,
Oregon and southeast of Portland. Bend Factory Outlets contains approximately
97,000 square feet of GLA and was 86% executed at December 31, 1997. Factory
Outlets at Post Falls is located in Post Falls, Idaho, which is 30 miles east of
Spokane, Washington. Factory Outlets at Post Falls contains approximately
179,000 square feet of GLA and was 84% executed at December 31, 1997.
On September 2, 1997, the Company acquired the 25% ownership interest in
Buckeye from its joint venture partner, SBRC, for $23,148 (including $22,642 of
mortgage indebtedness relating to such property), thereby increasing its
ownership percentage in such property to 100%. Prior to September 2, 1997, the
Company accounted for its 75% investment in Buckeye using the equity method of
accounting. Commencing September 2, 1997, the operating results of Buckeye are
consolidated. The Company financed the acquisition with proceeds from the
September Offering.
On October 29, 1997, the Company acquired Tidewater Outlet Mall,
Manufacturer's Outlet Mall, Kittery Outlet Village (collectively "Prime Retail
Outlets of Kittery"), and Latham Factory Outlet Center (the "Latham Property")
from an unrelated third party for an aggregate purchase price of $26,000. The
Company financed the purchase primarily with the proceeds from the September
Offering.
Prime Retail Outlets of Kittery are located in Kittery, Maine and serve
the Boston, Massachusetts and Portland, Maine markets. Prime Retail Outlets of
Kittery contain approximately 121,000 square feet of GLA, and were 100% executed
as of December 31, 1997. The Latham Property is located in Latham, New York,
north of Albany, New York and south of Saratoga Springs, New York. The Latham
Property contains approximately 43,000 square feet of GLA and was 100% executed
as of December 31, 1997.
On December 2, 1997, the Company acquired Niagara International Factory
Outlets ("Niagara") and Shasta Factory Stores ("Shasta") from an unrelated third
party for an aggregate purchase price of $100,975, including the assumption of
mortgage indebtedness of $31,368. The Company financed the purchase with
proceeds from the September Offering and the Private Placement.
<PAGE>
Niagara is located in Niagara Falls, New York and serves Buffalo, New
York; Ontario, Canada; and tourist markets. Niagara contains approximately
534,000 square feet of GLA and was 88% executed as of December 31, 1997. Shasta
is located six miles west of Redding, California and serves the Northern
California tourist market. Shasta contains approximately 165,000 square feet of
GLA and was 91% executed as of December 31, 1997.
During 1998, the Company will explore acquisitions of factory outlet
centers in the United States and in Europe as well as consider possible
strategic acquisitions of other assets in the retail sector. The Company has
evaluated and is evaluating such opportunities and prospects and will continue
to do so throughout 1998. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.
Merger Agreement
On November 12, 1997 and as amended on February 1, 1998, the Company
entered into a definitive merger agreement (as amended, the "Merger Agreement")
with Horizon Group, Inc. ("Horizon") for an aggregate consideration of
approximately $945,200, including the assumption of $556,900 of Horizon debt and
estimated transaction costs. Upon completion of the transaction, the Company
will own and operate 48 outlet centers totaling approximately 13,406,261 square
feet of GLA, including the purchase of Horizon's joint venture partner's
50% ownership interest in Finger Lakes Outlet Center for $46,100 (the
"Finger Lakes Acquisition").
Under the terms of the Merger Agreement, the Company will pay a fixed
exchange ratio of 0.20 of a share of Series B Convertible Preferred Stock and
0.597 of a share of Common Stock for each share of common stock of Horizon. In
addition, each common unit in Horizon Partnership will entitle the holder to
receive 0.9193 of a Common Unit of the Operating Partnership that will be
exchangeable for a like number of shares of Common Stock of the Company.
Immediately prior to the merger, Horizon Group Properties, Inc. ("HGP"),
a subsidiary of Horizon, will become the sole general partner of Horizon/Glen
Outlet Center Limited Partnership ("Horizon Partnership") and the common stock
of HGP will be distributed to the shareholders of both the Company and Horizon.
All of the common equity of HGP will be distributed to the convertible preferred
and common shareholders and unitholders of the Company and the shareholders and
limited partners of Horizon based on their ownership in the Company immediately
following the merger. It is presently expected that following the merger one
share of common stock of HGP will be distributed for every 10 shares of Common
Stock or Common Units of the Company, and that approximately 1.196 shares of
common stock of HGP will be distributed for every 10 shares of Series B
Convertible Preferred Stock held in the Company. Immediately prior to the
closing of the merger, the Company will pay a special cash distribution of $0.60
per share of Series B Convertible Preferred Stock and $0.50 per share/unit of
Common Stock, Series C Preferred Security and Common Unit, as applicable,
totaling $21,865 (the "Special Cash Distribution"). Shareholders and limited
partners in Horizon will not participate in this distribution. HGP will own and
operate 15 outlet centers (including Indiana Factory Shops and Nebraska Crossing
Factory Stores which will be acquired from the Company) totaling 3,084,823
square feet of GLA.
The merger will be accounted for as a purchase. It is conditioned upon,
among other things, the approvals of each Company's shareholders and partners
and the satisfaction of other customary conditions. The closing is expected
during the second quarter of 1998. The exchange of shares of Horizon for shares
of the Company will be made on a tax-free basis.
The Company expects to finance the Finger Lakes Acquisition, the Special
Cash Distribution and estimated closing costs of $18,750 with proceeds from
certain contemplated loan facilities expected to close concurrent with the
closing of the merger. There can be no assurance that the Company will be
successful in obtaining the required amount of debt financing or that the terms
of such loan facilities will be as favorable as the Company has experienced in
prior periods.
Planned Development
Management believes that there is sufficient demand for continued
development of new factory outlet centers and expansions of certain existing
factory outlet centers. The Company expects to open approximately 751,000 square
feet of GLA during 1998 including two new factory outlet centers currently under
construction. At December 31, 1997, the budgeted remaining capital expenditures
for 1998 planned developments aggregated approximately $78,200, while
anticipated capital expenditures related to the completion of expansions of
existing factory outlet centers opened during 1997 (aggregating 224,000 square
feet of GLA) approximated $5,200.
Management believes that the Company has sufficient capital and capital
commitments to fund the remaining capital expenditures associated with its 1997
and 1998 development activities. These funding requirements are expected to be
met, in large
<PAGE>
part, with the proceeds from various loan facilities, including the financing of
certain unencumbered properties. If adequate financing for such development and
expansion is not available, the Company may not be able to develop new centers
or expand existing centers at currently planned levels.
The Company currently plans to open one new factory outlet center and
several expansions in 1999 that are expected to contain approximately 400,000
square feet of GLA, in the aggregate, and have a total expected development cost
of approximately $56,000. The Company expects to fund the development cost of
these projects from (i) certain line of credit facilities, (ii) joint venture
partners, (iii) retained cash flow from operations, (iv) construction loans, and
(v) the potential sale of common or preferred equity in the public or private
capital markets. As of December 31, 1997, there were no material commitments
with regard to the construction of the new factory outlet centers and expansions
scheduled to open in 1999. There can be no assurance that the Company will be
successful in obtaining the required amount of equity capital or debt financing
for the 1999 planned openings or that the terms of such capital raising
activities will be as favorable as the Company has experienced in prior periods.
Debt Transactions
On February 13, 1997, the Company closed on $30,000 of loan facilities
with Nomura Asset Capital Corporation. The transaction provided (i) a $27,000
nonrecourse first mortgage loan (the "First Mortgage Loan") and (ii) a junior
secured loan (the "Junior Secured Loan") of $3,000. The First Mortgage Loan (i)
is cross collateralized by first mortgages on three of the Company's factory
outlet centers, (ii) bears a fixed rate of interest of 8.35%, and (iii) requires
monthly principal and interest payments pursuant to a 360-month amortization
schedule. The Junior Secured Loan is a recourse loan to the Company that (i) is
secured by a pledge of excess cash flow after debt service on the First Mortgage
Loan, (ii) bears a variable interest rate at the London Interbank offered rate
for 30-day deposits in U.S. dollars ("30-day LIBOR") plus 1.95%, (iii) matures
in three years, (iv) requires monthly interest only payments through April 10,
1998 and (v) monthly principal and interest payments thereafter.
On July 11, 1997, the Company's $15,000 unsecured line of credit (the
"Corporate Line") was renewed. The purpose of the Corporate Line is to provide
working capital to facilitate the funding of short-term operating cash needs of
the Company. The Corporate Line bears an interest rate of 30-day LIBOR plus
2.50% and matures on July 11, 1998. No amounts were outstanding under the
Corporate Line at December 31, 1997.
In September 1997, the Company repaid certain outstanding corporate
indebtedness aggregating $113,410, including the Junior Secured Loan, with
proceeds from certain public and private equity offerings (see Note 8 - "Equity
Offerings and Other Transactions" of the Notes to the Consolidated Financial
Statements). As a result of the prepayment of such indebtedness, the Company
incurred an extraordinary loss of $1,423 related to the write-off of certain
unamortized financing costs. The Company also incurred an extraordinary loss of
$638 related to the write-off of certain unamortized financing costs in
connection with the Buckeye Acquisition (see Note 5 - "Investment in
Partnerships" of the Notes to the Consolidated Financial Statements).
On November 13, 1997, the Company closed on a term loan with Nomura
Securities (Bermuda) Ltd. ("Nomura Securities") of $53,290 (the "Term Loan").
The Term Loan is a recourse loan to the Company that (i) is secured by a pledge
of excess cash flow after debt service on a first mortgage loan collateralized
by 16 of the Company's factory outlet centers, (ii) bears a variable interest
rate of 30-day LIBOR plus 1.95%, (iii) matures on November 11, 1999, (iv)
requires monthly interest-only payments through February 10, 1998 and monthly
interest payments and quarterly principal payments thereafter that approximate a
six-year amortization schedule, and (v) may be subject to earlier principal
payments via "mark-to-market" of the underlying debt instrument.
In addition, on November 13, 1997, the Company closed on a term loan
with Nomura Securities of $3,000 (the "Second Term Loan"). The Second Term Loan
is a recourse loan to the Company that (i) is secured by a pledge of excess cash
flow after debt service on a first mortgage loan collaterlized by three of the
Company's factory outlet centers, (ii) bears a variable interest rate of 30-day
LIBOR plus 1.95%, (iii) matures on February 13, 2000, (iv) requires monthly
interest-only payments through April 10, 1998 and monthly principal and interest
payments thereafter that approximate a five-year amortization schedule, and (v)
may be subject to earlier principal payments via "mark-to-market" of the
underlying debt instrument.
On December 2, 1997, the Company assumed a $31,328 mortgage loan in
connection with the purchase of Niagara International Factory Outlets (the
"Niagara Loan"). The Niagara Loan (i) bears a fixed rate of interest of 6.83%,
(ii) requires monthly principal and interest payments that approximates a
25-year amortization schedule, and (iii) is collateralized by Niagara
International Factory Outlets.
On December 31, 1997, the Company obtained from a financial institution
a commitment for a construction mortgage loan in an amount not to exceed $20,396
(the "Construction Mortgage Loan"). The Construction Mortgage Loan (i) bears a
variable interest
<PAGE>
rate at the financial institution's prime rate or, at the Company's option, a
LIBOR index plus 1.75%, (ii) matures on December 31, 1999, and (iii) requires
monthly interest-only payments. The Construction Mortgage Loan is collateralized
by a first mortgage on Lebanon Factory Shops, a factory outlet center located in
Lebanon, Tennessee. At December 31, 1997, no amounts were outstanding on the
Construction Mortgage Loan.
Debt Repayments and Preferred Stock Dividends
The Company's aggregate indebtedness was $515,265 and $499,523 at
December 31, 1997 and 1996, respectively. At December 31, 1997, such
indebtedness had a weighted average maturity of 6. 5 years and bore interest at
a weighted average interest rate of 7.36% per annum. At December 31, 1997,
$74,729 , or 14.5%, of such indebtedness bore interest at fixed rates and
$440,536, or 85.5%, of such indebtedness, including $28,250 of tax-exempt bonds,
bore interest at variable rates. Of the variable rate indebtedness outstanding
at December 31, 1997, $355,996 is scheduled to convert to a fixed rate of 7.782%
in November 1998 for the remaining five year term of such indebtedness.
At December 31, 1997, the Company held interest rate protection
contracts on all $28,250 of its floating rate tax-exempt indebtedness which
expire in 1999 and approximately $355,996 of other floating rate indebtedness
which expire in November 1998 (or approximately 80.8% of its total floating rate
indebtedness). In addition, the Company held additional interest rate protection
contracts on $43,900 (of which $22,000 expires in July 1998 and $21,900 expires
in April 1999) of the $355,998 floating rate indebtedness to further reduce the
Company's exposure to increases in interest rates. See Note 2 -- "Summary of
Significant Accounting Policies" and Note 7 -- "Bonds and Notes Payable" of the
Notes to Consolidated Financial Statements for additional information concerning
the accounting policies and significant terms of the interest rate protection
contracts.
The Company's ratio of debt to total market capitalization at December
31, 1997 (defined as total long-term debt divided by the sum of: (a) the
aggregate market value of the outstanding shares of Common Stock, assuming the
full exchange of Common Units, Series C Preferred Securities into Common Stock;
(b) the aggregate market value of the outstanding shares of Series B Convertible
Preferred Stock; (c) the aggregate liquidation preference of the Series A Senior
Cumulative Preferred Stock ("Senior Preferred Stock") at $25.00 per share; and
(d) the total long-term debt of the Company) was 42.4%.
The Company is obligated to repay $13,951 and $50,179 of mortgage
indebtedness during 1998 and 1999, respectively. Annualized cumulative dividends
on the Company's Senior Preferred Stock, Series B Convertible Preferred Stock,
and Series C Preferred securities outstanding as of December 31, 1997 are
$6,038, $6,336, and $5,149, respectively. These dividends are paid quarterly, in
arrears.
The Company anticipates that cash flow from operations, together with
cash available from borrowings and other sources, including proceeds from the
September Offering and the Private Placement, will be sufficient to satisfy its
debt service obligations, expected distribution and dividend requirements and
operating cash needs for the next year.
Table 9--Taxability of Distributions
TABLE 9 summarizes the taxability of distributions paid during the years
ended December 31, 1997 and 1996. Distributions paid by the Company out of its
current or accumulated earnings and profits (and not designated as capital gains
dividends) will constitute taxable distributions to each holder. To the extent
the Company makes distributions (not designated as capital gains dividends) in
excess of its current and accumulated earnings and profits, such distributions
will be treated first as a tax-free return of capital to each holder, reducing
the adjusted basis which such holder has in his shares of stock by the amount of
such distributions (but not below zero), with distributions in excess of a
holder's adjusted basis in his stock taxable as capital gains (provided that the
shares have been held as a capital asset).
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Preferred Stock
Ordinary income......................................................................... 100.0% 100.0%
Return of capital....................................................................... -- --
Series B Convertible Preferred Stock
Ordinary income......................................................................... 91.3% 38.0%
Return of capital....................................................................... 8.7% 62.0%
Common Stock
Ordinary income......................................................................... -- --
Return of capital....................................................................... 100.0% 100.0%
==========================================================================================================================
</TABLE>
<PAGE>
No assurances can be made that future distributions will be treated similarly.
Each holder of stock may have a different basis in its stock and, accordingly,
each holder is advised to consult its tax advisors.
Economic Conditions
Substantially all of the merchants' leases contain provisions that
somewhat mitigate the impact of inflation. Such provisions include clauses
providing for increases in base rent and clauses enabling the Company to receive
percentage rentals based on merchants' gross sales. Substantially all leases
require merchants to pay their proportionate share of operating expenses,
including common area maintenance, real estate taxes and promotion, thereby
reducing the Company's exposure to increased costs and operating expenses
resulting from inflation. At December 31, 1997, the Company maintained interest
rate protection contracts to protect against increases in interest rates on
certain floating rate indebtedness (see "Debt Repayments and Preferred Stock
Dividends").
The Company intends to reduce operating and leasing risks by managing
its existing portfolio of properties with the goal of improving its tenant mix,
rental rates and lease terms and attracting high fashion, upscale manufacturers
and national brand-name manufacturers as merchants.
Year 2000
Recognizing the need to ensure that the Company's operations will not be
adversely impacted by year 2000 software failures, management has assessed the
potential impact of the year 2000 on the processing of date-sensitive
information by the Company's computerized information systems. Based on this
assessment, management believes that the Company's primary computerized
information systems are year 2000 compliant and the Company's operations will
not be adversely impacted by year 2000 software failures.
Funds from Operations
Management believes that to facilitate a clear understanding of the
Company's operating results, funds from operations ("FFO") should be considered
in conjunction with net income (loss) presented in accordance with GAAP. In
March 1995, the National Association of Real Estate Investment Trusts ("NAREIT")
established guidelines clarifying the definition of FFO. FFO is defined as net
income (loss) (determined in accordance with GAAP) excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization after adjustments for unconsolidated partnerships and joint
ventures.
The Company generally considers FFO an appropriate measure of liquidity
of an equity REIT because industry analysts have accepted it as a performance
measure of equity REITs. The Company's FFO is not comparable to FFO reported by
other REITs that do not define the term using the current NAREIT definition or
that interpret the current NAREIT definition differently than does the Company.
Therefore, the Company cautions that the calculation of FFO may vary from entity
to entity and as such the presentation of FFO by the Company may not be
comparable to other similarly titled measures of other reporting companies. The
Company believes that in order to facilitate a clear understanding of its
operating results, FFO should be examined in conjunction with net income
determined in accordance with GAAP. FFO does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
TABLE 10 provides a reconciliation of income before allocation to
minority interests and preferred shareholders to FFO for the years ended
December 31, 1997, 1996 and 1995. FFO increased $19,081, or 69.0% to $46,718 for
the year ended December 31, 1997 from $27,637 for the year ended December 31,
1996. The increase in FFO primarily reflects the $6,131 nonrecurring charge
related to the prepayment of certain long-term debt in 1996, offset by the
Portfolio Expansion, including the effect of the acquisition of certain
properties in November 1996.
<TABLE>
Table 10--Funds from Operations
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before allocations to minority interests and preferred shareholders.............. $ 18,547 $ 6,986 $ 12,806
FFO adjustments:
Real estate depreciation and amortization............................................... 26,413 18,703 14,884
Unconsolidated joint venture adjustments................................................ 1,758 1,948 306
-------- -------- --------
FFO before allocations to minority interests and preferred shareholders................. $ 46,718 $ 27,637 $ 27,996
======== ======== ========
Other Data:
Net cash provided by operating activities............................................... $ 49,856 $ 45,191 $ 36,399
Net cash used in investing activities................................................... (229,956) (232,290) (81,978)
Net cash provided by financing activities............................................... 182,549 176,096 57,547
==================================================================================================================================
</TABLE>
<PAGE>
The payout ratios based on distributions made by the Company divided by
FFO for the applicable periods were 103.7%, 106.4%, and 108.7%, respectively.
<TABLE>
Table 11--Consolidated Quarterly Summary of Funds from Operations
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- ----------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before allocations to
minority interests and preferred
shareholders........................ $ 7,380 $ 4,091 $ 3,583 $ 3,493 $ 3,704 $ 4,175 $ (3,950) $ 3,057
FFO adjustments:
Real estate depreciation and
amortization........................ 7,108 6,558 6,473 6,274 4,905 3,603 3,281 1,757
Unconsolidated joint venture
adjustments......................... 288 455 530 485 388 822 482 358
-------- -------- -------- -------- -------- -------- -------- --------
FFO before allocations to minority
interests and preferred
shareholders........................ $ 14,776 $ 11,104 $ 10,586 $ 10,252 $ 9,693 $ 9,379 $ 951 $ 7,614
======== ======== ======== ======== ======== ======== ======== ========
Other Data:
Net cash provided by operating
activities.... .................... $ 15,298 $ 18,301 $ 9,301 $ 6,956 $ 13,888 $ 11,718 $ 10,366 $ 9,219
Net cash used in investing activities.. (123,220) (41,697) (17,492) (47,547) (184,130) (24,200) (12,212) (11,748)
Net cash provided by (used in)
financing activities................ 90,518 46,188 (10,906) 56,749 164,564 18,044 3,297 (9,809)
===========================================================================================================================
</TABLE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is set forth at the pages indicated in Item
14(a) below.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 (except that
information regarding executive officers called for by Item 10 that is contained
in Part I) is incorporated herein by reference from the definitive proxy
statement that the Company intends to file pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, on or before April 30, 1998.
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheets of the Company as of
December 31, 1997 and 1996 F-2
Consolidated Statements of Operations of the Company
for the years ended December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows of the Company
for the years ended December 31,1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity
of the Company for the years ended December 31, 1997,
1996 and 1995 F-5
Notes to Consolidated Financial Statements of the Company F-6
2. Financial Statement Schedules
The following financial statement schedule of the Company is
included in Item 14 (d):
Report of Independent Auditors on Schedule (included with consent
filed as Exhibit 23)
Schedule III--Real Estate and Accumulated Depreciation F-21
Notes to Schedule III F-22
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
3. Exhibits
Exhibit
Number Description
3.1 Restated Articles of Incorporation of Prime Retail, Inc.
[Restated to incorporate amendment dated August 8, 1997
for purposes of Regulation S-T Section 232.102(c) only]
3.2 Amended and Restated By-Laws of Prime Retail, Inc.
[Incorporated by reference to the same titled exhibit
in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (File No. 0-23616).]
4.1 Form of Senior Preferred Stock Certificate [Incorporated
by reference to the same titled exhibit in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-23616).]
4.2 Form of Convertible Preferred Stock Certificate
[Incorporated by reference to the same titled exhibit in
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-23616).]
4.3 Form of Common Stock Certificate [Incorporated by
reference to the same titled exhibit in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-23616).]
10.1 Amended and Restated Agreement of Limited Partnership of
Prime Retail, L.P. dated as of September 8, 1997
<PAGE>
Exhibit
Number Description
10.1A Common Unit Contribution Agreement [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-11 (Registration No.
333-1666).]
# 10.2 1994 Stock Incentive Plan [Incorporated by reference
to the same titled exhibit in the Company's registration
statement on Form S-11 (Registration No. 33-68536).]
# 10.3 1995 Stock Incentive Plan [Incorporated by reference
to the same titled exhibit in the Company's
registration statement on Form S-11 (Registration No.
333-1666).]
# 10.4 Executive Employment Agreement (Michael W. Reschke)
[Incorporated by reference to the same titled exhibit
in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, as amended (File No.
0-23616).]
10.5 Combined Service and Special Distribution and
Allocation Agreement (Abraham Rosenthal) [Incorporated
by reference to the same titled exhibit in the
Company's registration statement on Form S-4
(Registration No. 333-1784).]
10.5A Special Distribution and Allocation Agreement by and
between the Company, the Operating Partnership and the
Rosenthal Family LLC [Incorporated by reference to the
same titled exhibit in the Company's registration
statement on Form S-4 (Registration No. 333-1784).]
10.5B Indemnification and Option Agreement by and between the
Prime Group, Inc., the Rosenthal Family LLC and
Abraham Rosenthal [Incorporated by reference to the same
titled exhibit in the Company's registration statement on
Form S-4 (Registration No. 333-1784).]
10.6 Combined Service and Special Distribution and Allocation
Agreement (William H. Carpenter, Jr.) [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-4 (Registration No.
333-1784).]
10.6A Special Distribution and Allocation Agreement by and
between the Company, the Operating Partnership and the
Carpenter Family Associates LLC [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-4 (Registration No.
333-1784).]
10.6B Indemnification and Option Agreement by and between
the Prime Group, Inc., William H. Carpenter, Jr. and
the Carpenter Family Associates LLC [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-4 (Registration No.
333-1784).]
# 10.7 Form of Executive Employment Agreement (David G. Phillips)
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No.33-68536).]
# 10.8 Letter Agreement with R. Bruce Armiger [Incorporated by
reference to the same titled exhibit in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended (File No. 0-23616).]
10.9 Right of First Refusal Agreement (Northgate
Plaza--Improved Parcel) [Incorporated by reference to
the same titled exhibit in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1994, as amended (File No. 0-23616).]
10.10 Right of First Refusal Agreement (Northgate
Plaza--Vacant Parcel) [Incorporated by reference to the
same titled exhibit in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
as amended (File No. 0-23616).]
<PAGE>
Exhibit
Number Description
10.11 Right of First Refusal Agreement (Huntley Factory Shops)
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No. 33-68536).]
10.12 Right of First Refusal Agreement (San Marcos Factory
Shops) [Incorporated by reference to the same titled
exhibit in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as amended
(File No. 0-23616).]
10.13 Purchase Option Agreement (Northgate Plaza--Excluded
Parcel) [Incorporated by reference to the same titled
exhibit in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as amended
(File No. 0-23616).]
10.14A Purchase Option Agreement (Huntley Factory Shops)
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No. 33-68536).]
10.14B First Amendment to Purchase and Option Agreement (Huntley
Factory Shops) [Incorporated by reference to the same
titled exhibit in the Company's registration statement
on Form S-11 (Registration No. 333-1666).]
10.15 Registration Rights Agreement [Incorporated by reference
to the same titled exhibit in the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1994, as amended (File No. 0-23616).]
10.16 Form of Property Level General Partnership Agreement
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No. 33-68536).]
10.17 Form of Property Level Limited Partnership Agreement
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No. 33-68536).]
10.18 Noncompetition and Restriction Agreement with Michael
W. Reschke of PGI [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, as
amended (File No. 0-23616).]
10.19 Second Amended and Restated Subscription Agreement of
Abraham Rosenthal regarding Common Units of Prime
Retail, L.P. [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, as
amended (File No. 0-23616).]
10.20 Second Amended and Restated Subscription Agreement of
William H. Carpenter, Jr. regarding Common Units of
Prime Retail, L.P. [Incorporated by reference to the
same titled exhibit in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
as amended (File No. 0-23616).]
10.21 Revolving Loan Agreement dated March 2, 1995 between
Gainesville Factory shops Limited Partnership, Florida
Keys Factory Shops Limited Partnership, Indianapolis
Factory Shops Limited Partnership and Nomura Asset
Capital Corporation [Incorporated by reference to the
same titled exhibit in the Company's Current Report on
Form 8-K dated December 18, 1995 (File No. 0-23616).]
# 10.22 Consulting Agreement between the Company and Marvin Traub
Associates, Inc. [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No.
0-23616).]
<PAGE>
10.23 Secured Promissory Note of Rosenthal Family LLC with
respect to the purchase of the Restricted Common Units
[Incorporated by reference to the same titled exhibit in
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, as amended (File No.
0-23616).]
10.23A Allonge related to the Secured Promissory Note of
Rosenthal Family LLC [Incorporated by reference to the
same titled exhibit in the Company's registration
statement on Form S-4 (Registration No. 333-1784).]
10.24 Secured Promissory Note of Carpenter Family Associates
LLC with respect to the purchase of the Restricted
Common Units [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, as
amended (File No 0-23616).]
10.24A Allonge related to the Secured Promissory Note of
Carpenter Family Associates LLC [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-4 (Registration No. 333-
1784).]
10.25 Pledge and Security Agreement of Rosenthal Family LLC
with respect to the purchase of the Restricted Common
Units [Incorporated by reference to the same titled
exhibit in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as amended
(File No. 0-23616).]
10.26 Pledge and Security Agreement of Carpenter Family
Associates LLC with respect to the purchase of the
Restricted Common Units [Incorporated by reference to
the same titled exhibit in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1994, as amended (File No. 0-23616).]
10.27 Guaranty of Abraham Rosenthal with respect to the
purchase of the Restricted Common Units [Incorporated by
reference to the same titled exhibit in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended (File No. 0-23616).]
10.27A Reaffirmation of Pledge and Guaranty with respect to the
Restricted Common Units of Rosenthal Family LLC and
Abraham Rosenthal [Incorporated by reference to the same
titled exhibit in the Company's registration statement
on Form S-4 (Registration No. 333-1784).]
10.28 Guaranty of William H. Carpenter, Jr. with respect to the
purchase of the Restricted Common Units [Incorporated
by reference to the same titled exhibit in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended (File No. 0-23616).]
10.28A Reaffirmation of Pledge and Guaranty with respect to the
Restricted Common Units of Carpenter Family Associates
LLC and William H. Carpenter, Jr. [Incorporated by
reference to the same titled exhibit in the Company's
registration statement on Form S-4 (Registration No.
333-1784).]
10.29 Waiver, Recontribution and Indemnity Agreement by the
Limited Partners [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, as
amended (File No. 0-23616).]
10.30 Indemnity Agreement made by the Company in favor of Prime
Group, Inc. and Prime Group Limited Partnership
[Incorporated by reference to the same titled
exhibit in the Company's registration statement on Form
S-11 (Registration No. 333-1666).]
10.31 Promissory Note dated October 31, 1996 by and between Prime
Retail, L.P. and Nomura Asset Capital Corporation
[Incorporated by reference to the same titled exhibit in
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-23616).]
<PAGE>
Exhibit
Number Description
10.31A Form of Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filings with Nomura Asset Capital
Corporation [Incorporated by reference to the same
titled exhibit in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File
No. 0-23616).]
10.32 Form of Standby Bond Purchase and Indemnity Agreement
[Incorporated by reference to the same titled exhibit in
the Company's registration statement on Form S-11
(Registration No. 33-68536).]
10.33 Consulting Agreement between the Company and Financo, Inc.
[Incorporated by reference to the same titled exhibit in
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-23616).]
10.34 Amended and Restated Agreement and Plan of Merger among
Prime Retail, Inc., Prime Retail, L.P., Horizon Group,
Inc., Sky Merger Corp., Horizon Group Properties, Inc.,
Horizon Group Properties, L.P., and Horizon/Glen Outlet
Centers Limited Partnership dated as of February 1, 1998
[Incorporated by reference to the same titled exhibit in
the Company's Current Report on Form 8-K dated February
1, 1998 (File No. 0-23616).]
10.35 Agreement among Prime Retail, Inc., Horizon Group, Inc.,
Mr. David H. Murdock, Castle & Cooke Properties, Inc.,
and Pacific Holding Company dated as of February 1, 1998
[Incorporated by reference to the same titled exhibit in
the Company's Current Report on Form 8-K dated February
1, 1998 (File No. 0-23616).]
# 10.36 Letter Agreement with David G. Phillips regarding the
purchase of units in Prime Retail, L.P. dated August 6,
1996
12 Statement re Computation of Ratio Earnings to Combined
Fixed Charges and Preferred Stock Dividends
21 Subsidiaries of Prime Retail, Inc.
23 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
27.2 Financial Data Schedule -- Restated 1997 Interim Periods
27.3 Financial Data Schedule -- Restated 1996 Periods
Note:
# Management contract or compensatory plan or arrangement required to
be filed pursuant to Item 14(c).
(b) Reports on Form 8-K
On October 29, 1997, the Company filed a Current Report on Form 8-K,
dated October 29, 1997, reporting that the Company purchased Tidewater Outlet
Mall, Manufacturer's Outlet Mall, Kittery Outlet Village (collectively "Prime
Retail Outlets of Kittery") and Latham Factory Outlet Center. No financial
statements were included.
On November 12, 1997, the Company filed a Current Report on Form 8-K,
dated November 12, 1997, reporting that the Company and Horizon Group, Inc.
entered into a definitive merger agreement. No financial statements were
included.
On December 2, 1997, the Company filed a Current Report on Form 8-K,
dated December 2, 1997, reporting that the Company purchased Niagara
International Factory Outlets and Shasta Factory Stores. No financial statements
were included.
On December 31, 1997, the Company filed a Current Report on Form 8-K/A,
dated October 29, 1997, reporting that the Company purchased Prime Retail
Outlets of Kittery, Latham Factory Outlet Center, Niagara International Factory
Outlets and Shasta Factory Stores. Proforma consolidated financial statements of
the Company and audited statements of revenue and certain expenses of the
acquired properties were filed with this Form 8-K/A.
On February 1, 1998, the Company filed a Current Report on Form 8-K,
dated February 1, 1998, reporting the amended merger agreement between the
Company and Horizon Group, Inc. No financial statements were included.
<PAGE>
(c) Exhibits
The list of exhibits filed with this report is set forth in response to
Item 14 (a)(3). The required exhibits have been filed as indicated in the
Exhibit Index. The Company agrees to furnish a copy of any long-term debt
instrument wherein the securities authorized do not exceed 10 percent of the
registrant's total assets on a consolidated basis upon the request of the
Securities and Exchange Commission.
(d) Financial Statements and Schedules
Schedule III -- Real Estate and Accumulated Depreciation attached hereto
is hereby incorporated by reference to this Item.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRIME RETAIL, INC.
Dated: March 25, 1998 /s/ Abraham Rosenthal
---------------------
Abraham Rosenthal
Chief Executive Officer
Dated: March 25, 1998 /s/ Robert P. Mulreaney
-----------------------
Robert P. Mulreaney
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Michael W. Reschke March 25, 1998
-------------------------------------------------
Michael W. Reschke
Chairman of the Board
/s/ Abraham Rosenthal March 25, 1998
Abraham Rosenthal
Chief Executive Officer and Director
/s/ William H. Carpenter, Jr. March 25, 1998
-------------------------------------------------
William H. Carpenter, Jr.
President, Chief Operating Officer and Director
/s/ Glenn D. Reschke March 25, 1998
-------------------------------------------------
Glenn D. Reschke
Executive Vice President, Development and
Acquisitions and Director
/s/ Terence C. Golden March 25, 1998
-------------------------------------------------
Terence C. Golden
Director
/s/ Kenneth A. Randall March 25, 1998
-------------------------------------------------
Kenneth A. Randall
Director
/s/ Sharon Sharpe March 25, 1998
Sharon Sharpe
Director
/s/ James R. Thompson March 25, 1998
-------------------------------------------------
James R. Thompson
Director
/s/ Marvin S. Traub March 25, 1998
-------------------------------------------------
Marvin S. Traub
Director
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholders
Prime Retail, Inc.
We have audited the accompanying consolidated balance sheets of Prime Retail,
Inc. (the "Company") as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1996, the consolidated results of the Company's operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 23, 1998, except
for Note 15, as to which the date
is February 1, 1998
<PAGE>
<TABLE>
PRIME RETAIL, INC.
Consolidated Balance Sheets of the Company
(Amounts in thousands, except share information)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 66,277 $ 44,731
Buildings and improvements.......................................................................... 779,191 570,761
Property under development.......................................................................... 53,139 20,900
Furniture and equipment............................................................................. 6,175 4,367
--------- ---------
904,782 640,759
Accumulated depreciation............................................................................ (82,033) (57,674)
--------- ---------
822,749 583,085
Cash and cash equivalents.............................................................................. 6,373 3,924
Restricted cash........................................................................................ 41,736 45,127
Accounts receivable, net............................................................................... 9,745 6,096
Deferred charges, net.................................................................................. 16,206 20,841
Due from affiliates, net............................................................................... 1,052 1,549
Investment in partnerships............................................................................. 3,278 5,625
Other assets........................................................................................... 3,044 556
--------- ---------
Total assets.................................................................................. $ 904,183 $ 666,803
========= =========
Liabilities and Shareholders' Equity
Bonds payable.......................................................................................... $ 32,900 $ 32,900
Notes payable.......................................................................................... 482,365 466,623
Accrued interest....................................................................................... 3,767 3,640
Real estate taxes payable.............................................................................. 4,639 2,138
Construction costs payable............................................................................. 5,849 3,047
Accounts payable and other liabilities................................................................. 20,210 19,246
--------- ---------
Total liabilities............................................................................. 549,730 527,594
Minority interests..................................................................................... 9,925 --
Shareholders' equity:
Shares of preferred stock, 24,315,000 shares authorized:
10.5% Series A Senior Cumulative Preferred Stock, $.01 par value
(liquidation preference of $57,500), 2,300,000 shares issued and outstanding................... 23 23
8.5% Series B Cumulative Participating Convertible Preferred Stock, $.01
par value (liquidation preference of $74,545 and $70,150,
respectively), 2,981,800 and 2,806,000 shares issued and outstanding, respectively............. 30 28
Series C Cumulative Participating Convertible Redeemable Preferred Stock, $.01 par value
(liquidation preference of $50,000), 3,636,363 shares issued and outstanding at
December 31, 1997............................................................................. 36 --
Shares of common stock, 75,000,000 shares authorized:
Common stock, $.01 par value, 27,294,951 and 13,404,651 issued and outstanding, respectively..... 273 134
Additional paid-in capital.......................................................................... 398,188 165,346
Distributions in excess of net income............................................................... (54,022) (26,322)
--------- ---------
Total shareholders' equity.................................................................... 344,528 139,209
--------- ---------
Total liabilities and shareholders' equity................................................ $ 904,183 $ 666,803
========= =========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
Consolidated Statements of Operations of the Company
(Amounts in thousands, except per share information)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Base rents................................................................................... $ 78,046 $ 54,710 $ 46,368
Percentage rents............................................................................. 3,277 1,987 1,520
Tenant reimbursements........................................................................ 37,519 25,254 22,283
Income from investment partnerships.......................................................... 103 1,239 1,729
Interest and other........................................................................... 10,185 5,850 5,498
-------- -------- --------
Total revenues......................................................................... 129,130 89,040 77,398
Expenses
Property operating........................................................................... 29,492 20,421 17,389
Real estate taxes............................................................................ 9,417 5,288 4,977
Depreciation and amortization................................................................ 26,715 19,256 15,438
Corporate general and administrative......................................................... 5,603 4,018 3,878
Interest..................................................................................... 36,122 24,485 20,821
Other charges................................................................................ 3,234 8,586 2,089
-------- -------- --------
Total expenses....................................................................... 110,583 82,054 64,592
-------- -------- --------
Income before minority interests and extraordinary item...................................... 18,547 6,986 12,806
(Income) loss allocated to minority interests................................................ (10,581) 2,092 5,364
-------- -------- --------
Income before extraordinary item............................................................. 7,966 9,078 18,170
Extraordinary item - loss on early extinguishment of debt,
net of minority interests in the amount of $0 in 1997 and $3,263 in 1996.................. (2,061) (1,017) --
-------- -------- --------
Net income................................................................................... 5,905 8,061 18,170
Income allocated to preferred shareholders................................................... 12,726 14,236 20,944
-------- -------- --------
Net loss applicable to common shares......................................................... $ (6,821) $ (6,175) $ (2,774)
======== ======== ========
Earnings per common share - basic and diluted:
Loss before extraordinary item......................................................... $ (0.25) $ (0.63) $ (0.96)
Extraordinary item..................................................................... (0.11) (0.12) --
-------- -------- --------
Net loss............................................................................... $ (0.36) $ (0.75) $ (0.96)
======== ======== ========
Weighted average common shares outstanding................................................... 19,189 8,221 2,875
======== ======== ========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
Consolidated Statements of Cash Flows of the Company
(Amounts in thousands)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income............................................................................ $ 5,905 $ 8,061 $ 18,170
Adjustments to reconcile net income to net cash provided by operating activities:
Income (loss) allocated to minority interests................................... 10,581 (2,092) (5,364)
Extraordinary loss for early extinguishment of debt, net........................ 2,061 1,017 --
Write-off of financing costs related to early extinguishment of debt............ -- 6,131 --
Depreciation.................................................................... 25,055 17,468 13,716
Amortization of deferred financing costs and interest rate protection contracts. 3,742 3,724 4,524
Amortization of leasing commissions............................................. 1,660 1,788 1,722
Equity earnings in excess of cash distributions from joint ventures............. -- (365) (1,281)
Provision for uncollectible accounts receivable................................. 970 710 346
Gain on sale of land............................................................ (904) -- (106)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......................................... (4,619) 1,945 (2,941)
(Increase) decrease in other assets................................................ 1,400 (3,232) 47
Increase in other liabilities...................................................... 3,381 9,785 6,047
Increase in accrued interest........................................................ 127 606 1,059
(Increase) decrease in due from affiliates, net..................................... 497 (355) 460
-------- -------- --------
Net cash provided by operating activities........................................ 49,856 45,191 36,399
-------- -------- --------
Investing Activities
Purchase of land....................................................................... (667) (953) (4,765)
Purchase of buildings and improvements................................................. (21,345) (45,036) (70,781)
Increase in property under development................................................. (49,668) (11,566) (7,056)
Acquisition of outlet centers.......................................................... (159,232) (134,668) --
Increase in construction reserves...................................................... (497) (40,067) --
Proceeds from sale of land............................................................. 1,358 -- 624
Lease commissions...................................................................... (537) -- --
Cash distributions in excess of equity earnings of joint ventures...................... 632 -- --
-------- -------- --------
Net cash used in investing activities............................................ (229,956) (232,290) (81,978)
-------- -------- --------
Financing Activities
Net proceeds from offerings............................................................ 242,729 36,948 --
Proceeds from notes payable............................................................ 160,057 591,520 185,078
Principal repayments on notes payable.................................................. (175,683) (397,951) (93,149)
Deferred financing fees................................................................ (583) (18,036) (4,822)
Distributions and dividends paid....................................................... (33,605) (27,470) (24,337)
Distributions to minority interests.................................................... (10,366) (8,915) (5,223)
-------- -------- --------
Net cash provided by financing activities........................................ 182,549 176,096 57,547
-------- -------- --------
Increase (decrease) in cash and cash equivalents....................................... 2,449 (11,003) 11,968
Cash and cash equivalents at beginning of period....................................... 3,924 14,927 2,959
-------- -------- --------
Cash and cash equivalents at end of period............................................. $ 6,373 $ 3,924 $ 14,927
======== ======== ========
Supplemental disclosure of noncash financing activity:
Assumption of notes payable............................................................. $ 31,368 $ -- $ --
======== ======== ========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
Consolidated Statements of Shareholders' Equity of the Company
(Amounts in thousands, except share information)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Series A Series B Series C Additional Distributions Total
Preferred Preferred Preferred Common Paid-in in Excess of Shareholders
Stock Stock Stock Stock Capital Net Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995........................ $23 $70 29 $128,275 $ (746) $127,651
Net income...................................... -- -- -- -- 18,170 18,170
Common distributions declared ($1.18 per share). -- -- -- -- (3,393) (3,393)
Preferred distributions and dividends declared:
Series A ($2.625 per share)................ -- -- -- -- (6,037) (6,037)
Series B ($2.125 per share)................ -- -- -- (14,907) 14,907)
----- ----- ----- -------- -------- --------
Balance, December 31, 1995...................... 23 70 29 128,275 (6,913) 121,484
Series B preferred stock exchanged and retired
(4,209,000 shares) for common stock
(6,734,323 shares)........................... -- (42) 67 (1,822) -- (1,797)
Issuance of 3,795,328 shares of common stock,
net of issuance costs......................... -- -- 38 38,893 -- 38,931
Net income....................................... -- -- -- -- 8,061 8,061
Common distributions declared ($1.325 per share).. -- -- -- -- (10,998) (10,998)
Preferred distributions and dividends declared:
Series A ($2.625 per share).................. -- -- -- -- (6,037) (6,037)
Series B ($2.125 per share).................. -- -- -- -- (10,435) (10,435)
Balance, December 31, 1996........................ 23 28 134 165,346 (26,322) 139,209
Issuance of 175,800 shares of Series B preferred
stock, net of issuance cost.................... -- 2 -- 3,798 -- 3,800
Issuance of 13,890,300 shares of common stock,
net of issuance cost.......................... -- -- 139 180,035 -- 180,174
Issuance of 3,636,363 shares of Series C preferred
stock, net of issuance cost..................... -- -- $36 -- 49,009 -- 49,045
Net income......................................... -- -- -- -- -- 5,905 5,905
Common distributions declared ($1.18 per share)..... -- -- -- -- -- (21,232) (21,232)
Preferred distributions and dividends declared:
Series A ($2.625 per share).................... -- -- -- -- -- (6,037) (6,037)
Series B ($2.125 per share).................... -- -- -- -- -- (6,336) (6,336)
----- ----- ----- ----- -------- -------- --------
Balance, December 31, 1997......................... $23 $30 $36 $273 $398,188 $(54,022) $344,528
===== ===== ===== ===== ======== ======== ========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PRIME RETAIL, INC.
Notes to Consolidated Financial Statements of the Company
(Amounts in thousands, except share and unit information)
Note 1 -- Organization and Basis of Presentation
Organization
Prime Retail, Inc. (the "Company") was organized as a Maryland
corporation on July 16, 1993. The Company is a self-administered and
self-managed real estate investment trust ("REIT") that develops, acquires, owns
and operates factory outlet centers in the United States. The Company's factory
outlet center portfolio, including three factory outlet centers owned through
joint venture partnerships, consists of 28 factory outlet centers in 20 states,
which total approximately 7,217,000 square feet of gross leasable area ("GLA")
at December 31, 1997. As a fully-integrated real estate firm, the Company
provides development, construction, accounting, finance, leasing, marketing, and
management services for all of its properties (the "Properties"). The Company's
Properties are held and all of its business and operations are conducted through
Prime Retail, L.P. (the "Operating Partnership"). The Company controls the
Operating Partnership as its sole general partner and is dependent upon the
distributions or other payments from the Operating Partnership to meet its
financial obligations.
At December 31, 1997, the Company owned 2,300,000 Senior Preferred Units
of the Operating Partnership (the "Senior Preferred Units"), 2,981,800 Series B
Convertible Preferred Units of the Operating Partnership (the "Series B
Convertible Preferred Units"), 3,636,363 Series C Preferred Units of the
Operating Partnership (the "Series C Preferred Units"), and 27,294,951 Common
Units of partnership interest in the Operating Partnership (the "Common Units").
Each Senior Preferred Unit, Series B Convertible Preferred Unit, and Series C
Preferred Unit (collectively, the "Preferred Units") entitles the Company to
receive distributions from the Operating Partnership in an amount equal to the
dividend declared or paid with respect to a share of the Company's Series A
Senior Cumulative Preferred Stock ("Senior Preferred Stock"), Series B
Cumulative Participating Preferred Stock ("Series B Convertible Preferred
Stock"), and Series C Cumulative Participating Convertible Redeemable Preferred
Stock ("Series C Preferred Stock"), respectively, prior to the payment by the
Operating Partnership of distributions with respect to the Common Units. Series
B Convertible Preferred Units and Series C Preferred Units will be automatically
converted into Common Units to the extent of any conversion of Series B
Convertible Preferred Stock or Series C Preferred Stock into Common Stock. The
Preferred Units will be redeemed by the Operating Partnership to the extent of
any redemption of Senior Preferred Stock, Series B Convertible Preferred Stock,
or Series C Preferred Stock. (See Note 8 "Equity Offerings and Other
Transactions" of the Notes to the Consolidated Financial Statements for
additional information concerning equity transactions that were completed by the
Company in 1996 and 1997.)
A summary of the holders of units in the Operating Partnership as of
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Units
---------------------------------------------------------
Holder Series A Series B Series C Common
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Retail, Inc............................................2,300,000 2,981,800 3,636,363 27,294,951
PGI, management and other (1)................................ -- -- -- 8,505,472
Security Capital Preferred Growth Incorporated............... -- -- 727,273 --
--------- --------- --------- ----------
2,300,000 2,981,000 4,363,636 35,800,423
========= ========= ========= ==========
=====================================================================================================================
</TABLE>
Note:
(1) Includes 742,180 units beneficially owned by management and 4,091,255 units
owned by certain executive officers based on their ownership interests in
PGI.
As of December 31, 1997, the Company has a 76.2% general partnership
interest in the Operating Partnership with full and complete control over the
management of the Operating Partnership as the sole general partner not subject
to removal by the limited partners.
The Operating Partnership is the 1% sole general partner of Prime Retail
Services Limited Partnership (the "Services Partnership"). The Operating
Partnership owns 100% of the non-voting preferred stock of Prime Retail
Services, Inc. (the "Services Corporation") which, in turn, is the 99% limited
partner of the Services Partnership. Certain members of management own 100% of
the voting common stock of the Services Corporation and no cash distributions
were made during the years ended December 31, 1997, 1996 and 1995. The Services
Partnership was formed primarily to operate business lines of the Company that
are not directly associated with the collection of rents. The Services
Corporation is subject to federal, state and local taxes.
<PAGE>
Unless the context otherwise requires, all references to the Company
herein mean Prime Retail, Inc. and those entities owned or controlled by Prime
Retail, Inc., including the Operating Partnership and the Services Partnership.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and the partnerships in which the Company has
operational control. Profits and losses are allocated in accordance with the
terms of the agreement of limited partnership of the Operating Partnership. The
preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in partnerships in which the Company does not have
operational control are accounted for on the equity method of accounting. Income
(loss) applicable to minority interests and common shares as presented in the
consolidated statements of operations is allocated based on income (loss) before
minority interests after income allocated to preferred shareholders.
Significant intercompany accounts and transactions have been eliminated
in consolidation and combination.
Note 2 -- Summary of Significant Accounting Policies
Rental Property
Depreciation is calculated on the straight-line basis over the estimated
useful lives of the assets which are as follows:
Land improvements.................................... 20 years
Buildings and improvements........................... Principally 40 years
Tenant improvements.................................. Term of related lease
Furniture and equipment.............................. 5 years
Rental property is carried at historical cost net of accumulated
depreciation. Development costs, which include fees and costs incurred in
developing new properties, are capitalized as incurred. Upon completion of
construction, development costs are amortized over the useful lives of the
respective properties on a straight-line basis. The Company evaluates its rental
properties periodically to assess whether any impairment indications are
present, including recurring operating losses and significant adverse changes in
the business climate that affect the recovery of recorded asset value. If any
rental property is considered impaired, a loss is provided to reduce the
carrying value of the asset to its estimated fair value. No impairment losses
have been recorded in any of the periods presented.
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Significant renovations and improvements which improve
and/or extend the useful life of assets are capitalized and depreciated over
their estimated useful lives.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable
Management regularly reviews accounts receivable and determines an
appropriate range for the allowance for doubtful accounts based upon the impact
of economic conditions on the merchants' ability to pay, past collection
experience and such other factors which, in management's judgment, deserve
current recognition. In turn, a provision is charged against earnings in order
to maintain the allowance level within this range. The allowance for doubtful
accounts at December 31, 1997 and 1996 was $1,780 and $1,349, respectively.
Accounts receivable due after one year primarily representing
straight-line rents were $5,969 and $5,310 at December 31, 1997 and 1996,
respectively.
<PAGE>
Deferred Charges
Deferred charges consist of leasing commissions and financing costs.
Deferred leasing commissions incurred to originate and renew operating leases
are amortized on a straight-line basis over the term of the related lease. Fees
and costs incurred to obtain financing are deferred and are being amortized as a
component of interest expense over the terms of the respective loans on a basis
that approximates the interest method.
Revenue Recognition
Leases with tenants are accounted for as operating leases. Minimum
rental income is recognized on a straight-line basis over the term of the lease
and unpaid rents are included in accounts receivable in the accompanying balance
sheet. Certain lease agreements contain provisions which provide for rents based
on a percentage of sales or based on a percentage of sales volume above a
specified threshold. In addition, the lease agreements generally provide for the
reimbursement of real estate taxes, insurance, advertising and certain common
area maintenance costs. These additional rents and tenant reimbursements are
accounted for on the accrual basis.
Earnings per Share
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" which specifies the
method of computation, presentation, and disclosure for earnings per share
("EPS"). SFAS No. 128 requires the presentation of basic EPS and diluted EPS.
Basic EPS is calculated by dividing net income available to common shareholders
by the weighted average number of shares outstanding during the period. Diluted
EPS includes the potentially dilutive effect, if any, which would occur if
outstanding (i) options to purchase Common Stock were exercised, (ii) Common
Units were converted into shares of Common Stock, (iii) shares of Series C
Preferred Stock and Units were converted into shares of Common Stock, and (iv)
Series B Convertible Preferred Stock were converted into shares of Common Stock.
For all periods presented, the effect of these exercises and conversions
was anti-dilutive and, therefore, dilutive EPS is equivalent to basic EPS.
Interest Rate Protection Contracts
The Company uses interest rate protection contracts, including interest
rate caps and corridors, to manage interest rate risk associated with floating
rate debt. These contracts generally involve limiting the Company's interest
costs with an upper limit or specified range on the underlying interest rate
index. The cost of such contracts are included in deferred charges and are being
amortized on a straight-line basis as a component of interest expense over the
life of the contracts. Amounts earned from interest rate protection contracts
are recorded as a reduction of interest expense. The Company is exposed to
credit losses in the event of counterparty nonperformance, but does not
anticipate any such losses based on the creditworthiness of the counterparties.
Stock Based Compensation
The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" and, accordingly, recognizes no compensation expense for stock
option grants. The Company has elected to adopt only the disclosure provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation."
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company
generally will not be subject to federal income tax at the corporate level on
income it distributes to its shareholders so long as it distributes at least 95%
of its taxable income (excluding any net capital gain) each year. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Even if the Company qualifies as a
REIT, the Company may be subject to certain state and local taxes on its income
and property. The Company incurred $263, $116, and $90 for state and local taxes
for the years ended December 31, 1997, 1996 and 1995, respectively. The Company
paid $170, $102, and $81 of state and local income taxes during the years ended
December 31, 1997 and 1996, and 1995, respectively.
The following table summarizes the taxability of dividends and
distributions paid during the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Preferred Stock
Ordinary income......................................................................... $2.625 $2.625 $2.625
====== ====== ======
Series B Convertible Preferred Stock
Ordinary income......................................................................... $1.940 $0.808 $1.607
Return of capital....................................................................... 0.185 1.317 0.518
------ ------ ------
$2.125 $2.125 $2.125
====== ====== ======
Common Stock
Return of capital....................................................................... $1.180 $1.325 $1.180
====== ====== ======
=============================================================================================================================
</TABLE>
<PAGE>
Risks and Uncertainties
The Company's results of operations are significantly dependent on the
overall health of the retail industry. The Company's tenant base is comprised
almost exclusively of merchants in the retail industry. The retail industry is
subject to external factors such as inflation, consumer confidence, unemployment
rates and consumer tastes and preferences. A decline in the retail industry
could reduce merchant sales, which could adversely affect the operating results
of the Company. A number of the merchants have occupied space in more than one
of the Company's factory outlet centers; however, no single merchant accounts
for more than 5.7% of the Company's revenues.
Note 3 -- Restricted Cash
At December 31, 1997 and 1996, the Company had placed in escrow $41,736
and $45,127, respectively, to be used to complete certain development projects,
to fund real estate taxes and debt service and to pay certain operating costs
under a mortgage loan agreement. At December 31, 1997, restricted cash included
$34,692 relating to a nonrecourse expansion loan which can only be used to fund
certain development costs relating to the expansion of 13 of the Company's
factory outlet centers, provided certain occupancy and other conditions have
been attained.
Note 4 -- Deferred Charges
Deferred charges were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leasing commissions................................................................ $ 11,261 $ 10,567
Financing costs.................................................................... 18,145 25,587
------- -------
29,406 36,154
Accumulated amortization........................................................... (13,200) (15,313)
------- -------
$ 16,206 $ 20,841
======= =======
================================================================================================================
</TABLE>
Note 5 -- Investment In Partnerships
At December 31, 1997, the Company owned a 50% partnership interest in
two real estate ventures that are accounted for using the equity method of
accounting. The Company manages these ventures and earns a property management
fee based on the ventures' revenues. The condensed combined balance sheets of
these ventures and their condensed statements of operations are summarized as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets, primarily rental property...................................... $ 51,864 $75,444
======== =======
Liabilities, primarily long-term debt........................................ $ 51,077 $70,750
Partners' capital............................................................. 787 4,694
-------- -------
Total liabilities and partners' capital...................................... $ 51,864 $75,444
======== =======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues..................................................................... $12,368 $17,868 $12,671
Operating expense............................................................ 4,899 6,268 4,504
Interest expense............................................................. 4,174 5,598 3,923
Depreciation and amortization................................................ 3,206 3,615 2,298
Extraordinary loss........................................................... 851 -- --
------- ------- -------
Net income (loss)........................................................... $ (762) $ 2,387 $ 1,946
======= ======= =======
====================================================================================================================
</TABLE>
As of December 31, 1997, the Company guaranteed long-term debt of joint
venture partnerships of $24,019.
<PAGE>
On September 2, 1997, the Company acquired a 25% ownership interest in
Buckeye Factory Shops Limited Partnership ("Buckeye") from its joint venture
partner for $23,148 (including $22,642 of mortgage indebtedness relating to such
property), thereby increasing its ownership percentage in such property to 100%
(the "Buckeye Acquisition"). Prior to September 2, 1997, the Company accounted
for its 75% investment in Buckeye using the equity method of accounting.
Commencing September 2, 1997, the operating results of Buckeye are consolidated.
As a result of the prepayment of the mortgage indebtedness noted above, the
joint venture partnership incurred an extraordinary loss of $851 related to the
write-off of certain unamortized financing costs totaling $624 and a debt
prepayment penalty of $227. The Company's 75% share of the extraordinary loss,
or $638, is included in the extraordinary loss in the Consolidated Statements of
Operations.
Note 6 -- Related Party Transactions
At December 31, 1997, the net amount due from affiliates consisted of
$1,052 due from joint venture partnerships relating to reimbursement of costs
paid by the Company on their behalf. At December 31, 1996, the net amount due
from affiliates consisted of $595 due from joint venture partnerships relating
to reimbursement of costs paid by the Company on their behalf and $954 of fees
due from joint venture partnerships in connection with the development of two
factory outlet centers.
Note 7 -- Bonds and Notes Payable
<TABLE>
Bonds payable consisted of the following:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable rate tax-exempt revenue bonds (the "Bonds"), rate determined by remarketing agents, ranging
from 3.80% to 3.95% at December 31, 1997, interest-only payments, due 2012 to 2014, collateralized
by properties in Chattanooga, TN and Knoxville, TN................................................... $ 28,250 $28,250
Urban Development Action Grant Loans, 3% through August 31, 1997 and 6% thereafter, interest-only
payments, due 2016 to 2019, collateralized by property in Chattanooga, TN............................ 4,650 4,650
------- -------
$32,900 $32,900
======= =======
===============================================================================================================================
</TABLE>
Under the terms of the loan agreements relating to the Bonds, the
issuing partnerships are required to make interest-only payments calculated
using a variable rate determined by the remarketing agents of the Bonds. The
interest rates ranged from 3.00% to 4.70% in 1997, 2.45% to 5.30% in 1996 and
2.65% to 5.30% in 1995. Under certain conditions, the interest rate on the Bonds
may be converted to a fixed rate at the request of the Company. A bondholder may
tender bonds during the variable interest rate period and receive principal,
plus accrued interest through the tender date. Upon tender, the remarketing
agents are required to immediately remarket the Bonds. In the event the
remarketing agents fail to remarket any bonds, the remarketing agents may draw
on certain liquidity facilities as described below. The remarketing agents
receive fees varying from 0.1% to 0.125% per annum on the outstanding bond
balance, payable quarterly in arrears.
At December 31, 1997, the Bonds are collateralized by letters of credit
(the "Letters of Credit") issued by a group of financial institutions pursuant
to a master letter of credit agreement. A letter of credit fee of 1.0% per annum
of the stated amount of the Letters of Credit is payable quarterly in advance to
such financial institutions. The Letters of Credit are collateralized by a
reimbursement agreement under the master letter of credit agreement (the
"Reimbursement Agreement") which obligates an insurance company to reimburse the
financial institutions for any funds drawn on the Letters of Credit. In
addition, in March 1994, the issuing partnerships, the Operating Partnership and
an insurance company entered into standby bond purchase and indemnity agreements
(the "Standby Agreements") in order to address the scheduled expirations of
various credit enhancements, including the Letters of Credit, through March 21,
1999.
Pursuant to the Standby Agreements, the insurance company agreed that in
the event that any of the issuing partnerships are unable to arrange replacement
credit enhancement facilities as necessary, the insurance company will purchase
the applicable Bonds and hold the same until March 21, 1999, at which time the
issuing partnership and the Operating Partnership will purchase the Bonds
pursuant to the terms of the related Standby Agreement.
The Letters of Credit are scheduled to expire on December 31, 1998. The
total commitments outstanding under the Letters of Credit, the Reimbursement
Agreement and the Standby Agreements as of December 31, 1997 were $28,909. The
due date of the Bonds accelerates upon the expiration of the Letters of Credit
unless the Letters of Credit are extended or replaced.
<PAGE>
<TABLE>
Notes payable consisted of the following:
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Mortgage and Expansion Loan, LIBOR plus 1.51% through November 10, 1998, 7.782% thereafter, 7.51% at
December 31, 1997, monthly installments of $2,580 including interest, due November 11, 2003,
collateralized by sixteen properties located throughout the United States................................ $355,996 $358,748
Term loan, LIBOR plus 1.95%, 7.95% at December 31, 1997, monthly interest-only payments through
February 10, 1998; quarterly principal and monthly interest payments thereafter, due November 11, 1999,
collateralized by excess cash flow of sixteen properties located throughout the United States............. 53,290 53,290
Mortgage, 6.83%, monthly installments of $218 including interest, due June 6, 2006, collateralized by
property in Niagara Falls, NY.............................................................................. 31,328 --
Mortgage, 8.35%, monthly installments of $215 including interest, due June 11, 2007, collateralized by
three properties located throughout the United States...................................................... 26,784 --
Mortgage, 9.375%, monthly installments of $71 including interest, due March 1, 2004, collateralized by
property located in Lombard, IL........................................................................... 6,735 6,940
Mortgage, 7.50%, monthly installments of $29 including interest, due June 22, 2000, collateralized by
property in Knoxville, TN.................................................................................. 3,732 3,793
Term loan, LIBOR plus 1.95%, 7.95% at December 31, 1997, monthly interest-only payments through April 10,
1998; monthly principal and interest payments thereafter, due February 13, 2000, collateralized by
excess cash flow of three properties located throughout the United States.................................. 3,000 --
Unsecured term loans, 8.25%, monthly interest-only payments, due August 31, 1998.............................. 1,500 12,000
Unsecured term loans, LIBOR plus 3.50%, 9.09% at December 31, 1996, monthly
interest-only payments, due November 11, 1997.............................................................. -- 16,000
Mortgage, LIBOR plus 2.25%, 7.87% at December 31, 1996, monthly interest-only
payments, due September 10, 1998, collateralized by property located in Gaffney, SC........................ -- 15,852
Unsecured line of credit, $15,000 at December 31, 1997, LIBOR plus 2.50%, monthly interest-only payments,
due July 11, 1998.......................................................................................... -- --
-------- --------
$482,365 $466,623
======== ========
==================================================================================================================================
</TABLE>
<TABLE>
At December 31, 1997, unused commitments were $35,396. Interest costs
are summarized as follows:
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest incurred.............................................................................. $36,551 $24,310 $19,354
Interest capitalized........................................................................... (4,056) (3,348) (2,336)
Interest earned on interest rate protection contracts.......................................... (115) (201) (721)
Amortization of deferred financing costs and interest
rate protection contracts................................................................... 3,742 3,724 4,524
------- ------- -------
Interest expense............................................................................... $36,122 $24,485 $20,821
======= ======= =======
Interest paid.................................................................................. $36,424 $23,703 $18,295
======= ======= =======
===================================================================================================================================
</TABLE>
<PAGE>
The scheduled maturities of bonds and notes payable at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
December 31, 1997
------------------------------------------------------------------------------------------------------------
<S> <C>
1998.................................................................................... $ 13,951
1999.................................................................................... 50,179
2000.................................................................................... 10,340
2001.................................................................................... 5,069
2002.................................................................................... 5,484
Thereafter.............................................................................. 430,242
---------
$ 515,265
=========
============================================================================================================
</TABLE>
The aggregate carrying amount of bonds and notes payable at December 31,
1997 approximated their fair value. At December 31, 1997, the aggregate carrying
amount of rental property collateralizing bonds and notes payable was $712,247.
At December 31, 1997, the Company held interest rate protection
contracts on all $28,250 of its floating rate tax-exempt indebtedness which
expire in 1999 and approximately $355,996 of other floating rate indebtedness
which expire in November 1998. In addition, the Company purchased additional
interest rate protection contracts on $43,900 (of which $22,000 expires in July
1998 and $21,900 expires in April 1999) of the $355,996 floating rate
indebtedness to further reduce the Company's exposure to increases in interest
rates. These contracts have a weighted average maturity of approximately 0.9
years.
The following table summarizes the material terms of the interest rate
protection contracts held for purposes other than trading and related borrowings
at December 31, 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Interest Rate Protection Contracts
------------------------------------------------------------------------------------------------------------------
Borrowings Notional Date
Outstanding (in Amount Purchased/
millions) (in millions) Amended Term Index Maximum Index Rate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$356.0 $356.0 11/1/96 2 years LIBOR 7.0%
28.3 28.3 3/21/94 5 years Kenny Index Year 1 3.0%
Year 2 3.5%
Year 3 4.0%
Year 4 4.5%
______ ______ Year 5 5.0%
$384.3 $384.3
====== ======
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Interest Rate Protection on $356.0 Million Floating Rate Indebtedness
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Spread
Notional Date Between
Amount Purchased/ Maximum Index
(in millions) Amended Term Index Maximum Index Rate Rate and Index
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 22.0 7/1/94 4 years LIBOR Year 1 5.0% 2.0%
Year 2 5.5% 1.5%
Year 3 6.0% 1.0%
Year 4 6.5% 0.5%
21.9 3/31/94, 5 years LIBOR Year 1 3.75% 3.25%
Amended Year 2 4.25% 2.75%
7/1/94 Year 3 4.75% 2.25%
Year 4 5.25% 1.75%
Year 5 5.75% 1.25%
-------
$ 43.9
=======
====================================================================================================================================
</TABLE>
<PAGE>
The net carrying amount of interest rate protection contracts at December
31, 1997 was $1,266. The estimated fair value of interest rate protection
contracts based on quoted market rates at December 31, 1997 was $99.
On February 13, 1997, the Company closed on $30,000 of loan facilities
with Nomura Asset Capital Corporation. The transaction provided (i) a $27,000
nonrecourse first mortgage loan (the "First Mortgage Loan") and (ii) a junior
secured loan (the "Junior Secured Loan") of $3,000. The First Mortgage Loan (i)
is cross collateralized by first mortgages on three of the Company's factory
outlet centers, (ii) bears a fixed rate of interest of 8.35%, and (iii) requires
monthly principal and interest payments pursuant to a 360-month amortization
schedule. The Junior Secured Loan is a recourse loan to the Company that (i) is
secured by a pledge of excess cash flow after debt service on the First Mortgage
Loan, (ii) bears a variable interest rate at the London Interbank offered rate
for 30-day deposits in U.S. dollars ("30-day LIBOR") plus 1.95%, (iii) matures
in three years and (iv) requires monthly interest only payments through April
10, 1998 and monthly principal and interest payments thereafter.
On July 11, 1997, the Company's $15,000 unsecured line of credit (the
"Corporate Line") was renewed. The purpose of the Corporate Line is to provide
working capital to facilitate the funding of short-term operating cash needs of
the Company. The Corporate Line bears an interest rate of 30-day LIBOR plus
2.50% and matures on July 11, 1998. No amounts were outstanding under the
Corporate Line at December 31, 1997.
In September 1997, the Company repaid certain outstanding corporate
indebtedness aggregating $113,410, including the Junior Secured Loan, with
proceeds from certain public and private equity offerings (see Note 8 - "Equity
Offerings and Other Transactions" of the Notes to the Consolidated Financial
Statements). As a result of the prepayment of such indebtedness, the Company
incurred an extraordinary loss of $1,423 related to the write-off of certain
unamortized financing costs. The Company also incurred an extraordinary loss of
$638 related to the write-off of certain unamortized financing costs in
connection with the Buckeye Acquisition (see Note 5 - "Investment in
Partnerships" of the Notes to the Consolidated Financial Statements).
On November 13, 1997, the Company closed on a term loan with Nomura
Securities (Bermuda) Ltd. ("Nomura Securities") of $53,290 (the "Term Loan").
The Term Loan is a recourse loan to the Company that (i) is secured by a pledge
of excess cash flow after debt service on a first mortgage loan collateralized
by 16 of the Company's factory outlet centers, (ii) bears a variable interest
rate of 30-day LIBOR plus 1.95%, (iii) matures on November 11, 1999, (iv)
requires monthly interest-only payments through February 10, 1998 and monthly
interest payments and quarterly principal payments thereafter that approximate a
six-year amortization schedule, and (v) may be subject to earlier principal
payments via "mark-to-market" of the underlying debt instrument.
In addition, on November 13, 1997, the Company closed on a term loan
with Nomura Securities of $3,000 (the "Second Term Loan"). The Second Term Loan
is a recourse loan to the Company that (i) is secured by a pledge of excess cash
flow after debt service on a first mortgage loan collaterlized by three of the
Company's factory outlet centers, (ii) bears a variable interest rate of 30-day
LIBOR plus 1.95%, (iii) matures on February 13, 2000, (iv) requires monthly
interest-only payments through April 10, 1998 and monthly principal and interest
payments thereafter that approximate a five-year amortization schedule, and (v)
may be subject to earlier principal payments via "mark-to-market" of the
underlying debt instrument.
On December 2, 1997, the Company assumed a $31,328 mortgage loan in
connection with the purchase of Niagara International Factory Outlets (the
"Niagara Loan"). The Niagara Loan (i) bears a fixed rate of interest of 6.83%,
(ii) requires monthly principal and interest payments that approximates a
25-year amortization schedule, and (iii) is collateralized by Niagara
International Factory Outlets.
On December 31, 1997, the Company obtained from a financial institution
a commitment for a construction mortgage loan in an amount not to exceed $20,396
(the "Construction Mortgage Loan"). The Construction Mortgage Loan (i) bears a
variable interest rate at the financial institution's prime rate or, at the
Company's option, a LIBOR index plus 1.75%, (ii) matures on December 31, 1999,
and (iii) requires monthly interest-only payments. The Construction Mortgage
Loan is collateralized by a first mortgage on Lebanon Factory Shops, a factory
outlet center located in Lebanon, Tennessee. At December 31, 1997, no amounts
were outstanding on the Construction Mortgage Loan.
<PAGE>
Note 8 - Equity Offerings and Other Transactions
On June 27, 1996, the Company completed a registered exchange offer (the
"Exchange Offer") to exchange shares of its Common Stock for up to 4,209,000
shares, or 60%, of its Series B Convertible Preferred Stock. The Company
received tender offers for 4,648,650 shares, or approximately 66.27%, of the
Series B Convertible Preferred Stock. A proration factor was applied to each
share of Series B Convertible Preferred Stock validly tendered by holders, and
on June 27, 1996, the Company issued 6,734,323 shares of its Common Stock. In
connection with the Exchange Offer, certain affiliates of the Company who are
limited partners of the Operating Partnership (the "Limited Partners")
contributed to the Operating Partnership 625,000 common units for cancellation.
In addition, on June 26, 1996, the Company's Board of Directors approved a
special cash distribution (the "Special Cash Distribution") on its Common Stock
of $1,393, or $0.145 per common share, to holders of record on June 27, 1996.
The Special Cash Distribution was paid on July 15, 1996. The Limited Partners
were not entitled to receive and did not receive any portion of the Special Cash
Distribution.
On February 20, 1997, the Company completed a public offering by issuing
2,080,000 shares of its Common Stock at $12.50 per share and 175,800 shares of
its Series B Convertible Preferred Stock at $22.75 per share. In addition, on
March 10, 1997, the underwriter of the public offering exercised its
overallotment option to purchase 310,300 shares of the Company's Common Stock at
$12.50 per share. As a result of the public offering and the exercise of the
overallotment option, the Company received net proceeds of $31,754 that were
used to (i) repay certain outstanding indebtedness aggregating $26,500, (ii) to
fund development and construction activities, and (iii) for general corporate
purposes.
On August 8, 1997, the Company entered into a purchase agreement with
Security Capital Preferred Growth Incorporated ("Security Capital") providing
for the issuance of a new series of cumulative convertible non-voting preferred
securities (the "Series C Preferred Securities") at $13.75 per share, or an
aggregate of $60,000 in cash (the "Private Placement"). The Series C Preferred
Securities pay dividends equivalent to the amount being paid on the Company's
Common Stock, with an annual minimum equal to $1.18 per security. In addition,
the Company, subject to certain conditions, has agreed to waive the ownership
limitations otherwise applicable to the Common Stock to permit Security Capital
to own, at any one time, the shares of Common Stock issuable upon conversion of
the Series C Preferred Securities. The Company has the right to call the Series
C Preferred Securities, at par, after 10 years. Subject to certain
conditions,the Series C Preferred Securities may be issued in the form of shares
of preferred stock in the Company or preferred units of partnership interest in
the Operating Partnership that are exchangeable for shares of preferred stock or
Common Stock on a one-to-one basis. The Series C Preferred Securities may be
converted into shares of Common Stock on a one-to-one basis commencing August 8,
1998 (or earlier subject to certain conditions).
In September 1997, the Company completed a public offering of 11,500,000
shares (including 1,500,000 shares related to the exercise of the underwriters'
overallotment option) of its Common Stock at $14.00 per share (the "September
1997 Offering"). In addition, on September 8, 1997, the Company issued 727,273
Series C Preferred Units at $13.75 per unit pursuant to the initial sale under
the Private Placement. As a result of the September 1997 Offering and the
initial draw on the Private Placement (collectively, the "September Capital
Transactions"), the Company received net proceeds of $161,930 after commissions
and underwriting discounts. A portion of the net proceeds from the September
Capital Transactions were used (i) to repay certain outstanding corporate
indebtedness aggregating $113,410 and (ii) to acquire the 25% ownership interest
of the Company's joint venture partner in Buckeye for $23,148 (including $22,642
of mortgage indebtedness relating to such property). The remaining net proceeds
from the September Capital Transactions of $26,192 were used (i) to fund
development and construction activities, (ii) to fund property acquisitions, and
(iii) for general corporate purposes.
On December 2, 1997, the Company issued 3,636,363 shares of its Series C
Preferred Stock at $13.75 per share pursuant to the final sale under the Private
Placement. As a result of this issuance, the Company received net proceeds of
$49,045 that were used in the acquisition of Niagara International Factory
Outlets and Shasta Factory Stores.
<PAGE>
Note 9 -- Minority Interests
In conjunction with the formation of the Company and the Operating
Partnership, the predecessor owners contributed interests in certain properties
to the Operating Partnership and, in exchange, received limited partnership
interests in the Operating Partnership. Subject to certain conditions, each
Common Unit held by a Limited Partner may be exchanged for one share of Common
Stock or, at the option of the Company, cash equal to the fair market value of a
share of Common Stock at the time of exchange. As of December 31, 1997,
8,505,472 Common Units were issued and outstanding. Minority interests also
includes interests in three property partnerships that are not wholly owned by
the Company. During the years ended December 31, 1997, 1996 and 1995, expenses
totaling $1,468, $884, and $1,049, respectively, related solely to the operation
of the Company were allocated only to the common shareholders. Such allocation
is consistent with the federal and state tax treatment of these expenses. During
the year ended December 31, 1996, cash distributions and losses allocated to
minority interests reduced the minority interests balance to zero. After
reducing the minority interests balance to zero, additional distributions and
losses of $8,739 and $3,457 that were allocable to minority interests were
allocated to common shareholders during the years ended December 31, 1997 and
1996, respectively.
On September 8, 1997 the Company issued 727,273 Series C Preferred Units
at $13.75 per unit pursuant to the initial $10,000 sale under the Private
Placement (see Note 8 - "Equity Offerings and Other Transactions" of the Notes
to the Consolidated Financial Statements). The terms of the Series C Preferred
Units are substantially the same as those of the Series C Preferred Stock (see
Note 10 - "Preferred Stock" of the Notes to the Consolidated Financial
Statements). The net proceeds of $9,710 from the issuance of the Series C
Preferred Units are included in minority interests in the Consolidated Balance
Sheets.
At December 31, 1997 and 1996, loans to certain limited partners, who
also are executive officers of the Company, aggregating $4,750 were reported as
a reduction in minority interests in the Consolidated Balance Sheets.
Note 10 -- Preferred Stock
The Company is authorized to issue up to 24,315,000 shares of preferred
stock in one or more series. At December 31, 1997, 2,300,000 shares Senior
Preferred Stock, 2,981,800 shares of Series B Convertible Preferred Stock, and
3,636,363 shares of Series C Preferred Stock were issued and outstanding. The
Senior Preferred Stock and Series B Convertible Preferred Stock have a
liquidation preference equivalent to $25.00 per share plus the amount equal to
any accrued and unpaid dividends thereon. The Series C Preferred Stock has a
liquidation preference equivalent to $13.75 per share plus the amount equal to
any accrued and unpaid dividends thereon.
Dividends on the Senior Preferred Stock are payable quarterly in the
amount of $2.625 per share per annum. Dividends on the Series B Convertible
Preferred Stock are payable quarterly at the greater of (i) $2.125 per share per
annum or (ii) the dividends on the number of shares of Common Stock into which a
share of Series B Convertible Preferred Stock will be convertible at the
conversion price of $20.90 per share of Common Stock. At December 31, 1997,
there were 3,566,746 shares of Common Stock reserved for future issuance upon
conversion of the Series B Convertible Preferred Stock. Dividends on the Series
C Preferred Stock are equivalent to the amount being paid on the Company's
Common Stock, with an annual minimum equal to $1.18 per share.
The Company has the right to redeem the Senior Preferred Stock and the
Series B Convertible Preferred Stock beginning on and after March 31, 1999 at
$26.75 and$27.125 per share, respectively, plus the amount equal to any accrued
and unpaid dividends thereon. The redemption price decreases incrementally each
year thereafter through March 31, 2004, at which date the redemption price is
fixed at $25.00 per share plus the amount equal to any accrued and unpai
dividends thereon. The Company, subject to certain conditions, has agreed to
waive the ownership limitations otherwise applicable to the Common Stock to
permit Security Capital to own, at any one time, the shares of Common Stock
issuable upon conversion of the Series C Preferred Securities. The Company has
the right to call the Series C Preferred Stock, at par, after 10 years. The
Series C Preferred Stock is convertible into shares of Common Stoc on a
one-to-one basis, subject to adjustment, commencing August 8, 1998 or earlier
subject to certain conditions.
The holders of the Senior Preferred Stock and Convertible Preferred
Stock, each series voting separately as a class, have the right to elect two
additional members to the Company's Board of Directors if the equivalent of six
quarterly dividends on these series of preferred stock are in arrears Each of
such two directors will be elected to serve until the earlier of (i) the
election and qualification of such directors' successor, or (ii) payment of
the dividend arrearage. If distributions on any Series C Preferred Stock have
been in arrears for two consecutive quarters or the Company fails to pay
distributions on the Common Stock in an amount per share at least equal to
$0.25 (subject to adjustment) for two consecutive quarters, the number of
directors of the Company shall be increased by one (or two if the board of
directors of the Company then consists of 10 or more members) as elected by the
holders of Series C Preferred Stock together with the holders of shares on a
parity as to distributions with the Series C Preferred Stock, voting as a
single class regardless of series. Each of such two directors will be elected
to serve until the earlier of (i) the election and qualification of such
directors' successor, or (ii) payment of the dividend arrearage.
<PAGE>
Note 11 -- Stock Option Plans
Under the Company's 1994 and 1995 Stock Option Plans, options to
purchase shares of the Company's Common Stock have been or may be granted. The
option price for shares granted under these plans is the fair market value on
the grant date.
In 1994, the Company granted options to executive officers, outside
directors and consultants to purchase 585,000 shares of Common Stock at $19.00
per share. The options granted to executive officers vest at a rate of 20% per
year over five years and have a term of 10 years. The options granted to
outside directors and consultants (aggregating 35,000 options) were fully vested
at the grant date and have a term of 10 years.
In 1995, the Company granted options to purchase 20,000 common shares at
$12.45 per share to outside directors and consultants. These options were fully
vested at the grant date and have a term of 10 years.
In 1996, the Company granted options to executive officers, other key
employees and consultants to purchase 302,500 shares of Common Stock at exercise
prices ranging from $11.46 to $11.88 per share. These options were fully vested
at the grant date and have a term of 10 years.
In 1997, the Company granted options to executive officers and other key
employees to purchase 196,250 shares of Common Stock at an exercise price of
$12.53 per share. These options were fully vested at the grant date and have a
term of 10 years.
Unaudited pro forma information regarding net income and earnings per
share is required by SFAS No. 123, which requires that the information be
determined as if the Company has accounted for its stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS No. 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate.......................................................... 5.5% 6.5% 6.5%
Dividend yield................................................................... 8.3% 9.0% 9.0%
Volatility factor................................................................ 0.36 0.35 0.32
Weighted average life (in years)................................................. 10.0 10.0 10.0
===============================================================================================================================
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of unaudited pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' applicable
vesting period. The Company's unaudited pro forma information for the years
ended December 31, 1997, 1996 and 1995 follows :
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary item............................... $ 7,442 $ 8,765 $18,163
Extraordinary item............................................. (2,061) (1,017) --
-------- -------- -------
Net income..................................................... $ 5,381 $ 7,748 $18,163
======== ======== =======
Net loss applicable to common shares........................... $ (7,345) $ (6,488) $(2,782)
======== ======== =======
Earnings per common share - basic and diluted:
Loss before extraordinary item............................. $ (0.27) $ (0.67) $ (0.97)
Extraordinary item......................................... (0.11) (0.12) --
-------- -------- -------
Net loss................................................... $ (0.38) $ (0.79) $ (0.97)
======== ======== =======
=============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
The following is a summary of stock option activity and number of shares
reserved for outstanding options:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Exercise Number
Price of Shares
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994.................................................... $19.00 585,000
Granted......................................................................... $12.45 20,000
---------
Balance at December 31, 1995.................................................... $18.78 605,000
Granted......................................................................... $11.83 302,500
Cancelled....................................................................... $11.88 (4,000)
---------
Balance at December 31, 1996.................................................... $16.49 903,500
Granted......................................................................... $12.53 196,250
Cancelled....................................................................... $11.88 (1,000)
---------
Balance at December 31, 1997.................................................... $15.78 1,098,750
=========
========================================================================================================================
</TABLE>
Options on 961,253, 640,253 and 224,750 shares were exercisable at
December 31, 1997, 1996, and 1995, respectively, at a weighted average exercise
price of $15.32 per share, $15.45 per share, and $18.42 per share, respectively.
The weighted fair value of options granted during the years ended December 31,
1997, 1996, and 1995 was $1.90 per share, $1.69 per share, and $1.60 per share
respectively. Exercise prices for options outstanding at December 31, 1997
ranged from $11.46 to $19.00 per share. The weighted average remaining
contractual life of those options is 7.3 years. Under the Company's 1994 and
1995 Stock Option Plans, there were 106,250 and 311,500 shares reserved for
future grants at December 31, 1997 and 1996, respectively.
Note 12 -- Lease Agreements
The Company is the lessor of retail and office space under operating
leases with initial lease terms that expire from 1998 to 2016. Most leases are
renewable for five years at the lessee's option. Future minimum base rent to be
received under noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
December 31, 1997
---------------------------------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 91,287
1999........................................................................... 81,579
2000........................................................................... 66,987
2001........................................................................... 48,046
2002........................................................................... 28,635
Thereafter..................................................................... 55,352
---------
$ 371,886
=========
=========================================================================================================
</TABLE>
<PAGE>
The Company leases certain land, buildings, and equipment under various
noncancelable operating lease agreements. Rental expense for operating leases
was $1,059, $1,011, and $961for the years ended December 31, 1997, 1996, and
1995, respectively. Future minimum rental payments, by year and in the
aggregate, payable under these noncancelable operating leases with initial or
remaining terms of one year or more consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
December 31, 1997
-----------------------------------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 977
1999........................................................................... 940
2000........................................................................... 877
2001........................................................................... 835
2002........................................................................... 771
Thereafter..................................................................... 583
------
$4,983
======
===========================================================================================================
</TABLE>
Note 13 -- Legal Proceedings
In the ordinary course of business, the Company is subject to certain
legal actions. While any litigation contains an element of uncertainty,
management believes that losses, if any, resulting from such matters, will not
have a material adverse effect on the consolidated financial statements of the
Company.
Note 14 -- Property Acquisitions
On November 1, 1996, the Company acquired Rocky Mountain Factory Stores
and Kansas City Factory Outlets for an aggregate purchase price of $71,700.
On November 1, 1996, the Company purchased its joint venture partner's
first mortgage on and 50% ownership interest in Grove City Factory Shops for
$57,094 thereby increasing its ownership interest in such property to 100%.
On February 13, 1997, the Company, acquired Oak Creek Factory Stores,
Bend Factory Outlets and Factory Outlets at Post Falls from an unrelated third
party for an aggregate purchase price of $37,250. The Company financed the
purchase with loan proceeds from a financial institution and a $4,000 promissory
note issued to the seller. The operating results of the Company for 1997 include
the results of these acquisitions effective with the closing on February 13,
1997.
On September 2, 1997, the Company acquired a 25% ownership interest in
Buckeye from its joint venture partner for $23,148 (including $22,642 of
mortgage indebtedness relating to such property), thereby increasing its
ownership percentage in such property to 100%. Prior to September 2, 1997, the
Company accounted for its 75% investment in Buckeye using the equity method of
accounting. Commencing September 2, 1997, the operating results of Buckeye are
consolidated. The Company financed the acquisition with proceeds from the
September 1997 Offering.
On October 29, 1997, the Company acquired Tidewater Outlet Mall,
Manufacturer's Outlet Mall, Kittery Outlet Village (collectively "Prime Retail
Outlets of Kittery"), and Latham Factory Outlet Center (the "Latham Property")
from an unrelated third party for an aggregate purchase price of $26,000. The
Company financed the purchase primarily with the proceeds from the September
1997 Offering.
In addition, on December 2, 1997, the Company acquired Niagara
International Factory Outlets ("Niagara") and Shasta Factory Stores ("Shasta")
from an unrelated third party for an aggregate purchase price of $100,975,
including the assumption of mortgage indebtedness of $31,368. The Company
financed the purchase with proceeds from the September 1997 Offering and the
Private Placement.
<PAGE>
<TABLE>
The Company accounted for these acquisitions using the purchase method
of accounting. The operating results of these acquisitions have been included in
the Company's consolidated results of operations commencing on the date of
acquisition The following Unaudited pro forma information presents a summary of
the consolidated results of operations of the Company as if the these
acquisitions had occurred on January 1, 1996:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total revenues.................................................................. $148,788 $129,565
======== ========
Income before extraordinary item................................................ $ 8,983 $ 10,807
======== ========
Net income...................................................................... $ 6,709 $ 9,790
======== ========
Net loss applicable to common shares............................................ $ (6,017) $ (4,446)
======== ========
Earnings per common share - basic and diluted:
Loss before extraordinary item.............................................. $ (0.20) $ (0.42)
Extraordinary item.......................................................... (0.11) (0.12)
-------- --------
Net loss..................................................................... $ (0.31) $ (0.54)
======== ========
==================================================================================================================
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense based on the purchase price of such assets acquired and interest expense
on debt incurred on financing the acquisitions. These unaudited pro forma
results do not purport to be indicative of the results of operations which
actually would have resulted had the combination been in effect on January 1,
1996 or of future results of operations of the Company.
Note 15-- Merger Agreement
On November 12, 1997 and as amended on February 1, 1998, the Company
entered into a definitive merger agreement (as amended, the "Merger Agreement")
with Horizon Group, Inc. ("Horizon") for an aggregate consideration of
approximately $945,200, including the assumption of $556,900 of Horizon debt and
transaction costs. Upon completion of the transaction, the Company will own and
operate 48 outlet centers totaling approximately 13,406,261 square feet of GLA.
Under the terms of the Merger Agreement, the Company will pay a fixed
exchange ratio of 0.20 of a share of Series B Convertible Preferred Stock and
0.597 of a share of Common Stock for each share of common stock of Horizon. In
addition, each common unit in Horizon Partnership will entitle the holder to
receive 0.9193 of a Common Unit of the Operating Partnership that will be
exchangeable for a like number of shares of Common Stock of the Company.
Immediately prior to the merger, Horizon Group Properties, Inc.("HGP"),
a subsidiary of Horizon, will become the sole general partner of Horizon/Glen
Outlet Center Limited Partnership ("Horizon Partnership") and the common stock
of HGP will be distributed to the shareholders of both the Company and Horizon.
All of the common equity of HGP will be distributed to the convertible preferred
and common shareholders and unitholders of the Company and the shareholders and
limited partners of Horizon based on their ownership in the Company immediately
following the merger. It is presently expected that following the merger one
share of common stock of HGP will be distributed for every 10 shares of Common
Stock or Common Units of the Company, and that approximately 1.196 shares of
common stock of HGP will be distributed for every 10 shares of Series B
Convertible Preferred Stock held in the Company. Immediately prior to the
closing of the merger, the Company will pay a special cash distribution of $0.60
per share of Series B Convertible Preferred Stock and $0.50 per share/unit of
Common Stock, Series C Preferred Security and Common Unit, as applicable
Shareholders and limited partners in Horizon will not participate in this
distribution. HGP will own and operate 15 outlet centers (including Indiana
Factory Shops and Nebraska Crossing Factory Stores which will be acquired from
the Company) totaling 3,084,823 square feet of GLA.
The merger will be accounted for as a purchase. It is conditioned upon,
among other things, the approvals of each Company's shareholders and partners
and the satisfaction of other customary conditions. The closing is expected
during the second quarter of 1998. The exchange of shares of Horizon for shares
of the Company will be made on a tax-free basis.
On December 10, 1997, a shareholder of Horizon filed a purported class
action lawsuit in the Circuit Court for Muskegon County, Michigan against
Horizon, the Company, and certain directors and former directors of Horizon
claiming, among other things, that Horizon's directors breached their fiduciary
duties to Horizon's shareholders in approving the merger of Horizon and the
Company and that the consideration to be paid to Horizon's shareholders in
connection with the merger is unfair and inadequate. The lawsuit requests that
such merger be enjoined or, in the event that the purported transaction is
consummated, that it be rescinded or unspecified damages be awarded to the class
members. On January 16, 1998, the defendants answered the complaint, denying
that the Horizon board of directors breached their fiduciary duties and denying
that such consideration is unfair or inadequate. Although the Company is named
as a defendant in the complaint, the substantive allegations focus on the
actions of Horizon and its board of directors and not on any actions of the
Company or its board of directors. Since this litigation is in the initial
phases of discovery, its outcome is not susceptible to easy or certain
prediction; however, the Company intends to defend itself vigorously.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
<CAPTION>
Costs Capitalized Gross Amount at Which
Initial Cost to Subsequent to Carried at Close of
Company Acquisition Period
-------------------- -------------------- -----------------------------
Buildings & Buildings & Buildings & Accumulated Constructed(C)
Description Encumbrances Land Improvements Land Improvements Land Improvements Total Depreciation Acquired(A)
- -------------- ------------ ------- ------------ ------- ------------ ------- ------------ -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend Factory Shops $ 7,936 $ 2,560 $ 8,476 $ 42 $ 2,560 $ 8,518 $ 11,078 $ 215 Feb. 1997(A)
Buckeye Factory
Shops -- 1,013 21,455 677 1,013 22,132 23,145 398 Sept. 1997(A)
Carolina Factory
Shops -- -- -- $ 827 24,900 827 24,900 25,727 1,268 Nov. 1996(C)
Castle Rock
Factory Shops 35,942 4,424 47,200 2,717 14,460 7,141 61,660 68,801 7,515 Mar. 1994(A)
Coral Isle Factory
Shops 10,840 2,753 15,602 -- 278 2,753 15,880 18,633 1,552 Mar. 1994(A)
Factory Outlets at
Post Falls 11,805 3,100 12,163 -- 69 3,100 12,232 15,332 315 Feb. 1997(A)
Florida Keys
Factory Shops 15,632 -- -- 2,874 21,366 2,874 21,366 24,240 3,165 Sept. 1994(C)
Gainesville
Factory Shops 20,824 -- -- 535 29,657 535 29,657 30,192 5,075 Aug. 1993(C)
Grove City
Factory Shops 41,305 1,193 58,630 (70) 3,116 1,123 61,746 62,869 2,634 Nov. 1996(A)
Gulf Coast
Factory Shops 29,438 -- -- 3,877 28,734 3,877 28,734 32,611 6,135 Oct. 1991(C)
Gulfport Factory
Shops 19,968 -- -- -- 33,438 -- 33,438 33,438 2,710 Oct. 1995(C)
Huntley Factory
Shops 17,800 -- -- 1,506 34,772 1,506 34,772 36,278 4,049 Sept. 1994(C)
Indiana Factory
Shops 14,263 -- -- 531 24,068 531 24,068 24,599 2,859 Nov. 1994(C)
Kansas City
Factory Shops 14,605 815 31,311 -- 2,151 815 33,277 34,277 1,874 Nov. 1996(A)
Prime Retail
Outlets of Kittery -- 820 24,061 -- 17 820 24,078 24,898 100 Oct. 1997(A)
Latham Factory
Shops -- 507 1,476 -- -- 507 1,476 1,983 6 Oct. 1997(A)
Magnolia Bluff
Factory Shops 25,331 -- -- 3,074 30,541 3,074 30,541 33,615 3,153 July 1995(C)
Melrose Place 2,000 -- -- 499 1,880 499 1,880 2,379 744 Aug. 1987(C)
Nebraska Crossing
Factory Stores 11,753 2,904 16,614 -- 457 2,904 17,071 19,975 1,600 Mar. 1994(A)
Niagara
International
Factory Outlets 31,328 7,247 82,842 -- 2 7,247 82,844 90,091 180 Dec. 1997(A)
Northgate Plaza 6,735 3,626 11,630 -- 142 3,626 11,772 15,398 1,278 Mar. 1994(A)
Oak Creek Factory
Stores 7,043 1,924 9,099 -- 32 1,924 9,131 11,055 218 Feb. 1997(A)
Ohio Factory Shops 26,529 843 31,084 250 12,637 1,093 43,721 44,814 5,588 Mar. 1994(A)
Rocky Mountain
Factory Shops 22,808 6,400 33,244 -- (53) 6,400 33,191 39,591 1,851 Nov. 1996(A)
San Marcos Factory
Shops 39,537 -- -- 1,626 40,320 1,626 40,320 41,946 9,940 Aug. 1990(C)
Shasta Factory
Stores -- 1,875 11,036 -- 1 1,875 11,037 12,912 24 Dec. 1997(A)
Triangle Factory
Shops 9,421 -- -- 2,502 21,916 2,502 21,916 24,418 5,249 Oct. 1991(C)
Warehouse Row 23,900 -- -- 1,175 32,073 1,175 32,073 33,248 10,171 Nov. 1989(C)
Warehouse Row II -- -- -- 350 2,580 350 2,580 2,930 334 Dec. 1993(A)
Western Plaza 10,732 -- -- 2,000 6,990 2,000 6,990 8,990 954 Jun. 1993(A)
Property Under Under
Development -- -- -- -- 53,139 -- 53,139 53,139 -- Construction
Other Property -- -- 1,588 -- 592 -- 2,180 2,180 879 Mar.1994-
-------- ------- -------- ------- -------- ------- -------- -------- --------- Dec.1997(A)
$457,475 $42,004 $417,511 $24,273 $420,994 $66,277 $838,505 $904,782 $ 82,033
======== ======= ======== ======= ======== ======= ======== ======== =========
</TABLE>
<PAGE>
PRIME RETAIL, INC.
Notes to Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
(in thousands)
Depreciation on building and improvements is calculated on a
straight-line basis over the estimated useful lives of the asset as follows:
Land improvements....................................20 years
Buildings and improvements...............Principally 40 years
Tenant improvements.....................Term of related lease
Furniture and equipment...............................5 years
The aggregate cost for federal income tax purposes was $986,004 at December 31,
1997.
<TABLE>
<CAPTION>
Investment in Rental Property
Year Ended December 31
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period.................................................... $640,759 $454,480 $376,181
Retirements..................................................................... (718) ( 8) (258)
Acquisitions.................................................................... 191,345 131,593 --
Improvements.................................................................... 73,773 54,694 79,075
Cost of real estate sold........................................................ (377) -- (518)
-------- --------- --------
Balance, end of period.......................................................... $904,782 $640,759 $454,480
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Depreciation
Year Ended December 31
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period.................................................... $57,674 $40,190 $26,668
Retirements..................................................................... (718) (8) (258)
Other........................................................................... 22 24 --
Depreciation for the period..................................................... 25,055 17,468 13,780
------- ------- -------
Balance, end of period.......................................................... $82,033 $57,674 $40,190
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PRIME RETAIL, INC.1/
ARTICLE I
Name
The name of the Corporation (the "Corporation") is "Prime
Retail, Inc."
ARTICLE II
Principal Office, Registered Office, and Agent
The address of the Corporation's principal office is 100 East
Pratt Street, 19th Floor, Baltimore, Maryland 21202. The address of the
Corporation's resident agent in the State is 32 South Street, Baltimore,
Maryland 21202. The name of its registered agent at that office is The
Corporation Trust, Incorporated.
ARTICLE III
Purpose
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Maryland General
Corporation Law as now or hereafter in force (the "MGCL").
<PAGE>
ARTICLE IV
Capitalization
CAPITAL STOCK
Section 4.1.1 Authority to Issue Stock. The Board of Directors is
hereby empowered to authorize the issuance from time to time of shares of
capital stock, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable, subject to such limitations as may be
set forth in these Amended and Restated Articles of Incorporation, in the
By-laws of the Corporation as such By-laws may be amended from time to time (the
"By-laws") or in the MGCL.
Section 4.1.2 Shares and Par Value. The total number of shares of all
classes of stock that the Corporation shall have authority to issue is
150,315,000 consisting of (i) 75,000,000 shares of common stock having a par
value of one cent ($.01) per share (the "Common Stock"), amounting to an
aggregate par value of $750,000, (ii) 24,315,000 shares of preferred stock
having a par value of one cent ($.01) per share (the "Preferred Stock"),
amounting to an aggregate par value of $243,150 of which 2,300,000 shares shall
be designated as 10.5% Series A Senior Cumulative Preferred Stock (the "Series A
Preferred Stock"), 7,190,800 shares shall be designated as 8.5% Series B
Cumulative Participating Convertible Preferred Stock (the "Series B Preferred
Stock") and 4,528,302 shares shall be designated as Series C Cumulative
Convertible Redeemable Preferred Stock (the "Series C Preferred Stock") and
(iii) 51,000,000 shares of excess stock having a par value of one cent ($.01)
per share (the "Excess Stock"), amounting in the aggregate to par value of
$510,000, of which 38,842,500 shares shall be designated Excess Common Stock
(the "Excess Common Stock"), 1,150,000 shares shall be designated Excess Series
A Preferred Stock (the "Excess Series A Preferred Stock"), 3,595,400 shares
shall be designated Excess Series B Preferred Stock (the "Excess Series B
Preferred Stock") and 7,412,100 shares shall be designated Excess Preferred
Stock (the "Excess Preferred Stock"). The aggregate par value of all the shares
of all classes of stock that the Corporation shall have authority to issue is
$1,503,150.
Section 4.1.3 Declaration of Dividends.
(a) The Board of Directors of the Corporation may declare
dividends only to the extent permitted under the MGCL and, to the extent not
inconsistent therewith, these Amended and Restated Articles of Incorporation.
(b) All dividends shall be declared at the sole
discretion of the Board of Directors.
(c) To the extent declared by the Board of Directors out of
funds legally available therefor, dividends payable in respect of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Common Stock will have identical record and payment dates.
<PAGE>
Section 4.1.4 Determination of Funds Legally Available for
Distribution. In determining whether a distribution (other than upon voluntary
or involuntary liquidation) by dividend, redemption or other acquisition of
shares of Capital Stock is permitted under the MGCL, no effect shall be given to
amounts that would be needed, if the Corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
holders of shares of Capital Stock whose preferential rights upon dissolution
are superior to those receiving the distribution.
Section 4.1.5 Preemptive Rights. No holder of shares of capital stock
of the Corporation shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Common Stock or any other class of
Capital Stock of the Corporation which the Corporation may issue or sell.
Section 4.1.6 Control Shares. Pursuant to Section 3-702(b) of the MGCL,
the terms of Subtitle 7 of Title 3 of such law (the "Control Share Statute")
shall be inapplicable to any acquisition of a Control Share (as determined in
Section 3-701(d) of the MGCL) that is not prohibited by the terms of Articles IV
or V of these Amended and Restated Articles of Incorporation.
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this
Section 4.2 shall have, for all purposes of these Amended and Restated Articles
of Incorporation, the meanings herein specified (with terms defined in the
singular having comparable meanings when used in the plural).
Acquire. The term "Acquire" shall mean the acquisition of Beneficial
Ownership of shares of Capital Stock by any means including, without limitation,
the exercise of any rights under any option, warrant, convertible security,
pledge or other security interest or similar right to acquire shares, but shall
not include the acquisition of any such rights unless, as a result, the acquiror
would be considered a Beneficial Owner, as defined below. The term "Acquisition"
shall have the correlative meaning.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person who would be treated as an owner of such
shares of Capital Stock either directly or constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code, or the application of Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code (except where expressly provided otherwise). The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
<PAGE>
Beneficiary. The term "Beneficiary" shall mean a beneficiary of the
Trust as determined pursuant to Sections 4.4.5, 4.6.5 and 4.11.5.
Call Date. The term "Call Date" shall mean the date specified in the
notice to holders required under Section 4.7.3(d) as the Call Date.
Capital Stock. The term "Capital Stock" shall mean all classes or
series of capital stock, including without limitation, Common Stock, Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Excess Stock.
Change of Control. The terms "Change of Control" shall have the
meaning set forth in Section 4.7.4(a).
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Stock. The term "Common Stock" shall mean the common shares,
par value $.01 per share, of the Corporation.
Common Stock Ownership Limit. The term "Common Stock Ownership Limit"
shall mean 9.9% of the aggregate value of the outstanding shares of Common Stock
of the Corporation and the outstanding Excess Common Stock of the Corporation.
Common Units. "Common Units" shall mean Common Units as that
term is defined in the Partnership Agreement.
Constituent Person. "Constituent Person" shall have the meaning set
forth in Section 4.7.4(e).
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership by a Person who would be treated as an owner either directly or
constructively through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have the correlative
meanings.
Conversion. The term "Conversion" shall mean a conversion of shares of
Series B Preferred Stock into Common Stock, as provided in Section 4.5.6 hereof.
Conversion Commencement Date. The term "Conversion Commencement Date"
shall mean March 31, 1997.
<PAGE>
Conversion Holder. The term "Conversion Holder" shall mean any Person
who is the Beneficial Owner of Common Stock in excess of the Common Stock
Ownership Limit by reason of the Conversion of shares of Series B Preferred
Stock; provided, however, that such Person shall not be a Conversion Holder at
any time that such Person Constructively Owns an interest in any tenant under
any lease of real property owned, in whole or in part, directly or indirectly by
the Corporation and such ownership interest 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.
Conversion Price. The term "Conversion Price" shall have the
meaning set forth in Section 4.5.6(a)hereof.
Corporation Induced Event. The term "Corporation Induced Event" shall
mean either (i) the election by one or more holders of Series B Preferred Stock
to convert all or a portion of such Series B Preferred Stock into Common Stock,
or (ii) the redemption or purchase by the Corporation of all or a portion of the
outstanding Series A Preferred Stock or the outstanding Series B Preferred
Stock.
Current Market Price. "Current Market Price" of publicly traded shares
of Common Stock or any other class of shares of capital stock or other security
of the Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such day,
the average of the reported closing bid and asked prices on such day, regular
way, in either case as reported on the New York Stock Exchange ("NYSE") or, if
such security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any national
securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if such security
is not quoted on such National Market System, the average of the closing bid and
asked prices on such day in the over-the-counter market as reported by NASDAQ
or, if bid and asked prices for such security on such day shall not have been
reported through NASDAQ, the average of the bid and asked prices on such day as
furnished by any NYSE member firm regularly making a market in such security
selected for such purpose by the Board of Directors.
Dividend Period. The term "Dividend Period" shall mean the period from,
and including, the Initial Issue Date to, but not including, the first Series A
Dividend Payment Date or Series B Dividend Payment Date, as the case may be, and
thereafter each quarterly period from, and including, the Series A Dividend
Payment Date or Series B Dividend Payment Date to, but not including, the next
Series A Dividend Payment Date or Series B Dividend Payment Date (or earlier
date on which dividends are paid), as the case may be.
Excess Stock. The term "Excess Stock" shall mean the Excess Common
Stock, the Excess Preferred Stock, the Excess Series A Preferred Stock and
the Excess Series B Preferred Stock.
<PAGE>
Existing Holder. The term "Existing Holder" shall mean any Person who,
at the close of business on the date of the closing of the Initial Public
Offering, was the Beneficial Owner of Series A Preferred Stock Acquired directly
from Friedman, Billings, Ramsey & Co., Inc. (the "Underwriter") in the closing
of the Initial Public Offering in excess of the Series A Preferred Stock
Ownership Limit so long as, but only so long as, such Person continues to
Beneficially Own Series A Preferred Stock in excess of the Series A Preferred
Stock Ownership Limit; provided, however, that such Person shall not be an
Existing Holder if at any time (i) such Person Constructively Owns an interest
in any tenant under any lease of real property owned, in whole or in part,
directly or indirectly by the Corporation and such ownership interest 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 or (ii) such Person's
Beneficial Ownership causes any "individual" (within the meaning of Section
542(a)(2) of the Code) to Beneficially Own shares of Series A Preferred Stock in
excess of the Series A Preferred Stock Ownership Limit.
Existing Holder Limit. The term "Existing Holder Limit" for an Existing
Holder initially shall mean the percentage of outstanding Series A Preferred
Stock that is Beneficially Owned by such Existing Holder at the close of
business on the date of the closing of the Initial Public Offering provided such
Series A Preferred Stock has been Acquired by such Existing Holder directly from
Friedman, Billings, Ramsey & Co., Inc. in the closing of the Initial Public
Offering. From the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date, each Existing Holder Limit shall be subject
to modification pursuant to Section 4.3.13. The secretary of the Corporation
shall maintain and, upon request, make available to each Existing Holder, a
schedule which sets forth the then current Existing Holder Limits for each
Existing Holder.
Expiration Time. "Expiration Time" shall have the meaning set forth in
Section 4.7.4(d)(iv).
Fair Market Value. "Fair Market Value" shall mean the average of the
daily Current Market Prices of a share of Common Stock on the five (5)
consecutive Trading Days selected by the Corporation commencing not more than 20
Trading Days before, and ending not later than, the earlier of the day in
question and the day before the "ex date" with respect to the issuance or
distribution requiring such computation. The term "ex date," when used with
respect to any issuance or distribution, means the first day on which the Common
Stock trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
Fully Junior Shares. "Fully Junior Shares" shall mean the Common Stock
and any other class or series of shares of capital stock of the Corporation now
or hereafter issued and outstanding over which the Series C Preferred Stock have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
<PAGE>
Funds from Operations. "Funds from Operations" shall mean net income
(loss) (computed in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring, and distributions in excess
of earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation) plus
depreciation/amortization of assets unique to the real estate industry, all
computed in a manner consistent with the revised definition of Funds From
Operations adopted by the National Association of Real Estate Investment Trusts
(NAREIT), in its White Paper dated March 1995, as such definitions may be
modified from time to time, as determined by the Corporation in good faith.
Initial Issue Date. The term "Initial Issue Date" shall mean the date
that shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, are first issued by the Corporation.
Initial Public Offering, The term "Initial Public Offering" means the
closing of the sale of shares of Series A Preferred Stock, Series B Preferred
Stock and Common Stock pursuant to the Predecessor Corporation's first effective
registration statement for such Capital Stock filed under the Securities Act of
1933, as amended.
Junior Shares. "Junior Shares" shall mean the Common Stock and any
other class or series of capital stock of the Corporation now or hereafter
issued and outstanding over which the Series C Preferred Stock have preference
or priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation.
Liquidation Preference. The term "Liquidation Preference" for a share
of Series A Preferred Stock or Series B Preferred Stock shall mean $25.00 per
share plus an amount equal to any accrued and unpaid dividends on such share to
the date of liquidation.
Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding Capital Stock, the average of the
Closing Price for such Capital Stock for the five consecutive Trading Days
ending on such date. The "Closing Price" on any date shall mean the last sale
price for such Capital Stock, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, for
such Capital Stock in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if such Capital Stock is not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such Capital Stock
is listed or admitted to trading or, if such Capital Stock is not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
such Capital Stock is not quoted by any such organization, the average of the
closing bid and
<PAGE>
asked prices as furnished by a professional market maker making a market in such
Capital Stock selected by the Board of Directors of the Corporation. "Trading
Day" shall mean a day on which the principal national securities exchange on
which the applicable Capital Stock is listed or admitted to trading is open for
the transaction of business or, if such Capital Stock is not listed or admitted
to trading on any national securities exchange, shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
Non-Electing Share. "Non-Electing Share" shall have the meaning set
forth in Section 4.7.4(e).
Operating Partnership. The term "Operating Partnership" shall mean
Prime Retail, L.P., a Delaware limited partnership.
Parity Shares. "Parity Shares" shall have the meaning set forth in
Section 4.7.7(b).
Partnership Agreement. The term "Partnership Agreement" shall mean the
Amended and Restated Agreement of Limited Partnership of Prime Retail, L.P.
dated as of September 8, 1997, as such agreement may be amended from time to
time.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended; but does not include an underwriter which participates in a public
offering of Capital Stock for a period of 90 days following the purchase by such
underwriter of such Capital Stock.
Preferred Stock. The term "Preferred Stock" shall have the meaning set
forth in Section 4.1.2.
Purchased Shares. "Purchase Shares" shall have the meaning set forth
in Section 4.7.4(d)(iv).
Purported Beneficial Holder. The term "Purported Beneficial Holder"
shall mean, with respect to any event other than a purported Transfer which
results in Excess Stock, the person for whom the applicable Purported Record
Holder held the shares of Capital Stock that were, pursuant to Sections 4.3.8,
4.5.9 and 4.10.7, automatically exchanged for Excess Stock upon the occurrence
of such event. The Purported Beneficial Holder and the Purported Record Holder
may be the same Person.
<PAGE>
Purported Beneficial Transferee. The term "Purported Beneficial
Transferee" shall mean, with respect to any purported Transfer which results in
Excess Stock, the purported beneficial transferee for whom the Purported Record
Transferee would have acquired shares of Capital Stock if such Transfer had not
violated the provisions of Sections 4.3.6, 4.5.7 and 4.10.5. The Purported
Beneficial Transferee and the Purported Record Transferee may be the same
Person.
Purported Record Holder. The term "Purported Record Holder" shall mean,
with respect to any event other than a purported Transfer which results in
Excess Stock, the record holder of the shares of Capital Stock that were,
pursuant to Sections 4.3.8, 4.5.9 and 4.10.7 of this Article, automatically
exchanged for Excess Stock upon the occurrence of such event. The Purported
Record Holder and the Purported Beneficial Holder may be the same Person.
Purported Record Transferee. The term "Purported Record Transferee"
shall mean, with respect to any purported Transfer which results in Excess
Stock, the Person who would have been the record holder of the Capital Stock if
such Transfer had not violated the provisions of Sections 4.3.6, 4.5.7 and
4.10.5. The Purported Beneficial Transferee and the Purported Record Transferee
may be the same Person.
Record Date. The term "Record Date" shall mean, for any class or series
of Capital Stock, the date designated by the Board of Directors of the
Corporation at the time a dividend is declared as the date for determining
holders of record entitled to such dividend; provided, however, that such Record
Date shall be the first day of the calendar month in which the applicable
Dividend Payment Date falls or such other date designated by the Board of
Directors for the payment of dividends that is not more than thirty (30) days
nor less than ten (10) days prior to such Dividend Payment Date.
REIT. The term "REIT" shall mean a real estate investment trust within
the meaning of Section 856 of the Code.
REIT Termination Event. "REIT Termination Event" shall mean the
earliest to occur of:
(i) the filing of a federal income tax return by the
Corporation for any taxable year on which the
Corporation does not elect to be taxed as a real
estate investment trust;
(ii) the approval by the stockholders of the
Corporation of a proposal for the Corporation
to cease to qualify as a real estate investment
trust;
(iii) a determination by the Board of Directors of the
Corporation, based on the advice of counsel, that the
Corporation has ceased to qualify as a real estate
investment trust; or
<PAGE>
(iv) a "determination" within the meaning of Section
1313(a) of the Internal Revenue Code of 1986, as
amended, that the Corporation has ceased to qualify
as a real estate investment trust.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the date of the Initial Public Offering on which
the Corporation determines pursuant to Section 5.3 of these Amended and Restated
Articles of Incorporation that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a REIT or that compliance
with the restrictions and limitations on Beneficial Ownership and Transfer of
shares of Capital Stock set forth herein is no longer required in order for the
Corporation to qualify as a REIT.
Securities and Security. "Securities" and "Security" shall have
the meanings set forth in Section 4.7.4(d)(iii).
Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
Series A Dividend Payment Date: The term "Series A Dividend Payment
Date" shall have the meaning set forth in Section 4.3.1(b) hereof.
Series A Preferred Stock Ownership Limit. The term "Series A Preferred
Stock Ownership Limit" shall mean 10.0 % of the aggregate of the outstanding
Series A Preferred Stock of the Corporation and the outstanding Excess Series A
Preferred Stock of the Corporation; provided, however, that if at any time any
Person Constructively Owns an interest in a tenant under a lease of real
property owned, in whole or in part , directly or indirectly by the Corporation
and such ownership interest 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, then the term "Series A Preferred Stock Ownership Limit" shall
mean, with respect to any such Person, 9.9% of the aggregate of the outstanding
Series A Preferred Stock of the Corporation and the outstanding Excess Series A
Preferred Stock of the Corporation.
Series A Redemption Date. The term "Series A Redemption Date" shall
have the meaning set forth in Section 4.3.3(b) hereof.
Series A Redemption Price. The term "Series A Redemption Price" shall
have the meaning set forth in Section 4.3.3(a) hereof.
Series B Dividend Payment Date: The term "Series B Dividend Payment
Date" shall have the meaning set forth in Section 4.4.1(b) hereof.
Series B Preferred Stock Ownership Limit. The term "Series B Preferred
Stock Ownership Limit" shall mean 9.9% of the value of the outstanding Capital
Stock of the Corporation.
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Series B Redemption Date. The term "Series B Redemption Date" shall
have the meaning set forth in Section 4.5.3(b) hereof.
Series B Redemption Price. The term "Series B Redemption Price" shall
have the meaning set forth in Section 4.5.3(a) hereof.
Series C Conversion Date. "Series C Conversion Date" shall have
the meaning set forth in Section 4.7.4(a).
Series C Conversion Price. "Series C Conversion Price" shall mean the
conversion price per share of Common Stock for which the Series C Preferred
Stock are convertible, as such Conversion Price may be adjusted pursuant to
Section 4.7.4. The initial conversion price shall be $13.75 unless the
Liquidation Preference is adjusted pursuant to Section 4(a) in which case it
will be equal to the Liquidation Preference (equivalent to a conversion rate of
one share of Common Stock for each share of Series C Preferred Stock).
Series C Dividend Payment Date. "Series C Dividend Payment Date" shall
mean (i) for any Dividend Period with respect to which the Corporation pays a
dividend on the Common Stock, the date on which such dividend is paid, or (ii)
for any Dividend Period with respect to which the Corporation does not pay a
dividend on the Common Stock, a date to be set by the Board of Directors, which
date shall not be later than the thirtieth calendar day after the end of the
applicable Dividend Period.
Series C Dividend Periods. "Series C Dividend Periods" shall mean
quarterly dividend periods commencing on January 1, April 1, July 1 and October
1 of each year and ending on and including the day preceding the first day of
the next succeeding Dividend Period with respect to any Series C Preferred Stock
(other than the initial Dividend Period, which shall commence on the Initial
Issue Date for such Series C Preferred Stock and end on and include the last day
of the calendar quarter immediately following such Initial Issue Date, and other
than the Dividend Period during which any Series C Preferred Stock shall be
redeemed pursuant to Section 4.7.3 or converted pursuant to Section 4.7.4, which
shall end on and include the Call Date with respect to the Series C Preferred
Stock being redeemed).
Series C Preferred Stock. "Series C Preferred Stock" shall mean
the shares of Series C Cumulative Convertible Redeemable Preferred Stock.
Series C Preferred Units. "Series C Preferred Units" shall mean the
units of the Operating Partnership designated as Series C Preferred Units under
the Amended and Restated Agreement of Limited Partnership of the Operating
Partnership.
Set apart for payment. "Set apart for payment" shall be deemed to
include, without any action other than the following, the recording by the
Corporation in its accounting ledgers of any
<PAGE>
accounting or bookkeeping entry which indicates, pursuant to a declaration of
dividends or other distribution by the Board of Directors, the allocation of
funds to be so paid on any series or class of shares of capital stock of the
Corporation; provided, however, that if any funds for any class or series of
Junior Shares or any class or series of shares of capital stock ranking on a
parity with the Series C Preferred Stock as to the payment of dividends are
placed in a separate account of the Corporation or delivered to a disbursing,
paying or other similar agent, then "set apart for payment" with respect to the
Series C Preferred Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
Trading Day. "Trading Day" shall mean any day on which the securities
in question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities exchange
on which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market System
of NASDAQ, or if such securities are not quoted on such National Market System,
in the securities market in which the securities are traded.
Transaction. "Transaction" shall have the meaning set forth in Section
4.7.4(e).
Transfer. The term "Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Capital Stock or the right to vote or
receive dividends on Capital Stock (including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Capital Stock or the right to vote or receive dividends on Capital Stock or (ii)
the sale, transfer, assignment or other disposition of any securities (or rights
convertible into or exchangeable for Capital Stock), in each case whether
voluntary or involuntary, whether of record or beneficially (including without
limitation Transfers of interests in other entities which result in changes in
Beneficial Ownership of Capital Stock), and whether by operation of law or
otherwise.
Transfer Agent. "Transfer Agent" shall mean the Corporation, or such
other agent or agents of the Corporation as may be designated by the Board of
Directors or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series C Preferred Stock.
Trust. The term "Trust" shall mean each of the trusts provided for in
Sections 4.4.1, 4.6.1 and 4.10.1.
Trustee. The term "Trustee" shall mean the Corporation, acting as
trustee for any of the Trusts or any
successor trustee appointed by the Corporation.
Units. The term "Units" shall mean units of senior preferred
partnership interests, convertible preferred partnership interests, Series C
preferred partnership interests and common partnership interests in the
Operating Partnership.
Voting Preferred Shares. "Voting Preferred Shares" shall have the
meaning set forth in Section 4.7.6.
<PAGE>
Weighted Average Trading Price. "Weighted Average Trading Price" shall
mean, for any Trading Day, the number obtained by dividing (i) the sum of the
products, for each sale of Common Stock on such Trading Day, of (a) the sale
price per share of Common Stock and (b) the number of shares of Common Stock
sold by (ii) the total number of shares of Common Stock sold on such Trading
Day.
SERIES A PREFERRED STOCK
Section 4.3.1 Dividends.
(a) Subject to the preferential rights of any series of stock
ranking senior as to dividends to the Series A Preferred Stock and to the
provisions of Section 4.4.2 of these Amended and Restated Articles of
Incorporation, the record holders of Series A Preferred Stock shall be entitled
to receive dividends, when and as declared by the Board of Directors of the
Corporation, out of funds legally available for payment of dividends. Such
dividends shall be payable by the Corporation in cash at the rate of $2.625 per
annum per share.
(b) Dividends on shares of Series A Preferred Stock shall
accrue and be cumulative from the Initial Issue Date. Dividends shall be payable
quarterly in arrears when and as declared by the Board of Directors of the
Corporation on August 15, November 15, February 15, and May 15 of each year
(each, a "Series A Dividend Payment Date"), commencing on August 15, 1994. If
any Series A Dividend Payment Date occurs on a day that is not a Business Day,
any accrued dividends otherwise payable on such Series A Dividend Payment Date
shall be paid on the next succeeding Business Day. The amount of dividends
payable on Series A Preferred Stock for each full Dividend Period shall be
computed by dividing by four (4) the annual dividend rate set forth in Section
4.3.1(a) above. Dividends payable in respect of any Dividend Period which is
less or more than a full Dividend Period in length will be computed from the
immediately preceding Dividend Payment Date (or the Initial Issue Date in the
case of the first Dividend Period) to, but not including, the date on which
dividends are paid (or May 15, 1994, in the case of the first Dividend Period)
on the basis of a 360-day year consisting of twelve 30-day months. The dividend
accruing for the Dividend Period ending May 15, 1994 will be payable on August
15, 1994, together with the dividend accruing for the Dividend Period ending on
that date. Dividends shall be paid to the holders of record of the Series A
Preferred Stock as their names shall appear on the stock transfer records of the
Corporation at the close of business on the Record Date for such dividend.
Dividends in respect of any past Dividend Period that is in arrears may be
declared and paid at any time to holders of record on the Record Date for such
payment. Any dividend payment made on shares of Series A Preferred Stock shall
be first credited against the earliest accrued but unpaid dividend due which
remains payable. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
(c) Notwithstanding anything contained herein to the
contrary, no dividends on shares of Series A Preferred Stock shall be declared
by the Board of Directors of the Corporation
<PAGE>
or paid or set apart for payment by the Corporation at such time as, and to the
extent that, the terms and provisions of any agreement of the Corporation,
including any agreement relating to its indebtedness, or any provisions of these
Amended and Restated Articles of Incorporation relating to any series of
Preferred Stock ranking senior to the Series A Preferred Stock, 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.
(d) If any shares of Series A Preferred Stock are
outstanding, no full dividends shall be declared or paid or set apart for
payment on any series of Capital Stock ranking junior to or on a parity with the
Series A Preferred Stock as to dividends for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the Series
A Preferred Stock for all past Dividend Periods and the then current Dividend
Period. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of the Series A Preferred Stock and
the shares of any series of Preferred Stock ranking on a parity as to dividends
with the Series A Preferred Stock, all dividends declared upon the shares of the
Series A Preferred Stock and any other such series of Preferred Stock ranking on
a parity as to dividends with the Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on the Series A
Preferred Stock and such other series of preferred stock shall in all cases bear
to each other the same ratio that accrued and unpaid dividends per share on the
shares of the Series A Preferred Stock and such other series of Preferred Stock
bear to each other.
(e) Except as provided in Section 4.3.1(d), unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend Periods and the then
current Dividend Period, no dividends (other than dividends payable in Common
Stock or other Capital Stock ranking junior to the Series A Preferred Stock as
to dividends and upon liquidation, dissolution and winding up) shall be declared
or paid or set aside for payment or other distribution shall be declared or made
upon any series of Capital Stock ranking junior to or on a parity with the
Series A Preferred Stock as to dividends nor subject to the Corporation's right
to purchase Excess Stock as otherwise provided herein, shall shares of any
series of Capital Stock ranking junior to or on a parity with the Series A
Preferred Stock upon liquidation, dissolution, or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
series of Capital Stock ranking junior to or on a parity with the Series A
Preferred Stock) by the Corporation (except by conversion into or exchange for
other Capital Stock of the Corporation ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation, dissolution and winding up).
(f) Notwithstanding anything contained herein to the contrary,
dividends on the Series A Preferred Stock, if not paid on a Series A Dividend
Payment Date, will accrue whether or not dividends are declared for such Series
A Dividend Payment Date, whether or not the Corporation has earnings and whether
or not there are funds legally available for the payment of such dividends.
<PAGE>
Any dividend payment made on shares of Series A Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such Series A Preferred Stock which remains payable.
(g) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Code)
any portion (the "Capital Gains Amount") of the dividends paid or made available
for the year to holders of all classes of stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
the Series A Preferred Stock shall be the Capital Gains Amount multiplied by a
fraction, the numerator of which shall be the total dividends (within the
meaning of the Code) paid or made available to the holders of the Series A
Preferred Stock for the year and the denominator of which shall be the Total
Dividends.
Section 4.3.2 Distribution Upon Liquidation, Dissolution or Winding
Up.
(a) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, subject to the
prior preferences and other rights of any series of Capital Stock ranking senior
to the Series A Preferred Stock upon liquidation, dissolution, or winding up,
but before any distribution or payment shall be made to the holders of Capital
Stock ranking junior to the Series A Preferred Stock in the distribution of
assets upon any liquidation, dissolution or winding up of the Corporation, the
holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution to its stockholders
liquidating distributions in cash or property at its fair market value as
determined by the Board of Directors of the Corporation in the amount of the
Liquidation Preference per share. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series A
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation and shall not be entitled to any other distribution in the event
of liquidation, dissolution or winding up of the affairs of the Corporation.
(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or other winding up, the legally available assets of
the Corporation are insufficient to pay the amount of the Liquidation Preference
per share and the corresponding amounts payable on all shares of Capital Stock
ranking on a parity with the Series A Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of the
Series A Preferred Stock and all such other Capital Stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
(c) Neither the consolidation or merger of the Corporation
into or with another corporation or any other entity nor the sale, lease,
transfer or conveyance of all or substantially all of the assets of the
Corporation to another corporation or any other entity shall be deemed to
constitute a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 4.3.2.
<PAGE>
Section 4.3.3 Redemption by the Corporation.
(a) The Series A Preferred Stock may be redeemed, in whole or
from time to time in part, at any time on and after March 31, 1999 at the option
of the Corporation at the price per share set forth below (the "Series A
Redemption Price"):
If the Redemption Date is: Price Per Share
On or after March 31, 1999 but prior to March 31, 2000 $ 26.75
On or after March 31, 2000 but prior to March 31, 2001 $ 26.40
On or after March 31, 2001 but prior to March 31, 2002 $ 26.05
On or after March 31, 2002 but prior to March 31, 2003 $ 25.70
On or after March 31, 2003 but prior to March 31, 2004 $ 25.35
On or after March 31, 2004 $ 25.00
in each case plus all accrued and unpaid dividends thereon to the Redemption
Date, except as may be provided below, without interest.
(b) Each date fixed for redemption pursuant to Section 4.3.3
(d) below is called a "Series A Redemption Date." If the Series A Redemption
Date is after a Record Date and before the related Series A Dividend Payment
Date, the dividend payable on such Series A Dividend Payment Date shall be paid
to the holder in whose name the Series A Preferred Stock to be redeemed is
registered at the close of business on such Record Date notwithstanding the
redemption thereof between such Record Date and the related Series A Dividend
Payment Date or the Corporation's default in the payment of the dividend due.
(c) In case of redemption of less than all shares of Series A
Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected pro rata from the holders of record of such shares in proportion to the
number of shares held by such holders (with adjustments to avoid redemption of
fractional shares) or by any other equitable method determined by the
Corporation, to the extent practicable, that will not result in a violation of
the Series A Preferred Stock Ownership Limit.
(d) Notice of any redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the Series A Redemption Date. A similar notice will be
mailed by the Corporation, postage prepaid, not less than 30 nor more than 60
days prior to the Series A Redemption Date, addressed to the respective holders
of record of the Series A Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock except as to the holder to whom the Corporation has
failed to give notice or except as to the holder to whom notice was defective.
In addition to any information required by
<PAGE>
law or by the applicable rules of any exchange upon which Series A Preferred
Stock may be listed or admitted to trading, such notice shall state: (i) the
Series A Redemption Date; (ii) the Series A Redemption Price; (iii) the
aggregate number of shares of Series A Preferred Stock to be redeemed and, if
less than all shares held by such holder are to be redeemed, the number of such
shares to be redeemed; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the Series A Redemption Price; and
(v) that dividends on the shares to be redeemed will cease to accrue on the
Series A Redemption Date.
(e) If notice has been mailed in accordance with Section
4.3.3 (d) above and provided that on or before the Series A Redemption Date
specified in such notice all funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds in trust
for the pro rata benefit of the holders of the shares so called for redemption,
so as to be and to continue to be available therefor, then, from and after the
Series A Redemption Date, dividends on the shares of the Series A Preferred
Stock so called for redemption shall cease to accrue, and such shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series A Preferred Stock, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the Series
A Redemption Price) shall cease. Notwithstanding the foregoing, upon the
Corporation's default in the payment of the dividend due, the holders of Series
A Preferred Stock at the close of business on any Record Date will be entitled
to receive the dividend payable with respect to such Series A Preferred Stock on
the corresponding Series A Dividend Payment Date, although such Series A
Preferred Stock shall have been redeemed between such Record Date and such
corresponding Series A Dividend Payment Date. Upon surrender, in accordance with
the redemption notice, of the certificates for any shares of Series A Preferred
Stock so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the Series A Redemption Price. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof.
(f) Any deposit of funds with a bank or trust company for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from
such bank or trust company the interest or other
earnings, if any, earned on any money so
deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or
other earnings; and
(ii)any balance of monies so deposited by the
Corporation and unclaimed by the holders of the
Series A Preferred Stock entitled thereto at the
expiration of two (2) years after the applicable
Series A Redemption Date shall be repaid,
together with any interest or other earnings
earned thereon, to the Corporation, and after
such repayment, the holders of the shares
entitled to the funds so repaid to the
Corporation shall look only to the Corporation
for payment without interest or other earnings.
<PAGE>
(g) No Series A Preferred Stock may be redeemed except with
funds legally available for the payment of the Series A Redemption Price.
(h) Unless full cumulative dividends on all shares of Series A
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past Dividend Periods and the then current Dividend Period, no shares of any
Series A Preferred Stock shall be redeemed unless all outstanding shares of
Series A Preferred Stock are simultaneously redeemed, provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of Series
A Preferred Stock pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Series A Preferred Stock; and,
unless full cumulative dividends on all outstanding shares of Series A Preferred
Stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past Dividend
Periods and the then current Dividend Period, the Corporation shall not purchase
or otherwise acquire directly or indirectly, through a subsidiary or otherwise,
any shares of Series A Preferred Stock (except by conversion into or exchange
for capital stock of the Corporation ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation, dissolution and winding up).
(i) All shares of Series A Preferred Stock redeemed pursuant
to this Section 4.3.3 shall be retired and shall be restored to the status of
authorized and unissued shares of Preferred Stock, without designation as to
series, and subject to the applicable limitations set forth herein may
thereafter be reissued as shares of any series of Preferred Stock.
<PAGE>
Section 4.3.4 Voting Rights.
(a) The holders of record of shares of Series A Preferred
Stock shall not be entitled to any voting rights except as hereinafter provided
in this Section 4.3.4 or as otherwise provided by law. The Corporation shall
not, without the affirmative vote or consent of the holders of at least a
majority of the shares of the Series A Preferred Stock outstanding at the time,
given in person or by proxy, either in writing or at a meeting (such Series A
Preferred Stock voting separately as a class), (i) authorize, create, or
increase the authorized or issued amount of, any class or series of capital
stock ranking senior to or on a parity with the Series A Preferred Stock as to
dividends or upon liquidation, dissolution or winding up or the Excess Series A
Preferred Stock upon liquidation, dissolution or winding up, or reclassify any
authorized Capital Stock into any such senior stock or parity stock, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such senior stock or parity stock; or (ii) amend, alter or
repeal the provisions of these Amended and Restated Articles of Incorporation,
whether by merger, consolidation or otherwise, so as to materially and adversely
affect any right, preference, privilege or voting power of the Series A
Preferred Stock or the holders thereof; provided, however, that any increase in
the amount of the authorized Preferred Stock or the creation or issuance of any
other series of Preferred Stock, or any increase in the amount of authorized
shares of the Series B Preferred Stock or any other series of Preferred Stock,
in each case ranking junior to the Series A Preferred Stock with respect to
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
(b) If and whenever dividends payable on Series A Preferred
Stock shall be in arrears for six (6) or more consecutive quarterly periods,
then the holders of Series A Preferred Stock, voting separately as a class (with
any such other series as provided in Section 4.3.4(f) below), shall be entitled
at the next annual meeting of the stockholders or at any special meeting called
as hereafter provided to elect two (2) additional directors. Upon election, such
directors shall become additional directors of the Corporation and the
authorized number of directors of the Corporation shall thereupon be
automatically increased by such number of directors.
(c) Whenever the voting right described under Section 4.3.4(b)
shall become exercisable, such right may be exercised initially either at a
special meeting of the holders of Series A Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, and thereafter at such annual meetings or by the
written consent of holders of Series A Preferred Stock. Such right of the
holders of Series A Preferred Stock to elect directors may be exercised until
all dividends to which the holders of Series A Preferred Stock shall have been
entitled for all previous Dividend Periods and the current Dividend Period shall
have been paid in full or declared and a sum of money sufficient for the payment
thereof set aside for payment, at which the time the right of the holders of
Series A Preferred Stock to elect such number of directors shall cease, the term
of such directors previously elected shall thereupon terminate, and the
authorized number of directors of the Corporation shall thereupon return to the
number of authorized directors otherwise in effect, but subject always to the
same provisions for the renewal and
<PAGE>
divestment of such special voting rights in the case of any such future dividend
default or defaults and subject to the rights of any other series of Preferred
Stock to vote for the election of directors, together with the Series A
Preferred Stock, as described in Section 4.3.4(e), that shall not have then
expired.
(d) At any time when the voting right described under Section
4.3.4(b) shall become exercisable in the holders of Series A Preferred Stock,
and if such right shall not already have been initially exercised, a proper
officer of the Corporation shall, upon the written request of holders of record
of at least ten percent (10%) of the shares of Series A Preferred Stock, and of
any other series of Preferred Stock entitled to vote on such matter as described
in Section 4.3.4(f), then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of holders of Series A Preferred Stock. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Corporation or, if none, at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the proper
officers of the Corporation within thirty (30) days after the personal service
of such written request upon the Secretary of the Corporation, or within thirty
(30) days after mailing the same within the United States, by registered mail,
addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least ten percent (10%) of the
shares of Series A Preferred Stock, and of any other series of Preferred Stock
entitled to vote on such matter as described in Section 4.3.4(f), then
outstanding, may designate in writing a holder of Series A Preferred Stock or
such other preferred stock to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be held at the
place of holding annual meetings of the Corporation or, if none, at a place
designated by such holder. Any holder of Series A Preferred Stock that would be
entitled to vote at such meeting shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this Section 4.3.4(d). Notwithstanding the
provisions of this Section 4.3.4(d), however, no such special meeting shall be
called if any such request is received less than 90 days before the date fixed
for the next ensuing annual or special meeting of stockholders.
(e) If any director so elected by the holders of Series A
Preferred Stock shall cease to serve as a director before such director's term
shall expire, the holders of Series A Preferred Stock (and any other series of
Preferred Stock, if any, entitled to vote on such matter, as described in
Section 4.3.4(f)) then outstanding may, at a special meeting of the holders
called as provided above, elect a successor to hold office for the unexpired
term of the director whose place shall be vacant.
(f) If, at any time when the holders of Series A Preferred
Stock are entitled to elect directors pursuant to the foregoing provisions of
this Section 4.3.4, the holders of any one or more additional series of
Preferred Stock are entitled to elect directors by reason of any default or
event specified in these Amended and Restated Articles of Incorporation, as in
effect at the time, or the articles supplementary for such series, and if the
terms for such other additional series so
<PAGE>
permit, then the voting rights of the two or more series then entitled to vote
shall be combined (with each series having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Series A Preferred Stock and of all such other series then entitled
so to vote, voting as a class, shall elect such directors. If the holders of any
such other series have elected such directors prior to the happening of the
default or event permitting the holders of Series A Preferred Stock to elect
directors, or prior to a written request for the holding of a special meeting
being received by the Secretary of the Corporation as elsewhere required in
Section 4.3.4(d) above, then a new election shall be held with all such other
series of Preferred Stock and the Series A Preferred Stock voting together as a
single class for such directors, resulting in the termination of the term of
such previously elected directors upon the election of such new directors. If
the holders of any such other series are entitled to elect in excess of two
directors, the Series A Preferred Stock shall not participate in the election of
more than two such directors, and those directors whose terms first expire shall
be deemed to be the directors elected by the holder of Series A Preferred Stock;
provided that, if at the expiration of such terms, the holders of Series A
Preferred Stock are entitled to vote in the election of directors pursuant to
the provisions of this Section 4.3.4, then the Secretary of Corporation shall
call a meeting (which meeting may be the annual meeting or special meeting of
stockholders referred to in Section 4.3.4(c) above) of holders of Series A
Preferred Stock for the purpose of electing replacement directors (in accordance
with the provisions of this Section 4.3.4) to be held at or prior to the time of
expiration of the expiring terms referred to above.
(g) The holders of record of shares of Series A Preferred
Stock, then outstanding, shall be entitled to vote, together with any other
class or series of Capital Stock entitled to vote, then outstanding, on any
resolution presented by the Board of Directors pursuant to Section 5.2.
(h) In any matter in which the Series A Preferred Stock may
vote, including any action by written consent, each share of Series A Preferred
Stock shall be entitled to one (1) vote (except as expressly provided herein or
as may be required by law) .
(i) Except as required by law, the foregoing voting provisions
shall not apply if, at or prior to the time when the act with respect to which
such vote would otherwise be required shall be effected, all outstanding shares
of the Series A Preferred Stock shall have been redeemed or shall have been
called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
Section 4.3.5 Ranking.
The Series A Preferred Stock shall, with respect to dividend rights and
distributions upon liquidation, dissolution, and winding up, rank (i) senior to
the Series B Preferred Stock, the Series C Preferred Stock, the Common Stock and
shares of all other Capital Stock issued from time to time by the Corporation
other than any series of Capital Stock the terms of which specifically provide
that the Capital Stock of such series rank senior to or on a parity with to
Series A Preferred Stock with respect to dividend rights or distributions upon
liquidation, dissolution, or winding up of the
<PAGE>
Corporation; (ii) on a parity with the shares of all other Capital Stock issued
by the Corporation the terms of which specifically provide that the shares rank
on a parity with the Series A Preferred Stock with respect to dividends and
distributions upon liquidation, dissolution, or winding up of the Corporation
(the issuance of which must have been approved by a vote of at least a majority
of the outstanding shares of Series A Preferred Stock); and (iii) junior to all
Capital Stock issued by the Corporation the terms of which specifically provide
that the shares rank senior to the Series A Preferred Stock with respect to
dividends and distributions upon liquidation, dissolution, or winding up of the
Corporation (the issuance of which must have been approved by a vote of at least
a majority of the outstanding shares of Series A Preferred Stock). The Series A
Preferred Stock ranks on a parity with the Excess Series A Preferred Stock with
respect to distributions upon liquidation, dissolution, or winding up.
Section 4.3.6 Series A Preferred Stock Ownership Limitations.
(a) Except as provided in Section 4.3.14 , during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date:
(i) No Person, other than an Existing Holder, shall
Acquire or Beneficially Own any shares of Series
A Preferred Stock if, as the result of such
Acquisition or Beneficial Ownership, such Person
shall Beneficially Own shares of Series A
Preferred Stock in excess of the Series A
Preferred Stock Ownership Limit.
(ii)No Existing Holder shall Acquire or Beneficially
Own any shares of Series A Preferred Stock if, as
the result of such Acquisition or Beneficial
Ownership, such Person shall Beneficially Own
shares of Series A Preferred Stock in excess of
the Existing Holder Limit for such Existing
Holder.
(b) Except as provided in Section 4.3.14, during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date, any Transfer of shares of Series A
Preferred Stock that, if effective, would result in a violation of any of the
restrictions in Section 4.3.6(a) shall be void ab initio as to the Transfer of
that number of shares of Series A Preferred Stock that would cause the violation
of the applicable restriction in Section 4.3.6(a) (rounding up to the nearest
whole share), and the intended transferee shall acquire no rights in such excess
number of shares of Series A Preferred Stock.
<PAGE>
(c) Notwithstanding any other provisions contained herein,
from the date of the closing of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer of shares of Series A Preferred Stock
or other event that, if effective, would result in (i) the Corporation being
"closely held" within the meaning of Section 856(h) of the Code, (ii) the
outstanding shares of the Capital Stock of the Corporation being beneficially
owned by less than 100 Persons (determined without reference to any rules of
attribution), or (iii) the Corporation otherwise failing to qualify as a REIT
(including, but not limited to, a Transfer or other event that would result in
the Corporation owning (directly or Constructively) an interest in a tenant that
is described in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation from such tenant would cause the Corporation to fail to satisfy any
of the gross income requirements of Section 856(c) of the Code), shall be void
ab initio as to the Transfer of that number of shares of Series A Preferred
Stock (rounding up to the nearest whole share) or other event that would cause
the Corporation to be "closely held" within the meaning of Section 856(h) of the
Code, would result in the outstanding shares of the Capital Stock of the
Corporation being beneficially owned by less than 100 Persons (determined
without reference to any rules of attribution), or would otherwise result in the
Corporation failing to qualify as a REIT, and the intended transferee shall
Acquire, or the Beneficial Owner shall retain, as the case may be, no rights in
such shares of Series A Preferred Stock.
Section 4.3.7 Remedies for Breach. If the Board of Directors or any
duly authorized committee thereof shall at any time determine in good faith that
a Transfer or other event has taken place that results in a violation of Section
4.3.6 or that a Person intends to Acquire or has attempted to Acquire Beneficial
Ownership of any shares of Series A Preferred Stock in violation of Section
4.3.6 (whether or not such violation is intended), the Board of Directors or a
committee thereof shall take such action as it or they deem advisable, subject
to Section 5.3 hereof, to refuse to give effect to or to prevent such Transfer
or other event, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers or attempted Transfers or,
in the case of an event other than a Transfer, Beneficial Ownership in violation
of Section 4.3.6 shall be void ab initio and automatically result in the
exchange described in Section 4.3.8, irrespective of any action (or non-action)
by the Board of Directors or a committee thereof.
Section 4.3.8 Exchange For Excess Series A Preferred Stock. If,
notwithstanding the other provisions contained in this Section 4.3, at any time
after the date of the closing of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or other event such
that one or more of the restrictions on Beneficial Ownership and Transfer of the
Series A Preferred Stock described in Section 4.3.6 would be violated, then,
except as otherwise provided in Section 4.3.14, the shares of Series A Preferred
Stock being Transferred (or, in the case of an event other than a Transfer, the
shares of Series A Preferred Stock Beneficially Owned, which would cause one or
more of such restrictions to be violated) (rounded up to the nearest whole
share), shall be automatically exchanged for an equal number of shares of Excess
Series A Preferred Stock. Such exchange shall be effective as of the close of
business on the business day prior to the date of such purported Transfer or
other event.
<PAGE>
Section 4.3.9 Notice of Restricted Transfer. Any Person who Acquires or
attempts or intends to Acquire shares of Series A Preferred Stock in violation
of Section 4.3.6, or any Person who is a transferee in a Transfer or is
otherwise affected by an event other than a Transfer that results in the
issuance of Excess Series A Preferred Stock pursuant to Section 4.3.8, shall
immediately give written notice to the Corporation of such Transfer or other
event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer or attempted, intended or purported Transfer or other event on the
Corporation's status as a REIT.
Section 4.3.10 Owners Required To Provide Information. From the date of
the closing of the Initial Public Offering and prior to the Restriction
Termination Date:
(a) each Person who is an Existing Holder shall, within thirty
(30) days of the Initial Issue Date, give written notice to the Corporation
stating the name and address of such Existing Holder, the number of shares of
Series A Preferred Stock and other shares of the Capital Stock of the
Corporation Beneficially Owned by such Existing Holder at the close of business
on the Initial Issue Date and Acquired by such Existing Holder directly from
Friedman, Billings, Ramsey & Co., Inc. in the closing of the Initial Public
Offering, and a description of the manner in which such shares are currently
held as well as a description of the nature of the Beneficial Ownership of such
shares;
(b) every Beneficial Owner of more than 5% (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding Series A Preferred Stock of the Corporation
shall, within 30 days after December 31 of each year, give written notice to the
Corporation stating the name and address of such Beneficial Owner, the number of
shares of Series A Preferred Stock and other shares of the Capital Stock of the
Corporation, Beneficially Owned, and a description of the manner in which such
shares are held. Each such Beneficial Owner shall provide to the Corporation
such additional information as the Corporation may request in order to determine
the effect, if any, of such Beneficial Ownership on the Corporation's status as
a REIT and to ensure compliance with the Series A Preferred Stock Ownership
Limit; and
(c) each Person who is a Beneficial Owner of Series A
Preferred Stock and each Person (including the stockholder of record) who is
holding Series A Preferred Stock for a Beneficial Owner shall provide to the
Corporation such information that the Corporation may request, in good faith, in
order to determine the Corporation's status as a REIT.
Section 4.3.11 Remedies Not Limited. Subject to Section 5.2, nothing
contained in this Section 4.3 shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
<PAGE>
Section 4.3.12 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 4.3 or any definition
contained in Section 4.2, the Board of Directors shall have the power to
determine the application of the provisions of this Section 4.3 with respect to
any situation based on the facts known to it.
Section 4.3.13 Modification of Existing Holder Limits. The Existing
Holder Limit for an Existing Holder shall be reduced at any time that (i) such
Existing Holder Transfers shares of Series A Preferred Stock, (ii) the
Corporation issues additional shares of Series A Preferred Stock or (iii) any
other event occurs which terminates such Existing Holder's Beneficial Ownership
in shares of Series A Preferred Stock, in each case by reducing the percentages
calculated pursuant to the definition of Existing Holder Limit to the
percentages in effect immediately after such Transfer or issuance or other
event. Each Existing Holder shall give the Corporation written notice of any
Transfer of shares within 10 business days thereafter. Notwithstanding the
foregoing, no Existing Holder Limit shall be reduced to a percentage which is
less than the Series A Preferred Stock Ownership Limit.
Section 4.3.14 Exceptions.
(a) Subject to Section 4.3.6(c), the Board of Directors, in
its sole discretion, may exempt a Person from the Series A Preferred Stock
Ownership Limit or the Existing Holder Limit, as the case may be, (A) if such
Person is not an individual for purposes of Section 542(a)(2) of the Code and
the Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain that no such individual's
Beneficial Ownership of such shares of Series A Preferred Stock will violate the
Series A Preferred Stock Ownership Limit or otherwise violate Section 4.3.6(c),
(B) if such Person does not and represents that it will not own, directly or
Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B)
of the Code) in a tenant of the Corporation (or a tenant of any entity owned or
controlled by the Corporation) and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain this fact, and (C) if such Person agrees that any violation of such
representations or undertaking (or other action which is contrary to the
restrictions contained in Sections 4.3.6 through 4.3.13 of this Article IV) or
attempted violation will result in such shares of Series A Preferred Stock being
exchanged for Excess Series A Preferred Stock in accordance with Section 4.3.8.
(b) Prior to granting any exception pursuant to Section
4.3.14(a), the Board of Directors shall require a ruling from the Internal
Revenue Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in it sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of
Directors may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
<PAGE>
Section 4.3.15 Legend. Each certificate for Series A Preferred
Stock shall bear the following legend:
"The shares represented by this certificate are subject to restrictions
on Beneficial Ownership and Transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as expressly
provided in the Corporation's Amended and Restated Articles of
Incorporation, no Person may (i) Beneficially Own shares of the
Corporation's Series A Preferred Stock in excess of 10.0% of the
outstanding Series A Preferred Stock of the Corporation; or (ii)
Beneficially Own Series A Preferred Stock that would result in the
Corporation being "closely held" under Section 856(h) of the Code. Any
Person who Beneficially Owns or attempts to Beneficially Own shares of
Series A Preferred Stock which causes or will cause a Person to
Beneficially Own shares of Series A Preferred Stock in excess of the
above limitations must immediately notify the Corporation. Any Transfer
of shares of Series A Preferred Stock in violation of the limitations
set forth in the Corporation's Amended and Restated Articles of
Incorporation shall be void ab initio. If the restrictions on Transfer
are violated, the shares of Series A Preferred Stock represented hereby
will be automatically exchanged for shares of Excess Series A Preferred
Stock which will be held in trust by the Corporation. All capitalized
terms in this legend have the meanings defined in the Corporation's
Amended and Restated Articles of Incorporation, as the same may be
amended from time to time, a copy of which, including the restrictions
on transfer, will be sent without charge to each holder of Series A
Preferred Stock who so requests."
EXCESS SERIES A PREFERRED STOCK
Section 4.4.1 Ownership in Trust. Upon any purported Transfer or other
event that results in an exchange of Series A Preferred Stock for Excess Series
A Preferred Stock pursuant to Section 4.3.8, such Excess Series A Preferred
Stock shall be deemed to have been Transferred to the Corporation, as Trustee of
a Trust for the exclusive benefit of the Beneficiary or Beneficiaries to whom an
interest in such Trust may later be transferred pursuant to Section 4.4.5.
Shares of Excess Series A Preferred Stock so held in trust shall be issued and
outstanding stock of the Corporation but shall not be considered issued and
outstanding for purposes of any stockholder vote. The Purported Record
Transferee or, in the case of Excess Series A Preferred Stock resulting from an
event other than a Transfer, the Purported Record Holder, shall have no rights
in such Excess Series A Preferred Stock except the right to designate a
transferee of such Excess Series A Preferred Stock upon the terms specified in
Section 4.4.5. The Purported Beneficial Transferee or, in the case of Excess
Series A Preferred Stock resulting from an event other than a Transfer, the
Purported Beneficial Holder, shall have no rights in such Excess Series A
Preferred Stock except as provided in Section 4.4.5.
<PAGE>
Section 4.4.2 Dividend Rights. Excess Series A Preferred Stock shall
not be entitled to any dividends or periodic distributions. Any dividend or
distribution paid prior to the discovery by the Corporation that shares of
Series A Preferred Stock have been exchanged for Excess Series A Preferred Stock
shall be repaid to the Corporation upon demand, and any dividend or distribution
declared but unpaid shall be rescinded as void ab initio with respect to such
shares of Series A Preferred Stock.
Section 4.4.3 Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, the Corporation, as holder of shares of Excess
Series A Preferred Stock in trust, shall be entitled to receive that portion of
the assets of the Corporation which a holder of the Series A Preferred Stock
that was exchanged for such Excess Series A Preferred Stock would have been
entitled to receive had the Series A Preferred Stock remained outstanding. The
Corporation, as holder of the Excess Series A Preferred Stock in trust, or if
the Corporation shall have been dissolved, any trustee appointed by the
Corporation prior to its dissolution, shall distribute ratably to the
Beneficiaries of the Trust, when and if determined in accordance with Section
4.4.5, any such assets received in respect of the Excess Series A Preferred
Stock in any liquidation, dissolution or winding up of, or any distribution of
the assets, of the Corporation.
Section 4.4.4 Voting Rights. The holders of shares of Excess Series A
Preferred Stock shall not be entitled to vote on any matters (except as required
by the MGCL).
Section 4.4.5 Restrictions On Transfer; Designation of Beneficiary.
(a) Excess Series A Preferred Stock shall not be
transferrable. A Purported Record Transferee or, in the case of Excess Series A
Preferred Stock resulting from an event other than a Transfer, a Purported
Record Holder, may freely designate a Beneficiary of its interest in the Trust
(representing the number of shares of Excess Series A Preferred Stock held by
the Trust attributable to the purported Transfer or other event that resulted in
the issuance of such Excess Series A Preferred Stock), if (i) the shares of
Excess Series A Preferred Stock held in the Trust would not be Excess Series A
Preferred Stock in the hands of such Beneficiary and (ii) the Purported
Beneficial Transferee or, in the case of Excess Series A Preferred Stock
resulting from an event other than a Transfer, the Purported Beneficial Holder,
does not receive consideration for the designation of such Beneficiary that
reflects a price per share for such Excess Series A Preferred Stock that exceeds
the "Series A Preferred Stock Limitation Price". The Series A Preferred Stock
Limitation Price is the lesser of (A) in the case of Excess Series A Preferred
Stock resulting from a Transfer for value, the price per share that the
Purported Beneficial Transferee paid for the Series A Preferred Stock in the
purported Transfer that resulted in the issuance of the Excess Series A
Preferred Stock, or, in the case of Excess Series A Preferred Stock resulting
from (I) a Transfer other than for value (such as a gift, devise or similar
Transfer) or (II) an event other than a Transfer, a price per share equal to the
Market Price of the Series A Preferred Stock that was exchanged for such Excess
Series A Preferred Stock on the date of the purported Transfer or other event
that resulted in the issuance of the Excess
<PAGE>
Series A Preferred Stock or (B) a price per share equal to the Market Price of
the Excess Series A Preferred Stock on the date of the designation of the
Beneficiary of the interest in the Trust. Prior to any transfer of any interest
in the Trust, the Purported Record Transferee or Purported Record Holder, as the
case may be, must give advance notice to the Corporation of the intended
transfer and the Corporation must have waived in writing its purchase rights
under Section 4.4.6. Upon any transfer of an interest in the Trust, the
corresponding shares of Excess Series A Preferred Stock in the Trust shall be
automatically exchanged for an equal number of shares of Series A Preferred
Stock and such shares of Series A Preferred Stock shall be transferred of record
to the Beneficiary of the interest in the Trust designated by the Purported
Record Transferee or Purported Record Holder as described above if such Series A
Preferred Stock would not be Excess Series A Preferred Stock in the hands of
such Beneficiary.
(b) Notwithstanding the foregoing, if a Purported Beneficial
Transferee or Purported Beneficial Holder receives consideration for the
designation by the Purported Record Transferee or Purported Record Holder of a
Beneficiary of an interest in the Trust that exceeds the Series A Preferred
Stock Limitation Price, such Purported Beneficial Transferee or Purported
Beneficial Holder shall pay, or cause the Beneficiary of the interest in the
Trust to pay, to the Corporation the amount by which such consideration exceeds
the Series A Preferred Stock Limitation Price.
Section 4.4.6 Purchase Right in Excess Series A Preferred Stock.
Notwithstanding Section 4.4.5, shares of Excess Series A Preferred Stock shall
be deemed to have been offered for sale to the Corporation, or its designee, at
a price per share equal to the Series A Preferred Stock Limitation Price
(determined by substituting "the date on which the Corporation, or its designee,
accepts the offer to sell" for "the date of the designation of the Beneficiary
of the interest in the Trust" in clause (B) of the definition of the Series A
Preferred Stock Limitation Price in Section 4.4.5(a)). The Corporation shall
have the right to accept such offer for a period of ninety days after the later
of (i) the date of the Transfer or other event which resulted in the issuance of
such Excess Series A Preferred Stock and (ii) if the Corporation does not
receive actual notice of a Transfer or other event pursuant to Section 4.3.9,
the date the Board of Directors determines in good faith that such a Transfer or
other event resulting in the issuance of Excess Series A Preferred Stock has
occurred.
Section 4.4.7 Ranking. The Excess Series A Preferred Stock shall rank,
with respect to distributions upon liquidation, dissolution, or winding up, (i)
senior to the Series B Preferred Stock, the Excess Series B Preferred Stock, the
Series C Preferred Stock, the Common Stock, the Excess Common Stock and shares
of all other Capital Stock issued from time to time by the Corporation, other
than any series of Capital Stock the terms of which specifically provide that
the Capital Stock of such series rank senior to or on a parity with the Excess
Series A Preferred Stock with respect to distributions upon liquidation,
dissolution, or winding up of the Corporation (the issuance of which must have
been approved by a vote of at least a majority of the outstanding shares of
Series A Preferred Stock); (ii) on a parity with the Series A Preferred Stock
and all Capital Stock issued by the Corporation the terms of which specifically
provide that the Capital Stock of such series rank on a parity with the Excess
Series A Preferred Stock with respect to distributions upon liquidation,
<PAGE>
dissolution, or winding up of the Corporation (the issuance of which must have
been approved by a vote of at least a majority of the outstanding shares of
Series A Preferred Stock); and (iii) junior to all Capital Stock issued by the
Corporation the terms of which specifically provide that the Capital Stock of
such series rank senior to the Excess Series A Preferred Stock with respect to
distributions upon liquidation, dissolution, or winding up of the Corporation
(the issuance of which must have been approved by a vote of at least a majority
of the outstanding shares of Series A Preferred Stock).
Section 4.4.8. Corporation Induced Events: Redemption of Series A
Preferred Stock in Certain Circumstances. Notwithstanding anything to the
contrary in Section 4.3.3, prior to the Restriction Termination Date, if a
purported Transfer, change in the capital structure of the Corporation or other
event would result in a violation of one or more of the restrictions in Section
4.3.6 and such violation would not occur but for the occurrence of one or more
Corporation Induced Events then, immediately prior to the occurrence of such
Transfer, change in the capital structure of the Corporation or other event, an
amount of Series A Preferred Stock (rounded up to the nearest one-tenth of a
share) shall be automatically redeemed by the Corporation from the actual owner
of Series A Preferred Stock which is Beneficially Owned by any Person who (but
for this Section 4.4.8) would Beneficially Own Series A Preferred Stock in
violation of one or more of the restrictions in Section 4.3.6 after the
occurrence of the Transfer, change in the capital structure of the Corporation
or other event. The redemption price of each share of Series A Preferred Stock
automatically redeemed pursuant to this Section 4.4.8 shall be (i) the price per
share paid for the Series A Preferred Stock in the purported Transfer that
resulted in the redemption, or (ii) if the Transfer or other event that resulted
in the redemption were not a transaction in which the full value was paid for
such Series A Preferred Stock, a price per share equal to the Market Price on
the date of the purported Transfer or other event that resulted in the
redemption. In either case, dividends which were accrued but unpaid with respect
to the redeemed shares as of the date of the purported Transfer or other event
that resulted in the redemption shall be paid. Any dividend or other
distribution paid prior to the discovery of the Corporation that shares of
Series A Preferred Stock have been automatically redeemed by the Corporation
shall be repaid to the Corporation upon demand.
SERIES B PREFERRED STOCK
Section 4.5.1 Dividends.
(a) Subject to the preferential rights of the Series A
Preferred Stock and any other series of stock ranking senior as to dividends to
the Series B Preferred Stock and to Section 4.6.2, the record holders of Series
B Preferred Stock shall be entitled to receive dividends, when and as declared
by the Board of Directors of the Corporation, out of funds legally available for
payment of dividends. Such dividends shall be payable by the Corporation in cash
at the greater of (i) the rate of $2.125 per annum per share or (ii) the
dividends (determined on each of the quarterly Series B Dividend Payment Dates
referred to below) payable on the number of shares of Common Stock (or fraction
thereof), into which a share of Series B Preferred Stock will be convertible on
or after the Conversion Commencement Date. The amount referred to in clause (ii)
above will equal the number of shares of Common Stock, or fraction thereof, into
which a share of Series B Preferred Stock will
<PAGE>
be convertible on or after the Conversion Commencement Date, multiplied by the
most recent quarterly distribution declared or paid in respect of a share of
Common Stock on or before the applicable Series B Dividend Payment Date.
(b) Dividends on shares of Series B Preferred Stock shall
accrue and be cumulative from the Initial Issue Date. Dividends shall be payable
quarterly in arrears when and as declared by the Board of Directors of the
Corporation on August 15, November 15, February 15, and May 15 of each year
(each, a "Series B Dividend Payment Date"), commencing on August 1, 1994. If any
Series B Dividend Payment Date occurs on a day that is not a Business Day, any
accrued dividends otherwise payable on such Series B Dividend Payment Date shall
be paid on the next succeeding Business Day. The amount of dividends payable on
Series B Preferred Stock for each full Dividend Period shall be computed by
dividing by four (4) the annual dividend rate set forth in Section 4.4.1(a)
above. Dividends payable in respect of any Dividend Period which is less than a
full Dividend Period in length will be computed from the immediately preceding
Dividend Payment Date (or the Initial Issue Date in the case of the first
Dividend Period) to, but not including, the date on which dividends are paid (or
May 15, 1994, in the case of the first Dividend Period) on the basis of a
360-day year consisting of twelve 30-day months. Dividends shall be paid to the
holders of record of the Series B Preferred Stock as their names shall appear on
the stock transfer records of the Corporation at the close of business on the
Record Date for such dividend. The dividend accruing for the Dividend Period
ending May 15, 1994 will be payable on August 15, 1994, together with the
dividend accruing for the Dividend Period ending on that date. Dividends in
respect of any past Dividend Period that is in arrears may be declared and paid
at any time to holders of record on the Record Date for such payment. Any
dividend payment made on shares of Series B Preferred Stock shall be first
credited against the earliest accrued but unpaid dividend due which remains
payable. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series B Preferred Stock
which may be in arrears.
(c) Notwithstanding anything contained herein to the contrary,
no dividends on shares of Series B Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time as, and to the extent that, the terms and provisions of
any agreement of the Corporation, including any agreement relating to its
indebtedness, or any provisions of these Amended and Restated Articles of
Incorporation relating to any series of Preferred Stock ranking senior to the
Series B Preferred Stock (including the Series A Preferred Stock), 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.
(d) If any shares of Series B Preferred Stock are outstanding,
no full dividends shall be declared or paid or set apart for payment on any
series of Capital Stock ranking junior to or on a parity with the Series B
Preferred Stock as to dividends for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series B
Preferred Stock for all past Dividend Periods and the then current Dividend
Period.When dividends are not paid in full (or a
<PAGE>
sum sufficient for such full payment is not so set apart) upon the shares of the
Series B Preferred Stock and the shares of any series of Preferred Stock ranking
on a parity as to dividends with the Series B Preferred Stock, all dividends
declared upon the shares of the Series B Preferred Stock and any other such
series of Preferred Stock ranking on a parity as to dividends with the Series B
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Series B Preferred Stock and such other series of
preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of the Series B Preferred
Stock and such other series of Preferred Stock bear to each other.
(e) Except as provided in Section 4.4.1(d), unless full
cumulative dividends on the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past Dividend Periods and the then
current Dividend Period, no dividends (other than dividends payable in Common
Stock or other Capital Stock ranking junior to the Series B Preferred Stock as
to dividends and upon liquidation, dissolution and winding up) shall be declared
or paid or set aside for payment or other distribution shall be declared or made
upon any series of Capital Stock ranking junior to or on a parity with the
Series B Preferred Stock as to dividends nor, subject to the Corporation's right
to purchase Excess Stock as otherwise provided herein, shall shares of any
series of Capital Stock ranking junior to or on a parity with the Series B
Preferred Stock upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
series of Capital Stock ranking junior to or on a parity with the Series B
Preferred Stock) by the Corporation (except by conversion into or exchange for
other Capital Stock of the Corporation ranking junior to the Series B Preferred
Stock as to dividends and upon liquidation, dissolution and winding up).
(f) Notwithstanding anything contained herein to the contrary,
dividends on the Series B Preferred Stock, if not paid on a Series B Dividend
Payment Date, will accrue whether or not dividends are declared for such Series
B Dividend Payment Date, whether or not the Corporation has earnings and whether
or not there are funds legally available for the payment of such dividends. Any
dividend payment made on shares of Series B Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such Series B Preferred Stock which remains payable.
(g) If, for any taxable year, the Corporation elects to
designate as "capital gain dividends" (as defined in Section 857 of the Code)
any portion (the "Capital Gains Amount") of the dividends paid or made available
for the year to holders of all classes of stock (the "Total Dividends"), then
the portion of the Capital Gains Amount that shall be allocable to holders of
the Series B Preferred Stock shall be the Capital Gains Amount multiplied by a
fraction, the numerator of which shall be the total dividends (within the
meaning of the Code) paid or made available to the holders of the Series B
Preferred Stock for the year and the denominator of which shall be the Total
Dividends.
<PAGE>
Section 4.5.2 Distribution Upon Liquidation, Dissolution or Winding
Up.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, subject to the prior
preferences and other rights of any series of Capital Stock ranking senior to
the Series B Preferred Stock upon liquidation, dissolution or winding up
(including the Series A Preferred Stock), but before any distribution or payment
shall be made to the holders of Capital Stock ranking junior to the Series B
Preferred Stock in the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, the holders of Series B Preferred Stock shall be
entitled to receive out of the assets of the Corporation legally available for
distribution to its stockholders liquidating distributions in cash or property
at its fair market value as determined by the Board of Directors of the
Corporation in the amount of the Liquidation Preference per share. After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of Series B Preferred Stock will have no right or claim to any of
the remaining assets of the Corporation and shall not be entitled to any other
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation.
(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or other winding up, the legally available assets of
the Corporation are insufficient to pay the amount of the Liquidation Preference
per share and the corresponding amounts payable on all shares of Capital Stock
ranking on a parity with the Series B Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of the
Series B Preferred Stock and all such other Capital Stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
(c) Neither the consolidation or merger of the Corporation
into or with another corporation or any other entity nor the sale, lease,
transfer or conveyance of all or substantially all of the assets of the
Corporation to another corporation or any other entity shall be deemed to
constitute a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 4.5.2.
Section 4.5.3 Redemption by the Corporation.
(a) The Series B Preferred Stock may be redeemed, in whole or
from time to time in part, at any time on and after March 31, 1999 at the option
of the Corporation at the price per share set forth below (the "Series B
Redemption Price"):
If the Redemption Date is: Price Per Share
On or after March 31, 1999 but prior to March 31, 2000 $ 27.125
On or after March 31, 2000 but prior to March 31, 2001 $ 26.70
On or after March 31, 2001 but prior to March 31, 2002 $ 26.275
<PAGE>
On or after March 31, 2002 but prior to March 31, 2003 $ 25.85
On or after March 31, 2003 but prior to March 31, 2004 $ 25.425
On or after March 31, 2004 $ 25.00
in each case plus all accrued and unpaid dividends thereon to the Redemption
Date, except as may be provided below, without interest.
(b) Each date fixed for redemption pursuant to Section
4.5.3(d) below is called a "Series B Redemption Date." If the Series B
Redemption Date is after a Record Date and before the related Series B Dividend
Payment Date, the dividend payable on such Series B Dividend Payment Date shall
be paid to the holder in whose name the Series B Preferred Stock to be redeemed
is registered at the close of business on such Record Date notwithstanding the
redemption thereof between such Record Date and the related Series B Dividend
Payment Date or the Corporation's default in the payment of the dividend due.
(c) In case of redemption of less than all shares of Series B
Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected pro rata from the holders of record of such shares in proportion to the
number of shares held by such holders (with adjustments to avoid redemption of
fractional shares) or by any other equitable method determined by the
Corporation, to the extent practicable, that will not result in a violation of
the Series B Preferred Stock Ownership Limit.
(d) Notice of any redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the Series B Redemption Date. A similar notice will be
mailed by the Corporation, postage prepaid, not less than 30 nor more than 60
days prior to the Series B Redemption Date, addressed to the respective holders
of record of the Series B Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Series B Preferred Stock except as to the holder to whom the Corporation has
failed to give notice or except as to the holder to whom notice was defective.
In addition to any information required by law or by the applicable rules of any
exchange upon which Series B Preferred Stock may be listed or admitted to
trading, such notice shall state: (i) the Series B Redemption Date; (ii) the
Series B Redemption Price; (iii) the aggregate number of shares of Series B
Preferred Stock to be redeemed and, if less than all shares held by such holder
are to be redeemed, the number of such shares to be redeemed; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Series B Redemption Price; (v) that dividends on the shares to be redeemed
will cease to accrue on the Series B Redemption Date; and (vi) that any
conversion rights with respect to such shares shall terminate at the close of
business on the third business day immediately preceding the Series B Redemption
Date.
<PAGE>
(e) If notice has been mailed in accordance with Section 4.5.3
(d) above and provided that on or before the Series B Redemption Date specified
in such notice all funds necessary for such redemption shall have been set aside
by the Corporation, separate and apart from its other funds in trust for the pro
rata benefit of the holders of the shares so called for redemption, so as to be
and to continue to be available therefor, then, from and after the Series B
Redemption Date, dividends on the shares of the Series B Preferred Stock so
called for redemption shall cease to accrue, and such shares shall no longer be
deemed to be outstanding and shall not have the status of shares of Series B
Preferred Stock, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the Series B
Redemption Price) shall cease. Notwithstanding the foregoing, upon the
Corporation's default in the payment of the dividend due, the holders of Series
B Preferred Stock at the close of business on any Record Date will be entitled
to receive the dividend payable with respect to such Series B Preferred Stock on
the corresponding Series B Dividend Payment Date, although such Series B
Preferred Stock shall have been redeemed between such Record Date and such
corresponding Series B Dividend Payment Date. Upon surrender, in accordance with
the redemption notice, of the certificates for any shares of Series B Preferred
Stock so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the Series B Redemption Price. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof.
(f) Any deposit of funds with a bank or trust company for the
purpose of redeeming Series B Preferred Stock shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from
such bank or trust company the interest or
other earnings, if any, earned on any money so
deposited in trust, and the holders of any
shares redeemed shall have no claim to such
interest or other earnings; and
(ii)any balance of monies so deposited by the
Corporation and unclaimed by the holders of the
Series B Preferred Stock entitled thereto at the
expiration of two (2) years after the applicable
Series B Redemption Date shall be repaid,
together with any interest or other earnings
earned thereon, to the Corporation, and after
such repayment, the holders of the shares
entitled to the funds so repaid to the
Corporation shall look only to the Corporation
for payment without interest or other earnings.
(g) No Series B Preferred Stock may be redeemed except with
funds legally available for the payment of the Series B Redemption Price.
(h) Unless full cumulative dividends on all shares of Series B
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past Dividend Periods and the then current Dividend
<PAGE>
Period, no shares of any Series B Preferred Stock shall be redeemed unless all
outstanding shares of Series B Preferred Stock are simultaneously redeemed,
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Series B Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Series B Preferred Stock; and, unless full cumulative dividends on all
outstanding shares of Series B Preferred Stock have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past Dividend Periods and the then current
Dividend Period, the Corporation shall not purchase or otherwise acquire
directly or indirectly, through a subsidiary or otherwise, any shares of Series
B Preferred Stock (except by conversion into or exchange for capital stock of
the Corporation ranking junior to the Series B Preferred Stock as to dividends
and upon liquidation, dissolution and winding up).
(i) All shares of Series B Preferred Stock redeemed pursuant
to this Section 4.5.3 shall be retired and shall be restored to the status of
authorized and unissued shares of Preferred Stock, without designation as to
series, and subject to the applicable limitations set forth herein may
thereafter be reissued as shares of any series of Preferred Stock.
Section 4.5.4 Voting Rights.
(a) The holders of record of shares of Series B Preferred
Stock shall not be entitled to any voting rights except as hereinafter provided
in this Section 4.5.4 or as otherwise provided by law. The Corporation shall
not, without the affirmative vote or consent of the holders of at least a
majority of the shares of the Series B Preferred Stock outstanding at the time,
given in person or by proxy, either in writing or at a meeting (such Series B
Preferred Stock voting separately as a class), (i) authorize, create, or
increase the authorized or issued amount of, any class or series of capital
stock ranking senior to the Series B Preferred Stock as to dividends or upon
liquidation, dissolution or winding up or the Excess Series B Preferred Stock as
to the distribution terms upon liquidation, dissolution or winding up, or
reclassify any authorized capital stock into any such senior stock, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such Capital Stock; or (ii) amend, alter or repeal the
provisions of these Amended and Restated Articles of Incorporation, whether by
merger, consolidation or otherwise, so as to materially and adversely affect any
right, preference, privilege or voting power of the Series B Preferred Stock or
the holders thereof; provided, however, that any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or any increase in the amount of authorized shares of the
Series B Preferred Stock or any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Series B Preferred Stock with respect
to payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
(b) If and whenever dividends payable on Series B Preferred
Stock shall be in arrears for six (6) or more consecutive quarterly periods,
then the holders of Series B Preferred Stock, voting separately as a class (with
any such other series as provided in Section 4.5.4(f)
<PAGE>
below), shall be entitled at the next annual meeting of the stockholders or at
any special meeting called as hereinafter provided to elect two (2) additional
directors. Upon election, such directors shall become additional directors of
the Corporation and the authorized number of directors of the Corporation shall
thereupon be automatically increased by such number of directors.
(c) Whenever the voting right described under Section 4.5.4(b)
shall become exercisable, such right may be exercised initially either at a
special meeting of the holders of Series B Preferred Stock, called as
hereinafter provided, or at any annual meeting of stockholders held for the
purpose of electing directors, and thereafter at such annual meetings or by the
written consent of holders of Series B Preferred Stock. Such right of the
holders of Series B Preferred Stock to elect directors may be exercised until
all dividends to which the holders of Series B Preferred Stock shall have been
entitled for all previous Dividend Periods and the current Dividend Period shall
have been paid in full or declared and a sum of money sufficient for the payment
thereof set aside for payment, at which the time the right of the holders of
Series B Preferred Stock to elect such number of directors shall cease, the term
of such directors previously elected shall thereupon terminate, and the
authorized number of directors of the Corporation shall thereupon return to the
number of authorized directors otherwise in effect, but subject always to the
same provisions for the renewal and divestment of such special voting rights in
the case of any such future dividend default or defaults and subject to the
rights of any other series of preferred stock to vote for the election of
directors, together with the Series B Preferred Stock, as described in Section
4.5.4(f), that shall not have then expired.
(d) At any time when the voting right described under Section
4.5.4(b) shall become exercisable in the holders of Series B Preferred Stock and
if such right shall not already have been initially exercised, a proper officer
of the Corporation shall, upon the written request of holders of record of at
least ten percent (10%) of the shares of Series B Preferred Stock, and of any
other series of Preferred Stock entitled to vote on such matter as described in
Section 4.5.4(f), then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of holders of Series B Preferred Stock. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Corporation or, if none, at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the proper
officers of the Corporation within thirty (30) days after the personal service
of such written request upon the Secretary of the Corporation, or within thirty
(30) days after mailing the same within the United States, by registered mail,
addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least ten percent (10%) of the
shares of Series B Preferred Stock, and of other preferred stock entitled to
vote on such matter as described in Section 4.5.4(f), then outstanding may
designate in writing a holder of Series B Preferred Stock or such other
Preferred Stock to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice required for
annual meetings of stockholders and shall be held at the place of holding annual
meetings of the Corporation or, if none, at a place designated by such holder.
Any holder of Series B Preferred Stock that would be entitled to vote at such
meeting shall have access to the stock books of the
<PAGE>
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this Section 4.5.4(d). Notwithstanding the
provisions of this Section 4.5.4(d), however, no such special meeting shall be
called if any such request is received less than 90 days before the date fixed
for the next ensuing annual or special meeting of stockholders.
(e) If any director so elected by the holders of Series B
Preferred Stock shall cease to serve as a director before such director's term
shall expire, the holders of Series B Preferred Stock (and any other series of
Preferred Stock, if any, entitled to vote on such matter, as described in
Section 4.5.4(f)) then outstanding may, at a special meeting of the holders
called as provided above, elect a successor to hold office for the unexpired
term of the director whose place shall be vacant.
(f) If, at any time when the holders of Series B Preferred
Stock are entitled to elect directors pursuant to the foregoing provisions of
this Section 4.5.4, the holders of any one or more additional series of
Preferred Stock are entitled to elect directors by reason of any default or
event specified in these Amended and Restated Articles of Incorporation, as in
effect at the time, or the articles supplementary for such series, and if the
terms for such other additional series so permit, then the voting rights of the
two or more series then entitled to vote shall be combined (with each series
having a number of votes proportional to the aggregate liquidation preference of
its outstanding shares). In such case, the holders of Series B Preferred Stock
and of all such other series then entitled so to vote, voting as a class, shall
elect such directors. If the holders of any such other series have elected such
directors prior to the happening of the default or event permitting the holders
of Series B Preferred Stock to elect directors, or prior to a written request
for the holding of a special meeting being received by the Secretary of the
Corporation as elsewhere required in Section 4.5.4(d) above, then a new election
shall be held with all such other series of Preferred Stock and the Series B
Preferred Stock voting together as a single class for such directors, resulting
in the termination of the term of such previously elected directors upon the
election of such new directors. If the holders of any such other series are
entitled to elect in excess of two directors, the Series B Preferred Stock shall
not participate in the election of more than two such directors, and those
directors whose terms first expire shall be deemed to be the directors elected
by the holder of Series B Preferred Stock; provided that, if at the expiration
of such terms, the holders of Series B Preferred Stock are entitled to vote in
the election of directors pursuant to the provisions of this Section 4.5.4, then
the Secretary of Corporation shall call a meeting (which meeting may be the
annual meeting or special meeting of stockholders referred to in Section
4.5.4(c) above) of holders of Series B Preferred Stock for the purpose of
electing replacement directors (in accordance with the provisions of this
Section 4.5.4) to be held at or prior to the time of expiration of the expiring
terms referred to above.
(g) The holders of record of shares of Series B Preferred
Stock, then outstanding, shall be entitled to vote, together with any other
class or series of Capital Stock entitled to vote, then outstanding, on any
resolution presented by the Board of Directors pursuant to Section 5.2.
<PAGE>
(h) Subject to Sections 4.5.4(a) and 4.6.4, in any matter in
which the Series B Preferred Stock may vote, including any action by written
consent, each share of Series B Preferred Stock shall be entitled to one (1)
vote (except as expressly provided herein or as may be required by law).
(i) Except as required by law, the foregoing voting provisions
shall not apply if, at or prior to the time when the act with respect to which
such vote would otherwise be required shall be effected, all outstanding shares
of the Series B Preferred Stock shall have been redeemed or shall have been
called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
Section 4.5.5 Ranking.
The Series B Preferred Stock shall, with respect to dividend
rights and distributions upon liquidation, dissolution, and winding up, rank (i)
senior to the Common Stock, the Excess Common Stock and shares of all other
Capital Stock issued from time to time by the Corporation the terms of which
specifically provide that the Capital Stock of such series rank junior to such
Series B Preferred Stock with respect to dividend rights or distributions upon
liquidation, dissolution, or winding up of the Corporation, (ii) on a parity
with the shares of all other Capital Stock issued by the Corporation the terms
of which specifically provide that the shares rank on a parity with the Series B
Preferred Stock with respect to dividends and distributions upon liquidation,
dissolution, or winding up of the Corporation or make no specific provision as
to their ranking; and (iii) junior to the Series A Preferred Stock, the Excess
Series A Preferred Stock (as to distribution upon liquidation, dissolution or
winding up) and all other Capital Stock issued by the Corporation the terms of
which specifically provide that the shares rank senior to the Series B Preferred
Stock with respect to dividends and distributions upon liquidation, dissolution
or winding up of the Corporation (the issuance of which must have been approved
by a vote of at least a majority of the outstanding shares of Series B Preferred
Stock). The Series B Preferred Stock ranks on a parity with the Excess Series B
Preferred Stock with respect to distributions upon liquidation, dissolution, or
winding up.
Section 4.5.6 Conversion Rights.
Subject to any other provisions of this Article IV and Article V
hereof, the holders of shares of Series B Preferred Stock shall have the right,
at their option, to convert such shares into shares of Common Stock on the
following terms and conditions:
(a) Shares of Series B Preferred Stock shall be convertible at
any time and from time to time on or after the Conversion Commencement Date into
fully paid and nonassessable shares of Common Stock at a conversion price of
$20.90 per share of Common Stock (as such price may be adjusted from time to
time, the "Conversion Price"). For purposes of this Section 4.5.6, references to
shares of Series B Preferred Stock shall apply equally to fractional shares
thereof. The
<PAGE>
Conversion Price shall be subject to adjustment from time to time as hereinafter
provided. For purposes of such conversion, each share of Series B Preferred
Stock will be valued at $25.00 plus an amount equal to any accrued and unpaid
dividends on such share to the date of conversion. No payment or adjustment
shall be made on account of any accrued and unpaid dividends on shares of Series
B Preferred Stock surrendered for conversion prior to the Record Date for the
determination of stockholders entitled to such dividends or on account of any
dividends on the shares of Common Stock issued upon such conversion subsequent
to the Record Date for the determination of stockholders entitled to such
dividends. If any shares of Series B Preferred Stock shall be called for
redemption, the right to convert the shares designated for redemption shall
terminate at the close of business on the third business day immediately
preceding the date fixed for redemption unless default is made in the payment of
the Series B Redemption Price. In the event of default in the payment of the
Series B Redemption Price, the right to convert the shares designated for
redemption shall terminate at the close of business on the business day
immediately preceding the date that such default is cured.
(b) In order to convert shares of Series B Preferred Stock
into Common Stock, the holder thereof shall, on or after the Conversion
Commencement Date, surrender the certificates therefor, duly endorsed if the
Corporation shall so require, or accompanied by appropriate instruments of
transfer satisfactory to the Corporation, at the office of the transfer agent
for the Series B Preferred Stock or at such other office as may be designated by
the Corporation, together with written notice that such holder irrevocably
elects to convert such shares. Such notice shall also state the name and address
in which such holder wishes the certificate for the shares of Common Stock
issuable upon conversion to be issued. As soon as practicable after receipt of
the certificates representing the shares of Series B Preferred Stock to be
converted and the notice of election to convert the same, the Corporation shall
issue and deliver at said office a certificate for the number of whole shares of
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
surrendered for conversion, together with a cash payment in lieu of any fraction
of a share, as hereinafter provided, to the person entitled to receive the same.
If more than one stock certificate for Series B Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares represented by all the certificates so
surrendered. Shares of Series B Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the date such shares are
surrendered for conversion and notice of election to convert the same is
received by the Corporation in accordance with the foregoing provision, and the
person entitled to receive the Common Stock issuable upon such conversion shall
be deemed for all purposes as the record holder of such Common Stock as of such
date.
(c) In the case of any share of Series B Preferred Stock which
is converted after any Record Date with respect to the payment of a dividend on
the Series B Preferred Stock and on or prior to the corresponding Series B
Dividend Payment Date, the dividend due on such Series B Dividend Payment Date
shall be payable on such Series B Dividend Payment Date to the holder of record
of such shares on such preceding Record Date notwithstanding such conversion.
Shares of Series B Preferred Stock surrendered for conversion during the period
from the close of business
<PAGE>
on any Record Date with respect to the payment of a dividend on the Series B
Preferred Stock next preceding any Series B Dividend Payment Date to the opening
of business on such Series B Dividend Payment Date shall (except in the case of
shares of Series B Preferred Stock which have been called for redemption on a
Series B Redemption Date within such period) be accompanied by payment in New
York Clearing House funds or other funds acceptable to the Corporation of an
amount equal to the dividend payable on such Series B Dividend Payment Date on
the shares of Series B Preferred Stock being surrendered for conversion. The
dividend with respect to a share of Series B Preferred Stock called for
redemption on a Series B Redemption Date during the period from the close of
business on any Record Date with respect to the payment of a dividend on the
Series B Preferred Stock next preceding any dividend payment to the opening of
business on such Series B Dividend Payment Date shall be payable on such Series
B Dividend Payment Date to the holder of record of such share on such Record
Date, notwithstanding the conversion of such share of Series B Preferred Stock
after such Record Date and prior to such Series B Dividend Payment Date, and the
holder converting such share of Series B Preferred Stock called for redemption
need not include a payment of such dividend amount upon surrender of such share
of Series B Preferred Stock for conversion.
(d) No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series B Preferred Stock. If more than one share of
Series B Preferred Stock is surrendered at one time by the same holder, the
number of full shares issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares so surrendered. If the conversion of any
shares of Series B Preferred Stock results in a fractional share of Common
Stock, the Corporation shall pay cash in lieu thereof in an amount equal to such
fraction multiplied by the closing price of the Common Stock, determined as
provided in Section 4.5.6(e)(vi) below, on the date on which the shares of
Series B Preferred Stock are duly surrendered for conversion, or if such date is
not a trading date, on the next succeeding trading date.
(e) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on shares of Common Stock in Common Stock, the
Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such
dividend or othe distribution, such reduction to become effective
immediately after the opening of business on the day following
the date fixed for such determination. For purposes of this
subsection, the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation but shall include shares issuable in respect to scrip
certificates issued in lieu of fractions of shares of Common
Stock. The Corporation will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of
the Corporation.
<PAGE>
(ii)In case the Corporation shall issue additional rights or warrants
to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less
than the then current market price per shar (determined as
provided in Section 4.5.6(e)(vi) below) of the Common Stock on
the date fixed for the determination of stockholders entitled to
receive such rights or warrants (other than pursuant to a
dividend reinvestment plan), the Conversion Price in effect at
the opening of business on the day following the date fixed for
such determination shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number
of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered
for subscription or purchase would purchase at such current
market price (determined as provided in Section 4.5.6(e)(vi)
below) and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares of Common
Stock so offered for subscription or purchase, such reduction to
become effective immediately after the opening of business on the
day following the date fixed for such determination. For the
purposes of this Section 4.5.6(e)(ii), the number of shares of
Common Stock at any time outstanding shall not include shares
held in the treasury of the Corporation but shall include shares
issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Corporation will not
issue any rights or warrants in respect of shares of Common Stock
held in the treasury of the Corporation during the period so
held.
(iii)In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the date following
the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding
shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased,
such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which such subdivision or combination
becomes effective.
(iv) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidence of its
indebtedness or assets (including securities, but excluding (1)
any rights or warrants referred to in Section 4.5.6(e)(ii) above,
(2) any dividend described in Section 4.5.6(e)(ix) below, and (3)
any dividend or distribution referred to in Section 4.5.6(e)(i)
above), the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to
receive such distributions by a fraction of which the numerator
shall be the current market price per share (determined as
provided in Section 4.5.6(e)(vi) below)
<PAGE>
of The Common Stock on the date fixed for such determination less
the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive and shall be described in
a statement filed with the transfer agent for the Series B
Preferred Stock) of the portion of the evidences of the
indebtedness or assets so distributed applicable to one share of
Common Stock and the denominator shall be such current market
price per share of Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders
entitled to receive such distribution.
(v) For the purposes of this Section 4.5.6, the reclassification of
Common Stock into securities including securities other than
Common Stock (other than any reclassification upon a
consolidation or merger to which Section 4.5.6(g) below applies)
shall be deemed to involve (A) a distribution of such securities
other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be
"the date fixed for the determination of stockholders entitled to
receive such distribution" and the "date fixed for such
determination" within the meaning of Section 4.5.6(e)(iv) above),
and (B) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall
be deemed to be "the day upon which such subdivision became
effective" and "the day upon which such subdivision or
combination becomes effective," as the case may be) within the
meaning of Section 4.5.6(e)(iii) above.
(vi) For the purpose of any computation under Section 4.5.6(e)(ii) and
(iv) above, the "current market price per share" of Common Stock
on any day shall be deemed to be the average of the daily closing
prices for the 30 consecutive trading days commencing 45 trading
days before the day in question. The closing price for each day
shall be the reported last sale price or, in case no such
reported sale takes place on such day, the average of the
reported closing bid and asking prices, in either case on the New
York Stock Exchange, or, if the Common Stock is not quoted on
such exchange, on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading or,
if the Common Stock is not quoted on any national securities
exchange, the average of the closing bid and asked prices in the
NASDAQ Stock Market, or in the over-the-counter market as
furnished by a New York Stock Exchange member firm selected from
time to time by the Board of Directors for that purpose.
(vii)Notwithstanding the foregoing, no adjustment in the Conversion
Price for the Series B Preferred Stock shall be required unless
such adjustment would require an increase or decrease of at least
1% in such price; provided, however, that any adjustment which by
reason of this Section 4.5.6(e)(vii) is not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4.5.6 shall be
made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
<PAGE>
(viii) In the event of a distribution of evidences of indebtedness or
other assets (as described in Section 4.5.6(e)(iv)) or a dividend
to all holders of Common Stock of rights to subscribe for
additional shares of the Corporation's Capital Stock (other than
those referred to in Section 4.5.6(e)(ii) above), the Corporation
may, instead of making an adjustment of the Conversion Price,
make proper provision so that each holder who converts such
shares will be entitled to receive upon such conversion, in
addition to shares of Common Stock, an appropriate number of such
rights, warrants, evidences of indebtedness or other assets.
(ix) No adjustment will be made for Ordinary Cash Dividends (defined
as dividends or other distributions to holders of Common Stock in
an amount not exceeding the accumulated Funds from Operations of
the Operating Partnership since the Initial Issue Date, after
deducting cumulative dividends or other distributions (A) paid in
respect of all classes of Capital Stock of the Corporation and in
respect of Units held by persons other than the Corporation or
(B) accrued in respect of Series B Preferred Stock and any other
shares of Preferred Stock of the Corporation ranking on a parity
with or senior to the Series B Preferred Stock as to dividends,
in each case since the Initial Issue Date). For this purpose,
"Funds from Operations of the Operating Partnership" shall mean
net income (loss) (computed in accordance with generally accepted
accounting principles consistently applied), excluding gains (or
losses) from debt restructuring and sales of property, plus
depreciation and amortization of, and after adjustments for
unconsolidated partnerships and joint ventures of the Operating
Partnership.
(f) Whenever the Conversion Price shall be adjusted as herein
provided (i) the Corporation shall forthwith make available at the office of the
transfer agent for the Series B Preferred Stock a statement describing in
reasonable detail the adjustment, the facts requiring such adjustment and the
method of calculation used; and (ii) the Corporation shall cause to be mailed by
first class mail, postage prepaid, as soon as practicable to each holder of
record of shares of Series B Preferred Stock a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted Conversion
Price.
(g) In the event of any consolidation of the Corporation with
or merger of the Corporation into any other corporation (other than a merger in
which the Corporation is the surviving corporation) or a sale, lease (other than
in the ordinary course of business) or conveyance of the assets of the
Corporation as an entirety or substantially as an entirety, or any statutory
exchange of securities with another corporation, the holder of each share of
Series B Preferred Stock shall, notwithstanding anything in this Section 4.5.6
to the contrary, have the right, after such consolidation, merger, sale, lease
(other than in the ordinary course of business), conveyance or exchange, to
convert such share into the number and kind of shares of stock or other
securities and the amount and kind of property which such holder would have been
entitled to receive immediately upon such consolidation, merger, sale, lease
(other than in the ordinary course of business),
<PAGE>
conveyance or exchange for the number of shares of Common Stock that would
have been issued to such holder had such shares of Series B Preferred Stock been
converted immediately prior to such consolidation, merger, sale, lease (other
than in the ordinary course of business), conveyance or exchange. The provisions
of this Section 4.5.6(g) shall similarly apply to successive consolidations,
mergers, sales, leases (other than in the ordinary course of business),
conveyances or exchanges.
(h) The Corporation shall pay any taxes that may be payable in
respect of the issuance of shares of Common Stock upon conversion of shares of
Series B Preferred Stock, but the Corporation shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
of shares of Common Stock in a name other than that in which the shares of
Series B Preferred Stock so converted are registered, and the Corporation shall
not be required to issue or deliver any such shares unless and until the person
requesting such issuance shall have paid to the Corporation the amount of any
such taxes, or shall have established to the satisfaction of the Corporation
that such taxes have been paid.
(i) The Corporation may (but shall not be required to) make
such reductions in the Conversion Price, in addition to those required by
Sections 4.5.6(e)(i) through (iv) above, as it considers to be advisable in
order that any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(j) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock the full number of
shares of Common Stock issuable upon the conversion of all shares of Series B
Preferred Stock then outstanding.
(k) In the event that:
(i) the Corporation shall declare a dividend or any
other distribution on its Common Stock, other
than an Ordinary Cash Dividend; or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock of rights to
subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(iii)any capital reorganization of the Corporation,
reclassification of the Capital Stock of the
Corporation, consolidation or merger of the
Corporation with or into another corporation
(other than a merger in which the Corporation
is the surviving corporation), or sale, lease
(other than in the ordinary course of business)
or conveyance of the assets of the Corporation
as an entirety or substantially as an entirety
to another corporation occurs; or
(iv) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation
shall occur;
<PAGE>
the Corporation shall cause to be mailed to the
holders of record of Series B Preferred Stock at
least 15 days prior to the applicable date
hereinafter specified a notice stating (A) the
date on which a record is to be taken for the
purpose of such dividend, distribution or grant
of rights or, if a record is not to be taken,
the date as of which the holders of Common Stock
of record to be entitled to such dividend,
distribution or grant of rights are to be
determined or (B) the date on which such
reorganization, reclassification, consolidation,
merger, sale, lease (other than in the ordinary
course of business), conveyance, dissolution,
liquidation or winding up is expected to take
place, and the date, if any is to be fixed, as
of which holders of Common Stock of record shall
be entitled to exchange their shares of Common
Stock for securities or other property
deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
lease (other than in the ordinary course of
business), conveyance, dissolution, liquidation
or winding up. Failure to give such notice, or
any defect therein, shall not affect the
legality of such dividend, distribution, grant,
reorganization, reclassification, consolidation,
merger, sale, lease (other than in the ordinary
course of business), conveyance, dissolution,
liquidation or winding up.
Section 4.5.7 Series B Preferred Stock Ownership Limitations.
(a) Except as provided in Section 4.5.14, during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date, (i) no Person shall Acquire or Beneficially
Own any shares of Series B Preferred Stock if, as the result of such Acquisition
or Beneficial Ownership, such Person shall Beneficially Own shares of Capital
Stock in excess of the Series B Preferred Stock Ownership Limit; and (ii) no
Person may Acquire or Beneficially Own shares of Series B Preferred Stock to the
extent that as a result of such Acquisition or Beneficial Ownership the
aggregate of the shares of Common Stock Beneficially Owned by such holder and
the shares of Common Stock that would be issued to such holder upon Conversion
of all the shares of Series B Preferred Stock then Beneficially Owned by such
holder, assuming that all of the outstanding shares of Series B Preferred Stock
were converted into Common Stock at such time, would exceed 9.9% of the total
shares of Common Stock of the Corporation that would be outstanding, assuming
all of the outstanding shares of Series B Preferred Stock were converted into
shares of Common Stock and without giving effect to the exchange of any Units
for Common Stock.
(b) Except as provided in Section 4.5.14, during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date, any Transfer of shares of Series B
Preferred Stock that, if effective, would result in a violation of the
restriction in Section 4.5.7(a) shall be void ab initio as to the Transfer of
that number of shares of Series B Preferred Stock or Common Stock, as the case
may be, that would cause the violation (rounding up to the nearest whole share),
and the intended transferee shall acquire no rights in such excess number of
shares of Series B Preferred Stock or Common Stock, as the case may be.
(c) Notwithstanding any other provisions contained herein,
from the date of the closing of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer of shares of Series B Preferred Stock
or other event that, if effective, would result in (i) the Corporation
<PAGE>
being "closely held" within the meaning of Section 856(h) of the Code, (ii)
the outstanding shares of the Capital Stock of the Corporation being
beneficially owned by less than 100 Persons (determined without reference to any
rules of attribution), or (iii) the Corporation otherwise failing to qualify as
a REIT (including, but not limited to, a Transfer or other event that would
result in the Corporation owning (directly or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would cause the Corporation to fail
to satisfy any of the gross income requirements of Section 856(c) of the Code),
shall be void ab initio as to the Transfer of that number of shares of Series B
Preferred Stock (rounding up to the nearest whole share) or other event that
would cause the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, would result in the outstanding shares of the Capital Stock
of the Corporation being beneficially owned by less than 100 Persons (determined
without reference to any rules of attribution), or would otherwise result in the
Corporation failing to qualify as a REIT, and the intended transferee shall
Acquire, or the Beneficial Owner shall retain, as the case may be, no rights in
such shares of Series B Preferred Stock.
Section 4.5.8 Remedies for Breach. If the Board of Directors or any
duly authorized committee thereof shall at any time determine in good faith that
a Transfer or other event has taken place that results in a violation of Section
4.5.7 or that a Person intends to Acquire or has attempted to Acquire Beneficial
Ownership of any shares of Series B Preferred Stock in violation of Section
4.5.7 (whether or not such violation is intended), the Board of Directors or a
committee thereof shall take such action as it or they deem advisable, subject
to Section 5.3 hereof, to refuse to give effect to or to prevent such Transfer
or other event, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers or attempted Transfers or,
in the case of an event other than a Transfer, Beneficial Ownership, in
violation of Section 4.5.7 shall be void ab initio and automatically result in
the exchange described in Section 4.5.9, irrespective of any action (or
non-action) by the Board of Directors or a committee thereof.
Section 4.5.9 Exchange For Excess Series B Preferred Stock. If,
notwithstanding the other provisions contained in this Section 4.5, at any time
after the date of the closing of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer or other event such
that one or more of the restrictions on Beneficial Ownership and Transfer of the
Series B Preferred Stock described in Section 4.5.7 would be violated, then,
except as otherwise provided in Section 4.5.14, the shares of Series B Preferred
Stock being Transferred (or, in the case of an event other than a Transfer, the
shares of Series B Preferred Stock Beneficially Owned, which would cause one or
more of such restrictions to be violated) (rounded up to the nearest whole
share) shall be automatically exchanged for an equal number of shares of Excess
Series B Preferred Stock. Such exchange shall be effective as of the close of
business on the business day prior to the date of such purported Transfer or
other event.
Section 4.5.10 Notice of Restricted Transfer. Any Person who Acquires
or attempts or intends to Acquire shares of Series B Preferred Stock in
violation of Section 4.5.7 or any Person who is a transferee in a Transfer or is
otherwise affected by an event other than a Transfer that results
<PAGE>
in the issuance of Excess Series B Preferred Stock pursuant to Section 4.5.9,
shall immediately give written notice to the Corporation of such Transfer or
other event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer or attempted, intended or purported Transfer or other event on the
Corporation's status as a REIT.
Section 4.5.11 Owners Required To Provide Information. From the date of
the closing of the Initial Public Offering and prior to the Restriction
Termination Date:
(a) every Beneficial Owner of more than 5% (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding Series B Preferred Stock of the Corporation
shall, within 30 days after December 31 of each year, give written notice to the
Corporation stating the name and address of such Beneficial Owner, the number of
shares of Series B Preferred Stock and other shares of the Capital Stock of the
Corporation Beneficially Owned, and a description of the manner in which such
shares are held. Each such Beneficial Owner shall provide to the Corporation
such additional information as the Corporation may request in order to determine
the effect, if any, of such Beneficial Ownership on the Corporation's status as
a REIT and to ensure compliance with the Series B Preferred Stock Ownership
Limit; and
(b) each Person who is a Beneficial Owner of Series B
Preferred Stock and each Person (including the stockholder of record) who is
holding Series B Preferred Stock for a Beneficial Owner shall provide to the
Corporation such information that the Corporation may request, in good faith, in
order to determine the Corporation's status as a REIT.
Section 4.5.12 Remedies Not Limited. Subject to Section 5.2 nothing
contained in this Section 4.5 shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
Section 4.5.13 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 4.5 or any definition
contained in Section 4.2, the Board of Directors shall have the power to
determine the application of the provisions of this Section 4.5 with respect to
any situation based on the facts known to it.
Section 4.5.14 Exceptions.
(a) Subject to Section 4.5.7(c), the Board of Directors, in
its sole discretion, may exempt a Person from the Series B Preferred Stock
Ownership Limit (A) if such Person is not an individual for purposes of Section
542(a)(2) of the Code and the Board of Directors obtains such representations
and undertakings from such Person as are reasonably necessary to ascertain that
no such individual's Beneficial Ownership of such shares of Series B Preferred
Stock will violate the Series B Preferred Stock Ownership Limit or otherwise
violate Section 4.5.7(c), (B) if such Person
<PAGE>
does not and represents that it will not own, directly or Constructively more
than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a
tenant of the Corporation (or a tenant of any entity owned or controlled by the
Corporation) and the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain this
fact, and (C) if such Person agrees that any violation of such representations
or undertaking (or other action which is contrary to the restrictions contained
in this Sections 4.5.7 through 4.5.13 of this Article IV) or attempted violation
will result in such shares of Series B Preferred Stock being exchanged for
Excess Series B Preferred Stock in accordance with Section 4.5.9.
(b) Prior to granting any exception pursuant to Section
4.5.14(a) of this Article IV, the Board of Directors shall require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in it sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
Section 4.5.15 Legend. Each certificate for Series B Preferred
Stock shall bear the following legend:
"The shares represented by this certificate are subject to restrictions
on Beneficial Ownership and Transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as expressly
provided in the Corporation's Amended and Restated Articles of
Incorporation, no Person shall (i)(x) Acquire or Beneficially Own any
shares of the Corporation's Series B Preferred Stock if, as a result of
such Acquisition or Beneficial Ownership, such person shall
Beneficially Own shares of the Corporation's Capital Stock in excess of
9.9% of the value of the Corporation's outstanding Capital Stock or (y)
Acquire or Beneficially Own shares of Series B Preferred Stock to the
extent that as a result of such Acquisition or Beneficial Ownership,
shares of the Corporation's Common Stock held by such person, assuming
Conversion of such Person's Series B Preferred Stock into Common Stock,
would exceed 9.9% of the outstanding Common Stock, assuming such
Conversion of such Person's Series B Preferred Stock into Common Stock;
or (ii) Beneficially Own Series B Preferred Stock or Common Stock that
would result in the Corporation being "closely held" under Section
856(h) of the Code. Any Person who Beneficially Owns or attempts to
Beneficially Own shares of Series B Preferred Stock or Common Stock
which causes or will cause a Person to Beneficially Own shares of
Series B Preferred Stock or Common Stock in excess of the above
limitations must immediately notify the Corporation. Any Transfer of
shares of Series B Preferred Stock in violation of the limitations set
forth in the Corporation's Amended and Restated Articles of
Incorporation shall be void ab initio. If the restrictions on Transfer
are violated, the shares of Series B Preferred
<PAGE>
Stock represented hereby will be automatically exchanged for shares of
Excess Series B Preferred Stock which will be held in trust by the
Corporation. All capitalized terms in this legend have the meanings
defined in the Corporation's Amended and Restated Articles of
Incorporation, as the same may be amended from time to time, a copy of
which, including the restrictions on transfer, will be sent without
charge to each holder of Series B Preferred Stock who so requests."
EXCESS SERIES B PREFERRED STOCK
Section 4.6.1 Ownership in Trust. Upon any purported Transfer or other
event that results in an exchange of Series B Preferred Stock for Excess Series
B Preferred Stock pursuant to Section 4.5.9, such Excess Series B Preferred
Stock shall be deemed to have been Transferred to the Corporation, as Trustee of
a Trust for the exclusive benefit of the Beneficiary or Beneficiaries to whom an
interest in such Trust may later be transferred pursuant to Section 4.6.5.
Shares of Excess Series B Preferred Stock so held in trust shall be issued and
outstanding stock of the Corporation but shall not be considered issued and
outstanding for purposes of any stockholder vote. The Purported Record
Transferee or, in the case of Excess Series B Preferred Stock resulting from an
event other than a Transfer, the Purported Record Holder, shall have no rights
in such Excess Series B Preferred Stock except the right to designate a
transferee of such Excess Series B Preferred Stock upon the terms specified in
Section 4.6.5. The Purported Beneficial Transferee or, in the case of Excess
Series B Preferred Stock resulting from an event other than a Transfer, the
Purported Beneficial Holder, shall have no rights in such Excess Series B
Preferred Stock except as provided in Section 4.6.5.
Section 4.6.2 Dividend Rights. Excess Series B Preferred Stock shall
not be entitled to any dividends or periodic distributions. Any dividend or
distribution paid prior to the discovery by the Corporation that shares of
Series B Preferred Stock have been exchanged for Excess Series B Preferred Stock
shall be repaid to the Corporation upon demand, and any dividend or distribution
declared but unpaid shall be rescinded as void ab initio with respect to such
shares of Series B Preferred Stock.
Section 4.6.3 Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, the Corporation, as holder of shares of Excess
Series B Preferred Stock in trust, shall be entitled to receive that portion of
the assets of the Corporation which a holder of the Series B Preferred Stock
that was exchanged for such Excess Series B Preferred Stock would have been
entitled to receive had the Series B Preferred Stock remained outstanding. The
Corporation, as holder of the Excess Series B Preferred Stock in trust, or if
the Corporation shall have been dissolved, any trustee appointed by the
Corporation prior to its dissolution, shall distribute ratably to the
Beneficiaries of the Trust, when and if determined in accordance with Section
4.6.5, any such assets received in respect of the Excess Series B Preferred
Stock in any liquidation, dissolution or winding up of, or any distribution of
the assets, of the Corporation.
<PAGE>
Section 4.6.4 Voting Rights. The holders of shares of Excess Series B
Preferred Stock shall not be entitled to vote on any matters (except as required
by the MGCL).
Section 4.6.5 Restrictions on Transfer; Designation of Beneficiary.
(a) Excess Series B Preferred Stock shall not be
transferrable. A Purported Record Transferee or, in the case of Excess Series B
Preferred Stock resulting from an event other than a Transfer, a Purported
Record Holder, may freely designate a Beneficiary of its interest in the Trust
(representing the number of shares of Excess Series B Preferred Stock held by
the Trust attributable to the purported Transfer or other event that resulted in
the issuance of such Excess Series B Preferred Stock), if (i) the shares of
Excess Series B Preferred Stock held in the Trust would not be Excess Series B
Preferred Stock in the hands of such Beneficiary and (ii) the Purported
Beneficial Transferee or, in the case of Excess Series B Preferred Stock
resulting from an event other than a Transfer, the Purported Beneficial Holder,
does not receive consideration for the designation of such Beneficiary that
reflects a price per share for such Excess Series B Preferred Stock that exceeds
the "Series B Preferred Stock Limitation Price". The Series B Preferred Stock
Limitation Price is the lesser of (A) in the case of Excess Series B Preferred
Stock resulting from a Transfer for value, the price per share that the
Purported Beneficial Transferee paid for the Series B Preferred Stock in the
purported Transfer that resulted in the issuance of the Excess Series B
Preferred Stock, or, in the case of Excess Series B Preferred Stock resulting
from (I) a Transfer other than for value (such as a gift, devise or similar
Transfer) or (II) an event other than a Transfer, a price per share equal to the
Market Price of the Series B Preferred Stock that was exchanged for such Excess
Series B Preferred Stock on the date of the purported Transfer or other event
that resulted in the issuance of the Excess Series B Preferred Stock or (B) a
price per share equal to the Market Price of the Excess Series B Preferred Stock
on the date of the designation of the Beneficiary of the interest in the Trust.
Prior to any transfer of any interest in the Trust, the Purported Record
Transferee or Purported Record Holder, as the case may be, must give advance
notice to the Corporation of the intended transfer and the Corporation must have
waived in writing its purchase rights under Section 4.6.6. Upon Transfer of an
interest in the Trust, the corresponding shares of Excess Series B Preferred
Stock in the Trust shall be automatically exchanged for an equal number of
shares of Series B Preferred Stock and such shares of Series B Preferred Stock
shall be transferred of record to the Beneficiary of the interest in the Trust
designated by the Purported Record Transferee or Purported Record Holder as
described above if such Series B Preferred Stock would not be Excess Series B
Preferred Stock in the hands of such Beneficiary.
(b) Notwithstanding the foregoing, if a Purported Beneficial
Transferee or Purported Beneficial Holder receives consideration for the
designation by the Purported Record Transferee or Purported Record Holder of a
Beneficiary of an interest in the Trust that exceeds the Limitation Price, such
Purported Beneficial Transferee or Purported Beneficial Holder shall pay, or
cause the Beneficiary of the interest in the Trust to pay, to the Corporation
the amount by which such consideration exceeds the Series B Preferred Stock
Limitation Price.
<PAGE>
Section 4.6.6 Purchase Right in Excess Series B Preferred Stock.
Notwithstanding Section 4.6.5, shares of Excess Series B Preferred Stock shall
be deemed to have been offered for sale to the Corporation, or its designee, at
a price per share equal to the Series B Preferred Stock Limitation Price (as
determined by substituting "the date on which the Corporation, or its designee,
accepts the offer to sell" for "the date of the designation of the Beneficiary
of the interest in the Trust" in clause (B) of the definition of Series B
Preferred Stock Limitation Price in Section 4.6.5(a)). The Corporation shall
have the right to accept such offer for a period of ninety days after the later
of (i) the date of the Transfer or other event which resulted in the issuance of
such Excess Series B Preferred Stock and (ii) if the Corporation does not
receive actual notice of a Transfer or other event pursuant to Section 4.5.10,
the date the Board of Directors determines in good faith that such a Transfer or
other event resulting in the issuance of Excess Series B Preferred Stock has
occurred.
Section 4.6.7 Ranking. The Excess Series B Preferred Stock shall rank,
with respect to distributions upon liquidation, dissolution, or winding up, (i)
senior to the Common Stock, the Excess Common Stock and shares of all other
Capital Stock issued from time to time by the Corporation the terms of which
specifically provide that the Capital Stock of such series rank junior to the
Excess Series A Preferred Stock with respect to distributions upon liquidation,
dissolution, or winding up of the Corporation; (ii) on a parity with the Series
B Preferred Stock and all Capital Stock issued by the Corporation the terms of
which specifically provide that the Capital Stock of such series rank on a
parity with the Excess Series B Preferred Stock with respect to distributions
upon liquidation, dissolution, or winding up of the Corporation or make no
specific provision as to their ranking; and (iii) junior to all Capital Stock
Issued by the Corporation the terms of which specifically provide that the
Capital Stock of such series rank senior to the Excess Series B Preferred Stock
with respect to distributions upon liquidation, dissolution, or winding up of
the Corporation (the issuance of which must have been approved by a vote of at
least a majority of the outstanding shares of Series B Preferred Stock).
Section 4.6.8. Corporation Induced Events: Redemption of Series B
Preferred Stock in Certain Circumstances. Notwithstanding anything to the
contrary in Section 4.5.3, prior to the Restriction Termination Date, if a
purported Transfer, change in the capital structure of the Corporation or other
event would result in a violation of one or more of the restrictions in Section
4.5.7 and such violation would not occur but for the occurrence of one or more
Corporation Induced Events then, immediately prior to the occurrence of such
Transfer, change in the capital structure of the Corporation or other event, an
amount of Series B Preferred Stock (rounded up to the nearest one-tenth of a
share) shall be automatically redeemed by the Corporation from the actual owner
of Series B Preferred Stock which is Beneficially Owned by any Person who (but
for this Section 4.6.8) would Beneficially Own Series B Preferred Stock in
violation of one or more of the restrictions in Section 4.5.7 after the
occurrence of the Transfer, change in the capital structure of the Corporation
or other event. The redemption price of each share of Series B Preferred Stock
automatically redeemed pursuant to this Section 4.6.8 shall be (i) the price per
share paid for the Series B Preferred Stock in the purported Transfer that
resulted in the redemption, or (ii) if the Transfer or other event that resulted
in the redemption were not a transaction in which the full value was paid for
such Series
<PAGE>
B Preferred Stock, a price per share equal to the Market Price on the date of
the purported Transfer or other event that resulted in the redemption. In either
case, dividends which were accrued but unpaid with respect to the redeemed
shares as of the date of the purported Transfer or other event that resulted in
the redemption shall be paid. Any dividend or other distribution paid prior to
the discovery of the Corporation that shares of Series B Preferred Stock have
been automatically redeemed by the Corporation shall be repaid to the
Corporation upon demand.
SERIES C PREFERRED STOCK
Section 4.7.1 Dividends.
(a) Subject to the preferential rights of the Company's Series
A Preferred Stock, Series B Preferred Stock and any other Preferred Stock that
ranks senior in the payment of dividends to Series C Preferred Stock, the
holders of Series C Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative preferential dividends 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 dividends (determined on each Series C Dividend
Payment Date) on the Common Stock, or portion thereof, into which a share of
Series C Preferred Stock is convertible. The dividends referred to in clause
(ii) of the preceding sentence shall equal the number of shares of Common Stock,
or portion thereof, into which a share of Series C Preferred Stock will be
convertible on or after the Series C Conversion Date, multiplied by the most
current quarterly dividend on a share of Common Stock on or before the
applicable Series C Dividend Payment Date. If the Corporation pays a regular
cash dividend on the Common Stock with respect to a Series C Dividend Period
after the date on which the Series C Dividend Payment Date is declared pursuant
to clause (ii) of the definition of Series C Dividend Payment Date and the
dividend calculated pursuant to clause (ii) of this paragraph (a) with respect
to such Series C Dividend Period is greater than the dividend previously
declared on the Series C Preferred Stock with respect to such Series C Dividend
Period, the Corporation shall pay an additional dividend to the holders of the
Series C Preferred Stock on the date on which the dividend on the Common Stock
is paid, in an amount equal to the difference between (y) the dividend
calculated pursuant to clause (ii) of this paragraph (a) and (z) the amount of
dividends previously declared on the Series C Preferred Stock with respect to
such Series C Dividend Period. The dividends shall begin to accrue and shall be
fully cumulative from the first day of the applicable Series C Dividend Period,
whether or not in any Series C Dividend Period or Periods there shall be funds
of the Corporation legally available for the payment of such dividends, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
in arrears on Series C Dividend Payment Dates. Each such dividend shall be
payable in arrears to the holders of record of Series C Preferred Stock as they
appear in the records of the Corporation at the close of business on such record
dates, not less than 10 nor more than 50 days preceding such Series C Dividend
Payment Dates thereof, as shall be fixed by the Board of Directors. Accrued and
unpaid dividends for any past Series C Dividend Periods may be declared and paid
at any time and for such interim periods, without reference to any regular
Series C Dividend 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 dividend
<PAGE>
payment made on Series C Preferred Stock shall first be credited against the
earliest accrued but unpaid dividend due with respect to Series C Preferred
Stock which remains payable.
(b) The amount of dividends referred to in clause (i) of
Section 4.7.1(a) payable for each full Series C Dividend Period on the Series C
Preferred Stock shall be computed by dividing the annual dividend rate by four.
The initial Series C Dividend Period for any Series C Preferred Stock will
include a partial dividend 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 dividends payable for such period, or any other period
shorter than a full Series C Dividend Period, on the Series C Preferred Stock
shall be computed by dividing the number of days in such period by 365. Holders
of Series C Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or shares, in excess of cumulative dividends, as
herein provided, on the Series C Preferred Stock. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series C Preferred Stock which may be in arrears.
(c) So long as any Series C Preferred Stock are outstanding,
no dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of Parity
Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series C Preferred Stock for
all Series C Dividend Periods terminating on or prior to the Series C Dividend
Payment Date on such class or series of Parity Shares. When dividends are not
paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon Series C Preferred Stock and all
dividends declared upon any other class or series of Parity Shares shall be
declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series C Preferred Stock and accumulated and
unpaid on such Parity Shares.
(d) So long as any Series C Preferred Stock are outstanding,
no dividends (other than dividends or distributions paid solely in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Fully Junior
Shares) 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, nor shall
any Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Stock made for purposes of
an employee incentive or benefit plan of the Corporation 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 Corporation, directly or
indirectly (except by conversion into or exchange for Fully Junior Shares),
unless in each case (i) the full cumulative dividends on all outstanding Series
C Preferred Stock and any other Parity Shares of the Corporation shall have been
or contemporaneously are declared and paid or declared and set apart for payment
for all past Series C Dividend Periods with respect to the Series C Preferred
Stock and all past Series C Dividend 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 dividend for the current
Series C Dividend Period with respect to the Series C Preferred Stock and the
current dividend period with respect to such Parity Shares.
<PAGE>
(e) No distributions on Series C Preferred Stock shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, 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.
Section 4.7.2 Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, subject to the prior
preferences and other rights of any series of capital stock ranking senior to
the Series C Preferred Stock upon liquidation, distribution or winding up of the
Corporation (including the Series A Preferred Stock and the Series B Preferred
Stock) before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
Junior Shares, the holders of the Series C Preferred Stock shall be entitled to
receive Thirteen Dollars and Seventy-Five Cents ($13.75); provided, however, in
the event that the Corporation sells more than $75 million of Common Stock
during the period between August 8, 1996 and December 6, 1997 at a weighted
average price (before deducting underwriting discounts or commissions) of less
than $13.75 per share, the amount the holders of the Series C Preferred Stock
shall be entitled to receive shall be adjusted to equal such price, but in no
event less than $13.25 per share and shall equal $13.25 per share if less than
$75 million of Common Stock is sold during such period (the "Liquidation
Preference") per share of Series C Preferred Stock plus an amount equal to all
dividends (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 dividend payable with
respect to the Series C Dividend Period containing the date of final
distribution shall be equal to the greater of (i) the dividend provided in
Section 4.7.1(a)(i) or (ii) the dividend determined pursuant to Section
4.7.1(a)(ii) for the preceding Series C Dividend Period. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of the Series
C Preferred Stock 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 Stock and any such other Parity Shares
ratably in accordance with the respective amounts that would be payable on such
Series C Preferred Stock and any such other Parity Shares if all amounts payable
thereon were paid in full. For the purposes of this Section 4.7.2, (i) a
consolidation or merger of the Corporation 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 Corporation'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 Corporation.
(b) 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 the Series C Preferred Stock upon
<PAGE>
liquidation, dissolution or winding up, upon any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made in full to the
holders of the Series C Preferred Stock, as provided in this Section 4.7.2, the
holders of Series C Preferred Stock shall have no other claim to the remaining
assets of the Corporation 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 the Series C Preferred Stock shall not be
entitled to share therein.
Section 4.7.3 Redemption at the Option of the Corporation.
(a) The Series C Preferred Stock shall not be redeemable by
the Corporation prior to August 8, 2007. On and after August 8, 2007, the
Corporation, at its option, may redeem the Series C Preferred Stock, 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 Liquidation Preference
per share of Series C Preferred Stock (plus all accumulated, accrued and unpaid
dividends as provided below).
(b) Upon any redemption of Series C Preferred Stock pursuant
to this Section 4.7.3, the Corporation shall pay all accrued and unpaid
dividends, if any, thereon to the Call Date, without interest. If the Call Date
falls after a dividend payment record date and prior to the corresponding Series
C Dividend Payment Date, then each holder of Series C Preferred Stock at the
close of business on such dividend payment record date shall be entitled to the
dividend payable on such shares on the corresponding Series C Dividend Payment
Date notwithstanding any redemption of such shares before such Series C Dividend
Payment Date. Except as provided above, the Corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series C Preferred
Stock called for redemption.
(c) If full cumulative dividends on the Series C Preferred
Stock and any other class or series of Parity Shares of the Corporation have not
been declared and paid or declared and set apart for payment, the Series C
Preferred Stock may not be redeemed under this Section 4.7.3 in part and the
Corporation may not purchase or acquire Series C Preferred Stock, otherwise than
pursuant to a purchase or exchange offer made on the same terms to all holders
of Series C Preferred Stock.
(d) Notice of the redemption of any Series C Preferred Stock
under this Section 4.7.3 shall be mailed by first-class mail to each holder of
record of Series C Preferred Stock to be redeemed at the address of each such
holder as shown on the Corporation's records, not less than 30 nor more than 90
days prior to the Call Date. Neither the failure to mail any notice required by
this paragraph (d), nor any defect therein or in the mailing thereof, to any
particular holder, shall affect the sufficiency of the notice or the validity of
the proceedings for redemption with respect to the other holders. Each such
mailed notice shall state, as appropriate: (1) the Call Date; (2) the number of
Series C Preferred Stock 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
<PAGE>
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
dividends 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 Corporation shall fail to make
available an amount of cash necessary to effect such redemption), (i) except as
otherwise provided herein, dividends on the Series C Preferred Stock 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 Stock of the Corporation shall cease (except the rights to
convert and to receive the cash payable upon such redemption, without interest
thereon, upon surrender and endorsement of their certificates if so required and
to receive any dividends payable thereon). The Corporation's obligation to
provide cash in accordance with the preceding sentence shall be deemed fulfilled
if, on or before the Call Date, the Corporation shall deposit with a bank or
trust company (which may be an affiliate of the Corporation) that has an office
in the Borough of Manhattan, City of New York, and that has, or is an affiliate
of a bank or trust company that has, capital and surplus of at least
$50,000,000, necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series C
Preferred Stock so called for redemption. No interest shall accrue for the
benefit of the holders of Series C Preferred Stock to be redeemed on any cash so
set aside by the Corporation. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years from the Call Date shall revert to the general
funds of the Corporation, after which reversion the holders of such shares so
called for redemption shall look only to the general funds of the Corporation
for the payment of such cash.
As promptly as practicable after the surrender in accordance
with such notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and if
the notice shall so state), such shares shall be exchanged for any cash (without
interest thereon) for which such shares have been redeemed. If fewer than all
the outstanding Series C Preferred Stock are to be redeemed, shares to be
redeemed shall be selected by the Corporation from outstanding Series C
Preferred Stock not previously called for redemption pro rata (as nearly as may
be), by lot or by any other method determined by the Corporation in its sole
discretion to be equitable. If fewer than all the Series C Preferred Stock
represented by any certificate are redeemed, then new certificates representing
the unredeemed shares shall be issued without cost to the holder thereof.
Section 4.7.4 Conversion. Holders of Series C Preferred Stock shall
have the right to convert all or a portion of such shares into Common Stock, as
follows:
(a) Subject to and upon compliance with the provisions of this
Section 4.7.4, a holder of Series C Preferred Stock shall have the right, at his
or her option, upon the earliest to occur of (i) August 8, 1998, (ii) the first
day on which a Change of Control occurs, (iii) the occurrence of a REIT
Termination Event, or (iv) such date as determined by the Corporation (the
"Series C Conversion Date"), to convert all or any portion of such shares (or
such shares as determined by the Corporation if pursuant to clause (iv) above)
into the number of fully paid and non-assessable shares of Common Stock obtained
by dividing the aggregate Liquidation Preference of such shares
<PAGE>
(inclusive of accrued but unpaid dividends) by the Series C Conversion Price (as
in effect at the time and on the date provided for in the last paragraph of
paragraph (b) of this Section 4.7.4) by surrendering such shares to be
converted, such surrender to be made in the manner provided in paragraph (b) of
this Section 4.7.4; provided, however, that the right to convert shares called
for redemption pursuant to Section 4.7.3 shall terminate at the close of
business on the fifth Business Day prior to the Call Date fixed for such
redemption, unless the Corporation shall default in making payment of the cash
payable upon such redemption under Section 4.7.3.
"Change of Control" means each occurrence of any of the
following: (i) the acquisition, directly or indirectly, by any
individual or entity or group (as such term is used in Section 13(d)(3)
of the Exchange Act) of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act, except that such individual or entity shall be
deemed to have beneficial ownership of all shares that any such
individual or entity has the right to acquire, whether such right is
exercisable immediately or only after passage of time) of more than 25%
of the Corporation's outstanding capital stock with voting power, under
ordinary circumstances, to elect directors of the Corporation; (ii)
other than with respect to the election, resignation or replacement of
any director designated, appointed or elected by the holders of the
Series C Preferred Stock (each a "Preferred Director"), during any
period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Corporation
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Corporation was approved by a vote of 66 2/3% of the directors of the
Corporation (excluding Preferred Directors) then still in office who
were either directors at the beginning of such period, or whose
election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors the
Corporation then in office; and (iii) (A) the Corporation consolidating
with or merging into another entity or conveying, transferring or
leasing all or substantially all of its assets (including, but not
limited to, real property investments) to any individual or entity, or
(B) any corporation consolidating with or merging into the Corporation,
which in either event (A) or (B) is pursuant to a transaction in which
the outstanding voting capital stock of the Corporation is reclassified
or changed into or exchanged for cash, securities or other property;
provided, however, that the events described in clause (iii) shall not
be deemed to be a Change of Control (a) if the sole purpose of such
event is that the Corporation is seeking to change its domicile or to
change its form of organization from a corporation to a statutory
business trust or (b) if the holders of the exchanged securities of the
Corporation immediately after such transaction beneficially own at
least a majority of the securities of the merged or consolidated entity
normally entitled to vote in elections of directors.
(b) In order to exercise the conversion right, the holder of
each share of Series C Preferred Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent, accompanied by
written notice to the Corporation that the holder thereof irrevocably elects to
convert such Series C Preferred Stock. Unless the shares issuable on conversion
are to be issued in the same name as the
<PAGE>
name in which such share of Series C Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, 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 Corporation
demonstrating that such taxes have been paid).
Holders of Series C Preferred Stock at the close of business
on a dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Series C Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment record
date and prior to such Series C Dividend Payment Date. However, Series C
Preferred Stock surrendered for conversion during the period between the close
of business on any dividend payment record date and the opening of business on
the corresponding Series C Dividend Payment Date (except shares converted after
the issuance of notice of redemption with respect to a Call Date during such
period, such Series C Preferred Stock being entitled to such dividend on the
Series C Dividend Payment Date) must be accompanied by payment of an amount
equal to the dividend payable on such shares on such Series C Dividend Payment
Date. A holder of Series C Preferred Stock on a dividend payment record date who
(or whose transferee) tenders any such shares for conversion into Common Stock
on the corresponding Series C Dividend Payment Date will receive the dividend
payable by the Corporation on such Series C Preferred Stock on such date, and
the converting holder need not include payment of the amount of such dividend
upon surrender of Series C Preferred Stock for conversion. Except as provided
above, the Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the Common
Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates
for Series C Preferred Stock as aforesaid, the Corporation 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 Stock issuable upon
the conversion of such shares in accordance with provisions of this Section
4.7.4, and any fractional interest in respect of a share of Common Stock arising
upon such conversion shall be settled as provided in paragraph (c) of this
Section 4.7.4.
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 Stock shall have been surrendered and such notice shall
have been received by the Corporation as aforesaid (and if applicable, payment
of an amount equal to the dividend payable on such shares shall have been
received by the Corporation as described above), and the person or persons in
whose name or names any certificate or certificates for Common Stock 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 Corporation 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
<PAGE>
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
Corporation.
(c) No fractional shares or scrip representing fractions of
Common Stock shall be issued upon conversion of the Series C Preferred Stock.
Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Series C Preferred
Stock, the Corporation shall pay to the holder of such share an amount in cash
based upon the Current Market Price of the Common Stock 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 Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of Series C Preferred Stock so surrendered.
(d) The Series C Conversion Price shall be adjusted from
time to time as follows:
(i) If the Corporation shall after the Initial Issue Date (A) pay a
dividend or make a distribution on its capital shares in Common
Stock, (B) subdivide its outstanding Common Stock into a greater
number of shares, (C) combine its outstanding Common Stock into a
smaller number of shares or (D) issue any shares of capital stock
by reclassification of its Common Stock, the Series C Conversion
Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to
receive such dividend or distribution or at the opening of
business on the Business Day next following the day on which such
subdivision, combination or reclassification becomes effective,
as the case may be, shall be adjusted so that the holder of any
share of Series C Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events
described above as if such Series C Preferred Stock had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective
immediately after the opening of business on the Business Day
next following the record date (except as provided in paragraph
(h) below) in the case of a dividend or distribution and shall
become effective immediately after the opening of business on the
Business Day next following the effective date in the case of a
subdivision, combination or reclassification.
(ii) If the Corporation shall issue after the Initial Issue Date
rights, options or warrants to all holders of Common Stock
entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common
Stock at a price per share less than 94% (100% if a stand-by
underwriter is used and charges the Corporation a commission) of
the Fair Market Value per share of Common Stock on the record
date for the determination of stockholders entitled to receive
such rights, options or warrants, then the Series C Conversion
Price in effect at the opening of business on the Business Day
next following such record date shall be adjusted to equal the
price determined by multiplying (A) the Series C Conversion Price
in effect immediately prior to the opening
<PAGE>
of business on the Business Day next following the date fixed for
such determination by (B) a fraction, the numerator of which
shall be the sum of (x) the number of shares of Common Stock
outstanding on the close of business on the date fixed for such
determination and (y) the number of shares that the aggregate
proceeds to the Corporation from the exercise of such rights,
options or warrants for Common Stock would purchase at 94% of
such Fair Market Value (or 100% in the case of a stand-by
underwriting), and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on the close
of business on the date fixed for such determination and (y) the
number of additional shares of Common Stock offered for
subscription or purchase pursuant to such rights, options or
warrants. Such adjustment shall become effective immediately
after the opening of business on the day next following such
record date (except as provided in paragraph (h) below). In
determining whether any rights, options or warrants entitle the
holders of Common Stock to subscribe for or purchase Common Stock
at less than 94% of such Fair Market Value (or 100% in the case
of a stand-by underwriting), there shall be taken into account
any consideration received by the Corporation upon issuance and
upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the
Board of Directors.
(iii)If the Corporation shall distribute to all holders of its Common
Stock any securities of the Corporation (other than Common Stock)
or evidence of its indebtedness or assets (excluding cumulative
cash dividends or distributions paid with respect to the Common
Stock after December 31, 1996 which are not in excess of the
following: the sum of (A) the Corporation'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 Stock or any other class or series of
preferred stock of the Corporation 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 Stock entitling them for a period
expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common
Stock, which rights and warrants are referred to in and treated
under subparagraph (ii) above) (any of the foregoing being
hereinafter in this subparagraph (iii) collectively called the
"Securities" and individually a "Security"), then in each such
case the Series C Conversion Price shall be adjusted so that it
shall equal the price determined by multiplying (x) the Series C
Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders
entitled to receive such distribution by (y) a fraction, the
numerator of which shall be the Fair Market Value per share of
Common Stock on the record date mentioned below less the then
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive), of the portion of the
Securities or assets or evidences of indebtedness so distributed
or of such rights, options or warrants applicable to one share of
Common Stock, and the denominator of which shall be the Fair
Market Value per share of Common Stock on the record date
mentioned below. Such adjustment shall become effective
immediately at the opening of business on the
<PAGE>
Business Day next Following (except as provided in paragraph (h)
below) the record date for the determination of stockholders
entitled to receive such distribution. For the purposes of this
subparagraph (iii), the distribution of a Security, which is
distributed not only to the holders of the Common Stock on the
date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
share of Common Stock delivered to a Person converting a share of
Series C Preferred Stock after such determination date, shall not
require an adjustment of the Series C Conversion Price pursuant
to this subparagraph (iii); provided that on the date, if any, on
which a person converting a share of Series C Preferred Stock
would no longer be entitled to receive such Security with a share
of Common Stock (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be
deemed to have occurred and the Series C Conversion Price shall
be adjusted as provided in this subparagraph (iii) (and such day
shall be deemed to be "the date fixed for the determination of
the stockholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not include
open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Stock shall expire and such tender or
exchange offer shall involve the payment by the Corporation or
such subsidiary of consideration per share of Common Stock having
a fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors), at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer, that exceeds the Current Market
Price per share of Common Stock on the Trading Day next
succeeding the Expiration Time, the Series C Conversion Price
shall be reduced so that the same shall equal the price
determined by multiplying the Series C Conversion Price in effect
immediately prior to the effectiveness of the Series C Conversion
Price reduction contemplated by this subparagraph, by a fraction
of which the numerator shall be the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) at
the Expiration Time, multiplied by the Current Market Price per
share of Common Stock on the Trading Day next succeeding the
Expiration Time, and the denominator shall be the sum of (A) the
fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based upon the acceptance
(up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any maximum, being referred to as the "Purchased
Shares") and (B) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price per share of Common Stock on
the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
(v) No adjustment in the Series C Conversion Price shall be required
unless such adjustment would require a cumulative increase or
decrease of at least 1% in
<PAGE>
such price; provided, however, that any adjustments that by
reason of this subparagraph (v) are not required to be made shall
be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
shall be required and made in accordance with the provisions of
this Section 4.7.4 (other than this subparagraph (v)) not later
than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of Common Stock.
Notwithstanding any other provisions of this Section 4.7.4, the
Corporation shall not be required to make any adjustment of the
Series C Conversion Price for the issuance of any Common Stock
pursuant to any plan providing for the reinvestment of dividends
or interest payable on securities of the Corporation and the
investment of additional optional amounts in Common Stock under
such plan. All calculations under this Section 4.7.4 shall be
made to the nearest cent (with $.005 being rounded upward) or to
the nearest one-tenth of a share (with .05 of a share being
rounded upward), as the case may be. Anything in this paragraph
(d) to the contrary notwithstanding, the Corporation shall be
entitled, to the extent permitted by law, to make such reductions
in the Series C Conversion Price, in addition to those required
by this paragraph (d), as it in its discretion shall determine to
be advisable in order that any share dividends, subdivision of
shares, reclassification or combination of shares, distribution
of rights or warrants to purchase shares or securities, or
distribution of other assets (other than cash dividends)
hereafter made by the Corporation to its stockholders shall not
be taxable.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
self tender offer for all or substantially all of its Common Stock, sale of all
or substantially all of the Corporation's assets or recapitalization of the
Common Stock and excluding any transaction as to which subparagraph (d)(i) of
this Section 4.7.4 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which all or substantially all of
the Corporation's Common Stock are converted into the right to receive shares,
securities or other property (including cash or any combination thereof), each
share of Series C Preferred Stock which is not redeemed or converted into the
right to receive shares, securities or other property prior to such Transaction
shall thereafter be convertible into the kind and amount of shares, securities
and other property (including cash or any combination thereof) receivable upon
the consummation of such Transaction by a holder of that number of shares of
Common Stock into which one share of Series C Preferred Stock was convertible
immediately prior to such Transaction, assuming such holder of Common Stock (i)
is not a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such sale or
transfer was made, as the case may be ("Constituent Person"), or an affiliate of
a Constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or amount of
shares, securities and other property (including cash) receivable upon such
Transaction is not the same for each share of Common Stock held immediately
prior to such Transaction by other than a Constituent Person or an affiliate
thereof and in respect of which such rights of election shall not have been
exercised ("Non-Electing Share"), then for the purpose of this paragraph (e) the
kind and amount of shares, securities and other property (including cash)
receivable upon such Transaction by each Non-Electing Share shall be deemed to
<PAGE>
be the kind and amount so receivable per share by a plurality of the
Non-Electing Shares). The Corporation shall not be a party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series C Preferred Stock that will contain provisions enabling
the holders of the Series C Preferred Stock that remain outstanding after such
Transaction to convert into the consideration received by holders of Common
Stock at the Series C Conversion Price in effect immediately prior to such
Transaction. The provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than cash dividends or
distributions paid with respect to the Common Stock after
December 31, 1996 not in excess of the sum of the Corporation's
cumulative undistributed Funds from Operations at December 31,
1996, plus the cumulative amount of Funds from Operations, as
determined by the Board of Directors, after December 31, 1996,
minus the cumulative amount of dividends accrued or paid in
respect of the Series C Preferred Stock or any other class or
series of preferred shares of capital stock of the Corporation
after the Initial Issue Date); or
(ii) the Corporation shall authorize the granting to all holders of
Common Stock of rights, options or warrants to subscribe for or
purchase any shares of any class or any other rights, options or
warrants; or
(iii)there shall be any reclassification of the Common Stock (other
than an event to which subparagraph (d)(i) of this Section 4.7.4
applies) or any consolidation or merger to which the Corporation
is a party (other than a merger in which the Corporation is the
surviving entity) and for which approval of any stockholders of
the Corporation is required, or a statutory share exchange, or a
self tender offer by the Corporation for all or substantially all
of its outstanding Common Stock or the sale or transfer of all or
substantially all of the assets of the Corporation as an
entirety; or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of Series C Preferred Stock at their addresses
as shown on the records of the Corporation, as promptly as possible, but at
least 10 days prior to the applicable date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, options or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights, options or
warrants are to be determined or (B) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up is expected
<PAGE>
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up. Failure to give or receive such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 4.7.4.
(g) Whenever the Series C Conversion Price is adjusted as
herein provided, the Corporation shall promptly file with the Transfer Agent an
officer's certificate setting forth the Series C Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment which certificate shall be conclusive evidence of the correctness of
such adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of the
Series C Conversion Price setting forth the adjusted Series C Conversion Price
and the effective date of such adjustment and shall mail such notice of such
adjustment of the Series C Conversion Price to the holder of each share of
Series C Preferred Stock at such holder's last address as shown on the records
of the Corporation.
(h) In any case in which paragraph (d) of this Section 4.7.4
provides that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of such
event (A) issuing to the holder of any Series C Preferred Stock converted after
such record date and before the occurrence of such event the additional Common
Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of any fraction pursuant to paragraph (c) of this Section 4.7.4.
(i) There shall be no adjustment of the Series C Conversion
Price in case of the issuance of any shares of capital stock of the Corporation
in a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 4.7.4. If any action or transaction would
require adjustment of the Series C Conversion Price pursuant to more than one
paragraph of this Section 4.7.4, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the
Common Stock, other than action described in this Section 4.7.4, that in the
opinion of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series C Preferred Stock, the Series C
Conversion Price for the Series C Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Directors, in its sole discretion, may determine to be equitable in the
circumstances.
<PAGE>
(k) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock, for the purpose of effecting
conversion of the Series C Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all outstanding Series C Preferred
Stock not theretofore converted. For purposes of this paragraph (k), the number
of shares of Common Stock that shall be deliverable upon the conversion of all
outstanding Series C Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
The Corporation covenants that any Common Stock issued upon
conversion of the Series C Preferred Stock shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Series C Conversion Price below the then-par value of the Common
Stock deliverable upon conversion of the Series C Preferred Stock, the
Corporation will take any action that, in the opinion of its counsel, may be
necessary in order that the Corporation may validly and legally issue fully paid
and (subject to any customary qualification based upon the nature of a real
estate investment trust) non-assessable Common Stock at such adjusted Series C
Conversion Price.
The Corporation shall endeavor to list the Common Stock
required to be delivered upon conversion of the Series C Preferred Stock, prior
to such delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and
state securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series C Preferred Stock. The certificates evidencing such
securities shall bear such legends restricting transfer thereof in the absence
of registration under applicable securities laws or an exemption therefrom as
the Corporation may in good faith deem appropriate.
(l) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Common Stock or other securities or property on conversion of the Series C
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of Common Stock or other securities or
property in a name other than that of the holder of the Series C Preferred Stock
to be converted, and no such issue or delivery shall be made unless and until
the person requesting such issue or delivery has paid to the Corporation the
amount of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
Section 4.7.5 Fixed Charge Coverage; Limitation on Issuance of
Additional Preferred Stock and Indebtedness.
<PAGE>
(a) Without the written consent of the holders of two-thirds
of the issued and outstanding shares of Series C Preferred Stock and Series C
Preferred Units, collectively, none of the Corporation, the Operating
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 and Liquidation Value of non-
convertible Preferred Stock to Total Market
Capitalization of less than .65 to 1.0, or
(ii)Consolidated EBITDA to Consolidated Fixed Charges
of at least 1.4 to 1.0.
(b) In the event that the Corporation fails to satisfy one or
both of the tests in Section 4.7.5(a) above for two consecutive quarters, the
holders of Series C Preferred Stock and Series C Preferred Units shall have the
right to require that the Corporation, to the extent that the Corporation shall
have funds legally available therefor, repurchase any or all of each holder's
Series C Preferred Stock 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 dividends 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 in subsection
(c) below (the "Repurchase Offer").
(c) Within 15 days following the second consecutive quarter
that the Corporation fails to satisfy one or both of the tests in Section
4.7.5(a) above, the Corporation shall mail by first class mail or overnight
courier a notice to all holders of Series C Preferred Stock and Series C
Preferred Units stating (i) that the Corporation failed to satisfy one or both
of the tests (naming the test(s) failed), (ii) that the holders of Series C
Preferred Stock and Series C Preferred Units have the right to require the
Corporation to repurchase any or all Series C Preferred Stock 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 Corporation,
consistent with this subsection, that the holder must follow in order to have
its Series C Preferred Stock and Series C Preferred Units repurchased.
(d) On the Repurchase Date, the Corporation will, to the
extent lawful, accept for payment Series C Preferred Stock 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 Stock and
Series C Preferred
<PAGE>
Units, as directed by such holder, payment in an amount equal to the Repurchase
Payment in respect of all Series C Preferred Stock and Series C Preferred Units
or portions thereof so tendered.
(e) Notwithstanding anything else herein, to the extent they
are applicable to any Repurchase Offer, the Corporation will comply with any
federal and state securities laws, rules and regulations and all time periods
and requirements shall be adjusted accordingly.
(f) "Total Debt" means the sum of (without duplication) any
indebtedness, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures, or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases), except any such balance that constitutes an accrued
expense or trade payable, if and to the extent such indebtedness would appear as
a liability upon a balance sheet of such entity prepared on a consolidated basis
in accordance with Generally Accepted Accounting Principles ("GAAP"), and also
includes, to the extent not otherwise included, the guarantee of items which
would be included within this definition.
(g) "Total Market Capitalization" means the sum of : (a) the
Fair Market Value of the outstanding shares of Common Stock, assuming (i) the
full exchange of outstanding Common Units and Series C Preferred Units (in each
case not held by the Corporation) of the Operating Partnership for shares of
Common Stock and (ii) the conversion of the outstanding shares of Series C
Preferred Stock into shares of Common Stock; (b) the Fair Market Value of the
outstanding shares of Series B Preferred Stock; (c) the aggregate Liquidation
Preference of the Series A Preferred Stock and any other outstanding shares of
Preferred Stock (other than the Series A, Series B or Series C Preferred Stock);
and (d) the Total Debt of the Corporation.
(h) "Consolidated EBITDA" for any period means the
consolidated net income of the Company (before extraordinary income or gains) as
reported in the Company's financial statements filed with the Securities and
Exchange Commission increased by the sum of the following (without duplication):
a. all income and state franchise taxes paid or
accrued according to GAAP for such period
(other than income taxes attributable to
extraordinary, unusual or non-recurring
gains or losses except to the extent that
such gains were not included in Consolidated
EBITDA),
b. all interest expense paid or accrued in
accordance with GAAP for such period
(including financing fees and amortization
of deferred financing fees and amortization
of original issue discount,
c. depreciation and depletion reflected in such
reported net income,
<PAGE>
d. amortization reflected in such reported net
income including, without limitation,
amortization of capitalized debt issuance
costs (only to the extent that such amounts
have not been previously included in the
amount of Consolidated EBITDA pursuant to
clause (b) above), goodwill, other
intangibles and management fees, and
e. any other non-cash charges or discretionary
prepayment penalties, to the extent deducted
from consolidated net income (including,
but not limited to, income allocated to
minority interests).
(i) "Consolidated Fixed Charges" for any period means the
sum of:
a. all interest expense paid or accrued in
accordance with GAAP for such period
(including financing fees and amortization
of deferred financing fees and amortization
of original issue discount),
b. preferred stock dividend requirements for
such period, whether or not declared or
paid, and
c. regularly scheduled amortization of
principal during such period (other than
any balloon payments at maturity).
(j) Notwithstanding the provisions of this Section 4.7.5, in
no event shall the Corporation be required to repurchase any Series C Preferred
Stock or Series C Preferred Units at any time that such repurchase is prohibited
by the Company's Articles or debt instruments.
Section 4.7.6 Shares To Be Retired. All Series C Preferred Stock which
shall have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of Preferred Stock,
without discretion as to class or series, and subject to applicable limitations
set forth in the Articles may thereafter be reissued as shares of any series of
Preferred Stock.
Section 4.7.7 Ranking. Any class or series of shares of capital
stock of the Corporation shall be deemed to rank:
(a) prior to the Series C Preferred Stock, as to the payment
of dividends 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 dividends 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 Stock;
(b) on a parity with the Series C Preferred Stock, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof shall be different
from those of the Series C Preferred Stock, if the holders of such class or
series and the Series C Preferred Stock 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 dividends per
share or liquidation preferences, without preference or priority one over the
other ("Parity Shares");
(c) junior to the Series C Preferred Stock, as to the payment
of dividends 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 Stock, as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Fully Junior Shares.
Section 4.7.8 Voting. If and whenever (i) two consecutive quarterly
dividends payable on the Series C Preferred Stock (or Series C Preferred Units)
or any series or class of Parity Shares shall be in arrears (which shall, with
respect to any such quarterly dividend, mean that any such dividend has not been
paid in full), whether or not earned or declared, or (ii) for two consecutive
quarterly Series C Dividend Periods the Corporation fails to pay dividends on
the Common Stock in an amount per share at least equal to $0.25 (subject to
adjustment consistent with any adjustment of the Series C Conversion Price
pursuant to Section 4.7.4(a) of this Article) 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 Stock, together
with the holders of shares of every other series 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 the Series C Preferred Stock and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
C Preferred Stock, Series C Preferred Units and the Voting Preferred Shares then
outstanding shall have been paid and dividends thereon for the current quarterly
dividend period shall have been paid or declared and set apart for payment, or
the Corporation has paid dividends on the Common Stock in an amount per share at
least equal to $0.25 (subject to adjustment consistent with any adjustment of
the Series C Conversion Price pursuant to Section 4.7.4(a) of this Article) for
two consecutive quarters, then the right of the holders of the Series C
Preferred Stock and the Voting Preferred Shares to elect such additional
director(s) shall cease (but subject always to the same provision for the
vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends), and the terms of office of all persons elected as
directors by the holders of the Series C Preferred Stock and the Voting
Preferred Shares shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the holders of Series
<PAGE>
C Preferred Stock and the Voting Preferred Shares, the Secretary of the
Corporation may, and upon the written request of any holder of Series C
Preferred Stock (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series C
Preferred Stock and of the Voting Preferred Shares for the election of the
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series C
Preferred Stock may call such meeting, upon the notice above provided, and for
that purpose shall have access to the records of the Corporation. The directors
elected at any such special meeting shall hold office until the next annual
meeting of the stockholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy
shall occur among the directors elected by the holders of the Series C Preferred
Stock and the Voting Preferred Shares, a successor shall be elected by the Board
of Directors, upon the nomination of the then-remaining director elected by the
holders of the Series C Preferred Stock and the Voting Preferred Shares or the
successor of such remaining director, to serve until the next annual meeting of
the stockholders or special meeting held in place thereof if such office shall
not have previously terminated as provided above.
So long as any Series C Preferred Stock are outstanding, in
addition to any other vote or consent of stockholders required by law or by the
Corporation's Amended and Restated Articles of Incorporation, the affirmative
vote of at least 66_% of the votes entitled to be cast by the holders of the
Series C Preferred Stock 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:
(a) Any amendment, alteration or repeal of any of the
provisions of the Corporation's Amended and Restated Articles of Incorporation,
the Corporation's By-Laws or these Articles Supplementary that materially and
adversely affects the voting powers, rights or preferences of the holders of the
Series C Preferred Stock; provided, however, that the amendment of the
provisions of the Corporation's Amended and Restated Articles of Incorporation
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 Stock 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 Stock; or
(b) A share exchange that affects the Series C Preferred
Stock, a consolidation with or merger of the Corporation into another entity, or
a consolidation with or merger of another entity into the Corporation, unless in
each such case each share of Series C Preferred Stock (i) shall remain
outstanding without a material and adverse change to its terms and rights or
(ii) 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 dividends, qualifications and terms or
conditions of redemption thereof identical to that of a share of Series C
<PAGE>
Preferred Stock (except for changes that do not materially and adversely affect
the holders of the Series C Preferred Stock); or
(c) 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 the Series C
Preferred Stock in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation or in the payment of dividends; provided, however,
that no such vote of the holders of Series C Preferred Stock shall be required
(i) for the Corporation in order to sell up to $57 million (before deducting
underwriting discounts or commissions) of its Series B Preferred Stock 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
Company's Amended and Restated Articles of Incorporation from the date hereof
affecting the rights or privileges of such Series B Preferred Stock, or (ii) 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 Stock at the time outstanding to the extent such redemption
is authorized by Section 4.7.3 of this Article.
Each share of Series C Preferred Stock shall have one (1) vote
per share, except that when any other series of Preferred Shares shall have the
right to vote with the Series C Preferred Stock as a single class on any matter,
then the Series C Preferred Stock and such other series shall have with respect
to such matters one (1) vote per $13.75 (or less pursuant to Section 4.7.2(a))
of stated liquidation preference. Except as otherwise required by applicable law
or as set forth herein, the Series C Preferred Stock 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 any Corporation action.
Section 4.7.9 Record Holders. The Corporation and the Transfer Agent
may deem and treat the record holder of any Series C Preferred Stock as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
<PAGE>
PREFERRED STOCK
Section 4.8.1 Subject to the rights of any other class of capital stock
having voting rights with respect thereto, the Preferred Stock may be issued
from time to time in one or more series, and the Board of Directors may, by
resolution providing for the issuance of such Preferred Stock, designate with
respect to such shares: (a) their voting powers; (b) their rights of redemption;
(c) their right to receive dividends (which may be cumulative or noncumulative)
including the dividend rate or rates, the conditions to payment, and the
relative preferences in relation to the dividends payable on any other class or
classes or series of stock; (d) their rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; (e) their rights to convert
into, or exchange for, shares of any other class or classes of stock of the
Corporation, including the price or prices or the rates of exchange; (f)
restrictions on transfer and ownership to preserve REIT status; and (g) other
relative, participating, optional or special rights, qualifications, limitations
or restrictions.
EXCESS STOCK
Section 4.9.1 Subject to the rights of any other class of capital stock
having voting rights with respect thereto, the Excess Stock may be issued from
time to time in one or more series, and the Board of Directors may, by
resolution providing for the issuance of such Excess Stock, designate with
respect to such shares: (a) their voting powers; (b) their rights of redemption;
(c) their right to receive dividends (which may be cumulative or noncumulative)
including the dividend rate or rates, the conditions to payment, and the
relative preferences in relation to the dividends payable on any other class or
classes or series of stock; (d) their rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; (e) their rights to convert
into, or exchange for, shares of any other class or classes of stock of the
Corporation, including the price or prices or the rates of exchange; (f)
restrictions on transfer and ownership to preserve REIT status; (g) designation
of Beneficiaries; (h) purchase right in Excess Stock, and (i) other relative,
participating, optional or special rights, qualifications, limitations or
restrictions.
COMMON STOCK
Section 4.10.1 Dividends. Subject to the preferential rights of any
class or series within any such class of Capital Stock ranking senior as to
dividends to the Common Stock, including the Series A Preferred Stock and the
Series B Preferred Stock and the Series C Preferred Stock, and to the provisions
of Section 4.10 of these Amended and Restated Articles of Incorporation, the
record holder of shares of Common Stock shall be entitled to receive, out of the
assets of the Corporation which are legally available therefor, such dividends
as from time to time may be declared by the Board of Directors of the
Corporation. All such holders shall share ratably, in accordance with the number
of shares of Common Stock held by each such holder, in all dividends paid on the
Common Stock.
<PAGE>
Section 4.10.2 Distribution Upon Liquidation, Dissolution or Winding
Up. In the event of any dissolution, liquidation or winding up of the affairs of
the Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and subject to the preferential rights of any
class of Capital Stock ranking senior to the Common Stock as to liquidation
preferences and to the provisions of Articles IV and V of these Articles of
Incorporation (including Series A Preferred Stock, Excess Series A Preferred
Stock, Series B Preferred Stock, Excess Series B Preferred Stock, Series C
Preferred Stock, all classes or series of Preferred Stock and Excess Preferred
Stock,) the holders of shares of Common Stock shall be entitled to receive,
ratably with each other holder of shares of Common Stock and Excess Common Stock
which results from the ownership of Common Stock in excess of the applicable
limits specified in Articles IV and V (the "Excess Common Stock"), a portion of
the assets of the Corporation available for distribution to the holders of its
Common Stock and Excess Common Stock calculated by dividing the number of shares
of Common Stock held by such holder by the total number of shares of Common
Stock and Excess Common Stock then outstanding.
Section 4.10.3 Voting Rights.
(a) Except as otherwise provided in these Amended and Restated
Articles of Incorporation or required by applicable law, each holder of shares
of Common Stock shall be entitled to notice of, and the right to vote at, any
meeting of the stockholders of Common Stock. Each holder of shares of Common
Stock shall be entitled to one vote for each share of Common Stock held by such
holder. The holders of record of shares of Common Stock shall be entitled to
vote, together with any other class or series of Capital Stock entitled to vote,
then outstanding, on any resolution presented by the Board of Directors pursuant
to Section 5.0.2.
(b) The Corporation shall not consent to an amendment of the
Partnership Agreement that would reduce the preferential distribution to Common
Units held by the Corporation without the consent of holders of two-thirds of
the outstanding shares of Common Stock.
Section 4.10.4 Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of
Common Stock shall not have any preferences or relative, participating, optional
or other special rights, other than those specifically set forth in these
Amended and Restated Articles of Incorporation.
Section 4.10.5 Common Stock Ownership Limitations.
(a) Except as provided in Section 4.10.12, during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date:
(i) No Person, other than a Conversion Holder, shall
Acquire or Beneficially Own any shares of Common
Stock if, as the result of such acquisition or
<PAGE>
Beneficial Ownership, such Person shall
Beneficially Own shares of Common Stock in excess
of the Common Stock Ownership Limit.
(ii)No Conversion Holder shall Acquire or
Beneficially Own (other than by reason of the
Conversion of shares of Series B Preferred Stock,
which Conversion shall not be subject to this
Section 4.10.5(a)(ii)) any additional shares
of Common Stock to the extent that as a result of
such Acquisition or Beneficial Ownership the
aggregate of the shares of Common Stock
Beneficially Owned by such holder and the shares
of Common Stock that would be issued to such
holder upon conversion of all the shares of
Series B Preferred Stock then Beneficially Owned
by such holder, assuming that all of the
outstanding shares of Series B Preferred Stock
were converted into Common Stock at such time,
would exceed 9.9% of the total shares of Common
Stock that would be outstanding assuming the
conversion of all of the outstanding shares of
Series B Preferred Stock but without giving
effect to the exchange of Common Units for Common
Stock.
(b) Except as provided in Section 4.10.12, during the period
commencing on the date of the closing of the Initial Public Offering and prior
to the Restriction Termination Date, any Transfer of shares of Common Stock
that, if effective, would result in a violation of any of the restrictions in
Section 4.10.5(a) shall be void ab initio as to the Transfer of that number of
shares of Common Stock that would cause the violation of the applicable
restriction in Section 4.10.5(a) (rounding up to the nearest whole share), and
the intended transferee shall acquire no rights in such excess number of shares
of Common Stock.
(c) Notwithstanding any other provisions contained herein,
from the date of the closing of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer of shares of Common Stock or other
event that, if effective, would result in (i) the Corporation being "closely
held" within the meaning of Section 856(h) of the Code, (ii) the outstanding
shares of the Capital Stock of the Corporation being beneficially owned by less
than 100 Persons (determined without reference to any rules of attribution), or
(iii) the Corporation otherwise failing to qualify as a REIT (including, but not
limited to, a Transfer or other event that would result in the Corporation
owning (directly or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Corporation from
such tenant would cause the Corporation to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code), shall be void ab initio as
to the Transfer of that number of shares of Common Stock (rounding up to the
nearest whole share) or other event that would cause the Corporation to be
"closely held" within the meaning of Section 856(h) of the Code, would result in
the outstanding shares of the Capital Stock of the Corporation being
beneficially owned by less than 100 Persons (determined without reference to any
rules of attribution), or would otherwise result in the Corporation failing to
qualify as a REIT, and the intended transferee shall Acquire, or the Beneficial
Owner shall retain, as the case may be, no rights in such shares of Common
Stock.
(d) It is expressly intended that the restrictions on
ownership and transfer described in this Section 4.10.5 shall apply to the
exchange rights provided in Section 11.1 of the
<PAGE>
Partnership Agreement. Notwithstanding any of the provisions of the Partnership
Agreement to the contrary, a partner of the Operating Partnership shall not be
entitled to effect an exchange of an interest in the Operating Partnership into
shares of Common Stock if the Beneficial Ownership of such shares of Common
Stock would be prohibited under the provisions of Section 4.10.5.
Section 4.10.6 Remedies for Breach. If the Board of Directors or any
duly authorized committee thereof shall at any time determine in good faith that
a Transfer or other event has taken place that results in a violation of Section
4.10.5 or that a Person intends to Acquire or has attempted to Acquire
Beneficial Ownership of any shares of Common Stock in violation of Section
4.10.5 (whether or not such violation is intended), the Board of Directors or a
committee thereof shall take such action as it or they deem advisable, subject
to Section 5.0.3 hereof, to refuse to give effect to or to prevent such Transfer
or other event, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers or attempted Transfers or,
in the case of an event other than a Transfer, Beneficial Ownership in violation
of Section 4.10.5 shall be void ab initio and automatically result in the
exchange described in Section 4.10.7, irrespective of any action (or non-action)
by the Board of Directors or a committee thereof.
Section 4.10.7 Exchange For Excess Common Stock. If, notwithstanding
the other provisions contained in this Section 4.10, at any time after the date
of the closing of the Initial Public Offering and prior to the Restriction
Termination Date, there is a purported Transfer or other event such that one or
more of the restrictions on Beneficial Ownership and Transfer of the Common
Stock described in Section 4.10.5 would be violated, then, except as otherwise
provided in Section 4.10.12, the shares of Common Stock being Transferred (or,
in the case of an event other than a Transfer, the shares of Common Stock
Beneficially Owned, which would cause one or more of such restrictions to be
violated) (rounded up to the nearest whole share) shall be automatically
exchanged for an equal number of shares of Excess Common Stock. Such exchange
shall be effective as of the close of business on the business day prior to the
date of such purported Transfer or other event.
Section 4.10.8 Notice of Restricted Transfer. Any Person who Acquires
or attempts or intends to Acquire shares of Common Stock in violation of Section
4.10.5, or any Person who is a transferee in a Transfer or is otherwise affected
by an event other than a Transfer that results in the issuance of Excess Common
Stock pursuant to Section 4.10.7, shall immediately give written notice to the
Corporation of such Transfer or other event and shall provide to the Corporation
such other information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted, intended or purported Transfer or
other event on the Corporation's status as a REIT.
Section 4.10.9 Owners Required To Provide Information. From the date of
the closing of the Initial Public Offering and prior to the Restriction
Termination Date:
(a) every Beneficial Owner of more than 5% (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding Common Stock of the Corporation shall, within 30
days after December 31 of each year, give written
<PAGE>
notice to the Corporation stating the name and address of such Beneficial Owner,
the number of shares of Common Stock and other shares of the Capital Stock of
the Corporation Beneficially Owned, and a description of the manner in which
such shares are held. Each such Beneficial Owner shall provide to the
Corporation such additional information as the Corporation may request in order
to determine the effect, if any, of such Beneficial Ownership on the
Corporation's status as a REIT and to ensure compliance with the Common Stock
Ownership Limit; and
(b) each Person who is a Beneficial Owner of Common Stock and
each Person (including the stockholder of record) who is holding Common Stock
for a Beneficial Owner shall provide to the Corporation such information that
the Corporation may request, in good faith, in order to determine the
Corporation's status as a REIT.
Section 4.10.10 Remedies Not Limited. Subject to Section 5.0.2, nothing
contained in this Section 4.10 shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
Section 4.10.11 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 4.10 or any definition
contained in Section 4.2, the Board of Directors shall have the power to
determine the application of the provisions of this Section 4.10 with respect to
any situation based on the facts known to it.
Section 4.10.12 Exceptions.
(a) Subject to Section 4.10.5(c), the Board of Directors, in
its sole discretion, may exempt a Person from the Common Stock Ownership Limit
(A) if such Person is not an individual for purposes of Section 542(a)(2) of the
Code and the Board of Directors obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain that no such
individual's Beneficial Ownership of such Common Stock will violate the Common
Stock Ownership Limit or otherwise violate Section 4.10.5(c), (B) if such Person
does not and represents that it will not own, directly or Constructively, more
than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a
tenant of the Corporation (or a tenant of any entity owned or controlled by the
Corporation) and the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain this
fact, and (C) if such Person agrees that any violation of such representations
or undertaking (or other action which is contrary to the restrictions contained
in Sections 4.10.5 through 4.10.11 of this Article IV) or attempted violation
will result in such Common Stock being exchanged for Excess Common Stock in
accordance with Section 4.10.7.
(b) Prior to granting any exception pursuant to Section
4.10.12(a), the Board of Directors shall require a ruling from the Internal
Revenue Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in it sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT.
<PAGE>
Notwithstanding the receipt of any ruling or opinion, the Board of Directors may
impose such conditions or restrictions as it deems appropriate in connection
with granting such exception.
Section 4.10.13 Legend. Each certificate for Common Stock shall bear
the following legend:
"The shares represented by this certificate are subject to restrictions
on Beneficial Ownership and Transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as expressly
provided in the Corporation's Amended and Restated Articles of
Incorporation, no Person may (i) Beneficially Own shares of the
Corporation's Common Stock in excess of 9.9%, or (ii) Beneficially Own
Common Stock that would result in the Corporation being "closely held"
under Section 856(h) of the Code. Any Person who Beneficially Owns or
attempts to Beneficially Own shares of Common Stock which causes or
will cause a Person to Beneficially Own shares of Common Stock in
excess of the above limitations must immediately notify the
Corporation. Any Transfer of shares of Common Stock in violation of the
limitations set forth in the Corporation's Amended and Restated
Articles of Incorporation shall be void ab initio. If the restrictions
on Transfer are violated, the shares of Common Stock represented hereby
will be automatically exchanged for shares of Excess Common Stock which
will be held in trust by the Corporation. All capitalized terms in this
legend have the meanings defined in the Corporation's Amended and
Restated Articles of Incorporation, as the same may be amended from
time to time, a copy of which, including the restrictions on transfer,
will be sent without charge to each holder of Common Stock who so
requests."
EXCESS COMMON STOCK
Section 4.11.1 Ownership in Trust. Upon any purported Transfer or other
event that results in an exchange of Common Stock for Excess Common Stock
pursuant to Section 4.10.7, such Excess Common Stock shall be deemed to have
been Transferred to the Corporation, as Trustee of a Trust for the exclusive
benefit of the Beneficiary or Beneficiaries to whom an interest in such Trust
may later be transferred pursuant to Section 4.10.5. Shares of Excess Common
Stock so held in trust shall be issued and outstanding stock of the Corporation
but shall not be considered issued and outstanding for purposes of any
stockholder vote. The Purported Record Transferee or, in the case of Excess
Common Stock resulting from an event other than a Transfer, the Purported Record
Holder, shall have no rights in such Excess Common Stock except the right to
designate a transferee of such Excess Common Stock upon the terms specified in
Section 4.10.5. The Purported Beneficial Transferee or, in the case of Excess
Common Stock resulting from an event other than a Transfer, the Purported
Beneficial Holder, shall have no rights in such Excess Common Stock except as
provided in Section 4.10.5.
<PAGE>
Section 4.11.2 Dividend Rights. Excess Common Stock shall not be
entitled to any dividends or periodic distributions. Any dividend or
distribution paid prior to the discovery by the Corporation that shares of
Common Stock have been exchanged for Excess Common Stock shall be repaid to the
Corporation upon demand, and any dividend or distribution declared but unpaid
shall be rescinded as void ab initio with respect to such shares of Common
Stock.
Section 4.11.3 Rights Upon Liquidation. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, the Corporation, as holder of shares of Excess
Common Stock in trust, shall be entitled to receive, subject to the preferential
rights of holders of Preferred Stock or Excess Preferred Stock, ratably with
each other holder of Common Stock and Excess Common Stock, that portion of the
assets of the Corporation available for distribution to the holders of its
Common Stock and Excess Common Stock as the number of shares of the Excess
Common Stock held by the Corporation in trust bears to the total number of
shares of Common Stock and Excess Common Stock then outstanding. The
Corporation, as holder of the Excess Common Stock in trust, or if the
Corporation shall have been dissolved, any trustee appointed by the Corporation
prior to its dissolution, shall distribute ratably to the Beneficiaries of the
Trust, when and if determined in accordance with Section 4.10.5, any such assets
received in respect of the Excess Common Stock in any liquidation, dissolution
or winding up of, or any distribution of the assets, of the Corporation.
Section 4.11.4 Voting Rights. The holders of shares of Excess Common
Stock shall not be entitled to vote on any matters (except as required by the
MGCL).
Section 4.11.5 Restrictions On Transfer; Designation of Beneficiary.
(a) Excess Common Stock shall not be transferrable. A
Purported Record Transferee or, in the case of Excess Common Stock resulting
from an event other than a Transfer, a Purported Record Holder, may freely
designate a Beneficiary of its interest in the Trust (representing the number of
shares of Excess Common Stock held by the Trust attributable to the purported
Transfer or other event that resulted in the issuance of such Excess Common
Stock), if (i) the shares of Excess Common Stock held in the Trust would not be
Excess Common Stock in the hands of such Beneficiary and (ii) the Purported
Beneficial Transferee or, in the case of Excess Common Stock resulting from an
event other than a Transfer, the Purported Beneficial Holder, does not receive
consideration for the designation of such Beneficiary that reflects a price per
share for such Excess Common Stock that exceeds the "Excess Common Stock
Limitation Price". The Excess Common Stock Limitation Price is the lesser of (A)
in the case of Excess Common Stock resulting from a Transfer for value, the
price per share that the Purported Beneficial Transferee paid for the Common
Stock in the purported Transfer that resulted in the issuance of the Excess
Common Stock, or, in the case of Excess Common Stock resulting from (I) a
Transfer other than for value (such as a gift, devise or similar Transfer) or
(II) an event other than a Transfer, a price per share equal to the Market Price
of the Common Stock that was exchanged for such Excess Common Stock on the date
of the purported Transfer or other event that resulted in the issuance of the
Excess Common Stock
<PAGE>
or (B) a price per share equal to the Market Price of the Excess Common Stock on
the date of the designation of the Beneficiary of the interest in the Trust.
Prior to any transfer of any interest in the Trust, the Purported Record
Transferee or Purported Record Holder, as the case may be, must give advance
notice to the Corporation of the intended transfer and the Corporation must have
waived in writing its purchase rights under Section 4.10.6. Upon any transfer of
an interest in the Trust, the corresponding shares of Excess Common Stock in the
Trust shall be automatically exchanged for an equal number of shares of Common
Stock and such shares of Common Stock shall be transferred of record to the
Beneficiary of the interest in the Trust designated by the Purported Record
Transferee or Purported Record Holder as described above if such Common Stock
would not be Excess Common Stock in the hands of such Beneficiary.
(b) Notwithstanding the foregoing, if a Purported Beneficial
Transferee or Purported Beneficial Holder receives consideration for the
designation by the Purported Record Transferee or Purported Record Holder of a
Beneficiary of an interest in the Trust that exceeds the Excess Common Stock
Limitation Price, such Purported Beneficial Transferee or Purported Beneficial
Holder shall pay, or cause the Beneficiary of the interest in the Trust to pay,
to the Corporation the amount by which such consideration exceeds the Excess
Common Stock Limitation Price.
Section 4.11.6 Purchase Right in Excess Common Stock. Notwithstanding
Section 4.10.5, shares of Excess Common Stock shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal
to the Excess Common Stock Limitation Price (determined by substituting "the
date on which the Corporation, or its designee, accepts the offer to sell" for
"the date of the designation of the Beneficiary of the interest in the Trust" in
clause (B) of the definition of Limitation Price in Section 4.11.5 (a)). The
Corporation shall have the right to accept such offer for a period of ninety
days after the later of (i) the date of the Transfer or other event which
resulted in the issuance of such Excess Common Stock and (ii) if the Corporation
does not receive actual notice of a Transfer or other event pursuant to Section
4.10.8, the date the Board of Directors determines in good faith that such a
Transfer or other event resulting in the issuance of Excess Common Stock has
occurred.
ARTICLE V
General REIT Provisions
Section 5.1.1 General Limitations. Notwithstanding anything else in
these Amended and Restated Articles of Incorporation (i) no Person shall Acquire
any shares of Capital Stock if, as a result of such Acquisition, the outstanding
shares of the Capital Stock would be owned beneficially and not of record by
less than 100 Persons (determined without reference to any rules of
attribution), (ii) no Person shall Acquire or Beneficially Own any shares of
Capital Stock if, as a result of such Acquisition or Beneficial Ownership, the
Corporation would be "closely held" within the meaning of Section 856(h) of the
Code and (iii) no person shall Acquire or Beneficially Own any shares of Capital
Stock if, as a result of such Acquisition or Beneficial Ownership, the
Corporation would fail to qualify as a REIT (including, but not limited to, a
Transfer or other event that would result in the Corporation owning (directly or
Constructively) an interest in a tenant that is described in Section
<PAGE>
856(d)(2)(B) of the Code if the income derived by the Corporation from such
tenant would cause the Corporation to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
Section 5.1.2 Termination of REIT Status. The Board of Directors shall
take no action to terminate the Corporation's status as a REIT until such time
as (i) the Board of Directors adopts a resolution recommending that the
Corporation terminate its status as a REIT, (ii) the Board of Directors presents
the resolution at an annual or special meeting of the stockholders and (iii)
such resolution is approved by the vote of a majority of the shares entitled to
be cast on the resolution.
Section 5.1.3 Exchange or Market Transactions. Nothing in Article IV or
this Article V shall preclude the settlement of any transaction entered into
through the facilities of any national securities exchange or automated
inter-dealer quotation system.
Section 5.1.4 Severability. If any provision of Article IV or this
Article V or any application of any such provision is determined to be invalid
by any federal or state court having jurisdiction over the issues, the validity
of the remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
Section 5.1.5 Waiver. The Corporation shall have authority at any time
to waive the requirements that Excess Stock be issued or be deemed outstanding
in accordance with the provisions of Article IV or that the Corporation redeem
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock pursuant to Sections 4.4.8 , 4.6.8 and 4.7.3 if the Corporation
determines, based on an opinion of nationally recognized tax counsel, that the
issuance of such Excess Stock or the fact that such Excess Stock is deemed to be
outstanding, or any such redemption would jeopardize the status of the
Corporation as a REIT for federal income tax purposes.
ARTICLE VI
Board of Directors
Section 6.1.1 Management. The management of the business and
the conduct of the affairs of the Corporation shall be vested in its Board of
Directors.
Section 6.1.2 Number. The number of directors which will constitute the
entire Board of Directors shall be fixed by, or in the manner provided in, the
By-laws but shall in no event be less than three. Any increases or decreases in
the size of the board shall be apportioned equally among the classes of
directors to prevent stacking in any one class of directors.
Section 6.1.3 Classification. The directors shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. As shall be provided in the By-laws of the
Corporation, one class shall originally be elected for a term
<PAGE>
expiring at the annual meeting of stockholders to be held in 1995, another class
shall originally be elected for a term expiring at the annual meeting of
stockholders to be held in 1996, and another class shall originally be elected
for a term expiring at the annual meeting of stockholders to be held in 1997,
with each class to hold office until its successors are elected and qualified.
Except as otherwise provided in these Amended and Restated Articles of
Incorporation, at each annual meeting of the stockholders of the Corporation,
the date of which shall be fixed by or pursuant to the By-laws of the
Corporation, the successors of the class of directors whose terms expire at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. No election of directors need be by written ballot. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
Section 6.1.4 Vacancies. Except as otherwise provided in these Amended
and Restated Articles of Incorporation, newly created directorships resulting
from any increase in the number of directors may be filled by the majority vote
of the Board of Directors, and any vacancies on the Board of Directors resulting
from death, resignation, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors, or, if applicable, by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office until the next annual meeting of the Corporation, at
which time a successor shall be elected to fill the remaining term of the
position filled by such director.
Section 6.1.5 Removal. Except as otherwise provided in these Amended
and Restated Articles of Incorporation, any director may be removed from office
only for cause and only by the affirmative vote of two-thirds of the aggregate
number of votes then entitled to be cast generally in the election of directors.
For purposes of this Section 6.0.5, "cause" shall mean the willful and
continuous failure of a director to substantially perform the duties to the
Corporation of such director (other than any such failure resulting from
temporary incapacity due to physical or mental illness) or the willful engaging
by a director in gross misconduct materially and demonstrably injurious to the
Corporation.
Section 6.1.6 By-laws. Except as otherwise provided in the MGCL, the
Board of Directors shall have power to adopt, amend, alter, change and repeal
any By-laws of the Corporation by vote of the majority of the Board of Directors
then in office. Any adoption, amendment, alteration, change or repeal of any
By-laws by the stockholders of the Corporation shall require the affirmative
vote of a majority of the aggregate number of votes then entitled to be cast
generally in the election of directors. Notwithstanding anything in this Section
6.0.6 to the contrary, no amendment, alteration, change or repeal of any
provision of the By-laws relating to the classification or removal of directors
or the amendment or repeal of the By-laws shall be effected without the vote of
two-thirds of the aggregate number of votes entitled be cast generally in the
election of Directors.
Section 6.1.7 Powers. The enumeration and definition of particular
powers of the Board of Directors included elsewhere in these Amended and
Restated Articles of Incorporation shall in
<PAGE>
no way be limited or restricted by reference to or inference from the terms of
any other clause of this or any other Article of these Amended and Restated
Articles of Incorporation, or construed as excluding or limiting, or deemed by
inference or otherwise in any manner to exclude or limit, the powers conferred
upon the Board of Directors under the MGCL as now or hereafter in force.
ARTICLE VII
Liability
To the fullest extent permitted by Maryland law, as applicable from
time to time, no person who at any time was or is a director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages. No amendment of these Amended and Restated Articles of
Incorporation of the Corporation or repeal of any of its provisions shall limit
or eliminate any of the benefits provided to directors and officers under this
Article VII in respect of any act or omission that occurred prior to such
amendment or repeal.
ARTICLE VIII
Indemnification
The Corporation 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 Corporation 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 Corporation shall pay or
reimburse all reasonable expenses incurred by a present or former director or
officer of the Corporation 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 Corporation 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
Corporation entitled to vote thereon or special legal counsel appointed by the
Board of Directors. No amendment of these Amended and Restated Articles of
Incorporation of the Corporation or repeal of any of its provisions shall limit
or eliminate any of the benefits provided to directors and officers under this
Article VIII in respect of any act or omission that occurred prior to such
amendment or repeal.
ARTICLE IX
Written Consent of Stockholders
Any corporate action upon which a vote of stockholders is
required or permitted may be taken without a meeting or vote of stockholders
with the unanimous written consent of stockholders entitled to vote thereon.
<PAGE>
ARTICLE X
Amendment
The Corporation reserves the right to amend, alter or repeal
any provision contained in these Amended and Restated Articles of Incorporation
upon (i) adoption by the Board of Directors of a resolution recommending such
amendment, alteration, or repeal, (ii) presentation by the Board of Directors to
the stockholders of a resolution at an annual or special meeting of the
stockholders and (iii) approval of such resolution by the affirmative vote of
the holders of a majority of the aggregate number of votes entitled to be cast
generally in the election of directors; provided, however, subject to the voting
rights of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock, the affirmative vote of the holders of two-thirds of
the aggregate number of votes then entitled to be cast generally in the election
of directors, shall be required to amend Sections 4.10.3(b), 6.3 and 6.5 and
Article X hereof; and provided, further, that Section 5.4 shall not be amended
or deleted without the unanimous approval of the holders of the outstanding
stock entitled to vote generally in the election of directors. All rights
conferred upon stockholders herein are subject to this reservation.
ARTICLE XI
Existence
The Corporation is to have a perpetual existence.
* * * * * *
- --------
1/
This document has been conformed and restated solely for purposes of
Section 232.102(c) of Regulation S-T under the Securities Act of 1933, as
amended. It incorporates the Articles of Amendment and Restatement of Articles
of Incorporation of Prime Retail, Inc. dated May 29, 1996, as amended, and as
further modified by the Articles Supplementary classifying and designating a
series of preferred stock as Series C Cumulative Convertible Redeemable
Preferred Stock and fixing distribution and other preferences and rights of such
series, as filed with the Maryland Department of Assessments and Taxation
("SDAT") on September 8, 1997, and the Articles Supplementary classifying and
designating 175,800 shares of preferred stock as 8.5% Series B Cumulative
Participating Convertible Preferred Stock and 87,900 shares of excess preferred
stock as Excess Series B Preferred Stock, as filed on February 19, 1997 with the
SDAT.
<PAGE>
Execution Copy
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIME RETAIL, L.P.
Dated as of September 8, 1997
<PAGE>
PARTNERS.DOC Execution Copy
9/8/97
E-2
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS;ETC...............................................1
1.1 Definitions.........................................1
Accountants.........................................2
Act............................................. 2
Adjusted Capital Account Deficit....................2
Administrative Expenses.............................3
Affiliate...........................................3
Agreement.............................. ............3
Antidilution Provisions.............................4
Audited Financial Statements........................4
Bankruptcy..........................................4
Capital Account.....................................5
Capital Contribution................................7
Certificate.........................................7
Closing Price.......................................7
Code................................................8
Common Stock........................................8
Common Units........................................8
Consent of the Partners.............................9
Contributed Partnership Interests...................9
Control.............................................9
Convertible Preferred Distribution..................10
Convertible Preferred Distribution Shortfall........10
Convertible Preferred Stock.........................10
Convertible Preferred Unit Redemption Amount........10
Convertible Preferred Units.........................10
Current Per Share Market Price......................11
Depreciation........................................11
Entity..............................................11
ERISA...............................................12
GAAP................................................12
General Partner.....................................12
Gross Asset Value...................................12
Hart Scott Act......................................13
Immediate Family....................................13
Incentive Option....................................13
Incentive Option Agreement..........................14
Lien................................................14
Limited Partner.....................................14
Liquidating Events..................................14
Liquidating Trustee.................................14
Major Decisions.....................................14
Majority-in-Interest of the Partners................14
Minimum Gain Capital Account........................15
Net Cash Flow.......................................15
Net Income or Net Loss..............................16
Nonrecourse Deductions..............................18
Nonrecourse Liabilities.............................18
Original Agreement..................................18
Partner Minimum Gain................................18
Partner Nonrecourse Debt............................18
Partner Nonrecourse Deductions......................18
Partners............................................18
Partnership.........................................19
Partnership Interest................................19
Partnership Minimum Gain............................19
Partnership Payment Date............................19
Partnership Units...................................19
Permitted Transferee................................19
Person..............................................19
Preferred Distribution..............................20
Preferred Distribution Shortfall....................20
Preferred Stock.....................................20
Preferred Unit Redemption Amount....................20
Preferred Units.....................................20
<PAGE>
Property............................................20
Property Partnership Interests......................20
Property Partnerships...............................21
Purchase Price......................................21
Quarter.............................................21
Regulations.........................................21
Regulatory Allocations..............................21
REIT................................................21
REIT Expenses.......................................21
REIT Requirements...................................22
Rights..............................................22
SEC.................................................22
Section 704(c) Tax Items............................22
Series C Preferred Distribution.....................23
Series C Preferred Distribution Shortfall...........23
Series C Preferred Purchase Agreement...............23
Series C Preferred Rights...........................23
Series C Preferred Stock............................23
Series C Preferred Unit Redemption Amount...........23
Series C Preferred Units............................23
Shopping Center Project.............................24
Stock Incentive Plan................................24
Substituted Limited Partner.........................24
Tax Items...........................................24
Trading Day.........................................24
Transfer............................................25
1.2 Exhibits, Etc.......................................25
ARTICLE II ORGANIZATION.................................................25
2.1 Formation and Continuation..........................25
2.2 Name................................................26
2.3 Character of the Business...........................26
2.4 Location of the Principal Place of Business.........27
2.5 Registered Agent and Registered Office..............27
2.6 Power of Attorney...................................28
ARTICLE III TERM; DISSOLUTION...........................................30
3.1 Term................................................30
3.2 Dissolution.........................................30
3.3 Bankruptcy of a Limited Partner.....................31
ARTICLE IV CONTRIBUTIONS TO CAPITAL; FINANCING..........................31
4.1 General Partner Capital Contribution................31
4.2 Limited Partner Capital Contributions...............32
4.3 Additional Funds; Restrictions on General Partner...32
4.4 Issuance of Additional Partnership Interests;
Admission of Additional Limited Partners............35
4.5 Stock Incentive Plan................................36
4.6 No Third Party Beneficiary..........................36
4.7 No Interest; No Return..............................37
4.8 Conversion of Convertible Preferred Units or Series
C Preferred Units; Redemption or Purchase of Series
C Preferred Units, Convertible Preferred Units or
Preferred Units.....................................37
4.9 Redemption of Series C Preferred Units..............39
ARTICLE V INTENTIONALLY OMITTED.........................................42
ARTICLE VI ALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND ACCOUNTING
MATTERS......................................................42
6.1 Allocations.........................................42
6.2 Distributions.......................................42
6.3 Books of Account....................................45
6.4 Reports.............................................46
6.5 Audits..............................................46
6.6 Tax Elections and Returns...........................46
6.7 Tax Matters Partner.................................48
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER......50
7.1 Expenditures by Partnership.........................50
7.2 Powers and Duties of General Partner................50
7.3 Major Decisions.....................................55
7.4 No Removal..........................................56
7.5 General Partner Participation.......................56
7.6 Proscriptions.......................................56
7.7 Additional Partners.................................57
7.8 Title Holder........................................57
7.9 Compensation of the General Partner.................57
7.10 Waiver and Indemnification..........................57
7.11 Operation in Accordance with REIT Requirements......61
<PAGE>
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP....................62
8.1 Winding Up..........................................62
8.2 Distribution on Dissolution and Liquidation.........64
8.3 Timing Requirements.................................65
8.4 Deemed Distribution and Recontribution..............65
8.5 Distributions in Kind...............................66
8.6 Documentation of Liquidation........................66
8.7 Deficit Capital Account Balance.....................67
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS; WITHDRAWAL; ADMISSION OF
ADDITIONAL PARTNERS..........................................67
9.1 General Partner Transfer; Withdrawal;
Substitute General Partner..........................67
9.2 Transfers by Limited Partners.......................69
9.3 Restrictions on Transfer............................71
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................75
10.1 No Participation in Management; No Personal
Liability...........................................75
10.2 Duties and Conflicts................................76
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS..........................77
11.1 Grant of Rights.....................................77
11.2 Terms of Rights.....................................78
11.3 Reissuance or Reallocation of Common Units..........78
ARTICLE XII GRANT OF RIGHTS TO LIMITED PARTNERS HOLDING SERIES C
PREFERRED UNITS; REDEMPTION OF SERIES C PREFERRED UNITS....78
12.1 Grant of Rights.....................................78
12.2 Terms of Rights.....................................79
12.3 Reissuance or Reallocation of Series C Preferred
Units...............................................79
ARTICLE XIII PARTNER REPRESENTATIONS AND WARRANTIES.....................80
(a) Organization.................................80
(b) Due Authorization; Binding Agreement.........80
(c) Consents and Approvals.......................80
ARTICLE XIV GENERAL PROVISIONS..........................................80
14.1 Notices.............................................80
14.2 Successors..........................................81
14.3 Effect and Interpretation...........................81
14.4 Counterparts........................................81
14.5 Partners Not Agents.................................81
14.6 Entire Understanding, Etc...........................81
14.7 Amendments..........................................81
14.8 Severability........................................84
14.9 Trust Provision.....................................84
14.10 Pronouns and Headings...............................85
14.11 Assurances..........................................85
14.12 Remedies Cumulative.................................85
14.13 Construction........................................85
14.14 Incorporation by Reference..........................86
14.15 Waiver of Action for Partition......................86
<PAGE>
EXHIBITS
A Common Units, Preferred Units, Convertible Preferred Units and Series
C Preferred Units
B Allocations
C Rights Terms
D Conversion Rights of Series C Preferred Units
E Section 6.2(e) Agreements
SCHEDULES TO EXHIBIT C
1 Exchange Exercise Notice
2 Election Notice
3 Registration Rights Agreement
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIME RETAIL, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP is made and entered into
as of the 8th day of September, 1997, by and among the undersigned parties.
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend and restate the
Partnership's Agreement of Limited Partnership dated March 22, 1994 as amended
by a First Amendment thereto dated as of June 24, 1996 (as amended, the
"Original Agreement") to provide for, among other things, the creation and
issuance of Series C Preferred Units and the admission of the holder or holders
thereof as a limited partner or limited partners of the Partnership;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto, intending legally to be bound, hereby amend and restate the Agreement
and otherwise agree as follows:
ARTICLE I
DEFINITIONS; ETC
I.1 Definitions. Except as otherwise herein expressly
provided, the following terms and phrases shall have the meanings set forth
below:
"Accountants" shall mean the firm or firms of independent
certified public accountants selected by the General Partner on behalf of the
Partnership and the Property Partnerships to audit the books and records of the
Partnership and the Property Partnerships and to prepare statements and reports
in connection therewith.
"Act" shall mean the Revised Uniform Limited Partnership Act
as enacted in the State of Delaware, and as the same may hereafter be amended
from time to time.
"Adjusted Capital Account Deficit" shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of any relevant fiscal year and after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such
Partner is obligated or treated as obligated to restore with respect to
any deficit balance in such Capital Account pursuant to this Agreement
or the provisions of Section 1.704-1(b)(2)(ii)(c) of the Regulations,
or is deemed to be obligated to restore with respect to any deficit
balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
"Administrative Expenses" shall mean (i) all administrative
and operating costs and expenses incurred by the Partnership, (ii) all
administrative, operating and other costs and expenses incurred by the Property
Partnerships, which expenses are being assumed by the Partnership pursuant to
Section 7.1 hereof, (iii) those administrative costs and expenses of the General
Partner, including salaries paid to officers of the General Partner, and
accounting and legal expenses undertaken by the General Partner on behalf or for
the benefit of the Partnership, and (iv) to the extent not included in clause
(iii) above, REIT Expenses.
"Affiliate" shall mean, with respect to any Partner (or with
respect to any other Person whose affiliates are relevant for purposes of any of
the provisions of this Agreement), (i) any member of the Immediate Family of
such Partner or a trust established for the benefit of such member; (ii) any
beneficiary of a trust described in (i); or (iii) any Entity which directly or
indirectly through one or more intermediaries, Controls, is Controlled by, or is
under common Control with, any Partner or any Person referred to in the
preceding clauses (i) and (ii).
<PAGE>
"Agreement" shall mean this Amended and Restated Agreement of
Limited Partnership, as originally executed and as amended, modified,
supplemented or restated from time to time, as the context requires.
"Antidilution Provisions" shall mean the provisions of Section
XI of Exhibit C hereto.
"Audited Financial Statements" shall mean financial statements
(which shall consist of a balance sheet, statement of income, statement of
partners' equity and statement of cash flows) prepared in accordance with GAAP.
"Bankruptcy" shall mean, with respect to any Partner, (i) the
commencement by such Partner of any proceeding seeking relief under any
provision or chapter of the federal Bankruptcy Code or any other federal or
state law relating to insolvency, bankruptcy or reorganization; (ii) an
adjudication that such Partner is insolvent or bankrupt; (iii) the entry of an
order for relief under the federal Bankruptcy Code with respect to such Partner;
(iv) the filing of any petition or the commencement of any case or proceeding
against such Partner seeking relief under any provision or chapter of the
federal Bankruptcy Code or other federal or state laws relating to insolvency,
bankruptcy or receivership, unless such petition and the case or proceedin
initiated thereby are dismissed within ninety (90) days from the date of such
filing; (v) the filing of an answer by such Partner admitting the allegations of
any petition described in (iv) above; (vi) the appointment of a trustee,
receiver or custodian for all or substantially all of the assets of such Partner
unless such appointment is vacated or dismissed within ninety (90) days from the
date of such appointment but not less than five (5) days before the proposed
sale of any assets of such Partner; (vii) the insolvency of such Partner or the
execution by such Partner of a general assignment for the benefit of creditors;
(viii) the convening by such Partner of a meeting of its creditors, or any class
thereof, for purposes of effecting a moratorium upon or extension or composition
of its debts; (ix) the levy, attachment, execution or other seizure of
substantially all of the assets of such Partner where such seizure is not
discharged within thirty (30) days thereafter; or (x) the admission by such
Partner in writing of its inability to pay its debts as they mature or that it
is generally not paying its debts as they become due.
"Capital Account" shall mean, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
(i) To each Partner's Capital Account there shall be credited
such Partner's Capital Contributions, such Partner's distributive share
of Net Income and any items in the nature of income or gain which are
specially allocated pursuant to Section II or III of Exhibit B hereto
and the amount of any Partnership liabilities assumed by such Partner
or which are secured by any asset distributed to such Partner.
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to
such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature
of expenses or losses which are specially allocated pursuant to Section
II or III of Exhibit B hereto, and the amount of any liabilities of
such Partner assumed by the Partnership or which are secured by any
asset contributed by such Partner to the Partnership.
(iii) In the event all or a portion of an Interest in the
Partnership is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred Interest.
(iv) In determining the amount of any liability for purposes of the
foregoing subparagraphs (i) and (ii), there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
For purposes of this definition, in the event that (i) the
date on which a Limited Partner is paid, or constructively receives (if
earlier), an amount of Net Cash Flow under Section 6.2(c) in respect of
subsection (a)(vii) of Section 6.2 is after the date on which the Cash
Conversion Price is paid and (ii) such Limited Partner otherwise owns no Common
Units at such time, such distribution of Net Cash Flow shall be treated as a
distribution to the General Partner. The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Sections 1.704-1(b) and 1.704-2 of the Regulations, and
shall be interpreted and applied in a manner consistent with such Regulations.
In the event the General Partner shall reasonably determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or credits
<PAGE>
thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed assets or which are
assumed by the Partnership, the General Partner or any Limited Partner) are
computed in order to comply with such Regulations, the General Partner may make
such modification; provided that it does not have an adverse effect on the
amounts distributable to any Partner pursuant to Article VIII hereof upon the
dissolution of the Partnership. The General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Section 1.704-1(b)(2)(iv)(q) of the Regulations, and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Sections 1.704-1(b) or 1.704-2 of the
Regulations.
"Capital Contribution" shall mean, with respect to any
Partner, the amount of money and the initial Gross Asset Value of any asset
other than money, net of the amount of any liabilities to which such asset is
subject, contributed to the Partnership with respect to the Partnership Interest
held by such Partner. The principal amount of a promissory note that is not
readily tradable on an established securities market and that is contributed to
the Partnership by the maker of the note shall not be included in the Capital
Account of any Person until the Partnership makes a taxable disposition of the
note or until (and to the extent) such Partner makes principal payments on the
note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of the Regulations
"Certificate" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the office of the
Delaware Secretary of State, as it may be amended from time to time in
accordance with the terms of this Agreement and the Act.
"Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock as such person is selected from
time to time by the Board of Directors of the General Partner.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time or any successor statute thereto.
"Common Stock" shall mean the shares of the common stock, par
value $.01 per share, of the General Partner.
"Common Units" shall mean the Partnership Units designated as
Common Units under this Agreement, received by the Partners in exchange for
their capital contributions or a portion of their capital contributions and
having the rights described in this Agreement. The number of Common Units
outstanding, and the allocation of Common Units to each Partner, is as set forth
opposite its or his name in Exhibit A, as amended by the General Partner from
time to time.
"Consent of the Partners" means the written consent of a
Majority-in-Interest of the Partners, which consent shall be obtained prior to
the taking of any action for which it is required by this Agreement and may be
given or withheld by a Majority-in-Interest of the Partners, unless otherwise
expressly provided herein, in their sole and absolute discretion.
"Contributed Partnership Interests" shall mean, with respect
to each Limited Partner, the partnership interests in the Property
Partnership(s) contributed to the Partnership by such Limited Partner on the
date of formation of the Partnership.
<PAGE>
"Control" shall mean the ability, whether by the direct or
indirect ownership of shares or other equity interests, by contract or
otherwise, to elect a majority of the directors of a corporation, to select the
managing partner of a partnership, or otherwise to select, or have the power to
remove and then select, a majority of those persons exercising governing
authority over an Entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Convertible Preferred Distribution" means an amount equal to
the quarterly dividend payable in respect of one share of Convertible Preferred
Stock of the General Partner pursuant to Section 4.5.1(a) of the General
Partner's Articles of Incorporation.
"Convertible Preferred Distribution Shortfall" shall have the
meaning set forth in Section 6.2(a)(iii).
"Convertible Preferred Stock" means the Series B Cumulative
Participating Convertible Preferred Stock, par value $.01 per share, of the
General Partner.
"Convertible Preferred Unit Redemption Amount" means, with
respect to any Convertible Preferred Unit, the amount payable by the General
Partner on account of the redemption of one share of Convertible Preferred Stock
pursuant to Section 4.5.3 of the General Partner's Articles of Incorporation.
"Convertible Preferred Units" shall mean the Partnership Units
designated as Convertible Preferred Units under this Agreement, received by the
General Partner in exchange for a portion of its capital contribution, having
the rights described in this Agreement. The number of Convertible Preferred
Units outstanding from time to time is as set forth on Exhibit A, as amended by
the General Partner from time to time.
"Current Per Share Market Price" on any date shall mean the
average of the Closing Price for the five consecutive Trading Days ending on
such date.
"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation, depletion,
amortization or other cost recovery deduction, as the case may be, allowed or
allowable for Federal income tax purposes in respect of such asset for such
fiscal year or other period; provided, however, that if there is a difference
between the Gross Asset Value and the adjusted tax basis of such asset at the
beginning of such fiscal year or other period, Depreciation for such asset shall
be an amount that bears the same ratio to the beginning Gross Asset Value of
such asset as the Federal income tax depreciation, depletion, amortization or
other cost recovery deduction for such fiscal year or other period bears to the
beginning adjusted tax basis of such asset; provided, further, that if the
Federal income tax depreciation, depletion, amortization or other cost recovery
deduction for such asset for such fiscal year or other period is zero,
Depreciation for such asset shall be determined with reference to the beginning
Gross Asset Value of such asset using any reasonable method selected by the
General Partner.
"Entity" shall mean any general partnership, limited
partnership, corporation, joint venture, trust, business trust, limited
liability company, cooperative or association.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time (or any corresponding provisions of
succeeding laws).
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"General Partner" shall mean Prime Retail, Inc., a Maryland
corporation, and any other Person who is admitted as a successor general partner
of the Partnership at the time of reference thereto.
"Gross Asset Value" shall mean, with respect to any asset of
the Partnership, such asset's adjusted basis for Federa income tax purposes,
except as follows:
(a) the initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of
such asset as determined by the contributing Partner and the
Partnership;
(b) if the General Partner reasonably determines that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners, the Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the General Partner, as of the
following times:
<PAGE>
(i) a Capital Contribution (other than a de minimis
Capital Contribution) to the Partnership by a new or
existing Partner as consideration for a Partnership
Interest;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership assets as
consideration for the redemption of a Partnership
Interest; and
(iii)the liquidation of the Partnership within the meaning
of Section 1.704-1(b)(2)(ii)(g)of the Regulations;
(c) the Gross Asset Values of Partnership assets distributed
to any Partner shall be the gross fair market values of such assets
(taking Section 7701(g) of the Code into account) as reasonably
determined by the General Partner as of the date of distribution; and
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Sections 734(b) or 743(b) of the Code,
but only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m)
of the Regulations (See Exhibit B); provided, however, that Gross Asset
Values shall not be adjusted pursuant to this paragraph (d) to the
extent that the General Partner reasonably determines that an
adjustment pursuant to paragraph (b) above is necessary or appropriate
in connection with a transaction that would otherwise result in an
adjustment pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Partnership
assets shall require an adjustment to the Partners' Capital Accounts; as for the
manner in which such adjustments are allocated to the Capital Accounts, see
Exhibit B.
"Hart Scott Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Immediate Family" shall mean, with respect to any Person,
such Person's spouse, parents, parents-in-law, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren, sons-in-law
and daughters-in-law.
"Incentive Option" means an option to purchase Common Stock
granted under the Stock Incentive Plan.
"Incentive Option Agreement" means the Incentive Option
Agreement to be used under the Stock Incentive Plan.
"Lien" shall mean any liens, security interests, mortgages,
deeds of trust, charges, claims, encumbrances, pledges, options, rights of first
offer or first refusal and any other rights or interests of others of any kind
or nature, actual or contingent, or other similar encumbrances of any nature
whatsoever.
"Limited Partner" shall mean any Person named as a "Limited
Partner" on Exhibit A hereto, as it may be amended from time to time, or any
Person admitted as a Substituted Limited Partner or additional Limited Partner,
in such Person's capacity as a limited partner of the Partnership.
"Liquidating Events" shall have the meaning set forth in
Section 3.2.
"Liquidating Trustee" shall mean the General Partner or, if
there is no remaining General Partner, such Person as is selected as the
Liquidating Trustee hereunder by the Consent of the Partners, which Person may
include an Affiliate of the General Partner or any Limited Partner; provided
such Liquidating Trustee agrees in writing to be bound by the terms of this
Agreement.
"Major Decisions" shall have the meaning set forth in Section
7.3 hereof.
"Majority-in-Interest of the Partners" shall mean Partner(s)
who hold in the aggregate more than fifty percent (50%) of the Common Units.
<PAGE>
"Minimum Gain Capital Account" shall mean, with respect to the
General Partner, the sum of the General Partner's Capital Account plus the
General Partner's share of Partner Minimum Gain, as described in Section
1.704-2(i)(5) of the Regulations, and Partnership Minimum Gain, as described in
Section 1.704-2(g) of the Regulations. For purposes of determining Minimum Gain
Capital Account, Nonrecourse Deductions and Partner Nonrecourse Deductions for a
Partnership fiscal year or other applicable period shall be allocated in a
manner that is consistent with the method of allocation adopted under Section
9.4 or Section 9.6(c) (to the extent Section 9.4 or Section 9.6(c) is applicable
to such fiscal year or other applicable period).
"Net Cash Flow" means, with respect to the applicable period
of measurement (i.e., any period beginning on the first day of the fiscal year,
quarter or other period commencing immediately after the last day of the fiscal
year, quarter or other applicable period for purposes of the most recent
calculation of Net Cash Flow for or with respect to which a distribution has
been made, and ending on the last day of the fiscal year, quarter or other
applicable period immediately preceding the date of the calculation) the excess,
if any, as of such date, of (a) the gross cash receipts of the Partnership for
such period from all sources whatsoever, including, without limitation, the
following:
(i) all rents, revenues, income and proceeds derived by the
Partnership from its operations, including, without limitation,
distributions received by the Partnership from any Entity in which the
Partnership has an interest;
(ii)all proceeds and revenues received by the Partnership on
account of any sales of property of the Partnership or as a
refinancing of or payments of principal, interest, costs, fees,
penalties or otherwise on account of any borrowings or loans made by
the Partnership or financings or refinancings of any property of the
Partnership;
(iii) the amount of any insurance proceeds and condemnation
awards received by the Partnership;
(iv) all capital contributions or loans received by the
Partnership from its Partners;
(v) any reduction in the cash amounts previously reserved by the
Partnership and described in subsection (b)(ix) below, if the General
Partner determines that such amounts are no longer needed; and
(vi) the proceeds of liquidation of the Partnership's property in
accordance with this Agreement, over (b) the sum of:
(i) all operating costs and expenses of the Partnership and
capital expenditures made during such period (without deduction,
however, for any capital expenditures, charges for depreciation or
other expenses not paid in cash or expenditures from reserves described
in (ix) below); (ii) all costs and expenses expended or paid during
such period in connection with the sale or other disposition, or
financing or refinancing, of property of the Partnership or the
recovery of insurance or condemnation proceeds; (iii) all fees provided
for under this Agreement; (iv) all debt service, including principal
and interest, paid during such period on all indebtedness of the
Partnership; (v) all capital contributions, advances, reimbursements or
similar payments made to any Entity in which the Partnership has an
interest; (vi) all loans made by the Partnership in accordance with the
terms of this Agreement; (vii) all reimbursements to the General
Partner or its Affiliates during such period, including Administrative
Expenses (exclusive of REIT Expenses) to the extent not paid or payable
by the General Partner pursuant to the last sentence of Section 7.1;
(viii) any distributions pursuant to Section 6.2(d); (ix) any increases
in reserves reasonably determined by the General Partner to be
necessary for working capital, capital improvements, payments of
periodic expenditures, debt service or other purposes for the
Partnership or any Person in which the Partnership has an interest; and
(x) any amounts paid pursuant to Section 4.8(b) in redemption of any
Preferred Units or Convertible Preferred Units.
"Net Income or Net Loss" shall mean, for each fiscal year or
other applicable period, an amount equal to the Partnership's net income or loss
for such year or period as determined for federal income tax purposes by the
General Partner, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), adjusted as follows: (i) by including as an item of gross
income any tax-exempt income received by the Partnership and not otherwise taken
into account in computing Net Income or Net Loss; (ii) by treating as a
deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code and not otherwise taken into account in computing Net
Income or Net Loss, including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Section 709(b) of the Code)
or to promote the sale of interests in the Partnership; (iii) by treating
deductions for any losses incurred in connection with the sale or exchange of
Partnership property which are disallowed pursuant to Sections 267(a)(1) or
707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the
Code; (iv) by taking into account Depreciation in lieu of depreciation,
depletion, amortization, and other cost recovery deductions taken into account
in computing taxable income or loss; (v) by computing gain or loss resulting
from any disposition of Partnership property with respect to which gain or loss
is recognized for federal income tax purposes by reference to the Gross Asset
Value of such property rather than its adjusted tax basis; (vi) in the event of
an adjustment of the Gross Asset Value of any Partnership asset which requires
that the Capital Accounts of the Partnership be adjusted pursuant to Sections
1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, by taking into account the
amount of such adjustment as additional Net Income or Net Loss pursuant to
Exhibit B; and (vii) subject to the immediately preceding clause (vi), by
excluding the Partnership items of income, gain, loss or deduction that are
specially allocated pursuant to Sections II or III of Exhibit B attached hereto.
"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and 1.704-2(c) of the Regulations.
"Nonrecourse Liabilities\" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Original Agreement\" shall have the meaning set forth in the
Recitals to this Agreement.
"Partner Minimum Gain" shall mean an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Section 1.704-2(b)(4) of the Regulations.
"Partner Nonrecourse Deductions" shal have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations.
"Partners" shall mean the General Partner and the Limited
Partners.
"Partnership" shall mean the limited partnership constituted by
the Original Agreement, as such limited partnership may from time to time be
constituted.
"Partnership Interest" shall mean the ownership interest now or
hereafter held by a Partner in the Partnership from time to time pursuant
to this Agreement, including, but not limited to, Partnership Units, exchange
rights, capital accounts, and profits and distributions relating thereto, all
other payments (if any) due or to become due in respect of such ownership
interest pursuant to this Agreement, all rights, powers and remedies of a
Partner under this Agreement, and all proceeds of all or any of the foregoing.
"Partnership Minimum Gain" shall have the meaning set forth in
Sections 1.704-2(b)(2) and (d) of the Regulations.
"Partnership Payment Date" shall mean the payment date
established by the General Partner for the distribution of Net Cash Flow
pursuant to Section 6.2 hereof, which payment date shall be the same as the
payment date established by the General Partner for a distribution to its
shareholders of some or all of its portion of such distribution.
"Partnership Units" shall mean fractional, undivided shares of
Partnership Interests issued pursuant to this Agreement.
"Permitted Transferee" shall mean any Person to whom any
Partnership Units are transferred in a Transfer permitted under the terms of
this Agreement.
"Person" shall mean any individual or Entity.
"Preferred Distribution" means an amount equal to the
quarterly dividend payable in respect of one share of Preferred Stock of the
General Partner pursuant to Section 4.3.1(a) of the General Partner's Articles
of Incorporation
"Preferred Distribution Shortfall" shall have the meaning set
forth in Section 6.2.
"Preferred Stock" means the Series A Senior Cumulative
Preferred Stock, par value $.01 per share, of the General Partner.
"Preferred Unit Redemption Amount" means, with respect to any
Preferred Unit, the amount payable by the General Partner on account of the
redemption of one share of Preferred Stock pursuant to Section 4.3.3 of the
General Partner's Articles of Incorporation.
"Preferred Units" shall mean the Partnership Units designated
as Preferred Units under this Agreement, received by the General Partner in
exchange for a portion of its capital contribution, having the rights described
in this Agreement. The number of Preferred Units outstanding from time to time
is as set forth on Exhibit A, as amended by the General Partner.
"Property" shall mean any Shopping Center Project or other
real estate project in which the Partnership or any Property Partnership,
directly or indirectly, acquires ownership of a fee or leasehold interest.
"Property Partnership Interests" shall mean and include the
interest of the Partnership as a partner or other equity participant in any
Property Partnership currently owned or hereafter acquired by the Partnership.
"Property Partnerships" shall mean and include any partnership
or other Entity in which the Partnership, directly or indirectly, is or becomes
a partner or other equity participant and which is formed for the purpose of
acquiring, developing or owning a Property or a proposed Property.
"Purchase Price" shall have the meaning set forth in Exhibit C.
"Quarter" shall mean each of the three (3) month periods
ending on March 31, June 30, September 30 and December 31 of any year.
"Regulations" shall mean the final, temporary or proposed
Income Tax Regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Regulatory Allocations" shall have the meaning set forth in
Exhibit B.
"REIT" shall mean a real estate investment trust as defined in
Section 856 of the Code.
"REIT Expenses" shall mean (i) costs and expenses relating to
the formation and continuity of existence of the General Partner and its
subsidiaries, if any, (which subsidiaries shall, for purposes of this definition
be included within the definition of General Partner), including taxes, fees and
assessments associated therewith and any and all costs, expenses or fees payable
to any director, officer or trustee of the General Partner or such subsidiaries
(including, without limitation, any costs of indemnification), (ii) costs and
expenses relating to any offer or registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including, without limitation, underwriting discounts and selling commissions
applicable to any such offer of securities and any costs and expenses associated
with any claims made by any holder of such securities or any underwriter or
placement agent therefor, (iii) costs and expenses associated with the
preparation and filing of any periodic reports by the General Partner under
federal, state or local laws or regulations, including filings with the SEC,
(iv) costs and expenses associated with compliance by the General Partner with
laws, rules and regulations promulgated by any regulatory body, including the
SEC, and (v) all other operating or administrative costs of the General Partner
incurred in the ordinary course of its business.
"REIT Requirements" shall have the meaning set forth in
Section 6.2(b) hereof.
"Rights" shall have the meaning set forth in Section 11.1
hereof.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Section 704(c) Tax Items" shall have the meaning set forth in
Exhibit B.
"Series C Preferred Distribution" means an amount equal to the
quarterly dividend payable in respect of one share of Series C Preferred Stock
pursuant to Section 3 of the General Partner's Articles of Incorporation
"Series C Preferred Distribution Shortfall" shall have the
meaning set forth in Section 6.2.
"Series C Preferred Purchase Agreement" shall have the meaning
set forth in Section 4.2.
"Series C Preferred Rights" shall have the meaning set forth
in Section 12.1.
"Series C Preferred Stock" shall mean the Series C Cumulative
Convertible Redeemable Preferred Stock, $.01 par value, of the General Partner.
"Series C Preferred Unit Redemption Amount" means, with respect
to any Series C Preferred Unit, the amount payable by the General Partner with
respect to the redemption of a share of Series C Preferred Stock pursuant to
Section 5(a) of the General Partner's Articles of Incorporation and subject to
Sections 5(b) and 5(c) thereof, using the amount, if any, of Series C Preferred
Distribution shortfall as the amount of accrued and unpaid dividends thereon.
"Series C Preferred Units" s hall mean the Partnership Units
designated as Series C Preferred Units under this Agreement, having the rights
described in this Agreement. The number of Series C Preferred Units outstanding
from time to time is set forth in Exhibit A hereto, as amended by the General
Partner from time to time.
"Shopping Center Project" shall mean any shopping center,
including construction and improvement activities undertaken with respect
thereto and off-site improvements, on-site improvements, structures, buildings
and/or related parking and other facilities.
"Stock Incentive Plan" means the Partnership's 1994 Stock
Incentive Plan, employee bonus plan and any other plan adopted from time to time
by the General Partner pursuant to which the General Partner issues Common Stock
or options to acquire Common Stock to employees or directors in partial
consideration for services.
"Substituted Limited Partner" means any Person who (i) is
permitted to become a Limited Partner pursuant to the terms of Sections 9.2 and
9.3 and (ii) agrees in writing to be bound by the terms of this Agreement by
execution of a copy of this Agreement or by another written undertaking
acceptable to the General Partner.
"Tax Items" shall have the meaning set forth in Exhibit B.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, shall mean any day
other than a Saturday, a Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.
"Transfer" as a noun, shall mean any sale, assignment,
conveyance, pledge, hypothecation, gift, encumbrance or other transfer, and as a
verb, shall mean to sell, assign, convey, pledge, hypothecate, give, encumber or
otherwise transfer.
Certain additional terms and phrases have the meanings set
forth in Exhibit B, C or D. I.2 Exhibits, Etc References to
"Exhibit" or to a "Schedule" are, unless otherwise specified,
to one of the Exhibits or Schedules attached to this Agreement, and references
to an "Article" or a "Section" are, unless otherwise specified, to one of the
Articles or Sections of this Agreement. Each Exhibit and Schedule attached
hereto is hereby incorporated herein by reference as if fully set forth herein.
<PAGE>
ARTICLE II
ORGANIZATION
II.1 Formation and Continuation. The parties hereto do hereby
continue the Partnership as a limited partnership pursuant to the provisions of
the Act, and all other pertinent laws of the State of Delaware, for the purposes
and upon the terms and conditions hereinafter set forth. The Partners agree that
the rights and liabilities of the Partners shall be as provided in the Act
except as otherwise herein expressly provided. Promptly upon the execution and
delivery hereof, the General Partner shall cause any requisite amendment to the
Certificate of Limited Partnership and such other notice, instrument, document,
or certificate as may be required by applicable law, and which may be necessary
to enable the Partnership to conduct its business, and to own its properties,
under the Partnership name, to be filed or recorded in all appropriate public
offices.
II.2 Name. The business of the Partnership shall be conducted
under the name of Prime Retail, L.P. or such other name as the General Partner
may select, and all transactions of the Partnership, to the extent permitted by
applicable law, shall be carried on and completed in such name.
II.3 Character of the Business. The purpose of the Partnership
shall be to acquire, hold, own, develop, construct, improve, maintain, operate,
sell, lease, transfer, encumber, convey, exchange, mortgage, pledge and
otherwise dispose of or deal with (either directly or indirectly through one or
more Property Partnerships) the Properties; to acquire, hold, own, develop,
construct, improve, maintain, operate, manage, sell, lease, transfer, encumber,
convey, exchange, mortgage, pledge and otherwise dispose of or deal with (either
directly or indirectly through one or more Property Partnerships) real and
personal property of all kinds; to exercise all of the powers of a partner in
Property Partnerships; to acquire, own, deal with and dispose of Property
Partnership Interests; to undertake such other activities as may be necessary,
advisable, desirable or convenient to the business of the Partnership, and to
engage in such other activities as shall be necessary or desirable to effect the
foregoing purposes. The Partnership shall have all powers necessary or desirable
to accomplish the purposes herein set forth. In connection with the foregoing,
but subject to all of the terms, covenants, conditions and limitations contained
in this Agreement, the Partnership shall have full power and authority, directly
or through its interest in Property Partnerships, to enter into, perform, and
carry out contracts of any kind, to borrow money and to issue evidences of
indebtedness, whether or not secured by mortgage, trust deed, pledge or other
lien, and, directly or indirectly, to acquire and construct additional
Properties necessary or useful in connection with its business.
II.4 Location of the Principal Place of Business. The location
of the principal place of business of the Partnership shall be at 100 East Pratt
Street, 19th Floor, Baltimore, Maryland, 21202 or such other location as shall
be selected from time to time by the General Partner in its sole discretion.
II.5 Registered Agent and Registered Office. The registered
agent of the Partnership in the State of Delaware shall be The Corporation Trust
Company, 1209 Orange Street, Wilmington, Delaware 19801 or such other Person as
the General Partner may select in its sole discretion. The registered office of
the Partnership in the State of Delaware shall be The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801 or such other location as the
General Partner may select in its sole and absolute discretion.
II.6 Power of Attorney.
(a) Each Limited Partner and each assignee of a
Limited Partner hereby constitutes and appoints the General Partner, any
Liquidating Trustee and authorized officers and attorneys-in-fact of each, and
each of those acting singly, in each case with full power of substitution, as
its true and lawful agent and attorney-in-fact, with full power and authority in
its name, place and stead to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation,this Agreement
and the Certificate and all amendments or restatements thereof)
that the General Partner or the Liquidating Trustee deems
appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have
limited liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments that the Genera
Partner or the Liquidating Trustee deems appropriate or necessary
to reflect any amendment, change, modification or restatement of
this Agreement in accordance with its terms; (c) all conveyances
and other instruments or documents that the General Partner deems
appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Articles IV, VIII or IX hereof or
the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of
Partnership Interests; and
(ii) execute, swear to, seal, acknowledge and file all ballots,
consents,approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any LiquidatinG Trustee, to evidence,
confirm or ratify any vote,consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any
Liquidating Trustee, to effect the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidating Trustee to amend this Agreement except in accordance with
Section 14.7 hereof.
(b)The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidating Trustee to act as contemplated by this Agreement in any
filing or other action by it on behalf of the Partnership, and it shall survive
and not be affected by the subsequent incapacity of any Limited Partner or
assignee of a Limited Partner and the transfer of all or any portion of such
Limited Partner's or assignee's Common Units and shall extend to such Limited
Partner's or assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or assignee of a Limited Partner hereby agrees to be
bound by any representation made by the General Partner or any Liquidating
Trustee, acting in good faith pursuant to such power of attorney, and each such
Limited Partner or assignee hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner or
any Liquidating Trustee, taken in good faith under such power of attorney and in
accordance with the provisions of this Agreement. Each Limited Partner or
assignee of a Limited Partner shall execute and deliver to the General Partner
or the Liquidating Trustee, within fifteen (15) days after receipt of the
General Partner's or Liquidating Trustee's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidating Trustee, as the case may be, deems necessary to effect the
provisions of this Section 2.6.
<PAGE>
ARTICLE III
TERM; DISSOLUTION
III.1 Term. The Partnership shall commence business as a
limited partnership upon the date hereof and shall continue until December 31,
2050, unless the Partnership is dissolved sooner pursuant to the provisions of
Section 3.2 or as otherwise provided by law.
III.2 DissolutionExcept as set forth in this Section 3.2, no
Partner shall have the right to dissolve the Partnership. The Partnership shall
not be dissolved by the admission of Substituted Limited Partners or additional
Limited Partners or by the admission of a successor General Partner in
accordance with the terms of this Agreement. Upon the withdrawal of the General
Partner, any successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound up,
upon the first to occur of any of the following ("Liquidating Events"):
(a)an event described in Section 17-402(a) of the
Act by reason of which the General Partner ceases to be the general
partner, unless, within ninety (90) days after such event, a
Majority-in-Interest of the Partners (other than the General Partner)
that remain agree in writing to continue the business of the
Partnership and to appoint, effective as of the date of such event, a
successor General Partner;
(b)an election to dissolve the Partnership made by
the General Partner with the Consent of the Partners;
(c)the sale of all or substantially all of the assets
and properties of the Partnership;
(d)entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act; or
(e)the expiration of the term of the Partnership as
provided in Section 3.1 hereof.
III.3 Bankruptcy of a Limited Partner. The Bankruptcy of any
Limited Partner shall not cause a dissolution of the Partnership, but the rights
of such Limited Partner to share in the Net Income or Net Loss of the
Partnership and to receive distributions from the Partnership shall, on the
happening of such event, devolve on its successors or assigns, subject to and in
accordance with the terms and conditions of this Agreement, and the Partnership
shall continue as a limited partnership. However, in no event shall such
assignee(s) become a Substituted Limited Partner except in accordance with
Article IX hereof.
<PAGE>
ARTICLE IV
CONTRIBUTIONS TO CAPITAL; FINANCING
IV.1 General Partner Capital Contribution
(a) The General Partner has made contributions to the Partnership and has
the Common Units, Preferred Units, Convertible Preferred Units and Series C
Preferred Units (if any) as set forth on Exhibit A.
(b)In the event the General Partner issues Series C Preferred Stock
pursuant to the Series C Preferred Stock Purchase Agreement, the General Partner
shall contribute to the Partnership the proceeds or consideration received
therefor and receive from the Partnership an equal number of Series C Preferred
Units, as contemplated by clause (B) of subsection (b) of Section 4.3.
IV.2 Limited Partner Capital Contributions.
(a)Each Limited Partner had made contributions to the capital of the
Partnership and has the Common Units or Series C Preferred Units set forth
opposite its name on Exhibit A.
(b)The General Partner is authorized to cause the Partnership to issue
Series C Preferred Units to an institutional investor from time to time pursuant
to that certain Series C Purchase Agreement dated as of August 8, 1997 by and
among such institutional investor, the General Partner and the Partnership (the
"Series C Preferred Purchase Agreement") for the consideration set forth
therein, and upon payment of such consideration such Person shall be admitted as
a Limited Partner of the Partnership.
IV.3 Additional Funds; Restrictions on General Partner
(a)The sums of money required to finance the business and affairs of the
Partnership shall be derived from the initial Capital Contributions made to the
Partnership from the Partners as set forth in Sections 4.1 and 4.2 hereof
(including the issuance of Series C Preferred Units from time to time) and from
funds generated from the operation and business of the Partnership, including
without limitation distributions directly or indirectly received by the
Partnership from the Property Partnerships. In the event additional financing is
needed from sources other than as set forth in the preceding sentence for any
reason, the General Partner may, in its sole discretion, in such amounts and at
such times as it solely shall determine to be necessary or appropriate, (i)
issue additional Partnership Interests in accordance with Section 4.4 hereof;
(ii) make additional Capital Contributions to the Partnership (subject to
Section 4.3(b) below); (iii) cause the Partnership to borrow money, enter into
loan arrangements, issue debt securities, obtain letters of credit or otherwise
borrow money on a secured or unsecured basis; (iv) make a loan or loans to the
Partnership (subject to Section 4.3(b) below); or (v) sell any assets or
properties of the Partnership. In no event shall the Limited Partners be
required to make any additional Capital Contributions or any loan to, or
otherwise provide any financial accommodation for the benefit of, the
Partnership. (b)The General Partner shall not issue any debt securities, any
preferred stock (including any additional Preferred Stock or Convertible
Preferred Stock (other than Series C Preferred Stock issued in exchange for
Series C Preferred Units)) or common stock (including additional shares of
Common Stock (other than (i) as payment of the Stock Exchange Price pursuant to
Article XI hereof, (ii) in connection with the conversion of Convertible
Preferred Stock as contemplated by Section 4.8 hereof or any other conversion or
exchange of securities of the General Partner solely in conversion or exchange
for other securities of the General Partner or (iii) Common Stock exchanged for
Series C Preferred Stock or Series C Preferred Units)) or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase any of the foregoing (collectively, "Securities"),
other than to all holders of Common Stock (in which event the Antidilution
Provisions shall apply to the extent applicable), unless the General Partner
shall (A) in the case of debt securities, lend to the Partnership the proceeds
of or consideration received for such Securities on the same terms and
conditions, including interest rate and repayment schedule, as shall be
applicable with respect to or incurred in connection with such Securities and
from any subsequent exercise, exchange or conversion thereof (if applicable);
(B) in the case of Preferred Stock, Convertible Preferred Stock, Series C
Preferred Stock or other equity Securities senior or junior to the Common Stock
as to dividends and distributions on liquidation, contribute to the Partnership
the proceeds or consideration (including any property or other non-cash assets)
received for such Securities and from any subsequent exercise, exchange or
conversion thereof (if applicable), and receive from the Partnership Preferred
Units, Convertible Preferred Units, Series C Preferred Units or other interests
in the Partnership in consideration therefor with the same terms and conditions,
including dividend, dividend priority and liquidation preference, as are
applicable to such Securities; and (C) in the case of Common Stock or other
equity Securities on a parity with the Common Stock as to dividends and
distributions on liquidation, contribute to the Partnership the net proceeds
(including any property or other non-cash assets) received for such Securities
or from any subsequent exercise, exchange or conversion thereof (if applicable),
and receive from the Partnership a number of additional Common Units in
consideration therefor equal to the product of (x) the number of shares of
Common Stock or other equity Securities issued by the General Partner,
multiplied by (y) a fraction the numerator of which is one and the denominator
of which is the Exchange Factor (as defined in Exhibit C hereto) in effect on
the date of such contribution.
IV.4 Issuance of Additional Partnership Interests; Admission
of Additional Limited Partners.
(a) In addition to any Partnership Interests issuable by the
Partnership pursuant to Section 4.2, Section 4.3 or Section 4.8 hereof, the
General Partner is authorized to cause the Partnership to issue additional
Partnership Interests in the form of Common Units to any Persons at any time or
from time to time, for consideration not less than the fair value thereof, and
on such terms and conditions, as the General Partner shall establish in each
case in its sole and absolute discretion, without any approval being required
from any Limited Partner or any other Person; provided, however, that there is
no material adverse impact on (i) the right of any Limited Partner to exercise
the Rights pursuant to Article XI or (ii) the economic effect upon the existing
Limited Partners of the allocations set forth in Exhibit B. Subject to the
limitations set forth in the preceding sentence, the General Partner may take
such steps as it, in its reasonable discretion, deems necessary or appropriate
to admit any Person as a Limited Partner of the Partnership, including, without
limitation, amending the Certificate, Exhibit A or any other provision of this
Agreement.
IV.5 Stock Incentive Plan.
If at any time or from time to time Incentive Options granted in connection
with the Stock Incentive Plan are exercised in accordance with the terms of the
Incentive Option Agreement:
(a)the General Partner shall, as soon as practicable after
such exercise, contribute to the capital of the Partnership an amount
equal to the exercise price paid, if any, to the General Partner by
such exercising party in connection with the exercise of the Incentive
Option; and
(b)the General Partner shall receive the number of Common
Units corresponding to the number of shares of Common Stock delivered
by the General Partner to such exercising party multiplied by a
fraction the numerator of which is one and the denominator of which is
the Exchange Factor (as defined in Exhibit C hereto) in effect on the
date of such contribution.
IV.6 No Third Party Beneficiary.
No creditor or other third party having dealings with the Partnership shall
have the right to enforce the right or obligation of any Partner to make Capital
Contributions or loans or to pursue any other right or remedy hereunder or at
law or in equity, it being understood and agreed that the provisions of this
Agreement shall be solely for the benefit of, and may be enforced solely by, the
parties hereto and their respective successors and assigns. None of the rights
or obligations of the Partners herein set forth to make Capital Contributions or
loans to the Partnership shall be deemed an asset of the Partnership for any
purpose by any creditor or other third party, nor may such rights or obligations
be sold, transferred or assigned by the Partnership or pledged or encumbered by
the Partnership to secure any debt or other obligation of the Partnership or of
anyof the Partners.
IV.7 No Interest; No Return.
No Partner shall be entitled to interest on its Capital Contribution or on
such Partner's Capital Account. Except as provided herein or by law, no Partner
shall have any right to demand or receive the return of its Capital Contribution
from the Partnership.
IV.8 Conversion of Convertible Preferred Units or Series C
Preferred Units; Redemption or Purchase of Series C Preferred Units, Convertible
Preferred Units or Preferred Units.
(a)If at any time holders of the General Partner's Convertible
Preferred Stock shall exercise their rights under the General Partner's Articles
of Incorporation to convert any shares of Convertible Preferred Stock to Common
Stock, in whole or in part (including any fractions thereof), then,
simultaneously with such conversion, an equal number of Convertible Preferred
Units shall be automatically converted into the number of Common Units equal to
the product of (x) the number of shares of Common Stock into which the
Convertible Preferred Stock is converted, multiplied by (y) a fraction the
numerator of which is one and the denominator of which is the Exchange Factor
(as defined in Exhibit C hereto) in effect on such date.
(b)If at any time shares of the General Partner's Preferred
Stock are to be redeemed pursuant to the General Partner's Articles of
Incorporation or purchased by the General Partner, the Partnership shall redeem
an equal number of Preferred Units by payment to the General Partner of the
Preferred Unit Redemption Amount or purchase price to be paid by the General
Partner immediately prior to or concurrently with such redemption or purchase.
If at any time shares of the General Partner's Convertible Preferred Stock are
to be redeemed pursuant to the General Partner's Articles of Incorporation or
purchased by the General Partner, the Partnership shall redeem an equal number
of Convertible Preferred Units by payment of the Convertible Preferred Unit
Redemption Amount therefor or purchase price paid by the General Partner
immediately prior to or concurrently with such redemption or purchase. If at any
time shares of the General Partner's Series C Preferred Stock are to be redeemed
pursuant to the General Partner's Articles of Incorporation or purchased by the
General Partner, the Partnership shall redeem an equal number of Series C
Preferred Units by payment of the Series C Preferred Unit Redemption Amount or
purchase price to be paid by the General Partner immediately prior to or
concurrently with such redemption or purchase.
(c)If at any time holders of the General Partner's Series C
Preferred Stock shall exercise their rights under the General Partner's Articles
of Incorporation to convert any shares of Series C Preferred Stock to Common
Stock, in whole or in part, then, simultaneously with such conversion, an equal
number of Series C Preferred Units shall be automatically converted into the
number of Common Units which is equal to the number of shares of Common Stock
into which the shares of the General Partner's Series C Preferred Stock which
are being converted are so converted, as such number is determined pursuant to
the General Partner's Articles of Incorporation.
(d) The Series C Preferred Units may be redeemed by the
Partnership at the option of the General Partner pursuant to the terms of
Section 4.9.
(e)The General Partner shall amend Exhibit A hereto to reflect
(i) each conversion of Convertible Preferred Units, and the issuance of
additional Common Units in connection therewith, (ii) each exchange by a Limited
Partner of Series C Preferred Units for Series C Preferred Stock or Common Stock
of the General Partner, and the allocation or reissuance of such Series C
Preferred Units in the name of the General Partner, pursuant to Section 12.3 as
Series C Preferred Units or Common Units, as the case may be, and (iii) each
redemption of Convertible Preferred Units, Preferred Units and Series C
Preferred Units.
4.9 Redemption of Series C Preferred Units
(a) On and after August 8, 2007, the Partnership, at the
option of the General Partner, may redeem the Series C Preferred Units, in whole
at any time or from time to time in part at a redemption price for each Series C
Preferred Unit, payable in cash,in an amount equal to the Series C Preferred
Unit Redemption Amount therefor.
(b) Notice of the redemption of any Series C Preferred Units
shall be mailed by first class mail to each Partner which is a holder of record
of Series C Preferred Units to be redeemed at the address of each such Partner
as shown on the Partnership's records, not less than 30 nor more than 90 days
prior to the date fixed for redemption (the "Call Date"). Neither the failure to
mail any notice required by this paragraph, nor any defect therein or in the
mailing thereof, to any particular Partner, shall affect the sufficiency of the
notice or the validity of the proceedings for redemption with respect to the
other Partners. Each such mailed notice shall state, as appropriate: (1) the
Call Date; (2) the number of Series C Preferred Units to be redeemed and, if
fewer than all the Series C Preferred Units held by such Partner are to be
redeemed, the number of such Series C Preferred Units to be redeemed from such
Partner; (3) the redemption price; (4) the place or places of the closing for
such redemption; (5) the then-current conversion price; and (6) that the Series
C Preferred Distribution with respect to the Series C Preferred Units 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
Partnership shall fail to make available an amount of cash necessary to effect
such redemption), (i) except as otherwise provided herein, the Series C
Preferred Distribution on the Series C Preferred Units so called for redemption
shall cease to accrue, (ii) such Series C Preferred Units shall no longer be
deemed to be outstanding, and (iii) all rights of the holders thereof as holders
of Series C Preferred Units shall cease (except the rights to receive the cash
payable upon such redemption, without interest thereon). The Partnership's
obligation to provide cash in accordance with the preceding sentence shall be
deemed fulfilled if, on or before the Call Date, the Partnership shall deposit
with a bank or trust company (which may be an affiliate of the Partnership) that
has an office in the Borough of Manhattan, City of New York, and that has, or is
an affiliate of a bank or trust company that has, capital and surplus of at
least $50,000,000, necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to the redemption of the Series C
Preferred Units so called for redemption. No interest shall accrue for the
benefit of the holders of Series C Preferred Units to be redeemed on any cash so
set aside by the Partnership. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years from the Call Date shall revert to the general
funds of the Partnership, after which reversion the holders of such Series C
Preferred Units so called for redemption shall look only to the general funds of
the Partnership for the payment of such cash.
If fewer than all the outstanding Series C Preferred Units are
to be redeemed, units to be redeemed shall be selected by the General Partner
from outstanding Series C Preferred Units not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by the
General Partner in its sole discretion to be equitable.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
ALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND
ACCOUNTING MATTERS
VI.1 Allocations.
The Net Income, Net Loss and/or other Partnership items shall be allocated
pursuant to the provisions of Exhibit B.
VI.2 Distributions.
(a) Except for distributions pursuant to Section 8.2 in
connection with the dissolution and liquidation of the Partnership, the General
Partner shall cause the Partnership to distribute all Net Cash Flow to the
Partners from time to time as determined by the General Partner, but in any
event not less frequently than quarterly, in such amounts as the General Partner
shall determine, and in the following priority:
(i) First, to the extent that the amount of cash
distributed to the General Partner for all prior Quarters
pursuant to Section 6.2(a)(ii) (other than the immediately
preceding Quarter) was less than the Preferred Distribution
for each of the outstanding Preferred Units for all such
Quarters, and such deficiency was not previously distributed
pursuant to this subsection (i) or paid as part of a Preferred
Unit Redemption Amount (a "Preferred Distribution Shortfall"),
Net Cash Flow shall be distributed to the General Partner in
an amount equal to such Preferred Distribution Shortfall for
all such prior Quarters.
(ii) Second, Net Cash Flow shall be distributed to the
General Partner on the Partnership Payment Date in an amount
equal to the Preferred Distribution for the immediately
preceding Quarter for each outstanding Preferred Unit then
held by the General Partner.
(iii) Third, to the extent the amount of cash distributed to
the General Partner pursuant to Section 6.2(a)(iv) for all
prior Quarters (other than the immediately preceding Quarter)
was less than the Convertible Preferred Distribution for each
of the outstanding Convertible Preferred Units for all such
Quarters, and such deficiency was not previously distributed
pursuant to this subsection (iii) or paid as part of
Convertible Preferred Unit Redemption Amount (a "Convertible
Preferred Distribution Shortfall"), Net Cash Flow shall be
distributed to the General Partner in an amount equal to such
Convertible Preferred Distribution Shortfall for all such
prior Quarters.
(iv) Fourth, Net Cash Flow shall be distributed to the
General Partner on the Partnership Payment Date in an amount
equal to the Convertible Preferred Distribution for the
immediately preceding Quarter for each outstanding Convertible
Preferred Unit then held by the General Partner.
(v) Fifth, to the extent that the amount of cash
distributed to Partners pursuant to Section 6.2(a)(vi) for all
prior Quarters (other than the immediately preceding Quarter)
was less than the Series C Preferred Distribution for each of
the outstanding Series C Preferred Units for all such
Quarters, and such deficiency was not previously distributed
pursuant to this subsection (v) or paid as part of a Series C
Preferred Unit Redemption Amount (a "Series C Preferred
Distribution Shortfall"), Net Cash Flow in an amount equal to
such Series C Preferred Distribution Shortfall for all such
prior quarters shall be distributed to the Partners holding
Series C Preferred Units on the Partnership Payment Date for
the immediately preceding Quarter, pro rata, in accordance
with their respective Series C Preferred Units.
(vi) Sixth, Net Cash Flow shall be distributed to the
Partners holding Series C Preferred Units in an amount equal
to the Series C Preferred Distribution for the immediately
preceding Quarter for each outstanding Series C Preferred
Unit, pro rata, in accordance with their respective Series C
Preferred Units.
(vii) Seventh, the balance of any Net Cash Flow to be
distributed, if any, shall be distributed to the Partners
holding Common Units on the Partnership Payment Date with
respect to the immediately preceding Quarter, pro rata in
accordance with their respective Common Units.
(b)The General Partner shall use its best efforts to cause
the Partnership to distribute sufficient amounts to enable the General Partner
to pay shareholder dividends that will (i) satisfy the requirements for
qualifying as a REIT under the Code and Regulations ("REIT Requirements"), and
(ii) avoid any federal income or excise tax liability of the General Partner.
(c)With respect to any Limited Partner(s) from whom the
General Partner receives an Exercise Notice to exercise Rights in accordance
with Article XI for which the General Partner elects to pay the Cash Purchase
Price pursuant to Exhibit C, the General Partner shall cause the Partnership to
distribute to such Limited Partner(s), with respect to the Common Units for
which the Cash Purchase Price is paid, (i) on the Partnership Payment Date, if
any, thereafter occurring during the Quarter in which the Cash Purchase Price is
paid, an amount equal to a full pro rata share of any Net Cash Flow to which
such Limited Partner would have been entitled to receive pursuant to Section
6.2(a)(vii) had such Limited Partner held such Common Units on the Partnership
Payment Date occurring in such Quarter and (ii) on the Partnership Payment Date,
if any, occurring during the next succeeding Quarter after such Exercise Notice
is received, an amount equal to the Net Cash Flow to which such Limited Partner
would have been entitled to receive pursuant to Section 6.2(a)(vii) had such
Limited Partner held such Common Units on the Partnership Payment Date,
multiplied by a fraction, the numerator of which is the number of days in the
preceding Quarter (based on three 30-day months) that the Limited Partner held
such Common Units and the denominator of which is 90.
(d)Notwithstanding any other provision in this Agreement, from
time to time and at such times as the General Partner shall determine, and prior
to any determination or distribution of Net Cash Flow pursuant to Section
6.2(a), there shall be distributed to the General Partner from the revenues,
proceeds or other funds of the Partnership, an amount equal to any REIT Expenses
(other than those described in clause (ii) of the definition of REIT Expenses),
to the extent not paid or payable by the General Partner from cash distributions
which it receives directly from any Property Partnerships on account of any
interest in the Property Partnership which it holds directly (as opposed to
through the Partnership).
(e)The provisions of Section 6.2 of this Agreement are not
intended to supersede or replace, and are subject to, the agreements set forth
on Exhibit E hereto.
VI.3 Books of Account.
At all times during the continuance of the Partnership, the General Partner
shall maintain or cause to be maintained full, true, complete and correct books
of account in accordance with GAAP wherein shall be entered particulars of all
monies, goods or effects belonging to or owing to or by the Partnership, or
paid, received, sold or purchased in the course of the Partnership's business,
and all of such other transactions, matters and things relating to the business
of the Partnership as are usually entered in books of account kept by persons
engaged in a business of a like kind and character as the Partnership. In
addition, the Partnership shall keep all records as required to be kept pursuant
to the Act. The books and records of account shall be kept at the principal
office of the Partnership, and each Partner shall at all reasonable times, and
upon reasonable notice, have access to such books and records and the right to
inspect the same.
VI.4 Reports.
The General Partner shall cause to be submitted to the Limited Partners
promptly upon receipt of the same from the Accountants and in no event later
than April 1 of each year, copies of Audited Financial Statements prepared on a
consolidated basis for the Partnership and each of the Property Partnerships,
together with the reports thereon, and all supplementary schedules and
information, prepared by the Accountants. The Partnership also shall cause to be
prepared such reports and/or information as are necessary for the General
Partner to determine its qualification as a REIT and its compliance with REIT
Requirements.
VI.5 Audits.
Not less frequently than annually, the books and records of the Partnership
shall be audited by the Accountants. The General Partner shall, unless
determined otherwise by the General Partner with the Consent of the Partners,
engage the Accountants to audit the books and records of the Property
Partnerships.
VI.6 Tax Elections and Returns.
All elections required or permitted to be made by the Partnership under any
applicable tax law shall be made by the General Partner in its sole discretion;
provided, however, if requested by a transferee (or if the General Partner is a
transferee, as it shall determine in its sole discretion), the General Partner
shall file an election on behalf of the Partnership pursuant to Section 754 of
the Code to adjust the basis of the Partnership property in the case of a
transfer of a Partnership Interest, including transfers made in connection with
the exercise of Rights, made in accordance with the provisions of this
Agreement. The General Partner shall prepare and file, or cause to be prepared
and filed, all state and federal tax returns on a timely basis. The General
Partner shall prepare and submit, or cause to be prepared and submitted, to the
Limited Partners on or before March 1 of each year for review all federal and
state income tax returns of the Partnership and, for the Property Partnerships,
to submit, or cause to be prepared and submitted, to the Limited Partners on or
before March 1 of each year for review all federal and state income tax returns
of the Property Partnerships. If the Limited Partners determine that any
modifications to the tax returns of the Partnership or any Property Partnership
should be considered, the Limited Partners shall, within thirty (30) days
following receipt of such tax returns from the General Partner, indicate to the
General Partner the suggested revisions to the tax returns, which returns shall
be resubmitted to the Limited Partners for their review (but not approval). The
Limited Partners shall complete their review of the resubmitted returns within
ten (10) days after receipt thereof from the General Partner. The General
Partner shall consult in good faith with the Limited Partners regarding any
proposed modifications to the tax returns of the Partnership and/or the Property
Partnerships. A statement of the allocation of Net Income or Net Loss of the
Partnership shown on the annual income tax returns prepared by the General
Partner or the Accountants and a statement of the allocation of Net Income or
Net Loss shown on the income tax return of the Property Partnerships shall be
transmitted and delivered to the Limited Partners within ten (10) days of the
preparation or receipt thereof by the Partnership. The General Partner shall be
responsible for preparing and filing all federal and state tax returns for the
Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of Tax Items and copies of
the tax returns of all Property Partnerships all within the period of time
prescribed by law.
VI.7 Tax Matters Partner.
The General Partner is hereby designated as the Tax Matters Partner for the
Partnership within the meaning of Section 6231(a)(7) of the Code; provided,
however, (i) in exercising its authority as Tax Matters Partner, the General
Partner shall be limited by the provisions of this Agreement affecting tax
aspects of the Partnership; (ii) the General Partner shall consult in good faith
with the Limited Partners regarding the filing of a Code Section 6227(b)
administrative adjustment request with respect to the Partnership or a Property
Partnership before filing such request, it being understood, however, that the
provisions hereof shall not be construed to limit the ability of any Partner,
including the General Partner, to file an administrative adjustment request on
its own behalf pursuant to Section 6227(a) of the Code; (iii) the General
Partner shall consult in good faith with the Limited Partners regarding the
filing of a petition for judicial review of an administrative adjustment request
under Section 6228 of the Code, or a petition for judicial review of a final
partnership administrative judgment under Section 6226 of the Code relating to
the Partnership before filing such petition; (iv) the General Partner shall give
prompt notice to the Limited Partners of the receipt of any written notice that
the Internal Revenue Service or any state or local taxing authority intends to
examine Partnership income tax returns for any year, the receipt of written
notice of the beginning of an administrative proceeding at the Partnership level
relating to the Partnership under Section 6223 of the Code, the receipt of
written notice of the final Partnership administrative adjustment relating to
the Partnership pursuant to Section 6223 of the Code, and the receipt of any
request from the Internal Revenue Service for waiver of any applicable statute
of limitations with respect to the filing of any tax return by the Partnership;
and (v) the General Partner shall promptly notify the Limited Partners if the
General Partner does not intend to file for judicial review with respect to the
Partnership. The General Partner, in acting on behalf of the Partnership as tax
matters partner of a Property Partnership, shall afford the Limited Partners the
same rights with respect to Property Partnership tax matters as afforded to the
Limited Partners under this Section 6.7.
<PAGE>
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER
VII.1 Expenditures by Partnership
The General Partner is hereby authorized to pay compensation for
accounting, administrative, legal, technical, management and other services
rendered to the Partnership. All of the aforesaid expenditures shall be made on
behalf of the Partnership and, except as provided below, the General Partner
shall be entitled to reimbursement by the Partnership for any expenditures
incurred by it on behalf of the Partnership which shall be made other than out
of the funds of the Partnership. The Partnership shall also assume, and pay when
due, all Administrative Expenses other than REIT Expenses, but only to the
extent not paid or payable by the General Partner from cash distributions
received by the General Partner directly from any Property Partnership. The
General Partner shall use any cash distributions which it receives directly from
any Property Partnerships on account of any interest in the Property Partnership
which it holds directly (as opposed to through the Partnership) to pay REIT
Expenses.
VII.2 Powers and Duties of General Partner
The General Partner shall be responsible for the management of the
Partnership's business and affairs. Except as otherwise herein expressly
provided, and subject to the limitations contained in Section 7.3 hereof with
respect to Major Decisions, the General Partner shall have, and is hereby
granted, full and complete power, authority and discretion to take such action
for and on behalf of the Partnership and in its name as the General Partner
shall, in its sole and absolute discretion, deem necessary or appropriate to
carry out the purposes for which the Partnership was organized. Except as
otherwise expressly provided herein, and subject to Section 7.3 hereof, the
General Partner shall have the following rights, powers and authorities, to the
extent necessary and appropriate to pursue and accomplish the purposes of the
Partnership:
(a)To manage, control, invest, reinvest, acquire by purchase,
lease or otherwise, sell, contract to purchase or sell, hold for
investment, grant, obtain, or exercise options to purchase, options to
sell or conversion rights, assign, transfer, convey, deliver, endorse,
exchange, pledge, mortgage, abandon, improve, repair, maintain, insure,
lease for any term and otherwise deal with any and all property of
whatsoever kind and nature, and wheresoever situated, in furtherance of
the business or purposes of the Partnership;
(b)To acquire, directly or indirectly, interests in real
estate of any kind and of any type, and any and all kinds of interests
therein, and to determine the manner in which title thereto is to be
held; to manage, insure against loss, protect and subdivide any real
estate, interests therein or parts thereof; to improve, develop or
redevelop any such real estate; to participate in the ownership and
development of any property; to dedicate for public use, to vacate any
subdivisions or parts thereof, to resubdivide, to contract to sell, to
grant options to purchase or lease, or to sell on any terms; to convey,
mortgage, pledge or otherwise encumber said property, or any part
thereof; to lease said property or any part thereof from time to time,
upon any terms and for any period of time, and to renew or extend
leases, to amend, change or modify the terms and provisions of any
leases and to grant options to lease and options to renew leases and
options to purchase; to partition or to exchange said real property, or
any part thereof, for other real or personal property or to grant
easements or charges of any kind; to relay, convey or assign any right,
title or interest in or about or easement appurtenant to said property
or any part thereof; to construct and reconstruct, remodel, alter,
repair, add to or take from buildings on any real property in which the
Partnership owns an interest; to insure any Person having an interest
in or responsibility for the care, management or repair of such
property; to direct the trustee of any land trust to mortgage, lease,
convey or contract to convey the real estate held in such land trust or
to execute and deliver deeds, mortgages, notes, and any and all
documents pertaining to the property subject to such land trust or in
any matter regarding such trust; to execute assignments of all or any
part of the beneficial interest in any land trust in which the
Partnership owns a beneficial interest;
(c) To employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed necessary by the
General Partner for the operation and management of the Partnership
business, including but not limited to, contractors, subcontractors,
engineers, architects, surveyors, mechanics, consultants, accountants,
attorneys, insurance brokers, real estate brokers, financial counsel,
professional advisers and others;
(d)To enter into, make, amend, perform and carry out, or
cancel and rescind, contracts and other obligations, including without
limitation guaranties and indemnity agreements for any purpose
pertaining to the business of the Partnership or any Property
Partnership; and to loan money to, borrow money from and engage in
transactions with Affiliates of the Partnership or any other Person;
(e)To borrow money or procure loans and advances from any
Person for Partnership purposes, and to apply for and secure, from any
Person, credit or accommodations, without limitation as to amount; to
contract liabilities and obligations, direct or contingent and of every
kind and nature with or without security; to repay, discharge, settle,
adjust, compromise, or liquidate any such loan, advance, credit,
obligation or liability; and to draw, make, accept, endorse, execute
and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures, evidences of indebtedness and other instruments, and to
secure the payment thereof, the interest thereon and any other
obligations or liabilities relating thereto, in any manner, including
without limitation by mortgage on, security interest in or pledge of,
or conveyance or assignment in trust of, the whole or any part of the
assets of the Partnership, real, personal or mixed, including contract
rights and options, whether at the time owned or thereafter acquired,
and future earnings, and to sell, pledge or otherwise dispose of such
securities or other obligations of the Partnership for the furtherance
of any purpose of the Partnership, and to guaranty or indemnify any
Person in connection with any of the foregoing or any other activity of
the Partnership;
(f)To pledge, hypothecate, mortgage, assign, deposit, deliver,
enter into sale and leaseback arrangements or otherwise give as
security or as additional or substitute security, or sell or otherwise
dispose of any and all Partnership property, tangible or intangible,
including, but not limited to, real estate and beneficial interests in
land trusts, and to make substitutions thereof, and to receive any
proceeds thereof upon the release or surrender thereof; to sign,
execute and deliver any and all assignments, deeds and other contracts
and instruments in writing; to authorize, give, make, procure, accept
and receive moneys, payments, property, notices, demands, vouchers,
receipts, releases, compromises and adjustments; to waive notices,
demands, and protests and authorize and execute waivers of every kind
and nature; to enter into, make, execute, deliver and receive written
agreements, undertakings and instruments of every kind and nature; to
give oral instructions and make oral agreements; and generally to do
any and all other acts and things incidental to any of the foregoing or
with reference to any dealings or transactions which the General
Partner may deem necessary, proper or advisable to effect or accomplish
any of the foregoing or to carry out the business and purposes of the
Partnership;
(g)To acquire and enter into any contract of insurance which
the General Partner deems necessary or appropriate for the protection
of the Partnership, for the conservation of the Partnership's assets or
for any purpose convenient or beneficial to the Partnership;
(h)To conduct any and all banking transactions on behalf of
the Partnership; to adjust and settle checking, savings, and other
accounts with such institutions as the General Partner shall deem
appropriate; to draw, sign, execute, accept, endorse, guarantee,
deliver, receive and pay any checks, drafts, bills of exchange,
acceptances, notes, obligations, undertakings and other instruments for
or relating to the payment of money in, into, or from any account in
the Partnership's name; to execute, procure, consent to and authorize
extensions and renewals of any of the foregoing; to make deposits into
and withdrawals from the Partnership's bank accounts and to negotiate
or discount commercial paper, acceptances, negotiable instruments,
bills of exchange and dollar drafts; to invest funds of the
Partnership;
(i)To demand, sue for, receive, and otherwise take steps to
collect or recover all debt, rents, proceeds, interests, dividends,
goods, chattels, income from property, damages and all other property,
to which the Partnership may be entitled or which are or may become due
the Partnership from any Person; to commence, prosecute or enforce, or
to defend, answer or oppose, contest and abandon all legal proceedings
in which the Partnership is or may hereafter be interested; and to
settle, compromise or submit to arbitration any accounts, debts,
claims, disputes and matters which may arise between the Partnership
and any other Person and to grant an extension of time for the payment
or satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking
of all action deemed necessary or appropriate by the General Partner to
cause any approved loans to be closed;
(k) To take all reasonable measures necessary to insure
compliance by the Partnership with applicable arrangements, and other
contractual obligations and arrangements entered into by the
Partnership from time to time in accordance with the provisions of this
Agreement, including periodic reports as required to be submitted to
lenders, and using all due diligence to insure that the Partnership is
in compliance with its contractual obligations;
(l) To maintain the Partnership's books and records;
(m) To prepare and deliver, or cause to be prepared and
delivered by the Partnership's Accountants, all financial and other
reports with respect to the operations of the Partnership and all
Federal and state tax returns and reports;
(n) To act in any state or nation in which the Partnership may
lawfully act, for itself or as principal, agent or representative for
any Person with respect to any business of the Partnership;
(o) To become a partner or member in, and perform the
obligations of a partner or member of, any general or limited
partnership or limited liability company;
(p) To apply for, register, obtain, purchase or otherwise
acquire trademarks, trade names, labels and designs relating to or
useful in connection with any business of the Partnership, and to use,
exercise, develop and license the use of the same;
(q) To pay or reimburse any and all actual fees, costs
and expenses incurred in the formation and organization of the
Partnership;
(r) To do all acts which are necessary, customary or
appropriate for the protection and preservation of the Partnership's
assets, including the establishment of reserves; and
(s) In general, to exercise all of the general rights,
privileges and powers permitted to be had and exercised by the
provisions of the Act.
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of such
duties, and nothing herein contained shall be deemed to require the General
Partner, in its capacity as such, to expend its individual funds to make any
payment to third parties on behalf of the Partnership or to undertake any
individual liability or obligation on behalf of the Partnership.
VII.3 Major Decisions.
The General Partner shall not, without the prior Consent of the Partners,
on behalf of the Partnership, undertake any of the following actions (the "Major
Decisions"):
(a)Amend and/or modify this Agreement other than as specified
in Section 14.7.
(b)Take title to any personal or real property, other than in
the name of the Partnership, a Property Partnership or pursuant to
Section 7.5 or 7.8 hereof.
(c)Dissolve the Partnership prior to the occurrence of any of
the Liquidating Events.
VII.4 No Removal.
In no event shall the Limited Partners or any other Persons have the right to
remove the General Partner as general partner of the Partnership.
VII.5 General Partner Participation.
The General Partner agrees that all business activities of the General Partner,
including activities pertaining to the acquisition, development and ownership of
properties, shall be conducted through the Partnership; provided that the
General Partner may own up to a one percent (1%) interest in any Property
Partnership. The General Partner agrees that all borrowings for the purpose of
making distributions to its stockholders will not be incurred by the General
Partner but will be incurred only by the Partnership or by one or more of the
Property Partnerships.
VII.6 Proscriptions
The General Partner shall not have theauthority to:
(a) Do any act in contravention of this Agreement or
which would make it impossible to carry on the ordinary business of
the Partnership;
(b) Possess any Partnership property or assign rights in
specific Partnership property for other than Partnership purposes; or
(c) Do any act in contravention of applicable law.
Nothing herein contained shall impose any obligation on any Person or firm doing
business with the Partnership to inquire as to whether or not the General
Partner has properly exercised its authority in executing any contract, lease,
mortgage, deed or other instrument on behalf of the Partnership, and any such
third Person shall be fully protected in relying upon such authority.
VII.7 Additional Partners.
Additional Partners may be admitted to the Partnership only asprovided in
Section 4.4 hereof.
VII.8 Title Holder.
To the extent allowable under applicable law, title to all or any part of
the properties of the Partnership may be held in the name of the Partnership or
in the name of any other Person, the beneficial interest in which shall at all
times be vested in the Partnership. Any such title holder shall perform any and
all of its respective functions to the extent and upon such terms and conditions
as may be determined from time to time by the General Partner, consistent with
the business and purposes of the Partnership.
VII.9 Compensation of the General Partner.
The General Partner shall not be entitled to any compensation for services
rendered to the Partnership solely in its capacity as General Partner. The
foregoing shall not limit the General Partner's right to reimbursement for those
costs and expenses constituting Administrative Expenses as provided elsewhere in
this Agreement.
VII.10 Waiver and Indemnification.
(a) Neither any Partner nor any Person acting on behalf of
any Partner (including the Liquidating Trustee), pursuant hereto, shall be
liable, responsible or accountable in damages or otherwise to the Partnership or
to any Partner for any acts or omissions performed or omitted to be performed by
them or for their errors of judgment; provided that the Partner's or such other
Person's conduct or omission to act was taken in good faith. The Partnership
shall, and hereby does, indemnify and hold harmless each Partner and its
Affiliates and any individual acting on their behalf (including the Liquidating
Trustee) from any loss, damage, expense, claim or liability, including, but not
limited to, reasonable attorneys' fees and expenses, incurred by them by reason
of the operations of the Partnership as set forth in this Agreement in which
such Partner or other Person may be involved or in enforcing the provisions of
this indemnity, unless it is established that: (i) the act or omission of such
Partner or other Person was material to the matter giving rise to the loss,
damage, expense, claim or liability and either was committed in bad faith or was
the result of active and deliberate dishonesty; (ii) such Partner or other
Person actually received an improper personal benefit in money, property or
services; or (iii) in the case of any criminal proceeding, such Partner or other
Person had reasonable cause to believe that the act or omission was unlawful.
Without limitation, the foregoing indemnity shall extend to any liability of any
Partner or other Person, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Property Partnership or other subsidiary
of the Partnership (including, without limitation, any indebtedness which the
Partnership or any Property Partnership or other subsidiary of the Partnership
has assumed or taken subject to), and the General Partner is hereby authorized
and empowered, on behalf of the Partnership, to enter into one or more indemnity
agreements consistent with the provisions of this Section 7.10 in favor of any
Partner or other Person having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Person seeking indemnification did not
meet the requisite standard of conduct set forth in this Section 7.10. The
termination of any proceeding by conviction of a Person seeking indemnification
or upon a plea of nolo contendere or its equivalent by such Person, or any entry
of any order or probation against such Person prior to judgment, creates a
rebuttable presumption that such Person acted in a manner contrary to that
specified in this Section 7.10 with respect to the subject matter of such
proceeding. No Partner shall have any personal liability with respect to the
foregoing indemnification, any such indemnification to be satisfied solely out
of the assets of the Partnership.
(b) Any Person entitled to indemnification under this
Agreement shall be entitled to receive, upon application therefor, advances to
cover the costs of defending any proceeding against such Person; provided,
however, that such advances shall be repaid to the Partnership, without
interest, if such Person is found by a court of competent jurisdiction upon
entry of a final judgment not to be entitled to such indemnification. All rights
of the indemnitee hereunder shall survive the dissolution of the Partnership;
provided, however, that a claim for indemnification under this Agreement must be
made by or on behalf of the Person seeking indemnification prior to the time the
liquidation of the Partnership is completed. The indemnification rights
contained in this Agreement shall be cumulative of, and in addition to, any and
all rights, remedies and recourse to which the Person seeking indemnification
shall be entitled, whether at law or in equity. Indemnification pursuant to this
Agreement shall be made solely and entirely from the assets of the Partnership
and no Partner shall be liable therefor.
(c) The Partnership shall, and hereby does, indemnify and hold
harmless the General Partner from any loss, damage, claim or liability,
including, but not limited to, reasonable attorneys' fees and expenses, incurred
by the General Partner by reason of (i) any indebtedness incurred by the General
Partner in compliance with Section 4.3 hereof or any indebtedness of the
Partnership or any subsidiary thereof that is guaranteed by the General Partner
or (ii) vicarious liability by reason of its status as General Partner of the
Partnership. The Partners agree that in the event the Partnership becomes a
debtor in a bankruptcy proceeding under a plan of reorganization, any funds
distributable to the General Partner and any funds distributable to the Limited
Partners under such plan of reorganization, after discharging claims against the
General Partner from such funds, will be distributed to the Limited Partners and
the stockholders of the General Partner among the various classes of Partnership
Units in accordance with the agreed priorities set forth in Section 6.2. Each
Partner agrees to turn over any such funds to the General Partners to be so
distributed.
(d) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders, collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to the Limited Partners or their assignees) in
deciding whether to cause the Partnership to take (or decline to take) any
actions and that the General Partner shall not be liable for monetary damages
for losses sustained, liabilities incurred or benefits not derived by Limited
Partners in connection with such decisions; provided that the General Partner
has acted in good faith.
(e) Subject to its obligations and duties as General Partner
set forth in Section 7.2 hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or through its agents.
(f) The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of any Person potentially entitled to
indemnification and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
VII.11 Operation in Accordance with REIT Requirements.
The General Partner agrees and the Limited Partners acknowledge that the
Partnership shall be operated in a manner that will enable the General Partner
to (a)satisfy the REIT Requirements and (b) avoid the imposition of any federal
income or excise tax liability, unless the General Partner ceases to qualify as
a REIT for reasons other than the conduct of the business of the Partnership. In
connection with the foregoing, and without limiting the General Partner's rights
in its sole discretion to cease qualifying as a REIT, the Partners acknowledge
that the General Partner's current status as a REIT inures to the benefit of all
Partners and not solely the General Partner. The Partnership shall avoid taking
any action, or permitting any Property Partnership to take any action, which
would result in the General Partner ceasing to satisfy the REIT Requirements or
would result in the imposition of any federal income or excise tax liability on
the General Partner.
<PAGE>
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND WINDING-UP
VIII.1 Winding Up
(a) Upon the occurrence of an event of
dissolution described in Section 3.2, the Partnership shall continue solely for
the purposes of winding up its affairs in an orderly manner, liquidating its
assets and satisfying the claims of its creditors and Partners. No Partner shall
take any action that is inconsistent with, or not necessary to or appropriate
for, the winding up of the Partnership's business and affairs. The Liquidating
Trustee shall be responsible for overseeing the winding up and liquidation of
the Partnership's assets and shall take full account of the Partnership's
liabilities and property and the Partnership's assets shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the Liquidating
Trustee, include shares of stock in the General Partner) shall be applied and
distributed in accordance with the provisions of Section 8.2.
(b) In the discretion of the Liquidating
Trustee, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article VIII may be:
(i) distributed to a trust established
for the benefit of the General Partner and Limited Partners for the
purposes of liquidating Partnership assets, collecting amounts owed to
the Partnership and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising out of
or in connection with the Partnership. The assets of any such trust
shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the Liquidating Trustee,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General
Partner and the Limited Partners pursuant to this Agreement; or
(ii) withheld or escrowed to provide a
reasonable reserve for Partnership iabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations
owed to the Partnership; provided that such withheld or escrowed
amounts shall be distributed to the General Partner and Limited
Partners in the manner and order of priority set forth in Section 8.2
as soon as possible.
(c) A reasonable time shall be allowed for the
orderly winding-up of the business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 8.1 hereof, in order to minimize
any losses otherwise attendant upon such winding-up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
(d) The liquidation of the Partnership shall
not be deemed finally completed until the Partnership shall have received cash
payments in full with respect to obligations such as notes, installment sale
contracts or other similar receivables received by the Partnership in connection
with the sale of Partnership assets and all remaining obligations of the
Partnership have been satisfied or assumed by the Liquidating Trustee. The
Liquidating Trustee shall continue to act to enforce all of the rights of the
Partnership pursuant to any such obligations until such obligations are paid in
full or otherwise satisfied. The Liquidating Trustee shall use reasonable
efforts to liquidate the Partnership in the same year in which substantially all
of the assets of the Partnership being disposed of in the liquidation are sold
or exchanged.
(e) The Liquidating Trustee shall be
empowered to give and receive notices, reports and payments in connection with
the dissolution, liquidation and/or winding-up of the Partnership and shall hold
and exercise such other rights and powers as are necessary or required to permit
all parties to deal with the Liquidating Trustee in connection with the
dissolution, liquidation and/or winding-up of the Partnership.
VIII.2 Distribution on Dissolution and Liquidation.
In the event of the dissolution and liquidation of the Partnership for any
reason, the assets of the Partnership shall be liquidated for distribution in
the following rank and order:
(a) Payment of creditors of the Partnership (other
than Partners) in the order of priority as provided by law;
(b) Establishment of reserves as determined by the
Liquidating Trustee to provide for contingent liabilities, if any;
(c) Payment of debts of the Partnership to Partners,
if any, in the order of priority provided by law;
(d) To the Partners in accordance with the positive balances
in their respective Capital Accounts after giving effect to all
contributions, distributions and allocations for all periods, including
the period in which such distribution occurs (other than those
adjustments made pursuant to this Section 8.2(d)).
Whenever the Liquidating Trustee reasonably determines that any reserves
established pursuant to paragraph (b) above are in excess of the reasonable
requirements of the Partnership, the amount determined to be excess shall be
distributed to the Partners in accordance with paragraphs (c) and (d) above.
VIII.3 Timing Requirements.
In the event that the Partnership is "liquidated" within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions to
the Partners pursuant to Section 8.2(d) hereof shall be made no later than the
later to occur of (i) the last day of the taxable year of the Partnership in
which such liquidation occurs or (ii) ninety (90) days after the date of such
liquidation.
VIII.4 Deemed Distribution and Recontribution.
Notwithstanding any other provision of this Article VIII, in the event the
Partnership is considered liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no dissolution and liquidation has occurred pursuant to
this Agreement, the Partnership's property shall not be liquidated, the
Partnership's liabilities shall not be paid or discharged, and the Partnership's
affairs shall not be wound up. Instead, for federal income tax purposes and
purposes of maintaining Capital Accounts, the Partnership shall be deemed to
have contributed the property in kind to a new limited partnership, which shall
be deemed to have assumed and taken such property subject to all Partnership
liabilities, in return for the interests in such partnership. Immediately
thereafter, the Partnership shall be deemed to have distributed the interests in
the new limited partnership to the General Partner and the Limited Partners in
proportion to their respective interests in the Partnership in liquidation of
the Partnership.
VIII.5 Distributions in Kind.
In the event that it becomes necessary to make a distribution of
Partnership property in kind, the Liquidating Trustee may, with the Consent of
the Partners, transfer and convey such property to the distributees as tenants
in common, subject to any liabilities attached thereto, so as to vest in the
distributees undivided interests in the whole of such property in proportion to
their respective rights to share in the proceeds of the sale of such property
(other than as a creditor) in accordance with the provisions of Section 8.2
hereof.
VIII.6 Documentation of Liquidation.
Upon the completion of the dissolution and liquidation of the Partnership,
the Partnership shall terminate and the Liquidating Trustee shall have the
authority to execute and record any and all documents or instruments required to
effect the dissolution, liquidation and termination of the Partnership.
VIII.7 Deficit Capital Account Balance.
If any Partner has a deficit Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years of the
Partnership, including the year during which a liquidation of the Partnership
occurs), such Partner shall have no obligation to make any contribution to the
capital of the Partnership with respect to such deficit, and such deficit shall
not be considered a debt owed to the Partnership or to any other Person for any
purpose whatsoever.
<PAGE>
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS;
WITHDRAWAL; ADMISSION OF ADDITIONAL PARTNERS
IX.1 General Partner Transfer; Withdrawal; Substitute
General Partner.
(a) The General Partner shall not voluntarily
withdraw (as provided in Section 17-602(a) of the Act) as general partner of the
Partnership and shall not sell, assign, pledge, encumber or otherwise dispose of
all or any portion of its interest in the Partnership without the unanimous
consent of all of the Limited Partners which consent may be withheld in their
sole and absolute discretion.
(b) Upon any Transfer of a Partnership Interest in accordance
with the provisions of this Section 9.1, the transferee General Partner shall
become vested with the powers and rights of the transferor General Partner, and
shall be liable for all obligations and responsible for all duties of the
General Partner, once such transferee has executed such instruments as may be
necessary to effect such admission and to confirm the agreement of such
transferee to be bound by all the terms and provisions of this Agreement with
respect to the Partnership Interest so acquired. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes by operation
of law or express agreement all of the obligations of the transferor General
Partner under this Agreement with respect to such transferred Partnership
Interest and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor General
Partner are assumed by a successor corporation or other Entity by operation of
law) shall relieve the transferor General Partner of its obligations under this
Agreement without the Consent of the Partners, in their reasonable discretion.
(c) In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or dissolves or
terminates or upon the Bankruptcy of the General Partner, a Majority-in-Interest
of the Limited Partners may elect to continue the Partnership business by
selecting a substitute general partner. Upon any such event, the Partnership
Interest of the General Partner shall cease to be the interest of a general
partner, and shall be converted to the interest of a "Special Limited Partner."
Upon such a conversion, the Special Limited Partner shall retain all Partnership
Units allocated to the General Partner and shall have the right to (i) receive
distributions of Net Cash Flow pursuant to Section 6.2 and 8.2, (ii) inspect,
copy or review financial records of the Partnership and (iii) vote or exercise
consent rights with respect to the number of Common Units held by it from time
to time for any matter for which the Consent of the Partners is required or
sought. Notwithstanding the conversion of the General Partner's Partnership
Interest into the Interest of a Special Limited Partner pursuant to Section
9.1(c), the General Partner shall retain all management powers and shall
continue to manage the business and affairs of the Partnership in accordance
with the terms of this Agreement until such time as a successor General Partner
is so selected and thereafter admitted, or a Liquidating Trustee other than the
General Partner is selected.
IX.2 Transfers by Limited Partners.
No Limited Partner may Transfer any part of its Partnership Interest except
in accordance with the provisions of this Sections 9.2 and 9.3. Any purported
Transfer of any Partnership Interest by a Limited Partner in violation of any
provision of this Agreement shall be void ab initio and shall not be given
effect for any purpose by the Partnership.
(a) Intentionally Omitted.
(b) Each Limited Partner shall, subject to the provisions of
Section 9.3, have the right to Transfer all or any portion of its
Common Units to any Person, whether or not in connection with the
exercise of a Limited Partner's Rights. It is a condition to any
Transfer otherwise permitted under this Section 9.2(b) that the
transferee assumes by operation of law or express agreement (which
agreement, in the event of a pledge of Common Units, may be entered
into and become effective at the time of foreclosure or other
realization on such pledged Common Units) all of the obligations of the
transferor Limited Partner under this Agreement with respect to such
transferred Common Units and no such Transfer (other than pursuant to a
statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor
corporation or other Entity by operation of law) shall relieve the
transferor Partner of its obligations under this Agreement without the
approval of the General Partner, in its reasonable discretion.
(c) Upon any Transfer in accordance with the provisions of
this Section 9.2 and Section 9.3, the transferee shall be admitted as a
Substituted Limited Partner (as such term is defined in the Act) and
shall succeed to all of the rights and obligations (including, without
limitation, the Rights) of the transferor Limited Partner under this
Agreement with respect to the transferred Common Units, in the place
and stead of such transferor Limited Partner (which succession, in the
event of a pledge of Common Units, may be entered into and become
effective at the time of foreclosure or other realization on such
pledged Common Units). Any transferee, whether or not admitted as a
Substituted Limited Partner, shall take the transferred Common Units
subject to the obligations of the transferor hereunder. Unless admitted
as a Substituted Limited Partner, no transferee, whether by a voluntary
Transfer, by operation of law or otherwise, shall have any rights under
this Agreement or with respect to the Partnership Property, other than
to receive such portion of the distributions made by the Partnership as
are allocable to the Common Units transferred.
(d) Intentionally Omitted.
(e) Notwithstanding anything in this Agreement to the
contrary, any transferee of any transferred Common Units shall be
subject to any and all ownership limitations contained in the corporate
charter of the General Partner as may be amended from time to time
applicable to Persons which may limit or restrict such transferee's
ability to exercise the Rights.
(f) No Limited Partner may withdraw from the Partnership
without the prior written consent of the General Partner, other than as
a result of a Transfer of all of such Limited Partner's Partnership
Interest in accordance with this Agreement or pursuant to the exercise
of the Rights with respect to all of such Limited Partner's Common
Units or Series C Preferred Units. Except pursuant to Section 6.2(c),
no Limited Partner shall be entitled to any distribution in respect of
its Partnership Interest upon any such withdrawal.
IX.3 Restrictions on Transfer.
In addition to any other restrictions on Transfer contained in this
Agreement, in no event may any Transfer of a Partnership Interest by any Partner
be made (i) to any person or entity who lacks the legal right, power or capacity
to own a Partnership Interest; (ii) in violation of applicable securities or
other law; (iii) of any component portion of a Partnership Unit, such as the
Capital Account, or rights to Net Cash Flow, separate and apart from all other
components of a Partnership Unit; (iv) in the event such Transfer would cause
the General Partner to cease to comply with the REIT Requirements; (v) if such
Transfer would cause a termination of the Partnership for federal income tax
purposes; (vi) if such Transfer would, in the opinion of counsel to the
Partnership, cause the Partnership to cease to be classified as a partnership
for Federal income tax purposes or cause the Partnership to be treated as a
publicly traded partnership as provided in Code Section 7704; (vii) if such
Transfer would cause the Partnership to become, with respect to any employee
benefit plan subject to Title 1 of ERISA, a "party-in-interest" (as defined in
Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(c) of the Code); (viii) if such Transfer would, in the opinion of counsel
to the Partnership, cause any portion of the assets of the Partnership to
constitute assets of any employee benefit plan pursuant to Department of Labor
Section 2510.3-101 of the Regulations; and (ix) to a lender to the Partnership
or any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
"nonrecourse liability" (within the meaning of Section 1.752-1(a)(2) of the
Regulations) without the consent of the General Partner, in its sole and
absolute discretion, unless the Partnership's basis in the Property Partnerships
or applicable Property or any Partner's basis in its Partnership Interest for
tax purposes would not be reduced as a result of such Transfer; provided,
however, that the restriction set forth in this clause (ix) of Section 9.3 shall
not apply to any Transfer to a lender or a related Person to such lender if the
interest (direct or indirect) of such lender or related Person in each item of
Partnership income, gain, loss, deduction or credit for every taxable year that
the partner is a partner in the Partnership is ten percent (10%) or less and the
loan constitutes qualified nonrecourse financing within the meaning of Section
465(b)(6) of the Code and the Regulations thereunder (without regard to the type
of activity financed).
IX.4 Proration in Event of Transfers.
If any Partnership Interest is transferred or assigned in compliance with
the provisions of this Article IX or exchanged or transferred pursuant to
Article XI, on any day other than the first day of the Partnership's fiscal
year, Net Income, Net Losses, each item thereof and all other items attributable
to such interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method (unless the General
Partner, in its sole and absolute discretion, elects to adopt another reasonable
method permitted by law). Other than as provided in Section 6.2(c), all
distributions of Net Cash Flow attributable to such Common Unit or Series C
Preferred Unit with respect to which the Partnership Payment Date is before the
date of such transfer, assignment or redemption shall be made to the transferor
Partner or the exchanging Partner, as the case may be, and, in the case of a
transfer or assignment other than a redemption, all distributions of Net Cash
Flow thereafter attributable to such Partnership Unit shall be made to the
transferee Partner.
IX.5 Admission of Successor General Partner.
A successor to all of the General Partner's Partnership Interest pursuant
to Section 9.1 hereof who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner, effective
upon such transfer. The admission of any such transferee shall not cause a
dissolution of the Partnership, and such successor shall carry on the business
of the Partnership. In each case, the admission of such successor shall be
subject to the successor General Partner executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
and such other documents or instruments as may be required to effect the
admission. In the case of such admission on any day other than the first day of
a partnership year, all items attributable to the General Partner's Partnership
Interest for such fiscal year shall be allocated between the General Partner and
its successor as provided in Section 9.4 hereof.
IX.6 Admission of Additional Limited Partners.
(a)A Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement or who exercises an option to
receive any Partnership Units shall be admitted to the Partnership as an
additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.6 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an additional Limited Partner.
(b)Notwithstanding anything to the contrary in this
Section 9.6, no Person shall be admitted as an additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. The admission of
any Person as an additional Limited Partner shall become effective on the date
upon which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
(c) If any additional Limited Partner is
admitted to the Partnership on any day other than the first day of a fiscal
year, Net Income, Net Losses, each item thereof and all other items allocable
among Partners and assignees of Partners for such Partnership Year shall be
allocated among such additional Limited Partner and all other Partners and
assignees by taking into account their varying interests during the fiscal year
in accordance with Section 706(d) of the Code, using the interim closing of the
books method (unless the General Partner, in its sole and absolute discretion,
elects to adopt another reasonable method permitted by law). Solely for purposes
of making such allocations, each of such items for the calendar month in which
an admission of any additional Limited Partner occurs shall be allocated among
all the Partners and assignees including such additional Limited Partner. All
distributions of Net Cash Flow with respect to which the Partnership Payment
Date is before the date of such admission shall be made solely to Partners and
assignees other than the additional Limited Partner, and all distributions of
Net Cash Flow thereafter shall be made to all the Partners and assignees
including such additional Limited Partner.
<PAGE>
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
X.1 No Participation in Management; No Personal Liability.
Except as expressly permitted hereunder, the Limited Partners shall not
take part in the management of the Partnership's business, transact any business
in the Partnership's name or have the power to sign documents for or otherwise
bind the Partnership. Except for any liability to the Partnership pursuant to
Section 17-607 of the Act for the amount of certain distributions and as
otherwise specifically provided in this Agreement, no Limited Partner shall have
any personal liability, beyond the amount of such Limited Partner's Capital
Contributions, whether to the Partnership, to the General Partner or to the
creditors of the Partnership, including, without limitation, for the debts,
obligations, expenses or liabilities of the Partnership or any of its losses.
X.2 Duties and Conflicts.
The General Partner recognizes that the Limited Partners and their
Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the business
of the Partnership, and that, subject to the provisions of any separate
noncompete or similar restrictive agreement with the Partnership or the General
Partner, such persons are entitled to carry on such other business interests,
activities and investments and may engage in or possess an interest in any other
business or venture of any kind, independently or with others, on their own
behalf or on behalf of other entities with which they are affiliated or
associated, and such persons may engage in any activities, whether or not
competitive with the Partnership, without any obligation to offer any interest
in such activities to the Partnership or to any Partner. Except as otherwise
provided in any separate noncompete or similar restrictive agreement with the
Partnership or the General Partner, neither the Partnership nor any Partner
shall have any right, by virtue of this Agreement, in or to such activities, or
the income or profits derived therefrom, or any portion thereof or interest
therein, and the pursuit of such activities, even if competitive with the
business of the Partnership, shall not be deemed wrongful, improper or
actionable.
<PAGE>
ARTICLE XI
GRANT OF RIGHTS TO LIMITED PARTNERS
XI.1 Grant of Rights.
The General Partner does hereby grant to the Limited Partners holding
Common Units and such Limited Partners do hereby accept the right, but not the
obligations (hereinafter such right sometimes referred to as the "Rights"), to
exchange all or a portion of their Common Units on the terms and subject to the
conditions and restrictions contained in Exhibit C. The Rights granted hereunder
may be exercised by any one or more of the Limited Partners, on the terms and
subject to the conditions and restrictions contained in Exhibit C, upon delivery
to the General Partner of an Exchange Exercise Notice in the form of Schedule 1
to Exhibit C, which notice shall specify the Common Units to be exchanged by
such Limited Partner. Once delivered, the Exchange Exercise Notice shall be
irrevocable, subject to payment by the General Partner of the Purchase Price in
respect of such Common Units in accordance with the terms hereof.
XI.2 Terms of Rights.
The terms and provisions applicable to the Rights shall be as set forth in
Exhibit C.
XI.3 Reissuance or Reallocation of Common Units.
Any Common Units acquired by the General Partner pursuant to an exercise by
any Limited Partner of the Rights shall be deemed to be acquired by and
reallocated or reissued to the General Partner. The General Partner shall amend
Exhibit A hereto to reflect each such exchange and reallocation or reissuance of
Common Units and each corresponding recalculation of the Common Units of the
Partners.
<PAGE>
ARTICLE XII
GRANT OF RIGHTS TO LIMITED PARTNERS HOLDING SERIES C
PREFERRED UNITS; REDEMPTION OF SERIES C PREFERRED UNITS
XII.1 Grant of Rights.
The General Partner does hereby grant to any Limited Partner holding Series
C Preferred Units the right (hereinafter such right sometimes referred to as the
"Series C Preferred Rights"), to exchange all or a portion of their Series C
Preferred Units on the terms and subject to the conditions and restrictions
contained in Exhibit D. The Series C Preferred Rights granted hereunder may be
exercised on the terms and subject to the conditions and restrictions contained
in Exhibit D upon delivery to the General Partner of an Exchange Exercise Notice
in the form of Schedule 1 to Exhibit D, which notice shall specify the Series C
Preferred Units to be exchanged by such Limited Partner. Once delivered, the
Exchange Exercise Notice shall be irrevocable, subject to payment by the General
Partner of the Series C Purchase Price in respect of such Series C Preferred
Units in accordance with the terms hereof.
XII.2 Terms of Rights.
The terms and provisions applicable to the Series C Preferred Rights shall
be as set forth in Exhibit D.
XII.3 Reissuance or Reallocation of Series C Preferred Units.
Any Series C Preferred Units acquired by the General Partner pursuant to an
exercise by any Limited Partner of the Series C Preferred Rights shall be deemed
to be acquired by and reallocated or reissued to the General Partner. In the
event that a Limited Partner exercising Series C Preferred Rights elects to
receive the Common Stock Purchase Price and not the Series C Preferred Purchase
Price (as such terms are defined in Exhibit D) with respect to any Series C
Preferred Units, then the Series C Preferred Units acquired by the General
Partner upon payment of the Common Stock Purchase Price shall be reallocated to
the General Partner and reissued as the number of Common Units which is equal to
the number of shares of the General Partner's Common Stock paid to the
exercising Limited Partner pursuant to the terms of Exhibit D hereto as the
Common Stock Purchase Price therefor. The General Partner shall amend Exhibit A
hereto to reflect each such exchange and reallocation or reissuance of Series C
Preferred Units and each corresponding recalculation of the Series C Preferred
Units or Common Units of the Partners.
<PAGE>
ARTICLE XIII
PARTNER REPRESENTATIONS AND WARRANTIES
Each Partner severally represents and warrants to the
Partnership and the other Partners as follows:
(a) Organization. Such Partner (if such Partner is an
Entity) is duly organized, validly existing and in good standing
under the laws of its state of organization.
(b) Due Authorization; Binding Agreement. The execution,
delivery and performance of this Agreement by it has been duly and
validly authorized by all necessary action of such Partner. This
Agreement has been duly executed and delivered by it, or an authorized
representative, and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with the terms hereof.
(c) Consents and Approvals. No consent, waiver, approval or
authorization of, or filing, registration or qualification with, or
notice to, any governmental unit or any other person is required to be
made, obtained or given by it in connection with the execution,
delivery and performance of this Agreement other than consents,
waivers, approvals or authorizations which have been obtained prior to
the date hereof.
<PAGE>
ARTICLE XIV
GENERAL PROVISIONS
XIV.1 Notices.
All notices, offers or other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and may be personally served, telecopied or sent by United States mail and shall
be deemed to have been given when delivered in person, upon receipt of telecopy
and oral or written confirmation by the addressee of such receipt, or three
business days after deposit in United States mail, registered or certified,
postage prepaid, and properly addressed, by or to the appropriate party. For
purposes of this Section 14.1, the addresses of the parties hereto shall be as
set forth below their name on a signature page hereof. The address of any party
hereto may be changed by a notice in writing given in accordance with the
provisions hereof.
XIV.2 Successors.
This Agreement and all the terms and provisions hereof shall be binding
upon and shall inure to the benefit of all Partners, and their respective legal
representatives, heirs, legatees, successors and permitted assigns, except as
expressly herein otherwise provided.
XIV.3 Effect and Interpretation.
This Agreement shall be governed by and construed in conformity with the
laws of the State of Delaware.
XIV.4 Counterparts.
This Agreement may be executed in counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument.
XIV.5 Partners Not Agents.
Nothing contained herein shall be construed to constitute any Partner the
agent of another Partner, except as specifically provided herein, or in any
manner to limit the Partners in the carrying on of their own respective
businesses or activities.
XIV.6 Entire Understanding, Etc.
This Agreement constitutes the entire agreement and understanding among the
Partners and supersedes any prior understandings and/or written or oral
agreements among them respecting the subject matter hereof.
XIV.7 Amendments.
This Agreement may not be amended, except by a written instrument signed by
the General Partner (and approved on behalf of the General Partner by at least a
majority of its directors who are not Affiliates of any of the Limited Partners)
and by a Majority-in-Interest of the Partners; provided, however, that any
amendment which materially and adversely alters the rights, preferences and
terms of the Common Units held by the Limited Partners relative to those of the
Common Units held by the General Partner shall require the consent of Limited
Partners holding a majority-in-interest of the Common Units held by Limited
Partners; and provided further, that so long as any Series C Preferred Units are
held by Limited Partners, the consent of Limited Partners holding at least
66-2/3% of the Series C Preferred Units shall be necessary for effecting: (a)
any amendment that materially and adversely affects the voting powers, rights or
preferences of the holders of the Series C Preferred Units except that any
amendment to authorize or create or to increase the authorized amount of, any
Partnership Interests that are not senior in any respect to the Series C
Preferred Units or are on a parity with the Series C Preferred Units shall not
be deemed to materially and adversely affect the voting powers, rights or
preferences of the holders of Series C Preferred Units; or (b) the
authorization, reclassification or creation of, or the increase in the
authorized amount of, any Partnership Interests of any class ranking prior to
the Series C Preferred Units in the distribution of assets on any liquidation,
dissolution or winding up of the Partnership or in the payment of dividends;
provided, however, that no such consent of the holders of Series C Preferred
Units shall be required (1) for the issuance of additional Convertible Preferred
Units to the General Partner in connection with the General Partner's issuance
and sale of up to $57 million (before deducting underwriting discounts or
commissions) of its 8.5% Series B Cumulative Participating Convertible Preferred
Stock, $.01 par value $.01 per share, 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 General Partner's Articles of Incorporation
from the date hereof affecting the rights or privileges of such Convertible
Preferred Units, or (2) 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
units or convertible security is to be made, as the case may be, provision is
made for the redemption of all Series C Preferred Units at the time outstanding
to the extent such redemption is authorized by this Agreement.
Notwithstanding the preceding paragraph, the General Partner
may amend this Agreement without the Consent of the Partners or the consent of
the holders of the Series C Preferred Units (i) to add to the representations,
duties or obligations of the General Partner; (ii) to cure any ambiguity, to
correct or supplement any provision herein which may be inconsistent with any
other provisions herein, to reflect a change that does not adversely affect any
of the Limited Partners, or to make any other provisions with respect to matters
or questions arising under this Agreement which will not be inconsistent with
the provisions of this Agreement; (iii) to effect or reflect a conversion or
redemption of Preferred Units, Convertible Preferred Units or Series C Preferred
Units pursuant to Section 4.8 hereof; (iv) to reflect the admission,
substitution, termination or withdrawal of Partners in accordance with this
Agreement; (v) to reflect the Transfer of any Partnership Units; (vi) to set
forth the designations, rights, powers, duties and preferences of any holders of
any additional Partnership Interests issued pursuant to Section 4.3 or 4.4
hereof and the modification of the provisions relating to distributions of Net
Cash Flow and allocations of income, loss, gain and deduction resulting
therefrom; and (vii) to satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
XIV.8 Severability.
If any provision of this Agreement, or the application of such provision to
any person or circumstance, shall be held invalid by a court of competent
jurisdiction, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those to which it is held
invalid by such court, shall not be affected thereby.
XIV.9 Trust Provision.
This Agreement, to the extent executed by the trustee of a trust, is
executed by such trustee solely as trustee and not in a separate capacity.
Nothing herein contained shall create any liability on, or require the
performance of any covenant by, any such trustee individually, nor shall
anything contained herein subject the individual personal property of any
trustee to any liability.
XIV.10 Pronouns and Headings.
As used herein, all pronouns shall include the masculine, feminine and
neuter, and all defined terms shall include the singular and plural thereof
wherever the context and facts require such construction. The headings, titles
and subtitles herein are inserted for convenience of reference only and are to
be ignored in any construction of the provisions hereof. Any references in this
Agreement to "including" shall be deemed to mean "including without limitation".
XIV.11 Assurances.
Each of the Partners shall hereafter execute and deliver such further
instruments and do such further acts and things as may be required or useful to
carry out the intent and purpose of this Agreement and as are not inconsistent
with the terms hereof.
XIV.12 Remedies Cumulative.
No remedy herein conferred upon any party is intended to be exclusive of
any other remedy and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. No single or partial exercise by
any party of any right, power or remedy hereunder shall preclude any other or
further exercise thereof.
XIV.13 Construction.
Every covenant, term and provision of this Agreement shall be construed
simply according to its fair meaning and not strictly for or against any
Partner.
XIV.14 Incorporation by Reference.
Every exhibit, schedule and other appendix attached to this Agreement and
referred to herein is hereby incorporated in this Agreement by reference.
XIV.15 Waiver of Action for Partition.
Each of the Partners irrevocably waives any right that it may have to
maintain any action for partition with respect to any of the Partnership's
property.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be executed as of the date and year first
above written. GENERAL PARTNER:
PRIME RETAIL, INC., a Maryland corporation 100 East Pratt Street 19th Floor
Baltimore, Maryland 212022
By: ______________________________
Its: ______________________________
<PAGE>
Personal and Confidential August 6, 1996
Mr. David G. Phillips
Executive Vice President
Prime Retail, L.P.
100 East Pratt Street
19th Floor
Baltimore, MD 21202
RE: Grant of Option
Dear David,
The purpose of this letter is to summarize the terms and conditions of our
agreement to grant you an option to purchase 100,000 limited partnership units
(the "Units") in Prime Retail, L.P. from The Prime Group, Inc. This option to
purchase the Units is subject to the following terms and conditions:
Option Price: $1,200,000 ($12.00 per Unit), payable
in cash at the closing.
Exercise Date: The option must be exercised in writing
on or before December 31, 1999, with a
closing to occur within sixty days
thereafter.
Forfeiture of Option: The option shall be forfeited,
whether or not exercised, in the event
your employment with Prime Retail, Inc.
(the "Company") is voluntarily terminated
by you for any reason, or terminated by
the Company for cause at any time prior
to December 31, 1999.
Early Termination: In the event of your death or a final
determination of permanent disability,
you or your estate shall have sixty (60)
days thereafter to exercise the option,
with a closing to occur sixty (60) days
after the date of exercise. In the event
of a failure to so exercise, the option
shall terminate.
Non-Assignability: This option is being granted in
consideration of your continued and
continuous employment by the Company and
in recognition of your future services
and dedication to the Company. As a
result, this option is exclusive to
you and non-assignable.
Incentive Clause: If at any time prior to December 31,
1999, the market price of the common
stock of the Company (NASDAQ:PRME) equals
or exceeds $25.00 per share, and remains
at said level for no less than ninety
(90) consecutive days, then the option
price shall be reduced by fifty percent
(50.0%).
I believe the foregoing accurately reflects our mutual understanding based on
our meeting last March. If you agree, please acknowledge both copies of this
letter and return one copy to my attention in Chicago.
Very truly yours,
/s/ Michael W. Reschke
Accepted:
By: /s/ David G. Phillips
---------------------
Date: June 27, 1997
---------------------
CC: Robert J. Rudnik
Abraham Rosenthal
William H. Carpenter, Jr.
Alan C. Schroeder
<PAGE>
<TABLE>
PRIME RETAIL, INC.
EXHIBIT 12: COMPUTATION OF RATIO OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND DIVIDENDS
(Amounts in thousands, except for ratio information)
<CAPTION>
Prime Retail, Inc. The Predecessor
----------------------------------------------------- --------------------------
Period from Period from
Year Ended Year Ended Year Ended March 22 to January 1 Year Ended
December 31 December 31 December 31 December 31 to March 21 December 31
----------------------------------------------------------------------------------
1997 1996 1995 1994 1994 1993
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before minority interests and
extraordinary item.................... $ 18,547 $ 6,986 $ 12,806 $ 9,454 $ (2,408) $ (3,873)
Interest incurred........................ 39,078 26,806 22,394 8,491 2,585 9,277
Amortization of capitalized interest..... 343 284 222 152 42 161
Amortization of debt issuance costs...... 2,330 2,407 3,309 2,160 695 362
Amortization of interest rate protection
contracts............................. 1,390 1,383 1,276 797 -- --
Less interest earned on interest rate
protection contracts.................. (115) (201) (721) (224) -- --
Less capitalized interest (3,818) (3,462) (2,675) (1,277) -- (711)
-------- -------- -------- -------- -------- --------
Earnings.............................. 57,755 34,203 36,611 19,553 914 5,216
-------- -------- -------- -------- -------- --------
Interest incurred........................ 39,078 26,806 22,394 8,491 2,585 9,277
Amortization of debt issuance costs...... 2,330 2,407 3,309 2,160 695 362
Amortization of interest rate protection
contracts............................ 1,390 1,383 1,276 797 -- --
Preferred stock distributions and
dividends............................ 12,726 14,236 20,944 16,290 -- --
-------- -------- -------- -------- -------- --------
Combined Fixed Charges and Preferred
Stock Distributions and Dividends.... 55,524 44,832 47,923 27,738 3,280 9,639
-------- -------- -------- -------- -------- --------
Excess of Combined Fixed Charges
and Preferred Stock Distributions
and Dividends over Earnings.......... $ -- $(10,629) $(11,312) $ (8,185) $ (2,366) $ (4,423)
======== ======== ======== ======== ======== ========
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.04 x -- x -- x -- x -- x -- x
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
Subsidiaries of Prime Retail, Inc.
<CAPTION>
State or Jurisdiction of
Incorporation or Organization % Owned<F1>
----------------------------- ----------------
<C> <S> <C> <C>
1. Arizona Factory Shops Limited Partnership Delaware 100
2. Arizona Factory Shops Partnership Arizona 50
3. Bend Factory Outlets Limited Partnership Delaware 100
4. Buckeye Factory Shops Limited Partnership Delaware 100
5. Carolina Factory Shops Limited Partnership Delaware 100
6. Castle Rock Factory Shops Partnership Colorado 100
7. Chesapeake Development Limited Partnership Delaware 100
8. Coral Isle Factory Shops Limited Partnership Delaware 100
9. Factory Outlets at Post Falls Limited Partnership Delaware 100
10. Florida Keys Factory Shops Limited Partnership Illinois 100
11. Gainesville Factory Shops Limited Partnership Illinois 100
12. Grove City Factory Shops Partnership Pennsylvania 100
13. Gulf Coast Factory Shops Limited Partnership Illinois 100
14. Gulfport Factory Shops Limited Partnership Delaware 100
15. Huntley Factory Shops Limited Partnership Illinois 100
16. Indianapolis Factory Shops Limited Partnership Illinois 100
17. Kansas City Factory Shops Limited Partnership Delaware 100
18. Latham Factory Stores Limited Partnership Delaware 100
19. Loveland Factory Shops Limited Partnership Delaware 100
20. Magnolia Bluff Factory Shops Limited Partnership Delaware 100
21. Market Street, Ltd. Tennessee 99
22. Medina Factory Shops Limited Partnership Delaware 100
23. Melrose Place, Ltd. Tennessee 100
24. Naples Factory Shops Limited Partnership Delaware 100
25. Nebraska Crossing Factory Shops Limited Partnership Delaware 100
26. Nebraska Crossing Factory Shops Limited Partnership II Delaware 100
27. Niagara International Factory Outlets Limited Partnership Delaware 100
28. Oak Creek Factory Outlets Limited Partnership Delaware 100
29. Ohio Factory Shops Partnership Ohio 100
30. Outlet Village Mall of St. Louis Limited Partnership, L.L.L.P. Delaware 75
31. Outlet Village of Hagerstown Limited Partnership Delaware 100
32. Outlet Village of Kittery Limited Partnership, L.L.L.P. Delaware 100
33. Outlet Village of Lebanon Limited Partnership Delaware 100
34. Outlet Village of Puerto Rico Limited Partnership Delaware 100
35. Outlet Village of St. Louis Limited Partnership, L.L.L.P. Delaware 100
36. Oxnard Factory Outlet Partners California 50
37. Oxnard Factory Shops Limited Partnership Delaware 100
38. Prime Northgate Plaza Limited Partnership Delaware 100
39. Prime Retail Finance II, Inc. Maryland 100
40. Prime Retail Finance III, Inc. Maryland 100
41. Prime Retail Finance IV, Inc. Maryland 100
42. Prime Retail Finance V, Inc. Maryland 100
43. Prime Retail Finance, Inc. Maryland 100
44. Prime Retail Finance Limited Partnership Delaware 100
45. Prime Retail Services Limited Partnership Delaware 1
46. Prime Retail Services, Inc. Maryland 100<F2>
47. Prime Retail Stores, Inc. Maryland 100<F2>
48. Prime Retail, L.P. Delaware 76<F3>
49. Prime Warehouse Row Limited Partnership Illinois 100
50. San Marcos Factory Stores, Ltd. Texas 100
51. Shasta Outlet Center Limited Partnership Delaware 100
52. Sun Coast Factory Shops Limited Partnership Delaware 100
53. Triangle Factory Stores Limited Partnership Illinois 100
54. Warehouse Row II Limited Partnership Tennessee 65
55. Warehouse Row, Ltd. Tennessee 99
56. Weisgarber Partners, Ltd. Tennessee 100
<FN>
<F1>Reflects collective direct or indirect ownership interests of Prime Retail,
Inc. and Prime Retail, L.P.
<F2>Prime Retail, Inc. owns 100% Preferred Stock.
<F3>Amount of ownership of Common Units.
</FN>
</TABLE>
<PAGE>
EXHIBIT 23 - Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-19505) and in the Registration Statement (Form S-8
No. 333-19491) pertaining to the Prime Retail, Inc. Stock Incentive Plans of our
report dated January 23, 1998 (except for Note 15, as to which the date is
February 1, 1998), with respect to the consolidated financial statements of
Prime Retail, Inc. included in the Annual Report (Form 10-k) for the year ended
December 31, 1997.
Our audits also included the financial statement schedule of Prime
Retail, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion, based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,373
<SECURITIES> 0
<RECEIVABLES> 9,745
<ALLOWANCES> 1,780
<INVENTORY> 0
<CURRENT-ASSETS> 81,434
<PP&E> 904,782
<DEPRECIATION> 82,033
<TOTAL-ASSETS> 904,183
<CURRENT-LIABILITIES> 34,465
<BONDS> 515,265
0
89
<COMMON> 273
<OTHER-SE> 344,166
<TOTAL-LIABILITY-AND-EQUITY> 904,183<F1>
<SALES> 0
<TOTAL-REVENUES> 129,130
<CGS> 0
<TOTAL-COSTS> 110,583
<OTHER-EXPENSES> 3,234
<LOSS-PROVISION> 970
<INTEREST-EXPENSE> 36,122
<INCOME-PRETAX> 7,966
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,966
<DISCONTINUED> 0
<EXTRAORDINARY> (2,061)<F2>
<CHANGES> 0
<NET-INCOME> 5,905
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
<FN>
<F1>Includes minority interests of $9,925.
<F2>Represents an extraordinary loss on early extinguishment of debt.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 20,082 985 23,777
<SECURITIES> 0 0 0
<RECEIVABLES> 7,043 7,424 8,547
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 101,932 82,934 97,068
<PP&E> 687,074 703,619 746,656
<DEPRECIATION> 63,196 69,001 75,147
<TOTAL-ASSETS> 725,810 717,552 768,577
<CURRENT-LIABILITIES> 26,314 25,044 28,231
<BONDS> 534,409 534,439 428,520
0 0 0
53 53 53
<COMMON> 158 158 273
<OTHER-SE> 164,876 157,858 301,700
<TOTAL-LIABILITY-AND-EQUITY> 725,810 717,552 768,577<F1>
<SALES> 0 0 0
<TOTAL-REVENUES> 30,162 61,375 92,924
<CGS> 0 0 0
<TOTAL-COSTS> 26,669 54,299 81,757
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 253 475 748
<INTEREST-EXPENSE> 9,169 18,872 27,951
<INCOME-PRETAX> 902 1,813 3,364
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 902 1,813 3,364
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (2,061)<F2>
<CHANGES> 0 0 0
<NET-INCOME> 902 1,813 1,303
<EPS-PRIMARY> (0.15) (0.29) (0.48)
<EPS-DILUTED> (0.15) (0.29) (0.48)
<FN>
<F1>Includes minority interests of $9,800.
<F2>Represents an extraordinary loss on early extinguishment of debt.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 2,589 4,040 9,602 3,924
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,772 6,588 6,500 6,096
<ALLOWANCES> 0 0 0 1,349
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 36,387 26,452 46,281 83,718
<PP&E> 463,458 482,612 492,317 640,759
<DEPRECIATION> 44,139 48,272 52,525 57,674
<TOTAL-ASSETS> 455,706 460,792 486,073 666,803
<CURRENT-LIABILITIES> 18,885 30,899 26,278 28,071
<BONDS> 306,020 318,777 314,668 499,523
0 0 0 0
93 51 51 51
<COMMON> 29 96 134 134
<OTHER-SE> 119,812 110,539 144,942 139,024
<TOTAL-LIABILITY-AND-EQUITY> 455,706<F1> 460,792<F1> 486,073 666,803
<SALES> 0 0 0 0
<TOTAL-REVENUES> 21,131 41,281 63,112 89,040
<CGS> 0 0 0 0
<TOTAL-COSTS> 18,074 42,174<F2> 59,830<F2> 82,054<F2>
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 224 281 437 710
<INTEREST-EXPENSE> 6,056 12,204 17,343 24,485
<INCOME-PRETAX> 4,534 5,577 7,942 9,078
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 4,534 5,577 7,942 9,078
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 (1,017)<F3> (1,017)<F3> (1,017)<F3>
<CHANGES> 0 0 0 0
<NET-INCOME> 4,534 4,560 6,925 8,061
<EPS-PRIMARY> (0.24) (1.22) (0.67) (0.75)
<EPS-DILUTED> (0.24) (1.22) (0.67) (0.75)
<FN>
<F1>Includes minority interests of $10,867 and $430 at March 31 and June 30,
1996, respectively.
<F2>Includes a nonrecurring charge of $6,131 related to a binding loan
commitment that the Company obtained on June 5, 1996.
<F3>Represents an extraordinary loss (net of minority interest in the amount of
$3,263) on early extinguishment of debt.
</FN>
</TABLE>
