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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, 1998
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 38-2559212
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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
10.5% Series A Cumulative Preferred 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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None
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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 $352,327,153 on February 23, 1999 (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 February
23, 1999 was 43,032,324.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the registrant are incorporated herein by
reference:
Document
Proxy Statement for the 1999 annual meeting of
shareholders Part III of Form 10-K
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PRIME RETAIL, INC.
Form 10-K
December 31, 1998
TABLE OF CONTENTS
Part I Page
Item 1. Business.........................................................1
Item 2. Properties.......................................................8
Item 3. Legal Proceedings...............................................14
Item 4. Submission of Matters to a Vote of Security Holders.............14
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.........................................................15
Item 6. Selected Financial Data.........................................16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................18
Item 7A. Quantitative and Qualitative Disclosures About Material Risk....32
Item 8. Financial Statements and Supplementary Data.....................32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................32
Part III
Item 10. Directors and Executive Officers of the Registrant..............33
Item 11. Executive Compensation..........................................33
Item 12. Security Ownership of Certain Beneficial Owners and Management..33
Item 13. Certain Relationships and Related Transactions..................33
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................33
Signatures......................................................38
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PART I
ITEM 1 - BUSINESS
The Company
Prime Retail, Inc. (including its predecessors, collectively, 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") and operates primarily
within one business segment. 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 50 manufacturers' outlet centers
and three community shopping centers (the "Properties") with a total of
14,348,000 and 424,000 square feet of gross leasable area ("GLA") at December
31, 1998, 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, including its predecessors, and those entities owned or
controlled by the Company.
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 is not 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 manufacturers'
outlet centers throughout the United States. Manufacturers' 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 70% below regular
department and specialty store prices.
Since entering the manufacturers' outlet center business in 1988 (through
the retail division of The Prime Group, Inc. ("PGI"), from which the Company
acquired certain Properties and management and development operations), the
Company has become the leading developer and operator in the industry having
successfully developed or acquired outlet centers containing 14,348,000 square
feet of GLA at December 31, 1998, including 22 manufacturers' outlet centers
containing 6,626,000 square feet of GLA that was added to our portfolio in
connection with the Company's June 1998 merger with Horizon Group, Inc. The
Company also developed and opened 931,000 square feet of GLA during 1998.
The Company pursues acquisition and development strategies designed to take
advantage of growth opportunities in the manufacturers' 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.
The average manufacturers' outlet center in the Company's portfolio
contains 286,960 square feet of GLA at December 31, 1998, compared to an
industry average of approximately 190,168 square feet as reported in February
1999 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 the Company.
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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 manufacturers' outlet centers.
The Company's manufacturers' 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, 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 Barbizon
and Vanity Fair). As a group, the foregoing merchants accounted for
approximately 27.38% of the gross revenues of the Company during the year ended
December 31, 1998, and occupied approximately 31.87% of the total leased GLA
contained in the Company's manufacturers' outlet centers at December 31, 1998.
During the year ended December 31, 1998, no group of merchants under common
control accounted for more than 4.84% of the gross revenues of the Company or
occupied more than 5.66% of the total leased GLA of the Company at December 31,
1998.
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 manufacturers' outlet
centers through the active management and expansion of existing manufacturers'
outlet centers and the selective acquisition and development of manufacturers'
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 manufacturers' 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 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:
o Planned Development of New Manufacturers' Outlet Centers. The
Company develops new manufacturers' 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 September 1998, the Company
commenced construction on Prime Outlets of Puerto Rico located in
Barceloneta. Prime Outlets of Puerto Rico, which will contain approximately
175,000 square feet of GLA, has a total expected development cost of
approximately $33,700,000 and is expected to open in the fourth quarter of
1999. Management believes that there is sufficient demand for continued
development of new manufacturers' outlet centers and the expansion of
existing outlet centers.
o Strategic Expansions of Existing Centers. The Company selectively
expands its existing manufacturers' 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 380,000 square feet of GLA during
1999 in connection with planned expansions of existing centers. As of
February 28, 1999, the Company owned, or held under long-term lease, land
contiguous to its outlet centers to construct additional phases totaling
approximately 2,000,000 square feet of GLA. The Company also holds options
to purchase property adjoining its existing manufacturers' outlet centers
upon which additional expansions could be constructed.
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o 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.
o Acquisition of Existing Outlet Centers. The Company explores
opportunities to acquire manufacturers' 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.
o Branding. During 1998, the Company adopted a branding strategy to
create customer awareness and loyalty, to generate brand equity that will
translate into a price premium for its leased space and to create the
opportunity for product extensions. The Company has renamed all of its
manufacturers' outlet centers and replaced its signage with the "Prime
Outlets at..." brand name. All promotion and marketing activities refer to
the "Prime Outlets at..." brand name. In December 1998, as part of its
branding strategy, the Company entered into an exclusive marketing
partnership agreement with Coca-Cola USA. The Company intends to build
Prime Outlets into a widely recognized brand associated with quality,
selection, value and fun. Creating strategic alliances with brands like
Coca-Cola will create superior value for our customers, merchants and
shareholders. The Company intends to seek relationships with other national
and global companies, such as those in the lodging, entertainment,
financial services, automobile and tourism industries.
o Innovative Marketing and Promotion. The Company continuously seeks
to increase the sales performance of each manufacturers' outlet center and
markets its manufacturers' outlet centers with promotional materials and
advertising strategies that target and attract customers. Substantially all
manufacturers' outlet centers have an experienced marketing director who
creates and administers retail marketing strategies that are designed to
highlight each manufacturers' 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.
o Joint Venture Development Opportunities in Western Europe. The
Company is pursuing opportunities to develop manufacturers' outlet centers
in Western Europe. In order to take advantage of local market expertise and
reduce its financial exposure, the Company intends to pursue development
projects in Western Europe through joint ventures with European partners.
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 generally 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.
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Because a number 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. As of
December 31, 1998, 13 projects in the Company's portfolio are located within
approximately 12 miles of competing manufacturers' outlet centers and,
therefore, are subject to existing 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 manufacturers'
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, 1998, the Company had 1,095 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,
1998, ages of the executive officers of the Company:
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Name Position Age
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Michael W. Reschke Chairman of the Board, Director 43
Abraham Rosenthal Chief Executive Officer, Director 49
William H. Carpenter, Jr. President and Chief Operating Officer, Director 47
Glenn D. Reschke Executive Vice President - Development 47
and Acquisitions, Director
Robert P. Mulreaney Executive Vice President - Chief Financial 40
Officer and Treasurer
David G. Phillips Executive Vice President - Operations and Marketing 37
C. Alan Schroeder Executive Vice President - General Counsel 41
and Secretary
R. Bruce Armiger Senior Vice President - Development
and Construction Management Services 53
Steven S. Gothelf Senior Vice President - Finance 38
Anya T. Harris Senior Vice President - Marketing and Communications 32
John S. Mastin Senior Vice President - Leasing 52
Frederick J. Meno Senior Vice President - Operations 41
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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 17 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 Horizon Group Properties, Inc. (NASD:HGPI), a real estate
investment trust engaged in the ownership, operation, acquisition and renovation
of distressed real estate assets including the outlet centers spun-off by the
Company following its merger with Horizon Group, Inc. in June of 1998. 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 Prime's inception. 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, new business
development, investor relations, capital markets, financing, site selection,
pre-development activities and building designs. Mr. Rosenthal has been involved
in retail design and development for the past 25 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
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National Council of Architectural Registration Board. Mr. Rosenthal is a full
member of the Urban Land Institute, the International Council of Shopping
Centers ("ICSC") and the National Realty Committee and the 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 the Baltimore's Downtown Partnership. Mr. Rosenthal is
also a board member of Sinai Hospital and Bryn Mawr School. Mr. Rosenthal was
the recipient 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 Prime's inception.
Mr. Carpenter joined PGI in 1988, serving as Senior Vice President and,
immediately prior to joining Prime, as Executive Vice President. Mr. Carpenter's
responsibilities with Prime include leasing, marketing, operations and
management, development, and construction for Prime'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 outlet projects
throughout the United States. Mr. Carpenter attended the University of Baltimore
and is a member of ICSC, a member of Developers of Outlet Centers, and a full
member of the Urban Land Institute. Mr. Carpenter sits on the ICSC/VRN Executive
Committee and also sits on the Board for Severn School. Mr. Carpenter was the
recipient of the 1995 Entrepreneur of the Year Award for Maryland Real Estate.
Glenn D. Reschke. Glenn D. Reschke is Executive Vice President -
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 oversees the Company's
development efforts in Western Europe. 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 previously included 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. 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. Mr. Schroeder has been General Counsel and
Secretary of the Company since the initial public offering of stock in the
Company in 1994. From 1990 to 1994, Mr. Schroeder was an Assistant General
Counsel of PGI and was responsible for legal matters relating to the retail
division of PGI. Prior to joining PGI, Mr. Schroeder was associated for four
years with Hopkins & Sutter, a Chicago, Illinois based law firm. 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
<PAGE>
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.
Frederick J. Meno Frederick J. Meno is Senior Vice President - Operations
of Prime Retail, where he is responsible for supervising the management,
operations and temporary leasing for Prime's nationwide portfolio of outlet
centers. Prior to joining Prime, Mr. Meno was Executive Director of
Insignia/ESG, Inc., where he was responsible for all management, leasing, and
business development activities for Insignia/ESG's 10 million square foot
national enclosed mall portfolio, as well as Insignia/ESG's Dallas/Fort Worth
office, industrial and non-enclosed retail portfolio. For 10 years prior to
joining Insignia/ESG, Inc., Mr. Meno was President of the Woodmont Property
management Company in Fort Worth, Texas. A 1979 graduate of Ohio State
University, having majored in Urban Land Development and Economics with a degree
in Business Administration, Mr. Meno is a member of the Institute of Real Estate
Management and the ICSC. Mr. Meno has achieved the designations of Certified
Property Manager, Real Property Administrator and Certified Shopping Manager and
is a licensed Real Estate Salesman in the State of Texas.
<PAGE>
ITEM 2 - PROPERTIES
General
The Company's strategy is to build on its reputation and experience in the
manufacturers' outlet center business and to capitalize on the current trend in
value-oriented retailing through the selective acquisition and development of
manufacturers' outlet centers and the strategic expansion of its existing
manufacturers' 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,
1998, the Company's portfolio consisted of (i) 50 manufacturers' outlet centers
aggregating 14,348,000 square feet of GLA (including 474,000 square feet of GLA
at manufacturers' 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, 1998 (see "Note 6 - 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, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Kittery - Kittery Maine.............................. I April 1984 25,000 100%
II May 1984 78,000 99
III August 1989 18,000 99
IV May 1998 10,000 100
------- ---
131,000 99
Prime Outlets at Fremont (2) - Fremont, Indiana........................ I October 1985 118,000 100
II November 1993 51,000 100
III October 1994 60,000 100
------- ---
229,000 100
Prime Outlets at Birch Run (2) - Birch Run, Michigan................... I-XVI Various 591,000 99
XVII 1997 15,000 99
XVIII 1997 118,000 100
------- ---
724,000 99
Prime Outlets at Latham - Latham, New York............................. I August 1987 43,000 98
Prime Outlets at Michigan City (2) - Michigan City, Indiana............ I November 1987 199,000 100
II May 1988 130,000 99
III July 1991 36,000 90
IV July 1994 42,000 93
V December 1994 26,000 98
VI May 1995 58,000 99
------- ---
491,000 98
Prime Outlets at Williamsburg (2) - Williamsburg, Virginia............. I April 1988 67,000 99
II November 1988 60,000 100
III October 1990 49,000 100
IV 1995 98,000 97
------- ---
274,000 99
Prime Outlets at Kenosha (2) - Kenosha, Wisconsin...................... I September 1988 89,000 100
II July 1989 65,000 97
III May 1990 115,000 97
------- ---
269,000 98
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
December 31, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Silverthorne (2) - Silverthorne, Colorado............. I November 1988 95,000 94%
II November 1990 75,000 100
III November 1993 88,000 94
------- ---
258,000 96
Prime Outlets at Edinburgh (2) - Edinburgh, Indiana.................... I 1988 156,000 100
II November 1994 142,000 100
------- ---
298,000 100
Prime Outlets at Burlington (2) - Burlington, Washington .............. I May 1989 89,000 100
II October 1989 36,000 100
III April 1993 49,000 100
------- ---
174,000 100
Prime Outlets at Queenstown (2) - Queenstown, Maryland................. I June 1989 67,000 100
II June 1990 55,000 99
III January 1991 16,000 97
IV June 1992 14,000 97
V August 1993 69,000 100
------- ---
221,000 99
Prime Outlets at Hillsboro (2) - Hillsboro, Texas...................... I October 1989 95,000 100
II January 1992 101,000 100
III May 1995 163,000 100
------- ---
359,000 100
Prime Outlets at Oshkosh (2) - Oshkosh, Wisconsin...................... I November 1989 215,000 95
II July 1991 45,000 99
------- ---
260,000 96
Prime Outlets at Warehouse Row (3) - Chattanooga, Tennessee............ I November 1989 95,000 95
II August 1993 26,000 94
------- ---
121,000 95
Prime Outlets at Gilroy (2) - Gilroy, California....................... I January 1990 94,000 100
II August 1991 109,000 100
III October 1992 137,000 97
IV July 1994 170,000 99
V November 1995 69,000 100
------- ---
579,000 99
Prime Outlets at Perryville (2) - Perryville, Maryland................. I June 1990 148,000 96
Prime Outlets at Sedona - Sedona, Arizona ............................. I August 1990 82,000 97
Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 99
II August 1991 70,000 100
III August 1993 117,000 100
IIIB November 1994 20,000 91
IIIC November 1995 35,000 100
IIID May 1998 18,000 100
------- ---
437,000 99
Prime Outlets at Anderson - Anderson, California....................... I August 1990 165,000 98
Prime Outlets at Post Falls - Post Falls, Idaho ....................... I July 1991 111,000 82
II July 1992 68,000 85
------- ---
179,000 83
Prime Outlets at Ellenton - Ellenton, Florida.......................... I October 1991 187,000 94
II August 1993 123,000 100
III October 1996 30,000 100
IV November 1998 141,000 89
------- ---
481,000 94
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
December 31, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Grand GLA Percentage
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 100%
II July 1996 6,000 100
------- ---
187,000 100
Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 98
II December 1992 32,000 100
III March 1998 20,000 98
------- ---
146,000 98
Prime Outlets at Conroe (2) - Conroe, Texas............................ I January 1992 93,000 95
II June 1994 163,000 98
III October 1994 26,000 87
------- ---
282,000 96
Prime Outlets at Niagara Falls USA - Niagara Falls, New York........... I July 1992 300,000 100
II August 1995 234,000 89
------- ---
534,000 95
Prime Outlets at Woodbury (2) - Woodbury, Minnesota.................... I July 1992 129,000 93
II November 1993 100,000 93
III August 1994 21,000 100
------- ---
250,000 94
Prime Outlets at Calhoun (2) - Calhoun, Georgia........................ I October 1992 123,000 95
II October 1995 131,000 98
------- ---
254,000 96
Prime Outlets at Castle Rock - Castle Rock, Colorado................... I November 1992 181,000 99
II August 1993 94,000 94
III November 1993 95,000 97
IV August 1997 110,000 100
------- ---
480,000 98
Prime Outlets at Bend - Bend, Oregon................................... I December 1992 97,000 97
II September 1998 35,000 99
------- ---
132,000 97
Prime Outlets at Jeffersonville II (2) - Jeffersonville, Ohio.......... I March 1993 126,000 82
II August 1993 123,000 67
III October 1994 65,000 100
------- ---
314,000 80
Prime Outlets at Jeffersonville I - Jeffersonville, Ohio............... I July 1993 186,000 100
II November 1993 100,000 100
IIB November 1994 13,000 82
IIIA August 1996 35,000 100
IIIB March 1997 73,000 97
------- ---
407,000 99
Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 89
II November 1994 106,000 100
------- ---
316,000 93
Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 98
II November 1994 50,000 100
III May 1995 114,000 98
IV May 1996 25,000 100
------- ---
328,000 98
Prime Outlets at Oxnard (4) - Oxnard, California....................... I June 1994 148,000 92
</TABLE>
<PAGE>
<TABLE>
Portfolio of Properties (continued)
December 31, 1998
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturers' Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Outlets at Grove City - Grove City, Pennsylvania................. I August 1994 235,000 100%
II November 1994 95,000 100
III November 1995 85,000 99
IV November 1996 118,000 99
------- ---
533,000 100
Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 98
II November 1995 90,000 91
------- ---
282,000 96
Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 94
Prime Outlets at Pismo Beach (2) - Pismo Beach, California............. I November 1994 148,000 100
Prime Outlets at Tracy (2) - Tracy, California........................ I November 1994 153,000 100
Prime Outlets at Vero Beach (2) - Vero Beach, Florida.................. I November 1994 210,000 99
II August 1995 116,000 94
------- ---
326,000 97
Prime Outlets at Waterloo (2) - Waterloo, New York..................... I March 1995 208,000 100
II September 1996 115,000 100
III April 1997 68,000 100
------- ---
391,000 100
Prime Outlets at Odessa - Odessa, Missouri............................. I July 1995 191,000 96
II November 1996 105,000 58
------- ---
296,000 83
Prime Outlets at Darien (5) - Darien, Georgia.......................... I July 1995 238,000 87
IIA November 1995 49,000 99
IIB July 1996 20,000 100
------- ---
307,000 90
Prime Outlets at New River (4) - Phoenix, Arizona...................... I September 1995 217,000 96
II September 1996 109,000 94
------- ---
326,000 95
Prime Outlets at Gulfport (6) - Gulfport, Mississippi.................. I November 1995 228,000 98
IIA November 1996 40,000 100
IIB November 1997 38,000 95
------- ---
306,000 98
Prime Outlets at Lodi - Burbank, Ohio.................................. I November 1996 205,000 97
IIA May 1998 33,000 92
IIB November 1998 75,000 74
------- ---
313,000 91
Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 99
II July 1998 70,000 85
------- ---
305,000 96
Prime Outlets at Lee (2) - Lee, Massachusetts.......................... I June 1997 224,000 100
Prime Outlets at Lebanon - Lebanon, Tennessee......................... I April 1998 208,000 98
Prime Outlets at Hagerstown - Hagerstown, Maryland..................... I August 1998 218,000 98
II November 1998 103,000 84
------- ---
321,000 93
------- ---
Total Manufacturers' Outlet Centers (7) 14,348,000 96%
========== ==
====================================================================================================================================
</TABLE>
Notes:
(1) Percentage reflects fully executed leases as of December 31, 1998 as a
percent of square feet of GLA.
(2) The Company acquired this manufacturers' outlet center on June 15, 1998 as
a result of its merger with Horizon Group, Inc.
(3) 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
<PAGE>
159,000 square feet is not included in this table and such space was 74%
leased as of December 31, 1998.
(4) The Company owns 50% of this manufacturers' outlet center in a joint
venture partnership with an unrelated third party.
(5) The Company operates this manufacturers' outlet center pursuant to a
long-term ground lease under which the Company receives the economic
benefit of a 100% ownership interest.
(6) The real property on which this outlet center is located is subject to a
long-term ground lease.
(7) The Company also owns three community centers not included in this table
containing 424,000 square feet of GLA in the aggregate that were 88% leased
as of December 31, 1998.
As of February 28, 1999, the Company owned, or held under long-term leases,
land contiguous to its outlet centers to construct additional phases totaling
approximately 2,000,000 square feet of GLA. The Company also holds options to
purchase property adjoining its existing manufacturers' 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.
The following table sets forth, as of December 31, 1998, tenant lease
expirations for the next 10 years at the Company's manufacturers' outlet centers
(assuming that none of the tenants exercise any renewal option and including
leases at manufacturers' outlet centers owned through joint venture
partnerships):
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Expirations - Outlet Centers
<CAPTION>
% 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>
1999 444 1,450,893 $19,882,733 10.19%
2000 674 2,326,253 35,642,961 18.27
2001 653 2,354,139 36,087,572 18.50
2002 575 2,071,812 33,889,303 17.38
2003 564 2,329,036 36,239,319 18.58
2004 176 910,425 13,870,278 7.11
2005 102 665,466 8,884,674 4.56
2006 47 360,808 4,079,233 2.09
2007 27 157,322 1,847,793 0.95
2008 32 179,086 2,744,474 1.41
====================================================================================================================================
</TABLE>
Tenants
In management's view, 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, 1998, no group of tenants under common
control accounted for more than 4.84% of the gross revenues of the Company or
occupied more than 5.66% of the total GLA of the Company.
<PAGE>
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 following list includes some of the lead tenants in the Company's
outlet centers based on leases executed as of December 31, 1998:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER OF % OF LEASED
TENANT STORES GLA
- ------ --------- --------------
<S> <C> <C>
PHILLIPS-VAN HEUSEN
BASS ............................................................................. 48 2.53%
VAN HEUSEN ....................................................................... 47 1.50
GEOFFREY BEENE ................................................................... 32 1.02
IZOD ............................................................................. 28 0.46
GANT ............................................................................. 7 0.15
--- ----
SUBTOTAL PHILLIPS-VAN HEUSEN................................................... 162 5.66
CASUAL CORNER GROUP, INC.
CASUAL CORNER OUTLET.............................................................. 35 1.48
BANISTER SHOE .................................................................... 16 0.42
PETITE SOPHISTICATE .............................................................. 21 0.40
EASY SPIRIT....................................................................... 13 0.29
CASUAL CORNER WOMAN............................................................... 12 0.28
--- ----
SUBTOTAL CASUAL CORNER GROUP, INC. ............................................ 97 2.87
DRESS BARN, INC.
WESTPORT, LTD./WESTPORT WOMAN/DRESS BARN.......................................... 48 2.50
SBX............................................................................... 2 0.07
--- ----
SUBTOTAL DRESS BARN, INC....................................................... 50 2.57
NIKE................................................................................... 27 2.47
LEVI'S/DOCKERS......................................................................... 34 2.43
LIZ CLAIBORNE/ELISABETH................................................................ 34 2.20
MIKASA................................................................................. 37 2.17
SARA LEE
L'EGGS/HANES/BALI/PLAYTEX.......................................................... 41 1.40
COACH.............................................................................. 17 0.37
CHAMPION........................................................................... 9 0.21
SOCKS GALORE....................................................................... 14 0.13
--- ----
SUBTOTAL SARA LEE.............................................................. 81 2.11
GAP/OLD NAVY........................................................................... 29 2.08
BROWN GROUP RETAIL, INC.
FACTORY BRAND SHOES............................................................... 33 1.29
NATURALIZER....................................................................... 26 0.52
FAMOUS FOOTWEAR................................................................... 6 0.25
--- ----
SUBTOTAL BROWN GROUP........................................................... 65 2.06
REEBOK/ROCKPORT........................................................................ 26 1.70
BUGLE BOY.............................................................................. 41 1.70
JONES NEW YORK......................................................................... 63 1.66
SPIEGEL................................................................................ 8 1.66
VANITY FAIR/LEE/WRANGLER/BARBIZON...................................................... 9 1.62
OSHKOSH B'GOSH/GENUINE KIDS............................................................ 37 1.41
POLO/RALPH LAUREN...................................................................... 27 1.39
CORNING-REVERE......................................................................... 36 1.32
CARTERS................................................................................ 33 1.21
SPRINGMAID-WAMSUTTA.................................................................... 22 1.20
EDDIE BAUER............................................................................ 19 1.14
</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER OF % OF LEASED
TENANT STORES GLA
- ------ --------- --------------
<S> <C> <C>
LONDON FOG............................................................................. 30 1.08%
FAMOUS BRANDS HOUSEWARES............................................................... 38 1.07
OFF 5TH-SAKS FIFTH AVENUE.............................................................. 7 1.07
SAMSONITE/AMERICAN TOURISTER........................................................... 42 0.98
NINE WEST.............................................................................. 47 0.90
BIG DOG SPORTSWEAR..................................................................... 38 0.86
J. CREW................................................................................ 17 0.84
ANN TAYLOR............................................................................. 15 0.83
JOCKEY................................................................................. 29 0.79
BROOKS BROTHERS........................................................................ 19 0.79
TOMMY HILFIGER/WOMAN/JEANS............................................................. 26 0.71
NAUTICA................................................................................ 21 0.59
BOSE................................................................................... 15 0.45
DONNA KARAN............................................................................ 13 0.42
SONY................................................................................... 7 0.31
CALVIN KLEIN........................................................................... 6 0.28
----- -----
TOTAL.................................................................................. 1,307 54.60%
===== =====
====================================================================================================================================
</TABLE>
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, 1998, total bad debt expense was approximately $1,387 or
0.6% of total revenues. The Company has not lost any material revenue related to
tenant bankruptcies or other lease defaults.
ITEM 3 - 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 the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
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, 1998.
<PAGE>
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".
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>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------------- ----------------------------------------------------
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.................. $11.13 $12.81 $15.19 $15.56 $16.50 $15.63 $13.63 $13.38
Low................... 7.50 9.06 11.81 13.75 13.31 13.13 11.88 12.00
End of period close... 9.81 9.81 11.94 14.94 14.19 15.63 13.44 13.00
Cash dividends paid per
common share.......... $0.295 $0.295 $0.795 (1) $0.295 $0.295 $0.295 $0.295 $0.295
====================================================================================================================================
</TABLE>
Note:
(1) Includes a special cash distribution of $0.50 per common share
relating to the Company's merger with Horizon completed in June 1998 (see
Note 3 - "Acquisitions and Dispositions" of the Notes to Consolidated
Financial Statements).
Instruments governing the Company's indebtedness contain certain covenants
restricting the payment of dividends (see Note 6 - "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 860
including participants in security position listings as of February 23, 1999.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
(Amounts in thousands, except per share and per unit amounts)
<TABLE>
<CAPTION>
Prime Retail
Properties
Prime Retail, Inc. (Combined)
-------------------------------------------------------------------------- --------------
Year ended December 31 Period from March 21,
--------------------------------------------------------- March 22 to January 1 to
December 31, March 21,
1998 1997 1996 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Base rents............................... $ 148,376 $ 78,046 $ 54,710 $ 46,368 $ 28,657 $ 3,670
Percentage rents......................... 6,384 3,277 1,987 1,520 1,404 187
Tenant reimbursements.................... 67,152 37,519 25,254 22,283 11,858 2,113
Interest and other....................... 11,063 10,288 7,089 7,227 3,450 360
---------- --------- --------- --------- --------- ------------
Total revenues................ 232,975 129,130 89,040 77,398 45,369 6,330
Expense
Property operating....................... 52,684 29,492 20,421 17,389 9,952 1,927
Real estate taxes........................ 16,705 9,417 5,288 4,977 2,462 497
Depreciation and amortization............ 52,959 26,715 19,256 15,438 9,803 2,173
Corporate general and administrative..... 7,980 5,603 4,018 3,878 2,710
Interest................................. 60,704 36,122 24,485 20,821 9,485 3,280
Property management fees................. - - - - - 299
Other charges............................ 6,496 3,234 8,586 2,089 1,503 562
---------- --------- --------- --------- -------- ------------
Total expenses................ 197,528 110,583 82,054 64,592 35,915 8,738
---------- --------- --------- --------- --------- ------------
Income (loss) before loss on sale of real
estate, minority interests and
extraordinary item.................... 35,447 18,547 6,986 12,806 9,454 (2,408)
Loss on sale of real estate.............. (15,461) - - - - -
---------- --------- --------- --------- --------- -----------
Income (loss) before minority interests
and extraordinary item................ 19,986 18,547 6,986 12,806 9,454 (2,408)
(Income) loss allocated to minority
interests............................. (2,456) (10,581) 2,092 5,364 5,204 -
---------- --------- --------- --------- --------- -----------
Income (loss) before extraordinary item.. 17,530 7,966 9,078 18,170 14,658 (2,408)
Extraordinary item....................... - (2,061) (1,017) - - -
---------- --------- --------- --------- ---------- -----------
Net income (loss)......................... 17,530 5,905 8,061 18,170 14,658 $ (2,408)
Income allocated to preferred shareholders 24,604 12,726 14,236 20,944 16,290 ===========
---------- --------- --------- --------- ----------
Net loss applicable to common shares..... $ (7,074) $ (6,821) $ (6,175) $ (2,774) $ (1,632)
========== ========= ========== ========= ==========
Net loss per common share-basic and
diluted............................... $ ( 0.20) $ (0. 36) $ ( 0.75) $ ( 0.96) $ ( 0.57)
========== ========= ========== ========= ==========
Other Data
Funds from operations (1)................ $ 88,953 $ 46,718 $ 27,637 $ 27,996 $ 21,476 $ 139
Net cash provided by (used in) operating
activities............................ $ 61,335 $ 49,856 $ 45,191 $ 36,399 $ 17,458 $ (1,873)
Net cash used in investing activities.... $ (145,596) $ (229,956) $ (232,290) $ (81,978) $ (149,435) $ (1,239)
Net cash provided by financing activities $ 83,653 $ 182,549 $ 176,096 $ 57,547 $ 134,936 $ 4,087
Distributions declared per common share.. $ 1.68(2) $ 1.18 $ 1.33(3) $ 1.18 $ 0.623 $ -
Reported merchant sales.................. $3,169,268 $1,434,163 $1,044,348 $ 809,623 $ 497,624 $ 73,553
Total manufacturers' outlet GLA at end of
period (4)............................ 14,348 7,217 5,780 4,331 3,382 1,839
Number of manufacturers' outlet centers
at end of period (4).................. 50 28 21 17 14 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Prime Retail
Properties
Prime Retail, Inc. (Combined)
------------------------------------------------------------------------- ---------------
Year ended December 31 Period from March 21,
--------------------------------------------------------- March 22 to January 1 to
December 31, March 21,
1998 1997 1996 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Rental property (before accumulated
depreciation)......................... $2,015,722 $904,782 $640,759 $454,480 $376,181 $180,170
Net investment in rental property........ 1,887,975 822,749 583,085 414,290 349,513 164,159
Total assets............................. 1,976,464 904,183 666,803 462,405 385,930 186,034
Bonds and notes payable.................. 1,217,507 515,265 499,523 305,954 214,025 188,378
Total liabilities and minority interests. 1,332,730 559,655 527,594 340,921 258,279 198,244
Shareholders' equity (deficit)........... 643,734 344,528 139,209 121,484 127,651 (12,210)
====================================================================================================================================
</TABLE>
Notes:
(1) 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 believes that FFO is an important and
widely accepted measure of the operating performance of REITs which
provides a relevant basis for comparison to other REITs. Therefore, FFO is
presented to assist investors in analyzing the performance of the Company.
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. Although the Company has adopted the NAREIT definition
of FFO, 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. 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 allocations to minority interests
and preferred shareholders to FFO is as follows:
<PAGE>
<TABLE>
<CAPTION>
Prime Retail
Properties
Prime Retail, Inc. (Combined)
-------------------------------------------------------------------------- --------------
Year ended December 31 Period from March 21,
--------------------------------------------------------- March 22 to January 1 to
December 31, March 21,
1998 1997 1996 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before allocations
to minority interests and
preferred shareholders............. $19,986 $ 18,547 $ 6,986(i) $ 12,806 $ 9,454 $(2,408)
FFO adjustments:
Loss on sale of real estate........... 15,461 - - - - -
Real estate depreciation and
amortization....................... 52,295 26,413 18,703 14,884 9,508 2,173
Unconsolidated joint venture
adjustments (ii)................... 1,211 1,758 1,948 306 2,514 374
FFO before allocations to minority ------- -------- ------- -------- -------- -------
minority interests and
preferred shareholders............. $ 88,953 $ 46,718 $27,637 $ 27,996 $ 21,476 $ 139
======== ========= ======= ======== ======== =======
shareholders..........................
==================================================================================================================================
</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 $400, $162 and $2,538 for the years ended December 31, 1996
and 1995 and for the period from March 22, 1994 to December 31, 1994,
respectively.
(2) Includes a special cash distribution of $0.50 per common share relating to
the Company's merger with Horizon completed in June 1998 (see Note 3 -
"Acquisitions and Dispositions" of the Notes to Consolidated Financial
Statements).
(3) Includes a special cash distribution of $0.145 per common share relating to
the Company's exchange offer completed in June 1996.
(4) Includes manufacturers' outlet centers operated under joint venture
partnerships with unrelated third parties as follows:
<TABLE>
<CAPTION>
Prime Retail
Properties
Prime Retail, Inc. (Combined)
------------------------------------------------------------------------------- -----------------
December 31
------------------------------------------------------------------------------- March 21,
1998 1997 1996 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate GLA............................ 595 595 800 901 599 121
Number of manufacturers' outlet
centers.................................. 3 3 4 4 3 1
====================================================================================================================================
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands, except per share, per 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. (including
predecessors, collectively, 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" contains 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. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially. 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 acquisitions, 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 the
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 levels; risks associated with real estate ownership, such as
the potential adverse impact of changes in local economic climate on the
revenues and the value of the Company's properties; and risks associated with
the impact of the Year 2000 issue on the processing of date-sensitive
information by the Company's computerized information systems as well as those
of the Company's tenants and vendors.
Merger with Horizon Group, Inc.
On June 15, 1998, the merger and other transactions (collectively, the
"Merger Transactions") between the Company and Horizon Group, Inc. ("Horizon")
were consummated for an aggregate consideration of $1,134,682, including
liabilities assumed and related transaction costs. The merger has been accounted
for using the purchase method of accounting and the purchase price of $1,134,682
was allocated to the assets acquired and the liabilities assumed based on
estimates of their respective fair values. Accordingly, the operating results of
the 22 properties acquired from Horizon have been included in the Company's
consolidated results of operations commencing on June 15, 1998. See "Liquidity
and Capital Resources - Business Combination" for further information.
Portfolio Growth
The Company has grown by developing and acquiring manufacturers' outlet
centers and expanding its existing manufacturers' outlet centers. The Company's
manufacturers' outlet portfolio consisted of 50 manufacturers' outlet centers
totaling 14,348,000 square feet of gross leasable area ("GLA") at December 31,
1998, compared to 28 manufacturers' outlet centers totaling 7,217,000 square
feet of GLA at December 31, 1997 and 21 manufacturers' outlet centers totaling
5,780,000 square feet of GLA at December 31, 1996.
During 1998, the Company opened two new manufacturers' outlet centers and
added nine expansions to existing manufacturers' outlet centers totaling 931,000
square feet of GLA in the aggregate. In connection with the Merger Transactions,
the Company (i) acquired and integrated 22 of Horizon's manufacturers' outlet
centers into its existing portfolio adding 6,626,000 square feet of GLA in the
aggregate and (ii) sold two manufacturers' outlet centers to Horizon Group
Properties, Inc. ("HGP") totaling 426,000 square feet of GLA.
<PAGE>
During 1997, the Company purchased seven manufacturers' outlet centers
totaling 1,221,000 square feet of GLA and opened expansions to existing
manufacturers' outlet centers totaling 224,000 square feet of GLA. Additionally,
on September 2, 1997 the Company acquired its joint venture partner's 25%
ownership interest in Buckeye Factory Shops Limited Partnership ("Buckeye") and
now owns 100% of Prime Outlets at Lodi. The significant increases in the number
of the Company's operating properties and total GLA during 1998 and 1997 are
referred to as the "Portfolio Expansion and the Horizon Merger" and the
"Portfolio Expansion", respectively.
Results of Operations
<TABLE>
Table 1-Consolidated Statements of Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Base rents.............................................................................. $ 148,376 $ 78,046 $ 54,710
Percentage rents........................................................................ 6,384 3,277 1,987
Tenant reimbursements................................................................... 67,152 37,519 25,254
Interest and other...................................................................... 11,063 10,288 7,089
--------- -------- -------
Total revenues........................................................................ 232,975 129,130 89,040
Expenses
Property operating...................................................................... 52,684 29,492 20,421
Real estate taxes....................................................................... 16,705 9,417 5,288
Depreciation and amortization........................................................... 52,959 26,715 19,256
Corporate general and administrative.................................................... 7,980 5,603 4,018
Interest................................................................................ 60,704 36,122 24,485
Other charges........................................................................... 6,496 3,234 8,586
--------- -------- -------
Total expenses....................................................................... 197,528 110,583 82,054
Income before loss on sale of real estate, minority interests
and extraordinary item................................................................ 35,447 18,547 6,986
Loss on sale of real estate............................................................. (15,461) - -
--------- -------- -------
Income before minority interests and extraordinary item................................. 19,986 18,547 6,986
(Income) loss allocated to minority interests........................................... (2,456) (10,581) 2,092
--------- -------- -------
Income before extraordinary item........................................................ 17,530 7,966 9,078
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.............................................................................. 17,530 5,905 8,061
Income allocated to preferred shareholders.............................................. 24,604 12,726 14,236
--------- -------- -------
Net loss applicable to common shares.................................................... $ (7,074) $ (6,821) $(6,175)
(6,821) (6,175)
Earnings per common share - basic and diluted:
Loss before extraordinary item....................................................... $ (0.20) $ (0.25) $ (0.63)
Extraordinary item................................................................... - (0.11) (0.12)
--------- -------- -------
Net loss............................................................................. $ (0.20) $ (0.36) $ (0.75)
========= ======== ========
Weighted average common shares outstanding.............................................. 35,612 19,189 8,211
========= ======== ========
====================================================================================================================================
</TABLE>
<PAGE>
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, 1998,
1997 and 1996 is presented in the following table, expressed in amounts
calculated on a weighted average occupied GLA basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLA at end of period (1)................................................................. 14,457 7,326 5,684
Executed leases at end of period (GLA) (1)............................................... 13,894 6,854 5,252
Weighted average occupied GLA (1)(3)..................................................... 10,390 5,735 4,075
Manufacturers' outlet centers in operation at end of period (2).......................... 50 28 21
New manufacturers' outlet centers opened and acquired (2)................................ 24 7 4
Manufacturers' outlet centers expanded (2)............................................... 8 4 9
Community centers in operation at end of period.......................................... 3 3 3
States operated in at end of period...................................................... 26 20 16
Portfolio weighted average per square foot (2):
Revenues
Base rents............................................................................... $14.28 $13.61 $13.43
Percentage rents......................................................................... 0.61 0.57 0.49
Tenant reimbursements.................................................................... 6.46 6.54 6.20
Interest and other....................................................................... 1.06 1.79 1.74
------ ------ ------
Total revenues........................................................................ 22.41 22.51 21.86
Expenses
Property operating....................................................................... 5.07 5.14 5.01
Real estate taxes........................................................................ 1.61 1.64 1.30
Depreciation and amortization............................................................ 5.10 4.66 4.73
Corporate general and administrative..................................................... 0.77 0.98 0.99
Interest................................................................................. 5.84 6.30 6.01
Other charges............................................................................ 0.63 0.56 2.11(4)
------ ------ ------
Total expenses........................................................................ 19.02 19.28 20.15
------ ------ ------
Income before minority interests and extraordinary item.................................. $ 3.39 $ 3.23 $ 1.71
====== ====== ======
Manufacturers' outlet center weighted average per square foot (3):
Revenues
Base rents............................................................................... $14.66 $14.19 $14.18
Percentage rents......................................................................... 0.68 0.63 0.55
Tenant reimbursements.................................................................... 6.67 6.96 6.75
Interest and other....................................................................... 0.85 1.57 0.82
------ ------ ------
Total revenues........................................................................ 22.86 23.35 22.30
Expenses
Property operating....................................................................... 5.17 5.40 5.45
Real estate taxes........................................................................ 1.62 1.67 1.29
Depreciation and amortization............................................................ 5.09 4.67 4.87
Interest................................................................................. 5.95 6.31 6.82
Other charges............................................................................ 0.33 0.43 0.81(5)
------ ------ ------
Total expenses........................................................................ 18.16 18.48 19.24
------ ------ ------
Income before minority interests, corporate general and administrative expenses,
and extraordinary item................................................................ $4.70 $ 4.87 $ 3.06
====== ====== ======
====================================================================================================================================
</TABLE>
Notes:
(1) Includes total GLA in which the Company receives substantially all of the
economic benefit.
(2) Includes manufacturers' outlet centers operated under unconsolidated joint
venture partnerships with unrelated third parties.
(3) Based on occupied GLA weighted by months of operation. The occupied GLA on
a weighted average basis from the 22 properties the Company acquired from
Horizon have been included in the weighted average GLA commencing on June
15, 1998.
<PAGE>
(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, 1998 to the year ended December 31,
1997
For the year ended December 31, 1998, the Company reported net income of
$17,530. The 1998 results include a second quarter loss on the sale of real
estate of $15,461 in connection with the Merger Transactions. For the year ended
December 31, 1998, the net loss applicable to common shareholders was $7,074, or
$0.20 per common share on a basic and diluted basis. For the year ended December
31, 1997, the Company reported net income of $5,905. The 1997 results include 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.
Total revenues were $232,975 for the year ended December 31, 1998, compared
to $129,130 for the year ended December 31, 1997, an increase of $103,845, or
80.4%. Base rents increased $70,330, or 90.1%, in 1998 compared to 1997. These
increases are primarily due to the Portfolio Expansion and the Horizon Merger.
Straight-line rents (included in base rents) were $1,229 and $643 for the years
ended December 31, 1998 and 1997, respectively. The average base rent per square
foot for new manufacturers' outlet leases negotiated and executed by the Company
was $16.12 and $15.52 for the years ended December 31, 1998 and 1997,
respectively.
Percentage rents, which represent rents based on a percentage of sales
volume above a specified threshold, increased $3,107, or 94.8%, during the year
ended December 31, 1998 compared to the same period in 1997. This increase was
attributable to higher reported merchant sales in 1998 as well as the Portfolio
Expansion and the Horizon Merger.
As summarized in TABLE 3, merchant sales reported to the Company increased
by $1,735.1 million, or 121.0%, to $3,169.3 million from $1,434.2 million for
the years ended December 31, 1998 and 1997, respectively. The increase in total
reported merchant sales is primarily due to the Portfolio Expansion and the
Horizon Merger. The weighted average reported merchant sales per square foot
increased by 7.8% to $254.56 per square foot in 1998 from $236.20 per square
foot in 1997. Total merchant occupancy cost per square foot decreased slightly
from $21.36 in 1997 to $21.30 in 1998 and decreased as a percentage of reported
sales from 8.39% to 7.65%, 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
manufacturers' outlet portfolio.
Table 3 - Summary of Reported Merchant Sales(1)
A summary of reported manufacturers' outlet merchant sales and related data
for 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total reported merchant sales (in millions)(1)................................................. $3,169.3 $1,434.2 $1,044.3
======== ======== ========
Weighted average reported merchant sales per square foot(2):
All store sales............................................................................. $ 254.56 $ 236.20 $ 229.08
======== ======== ========
Same-space sales............................................................................ $ 248.44 $ 231.89
======== ========
Total merchant occupancy cost per square foot(3)............................................... $ 21.30 $ 21.36 $ 21.12
======== ======== ========
Cost of merchant occupancy to reported sales(4)................................................ 8.37% 9.04% 9.22%
======== ======== ========
Cost of merchant occupancy (excluding marketing contributions) to reported sales(5)............ 7.65% 8.39% 8.64%
======== ======== ========
===================================================================================================================================
</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 manufacturers' outlet
centers. Several of the Company's manufacturers' 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,
1997.
(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 $29,633, or 79.0%, in 1998
over 1997. These increases are primarily due to the Portfolio Expansion and the
Horizon Merger.
As shown in TABLE 4, tenant reimbursements as a percentage of recoverable
property operating expenses and real estate taxes was 96.8% in 1998 compared to
96.4% in 1997. 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 1998, 1997, and 1996:
Table 4 - Tenant Recoveries as a Percentage of Total Recoverable Expenses
- --------------------------------------------------------------------------------
Percentage of Expenses
Year Recovered from Tenants(1)
- --------------------------------------------------------------------------------
1998.......................................................................96.8%
1997.......................................................................96.4%
1996...................................................................... 98.2%
================================================================================
Note:(1) Total recoverable expenses include property operating expenses and
real estate taxes.
Interest and other income increased by $775, or 7.5%, to $11,063 during the
year ended December 31, 1998 as compared to $10,288 for the year ended December
31, 1997. The increase reflects higher (i) temporary tenant income of $1,432,
(ii) lease termination income of $475, and (iii) other ancillary income of $130.
Partially offsetting these increases was a decrease in interest income of
$1,262. The reduction in interest income was primarily the result of the use of
a portion of the Company's expansion loan escrow account to fund certain of its
development activities during 1997 and 1998. The expansion loan escrow account
is included in restricted cash in the Consolidated Balance Sheets.
Property operating expense increased by $23,192, or 78.6%, to $52,684 in
1998 compared to $29,492 in 1997. Real estate taxes expense increased by $7,288,
or 77.4%, to $16,705 in 1998 from $9,417 in 1997. The increases in property
operating expenses and real estate taxes are primarily due to the Portfolio
Expansions and the Horizon Merger. As show in TABLE 5, depreciation and
amortization expense increased by $26,244, or 98.2%, to $52,959 in 1998,
compared to $26,715 in 1997. This increase results from the depreciation and
amortization of assets associated with the Portfolio Expansion and the Horizon
Merger.
Table 5 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense for 1998, 1997 and
1996 are summarized as follows:
-------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-------------------------------------------------------------------------------
Building and improvements...................$30,299 $13,987 $ 9,471
Land improvements........................... 3,609 2,838 2,161
Tenant improvements......................... 16,616 7,372 5,165
Furniture and fixtures...................... 1,316 858 671
Leasing commissions(1)...................... 1,119 1,660 1,788
------- ------- -------
Total................................ $52,959 $26,715 $19,256
======= ======= =======
================================================================================
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 $24,582, or 68.1%, to
$60,704 in 1998 compared to $36,122 in 1997. This increase reflects higher
interest incurred of $27,194. Partially offsetting this item was an increase in
the amount of interest capitalized in connection with development projects of
$1,737, a decrease in amortization of deferred financing costs of $637, and a
decrease in amortization of interest rate protection contracts of $238.
The increase in interest incurred is primarily attributable to an increase
of $379,018 in the Company's average debt outstanding during 1998 compared to
1997.
Table 6 - Components of Interest Expense
The components of interest expense for 1998, 1997 and 1996 are summarized
as follows:
-------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-------------------------------------------------------------------------------
Interest incurred..........................$63,630 $36,436 $24,109
Interest capitalized....................... (5,793) (4,056) (3,348)
Amortization of deferred financing costs... 1,715 2,352 2,341
Amortization of interest rate protection
contracts.............................. 1,152 1,390 1,383
------- ------- -------
Total................................$60,704 $36,122 $24,485
======= ======= =======
===============================================================================
Other charges increased by $3,262 to $6,496 in 1998 compared to $3,234 for
1997. This increase reflects (i) increased selling and marketing expenses of
$2,162 associated with the Company's operation of the outlet store known as
Designer Connection, (ii) a higher provision for potentially unsuccessful
pre-development efforts of $508, (iii) an increase in the provision for
uncollectible accounts receivable of $417, (iv) higher marketing costs of $121,
and (v) an increase in other miscellaneous charges of $54.
In connection with the closing of its merger with Horizon on June 15, 1998,
the Company sold Indiana Factory Stores and Nebraska Crossing Factory Stores
(collectively, the "Prime Transferred Properties") to HGP, for an aggregate
consideration of $26,015 resulting in a second quarter loss of $15,461.
Table 7 - Capital Expenditures
The components of capital expenditures for 1998, 1997 and 1996 are
summarized as follows:
- --------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
New developments..................... $ 43,459 $ 34,175 $ 33,787
Property acquisitions, net........... 1,013,231 (1) 191,345(3) 131,593(4)
Property dispositions, net........... (46,585)(2) - -
Expansions and renovations........... 98,705 37,941 20,428
Re-leasing tenant allowances......... 2,130 561 473
---------- -------- --------
Total.......................... $1,110,940 $264,022 $186,281
================================================================================
Notes:
(1) Includes the assets acquired by the Company during 1998 in connection
with its merger with Horizon, net of the spin-off of HGP.
(2) Includes the assets of the Prime Transferred Properties sold by the Company
during 1998 to HGP in connection with the closing of the Horizon merger.
(3) Includes the assets acquired by the Company during 1997 consisting of (i)
the purchase of seven manufacturers' outlet centers ($166,987) and (ii) the
purchase of the Company's joint venture partner's partnership interest in
Prime Outlet at Lodi ($24,358).
(4) Includes the assets acquired by the Company during 1996 consisting of (i)
the purchase of two manufacturers' outlet centers ($71,770) and (ii) the
purchase of the Company's joint venture partner's partnership interest in
Prime Outlets at Grove City ($57,094).
<PAGE>
<TABLE>
Table 8 - Consolidated Quarterly Summary of Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------- --------------------------------------------
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..................... $ 77,516 $ 73,187 $ 44,764 $ 37,508 $ 36,206 $ 31,549 $ 31,213 $ 30,162
Total expenses..................... 67,251 62,615 37,605 30,057 28,826 27,458 27,630 26,669
-------- ---------- -------- -------- -------- -------- -------- --------
Income before loss on sale of real
estate, minority interests and
extraordinary item.............. 10,265 10,572 7,159 7,451 7,380 4,091 3,583 3,493
Loss on sale of real estate........ - - (15,461) - - - - -
-------- ---------- -------- -------- -------- -------- -------- --------
Income (loss) before minority
interests and extraordinary item. 10,265 10,572 (8,302) 7,451 7,380 4,091 3,583 3,493
(Income) loss allocated to minority
interests......................... - (214) 3,219 (5,461) (2,778) (2,540) (2,672) (2,591)
-------- ---------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................. 10,265 10,358 (5,083) 1,990 4,602 1,551 911 902
Extraordinary item - loss on early
extinguishment of
debt............................. - - - - - (2,061) - -
-------- ---------- -------- -------- -------- -------- -------- --------
Net income (loss)................... 10,265 10,358 (5,083) 1,990 4,602 (510) 911 902
Income allocated to preferred
shareholders..................... 6,956 6,741 6,741 4,166 3,446 3,094 3,093 3,093
------- --------- ------- ------- ------- ------- ------- --------
Net income (loss) applicable to
common shares.................... $ 3,309 $ 3,617 $(11,824) $(2,176) $ 1,156 $ (3,604) $ (2,182) $(2,191)
======= ========= ======== ======= ========= ======== ======== ========
Earnings per common share - basic
and diluted:
Income (loss) before
extraordinary item............ $ 0.08 $ 0.09 $ (0.40) $ (0.08) $ 0.04 $ (0.08) $ (0.14) $ (0.15)
Extraordinary item............. - - - - - (0.11) - -
------- --------- -------- ------- -------- -------- -------- --------
Net income (loss)............... $ 0.08 $ 0.09 $ (0.40) $ (0.08) $ 0.04 $ (0.19) $ (0.14) $ (0.15)
======= ========= ======== ======= ======== ======== ======== =======
Weighted average common shares
outstanding...................... 42,736 42,314 29,859 27,295 27,295 19,159 15,795 14,344
======= ========= ======== ======= ======== ======== ======= =======
Distributions paid per common
Share........................... $ 0.295 $ 0.295 $ 0.795 (1) $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295
======= ========= ======== ======= ======== ======== ======== =======
====================================================================================================================================
</TABLE>
Note:
(1) Includes a special cash distribution of $0.50 per common share relating to
the Company's merger with Horizon completed in June 1998 (see Note 3 -
"Acquisitions and Dispositions" of the Notes to Consolidated Financial
Statements).
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
45.0%. 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 manufacturers' outlet centers from unrelated third
parties and the Company's purchase of its joint venture partner's 25%
partnership interest in a manufacturers' 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 manufacturers' 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.
<PAGE>
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 manufacturers' outlet portfolio.
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 manufacturers' outlet centers
from unrelated third parties and the Company's purchase 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.
Interest and other income increased by $3,199, or 45.1%, to $10,288 during
the year ended December 31, 1997 as compared to $7,089 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) push cart income of $304, (iv)
temporary tenant income of $218, and (v) all other ancillary income of $43.
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 in the Consolidated
Balance Sheets.
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. As shown in TABLE 5,
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 manufacturers' outlet
centers from an unrelated third parties and the Company's purchase of its joint
venture partner's partnership interest in two manufacturers' outlet centers.
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 $12,327, 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 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 7.23% and 7.17% for
1997 and 1996, respectively.
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.
Liquidity and Capital Resources
Sources and Uses of Cash
For the year ended December 31, 1998, net cash provided by operating
activities was $61,335, net cash used in investing activities was $145,596, and
net cash provided by financing activities was $83,653.
The primary uses of cash for investing activities during 1998 included (i)
costs associated with development and construction of new manufacturers' outlet
centers and expansions to existing manufacturers' outlet centers aggregating
931,000 square feet of GLA which opened during 1998, (ii) costs associated with
the completion of manufacturers' outlet centers and expansions to existing
manufacturers' outlet centers aggregating 224,000 square feet of GLA which
opened during 1997, and (iii) costs for pre-development activities associated
with future developments.
The sources of cash from financing activities during 1998 included proceeds
from new borrowings of $467,998. Such proceeds were partially offset by (i)
<PAGE>
principal repayments on notes payable of $283,806, (ii) preferred and common
stock distributions of $79,451, and (iii) distributions to minority interests
(including distributions to limited partners of the Operating Partnership) of
$17,811.
The Company anticipates that cash flow from (i) certain line of credit
facilities, (ii) operations, (iii) new borrowings, (iv) refinancing of certain
existing debt, (v) the potential sale of a joint venture interest in certain
manufacturers' outlet centers, and (vi) the potential sale of equity or debt
securities in the public or private capital markets will be sufficient to
satisfy its debt service obligations, expected distribution and dividend
requirements and operating cash needs for the next year. There can be no
assurance that the Company will be successful in obtaining the required amount
of funds for these items or that the terms of capital raising activities, if
any, will be as favorable as the Company has experienced in prior periods. At
December 31, 1998, unused commitments available for borrowings under various
loan facilities were $37,392 in the aggregate.
Debt Repayments and Preferred Stock Dividends
The Company's aggregate indebtedness was $1,217,507 and $515,265 at
December 31, 1998 and 1997, respectively. At December 31, 1998, such
indebtedness had a weighted average maturity of 5.72 years and bore interest at
a weighted average interest rate of 7.19% per annum. At December 31, 1998,
$953,443, or 78.3%, of such indebtedness bore interest at fixed rates and
$264,063, or 21.7%, of such indebtedness, including $28,250 of tax-exempt bonds,
bore interest at variable rates.
The Company is obligated to repay $85,034 and $45,321 of mortgage
indebtedness during 1999 and 2000, respectively. Annualized cumulative dividends
on the Company's Series A Senior Cumulative Preferred Stock ("Senior Preferred
Stock"), Series B Cumulative Participating Convertible Preferred Stock, ("Series
B Convertible Preferred Stock"), and Series C Cumulative Redeemable Preferred
Stock ("Series C Preferred Stock") outstanding as of December 31, 1998 are
$6,038, $16,635, and $5,149, respectively. These dividends are paid quarterly,
in arrears.
Repurchase of Shares of Series C Preferred Stock
On March 31, 1999, the Company entered into an agreement pursuant to which
it will repurchase all of its outstanding shares of Series C Preferred Stock for
$43,636 or $10.00 per share. The agreement provides for the repurchase to occur
in two stages. In the first stage, on March 31, 1999, the Company repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000 unsecured promissory note. The unsecured promissory note bears
interest at a rate of 12.0% per annum, matures on September 30, 1999, requires
monthly interest-only payments and may be prepaid by the Company at any time
without penalty. Second, the Company will repurchase the remaining 1,063,636
shares of its Series C Preferred Stock for an aggregate purchase price of
$10,636 on or before September 30, 1999. In addition, the sole holder of the
Series C Preferred Stock waived the Company's obligation to comply with the
financial covenants contained in its charter relating to the Series C Preferred
Stock, as well as the rights of such holder to require the Company to repurchase
the Series C Preferred Stock in certain circumstances at its original issuance
price of $13.75 per share, plus accrued but unpaid distributions. This waiver is
irrevocable.
Debt and Equity Offerings
Management intends to continually have access to capital resources
necessary to expand and develop its business and, accordingly, may seek to
obtain additional funds through the potential sale of equity or debt securities
in the public or private capital markets. On December 17, 1998, the Company
registered with the Securities and Exchange Commission $400,000 of equity
securities pursuant to a universal shelf registration statement on Form S-3.
Property Acquisitions
During 1999, the Company will explore acquisitions of manufacturers' outlet
centers in the United States and Western 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 1999. The Company cannot predict if any transaction will be
consummated, nor the terms or form of consideration required.
Business Combination
On June 15, 1998, the Merger Transactions as set forth in the agreement and
plan of merger (the "Merger Agreement") between the Company and Horizon were
consummated for an aggregate consideration of $1,134,682, including liabilities
assumed and related transaction costs.
Pursuant to the terms of the Merger Agreement, the Company acquired (i) all
of the outstanding shares of common stock of Horizon at an exchange ratio of
0.20 of a share of the Company's Series B Convertible Preferred Stock and 0.597
of a share of the Company's Common Stock for each share of common stock of
Horizon, and (ii) all of the outstanding limited partnership units of
Horizon/Glen Outlet Centers Limited Partnership ("Horizon Partnership") at an
exchange ratio of 0.9193 of a Common Unit of partnership interest in the
Operating Partnership. A total of 4,846,325 shares of Series B Convertible
Preferred Stock and 14,466,329 shares of Common Stock were issued by the Company
to the shareholders of Horizon and 3,782,121 Common Units were issued by the
Operating Partnership to the limited partners of Horizon Partnership.
Immediately prior to the merger, Horizon Partnership contributed 13 of its
35 centers to Horizon Group Properties, L.P., of which HGP, a subsidiary of
Horizon, is the sole general partner. HGP was spun-off from the Company on June
15, 1998. The remaining 22 outlet centers of Horizon were integrated into the
Company's existing portfolio. On June 19, 1998, all of the common equity of HGP
was distributed to the convertible preferred and common shareholders and
unitholders of the Company and its Operating Partnership and the shareholders
and limited partners of Horizon and Horizon Partnership based on their ownership
in the Company immediately following consummation of the merger. One share of
common stock of HGP was distributed for every 20 shares of Common Stock and
Series C Preferred Stock of the Company and for every 20 Common Units of the
Operating Partnership. Additionally, approximately 1.196 shares of the common
stock of HGP were distributed for every 20 shares of Series B Convertible
Preferred Stock of the Company.
In connection with the Merger Transactions, the Company sold the Prime
Transferred Properties to HGP for an aggregate consideration of $26,015,
resulting in a loss of $15,461. Proceeds from the sale of the Prime Transferred
Properties were used to repay indebtedness associated with the Horizon
properties.
Concurrent with the closing of the merger, a special cash distribution was
made aggregating $21,871 consisting of $0.50 per share/unit to holders of Common
Stock, Series C Preferred Securities and Common Units and $0.60 per share to
holders of Series B Convertible Preferred Stock. Shareholders of Horizon and
limited partners of Horizon Partnership did not participate in these
distributions.
The merger has been accounted for using the purchase method of accounting
and the purchase price was allocated to the assets acquired and the liabilities
assumed based on estimates of their respective fair values. Certain assumptions
were made which management of the Company believes are reasonable.
The operating results of those properties acquired have been included in
the Company's consolidated results of operations commencing on the date of
acquisition. The operating results of the Prime Transferred Properties have been
included in the Company's consolidated results of operations through the date of
disposition.
<PAGE>
Debt Transactions
On March 18, 1998, the Company obtained from a financial institution a
commitment for a construction mortgage loan (the "Construction Mortgage Loan")
relating to Phase I of Prime Outlets at Hagerstown ("Hagerstown") in an amount
not to exceed $21,600 which was subsequently increased to $32,860 on October 2,
1998 as a result of obtaining a commitment for construction financing on Phase
II. The Construction Mortgage Loan (i) bears a variable interest rate at 30-day
LIBOR plus 1.50%, (ii) matures on June 1, 2004, (iii) requires monthly
interest-only payments through May 31, 2002, and (iv) requires monthly principal
and interest payments thereafter. The Construction Mortgage Loan is
collateralized by a first mortgage on Hagerstown. At December 31, 1998, the
Construction Mortgage Loan had an outstanding principal balance of $29,914.
On June 15, 1998, the Company closed on $292,000 of loan facilities with a
financial institution. The transaction provided (i) a $180,000 nonrecourse
permanent loan (the "Permanent Loan") and (ii) a $112,000 full recourse secured
revolving loan of which $95,000 was funded (the "Secured Revolving Loan"). The
Permanent Loan is (i) collateralized by first mortgages on four manufacturers'
outlet centers, (ii) bears a fixed rate of interest of 6.99%, (iii) requires
monthly principal and interest payments pursuant to an approximate 26-year
amortization schedule, and (iv) matures on July 11, 2008. The Secured Revolving
Loan is (i) collateralized by first mortgages on six manufacturers' outlet
centers, (ii) bears a variable rate of interest equal to 30-day LIBOR plus
1.35%, (iii) requires monthly interest-only payments, and (iv) matures on June
11, 2001.
On September 25, 1998, the Company closed on a $40,000 unsecured revolving
loan (the "Unsecured Revolving Loan") with a financial institution. The
Unsecured Revolving Loan (i) bears interest equal to 30-day LIBOR plus 1.75%,
(ii) requires monthly interest-only payments, and (iii) matures on September 11,
2001. At December 31, 1998, the Unsecured Revolving Loan had an outstanding
principal balance of $40,000. The Unsecured Revolving Loan requires compliance
with certain financial loan covenants including those relating to the Company's
(i) total outstanding variable indebtedness, (ii) total outstanding indebtedness
to market value, as defined, (iii) consolidated net worth, as defined, and (iv)
debt service coverage ratio.
On December 31, 1998, the Company entered into an agreement to purchase, at
its option, its joint venture partner's 50% ownership interest in Arizona
Factory Shops Partnership for total consideration of approximately $35,000. The
option expires on April 28, 1999. If the Company exercises its option, the
Company will own 100% of Prime Outlets at New River which contains approximately
326,000 square feet and was 95% leased at December 31, 1998.
As of December 31, 1998, the Company is a guarantor or otherwise obligated
with respect to an aggregate of $39,479 of the indebtedness of HGP and its
affiliates. As of December 31, 1998, the components of such indebtedness
included (i) a mortgage loan with an outstanding balance of $11,793 which bears
interest at a rate of prime, matures in April 1999, and is collateralized by a
first mortgage on Phases II and III of property located in Patchogue, New York;
(ii) a mortgage loan with an outstanding balance of $10,731 which bears interest
at a rate of 10.25%, matures in July 2018, and is collateralized by a first
mortgage on Phase I of property located in Patchogue, New York; (iii) a loan
with an outstanding balance of $2,645 which bears interest at a rate of prime
and matures in December 2000; and (v) an unsecured revolving credit facility
with an outstanding balance of $4,000 which bears a rate of interest of prime
and matures in April 1999. In addition, the Company is a guarantor of $10,000 of
obligations under HGP's $108,205 secured credit facility which bears a rate of
interest of LIBOR plus 1.90%, matures in July 2001, and is collateralized by 13
properties located throughout the United States. The Company is pursuing an
agreement with HGP pursuant to which it would purchase HGP's general partnership
interest and a portion of a third party's limited partnership interest in the
Bellport Outlet Center and undeveloped parcels located in Patchogue, New York.
If the agreement is consummated, it is expected that the aggregate indebtedness
of HGP for which the Company remains contingently liable as a guarantor would be
reduced to $12,955.
On April 1, 1998, Horizon consummated an agreement with Castle & Cooke
Properties, Inc. which released Horizon from its future obligations under its
long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in
connection with the formation of a joint venture with certain affiliates of
Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the
terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the
project and an affiliate of Castle & Cooke, released Horizon from any continuing
obligations under the lease, which expires in 2045, in exchange for Horizon's
conveyance to the joint venture of all of Horizon's rights and obligations under
such lease. The agreement also provided that Horizon transfer to such joint
venture substantially all of Horizon's economic interest in its outlet center in
Lake Elsinore, California together with Horizon's interest in certain vacant
property located adjacent to the center. As of December 31, 1998, the Company
held a small minority interest in the joint venture but has no obligation or
commitment with respect to the post-closing operations of the Dole Cannery
project. Mortgage indebtedness with an outstanding balance of $29,134 at
December 31, 1998, for which one of the Company's subsidiary partnerships
remains legally responsible, is collateralized by a first mortgage on the Lake
Elsinore outlet center. The joint venture, as a limited partner in such
subsidiary partnership, is obligated to make capital contributions to the
partnership to pay debt financing, operating and other expenses under certain
conditions. The subsidiary partnership will remain legally responsible for such
expenses in case of any shortfalls by the joint venture with respect to such
capital contributions. Castle & Cooke has provided the Company with an
unconditional guaranty with respect to any such shortfalls.
Planned Development
Management believes that there is sufficient demand for continued
development of new manufacturers' outlet centers and expansions of certain
existing manufacturers' outlet centers. The Company opened 931,000 square feet
of GLA during 1998 including
<PAGE>
Prime Outlets at Lebanon which opened on April 17, 1998 and Prime Outlets
at Hagerstown of which Phase I opened on August 7, 1998 and Phase II opened on
November 20, 1998. Prime Outlets at Lebanon is located in Lebanon, Tennessee,
approximately 25 miles east of Nashville, and contains 208,000 square feet of
GLA. Prime Outlets at Lebanon was 98% leased at December 31, 1998. Prime Outlets
at Hagerstown is located in Hagerstown, Maryland, west of Baltimore and
northwest of Washington, D.C., and contains 321,000 square feet of GLA in the
aggregate Prime Outlets at Hagerstown was 93% leased at December 31, 1998. At
December 31, 1998, the remaining budgeted capital expenditures for 1998 planned
developments aggregated approximately $16,154. Management believes that the
Company has sufficient capital and capital commitments to fund the remaining
capital expenditures associated with its 1998 development activities. These
funding requirements are expected to be met, in large part, with the proceeds
from various loan facilities.
The Company currently plans to open one new manufacturers' outlet center
and four expansions to existing manufacturers' outlet centers in 1999 that are
expected to contain approximately 555,000 square feet of GLA, in the aggregate,
and have a total expected development cost of approximately $85,000. The Company
expects to fund the development cost of these projects from (i) certain line of
credit facilities, (ii) retained cash flow from operations, (iii) construction
loans, and (iv) the potential sale of equity or debt securities in the public or
private capital markets. As of December 31, 1998, the Company had committed
$17,931 with regard to the construction of the new manufacturers' outlet center
and expansions scheduled to open in 1999. There can be no assurance that the
Company will be successful in obtaining the required amount of 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. 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.
Taxability of Distributions
TABLE 9 summarizes the taxability of distributions paid during (i) the
period from January 1 to June 15, 1998, (ii) the period from June 16 to December
31, 1998, and (iii) the year ended December 31, 1997. 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>
Table 9 - Taxability of Distributions
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Period from Period from
January 1 to June 16 to Year ended
June 15, December 31, December 31,
1998 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Senior Preferred Stock
Ordinary income..................................... 100.0% 100.0% 100.0%
Series B Convertible Preferred Stock
Ordinary income..................................... 100.0% 63.7% 91.3%
Return of capital................................... - 36.3% 8.7%
Series C Preferred Stock
Ordinary income..................................... 18.7% - -
Return of capital.................................... 81.3 100.0% -
Common Stock
Return of capital.................................... 100.0% 100.0% 100.0%
===================================================================================================================================
</TABLE>
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 all 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.
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
The year 2000 ("Y2K") issue refers generally to computer applications using
only the last two digits to refer to a year rather than all four digits. As a
result, these applications could fail or create erroneous results if they
recognize "00" as the year 1900 rather than the year 2000. The Company has taken
Y2K initiatives in the following three general areas:
Information Technology
The Company has focused its efforts on the high-risk areas of the corporate
office computer hardware, operating systems and software applications. The
principal risks to the Company relating to its information technology are
failure to correctly bill tenants and pay invoices. However, the Company's
assessment and testing of existing equipment revealed that its hardware, network
operating systems and software applications are Y2K compliant.
Non-information Technology
Non-information technology consists mainly of facilities management systems
such as telephone, utility and security systems for the corporate office and the
outlet centers. Based on the Company's inquiry of the building owner, the
corporate office's non-information technology is expected to be Y2K compliant by
mid-1999. The Company is in the process of identifying date sensitive systems
and equipment at its outlet centers. To date, the Company has not identified any
critical non-compliant systems. Assessment and testing of non-information
technology at the Company's outlet centers is expected to be completed by
mid-1999.
Third Parties
The Company has third-party relationships with tenants and suppliers and
contractors. Many of these third parties are publicly-traded corporations and
subject to disclosure requirements. The Company has begun assessment of major
third parties' Y2K readiness including tenants, key suppliers of outsourced
services including stock transfer, debt servicing, banking collection and
disbursement, payroll and benefits, while simultaneously responding to their
inquiries regarding the Company's readiness. The principal risks to the Company
in its relationships with third parties are the failure of third-party systems
used to conduct business such as (i) tenants being unable to stock stores with
merchandise, use cash registers, and pay invoices; (ii) banks being unable to
process receipts and disbursements; (iii) vendors being unable to supply needed
materials and services to the centers; and (iv) processing of outsourced
employee payroll. Based on Y2K compliance work done to date, the Company has no
reason to believe that key tenants, banks and suppliers will not be Y2K
compliant in all material respects or cannot be replaced within an acceptable
timeframe. Additionally, the Company has obtained or is in the process of
obtaining compliance certification from suppliers of key services.
Contingency plans generally involve the development and testing of manual
procedures or the use of alternate systems. Viable contingency plans are
difficult to develop for potential third party Y2K failures. Based on the
Company's current assessment of Y2K readiness relating to information
technology, non-information technology, and third parties, the Company has not
implemented a Y2K contingency plan to date. However, the Company will continue
to assess the need for such a plan.
Currently, the Company believes its cost to successfully mitigate the Y2K
issue, estimated at less than $250, has not been and is not anticipated to be
material to the Company's financial position or results from operations.
However, the Company's description of its Y2K compliance issue is based upon
information obtained by management through evaluations of internal business
systems and from inquiries of key tenants and major vendors concerning their
compliance efforts. If key tenants or major vendors with whom the Company does
business fail to adequately address their Y2K issues, the Company's financial
position or results from operations could be materially adversely affected.
Impact of Recently Issued Accounting Standards
In March 1998 the American Institute of Certified Public Accountants'
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed for or Obtained for Internal Use." This
statement, which is effective for fiscal years beginning after December 15,
1998, requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. The Company does not
anticipate a material impact on its results of operations and financial
position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This statement, which is effective for fiscal years
beginning after December 15, 1998, requires that costs of start-up activities,
including organization costs, be expensed as incurred. The Company does not
anticipate a material impact on its results of operations and financial
position.
Funds from Operations
Management believes that to facilitate a clear understanding of the
Company's operating results, funds from operations ("FFO")
<PAGE>
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.
Management bleieves that FFO is an important and widely used measure of the
operating performance of REITs which provides a relevant basis for comparison to
other REITs. Therefore, FFO is presented to assist investors in analyzing the
performance of the Company. 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 allocations to minority
interests and preferred shareholders to FFO for the years ended December 31,
1998, 1997 and 1996. FFO increased $42,235, or 90.4% to $88,953 for the year
ended December 31, 1998 from $46,718 for the year ended December 31, 1997. This
increase in FFO is primarily attributable to the Portfolio Expansion and the
Horizon Merger.
<TABLE>
Table 10 - Funds from Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before allocations to minority interests and preferred shareholders.............. $ 19,986 $ 18,547 $ 6,986
FFO adjustments:
Loss on sale of real estate............................................................. 15,461 - -
Real estate depreciation and amortization............................................... 52,295 26,413 18,703
Unconsolidated joint venture adjustments................................................ 1,211 1,758 1,948
------- -------- --------
FFO before allocations to minority interests and preferred shareholders................. $88,953 $ 46,718 $ 27,637
======= ======== ========
Other Data:
Net cash provided by operating activities............................................... $ 61,335 $ 49,856 $ 45,191
Net cash used in investing activities................................................... (145,596) (229,956) (232,290)
Net cash provided by financing activities............................................... 83,653 182,549 176,096
====================================================================================================================================
</TABLE>
The payout ratios based on distributions made by the Company divided by FFO
for 1998, 1997 and 1996 were 94.0%, 103.7%, and 106.4%, respectively.
<TABLE>
Table 11- Consolidated Quarterly Summary of Funds from Operations
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------------------------- ------------------------------------------
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............................ $ 10,265 $ 10,572 $ (8,302) $ 7,451 $ 7,380 $ 4,091 $ 3,583 $ 3,493
FFO adjustments:
Loss on sale of real estate................ - - 15,461 - - - - -
Real estate depreciation and amortization.. 18,475 16,327 9,792 7,701 7,108 6,558 6,473 6,274
Unconsolidated joint venture adjustments... 303 303 302 303 288 455 530 485
-------- -------- -------- ------- -------- -------- ------- --------
FFO before allocations to minority interests
and preferred shareholders.............. $ 29,043 $ 27,202 $ 17,253 $15,455 $ 14,776 $ 11,104 $10,586 $ 10,252
======== ======== ======== ======= ======== ======== ======== ========
Other Data:
Net cash provided by (used in) operating
activities.............................. $ 8,817 $ 34,346 $(7,406) $25,578 $ 15,298 $ 18,301 $ 9,301 $ 6,956
Net cash used in investing activities..... (22,750) (44,469) (50,975) (27,402) (123,220) (41,697) (17,492) (47,547)
Net cash provided by (used in) financing
activities.............................. 5,940 5,144 76,595 (4,026) 90,518 46,188 (10,906) 56,749
====================================================================================================================================
</TABLE>
<PAGE>
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK
Market Risk Sensitivity
Interest Rate Risk
In the ordinary course of business, the Company is exposed to the impact of
interest rate changes. The Company employs established policies and procedures
to manage its exposure to interest rate changes. The Company uses a mix of fixed
and variable rate debt to (i) limit the impact of interest rate changes on its
results from operations and cash flows and (ii) to lower its overall borrowing
costs. The following table provides a summary of principal cash flows and
related interest rates by fiscal year of maturity. Variable interest rates are
based on the weighted average rates of the portfolio at December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year of Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate:
Principal........................... $16,306 $43,150 $ 50,742 $88,985 $348,735 $405,526 $953,444
Average interest rate............... 7.15% 7.07% 7.23% 6.97% 7.76% 7.04% 7.31%
Variable rate:
Principal........................... $68,728 $ 2,171 $135,000 $ 386 $ 774 $ 57,004 $264,063
Average interest rate............... 7.11% 7.23% 6.94% 7.13% 7.13% 5.51% 6.68%
====================================================================================================================================
</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.
<PAGE>
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, 1999.
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 as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedules
The following financial statement schedule 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-23
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 Amended and Restated Articles of Incorporation of Prime Retail, Inc.
3.2 Articles Supplementary of Prime Retail, Inc. relating to Series B Preferred
Stock
3.3 Amended and Restated By-Laws of Prime Retail, Inc.
4.1 Form of Series A 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 Series B 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).]
<PAGE>
Exhibit
Number Description
4.4 Form of Series C Preferred Stock Certificate [Incorporated by reference
to the same titled exhibit in the Company's registration statement on
Form S-3]
10.1 Third Amended and Restated Agreement of Limited Partnership of
Prime Retail, L.P. dated as of October 15, 1998 and effective as of
June 15, 1998.
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 dated June 15, 1998 by and between Prime
Retail, Inc. and Prime Retail, L.P. for the benefit of holders of
common units of Prime Retail, L.P. and certain stockholders of Prime
Retail, Inc.
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 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>
Exhibit
Number Description
10.22 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).]
10.22A 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).]
10.23 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).]
10.23A 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).]
10.24 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).]
10.25 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).]
10.26 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).]
10.26A 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).]
10.27 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).]
10.27A 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).]
10.28 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).]
10.29 Indemnity Agreement made by the Company in favor of The 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).]
10.30 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. 0-233616).]
<PAGE>
Exhibit
Number Description
10.30A 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).]
10.31 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).]
10.32 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).]
10.33 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).]
10.34 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).]
#10.35 Letter Agreement with David G. Phillips regarding the purchase of units
in Prime Retail, L.P. dated August 6, 1996. [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, 1997 (File No.0-23616).]
#10.36 Non-employee Director Stock Plan [Incorporated by reference to
Appendix I in the Company's registration statement on Form S-4 (File
No.333-51285).]
#10.37 1998 Long-Term Stock Incentive Plan [Incorporated by reference to
Appendix J in the Company's registration statement on Form S-4 (File
No. 333-51285).]
#10.38 Description of the 1999 Long-Term Incentive Program.
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
- ---------------------------------
Note:
# Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c).
(b) Reports on Form 8-K
None
(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 31, 1999 /s/ Abraham Rosenthal
---------------------
Abraham Rosenthal
Chief Executive Officer
Dated: March 31, 1999 /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 31, 1999
----------------------
Michael W. Reschke
Chairman of the Board
/s/ Abraham Rosenthal March 31, 1999
---------------------
Abraham Rosenthal
Chief Executive Officer and Director
/s/ William H. Carpenter, Jr. March 31, 1999
----------------------------
William H. Carpenter, Jr.
President, Chief Operating Officer and Director
/s/ Glenn D. Reschke March 31, 1999
--------------------
Glenn D. Reschke
Executive Vice President - Development and
Acquisitions and Director
/s/ William P. Dickey March 31, 1999
---------------------
William P. Dickey
Director
/s/ Terence C. Golden March 31, 1999
---------------------
Terence C. Golden
Director
/s/ Norman Perlmutter March 31, 1999
---------------------
Norman Perlmutter
Director
/s/ Robert D. Perlmutter March 31, 1999
------------------------
Robert D. Perlmutter
Director
/s/ Kenneth A. Randall March 31, 1999
----------------------
Kenneth A. Randall
Director
/s/ Sharon Sharp March 31, 1999
----------------
Sharon Sharp
Director
/s/ James R. Thompson March 31, 1999
---------------------
James R. Thompson
Director
/s/ Marvin S. Traub March 31, 1999
-------------------
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, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 29, 1999, except
for paragraph 7 of Note 9,
as to which the date
is March 31, 1999
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share information)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in rental property:
Land $ 206,386 $ 66,277
Buildings and improvements.......................................................................... 1,753,641 779,191
Property under development.......................................................................... 45,068 53,139
Furniture and equipment............................................................................. 10,627 6,175
---------- --------
2,015,722 904,782
Accumulated depreciation............................................................................ (127,747) (82,033)
---------- --------
1,887,975 822,749
Cash and cash equivalents.............................................................................. 5,765 6,373
Restricted cash........................................................................................ 34,969 41,736
Accounts receivable, net............................................................................... 21,233 9,745
Deferred charges, net.................................................................................. 12,518 16,206
Due from affiliates, net............................................................................... 988 1,052
Investment in partnerships............................................................................. 8,386 3,278
Other assets........................................................................................... 4,630 3,044
---------- ---------
Total assets.................................................................................. $1,976,464 $ 904,183
========== =========
Liabilities and Shareholders' Equity
Bonds payable.......................................................................................... $ 32,900 $ 32,900
Notes payable.......................................................................................... 1,184,607 482,365
Accrued interest....................................................................................... 7,878 3,767
Real estate taxes payable.............................................................................. 11,229 4,639
Construction costs payable............................................................................. 3,754 5,849
Accounts payable and other liabilities................................................................. 69,879 20,210
---------- --------
Total liabilities............................................................................. 1,310,247 549,730
Minority interests..................................................................................... 22,483 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 $195,703 and $74,545, respectively), 7,828,125
and 2,981,800 shares issued and outstanding, respectively...................................... 78 30
Series C Cumulative Convertible Redeemable Preferred Stock, $.01 par value
(liquidation preference of $60,000 and $50,000, respectively), 4,363,636 and 3,636,363 shares
issued and outstanding, respectively........................................................... 44 36
Shares of common stock, 150,000,000 shares authorized:
Common stock, $.01 par value, 42,736,742 and 27,294,951 issued and outstanding, respectively..... 427 273
Additional paid-in capital.......................................................................... 759,105 398,188
Distributions in excess of net income............................................................... (115,943) (54,022)
---------- ---------
Total shareholders' equity.................................................................... 643,734 344,528
---------- ---------
Total liabilities and shareholders' equity................................................ $1,976,464 $ 904,183
========== =========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share information)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Base rents................................................................................... $148,376 $ 78,046 $ 54,710
Percentage rents............................................................................. 6,384 3,277 1,987
Tenant reimbursements........................................................................ 67,152 37,519 25,254
Interest and other........................................................................... 11,063 10,288 7,089
-------- -------- --------
Total revenues......................................................................... 232,975 129,130 89,040
Expenses
Property operating........................................................................... 52,684 29,492 20,421
Real estate taxes............................................................................ 16,705 9,417 5,288
Depreciation and amortization................................................................ 52,959 26,715 19,256
Corporate general and administrative......................................................... 7,980 5,603 4,018
Interest..................................................................................... 60,704 36,122 24,485
Other charges................................................................................ 6,496 3,234 8,586
-------- -------- --------
Total expenses......................................................................... 197,528 110,583 82,054
-------- -------- --------
Income before loss on sale of real estate, minority interests and extraordinary item......... 35,447 18,547 6,986
Loss on sale of real estate.................................................................. (15,461) - -
-------- -------- --------
Income before minority interests and extraordinary item...................................... 19,986 18,547 6,986
(Income) loss allocated to minority interests................................................ (2,456) (10,581) 2,092
-------- -------- --------
Income before extraordinary item............................................................. 17,530 7,966 9,078
Extraordinary item - loss on early extinguishment of debt,
net of minority interests in the amount of $0 in 1998 and 1997 and $3,263 in 1996......... - (2,061) (1,017)
-------- -------- --------
Net income................................................................................... 17,530 5,905 8,061
Income allocated to preferred shareholders................................................... 24,604 12,726 14,236
-------- -------- --------
Net loss applicable to common shares......................................................... $ (7,074) $ (6,821) $ (6,175)
======== ======== ========
Earnings per common share - basic and diluted:
Loss before extraordinary item......................................................... $ (0.20) $ (0.25) $ (0.63)
Extraordinary item..................................................................... - (0.11) (0.12)
-------- -------- --------
Net loss............................................................................... $ (0.20) $ (0.36) $ (0.75)
======== ======== ========
Weighted average common shares outstanding................................................... 35,612 19,189 8,221
======== ======== ========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income................................................................................... $17,530 $ 5,905 $ 8,061
Adjustments to reconcile net income to net cash provided by operating activities:
Income (loss) allocated to minority interests.......................................... 2,456 10,581 (2,092)
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
Loss on sale of real estate............................................................ 15,461 - -
Depreciation........................................................................... 51,840 25,055 17,468
Amortization of deferred financing costs and interest rate protection contracts........ 2,867 3,742 3,724
Amortization of leasing commissions.................................................... 1,119 1,660 1,788
Provision for uncollectible accounts receivable........................................ 1,387 970 710
Gain on sale of land................................................................... (274) (904) -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................................................ (17,605) (4,619) 1,945
(Increase) decrease in other assets....................................................... (4,185) 1,400 (3,597)
Increase (decrease) in other liabilities.................................................. (11,620) 3,381 9,785
Increase in accrued interest.............................................................. 2,279 127 606
(Increase) decrease in due from affiliates, net........................................... 80 497 (355)
------- ------- -------
Net cash provided by operating activities.............................................. 61,335 49,856 45,191
Investing Activities ------- ------- -------
Purchase of land............................................................................. - (667) (953)
Additions to buildings and improvements...................................................... (46,862) (20,390) (85,103)
Increase in property under development....................................................... (89,190) (49,668) (11,566)
Acquisition of outlet centers................................................................ - (159,232) (134,668)
Acquisition of Horizon, net of cash acquired and spin-off of HGP............................. (35,559) - -
Proceeds from sale of Prime Transferred Properties........................................... 26,015 - -
-------- -------- -------
Net cash used in investing activities.................................................. (145,596) (229,956) (232,290)
Financing Activities -------- -------- -------
Net proceeds from offerings.................................................................. - 242,729 36,948
Proceeds from notes payable.................................................................. 467,998 160,057 591,520
Principal repayments on notes payable........................................................ (283,806) (175,683) (397,951)
Deferred financing fees...................................................................... (3,277) (583) (18,036)
Distributions and dividends paid............................................................. (79,451) (33,605) (27,470)
Distributions to minority interests.......................................................... (17,811) (10,366) (8,915)
-------- -------- -------
Net cash provided by financing activities.............................................. 83,653 182,549 176,096
-------- -------- -------
Increase (decrease) in cash and cash equivalents............................................. (608) 2,449 (11,003)
Cash and cash equivalents at beginning of period............................................. 6,373 3,924 14,927
-------- -------- -------
Cash and cash equivalents at end of period................................................... $ 5,765 $ 6,373 $ 3,924
======== ======== ========
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
Supplemental Disclosure of Noncash Investing and Financing Activities:
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumption of notes payable..................................................... $ - $ 31,368 $ -
======== ========= =========
</TABLE>
The following assets and liabilities were acquired and sold in connection
with the consummation of the Merger Transactions on June 15, 1998:
Acquisition of Horizon, net of spin-off of HGP:
Fair value of assets acquired................................. $ 1,014,973
Cash paid, net of cash and cash equivalents acquired.......... (35,559)
Common shares issued.......................................... (214,282)
Common units issued........................................... (56,023)
Series B convertible preferred shares issued.................. (118,735)
-----------
Fair value of liabilities assumed........................... $ 590,374
===========
Disposition of Prime Transferred Properties:
Book value of assets disposed............................... $ 42,218
Cash received............................................... (26,015)
Loss on sale............................................... (15,461)
-----------
Liabilities disposed...................................... $ 742
===========
================================================================================
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Prime Retail, Inc.
Consolidated Statements of Shareholders' Equity
(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, 1996................... $ 23 $ 70 $ 29 $128,275 $ (6,913) $ 121,484
Series B preferred stock exchanged and
retired (4,209,000 shares) for common
(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
Issuance of 14,466,329 shares of common
stock, net of issuance cost.............. - - - 145 214,137 - 214,282
Issuance of 4,846,325 shares of Series B
preferred stock, net of issuance cost.... - 48 - - 118,687 - 118,735
Exchange of 975,462 common units for common
stock .................................. - - - 9 18,754 - 18,763
Exchange of 727,273 Series C preferred
units for 727,273 shares of Series C
Series C preferred stock................ - - 8 - 9,339 - 9,347
Net income.................................. - - - - - 17,530 17,530
Common distributions declared
($1.68 per share)....................... - - - - - (54,750) (54,750)
Preferred distributions and dividends declared:
Series A ($2.625 per share)............ - - - - - (6,037) (6,037)
Series B ($2.725 per share)............ - - - - - (13,275) (13,275)
Series C ($1.680 per share)............ - - - - - (5,389) (5,389)
----- ----- ------ -------- -------- --------- -----------
Balance, December 31, 1998.................. $ 23 $ 78 $ 44 $ 427 $759,105 $(115,943) $ 643,734
===== ===== ====== ======== ======== ========= ===========
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Prime Retail, Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands, except share and unit information)
Note 1 - Organization and Basis of Presentation
Organization
Prime Retail, Inc. (the "Company") is a self-administered and self-managed
real estate investment trust ("REIT") that operates primarily within one
business segment and develops, acquires, owns and operates manufacturers' outlet
centers in the United States. The Company's manufacturers' outlet center
portfolio, including three manufacturers' outlet centers owned through joint
venture partnerships, consists of 50 manufacturers' outlet centers in 26 states,
which total 14,348,000 square feet of gross leasable area ("GLA") at December
31, 1998. 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, 1998, the Company owned 2,300,000 Senior Preferred Units of
the Operating Partnership (the "Senior Preferred Units"), 7,828,125 Series B
Convertible Preferred Units of the Operating Partnership (the "Series B
Convertible Preferred Units"), 4,363,636 Series C Preferred Units of the
Operating Partnership (the "Series C Preferred Units"), and 42,736,742 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 Convertible Participating Preferred Stock ("Series B Convertible
Preferred Stock"), and Series C Cumulative 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 1997 and 1998.)
A summary of the holders of units in the Operating Partnership as of
December 31, 1998 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 7,828,125 4,363,636 42,736,742
PGI, management and other (1).......................................... - - - 11,312,131
--------- --------- --------- ----------
2,300,000 7,828,125 4,363,636 54,048,873
====================================================================================================================================
</TABLE>
Note:
(1) Includes 993,480 units beneficially owned by management and 4,102,923 units
owned by certain executive officers based on their ownership interests in
PGI.
As of December 31, 1998, the Company has a 79.1% 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.
<PAGE>
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, 1998, 1997 and 1996. 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.
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. Certain amounts in prior years have been reclassified to the
current year presentation.
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, 1998 and 1997 was $4,288 and $1,780, respectively.
<PAGE>
Accounts receivable due after one year primarily representing straight-line
rents were $7,233 and $5,969 at December 31, 1998 and 1997, respectively.
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.
Due from Affiliates, Net
Due from affiliates, net consists of amounts due from joint venture
partnerships related to the reimbursement of costs paid by the Company on their
behalf.
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 specifics the method of
computation, presentation and disclosure for earnings per share ("EPS"). SFAS
No. 128 requires the presentation of both 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 were converted into shares of Common Stock, and (iv) shares of
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.
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 employee
stock option grants. The Company has elected to adopt only the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Impact of Recently Issued Accounting Standards
In March 1998 the American Institute of Certified Public Accountants'
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed for or Obtained for Internal Use." This
statement, which is effective for fiscal years beginning after December 15,
1998, requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. The Company does not
anticipate a material impact on its results of operations and financial
position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." This statement, which is effective for fiscal years
beginning after December 15, 1998, requires that costs of start-up activities,
including organization costs, be expensed as incurred. The Company does not
anticipate a material impact on its results of operations and financial
position.
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 $337, $263, and $116 of state and local taxes
for the years ended December 31, 1998, 1997 and 1996, respectively. The Company
paid $424, $170, and $102 of state and local taxes during the years ended
December 31, 1998 and 1997, and 1996, respectively.
<PAGE>
The following table summarizes the taxability of dividends and
distributions paid during (i) the period from January 1 to June 15, 1998, (ii)
the period from June 16 to December 31, 1998, and (iii) the years ended December
31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Period from Period from
January 1 to June 16 to Years end December 31,
June 15, December 31, ----------------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Preferred Stock
Ordinary income ......................................................... $1.3125 $1.3125 $2.625 $2.625
======= ======= ====== ======
Series B Convertible Preferred Stock
Ordinary income ......................................................... $ 1.663 $ 0.922 $1.940 $0.808
Return of capital........................................................ - 0.525 0.185 1.317
------- ------- ------ ------
$ 1.663 $ 1.447 $2.125 $2.125
Series C Preferred Stock ======= ======= ====== ======
Ordinary income ......................................................... $ 0.167 $ - $ - $ -
Return of capital........................................................ 0.725 0.912 - -
------- ------- ------ ------
$ 0.892 $ 0.912 $ - $ -
Common Stock ======= ======= ====== ======
Return of capital......................................................... $ 1.090 $ 0.912 $1.180 $1.325
======= ======= ====== ======
====================================================================================================================================
</TABLE>
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.
Note 3 - Acquisitions and Dispositions
On June 15, 1998, the merger and other transactions (collectively, the
"Merger Transactions") as set forth in the agreement and plan of merger (the
"Merger Agreement") between the Company and Horizon Group, Inc. ("Horizon") were
consummated for an aggregate consideration of $1,134,682, including liabilities
assumed and related transaction costs.
Pursuant to the terms of the Merger Agreement, the Company acquired (i) all
of the outstanding shares of common stock of Horizon at an exchange ratio of
0.20 of a share of the Company's Series B Convertible Preferred Stock and 0.597
of a share of the Company's Common Stock for each share of common stock of
Horizon, and (ii) all of the outstanding limited partnership units of
Horizon/Glen Outlet Centers Limited Partnership ("Horizon Partnership") at an
exchange ratio of 0.9193 of a Common Unit of partnership interest in the
Operating Partnership. A total of 4,846,325 shares of Series B Convertible
Preferred Stock and 14,466,329 shares of Common Stock were issued by the Company
to the shareholders of Horizon and 3,782,121 Common Units were issued by the
Operating Partnership to the limited partners of Horizon Partnership.
Immediately prior to the merger, Horizon Partnership contributed 13 of its
35 centers to Horizon Group Properties, L.P., of which Horizon Group Properties,
Inc. ("HGP"), a subsidiary of Horizon, is the sole general partner. HGP was
spun-off from the Company on June 15, 1998. The remaining 22 outlet centers of
Horizon were integrated into the Company's existing portfolio. On June 19, 1998,
all of the common equity of HGP was distributed to the convertible preferred and
common shareholders and unitholders of the Company and its Operating Partnership
and the shareholders and limited partners of Horizon and Horizon Partnership
based on their ownership in the Company immediately following consummation of
the merger. One share of common stock of HGP was distributed for every 20 shares
of Common Stock and Series C Convertible Preferred Stock of the Company and for
every 20 Common Units of the Operating Partnership. Additionally, approximately
1.196 shares of the common stock of HGP were distributed for every 20 shares of
Series B Convertible Preferred Stock of the Company.
In connection with the Merger Transactions, the Company sold Indiana
Factory Stores and Nebraska Crossing Factory Stores (collectively, the "Prime
Transferred Properties") to HGP for an aggregate consideration of $26,015,
resulting in a loss of $15,461. Proceeds from the sale of the Prime Transferred
Properties were used to repay indebtedness associated with the Horizon
properties.
<PAGE>
Concurrent with the closing of the merger, a special cash distribution was
made aggregating $21,871 consisting of $0.50 per share/unit to holders of Common
Stock, Series C Preferred Securities and Common Units and $0.60 per share to
holders of Series B Convertible Preferred Stock. Shareholders of Horizon and
limited partners of Horizon Partnership did not participate in these
distributions.
The merger has been accounted for using the purchase method of accounting
and the purchase price was allocated to the assets acquired and the liabilities
assumed based on estimates of their respective fair values. Certain assumptions
were made which management of the Company believes are reasonable.
On February 13, 1997, the Company, acquired Prime Outlets at Sedona, Prime
Outlets at Bend and Prime 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
Prime Outlets at Lodi ("Lodi") 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 Lodi using the equity
method of accounting. Commencing September 2, 1997, the operating results of
Lodi 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 Outlets
at Kittery"), and Prime Outlets at Latham 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 Prime Outlets at
Niagara Falls USA and Prime Outlets at Anderson 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.
The Company accounted for these acquisitions and dispositions 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 operating results of the Prime Transferred
Properties have been included in the Company's consolidated results of
operations through the date of disposition.
The following unaudited pro forma information presents a summary of the
Company's consolidated results of operations as if these acquisitions and
dispositions had occurred on January 1, 1997:
- --------------------------------------------------------------------------------
Year ended December 31, 1998 1997
- --------------------------------------------------------------------------------
Total revenues.................................... $286,323 $266,294
======== ========
Net income from continuing operations................. $ 35,699 $ 28,009
======== ========
Net income applicable to common shares................. $ 7,775 $ 6,527
======== ========
Earnings per common share - basic and diluted........... $ 0.18 $ 0.19
======== ========
Weighted average common shares outstanding.............. 42,151 33,655
======== ========
================================================================================
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 to finance 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, 1997 or of
future results of operations of the Company.
Note 4 - Restricted Cash
At December 31, 1998 and 1997, the Company had placed in escrow $34,969 and
$41,736, 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, 1998, restricted cash included
$18,308 relating to a nonrecourse expansion loan which can only be used to fund
certain development costs relating to the expansion of ten of the Company's
manufacturers' outlet centers, provided certain occupancy and other conditions
have been attained.
<PAGE>
Note 5 - Deferred Charges
Deferred charges were as follows:
------------------------------------------------------------------------------
December 31, 1998 1997
------------------------------------------------------------------------------
Leasing commissions............................ $ 10,775 $ 11,261
Financing costs................................ 17,787 18,145
-------- --------
28,562 29,406
Accumulated amortization....................... (16,044) (13,200)
-------- --------
$ 12,518 $ 16,206
======== ========
================================================================================
Note 6 - Bonds and Notes Payable
Bonds payable consisted of the following:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable rate tax-exempt revenue bonds (the "Bonds"), rate determined by remarketing agents, ranging
from 3.50% to 4.05% at December 31, 1998, 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 2.85% to 4.45% in 1998, 3.00% to 4.70% in 1997 and 2.45% to
5.30% in 1996. 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.
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. 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, 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 June 25, 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 June 25, 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, 1999. The
total commitments outstanding under the Letters of Credit, the Reimbursement
Agreement and the Standby Agreements as of December 31, 1998 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>
Notes payable consisted of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Mortgage and Expansion Loan, LIBOR plus 1.51% through November 10, 1998, 7.782% thereafter, monthly
installments of $2,580 including interest, due November 11, 2003, collateralized by fifteen properties
located throughout the United States.................................................................... $353,018 $355,996
Permanent Loan, 6.99%, monthly installments of $1,248 including interest, due July 11, 2008, collateralized
by four properties located throughout the United States................................................. 179,096 -
Secured Revolving Loan, LIBOR plus 1.35%, 6.90% at December 31, 1998, monthly interest-only payments,
due June 11, 2001, collateralized by six properties located throughout the United States................ 95,000 -
Mortgage, 6.927%, monthly installments of $565 including interest, due October 11, 2006, collateralized by
four properties located throughout the United States.................................................... 77,365 -
Mortgage, 6.927%, monthly installments of $527 including interest, due March 11, 2006, collateralized by
four properties located throughout the United States.................................................... 68,495 -
Mortgage, 6.915%, monthly installments of $402 including interest, due June 10, 2002, collateralized by
property located in Birch Run, MI....................................................................... 47,572 -
Mortgage, 6.95%, monthly installments of $351 including interest, due November 1, 2005, collateralized by
property located in Vero Beach, FL and Woodbury, MN.................................................... 46,037 -
Term loan, LIBOR plus 1.95%, 7.23% at December 31, 1998, 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 fifteen properties located throughout the United States.......... 45,260 53,290
Unsecured Revolving Loan, LIBOR plus 1.75%, 7.03% at December 31, 1998, monthly interest-only payments, due
September 11, 2001..................................................................................... 40,000 -
Mortgage, 6.915%, monthly installments of $357 including interest, due June 10, 2002, collateralized by
property located in Conroe, TX and Jeffersonville, OH.................................................. 38,381 -
Mortgage, 6.83%, monthly installments of $218 including interest, due June 6, 2006, collateralized by
property in Niagara Falls, NY.......................................................................... 30,832 31,328
Construction Mortgage Loan, LIBOR plus 1.50%, 7.13% at December 31, 1998, monthly interest-only payments
through May 31, 2002; monthly principal and interest payments thereafter, due June 1, 2004,
collateralized by property located in Hagerstown, MD................................................... 29,914 -
Mortgage, 8.35%, monthly installments of $215 including interest, due June 11, 2007, collateralized by three
properties located throughout the United States........................................................ 26,463 26,784
Mortgage, 6.93%, monthly installments of $221 including interest, due November 1, 2000, collateralized by
property located in Williamsburg, VA................................................................... 23,754 -
Construction mortgage loan, prime rate or LIBOR plus 1.75%, 6.85% at December 31, 1998, monthly
interest-only payments, due December 31, 1999, collateralized by property located in Lebanon, TN....... 19,951 -
Mortgage, 6.91%, monthly installments of $154 including interest, due June 10, 2001, collateralized by
property located in Edinburgh, IN...................................................................... 17,965 -
Mortgage, 6.91%, monthly installments of $93 including interest, due June 10, 2001, collateralized by
property located in Birch Run, MI...................................................................... 10,952 -
Mortgage, 6.95%, monthly installments of $81 including interest, due November 1, 2005, collateralized by
property located in Perryville, MD..................................................................... 10,433 -
Note Payable, 9.50%, monthly interest-only payments, due November 1, 2001, collateralized by land located in
Camarillo, CA.......................................................................................... 7,400 -
Mortgage, 9.375%, monthly installments of $71 including interest, due March 1, 2004, collateralized by
property located in Lombard, IL....................................................................... 6,507 6,735
Mortgage, 7.50%, monthly installments of $29 including interest, due June 22, 2000, collateralized by
property in Knoxville, TN.............................................................................. 3,666 3,732
Unsecured Corporate Line, $20,000 at December 31, 1998, LIBOR plus 2.50%, 7.55% at December 31, 1998,
monthly interest-only payments, due July 11, 1999...................................................... 3,000 -
Term loan, LIBOR plus 1.95%, 7.23% at December 31, 1998, 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..................................... 2,688 3,000
Other notes payable....................................................................................... 858 -
Unsecured term loans, 8.25%............................................................................... - 1,500
---------- --------
$1,184,607 $482,365
========== ========
==================================================================================================================================
</TABLE>
<PAGE>
At December 31, 1998, unused commitments available for borrowings under
various loan facilities were $37,392 in the aggregate. Interest costs are
summarized as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest incurred.............................................................................. $63,630 $36,436 $24,109
Interest capitalized........................................................................... (5,793) (4,056) (3,348)
Amortization of deferred financing costs and interest
rate protection contracts................................................................... 2,867 3,742 3,724
------- ------- -------
Interest expense............................................................................... $60,704 $36,122 $24,485
======= ======= =======
Interest paid.................................................................................. $61,114 $36,424 $23,703
======= ======= =======
==================================================================================================================================
</TABLE>
The scheduled maturities of bonds and notes payable at December 31, 1998
were as follows:
-------------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------------------------------------
1999............................................................ $ 85,034
2000............................................................ 45,321
2001............................................................ 185,742
2002............................................................ 89,371
2003............................................................ 349,509
Thereafter...................................................... 462,530
---------
$1,217,507
==========
===============================================================================
Bonds and notes payable include unamortized debt premiums of $40,804 in the
aggregate at December 31, 1998. Debt premiums are being amortized over the terms
of the related debt instruments in accordance with the effective interest
method. The aggregate carrying amount of bonds and notes payable at December 31,
1998 approximated their fair value. At December 31, 1998, the aggregate carrying
amount of rental property collateralizing bonds and notes payable was
$1,866,644.
On March 18, 1998, the Company obtained from a financial institution a
commitment for a construction mortgage loan (the "Construction Mortgage Loan")
relating to Phase I of Prime Outlets at Hagerstown ("Hagerstown") in an amount
not to exceed $21,600 which was subsequently increased to $32,860 on October 2,
1998 as a result of obtaining a commitment for construction financing on Phase
II. The Construction Mortgage Loan (i) bears a variable interest rate at 30-day
LIBOR plus 1.50%, (ii) matures on June 1, 2004, (iii) requires monthly
interest-only payments through May 31, 2002, and (iv) requires monthly principal
and interest payments thereafter. The Construction Mortgage Loan is
collateralized by a first mortgage on Hagerstown. At December 31, 1998, the
Construction Mortgage Loan had an outstanding principal balance of $29,914.
On June 15, 1998, the Company closed on $292,000 of loan facilities with a
financial institution. The transaction provided (i) a $180,000 nonrecourse
permanent loan (the "Permanent Loan") and (ii) a $112,000 full recourse secured
revolving loan of which $95,000 was funded (the "Secured Revolving Loan"). The
Permanent Loan is (i) collateralized by first mortgages on four manufacturers'
outlet centers, (ii) bears a fixed rate of interest of 6.99%, (iii) requires
monthly principal and interest payments pursuant to an approximate 26-year
amortization schedule, and (iv) matures on July 11, 2008. The Secured Revolving
Loan is (i) collateralized by first mortgages on six manufacturers' outlet
centers, (ii) bears a variable rate of interest equal to 30-day LIBOR plus
1.35%, (iii) requires monthly interest-only payments, and (iv) matures on June
11, 2001.
<PAGE>
On September 25, 1998, the Company closed on a $40,000 unsecured revolving
loan (the "Unsecured Revolving Loan") with a financial institution. The
Unsecured Revolving Loan (i) bears interest equal to 30-day LIBOR plus 1.75%,
(ii) requires monthly interest-only payments, and (iii) matures on September 11,
2001. The Unsecured Revolving Loan requires compliance with certain financial
loan covenants including those relating to the Company's (i) total outstanding
variable indebtedness, (ii) total outstanding indebtedness to market value, as
defined, (iii) consolidated net worth, as defined, and (iv) debt service
coverage ratio. At December 31, 1998, the Unsecured Revolving Loan had an
outstanding principal balance of $40,000.
As of December 31, 1998, the Company is a guarantor or otherwise obligated
with respect to an aggregate of $39,479 of the indebtedness of HGP and its
affiliates. As of December 31, 1998, the components of such indebtedness
included (i) a mortgage loan with an outstanding balance of $11,793 which bears
interest at a rate of prime, matures in April 1999, and is collateralized by a
first mortgage on Phases II and III of property located in Patchogue, New York;
(ii) a mortgage loan with an outstanding balance of $10,731 which bears interest
at a rate of 10.25%, matures in July 2018, and is collateralized by a first
mortgage on Phase I of property located in Patchogue, New York; (iii) a secured
loan with an outstanding balance of $2,645 which bears interest at a rate of
LIBOR plus 2.50% and matures in December 2002; (iv) a secured loan with an
outstanding balance of $310 which bears interest at a rate of prime and matures
in December 2000; and (v) an unsecured revolving credit facility with an
outstanding balance of $4,000 which bears a rate of interest of prime and
matures in April 1999. In addition, the Company is a guarantor of $10,000 of
obligations under HGP's $108,205 secured credit facility which bears a rate of
interest of LIBOR plus 1.90%, matures in July 2001, and is collateralized by 13
properties located throughout the United States.
On April 1, 1998, Horizon consummated an agreement with Castle & Cooke
Properties, Inc. which released Horizon from its future obligations under its
long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in
connection with the formation of a joint venture with certain affiliates of
Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the
terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the
project and an affiliate of Castle & Cooke, released Horizon from any continuing
obligations under the lease, which expires in 2045, in exchange for Horizon's
conveyance to the joint venture of all of Horizon's rights and obligations under
such lease. The agreement also provided that Horizon transfer to such joint
venture substantially all of Horizon's economic interest in its outlet center in
Lake Elsinore, California together with Horizon's interest in certain vacant
property located adjacent to the center. As of December 31, 1998, the Company
held a small minority interest in the joint venture but has no obligation or
commitment with respect to the post-closing operations of the Dole Cannery
project. Mortgage indebtedness with an outstanding balance of $29,134 at
December 31, 1998, for which one of the Company's subsidiary partnerships
remains legally responsible, is collateralized by a first mortgage on the Lake
Elsinore outlet center. The joint venture, as a limited partner in such
subsidiary partenrship, is obligated to make capital contributions to the
partnership to pay debt financing, operating and other expenses under certain
conditions. The subsidiary partnership will remain legally responsible for such
expenses in case of any shortfalls by the joint venture with respect to such
capital contributions. Castle & Cooke has provided the Company with an
unconditional guaranty with respect to any such shortfalls.
Note 7 - Equity Offerings and Other Transactions
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. The Series C Preferred
Securities were issued in the form of shares of preferred stock in the Company
and 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. Commencing August 8, 1998, the Series C Preferred Securities may be
converted into shares of Common Stock on a one-to-one basis.
<PAGE>
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 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 Lodi 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 Prime Outlets at Niagara Falls USA
and Prime Outlets at Anderson.
Note 8 - 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, 1998,
11,312,131 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, 1998, 1997 and 1996, expenses
totaling $3,035, $1,468, and $884, 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, 1997, 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 $2,433 and $8,739 that were allocable to minority interests were
allocated to common shareholders during the years ended December 31, 1998 and
1997, 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 7 - "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. On
October 19, 1998, the Series C Preferred Units were converted into 727,273
shares of Series C Preferred Stock and the related minority interests balance of
$9,347 was reclassified to shareholders' equity.
At December 31, 1998 and 1997, loans to certain limited partners, who also
are executive officers of the Company, aggregating $2,375 and $4,750,
respectively, were reported as a reduction in minority interests in the
Consolidated Balance Sheets.
Note 9 - 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, 1998, 2,300,000 shares Senior
Preferred Stock, 7,828,125 shares of Series B Convertible Preferred Stock, and
4,363,636 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, 1998, there were 13,727,422
shares of Common Stock reserved for future issuance upon conversion of the
Series B Convertible Preferred Stock and the Series C 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.
<PAGE>
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 unpaid
dividends thereon.
The holders of the Senior Preferred Stock and Series B 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.
The Series C Preferred Stock is convertible into shares of Common Stock on
a one-to-one basis, subject to adjustment. The Company has the right to call the
Series C Preferred Stock, at par, after 10 years. 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.
On March 31, 1999, the Company entered into an agreement pursuant to which
it will repurchase all of its outstanding shares of Series C Preferred Stock for
$43,636 or $10.00 per share. The agreement provides for the repurchase to occur
in two stages. In the first stage, on March 31, 1999, the Company repurchased
3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of
a $33,000 unsecured promissory note. The unsecured promissory note bears
interest at a rate of 12.0% per annum, matures on September 30, 1999, requires
monthly interest-only payments and may be prepaid by the Company at any time
without penalty. Second, the Company will repurchase the remaining 1,063,636
shares of its Series C Preferred Stock for an aggregate purchase price of
$10,636 on or before September 30, 1999. In addition, the sole holder of the
Series C Preferred Stock waived the Company's obligation to comply with the
financial covenants contained in its charter relating to the Series C Preferred
Stock, as well as the rights of such holder to require the Company to repurchase
the Series C Preferred Stock in certain circumstances at its original issuance
price of $13.75 per share, plus accrued but unpaid distributions. This waiver is
irrevocable.
Note 10 - Stock Incentive Plans
Under various plans, the Company may grant stock options and other awards
to executive officers, other key employees, outside directors and consultants.
The exercise price for stock options granted is the fair market value of the
Company's common stock on the date of grant.
In general, stock options are fully vested on the date of grant and have a
term of 10 years. In certain cases for executive officers, stock options granted
become exercisable over periods up to six years.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation expense
has been recognized for employee stock option grants. If the Company had elected
to recognize compensation based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, unaudited pro forma net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary item......................................................... $ 15,348 $ 7,442 $ 8,765
Extraordinary item....................................................................... - (2,061) (1,017)
-------- -------- ---------
Net income............................................................................... $ 15,348 $ 5,381 $ 7,748
======== ======== ========
Net loss applicable to common shares..................................................... $ (9,256) $ (7,345) $ (6,488)
======== ======== ========
Earnings per common share - basic and diluted:
Loss before extraordinary item....................................................... $ (0.26) $ (0.27) $ (0.67)
Extraordinary item................................................................... - (0.11) (0.12)
-------- -------- --------
Net loss............................................................................. $ (0.26) $ (0.38) $ (0.79)
======== ======== ========
====================================================================================================================================
</TABLE>
<PAGE>
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:
- --------------------------------------------------------------------------------
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Risk-free interest rate.................. 5.0% 5.5% 6.5%
Dividend yield........................... 12.0% 8.3% 9.0%
Volatility factor........................ 0.36 0.36 0.35
Weighted average life (in years)......... 10.0 10.0 10.0
================================================================================
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.
A summary of the Company's stock options plans for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------- -------------- -------------- -- -------------- -------------- -- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.......... 1,148,250 $15.64 903,500 $16.49 605,000 $18.78
Granted.................... 1,724,575 13.10 246,250 12.53 302,500 11.83
Transferred (Horizon)...... 959,742 18.62 - - - -
Cancelled.................. (21,500) 12.64 (1,500) 11.88 (4,000) 11.88
--------- ------ --------- ------ ------- ------
End of year................ 3,811,067 $14.90 1,148,250 $15.64 903,500 $16.49
Exercisable - ========= ====== ========= ====== ======= ======
end of year............. 3,083,570 $15.24 1,017,753 $15.18 640,253 $15.45
========= ====== ========= ====== ======= ======
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------- -----------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Remaining Exercise Exercise
Exercise Price Shares Life in Years Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.15 to $13.09............... 2,615,167 8.9 $12.60 2,015,164 $12.46
$13.60 to $14.19............... 262,490 8.8 13.91 162,490 13.73
$19.00............... 585,000 5.2 19.00 557,506 19.00
$23.53............... 13,788 7.3 23.53 13,788 23.53
$24.55 to $26.53............... 334,622 0.6 26.11 334,622 26.11
--------- --- ------ --------- ------
3,811,067 7.6 $14.90 3,083,570 $15.24
========= === ====== ========= ======
====================================================================================================================================
</TABLE>
The weighted fair value of options granted during the years ended December
31, 1998, 1997 and 1996 was $0.96 per share, $1.90 per share, and $1.69 per
share, respectively. Under the Company's various plans there were 774,424 and
106,250 shares reserved for future grants at December 31, 1998 and 1997,
respectively.
<PAGE>
Note 11 - Lease Agreements
The Company is the lessor of retail and office space under operating leases
with lease terms that expire from 1999 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:
-------------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------------------------------------
1999.................................................... $187,664
2000.................................................... 161,177
2001.................................................... 127,365
2002.................................................... 90,568
2003.................................................... 55,682
Thereafter.............................................. 72,472
--------
$694,928
========
===============================================================================
The Company leases certain land, buildings, and equipment under various
noncancelable operating lease agreements. Rental expense for operating leases
was $1,818, $1,059, and $1,011 for the years ended December 31, 1998, 1997, and
1996, 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:
-------------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------------------------------------
1999............................................... $ 1,684
2000............................................... 1,582
2001............................................... 1,378
2002............................................... 1,123
2003............................................... 767
-------
$ 6,534
=======
===============================================================================
Note 12 - 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 the losses, if any, resulting from such matters, including the matter
described below, will not have a material adverse effect on the consolidated
financial statements of the Company.
The Company is defendant in a lawsuit filed on July 27, 1998 in the U.S.
District Court for the Central District of California whereby the plaintiff
alleges that the Company and its related entities overcharged tenants for common
area maintenance expenditures. The outcome of, and the ultimate liability of the
Company, if any, from, this lawsuit cannot currently be predicted. Management
believes that the Company has acted properly and intends to defend this lawsuit
vigorously.
<PAGE>
<TABLE>
PRIME RETAIL, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(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>
Prime Outlets
at Anderson $ 5,795 $1,125 $ 11,036 $ - $ 393 $1,125 $ 11,429 $12,554 $ 329 Dec. 1997(A)
Prime Outlets
at Bend 7,841 2,560 8,476 1,101 4,468 3,661 12,944 16,605 486 Feb. 1997(A)
Prime Outlets
at Birch Run 58,523 13,584 123,476 - 398 13,584 123,874 137,458 2,397 Jun. 1998(A)
Prime Outlets
at Burlington 14,911 3,694 21,370 - 213 3,694 21,583 25,277 526 Jun. 1998(A)
Prime Outlets
at Calhoun 19,105 3,839 24,551 - 78 3,839 24,629 28,468 641 Jun. 1998(A)
Prime Outlets
at Castle Rock 35,642 4,424 47,200 2,717 16,268 7,141 63,468 70,609 9,544 Mar. 1994(A0
Prime Outlets
at Conroe 18,196 405 18,714 - 23 405 18,737 19,142 547 Jun. 1998(A)
Prime Outlets
at Darien 25,119 - - 3,074 31,203 3,074 31,203 34,277 4,665 July 1995(C)
Prime Outlets
at Edinburgh 17,964 2,726 37,952 - 1,059 2,726 39,011 41,737 899 Jun. 1998(A)
Prime Outlets
at Ellenton 29,192 - - 5,454 44,925 5,454 44,925 50,379 7,128 Oct.1991(C)
Prime Outlets
at Florida City 15,501 - - 2,875 21,521 2,875 21,521 24,396 4,102 Sept.1994(C)
Prime Outlets
at Fremont 14,331 3,250 24,096 - 39 3,250 24,135 27,385 522 Jun. 1998(A)
Prime Outlets
at Gaffney 21,841 - - 1,885 32,548 1,885 32,548 34,433 2,746 Nov.1996(C)
Prime Outlets
at Gainesville 20,650 - - 535 30,559 535 30,559 31,094 6,390 Aug. 1993(C)
Prime Outlets
at Gilroy 74,272 21,173 93,667 - 860 21,173 94,527 115,700 1,667 Jun. 1998(A)
Prime Outlets at
at Grove City 40,960 1,123 58,630 - 3,228 1,123 61,858 62,981 5,052 Nov. 1996(A)
Prime Outlets
at Gulfport 19,801 - - - 34,591 - 34,591 34,591 4,254 Oct. 1995(C)
Prime Outlets
at Hagerstown 29,914 - - 3,099 38,549 3,099 38,549 41,648 899 Aug. 1998(C)
Prime Outlets
at Hillsboro 31,402 7,121 50,894 - 180 7,121 51,074 58,195 992 Jun. 1998(A)
Prime Outlets
at Huntley 17,651 - - 1,506 34,817 1,506 34,817 36,323 5,326 Sept.1994(C)
Prime Outlets at
Jeffersonville
I 26,307 843 31,084 250 14,969 1,093 46,053 47,146 7,297 Mar. 1994(A)
Prime Outlets at
Jeffersonville
II 20,185 174 21,058 - 49 174 21,107 21,281 580 Jun. 1998(A)
Prime Outlets
at Kenosha 24,500 6,995 39,558 - 109 6,995 39,667 46,662 885 Jun. 1998(A)
Prime Outlets
of Kittery 12,296 820 24,061 - 1,199 820 25,260 26,080 726 Oct. 1997(A)
Prime Outlets
at Latham 1,720 507 1,476 - 2 507 1,478 1,985 43 Oct. 1997(A)
Prime Outlets
at Lebanon 19,952 - - 2,462 27,628 2,462 27,628 30,090 490 Apr. 1998(C)
Prime Outlets
at Lee 25,736 8,035 31,656 - 248 8,035 31,904 39,939 1,097 Jun. 1998(A)
Prime Outlets
at Lodi 20,805 1,013 21,455 707 12,256 1,720 33,711 35,431 1,834 Sept. 1997(A)
Prime Outlets
at Loveland 22,617 6,400 33,244 - 20 6,400 33,264 39,664 3,452 Nov. 1996(A)
Melrose Place 2,000 - - 499 1,880 499 1,880 2,379 788 Aug. 1987(C)
Prime Outlets
at Michigan
City 51,250 7,241 74,277 - 494 7,241 74,771 82,012 1,582 Jun. 1998(A)
Prime Outlets 9,342 - - 2,502 22,194 2,502 22,194 24,696 5,917 Oct. 1991(C)
at Morrisville
Prime Outlets
at Naples 10,749 2,753 15,602 5 2,699 2,758 18,301 21,059 2,050 Mar. 1994(A)
Prime Outlets at
Niagara Falls
USA 30,832 7,247 82,842 - 738 7,247 83,580 90,827 2,362 Dec. 1997(A)
</TABLE>
<TABLE>
PRIME RETAIL, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(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>
Northgate Plaza $ 6,507 $ 3,626 $ 11,630 $ - $ 142 $ 3,626 $ 11,772 $ 15,398 $ 1,621 Mar. 1994(A)
Prime Outlets
at Odessa 14,483 815 31,311 - 2,168 815 33,479 34,294 3,490 Nov. 1996(A)
Prime Outlets
at Oshkosh 14,753 2,160 26,895 - 955 2,160 27,850 30,010 766 Jun. 1998(A)
Prime Outlets
at Perryville 10,433 3,089 16,287 - 21 3,089 16,308 19,397 333 Jun. 1998(A)
Prime Outlets
at Pismo Beach 13,201 9,048 17,617 - 35 9,048 17,652 26,700 426 Jun. 1998(A)
Prime Outlets
at Post Falls 11,663 3,100 12,163 - 72 3,100 12,235 15,335 658 Feb. 1997(A)
Prime Outlets
at Queenstown 19,289 4,422 35,592 - 37 4,422 35,629 40,051 635 Jun. 1998(A)
Prime Outlets
at San Marcos 39,206 - - 1,626 43,621 1,626 43,621 45,247 11,579 Aug. 1990(C)
Prime Outlets
at Sedona 6,959 1,924 9,099 750 94 2,674 9,193 11,867 461 Feb. 1997(A)
Prime Outlets at
Silverthorne 25,798 9,294 34,932 - 111 9,294 35,043 44,337 764 Jun. 1998(A)
Prime Outlets
at Tracy 13,473 6,170 16,715 - 33 6,170 16,748 22,918 454 Jun. 1998(A)
Prime Outlets
at Vero Beach 27,623 4,530 41,878 - 248 4,530 42,126 46,656 1,169 Jun. 1998(A)
Prime Outlets at
Warehouse Row 23,900 - - 1,175 32,856 1,175 32,856 34,031 11,245 Nov. 1989(C)
Prime Outlets at
Warehouse
Row II - - - 350 2,600 350 2,600 2,950 422 Dec. 1993(A)
Prime Outlets
at Waterloo 41,277 1,927 55,358 - 142 1,927 55,500 57,427 1,326 Jun. 1998(A)
Western Plaza 10,666 - - 2,000 7,128 2,000 7,128 9,128 1,230 Jun. 1993(A)
Prime Outlets at
Williamsburg 23,754 12,129 55,216 - 66 12,129 55,282 67,411 980 Jun. 1998(A)
Prime Outlets
at Woodbury 18,415 2,528 27,645 - 107 2,528 27,752 30,280 508 Jun. 1998(A)
Property Under
Development 7,400 - - - 45,068 - 45,068 45,068 - Under
Construction
Other Property - - 1,588 - 3,126 - 4,714 4,714 1,465 Mar. 1994-
---------- -------- ---------- ------- -------- ------- ---------- ---------- -------- Dec. 1998(A)
$1,125,702 $171,814 $1,290,301 $34,572 $519,035 $206,386 $1,809,336 $2,015,722 $127,747
========== ======== ========== ======= ======== ======== ========== ========== ========
</TABLE>
<PAGE>
PRIME RETAIL, INC.
Notes to Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
(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 $1,727,099 at
December 31, 1998.
Investment in Rental Property
Year Ended December 31
-------------------------------------------
1998 1997 1996
------------- ------------- ------------
Balance, beginning of period...... $ 904,782 $640,759 $454,480
Retirements....................... (880) (718) (8)
Acquisitions...................... 1,013,231 191,345 131,593
Improvements...................... 145,174 73,773 54,694
Dispositions...................... (46,585) (377) -
---------- -------- --------
Balance, end of period............ $2,015,722 $904,782 $640,759
========== ======== ========
Accumulated Depreciation
Year Ended December 31
-------------------------------------------
1998 1997 1996
------------- ------------- ------------
Balance, beginning of period...... $ 82,033 $57,674 $ 40,190
Retirements....................... (880) (718) (8)
Other............................. ( 68) 22 24
Dispositions...................... (5,178) - -
Depreciation for the period....... 51,840 25,055 17,468
-------- ------- --------
Balance, end of period............ $127,747 $82,033 $ 57,674
======== ======= ========
SKY MERGER CORP.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
(to be renamed, "Prime Retail, Inc.")
Sky Merger Corp., a Maryland corporation having its principal office in
Baltimore, Maryland and having CSC - Lawyers Incorporating Service Company as
its resident agent located at 11 East Chase Street, Baltimore, Maryland (the
"Corporation"), hereby certifies to the Maryland State Department of Assessments
and Taxation ("SDAT"), that:
FIRST: The Corporation was incorporated pursuant to the laws of the State
of Maryland on November 12, 1997 whereby it filed its Articles of Incorporation
dated November 11, 1997.
SECOND: The Corporation entered into that certain Amended and Restated
Agreement and Plan of Merger dated as of February 1, 1998 (the "Merger
Agreement") among the Corporation, Prime Retail, Inc., a Maryland corporation
(the "Predecessor Corporation"), Prime Retail, L.P., a Delaware limited
partnership, Horizon Group, Inc., a Michigan corporation ("Horizon"), Horizon
Group Properties, Inc., a Maryland corporation, Horizon Group Properties, L.P.,
a Delaware limited partnership, and Horizon/Glen Outlet Centers Limited
Partnership, a Delaware limited partnership.
THIRD: The Corporation intends to file certain Articles of Merger with the
SDAT (the "Horizon/Subsidiary Articles of Merger"), pursuant to which Horizon
will be merged into the Corporation with the Corporation as the surviving
corporation.
FOURTH: Pursuant to the Merger Agreement, immediately after the filing of
the Horizon/Subsidiary Articles of Merger, the Corporation will file certain
Articles of Merger with the SDAT (the "Prime/Horizon Articles of Merger")
pursuant to which (I) the Predecessor Corporation will merge into the
Corporation, with the Corporation as the surviving corporation and (ii) the
Corporation will continue under the name "Prime Retail, Inc."
FIFTH: These Amended and Restated Articles of Incorporation have been duly
approved and adopted by the Corporation's shareholders in accordance with the
Maryland General Corporation Law as now or hereafter in force (the "MGCL").
SIXTH: The Corporation desires to amend and restate its charter as
currently in effect as hereinafter provided. The provisions set forth in these
Amended and Restated Articles of Incorporation are all the provisions of the
charter of the Corporation as currently in effect and will survive the filing of
the Horizon/Subsidiary Articles of Merger and the Prime/Horizon Articles of
Merger. The Articles of Incorporation of the Corporation, as currently in
effect, are hereby amended and restated in full as follows:
<PAGE>
ARTICLE I
Name
The name of the Corporation (the "Corporation") is "Sky Merger Corp."
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 11 East Chase Street, Baltimore, Maryland 21202. The name
of its registered agent at that office is CSC - Lawyers Incorporating Service
Company.
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").
ARTICLE IV
Capitalization
4.1 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
262,815,000 consisting of (i) 150,000,000 shares of common stock having a par
value of one cent ($.01) per share (the "Common Stock"), amounting in the
aggregate to par value of $1,500,000, (ii) 24,315,000 shares of preferred stock
having a par value of one cent ($.01) per share (the "Preferred Stock"),
amounting to an aggregate par value of $243,150 of which 2,300,000 shares shall
be designated as 10.5% Series A Senior Cumulative Preferred Stock (the "Series A
Preferred Stock") and 7,190,800 shares shall be designated as 8.5% Series B
Cumulative Participating Convertible Preferred Stock (the "Series B Preferred
Stock") and 4,528,302 shares shall be designated as Series C Cumulative
Convertible Redeemable Preferred Stock (the "Series C Preferred Stock")
<PAGE>
and (iii) 88,500,000 shares of excess stock having a par value of one cent
($.01) per share (the "Excess Stock"), amounting in the aggregate to par value
of $885,000, of which 76,342,500 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
$2,628,150.
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.
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.
4.2 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.
<PAGE>
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.
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).
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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 on March 15, 1994 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
<PAGE>
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 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. Upon the filing of the Prime/Horizon Articles of
Merger, 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
Second Amended and Restated Agreement of Limited Partnership of Prime Retail,
L.P., of which, upon the filing of the Prime/Horizon Articles of Merger, the
Corporation is the sole general partner, dated as of June __, 1998, 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
(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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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.
4.3 SERIES A PREFERRED STOCK
Section 4.3.1. Dividends.
<PAGE>
(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 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)
<PAGE>
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. 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.
<PAGE>
(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.
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.
<PAGE>
(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 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
<PAGE>
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.
(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
<PAGE>
applicable limitations set forth herein may thereafter be reissued as shares of
any series of Preferred Stock.
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 two-thirds 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
<PAGE>
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 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 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
<PAGE>
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 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
<PAGE>
(the issuance of which must have been approved by a vote of at least two-thirds
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
two-thirds 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.
(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
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
(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.
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."
4.4 EXCESS SERIES A PREFERRED STOCK
<PAGE>
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. Section IV.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
<PAGE>
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 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
<PAGE>
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 two-thirds 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, dissolution, or winding up of the
Corporation (the issuance of which must have been approved by a vote of at least
two-thirds 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 two-thirds 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.
4.5 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
<PAGE>
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 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 15, 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.
<PAGE>
(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 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
<PAGE>
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.
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
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
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
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 two-thirds 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) 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
<PAGE>
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 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.
<PAGE>
(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.
(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
<PAGE>
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 two-thirds 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
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
<PAGE>
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 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
<PAGE>
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 other 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.
(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 share (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
<PAGE>
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) 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.
<PAGE>
(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.
(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.
<PAGE>
(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), 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:
<PAGE>
(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;
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.
<PAGE>
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 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
<PAGE>
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 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 4V.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
<PAGE>
(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 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
<PAGE>
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 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."
4.6 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
<PAGE>
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.
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.
<PAGE>
(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.
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 two-thirds 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
<PAGE>
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 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.
4.7 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 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.
<PAGE>
(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 IV.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 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
<PAGE>
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)
<PAGE>
the redemption price; (4) the place or places at which certificates for
such shares are to be surrendered; (5) the then-current Series C Conversion
Price; and (6) that 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 (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.
<PAGE>
"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 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
<PAGE>
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 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:
<PAGE>
(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 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.
<PAGE>
(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 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
<PAGE>
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 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 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
<PAGE>
(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 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.
<PAGE>
(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.
(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.
<PAGE>
(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.
(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
<PAGE>
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
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),
<PAGE>
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,
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;
<PAGE>
(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
<PAGE>
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 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 Preferred Stock (except for changes that do not
materially and adversely affect the holders of the Series C Preferred
Stock); or
<PAGE>
(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.
4.8 PREFERRED STOCK
Section IV.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.
<PAGE>
4.9 EXCESS STOCK
Section IV.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.
4.10 COMMON STOCK
Section IV.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.
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.
<PAGE>
(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 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.
<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 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 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
<PAGE>
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 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.
<PAGE>
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. 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."
4.11 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
<PAGE>
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.
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
<PAGE>
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 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 5.0.1 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
<PAGE>
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 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 5.0.2 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 5.0.3 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 5.0.4 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 5.0.5 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 6.0.1 Management. The management of the business and the
conduct of the affairs of the Corporation shall be vested in its Board of
Directors.
Section 6.0.2 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.
There are currently three directors in office whose names are as follows:
Norman Perlmutter
James Wassel
Robert Perlmutter
Section 6.0.3 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 expiring at the annual meeting of stockholders to be held in 1999,
another class shall originally be elected for a term expiring at the annual
meeting of stockholders to be held in 2000, and another class shall
originally be elected for a term expiring at the annual meeting of
stockholders to be held in 2001, 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 6.0.4 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 6.0.5 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 6.0.6 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
<PAGE>
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 6.0.7 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 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.
<PAGE>
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.
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), 6.0.3 and 6.0.5 and Article X hereof.
All rights conferred upon stockholders herein are subject to this
reservation.
ARTICLE XI
Existence
The Corporation is to have a perpetual existence.
SEVENTH: The total number of shares of stock heretofore authorized is
Fifty Million (50,000,000) shares of stock of par value of one cent ($.01)
per share and of the aggregate par value of Five Hundred Thousand Dollars
($500,000). The capital stock of the corporation heretofore is designated
as common stock.
The total number of all classes of stock that the Corporation shall
have authority to issue is 262,815,000 consisting of (i) 150,000,000 shares
of common stock having a par value of one cent ($.01) per share (the
"Common Stock"), amounting in the aggregate to par value of $1,500,000,
(ii) 24,315,000 shares of preferred stock having a par value of one cent
($.01) per share (the "Preferred Stock"), amounting to an aggregate par
value of $243,150 of which 2,300,000 shares shall be designated as 10.5%
Series A Senior Cumulative Preferred Stock (the "Series A Preferred Stock")
and 7,190,800 shares shall be designated as 8.5% Series B Cumulative
Participating Convertible Preferred Stock (the "Series B Preferred Stock")
and 4,528,302 shares shall be designated as Series C Cumulative Convertible
Redeemable Preferred Stock (the "Series C Preferred Stock") and (iii)
88,500,000 shares of excess stock having a par value of one cent ($.01) per
share (the "Excess Stock"), amounting in the aggregate to par value of
$885,000, of which 76,342,500 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 $2,628,150.
<PAGE>
A description as amended of each class with preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of each class of
stock is set forth in Article SIXTH hereof.
The Board of Directors of the Corporation by a unanimous consent in
writing in lieu of a meeting under Section 2-408 of the MGCL, dated as of
June 11, 1998, adopted a resolution which set forth the foregoing amendment
to and restatement of the Articles of Incorporation, declaring that the
said amendment to and restatement of the Articles of Incorporation was
advisable and directing that it be submitted for action thereon by the
stockholders by a unanimous consent in writing in lieu of a meeting under
Section 2-505 of the MGCL.
EIGHTH: Notice of a meeting of stockholders to take action on the
amendment to and restatement of the Articles of Incorporation was waived by
all stockholders of the Corporation.
NINTH: The amendment to and restatement of the Articles of
Incorporation of the Corporation as hereinabove set forth was approved by
the unanimous consent in writing of the sole stockholder of the Corporation
dated as of June 11, 1998.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, Sky Merger Corp., has caused these presents to be
signed in its name and on its behalf by its President and attested by its
Secretary on June 12, 1998.
SKY MERGER CORP.
By: /s/ James S. Wassel
James S. Wassel
President
Attest: /s/ Amy L. Essex
Amy L. Essex
Secretary
<PAGE>
Officer's Certification
I, James S. Wassel, President of SKY MERGER CORP., hereby acknowledge
the foregoing Amended and Restated Articles of Incorporation of Sky Merger
Corp. to be the act of Sky Merger Corp., and to the best of my knowledge,
information and belief, these matters and facts are true in all material
respects, and my statement is made under penalties for perjury.
By: /s/ James S. Wassel
Name: James S. Wassel
Title: President
<PAGE>
8.5% Series B Cumulative Participating Preferred Stock
(Liquidation Preference $25.00 Per Share)
ARTICLES SUPPLEMENTARY
PRIME RETAIL, INC.
___________________________
Articles Supplementary Classifying and Designating 637,325 Shares
of Preferred Stock as
8.5% Series B Cumulative Participating Convertible Preferred Stock
and 318,663 Shares of Excess Preferred Stock as
Excess Series B Preferred Stock
<PAGE>
PRIME RETAIL, INC.
___________
Articles Supplementary Classifying and Designating 637,325 Shares
of Preferred Stock as
8.5% Series B Cumulative Participating Convertible Preferred Stock
and 318,663 Shares of Excess Preferred Stock as
Excess Series B Preferred Stock
___________
Prime Retail, Inc., a Maryland corporation (the "Corporation"), having its
principal office in the State of Maryland in the City of Baltimore, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
The Corporation's Amended and Restated Articles of Incorporation, as
amended through the dated hereof (the "Articles") set forth the terms,
preferences and rights of (i) the Corporation's 8.5% Series B Cumulative
Participating Convertible Preferred Stock, $.01 par value per share (the "Series
B Preferred Stock") and (ii) the Corporation's Excess Series B Preferred Stock
(the "Excess Series B Preferred Stock").
The Articles also authorize the Corporation to issue, among other shares of
capital stock, 150,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), 10,295,898 shares of Preferred Stock, $.01 par value per share
(the "Preferred Stock"), and 7,412,100 shares of Excess Preferred Stock, $.01
par value per share (the "Excess Preferred Stock").
Pursuant to authority conferred upon the Board of Directors by the Articles
and Bylaws of the Corporation, the Board of Directors adopted resolutions
authorizing the issuance of Series B Preferred Stock as part of the
consideration related to the merger transactions of the Corporation which were
consummated on June 15, 1998.
In accordance with the foregoing, the number of shares of Preferred Stock
to be designated as Series B Preferred Stock and the number of shares of Excess
Preferred Stock to be designated as Excess Series B Preferred Stock and the
other terms and conditions of such shares of capital stock, as determined by the
Board of Directors, are as follows:
Section 1.
(a) Designation of Additional Shares of Series B Preferred Stock. Of
the 10,295,898 shares of Preferred Stock authorized by the Articles,
637,325 are hereby designated as Series B Preferred Stock and the number of
shares which shall constitute such series shall be increased by 637,825.
<PAGE>
(b) Other rights, terms and conditions.The preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications,
redemption rights, voting powers, dividend rate and other rights, terms and
conditions of the shares hereby designated as Series B Preferred Stock
shall be as set forth in the Articles.
Section 2.
(a) Designation of Additional Shares of Excess Series B Preferred
Stock. Of the 7,412,100 authorized shares of Excess Preferred Stock,
318,663 are hereby designated as Excess Series B Preferred Stock and the
number of shares which shall constitute such series shall be increased by
318,663.
(b) Other rights, terms and conditions.The preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications,
redemption rights, voting powers, dividend rate and other rights, terms and
conditions of the shares hereby designated as Excess Series B Preferred
Stock shall be as set forth in the Articles.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name and on its behalf by its Executive
Vice President, General Counsel and Secretary and attested by its
________________ on this _____ day of ____________, 1998 and its said
Executive Vice President, General Counsel and Secretary acknowledged under
penalties of perjury that these Articles Supplementary are the corporate
act of said Corporation and that to the best of his knowledge, information
and belief, the matters and facts set forth herein are true in all material
respects.
PRIME RETAIL, INC.
By: __________________________
C. Alan Schroeder
Executive Vice President, General
Counsel and Secretary
Attest:
________________________
Name:
Title:
<PAGE>
SKY MERGER CORP.
AMENDED AND RESTATED
BY-LAWS
(to be renamed, "Prime Retail, Inc.")
adopted as of June 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
OFFICES
ARTICLE 2
STOCKHOLDERS
Section 2.01. Place of Meetings...................................1
Section 2.02. Annual Meeting......................................1
Section 2.03. Special Meetings....................................1
Section 2.04. Notice of Stockholder Meetings......................1
Section 2.05. Quorum..............................................3
Section 2.06. Voting and Proxies..................................4
Section 2.07. Presiding Officer of Meetings.......................4
Section 2.08. Secretary of Meetings...............................4
Section 2.09. Action in Lieu of Meeting...........................4
ARTICLE 3
BOARD OF DIRECTORS
Section 3.01. Powers..............................................4
Section 3.02. Number; Election; Qualification; Term...............5
Section 3.03. Vacancies...........................................7
Section 3.04. Place of Meetings...................................7
Section 3.05. Annual Meeting......................................7
Section 3.06. Regular Meetings....................................7
Section 3.07. Special Meetings....................................7
Section 3.08. Organization........................................7
Section 3.09. Quorum..............................................7
Section 3.10. Vote................................................7
Section 3.11. Action in Lieu of a Meeting.........................8
Section 3.12. Conference Call Meeting.............................8
Section 3.13. Removal of Director.................................8
Section 3.14. Chairman of the Board...............................8
ARTICLE 4
COMMITTEES
Section 4.01. Committees of the Board.............................8
Section 4.02. Procedures; Minutes of Meetings.....................8
<PAGE>
ARTICLE 5
OFFICERS
Section 5.01. General.............................................9
Section 5.02. Powers and Duties...................................9
Section 5.03. Term of Office; Removal and Vacancy.................9
Section 5.04. Chairman of the Board...............................9
Section 5.05. Chief Executive Officer.............................9
Section 5.06. President..........................................10
Section 5.07. Secretary..........................................10
Section 5.08. Treasurer..........................................10
ARTICLE 6
CAPITAL STOCK
Section 6.01. Certificates of Stock..............................11
Section 6.02. Transfer of Stock..................................11
Section 6.03. Ownership of Stock.................................11
Section 6.04. Lost, Stolen, or Destroyed Certificates............11
ARTICLE 7
MISCELLANEOUS
Section 7.01. Corporate Seal.....................................11
Section 7.02. Fiscal Year........................................11
ARTICLE 8
INDEMNIFICATION; TRANSACTIONSWITH INTERESTED PERSONS
Section 8.01. Indemnification....................................12
Section 8.02. Transactions With Interested Persons...............12
ARTICLE 9
NOTICES
Section 9.01. Notice.............................................13
Section 9.02. Waiver.............................................13
ARTICLE 10
AMENDMENT
<PAGE>
SKY MERGER CORP.
AMENDED AND RESTATED
BY-LAWS
(to be renamed, "Prime Retail, Inc.")
adopted as of June 11, 1998
ARTICLE 1
OFFICES
Sky Merger Corp. (the "Corporation") shall maintain a registered
office in the State of Maryland as required by law. The Corporation may
also have offices at other places, within or without the State of Maryland
as the business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
Section 2.01. Place of Meetings. Meetings of stockholders shall be held
at such place, within or without the State of Maryland, but within the
United States, as the Board of Directors designates.
Section 2.02. Annual Meeting. The annual meeting of the stockholders
shall be held during the month of April, on such date and at such time as
the Board of Directors may from time to time designate. At each annual
meeting, stockholders entitled to vote shall elect the members of the Board
of Directors and transact such other business as may be properly brought
before the meeting in accordance with the Amended and Restated Articles of
Incorporation of the Corporation (the "Articles") and, to the extent not
inconsistent therewith, notice procedures specified in Section 2.04 below.
Section 2.03. Special Meetings. Special meetings of stockholders may be
called by the Chairman of the Board of Directors and shall be called by the
Chairman of the Board of Directors or the Secretary at the request in
writing of the Board of Directors. Except as may otherwise be provided in
the Articles, special meetings of the stockholders shall also be called by
the Secretary upon the request in writing of the holders of shares entitled
to cast 50 percent (50%) or more of all of the votes entitled to be cast at
the meeting. Such a request shall state the purpose or purposes of the
proposed meeting and the stockholders who make the request shall pay the
reasonably estimated cost of preparing and mailing the notice of the
meeting prior to its being sent.
<PAGE>
Section 2.04. Notice of Stockholder Meetings.
(a) Required Notice. Written notice stating the place, day and hour of
any annual or special stockholder meeting shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Chairman, the
Board of Directors, or other persons calling the meeting, to each
stockholder of record entitled to vote at such meeting and to any other
stockholder entitled by the Maryland General Corporation Law as from time
to time in effect (the "MGCL") or the Articles to receive notice of the
meeting. Notice shall be deemed to be effective at the earlier of: (i) when
deposited in the United States mail, addressed to the stockholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid; (ii) on the date shown on the return receipt if
sent by registered or certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee; (iii) when received; or
(iv) five (5) days after deposit in the United States mail, if mailed
postpaid and correctly addressed to an address other than that shown in the
Corporation's current record of stockholders.
(b) Adjourned Meeting. If any stockholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time, and place, if the new date, time, and place is announced at the
meeting before adjournment. But if a new record date for the adjourned
meeting is or must be fixed then notice must be given pursuant to the
requirements of paragraph (a) of this Section 2.04, to those persons who
are stockholders as of the new record date.
(c) Waiver of Notice. A stockholder may waive notice of the meeting
(or any notice required by the MGCL, the Articles, or these By-laws), by a
writing signed by the stockholder entitled to the notice, which is
delivered to the Corporation (either before or after the date and time
stated in the notice) for inclusion in the minutes or filing with the
corporate records.
A stockholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting unless the stockholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or
(2) waives objection to consideration of a particular matter at the
annual meeting that is not within the purpose or purposes described in the
meeting notice, unless the stockholder objects to considering the matter
when it is presented.
(d) Contents of Notice. The notice of each special stockholder meeting
shall include a description of the purpose or purposes for which the
meeting is called. Except as provided in Section 2.04(e), or as provided in
the Articles, or otherwise in the MGCL, the notice of an annual stockholder
meeting need not include a description of the purpose or purposes for which
the meeting is called.
<PAGE>
(e) Notice of Business. Notwithstanding anything else in these By-laws
to the contrary, no business may be transacted at an annual meeting of
stockholders, other than business that is either (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee thereof), (ii)
otherwise properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee thereof) or
(iii) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (A) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 2.04 and on
the record date for the determination of stockholders entitled to vote at
such annual meeting and (B) who complies with the notice procedures set
forth in the Articles and, to the extent not inconsistent therewith, this
Section 2.04.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting of the stockholders by a
stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than sixty (60) days nor more than ninety (90)
days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the
annual meeting of stockholders is called for a date that is not within
thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting of stockholders was mailed or such
public disclosure of the date of the annual meeting of stockholders was
made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before
the annual meeting of stockholders (i) a brief description of the business
desired to be brought before the annual meeting of stockholders and the
reasons for conducting such business at the annual meeting of stockholders,
(ii) the name and record address of such stockholder, (iii) the class or
series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other
person or persons (including their names) in connection with the proposal
of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting of
stockholders to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before such annual meeting in accordance with the
procedures set forth in the Articles and, to the extent not inconsistent
therewith, this Section 2.04; provided, however, that, once business has
been properly brought before the annual meeting of stockholders in
accordance with such procedures, nothing in this Section 2.04 shall be
deemed to preclude discussion by any stockholder of any such business. If
the Chairman of an annual meeting of stockholders determines that business
was not properly brought before the annual meeting of stockholders in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
<PAGE>
Section 2.05. Quorum. The holders, present in person or represented by
proxy, of 50 percent (50%) plus one (1) or more of the issued and
outstanding shares of capital stock entitled to be voted at a meeting shall
constitute a quorum for the transaction of business at the meeting. If less
than a quorum is present, the holders of a majority of such shares whose
holders are so present or represented may from time to time adjourn the
meeting to another place, date, or hour until a quorum is present,
whereupon the meeting may be held, as adjourned, without further notice
except as required by law or by Section 2.04.
Section 2.06. Voting and Proxies. When a quorum is present at a
meeting of the stockholders, the vote of the holders of a majority of the
shares of capital stock entitled to be voted whose holders are present in
person or represented by proxy shall decide any question brought before the
meeting, unless the question is one upon which, by express provision of law
or of the Articles or of these By-laws, a different vote is required.
Unless otherwise provided in the Articles, each stockholder shall at a
meeting of the stockholders be entitled to one (1) vote in person or by
proxy for each share of capital stock entitled to be voted held by such
stockholder. To be valid, a proxy must be executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary of the Corporation or other persons authorized to
tabulate votes before or at the time of the meeting. No proxy shall be
valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. At a meeting of the stockholders, all
questions relating to the qualifications of voters, the validity of
proxies, and the acceptance or rejection of votes shall be decided by the
presiding officer of the meeting.
Section 2.07. Presiding Officer of Meetings. The Chairman of the Board
of Directors, or in his absence the Chief Executive Officer, shall preside
at all meetings of the stockholders. In the absence of the Chairman of the
Board and the Chief Executive Officer, the President shall preside at such
meetings. In the absence of the Chairman of the Board, the Chief Executive
Officer and the President, the presiding officer shall be elected by vote
of the holders of a majority of the shares of capital stock entitled to be
voted whose holders are present in person or represented by proxy at the
meeting.
Section 2.08. Secretary of Meetings. The Secretary of the Corporation
shall act as secretary of all meetings of the stockholders. In the absence
of the Secretary, the presiding officer of the meeting shall appoint any
other person to act as secretary of the meeting.
Section 2.09. Action in Lieu of Meeting. Any action required or
permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if
consents in writing, setting forth the action so taken, are signed by the
holders of all shares entitled to be voted thereon.
<PAGE>
ARTICLE 3
BOARD OF DIRECTORS
Section 3.01. Powers. The business of the Corporation shall be managed
under the direction of the Board of Directors, which shall exercise all
such powers of the Corporation and do all such lawful acts and things as
are not by law or by the Articles or by these By-laws directed or required
to be exercised or done by the stockholders.
Section 3.02. Number; Election; Qualification; Term.
(a) The Board of Directors shall consist of that number of
members determined by the Board of Directors, but in no event less
than three. The term of office of a Director shall not be affected by
any decrease in the authorized number of Directors.
(b) Until the first annual meeting of the stockholders, the Board
of Directors shall consist of the persons named as the Directors of
the Corporation by the incorporator in the Articles. At the first
annual meeting and at each subsequent annual meeting of the
stockholders, the stockholders shall elect Directors to serve until
the next annual meeting, subject to the Articles and, to the extent
not inconsistent therewith, the notification procedures set forth in
Section 3.02(e) below. The number of Directors shall in no event be
less than three.
(c) Unless by the terms of the action pursuant to which he was
elected any special condition or conditions must be fulfilled in order
for him to be qualified, a person elected as a Director shall be
deemed to be qualified (i) upon his receipt of notice of election and
his indication of acceptance thereof or (ii) upon the expiration of
ten days after notice of election is given to him without his having
given notice of inability or unwillingness to serve.
(d) The Directors shall be classified, with respect to the time
for which they severally hold office, into three (3) classes, as
nearly equal in number as possible. One class shall be originally
elected for a term expiring at the annual meeting of stockholders to
be held in 1999. Another class shall be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2000.
Another class shall be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2001. Each class will
hold office until its successors are elected and qualified. Except as
provided in the Articles, at each annual meeting of the stockholders
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. Directors need not be
stockholders of the Corporation.
(e) Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of
the Corporation, except as may be otherwise provided in the Articles
with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in
certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders,
or at any special meeting of stockholders called for the purpose of
electing directors, (i) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (ii) by any
stockholder of the Corporation (A) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 3.02
and on the record date for the determination of stockholders entitled
to vote at such meeting and (B) who complies with the applicable
provisions of the Articles and, to the extent not inconsistent
therewith, the notice procedures set forth in this Section 3.02.
<PAGE>
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive office
of the Corporation (a) in the case of an annual meeting of
stockholders, not less than sixty (60) days nor more than ninety (90)
days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the
annual meeting of stockholders is called for a date that is not within
thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than
the close of business on the tenth (10th) day following the day an
which such notice of the date of the annual meeting of stockholders
was mailed or such public disclosure of the date of the annual meeting
of stockholders was made, whichever first occurs; and (b) in the case
of a special meeting of stockholders called for the purpose of
electing directors, not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the
special meeting of stockholders was mailed or public disclosure of the
date of the special meeting of stockholders was made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder
proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class or
series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the
class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by
proxy at the meeting to nominate the persons named in its notice and
(v) any other information relating to such stockholder that would be
required to be disclosed in a Proxy statement or other filings
required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to being
named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set
forth in this Section 3.02. If the presiding officer of the meeting
determines that a nomination was not made in accordance with the
foregoing procedures, the presiding officer shall declare to the
meeting that the nomination was defective and such defective
nomination shall be disregarded.
Section 3.03. Vacancies. Whenever between annual meetings of the
stockholders any vacancy exists in the Board of Directors by reason of
death, resignation, removal, or increase in the authorized number of
Directors, or otherwise, it shall be filled as provided in the
Articles.
Section 3.04. Place of Meetings. Any meeting of the Board of
Directors may be held either within or without the State of Maryland.
Section 3.05. Annual Meeting. There shall be an annual meeting of
the Board of Directors for the election of officers and the
transaction of such other business as may be brought before the
meeting. The annual meeting of the Board shall be held immediately
following the annual meeting of the stockholders or any adjournment
thereof, at the place where the annual meeting of the stockholders was
held or at such other place as a majority of the Directors who are
then present determine. If the annual meeting is not so held, it shall
be called and held in the manner provided herein for special meetings
of the Board or conducted pursuant to Section 3.11.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors, other than the annual meeting, may be held without notice
at such times and places as the Board may have fixed by resolution.
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief
Executive Officer or the President and shall be called on the written
request of any Director. Not less than one day's notice of a special
meeting shall be given by the Secretary to each Director.
Section 3.08. Organization. Every meeting of the Board of
Directors shall be presided over by the Chairman of the Board or in
his absence by the Chief Executive Officer. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President
shall preside at such meetings. In the absence of the Chairman of the
Board, the Chief Executive Officer and the President, a presiding
officer shall he chosen by a majority of the Directors present. The
Secretary of the Corporation shall act as secretary of the meeting. In
his absence the presiding officer shall appoint another person to act
as secretary of the meeting.
Section 3.09. Quorum. The presence of a majority or more of the
number of Directors fixed by Section 3.02(a) shall be necessary to
constitute a quorum for the transaction of business at a meeting of
the
<PAGE>
Board of Directors. If less than a quorum is present, a majority of
the Directors present may from time to time adjourn the meeting to
another time or place until a quorum is present, whereupon the meeting
may be held, as adjourned, without further notice.
Section 3.10. Vote. The act of a majority of the Directors
present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically
provided by law, by the Articles, or by these By-laws. Where a vote of
the Directors present results in a tie, the action proposed shall not
constitute an act of the Board of Directors.
Section 3.11. Action in Lieu of a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if the members
of the Board of committee, as the case may be, unanimously consent
thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board or committee.
Section 3.12. Conference Call Meeting. Members of the Board of
Directors or of any committee thereof may participate in a meeting of
the Board or committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the
meeting.
Section 3.13. Removal of Director. All Directors shall be subject
to removal in the manner provided in the Articles.
Section 3.14. Chairman of the Board. The Board of Directors may
choose a Chairman of the Board who shall, if present, preside at
meetings of the Board and of the stockholders. The Chairman of the
Board may be an officer of the Corporation elected pursuant to Article
5.
ARTICLE 4
COMMITTEES
Section 4.01. Committees of the Board. The Board of Directors
may, by resolution passed by a majority of the Directors in office,
establish one or more committees, each committee to consist of one or
more of the Directors. The Board may designate one or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member or members at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board,
shall have and may exercise all the power and authority of the Board
for direction and supervision of the management of the business and
affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it. No such
committee, however, shall have power or authority in reference to (i)
amending the Articles or these By-laws; (ii) approving any merger or
share exchange which does not require stockholder approval; (iii)
recommending to the stockholders any action which requires stockholder
approval; (iv) declaring a dividend or a distribution with respect to
stock; and (v) issuing any stock other than as permitted by Section
2-411(b) of the MGCL.
<PAGE>
Section 4.02. Procedures; Minutes of Meetings. Each committee
shall determine its rules with respect to notice, quorum, voting, and
the taking of action, provided that such rules shall be consistent
with law, the rules in these By-laws applicable to the Board of
Directors, and the resolution of the Board establishing the committee.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
ARTICLE 5
OFFICERS
Section 5.01. General. The Board of Directors shall elect the
officers of the Corporation, which shall include the Chairman of the
Board, the Chief Executive Officer, a President, a Treasurer and a
Secretary and such other officers as in the Board's opinion are
desirable for the conduct of the business of the Corporation. Any two
or more offices may be held by the same person except that the
President, if there shall be more than one officer, shall not also
hold the office of Vice-President or Secretary.
Section 5.02. Powers and Duties. Each of the officers of the
Corporation shall, unless otherwise ordered by the Board of Directors,
have such powers and duties as generally pertain to his respective
office as well as such powers and duties as from time to time may be
conferred upon him by the Board.
Section 5.03. Term of Office; Removal and Vacancy. Each officer
shall hold his office until his successor is elected and qualified or
until his earlier resignation or removal and shall be subject to
removal with or without cause at any time by the affirmative vote of a
majority of the Directors in office. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
Section 5.04. Chairman of the Board. The Chairman of the Board
shall supervise and direct the Chief Executive Officer and the
President, subject to the control of the Board of Directors. He shall
preside at all meetings of the stockholders and of the Board of
Directors. He may sign, with the secretary or any other proper officer
of the Corporation authorized by the Board of Directors, certificates
for shares of the Corporation, and deeds, mortgages, bonds, contracts,
or other instruments which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by those
By-laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of Chairman of the
Board and such other duties as may be prescribed by the Board of
Directors from time to time.
<PAGE>
Section 5.05. Chief Executive Officer. The Chief Executive
Officer shall be the principal executive officer of the Corporation
and, subject to the control of the Board of Directors, shall in
general supervise the business and affairs of the Corporation. He
shall, in the absence of the Chairman of the Board, preside at all
meetings of the stockholders and the Board of Directors. He may sign,
with the secretary or any other proper officer of the Corporation
authorized by the Board of Directors, certificates for shares of the
Corporation (as a supernumerary) and deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of
Directors or by those By-laws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or
executed; and in general shall perform all duties incident to the
office of Chief Executive Officer and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 5.06. President. The President shall be the principal
operating officer of the Corporation and, subject to the control of
the Board of Directors, shall in general supervise the business
operations of the Corporation. He shall, in the absence of the
Chairman of the Board and the Chief Executive Officer, preside at all
meetings of the stockholders and of the Board of Directors. He may
sign, with the secretary or any other proper officer of the
Corporation authorized by the Board of Directors, certificates for
shares of the Corporation and deeds, mortgages, bonds, contracts, or
other instruments which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by those
By-laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time
to time.
Section 5.07. Secretary. The Secretary shall: (a) keep the
minutes of the proceedings of the stockholders and of the Board of
Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these
By-laws or as required by law; (c) be custodian of the corporate
records and of any seal of the Corporation and if there is a seal of
the Corporation, see that it is affixed to all documents the execution
of which on behalf of the Corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records
of the Corporation; (e) keep a register of the post office address of
each stockholder which shall be furnished to the secretary by such
stockholder; (f) sign with the President, a Vice-President or the
Chairman of the Board, certificates for shares of the Corporation, the
issuance of which shall have been authorized by resolution of the
Board of Directors; (g) have general charge of the stock transfer
books of the Corporation; and (h) in general perform all duties
incident to the office of secretary and such other duties as from time
to time may be assigned to him by the President or by the Board of
Directors.
Section 508. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
Corporation; (b) receive and give receipts for moneys due and payable
to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies,
or other depositaries as shall be selected by the Board of Directors;
(c) in general, perform all of the duties incident to the office of
treasurer and such other duties as from time to time may be assigned
to him by the President or by the Board of Directors; and (d) sign
with the President, a Vice-President or the Chairman of the Board
certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors. If
required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine.
<PAGE>
ARTICLE 6
CAPITAL STOCK
Section 6.01. Certificates of Stock. Certificates for shares of
capital stock of the Corporation shall be in such form as the Board of
Directors may from time to time prescribe and shall be signed by the
President, a Vice-President or the Chairman of the Board and
countersigned by the Secretary, the Treasurer, an Assistant Secretary
or an Assistant Treasurer. The Chief Executive Officer may also sign
certificates for shares of capital stock of the Corporation as a
supernumerary. Any or each of the signatures on a stock certificate,
including that of any transfer agent or registrar, may be a facsimile.
If any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to
be such officer, transfer agent, or registrar before the certificate
is issued, the certificate may be issued by the Corporation with the
same effect as if the officer, transfer agent, or registrar were the
officer, transfer agent, or registrar at the date of issuance.
Section 6.02. Transfer of Stock. Shares of stock of the
Corporation shall be transferable on the books of the Corporation only
by the holder of record thereof, in person or by duly authorized
attorney, upon surrender and cancellation of a certificate or
certificates for a like number of shares, with an assignment or power
of transfer endorsed thereon or delivered therewith, duly executed,
and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the
Corporation or its agents may require.
Section 6.03. Ownership of Stock. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock
as the owner thereof in fact and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the
part of any other person, whether or not it has express or other
notice thereof, except as otherwise expressly provided by law.
Section 6.04. Lost, Stolen, or Destroyed Certificates. In case
any certificate for stock of the Corporation is lost, stolen, or
destroyed, the Corporation may require such proof of the fact and such
indemnity to be given to it, to its transfer agent, or to its
registrar, if any, as deemed necessary or advisable by it.
<PAGE>
ARTICLE 7
MISCELLANEOUS
Section 7.01. Corporate Seal. The seal of the Corporation shall
be circular in form and shall contain the name of the Corporation and
the word "Maryland".
Section 7.02. Fiscal Year. The Board of Directors shall have
power to fix, and from time to time to change, the fiscal year of the
Corporation.
ARTICLE 8
INDEMNIFICATION; TRANSACTIONS
WITH INTERESTED PERSONS
Section 8.01. 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 cr
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 By-laws 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 Section 8.01 in
respect of any act or omission that occurred prior to such amendment
or repeal.
Section 8.02. Transactions With Interested Persons. No contract
or transaction between the Corporation and any of its Directors or
officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which any of its
Directors or officers is a director or officer or has a financial
interest, shall be void or voidable solely for that reason, or solely
because the Director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof at which the
contract or transaction is authorized or solely because his vote is
counted for such purpose, if:
(a) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known
to the Board of Directors or the committee, and the Board of
Directors or committee in good faith approves or ratifies the
contract or transaction by the affirmative vote of a majority of
the disinterested Directors, even though the disinterested
Directors are less than a quorum;
<PAGE>
(b) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known
to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a majority
of the votes cast by such stockholders other than the votes of
shares owned of record or beneficially by the interested
Director, officer, corporation, firm or other activity; or
(c) the contract or transaction is fair and reasonable as to
the Corporation as of the time it is authorized, approved, or
ratified by the Board of Directors, a committee thereof, or the
stockholders entitled to vote thereon.
ARTICLE 9
NOTICES
Section 9.01. Notice. Whenever notice is required or permitted by these
By-laws to be given to any person, it may be either (a) oral and communicated in
person, by telephone, or by radio, television, or other form of voice
communication, effective upon receipt by the person, or (b) in writing and
communicated by being delivered by hand, by mail, or by telegraph, teletype, or
other form of record communication, effective upon receipt by the person or, if
earlier, upon delivery at his address as registered in the records of the
Corporation for purposes of notice-giving ("notice address"); provided that (i)
notice of a meeting of the stockholders shall be in writing, and (ii) a written
notice, if mailed postpaid and correctly addressed to a person at his notice
address, shall be effective three business days after its deposit by the sender
in the United States mail.
Section 9.02. Waiver. Whenever any notice is required to be given under the
provisions of law or of the Articles or of these By-laws, a waiver thereof in
writing, signed by the person or persons entitled to the notice, whether before
or after the time stated therein, shall be deemed equivalent thereto. Attendance
at a meeting for which notice is required shall be deemed waiver of such notice
unless such attendance is for the purpose of objecting, at the beginning of the
meeting, to the transaction of business on the ground that the meeting is not
lawfully called or convened.
ARTICLE 10
AMENDMENT
These By-laws may be amended or repealed, or new By-laws may be adopted, by
the stockholders at any meeting of the stockholders by the affirmative vote of
the holders of a majority of the voting power of all the shares of capital stock
of the Corporation entitled to vote generally in the election of Directors,
voting together as a class or pursuant to Section 2.09 of these By-laws, or by
the Board of Directors at any meeting of the Board of Directors or pursuant to
Section 3.11 of these By-laws; provided that the stockholders and the Board of
Directors may not amend or repeal (i) this Article 10, Sections 3.02(d) or 3.13
except by the affirmative vote of two-thirds of the aggregate number of votes
then entitled to be cast generally in the election of Directors and (ii) any
part of these By-laws that has been adopted by the stockholders except by vote
of the holders of a majority of the aggregate number of votes then entitled to
be cast thereon.
<PAGE>
Description of the
Prime Retail, Inc. 1999 Long-Term Incentive Program
In December 1998, the Executive Compensation and Stock Incentive Plan
Committee of the Company's Board of Directors (the "Committee") approved the
Prime Retail, Inc. 1999 Long-Term Incentive Program (the "Program"). The Program
was designed with significant input from the consulting firm of FPL Associates.
The purposes of the Program are (i) to attract, retain and motivate executive
employees by giving them the opportunity to acquire a significant equity
interest in the Company, and (ii) align the interests of the executive employees
with those of the Company's shareholders. A summary description of the Program
follows.
Overview of the Program
Under the Program, the Committee has established annual performance-based
awards ("Target Awards") for all officers of the Company with a rank of Senior
Vice President or higher ("Executive Employees"). These Target Awards, which are
set forth on Exhibit A hereto, will be payable in the form of shares of
restricted stock in each of 1999, 2000, 2001, 2002 and 2003, based on
performance in the immediately preceding year.
The actual annual award to be made to each Executive Employee will be
determined by the Company's total shareholder return (price appreciation and
dividends) during the immediately preceding year ("Total Shareholder Return").
As described more fully below, if the Company's Total Shareholder Return exceeds
certain levels, an Executive Employee may earn up to 150% of his Target Award.
Alternatively, if Total Shareholder Return falls below certain levels, no
portion of a Target Award will be earned under the Program.
One-half of an Executive Employee's annual award under the Program will be
based on the Company's Total Shareholder Return measured against objective
standards. The balance of an Executive Employee's annual award will be based on
the Company's Total Shareholder Return measured against the Company's Peer
Group. For purposes of the Program, the Company's "Peer Group" initially will
consist of the entities identified on Exhibit B hereto. The composition of such
Peer Group may be revised from time to time at the discretion of the Committee.
Objective Performance Measures
The objective performance measures established by the Committee with
respect to Total Shareholder Return are set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Threshold Level Target Level High Level
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Objective Measure:
Total Shareholder Return 12% 14% 16%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
o If the Company attains a Total Shareholder Return of 12%, each Executive
Employee will receive 25% of his Target Award under the Program.
<PAGE>
o If the Company attains a Total Shareholder Return of 14%, each Executive
Employee will receive 50% of his Target Award.
o If the Company attains a Total Shareholder Return of between 12% and 14%,
or between 14% and 16%, each Executive Employee will receive a percentage
of his Target Award determined by straight-line interpolation,
between 25% of his Target Award and 50% of his Target Award, or between
50% and 75% of his Target Award, respectively.
o If the Company attains a Total Shareholder Return of 16% or more, each
Executive Employee will receive 75% of his Target Award.
o If the Company fails to attain a Total Shareholder Return of at least
12%, no award will be made under the Program on the basis of
objective performance.
Relative Performance Measures
In measuring relative performance the Program will compare the Company's
Total Shareholder Return for the year against that of the Company's Peer Group.
The relative performance measures are described below.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Threshold Level Target Level High Level
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Relative Measure: 50th 75th 90th
Shareholder Return Percentile Percentile Percentile
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
o If the Company's Total Shareholder Return ranks at the 50th percentile of
the Peer Group, each Executive Employee will receive 25% of his Target
Award.
o If the Company's Total Shareholder Return ranks at the 75th percentile of
the Peer Group, each Executive Employee will receive 50% of his Target
Award.
o If the Company's Total Shareholder Return ranks between the 50th
percentile and the 75th percentile of the Peer Group, or between the
75th and 90th percentile, each Executive Employee will receive a
percentage of his Target Award determined by straight-line interpolation,
between 25% of his Target Award and 50% of his Target Award, or
between 50% and 75% of his Target Award, respectively.
o If the Company's Total Shareholder Return ranks at or over the 90th
percentile of the Peer Group, each Executive Employee will receive 75%
of his Target Award.
o If the Company's Total Shareholder Return is below the 50th Percentile of
the Peer Group, no award will be made under the Program on the basis of
relative performance.
<PAGE>
Vesting of Awards.
All awards will be subject to a vesting schedule. Twenty-five percent (25%)
of the award to an Executive Employee for any year will vest immediately on the
award date. Thereafter, on each anniversary of the award date, if the Executive
Employee is still employed by the Company on that anniversary date, an
additional twenty-five percent (25%) of the award will become vested. Thus, an
Executive Employee will be fully vested in any award on the third anniversary of
the award date, if the Executive Employee is still employed by the Company on
that anniversary date.
Upon a Change in Control of the Company, as defined in the Prime Retail,
Inc. 1998 Stock Incentive Plan ("the Plan"), the vesting of all outstanding
Awards will be accelerated. Executive Employees would receive a pro rata Award
for the portion of the performance year that was completed prior to the Change
in Control, subject to the Committee's discretion to make a greater Award if it
determines that circumstances so warrant.
Dividend and Voting Rights. Shares of the Company's common stock will be
issued to each Executive Employees as soon as practicable after the Committee
determines the portion of the Target Award that has been earned, subject to the
vesting restrictions described above. An Executive Employee will be entitled to
full dividend and voting rights on shares of restricted stock issued to him
under the Program. If the Executive Employee terminates employment with the
Company before becoming fully vested in the restricted stock, he will forfeit a
portion of the restricted stock award, but retain any dividend amounts received
prior to his employment termination.
Taxation. In general, an Executive Employee will recognize ordinary income
on the fair market value of the shares of Company stock awarded to him at the
time the shares become vested. The Company should receive a tax deduction in the
same amount and at the same time as the Executive Employees recognize income. To
receive this deduction, the Company must withhold any taxes required to be
withheld by law. An Executive Employee may elect to satisfy his tax withholding
obligation to the Company by having the Company withhold a portion of his Award,
surrendering previously-owned shares to the Company, or paying his withholding
obligation to the Company in cash.
If an Executive Employee sells the Company stock awarded after holding it
for the requisite period, generally one year, after it has become vested, his
gain (or loss) on the sale may be taxable at long-term capital gain (or loss)
rates.
Cancellation of 1994 Options.
In connection with the implementation of the Program, the Committee has
recommended that all stock option awards made to Executive Employees on March
18, 1994 be cancelled. The following Executive Employees will be affected:
Michael W. Reschke, 150,000 options; Abraham Rosenthal, 150,000 options; William
H. Carpenter, Jr., 150,000 options; Glenn D. Reschke, 50,000 options; and David
G. Phillips, 50,000 options.
<PAGE>
Administration by the Committee.
The Program is being implemented under the terms of the Plan. The Committee
is responsible for setting performance goals, certifying that such goals have
been met under the Program, and administering the Program. In this regard, the
Committee will have the discretion to approve additional awards to Executive
Employees in the event it concludes that the objective and relative measures
contemplated by the Program do not provide a comprehensive indication of
performance. The Committee will determine all questions arising in the
administration, interpretation, and application of the Program, including but
not limited to, questions of eligibility and the status and rights of Executive
Employees.
<PAGE>
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIME RETAIL, L.P.
Dated as of October 15, 1998
Effective as of June 15, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS; ETC...............................................................2
Accountants................................................................2
Act........................................................................3
Adjusted Capital Account Deficit...........................................3
Administrative Expenses....................................................3
Affiliate..................................................................4
Agreement..................................................................4
Antidilution Provisions....................................................4
Audited Financial Statements...............................................4
Bankruptcy.................................................................5
Capital Account............................................................6
Capital Contribution.......................................................8
Certificate................................................................8
Closing Price..............................................................8
Code.......................................................................9
Common Distribution........................................................9
Common Stock...............................................................9
Common Units...............................................................9
Consent of the Partners...................................................10
Contributed Partnership Interests.........................................10
Control...................................................................10
Convertible Preferred Distribution........................................11
Convertible Preferred Distribution Shortfall..............................11
Convertible Preferred Rights..............................................11
Convertible Preferred Stock...............................................11
Convertible Preferred Unit Redemption Amount..............................11
Convertible Preferred Units...............................................11
Current Per Share Market Price............................................11
Depreciation..............................................................12
Entity....................................................................12
ERISA.....................................................................12
GAAP......................................................................13
General Partner...........................................................13
Gross Asset Value.........................................................13
Hart Scott Act............................................................14
Horizon Limited Partnership...............................................14
Horizon Properties........................................................14
<PAGE>
PAGE
Immediate Family..........................................................14
Incentive Option..........................................................14
Incentive Option Agreement................................................15
Lien......................................................................15
Limited Partner...........................................................15
Liquidating Events........................................................15
Liquidating Trustee.......................................................15
Major Decisions...........................................................15
Majority-in-Interest of the Partners......................................15
Merger....................................................................16
Merger Agreement..........................................................16
Minimum Gain Capital Account..............................................16
Net Cash Flow.............................................................16
Net Income or Net Loss....................................................18
Nonrecourse Deductions....................................................19
Nonrecourse Liabilities...................................................19
Original Agreement........................................................19
Partner Minimum Gain......................................................19
Partner Nonrecourse Debt..................................................19
Partner Nonrecourse Deductions............................................20
Partners..................................................................20
Partnership...............................................................20
Partnership Interest......................................................20
Partnership Minimum Gain..................................................20
Partnership Payment Date..................................................20
Partnership Record Date...................................................20
Partnership Units.........................................................21
Permitted Transferee......................................................21
Person....................................................................21
Preferred Distribution....................................................21
Preferred Distribution Shortfall..........................................21
Preferred Stock...........................................................21
Preferred Unit Redemption Amount..........................................21
Preferred Units...........................................................21
Prime/Horizon Merger......................................................22
Property..................................................................22
Property Partnership Interests............................................22
Property Partnerships.....................................................22
Purchase Price............................................................22
Quarter...................................................................22
<PAGE>
PAGE
Regulations...............................................................22
Regulatory Allocations....................................................23
REIT......................................................................23
REIT Expenses.............................................................23
REIT Requirements.........................................................24
Rights....................................................................24
SEC.......................................................................24
Section 704(c) Tax Items..................................................24
September 9, 1997 Agreement...............................................24
Series C Preferred Distribution...........................................24
Series C Preferred Distribution Shortfall.................................24
Series C Preferred Purchase Agreement.....................................24
Series C Preferred Rights.................................................24
Series C Preferred Stock..................................................24
Series C Preferred Unit Redemption Amount.................................25
Series C Preferred Units..................................................25
Service...................................................................25
Shopping Center Project...................................................25
Special Distribution......................................................25
Stock Incentive Plan......................................................25
Substituted Limited Partner...............................................26
Tax Items.................................................................26
Trading Day...............................................................26
Transfer..................................................................26
1.2 Exhibits, Etc.............................................................26
ARTICLE II
ORGANIZATION..................................................................27
2.1 Formation and Continuation................................................27
2.2 Name......................................................................27
2.3 Character of the Business.................................................28
2.4 Location of the Principal Place of Business...............................29
2.5 Registered Agent and Registered Office....................................29
2.6 Power of Attorney.........................................................29
ARTICLE III
TERM; DISSOLUTION.............................................................31
3.1 Term......................................................................31
3.2 Dissolution...............................................................32
3.3 Bankruptcy of a Limited Partner...........................................32
<PAGE>
PAGE
ARTICLE IV
CONTRIBUTIONS TO CAPITAL; FINANCING...........................................33
4.1 General Partner Capital Contribution......................................33
4.2 Limited Partner Capital Contributions.....................................33
4.3 Additional Funds; Restrictions on General Partner.........................34
4.5 Stock Incentive Plan......................................................38
4.6 No Third Party Beneficiary................................................38
4.7 No Interest; No Return....................................................39
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..................................................39
4.9 Redemption of Series C Preferred Units....................................41
4.10Redemption of Convertible Preferred Units.................................44
ARTICLE V
INTENTIONALLY OMITTED.........................................................46
ARTICLE VIALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND ACCOUNTING MATTERS.....46
6.1 Allocations...............................................................46
6.2 Distributions.............................................................46
6.3 Books of Account..........................................................51
6.4 Reports...................................................................51
6.5 Audits....................................................................52
6.6 Tax Elections and Returns.................................................52
6.7 Tax Matters Partner.......................................................53
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER........................53
7.1 Expenditures by Partnership...............................................53
7.2 Powers and Duties of General Partner......................................54
7.3 Major Decisions...........................................................58
7.4 No Removal................................................................59
7.5 General Partner Participation.............................................59
7.6 Proscriptions.............................................................59
7.7 Additional Partners.......................................................60
7.8 Title Holder..............................................................60
7.9 Compensation of the General Partner.......................................60
<PAGE>
PAGE
7.10Waiver and Indemnification................................................60
7.11Operation in Accordance with REIT Requirements............................65
ARTICLE VII
DISSOLUTION, LIQUIDATION AND WINDING-UP.......................................65
8.1 Winding Up................................................................66
8.2 Distribution on Dissolution and Liquidation...............................68
8.3 Timing Requirements.......................................................68
8.4 Deemed Distribution and Recontribution....................................69
8.5 Distributions in Kind.....................................................69
8.6 Documentation of Liquidation..............................................70
8.7 Deficit Capital Account Balance...........................................70
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS;
WITHDRAWAL; ADMISSION OF ADDITIONAL PARTNERS..................................70
9.1 General Partner Transfer; Withdrawal; Substitute General Partner..........70
9.2 Transfers by Limited Partners.............................................72
9.3 Restrictions on Transfer..................................................74
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS................................79
10.1 No Participation in Management; No Personal Liability....................79
10.2 Duties and Conflicts.....................................................79
ARTICLE XI
GRANT OF RIGHTS TO LIMITED PARTNERS...........................................80
11.1 Grant of Rights..........................................................80
11.2 Terms of Rights..........................................................81
11.3 Reissuance or Reallocation of Common Units...............................81
11.1AGrant of Rights..........................................................81
11.2ATerms of Convertible Preferred Rights....................................82
11.3AReissuance or Reallocation of Convertible Preferred Units................82
<PAGE>
PAGE
ARTICLE XIIGRANT OF RIGHTS TO LIMITED PARTNERS HOLDING SERIES C
PREFERRED UNITS; REDEMPTION OF SERIES C PREFERRED UNITS.......................83
12.1 Grant of Rights..........................................................83
12.2 Terms of Rights..........................................................84
12.3 Reissuance or Reallocation of Series C Preferred Unit....................84
ARTICLE XIII
PARTNER REPRESENTATIONS AND WARRANTIES........................................84
(a) Organization....................................................85
(b) Due Authorization; Binding Agreement............................85
(c) Consents and Approvals..........................................85
ARTICLE XIV
GENERAL PROVISIONS............................................................85
14.1 Notices..................................................................85
14.2 Successors...............................................................86
14.3 Effect and Interpretation................................................86
14.4 Counterparts.............................................................86
14.5 Partners Not Agents......................................................86
14.6 Entire Understanding, Etc................................................86
14.7 Amendments...............................................................86
14.8 Severability.............................................................90
14.9 Trust Provision..........................................................90
14.10Pronouns and Headings....................................................91
14.11Assurances...............................................................91
14.12Remedies Cumulative......................................................91
14.13Construction.............................................................91
14.14Incorporation by Reference...............................................92
14.15Waiver of Action for Partition...........................................92
<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
F Conversion Rights of Convertible Preferred Units
G Form of Specimen [Common, Series B, Preferred, Etc.] Unit Certificate
SCHEDULES TO EXHIBIT C
1 Exchange Exercise Notice
2 Election Notice
3 Registration Rights Agreement
<PAGE>
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIME RETAIL, L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made
and entered into as of the 15th day of October, 1998 and is effective as of the
15th day of June, 1998.
W I T N E S S E T H:
WHEREAS, the Partnership's Agreement of Limited Partnership dated March 22,
1994 (the "Original Agreement"), was amended by a First Amendment thereto dated
as of June 24, 1996, and amended and restated in its entirety as of September 7,
1997 (the "September 9, 1997 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;
WHEREAS, the Partnership entered into a certain amended and restated
agreement and plan of merger dated as of February 1, 1998 (the "Merger
Agreement"), pursuant to which the Partnership merged with and into Horizon
Limited Partnership, which merger is effective as of June 15, 1998;
<PAGE>
WHEREAS, the Partners of the Partnership amended and restated the September
9, 1997 Agreement (the "Second Amended and Restated Agreement") to reflect the
consummation of the merger of the Partnership, the Special Distribution (as
defined herein), the Common Distribution (as defined herein) and the other
transactions contemplated by the Merger Agreement, and the admittance of the
persons listed on Exhibit A as limited partners in the Partnership;
WHEREAS, pursuant to Section 14.7(d) of the Second Amended and Restated
Agreement, the General Partner of the Partnership desires to further amend and
restate the Second Amended and Restated Agreement to cure certain ambiguities
and correct certain provisions which are inconsistent with other provisions
therein;
WHEREAS, this Third Amended and Restated Agreement is effective as of June
15, 1998; 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 partners
of the Partnership hereto, intending legally to be bound, hereby amend and
restate the September 9, 1997 Agreement and otherwise agree as follows:
ARTICLE I
DEFINITIONS; ETC.
<PAGE>
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 Partnership taxable 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
<PAGE>
(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 Third 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
<PAGE>
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
proceeding 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.
<PAGE>
"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.
<PAGE>
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(e) 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 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 or
treated as 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.
<PAGE>
"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 Distribution" shall mean the Partnership distribution described in
Section 6.2(c) hereof.
<PAGE>
"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 or pursuant to the
Merger Agreement 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.
"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 Rights" shall have the meaning set forth in Section
11.1A.
"Convertible Preferred Stock" means the Series B Cumulative Participating
Convertible Preferred Stock, par value $.01 per share, of the General Partner.
<PAGE>
"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 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
Partnership taxable 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
Partnership taxable 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 Partnership taxable 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
Partnership taxable 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 Partnership taxable 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.
<PAGE>
"Gross Asset Value" shall mean, with respect to any asset of the Partnership,
such asset's adjusted basis for Federal 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:
(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
<PAGE>
(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.
<PAGE>
"Hart Scott Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Horizon Limited Partnership" shall mean Horizon/Glen Outlet Centers
Limited Partnership, a Delaware limited partnership.
"Horizon Properties" shall mean the Partnership property acquired by the
Partnership pursuant to the Merger.
"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.
<PAGE>
"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.
"Merger" shall mean the merger of the Partnership and Horizon Limited
Partnership pursuant to the Merger Agreement.
"Merger Agreement" has the meaning set forth in the Recitals hereof.
"Minimum Gain Capital Account" shall mean, with respect to a Partner, the
sum of such Partner's Capital Account plus such Partner's share of Partner
Minimum Gain, as described in Section
<PAGE>
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 taxable 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 Partnership taxable 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;
<PAGE>
(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(f); (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.
<PAGE>
"Net Income or Net Loss" shall mean, for each Partnership taxable 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.
<PAGE>
"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" shall 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.
<PAGE>
"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 Record Date" for any distribution shall mean the same date as
the record date established by the General Partner for a distribution to its
shareholders.
"Partnership Units" shall mean fractional, undivided shares of Partnership
Interests issued pursuant to this Agreement. The ownership of Partnership Units
of any class or series may be evidenced by a certificate for such Partnership
Units in substantially the form of Exhibit G (including the restrictive legends
thereon), or as the General Partner may determine from time to time.
"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.
<PAGE>
"Preferred Units" shall mean the Partnership Units designated as Preferred
Units under this Agreement 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.
"Prime/Horizon Merger" shall mean the "Prime/Horizon Merger" as defined in
the Merger Agreement.
"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.
<PAGE>
"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.
"September 9, 1997 Agreement" has the meaning set forth in the Recitals to
this Agreement.
"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.
<PAGE>
"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" shall 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.
<PAGE>
"Service" shall mean the Internal Revenue Service and any successor
governmental agency.
"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.
"Special Distribution" shall mean the Partnership distribution described in
Section 6.2(b) hereof.
"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.
<PAGE>
"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
2.1 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.
2.2 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.
<PAGE>
2.3 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.
2.4 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.
2.5 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.
<PAGE>
2.6 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 General
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
<PAGE>
(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 Partnership
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
3.1 Term. The Partnership 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.
3.2 Dissolution. Except 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;
<PAGE>
(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.
3.3 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.
ARTICLE IV
CONTRIBUTIONS TO CAPITAL; FINANCING
4.1 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.
<PAGE>
(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.
4.2 Limited Partner Capital Contributions.
(a) Each Limited Partner had made contributions to the capital of the
Partnership and has the Common Units, Convertible Preferred 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.
(c) The General Partner is authorized to cause the Partnership to
issue Common Units and Convertible Preferred Units to limited partners of
Horizon Limited Partnership as contemplated by the Merger Agreement, and
upon issuance thereof upon consummation of the Merger, such Persons shall
be admitted as Limited Partners of the Partnership.
4.3 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.
<PAGE>
(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) consideration to be issued pursuant to the
Merger Agreement or any subsequent merger, consolidation, recapitalization
or similar transaction which has been approved by the General Partner, (ii)
in connection with the exercise by a Limited Partner of Rights, Convertible
Preferred Rights or Series C Preferred Rights pursuant to Article XI or XII
hereof, (iii) 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 (iv) 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.
<PAGE>
4.4 Issuance of Additional Partnership Interests; Admission of
Additional Limited Partners.
(a) In addition to any Partnership Interests issuable by the
Partnership pursuant to the Merger Agreement or 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
Convertible Preferred Units or 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.
<PAGE>
4.5 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.
4.6 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 any of the Partners.
4.7 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.
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.
<PAGE>
(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.
<PAGE>
(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 and (iv) each exchange by a Limited
Partner of Convertible Preferred Units for Common Units or Common Units for
Convertible Preferred Units pursuant to the exchange offer contemplated by
the Merger Agreement.
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.
<PAGE>
(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.
<PAGE>
4.10 Redemption of Convertible Preferred Units.
(a) On and after March 31, 1999, the Partnership, at the option of the
General Partner, may redeem the Convertible Preferred Units, in whole at
any time or from time to time in part at a redemption price for each
Convertible Preferred Unit, payable in cash, in an amount equal to the
Convertible Preferred Unit Redemption Amount therefor.
(b) Notice of the redemption of any Convertible Preferred Units shall
be mailed by first class mail to each Partner which is a holder of record
of Convertible 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
Convertible Preferred Units to be redeemed and, if fewer than all the
Convertible Preferred Units held by such Partner are to be redeemed, the
number of such Convertible 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 Convertible Preferred Distribution with respect to the Convertible
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 Convertible Preferred Distribution on the Convertible Preferred
Units so called for redemption shall cease to accrue, (ii) such Convertible
Preferred Units shall no longer be deemed to be outstanding, and (iii) all
rights of the holders thereof as holders of Convertible 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 Convertible Preferred Units so called for redemption. No interest
shall accrue for the benefit of the holders of Convertible 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 Convertible 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 Convertible Preferred Units are to
be redeemed, units to be redeemed shall be selected by the General Partner
from outstanding Convertible 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.
<PAGE>
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
ALLOCATIONS, DISTRIBUTIONS AND OTHER TAX AND ACCOUNTING MATTERS
6.1 Allocations. The Net Income, Net Loss and/or other Partnership
items shall be allocated pursuant to the provisions of Exhibit B.
6.2 Distributions.
(a) Except for the Special Distribution, the Common Distribution and
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.
<PAGE>
(iii) Third, to the extent the amount of cash distributed to the
Partners holding Convertible Preferred Units 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
Partners holding Convertible Preferred Units, pro rata in accordance
with their respective Convertible Preferred Units, 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 Partners
holding Convertible Preferred Units 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 Partners holding Convertible Preferred
Units, pro rata in accordance with their respective Convertible
Preferred Units.
(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.
<PAGE>
(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) On June 9, 1998, the Partnership formally
declared a cash distribution of (i) $0.50 per outstanding Common Unit
and Series C Preferred Unit and (ii) $0.60 per outstanding Convertible
Preferred Unit, in each case to each holder of record of Common Units,
Convertible Preferred Units and Series C Preferred Units as of the
close of the transfer books of the Partnership immediately prior to
the Merger (the "Special Distribution"). The payment date with respect
to the Special Distribution shall be on June 15, 1998.
(c) On June 15, 1998 immediately after consummation of the Merger, the
Partnership formally declared the distribution of each issued and
outstanding common unit of Horizon Group Properties, L.P. (each, an "HGP
Common Unit") to each holder of record of Common Units, Convertible
Preferred Units and Series C Preferred Units as of the close of the
transfer books of the Partnership immediately after the consummation of the
Merger such that (i) for every twenty (20) Convertible Preferred Units held
by a holder, such holder shall be entitled to receive 1.19617 HGP Common
Units, (ii) for every twenty (20) Series C Preferred Units held by a
holder, such holder shall be entitled to receive one (1) HGP Common Unit,
and (iii) for every twenty (20) Common Units held by a holder, such holder
shall be entitled to receive one (1) HGP Common Unit (the "Common
Distribution"). The payment date with respect to the Common Distribution
shall occur fifteen (15) days after June 15, 1998 or on such other date as
determined in the General Partner's sole discretion.
(d) 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.
<PAGE>
(e) 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.
(f) 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).
(g) 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.
<PAGE>
6.3 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.
6.4 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.
6.5 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.
<PAGE>
6.6 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 (including the election to be a
"large partnership" under Code Section 775; 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 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
(including extensions). 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 by the Limited
Partners.
6.7 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 and is authorized, but not required, to take all
actions within its authority as tax matters partner, as described in
subchapters C and D of Chapter 63, subtitle F of the Code; provided,
however, that 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.
<PAGE>
ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER
7.1 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.
7.2 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;
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(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;
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(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;
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(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;
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(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;
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(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, including without limitation the right to effect a merger of the
Partnership with another Entity in accordance with 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.
7.3 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. (20 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 or pursuant
to the transactions contemplated by the Merger Agreement.
(b) Dissolve the Partnership prior to the occurrence of any
of the Liquidating Events.
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7.4 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.
7.5 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.
7.6 Proscriptions. The General Partner shall not have the authority
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.
7.7 Additional Partners. Additional Partners may be admitted to the
Partnership only as provided in Section 4.4 hereof.
7.8 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.
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7.9 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.
7.10 Waiver and Indemnification.
(a) Neither any Partner nor any Person acting on behalf of any Partner
(including the (1) 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.
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(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.
<PAGE>
(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.
7.11 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
8.1 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:
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(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 liabilities (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.
<PAGE>
(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.
8.2 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;
<PAGE>
(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.
8.3 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.
<PAGE>
8.4 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,
including pursuant the Prime/Horizon Merger, 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 and applicable state and local income tax purposes, 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.
8.5 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.
8.6 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.
8.7 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
9.1 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.
<PAGE>
(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.
9.2 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.
<PAGE>
(a) Subject to the provisions of Section 9.3, a Limited Partner shall
have the right to exchange all or a portion of its Common Units for
Convertible Preferred Units, or Convertible Preferred Units for Common
Units, pursuant to the terms of any exchange offer effected as contemplated
by the Merger Agreement.
(b) Each Limited Partner shall, subject to the provisions of Section
9.3, have the right to Transfer all or any portion of its Partnership 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
Partnership Units, may be entered into and become effective at the time of
foreclosure or other realization on such pledged Partnership Units) all of
the obligations of the transferor Limited Partner under this Agreement with
respect to such transferred Partnership 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 Partnership Units, in the place
and stead of such transferor Limited Partner (which succession, in the
event of a pledge of Partnership Units, may be entered into and become
effective at the time of foreclosure or other realization on such pledged
Partnership Units). Any transferee, whether or not admitted as a
Substituted Limited Partner, shall take the transferred Partnership 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 Partnership Units transferred.
<PAGE>
(d) Intentionally Omitted.
(e) Notwithstanding anything in this Agreement to the contrary, any
transferee of any transferred Partnership 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 Partnership Units. Except
pursuant to Section 6.2(e), no Limited Partner shall be entitled to any
distribution in respect of its Partnership Interest upon any such
withdrawal.
9.3 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)if the General Partner determines that such Transfer
may reasonably 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 the General Partner
determines that such Transfer may reasonably cause the Partnership to cease
to be classified as a partnership for Federal income tax purposes or 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
<PAGE>
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).
9.4 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 a Partnership taxable year, Net Income, Net Losses,
each item thereof and all other items attributable to such interest for
such Partnership taxable year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the Partnership taxable year in accordance with
Section 706(d) of the Code, using the pro ration 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(e), all distributions of Net Cash Flow attributable to such Partnership
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.
<PAGE>
9.5 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 Partnership taxable year shall be
allocated between the General Partner and its successor as provided in
Section 9.4 hereof.
9.6 Admission of Additional Limited Partners.
(a) A Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement or who exercises the right to receive
Partnership Units pursuant to the Merger Agreement or any other 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.
<PAGE>
(c) If any additional Limited Partner is admitted to the Partnership
on any day other than the first day of a Partnership taxable 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
Partnership taxable year in accordance with Section 706(d) of the Code,
using the pro ration method; provided, however, that in respect of the
admission of Limited Partners pursuant to the Merger, the General Partner
shall use the interim closing of the books method. 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 Record 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.
ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
10.1 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.
<PAGE>
10.2 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
PART I.
11.1 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.
11.2 Terms of Rights. The terms and provisions applicable to the
Rights, including certain registration rights, shall be as set forth
in Exhibit C.
<PAGE>
11.3 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.
PART II.
11.1A Grant of Rights. The General Partner does hereby grant to
any Limited Partner holding Convertible Preferred Units the right
(hereinafter such right sometimes referred to as the "Convertible
Preferred Rights"), to exchange all or a portion of its Convertible
Preferred Units on the terms and subject to the conditions and
restrictions contained in Exhibit F. The Convertible Preferred Rights
granted hereunder may be exercised on the terms and subject to the
conditions and restrictions contained in Exhibit F upon delivery to
the General Partner of an Exchange Exercise Notice in the form of
Schedule 1 to Exhibit F, which notice shall specify the Convertible
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 Convertible Preferred
Purchase Price in respect of such Convertible Preferred Units in
accordance with the terms hereof.
<PAGE>
11.2A Terms of Convertible Preferred Rights. The terms and
provisions applicable to the Convertible Preferred Rights shall be as
set forth in Exhibit F.
11.3A Reissuance or Reallocation of Convertible Preferred Units.
Any Convertible Preferred Units acquired by the General Partner
pursuant to an exercise by any Limited Partner of the Convertible
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 Convertible Preferred Rights elects to receive the Common
Stock Purchase Price and not the Convertible Preferred Purchase Price
(as such terms are defined in Exhibit F) with respect to any
Convertible Preferred Units, then the Convertible 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 F 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 Convertible Preferred Units and each corresponding
recalculation of the Convertible Preferred Units or 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
12.1 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.
12.2 Terms of Rights. The terms and provisions applicable to the
Series C Preferred Rights shall be as set forth in Exhibit D.
12.3 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.
ARTICLE XIV
GENERAL PROVISIONS
<PAGE>
14.1 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.
14.2 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.
14.3 Effect and Interpretation. This Agreement shall be governed
by and construed in conformity with the laws of the State of Delaware.
<PAGE>
14.4 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.
14.5 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.
14.6 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.
14.7 Amendments. (a) 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.
<PAGE>
(b) Notwithstanding Section 14.7(a) above, 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.
<PAGE>
(c) Notwithstanding Section 14.7(a)or (b) above, so long as any
Convertible Preferred Units are held by Limited Partners, the consent
of Limited Partners holding at least 66-2/3% of the Convertible
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 Convertible 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 Convertible Preferred Units or are on a parity with
the Convertible Preferred Units shall not be deemed to materially and
adversely affect the voting powers, rights or preferences of the
holders of Convertible 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
Convertible 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 Convertible Preferred Units shall be required 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 Convertible Preferred Units at the time outstanding
to the extent such redemption is authorized by this Agreement.
(d) Notwithstanding Sections 14.7(b) or (c) above, 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 or the
Convertible 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
<PAGE>
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 or 4.10
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.
14.8 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.
<PAGE>
14.9 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.
14.10 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".
14.11 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.
<PAGE>
14.12 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.
14.13 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.
14.14 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.
14.15 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 General Partner has executed this
Agreement or caused this Agreement to be executed as of the 15th of
October, 1998 and this Agreement is effective as of the 15th of June,
1998.
GENERAL PARTNER:
PRIME RETAIL, INC., a
Maryland corporation
100 East Pratt Street
19th Floor
Baltimore, Maryland 21202
By: /s/ C. Alan Schroeder
Its: Executive Vice President
<PAGE>
EXHIBIT A
COMMON UNITS, PREFERRED UNITS,
CONVERTIBLE PREFERRED UNITS AND SERIES C PREFERRED UNITS
<PAGE>
EXHIBIT B
ALLOCATIONS
I Allocation of Net Income and Net Loss. Except as otherwise
provided herein, Net Income and Net Loss for any Partnership taxable
year or other applicable period of the Partnership (including the
period for which the interim closing of the books is made pursuant to
the Merger) shall be allocated in the following order and priority:
1.1 First, subject to subsection (f) of Section 1.8 of this
Exhibit B, Net Income (or, if necessary, Partnership items of
income and gain) shall be allocated to the General Partner in an
amount equal to the excess of (1) the amount of Net Cash Flow
distributed to the General Partner pursuant to subsections (a)(i)
and (a)(ii) of Section 6.2 for the current and all prior
Partnership taxable years over (2) the amount of Net Income (or
Partnership items of income and gain) previously allocated to the
General Partner pursuant to Section 1.1 of this Exhibit B (and
Section 1.8 of this Exhibit B to the extent that Section 1.8
operates to allocate an amount to the General Partner in respect
of an increase in the liquidation preference for the Preferred
Stock under the General Partner's Articles of Incorporation due
to accrued but unpaid dividends on the Preferred Stock).
1.2 Second, subject to Section 1.8 of this Exhibit B (and to
the extent not already allocated pursuant to Section 1.8 in
respect of an increase in the Preferred Unit Redemption Amount
due to accrued but unpaid dividends on the Preferred Stock), for
any Partnership taxable year ending on or after a date in which
Preferred Units are redeemed, Net Income (or Net Loss), or, if
necessary, Partnership items of income, gain, loss and deduction
thereof, shall be allocated to the General Partner in an amount
equal to the excess (or deficit) of (1) the sum of the Preferred
Unit Redemption Amount for Preferred Units that have been or are
being redeemed during the Partnership Year over (2) the product
of $25.00 times the number of such Preferred Units.
<PAGE>
1.3 Third, subject to Section 1.8 of this Exhibit B, Net
Income (or, if necessary, Partnership items of income and gain)
shall be allocated to Partners holding Convertible Preferred
Units, pro rata, in proportion to their relative Convertible
Preferred Units, in an aggregate amount equal to the excess of
(1) the sum of the amount of Net Cash Flow distributed to
Partners holding Convertible Preferred Units pursuant to
subsections (a)(iii), (a)(iv) and (b) of Section 6.2 and the
aggregate Gross Asset Value of the Common Distribution
distributed pursuant to subsection (c) of Section 6.2 for the
current and all prior Partnership taxable years over (2) the
amount of Net Income (or Partnership items of income and gain)
previously allocated to Partners pursuant to Section 1.3 of this
Exhibit B (and Section 1.8 of this Exhibit B to the extent that
Section 1.8 operates to allocate an amount to Partners holding
Convertible Preferred Units in respect of an increase in the
liquidation preference for the Convertible Preferred Stock under
the General Partner's Articles of Incorporation due to accrued
but unpaid dividends on the Convertible Preferred Stock).
1.4 Fourth, subject to Section 1.8 of this Exhibit B (and to
the extent not already allocated pursuant to Section 1.8 in
respect of an increase in the Convertible Preferred Units
Redemption Amount due to accrued but unpaid dividends on the
Convertible Preferred Stock), for any Partnership taxable year
ending on or after a date in which Convertible Preferred Units
are redeemed, Net Income (or Net Loss), or, if necessary,
Partnership items of income, gain, loss and deduction thereof,
shall be allocated to Partners holding Convertible Preferred
Units, pro rata, in proportion to their relative Convertible
Preferred Units, in an aggregate amount equal to the excess (or
deficit) of (1) the sum of the Convertible Preferred Unit
Redemption Amount for Convertible Preferred Units that have been
or are being redeemed during the Partnership taxable year over
(2) the product of $25.00 times the number of such Convertible
Preferred Units.
1.5 Fifth, subject to Section 1.8 of this Exhibit B, Net
Income (or, if necessary, Partnership items of income and gain)
shall be allocated to the Partners holding Series C Preferred
Units in an amount equal to the excess of (1) the sum of the
amount of Net Cash Flow distributed to such Partners pursuant to
subsections (a)(v), (a)(vi) and (b) of Section 6.2 and the
aggregate Gross Asset Value of the Common Distribution
distributed pursuant to subsection (c) of Section 6.2 for the
current and all prior Partnership taxable years over (2) the
amount of Net Income (or Partnership items of
<PAGE>
income and gain) previously allocated to such Partners pursuant
to Section 1.5 of this Exhibit B (and Section 1.8 of this Exhibit
B to the extent that Section 1.8 operates to allocate an amount
to such Partners in respect of an increase in the liquidation
preference for the Series C Preferred Stock under the General
Partner's Articles of Incorporation due to accrued but unpaid
dividends on the Convertible Preferred Stock).
1.6 Sixth, subject to Section 1.8 of this Exhibit B (and to
the extent not already allocated pursuant to Section 1.8 in
respect of an increase in the Series C Preferred Unit Redemption
Amount due to accrued but unpaid dividends on the Series C
Preferred Stock), for any Partnership taxable year ending on or
after a date in which Series C Preferred Units are redeemed, Net
Income (or Net Loss), or, if necessary, Partnership items of
income, gain, loss and deduction thereof, shall be allocated to
the General Partner in an amount equal to the excess (or deficit)
of (1) the sum of the Series C Preferred Unit Redemption Amount
for Series C Preferred Units that have been or are being redeemed
during the Partnership taxable year over (2) the product of
$13.75 times the number of such Series C Preferred Units.
1.7 Seventh, subject to Sections 1.8 and 1.9 of this Exhibit
B, the remaining Net Income or Net Loss, if any, shall be
allocated to each of the Partners in the following order and
priority:
(a) The remaining Net Income, if any, shall be allocated
among the Partners holding Common Units in proportion to, and to
the extent of, the sum of the aggregate amounts of Net Cash Flow
distributed in respect of the Partners' Common Units pursuant to
subsections (a)(vii) and (b) of Section 6.2 and the aggregate
Gross Asset Value of the Common Distribution distributed pursuant
to subsection (c) of Section 6.2 (including those amounts of Net
Cash Flow distributed within the Partnership taxable year or
other applicable period under Section 6.2(e)
<PAGE>
that are in respect of subsection (a)(vii) of Section 6.2, only
if either (A) such Net Cash Flow is distributed on or prior to
the date on which the Cash Conversion Price is paid or (B) the
Limited Partner to whom such Net Cash Flow is distributed
otherwise continues to own one or more Common Units on the date
such distribution is made),
(b) In the event that assets of the Partnership are sold,
conveyed, transferred or disposed of in contemplation of or in
connection with the dissolution, liquidation and winding-up of
the Partnership under Article VIII (other than Section 8.4
thereof) (a "Capital Event"), any remaining Net Income or Net
Loss (or remaining Partnership items of income, gain, loss and
deduction thereof), computed by including the Net Income or Net
Loss resulting from such Capital Event, shall be allocated among
the Partners holding Common Units to the extent possible, until
each Limited Partner has a Capital Account balance equal to (and
the General Partner has a Capital Account balance equal to the
sum of the Preferred Sum (defined in Section 1.8 of this Exhibit
B) plus an additional amount equal to) the pro rata portion,
based on the number of Common Units held by each Partner, of the
net positive sum of the Capital Account balances for all Partners
(determined after taking into account the allocations required
under subsections (a) and (b) of Section 2 of this Exhibit B)
less the Preferred Sum.
(c) Any remaining Net Income or Net Loss shall be allocated
to the Partners holding Common Units pro rata in accordance with
their respective Common Units.
1.8 Notwithstanding Sections 1.1, 1.2, 1.3, 1.4, 1.5, 1.6
and 1.7 of this Exhibit B, the General Partner shall allocate Net
Income or Net Loss (or Partnership items of income, gain, loss
and deduction thereof) among the Partners to the extent possible
such that the Minimum Gain Capital Account balance of each
Partner, as of the end of the Partnership taxable year or other
applicable period for which such allocations are made, is not
less than the sum (the "Preferred Sum") of (i) the product of the
number of Preferred Units held by such Partner multiplied by the
<PAGE>
liquidation preference for a share of Preferred Stock pursuant to
the General Partner's Articles of Incorporation, (ii) the product
of the number of Convertible Preferred Units held by such Partner
multiplied by the liquidation preference for a share of
Convertible Preferred Stock pursuant to the General Partner's
Articles of Incorporation, and (iii) the product of the number of
Series C Preferred Units held by such Partner multiplied by the
liquidation preference for a share of Series C Preferred Stock
pursuant to the General Partner's Articles of Incorporation.
1.9 In the event allocations are made pursuant to Section
1.8 of this Exhibit B ("Reallocated Income" and "Reallocated
Loss") in prior Partnership taxable years or other applicable
periods, any Net Income or Net Loss (or Partnership items of
income, gain, loss and deduction thereof) that would otherwise
have been allocated pursuant to subsection (c) of Section 1.7 of
this Exhibit B, shall be allocated among the Partners so that, to
the extent possible, the net amount of such allocations of Net
Income or Net Loss (or Partnership items of income, gain, loss or
deduction thereof) under subsection (c) of Section 1.7 of this
Exhibit B and the allocations of Reallocated Income and
Reallocated Loss to each Partner shall be equal to the net amount
that would have been allocated to each such Partner if the
allocations of Reallocated Income and Reallocated Loss had not
occurred; provided, however, that allocations under this Section
1.9 of this Exhibit B shall not be made to the extent such
allocations would cause the Minimum Gain Capital Account balance
to be less than the Preferred Sum.
II Special Allocations. Notwithstanding any provisions of
Section 1 of this Exhibit B, the following special allocations
shall be made:
2.1 Minimum Gain Chargeback (Nonrecourse Liabilities).
(a) If there is a net decrease in Partnership Minimum Gain for
any Partnership taxable year, each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that Partner's
share of the
<PAGE>
net decrease in Partnership Minimum Gain. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f) and (i) of
the Regulations. This subsection (a) is intended to comply with the
minimum gain chargeback requirement in said section of the Regulations
and shall be interpreted consistently therewith. Allocations pursuant
to this subsection (a) shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant hereto.
(b) Exceptions to Section 2.1(a). The allocation otherwise
required pursuant to Section 2.1(a) of this Exhibit B shall not apply
to a Partner to the extent that: (i) such Partner's share of the net
decrease in Minimum Gain is caused by a guarantee, refinancing or
other change in the instrument evidencing a nonrecourse debt of the
Partnership which causes such debt to become a partially or wholly
recourse debt or a Partner Nonrecourse Debt, and such Partner bears
the economic risk of loss (within the meaning of Section 1.752-2 of
the Regulations) for such changed debt; (ii) such Partner's share of
the net decrease in Minimum Gain results from the repayment of a
nonrecourse liability of the Partnership, which repayment is made
using funds contributed by such Partner to the capital of the
Partnership; (iii) the IRS, pursuant to Section 1.704-2(f)(4) of the
Regulations, waives the requirement of such allocation in response to
a request for such waiver made by the General Partner on behalf of the
Partnership (which request the General Partner may or may not make, in
its sole discretion, if it determines that the Partnership would be
eligible therefor); or (iv) additional exceptions to the requirement
of such allocation are established by revenue rulings issued by the
IRS pursuant to Section 1.704-2(f)(5) of the Regulations, which
exceptions apply to such Partner, as determined by the General Partner
in its sole discretion.
2.2 Partner Minimum Gain Chargeback. Except as otherwise provided
in Section 1.704-2(i)(4) of the Regulations, if there is a net
decrease in Partner Minimum Gain attributable to Partner Nonrecourse
Debt during any Partnership taxable year, each Partner who has a share
of the Partner Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Section 1.704-2(i)(5) of the
Regulations, shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an
amount equal to that Partner's share of the net decrease in the
Partner Minimum Gain attributable to Partner
<PAGE>
Nonrecourse Debt. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(i)(4) and (j)(2) of the Regulations.
This Section 2.2 is intended to comply with the minimum gain
chargeback requirement with respect to Partner Nonrecourse Debt
contained in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this subsection (b)
shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant hereto.
2.3 Qualified Income Offset. In the event a Partner unexpectedly
receives any adjustments, allocations or distributions described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and
such Partner has an Adjusted Capital Account Deficit, items of
Partnership income and gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate the Adjusted
Capital Account Deficit of such Partner as quickly as possible. This
Section 2.3 is intended to constitute a "qualified income offset"
under Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith; provided that an allocation
pursuant to this Section 2.3 of this Exhibit E shall be made if and
only to the extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in this
Exhibit B have been tentatively made as if Section 2.3 and Section
2.4(ii) of this Exhibit B were not in this Agreement.
2.4 Gross Income Allocations.
(i) There shall be specially allocated to the General Partner an
amount of Partnership income and gain during each Partnership taxable
year or portion thereof, before any other allocations are made
hereunder, which is equal to the excess, if any, of the cumulative
distributions of cash made to the General Partner under Section 6.2(f)
over the cumulative allocations of Partnership income and gain to the
General Partner pursuant to Section 2.4(i) of this Exhibit B.
(ii) In the event any Partner has a deficit Capital Account
balance at the end of any Partnership taxable year in excess of the
amount such Partner is obligated or treated as obligated to restore
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 pursuant to the penultimate sentences of Sections
1.704-2(g)(l) and 1.704-2(i)(5) of the Regulations,
<PAGE>
each such Partner shall be specially allocated items of Partnership
income and gain in an amount and manner sufficient to eliminate the
excess Capital Account deficit of such Partner as quickly as possible;
provided that an allocation pursuant to this Section 2.4 of Exhibit B
shall be made if and only to the extent that such Partner would have
such an excess Capital Account deficit after all other allocations
provided for in this Exhibit B have been tentatively made as if
Section 2.3 and Section 2.4(ii) of this Exhibit B were not in this
Agreement.
2.5 Nonrecourse Deductions. Any Nonrecourse Deductions for any
Partnership taxable year generally shall be allocated to the Partners
in the same proportion as the Partners are allocated items of loss and
deduction not attributable to either Partnership Nonrecourse Debt or
Partner Nonrecourse Debt.
2.6 Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable year or other applicable period shall be
specially allocated to the Partner that bears the economic risk of
loss for the debt (i.e., the Partner Nonrecourse Debt) in respect of
which such Partner Nonrecourse Deductions are attributable (as
determined under Sections 1.704-2(b)(4) and (i)(1) of the
Regulations).
2.7 Intentionally Omitted.
2.8 Curative Allocations. The Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss,
and deduction among the Partners so that, to the extent possible, the
cumulative net amount of allocations of Partnership items under
Section 2 of this Exhibit B shall be equal to the net amount that
would have been allocated to each Partner if the Regulatory
Allocations had not occurred. Notwithstanding the preceding sentence,
Regulatory Allocations relating to (A) Nonrecourse Deductions shall
not be taken into account except to the extent that there has been a
decrease in Partnership Minimum Gain and (B) Partner Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a
<PAGE>
decrease in Partner Minimum Gain attributable to Partner Nonrecourse
Debt. This Section 2.8 is intended to minimize to the extent possible
and to the extent necessary any economic distortions which may result
from application of the Regulatory Allocations and shall be
interpreted in a manner consistent therewith. Allocations pursuant to
this Section 2.8 of Exhibit B shall be deferred with respect to
allocations pursuant to clauses (A) and (B) hereof to the extent the
General Partner reasonably determines that such allocations are likely
to be offset by subsequent Regulatory Allocations. For purposes of
this Section 2.8 of this Exhibit B, "Regulatory Allocations" shall
mean the allocations provided under Section 2 of this Exhibit B (other
than under Sections 2.4(i), 2.5, 2.7 and 2.8.
2.9 Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any asset of the Partnership pursuant to
Sections 734(b) or 743(b) of the Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in
determining Capital Accounts or adjustments thereto, the amount of
such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be
specially allocated among the Partners in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted
pursuant to such section of the Regulations.
2.10 Other Allocation Rules. To the extent permitted by Sections
1.704-2(h)(3) and 1.704-2(i)(6) of the Regulations, the Partners shall
endeavor to treat distributions of Net Cash Flow as having been made
from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such distribution would not cause or
increase an Adjusted Capital Account Deficit for any Partner.
2.11 Sharing of Nonrecourse Liabilities. The General Partner
shall allocate Nonrecourse Liabilities of the Partnership that are in
excess of the amount of Partnership Minimum Gain, in each Partnership
taxable year as follows:
(i) To the extent of the total amount of built-in gain (as
defined in Regulations Section 1.752-3(a)(2)) among the Partners in
accordance with how the Members would share taxable gain if the LLC,
in a taxable transaction, disposed of all its property in full
satisfaction of its Nonrecourse Liabilities and for no other
consideration (taking into account the relative priorities of such
Nonrecourse Liabilities and rights in respect of specific Partnership
properties;
<PAGE>
(ii) To the extent of any remaining excess Nonrecourse
Liabilities, within the meaning of Regulations Section
1.752-3(a)(3)among the Partners as follows:
(A) First, assuming that the assets of the Partnership are sold
for their relative fair market values, the General Partner shall
determine for each of its partners the sum of (i) the amount Code
Section 704(c) gain allocable to such Partner (taking into account the
relative Code Section 704(c) method elected by the Partnership in
respect of each contributed asset under Treasury Regulation Section
1.704-3, and less the amount already allocated to such partner under
Treasury Regulations Section 1.752-3(a)(2)), plus (ii) the amount, if
any, of remaining income and gain which would be further allocated to
such Partner under this Agreement, after all income and gain allocable
to Partners under Code Section 704(c) has been taken into account;
(B) Second, the General Partner shall determine a percentage (the
"Tier Three Percentage") for each Partner equal to the fraction of the
sum computed for such partner in paragraph (i) above, over the
aggregate amount of such sums for all Partners; and
(C) Third, the General Partner shall allocate the excess
nonrecourse liabilities of the Partnership to each Partner, pro rata,
in accordance with each Partner's Tier Three Percentage.
However, the General Partner may elect to use a different method to
allocate excess Nonrecourse Liabilities in a Partnership taxable year
to the extent such allocation does not cause a Limited Partner to
recognize any greater amount of taxable income that such Limited
Partner would have recognized under the method described in the
previous sentence.
III Tax Allocations.
3.1 Generally. Subject to subsections (b) and (c) of Section 3 of
this Exhibit B, items of income, gain, loss, deduction and credit to
be allocated for income tax purposes (collectively, "Tax Items") shall
be allocated among the Partners on the same basis as they share Net
Income and Net Loss.
<PAGE>
3.2 Recapture Gain. If any portion of gain recognized from the
disposition of an asset by the Partnership represents the "recapture"
of previously allocated deductions by virtue of the application of
Code Section 1245 or 1250 ("Recapture Gain"), such Recapture Gain,
solely for income tax purposes, shall be allocated as follows:
first, to the Partners, pro rata, in proportion to the lesser of
each Partner's (i) allocable share of the total gain recognized from
the disposition of such asset and (ii) share of depreciation or
amortization with respect to such asset (under Regulations Sections
1.1245-1(e)(2) and (3)), until each such Partner has been allocated
Recapture Gain equal to such lesser amount; and
second, the balance of Recapture Gain will be allocated among the
Partners whose allocable shares of total gain exceed their shares of
depreciation or amortization with respect to such asset (under
Regulations Sections 1.1245-1(e)(2) and (3)), in proportion to their
shares of total gain (including Recapture Gain) from the disposition
of such asset;
provided, however, that no Partner will be allocated Recapture Gain
under this Section 3.2 in excess of the total gain allocated to such
Partner from such disposition.
3.3 Allocations Respecting Section 704(c) and Revaluations;
Curative Allocations Resulting from the Ceiling Rule. Notwithstanding
Sections 3(a) and 3(b) of this Exhibit B, Tax Items with respect to
Partnership property that is subject to Code Section 704(c) and/or
Section 1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section
704(c) Tax Items") shall be allocated in accordance with said Code
section and/or Section 1.704-1(b)(4)(i) of the Regulations, as the
case may be. The General Partner is authorized to, and shall, elect
the "traditional method" in respect of all its Properties, except that
the General Partner is authorized to, and shall, elect the
"traditional method with curative allocations" under Regulations
Section 1.704-3(c) in respect of the Horizon Properties (other than
the interest in Horizon Group Properties, L.P. acquired through the
Merger, for which the General Partner is authorized to, and shall,
elect the "traditional method"). With respect to properties
subsequently contributed to the Partnership, the Partnership shall
account for such variation under any method approved under Section
704(c) of the Code and the applicable regulations as chosen by the
General Partner. In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraph (b) of the definition of
Gross Asset Value (provided in Article 1 of this Agreement),
subsequent allocations of Section 704(c) Tax Items with respect to
such asset shall take account of the variation, if any, between the
adjusted basis of such asset and its Gross Asset Value in the same
manner as under Section 704(c) of the Code and the applicable
regulations consistent with the requirements of Regulations Section
1.704-1(b)(2)(iv)(g) using any method approved under 704(c) of the
Code and the applicable regulations as chosen by the General Partner.
<PAGE>
EXHIBIT C
RIGHTS TERMS
The Rights granted by the General Partner to the Limited Partners
pursuant to Section 11.1 of the Partnership Agreement shall be subject
to the following terms and conditions:
I Definitions. The following terms and phrases shall, for
purposes of this Exhibit C and the Agreement, have the meanings set
forth below:
"Beneficially Own" shall mean the ownership of Common Stock by a
Person who would be treated as an owner of such shares of Common 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.
"Cash Purchase Price" shall have the meaning set forth in
Paragraph IV hereof.
"Computation Date" shall mean the date on which an Exchange
Exercise Notice is delivered to the General Partner.
"Election Notice" shall mean the written notice to be given by
the General Partner to the Exercising Partner(s) in response to the
receipt by the General Partner of an Exchange Exercise Notice from
such Exercising Partner(s), the form of which Election Notice is
attached hereto as Schedule 2.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Exchange Exercise Notice" shall have the meaning set forth in
Paragraph II hereof.
"Exchange Factor" shall mean 100%; provided that such factor
shall be adjusted in accordance with the Antidilution Provisions of
Paragraph XI hereof.
"Exchange Rights" shall have the meaning set forth in Paragraph
II hereof.
<PAGE>
"Exercising Partners" shall have the meaning set forth in
Paragraph II hereof.
"Kemper Companies" shall mean each of Kemper Investors Life
Insurance Company, an Illinois insurance corporation, Kilico Realty
Corporation, an Illinois corporation, KR Gainsville, Inc., an Illinois
corporation, and KR Gulf Coast Factory Shops, Inc., a Delaware
corporation.
"Offered Common Units" shall mean the Common Units of the
Exercising Partner(s) identified in an Exchange Exercise Notice which,
pursuant to the exercise of Exchange Rights, can be acquired by the
General Partner under the terms hereof.
"Ownership Limit" shall have the meaning set forth in Paragraph
III hereof.
"Purchase Price" shall mean the Cash Purchase Price or the Stock
Purchase Price.
"Registration Rights Agreement" shall mean the agreement
respecting the registration rights attributable to shares of Common
Stock, if any, issued to Limited Partners in accordance with the
provisions hereof, the form of which is attached hereto as Schedule 3.
Such agreement supercedes in all respects the Registration Rights
Agreement dated March 22, 1994 among the Partnership, its general
partner and the other parties signatory thereto and the Registration
Rights Agreement dated July 14, 1995 entered into by Horizon Group,
Inc., as general partner of Horizon Limited Partnership.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor statute.
"Stock Purchase Price" shall have the meaning set forth in
Paragraph IV hereof.
II Delivery of Exchange Exercise Notices. Any one or more Limited
Partners ("Exercising Partners") may, subject to the limitations set
forth herein, deliver to the General Partner written notice (the
"Exchange Exercise Notice") pursuant to which such Exercising Partners
elect to exercise their rights to convert (the "Exchange Rights") all
<PAGE>
or any portion of their Common Units into shares of Common Stock
subject to the limitations contained in Paragraph III below.
III Limitation on Exercise of Exchange Rights. The Exchange
Rights shall expire with respect to any Common Units for which an
Exchange Exercise Notice has not been delivered to the General Partner
on January 1, 2050. Exchange Rights may be exercised at any time prior
to January 1, 2050, subject to the limitations contained herein and in
the General Partner's Articles of Incorporation (the "Ownership
Limit"). For purposes of computing the Ownership Limit as of any date,
each Limited Partner and its Affiliates shall be deemed to own all
shares of Common Stock issuable to such Limited Partner and its
Affiliates upon the exercise of stock options granted on or before
such date under the Stock Incentive Plan. If an Exchange Exercise
Notice is delivered to the General Partner but, as a result of the
Ownership Limit, the Exchange Rights cannot be exercised in full, the
Exchange Exercise Notice shall be deemed to be modified such that the
Exchange Rights shall be exercised only to the extent permitted under
the Ownership Limit; with the exercise of the remainder of such
Exchange Rights being deemed to have been withdrawn.
IV Computation of Purchase Price/Form of Payment. The Purchase
Price payable by the General Partner to each Exercising Partner for
the Offered Common Units shall be payable by the issuance by the
General Partner of the number of shares of its Common Stock equal to
the product, expressed as a whole number, of (i) the number of Common
Units being converted, multiplied by (ii) the Exchange Factor (the
"Stock Purchase Price"). At the election of the General Partner
exercisable by the independent directors of the General Partner in
their sole and absolute discretion, the Purchase Price may be paid in
whole (but not in part) in cash rather than in Common Stock (the "Cash
Purchase Price"). The Cash Purchase Price shall mean, with respect to
the applicable number of Offered Common Units which are being
purchased for cash upon the exercise of any Exchange Right, an amount
of cash (in immediately available funds) equal to (i) the number of
shares of the General Partner's Common Stock that would be issued to
the Exercising Partner if the Stock Purchase Price were paid for such
Offered Common Units (taking into account the adjustments required
pursuant to the definition of "Exchange Factor") multiplied by (ii)
the Current Per Share Market Price computed as of the Computation
Date. The Cash Purchase Price shall,
<PAGE>
in the sole and absolute discretion of the General Partner, be paid in
the form of cash, or cashier's or certified check, or by wire transfer
of immediately available funds to the Exercising Partner's designated
account.
V Closing; Delivery of Election Notice. The closing of the
acquisition of Offered Common Units shall, unless otherwise mutually
agreed, be held at the principal office of the General Partner, on the
following date(s):
5.1 With respect to the exercise of Exchange Rights for which the
Stock Purchase Price is payable, the closing shall occur on the date
agreed to by the General Partner and the Exercising Partner(s), which
date shall in no event be on the date which is the later of (i) ten
(10) days after the delivery of the Election Notice; (ii) the
expiration or termination of the waiting period applicable to each
Exercising Partner, if any, under the Hart Scott Act; and (iii) forty
(40) days after receipt of the Exchange Exercise Notice delivered in
accordance with the requirements of Paragraph 3 hereof; and
5.2 With respect to the exercise of Exchange Rights for which the
General Partner elects to pay the Cash Purchase Price, the General
Partner shall, within thirty (30) days after delivery to the General
Partner of the Exchange Exercise Notice delivered in accordance with
the requirements of Paragraph 3 hereof, deliver to the Exercising
Partner(s) an Election Notice, which Election Notice shall (i) specify
the General Partner's election to pay the Cash Purchase Price for all
of the Offered Common Units and (ii) set forth the computation of the
Cash Purchase Price to be paid by the General Partner to such
Exercising Partner(s) and the date, time and location for completion
of the purchase and sale of the Offered Common Units, which date
shall, to the extent required, in no event be more than sixty (60)
days after the Computation Date for such Exchange Exercise Notice;
provided, however, that such sixty (60) day period may be extended for
an additional period to the extent required for the General Partner to
cause additional shares of its Common Stock to be issued to provide
financing to be used to acquire the Offered Common Units.
Notwithstanding the foregoing, the General Partner agrees to use its
<PAGE>
best efforts to cause the closing of the acquisition of Offered Common
Units hereunder to occur as quickly as possible.
VI Further Limitations on Exercise. The Exchange Rights may not
be exercised unless the Partnership receives an opinion of counsel,
which counsel and opinion shall be reasonably satisfactory to the
General Partner, that the proposed exercise of such Exchange Rights
shall not cause the Partnership to cease to qualify as a partnership
for Federal income tax purposes. This requirement may be waived by the
independent directors of the General Partner, and shall not apply to
(i) the exercise by the sole remaining Limited Partner of the Exchange
Rights with respect to all of his or its Common Units or (ii) the
exercise by any of the Kemper Companies or any of their Affiliates of
(A) all of the Kemper Companies and their Affiliates (whether or not
they are beneficiaries of any pledge of Common Units by PGI) are
exercising Exchange Rights with respect to all Common Units then held
by them; (B) after the consummation of the proposed Exchange, all
Limited Partners beneficially and constructively own less than twenty
percent (20%) of the General Partner's outstanding shares of Common
Stock or (C) all of the Common Stock to be received by such Kemper
Companies or their Affiliate as a result of such Exchange is
registered under the Securities Act for sale to the public and is sold
to the public contemporaneously with the Exchange.
VII Closing Deliveries. At the closing, payment of the Purchase
Price shall be accompanied by proper instruments of transfer and
assignment and by the delivery of (i) representations and warranties
of (A) the Exercising Partner with respect to its due authority to
sell all of the right, title and interest in and to such Offered
Common Units to the General Partner and with respect to the status of
the Offered Common Units being sold, free and clear of all Liens, and
(B) the General Partner with respect to due authority for the purchase
of such Offered Common Units, and (ii) to the extent that shares of
Common Stock are issued in payment of the Stock Purchase Price, (A) an
opinion of counsel for the General Partner, reasonably satisfactory to
the Exercising Partner(s), to the effect that such shares of Common
Stock have been duly authorized, are validly issued, fully-paid and
non-assessable, and (B) a stock certificate or certificates evidencing
the Common Stock to be issued and registered in the name of the
Exercising Partner(s) or its (their) designee.
<PAGE>
VIII Term of Rights. Unless sooner terminated, the rights of the
parties to exercise the Rights shall lapse for all purposes and in all
respects on January 1, 2050; provided, however, that the parties
hereto shall continue to be bound by an Exchange Exercise Notice
delivered to the General Partner prior to such date.
IX Covenants of the General Partner. To facilitate the General
Partner's ability to fully perform its obligations hereunder, the
General Partner covenants and agrees as follows:
9.1 At all times during the pendency of the Rights, the General
Partner shall reserve for issuance such number of shares of Common
Stock as may be necessary to enable the General Partner to issue such
shares in full payment of the Stock Purchase Price in regard to all
Common Units held by Limited Partners and which are from time to time
outstanding.
9.2 As long as the General Partner shall be obligated to file
periodic reports under the Exchange Act, the General Partner will
timely file such reports in such manner as shall enable any recipient
of Common Stock issued to Limited Partners hereunder in reliance upon
an exemption from registration under the Securities Act to continue to
be eligible to utilize Rule 144 promulgated by the SEC pursuant to the
Securities Act, or any successor rule or regulation or statute
thereunder, for the resale thereof.
9.3 During the pendency of the Rights, the Limited Partners shall
receive in a timely manner all reports filed by the General Partner
with the SEC and all other communications transmitted from time to
time by the General Partner to its stockholders generally.
9.4 The General Partner shall be required to pay the Cash
Purchase Price to the extent that payment of the Stock Purchase Price
by issuance of Common Stock would disqualify the General Partner from
being characterized as a REIT.
9.5 The General Partner shall cooperate with the Limited Partners
and provide by certificate of appropriate officers the factual
information reasonably requested by any Limited Partner in connection
with delivery of an opinion of counsel pursuant to Section 6 of this
Exhibit C.
<PAGE>
X Limited Partners' Covenants. X.1 Each Limited Partner covenants
and agrees with the General Partner that all Offered Common Units
tendered to the General Partner in accordance with the exercise of
Rights herein provided shall be delivered to the General Partner free
and clear of all Liens and should any Liens exist or arise with
respect to such Offered Common Units, the General Partner shall be
under no obligation to acquire the same unless, in connection with
such acquisition, the General Partner has elected to pay a portion of
the purchase price in the form of the Cash Purchase Price in
circumstances where such Cash Purchase Price will be sufficient to
cause such existing Lien to be discharged in full upon application of
all or a part of the Cash Purchase Price and the General Partner is
expressly authorized to apply such portion of the Cash Purchase Price
as may be necessary to satisfy any indebtedness in full and to
discharge such Lien in full. Each Limited Partner further agrees that,
in the event any state or local property transfer tax is payable as a
result of the transfer of its Offered Common Units to the General
Partner (or its designee), such Limited Partner shall assume and pay
such transfer tax. Finally, each Limited Partner agrees that, to the
extent it receives an amount of Net Cash Flow under Section 6.2(e) in
respect of subsection (a)(vii) of Section 6.2 that is treated as a
distribution to the General Partner for purposes of determining the
Capital Account of the General Partner, such Limited Partner will
treat such amount of Net Cash Flow for income tax purposes as an
additional amount paid by the General Partner and realized by it in
exchange for the Offered Common Units.
XI Antidilution Provisions.
11.1 The Exchange Factor shall be subject to adjustment from time
to time effective upon the occurrence of the following events and
shall be expressed as a percentage, calculated to the nearest
one-thousandth of one percent (.001%):
(a) In case the General Partner shall pay or make a dividend
or other distribution in shares of Common Stock to all holders of
the Common Stock, the Exchange Factor 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 other distribution shall be increased in proportion to the
increase in outstanding shares of Common Stock resulting from
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following the record date fixed for such dividend or other
distribution.
<PAGE>
(b) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares, the Exchange Factor
in effect at the opening of business on the day following the day
upon which such subdivision becomes effective shall be
proportionately increased, and, conversely, in case the
outstanding shares of Common Stock shall be combined into a
smaller number of shares, the Exchange Factor in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced,
such increase or reduction, 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.
11.2 In case the General Partner shall issue rights, options
or warrants to all holders of its shares of Common Stock
entitling them to subscribe for or purchase Common Stock at a
price per share less than the current market price per share (as
determined in the next sentence), each holder of a Common Unit
shall be entitled to receive such number of rights, options or
warrants, as the case may be, as he would have been entitled to
receive had he converted his Common Units immediately prior to
the record date for such issuance by the General Partner (except
to the extent such receipt shall cause such holder to exceed the
Ownership Limit). For the purpose of any computation pursuant to
the preceding sentence, the current market price per share of
Common Stock on any date shall be deemed to be the average of the
daily Closing Prices for the five consecutive Trading Days
selected by the General Partner commencing not more than twenty
(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. For purposes of this Exhibit C, the term "Trading
Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day which securities are not traded on
such exchange or in such market and the term "'ex' date", when
used in respect of any issuance or distribution, shall mean the
first date on which the shares trade regular way on such exchange
or in such market without the right to receive such issuance or
distribution.
<PAGE>
11.3 In case the shares of Common Stock shall be changed
into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than subdivision or
combination of shares or a stock dividend described in
subparagraph (b) of paragraph 11.1) then and in each such event
the Limited Partners shall have the right thereafter to convert
their Common Units into the kind and amount of shares and other
securities and property which would have been received upon such
reorganization, reclassification or other change by holders of
the number of shares into which the Common Units might have been
converted immediately prior to such reorganization,
reclassification or change.
11.4 The General Partner may, but shall not be required to,
make such adjustments to the number of shares of Common Stock
issuable upon conversion of a Common Unit, in addition to those
required by this Paragraph XI, as the General Partner's board of
directors 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. The General
Partner's board of directors shall have the power to resolve any
ambiguity or correct any error in the adjustments made pursuant
to this Paragraph and its actions in so doing shall be final and
conclusive.
XII Fractions of Shares. No fractional Shares shall be
issued upon conversion of Common Units. If more than one Common
Unit shall be surrendered for conversion at one time by the same
Exercising Partner, the number of full shares of Common Stock
which shall be issuable upon conversion thereof (or the cash
equivalent amount thereof if the Cash Purchase Price is paid)
shall be computed on the basis of the aggregate amount of Common
Units so surrendered. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of any
Common Unit or Common Units, the General Partner shall pay a cash
adjustment in respect of such fraction in an amount equal to the
same fraction of the current market price per share at the close
of business on the day of closing specified in Paragraph 5.2 of
this Exhibit C (or, if such day is not a Trading Day, on the
Trading Day immediately preceding such day).
XIII Notice of Adjustments of Exchange Factor. Whenever the
Exchange Factor is adjusted as herein provided:
<PAGE>
(a) the General Partner shall compute the adjusted Exchange
Factor in accordance with Paragraph XI hereof and shall prepare a
certificate signed by the chief financial officer or the
Treasurer of the General Partner setting forth the adjusted
Exchange Factor and showing in reasonable detail the facts upon
which such adjustment is based; and
(b) a notice stating that the Exchange Factor has been
adjusted and setting forth the adjusted Exchange Factor shall
forthwith be mailed by the General Partner to all holders of
Exchange Rights at their last addresses on record under this
Agreement.
XIV Notice of Certain Corporate Actions. In case:
(a) the General Partner shall declare a dividend (or any
other distribution) on its Common Stock payable otherwise than in
cash; or
(b) the General Partner shall authorize the granting to the
holders of its Common Stock of rights, options or warrants to
subscribe for or purchase any shares of stock of any class or of
any other rights; or
(c) of any reclassification of the shares of Common Stock
(other than a subdivision or combination of its outstanding
Common Stock, or of any consolidation, merger or share exchange
to which the General Partner is a party and for which approval of
any shareholders of the General Partner is required), or of the
sale or transfer of all or substantially all of the assets of the
General Partner; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the General Partner;
then the General Partner shall cause to be mailed to all holders
of Exchange Rights at their last addresses on record under this
Agreement, at least 20 days (or 12 days in any case specified in
clause (a) or (b) above) prior to the applicable record date
hereinafter specified, a notice stating (i) the date on which a
record is to be taken for the purpose of such dividend,
distribution, rights, options or warrants, or, if a record is not
to be taken, the date as of which the holders of shares of Common
Stock of record to be entitled to such dividend, distribution,
rights, options or warrants are to be determined, or (ii) the
date on which such reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is
<PAGE>
expected that holders of shares of Common Stock of record shall
be entitled to exchange their shares for securities, cash or
other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up.
XV Provisions in Case of Consolidation, Merger or Sale of
Assets. In case of any consolidation of the General Partner with,
or merger of the General Partner into, any other Person, any
merger or consolidation of another Person into the General
Partner (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the General Partner), or
any sale or transfer of all or substantially all of the assets of
the General Partner, the Person formed by such consolidation or
resulting from such merger or which acquires such assets of the
General Partner, as the case may be, shall execute and deliver to
each holder of Exchange Rights an agreement providing that such
holder shall have the right thereafter, during the period such
Exchange Rights shall be exercisable as specified herein, to
require the conversion of Common Units for the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number
of shares of Common Stock into which such Common Unit might have
been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of shares of Common Stock
is not a Person with which the General Partner consolidated or
into which the General Partner merged or which merged into the
General Partner, or to which such sale or transfer, was made, as
the case may be (a "Constituent Person"), or an Affiliate of a
Constituent Person, and failed to exercise his right of election,
if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, sale or
transfer (provided that if the kind or amount of securities, cash
and other property receivable upon such consolidation, merger,
sale or transfer is not the same for each share of Common Stock
in respect of which such rights of election shall not have been
exercised ("non-electing Share"), then for the purpose of this
Paragraph XV the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or
transfer by each non-electing Share shall be deemed to be the
kind and amount so receivable per Share by a plurality of the
non-electing Shares). Such agreement shall provide for
adjustments which, for events subsequent to the effective date of
such agreement, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Exhibit C.
The above provisions of this Paragraph XV shall similarly apply
to successive consolidations, mergers, sales or transfers.
<PAGE>
SCHEDULE 1
EXCHANGE EXERCISE NOTICE
To: Prime Retail, Inc.
Reference is made to that certain Agreement of Limited
Partnership of Prime Retail, L.P. dated ___________, (the
"Partnership Agreement"), pursuant to which Prime Retail, Inc., a
Maryland corporation, and certain other persons, including the
undersigned, formed a Delaware limited partnership known as Prime
Retail, L.P. (the "Partnership"). Capitalized terms used but not
defined herein shall have the meanings set forth in the
Partnership Agreement. Pursuant to Article XI and Paragraph II of
Exhibit C of the Partnership Agreement, each of the undersigned,
being a limited partner of the Partnership (an "Exercising
Partner"), hereby elects to exercise its Exchange Rights as to
the number of Offered Common Units specified opposite its name
below:
Dated: ___________________
Number of Offered
Exercising Partner Common Units
Exercising Partners:
____________________________
____________________________
<PAGE>
SCHEDULE 2
ELECTION NOTICE
To: Exercising Partner(s)
Reference is made to that certain Agreement of Limited
Partnership of Prime Retail, L.P. dated _________, 1993 (the
"Partnership Agreement"), pursuant to which the undersigned and
certain other persons, including the Exercising Partners, formed
a Delaware limited partnership known as Prime Retail, L.P. (the
"Partnership"). All capitalized terms used but not defined herein
shall have the meanings set forth in the Partnership Agreement.
Pursuant to subsection (b) of Paragraph V of Exhibit C to the
Partnership Agreement, the undersigned, being the general partner
of the Partnership, hereby notifies the Exercising Partner(s)
that [(a) the Stock Purchase Price is payable by issuance of the
number of shares of Common Stock to the Existing Partner(s), as
set forth below,] [(b) it has elected to pay the Cash Purchase
Price by payment of cash to the Exercising Partner(s) for the
number of Offered Common Units, as set forth below,] (c) the
computation of the [Stock Purchase Price and Cash Purchase Price]
as set forth on an attachment hereto, (d) the closing of the
purchase and sale of the Offered Common Units by payment of the
[Stock Purchase Price shall take place at the offices of
____________________ on [date]] and [(e) the closing of the
payment of the Cash Purchase Price shall take place at the
offices of ____________________ on [date].
NUMBER OF OFFERED STOCK CASH PURCHASE
EXERCISING PARTNER(S) COMMON UNITS PURCHASE PRICE PRICE
- --------------------------------------------------------------------------------
Dated: ___________________
PRIME RETAIL, INC.,
a Maryland corporation
By:___________________________
Its:___________________________
<PAGE>
SCHEDULE 3
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
SERIES C PREFERRED RIGHTS TERMS
The Series C Preferred Rights granted by the General Partner to the Limited
Partners holding Series C Preferred Units pursuant to Section 12.1 of the
Partnership Agreement shall be subject to the following terms and conditions:
XVI Definitions. The following terms and phrases shall, for purposes of this
Exhibit D and the Agreement, have the meanings set forth below:
"Beneficially Own" shall mean the ownership of Series C Preferred
Stock by a Person who would be treated as an owner of such shares of Series
C Preferred 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.
"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 General Partner's outstanding
capital stock with voting power, under ordinary circumstances, to elect
directors of the General Partner; (ii) other than with respect to the
<PAGE>
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 General Partner (together with any new
directors whose election by such Board of Directors or whose
nomination of or election by the shareholders of the General Partner
was approved by a vote of 66 2/3% of the directors of the General
Partner (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 of the
General Partner then in office; and (iii) (A) the General Partner
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 General Partner, which in either event (A) or (B) is
pursuant to a transaction in which the outstanding voting capital
stock of the General Partner 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
General Partner 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 General
Partner 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.he securities of
the merged or consolidated entity normally entitled to vote in
elections of directors.
"Common Stock Purchase Price" shall have the meaning set forth in
Paragraph IV hereof.
"Computation Date" shall mean the date on which an Exchange
Exercise Notice is delivered to the General Partner.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Exchange Exercise Notice" shall have the meaning set forth in
Paragraph II hereof.
"Exchange Rights" shall have the meaning set forth in Paragraph
II hereof.
"Exercising Partners" shall have the meaning set forth in
Paragraph II hereof.
"Offered Series C Preferred Units" shall mean the Series C
Preferred Units of the Exercising Partner(s) identified in an Exchange
Exercise Notice which, pursuant to the exercise of Exchange Rights,
can be acquired by the General Partner under the terms hereof.
<PAGE>
"Ownership Limit" shall have the meaning set forth in Paragraph
III hereof.
"Purchase Price" shall mean the Common Stock Purchase Price or
the Series C Preferred Stock Purchase Price.
"REIT Termination Event" shall mean the earliest to occur of: (i)
the filing of a federal income tax return by the General Partner for
any taxable year on which the General Partner does not elect to be
taxed as a real estate investment trust; (ii) the approval by the
stockholders of the General Partner of a proposal for the General
Partner to cease to qualify as a real estate investment trust; (iii) a
determination by the Board of Directors of the General Partner, based
on the advice of counsel, that the General Partner has ceased to
qualify as a real estate investment trust; or (iv) a "determination"
within the meaning of Section 1313(a) of the Internal Revenue Code of
1986, as amended, that the General Partner has ceased to qualify as a
real estate investment trust.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor statute.
"Series C Preferred Stock Purchase Price" shall have the meaning
set forth in Paragraph IV hereof.
XVII Delivery of Exchange Exercise Notices. Any one or more Limited
Partners holding Series C Preferred Units ("Exercising Partners") may,
subject to the limitations set forth herein, deliver to the General
Partner written notice (the "Exchange Exercise Notice") pursuant to
which such Exercising Partners elect to exercise their rights to
exchange (the "Exchange Rights") all or any portion of their Series C
Preferred Units for shares of Series C Preferred Stock or Common
Stock, subject to the limitations contained in Paragraph 3 below.
XVIII Limitation on Exercise of Exchange Rights. Exchange Rights with
respect to an exchange into Series C Preferred Stock may be exercised
at any time, and Exchange Rights with respect to an exchange into
Common Stock may be exercised at any time on or after August 8, 1998
(or, if earlier, on the first day on which a Change of
<PAGE>
Control occurs or a REIT Termination Event) and from time to time
thereafter. Any exercise of Exchange Rights shall be subject to the
limitations contained herein and in the General Partner's Articles of
Incorporation (the "Ownership Limit"). If an Exchange Exercise Notice
is delivered to the General Partner but, as a result of the Ownership
Limit, the Exchange Rights cannot be exercised in full, the Exchange
Exercise Notice shall be deemed to be modified such that the Exchange
Rights shall be exercised only to the extent permitted under the
Ownership Limit; with the exercise of the remainder of such Exchange
Rights being deemed to have been withdrawn.
XIX Election and Computation of Purchase Price. The Purchase Price
payable by the General Partner to each Exercising Partner for the
Offered Series C Preferred Units shall be payable by the issuance by
the General Partner of the number of shares of its Series C Preferred
Stock equal to the number of Series C Preferred Units being converted
(the "Series C Preferred Stock Purchase Price"). At the election of an
Exercising Partner, the Purchase Price shall be paid by the General
Partner in shares of its Common Stock rather than in Series C
Preferred Stock (the "Common Stock Purchase Price"). The Common Stock
Purchase Price shall mean, with respect to the applicable number of
Offered Series C Preferred Units for which an Exercising Partner has
elected to receive the Common Stock Purchase Price rather than the
Series C Preferred Stock Purchase Price, the number of shares of the
General Partner's Common Stock that would be issued to the Exercising
Partner if the Exercising Partner held the number of shares of the
General Partner's Series C Preferred Stock equal to the number of
Offered Series C Preferred Units and converted such shares to shares
of the General Partner's Common Stock pursuant to the terms and
provisions of the General Partner's Articles of Incorporation.
XX Closing; Delivery of Election Notice. The closing of the
acquisition of Offered Series C Preferred Units shall, unless
otherwise mutually agreed, be held at the principal office of the
General Partner, on the date agreed to by the General Partner and the
Exercising Partner(s), which date shall in no event be on the date
which is the later of (i) the expiration or termination of the waiting
period applicable to each Exercising
<PAGE>
Partner, if any, under the Hart Scott Act; and (ii) ten (10) days
after receipt of the Exchange Exercise Notice delivered in accordance
with the requirements of Paragraph II hereof.
XXI Further Limitation on Exercise. The Exchange Rights may not be
exercised unless the Partnership receives an opinion of counsel, which
counsel and opinion shall be reasonably satisfactory to the General
Partner, that the proposed exercise of such Exchange Rights shall not
cause the Partnership to cease to qualify as a partnership for Federal
income tax purposes. This requirement may be waived by the General
Partner, and shall not apply to the exercise by the sole remaining
Limited Partner of the Exchange Rights with respect to all of his or
its Series C Preferred Units.
XXII Closing Deliveries. At the closing, payment of the Purchase Price
shall be accompanied by proper instruments of transfer and assignment
and by the delivery of (i) representations and warranties of (A) the
Exercising Partner with respect to its due authority to sell all of
the right, title and interest in and to such Offered Series C
Preferred Units to the General Partner and with respect to the status
of the Offered Series C Preferred Units being sold, free and clear of
all Liens, and (B) the General Partner with respect to due authority
for the purchase of such Offered Series C Preferred Units, and (ii)
(A) an opinion of counsel for the General Partner, reasonably
satisfactory to the Exercising Partner(s), to the effect that the
shares of Series C Preferred Stock (or Common Stock, in the event the
Electing Partner has elected to receive the Common Stock Purchase
Price) have been duly authorized, are validly issued, fully-paid and
non-assessable, and (B) a stock certificate or certificates evidencing
the Series C Preferred Stock (or Common Stock, in the event the
Electing Partner has elected to receive the Common Stock Purchase
Price) to be issued and registered in the name of the Exercising
Partner(s) or its (their) designee.
XXIII Covenants of the General Partner. To facilitate the General
Partner's ability to fully perform its obligations hereunder, the
General Partner covenants and agrees as follows:
23.1 At all times during the pendency of the Series C Preferred
Rights, the General Partner shall reserve for issuance such number of
shares of Series C Preferred Stock and Common Stock as may be
necessary to enable the General Partner to issue such shares in full
payment of the Series C Preferred Stock Purchase Price or Common Stock
Purchase Price in regard to all Series C Preferred Units held by
Limited Partners and which are from time to time outstanding.
<PAGE>
23.2 As long as the General Partner shall be obligated to file
periodic reports under the Exchange Act, the General Partner will
timely file such reports in such manner as shall enable any recipient
of Series C Preferred Stock or Common Stock issued to Limited Partners
hereunder in reliance upon an exemption from registration under the
Securities Act to continue to be eligible to utilize Rule 144
promulgated by the SEC pursuant to the Securities Act, or any
successor rule or regulation or statute thereunder, for the resale
thereof.
23.3 During the pendency of the Series C Preferred Rights, the
Limited Partners holding Series C Preferred Units shall receive in a
timely manner all reports filed by the General Partner with the SEC
and all other communications transmitted from time to time by the
General Partner to its stockholders generally.
23.4 The General Partner shall cooperate with the Limited
Partners holding Series C Preferred Units and provide by certificate
of appropriate officers the factual information reasonably requested
by any Limited Partner in connection with delivery of an opinion of
counsel pursuant to Section VI of this Exhibit D.
XXIV Limited Partners' Covenants. Each Limited Partner holding Series
C Preferred Units covenants and agrees with the General Partner that
all Offered Series C Preferred Units tendered to the General Partner
in accordance with the exercise of Series C Preferred Rights herein
provided shall be delivered to the General Partner free and clear of
all Liens and should any Liens exist or arise with respect to such
Offered Series C Preferred Units, the General Partner shall be under
no obligation to acquire the same unless the Purchase Price will be
sufficient to cause such existing Lien to be discharged in full upon
application of all or a part of the Purchase Price and the General
Partner is expressly authorized to apply such portion of the Purchase
Price as may be necessary to satisfy any indebtedness in full and to
discharge such Lien in full. Each Limited Partner
<PAGE>
holding Series C Preferred Units further agrees that, in the event any
state or local property transfer tax is payable as a result of the
transfer of its Offered Series C Preferred Units to the General
Partner (or its designee), such Limited Partner shall assume and pay
such transfer tax. Finally, each Limited Partner holding Series C
Preferred Units agrees that, to the extent it receives an amount of
Net Cash Flow under Section 6.2(e) in respect of subsection (a)(vii)
of Section 6.2 of the Partnership Agreement that is treated as a
distribution to the General Partner for purposes of determining the
Capital Account of the General Partner, such Limited Partner will
treat such amount of Net Cash Flow for income tax purposes as an
additional amount paid by the General Partner and realized by it in
exchange for the Offered Series C Preferred Units.
XXV Fractions of Shares. No fractional Shares shall be issued upon
conversion of Series C Preferred Units. If more than one Series C
Preferred Unit shall be surrendered for conversion at one time by the
same Exercising Partner, the number of full shares of Series C
Preferred Stock which shall be issuable upon conversion thereof (or
Series C Preferred Stock if the Common Stock Purchase Price is paid)
shall be computed on the basis of the aggregate amount of Series C
Preferred Units so surrendered. Instead of any fractional share of
Series C Preferred Stock or Common Stock which would otherwise be
issuable upon conversion of any Series C Preferred Unit or Series C
Preferred Units, the General Partner shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of
the current market price per share at the close of business on the day
of closing specified in Paragraph V of this Exhibit D (or, if such day
is not a Trading Day, on the Trading Day immediately preceding such
day). For the purpose of any computation pursuant to the preceding
sentence, the current market price per share of Series C Preferred
Stock on any date shall be deemed to be the average of the daily
Closing Prices for the five consecutive Trading Days selected by the
General Partner commencing not more than twenty (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. For purposes of this Exhibit
D, the term "Trading Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday, other than any day which securities are not
traded on such exchange or in such market and the term "'ex' date",
when used in respect of any issuance or distribution, shall mean the
first date on which the shares trade regular way on such exchange or
in such market without the right to receive such issuance or
distribution.
<PAGE>
XXVI Provisions in Case of Consolidation, Merger or Sale of Assets. In
case of any consolidation of the General Partner with, or merger +of
the General Partner into, any other Person, any merger or
consolidation of another Person into the General Partner (other than a
merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Series C Preferred
Stock or Common Stock of the General Partner), or any sale or transfer
of all or substantially all of the assets of the General Partner, the
Person formed by such consolidation or resulting from such merger or
which acquires such assets of the General Partner, as the case may be,
shall execute and deliver to each holder of Exchange Rights an
agreement providing that such holder shall have the right thereafter,
during the period such Exchange Rights shall be exercisable as
specified herein, to require the conversion of Series C Preferred
Units for the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Series C Preferred Stock or Common
Stock into which such Series C Preferred Unit might have been
converted immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of shares of Series C Preferred Stock
is not a Person with which the General Partner consolidated or into
which the General Partner merged or which merged into the General
Partner, or to which such sale or transfer, was made, as the case may
be (a "Constituent Person"), or an Affiliate of a Constituent Person,
and failed to exercise his right of election, if any, as to the kind
or amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share
of Series C Preferred Stock in respect of which such rights of
election shall not have been exercised ("non-electing Share"), then
for the purpose of this Paragraph XI the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing Share
shall be deemed to be the kind and amount so receivable per Share by a
plurality of the non-electing Shares). Such agreement shall provide
for adjustments which, for events subsequent to the effective date of
such agreement, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Exhibit D. The above provisions
of this Paragraph XI shall similarly apply to successive
consolidations, mergers, sales or transfers.
<PAGE>
SCHEDULE 1
EXCHANGE EXERCISE NOTICE
To: Prime Retail, Inc.
Reference is made to that certain Amended and Restated Agreement
of Limited Partnership of Prime Retail, L.P. dated ____________, _____
(the "Partnership Agreement"), pursuant to which Prime Retail, Inc., a
Maryland corporation, and certain other persons, including the
undersigned, continued a Delaware limited partnership known as Prime
Retail, L.P. (the "Partnership"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Partnership
Agreement. Pursuant to Article XII of the Partnership Agreement and
Paragraph II of Exhibit D of the Partnership Agreement, each of the
undersigned, being a limited partner of the Partnership (an
"Exercising Partner"), hereby elects to exercise its Exchange Rights
as to the number of Offered Series C Preferred Units specified
opposite its name below. Pursuant to Paragraph IV of Exhibit D of the
Partnership Agreement, the undersigned elect to receive [the Series C
Preferred Stock Purchase Price]/[the Common Stock Purchase Price].
Dated: ___________________
Number of Offered
Exercising Partner Series C Preferred Units
Exercising Partners:
____________________________
____________________________
<PAGE>
EXHIBIT E
SECTION 6.2(e) AGREEMENTS
1. Special Distribution and Allocation Agreement dated as of January 1,
1996 among Prime Retail, Inc., Prime Retail, L.P. and the Carpenter Family
Associates LLC.
2. Combined Service and Special Distribution and Allocation Agreement dated
as of January 1, 1996 among Prime Retail, Inc., Prime Retail, L.P. and William
H. Carpenter, Jr.
3. Special Distribution and Allocation Agreement dated as of January 1,
1996 among Prime Retail, Inc., Prime Retail, L.P. and the Rosenthal Family LLC.
4. Combined Service and Special Distribution and Allocation Agreement dated
as of January 1, 1996 among Prime Retail, Inc., Prime Retail, L.P. and Abraham
Rosenthal.
<PAGE>
EXHIBIT F
CONVERTIBLE PREFERRED RIGHTS TERMS
The Convertible Preferred Rights granted by the General Partner to the
Limited Partners holding Convertible Preferred Units pursuant to Section 11.1A
of the Partnership Agreement shall be subject to the following terms and
conditions:
1. Definitions. The following terms and phrases shall, for purposes of this
Exhibit F and the Agreement, have the meanings set forth below:
"Beneficially Own" shall mean the ownership of Convertible Preferred
Stock by a Person who would be treated as an owner of such shares of
Convertible Preferred 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.
"Common Stock Purchase Price" shall have the meaning set forth in
Paragraph IV hereof.
"Computation Date" shall mean the date on which an Exchange Exercise
Notice is delivered to the General Partner.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Exchange Exercise Notice" shall have the meaning set forth in
Paragraph 2 hereof.
"Exchange Rights" shall have the meaning set forth in Paragraph 2
hereof.
"Exercising Partners" shall have the meaning set forth in Paragraph 2
hereof.
"Offered Convertible Preferred Units" shall mean the Convertible
Preferred Units of the Exercising Partner(s) identified in an Exchange
Exercise Notice which, pursuant to the exercise of Exchange Rights, can be
acquired by the General Partner under the terms hereof.
<PAGE>
"Ownership Limit" shall have the meaning set forth in Paragraph 3
hereof.
"Purchase Price" shall mean the Common Stock Purchase Price or the
Convertible Preferred Stock Purchase Price.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor statute.
"Convertible Preferred Stock Purchase Price" shall have the meaning
set forth in Paragraph 4 hereof.
2. Delivery of Exchange Exercise Notices. Any one or more Limited Partners
holding Convertible Preferred Units ("Exercising Partners") may, subject to the
limitations set forth herein, deliver to the General Partner written notice (the
"Exchange Exercise Notice") pursuant to which such Exercising Partners elect to
exercise their rights to convert (the "Exchange Rights") all or any portion of
their Convertible Preferred Units for shares of Convertible Preferred Stock or
Common Stock, subject to the limitations contained in Paragraph 3 below.
3. Limitation on Exercise of Exchange Rights. Exchange Rights with respect to an
exchange into Convertible Preferred Stock may be exercised at any time. Any
exercise of Exchange Rights shall be subject to the limitations contained herein
and in the General Partner's Articles of Incorporation (the "Ownership Limit").
If an Exchange Exercise Notice is delivered to the General Partner but, as a
result of the Ownership Limit, the Exchange Rights cannot be exercised in full,
the Exchange Exercise Notice shall be deemed to be modified such that the
Exchange Rights shall be exercised only to the extent permitted under the
Ownership Limit; with the exercise of the remainder of such Exchange Rights
being deemed to have been withdrawn.
4. Election and Computation of Purchase Price. The Purchase Price payable by the
General Partner to each Exercising Partner for the Offered Convertible Preferred
Units shall be payable by the issuance by the General Partner of the product,
expressed as a whole number, of (i) the number of shares of its Convertible
Preferred Stock equal to the number of Convertible Preferred Units being
converted, multiplied by (ii) the Preferred Exchange Factor (the "Convertible
Preferred Stock Purchase Price"). At the election of an Exercising Partner,
<PAGE>
the Purchase Price shall be paid by the General Partner in shares of its Common
Stock rather than in Convertible Preferred Stock (the "Common Stock Purchase
Price"). The Common Stock Purchase Price shall mean, with respect to the
applicable number of Offered Convertible Preferred Units for which an Exercising
Partner has elected to receive the Common Stock Purchase Price rather than the
Convertible Preferred Stock Purchase Price, the number of shares of the General
Partner's Common Stock that would be issued to the Exercising Partner if the
Exercising Partner held the number of shares of the General Partner's
Convertible Preferred Stock equal to the number of such shares that the
Exercising Partner would have received if he had converted his Offered
Convertible Preferred Units into such shares and then converted such shares to
shares of the General Partner's Common Stock pursuant to the terms and
provisions of the General Partner's Articles of Incorporation.
5. Closing; Delivery of Election Notice. The closing of the acquisition of
Offered Convertible Preferred Units shall, unless otherwise mutually agreed, be
held at the principal office of the General Partner, on the date agreed to by
the General Partner and the Exercising Partner(s), which date shall in no event
be on the date which is the later of (i) the expiration or termination of the
waiting period applicable to each Exercising Partner, if any, under the Hart
Scott Act; and (ii) ten (10) days after receipt of the Exchange Exercise Notice
delivered in accordance with the requirements of Paragraph II hereof.
6. Further Limitation on Exercise. The Exchange Rights may not be exercised
unless the Partnership receives an opinion of counsel, which counsel and opinion
shall be reasonably satisfactory to the General Partner, that the proposed
exercise of such Exchange Rights shall not cause the Partnership to cease to
qualify as a partnership for Federal income tax purposes. This requirement may
be waived by the General Partner, and shall not apply to the exercise by the
sole remaining Limited Partner of the Exchange Rights with respect to all of his
or its Convertible Preferred Units.
<PAGE>
7. Closing Deliveries. At the closing, payment of the Purchase Price shall be
accompanied by proper instruments of transfer and assignment and by the delivery
of (i) representations and warranties of (A) the Exercising Partner with respect
to its due authority to sell all of the right, title and interest in and to such
Offered Convertible Preferred Units to the General Partner and with respect to
the status of the Offered Convertible Preferred Units being sold, free and clear
of all Liens, and (B) the General Partner with respect to due authority for the
purchase of such Offered Convertible Preferred Units, and (ii) (A) an opinion of
counsel for the General Partner, reasonably satisfactory to the Exercising
Partner(s), to the effect that the shares of Convertible Preferred Stock (or
Common Stock, in the event the Electing Partner has elected to receive the
Common Stock Purchase Price) have been duly authorized, are validly issued,
fully-paid and non-assessable, and (B) a stock certificate or certificates
evidencing the Convertible Preferred Stock (or Common Stock, in the event the
Electing Partner has elected to receive the Common Stock Purchase Price) to be
issued and registered in the name of the Exercising Partner(s) or its (their)
designee.
8. Covenants of the General Partner. To facilitate the General Partner's ability
to fully perform its obligations hereunder, the General Partner covenants and
agrees as follows:
8.1 At all times during the pendency of the Convertible Preferred
Rights, the General Partner shall reserve for issuance such number of
shares of Convertible Preferred Stock and Common Stock as may be necessary
to enable the General Partner to issue such shares in full payment of the
Convertible Preferred Stock Purchase Price or Common Stock Purchase Price
in regard to all Convertible Preferred Units held by Limited Partners and
which are from time to time outstanding.
8.2 As long as the General Partner shall be obligated to file periodic
reports under the Exchange Act, the General Partner will timely file such
reports in such manner as shall enable any recipient of Convertible
Preferred Stock or Common Stock issued to Limited Partners hereunder in
reliance upon an exemption from registration under the Securities Act to
continue to be eligible to utilize Rule 144 promulgated by the SEC pursuant
to the Securities Act, or any successor rule or regulation or statute
thereunder, for the resale thereof.
<PAGE>
8.3 During the pendency of the Convertible Preferred Rights, the
Limited Partners holding Convertible Preferred Units shall receive in a
timely manner all reports filed by the General Partner with the SEC and all
other communications transmitted from time to time by the General Partner
to its stockholders generally.
8.4 The General Partner shall cooperate with the Limited Partners
holding Convertible Preferred Units and provide by certificate of
appropriate officers the factual information reasonably requested by any
Limited Partner in connection with delivery of an opinion of counsel
pursuant to Section VI of this Exhibit F.
9. Limited Partners' Covenants. Each Limited Partner holding Convertible
Preferred Units covenants and agrees with the General Partner that all Offered
Convertible Preferred Units tendered to the General Partner in accordance with
the exercise of Convertible Preferred Rights herein provided shall be delivered
to the General Partner free and clear of all Liens and should any Liens exist or
arise with respect to such Offered Convertible Preferred Units, the General
Partner shall be under no obligation to acquire the same unless the Purchase
Price will be sufficient to cause such existing Lien to be discharged in full
upon application of all or a part of the Purchase Price and the General Partner
is expressly authorized to apply such portion of the Purchase Price as may be
necessary to satisfy any indebtedness in full and to discharge such Lien in
full. Each Limited Partner holding Convertible Preferred Units further agrees
that, in the event any state or local property transfer tax is payable as a
result of the transfer of its Offered Convertible Preferred Units to the General
Partner (or its designee), such Limited Partner shall assume and pay such
transfer tax. Finally, each Limited Partner holding Convertible Preferred Units
agrees that, to the extent it receives an amount of Net Cash Flow under Section
6.2(e) in respect of subsection (a)(vii) of Section 6.2 of the Partnership
Agreement that is treated as a distribution to the General Partner for purposes
of determining the Capital Account of the General Partner, such Limited Partner
will treat such amount of Net Cash Flow for income tax purposes as an additional
amount paid by the General Partner and realized by it in exchange for the
Offered Convertible Preferred Units.
10. Fractions of Shares. No fractional Shares shall be issued upon conversion of
Convertible Preferred Units. If more than one Convertible Preferred Unit shall
be surrendered for conversion at one time by the same
<PAGE>
Exercising Partner, the number of full shares of Convertible Preferred Stock
which shall be issuable upon conversion thereof (or Common Stock if the Common
Stock Purchase Price is paid) shall be computed on the basis of the aggregate
amount of Convertible Preferred Units so surrendered. Instead of any fractional
share of Convertible Preferred Stock or Common Stock which would otherwise be
issuable upon conversion of any Convertible Preferred Unit or Convertible
Preferred Units, the General Partner shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the current market
price per share at the close of business on the day of closing specified in
Paragraph V of this Exhibit F (or, if such day is not a Trading Day, on the
Trading Day immediately preceding such day). For the purpose of any computation
pursuant to the preceding sentence, the current market price per share of
Convertible Preferred Stock on any date shall be deemed to be the average of the
daily Closing Prices for the five consecutive Trading Days selected by the
General Partner commencing not more than twenty (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. For purposes of this Exhibit F, the term "Trading Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day which
securities are not traded on such exchange or in such market and the term "'ex'
date", when used in respect of any issuance or distribution, shall mean the
first date on which the shares trade regular way on such exchange or in such
market without the right to receive such issuance or distribution.
11. Provisions in Case of Consolidation, Merger or Sale of Assets. In case of
any consolidation of the General Partner with, or merger of the General Partner
into, any other Person, any merger or consolidation of another Person into the
General Partner (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Convertible Preferred Stock or Common Stock of the General Partner), or any sale
or transfer of all or substantially all of the assets of the General Partner,
the Person formed by such consolidation or resulting from such merger or which
acquires such assets of the General Partner, as the case may be, shall execute
and deliver to each holder of Exchange Rights an agreement providing that such
<PAGE>
holder shall have the right thereafter, during the period such Exchange Rights
shall be exercisable as specified herein, to require the conversion of
Convertible Preferred Units for the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Convertible Preferred Stock or Common Stock
into which such Convertible Preferred Unit might have been converted immediately
prior to such consolidation, merger, sale or transfer, assuming such holder of
shares of Convertible Preferred Stock is not a Person with which the General
Partner consolidated or into which the General Partner merged or which merged
into the General Partner, or to which such sale or transfer, was made, as the
case may be (a "Constituent Person"), or an Affiliate of a Constituent Person,
and failed to exercise his right of election, if any, as to the kind or amount
of securities, cash or other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer is not the same for each share of Convertible Preferred Stock in
respect of which such rights of election shall not have been exercised
("non-electing Share"), then for the purpose of this Paragraph XI the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing Share shall be
deemed to be the kind and amount so receivable per Share by a plurality of the
non-electing Shares). Such agreement shall provide for adjustments which, for
events subsequent to the effective date of such agreement, shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Exhibit
F. The above provisions of this Paragraph XI shall similarly apply to successive
consolidations, mergers, sales or transfers.
12. Antidilution Provisions.
12.1 The Preferred Exchange Factor shall be subject to adjustment from
time to time effective upon the occurrence of the following events and
shall be expressed as a percentage, calculated to the nearest
one-thousandth of one percent (.001%):
(a) In case the General Partner shall pay or make a dividend or
other distribution in shares of Convertible Preferred Stock to all
holders of the Convertible Preferred Stock, the Exchange Factor 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 other distribution shall be increased in proportion to
<PAGE>
the increase in outstanding shares of Convertible Preferred Stock
resulting from such dividend or other distribution, such increase to
become effective immediately after the opening of business on the day
following the record date fixed for such dividend or other
distribution.
(b) In case outstanding shares of Convertible Preferred Stock
shall be subdivided into a greater number of shares, the Exchange
Factor in effect at the opening of business on the day following the
day upon which such subdivision becomes effective shall be
proportionately increased, and, conversely, in case the outstanding
shares of Convertible Preferred Stock shall be combined into a smaller
number of shares, the Exchange Factor in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or
reduction, 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.
12.2 In case the General Partner shall issue rights, options or
warrants to all holders of its shares of Convertible Preferred Stock
entitling them to subscribe for or purchase Convertible Preferred
Stock at a price per share less than the current market price per
share (as determined in the next sentence), each holder of a
Convertible Preferred Unit shall be entitled to receive such number of
rights, options or warrants, as the case may be, as he would have been
entitled to receive had he converted his Convertible Preferred Units
immediately prior to the record date for such issuance by the General
Partner (except to the extent such receipt shall cause such holder to
exceed the Ownership Limit). For the purpose of any computation
pursuant to the preceding sentence, the current market price per share
of Convertible Preferred Stock on any date shall be deemed to be the
average of the daily Closing Prices for the five consecutive Trading
Days selected by the General Partner commencing not more than twenty
(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
<PAGE>
computation. For purposes of this Exhibit C, the term "Trading Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other
than any day which securities are not traded on such exchange or in
such market and the term "'ex' date", when used in respect of any
issuance or distribution, shall mean the first date on which the
shares trade regular way on such exchange or in such market without
the right to receive such issuance or distribution.
12.3 In case the shares of Convertible Preferred Stock shall be
changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than subdivision or combination of shares or a
stock dividend described in subparagraph (a)(ii) of this Paragraph)
then and in each such event the Limited Partners shall have the right
thereafter to convert their Convertible Preferred Units into the kind
and amount of shares and other securities and property which would
have been received upon such reorganization, reclassification or other
change by holders of the number of shares into which the Convertible
Preferred Units might have been converted immediately prior to such
reorganization, reclassification or change.
12.4 The General Partner may, but shall not be required to, make
such adjustments to the number of shares of Convertible Preferred
Stock issuable upon conversion of a Convertible Preferred Unit, in
addition to those required by this Paragraph 12, as the General
Partner's board of directors 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. The
General Partner's board of directors shall have the power to resolve
any ambiguity or correct any error in the adjustments made pursuant to
this Paragraph and its actions in so doing shall be final and
conclusive.
<PAGE>
SCHEDULE 1
EXCHANGE EXERCISE NOTICE
To: Prime Retail, Inc.
Reference is made to that certain Amended and Restated Agreement
of Limited Partnership of Prime Retail, L.P. dated ____________, _____
(the "Partnership Agreement"), pursuant to which Prime Retail, Inc., a
Maryland corporation, and certain other persons, including the
undersigned, continued a Delaware limited partnership known as Prime
Retail, L.P. (the "Partnership"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Partnership
Agreement. Pursuant to Part B, Article XI of the Partnership Agreement
and Paragraph II of Exhibit F of the Partnership Agreement, each of
the undersigned, being a limited partner of the Partnership (an
"Exercising Partner"), hereby elects to exercise its Exchange Rights
as to the number of Offered Convertible Preferred Units specified
opposite its name below. Pursuant to Paragraph IV of Exhibit F of the
Partnership Agreement, the undersigned elect to receive [the
Convertible Preferred Stock Purchase Price]/[the Common Stock Purchase
Price].
Dated: ___________________
Number of Offered
Exercising Partner Convertible Preferred Units
Exercising Partners:
____________________________
____________________________
REGISTRATION RIGHTS AGREEMENT
Dated as of June 15, 1998
of
PRIME RETAIL, INC.
and
PRIME RETAIL, L.P.
for the benefit of
HOLDERS OF COMMON UNITS
of
PRIME RETAIL, L.P.
and
CERTAIN STOCKHOLDERS OF PRIME RETAIL, INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this " Agreement") is made and entered
into as of June 15, 1998, by PRIME RETAIL, INC., a Maryland corporation (the
"Company"), and PRIME RETAIL L.P., a Delaware limited partnership (the
"Partnership"), for the benefit of those Persons (as defined herein) who own
Shares (as defined herein) and those Persons (other than the Company) who own
Units (as defined herein) and their respective successors, assigns and
transferees (herein referred to collectively as the "Holders" and individually
as a "Holder");
WHEREAS, Prime Retail, Inc., a Maryland corporation ("Old Prime"), the
Partnership, Horizon Group, Inc., a Michigan corporation ("HGI"), the Company
(formerly known as Sky Merger Corp.), Horizon Group Properties, Inc., a Maryland
corporation, Horizon Group Properties, L.P., a Delaware limited partnership, and
Horizon/Glen Outlet Centers Limited Partnership, a Delaware limited partnership
("Horizon Partnership") have entered into that certain Amended and Restated
Agreement and Plan of Merger dated as of February 1, 1998 (the "Merger
Agreement");
WHEREAS, on the date hereof and in accordance with the Merger Agreement,
Horizon Partnership has merged with and into the Partnership (the "Partnership
Merger"), with the Partnership as the surviving partnership, HGI has merged with
and into the Company (the "Reincorporation"), with the Company as the surviving
corporation, and Old Prime has merged with and into the Company, with the
Company as the surviving corporation (the "Corporate Merger" and, together with
the Partnership Merger and the Reincorporation, the "Mergers");
WHEREAS, Old Prime, the Partnership and certain others have entered into a
Registration Rights Agreement dated March 22, 1994 (the "Old Prime Registration
Rights Agreement") and HGI has entered into a Registration Rights Agreement
dated as of July 14, 1995 (the "HGI Registration Rights Agreement" and, together
with the Old Prime Registration Rights Agreement, the "Prior Agreements").
WHEREAS, Sky Merger Corp. filed a registration statement (the "S-4
Registration Statement") registering the Shares issuable upon the exchange of
Units under the Securities Act.
WHEREAS, it is a condition to the consummation of the various transactions
contemplated by the Merger Agreement that the Company and the Partnership enter
into this Agreement;
WHEREAS, the Company and the Partnership have agreed, subject to the terms,
conditions and limitations set forth herein, to provide the Holders with the
registration rights set forth herein and it is the intent of the Company and the
Partnership that this Agreement supersede and replace the Prior Agreements in
their entirety.
<PAGE>
NOW, THEREFORE, the Company for the benefit of the holders agrees as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Closing Date" shall have the meaning assigned to such term in the
Merger Agreement.
"Common Units" shall mean units of limited partnership interest
designated as Common Units in the Partnership Agreement and outstanding on
the date hereof, including any Common Units issued in connection with the
Partnership Merger, all of which interests are exchangeable for Company
Common Stock or, at the option of the Company as the general partner of the
Partnership, cash in accordance with Article XI of the Partnership
Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include any successors thereof.
"Company Common Stock" shall mean the shares of common stock, $0.01
par value per share, of the Company.
"Company Series B Preferred Stock" shall mean the shares of 8.5%
Series B Cumulative Participating Convertible Preferred Stock, $0.01 par
value per share, of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"HGI Common Stock" shall mean shares of common stock, $0.01 par value
per share, of HGI and any shares of capital stock into which such shares
are converted pursuant to the Reincorporation.
"Holder" or "Holders" shall have the meaning set forth in the
preamble. Holders shall be comprised of REIT Holders and Unit Holders.
"Old Prime Common Stock" shall mean shares of common stock, $0.01 par
value per share, of Old Prime.
"Partnership" shall have the meaning set forth in the preamble and
shall also include any successors thereof.
<PAGE>
"Partnership Agreement" shall mean the Second Amended and Restated
Agreement of Limited Partnership of Partnership, as in effect on the
Closing Date and as from time to time amended, supplemented or modified in
accordance with the terms thereof.
"Person" shall mean an individual, partnership, corporation, trust,
limited liability company, or unincorporated organization, or a government
or agency or political subdivision thereof.
"Prime/Sky Merger Effective Time" shall have the meaning assigned to
such term in the Merger Agreement.
"Prospectus" shall mean the prospectus included in a Registration
Statement, and any such prospectus as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement,
and by all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material
incorporated by reference therein.
"Public Sale" shall mean a public sale or distribution of Registrable
Securities, including a sale pursuant to Rule 144A (or any similar
provision then in effect) under the Securities Act.
"Registrable Securities" shall mean the Shares, excluding (i) Shares
for which a Registration Statement relating to the sale thereof by the
Holder shall have become effective under the Securities Act and which have
been disposed of by the Holder under such Registration Statement, (ii)
Shares sold or which may be sold or otherwise distributed pursuant to Rule
144 or Rule 145 under the Securities Act in unlimited quantities in any
three-month period as confirmed in a written opinion of counsel to the
Company addressed to the Holder or (iii) Shares as to which registration
under the Securities Act is not required to permit the sale thereof by the
Holder to the public, and certificates without restrictive legend shall
have been delivered by the Company for such Shares.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. ("NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualification of any of the Registrable
Securities and the preparation of a Blue Sky Memorandum) and compliance
with the rules of the NASD, (iii) all expenses of any Persons engaged by
the Company in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
certificates and other documents relating to the performance of and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities
on any securities exchange or exchanges pursuant to Section 3(a)(viii)
hereof, and (v) the fees and disbursements of counsel for the Company and
of the independent public accountants of the Company, including the
expenses of any special audits or "cold comfort" letters, if any, required
by or incident to such performance and compliance. Registration Expenses
shall specifically exclude underwriting discounts and commissions, and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a selling Holder, all of which shall be borne by such Holder
in all cases.
<PAGE>
"Registration Notice" shall have the meaning set forth in Section
3(a)(ii) hereof.
"Registration Statement" shall mean the S-4 Registration Statement
and/or the "shelf" registration statement of the Company filed pursuant to
Section 2(a) hereof and any other entity required to be a registrant with
respect to such shelf registration statement pursuant to the requirements
of the Securities Act which covers all of the Registrable Securities on an
appropriate form under Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, and all amendments and supplements to
such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and
all materials incorporated by reference therein.
"REIT Holders" shall mean Holders of Shares, and their respective
successors, assigns and transferees.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean Securities Act of 1933, as amended from
time to time.
"Shares" shall mean Company Series B Preferred Stock and Company
Common Stock that, in either case, (i) are issuable upon the exchange of
Units in accordance with Article XI of the Partnership Agreement or; (ii)
were issued on the date hereof in connection with the Corporate Merger in
exchange for HGI Common Stock or Old Prime Common Stock that was held
immediately prior to the Prime/Sky Merger Effective Time by "affiliates" of
HGI or Old Prime, respectively, within the meaning of Rule 144(a)(1) under
the Securities Act.
"Shelf Registration" shall mean a registration required to be effected
pursuant to Section 2(a) hereof.
"Unit Holders" shall mean the holders (other than the Company) owning
Units on the date hereof and their respective successors, assigns and
transferees.
"Units" shall mean the Common Units.
2. Shelf Registration Under the Securities Act
(a) Filing of Registration Statement. As promptly as practicable after
the date hereof, but in any event within thirty (30) days of the date
hereof, the Company shall cause to be filed promptly a Registration
Statement on Form S-3 providing for the sale by the Company to the Holders
of Shares to be issued upon the exchange of Units in accordance with
Article XI of the Partnership Agreement and providing for the sale by the
Holders of Registrable Securities in accordance with the terms hereof and
will use its reasonable efforts to cause such Registration Statement to be
declared effective by the SEC as soon as reasonably
<PAGE>
practicable. The Company agrees to use its reasonable efforts to keep the
Registration Statement continuously effective under the Securities Act
until such date as there shall no longer be any Registrable Securities
outstanding, and further agrees to supplement or amend the Registration
Statement, if and as required by the rules, regulations or instructions
applicable to the registration form used by the Company for such
Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for Registration. Notwithstanding any provision of
this Section 2(a) to the contrary, if as of the date of this Agreement any
of the Registrable Securities are subject to an effective registration
statement under the Securities Act on a form permitting the sale of Shares
in the manner provided for in this Agreement, such registration statement
may, at the option of the Company, serve as the Registration Statement
required by this Section 2(a) for all purposes of this Agreement with
respect to such Shares. The Company shall cause to be filed a
post-effective amendment to such Registration Statement permitting resales
of such Shares and shall use its reasonable efforts to cause such
post-effective amendment to become effective on the date hereof or as soon
as reasonably practicable after the date hereof.
(b) Expenses. The Company shall pay all Registration Expenses in
connection with any Registration pursuant to Section 2. Each Holder shall
pay all underwriting discounts and commissions, the fees and disbursements
of counsel representing such Holder, and transfer taxes, if any, relating
to the sale or disposition of such Holder's Registrable Securities pursuant
to the Registration Statement.
(c) Inclusion in Registration Statement. The Company may require each
Holder of Registrable Securities to furnish to the Company in writing such
information regarding the proposed offer or sale by such Holder of such
Registrable Securities as the Company may from time to time reasonably
request in writing. Any Holder who does not provide the information
reasonably requested by the Company in connection with the Registration
Statement as promptly as practicably after receipt of such request, but in
no event later than ten (10) business days thereafter, shall not be
entitled to have its Registrable Securities included in the Registration
Statement.
(d) Obligations of Holders. Each Holder who sells Shares under a
Registration Statement shall be deemed to have agreed to all of the terms
and conditions of this Agreement and to assume and agree to perform any and
all obligations of a Holder hereunder.
3. Registration Procedures.
(a) Obligations of the Company. In connection with the Registration
Statement pursuant to Section 2(a) hereof, the Company shall:
(i) cause the Registration Statement to be available for the sale
of the Registrable Securities by Holders in one or more transactions
on the New York Stock Exchange ("NYSE") or otherwise, in special
offering, exchange distributions or secondary distribution pursuant to
and in accordance with the rules of the NYSE, in the over-the-counter
market,
<PAGE>
in negotiated transactions, through the writing of options of the
Registrable Securities, or a combination of such methods of sale, and
to comply as to form in all material respects with the requirements of
the applicable form and include all financial statements required by
the SEC to be filed therewith; provided, however, the Registration
Statement shall also provide that sales may be made by the Holder
pursuant to Rule 144.
(ii) (A) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statement effective for the period
required hereunder; (B) cause the Prospectus included in such
Registration Statement to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 or
any similar rule that may be adopted under the Securities Act; (C)
respond promptly to any comments received from the SEC with respect to
the Registration Statement, or any amendment, post-effective amendment
or supplement relating thereto; and (D) comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by the Registration Statement;
(iii) furnish to each Holder of Registrable Securities and to
each underwriter of an underwritten offering of Registrable
Securities, without charge, as many copies of each prospectus, and any
amendment or supplement thereto and such other documents as they may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; the Company consents to the
use of the Prospectus, by each such Holder of Registrable Securities,
in connection with the offering and sale of the Registrable Securities
covered by the Prospectus;
(iv) notify promptly each Holder of Registrable Securities (A) of
the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (B) if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, and
(C) of the happening of any event during the period a Registration
Statement is effective as a result of which such Registration
Statement or the related Prospectus contains any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made (in the case of the
Prospectus), not misleading;
<PAGE>
(v) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as
promptly as practicable;
(vi) use its reasonable efforts to register or qualify the
Registrable Securities subject to the Registration Statement under all
applicable state securities or "blue sky" laws of such jurisdictions
as any Holder of Registrable Securities covered by the Registration
Statement, and each underwriter thereof, if any, shall reasonably
request in writing, and do any and all other acts and things which may
be reasonably necessary or advisable to enable such Holder or any
underwriter to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; provided, however,
that the Company shall not be required to (A) qualify generally to do
business in any jurisdiction or to register as a broker or dealer in
such jurisdiction where it would not otherwise be required to qualify
but for this Section 3(a)(vi), (B) subject itself to taxation in any
such jurisdiction, or (C) submit to the general service of process in
any such jurisdiction;
(vii) upon the occurrence of any event contemplated by Section
3(a)(iv)(C) hereof, use its reasonable efforts promptly to prepare and
file a supplement or prepare, file and obtain effectiveness of a
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statement therein, in the light of the circumstances under which they
were made, not misleading;
<PAGE>
(viii) use its reasonable efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar
securities issued by the Company are then listed;
(ix) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering at least twelve (12) months which shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder; and
(x) use its reasonable efforts. to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary by virtue of the business and operations of the Company
to enable Holders that have delivered Registration Notices to the
Company to consummate the disposition of such Registrable Securities.
(b) Obligations of Holders. In connection with and as a condition to the
Company's obligations with respect to a Registration Statement pursuant to
Section 2 hereof and this Section 3, each Holder agrees that (i) it will not
offer or sell its Registrable Securities under the Registration Statement until
it has received copies of the supplemental or amended Prospectus contemplated by
Section 3(a)(ii)(A) and (B) hereof and receives notice that any post-effective
amendment has become effective; and (ii) upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3(a)(iv)(C) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder
receives copies of the supplemented or amended Prospectus contemplated by
Section 3(a)(vi) hereof and receives notice that any post-effective amendment
has become effective, and, if so directed by the Company, such Holder will
deliver to the Company (at the expense of the Company) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(c) Additional Undertakings. The Company shall cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the selling Holders or the
underwriters, if any, may reasonably request at least three business days prior
to the closing of any sale
<PAGE>
of Registrable Securities. The Company further agrees to enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii)obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
Holders of a majority in principal amount of the Registrable
Securities being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered in
opinion requested in sales of securities or underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants (and, if necessary,
any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which
financial statements are, or are required to be, included in the
Registration Statement) addressed to the underwriters, if any, and use
reasonable efforts to have such letter addressed to the selling
Holders of Registrable Securities (to the extent consistent with
Statement on Auditing Standards No. 72 of the American Institute of
Certified Public Accounts), such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with similar underwritten
offerings;
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall
be in form, substance and scope customary for similar offerings;
<PAGE>
(v) if an underwriting agreement is entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth
in Section 4 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section or, at the request
of any underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of the Registrable Securities being sold and the managing
underwriters, if any.
The above shall be done at closing under any underwriting or similar agreement
as and to the extent required thereunder.
4. Indemnification; Contribution.
(a) Indemnification by the Company and the Partnership. The Company and the
Partnership, jointly and severally, agree to indemnify and hold harmless each
Holder, each Person, if any, who participates as an underwriter in the offering
or sale of Registrable Securities hereunder, each officer and director of such
Holder and underwriter, and each Person, if any, who controls any Holder or such
underwriter within the meaning of Section 15 of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which
Registrable Securities were registered under the Securities Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent
of the Company; and
<PAGE>
(iii) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, in each
case whether or not a party, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not
paid under subparagraph (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 4(a)
does not apply to any Holder or underwriter with respect to any loss, liability,
claim, damage or expense to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company or the Partnership
by such Holder expressly for use in a Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto) as evidenced
by a written statement duly executed by such Holder specifically stating that it
is for use in the preparation thereof.
(b) Indemnification by the Holders and Underwriters. Each Holder severally
agrees, and with respect to any underwriter the Company and the Partnership may
require an undertaking reasonably satisfactory to the Company and the
Partnership from such underwriter, to indemnify and hold harmless the Company,
the Partnership and the other selling Holders, and each of their respective
directors and officers (including each director and officer of the Company who
signed the Registration Statement), and each Person, if any, who controls the
Company, the Partnership or any other selling Holder within the meaning of
Section 15 of the Securities Act, to the same extent as the indemnity contained
in Section 5(a) hereof (except that any settlement described in Section 4(a)(ii)
shall be effected only with the written consent of such Holder), but only
insofar as such loss, liability, claim, damage or expense arises out of or is
based upon (i) any untrue statement or omission, or alleged untrue statements or
omissions, made in a Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company or the Partnership
by such selling Holder expressly for use in such Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto)
as evidenced by a written statement duly executed by such Holder specifically
stating that it is for use in the preparation thereof, or (ii) such Holder's
failure to deliver a Prospectus to any purchaser of Registrable Securities where
such a delivery obligation was applicable to such Holder's sale of Registrable
Securities and such Holder had been provided with sufficient copies of such
Prospectus for the relevant deliveries thereof. In no event shall the liability
of any Holder under this Section 4(b) be greater in amount than the dollar
<PAGE>
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Each indemnified party shall
give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity agreement provided
in Section 4(a) or (b) above, unless and to the extent it did not otherwise
learn of such action and the lack of notice by the indemnified party results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) shall not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided under Section 4(a) or (b) above. If the indemnifying party so elects
within a reasonable time after receipt of such notice, the indemnifying party
may assume the defense of such action or proceeding at such indemnifying party's
own expense with counsel chosen by the indemnifying party and approved by the
indemnified parties defendant in such action or proceeding, which approval shall
not be unreasonably withheld; provided, however, that, if such indemnified party
or parties reasonably determine that a conflict of interest exists where it is
advisable for such indemnified party or parties to be represented by separate
counsel or that, upon advice of counsel, there may be legal defenses available
to them which are different from or in addition to those available to the
indemnifying party, then the indemnifying party shall not be entitled to assume
such defense and the indemnified party or parties shall be entitled to one
separate counsel at the indemnifying party's expense. If an indemnifying party
is not entitled to assume the defense of such action or proceeding as a result
of the proviso to the preceding sentence, such indemnifying party's counsel
shall be entitled to conduct the defense of such indemnified party or parties,
it being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible. If
an indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party or parties will pay
the reasonable fees and expenses of counsel for the indemnified party or
parties. In such event, however, no indemnifying party will be liable for any
settlement effected without the written consent of such indemnifying party. If
an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action or proceeding. Any
settlement effected by the Company or the Partnership shall also release each
Holder that has sold securities pursuant to the Registration Statement, provided
such Holder is entitled to indemnification with respect to such sale pursuant to
this Section 4. The indemnification obligations provided pursuant to Section
4(a) and (b) hereof survive, with respect to a Holder, the transfer of
Registrable Securities by such Holder, and with respect to a Holder or the
Company, shall remain in full force and effect regardless of any investigation
made by or on behalf of any indemnified party, and shall be in addition to any
other rights (to indemnification, contribution or otherwise) which any
indemnified party may have pursuant to laws or contracts.
<PAGE>
(d) Contribution.
(i) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this
Section 4 is for any reason held to be unenforceable although
applicable in accordance with its term, the Company and the
Partnership, jointly and severally, on the one hand, and the selling
Holders, on the other, shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated
by such indemnity agreement incurred by the Company and the
Partnership, jointly and severally, and the selling Holders, in such
proportion as is appropriate to reflect the relative fault of the
Company and the Partnership on the one hand and the selling Holders on
the other hand as well as the relative benefits to such parties and
other equitable considerations (in such proportions that the selling
Holders are severally, not jointly, responsible for the balance), in
connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and indemnified parties shall be determined by
reference to, among, other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to, information supplied by, such indemnifying party or
the indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action.
(ii) The Company, the Partnership and the Holders agree that it
would not be just or equitable if contribution pursuant to this
Section 4(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 4(d), no selling Holder
shall be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Securities of such
selling Holder were sold to the public exceeds the amount of any
damages which such selling Holder would otherwise have been required
to pay by reason of such untrue statement or omission.
<PAGE>
(iii) Notwithstanding the foregoing, no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 4(d), each Person, if any, who controls a Holder
within the meaning of Section 15 of the Securities Act and directors
and officers of a Holder shall have the same rights to contribution as
such Holder, and each director of the Company, each officer of the
Company who signed the Registration Statement and each Person, if any,
who controls the Company within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as Company
(iv) The contribution provided for in this Section 4(d) shall
survive, with respect to a Holder, the transfer of Registrable
Securities by such Holder, and with respect to a Holder or the
Company, shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified party.
5. Rule 144 Sales.
(a) Reports. The Company covenants that it will file the reports
required to be filed by the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended, and will take such
further action as any Holder of Registrable Securities may reasonably
request, all to the extent required to enable such Holder to sell
Registrable Securities pursuant to Rule 144 under the Securities Act.
(b) Certificates. In connection with any sale, transfer or other
disposition by any Holder of any Registrable Securities pursuant to
Rule 144 under the Securities Act, the Company shall cooperate with
such Holder to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any Securities Act legend, and enable certificates for such
Registrable Securities to be for such number of shares and registered
in such names as the selling Holders may reasonably request at least
two (2) business days prior to any sale of Registrable Securities.
6. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of
the Company and the Holders of a majority in amount of the outstanding
Registrable Securities; provided, however, that no amendment,
modification or supplement or waiver or consent that adversely effects
any rights under this
<PAGE>
Agreement shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder. Notice of any
amendment, modification or supplement to this Agreement adopted in
accordance with this Section 6(a) shall be provided by the Company to each
Holder of Registrable Securities at least thirty (30) days prior to the
effective date of such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 6(b), which address initially is, with respect
to each Holder, the address and facsimile number set forth next to such
Holder's name on the books and records of the Company, or (b) if to the
Company or the Partnership, at: Prime Retail, Inc., 100 East Pratt Street,
Nineteenth Floor, Baltimore, MD 21202 Attention: C. Alan Schroeder,
facsimile number: (410) 234-0275. All such notices and communications shall
be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five (5) business days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt is acknowledged, if telecopied; or at the time delivered if
delivered by an air courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of
the Company, Partnership and the Holders, including without limitation and
without the need for an express assignment, subsequent Holders. If any
successor, assignee or transferee of any Holder shall acquire Registrable
Securities or Units, in any manner, whether by operation of law or
otherwise, such Registrable Securities or Units, as the case may be, shall
be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities or Units such Person shall be entitled
to receive the benefits hereof and shall be conclusively deemed to have
agreed to be bound by all of the terms and provisions hereof. Each such
Person shall be entitled to the benefits of this Agreement without the
consent of the Company, the Partnership or any other Holder.
(d) Headings. The headings in this Agreement are for the convenience
of reference only and shall not limit or otherwise affect the meaning
hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT GIVING EFFECT
TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
(f) Specific Performance. The Company and the Holders hereto
acknowledge that there would be no adequate remedy at law if any party
fails to perform any of its obligations hereunder, and accordingly agree
that each party, in addition to any other remedy to which it may be
entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement in any court of
the United States or any State thereof having jurisdiction.
<PAGE>
(g) Entire Agreement. This Agreement is intended by the Company as a
final expression of its agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the Company in
respect of the subject matter contained herein. This Agreement supersedes
all prior agreements and understandings of the Company with respect to such
subject matter.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date first written above.
PRIME RETAIL, INC.
By: /s/ William H. Carpenter, Jr.
Name: William H. Carpenter, Jr.
Title: President
PRIME RETAIL, L.P.
By: PRIME RETAIL, INC., its General
Partner
By: /s/ William H. Carpenter, Jr.
Name: William H. Carpenter, Jr.
Title: President
<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>
Year Ended December 31
-------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Income (loss) before minority interests $ 19,986 $ 18,547
Loss on sale of real estate 15,461 -
Interest incurred 65,082 39,078
Amortization of capitalized interest 476 343
Amortization of debt issuance costs 1,715 2,330
Amortization of interest rate protection contracts 1,152 1,390
Less interest earned on interest rate protection contracts (23) (115)
Less capitalized interest (5,793) (3,818)
-------- --------
Earnings 98,056 57,755
-------- --------
Interest incurred 65,082 39,078
Amortization of debt issuance costs 1,715 2,330
Amortization of interest rate protection contracts 1,152 1,390
Preferred stock distributions and dividends 24,604 12,726
Combined Fixed Charges and -------- --------
Preferred Stock Distributions and Dividends 92,553 55,524
-------- --------
Excess of Combined Fixed Charges
and Preferred Stock Distributions
and Dividends over Earnings $ - $ -
======== ========
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Distributions and Dividends 1.06 x 1.04 x
========= ========
</TABLE>
<TABLE>
December 31, 1998
Subsidiaries of Prime Retail, Inc
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Subsidiary State or Jurisdiction of % Owned1
Incorporation or Organization
<S> <C> <C>
1. Agoura Riverwalk LP Delaware 100
2. Arizona Factory Shops Limited Partnership Delaware 100
3. Arizona Factory Shops Partnership Arizona 50
4. Bend Factory Outlets Limited Partnership Delaware 100
5. Buckeye Factory Shops Limited Partnership Delaware 100
6. Camarillo Outlets, L.L.C. Delaware 100 2
7. Camarillo Outlets Land, L.L.C. Delaware 100 3
8. Carolina Factory Shops Limited Partnership Delaware 100
9. Castle Rock Factory Shops Partnership Colorado 100
10. Chesapeake Development Limited Partnership Delaware 100
11. Coral Isle Factory Shops Limited Partnership Delaware 100
12. Factory Outlets at Post Falls Limited Partnership Delaware 100
13. Fine Furniture Direct, Inc. Maryland 44.57 4
14. Finger Lakes Outlet Center, L.L.C. Delaware 100
15. First HGI, Inc. Delaware 100
16. First Horizon Group Limited Partnership Delaware 100
17. Florida Keys Factory Shops Limited Partnership Illinois 100
18. Gainesville Factory Shops Limited Partnership Illinois 100
19. Grove City Factory Shops Partnership Pennsylvania 100
20. Gulf Coast Factory Shops Limited Partnership Illinois 100
21. Gulfport Factory Shops Limited Partnership Delaware 100
22. HGI Perryville, Inc. Maryland 100
23. H/G Perryville, Limited Partnership Maryland 100
24. Huntley Factory Shops Limited Partnership Illinois 100
25. Kansas City Factory Shops Limited Partnership Delaware 100
26. Latham Factory Stores Limited Partnership Delaware 100
27. Loveland Factory Shops Limited Partnership Delaware 100
28. Magnolia Bluff Factory Shops Limited Partnership Delaware 100
29. Market Street, Ltd. Tennessee 98
30. Melrose Place, Ltd. Tennessee 100
31. Niagara International Factory Outlets Limited Partnership Delaware 100
32. Oak Creek Factory Outlets Limited Partnership Delaware 100
33. Ohio Factory Shops Partnership Ohio 100
34. Outlet Shops at Camarillo Limited Partnership Delaware 100 2
35. Outlet Village Mall of St. Louis Ltd.Partnership,L.L.L.P. Delaware 75
36. Outlet Village of Hagerstown Limited Partnership Delaware 100
37. Outlet Village of Kittery Limited Partnership, L.L.L.P. Delaware 100
38. Outlet Village of Lebanon Limited Partnership Delaware 100
39. Outlet Village of Puerto Rico Limited Partnership Delaware 100
40. Outlet Village of St. Louis Limited Partnership, L.L.L.P. Delaware 100
41. Oxnard Factory Outlet Partners California 50
42. Oxnard Factory Shops Limited Partnership Delaware 100
43. Prime Bellport Land, L.L.C. Delaware 100 2
44. Prime Lee Development Limited Partnership Delaware 100
45. Prime Northgate Plaza Limited Partnership Delaware 100
46. Prime Outlets at Secaucus, L.L.C. Delaware 100
47. Prime Retail Europe, L.L.C. Delaware 100 2
48. Prime Retail Europe Limited Partnership Delaware 100 2
49. Prime Retail Finance II, Inc. Maryland 100
50. Prime Retail Finance III, Inc. Maryland 100
51. Prime Retail Finance IV, Inc. Maryland 100
52. Prime Retail Finance V, Inc. Maryland 100
53. Prime Retail Finance VI, L.L.C. Delaware 100
54. Prime Retail Finance VII, Inc. Maryland 100
55. Prime Retail Finance, Inc. Maryland 100
56. Prime Retail Finance Limited Partnership Delaware 100
57. Prime Retail Furniture, Inc. Maryland 100
58. Prime Retail Management Limited Partnership Delaware 100
59. Prime Retail Services Limited Partnership Delaware 1
60. Prime Retail Services, Inc. Maryland 100 5
61. Prime Retail Stores, Inc. Maryland 100 6
62. Prime Retail, L.P. Delaware 79.10
63. Prime Warehouse Row Limited Partnership Illinois 100
64. Riverwalk Promenade at Agoura Hills Limited Partnership Delaware 100
65. San Marcos Factory Stores, Ltd. Texas 100
66. Second HGI, Inc. Delaware 100
67. Second Horizon Group Limited Partnership Delaware 100
68. Shasta Outlet Center Limited Partnership Delaware 100
69. Sun Coast Factory Shops Limited Partnership Delaware 100
70. The Prime Outlets at Bellport I, L.L.C. Delaware 100
71. The Prime Outlets at Bellport II, L.L.C. Delaware 100
72. The Prime Outlets at Birch Run, L.L.C. Delaware 100
73. The Prime Outlets at Calhoun Limited Partnership Delaware 100
74. The Prime Outlets at Camarillo, L.L.C. Delaware 100 2
75. The Prime Outlets at Conroe Limited Partnership Delaware 100
76. The Prime Outlets at Edinburgh Limited Partnership Delaware 100
77. The Prime Outlets at Gilroy Limited Partnership Delaware 100
78. The Prime Outlets at Jeffersonville, L.L.C. Delaware 100
79. The Prime Outlets at Kenosha II Limited Partnership Delaware 100
80. The Prime Outlets at Kittery II Limited Partnership Delaware 100
81. The Prime Outlets at Lee Limited Partnership Delaware 100
82. The Prime Outlets at Michigan City Limited Partnership Delaware 100
83. The Prime Outlets at Silverthorne Limited Partnership Illinois 100
84. The Prime Outlets at Vero Beach Limited Partnership Delaware 100
85. The Prime Outlets at Williamsburg, L.L.C. Delaware 100
86. The Prime Outlets at Woodbury, L.L.C. Delaware 100
87. Triangle Factory Stores Limited Partnership Illinois 100
88. Warehouse Row II Limited Partnership Tennessee 65
89. Warehouse Row, Ltd. Tennessee 99
90. Weisgarber Partners, Ltd. Tennessee 100
1 Reflects collective ownership interests of Prime Retail, Inc. and Prime
Retail, L.P.
2 Non-entity, reverts back to Prime Retail, L.P.
3 Prime Retail Stores, Inc.
4 Prime Retail Furniture, Inc. owns 44.57% Preferred Stock
5 Preferred Stock
6 Prime Retail, Inc. owns 100% Preferred Stock
</TABLE>
We consent to the incorporation by reference in this Registration Statement
(Form S-3 No. 333-68465) of Prime Retail, Inc. 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 29, 1999 (except for paragraph 7 of Note 9, as
to which the date is March 31, 1999), with respect to the consolidated financial
statements of Prime Retail, Inc. included in this Annual Report (Form 10-K) for
the year ended December 31, 1998.
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 31, 1999
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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0
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