<PAGE> 1
As filed with the Securities and Exchange Commission on October 3, 1996
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 52-1802283
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
1300 WILSON BLVD.
ARLINGTON, VA 22209
(703) 526-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------------
THOMAS E. FROST
THE MILLS CORPORATION
1300 WILSON BLVD.
ARLINGTON, VA 22209
(703) 526-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------------
COPIES TO:
J. WARREN GORRELL, JR.
ALAN L. DYE
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as possible after the effective date of this Registration Statement and from
time to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE PER OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) SECURITY (2) FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Stock (3)............... |
Common Stock (4).................. } $250,000,000 (5) $250,000,000 $75,758
Common Stock Warrants............. |
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</TABLE>
(Footnotes on the following page)
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
(Footnotes continued from previous page)
(1) This Registration Statement also covers contracts which may be issued
by the Registrant under which the counterparty may be required to
purchase Preferred Stock, Common Stock or Common Stock Warrants. Such
contracts would be issued with the Preferred Stock, Common Stock
and/or Common Stock Warrants covered hereby. In addition, Securities
registered hereunder may be sold separately, together or as units with
other Securities registered hereunder.
(2) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Stock or Preferred
Stock that is issued upon conversion of Preferred Stock or upon
exercise of Common Stock Warrants registered hereunder, as the case
may be. The aggregate maximum offering price of all Securities issued
pursuant to this Registration Statement will not exceed $250,000,000.
(3) Subject to footnote (2), there is being registered hereunder an
indeterminate number of shares of Preferred Stock as may from time to
time be issued at indeterminate prices.
(4) Subject to footnote (2), there is being registered hereunder an
indeterminate number of shares of Common Stock as may from time to
time be issued at indeterminate prices or issuable upon conversion of
Preferred Stock registered hereunder or upon exercise of Common Stock
Warrants registered hereunder, as the case may be.
(5) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1993, as amended.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS
$250,000,000
THE MILLS CORPORATION
PREFERRED STOCK, COMMON STOCK AND COMMON STOCK WARRANTS
---------------
The Mills Corporation (the "Company") may from time to time offer in one
or more series or classes its (i) preferred stock, $.01 par value ("Preferred
Stock"), (ii) common stock, $.01 par value ("Common Stock"), and (iii) warrants
exercisable for Common Stock ("Common Stock Warrants"), with an aggregate
public offering price of up to $250,000,000 (or its equivalent based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. The Preferred Stock, Common Stock and
Common Stock Warrants (collectively, the "Securities") may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be described in one or more supplements to this Prospectus (each a
"Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable: (i) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any public offering price; (ii) in the
case of Common Stock, any public offering price; and (iii) in the case of
Common Stock Warrants, the specific title and aggregate number, the issue price
and the exercise price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Securities, in each case as may be appropriate to help preserve the status
of the Company as a real estate investment trust ("REIT") for federal income
tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from
time to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities, their
names, and any applicable purchase price, fee, commission or discount
arrangement with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
-----------------
The date of this Prospectus is October __, 1996
<PAGE> 4
As used herein, the term "Company" includes The Mills Corporation and
its direct and indirect subsidiaries, including The Mills Limited Partnership
(the "Operating Partnership"), Management Associates Limited Partnership (the
"Management Partnership") and MillsServices Corp. (the "Third-Party Services
Corporation"), unless the context indicates otherwise.
THE COMPANY
The Company owns, develops, redevelops, leases and manages a portfolio
consisting of four super regional "value retail" outlet malls (the "Mills") and
11 community shopping centers (the "Community Centers," and, together with the
Mills, the "Properties") as of September 30, 1996. In addition, in November
1996, the Ontario Mills is scheduled to open with 1.6 million square feet of
gross leasable area in Ontario, California. The Company is a fully-integrated
real estate company and provides all development, redevelopment, leasing,
management and marketing services with respect to the Properties.
The Company is the sole general partner of, and currently holds a
majority of the partnership interests ("Units") in, the Operating Partnership.
Units (other than those owned by the Company) are redeemable at the option of
the holder under certain circumstances for Common Stock or, at the option of
the Company, the cash equivalent thereof. As the sole general partner of the
Operating Partnership, the Company has the exclusive power to manage and
conduct the business of the Operating Partnership, subject to certain limited
exceptions. The Operating Partnership either holds title to the Properties or
directly and indirectly holds 100% of the general and limited partnership
interests in the partnerships that own the Properties (the "Property
Partnerships"), except for the Property Partnership that owns Franklin Mills,
in which the Operating Partnership holds 77.5% of the partnership interests as
of September 30, 1996. The Company also has formed joint ventures to develop
additional properties.
The Company conducts all of its business through the Operating
Partnership and the Operating Partnership's various subsidiaries (the
"Operating Subsidiaries"), which include: (i) the Management Partnership,
which provides leasing and management services for the Properties; and (ii) the
Third-Party Services Corporation, which provides management services to
properties in which the Operating Partnership does not own an interest and
provides development services for existing properties and new properties
acquired by the Company; and (iii) various partnership subsidiaries that have
been formed to hold title to the individual properties. The Operating
Partnership owns 99% of the non-voting preferred stock and 5% of the voting
common stock of the Third Party Services Corporation (representing, in the
aggregate, a 99% economic interest). In addition, Herbert S. Miller, a
director of the Company, and an affiliate of Kan Am US, Inc. each owns .5% of
the non-voting preferred stock and 47.5% of the voting stock of the Third-Party
Services Corporation (representing, in the aggregate, a 1% economic interest).
The Company is a Delaware corporation that was formed in September 1993.
The principal executive offices of the Company are located at 1300 Wilson
Boulevard, Arlington, VA 22209, and its telephone number is (703) 526-5000.
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<PAGE> 5
RISK FACTORS
Prospective investors should carefully consider, among other factors,
the matters described below.
PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME; SHARES AVAILABLE FOR
FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock,
the relatively low daily trading volume of REITs in general, including the
Common Stock and any inability of the Company to invest the proceeds of a
future offering of Securities in a manner that will increase earnings per
share. Sales of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for shares. The Company also may issue shares of Common Stock
(subject to the Ownership Limit, as defined under "Description of Common Stock
Restrictions on Transfer; Excess Stock") upon redemption of Units issued in
connection with the formation of the Company, its initial public offering
("IPO") and the acquisition by the Company of its assets in April 1994
(collectively, the "Formation Transactions"). In addition, 2,500,000 shares of
Common Stock of the Company have been issued or reserved for issuance pursuant
to the Company's 1994 Executive Equity Incentive Plan, as amended (the "Plan"),
and these shares, upon issuance, will be available for sale in the public
markets from time to time pursuant to exemptions from registration requirements
or upon registration. As of September 30, 1996, options to purchase 1,527,508
shares of Common Stock and 63,247 shares of restricted stock had been granted
or authorized to be granted to certain directors, officers and employees of the
Company and its subsidiaries and remain outstanding. No prediction can be made
about the effect that future sales of Common Stock will have on the market
prices of shares.
RISKS RELATING TO DEBT
As of June 30, 1996, the Properties were subject to approximately
$688 million of mortgage indebtedness, which is secured by and limited in
recourse to the properties to which such indebtedness relates, and the
Company's total debt was approximately $697 million. In addition, an
unconsolidated limited partnership in which the Company owns an effective 50%
interest that is developing Ontario Mills had incurred mortgage indebtedness of
$28 million as of June 30, 1996. The Company is subject to the risks normally
associated with debt financing, including the risk that its cash flow will be
insufficient to meet required payments of principal and interest. If a
Property is mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments, the mortgagee could foreclose upon the
Property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of income and asset value to
the Company. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Company's ability to meet the
real estate investment trust distribution requirements under the Internal
Revenue Code of 1986, as amended (the "Code").
Because the terms of most of the Company's indebtedness do not require
any principal payments prior to maturity, and the Company does not anticipate
making any such payments prior to maturity, it may be necessary to refinance or
repay such indebtedness either through additional secured or unsecured debt
financing, private or public debt issuances, additional equity offerings or
sales of assets. If prevailing interest rates or other factors at the time of
refinancing result in higher
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<PAGE> 6
interest rates upon refinancing, the interest expense relating to such
refinanced indebtedness would increase, which would adversely affect the
Company's funds from operations and the amount of distributions it can make to
its stockholders. If the Company were unable to secure refinancing of the
mortgage indebtedness encumbering a Property on acceptable terms, the Company
might be forced to dispose of such Property upon disadvantageous terms, which
might result in losses to the Company, thereby adversely affecting funds from
operations and cash available for distribution by the Company to its
stockholders.
The Company is developing and plans to continue to develop new retail
properties, including new Mills. The funds necessary to construct and develop
new properties must be obtained through additional equity or debt securities
offerings, conventional third-party debt financing, participating loan
arrangements or joint venture arrangements. There can be no assurance that the
Company will obtain the financing necessary to fund new development and
expansion projects. In addition, the additional debt service payments required
in respect of any additional debt incurred, and the dilutive effect of any
additional equity securities issued to finance future development, could
adversely affect the Company's ability to make distributions to its
stockholders.
The Company anticipates that any new centers, some of which could be
developed through joint venture arrangements, would be financed through lines
of credit or other forms of secured or unsecured construction financing which
generally carry a floating interest rate. Although the Company likely would
hedge or cap all of such construction financing, no assurance can be given that
the Company would be able to obtain permanent debt or equity financing on
acceptable terms to refinance such construction loans upon substantial
completion of the project or that the Company would be able to hedge or cap its
debt on economically viable terms. As a result, the floating interest rate on
the construction loans could be outstanding for a longer period of time than
anticipated at the time of borrowing, resulting in the curtailment of
development activities or a decrease in the amount of cash available for
distribution to stockholders. If the Company had construction loans
outstanding and interests rates were to increase, the Company's debt service
for floating rate construction loans would increase (but not in excess of the
applicable cap rate), thereby adversely affecting the Company's financial
condition and results of operations.
The Company's organizational documents do not limit the amount of
indebtedness that the Company may incur. The Company could become more highly
leveraged, resulting in an increased risk of default on the obligations of the
Company and an increase in debt service requirements that could adversely
affect the financial condition and results of operations of the Company.
INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS
The executive officers of the Company and Kan Am US, Inc. and its
affiliates ("Kan Am"), which is substantially owned and controlled by three
directors of the Company (the "Kan Am Directors"), and their respective
affiliates directly and indirectly own a substantial percentage of the total
Common Stock and Units outstanding. The Units not held by the Company are
exchangeable for Common Stock or, at the option of the Company as general
partner of the Operating Partnership, the cash equivalent of that number of
shares of Common Stock. Interested directors may not vote on whether to elect
to pay cash in exchange for Units in which they have a direct or indirect
interest. Various directors of the Company, including the Kan Am Directors,
have substantial influence on the Company and, by virtue of their ownership of
Common Stock, on the outcome of any matters submitted to the Company's
stockholders for approval. The interests of such executive officers and Kan Am
Directors might not be consistent with the interests of all other stockholders,
and they may use their voting influence contrary to the stockholders' interest.
Although there is no understanding or arrangement for these stockholders and
their affiliates to act together on any matter, such
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stockholders would be in a position to exercise significant influence over the
affairs of the Company if they were to act together. In the event that all or
a substantial portion of such Units are exchanged for shares of Common Stock,
such persons will increase their influence over the Company and on the outcome
of any matters submitted to the Company's stockholders for approval. The
influence and voting power of the remaining stockholders would be
correspondingly limited.
The Company, as the sole general partner of the Operating Partnership,
may have certain fiduciary responsibilities to the other partners in the
Operating Partnership which may conflict with the interests of the stockholders
of the Company (including decisions regarding the sale or refinancing of the
Properties and the timing and amount of distributions from the Operating
Partnership). In addition, those individuals and entities (including the
executive officers of the Company, the Kan Am Directors and their respective
affiliates) which hold Units may have certain limited rights in decisions
affecting the Operating Partnership which may conflict with the interests of
those individuals and entities that purchase shares of Common Stock in this
offering. In particular, a holder of Units may suffer different and/or more
adverse tax consequences than the Company upon the sale or refinancing of some
of the Properties as a result of unrealized gain attributable to certain
Properties or the tax status of the Unit holder. These Unit holders and the
Company, therefore, may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of the Properties. Although the
Company, as the sole general partner of the Operating Partnership, has the
exclusive authority as to whether and on what terms to sell or refinance an
individual Property, these Units holders might seek to influence the Company
not to sell or refinance the Properties, even though such sale might otherwise
be financially advantageous to the Company, or may seek to influence the
Company to refinance a Property with a higher level of debt than would be in
the best interests of the Company.
The Kan Am Directors and their respective affiliates also may have
interests that may conflict with the interests of the stockholders of the
Company in connection with Kan Am's joint ventures with the Operating
Partnership to develop, own, and operate additional properties.
GENERAL RISKS OF DEVELOPING AND OPERATING RETAIL SHOPPING CENTERS
The Company intends from time to time to develop new Mills or expand
existing Mills, and may engage in the development of regional outlet centers,
new community centers and expansion of existing Community Centers, as such
opportunities arise. Such projects generally require significant expenditures
of capital and are frequently dependent on obtaining various forms of
government and other approvals, the receipt of which cannot be assured. In
addition, while policies with respect to development activities are intended to
limit some of the risks otherwise associated with development, the Company
nevertheless would incur development risks in connection with any such project,
including expenditures of funds for, and devotion of management's time to,
projects which may not be developed on a timely basis or at all. Accordingly,
there can be no assurance if or when any development of new Mills, regional
outlet centers or community centers or expansions of existing Properties would
be completed, or if completed, that the costs of development or expansion would
not exceed, by a material amount, projected costs.
The Company's income and cash available for distribution would be
adversely affected if multiple tenants were unable to meet their obligations.
In the event of default by a tenant, the Company may experience delays in
enforcing its rights as lessor and may incur substantial costs in protecting
its investment. Moreover, at any time, an anchor or major store tenant may
seek the protection of the bankruptcy laws, which could result in the
termination of such tenant's lease and, if followed by its closing or by its
sale to a less desirable retailer, could adversely affect customer traffic in a
center and thereby reduce the income generated by that center. Furthermore,
certain of the
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Company's tenants, including anchor and major tenants, hold the right under
their leases to terminate their leases or reduce their rental rate if certain
occupancy conditions are not met, if certain anchor tenants are closed, if
certain sales levels are not achieved, or if an exclusive use provision is
violated.
The Company's income and cash available for distribution also would be
adversely affected if the Company were unable either to rent unleased space in
the Properties or to relet space after the expiration of a tenant's lease on
economically favorable lease terms. The ability of the Company to rent or to
relet space in the Properties is affected by many factors, including covenants
contained in leases with certain tenants in the Properties restricting the use
of other space at the Properties. The Company's tenants generally enter into
leases with an initial term ranging from five to 15 years. No assurance can be
given that any tenant whose lease expires in the future will renew its lease at
that time, or on economically favorable terms, or that the Company will be able
to find a replacement tenant. The failure by the Company to rent unleased
space on a timely basis or at all would likely adversely affect the Company's
financial condition and results of operations. The Company may also incur
costs in making improvements or repairs to property required by a new tenant.
There are other companies that are engaged in the development or
ownership of value retail properties that compete with the Company in seeking
tenants. This results in competition for acquisition of prime locations and
for tenants who will lease space in the value retail properties that the
Company and its competitors own or operate. The development of new super
regional outlet malls or other value retail shopping centers with more
convenient locations or better rents may attract the Company's tenants or cause
them to seek more favorable lease terms at or prior to renewal, and may
accordingly adversely affect the business, revenues or value of the Properties.
In addition, traditional retailers may increase their competition with value
retailers for the limited pool of consumers by engaging in marketing and
selling activities similar to those of value retailers, thus blurring the
distinction between traditional retailers and value retailers.
GENERAL RISKS OF EQUITY REAL ESTATE INVESTMENTS
Real property investments are subject to varying degrees of risk. The
economic performance and value of a Property are affected by a number of
factors, including: the national economic climate; the regional economic
climate (which may be adversely impacted by plant closings, industry slowdowns
and other factors); local real estate conditions such as an oversupply of
retail space or a reduction in demand for real estate in the area; the
attractiveness of the Properties to tenants; competition from other available
space; the quality of maintenance, insurance and management services; and
increased operating costs. In addition, other factors may adversely affect a
Property's value, including changes in government regulations and other laws,
rules and regulations governing real estate, zoning or taxes, changes in
interest rate levels, the availability of financing and potential liability
under environmental and other laws.
Equity real estate investments are relatively illiquid and therefore
tend to limit the ability of the Company to vary its portfolio promptly in
response to changes in economic or other conditions. All of the Properties are
in the same line of business. In addition, certain significant expenditures
associated with each equity investment (such as debt service, real estate taxes
and operating and maintenance costs) are generally not reduced when
circumstances cause a reduction in income from the investment. If any Property
fails, the ability to convert the Property to an attractive alternative use or
to sell the Property to recoup the Company's investment may be limited. Should
any of the foregoing events occur, the Company's income and funds available for
distribution would be adversely affected.
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<PAGE> 9
Under various federal, state and local laws, ordinances and
regulations, the Company may be considered an owner or operator of real
property or may have arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its Properties or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible
for, the release of such hazardous substances. The failure to remediate
properly such substances may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. Such costs or
liabilities may exceed the value of such real estate.
The Company carries comprehensive liability, fire, flood, extended
coverage and rental loss insurance with respect to its Properties with policy
specifications and insured limits that it believes are customary for similar
properties. The Company also carries comprehensive earthquake and pollution
cleanup coverage on all its Properties. With respect to the Mills only, the
Company carries off-premises power coverage and with respect to Sawgrass Mills
only, the Company carries sinkhole coverage. There are certain types of losses
(generally of a catastrophic nature, such as wars or other acts of God) which
may be either uninsurable or not economically insurable. Should an uninsured
loss occur with respect to a Property, the Company could lose both its invested
capital in and anticipated profits from the Property.
RISKS RELATING TO CONTROL OF THE COMPANY
The major policies of the Company, including its policies with respect
to development, acquisitions, financing, growth, operations, debt
capitalization and distributions, are determined by the Company's Board of
Directors. The Board of Directors may revise these and other policies from
time to time, subject to certain limitations, without the approval of
stockholders. Accordingly, stockholders have little control over changes in
policies of the Company other than its policy of maintaining its qualification
as a REIT. A change in these policies could adversely affect the Company's
financial condition or results of operations.
Certain provisions in the Amended and Restated Certificate of
Incorporation of the Company (the "Certificate of Incorporation") and the
Amended and Restated Bylaws of the Company (the "Bylaws") may have the effect
of discouraging a third party from making an acquisition proposal for the
Company and may thereby have the effect of impeding a change in control of the
Company under circumstances that could give the holders of Common Stock the
opportunity to realize a premium over the then prevailing market price. The
Certificate of Incorporation further authorizes the Board of Directors to issue
up to 20,000,000 shares of Preferred Stock, and to establish the preferences
and rights (including the right to vote and the right to convert into Common
Stock) of any shares of Preferred Stock issued. The power to issue Preferred
Stock could have the effect of delaying or preventing a change in control of
the Company even if a change in control were in the best interests of the
stockholders. The Ownership Limit (as defined under "Description of Common
Stock Restrictions on Transfer; Excess Stock") also may have the effect of
precluding acquisition of control of the Company by a third party even if a
change in control were in the best interests of the stockholders. In addition,
the Board of Directors of the Company has three classes of directors.
Directors for each class are chosen for a three-year term upon the expiration
of the current class' term. The staggered terms for directors may affect the
stockholders' ability to change control of the Company even if a change in
control were in the stockholders' best interest.
The Company has invested and expects in the future to invest in
certain instances as a co-venturer or partner in the development of new
Properties, instead of developing projects directly. Such investments may
involve risks not present in a wholly-owned development project, including
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<PAGE> 10
the absence of exclusive control over the development, financing, leasing,
management and other aspects of the project and the possibility that the
Company's co-venturer or participating lender might become bankrupt, have
interests or goals that are inconsistent with those of the Company, take action
contrary to the instructions, requests or interests of the Company or otherwise
impede the Company's objectives. The Operating Partnership may also have
fiduciary responsibilities to the other investors which may conflict with the
interests of the Company's stockholders.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF STOCK
In order to maintain its qualification as a REIT, not more than 50% in
number or value of the outstanding capital stock of the Company may be owned,
directly or constructively under the applicable attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. In order to help protect the
Company from the risk of losing its REIT status due to concentration of
ownership among its stockholders, the Company has limited ownership of the
issued and outstanding shares of capital stock by any single stockholder to 5%
of the outstanding Common Stock (determined taking into account certain
ownership attribution rules) (with exceptions for certain persons that became
stockholders or Unit holders in the Formation Transactions). The Board of
Directors may waive the percentage ownership limit if it is satisfied that
ownership in excess of this limit will not jeopardize the Company's status as a
REIT. See "Description of Common Stock Restrictions on Transfer; Excess
Stock." A transfer of Common Stock to a person who, as a result of the
transfer, violates the ownership limit will be void. Shares of Common Stock
acquired in breach of the limitation will be automatically exchanged for shares
of a separate class of stock not entitled to vote or to participate in
distributions ("Excess Stock"). In addition, ownership, either directly or
indirectly under the applicable attribution rules of the Code, of stock in
excess of the ownership limit generally will result in the conversion of those
shares into Excess Stock. Excess Stock may be redeemed by the Company for the
lesser of the price paid and the average closing price for the ten trading days
preceding redemption. See "Description of Common Stock Restrictions on
Transfer; Excess Stock" for additional information regarding the ownership
limits.
CERTAIN TAX RISKS
The Company believes that it has qualified and will continue to
qualify as a REIT under the Code, commencing with its taxable year ended
December 31, 1994. However, no assurance can be given that the Company has so
qualified or will remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. In addition, no assurance can be given that new
legislation, Treasury Regulations, existing administrative interpretations
(which are not necessarily binding on the Internal Revenue Service (the "IRS"))
or court decisions will not significantly change the Company's qualification as
a REIT or the Federal income tax consequences of such qualification to the
Company.
If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. The additional tax
incurred in such event would significantly reduce the cash flow available for
distribution to stockholders and to meet debt service
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obligations. In addition, distributions to stockholders would no longer be
required to be made. See "Federal Income Tax Considerations--Taxation of the
Company."
The Company believes that the Operating Partnership, the Management
Partnership, and each of the other partnership and limited liability company
subsidiaries will qualify for treatment as partnerships under the Code. If any
of such subsidiaries fails to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and such subsidiary would be subject
to Federal income tax (including any alternative minimum tax) on its income at
corporate rates. See "Federal Income Tax Considerations -- Other Tax
Considerations."
To obtain the favorable tax treatment associated with qualifying as a
REIT under the Code, the Company generally is required each year to distribute
to its stockholders at least 95% of its net taxable income. See "Federal Income
Tax Considerations--Taxation of the Company (Annual Distribution
Requirements)." The Company could be required to borrow funds on a short-term
basis to meet the distribution requirements that are necessary to achieve the
tax benefits associated with qualifying as a REIT, even if management believed
that then prevailing market conditions were not generally favorable for such
borrowings.
Even if the Company continues to qualify as a REIT, it is and will be
subject to certain Federal, state and local taxes on its income and property
(including possibly in certain circumstances a tax at the rate of 100% on
profits attributable to land sales). See "Federal Income Tax Considerations."
In addition, the Company's net income, if any, from the development activities
and other operations conducted through the Third-Party Services Corporation is
subject to federal income tax. See "Federal Income Tax Considerations--Other
Tax Consequences."
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
the net proceeds from the sale of the Securities will be used for the
development of additional properties, as suitable opportunities arise, for the
repayment of certain outstanding indebtedness at such time and for working
capital and other general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the six months
ended June 30, 1996, for the year ended December 31, 1995 and for the
period from April 22, 1994 (the Company's IPO) to December 31, 1994 was 1.26,
1.16, and 1.20, respectively. There was no preferred stock outstanding for any
of these periods or for any of the periods specified below. Accordingly, the
ratio of earnings to combined fixed charges and preferred stock dividends is
identical to the ratio of earnings to fixed charges.
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income (loss)
before extraordinary items plus fixed charges. Fixed charges consist of
interest expense (including interest costs capitalized), and the amortization
of debt issuance costs.
Prior to completion of the Company's IPO, certain of the predecessor
entities to the Company (the "Mills Entities") operated in a highly leveraged
manner. As a result, although the Properties have historically generated
positive net cash flow, the combined statements of operations of The Mills
Entities for the period from January 1 to April 21, 1994 and for the
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fiscal years ended December 31, 1993, 1992 and 1991 show net losses.
Consequently, the computation of the ratio of earnings to fixed charges for
such periods indicates that earnings were inadequate to cover fixed charges by
approximately $4.4 million, $14.0 million, $21.5 million and $41.9 million,
respectively. The reorganization and recapitalization effected in connection
with the IPO permitted the Company to de-leverage the Properties significantly,
resulting in an improved ratio of earnings to fixed charges for the periods
subsequent to the IPO.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of Preferred
Stock. As of September 30, 1996, there were no shares of Preferred Stock
outstanding.
Under the Company's Certificate of Incorporation, the Board of
Directors may from time to time establish and issue one or more classes or
series of Preferred Stock. The Board may classify or reclassify any unissued
Preferred Stock by setting or changing the number, designation, preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption of such series
(a "Designating Amendment").
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Certificate of Incorporation and Bylaws.
GENERAL
The Board of Directors is empowered by the Company's Certificate of
Incorporation to designate and issue from time to time one or more classes or
series of Preferred Stock without shareholder approval. The Board of Directors
may determine the relative preferences, rights and other terms of each class or
series of Preferred Stock so issued. Because the Board of Directors has the
power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders of any class or series of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of Common Stock. The Preferred Stock will, when issued, be fully
paid and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered
thereby will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for
such Preferred Stock;
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(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities
exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock of the Company, including
the conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable
to such Preferred Stock;
(12) The relative ranking and preferences of such Preferred Stock
as to dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve the
status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term
"equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors, out of assets of
the Company legally available for payment, cash dividends (or dividends in kind
or in other property if expressly permitted and described in the applicable
Prospectus Supplement) at such rates and on such dates as will be set forth in
the applicable Prospectus Supplement. Each such dividend will be payable to
holders of record as they appear on the stock transfer books of the Company on
such record dates as are fixed by the Board of Directors.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable Prospectus Supplement. If the Board of Directors fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for
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which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares
of Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company
of any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Stock of any series and the shares
of any other series of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series, all dividends declared upon Preferred Stock
of such series and any other series of Preferred Stock ranking on a parity as
to dividends with such Preferred Stock will be declared pro rata so that the
amount of dividends declared per share of Preferred Stock of such series and
such other series of Preferred Stock will in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which will not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock do not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, will be payable in respect of
any dividend payment or payments on Preferred Stock of such series which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in Common Stock or other capital
stock ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends
and upon liquidation).
As a general rule, for purposes of determining whether a distribution
with respect to the Company's stock is a taxable dividend, the Company's
current and accumulated earnings and profits first are allocated to the
distributions with respect to Preferred Stock (and among classes and series of
Preferred Stock in accordance with their respective priorities), with any
balance being allocated to distribution with respect to Common Stock. The
effect of this rule is to cause all distributions with
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<PAGE> 15
respect to Preferred Stock to be fully taxable as dividends before any portion
of a distribution with respect to Common Stock is taxable as a dividend. See
"Federal Income Tax Considerations--Taxation of Taxable Domestic Stockholders"
and "--Taxation of Non-U.S. Stockholders." If for any taxable year, the
Company elects to designate as "capital gains dividends" (as defined in Section
857 of the Code) any portion (the "Capital Gains Amount") of the dividends
(within the meaning of the Code) paid or made available for the year to holders
of all classes of shares of beneficial interest (the "Total Dividends"), then
the portion of the Capital Gains Amount that will be allocable to the holders
of shares of Preferred Stock will be the Capital Gains Amount multiplied by a
fraction, the numerator of which shall be the total dividends (within the
meaning of the Code) paid or made available to the holders of shares of
Preferred Stock for the year and the denominator of which shall be the Total
Dividends.
Excess Stock received in exchange for Preferred Stock would not be
entitled to receive dividends or other distributions paid on the Preferred
Stock other than liquidating distributions. See "Description of Common Stock
Restrictions on Transfer; Excess Stock."
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, in whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which will not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all Preferred
Stock of any series 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 current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends
of the Preferred Stock of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Stock of
any series shall be redeemed unless all outstanding Preferred Stock of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof
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<PAGE> 16
set apart for payment for all past dividends periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of any series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, the Company will not purchase or otherwise acquire directly or
indirectly any Preferred Stock of such series (except by conversion into or
exchange for capital stock of the Company ranking junior to the Preferred Stock
of such series as to dividends and upon liquidation); provided, however, that
the foregoing will not prevent the purchase or acquisition of Preferred Stock
of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Stock
of any series to be redeemed at the address shown on the stock transfer books
of the Company. Each notice will state: (i) the redemption date; (ii) the
number of shares and class or series of Preferred Stock to be redeemed; (iii)
the redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all of the Preferred
Stock of any series are to be redeemed, the notice mailed to each such holder
thereof will also specify the number of shares of Preferred Stock to be
redeemed from each such holder. If notice of redemption of any Preferred Stock
has been given and if the funds necessary for such redemption have been set
aside by the Company in trust for the benefit of the holders of any Preferred
Stock so called for redemption, then from and after the redemption date
dividends will cease to accrue on such Preferred Stock, and all rights of the
holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment is
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to
all dividends accrued and unpaid thereon (which will not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Stock will have no right or claim to any of the remaining
assets of the Company. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding Preferred Stock and the corresponding amounts payable on all
shares of other classes or series of capital stock of the Company ranking on a
parity with the Preferred Stock in the distribution of assets, then the holders
of the Preferred Stock and all other such classes or series of
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<PAGE> 17
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.
If liquidating distributions shall have been made in full to all
holders of Preferred Stock, the remaining assets of the Company will be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, will not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six
or more consecutive quarterly periods, the holders of such Preferred Stock
(voting separately as a class with all other series of Preferred Stock upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of the Company at
a special meeting called by the holders of record of at least ten percent (10%)
of any series of Preferred Stock so in arrears (unless such request is received
less than 90 days before the date fixed for the next annual or special meeting
of the shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred
Stock for the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Directors will be increased by two
directors.
Unless provided otherwise for any series of Preferred Stock, so long
as any shares of Preferred Stock remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds
of each series of shares of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or
repeal the provisions of the Company's Certificate of Incorporation or the
Designating Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any of the Events set forth in (ii) above, so long as the shares
of Preferred Stock remain outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of any such Event will
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock and provided further
that (x) any increase in the amount of the authorized Preferred
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<PAGE> 18
Stock or the creation or issuance of any other series of Preferred Stock, or
(y) any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Preferred Stock of such series
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred
Stock is convertible into Common Stock will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
shares of Common Stock into which the Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock Restrictions on
Transfer; Excess Stock," for the Company to qualify as a REIT under the Code,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To assist
the Company in meeting this requirement, the Certificate of Incorporation
provides that no holder of Preferred Stock may own, or be deemed to own by
virtue of certain attribution provisions of the Code, more than 5% of the
Company's issued and outstanding capital stock, subject to certain exceptions
specified in the Certificate of Incorporation. See "Description of Common
Stock Restrictions on Transfer; Excess Stock."
TRANSFER AGENT AND REGISTRAR
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of Common Stock.
The outstanding Common Stock entitles the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Stock have no
preemptive rights. At September 30, 1996, there were [16,905,953] shares of
Common Stock outstanding.
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<PAGE> 19
Shares of Common Stock currently outstanding are listed for trading on
the New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE
to list the additional Common Stock to be sold pursuant to any Prospectus
Supplement, and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by stockholders and are entitled to receive ratably such dividends as may be
declared on the Common Stock by the Board of Directors in its discretion from
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of all debts and other
liabilities and any liquidation preference of the holders of Preferred Stock.
Holders of Common Stock have no subscription, redemption, conversion or
preemptive rights. Matters submitted for stockholder approval generally
require a majority vote of the shares present and voting thereon.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that, with respect to an annual
meeting of stockholders, the proposal of business to be considered by
stockholders may be made only (i) by or at the direction of the Board of
Directors or (ii) by a stockholder who is entitled to vote at the meeting and
who has complied with the advance notice procedures set forth in the Bylaws.
In addition, with respect to any meeting of stockholders, nominations of
persons for election to the Board of Directors may be made only (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Company who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws. In general, for notice of
stockholder nominations or business to be timely, the notice must be received
by the Company not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the
Common Stock is First Chicago Trust Company of New York.
RESTRICTIONS ON TRANSFER; EXCESS STOCK
For the Company to continue to qualify as a REIT under the Code, not
more than 50% in value of its outstanding capital stock may be owned, directly
or constructively, by five or fewer individuals (as defined in the Code) during
the last half of a taxable year, the Common Stock must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months (or
during a proportionate part of a shorter taxable year) and certain percentages
of the Company's gross income must be from particular activities. See "Federal
Income Tax Considerations -- Taxation of the Company -- Requirements for
Qualification." Because the Board of Directors believes it is essential for the
Company to continue to qualify as a REIT, the Certificate of Incorporation
contains a provision restricting the acquisition of the Company's capital stock
that is intended to help the Company meet the applicable ownership requirements
(the "Ownership Limit Provision").
The Ownership Limit Provision provides that, subject to certain
exceptions specified in the Certificate of Incorporation, no stockholder
(subject to certain exceptions) may own, or be deemed to own by virtue of the
constructive ownership provisions of the Code, more than 5% (the "Ownership
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Limit") of the Company's capital stock. The Ownership Limit Provision provides
that certain persons that became stockholders or Unit holders in the Formation
Transactions may (subject to certain limitations) acquire additional shares
pursuant to the right of any one or more of them to exchange Units in the
Operating Partnership into shares of Common Stock or from other sources,
subject to an overriding limitation that no person may acquire additional
shares if, as a result, any five beneficial owners of the Company's capital
stock would own more than 49.9% of the Company's outstanding capital stock.
The constructive ownership rules are complex and may cause the Company's
capital stock owned directly or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 5% of the Company's capital
stock (or the acquisition of an interest in an entity which owns the Company's
capital stock) by an individual or entity could cause that individual or entity
(or another individual or entity) to constructively own in excess of 5% of the
Company's capital stock, and thus subject such capital stock to the Ownership
Limit.
The Board of Directors may waive the Ownership Limit with respect to a
particular stockholder if the stockholder obtains either a ruling from the
Internal Revenue Service or an opinion of counsel satisfactory to the Board of
Directors which concludes that the waiver will not cause any person to violate
the Ownership Limit. In addition to preserving the Company's status as a REIT,
the Ownership Limit may prevent any person or group of persons from acquiring
unilateral control of the Company. The Ownership Limit may be changed by the
Board of Directors, subject to certain limitations.
If shares of the Company's capital stock in excess of the Ownership
Limit, or shares which would cause the Company to be beneficially owned by
fewer than 100 persons, are acquired by any person, such acquisition would be
null and void as to the intended transferee and the intended transferee would
acquire no rights or economic interest in those shares. The shares of the
Company's capital stock that would be in excess of the Ownership Limit will
automatically be exchanged for shares of Excess Stock that will be transferred,
by operation of law, to the Company as trustee of a trust for the exclusive
benefit of the transferee or transferees to whom the shares are ultimately
transferred (without violating the Ownership Limit). While held in trust, the
Excess Stock will not be entitled to vote, will not be considered for purposes
of any stockholder vote or the determination of a quorum for such vote and will
not be entitled to participate in any distributions made by the Company other
than liquidating distributions. The original transferee-stockholder may, at
any time the Excess Stock is held by the Company in trust, designate a
beneficiary of such original transferee-stockholder's interest in the trust
(representing the number of shares of Excess Stock attributable to the capital
stock originally held by the transferor-stockholder), provided that (i) the
price paid by such designated beneficiaries does not exceed the price paid by
such original transferee-stockholder, and (ii) the designated beneficiary's
ownership of the capital stock represented by such Excess Stock would be
permitted under the Ownership Limit Provision. Immediately following such
designation, the Excess Stock would automatically be exchanged for capital
stock out of the class of which the Excess Stock resulted. In addition, the
Company would have the right, for a period of 90 days during the time the
Excess Stock is held by the Company in trust, to purchase all or any portion of
the Excess Stock from the original transferee-stockholder at a price equal to
the lesser of the price paid for the stock by the transferee-stockholder and
the average closing market price for the Company's capital stock on the date
the Company exercises its option to purchase the stock or, if the capital stock
being redeemed is not then being traded, the average of the last reported sales
of the capital stock to be redeemed on the ten days immediately preceding the
relevant date. This 90-day period commences on the date of the violative
transfer if the transferee-stockholder gives notice of the transfer to the
Company, or the date the Board of Directors determines that a violative
transfer has occurred if no notice is provided.
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All certificates representing shares of the Company's capital stock
will bear a legend referring to the restrictions described above.
All persons who own a percentage of the Company's capital stock equal
to or exceeding the Ownership Limit (or such lesser percentage as set forth in
the Treasury Regulations) of the Company's capital stock must file a statement
with the Company containing information regarding their ownership of the
Company's capital stock, as set forth in the Treasury Regulations. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Common Stock
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Common Stock
Warrants. The following sets forth certain general terms and provisions of the
Common Stock Warrants offered hereby. Further terms of the Common Stock
Warrants and the applicable Warrant Agreements will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Common Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following:
(1) the title of such Common Stock Warrants;
(2) the aggregate number of such Common Stock Warrants;
(3) the price or prices at which such Common Stock Warrants will
be issued;
(4) the designation, number and terms of the shares of Common
Stock purchasable upon exercise of such Common Stock Warrants;
(5) the designation and terms of the other Securities offered
thereby with which such Common Stock Warrants are issued and the number of such
Common Stock Warrants issued with each such Security offered thereby;
(6) the date, if any, on and after which such Common Stock
Warrants and the related Common Stock will be separately transferable;
(7) the price at which each of the shares of Common Stock
purchasable upon exercise of such Common Stock Warrants may be purchased;
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<PAGE> 22
(8) the date on which the right to exercise such Common Stock
Warrants shall commence and the date on which such right shall expire;
(9) the minimum or maximum number of such Common Stock Warrants
which may be exercised at any one time;
(10) information with respect to book entry procedures, if any;
(11) a discussion of certain federal income tax considerations; and
(12) any other terms of such Common Stock Warrants, including
terms, procedures and limitations relating to the exchange and exercise of such
Common Stock Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a description of certain Federal income tax
consequences to the Company and the holders of Common Stock, Preferred Stock
and Common Stock Warrants of the treatment of the Company as a REIT under
applicable provisions of the Code. The following discussion, which is not
exhaustive of all possible tax considerations, does not give a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of Federal income taxation that may be relevant to a
prospective stockholder in light of his or her particular circumstances or to
certain types of stockholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the Federal income tax laws. As used in this
section, the term "Company" refers solely to The Mills Corporation and not to
the Operating Partnership, the Third-Party Services Corporation, or other
entities.
The statements in this discussion are based on current provisions of
the Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS (including its practices and
policies in issuing private letter rulings, which are not binding on the IRS
except with respect to a taxpayer that receives such a ruling), and judicial
decisions. No assurance can be given that future legislative, judicial, or
administrative actions or decisions, which may be retroactive in effect, or
changes in administrative practices and policies of the IRS will not materially
affect the accuracy of any statements in this Prospectus.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company, which is considered a corporation for Federal
income tax purposes, has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective commencing with its taxable year ended
December 31, 1994. The Company believes that it is organized and has
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<PAGE> 23
operated in such a manner so as to qualify for taxation as a REIT under the
Code, and the Company intends to continue to operate in such a manner. No
assurance, however, can be given that the Company has operated in a manner so
as to qualify as a REIT or that it will continue to operate in such a manner in
the future. Qualification and taxation as a REIT depends upon the Company's
ability to meet on a continuing basis, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code on REITs, some of which are summarized below.
While the Company intends to operate so that it qualifies as a REIT, given the
highly complex nature of the rules governing REITs, the ongoing importance of
factual determinations, and the possibility of future changes in circumstances
of the Company, no assurance can be given that the Company satisfies such tests
or will continue to do so. See "--Failure to Qualify" below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to Federal corporate income taxes on net income that it currently
distributes to stockholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (1) that is managed by one or more trustees
or directors; (2) the beneficial ownership of which is evidenced by
transferable shares of stock, or by transferable certificates of beneficial
interest; (3) that would be taxable as a domestic corporation, but for Sections
856 through 859 of the Code; (4) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (5) the beneficial
ownership of which is held by 100 or more persons; (6) that during the last
half of each taxable year not more than 50% in value of the outstanding stock
of which is owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities); and (7) that meets certain
other tests, described below, regarding the nature of its income and assets.
The Code provides that conditions (1) through (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. The Company's Certificate of
Incorporation contains restrictions regarding the transfer of its Common Stock
that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (5) and (6) above. See "Description of
Common Stock--Restrictions on Transfer; Excess Stock."
Section 856(i) of the Code provides that a corporation which is a
"qualified REIT subsidiary" (defined generally to mean any corporation if 100%
of the stock of such corporation is held by the real estate trust at all times
during the period such corporation was in existence) shall not be treated as a
separate corporation and all assets, liabilities, and items of income,
deduction and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction and credit (as the case may
be) of the real estate investment trust. Thus, in applying the requirements
herein, the Company's "qualified REIT subsidiaries" would be ignored, and all
assets, liabilities, and items of income, deduction and credit of such
subsidiaries would be treated as assets, liabilities and items of income,
deduction and credit of the Company. Potomac Mills Finance Corp., The Mills
GP, Inc., Washington Potomac Partners Corp., and Mills Grapevine Corporation
are all qualified REIT subsidiaries.
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<PAGE> 24
If a REIT is a partner in a partnership, the REIT will be deemed to
own its proportionate share of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income (as defined in the Code) of the
partnership attributed to the REIT will retain the same character as in the
hands of the partnership for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests described below. Thus,
proportionate share of the assets, liabilities and items of income of the
Operating Partnership the Company's and its subsidiary partnerships or limited
liability companies are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein.
Absence of C Corporation Earnings and Profits. A corporation will
qualify as a REIT only if, at the close of its taxable year, it has no earnings
and profits accumulated in any non-REIT tax year. The Company was formed in
1991 but was not active until 1993. The Company elected S corporation status
for its taxable years commencing with January 1, 1993. The Company terminated
its S election immediately prior to its initial public offering in April of
1994. If the Company's S corporation election was valid for all of its taxable
years commencing with January 1, 1993, including its short S corporation year
ending immediately prior to its initial public offering, the Company would have
no earnings and profits accumulated in any non-REIT year and thus would have
met the earnings and profits requirement for its short C corporation taxable
year ended December 31, 1994 and for tax years thereafter. The Company
believes that it qualified as an S corporation for its taxable years commencing
with January 1, 1993, and including the short S corporation year, and that it
does not have, and has not had, accumulated earnings and profits from a
non-REIT tax year. Nevertheless, the S corporation requirements are highly
technical and complex and there can be no assurance that the IRS might not
assert that the Company failed to qualify as an S corporation for some reason.
In such an event, the Company would not be eligible to qualify as a REIT until
the tax year when it paid out the accumulated earnings and profits from the
non-REIT tax years.
Income Tests. In order to maintain qualification as a REIT, there
are three gross income requirements that must be satisfied annually. First, at
least 75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from the same items which qualify under the 75%
income test, and from dividends, interest and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Third,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the REIT's gross
income (including gross income from prohibited transactions) for each taxable
year.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described
above only if several conditions (related to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased) are
met. The Company does not anticipate receiving rents that fail to meet these
conditions in an amount that reasonably could be expected to jeopardize its
satisfaction of the 75% and 95% gross income tests. In addition, for rents
received to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by
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<PAGE> 25
the Company are "usually or customarily rendered" in connection with the rental
space for occupancy only and are not otherwise considered "rendered to the
occupant."
The Company, through the Operating Partnership, the Management
Partnership and Mainstreet Retail Limited Partnership, a subsidiary of the
Management Partnership, which are not "independent contractors," currently
performs management and leasing activities with respect to Properties that are
owned entirely or partially by the Operating Partnership. The Third-Party
Services Corporation provides development services for existing properties and
new properties acquired by the Company and may in the future provide management
and leasing services with respect to certain properties (including Ontario
Mills) in which the Company does not own a 100% interest. The Company believes
that all such activities, to the extent that they might be considered a service
to tenants, should be considered "usually or customarily rendered" in
connection with the rental of space for occupancy. There can be no assurance,
however, that the IRS might not contend otherwise. If the Operating
Partnership contemplates providing services in the future that reasonably might
be expected not to meet the "usual or customary" standard, it will arrange to
have such services provided by an independent contractor from which the
Operating Partnership will receive no income.
With respect to fees received by the Operating Partnership or other
partnership entities from Properties in which the Operating Partnership owns
less than a 100% interest, the Internal Revenue Service takes the position that
a portion of such fees (corresponding to that portion of a Property owned by a
third-party) does not qualify for the 75% or 95% gross income tests.
Mainstreet Retail Limited Partnership also manages vendor space in the common
areas of third-party properties and partially-owned properties the income from
which may not qualify for the 75% and 95% gross income tests.
Services to properties in which the Operating Partnership does not own
any interest are rendered by the Third-Party Services Corporation. In
addition, the Third-Party Services Corporation provides development services to
the Properties, as discussed above. The Operating Partnership owns 99% of the
non-voting preferred stock and 5% of the voting common stock of the Third-Party
Services Corporation. The Operating Partnership also holds a note issued by
the Third-Party Services Corporation. The Company's share of any dividend or
interest received from the Third-Party Services Corporation should qualify for
purposes of the 95% test, but not for purposes of the 75% test. The Company
does not anticipate that it will receive sufficient dividends and interest from
the Third-Party Services Corporation to cause it to exceed the limit on
non-qualifying income under the 75% test.
In addition to rents, the Operating Partnership derives income from
interest on the mortgage loans extended by the Operating Partnership to the
Property Partnership holding Franklin Mills which will qualify for purposes of
the 75% and 95% gross income tests. To qualify for the 95% gross income test,
interest cannot depend in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be
disqualified solely by reason of being based on fixed percentage or percentages
of receipts or sales. The Operating Partnership does not charge interest
dependent in whole or in part on profits.
If the Company fails to satisfy one or both of the 75% or the 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it is entitled to relief under certain provisions of the Code.
It is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect
to the "excess net income" attributable to the failure to satisfy the 75% and
95% gross income tests.
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<PAGE> 26
Asset Tests. The Company, at the close of each quarter of its
taxable year, must also satisfy three tests relating to the nature of its
assets: (i) at least 75% of the value of the Company's total assets must be
represented by "real estate assets," cash, cash items and government
securities; (ii) not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class; and (iii) of
the investments included in the 25% asset class, the value of any one issuer's
securities (other than an interest in a partnership, shares of a "qualified
REIT subsidiary" or another REIT) owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more than 10%
of any one issuer's outstanding voting securities (other than an interest in a
partnership, shares of a "qualified REIT subsidiary" or another REIT). The
Operating Partnership owns 99% of the nonvoting preferred stock and 5% of the
voting common stock of the Third-Party Services Corporation. In addition, the
Operating Partnership owns a note issued by the Third-Party Services
Corporation, and by virtue of its ownership of Units, the Company is considered
to own its pro rata share of the stock of the Third-Party Services Corporation
owned by the Operating Partnership and the note of the Third-Party Services
Corporation. Neither the Company nor the Operating Partnership, however, owns
more than 10% of the voting securities of the Third-Party Services Corporation.
In addition, the Company and its senior management believe that the Company's
pro rata share of the value of the securities of the Third-Party Services
Corporation (taking into account both the Company's pro rata share of the stock
of the Third-Party Services Corporation and the Company's pro rata share of the
note of the Third-Party Services Corporation) does not exceed 5% of the total
value of the Company's assets. There can be no assurance, however, that the IRS
might not contend either that the value of the securities of the Third-Party
Services Corporation held by the Company (through the Operating Partnership)
exceeds the 5% value limitation or that the nonvoting stock of the Third-Party
Services Corporation owned by the Operating Partnership should be considered
"voting stock" for this purpose.
The 5% value requirement must be satisfied each time the Company
increases its ownership of securities of the Third-Party Services Corporation
(including as a result of increasing its interest in the Operating Partnership
as limited partners exercise their redemption rights). Although the Company
plans to take steps to ensure that it satisfies the 5% value test for any
quarter with respect to which retesting is to occur, there can be no assurance
that such steps will always be successful or will not require a reduction in
the Company's overall interest in the Third-Party Services Corporation.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its stockholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount and also may be subject to a 4% excise tax on undistributed income in
certain events.
The Company believes that it has made, and expects to continue to
make, timely distributions sufficient to satisfy the annual distribution
requirements. It is possible, however, that the Company, from time to time, may
not have sufficient cash or other liquid assets to meet the distribution
requirements. In that event, the Company may cause the Operating Partnership to
arrange for short-term, or possibly long-term, borrowing to permit the payments
of required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as
a REIT in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years
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<PAGE> 27
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
PENALTY TAX ON PROHIBITED TRANSACTIONS
The Company's share of any gain realized on the sale of any property
held as inventory or otherwise primarily for sale to customers in the ordinary
course of its trade or business generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income will also have an adverse effect upon the Company's ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction.
The Operating Partnership, through the Property Partnerships, intends to hold
the Properties for investment with a view to long-term appreciation, to engage
in the business of acquiring, developing, owning and operating the Properties
and other retail properties and to make such occasional sales of the Properties
as are consistent with the Company's investment objectives. Based upon such
investment objectives, the Company believes that in general the Properties
should not be considered inventory or other property held primarily for sale to
customers in the ordinary course of a trade or business and that the amount of
income from prohibited transactions, if any, will not be material.
Nevertheless, the IRS could contend otherwise. In particular, the Company
indirectly owns parcels of land which are located adjacent to particular
Properties that are not necessarily required for use within the regional outlet
mall or community shopping center located at the Property (referred to as
"outparcels"). The Company may sell one or more of these outparcels from time
to time. In addition, in connection with the development of a regional outlet
mall at a Property, the Company may sell parcels of land within the mall
("anchor parcels") to major anchor tenants who desire to own the land on which
their facility is located. The Company believes that the outparcels and anchor
parcels should not be considered inventory or as held primarily for sale to
customers in the ordinary course of the Company's trade or business, but there
is a risk that the IRS could contend otherwise, in which event, the profit from
such sales allocable to the Company would be subject to a 100% tax. In the
event that the Company determines that the level of such activity with respect
to the outparcels and/or anchor parcels is sufficient to cause such sales to be
subject to 100% tax, the Company intends to hold and sell such parcels through
a separate corporation in which the Operating Partnership would hold a
non-voting stock interest. The Company would structure the stock interest
owned by the Operating Partnership in any such corporation to ensure that the
various asset tests described above were not violated (i.e., the Operating
Partnership would not own more than 10% of the voting securities of such
corporation and the value of the stock interest would not exceed 5% of the
value of the Company's total assets). Such corporation would be subject to a
corporate level tax on its taxable income attributable to land sales, thereby
reducing the amount of cash available for distribution by the Company.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income, and corporate stockholders will not be
eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current or accumulated earnings and profits
will not be taxable to a
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<PAGE> 28
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis
of a stockholder's Common Stock, they will be included in income as long-term
capital gain (or short-term capital gain if the Common Stock have been held for
one year or less), assuming the Common Stock are a capital asset in the hands
of the stockholder.
In general, a domestic stockholder will realize capital gain or loss
on the disposition of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the stockholder's adjusted basis of such Common Stock.
Such gain or loss generally will constitute long-term capital gain or loss if
the stockholder has held such shares for more than one year. Loss upon a sale
or exchange of Common Stock by a stockholder who has held such Common Stock for
six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such stockholder as long-term capital gain.
Under certain circumstances, domestic stockholders may be subject to
backup withholding at the rate of 31% with respect to dividends paid.
TAXATION OF TAX EXEMPT STOCKHOLDERS
The Company does not expect that distributions by the Company to a
stockholder that is a tax-exempt entity will constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of its Common Stock with "acquisition indebtedness" within the
meaning of the Code and the Common Stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no
attempt will be made herein to provide more than a limited summary of such
rules. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or
exchanges by the Company of U.S. real property interests and not designated by
the Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions, ordinarily, will be subject to
a withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces that tax. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Stockholder to the extent that they do not exceed the adjusted basis
of the stockholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's Common Stock, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Stock as described below (in
which case they also may be subject to a 30% branch profits tax if the
stockholder is a foreign corporation). If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that
- 26 -
<PAGE> 29
such distribution was, in fact, in excess of current or accumulated earnings
and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") at the normal capital gain rates applicable to U.S. stockholders
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Also, distributions
subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a
corporate Non-U.S. Stockholder not entitled to treaty relief or exemption. The
Company is required to withhold 35% of any distribution that is or could be
designated by the Company as a capital gain dividend. The amount withheld is
creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT," and, therefore, that the sale of Common Stock
will not be subject to taxation under FIRPTA. If the gain on the sale of Common
Stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder would be
subject to the same treatment as U.S. stockholders with respect to such gain
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals), and the purchaser of
the Common Stock would be required to withhold and remit to the IRS 10% of the
purchase price.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership, Management Partnership
and Other Partnership Subsidiaries on REIT Qualification. Substantially all of
the Company's investments are through the Operating Partnership and Property
Partnerships (including limited liability companies which own interests in the
Property Partnerships and in which the Operating Partnership owns interests)
which hold title to the Properties. The Operating Partnership also carries out
activities through the Management Partnership and various subsidiary
partnerships and limited liability companies (together with the Property
Partnerships, the "Subsidiary Partnerships"). The Operating Partnership and
the Subsidiary Partnerships may involve special tax considerations. Such
considerations include (i) the allocations of income and expense items of the
Operating Partnership, which could affect the computation of taxable income of
the Company, (ii) the status of the Operating Partnership and the Subsidiary
Partnerships as partnerships (as opposed to associations taxable as
corporations) for income tax purposes, and (iii) the taking of actions by the
Operating Partnership and the Subsidiary Partnerships that could adversely
affect the Company's qualification as a REIT. The Company believes that the
Operating Partnership and the Subsidiary Partnerships each qualify for tax
purposes as a partnership (and not as an association taxable as a corporation).
If, however, either the Operating Partnership and/or the Subsidiary
Partnerships were treated as an association taxable as a corporation, the
Company would fail to qualify as a REIT for a number of reasons.
Tax Allocations with Respect to the Properties. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties). When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to
the adjusted basis of the contributing partner in the property, rather than a
basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as a "Book-Tax Difference"). The
- 27 -
<PAGE> 30
Partnership Agreement requires allocations of income, loss, gain and deduction
with respect to the contributed Property be made in a manner consistent with
the special rules in section 704(c) of the Code and the regulations thereunder,
which allocations will tend to eliminate the Book-Tax Differences with respect
to the contributed Properties over the life of the Operating Partnership.
However, because of certain technical limitations, the special allocation rules
of section 704(c) of the Code may not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed Properties in the
hands of the Operating Partnership could cause the Company (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes than would
be allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of their contribution to the Operating
Partnership, and (ii) possibly to be allocated taxable gain in the event of a
sale of such contributed Properties in excess of the economic or book income
allocated to the Company as a result of such sale.
Third-Party Services Corporation. A portion of the amount
distributed by the Company to stockholders comes from the Third-Party Services
Corporation, through dividends on stock held by the Operating Partnership and
payments on the note held by the Operating Partnership. The Third-Party
Services Corporation does not qualify as a REIT and thus pays Federal, state
and local income taxes on its net income at normal corporate rates. As a
result of interest and other deductions, the Third-Party Service Corporation
does not pay significant income tax currently. There can be no assurance,
however, that the IRS will not challenge these deductions. In any event,
future increases in the income of the Third-Party Services Corporation will be
subject to income tax. Any Federal, state or local income taxes that the
Third-Party Services Corporation is required to pay reduces the cash available
for distribution by the Company to its stockholders. In addition, as described
above, the value of the securities of the Third-Party Services Corporation held
by the Company cannot exceed 5% of the value of the Company's assets at a time
when a limited partner exercises his redemption right. See "Taxation of the
Company--Asset Tests." This limitation may restrict the ability of the
Third-Party Services Corporation to increase the size of its respective
business unless the value of the assets of the Company is increasing at a
commensurate rate.
State and Local Taxes. The Company and its stockholders may be
subject to state or local taxation in various state or local jurisdictions,
including those in which it or they transact business or reside. The state and
local tax treatment of the Company and its stockholders may not conform to the
Federal income tax consequences discussed above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in the Common Stock of the Company.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Securities in or through underwriters for public
offer and sale by them, and also may sell Securities offered hereby to
investors directly or through agents. Any such underwriter or agent involved
in the offer and sale of the Securities will be named in the applicable
Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time
to time, authorize underwriters acting as the Company's agents to offer and
sell Securities upon terms and conditions set forth in the applicable
Prospectus
- 28 -
<PAGE> 31
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with
the Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant
to delayed delivery contracts ("Contracts") providing for payment and delivery
on the date or dates stated in such Prospectus Supplement. Each Contract will
be for an amount not less than, and the aggregate principal amount of
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will
not be subject to any conditions except (i) the purchase by an institution of
the Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which
such institution is subject, and (ii) if the Securities are being sold to
underwriters, the Company shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.
LEGAL MATTERS
The legality of the Preferred Stock, the Common Stock and the Common
Stock Warrants offered hereby, and certain federal tax matters, will be passed
upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and financial statement schedule
of The Mills Corporation and the combined financial statements of The Mills
Entities appearing in The Mills Corporation Annual Report (Form 10-K) for the
year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
financial statement
- 29 -
<PAGE> 32
schedule, and combined financial statements have been incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements
and other information can be inspected at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and the following regional offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Company's
Common Stock are listed on the New York Stock Exchange and such reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance,
reference is made to the copy of such contract or documents filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Securities, reference is hereby made
to the Registration Statement and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission. The Commission maintains a
'web site' that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission.
The address of such site is "http://www.sec.gov".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996;
3. The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996;
All documents filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document.
- 30 -
<PAGE> 33
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information appearing
in the documents incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents).
Written requests for such copies should be addressed to The Mills Corporation,
1300 Wilson Boulevard, Arlington, VA 22209, Attention: Thomas E. Frost
(telephone number (703) 526-5000).
- 31 -
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . $ 75,758
NASD filing fee . . . . . . . . . . . . . . . . . . 25,000
Printing and Duplicating Expenses . . . . . . . . . 125,000
Legal Fees and Expenses . . . . . . . . . . . . . . 150,000
Accounting Fees and Expenses . . . . . . . . . . . . 40,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . 30,000
Miscellaneous . . . . . . . . . . . . . . . . . . . 100,000
--------
Total . . . . . . . . . . . . . . . . . . . . . $545,758
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law (the
"Delaware Law"), a corporation may indemnify its directors, officers, employees
and agents and its former directors, officers, employees and agents and those
who serve, at the corporation's request, in such capacities with another
enterprise, against expenses (including attorneys' fees), as well as judgments,
fines and settlements in nonderivative lawsuits, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. The
Delaware Law provides, however, that such person must have acted in good faith
and in a manner such person reasonably believed to be in (or not opposed to)
the best interest of the corporation and, in the case of a criminal action,
such person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, the Delaware Law does not permit indemnification in an
action or suit by or in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person fairly and reasonably is entitled to
indemnity for costs the court deems proper in light of liability adjudication.
Indemnity is mandatory to the extent a claim, issue or matter has been
successfully defended.
The Company's Certificate of Incorporation and Bylaws provide for
mandatory indemnification of directors and officers to the maximum extent
permitted by the Delaware Law. The Company has obtained directors and officers
liability insurance.
The Company has entered into indemnification agreements with each of
the Company's executive officers and directors. Under these agreements, the
Company has agreed to indemnify its officers and directors to the fullest
extent permitted by law for damages and expenses incurred in connection with
actual or threatened legal proceedings related to the indemnified person's
service to the Company. The Company is obligated under these agreements to
advance certain expenses to the indemnified officers and directors as they are
incurred, subject to reimbursement if it is subsequently determined that the
indemnified person was not entitled to indemnification. The Company also is
obligated to pay expenses incurred by an indemnified officer or director in
establishing a right to indemnification under the respective indemnification
agreement. The Company may also elect to obtain directors' and officers'
liability insurance. Although the indemnification agreements offer
substantially the same scope of coverage afforded by the Certificate of
Incorporation and the Bylaws, the agreements provide greater assurance to
directors and executive officers that indemnification
II-1
<PAGE> 35
will be available, because, as contracts, they cannot be modified unilaterally
by the Board of Directors of Directors or by the stockholders to alter, limit
or eliminate the rights they provide to the directors and executive officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors and officers of the company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that, although the validity and scope of the governing statute have not been
tested in court, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In addition, indemnification may be
limited by state securities laws.
The partnership agreements of the Operating Partnership and the
Management Partnerships also provide for indemnification of the Company and its
officers and directors to the same extent that indemnification is provided to
officers and directors of the Company in its Certification of Incorporation,
and limit the liability of the Company and its officers and directors to the
Operating Partnership and the Management Partnerships and their respective
partners to the same extent that the liability of the officers and directors of
the Company to the Company and its stockholders is limited under the Company's
Certification of Incorporation.
ITEM 16. EXHIBITS
3.1 * Amended and Restated Certificate of Incorporation of
the Company
3.2 ** Amended and Restated Bylaws of the Company
5 Opinion of Hogan & Hartson L.L.P.
8 *** Opinion of Hogan & Hartson L.L.P. regarding certain
tax matters
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in
Exhibit 5)
23.3 *** Consent of Hogan & Hartson L.L.P. (included in
Exhibit 8)
24 **** Powers of Attorney
-----------------
* Incorporated by reference to the Company's Registration
Statement on Form S-11, Registration No. 33-71524, which was
declared effective by the Securities and Exchange Commission
on April 14, 1994.
** Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the first quarter ended March 31, 1994
(Commission File No. 1-12994).
*** To be filed by amendment.
**** Filed as part of the signature page of this Registration
Statement.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
II-2
<PAGE> 36
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Securities
offered herein, and the offering of such Securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered which remain unsold
at the termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Securities offered therein, and the offering of such Securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to existing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by
II-3
<PAGE> 37
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Arlington, Virginia, on October 3,
1996.
THE MILLS CORPORATION,
a Delaware corporation
By: /s/ Laurence C. Siegel
--------------------------
Laurence C. Siegel
Chairman of the Board of
Directors, Chief Executive
Officer and Director
POWER OF ATTORNEY
We, the undersigned directors and officers of The Mills Corporation,
do hereby constitute and appoint Laurence C. Siegel and Peter B. McMillan and
each and either of them, our true and lawful attorneys-in-fact and agents, to
do any and all acts and things in our names and our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
name in the capacities indicated below, which said attorneys and agents, or
either of them, may deem necessary or advisable to enable said Corporation to
comply with the Securities Act of 1933 and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
registration statement, or any registration statement for this offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, including specifically, but without limitation, any and all amendments
(including post-effective amendments) hereto; and we hereby ratify and confirm
all that said attorneys and agents, or either of them, shall do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated below on October 3, 1996:
Name Title
---- -----
/s/ Laurence C. Siegel Chairman of the Board of Directors, Chief
-------------------------- Executive Officer and Director (principal
Laurence C. Siegel executive officer)
/s/ Peter B. McMillan President, Chief Operating Officer and
-------------------------- Director
Peter B. McMillan
/s/ Kenneth R. Parent Senior Vice President and Chief Financial
-------------------------- Officer (principal financial officer and
Kenneth R. Parent principal accounting officer)
II-5
<PAGE> 39
Vice Chairman and Director
--------------------------
Dietrich von Boetticher
/s/ John M. Ingram Vice Chairman and Director
--------------------------
John M. Ingram
/s/ Charles R. Black, Jr. Director
--------------------------------
Charles R. Black, Jr.
/s/ James C. Braithwaite Director
--------------------------
James C. Braithwaite
Director
--------------------------
Joseph B. Gildenhorn
Director
--------------------------
Peter A. Gordon
Director
--------------------------
Herbert S. Miller
/s/ Harry H. Nick Director
--------------------------
Harry H. Nick
/s/ Franz von Perfall Director
--------------------------
Franz von Perfall
Director
--------------------------
Robert P. Pincus
II-6
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C> <C>
3.1 * Amended and Restated Certificate of Incorporation of
the Company
3.2 ** Amended and Restated Bylaws of the Company
5 Opinion of Hogan & Hartson L.L.P.
8 *** Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
23.3 *** Consent of Hogan & Hartson L.L.P. (included in Exhibit 8)
24 **** Powers of Attorney
</TABLE>
----------------------
* Incorporated by reference to the Company's
Registration Statement on Form S-11, Registration No.
33-71524, which was declared effective by the
Securities and Exchange Commission on April 14, 1994.
** Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the first quarter ended March
31, 1994 (Commission File No. 1-12994).
*** To be filed by amendment.
**** Filed as part of the signature page of this
Registration Statement.
II-7
<PAGE> 1
EXHIBIT 5
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004-1109
(tel.) 202-637-5600
(fax) 202-637-5910
October 3, 1996
Board of Directors
The Mills Corporation
1300 Wilson Boulevard
Arlington, VA 22209
Ladies and Gentlemen:
We are acting as counsel to The Mills Corporation, a Delaware
corporation (the "COMPANY"), in connection with its registration statement on
Form S-3 (the "REGISTRATION STATEMENT") filed with the Securities and Exchange
Commission relating to the proposed public offering of up to $250,000,000 in
aggregate amount of its (i) preferred stock, $.01 par value (the "Preferred
Stock"), (ii) shares of common stock, $.01 par value (the "Common Stock"), or
(iii) warrants to purchase Common Stock (the "Common Stock Warrants" and,
together with the Preferred Stock and Common Stock, the "Securities"), all of
which Securities may be sold by the Company from time to time as set forth in
the prospectus which forms a part of the Registration Statement (the
"Prospectus") and as to be set forth in one or more supplements to the
Prospectus (each, a "Prospectus Supplement"). This opinion letter is furnished
to you at your request to enable you to fulfill the requirements of Item
601(b)(5) of Regulation S-K, 17 C.F.R. Section 229.601(b)(5), in connection
with the Registration Statement.
We assume that the issuance, sale, amount and terms of the Securities
to be offered from time to time will be duly authorized and determined by
proper action of the Board of Directors of the Company consistent with the
procedures and terms described in the Registration Statement (each, a "Board
Action") and in accordance with the Company's Amended and Restated Certificate
of Incorporation, as amended (the "Certificate"), and applicable Delaware law.
We further assume that any Common Stock Warrants will be issued under one or
more common stock warrant agreements (each, a "Warrant Agreement"), each to be
between the
<PAGE> 2
Board of Directors
The Mills Corporation
October 3, 1996
Page 2
Company and a financial institution identified therein as a warrant agent
(each, a "Warrant Agent").
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Certificate as certified by the Secretary of State of the
State of Delaware on September 30, 1996 and by the Secretary
of the Company on the date hereof as then being complete,
accurate and in effect.
3. The Amended and Restated Bylaws of the Company, as certified
by the Secretary of the Company on the date hereof as being
complete, accurate and in effect.
4. Resolutions of the Board of Directors of the Company adopted
on September 26, 1996, as certified by the Secretary of the
Company on the date hereof as then being complete, accurate
and in effect, relating to the filing of the Registration
Statement and related matters.
We have not, except as specifically identified above, made any
independent review or investigation of factual or other matters, including the
organization, existence, good standing, assets, business or affairs of the
Company. In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of
all documents submitted to us as copies (including telecopies). We also have
assumed the accuracy, completeness and authenticity of the foregoing
certifications (of public officials, governmental agencies and departments, and
corporate officers) and statements of fact, on which we are relying, and have
made no independent investigations thereof. This opinion letter is given, and
all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware and Delaware contract law. We
express no opinion herein as to any other laws, statutes, regulations, or
ordinances.
<PAGE> 3
Board of Directors
The Mills Corporation
October 3, 1996
Page 3
Based upon, subject to and limited by the foregoing, we are of
the opinion that, as of the date hereof:
1. When the Registration Statement has become effective
under the Act and when a series of the Preferred Stock has been duly
authorized and established by applicable Board Action, in accordance
with the terms of the Certificate and applicable law, and, upon
issuance and delivery of such series of Preferred Stock against
payment of valid consideration therefor in accordance with the terms
of such Board Action and any applicable underwriting or purchase
agreement, and as contemplated by the Registration Statement and/or
the applicable Prospectus Supplement, such shares of Preferred Stock
will be validly issued, fully paid and non-assessable.
2. When the Registration Statement has become effective
under the Act, upon due authorization by Board Action of an issuance
of Common Stock, and upon issuance and delivery of such Common Stock
against payment therefor in accordance with the terms of such Board
Action and any applicable underwriting or purchase agreement, and as
contemplated by the Registration Statement and/or the applicable
Prospectus Supplement, such shares of Common Stock will be validly
issued, fully paid and non-assessable.
3. When the Registration Statement has become effective
under the Act and when the Common Stock Warrants have been (a) duly
established by the related Warrant Agreement, (b) duly authorized and
established by applicable Board Action and duly authenticated by the
Warrant Agent, and (c) duly executed and delivered on behalf of the
Company against payment therefor in accordance with the terms of such
Board Action, any applicable underwriting or purchase agreement and
the applicable Warrant Agreement and as contemplated by the
Registration Statement and/or the applicable Prospectus Supplement,
the Common Stock Warrants will constitute binding obligations of the
Company, enforceable in accordance with their terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights (including, without limitation, the
effect of statutory and other law regarding fraudulent conveyances,
fraudulent transfers and preferential transfers) and as may be limited
by the exercise of judicial discretion and the application of
principles of equity, including, without limitation, requirements of
good faith, fair dealing, conscionability and materiality (regardless
of whether the Common Stock Warrants are considered in a proceeding in
equity or at law).
<PAGE> 4
Board of Directors
The Mills Corporation
October 3, 1996
Page 4
To the extent that the obligations of the Company under any
Warrant Agreement may be dependent upon such matters, we assume for purposes of
this opinion that the applicable Warrant Agent is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Warrant Agent is duly qualified to engage in the
activities contemplated by the Warrant Agreement; that the Warrant Agreement
has been duly authorized, executed and delivered by the Warrant Agent and
constitutes the legally valid and binding obligation of the Warrant Agent
enforceable against the Warrant Agent in accordance with its terms; that the
Warrant Agent is in compliance, with respect to acting as a warrant agent under
the Warrant Agreement, with all applicable laws and regulations; and that the
Warrant Agent has the requisite organizational and legal power and authority to
perform its obligations under the Warrant Agreement.
The opinion expressed in Paragraph (3) above shall be
understood to mean only that if there is a default in performance of an
obligation, (i) if a failure to pay or other damage can be shown and (ii) if
the defaulting party can be brought into a court which will hear the case and
apply the governing law, then, subject to the availability of defenses and to
the exceptions set forth in Paragraph (3), the court will provide a money
damage (or perhaps injunctive or specific performance) remedy.
We assume no obligation to advise you of any changes in the
foregoing subsequent to the delivery of this opinion letter. This opinion
letter has been prepared solely for your use in connection with the filing of
the Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
We hereby consent to the filing of this opinion letter as
Exhibit 5 to the Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that
we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 1
EXHIBIT 12
THE MILLS CORPORATION
AND
THE MILLS ENTITIES
EARNINGS TO FIXED CHARGES RATIO
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended April 22- Jan. 1-
June 30, Dec. 31, Dec. 31, April 21,
1996 1995 1994 1994
---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Income before gains from
extraordinary items $ 8,493 $ 15,268 $ 7,294 $ (4,199)
Fixed charges:
Interest expense 22,719 43,947 28,349 17,992
Capitalized interest 1,545 6,046 999 220
Amortization of debt issuance
costs and interest rate caps 2,736 6,234 2,319 836
--------- --------- ------- --------
Total Fixed Charges 27,000 56,227 31,667 19,048
Earnings (1) $ 33,948 $ 65,449 $37,962 $ 14,629
========= ======== ====== =======
Ratio of Earnings to
Fixed Charges 1.26 1.16 1.20
========= ======== ======
Deficiency of Earnings
to Fixed Charges $ 4,419
=======
</TABLE>
<TABLE>
<CAPTION>
Year Ended Dec. 31,
--------------------------------------------
1993 1992 1991
------------- ----------- -------------
<S> <C> <C> <C>
Income before gains from
extraordinary items $ (11,563) $ (20,276) $ (34,139)
Fixed charges:
Interest expense 60,245 61,561 61,247
Capitalized interest 2,390 1,227 7,738
Amortization of debt issuance
costs and interest rate caps 3,675 3,942 4,625
---------- -------- ----------
Total Fixed Charges 66,310 66,730 73,610
Earnings (1) $ 52,357 $ 45,227 $ 31,733
========= ======== ==========
Ratio of Earnings to
Fixed Charges $ 0.79 $ 0.68 $ 0.43
========= ======== ==========
Deficiency of Earnings
to Fixed Charges $ 13,953 $ 21,503 $ 41,877
========= ======== ==========
</TABLE>
Notes: 1) Earnings equals the sum of pretax income before extraordinary items
plus fixed charges adjusted to exclude capitalized interest.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-000000) and related Prospectus of The
Mills Corporation for the registration of up to $250,000,000 of its preferred
stock, common stock and common stock warrants, and to the incorporation by
reference therein of our report dated February 28, 1996, with respect to the
consolidated financial statements and schedule of The Mills Corporation and the
combined financial statements of The Mills Entities included in its Annual
Report (Form 10-K) for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Washington, D.C.
October 2, 1996
