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As filed with the Securities and Exchange Commission on May 28, 1996
REGISTRATION NO. 333-03596
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE MILLS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 52-1802283
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
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3000 K STREET, N.W.
SUITE 400
WASHINGTON, D.C. 20007
(202) 965-3600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
THOMAS E. FROST
3000 K STREET, N.W.
SUITE 400
WASHINGTON, D.C. 20007
(202) 965-3600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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COPIES TO:
J. WARREN GORRELL, JR.
ALAN L. DYE
HOGAN & HARTSON L.L.P.
COLUMBIA SQUARE
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. / /
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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CROSS REFERENCE SHEET
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ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page and Outside
Pages of Prospectus Back Cover Page of Prospectus
3. Summary Information, Risk Factors Outside Front Cover Page and Prospectus
and Ratio of Earnings to Fixed Charges Summary
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Capital Stock of the Company
10. Interest of Named Experts and Counsel Experts and Legal Matters
11. Material Changes *
12. Incorporation of Certain Information Incorporation of Certain Documents
by Reference by Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
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* Item inapplicable or answer thereto is negative.
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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 A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN, NOR SHALL
THERE BE ANY SALE OF SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED MAY 28, 1996
PROSPECTUS
1,500,000 SHARES
THE MILLS CORPORATION
COMMON STOCK
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This Prospectus relates to the offer and sale from time to time by
certain holders (the "Selling Stockholders") of up to 1,500,000 shares (the
"Offered Shares") of common stock, par value $0.01 per share (the "Common
Stock"), of The Mills Corporation, a Delaware corporation (the "Company"). The
Selling Stockholders are the holders of certain shares of Common Stock for the
accounts of certain clients of Cohen & Steers Capital Management, Inc. ("Cohen
& Steers") for which Cohen & Steers acts as investment advisor. The Company is
registering the Offered Shares as required under the terms of certain
agreements between the Company and the Selling Stockholders. The registration
of the Offered Shares does not necessarily mean that any of the Offered Shares
will be offered or sold by the Selling Stockholders. The Company will receive
no part of the proceeds of any sales of the Offered Shares, but will incur
certain expenses in connection with the offering. See "Selling Stockholders"
and "Plan of Distribution."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "MLS." To ensure that the Company maintains its qualification
as a real estate investment trust (a "REIT"), ownership by any person is
limited to 5% of the lesser of the number or value of outstanding shares of
Common Stock, with certain exceptions. See "Capital Stock of the
Company--Restrictions on Transfer; Excess Stock." The closing sale price of
the Common Stock as reported by the NYSE on May 24, 1996 was $17.625 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR CERTAIN FACTORS RELATING TO
AN INVESTMENT IN THE OFFERED SHARES.
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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 THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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The Selling Stockholders may from time to time offer and sell all or a
portion of the Offered Shares in transactions on the NYSE, in the
over-the-counter market, on any other national securities exchange on which the
Common Stock is listed or traded, in negotiated transactions or otherwise, at
prices then prevailing or related to the then-current market price or at
negotiated prices. The Offered Shares may be sold directly or through agents
or broker-dealers acting as principal or agent, or in block trades or pursuant
to a distribution by one or more underwriters on a firm commitment or
best-efforts basis. To the extent required, the names of any agents or
broker-dealers and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in this
Prospectus under the caption "Plan of Distribution" or any accompanying
Prospectus Supplement. Each of the Selling Stockholders reserves the right to
accept or reject, in whole or in part, any proposed purchase of the Offered
Shares made directly or through agents. The Selling Stockholders and any
agents or broker-dealers participating in the distribution of the Offered
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any profit on the sale of
Offered Shares by the Selling Stockholders and any commissions received by any
such agents or broker-dealers may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company will not receive any proceeds from sales of the Offered
Shares by the Selling Stockholders. The Company has agreed to pay all expenses
of effecting the registration of the Offered Shares (other than underwriting
discounts, sales and commissions, fees and disbursements of counsel, and
transfer taxes, if any) pursuant to the Registration Statement under the
Securities Act.
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THE DATE OF THIS PROSPECTUS IS MAY ___, 1996.
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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 April 1, 1996. 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 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 April 1, 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. 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).
USE OF PROCEEDS
The Company will not receive any proceeds from sales of the Offered
Shares by the Selling Stockholders. The Company has agreed to pay all expenses
of effecting the registration of the shares of Common Stock offered herein
(other than underwriting discounts, sales and commissions, fees and
disbursements of counsel, and transfer taxes, if any) pursuant to the
Registration Statement under the Securities Act.
RISK FACTORS
Prospective investors should carefully consider the matters described
below prior to making an investment decision regarding the Offered Shares.
RISKS RELATING TO DEBT
As of December 31, 1995, the Properties were subject to approximately
$675.8 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 $676.4 million. The Company is subject
to the risks normally associated with debt financing, including the risk that
its cash flow
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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 ("REIT") 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 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.
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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. The executive officers of the Company and 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 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.
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 numerous 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
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.
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
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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 preferred shares of capital stock, $.01 par value per share
("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 "-- Risks Relating to Qualification and
Operation as a REIT") 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. See "Capital Stock of the Company--Restrictions on Transfer;
Excess Stock" and "-- Certain Provisions of the Certificate of Incorporation
and Bylaws."
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 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.
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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 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 "Capital Stock of the Company 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 "Capital Stock of the Company 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 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
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<PAGE> 10
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.
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 will be subject to federal income
tax. See "Federal Income Tax Considerations--Other Tax Consequences."
CAPITAL STOCK OF THE COMPANY
The summary of the terms of the capital stock of the Company set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to the Certificate of Incorporation and Bylaws, copies of
which are exhibits to the Registration Statement of which this Prospectus is a
part.
As of March 31, 1996, the authorized capital stock of the Company
consisted of 100,000,000 shares of voting Common Stock, $.01 par value per
share, 20,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock"), and 50,000,000 shares of non-voting common stock, $.01 par
value per share ("Excess Stock"). Each outstanding share of voting Common
Stock will entitle the holder to vote on all matters presented to stockholders
for vote.
The Certificate of Incorporation provides for the Board of Directors
to be divided into three classes of directors, with one class of the directors
elected by the stockholders annually. The term of one class of directors
consisting of four positions (one of which is vacant) will expire at the 1996
annual meeting of stockholders; the term of another class of directors
comprised of five directors will expire at the 1997 annual meeting of
stockholders; and the term of the final class of directors comprised of four
directors will expire at the 1998 annual meeting of stockholders. At each
annual meeting of stockholders, the class of directors to be elected at such
meeting will be elected for a three-year term and the directors in the other
two classes will continue in office. The effect of the provisions in the
Certificate of Incorporation with respect to the classified board may be to
render more difficult a change in control of the Company or removal of
incumbent directors. Holders of Common Stock have no right to cumulative
voting for the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the shares of Common Stock are able
to elect all of the successors of the class of directors whose term expires at
that meeting. Directors may be removed by the holders of the shares of Common
Stock only for cause and only with the affirmative vote of the holders of at
least 66 2/3% of the shares of Common Stock entitled to vote for the election
of directors.
COMMON STOCK
All Offered Shares are duly authorized, fully paid and nonassessable.
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. Holders of Common Stock are entitled to dividends if, and when,
declared by the Board of Directors of the Company out of funds legally
available therefor. Holders of shares of Common Stock have no preemptive or
other rights to subscribe for additional Common Stock. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably with any holders of Excess Stock in all assets of the
Company that are legally available for distribution after payment of all debts
and other liabilities and subject to any prior rights of holders of Preferred
Stock, if any, then outstanding. The Company currently pays regular quarterly
dividends.
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PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
establish one or more classes of Preferred Stock and to determine, with respect
to any class of Preferred Stock, the preferences, rights and other terms of
such class. The Company believes that the ability of the Board of Directors to
issue one or more classes of Preferred Stock provides the Company with
increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which might arise. The
authorized shares of Preferred Stock, as well as authorized but unissued shares
of Common Stock, are available for issuance without further action by the
Company's stockholders, unless the action is required by applicable law or the
rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded. The issuance of Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate transactions, could, among other things, adversely affect the voting
power or other rights of the holders of Common Stock and make it more difficult
for a third party to make an acquisition proposal for the Company. See "Risk
Factors -- Risks Relating to Control of the Company."
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
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 effect of the Ownership Limit may be to 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.
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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.
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.
LIMITATION ON LIABILITY OF DIRECTORS
The Company has adopted provisions in its Certificate of Incorporation
limiting the liability of directors of the Company for monetary damages. The
effect of this provision in the Certificate of Incorporation is to eliminate
the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
The provisions of the Certificate of Incorporation described above apply to an
officer of the Company only if he or she is a director of the Company and is
acting in his or her capacity as director, and do not apply to officers of the
Company who are not directors. These provisions will not alter the liability
of directors under federal securities laws.
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INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of
the Company's officers and directors. The indemnification agreements require,
among other things, that the Company indemnify its officers and directors to
the fullest extent permitted by law, and advance to the officers and directors
all related expenses subject to reimbursement if it is subsequently determined
that indemnification is not permitted. The Company must also indemnify and
advance all expenses incurred by officers and directors seeking to enforce
their rights under the indemnification agreements, and cover officers and
directors under the Company's directors' and officers' liability insurance.
Although the form of indemnification agreement offers substantially the same
scope of coverage afforded by provisions in the Certificate of Incorporation
and the Bylaws, it provides greater assurance to directors and officers that
indemnification will be available, because, as a contract, it cannot be
modified unilaterally in the future by the Board of Directors or by the
stockholders to eliminate the rights it provides.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation and the Bylaws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate first with the Board of Directors. The Company
believes that the benefits of these provisions outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in an improvement of their terms.
The description set forth below is intended as a summary only and is qualified
in its entirety by reference to the Certificate of Incorporation and the
Bylaws. See also "Capital Stock of the Company--Restrictions on Transfer;
Excess Stock."
Amendment of Certificate of Incorporation and Bylaws. The Company's
Certificate of Incorporation provides that the provisions therein relating to
total number of shares of capital stock, issuance of rights to purchase capital
stock and other securities, stockholder action, special meetings of
stockholders, the staggered Board of Directors, the number of directors,
vacancies on the Board of Directors, removal of directors, personal liability
of directors, indemnification, and amendments to the Certificate of
Incorporation or Bylaws may be amended, altered, changed or repealed only by
the affirmative vote of the holders of at least 66 2/3% of the voting power of
all of the shares of capital stock then entitled to vote, voting as a single
class.
The remaining provisions of the Company's Certificate of Incorporation
may be amended, altered, changed or repealed only by the affirmative vote of
both a majority of the members of the Board of Directors and a majority of the
voting power of all of the shares of capital stock of the Company then entitled
to vote, voting as a single class. The Company's Certificate of Incorporation
also provides that the Bylaws may be adopted, amended, altered, changed or
repealed by the affirmative vote of the majority of the members of the Board of
Directors.
These provisions are intended to make it more difficult for
stockholders to circumvent certain other provisions contained in the Company's
Certificate of Incorporation and Bylaws, such as those that provide for the
classification of the Board of Directors. See "-- Classified Board of
Directors." These provisions, however, also make it more difficult for
stockholders to amend the Certificate of Incorporation or Bylaws without the
approval of the Board of Directors.
Classified Board of Directors. The Certificate of Incorporation and
the Bylaws divide the Board of Directors into three classes of directors, each
with at least three members. The classes each serve staggered three-year
terms. The classification of directors has the effect of making it more
difficult for stockholders to change the composition of the Board of Directors.
The Company believes, however, that the longer time required to elect a
majority of a classified Board of Directors will help to ensure continuity and
stability of the Company's management and policies.
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<PAGE> 14
The classification provisions could also have the effect of
discouraging a third party from accumulating large blocks of the Company's
Common Stock or attempting to obtain control of the Company, even though such
an attempt might be beneficial to the Company and its stockholders.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Common Stock at a higher market price than might otherwise be
the case.
Number of Directors, Removal, Filling Vacancies. The Certificate of
Incorporation provides that the number of directors will be fixed by the
Bylaws. The Bylaws provide that the number of directors will be fixed by the
Board of Directors. The Board of Directors has currently fixed the number of
directors at 13. In addition, the Bylaws provide that the number of directors
shall not be increased by 50% or more in any 12-month period without the
approval of at least 66 2/3% of the directors then in office. The Certificate
of Incorporation provides that any vacancies will be filled by the affirmative
vote of a majority of the remaining directors, even if less than a quorum.
Accordingly, the Board of Directors could temporarily prevent any stockholder
from enlarging the Board of Directors and filling the new directorships with
such stockholder's own nominees.
The Certificate of Incorporation also provides that directors may be
removed for cause by the vote of the holders of at least 66 2/3% of the Common
Stock.
No Stockholder Action by Written Consent; Special Meetings. The
Certificate of Incorporation and the Bylaws provide that stockholder action can
be taken only at an annual or special meeting of stockholders. They also
prohibit stockholder action by written consent in lieu of a meeting, calling a
special meeting or requiring that the Board of Directors call a special meeting
of stockholders. These provisions may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that (i) only persons who
are nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice containing specified
information to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company, and (ii) at an annual meeting only such business may be conducted as
has been brought before the meeting by, or at the direction of, the Board of
Directors or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before the meeting. 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.
The purpose of requiring stockholders to give the Company advance
notice of nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
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<PAGE> 15
Section 203. By an amendment to the Certificate of Incorporation, the
Company has elected not to be governed by Section 203 of the Delaware General
Corporation Law ("Section 203"), which prohibits, subject to certain exceptions
specified therein, a corporation from engaging in any business combinations
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder. Under Section 203,
this amendment became effective 12 months after its adoption and will not apply
to any business combination between the Company and any person who became an
"interested stockholder" of the Company on or prior to the date on which the
amendment was adopted. Certain individuals (including Laurence C. Siegel,
Harry H. Nick and Herbert S. Miller) became "interested stockholders" under
Section 203 in connection with the formation of the Company, and any business
combinations with such individuals are exempt from the restrictions of Section
203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the
shares of Common Stock of the Company is First Chicago Trust Company of New
York.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a description of certain Federal income tax
considerations to the Company and the holders of Common Stock 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 operated
in such a manner so as to qualify for taxation as a REIT under the Code, and
the Company
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<PAGE> 16
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 "Capital Stock of
the Company--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.
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
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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 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," 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. 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
- 15 -
<PAGE> 18
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.
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
- 16 -
<PAGE> 19
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 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 a particular
Property that are not necessarily required for use within the regional outlet
mall or community shopping center located at
- 17 -
<PAGE> 20
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.
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 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.
- 18 -
<PAGE> 21
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 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
- 19 -
<PAGE> 22
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
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.
- 20 -
<PAGE> 23
SELLING STOCKHOLDERS
The table below sets forth certain information concerning the Selling
Stockholders. The Offered Shares are beneficially owned by certain clients of
Cohen & Steers for which Cohen & Steers acts as investment advisor. Cohen &
Steers, acting on behalf of such clients, purchased the Offered Shares from
Herbert S. Miller and certain of his affiliates, pursuant to a stock purchase
agreement, on or about January 25, 1996. Neither Cohen & Steers nor any of the
Selling Stockholders has held any position or office or, to the knowledge of
the Company, has had any material relationship with the Company or any
affiliate or predecessor of the Company within the past three years.
The Offered Shares represent 8.9% of the number of shares of Common
Stock outstanding as of April 15, 1996. Since the Selling Stockholders may
sell all or some of their Offered Shares, no estimate can be made of the number
of Offered Shares that will be sold by the Selling Stockholders or will be
owned, beneficially or otherwise, by each of the Selling Stockholders upon
completion of the offering. There is no assurance that the Selling
Stockholders will sell any of the Offered Shares.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OWNED
AND OFFERED
NAME HEREBY
- ---- ----------------
<S> <C>
Amidline & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,900
Atwell & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715,400
Bob & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,100
Booth & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,400
Bost & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,200
Brown Brothers Harriman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,400
Cede & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Garment & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,900
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300
Hare & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,900
Ince & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,600
Kane & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,700
Pitts & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200
Ronis & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,000
-------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
=========
</TABLE>
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the offering by the
Selling Stockholders. Any of the Selling Stockholders may from time to time,
in one or more transactions, or a series of transactions, sell all or a portion
of the Offered Shares on the NYSE, in the over-the-counter market, on any other
national securities exchange on which the Common Stock is listed or traded, in
negotiated transactions, in underwritten transactions or otherwise, at prices
then prevailing or related to the then current market price or at negotiated
prices. The offering price of the Offered Shares from time to time will be
determined by the Selling Stockholders and, at the time of such determination,
may be higher or lower than the market price of the Common Stock on the NYSE.
In connection with an underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from a
Selling Stockholder or from purchasers of Offered Shares for whom they may act
as agents, and underwriters may sell Offered Shares to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Under agreements that may be entered into by the
Company, underwriters, dealers and agents who participate in the distribution
of Offered Shares may be entitled to indemnification by
- 21 -
<PAGE> 24
the Company against certain liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which such
underwriters, dealers or agents may be required to make in respect thereof.
The Offered Shares may be sold directly or through broker-dealers acting as
principal or agent, or pursuant to a distribution by one or more underwriters
on a firm commitment or best-efforts basis. The methods by which the Offered
Shares may be sold include (a) a block trade in which the broker-dealer so
engaged will attempt to sell the Offered Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker-dealer as principal and resale by such broker-dealer for
its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of the NYSE; (e) privately-negotiated
transactions; and (f) underwritten transactions. The Selling Stockholders and
any underwriters, dealers or agents participating in the distribution of the
Offered Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Offered Shares by the Selling
Stockholders and any commissions received by an such broker-dealers may be
deemed to be underwriting commissions under the Securities Act.
When a Selling Stockholder elects to make a particular offer of
Offered Shares, a prospectus supplement, if required, will be distributed which
will identify any underwriters, dealers or agents and any discounts,
commissions and other terms constituting compensation from such Selling
Stockholder and any other required information.
In order to comply with the securities laws of certain states, if
applicable, the Offered Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Offered Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Company has agreed to pay all costs and expenses incurred in
connection with the registration under the Securities Act of the Offered
Shares, including, without limitation, all registration and filing fees,
printing expenses and fees and disbursements of counsel and accountants for the
Company. The Selling Stockholders will pay any underwriting discounts, sales
and commissions, fees and disbursements of counsel for the Selling Stockholders
and transfer taxes, if any. The Company also has agreed to indemnify each of
the Selling Stockholders and their respective officers, directors and trustees
and each person who controls (within the meaning of the Securities Act) such
Selling Stockholder against certain losses, claims, damages, liabilities and
expenses arising under the securities laws in connection with this offering.
Each of the Selling Stockholders has agreed to indemnify the Company, its
officers and directors and each person who controls (within the meaning of the
Securities Act) the Company, and each of the other Selling Stockholders,
against any losses, claims, damages, liabilities and expenses arising under the
securities laws in connection with this offering with respect to written
information furnished to the Company by such Selling Stockholder, provided,
however, that the indemnification obligation is several, not joint, as to each
Selling Stockholder.
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 schedule, and combined financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE> 25
LEGAL MATTERS
The validity of the issuance of the Offered Shares and certain tax
matters described under "Federal Income Tax Considerations" will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the Public
Reference Section maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. 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 Common Stock is listed on the New York Stock Exchange
under the symbol "MLS" and such reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 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, with respect to the Offered Shares. 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 other 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 Offered Shares, 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The document listed below has 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.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of all Offered Shares shall be deemed
to be incorporated by reference in this Prospectus and shall be part hereof
from the date of filing such documents.
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 the Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
applicable Prospectus Supplement relating to a specific offering of Offered
Shares or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or
- 23 -
<PAGE> 26
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 to whom this
Prospectus is delivered, upon 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 information). Written requests for such copies should be directed to The
Mills Corporation, 3000 K Street, N.W., Suite 400, Washington, D.C. 20007,
Attention: Thomas E. Frost (telephone number: (202) 965-3600). The Company
is scheduled to move its executive offices in late May 1996. After that time,
written requests for such copies should be directed to The Mills Corporation,
1300 Wilson Boulevard, Arlington, VA 22209, Attention: Thomas E. Frost
(telephone number: (703) 526-5000).
- 24 -
<PAGE> 27
===========================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SELLING STOCKHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF ANY OFFER TO BUY, THE OFFERED
SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
________________
TABLE OF CONTENTS
PROSPECTUS
PAGE
----
The Company . . . . . . . . . . . . . 2
Use of Proceeds . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . 2
Capital Stock of the Company . . . . . 8
Federal Income Tax Considerations . . 13
Selling Stockholders . . . . . . . . . 21
Plan of Distribution . . . . . . . . . 21
Experts . . . . . . . . . . . . . . . 22
Legal Matters . . . . . . . . . . . . 23
Available Information . . . . . . . . 23
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . 23
===========================================================
===========================================================
1,500,000 SHARES
THE MILLS CORPORATION
COMMON STOCK
___________________
PROSPECTUS
___________________
May , 1996
===========================================================
<PAGE> 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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>
Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,149
Printing and Duplicating Expenses . . . . . . . . . . . . . . . . . . . . . . 2,500
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,351
-----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145,000
==========
</TABLE>
ITEM 14. 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 will be available,
because, as contracts, they cannot be modified unilaterally by the Board of
Directors or by the stockholders to alter, limit or eliminate the rights they
provide to the directors and executive officers.
II-1
<PAGE> 29
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
<TABLE>
<S> <C>
4.1 * - Certificate of Incorporation
4.2 * - Bylaws
5 - Opinion of Hogan & Hartson L.L.P.
8 - Opinion of Hogan & Hartson L.L.P. regarding certain
tax matters
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)
24.1 ** - Power of Attorney (filed as part of the signature
page to the Registration Statement)
24.2 - Power of Attorney
</TABLE>
-----------------
* Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-71524, and incorporated herein by
reference.
** Previously filed.
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:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(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 this 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
II-2
<PAGE> 30
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
in 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 the 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 Offered
Shares offered herein, and the offering of such Offered Shares 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 Offered Shares being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act, 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 Offered Shares offered herein, and the offering of such Offered
Shares 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 arrangements
whereby the registrant may indemnify a director, officer or controlling person
of the registrant against liabilities arising under the Securities Act of 1933,
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 Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 31
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 Washington, District of Columbia, on
May 28, 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
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 May 28, 1996:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ Laurence C. Siegel Chairman of the Board, Chief Executive
--------------------------------------- Officer and Director (principal executive
Laurence C. Siegel officer)
* President, Chief Operating Officer and
--------------------------------------- Director
Peter B. McMillan
* Senior Vice President and Chief Financial
--------------------------------------- Officer (principal financial officer and
Kenneth R. Parent principal accounting officer)
* Senior Executive Vice President and Director
---------------------------------------
Harry H. Nick
* Vice Chairman and Director
---------------------------------------
Dietrich von Boetticher
</TABLE>
II-4
<PAGE> 32
<TABLE>
<S> <C>
* Vice Chairman and Director
---------------------------------------
John Ingram
* Director
---------------------------------------
Charles R. Black, Jr.
* Director
---------------------------------------
James C. Braithwaite
* Director
---------------------------------------
Joseph B. Gildenhorn
* Director
---------------------------------------
Peter A. Gordon
* Director
---------------------------------------
Herbert S. Miller
* Director
---------------------------------------
Franz von Perfall
* Director
---------------------------------------
Robert P. Pincus
</TABLE>
* Laurence C. Siegel, by signing his name hereto, does sign this document on
behalf of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange Commission.
/s/ Laurence C. Siegel
- ------------------------------
Laurence C. Siegel
Attorney-in-fact
II-5
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C>
4.1 * - Certificate of Incorporation
4.2 * - Bylaws
5 - Opinion of Hogan & Hartson L.L.P.
8 - Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters.
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)
24.1 ** - Power of Attorney (filed as part of the signature page to
the Registration Statement)
24.2 - Power of Attorney
</TABLE>
-----------------
* Included as an exhibit to the Company's Form S-11 Registration
Statement, File No. 33-71524, and incorporated herein by
reference.
** Previously filed.
<PAGE> 1
EXHIBIT 5
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Tel (202) 637-5600
Fax (202) 637-5910
May 28, 1996
Board of Directors
The Mills Corporation
3000 K Street, N.W., Suite 400
Washington, D.C. 20007
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 1,500,000 shares
of the Company's common stock, par value $.01 per share, all of which shares
(the "Shares") are to be sold by or on behalf of certain shareholders of the
Company. 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.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Amended and Restated Certificate of Incorporation
of the Company, as certified by the Secretary of
State of the State of Delaware on April 15, 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 then being complete, accurate and in
effect.
4. Resolutions of the Board of Directors of the Company
adopted on April 12, 1994, as certified by the
Secretary of the Company on the date hereof as then
being complete, accurate and in effect, relating to
the issuance and sale of the Shares and arrangements
in connection therewith.
<PAGE> 2
The Mills Corporation
May 28, 1996
Page 2
5. A certificate of the Secretary of the Company, dated
May 28, 1996 as to certain facts relating to the
Company.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. We also have assumed
the authenticity, accuracy and completeness of the foregoing certifications (of
public officials 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. We express no opinion herein
as to any other laws, statutes, regulations, or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that the Shares were validly issued and are fully paid and
nonassessable under the General Corporation Law of the State of Delaware.
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 8
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004-1109
Tel (202) 637-5600
Fax (202) 637-5910
May 28, 1996
The Mills Corporation
3000 K Street, N.W.
Suite 400
Washington, D.C. 20007
Ladies and Gentlemen:
We have acted as counsel to The Mills Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 filed by the Company with the Securities and Exchange Commission on
May 6, 1996, as amended through the date hereof (the "Registration Statement").
In connection with the filing of the Registration Statement, we have been asked
to provide you with our opinion regarding certain federal tax matters related
to the Company. Unless otherwise defined herein, capitalized terms used in
this letter have the meaning set forth in the Registration Statement. BASIS
FOR OPINIONS
The opinions set forth in this letter are based on relevant
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations thereunder (including proposed and temporary Regulations),
and interpretations of the foregoing as expressed in court decisions, the
legislative history, and existing administrative rulings and practices of the
Internal Revenue Service (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), all as of the date hereof. These
provisions and interpretations are subject to change, which may or may not be
retroactive in effect, that might result in modifications of our opinions. Our
opinion does not foreclose the possibility of a contrary determination by the
Internal Revenue Service or a court of competent jurisdiction, or of a contrary
position by the Internal Revenue Service or the Treasury Department in
regulations or rulings issued in the future.
<PAGE> 2
The Mills Corporation
May 28, 1996
Page 2
In rendering our opinions, we have examined the following
documents: (1) the Registration Statement (including the exhibits thereto);
(2) the Limited Partnership Agreement of The Mills Limited Partnership (the
"Operating Partnership"), dated April 21, 1994 and amended effective July 1,
1995; (3) the Amended and Restated Certificate of Incorporation of the Company,
dated April 19, 1994 (the "Company Articles of Incorporation"); (4)
organizational documents of MillsServices Corp. (the "Services Company"),
Mainstreet Partners I, Inc., Premises Providers Inc., Potomac Mills Finance
Corp., The Mills GP Inc., Washington Potomac Partners Corp., and Mills
Grapevine Corporation, as in effect on the date hereof; (5) the stock ownership
records for the Services Company, Mainstreet Partners I, Inc., Premises
Providers Inc., Potomac Mills Finance Corp., The Mills GP Inc., Washington
Potomac Partners Corp., and Mills Grapevine Corporation; (6) the Company's
Annual Report on Form 10-K for the year ended December 31, 1995; (7) the form
of limited partnership agreement used for the formation of the various limited
partnerships in which the Operating Partnership and/or the Company owns an
interest; (8) the form of limited liability operating agreement for the various
limited liability companies in which the Operating Partnership and/or the
Company owns an interest; and (9) the management agreements listed on Exhibit
A. The opinions set forth in this letter also are premised on certain written
representations of the Company and the Operating Partnership contained in a
letter to us of even date herewith (the "Management Representation Letter").
Collectively, the Company, the Operating Partnership, the Services Company, and
the other entities in which the Company and/or the Operating Partnership own
substantially all of the economic interests are sometimes referred to herein as
the "Company Group Entities."
For the purposes of our opinions, we have not made an
independent investigation of the facts set forth in the above referenced
documents. We consequently have assumed that the information presented in such
documents or otherwise furnished to us accurately and completely describes all
material facts relevant to our opinions. Without limiting the foregoing, we
have not undertaken to review and determine the tax status, as a partnership
for federal income tax purposes, of each limited partnership and each limited
liability company in which the Company and/or the Operating Partnership own an
interest. Instead, we have, with your consent, relied upon your
representations, set forth in the Management Representation Letter, as to the
status of these entities for federal income tax
<PAGE> 3
The Mills Corporation
May 28, 1996
Page 3
purposes. If any one or more of these entities were to be classified as an
association taxable as a corporation for federal income tax purposes, that
would preclude the Company from qualifying as a "real estate investment trust"
for federal income tax purposes and therefore would have a material adverse
impact on the opinions set forth herein.
In our review, we have assumed, with your consent, that all of
the representations and statements set forth in the documents (including,
without limitation, the Management Representation Letter) we reviewed are true
and correct, and all of the obligations imposed by any such documents on the
parties thereto, including obligations imposed under the Company Articles of
Incorporation, have been and will be performed or satisfied in accordance with
their terms. We also have assumed the genuineness of all signatures, the
proper execution of all documents, the authenticity of all documents submitted
to us as originals, the conformity to originals of documents submitted to us as
copies, and the authenticity of the originals from which any copies were made.
Moreover, we have assumed that each of the Company Group Entities has been and
will continue to be operated in the manner described in the relevant
partnership agreement, articles (or certificate) of incorporation or other
organizational documents and that, as represented by the Company, there are no
agreements or understandings between the Company or the Operating Partnership,
on the one hand, and Herbert S. Miller and Kan Am US, Inc. and/or their
affiliates, on the other, that are inconsistent with Mr. Miller and Kan Am US,
Inc. being considered to be both the record and beneficial owners of more than
90% of the outstanding voting stock of the Services Company.
We assume for the purposes of this opinion that the Company
and the Service Company each is a validly organized and duly incorporated
corporation under the laws of the State of Delaware, and that the Operating
Partnership is a duly organized and validly existing limited partnership under
the laws of the State of Delaware.
OPINIONS
Based upon, subject to, and limited by the assumptions and
qualifications set forth herein, we are of the opinion that (1) the Company was
organized and has operated in conformity with the requirements for
qualification and taxation as a real estate investment trust ("REIT") under the
Code for its taxable years ending December 31, 1994 and December 31, 1995 and
the Company's current organization and method of operation will enable it to
continue to meet the requirements for qualification as a REIT; and (2) the
discussion in the Registration Statement under the heading "Federal Income Tax
Considerations" is correct in all material respects and fairly summarizes the
federal income tax considerations that are likely to be material to a holder of
Common Stock of the Company.
<PAGE> 4
The Mills Corporation
May 28, 1996
Page 4
We assume no obligation to advise you of any changes in our
opinion subsequent to the delivery of this opinion letter. The Company's
qualification and taxation as a REIT depends upon the Company's ability to meet
on a continuing basis, through actual annual operating and other results, the
various requirements under the Code with regard to, among other things, the
sources of its gross income, the composition of its assets, the level of its
distributions to stockholders, and the diversity of its stock ownership. We
have not undertaken to review the Company's compliance with these requirements
on a continuing basis. Accordingly, no assurance can be given that the actual
results of the operations of the Company, the Operating Partnership, and the
other Company Group Entities, the sources of their income, the nature of their
assets, the level of the Company's distributions to its stockholders and the
diversity of the Company's stock ownership for any given taxable year will
satisfy the requirements under the Code for qualification and taxation as a
REIT.
This opinion letter has been prepared solely for your benefit
in connection with the Registration Statement. This opinion may not be used or
relied upon by any other person or for any other purpose and may not be
disclosed, quoted, filed with any governmental agency or otherwise referred to
without our prior written consent. Notwithstanding the foregoing, we hereby
consent to the incorporation by reference of this opinion in the Registration
Statement and to the use of the name of our firm therein.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE> 5
Exhibit A
1. Management Agreement Between Fashion Center Associates of Illinois No.
1 and Western Management Corporation, dated June 7, 1983, as amended.
2. Management Agreement (Coopers Crossing), dated April 21, 1994.
3. Management Agreement Between Crosswinds Center Associates of St.
Petersburg Limited Partnership and Western Management Corporation,
dated as of June 29, 1987, as amended.
4. Management Agreement (Fashion Place), dated September 10, 1986, as
amended.
5. Management Agreement Between Germantown Associates Limited Partnership
and Western Management Corporation, dated June 3, 1981, as amended.
6. Great Falls Management Agreement, dated July 25, 1979.
7. Management Agreement Between Gwinnett Market Fair Associates Limited
Partnership and Western Management Corporation, dated as of July 10,
1986, as amended.
8. Management Agreement (Liberty Plaza), dated April 21, 1994.
9. Property Management and Leasing Agreement - Montgomery Village I,
dated September 30, 1982, as amended.
10. Management Agreement Between Mount Prospect Plaza Limited Partnership
and Western Management Corporation, dated as of October 11, 1985, as
amended.
11. Management Agreement (between Echo Hills Center Associates and Western
Management Corporation) dated March 31, 1981, as amended.
12. Management Agreement Between Western Hills Associates Limited
Partnership and Western Management Corporation, dated as of June 29,
1987, as amended.
13. Management Agreement Between Franklin Mills Associates Limited
Partnership and Western Management Corporation, dated as of March 4,
1988, as amended.
<PAGE> 6
14. Management and Leasing Agreement Between Gurnee Mills Limited
Partnership and Management Associates Limited Partnership, dated as of
November 25, 1992.
15. Management Agreement for Gurnee Mills, dated April 30, 1991.
16. Amended and Restated Property Management and Leasing Agreement Between
Kenwood Plaza Limited Partnership ("Owner") and Western Management
Corporation, a Virginia Corporation ("Manager"), dated December 15,
1993.
17. Management Agreement Between Washington Outlet Mall Limited and
Western Management Corporation, dated as of December 16, 1983, as
amended.
18. Management Agreement Between Sunrise Mills Limited Partnership and
Western Management Corporation, dated as of March 4, 1988, as amended.
19. Pushcart Management Agreement Between Mainstreet Retail Limited
Partnership and Franklin Mills Associates Limited Partnership, dated
as of February 12, 1993.
20. Pushcart Management Agreement Between Mainstreet Retail Limited
Partnership and Kenwood Plaza Limited Partnership, dated as of May 14,
1993.
21. Pushcart Management Agreement Between Mainstreet Retail Limited
Partnership and Washington Outlet Mall Limited Partnership, dated as
of February 19, 1992, as amended.
22. Pushcart Management Agreement Between Mainstreet Retail Limited
Partnership and Sunrise Mills Limited Partnership, dated as of May 14,
1993.
23. Pushcart Management Agreement Between Mainstreet Retail Limited
Partnership and Gurnee Mills Limited Partnership, dated as of October
5, 1993.
<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. 333-03596) and related Prospectus of The
Mills Corporation for the registration of 1,500,000 shares of its common stock
and to the incorporation by reference therein to 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.
May 24, 1996
<PAGE> 1
EXHIBIT 24.2
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 Power of
Attorney has been signed by the following persons in the capacities indicated
below on April 16, 1996:
<TABLE>
<S> <C>
/s/ Dietrich von Boetticher Vice Chairman and Director
- --------------------------------------
Dietrich von Boetticher
/s/ Peter A. Gordon Director
- --------------------------------------
Peter A. Gordon
/s/ Herbert S. Miller Director
- --------------------------------------
Herbert S. Miller
/s/ Franz von Perfall Director
- --------------------------------------
Franz von Perfall
</TABLE>
