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As filed with the Securities and Exchange Commission on May 28, 1996
REGISTRATION NO. 333-03205
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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)
<TABLE>
<S> <C>
DELAWARE 52-1802283
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
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. / /
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) under the Securities Act based on the average
of the high and low reported sales prices on the New York Stock Exchange
on May 3, 1996.
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
16,980,415 SHARES
THE MILLS CORPORATION
COMMON STOCK
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This Prospectus relates to (i) the possible issuance by The Mills
Corporation, a Delaware corporation (the "Company"), of up to 16,057,740 shares
(the "Redemption Shares") of common stock, par value $0.01 per share (the
"Common Stock"), of the Company if and to the extent that holders of up to
16,057,740 units (the "Units") of limited partnership interest ("Units") in The
Mills Limited Partnership (the "Operating Partnership"), of which the Company
is the sole general partner and owns a controlling limited partnership
interest, tender such Units for redemption, (ii) the offer and sale from time
to time by certain affiliates of the Company of up to 922,675 shares of
previously unregistered Common Stock (the "Original Restricted Shares") and
(iii) the offer and sale from time to time by persons who may be affiliates of
the Company (such persons, together with the holders of the Original Restricted
Shares, the "Selling Stockholders") of any of the 15,732,846 Redemption Shares
that may be issued to such persons. The Units and the Original Restricted
Shares were issued (or reserved for issuance) in connection with the formation
of the Company, its initial public offering (the "Initial Offering") and the
acquisition by the Company of its assets in April 1994 (collectively, the
"Formation Transactions"). The Company has registered the Redemption Shares
and the Original Restricted Shares to provide the holders thereof with freely
tradable securities, but the registration of such shares does not necessarily
mean that any of such shares will be offered or sold by the holders thereof.
See "The Company" and "Registration Rights."
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 SHARES OF COMMON STOCK OFFERED HEREIN.
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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 shares of Common Stock held by them (the "Secondary 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 Secondary 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 Secondary Shares made directly or through agents. The
Selling Stockholders and any agents or broker-dealers participating in the
distribution of the Secondary 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 Secondary 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. See
"Registration Rights" for indemnification arrangements between the Company and
the Selling Stockholders.
The Company will not receive any proceeds from sales of the Secondary
Shares by the Selling Stockholders or from the issuance of the Redemption
Shares to holders of Units tendered for redemption (but the Company will
acquire the Units from such holders). 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. The Company will acquire
Units in the Operating Partnership in exchange for any Redemption Shares that
the Company may issue to Unit holders pursuant to this Prospectus.
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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 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 March 31, 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
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 March 31, 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 Secondary
Shares by the Selling Stockholders or from the issuance of the Redemption
Shares to holders of Units tendered for redemption (but the Company will
acquire the Units from such holders). 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 and Unit holders should carefully consider the
matters described below prior to making an investment decision regarding the
Secondary Shares or Redemption Shares.
SPECIAL CONSIDERATIONS APPLICABLE TO REDEEMING PARTNERS
Tax Consequences of Redemption of Units. The exercise by a holder of
Units (a "Limited Partner") of his or her right to require the redemption of
his or her Units will be treated for tax
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purposes as a sale of the Units by the Limited Partner. Such a sale
will be fully taxable to the redeeming Limited Partner and such
redeeming Limited Partner will be treated as realizing for tax purposes
an amount equal to the sum of the cash or the value of the Common Stock
received in the exchange plus the amount of the Operating Partnership
nonrecourse liabilities allocable to the redeemed Units at the time of
the redemption. It is possible that the amount of gain recognized (or
even the tax liability resulting from such gain) could exceed the amount
of cash and the value of other property (e.g., Redemption Shares)
received upon such disposition. See "Redemption of Units--Tax
Consequences of Redemption." In addition, the ability of the Limited
Partner to sell a substantial number of Redemption Shares in order to
raise cash to pay tax liabilities associated with redemption of Units
may be restricted due to the Company's relatively low trading volume,
and, as a result of fluctuations in the stock price, the price the
Limited Partner receives for such shares may not equal the value of his
or her Units at the time of redemption.
Potential Change in Investment Upon Redemption of Units. If a Limited
Partner exercises the right to require the redemption of his or her Units, such
Limited Partner may receive cash or shares of Common Stock of the Company in
exchange for the Units. If the Limited Partner receives cash, the Limited
Partner will no longer have any interest in the Company and will not benefit
from any subsequent increases in share price and will not receive any future
distributions from the Company (unless the Limited Partner currently owns or
acquires in the future additional shares of Common Stock or Units). If the
Limited Partner receives shares of Common Stock, the Limited Partner will
become a stockholder of the Company rather than a holder of Units in the
Operating Partnership. Although the nature of an investment in shares of
Common Stock is substantially equivalent economically to an investment in Units
in the Operating Partnership, there are some differences between ownership of
Units and ownership of Common Stock relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and Federal income taxation.
These differences, some of which may be material to investors, are discussed in
"Redemption of Units--Comparison of Ownership of Units and Common Stock."
EFFECT ON SHARE PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
for shares. Before the Registration Statement of which this Prospectus is a
part became effective, there were 15,983,278 shares of Common Stock eligible to
be sold in the public market without restriction. An additional 16,980,415
shares of Common Stock issued in the Formation Transactions or upon subsequent
redemption of Units are now eligible to be sold in the public market pursuant
to this Prospectus. See "Plan of Distribution." In addition, 2,500,000 shares
of Common Stock of the Company have been reserved for issuance pursuant to the
Company's 1994 Executive Equity Incentive Plan (the "Plan"), and these shares,
upon issuance, will be available for sale in the public market either pursuant
to exceptions from the registration requirements of the Federal and state
securities laws or upon registration. As of March 31, 1996, options to
purchase 857,000 shares of Common Stock have been granted or authorized to be
granted to certain directors, officers and employees of the Company and its
subsidiaries and remain outstanding. No prediction can be made about the
effect that future sales of shares of Common Stock will have on the market
prices of 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 will be insufficient to meet required payments of principal and
interest. If a Property is mortgaged
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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.
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
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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 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.
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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 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.
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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.
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
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<PAGE> 10
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 CompanyRestrictions 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 CompanyRestrictions 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 Distribution
Requirements)." The Company could be required to borrow funds on a short-term
basis
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<PAGE> 11
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 shares of Common Stock offered herein 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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<PAGE> 12
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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<PAGE> 13
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
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<PAGE> 14
the Company who are not directors. These provisions will not alter the
liability of directors under federal securities laws.
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.
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<PAGE> 15
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.
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
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<PAGE> 16
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.
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.
DESCRIPTION OF UNITS
All of the Company's assets are held by, and all of its operations are
conducted through, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership and as of March 31, 1996 held
approximately 50.9% of the Units therein. The remaining Units are held by
persons who contributed interests in the Properties to the Company in
connection with the Formation Transactions. The material terms of the Units,
including a summary of certain provisions of the Limited Partnership Agreement
of the Operating Partnership, as amended (the "Partnership Agreement"), are set
forth below. The following description of the terms and provisions of the
Units and certain other matters does not purport to be complete and is subject
to and qualified in its entirety by reference to applicable provisions of
Delaware law and the Partnership Agreement. A copy of the Partnership
Agreement is an exhibit to the Registration Statement of which this Prospectus
is a part. For a comparison of the voting and other rights of holders of Units
and the Company's stockholders, see "Redemption of Units--Comparison of
Ownership of Units and Common Stock."
GENERAL
Holders of Units (other than the Company in its capacity as general
partner) hold limited partner interests in the Operating Partnership, and all
holders of Units (including the Company in its capacity as general partner) are
entitled to share in cash distributions from, and in the profits and losses of,
the Operating Partnership on a pro rata basis. Each Unit receives
distributions in the same amount as paid on each share of Common Stock. One
percent (1%) of the aggregate number of Units outstanding are required to be
held by the Company as the general partner. The balance of the interest held
by the Company is in the form of Units as a limited partner of the Operating
Partnership.
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<PAGE> 17
Holders of Units have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act (the "Act"). The Units have not been registered pursuant to
the federal or state securities laws and have not been listed on any exchange
or quoted on any national market system. The Partnership Agreement restricts
the transfer of Units, as described below.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be conducted lawfully by a limited partnership formed under
the Act, except that the Partnership Agreement requires the business of the
Operating Partnership to be conducted in such a manner that will permit the
Company to be classified as a REIT under Section 856 of the Code, unless
the Company in its absolute and sole discretion elects not to qualify as
a REIT. Subject to the foregoing limitation, the Operating Partnership
may enter into partnerships, joint ventures or other relationships and
may own interests in any other entity.
The Company, as general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership
by virtue of being a holder of Units.
ABILITY TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The general partner may not conduct any business other than the business
of the Operating Partnership. Other persons (including officers, directors,
employees, agents and other affiliates of the Company) are not prohibited under
the Partnership Agreement from engaging in other business activities and will
not be required to present any business opportunities to the Operating
Partnership. However, the Company, on behalf of the Operating Partnership, has
adopted certain policies and entered into certain agreements with affiliates of
the Company and the Operating Partnership regarding avoidance of conflicts of
interest.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for the quarterly distribution of Net
Cash Flow generated during that quarter, as determined in the manner provided
in the Partnership Agreement, to the Company and the limited partners in
proportion to their percentage interests in the Operating Partnership. "Net
Cash Flow" is generally defined as net income plus depreciation and other
adjustments and minus reserves, principal payments on debt and capital
expenditures and other adjustments. Neither the Company nor the limited
partners are entitled to any preferential or disproportionate distributions of
Net Cash Flow. The Partnership Agreement generally provides for the
allocation to the general partner and the limited partners of items of
Operating Partnership income and loss in accordance with their respective
percentage interests in the Operating Partnership. See "Federal Income Tax
Considerations -- Other Tax Considerations."
BORROWING BY THE PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and to issue and guarantee debt as it deems necessary for the conduct of
the activities of the Operating Partnership. Such debt may be secured by
mortgages, deeds of trust, liens or encumbrances on properties of the
Partnership or its subsidiaries. The Company also may cause the Operating
Partnership to borrow money to enable the Partnership to make distributions in
an amount sufficient to permit the Company, so long as it qualifies as a REIT,
to avoid the payment of any Federal income tax.
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REIMBURSEMENT OF COMPANY; TRANSACTIONS WITH THE GENERAL PARTNER AND ITS
AFFILIATES
The Company does not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in
the Operating Partnership, has the same right to allocations and distributions
as other partners of the Operating Partnership. In addition, the Operating
Partnership will reimburse the Company for all expenses it incurs relating to
the ongoing operation of the Company and any other offering of additional Units
or capital stock, including expenses in connection with the Registration
Statement of which this Prospectus is a part.
Except as expressly permitted by the Partnership Agreement, the Company
and its affiliates may not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated third
party.
LIABILITY OF GENERAL PARTNER AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, is liable
for all general recourse obligations of the Operating Partnership to the extent
not paid by the Partnership. The Company is not liable for the nonrecourse
obligations of the Operating Partnership.
The limited partners of the Operating Partnership are not required to make
additional contributions to the Operating Partnership. Assuming that a limited
partner does not take part in the control of the business of the Operating
Partnership and otherwise acts in conformity with the provisions of the
Partnership Agreement, the liability of the limited partner for obligations of
the Operating Partnership under the Partnership Agreement and the Act is
limited, subject to certain limited exceptions, generally to the loss of the
limited partner's investment in the Operating Partnership represented by his or
her Units. Furthermore, no amendment to the Partnership Agreement is permitted
to convert a limited partnership interest into a general partnership interest
without approval of the Company and the holders of a majority of the limited
partnership Units.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if the Company
carried out its duties in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents,
provided the Company appointed such agents in good faith. The Company may
consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisors, and any action it takes
or omits to take in reliance upon the opinion of such persons, as to matters
that the Company reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the
Company, the directors and officers of the Company, and such other persons as
the Company may from time to time designate as agents against any losses,
claims, damages, liabilities, expenses (including reasonable attorneys' fees),
judgments, fines, settlements and reasonable expenses actually incurred by such
person in connection with any claims, demands, actions, suits, or proceedings
(civil, criminal or administrative) relating to or resulting (directly or
indirectly) from the operations of the Operating Partnership to the fullest
extent permitted under the Act.
- 16 -
<PAGE> 19
SALES OF ASSETS
Under the Partnership Agreement, the Company generally has the exclusive
authority to determine whether, when and on what terms the assets of the
Operating Partnership (including the Properties) will be sold.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Partnership Agreement provides that the limited partners may not
remove the Company as general partner of the Operating Partnership. The
Company may not transfer any of its interests as general partner in the
Operating Partnership.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
Limited partners are prohibited, subject to certain exceptions, from
transferring all or any portion of their Units without (1) obtaining the prior
written consent of the general partner, which consent may be withheld in the
sole and absolute discretion of the general partner, and (2) meeting certain
other requirements set forth in the Partnership Agreement. Notwithstanding
these restrictions, limited partners are permitted to transfer all or a portion
of their Units to (a) a parent or parents, spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, (b)
a corporation controlled by a person or persons named in (a) above, or (c) if
the limited partner is an entity, its beneficial owners, unless, in the
reasonable judgment of the general partner, such transfer would cause
(or have the potential to cause) the Company to lose its REIT status. In
addition, the executor, administrator, trustee, guardian, receiver or
conservator of a limited partner's estate shall succeed to the rights of
the limited partner for the purpose of settling the affairs of such
limited partner. Limited partners may dispose of their Units by
exercising their rights to have their Units redeemed for cash or for
Common Stock, at the option of the Company. See "Redemption of Units"
below.
REDEMPTION OF UNITS
Subject to certain limitations, limited partners may require that the
Operating Partnership redeem their Units, by providing the Operating
Partnership with a notice of redemption. Upon receipt of a notice of
redemption, the Company shall either (i) cause the Operating Partnership to
redeem the Units tendered in the redemption notice, (ii) assume the redemption
obligation, or (iii) provide written notice to the redeeming party of any
Redemption Restriction (as defined in the Partnership Agreement). The
Operating Partnership or the Company (in the event the Company assumes the
redemption obligation) shall deliver to the redeeming party, in the sole and
absolute discretion of the Company, either Redemption Shares or cash.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized, without the consent of the limited partners, to
cause the Operating Partnership to issue additional Units to itself, to the
limited partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. If additional Units are
issued to the Company, then the Company must issue additional Common Stock and
must contribute to the Operating Partnership the entire proceeds received by
the Company from such issuance. In addition, the Company may cause the
Operating Partnership to issue to the Company additional partnership interests
in different series or classes, which may be senior to the Units, in
conjunction with an offering of securities of the Company having substantially
similar rights, in which the proceeds thereof are contributed to the Operating
Partnership. Consideration for additional partnership interests may be cash or
any property or other assets permitted by the Act. The Company also will cause
the Operating Partnership to issue additional Units upon the exercise of the
options granted pursuant to the Option Plans. No limited partner has
preemptive,
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<PAGE> 20
preferential or similar rights with respect to additional capital
contributions to the Operating Partnership or the issuance or sale of any
partnership interests therein.
MEETINGS; VOTING
Meetings of the limited partners may be called only by the Company, on its
own motion. Limited partners may vote either in person or by proxy at
meetings. Any action that is required or permitted to be taken by the limited
partners of the Operating Partnership may be taken either at a meeting of the
limited partners or without a meeting if consents in writing setting forth the
action so taken are signed by limited partners owning not less than the minimum
Units that would be necessary to authorize or take such action at a meeting of
the limited partners at which all limited partners entitled to vote on such
action were present. On matters in which limited partners are entitled to
vote, each limited partner (including the Company to the extent it holds Units)
will have a vote equal to the number of Units he or she holds in the Operating
Partnership. The Partnership Agreement does not provide for annual meetings of
the limited partners, and the Company does not anticipate calling such
meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by the
Company. Generally, the Partnership Agreement may be amended by the Company,
as general partner, without the consent of the limited partners. Certain
amendments that affect the fundamental rights of a limited partner (e.g., the
limited liability of a limited partner, the limited partner's redemption right,
the right to receive distributions and certain other matters) must be approved
by the Company and the holders of a majority of the limited partner Units
(including those held by the Company).
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2093, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (1) an election to dissolve the Partnership is
made in writing by the general partner; (2) the withdrawal of the Company as
general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances); (3) the
sale of all or substantially all of the Operating Partnership's assets and
properties; or (4) the entry of a decree of judicial dissolution of the
Operating Partnership pursuant to the provisions of the Act or the entry of a
final order for relief in a bankruptcy proceeding of the general partner.
SHARES AVAILABLE FOR FUTURE SALE
As of March 31, 1996, the Company had outstanding 16,905,953 shares of
Common Stock and had reserved for possible issuance upon redemption of Units an
additional 16,332,517 shares of Common Stock. All of the 14,380,000 shares
issued or sold by the Company in the Initial Offering are tradeable without
restriction under the Securities Act (unless such shares are held by affiliates
of the Company). An additional 922,675 shares of Common Stock issued in
connection with the Formation Transactions and 16,057,740 shares of Common
Stock issuable upon redemption of Units received in connection with the
Formation Transactions are tradeable without restriction under the Securities
Act pursuant to the Registration Statement of which this Prospectus is a part.
See "Registration Rights." In addition, 2,500,000 shares of Common Stock of
the Company have been reserved for issuance pursuant to the Plan, and these
shares, upon issuance, will be available for sale in the public market either
pursuant to exceptions from the registration requirements of the Federal and
state securities laws or upon registration. As of March 31, 1996, options to
purchase 857,000 shares of Common Stock have been granted or authorized to be
granted to certain directors, officers and employees of the Company and its
subsidiaries and remain outstanding.
- 18 -
<PAGE> 21
In certain circumstances, holders of Original Restricted Shares and
Redemption Shares may elect to sell their shares in accordance with the
exemptions provided by Rule 144 under the Securities Act rather than pursuant
to this Prospectus. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated in accordance with the Rule) who
has beneficially owned his or her shares for at least two years, as well as any
persons who may be deemed "affiliates" of the Company (as defined in the
Securities Act), would be entitled to sell within any three month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then outstanding number of shares or the average weekly trading volume of the
shares during the four calendar weeks preceding each such sale. After shares
are held for three years, a person who is not deemed an "affiliate" of the
Company is entitled to sell such shares under Rule 144 without regard to the
volume limitations. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares for future sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of shares of Common Stock (including shares issued upon the redemption
of Units or the exercise of options), or the perception that such sales could
occur, could adversely affect prevailing market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this Prospectus
is a part pursuant to its obligations under a Registration Rights and Lock-Up
Agreement dated April 21, 1994 by and among the Company and certain holders of
Original Restricted Shares and Units (the "Registration Rights Agreement").
The following summary does not purport to be complete and is qualified in its
entirety by reference to the Registration Rights Agreement. A copy of the
Registration Rights Agreement is an exhibit to the Registration Statement of
which this Prospectus is a part.
Under the Registration Rights Agreement, the Company is obligated to use
its reasonable efforts to keep the Registration Statement continuously
effective for a period expiring on the date on which all of the Common Stock
covered by the Registration Rights Agreement have been sold pursuant to the
Registration Statement or Rule 144 of the Securities Act. The Registration
Rights Agreement grants these rights to holders of Common Stock and Units
specified therein.
The Company has no obligation under the Registration Rights Agreement to
retain any underwriter to effect the sale of the shares covered thereby and the
Registration Statement shall not be available for use for an underwritten
public offering of the such shares.
Pursuant to the Registration Rights Agreement, 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. The Company also has agreed
to indemnify each holder of shares of Common Stock offered herein and its
officers and directors or trustees and any person who controls (within the
meaning of the Securities Act) such holder against certain losses, liabilities,
claims, damages and expenses arising under the securities laws in connection
with this offering. In addition, each holder of shares of Common Stock offered
herein has agreed to indemnify the Company and the other holders of Common
Stock offered herein, and each of their respective directors and officers
(including each director and officer of the Company who signed the Registration
Statement), and each person who controls (within the meaning of the Securities
Act) the Company or the other holders of shares of Common Stock offered herein,
against certain losses, liabilities, claims, damages and expenses arising under
the securities laws in connection with this
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<PAGE> 22
offering with respect to written information furnished to the Company by
such holder; provided, however, that the indemnification obligation is
several, not joint, as to each holder.
SELLING STOCKHOLDERS
The Secondary Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders named below. As described elsewhere
herein, "Selling Stockholders" are only (i) those persons who acquired Original
Restricted Shares in the Formation Transactions and who may be affiliates of
the Company and (ii) those persons who may receive Redemption Shares upon
redemption of Units and who may be affiliates of the Company. Resales of
Redemption Shares issued pursuant to this Prospectus to persons who are not at
the time of redemption affiliates of the Company will not be restricted under
the Securities Act. Holders of Units who are not affiliates of the Company are
therefore not included herein as Selling Stockholders.
The following table provides the names of and the number of shares of
Common Stock that may be offered herein, which consists of all shares of Common
Stock known to the Company to be beneficially owned by each Selling Stockholder
as of March 31, 1996 (except as otherwise may be indicated in the footnotes).
As indicated in the footnotes, the number of shares includes the number of
shares of Common Stock into which Units held by Selling Stockholders are
redeemable. Each Selling Stockholder may sell any or all of the shares of
Common Stock included herein, but the Company cannot estimate the number of
shares that may be offered and sold hereby, or that will be owned by each
Selling Stockholder upon completion of the offering to which this Prospectus
relates.
The number of Redemption Shares being registered pursuant to the
Registration Statement of which this Prospectus forms a part represents the
Company's estimate of the aggregate number of shares of Common Stock that the
Company will elect to issue upon redemption of Units that are tendered for
redemption by the holders thereof in the foreseeable future.
<TABLE>
<CAPTION>
NUMBER OF SHARES
THAT MAY BE OFFERED
NAME HEREBY
- ---- --------------------
<S> <C>
Herbert S. Miller(1)...................................... 1,668,563
Laurence C. Siegel(2)..................................... 868,954
Harry H. Nick(3).......................................... 296,521
Kent S. Digby Management Company(4)....................... 4,846
Kan Am Capital Limited Partnership(5)..................... 568,789
East Coast Development Limited Partnership(5)............. 506,600
East Coast Common Limited Partnership(5).................. 187,071
Kan Am USA V Limited Partnership(5)....................... 216,337
Kan Am USA VI Limited Partnership(5)...................... 3,266,296
Kan Am USA VII Limited Partnership(5)..................... 556,187
Kan Am USA VIII Limited Partnership(5).................... 903,189
Kan Am USA IX Limited Partnership(5)...................... 1,810,235
Kan Am USA X Limited Partnership(5)....................... 3,081,799
Kan Am USA XI Limited Partnership(5)...................... 1,231,170
Kan Am USA XII Limited Partnership(5)..................... 1,228,759
Washington Outlet Mall Limited Partnership(6)............. 412,199
Potomac Mills Phase III Limited Partnership(6)............ 179,586
Sunrise Mills Limited Partnership(6)...................... 338,292
Gurnee Mills Limited Partnership(6)....................... 137,175
Fashion Center Associates No. 1 Limited Partnership(6).... 30,653
Western Hills Associates Limited Partnership(6)........... 38,160
Crosswinds Center of St. Petersburg Limited Partnership(6) 6,448
Germantown Development Associates Limited Partnership(6).. 62,213
Echo Hills Center Associates Limited Partnership(6)....... 41,232
Montgomery Village Associates Limited Partnership(6)...... 26,753
</TABLE>
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<PAGE> 23
- ---------------
(1) Consists of 384,501 Original Restricted Shares, 271,556 Units
redeemable for Redemption Shares owned directly and 1,012,506 Units (the
"Indirect Units") redeemable for Redemption Shares owned indirectly
(representing his proportionate share of Units redeemable for Redemption
Shares owned by other Selling Stockholders). The Indirect Units consist
of 109,860 Indirect Units owned directly by other Selling Stockholders of
which Mr. Miller is the beneficial owner and over which he has sole voting
and investment power and 902,746 Indirect Units owned directly by other
Selling Stockholders of which Mr. Miller is the beneficial owner and over
which he has shared voting and/or investment power. The 1,012,506
Indirect Units owned by Mr. Miller are shown in the table as shares of
Common Stock that may be offered by other Selling Stockholders. Mr.
Miller is a director of the Company and was Chairman of the Board of the
Company from January 1993 to until August 1995, Chief Executive Officer
of the Company from January 1993 until March 1995, and President of the
Company from January 1993 until February 1995.
(2) Consists of 351,242 Original Restricted Shares and 517,712 Units
redeemable for Redemption Shares. In addition, Mr. Siegel beneficially
owns 6,000 shares of Common Stock. Mr. Siegel is Chairman of the Board,
Chief Executive Officer and a director of the Company. Mr. Siegel was
Executive Vice President of the Company from January 1993 until September
1994, Secretary of the Company from January 1993 until March 1995, and
Vice Chairman of the Company from September 1994 until August 1995.
(3) Consists of 186,932 Original Restricted Shares and 109,589 Units
redeemable for Redemption Shares. Mr. Nick is a director and Executive
Vice President for Strategic Planning and Acquisitions of the Company.
Mr. Nick was Executive Vice President, Chief Financial Officer, and
Treasurer of the Company from January 1993 until May 1995.
(4) Consists solely of Units redeemable for Redemption Shares. Kent S.
Digby, Executive Vice President of Management and Marketing of the
Third-Party Services Corporation, is the sole beneficial owner of these
Units.
(5) Consists solely of Units redeemable for Redemption Shares. Kan Am, which
is substantially owned and controlled by three directors of the Company
and indirectly or directly owns a substantial percentage of the Common
Stock and Units outstanding, is the general partner of this partnership.
(6) Consists solely of Units redeemable for Redemption Shares. Mr. Miller is
directly or indirectly a general partner of this partnership.
REDEMPTION OF UNITS
GENERAL
Each Limited Partner may, subject to certain limitations, require that the
Operating Partnership redeem his or her Units, by delivering a notice to the
Operating Partnership. Upon redemption, such Limited Partner will receive, at
the option of the Operating Partnership, with respect to each Unit tendered,
either (1) cash in an amount equal to the market value of one share of Common
Stock of the Company (subject to certain anti-dilution adjustments) or (2) one
share of Common Stock of the Company. The market value of the Common Stock for
this purpose will be equal to the average of the closing trading price of the
Company's Common Stock (or substitute information, if no such closing price is
available) for the ten trading days before the day on which the redemption
notice was received by the Operating Partnership.
In lieu of the Operating Partnership redeeming Units, the Company, as
general partner, has the right to assume directly and satisfy the redemption
right of a Limited Partner described in the preceding paragraph. The Company
anticipates that it generally will elect to assume directly and satisfy any
redemption right exercised by a Limited Partner through the issuance of shares
of Common Stock (the Redemption Shares) pursuant to this Prospectus, whereupon
the Company will acquire the Units being redeemed and will become the owner of
the Units. Such an acquisition by
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<PAGE> 24
the Company will be treated as a sale of the Units to the Company for
Federal income tax purposes. See "--Tax Consequences of Redemption"
below. Upon redemption, such Limited Partner's right to receive
distributions with respect to the Units redeemed will cease (but if such
right is exchanged for Redemption Shares, the Limited Partner will have
rights as a stockholder of the Company from the time of its acquisition
of the Redemption Shares).
A Limited Partner must notify the Company, as the general partner of the
Operating Partnership, of his or her desire to require the Operating
Partnership to redeem Units by sending a notice in the form attached as an
exhibit to the Partnership Agreement, a copy of which is available from the
Company. A Limited Partner must request the redemption of at least 100 Units
or an integral multiple thereof (or all of the Units held by such holder, if
such limited partner owns less than 100 Units). A notice of redemption must be
furnished during the four 30-day periods immediately following the filing with
the Securities and Exchange Commission by the Operating Partnership of its
annual report on From 10-K or quarterly reports on Form 10-Q, or during such
periods as the Company may otherwise determine. The redemption generally will
occur on the seventh business day after the notice is delivered by the Limited
Partner, except that no redemption can occur if the delivery of Redemption
Shares would be prohibited under the provisions of the Articles of
Incorporation designed to protect the Company's qualification as a REIT.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Limited Partner who exercises his or
her right to require the redemption of his or her Units. (A Limited Partner's
right to require the redemption of Units is referred to as the "Redemption
Right.") Because the specific tax consequences to a Limited Partner exercising
his or her Redemption Right will depend upon the specific circumstances of that
Limited Partner, each Limited Partner considering exercising the Redemption
Right is strongly urged to consult his or her own tax advisor regarding the
specific Federal, state, and local tax consequences to him or her of the
exercise of the Redemption Right in light of his or her specific circumstances.
Tax Treatment of Redemption of Units. If the Company assumes and performs
the redemption obligation, the Partnership Agreement provides that the
redemption will be treated by the Company, the Operating Partnership and the
redeeming Limited Partner as a sale of Units by such Limited Partner to the
Company at the time of such redemption. In that event, such sale will be fully
taxable to the redeeming Limited Partner and such redeeming Limited Partner
will be treated as realizing for tax purposes an amount equal to the sum of the
cash or the value of the Common Stock received in the exchange plus the
amount of Operating Partnership nonrecourse liabilities allocable to the
redeemed Units at the time of the redemption. The determination of the
amount of gain or loss is discussed more fully below.
If the Company does not elect to assume the obligation to redeem a Limited
Partner's Units, the Operating Partnership will redeem such Units for cash. If
the Operating Partnership redeems Units for cash that the Company contributes
to the Operating Partnership to effect such redemption, the redemption likely
would be treated for tax purposes as a sale of such Units to the Company in a
fully taxable transaction, although the matter is not free from doubt. In that
event, the redeeming Limited Partner would be treated as realizing an amount
equal to the sum of the cash received in the exchange plus the amount of
Operating Partnership nonrecourse liabilities allocable to the redeemed Units
at the time of the redemption. The determination of the amount of gain or loss
in the event of sale treatment is discussed more fully below.
If, instead, the Operating Partnership chooses to redeem a Limited
Partner's Units for cash that is not contributed by the Company to effect the
redemption, the tax consequences would be the same as described in the previous
paragraph, except that if the Operating Partnership redeems less
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<PAGE> 25
than all of a Limited Partner's Units, the Limited Partner would not be
permitted to recognize any loss occurring on the transaction and would
recognize taxable gain only to the extent that the cash, plus the share
of Operating Partnership nonrecourse liabilities allocable to the
redeemed Units, exceeded the Limited Partner's adjusted basis in all of
such Limited Partner's Units immediately before the redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If a
Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"Basis of Units" below. Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property (e.g.,
Redemption Shares) received plus the portion of the Operating Partnership's
nonrecourse liabilities allocable to the Unit sold. To the extent that the
amount of cash or property received plus the allocable share of the Operating
Partnership's nonrecourse liabilities exceeds the Limited Partner's basis for
the Unit disposed of, such Limited Partner will recognize gain. It is possible
that the amount of gain recognized or even the tax liability resulting from
such gain could exceed the amount of cash and the value of any other property
(e.g., Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a Limited Partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section
751 of the Code) exceeds the basis attributable to those assets, such excess
will be treated as ordinary income. Unrealized receivables include, to the
extent not previously included in Operating Partnership income, any rights to
payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income if the
Operating Partnership had sold its assets at their fair market value at the
time of the transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the time
of the Formation Transactions to have received his or her Units upon
liquidation of a partnership had an initial tax basis in his or her Units
("Initial Basis") equal to his basis in his partnership interest at the time of
such liquidation. Similarly, in general, a Limited Partner who at the time of
the Formation Transactions contributed a partnership interest in exchange for
his or her Units had an Initial Basis in the Units equal to his basis in the
contributed partnership interest. A Limited Partner's Initial Basis in his
Units generally is increased by (a) such Limited Partner's share of Operating
Partnership taxable income and (b) increases in his share of liabilities of the
Operating Partnership (including any increase in his share of liabilities
occurring in connection with the Formation Transactions). Generally, such
Partner's basis in his Units is decreased (but not below zero) by (i) his share
of Operating Partnership distributions, (ii) decreases in his share of
liabilities of the Operating Partnership (including any decrease in his share
of liabilities occurring in connection with the Formation Transactions), (iii)
his share of losses of the Operating Partnership, and (iv) his share of
nondeductible expenditures of the Operating Partnership that are not chargeable
to capital.
Potential Application of the Disguised Sale Regulations to a Redemption of
Units. There is a possibility that a redemption of Units issued in the
Formation Transactions might cause the original transfer of property to the
Operating Partnership in exchange for Units in connection with the Formation
Transactions to be treated as a "disguised sale" of property. The Code and the
Treasury Regulations thereunder (the "Disguised Sale Regulations") generally
provide that, unless one of the prescribed exceptions is applicable, a
partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration (including the assumption
of or taking subject to a liability) from the partnership to the partner will
be presumed to be a sale, in whole or in part, of such property by the partner
to the partnership. The Disguised Sale Regulations also provide, however, that
if two years have passed between the transfer of money or other
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<PAGE> 26
consideration and the contribution of property, the transactions will not be
presumed to be a sale unless the facts and circumstances clearly establish that
the transfers constitute a sale. More than two years have passed since the
Formation Transactions, and thus the redemption of Units would not be presumed
to be a sale unless the facts and circumstances clearly establish that the
Formation Transactions and subsequent redemptions should be viewed as a sale at
the time the Formation Transactions were consummated. The Company does not
believe that such facts and circumstances apply here, but there can be no
assurance that the IRS might not seek to contend otherwise. In that event, the
IRS would contend that the Formation Transactions themselves were taxable as a
disguised sale under the Disguised Sale Regulations.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
Generally, the nature of an investment in shares of Common Stock of
the Company is substantially equivalent economically to an investment in Units
in the Operating Partnership. A holder of a share of Common Stock receives the
same distribution that a holder of a Unit receives and stockholders and holders
of Units generally share in the risks and rewards of ownership in the
enterprise being conducted by the Company (through the Operating Partnership).
However, there are some differences between ownership of Units and ownership of
shares of Common Stock, some of which may be material to investors.
The information below highlights a number of the significant
differences between the Operating Partnership and the Company relating to,
among other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights and
Federal income taxation, and compares certain legal rights associated with the
ownership of Units and Common Stock, respectively. These comparisons are
intended to assist Limited Partners of the Operating Partnership in
understanding how their investment will be changed if their Units are redeemed
for Common Stock. THIS DISCUSSION IS SUMMARY IN NATURE AND DOES NOT CONSTITUTE
A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF UNITS SHOULD CAREFULLY
REVIEW THE BALANCE OF THIS PROSPECTUS AND THE REGISTRATION STATEMENT OF WHICH
THIS PROSPECTUS IS A PART FOR ADDITIONAL IMPORTANT INFORMATION ABOUT THE
COMPANY.
OPERATING PARTNERSHIP COMPANY
FORM OF ORGANIZATION AND ASSETS OWNED
<TABLE>
<S> <C>
The Operating Partnership is organized as a Delaware The Company is a Delaware corporation. The Company
limited partnership. The Operating Partnership owns has elected to be taxed as a REIT under the Code,
interests (directly and through subsidiary commencing with its taxable year ended December 31,
partnerships and limited liability companies) in the 1994, and intends to maintain its qualification as
Properties and, through two a REIT. The Company's only significant asset is
of its subsidiaries, conducts the Company's its interest in the Operating Partnership, which
management and leasing business. See "The Company." gives the Company an indirect investment in the
Properties and other assets owned directly or
indirectly by the Operating Partnership.
</TABLE>
LENGTH OF INVESTMENT
<TABLE>
<S> <C>
The Operating Partnership has a stated termination The Company has a perpetual term and intends to
date of December 31, 2093, although it may be continue its operations for an indefinite time
terminated earlier under certain circumstances. period.
</TABLE>
- 24 -
<PAGE> 27
OPERATING PARTNERSHIP COMPANY
PURPOSE AND PERMITTED INVESTMENTS
<TABLE>
<S> <C>
The Operating Partnership's purpose is to conduct any Under its Articles of Incorporation, the Company
business that may be lawfully conducted by a limited may engage in any lawful activity permitted by the
partnership organized pursuant to the Act, provided General Corporation Law of Delaware. However,
that such business is to be conducted in a manner under the Partnership Agreement the Company, as
that permits the Company to be qualified as a REIT general partner, may not conduct any business other
unless the Company ceases to qualify as REIT. The than the business of the Operating Partnership and
Operating Partnership is authorized to perform any cannot own any assets other than its interest in
and all acts for the furtherance of the purposes and the Operating Partnership and other assets
business of the Operating Partnership, provided that necessary to carry out its responsibilities under
the Operating Partnership may not take, or refrain the Partnership Agreement and its Articles of
from taking, any action which, in the judgment of the Incorporation.
general partner (i) could adversely affect the
ability of the general partner to continue to qualify
as a REIT, (ii) could subject the general partner to
any additional taxes under Section 857 or Section
4981 of the Code, or (iii) could violate any law or
regulation of any governmental body or agency having
jurisdiction over the Operating Partnership or its
subsidiaries.
</TABLE>
ADDITIONAL EQUITY
<TABLE>
<S> <C>
The Operating Partnership is authorized to issue The Board of Directors may issue, in its
Units and other partnership interests (including discretion, additional equity securities consisting
partnership interests of different series or classes of Common Stock or Preferred Stock; provided, that
that may be senior to Units) as determined by the the total number of shares issued does not exceed
Company as its general partner, in its sole the authorized number of shares of capital stock
discretion. The Operating Partnership may issue set forth in the Company's Articles of
Units and other partnership interests to the Company, Incorporation. As long as the Operating
as long as such interests are issued in connection Partnership is in existence, the proceeds of all
with a comparable issuance of shares of the Company equity capital raised by the Company will be
and proceeds raised in connection with the issuance contributed to the Operating Partnership in
of such shares are contributed to the Operating exchange for Units in the Operating Partnership.
Partnership.
</TABLE>
BORROWING POLICIES
<TABLE>
<S> <C>
The Operating Partnership has no restrictions on The Company is not restricted under its governing
borrowings, and the Company as general partner has instrument from incurring borrowings. However,
full power and authority to borrow money on behalf of under the Partnership Agreement the Company, as
the Operating Partnership. The Company (as general general partner, may not incur any debts except
partner), through its Board of Directors, has adopted those for which it may be liable as general partner
a policy that currently limits total borrowings to of the Operating Partnership and certain other
50% of the total market capitalization of the Company limited circumstances. Therefore, all indebtedness
and the Operating Partnership, but this policy may be incurred by the Company will be through the
altered at any time by the Board of Directors Operating Partnership.
</TABLE>
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<PAGE> 28
OPERATING PARTNERSHIP COMPANY
OTHER INVESTMENT RESTRICTIONS
<TABLE>
<S> <C>
Other than restrictions precluding investments by the Neither the Company's Articles of Incorporation nor
Operating Partnership that would adversely affect the its By-laws impose any restrictions upon the types
qualification of the Company as a REIT, there are no of investments made by the Company except that
restrictions upon the Operating Partnership's under the Articles of Incorporation the Board of
authority to enter into certain transactions, Directors is prohibited from taking any action that
including among others, making investments, lending would terminate the Company's REIT status, unless a
Operating Partnership funds, or reinvesting the majority of the stockholders vote to terminate such
Operating Partnership's cash flow and net sale or REIT status. The Company has adopted a policy,
refinancing proceeds. however, that it must conduct its investment
activities through the Operating Partnership for so
long as the Operating Partnership exists.
</TABLE>
MANAGEMENT CONTROL
<TABLE>
<S> <C>
All management powers over the business and affairs The Board of Directors has exclusive control over
of the Operating Partnership are vested in the the Company's business and affairs subject only to
general partner of the Operating Partnership, and no the restrictions in the Articles of Incorporation
limited partner of the Operating Partnership has any and By-laws and the Partnership Agreement. The
right to participate in or exercise control or Board of Directors is classified into three classes
management power over the business and affairs of the of directors. At each annual meeting of the
Operating Partnership. The general partner may not be stockholders, the successors of the class of
removed by the Limited Partners with or without cause. directors whose terms expire at that meeting will
be elected. The policies adopted by the Board of
Directors may be altered or eliminated without a
vote of the stockholders. Accordingly, except for
their vote in the elections of directors,
stockholders have no control over the ordinary
business policies of the Company. The Board of
Directors cannot change the Company's policy of
maintaining its status as a REIT, however, without
the approval of holders of a majority of the
outstanding shares of capital stock entitled to
vote on such matters.
</TABLE>
FIDUCIARY DUTIES
<TABLE>
<S> <C>
Under Delaware law, the general partner of the Under Delaware law, the directors must perform
Operating Partnership is accountable to the Operating their duties in good faith, in a manner that they
Partnership as a fiduciary and, consequently, is reasonably believe to be in the best interests of
required to exercise good faith and integrity in all the Company and with the care of an ordinarily
of its dealings with respect to partnership affairs. prudent person in a like position. Directors of
However, under the Partnership Agreement, the general the Company who act in such a manner generally will
partner is under no obligation to take into account not be liable to the Company for monetary damages
the tax consequences to any partner of any action arising from their activities.
taken by it, and the general partner is not liable
for monetary damages for losses sustained or
liabilities incurred by partners as a result of
errors of judgment or of any act or omission,
provided that the general partner has acted in good
faith.
</TABLE>
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<PAGE> 29
OPERATING PARTNERSHIP COMPANY
MANAGEMENT LIABILITY AND INDEMNIFICATION
<TABLE>
<S> <C>
As a matter of Delaware law, the general partner has The Company's Articles of Incorporation provide
liability for the payment of the obligations and that each person who was or is made a party to (or
debts of the Operating Partnership unless limitations is threatened to be made a party to) or is
upon such liability are stated in the document or otherwise involved in any action, suit or
instrument evidencing the proceeding, whether civil, criminal, administrative
obligation. Under the Partnership Agreement, the or investigative, by reason of the fact that he or
Operating Partnership has agreed to indemnify the she is or was a director or officer of the Company
general partner, any director or officer of the or that he or she, being at the time a director or
general partner, and any person designated as an officer of the Company, is or was serving at the
agent by the general partner from and against all request of the Company as a director, trustee,
losses, claims, damages, liabilities, joint or officer, employee or agent of another corporation
several, expenses (including reasonable attorney's or of a partnership, joint venture, trust or other
fees and expenses), judgments, fines, settlements and enterprise, shall be indemnified and held harmless
other amounts incurred in connection with any actions by the Company to the fullest extent not prohibited
relating to the operations of the Operating by Delaware law against all expense, liability and
Partnership in which the general partner, such loss (including without limitation, attorneys'
director or officer, or agent is involved, to the fees, judgments, fines, or penalties and amounts
fullest extent of the Act (including any procedures paid in settlement) reasonably incurred or suffered
set forth therein regarding advancement of expenses by such person in connection therewith provided
to such indemnified party). such person acted in good faith and in a manner he
or she reasonably believed to be in or not opposed
to the best interests of the Company, and, with
respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct
was unlawful.
</TABLE>
ANTITAKEOVER PROVISIONS
<TABLE>
<S> <C>
Except in limited circumstances (See "Voting Rights" The Articles of Incorporation and By-laws of the
below), the general partner of the Operating Company contain a number of provisions that may
Partnership has exclusive management power over the have the effect of delaying or discouraging an
business and affairs of the Operating Partnership. unsolicited proposal for the acquisition of the
The general partner may not be removed by the Limited Company or the removal of incumbent management.
Partners with or without cause. Under the These provisions include, among others: (1) a
Partnership Agreement, the general partner may, in staggered Board of Directors; (2) authorized
its sole discretion, prevent a Limited Partner from capital stock that may be issued as Preferred Stock
transferring his interest or any rights as a limited in the discretion of the Board of Directors, with
partner except in certain limited circumstances. The superior voting rights to the Common Stock; (3) a
general partner may exercise this right of approval requirement that directors may be removed for
to deter, delay or hamper attempts by persons to cause by a vote of holders of at least
acquire a controlling interest in the Operating 66 2/3% of the outstanding Common Stock; and
Partnership. See "Description of Units." (4) provisions designed to avoid concentration of
share ownership in a manner that would jeopardize
the Company's status as a REIT under the Code. See
"Capital Stock of the Company."
</TABLE>
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<PAGE> 30
OPERATING PARTNERSHIP COMPANY
VOTING RIGHTS
<TABLE>
<S> <C>
Under the Partnership Agreement, the Limited Partners The Company is managed and controlled by a Board of
have voting rights only as to certain amendments of Directors consisting of three classes having
the Partnership Agreement, as described more fully staggered terms of office. Each class is to be
below. Otherwise, all decisions relating to the elected by the stockholders at annual meetings of
operation and management of the Operating Partnership the Company. Delaware law requires that certain
are made by the general partner. See "Description of major corporate transactions, including most
Units." As of March 31, 1996, the Company held amendments to the Articles of Incorporation, may
approximately 50.9% of the outstanding Units. As not be consummated without the approval of
Units are redeemed by partners, the Company's stockholders as set forth below. All shares of
percentage ownership of the Units will increase. If Common Stock have one vote, and the Articles of
additional Units are issued to third Incorporation permit the Board of Directors to
parties, the Company's percentage ownership of the classify and issue Preferred Stock in one or more
Units will decrease. series having voting power which may differ from
that of the Common Stock. See "Capital Stock of
the Company."
</TABLE>
The following is a comparison of the voting rights of the limited
partners of the Operating Partnership and the stockholders of the Company as
they relate to certain major transactions:
A. AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE ARTICLES OF INCORPORATION.
<TABLE>
<S> <C>
Amendments to the Partnership Agreement may be Amendments to the Company's Articles of
proposed only by the Company. Generally, the Incorporation must be approved by a majority of the
Partnership Agreement may be amended by the Company, Board of Directors and by the vote of at least a
as general partner, without the consent of the majority of the votes entitled to be cast at a
limited partners. Certain amendments that affect the meeting of stockholders. Amendments to certain
fundamental rights of a limited partner (e.g., the of the provisions of the Company's Articles of
limited liability of a limited partner, the limited Incorporation (including those articles relating
partner's redemption right, the right to receive to capital stock, the Board of Directors, stockholder
distributions and certain other matters) must be actions and meetings of stockholders, indemnification,
approved by the Company and the holders of a majority limitation on liability of directors, compromise, amendment
of the limited partner Units (including those held by of the By-Laws, and amendment of the Certificate of
the Company). Incorporation) require the affirmative vote of the holders
of 66 2/3% of the voting power of all of the shares of
capital stock voting together as a single class.
</TABLE>
B. VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY.
<TABLE>
<S> <C>
The general partner of the Operating Partnership may Under Delaware law, the Board of Directors must
elect to dissolve the Partnership upon making a obtain approval of holders of at least a majority
written election to that effect. The limited of the outstanding capital stock in order to
partners are not entitled by the Limited Partnership dissolve the Company.
Agreement to vote on a dissolution.
</TABLE>
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<PAGE> 31
OPERATING PARTNERSHIP COMPANY
C. VOTE REQUIRED TO SELL ASSETS OR MERGE.
<TABLE>
<S> <C>
Under the Partnership Agreement, the sale, exchange, Under Delaware law, the sale of all or
transfer or other disposition of all or substantially substantially all of the assets of the Company or
all of the Operating Partnership's assets or merger merger or consolidation of the Company requires the
or consolidation of the Operating Partnership approval of the Board of Directors and holders of a
requires action of the general partner. The limited majority of the votes entitled to be cast at a
partners are not entitled by the Limited Partnership meeting of stockholders. No approval of the
Agreement to vote on a sale, exchange, transfer or stockholders is required for the sale of less than
other disposition of all or substantially all of the all or substantially all of the Company's assets.
Operating Partnerships assets or merger or
consolidation of the Operating Partnership.
</TABLE>
COMPENSATION, FEES AND DISTRIBUTIONS
<TABLE>
<S> <C>
The general partner does not receive any compensation The directors and officers of the Company receive
for its services as general partner of the Operating compensation for their services.
Partnership. As a partner in the Operating
Partnership, however, the general partner has the
same right to allocations and distributions as other
partners of the Operating Partnership. In addition,
the Operating Partnership will reimburse the general
partner for all expenses incurred relating to the
ongoing operation of the Company and any other
offering of additional partnership interests in the
Operating Partnership or capital stock of the
Company.
</TABLE>
LIABILITY OF INVESTORS
<TABLE>
<S> <C>
Under the Partnership Agreement and applicable state Under Delaware law, stockholders are not personally
law, the liability of the limited partners for the liable for the debts or obligations of the Company.
Operating Partnership's debts and obligations is
generally limited to the amount of their investment
in the Operating Partnership.
</TABLE>
REVIEW OF INVESTOR LISTS
<TABLE>
<S> <C>
Under the Partnership Agreement, limited partners of Under Delaware law, any stockholder may, upon
the Operating Partnership, upon written demand written demand under oath stating the purpose
setting forth the purpose of such demand and at the thereof, inspect for any proper purpose the
limited partner's expense, are entitled to obtain a corporation's stock ledger, a list of its
current list of the name and last known business, stockholders, and its other books and records.
residence or mailing address of each partner of the
Operating Partnership.
</TABLE>
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<PAGE> 32
OPERATING PARTNERSHIP COMPANY
NATURE OF INVESTMENT
<TABLE>
<S> <C>
The Units constitute equity interests entitling each The Shares constitute equity interests in the
limited partner to his pro rata share of cash Company. The Company is entitled to receive its
distributions made to the limited partners of the pro rata share of distributions made by the
Operating Partnership. The Operating Partnership Operating Partnership with respect to the Units,
generally intends to retain and reinvest proceeds of and each stockholder will be entitled to his pro
the sale of property or excess refinancing proceeds rata share of any dividends or distributions paid
in its business except to the extent necessary to with respect to the Common Stock. The dividends
permit the Company to make distributions necessary to payable to the stockholders are not fixed in amount
maintain its REIT status or avoid paying a corporate and are only paid if, when and as declared by the
income tax. Board of Directors. In order to qualify as a REIT,
the Company must distribute at least 95% of its
taxable income (excluding capital gains), and any
taxable income (including capital gains) not
distributed will be subject to corporate income
tax.
</TABLE>
POTENTIAL DILUTION OF RIGHTS
<TABLE>
<S> <C>
The general partner of the Operating Partnership is The Board of Directors may issue, in its
authorized, in its sole discretion and without discretion, additional Shares and have the
limited partner approval, to cause the Operating authority to issue from the authorized capital
Partnership to issue additional limited partnership stock a variety of other equity securities of the
interests and other equity securities for any Company with such powers, preferences and rights as
partnership purpose at any time to the limited the Board of Directors may designate at the time.
partners or to other persons on terms established by The issuance of additional shares of either Common
the general partner. Stock or other similar equity securities may result
in the dilution of the interests of the
stockholders.
</TABLE>
LIQUIDITY
<TABLE>
<S> <C>
Limited Partners cannot transfer their Units without The Redemption Shares will be freely transferable
the general partner's consent, except to (a) a parent as registered securities under the Securities Act.
or parents, spouse, natural or adopted descendant or The Common Stock is listed on the NYSE. The
descendants, spouse of such descendant, or brother or breadth and strength of this secondary market will
sister, (b) a corporation controlled by a person or depend, among other things, upon the number of
persons named in (a) above, or (c) if the limited shares outstanding, the Company's financial results
partner is an entity, its beneficial owners, subject and prospects, the general interest in the
to the reasonable judgment of the general partner, Company's and other real estate investments, and
that such transfer would not cause (or have the the Company's dividend yield compared to that of
potential to cause) the Company to lose its REIT other debt and equity securities.
status.
Each Limited Partner has the right to tender his
Units for redemption by the Operating Partnership.
See "General" above.
</TABLE>
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<PAGE> 33
OPERATING PARTNERSHIP COMPANY
FEDERAL INCOME TAXATION
<TABLE>
<S> <C>
The Operating Partnership is not subject to Federal The Company has elected to be taxed as a REIT. So
income taxes. Instead, each holder of Units includes long as it qualifies as a REIT, the Company will be
its allocable share of the Operating Partnership's permitted to deduct distributions paid to its
taxable income or loss in determining its individual stockholders, which effectively will reduce the
federal income tax liability. The maximum federal "double taxation" that typically results when a
income tax rate for individuals under current law is corporation earns income and distributes that
39.6%. income to its stockholders in the form of
dividends. A qualified REIT, however, is subject
to federal income tax on income that is not
distributed and also may be subject to federal
income and excise taxes in certain circumstances.
The maximum federal income tax rate for
corporations under current law is 35%.
Income and loss from the Operating Partnership Dividends paid by the Company will be treated as
generally is subject to the "passive activity" "portfolio" income and cannot be offset with losses
limitations. Under the "passive activity" rules, from "passive activities." The maximum federal
income and loss from the Operating Partnership that income tax rate for individuals under current law
is considered "passive income" generally can be is 39.6%.
offset against income and loss from other investments
that constitute "passive activities" (unless the
Operating Partnership is considered a "publicly
traded partnership," in which case income and loss
from the Operating Partnership can only be offset
against other income and loss from the Operating
Partnership). Income of the Operating Partnership,
however, attributable to dividends from the
Third-Party Services Corporation or interest paid by
the Third-Party Services Corporation does not qualify
as passive income and cannot be offset with losses
and deductions from a "passive activity."
Cash distributions from the Operating Partnership are Distributions made by the Company to its taxable
not taxable to a holder of Units except to the extent domestic stockholders out of current or accumulated
they exceed such holder's basis in its interest in earnings and profits will be taken into account by
the Operating Partnership (which will include such them as ordinary income. Distributions that are
holder's allocable share of the Operating designated as capital gain dividends generally will
Partnership's nonrecourse debt). be taxed as long-term capital gain, subject to
certain limitations. Distributions in excess of
current or accumulated earnings and profits will be
treated as a non-taxable return of basis to the
extent of a stockholder's adjusted basis in its
Common Stock, with the excess taxed as capital
gain.
Each year, holders of Units will receive a Schedule Each year, stockholders will receive Form 1099 used
K-1 tax form containing detailed tax information for by corporations to report dividends paid to their
inclusion in preparing their federal income tax stockholders.
returns.
</TABLE>
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<PAGE> 34
OPERATING PARTNERSHIP COMPANY
<TABLE>
<S> <C>
Holders of Units are required, in some cases, to file Stockholders who are individuals generally will not
state income tax returns and/or pay state income be required to file state income tax returns and/or
taxes in the states in which the Operating pay state income taxes outside of their state of
Partnership owns property, even if they are not residence with respect to the Company's operations
residents of those states. and distributions. The Company may be required to
pay state income taxes in certain states.
</TABLE>
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 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,
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<PAGE> 35
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 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.
- 33 -
<PAGE> 36
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 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
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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 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
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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
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necessarily required for use within the regional outlet mall or
community shopping center located at the Property (referred to as
"outparcels"). The Company may sell one or more of these outparcels
from time to time. In addition, in connection with the development of a
regional outlet mall at a Property, the Company may sell parcels of land
within the mall ("anchor parcels") to major anchor tenants who desire to
own the land on which their facility is located. The Company believes
that the outparcels and anchor parcels should not be considered
inventory or as held primarily for sale to customers in the ordinary
course of the Company's trade or business, but there is a risk that the
IRS could contend otherwise, in which event, the profit from such sales
allocable to the Company would be subject to a 100% tax. In the event
that the Company determines that the level of such activity with respect
to the outparcels and/or anchor parcels is sufficient to cause such
sales to be subject to 100% tax, the Company intends to hold and sell
such parcels through a separate corporation in which the Operating
Partnership would hold a non-voting stock interest. The Company would
structure the stock interest owned by the Operating Partnership in any
such corporation to ensure that the various asset tests described above
were not violated (i.e., the Operating Partnership would not own more
than 10% of the voting securities of such corporation and the value of
the stock interest would not exceed 5% of the value of the Company's
total assets). Such corporation would be subject to a corporate level
tax on its taxable income attributable to land sales, thereby reducing
the amount of cash available for distribution.
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
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indebtedness" within the meaning of the Code and the Common Stock are
not otherwise used in an unrelated trade or business of the tax-exempt entity.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals,foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no
attempt will be made herein to provide more than a limited summary of such
rules. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and
profits of the Company. Such distributions, ordinarily, will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces that tax. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Stockholder to the extent that they do not exceed the adjusted basis
of the stockholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Stockholder's Common Stock, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Stock as described below (in
which case they also may be subject to a 30% branch profits tax if the
stockholder is a foreign corporation). If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that 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.
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<PAGE> 41
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership, Management Partnership and
Other Partnership Subsidiaries on REIT Qualification. Substantially all of the
Company's investments are through the Operating Partnership and Property
Partnerships (including limited liability companies which own interests in the
Property Partnerships and in which the Operating Partnership owns interests)
which hold title to the Properties. The Operating Partnership also carries out
activities through the Management Partnership and various subsidiary
partnerships and limited liability companies (together with the Property
Partnerships, the "Subsidiary Partnerships"). The Operating Partnership and
the Subsidiary Partnerships may involve special tax considerations. Such
considerations include (i) the allocations of income and expense items of the
Operating Partnership, which could affect the computation of taxable income of
the Company, (ii) the status of the Operating Partnership and the Subsidiary
Partnerships as partnerships (as opposed to associations taxable as
corporations) for income tax purposes, and (iii) the taking of actions by the
Operating Partnership and the Subsidiary Partnerships that could adversely
affect the Company's qualification as a REIT. The Company believes that the
Operating Partnership and the Subsidiary Partnerships each qualify for tax
purposes as a partnership (and not as an association taxable as a
corporation). If, however, either the Operating Partnership and/or the
Subsidiary Partnerships were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
Tax Allocations with Respect to the Properties. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties). When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to
the adjusted basis of the contributing partner in the property, rather than a
basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as a "Book-Tax Difference"). The
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
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ability of the Third-Party Services Corporation to increase the size
of its respective business unless the value of the assets of the Company
is increasing at a commensurate rate.
State and Local Taxes. The Company and its stockholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Common Stock of the Company.
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by the Company of
the Redemption Shares if, and to the extent that, holders of Units tender such
Units for redemption, (ii) the offer and sale from time to time of the Original
Restricted Shares by the holders thereof and (iii) the offer and sale from time
to time of any Redemption Shares that may be issued to persons who may be
affiliates of the Company by such persons. The Company has registered the
Redemption Shares and Original Restricted Shares for sale to provide the
holders thereof with freely tradable securities, but registration of such
shares does not necessarily mean that any of such shares will be offered or
sold by the holders thereof.
The Company will not receive any proceeds from the offering by the
Selling Stockholders or from the issuance of the Redemption Shares to holders
of Units upon receiving a notice of redemption (but it may acquire from such
holders the Units tendered for redemption). 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 Secondary 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
Secondary 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 Secondary Shares for whom they may act as agents, and
underwriters may sell Secondary 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
Secondary Shares may be entitled to indemnification by 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 Secondary 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 Secondary Shares may be sold
include (a) a block trade in which the broker-dealer so engaged will attempt to
sell the Secondary 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
Secondary Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Secondary 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.
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<PAGE> 43
When a Selling Stockholder elects to make a particular offer of Secondary
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 Secondary Shares may be sold only through registered or
licensed brokers or dealers. In addition, in certain states, the Secondary
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 may from time to time issue up to 16,057,740 shares of
Redemption Shares upon the acquisition of the Units tendered for redemption.
The Company will acquire the exchanging partner's Unit in exchange for each
Redemption Share that the Company issues in connection with these acquisitions.
Consequently, with each redemption, the Company's interest in the Operating
Partnership will increase.
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.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
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 shares of Common Stock offered herein.
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
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<PAGE> 44
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 shares of Common Stock
offered herein, 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 shares of Common Stock offered
herein 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 shares of
Common Stock offered herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information appearing
in the documents incorporated by reference.
The Company will provide without charge to each person 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).
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================================================================================
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 COMMON STOCK OFFERED HEREIN, 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 ..................9
Description of Units .........................14
Shares Available for Future Sale .............18
Registration Rights ..........................19
Selling Stockholders .........................20
Redemption of Units ..........................21
Federal Income Tax Considerations ............32
Plan of Distribution .........................40
Experts ......................................41
Legal Matters ................................41
Available Information ........................41
Incorporation of Certain Documents
by Reference.................................42
================================================================================
16,980,415 SHARES
THE MILLS CORPORATION
COMMON STOCK
-------------------
PROSPECTUS
-------------------
May , 1996
================================================================================
<PAGE> 46
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 ................... $102,834
Printing and Duplicating Expenses .. 5,000
Legal Fees and Expenses ............ 50,000
Accounting Fees and Expenses ....... 20,000
Blue Sky Fees and Expenses ......... 5,000
Miscellaneous ...................... 15,166
-------
Total ............................. $198,000
=======
</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
II-1
<PAGE> 47
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.
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> <C>
3.1 * Amended and Restated Certificate of Incorporation of the Company
3.2 * Amended and Restated Bylaws of the Company
4.1 ** Limited Partnership Agreement of the Operating Agreement
4.2 ** Affiliate Registration Rights and Lock-Up Agreement
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.
** Included as an exhibit to the Company's Quarterly Report on
Form 10-Q for the first quarter ended March 31, 1994, File No.
1-12994, and incorporated herein by reference.
*** Previously filed.
II-2
<PAGE> 48
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 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 shares of
Common Stock offered herein, and the offering of such shares of Common
Stock 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 shares of Common Stock 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 shares of Common Stock offered herein, and the offering of such
shares of Common Stock 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
II-3
<PAGE> 49
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-4
<PAGE> 50
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
POWER OF ATTORNEY
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:
Name Title
---- -----
/s/ Laurence C. Siegel Chairman of the Board, Chief
- ---------------------- Executive Officer and Director
Laurence C. Siegel (principal executive officer)
* President, Chief Operating Officer
- --------------------- and Director
Peter B. McMillan
* Senior Vice President and Chief
- --------------------- Financial Officer (principal
Kenneth R. Parent financial officer and principal
accounting officer)
II-5
<PAGE> 51
<TABLE>
<S> <C>
*
- ------------------------- Executive Vice President and Director
Harry H. Nick
*
- -------------------------
Dietrich von Boetticher Vice Chairman and Director
*
- ------------------------- Vice Chairman and Director
John Ingram
*
- ------------------------- Director
Charles R. Black, Jr.
*
- ------------------------- Director
James C. Braithwaite
*
- ------------------------- Director
Joseph B. Gildenhorn
*
- ------------------------- Director
Peter A. Gordon
*
- -------------------------
Herbert S. Miller Director
*
- ------------------------- Director
Franz von Perfall
*
- ------------------------- Director
Robert P. Pincus
</TABLE>
*Laurence C. Siegel, by signing his name hereto, does sign the 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-6
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------- ---------------------- --------------
<S> <C> <C>
3.1 * Amended and Restated Certificate of Incorporation of the Company
3.2 * Amended and Restated Bylaws of the Company
4.1 ** Limited Partnership Agreement of the Operating Agreement
4.2 ** Affiliate Registration Rights and Lock-Up Agreement
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.
** Included as an exhibit to the Company's Quarterly Report on Form 10-Q for
the first quarter ended March 31, 1994, File No. 1-12994, 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 16,980,415 shares
of the Company's common stock, par value $.01 per share ("Common Stock"),
consisting of (i) up to 16,057,740 shares of Common Stock (the "Conversion
Shares") which may be issued if and to the extent that holders of 16,057,740
units of limited partnership ("Units") in The Mills Limited Partnership (the
"Partnership") tender such Units for redemption, and (ii) up to 922,675 already
outstanding shares of Common Stock which may be sold by certain affiliates of
the Company (the "Restricted Shares"). 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. The Limited Partnership Agreement of the Partnership, as
certified by the Secretary of the Company on the date hereof
as then being complete, accurate and in effect.
5. 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
<PAGE> 2
The Mills Corporation
May 28, 1996
Page 2
the issuance and sale of Common Stock and arrangements in
connection therewith.
6. 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 (i) the Conversion Shares, when issued and delivered in accordance
with the Partnership Agreement and appropriate resolutions of the Board of
Directors of the Company upon redemption of Units as contemplated thereby,
will be validly issued, fully paid, and nonassessable under the General
Corporation Law of the State of Delaware, and (ii) the Restricted 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 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
<PAGE> 3
The Mills Corporation
May 28, 1996
Page 3
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. 333-03205) and related Prospectus of The
Mills Corporation for the registration of 16,980,415 shares of its common stock
and to the incorporation by reference therein of our report dated Febraury 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
May 6, 1996:
/s/ Dietrich von Boetticher Vice Chairman and Director
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Dietrich von Boetticher
/s/ Herbert S. Miller Director
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Herbert S. Miller
