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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE MILLS CORPORATION
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(Name of Registrant as Specified in Its Charter)
The Board of Directors of The Mills Corporation
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee Paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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April 21, 1997
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"Meeting") of The Mills Corporation on Friday, May 23, 1997, at 10:00 a.m.,
eastern daylight savings time, at the AMC Theatre, Potomac Mills, 2700 Potomac
Mills Circle, Suite 707, Dale City, Virginia. Potomac Mills is one of our five
Mills super-regional, value and entertainment oriented malls.
In addition to electing directors and ratifying the appointment of
independent auditors for the coming year, the Company is asking for shareholder
approval of three proposals which, although somewhat technical, are very
important to the Company. These proposals, if adopted, should significantly
enhance the Company's ability to secure capital for its strategic development
program in a timely and efficient manner. All items on the agenda are described
in the accompanying Notice and Proxy Statement. A proxy card on which to
indicate your vote and an envelope, postage prepaid, in which to return your
proxy are enclosed. A copy of the Company's Annual Report to Shareholders also
is enclosed.
It is important that your shares be represented at the Meeting, even if you
cannot attend the Meeting and vote your shares in person. Please give careful
consideration to the matters to be voted upon, complete and sign the
accompanying proxy card, and return the card promptly in the envelope provided.
If you later decide to attend the meeting, you may revoke your proxy at that
time and vote your shares in person.
We look forward to receiving your proxy and to seeing you at the Meeting.
Sincerely,
Laurence C. Siegel
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
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THE MILLS CORPORATION
1300 WILSON BOULEVARD
SUITE 400
ARLINGTON, VIRGINIA 22209
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 1997
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of The Mills Corporation (the "Company") to be held on Friday, May 23, 1997, at
10:00 a.m., eastern daylight savings time, at the AMC Theatre, Potomac Mills,
2700 Potomac Mills Circle, Suite 707, Dale City, Virginia, to consider the
following proposals:
1. To consider and vote upon a proposal to amend Section 3.14 of the
Company's Amended and Restated Bylaws to require only the approval of a
two-thirds majority of the disinterested outside directors (i.e.,
directors who are neither affiliated with Kan Am nor employed by the
Company) for all joint venture or similar arrangements between the
Company and Kan Am U.S., Inc. or its affiliates and to eliminate the
requirement that a majority of the Company's shareholders approve all
such transactions.
2. To consider and vote upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to facilitate the Company's
continued qualification as a "domestically controlled REIT" for federal
income tax purposes by imposing limits on the amount of the Company's
capital stock that may be owned by "non-U.S. persons."
3. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to eliminate the requirement to obtain an Internal
Revenue Service ruling or an opinion of counsel to exempt persons from
the ownership limit and instead allow the Board of Directors, in its sole
discretion, to determine the basis on which such exemptions should be
granted.
4. To elect four directors, to serve for the ensuing three-year term.
5. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997.
6. To transact such other business as may properly come before such meeting
or any adjournments thereof.
Only shareholders of record at the close of business on April 1, 1997, will
be entitled to vote at the Meeting or any adjournments thereof.
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS,
Thomas E. Frost
Secretary
April 21, 1997
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THE MILLS CORPORATION
1300 WILSON BOULEVARD
SUITE 400
ARLINGTON, VIRGINIA 22209
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 1997
This Proxy Statement is furnished to shareholders of The Mills Corporation
(the "Company"), a Delaware corporation, in connection with the solicitation of
proxies for use at the Annual Meeting of Shareholders (the "Meeting") of the
Company to be held on Friday, May 23, 1997, at 10:00 a.m., eastern daylight
savings time, at the AMC Theatre, Potomac Mills, 2700 Potomac Mills Circle,
Suite 707, Dale City, Virginia, and at any adjournment thereof for the purposes
set forth in the Notice of Meeting. This solicitation of proxies is made on
behalf of the board of directors of the Company (the "Board of Directors").
Holders of record of common stock of the Company (the "Common Stock") as of
the close of business on the record date, April 1, 1997, are entitled to receive
notice of, and to vote at, the Meeting. The Common Stock constitutes the only
class of securities entitled to vote at the Meeting, and each share of Common
Stock entitles the holder thereof to one vote. At the close of business on April
1, 1997, there were 22,311,486 shares of Common Stock issued and outstanding.
Shares represented by proxies in the form enclosed, if such proxies are
properly executed and returned and not revoked, will be voted as specified.
Where no specification is made on a properly executed and returned form of
proxy, the shares will be voted for Proposal 1, authorizing an amendment to
Section 3.14 of the Company's Amended and Restated Bylaws (the "Bylaws") to
require only the approval of a two-thirds majority of the disinterested outside
directors (i.e., directors who are neither affiliated with Kan Am nor employed
by the Company) for all joint venture or similar arrangements between the
Company and Kan Am U.S., Inc. ("Kan Am") or its affiliates and to eliminate the
requirement that a majority of the Company's shareholders approve all such
transactions, for Proposal 2 authorizing an amendment to the Company's Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation")
to facilitate the Company's qualification as a "domestically controlled REIT"
for federal income tax purposes by imposing limits on the amount of the
Company's capital stock that may be owned by "non-U.S. persons," for Proposal 3
authorizing an amendment to the Company's Certificate of Incorporation to give
the Board of Directors discretion in determining the basis on which an exemption
from the ownership limit should be granted, for the election of all nominees for
director and for the proposal to ratify the appointment of Ernst & Young LLP, as
independent auditors.
For purposes of Article X of the Company's Bylaws, Proposal 1 requires the
approval of at least sixty six and two-thirds percent (66 2/3%) of the voting
power of all of the shares of the capital stock of the Company entitled to vote
in the election of directors, voting together as a single class. Approval of
Proposals 2 and 3 requires the affirmative vote of a majority of the outstanding
shares of Common Stock. Accordingly, abstentions will have the same effect as
votes against Proposals 1, 2 and 3.
Brokers or nominees who do not have discretionary power to vote shares held
in their name and who have not received instructions from the beneficial owner
or other person entitled to vote the shares (commonly called "broker non-votes")
will be counted in determining whether a quorum is present at the
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Meeting, but will not be entitled to vote or give a proxy to vote such shares on
Proposal 1, Proposal 2 or Proposal 3 under the rules of the New York Stock
Exchange ("NYSE"). Accordingly, broker non-votes relating to Proposal 1,
Proposal 2 or Proposal 3 will have the same effect as votes against such
proposal.
A vote against Proposals 1, 2 or 3 will not give rise to a right of
appraisal or similar right under Delaware law.
Directors will be elected by a plurality of the votes cast.
Approval of Proposal 5 requires the approval of a majority of votes cast at
the meeting. Abstentions are not considered as votes cast. The Company knows of
no business other than that set forth above to be transacted at the meeting. If
other matters requiring a vote do arise, it is the intention of the persons
named in the proxy to vote in accordance with their judgment on such matters.
To be voted, proxies must be filed with the Secretary of the Company prior
to the time of voting. Proxies may be revoked at any time before exercise
thereof by filing a notice of such revocation or a later dated proxy with the
Secretary of the Company or by voting in person at the Meeting.
The Company's 1996 Annual Report to Shareholders for the fiscal year ended
December 31, 1996 is enclosed with this Proxy Statement. This Proxy Statement,
the proxy card and the 1996 Annual Report to Shareholders were mailed to
shareholders on or about April 21, 1997. The executive offices of the Company
are currently located at 1300 Wilson Boulevard, Suite 400, Arlington, Virginia
22209.
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AUTHORIZATION OF APPROVAL OF AMENDMENT TO SECTION 3.14 OF THE
COMPANY'S BYLAWS
(PROPOSAL 1)
The Company is soliciting approval of an amendment to Section 3.14 of the
Company's Bylaws which would require only the approval of a two-thirds majority
of the disinterested outside directors (i.e., directors who are neither
affiliated with Kan Am nor employed by the Company) for all joint venture or
similar arrangements between the Company and Kan Am U.S., Inc. ("Kan Am") or its
affiliates and would eliminate the requirement that a majority of the Company's
shareholders approve such transactions.
REASONS FOR SEEKING SHAREHOLDER APPROVAL
Shareholder approval of the proposed amendment to Section 3.14 of the Bylaws
is allowed by Delaware law (under which the Company was incorporated), the
Company's Certificate of Incorporation and Article VIII of the Bylaws.
DESCRIPTION OF AMENDMENT
If Proposal 1 is adopted, Section 3.14 of the Bylaws will be amended to read
as follows (new language is underlined and language to be deleted is stricken
through):
- - --------------------------------------------------------------------------------
FOR EDGAR FILING, LANGUAGE THAT WILL BE ADDED IS PRECEDED BY A "<*>" AND
FOLLOWED BY A "</*>". LANGUAGE THAT WILL BE ELIMINATED IS PRECEDED BY A "<#>"
AND FOLLOWED BY A "</#>".
- - --------------------------------------------------------------------------------
All matters in which a director of the Corporation is an interested
party shall require the approval of a majority of the disinterested
directors; provided that no joint venture or similar arrangement
between the Corporation or an entity controlled, directly or
indirectly, by the Corporation and Kan Am U.S., Inc. ("Kan Am"), or
an entity under common control with Kan Am, <#>shall</#> <*>may</*>
be entered into without the prior approval of <*>a two-thirds
majority of the disinterested directors who are not employees of the
Corporation,</*> <#>stockholders</#> so long as any person who is an
officer, director, shareholder, employee or partner in Kan Am or an
entity under common control with Kan Am is a director of the
Corporation.
RECOMMENDATION OF THE BOARD
The Board is requesting approval of the amendment to Section 3.14 of the
Bylaws to enable the Company to respond more quickly and efficiently to
opportunities with Kan Am while at the same time preserving the concept of
having independent review and approval of such transactions. The Board of
Directors, including a majority of the disinterested outside directors, has
approved the proposal and has determined, based on the factors set forth in the
following section, that the proposal is in the best interests of the Company and
its shareholders. THE DISINTERESTED OUTSIDE MEMBERS OF THE BOARD OF DIRECTORS
RECOMMEND A VOTE "FOR" APPROVAL OF THIS PROPOSAL. The disinterested outside
directors who approved the proposal and voted to recommend it are Charles R.
Black, Jr., Joseph B. Gildenhorn, John M. Ingram, Herbert S. Miller, Harry H.
Nick and Robert P. Pincus. The three directors affiliated with Kan Am and the
two directors who are members of management did not vote on the recommendation.
PURPOSE AND EFFECT OF AMENDMENT
Section 3.14 was added to the Bylaws prior to the Company's initial public
offering of Common Stock, in recognition of the fact that, after the formation
transactions occurring in conjunction with the initial public offering, Kan Am
would beneficially own a substantial amount of the equity of the Operating
Partnership and would have three representatives on the Company's nine-member
Board of Directors (the Board of Directors now has twelve members and will have
eleven members following the Meeting). The provision represented a determination
by the directors of the Company prior to the initial public offering
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that it generally would be desirable to seek shareholder approval before
engaging in additional transactions with Kan Am. Consistent with Section 3.14 of
the Bylaws, on February 16, 1995, the Company obtained shareholder approval of a
proposal to authorize the Operating Partnership to enter into joint ventures
with affiliates of Kan Am on certain terms approved by the disinterested
directors. The requirement to seek shareholder approval for every other
transaction with Kan Am has proved to be burdensome, costly and time consuming.
The Company has foregone some potential transactions with Kan Am because the
requirement to obtain shareholder approval could not be accomplished either
quickly or in a cost-effective manner.
The Company believes that by requiring a two-thirds majority of the
disinterested outside directors to approve such transactions allows the Company
and Kan Am to enter into transactions which would be in the best interests of
the Company and its shareholders in a time efficient and flexible manner, while
at the same time preserving the independent judgment of outsiders (in this case
non-management, non-Kan Am directors) to determine what is in the best interests
of the Company and its shareholders.
Approval of Proposal 1 would expand the range of the Company's sources of
capital and, given Kan Am's familiarity with the Company, permit the Company to
obtain additional capital in a relatively short period of time without the
expense and time required to call a shareholders meeting. The requirement that a
two-thirds majority of the disinterested outside members of the Board of
Directors approve all such transactions provides the protection against
conflicts of interest that is called for by the Company's Bylaws without the
time and expense of obtaining shareholders' approval. By requiring the approval
of directors who not only are disinterested but also are not officers of the
Company, the Company has put in place a system which provides for the truly
independent directors to act in the Company's and its shareholders best
interests.
Any future transaction or series of related transactions with Kan Am (other
than a public offering for cash) in which the Company were to issue securities
representing, or that could be converted into or exchanged for a number of
shares of Common Stock representing, 20% or more of the shares outstanding
immediately prior to such issuance, would require shareholder approval under the
rules of the NYSE.
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of the holders of at least sixty six and two-thirds
percent (66 2/3%) of the voting power of all of the shares of capital stock of
the Company then entitled to vote generally in the election of directors, voting
together as a single class is required to approval Proposal 1. THE DISINTERESTED
OUTSIDE DIRECTORS RECOMMEND A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS IN THE
CERTIFICATE OF INCORPORATION
(PROPOSAL 2)
The Company is soliciting approval of a proposal to amend Article XII of the
Certificate of Incorporation to add limitations on ownership of the Company's
capital stock to facilitate the Company's continued qualification as a
"domestically controlled REIT" for federal income tax purposes. This amendment
would prevent any "non-U.S. person" (generally, any individual who is not a
citizen or resident of the United States or any entity that is not organized
under the laws of the United States or one of its political subdivisions) from
acquiring additional shares of the Company's capital stock if, as a result of
such acquisition, the Company would fail to qualify as a "domestically
controlled REIT."
REASONS FOR SEEKING SHAREHOLDER APPROVAL
Shareholder approval of the amendment to the Certificate of Incorporation is
required by Delaware law and the Certificate of Incorporation. Such approval
requires the affirmative vote of the holders of a
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majority of the voting power of all of the shares of capital stock of the
Company then entitled to vote generally in the election of directors, voting
together as a single class, to approve the amendment to the Certificate of
Incorporation.
DESCRIPTION OF THE AMENDMENT
If Proposal 2 is adopted, the following definition will be added to Article
XII, "Section 12.1 DEFINED TERMS," of the Certificate of Incorporation, and will
read as follows:
"(h)_"NON-U.S. PERSON" shall mean any Person (i) who is not (A) a citizen
or resident of the United States, or (B) an entity created or organized
in the United States or under the laws of the United States or any state
therein (including the District of Columbia) that is treated as either a
"partnership" or "corporation" for United States federal income tax
purposes, or (ii) that is a foreign estate or foreign trust within the
meaning of Section 7701(a)(31) of the Code."
If Proposal 2 is adopted, Article XII, Section 12.2 of the Certificate of
Incorporation will be amended to read as follows (new language is underlined and
language to be deleted is stricken through):
"Section 12.2 Restrictions.
(a) Except as provided in Section 12.11, during the period commencing on
the date of the IPO and prior to the Restriction Termination Date: (i) no
Person (other than an Existing Holder) shall Acquire any shares of
capital stock of the Corporation if, as the result of such Acquisition,
such Person shall Beneficially Own shares of capital stock in excess of
the Ownership Limit; (ii) no Existing Holder shall Acquire shares of
capital stock of the Corporation if, as a result of such Acquisition, the
Existing Holders, taken together, would Beneficially Own shares of
capital stock of the Corporation in excess of the Existing Holder Limit
or if the only Existing Holder would own shares of capital stock of the
Corporation in excess of the Existing Holder Limit; (iii) no Person shall
Acquire any shares of capital stock of the Corporation if, as a result of
such Acquisition, the capital stock of the Corporation would be directly
or indirectly owned by less than 100 (Persons (determined without
reference to any rules of attribution); (iv) no Person shall Acquire any
shares of capital stock of the Corporation if as a result of such
Acquisition, the Corporation would be "closely held" within the meaning
of Code Section 856(h); <#>and (v) no Person shall Acquire any shares of
capital stock of the Corporation if, as a result of such acquisition, the
fair market value of the shares of capital stock of the Corporation owned
directly and indirectly by Non- U.S. Persons would comprise 50% or more
of the fair market value of the issued and outstanding shares of capital
stock of the Corporation. For purposes of Section 12.2(a)(v) above, the
Board of Directors, in its sole and absolute discretion, may treat shares
owned by a partnership, trust or estate as being owned proportionately by
its partners or beneficiaries, to the extent the Board of Directors
determines such treatment to be necessary or advisable to help maintain
the Corporation's qualification as a "domestically controlled REIT" under
the U.S. Internal Revenue Code.</#>
(b) Any Transfer that would result in a violation of any of the
restrictions in Section 12.2(a) shall be void ab initio as to the
Transfer of such shares of capital stock that would cause the violation
of the applicable restriction in Section 12.2(a), and the intended
transferee shall acquire no rights in such shares of capital stock."
RECOMMENDATION OF THE BOARD
The Board of Directors is requesting approval of the foregoing proposal to
retain and attract capital investments by Non-U.S. Persons. The Board of
Directors has adopted resolutions setting forth the
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proposed amendment and declaring its advisability. The Board of Directors has
determined that the proposal is in the best interest of the Company and its
shareholders. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
PURPOSE AND EFFECT OF THE AMENDMENT
The Board of Directors believes that approval of the proposal is important
for the Company to continue to attract investment from Non-U.S. Persons.
Generally, a sale of securities of the Company by a Non-U.S. Person will not be
subject to U.S. taxation under the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA") unless such securities constitute a United States Real
Property Interest ("USRPI"). (A Non-U.S. Person is any person other than (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state thereof, or (iii) an estate or trust whose income is includable
in gross income for U.S. federal income tax purposes regardless of its source.)
Securities of the Company will not constitute a USRPI if the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a real
estate investment trust ("REIT") in which, at all times during a specified
testing period, less than 50% in value of its securities is held directly or
indirectly by Non-U.S. Persons. In the event that the stockholders of the
Company who are Non-U.S. Persons own collectively 50% or more, in value, of the
outstanding capital stock of the Company, the Company would cease to be a
"domestically controlled REIT."
If the Company does not qualify as a "domestically controlled REIT," a
Non-U.S. Person's sale of securities of the Company generally will be subject to
a U.S. tax under FIRPTA as a sale of a USRPI unless (i) the securities sold are
"regularly traded" (as defined by applicable Treasury regulations) on an
established securities market and (ii) the selling Non-U.S. Person held five
percent or less of the Company's outstanding equity securities at all times
during a specified testing period. If there were a significant risk that the
Company did not qualify as a "domestically controlled REIT," Non-U.S. Persons
might be deterred from purchasing significant blocks of the Company's Common
Stock (where the block could exceed five percent of the Company's outstanding
equity securities) and could significantly limit the Company's ability to sell
to Non-U.S. Persons classes of preferred stock that might not qualify as
"regularly traded" on an established securities market. Thus, the Company does
not believe these considerations will directly affect any of its existing
shareholders who are Non-U.S. Persons.
If gain on the sale of the Company's securities were subject to taxation
under FIRPTA, the Non-U.S. Person would be subject to the same treatment as a
U.S. shareholder 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 securities could be required to
withhold 10% of the purchase price and remit such amount to the Internal Revenue
Service.
If a Non-U.S. Person were to acquire shares of capital stock of the Company
in violation of this prohibition (a "Transferee"), the capital stock being
transferred (or, in the case of an event other than a transfer, the capital
stock beneficially owned) that would cause this restriction on ownership to be
violated shall be automatically exchanged for Excess Stock that will be
transferred, by operation of law, to the Company as a trustee of a trust for the
exclusive benefit of the transferee or transferees to whom the shares are
ultimately transferred (without violating a restriction on ownership). While
held in trust, the Excess Stock will not be entitled to vote, will not be
considered for purposes of any shareholder 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 Transferee may, at any
time the Excess Stock is held by the Company in trust, designate a beneficiary
of such Transferee's interest in the trust (representing the number of shares of
Excess Stock attributable to the capital stock originally by the transferor-
shareholder), provided that (i) the price paid by such designated beneficiaries
does not exceed the price paid by the Transferee and (ii) the designated
beneficiary's ownership of the capital stock represented by such Excess Stock
would be permitted under Section 12.2 of the Certificate of Incorporation.
Immediately following such designation, the Excess Stock would automatically be
exchanged for capital stock out of the
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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 Transferee at a price equal to the lesser of the price paid for the stock by
the Transferee or the average closing market price on the New York Stock
Exchange 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 prices 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 gives notice of the transfer to
the Company, or the date the Board of Directors determines that violative
transfer has occurred if no notice is provided. Article XII in its current form
does not contain any restrictions on acquisitions of the Company's capital stock
by Non-U.S. Persons.
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of a majority of the outstanding shares of Common Stock
of the Company entitled to vote thereon is required to approve Proposal 2. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
PROPOSAL TO AMEND THE PROVISION FOR EXCEPTIONS TO THE OWNERSHIP
LIMITATIONS IN THE CERTIFICATE OF INCORPORATION
(PROPOSAL 3)
The Company is soliciting approval of a proposal to amend Article XII of the
Certificate of Incorporation to eliminate the requirement of obtaining an
Internal Revenue Service ruling or an opinion of counsel to exempt persons from
the ownership limit and instead allow the Board of Directors, in its sole
discretion, to determine the basis on which such exemption should be granted.
This amendment would allow the Board of Directors greater flexibility in
determining whether and when to exempt persons from the ownership limits while
at the same time preserving the Company's status as a REIT.
REASONS FOR SEEKING SHAREHOLDER APPROVAL
Shareholder approval of the amendment to the Certificate of Incorporation is
required by Delaware law and the Certificate of Incorporation. Such approval
requires the affirmative vote of the holders of a majority of the voting power
of all of the shares of capital stock of the Company then entitled to vote
generally in the election of directors, voting together as a single class, to
approve this amendment to the Certificate of Incorporation.
DESCRIPTION OF THE AMENDMENT
If Proposal 3 is adopted, Article XII, Section 12.11 of the Certificate of
Incorporation will be amended to read as follows:
Section 12.11 Exceptions. The Board of Directors, in its sole and
absolute discretion, may exempt a Person (the "Exempted Holder")
from the Ownership Limit if such Person is not an individual for
purposes of Section 524(a)(2) of the Code (determined taking into
account Section 856 (h)(3)(A) of the Code) and such Person
provides to the Board of Directors such representations and
undertakings, if any, as the Board, in its sole and absolute
discretion, may require, and such Person agrees that any violation
of such representations and undertakings or any attempted
violation thereof will result in the application of the remedies
set forth in Section 12.3 of this Article XII with respect to
capital stock held in excess of the Ownership Limit with respect
to such Person (determined without regard to the exemption granted
to such Person under this Section 12.11).
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Article XII, Section 12.11 of the Certificate of Incorporation currently
reads as follows:
The Board of Directors may (but shall not be required), upon
receipt of either a ruling from the Internal Revenue Service
or an opinion of counsel satisfactory to the Board of
Directors, exempt a Person (the "Exempted Holder") from the
Ownership Limit if the ruling or opinion concludes that no
Person who is an individual as defined in Code Section
542(a)(2) will, as the result of ownership of shares by the
Exempted Holder, to considered to have Beneficial Ownership of
an amount of capital stock of the Corporation that will
violate the Ownership Limit and such Exempted Holder agrees
that any violation or attempted violation will result in such
capital stock being treated in accordance with the provisions
of Section 12.3 of this Article XII.
RECOMMENDATION OF THE BOARD
The Board of Directors is requesting approval of the foregoing proposal to
allow the Company flexibility and responsiveness to meet shareholders' needs
while at the same time preserving its status as a REIT. The Board of Directors
has adopted resolutions setting forth the proposed amendment and declaring its
advisability. The Board of Directors has determined that the proposal is in the
best interests of the Company and its shareholders. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
PURPOSE AND EFFECT OF THE AMENDMENT
The Board of Directors believes that approval of the proposal is important
for the Company in order to allow the Company to respond quickly in situations
where shareholders, such as mutual funds which are not beneficial owners of the
Company's stock but are merely holding the shares for the benefit of others,
would like to make a significant investment in the Company with the potential to
exceed the 5% ownership threshold but will not cause the Company to fail to
qualify as a REIT or violate the ownership limit of an individual having
beneficial ownership of more than 5% in value of the Company's outstanding
capital stock. Instead of requiring the Board of Directors to obtain either a
ruling from the Internal Revenue Service or an opinion of counsel in order to
exempt such shareholder from the Ownership Limit, this amendment allows the
Board of Directors to accept such representations and undertakings, if any, it
determines is best under the circumstances in order to allow any such
shareholder to exceed the Ownership Limit. In many cases, requiring the Board of
Directors or a shareholder to obtain either a ruling from the Internal Revenue
Service or an opinion of counsel is unduly time consuming, costly and
burdensome. In addition, such determinations are so fact specific and thus
require such significant qualifications that such rulings or opinions do not
provide the protection originally anticipated.
In order to give the Company the maximum amount of flexibility and
responsiveness to its shareholders' and potential shareholders' needs, the Board
of Directors should be able to rely on such representations and/or undertakings
it deems relevant at the time in order to exempt certain shareholders from the
Ownership Limit while at the same time preserving the Company's status as a
REIT.
REQUIRED VOTE AND RELATED MATTERS
The affirmative vote of a majority of the outstanding shares of Common Stock
of the Company entitled to vote thereon is required to approve Proposal 3. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL.
8
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 4)
BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes, with
one class of the directors elected by the shareholders annually. In 1995, the
Company voted to expand the size of the Board of Directors from nine to 13
directors, and the Board of Directors has filled three of these additional
positions, leaving one position vacant. The term of each class of directors is
for a three-year period. The class of directors whose term expires in 1997 is
comprised of five directors. The class of directors whose term expires in 1998
is comprised of four directors, and the class whose term expires in 1999 is
comprised of three directors. The class of directors whose terms will expire at
the Meeting includes Charles R. Black, Jr., Dietrich von Boetticher, John M.
Ingram, Peter B. McMillan and Herbert S. Miller. Messrs. Black, von Boetticher,
Ingram and McMillan each have been nominated for election at the Meeting to hold
office until the 2000 Annual Meeting of Shareholders and until his successor is
elected and qualified. Mr. Miller has not been nominated for re-election due to
the Company's desire to reduce the size of the Board of Directors to eleven.
Nominees for director will be elected upon a favorable vote of a plurality of
the shares of Common Stock present and entitled to vote, in person or by proxy,
at the Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR CHARLES R.
BLACK, JR., DIETRICH VON BOETTICHER, JOHN M. INGRAM AND PETER B. MCMILLAN AS
DIRECTORS. Should any or all of these nominees become unable to serve for any
reason, the Nominating Committee of the Board of Directors may designate
substitute nominees, in which event the persons named in the enclosed proxy will
vote for the election of such substitute nominee or nominees.
NOMINEES FOR ELECTION FOR TERM ENDING 2000
CHARLES R. BLACK, JR., 49, has been a director of the Company since November
1995. Mr. Black is also Chief Executive Officer of Black, Manafort, Stone and
Kelly, Inc., a public affairs company. Mr. Black also serves on the board of
directors of Burson Marstellar/Americas, American Conservative Union and the
Fund for American Studies, and serves on the executive finance committee of the
Dole Foundation. Mr. Black is a member of the Nominating Committee of the Board
of Directors.
DIETRICH VON BOETTICHER, 55, has been a director and Vice Chairman of the
Company since April 1994. Mr. von Boetticher is a Director of Kan Am and is a
partner in V. Boetticher, Hasse, Kaltwasser, a law firm, both located in Munich,
Germany. Mr. von Boetticher is a member of the Nominating Committee of the Board
of Directors.
JOHN M. INGRAM, 61, has been a director of the Company since April 1994 and
has served as Vice Chairman of the Company since August 1995. Mr. Ingram is also
an independent real estate consultant. Mr. Ingram formerly served as Senior Vice
President of T.J. Maxx Company, Inc., a retailer, from 1993 to 1994. From 1974
until 1993 he was Senior Vice President and Secretary of Marshalls Inc., a
retailer. Mr. Ingram is a member of the Executive Committee and the Executive
Compensation Committee of the Board of Directors.
PETER B. MCMILLAN, 49, has been a director of the Company since August 1995
and President and Chief Operating Officer of the Company since February 1995.
From 1993 until joining the Company in February 1995, Mr. McMillan was Executive
Vice President of Finance and Administration at CenterMark Properties
("CenterMark") where he had previously served as Senior Vice President and Chief
Financial Officer from 1989 to 1993. Prior to joining CenterMark, Mr. McMillan
was a Partner at Nicholson, Inc., where he was responsible for acquisitions,
development and financing of commercial real estate. Prior to joining Nicholson,
Inc., Mr. McMillan spent twelve years as Senior Vice President of Finance and
Chief Financial Officer of Goodman Segar Hogan, a real estate syndicate located
in Norfolk, Virginia.
9
<PAGE>
INCUMBENT DIRECTORS--TERM EXPIRING 1998
JAMES C. BRAITHWAITE, 57, has been a director of the Company since April
1994. He also served as Executive Vice President of Operations of the Company
from August 1994 to November 1994. Mr. Braithwaite also has been Chief Executive
Officer and President of Kan Am U.S., Inc., an international investment company
since 1980. Prior to 1980, Mr. Braithwaite served as Executive Vice President of
Glasmacher and Company. Mr. Braithwaite is a member of the Executive Committee
of the Board of Directors.
THE HON. JOSEPH B. GILDENHORN, 67, became a director of the Company in
November 1995. Mr. Gildenhorn is a partner at JBG Companies, a real estate
development and management company, and at Brown, Gildenhorn & Jacobs, a law
firm. Mr. Gildenhorn also served as director of First Virginia Communications,
Inc., which owns and operates a radio station from 1984 to 1989. Mr. Gildenhorn
also serves on the board of directors of Biscayne Apparel, Inc., Franklin
Bancorporation and is Chairman of the Board of Franklin National Bank. Mr.
Gildenhorn served as United States Ambassador to Switzerland from August 1989 to
March 1993. Mr. Gildenhorn is a member of the Audit Committee of the Board of
Directors.
HARRY H. NICK, 55, has been a director of the Company since April 1994 and
was Executive Vice President for Strategic Planning and Acquisitions of the
Company from May 1995 until August 1996. Mr. Nick was Chief Financial Officer
and Treasurer of the Company from January 1993 until May 1995. Mr. Nick was
associated in various capacities with Western Development Corporation since
1982, serving as its Chief Financial Officer from April 1982 to August 1984 and
as its Executive Vice President from September 1987 to April 1991. Mr. Nick was
employed with the accounting firm of Grant Thornton from 1966 to 1982, serving
eight years as an audit partner. Mr. Nick is a member of the American Institute
of Certified Public Accountants.
ROBERT P. PINCUS, 50, has been a director of the Company since April 1994.
He has also served as Chief Executive Officer and President of Franklin National
Bank of Washington, D.C. since May 1991. From 1982 to 1991, Mr. Pincus was Chief
Executive Officer and President of D.C. National Bank and Sovran Bank/DC
National. Mr. Pincus is a member of the Audit Committee and the Executive
Compensation Committee of the Board of Directors.
INCUMBENT DIRECTORS--TERM EXPIRING 1999
PETER A. GORDON, 55, has been a director of the Company since April 1994.
From 1992 to 1996, Mr. Gordon was the general partner of Ethos Capital
Management, Inc., an international investment company. Prior to 1992, Mr. Gordon
served as Managing Director of International Corporate Finance at Salomon
Brothers, an investment bank. Mr. Gordon currently serves as a board member of
the Brazilian Fund, the Latin American Equity Fund, the Latin American
Investment Fund, the Portugal Fund, the Emerging Markets Telecommunications
Fund, the First Israel Fund and the Emerging Markets Infrastructure Fund. Mr.
Gordon is a member of the Audit Committee of the Board of Directors.
FRANZ VON PERFALL, 55, has been a director of the Company since April 1994.
Mr. von Perfall has been Managing Director of Kan Am since 1980. From 1977 until
1980, Mr. von Perfall served as director of the New Issue Division of Berliner
Handels-und Frankfurter Bank, located in Frankfurt, Germany.
LAURENCE C. SIEGEL, 44, has been a director of the Company since January
1993. Mr. Siegel has been Chief Executive Officer of the Company since March
1995 and Chairman of the Board of the Company since August 1995. From the
inception of the Company until 1995, Mr. Siegel served as Executive Vice
President, Secretary and Vice Chairman of the Board of the Company. From 1983 to
1993, Mr. Siegel was Executive Vice President of Western Development
Corporation, a real estate development company and a predecessor to the business
of the Company and was responsible for Western's negotiations and ongoing
relations with national and international manufacturers for anchor store
locations in the Mills and
10
<PAGE>
Community Centers. Prior to joining Western, Mr. Siegel was the Vice President
of Leasing for the Mid-Atlantic states at Merrill Lynch Commercial Services. Mr.
Siegel is a member of the Nominating Committee and the Executive Committee of
the Board of Directors.
1996 BOARD MEETINGS
The Board of Directors held a total of 6 meetings during 1996. Each director
of the Company except Messrs. Gordon, Gildenhorn and Miller attended at least
75% of the meetings held during 1996 by the Board of Directors and the
committees of which he was a member.
COMMITTEES OF THE BOARD OF DIRECTORS
In accordance with the Bylaws of the Company, the Board of Directors has
established an Executive Committee, an Audit Committee, a Nominating Committee
and an Executive Compensation Committee. The membership of these Committees is
set forth in the preceding section of this Proxy Statement.
EXECUTIVE COMMITTEE. The Executive Committee, which consists of three
directors, has the authority to exercise those powers authorized by the Board of
Directors, except for actions that must be taken by the full Board of Directors
under the Delaware General Corporation Law. The Executive Committee met 8 times
in 1996.
AUDIT COMMITTEE. The Audit Committee, which consists of three independent
directors, considers and advises the Board of Directors on the scope of the
annual audit by the independent auditors of the Company and approves other
professional services provided by the Company's independent auditors. In
addition, the Audit Committee monitors audit fees and expenses, including fees
incurred for non-audit services provided by the auditors. The Audit Committee
also reviews the adequacy of the Company's internal accounting controls. The
Audit Committee met 2 times during 1996.
NOMINATING COMMITTEE. The Nominating Committee, which consists of three
directors, selects the nominees to serve on the Board of Directors. Pursuant to
the Company's Bylaws, vacancies on the Board of Directors are to be filled by
the remaining directors then in office based on the recommendations made by the
Nominating Committee. The Nominating Committee met 1 time during 1996. The
Nominating Committee will consider qualified nominees recommended by the
shareholders. Shareholders who wish to suggest qualified nominees should write
to the Secretary of the Company, 1300 Wilson Boulevard, Suite 400, Arlington,
Virginia 22209.
EXECUTIVE COMPENSATION COMMITTEE. The Executive Compensation Committee,
which currently consists of two outside directors, determines the compensation
for the Company's executive officers and administers the Company's equity
incentive plan. The Executive Compensation Committee met 6 times during 1996.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company are paid an
annual fee of $18,000 for their service in that capacity and $1,000 for each
committee meeting attended. Upon being elected to the Board of Directors, each
director who is not an employee of the Company receives an option to purchase
1,000 shares of Common Stock at an exercise price equal to the fair market value
of the underlying Common Stock on the date of the director's election and which
vests in equal installments on the third and fourth anniversaries of the date of
grant, provided that the optionee is still a director on such date. Thereafter,
upon each director's re-election to the Board of Directors, he or she will
receive a similar option to purchase 1,000 shares of Common Stock. Non-employee
directors also are compensated for extraordinary services rendered to the
Company and authorized by the Board of Directors at a rate of $1,000 per day (if
such services require them to travel outside the city of their residence) and
$500 per day (if such services do not require them to travel), in addition to
reimbursements payable under the
11
<PAGE>
Company's travel and expense reimbursement policies. The Board of Directors has
authorized payments to Messrs. Ingram and Pincus of $80,500 and $25,500,
respectively, for extraordinary services rendered as directors in 1996.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 5)
The Board of Directors of the Company, upon the recommendation of the Audit
Committee, has appointed the accounting firm of Ernst & Young LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
1997. Ernst & Young LLP has served as independent auditors of some of the
Company's predecessors, beginning in 1983. The Company has been advised by Ernst
& Young LLP that representatives of Ernst & Young LLP will be present at the
Meeting, will have the opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
The ratification of the appointment of Ernst & Young LLP requires the
approval of a majority of the votes cast at the Meeting. THE BOARD OF DIRECTORS
OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a biographical summary of the executive officers of the
Company (other than those who serve as directors):
JAMES F. DAUSCH has been Executive Vice President of Development of the
Company since December 1994. In this capacity, Mr. Dausch directs all of the
Company's current and future development activities. Prior to joining the
Company, Mr. Dausch was Executive Vice President of Development and New Business
for CenterMark Properties. From 1977 to 1989, Mr. Dausch was employed by the
Rouse Company, where he directed the development of urban retail projects in
Baltimore, New York, Philadelphia and Miami. During the 1970's, Mr. Dausch
served in the Department of Justice and the Department of Housing and Urban
Development. He is a graduate of The Johns Hopkins University and the Columbia
University School of Law.
HOWARD J. SAMUELS has been Executive Vice President--Leasing of the Company
since January 1996. From September 1993 until joining the Company, Mr. Samuels
was President, Chief Operating Officer and a director of K&F Development
Company, an affiliate of the Price REIT and a full service real estate
development company. From January 1990 until August 1993, Mr. Samuels was
Executive Vice President of K&F Development Company. Mr. Samuels received his
undergraduate degree from U.C.L.A. and received his Masters in Public
Administration from the University of Southern California.
KENT S. DIGBY has been Executive Vice President of Management and Marketing
of MillsServices Corporation (the "Third-Party Services Corporation") since May
1995 and has directed the management and marketing functions on behalf of the
Company or its predecessors since 1988. In this capacity, Mr. Digby oversees all
management and marketing issues for the entire portfolio of properties for the
Company. Prior to 1988, Mr. Digby served as the Vice President of Management for
The Rouse Company.
JUDITH S. BERSON has been Executive Vice President-Leasing of the Company or
its affiliates since November 1996. From June 1995 to November 1996, Ms. Berson
was a Senior Vice President-Specialty Leasing and from 1989 to May 1995, was
Vice President and Executive Director of Leasing/East Coast Development for the
Company and its predecessors. Prior to joining the Company, Ms. Berson was head
of Retail Leasing and Retail Development for Adaron, a diversified development
company, in North Carolina. Ms. Berson graduated from the University of Michigan
with a bachelor's degree in political science and graduated from the University
of Santa Clara with a masters degree in Counseling Psychology.
12
<PAGE>
THOMAS E. FROST has been Secretary and Senior Vice President of the Company
since March 1995 and General Counsel since May 1995. From March 1995 until May
1995, Mr. Frost was Corporate Counsel of the Company. Mr. Frost was previously
Senior Vice President and General Counsel for CenterMark Properties, which he
joined in 1989. Before joining CenterMark, he served as Senior Counsel to The
May Department Stores Company from 1984 through 1989, served as staff attorney
for The Edward J. DeBartolo Corporation from 1981 through 1984 and was
associated with the firm Olds, Olds & Lynett from 1979 through 1981. Mr. Frost
is a graduate of Miami University and the University of Akron School of Law.
THOMAS M. HINDERT has been Senior Vice President of Planning Predevelopment
and Acquisitions of the Company or its affiliates since April 1994 and has
served in a similar capacity on behalf of the Company or its predecessors since
1986. Mr. Hindert has also served as Development Coordinator for the New Orleans
Center and the San Antonio River Center projects with The Edward J. DeBartolo
Corporation and as Senior Planner for the City of Pittsburgh. Mr. Hindert
received his masters degree in Architecture and Urban Planning from the
University of Michigan.
STEVEN J. JACOBSEN has been Senior Vice President of Development of the
Company or its affiliates since April 1994 and has served in a similar capacity
on behalf of the Company or its predecessors since 1984. Prior to 1984, Mr.
Jacobsen worked as a Senior Construction Manager and Regional Manager for
various development companies in the Midwest. Mr. Jacobsen is a licensed
architect and received his undergraduate degree from the University of Illinois,
Champaign/Urbana, and is currently a candidate for a Masters of Business
Administration from Roosevelt University.
KENNETH R. PARENT joined the Company in September 1994 as Senior Vice
President and became Chief Financial Officer in May 1995. Prior to joining the
Company, Mr. Parent's experience included eleven years in public accounting at
Kenneth Leventhal & Co. and Price Waterhouse where he specialized in real estate
accounting, tax and consulting. Mr. Parent is a member of the American Institute
of Certified Public Accountants and a graduate of the University of Southern
California.
JAMES P. WHITCOME has been Senior Vice President-Capital Services since
December 1994. In this capacity, he is responsible for all design and
construction activities related to the physical plant and tenanting of the
Company's portfolio. From December 1989 until joining the Company, Mr. Whitcome
served as Senior Vice President of Capital Improvements for CenterMark
Properties. From 1981 to 1989, Mr. Whitcome was employed by the Rouse Company as
Vice President of Engineering and Director of Construction. During the 1970's,
Mr. Whitcome was employed by General Growth as Director of Construction. Mr.
Whitcome is a graduate of Iowa State University.
BARRY H. YOUNG has been Senior Vice President-Speciality Leasing of the
Company or its affiliates since June 1995. From 1990 to 1995, Mr. Young served
as Vice President of Leasing for the Company and Western. From 1988 until 1990,
Mr. Young was a Senior Leasing Executive at Western. Prior to joining Western,
Mr. Young spent 7 years as a vice president and director of real estate for S&A
Restaurant Corporation, a division of Pillsbury, in Dallas, Texas. Between 1971
and 1981, Mr. Young owned a restaurant and food court in a Columbia, Maryland
mall. Mr. Young received his bachelors degree from George Washington University,
and his master's degree in Hotel and Restaurant Administration from Michigan
State University.
13
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation for Laurence C. Siegel, chief executive officer, and the
four other most highly compensated executive officers of the Company (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION RESTRICTED
-------------------------------------------------- STOCK SECURITIES ALL
OTHER ANNUAL AWARDS UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION
- - -------------------------------- --------- ----------- ----------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Laurence C. Siegel.............. 1996 $ 442,894 $ 115,000 $ 636(1) $ 197,995 130,837 $ 3,708(2)
Chairman of the Board, 1995 331,561 -- 126,219(1) -- -- 4,062(2)
Chief Executive Officer and 1994 288,192 -- 299,709(1) -- 100,000 3,727(2)
Director
Peter B. McMillan............... 1996 326,250 90,000 95,500(3) 134,000 88,546 3,062(4)
President, Chief Operating 1995 247,917 -- -- -- 75,000 44,394(5)
Officer and Director 1994 -- -- -- -- -- --
James F. Dausch................. 1996 272,500 72,000 102,000(3) 100,800 66,608 3,517(6)
Senior Executive Vice 1995 250,000 -- -- -- -- 54,886(7)
President 1994 20,833 -- -- -- 75,000 --
--Development
James P. Whitcome............... 1996 193,750 72,500 62,000(8) 56,007 37,004 3,450(9)
Senior Vice President-- 1995 169,167 27,039(8) -- -- 348(9)
Capital Services 1994 6,346(10) 793(8) -- 50,000 7,904(11)
Kent S. Digby................... 1996 222,500 58,000 -- 82,800 54,714 3,333(12)
Executive Vice-President- 1995 191,667 -- -- -- -- --
Management & Marketing 1994 179,013 -- -- -- 50,000 3,000(13)
</TABLE>
- - ------------------------
(1) As part of Mr. Siegel's employment agreement, the Company makes certain
payments on Mr. Siegel's behalf relating to an interest he owns in a
property (Kenwood) which the Company manages. These payments aggregated
$227,455 in 1994 and $124,399 in 1995. In addition, the Company paid $988
in medical reimbursements on behalf of Mr. Siegel in 1994, $1,820 in 1995
and $636 in 1996. In 1994 the Company also paid $71,266 for a condominium
occupied by Mr. Siegel.
(2) Includes $3,000 in Company contributions to the 401(k) Plan and $708 for
the cost of group term life insurance on behalf of Mr. Siegel for 1996.
Includes $3,000 in Company contributions to the 401(k) Plan and $1,062 for
the cost of group term life insurance on behalf of Mr. Siegel for 1995.
Includes $3,072 in Company contributions to the 401(k) Plan and $655 for
the cost of group term life insurance of Mr. Siegel for 1994.
(3)Includes $62,000 for forgiveness of loans to each of Messrs. McMillan and
Dausch in 1996. In addition, each of Mr. McMillan and Mr. Dausch were
reimbursed $33,500 and $40,000, respectively, in 1996 for additional taxes
owed as a result of such loan forgiveness.
(4) Includes $2,250 in Company contributions to the 401(k) Plan and $812 for
the cost of group term life insurance on behalf of Mr. McMillan in 1996.
(5) As part of Mr. McMillan's employment agreement, the Company reimbursed him
for certain relocation expenses. See " --Employment Agreements and Other
Arrangements."
(6) Includes $2,250 in Company contributions to the 401(k) Plan and $1,267 for
the cost of group term life insurance on behalf of Mr. Dausch for 1996.
14
<PAGE>
(7) As part of Mr. Dausch's employment agreement, the Company reimbursed him
for certain relocation expenses. See " --Employment Agreements and Other
Arrangements."
(8) Amounts in 1996 included $42,000 for loan forgiveness on housing relocation
loans and $20,000 for additional taxes owed as a result of such loan
forgiveness. Amount in 1995 is for loan forgiveness on housing relocation
loans. In 1994, amount includes interest on an employee loan.
(9) Includes $3,000 in Company contributions to the 401(k) Plan and $450 for
the cost of group term life insurance in 1996 and $348 for the cost of
group term life insurance in 1995.
(10) Mr. Whitcome began his employment with the Company in December 1994. His
annual salary for 1994 was $165,000.
(11) Consists of reimbursements for direct moving expenses for Mr. Whitcome.
(12) Includes $3,000 in Company contributions to the 401(k) Plan and $333 for
the cost of group term life insurance on behalf of Mr. Digby for 1996.
(13) Consists solely of Company contributions to the 401(k) Plan.
The following table sets forth certain information concerning exercised and
unexercised options held by the Named Executive Officers at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------------------------------- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Laurence C. Siegel..................... -0- $-0- -0- 230,837 $-0- $838,877
Peter B. McMillan...................... -0- -0- -0- 163,546 -0- 936,094
James F. Dausch........................ -0- -0- -0- 141,608 -0- 678,599
James P. Whitcome...................... -0- -0- -0- 87,004 -0- 245,400
Kent S. Digby.......................... -0- -0- -0- 104,714 -0- 353,873
</TABLE>
The following table shows certain information relating to options to
purchase Common Stock granted to the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% 10%
- - --------------------------------------- ----------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Laurence C. Siegel..................... 130,837 15.3% $ 17.75 4/01/06 $ 1,305,360 $ 2,078,568
Peter B. McMillan...................... 88,546 10.4 17.75 4/01/06 883,423 1,406,704
James F. Dausch........................ 66,608 7.8 17.75 4/01/06 664,548 1,058,181
James P. Whitcome...................... 37,004 4.3 17.75 4/01/06 369,189 587,871
Kent S. Digby.......................... 54,714 6.4 17.75 4/01/06 545,882 869,225
</TABLE>
15
<PAGE>
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
During 1994, the Company entered into an employment agreement (the
"Employment Agreement") with Mr. Siegel. Pursuant to the Employment Agreement
Mr. Siegel agreed to serve at the pleasure of the Board of Directors, to receive
such compensation as may be established by the Board of Directors, and to be
reimbursed for such expenses as the Board of Directors may approve from time to
time. The Employment Agreement provides that if Mr. Siegel's employment is
terminated without cause, Mr. Siegel is entitled to all compensation and
benefits which are fully accrued and vested, but unpaid, on the date of such
termination, including severance pay in accordance with the Company's severance
pay policy then in effect. Further, if Mr. Siegel terminates his employment for
good reason (as defined below), he is entitled to receive only the compensation
and benefits which are fully accrued and vested, but unpaid, on the date of such
termination. The Employment Agreement prohibits Mr. Siegel, subject to certain
limited exceptions, from engaging directly or indirectly, without the Company's
prior consent, in the development, redevelopment, operation, management or
leasing of any type of retail shopping center anywhere in the world during the
period of employment with the Company and for 18 months thereafter, except that,
if Mr. Siegel terminates his employment for "good reason" as defined in his
Employment Agreement, the non-competition period ends one year subsequent to the
date employment is terminated. The Employment Agreement defines "good reason" to
include the Company's breach of its agreements applicable to Mr. Siegel's'
duties and certain changes in the composition of the Board of Directors.
The Company also entered into employment agreements (the "Other Employment
Agreements") in 1994 with each of Messrs. McMillan, Dausch and Whitcome (the
"Other Officers"). Pursuant to the Other Employment Agreements, each of the
Other Officers agreed to be employed by the Company for a term of three years,
to be automatically renewed for successive one-year periods unless terminated by
the Other Officer or the Company within 30 days of the scheduled expiration
date. Pursuant to the Other Employment Agreements, the Company agreed to (i) pay
each of Messrs. McMillan and Dausch an annual salary of $250,000 and $165,000
for Mr. Whitcome for the initial three year term, subject to review and
adjustment on successive renewals of such term and (ii) reimburse each Other
Officer for expenses in accordance with the Company's expense reimbursement
policies applicable to employees in the same or substantially equivalent
position. The Other Employment Agreements provide that, if an Other Officer's
employment is terminated by the Company without cause or by an Other Officer for
good reason (as defined above), in either case before the end of the initial
term, such Other Officer will be entitled to his salary for two years, payable
over a two-year period. If an Other Officer's employment is so terminated after
the end of the initial term, such Other Officer will be entitled to his salary
for one year, payable over a one-year period. The Other Employment Agreements
contain non-competition provisions similar to those contained in the Employment
Agreements, except they relate only to Mills-type retail malls.
Pursuant to Mr. McMillan's employment agreement, the Company made a $150,000
housing relocation loan to Mr. McMillan, one-third of which was forgiven on each
of February 16, 1996 and February 16, 1997, and the remaining one-third of which
will be forgiven on February 16, 1998, provided that Mr. McMillan is employed by
the Company on such date. The Company also agreed to pay certain other costs of
Mr. McMillan's relocation. Pursuant to Mr. Dausch's employment agreement, the
Company made a $150,000 housing relocation loan to Mr. Dausch, one-third of
which was forgiven on January 23, 1996, and January 23, 1997 and the remaining
one-third of which will be forgiven on January 23, 1998, provided that Mr.
Dausch is employed by the Company on such date. In addition, the Company agreed
to pay certain other costs of Mr. Dausch's relocation. Pursuant to Mr.
Whitcome's employment agreement, the Company made a $150,000 housing relocation
loan to Mr. Whitcome, one-fifth of which was forgiven on each of February 1,
1996 and February 1, 1997 and the remaining three-fifths of which will be
forgiven in equal installments on February 1, 1998, February 1, 1999 and
February 1, 2000, provided that Mr. Whitcome is employed by the Company on such
dates. In addition, the Company agreed to pay certain other costs of Mr.
Whitcome's relocation. The relocation loans to Messrs. McMillan, Dausch and
16
<PAGE>
Whitcome will be forgiven automatically if the executive officer's employment is
terminated by the Company without cause or by the executive officer for "good
reason."
CUMULATIVE TOTAL SHAREHOLDER RETURN (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE MILLS CORPORATION S&P 500 INDEX NAREIT INDEX
<S> <C> <C> <C>
4/21/94 $100 $100 $100
6/94 $105 $99 $98
9/94 $102 $104 $96
12/94 $88 $104 $95
3/95 $83 $114 $96
6/95 $102 $125 $102
9/95 $95 $134 $107
12/95 $92 $142 $112
</TABLE>
<TABLE>
<CAPTION>
4/21/94 6/94 9/94 12/94 3/95 6/95 9/95 12/95
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Company........................ $ 100 $ 97 $ 95 $ 82 $ 79 $ 95 $ 89 $ 86
S&P 500 Index...................... $ 100 $ 100 $ 105 $ 105 $ 115 $ 126 $ 136 $ 145
NAREIT Equity Index................ $ 100 $ 101 $ 99 $ 99 $ 99 $ 105 $ 109 $ 114
<CAPTION>
3/96 6/96 9/96 12/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
The Company........................ $ 91 $ 93 $ 107 $ 132
S&P 500 Index...................... $ 152 $ 159 $ 164 $ 177
NAREIT Equity Index................ $ 117 $ 122 $ 130 $ 154
</TABLE>
- - ------------------------
(1) Assumes $100 invested on April 21, 1994 in the Company's Common Stock, the
NAREIT Equity REIT Total Return Index, and the S&P 500 Index. Total return
assumes reinvestment of all dividends.
REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Committee (the "Committee") of the Board of
Directors has prepared the following report regarding 1996 executive
compensation. The Committee, which is composed entirely of non-employee
directors, is responsible for determining the compensation for the Company's
executive officers and for administration of the Company's 1994 Executive Equity
Incentive Plan. This report describes the Committee's basic approach to
executive compensation and the basis on which 1996 compensation determinations
were made by the Committee with respect to the Company's executive officers,
including the Named Executive Officers. The Committee works closely with the
entire Board of Directors in the execution of its duties.
EXECUTIVE COMPENSATION POLICY
In early 1996, the Committee authorized the Company to conduct an analysis
to determine whether the Company's compensation practices were adequate to
motivate and retain the executive talent required to achieve the growth
opportunities available to the Company during the 1996 to 1999 time frame. At
the Committee's direction, the Company engaged the consulting firm of Towers
Perrin to assist in this analysis. With the assistance of Towers Perrin, the
Committee identified a number of specific objectives and guiding principles that
should be used as the foundation for the Company's executive compensation
program. These principles included the following:
17
<PAGE>
- The Company's compensation plan should provide a strong tie between
management and shareholder interests and should reward management for the
creation of shareholder value.
- The Company's compensation plan should provide a clear and appropriate
balance between the short-term and long-term interests of the Company and
its shareholders.
- The Company's compensation plan should be structured to enable the Company
to attract and retain the key talent that is required to enable the
Company to meet the growth opportunities available to it.
- The Company's compensation plan should reward performance by providing a
clear line-of-sight between specific goals and objectives and the success
in executives in achieving these goals.
To achieve these goals, the Board of Directors authorized the Committee to
implement a comprehensive compensation plan that is intended to compensate the
Company's executive officers between the 50th and 75th percentiles of comparable
companies. This compensation plan consists of three principal components: base
salary, an annual Performance Incentive Plan, and a Long Term Incentive Plan.
BASE SALARY PROGRAM
The compensation plan established four different pay grades for its
executive officers holding a position of senior vice president or above. The
compensation plan determined salary ranges, including minimum, maximum and mid
points, for each pay grade. Based on competitive market data provided by Towers
Perrin, base salaries were established at levels sufficient to compensate the
Company's executive officers within the desired ranges of the 50th and 75th
percentiles. Some of the companies included in Towers Perrin's competitive
market data are included in the NAREIT index referred to in the performance
graph set forth below. Base salaries are reviewed annually, based on the
individual executive's performance during the prior year, the competitive market
data and the Company's performance within the shopping center industry and,
where appropriate, adjusted as of April 1st of each year.
PERFORMANCE INCENTIVE PLAN
The Performance Incentive Plan seeks to recognize and reward the success of
the Company's executive officers in achieving specific goals and objectives.
These goals and objectives are selected in advance to reflect the current
activity required to achieve the Company's strategic goals for both current
performance and the development of new projects required for growth in
shareholder value. Primary responsibility for achieving these goals and
objectives are assigned to specific executive officers. Following the end of
each fiscal year, the Company's performance of such goals and objectives is
evaluated. Based on a formula that considers both the Company's overall
achievement of its goals and the executive's achievement of individual goals, a
cash bonus is paid to the executive officers. The amount of the cash bonus is
targeted to provide a total cash compensation (base salary plus annual
incentives) between the 60th and 75th percentiles, thus creating a strong
incentive for superior performance.
EQUITY INCENTIVE PLAN
The Company's equity incentive plan authorizes the Committee to grant stock
options and restricted stock to key employees and the non-employee directors of
the Company. Grants of stock options and restricted stock offer the participants
a proprietary interest in the Company and the incentive to maximize long term
shareholder value. Stock options are granted having an exercise price of not
less than 100% of the fair market value of the underlying stock as of the date
of grant, so that the employee may not profit from the stock options unless the
Company's stock price increases. Restricted stock grants are awarded that
immediately vest the grantees with ownership of the stock, subject to forfeiture
in certain circumstances. Both stock options and restricted stock help the
Company retain employees in that they vest only if the employee remains with the
Company for a specified period of time.
18
<PAGE>
1996 LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan was created for officers having a position of
senior vice president or above pursuant to the Equity Incentive Plan as a means
of providing a structure for incorporating the use of stock options and
restricted stock grants into the Company's compensation plan. Towers Perrin
established market data for total value for such long term incentive
compensation that would place the Company between the 50th and 75th percentiles,
and recommended that 60% of such value be placed in grants of stock options and
40% of such value be placed in restricted stock grants. Both the stock options
and the restricted stock vest over a period of five years, providing a strong
incentive for employees to remain with the Company. Grants under the 1996 Long
Term Incentive Plan were made on May 23, 1996 in accordance with the Towers
Perrin recommendations.
1996 CHIEF EXECUTIVE OFFICER PAY
Effective as of April 1, 1996, the Committee increased Mr. Siegel's annual
salary 26% to $474,000. Effective as of May 23, 1996, as part of the Long Term
Incentive Plan, the Committee granted to Mr. Siegel stock options for 130,837
shares and granted 11,949 shares of restricted stock. These actions were taken
pursuant to the Towers Perrin recommendation and were intended to place Mr.
Siegel's base salary and long term incentive compensation within the 75th
percentile of the market data.
$1 MILLION PAY DEDUCTIBILITY LIMIT
An amendment to the Internal Revenue Code imposed by the Omnibus Budget
Reconciliation Act of 1993 prohibits publicly traded companies from taking a tax
deduction for compensation in excess of $1 million paid to the chief executive
officer or any of the Company's four other most highly compensated officers for
any fiscal year. Certain performance-based compensation is excluded from this $1
million cap. Stock options granted pursuant to the Equity Incentive Plan are
intended to qualify as such performance-based compensation. At this time, none
of the Company's executive officers' compensation subject to the deductibility
limits exceeds $1 million. Accordingly, in the Committee's view, the Company is
not likely to be affected by the nondeductibility rules in the near future.
THE EXECUTIVE COMPENSATION COMMITTEE
John M. Ingram, Chairman
Robert P. Pincus
19
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF [UPDATE]
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of April 1, 1997 for (1) each person
known by the Company to be the beneficial owner of more than five percent of the
Company's outstanding Common Stock, (2) each director of the Company and each
Named Executive Officer and (3) the directors and executive officers of the
Company as a group. Each person named in the table has sole voting and
investment power with respect to all shares shown as beneficially owned by such
person, except as otherwise set forth in the notes to the table. Units of
limited partnership interest ("Units") in The Mills Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"), owned by a person
named in the table are included in the "Number of Shares of Common Stock" column
because such Units are redeemable, at the option of the holder, for cash equal
to the value of an equal number of shares of Common Stock or, at the election of
the Company, for an equal number of shares of Common Stock. Because of
limitations on ownership of Common Stock imposed by the Company's Certificate of
Incorporation, some holders of Units listed below could not in fact redeem all
of their Units for Common Stock without divesting a substantial number of shares
of Common Stock in connection with the redemption. The extent to which a person
holds Units as opposed to Common Stock is set forth in the footnotes. The
address of the directors, executive officers and beneficial owners included in
the table below is 1300 Wilson Boulevard, Suite 400, Arlington, Virginia 22209
unless otherwise provided.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF PERCENT OF SHARES OF
NAME AND BUSINESS ADDRESS SHARES OF SHARES OF COMMON STOCK
OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK(1) AND UNITS(2)
- - ------------------------------------------ -------------- ------------------- ---------------
<S> <C> <C> <C>
Laurence C. Siegel........................ 968,070(3) 4.23% 2.47 %
Peter B. McMillan......................... 34,596 (4) * *
James F. Dausch........................... 20,405 (5) * *
Kent S. Digby............................. 45,786 (6) * *
James P. Whitcome......................... 13,098 (7) * *
Dietrich von Boetticher................... 297,692 (8) 1.32 % *
John M. Ingram............................ 5,500 (9) * *
Charles R. Black, Jr. .................... 0 * *
James C. Braithwaite...................... 88,518 10) * *
Joseph B. Gildenhorn...................... 13,500 11) * *
Peter A. Gordon........................... 500 12) * *
Herbert S. Miller......................... 1,310,563 13) 5.55 % 3.28 %
Harry H. Nick............................. 296,521 14) 1.32 % *
Franz von Perfall......................... 57,379 15) * *
Robert P. Pincus.......................... 4,500 16) * *
Cohen & Steers Capital Management,
Inc. ................................... 2,877,700 17) 12.90 % 7.45 %
757 Third Avenue
New York, New York 10017
Kan Am.................................... 13,262,420 18) 37.28 % 25.55 %
3495 Piedmont Road
Ten Piedmont Center, Suite 520
Atlanta, Georgia 30305
FMR Corporation........................... 1,118,209 19)
82 Devonshire Street
Boston, Massachusetts 02109
All executive officers and directors as a
group (22 persons)...................... 3,326,062 20) 13.32%(21) 8.05 %(22)
</TABLE>
- - ------------------------
* Less than 1%
20
<PAGE>
(1) For purposes of this calculation, the shares of Common Stock deemed
outstanding includes 22,311,486 shares of Common Stock outstanding as of
April 1, 1997 plus the number of shares of Common Stock issuable to the
named person(s) upon the exercise of options exercisable within 60 days of
April 1, 1997 and upon redemption of the Units held by such named
person(s).
(2) For purposes of this calculation, the number of shares of Common Stock and
Units deemed outstanding includes 22,311,486 shares of Common Stock
outstanding as of April 1, 1997, 16,328,884 Units outstanding as of April
1, 1997 (excluding Units held by the Company) and shares of Common Stock
issuable to the named persons(s) upon the exercise of options exercisable
within 60 days of April 1, 1997.
(3) Includes 374,191 shares of Common Stock, 517,712 Units and options to
purchase 76,167 shares of Common Stock exercisable within 60 days of April
1, 1997.
(4) Includes 16,887 shares of Common Stock and options to purchase 17,709
shares of Common Stock exercisable within 60 days of April 1, 1997.
(5) Includes 7,083 shares of Common Stock and options to purchase 13,322 shares
of Common Stock exercisable within 60 days of April 1, 1997.
(6) Includes 4,997 shares of Common Stock, 4,846 Units and options to purchase
35,943 shares of Common Stock exercisable within 60 days of April 1, 1997.
(7) Includes 5,697 shares of Common Stock and options to purchase 7,401 shares
of Common Stock exercisable within 60 days of April 1, 1997.
(8) Includes 297,192 Units and options to purchase 500 shares of Common Stock
exercisable within 60 days of April 1, 1997.
(9) Includes 5,000 shares of Common Stock and options to purchase 500 shares of
Common Stock exercisable within 60 days of April 1, 1997.
(10) Includes 85,318 Units and options to purchase 500 shares of Common Stock
exercisable within 60 days of April 1, 1997. Also includes 1,000 shares
held in an IRA over which Mr. Braithwaite has sole voting and investment
power, 200 shares held in a joint account for the benefit of Mr.
Braithwaite's daughter, and 1,500 shares held in an account for Mr.
Braithwaite's mother-in-law with respect to which Mr. Braithwaite shares
voting and investment power.
(11) Includes 9,600 shares held directly by Mr. Gildenhorn, and 1,500 shares
held as co-trustee of The Gildenhorn/Speisman Family Foundation, Inc., a
non-profit family foundation, over which Mr. Gildenhorn shares voting and
investment power.
(12) Includes options to purchase 500 shares of Common Stock exercisable within
60 days of April 1, 1997.
(13) Includes 26,501 shares of Common Stock and 381,416 Units over which Mr.
Miller has sole voting and investment power and 902,646 Units over which
Mr. Miller has shared voting and/or investment power.
(14) Includes 186,932 shares of Common Stock and 109,589 Units.
(15) Includes 56,879 Units and options to purchase 500 shares of Common Stock
exercisable within 60 days of April 1, 1997.
(16) Includes options to purchase 500 shares of Common Stock exercisable within
60 days of April 1, 1997.
(17) Includes 2,877,700 shares of Common Stock held by Cohen & Steers Capital
Management, Inc. for the benefit of client accounts pursuant to investment
advisory arrangements. Cohen & Steers Capital Management, Inc. has voting
power with respect to only 2,500,300 of the 2,877,700 shares of Common
Stock.
21
<PAGE>
(18) Includes 13,262,420 Units deemed to be beneficially owned by Kan Am as
general partner for nine limited partnerships.
(19) Includes 1,118,209 shares of Common Stock held by FMR Corporation of which
994,409 shares are beneficially owned by Fidelity Management & Research
Company as result of its serving as an advisor to various investment
companies and 123,800 shares are beneficially owned by Fidelity Management
and Trust Company as a result of its serving as a trustee or managing agent
for various private investment accounts. FMR Corporation has sole voting
power with respect to 123,800 shares and sole dispositive power with
respect to 1,118,209 shares.
(20) Includes 674,362 shares of Common Stock and 2,355,598 Units and options to
purchase 296,102 shares of Common Stock exercisable within 60 days of April
1, 1997.
(21) For purposes of this calculation, the shares of Common Stock deemed
outstanding includes 22,311,486 shares of Common Stock outstanding as of
April 1, 1997, 2,355,598 Units beneficially owned by all executive officers
and directors as a group and options to purchase 296,102 shares of Common
Stock exercisable within 60 days of April 1, 1997 for all officers and
directors as a group.
(22) The number of shares of Common Stock and Units deemed outstanding for
purposes of this calculation is described in note 2 to this table.
22
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
KAN AM JOINT VENTURES
At a special shareholders meeting held on February 16, 1995, the Company's
shareholders authorized the Company, as general partner of the Operating
Partnership, to cause the Operating Partnership to enter into joint ventures
with affiliates of Kan Am for the purpose of developing future projects
designated by the Board of Directors, on terms substantially similar to those
approved at the special shareholders meeting.
On May 25, 1995, the disinterested members of the Board of Directors
authorized a joint venture with Kan Am to develop Ontario Mills in Ontario,
California. Pursuant to this approval, the Operating Partnership and Kan Am
formed Ontario Mills Limited Partnership ("OMLP"), to which the Operating
Partnership contributed non-cash assets of $32.2 million and liabilities of
$18.1 million in exchange for a 74% limited partnership interest and a 1%
general partnership interest, which interests currently are held through Ontario
Mills, L.L.C. ("OMLCC"). Kan Am contributed approximately one-half of the
project's estimated equity, or $20.0 million, for a 25% general and limited
partnership interest in OMLP. The Operating Partnership is required to make
additional contributions totaling $17.9 million as of March 31, 1996 until its
net equity equals Kan Am's investment. In December of 1995, Simon Property
Group, L.P. was admitted as a 33.33% member of OMLCC.
In conjunction with the formation of OMLP, a separate partnership was formed
to develop and sell peripheral land parcels at the Ontario Mills site. The
residual partnership has an ownership structure similar to that of OMLP.
On February 16, 1995, the disinterested members of the Board of Directors
authorized a joint venture with Kan Am to develop the Company's project in
metropolitan Columbus, Ohio. On April 12, 1996, the Company, as general partner
of the Operating Partnership, and Kan Am established Mills-Kan Am Columbus
Limited Partnership (the "Columbus Partnership") in which the Operating
Partnership holds a 1% general partnership interest and a 74% limited
partnership interest. Kan Am contributed $15.0 million in exchange for a 25%
general and limited partnership interest in the Columbus Partnership. The
Operating Partnership is obligated to contribute $15.0 million as such
additional capital is required by the Columbus Partnership.
On February 22, 1996, the disinterested members of the Board of Directors
authorized two additional joint ventures with Kan Am, one to develop The City
Mills project in Orange, California and another to develop (along with a
third-party partner) Grapevine Mills in the Dallas-Ft. Forth metropolitan area.
The Company, as general partner of the Operating Partnership, and Kan Am are
currently negotiating joint venture agreements relating to these projects.
Three members of the Board of Directors, Messrs. von Boetticher,
Braithwaite, and von Perfall, are affiliated with Kan Am and abstained from
voting on the proposed joint ventures. Affiliates of Kan Am own approximately
39.5% of the Units in the Operating Partnership, through which the Company owns
all of its properties. The Company is the sole general partner of the Operating
Partnership and owns approximately 51% of its Units.
Effective as of January 25, 1996, the Operating Partnership issued 274,777
Units to Kan Am to acquire an additional 6.26% of the partnership interests in
the partnership that owns Franklin Mills (the "Franklin Mills Partnership"). The
Company acquired 70% of the partnership interests in the Franklin Mills
Partnership in April 1994 in connection with the Company's initial public
offering, and became contractually obligated at that time to acquire, on
specified future dates, the remaining partnership interests in exchange for
Units.
23
<PAGE>
AMOUNT DUE TO AND FROM RELATED PARTIES
Pursuant to employment agreements the Company entered into with each of
Messrs. McMillan, Dausch, Whitcome and Frost, the Company has loaned to them
$150,000, $150,000, $150,000 and $100,000, respectively, to cover the increased
housing costs incurred by them in relocating to accept employment with the
Company. Each of the loans has a term of three years (except Mr. Whitcome's
loan, which has a term of five years) and bears interest at a rate of 8% per
annum. The loans to Messrs. McMillan, Dausch and Frost are payable at maturity
and provide that one-third of the amount of the loan will be forgiven annually
if the officer remains employed by the Company at that time. The terms of Mr.
Whitcome's employment agreement provide for forgiveness of the amount of the
loan, with 20% of such amount forgiven annually if Mr. Whitcome remains employed
by the Company. If any of the officers terminates employment with the Company,
the then outstanding principal amount of the loan, plus interest, will become
payable on terms specified in the respective employment agreements.
OTHER TRANSACTIONS
The Third-Party Services Corporation, in which the Company owns
substantially all of the economic interests, manages a community center owned by
Messrs. Miller, Siegel and Nick and earned $32,198 for these management services
in 1996. Effective as of December 31, 1996, the Third-Party Services Corporation
terminated this relationship. The Third-Party Services Corporation also manages
a regional mall owned by a partnership of which Mr. Miller is the sole general
partner and in which Messrs. Miller, Siegel and Nick are limited partners. In
1996, the Third-Party Services Corporation earned approximately $674,000 in
management, administration, and leasing fees from such partnership. These fees
were computed in accordance with the management contracts assigned to the
Third-Party Services Corporation at the time of the Company's initial public
offering.
On September 28, 1995, the Company, in its capacity as the general partner
of the Operating Partnership, exercised an option to purchase two parcels of
land adjacent to Sawgrass Mills for a purchase price of approximately $1.8
million. The properties to be acquired upon closing are owned by a partnership
in which Messrs. Siegel, Nick and Miller own interests. The transaction closed
in August 1996. The exercise of the option was approved by a majority of
disinterested members of the Board of Directors.
During 1996, the Company maintained certain interest-bearing accounts with
Franklin National Bank of Washington, D.C., of which Mr. Pincus is the chief
executive officer and a shareholder. In addition, a partnership formed to
develop Columbus Mills, in which the Operating Partnership indirectly owns a
general partnership interest, executed a promissory note payable to that bank in
the principal amount of $750,000 bearing interest at an annual rate of 6.85% in
connection with expenses relating to the original plan for developing the
Columbus Mills' project was repaid in 1996. Other borrowings from Franklin
National Bank in 1996 included (i) a $1.6 million line of credit bearing
interest at a rate of 8.25% which was paid off in full in August 1996, (ii) a
$2.4 million line of credit bearing interest at a rate of 6.05% which matures in
July 1997 with an outstanding balance at December 31, 1996 of $2.4 million and
(iii) a $1.5 million loan for furniture and fixtures to Third-Party Services
Corporation bearing interest at a rate of 8.25% which matures in October 2000
and had an outstanding balance at December 31, 1996 of $1.45 million.
Mr. Miller and Kan Am own equally 95% of the voting common stock of the
Third-Party Services Corporation. The Company owns the remaining 5% of the
voting common stock and 99% of the non-voting preferred stock. The Third-Party
Services Corporation was indebted to The Mills Limited Partnership, the balance
of which, as of December 31, 1996, was $37,476,129. No dividends were paid by
the Third-Party Services Corporation in 1996.
24
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company to report, based on its review of reports to the Commission about
transactions in its Common Stock furnished to the Company, that for 1996:
On May 17, 1996, James P. Whitcome filed a form 4 late to report a purchase
on January 18, 1996 of 2,317 shares of Common Stock.
On June 10, 1996, John M. Ingram filed a Form 4 late to report a purchase on
April 6, 1995 of 2,000 shares of Common Stock.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement: (i)
Management's Discussion and Analysis set forth in Item 7 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, and (ii) the Company's
Audited Financial Statements set forth in pages F-1 through F-19 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, on the written or oral request of such person
and by first class mail or other equally prompt means, within one business day
of receipt of such request, a coy of any and all of the documents referred to
above which may have been or may be incorporated by reference into this Proxy
Statement. Such written or oral request should be directed to the Mills
Corporation, 1300 Wilson Boulevard, Suite 400, Arlington, Virginia 22209,
Attention: Investor Relations ((703) 526-5000).
OTHER MATTERS
The Company knows of no other matters to be presented for consideration at
the Meeting. However, if any other matters properly come before the Meeting, it
is the intention of the persons named in proxies returned to the Company to vote
such proxies in accordance with their judgment on such matters.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of shareholders to be presented at the 1998 Annual Meeting of
Shareholders must be received by the Secretary of the Company prior to December
31, 1997 to be considered for inclusion in the Company's proxy material for that
meeting. In addition, any shareholder who wishes to propose a nominee to the
Board of Directors or submit any other matter to a vote at a meeting of
shareholders (other than a shareholder proposal included in the Company's proxy
materials pursuant to SEC Rule 14a-8) must comply with the advance notice
provisions and other requirements of Section 2.7 of the Company's Amended and
Restated By-laws, which are on file with the Securities and Exchange Commission
and may be obtained from the Secretary of the Company upon request.
COSTS OF PROXY SOLICITATION
The costs of soliciting proxies will be borne by the Company and will
consist primarily of printing, postage and handling, including the expenses of
brokerage houses, custodians, nominees and fiduciaries in forwarding documents
to beneficial owners. Solicitation will be made initially by mail. Solicitation
may also be made by the Company's officers, directors or employees, personally
or by telephone or telecopy. Solicitation also may be made by paid proxy
solicitors. The Company has engaged the firm of Corporate Investor
Communications, Inc. ("CIC") to aid it in the solicitation of proxies as
required to secure a quorum. CIC will be paid agreed upon amounts for each
contact made with shareholders with the fee depending on the nature of the
contact (e.g., by mail, by phone, or in person). The total fee to be paid to CIC
is estimated at $6,000 if the Meeting is not required to be adjourned and
reconvened. Additional
25
<PAGE>
expenses will be incurred if the Meeting is adjourned and to solicit additional
proxies to procure a quorum at the adjourned meeting.
Your vote is important. Please complete the enclosed proxy card and mail it
in the enclosed postage-paid envelope as soon as possible.
By Order of the Board of Directors,
Thomas E. Frost
Secretary
April 21, 1997
26
<PAGE>
PRELIMINARY COPY PROXY CARD
THE MILLS CORPORATION
Annual Meeting of Shareholders May 23, 1997
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
The undersigned does hereby appoint Peter B. McMillan and Thomas E.
R Frost, or either one of them, with full power of substitution in each, as
proxies to vote, on the matters identified and as directed on the reverse
O side of this card, or, if not so directed, in accordance with the
recommendations of the Board of Directors, all shares of The Mills
X Corporation (the "Company") held of record by the undersigned at the close
of business on April 1, 1997 and entitled to vote at the Annual Meeting of
Y Shareholders of the Company to be held on May 23, 1997 at 10:00 a.m.
Eastern Standard Time, at the AMC Theatre, Potomac Mills, 2700 Potomac
- Mills Circle, Suite 707, Dale City, Virginia, and upon such other
| | matters as may properly come before the Annual Meeting or any adjournments
- thereof.
- This proxy, when properly completed, will be voted in the manner
| | directed herein by the undersigned shareholder. Unless contrary direction
- is given, this proxy will be voted (i) FOR Proposal 1 to amend Section 3.14
of the Company's Bylaws to require the approval of a two-thirds
- majority of the disinterested outside directors for all joint venture or
| | similar arrangements between the Company and Kan Am U.S., Inc. or its
- affiliates and to eliminate the requirement that a majority of the
Company's shareholders approve such transactions, (ii) FOR Proposal 2 to
amend the Company's Certificate of Incorporation to by impose limits on
the amount of the Company's capital stock that may be owned by "non-U.S.
persons," (iii) FOR Proposal 3 to amend the Company's Certificate of
Incorporation to eliminate the requirement of obtaining an Internal Revenue
Service ruling or an opinion of counsel to exempt persons from the ownership
limit, (iv) FOR the following nominees for election as Directors: Charles R.
Black, Jr., Dietrich von Boetticher, John M. Ingram and Peter B. McMillan
and (v) FOR Proposal 5 to ratify the appointment of Ernst & Young LLP as
auditors for 1997.
You are encouraged to specify your choices by marking the appropriate
boxes, SEE REVERSE SIDE, but you need not mark boxes if you wish to vote in
accordance with the recommendations of the Board of Directors. The proxies
cannot vote your shares unless you sign and return this proxy card.
<PAGE>
----- Please mark
| X | your votes as in
| | this example.
-----
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is otherwise made, the
proxy will be voted FOR the item or items for which no direction is made, and in
the discretion of the named proxies as to any other matters properly presented
at the meeting.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Proposal to amend 2. Proposal to amend the
Section 3.14 of the ----- ----- ----- Company's Certificate ----- ----- -----
Company's Bylaws to | | | | | | of Incorporation to | | | | | |
require only the | | | | | | limit the amount | | | | | |
approval of a two- ----- ----- ----- of the Company's ----- ----- -----
thirds majority of the Capital Stock that may
disinterested outside be owned by "non-U.S.
directors for all joint persons."
venture or similar (Proposal 2).
arrangements
between the Company
and Kan Am U.S., Inc.
or its affiliates.
(Proposal 1).
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN FOR WITHHELD
3. FOR Proposal 3 to
amend the Company's ----- ----- ----- ----- -----
Certificate of | | | | | | | | | |
Incorporation to | | | | | | 4. Election of Directors | | | |
eliminate the ----- ----- ----- ----- -----
requirement to (see reverse)
obtain an Internal
Revenue Service --- For, except vote withheld from the following nominee(s):
ruling or an opinion of | |
counsel to exempt ---
persons from the -----------------------------------------------------------------
ownership limit.
(Proposal 3).
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR WITHHELD ABSTAIN
5. Proposal to
ratify the ----- ----- -----
appointment of | | | | | |
Ernst & Young LLP | | | | | |
as auditors for 1997 ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
The undersigned hereby acknowledges receipt of the Notice of the
1997 Annual Meeting of Shareholders and accompanying Proxy
Statement.
Please sign below exactly as name appears. When shares are
held by joint tenants, both should sign. When signing as Guardian,
Executor, Administrator, Attorney, Trustee, etc., please give full
title as such. If a corporation, sign in full corporate name, by
President or other authorized officer, giving title. If a partnership,
sign in partnership name by authorized person.
----------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN PROXY ----------------------------------------------------------------------
CARD PROMPTLY USING THE ENCLOSED ENVELOPE. SIGNATURE(S) DATE
</TABLE>
