<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number 1-12994
THE MILLS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-1802283
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1300 Wilson Boulevard, Arlington, Virginia 22209
------------------------------------------------
(Address of principal executive offices - zip code)
(703) 526-5000
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
24,141,037 shares of Common Stock
$.01 par value, as of November 11, 1998
<PAGE> 2
THE MILLS CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
---------------------- ----
<S> <C> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997. 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 and September 30, 1997. 2
Consolidated Statements of Income for the
Nine Months Ended September 30, 1998 and September 30, 1997 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and September 30, 1997. 4
Notes to Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
</TABLE>
Certain matters discussed in this form 10-Q and the information incorporated by
reference herein contain "forward-looking statements" for purposes of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") relating to, without limitation, future economic performance, plans and
objectives of management for future operations (including Year 2000 compliance)
and projections of revenue and other financial items, demographic projections
and federal income tax consequences, which can be identified by the use of
forward-looking terminology such as "may," "will," "except," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereon
or comparable terminology. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those described in such forward-looking statements. These
risks and uncertainties include those set forth in the Company's annual report
on Form 10-K and other SEC filings.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
THE MILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(Unaudited) (Note)
------------------ -----------------
<S> <C> <C>
ASSETS
Income producing property:
Land and land improvement $ 167,409 $ 167,409
Building and improvements 709,685 703,805
Furniture, fixtures and equipment 28,107 25,253
Less: accumulated depreciation and amortization (226,178) (206,357)
--------- ---------
Total income producing property 679,023 690,110
Land held for investment and/or sale 10,245 7,397
Real estate development in progress 35,883 18,904
Investment in unconsolidated entities 138,711 95,299
--------- ---------
Total real estate and development assets 863,862 811,710
Cash and cash equivalents 762 25,263
Restricted cash 14,810 15,623
Accounts receivable 18,882 21,078
Notes receivable 6,593 6,733
Deferred costs, net 43,520 43,654
Other assets 2,374 2,560
--------- ---------
TOTAL ASSETS $ 950,803 $ 926,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgages, notes and loans payable $ 756,813 $ 703,713
Accounts payable and other liabilities 53,664 54,929
--------- ---------
Total liabilities 810,477 758,642
Minority interest 57,071 68,955
STOCKHOLDERS' EQUITY
Common stock $.01 par value, authorized 100,000,000
shares, issued and outstanding 23,113,964 and
22,912,242 shares in 1998 and 1997, respectively 231 229
Additional paid-in capital 438,962 436,639
Accumulated deficit (354,503) (337,142)
Unamortized restricted stock award (1,435) (702)
--------- ---------
Total stockholders' equity 83,255 99,024
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 950,803 $ 926,621
========= =========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 4
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES:
Minimum rent $25,229 $24,377
Percentage rents 573 1,043
Recoveries from tenants 12,361 11,952
Other revenues 1,972 2,287
Fee income 3,006 2,056
Interest income 542 531
------- -------
43,683 42,246
EXPENSES:
Recoverable from tenants 11,121 10,842
Other operating 1,288 1,498
General and administrative 2,311 2,499
Interest expense 11,146 9,424
Depreciation and amortization 9,114 9,151
------- -------
34,980 33,414
Other income/(expense) (454) 181
Equity in earnings of unconsolidated entities 657 421
------- -------
Income before extraordinary item and minority interest 8,906 9,434
Extraordinary loss on debt extinguishment -- --
------- -------
Income before minority interest 8,906 9,434
------- -------
Minority Interest (3,621) (3,820)
------- -------
Net Income $ 5,285 $ 5,614
======= =======
Earnings Per Common Share-Basic:
Income before extraordinary item $ 0.23 $ 0.24
======= =======
Extraordinary loss on extinguishment of debt -- --
======= =======
Net income per common share-basic $ 0.23 $ 0.24
======= =======
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item $ 0.23 $ 0.24
======= =======
Extraordinary loss on extinguishment of debt -- --
======= =======
Net income per common share - assuming dilution $ 0.23 $ 0.24
======= =======
Dividends declared per common share $0.4875 $0.4725
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES:
Minimum rent $ 74,802 $ 71,395
Percentage rents 1,972 3,165
Recoveries from tenants 36,534 34,924
Other revenues 4,950 4,919
Fee income 7,750 6,417
Interest income 2,330 2,166
-------- --------
128,338 122,986
EXPENSES:
Recoverable from tenants 32,021 31,531
Other operating 3,995 4,699
General and administrative 7,295 6,736
Interest expense 33,060 31,468
Depreciation and amortization 27,411 25,998
-------- --------
103,782 100,432
Other income/(expense) (540) 384
Equity in earnings of unconsolidated entities 3,488 1,422
-------- --------
Income before extraordinary item and minority interest 27,504 24,360
Extraordinary loss on debt extinguishment (422) (8,060)
-------- --------
Income before minority interest 27,082 16,300
Minority interest (11,049) (6,999)
-------- --------
Net income $ 16,033 $ 9,301
======== ========
Earnings Per Common Share-Basic:
Income before extraordinary item $ 0.71 $ 0.65
======== ========
Extraordinary loss on extinguishment of debt (0.01) (0.22)
======== ========
Net income per common share-basic $ 0.70 $ 0.43
======== ========
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item $ 0.71 $ 0.65
======== ========
Extraordinary loss on extinguishment of debt (0.02) (0.22)
======== ========
Net income per common share - assuming dilution $ 0.69 $ 0.43
======== ========
Dividends declared per common share $ 1.4625 $ 1.4175
======== ========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE> 6
THE MILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income before minority interest $ 27,082 $ 16,300
Adjustments to reconcile income before minority interest
to net cash provided by operating activities:
Net accretion of note receivable (525) (525)
Depreciation and amortization 27,411 27,416
Provision for losses on accounts receivable 187 111
Equity in earnings of unconsolidated entities (3,488) (1,422)
Net gain on sales of land and equipment -- (509)
Restricted stock awards 568 --
Extraordinary loss on debt extinguishment 422 8,060
Other changes in assets and liabilities:
(Increase)/decrease in accounts receivable 1,863 (2,957)
Decrease in notes receivable 665 846
(Increase)/decrease in other assets 333 (1,373)
Increase in accounts payable and other liabilities 4,189 2,695
--------- ---------
Net cash provided by operating activities 58,707 48,642
INVESTING ACTIVITIES:
Investment in real estate and development assets (89,218) (50,241)
Distributions received from unconsolidated entities 14,607 3,820
Proceeds from sale of land and equipment -- 1,116
Deferred costs (6,185) (9,744)
--------- ---------
Net cash used in investing activities (80,796) (55,049)
FINANCING ACTIVITIES:
Proceeds from mortgages, notes and loans payable 176,078 167,482
Repayments of mortgages, notes and loans payable (122,978) (225,897)
Refinancing costs (1,019) (2,054)
Restricted cash 813 (2,653)
Dividends paid (33,334) (32,106)
Distributions paid (22,997) (22,973)
Proceeds from sale of common stock -- 121,811
Proceeds from exercise stock options 1,025 --
--------- ---------
Net cash provided by (used in) financing activities (2,412) (3,610)
--------- ---------
Net decrease in cash and cash equivalents (24,501) (2,797)
Cash and cash equivalents at beginning of period 25,263 6,327
--------- ---------
Cash and cash equivalents at end of period $ 762 $ 3,530
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 31,983 $ 32,464
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Mills Corporation (the "Company") is a fully integrated,
self-managed real estate investment trust ("REIT").
The Company conducts all of its business through The Mills Limited
Partnership (the "Operating Partnership"), in which it owns, as of September
30, 1998, a 1% interest as the sole general partner and a 58.33% interest as a
limited partner. The Company, through the Operating Partnership, is engaged
primarily in the ownership, development, redevelopment, leasing, acquisition,
expansion, and management of super-regional, value and entertainment-oriented
outlet malls (the "Mills") and community shopping centers (the "Community
Centers"). As of September 30, 1998, the Operating Partnership owns or holds an
interest in the following operating properties:
<TABLE>
<CAPTION>
Mills Location (Metropolitan Market Served)
----- -------------------------------------
<S> <C>
Franklin Mills Philadelphia, PA
Gurnee Mills Gurnee, IL (Chicago)
Potomac Mills Woodbridge, VA (Washington, DC)
Sawgrass Mills Sunrise, FL (Ft. Lauderdale)
Ontario Mills Ontario, CA (Los Angeles)
Grapevine Mills Dallas, TX (Dallas/Fort Worth)
Arizona Mills Tempe, AZ (Phoenix)
Community Centers Location
----------------- --------
Butterfield Plaza Downers Grove, IL
Coopers Plaza Voorhees, NJ
Crosswinds Center St. Petersburg, FL
Fashion Place Columbia, SC
Germantown Commons Shopping Center Germantown, MD
Gwinnett Marketfair Duluth, GA
Liberty Plaza Philadelphia, PA
Montgomery Village Off-Price Center Gaithersburg, MD
Mount Prospect Plaza Mount Prospect, IL
West Falls Church Outlet Center Falls Church, VA
Western Hills Plaza Cincinnati, OH
</TABLE>
In addition to the operating properties, the Company is involved in
the pre-development or development of a number of new projects, including The
Block at Orange (Orange, California), Katy Mills (Houston, TX), Meadowlands
Mills (Carlstadt, NJ), Concord Mills (Charlotte, NC), Vaughan Mills (Toronto,
Canada), Opry Mills (Nashville, TN) and Sawgrass Mills Phase III Expansion
(Sunrise, FL).
5
<PAGE> 8
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
the Company's management in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations for the nine
month period ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the full year. These financial statements
should be read in conjunction with the Company's audited financial statements
and footnotes thereto, included in the Mills Corporation Annual Report on Form
10-K for the year ended December 31, 1997.
The accompanying consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries, including its
majority owned subsidiary, the Operating Partnership. The accounts of the
Operating Partnership include the accounts of all Properties which are wholly
owned or controlled by the Operating Partnership as well as its wholly owned
subsidiaries Mills Management L.L.C. ("Mills Management"), and Management
Associates Limited Partnership ("MALP"). In addition, the Operating
Partnership owns 5% of the voting common stock and 99% of the preferred stock
of the Mills Services Corporation ("MSC"), an entity formed in connection with
the Company's initial public offering to provide development, management,
leasing and finance services to third-party companies and unconsolidated
entities. As a result of the Operating Partnership's ownership of 99% of the
economic interests, MSC is consolidated with the Operating Partnership. The
Company's interest in certain Mills operating properties, as well as certain
properties under development, are through investment in partnerships and other
types of joint venture structures. The investments are accounted for using the
equity method of accounting. All significant intercompany transactions and
balances have been eliminated in consolidation. Minority interests represent
the ownership interests in the Operating Partnership not held by the Company.
2. RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made in
the financial statements to conform to the 1998 presentation.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (FAS 128) which was adopted by the
Company on December 31, 1997. Under the new requirements, FAS 128 replaced
"primary EPS" with "basic EPS." Basic EPS is calculated by dividing income
available to common shareholders by the weighted number of common shares
outstanding during the period. Entities with complex capital structures are
required to report "diluted EPS." Diluted EPS is calculated by adjusting net
income for the period for the effects of convertible securities and dividing
the resulting adjusted net income by the weighted average shares outstanding
during the period, adjusted for the dilutive effect of options, warrants,
contingent shares and convertible securities.
4. MINORITY INTEREST
Minority interest includes the interests of unitholders' in the
Operating Partnership. The unitholders' interest is adjusted at each period end
to reflect the ownership percentage at that particular time. The unitholders
interest was 40.67% and 41.05% at September 30, 1998 and December 31, 1997,
respectively.
6
<PAGE> 9
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------- --------------------
<S> <C> <C>
Numerator for basic earnings per share $ 5,277 $ 16,011
========= =========
Numerator for diluted earnings per share $ 5,309 $ 16,123
========= =========
Denominators:
Denominator for basic earnings
per share -- weighted average shares 23,114 23,038
--------- ---------
Outstanding unvested Restricted Stock Awards --
weighted average shares (75) (75)
--------- ---------
Denominator for basic earnings per share
adjusted weighted average shares 23,039 22,963
--------- ---------
Effect of dilutive securities:
Employee stock options and grants 347 397
--------- ---------
Denominator for diluted earnings per
share-adjusted weighted-average shares 23,386 23,360
========= =========
Basic earnings per share $ 0.23 $ 0.70
========= =========
Diluted earnings per share
$ 0.23 $ 0.69
========= =========
</TABLE>
Limited partnership units in the Operating Partnership (15,845,295 and
16,328,884 outstanding at September 30, 1998 and December 31, 1997,
respectively) may be exchanged for shares of common stock of the Company on a
one-for-one basis in certain circumstances. This exchange right has not been
considered in the computation of per share data as it does not have a dilutive
effect.
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
Certain Mills under development or in operation are partially owned
through joint ventures ("Joint Ventures"). The Company is also the managing
general partner of these Joint Ventures. The Company's interest in each Joint
Venture is as follows:
<TABLE>
<CAPTION>
Ownership %
Joint Venture as of September 30, 1998
------------- ------------------------
<S> <C>
Ontario Mills 50.0%
Grapevine Mills 37.5%
Arizona Mills 36.8%
Sawgrass Mills Phase III 50.0%
The Block at Orange 50.0%
Concord Mills 50.0%
Katy Mills 75.0%
Meadowlands Mills 66.7%
Opry Mills 66.7%
</TABLE>
7
<PAGE> 10
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As major business decisions require the approval of at least one other General
Partner, the Company is deemed to not control these joint ventures pursuant to
Statement of Position 78-9. As a result, its investments are accounted for
under the equity method, where the investments are recorded at cost and
subsequently adjusted for net equity in income (loss) and cash contributions
and distributions. The Company reduces its investments in Joint Ventures to
eliminate intercompany profits on sales of services that are capitalized by the
Joint Ventures.
In connection with the Joint Venture agreements, the Company is committed to
providing certain levels of equity in addition to amounts invested to date.
The Company has guaranteed repayment of $71.1 million of Joint Venture debt
until certain debt service coverage tests are met. In addition, the Company is
contingently liable for property taxes and assessments levied against Ontario
Mills Limited Partnership by the City of Ontario Special Assessment District.
The remaining aggregate amount of the special tax assessment is approximately
$18.8 million and will be collected over a 25 year period through 2020 to fund
debt service on bonds issued by the City to fund the infrastructure
improvements.
On August 18, 1998, the Company and its joint venture partners for the
Grapevine Mills Limited Partnership entered into a mortgage agreement to borrow
$155.0 million. The prior construction loan was repaid with proceeds from this
new loan. Interest accrues at 6.465%, with an interest only period through
September 1, 2002. Principal and interest will commence October 1, 2002 and
will be based on a 30-year amortization with an anticipated balloon repayment
in October 2008. The Company and Simon DeBartolo Group, Inc. (joint venture
partner) have each guaranteed $5 million on this loan. The guarantee
terminates when the debt service coverage ratio for any twelve consecutive
months is equal to or exceeds 1.5 to 1.0.
On November 2, 1998, the Company and its joint venture partners refinanced
Ontario Mills Limited Partnership for $145,000,000. Interest accrues at 6.75%.
Principal and interest payments will be based on a 30-year amortization with an
anticipated balloon repayment in December, 2008.
8
<PAGE> 11
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Combined balance sheets at September 30, 1998 and December 31, 1997 and results
of operations for the nine months ended September 30, 1998 and 1997 are
presented below for all Joint Ventures.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets:
Income producing assets $ 458,287 $ 465,316
Construction in progress 298,358 112,495
Other 143,449 122,458
----------- ----------
$ 900,094 $ 700,269
=========== ==========
Liabilities and partners' equity:
Debt $ 496,375 $ 358,538
Other liabilities 74,842 71,849
Operating Partnership's accumulated equity 93,754 75,600
Joint Venture partners' accumulated equity 235,123 194,282
----------- ----------
$ 900,094 $ 700,269
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
----------- ----------
<S> <C> <C>
Revenues $ 67,316 $ 20,734
Recoverable and other property expenses (21,201) (7,113)
Interest expense (20,251) (6,049)
Depreciation and amortization (18,870) (5,738)
Other income 5,574 5,004
Extraordinary loss on debt extinguishment -- (961)
----------- ---------
$ 12,568 $ 5,877
=========== ==========
Operating Partnership's equity in earnings of unconsolidated joint ventures $ 3,488 $ 1,422
=========== ==========
</TABLE>
9
<PAGE> 12
THE MILLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The primary difference between the carrying value of the Company's
investment in unconsolidated joint ventures and the Operating Partnership's
accumulated equity noted above is due to capitalized interest on the investment
balance, capitalized development and leasing costs which are recovered by the
Operating Partnership through fees earned during construction and loans to the
Joint Ventures included in other liabilities above.
6. REVENUE RECOGNITION
In May 1998, the Financial Accounting Standards Board issued EITF 98-9
"Accounting for Contingent Rent in Interim Financial Periods. " The provisions
of EITF 98-9 do not allow the Company to accrue percentage rent until the
tenant's sales have reached the break points stipulated in the respective
tenant leases. The Company implemented EITF 98-9 for the quarter ended June
30, 1998. The effect of implementation of this EITF was a decrease in
percentage rent for the three months and nine months ended September 30, 1998
of $0.5 million and $1.3 million respectively, which the Company expects to
recognize as income in the fourth quarter of 1998.
7. DECLARATION OF DIVIDEND
On September 22, 1998, the Company declared a dividend of $.4875 per
share which was paid on October 20, 1998 to stockholders of record as of
October 1, 1998.
10
<PAGE> 13
THE MILLS CORPORATION
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of three months ended September 30, 1998 to three months ended
September 30, 1997.
Income before extraordinary item and minority interest for the three months
ended September 30, 1998 decreased by approximately $0.5 million, (5.6%) to
$8.9 million as compared to the three months ended September 30, 1997. The
decrease was the result of an increase in expenses of approximately $1.6
million (4.7%), a decrease in other income/(expense) of $0.6 million (350.8%)
offset by increases in revenues of approximately $1.4 million (3.4%) and equity
in earnings of unconsolidated joint ventures of $0.2 million (56.1%).
Revenues:
Minimum rents for the three months ended September 30, 1998 increased
approximately $0.9 million (3.5%) compared with the three months ended
September 30, 1997. The increase was primarily due to additional rents
obtained in connection with the Company's expansion and remerchandising efforts
coupled with higher occupancy levels and lease rates across the properties.
Percentage rents for the three months ended September 30, 1998 decreased
approximately $0.5 million (45.1%) compared with the three months ended
September 30, 1997. The decrease was due to the implementation in 1998 of EITF
98-9 which does not allow the Company to accrue percentage rents until the
tenant's sales have reached the break points stipulated in the respective
leases. The Company expects to recognize the percentage rent as income in the
fourth quarter 1998.
Recoveries from tenants for the three months ended September 30, 1998 increased
$0.4 million (3.4%) compared to the three months ended September 30, 1997. The
increase was primarily due to increases in occupancy and recoverable operating
costs for various projects as well as an increase in the recoveries from
Franklin Mills due to increasing the management-imposed ceiling on operating
cost pass-through.
Other property revenue for the three months ended September 30, 1998 decreased
$0.3 million (13.8%) compared to the three months ended September 30, 1997.
The decrease was primarily due to receiving a $0.5 million workers compensation
refund during the third quarter 1997.
Fee income for the three months ended September 30, 1998 increased $1.0 million
(46.2%) compared with the three months ended September 30, 1997. Fee income
for the quarter ended September 30, 1998 is comprised of management fees of
approximately $0.7 million and development, leasing and finance fees of
approximately $2.3 million as compared to $0.4 million and $1.6 million,
respectively, for the same period in 1997. The increase in management fees in
1998 is due to the opening of two additional Mills projects in the fourth
quarter 1997 (Arizona Mills and Grapevine Mills) from which the Company is
earning management fees. The increase in development, leasing and finance fees
in 1998 was due to fees being earned from five projects in 1998 (The Block at
Orange, Grapevine Mills, Katy Mills, Concord Mills and Sawgrass Phase III
Expansion) versus four projects in 1997 (The Block at Orange, Arizona Mills,
Grapevine Mills and Ontario Mills).
Expenses:
Recoverable expenses for the three months ended September 30, 1998 increased
$0.3 million (2.6%) compared with the three months ended September 30, 1997.
The increase was primarily due to an increase in real estate taxes of $0.1
million at Potomac Mills and an increase painting costs of $0.1 million at
Franklin Mills .
Other operating expenses for the three months ended September 30, 1998
decreased $0.2 million (14.0%) compared with the three months ended September
30, 1997. The decrease was primarily due to a decrease in contributions to
promotional programs of $0.1 million and a decrease in legal fees of $0.1
million for landlord/tenant litigation.
11
<PAGE> 14
THE MILLS CORPORATION
(Unaudited)
Interest expense for the three months ended September 30, 1998 increased $1.7
million (18.3%) compared with the three months ended September 30, 1997. This
increase was due to a larger average debt balance for the three months ending
September 30, 1998 than the prior period as a result of continued growth in the
Company's business.
Other income/(expense) for the period September 30, 1998 decreased $0.6 million
(350.8%) compared with the three months ended September 30, 1997. The decrease
was primarily due the Company expensing costs associated with abandoned
projects during the period ending September 30, 1998 of $0.4 million.
Equity in earnings of unconsolidated joint ventures for the period September
30, 1998 increased $0.2 million (56.1%) compared with the three months ended
September 30, 1997. The increase was due to recording income from two
additional malls during the three months ending September 1998. Arizona Mills
and Grapevine Mills opened during the fourth quarter 1997. The earnings for
the three months ending September 30, 1998 were reduced by the extraordinary
loss at Grapevine associated with debt extinguishment of $0.8 million
(Company's pro rata share).
12
<PAGE> 15
THE MILLS CORPORATION
(Unaudited)
Comparison of nine months ended September 30, 1998 to nine months ended
September 30, 1997.
Income before extraordinary item and minority interest for the nine months
ended September 30, 1998 increased by approximately $3.1 million (12.9%) to
$27.5 million as compared with the nine months ended September 30, 1997. The
increase was the result of an increase in revenues of approximately $5.4
million (4.4%), an increase in equity in earnings of unconsolidated joint
ventures of $2.1 million (145.3%) offset by an increase in expenses of
approximately $3.4 million (3.3%) and a decrease in other income/(expense) of
$0.9 million (240.6%).
Revenues:
Minimum rents for the nine months ended September 30, 1998 increased
approximately $3.4 million (4.8%) compared with the nine months ended September
30, 1997. The increase was primarily due to additional rents obtained in
connection with the Company's expansion and remerchandising efforts coupled
with higher occupancy levels and lease rates across the properties.
Percentage rents for the nine months ended September 30, 1998 decreased
approximately $1.2 million (37.7%) compared with the nine months ended
September 30, 1997. The decrease was due to the implementation in 1998 of EITF
98-9 which does not allow the Company to accrue percentage rents until the
tenant's sales have reached the break points stipulated in the respective
leases. The Company expects to recognize the percentage rent as income in the
fourth quarter 1998.
Recoveries from tenants for the nine months ended September 30, 1998 increased
$1.6 million (4.6%) compared to the nine months ended September 30, 1997. The
increase was primarily due to increases in occupancy and recoverable operating
costs for various projects as well as an increase in the recoveries from
Franklin Mills due to increasing the management-imposed ceiling on operating
cost pass-throughs.
Fee income for the nine months ended September 30, 1998 increased $1.3 million
(20.8%) compared with the nine months ended September 30, 1997. Fee income
for the nine months ended September 30, 1998 is comprised of management fees of
approximately $2.3 million and development, leasing and finance fees of
approximately $5.4 million as compared to $1.3 million and $5.1 million,
respectively, for the same period in 1997. The increase in management fees in
1998 is due to the opening of two additional Mills projects in the fourth
quarter of 1997 (Arizona Mills and Grapevine Mills) from which the Company is
earning management fees. The increase in development, leasing and finance fees
in 1998 was due to fees being earned from five projects in 1998 (The Block at
Orange, Grapevine Mills, Katy Mills, Concord Mills and Sawgrass Phase III
Expansion) versus four projects in 1997 (The Block at Orange, Arizona Mills,
Grapevine Mills and Ontario Mills).
Expenses:
Recoverable expenses for the nine months ended September 30, 1998 increased
$0.5 million (1.6%) compared with the nine months ended September 30, 1997.
The increase was primarily due to an increase in real estate taxes of $0.3
million at Potomac Mills and an increase in painting costs of $0.1 million at
Franklin Mills.
Other operating expenses for the nine months ended September 30, 1998 decreased
$0.7 million (15.0%) compared with the nine months ended September 30, 1997.
The decrease was primarily due to a decrease in contribution to promotional
programs of $0.2 million, a decrease in legal costs $0.2 and a decrease in bad
debt expense of $0.3 million at certain projects.
13
<PAGE> 16
THE MILLS CORPORATION
(Unaudited)
General and administrative expenses for the nine months ended September 30,
1998 increased $0.6 million (8.3%) compared with the nine months ended
September 30, 1997. The increase was due to additional personnel required for
increased domestic and international development activities and the opening of
additional projects.
Interest expense for the nine months ended September 30, 1998 increased $1.6
million (5.1%) compared with the nine months ended September 30, 1997. This
increase was due to a larger average debt balance for the three months ending
September 30, 1998 than the prior period as a result of continued growth in the
Company's business.
Depreciation and amortization expense for the nine months ending September 30,
1998 increased $1.4 million (5.4%) compared with the nine months ending
September 30, 1997. The increase was due to expense relating to assets placed
in service during the second half of 1997 associated with the remerchandising
of Franklin Mills, Potomac Mills and Gurnee Mills.
Other income/(expense) for the period September 30, 1998 decreased $0.9 million
(240.6%) compared with the nine months ended September 30, 1997. The decrease
was due the Company expensing costs associated with abandoned projects in 1998
of $0.4 million and recognizing a gain on the sale of land in 1997 of $0.5
million.
Equity in earnings of unconsolidated joint ventures for the nine months ending
September 30, 1998 increased $2.1 million (145.3%) compared with the nine
months ended September 30, 1997. The increase was due to recording income
associated with the two new Mills (Arizona Mills and Grapevine Mills) which
opened during the fourth quarter 1997.
Extraordinary loss on debt extinguishment for the nine months ending September
30, 1998 decreased $7.6 million (94.8%) compared with the nine months ended
September 30, 1997. The decrease was due to a non-cash write off of $8.1
million ($4.1 million net of minority interest) in deferred loan costs
resulting from the refinancing of Franklin Mills in the second quarter of 1997.
14
<PAGE> 17
THE MILLS CORPORATION
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's balance of cash and cash
equivalents was $0.8 million, not including its proportionate share of cash
held in unconsolidated entities. In addition to its cash reserves, the Company
had $32 million available under its line of credit. The terms of the facility
are as follows:
<TABLE>
<CAPTION>
- ------------------ AMOUNT
TOTAL OUTSTANDING
FACILITY AT 9/30/98
MATURITY INTEREST RATE TERMS (000'S) (000'S)
-------- ------------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Line of Credit............... 4/1/00 LIBOR + 1.40% Interest Only $ 100,000 $ 68,000
</TABLE>
On April 1, 1998, the Company refinanced its existing $60.0 million
line of credit with borrowings under a unsecured revolving line of credit
facility with Hypo Bank of New York. The line will be used to fund working
capital requirements, real estate acquisitions, development costs and equity
investments. The term of the facility is for two years with a one year
extension option. Interest is payable at a variable rate with a variable
margin (LIBOR plus 1.40 percent at September 30, 1998) based on the Company's
debt coverage ratio. A facility fee of 0.20% is charged annually on the entire
$100.0 million facility.
Any amounts available under the line of credit are subject to certain
performance measurements and restrictive covenants. The Company was in
compliance with the applicable covenants at September 30, 1998.
On April 23, 1998, the Operating Partnership entered into a loan
agreement to borrow $15.0 million. The initial term expires on January 18,
1999, with two options for one year extensions. Interest is payable at a
variable rate (LIBOR plus 1.25 percent at September 30, 1998). The loan is
guaranteed by the Company.
The Company had consolidated debt of approximately $756.8 million at
September 30, 1998; of which $639.1 million was fixed-rate and $117.7 million
was variable-rate. Scheduled principal repayments of consolidated indebtedness
through 2002 are $358.9 million with $397.9 million due thereafter. The
Company expects to refinance or repay these obligations with cash generated
from operations, external borrowings (including refinancing of existing loans)
or equity issuances. The Company's pro rata share of unconsolidated joint
venture debt at September 30, 1998, was $196.3 million (net of tax increment
financing), of which it had guaranteed $71.1 million.
The Company's ratio of debt-to-total market capitalization was 45.5%
and 40.1% at September 30, 1998 and September 30, 1997, respectively. If the
Company's pro rata share of indebtedness of all unconsolidated joint venture
properties were included, the ratio of debt-to-total market capitalization
would be 51.3% and 43.7%, respectively.
15
<PAGE> 18
THE MILLS CORPORATION
(Unaudited)
Development, Remerchandising and Expansion. The Company is involved in the
following development, remerchandising and expansion efforts:
The Company currently is working on the development of six new projects: The
Block at Orange, Katy Mills, Concord Mills, Opry Mills, Vaughan Mills and
Meadowlands Mills. The Block at Orange is scheduled to open in the fourth
quarter of 1998. Kan Am, the Company's joint venture partner in the
development of the project, has funded all of the required equity for this
project ($60 million). The joint venture has also obtained a $136 million loan
commitment for this project. Concord Mills and Katy Mills are scheduled to
open in the second half of 1999. These projects will be financed principally
with external borrowings and other equity contributions from joint venture
partners and the Operating Partnership. The Concord Mills joint venture has
obtained a $199 million construction loan commitment for the project and the
Katy Mills joint venture expects a construction loan commitment in the fourth
quarter 1998. The Company anticipates that the Operating Partnership's equity
requirements for Concord Mills and Katy Mills may total as much as $60 million
in the aggregate, of which approximately $46 million had been funded as of
September 30, 1998.
In October 1998, the Company entered into a settlement agreement with Chelsea
GCA Realty, Inc., Simon Property Group, L.P., and certain of their affiliates
by which the parties settled litigation concerning efforts by Chelsea and
Simon to develop a shopping center in the Houston, Texas area. In the
settlement agreement, the Company agreed to purchase Chelsea's interest in the
proposed project by reimbursing Chelsea for its share of land costs,
development costs and fees related to the project, and to make $21.4 million
in additional payments to Chelsea over a four-year period. The Company
anticipates that the construction loan and equity contributions for Katy Mills
would be sufficient to cover the Company's obligations to make the deferred
payments.
In February 1998, the Company announced that it had secured a site in
Vaughn, Ontario for the development of Vaughan Mills, the first Mills project
to be developed outside of the United States. This project will be developed
through a joint venture with Cambridge. The Company broke ground for Opry
Mills on October 5, 1998 and expects to commence development of Meadowlands
Mills in the fourth quarter of 1999. The Company anticipates that the Operating
Partnership's required total equity requirements for Opry Mills, Meadowland
Mills, and Vaughan Mills may exceed $100 million, of which approximately $20
million had been funded at September 30, 1998. The Company currently is
negotiating arrangements to obtain the balance of such equity requirements, but
these arrangements are subject to certain matters outside the control of the
Company (see Cautionary Statement, Index page). In connection with the
Meadowlands project, the Company has acquired a mortgage interest in a 592-acre
site located on the New Jersey Turnpike (I-95) adjacent to the Meadowlands
sports Complex and approximately five miles from New York City. Commencement
of construction may be delayed pending the completion of ongoing Environmental
Impact Statement and the federal/state permitting process. In December 1997,
the White House Council on Environmental Quality joined the Army Corp of
Engineers, the Environmental Protection Agency and other federal agencies in
proposing a Special Area Management Plan (SAMP) for the Meadowlands area. The
guidelines proposal in the SAMP would, upon their anticipated adoption in late
1998, permit Meadowland Mills to be developed on a site ranging in size between
125 and 200 acres. Upon procurement of all necessary entitlements it is
anticipated that the project will be developed by a joint venture formed among
the Operating Partnership (whose effective interest will be diluted from 66.7%
to 58.2%), Kan Am (29.1%), Empire Ltd.(9.2%), and Bennett S. Lazare and
individual affiliated with the Empire Ltd. (3.5%).
In May 1998, the Operating Partnership entered into an agreement with
Taubman Realty Group to develop jointly at least seven major value retail
projects over a ten year period. The Company and Taubman are currently in the
process of formalizing joint venture agreements for these projects.
In addition to the above the Company is also conducting due diligence
on several other proposed sites, including sites in San Francisco, California,
North Aurora, Illinois (Chicago), Atlanta, Georgia, Cleveland, Ohio,
Philadelphia, Pennsylvania, South Weymouth, Massachusetts (Boston), Tampa,
Florida and Baltimore, Maryland. The Company is also continuing to evaluate
various prospective international sites outside of Canada with a concentrated
focus on South America and Europe as well as other domestic sites for other
Mills-type projects and for the Company's new "Block" project format.
16
<PAGE> 19
THE MILLS CORPORATION
(Unaudited)
The Company is in the process of expanding and/or remerchandising
Potomac Mills, Sawgrass Mills, Franklin Mills and Gurnee Mills. The costs of
these expansion and remerchandising programs is estimated at $145 million. At
September 30, 1998, approximately $68 million had been spent on these projects
and it is anticipated that an additional $77 million will be spent during the
next two years. Of the estimated costs of $145 million, $78 million will be
financed with external sources and $77 million will be funded by the Operating
Partnership. At September 30, 1998 the Operating Partnership had funded $48
million of the required equity to finance those programs.
Capital Resources. The Company anticipates that its operating
expenses, interest expense on outstanding indebtedness, recurring capital
expenditures and distributions to stockholders in accordance with REIT
requirements will be provided by cash generated from operations, potential
ancillary land sales and borrowings under its Line of Credit.
The Company believes that it will have the capital and access to
additional capital resources sufficient to expand and develop its business in
accordance with its operating, development and financing strategies.
Dividends. The Company has paid and intends to continue to pay
regular quarterly distributions to its stockholders. Dividends are payable at
the discretion of the Board of Directors and depend on a number of factors,
including net cash provided by operating activities, its financial condition,
capital commitments, debt repayment schedules and such other factors as the
Board of Directors deems relevant.
CASH FLOWS
Comparison of Nine Months Ended September 30, 1998 to Nine Months
Ended September 30, 1997. Net cash provided by operating activities increased
approximately $10.1 million (20.7%) to $58.7 million for the nine months ended
September 30, 1998 as compared to $48.6 million for the nine months ended
September 30, 1997, primarily resulting from net operating income growth for
the portfolio as a whole. Net cash used in investing activities increased
approximately $25.8 million (46.8%) to $80.8 million for the nine months ended
September 30, 1998, as compared to $55.0 million for the nine months ended
September 30, 1997, primarily as a result of increased expenditures for real
estate and development assets and advances to certain joint ventures. Net cash
used in financing activities decreased approximately $1.2 million (33.2%) to
$2.4 million for the nine months ended September 30, 1998, as compared to $3.6
million for the nine months ended September 30, 1997 due to the incurrence of
financing costs of $2.1 million in connection with certain debt refinancings in
1997 versus $1.0 million in financing costs in 1998.
FUNDS FROM OPERATIONS
The Company generally considers Funds From Operations ("FFO") a widely
used and appropriate measure of performance for an equity REIT which provides a
relevant basis for comparison among REITs. FFO as defined by National
Association of Real Estate Investment Trusts (NAREIT) means income (loss)
before minority interest (determined in accordance with Generally Accepted
Accounting Principles (GAAP), excluding gains (losses) from debt restructuring
and sales of property, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures. FFO
is presented to assist investors in analyzing the performance of the Company.
The Company's method of calculating FFO may be different from methods used by
other REITs and, accordingly, may not be comparable to such other REITs. FFO
(i) does not represent cash flows from operations as defined by GAAP, (ii) is
not indicative of cash available to fund all cash flow needs and liquidity,
including its ability to make distributions and (iii) should not be considered
as an alternative to net income (determined in accordance with GAAP) for
purposes of evaluating the Company's operating performance.
17
<PAGE> 20
THE MILLS CORPORATION
(Unaudited)
FFO for the nine months ended September 30, 1998 increased to $60.1 million
compared to $51.2 million for the comparable period in 1997. FFO amounts were
calculated in accordance with NAREIT's definition of FFO as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
- --------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C>
Funds From Operations Calculation:
Income before extraordinary item and $ 8,906 $ 9,434 $ 27,504 $ 24,360
minority interest.......................
Adjustments:
Add: Depreciation and amortization 8,222 8,370 24,591 23,817
of real estate assets.................
Add: Extraordinary loss on debt -- -- -- 397
extinguishment of unconsolidated
joint ventures
Add: Real estate depreciation and
amortization of unconsolidated 3,126 930 8,015 2,576
--------- --------- ---------- -----------
entities
Funds From Operations...................... $ 20,254 $ 18,734 $ 60,110 $ 51,150
========= ========= ========== ===========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEASONALITY
The regional shopping center industry is seasonal in nature, with mall
tenant sales peaking in the fourth quarter due to the Christmas season. As a
result, a substantial portion of the percentage rents are not paid until the
fourth quarter. Furthermore, most new lease-up occurs towards the latter part
of the year in anticipation of the holiday season and most vacancies occur
toward the beginning of the year. In addition, the majority of the temporary
tenants take occupancy in the fourth quarter. Accordingly, cash flow and
occupancy levels are generally lowest in the first quarter and highest in the
fourth quarter. This seasonality also impacts the quarter-by-quarter results of
net operating income and FFO, although this impact is largely mitigated by
recognizing minimum rents on a straight-line basis over the term of related
leases in accordance with GAAP.
ECONOMIC TRENDS
Because inflation has remained relatively low during the last three
years, it has had little impact on the operation the Company during that
period. Even in periods of higher inflation, however, tenant leases provide, in
part, a mechanism to help protect the Company. As operating costs increase,
leases permit a pass-through of the common area maintenance and other operating
costs, including real estate taxes and insurance, to the tenants. Furthermore,
most of the leases contain base rent steps and percentage rent clauses that
provide additional rent after a certain minimum sales level is achieved. These
provisions provide some protection to the Company during highly inflationary
periods.
IMPLICATIONS OF YEAR 2000
The Year 2000 ("Y2K") presents the problem that many existing computer programs
do not have the ability to properly recognize a year that begins with "20"
instead of the familiar "19". As a result, programs having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. The failure to accurately recognize the year 2000 could result in a
variety of problems from data miscalculations to system failure. The Company
has identified potential risks related to the Y2K problem in five primary
areas: computer hardware, operating systems software, applications software,
telephone and voice mail, and embedded/3rd-party systems.
18
<PAGE> 21
THE MILLS CORPORATION
(Unaudited)
STATE OF READINESS
A. The Project Plan
The Company has developed a Year 2000 Compliance Assessment and
Remediation Project Plan (the "Project Plan") for the purpose of identifying,
understanding and addressing the issues associated with the Y2K problem. The
Project Plan involves three phases: Phase I (which has been implemented)
involved establishing a team of Company personnel and outside consultants who
would provide the technical expertise, temporary human resources and Project
management skills necessary to execute the Plan; Phase II (which is currently
in progress) focuses on inventory (i.e. identifying hardware, software, and
critical embedded/3rd-party systems) and assessment of Company information
technology and telecommunications systems; and Phase III (which will be
implemented in 1999) shall involve the repair or replacement of non-compliant
hardware, software and embedded systems, if required.
With respect to Y2K readiness of embedded systems, the Company is
seeking assurances from its vendors, contractors, lenders and tenants through
questionnaires, and will conduct testing, verification and/or remediation
in-house on an as needed basis. To date, questionnaires have been sent and
responses are being recorded and logged for follow-up. With respect to
computer systems, the Company is using consultants and in-house staff to
inventory, test and verify Y2K compliance of all hardware and software.
B. Financial and Accounting Systems
The Company is currently assessing its exposure with respect to its
accounting and management software. Specifically, a new general ledger system
will be installed and fully Y2K compliant by First Quarter 1999. The Company
has also developed its own Y2K compliant software package for its tenant ledger
system that was installed in 1998. The Company's payroll service provider has
recently received its ITAA*2000 certification. The Company will continue to
assess its software to determine whether additional portions will have to be
modified or replaced.
COSTS
The Company currently estimates a completion date of June 1999 for the
Y2K project. The Company believes that with the implementation of the new
financial and accounting systems, planned and completed, the Y2K issue will not
pose significant operational issues or costs. However, the costs of the
project and the date on which the Company plans to complete the Y2K
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party Y2K readiness and other factors.
RISK ASSESSMENT
Based on the information the Company has received to date, the Company
does not believe that the impact of the Y2K problem will have a material
adverse effect on the its financial condition and results of operations.
Moreover, because the Company's major source of income is rental payments under
long term leases, the failure of key information systems is not expected to
have a material adverse effect on the Company's financial condition and results
of operations. Even if the Company experienced problems with its information
systems, the payment of rent under the leases would not be excused.
Should any of the Company's lenders, manufacturers, vendors or
suppliers cease to conduct business due to Y2K related problems, the Company is
prepared to contract with alternate providers without experiencing any material
adverse effect on the its financial condition and results of operations. With
regard to tenants, the Company is currently contacting tenants in order to
assess the risk of tenants' failure to operate due to the Y2K problem and the
possible effect on the Company's rental income, if any.
19
<PAGE> 22
CONTINGENCY PLANS
Contingency plans will be prepared so that the Company's critical
business processes can be expected to continue to function on January 1, 2000
and beyond. The Company's contingency plans will be structured to address both
remediation of systems and their components and overall business operating
risk. These plans are intended to mitigate both internal risks as well as
potential risks in the supply chain of the Company's suppliers and customers.
20
<PAGE> 23
THE MILLS CORPORATION
(Unaudited)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Exhibit Index attached hereto is hereby incorporated by reference
to this item.
Reports on Form 8-K were filed by the Company on November 4, 1998 and
August 26, 1998 to report certain operational information concerning
the Company and the properties owned or managed by it as of June 30,
1998 and March 31, 1998, respectively. No other reports on Form 8-K
were filed by registrant for the applicable quarter covered by this
report.
21
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
THE MILLS CORPORATION
November 16, 1998 : /s/ Kenneth R. Parent
- ---------------------------------- --------------------------------------------------------
(Date) Kenneth R. Parent
Executive Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
22
<PAGE> 25
THE MILLS CORPORATION
EXHIBIT INDEX
(Pursuant to item 601 of Regulation S-K)
<TABLE>
<S> <C>
1.1 None
2.1 None
***3.1 Amended and Restated Certificate of Incorporation of the Company
***3.2 Amended and Restated Bylaws of the Company
**3.3 Limited Partnership Agreement of the Operating Partnership (filed as part of
Exhibit 10.3)
*4.1 Specimen Common Stock Certificate of Company
*4.2 Agreement dated March 15, 1994, among Richard L. Kramer, the A.J. 1989 Trust,
the Irrevocable Intervivos Trust for the Benefit of the Kramer Children, the N
Street Investment Trust, Equity Resources Associates, Herbert S. Miller, The
Mills Corporation and The Mills Limited Partnership (filed as Exhibit 10.19)
**4.3 Non-Affiliate Registration Rights and Lock-Up Agreement
**4.4 Affiliate Registration Rights and Lock-Up Agreement
*10.1 Form of Employee Non-Compete/Employment Agreements
10.2 Amended and Restated 1994 Executive Equity Incentive Plan
**10.3 Limited Partnership Agreement of Operating Partnership
*10.5 Form of Noncompetition Agreement between the Company, the Operating Partnership
and each of Kan Am and the Kan Am Partnerships
*10.6 Form of Noncompetition Agreement with Kan Am Directors
*10.7 Trust and Servicing Agreement, dated as of December 1, 1993, among Sawgrass
Finance L.L.C., as depositor, The First National Bank of Chicago, as servicer,
and State Street Bank and Trust Company, as Trustee
*10.28 Absolute Assignment of Mortgage and Loan Documents dated January 31, 1996 by and
between CS First Boston Mortgage Capital Corporation as assignor and PFL Life
Insurance Company as assignee
21.1 List of Subsidiaries of the Registrant
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
* Incorporated by reference to the Registrant's Registration Statement on Form S-11, Registration
No. 33-71524, which was declared effective by Securities and Exchange Commission on April 14, 1994
(Commission File No. 1-12994).
** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the first quarter ended
March 31, 1994 (Commission File No. 1-12994).
*** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the second quarter ended June 30,
1997.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
THE MILLS CORPORATION
AMENDED AND RESTATED 1994 EXECUTIVE EQUITY INCENTIVE PLAN
The Mills Corporation Amended and Restated 1994 Executive Equity
Incentive Plan (the "Plan") amends and restates in its entirety The Mills
Corporation 1994 Executive Equity Incentive Plan, as amended, which became
effective upon the closing of The Mills Corporation's initial public offering on
April 21, 1994 (the "Effective Date").
1. DEFINITIONS.
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1 "AGREEMENT" means a written agreement implementing a grant of an
Option or an award of Restricted Stock.
1.2 "BOARD" means the Board of Directors of the Company.
1.3 "CODE" means the Internal Revenue Code of 1986, as amended.
1.4 "COMMITTEE" means the committee of the Board meeting the
standards of Rule 16b-3(d)(1) under the Exchange Act, or any similar
successor rule and Treas. Reg. Section 1.162-27(e)(3) or any similar successor
rule, appointed by the Board to administer the Plan. Unless otherwise
determined by the Board, the Executive Compensation Committee of the Board
shall be the Committee.
1.5 "COMMON STOCK" means the common stock, par value $.01 per share,
of the Company.
1.6 "COMPANY" means The Mills Corporation.
1.7 "CONVERSION MULTIPLE" shall have the meaning set forth in
Article II of the Limited Partnership Agreement.
1.8 "DATE OF EXERCISE" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of SECTION 9
hereof.
1.9 "DATE OF GRANT" means the date on which an Option is granted or
Restricted Stock is awarded by the Committee (or such later date as specified in
advance by the Committee) or, in the case of a Nonstatutory Stock Option granted
to an Outside Director, the date on which such Nonstatutory Stock Option is
granted pursuant to and in accordance with the provisions of Section 11 hereof.
1.10 "OUTSIDE DIRECTOR" means any person who is a director of the
Company and who is not also an employee of either the Company, the Limited
Partnership or any of their affiliates.
1.11 "EMPLOYEE" means any REIT Employee or a Limited Partnership
Employee.
1.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
1.13 "FAIR MARKET VALUE" of a Share means:
(a) If on the applicable date the Common Stock is listed
for trading on a national or regional securities exchange or
authorized for quotation on the National Association of
Securities Dealers, Inc.'s Nasdaq National Market System
("NASDAQ/NMS"), the closing price of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on the applicable
date, or if no sales of Common Stock shall have occurred on such
exchange or NASDAQ/NMS, as the case
<PAGE> 2
may be, on the applicable date, the closing price of the Common
Stock on the next preceding date on which there were such sales;
(b) If on the applicable date the Common Stock is not
listed for trading on a national or regional securities exchange
or authorized for quotation on NASDAQ/NMS, the mean between the
closing bid price and the closing ask price of the Common Stock
as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") with respect to the
applicable date or, if closing bid and ask prices for the Common
Stock shall not have been so reported with respect to the
applicable date, on the next preceding date with respect to
which such bid and ask prices were so reported; or
(c) If on the applicable date the Common Stock is not
listed for trading on a national or regional securities exchange
or is not authorized for quotation on NASDAQ/NMS or NASDAQ, the
Fair Market Value of a Share as determined by the Committee
pursuant to a reasonable method adopted in good faith for such
purpose.
Such Fair Market Value shall be subject to adjustment as provided in
SECTION 24 hereof.
1.14 "GRANTEE" means an Outside Director or an Employee to whom
Restricted Stock has been awarded pursuant to SUBSECTION 7.6 hereof.
1.15 "INCENTIVE STOCK OPTION" means on Option granted under the Plan
that qualifies as an incentive stock option under Section 422 of the Code and
that the Company designates as such in the Agreement granting the Option.
1.16 "LIMITED PARTNERSHIP" means The Mills Limited Partnership, a
Delaware limited partnership.
1.17 "LIMITED PARTNERSHIP AGREEMENT" means the Limited Partnership's
Amended and Restated Limited Partnership Agreement dated April 21,
1994.
1.18 "LIMITED PARTNERSHIP EMPLOYEE" means any person determined by
the Committee to be an employee of the Limited Partnership or any Limited
Partnership Subsidiary.
1.19 "LIMITED PARTNERSHIP SUBSIDIARY" means an entity at least 50%
of the total equity interests of which is owned by the Limited Partnership
either directly or through one or more Limited Partnership Subsidiaries.
1.20 "NONSTATUTORY STOCK OPTION" means an Option granted under the
Plan that is not an Incentive Stock Option.
1.21 "OPTION" means an option to purchase Shares granted under the
Plan in accordance with the terms of either SECTION 7 or SECTION 11 hereof.
1.22 "OPTIONEE" means an Outside Director or an Employee to whom an
Option has been granted.
1.23 "OPTION PERIOD" means the period during which an Option may be
exercised.
1.24 "OPTION PRICE" mean the price per Share at which an Option may
be exercised. The Option Price shall be determined by the Committee, except
that, in the case of Nonstatutory Stock Options covering up to a maximum of
985,000 Shares to be granted to certain Employees contemporaneously with the
consummation of the initial public offering of the Common Stock, and in the case
of Nonstatutory Stock Options granted to the Outside Directors pursuant to the
provisions of SECTION 11, in no event shall the Option Price in respect of
Options granted contemporaneously with the initial public offering be less than
the initial public offering price of a share of Common Stock, and in all other
cases, the Option Price shall not be less that 100% of the Fair Market Value per
Share determined as of the Date of Grant.
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<PAGE> 3
1.25 "PERMANENT DISABILITY" means a mental or physical condition
which, in the opinion of the Committee, renders an Optionee or Grantee unable or
incompetent to carry out the job responsibilities which such Optionee or Grantee
held or tasks to which such Optionee or Grantee was assigned at the time the
disability was incurred and which is expected to be permanent or for an
indefinite period.
1.26 "PLAN" means The Mills Corporation Amended and Restated 1994
Executive Equity Incentive Plan, as the same may be amended, modified or
supplemented from time to time.
1.27 "RELOAD OPTION" means a new Option granted to an Optionee
pursuant to and in accordance with SUBSECTIONS 4.2(d)(v) and 9.2 hereof, upon
the surrender of Shares to pay the Option Price of a previously granted Option.
1.28 "REIT EMPLOYEE" means any person determined by the Committee to
be an employee of the Company or any REIT Subsidiary.
1.29 "REIT SUBSIDIARY" means a corporation at least 50% of the total
combined voting power of all classes of stock which is owned by the Company
either directly or through one or more REIT Subsidiaries.
1.30 "RESTRICTED STOCK" means Shares awarded pursuant to the
provisions of SUBSECTION 7.6 hereof.
1.31 "SHARE" means a share of Common Stock.
1.32 "UNIT" means a "Partnership Unit," as that term is defined in
the Limited Partnership Agreement.
2. PURPOSE.
The purpose of the Plan is to advance the interests of the Company,
the Limited Partnership and their affiliates by encouraging and facilitating the
acquisition of a larger personal financial interest in the Company by Outside
Directors and those Employees upon whose judgment and interest the Company, the
Limited Partnership and their affiliates are largely dependent for the
successful conduct of their operations, and making executive positions in the
Company, the Limited Partnership and their affiliates more attractive. It is
anticipated that the acquisition of such financial interest will stimulate the
efforts of such Employees and Outside Directors on behalf of the Company, the
Limited Partnership and their affiliates and strengthen their desire to continue
in the service of the Company, the Limited Partnership or their affiliates. It
is also anticipated that the opportunity to obtain such a financial interest
will prove attractive to promising executive talent and will assist the Company,
the Limited Partnership and their affiliates in attracting such persons.
3. SCOPE OF THE PLAN.
3.1 SHARES AVAILABLE. An aggregate of 4,500,000 Shares is hereby
made available and shall be reserved for issuance under the Plan with respect to
the exercise of Options and awards of Restricted Stock, provided that no more
than 1,500,000 Shares may be issued pursuant to awards of Restricted Stock. Such
number of Shares shall be reduced by the aggregate number of Shares acquired
from time to time to be held as treasury Shares reserved for use under the Plan.
The aggregate number of Shares available under this Plan shall be subject to
adjustment upon the occurrence of any of the events and in a manner set forth in
SECTION 24 hereof.
3.2 SHARES SUBJECT TO TERMINATED OPTIONS OR FORFEITED RESTRICTED
STOCK AWARDS. If and to the extent an Option shall expire or terminate for any
reason without having been exercised in full, the Shares subject thereto which
have not become outstanding shall (unless the Plan shall have terminated) become
available under the Plan for other awards. Any Shares of Restricted Stock
forfeited by the Grantee will (unless the Plan shall have terminated) become
available under the Plan for other grants or awards.
3.3 AUTHORITY TO PURCHASE SHARES. The Board, such committee of the
Board that the Board shall specifically authorize or direct on its behalf, or
the Committee shall have the authority to cause the Company to purchase from
time to time, in such amounts and at such prices as the Board, in its
discretion, shall deem advisable or
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<PAGE> 4
appropriate, Shares to be held as treasury Shares and reserved and used solely
for or in connection with grants or awards under the Plan, at the discretion of
the Committee.
4. ADMINISTRATION.
4.1 THE COMMITTEE. The Plan shall be administered by the Committee.
Members of the Committee shall not participate in the Plan or receive grants or
awards of equity securities under any other plan of the Company or any of its
affiliates except as provided in SECTIONS 7.7 AND 11.
4.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full and
final authority, in its discretion, but subject to the express provisions of the
Plan, as follows:
(a) to grant Options and awards of Restricted Stock;
(b) subject to SECTIONS 7 and 11, to determine (a) the
Option Price of the Shares subject to each Option, (b) the
Employees and Outside Directors to whom, and the time or times
at which, Options shall be granted or Restricted Stock shall be
awarded, and (c) subject to SECTION 3, the number of Shares
subject to an Option and the number of Shares of Restricted
Stock to be granted to each Optionee and Grantee thereof,
respectively;
(c) to determine all other terms and provisions of each
Agreement (which may, but need not be, identical), and with the
consent of the Optionee or Grantee, as the case may be, to
modify any Agreement (including, without limitation, the vesting
of Restricted Stock subject to such Agreement);
(d) without limiting the foregoing, to provide, in its
discretion, in any Agreement:
(i) for an agreement by the Optionee or Grantee,
as the case may be, to render services to the Company,
a REIT Subsidiary, the Limited Partnership or a
Limited Partnership Subsidiary upon such terms and
conditions as may be specified in the Agreement,
provided that the Committee shall not have the power
to commit the Company, a REIT Subsidiary, the Limited
Partnership or a Limited Partnership Subsidiary to
employ or otherwise retain any Optionee or Grantee;
(ii) for restrictions on the transfer, sale or
other disposition of Shares issued to the Optionee
upon the exercise of an Option, and for other
restrictions permitted by SUBSECTION 7.6 hereof with
respect to Restricted Stock awarded to a Grantee;
(iii) for an agreement by the Optionee or Grantee,
as the case may be, to resell to the Company, under
specified conditions, Shares issued upon the exercise
of an Option or awarded as Restricted Stock;
(iv) for the payment of the Option Price upon the
exercise of an Option otherwise than in cash,
including without limitation by delivery of Shares
(other than Restricted Stock) valued at Fair Market
Value on the Date of Exercise of the Option in
accordance with the terms of SUBSECTION 9.1 hereof, or
a combination of cash and Shares, or for the payment
in part of the Option Price with a promissory note in
accordance with the terms of SUBSECTION 9.3 hereof;
(v) for the automatic issuance of a Reload
Option covering a number of Shares equal to the number
of any Shares used to pay the Option Price in
accordance with the terms of SUBSECTION 9.2 hereof;
(vi) for the right of the Optionee to surrender
to the Company an Option (or a portion thereof) that
has become exercisable and to receive upon such
surrender, without any payment to the Company, the
Limited Partnership, a REIT Subsidiary or a Limited
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<PAGE> 5
Partnership Subsidiary (other than required tax
withholding amounts) that number of Shares (equal to
the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of
surrender equal to that number of Shares subject to
the Option (or portion thereof) being surrendered
multiplied by an amount equal to the excess of (I) the
Fair Market Value of a Share on the date of surrender,
over (II) the Option Price, plus an amount of cash
equal to the Fair Market Value of any fractional Share
to which the Optionee might be entitled. Other than
for purposes of SUBSECTION 6.2(b) hereof, any such
surrender shall be treated as the exercise of the
Option (or portion thereof).
(e) to construe and interpret the Plan and Agreements;
(f) to prescribe, amend and rescind rules and regulations
relating to the Plan, including, without limitation and subject
to SECTION 15 hereof, the rules with respect to the
exercisability of Options and the vesting of Restricted Stock;
(g) to require, whether or not provided for in the
pertinent Agreement, of any person exercising an Option or
acquiring Restricted Stock, at the time of such exercise or
acquisition, the making of any representations or agreements
which the Committee may deem necessary or advisable in order to
comply with the securities laws of the United States or of any
state;
(h) to prescribe the method by which grants of Options and
awards of Restricted Stock shall be evidenced;
(i) to cancel, with the consent of the Optionee thereof,
outstanding Options and to grant new Options in substitution
therefor;
(j) to require withholding from or payment by an Optionee
or Grantee, as the case may be, of any federal, state, or other
governmental taxes;
(k) to prohibit the election described in SECTION 12
hereof;
(l) to make all other determinations deemed necessary or
advisable for the administration of the Plan; and
(m) to impose such additional conditions, restrictions and
limitations upon the exercise, vesting or retention of Options
or Restricted Stock as the Committee may, prior to or
concurrently with the grant or award thereof, deem appropriate,
including, but not limited to, limiting the percentage of
Options which may from time to time be exercised by an Optionee.
4.3 FINALITY OF COMMITTEE DETERMINATIONS: LIABILITY OF MEMBERS. The
determination of the Committee on all matters relating to the Plan or any
Agreement shall be conclusive and final. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan, any Agreement or any grant thereunder.
4.4 PERIODIC COMMITTEE REVIEW AND MEETINGS WITH MANAGEMENT. The
Committee shall from time to time review the implementation and results of the
Plan to determine the extent to which the Plan's purpose is being accomplished.
In addition, the Committee shall periodically meet with senior management of the
Company and the Limited Partnership to review their suggestions regarding grants
and awards under the Plan, including the individuals who are proposed to receive
grants or awards and the amount and terms of such grants or awards; provided,
that all such grants and awards shall be determined solely by the Committee in
its discretion.
4.5 INDEMNIFICATION OF THE COMMITTEE. In addition to such other
rights of indemnification as they may have as directors of the Company or as
members of the Committee, the members of the Committee shall be indemnified by
the Limited Partnership or, if related to a grant or award to an Outside
Director or REIT Employee, by the Company, against the reasonable expenses,
including attorneys' fees, actually and reasonably incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of
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<PAGE> 6
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option or Restricted Stock granted or awarded
hereunder, and against all amounts reasonably paid by them in a settlement
thereof or paid by them in satisfaction of a judgment in any such action, suit
or proceeding, if such members acted in good faith and in a manner which they
believed to be in, and not opposed to, the best interests of the Limited
Partnership or, with respect to an Outside Director or REIT Employee, the
Company.
5. ELIGIBILITY.
Options and Restricted Stock may be granted or awarded, as the case
may be, only to Outside Directors and Employees, except that Limited Partnership
Employees are not eligible to receive Incentive Stock Options and Outside
Directors and other members of the Committee are not eligible to receive Options
or Restricted Stock other than pursuant to SECTIONS 7.7 AND 11. Subject to the
provisions of SECTION 3 and 28 hereof, an Employee or Outside Director who has
been granted an Option or awarded Restricted Stock may be granted additional
Options or awarded additional Restricted Stock; provided, however, that grants
of Restricted Stock and Nonstatutory Stock Options to Outside Directors are
subject to the limitations set forth in SECTIONS 7.7 AND 11, respectively. In
selecting the individuals to whom Options or Restricted Stock shall be granted
or awarded, as the case may be, as well as in determining the number of Shares
subject to each Option or Restricted Stock to be granted or awarded, the
Committee shall take into consideration such factors as it deems relevant in
connection with promoting the purposes of the Plan.
6. GENERAL OBLIGATIONS OF THE COMPANY AND THE LIMITED PARTNERSHIP.
6.1 ISSUANCE OF SHARES AND FRACTIONAL SHARE PAYMENTS. All Shares
issued under the Plan pursuant to the exercise of an Option or an award of
Restricted Stock shall be issued by the Company. All cash paid under the Plan
with respect to a fractional Share upon the surrender of an Option in accordance
with SUBSECTION 4.2(d)(IV) and 9.2 hereof shall be paid by the Company.
6.2 OPTIONS EXERCISED.
(a) ISSUANCE OF UNITS AND CAPITAL ACCOUNT ADJUSTMENTS.
Upon the exercise of an Option, the Limited Partnership shall
issue to the Company a number of Units equal to (i) the number
of Shares issued to the Optionee, divided by (ii) the Conversion
Multiple. The Company's Limited Partnership capital account in
the Limited Partnership shall be credited with an amount equal
to the Fair Market Value of the number of Shares issued upon the
exercise of an Option.
(b) CASH CONTRIBUTIONS BY THE COMPANY. Upon the exercise
of an Option (not including any deemed exercise upon the
surrender of an Option in accordance with SUBSECTION 4.2(d)(VI)
hereof), the Company shall contribute to the Limited Partnership
an amount of cash equal to the aggregate Option Price paid by
the Optionee for the Shares issued upon exercise, regardless of
whether the Optionee pays the Option Price in cash, Shares or a
combination thereof; provided, that to the extent the Option
Price is paid with a promissory note of the Optionee in
accordance with the provisions of SUBSECTION 9.3 hereof, the
amount of cash contributed to the Limited Partnership pursuant
to this SUBSECTION 6.2(b) shall be contributed to the Limited
Partnership only upon receipt by the Company of any installment
and interest due under such promissory note and shall be limited
to the amount of such installment and interest and provided
that, if the Optionee pays with Shares, the Company shall have
the right to cancel the Shares received in which event Units
held by the Company in an amount equal to the Shares canceled
multiplied by the Conversion Multiple shall be canceled by the
Limited Partnership. The Company's contribution of cash to the
Limited Partnership pursuant to the preceding sentence shall not
be treated as a contribution to capital and the Company's
capital account in the Limited Partnership shall not be credited
with the amount of cash so contributed.
(c) FRACTIONAL SHARE CASH REIMBURSEMENTS BY THE LIMITED
PARTNERSHIP AND TREATMENT THEREOF. The Limited Partnership shall
reimburse the Company for any cash paid with respect to a
fractional Share upon the surrender of an Option in accordance
with SUBSECTION 4.2(d)(VI) hereof. Such reimbursement shall be
treated as the reimbursement of an expense incurred by the
Company on behalf of the Limited Partnership, shall not be
treated as a distribution by the Limited Partnership to the
Company and shall not reduce the Company's Limited Partnership
capital account.
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<PAGE> 7
6.3 RESTRICTED STOCK AWARDS. Upon the award of shares of Restricted
Stock, the Limited Partnership shall issue to the Company a number of restricted
Units, equal to (i) the number of shares of Restricted Stock awarded to the
Grantee, divided by (ii) the Conversion Multiple, that are subject to the same
restrictions as those applicable to the shares of Restricted Stock. Upon the
lapse of restrictions applicable to the shares of Restricted Stock, the
restrictions applicable to the corresponding restricted Units referred to in
this SUBSECTION 6.3 also shall lapse. The Company's capital account in the
Limited Partnership shall be adjusted, as appropriate, to reflect the issuance
of shares of Restricted Stock, and such capital account also shall be adjusted,
as appropriate, in the event that the shares of Restricted Stock are forfeited
or the restrictions thereon lapse.
7. CONDITIONS TO GRANTS AND AWARDS.
7.1 GENERAL. Subject to the provisions of SECTIONS 5 and 11 hereof,
the Committee is hereby authorized to grant Nonstatutory Stock Options to
Outside Directors and Employees and Incentive Stock Options to REIT Employees.
All Agreements granting Options shall contain a statement that the Option is
intended to be either (a) a Nonstatutory Stock Option, or (b) an Incentive Stock
Option, and all Options designated as Incentive Stock Options shall be, in
addition to other provisions of this Plan, subject to the terms and conditions
of SUBSECTION 7.4 below. Subject to the provisions of SECTIONS 3 and 28 hereof,
an individual who has been granted an Option or Restricted Stock may, if such
individual is otherwise eligible, be granted additional Options or awarded
additional Restricted Stock if the Committee shall so determine. Subject to the
other provisions of this Plan, the Committee may grant Options or award
Restricted Stock with terms and conditions which differ among the Optionees or
Grantees thereof, respectively.
7.2 OPTION PERIOD AND EXERCISABILITY. Subject to the terms of
SECTION 11 hereof, the Option Period shall be determined by the Committee and
specifically set forth in the Agreement; provided, however, that the Option
Period shall not be for a period of more than ten years from the Date of Grant,
and shall be subject to earlier termination as herein provided. The terms and
conditions with respect to exercisability shall be determined by the Committee.
To the extent not set forth in the Plan, the terms and conditions of each grant
shall be set forth in an Agreement.
7.3 GRANTS OF OPTIONS AND OPTION PRICE. Before the grant of any
Option, the Committee shall determine the Option Price of the Shares subject to
such Option; provided that, except as provided in SUBSECTION 7.4 below, with
respect to Incentive Stock Options, the Option Price shall not be less that 100%
of the Fair Market Value of the Common Stock on the Date of Grant.
7.4 GRANTS OF INCENTIVE STOCK OPTIONS. Any Option designated as an
Incentive Stock Option may be granted only to a REIT Employee and shall:
(a) have an Option Price of (i) not less than 100% of the
Fair Market Value of a Share on the Date of Grant, or (ii) in
the case of a REIT Employee who owns stock (including stock
treated as owned under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes
of stock of the Company or any of its 50%-or-more owned
subsidiaries (a "10% Owner"), not less than 110% of the Fair
Market Value of a Share on the Date of Grant;
(b) have an Option Period of not more than ten years (five
years, in the case of a 10% Owner) from the Date of Grant, and
shall be subject to earlier termination as herein provided;
(c) notwithstanding the provisions relating to termination
of employment set forth in SECTION 15 hereof, not to be
exercisable more than three months (or one year, in the case of
an Optionee who is disabled within the meaning of Section
22(e)(3) of the Code) after termination of employment;
(d) not have an aggregate Fair Market Value (determined
for each Incentive Stock Option at the time it is granted) of
Shares with respect to which Incentive Stock Options are
exercisable for the first time by such Optionee during any
calendar year (under this Plan and any other employee stock
option plan of the Optionee's employer or any parent or
50%-or-more owned subsidiary thereof), determined in accordance
with the provisions of Section 422 of the Code, which exceeds
$100,000 (the "$100,000 Limit");
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<PAGE> 8
(e) if the aggregate Fair Market Value of Shares
(determined on the Date of Grant) with respect to all Incentive
Stock Options previously granted under this Plan and Other Plans
("Prior Grants") and any Incentive Stock Options under such
grant (the "Current Grant") which are exercisable for the first
time during any calendar year would exceed the $100,000 Limit,
be exercisable as follows:
(i) the portion of the Current Grant exercisable
for the first time by the Optionee during any calendar
year which would be, when added to any portions of any
Prior Grants exercisable for the first time by the
Optionee during any such calendar year with respect to
Shares which would have an aggregate Fair Market Value
(determined at the time of each such grant) in excess
of the $100,000 Limit shall, notwithstanding the terms
of the Current Grant, be exercisable for the first
time by the Optionee in the first subsequent calendar
year or years in which it could be exercisable for the
first time by the Optionee when added to all Prior
Grants without exceeding the $100,000 Limit;
(ii) if, viewed as of the date of the Current
Grant, any portion of a Current Grant could not be
exercised under the provisions of the immediately
preceding sentence during any calendar year commencing
with the calendar year in which it is first
exercisable through and including the last calendar
year in which it may by its terms be exercised, such
portion of the Current Grant shall not be an Incentive
Stock Option, but shall be exercisable as a separate
Option at such date or dates as are provided in the
Current Grant;
(iii) be granted within ten years from the earlier
of the date the Plan is adopted or the date the Plan
is approved by stockholders of the Company; and
(iv) require the Optionee to notify the Committee
of any disposition of any Shares issued pursuant to
the exercise of the Incentive Stock Option under the
circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions),
within ten days of such disposition.
7.5 CODE SECTION 162(m) COMPLIANCE FOR OPTION GRANTS. The maximum
number of Shares subject to Options which may be awarded to any Optionee in any
one calendar year shall not exceed 500,000 Shares. In all events, determinations
under the preceding sentence shall be made in a manner which is consistent with
Code Section 162 and the regulations promulgated thereunder.
7.6 AWARDS OF RESTRICTED STOCK. Subject to SUBSECTION 7.7 below, the
Committee is hereby authorized to award shares of Restricted Stock to Outside
Directors and Employees in accordance with the following provisions:
(a) GENERAL NATURE OF RESTRICTIONS. Restricted Stock
awards under the Plan shall consist of Shares that are
restricted against transfer, subject to forfeiture and subject
to such other terms and conditions intended to further the
purposes of the Plan as may be determined by the Committee in
accordance with the terms of the Plan.
(b) TERMS OF AWARD AGREEMENTS. Restricted Stock awards
shall be evidenced by Agreements containing provisions setting
forth the terms and conditions governing such awards. Subject to
Subsection 7.7 below, each such Agreement shall contain the
following:
(i) prohibitions against the sale, assignment,
transfer, exchange, pledge, hypothecation or other
encumbrance of (A) the Shares awarded as Restricted
Stock under the Plan, (B) the right to vote the
Shares, or (C) the right to receive dividends thereon
in each such case during the restriction period
applicable to the Shares; provided, however, that the
Grantee shall, unless otherwise provided in the
applicable Agreement, have all the other rights of a
stockholder including, but not limited to, the right
to receive dividends and the right to vote the Shares;
(ii) at least one term, condition or restriction
constituting a "substantial risk of forfeiture" as
defined in Section 83(c) of the Code;
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<PAGE> 9
(iii) such other terms, conditions and
restrictions as the Committee in its discretion may
specify (including, without limitation, provisions
creating additional substantial risks of forfeiture);
(iv) a requirement that each certificate
representing shares of Restricted Stock shall be
deposited with the Company, or its designee, and shall
bear the following legend:
"This certificate and the shares of stock
represented hereby are subject to the terms
and conditions (including the risks of
forfeiture and restrictions against
transfer) contained in The Mills Corporation
Amended and Restated 1994 Executive Equity
Incentive Plan, as the same may be amended
from time to time (the "Plan") and a written
agreement (the "Agreement") entered into
between the registered owner and The Mills
Corporation. Release from such terms and
conditions shall be made only in accordance
with the provisions of the Plan and the
Agreement, a copy of each of which is on
file in the office of the Secretary of The
Mills Corporation."
(v) the applicable period or periods of any
terms, conditions or restrictions applicable to the
Restricted Stock; provided, however, that the
Committee in its discretion may accelerate the
expiration of the applicable restriction period with
respect to any part or all of the Shares awarded to a
Grantee; and
(vi) the terms and conditions upon which any
restrictions upon Shares of Restricted Stock awarded
under the Plan shall lapse and new certificates free
of the foregoing legend shall be issued to the Grantee
or his or her legal representative.
(c) FORFEITURE UPON TERMINATION OF EMPLOYMENT.
Notwithstanding the provisions of SUBSECTION 15.1 hereof, the
Committee may include in an Agreement relating to an award of
Restricted Stock a requirement that in the event of a Grantee's
termination of employment for any reason prior to the lapse of
restrictions, all Shares of Restricted Stock shall be forfeited
by the Grantee to the Company without payment of any
consideration by the Company, and neither the Grantee nor any
successors, heirs, assigns or personal representatives of the
Grantee shall thereafter have any further rights or interest in
the Shares or certificates.
(d) RESTRICTED STOCK - DIVIDEND EQUIVALENTS. The Committee
may establish terms and conditions under which the Grantee of a
Restricted Stock award shall be entitled to receive a credit
equivalent to any dividend payable with respect to the number of
Shares which, as of the record date for such dividend, had been
stated in the award but not satisfied by delivery to him of
Shares. Any such dividend equivalents shall be paid to the
Grantee at such time or times during the period when the Shares
are being held by the Company pursuant to the terms of the
Restricted Stock award, or at the time the Shares to which the
dividend equivalents apply are delivered to the Grantee, as the
Committee shall determine. Any arrangement for payment of
dividend equivalents shall be terminated if, under the terms and
conditions established by the Committee, the right to receive
Shares of Restricted Stock being held pursuant to the terms of
the Restricted Stock award shall lapse.
(e) CODE SECTION 162(m) COMPLIANCE FOR RESTRICTED STOCK.
This SUBSECTION 7.6(e) applies only to those salaried Employees
who, in the judgment of the Committee, may be Covered Employees,
under Code Section 162(m)(3). With respect to the grant of
Restricted Stock, the Committee may establish performance goals
applicable to Restricted Stock granted to Grantees in such
manner as shall permit the Grant to qualify as
"performance-based compensation" as described in Section
162(m)(4)(C) of the Code. It is specifically provided that the
material terms of such performance goals for Grantees shall,
until changed by the Committee, with the approval of the
shareholders, be as follows: (i) the business criterion on which
performance goals shall be based shall be
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<PAGE> 10
- the attainment of such levels of either earnings per
share from continuing operations or shareholder return
as may be specified by the Committee; or
- the attainment of certain revenue or pre-tax income
levels, as established by the Committee; and
(ii) the maximum number of shares of Restricted Stock which may
be granted to any Grantee in any one calendar year shall not
exceed 200,000 shares. In all events, determinations under the
preceding sentence shall be made in a manner which is consistent
with Code Section 162 and the regulations promulgated
thereunder.
7.7 AWARDS OF RESTRICTED STOCK TO OUTSIDE DIRECTORS. Each Outside
Director shall be eligible to receive an award of Restricted Stock pursuant to
SUBSECTION 7.6, but only in accordance with the provisions of this SECTION 7.7.
(a) NUMBER OF SHARES. Each person who is an Outside
Director as of October 1, 1998, shall be granted shares of
Restricted Stock having a Fair Market Value, as of
September 30, 1998, of $4,000 (such number of shares to be
rounded to the nearest whole share). On June 1 of each year
thereafter (or, if the Company's annual meeting of
shareholders for such year has not been held by June 1, on
the day following the date of such annual meeting of
shareholders), each Outside Director shall be granted a
number of shares of Restricted Stock having an aggregate
Fair Market Value of $6,000.
(b) VESTING Restricted Stock granted pursuant to this
SUBSECTION 7.7 shall vest in three equal annual
installments beginning on the first anniversary of the date
such shares of Restricted Stock are granted and shall vest
only if the Outside Director is serving as an Outside
Director on the applicable vesting date. Any shares of
Restricted Stock that have not vested on or before the date
of an Outside Director's termination of service as an
Outside Director shall be forfeited as of such date.
Notwithstanding the foregoing, any unvested shares of
Restricted Stock that have not otherwise been forfeited
shall vest immediately upon (a) a Change of Control, (b)
the death of such Outside Director, (c) the resignation of
such Outside Director by reason of permanent and total
disability, (d) the expiration of such Outside Director's
term as a director, if the Board did not nominate such
Outside Director for re-election to the Board upon such
expiration, and the Board's failure to do so was for
reasons other than (i) such Outside Director's misconduct
or failure to properly discharge his or her duties as a
director or (ii) such Outside Director's request that he or
she not be nominated for re-election to the Board.
(c) RIGHTS OF OWNERSHIP. A holder of Restricted Stock
granted pursuant to this SUBSECTION 7.7 shall have the
right to receive dividends on such Shares, when and as
dividends are declared on the Common Stock, and shall have
the right to vote such Shares on all matters on which
holders of Common Stock shall be entitled to vote.
8. NON-TRANSFERABILITY.
Unless otherwise provided in the applicable Agreement, each Option
granted and Restricted Stock awarded hereunder shall not be assignable or
transferable other than by will or the laws of descent and distribution and
Options may be exercised, during the Optionee's lifetime, only by the Optionee.
9. EXERCISE OF OPTIONS.
9.1 MANNER OF EXERCISE AND PAYMENT. Subject to the provisions hereof
and the provisions of the Agreement under which it was granted, each Option
shall be exercised by delivery to the Company's treasurer of written notice of
intent to purchase a specific number of Shares subject to the Option. The Option
Price of any Shares as to which an Option is exercised shall be paid in full at
the time of the exercise, unless and to the extent that the Committee agreed in
the Agreement in which the Option was granted to accept a promissory note as
provided in SUBSECTION 9.2 below. Payment may, at the election of the Optionee,
be made in (i) cash, (ii) Shares valued at its Fair Market Value on the date of
exercise, (iii) surrender of an exercisable Option covering Shares with an
aggregate Fair
- 10 -
<PAGE> 11
Market Value as the date of exercise in excess of the Option Price of such
Option equal to the Option Price of the Options sought to be exercised, (iv)
through the delivery of irrevocable instructions to a broker to deliver promptly
to the Company an amount in cash equal to the Option Price, or (v) any
combination of the foregoing. In certain circumstances, payment may also be made
in accordance with SUBSECTION 9.3 below.
9.2 RELOAD OPTION. Pursuant to SUBSECTION 4.2(d)(v) hereof, the
Committee may, in its sole discretion, award Reload Options in an amount equal
to the number of Shares delivered in payment of the Option Price in connection
with the exercise of an Option. To the extent required by applicable law, the
number of Reload Options available to each Optionee shall be set forth in each
award. The Option Price for any Reload Option shall be the Fair Market Value of
a Share on the date that Shares are surrendered in payment of the Option Price.
Other terms of the Reload Option shall be the same as the terms contained in the
Agreement relating to the Option being exercised, provided that if a Reload
Option is granted in connection with the use of Shares to pay the exercise price
of an Incentive Stock Option, the Reload Option shall be a Nonstatutory Stock
Option.
9.3 DEFERRED PAYMENT OF OPTION PRICE. To the extent permitted by
applicable law, the Committee may agree in the Agreement in which an Option is
granted to accept as partial payment for the Shares a promissory note of the
Optionee evidencing his or her obligation to make further cash payment therefor;
provided, however, that in no event may the Committee accept a promissory note
for an amount in excess of the difference between the aggregate Option Price and
the par value of the Shares. Promissory notes made pursuant to this SUBSECTION
9.3 shall be payable as determined by the Committee, shall be secured by a
pledge of the Shares in respect of the purchase of which the promissory note is
being delivered and shall bear interest at a rate fixed by the Committee (which
rate shall not be lower than a reasonable commercial rate).
10. ACCELERATED EXERCISE.
Notwithstanding any other provisions of the Plan, all unexercised
Options and non-vested Restricted Stock awards may be exercised or disposed of
commencing on the date of a Change of Control, as defined in SECTION 16 hereof;
provided, however, that the Company may cancel all such Options and Restricted
Stock under the Plan as of the date of a Change of Control by giving notice to
each Optionee or Grantee thereof, as the case may be, of its intention to do so
and by permitting the purchase during the thirty-day period next preceding such
effective date of all of the Shares subject to such outstanding Options or by
payment for outstanding Restricted Stock during such thirty-day period.
11. GRANT OF STOCK OPTIONS TO OUTSIDE DIRECTORS.
Each Outside Director shall be eligible to be granted Nonstatutory
Stock Options and all such grants shall only be made under and in accordance
with the provisions of this SECTION 11.
11.1 GRANT TO OUTSIDE DIRECTORS. Each person who becomes an Outside
Director during 1994 shall be granted, on the date such person first becomes an
Outside Director, a Nonstatutory Stock Option to purchase 1,000 Shares at an
Option Price equal to the initial public offering price of a share of Common
Stock in connection with the initial public offering of the Common Stock.
Thereafter, each Outside Director shall be granted on each date such person
first becomes an Outside Director or is re-elected as an Outside Director, which
shall be the Date of Grant, a Nonstatutory Stock Option to purchase 1,000 Shares
at an Option Price equal to the Fair Market Value of such shares on the Date of
Grant. Each Nonstatutory Stock Option shall provide that it may be exercised no
later than ten years following the Date of Grant and that the Nonstatutory Stock
Option shall become exercisable with respect to the 500 Shares beginning on the
third anniversary of the Date of Grant and 500 Shares beginning on the fourth
anniversary of the Date of Grant, provided that the Optionee remains a director
of the Company on such third and fourth anniversaries of the Date of Grant.
11.2 INSUFFICIENT SHARES AVAILABLE. If on any date on which
Nonstatutory Stock Options are to be granted pursuant to SUBSECTION 11.1 above
there is an insufficient number of Shares available pursuant to SECTION 3 hereof
for such grant, the number of Shares subject to each Option granted pursuant to
SUBSECTION 11.1 on such date shall equal the number of Shares that otherwise
would be subject to such Nonstatutory Stock Options but for such limitation
multiplied by a fraction, the numerator of which shall be the total number of
Shares then available pursuant to SECTION 3 for the grant of Nonstatutory Stock
Options, and the denominator of which shall be the aggregate number of Shares
that
- 11 -
<PAGE> 12
otherwise would be granted pursuant to SUBSECTION 11.1, such product to be
rounded down to the nearest whole number.
11.3 CHANGE OF CONTROL. Notwithstanding the provisions of SUBSECTION
11.1, a Nonstatutory Stock Option granted pursuant to SUBSECTION 11.1 may be
exercised in full upon a Change of Control.
12. NOTIFICATION UNDER SECTION 83(b).
Provided that the Committee has not prohibited such Optionee or
Grantee, as the case may be, from making the following election, if an Optionee
or Grantee shall, in connection with the exercise of any Option or the award of
Restricted Stock, respectively, make the election permitted under Section 83(b)
of the Code (i.e., an election to include in such Optionee's or Grantee's gross
income in the year of transfer the amounts specified in Section 83(b) of the
Code), such Optionee or Grantee shall notify the Committee of such election
within ten days of filing notice of the election with the Internal Revenue
Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code.
13. WITHHOLDING TAXES.
The Company shall be entitled to require as a condition of delivery
of Shares hereunder that the Optionee or Grantee, as the case may be, remit an
amount sufficient to satisfy all federal, state, and other governmental
withholding tax requirements related thereto.
14. ELECTIVE SHARE WITHHOLDING.
14.1 An Optionee or Grantee may, subject to Committee approval,
elect the withholding ("Share Withholding") by the Company of a portion of the
Shares otherwise deliverable to such Optionee or Grantee upon his or her
exercise of an Option or vesting of a Restricted Stock award having a Fair
Market Value equal to either (a) the amount necessary to satisfy such Optionee's
or Grantee's required federal, state, or other governmental withholding tax
liability with respect thereto, or (b) a greater amount, not to exceed the
estimated total amount of such Optionee's or Grantee's tax liability with
respect thereto.
14.2 SHARE WITHHOLDING IS SUBJECT TO COMMITTEE APPROVAL. Share
Withholding is subject to Committee approval and each Share Withholding election
by an Optionee or Grantee shall also be subject to the following restrictions:
(a) the election must be made prior to the date on which
the amount of tax to be withheld is determined; and
(b) the election shall be irrevocable.
15. TERMINATION OF EMPLOYMENT.
15.1 FORFEITURE. Subject to the provisions of SUBSECTION 7.4
hereof with respect to Incentive Stock Options and the provisions of
SUBSECTION 7.6(c) hereof with respect to Restricted Stock, unless otherwise
provided in an applicable Agreement, an unexercised Option or non-vested
Restricted Stock award shall terminate and/or be forfeited upon the date on
which the Optionee or Grantee thereof, as the case may be, is no longer an
Employee ("Termination of Employment"), except that:
(a) DEATH. If the Optionee's or Grantee's
Termination of Employment is by reason of his or her
death, unexercised Options to the extent exercisable on the
date of the Optionee's death, may be exercised, in whole or
in part, at any time within one (1) year after the date of
the death by the Optionee's personal representative or by
the person whom the Options are transferred by will or the
applicable laws of descent and distribution and non-vested
Restricted Stock awards shall become vested on the date of
the Grantee's death.
- 12 -
<PAGE> 13
(b) RETIREMENT. If the Optionee's or Grantee's
employment is terminated as a result of retirement under
the provisions of a retirement plan of the Company or any
of its affiliates applicable to the Optionee or Grantee (or
on or after age 60 if no retirement plan of the Company or
any of its affiliates are applicable to the Optionee or
Grantee), any unexercised Option to the extent exercisable
at the date of such Termination of Employment, may be
exercised, in whole or in part, at any time within 90 days
after the date of such Termination of Employment, and
non-vested Restricted Stock awards shall become vested;
provided that, if the Optionee dies after such Termination
of Employment and before the expiration of such 90-day
period, unexercised Options held by such deceased Optionee
may be exercised by his or her personal representative or
by the person to whom the Option is transferred by will or
the applicable laws of descent and distribution within one
year after the Optionee's Termination of Employment.
(c) PERMANENT DISABILITY. If the Optionee's or
Grantee' employment is terminated as a result of his or her
Permanent Disability, any unexercised Option, to the extent
exercisable at the date of such Termination of Employment,
may be exercised, in whole or in part, at any time within
one year after the date of such Termination of Employment,
and non-vested Restricted Stock awards shall become vested;
provided that, if an Optionee dies after such Termination
of Employment and before the expiration of such one year
period, the unexercised Options may be exercised by the
deceased Optionee's personal representative or by the
person to whom the unexercised Options are transferred by
will or the applicable laws of descent and distribution
within one year after the Optionee's Termination of
Employment, or, if later, within 180 days after the
Optionee's death.
(d) OTHER REASONS FOR TERMINATION. If the Optionee or
Grantee has a Termination of Employment for any reason
other than by death, retirement or Permanent Disability,
any unexercised Option to the extent exercisable on the
date of such Termination of Employment, may be exercised,
in whole or in part, at any time within 90 days from the
date of such Termination of Employment.
15.2 OPTION TERM. Any of the provisions herein to the contrary
notwithstanding, no Option shall be exercisable beyond the term specified in the
related Agreement thereof.
16. CHANGE OF CONTROL.
16.1 DEFINITION OF "CHANGE OF CONTROL." The term "Change of Control"
means any of the following events and, if more than one of the following events
shall occur, each such event shall constitute a separate Change of Control.
(a) ACQUISITION OF STOCK. The acquisition, by a person or
group of persons acting in concert, of a beneficial ownership interest in
the Company, resulting in the total beneficial ownership of such persons
or group of persons equaling or exceeding 20% of the outstanding common
stock of the Company. The Change of Control shall be deemed to occur on
the date the beneficial ownership of the acquiring person or group of
persons first equals or exceeds 20% of the outstanding common stock of the
Company.
(b) CHANGE IN BOARD COMPOSITION. A change, within any
period of twenty-four months or less, in the composition of the Board such
that at the end of such period a majority of the directors who are then
serving were not serving at the beginning of such period, unless at the
end of such period a majority of the directors in office were nominated
upon the recommendation of a majority of the Board at the beginning of
such period. The Change of Control shall be deemed to occur on the date of
the last director necessary to result in a Change of Control takes office
or resigns from office, as applicable.
(c) MERGER, CONSOLIDATION OR OTHER REORGANIZATION. The
merger, consolidation or other reorganization having substantially the
same effect, or the sale of all or substantially all the consolidated
assets of the Company. Such Change of Control shall be deemed to occur on
the date which the transaction is approved by the Company's stockholders.
16.2 EFFECT OF OPTIONEE'S OR GRANTEE'S PARTICIPATION IN CHANGE OF
CONTROL. Notwithstanding the foregoing provisions of this SECTION 16, a Change
of Control shall be deemed not to have occurred with respect to any
- 13 -
<PAGE> 14
Optionee or Grantee, if such Optionee or Grantee is, by written agreement, a
participant on his or her own behalf in a transaction in which the persons (or
their affiliates) with whom such Optionee or Grantee has the written agreement
acquire the Company and, pursuant to the written agreement the Optionee or
Grantee has an equity interest in the resulting entity.
16.3 NOTICE OF CHANGE OF CONTROL. The Company shall notify all
Optionees and Grantees of the occurrence of a Change of Control promptly after
its occurrence, but any failure of the Company to notify shall not deprive the
Optionees or Grantees of any rights accruing hereunder by virtue of a Change of
Control.
17. SUBSTITUTED OPTIONS.
If the Committee cancels, with the consent of an Optionee, any
Option granted under the Plan, and a new Option is substituted therefor, then
the Committee may, in its discretion, provide that the Date of Grant of the
canceled Option shall be the date used to determine the earliest date or dates
for exercising the new substituted Option under SUBSECTION 7.2 hereof so that
the Optionee may exercise or dispose of the substituted Option at the same time
as if the Optionee had held the substituted Option since the Date of Grant of
the canceled Option.
18. SECURITIES LAW MATTERS.
18.1 INVESTMENT INTENT REPRESENTATION; RESTRICTIVE LEGEND. Where an
investment intent representation or restrictive legend is deemed necessary to
comply with the Securities Act of 1933, as amended, the Committee may require a
written representation to that effect by the Optionee or Grantee, or may require
that such legend be affixed to certificates for Shares at the time the Option is
exercised.
18.2 COMPANY'S RIGHT TO POSTPONE EXERCISE. If based upon the opinion
of the counsel to the Company, the Committee determines that the exercise of any
Options would violate any applicable provisions of (i) state or federal
securities law, or (ii) the listing requirements of any securities exchange
registered under the Exchange Act on which are listed any of the Company's
equity securities, then the Committee may postpone any such exercise; provided,
however, that the Company shall use its best efforts to cause such exercise to
comply with all such provisions at the earliest practicable date; and provided
further, that the Committee's authority under this SUBSECTION 18.2 shall expire
from and after the date of any Change of Control.
18.3 RULE 16b-3 COMPLIANCE. With respect to officers, directors and
10% stockholders of the Company subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Board or the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Board and the Committee.
19. FUNDING.
Benefits payable under the Plan to any person shall be paid directly
by the Company. The Company shall not be required to fund, or otherwise
segregate assets are to be used for payment of, benefits under the Plan.
20. NO EMPLOYMENT RIGHTS.
Neither the establishment of the Plan, nor the granting of any
rights under the Plan shall be construed to (a) give any Optionee or Grantee the
right to remain employed by the Company, the Limited Partnership or any of their
affiliates or to any benefits not specifically provided by the Plan, or (b) in
any manner modify the right of the Company, the Limited Partnership or any of
their affiliates to modify, amend, or terminate any of its employee benefit
plans.
21. STOCKHOLDER RIGHTS.
An Optionee or Grantee shall not, by reason of any right granted
hereunder, have any right as a stockholder of the Company with respect to the
Shares which may be deliverable upon exercise of such Option or vesting of
Restricted Stock until such Shares have been delivered to him or her.
- 14 -
<PAGE> 15
22. NATURE OF PAYMENTS.
Any and all grants or deliveries of Shares hereunder shall
constitute special incentive payments to the Optionee or Grantee and shall not
be taken into account in computing the amount of salary or compensation of the
Optionee or Grantee for the purposes of determining any pension, retirement,
death or other benefits under (a) any pension, retirement, profit-sharing,
bonus, life insurance or other employee benefit plan of the Company, the Limited
Partnership or any of their affiliates, or (b) any agreement between the
Company, the Limited Partnership or any of their affiliates, on the one hand,
and the Optionee or Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
23. NON-UNIFORM DETERMINATIONS.
Neither the Committee's nor the Board's determinations under the
Plan need be uniform and may be made by the Committee or the Board selectively
among persons who receive, or are eligible to receive grants and awards under
the Plan (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall entitled, among other
things, to make non-uniform and selective determinations, to enter into
non-uniform and selective Option agreements and Restricted Stock agreements as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan, and (c) the treatment, under SECTION 15
hereof, of leaves of absence.
24. ADJUSTMENTS.
Any Option or Restricted Stock Agreement entered into hereunder may
contain such provisions as the Committee shall determine for equitable
adjustment of (a) the number of Shares covered thereby, (b) the Option Price, or
(c) otherwise, to reflect a stock dividend, stock split, reverse stock split,
Share combination, recapitalization, merger, consolidation, asset spin-off,
reorganization, or similar event, of or by the Company. In any such event,
regardless of whether specified in an Agreement, the aggregate number of Shares
available under the Plan shall be appropriately adjusted to equitably reflect
such event.
25. AMENDMENT OF THE PLAN.
25.1 BOARD'S AUTHORITY TO MODIFY. The Board may make such
modifications of the Plan as it shall deem advisable; provided, however, no
modifications shall be made which would impair the rights of any Optionee or
Grantee theretofore granted or awarded without his or her consent; and provided
further, the Board may not, without further approval of the stockholders of the
Company, except as provided in SECTION 24 above, either:
(a) materially increase the number of Shares reserved for
issuance under the Plan;
(b) materially increase the benefits accruing to
participants under the Plan;
(c) materially modify the requirements as to eligibility
for participation in the Plan; or
(d) extend the date of termination of the Plan.
25.2 DEFINITION OF MATERIAL. For purposes of this SECTION 25, the
term "material" shall be construed in accordance with the Commission's
interpretive views, as modified from time to time, regarding stockholder
approval for amendments to employee benefit plans intended to comply with Rule
16b-3 under Section 16 of the Exchange Act.
26. TERMINATION OF THE PLAN. The Plan shall terminate on the tenth anniversary
of the Effective Date or at such earlier time as the Board may determine. Any
termination, whether in whole or in part, shall not affect any rights then
outstanding under the Plan.
27. CONTROLLING LAW. The Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware, except its laws with respect
to choice of law, and the intention of the Company that Incentive Stock Options
granted under the Plan qualify as such under Section 422 of the Code.
- 15 -
<PAGE> 16
28. MAINTAINING REIT STATUS. Subject to SECTIONS 3 and 11 hereof, there is no
limit on the number of Shares that may be subject to awards or grants to any one
Outside Director or Employee under the Plan, except that the Committee shall not
take any action or make any grants or awards hereunder that could cause the
Company to fail to qualify as a real estate investment trust for federal income
tax purposes.
29. ACTION BY THE COMPANY. Any action required by the Company under the Plan
shall be by resolution of the Board.
- 16 -
<PAGE> 1
EXHIBIT 21.1
ENTITY STRUCTURE
THE MILLS CORPORATION (REIT) OPERATING SUBSIDIARIES:
Franklin Mills GP, Inc.
Liberty Plaza GP, Inc.
Potomac Gurnee Finance Corp.
Sawgrass Finance L.L.C.
The Mills GP, Inc.
Washington Potomac Partners Corp.
WSM South Florida Corp.
REIT OPERATING PARTNERSHIP:
THE MILLS LIMITED PARTNERSHIP ("MLP")
General Partner
Limited Partners
Unit Holders:
The Mills Corporation
Management & Affiliates
Kan Am Entities
Unrelated Partners
MLP OPERATING SUBSIDIARIES
3017356 Nova Scotia Company
Arizona Mills, L.L.C.*
Candlestick Mills, L.L.C.
Candlestick Mills Limited Partnership
Concord Mills Limited Partnership
Concord Mills, L.L.C.
Concord Mills Residual, L.L.C.
Concord Mills Residual Limited Partnership
Coopers Crossing L.L.C.
Coopers Crossing Associates (MLP) Limited Partnership
Crosswinds Center Associates of St. Petersburg (MLP) Limited Partnership
Crosswinds L.L.C.
Echo Hills Center Associates (MLP) Limited Partnership
Fashion Center Associates of Illinois No. 1 (MLP) Limited Partnership
Fashion Center L.L.C.
Fashion Place Associates Limited Partnership
Fashion Place Associates L.L.C.
Franklin Mills Associates Limited Partnership
Franklin Mills, L.L.C.
Franklin Mills Residual Limited Partnership
Germantown Development Associates (MLP) Limited Partnership
Germantown Development Associates L.L.C.
Grapevine Mills Limited Partnership
Grapevine Mills Operating Company, L.L.C.
Grapevine Mills Residual Limited Partnership
Grapevine Mills Residual Operating Company, L.L.C.
Gurnee Mills L.L.C.
Gurnee Mills II L.L.C.
<PAGE> 2
Gurnee Mills (MLP) Limited Partnership
Gwinnett L.L.C.
Gwinnett Marketfair Associates Limited Partnership
Hunt Club Road Properties Associates Limited Partnership
Katy Mills Limited Partnership
Katy Mills, L.L.C.
Liberty Plaza Limited Partnership
Liberty Plaza, L.L.C.
Mainstreet Retail Limited Partnership
Management Associates Limited Partnership
Meadowlands Mills L.L.C.
Meadowlands Mills Limited Partnership
Mills-Kan Am Sawgrass Phase 3 Limited Partnership
Mills Management L.L.C.
Mills Ontario Acquisitions, L.L.C.
MillsServices Corp.**
Montgomery Village Associates (MLP) Limited Partnership
Montgomery Village Associates L.L.C.
Montgomery Village Ground L.L.C.
Montgomery Village Ground Limited Partnership
Mount Prospect Plaza L.L.C.
Mount Prospect Plaza (MLP) Limited Partnership
MTS Services of Tempe, L.L.C.*
Ontario Mills L.L.C.
Ontario Mills Limited Partnership
Ontario Mills Residual, L.L.C.
Ontario Mills Residual Limited Partnership
Opry Mills, L.L.C.
Opry Mills Limited Partnership
Orange City Mills, L.L.C.
Orange City Mills Limited Partnership
Potomac Mills L.L.C.
Potomac Mills Limited Partnership
Sawgrass Mills Phase II Limited Partnership
Sawgrass Mills Phase II, L.L.C.
Sunrise Mills L.L.C.
Sunrise Mills (MLP) Limited Partnership
West Falls Church L.L.C.
*MLP-AFFILIATED ENTITIES
Arizona Mills, L.L.C.
Manager/Member - The Taubman Realty Group Limited Partnership
Member - Simon Property Group, L.P.
Member - MLP
MTS Services of Tempe, L.L.C.
Manager/Member - The Taubman Company Limited Partnership
Member - M.S. Management Associates, Inc.
Member - MLP
Grapevine Mills Finance Corp.
Stockholder - MillsServices Corp.
Stockholder - M.S. Management Associates, Inc.
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<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
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<DEPRECIATION> (226,178)
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 950,803
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<TOTAL-REVENUES> 43,683
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