-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VQFPkci4m219KncgU33CajYqdmPjAXHrQHdP+JC/FQDY77ASt16QuFnyXPVvi4OL KsRhNYPPd0Wtgur2Cd2/6A== 0000911708-00-000004.txt : 20000417 0000911708-00-000004.hdr.sgml : 20000417 ACCESSION NUMBER: 0000911708-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIME RETAIL INC/BD/ CENTRAL INDEX KEY: 0000911708 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 382559212 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13301 FILM NUMBER: 602419 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST STREET 2: 1900 FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4102340782 MAIL ADDRESS: STREET 1: 100 EAST PRATT STREET STREET 2: 1900 FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) Commission file number: 0-23616 PRIME RETAIL, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) Maryland 38-2559212 - ------------------------------------------- --------------------------------- (State or other jurisdiction of (IRS employer identification no.) incorporation or organization) 100 East Pratt Street Baltimore, MD 21202 (410) 234-0782 - ------------------------------------------- --------------------------------- (Address of principal executive offices, (Registrant's telephone number, including zip code) including area code) Securities registered pursuant to Section 12(b) of the Act: ----------------------------------------------------------- Common Stock, $0.01 par value 10.5% Series A Cumulative Preferred Stock, $0.01 par value 8.5% Series B Cumulative Participating Convertible Preferred Stock, ------------------------------------------------------------------- $0.01 par value --------------- (Title of class) Securities registered pursuant to Section 12(g) of the Act: ----------------------------------------------------------- None --------------- (Title of class) 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $43,397,916 on April 13, 2000 (based on the closing price per share as reported on the New York Stock Exchange - Composite Transactions). The number of shares of the registrant's Common Stock outstanding as of March 31, 2000 was 43,397,916. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents of the registrant are incorporated herein by reference: Put on Form 10-K Into Which Document is Document Incorporated - -------- ------------ Proxy Statement for the 2000 annual meeting of shareholders Part III of Form 10-K PRIME RETAIL, INC. Form 10-K December 31, 1999 TABLE OF CONTENTS Part I Page Item 1. Business................... ...........................................1 Item 2. Properties................ ............................................6 Item 3. Legal Proceedings...... ..............................................13 Item 4. Submission of Matters to a Vote of Security Holders...................13 Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.14 Item 6. Selected Financial Data...............................................15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................17 Item 7A.Quantitative and Qualitative Disclosures About Material Risk. ........34 Item 8. Financial Statements and Supplementary Data...........................34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... .................34 Part III Item 10.Directors and Executive Officers of the Registrant....................35 Item 11.Executive Compensation................................................35 Item 12.Security Ownership of Certain Beneficial Owners and Management........35 Item 13.Certain Relationships and Related Transactions........................35 Part IV Item 14.Exhibits,Financial Statement Schedules, and Reports on Form 8-K.......35 Signatures............................................................40 PART I ITEM 1- BUSINESS The Company Prime Retail, Inc. (including its predecessors, collectively, the "Company") was organized as a Maryland corporation on July 16, 1993. The Company commenced operations upon completion of its initial public offering (the "Initial Public Offering") on March 22, 1994. The Company is a self-administered and self-managed real estate investment trust ("REIT") and operates primarily within one business segment. Concurrent with the completion of the Initial Public Offering, the Company became the general partner of Prime Retail, L.P. (the "Operating Partnership") which owns interests in and provides development, leasing, marketing and management services for 51 outlet centers and three community shopping centers (the "Properties") with a total of 14,699,000 and 424,000 square feet of gross leasable area ("GLA") at December 31, 1999, respectively. The Properties are located throughout the United States, generally near large metropolitan areas. On November 1, 1994, the Company organized Prime Retail Services Limited Partnership and Prime Retail Services, Inc. (collectively referred to as the "Services Corporation"). The Services Corporation was formed primarily to operate business lines of the Company that are not directly associated with the collection of rents. As used herein, unless the context otherwise requires, the term "Company" shall mean the Company, including its predecessors, and those entities owned or controlled by the Company. The Company's executive offices are located at 100 East Pratt Street, Baltimore, Maryland 21202 (telephone 410-234-0782). Tax Status The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company generally is not subject to federal income tax at the corporate level on income it distributes to its stockholders so long as it distributes at least 95% of its taxable income (excluding any net capital gain) each year. Since the Initial Public Offering, the Company believes that it has complied with the tax regulations to maintain its REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even if the Company qualifies as a REIT, the Company may be subject to certain state and local taxes on its income and property. Business of the Company The Company is engaged primarily in the ownership, development, construction, leasing, marketing and management of outlet centers throughout the United States. Outlet centers have become an established segment of the retail industry, enabling value-oriented shoppers to purchase designer and brand-name products directly from manufacturers at discounts. Since entering the outlet center business in 1988 (through the retail division of The Prime Group, Inc. ("PGI"), from which the Company acquired certain Properties and management and development operations), the Company has become the leading developer and operator in the industry having developed or acquired outlet centers containing 14,699,000 square feet of GLA at December 31, 1999, including 22 outlet centers containing 6,626,000 square feet of GLA that was added to our portfolio in connection with the Company's June 1998 merger with Horizon Group, Inc. The average outlet center in the Company's portfolio contains approximately 288,000 square feet of GLA at December 31, 1999, significantly larger than the industry average of approximately 195,000 square feet. The Company's outlet centers feature a diversified mix of nationally recognized manufacturers of designer and brand-name merchandise with which the Company and its employees have established long-standing relationships, including AnnTaylor/AnnTaylor Loft, Bose, Brooks Brothers, Corning-Revere, Danskin, Donna Karan, Eddie Bauer, Ellen Tracy, Esprit, Guess?, J. Crew, Jones New York, Levi's/Dockers Outlet, Mikasa, Nautica, Nike, Phillips-Van Heusen (including Bass, Gant, Geoffrey Beene, Izod and Van Heusen), Polo/Ralph Lauren, Reebok, Off-5th Saks Fifth Avenue, Sara Lee (including Champion, Coach, L'eggs, Hanes, Bali, Playtex, and Socks Galore), Sony, Springmaid-Wamsutta, Tommy Hilfiger and VF Corporation (including Barbizon and Vanity Fair). As a group, the foregoing merchants accounted for approximately 29.20% of the gross revenues of the Company during the year ended December 31, 1999, and occupied approximately 34.38% of the total leased GLA contained in the Company's outlet centers at December 31, 1999. During the year ended December 31, 1999, no group of merchants under common control accounted for more than 5.09% of the gross revenues of the Company or occupied more than 5.69% of the total leased GLA of the Company at December 31, 1999. Business Strategy The Company's objective is to enhance its funds from operations and the long-term value of its outlet centers by actively managing its current portfolio of properties. Active Portfolio Management. The Company employs the following strategies that are designed to increase the sales and profitability of its tenants, resulting in improved occupancy levels and higher overall rental income: |X| Enhance Tenant Mix. A successful outlet center must provide a unique and attractive shopping experience. The Company seeks to offer a superior shopping experience to consumers by assembling a diverse mix of nationally and internationally recognized manufacturers and retailers of designer and brand name merchandise. The Company has identified certain key tenants (the "Prime 15") that it believes will enhance consumer traffic and increase tenant sales at the Prime Outlets. The current "Prime 15" are Bose, Brooks Brothers, Calvin Klein, Coach, Donna Karan, Eddie Bauer, Jones New York, Levi's/Dockers, Liz Claiborne, Nautica, Nike, Polo/Ralph Lauren, Sony, The Gap and Tommy Hilfiger. The Company currently leases 380 stores to the Prime 15 and actively seeks to increase their representation throughout the Prime Outlets. In addition, the Company continues to add new tenants that attract customers and enhance the competitive position of the Prime Outlets. |X| Implement Innovative Marketing Strategies. During 1998, the Company adopted a nationwide branding strategy to increase sales, improve customer awareness and loyalty and promote higher traffic at its centers. As part of this strategy, the Company has renamed its outlet centers, with the "Prime Outlets" brand name. In addition, the Company has entered into strategic marketing alliances with companies such as Coca-Cola USA seeking to access the estimated 170 million customers at its centers. |X| Minimize Operating Expenses. The Company's in-house capabilities in property management and leasing reduce its reliance on third party service providers and enable it to more effectively control the expenses associated with these functions. The Company continually monitors its operating expenses at the property, regional and corporate levels and attempts to minimize the occupancy cost for its tenants. Where possible, the Company leverages its large size to obtain more favorable rates from its vendors and suppliers. Selective Growth and Expansion. The Company will selectively expand existing centers to the extent proposed projects offer attractive investment returns. In 1999, Prime Retail, Inc. added a total of 102,000 square feet of GLA by expanding two of its existing centers. In addition, construction continues at Prime Outlets of Puerto Rico, the first outlet center in Puerto Rico, which will contain 175,000 square feet of GLA and is scheduled to open during the second quarter of 2000. Competition The Company's outlet centers compete for customers primarily with traditional shopping malls, "off-price" retailers and other outlet centers. The Company carefully considers the degree of existing and planned competition in a proposed market area before developing a new outlet center. Merchants of outlet centers generally avoid direct competition with major retailers and their own full-price stores. Generally, this is accomplished by locating outlet centers at least 20 miles from the nearest regional mall. For this reason, the Company's outlet centers compete only to a limited extent with traditional retail malls in or near metropolitan areas. In addition to traditional sources of competition faced by the Company's outlet centers, which are mentioned above, the Company's outlet centers compete for customers with web-based retailers. Because of the newness of competition from web-based retailers, it is difficult to quantify the risk of such competition to the Company. The Company's outlet centers compete to a limited extent with various full-price and off-price retailers in the highly fragmented retailing industry. However, management believes that the majority of the Company's customers visit outlet centers specifically for designer and brand-name goods at discounted prices. Traditional full-price and off-price retailers are often unable to provide such a variety of products at attractive prices. Because a number of the Company's outlet centers are located in relatively undeveloped areas, there are often other potential sites near the Company's outlet centers that may be developed into outlet centers by competitors. The existence or development of an outlet center with a more convenient location or lower rents may attract the Company's merchants or cause them to seek more favorable lease terms at or prior to renewal of their leases and, accordingly, may affect adversely the business, revenues and/or sales volume of the Company's outlet centers. The Company's community shopping centers compete with similar community shopping centers located in the same geographic trade areas. Relationship with Municipalities Because of the favorable impact that the Company's Properties may have on a local community's economy by generating sales and property taxes and increasing employment in the area, local communities often assist the Company with respect to zoning, economic incentives or favorable business development legislation. The Company explores opportunities to obtain incentives from local, county and state governments in connection with the development of its outlet centers. Such incentives often fund the cost of off-site sewer and water services to the site, required highway improvements and, on occasion, the cost of land and various on-site improvements. Environmental Matters Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous substances on their property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous substances. The costs of remediation or removal may be substantial, and the presence of the hazardous substances, or the failure to promptly remediate them, may adversely affect the owner's ability to sell the real estate or to borrow using the real estate as collateral. In connection with its ownership and operation of the Properties, the Company may be potentially liable for the costs of removal or remediation of hazardous substances. The Company has no knowledge, nor has the Company been notified by any governmental authority, of any material noncompliance, liability or claim relating to hazardous substances in connection with any properties in which any of such entities now has or heretofore had an interest. However, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Properties will not be affected by merchants and occupants of the Properties, by the condition of properties in the vicinity of the Properties (such as the presence of underground storage tanks) or by third parties unrelated to the Company. Insurance Management believes that each of the Properties is covered by adequate fire, flood, and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. Employees As of December 31, 1999, the Company had 1,082 employees. The Company believes that its relations with its employees are satisfactory. Executive Officers The following table sets forth the names, position and age (as of April 1, 2000)of the current executive officers of the Company:
- ------------------------------------------------------------------------------------------------------------------------------------ Name Position Age - ------------------------------------------------------------------------------------------------------------------------------------ Glenn D. Reschke President and Chief Executive Officer, Director 49 David G. Phillips Executive Vice President 38 Robert P. Mulreaney Executive Vice President - Chief Financial 41 Officer and Treasurer C. Alan Schroeder Executive Vice President - General Counsel 42 and Secretary Steven S. Gothelf Executive Vice President - Finance 40 John S. Mastin Executive Vice President - Leasing 54 Frederick J. Meno Senior Vice President - Operations 42 ====================================================================================================================================
Biographies of Executive Officers Glenn D. Reschke. Glenn D. Reschke is President and Chief Executive Officer and a Director of the Company. Mr. Reschke's responsibilities with Prime include leasing, marketing, operations, and management, development, and construction for Prime's retail projects. Mr. Reschke joined PGI in 1983 and, since that time, served as Vice President, Senior Vice President and Executive Vice President of PGI, and was responsible for PGI's multi-family, senior housing, single family and land development divisions. Mr. Reschke received a Masters in Business Administration from Eastern Michigan University with a specialization in finance after receiving a Bachelor of Science degree with honors in Chemical Engineering from Rose Hulman Institute of Technology in Terre Haute, Indiana. Mr. Reschke is the brother of Michael W. Reschke, the Company's Chairman of the Board. David G. Phillips. David G. Phillips is President of Athena/Prime Retail Europe and Executive Vice President of the Company. Athena/Prime Retail Europe is a joint venture between the Company and the Athena Group, a private equity investment company based in New York. Mr. Phillips oversees the Company's development, marketing, leasing and operations efforts in Europe. Mr. Phillips joined PGI in 1989 and served as Vice President, Senior Vice President, and Executive Vice President, Operations, Marketing and Leasing. Prior to joining PGI, Mr. Phillips was a leasing representative at D.I. Realty, Inc., leasing a variety of retail projects including outlet centers and traditional and specialty malls. Mr. Phillips received a Masters of Science in Real Estate Development at Johns Hopkins University and received a Bachelor of Science degree in Business Administration from the University of Vermont. Mr. Phillips is a member of the ICSC with a CLS (Certified Leasing Specialist) designation and the Urban Land Institute. Robert P. Mulreaney. Robert P. Mulreaney is Executive Vice President - Chief Financial Officer and Treasurer of the Company. Mr. Mulreaney joined the Company in 1994. Mr. Mulreaney's responsibilities with the Company include capital market activities, corporate budgeting, financial reporting, investor relations, accounting, taxation, treasury, and management information systems. Prior to joining the Company, Mr. Mulreaney was associated for 14 years with Ernst & Young LLP, where he specialized in accounting and consulting issues related to real estate and financial institutions. Mr. Mulreaney received a Bachelor of Business Administration in Accounting in 1980 from Marshall University. Mr. Mulreaney is a member of the American Institute of Certified Public Accountants, the Maryland Association of Certified Public Accountants, and the West Virginia Society of Certified Public Accountants. C. Alan Schroeder. C. Alan Schroeder is Executive Vice President - General Counsel and Secretary of the Company. Mr. Schroeder has been General Counsel and Secretary of the Company since the initial public offering of stock in the Company in 1994. From 1990 to 1994, Mr. Schroeder was an Assistant General Counsel of PGI and was responsible for legal matters relating to the retail division of PGI. Prior to joining PGI, Mr. Schroeder was associated for four years with Hopkins & Sutter, a Chicago, Illinois based law firm. Mr. Schroeder received a Juris Doctorate degree from The University of Chicago Law School. Mr. Schroeder received an A.B. degree in Economics and Sociology from Bowdoin College in Brunswick, Maine. Mr. Schroeder is licensed to practice law in Illinois. Steven Gothelf. Steven Gothelf is Executive Vice President - Finance of the Company. Mr. Gothelf joined PGI in 1990 and, since that time, served as Vice President of Asset and Development Management. Mr. Gothelf's responsibilities with the Company include financing, capital market activities, and the review and analysis of potential outlet center acquisitions. For two years prior to joining PGI, Mr. Gothelf was Vice President of Finance and Administration of Clarion Development Inc. Before joining Clarion Development Inc., Mr. Gothelf was a Market Maker for financial futures at the Chicago Board of Trade and prior to that was a Manager of Real Estate Tax and Consulting for KPMG Peat Marwick LLP. Mr. Gothelf received his B.S. degree in Accounting from the University of Illinois and is a certified public accountant. John S. Mastin. John S. Mastin is Executive Vice President - Leasing of the Company. Mr. Mastin's responsibilities with the Company include supervision of leasing and merchandising for all of the Company's outlet centers. Mr. Mastin joined the Company in June of 1996. Prior to joining the Company, Mr. Mastin spent 24 years with The Rouse Company. At The Rouse Company, Mr. Mastin began his career as a Junior Leasing Representative and was promoted to Vice President and Assistant Director of Leasing. Mr. Mastin led the leasing effort for The Rouse Company with numerous regional malls as well as inner-city festival market places which include Bayside in Miami, Florida, and the redevelopment of Underground Atlanta in Atlanta, Georgia. Mr. Mastin was involved in the releasing and remerchandising effort for the operating properties division of The Rouse Company. Prior to The Rouse Company, Mr. Mastin was a Naval Aviator for four years. Mr. Mastin received his Bachelor of Arts in English from Niagara University. Mr. Mastin is a member of the ICSC. Frederick J. Meno. Frederick J. Meno is Senior Vice President - Operations of Prime Retail, where he is responsible for supervising the management, operations, outdoor advertising and specialty leasing programs for Prime's nationwide portfolio of outlet centers. Prior to joining Prime, Mr. Meno was Executive Director of Insignia/ESG, Inc., where he was responsible for all management, leasing, construction management, and business development activities for Insignia/ESG's 10 million square foot national enclosed mall portfolio, as well as Insignia/ESG's Dallas/Fort Worth office, industrial and non-enclosed retail portfolio. For 10 years prior to joining Insignia/ESG, Inc., Mr. Meno was President of the Woodmont Property management Company in Fort Worth, Texas. A 1979 graduate of Ohio State University, having majored in Urban Land Development and Economics with a degree in Business Administration, Mr. Meno is a member of the Institute of Real Estate Management and the ICSC. Mr. Meno has achieved the designations of Certified Property Manager, Real Property Administrator and Certified Shopping Manager and is a licensed Real Estate Salesman in the State of Texas. Mr. Meno is also on the Advisory Board of the Shopping Center Management Insider Publication and he is the 2001 Dean for ICSC's University of Shopping Centers School of Outlet Retailing, ValueOrientor and Community Centers. Changes in Executive Officers Abraham Rosenthal. Effective February 25, 2000, Abraham Rosenthal resigned from his position as Chief Executive Officer and Director of the Company. R. Bruce Armiger. Effective March 24, 2000, R. Bruce Armiger resigned from his position as Senior Vice President - Development of the Company. Michael W. Reschke. On April 5, 2000, Michael W. Reschke relinquished his responsibilities as an executive officer and became non-executive Chairman of the Board of the Company. ITEM 2 - PROPERTIES General As a fully-integrated real estate company, the Company provides development, construction, finance, leasing, accounting, marketing and management services for all of its properties. At December 31, 1999, the Company's portfolio consisted of (i) 51 outlet centers aggregating 14,699,000 square feet of GLA (including 1,490,000 square feet of GLA at outlet centers owned through joint venture partnerships), (ii) three community shopping centers aggregating 424,000 square feet of GLA and (iii) 159,000 square feet of GLA of office space. The table set forth below summarizes certain information with respect to the Company's existing centers as of December 31, 1999 (see "Note 6 - Bonds and Notes Payable" of the Notes to the Consolidated Financial Statements contained herein for information with respect to mortgage indebtedness on the Company's properties). Portfolio of Properties December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------ Grand GLA Percentage Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Kittery - Kittery Maine.............................. I April 1984 25,000 100% II May 1984 78,000 99 III August 1989 18,000 100 IV May 1998 10,000 100 ------- --- 131,000 100 Prime Outlets at Fremont (2) - Fremont, Indiana........................ I October 1985 118,000 92 II November 1993 51,000 100 III October 1994 60,000 87 ------- --- 229,000 92 Prime Outlets at Birch Run (3) - Birch Run, Michigan................... I-XVI Various 591,000 96 XVII- XVIII 1997 133,000 95 ------- --- 724,000 97 Prime Outlets at Latham - Latham, New York............................. I August 1987 43,000 88 Prime Outlets at Michigan City (2) - Michigan City, Indiana............ I November 1987 199,000 100 II May 1988 130,000 100 III July 1991 36,000 86 IV July 1994 42,000 100 V December 1994 26,000 98 VI May 1995 58,000 96 ------- --- 491,000 98 Prime Outlets at Williamsburg (4) - Williamsburg, Virginia............. I April 1988 67,000 100 II November 1988 60,000 100 III October 1990 49,000 100 IV 1995 98,000 100 ------- --- 274,000 100 Prime Outlets at Kenosha (2) - Kenosha, Wisconsin...................... I September 1988 89,000 91 II July 1989 65,000 100 III May 1990 115,000 96 ------- --- 269,000 95 Prime Outlets at Silverthorne (2) - Silverthorne, Colorado............ I November 1988 95,000 99 II November 1990 75,000 95 III November 1993 88,000 83 ------- --- 258,000 93
Portfolio of Properties (continued) December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------ Grand GLA Percentage Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Edinburgh (2) - Edinburgh, Indiana.................... I 1988 156,000 100% II November 1994 142,000 100 ------- --- 298,000 100 Prime Outlets at Burlington (2) - Burlington, Washington .............. I May 1989 89,000 86 II October 1989 36,000 100 III April 1993 49,000 97 ------- --- 174,000 92 Prime Outlets at Queenstown (2) - Queenstown, Maryland................. I June 1989 67,000 100 II June 1990 55,000 99 III January 1991 16,000 97 IV June 1992 14,000 97 V August 1993 69,000 100 ------- --- 221,000 99 Prime Outlets at Hillsboro (2) - Hillsboro, Texas...................... I October 1989 95,000 92 II January 1992 101,000 97 III May 1995 163,000 94 ------- --- 359,000 94 Prime Outlets at Oshkosh (2) - Oshkosh, Wisconsin...................... I November 1989 215,000 93 II July 1991 45,000 93 ------- --- 260,000 93 Prime Outlets at Warehouse Row (5) - Chattanooga, Tennessee............ I November 1989 95,000 84 Prime Outlets at Gilroy (2) - Gilroy, California....................... I January 1990 94,000 100 II August 1991 109,000 97 III October 1992 137,000 93 IV July 1994 170,000 100 V November 1995 69,000 100 ------- --- 579,000 98 Prime Outlets at Perryville (2) - Perryville, Maryland................. I June 1990 148,000 91 Prime Outlets at Sedona - Sedona, Arizona ............................. I August 1990 82,000 96 Prime Outlets at San Marcos - San Marcos, Texas........................ I August 1990 177,000 95 II August 1991 70,000 98 III August 1993 117,000 97 IIIB November 1994 20,000 91 IIIC November 1995 35,000 75 IIID May 1998 18,000 100 V August 1999 64,000 100 ------- --- 501,000 95 Prime Outlets at Anderson - Anderson, California....................... I August 1990 165,000 96 Prime Outlets at Post Falls - Post Falls, Idaho ....................... I July 1991 111,000 75 II July 1992 68,000 83 ------- --- 179,000 78 Prime Outlets at Ellenton - Ellenton, Florida.......................... I October 1991 187,000 100 II August 1993 123,000 92 III October 1996 30,000 100 IV November 1998 141,000 97 ------- -- 481,000 97 Prime Outlets at Morrisville - Raleigh - Durham, North Carolina........ I October 1991 181,000 95 II July 1996 6,000 100 ------- --- 187,000 95
Portfolio of Properties (continued)
December 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Grand GLA Percentage Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Naples - Naples/Marco Island, Florida................. I December 1991 94,000 85% II December 1992 32,000 100 III March 1998 20,000 98 ------- --- 146,000 90 Prime Outlets at Conroe (2) - Conroe, Texas............................ I January 1992 93,000 91 II June 1994 163,000 92 III October 1994 26,000 79 ------- --- 282,000 91 Prime Outlets at Bellport (6) - Bellport, New York..................... I May 1992 95,000 88 II November 1996 126,000 86 III October 1997 71,000 60 ------- --- 292,000 80 Prime Outlets at Niagara Falls USA - Niagara Falls, New York........... I July 1992 300,000 99 II August 1995 234,000 88 ------- --- 534,000 94 Prime Outlets at Woodbury (2) - Woodbury, Minnesota.................... I July 1992 129,000 87 II November 1993 100,000 88 III August 1994 21,000 100 ------- --- 250,000 88 Prime Outlets at Calhoun (2) - Calhoun, Georgia........................ I October 1992 123,000 97 II October 1995 131,000 94 ------- --- 254,000 95 Prime Outlets at Castle Rock - Castle Rock, Colorado................... I November 1992 181,000 98 II August 1993 94,000 93 III November 1993 95,000 100 IV August 1997 110,000 96 ------- --- 480,000 97 Prime Outlets at Bend - Bend, Oregon................................... I December 1992 97,000 100 II September 1998 35,000 99 ------- --- 132,000 100 Prime Outlets at Jeffersonville II (2) - Jeffersonville, Ohio.......... I March 1993 126,000 68 II August 1993 123,000 52 III October 1994 65,000 74 ------- --- 314,000 63 Prime Outlets at Jeffersonville I - Jeffersonville, Ohio............... I July 1993 186,000 87 II November 1993 100,000 98 IIB November 1994 13,000 64 IIIA August 1996 35,000 97 IIIB March 1997 73,000 100 ------- --- 407,000 92 Prime Outlets at Gainesville - Gainesville, Texas...................... I August 1993 210,000 86 II November 1994 106,000 88 ------- --- 316,000 87 Prime Outlets at Loveland - Loveland, Colorado......................... I May 1994 139,000 99 II November 1994 50,000 88 III May 1995 114,000 91 IV May 1996 25,000 100 ------- --- 328,000 95
Portfolio of Properties (continued) December 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Grand GLA Percentage Outlet Centers Phase Opening Date (Sq. Ft.) Leased(1) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Oxnard (7) - Oxnard, California....................... I June 1994 148,000 92% Prime Outlets at Grove City - Grove City, Pennsylvania................. I August 1994 235,000 97 II November 1994 95,000 100 III November 1995 85,000 96 IV November 1996 118,000 99 ------- --- 533,000 98 Prime Outlets at Huntley - Huntley, Illinois........................... I August 1994 192,000 93 II November 1995 90,000 76 ------- --- 282,000 88 Prime Outlets at Florida City - Florida City, Florida.................. I September 1994 208,000 83 Prime Outlets at Pismo Beach (2) - Pismo Beach, California............. I November 1994 148,000 94 Prime Outlets at Tracy (2) - Tracy, California........................ I November 1994 153,000 92 Prime Outlets at Vero Beach (2) - Vero Beach, Florida.................. I November 1994 210,000 95 II August 1995 116,000 94 ------- --- 326,000 94 Prime Outlets at Waterloo (2) - Waterloo, New York..................... I March 1995 208,000 99 II September 1996 115,000 95 III April 1997 68,000 94 ------- --- 391,000 97 Prime Outlets at Odessa - Odessa, Missouri............................. I July 1995 191,000 90 II November 1996 105,000 58 ------- --- 296,000 79 Prime Outlets at Darien (8) - Darien, Georgia.......................... I July 1995 238,000 88 IIA November 1995 49,000 99 IIB July 1996 20,000 100 ------- --- 307,000 90 Prime Outlets at New River (7) - Phoenix, Arizona...................... I September 1995 217,000 97 II September 1996 109,000 90 ------- --- 326,000 94 Prime Outlets at Gulfport (9) - Gulfport, Mississippi.................. I November 1995 228,000 91 IIA November 1996 40,000 78 IIB November 1997 38,000 64 ------- --- 306,000 86 Prime Outlets at Lodi - Burbank, Ohio.................................. I November 1996 205,000 98 IIA May 1998 33,000 92 IIB November 1998 75,000 83 ------- --- 313,000 94 Prime Outlets at Gaffney - Gaffney, South Carolina..................... I November 1996 235,000 92 II July 1998 70,000 92 ------- --- 305,000 92 Prime Outlets at Lee (2) - Lee, Massachusetts.......................... I June 1997 224,000 100 Prime Outlets at Lebanon - Lebanon, Tennessee......................... I April 1998 208,000 95 IIA March 1999 21,000 79 ------- --- 229,000 93 Prime Outlets at Hagerstown (10) - Hagerstown, Maryland................ I August 1998 218,000 100 II November 1998 103,000 100 ------- --- 321,000 100 ------- --- Total Outlet Centers (11) 14,699,000 93% ========== === ====================================================================================================================================
Notes: (1) Percentage reflects fully executed leases as of December 31, 1999 as a percent of square feet of GLA. (2) The Company acquired this outlet center on June 15, 1998 as a result of its merger with Horizon Group, Inc. (3) The Company acquired this outlet center on June 15, 1998 as a result of its merger with Horizon Group, Inc. On November 19, 1999, the Company sold this outlet center to a joint venture partnership with an unrelated party in which the Company owns a 30.0% interest. (4) The Company acquired this outlet center on June 15, 1998 as a result of its merger with Horizon Group, Inc. On February 23, 2000, the Company sold this outlet center to a joint venture partnership with an unrelated party in which the Company owns a 30.0% interest. (5) The Company owns a 2% partnership interest as the sole general partner in Phase I of this property but is entitled to 99% of the property's operating cash flow and net proceeds from a sale or refinancing. This mixed-use development includes 154,000 square feet of office space which was 98% leased as of December 31, 1999. (6) On September 1, 1999, the Company acquired 50% of Phase I and 51% of Phases II and III of this outlet center which it owns in joint venture partnerships with unrelated parties. (7) The Company owns 50% of this outlet center in a joint venture partnership with an unrelated third party. (8) The Company operates this outlet center pursuant to a long-term ground lease under which the Company receives the economic benefit of a 100% ownership interest. (9) The real property on which this outlet center is located is subject to a long-term ground lease. (10) The Company expects to close on the sale of this outlet center on or about May 15, 2000 to a joint venture partnership with an unrelated party in which the Company owns a 30.0% interest. (11) The Company also owns three community centers not included in this table containing 424,000 square feet of GLA in the aggregate that were 84% leased as of December 31, 1999. Lease Terms In general, the leases relating to the Company's outlet centers have a term of three to five years. Most leases provide for the payment of percentage rents for annual sales in excess of certain thresholds. In addition, the typical lease agreement provides for the recovery of all of a merchant's proportionate share of actual common area maintenance ("CAM"), refuse removal, insurance, and real estate taxes as well as a collection for advertising and promotion and an administrative fee. CAM includes such items as common area utilities, security, parking lot cleaning, maintenance and repair of common areas, capital replacement reserves, landscaping, seasonal decorations, public restroom maintenance and certain administrative expenses. The following table sets forth, as of December 31, 1999, tenant lease expirations for the next 10 years at the Company's outlet centers (assuming that none of the tenants exercise any renewal option and including leases at outlet centers owned through joint venture partnerships): - ------------------------------------------------------------------------------------------------------------------------------------ Lease Expirations - Outlet Centers
% of Total Annualized Number of Approximate Annualized Minimum Rent Leases GLA Minimum Rent of Represented by Year Expiring (Sq. Ft.) Expiring Leases Expiring Leases - ------ ------------- ---------------- -------------------- --------------- 2000 665 2,270,809 $33,256,178 17.41% 2001 654 2,393,027 36,672,692 19.20 2002 605 2,225,248 36,033,566 18.86 2003 557 2,350,330 36,200,598 18.95 2004 359 1,449,052 23,785,980 12.45 2005 136 782,286 11,757,734 6.16 2006 62 433,394 5,828,693 3.05 2007 29 171,763 2,261,173 1.18 2008 33 204,171 3,221,453 1.69 2009 - - - - ====================================================================================================================================
Tenants In management's view, tenant mix is an important factor in determining an outlet center's success. Virtually all aspects of the Company's outlet centers, ranging from site selection to architectural design, are planned to attract and retain a diverse mix of nationally and internationally recognized manufacturers of upscale designer and brand-name products. Crucial to the development of a new outlet center is having lead tenants committed to the outlet center early in the process. In management's view, lead tenants are manufacturers that during the development of an outlet center attract other high-quality manufacturers to the outlet center and provide for a well-balanced and diversified mix of tenants that will attract consumers to the outlet center. Lead tenants are placed in strategic locations designed to draw customers into the outlet center and to encourage them to shop at more than one store. The Company continually examines the placement of tenants within each center and, in collaboration with its tenants, adjusts the size and location of their space within the center in an effort to improve sales per square foot. During the year ended December 31, 1999, no group of tenants under common control accounted for more than 5.09% of the gross revenues of the Company or occupied more than 5.12% of the total GLA of the Company. The following list includes some of the lead tenants in the Company's outlet centers based on leases executed as of December 31, 1999: - ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF LEASED STORES GLA TENANT -------- ---------- ------ PHILLIPS-VAN HEUSEN BASS ...................................................................... 49 2.62% VAN HEUSEN ................................................................ 49 1.57 GEOFFREY BEENE ............................................................ 32 1.02 IZOD ...................................................................... 28 0.46 GANT ...................................................................... 1 0.02 --- ---- SUBTOTAL PHILLIPS-VAN HEUSEN............................................ 159 5.69 DRESS BARN, INC. WESTPORT, LTD./WESTPORT WOMAN/DRESS BARN................................... 48 2.53 SBX........................................................................ 2 0.07 --- ---- SUBTOTAL DRESS BARN, INC................................................ 50 2.60 NIKE............................................................................ 28 2.57 LEVI'S/DOCKERS.................................................................. 40 2.52 LIZ CLAIBORNE/ELISABETH......................................................... 43 2.52 GAP/OLD NAVY.................................................................... 31 2.23 CASUAL CORNER GROUP, INC. CASUAL CORNER OUTLET....................................................... 35 1.48 PETITE SOPHISTICATE ....................................................... 20 0.38 CASUAL CORNER WOMAN........................................................ 14 0.33 --- ---- SUBTOTAL CASUAL CORNER GROUP, INC. ..................................... 69 2.19 MIKASA.......................................................................... 37 2.18 BROWN GROUP RETAIL, INC. FACTORY BRAND SHOES........................................................ 34 1.33 NATURALIZER................................................................ 27 0.53 FAMOUS FOOTWEAR........................................................... 6 0.26 --- ---- SUBTOTAL BROWN GROUP.................................................... 67 2.12 REEBOK/ROCKPORT................................................................. 30 1.95 SARA LEE L'EGGS/HANES/BALI/PLAYTEX................................................... 42 1.42 COACH....................................................................... 17 0.37 CHAMPION.................................................................... 1 0.02 SOCKS GALORE................................................................ 13 0.13 --- ---- SUBTOTAL SARA LEE....................................................... 73 1.94 VANITY FAIR/LEE/WRANGLER/BARBIZON............................................... 10 1.83
NUMBER OF % OF LEASED TENANT STORES GLA ------ ---------- ---------- BUGLE BOY....................................................................... 41 1.68% SPIEGEL......................................................................... 8 1.68 JONES NEW YORK.................................................................. 61 1.63 POLO/RALPH LAUREN............................................................... 29 1.57 NINE WEST....................................................................... 73 1.56 CORNING-REVERE.................................................................. 40 1.46 OSHKOSH B'GOSH/GENUINE KIDS..................................................... 37 1.43 SPRINGMAID-WAMSUTTA............................................................. 23 1.26 CARTERS......................................................................... 33 1.22 EDDIE BAUER..................................................................... 19 1.14 K*B TOY......................................................................... 31 1.13 OFF 5TH-SAKS FIFTH AVENUE....................................................... 7 1.08 FAMOUS BRANDS HOUSEWARES........................................................ 37 1.03 SAMSONITE/AMERICAN TOURISTER.................................................... 44 1.02 FOREMAN ENTERPRISES, INC. AMERICAN OUTPOST........................................................... 27 0.83 FARAH/SAVANE/FARGO......................................................... 6 0.11 --- ---- SUBTOTAL FOREMAN ENTERPRISES, INC....................................... 33 0.94 RUE 21.......................................................................... 33 0.90 BIG DOG SPORTSWEAR.............................................................. 40 0.89 TOMMY HILFIGER/WOMAN/JEANS...................................................... 28 0.88 PAPER FACTORY/GREETINS 'N MORE.................................................. 35 0.88 KITCHEN COLLECTION.............................................................. 35 0.87 JOCKEY.......................................................................... 31 0.85 WELCOME HOME.................................................................... 40 0.85 J. CREW......................................................................... 16 0.83 BROOKS BROTHERS................................................................. 20 0.83 ANN TAYLOR...................................................................... 13 0.78 NAUTICA......................................................................... 24 0.68 BOSE............................................................................ 16 0.48 DONNA KARAN..................................................................... 11 0.36 SONY............................................................................ 7 0.31 ----- ----- TOTAL........................................................................... 1,502 60.56% ===== ===== ====================================================================================================================================
During the year ended December 31, 1999, total bad debt expense was approximately $0.8 million or 0.25% of total revenues. ITEM 3 - LEGAL PROCEEDINGS In the ordinary course of business the Company is subject to certain legal actions. While any litigation contains an element of uncertainty, management believes the losses, if any, resulting from such matters, including the matter described below, will not have a material adverse effect on the consolidated financial statements of the Company. The Company and its affiliates are defendants in a lawsuit filed on August 10, 1999 in the Circuit Court for Baltimore City and removed to U.S. District Court for the District of Maryland on August 20, 1999. The lawsuit alleges that the Company and its related entities overcharged tenants for common area maintenance charges and promotional fund charges. The outcome of, and the ultimate liability of the Company, if any, from, this lawsuit cannot currently be predicted. Management believes that the Company has acted properly and intends to defend this lawsuit vigorously. The New York Stock Exchange ("NYSE") has notified the Company that it is reviewing transactions in the stock of the Company prior to the Company's January 18, 2000 press release concerning financial matters. ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1999. PART II ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Common Stock trades on the NYSE under the trading symbol "PRT". The following table sets forth the quarterly high, low and end of period closing sales prices per share of the Company's Common Stock as reported on the NYSE as well as the cash distributions paid during the periods indicated: Market Price of Common Stock and Cash Dividends Paid Per Common Share
- ---------------------------------------------------------------------------------------------------------------------------------- 1999 1998 ------------------------------------------------- ---------------------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ------------------------------------------------- ---------------------------------------------------- Market price per common share: High.................. $7.94 $8.94 $9.94 $10.19 $11.13 $12.81 $15.19 $15.56 Low................... 5.13 6.44 7.94 7.38 7.50 9.06 11.81 13.75 End of period close... 5.63 7.38 8.69 8.75 9.81 9.81 11.94 14.94 Cash dividends paid per common share.......... $0.295 $0.295 $0.295 $0.295 $0.295 $0.295 $0.795 (1) $0.295 ====================================================================================================================================
Note: (1) Includes a special cash distribution of $0.50 per common share relating to the Company's merger with Horizon completed in June 1998 (see Note 3 - "Business Combination" of the Notes to Consolidated Financial Statements). The Company's current policy regarding the payment of common stock distributions is to only make distributions to the extent necessary to maintain its status as a real estate investment trust for federal income tax purposes. Based on its current federal tax income tax projections, the Company does not expect to pay any distributions on its common stock or common units of limited partnership interest in Prime Retail, L.P. during 2000. With respect to distributions on the Company's 10.5% Series A Senior Cumulative Preferred Stock and 8.5% Series B Cumulative Convertible Preferred Stock, the Board of Directors considered and did not declare a quarterly distribution on such preferred stock due February 15, 2000. The Company's Board of Directors will continue to evaluate the payment of such preferred stock distributions on a quarterly basis. The Company is currently prohibited under the terms of more than one of its credit agreements from paying dividends or distributions as a result of non-compliance with a financial covenant (see Note 6 - "Bonds and Notes Payable" of the Notes to Consolidated Financial Statements. In addition, the Company may make no distribution to its common shareholders unless it is current with respect to distributions to its preferred shareholders. The approximate number of holders of record of the Common Stock was 949 including participants in security position listings as of March 28, 2000. ITEM 6 - SELECTED FINANCIAL DATA (Amounts in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------- Years ended December 31 ---------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Revenues Base rents............................... $ 193,979 $ 148,376 $ 78,046 $ 54,710 $ 46,368 Percentage rents......................... 8,085 6,384 3,277 1,987 1,520 Tenant reimbursements.................... 90,063 67,152 37,519 25,254 22,283 Interest and other....................... 13,829 9,897 10,288 7,089 7,227 ------- ------- -------- ------ ------ Total revenues................ 305,956 231,809 129,130 89,040 77,398 Expenses Property operating....................... 70,862 52,684 29,492 20,421 17,389 Real estate taxes........................ 22,405 16,705 9,417 5,288 4,977 Depreciation and amortization............ 73,640 52,727 26,715 19,256 15,438 Corporate general and administrative..... 12,687 7,980 5,603 4,018 3,878 Interest................................. 93,934 60,704 36,122 24,485 20,821 Provision for abandoned projects......... 16,039 - - - - Provision for asset impairment........... 15,842 - - - - Loss on Designer Connection.............. 6,561 1,067 - - - Other charges............................ 6,918 4,495 3,234 8,586 2,089 ------- ------- ------- ------ ------- Total expenses................ 318,888 196,362 110,583 82,054 64,592 ------- ------- ------- ------ ------- Income (loss) before loss on sale of real estate, minority interests and extraordinary loss.................... (12,932) 35,447 18,547 6,986 12,806 Loss on sale of real estate.............. (15,153) (15,461) - - - ------- ------- ------- ------ ------- Income (loss) before minority interests and extraordinary loss................ (28,085) 19,986 18,547 6,986 12,806 (Income) loss allocated to minority interests............................. (3,226) (2,456) (10,581) 2,092 5,364 ------- ------ ------- ------ ------- Income (loss) before extraordinary loss.. (31,311) 17,530 7,966 9,078 18,170 Extraordinary loss....................... (3,518) - (2,061) (1,017) - -------- --------- --------- --------- -------- Net income (loss)........................ (34,829) 17,530 5,905 8,061 18,170 Income allocated to preferred shareholders (9,962) (24,604) (12,726) (14,236) (20,944) -------- --------- --------- --------- -------- Net loss applicable to common shares..... $ (44,791) $ (7,074) $ (6,821) $ (6,175) $ (2,774) ======== ========= ========= ========= ======== Net loss per common share - basic........ $ (1.04) $ (0.20) $ (0.36) $ (0.75) $ (0.96) ======== ========= ========= ========= ========= Net loss per common share - diluted...... $ (1.30) $ (0.20) $ (0.36) $ (0.75) $ (0.96) ======== ========= ========= ========= ========= Other Data Funds from operations (1)................ $ 68,321 $ 90,020 $ 46,718 $ 27,637 $ 27,996 Net cash provided by operating activities $ 102,221 $ 61,335 $ 49,856 $ 45,191 $ 36,399 Net cash used in investing activities.... $ (56,666) $ (145,596) $ (229,956) $ (232,290) $ (81,978) Net cash provided by (used in) financing activities............................ $ (43,977) $ 83,653 $ 182,549 $ 176,096 $ 57,547 Distributions declared per common share.. $ 0.89 $ 1.68(2) $ 1.18 $ 1.33(3) $ 1.18 Reported merchant sales.................. $3,286,917 $3,169,268 $1,434,163 $1,044,348 $ 809,623 Total outlet GLA at end of period (4).... 14,699 14,348 7,217 5,780 4,331 Number of outlet centers at end of period(4)................................ 51 50 28 21 17
December 31 ---------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Rental property (before accumulated depreciation)......................... $1,826,551 $2,015,722 $904,782 $640,759 $454,480 Net investment in rental property........ 1,642,597 1,887,975 822,749 583,085 414,290 Total assets............................. 1,856,058 1,976,464 904,183 666,803 462,405 Bonds and notes payable.................. 1,260,670 1,217,507 515,265 499,523 305,954 Total liabilities and minority interests. 1,359,371 1,332,730 559,655 527,594 340,921 Shareholders' equity..................... 496,687 643,734 344,528 139,209 121,484 ======================================================================================================================
Notes: (1) Management believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, Funds from Operations ("FFO") should be considered in conjunction with net income (loss) as presented in the financial statements included in this Annual Report on Form 10-K. Management believes that FFO is an important and widely accepted measure of the operating performance of REITs which provides a relevant basis for comparison to other REITS. Therefore, FFO is presented to assist investors in analyzing the performance of the Company. FFO represents net income (loss) (computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains or losses from debt restructuring, sales of property and discontinued operations, plus depreciation and amortization and after adjustments for unconsolidated investment partnerships and joint ventures. In March 1995, the National Association of Real Estate Investment Trusts ("NAREIT") issued a clarification of its definition of FFO. Although the Company has adopted the NAREIT definition of FFO, the Company cautions that the calculation of FFO may vary from entity to entity and as such the presentation of FFO by the Company may not be comparable to other similarly titled measures of other reporting companies. FFO does not represent cash flow from operating activities in accordance with GAAP and is not indicative of cash available to fund all of the Company's cash needs. FFO should not be considered as an alternative to net income or any other GAAP measure as an indicator of performance and should not be considered as an alternative to cash flow as a measure of liquidity or the ability to service debt or to pay dividends. A reconciliation of income (loss) before allocations to minority interests and preferred shareholders to FFO is as follows:
Years ended December 31 --------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before minority interests and Extraordinary loss (i), (ii)....................... $(28,085) $19,986 $18,547 $ 6,986 $12,806 FFO adjustments: Loss on sale of real estate.......................... 15,153 15,461 - - - Discontinued operations - Designer Connection........ 6,561 1,067 - - - Real estate depreciation and amortization............ 73,053 52,295 26,413 18,703 14,884 Unconsolidated joint venture......................... adjustments(ii)................................... 1,639 1,211 1,758 1,948 306 FFO before allocations to minority interests and -------- ------- ------- ------- ------- preferred shareholders............................ $ 68,321 $90,020 $46,718 $27,637 $27,996 ======== ======= ======= ======= ======= ==================================================================================================================================
Notes: (i) Includes a nonrecurring charge of $6,131 related to the prepayment of long-term debt recorded during 1996. (ii)Amounts include net preferential partner distributions from a joint venture partnership of $400 and $162 for the years ended December 31, 1996 and 1995, respectively. (2) Includes a special cash distribution of $0.50 per common share relating to the Company's merger with Horizon completed in June 1998 (see Note 3 - "Business Combination" of the Notes to Consolidated Financial Statements). (3) Includes a special cash distribution of $0.145 per common share relating to the Company's exchange offer completed in June 1996. (4) Includes outlet centers operated under joint venture partnerships with unrelated third parties as follows:
December 31 ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Aggregate GLA........................................ 1,490 595 595 800 901 Number of outlet centers............................. 4 3 3 4 4 ====================================================================================================================================
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands, except per share, per unit, and per square foot information) Introduction The following discussion and analysis of the consolidated financial condition and results of operations of Prime Retail, Inc. (the "Company") should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report on Form 10-K. The Company's operations are conducted through Prime Retail, L.P. (the "Operating Partnership"). The Company controls the Operating Partnership as its sole general partner and is dependent upon the distributions or other payments from the Operating Partnership to meet its financial obligations. Historical results and percentage relationships set forth herein are not necessarily indicative of future operations. Cautionary Statements The following discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect management's current views with respect to future events and financial performance. These statements are subject to potential risks and uncertainties and, therefore, actual results may differ materially. Such forward-looking statements are subject to certain risks and uncertainties; including, but not limited to, the risk that the Company may be unable to obtain waivers or amendments to the provisions of its credit agreement sthat are presently in default or to refinance the indebtedness outstanding under such agreements in the event they are accelerated; the effects of future events on the Company's financial performance; risks related to the retail industry in which the Company's outlet centers compete, including the potential adverse impact of external factors, such as inflation, consumer confidence, unemployment rates and consumer tastes and preferences; risks associated with the Company's planned asset sales; risks associated with the Company's property development activities, such as the potential for cost overruns, delays and the lack of predictability with respect to the financial returns associated with these development activities; the risk of potential increase in market interest rates from current levels; risks associated with real estate ownership, such as the potential adverse impact of changes in local economic climate on the revenues and the value of the Company's properties; risks associated with litigation; and risks associated with newly arising competition from web-based retailers, given the newness of web-based retailing, it is difficult to quantify at this time. Merger with Horizon Group, Inc. On June 15, 1998, the merger and other transactions (collectively, the "Merger Transactions") between the Company and Horizon Group, Inc. ("Horizon") were consummated for an aggregate consideration of $1,134,682, including liabilities assumed and related transaction costs. The merger has been accounted for using the purchase method of accounting and the purchase price of $1,134,682 was allocated to the assets acquired and the liabilities assumed based on estimates of their respective fair values. Accordingly, the operating results of the 22 properties acquired from Horizon have been included in the Company's consolidated results of operations commencing on June 15, 1998. See "Liquidity and Capital Resources - Business Combination" for further information. Portfolio Growth The Company grew to its present size, a process that had been largely completed by the end of 1999, by developing and acquiring outlet centers and expanding its existing outlet centers. The Company's outlet portfolio consisted of 51 outlet centers totaling 14,699,000 square feet of gross leasable area ("GLA") at December 31, 1999, compared to 50 outlet centers totaling 14,348,000 square feet of GLA at December 31, 1998 and 28 outlet centers totaling 7,217,000 square feet of GLA at December 31, 1997. The significant increase in the number of the Company's outlet centes and GLA are collectively referred to as the "Portfolio Expansion and the Horizon Merger." During 1999, the Company (i) opened two expansions to existing outlet centers totaling 85,000 square feet of GLA and (ii) acquired from Horizon Group Properties, Inc. ("HGP") ownership interests in the Bellport Outlet Center which consists of 292,000 square feet of GLA. During 1998, the Company opened two outlet centers and nine expansions to existing outlet centers totaling 931,000 square feet of GLA in the aggregate. In connection with the Merger Transactions, the Company (i) acquired and integrated 22 of Horizon's outlet centers into its existing portfolio adding 6,626,000 square feet of GLA in the aggregate and (ii) sold two outlet centers to HGP totaling 426,000 square feet of GLA.
Results of Operations Table 1-Consolidated Statements of Operations - ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Base rents..................................................................... $193,979 $ 148,376 $ 78,046 Percentage rents............................................................... 8,085 6,384 3,277 Tenant reimbursements.......................................................... 90,063 67,152 37,519 Interest and other............................................................. 13,829 9,897 10,288 ------- ------- ------- Total revenues............................................................... 305,956 231,809 129,130 Expenses Property operating............................................................. 70,862 52,684 29,492 Real estate taxes.............................................................. 22,405 16,705 9,417 Depreciation and amortization.................................................. 73,640 52,727 26,715 Corporate general and administrative........................................... 12,687 7,980 5,603 Interest....................................................................... 93,934 60,704 36,122 Provision for abandoned projects............................................... 16,039 - - Provision for asset impairment................................................. 15,842 - - Loss on Designer Connection.................................................... 6,561 1,067 - Other charges.................................................................. 6,918 4,495 3,234 ------- ------- ------- Total expenses.............................................................. 318,888 196,362 110,583 ------- ------- ------- Income (loss) before loss on sale of real estate, minority interests and extraordinary loss........................................................... (12,932) 35,447 18,547 Loss on sale of real estate.................................................... (15,153) (15,461) - ------- ------- ------- Income (loss) before minority interests and extraordinary loss................. (28,085) 19,986 18,547 Income allocated to minority interests......................................... (3,226) (2,456) (10,581) ------- ------- ------- Income (loss) before extraordinary loss........................................ (31,311) 17,530 7,966 Extraordinary loss on early extinguishment of debt, net of minority interests in the amount of $887 in 1999 and $0 in 1997....... (3,518) - (2,061) -------- -------- -------- Net income (loss).............................................................. (34,829) 17,530 5,905 Income allocated to preferred shareholders..................................... (9,962) (24,604) (12,726) -------- -------- -------- Net loss applicable to common shares........................................... $(44,791) $ (7,074) $ (6,821) ======== ======== ======== Earnings per common share - basic: Loss before extraordinary loss.............................................. $ (0.96) $ (0.20) $ (0.25) Extraordinary loss.......................................................... (0.08) - (0.11) -------- -------- -------- Net loss.................................................................... $ (1.04) $ (0.20) $ (0.36) ======== ======== ======== Earnings per common share - diluted Loss before extraordinary loss.............................................. $ (1.22) $ (0.20) $ (0.25) Extraordinary loss.......................................................... (0.08) - (0.11) ======== ======== ======== Net loss.................................................................... $ (1.30) $ (0.20) $ (0.36) ======== ======== ======== Weighted average common shares outstanding Basic...................................................................... 43,196 35,612 19,189 ======== ======== ======== Diluted.................................................................... 44,260 35,612 19,189 ======== ======== ======== ====================================================================================================================================
Table 2-Statements of Operations on a Weighted Average per Square Foot Basis A summary of the operating results for the years ended December 31, 1999, 1998 and 1997 is presented in the following table, expressed in amounts calculated on a weighted average occupied GLA basis.
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ GLA at end of period (1)........................................................ 13,787 14,457 7,326 Weighted average occupied GLA (1)............................................... 13,599 10,390 5,735 Executed leases at end of period (GLA) (1)...................................... 13,643 13,894 6,854 Outlet centers in operation at end of period (2)................................ 51 50 28 New Outlet centers opened and acquired (2)...................................... 1 24 7 Outlet centers expanded (2)..................................................... 2 9 4 Community centers in operation at end of period................................. 3 3 3 States operated in at end of period............................................. 26 26 20 Portfolio weighted average per square foot (3): Revenues Base rents...................................................................... $14.26 $14.28 $13.61 Percentage rents................................................................ 0.59 0.61 0.57 Tenant reimbursements........................................................... 6.62 6.46 6.54 Interest and other.............................................................. 1.02 1.06 1.79 ------ ------ ------ Total revenues............................................................... 22.49 22.41 22.51 Expenses (4) Property operating.............................................................. 5.21 5.07 5.14 Real estate taxes............................................................... 1.65 1.61 1.64 Depreciation and amortization................................................... 5.42 5.10 4.66 Corporate general and administrative............................................ 0.93 0.77 0.98 Interest........................................................................ 6.91 5.84 6.30 Other charges................................................................... 0.51 0.63 0.56 ------ ------ ------ Total expenses............................................................... 20.63 19.02 19.28 ------ ------ ------ Income before loss on sale of real estate, minority interests and extraordinary loss....................................................... $ 1.86 $ 3.39 $ 3.23 ====== ====== ====== Revenues Base rents...................................................................... $14.51 $14.66 $14.19 Percentage rents................................................................ 0.62 0.68 0.63 Tenant reimbursements........................................................... 6.76 6.67 6.96 Interest and other.............................................................. 0.85 0.85 1.57 ------ ------ ------ Total revenues............................................................... 22.74 22.86 23.35 Expenses (4) Property operating.............................................................. 5.31 5.17 5.40 Real estate taxes............................................................... 1.65 1.62 1.67 Depreciation and amortization................................................... 5.53 5.09 4.67 Interest........................................................................ 6.42 5.95 6.31 Other charges................................................................... 0.26 0.33 0.43 ------ ------ ------ Total expenses............................................................... 19.17 18.16 18.48 ------ ------ ------ Income before corporate general and administrative expenses, loss on sale of real estate, minority interests and extraordinary loss....... $ 3.57 $ 4.70 $ 4.87 ====== ====== ====== ===================================================================================================================================
Notes: (1) Includes total GLA in which the Company receives substantially all of the economic benefit. (2) Includes outlet centers operated under unconsolidated joint venture partnerships with unrelated third parties. (3) Based on occupied GLA weighted by months of operation. The occupied GLA on a weighted average basis from the 22 properties the Company acquired from Horizon have been included in the weighted average GLA commencing on June 15, 1998. (4) Excludes a (i) provision for abandoned projects of $16,039, (ii) a provision for asset impairment of $15,842, and (iii) a loss on Designer Connection outlet stores of $6,561 recorded during 1999. Comparison of the year ended December 31, 1999 to the year ended December 31, 1998 For the year ended December 31, 1999, the Company reported net loss of $34,829. The 1999 results include (i) a fourth quarter loss on the sale of real estate of $15,153, (ii) a provision for abandoned projects of $16,039, (iii) a provision for asset impairment of $15,842, (iv) a loss on Designer Connection outlet stores of $6,561, and (v) an extraordinary loss of $3,518 related to the pre-payment of certain long-term debt. For the year ended December 31, 1999, the net loss applicable to common shareholders was $44,791, or $1.04 and $1.30 per common share on a basic and diluted basis, respectively. For the year ended December 31, 1998, the Company reported net income of $17,530. The 1998 results include (i) a second quarter loss on the sale of real estate of $15,461 in connection with the Merger Transactions and (ii) a loss on Designer Connection outlet stores of $1,067. For the year ended December 31, 1998, the net loss applicable to common shareholders was $7,074, or $0.20 per common share on a basic and diluted basis. Total revenues were $305,956 for the year ended December 31, 1999, compared to $231,809 for the year ended December 31, 1998, an increase of $74,147, or 32.0%. Base rents increased $45,603, or 30.7%, in 1999 compared to 1998. These increases are primarily due to the Portfolio Expansion and the Horizon Merger. Straight-line rents (included in base rents) were $1,181 and $1,229 for the years ended December 31, 1999 and 1998, respectively. The average base rent per square foot for new outlet leases negotiated and executed by the Company was $17.67 and $16.12 for the years ended December 31, 1999 and 1998, respectively. Percentage rents, which represent rents based on a percentage of sales volume above a specified threshold, increased $1,701, or 26.6%, during the year ended December 31, 1999 compared to the same period in 1998. This increase was attributable to higher reported merchant sales in 1999 as well as the Portfolio Expansion and the Horizon Merger. As summarized in TABLE 3, merchant sales reported to the Company increased by $117.6 million, or 3.7%, to $3,286.9 million from $3,169.3 million for the years ended December 31, 1999 and 1998, respectively. The increase in total reported merchant sales is primarily due to the Portfolio Expansion and the Horizon Merger. The weighted average reported merchant sales per square foot increased by 0.8% to $256.50 per square foot in 1999 from $254.56 per square foot in 1998. Total merchant occupancy cost per square foot increased slightly from $21.30 in 1998 to $21.90 in 1999 and increased as a percentage of reported sales from 8.37% to 8.54%, respectively. Table 3-Summary of Reported Merchant Sales(1) A summary of reported outlet merchant sales and related data for 1999, 1998 and 1997 follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Total reported merchant sales (in millions)(1)................................. $3,286.9 $3,169.3 $1,434.2 ======== ======== ======== Weighted average reported merchant sales per square foot(2): All store sales............................................................. $ 256.50 $ 254.56 $ 236.20 ======== ======== ======== Same-space sales............................................................ $ 252.65 $ 248.44 ======== ======== Total merchant occupancy cost per square foot(3)................................ $ 21.90 $ 21.30 $ 21.36 ======== ======== ======== Cost of merchant occupancy to reported sales(4)................................. 8.54% 8.37% 9.04% ======== ======== ======== Cost of merchant occupancy (excluding marketing contributions) to reported sales(5)............................................................. 7.84% 7.65% 8.39% ======== ======== ======== ====================================================================================================================================
Notes: (1) Total reported merchant sales summarizes gross sales generated by merchants and includes changes in merchant mix and the effect of new space created from the acquisition and opening of new and expanded outlet centers. Several of the Company's outlet centers were constructed, expanded or acquired during the time periods contained in TABLE 3 and therefore, reported sales for such new openings, expansions and acquisitions were reported only for the partial period and were not annualized. TABLE 3 should be read in conjunction with the information summarized under the caption "Properties--Portfolio of Properties". (2) Weighted average reported sales per square foot is based on reported sales divided by the weighted average square footage occupied by the merchants reporting those sales. Same-space sales is defined as the weighted average reported merchant sales per square foot for space open since the beginning of the prior year. (3) Total merchant occupancy cost per square foot includes base rents, percentage rents and tenant reimbursements which includes tenant marketing contributions. (4) Computed as follows: total merchant occupancy cost per square foot divided by total weighted average reported merchant sales per square foot. (5) Computed as follows: total merchant occupancy cost per square foot (excluding marketing contributions paid by merchants) divided by total weighted average reported merchant sales per square foot. Tenant reimbursements, which represent the contractual recovery from tenants of certain operating expenses, increased by $22,911, or 34.1%, in 1999 over 1998. This increase is primarily due to the Portfolio Expansion and the Horizon Merger. As shown in TABLE 4, tenant reimbursements as a percentage of recoverable property operating expenses and real estate taxes was 96.6% in 1999 compared to 96.8% in 1998. These levels reflect the Company's continued efforts to contain operating expenses at its properties while requiring merchants to pay their pro rata share of these expenses. TABLE 4 sets forth recoveries from merchants as a percentage of total recoverable expenses for 1999, 1998, and 1997: Table 4-Tenant Recoveries as a Percentage of Total Recoverable Expenses - -------------------------------------------------------------------------------- Percentage of Expenses Year Recovered from Tenants(1) - -------------------------------------------------------------------------------- 1999..................................................................96.6% 1998..................................................................96.8% 1997..................................................................96.4% ================================================================================ Note: (1) Total recoverable expenses include property operating expenses and real estate taxes. Interest and other income increased by $3,932, or 39.7%, to $13,829 during the year ended December 31, 1999 as compared to $9,897 for the year ended December 31, 1998. The increase reflects higher (i) temporary tenant income of $1,677, (ii) lease termination income of $717, (iii) municipal assistance income of $506, (iv) parking garage income of $360, (v) property management fees of $270, (vi) gift certificate program income of $241, and (vii) other ancillary income of $161. Property operating expense increased by $18,178, or 34.5%, to $70,862 in 1999 compared to $52,684 in 1998. Real estate taxes expense increased by $5,700, or 34.1%, to $22,405 in 1999 from $16,705 in 1998. The increases in property operating expenses and real estate taxes are primarily due to the Portfolio Expansion and the Horizon Merger. As show in TABLE 5, depreciation and amortization expense increased by $20,913, or 39.7%, to $73,640 in 1999, compared to $52,727 in 1998. This increase results from the depreciation and amortization of assets associated with the Portfolio Expansion and the Horizon Merger. Table 5-Components of Depreciation and Amortization Expense The components of depreciation and amortization expense for 1999, 1998 and 1997 are summarized as follows:
----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- Building and improvements...................................................... $40,184 $30,299 $13,987 Land improvements.............................................................. 5,779 3,609 2,838 Tenant improvements............................................................ 25,374 16,616 7,372 Furniture and fixtures......................................................... 1,540 1,084 858 Leasing commissions(1)......................................................... 763 1,119 1,660 ------ ------ ------ Total.................................................................... $73,640 $52,727 $26,715 ======= ======= ======= ====================================================================================================================================
Note: (1) In accordance with generally accepted accounting principles ("GAAP"), leasing commissions are classified as intangible assets. Therefore, the amortization of leasing commissions is reported as a component of depreciation and amortization expense. As shown in TABLE 6, interest expense increased by $33,230, or 54.7%, to $93,934 in 1999 compared to $60,704 in 1998. This increase reflects (i) higher interest incurred of $30,571, (ii) a decrease in the amount of interest capitalized in connection with development projects of $1,147 and (iii) an increase in amortization of deferred financing costs of $2,587. Partially offsetting these items was a decrease in amortization of interest rate protection contracts of $1,075. Additionally, interest incurred reflects amortization of debt premiums of $4,406 and $2,153 for the yers ended December 31, 1999 and 1998, respectively. The increase in interest incurred is primarily attributable to an increase of $387,408 in the Company's average debt outstanding during 1999 compared to 1998 and (ii) higher interest rates on variable-rate indebtedness due to increased market rates. Table 6-Components of Interest Expense The components of interest expense for 1999, 1998 and 1997 are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Interest incurred............................................................... $94,201 $63,630 $36,436 Interest capitalized............................................................ (4,646) (5,793) (4,056) Amortization of deferred financing costs........................................ 4,302 1,715 2,352 Amortization of interest rate protection contracts.............................. 77 1,152 1,390 ------- ------- ------- Total.................................................................... $93,934 $60,704 $36,122 ======= ======= ======= ====================================================================================================================================
Other charges increased by $2,423 to $6,918 in 1999 compared to $4,495 for 1998. This increase reflects (i) the write-off of $3,100 of capitalized costs associated with the Company's expired option to purchase its joint venture partner's 50.0% ownership interest in Prime Outlets at New River, and (ii) an increase in other miscellaneous charges of $389. Partially offsetting these items was (i) a decrease in the provision for uncollectible accounts receivable of $608 and (ii) lower marketing costs of $458. When accounting for the fourth quarter of 1999, the Company determined that certain events and circumstances had occurred during 1999 including, limited leasing success and revised occupancy estimates, which indicated two of the Company's outlet centers (Prime Outlets at Jeffersonville II and Prime Outlets at Oxnard) were permanently impaired. Accordingly, the results of operations for 1999 include a provision for asset impairment of $15,842 representing the write-down of the carrying values of these assets to their estimated fair value in accordance with SFAS No. 121. Additionally, when accounting for the fourth quarter of 1999, the Company recorded a provision for abandoned projects of $16,039 based on management's determination that as of December 31, 1999, the Company s pre-development efforts associated with certain projects were no longer viable. The operating results for the Company's Designer Connection outlet stores are reflected in loss on Designer Connection in the Consolidated Statements of Operations for all periods presented. When accounting for the fourth quarter of 1999, the Company decided to discontinue the operations of its Designer Connection outlet stores. Accordingly, the Company recorded non-recurring charges aggregating $3,659 including (i) $1,659 related to the write-off of costs associated with a web-site for Designer Connection and(ii) $2,000 of costs to cover the expected cash and non-cash costs of the closure. The cash and non-cash costs of the closure primarily consist of (i) employee termination costs, (ii) lease obligations, and (iii) the write-down of assets to their net realizable value. The Company expects that the operations of its Designer Connection outlet stores will cease by July 31, 2000. Table 7-Capital Expenditures The components of capital expenditures for 1999, 1998 and 1997 are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ New developments................................................................ $ 37,553 $ 43,459 $ 34,175 Property acquisitions, net...................................................... - 1,013,231(1) 191,345(2) Expansions and renovations...................................................... 49,934 99,585 39,037 Re-leasing tenant allowances.................................................... 2,482 2,130 561 -------- ---------- -------- Total..................................................................... $ 89,969 $1,158,405 $265,118 ======== ========== ======== ====================================================================================================================================
Notes: (1) Includes the assets acquired by the Company during 1998 in connection with its merger with Horizon, net of the spin-off of HGP. (2) Includes the assets acquired by the Company during 1997 consisting of (i) the purchase of seven outlet centers ($166,987) and (ii) the purchase of the Company's joint venture partner's partnership interest in Prime Outlet at Lodi ($24,358).
Table 8-Consolidated Quarterly Summary of Operations - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 ------------------------------------------- ----------------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues......................... $ 75,137 $76,902 $75,574 $78,343 $76,947 $72,873 $44,594 $37,395 Total expenses(1)...................... 111,496 70,450 67,897 69,045 66,682 62,301 37,435 29,944 ------- ------- ------- ------- ------- ------- ------- ------- Income before loss on sale of real estate, minority interests and extraordinary loss.................. (36,359) 6,452 7,677 9,298 10,265 10,572 7,159 7,451 Loss on sale of real estate............ (15,153) - - - - - (15,461) - ------- ------ -------- -------- -------- ------- ------- ------- Income (loss) before minority interests and extraordinary loss.... (51,512) 6,452 7,677 9,298 10,265 10,572 (8,302) 7,451 (Income) loss allocated to minority interests........................... (2,770) 78 (534) - - (214) 3,219 (5,461) ------- ------- -------- -------- -------- ------- ------- ------- Income (loss) before extraordinary loss................................ (54,282) 6,530 7,143 9,298 10,265 10,358 (5,083) 1,990 Extraordinary loss on early extinguishment of debt.............. (1,412) - (2,106) - - - - - ------- ------- -------- -------- -------- ------- ------- ------- Net income (loss)...................... (55,694) 6,530 5,037 9,298 10,265 10,358 (5,083) 1,990 (Income) loss allocated to preferred shareholders.............. (5,668) (6,048) (6,046) 7,800 (6,956) (6,741) (6,741) (4,166) ------- ------- -------- -------- -------- ------- ------- ------- Net income (loss) applicable to common shares....................... $(61,362) $ 482 $ (1,009) $17,098 $ 3,309 $ 3,617 $(11,824) $(2,176) ======== ======= ======= ======= ======= ======= ======== ======= Earnings per common share - basic: Income (loss) before extraordinary loss.................. $ (1.39) $ 0.01 $ 0.03 $ 0.40 $ 0.08 $ 0.09 $ (0.40) $ (0.08) Extraordinary loss.................... (0.03) - (0.05) - - - - - -------- ------- -------- ------- ------- ------- -------- ------- Net income (loss).................. $ (1.42) $ 0.01 $ (0.02) $ 0.40 $ 0.08 $ 0.09 $ (0.40) $ (0.08) ======== ======= ======== ======= ======= ======= ======== ======= Earnings per common share - diluted: Income (loss) before extraordinary loss............... $ (1.39) $ 0.01 $ 0.03 $ 0.06 $ 0.08 $ 0.09 $ (0.40) $ (0.08) Extraordinary loss................. (0.03) - (0.05) - - - - - -------- ------- -------- ------- ------- ------- -------- ------- Net income (loss)..................... $ (1.42) $ 0.01 $ (0.02) $ 0.06 $ 0.08 $ 0.09 $ (0.40) $ (0.08) ======== ======= ======== ======= ======= ======= ======== ======= Weighted average common shares outstanding: Basic.............................. 43,357 43,286 43,186 42,951 42,736 42,314 29,859 27,295 ======== ======= ======== ======= ======= ======= ======== ======= Diluted............................ 43,357 43,286 43,186 58,376 42,736 42,314 29,859 27,295 ======== ======= ======== ======= ======= ======= ======== ======= Distributions paid per common share(2)........................... $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.295 $ 0.795 $ 0.295 ======== ======= ======== ======= ======= ======= ======== ======= ====================================================================================================================================
Notes: (1) The fourth quarter of 1999 reflects non-recurring charges and expenses aggregating $37,981 including (i) a provision for asset impairment of $15,842, (ii) a provision for abandoned projects of $16,039, (iii) the write-off of $3,100 of capitalized costs associated with the Company's expired option to purchase its joint venture partner's 50.0% ownership interest in Prime Outlets at New River, and (iv) $3,000 of start-up and organizational expenses associated with the Company's eOutlets.com subsidiary (see Note 13 - "Special Charges" and Note 14 - "Subsequent Event" of the Notes to Consolidated Financial Statements). (2) The second quarter of 1998 includes a special cash distribution of $0.50 per common share relating to the Company's merger with Horizon completed in June 1998 (see Note 3 - "Business Combination" of the Notes to Consolidated Financial Statements). Comparison of the year ended December 31, 1998 to the year ended December 31, 1997 For the year ended December 31, 1998, the Company reported net income of $17,530. The 1998 results include (i) a second quarter loss on the sale of real estate of $15,461 in connection with the Merger Transactions and (ii) a loss on Designer Connection outlet stores of $1,067. For the year ended December 31, 1998, the net loss applicable to common shareholders was $7,074, or $0.20 per common share on a basic and diluted basis. For the year ended December 31, 1997, the Company reported net income of $5,905. The 1997 results include an extraordinary loss of $2,061 related to the pre-payment of certain long-term debt. For the year ended December 31, 1997, the net loss applicable to common shareholders was $6,821, or $0.36 per common share on a basic and diluted basis. Total revenues were $231,809 for the year ended December 31, 1998, compared to $129,130 for the year ended December 31, 1997, an increase of $102,679, or 79.5%. Base rents increased $70,330, or 90.1%, in 1998 compared to 1997. These increases are primarily due to the Portfolio Expansion and the Horizon Merger. Straight-line rents (included in base rents) were $1,229 and $643 for the years ended December 31, 1998 and 1997, respectively. The average base rent per square foot for new manufacturers' outlet leases negotiated and executed by the Company was $16.12 and $15.52 for the years ended December 31, 1998 and 1997, respectively. Percentage rents, which represent rents based on a percentage of sales volume above a specified threshold, increased $3,107, or 94.8%, during the year ended December 31, 1998 compared to the same period in 1997. This increase was attributable to higher reported merchant sales in 1998 as well as the Portfolio Expansion and the Horizon Merger. As summarized in TABLE 3, merchant sales reported to the Company increased by $1,735.1 million, or 121.0%, to $3,169.3 million from $1,434.2 million for the years ended December 31, 1998 and 1997, respectively. The increase in total reported merchant sales is primarily due to the Portfolio Expansion and the Horizon Merger. The weighted average reported merchant sales per square foot increased by 7.8% to $254.56 per square foot in 1998 from $236.20 per square foot in 1997. Total merchant occupancy cost per square foot decreased slightly from $21.36 in 1997 to $21.30 in 1998 and decreased as a percentage of reported sales from 8.39% to 7.65%, respectively. The decrease in the cost of merchant occupancy to reported sales is primarily due to an increase in the weighted average reported merchant sales per square foot for the Company's entire manufacturers' outlet portfolio. Tenant reimbursements, which represent the contractual recovery from tenants of certain operating expenses, increased by $29,633, or 79.0% in 1998 over 1997. These increases are primarily due to the Portfolio Expansion and the Horizon Merger. As shown in Table 4, tenant reimbursements as a percentage of recoverable property operating expenses and real estate taxes was 96.8% in 1998 compared to 96.4% in 1997. These levels reflect the Company's continued efforts to contain operating expenses at its properties while requiring merchants to pay their pro rata share of these expenses. Interest and other income decreased by $391, or 3.8%, to $9,897 during the year ended December 31, 1998 as compared to $10,288 for the year ended December 31, 1997. The decrease reflects (i) lower interest income of $1,262 and (ii) other ancillary income of $561. Partially offsetting these items was higher temporary tenant income of $1,432. The reduction in interest income was primarily the result of the use of a portion of the Company's expansion loan escrow account to fund certain of its development activities during 1997 and 1998. The expansion loan escrow account is included in restricted cash in the Consolidated Balance Sheets. Property operating expense increased by $23,192, or 78.6%, to $52,684 in 1998 compared to $29,492 in 1997. Real estate taxes expense increased by $7,288, or 77.4%, to $16,705 in 1998 from $9,417 in 1997. The increases in property operating expenses and real estate taxes are primarily due to the Portfolio Expansions and the Horizon Merger. As shown in Table 5, depreciation and amortization expense increased by $26,012, or 97.4%, to $52,727 in 1998, compared to $26,715 in 1997. This increase results from the depreciation and amortization of assets associated with the Portfolio Expansion and the Horizon Merger. As shown in Table 6, interest expense increased by $24,582, or 68.1%, to $60,704 in 1998 compared to $36,122 in 1997. This increase reflects higher interest incurred of $27,194. Partially offsetting this item was an increase in the amount of interest capitalized in connection with development projects of $1,737, a decrease in amortization of deferred financing costs of $637, and a decrease in amortization of interest rate protection contracts of $238. Additionally, interest incurred reflects amortization of debt premiums of $2,153 for the year ended December 31, 1998. The increase in interest incurred is primarily attributable to an increase of $379,108 in the Company's average debt outstanding during 1998 compared to 1997. Other charges increased by $1,261 to $4,495 in 1998 compared to $3,234 for 1997. This increase reflects (i) a higher provision for potentially unsuccessful pre-development efforts of $508, (ii) an increase in the provision for uncollectible accounts receivable of $417, (iii) an increase in other miscellaneous charges of $215, and (iv) higher marketing costs of $121. In connection with the closing of its merger with Horizon on June 15, 1998, the Company sold Indiana Factory Shops and Nebraska Crossing Factory Stores (collectively, the "Prime Transferred Properties") to HGP for an aggregate consideration of $26,015 resulting in a second quarter loss on the sale of real estate of $15,461. Liquidity and Capital Resources Sources and Uses of Cash For the year ended December 31, 1999, net cash provided by operating activities was $102,221, net cash used in investing activities was $56,666, and net cash used in financing activities was $43,977. The uses of cash for investing activities during 1999 of $89,969 included (i) costs associated with development and construction of two expansions to existing outlet centers aggregating 85,000 square feet of GLA which opened during 1999, (ii) costs associated with development and construction of a new center (Prime Outlets of Puerto Rico) and three expansions to existing centers aggregating approximately 457,000 square feet of GLA which are expected to open during 2000, (iii) costs associated with the completion of two outlet centers and nine expansions to existing outlet centers aggregating 931,000 square feet of GLA which opened during 1998, and (iv) costs for pre-development activities related to future development opportunities. Partially offsetting these uses were $33,303 of net proceeds from the sale of Prime Outlets at Birch Run. See "Prime/Estein Joint Venture Transaction" for further information. The gross uses of cash from financing activities during 1999 included (i) principal repayments on notes payable of $204,432, (ii) preferred and common stock distributions of $75,536, (iii) costs associated with the Company's redemption of its outstanding shares of Series C preferred stock of $45,054, (iv) distributions to minority interests, including limited partners of the Operating Partnership, of $12,976, and (v) deferred financing costs of $10,321. Partially offsetting these items were proceeds from new borrowings of $304,342. Although the Company believes that cash flow from (i) operations, (ii) new borrowings, (iii) refinancing of certain existing debt, (iv) the potential sale of a joint venture interest in certain outlet centers, and (v) the potential sale of equity or debt securities in the public or private capital markets will be sufficient to satisfy its scheduled debt service obligations and sustain its operations for the next year. There can be no assurance that the Company will be successful in obtaining the required amount of funds for these items or that the terms of capital raising activities, if any, will be as favorable as the Company has experienced in prior periods. At December 31, 1999, unused commitments available for borrowings under various loan facilities were $13,546 in the aggregate. Dividends and Distributions In order to qualify as a Real Estate Investment Trust ("REIT") for federal income tax purposes, the Company is required to pay distributions to its common and preferred shareholders of at least 95.0% of its REIT taxable income in addition to satisfying other requirements. Although the Company intends to make distributions in accordance with the requirements of the Internal Revenue Code of 1986, as amended, it also intends to retain such amounts as it considers necessary from time to time for capital and liquidity needs of the Company. The Company's current policy with respect to common stock distributions is to only make payments to the extent necessary to maintain its status as a REIT for federal income tax purposes. Based on the Company's current federal income tax projections, it does not expect to pay any distributions on its common stock or common units of limited partnership interest in Prime Retail, L.P. during 2000. With respect to distributions on the Company's 10.5% Series A Senior Cumulative Preferred Stock ("Senior Preferred Stock") and 8.5% Cumulative Convertible Preferred Stock ("Series B Convertible Preferred Stock"), the Board of Directors considered and did not declare a quarterly distribution on such preferred stock due February 15, 2000. The Board of Directors will continue to evaluate the payment of such preferred stock distributions on a quarterly basis. The holders of the Senior Preferred Stock and Series B Convertible Preferred Stock, each series voting separately as a class, have the right to elect two additional members to the Company's Board of Directors if the equivalent of six consecutive quarterly dividends on these series of preferred stock are in arrears. Each of such two directors will be elected to serve until the earlier of (i) the election and qualification of such directors' successor, or (ii) payment of the dividend arrearage. The Company is currently prohibited under the terms of more than one of its credit agreements from paying dividends or distributions as a result of non-compliance with a financial covenant. In addition, the Company may make no distributions to its common shareholders unless it is current with respect to distributions to its preferred shareholders. Annualized cumulative dividends on the Company's Senior Preferred Stock and Series B Convertible Preferred Stock outstanding as of December 31, 1999 are $6,038 and $16,636, respectively. Debt Repayments The Company's aggregate indebtedness was $1,260,670 and $1,217,507 at December 31, 1999 and 1998, respectively. At December 31, 1999, such indebtedness had a weighted average maturity of 5.19 years and bore interest at a weighted average interest rate of 7.87% per annum. At December 31, 1999, $940,484, or 74.6%, of such indebtedness bore interest at fixed rates and $320,186, or 25.4%, of such indebtedness bore interest at variable rates. The Company is obligated to repay, excluding acceleration provisions, $95,732 and $229,632 of mortgage indebtedness during 2000 and 2001, respectively. See "Debt Covenants." Repurchase of Shares of Series C Preferred Stock On March 31, 1999, the Company entered into an agreement providing for the repurchase of all of its outstanding shares of Series C Preferred Stock for $43,636 or $10.00 per share. The agreement provided for the repurchase to occur in two stages. In the first stage, on March 31, 1999, the Company repurchased 3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of a 12.0% fixed rate $33,000 unsecured promissory note which was repaid on September 29, 1999. In the second stage, the Company repurchased the remaining 1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate purchase price of $10,636 on September 29, 1999. Business Combination On June 15, 1998, the Merger Transactions as set forth in the agreement and plan of merger (the "Merger Agreement") between the Company and Horizon were consummated for an aggregate consideration of $1,134,682, including liabilities assumed and related transaction costs. Pursuant to the terms of the Merger Agreement, the Company acquired (i) all of the outstanding shares of common stock of Horizon at an exchange ratio of 0.20 of a share of the Company's Series B Convertible Preferred Stock and 0.597 of a share of the Company's Common Stock for each share of common stock of Horizon, and (ii) all of the outstanding limited partnership units of Horizon/Glen Outlet Centers Limited Partnership ("Horizon Partnership") at an exchange ratio of 0.9193 of a Common Unit of partnership interest in the Operating Partnership. A total of 4,846,325 shares of Series B Convertible Preferred Stock and 14,466,329 shares of Common Stock were issued by the Company to the shareholders of Horizon and 3,782,121 Common Units were issued by the Operating Partnership to the limited partners of Horizon Partnership. Immediately prior to the merger, Horizon Partnership contributed 13 of its 35 centers to Horizon Group Properties, L.P., of which HGP, a subsidiary of Horizon, is the sole general partner. HGP was spun-off from the Company on June 15, 1998. The remaining 22 outlet centers of Horizon were integrated into the Company's existing portfolio. On June 19, 1998, all of the common equity of HGP was distributed to the convertible preferred and common shareholders and unitholders of the Company and its Operating Partnership and the shareholders and limited partners of Horizon and Horizon Partnership based on their ownership in the Company immediately following consummation of the merger. One share of common stock of HGP was distributed for every 20 shares of Common Stock and Series C Preferred Stock of the Company and for every 20 Common Units of the Operating Partnership. Additionally, approximately 1.196 shares of the common stock of HGP were distributed for every 20 shares of Series B Convertible Preferred Stock of the Company. In connection with the Merger Transactions, the Company sold the Prime Transferred Properties to HGP for an aggregate consideration of $26,015, resulting in a loss of $15,461. Proceeds from the sale of the Prime Transferred Properties were used to repay indebtedness associated with the Horizon properties. Concurrent with the closing of the merger, a special cash distribution was made aggregating $21,871 consisting of $0.50 per share/unit to holders of Common Stock, Series C Preferred Securities and Common Units and $0.60 per share to holders of Series B Convertible Preferred Stock. Shareholders of Horizon and limited partners of Horizon Partnership did not participate in these distributions. The merger has been accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and the liabilities assumed based on estimates of their respective fair values. Certain assumptions were made which management of the Company believed were reasonable. The operating results of those properties acquired have been included in the Company's consolidated results of operations commencing on the date of the merger. The operating results of the Prime Transferred Properties have been included in the Company's consolidated results of operations through the date of disposition. Debt Transactions On December 8, 1999, the Company refinanced the existing mortgage indebtedness on Prime Outlets at Williamsburg (the "Williamsburg Center") with a $42,500 loan facility from a financial institution. At closing, the Company received an initial funding of $32,500 (the "Initial Funding") and a commitment, subject to various conditions, for up to $10,000 (the "Final Draw") to finance a planned expansion to the Williamsburg Center. The Initial Funding generated net cash proceeds of $9,077 after the repayment in full of $22,405 of existing mortgage indebtedness and closing costs. The Final Draw is expected to be made in a single advance subject to satisfaction of certain conditions, including the substantial completion of the expansion to the Williamsburg Center. In connection with the debt refinancing, the Company incurred an extraordinary loss of $159, net of minority interests of $40. The loan facility consists of an interim loan (the "Interim Loan") and a permanent loan (the "Permanent Loan"). The Interim Loan (i) bears interest at 30-day LIBOR plus 2.5%, (ii) requires monthly interest-only payments, (iii) is collateralized by a first mortgage on the Williamsburg Center, and (iv) matures on January 11, 2002. The Interim Loan may be converted to the Permanent Loan subject to satisfaction of certain conditions. The Permanent Loan would (i) bear interest at a fixed-rate equal to prevailing market rates, (ii) require monthly principal and interest payments pursuant to a 25-year amortization schedule, (iii) be collateralized by a first mortgage on the Williamsburg Center, and (iv) have a term of 10 years. On November 15, 1999, the Company closed on a $20,000 subordinated loan (the "Subordinated Loan") from an institutional lender. The Subordinated Loan (i) bears interest at a fixed-rate of 15.0%, (ii) requires monthly interest-only payments, (iii) matures on June 30, 2000, and (iv) is secured by a pledge of a security interest in certain of the Company's ownership interests in, and the available cash flow from five outlet centers, including Prime Outlets of Puerto Rico, which is currently under construction. The Company may elect, at its option, to extend the maturity of the Subordinated Loan to December 31, 2000. On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at 30-day LIBOR plus 6.0%, (ii) requires monthly principal and interest payments, and (iii) matures in two years. The $55,000 Term Loan was issued by Prime Retail Capital I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P., and is secured by the excess cash flow from 15 outlet centers after the payment of senior debt service and reserves under an existing $349,797 first mortgage loan. The $55,000 Term Loan also is secured by a pledge of PRC's 49.9% limited partnership interest in partnerships that own twelve of those outlet centers and Prime Retail, L.P.'s 100% equity interest in PRC. The $55,000 Term Loan is unconditionally guaranteed by Prime Retail, L.P. and Prime Retail, Inc. The Company used the net cash proceeds from the $55,000 Term Loan to repay $40,944 of short-term indebtedness and to repay a portion of the borrowings under the Line of Credit. During October 1999, the Company refinanced its $28,250 of variable-rate, tax-exempt revenue bonds by issuing $28,250 of fixed rate tax-exempt revenue bonds (the "Fixed Rate Bonds"). The Fixed Rate Bonds bear interest ranging from 6.875% to 7.0%, require semi-annual interest payments and mature from December 15, 2012 through December 1, 2014. The Fixed Rate Bonds are redeemable by the Company commencing in December 2006 at 102% of the outstanding principal balance. The redemption price decreases incrementally each year thereafter through December 2008, at which date the redemption price is fixed at 100% of the outstanding principal balance. In connection with the debt refinancing, the Company incurred an extraordinary loss on early extinguishment of debt of $536, net of minority interests of $134. Unless cured or waived, the defaults existing under certain of the Company's credit agreements discussed more fully below will entitle the holders of the Fixed Rate Bonds to put such obligations to Prime Retail, Inc. at a price equal to par plus accrued interest. On September 29, 1999, the Company received $40,000 of proceeds from a line of credit facility (the "Line of Credit") with a group of institutional lenders. These proceeds were used to repurchase the Company's Series C Preferred Stock. The Line of Credit (i) bore interest at a fixed-rate of 11.0%, (ii) required monthly interest-only payments, and (iii) matured in nine months. The Line of Credit was repaid in full on November 19, 1999. In connection with the repayment of the Line of Credit, the Company incurred an extraordinary loss on the early extinguishment of debt of $717, net of minority interests of $179. The lenders are entitled to receive a cash payment that increases their internal rate of return with respect to amounts advanced under such facility by 4.0% per annum (the "Cash Payment"). Lenders under the Line of Credit also received warrants to purchase a 5% interest in the Company's e-commerce subsidiary, which subsequently ceased all operations effective April 12, 2000 (see eOutlets.com) On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate Line") was renewed and increased to $25,000. The purpose of the Corporate Line is to provide working capital to facilitate the funding of short-term operating cash needs of the Company. The Corporate Line bears an interest rate of 30-day LIBOR plus 2.50% and matures on July 11, 2000. At December 31, 1999, the Corporate Line had an outstanding principal balance of $22,175. There can be no assurance that the Company will be successful in renewing the Corporate Line or that a renewal of the Corporate Line will be on terms as favorable as the Company has experienced in prior periods. On April 27, 1999, the Company closed on a $63,000 debt financing with a financial institution that provided approximately $27,900 of net proceeds. The $63,000 note is (i) collateralized by a first mortgage on Prime Outlets at Niagara Falls USA, (ii) bears interest at a fixed rate of 7.604%, (iii) requires monthly principal and interest payments of $450 pursuant to a 30-year amortization schedule, and (iv) matures in 10 years. In connection with the debt refinancing, the Company incurred an extraordinary loss on early extinguishment of debt of $2,106, net of minority interests of $534. As of December 31, 1999, the Company is a guarantor or otherwise obligated with respect to an aggregate of $12,722 of the indebtedness of Horizon Group Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under HGP's secured credit facility which bears a rate of interest of LIBOR plus 1.90%, matures in July 2001, and is collateralized by seven properties located throughout the United States. On April 1, 1998, Horizon consummated an agreement with Castle & Cooke Properties, Inc. which released Horizon from its future obligations under its long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in connection with the formation of a joint venture with certain affiliates of Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the project and an affiliate of Castle & Cooke, released Horizon from any continuing obligations under the lease, which expires in 2045, in exchange for Horizon's conveyance to the joint venture of its rights and obligations under such lease. The agreement also provided that Horizon transfer to such joint venture substantially all of Horizon's economic interest in its outlet center in Lake Elsinore, California together with legal title to vacant property located adjacent to the center. As of December 31, 1999, the Company held a small minority interest in the joint venture but has no obligation or commitment with respect to the post-closing operations of the Dole Cannery project. Mortgage indebtedness with an outstanding balance of $28,938 at December 31, 1999, for which one of the Company's subsidiary partnerships remains legally responsible, is collateralized by a first mortgage on the Lake Elsinore outlet center. The joint venture, as a limited partner in such subsidiary partnership, is obligated to make capital contributions to the partnership to pay debt financing, operating and other expenses under certain conditions. The subsidiary partnership will remain legally responsible for such expenses in case of any shortfalls by the joint venture with respect to such capital contributions. Castle & Cooke has provided the Company with an unconditional guaranty with respect to any such shortfalls. Debt Covenants Certain of the Company's debt obligations require compliance with various financial loan covenants including, but not limited to, those relating to the Company's (i) total outstanding variable interest rate indebtedness, (ii) total outstanding indebtedness to total market value, as defined, (iii) consolidated net worth, as defined, and (iv) debt service and fixed charge coverage ratios, as defined. As a result of its financial results for the quarter ended December 31, 1999, the Company is not in compliance with a financial covenant contained in two of its credit facilities, the Subordinated Loan and a $40,000 unsecured revolving loan (the "Unsecured Revolving Loan"). Neither of the loans has been accelerated nor was notice of the respective lender's intention to accelerate the maturity of the loans received by the Company. The Company entered into an amendment to the Subordinated Loan on February 23, 2000 which waived the covenant violation as of December 31, 1999 and modified the covenant terms through the Subordinated Loan's maturity date. The Company is currently in discussions with the Unsecured Revolving Loan lender to obtain a waiver and/or amend the loan; however, there can be no assurance as to whether and when the Company will obtain any such waiver or amendment. Furthermore, the Company's failure to obtain from its independent auditor's an unqualified report with respect to its consolidated financial statements will also constitute a default under these two credit facilities. In addition, noncompliance with the covenants described above has triggered certain cross-default provisions with respect to several of the Company's other debt instruments, including the Subordinated Loan, the $55,000 Term Loan and the Fixed Rate Bonds. None of these loans have been accelerated nor was a notice of the respective lender's intent to accelerate received by the Company. Management is currently in discussion with the affected lenders to obtain a resolution of the cross-default provisions. If the Company is unable to obtain such waiver or amendment to the Unsecured Revolving Loan and reach resolution with certain other lenders, the Company will look to (i) obtain alternative financing from other financial institutions, or (ii) the potential sale of assets or a joint venture interest in certain outlet centers as sources of cash to repay the amounts outstanding under such loans. This condition raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Although the Company continues to maintain its regularly scheduled payments under all of its indebtedness, there can be no assurance that one or all of the affected lenders will not declare a default and accelerate the maturity of such indebtedness. Additionally, there can be no assurance that the Company will be in compliance with its financial debt covenants in future periods since the Company's future financial performance is subject to various risks and uncertainties, including but not limited to, the effects of increases in market interest rates from current levels; the risk of potential increases in vacancy rates and the resulting impact on the Company's revenue; and risks associated with refinancing the Company's current debt obligations or obtain new financing under terms as favorable as the Company has experienced in prior periods. Prime/Estein Joint Venture Transaction On August 6, 1999, the Company entered into an agreement (the "Prime/Estein Joint Venture Agreement") to sell three factory outlet centers, including two future expansions in four phases to a joint venture (the "Venture") between an affiliate of Estein & Associates USA, Ltd. ("Estein"), a real estate investment company, and the Company. The Prime/Estein Joint Venture Agreement provided for a total purchase price of $274,000, including (i) the assumption of approximately $151,500 of first mortgage indebtedness, (ii) an $8,000 payment to the Company for a ten-year covenant-not-to-compete and (iii) a $6,000 payment to the Company for a ten-year licensing agreement with the Venture to continue the use of the "Prime Outlets" brand name. On November 19, 1999, the Company successfully completed the initial installment of the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at Birch Run to the Venture for aggregate consideration of $117,000, including a $64,500 "wrap-around" first mortgage provided by the Company. In connection with the sale of Prime Outlets at Birch Run, the Company received cash proceeds of $33,303, net of transaction costs and recorded a loss on the sale of real estate of $9,326. Effective November 19, 1999, the Company commenced accounting for its 30.0% ownership interest in Prime Outlets at Birch Run in accordance with the equity method of accounting. The "wrap-around" first mortgage provided by the Company to the Venture has a ten-year term at a fixed interest rate of 7.75% requiring monthly payments of principal and interest pursuant to a 25-year amortization schedule. The Company's net investment in the "wrap-around" first mortgage as of December 31, 1999 was $10,745 which is included in other assets in the Consolidated Balance Sheet. Additionally, the Venture assumed $53,755 of outstanding mortgage indebtedness. Included in the aggregate consideration is a $5,500 payment related to the covenant-not-to-compete and a $3,000 payment related to the licensing agreement. The payments to the Company for the covenant-not-to-compete and the licensing agreement are included in accounts payable and other liabilities in the consolidated balance sheet and will be amortized into interest and other income over their ten-year lives. During the fourth quarter of 1999, the Company recorded a loss on the sale of real estate of $5,827 related to the write-down of the carrying value of Prime Outlets at Williamsburg based on the terms of the Prime/Estein Joint Venture Agreement. On February 23, 2000, the Company completed the second installment of the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at Williamsburg to the Venture for aggregate consideration of $59,000, including (i) the assumption of mortgage indebtedness of $32,500, (ii) a $1,250 payment related to the covenant-not-to-compete and (iii) a $1,500 payment related to the licensing agreement. In connection with the sale of Prime Outlets at Williamsburg, the Company received (i) cash proceeds of $11,063, net of transaction costs and (ii) a promissory note in the amount of $10,000 from the Venture (of which Estein's obligation is $7,000), such amount to be payable on or before the ealier of the closing of the proposed sale of an expansion of the Williamsburg center or December 15, 2000. The promissory note requires the monthly payment of interest in arrears at an annual rate of 7.75%. Although, the Company expects to close on the sale of Prime Outlets at Hagerstown, including the expansion scheduled to open during the second quarter of 2000, for aggregate consideration of approximately $80,500 on or about May 15, 2000, completion of this transaction remains subject to various conditions and there can be no assurance as to whether or when this transaction will be consummated. As of December 31, 1999, the Company classified $97,639 representing the aggregate carrying value of Prime Outlets at Williamsburg and Prime Outlets at Hagerstown (collectively, the "Held for Sale Properties") as assets held for sale in its Consolidated Balance Sheet. Total revenues and expenses for the Held for Sale Properties were $16,243 and $12,185, respectively for the year ended December 31, 1999. The Venture has agreed to retain the Company as its sole and exclusive managing and leasing agent for a property management fee equal to 4.0% of gross rental receipts. The Venture also will pay a monthly asset management and partnership administration fee to an affiliate of Estein equal to 3.0% of the monthly net operating income from the centers. Planned Development The Company opened a 21,000 square foot expansion at Prime Outlets at Lebanon in March 1999 and a 64,000 square foot expansion at Prime Outlets at San Marcos in August 1999. The Home Co., the Company's first home furnishings store which it owns a 47.6% interest through a joint venture, occupies 64,000 square feet of the expansion at San Marcos. In addition, construction continues at Prime Outlets of Puerto Rico, the first outlet center in Puerto Rico, which will contain 175,000 square feet of GLA, and is expected to open in the second quarter of 2000. Additionally, the Company continues construction of two expansions consisting of 162,000 and 50,000 square feet of GLA at Prime Outlets at Hagerstown and Prime Outlets at San Marcos, respectively. These expansions are scheduled to open during the second quarter of 2000. The Company expects to begin construction in the second quarter of 2000 of a 60,000 square foot expansion to Prime Outlets at Williamsburg. This expansion is scheduled to open in the fourth quarter of 2000. At December 31, 1999, the remaining budgeted capital expenditures for projects scheduled to open in 2000 aggregated approximately $31,300, while anticipated capital expenditures related to the completion of expansions of existing outlet centers opened during 1999 (aggregating 102,000 square feet of GLA) approximated $750. Although the Company expects to fund the development cost of these projects from (i) retained cash flow from operations, (ii) construction loans, (iii) the potential sale of equity or debt securities in the public or private capital markets, and (iv) the potential sale of a joint venture interest in certain outlet centers, there can be no assurance that the Company will be successful in obtaining the required amount of equity capital or debt financing for the planned development projects or that the terms of such capital raising activities will be as favorable as the Company has experienced in prior periods. If adequate financing for such development and expansion is not available, the Company may not be able to develop new centers or expand existing centers at currently planned levels. eOutlets.com On April 12, 2000, the Company announced that it has been unable to conclude an agreement to transfer ownership of its wholly-owned e-commerce subsidiary, primeoutlets.com inc., also known as eOutlets.com, to a management-led investor group comprised of eOutlets.com management and outside investors. Effective April 12, 2000, eOutlets.com ceased all operations. In connection with the discontinuance of eOutlets.com, the Company expects to incur a non-recurring loss of approximately $13,000 in the first quarter of 2000. The non-recurring loss includes (i) the write-off of $3,500 of costs capitalized during 1999 and (ii) approximately $9,500 of costs incurred during 2000, including costs associated with discontinuing the operations of eOutlets.com. In addition, during 1999 the Company incurred expenses of $3,500 related to organizational and other start-up expenditures of eOutlets.com which are reflected in corporate general and administrative expense in the Consolidated Statements of Operations. Taxability of Distributions TABLE 9 summarizes the taxability of distributions paid during (i) the year ended December 31, 1999 (ii) the period from January 1 to June 15, 1998, and (iii) the period from June 16 to December 31, 1998. Distributions paid by the Company out of its current or accumulated earnings and profits (and not designated as capital gains dividends) will constitute taxable distributions to each holder. To the extent the Company makes distributions (not designated as capital gains dividends) in excess of its current and accumulated earnings and profits, such distributions will be treated first as a tax-free return of capital to each holder, reducing the adjusted basis which such holder has in his shares of stock by the amount of such distributions (but not below zero), with distributions in excess of a holder's adjusted basis in his stock taxable as capital gains (provided that the shares have been held as a capital asset). Table 9-Taxability of Distributions
----------------------------------------------------------------------------------------------------------------------------------- Period from Period from June Year ended January 1 to 16 to December December 31, 1999 June 15, 1998 31, 1998 ----------------------------------------------------------------------------------------------------------------------------------- Senior Preferred Stock Ordinary income............................................................ 100.0% 100.0% 100.0% Series B Convertible Preferred Stock Ordinary income............................................................ 100.0% 100.0% 63.7% Return of capital.......................................................... - - 36.3% Series C Preferred Stock Ordinary income............................................................ 100.0% 18.7% - Return of capital.......................................................... - 81.3% 100.0% Common Stock Ordinary income............................................................ 23.0% - - Return of capital.......................................................... 77.0% 100.0% 100.0% ====================================================================================================================================
No assurance can be made that future distributions, if any, will be treated similarly. Each holder of stock may have a different basis in its stock and, accordingly, each holder is advised to consult with a tax advisor. Economic Conditions Substantially all of the merchants' leases contain provisions that somewhat mitigate the impact of inflation. Such provisions include clauses providing for increases in base rent and clauses enabling the Company to receive percentage rentals based on merchants' gross sales. Substantially all leases require merchants to pay their proportionate share of all operating expenses, including common area maintenance, real estate taxes and promotion, thereby reducing the Company's exposure to increased costs and operating expenses resulting from inflation. Impact of Year 2000 In prior years, the Company discussed the nature and progress of its plan to become Year 2000 ready. In 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties with which the Company does business. The Company will continue to monitor its mission critical computer application and those of its suppliers and vendors throughout the Year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. Funds from Operations Management believes that to facilitate a clear understanding of the Company's operating results, funds from operations ("FFO") should be considered in conjunction with net income (loss) presented in accordance with GAAP. In March 1995, the National Association of Real Estate Investment Trusts ("NAREIT") established guidelines clarifying the definition of FFO. FFO is defined as net income (loss) (determined in accordance with GAAP) excluding gains (or losses) from debt restructuring, sales of property and discontinued operations, plus depreciation and amortization after adjustments for unconsolidated partnerships and joint ventures. Management believes that FFO is an important and widely used measure of the operating performance of REITs which provides a relevant basis for comparison to other REITs. Therefore, FFO is presented to assist investors in analyzing the performance of the Company. The Company's FFO is not comparable to FFO reported by other REITs that do not define the term using the current NAREIT definition or that interpret the current NAREIT definition differently than does the Company. Therefore, the Company cautions that the calculation of FFO may vary from entity to entity and as such the presentation of FFO by the Company may not be comparable to other similarly titled measures of other reporting companies. The Company believes that in order to facilitate a clear understanding of its operating results, FFO should be examined in conjunction with net income determined in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity or ability to make distributions. TABLE 10 provides a reconciliation of income before allocations to minority interests and preferred shareholders to FFO for the years ended December 31, 1999, 1998 and 1997. FFO decreased $21,699, or 24.1% to $68,321 for the year ended December 31, 1999 from $90,020 for the year ended December 31, 1998. The 1999 FFO results reflect fourth quarter 1999 non-recurring charges and expenses aggregating $37,981, including (i) a provision for asset impairment of $15,842, (ii) a provision for abandoned projects of $16,039, (iii) the write-off of $3,100 of capitalized costs associated with the Company's expired option to purchase its joint venture partner's 50.0% ownership interest in Prime Outlets at New River, and (iv) $3,000 of start-up and organizational expenses associated with the Company's eOutlets.com subsidiary. Excluding these non-recurring charges and expenses, FFO increased $16,282, or 18.1%, to $106,302 for the year ended December 31, 1999 from $90,020 for the year ended December 31, 1998. The increase is primarily attributable to the Portfolio Expansion and the Horizon Merger.
Table 10-Funds from Operations - ---------------------------------------------------------------------------------------------- ------------ ------------- Years ended December 31, 1999 1998 1997 - ---------------------------------------------------------------------------------------------- ------------ ------------- Income (loss) before minority interests and extraordinary loss.................. $(28,085) $19,986 $ 18,547 FFO adjustments: Loss on sale of real estate..................................................... 15,153 15,461 - Discontinued operations - Designer Connection................................... 6,561 1,067 - Real estate depreciation and amortization....................................... 73,053 52,295 26,413 Unconsolidated joint venture adjustments........................................ 1,639 1,211 1,758 -------- ------- -------- FFO before allocations to minority interests and preferred shareholders......... $ 68,321 $90,020 $ 46,718 ======== ======= ======== Other Data: Net cash provided by operating activities....................................... $102,221 $61,335 $ 49,856 Net cash used in investing activities........................................... (56,666) (145,596) (229,956) Net cash provided by (used in) financing activities............................. (43,977) 83,653 182,549 ====================================================================================================================================
The payout ratios based on distributions made by the Company divided by FFO for 1999, 1998 and 1997 were 97.4%, 92.9%, and 103.7%, respectively. Table 11-Consolidated Quarterly Summary of Funds from Operations
- ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 -------------------------------------------------------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) before minority interests and extraordinary loss...................... $ (51,512) $6,452 $7,677 $ 9,298 $10,265 $10,572 $(8,302) $ 7,451 FFO adjustments: Loss on sale of real estate................ 15,153 - - - - - 15,461 - Discontinued operations - Designer Connection 5,553 120 543 345 163 324 287 293 Real estate depreciation and amortization.. 17,318 19,188 18,435 18,112 18,475 16,327 9,792 7,701 Unconsolidated joint venture adjustments... 737 473 174 255 303 303 302 303 -------- ------ ------- ------- -------- ------- ------- ------- FFO before allocations to minority interests and preferred shareholders.............. $(12,751) $ 26,233 $ 26,829 $28,010 $ 29,206 $ 27,526 $ 17,540 $ 15,748 ======== ======== ======== ======= ======== ======== ======== ======== Other Data: Net cash provided by (used in) operating activities.............................. $ 22,978 $ 27,058 $ 29,604 $ 22,581 $ 8,817 $ 34,346 $ (7,406) $ 25,578 Net cash provided by (used in) investing activities.............................. 1,265 (11,079) (27,193) (19,659) (22,750) (44,469) (50,975) (27,402) Net cash provided by (used in) financing activities.............................. (20,284) (14,201) (1,135) (8,357) 5,940 5,144 76,595 (4,026) ====================================================================================================================================
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK Market Risk Sensitivity Interest Rate Risk In the ordinary course of business, the Company is exposed to the impact of interest rate changes. The Company employs established policies and procedures to manage its exposure to interest rate changes. The Company uses a mix of fixed and variable rate debt to (i) limit the impact of interest rate changes on its results from operations and cash flows and (ii) to lower its overall borrowing costs. The following table provides a summary of principal cash flows and related interest rates by fiscal year of maturity, excluding acceleration provisions. Variable interest rates are based on the weighted average rates of the portfolio at December 31, 1999.
- ------------------------------------------------------------------------------------------------------------------------------------ Year of Maturity - ------------------------------------------------------------------------------------------------------------------------------------ 2000 2001 2002 2003 2004 Thereafter Total - --------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------- ------- Fixed rate: Principal........................... $37,605 $38,632 $46,529 $348,761 $17,050 $451,907 $940,484 Average interest rate............... 11.40% 7.54% 7.04% 7.76% 7.75% 7.09% 7.54% Variable rate: Principal........................... $58,127 $191,000 $33,137 $1,152 $36,770 - $320,186 Average interest rate............... 9.07% 8.94% 6.31% 7.98% 7.98% - 8.20% ====================================================================================================================================
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this Item is set forth at the pages indicated in Item 14(a) below. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information required by Items 10, 11, 12 and 13 (except that information regarding executive officers called for by Item 10 that is contained in Part I) is incorporated herein by reference from the definitive proxy statement that the Company intends to file pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, on or before April 29, 2000. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Report of Independent Auditors F-1 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2 Consolidated Statements ofOperations for the years ended December 31, 1999, 1998 and 1997 F-3 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999,1998 and 1997 F-6 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedules The following financial statement schedule is included in Item 14 (d): Report of Independent Auditors on Schedule (included with consent filed as Exhibit 23) Schedule III--Real Estate and Accumulated Depreciation F-23 Notes to Schedule III F-25
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Exhibits Exhibit Number Description - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of Prime Retail, Inc. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended (File No. 0-23616)] 3.2 Articles Supplementary of Prime Retail, Inc. relating to Series B Preferred Stock. [Incorporated by reference to the same titled exhibit in the Company"s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended (File No. 0-23616)] 3.3 Second Amended and Restated By-Laws of Prime Retail, Inc. Exhibit Number Description - ------- ----------- 4.1 Form of Series A Preferred Stock Certificate [Incorporated by reference to the same titled exhibit in the Company"s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 4.2 Form of Series B Preferred Stock Certificate [Incorporated by reference to the same titled exhibit in the Company"s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 4.3 Form of Common Stock Certificate [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 10.1 Third Amended and Restated Agreement of Limited Partnership of Prime Retail, L.P. dated as of October 15, 1998 and effective as of June 15, 1998. [Incorporated by reference to the same titled exhibit in the Company"s Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended (File No. 0-23616)] 10.1A Amendment No. 1 to Third Amended and Restated Agreement of Limited Partnership of Prime Retail, L.P. dated as of September 28, 1999. # 10.2 1994 Stock Incentive Plan [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 33-68536).] # 10.3 1995 Stock Incentive Plan [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 333-1666).] # 10.4 Executive Employment Agreement (Michael W. Reschke) [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended (File No. 0-23616).] # 10.5 Separation Agreement dated February 23, 2000 by and between Prime Retail, Inc. and Abraham Rosenthal. # 10.6 Employment Agreement dated October 6, 1999 by and among primeoutlets.com inc., Prime Retail, L.P., Prime Retail, Inc. and William H. Carpenter, Jr. # 10.7 Form of Executive Employment Agreement (David G. Phillips) [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 33-68536).] 10.15 Registration Rights Agreement dated June 15, 1998 by and between Prime Retail, Inc. and Prime Retail, L.P. for the benefit of holders of common units of Prime Retail, L.P. and certain stockholders of Prime Retail, Inc. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended (File No. 0-23616)] 10.16 Form of Property Level General Partnership Agreement [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 33-68536).] 10.17 Form of Property Level Limited Partnership Agreement [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 33-68536).] 10.18 Noncompetition and Restriction Agreement with Michael W. Reschke of PGI [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended (File No. 0-23616).] Exhibit Number Description - ------- ----------- # 10.21 Consulting Agreement between the Company and Marvin Traub Associates, Inc. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 10.28 Waiver, Recontribution and Indemnity Agreement by the Limited Partners [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended (File No. 0-23616).] 10.29 Indemnity Agreement made by the Company in favor of The Prime Group, Inc. and Prime Group Limited Partnership [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 333-1666).] 10.30 Promissory Note dated October 31, 1996 by and between Prime Retail, L.P. and Nomura Asset Capital Corporation [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-233616).] 10.30A Form of Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filings with Nomura Asset Capital Corporation [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 10.31 Form of Standby Bond Purchase and Indemnity Agreement [Incorporated by reference to the same titled exhibit in the Company's registration statement on Form S-11 (Registration No. 33-68536).] 10.32 Consulting Agreement between the Company and Financo, Inc. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-23616).] 10.33 Amended and Restated Agreement and Plan of Merger among Prime Retail, Inc., Prime Retail, L.P., Horizon Group, Inc., Sky Merger Corp., Horizon Group Properties, Inc., Horizon Group Properties, L.P., and Horizon/Glen Outlet Centers Limited Partnership dated as of February 1, 1998 [Incorporated by reference to the same titled exhibit in the Company's Current Report on Form 8-K dated February 1, 1998 (File No. 0-23616).] 10.34 Agreement among Prime Retail, Inc., Horizon Group, Inc., Mr. David H. Murdock, Castle & Cooke Properties, Inc., and Pacific Holding Company dated as of February 1, 1998 [Incorporated by reference to the same titled exhibit in the Company's Current Report on Form 8-K dated February 1, 1998 (File No. 0-23616).] # 10.35 Letter Agreement with David G. Phillips regarding the purchase of units in Prime Retail, L.P. dated August 6, 1996. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-23616).] # 10.36 Non-employee Director Stock Plan [Incorporated by reference to Appendix I in the Company's registration statement on Form S-4 (File No. 333-51285).] # 10.37 1998 Long-Term Stock Incentive Plan [Incorporated by reference to Appendix J in the Company's registration statement on Form S-4 (File No. 333-51285).] # 10.38 Description of the 1999 Long-Term Incentive Program. [Incorporated by reference to the same titled exhibit in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended (File No. 0-23616)] Exhibit Number Description - ------- ----------- # 10.39 Loan Agreement dated as of June 15, 1998 between Outlet Village of Kittery Limited Partnership, the Prime Outlets at Gilroy Limited Partnership, The Prime Outlets at Michigan City Limited Partnership and Finger Lakes Outlet Center, L.L.C. and Nomura Asset Capital Corporation (Permanent Loan) [Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.40 Form of Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filings with Nomura Asset Capital Corporation (Permanent Loan and Bridge Loan) [Incorporated by reference to Exhibit 10.2 in the Company' Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.41 Loan Agreement dated as of June 15, 1998 between Buckeye Factory Shops Limited Partnership, Latham Factory Stores Limited Partnership, Carolina Factory Shops Limited Partnership, Shasta Outlet Center Limited Partnership, The Prime Outlets at Calhoun Limited Partnership and The Prime Outlets at Lee Limited Partnership and Nomura Asset Capital Corporation (Bridge Loan) [Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.42 Guaranty dated as of June 15, 1998 by Prime Retail, Inc. to and for the benefit of Nomura Asset Capital Corporation [Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.43 Guaranty dated as of June 15, 1998 by Prime Retail, L.P. to and for the benefit of Nomura Asset Capital Corporation [Incorporated by reference to Exhibit 10.5 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.44 Guaranty and Indemnity Agreement dated as of June 15, 1998 by and among Horizon Group Properties, Inc., Horizon Group Properties, Inc. , Horizon Group Properties, L.P., Prime Retail, Inc. and Prime Retail, L.P. [Incorporated by reference to Exhibit 10.6 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] # 10.45 Contribution Agreement dated as of June 15, 1998 by and among Horizon Group, Inc., Sky Merger Corp., Horizon/Glen Outlet Centers Limited Partnership, Horizon Group Properties, Inc., and Horizon Group Properties, L.P. [Incorporated by reference to Exhibit 10.7 in the Company's Current Report on Form 8-K dated June 15, 1998 (File No. 001-13301)] 10.46 Series C Preferred Share Repurchase Agreement dated as of March 31, 1999 among Security Capital Preferred Growth Incorporated, Prime Retail, Inc., and Prime Retail, L.P. [Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K dated March 31, 1999 (File No. 0-23616)] 10.47 Purchase and Sale Agreement, dated as of August 6, 1999, among The Prime Outlets at Birch Run, L.L.C., The Prime Outlets at Williamsburg, L.L.C. and Outlet Village of Hagerstown Limited partnership and Welp Triple Outlet, L.C. [Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K dated August 11, 1999 (File No. 001-13301)] 12 Statement re: Computation of Ratio Earnings to Combined Fixed Charges and Preferred Stock Dividends 21 Subsidiaries of Prime Retail, Inc. 23 Consent of Ernst & Young LLP 27.1 Financial Data Schedule _____________________ Note: # Management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c). (b) Reports on Form 8-K None (c) Exhibits The list of exhibits filed with this report is set forth in response to Item 14 (a)(3). The required exhibits have been filed as indicated in the Exhibit Index. The Company agrees to furnish a copy of any long-term debt instrument wherein the securities authorized do not exceed 10 percent of the registrant's total assets on a consolidated basis upon the request of the Securities and Exchange Commission. (d) Financial Statements and Schedules Schedule III -- Real Estate and Accumulated Depreciation attached hereto is hereby incorporated by reference to this Item. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. PRIME RETAIL, INC. Dated: April 14, 2000 /s/ Glenn D. Reschke -------------------- Glenn D. Reschke President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/Michael W. Reschke April 14, 2000 --------------------------- Michael W. Reschke Chairman of the Board /s/William H. Carpenter, Jr. April 14, 2000 ---------------------------- William H. Carpenter, Jr. Director /s/William P. Dickey April 14, 2000 ---------------------------- William P. Dickey Director /s/Norman Perlmutter April 14, 2000 ---------------------------- Norman Perlmutter Director /s/Robert D. Perlmutter April 14, 2000 ---------------------------- Robert D. Perlmutter Director /s/Kenneth A. Randall April 14, 2000 ---------------------------- Kenneth A. Randall Director /s/Sharon Sharp April 14, 2000 ---------------------------- Sharon Sharp Director /s/James R. Thompson April 14, 2000 ---------------------------- James R. Thompson Director /s/Marvin S. Traub April 14, 2000 ---------------------------- Marvin S. Traub Director Report of Independent Auditors To the Board of Directors and Shareholders Prime Retail, Inc. We have audited the accompanying consolidated balance sheets of Prime Retail, Inc. (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that Prime Retail, Inc. will continue as a going concern. As more fully described in Note 6, the Company is not in compliance with a financial covenant contained in one of its credit facilities. In addition, noncompliance with the financial covenant has triggered certain cross-default provisions with respect to several of the Company's other debt instruments. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP Baltimore, Maryland March 23, 2000, except for Note 14, as to which the date is April 12, 2000 Prime Retail, Inc. Consolidated Balance Sheets (Amounts in thousands, except share information)
----------------------------------------------------------------------------------------------------------------------------------- December 31, 1999 1998 ----------------------------------------------------------------------------------------------------------------------------------- Assets Investment in rental property: Land........................................................................ $ 181,854 $ 206,386 Buildings and improvements.................................................. 1,560,710 1,753,641 Property under development.................................................. 66,581 45,068 Furniture and equipment..................................................... 17,406 10,627 --------- --------- 1,826,551 2,015,722 Accumulated depreciation....................................................... (183,954) (127,747) --------- --------- 1,642,597 1,887,975 Cash and cash equivalents...................................................... 7,343 5,765 Restricted cash................................................................ 28,131 34,969 Accounts receivable, net....................................................... 18,926 21,233 Deferred charges, net.......................................................... 13,503 12,518 Investment in partnerships..................................................... 18,941 8,386 Assets held for sale........................................................... 97,639 - Due from affiliates, net....................................................... 4,140 988 Other assets................................................................... 24,838 4,630 ----------- ---------- Total assets.......................................................... $1,856,058 $1,976,464 =========== =========== Liabilities and Shareholders' Equity Bonds payable.................................................................. $ 32,900 $ 32,900 Notes payable(See Note 6)...................................................... 1,227,770 1,184,607 Accrued interest............................................................... 8,033 7,878 Real estate taxes payable...................................................... 10,700 11,229 Construction costs payable..................................................... 5,123 3,754 Accounts payable and other liabilities......................................... 73,340 69,879 --------- --------- Total liabilities....................................................... 1,357,866 1,310,247 Minority interests............................................................. 1,505 22,483 Shareholders' equity: Shares of preferred stock, 24,315,000 shares authorized: 10.5% Series A Senior Cumulative Preferred Stock, $.01 par value (liquidation preference of$57,500), 2,300,000 shares issued and outstanding............................................................ 23 23 8.5% Series B Cumulative Participating Convertible Preferred Stock, $.01 par value (liquidation preference of $195,703), 7,828,125 shares issued and outstanding........................................................ 78 78 Series C Cumulative Convertible Redeemable Preferred Stock, $.01 par value 4,363,636 shares issued and outstanding at December 31, 1998.... - 44 Shares of common stock, 150,000,000 shares authorized: Common stock, $.01 par value, 43,368,620 and 42,736,742 shares issued and outstanding, respectively........................................... 434 427 Additional paid-in capital................................................. 709,122 759,105 Distributions in excess of net income...................................... (212,970) (115,943) ---------- ---------- Total shareholders' equity............................................ 496,687 643,734 ---------- --------- Total liabilities and shareholders' equity............................ $1,856,058 $1,976,464 ========== ========== ===================================================================================================================================
See accompanying notes to financial statements. Prime Retail, Inc. Consolidated Statements of Operations (Amounts in thousands, except per share information)
----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- Revenues Base rents..................................................................... $ 193,979 $148,376 $ 78,046 Percentage rents............................................................... 8,085 6,384 3,277 Tenant reimbursements.......................................................... 90,063 67,152 37,519 Interest and other............................................................. 13,829 9,897 10,288 --------- -------- -------- Total revenues........................................................... 305,956 231,809 129,130 Expenses Property operating............................................................. 70,862 52,684 29,492 Real estate taxes.............................................................. 22,405 16,705 9,417 Depreciation and amortization.................................................. 73,640 52,727 26,715 Corporate general and administrative........................................... 12,687 7,980 5,603 Interest....................................................................... 93,934 60,704 36,122 Provision for abandoned projects............................................... 16,039 - - Provision for asset impairment................................................. 15,842 - - Loss on Designer Connection.................................................... 6,561 1,067 - Other charges.................................................................. 6,918 4,495 3,234 -------- -------- -------- Total expenses........................................................... 318,888 196,362 110,583 -------- -------- -------- Income (loss) before loss on sale of real estate, minority interests and extraordinary loss...................................................... (12,932) 35,447 18,547 Loss on sale of real estate.................................................... (15,153) (15,461) - -------- -------- -------- Income (loss) before minority interests and extraordinary loss................. (28,085) 19,986 18,547 Income allocated to minority interests......................................... (3,226) (2,456) (10,581) -------- -------- -------- Income (loss) before extraordinary loss........................................ (31,311) 17,530 7,966 Extraordinary loss on early extinguishment of debt, net of minority interests in the amount of $887 in 1999 and $0 in 1997...... (3,518) - (2,061) --------- -------- -------- Net income (loss).............................................................. (34,829) 17,530 5,905 Income allocated to preferred shareholders..................................... (9,962) (24,604) (12,726) --------- -------- -------- Net loss applicable to common shares........................................... $ (44,791) $ (7,074) $ (6,821) ========= ======== ======== Earnings per common share - basic: Loss before extraordinary loss........................................... $ (0.96) $ (0.20) $ (0.25) Extraordinary loss....................................................... (0.08) - (0.11) --------- -------- -------- Net loss................................................................. $ (1.04) $ (0.20) $ (0.36) ========= ======== ======== Earnings per common share - diluted: Loss before extraordinary loss........................................... $ (1.22) $ (0.20) $ (0.25) Extraordinary loss....................................................... (0.08) - (0.11) --------- ------- -------- Net loss................................................................. $ (1.30) $ (0.20) $ (0.36) ========= ======= ======== Weighted average common shares outstanding Basic.................................................................... 43,196 35,612 19,189 ========= ======== ======== Diluted.................................................................. 44,260 35,612 19,189 ========= ======== ======== ===================================================================================================================================
See accompanying notes to financial statements. Prime Retail, Inc. Consolidated Statements of Cash Flows (Amounts in thousands)
----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income (loss).............................................................. $(34,829) $17,530 $ 5,905 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Income allocated to minority interests.......................................... 3,226 2,456 10,581 Loss on sale of real estate.............................................. 15,153 15,461 - Extraordinary loss, net of minority interests............................ 3,518 - 2,061 Depreciation............................................................. 72,877 51,638 25,055 Amortization of deferred financing costs and interest rate protection contracts............................................................... 4,379 2,867 3,742 Amortization of leasing commissions...................................... 763 1,119 1,660 Provision for uncollectible accounts receivable.......................... 779 1,387 970 Provision for abandoned projects......................................... 16,039 - - Provision for Designer Connection........................................ 3,659 - - Provision for asset impairment........................................... 15,842 - - Gain on sale of land..................................................... (72) (274) (904) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable.................................. 2,155 (17,605) (4,619) (Increase) decrease in other assets......................................... 6,375 (3,903) 1,400 Increase (decrease) in other liabilities.................................... (7,798) (11,620) 3,878 Increase in accrued interest................................................ 155 2,279 127 ------- -------- ------- Net cash provided by operating activities................................ 102,221 61,335 49,856 ------- -------- ------- Investing Activities Additions to investment in rental property..................................... (36,265) (46,862) (21,057) Increase in property under development......................................... (53,704) (89,190) (49,668) Acquisition of outlet centers.................................................. - - (159,232) Acquisition of Horizon, net of cash acquired and spin-off of HGP............... - (35,559) - Proceeds from sale of outlet centers........................................... 33,303 26,015 - ------- -------- -------- Net cash used in investing activities.................................... (56,666) (145,596) (229,956) ------- -------- -------- Financing Activities Net proceeds from offerings.................................................... - - 242,729 Redemption of Series C preferred stock......................................... (45,054) - - Proceeds from notes payable.................................................... 304,342 467,998 160,057 Principal repayments on notes payable.......................................... (204,432) (283,806) (175,683) Deferred financing fees........................................................ (10,321) (3,277) (583) Distributions and dividends paid............................................... (75,536) (79,451) (33,605) Distributions to minority interests............................................ (12,976) (17,811) (10,366) ------- ------- ------- Net cash provided by (used in) financing activities...................... (43,977) 83,653 182,549 ------- ------- ------- Increase (decrease) in cash and cash equivalents............................... 1,578 (608) 2,449 Cash and cash equivalents at beginning of year................................. 5,765 6,373 3,924 ------- ------- ------- Cash and cash equivalents at end of year....................................... $ 7,343 $ 5,765 $ 6,373 ======= ======= ======= ===================================================================================================================================
See accompanying notes to financial statements. PRIME RETAIL, INC. Consolidated Statements of Cash Flows (continued) (Amounts in thousands) Supplemental Disclosure of Noncash Investing and Financing Activities:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Assumption of notes payable..................................................... $ - $ - $ 31,368 ======== ======= ========== The following assets and liabilities were sold in connection with the sale of Prime Outlets at Birch Run on November 19, 1999: Book value of assets disposed, net.......................................... $ 96,384 Cash received............................................................... (33,303) Loss on sale................................................................ (9,326) -------- Debt disposed............................................................... $ 53,755 ======== The following assets and liabilities were acquired and sold in connection with the consummation of the Merger Transactions on June 15, 1998: Acquisition of Horizon, net of spin-off of HGP: Fair value of assets acquired............................................... $1,014,973 Cash paid, net of cash and cash equivalents acquired........................ (35,559) Common shares issued........................................................ (214,282) Common units issued......................................................... (56,023) Series B convertible preferred shares issued................................ (118,735) ---------- Fair value of liabilities assumed........................................... $ 590,374 ========== Disposition of Prime Transferred Properties: Book value of assets disposed............................................... $ 42,218 Cash received............................................................... (26,015) Loss on sale................................................................ (15,461) ---------- Liabilities disposed........................................................ $ 742 ========== ====================================================================================================================================
See accompanying notes to financial statements Prime Retail, Inc. Consolidated Statements of Shareholders' Equity (Amounts in thousands, except share information)
- ------------------------------------------------------------------------------------------------------------------------------------ Series A Series B Series C Additional Distributions Total Preferred Preferred Preferred Common Paid-in in Excess of Shareholders' Stock Stock Stock Stock Capital Net Income Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1997............................. $ 23 $ 28 $ 134 $165,346 $(26,322) $139,209 Issuance of 175,800 shares of Series B preferred stock, net of issuance cost....................... - 2 - 3,798 - 3,800 Issuance of 13,890,300 shares of common stock, net of issuance cost.................................. - - 139 180,035 - 180,174 Issuance of 3,636,363 shares of Series C preferred stock, net of issuance cost....................... - - $ 36 - 49,009 - 49,045 Net income........................................... - - - - - 5,905 5,905 Common distributions ($1.180 per share).............. - - - - - (21,232) (21,232) Preferred distributions and dividends: Series A ($2.625 per share)................. - - - - - (6,037) (6,037) Series B ($2.125 per share)................. - - - - - (6,336) (6,336) ----- ----- ----- ----- ------- ------- ------- Balance, December 31, 1997........................... 23 30 36 273 398,188 (54,022) 344,528 Issuance of 14,466,329 shares of common stock, net of issuance cost.................................. - - - 145 214,137 - 214,282 Issuance of 4,846,325 shares of Series B preferred stock, net of issuance cost....................... - 48 - - 118,687 - 118,735 Exchange of 975,462 common units for common stock ........................................... - - - 9 18,754 - 18,763 Exchange of 727,273 Series C preferred units for 727,273 shares of Series C preferred stock........ - - 8 - 9,339 - 9,347 Net income........................................... - - - - - 17,530 17,530 Common distributions ($1.680 per share).............. - - - - - (54,750) (54,750) Preferred distributions and dividends: Series A ($2.625 per share)..................... - - - - - (6,037) (6,037) Series B ($2.725 per share)..................... - - - - - (13,275) (13,275) Series C ($1.680 per share)..................... - - - - - (5,389) (5,389) ----- ----- ----- ----- ------- ------- -------- Balance, December 31, 1998........................... 23 78 44 427 759,105 (115,943) 643,734 Issuance of 160,585 restricted shares of common stock ..................................... - - - 2 1,380 - 1,382 Exchange of 471,293 common units for common stock ........................................... - - - 5 6,985 - 6,990 Redemption of 4,363,636 shares of Series C preferred stock................................... - - (44) - (58,348) 13,338 (45,054) Net loss............................................. - - - - - (34,829) (34,829) Common distributions ($1.180 per share).............. - - - - - (50,948) (50,948) Preferred distributions and dividends: Series A ($2.625 per share)..................... - - - - - (6,038) (6,038) Series B ($2.125 per share)......................... - - - - - (16,635) (16,635) Series C ($0.885 per share)..................... - - - - - (1,915) (1,915) ----- ----- ----- ----- -------- --------- -------- Balance, December 31, 1999........................... $ 23 $ 78 $ - $ 434 $709,122 $(212,970) $496,687 ===== ===== ===== ===== ======== ========= ======== ====================================================================================================================================
See accompanying notes to financial statements. Prime Retail, Inc. Notes to Consolidated Financial Statements (Amounts in thousands, except share and unit information) Note 1 - Organization and Basis of Presentation Organization Prime Retail, Inc. (the "Company") is a self-administered and self-managed real estate investment trust ("REIT") that operates primarily within one business segment and develops, acquires, owns and operates outlet centers in the United States. The Company's outlet center portfolio, including four outlet centers owned through joint venture partnerships, consists of 51 outlet centers in 26 states, which total 14,699,000 square feet of gross leasable area ("GLA") at December 31, 1999. As a fully-integrated real estate firm, the Company provides development, construction, accounting, finance, leasing, marketing, and management services for all of its properties (the "Properties"). The Company's Properties are held and substantially all of its business and operations are conducted through Prime Retail, L.P. (the "Operating Partnership"). The Company controls the Operating Partnership as its sole general partner and is dependent upon the distributions or other payments from the Operating Partnership to meet its financial obligations. At December 31, 1999, the Company owned 2,300,000 Senior Preferred Units of the Operating Partnership (the "Senior Preferred Units"), 7,828,125 Series B Convertible Preferred Units of the Operating Partnership (the "Series B Convertible Preferred Units"), and 43,368,620 Common Units of partnership interest in the Operating Partnership (the "Common Units"). Each Senior Preferred Unit, and Series B Convertible Preferred Unit, (collectively, the "Preferred Units") entitles the Company to receive distributions from the Operating Partnership in an amount equal to the dividend declared or paid with respect to a share of the Company's Series A Senior Cumulative Preferred Stock ("Senior Preferred Stock") and Series B Cumulative Convertible Participating Preferred Stock ("Series B Convertible Preferred Stock"), respectively, prior to the payment by the Operating Partnership of distributions with respect to the Common Units. Series B Convertible Preferred Units will be automatically converted into Common Units to the extent of any conversion of Series B Convertible Preferred Stock into Common Stock. The Preferred Units will be redeemed by the Operating Partnership to the extent of any redemption of Senior Preferred Stock or Series B Convertible Preferred Stock. A summary of the holders of units in the Operating Partnership as of December 31, 1999 is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Units ---------------------------------------------------- Holder Series A Series B Common - ------------------------------------------------------------------------------------------------------------------------------------ Prime Retail, Inc............................................................... 2,300,000 7,828,125 43,368,620 Prime Group, Inc., management and other (1)..................................... - - 10,840,208 --------- --------- ---------- 2,300,000 7,828,125 54,208,828 ========= ========= ========== ====================================================================================================================================
Note: (1) Includes 993,480 units beneficially owned by management and 4,102,923 units owned by certain executive officers based on their ownership interests in Prime Group, Inc. As of December 31, 1999, the Company has a 80% general partnership interest in the Operating Partnership with full and complete control over the management of the Operating Partnership as the sole general partner not subject to removal by the limited partners. The Operating Partnership is the 1% sole general partner of Prime Retail Services Limited Partnership (the "Services Partnership"). The Operating Partnership owns 100% of the non-voting preferred stock of Prime Retail Services, Inc. (the "Services Corporation") which, in turn, is the 99% limited partner of the Services Partnership. Certain members of management own 100% of the voting common stock of the Services Corporation and no cash distributions were made during the years ended December 31, 1999, 1998 and 1997. The Services Partnership was formed primarily to operate business lines of the Company that are not directly associated with the collection of rents. The Services Corporation is subject to federal, state and local taxes. Unless the context otherwise requires, all references to the Company herein mean Prime Retail, Inc. and those entities owned or controlled by Prime Retail, Inc., including the Operating Partnership and the Services Partnership. Basis of Presentation The consolidated financial statements include the accounts of the Company, the Operating Partnership and the partnerships in which the Company has operational control. Profits and losses are allocated in accordance with the terms of the agreement of limited partnership of the Operating Partnership. The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investments in partnerships in which the Company does not have operational control are accounted for on the equity method of accounting. Income (loss) applicable to minority interests and common shares as presented in the consolidated statements of operations is allocated based on income (loss) before minority interests after income allocated to preferred shareholders. Significant intercompany accounts and transactions have been eliminated in consolidation. Operating results associated with the Company's Designer Connection outlet stores have been classified as loss on Designer Connection in the Consolidated Statements of Operations for all periods presented. Certain amounts in prior years have been reclassified to the current year presentation. Note 2 - Summary of Significant Accounting Policies Rental Property Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets which are as follows: Land improvements.................................... 20 years Buildings and improvements........................... Principally 40 years Tenant improvements.................................. Term of related lease Furniture and equipment.............................. 5 years Rental property is generally carried at historical cost net of accumulated depreciation. Development costs, which include fees and costs incurred in developing new properties, are capitalized as incurred. Upon completion of construction, development costs are amortized over the useful lives of the respective properties on a straight-line basis. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant renovations and improvements which improve and/or extend the useful life of assets are capitalized and depreciated over their estimated useful lives. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Impairment losses are measured as the difference between carrying value and fair value for assets to be held in portfolio. For assets to be sold, impairment is measured as the difference between carrying value and fair value, less costs to dispose. Fair value is based on estimated cash flows discounted at a risk-adjusted rate of interest. Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Accounts Receivable Management regularly reviews accounts receivable and determines an appropriate range for the allowance for doubtful accounts based upon the impact of economic conditions on the merchants' ability to pay, past collection experience and such other factors which, in management's judgment, deserve current recognition. In turn, a provision is charged against earnings in order to maintain the allowance level within this range. The allowance for doubtful accounts at December 31, 1999 and 1998 was $7,008 and $4,288, respectively. Accounts receivable due after one year representing straight-line rents were $8,285 and $7,233 at December 31, 1999 and 1998, respectively. Deferred Charges Deferred charges consist of leasing commissions and financing costs. Deferred leasing commissions representing costs incurred to originate and renew operating leases are deferred and amortized on a straight-line basis over the term of the related lease. Fees and costs incurred to obtain financing are deferred and are being amortized as a component of interest expense over the terms of the respective loans on a basis that approximates the interest method. Due from Affiliates, Net Due from affiliates, net consists of amounts due from joint venture partnerships related to the reimbursement of costs paid by the Company on their behalf. Revenue Recognition Leases with tenants are accounted for as operating leases. Minimum rental income is recognized on a straight-line basis over the term of the lease and unpaid rents are included in accounts receivable in the accompanying balance sheet. Certain lease agreements contain provisions which provide for rents based on a percentage of sales or based on a percentage of sales volume above a specified threshold. These contingent rents are not recognized until the required thresholds are exceeded. In addition, the lease agreements generally provide for the reimbursement of real estate taxes, insurance, advertising and certain common area maintenance costs. These additional rents and tenant reimbursements are accounted for on the accrual basis. Earnings per Share Basic earnings per share ("EPS") is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS includes the potentially dilutive effect, if any, which would occur if outstanding (i) options to purchase Common Stock were exercised, (ii) Common Units were converted into shares of Common Stock, (iii) shares of Series C Preferred Stock were converted into shares of Common Stock, and (iv) shares of Series B Convertible Preferred Stock were converted into shares of Common Stock. For the year ended December 31, 1999, a redemption discount and dividends aggregating $12,710 related to the Company's repurchase of its Series C Preferred Stock were excluded from the numerator and incremental shares of 1,064 were included in the denominator of the computation of diluted EPS. For the year ended December 31, 1999, the effect of all other exercises and conversions was anti-dilutive and, therefore, was excluded from the computation of diluted EPS. For the years ended December 31, 1998 and 1997, the effect of all exercises and conversions was anti-dilutive and, therefore, dilutive EPS is equivalent to basic EPS. The following table sets forth the computation of basic and diluted earnings per share:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Numerator: Income (loss) before minority interests and extraordinary loss.............. $(28,085) $19,986 $18,547 Income allocated to minority interests...................................... (3,226) (2,456) (10,581) -------- ------- ------- Net income (loss) before extraordinary loss................................. (31,311) 17,530 7,966 Income allocated to preferred shareholders.................................. (9,962) (24,604) (12,726) -------- ------- ------- Numerator for basic earnings per share - loss before extraordinary loss available to common shareholders............ (41,273) (7,074) (4,760) Effect of dilutive securities: Series C preferred dividends................................................ 628 - - Series C preferred stock redemption discount................................ (13,338) - - -------- ------- ------- Numerator for diluted earnings per share - loss before extraordinary loss available to common shareholders............ $ (53,983) $ (7,074) $ (4,760) ========= ======== ======== Denominator: Denominator for basic earnings before extraordinary loss per share - weighted average common shares outstanding................................ 43,196 35,612 19,189 Effect of dilutive securities: Series C preferred shares................................................... 1,064 - - -------- ------- ------- Denominator for diluted earnings before extraordinary loss per share - adjusted weighted average common shares outstanding....................... 44,260 35,612 19,189 ======== ======= ======= Basic earnings before extraordinary loss per common share .................. $ (0.96) $ (0.20) $ (0.25) ======== ======= ======= Diluted earnings before extraordinary loss per common share ................ $ (1.22) $ (0.20) $ (0.25) ======== ======= ======= ====================================================================================================================================
Stock Based Compensation The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and, accordingly, recognizes no compensation expense for employee stock option grants. The Company has elected to adopt only the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Income Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax at the corporate level on income it distributes to its shareholders so long as it distributes at least 95% of its taxable income (excluding any net capital gain) each year. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Even if the Company qualifies as a REIT, the Company may be subject to certain state and local taxes on its income and property. The Company incurred $234, $337, and $263 of state and local taxes for the years ended December 31, 1999, 1998 and 1997, respectively. The Company paid $68, $424, and $170 of state and local taxes during the years ended December 31, 1999 and 1998, and 1997, respectively. The following table summarizes the taxability of dividends and distributions paid during (i) the year ended December 31, 1999, (ii) the period from January 1 to June 15, 1998, (iii) the period from June 16 to December 31, 1998, and (iv) the year ended December 31, 1997:
- ------------------------------------------------------------------------------------------------------------------------------------ Period from Period from Year ended January 1 to June 16 to Year ended December 31, June 15, December 31, December 31, 1999 1998 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Senior Preferred Stock Ordinary income ............................................................ $2.625 $1.3125 $1.3125 $2.625 ====== ======= ======= ====== Series B Convertible Preferred Stock Ordinary income ............................................................ $2.125 $ 1.663 $ 0.922 $1.940 Return of capital........................................................... - - 0.525 0.185 ------ ------- ------- ------ $2.125 $ 1.663 $ 1.447 $2.125 Series C Preferred Stock ====== ======= ======= ====== Ordinary income ............................................................ $0.885 $0.167 $ - $ - Return of capital........................................................... - 0.725 0.912 - ------ ------ ------- ------ $0.885 $0.892 $ 0.912 $ - ====== ======= ======= ====== Common Stock Ordinary..................................................................... $0.271 $ - $ - $ - Return of capital........................................................... 0.909 1.090 0.912 1.180 ------ ------ ------ ------ $1.180 $1.090 $0.912 $1.180 ====== ====== ====== ====== ====================================================================================================================================
Risks and Uncertainties The Company's results of operations are significantly dependent on the overall health of the retail industry. The Company's tenant base is comprised almost exclusively of merchants in the retail industry. The retail industry is subject to external factors such as inflation, consumer confidence, unemployment rates and consumer tastes and preferences. A decline in the retail industry could reduce merchant sales, which could adversely affect the operating results of the Company. In addition to traditional sources of risks to retailers and owners of outlet centers, which are mentioned above, the Company's outlet centers compete for customers with web-based retailers. Because of the newness of competition from web-based retailers, it is difficult to quantify the risk of such competition to the Company. Note 3 - Business Combination On June 15, 1998, the merger and other transactions (collectively, the "Merger Transactions") as set forth in the agreement and plan of merger (the "Merger Agreement") between the Company and Horizon Group, Inc. ("Horizon") were consummated for an aggregate consideration of $1,134,682, including liabilities assumed and related transaction costs. Pursuant to the terms of the Merger Agreement, the Company acquired (i) all of the outstanding shares of common stock of Horizon at an exchange ratio of 0.20 of a share of the Company's Series B Convertible Preferred Stock and 0.597 of a share of the Company's Common Stock for each share of common stock of Horizon, and (ii) all of the outstanding limited partnership units of Horizon/Glen Outlet Centers Limited Partnership ("Horizon Partnership") at an exchange ratio of 0.9193 of a Common Unit of partnership interest in the Operating Partnership. A total of 4,846,325 shares of Series B Convertible Preferred Stock and 14,466,329 shares of Common Stock were issued by the Company to the shareholders of Horizon and 3,782,121 Common Units were issued by the Operating Partnership to the limited partners of Horizon Partnership. Immediately prior to the merger, Horizon Partnership contributed 13 of its 35 centers to Horizon Group Properties, L.P., of which Horizon Group Properties, Inc. ("HGP"), a subsidiary of Horizon, is the sole general partner. HGP was spun-off from the Company on June 15, 1998. The remaining 22 outlet centers of Horizon were integrated into the Company's existing portfolio. On June 19, 1998, all of the common equity of HGP was distributed to the convertible preferred and common shareholders and unitholders of the Company and its Operating Partnership and the shareholders and limited partners of Horizon and Horizon Partnership based on their ownership in the Company immediately following consummation of the merger. One share of common stock of HGP was distributed for every 20 shares of Common Stock and Series C Preferred Stock of the Company and for every 20 Common Units of the Operating Partnership. Additionally, approximately 1.196 shares of the common stock of HGP were distributed for every 20 shares of Series B Convertible Preferred Stock of the Company. In connection with the Merger Transactions, the Company sold Indiana Factory Shops and Nebraska Crossing Factory Stores (collectively, the "Prime Transferred Properties") to HGP for an aggregate consideration of $26,015, resulting in a loss on the sale of real estate of $15,461. Proceeds from the sale of the Prime Transferred Properties were used to repay indebtedness associated with the Horizon properties. Concurrent with the closing of the merger, a special cash distribution was made aggregating $21,871 consisting of $0.50 per share/unit to holders of Common Stock, Series C Preferred Securities and Common Units and $0.60 per share to holders of Series B Convertible Preferred Stock. Shareholders of Horizon and limited partners of Horizon Partnership did not participate in these distributions. The merger has been accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and the liabilities assumed based on estimates of their respective fair values. Certain assumptions were made which management of the Company believed were reasonable. The operating results of these properties have been included in the Company's consolidated results of operations commencing on the date of the merger. The operating results of the Prime Transferred Properties have been included in the Company's consolidated results of operations through the date of disposition. The following unaudited pro forma information presents a summary of the Company's consolidated results of operations as if these acquisitions and dispositions had occurred on January 1, 1998:
- ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues.................................................................. $ 285,157 ========= Net income from continuing operations........................................... $ 35,699 ========= Net income applicable to common shares.......................................... $ 7,775 ========= Earnings per common share - basic and diluted................................... $ 0.18 ========= Weighted average common shares outstanding...................................... 42,151 ========= ====================================================================================================================================
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional depreciation expense based on the purchase price of such assets acquired and interest expense on debt incurred to finance the acquisitions. These unaudited pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 1998 or of future results of operations of the Company. Note 4 - Restricted Cash At December 31, 1999 and 1998, the Company had placed in escrow $28,131 and $34,969, respectively, to be used to complete certain development projects, to fund real estate taxes and debt service and to pay certain operating costs under mortgage loan agreements. At December 31, 1999, restricted cash included $1,326 relating to a nonrecourse expansion loan which was funded during January 2000 for certain development costs relating to the completion of expansions of ten of the Company's outlet centers. Note 5 - Deferred Charges Deferred charges were as follows:
---------------------------------------------------------------------------------------------------------------------------------- December 31, 1999 1998 ---------------------------------------------------------------------------------------------------------------------------------- Leasing commissions........................................................... $11,307 $10,775 Financing costs............................................................... 21,466 17,787 ------- ------- 32,773 28,562 Accumulated amortization...................................................... (19,270) (16,044) ------- ------- $13,503 $12,518 ======= ======= ==================================================================================================================================
Note 6 - Bonds and Notes Payable Bonds payable consisted of the following:
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Fixed rate tax-exempt revenue bonds (the "Bonds"), interest rates, ranging from 6.88% to 7.00%, interest-only payments, due 2012 to 2014, collateralized by properties in Chattanooga, TN and Knoxville,TN............................. $28,250 $28,250 UrbanDevelopment Action Grant Loans, 3% through August 31, 1997 and 6% thereafter, interest-only payments, due 2016 to 2019, collateralized by property in Chattanooga, TN................................................ 4,650 4,650 ------- ------- $32,900 $32,900 ======= ======= ====================================================================================================================================
During October 1999, the Company refinanced its $28,250 of variable-rate, tax-exempt revenue bonds by issuing $28,250 of fixed rate tax-exempt revenue bonds (the "Fixed Rate Bonds"). The Fixed Rate Bonds bear interest ranging from 6.875% to 7.0%, require semi-annual interest payments and mature from December 15, 2012 through December 1, 2014. The Fixed Rate Bonds are redeemable by the Company commencing in December 2006 at 102% of the outstanding principal balance. The redemption price decreases incrementally each year thereafter through December 2008, at which date the redemption price is fixed at 100% of the outstanding principal balance. In connection with the debt refinancing, the Company incurred an extraordinary loss on early extinguishment of debt of $536, net of minority interests of $134. Unless cured or waived, the defaults existing under certain of the Company's credit agreements discussed more fully below will entitle the holders of the Fixed Rate Bonds to put such obligations to Prime Retail, Inc. at a price equal to par plus accrued interest. Notes payable consisted of the following:
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ First Mortgage and Expansion Loan, LIBOR plus 1.51% through November 10,1998, 7.782% thereafter, monthly installments of $2,580 including interest, due November 11, 2003, collateralized by fifteen properties located throughout the United States............................................................... $349,797 $353,018 Permanent Loan, 6.99%, monthly installments of $1,248 including interest, due July 11, 2008, collateralized by four properties located throughout the United States.......................................................................... 176,734 179,096 Secured Revolving Loan, LIBOR plus 1.35%, 7.81% at December 31, 1999, monthly interest-only payments, due June 11, 2001, collateralized by six properties located throughout the United States............................................ 112,000 95,000 Mortgage, 6.927%, monthly installments of $565 including interest, due October 11, 2006, collateralized by four properties located throughout the United States.......................................................................... 75,893 77,365 Mortgage, 6.927%, monthly installments of $527 including interest, due March 11, 2006, collateralized by four properties located throughout the United States.......................................................................... 66,935 68,495 Mortgage, 7.60% monthly installments of $450 including interest, due May 10, 2009, collateralized by property located in Niagara Falls, NY.............................................................................. 62,693 - Term loan, LIBOR plus 6.00%, 12.48% at December 31, 1999, monthly interest-only payments through January 10, 2000; monthly principal of $1,000 and interest thereafter, due December 10, 2001, collateralized by excess cash flow from fifteen properties located throughout the United States............. 55,000 - Mortgage, 6.95%, monthly installments of $351 including interest, due November 1, 2005, collateralized by property located in Vero Beach, FL and Woodbury, MN............................................................. 44,917 46,037 Unsecured Revolving Loan, LIBOR plus 1.75%, 8.21% at December 31, 1999, monthly interest-only payments, quarterly principal payments of $1,000 commencing March 31, 2000, due September 11,2001................................................. 40,000 40,000
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Construction Mortgage Loan, LIBOR plus 1.50%, 7.98% at December 31, 1999, monthly interest-only payments through May 31, 2002; monthly principal and interest payments thereafter, due June 1, 2004, collateralized by property located in Hagerstown, MD.................................................... $ 38,560 $ 29,914 Mortgage, 6.915%, monthly installments of $357 including interest, due June 10, 2002, collateralized by property located in Conroe, TX and Jeffersonville,OH............................................................... 36,696 38,381 Interim loan, LIBOR plus 2.50%, 8.98% at December 31, 1999, monthly interest-only payments, due January 11, 2002, collateralized by property located in Williamsburg,VA.......................... 32,500 - Mortgage, 8.35%, monthly installments of $215 including interest, due June 11, 2007, collateralized by three properties located throughout the United States.......................................................................... 26,113 26,463 Unsecured Corporate Line, $25,000 at December 31, 1999, LIBOR plus 2.50%,7.88% at December 31, 1999, monthly interest-only payments, due July 11, 2000.. 22,175 3,000 Subordinated loan, 15.00%, monthly interest-only payments, due June 30, 2000, collateralized by a security interest and available cash flows of five properties located throughout the United States................................. 20,000 - Construction mortgage loan, prime rate or LIBOR plus 1.75%, 8.50% at December 31, 1999, monthly interest-only payments, due December 31, 2000, collateralized by property located in Lebanon, TN............................... 19,951 19,951 Mortgage, 6.91%, monthly installments of $154 including interest, due June 10, 2001, collateralized by property located in Edinburgh, IN................ 17,347 17,965 Mortgage, 6.95%, monthly installments of $81 including interest, due November 1, 2005, collateralized by property located in Perryville, MD..... 10,157 10,433 Note Payable, 9.50%, monthly interest-only payments, due November 1, 2001, collateralized by land located in Camarillo, CA............................... 7,400 7,400 Mortgage, 9.375%, monthly installments of $71 including interest, due March 1, 2004, collateralized by property located in Lombard, IL..................... 6,239 6,507 Mortgage, 7.50%, monthly installments of $29 including interest, due June 22, 2000, collateralized by property in Knoxville, TN........................... 3,590 3,666 Other notes payable............................................................. 3,073 858 Mortgage, 6.915%, monthly installments of $402 including interest, due June 10, 2002, collateralized by property located in Birch Run, MI................. - 47,572 Term loan, LIBOR plus 1.95%, 7.23% at December 31, 1998, monthly interest-only payments through February 10, 1998; quarterly principal and monthly interest payments thereafter, due November 11, 1999, collateralized by excess cash flow of fifteen properties located throughout the United States.......................................................................... - 45,260 Mortgage, 6.83%, monthly installments of $218 including interest, due June 6, 2006, collateralized by property in Niagara Falls NY........................... - 30,832 Mortgage, 6.93%, monthly installments of $221 including interest, due November 1, 2000, collateralized by property located in Williamsburg, VA...... - 23,754 Mortgage, 6.91%, monthly installments of $93 including interest, due June 10, 2001, collateralized by property located in Birch Run, MI................ - 10,952 Term loan, LIBOR plus 1.95%, 7.23% at December 31, 1998, monthly interest-only payments through April 10, 1998; monthly principal and interest payments thereafter, due February 13, 2000, collateralized by excess cash flow of three properties located throughout the United States....................... - 2,688 ---------- ---------- $1,227,770 $1,184,607 ========== ========== ====================================================================================================================================
At December 31, 1999, unused commitments available for borrowings under various loan facilities were $13,546 in the aggregate. Interest costs are summarized as follows:
----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1999 1998 1997 ----------------------------------------------------------------------------------------------------------------------------------- Interest incurred.............................................................. $94,201 $63,630 $36,436 Interest capitalized........................................................... (4,646) (5,793) (4,056) Amortization of deferred financing costs and interest rate protection contracts................................................... 4,379 2,867 3,742 ------- ------- ------- Interest expense............................................................... $93,934 $60,704 $36,122 ======= ======= ======= Interest paid.................................................................. $94,046 $61,114 $36,424 ======= ======= ======= ===================================================================================================================================
The scheduled maturities, excluding acceleration provisions, of bonds and notes payable at December 31, 1999 were as follows: ------------------------------------------------------------------------------- Years ended December 31, ------------------------------------------------------------------------------- 2000.......................................................... $ 95,732 2001.......................................................... 229,632 2002.......................................................... 79,666 2003.......................................................... 349,913 2004.......................................................... 53,820 Thereafter.................................................... 451,907 ---------- $1,260,670 ========== =============================================================================== Bonds and notes payable include unamortized debt premiums of $17,303 in the aggregate at December 31, 1999. Debt premiums are being amortized over the terms of the related debt instruments in accordance with the effective interest method. Additionally, interest incurred reflects amortization of debt premiums of $4,406 and $2,153 for the years ended December 31, 1999 and 1998, respectively. The aggregate carrying amount of bonds and notes payable at December 31, 1999 approximated their fair value. At December 31, 1999, the aggregate carrying amount of rental property collateralizing bonds and notes payable was $1,738,012. On December 8, 1999, the Company refinanced the existing mortgage indebtedness on Prime Outlets at Williamsburg (the "Williamsburg Center") with a $42,500 loan facility from a financial institution. At closing, the Company received an initial funding of $32,500 (the "Initial Funding") and a commitment, subject to various conditions, for up to $10,000 (the "Final Draw") to finance a planned expansion to the Williamsburg Center. The Initial Funding generated net cash proceeds of $9,077 after the repayment in full of $22,405 of existing mortgage indebtedness and closing costs. The Final Draw is expected to be made in a single advance subject to satisfaction of certain conditions, including the substantial completion of the expansion to the Williamsburg Center. In connection with the debt refinancing, the Company incurred an extraordinary loss of $159, net of minority interests of $40. The loan facility consists of an interim loan (the "Interim Loan") and a permanent loan (the "Permanent Loan"). The Interim Loan (i) bears interest at 30-day LIBOR plus 2.5%, (ii) requires monthly interest-only payments, (iii) is collateralized by a first mortgage on the Williamsburg Center, and (iv) matures on January 11, 2002. The Interim Loan may be converted to the Permanent Loan subject to satisfaction of certain conditions. The Permanent Loan would (i) bear interest at a fixed-rate equal to prevailing market rates, (ii) require monthly principal and interest payments pursuant to a 25-year amortization schedule, (iii) be collateralized by a first mortgage on the Williamsburg Center, and (iv) have a term of 10 years. On November 15, 1999, the Company closed on a $20,000 subordinated loan (the "Subordinated Loan") from an institutional lender. The Subordinated Loan (i) bears interest at a fixed-rate of 15.0%, (ii) requires monthly interest-only payments, (iii) matures on June 30, 2000, and (iv) is secured by a pledge of a security interest in certain of the Company's ownership interests in, and the available cash flow from five outlet centers, including Prime Outlets of Puerto Rico, which is currently under construction. This collateral is also pledged to secure borrowings under the Line of Credit (as defined below). The Company may elect, at its option, to extend the maturity of the Subordinated Loan to December 31, 2000. On November 12, 1999, the Company closed on $55,000 term loan (the "$55,000 Term Loan") from a financial institution. The $55,000 Term Loan (i) bears interest at 30-day LIBOR plus 6.0%, (ii) requires monthly principal and interest payments, and (iii) matures in two years. The $55,000 Term Loan was issued by Prime Retail Capital I, L.L.C. ("PRC"), a newly-formed wholly-owned subsidiary of Prime Retail, L.P., and is secured by the excess cash flow from 15 outlet centers after the payment of senior debt service and reserves under an existing $349,797 first mortgage loan. The $55,000 Term Loan also is secured by a pledge of PRC's 49.9% limited partnership interest in partnerships that own twelve of those outlet centers and Prime Retail, L.P.'s 100% equity interest in PRC. The $55,000 Term Loan is unconditionally guaranteed by Prime Retail, L.P. and Prime Retail, Inc. The Company used the net cash proceeds from the $55,000 Term Loan to repay $40,944 of short-term indebtedness and to repay a portion of the borrowings under the Line of Credit. On September 29, 1999, the Company received $40,000 of proceeds from a line of credit facility (the "Line of Credit") with a group of institutional lenders. These proceeds were used to repurchase the Company's Series C Preferred Stock. The Line of Credit (i) bore interest at a fixed-rate of 11.0%, (ii) required monthly interest-only payments, and (iii) matured in nine months. The Line of Credit was repaid in full on November 19, 1999. In connection with the repayment of the Line of Credit, the Company incurred an extraordinary loss on the early extinguishment of debt of $717, net of minority interests of $179. The lenders are entitled to receive a cash payment that increases their internal rate of return with respect to amounts advanced under such facility by 4.0% per annum (the "Cash Payment"). Lenders under the Line of Credit also received warrants to purchase a 5% interest in the Company's e-commerce subsidiary, which subsequently ceased all operations effective April 12, 2000 (see Note 14 - "Subsequent Event"). On July 11, 1999, the Company's $20,000 unsecured line of credit (the "Corporate Line") was renewed and increased to $25,000. The purpose of the Corporate Line is to provide working capital to facilitate the funding of short-term operating cash needs of the Company. The Corporate Line bears an interest rate of 30-day LIBOR plus 2.50% and matures on July 11, 2000. At December 31, 1999, the Corporate Line had an outstanding principal balance of $22,175. On April 27, 1999, the Company closed on a $63,000 debt financing with a financial institution that provided approximately $27,900 of net proceeds. The $63,000 note is (i) collateralized by a first mortgage on Prime Outlets at Niagara Falls USA, (ii) bears interest at a fixed rate of 7.604%, (iii) requires monthly principal and interest payments of $450 pursuant to a 30-year amortization schedule, and (iv) matures in 10 years. In connection with the debt refinancing, the Company incurred an extraordinary loss on early extinguishment of debt of $2,106, net of minority interests of $534. As of December 31, 1999, the Company is a guarantor or otherwise obligated with respect to an aggregate of $12,722 of the indebtedness of Horizon Group Properties, Inc. and its affiliates ("HGP") including a $10,000 obligation under HGP's secured credit facility which bears a rate of interest of LIBOR plus 1.90%, matures in July 2001, and is collateralized by seven properties located throughout the United States. On April 1, 1998, Horizon consummated an agreement with Castle & Cooke Properties, Inc. which released Horizon from its future obligations under its long-term lease of the Dole Cannery outlet center in Honolulu, Hawaii, in connection with the formation of a joint venture with certain affiliates of Castle & Cooke, Inc. ("Castle & Cooke") to operate such property. Under the terms of the agreement, Castle & Cooke Properties, Inc., the landlord of the project and an affiliate of Castle & Cooke, released Horizon from any continuing obligations under the lease, which expires in 2045, in exchange for Horizon's conveyance to the joint venture of its rights and obligations under such lease. The agreement also provided that Horizon transfer to such joint venture substantially all of Horizon's economic interest in its outlet center in Lake Elsinore, California together with legal title to vacant property located adjacent to the center. As of December 31, 1999, the Company held a small minority interest in the joint venture but has no obligation or commitment with respect to the post-closing operations of the Dole Cannery project. Mortgage indebtedness with an outstanding balance of $28,938 at December 31, 1999, for which one of the Company's subsidiary partnerships remains legally responsible, is collateralized by a first mortgage on the Lake Elsinore outlet center. The joint venture, as a limited partner in such subsidiary partnership, is obligated to make capital contributions to the partnership to pay debt financing, operating and other expenses under certain conditions. The subsidiary partnership will remain legally responsible for such expenses in case of any shortfalls by the joint venture with respect to such capital contributions. Castle & Cooke has provided the Company with an unconditional guaranty with respect to any such shortfalls. Debt Covenants Certain of the Company's debt obligations require compliance with various financial loan covenants including, but not limited to, those relating to the Company's (i) total outstanding variable interest rate indebtedness, (ii) total outstanding indebtedness to total market value, as defined, (iii) consolidated net worth, as defined, and (iv) debt service and fixed charge coverage ratios, as defined. As a result of its financial results for the quarter ended December 31, 1999, the Company is not in compliance with a financial covenant contained in two of its credit facilities, the Subordinated Loan and a $40,000 unsecured revolving loan (the "Unsecured Revolving Loan"). Neither of the loans has been accelerated nor was notice of the respective lender's intention to accelerate the maturity of the loans received by the Company. The Company entered into an amendment to the Subordinated Loan on February 23, 2000 which waived the covenant violation as of December 31, 1999 and modified the covenant terms through the Subordinated Loan's maturity date. The Company is currently in discussions with the Unsecured Revolving Loan lender to obtain a waiver and/or amend the loan; however, there can be no assurance as to whether and when the Company will obtain any such waiver or amendment. Furthermore, the Company's failure to obtain from its independent auditor's an unqualified report with respect to its consolidated financial statements will also constitute a default under these two credit facilities. In addition, noncompliance with the covenants described above has triggered certain cross-default provisions with respect to several of the Companys other debt instruments, including the Subordinated Loan, the $55,000 Term Loan and the Fixed Rate Bonds. None of these loans have been accelerated nor was a notice of the respective lender's intent to accelerate received by the Company. Management is currently in discussion with the affected lenders to obtain a resolution of the cross-default provisions. If the Company is unable to obtain such waiver or amendment to the Unsecured Revolving Loan and reach resolution with certain other lenders, the Company will look to (i) obtain alternative financing from other financial institutions, or (ii) the potential sale of assets or a joint venture interest in certain outlet centers as sources of cash to repay the amounts outstanding under such loans. This condition raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Although the Company continues to maintain its regularly scheduled payments under all of its indebtedness, there can be no assurance that one or all of the affected lenders will not declare a default and accelerate the maturity of such indebtedness. Additionally, there can be no assurance that the Company will be in compliance with its financial debt covenants in future periods since the Company's future financial performance is subject to various risks and uncertainties, including but not limited to, the effects of increases in market interest rates from current levels; the risk of potential increases in vacancy rates and the resulting impact on the Company's revenue; and risks associated with refinancing the Company's current debt obligations or obtain new financing under terms as favorable as the Company has experienced in prior periods. Note 7 - Minority Interests In conjunction with the formation of the Company and the Operating Partnership, the predecessor owners contributed interests in certain properties to the Operating Partnership and, in exchange, received 8,505,472 limited partnership interests in the Operating Partnership ("Common Units"). Additionally, 3,782,121 Common Units were issued in June 1998 in connection with the Company's merger with Horizon. Subject to certain conditions, each Common Unit held by a Limited Partner may be exchanged for one share of Common Stock or, at the option of the Company, cash equal to the fair market value of a share of Common Stock at the time of exchange. During 1999 and 1998, 471,923 and 975,462 Common Units, respectively, were exchanged for shares of Common Stock. As of December 31, 1999, 10,840,208 Common Units were issued and outstanding. Minority interests also includes interests in two property partnerships that are not wholly owned by the Company. During the years ended December 31, 1999, 1998 and 1997, expenses totaling $11,752, $3,035, and $1,468, respectively, related solely to the operation of the Company were allocated only to the common shareholders. Such allocation is consistent with the federal and state tax treatment of these expenses. During the year ended December 31, 1999, cash distributions paid to minority interest totaled $12,976, minority interests conversions to common stock totaled $6,990 and income allocated to minority interests totaled $2,339, net of an $887 allocation of extraordinary losses. In addition, the minority interests' balance was reduced by $3,351 in connection with the sale of a joint venture property. During the years ended December 31, 1999 and 1997, cash distributions and losses allocated to minority interests reduced the minority interests' balance related to Common Units to zero. After reducing the minority interests' balance to zero, all cash distributions related to Common Units are treated as income allocated to minority interests. At December 31, 1999 and 1998, loans to certain limited partners, aggregating $1,188 and $2,375, respectively, were reported as a reduction in minority interests in the Consolidated Balance Sheets. Note 8 - Shareholders' Equity The Company is authorized to issue up to (i) 150,000,000 shares of common stock and (ii) 24,315,000 shares of preferred stock in one or more series. At December 31, 1999, 43,368,620 shares of common stock, 2,300,000 shares of Senior Preferred Stock and 7,828,125 shares of Series B Convertible Preferred Stock were issued and outstanding. The Senior Preferred Stock and Series B Convertible Preferred Stock have a liquidation preference equivalent to $25.00 per share plus the amount equal to any accrued and unpaid dividends thereon. Dividends on the Senior Preferred Stock are payable quarterly in the amount of $2.625 per share per annum. Dividends on the Series B Convertible Preferred Stock are payable quarterly at the greater of (i) $2.125 per share per annum or (ii) the dividends on the number of shares of Common Stock into which a share of Series B Convertible Preferred Stock will be convertible at the conversion price of $20.90 per share of Common Stock. At December 31, 1999, there were 9,363,786 shares of Common Stock reserved for future issuance upon conversion of the Series B Convertible Preferred Stock. The Company has the right to redeem the Senior Preferred Stock and the Series B Convertible Preferred Stock beginning on and after March 31, 1999 at $26.75 and $27.125 per share, respectively, plus the amount equal to any accrued and unpaid dividends thereon. The redemption price decreases incrementally each year thereafter through March 31, 2004, at which date the redemption price is fixed at $25.00 per share plus the amount equal to any accrued and unpaid dividends thereon. On March 31, 1999, the Company entered into an agreement providing for the repurchase of all of its outstanding shares of Series C Preferred Stock for $43,636 or $10.00 per share. The agreement provided for the repurchase to occur in two stages. In the first stage, on March 31, 1999, the Company repurchased 3,300,000 shares of the Series C Preferred Stock in exchange for the issuance of a 12.0% fixed rate $33,000 unsecured promissory note which was repaid on September 29, 1999. In the second stage, the Company repurchased the remaining 1,063,636 outstanding shares of its Series C Preferred Stock for an aggregate purchase price of $10,636 on September 29, 1999. During the year ended December 31, 1999, a redemption discount of $13,338 representing the excess of the carrying amount of the Series C Preferred Stock over its redemption amount is reflected in the Consolidated Statements of Operations as a loss allocated to preferred shareholders. In order to qualify as a Real Estate Investment Trust ("REIT") for federal income tax purposes, the Company is required to pay distributions to its common and preferred shareholders of at least 95.0% of its REIT taxable income in addition to satisfying other requirements. Although the Company intends to make distributions in accordance with the requirements of the Internal Revenue Code of 1986, as amended, it also intends to retain such amounts as it considers necessary from time to time for capital and liquidity needs of the Company. The Company's current policy with respect to common stock distributions is to only make payments to the extent necessary to maintain its status as a REIT for federal income tax purposes. Based on the Company's current federal income tax projections, it does not expect to pay any distributions on its common stock or common units of limited partnership interest in Prime Retail, L.P. during 2000. With respect to distributions on the Company's Senior Preferred Stock and Series B Convertible Preferred Stock, the Board of Directors considered and did not declare a quarterly distribution on such preferred stock due February 15, 2000. The Board of Directors will continue to evaluate the payment of preferred stock distributions on a quarterly basis. The holders of the Senior Preferred Stock and Series B Convertible Preferred Stock, each series voting separately as a class, have the right to elect two additional members to the Company's Board of Directors if the equivalent of six consecutive quarterly dividends on these series of preferred stock are in arrears. Each of such two directors will be elected to serve until the earlier of (i) the election and qualification of such directors' successor, or (ii) payment of the dividend arrearage. The Company is currently prohibited under the terms of more than one of its credit agreements from paying dividends or distributions as a result of non-compliance with a financial covenant (see Note 6 - "Bonds and Notes Payable" of the Notes to Consolidated Financial Statements.) The Company may make no distributions to its common shareholders unless it is current with respect to distributions to its preferred shareholders. In addition, the Company may make no distributions to its common shareholders unless it is current with respect to distributions to its preferred shareholders. Annualized cumulative dividends on the Company's Senior Preferred Stock and Series B Convertible Preferred Stock outstanding as of December 31, 1999 are $6,038 and $16,636, respectively. Note 9 - Stock Incentive Plans Under various plans, the Company may grant stock options and other awards to executive officers, other key employees, outside directors and consultants. The exercise price for stock options granted is the fair market value of the Company's common stock on the date of grant. In general, stock options are fully vested on the date of grant and have a term of 10 years. In certain cases for executive officers, stock options granted become exercisable over periods up to six years. During 1999, the Company awarded 135,955 shares of restricted Common Stock to certain executive officers. These awards were 25% vested on the date of grant. The restricted shares vest an additional 25% annually until fully vested. In 1999, the Company also awarded 24,000 shares of restricted common stock and granted options to outside directors to purchase 85,000 shares of Common Stock at $9.85 per share. These awards were fully vested at the grant date. The options have a term of 10 years. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Accordingly, no compensation expense has been recognized for employee stock option grants. If the Company had elected to recognize compensation based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, unaudited pro forma net income (loss) and earnings per share would have been as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) before extraordinary loss......................................... $(31,376) $ 15,348 $ 7,442 Extraordinary loss.............................................................. (3,518) - (2,061) -------- -------- -------- Net income (loss)............................................................... $(34,894) $ 15,348 $ 5,381 ======== ======== ======== Net loss applicable to common shares............................................ $(44,856) $ (9,256) $ (7,345) ======== ======== ======== Basic earnings per common share: Loss before extraordinary loss.............................................. $ (0.96) $ (0.26) $ (0.27) Extraordinary loss.......................................................... (0.08) - (0.11) -------- -------- -------- Net loss.................................................................... $ (1.04) $ (0.26) $ (0.38) ======== ======== ======== Diluted earnings per common share: Loss before extraordinary loss.............................................. $ (1.22) $ (0.26) $ (0.27) Extraordinary loss.......................................................... (0.08) - (0.11) -------- -------- -------- Net loss.................................................................... $ (1.30) $ (0.26) $(0.38) ======== ======== ======== ====================================================================================================================================
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
- ------------------------------------------------------------------------------------------------------------------------------------ Years ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Risk-free interest rate......................................................... 6.4% 5.0% 5.5% Dividend yield.................................................................. 21.0% 12.0% 8.3% Volatility factor............................................................... 0.37 0.36 0.36 Weighted average life (in years)................................................ 10.0 10.0 10.0 ====================================================================================================================================
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. A summary of the Company's stock option plans for the years ended December 31 are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 ---------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ------------------------------------------------------------------------------------------------------------------------------------ Beginning of year.......... 3,811,067 $14.90 1,148,250 $15.64 903,500 $16.49 Granted.................... 85,000 9.85 1,724,575 13.10 246,250 12.53 Transferred (Horizon)...... - - 959,742 18.62 - - Cancelled.................. (615,750) 18.37 (21,500) 12.64 (1,500) 11.88 --------- ------ --------- ------ --------- ------ End of year................ 3,280,317 $14.12 3,811,067 $14.90 1,148,250 $15.64 Exercisable - ========= ====== ========= ====== ========= ====== end of year............. 2,900,314 $14.22 3,083,570 $15.24 1,017,753 $15.18 ========= ====== ========= ====== ========= ====== ====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Range of Remaining Exercise Exercise Exercise Price Shares Life in Years Price Shares Price - ------------------------------------------------------------------------------------------------------------------------------------ $8.50........... 60,000 9.6 $8.50 60,000 $8.50 $11.15 to $13.09............... 2,574,417 7.8 12.60 2,274,414 12.53 $13.60 to $14.19............... 262,490 7.8 13.91 182,490 13.78 $19.00........... 35,000 4.2 19.00 35,000 19.00 $23.53........... 13,788 6.3 23.53 13,788 23.53 $24.55 to $26.53............... 334,622 0.4 26.11 334,622 26.11 --------- --- ------ --------- ------ 3,280,317 7.0 $14.12 2,900,314 $14.22 ========= === ====== ========= ====== ====================================================================================================================================
The weighted fair value of options granted during the years ended December 31, 1999, 1998 and 1997 was $0.96 per share, $0.96 per share, and $1.90 per share, respectively. Under the Company's various plans there were 2,279,425 and 1,748,675 shares reserved for future grants at December 31, 1999 and 1998, respectively. Note 10 - Lease Agreements The Company is the lessor of retail and office space under operating leases with lease terms that expire from 2000 to 2016. Most leases are renewable for five years at the lessee's option. Future minimum base rent to be received under noncancelable operating leases as of December 31, 1999 were as follows: ------------------------------------------------------------------------------- Years ended December 31, ------------------------------------------------------------------------------- 2000................................................................ $160,132 2001................................................................ 131,169 2002................................................................ 97,458 2003................................................................ 66,123 2004................................................................ 36,213 Thereafter.......................................................... 51,211 -------- $542,306 ======== =============================================================================== The Company leases certain land, buildings, and equipment under various noncancelable operating lease agreements. Rental expense for operating leases was $3,699, $1,818, and $1,059 for the years ended December 31, 1999, 1998, and 1997, respectively. Future minimum rental payments, by year and in the aggregate, payable under these noncancelable operating leases with initial or remaining terms of one year or more as of December 31, 1999 consisted of the following: ------------------------------------------------------------------------------- Years ended December 31, ------------------------------------------------------------------------------- 2000............................................................. $3,445 2001............................................................. 3,376 2002............................................................. 3,130 2003............................................................. 2,533 2004............................................................. 1,525 ------- $14,009 ======= =============================================================================== Note 11 - Prime/Estein Joint Venture Transaction On August 6, 1999, the Company entered into an agreement (the "Prime/Estein Joint Venture Agreement") to sell three factory outlet centers, including two future expansions in four phases to a joint venture (the "Venture") between an affiliate of Estein & Associates USA, Ltd. ("Estein"), a real estate investment company, and the Company. The Prime/Estein Joint Venture Agreement provided for a total purchase price of $274,000, including (i) the assumption of approximately $151,500 of first mortgage indebtedness, (ii) an $8,000 payment to the Company for a ten-year covenant-not-to-compete and (iii) a $6,000 payment to the Company for a ten-year licensing agreement with the Venture to continue the use of the "Prime Outlets" brand name. On November 19, 1999, the Company successfully completed the initial installment of the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at Birch Run to the Venture for aggregate consideration of $117,000, including a $64,500 "wrap-around" first mortgage provided by the Company. In connection with the sale of Prime Outlets at Birch Run, the Company received cash proceeds of $33,303, net of transaction costs and recorded a loss on the sale of real estate of $9,326. Effective November 19, 1999, the Company commenced accounting for its 30.0% ownership interest in Prime Outlets at Birch Run in accordance with the equity method of accounting. The "wrap-around" first mortgage provided by the Company to the Venture has a ten-year term at a fixed interest rate of 7.75% requiring monthly payments of principal and interest pursuant to a 25-year amortization schedule. The Company's net investment in the "wrap-around" first mortgage as of December 31, 1999 was $10,745 which is included in other assets in the Consolidated Balance Sheet. Additionally, the Venture assumed $53,755 of outstanding mortgage indebtedness. Included in the aggregate consideration is a $5,500 payment related to the covenant-not-to-compete and a $3,000 payment related to the licensing agreement. The payments to the Company for the covenant-not-to-compete and the licensing agreement are included in accounts payable and other liabilities in the Consolidated Balance Sheet and will be amortized into income over their ten-year lives. During the fourth quarter of 1999, the Company recorded a loss on the sale of real estate of $5,827 related to the write-down of the carrying value of Prime Outlets at Williamsburg based on the terms of the Prime/Estein Joint Venture Agreement. On February 23, 2000, the Company completed the second installment of the Prime/Estein Joint Venture Agreement consisting of the sale of Prime Outlets at Williamsburg to the Venture for aggregate consideration of $59,000, including (i) the assumption of mortgage indebtedness of $32,500, (ii) a $1,250 payment related to the covenant-not-to-compete and (iii) a $1,500 payment related to the licensing agreement. In connection with the sale of Prime Outlets at Williamsburg, the Company received (i) cash proceeds of $11,063, net of transaction costs and (ii) a promissory note in the amount of $10,000 from the Venture (of which Estein's obligation is $7,000), such amount to be payable on or before the earlier of the closing of the proposed sale of an expansion of the Williamsburg center or December 31, 2000. The promissory note requires the monthly payment of interest in arrears at an annual rate of 7.75%. Although the Company expects to close on the sale of Prime Outlets at Hagerstown, including the expansion scheduled to open during the second quarter of 2000, for aggregate consideration of approximately $80,500 on or about May 15, 2000, completion of this transaction, remains subject to various conditions and there can be no assurance as to whether or when this transaction will be consummated. As of December 31, 1999, the Company classified $97,639 representing the aggregate carrying value of Prime Outlets at Williamsburg and Prime Outlets at Hagerstown (collectively, the "Held for Sale Properties") as assets held for sale in its Consolidated Balance Sheet. Total revenues and expenses for the Held for Sale Properties were $16,243 and $12,185, respectively, for the year ended December 31, 1999. Note 12 - Special Charges When accounting for the fourth quarter of 1999, the Company determined that certain events and circumstances had occurred during 1999 including, limited leasing success and revised occupancy estimates, which indicated two of the Company's outlet centers (Prime Outlets at Jeffersonville II and Prime Outlets at Oxnard) were permanently impaired. Accordingly, the results of operations for 1999 include a provision for asset impairment of $15,842 representing the write-down of the carrying values of these assets to their estimated fair value in accordance with SFAS No. 121. Additionally, when accounting for the fourth quarter of 1999, the Company recorded a provision for abandoned projects of $16,039 based on management's determination that as of December 31, 1999, the Company's pre-development efforts associated with certain projects were no longer viable. The operating results for the Company's Designer Connection outlet stores are reflected in loss on Designer Connection in the Consolidated Statements of Operations for all periods presented. When accounting for the fourth quarter of 1999, the Company decided to discontinue the operations of its Designer Connection outlet stores. Accordingly, the Company recorded non-recurring charges aggregating $3,659 including (i) $1,659 related to the write-off of costs associated with a web-site for Designer Connection and (ii) $2,000 of costs to cover the expected cash and non-cash costs of the closure. The cash and non-cash costs of the closure primarily consists of (i) employee termination costs, (ii) lease obligations, and (iii) the write-down of assets to their net realizable value. The Company expects that the operations of its Designer Connection outlet stores will cease by July 31, 2000. Note 13 - Legal Proceedings In the ordinary course of business the Company is subject to certain legal actions. While any litigation contains an element of uncertainty, management believes the losses, if any, resulting from such matters, including the matter described below, will not have a material adverse effect on the consolidated financial statements of the Company. Company and its affiliates are defendants in a lawsuit filed on August 10, 1999 in the Circuit Court for Baltimore City and removed to U.S. District Court for the District of Maryland on August 20, 1999. The lawsuit alleges that the Company and its related entities overcharged tenants for common area maintenance charges and promotion fund charges. The outcome of, and the ultimate liability of the Company, if any, from, this lawsuit cannot currently be predicted. Management believes that the Company has acted properly and intends to defend this lawsuit vigorously. The New York Stock Exchange has notified the Company that it is reviewing transactions in the stock of the Company prior to the Company's January 18,2000 press release concerning financial matters. Note 14 - Subsequent Event On April 12, 2000, the Company announced that it has been unable to conclude an agreement to transfer ownership of its wholly-owned e-commerce subsidiary, primeoutlets.com inc., also known as eOutlets.com, to a management-led investor group comprised of eOutlets.com management and outside investors. Effective April 12, 2000, eOutlets.com ceased all operations. In connection with the discontinuance of eOutlets.com, the Company expects to incur a non-recurring loss of approximately $13,000 in the first quarter of 2000. The non-recurring loss includes (i) the write-off of $3,500 of costs capitalized during 1999 and (ii) approximately $9,500 of costs incurred during 2000, including costs associated with discontinuing the operations of eOutlets.com. In addition, during 1999 the Company incurred expenses of $3,500 related to organizational and other start-up expenditures of eOutlets.com which are reflected in corporate general and administrative expense in the Consolidated Statements of Operations. PRIME RETAIL, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999 (in thousands)
Costs Capitalized Initial Cost Subsequent to Gross Amount at Which to Company Acquisition Carried at Close of Period --------------- --------------- --------------------------- Bldgs & Bldgs & Bldgs & Accum. Constructed (C) Description Encumbrances Land Improve Land Improve Land Improve Total Depreciation Acquired (A) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Anderson $ 8,755 $1,125 $11,036 $ - $ 443 $1,125 $11,479 $12,604 $ 641 Dec. 1997(A) Prime Outlets at Bend 7,737 2,560 8,476 1,101 4,629 3,661 13,105 16,766 910 Feb. 1997(A) Prime Outlets at 14,571 3,694 21,370 - 205 3,694 21,575 25,269 1,393 June 1998(A) Burlington Prime Outlets at Calhoun 17,816 3,839 24,551 - 164 3,839 24,715 28,554 1,785 June 1998(A) Prime Outlets at Castle Rock 35,317 4,424 47,200 2,717 15,615 7,141 62,815 69,956 11,330 Mar. 1994(A) Prime Outlets at Conroe 17,397 405 18,714 - 304 405 19,018 19,423 1,419 June 1998(A) Prime Outlets at Darien 24,890 - - 3,004 31,424 3,004 31,424 34,428 6,267 July 1995(C) Prime Outlets at Edinburgh 17,347 2,726 37,952 - 1,671 2,726 39,623 42,349 2,652 June 1998(A) Prime Outlets at Ellenton 28,926 - - 5,457 49,073 5,457 49,073 54,530 9,078 Oct. 1991(C) Prime Outlets at Florida 15,360 - - 2,875 21,603 2,875 21,603 24,478 5,004 Sept. 1994(C) City Prime Outlets at Fremont 14,005 3,250 24,096 - 94 3,250 24,190 27,440 1,495 Jun. 1998(A) Prime Outlets at Gaffney 31,209 - - 1,886 32,979 1,886 32,979 34,865 4,449 Nov. 1996(C) Prime Outlets at Gainesville 20,462 - - 535 30,494 535 30,494 31,029 7,307 Aug. 1993(C) Prime Outlets at Gilroy 73,293 21,173 95,534 4 1,011 21,177 96,545 117,722 4,727 June 1998(A) Prime Outlets at Grove City 40,586 1,123 58,630 - 3,499 1,123 62,129 63,252 7,450 Nov. 1996(A) Prime Outlets at Gulfport 19,620 - - - 34,307 - 34,307 34,307 5,670 Oct. 1995(C) Prime Outlets at Hillsboro 30,718 7,121 50,894 - 329 7,121 51,223 58,344 2,805 June 1998(A) Prime Outlets at Huntley 17,490 - - 1,506 35,159 1,506 35,159 36,665 6,708 Sept. 1994(C) Prime Outlets at Jeffersonville I 26,067 843 31,084 250 15,216 1,093 46,300 47,393 8,907 Mar. 1994(A) Prime Outlets at Jeffersonville II 19,299 174 21,058 - (13,467) 174 7,591 7,765 1,669 Jun. 1998(A) Prime Outlets at Kenosha 23,942 6,995 39,558 - 1,154 6,995 40,712 47,707 2,557 Jun. 1998(A) Prime Outlets of Kittery 12,134 820 24,061 - 1,301 820 25,362 26,182 1,366 Oct. 1997(A) Prime Outlets at Latham 1,453 507 1,476 - 23 507 1,499 2,006 80 Oct. 1997(A) Prime Outlets at Lebanon 19,952 - - 2,689 30,928 2,689 30,928 33,617 2,568 Apr. 1998(C) Prime Outlets at Lee 26,855 8,035 31,656 - 1,343 8,035 32,999 41,034 3,162 Jun. 1998(A) Prime Outlets at Lodi 25,912 1,013 21,455 707 13,825 1,720 35,280 37,000 3,702 Sept. 1997(A) Prime Outlets at Loveland 22,410 6,400 33,244 - 121 6,400 33,365 39,765 5,052 Nov. 1996(A) Melrose Place 2,000 - - 499 1,884 499 1,884 2,383 829 Aug. 1987(C) Prime Outlets at Michigan City 50,574 7,241 77,027 - 831 7,241 77,858 85,099 4,525 June 1998(A) Prime Outlets at Morrisville 9,256 - - 2,502 21,720 2,502 21,720 24,222 6,054 Oct. 1991(C)
PRIME RETAIL, INC. SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (continued) December 31, 1999 (in thousands) Costs Capitalized Initial Cost Subsequent to Gross Amount at Which to Company Acquisition Carried at Close of Period --------------- --------------- --------------------------- Bldgs & Bldgs & Bldgs & Accum. Constructed (C) Description Encumbrances Land Improve Land Improve Land Improve Total Depreciation Acquired (A) - ------------------------------------------------------------------------------------------------------------------------------------ Prime Outlets at Naples $10,651 $2,753 $15,602 $5 $2,769 $2,758 $18,371 $21,129 $2,604 Mar. 1994(A) Prime Outlets at Niagara Falls USA 62,693 7,247 82,842 - 1,247 7,247 84,089 91,336 4,586 Dec. 1997(A) Northgate Plaza 6,239 3,626 11,630 - 149 3,626 11,779 15,405 1,964 Mar. 1994(A) Prime Outlets at Odessa 14,351 815 31,311 - 1,611 815 32,922 33,737 5,088 Nov. 1996(A) Prime Outlets at Oshkosh 14,417 2,160 26,895 - 431 2,160 27,326 29,486 2,164 June 1998(A) Prime Outlets at Perryville 10,157 3,089 16,287 - 152 3,089 16,439 19,528 938 June 1998(A) Prime Outlets at Pismo Beach 13,007 9,048 17,617 - 147 9,048 17,764 26,812 1,145 June 1998(A) Prime Outlets at Post Falls 11,509 3,100 12,163 - 103 3,100 12,266 15,366 1,003 Feb. 1997(A) Prime Outlets at Queenstown 18,923 4,422 35,592 - 674 4,422 36,266 40,688 1,831 June 1998(A) Prime Outlets at San Marcos 41,840 - - 6,091 57,449 6,091 57,449 63,540 12,690 Aug. 1990(C) Prime Outlets at Sedona 6,867 1,924 9,099 750 146 2,674 9,245 11,919 707 Feb. 1997(A) Prime Outlets at Silverthorne 25,562 9,294 34,932 - 323 9,294 35,255 44,549 2,112 June 1998(A) Prime Outlets at Tracy 13,245 6,170 16,715 - 254 6,170 16,969 23,139 1,301 June 1998(A) Prime Outlets at Vero Beach 26,950 4,530 41,878 - 2,543 4,530 44,421 48,951 3,456 Jun. 1998(A) Prime Outlets at Warehouse Row 23,900 - - 1,175 33,032 1,175 33,032 34,207 12,287 Nov. 1989(C) Prime Outlets at Waterloo 40,733 1,927 60,658 - 613 1,927 61,271 63,198 3,802 June 1998(A) Western Plaza 10,590 - - 2,000 7,246 2,000 7,246 9,246 1,496 June 1993(A) Prime Outlets at Woodbury 17,967 2,528 27,645 - (306) 2,528 27,339 29,867 1,477 June 1998(A) Property Under Development 7,400 - - - 66,581 - 66,581 66,581 - Under Construction Other Property - - 1,588 - 10,126 - 11,714 11,714 1,742 Mar. 1994 - ----------- -------- ---------- ------ -------- -------- ---------- --------- -------- Dec. 1998(A) $ 1,052,354 $146,101 $1,121,526 $35,753 $523,171 $181,854 $1,644,697 $1,826,551 $183,954 =========== ======== ========== ======= ======== ======== ========== ========== ========
At December 31, 1999, the Company had two properties, Prime Outlets at Hagerstown and Prime Outlets at Williamsburg, classified as held for sale with a combined value of $97,639. The two properties have mortgage notes payable of $71,060 outstanding at December 31, 1999. PRIME RETAIL, INC. Notes to Schedule III - Real Estate and Accumulated Depreciation December 31, 1999 (in thousands) Depreciation on building and improvements is calculated on a straight-line basis over the estimated useful lives of the asset as follows: Land improvements.......................................................20 years Buildings and improvements..................................Principally 40 years Tenant improvements........................................Term of related lease Furniture and equipment..................................................5 years The aggregate cost for federal income tax purposes was $1,719,218 at December 31, 1999.
Investment in Rental Property Year Ended December 31 ------------------------------------------ 1999 1998 1997 ------------ ------------- ------------ Balance, beginning of year...................................................... $2,015,722 $904,782 $640,759 Retirements..................................................................... (4,727) (880) (718) Acquisitions.................................................................... - 1,013,231 191,345 Improvements.................................................................... 89,969 145,174 73,773 Dispositions.................................................................... (138,321) (46,585) (377) Transfer to assets held for sale................................................ (108,968) - - Provision for asset impairment on rental properties............................. (13,572) - - Provision for abandoned projects on rental properties........................... (13,552) - - ---------- ---------- --------- Balance, end of year............................................................ $1,826,551 $2,015,722 $904,782 ========== ========== =========
Accumulated Depreciation Year Ended December 31 ----------------------------------------- 1999 1998 1997 ------------ ------------- ------------ Balance, beginning of year...................................................... $127,747 $82,033 $57,674 Retirements..................................................................... (4,727) (880) (718) Other........................................................................... 346 134 22 Dispositions.................................................................... (6,787) (5,178) - Transfer to assets held for sale................................................ (5,502) - - Depreciation for the year....................................................... 72,877 51,638 25,055 --------- -------- ------- Balance, end of year............................................................ $183,954 $127,747 $82,033 ========= ======== =======
EX-3.3 2 PRIME RETAIL, INC. SECOND AMENDED AND RESTATED BY-LAWS adopted as of April 9, 1999 TABLE OF CONTENTS Page ARTICLE 1 OFFICES..............................................................2 ARTICLE 2 STOCKHOLDERS.........................................................2 Section 2.01 Place of Meetings..............................................2 Section 2.02 Annual Meeting.................................................3 Section 2.03 Special Meetings...............................................3 Section 2.04 Notice of Stockholder Meetings.................................3 Section 2.05 Quorum.........................................................5 Section 2.06 Voting and Proxies.............................................5 Section 2.07 Presiding Officer of Meetings..................................6 Section 2.08 Secretary of Meetings..........................................6 Section 2.09 Action in Lieu of Meeting......................................6 ARTICLE 3 BOARD OF DIRECTORS...................................................6 Section 3.01 Powers.........................................................6 Section 3.02 Number; Election; Qualification; Term..........................6 Section 3.03 Vacancies......................................................9 Section 3.04 Place of Meetings..............................................9 Section 3.05 Annual Meeting.................................................9 Section 3.06 Regular Meetings...............................................9 Section 3.07 Special Meetings...............................................9 Section 3.08 Organization...................................................9 Section 3.09 Quorum.........................................................9 Section 3.10 Vote..........................................................10 Section 3.11 Action in Lieu of a Meeting...................................10 Section 3.12 Conference Call Meeting.......................................10 Section 3.13 Removal of Director...........................................10 Section 3.14 Chairman of the Board.........................................10 ARTICLE 4 COMMITTEES..........................................................10 Section 4.01 Committees of the Board.......................................10 Section 4.02 Procedures; Minutes of Meetings...............................11 ARTICLE 5 OFFICERS............................................................11 Section 5.01 General.......................................................11 Section 5.02 Powers and Duties.............................................11 Section 5.03 Term of Office; Removal and Vacancy...........................11 Section 5.04 Chairman of the Board.........................................11 Section 5.05 Chief Executive Officer.......................................12 Section 5.06 President.....................................................12 Section 5.07 Secretary.....................................................12 Section 5.08 Treasurer.....................................................12 ARTICLE 6 CAPITAL STOCK.......................................................13 Section 6.01 Certificates of Stock.........................................13 Section 6.02 Transfer of Stock.............................................13 Section 6.03 Ownership of Stock............................................13 Section 6.04 Lost, Stolen, or Destroyed Certificates.......................13 ARTICLE 7 MISCELLANEOUS.......................................................14 Section 7.01 Corporate Seal................................................14 Section 7.02 Fiscal Year...................................................14 ARTICLE 8 INDEMNIFICATION; TRANSACTIONS WITH INTERESTED PERSONS...............14 Section 8.01 Indemnification...............................................14 Section 8.02 Transactions With Interested Persons..........................14 ARTICLE 9 NOTICES.............................................................15 Section 9.01 Notice........................................................15 Section 9.02 Waiver........................................................15 ARTICLE 10 AMENDMENT..........................................................16 PRIME RETAIL, INC. SECOND AMENDED AND RESTATED BY-LAWS adopted as of April 9, 1999 ARTICLE 1 OFFICES Prime Retail, Inc. (the "Corporation") shall maintain a registered office in the State of Maryland as required by law. The Corporation may also have offices at other places, within or without the State of Maryland as the business of the Corporation may require. ARTICLE 2 STOCKHOLDERS Section 2.01 - Place of Meetings. Meetings of stockholders shall be held at such place, within or without the State of Maryland, but within the United States, as the Board of Directors designates. Section 2.02 - Annual Meeting. The annual meeting of the stockholders shall be held on a date during the thirty-one (31) day period beginning May 10 and at such time as the Board of Directors may from time to time designate. At each annual meeting, stockholders entitled to vote shall elect the members of the Board of Directors and transact such other business as may be properly brought before the meeting in accordance with the Amended and Restated Articles of Incorporation of the Corporation (the "Articles") and, to the extent not inconsistent therewith, notice procedures specified in Section 2.04 below. Section 2.03 - Special Meetings. Special meetings of stockholders may be called by the Chairman of the Board of Directors and shall be called by the Chairman of the Board of Directors or the Secretary at the request in writing of the Board of Directors. Except as may otherwise be provided in the Articles, special meetings of the stockholders shall also be called by the Secretary upon the request in writing of the holders of shares entitled to cast 50 percent (50%) or more of all of the votes entitled to be cast at the meeting. Such a request shall state the purpose or purposes of the proposed meeting and the stockholders who make the request shall pay the reasonably estimated cost of preparing and mailing the notice of the meeting prior to its being sent. Section 2.04 - Notice of Stockholder Meetings. (a) Required Notice. Written notice stating the place, day and hour of any annual or special stockholder meeting shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman, the Board of Directors, or other persons calling the meeting, to each stockholder of record entitled to vote at such meeting and to any other stockholder entitled by the Maryland General Corporation Law as from time to time in effect (the "MGCL") or the Articles to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (i) when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid; (ii) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (iii) when received; or (iv) five (5) days after deposit in the United States mail, if mailed postpaid and correctly addressed to an address other than that shown in the Corporation's current record of stockholders. (b) Adjourned Meeting. If any stockholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is announced at the meeting before adjournment. But if a new record date for the adjourned meeting is or must be fixed then notice must be given pursuant to the requirements of paragraph (a) of this Section 2.04, to those persons who are stockholders as of the new record date. (c) Waiver of Notice. A stockholder may waive notice of the meeting (or any notice required by the MGCL, the Articles, or these By-laws), by a writing signed by the stockholder entitled to the notice, which is delivered to the Corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records. A stockholder's attendance at a meeting: (1) waives objection to lack of notice or defective notice of the meeting unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; or (2) waives objection to consideration of a particular matter at the annual meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented. (d) Contents of Notice. The notice of each special stockholder meeting shall include a description of the purpose or purposes for which the meeting is called. Except as provided in Section 2.04(e), or as provided in the Articles, or otherwise in the MGCL, the notice of an annual stockholder meeting need not include a description of the purpose or purposes for which the meeting is called. (e) Notice of Business. Notwithstanding anything else in these By-laws to the contrary, no business may be transacted at an annual meeting of stockholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the annual meeting by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.04 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in the Articles and, to the extent not inconsistent therewith, this Section 2.04. In addition to any other applicable requirements, for business to be properly brought before an annual meeting of the stockholders by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting of stockholders is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting of stockholders was mailed or such public disclosure of the date of the annual meeting of stockholders was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting of stockholders (i) a brief description of the business desired to be brought before the annual meeting of stockholders and the reasons for conducting such business at the annual meeting of stockholders, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting of stockholders to bring such business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before such annual meeting in accordance with the procedures set forth in the Articles and, to the extent not inconsistent therewith, this Section 2.04; provided, however, that, once business has been properly brought before the annual meeting of stockholders in accordance with such procedures, nothing in this Section 2.04 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting of stockholders determines that business was not properly brought before the annual meeting of stockholders in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 2.05 - Quorum. The holders, present in person or represented by proxy, of 50 percent (50%) plus one (1) or more of the issued and outstanding shares of capital stock entitled to be voted at a meeting shall constitute a quorum for the transaction of business at the meeting. If less than a quorum is present, the holders of a majority of such shares whose holders are so present or represented may from time to time adjourn the meeting to another place, date, or hour until a quorum is present, whereupon the meeting may be held, as adjourned, without further notice except as required by law or by Section 2.04. Section 2.06 - Voting and Proxies. When a quorum is present at a meeting of the stockholders, the vote of the holders of a majority of the shares of capital stock entitled to be voted whose holders are present in person or represented by proxy shall decide any question brought before the meeting, unless the question is one upon which, by express provision of law or of the Articles or of these By-laws, a different vote is required. Unless otherwise provided in the Articles, each stockholder shall at a meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of capital stock entitled to be voted held by such stockholder. To be valid, a proxy must be executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation or other persons authorized to tabulate votes before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. At a meeting of the stockholders, all questions relating to the qualifications of voters, the validity of proxies, and the acceptance or rejection of votes shall be decided by the presiding officer of the meeting. Section 2.07 - Presiding Officer of Meetings. The Chairman of the Board of Directors, or in his absence the Chief Executive Officer, shall preside at all meetings of the stockholders. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at such meetings. In the absence of the Chairman of the Board, the Chief Executive Officer and the President, the presiding officer shall be elected by vote of the holders of a majority of the shares of capital stock entitled to be voted whose holders are present in person or represented by proxy at the meeting. Section 2.08 - Secretary of Meetings. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders. In the absence of the Secretary, the presiding officer of the meeting shall appoint any other person to act as secretary of the meeting. Section 2.09 - Action in Lieu of Meeting. Any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, are signed by the holders of all shares entitled to be voted thereon. ARTICLE 3 BOARD OF DIRECTORS Section 3.01 - Powers. The business of the Corporation shall be managed under the direction of the Board of Directors, which shall exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Articles or by these By-laws directed or required to be exercised or done by the stockholders. Section 3.02 - Number; Election; Qualification; Term. (a) The Board of Directors shall consist of that number of members determined by the Board of Directors, but in no event less than three. The term of office of a Director shall not be affected by any decrease in the authorized number of Directors. (b) Until the first annual meeting of the stockholders, the Board of Directors shall consist of the persons named as the Directors of the Corporation by the incorporator in the Articles. At the first annual meeting and at each subsequent annual meeting of the stockholders, the stockholders shall elect Directors to serve until the next annual meeting, subject to the Articles and, to the extent not inconsistent therewith, the notification procedures set forth in Section 3.02(e) below. The number of Directors shall in no event be less than three. (c) Unless by the terms of the action pursuant to which he was elected any special condition or conditions must be fulfilled in order for him to be qualified, a person elected as a Director shall be deemed to be qualified (i) upon his receipt of notice of election and his indication of acceptance thereof or (ii) upon the expiration of ten days after notice of election is given to him without his having given notice of inability or unwillingness to serve. (d) The Directors shall be classified, with respect to the time for which they severally hold office, into three (3) classes, as nearly equal in number as possible. One class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999. Another class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 2000. Another class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 2001. Each class will hold office until its successors are elected and qualified. Except as provided in the Articles, at each annual meeting of the stockholders of the Corporation, the successors of the class of directors whose terms expire at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Directors need not be stockholders of the Corporation. (e) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Articles with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3.02 and on the record date for the determination of stockholders entitled to vote at such meeting and (B) who complies with the applicable provisions of the Articles and, to the extent not inconsistent therewith, the notice procedures set forth in this Section 3.02. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive office of the Corporation (a) in the case of an annual meeting of stockholders, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting of stockholders is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day an which such notice of the date of the annual meeting of stockholders was mailed or such public disclosure of the date of the annual meeting of stockholders was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting of stockholders was mailed or public disclosure of the date of the special meeting of stockholders was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a Proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.02. If the presiding officer of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the presiding officer shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 3.03 - Vacancies. Whenever between annual meetings of the stockholders any vacancy exists in the Board of Directors by reason of death, resignation, removal, or increase in the authorized number of Directors, or otherwise, it shall be filled as provided in the Articles. Section 3.04 - Place of Meetings. Any meeting of the Board of Directors may be held either within or without the State of Maryland. Section 3.05 - Annual Meeting. There shall be an annual meeting of the Board of Directors for the election of officers and the transaction of such other business as may be brought before the meeting. The annual meeting of the Board shall be held immediately following the annual meeting of the stockholders or any adjournment thereof, at the place where the annual meeting of the stockholders was held or at such other place as a majority of the Directors who are then present determine. If the annual meeting is not so held, it shall be called and held in the manner provided herein for special meetings of the Board or conducted pursuant to Section 3.11. Section 3.06 - Regular Meetings. Regular meetings of the Board of Directors, other than the annual meeting, may be held without notice at such times and places as the Board may have fixed by resolution. Section 3.07 - Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President and shall be called on the written request of any Director. Not less than one day's notice of a special meeting shall be given by the Secretary to each Director. Section 3.08 - Organization. Every meeting of the Board of Directors shall be presided over by the Chairman of the Board or in his absence by the Chief Executive Officer. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at such meetings. In the absence of the Chairman of the Board, the Chief Executive Officer and the President, a presiding officer shall he chosen by a majority of the Directors present. The Secretary of the Corporation shall act as secretary of the meeting. In his absence the presiding officer shall appoint another person to act as secretary of the meeting. Section 3.09 - Quorum. The presence of a majority or more of the number of Directors fixed by Section 3.02(a) shall be necessary to constitute a quorum for the transaction of business at a meeting of the Board of Directors. If less than a quorum is present, a majority of the Directors present may from time to time adjourn the meeting to another time or place until a quorum is present, whereupon the meeting may be held, as adjourned, without further notice. Section 3.10 - Vote. The act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Articles, or by these By-laws. Where a vote of the Directors present results in a tie, the action proposed shall not constitute an act of the Board of Directors. Section 3.11 - Action in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if the members of the Board or committee, as the case may be, unanimously consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.12 - Conference Call Meeting. Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 3.13 - Removal of Director. All Directors shall be subject to removal in the manner provided in the Articles. Section 3.14 - Chairman of the Board. The Board of Directors may choose a Chairman of the Board who shall, if present, preside at meetings of the Board and of the stockholders. The Chairman of the Board may be an officer of the Corporation elected pursuant to Article 5. ARTICLE 4 COMMITTEES Section 4.01 - Committees of the Board. The Board of Directors may, by resolution passed by a majority of the Directors in office, establish one or more committees, each committee to consist of one or more of the Directors. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member or members at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the power and authority of the Board for direction and supervision of the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. No such committee, however, shall have power or authority in reference to (i) amending the Articles or these By-laws; (ii) approving any merger or share exchange which does not require stockholder approval; (iii) recommending to the stockholders any action which requires stockholder approval; (iv) declaring a dividend or a distribution with respect to stock; and (v) issuing any stock other than as permitted by Section 2-411(b) of the MGCL. Section 4.02 - Procedures; Minutes of Meetings. Each committee shall determine its rules with respect to notice, quorum, voting, and the taking of action, provided that such rules shall be consistent with law, the rules in these By-laws applicable to the Board of Directors, and the resolution of the Board establishing the committee. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. ARTICLE 5 OFFICERS Section 5.01 - General. The Board of Directors shall elect the officers of the Corporation, which shall include the Chairman of the Board, the Chief Executive Officer, a President, a Treasurer and a Secretary and such other officers as in the Board's opinion are desirable for the conduct of the business of the Corporation. Any two or more offices may be held by the same person except that the President, if there shall be more than one officer, shall not also hold the office of Vice-President or Secretary. Section 5.02 - Powers and Duties. Each of the officers of the Corporation shall, unless otherwise ordered by the Board of Directors, have such powers and duties as generally pertain to his respective office as well as such powers and duties as from time to time may be conferred upon him by the Board. Section 5.03 - Term of Office; Removal and Vacancy. Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal and shall be subject to removal with or without cause at any time by the affirmative vote of a majority of the Directors in office. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 5.04 - Chairman of the Board. The Chairman of the Board shall supervise and direct the Chief Executive Officer and the President, subject to the control of the Board of Directors. He shall preside at all meetings of the stockholders and of the Board of Directors. He may sign, with the secretary or any other proper officer of the Corporation authorized by the Board of Directors, certificates for shares of the Corporation, and deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by those By-laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. Section 5.05 - Chief Executive Officer. The Chief Executive Officer shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise the business and affairs of the Corporation. He shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and the Board of Directors. He may sign, with the secretary or any other proper officer of the Corporation authorized by the Board of Directors, certificates for shares of the Corporation (as a supernumerary) and deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by those By-laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. Section 5.06 - President. The President shall be the principal operating officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise the business operations of the Corporation. He shall, in the absence of the Chairman of the Board and the Chief Executive Officer, preside at all meetings of the stockholders and of the Board of Directors. He may sign, with the secretary or any other proper officer of the Corporation authorized by the Board of Directors, certificates for shares of the Corporation and deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by those By-laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 5.07 - Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the stockholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws or as required by law; (c) be custodian of the corporate records and of any seal of the Corporation and if there is a seal of the Corporation, see that it is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the Corporation; (e) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (f) sign with the President, a Vice-President or the Chairman of the Board, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 5.08 - Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies, or other depositaries as shall be selected by the Board of Directors; (c) in general, perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors; and (d) sign with the President, a Vice-President or the Chairman of the Board certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. ARTICLE 6 CAPITAL STOCK Section 6.01 - Certificates of Stock. Certificates for shares of capital stock of the Corporation shall be in such form as the Board of Directors may from time to time prescribe and shall be signed by the President, a Vice-President or the Chairman of the Board and countersigned by the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer. The Chief Executive Officer may also sign certificates for shares of capital stock of the Corporation as a supernumerary. Any or each of the signatures on a stock certificate, including that of any transfer agent or registrar, may be a facsimile. If any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before the certificate is issued, the certificate may be issued by the Corporation with the same effect as if the officer, transfer agent, or registrar were the officer, transfer agent, or registrar at the date of issuance. Section 6.02 Transfer of Stock . Shares of stock of the Corporation shall be transferable on the books of the Corporation only by the holder of record thereof, in person or by duly authorized attorney, upon surrender and cancellation of a certificate or certificates for a like number of shares, with an assignment or power of transfer endorsed thereon or delivered therewith, duly executed, and with such proof of the authenticity of the signature and of authority to transfer, and of payment of transfer taxes, as the Corporation or its agents may require. Section 6.03 - Ownership of Stock. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise expressly provided by law. Section 6.04 - Lost, Stolen, or Destroyed Certificates. In case any certificate for stock of the Corporation is lost, stolen, or destroyed, the Corporation may require such proof of the fact and such indemnity to be given to it, to its transfer agent, or to its registrar, if any, as deemed necessary or advisable by it. ARTICLE 7 MISCELLANEOUS Section 7.01 Corporate Seal. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation and the word "Maryland". Section 7.02 Fiscal Year. The Board of Directors shall have power to fix, and from time to time to change, the fiscal year of the Corporation. ARTICLE 8 INDEMNIFICATION; TRANSACTION WITH INTERESTED PERSONS Section 8.01 Indemnification. The Corporation shall indemnify, to the fullest extent permitted by Maryland law, as applicable from time to time, all persons who at any time were or are directors cr officers of the Corporation for any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) relating to any action alleged to have been taken or omitted in such capacity as a director or an officer. The Corporation shall pay or reimburse all reasonable expenses incurred by a present or former director or officer of the Corporation in connection with any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative) in which the present or former director or officer is a party, in advance of the final disposition of the proceeding, to the fullest extent permitted by, and in accordance with the applicable requirements of, Maryland law, as applicable from time to time. The Corporation may indemnify any other persons permitted but not required to be indemnified by Maryland law, as applicable from time to time, if and to the extent indemnification is authorized and determined to be appropriate, in each case in accordance with applicable law, by the Board of Directors, the majority of the stockholders of the Corporation entitled to vote thereon or special legal counsel appointed by the Board of Directors. No amendment of these By-laws of the Corporation or repeal of any of its provisions shall limit or eliminate any of the benefits provided to directors and officers under this Section 8.01 in respect of any act or omission that occurred prior to such amendment or repeal. Section 8.02 Transactions With Interested Persons. No contract or transaction between the Corporation and any of its Directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which any of its Directors or officers is a director or officer or has a financial interest, shall be void or voidable solely for that reason, or solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof at which the contract or transaction is authorized or solely because his vote is counted for such purpose, if: (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith approves or ratifies the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors are less than a quorum; (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a majority of the votes cast by such stockholders other than the votes of shares owned of record or beneficially by the interested Director, officer, corporation, firm or other activity; or (c) the contract or transaction is fair and reasonable as to the Corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the stockholders entitled to vote thereon. ARTICLE 9 NOTICES Section 9.01 Notice. Whenever notice is required or permitted by these By-laws to be given to any person, it may be either (a) oral and communicated in person, by telephone, or by radio, television, or other form of voice communication, effective upon receipt by the person, or (b) in writing and communicated by being delivered by hand, by mail, or by telegraph, teletype, or other form of record communication, effective upon receipt by the person or, if earlier, upon delivery at his address as registered in the records of the Corporation for purposes of notice-giving ("notice address"); provided that (i) notice of a meeting of the stockholders shall be in writing, and (ii) a written notice, if mailed postpaid and correctly addressed to a person at his notice address, shall be effective three business days after its deposit by the sender in the United States mail. Section 9.02 Waiver . Whenever any notice is required to be given under the provisions of law or of the Articles or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance at a meeting for which notice is required shall be deemed waiver of such notice unless such attendance is for the purpose of objecting, at the beginning of the meeting, to the transaction of business on the ground that the meeting is not lawfully called or convened. ARTICLE 10 AMENDMENT These By-laws may be amended or repealed, or new By-laws may be adopted, by the stockholders at any meeting of the stockholders by the affirmative vote of the holders of a majority of the voting power of all the shares of capital stock of the Corporation entitled to vote generally in the election of Directors, voting together as a class or pursuant to Section 2.09 of these By-laws, or by the Board of Directors at any meeting of the Board of Directors or pursuant to Section 3.11 of these By-laws; provided that the stockholders and the Board of Directors may not amend or repeal (i) this Article 10, Sections 3.02(d) or 3.13 except by the affirmative vote of two-thirds of the aggregate number of votes then entitled to be cast generally in the election of Directors and (ii) any part of these By-laws that has been adopted by the stockholders except by vote of the holders of a majority of the aggregate number of votes then entitled to be cast thereon. EX-10.1A 3 AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PRIME RETAIL, L.P. This AMENDMENT NO. 1 (this "Amendment") to the Third Amended and Restated Agreement of Limited Partnership of Prime Retail, L.P. dated as of October 1, 1998 and effective as of June 15, 1998 (the "Limited Partnership Agreement") is made as of the 28th day of September, 1999 by Prime Retail, Inc., a Maryland corporation ("Prime Retail"), as general partner of Prime Retail, L.P., a Delaware Limited Partnership (the "Operating Partnership"). Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Limited Partnership Agreement. W I T N E S S E T H: WHEREAS, Prime Retail, as general partner of the Operating Partnership, desires to reduce the time period applicable to the exercise by limited partners of the Operating Partnership ("Limited Partners") holding common units in the Operating Partnership ("Common Units") of their exchange rights; WHEREAS, on September 28, 1999, a majority of the independent directors of Prime Retail signed a written consent approving the reduction of the time period applicable to the exercise of a Limited Partner's exchange rights with respect to Common Units to five (5) business days after the delivery of written notice from the Limited Partner to Prime Retail; WHEREAS, pursuant to Section 14.7(d) of the Limited Partnership Agreement, Prime Retail, Inc., as general partner of the Operating Partnership, hereby consents to the proposed reduction in the time period for the exercise of exchanges of Common Units and to the related amendment of Exhibit C to the Limited Partnership Agreement as set forth below. NOW, THEREFORE, for and in consideration of the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Prime Retail, Inc., as general partner of the Operating Partnership, hereby consents and agrees as follows: 1. Amendment. Exhibit C of the Limited Partnership Agreement is hereby deleted in its entirety and the Exhibit C attached hereto is hereby inserted in its place. 2. Miscellaneous. a. Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument. b. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF DELAWARE. c. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. d. Successors and Assigns. This Amendment shall be binding upon the Partnership, each of the Partners of the Partnership and their respective successors and assigns. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written. PRIME RETAIL, INC., as General Partner By: /s/ C. Alan Schroeder ---------------------- Name: C. Alan Schroeder Title: Executive Vice President, General Counsel and Secretary EX-10.5 4 SEPARATION AGREEMENT This Separation Agreement (the "Agreement") is made and entered into this 23rd day of February, 2000 (the "Effective Date"), by and between Prime Retail, Inc., a Maryland corporation ("Prime") and the sole general partner of Prime Retail, L.P., a Delaware limited partnership (the "Operating Partnership"), the Operating Partnership (Prime and the Operating Partnership are sometimes hereinafter together referred to as the "Company"), and Abraham Rosenthal, an individual domiciled in the State of Maryland (the "Executive"). Witnesseth WHEREAS, Prime, the Operating Partnership and the Executive entered into a Combined Service and Special Distribution and Allocation Agreement on March 19, 1998, effective as of January 1, 1998 (the "Combined Agreement"); and WHEREAS, pursuant to the Combined Agreement the Executive is employed by the Company as its Chief Executive Officer and the Executive is a member of Prime's Board of Directors (the "Board"); and WHEREAS, the Executive is also employed as an officer, or serving as a director, of certain affiliates and subsidiaries of the Company; WHEREAS, the Executive and the Company desire to sever their employment relationship and the Executive's Board membership (including Executive's positions as an officer or director of any affiliate or subsidiary of the Company) on amicable and agreeable terms effective February 23, 2000 (the "Separation Date"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties agree as follows: 1. Separation from Employment. The Executive hereby elects to terminate his employment with the Company (and all affiliates and subsidiaries) without "Good Reason" (as such term is defined in the Combined Agreement) effective as of the Separation Date. The Executive's membership on Prime's Board, and any committee thereof, and the boards of directors, and committees thereof, of all affiliates and subsidiaries of the Company upon which the Executive currently serves, will also terminate as of the Separation Date. The parties hereto waive any advance notice of such termination that may be required under the terms of the Combined Agreement. The parties hereto have agreed on a joint public announcement of the Executive's separation, which announcement is attached hereto as Exhibit A. Because the announcement sets forth in detail the parties' understandings in connection with the Executive's separation, the parties hereby agree that, except as required by law, no further announcements or disclosures are warranted. Notwithstanding the foregoing, before any party makes any disclosure about the Executive's separation, the party agrees to notify the other parties hereto, such notice to include a detailed summary of the proposed disclosure. The parties further agree that the termination of their employment relationship is as a result of a joint amicable decision and does not merit any disparaging remarks or comments of any party hereto, and such remarks or comments shall be deemed a breach of this Agreement. 2. Separation Payments. The Executive is entitled to receive the following payments on account of his separation (collectively, the "Separation Payments"): (a) Base Distributions. The Operating Partnership will pay to the Executive all accrued but undistributed amounts of the Base Distribution (as such term is defined in the Combined Agreement) through March 1, 2000. The payment will be made on or prior to March 2, 2000, but in any event following the Revocation Period set forth in Section 15 below; (b) Special Distribution. On or prior to March 1, 2000, but in any event following the Revocation Period, the Operating Partnership will make a special distribution (the "Special Distribution") to the Executive or to his designated affiliates equal to the aggregate balance of unpaid principal and interest as of the date of such distribution with respect to that certain Secured Promissory Note of Rosenthal Family LLC dated March 22, 1994 (as modified by that certain Allonge dated January 1, 1996) (the "Note"), which amount totaled $628,927.85 as of December 31, 1999. The Executive hereby agrees that all then outstanding obligations under the Note should automatically accelerate upon the date of such distribution and that the Executive shall cause all such obligations to be paid in full; and (c) Severance Distribution. The Operating Partnership will pay to Executive an amount equal to $1,750,000 (the "Severance Distribution"), of which $600,000 shall be payable on the day following the Revocation Period set forth in Section 15 below. The balance shall be paid, without interest, in eighteen (18) equal monthly installments of $63,888.89 payable on the last day of each month (or, in the event such day is not a business day on the next succeeding business day) commencing March 31, 2000. All payments made by the Operating Partnership pursuant to subparagraphs (a) and (c) above shall be treated as "guaranteed payments" within the meaning of Section 707(c) of the Internal Revenue Code of 1986, as amended (the "Code"). The Company agrees that, except to the extent that it would be detrimentally affected, the Operating Partnership will specifically allocate, in accordance with Section 704(c) of the Code, the corresponding deductions that are available to the Operating Partnership as a result of such distributions as guaranteed payments to the Executive to the maximum extent to which the Executive can utilize the same on his individual federal or state income tax returns for any calendar year. All payments made by the Operating Partnership pursuant to subparagraph (b) above shall be deemed a distribution pursuant to Section 731(a) of the Code and not as a guaranteed payment pursuant to Section 707(c) of the Code. The provisions of this Section 2 shall supercede any provisions in the Operating Partnership's Partnership Agreement which are contrary hereto. All payments or distributions not made when due in accordance with this Section 2 shall accrue interest at a rate per annum equal to the prime or base lending rate from time to time announced by Mercantile - Safe Deposit & Trust Company plus 2.5% (the "Interest Rate"). In the event any payment or distribution pursuant to this Section 2 is not made within 30 days after it becomes due, then all remaining obligations of the Company under this Section 2 shall immediately become due and payable. In the event of any such acceleration, all costs of collection incurred by Executive (including attorneys' fees) shall be borne by the Company. 3. Business Expenses. The Executive shall, in accordance with the Company's customary policies and procedures, be reimbursed for all business expenses incurred through and including the Separation Date for which the Executive submits appropriate invoices and similar records. 4. Employee Benefits. The Executive and his eligible dependents are entitled to receive: (a) Company-provided health insurance benefits, of a type and nature no less favorable to the Executive than were in effect as of the Separation Date, for the 18-month period beginning on the Separation Date; and (b) Company-provided life insurance benefits under the Company's $2 million term life insurance policy on the life of the Executive for the 18-month period beginning on the Separation Date. Notwithstanding the foregoing, the Company-provided health and life insurance benefits will terminate prior to the expiration of the 18-month period if the Executive becomes covered by a subsequent employer's health or life insurance program which provides comparable benefits to the Executive and imposes no pre-existing condition exclusion with regard to his coverage or his eligible dependents' coverage. The Executive agrees that he will immediately notify the Company in writing of his obtaining subsequent employment which provides health and welfare benefits during the 18-month period beginning on the Separation Date. Following the 18-month period of Company-provided health insurance benefits described in subparagraph (a) above, the Executive will be entitled to all rights afforded to him under the federal Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") to purchase continuation coverage of such health insurance benefits for himself and his eligible dependents for the maximum period permitted by law. To the extent required by applicable law, the Executive will be deemed to have elected to exercise his rights under COBRA as of the first day of such 18-month period. Notwithstanding anything to the contrary contained herein, the Executive has the right to acquire the $2 million term life insurance policy obtained by the Company on the life of the Executive by (i) notifying the Company in writing of his desire to so purchase such life insurance policy or policies and (ii) tendering to the Company a cashier's check in an amount equal to the interpolated cash surrender value of such life insurance policy or policies together with any unearned portion of any current year premium thereof, both within 60 days of the effective date of such termination. (c) The Executive is entitled to receive all vested benefits under the Company's 401(k) plan. No accrual of service time will be possible after the Separation Date for purposes of the Executive's entitlement to any employee benefit, including a pension, 401(k) or profit sharing benefit, long-term disability benefit or vacation pay. The Executive will be eligible for a matching contribution under the Company's 401(k) plan, if the plan so permits, for any elective deferrals made by the Executive on or before the Separation Date. The Company shall, if the plan so permits, allow the Executive to withdraw any vested amount in the Company's 401(k) plan. 5. Restricted Stock Awards and Stock Options. The Executive acknowledges and agrees that he is not eligible to receive any awards made under Prime's 1999 Long-Term Incentive Program (the "1999 LTIP") and that all rights and benefits of the Executive under the 1999 LTIP shall cease as of the date hereof. As of the Separation Date, all of the Executive's options awarded under the Prime Retail, Inc. 1998 Long-Term Stock Incentive Plan (the "Option Plan") will become fully vested, to the extent that any portion of the options are unvested. Exhibit B attached hereto sets forth certain information with respect to the options awarded to Executive under Prime's option and incentive plans. 6. Executive's Ownership Interests in Related Entities. On the date hereof and in consideration for the payment of $100.00 in cash and the promises and covenants of the Company contained herein, the Executive agrees to execute and deliver to the Company or its designee any and all certificates for shares of capital stock (with appropriate stock powers attached and properly signed) of the Company's subsidiaries and affiliates (other than the Operating Partnership), including, but not limited to, Prime Retail Services, Inc., Prime Retail E-Commerce, Inc. and Prime Retail Furniture, Inc. (all of which are Maryland corporations) (the "Subsidiary Shares"). The Executive further agrees to execute and deliver such other documentation as the Company reasonably requests to effect the assignment of the Subsidiary Shares. For the avoidance of doubt, nothing contained in this Section 6 shall be deemed to require the Executive to transfer or carry any of his equity interests in Prime or the Operating Partnership. 7. Office and Administrative and Technical Assistance. For the six-month period following the Separation Date, the Company will, at its sole expense, provide the Executive an office on the 15th floor of its Baltimore, Maryland facility with such secretarial assistance as the Executive shall reasonably require. To the extent acceptable to the Executive and the Company, such office facilities and secretarial assistance may also be provided through the outplacement firm retained by Executive pursuant to Section 9 below. The Executive will be permitted to remove from the Company's premises the computer and related equipment currently located in his office and the Executive will be under no obligation to return such equipment. The Executive will also be permitted to retain the home fax machine, the phone number dedicated to such machine and the mobile phone furnished to him by the Company; provided that all costs and expenses related to the ownership, use or service of such items on and after the Separation Date shall be borne solely by the Executive. For the six-month period following the Separation Date, the Executive will receive, at no charge to the Executive, technical assistance from the Company's MIS Department regarding the installation and operation of his computer, whether on the Company's premises or elsewhere. The parties further agree that the value of the equipment retained by the Executive pursuant to this Section 7 shall be the book value thereof as reflected in the accounting records of the Company as of the month end immediately preceding the Separation Date. 8. Property of the Company. All originals and copies of books, records, documents, customer lists, sales materials, tapes, keys, credit cards and other tangible property (excluding the computer, fax and phone equipment described in Section 7 above) of the Company within the Executive's possession or under his control will be returned to the Company on or before the Separation Date. Notwithstanding the foregoing, the Executive also shall be permitted to retain his original rolodex and all awards and similar mementos received by him during his tenure with the Company. 9. Outplacement Assistance. For the 12-month period following the Separation Date, the Executive will be permitted to utilize the services of a professional outplacement firm of his choice and the Company will pay the reasonable fees associated therewith, up to a maximum of $20,000 (excluding any charge relating to the provision of office and secretarial services of the nature described in Section 7 above). 10. Legal Fees. The Company shall promptly pay, or reimburse the Executive for, the legal fees and expenses of counsel to the Executive in connection with the preparation, negotiation, execution and delivery of this Agreement, up to a maximum of $5,000, plus expenses. 11. Coverage under Prime's Directors' and Officers' Liability Insurance Policies. For a period of three years beginning on the Separation Date, Prime shall provide, or cause to be provided, to the Executive, at no charge to the Executive, directors' and officers' liability insurance protection substantially equivalent in kind and scope as that provided by Prime's directors' and officers' liability insurance policies as in effect from time to time. 12. Accounting and Tax Services. For the three-year period beginning on the Separation Date, the Company will pay any reasonable fees the Executive incurs for professional accounting and tax services rendered to him in connection with his interest in Prime Retail, L.P. to the extent that such fees are in excess of $3,000, which is the average of such fees incurred by the Executive during the 1998 and 1999 calendar years. Without limiting the foregoing, the Company will pay the reasonable fees the Executive incurs for legal, accounting and tax services rendered to him in connection with a Change of Control, as such term is defined in the Combined Agreement, up to a maximum of $15,000 per transaction. 13. Indemnification Matters. After the Separation Date, Prime shall, to the same extent and on the same terms and conditions provided for in Prime's articles of incorporation and bylaws, in each case as of the date of this Agreement, to the extent consistent with applicable law, indemnify and hold harmless the Executive against all costs and expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation (whether arising before or after the Separation Date), whether civil, administrative or investigative, arising out of or pertaining to any action or omission in the Executive's capacity as an officer or director, in each case occurring on or before the Separation Date; provided, however, that there shall be no indemnification for the Executive in relation to matters as to which the Executive is adjudged to have been guilty of fraud or intentional act of malfeasance, in which event the Executive shall indemnify the Company for any costs, losses, damages, judgments, liabilities and expenses (including reasonable attorneys' fees) which may be suffered by the Company in connection therewith. The parties agree to reasonably cooperate in the future to the extent that either party is needed by the other as a witness in any litigation and in any transaction matters related to the Executive's departure or other matters arising out of the operations of the Company prior to such termination taking into account each party's other commitments. The Company will reimburse the Executive for any reasonable out-of-pocket expenses he incurs in connection with his compliance with this provision. Expenses incurred by the Executive in connection with any claim for indemnification shall be paid by the Company in advance upon the written request of the Executive. At the Company's option and at its sole expense, it may provide legal counsel on behalf of the Executive in the defense of any claim arising out of his employment with the Company; provided, however, that the Executive retains the right to participate in the defense of any such action. 14. Mutual Release and Waiver. The Executive, on the Executive's behalf as well as on behalf of the Executive's spouse, agents, representatives, heirs, executors, administrators, successors, assigns and anyone claiming through the Executive, hereby forever irrevocably releases, relinquishes and waives all rights that the Executive has had or now has against Prime or the Operating Partnership (including any past, present and future subsidiaries, affiliated entities, officers, directors, partners, shareholders, employee benefit plans, trustees, fiduciaries and agents), whether known or unknown, in any way related to his employment by the Company, or the termination thereof, with respect to any and all actual or potential: (a) claims against the Company based on the common law, including, but not limited to, claims of personal injury, emotional and mental distress, injury to personal reputation, defamation (including libel or slander), or termination or denial of employment in contravention of the common law or any federal, state, local or public policy, law or regulation; (b) claims against the Company based on any contract, express or implied; (c) claims against the Company based upon alleged violation(s) of any statute, regulation or ordinance, whether federal, state or local, based upon any other federal, state or local policy, including but not limited to, any and all claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000 et seq., the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq., the Americans With Disabilities Act, 42 U.S.C. Section 12101 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001 et seq., the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq., the Family and Medical Leave Act, 29 U.S.C. Section 2601 et seq.; and all other federal, state or local laws touching upon the employment relationship; and (d) claims against the Company based upon any theory of alleged equitable entitlement to relief. Notwithstanding the foregoing, the Executive does not release Prime or the Operating Partnership from any claims or causes of action against either party arising solely out of the Executive's ownership of any capital stock or partnership interests of Prime or the Operating Partnership. The Company, on its behalf and on behalf of its successors and assigns, hereby forever irrevocably releases, relinquishes and waives all rights that the Company has had or now has against the Executive, whether known or unknown, in any way related to his employment by the Company, or the termination thereof. The parties hereto understand and agree that the releases set forth herein do not in any affect the rights of either party to take whatever steps may be necessary to enforce the terms of this Agreement or to obtain appropriate relief in the event of any breach of the terms of this Agreement. 15. Opportunity to Employ Counsel. The Executive warrants, represents and agrees that he has had sufficient opportunity to secure the services of a privately-retained attorney of his free choice, who is an experienced lawyer familiar with the rights the Executive waives herein; that he understands the terms, obligations and rights he is releasing under this Agreement; that he has had sufficient time to consider this Agreement before signing it; that he knows and understands the rights he is waiving and the terms and consequences of his signature on this Agreement; that he signs this Agreement knowingly, voluntarily, in good faith, with a genuine intent to waive the rights identified herein; and that he has not been subjected to any duress, coercion, fraud, overreaching, exploitation or pressure to sign it. Further, the Executive acknowledges that he has had 21 days within which to consult with an attorney prior to executing this Agreement. The Executive has been given 7 days following the execution of this Agreement (the "Revocation Period") to revoke this Agreement and he understands and acknowledges that the Agreement shall not become final until the Revocation Period has expired. The parties hereto further agree that in executing this Agreement, none of the parties is relying or has relied upon any representation or statement made by the another party with respect to the facts involved in this matter, or with regard to another party's rights or asserted rights. Both the Company and the Executive assume the risk of any mistake of fact in connection with the true facts involved in the Executive's employment relationship with the Company and the termination of that employment relationship and with regard to any of the facts which are now unknown to each party. 16. Restrictive Covenants. (a) Non-Competition. Until the first anniversary of the Separation Date or such earlier date as the Company shall be in breach of any material term of this Agreement (the "Restrictive Period"), the Executive shall not, directly or indirectly, in any capacity whatsoever, either on his own behalf or on behalf of any other person or entity with whom he may be employed or associated, compete with the Business (as hereinafter defined) by performing services of the types that the Executive performed during his employment with the Company on behalf of the Group (as herein defined) for himself, or any affiliate of himself or for any competitor of the Group if such competitor engages in the Business within the United States, Puerto Rico and Western Europe (the "Restrictive Geographic Area"). For purposes hereof, "Group" shall mean Prime and the Operating Partnership and any of their respective subsidiaries or affiliates, and the term "Business" means the holding of any interest in, or the development or operation of, (i) any real property within the retail business that is within a ten (10) mile radius of any property owned, operated or being developed by the Company as of the Separation Date or (ii) any real property within the Restrictive Geographic Area at least 25% of the gross leaseable area of which is, or is reasonably expected to be, occupied by tenants of the Company as of the Separation Date. Notwithstanding the foregoing, nothing herein shall prohibit the Executive from owning 5% or less of any securities of a competitor engaged in the same Business if such securities are listed on a nationally recognized securities exchange or traded over-the-counter on the National Association of Securities Dealers Automated Quotation System or otherwise. (b) Non-Solicitation During the Restrictive Period, the Executive shall not, directly or indirectly, induce or attempt to persuade any employee or customer, vendor or tenant of the Group, or any such entity which as of the Separation Date the Executive knows is being actively pursued by the Group, to terminate its business relationship with the Group or not proceed with a business relationship with the Group. (c) Non-Disclosure of Trade Secrets. During the Restrictive Period and in the Restrictive Geographic Area, the Executive shall not disclose or use any Trade Secret (as hereinafter defined) of the Group, whether such Trade Secret is in the Executive's memory or embodied in writing or other physical form. For purposes hereof, "Trade Secret" means any information that derives independent economic value, actual or potential, with respect to the Company from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts to maintain its secrecy that are reasonable under the circumstances, including, but not limited to, trade secrets, customer lists, sales records and other proprietary commercial information. Said term, however, shall not include general "know-how" information acquired by the Executive during the course of his employment with the Company, or outside of his employment with the Company, which could have been obtained by him from public sources without the expenditure of significant time, effort, and expense. (d) Notice of Subsequent Employment. For purposes of enforcing this Section 16, the Executive agrees that he will immediately notify the Company in writing of his subsequent employment during the Restrictive Period. (e) Permitted Activity. Nothing contained in this Section 16 shall limit or restrict the Executive from seeking or discussing an employment, consulting or other business relationship with any third party, including any party engaged in the Business; it being acknowledged and agreed that prior to entering into any such relationship that would violate the terms of this Section 16 Executive must obtain the written consent of the Company. Any request for such a consent shall be furnished in writing in accordance with Section 22 hereof. 17. Breach of Agreement. In the event of any actual or threatened breach of Sections 1, 8, 14 or 16 of this Agreement, the Executive acknowledges and agrees that the Company may seek to enforce the terms of this Agreement in a court of law or equity and that the remedy at law or equity for any breach will be inadequate. Therefore, the Company shall be entitled, in addition to any other remedy at law or equity, to injunctive relief. 18. No Admissions. This Agreement results from a mutual decision and does not constitute an admission by Executive, Prime, the Operating Partnership, or any of the other released parties, of any violation of any federal, state or local law, regulation, ordinance or statute or of any employment contract (including the Combined Agreement), whether written or oral. 19. Amendment or Termination of Agreement. This Agreement may be amended at any time by written agreement between Prime, the Operating Partnership and the Executive. This Agreement shall remain in full force and effect until terminated upon mutual consent of the parties in writing. 20. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or written, between the parties hereto with respect to the subject matter hereof. 21. Successors and Assigns. All provisions of this Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees and the successors and assigns of Prime and the Operating Partnership. If the Executive should die while any amounts are still payable to him hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisees, legatees or other designee or, if there be no such designee, to the Executive's estate. The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company, as the case may be, by agreement in form and substance reasonably satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment will be a material breach of this Agreement. 22. Notices. Any notice required or permitted to be given under this Agreement will be sufficient if in writing and if delivered in person or sent by any national overnight delivery service or by certified mail to the following addresses (or to any other address that any party may designate by notice to the other parties hereto): (a) if to the Executive, to: Abraham Rosenthal 3111 Blendon Road Owings Mills, Maryland 21117 (b) if to Prime or the Operating Partnership: Prime Retail, Inc. 100 East Pratt Street 19th Floor Baltimore, Maryland 21202 Attn: General Counsel with a copy to: Mr. Michael W. Reschke Chairman of the Board of Prime Retail, Inc. c/o The Prime Group, Inc. 77 West Wacker Drive, Suite 3900 Chicago, Illinois 60601 23. Governing Law. This Agreement shall be governed by, and construed, interpreted and enforced in accordance with the laws of the State of Maryland, exclusive of the conflict of laws provisions of the State of Maryland. 24. Severability. The Company and the Executive each expressly agree and contract that it is not the intention of any of the parties hereto to violate any public policy, statutory or common law, and that if any sentence, paragraph, clause or combination of the same of this agreement is in violation of the law of any state where applicable, such sentence, paragraph, clause or combination of the same shall be void in the jurisdictions where it is unlawful, and the remainder of such paragraph and this Agreement shall remain binding on the parties to make the covenants of this Agreement binding only to the extent that it may be lawfully done under existing applicable laws. In the event that any part of any covenant of this Agreement is determined by a court of competent jurisdiction to be overly broad thereby making the covenant unenforceable, the parties hereto agree, and it is their desire that such court shall substitute a judicially enforceable limitation in its place, and that as so modified the covenant shall be binding upon the parties as if originally set forth herein. 25. No Waiver. No failure or delay by the Company or the Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver hereof. No modification, amendment or waiver of this Agreement nor consent to any departure by the Executive from any of the terms or conditions thereof, shall be effective unless in writing and signed by an authorized officer of Prime. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 26. Counterparts. The parties may execute this Agreement in one or more counterparts, all of which together shall constitute but one Agreement. [Remainder of Page Intentionally Left Blank; Signature Page to Follow] IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. EXECUTIVE: PRIME RETAIL, INC. By: /s/ C. Alan Schroder ------------------------- /s/Abraham Rosenthal Name: C. Alan Schroeder - ----------------------- Abraham Rosenthal Title: Executive Vice President, General Counsel and Secretary PRIME RETAIL, L.P. By: Prime Retail, Inc. Its: General Partner By: /s/ C. Alan Schroeder -------------------------- Name: C. Alan Schroeder Title: Executive Vice President, General Counsel and Secretary EX-10.6 5 EXECUTIVE EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into as of this 6th day of October, 1999 by and among primeoutlets.com inc., a Maryland corporation ("Employer"), Prime Retail, L.P., a Delaware limited partnership ("PRT LP"), Prime Retail, Inc., a Maryland corporation and sole general partner of PRT LP ("PRT" and collectively with PRT LP, "Prime"), and William H. Carpenter, Jr., an individual domiciled in the State of Maryland ("Executive"). Witnesseth WHEREAS, Employer is engaged primarily in the design, development and operation of an online "virtual outlet center" for the sale of retail goods via the Internet; WHEREAS, Employer is an affiliate of Prime; WHEREAS, prior to the Commencement Date (as defined herein), Executive has been employed by Prime; WHEREAS, Employer believes that it will benefit from the application of Executive's particular and unique skill, experience, and background to the management and operation of Employer; WHEREAS, Prime believes that it will benefit from Executive's employment with Employer based on its affiliation with Employer; WHEREAS, subject to the terms and conditions set forth herein the Executive wishes to resign from his employment with Prime and commit to serve Employer in the position set forth herein on the terms herein provided. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, Employer, Prime and Executive hereby agree as follows: 1. Employment and Duties. During the Employment Term hereof (as defined in Section 2 hereof), Employer agrees to retain Executive, and Executive agrees to be retained by Employer, as the President and Chief Executive Officer of Employer on the terms and conditions provided in this Agreement. Executive shall serve as the President and Chief Executive Officer of Employer and his duties shall include oversight and responsibility for Employer's sales, marketing, operations, finance and administrative functions. Executive shall report to the Board of Directors of Employer (the "Employer Board") which may, from time to time, further define Executive's duties and responsibilities hereunder or under the Bylaws of Employer in a manner consistent with the offices for which he has been retained hereunder. Executive agrees to devote his best efforts and substantially all of his business time, attention, energy, and skill to performing his duties to Employer under this Agreement. Executive shall serve as a director of Employer and as a member of the Executive Committee of Employer until Executive is no longer performing services for Employer under this Agreement. During the Pre-Transaction Period (as defined in subsection 3(b)(2)) and for so long as Executive is performing services for Employer under this Agreement, PRT agrees to cause Executive to be nominated as a director of PRT. 2. Employment Term. Unless earlier terminated as provided herein, the term of this Agreement shall be a period commencing on the date hereof (the "Commencement Date") and ending on the third anniversary of such date (the "Initial Term"). If neither Employer nor Executive provide notice within one hundred eighty (180) days prior to the termination of this Agreement, then this Agreement will be considered renewed for successive one (1) year periods (each a "Renewal Term"). The Initial Term and any Renewal Term is hereinafter referred to as the "Employment Term." 3. Compensation and Related Matters. (a) Base Compensation. As compensation for performing the services required by this Agreement during the Employment Term, Employer shall pay to Executive an annual salary of no less than $425,000 ("Base Compensation"), payable in accordance with the general policies and procedures for payment of salaries to its executive personnel maintained, from time to time, by Employer (but no less frequently than monthly), subject to withholding for applicable federal, state, and local taxes. Beginning January 1, 2000, Executive shall receive a five (5) percent annual increase in Base Compensation. (b) Performance Bonus. (1) On or before March 31, 2000, and in any event not later than the date on which performance bonuses are paid to senior executive officers of PRT for calendar year 1999, Executive shall be entitled to receive a cash bonus equal to the 0.83 times the amount of performance bonus for 1999 that Executive would have been entitled to receive from PRT had Executive remained in the employ of PRT through December 31, 1999. (2) Prior to the completion of a Strategic Transaction (as defined below) but in no event later than the date two (2) years following the Commencement Date (the "Pre-Transaction Period"), Executive shall have the right to receive a cash bonus for each calendar year (or portion thereof) during such period, in such amounts and on such terms and conditions as the Chairman of the Employer Board, in its sole discretion, may determine. (3) After the Pre-Transaction Period and as long as this Agreement has not otherwise been terminated as provided herein (the "Post-Transaction Period"), the Employer Board, in its sole and absolute discretion, may, but in no event shall be obligated to, authorize the payment of a cash bonus to Executive based upon achievement of such corporate and individual performance goals and objectives as may be established or determined by the Employer Board from time to time. Without limiting the foregoing, Executive shall also be entitled to participate in any performance or incentive bonus program established by Employer and otherwise made generally available to its executive officers. Any amount paid to Executive pursuant to this Section 3(b) is herein referred to as a "Performance Bonus". As used herein, "Strategic Transaction" shall mean the earlier to occur of (i) the initial bona fide underwritten sale to the public of common stock or any other capital stock of Employer that is made pursuant to a registration statement (other than a registration statement on Form S-8 or any other form relating to securities issuable under an employee benefit plan of Employer) that is declared effective by the Securities and Exchange Commission ("IPO") or (ii) an Employer Change of Control. For purposes of this Agreement, an "Employer Change of Control" shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied: (A) PRT or any affiliate thereof shall cease to "beneficially own" (as defined in Rule 13d-3 under the Exchange Act) securities representing a majority of the combined voting power of the then outstanding voting securities of Employer entitled to vote generally in the election of directors; or (B) Employer shall have consummated a sale or other disposition of all or substantially all of the assets of Employer. (c) Health Insurance and Other Benefits. (1) During the Pre-Transaction Period and subject to the limitations and affirmative rights set forth in this Section 3(c), Executive and Executive's eligible dependents shall have the right to participate in the medical and dental benefit plans established by Prime (which may include contributions by Executive) and in any other retirement, pension, insurance, health or other benefit plan or program that has been or is hereafter adopted by Prime (or in which Prime participates), as such plans and programs may be amended or modified from time to time by Prime, according to the terms of such plans or programs with all the benefits, rights and privileges as are enjoyed by similarly situated executive officers of Prime. (2) During the Post-Transaction Period and subject to the limitations and affirmative rights set forth in this Section 3(c), Executive and Executive's eligible dependents shall have the right to participate in the medical and dental benefit plans established by Employer (which may include contributions by Executive) and in any other retirement, pension, insurance, health or other benefit plan or program that has been or is hereafter adopted by Employer (or in which Employer participates), as such plans and programs may be amended or modified from time to time by Employer, according to the terms of such plan or program with all the benefits, rights and privileges as are enjoyed by any other similarly situated executive officers of Employer. The medical, dental, retirement or other benefit plans contemplated by this Section 3(c)(2) shall be no less favorable to Executive than the benefits provided to Executive by Prime immediately prior to the Commencement Date. (3) If the participation of Executive in any of the plans described in this Section 3(c) would adversely affect the qualification of a plan intended to be qualified under Section 401(a) of the Internal Revenue Code as the same may be amended from time to time (the "Code"), Prime or Employer, as the case may be, shall have the right to exclude Executive from that plan in return for Executive's participation in (A) a nonqualified deferred compensation plan or (B) an arrangement providing substantially comparable benefits under a plan that is either a qualified or nonqualified plan under the Code at the option of Prime or Employer, as the case may be. (d) Life Insurance. Employer shall provide $5,000,000 of term life insurance for the benefit of the Executive during the Employment Term. (e) Strategic Bonus. Executive shall have the right to receive, and Employer agrees to pay Executive, a bonus (the "Strategic Bonus") in an aggregate amount equal to the lesser of (i) $2,000,000 or (ii) three percent (3%) of the aggregate Fair Market Value of Employer's capital stock, payable in one lump sum immediately following the consummation of a Qualified Strategic Transaction. Qualified Strategic Transaction shall mean any Strategic Transaction if, immediately following such transaction, the sum of (i) the Fair Market Value of all of the issued and outstanding capital stock of Employer and (ii) the total indebtedness of Employer equals or exceeds $50,000,000. For purposes of this Agreement, Fair Market Value means (A) in the case of an IPO the initial public offering price of Employer's capital stock and (B) in connection with a Change of Control, the fair market value as determined in good faith by a majority of the Board of Directors of PRT. (f) Restricted Stock Award. (1) On the Commencement Date or no later than October 15, 1999, Executive shall receive an award of 1,000,000 shares of common stock, $0.01 par value per share, of Employer pursuant to the 1999 primeoutlets.com inc Incentive Share Program. Executive agrees that he will execute and file a form of election under Section 83(b) of the Code in respect of the receipt of such award. [Note: Restricted stock award amounts assume that Employer will have 55 million shares of common stock outstanding on the Commencement Date. Any change in the number of outstanding shares will result in a pro rata adjustment to the individual awards. Shares will vest ratably over a three year period; provided however if this agreement is terminated pursuant to Section 4(a)(1), 4(a)(4), 4(b)(1) or 4(c) all shares shall be fully vested as of Executive's effective date of termination.] (2) Employer warrants and represents to Executive that Exhibit A sets forth the total number of shares of capital stock and the par value thereof which Employer is authorized to issue and the number of such shares which are issued and outstanding as of the Commencement Date. (g) Options. (1) Prior to completing an IPO, Employer shall adopt a stock option plan. Executive shall be entitled to participate in such plan on terms no less favorable than are made available to any similarly situated executive officer in an electronic-commerce company of comparable size and stage of development. (2) As long as this Agreement has not otherwise been terminated as provided herein, any and all options granted to Executive under PRT's various stock option plans shall continue to vest and to be otherwise governed according the terms and conditions of the various plans under which the options were granted. (h) 1999 Prime Retail Long-Term Stock Incentive Program. As long as this Agreement has not otherwise been terminated as provided herein, Executive shall continue to participate in Prime's 1999 Long-Term Incentive Program (the "1999 LTIP") and to receive the benefits contemplated thereby to the same extent as if Executive were employed by Prime through December 31, 1999. Prime shall amend the 1999 LTIP to allow the continued participation by Executive in the 1999 LTIP through the earlier of (i) the third anniversary of any Award Date, as such term is defined in the 1999 LTIP or (ii) Executive's effective date of termination under this Agreement. (i) Vacation and Leaves of Absence. Executive shall be entitled to four (4) weeks of paid vacation leave during each twelve (12) month calendar period and paid holidays in accordance with Employer's established policies. Executive may accrue unused vacation time if not used in any calendar year or years, however, the maximum cumulative amount of vacation time that Executive may accrue and carry over to the next year is four weeks. In addition to the foregoing, Executive may be granted leaves of absence with or without pay for such other reasons as shall be mutually agreed upon by the Employer Board and Executive. (j) Expenses. Executive shall be reimbursed, subject to Employer's receipt of invoices or similar records as Employer may reasonably request in accordance with its policy and procedures, for all reasonable and necessary expenses incurred by the Executive in the performance of his duties hereunder. (k) Special Distribution. On or prior to January 30, 2000 and regardless of whether or not this Agreement has been terminated for any reason, Executive shall receive from PRT LP a special distribution (the "Special Distribution") in an amount equal to the aggregate balance of unpaid principal and accrued interest as of such date with respect to that certain Secured Promissory Note of Carpenter Family Associates LLC dated March 21, 1994 (as modified by that certain Allonge dated January 1, 1996) (the "Note"). Executive hereby agrees to use the proceeds of such Special Distribution to immediately pay in full all outstanding obligations under the Note. (l) Tickets. During the Pre-Transaction Period, and subject to PRT's customary policies and procedures relating to business entertainment and marketing expenses, Employer shall first offer Executive the right to use Employer's four (4) tickets to each Baltimore Ravens home game. Upon the occurrence of a Qualified Strategic Transaction, PRT hereby agrees to contribute to Employer PRT's four (4) season tickets to each Baltimore Ravens home game. 4. Termination and Termination Benefits. (a) Termination by Employer. (1) Without Cause. Employer may terminate this Agreement and Executive's services at any time for any reason or for no reason at all upon thirty (30) days' prior written notice to Executive. In connection with the termination of Executive's services pursuant to this Section 4(a)(1), Executive (and Executive's eligible dependents with respect to paragraphs (D) and (E) below) shall be entitled to receive: (A) all accrued but unpaid amounts of the Base Salary through the later of (i) six (6) months following the effective date of termination or (ii) two (2) years following the Commencement Date, payable in accordance with the provisions of Section 3(a) above; (B) payment in an amount equal to the greater of (i) (a) 2.0 times the amount of any cash bonus received by Executive from PRT for the year ended December 31, 1998 less (b) the amount of any Performance Bonus theretofore paid to Executive pursuant to Section 3(b) hereof for the year of termination or (ii) .5 times the amount of the most recent Performance Bonus paid to Executive by PRT or Employer in respect of any full calendar year, to be paid in a lump sum amount within thirty (30) days of the effective date of termination; (C) any vested benefits or amounts pursuant to Sections 3(c) (Health Insurance), 3(i) (Vacation) and 3(j) (Expenses) hereof through the effective date of termination, payable as otherwise provided in such Sections; (D) the health insurance benefits specified in Section 3(c) above for a period through the later of (i) six (6) months following the effective date of termination and (ii) two years following the Commencement Date, and following such time period, the Executive shall be entitled to all rights afforded to him under the federal Consolidated Omnibus Budget Reconciliation Act ("COBRA") to purchase continuation coverage of such health insurance benefits for himself and his dependents for the maximum period permitted by law; and (E) the life insurance benefits specified in Section 3(d) above for a period through the later of (i) six (6) months following the effective date of termination and (ii) two (2) years following the Commencement Date; and (F) in the event that Executive is terminated without cause pursuant to this Section 4(a)(1) and within three months from the effective date of such termination the Company consummates a Qualified Strategic Transaction, then Executive shall be entitled to receive the Strategic Bonus set forth in Section 4(e). With respect to Section 4(a)(1)(D) above, to the extent required by applicable law, Executive shall be deemed to have elected to exercise his rights under COBRA as of the effective date of termination. (2) With Cause. Employer may terminate this Agreement with "cause" immediately upon written notice to Executive. In connection with the termination of Executive's services pursuant to this Section 4(a)(2), Executive (and Executive's eligible dependents with respect to paragraphs (D) and (E) below) shall: (A) be entitled to receive all accrued but unpaid amounts of the Base Salary through the effective date of termination, payable in accordance with the provisions of Section 3(a) above; (B) forfeit his entitlement to any bonuses or other payments otherwise payable to him in accordance with Section 3(b) hereof; and (C) be entitled to the vested benefits or amounts pursuant to Sections 3(c) (Health Insurance), 3(d) (Life Insurance), 3(i) (Vacation) and 3(j) (Expenses) hereof through the effective date of termination, payable as otherwise provided in such Sections; (D) be entitled to receive the health insurance benefits specified in Section 3(c)(1) above for three (3) months following the effective date of termination, and following such time period, the Executive shall be entitled to all rights afforded to him under COBRA to purchase continuation coverage of such health insurance benefits for himself and his dependents for the maximum period permitted by law; and (E) be entitled to receive the life insurance benefits specified in Section 3(d) above for three (3) months following the effective date of termination. With respect to Section 4(a)(2)(D) above, to the extent required by applicable law, Executive shall be deemed to have elected to exercise his rights under COBRA as of the effective date of termination. (3) "Cause" Defined. For purposes of this Agreement, "cause" shall mean a finding by the Employer Board: (A) that the Executive has materially harmed Employer through an act of dishonesty or material conflict of interest that relates to the performance of Executive's duties hereunder; (B) of Executive's conviction of a felony involving moral turpitude, fraud or embezzlement; (C) that Executive's failure to perform in any material respect his duties under this Agreement (other than a failure due to disability) after written notice specifying the failure and a reasonable opportunity to cure (it being understood that if Executive's failure to perform is not of a type requiring a single action to fully cure, then Executive may commence the cure promptly after such written notice and thereafter diligently prosecute such cure to completion); or (D) of a material breach by Executive of any of his obligations hereunder and the failure of Executive to cure such breach within thirty (30) days after receipt by the Executive of a written notice of Employer specifying in reasonable detail the nature of the breach. (4) Disability. If due to illness, physical or mental disability, or other incapacity, Executive shall fail to perform the duties required by this Agreement during any four (4) consecutive months during the Employment Term, Employer may terminate this Agreement upon thirty (30) days written notice to Executive. In such event, Executive shall receive all of the benefits afforded to Executive pursuant to Section 4(a)(1) above. (b) Termination by Executive. (1) With Good Reason. Executive may terminate this Agreement with "good reason" upon written notice to Employer. In connection with the termination of this Agreement pursuant to this Section 4(b)(1), Executive shall be entitled to receive all of the benefits afforded to Executive pursuant to Section 4(a)(1) above. (2) Without Good Reason. Executive may terminate this Agreement at any time for any reason or for no reason at all upon sixty (60) days' written notice to Company, during which period Executive shall continue to perform his duties under this Agreement if Employer so elects. In connection with the termination of Executive's services pursuant to this Section 4(b)(2), Executive (and Executive's eligible dependents with respect to paragraphs (C) and (D) below) shall: (A) be entitled to receive all accrued but unpaid amounts of the Base Salary through the effective date of termination, paid in accordance with the provisions of Section 3(a) above; (B) forfeit his entitlement to any bonuses or other payments otherwise payable to him in accordance with Section 3(b) hereof; (C) be entitled to receive the vested benefits and amounts set forth in Sections 3(c) (Health Insurance), 3(d) (Life Insurance), 3(i) (Vacation) and 3(j) (Expenses) hereof through the effective date of termination, payable in accordance with the provisions of such Sections; (D) be entitled to receive the health insurance benefits specified in Section 3(c)(1) above for six (6) months following the effective date of termination, and following such time period, the Executive shall be entitled to all rights afforded to him under COBRA to purchase continuation coverage of such health insurance benefits for himself and his dependents for the maximum period permitted by law; and (E) be entitled to receive the life insurance benefits specified in Section 3(d) above for six (6) months following the date of termination. With respect to Section 4(b)(2)(C), to the extent required by applicable law, Executive shall be deemed to have elected to exercise his rights under COBRA as of the effective date of termination. (3) Good Reason. For purposes of this Agreement, "good reason" shall mean: (A) the material breach by Employer of any of its obligations hereunder (a bona fide dispute regarding the Performance Bonus shall not be a material breach by Employer) and the failure of Employer to cure such breach within thirty (30) days after receipt by Employer of a written notice from the Executive specifying in reasonable detail the nature of the breach, unless such breach requires a longer period to cure, then Employer shall have the right to cure such breach within such additional period of time not to exceed ninety (90) days; (B) the amounts payable to the Executive as existed and as provided in this Agreement immediately prior to such event have been materially reduced in any way (other than by virtue of the termination of the Pre-Transaction Period); (C) Employer fails to continue in effect any cash or stock-based incentive or bonus plan, retirement plan, welfare benefit plan, or other benefit plan, program or arrangement, unless the aggregate value (as computed by an independent employee benefits consultant) of all such compensation, retirement and benefit plans, programs and arrangements provided to Executive is not materially less than their aggregate value as of the date of this Agreement; or (D) Executive's title or scope of responsibilities and duties are diminished as they existed and as provided in this Agreement immediately prior to such event, or Employer fails to provide Executive with adequate office facilities and support services to perform such responsibilities and duties. (c) Death. Notwithstanding any other provision of this Agreement, this Agreement shall terminate on the date of Executive's death. In this event, Executive's estate shall be entitled to receive: (i) all accrued but unpaid amounts of the Executive's Base Salary through the date of Executive's death, payable in accordance with the provisions of Section 3(a) above; (ii) any earned but unpaid bonus(es) otherwise payable to Executive in accordance with Sections 3(b) and 3(e); and (iii) any vested benefits or amounts pursuant to Sections 3(i) (Vacation) and 3(j) (Expenses). In addition, the Executive's eligible dependents shall be entitled to receive the health insurance benefits specified in Section 3(c)(1) above for a period through the earlier to occur of (i) the expiration of the Pre-IPO Period or (ii) twelve (12) months following the effective date of termination, and following such time period, such eligible decedents shall be entitled to all rights afforded to them under COBRA to purchase continuation coverage of such health insurance benefits for the maximum period permitted by law. With respect to the preceding sentence, to the extent required by applicable law, the Executive's dependents shall be deemed to have elected to exercise their rights under COBRA as of the effective date of termination. This Section 4(d) shall not limit the entitlement of Executive under any insurance or other benefits plan or policy that is maintained by Employer for Executive's benefit. (d) Purchase of Life Insurance. Notwithstanding anything to the contrary contained herein, in the event that the services of the Executive with Employer terminate for any reason other than death, the Executive shall have the right to acquire any life insurance policies maintained by Employer on the life of the Executive by (i) notifying Employer in writing of his desire to so purchase such life insurance policy or policies and (ii) tendering to Employer a check in an amount equal to the interpolated surrender cash value of such life insurance policy or policies together with any unearned portion of any current year premium thereof, both within sixty (60) days of the effective date of such termination. (e) Termination Following a PRT Change of Control. If, during the Pre-Transaction Period and following a PRT Change of Control, Employer terminates this Agreement and Executive's services other than for cause or Executive terminates this Agreement with good reason, Executive shall be entitled to receive, in addition to all of the benefits afforded to Executive pursuant to Section 4(a)(1) above, a severance payment in an amount equal to $830,000 payable within thirty (30) days of the effective date of termination. For purposes of this Agreement, PRT Change of Control shall have the meaning assigned to the term "Change of Control" in the Prior Agreement (as defined in Section 7). (f) Modification of Termination Benefits. This Section 4 shall only be effective during the Pre-Transaction Period. Upon commencement of the Post-Transaction Period, this Section 4 shall be amended and restated by Executive and Employer to contain such provisions as the parties agree are customary for agreements of this type for similarly situated companies; provided, however, that in no event shall such benefits be less favorable to Executive than those set forth in the Prior Agreement. 5. Covenants of Executive. (a) No Conflicts. Executive represents and warrants that he is not personally subject to any agreement, order or decree that restricts his acceptance of this Agreement and performance of his duties with Employer hereunder. (b) Non-Competition. In return for the performance of the management duties described in Section 3 hereof, during the Employment Term and for a period of one year thereafter in the event of the termination of this Agreement pursuant to the provisions of Sections 4(a)(1), 4(a)(2), 4(b)(1), 4(b)(2) or 4(e) hereof (the "Restrictive Period"), Executive shall not, directly or indirectly, in any capacity whatsoever, either on his own behalf or on behalf of any other person or entity with whom he may be employed or associated, compete with the Business (as hereinafter defined) in any of the following described manners: (i) perform services of the types that Executive performs on behalf of the Group (as hereinafter defined) for himself, or any affiliate of himself or for any competitor of the Group if such competitor engages in the Business within any geographic area or territory wherein the Group is engaged in the Business at the time of Executive's termination of services hereunder ("Restrictive Geographic Area"); or (ii) solicit or accept any Business (or help any other person solicit or accept any Business) from any person or entity that on the date of this Agreement is a vendor, customer or tenant of the Group or at the time of termination of this Agreement any vendor, customer or tenant that is actively being pursued by the Group and that Executive knows is being pursued. For purposes hereof, "Group" shall mean Employer and any of its subsidiaries or affiliates, and the term "Business" means any interest in (A) any internet retail business that is within the primary business of Employer, as determined from time to time, by a majority vote of the Employer Board and (B) any real property within the retail business that is within the primary business of PRT, as determined from time to time by a majority of Board of Directors of PRT. Furthermore, during the Restrictive Period, Executive shall not, directly or indirectly, induce or attempt to persuade any employee or customer, vendor or tenant of the Group or any such entity being actively pursued by the Group to terminate its business relationship with the Group or not proceed with a business relationship with the Group. Notwithstanding the foregoing, nothing herein shall prohibit Executive from owning 5% or less of any securities of a competitor engaged in the same Business if such securities are listed on a nationally recognized securities exchange or traded over-the-counter on the National Association of Securities Dealers Automated Quotation System or otherwise. (c) Non-Disclosure. During the Restrictive Period and in the Restrictive Geographic Area, Executive shall not disclose or use, except in the pursuit of the Business for or on behalf of the Group, any Trade Secret (as hereinafter defined) of the Group, whether such Trade Secret is in Executive's memory or embodied in writing or other physical form. For purposes of this Section 5(c), "Trade Secret" means any information that derives independent economic value, actual or potential, with respect to Employer from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and is the subject of efforts to maintain its secrecy that are reasonable under the circumstances, including, but not limited to, trade secrets, customer lists, sales records and other proprietary commercial information. Said term, however, shall not include general "know-how" information acquired by Executive during the course of his service which could have been obtained by him from public sources without the expenditure of significant time, effort and expense that does not relate to Employer. (d) Return of Documents. Upon termination of his services with Employer, Executive shall return all originals and copies of books, records, documents, customer lists, sales materials, tapes, keys, credit cards and other tangible property of Employer within Executive's possession or under his control. (e) Equitable Relief. In the event of any breach by Executive of any of the covenants contained in this Section 5, it is specifically understood and agreed that Employer shall be entitled, in addition to any other remedy that it may have, to equitable relief by way of injunction, an accounting or otherwise and to notify any employer or prospective employer of Executive as to the terms and conditions hereof. (f) Acknowledgment. Executive acknowledges that he will be directly and materially involved as a senior executive in all important policy and operational decisions of Employer. Executive further acknowledges that the scope of the foregoing restrictions has been specifically bargained between Employer and Executive, each being fully informed of all relevant facts. Accordingly, Executive acknowledges that the foregoing restrictions of this Section 5 are fair and reasonable, are minimally necessary to protect Employer, its other stockholders and the public from the unfair competition of Executive who, as a result of his performance of services on behalf of Employer, will have had unlimited access to the most confidential and important information of Employer, its business and future plans. Executive furthermore acknowledges that no unreasonable harm or injury will be suffered by him from enforcement of the covenants contained herein and that he will be able to earn a reasonable livelihood following termination of his services notwithstanding enforcement of the covenants contained herein. 6. Gross Up Payments. Anything in this Agreement to the contrary notwithstanding, in the event that any payment by or on behalf of Employer to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (the "Payments") is determined to be an "excess parachute payment" pursuant to Code Section 280G or any successor or substitute provision of the Code, with the effect that Executive is liable for the payment of the excise tax described in Code Section 4999 or any successor or substitute provision of the Code, or any interest or penalties are incurred by Executive with respect to such Payments (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (the "Gross-Up Payment") in an amount such that after payment by Executive of all taxes imposed upon the Gross-Up Payment, including, without limitation, federal, state, local or other income taxes, FICA taxes, and additional Excise Tax (and any interest and penalties imposed with respect to such taxes), Executive retains a portion of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (a) Determination of Gross-Up. Subject to the provisions of paragraph (b) below, all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that serves as Employer's auditors (the "Accounting Firm"), which shall provide detailed supporting calculations both to Employer and Executive within 15 business days of the receipt of notice from Employer or Executive that there have been Payments, or such earlier time as is requested by Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall designate another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by Employer. Any Gross-Up Payment, as determined pursuant to this Section, shall be paid by Employer to Executive within five days after the receipt by Employer and Executive of the Accounting firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon Employer and Executive, except as provided in paragraph (b) below. (b) IRS Claims. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the Internal Revenue Service or other agency will claim that a greater Excise Tax is due, and thus a greater amount of Gross-Up Payment should have been made by Employer than that determined pursuant to paragraph (a) above (an "Underpayment"). In the event that Executive is required to make a payment of any such Excise Tax, the Accounting Firm shall determine the amount of the additional Gross-Up Payment due to the Executive based on the Underpayment, and such additional Gross-Up Payment shall be promptly paid by Employer to or for the benefit of the Executive. Executive shall notify Employer in writing of any claim by the Internal Revenue Service or other agency that, if successful, would require the payment by Employer of the Gross-Up Payment or an Underpayment. 7. Prior Agreement. Except as set forth on Schedule 1, this Agreement supersedes and is in lieu of any and all other employment or service arrangements between Executive, on the one hand, and Employer, Prime or its predecessors or any subsidiaries, on the other hand, including, without limitation, that certain Combined Service and Special Distribution and Allocation Agreement dated as of March 19, 1998 (the "Prior Agreement") and any and all such employment or service agreements and arrangements are hereby terminated and deemed of no further force or effect. 8. Assignment. Neither this Agreement nor any rights or duties of Executive hereunder shall be assignable by Executive and any such purported assignment by him shall be void. Employer may assign all or any of its right hereunder provided that substantially all of the assets of Employer are also transferred to the same party. 9. Successors. This Agreement shall inure to the benefit of and be enforceable by Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees and Employer's successors and assigns. If Executive should die while any amounts are still payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there be no such designee, to Executive's estate. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of Employer, as the case may be, by agreement in form and substance reasonably satisfactory to Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform it if no such succession or assignment had taken place; provided, however, that Employer and Prime shall remain primarily liable to Executive to fulfill each of their respective obligations under this Agreement and that any such assignee also agrees to be primarily liable to Executive jointly and severally with Employer on the one hand and Prime on the other hand to fulfill all of Employer's and Prime's obligations under this Agreement. Any failure of Employer to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement. 10. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if delivered in person or sent by any national overnight delivery service or by certified mail to the following addresses (or to any other address that any party may designate by notice to the other parties hereto): (a) if to Executive, to: William H. Carpenter, Jr. 659 Rock Cove Lane Severna Park, Maryland 21146 with a copy to: David M. Fleishman, Esq. Venable, Baetjer and Howard, L.L.P. 1800 Mercantile Bank & Trust Bldg. Two Hopkins Plaza Baltimore, Maryland 21201 (b) if to Employer, to: Primeoutlets.com 100 East Pratt Street 19th Floor Baltimore, Maryland 21202 General Counsel with a copy to: Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention: Wayne D. Boberg (c) if to Prime, to: Prime Retail, Inc. 100 East Pratt Street 19th Floor Baltimore, Maryland 21202 General Counsel with a copy to: Winston & Strawn 35 West Wacker Drive Chicago, Illinois 60601 Attention: Steve J. Gavin 11. Amendment. This Agreement may not be changed, modified or amended except in writing signed by all of the parties hereto. 12. Waiver of Breach. The waiver by any of the parties hereto of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any part. 13. Severability. Prime, Employer and Executive each expressly agree and contract that it is not the intention of any of the parties hereto to violate any public policy, statutory or common law, and that if any sentence, paragraph, clause or combination of the same of this agreement is in violation of the law of any state where applicable, such sentence, paragraph, clause or combination of the same shall be void in the jurisdictions where it is unlawful, and the remainder of such paragraph and this Agreement shall remain binding on the parties to make the covenants of this Agreement binding only to the extent that it may be lawfully done under existing applicable laws. In the event that any part of any covenant of this Agreement is determined by a court of competent jurisdiction to be overly broad thereby making the covenant unenforceable, the parties hereto agree, and it is their desire that such court shall substitute a judicially enforceable limitation in its place, and that as so modified the covenant shall be binding upon the parties as if originally set forth herein. 14. Opportunity to Employ Counsel. Executive acknowledges receipt of a copy of this Agreement prior to his execution of this Agreement with Employer and also acknowledges that he has had ample time and opportunity to employ counsel of his choice to provide advice concerning the terms and conditions of this Agreement. 15. Legal Fees. If Employer or Prime materially breach any of their respective obligations to Executive under this Agreement and the Executive brings any action, claim, demand, suit or proceeding against Employer or Prime to enforce his rights under this Agreement, Employer or Prime, as the case may be, agrees that it will pay all reasonable legal fees and related legal costs (collectively "Legal Fees") incurred by Executive no later than thirty (30) days following a judgment by a court of competent jurisdiction that Employer or Prime materially breached its obligations to the Executive under this Agreement; provided, however, that if it is determined by a final judgment or other final adjudication by a court of competent jurisdiction that Employer or Prime did not materially breach any of its obligations to Executive under this Agreement, Executive will pay to Employer or Prime, as the case may be, within thirty (30) days from such final judgment or adjudication the aggregate amount of legal fees and expenses incurred by Company or Prime with respect to such action and the amount of any Legal Fees that were previously paid to Executive by Employer or Prime pursuant to this Section 15. Without limiting the foregoing, Employer hereby agrees to reimburse Executive for (a) his reasonable legal expenses incurred in connection with this Agreement subject to a maximum reimbursement of $20,000 and (b) his reasonable legal, accounting and tax expenses incurred in connection with Executive's direct or indirect ownership of PRT securities and in connection with any PRT Change of Control or Employer Change of Control, subject to a maximum annual reimbursement of $10,000. 16. Governing Law. This Agreement shall be governed by, and construed, interpreted and enforced in accordance with the laws of the State of Maryland, exclusive of the conflict of laws provisions of the State of Maryland. 17. Notice of Future Employment. Executive agrees that during the twelve (12) consecutive months immediately following the termination of this Agreement, Executive will within fourteen (14) days of each instance of new employment notify Employer in writing of the identity of his new employer, the job title associated with such employment and a description of the nature of Executive's duties in connection with such employment. 18. Resignation and Release. (a) Termination of Employment at Prime. Executive's employment with Prime will terminate and Executive shall resign from Prime's Executive Committee effective on the Commencement Date (as defined herein). Notwithstanding the previous sentence, Executive shall continue to serve as a director of PRT. Furthermore, Executive acknowledges and agrees that upon termination of this Agreement for any reason, Executive shall have no right or expectation to renew or recommence employment with Prime in any capacity. (b) Release of Claims. (1) Executive, with the intention of binding himself, his heirs, executors, administrators and assigns, does hereby release and forever discharge (the "Release") Prime and all of its related companies and affiliated enterprises (other than Employer), administrators, agents, officers, directors, shareholders, successors, assigns and attorneys (and each of their respective counsel and other agents, their respective legal representatives, their respective successors and assigns, their respect past, present and future officers, directors and shareholders, and their past, present and future employees) of and from all manner of actions, cause or causes of action, suits, debts, agreements, promises, charges, claims and demands, whatsoever, in law or in equity, that Executive now has or may have, both known and unknown, arising out of his employment with Prime and his termination from Prime. Such Release includes, but is not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990; the Americans with Disabilities Act; or any claim for discrimination or harassment of any kind, breach of contract or public policy, wrongful or retaliatory discharge, defamation and/or any other claim to any form of compensation or benefits, including attorney fees, and which arise prior to the date of this agreement. Such Release does not include any claims or causes of action against Prime arising solely out of Executive's ownership of any capital stock or limited partnership interests in PRT or PRT LP. (2) Prime, with the intention of binding itself, all of its related companies and affiliated enterprises (other than Employer) and each of their respective successors and assigns, hereby releases Executive from any all claims, causes of action, rights of action, demands or suits, at law or in equity or otherwise, that Prime now has or may have, both known and unknown, arising out of his employment with Prime and his termination from Prime. (3) Prime and Executive understand and agree that the releases set forth herein do not in any way affect the rights of either party to take whatever steps may be necessary to enforce the terms of this Agreement or any of the agreements set forth on Schedule 1 or to obtain appropriate relief in the event of any breach of the terms of this Agreement or any of the agreements set forth on Schedule 1. 19. Limited Guaranty by Prime. Prime hereby unconditionally guarantees the payments and benefits to which the Executive and his eligible dependents are entitled to pursuant to Sections 3(a), 3(b)(1) and (2), 3(c)(1), 3(d), 3(h), 3(k), 3(1), 4, 6 and 15; provided, however, that this Section 19 shall terminate and cease to be of any force or effect upon the completion of any Strategic Transaction. 20. Binding Effect. This Agreement shall be binding and legally enforceable against the parties hereto and their respective heirs, personal representatives, successors and assigns, as the case may be. [signature page follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY: EXECUTIVE: PRIMEOUTLETS.COM WILLIAM H. CARPENTER, JR. By: /s/ C. Alan Schroeder /s/ William H. Carpenter, Jr. ------------------------ ----------------------------- Name: C. Alan Schroeder Title: Executive Vice President, General Counsel and Secretary PRIME RETAIL, INC. PRIME RETAIL, L.P. By: /s/ C. Alan Schroeder By: Prime Retail, Inc. Name: C. Alan Schroeder Its: General Partner ------------------------ Title: Executive Vice President, General Counsel and By: /s/ C. Alan Schroeder Secretary --------------------- Name: C. Alan Schroeder Title: Executive Vice President, General Counsel and Secretary SCHEDULE 1 Compensation Agreements between Employer and Executive Indemnification Agreement dated March 22, 1994 between William H. Carpenter, Jr. and Prime Retail, Inc., as the parties may have amended after the date thereof. [Agreement will have to be amended based on Executive's termination of employment from PRT LP] Indemnification and Options Agreement between the Prime Group, Inc., William H. Carpenter, Jr. and the Carpenter Family Associates LLC dated January 1, 1996. Secured Promissory Note made by the Carpenter Family Associates LLC, as Borrower, payable to Prime Retail, L.P, as Lender, dated March 22, 1994. Pledge and Security Agreement between Carpenter Family Associates LLC and Prime Retail, L.P dated March 22, 1994. Guaranty between William H. Carpenter, Jr., as Guarantor, and Prime Retail, L.P. dated March 22, 1994. Allonge dated January 1, 1996 between Prime Retail, L.P., the Carpenter Family Associates LLC and William H. Carpenter, Jr. Reaffirmation of Pledge and Guaranty between Prime Retail, L.P., the Carpenter Family Associates LLC and William H. Carpenter, Jr. dated January 1, 1996. Special Distribution and Allocation Agreement between Prime Retail, L.P. and the Carpenter Family Associates LLC dated January 1, 1996. [Relates to special distributions to have been distributed on or prior to March 31, 1999] 1999 Special Distribution and Allocation Agreement between Prime Retail, Inc., Prime Retail, L.P. and the Carpenter Family Associates LLC dated March , 1999. [Relates to special distributions to have been distributed on or prior to March 31, 2000. If executed, agreement will have to be amended based on Executive's termination of employment from PRT LP] Exhibit A EXHIBIT A Capitalization of Employer -------------------------- --------------------- ------------------------------ Class Authorized Shares Issued and Outstanding Shares -------------------------- --------------------- ------------------------------ -------------------------- --------------------- ------------------------------ Preferred Stock, par value 5,000,000 $0.01 per share ------------------------- ---------------------- ------------------------------ ------------------------- ---------------------- ------------------------------ Common Stock, par value 100,000,000 1,000 $0.01 per share ------------------------- ---------------------- ------------------------------ EX-12 6
PRIME RETAIL, INC. EXHIBIT 12: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DISTRIBUTIONS AND DIVIDENDS (Amounts in thousands, except for ratio information) Year Ended December 31 ------------------------------------------- 1999 1998 ------------------- ------------------- Income (loss) before minority interests $ (28,085) $ 19,986 Loss on sale of real estate 15,153 15,461 Interest incurred 96,081 65,082 Amortization of debt issuance costs 4,311 1,715 Amortization of interest rate protection contracts 77 1,152 Less interest earned on interest rate protection contracts - (23) Less capitalized interest (4,646) (5,793) -------- -------- Earnings 82,891 97,580 -------- -------- Interest incurred 96,081 65,082 Amortization of debt issuance costs 4,311 1,715 Amortization of interest rate protection contracts 77 1,152 Preferred stock distributions and dividends 24,275 24,604 -------- ------- Combined Fixed Charges and Preferred Stock Distributions and Dividends 124,744 92,553 -------- ------ Excess of Combined Fixed Charges and Preferred Stock Distributions and Dividends over Earnings $(41,853) ======== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Distributions and Dividends 1.05 x =======
EX-21 7 Subsidiaries of Prime Retail, Inc. December 31, 1999 State or Jurisdiction % Subsidiary of Inc. or Org. Owned (1) - ------------------------------------------------------------------------------------------------------------------------- 1. Arizona Factory Shops Limited Partnership Delaware 100 2. Arizona Factory Shops Partnership Arizona 50 3. Bend Factory Outlets Limited Partnership Delaware 100 4. BRWH, L.L.C. Delaware 100 5. Buckeye Factory Shops Limited Partnership Delaware 100 6. Camarillo Outlets, L.L.C. Delaware 100 (2) 7. Camarillo Outlets Land, L.L.C. Delaware 100 (3) 8. Camarillo Outlets Land II, Limited Partnership Delaware 100 9. Carolina Factory Shops Limited Partnership Delaware 100 10. Castle Rock Factory Shops Partnership Colorado 100 11. Chesapeake Development Limited Partnership Delaware 100 12. Coral Isle Factory Shops Limited Partnership Delaware 100 13. DesignerConnection.com, Inc. Maryland 100 14. Factory Outlets at Post Falls Limited Partnership Delaware 100 15. Fine Furniture Direct, Inc. Maryland 44.57 (4) 16. Finger Lakes Outlet Center, L.L.C. Delaware 100 17. First HGI, Inc. Delaware 100 18. First Horizon Group Limited Partnership Delaware 100 19. Florida Keys Factory Shops Limited Partnership Illinois 100 20. Gainesville Factory Shops Limited Partnership Illinois 100 21. Grove City Factory Shops Partnership Pennsylvania 100 22. Gulf Coast Factory Shops Limited Partnership Illinois 100 23. Gulfport Factory Shops Limited Partnership Delaware 100 24. Huntley Factory Shops Limited Partnership Illinois 100 25. Kansas City Factory Shops Limited Partnership Delaware 100 26. Latham Factory Stores Limited Partnership Delaware 100 27. Loveland Factory Shops Limited Partnership Delaware 100 28. Magnolia Bluff Factory Shops Limited Partnership Delaware 100 29. Market Street, Ltd. Tennessee 98 30. Melrose Place, Ltd. Tennessee 100 31. MG Long Island Limited Partnership Virginia 95 32. MG Patchogue II Limited Partnership Virginia 51 33. MG Patchogue Limited Partnership District of Columbia 50 34. Oak Creek Factory Outlets Limited Partnership Delaware 100 35. Ohio Factory Shops Partnership Ohio 100 36. Outlet Shops at Camarillo Limited Partnership Delaware 100 (2) 37. Outlet Village Mall of St. Louis Ltd. Partnership, L.L.L.P. Delaware 75 38. Outlet Village of Hagerstown Limited Partnership Delaware 100 39. Outlet Village of Kittery Limited Partnership, L.L.L.P. Delaware 100 40. Outlet Village of Lebanon Limited Partnership Delaware 100 41. Outlet Village of Puerto Rico Limited Partnership Delaware 100 42. Outlet Village of St. Louis Limited Partnership, L.L.L.P. Delaware 100 43. Oxnard Factory Outlet Partners California 50 44. Oxnard Factory Shops Limited Partnership Delaware 100 45. Phase IV Associates, L.P. (Gilroy) California 10 46. Prime Bellport Land, L.L.C. Delaware 100 (2) 47. Prime Lee Development Limited Partnership Delaware 100 48. Prime Northgate Plaza Limited Partnership Delaware 100 49. Prime Outdoor, L.P. Delaware 100 50. Primeoutlets.com, Inc. Maryland 95 51. Prime Outlets at Niagara Falls USA Limited Partnership Delaware 100 52. Prime Outlets at Perryville Limited Partnership Maryland 100 53. Prime Outlets at Perryville, Inc. Maryland 100 54. Prime Outlets at San Marcos II, Limited Partnership Delaware 100 55. Prime Outlets at Secaucus, L.L.C. Delaware 100 56. Prime Outlets at Tucson, L.L.C. Delaware 100 57. Prime Outlets at Williamsburg II Limited Partnership Delaware 100 58. Prime Retail Capital I, L.L.C. Delaware 100 59. Prime Retail Capital III, L.L.C. Delaware 100 60. Prime Retail Capital, L.L.C. Delaware 100 61. Prime Retail E-Commerce, Inc. Maryland 100 62. Prime Retail Europe, L.L.C. Delaware 100 (2) 63. Prime Retail Europe Limited Partnership Delaware 100 (2) 64. Prime Retail Finance II, Inc. Maryland 100 65. Prime Retail Finance III, Inc. Maryland 100 66. Prime Retail Finance IV, Inc. Maryland 100 67. Prime Retail Finance V, Inc. Maryland 100 68. Prime Retail Finance VI, L.L.C. Delaware 100 69. Prime Retail Finance VII, Inc. Maryland 100 70. Prime Retail Finance VIII, Inc. Maryland 100 71. Prime Retail Finance IX, Inc. Maryland 100 72. Prime Retail Finance X, Inc. Maryland 100 73. Prime Retail Finance, Inc. Maryland 100 74. Prime Retail Finance Limited Partnership Delaware 100 75. Prime Retail Furniture, Inc. Maryland 100 State or Jurisdiction % Subsidiary of Inc. or Org. Owned (1) - ------------------------------------------------------------------------------------------------------------------------- 76. Prime Retail Management Limited Partnership Delaware 100 77. Prime Retail Services Limited Partnership Delaware 1 78. Prime Retail Services, Inc. Maryland 100 (5) 79. Prime Retail Stores, Inc. Maryland 100 (6) 80. Prime Warehouse Row Limited Partnership Illinois 100 81. Prime Williamsburg Development, L.L.C. Delaware 100 82. San Marcos Factory Stores, Ltd. Texas 100 83. Second HGI, Inc. Delaware 100 84. Second Horizon Group Limited Partnership Delaware 100 85. Shasta Outlet Center Limited Partnership Delaware 100 86. Sun Coast Factory Shops Limited Partnership Delaware 100 87. The Prime Outlets at Bellport I, L.L.C. Delaware 100 88. The Prime Outlets at Bellport II, L.L.C. Delaware 100 89. The Prime Outlets at Birch Run, L.L.C. Delaware 100 90. The Prime Outlets at Calhoun Limited Partnership Delaware 100 91. The Prime Outlets at Camarillo, L.L.C. Delaware 100 (2) 92. The Prime Outlets at Conroe Limited Partnership Delaware 100 93. The Prime Outlets at Edinburgh Limited Partnership Delaware 100 94. The Prime Outlets at Gilroy Limited Partnership Delaware 100 95. The Prime Outlets at Jeffersonville, L.L.C. Delaware 100 96. The Prime Outlets at Kenosha II Limited Partnership Delaware 100 97. The Prime Outlets at Lee Limited Partnership Delaware 100 98. The Prime Outlets at Michigan City Limited Partnership Delaware 100 99. The Prime Outlets at Silverthorne Limited Partnership Illinois 100 100.The Prime Outlets at Vero Beach Limited Partnership Delaware 100 101.The Prime Outlets at Williamsburg, L.L.C. Delaware 100 102.The Prime Outlets at Woodbury, L.L.C. Delaware 100 103.Triangle Factory Stores Limited Partnership Illinois 100 104.Warehouse Row II Limited Partnership Tennessee 65 105.Warehouse Row, Ltd. Tennessee 99 106.Weisgarber Partners, Ltd. Tennessee 100
Note: - -------------------------------------------------------------------------------- 1. Reflects collective ownership interests of Prime Retail, Inc. and Prime Retail, L.P. 2. Non-entity, reverts back to Prime Retail, L.P. 3. Prime Retail Stores, Inc. 4. Prime Retail Furniture, Inc. owns 44.57% Preferred Stock 5. Preferred Stock 6. Prime Retail, Inc. owns 100% Preferred Stock EX-23 8 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-19491) pertaining to the Prime Retail, Inc. Stock Incentive Plans of our report dated March 23, 2000, except Note 14, as to which the date is April 12, 2000, with respect to the consolidated financial statements of Prime Retail, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999. Our audits also included financial statement schedule of Prime Retail, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/: Ernst & Young LLP ---------------------- Baltimore, Maryland April 12, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 7,343 0 28,131 7,008 0 213,461 1,826,551 183,954 1,826,551 97,196 1,260,670 0 101 434 496,152 1,856,058 0 305,956 0 318,888 13,479 32,660 93,934 (34,829) 0 (34,829) 0 (3,518) 0 (44,791) (1.04) (1.30)
-----END PRIVACY-ENHANCED MESSAGE-----