<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
FACTORY STORES OF AMERICA, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[FACTORY STORES OF AMERICA LOGO]
May 15, 1996
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Stockholders of Factory Stores of America, Inc. The meeting
will be held on June 27, 1996, at 10:00 a.m., local time, at the Raleigh
Marriott Crabtree Valley at 4500 Marriott Drive, Raleigh, North Carolina. The
formal notice and proxy statement for this meeting are attached to this letter.
It is important that you sign, date and return your proxy as soon as
possible, even if you currently plan to attend the Annual Meeting. You may still
attend the Annual Meeting and vote in person if you desire, but returning your
proxy card now will assure that your vote is counted if you are unable to
attend. Your vote, regardless of the number of shares you own, is important.
On behalf of the Board of Directors, I thank you for your cooperation.
Sincerely,
/s/ J. Dixon Fleming, Jr.
J. Dixon Fleming, Jr.
<PAGE> 3
FACTORY STORES OF AMERICA, INC.
230 NORTH EQUITY DRIVE
SMITHFIELD, NORTH CAROLINA
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 27, 1996
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of
Factory Stores of America, Inc., a Delaware corporation (the "Company"), will be
held at the Raleigh Marriott Crabtree Valley at 4500 Marriott Drive, Raleigh,
North Carolina, on Thursday, June 27, 1996, at 10:00 a.m., local time, for the
following purposes:
1. To elect seven directors to serve until the 1997 annual meeting or
until their successors are duly elected and qualified;
2. To amend the Company's 1993 Employee Stock Incentive Plan;
3. To amend the Company's Second Restated Certificate of Incorporation
(the "Charter") to authorize preferred stock and approve the issuance of
the Company's Series A Convertible Preferred Stock and the underlying
Common Stock;
4. To amend the Charter to change the Company's corporate name to "FAC
Realty, Inc.";
5. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only stockholders of record at the close of business on April 30, 1996 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ Robin W. Malphrus, Esq.
Robin W. Malphrus, Esq.
Assistant Secretary
Dated: May 15, 1996
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER PROXY
SOLICITATION. PLEASE MAIL YOUR PROXY TODAY.
<PAGE> 4
FACTORY STORES OF AMERICA, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 1996
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Factory Stores of America, Inc., a Delaware
corporation (the "Company"), of proxies from the holders of the Company's common
stock (the "Common Stock") for use at the 1996 Annual Meeting of Stockholders to
be held at the Raleigh Marriott Crabtree Valley at 4500 Marriott Drive, Raleigh,
North Carolina, 27577 on June 27, 1996, at 10:00 a.m., local time, and at any
adjournments or postponements thereof (the "Annual Meeting"). This Proxy
Statement and the accompanying form of proxy, together with the Company's 1995
Annual Report to Stockholders, are first being sent to stockholders on or about
May 15, 1996.
INFORMATION CONCERNING PROXY
AND PROXY SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors. The
giving of a proxy does not preclude the right to vote in person should any
stockholder giving the proxy so desire. Stockholders have a right to revoke
their proxy at any time before it is voted, either by attending the Annual
Meeting and voting in person or by filing with the Company's Secretary at its
principal executive offices a written revocation or duly executed proxy bearing
a later date; however, no such revocation will be effective until written notice
of the revocation is received by the Company at or prior to the Annual Meeting.
There are no dissenters' rights with respect to any of the matters to be acted
upon.
The cost of preparing and mailing this Proxy Statement, the Notice of
Annual Meeting of Stockholders and the enclosed proxy will be borne by the
Company. In addition to the use of mail, employees of the Company may solicit
proxies personally and by telephone. Employees will receive no compensation for
soliciting proxies other than their regular salaries. The Company may request
banks, brokers and other custodians, nominees and fiduciaries to forward copies
of the proxy materials to their principals and to request authority for the
execution of proxies. The Company has retained Corporate Communications, Inc. to
aid in the solicitation at an estimated cost of $1,000.
PURPOSE OF THE MEETING
At the Annual Meeting, the stockholders will consider and vote upon the
following matters:
1. The election of seven directors to serve until the 1997 annual
meeting or until their successors are duly elected and qualified;
2. The amendment of the Factory Stores of America, Inc. 1993 Employee
Stock Incentive Plan (the "Stock Incentive Plan") to increase the number of
shares of Common Stock reserved for issuance thereunder from 525,000 to
1,100,000 (the "Stock Plan Amendment");
3. The amendment of the Company's Second Restated Certificate of
Incorporation (the "Charter") to authorize preferred stock and approval of
the issuance of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Stock") and the issuance of Common Stock upon
conversion of the Series A Preferred Stock (the "Preferred Stock
Amendment");
4. The amendment of the Charter to change the Company's corporate name
to "FAC Realty, Inc." (the "Name Change Amendment"); and
5. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation will
be voted in favor of the election of the seven nominees named herein
<PAGE> 5
and in favor of each of the other proposals set forth herein. In the event a
stockholder specifies a different choice by means of the enclosed proxy, all
shares held by that stockholder will be voted in accordance with the
specification so made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on April 30, 1996 as
the record date (the "Record Date") for determining stockholders of the Company
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
there were 12,026,013 shares of Common Stock outstanding, all of which are
entitled to one vote on all matters to be acted upon at the Annual Meeting. The
presence in person or by proxy of the holders of a majority of the shares of the
Common Stock outstanding as of the Record Date is necessary to constitute a
quorum for the transaction of business at the Annual Meeting.
Directors of the Company are elected by a plurality vote. With respect to
the election of directors, votes may be cast in favor of the nominees or
withheld. Withheld votes and broker non-votes, if any, are not treated as votes
cast and, therefore, will have no effect on this proposal. The affirmative vote
of a majority of the shares present in person or by proxy and entitled to vote
is necessary to approve the Stock Plan Amendment. Abstentions will be counted as
present for purposes of these proposals and, therefore, will have the effect of
a negative vote. However, broker non-votes are not considered shares entitled to
vote and, therefore, will have no effect on these proposals. The affirmative
vote of a majority of the shares of Common Stock outstanding on the Record Date
is necessary to approve and adopt the Preferred Stock Amendment and the Name
Change Amendment. Abstentions and broker non-votes, if any, will have the
practical effect of votes against these proposals. If a broker indicates on a
proxy that the broker does not have discretionary authority as to certain shares
to vote on a particular matter, such shares will not be considered as present
and entitled to vote with respect to that matter.
Each of the current executive officers and directors of the Company has
advised the Company that he intends to vote his shares of Common Stock for
approval of each proposal.
It is not anticipated that any matters other than those set forth in the
Notice of Annual Meeting of Stockholders will be brought before the Annual
Meeting. If any other matters properly come before the Annual Meeting, including
matters incident to the conduct of the Annual Meeting, the proxies will be voted
in accordance with the best judgment of the persons named in the proxy.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------------------- --- -------------------------------------
<S> <C> <C>
J. Dixon Fleming, Jr............................... 41 Chairman of the Board of Directors
and Chief Executive Officer
C. Cammack Morton.................................. 44 President and Chief Operating Officer
John N. Nelli...................................... 39 Senior Vice President -- Finance and
Chief Financial Officer
Connell L. Radcliff................................ 41 Senior Vice President -- Retail
Development
Christopher G. Gavrelis............................ 42 Senior Vice President -- Management
and Development
</TABLE>
J. Dixon Fleming, Jr., the Chairman of the Board of Directors and Chief
Executive Officer of the Company since its organization in April 1993, was a
principal owner and member of the founding family of the North-South Group
("NSG"), a partnership that owned and managed five of the Company's properties
prior
2
<PAGE> 6
to its organization and subsequent acquisition of such properties. Mr. Fleming
had been affiliated with NSG since 1980.
C. Cammack Morton joined the Company in December 1995 as Chief Operating
Officer and was elected President and a director in January 1996. Mr. Morton
previously served as Managing Director of Rothschild Realty, Inc. ("Rothschild")
and President and Chief Executive Officer of the Charter Oak Group, Ltd., a
subsidiary of Rothschild engaged in the development and management of factory
outlet centers. He joined Rothschild in 1987 as Vice President, was promoted to
Senior Vice President in 1989 and to Managing Director in 1991. Prior to joining
Rothschild, Mr. Morton was President of retail development for Western
Development Corporation (now the Mills Corporation). To resolve certain personal
financial matters arising out of a limited partner obligation to the general
partner of a real estate partnership, Mr. Morton filed a petition for relief
under Chapter 11 of the United States Bankruptcy Code in March 1994. After
settling with the general partner, the bankruptcy case was dismissed in June
1994. Mr. Morton presently serves as president of Developers of Outlet Centers,
the trade organization for the owners and operators of factory outlet centers.
Mr. Morton also serves on the Editorial Advisory Board of Shopping Center World
and on the Advisory Board of Value Retail News, a unit of the International
Council of Shopping Centers.
John N. Nelli joined the Company as Senior Vice President -- Finance in
February 1995 and was promoted to his current position in September 1995. Prior
to his affiliation with the Company, Mr. Nelli served for one year as the Chief
Financial Officer of Litchfield Theatres, Ltd., an owner and operator of movie
theaters in six southeastern states. From February to September 1993, he served
as interim President and a director of Natter Manufacturing, Inc., a company he
joined as Chief Financial Officer in 1989. Prior thereto, Mr. Nelli worked for
eight years with Touche Ross & Co. (now Deloitte & Touche LLP), an international
accounting firm. Mr. Nelli was a Senior Audit Manager at the time of departure
from Touche Ross & Co. in 1989. Mr. Nelli is a certified public accountant.
Connell L. Radcliff has served as Senior Vice President of the Company
since its organization in April 1993. Mr. Radcliff joined NSG as Vice
President -- Leasing in 1989. From 1987 to 1989, Mr. Radcliff was a real estate
broker for The Shopping Center Group, a real estate brokerage firm specializing
in national tenant representation. Mr. Radcliff is responsible for the Company's
retail development activities.
Christopher G. Gavrelis joined the Company in December 1995 and was elected
Senior Vice President in January 1996. Prior to his affiliation with the
Company, Mr. Gavrelis was Vice President of the Charter Oak Group for
approximately four years. From 1989 to 1991, Mr. Gavrelis served as regional
property manager for McArthur/Glen Realty Corp. (now HGI Realty, Inc.), a
company engaged in the development and operation of factory outlet centers. Mr.
Gavrelis is responsible for the Company's management, administration and
development activities.
3
<PAGE> 7
BENEFICIAL OWNERSHIP
By Management. The following table sets forth certain information
regarding the beneficial ownership of Common Stock of the Company as of April
16, 1996 by the: (a) Chief Executive Officer; (b) other current executive
officers named on the Summary Compensation Table; (c) certain former executive
officers named on the Summary Compensation Table; (d) each director and nominee
for director; and (e) current executive officers and directors as a group. There
are no stockholders known to the Company to be beneficial owners of more than
five percent of the Common Stock as of April 16, 1996. Except as otherwise
described in the notes below, the following beneficial owners have sole voting
power and sole investment power with respect to all shares of Common Stock set
forth opposite their name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS(1)
-------------------- -----------
<S> <C> <C>
J. Dixon Fleming, Jr......................................... 459,032(2) 3.82%
C. Cammack Morton............................................ 101,800(3) *
Connell L. Radcliff.......................................... 115,891(4) *
John N. Nelli................................................ 6,000(5) *
Robert O. Amick.............................................. 3,544(6) *
B. Mayo Boddie, Sr........................................... 4,344(6) *
J. Richard Futrell, Jr....................................... 3,044(7) *
John W. Gildea............................................... 7,000(8) *
Theodore E. Haigler, Jr...................................... 3,354(9) *
John M. Slocum............................................... 136,300(10) 1.13
David A. Hodson.............................................. 353,938(11) 2.94
All current executive officers and directors as a group (10
persons)................................................... 863,976(12) 7.18
</TABLE>
---------------
(1) An asterisk (*) indicates less than one percent.
(2) Includes 90,000 shares of restricted stock as to which Mr. Fleming has sole
voting power and the right to receive dividends, 64,270 shares subject to
presently exercisable stock options and 100 shares held by Mr. Fleming's
spouse.
(3) Includes 90,000 shares of restricted stock as to which Mr. Morton has sole
voting power and the right to receive dividends, and 9,700 shares subject
to presently exercisable options. Does not include 51,300 shares subject to
stock options that will vest and become exercisable upon stockholder
approval of Proposal 2. See "Employment Agreements -- Long-Term
Compensation."
(4) Includes 30,750 shares subject to presently exercisable stock options.
(5) Includes 1,000 shares of restricted stock as to which Mr. Nelli has sole
voting power and 4,000 shares subject to presently exercisable stock
options.
(6) Includes 2,000 shares subject to presently exercisable stock options.
(7) Includes 2,000 shares subject to presently exercisable stock options and
200 shares held by a trust established for the benefit of Mr. Futrell.
(8) Mr. Gildea became a director of the Company effective May 1, 1996. Includes
Exchangeable Subordinated Notes of the Company which would be convertible
into 3,000 shares of Common Stock, owned directly by Mr. Gildea, and
Exchangeable Subordinated Notes convertible into 4,000 shares of Common
Stock owned by Mr. Gildea's spouse as custodian for their children as to
which Mr. Gildea disclaims beneficial ownership. See discussion of
"Proposal 3" below.
(9) Includes 2,000 shares subject to presently exercisable stock options and
ten shares held by Mr. Haigler as a custodian under the Uniform Gifts to
Minors Act.
(10) Includes 65,250 shares subject to presently exercisable options. Mr. Slocum
resigned as an officer of the Company on September 18, 1995.
(11) Includes 99,300 shares subject to presently exercisable options. Mr. Hodson
resigned from the Company on December 31, 1995.
(12) Includes 188,970 shares subject to presently exercisable options.
4
<PAGE> 8
By Others. The following table sets forth certain information regarding
each person or entity known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock as of May 13, 1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------------------------------- -------------------- --------
<S> <C> <C>
John W. Gildea(1)............................................... 860,777(2) 6.79%
Network Fund III, Ltd.(1)
Gildea Management Company
115 East Putnam Avenue
Greenwich, CT 06830
</TABLE>
---------------
(1) Based upon a Schedule 13D dated April 30, 1996 filed jointly with the
Securities and Exchange Commission.
(2) Includes 3,000 shares as to which Mr. Gildea has sole voting and dispositive
power of the right to acquire and 111,111 shares as to which Mr. Gildea has
sole dispositive power of the right to acquire (collectively, the "Gildea
Shares") in his individual capacity. Network Fund III, Ltd. ("Network")
disclaims beneficial ownership of the Gildea Shares. Also includes 746,666
shares as to which dispositive power of the right to acquire is shared by
Mr. Gildea and Network. Mr. Gildea is a director and Chairman of Network
and a managing director of Gildea Management Company, which has entered
into an investment advisory agreement with Network. Mr. Gildea also is a
director of the Company. See "Proposal 3" for further information regarding
the Note Purchase Agreement pursuant to which Mr. Gildea and Network
acquired Exchangeable Subordinated Notes and the conversion or exchange of
Exchangeable Subordinated Notes into Common Stock.
5
<PAGE> 9
PROPOSAL 1
ELECTION OF DIRECTORS
The Bylaws give the Board of Directors the power to set the number of
directors at no less than three nor more than fifteen. The number of directors
presently is set at eight. John M. Slocum, presently a director of the Company,
has advised the Company that he will retire from the Board as of the date of the
Annual Meeting, at which time the Board will set the number of Directors at
seven. Seven incumbent directors have been nominated for reelection for one-year
terms expiring at the 1997 Annual Meeting of Stockholders or until their
successors are duly elected and qualified. If any nominee becomes unavailable to
serve before the Annual Meeting, which the Board does not anticipate, the shares
represented by proxy will be voted for a substitute nominee designated by the
Board of Directors. The nominees for election at the Annual Meeting are set
forth below.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
----------------------------------- --- ---------------------------------------- --------------
<S> <C> <C> <C>
J. Dixon Fleming, Jr............... 41 Chairman of the Board of Directors and 1993
Chief Executive Officer of the Company
C. Cammack Morton.................. 44 President and Chief Operating Officer of 1996
the Company
Robert O. Amick.................... 63 President of The Amick Group 1993
B. Mayo Boddie, Sr................. 66 Chairman of the Board of Directors and 1993
Chief Executive Officer of
Boddie-Noell Enterprises, Inc.
J. Richard Futrell, Jr............. 65 Chairman of the Executive Committee and 1993
Director of Centura Banks, Inc.
John W. Gildea..................... 52 General Partner and Managing Director of 1996*
Gildea Management Company and
affiliates
Theodore E. Haigler, Jr............ 71 Former President and Chief Executive 1993
Officer of Burroughs Wellcome Co.
</TABLE>
---------------
* Mr. Gildea became a director of the Company effective May 1, 1996. Mr. Gildea
was nominated to the Company's Board in accordance with the requirements of
the Note Purchase Agreement (the "Note Purchase Agreement") with Blackacre
Bridge Capital, L.L.C. ("Blackacre") and Gildea Management Company ("Gildea")
dated April 2, 1996. See "Proposal 3" for further discussion of the Note
Purchase Agreement.
For information on the business experience of Messrs. Fleming and Morton,
see "Executive Officers."
Robert O. Amick is the President of The Amick Group, a financial consulting
firm that he founded in 1992. Mr. Amick served as Vice President and Controller
of J.C. Penney Co., Inc. from 1982 to 1992 and was a director of J.C. Penney
Business Services, Inc. from 1985 to 1992. Mr. Amick also is a director of
Protection Mutual Insurance Company.
B. Mayo Boddie, Sr. has been Chairman of the Board and Chief Executive
Officer of Boddie-Noell Enterprises, Inc., an operator of Hardee's Restaurant
franchises, since it was founded by Mr. Boddie and his family in 1962. He has
also been Chairman of the Board of Boddie-Noell Restaurant Properties, Inc., a
real estate investment trust, since 1987. Mr. Boddie is a director and a member
of the executive board of First Union National Bank of North Carolina, a
subsidiary of First Union Corporation.
J. Richard Futrell, Jr. is the retired Chairman and Chief Executive Officer
of Centura Banks, Inc. ("Centura"), a position he held from 1989 to 1993. He
currently serves as a member of Centura's Board of Directors and as chairman of
its executive committee.
John W. Gildea has been General Partner and Managing Director of Gildea
Management Company and affiliates since 1990. From 1986 to 1990, he was Senior
Vice President of Donaldson, Lufkin & Jennrette.
6
<PAGE> 10
Mr. Gildea also has been President of Gildea Investment Co., an investment
advisory firm, since 1983. He is a director of The Hain Food Group, Inc. and of
America Service Group, Inc.
Theodore E. Haigler, Jr. served as the President, Chief Executive Officer
and a director of Burroughs Wellcome Co. (now Glaxo Wellcome, Inc.), a
pharmaceutical company, from 1986 until his retirement in 1989. Mr. Haigler also
is a director of Tenax Corporation and was a director of CCB Financial
Corporation, a bank holding company, from 1974 to 1995.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE
ABOVE-LISTED NOMINEES FOR ELECTION AS DIRECTORS.
INFORMATION REGARDING MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and an Executive Compensation
Committee. The Board of Directors does not have a nominating committee. During
the year ended December 31, 1995, the Board of Directors held eight meetings,
the Audit Committee held five meetings and the Executive Compensation Committee
held two meetings. Each director attended at least 75% of the Board of Directors
and assigned committee meetings held during 1995.
Audit Committee. The Audit Committee, which consists of Messrs. Amick,
Futrell and Haigler, makes recommendations concerning the engagement of
independent public accountants, reviews the plans and results of the audit
engagement, approves professional services provided and fees charged by the
independent public accountants, reviews the independence of the independent
public accountants and determines the adequacy of the Company's internal
accounting controls.
Executive Compensation Committee. The Executive Compensation Committee,
which consists of Messrs. Amick, Boddie and Haigler, determines the compensation
of the executive officers and administers the Stock Incentive Plan.
COMPENSATION OF DIRECTORS
The Company pays an annual fee of $12,000 to directors who are not
employees of the Company, plus a fee of $1,000 for each Board of Directors or
assigned committee meeting attended. The annual fee is payable in equal
installments at each regular quarterly meeting. Under the Company's 1995 Outside
Directors' Stock Award Plan (the "Directors' Plan"), one-half of the annual fee
is paid in shares of Common Stock. Each nonemployee director also is reimbursed
for expenses incurred in attending meetings of the Board of Directors and
assigned committees. Employees of the Company who are directors receive no
additional compensation for their service as directors.
INFORMATION REGARDING INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP ("Ernst & Young") served as independent auditors for the
Company for fiscal year 1995. The Audit Committee of the Board of Directors
presently is reviewing the performance of the independent certified public
accountants and thus has not selected a public accountant for fiscal year 1996
for ratification by the stockholders. Representatives of Ernst & Young are
expected to be present at the Annual Meeting. They will be given an opportunity
to make a statement if they desire to do so, and will be available to respond to
appropriate questions.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following table sets forth the compensation of (i) the Chief Executive
Officer, (ii) the four most highly compensated executive officers other than the
Chief Executive Officer who were serving as executive officers at December 31,
1995 and (iii) two former executive officers (collectively, the "Named Executive
Officers") for services rendered in all capacities during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION -------------------------
---------------- RESTRICTED SECURITIES ALL OTHER
SALARY BONUS STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARD($) OPTIONS(#) ($)
------------------------------------- ---- ------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Dixon Fleming, Jr. 1995 297,000 75,625 -- 25,000 4,442(1)
Chairman and Chief Executive 1994 275,000 -- -- -- 3,808(1)
Officer 1993 176,417 -- -- 75,450 --
John N. Nelli 1995 108,898 -- 42,250(2) -- 10,000(3)
Senior Vice President -- Finance
and Chief Financial Officer
Connell L. Radcliff 1995 158,654 41,250 -- 18,000 3,332(l)
Senior Vice President -- Retail 1994 150,000 -- -- -- 3,173(1)
Development 1993 106,391 -- -- 45,250
David A. Hodson(4) 1995 243,000 61,875 -- 23,000 3,635(1)
Former President and Chief 1994 225,000 -- -- -- 3,115(1)
Financial Officer 1993 144,250 -- -- 62,300
John M. Slocum(4) 1995 213,231 44,000 -- 20,000 --
Former Executive Vice President and 1994 160,000 -- -- -- --
Chief Operating Officer 1993 102,533 -- -- 45,250 --
</TABLE>
---------------
(1) Consists of matching contributions to the Company's 401(k) Retirement and
Savings Plan.
(2) Pursuant to an employment agreement entered into between the Company and Mr.
Nelli in February 1995, the Company agreed to issue Mr. Nelli 1,000 shares
of Common Stock on each of the first two anniversaries of his employment by
the Company, provided he remained employed by the Company on each such
date. The amount presented reflects the market value of 2,000 shares of
Common Stock on the effective date of Mr. Nelli's employment agreement. At
December 31, 1995, the market value of such shares was $26,250.
(3) Consists of relocation allowance paid by the Company.
(4) Mr. Hodson resigned from the Company on December 31, 1995. Mr. Slocum
resigned as an officer of the Company on September 18, 1995. See "Executive
Compensation -- Severance Agreements," for a discussion of amounts paid to
Messrs. Hodson and Slocum in connection with termination of their
employment.
8
<PAGE> 12
STOCK OPTIONS
The following table provides certain information regarding the stock
options granted during 1995 under the Stock Incentive Plan to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM
OPTIONS GRANTED FISCAL YEAR PRICE EXPIRATION ---------------------
NAME (#) (%) ($) DATE 5%($) 10%($)
--------------------------- --------------- ------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
J. Dixon Fleming, Jr....... 25,000(2) 24.51 21.50 1/25/05 338,034 856,614
Connell L. Radcliff........ 18,000(2) 17.65 21.50 1/25/05 243,384 616,762
David A. Hodson(3)......... 23,000(4) 22.55 21.50 1/31/02 310,991 788,085
John M. Slocum(3).......... 20,000(4) 19.60 21.50 1/31/02 270,427 685,291
</TABLE>
---------------
(1) With respect to options granted to Mr. Morton, see "Employment
Agreements -- Long-Term Compensation."
(2) Options vest at the rate of 20% per year over five years beginning in
January 1996.
(3) Messrs. Hodson and Slocum have resigned from the Company.
(4) Pursuant to severance arrangements with Messrs. Hodson and Slocum, all
options granted to each of them became fully vested. See "Severance
Agreements".
The following table sets forth certain information concerning the number of
shares of Common Stock underlying options held by each of the Named Executive
Officers and the value of such options at December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FISCAL OPTIONS AT
YEAR-END FISCAL YEAR-END
(#) ($)
--------------------- --------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
---------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
J. Dixon Fleming, Jr...................................... 64,270/50,180 (1)
Connell L. Radcliff....................................... 30,750/32,500 (1)
David A. Hodson(2)........................................ 99,300/0 (1)
John M. Slocum(2)......................................... 65,250/0 (1)
</TABLE>
---------------
(1) At December 31, 1995, no options were in-the-money.
(2) Messrs. Hodson and Slocum have resigned from the Company.
9
<PAGE> 13
LONG-TERM COMPENSATION
The following table sets forth certain information regarding long-term
incentive awards made to the Named Executive Officers during 1995.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES OTHER PERIOD UNTIL
NAME (#) MATURATION OR PAYOUT
----------------------------------------------------------------- --------- --------------------
<S> <C> <C>
J. Dixon Fleming, Jr............................................. 90,000 10 years(2)
</TABLE>
---------------
(1) With respect to options granted to Mr. Morton, see "Employment
Agreements -- Long-Term Compensation."
(2) Vesting occurs in five equal annual installments, provided Mr. Fleming
continues to be employed by the Company, commencing on the later to occur
of (i) the average closing price of the Common Stock on the New York Stock
Exchange ("NYSE") equaling $16.00 or more per share for any five
consecutive trading days or (ii) December 14, 2001.
EMPLOYMENT AGREEMENTS
Annual Compensation and Basic Terms. The Company is a party to employment
agreements with Messrs. Fleming, Morton, Nelli and Radcliff. The agreements with
Messrs. Fleming and Morton were entered into in December 1995 and provide for an
initial three-year term which is automatically extended for an additional year
at the end of each year of the agreement, subject to the right of either party
to terminate as of the end of the then-existing three-year term by giving one
year's prior written notice. The agreement with Mr. Radcliff was entered into in
May 1993 and provided for an initial two-year term, which has been extended
through May 1997. The agreement with Mr. Nelli was entered into in February 1995
and provides for an initial two-year term. Pursuant to their respective
agreements, each executive is required to devote his entire business time to the
Company and is prohibited from competing with the Company for a period of one
year following termination of employment. Under the agreements, the current base
annual salaries are as follows: Mr. Fleming -- $285,000; Mr. Morton -- $275,000;
Mr. Nelli -- $131,250; and Mr. Radcliff -- $175,000. The base annual salaries
are subject to periodic increases based upon the performance of the Company and
the executive. If the employment of any executive is terminated "without cause"
(as defined in the agreements), such executive will be entitled to (i) the
greater of the base salary payable to the executive for the remainder of the
then existing employment term or one year's base salary, (ii) in the case of
Messrs. Fleming and Morton, the product of the number of years representing the
unexpired term of the agreement and an amount equal to the average bonuses paid
to such executive over the three years immediately prior to termination, and in
the case of Messrs. Nelli and Radcliff, a pro rata portion of any incentive
compensation or bonus payable for the year of termination and (iii) certain
other accrued benefits.
Long-Term Compensation. The employment agreements entered into with
Messrs. Fleming and Morton provide for a grant of 90,000 shares of restricted
stock to each executive. These grants were made in April 1996 pursuant to
agreements under the Company's 1996 Restricted Stock Plan. The restricted stock
will vest in five equal annual installments, provided each executive continues
to be employed by the Company, commencing on the later to occur of (i) the
average closing price of the Common Stock on the NYSE equaling $16.00 or more
per share for any five consecutive trading days (the "Share Price Goal") or (ii)
December 14, 2001. If the Company (i) does not extend the executive's employment
agreement beyond its initial three-year term or (ii) terminates the executive
"without cause" (as defined in their respective employment agreements), then (a)
if the Share Price Goal has been met at any time during the initial three-year
term, all unvested shares of restricted stock become fully vested or (b) if the
Share Price Goal has not been met during such period, the executive will forfeit
74,000 shares of restricted stock and the remaining 16,000 shares become fully
vested. Each executive officer with restricted stock is entitled to receive
dividends
10
<PAGE> 14
on unvested shares of restricted stock only if such dividends are reinvested (on
an after-tax basis) to purchase additional shares of Common Stock on the open
market.
In addition, Mr. Morton's employment agreement provides for the grant of
options to purchase 300,000 shares of the Common Stock. In February 1996, the
Company granted an incentive option under the Stock Incentive Plan to Mr. Morton
to purchase 48,500 shares at an exercise price of $10.25 per share, of which
9,700 shares vested on the date of grant and 38,800 shares will vest in equal
annual installments over four years beginning February 1997. A nonqualified
option to purchase the remaining 251,500 shares at the same exercise price was
approved by the Executive Compensation Committee in February 1996, subject to
stockholder approval of the Stock Plan Amendment. Of the shares subject to this
option, 51,300 shares will vest upon stockholder approval of the Stock Plan
Amendment and 201,200 shares will vest in equal annual installments over four
years beginning in February 1997.
Pursuant to his February 1995 employment agreement, the Company agreed to
issue to Mr. Nelli 1,000 shares of Common Stock in February 1996 and 1,000
shares in February 1997 provided Mr. Nelli was employed by the Company on each
such date.
SEVERANCE AGREEMENTS
The Company was party to an employment agreement with John M. Slocum which
was substantially similar to the agreements of Messrs. Radcliff and Nelli.
Pursuant to a severance agreement entered into in November 1995, Mr. Slocum will
receive a severance payment of $264,000, an amount which approximates the base
salary that would have been paid through the remaining term of his employment
agreement. In addition to the severance payment, the agreement provides that the
47,150 unvested options held by Mr. Slocum on the effective date of the
agreement would immediately vest and, along with the 18,100 vested options held
by Mr. Slocum on that date, will remain outstanding and exercisable through
January 31, 2002. Moreover, Mr. Slocum is eligible to continue to participate in
the Company's medical and dental insurance plans, at no expense to Mr. Slocum
other than standard deductible and co-payment amounts, through May 1997. Mr.
Slocum will remain a director until the Annual Meeting.
In November 1995, Mr. Hodson entered into a severance agreement with the
Company pursuant to which his employment relationship with the Company was
terminated on December 31, 1995. Pursuant to the severance agreement, the
post-termination noncompete provision under Mr. Hodson's employment agreement
was extended from one to two years and Mr. Hodson will receive a severance
payment of $950,000. The severance agreement also provides that the 60,380
unvested options held by Mr. Hodson on the effective date of the agreement would
immediately vest and, along with the 38,920 vested options held by Mr. Hodson on
that date, will remain outstanding and exercisable through January 31, 2002.
Moreover, Mr. Hodson is eligible to continue to participate in the Company's
medical and dental insurance plans, at no expense to Mr. Hodson other than
standard deductible and co-payment amounts, through May 1997. Mr. Hodson
resigned as a director of the Company in February 1996.
CHANGE IN CONTROL ARRANGEMENTS
Under the employment agreements, termination "without cause" includes any
termination resulting from a "change in control" of the Company. The term
"change in control" generally is defined under the employment agreements to
include the first to occur of the following: (i) any person or group owns or
controls 50% or more of the outstanding Common Stock, (ii) any person or group
who owned less than 5% of the outstanding Common Stock on the date of the
agreement owns 20% or more of the outstanding Common Stock or (iii) the
stockholders of the Company approve a business combination that will result in a
change in ownership of 20% or more of the outstanding Common Stock.
Upon the occurrence of a "change in control" of the Company (as defined in
the Stock Incentive Plan), all stock options granted thereunder become
immediately vested and exercisable in full. "Change in control" generally is
defined under the Stock Incentive Plan to occur at such time as any person or
group beneficially owns at least 25% of the outstanding Common Stock.
11
<PAGE> 15
If the Share Price Goal provided under the restricted stock agreements
entered into with Messrs. Fleming and Morton has not been met and (i) the
executive elects to terminate his employment in connection with a "change in
control" (as defined in the restricted stock agreement), all shares of
restricted stock vest as follows: (a) 16,000 shares on the date of termination
and (b) 37,000 shares on each of the first and second anniversary of the
termination; or (ii) the executive's employment is terminated without cause
three months prior to or within one year following (a) a "change in control" or
(b) the execution of a definitive agreement pursuant to which a change of
control would occur, all shares of restricted stock vest.
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The philosophy of the Executive Compensation Committee (the "Committee")
with respect to the compensation of the Company's executive officers is (i) to
provide a competitive total compensation package that enables the Company to
attract and retain qualified executives and align the compensation of such
executives with the Company's overall business strategies and (ii) to provide
each executive officer with a significant equity stake in the Company. To this
end, the Committee determines executive compensation consistent with a
philosophy of compensating executive officers based on their responsibilities
and the Company's performance. The primary components of the Company's executive
compensation program are (i) base salaries, (ii) bonuses for certain executive
officers; (iii) stock options and (iv) restricted stock. Each of these elements
is discussed below.
Base Salaries. The annual base salaries of each of the Named Executive
Officers have been established pursuant to employment agreements entered into
between each officer and the Company. The annual base salaries provided in the
agreements are subject to periodic increases or decreases to be determined by
the Committee in its discretion based upon (i) a qualitative review of the
performance of the Company and the executive and (ii) the compensation of
executives with similar responsibilities employed by companies similar in size
to the Company. The Committee has no established formula or methodology for
making such determinations. See "Employment Agreements Annual Compensation and
Basic Terms."
Bonuses. In connection with the Company's initial public offering, the
Company disclosed that it intended to implement a bonus plan for its executive
officers and certain key employees. Pursuant to the proposed bonus plan, covered
individuals would be able to earn cash bonuses if the Company's funds from
operations (which generally represent net income (loss), excluding gains
(losses) from sales of property, plus certain noncash items, primarily
depreciation and amortization) per share increased by more than five percent
from the previous year's level. The amount of the bonus received would be based
on a formula determined for each employee by the Committee, but would not exceed
50% of base salary.
In February 1995, the Committee determined that it was appropriate to
provide for possible bonuses in accordance with the intent of the foregoing
bonus plan based primarily upon the increase in the Company's funds from
operations per share of approximately 53% more than the level achieved in 1993.
In determining the amount of the potential bonus for each executive officer
(other than Mr. Fleming), the Committee considered and approved Mr. Fleming's
recommendation that Messrs. Hodson, Slocum and Radcliff each receive a potential
bonus equal to 50% of their annual base salaries. These bonuses were not deemed
to be earned in 1994 because payment, if any, was contingent upon the Company's
successful completion of a securitized debt offering of approximately $95
million. The securitized debt offering was completed in the second quarter of
1995. Subsequently, the Committee, upon the recommendation of Mr. Fleming,
determined to reduce the potential bonuses to approximately 25% of the
then-current annual base salaries of Messrs. Hodson, Slocum and Radcliff, which
amounts were paid in August 1995.
Stock Options. All of the Company's executive officers are eligible to
receive options to purchase shares of Common Stock granted under the Stock
Incentive Plan. The Committee believes that stock option grants are a valuable
motivating tool and provide a long-term incentive to management. The Committee
also believes that issuing stock options to executives benefits the Company's
stockholders by encouraging executives to own the Company's stock, thus aligning
executive pay with stockholder interests. In keeping with these beliefs, the
Committee granted stock options in 1995 to existing executive officers based on
the Committee's qualitative review of the executive's contribution to the
overall performance and growth of the Company during 1994 and
12
<PAGE> 16
the Committee's desire to provide incentives to existing executive officers to
enhance stockholder value over a five-year period. Options also were granted
during 1995 to certain new executive officers as an inducement for them to enter
into employment agreements with the Company.
Restricted Stock. As one of the inducements to Mr. Morton to enter into an
employment agreement with the Company, the Company agreed to adopt a restricted
stock plan to provide restricted stock awards to Mr. Morton and to give the
Committee more flexibility in designing equity-based compensation arrangements
to attract and retain executives and other key employees. Accordingly, in
December 1995, the Board of Directors adopted the Company's 1996 Restricted
Stock Plan (the "Restricted Stock Plan") and reserved 350,000 shares of Common
Stock for issuance thereunder. During 1995, the Company agreed to grant 108,667
shares of restricted stock to three new executive officers as an inducement for
them to enter into employment agreements with the Company, including a
restricted stock award of 90,000 shares to Mr. Morton. See "Employment
Agreements -- Long-Term Compensation." The Committee determined that these
grants were appropriate features of the compensation arrangements designed to
attract and retain these executive officers. In connection therewith, a
restricted stock grant also was made to the Chief Executive Officer. See
"-- Chief Executive Officer's Compensation."
Chief Executive Officer's Compensation. Mr. Fleming's employment agreement
was amended in December 1995 in order to align his base salary, bonus and fringe
benefits with the compensation package developed to induce Mr. Morton to enter
into an employment agreement with the Company. Mr. Fleming's current
compensation consists of an annual base salary of $285,000, which is subject to
periodic increases to be determined by the Committee in its discretion based
upon (i) a qualitative review of the performance of the Company and Mr. Fleming
and (ii) the compensation of executives with similar responsibilities employed
by companies similar in size to the Company.
Consistent with the intent of the bonus plan discussed above under
"Bonuses," the Committee determined to provide for a possible bonus to Mr.
Fleming equal to 50% of his annual base salary. The potential bonus was based
primarily on the increase of approximately 53% in the Company's funds from
operations per share in 1994. Mr. Fleming's bonus was not considered to be
earned in 1994 because payment of the bonus, if any, was contingent upon the
successful completion by the Company of a proposed securitized debt offering of
approximately $95 million. See "Bonuses" above. The securitized debt offering
was completed in the second quarter of 1995. Subsequently, the Committee,
consistent with the bonus reductions for other executive officers, determined to
reduce Mr. Fleming's bonus to 25% of his then-current annual base salary and
this amount was paid in August 1995.
The stock option granted to Mr. Fleming in 1995 was based on a qualitative
evaluation by the Committee of Mr. Fleming's contribution to the overall
performance and growth of the Company during 1994. In order to provide Mr.
Fleming with an additional incentive to enhance long-term shareholder value, the
amendment to Mr. Fleming's employment agreement also provided for a grant of
90,000 shares of restricted stock, the vesting of which is subject to continued
employment by the Company for a period of ten years or the attainment of certain
share price goals. See "Employment Agreements -- Long-Term Compensation."
Section 162(m) of the Internal Revenue Code. The Company does not expect
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), to
affect the deductibility for federal income tax purposes of the compensation of
the Company's executive officers in 1995. In the future, the Company intends to
review periodically the applicability of Section 162(m) to the Company's
compensation programs, including its potential impact on stock options and
restricted stock awarded to executive officers, and, if considered appropriate,
to develop a policy with respect to the Company's compliance with Section
162(m).
Theodore E. Haigler, Jr., Chairman
B. Mayo Boddie, Sr.
Robert O. Amick
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the following individuals (none of whom was or had been an
officer or employee of the Company) served on the Company's Executive
Compensation Committee: Theodore E. Haigler, Jr., B. Mayo Boddie, Sr. and Robert
O. Amick. There were no interlocks with other companies within the meaning of
the SEC's proxy rules during 1995.
CERTAIN TRANSACTIONS
On May 5, 1995, the Company agreed to purchase two parcels of land near its
Smithfield, North Carolina factory outlet center totaling 3.39 acres for
$507,000 from a general partnership, of which Mr. Fleming and three members of
his immediate family are general partners. The parcels will be used as part of
the expansion of the Smithfield center. Both parcels had been owned by the
partnership in excess of two years prior to the sale. The purchase price was
approved by the Board of Directors based upon an independent appraisal.
On May 5, 1995, the Company agreed to purchase a 1.55 acre parcel of land
near its Smithfield factory outlet center for $228,000 from a general
partnership, of which Messrs. Fleming and Hodson are general partners, each
owning a 10% interest in the partnership. The parcels will be used as part of
the expansion of the Smithfield center. The parcel had been owned by the
partnership in excess of two years prior to the sale. The purchase price was
approved by the Board of Directors based upon an independent appraisal.
PERFORMANCE GRAPH
Set forth is a line graph comparing the yearly percentage change in the
Company's cumulative total return on the Common Stock with the cumulative total
return of a hypothetical investment in each of the Standard & Poor's
Composite-500 Index (the "S&P Index") and the NAREIT Equity REIT Total Return
Index (the "REIT Index") based on the respective market prices of each such
investment on the dates shown below, assuming an initial investment of $100 in
the Common Stock on June 3, 1993 (the date of the Company's initial public
offering) and the reinvestment of dividends.
FACTORY STORES OF AMERICA, INC.
[GRAPH]
<TABLE>
<CAPTION>
FACTORY
MEASUREMENT PERIOD STORES OF NAREIT
(FISCAL YEAR COVERED) AMERICA, INC. S & P 500 EQUITY REIT
<S> <C> <C> <C>
6/93 100 100 100
12/93 104 105 101
12/94 97 106 104
12/95 68 146 120
</TABLE>
14
<PAGE> 18
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and owners of more than 10% of the
Company's Common Stock ("10% beneficial owners") to file with the Securities and
Exchange Commission (the "SEC") and the NYSE initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Executive officers, directors and 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all forms they
file pursuant to Section 16(a). Based solely upon a review of Forms 3, 4 and 5
and amendments thereto furnished to the Company during the year ended December
31, 1995, the Company believes that all required Section 16(a) reports were
filed on a timely basis except (i) the Initial Statement of Beneficial Ownership
of Securities on Form 3 ("Form 3") for John N. Nelli, (ii) a Statement of
Changes in Beneficial Ownership on Form 4 ("Form 4") reporting a sale
transaction by John M. Slocum, and (iii) an amendment to a Form 3 reporting
Common Stock held by C. Cammack Morton under a self-directed Keogh plan and a
Form 4 reporting an award of restricted stock to Mr. Morton.
PROPOSAL 2
THE STOCK PLAN AMENDMENT
REASONS FOR AMENDMENT
The Board of Directors proposes that the stockholders approve the Stock
Plan Amendment to increase the number of shares of Common Stock reserved for
issuance thereunder (the "Plan Shares") from 525,000 to 1,100,000. No other
amendment to the Stock Incentive Plan is proposed at this time, and the Board
does not contemplate adjusting or amending the exercise price of any outstanding
options. As of April 16, 1996, options to purchase 458,000 Plan Shares had been
granted under the Stock Incentive Plan. In addition, the Company has entered
into an employment agreement with Mr. Morton that provides, subject to approval
of Proposal 2, for the issuance to Mr. Morton of options to purchase 251,000
shares of Common Stock. See "Executive Compensation -- Long Term Compensation."
The Board of Directors believes that it is in the best interests of the Company
and its stockholders to approve the Stock Plan Amendment to enable the Company
to continue to grant options in the future to secure and retain the services of
key employees. Moreover, the Board of Directors believes the additional
financial incentive inherent in new or additional ownership of shares of the
Common Stock by its key employees is beneficial to the Company.
SUMMARY PLAN DESCRIPTION
General. Stock options intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations promulgated thereunder, as well as
"nonqualified stock options," may be granted under the Stock Incentive Plan.
Unless specified to the contrary, the terms "option" and "stock option," when
used in this summary description, refer to both incentive stock options and
nonqualified stock options. An aggregate of 525,000 shares of Common Stock
initially was reserved for issuance under the Stock Incentive Plan. The Stock
Plan Amendment would increase the aggregate number of Plan Shares to 1,100,000,
subject to adjustment for stock dividends, stock splits and certain other
changes in the Company's capitalization. The Stock Incentive Plan expires on
March 30, 2003. Any stock option outstanding at the expiration date will remain
outstanding until it has either expired or been exercised.
Administration. The Stock Incentive Plan is administered by the Committee.
The Committee has full authority to determine and designate employees eligible
to receive option grants and to determine the nature and terms of such grants.
The interpretation and construction by the Committee of any provision of the
Stock Incentive Plan or of any stock option granted under it and the
administration of the Stock Incentive Plan by the Committee is final.
Eligible Employees. The Committee selects the key employees of the Company
who will be granted options under the Stock Incentive Plan. The approximate
number of employees of the Company currently eligible to participate in the
Stock Incentive Plan is 94.
15
<PAGE> 19
Grant of Options. Subject to certain limitations explained below, the
Committee may grant stock options from time to time during the period that the
Stock Incentive Plan is in effect to such key employees of the Company as in the
opinion of the Committee will best further the interests of the Company and
achieve the purposes of the Stock Incentive Plan. No option under the Stock
Incentive Plan will be granted to any individual who, at the time of grant, is
not an employee of the Company (or agreed to become an employee), or who is a
member of the Committee. The Committee may not grant incentive stock options to
an employee if the aggregate fair market value (determined at the time the
incentive stock option is granted) of shares of Common Stock with respect to
which incentive stock options are exercisable for the first time by such
employee during any calendar year (under all option plans of the Company) will
exceed $100,000.
Exercise. Stock options, to the extent vested, may be exercised in whole
or in part upon payment of the exercise price of the shares to be acquired.
Payment shall be made in cash, or, at the discretion of the Committee, in shares
of Common Stock previously acquired by the optionee, or in a combination of cash
and such shares. The fair market value of shares of Common Stock tendered on
exercise of the stock option shall be determined on the date of exercise.
Stock options may also be exercised in whole or in part by giving an
irrevocable written notice of exercise to the Company. The date on which such
notice is received by the Company shall be the date of exercise of the stock
option, provided that within five business days of delivery of such notice the
funds to pay for the exercise of such option are delivered to the Company by a
broker acting on behalf of the optionee either in connection with the sale of
the shares underlying such stock option or in connection with the making of a
margin loan to the optionee to enable payment of the exercise price of such
stock option.
Option Price. The option price per share of Common Stock to be paid upon
the exercise of an option will not be less than the fair market value per share
(determined as described below) at the time the option is granted. If an
employee, at the time an incentive stock option is granted to him, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (taking into account the attribution of stock ownership
rules set forth in Section 424(d) of the Code), the option price per share to be
paid upon the exercise of such incentive stock option will not be less than 110%
of the fair market value per share at the time the incentive stock option is
granted. Such fair market value will be the closing sale price per share of
Common Stock (or in the event there are no sales, then the average of the
opening bid and asked prices per share of Common Stock) on the NYSE on the last
trading day preceding the date on which the option is granted.
Transfer and Termination of Options. An option may not be transferred by
the optionee other than by will or the laws of descent and distribution. An
option may be exercised during the optionee's lifetime only by the optionee or
his duly authorized legal representative if the optionee is unable to exercise
his option as a result of the optionee's disability, but only if and to the
extent permitted by Section 422 of the Code, and, after his death, only by the
administrator or executor of the optionee's estate. If an optionee leaves the
Company's employment voluntarily or is released by the Company for "cause" (as
that term is defined in the Stock Incentive Plan), options granted to that
optionee terminate on the effective date of termination of the optionee's
employment. An uninterrupted transfer of an optionee's employment to or between
the Company and/or any parent or subsidiary corporation of the Company is not
deemed to be a termination of employment.
If an optionee becomes permanently and totally disabled (within the meaning
of Section 22(e)(3) of the Code) while employed by the Company, any option
granted to him shall be exercisable only for the one year succeeding cessation
of employment due to such disability. If an optionee dies while employed by the
Company, an option granted to him shall be exercisable by his administrator or
executor for one year after the optionee's death. If an optionee's employment is
terminated by the Company without "cause", any incentive stock options held by
an optionee must be exercised within three months of the date of such
termination and any other options granted to the optionee must be exercised
within one year following such termination.
Notwithstanding the foregoing, no option may be exercised after the
expiration of the option period. Upon the occurrence of a change in control of
the Company (as defined in the Stock Incentive Plan), all stock options granted
under the Stock Incentive Plan become immediately vested and exercisable in
full.
16
<PAGE> 20
Adjustment of Shares. The Committee automatically shall adjust the number
and kind of shares, both in the aggregate and as to each optionee, available for
and subject to options and the option price payable upon exercise thereof to
prevent dilution or enlargement of option rights in the event of a change in the
number of kind or outstanding shares of the Company by reason of
recapitalization, merger, consolidation, reorganization, stock split, stock
dividend, combination of shares or any other change in the corporate structure
or shares of stock of the Company.
Termination and Amendment of the Stock Incentive Plan. Options may be
granted under the Stock Incentive Plan at any time until and including March 30,
2003, on which date the Stock Incentive Plan will expire except as to options
then outstanding. Options outstanding at that time will remain in effect until
they have been exercised or have expired.
The Board of Directors may alter, amend or revoke the Stock Incentive Plan
in whole or in part at any time; provided, however, that in no event, without
the approval of the stockholders, shall any action of the Board of Directors
result in: (i) materially amending, modifying or altering the eligibility
requirements provided in the Stock Incentive Plan; (ii) materially increasing,
except as provided in the Stock Incentive Plan, the maximum number of shares of
Common Stock that may be made subject to grants under the Stock Incentive Plan;
(iii) materially increasing the benefits accruing to participants under the
Stock Incentive Plan; (iv) reducing the minimum option price requirements; (v)
modifying the Stock Incentive Plan in any manner requiring stockholder approval
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended, as the
Rule may be amended from time to time.
Federal Tax Consequences. The following is a summary only of the general
tax principles applicable to the Stock Incentive Plan under federal law as in
effect on the date of this Proxy Statement.
Incentive Stock Options. There are no tax consequences to the optionee
upon the grant of an incentive stock option pursuant to the Stock Incentive
Plan. There are no tax consequences to the optionee upon exercise of an
incentive stock option, except that the amount by which the fair market value of
the shares at the time of exercise exceeds the option exercise price is a tax
preference item possibly giving rise to alternative minimum tax. If the shares
of Common Stock acquired are not disposed of within two years from the date the
option was granted or within one year after the shares are transferred to the
optionee, any gain realized upon the subsequent disposition of the shares will
be characterized as long-term capital gain and any loss will be characterized as
long-term capital loss. If all requirements other than the above described
holding period requirements are met, a "disqualifying disposition" occurs and
gain in an amount equal to the lesser of (i) the fair market value of the shares
on the date of exercise minus the option exercise price or (ii) the amount
realized on disposition minus the option exercise price (except for certain
"wash" sales, gifts or sales to related persons), is taxed as ordinary income
and the Company will be entitled to a corresponding deduction in an amount equal
to the optionee's ordinary income at that time. The gain in excess of this
amount, if any, will be characterized as long-term capital gain if the optionee
held the shares for more than one year. There are no tax consequences to the
Company upon the grant of an incentive stock option nor upon the exercise of an
incentive stock option unless a "disqualifying disposition" occurs.
Nonqualified Stock Options. There are no tax consequences to the optionee
upon the grant of a nonqualified option pursuant to the Stock Incentive Plan.
Upon the exercise of a nonqualified stock option, taxable ordinary income will
be recognized by the holder in an amount equal to the excess of the fair market
value of the shares purchased at the time of such exercise over the aggregate
option price. The Company will be entitled to a corresponding federal income tax
deduction. Upon any subsequent sale of the shares, the optionee will generally
recognize a taxable capital gain or loss based upon the difference between the
per share fair market value at the time of exercise and the per share selling
price at the time of the subsequent sale of the shares.
The following table shows as to (a) the Chief Executive Officer; (b) the
other current executive officers named on the Summary Compensation Table; (c)
certain former executive officers named on the Summary Compensation Table; (d)
all current and certain former executive officers as a group; and (e) all other
employees as a group, the aggregate number of Plan Shares subject to options
granted during 1993, 1994, 1995 and through the Record Date, and the per share
exercise price of such options, all of which were at the fair
17
<PAGE> 21
market value on the date of grant. The following table also shows the number of
Plan Shares underlying options granted to Mr. Morton in February 1996 and
options to be granted to Mr. Morton pursuant to his employment agreement if the
Stock Plan Amendment is approved. As of May 2, 1996, the closing price of the
Common Stock on the NYSE was $9.625 per share.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1996 (PROPOSED)
------------------ ----------------- ------------------ ------------------ ------------------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------ -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Dixon Fleming, Jr. .... 75,450 $23.00 -- $-- 25,000 $21.50 -- $ -- -- --
C. Cammack Morton......... -- -- -- -- -- -- 48,500 $10.25 251,500 $10.25
Connell L. Radcliff....... 45,250 23.00 -- -- 18,000 21.50 -- -- -- --
John N. Nelli............. -- -- -- -- -- -- 20,000 10.25 -- --
David A. Hodson*.......... 62,300 23.00 -- -- -- -- -- -- -- --
John M. Slocum*........... 45,250 23.00 -- -- 23,000 21.50 -- -- -- --
Current and certain former
executive officers as a
group (8 persons)....... 252,500 23.00 -- -- 102,000 21.50 103,500 10.25 251,500 10.25
All other employees as a
group (89).............. -- -- -- -- -- -- -- -- -- --
</TABLE>
---------------
* Messrs. Hodson and Slocum have resigned from the Company.
RECOMMENDATION OF THE BOARD
THE BOARD HAS DETERMINED THAT THE STOCK PLAN AMENDMENT IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
STOCK PLAN AMENDMENT AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE STOCK PLAN AMENDMENT.
PROPOSAL 3
AMENDMENT OF THE CHARTER TO AUTHORIZE PREFERRED STOCK
AND APPROVAL OF ISSUANCE OF CONVERTIBLE PREFERRED STOCK AND
UNDERLYING COMMON STOCK
Pursuant to a Note Purchase Agreement (the "Note Purchase Agreement")
entered into by the Company with Blackacre Bridge Capital, L.L.C. ("Blackacre")
and Gildea Management Company ("Gildea") on April 2, 1996, the Company has
agreed to issue to designees of Blackacre and Gildea up to $25 million in
principal amount of Exchangeable Subordinated Notes (the "Exchangeable Notes")
that would be exchangeable into Series A Convertible Preferred Stock of the
Company, par value $25.00 per share (the "Series A Preferred Stock") upon
receipt of requisite stockholder approval.
At present, the Company is not authorized to issue preferred stock. The
Note Purchase Agreement requires the Company to solicit stockholder approval of
(i) an amendment to the Charter to authorize preferred stock and (ii) the
issuance of the Series A Preferred Stock and Common Stock into which the
Preferred Stock would be convertible. As of May 2, 1996, in consideration for
cash payment to the Company of the face value thereof, $20 million in aggregate
principal amount of Exchangeable Notes had been issued. Assuming stockholder
approval of Proposal 3 and the issuance of all $25 million in principal amount
of Exchangeable Notes, such issued and outstanding Exchangeable Notes would be
mandatorily exchangeable without payment of additional consideration for
1,000,000 shares of Series A Preferred Stock, which would be convertible without
additional consideration at the holder's option into 2,777,778 shares of Common
Stock, or Common Stock representing approximately 23% of all currently issued
and outstanding Common Stock. The Company is utilizing the net proceeds of the
issuance of the Exchangeable Notes to repay certain indebtedness, to complete
construction on several development projects and for working capital.
If the stockholder approval contemplated by the Note Purchase Agreement is
not obtained, each Exchangeable Note will become convertible at the option of
the holder into Common Stock as described
18
<PAGE> 22
below. Any Exchangeable Note issued and outstanding on December 31, 1996 will
mature and all principal and interest thereon will then be due and payable.
The Board of Directors unanimously recommends the approval of (i) proposed
amendments to the Charter which would authorize "blank check" preferred stock,
issuable in one or more series (the "Charter Amendments") and (ii) the issuance
as described below of the Series A Preferred Stock and Common Stock issuable
upon conversion of the Series A Preferred Stock. If Proposal 3 is approved by
the stockholders, the Charter Amendments will be filed by the Company with the
Secretary of State of the State of Delaware (the "Delaware Secretary") and will
become effective upon the date of filing. In addition, if Proposal 3 is
approved, the Company is required by the Note Purchase Agreement to file with
the Delaware Secretary of the Certificate of Designation, Preferences and Rights
(the "Certificate of Designation") relating to the Series A Preferred Stock and
to issue the Series A Preferred Stock in exchange for the Exchangeable Notes.
The complete text of the Charter Amendments and the Certificate of Designation
is set forth at Appendix A and Appendix B, respectively. The descriptions of the
Charter Amendments, the Certificate of Designation and the terms of the Series A
Preferred Stock set forth below do not purport to be complete and are qualified
in their entirety by reference to Appendix A and Appendix B, which are
incorporated by reference herein.
Preferred Stock Authorization
The Charter currently authorizes the issuance of up to 75,000,000 shares of
capital stock of the Company, 50,000,000 of which have been classified initially
as common stock, $0.01 par value (the "Common Stock") and 25,000,000 of which
have been classified initially as "Excess Stock".
The Charter Amendments would authorize the Board of Directors of the
Company to reclassify any unissued portion of the authorized shares of capital
stock to provide for the issuance of shares in other classes or series,
including other classes or series of common stock or preferred stock of the
Company, to establish the number of shares in each class or series and to fix
the designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series, and such other subjects or
matters with respect to such class or series as may be fixed by resolution of
the Board of Directors. Except as otherwise required by applicable law,
regulation or stock exchange rules, shares of stock classified or reclassified
by the Board of Directors pursuant to the Charter Amendments could be issued
without further action by the stockholders and on such terms and for such
consideration as may be determined by the Board of Directors. Applicable New
York Stock Exchange ("NYSE") policies presently would require the Company to
obtain stockholder approval for any issuance of common stock (or securities
convertible into or exercisable for common stock), other than a public offering
for cash, if (i) the common stock will have upon issuance 20% or more of the
Company's voting power then-outstanding, or (ii) the number of shares of common
stock is 20% or more of the number of shares of Company common stock
then-outstanding (the "NYSE 20% Rule").
Management believes that the availability of preferred stock would provide
the Company greater flexibility with respect to future financings and
acquisitions and may prove useful in connection with financing the capital needs
of the Company and possible future acquisitions and mergers. The authorization
of preferred stock will enable the Company to act promptly if appropriate
circumstances arise which require the issuance of such shares.
The authorization of new shares of preferred stock will not, by itself,
have any effect on the rights of the holders of shares of Common Stock.
Nonetheless, the issuance of one or more series of preferred stock could affect
the holders of shares of the Common Stock in a number of respects, including the
following: (i) holders of newly issued preferred stock may be given priority in
the event of a liquidation, dissolution or winding up of the Company, (ii) if
voting rights are granted to any newly issued series of preferred stock, the
voting power of the Common Stock will be diluted, (iii) the issuance of
preferred stock may result in a dilution of earnings per share of the Common
Stock, (iv) dividends payable on any newly issued series of preferred stock may
reduce the amount of funds available for payment of dividends on the Common
Stock, and (v) future amendments to the Charter affecting preferred stock may
require approval by the separate vote of the holders of the preferred
19
<PAGE> 23
stock (in addition to approval of holders of shares of Common Stock) before
action can be taken by the Company.
Although the availability of the preferred stock authorized by the Charter
Amendments may enable the Company to engage in transactions, such as stock
placements or acquisitions, which could aid management in defending against an
unsolicited bid for control of the Company, the Board believes that utilization
of preferred stock for this purpose is unlikely. As a qualified real estate
investment trust, the Company is subject to provisions of the Internal Revenue
Code that limit concentration of ownership of its shares and the Charter
authorizes the Company to redeem and stop transfer of shares to preserve its
real estate investment trust qualification. Management believes, therefore, that
unsolicited change of control transactions are unlikely.
As set forth at Appendix A, the Charter Amendments include a number of
technical amendments to the Charter to accommodate the possibility that the
Company may issue preferred stock. Thus, definitions and other provisions,
including applicable stock legends, have been amended to include references to
preferred stock. In addition, if Proposal 4, regarding amendment of the Charter
to change the Company's name, is approved, all references to "Factory Stores of
America, Inc." in the Charter Amendment and Certificate of Designation would be
substituted with references to "FAC Realty, Inc." A number of additional
conforming changes also have been made. Stockholders are urged to review
Appendix A and Appendix B in their entirety.
If Proposal 3 is approved, the Company is required by the Note Purchase
Agreement to file the Certificate of Designation promptly with the Delaware
Secretary, and to issue shares of Series A Convertible Preferred Stock in
exchange for Exchangeable Notes as described below. If the stockholders do not
approve Proposal 3, however, or if for any other reason the Certificate of
Designation is not effective under Delaware law on or before November 1, 1996,
or in the event of certain events of default, each Exchangeable Note will be
convertible at the option of the holder into Common Stock (the "Note
Conversion") at a ratio equal to the principal amount of the Exchangeable Note
divided by $9.00. The Note Conversion ratio is subject to adjustment in certain
events, including: (i) the issuance of capital stock of the Company as a
dividend or distribution on the Common Stock, (ii) the subdivision,
reclassification or combination of Common Stock into a greater or smaller number
of shares, (iii) the issuance of Common Stock for consideration having a fair
market value that is less than $9.00 (subject to certain adjustments); and (iv)
the distribution to holders of Common Stock of any assets or securities of the
Company. Any Exchangeable Note outstanding on December 31, 1996 will mature, and
all principal and interest thereon will then be due and payable.
To the extent that the Note Conversion is precluded by any applicable
policy of the New York Stock Exchange (including the NYSE 20% Rule) or any other
law, rule or regulation, the Exchangeable Notes require the Company to pay in
cash an amount equal to the principal amount of the Exchangeable Note not so
converted, plus interest thereon, plus an amount based on the difference between
$9.00 (subject to certain adjustments) and the then-current market price of the
Common Stock.
Approval of Issuance of Series A Convertible Preferred Stock and Underlying
Common Stock
The Note Purchase Agreement requires the Company, upon approval of Proposal
3, promptly to designate 1,000,000 shares of Series A Preferred Stock with the
rights, preferences and limitations set forth in the Certificate of Designation
and summarized herein. Upon the filing and effectiveness of the Certificate of
Designation, the Exchangeable Notes by their terms will be mandatorily
exchangeable, subject to certain conditions, for shares of Series A Preferred
Stock at a rate of $25.00 principal amount of Exchangeable Notes for each share
of Series A Preferred Stock.
Description of Series A Preferred Stock. The Series A Preferred Stock and
the Common Stock will rank on a parity as to dividends; dividends will be paid
on the Series A Preferred Stock only if dividends are declared and paid on the
Common Stock and only in an amount equal to dividends paid on the Common Stock.
The Series A Preferred Stock will rank senior and prior to the Common Stock as
to rights upon liquidation, winding up or dissolution of the Company.
20
<PAGE> 24
Holders of Series A Preferred Stock will have no preemptive rights with
respect to any shares of capital stock of the Company. Shares of Series A
Preferred Stock will not be subject to any sinking fund or other obligation of
the Company to redeem or retire the Series A Preferred Stock.
Holders of Series A Preferred Stock will have no voting rights, except as
may be required by law, and except that they will be entitled to vote as a
class: (i) on any proposal to amend the Certificate of Designation or as
required by applicable law in connection with a Charter amendment that would
adversely alter or change the powers, preferences or special rights of the
Series A Preferred Stock; and (ii) for the authorization or issuance of any new
class of capital stock of the Company ranking (a) senior to the Series A
Preferred Stock as to rights upon liquidation, winding up or dissolution of the
Company, or (b) on a parity with the Series A Preferred Stock as to rights upon
liquidation, winding up or dissolution, unless the average closing price of the
Common Stock for the 30 trading days before the Company notices an intent to
issue such parity stock is at least $15.00 and such parity stock is issued
within six months of such notice.
Each share of Series A Preferred Stock will be convertible at the option of
the holder, without payment of any additional consideration, into 2.78 shares of
Common Stock, subject to adjustment in certain events, including: (i) the
issuance of capital stock of the Company as a dividend or distribution on the
Common Stock, (ii) the subdivision, reclassification or combination of Common
Stock into a greater or smaller number of shares, (iii) the issuance of Common
Stock for consideration having a fair market value that is less than $9.00
(subject to certain adjustments); and (iv) the distribution to holders of Common
Stock of any assets or securities of the Company.
In the event of a sale, consolidation, merger or similar transaction
pursuant to which the outstanding shares of Common Stock are exchanged for, or
changed, reclassified or converted into, other stock or securities, or cash or
other property, each share of Series A Preferred Stock shall be convertible into
the kind and amount of shares of stock and other securities, property or assets
receivable by a holder of the number of shares of Common Stock issuable upon
conversion of such share of Series A Preferred Stock.
Absent the consent of the holders of a majority of the shares of Series A
Preferred Stock, the Company may not consolidate or merge with another entity,
unless the holders of Series A Preferred Stock receive preferred stock of the
surviving entity having substantially identical terms as the Series A Preferred
Stock and the surviving entity does not have outstanding any capital stock that
is senior to the Series A Preferred Stock.
All of the shares of Series A Preferred Stock and Common Stock issuable to
designees of Blackacre and Gildea as described above (the "Registrable
Securities") will be restricted securities, subject to the resale restrictions
of Rule 144 of the Securities Act of 1933, as amended (the "Securities Act").
The Note Purchase Agreement requires the Company to register the Registrable
Securities with the Securities and Exchange Commission and to cause the Common
Stock issuable upon conversion of the Series A Preferred Stock to be approved
for listing on the NYSE upon official notice of issuance.
Effect of Approval of Proposal 3. Approval of Proposal 3 would authorize
the issuance of Series A Preferred Stock, having a liquidation preference senior
to that of the Common Stock and convertible without additional consideration
into Common Stock. Based upon the number of shares of Common Stock currently
outstanding, if Proposal 3 is approved, the shares of Series A Preferred Stock
issuable in exchange for Exchangeable Notes pursuant to the Note Purchase
Agreement would be convertible into shares of Common Stock representing
approximately 23% of the outstanding shares of Common Stock. Approval of
Proposal 3 will constitute approval of the issuance of the Series A Preferred
Stock and the Common Stock into which the Series A Preferred Stock would be
convertible for purposes of the NYSE 20% Rule.
Certain Relationships. If Proposal 3 is approved, designees of Blackacre
and Gildea will own all of the shares of the Series A Preferred Stock. John W.
Gildea, who became a director of the Company effective May 1, 1996, is a
managing director of Gildea. Mr. Gildea beneficially owns Exchangeable Notes
which, upon stockholder approval of Proposal 3, would be mandatorily
exchangeable for shares of Series A Convertible Preferred Stock convertible into
3,000 shares of Common Stock, or, alternatively, if Proposal 3 is not approved,
would be convertible into 3,000 shares of Common Stock. See "Beneficial
Ownership" for
21
<PAGE> 25
additional information regarding shares as to which Mr. Gildea disclaims
beneficial ownership and shares as to which the right to acquire may be
beneficially owned by affiliates of Mr. Gildea.
Financial Information. Financial information regarding the Company and
related management's discussion and analysis is incorporated into this Proxy
Statement by reference. See "Incorporation of Certain Documents by Reference."
RECOMMENDATION OF THE BOARD
THE BOARD HAS DETERMINED THAT THE CHARTER AMENDMENT AND THE ISSUANCE OF
SHARES OF SERIES A PREFERRED STOCK AND THE UNDERLYING COMMON STOCK IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
CHARTER AMENDMENT AND ISSUANCE OF SHARES OF SERIES A PREFERRED STOCK AND THE
UNDERLYING COMMON STOCK, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE THE CHARTER AMENDMENT AND THE ISSUANCE OF SHARES OF
SERIES A PREFERRED STOCK AND THE COMMON STOCK INTO WHICH THE SERIES A PREFERRED
STOCK WOULD CONVERT.
PROPOSAL 4
AMENDMENT OF THE CHARTER TO CHANGE THE NAME OF THE COMPANY
The Board of Directors believes that the Company's present corporate name
suggests that its activities are strictly limited to the development and
operation of factory outlet centers. The Board of Directors evaluates from time
to time related business opportunities and believes that a corporate name change
would appropriately reflect the Company's options. Accordingly, the Board has
unanimously recommended that the Company amend the Charter to change its
corporate name to FAC Realty, Inc.
If the name change is approved, the Company will file a certificate of
amendment to the Charter as soon as practicable after the Annual Meeting. It is
anticipated that this filing will be made during the third quarter of 1996 after
all operational matters arising from the name change have been addressed. The
Company anticipates that it will do business in certain jurisdictions as "FAC
Realty Trust."
As amended, Article FIRST of the Charter would read as follows (new
language underscored): "The name of the Corporation is FAC Realty, Inc."
RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NAME
CHANGE AMENDMENT.
OTHER BUSINESS
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the persons named in the accompanying proxy will vote proxies as in
their discretion they deem appropriate, unless they are directed by a proxy to
do otherwise.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The specified portions of the following documents filed by the Company with
the SEC are hereby incorporated by reference in this Proxy Statement: (i) the
sections of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (the "1995 Form 10-K") under the captions, "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
"Selected Financial Data"; (ii) the financial statements set forth in Item 14 of
the 1995 Form 10-K; and (iii) the
22
<PAGE> 26
financial statements set forth in the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
STOCKHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, FILED WITH THE
SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WITHOUT THE
ACCOMPANYING EXHIBITS, BY WRITING TO INVESTOR RELATIONS, FACTORY STORES OF
AMERICA, INC., 230 NORTH EQUITY DRIVE, SMITHFIELD, NORTH CAROLINA 27577. A LIST
OF EXHIBITS IS INCLUDED IN THE FORM 10-K, AND EXHIBITS ARE AVAILABLE FROM THE
COMPANY UPON PAYMENT TO THE COMPANY OF THE COSTS OF FURNISHING THEM.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's 1997
Annual Meeting of Stockholders must be received by the Company at 230 North
Equity Drive, Smithfield, North Carolina 27577 on or before January 15, 1997 for
inclusion in the Company's proxy statement and form of proxy relating to the
1997 Annual Meeting of Stockholders.
By Order of the Board of Directors
ROBIN W. MALPHRUS,
Assistant Secretary
Dated: May 15, 1996
23
<PAGE> 27
APPENDIX A
ARTICLES OF AMENDMENT
OF
FACTORY STORES OF AMERICA, INC.
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
Factory Stores of America, Inc., a Delaware corporation (the
"Corporation"), with its principal office located at 230 North Equity Drive,
Smithfield, North Carolina, hereby certifies as follows:
I. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on March 31, 1993. The Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on April 29, 1993. The Second Restated Certificate of
Incorporation of the Corporation was filed with the Secretary of State of
Delaware on May 21, 1993.
II. These Articles of Amendment amend the Second Restated Certificate of
Incorporation, as heretofore in effect, to incorporate certain provisions
authorizing the Board of Directors to classify or reclassify any unissued shares
of the Corporation's capital stock. The Board of Directors duly approved these
Articles of Amendment by a telephonic meeting pursuant to Section 141(b) of the
General Corporation Law of the State of Delaware (the "Delaware Corporation
Law") on March 13, 1996, and submitted the proposed Articles of Amendment to the
stockholders of the Corporation for approval pursuant to Section 242 of the
General Corporation Law. The stockholders of the Corporation duly approved and
adopted the Articles of Amendment by a majority vote at the annual meeting of
the stockholders in accordance with Sections 222 and 211 of the General
Corporation Law.
III. The Corporation hereby amends its Second Restated Certificate of
Incorporation as follows:
FIRST: The first paragraph of the FOURTH paragraph of the Second
Restated Certificate of Incorporation of the Corporation contained in the
Second Restated Certificate of Incorporation accepted for record by the
Secretary of State of the State of Delaware on May 21, 1993 (the "Second
Restated Certificate") is hereby amended and restated in its entirety as
follows:
FOURTH: The total number of shares of all classes of capital stock
that the Corporation shall have authority to issue is Seventy-Five
Million (75,000,000) shares. Fifty Million (50,000,000) of such shares
are initially classified as Common Stock, $0.01 par value per share (the
"Common Stock") and Twenty-Five Million (25,000,000) of such shares are
initially classified as Excess Stock, $0.01 par value per share (the
"Excess Stock"). The Board of Directors is expressly authorized to
classify or reclassify by resolution or resolutions duly adopted by the
Board of Directors any unissued shares of capital stock of the
Corporation into a class or classes of preferred stock, preference
stock, special stock or other stock, and to divide, classify and
reclassify shares of any class into one or more series of such class, by
determining, fixing or altering in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or
other terms or conditions of redemption of shares of any such class or
series, as the case may be.
SECOND: Certain definitions set forth in subparagraph 4(a) of
paragraph A of the FOURTH paragraph of the Second Restated Certificate are
amended as follows:
"Beneficial Ownership" shall mean ownership of Capital Stock by a
Person who would be treated as an owner of such shares of Capital Stock
either directly or constructively through the application of Section 544
of the Code, as modified by Section 856(h)(1)(B) of the Code.
"Constructive Ownership" shall mean ownership of shares of Capital
Stock by a Person who would be treated as an owner of such shares of
Capital Stock either directly or constructively through the application
of Section 318 of the Code, as modified by Section 856(d)(5) of the
Code.
A-1
<PAGE> 28
The terms "Constructive Owner" "Constructively Owns" and "Constructively
Owned" shall have the correlative meanings.
"Ownership Limit" initial shall mean 9.8% of the outstanding shares
of stock of the Corporation.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Stock, the record holder of
the Equity Stock if such Transfer had been valid under subparagraph
A(4)(b) of this Article FOURTH.
"Related Party Limit" shall mean 9.8% of the outstanding shares of
stock of the Corporation.
"Transfer" shall mean any sale, transfer, gift, assignment, devise
or other disposition of Equity Stock (including, without limitation (i)
the granting of any option or entering into any agreement for the sale,
transfer or other disposition of Equity Stock or (ii) the sale,
transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Stock), whether voluntary or
involuntary, whether of record or beneficially and whether by operation
of law or otherwise.
Except as expressly amended hereby or pursuant to these Articles of
Amendment, the definitions set forth in subparagraph 4(a) of paragraph A
of the FOURTH paragraph of the Second Restated Certificate shall remain
in full force and effect in accordance with its terms, and are hereby
ratified and confirmed.
THIRD: The following definitions are hereby added to subparagraph 4(a)
of paragraph A of the FOURTH paragraph of the Second Restated Certificate:
"Capital Stock" shall mean stock that is Common Stock, Excess Stock
or preferred stock of the Corporation.
"Equity Stock" shall mean stock that is either Common Stock or
preferred stock of the Corporation.
FOURTH: Each reference to "Common Stock" in subparagraphs 4(b), 4(c),
4(f), 4(i), 4(k) and 4(l) of paragraph A of the FOURTH paragraph of the
Second Restated Certificate is hereby amended to delete each such reference
and substitute therein a reference to "Equity Stock".
FIFTH: Subparagraph 5 of the FOURTH paragraph of the Second Restated
Certificate of Incorporation of the Corporation contained in the Second
Restated Certificate of Incorporation accepted for record by the Secretary
of State of the State of Delaware on May 21, 1993 (the "Second Restated
Certificate") is hereby amended and restated in its entirety as follows:
(5) Legend. Each certificate for Equity Stock shall bear the
following legend:
"The shares of [ ] Stock represented by this
certificate are subject to restrictions on transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended.
Subject to certain provisions of the Corporation's Second Restated
Certificate of Incorporation, no Person may Beneficially Own shares
of Equity Stock in excess of 9.8% (or such greater percentage as may
be determined by the Board of Directors of the Corporation) of the
outstanding shares of Equity Stock of the Corporation unless such
Person is an Existing Holder and no Person (other than an Existing
Holder who Constructively Owns in excess of 9.8% of the Equity Stock
immediately following the consummation of the Initial Public
Offering) may Constructively Own shares of Equity Stock in excess of
9.8% of the outstanding shares of Equity Stock of the Corporation.
Any Person who attempts to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the above limitations must
immediately notify the Corporation. All capitalized terms in this
legend have the meanings defined in the Corporation's Second Restated
Certificate of Incorporation, a copy of which, including the
restrictions on transfer, will be sent without charge to each
stockholder who so requests. If the restrictions on transfer
A-2
<PAGE> 29
are violated, the shares of [ ] Stock represented hereby will be
automatically converted into shares of Excess Stock which will be
held in trust by the Corporation."
SIXTH: A new paragraph C is hereby added to the FOURTH paragraph of
the Second Restated Certificate as follows:
C. Other Stock. The power of the Board of Directors to classify or
reclassify any shares of stock shall include, without limitation,
subject to the provisions of this Certificate, authority to classify or
reclassify any unissued shares of such stock into a class or classes of
preferred stock, preference stock, special stock or other stock, and to
divide and classify shares of any class into one or more series of such
class, by determining, fixing or altering one or more of the following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such or any other class
or series, the number of shares of any class or series may be
decreased by the Board of Directors in connection with any
classification or reclassification of unissued shares and the number
of shares of such class or series may be increased by the Board of
Directors in connection with any such classification or
reclassification, and any shares of any class or series which have
been redeemed, purchased, otherwise acquired or converted into shares
of Common Stock or any other class or series shall become part of the
authorized stock and be subject to classification and
reclassification as provided in this subparagraph.
(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank
senior or junior to or on a parity with the dividends payable on any
other class or series of stock, and the status of any such dividends
as cumulative, cumulative to a limited extent or non-cumulative and
as participating or non-participating.
(3) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and,
if so, the terms and conditions of such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and
conditions thereof, including provision for adjustment of the
conversion or exchange rate in such events or at such times as the
Board of Directors (or any committee of the Board or officer of the
Corporation to whom such duty may be delegated by the Board) shall
determine.
(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such
redemptions, including the date or dates upon or after which they
shall be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates; and whether or not there shall be any
sinking fund or purchase account in respect thereof, and if so, the
terms thereof.
(6) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation, which rights
may vary depending upon whether such liquidation, dissolution or
winding up is voluntary or involuntary and, if voluntary, may vary at
different dates, and whether such rights shall rank senior or junior
to or on a parity with such rights of any other class or series of
stock.
(7) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the
payment of dividends or making of distributions on, or the
acquisition of, or the use of moneys for purchase or redemption of,
any stock of the Corporation, or upon any other action of the
Corporation, including action under this subparagraph, and, if so,
the terms and conditions thereof.
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(8) Any other preferences, rights, restrictions, including
restrictions transferability, and qualifications of shares of such
class or series, not inconsistent with law and this Certificate.
SEVENTH: Except as expressly amended hereby or pursuant to these
Articles of Amendment, the Second Restated Certificate shall remain in full
force and effect in accordance with its terms, and is hereby in all
respects ratified and confirmed.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be signed in its name and on its behalf by its President and attested to by
its Secretary on this day of , 1996.
FACTORY STORES OF AMERICA, INC.
By:
--------------------------------------
C. Cammack Morton
President
ATTEST:
By:
---------------------------------------------
Secretary
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APPENDIX B
FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(PAR VALUE $25.00 PER SHARE)
OF
FACTORY STORES OF AMERICA, INC.
-------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
-------------------------
Factory Stores of America, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), does hereby certify that, pursuant to authority conferred on its
Board of Directors by the certificate of incorporation, as amended, of the
Corporation, and pursuant to the provisions of section 151 of Title 8 of the
Delaware Code of 1953, as amended, the Board of Directors, at a meeting held on
, 1996, adopted the following resolution providing for the
reclassification, designation and issuance of a series of the Corporation's
Series A Convertible Preferred Stock, par value $25.00 per share, consisting of
1,000,000 shares of Series A Convertible Preferred Stock.
"RESOLVED, that pursuant to the authority vested in this Board of Directors
in accordance with the provisions of ARTICLE FOURTH of the Second Restated
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors has duly reclassified 1,000,000 shares of Common Stock of the
Corporation, into 1,000,000 shares of a class designated as Series A Convertible
Preferred Stock. The reclassification increases the number of shares classified
as Series A Preferred Stock from no shares immediately prior to the
reclassification to 1,000,000 shares immediately after the reclassification. The
reclassification decreases the number of shares classified as Common Stock from
50,000,000 shares immediately prior to the reclassification to 49,000,000 shares
immediately after the reclassification. A series of Preferred Stock of the
Corporation known as Series A Convertible Preferred Stock be, and it hereby is,
created, classified, authorized and the issuance thereof provided for, and that
the designation and number of shares, and relative rights, preferences and
limitations thereof, shall be as set forth in the form appended hereto."
1. DESIGNATION AND AMOUNT. The shares of this series of Preferred Stock
shall be designated as "Series A Convertible Preferred Stock," and the number of
shares constituting such series shall be 1,000,000, with a par value of $25.00
per share. The relative rights, preferences, restrictions and other matters
relating to the Series A Preferred Stock are contained in this Certificate of
Designation.
2. DEFINITIONS. As used in this Certificate of Designation, the following
terms shall have the following meanings:
(a) "AGGREGATE CONSIDERATION RECEIVABLE" by the Corporation in
connection with the issuance of any shares of Common Stock (or any rights,
warrants, options or convertible or exercisable securities entitling the
holders thereof to subscribe for or purchase any shares of Common Stock or
any stock appreciation rights entitling the holders thereof to any interest
in an increase in value, however measured, of shares of Common Stock) means
the sum of:
(i) the aggregate consideration paid to the Corporation for such
shares, rights, warrants, options or convertible or exercisable
securities and
(ii) the aggregate consideration or premiums stated in such rights,
warrants, options or convertible or exercisable securities to be payable
for the shares of Common Stock covered thereby,
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calculated in each case in accordance with section 8(d)(vi) hereof. In case
all or any portion of the consideration to be received by the Corporation
may be paid in a form other than cash, the value of such consideration
shall be determined in good faith by the Board of Directors or a duly
authorized committee thereof (irrespective of the accounting treatment
thereof), and described in a resolution of the Board of Directors or such
committee.
(b) "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which banking institutions in the City of New York, New York are
authorized or obligated by law or executive order to close.
(c) "CAPITAL STOCK" means any and all shares, rights to purchase,
warrants, options, convertible securities, participations in or other
equivalents of or interests (other than security interests) in (however
designated and whether voting or nonvoting) capital stock of any
corporation.
(d) "CERTIFICATE OF DESIGNATION" means this Certificate of
Designation, Preferences and Rights establishing the Series A Preferred
Stock pursuant to section 151 of the General Corporation Law of the State
of Delaware, as the same may be amended, supplemented or modified from time
to time in accordance with the terms hereof and pursuant to applicable law.
(e) "COMMON STOCK" means the Common Stock, par value $0.01 per share,
of the Corporation and, in the case of a reclassification, recapitalization
or other similar change in such Common Stock or in the case of a
consolidation or merger of the Corporation with or into another Person,
such consideration to which a holder of a share of Common Stock would have
been entitled upon the occurrence of such event.
(f) "CONVERSION DATE" has the meaning set forth in section 8(b)
hereof.
(g) "CONVERSION NOTICE" has the meaning set forth in section 8(b)
hereof.
(h) "CONVERSION PRICE" has the meaning set forth in section 8(a)
hereof.
(i) "CORPORATION" means Factory Stores of America, Inc., a Delaware
corporation.
(j) "EFFECTIVE PURCHASE PRICE PER SHARE" at which the Corporation
issues any shares of Common Stock (or any rights, warrants, options or
convertible or exercisable securities entitling the holders thereof to
subscribe for or purchase any shares of Common Stock or any stock
appreciation rights entitling the holders thereof to any interest in an
increase in value, however measured, of shares of Common Stock) shall mean
an amount equal to the ratio of:
(i) the Aggregate Consideration Receivable by the Corporation in
connection with the issuance of such shares of Common Stock (or any such
rights, warrants, options, convertible or exercisable securities or
stock appreciation rights) to
(ii) the number of shares of Common Stock so issued (or issuable
upon the exercise or conversion of such rights, warrants, options or
convertible or exercisable securities or the Common Stock equivalent, as
nearly as it may be calculated, of such stock appreciation rights).
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.
(l) "EXCLUDED TRANSACTION" means the issuance of any shares of Capital
Stock of the Corporation to employees or directors of the Corporation under
an employee benefit plan or arrangement adopted by the Corporation;
provided, however, in no event shall the aggregate of such issuances exceed
10% of the issued and outstanding shares of Capital Stock of the
Corporation on the date prior to the date of this Certificate of
Designation (calculated on a fully-diluted basis).
(m) "FAIR MARKET VALUE" of Common Stock means, as of any date, the
average of the closing prices of Common Stock for the 30 consecutive
Trading Days next preceding the date prior to the date in question. The
closing price for each day shall be the last sale price, or the closing bid
price if no sale occurred, of Common Stock on the New York Stock Exchange.
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(n) "HOLDER" of a share of Series A Preferred Stock means the Person
in whose name shares of Series A Preferred Stock are registered on the
books of the Corporation.
(o) "JUNIOR STOCK" means Capital Stock of the Corporation now or
hereafter authorized, issued or outstanding that is not Parity Stock or
Senior Stock.
(p) "LIQUIDATION PREFERENCE" means, with respect to each share of
Series A Preferred Stock, an amount equal to $25.00.
(q) "NOTICE OF ISSUANCE DATE" means the date on which the Corporation
gives the Holders of Series A Preferred Stock written notice of its
intention to issue any class or series of Parity Stock pursuant to section
8(h)(i)(D).
(r) "PARITY STOCK" means Capital Stock of the Corporation now or
hereafter authorized, issued or outstanding ranking on a parity with the
Series A Preferred Stock as to rights upon liquidation, winding up or
dissolution of the Corporation.
(s) "PERSON" means an individual, a corporation, a partnership, a
joint venture, an association, a joint-stock company, a trust, a business
trust, a government or any agency or any political subdivision, any
unincorporated organization, or any other entity.
(t) "SECOND RESTATED CERTIFICATE OF INCORPORATION" means the Second
Restated Certificate of Incorporation of the Corporation as the same may be
amended or restated from time to time.
(u) "SERIES A PREFERRED STOCK" means the Series A Convertible
Preferred Stock of the Corporation, $25.00 par value per share, established
pursuant to this Certificate of Designation.
(v) "SENIOR STOCK" means Capital Stock of the Corporation now or
hereafter authorized, issued or outstanding ranking senior to the Series A
Preferred Stock as to rights upon liquidation, winding up or dissolution of
the Corporation.
(w) "TRADING DAY" means any day on which the New York Stock Exchange
is open for business.
3. RANK. As to rights upon liquidation, winding up or dissolution of the
Corporation, the Series A Preferred Stock shall rank senior and prior to the
Common Stock and to Junior Stock, on a parity with the Parity Stock and junior
to any Senior Stock. As to dividend rights, the Series A Preferred Stock shall
rank on a parity with the Common Stock. Upon liquidation, winding up or
dissolution, the Series A Preferred Stock shall be subordinated and junior to
the prior payment in full of all principal, interest and premium, if any, of all
outstanding indebtedness of the Corporation.
4. DIVIDENDS. No dividend or distribution shall be declared or paid on the
outstanding shares of Common Stock (including, without limitation, the
distribution of assets or amounts paid on account of any purchase, redemption,
exchange or other retirement of any shares of Common Stock, but excluding
dividends and distributions on the Common Stock that would require an adjustment
in the Conversion Price pursuant to section 8 hereof) unless:
(a) concurrently with such declaration the Board of Directors shall
have declared a dividend or distribution on the Series A Preferred Stock
that is payable:
(i) in the same form of cash or property or other value as the
dividend declared on the Common Stock and
(ii) in an amount per share of Series A Preferred Stock equal to
the product of:
(A) the amount of the dividend or distribution per share of
Common Stock so declared on the Common Stock and
(B) the number of shares of Common Stock issuable on conversion
of a single share of Series A Preferred Stock if such share of Series
A Preferred Stock were converted immediately prior to the record date
for such dividend or distribution on the Preferred Stock;
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(b) the record date and payment date for the dividend or distribution
so declared on the Series A Preferred Stock in compliance with the
requirements of this section 4 shall be the same as the record date and
payment date for the dividend so declared on the Common Stock; and
(c) the dividend so declared on the Preferred Stock is paid on the
date and in the amount prescribed above.
In the event a dividend on shares of Common Stock is not declared by the
Board of Directors or any duly authorized committee thereof with respect to any
period, the Corporation shall have no obligation at any time to pay a dividend
on the shares of Series A Preferred Stock in respect of such period.
5. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, either voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation, each Holder of shares of Series A Preferred Stock shall be entitled
to receive, out of assets of the Corporation available for distribution to
stockholders, an amount equal to any dividends or distributions declared or
required under section 4 hereof to have been declared on such Holder's shares of
Series A Preferred Stock through the date of final distribution to stockholders,
whether or not declared, to the extent not theretofore paid to such Holder, plus
a sum equal to the Liquidation Preference, before any payment shall be made or
any assets distributed to the holders of any other class or series of Capital
Stock of the Corporation ranking junior to the Series A Preferred Stock with
respect to distribution of assets. If the assets and funds thus distributed
among the Holders of the Series A Preferred Stock shall be insufficient to
permit the payment to such Holders of the full preferential amount described
above, then the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the Holders of the Series A
Preferred Stock and any Parity Stock in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled. After
payment of the full amount of the liquidating distributions to which they are
entitled, the Holders of shares of Series A Preferred Stock will have no right
or claim to any of the remaining assets of the Corporation. A consolidation or
merger of the Corporation with or into any other entity, or sale, lease,
conveyance or disposition of all or substantially all of the assets of the
Corporation or the effectuation by the Corporation of a transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 5.
6. CONSOLIDATION AND MERGER. (a) So long as any shares of Series A
Preferred Stock remain outstanding, on or prior to the effective date of any
consolidation or merger, unless the Corporation is proceeding under Section
6(c), the Corporation shall not consolidate with or merge into another Person
unless:
(i) if the Corporation is the surviving entity, the rights and
preferences of the Series A Preferred Stock are not modified as a result of
such merger or consolidation and, after the effective date of such merger
or consolidation, the Corporation, as the surviving entity, does not have
outstanding any Capital Stock that is not Parity Stock or Junior Stock or
Senior Stock authorized pursuant to Section 7(a), or
(ii) if the Corporation is not the surviving entity:
(A) the surviving entity is a Person whose equity securities are
listed on a national securities exchange in the United States or
authorized for quotation on the NASDAQ National Market,
(B) the Corporation shall make effective provision such that, upon
consummation of such transaction, the Holders of Series A Preferred
Stock shall receive preferred stock of the surviving entity having
substantially identical terms as the Series A Preferred Stock, and
(C) the surviving entity does not have outstanding any Capital
Stock that is not Parity Stock or Junior Stock.
(b) The provisions of Section 6(a)(i) and 6(a)(ii) may be waived with
respect to a consolidation or merger by the consent to any such waiver by the
Holders of a majority of the shares of Series A Preferred Stock then
outstanding.
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(c) If the Corporation proposes to undertake a transaction subject to Rule
13(e)-3 of the Exchange Act, the Corporation shall give each Holder of Series A
Preferred Stock written notice of its intention to undertake such transaction at
least twenty (20) days prior to the consummation of such transaction. Such
notice shall include a description of the proposed terms and conditions of the
continuation of the Holder's investment in the Corporation (or the surviving
entity, as the case may be) and the cash amount or value of other consideration
proposed to be payable to the holders of the Common Stock in connection with
such transaction so as to allow each Holder to make its election required by
section 6(d).
(d) The Corporation shall, at the election of each Holder of Series A
Preferred Stock either:
(i) make effective provision such that such holder of Series A
Preferred Stock may continue its investment following the consummation of
such transaction on the terms and conditions substantially similar to those
contained in the Corporation's notice given pursuant section 6(c); or
(ii) purchase, or cause the surviving entity of such transaction to
purchase, such Holder's shares of Series A Preferred Stock for a cash
purchase price equal to the product of:
(A) the number of shares of Common Stock then issuable on
conversion of the shares of Series A Preferred Stock then held by such
Holder and
(B) an amount equal to 105% of the cash amount or value of other
consideration payable to the holder of a single share of Common Stock
upon the consummation of such transaction.
(e) Each Holder's election under Section 6(d) shall be irrevocable and
shall be delivered to the Corporation ten (10) Business Days prior to the
consummation of the transaction.
7. VOTING RIGHTS OF SERIES A PREFERRED STOCK. (a) The Holders of Series A
Preferred Stock shall not be entitled to vote on any matter requiring consent of
the stockholders of the Corporation, whether at an annual or special meeting,
except that Holders of Series A Preferred Stock shall be entitled to vote, as a
class, (i) on any proposal to amend this Certificate of Designation or as
expressly required by applicable law in connection with an amendment of any of
the provisions of the Second Restated Certificate of Incorporation which would
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely; and (ii) for the authorization
or issuance of any new Parity Stock or Senior Stock; provided, however, that any
vote otherwise required by clause (ii) with respect to the issuance of any new
class or series of Parity Stock shall not be required if (x) the Fair Market
Value of the Common Stock immediately preceding the Notice of Issuance Date
shall be $15.00 or more and (y) such new class or series of Parity Stock shall
be authorized and issued within six months following the Notice of Issuance
Date. Action by Holders of Series A Preferred Stock shall require the consent of
the Holders of a majority of the shares of Series A Preferred Stock then
outstanding.
(b) The foregoing voting provisions shall not apply if, at or prior to the
time when the action with respect to which such vote would otherwise be required
to be effected, all outstanding shares of Series A Preferred Stock shall have
been converted.
8. CONVERSION PRIVILEGE. (a) RIGHT OF CONVERSION. (i) Each share of
Series A Preferred Stock shall be convertible at the option of the Holder
thereof, into a number of fully paid and nonassessable shares of Common Stock
equal to the ratio of:
(A) the Liquidation Preference of such share of Series A Preferred
Stock to
(B) the Conversion Price in effect on the Conversion Date,
or into such additional or other securities, cash or property and at such
other rates as required in accordance with the provisions of this section
8, at any time and from time to time.
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(ii) For purposes of this Certificate of Designation, the "Conversion
Price" shall initially be the lesser of:
(A) $9.00 per share and
(B) the average of the daily closing prices (last close price, regular
way) of the Common Stock on the New York Stock Exchange for the 30-day
period ending May 1, 1996, as such Conversion Price may be adjusted from
time to time in accordance with the provisions of this section 8.
(iii) Not later than May 15, 1996, the Corporation shall provide written
notice to each Holder of Series A Preferred Stock setting forth the Conversion
Price as of the date of such notice.
(b) CONVERSION PROCEDURES. (i) In order to exercise the conversion
privilege, the Holder of any shares of Series A Preferred Stock to be converted
in whole or in part shall surrender the certificate or certificates evidencing
such shares to the Corporation and shall give written notice to the Corporation
("Conversion Notice") that the Holder elects to convert such shares or the
portion thereof specified in said notice into shares of Common Stock. The
Conversion Notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
upon such conversion shall be issued. Each certificate evidencing Series A
Preferred Stock surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such shares
of Series A Preferred Stock, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Corporation duly executed
by, the Holder or its duly authorized attorney.
(ii) Within ten Business Days after receipt of a Conversion Notice and
surrender of the certificate or certificates evidencing the Series A Preferred
Stock relating thereto, the Corporation shall issue and deliver to such Holder
(or upon the written order of such Holder) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
shares of Series A Preferred Stock or portion thereof in accordance with the
provisions of this section 8, and a check or cash in respect of any fractional
shares of Common Stock issuable upon such conversion, as provided in section
8(c) hereof. In the event that less than all the shares of Series A Preferred
Stock represented by a certificate are to be converted, the Corporation shall
issue and deliver or cause to be issued and delivered to (or upon the written
order of) the Holder of the shares of Series A Preferred Stock so surrendered,
without charge to such Holder, a new certificate or certificates representing a
number of shares of Series A Preferred Stock equal to the unconverted portion of
the surrendered certificate.
(iii) Each conversion shall be deemed to have been effected on the date
(the "Conversion Date") on which the certificate or certificates evidencing
shares of Series A Preferred Stock shall have been surrendered to the
Corporation or its transfer agent and a Conversion Notice with respect to such
shares shall have been received by the Corporation, as described above. Any
Person in whose name any certificate or certificates for shares of Common Stock
shall be issuable upon conversion shall be deemed to have become the holder of
record of the shares represented thereby on the Conversion Date; provided,
however, that surrender of the certificate or certificates evidencing shares of
Series A Preferred Stock on any date when the stock transfer books of the
Corporation shall be closed shall constitute the Person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date on which such
certificate or certificates shall have been surrendered.
(iv) Except as otherwise provided in this section 8, no payment or
adjustment will be made for dividends or other distributions with a record date
prior to the Conversion Date with respect to any shares of Common Stock issuable
upon conversion of this note as provided herein.
(c) CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of shares of Series A Preferred Stock. If any fractional share of
Common Stock would, but for this section 8(c), be issuable upon the conversion
of any shares of Series A Preferred Stock, the Corporation shall promptly after
the Conversion Date make a payment therefor in cash equal to the Fair Market
Value of such fractional share of Common Stock on the first Business Day
immediately preceding the Conversion Date.
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(d) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be adjusted
from time to time by the Corporation as follows:
(i) if the Corporation shall at any time after March 1, 1996 (whether
or not any shares of Series A Preferred Stock are then outstanding):
(A) declare a dividend or distribution on the Common Stock payable
in shares of Common Stock not otherwise payable to a Holder of such
shares as a dividend pursuant to section 4 hereof,
(B) subdivide or reclassify outstanding shares of Common Stock into
a greater number of shares,
(C) combine shares of outstanding Common Stock into a smaller
number of shares,
(D) declare a dividend or distribution on the Common Stock in
shares of any series of its Capital Stock other than Common Stock, or
(E) issue by reclassification of any shares of its outstanding
Common Stock, shares of any series of its Capital Stock or any
obligation of the Corporation or other property,
then the conversion privilege and the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder of any
shares of Series A Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or
other Capital Stock or obligation of the Corporation or other property
which such Holder would have owned or have been entitled to receive
after the happening of any of the events described above had such Series
A Preferred Stock been converted immediately prior to the happening of
such event. An adjustment made pursuant to this section 8(d)(i) shall
become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after
the effective date in the case of subdivision, combination or
reclassification. Such adjustment shall be made successively whenever
any event referred to above shall occur.
(ii) If the Corporation shall at any time after March 1, 1996 (whether
or not any shares of Series A Preferred Stock are then outstanding) issue
any shares of Common Stock (or any rights, warrants, options or convertible
or exercisable securities entitling the holders thereof to subscribe for or
purchase any shares of Common Stock or any stock appreciation rights
entitling the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) for an Effective Purchase
Price per Share less than the Conversion Price in effect immediately prior
to the date of such issuance, then, the Conversion Price shall be adjusted
to equal the ratio of:
(1) the sum of:
a. the product of: (1) the number of shares of Common Stock
outstanding immediately prior to such issuance and (2) the Conversion
Price in effect immediately prior to such issuance and
b. the Aggregate Consideration Receivable by the Corporation in
connection with such issuance to
(2) the sum of:
a. the number of shares of Common Stock outstanding immediately
prior to such issuance and
b. the number of additional shares of Common Stock to be so
issued (including the number of shares underlying such rights,
warrants, options or convertible or exercisable securities).
If the Corporation shall at any time after March 1, 1996 (whether or not
any shares of Series A Preferred Stock are then outstanding) issue any
shares of Common Stock (or any rights, warrants, options or convertible
or exercisable securities entitling the holders thereof to subscribe for
or
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purchase any shares of Common Stock or any stock appreciation rights
entitling the holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) in an Excluded Transaction
the Conversion Price in effect immediately prior to the date of such
issuance shall not be adjusted as the result of such Excluded
Transaction.
Such adjustment shall be made successively whenever any shares, rights,
warrants, options, convertible or exercisable securities or stock
appreciation rights are issued at an Effective Purchase Price per Share
that is less than the Conversion Price in effect on the date of such
issuance. To the extent that any such rights, warrants, options,
convertible or exercisable securities or stock appreciation rights
expire without having been converted or exercised, the Conversion Price
then in effect shall be readjusted to the Conversion Price which then
would be in effect if such rights, options, warrants, convertible or
exercisable securities or stock appreciation rights had not been issued,
but such readjustment shall not affect the number of shares of Common
Stock or other shares of Capital Stock delivered upon any conversion
prior to the date such readjustment is made.
(iii) If the Corporation shall at any time after March 1, 1996
(whether or not any shares of Series A Preferred Stock are then
outstanding) distribute to all holders of its Common Stock any of its
assets or debt securities, or rights, options, warrants or convertible or
exercisable securities of the Corporation (including securities issued for
cash, but excluding distributions of Capital Stock referred to in section
8(d)(i) hereof), then in each such case, the Conversion Price shall be
adjusted to equal the Conversion Price in effect immediately prior to such
distribution less an amount equal to the then fair market value (as
reasonably determined by the Board of Directors, in good faith and as
described in a resolution of the Board of Directors) of the portion of the
assets or debt securities of the Corporation so distributed or of such
rights, options, warrants or convertible or exchangeable securities
applicable to one share of Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of shares
entitled to receive such distribution. Such adjustment shall be made
successively whenever any event listed above shall occur. Notwithstanding
the foregoing, no adjustment of the Conversion Price shall be made upon the
distribution to holders of Common Stock of such rights, options, warrants,
convertible securities, assets or debt securities if the plan or
arrangement under which such rights, options, warrants, convertible
securities, assets or debt securities are issued provides for their
issuance to Holders of shares of Series A Preferred Stock in the same pro
rata amounts upon conversion thereof.
(iv) In any case in which this section 8(d) provides that an
adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event:
(A) issuing to the Holder of any shares of Series A Preferred Stock
converted after such record date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
Common Stock issuable upon such conversion before giving effect to such
adjustment, and
(B) paying to such Holder any amount in cash in lieu of any
fractional share of Common Stock pursuant to section 8(c).
(v) For purposes of any computations of Aggregate Consideration
Receivable or other consideration pursuant to this section 8(d), the
following shall apply:
(A) in the case of the issuance of shares of Capital Stock for
cash, the consideration shall be the amount of such cash, provided that
in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Corporation for any underwriting of the
issue or otherwise in connection therewith; and
(B) in the case of the issuance of shares of Capital Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
reasonably determined in good faith by the Board of Directors or a duly
authorized
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<PAGE> 39
committee thereof (irrespective of the accounting treatment thereof),
and described in a resolution of the Board of Directors or such
committee.
(vi) If after an adjustment a Holder of shares of Series A Preferred
Stock may, upon conversion of such security, receive shares of two or more
classes of Capital Stock of the Corporation, the Corporation shall
determine on a fair basis the allocation of the adjusted Conversion Price
between the classes of Capital Stock. After such allocation, the conversion
privilege and the Conversion Price of each class of Capital Stock shall
thereafter be subject to adjustment on terms comparable to those applicable
to Common Stock in this section 8.
(vii) In no event shall an adjustment pursuant to this section 8(d)
reduce the Conversion Price below the then par value, if any, of the shares
of Common Stock issuable upon conversion of shares of Series A Preferred
Stock.
(viii) No adjustment in the Conversion Price for the Series A
Preferred Stock shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Conversion Price
then in effect.
(e) EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Unless the
Series A Preferred Stock shall have been converted on or prior to the effective
date of any of the events referred to in clauses (i), (ii) and (iii) of this
section 8(e), if there shall occur:
(i) any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of shares of Series A Preferred Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation or merger of the Corporation with another
Person shall be effected as a result of which holders of Common Stock
issuable upon conversion of shares of Series A Preferred Stock shall be
entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, or
(iii) any sale or conveyance of the properties and assets of the
Corporation as, or substantially as, an entirety to any other Person,
each share of Series A Preferred Stock then outstanding shall be
convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock issuable upon conversion of
such shares of Series A Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. In any
such case, appropriate adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this section 8.
If this section 8(e) applies with respect to a transaction, section 8(d)
hereof shall not apply with respect to that transaction. The above
provisions of this section 8(e) shall similarly apply to successive
reclassifications, consolidations, mergers and sales.
(f) TAXES ON SHARES ISSUED. The issuance of stock certificates upon
conversion of shares of Series A Preferred Stock shall be made without charge to
the converting Holder for any tax in respect of the issuance thereof.
(g) RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH
GOVERNMENTAL REQUIREMENTS. The Corporation shall reserve, free from preemptive
rights, out of its authorized but unissued shares, or out of shares held in its
treasury, sufficient shares of Common Stock to provide for the conversion of all
shares of Series A Preferred Stock from time to time outstanding. The
Corporation covenants that all shares of Common Stock which may be issued upon
conversion of shares of Series A Preferred Stock will upon issuance be fully
paid and nonassessable by the Corporation and free from all taxes, liens and
charges with respect to the issuance thereof.
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<PAGE> 40
(h) NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS.
(i) If:
(A) the Corporation shall take any action that would require an
adjustment in the Conversion Price pursuant to section 8(d)(i), (ii) or
(iii) hereof;
(B) any event described in section 8(e) hereof shall occur;
(C) the voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation shall occur; or
(D) the Corporation intends to issue a new class or series of
Parity Stock without the vote of the Holders of Series A Preferred Stock
as provided in the proviso of section 7(a)(ii) hereof;
the Corporation shall cause notice of such proposed action or event to
be mailed to each Holder of record of Series A Preferred Stock at its
address appearing on the stock transfer books of the Corporation, as
promptly as possible but in any event no later than the later of (x) the
date 15 days prior to the record date for such proposed action or the
effective date of such event or (y) the date on which the Corporation
first publicly announces such proposed action or event.
(ii) In any event, such notice shall specify:
(A) the date on which a record is to be taken for the purpose of
such action, or, if a record is not to be taken, the date as of which
the holders of record of Common Stock are to be determined, or
(B) the date on which such proposed event is expected to become
effective, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such event.
9. TRANSFERS; REPLACEMENT OF CERTIFICATES. (a) TRANSFERS. Subject to any
restrictions on transfer under applicable securities or other laws and those set
forth in Article Fourth of the Second Restated Certificate of Incorporation,
shares of Series A Preferred Stock may be transferred on the books of the
Corporation by the surrender to the Corporation of the certificate therefor
properly endorsed or accompanied by a written assignment and power of attorney
properly executed, with transfer stamps (if necessary) affixed, and such proof
of the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
(b) REPLACEMENT OF CERTIFICATES. If a mutilated certificate representing
shares of Series A Preferred Stock is surrendered to the Corporation, or if a
holder of such certificate claims such certificate has been lost, destroyed or
willfully taken and provides an indemnity bond or agreement or other security
sufficient, in the reasonable judgment of the Corporation, to protect the
Corporation and any of its officers, directors, employees or representatives
from any loss which any of them may suffer if such certificate is replaced (an
"Indemnity"), then the Corporation shall issue a replacement certificate of like
tenor and dated the date to which interest has been paid on the mutilated, lost,
destroyed or taken certificate.
10. SINKING FUND. Series A Preferred Stock will not be subject to any
sinking fund or monetary redemption except as provided in Article 4(B)(6) of the
Second Restated Certificate of Incorporation.
11. REACQUIRED SHARES. Any shares of Series A Preferred Stock which are
converted, purchased, redeemed or otherwise acquired by the Corporation, shall
be retired and canceled by the Corporation promptly thereafter. No such shares
shall upon their cancellation be reissued.
12. ARTICLE FOURTH OF SECOND RESTATED CERTIFICATE OF
INCORPORATION. Anything contained in this Certificate of Designation to the
contrary notwithstanding, the rights of each Holder of Series A Preferred Stock
shall be subject to the terms and conditions of Article Fourth of the Second
Restated Certificate of Incorporation, as the same may be amended or restated
from time to time, including, without limitation, the provisions of such Article
Fourth with respect to the (i) "Restrictions of Transfer to Preserve Tax
Benefit; Exchange for Excess Stock" contained in Article Fourth A(4), (ii)
requirement for legends to be affixed to
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<PAGE> 41
each certificate for Common Stock contained in Article Fourth (A)(5) and (iii)
preferences, qualifications, limitations, restrictions and rights of Excess
Stock contained in Article Fourth (B).
13. All notices permitted or required to be given to or by a Holder of
Series A Preferred Stock shall be deemed to have been duly given if delivered
personally, or by telecopy (if the sender on the same day sends a confirming
copy of such notice by a recognized overnight delivery service, charges
prepaid), or if sent by certified or registered mail or nationally recognized
overnight delivery service, postage prepaid, to, in the case of such Holder, at
its last address shown on the books of the Corporation, and to the Corporation
at 230 North Equity Drive, Smithfield, North Carolina 27577, or such other
address as provided by the Corporation in accordance with this provision.
IN WITNESS WHEREOF, Factory Stores of America, Inc. has caused this
Certificate of Designation to be duly signed by , its
President, and attested by , its Secretary, this
day of , 1996.
FACTORY STORES OF AMERICA, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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<PAGE> 42
APPENDIX A
FACTORY STORES OF AMERICA, INC.
PROXY
FOR
ANNUAL MEETING OF STOCKHOLDERS, JUNE 27, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert O. Amick, J. Richard Futrell, Jr. and
Theodore E. Haigler, Jr., or any of them, with full power of substitution, the
attorney and proxy of the undersigned, to appear and to vote all of the shares
of stock of Factory Stores of America, Inc. (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company to be held at the Raleigh Marriott
Crabtree Valley at 4500 Marriott Drive, Raleigh, North Carolina, on Thursday,
June 27, 1996, at 10:00 a.m., eastern standard time, and any adjournment
thereof.
Receipt of copies of the Annual Report to Stockholders, the Notice of the
Annual Meeting of Stockholders and the Proxy Statement dated May 15, 1996 is
hereby acknowledged.
This Proxy will be voted in accordance with the instructions marked herein,
and in accordance with the recommendations of the Board of Directors if no
instructions to the contrary are marked herein. If any other business is
transacted at the Annual Meeting (including matters incident to the conduct of
the Annual Meeting), this Proxy will be voted in accordance with the best
judgment of the proxies (no other business is currently known).
1. The election of seven directors of the Company to serve until the 1997
annual meeting or until their successors are duly elected and qualified:
NOMINEES: J. Dixon Fleming, Jr., C. Cammack Morton, Robert O. Amick, B. Mayo
Boddie, Sr., J. Richard Futrell, Jr., John W. Gildea, Theodore E. Haigler, Jr.
/ / FOR / / WITHHOLD
(Instruction: To withhold authority to vote for any individual nominee, print
the nominee's name for which authority is withheld below.)
--------------------------------------------------------------------------------
2. Amendment of the Company's 1993 Employee
Stock Incentive Plan to increase the number
of shares of Common Stock reserved for
issuance thereunder.
/ / FOR / / AGAINST / / ABSTAIN
3. Amendment of the Company's Charter to authorize preferred stock and
approval of the issuance of the Company's Series A Convertible Preferred
Stock and Common Stock issuable upon conversion of the Series A
Convertible Preferred Stock.
/ / FOR / / AGAINST / / ABSTAIN
4. Amendment of the Charter to change the Company's corporate name to "FAC
Realty, Inc."
/ / FOR / / AGAINST / / ABSTAIN
Note: Please date and sign exactly as the name appears on this proxy. Joint
owners should each sign. If the signer is a corporation, please sign
full corporate name by a duly authorized officer. Executors, trustees,
etc. should give full title as such.
Dated:
-------------------------------
Signature
-------------------------------
Signature
Please mark boxes in blue or
black ink.
Please return promptly in the
enclosed envelope which
requires no postage if mailed
in the U.S.A.
