SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 27, 1996
FAC REALTY, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-11998 56-1819372
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
230 North Equity Drive, Smithfield, NC 27577
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (919) 934-9446
Factory Stores of America, Inc.
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
At the June 27, 1996 Annual Meeting of Stockholders of Factory Stores
of America, Inc. (the "Company") the requisite number of shares of Common Stock
of the Company were voted in favor of each of the proposals presented for
stockholder approval. Specifically, the stockholders (i) elected seven directors
to serve until the Company's 1997 Annual Meeting; (ii) amended the Company's
1993 Employee Stock Incentive Plan to increase the number of shares of Common
Stock reserved for issuance thereunder, (iii) amended the Company's Second
Restated Certificate of Incorporation (the "Charter") to authorize preferred
stock and approved 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, and (iv) amended the Charter to
change the Company's corporate name to "FAC Realty, Inc."
The Note Purchase Agreement requiring submission to the Company's
stockholders of the authorization of preferred stock and approval of the
issuance of the Series A Preferred Stock and the underlying Common Stock was
previously reported in, and filed as an exhibit to, the Company's report on Form
8-K filed on April 17, 1996.
Articles of amendment of the Charter (the "Charter Amendment") relating
to the name change and the authorization of preferred stock was filed with the
Secretary of State of Delaware on July 1, 1996. The Certificate of Designation,
Preferences and Rights (the "Certificate of Designation") relating to the Series
A Preferred Stock was filed with the Secretary of State of Delaware on July 1,
1996. A copy of the Charter Amendment is attached hereto as Exhibit 3.1 and is
incorporated by reference. A copy of the Certificate of Designation is attached
hereto as Exhibit 3.2 and is incorporated by reference.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(c) Exhibits.
3.1 Articles of Amendment of Factory Stores of America, Inc.,
dated July 1, 1996.
3.2 Certificate of Designation, Preferences and Rights of the
Series A Convertible Preferred Stock of FAC Realty, Inc.,
dated July 1, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FAC Realty, Inc.
Date: July 1, 1996 /s/C. Cammack Morton
--------------------
Cammack Morton
President and Chief Operating Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Document Description
3.1 Articles of Amendment of Factory Stores
of America, Inc., dated July 1, 1996
3.2 Certificate of Designation, Preferences and
Rights of the Series A Convertible Preferred
Stock of FAC Realty, Inc., dated July 1, 1996
<PAGE>
EXHIBIT 3.1
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 (i) change the name of the
Corporation, and (i) 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
at a meeting held 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 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:
FIRST: The name of the Corporation is FAC Realty, Inc.
SECOND: The first paragraph of the FOURTH paragraph of 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. Forty-Five Million
(45,000,000) of such shares are initially classified as Common Stock,
$0.01 par value per share (the "Common Stock"), Five Million
(5,000,000) of such shares are initially classified as Preferred Stock,
$25.00 par value per share (the "Preferred 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, par value, qualifications or other terms or conditions
of redemption of shares of any such class or series, as the case may
be.
THIRD: 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. The terms
"Constructive Owner" "Constructively Owns" and "Constructively Owned" shall have
the correlative meanings.
"Ownership Limit" initially 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.
FOURTH: 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.
FIFTH: 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".
SIXTH: 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 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."
SEVENTH: 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.
(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.
EIGHTH: 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 Assistant Secretary on this ___ day of ________, 1996.
ATTEST: FACTORY STORES OF AMERICA, INC.
By: By:
Assistant Secretary C. Cammack Morton, President
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
(Par Value $25.00 Per Share)
of
FAC REALTY, INC.
---------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
---------------------------------------------------
FAC Realty, 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, 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 Preferred 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 Convertible 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 Preferred Stock
from 5,000,000 shares immediately prior to the reclassification to 4,000,000
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,
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.
<PAGE>
(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.
(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:
<PAGE>
(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;
(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.
<PAGE>
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.
(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 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 make its
election required by section 6(d).
(d) The Corporation shall, at the election of each Holder of
Series A Preferred Stork 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.
<PAGE>
(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.
<PAGE>
(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.
(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.
<PAGE>
(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 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.
<PAGE>
(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
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.
<PAGE>
(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.
<PAGE>
(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.
(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.
<PAGE>
1. 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.
II. 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.
III. 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.
IV. 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.
V. 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 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 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).
VI. 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, FAC Realty, Inc., has caused this Certificate of
Designation to be duly signed by C. Cammack Morton, its President, and attested
by Robin W. Malphrus, its Assistant Secretary, this 1st day of July, 1996.
FAC REALTY, INC.
By:________________________
C. Cammack Morton
President
ATTEST:
By:_____________________
Assistant Secretary
