FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
(X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 1-11998
FAC REALTY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF 56-1819372
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
11000 Regency Parkway
Third Floor, East Tower
Cary, North Carolina 27511
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(919) 462-8787
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
Common Stock, $.01 par value
NAME OF EACH EXCHANGE ON WHICH REGISTERED
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K[X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 31,1997, was approximately $65,900,000.
As of March 31,1997, there were 12,103,155 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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FAC REALTY, INC.
INDEX TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
Page
PART I
Item 1 - Business 1
Item 2 - Properties 7
Item 3 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of
Security Holders 15
PART II
Item 5 - Market for the Registrant's Common Equity
and Related Stockholder Matters 16
Item 6 - Selected Financial Data 16
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operation 19
Item 8 - Financial Statements and Supplementary
Data 28
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 28
PART III
Item 10 - Directors and Executive Officers of
the Registrant 29
Item 11 - Executive Compensation 31
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 35
Item 13 - Certain Relationships and Related
Transactions 36
PART IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 37
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PART I
ITEM 1 - BUSINESS
GENERAL
FAC Realty, Inc. (the "Company"), a self-administered and
self-managed real estate investment trust ("REIT"), is one of the nation's
largest owners and operators of factory outlet centers. The Company is
vertically integrated, providing development, construction management, leasing,
marketing and asset management services. As of December 31, 1996, the Company
owned and operated 36 factory outlet centers (the "Properties") located in 21
states containing an aggregate of approximately 4.9 million square feet of gross
leasable area ("GLA"). The Properties are tenanted primarily by large
manufacturers of widely recognized, traditional brand name merchandise such as
VF Factory Outlet, Inc. (Lee, Wrangler, Jantzen, Jansport, Vanity Fair and
Health-tex), 9 West (Easy Spirit and Enzo), Sara Lee Corporation (L'eggs, Hanes,
Bali, Playtex, Coach and Champion), Phillips-Van Heusen Corporation (Bass, Van
Heusen and Geoffrey Beene), Levi Strauss & Co. (Levi's), Nike, Inc., Revlon Inc.
(Prestige Fragrance), Bugle Boy Industries, Inc., Reebok International, Ltd.,
LCI Holdings (Liz Claiborne), Dinnerware Plus, Inc. (Mikasa) and WestPoint
Stevens (Martex).
In June 1993, the Company completed its initial public offering
(the "IPO") which combined (i) four partnerships, each of which had developed,
acquired and owned one factory outlet center (collectively, the "CP
Properties"), (ii) a fifth partnership formed to develop an additional factory
outlet center, and (iii) certain assets of North-South Management Corporation,
which had managed the CP Properties since 1988. Prior to or concurrently with
the completion of the IPO, the Company (i) acquired the CP Properties and (ii)
acquired 21 factory outlet centers from VF Corporation (the "VF Properties")
totaling 1,725,000 square feet. In December 1993, the Company used the proceeds
of a secondary public offering to purchase six additional factory outlet centers
totaling 908,000 square feet from entities and individuals constituting the
Willey Creek Group, at that time one of the largest private owners and operators
of factory outlet centers in the country. In addition, in June 1994, the Company
purchased three additional properties totaling 451,412 square feet from the
Willey Creek Group and in December 1994 acquired an expansion of one of the
initial six Willey Creek properties. During 1995, the Company opened one
additional outlet center and completed expansions of several others. In 1996,
the Company completed the outlet center opened in 1995 and expanded four other
centers. The Company ended 1996 with approximately 4.9 million square feet of
GLA, up 5.1% from 4.6 million at December 31, 1995.
The Company has elected to be treated as a REIT for Federal income
tax purposes. The Company intends to continue to operate in the manner required
to maintain its REIT status.
RECENT EVENTS. As a result of its recent decision to diversify its
portfolio, on March 27, 1997, the Company purchased five community shopping
centers located in the Raleigh, North Carolina area for $32,300,000 from an
unrelated third party. The centers total 606,000 square feet and feature anchor
tenants such as Winn-Dixie, Food Lion, Inc., K-Mart Corporation, and Eckerd
Drug. The acquisition was funded from the Company's line of credit facility and
internal cash flow. As a result of the recent acquisition, the Company owns 41
shopping centers containing an aggregate of approximately 5.5 million square
feet of GLA.
BUSINESS STRATEGY
The Company's business strategy is to increase overall shareholder
return through acquisition and portfolio diversification, expansion of its
existing centers, selective development of new properties, and by increasing the
value of its assets in the portfolio through proactive asset management,
leasing, marketing and financial controls. The following is a brief description
of the Company's current business strategy and philosophy .
MANAGEMENT. The Company's senior and middle management team
consists of a group of real estate professionals with over 410 years of
collective shopping center experience. The team is headed by its new Chief
Executive Officer, C. Cammack Morton. Since joining the Company, Mr. Morton has
assembled a management team of seasoned veterans in finance/accounting, asset
management, law, retail development, leasing and marketing. These new members of
management bring years of experience and shopping center industry designations
to the Company, along with relationships with factory outlet tenants, shopping
center tenants, and the financial and investment community.
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ACQUISITION AND PORTFOLIO DIVERSIFICATION. The Company believes
that retail concepts within the shopping center industry are merging, and that a
diversified shopping center portfolio will provide opportunities for growth and
overall return to shareholders. To implement this strategy, the Company intends
to focus on selective acquisitions of retail centers. Retail centers may
include, but are not limited to, community shopping centers, outlet centers,
"power strip" centers and "power outlet" centers. The Company believes
opportunities for the acquisition of retail centers exist, particularly in the
southeastern United States. In such acquisitions, the Company looks for strong
demographics and traffic counts, good visibility and access, as well as the
potential for increase in cash flow through increasing rents, retenanting,
remerchandising or future expansions. The Company intends to use its existing
tenant relationships to assist in accomplishing its objectives.
The recent acquisition of five community shopping centers from
North Hills, Inc. is the beginning of implementation of the Company's
diversification strategy. The North Hills properties meet the Company's
acquisition criteria and their proximity to the Company's headquarters, together
with the Company's knowledge of the market, should allow the Company to manage
them with little increase in cost. Most importantly, the Company believes its
existing tenant relationships should allow for not only remerchandising the
existing centers, but at potentially better market rates.
As the Company pursues its diversification strategy, it also
intends to focus on attracting new tenants to its portfolio to offer a wider
range of merchandise and amenities to consumers. These may include full-service
restaurants, theaters, entertainment and hotels.
EXPANSION AND IMPROVEMENTS TO EXISTING CENTERS. The Company
intends to hold the majority of its Properties for long-term investment and,
therefore, intends to continue selective expansion of its existing centers. The
Company's philosophy is to expand its existing centers in response to tenant
demand. Prior to commencement of an expansion, the Company requires a
significant percentage of lease commitments. The Company believes that selective
expansion allows it to take advantage of management's development experience and
tenant relationships. During the past three years, the Company has added over
600,000 square feet of expansion space to its outlet centers.
The Company's asset management team, which includes development,
leasing, marketing, finance and property management, continually evaluates
potential opportunities at its existing centers for further expansion,
remerchandising, capital improvements and renovation, all in an effort to
increase property value. The Company also monitors each center's sales,
occupancy and overall performance. Properties which may be underperforming are
considered for re-tenanting, change of use or sale. In addition, the Company
intends to improve its ongoing program of regular maintenance, periodic
renovation and capital improvement of existing facilities in an effort to
increase property values and tenants' sales. The Company is replacing the energy
management systems at certain Properties and is evaluating other Properties for
cost-saving opportunities.
The Company intends to fund these expansions and improvements
primarily through its internally generated cash flow.
DEVELOPMENT OF NEW PROPERTIES. The Company believes that
opportunities continue to exist to attract tenants to newly developed factory
outlet centers or community shopping centers (which may include both factory
outlet tenants and regional or national off-price, grocery or other
destination-type tenants). The Company intends to selectively develop centers on
new sites in areas with access to major highways, good visibility and strong
demographics, where a substantial percentage of lease commitments have been
obtained from tenants. The Company looks for sites where it believes there is
potential to expand. Accordingly, the Company generally acquires a minimum site
area sufficient to develop the initial, and at least one additional phase of a
project, plus sufficient contiguous property to be sold or otherwise developed
for complementary uses.
The Company is currently in the pre-development and marketing
stage for a "power outlet" mall located in Lake Carmel, New York. The project is
planned to contain in excess of 300,000 square feet of GLA and is planned to
include "big box" users, which attract destination-oriented shoppers, as well as
traditional outlets. If appropriate tenant interest is obtained, and the
necessary agreements, permits and approvals are received, the Company intends to
commence construction in the fall of 1997. No assurance can be given, however,
that the project will be developed.
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FINANCING. The Company's policy is to finance its acquisitions,
expansions and developments with the source of capital believed by management to
be most appropriate, which may include undistributed cash flow, borrowings from
institutional lenders, newly-issued equity securities, and debt securities on a
secured or unsecured basis. The Company's philosophy is to use its Funds
Available for Distribution, which the Company refers to as Funds Available for
Reinvestment, to their greatest potential as a key source of financing. The
Company's decision to use its cash flow in this fashion will result in a
decrease in dividend distributions (See "Item 5 - Market for the Registrant's
Common Equity and Related Stockholder Matters").
In 1996, the Company issued convertible preferred stock in
exchange for $20 million of new equity. It also recently completed a
$150,000,000 credit facility with Nomura Asset Capital Corporation. The credit
facility with Nomura is secured by 17 of the Company's Properties, plus an
assignment of the excess cash flow from 18 additional Properties. The Nomura
credit facility was used in part to repay existing indebtedness of approximately
$84.5 million and may be utilized to expand existing properties, fund
acquisitions of retail centers, and refinance existing indebtedness.
Any additional debt financing, including additional lines of
credit, may be secured by mortgages on the Properties. Such mortgages may be
recourse or non-recourse or cross-collateralized or may contain cross-default
provisions. The Company does not have a policy limiting the number of mortgages
that may be placed on, or the amount of indebtedness that may be secured by, any
particular property, however, current mortgage financing instruments do limit
additional indebtedness on such properties.
MARKETING. Management believes that the major goal of marketing is
to maximize sales and increase the net asset value of the Properties. The
Company has analyzed the Properties based on net operating income (NOI) and
created a marketing strategy to prioritize the marketing and leasing needs of
each center to better utilize marketing dollars. The marketing efforts are
primarily focused on the larger centers located in markets with regional
customer draw; such centers account for the vast majority of the Company's NOI.
Each of the Properties has a marketing manager responsible for developing and
implementing marketing strategies.
Marketing plans for each center are prepared by the marketing
manager for the merchants, as well as for internal use by the Company's leasing
department. Each marketing plan details goals, strategies and tactics to create
awareness, generate traffic and maximize sales at the Properties. Marketing
efforts also include utilizing an advertising agency specializing in shopping
center marketing, television, radio and print advertising, billboards, special
events, promotions and a public relations program.
On a corporate level, information packages and the Company's
internet web site are continually updated in an effort to communicate more
effectively with the investment community. The web site includes a guest book to
monitor investment community interest.
OPERATING PRACTICES. The Company is a vertically integrated real
estate investment trust providing development, construction management, legal,
leasing, marketing, finance and asset management services. The Company believes
it can increase value to its shareholders by conducting the vast majority of
these services in-house. Each area has been set up along functional lines, with
the Company's property management and marketing areas being staffed by
individuals with industry accreditations such as CSM (Certified Shopping Center
Manager) and CMD (Certified Marketing Director).
The Company's leasing department has also been staffed to address
the Company's philosophy regarding the changing retail environment and the
Company's diversification strategy. The staff has individuals experienced in all
areas of retail leasing, such as factory outlets, power centers, community
centers, regional malls and specialty centers. This breadth of experience has
brought to the Company a broader range of tenant relationships to position the
Company for growth.
The Company believes that increased focus on financial controls
and management information systems (MIS) will be critical over the next several
years to enhance the analysis and communication of financial data. In order to
accomplish this, the Company has staffed its finance area with professionals
with specialized knowledge in real estate finance and acquisition analysis. The
MIS department is in the process of enhancing the Company's systems to allow all
personnel easy access to all financial and lease data in a concise format.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following supplements the discussion of the Company's primary
management, portfolio diversification, expansion and improvements, development,
financing, marketing and operations strategies set forth elsewhere in this
report. The Company's policies with respect to those activities and the matters
discussed below have been determined by the Board of Directors of the Company
and may be amended or revised from time to time at the discretion of the Board
of Directors without a vote of the shareholders of the Company. No assurance can
be given that the Company's investment objectives will be attained or that the
value of the Company will not decrease.
INVESTMENT POLICIES. The Company may expand existing properties,
develop new properties, purchase or lease income-producing properties for
long-term investment, expand and improve the properties it owns or sell such
properties, in whole or in part, when circumstances warrant. The Company also
may participate with other entities in property ownership through joint ventures
or other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness which have priority over the equity
interest of the Company. While the Company intends to emphasize equity real
estate investments, it may, in its discretion, invest in mortgages and other
real estate interests. The Company does not presently intend to invest in
mortgages or deeds of trust, but it may invest in such instruments if management
concludes that the Company may benefit from the cash flow or appreciation of the
subject property. Subject to the percentage of ownership limitations and gross
income tests which must be satisfied to qualify as a REIT, the Company also may
invest in securities of concerns engaged in real estate activities or in
securities of other issuers. The Company does not intend to invest in the
securities of any other issuer for the purpose of exercising control; however,
the Company may in the future acquire all or substantially all of the securities
or assets of other REITs, management companies or similar entities where such
investments would be consistent with the Company's investment policies. In any
event, the Company does not intend that its investments in securities would
require the Company to register as an investment company under the Investment
Company Act of 1940, and the Company would divest securities before any such
registration would be required.
CERTAIN OTHER ACTIVITIES. The Company may make investments other
than as previously described but has no present intention to do so. The Company
has authority to offer shares of Common Stock or other securities in exchange
for property, to repurchase or otherwise reacquire outstanding shares of Common
Stock or other securities and may engage in such activities in the future. At
all times the Company intends to make investments in such a manner as to be
consistent with the requirements of the Code to qualify as a REIT unless,
because of changed circumstances, the Board determines that it is no longer in
the best interests of the Company to qualify as a REIT.
MAJOR TENANT
VF Corporation, which is one of the world's largest apparel
manufacturers, has the largest number of stores and square footage in the
Company's property portfolio with 32 stores, 25 of which anchor the Company's
outlet centers and approximately 1,226,000 square feet representing 25% of the
Company's total square footage. VF Corporation, through its operating
subsidiaries and divisions, designs, manufactures and markets clothing apparel.
Rental revenues from VF Factory Outlet, Inc. ("VFFO"), a subsidiary of VF
Corporation, represented approximately 14% of the Company's 1996 rental
revenues. The Company could be adversely affected in the event of the bankruptcy
or insolvency of, or a downturn in the business of, VFFO or in the event that
VFFO does not renew its leases as they expire. Since VFFO is the anchor tenant
in 25 of the Company's 36 factory outlet centers, the failure of VFFO to renew
its leases or otherwise to continue to operate in one or more of the centers
could have a material adverse impact on the performance of other tenants in the
affected center (and may permit some tenants to terminate their leases) and on
the Company. No other tenant accounted for more than 6.6% of the Company's base
rental revenues or aggregate leased GLA during 1996.
VFFO has 21 leases with the Company for initial terms of 10 years
which were executed in June 1993. These leases with VFFO provide that if the
expansions of certain of the Company's outlet centers are completed as
scheduled, the initial terms of these leases will expire ten years from the date
such expansions are completed. To date, seven of those leases had been amended
to extend their maturity dates between July 2004 and March 2006. Pursuant to
these leases, VFFO is obligated to pay certain increases in common area
maintenance expenses and its pro rata share of insurance expenses and real
estate taxes, and certain operating expenses. Additionally, certain stores (six
in total) may cease operations during the term of their leases if VFFO does not
meet a break-even point in these locations for three consecutive years. No more
than two of these VFFO stores may close in any year and the tenant is still
obligated
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for the payment of all rental obligations for the remaining term. As of December
31, 1996 all six locations had income in excess of the break-even point. See
"Item 2 - Properties - Planned Expansions" for a discussion of the Company's
satisfaction of obligations to expand VFFO Properties.
COMPETITION
The Company's factory outlet centers compete for customers
primarily with factory outlet centers built and operated by other developers,
traditional shopping malls and "off price" retailers. The Company's centers in
Casa Grande, AZ, Kittery, ME, Lake George, NY, Lake Park, GA and Las Vegas, NV
compete directly with nearby factory outlet centers. As a result, these centers
encounter significant competition in retaining existing tenants and attracting
future tenants. The Company carefully considers the degree of existing and
potential competition in a proposed area before deciding to build a new center.
The Company's factory outlet centers compete to a limited extent
with various full- and off- price retailers in the highly fragmented retailing
industry. However, the Company believes that the majority of its customers visit
factory outlet centers because they are intent on buying first-quality,
name-brand goods at discounted prices. Traditional full- and off- price
retailers are often unable to provide such a variety of products at attractive
prices at a single location every day.
The five community shopping centers recently acquired by the
Company have direct competition with other centers located in the same
geographic trade area.
Numerous developers and real estate companies are engaged in the
development or ownership of factory outlet centers and other retail complexes
that compete with the Company in seeking tenants for all of its centers.
Management believes that the Company competes with many large national and small
developers of factory outlet centers. This results in competition for
acquisition of existing properties and development sites and for tenants to
lease space in the factory outlet centers that the Company and its competitors
own or operate. The development of a new, competing factory outlet center with a
more convenient location or more favorable rental terms may attract the
Company's tenants or cause them to renegotiate their leases at or prior to
renewal.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and
regulations, an owner of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such liability may be imposed without regard to whether the owner knew of, or
was responsible for, the presence of such hazardous or toxic substances. The
cost of any required remediation and the owner's liability therefore as to any
property is generally not limited under such laws, ordinances and regulations
and could exceed the value of the property and/or the aggregate assets of the
owner. The presence of such substances, or the failure to remediate such
substances properly, may adversely affect the owner's ability to borrow using
such property as collateral.
In conjunction with the issuance of the $95 million collateralized
commercial mortgage notes in May, 1995, all of the 18 mortgaged Properties were
subject to environmental assessments conducted by an independent environmental
consultant. As a result of the issues at the Company's Vacaville, California
property, discussed below, the lender required that $150,000 be deposited into
an escrow account, together with $4,200 in monthly deposits, to be used, if
necessary, to perform certain possible remediation work. Seventeen of the
remaining Properties of the Company were subject to environmental assessments in
conjunction with the closing of a $75 million credit facility in April 1996.
This facility was subsequently paid off with its financing from Nomura Capital,
which reviewed the environmental assessments. None of these environmental
assessments or updates revealed any environmental liability that management
believes would have a material adverse effect on the Company. No assurances can
be given that (i) the environmental assessments detected all environmental
hazards, (ii) future laws, ordinances or regulations will not impose any
material environmental liability, or (iii) current environmental conditions of
the Properties will not be affected by tenants, by properties in the vicinity of
the Properties, or by third persons unrelated to the Company.
The Vacaville and Lathrop, California properties and one of the
community shopping centers have conditions which may pose a risk of
environmental liability at these properties. The Company believes that releases
of petroleum products from underground storage tanks located at adjacent
properties may have affected these properties.
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In each instance where remediation has been determined to be necessary, the
Company believes that the third parties responsible for any contamination have
accepted responsibility therefor and intend to remediate the effects of any such
contamination. The Company also believes that these responsible parties have
sufficient resources to conduct such remediation. There can be no assurance,
however, that the responsible parties will adequately complete remediation of
any contamination. However, due to the potential environmental issues associated
with the properties acquired by the Company and the properties adjacent to the
Company's properties, the Company accrued $600,000 for the potential remediation
cost at the date of acquisition of two of the properties in 1993 and 1994. If
the responsible parties do not complete such remediation, the Company may be
required to do so, and the expenses associated with such remediation may be
material. In addition, the investigation or remediation of such contamination
(by the responsible parties or by the Company) may impose limitations upon the
Company's ability to use the properties.
The Company believes that it is in compliance in all material
respects with Federal, state and local ordinances and regulations regarding
hazardous or toxic substances. Neither the Company, nor, to the Company's
knowledge, any of its predecessor entities or transferors have been notified by
any governmental authority as to it being designated as a potential responsible
party or of any material non-compliance, liability or other environmental claim
in connection with any of the Properties. The Company is not aware of any other
environmental condition with respect to any of its properties that it believes
would involve any substantial expenditure.
INSURANCE
Management believes that each of the Properties is covered by
adequate fire, flood, property and, in the case of the Vacaville and Lathrop
centers, earthquake insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
EMPLOYEES
As of March 31, 1997, the Company employed 142 persons, 55 of whom
are located primarily at the Company's headquarters in Cary, North Carolina. The
remaining 87 employees are property management, marketing and maintenance
personnel located at the Properties. The Company believes that its relations
with its employees are good.
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ITEM 2 - PROPERTIES
As of December 31, 1996, the Properties consisted of 36 factory
outlet centers containing approximately 4.9 million square feet of GLA located
in 21 states. In addition, the Company has acquired 606,000 square feet in the
recent property acquisition which brings the total GLA to 5.5 million square
feet. At December 31, 1996 the Company's Operating Properties, Development
Properties, and Properties Held for Sale (see table below) were 91.4%, 69.1% and
42.9% leased, respectively, for an overall leased percentage of 87.1%. The
outlet centers contained 756 stores with over 218 different tenants. Twenty-one
(21) of the Properties are enclosed malls, ranging in size from approximately
60,000 to 187,000 square feet of GLA (aggregating approximately 2.0 million
square feet of GLA), and 15 are strip centers containing between approximately
25,000 to 448,000 square feet of GLA (aggregating approximately 2.8 million
square feet of GLA). The Company owns an aggregate of approximately 181 acres of
undeveloped parcels located adjacent to certain of the Properties (the
"Undeveloped Parcels").
The following table sets forth the location of, and certain
information relating to, the Properties as of December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TOTAL PERCENTAGE
NUMBER TOTAL PERCENTAGE PERCENTAGE OF GLA IN
OF GLA OF TOTAL OF TOTAL RENTAL OPERATION
STATE CENTERS (SQ.FT.) GLA REVENUE (1) LEASED
- - - ----------------------------------------------------------- -------------------------------------------------------
OPERATING PROPERTIES:
Alabama 1 111,909 2.3% 1.9% 100.0%
Arizona 2 294,788 6.1% 5.2% 93.2%
California 1 447,745 9.2% 19.2% 88.8%
Florida 1 83,962 1.7% 1.3% 93.8%
Georgia 1 140,025 2.9% 2.0% 73.5%
Illinois 1 91,063 1.9% 0.9% 73.2%
Iowa 1 112,405 2.3% 1.5% 85.5%
Kentucky 3 304,402 6.3% 5.1% 98.7%
Louisiana 2 220,281 4.5% 4.3% 98.8%
Maine 1 24,620 0.5% 1.5% 100.0%
Missouri 1 83,464 1.7% 1.3% 100.0%
Mississippi 1 124,412 2.6% 0.9% 91.4%
Nebraska 1 89,646 1.8% 1.2% 97.4%
Nevada 1 229,958 4.7% 5.2% 75.4%
New York 1 43,650 0.9% 1.4% 92.9%
North Carolina 1 355,758 7.3% 7.4% 96.2%
Tennessee 4 597,730 12.3% 14.3% 94.0%
Texas 6 515,412 10.6% 7.2% 91.1%
Utah 1 185,281 3.8% 2.6% 95.8%
Washington 1 223,383 4.6% 7.7% 85.7%
----------------------------- -------------------------------------------------------
32 4,279,894 88.0% 92.1% 91.4%
DEVELOPMENT PROPERTIES:
Missouri 1 287,522 5.9% 4.1% 69.1%(2)
PROPERTIES HELD FOR SALE:
Arizona 1 141,828 2.9% 2.7% 62.3%
California 1 131,400 2.7% 0.9% 19.9%
New Hampshire 1 24,740 0.5% 0.2% 54.2%
----------------------------- -------------------------------------------------------
3 297,968 6.1% 3.8% 42.9%
----------------------------- -------------------------------------------------------
Total (All Properties) 36 4,865,384 100.0% 100.0% 87.1%
============================= =======================================================
</TABLE>
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(1) Total rental revenue consists of base and percentage rent plus
recoveries from tenants for the year ended December 31, 1996.
(2) As of March 31, 1997, the Branson, MO center was 80.0% leased and
occupied with an additional 5% of GLA committed, and an additional 7%
of GLA under negotiation.
The following table sets forth certain information as of December 31,
1996 relating to the Company's 36 centers. All of the Properties are owned in
fee simple by the Company, except for the factory outlet center located in Boaz,
Alabama, which the Company holds pursuant to a lease which has renewal options
through 2027. The Company recently obtained the right to purchase the land and
building during any term for a total of $25,000 plus the present value of any
future rental payments due during the remaining term. The Company's monthly
rental payments during the current term are $350.00 through and including
January 31, 1998; $500.00 from February 1, 1998 through and including January
31, 1999; $750.00 from February 1, 1999 through and including January 31, 2002;
and $1,000.00 throughout the remainder of the term and any renewal terms. The
current term expires January 31, 2007. Additionally, the Company holds a ground
lease at its Iowa, Louisiana center which has renewal options through 2087.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
DATE GROSS PERCENTAGE AVERAGE PERCENTAGE
DEVELOPED/ LAND LEASABLE OF TOTAL RENTAL OF GLA IN
PROPERTY/ (EXPANDED OR AREA AREA RENTAL REVENUE PER OPERATION
TYPE(1) LOCATION RENOVATED) (2) (ACRES) (SQ.FT.) REVENUE (3) SQ.FT. (4) LEASED
- - - -------------------- --------------------------- ----------------- ---------- --------- ----------- ------------- -----------
OPERATING PROPERTIES:
Boaz, AL Situated along 1982
(EM) U.S. Highway 61 (1994) Lease 111,909 1.9% $12.10 100.0%
Mesa, AZ Situated along U.S. Highways 1987
(EM) 60 and 89 (1995) 26.9 167,213 3.5% 12.67 93.2%
Tucson, AZ Situated along
(EM) Interstate 10 1984 12.5 127,575 1.7% 8.27 93.3%
Vacaville, CA Situated along
(SC) Interstate 84 1988 52.6 447,745 19.2% 22.58 88.8%
Graceville, FL Situated along
(EM) U.S. Highway 77 1985 25.0 83,962 1.3% 10.15 93.8%
Lake Park, GA Situated along 1989
(SC) Interstate 75 (1992) 12.5 140,025 2.0% 13.06 73.5%
West Frankfort, IL Situated along
(EM) Interstate 57 1990 20.0 91,063 0.9% 9.67 73.2%
Story City, IA Situated along 1990
(EM) Interstate 35 (1996) 20.0 112,405 1.5% 10.96 85.5%
Carrollton, KY Situated along
(EM) Highway 22 1989 21.2 63,896 0.8% 12.67 100.0%
Georgetown, KY Situated along
(SC) Interstate 75 1991 16.7 176,615 3.6% 12.21 97.8%
Hanson, KY Situated along
(EM) U.S. Highway 41 1989 21.1 63,891 0.7% 7.12 100.0%
Arcadia, LA Situated along 1989
(EM) Interstate I-20 (1994) 28.7 89,528 1.4% 11.50 100.0%
Iowa, LA Situated along 1989
(EM) Interstate 10 (1994) Lease 130,753 2.9% 14.59 97.9%
Kittery, ME Situated along
(SC) U.S. Highway 1 1987 5.3 24,620 1.5% 27.94 100.0%
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
DATE GROSS PERCENTAGE AVERAGE PERCENTAGE
DEVELOPED/ LAND LEASABLE OF TOTAL RENTAL OF GLA IN
PROPERTY/ (EXPANDED OR AREA AREA RENTAL REVENUE PER OPERATION
TYPE(1) LOCATION RENOVATED) (2) (ACRES) (SQ.FT.) REVENUE (3) SQ.FT. (4) LEASED
- - - -------------------- --------------------------- ----------------- ---------- ---------- ------------ ------------- -----------
OPERATING PROPERTIES:
Tupelo, MS Situated along 1987
(EM) Interstate 44 (1996) 16.8 124,412 0.9% 7.26 91.4%
Lebanon, MO Near Interstate 44 and State
(EM) Highways 5, 32 and 64 1985 23.7 83,464 1.3% 9.24 100.0%
Nebraska City, NE Intersection of U.S.
(EM) Highway 75 and State 1990
Highway 2 (1996) 21.4 89,646 1.2% 12.49 97.4%
Las Vegas, NV Situated along
(SC) Las Vegas Blvd. 1992 25.7 229,958 5.2% 15.18 75.4%
Lake George, NY Intersection of
(SC) Rt. 9 & 49 1988 4.6 43,650 1.4% 15.58 92.9%
Smithfield, NC At the junction of 1988
(SC) Interstate 95 and U.S. (1995)
Highway 70 and 70-A (1996) 46.5 355,758 7.4% 14.66 96.2%
Crossville, TN Intersection of Interstate 40 1988
(EM) and Genesis Road (1994) 16.5 118,785 2.5% 13.61 100.0%
Nashville, TN Across from Opryland 1993
(SC) (1995) 33.3 285,808 9.4% 15.83 96.0%
Tri-Cities, TN Situated along Interstate 81 and
(SC) State Highway 125 1990 23.3 132,908 1.7% 10.50 81.5%
Union City, TN Situated along
(EM) U.S. Highway 51 1988 23.3 60,229 0.7% 8.99 100.0%
Corsicana, TX Intersection of Interstate
(EM) 45/287 and State Highway 32 1989 20.0 63,605 0.7% 7.89 100.0%
Hempstead, TX Situated along
(EM) U.S. Highway 290 1989 14.8 63,605 0.7% 13.10 94.0%
La Marque, TX Situated along
(SC) Interstate 45 1990 19.2 176,071 3.2% 11.64 76.2%
Livingston, TX Situated along
(EM) U.S. Highway 59 1989 15.0 63,605 0.8% 10.42 100.0%
Mineral Wells, TX Situated along
(EM) U.S. Highway 180 1989 15.5 63,609 0.7% 8.06 100.0%
Sulphur Springs, TX Situated along
(EM) Interstate 30 1986 13.3 84,917 1.1% 7.80 100.0%
Draper, UT Situated along 1986
(EM) Interstate 15 (1995) 27.7 185,281 2.6% 7.40 95.8%
North Bend, WA Situated along 1990
(SC) Interstate 90 (1994) 16.1 223,383 7.7% 19.35 85.7%
----- ------------ -------------- ------------- -----------
639.2 4,279,894 92.1% 14.79 91.4%
DEVELOPMENT PROPERTIES:
Branson, MO Situated along
(SC) U.S. Highway 248 1995 34.5 287,522 4.1% 9.29 69.1%(5)
- 9 -
<PAGE>
DATE GROSS PERCENTAGE AVERAGE PERCENTAGE
DEVELOPED/ LAND LEASABLE OF TOTAL RENTAL OF GLA IN
PROPERTY/ (EXPANDED OR AREA AREA RENTAL REVENUE PER OPERATION
TYPE(1) LOCATION RENOVATED) (2) (ACRES) (SQ.FT.) REVENUE (3) SQ.FT. (4) LEASED
- - - -------------------- --------------------------- ----------------- ---------- ---------- ------------ ------------- -----------
PROPERTIES HELD FOR SALE:
Casa Grande, AZ Situated along
(SC) Interstate 10 1991 14.9 141,828 2.7% 16.84 62.3%
Lathrop, CA Situated along
(SC) Interstate 5 1993 14.3 131,400 0.9% 16.41 19.9%(6)
Conway, NH Intersection of
(SC) Rt. 16 & 153 1985 2.1 24,740 0.2% 7.47 54.2%
---------- ------------ --------- ------------- -------------
31.3 297,968 3.8% 15.51 42.9%
---------- ------------ --------- ------------- -------------
Total (All Properties) 705.0 4,865,384 100.0% $14.44 87.1%
========== ============ =========== =========== =============
</TABLE>
1) "EM" indicates an enclosed mall and "SC" indicates a strip center.
2) Reflects the year in which the factory outlet center was developed or
re-developed for use as a factory outlet center.
3) Total Rental Revenue consists of base and percentage rent plus
recoveries from tenants for the year ended December 31, 1996.
4) Average Rental Revenue per square foot is defined as Total Rental
Revenue divided by GLA in operation, exclusive of anchors, at December
31, 1996. The average rental revenue paid by the Company's anchor
tenants (VF Factory Outlet, Carolina Pottery, and WestPoint Stevens),
including base and percentage rents plus recoveries, was $5.57, $4.89,
and $6.35 per square foot, respectively, in 1996.
(5) As of March 31, 1997, the Branson, MO center was 80.0% leased and
occupied with an additional 5% of GLA committed, and an additional
7% of GLA under negotiation.
(6) The Company is converting this property to general office use.
PROPERTIES HELD FOR SALE
Due in part to the Company's ongoing strategic evaluation of its
portfolio of assets, the Directors of the Company authorized management in 1995
to pursue the sale of certain properties that currently are not fully consistent
with or essential to the Company's long-term strategies. Three of these
properties presently held for sale were written down by $8.5 million in 1995 to
their fair value less costs to sell and an additional $5 million write down was
taken on one of the properties in 1996.
These non-cash adjustments were charged to operations and represent the
difference between the estimated net realizable value and net book value of each
asset. After recording the $5 million valuation adjustment in 1996, the net
carrying value of assets currently being marketed for sale at December 31, 1996
is $11.4 million. Two assets previously classified as held for sale will no
longer be carried as held for sale and have been reclassified as income
producing properties. The two centers were previously classified for sale to
combine with another property; after further evaluation the Company feels that
this will not be necessary in order to sell the other property. There is also
$15.8 million of debt which is required to be retired from the sale proceeds and
during 1996, these three properties contributed about $2.1 million of revenue
and $1.1 million of net operating income before interest expense. This non-cash
adjustment was charged to operations and represents the difference between the
estimated net realizable value and net book value of that asset.
The Company is still in the process of marketing the properties.
Management plans to evaluate all properties on a regular basis in accordance
with its strategy for growth and diversification and in the future may identify
other properties for disposition or may decide to defer the pending disposition
of those assets now held for sale.
One of these properties (Lathrop, CA) is currently being converted to
office use and has 30% of the total GLA leased with an additional 52% of GLA
under negotiation. The Company anticipates that it will retain the property
during 1997 to stabilize the revenues and dispose of the center in 1998 in order
to obtain a higher return.
PLANNED EXPANSIONS
For the year ended December 31, 1996 the Company had delivered
approximately 163,000 square feet of expansion space to tenants in Nebraska
City, Nebraska; Story City, Iowa; Tupelo, Mississippi and Smithfield, North
- 10 -
<PAGE>
Carolina. The Company also completed final construction of approximately 81,000
square feet of its 288,000 square foot outlet center being developed in Branson,
Missouri. The following table sets forth certain information relating to the
Company's proposed 1997 expansion activities:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE
POST- OF
CURRENT EXPANSION EXPANSION EXPANSION PLANNED ESTIMATED
GLA GLA GLA GLA COMPLETION COST OF
LOCATION (SQ.FT.) (SQ.FT.) (SQ.FT.) COMMITTED* DATE EXPANSION
- - - -------------------------- -------------- -------------- -------------- ----------------- --------------- --------------
Crossville, TN 118,785 32,470 151,255 61% Fall 1997 $2,350,000
Wilson, NC 91,266 44,000 135,266 100% Spring 1998 $2,450,000
</TABLE>
* The percentage of expansion GLA committed reflects the percentage of the
proposed GLA for which leases or lease commitments have been obtained from
tenants as of March 31, 1997.
In undertaking developments and expansions, the Company will incur
certain risks, including the expenditure of funds on, and the devotion of
management's time to, projects which may not come to fruition. In addition,
completion of planned developments and expansions will be subject to the
availability of adequate debt or equity financing. Other risks inherent in
development and expansion activities include possible cost-overruns, work
stoppages and delays beyond the reasonable control of the Company. Accordingly,
there can be no assurance if or when any or all of the Company's planned
expansions or any other development or expansion project will be completed or,
if completed, that the costs of construction will not exceed, by a material
amount, estimated costs.
In addition, the agreement pursuant to which the Company acquired the VF
Properties required, subject to certain conditions, that the Company complete,
during the three years following the acquisition, the expansion of ten
properties by an aggregate of at least 320,000 square feet of gross building
area (approximately 288,000 square feet of GLA). The agreement provided for
periodic payments to VF Corporation, aggregating up to approximately $21.7
million if the expansions are not completed on a timely basis. This amount was
reduced as the expansions of the VF Properties were completed. Three expansions
totaling approximately 97,000 square feet were completed in 1994, two additional
expansions approximating 100,000 square feet were completed in 1995 and three
additional expansions totaling approximately 106,000 square feet in Story City,
Iowa, Nebraska City, Nebraska and Tupelo, Mississippi were completed in 1996. In
December 1996 the Company and VFFO entered into an amendment which set forth a
framework to resolve the outstanding issues related to the expansion
requirements. The amendment deleted the requirement that the Company expand the
Hempstead, Texas, Livingston, Texas and Lebanon, Missouri centers and
substituted therefor: (i) the now-completed expansion of the Tupelo, Mississippi
center; (ii) the existing arrangement whereby the Company's center and an
adjacent center in Sulphur Springs, Texas are operated as a single property; and
(iii) the completed requirement that the Company enter into contracts to provide
for the benefit of VFFO, for at least three years, three billboards each near
the Draper, Utah; Crossville, Tennessee and Tupelo, Mississippi centers. In
addition, the Company paid to VFFO the $2,016,000 final installment due under
the agreement referenced above. As of February 28, 1997, the Company had
satisfied its obligations under the agreement.
ADDITIONAL INFORMATION ABOUT CERTAIN CENTERS
As of December 31, 1996, the Company's factory outlet center at
Vacaville, California, had a book value of at least 10% of the total assets of
the Company and generated gross revenue in 1996 that accounted for more than 10%
of the Company's 1996 aggregate gross revenue. The following sets forth
information relating to this center:
The Vacaville, California outlet center is located on 53 acres at the
intersection of Interstate 80 and Nut Tree Road, approximately 60 miles east of
San Francisco and 30 miles west of Sacramento, the state capital. Phase I of the
center, which opened in 1988, contains approximately 206,000 square feet of GLA.
Phase II, which opened in 1992, contains approximately 120,000 square feet of
GLA. Phase III, which also opened in 1992, contains approximately 122,000 square
feet of GLA. As of December 31, 1996, 1995 and 1994, Vacaville was 89%, 88% and
92%, respectively, leased to over 100 tenants with an average effective annual
rental revenue per square foot of $22.58, $25.97
- 11 -
<PAGE>
and $25.82, respectively. Major tenants at the center include VF Factory Outlet,
Levi's, Reebok, Mikasa, 9 West and Carter Childrenswear, with The GAP Outlet
scheduled to open in August 1997.
The following table shows the lease expirations for tenants in occupancy
as of December 31, 1996 for the Vacaville outlet center (assuming that none of
the tenants exercise renewal options).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PRO FORMA AVERAGE
LEASED ANNUALIZED % OF ANNUAL BASE
LEASES TO GLA BASE RENTAL TOTAL RENT
YEAR EXPIRE(2) (SQ. FT.)(1) REVENUE REVENUE PER SQ.FT.
------ ----------------- ---------------- ------------------ ------------------ -------------------
1997 25 91,073 $1,410,614 21.7% $15.50
1998 14 51,276 868,912 13.4% 16.95
1999 19 71,468 1,051,426 16.2% 14.71
2000 16 52,720 996,174 15.3% 18.90
2001 19 50,451 884,735 13.5% 17.54
2002 5 24,665 422,270 6.5% 17.12
2003 5 43,674 620,509 9.5% 14.21
2004 1 6,400 140,800 2.2% 22.00
2005 0 0 0 0.0% 0.00
2006 1 6,000 108,000 1.7% 18.00
----------------- ---------------- ------------------ ------------------ -------------------
TOTAL 105 397,727 $6,503,440 100.0% $16.35
================= ================ ================== ================== ===================
</TABLE>
(1) Total leased GLA is not equal to leased GLA due to vacancies.
(2) Expirations assume no renewals or releasing for tenants in occupancy as
of December 31, 1996.
UNDEVELOPED PARCELS
The Company owns approximately 181 acres of undeveloped parcels located
near certain of the Company's factory outlet centers. The Company intends to
pursue a marketing program to lease, develop or sell the parcels it owns through
third party brokers. During 1996, 2.4 acres were sold at Mesa, Arizona for a
total sale price of $205,000 and a gain of $37,000. Because property held for
sale by a REIT is subject to significant restrictions imposed by the Code, the
Company has formed a non-qualified REIT subsidiary under Section 356 of the
Code. By using a non-qualified REIT subsidiary, the Company anticipates it will
be able to avoid the 100% tax imposed on the gain derived from the sale of
certain outparcels of land owned by the Company.
TENANTS
GENERAL. Management believes the Properties offer manufacturers a
diverse tenant mix which includes many well-known manufacturers/retailers. The
majority of the Company's current tenants are large, publicly-traded
manufacturers. The Company's current core tenant mix at its Properties features
such well-known brands as Lee, Wrangler, Jantzen, Jansport, Bass, Van Heusen,
Vanity Fair, Health-tex, Easy Spirit, 9 West, Enzo, Casual Corner, L'eggs,
Hanes, Bali, Champion, Levi's, Nike, Revlon, Liz Claiborne, Mikasa, Martex and
Bugle Boy. In Nashville, Tennessee and Branson, Missouri, the Company has added
Reading China & More as an anchor in an effort to diversify its tenant base.
Several new relationships were developed during the year, such as The GAP, which
plans to open in three of the Company's locations in 1997, and Sunbeam/Oster.
TENANT LEASES. The majority of the leases with the Company's tenants
have terms of between five and ten years which expire between 1997 and 2006.
While many of these leases are triple net leases which require tenants to pay
their pro rata share of utilities, real estate taxes, insurance and operating
expenses, as of December 31, 1996, 21% of the aggregate GLA of its factory
outlet centers was leased to tenants under gross leases, pursuant to which the
Company is obligated to pay all utilities and other operating expenses of the
applicable factory outlet center. VFFO is the Company's largest tenant. See
"Item 1 -- Business -- Major Tenant" for a discussion of the Company's leases
with VFFO.
- 12 -
<PAGE>
LEASE EXPIRATION
The following table shows tenant lease expirations for tenants in
occupancy as of December 31, 1996 for the next ten years at the Properties
(assuming that none of the tenants exercises any renewal option):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PRO FORMA
LEASED ANNUALIZED AVERAGE
LEASES TO GLA BASE RENTAL % OF ANNUAL BASE RENT
YEAR EXPIRE(2) (SQ. FT.)(1) REVENUE TOTAL PER SQ. FT.
- - - -------------- --------------- ----------------- ------------------ ----------------- -----------------------
1997 156 555,429 $5,531,051 14.8% $ 9.96
1998 134 528,132 5,189,119 13.9% 9.83
1999 99 338,393 4,738,563 12.7% 14.00
2000 159 632,003 7,498,310 20.1% 11.86
2001 84 310,597 4,172,723 11.2% 13.43
2002 18 71,260 969,750 2.6% 13.61
2003 58 1,257,302 5,706,291 15.3% 4.54
2004 10 185,448 983,891 2.6% 5.31
2005 12 206,744 1,407,710 3.8% 6.81
2006+ 9 153,749 1,131,099 3.0% 7.36
--------------- ---------------- --------------------- --------------- ---------------------
TOTAL 739 4,239,057 $37,328,507 100.00% $8.81
=============== ================ ===================== =============== =====================
</TABLE>
(1) Total leased GLA is not equal to leased GLA due to vacancies.
(2) Expirations assume no renewals or releasing for tenants in occupancy as
of December 31, 1996.
TENANT CONCENTRATIONS
The following table provides certain information regarding the ten
largest tenants (based upon total GLA leased) and other tenants for the year
ended December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF NUMBER ACTUAL
TOTAL GLA TOTAL GLA OF BASE RENTAL % OF
TENANT LEASED(1) LEASED STORES REVENUE TOTAL
- - - ---------------------------------------- --------------- ----------------- ------------ ----------------- --------------
VF Factory Outlet, Inc. 1,225,752 28.9% 32 $4,827,609 14.2%
Carolina Pottery Retail Group, Inc. 278,458 6.6% 4 892,225 2.6%
Phillips-Van Heusen Corporation 243,141 5.7% 56 1,796,383 5.3%
The Dress Barn, Inc. 136,481 3.2% 27 1,553,413 4.6%
Nine West Group, Inc. 132,662 3.1% 28 893,850 2.6%
Bugle Boy Industries, Inc. 108,148 2.6% 18 727,043 2.1%
The Paper Factory of Wisconsin, Inc. 87,208 2.1% 24 873,028 2.6%
Designs, Inc./Levi Strauss & Co. 85,111 2.0% 9 1,085,005 3.2%
WestPoint Stevens Stores, Inc. 82,840 2.0% 4 222,831 0.6%
The Book Market, Inc. 73,000 1.7% 18 635,879 1.8%
--------------- ------------ ------------ -------------- --------------
2,452,801 57.9% 220 13,507,266 39.6%
Others 1,786,256 42.1% 519 20,591,850 60.4%
--------------- ------------ ------------ -------------- --------------
Total 4,239,057 100.0% 739 $34,099,116 100.0%
=============== ============ ============ ============== ==============
</TABLE>
(1) Total leased GLA is not equal to leased GLA due to vacancies.
- 13 -
<PAGE>
MORTGAGE DEBT
The following table sets forth, as of December 31, 1996, certain
information regarding the mortgages encumbering certain of the Properties (in
thousands).
<TABLE>
<CAPTION>
1996 ESTIMATED
ANNUAL BALLOON
PRINCIPAL INTEREST DEBT PAYMENT AT
AMOUNT RATE TYPE SERVICE MATURITY MATURITY SECURED BY
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$55,907 7.42% Collateralized Mortgage Notes $ 1,351 $ 46,716 2002 Arcadia, LA; Carrollton,
KY; Casa Grande, AZ;
Conway, NH; Crossville,
TN; Draper, UT; Hanson,
KY; Iowa, LA; Kittery,
ME; La Marque, TX; Lake
George, NY; Las Vegas,
NV; Mesa, AZ; North
Bend, WA; Tucson, AZ;
Union City, TN; Vacaville,
CA; and West Frankfort, IL
(collectively "FSA Finance
Properties")
20,000 7.78 Collateralized Mortgage Notes -- 20,000 2002 FSA Finance Properties
17,000 8.31 Collateralized Mortgage Notes -- 17,000 2002 FSA Finance Properties
- - - ------------ -----------------------
92,907 Total Fixed Rate Debt 1,351 83,716
- - - ------------ ------------------------
5,788 Prime + 2.25% Mortgage 83 5,719 1998 Lathrop, CA
75,000 LIBOR + 2.75% Revolving Credit Facility(1) -- 75,000 1998 Branson, MO; Georgetown,
- - - ------------ -------------------------
KY; Lake Park, GA;
80,788 Total Variable Rate Debt 83 80,719 Nashville, TN; Smithfield,
- - - ------------ -------------------------
NC; Tri-Cities, TN; Story
City, IA; Sulphur Spring,
TX ; Nebraska City, NE;
Boaz, AL; Graceville, FL;
Tupelo, MS; Lebanon, MO;
Corsicana, TX; Hempstead,
TX; Livingston, TX; and
Mineral Wells, TX
$173,695 Total Mortgage Debt $1,434 $164,435
========== =======================
</TABLE>
(1) The $75,000,000 Revolving Credit Facility was paid in full from proceeds
funded under a newly issued credit facility issued by Nomura Asset
Capital Corporation. The Facility is secured by the same properties as
the previous credit facility, plus an assignment of additional cash flow
from the properties secured by the collateral mortgage notes, matures in
1999 with a 1 year extension and bears an interest rate of LIBOR +
2.25%.
TAXES
Because the acquisitions of all of the Properties were taxable
transactions to the sellers of those properties, the Company has a "stepped-up"
aggregate cost basis in these real estate assets for Federal income tax
purposes. Depreciation is calculated using the straight line method over the
estimated useful lives of the assets, for which buildings and improvements range
from 15 to 31.5 years and equipment ranges from five to 10 years.
The Company's aggregate real estate tax obligation for the Properties
during the fiscal year ended December 31, 1996, was approximately $5.1 million,
or $1.09 per square foot of GLA. The real estate obligation and rates per square
foot of GLA for Vacaville, the Company's largest outlet center, was
approximately $1.4 million or $3.13 per square foot of GLA.
EXECUTIVE OFFICES
The Company relocated its corporate headquarters in December 1996 and
currently leases its 17,500 square foot executive offices in Cary, North
Carolina.
- 14 -
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
On August 25, 1995, the Company executed definitive written agreements
("Agreements") to acquire both the factory outlet centers owned by The Public
Employees Retirement System of Ohio ("OPERS") and the management and business
operations of the Charter Oak Group Ltd., a subsidiary of Rothschild Realty,
Inc., ("RRI"), subject to certain terms and conditions. On December 7, 1995, the
Company reported that RRI had terminated the Agreements and thus, the
acquisitions did not take place.
Subsequent to the termination of the Agreements, RRI for itself and on
behalf of OPERS made a demand for payment with respect to a $5 million
promissory note (the "Note") issued by the Company in connection with its
proposed purchase of the OPERS' centers and the management and business
operations of RRI's Charter Oak Group, Ltd. The Note is payable only upon the
occurrence of certain conditions relating to the termination of the Agreements
and the Company asserts that certain of the required conditions were not met and
thus, the Note is not properly due and payable as RRI has asserted.
After an unsuccessful attempt at mediation of the dispute, RRI filed for
arbitration of the matter in New York. The Company thereafter sought a
preliminary injunction in North Carolina, seeking, among other things, a stay of
the New York arbitration. The North Carolina court entered an order requiring
the parties to arbitrate in North Carolina. RRI did not appeal the order and the
parties are in the process of selecting a mutually acceptable arbitrator in
Raleigh, North Carolina.
The Company intends to continue to vigorously defend its position in the
upcoming arbitration and, while no assurance can be given as to the outcome of
such arbitration, it continues to assert that it has meritorious defenses to the
payment of the Note.
On July 19, 1996, a purported class action lawsuit was filed in the
United States District Court for the Eastern District of North Carolina against
the Company, its former chairman and chief executive officer, J. Dixon Fleming,
Jr., and a former president of the Company, David A. Hodson. The complaint seeks
certification of a class consisting of all persons (with certain exclusions) who
purchased common stock of the Company between December 16, 1993 and April 17,
1996, inclusive (the "Class Period"). The complaint alleges that, during the
Class Period, defendants made certain false or misleading statements to the
public concerning (1) earnings and funds from operations; (2) the Company's
ability to maintain dividends at prior levels; (3) the alleged maintenance of
dividends through borrowings rather than funds from operations; (4) the
Company's ability to close a proposed acquisition; (5) the alleged purchase of
certain properties from affiliates of the individual defendants at inflated
prices; and (6) alleged improper accounting practices.
On October 30, 1996, a second purported class action lawsuit was filed
in the United States District Court for the Eastern District of North Carolina
against the Company and Messrs. Fleming and Hodson, containing factual
allegations and legal claims similar to those asserted in the prior purported
class action. The plaintiffs in both actions seek unspecified monetary damages.
The cases have been consolidated and the Company has filed motions to dismiss
both lawsuits, which motions are currently pending.
The Company believes that it and the named officers have substantial
defenses to the plaintiffs' claims and the Company intends to vigorously defend
the actions. However, no assurance can be given as to the ultimate outcome of
the litigation.
In addition, the Company is a party to certain legal proceedings
relating to its ownership, management and leasing of the properties, arising in
the ordinary course of business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 15 -
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock began trading on the NYSE on June 3, 1993, under the
symbol "FAC." At March 31, 1997, there were approximately 758 stockholders of
record.
The following table sets forth the quarterly high and low sales prices
of the Common Stock and dividends paid per share for 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 HIGH LOW DIVIDENDS
- - - ----------------------------- -------------------- ----------------- ----------------
First Quarter $ 13 5/8 $ 9 7/8 $ 0.25
Second Quarter 10 1/8 9 0.25
Third Quarter 9 1/2 8 1/2 0.25
Fourth Quarter 8 7/8 6 5/8 0.00
1995
- - - -----------------------------
First Quarter $ 23 7/8 $ 20 0.48
Second Quarter 21 18 5/8 0.51
Third Quarter 22 19 0.51
Fourth Quarter 20 3/8 12 1/4 0.51
</TABLE>
DISTRIBUTIONS
The Company intends to make a determination regarding its dividend
distributions annually following review of the Company's year end financial
results. The Company's policy is to declare dividends in amounts equal to 95% of
the Company's taxable income which is the minimum dividend required to maintain
REIT status. Based upon previous losses, the Company will have approximately
$5.2 million of net operating loss carry forwards for 1997 which could result in
no dividend payment requirement to maintain its REIT status. Under the Company's
line of credit with Nomura, the Company may not make distributions if it is in
monetary default under the line of credit. See "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity."
The Company provides a Dividend Reinvestment Plan for stockholders
of record. Information on the Plan can be obtained from the Company's transfer
agent and registrar, First Union National Bank of North Carolina at (800)
829-8432.
RELATED SHAREHOLDER MATTERS
See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity" for a discussion of the Series
A Convertible Preferred Stock, Senior Notes and Warrants issued pursuant to a
Note Purchase Agreement. All such securities were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Exchange
Act of 1934.
ITEM 6 - SELECTED FINANCIAL DATA
The following information should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 8 of this
report and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" included in Item 7 of this report.
Industry analysts generally consider Funds from Operations ("FFO")
an appropriate measure of performance for an equity REIT. FFO means net income
(computed in accordance with generally accepted accounting principles) excluding
gains or losses from debt restructuring and sales of property plus depreciation
and amortization and adjustments for unusual items. Management believes that
FFO, as defined herein, is an appropriate measure of the
- 16 -
<PAGE>
Company's operating performanc because reductions for depreciation and
amortization charges are not meaningful in evaluating the operating results of
the Properties which have historically been appreciating assets.
Beginning in 1996 the Company adopted a change in the definition
of FFO as promulgated by the National Association of Real Estate Investment
Trusts (NAREIT). Under the new definition, amortization of deferred financing
costs and depreciation of non-real estate assets, as defined, are not included
in the calculation of FFO. All prior period FFO results have been retroactively
restated so that reported FFO in 1996 is comparable to prior periods.
"EBITDA" is defined as revenues less operating costs, including
general and administrative expenses, before interest, depreciation and
amortization and unusual items. As a REIT, the Company is generally not subject
to Federal income taxes. Management believes that EBITDA provides a meaningful
indicator of operating performance for the following reasons: (i) it is industry
practice to evaluate the performance of real estate properties based on net
operating income ("NOI"), which is generally equivalent to EBITDA; and (ii) both
NOI and EBITDA are unaffected by the debt and equity structure of the property
owner.
FFO and EBITDA (i) do not represent cash flow from operations as
defined by generally accepted accounting principles, (ii) are not necessarily
indicative of cash available to fund all cash flow needs and (iii) should not
be considered as an alternative to net income for purposes of evaluating the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity.
Other data that management believes is important in understanding
trends in its business and properties are also included in the following table
(in thousands, except per share data).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMPANY ADJUSTED
FAC REALTY, INC. HISTORICAL COMBINED
(B)
------------------------------------------------------- ---------------------------
1996 1995 1994 1993(A) 1993 1992
--------------- ------------ ------------ ----------- --------------- -----------
OPERATING DATA:
Rental revenues $47,133 $46,784 $42,077 $12,135 $23,094 $21,390
Property operating costs 13,936 13,648 10,454 3,371 7,181 6,449
------------ --------- --------- --------- ------------ -----------
33,197 33,136 31,623 8,764 $15,913 $14,941
============= ===========
Depreciation and amortization 13,802 11,900 8,511 1,997
General and administrative 6,238 15,279 5,567 1,615
Interest 14,175 10,903 4,435 13
Adjustment to carrying value of assets (5,000) (8,500) - -
Gain on sale of real estate 37 345 - -
Extraordinary loss on early (103) - (884) -
extinguishment of debt
--------------- ------------ ------------ -----------
Net income (loss) $ (6,084) $(13,101) $12,226 $5,139
=============== ============ ============ ===========
Income (loss) before extraordinary item
applicable to common shareholders $ (6,349) $(13,101) $13,110 $5,139
=============== ============ ============ ===========
Per common share data:
Income (loss) before extraordinary item $ (0.54) $(1.11) $1.11 $ 0.86
Extraordinary item (0.01) - (0.07) -
--------------- ---------- ------------ -----------
Net income (loss) $ (0.55) $(1.11) $1.04 $ 0.86
=============== ========== ============ ===========
Weighted average common shares outstanding 11,816 11,814 11,811 5,989
=============== ========== ============ ===========
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
COMPANY ADJUSTED
FAC REALTY, INC. HISTORICAL COMBINED
(B)
------------------------------------------------------- ---------------------------
1996 1995 1994 1993(A) 1993 1992
--------------- ------------ ------------ ----------- --------------- -----------
OTHER DATA:
EBITDA $ 27,886 $ 24,357 $ 26,056 $7,149
=============== ============ ============ ===========
Funds from Operations (FFO):
Net income (loss) $(6,084) $(13,101) $ 12,226 $ 5,139
Adjustments:
Straight line rent 383 (626) (922) (355)
Depreciation and amortization 13,513 11,722 8,428 1,953
Interest on exchangeable notes 553 - - -
Compensation under restricted stock award 392 - - -
Gain on sale of real estate (37) (345) - -
Unusual items:
Non-recurring administrative costs 927 6,500 - -
Adjustment to carrying value of assets 5,000 8,500 - -
Extraordinary loss on early
extinguishment of debt 103 - 884 -
--------------- ------------ ------------ -----------
Funds from Operations $ 14,750 $ 12,650 $20,616 $ 6,737
=============== ============ ============ ===========
Weighted average shares outstanding
- fully diluted 13,399 11,814 11,811 5,989
=============== ============ ============ ===========
Funds from Operations per share - assuming full
dilution $ 1.10 $ 1.07 $ 1.75 $ 1.12
=============== ============ ============ ===========
Funds Available for Distribution/Reinvestment:
Funds from Operations $ 14,750 $ 12,650 $20,616 $ 6,737
Adjustments:
Non-recurring administrative costs (927) (6,500) - -
Capitalized tenant allowances (316) (1,380) (1,340) (156)
Capitalized leasing costs (549) (407) (402) (68)
Recurring capital expenditures (312) (796) (1,314) (233)
--------------- ------------ ------------ -----------
Funds Available for Distribution/
Reinvestment: $12,646 $3,567 $17,560 $6,280
=============== ============ ============ ===========
Funds Available for Distribution/Reinvestment per
share $0.94 $0.30 $1.49 $1.05
=============== ============ ============ ===========
Dividends declared on annual earnings $10,142 $ 24,101 $22,681 $ 9,469
=============== ============ ============ ===========
Dividends declared on annual earnings
per share $0.75 $2.04 $1.92 $1.58
=============== ============ ============ ===========
BALANCE SHEET DATA:
Income-producing properties (before accumulated
depreciation and amortization) $368,005 $357,034 $321,088 $236,383
Total assets 358,612 355,095 326,270 245,457
Debt on income properties 173,695 170,067 101,193 33,968
Total liabilities 194,020 194,609 122,930 38,808
Total stockholders' equity 164,592 160,486 203,340 206,649
PORTFOLIO PROPERTY DATA:
Total GLA (at end of period) 4,865 4,626 4,234 3,502
Weighted average GLA 4,674 4,336 3,768 2,474
Number of properties (at end of period) 36 36 35 32
Occupancy (at end of year)
Operating 91.4% 92.3% 92.9% 93.5%
Development 69.1% 52.1% - -
Held for sale 42.9% 66.3% - -
</TABLE>
(a) Represents actual results of operations for the Company from March 31,
1993 (inception) to December 31, 1993, and actual balance sheet data
at December 31, 1993.
(b) The adjusted historical combined data for 1992 include financial data
for the four CP Properties and the 21 VF Properties on an adjusted
historical combined basis. For 1993, the adjusted historical combined
data includes the operations of the CP and VF Properties from January
1, 1993, through their respective dates of acquisition combined with
the operations of the Company from March 31, 1993 (inception) through
December 31, 1993.
- 18 -
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion should be read in conjunction with
the selected financial data included in Item 6 of this report, and the
consolidated financial statements and notes thereto included in Item 8
of this report. Certain comparisons between the periods have been made
on a percentage basis and on a weighted average square foot basis,
which adjusts for square footage added at different times during the
year.
Certain statements under this caption, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). See
"Forward-Looking Statements" included under this section.
GENERAL OVERVIEW
The Company was incorporated on March 31, 1993 and completed
an Initial Public Offering ("IPO") on June 10, 1993. Prior to
completion of the IPO, the Company owned four outlet centers in four
states aggregating 701,000 square feet of Gross Leasable Area ("GLA").
Upon completion of the IPO, 21 factory outlet centers in eleven states
were acquired from VF Corporation totaling 1,725,000 square feet of
GLA. On November 1, 1993, the Company acquired a 167,000 square foot
center located near Opryland in Nashville, Tennessee. On December 23,
1993, the Company completed a secondary offering of Common Stock and
used the proceeds to purchase six outlet centers in six states from the
Willey Creek Group aggregating 908,000 square feet. As of December 31,
1993, the Company owned 32 outlet centers in 21 states totaling
3,502,000 square feet of GLA.
During 1994, the Company began development of a 288,000 square
foot outlet center in Branson, Missouri, acquired three additional
properties totaling 449,000 square feet of GLA from the Willey Creek
Group, and completed expansions comprising 283,000 square feet of GLA
in Iowa, Louisiana; Crossville, Tennessee; North Bend, Washington;
Arcadia, Louisiana; Boaz, Alabama; and Nashville, Tennessee. By the end
of 1994, the Company owned 35 outlet centers aggregating 4,234,000
square feet of GLA, which represented a 21% increase over the prior
year end, and had one center under development.
During 1995, the Company delivered 109,000 square feet of
expansion space to tenants in Mesa, Arizona and Draper, Utah. In
September, 1995, the Company completed an expansion of 28,000 square
feet of GLA in Nashville, Tennessee. Throughout 1995, the Company
continued development of its 288,000 square foot outlet center in
Branson, Missouri, with 207,000 square feet available for delivery to
tenants by December 31, 1995. The Company also began a 103,000 square
foot expansion of its Smithfield, North Carolina factory outlet center,
with 48,000 square feet of the expansion space opening in November,
1995; and had commenced two additional expansions totaling 48,000
square feet in Nebraska City, Nebraska and Story City, Iowa which were
being constructed pursuant to commitments made to VF Corporation in
connection with the purchase of the VF Properties in June, 1993. As of
December 31, 1996, the Company had satisfied its obligations to VF
Corporation. The Company ended 1995 with 4,626,000 square feet of GLA,
up 9% from the prior year end.
During 1996, the Company completed the remaining 81,000 square
feet of its 288,000 square foot outlet center in Branson, Missouri, and
completed expansions aggregating 158,000 square feet in Story City,
Iowa; Nebraska City, Nebraska; Smithfield, North Carolina; and Tupelo,
Mississippi. The Company ended 1996 with 4,865,000 square feet of GLA,
up 5.1% from the end of 1995.
In March, 1997, the Company purchased five retail community
shopping centers located in the Raleigh, North Carolina area for
$32,300,000. The centers total 606,000 square feet and feature anchor
tenants such as Winn Dixie, Food Lion, K-Mart and Eckerd Drug. The
centers had revenues in excess of operating expenses, exclusive of
interest, depreciation, amortization and general and administrative
expenses, of $3.8 million for the year ended December 31, 1996.
During 1997, the Company plans to begin construction on
expansions at its Crossville, Tennessee and Wilson, North Carolina
centers, totaling 76,000 square feet. Additionally, the Company is
currently in the pre-development and marketing stage for a "power"
outlet mall located in Lake Carmel, New York. The project is planned to
contain in excess of 300,000 square feet of GLA. If appropriate tenant
interest is obtained and the appropriate agreements, permits
- 19 -
<PAGE>
and approvals are received, the Company intends to commence
construction in the fall of 1997. No assurance can be given, however,
that the expansions or project will be developed and/or completed.
The Company receives rental revenue through base rent,
percentage rent, overage rent and expense recoveries from tenants and
through miscellaneous income including tenant lease buyouts. Base rent
represents a minimum amount set forth in the leases for which the
tenants are contractually obligated, including the amounts tenants are
obligated to pay based on a percentage of the tenants' gross sales in
lieu of base rent. Percentage rent is a function of the sales volumes
of various tenants in excess of a negotiated sales "break point". For
sales in excess of the break point, tenants pay a specified percentage
of these sales as overage rent in addition to their base rent and other
charges. Expense recoveries from tenants relate to the portion of the
property's operating costs for which the tenants are obligated to
reimburse the Company, including marketing, real estate taxes,
insurance, utilities and common area maintenance charges. Pursuant to
leases with the Company's two major anchor tenants, VF Factory Outlet,
Inc. ("VFFO") and Carolina Pottery Retail Group, Inc., these anchor
tenants are obligated to pay only certain increases in common area
maintenance expenses and their pro-rata share of insurance expense and
real estate taxes, and certain of the operating expenses. While many of
the Company's leases are triple net leases, whereby the tenants are
obligated for their pro-rata share of the real estate taxes, insurance,
utilities, common area maintenance charges and contribute to the
marketing fund, as of December 31, 1996, approximately 21% of the
leased GLA of the Company's factory outlet centers is leased to tenants
whereby they are not obligated to reimburse the Company for real estate
taxes, insurance, utilities and common area maintenance expenses. In
such instances, the Company has allocated a portion of the base rent or
percentage rent to expense recoveries and utility expense.
The Company has approximately 181 acres of outparcels located
near or adjacent to certain centers which are actively being marketed
for sale or as ground leases. As outparcels are sold and cash received,
these revenues are available for reinvestment.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
The Company reported a net loss of $6.1 million, or $0.55 per
common share, for the year ended December 31, 1996 compared to a net
loss of $13.1 million, or $1.11 per common share, for the comparable
period in 1995. The loss for 1996 resulted in part from three factors.
First, the Company took a charge against earnings of $5.0 million to
reduce the carrying amount of a certain property. Second, the Company
accrued severance costs and other non-recurring administrative costs of
$0.9 million. Third, the Company incurred an extraordinary loss on the
early extinguishment of debt of $0.1 million. Excluding similar charges
for 1995 and the charge of $4.5 million related to the termination of
agreements to acquire the factory outlet centers owned by the Public
Employees System of Ohio (OPERS) in 1995, net income for 1995 exceeded
that of 1996 by $2.0 million. As more fully described below, the
differential is primarily due to an increase in depreciation and
amortization of $1.9 million in 1996 over 1995.
FFO for 1996 was $14.8 million, or $1.10 per share, assuming
full dilution for the issuance of convertible preferred stock in 1996.
This compares to $12.7 million, or $1.07 per share, for 1995. Factors
that had a positive impact on 1996 FFO were: (a) $1.1 million, or $0.08
per share, in improved property level performance as described below
and (b) $3.8 million, or $0.29 per share, in lower general and
administrative expenses also as described below. Factors that had a
negative impact on 1996 FFO were: (a) $2.7 million, or $0.20 per share,
in higher interest expense due to a higher average borrowing level; (b)
$0.1 million, or $0.01 per share, in higher depreciation and
amortization expense on non real estate assets plus (c) $0.13 per share
resulting from the dilutive effect of the increase in the weighted
average shares outstanding due to principally the result of the
issuance of convertible preferred stock. The issuance of the
convertible preferred stock for $20 million can be attributed to the
excess ($20.5 million) of the dividend declared on 1995 earnings ($24.1
million) over the funds available for distribution in 1995 ($3.6
million).
Earnings before interest, taxes, depreciation and amortization
(EBITDA) was $27.9 million in 1996, an increase of $3.5 million, or
14%, from $24.4 million for the same period in 1995. The increase was
due primarily to the decrease in the general and administrative
expenses from 1995 after adjustment for non-recurring administrative
costs for both years.
- 20 -
<PAGE>
Base rent decreased slightly to $34.1 million in 1996 from
$34.6 million in 1995. However, base rent before the adjustment for
straight line rent increased $0.5 million or 1.5% to $34.5 million in
1996 when compared to 1995, while the Company's weighted average square
feet of GLA in operation increased 8%. The increase in base rents from
increased occupancy at the operating and development centers was offset
by declining rents on renewals at certain properties and lower average
center occupancy levels in the centers held for sale. Base rental
revenue for 1996 includes a charge to the reserve for uncollectible
tenant accounts of $0.5 million compared to $0.6 million in 1995.
Percentage rent remained unchanged at $0.6 million in 1996
compared to the same amount in 1995. Percentage rent represents amounts
due from tenants based on a specified percentage of the tenants sales
in excess of a sales break point agreed to in the lease.
Recoveries from tenants, representing contractual
reimbursements from tenants of certain common area maintenance,
utilities, taxes, insurance and marketing cost, increased in 1996 to
$11.8 million from $11.1 million in 1995. On a weighted average square
foot basis, recoveries from tenants increased to $2.85 in 1996 from
$2.82 in 1995, or 1%. The average recovery of property operating
expenses increased from 81% in 1995 to 84% in 1996. The increase in the
recovery percentage was the result of new development and expansions
which were leased primarily on a triple net basis. Approximately 21% of
the leased GLA is leased whereby the Company is obligated to pay all
utilities and operating expenses of the applicable factory outlet
center as compared to 18% in 1995.
Although total tenant retail sales at Company centers
increased 7.6% in the year ended December 31, 1996 compared to 1995,
tenant sales on a comparative store basis decreased approximately 1.8%
in 1996 compared to 1995, as compared to a 1.3% increase for the
industry as reported by the International Council of Shopping Centers.
Lower tenant sales may have a continuing adverse effect on tenant plans
for new store openings or lease renewals.
Other income was approximately $0.6 million in 1996 compared
to $0.5 million in 1995 and primarily represented slightly higher lease
termination settlements.
Operating expenses increased $0.3 million, or 2%, to $13.9
million in 1996 from $13.6 million in 1995. The increase in operating
expenses was principally due to the increase in the weighted average
square feet in operation in 1996 which rose 8% from 4.3 million square
feet in 1995 to 4.7 million square feet in 1996. On a weighted average
square foot basis, operating expenses actually decreased 5% from $3.15
in 1995 to $2.98 in 1996. This was due principally to a $0.21 per
square foot decrease in marketing costs, which are recorded net of
tenant contributions to the marketing of the centers.
General and administrative expenses in 1996 included
non-recurring administrative costs of $0.9 million and a non-cash
charge of $0.4 million for restricted stock issued principally for
bonuses, whereas 1995 included a charge of $6.5 million related to the
termination of agreements entered into in 1995 to acquire the factory
outlet centers owned by OPERS and certain other non-recurring charges.
Exclusive of these charges, general and administrative cost decreased
$3.8 million, or 44%, to $4.9 million in 1996 from $8.7 million in
1995. The decrease was due principally to the savings of $3.7 million
associated with the termination of the NASCAR motorsports program and
$0.2 million related to the termination of the lease on the Company's
airplane.
Of the $0.9 million in non-recurring administrative costs
incurred in 1996, $0.8 million related to severance costs accrued as of
December 31, 1996 in conjunction with the resignation of the Company's
chief executive officer. Such costs were accrued pursuant to the terms
of his employment agreement entered into in December 1995.
Concurrently, the Company settled a $0.6 million valuation issue
related to the Company's purchase in 1993 of a 19 acre tract of land,
acquired in a non-monetary transaction from a partnership in which the
former officer was a general partner, by agreeing to resell the land to
him for the original purchase price in an all cash transaction. The
consummation of this transaction is secured by the unpaid severance
amounts due the former officer. Also in settling the terms of the
former officer's severance and non-competition restrictions, $0.25
million of his severance was applied to certain advertising expenses
incurred by the Company.
Depreciation increased $0.9 million in 1996 primarily as a
result of the completion of the center in Branson, MO and the
expansions of the Company's properties in Nebraska City, NE,
Smithfield, NC and Tupelo, MS. Buildings and improvements classified as
income-producing properties increased $36.9 million in 1996 from 1995.
Amortization of deferred leasing and other charges increased $1.0
million in 1996 and deferred leasing and other charges classified as
- 21 -
<PAGE>
income-producing properties increased $4.2 million in 1996 from 1995.
On a weighted average square foot basis, depreciation and amortization
of income-producing properties increased 7% to $2.89 in 1996 from $2.70
in 1995.
Interest expense for the year ended December 31, 1996, net of
interest income of $0.6 million, increased by $3.3 million, or 30%, to
$14.2 million compared to $10.9 million, net of interest income of $0.2
million, in 1995. This increase resulted from higher borrowing levels
in 1996 compared to 1995 and $0.6 million from the infusion in April,
1996 of $20 million in capital from Gildea Management Company,
initially in the form of Exchangeable Notes, as more fully described in
footnote 5 of the "Notes to Consolidated Financial Statements". On a
weighted average basis, excluding the Exchangeable Notes, debt
outstanding and the average interest cost were approximately $180.0
million and 8.2%, respectively, in 1996 compared to $147.1 million and
8.3%, respectively, in 1995. Amortization and deferred financing cost
amounted to $1.4 million in 1996 and $1.6 million in 1995. The Company
capitalized interest cost associated with its development projects of
$2.0 million in 1996 and $2.6 million in 1995. Associated with the
refinancing of the Company's existing line of credit, the Company
expensed the related unamortized loan costs of $103,000 which has been
classified as an extraordinary item in the Consolidated Statements of
Operations.
As part of the Company's ongoing strategic evaluation of its
portfolio of assets, the Company determined in 1995 to pursue the sale
of certain properties that currently are not fully consistent with or
essential to the Company's long-term strategies. Accordingly, in 1995
the Company recorded an $8.5 million adjustment to the carrying value
of three of the assets held for sale. In 1996 the Company recorded an
additional $5.0 million adjustment to the carrying value of one of the
assets held for sale. This non-cash adjustment was charged to
operations and represents the difference between the fair value less
costs to sell and net book value of the assets. After recording the
$13.5 million valuation adjustment, the net carrying value of assets
currently being marketed for sale at December 31, 1996 is $11.4
million. There is also $15.8 million of debt secured by the properties
which is expected to be retired from the sale proceeds. For the year
ended December 31, 1996, these properties contributed approximately
$2.1 million of revenue and incurred a loss of $1.0 million after
deducting related interest expense on the debt associated with the
properties. For the year ended December 31, 1995 these properties
contributed approximately $3.0 million of revenue and incurred a loss
of $0.5 million after deducting related interest expense. The reduction
in the performance is principally due to the lower occupancy level in
1996 as compared to 1995 existing at certain centers held for sale.
The Company has begun the process of marketing the properties
and no sales agreements have been completed to date. Management plans
to evaluate all properties on a regular basis in accordance with its
strategy for growth and in the future may identify other properties for
disposition or may decide to defer the pending disposition of those
assets now held for sale.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
The Company reported a net loss of $13.1 million, or $1.11 per
share, for the year ended December 31, 1995 compared to net income of
$12.2 million, or $1.04 per share, for the comparable period in 1994.
The loss resulted from two factors. First, the Company recognized a
charge of $9.5 million related to the termination of agreements to
acquire the factory outlet centers owned by the Public Employees System
of Ohio (OPERS) and certain other reorganization costs. Secondly, the
Company took a charge against earnings of $8.5 million to reduce the
carrying amount of certain properties. Exclusive of the above charges,
net income for 1995 was less than that of 1994 by $7.3 million, or
$0.62 per share. As more fully described below, this reduction was
primarily due to higher interest expense and property operating costs.
FFO for the year ended December 31, 1995 was $12.7 million or
$1.07 per share. This compares to $20.6 million, or $1.75 per share,
for the year ended 1994. Factors that had a negative impact on 1995 FFO
and contributed to the decrease were: (a) $6.4 million, or $0.55 per
share, in higher interest expense due to a higher average borrowing
level and amortization of deferred financing cost; (b) $3.0 million, or
$0.25 per share, in higher general and administrative cost due to lower
capitalization of leasing and related costs, expensing of deferred cost
resulting from the cancellation of the Company's continuing
participation in the NASCAR motorsports program, future development
projects no longer being pursued and termination of a long term lease
on a corporate plane, and (c) higher operating cost per weighted
average square foot at the properties of $1.6 million, or $0.14 per
share, due to higher marketing costs, taxes and common area maintenance
cost.
- 22 -
<PAGE>
Earning before interest, taxes, depreciation and amortization
(EBITDA) was $24.4 million for the year ended December 31, 1995, a
decrease of $1.7 million, or 7%, from $26.1 million in 1994. The
decrease was due primarily to the higher property operating cost and
general and administrative cost noted above.
Base rents increased $2.7 million, or 8%, to $34.6 million in
1995 from $31.9 million in 1994. The Company's weighted average square
foot of GLA in operation in 1995 increased 13% from 3.8 million in
1994 to 4.3 million square feet in 1995 resulting from expansions
of existing centers and new development. Base rental revenue of $34.6
million, as reported, includes a charge to the reserve for
uncollectible tenant accounts of $0.6 million, an increase of 0.4
million over the 1994 reserve. At December 31, 1995, the average base
rent per square foot was approximately $7.98 per square foot, as
compared to $8.27 per square foot in 1994.
Percentage rents increased $0.1 million or 16%, to $0.6
million in 1995 compared to $0.5 million in 1994. Percentage rents
represent amounts due from tenants based on a specified percentage of
the tenants sales in excess of a breakpoint agreed to in the lease.
Recoveries from tenants, represent contractual reimbursements
from tenants of certain common area maintenance, real estate taxes,
utilities and insurance. In lease agreements where the tenant is not
required to reimburse the Company for real estate taxes, utilities,
insurance and common area maintenance costs, the Company has allocated
a portion of the rental amount to tenant recoveries. Recoveries
decreased $0.2 million, or 2%, to $11.1 million in 1995 from $11.3
million in 1994. On a weighted average square foot basis, recoveries
from tenants decreased to $2.82 in 1995 from $2.99 in 1994, or 6%.
Other income was $0.5 million in 1995 compared to $0.8 million
in 1994 and primarily represented lease termination settlements and
other miscellaneous property level income.
Operating expenses increased $3.2 million, or 31%, to $13.6
million in 1995 from $10.4 million in 1994. The increase was due to
costs related to the increase in GLA from expansions and developments,
as well as an increase in the weighted average cost per square foot to
operate the properties. On a weighted average square foot basis,
operating expenses increased 7% from $2.77 in 1994 to $3.15 in 1995.
The increase was due principally to a $0.21 per square foot increase in
promotional and property marketing expenditures and a $0.16 per square
foot increase associated with increased repair and maintenance projects
undertaken by the Company in 1995. For tenants who are not obligated to
pay directly or to reimburse the Company for utility costs of their
store, the Company has allocated a portion of their rental revenue to
offset the utility expense.
General and administrative expenses in 1995 include a charge
of $9.5 million related to the termination of agreements entered into
in 1995 to acquire the factory outlet centers owned by OPERS and
certain other reorganization charges. As a result of the Company's
pursuit of the acquisition, the Company incurred direct costs of
approximately $4.5 million related to due diligence and $2.0 million
associated with certain severance agreements. In addition, the Company
recognized a $3.0 million charge in 1995 due primarily to (a) the
expensing of deferred cost resulting from the cancellation of the
Company's participation in 1996 in the NASCAR motorsports program ($1.9
million), (b) lower capitalization of leasing and development costs
($0.4 million), (c) future development projects no longer being pursued
($0.4 million) and termination of a long term lease on a plane ($0.2
million). Exclusive of the $9.5 million charge, general and
administrative cost increased $0.6 million, or 12%, to $6.3 million in
1995 from $5.7 million in 1994. The increase was due principally to
higher personnel and office cost associated with managing a larger
portfolio and higher spending on the 1995 motorsport program. On a
weighted average square foot basis, general and administrative expenses
decreased 3% to $1.46 in 1995 from $1.51 in 1994.
Depreciation and amortization increased as a result of the
larger portfolio of properties in operation during 1995.
Interest expense for the year ended December 31, 1995
increased by $6.5 million, or 146%, to $10.9 million compared to $4.4
million for the same period in 1994. This increase resulted from higher
borrowing levels in 1995 compared to 1994, as well as a higher level of
amortization of deferred financing cost primarily associated with the
Company's $95 million rated debt securitization in May 1995. On a
weighted average basis, debt outstanding and the average interest cost
were approximately $147.1 million and 8.3%, respectively, in 1995
compared to $64.4 million and 8.5%, respectively, in 1994. Amortization
of deferred financing cost amounted to $1.5 million in 1995 compared to
$0.3
- 23 -
<PAGE>
million in 1994. The Company capitalized interest cost of $2.6 million
in 1995 compared to $1.1 million in 1994 due to the increase in
construction activity.
As part of the Company's ongoing strategic evaluation of its
portfolio of assets, the Company determined in 1995 to pursue the sale
of certain properties that currently are not fully consistent with or
essential to the Company's long-term strategies. Accordingly, in 1995
the Company recorded an $8.5 million adjustment to the carrying value
of three of the assets held for sale. This non-cash adjustment was
charged to operations and represents the difference between the fair
value less costs to sell and net book value of the assets. During
1995, these properties contribute about $3.0 million of revenue and
incurred a loss of $0.5 million after deducting related interest
expense
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at December
31, 1996 was $7.0 million. Restricted cash, as reported in the
financial statements, as of such date, was $3.9 million. In connection
with the Company's $95 million rated debt securitization, the Company
is required to escrow a portion of the loan proceeds to fund certain
environmental and engineering work and to make certain lease related
payments that may be required in connection with the renewal or
termination of certain leases by a tenant at most of the factory outlet
centers.
Net cash provided by operating activities was $7.6 million for
the year ended December 31, 1996. Net cash used in investing activities
was $17.3 million for 1996. The primary use of these funds included:
$12.3 million in construction costs, principally $11.2 million for
completion of a development project in 1996 and the 1996 expansion
projects, $0.3 million toward completion of the 1995 expansion projects
and $0.8 million towards normal recurring capital expenditures; $0.7
million for pre-development cost; and $5.2 million for re-tenanting,
lease renewal and leasing costs; offset partially by $0.9 million
reduction in restricted cash. Net cash provided by financing activities
was $15.0 million for the year ended December 31, 1996. The principal
source of such funds was $34.6 million of new borrowing, as described
below, net of $2.3 million in fees and other costs related thereto.
Funds generated through financing activities were offset by payments of
$1.9 million towards scheduled debt principal repayment and $15.6
million for distribution to stockholders which included $6.0 million of
dividends declared in 1995, but paid in 1996.
CAPITAL RESOURCES. The Company's management anticipates that
cash generated from operating performance will provide the necessary
funds for operating expenses, interest expense on outstanding
indebtedness, dividends and distributions in accordance with REIT
federal income tax requirements and to fund re-tenanting and lease
renewal tenant improvement costs, as well as, capital expenditures to
maintain the quality of its existing centers. The Company also believes
that it has capital and access to capital resources, including
additional borrowings and issuances of debt or equity securities,
sufficient to pursue its strategic plans.
In January 1996, the Company borrowed an aggregate of $5.0
million under two separate short-term promissory notes from Bank One,
Dayton at prime plus 1% to meet certain cash requirements for certain
costs arising from the termination of the OPERS factory outlet
acquisition agreements as discussed below, ongoing construction
expenditures and the payment of a portion of the dividends to
stockholders for the fourth quarter of 1995. These promissory notes
were repaid on April 30, 1996 with a portion of the proceeds from the
new $75 million credit facility discussed below.
In April 1996, the Company closed on a $75 million credit
facility from Bank One, Dayton. The terms of the credit facility were
for a period of two years bearing interest at a rate of LIBOR plus
2.75%. The new credit facility was used to refinance the Company's
existing line of credit and repay the $5.0 million in short-term
promissory notes noted above. The $75 million credit facility contained
various financial covenants which included maintaining minimum interest
coverage, debt service coverage, debt to market capitalization ratio,
debt to market value ratio, funded debt to tangible capital funds ratio
and modified net income ratio as well as maintaining a minimum net
worth of $165 million which was deemed to include the $20 million of
Convertible Preferred Stock. Additionally, the covenants precluded the
Company from paying dividends in excess of 85% of FFO, as defined in
the agreement, for any fiscal quarter.
On April 2, 1996, the Company executed a Note Purchase
Agreement and other related documents (collectively the "Agreements")
with Gildea Management Company ("Gildea") and Blackacre Bridge Capital,
L.L.C. ("Blackacre"), whereby Gildea and Blackacre agreed to purchase
in a private placement up to $25.0 million of the Company's
Exchangeable Notes (the "Exchangeable Notes") and $5.0 million of its
Senior Notes, both of which were unsecured.
- 24 -
<PAGE>
On April 3 and 29, 1996, Exchangeable Notes with an aggregate principal
amount of $10.0 million each were sold pursuant to the Agreements.
Holders of the Exchangeable Notes, which include Mass Mutual,
Bank of Scotland and National Union Fire Insurance Company of
Pittsburgh, were required, subject to certain conditions, to exchange
them for shares of the Company's Series A Convertible Preferred Stock
(the "Series A Preferred") at the rate of one share of Series A
Preferred for each $25 in principal amount of Exchangeable Notes, upon
stockholder approval of necessary amendments to the Company's
Certificate of Incorporation and authorization of the Series A
Preferred. Each share of Series A Preferred is convertible into shares
of the Company's Common Stock at a conversion price equal to the
lower of $9 per share or the 30-day average price of the Company's
Common Stock on the NYSE following an announcement by the Company of
the initial funding, subject to certain limitations. Dividends on the
Series A Preferred will be paid quarterly on each Common Stock dividend
payment date in an amount equal to the dividends that would have been
paid on the Common Stock then issuable upon conversion of the Series
A Preferred.
On August 1, 1996, the Company issued holders of the
Exchangeable Notes 800,000 shares of the Company's Series A Preferred
Stock in exchange for notes with an aggregate principal amount of $20
million (net of issue cost of $838,000). The 800,000 shares of the
Series A Preferred Stock are convertible, at the option of the holder,
into an aggregate of 2,222,222 shares of the Company's Common Stock.
On April 29, 1996, $5 million of the Senior Notes were placed
at 97% of their face amount. On November 12, 1996, an additional $2.5
million of the Senior Notes were placed at 100% of their face amount.
Under the Agreements, these notes mature on the second anniversary of
the initial funding and bear interest, payable quarterly, at an annual
rate of 11% during the first year and 13% thereafter until maturity.
The resulting discount ($150,000) on the Senior Notes is being
amortized to interest expense over the term of the notes. In March
1997, the Company repaid the Senior Notes at their face amounts.
In connection with the issuance of the Exchangeable Notes and
the initial $5 million of Senior Notes, on April 3, 1996 the Company
issued the holder detachable warrants for the purchase of 200,000
shares of Common Stock of the Company. Each warrant entitles the
holder, subject to certain conditions, to purchase on or before April
3, 2003 one share of Common Stock of the Company at a price equal to
$9.50 per share, subject to adjustment under certain conditions. The
warrants were valued at an aggregate value of $6,000 at the issuance
date. The $2.5 million of Senior Notes had detachable warrants for the
purchase of 100,000 shares of Common Stock of the Company that were
issued with terms and conditions similar to the existing Senior Notes,
except that each warrant entitles the holder to purchase one share of
Common Stock at a price equal to $8.375 per share. These warrants were
valued at an aggregate value of $3,000 at the issuance date.
Under the terms of the purchase agreement to acquire the VF
Properties, entered into in 1993, the Company committed to expand
certain of these properties by an aggregate of at least 320,000 square
feet in the 36 months following the acquisition. Through December 31,
1996, the Company completed eight expansions totaling approximately
303,000 square feet. The original commitment contemplated the
completion of two more expansions. Under the terms of the agreement, at
completion of an expansion and upon payment to VF Corporation of a
tenant allowance, VF Corporation would renew its lease for its original
term as of that date. On December 10, 1996, the Company and VF Factory
Outlet, Inc. ("VFFO"), an operating subsidiary of VF Corporation,
entered into an Amendment and Waiver Agreement ("Amendment Agreement")
whereby the requirement to complete the final two expansions was
waived. Under the terms of the Amendment Agreement, in lieu of the
requirement to expand the additional two centers, the Company remained
obligated to pay a tenant allowance for the two centers and will
provide for VFFO's benefit nine additional billboards at three center
locations selected by VFFO for at least three years. Additionally, the
Amendment Agreement requires that the Company continue to manage and
market an adjacent factory outlet center at its Sulphur Springs, TX
center as a single property. The Company entered into a third party
management agreement with this outlet center in June 1996. Pursuant to
the Amendment Agreement, the obligation, under the terms of the
original commitment, to pay $9.5 million to VF Corporation in the event
all of the expansions were not completed as planned, has been
extinguished. As of December 31, 1996, the Company's other unsecured
notes payable included $2,016,000 due to VFFO for tenant allowances
which were subsequently paid with the Nomura credit facility discussed
below.
Subsequent to December 31, 1996, the Company obtained a
$150,000,000 credit facility with Nomura Asset Capital corporation
which closed on February 19, 1997. The credit facility with Nomura is
secured by 17 of the
- 25 -
<PAGE>
Company's centers plus an assignment of excess cash flow from the
properties currently secured under the $95 million rated debt
securitization. The credit facility is for a term of 2 years with a 1
year renewal option and bears interest at the rate of 1 month LIBOR
(London Interbank Offered Rate) plus 2.25%. The proceeds from the
credit facility will be used to fund acquisitions, expansions of
existing centers, repay indebtedness, and fund operating activities,
including the repurchase of the Company's stock. The indebtedness
repaid included the $75 million credit facility, the $7.4
million of Senior Notes and a $2.0 million note payable
incurred in connection with the acquisition of the VF Properties,
above. The new credit facility contains financial covenants
relating to debt to total asset value and net operating income to debt
service coverage.
CAPITAL EXPENDITURES. The Company's capital expenditures have
included expansions of existing centers and acquisitions of new
properties.
On August 25, 1995, the Company signed definitive
agreements to acquire the factory outlet centers owned by The Public
Employees Retirement System of Ohio (OPERS) and the management and
business operations of the Charter Oak Group, Ltd., a subsidiary of
Rothschild Realty, Inc., ("RRI") subject to certain conditions. On
December 7, 1995, the Company reported that RRI had terminated the
agreements under which the Company would have acquired the properties
owned by OPERS and the management and business operations of the
Charter Oak Group, Ltd.
As a result of the Company's pursuit of the acquisition, the
Company incurred direct costs approximating $4.5 million related to the
performance of due diligence. In addition, in contemplation of a
successful consummation of the acquisition transaction, the Company
entered into various severance arrangements aggregating $2.0 million
with three former executive officers and certain other employees of the
Company in 1995. The Company has reported the $6.5 million charge as a
component of general and administrative expense in the 1995 financial
statements. As of December 31, 1996, approximately $2.2 million of the
obligation remains outstanding.
During 1996 the Company delivered a 288,000 square foot outlet
center in Branson, Missouri and expansions of approximately 158,000
square feet at Story City, Iowa, Nebraska City, Nebraska, Smithfield,
North Carolina, and Tupelo, Mississippi. The anticipated cost of these
projects is $42.5 million of which $40.7 million has been expended as
of December 31, 1996 and has been reclassified from the properties
under development category for financial statement purposes. The
remaining $1.8 million anticipated cost represents estimated tenant
buildouts and allowances. Additionally, the Company is currently in the
pre-development and marketing stage for a property located in Lake
Carmel, New York. If appropriate tenant interest is obtained and the
appropriate agreements, permits and approvals are received, the
Company intends to commence construction in the fall of 1997.
Management's view of the current state of the shopping center
industry and its future direction is that value-oriented retail
concepts are merging; for example, outlet centers are including
off-price tenants as well as outlet tenants, off-price centers have
manufacturers' outlets, community centers have destination tenants,
and other community centers have outlet or off-price tenants. With
this backdrop, management believes that a diversified shopping center
portfolio will provide an opportunity for growth. As part of the
Company's diversification strategy, a portion of the availability
under the Nomura credit facility was used to purchase five community
centers in the Raleigh, NC area on March 27, 1997 for a total purchase
price of $32.3 million. The centers total approximately 606,000 square
feet of GLA, are well-located and feature well-known regional tenants.
Management believes that there will be similar opportunities for the
acquisition of community shopping centers in the United States, and in
particular, the southeastern region of the country.
The Company's current acquisition, expansion and development
plans are subject to certain risk and uncertainties; including, but not
limited to economic conditions in the retail industry, future real
estate market conditions; the availability of financing; and the risk
associated with the Company's property development activities, such as
the potential for cost overruns, delays and the lack of predictability
with respect to the financial returns associated with these development
activities. There can be no assurance that the planned development and
expansions will occur according to current schedules or that, once
commenced, such development and expansions will be completed.
Based on current market conditions, the Company believes it
will have access to the capital resources or has adequate financial
resources to fund operating expenses, distributions to stockholders,
acquisitions and planned development and construction activities. The
$27.5 million raised through the private placement with Gildea and
Blackacre was used to fund the 1996 developments and expansions, repay
certain debt obligations, settle certain costs incurred in connection
with the termination of the OPERS factory outlet acquisition agreements
and provide additional working capital. The $150 million Nomura credit
facility will have in excess of $30 million of potential availability
- 26 -
<PAGE>
following the retirement of $84.5 million of debt which existed at
December 31, 1996 and the funding of the acquisition of the five
community centers in March 1997. The Company is in the process of
reviewing various financing alternatives for its planned development of
the "power" outlet mall located in Lake Carmel, New York, including a
potential joint venture arrangement.
Dividends declared on 1996 results totaled $9.4 million, or
$0.75 per share. On April 9, 1996, July 2, 1996 and October 17, 1996,
the Board of Directors declared cash dividends of $0.25 per share.
Dividends on the Series A Preferred are to be paid quarterly on each
Common Stock dividend payment date in an amount equal to the dividends
that would have been paid on the Common Stock then issuable upon
conversion of the Series A Preferred. Pursuant to the terms of the
Series A Convertible Preferred Stock, dividends of $368,000 were paid.
The dividend payout ratio for the combined preferred and common
dividends, as a percentage of Funds from Operations assuming full
dilution, was 64% for the year ended December 31, 1996. The Board of
Directors determined that the Company would not pay a fourth quarter
dividend for 1996. In addition, the Company announced that future
dividends will be equal to 95% of the Company's taxable income which is
the minimum dividend required to maintain its REIT status.
Determination of any dividends will be made annually following the
review of the Company's year-end financial results. The Company's
decision is driven by its goal to increase the total return to its
shareholders through the use of internal cash flow to "self-fund" some
of its growth, such as expansions at existing centers and strategic
acquisitions. The Company also will strive to reduce its borrowing
levels and interest expense.
ECONOMIC CONDITIONS
Inflation has remained relatively low during the past three
years with certain segments of the economy experiencing disinflation,
such as, apparel pricing which has slowed the growth of tenant sales
which adversely impacts the Company's revenue due to lower percentage
and overage rents on some properties. Additionally, weakness in the
overall retail environment as it relates to tenant sales volumes may
have an impact on the Company's ability to renew leases at current
rental rates or to release space to other tenants. Although the decline
in sales does not effect base rental, aside from renewals, this
weakness could result in reduced revenue from percentage rent tenants,
as well as, overage rent paid to the Company. Both revenue items are
directly impacted by sales volumes and represented 7.3% of the
Company's total revenue in 1996. Continuance of this trend may affect
the Company's operating centers (the "Properties") occupancy rate and
the rental rates obtained and concessions, if any, granted on new
leases or re-leases of space, which may cause fluctuations in the
cash flow from the operation and performance of the Properties.
In the event of higher inflation, however, a majority of the tenants'
leases contain provisions designed to protect the Company from the
impact of inflation. Such provisions include clauses enabling the
Company to receive percentage rentals based on tenants' gross sales,
which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases.
In addition, many of the leases are for terms of less than ten years,
which may enable the Company to replace existing leases with new
leases at higher base and/or percentage rentals if rents of the
existing leases are below the then-existing market rate.
The majority of the Company's leases, other than those for
anchors, require the tenants to pay a proportionate share of operating
expenses, including marketing, common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to
increases in costs and operating expenses resulting from inflation. The
Company's leases with two of its anchor tenants, VF Factory Outlet and
Carolina Pottery, which were executed prior to June 1993, require the
tenants to pay certain operating expenses and increases in common area
maintenance expenses, which reduces the Company's exposure to increases
in costs and operating expenses resulting from inflation. At December
31, 1996, 21% of the aggregate GLA of its factory outlet centers was
leased to non-anchor tenants under gross leases, pursuant to which the
Company is obligated to pay all utilities and other operating expenses
of the applicable factory outlet center. The Properties are subject to
operating risks common to commercial real estate in general, any and
all of which may adversely affect occupancy or rental rates. The
Properties are subject to increases in operating expenses such as
cleaning; electricity; heating, ventilation and air conditioning
("HVAC"); insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While
the Company's tenants generally are currently obligated to pay a
portion of these escalating costs, there can be no assurance that
tenants will agree to pay such costs upon renewal or that new tenants
will agree to pay such costs. If operating expenses increase, the local
rental market may limit the extent to which rents may be increased to
meet increased expenses without decreasing occupancy rates.
Additionally, inflation may have a negative impact on some of
the Company's other operating items. Interest and general and
administrative expenses may be adversely affected by inflation as these
specified costs could increase
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<PAGE>
at a rate higher than rents. Approximately 45% of the Company's debt on
income properties and notes payable as of December 31, 1996 bore
interest at rates that adjust periodically based on market conditions.
Also, for tenant leases with stated rent increases, inflation may have
a negative effect as the stated rent increases in these leases could be
lower than the increase in inflation at any given time.
Substantially all of the Company's existing tenants have met
their lease obligations and the Company continues to attract and retain
quality tenants. The Company intends to reduce operating and leasing
risks by continually improving its tenant mix, rental rates and lease
terms by attracting creditworthy national brand-name manufacturers,
upscale, high-fashion manufacturers and new tenants that offer a wide
range of merchandise and amenities not previously offered.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K and in the future filings
by the Company with the Securities and Exchange Commission, in the
Company's press releases, and in oral statements made by or with the
approval of an authorized executive officer constitute "forward-looking
statements" under the Reform Act. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors, which
may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: real
estate market conditions; availability of financing; general economic
conditions, including conditions in the retail segments of the economy
such as, inflation, consumer confidence, unemployment rates and
consumer tastes and preferences; the amount of, and rate of growth in,
the Company's ability to reduce, or limit the increase in, such
expenses, and the impact of unusual items resulting from the Company's
ongoing evaluation of its business strategies, portfolio and
organizational structure; difficulties or delays in the completion of
expansions of existing projects or development of new projects; and,
the effect of competition from other factory outlet centers. With
respect to the Company's expansion and development activities
(including the potential development of a site at Lake Carmel, New
York), such forward looking statements are subject to a number of risks
and uncertainties, including the availability of financing on favorable
terms, the consummation of related property acquisitions, receipt of
zoning, land use, occupancy, government and other approvals, and the
timely completion of construction and leasing activities. With respect
to the Company's acquisition activities (including the North Hills
acquisition), such forward looking statements are subject to risks and
uncertainties, including accuracy of representations made in connection
with such acquisitions, continuation of occupancy levels, changes in
economic conditions (including interest rate levels) and real estate
markets.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section
of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- - - ---------------------- -------- -------------------------------- ------------------
C. Cammack Morton 45 President and Chief Executive 1996
Officer of the Company
Patrick M. Miniutti 49 Executive Vice President and 1996
Chief Financial Officer of the
Company
Robert O. Amick 64 President of The Amick Group 1993
B. Mayo Boddie, Sr. 67 Chairman of Boddie-Noell 1993
Enterprises, Inc.
J. Richard Futrell, Jr. 66 Former Chairman and Chief 1993
Executive Officer of Centura
Banks, Inc.
John W. Gildea 53 Managing Director of Gildea 1996
Management Company and
Advisor for The Network
Funds
Theodore E. Haigler, Jr. 72 Former President and Chief 1993
Executive Officer of
Burroughs-Wellcome Co.
</TABLE>
For information on the business experience of Messrs. Morton and
Miniutti, 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 and Park P.M. Company.
B. Mayo Boddie, Sr. is the Chairman of the Board of Boddie-Noell
Enterprises, Inc., an operator of Hardee's Restaurant franchises, a position
he has held since it was founded by Mr. Boddie and his family in 1962. He is
also the Chairman of the Board of Boddie-Noell 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., a position he held from 1989 to 1993. He
currently serves as a member of Centura's board of directors and its executive
committee.
John W. Gildea has been Managing Director of Gildea Management
Company and affiliates since 1990. From 1986 to 1990, he was Senior
Vice President of Donaldson, Lufkin & Jenrette. Mr. Gildea also is
President of Gildea Investment Co, an investment advisory firm, since
1983. He is a director of America Service Group, Inc., UNC, Inc., and
Barry's Jewelers.
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 was
a director of Tenax Corporation and CCB Financial Corporation, a bank holding
company, from 1974 to 1995.
- 29 -
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to the current executive officers of the Company.
NAME AGE POSITION
- - - ------------------------ ---------- ----------------------------------------
C. Cammack Morton 45 President and Chief Executive
Officer
Patrick M. Miniutti 49 Executive Vice President and Chief
Financial Officer
Christopher G. Gavrelis 43 Senior Vice President - Management
Connell L. Radcliff 42 Senior Vice President - Development
Michaela M. Twomey 45 Senior Vice President and General
Counsel
C. Cammack Morton joined the Company in December 1995 as Chief
Operating Officer and was elected President and a Director in January
1996. Effective January 1, 1997, Mr. Morton became the Company's chief
executive officer. Prior to his affiliation with the Company, Mr.
Morton served as the Managing Director of Rothschild Realty, Inc.
("Rothschild") and President and Chief Executive Officer of the Charter
Oak Group, Ltd. (the "Charter Oak Group"), 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. 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 is
the immediate past president of the Developers of Outlet Centers, the
leading trade organization for the owners and operators of factory
outlet centers. He 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.
Patrick M. Miniutti joined the Company as Executive Vice
President, Chief Financial Officer and Director in August 1996. Prior
to his affiliation with the Company, Mr. Miniutti served for three
years as Executive Vice President, Chief Financial Officer and Trustee
of Crown American Realty Trust. Prior thereto, Mr. Miniutti held senior
financial positions for a combined 12 years with New Market Companies,
Inc., Western Development Corporation (predecessor to The Mills
Corporation) and Cadillac Fairview Corporation Limited, which was
preceded by ten years in public accounting, principally with national
firms. Mr. Miniutti is a member of the American Institute of Certified
Public Accountants and a former member of its Real Estate Accounting
Committee which was responsible for promulgating most of the real
estate accounting rules in practice today.
Christopher G. Gavrelis joined the Company in December 1995
and was named 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 outlets centers. Mr. Gavrelis is responsible for
the Company's management, administration and construction activities.
Connell L. Radcliff has served as Senior Vice President of the
Company since its organization in April 1993. Mr. Radcliff joined
North-South Management Corporation (a predecessor company) 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 development activities.
Michaela M. Twomey joined the Company as Senior Vice President
and General Counsel in August 1996. Ms. Twomey was previously with
Morrison & Foerster LLP in Washington, D.C. for eleven years where she
served as principal outside counsel to the Charter Oak Group since its
inception. Prior thereto, she practiced primarily real estate
law for seven years. Ms. Twomey is a member of the bars of the
District of Columbia and Virginia as well as the Real Property, Probate
and Trust Law Section of the American Bar Association.
- 30 -
<PAGE>
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act 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 New York Stock
Exchange 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). To the Company's knowledge, during the
year ended December 31, 1996, all required Section 16(a) reports were
filed on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation of (i) the
Chief Executive Officer, (ii) the three most highly compensated
executive officers other than the Chief Executive Officer who were
serving as executive officers at December 31, 1996 and (iii) one former
executive officer (collectively, the "Named Executive Officers") for
services rendered in all capacities during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------------------------------- ---------------------------------
RESTRICTED SECURITIES ALL OTHER
SALARY BONUS STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARD($) OPTIONS (#) ($)
- - - --------------------------------- ----------- ----------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
C. Cammack Morton 1996 287,692 112,500(1) 900,000(2) 300,000 3,570(3)
President and Chief Executive 1995 11,458 -- -- -- --
Officer
Patrick M. Miniutti 1996 70,769 40,625(1) 776,250(2) 200,000 50,000(4)
Executive Vice President and Chief
Financial Officer
Christopher G. Gavrelis 1996 129,742 37,500(1) 166,670(2) 35,000 1,163(3)
Senior Vice President - 1995 5,208 -- -- -- --
Management
Connell L. Radcliff 1996 181,923 37,500(1) -- -- 3,750(3)
Senior Vice President - 1995 158,654 41,250 -- 18,000 3,332(3)
Development 1994 150,000 -- -- -- 3,173(3)
J. Dixon Fleming, Jr. 1996 300,173 -- 900,000(5) -- 770,750(6)
Former Chairman and Chief Executive 1995 297,000 75,625 900,000(5) 25,000 4,442(3)
Officer 1994 275,000 -- -- -- 3,808(3)
</TABLE>
------------------
(1) The 1996 bonuses were paid in the form of restricted stock, which at the
time of the award the market price of Common Stock was $6.25 per share.
The restricted stock issued in lieu of cash bonuses is subject to a
three year cliff vest.
(2) Pursuant to employment agreements entered into between the Company and
Messrs. Morton, Miniutti and Gavrelis, restricted stock of 90,000, 90,000
and 16,667 shares, respectively, were issued to each executive. The
value of the restricted stock is based on the market price of Common
Stock at the date of grant. At December 31, 1996, the market value of such
shares were $596,250 for Messrs. Morton and Miniutti and $110,419
for Mr. Gavrelis.
(3) Consists of matching contributions to the Company's 401(k) Retirement and
Savings Plan.
(4) Allowance for relocation expenses paid by the Company.
- 31 -
<PAGE>
(5) Restricted stock of 90,000 shares originally awarded as a long-term
incentive with a market value of $10.00 per share Common Stock
on the date of grant pursuant to Mr. Fleming's employment
agreement. Such shares were cancelled upon his termination as an
officer and director of the Company. Mr. Fleming received the
equivalent value of 16,000 shares, or approximately $100,000,
pursuant to his employment agreement, which is included as other
compensation (see Note (6) below).
(6) Includes amounts accrued as of December 31, 1996 representing the
remaining value of Mr. Fleming's employment contract (see "Item
11 -- Executive Compensation -- Severance Agreements") and
matching contributions to the Company's 401(K) Retirement and
Savings Plan.
STOCK OPTIONS
The following table provides certain information regarding the stock
options granted during 1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION OPTION TERM($)
NAME GRANTED (#) IN FISCAL YEAR(%) PRICE ($) DATE 5% 10%
- - - -------------------------- ------------------- -------------------------------- ------------- --------------------------
C. Cammack Morton 300,000(1) 48.8% 10.25 2/14/06 1,935,000 4,902,000
Patrick M. Miniutti 200,000(2) 32.5% 8.625 8/26/06 1,085,000 2,749,000
Christopher G. Gavrelis 35,000(2) 5.7% 10.25 2/14/06 225,750 571,900
-----------------
</TABLE>
(1) 100,000 option share vested upon grant with the remainder at
20% per year.
(2) 20% vested upon grant with the remainder at 20% per year.
The following table sets forth certain information concerning
the number of shares of Common Stock underlying options held by each of
the Named Executive Officers and the value of such options at December
31, 1996.
FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT FISCAL FISCAL YEAR-END
YEAR-END (#) ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- - - --------------------- -------------------------- --------------------------
C. Cammack Morton 100,000/200,000 --
Patrick M. Miniutti 40,000/160,000 --
Christopher G. Gavrelis 7,000/28,000 --
Connell L. Radcliff 30,750/32,500 --
J. Dixon Fleming, Jr. 64,270/50,180 --
- 32 -
<PAGE>
LONG-TERM COMPENSATION
The following table sets forth certain information regarding
long-term incentive awards made to the Named Executive Officers during
1996 in the form of Restricted Stock.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
NUMBER OF OTHER PERIOD UNTIL
NAME SHARES (#) MATURATION OR PAYOUT
- - - -------------------- ---------------- --------------------
C. Cammack Morton 90,000 10 years (1)
Patrick M. Miniutti 90,000 10 years (1)
Christopher G. Gavrelis 16,667 3 years (2)
J. Dixon Fleming, Jr. 90,000 10 years (3)
(1) Awards increased to 150,000 shares and 120,000 shares, respectively,
subsequent to December 31, 1996 for Messrs. Morton and Miniutti with
vesting to occur in ten equal annual installments, provided Mr. Morton
and Mr. Miniutti continue to be employed by the Company.
(2) Vesting to occur in three equal annual installments, provided Mr.
Gavrelis continues to be employed by the Company.
(3) The 90,000 shares awarded to Mr. Fleming were canceled upon his
termination as an officer and director of the Company.
EMPLOYMENT AGREEMENTS
ANNUAL COMPENSATION AND BASIC TERMS. The Company is a party to
employment agreements with Messrs. Morton, Miniutti, Gavrelis and
Radcliff. The agreements with Messrs. Morton and Miniutti were entered
into in December 1995 and August 1996, respectively, 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. Gavrelis was entered into in December
1995 and provides for an initial two-year term. 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.
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. Pursuant to recent actions by the
Independent Directors, following consultations with an executive
compensation consultant retained by the Executive Compensation
Committee, the employment agreements will be revised to reflect current
base annual salaries as follows: Mr. Morton - $330,000; Mr. Miniutti -
$225,000; Mr. Gavrelis - $160,000; and Mr. Radcliff - $182,000. In
addition, Messrs. Morton and Miniutti will receive 30,000 shares and
15,000 shares of restricted stock as part of their annual compensation,
respectively, based on an equivalent cash value of approximately
$200,000 and $100,000, respectively. The number of restricted shares
issued annually will be adjusted on March 1st of each year based on the
then market price of the stock. Such restricted stock will be subject
to a one year cliff vest. The base annual salaries are subject to
periodic increases based upon the performance of the Company and the
executive. Messrs. Morton and Miniutti each agreed to take the raises
in their base salaries for 1997 in the form of restricted stock, which
will be subject to a three year cliff vest, in the amounts of 6,000
shares and 4,500 shares, respectively. In addition, they have agreed to
take all future raises in the form of restricted stock subject to
similar vesting provisions. If the employment of any executive is
terminated "without cause" (as defined in the respective 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.
Morton and Miniutti, 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. Gavrelis and Radcliff, a pro
rata portion of any incentive compensation or bonus payable for the
years of
- 33 -
<PAGE>
termination and (iii) certain other accrued benefits. If the employment
of any executive is terminated due to "change of control" an additional
two years will added to the unexpired term of the respective
agreements.
LONG-TERM COMPENSATION. Subsequent to December 31, 1996, in
recognition of the increases in their responsibilities and after
consultation with an executive compensation consultant, the Independent
Directors replaced the previous long-term incentive plan awards of
90,000 shares of restricted stock for Messrs. Morton and Miniutti with
grants of 150,000 shares and 120,000 shares, respectively. These grants
are being issued pursuant to the Company's 1996 Restricted Stock Plan.
These restricted shares will vest in ten equal annual installments
commencing on March 1, 1997, provided each executive continues to be
employed by the Company. 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) all unvested shares of restricted
stock will become fully vested. The executives will be entitled to
receive dividends on only the vested shares. Mr. Gavrelis was awarded
16,667 shares of restricted stock which vests in three equal annual
installments commencing March 1, 1997, provided he continues to be
employed by the Company.
In addition, the employment agreements for Messrs. Morton,
Miniutti and Gavrelis provide for the grant of options to purchase
300,000, 200,000 and 35,000 shares of the Common Stock, respectively.
The Company granted the options to Messrs. Morton and Gavrelis at an
exercise price of $10.25 per share and at $8.625 per share for Mr.
Miniutti. The options for Mr. Morton vest on the following schedule:
100,000 shares at date of grant and 20% of the remainder per year
thereafter. The options for Messrs. Miniutti and Gavrelis vest at the
rate of 20% at date of grant and 20% per year thereafter.
SEVERANCE AGREEMENTS
The Company is also party to an employment agreement with Mr.
Fleming which stipulates an annual base salary of $285,000. Mr.
Fleming's employment as chief executive officer of the Company
terminated effective December 31, 1996 and he resigned as Chairman
effective February 15, 1997. The Company agreed to treat his departure
as a termination without cause pursuant to the terms of his employment
agreement with the Company. Pursuant to such agreement, Mr. Fleming is
entitled to severance payments through December 1998 that are expected
to aggregate approximately $600,000. He will also be entitled to
certain other benefits. In addition, pursuant to the agreement, Mr.
Fleming waived his rights with respect to 90,000 shares of restricted
stock of the Company, however, he is entitled to receive the equivalent
value of 16,000 shares, or approximately $100,000 as additional
compensation. In addition, Mr. Fleming and the Company agreed to modify
the non-competition provisions of Mr. Fleming's employment agreement to
permit Mr. Fleming's ownership, management, control or participation in
the development of outlet shopping centers located outside the United
States.
The Company was party to employment agreements with David A.
Hodson, John M. Slocum and R. Kenneth Langston, all former officers of
the Company. In 1995, the Company entered into severance agreements
with the three former officers which provided them with certain
severance payments, which the Company recorded as an expense in 1995.
The severance agreements also provided for the vesting of certain stock
options and the continued participation in the Company's medical and
dental insurance plans.
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 Option Plan), all nonvested stock options granted
thereunder become immediately vested and exercisable in full. "Change
in control" generally is defined
- 34 -
<PAGE>
under the Option Plan to occur at such time as any person or group
beneficially owns at least 25% of the outstanding Common Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
BY MANAGEMENT. The following table sets forth certain
information regarding the beneficial ownership of Common Stock of the
Company as of March 31, 1997 by the: (a) Chief Executive Officer; (b)
other current executive officers named on the Summary Compensation
Table; (c) certain former executive officer named on the Summary
Compensation Table; (d) directors; and (e) current executive officers
and directors as a group. 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>
<S> <C> <C>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP OF CLASS (1)
--------------------- --------------
C. Cammack Morton............. 210,100(2) 1.39%
Patrick M. Miniutti........... 136,500(3) *
Christopher G. Gavrelis....... 29,667(4) *
Connell L. Radcliff........... 121,891(5) *
Robert O. Amick............... 4,324(6) *
B. Mayo Boddie, Sr............ 5,124(6) *
J. Richard Futrell, Jr........ 3,824(7) *
John W. Gildea................ 885,557(8) 5.85%
Theodore E. Haigler, Jr....... 4,134(9) *
J. Dixon Fleming, Jr.......... 373,582(10) 2.47%
All current executive officers and 1,774,703(11) 11.72%
directors as a group (10 persons)
</TABLE>
(1) An asterisk (*) indicates less than one percent. Class
includes the common share equivalents of the Convertible
Preferred Stock and warrants convertible into common stock.
(2) Includes 108,000 shares of restricted stock as to which Mr. Morton has
sole voting power, and 100,000 shares subject to presently exercisable
options.
(3) Includes 96,500 shares of restricted stock as to which Mr. Miniutti has
sole voting power, and 40,000 shares subject to presently exercisable
stock options.
(4) Includes 22,667 shares of restricted stock as to which Mr. Gavrelis has
sole voting power, and 7,000 shares subject to presently exercisable
stock option.
(5) Includes 6,000 shares of restricted stock as to which Mr. Radcliff has
sole voting power, and 30,750 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) Includes 4,000 shares held by Mr. Gildea's spouse as custodian
for their children, 111,111 shares of common stock equivalents
of Convertible Preferred Stock as to which Mr. Gildea has sole
voting power and 746,666 shares of common stock equivalents of
Convertible Preferred Stock and warrants convertible into
20,000 shares of common stock owned by Network Fund III, Ltd.
("Network") as to which Mr. Gildea is a director of Network
and a Managing Director of Gildea Management Company, which
has an investment advisory agreement with Network.
- 35 -
<PAGE>
(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 64,270 shares subject to presently exercisable options and
100 shares held by Mr. Fleming's spouse.
(11) Includes 250,020 shares subject to presently exercisable options,
857,777 shares of common stock equivalents of Convertible Preferred
Stock and warrants convertible into 20,000 shares of common stock.
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
March 31, 1997.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- - - --------------------- ------------------------ -----------------------
Jeffrey B. Citrin(2) 807,222(3) 5.33%
950 Third Avenue
17th Floor
New York, NY 10022
(1) Class includes the common stock equivalents of the Convertible
Preferred Stock and warrants convertible into common stock.
(2) Based upon a Schedule 13D dated July 22, 1996 filed with the Securities
and Exchange Commission.
(3) Includes 547,222 shares of common stock equivalents as to which
Blackacre Capital Group, L.P. possess voting and investment control
over and warrants convertible into 260,000 shares of common stock as to
which Blackacre Bridge Capital, L.L.C. is the record holder. Jeffrey
B. Citrin is the President of Blackacre Capital Management Corp., the
general partner of Blackacre Capital Group, L.P. and the managing
member of Blackacre Bridge Capital, L.L.C.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 1995 the Company purchased three parcels of land near its
Smithfield, North Carolina factory outlet center totaling 4.94 acres for
$735,000 from two partnerships, of which former executive officers and their
affiliates are general partners. The parcels were used as part of the expansion
of the Smithfield center.
In 1994, the Company's Board of Directors approved acquisition of certain
land adjacent to one of the Company's existing outlet centers for potential
expansion of that center. The cost of the land acquisition was $400,000. The
seller of the land was a partnership whose partners include former executive
officers of the Company.
During 1993, the Company acquired a 19 acre tract of land in a non-monetary
transaction from a partnership whose partners include two former executive
officers of the Company. The recorded value of the land was $748,000. In return
for the land, the Company assumed certain outstanding debt and the remaining
purchase price was settled by reducing amounts owed to the Company by a tenant
whose majority owners were also partners in the partnership. A review of this
transaction resulted in J. Dixon Fleming, Jr., the Company's former Chairman and
Chief Executive officer, agreeing to permit the Company to satisfy a $0.6
million asset valuation issue by offsetting amounts otherwise owed to Mr.
Fleming pursuant to his employment agreement (see "Item 11 -- Executive
Compensation -- Severance Agreements") or by the acceptance from Mr. Fleming of
some other cash or value equivalent. The Company has recently entered into an
agreement with Mr. Fleming to sell to him the 19 acre land tract for the sum of
$750,000 which would satisfy the asset valuation issue. The consummation of this
transaction is secured by the unpaid severance amounts due to Mr. Fleming. Also
in settling the terms of Mr. Fleming's severance and non-competition
restrictions, $0.25 million of his severance was applied to certain advertising
expenses incurred by the Company.
The Company has granted Mr. Fleming an option to purchase the Company's
interest in a project to develop international outlet centers for an amount
equal to the Company's total costs plus interest. Mr. Fleming has also agreed to
be responsible for the costs of the project in excess of $250,000. The option
expires on December 31, 1997. In the event such option is not exercised, the
Company has agreed to negotiate a similar option, exercisable in 1998 for the
greater of (i) the fair market value of such investment, or (ii) $250,000 plus
interest.
- 36 -
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The following consolidated financial statements are filed as
part of the report:
Page
Report of independent auditors............................ F-1
Consolidated balance sheets as of December 31, 1996
and 1995.................................................. F-2
Consolidated statements of operations for the years ended
December 31, 1996, 1995 and 1994.......................... F-3
Consolidated statements of stockholders' equity for years
ended December 31, 1996, 1995 and 1994.................... F-4
Consolidated statements of cash flows for the years
ended December 31, 1996, 1995 and 1994.................... F-5
Notes to consolidated financial statements................ F-6
(a)(2) Included with this report is the following consolidated
financial statement schedule:
Schedule III - Real Estate and Accumulated Depreciation... F-25
All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required
under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) Included with this report are the following exhibits:
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit
Number Exhibit Description
3.1 Second Restated Certificate of Incorporation (1)
3.2 Articles of Amendment of Factory Stores of America, Inc., dated
July 1, 1996 (2)
3.3 Certificate of Designation, Preferences and Rights of the Series A
Convertible Preferred Stock of FAC Realty, Inc., dated July 1, 1996 (3)
3.4 Amended and Restated Bylaws of FAC Realty, Inc.
4.1 Specimen Common Stock Certificate
4.2 Specimen Series A Preferred Stock Certificate
10.1 Amended and Restated Employment Agreement between the Company and
J. Dixon Fleming, Jr.(4)
10.2 Second Amended and Restated Employment Agreement between the Company and
C. Cammack Morton (4)
10.3 Employment Agreement between the Company and John N. Nelli (4)
- 37 -
<PAGE>
10.4 First Amendment to Employment Agreement between the Company and
John N. Nelli (4)
10.5 First Amendment to Employment Agreement between the Company and
Connell L. Radcliff (4)
10.6 Employment Agreement between the Company and Christopher G.
Gavrelis (4)
10.7 Severance Agreement between the Company and David A. Hodson (4)
10.8 Severance Agreement between the Company and John M. Slocum (4)
10.9 Severance Agreement between the Company and R. Kenneth Langston (4)
10.10 Factory Stores of America, Inc. Amended and Restated 1993 Employee
Stock Option Plan
10.11 1995 Directors' Stock Award Plan
10.12 Factory Stores of America, Inc. 1996 Restricted Stock Plan
10.13 Restricted Stock Agreement between the Company and J. Dixon
Fleming, Jr.(4)
10.14 Restricted Stock Agreement between the Company and C. Cammack
Morton (4)
10.15 Restricted Stock Agreement between the Company and John N. Nelli (4)
10.16 Employment Agreement between the Company and Patrick M. Miniutti
10.17 Employment Agreement between the Company and Michaela M. Twomey
10.18 Restricted Stock Agreement between the Company and Patrick M.
Miniutti
10.19 Restricted Stock Agreement between the Company and Michaela M.
Twomey
10.20 Incentive Stock Option Agreement between the Company and Patrick M.
Miniutti
10.21 Nonqualified Stock Option Agreement between the Company and Patrick
M. Miniutti
10.22 Incentive Stock Option Agreement between the Company and Michaela M.
Twomey
10.23 Indenture by and between FSA Finance, Inc., as issuer, Bank One, Columbus,
National Association, as trustee, and Fleet Management and Recovery
Corporation, as master servicer (5)
10.24 Master Servicing Agreement by and between FSA Finance, Inc., as
issuer, Bank One, Columbus, National Association, as trustee, and
Fleet Management and Recovery Corporation, as master servicer(6)
10.25 Specimen copies of the various types of Class A, B, C and R Notes
(7)
10.26 Mortgage Note given by FSA Properties, Inc., as maker, in favor of
The Travelers Insurance Company, as payee (8)
10.27 Deed of Trust, Mortgage, Security Agreement, Fixture Filing,
Financing Statement and Assignment of Leases and Rents by and
between FSA Properties, Inc., as mortgagor, and The Travelers
Insurance Company, as mortgagee (9)
10.28 Gap Note given by FSA Properties, Inc., as maker, in favor of The
Travelers Insurance Company, as payee (10)
- 38 -
<PAGE>
10.29 Mortgage Loan Purchase Agreement by and between The Travelers
Insurance Company, as seller, and FSA Finance, Inc., as purchaser
(11)
10.30 Note Purchase Agreement by and among the Company, Blackacre Bridge
Capital, L.L.C. ("Blackacre") and Gildea Management Company
("Gildea"), dated as of April 2, 1996 (12)
10.31 Amendment No. 1 to Note Purchase Agreement by and among the Company,
Blackacre and Gildea, dated as of April 12, 1996
10.32 Amendment No. 2 to Note Purchase Agreement by and among the Company,
Blackacre and Gildea, dated as of November 12, 1996
10.33 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and Network Funds III, Ltd. (13)
10.34 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and John W. Gildea (14)
10.35 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and Blackacre Capital Group, LLP (15)
10.36 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and Blackacre Holdings, LLC
10.37 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and National Union FireInsurance Company of
Pittsburgh
10.38 Addendum to Note Purchase Agreement by and among the Company,
Blackacre, Gildea and Network Funds III, Ltd.
10.39 Warrant Agreement between the Company and Blackacre (16)
10.40 Warrant Agreement between the Company and Blackacre
10.41 Warrant Agreement between the Company and National Union Fire
Insurance Company of Pittsburgh
10.42 Warrant Agreement between the Company and Network Fund III, Ltd.
10.43 Line of Credit Agreement between FAC Realty, Inc. and Nomura Asset
Capital Corporation, dated February 19, 1997 (17)
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young, LLP
</TABLE>
--------------
(1) Incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-11 (File No. 33-71558).
(2) Incorporated by reference to Exhibit 3.1 of the Company's
Current Report on Form 8-K filed with the Commission on
July 10, 1996.
(3) Incorporated by reference to Exhibit 3.2 of the Company's
Current Report on Form 8-K filed with the Commission on
July 10, 1996.
- 39 -
<PAGE>
(4) Incorporated herein by reference to the document filed
under the same Exhibit number to the Company's Form 10-K
filed with the Commission on April 16, 1996.
(5) Incorporated herein by reference to Exhibit 10.12 to the Company's
Current Report on Form 8-K filed with the Commission on May 31, 1995.
(6) Incorporated herein by reference to Exhibit 10.13 to the Company's
Current Report on Form 8-K filed with the Commission on May 31, 1995.
(7) Incorporated herein by reference to Exhibit 10.14 to the Company's
Current Report on Form 8-K filed with the Commission on May 31, 1995.
(8) Incorporated herein by reference to Exhibit 10.15 to the Company's
Current Report on Form 8-K filed with the Commission on May 31, 1995.
(9) Incorporated herein by reference to Exhibit 10.16 to the Company's
Current Report on Form 8-K filed with the Commission on May 31, 1995.
(10)Incorporated herein by reference to Exhibit 10.17 to the
Company's Current Report on Form 8-K filed with the
Commission on May 31, 1995.
(11)Incorporated herein by reference to Exhibit 10.18 to the
Company's Current Report on Form 8-K filed with the
Commission on May 31, 1995.
(12)Incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the
Commission on July 10, 1996.
(13)Incorporated herein by reference to Exhibit 10.23 to the
Company's Form 10-K filed with the Commission on April
16, 1996.
(14)Incorporated herein by reference to Exhibit 10.24 to the
Company's Form 10-K filed with the Commission on April
16, 1996.
(15)Incorporated herein by reference to Exhibit 10.25 to the
Company's Form 10-K filed with the Commission on April
16, 1996.
(16)Incorporated herein by reference to Exhibit 10.26 to the
Company's Form 10-K filed with the Commission on April
16, 1996.
(17)Incorporated herein by reference to Exhibit 2.1 to the
Company's Form 8-K filed with the Commission on March 10,
1997.
- 40 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FACTORY STORES OF AMERICA, INC.
By /s/ C. CAMMACK MORTON
C. Cammack Morton, President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of
the Registrant and in the capacities indicated on the 11th day of
April, 1997.
<TABLE>
<S> <C>
/s/ C. CAMMACK MORTON Director, President and Chief Executive Officer
C. Cammack Morton (principal executive officer)
/s/ PATRICK M. MINIUTTI Director, Exec. Vice President and Chief Financial Officer
Patrick M. Miniutti (principal financial officer and accounting officer)
/s/ ROBERT O. AMICK Director
Robert O. Amick
/s/ B. MAYO BODDIE, SR. Director
B. Mayo Boddie, Sr.
/s/ J. RICHARD FUTRELL, JR. Director
J. Richard Futrell, Jr.
/s/ THEODORE E. HAIGLER, JR. Director
Theodore E. Haigler, Jr.
/s/ JOHN W. GILDEA
John W. Gildea Director
</TABLE>
- 41 -
<PAGE>
FAC REALTY, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................................F-1
Consolidated Balance Sheets as of December 31, 1996, and 1995.........................................F-2
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994......................................................................................F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994....................................................................F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994...................................................................F-5
Notes to Consolidated Financial Statements............................................................F-6
Schedule III - Real Estate and Accumulated Depreciation..............................................F-25
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
FAC Realty, Inc.
We have audited the accompanying consolidated balance sheets of FAC Realty, Inc.
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of FAC
Realty, Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information required to be set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
January 31, 1997, except for Notes 10 and 12
as to which the date is March 27, 1997
F-1
<PAGE>
FAC REALTY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
INCOME PRODUCING PROPERTIES (NOTES 2,4 AND 6):
Land $ 77,011 $ 71,668
Buildings and improvements 259,383 222,524
Deferred leasing and other charges 17,635 13,416
--------------------------------------------
354,029 307,608
Accumulated depreciation and amortization (36,027) (24,004)
--------------------------------------------
318,002 283,604
Properties under development (NOTE 9) 2,538 32,837
Properties held for sale (NOTE 13) 11,438 16,589
OTHER ASSETS:
Cash and cash equivalents 7,034 1,655
Restricted cash 3,860 4,806
Tenant and other receivables 5,864 5,245
Deferred charges and other assets (NOTE 3) 9,876 10,359
--------------------------------------------
$ 358,612 $ 355,095
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Debt on income properties (NOTES 4 AND 12) $ 173,695 $ 170,067
Unsecured senior notes (NOTES 5 AND 12) 7,420 -
Other unsecured notes (NOTE 12) 2,542 844
Capital lease obligations (NOTE 6) 826 797
Accounts payable and other liabilities 9,537 16,876
Dividends payable - 6,025
--------------------------------------------
194,020 194,609
--------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 9 AND 11)
STOCKHOLDERS' EQUITY (NOTES 5 AND 8):
Convertible preferred stock, Series A, 5,000,000 shares authorized,
800,000 issued and outstanding in 1996 19,162 -
Stock purchase warrants 9 -
Common stock, $0.01 par value, 45,000,000 shares authorized, 12,100,955
and 11,814,523 issued and outstanding in 1996 and 1995, respectively 121 118
Additional paid-in capital 147,346 160,368
Retained earnings - -
Deferred compensation - Restricted Stock Plan (2,046) -
--------------------------------------------
164,592 160,486
--------------------------------------------
$ 358,612 $ 355,095
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
FAC REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
RENTAL OPERATIONS:
Revenues:
Base rents $ 34,099 $ 34,584 $ 31,920
Percentage rents 633 616 531
Property operating cost recoveries 11,757 11,065 8,786
Other income 644 519 840
-------------------------------------------------------
47,133 46,784 42,077
-------------------------------------------------------
Property operating costs:
Common area maintenance 6,037 5,518 4,191
Utilities 1,121 970 828
Real estate taxes 5,098 4,733 4,096
Insurance 684 589 513
Marketing 996 1,838 826
-------------------------------------------------------
13,936 13,648 10,454
Depreciation and amortization 13,802 11,900 8,511
-------------------------------------------------------
27,738 25,548 18,965
-------------------------------------------------------
19,395 21,236 23,112
-------------------------------------------------------
OTHER EXPENSES:
General and administrative (NOTE 11) 6,238 15,279 5,567
Interest 14,175 10,903 4,435
-------------------------------------------------------
20,413 26,182 10,002
-------------------------------------------------------
(1,018) (4,946) 13,110
-------------------------------------------------------
PROPERTY SALES AND ADJUSTMENTS:
Adjustment to carrying value of assets (NOTE 13) (5,000) (8,500) -
Gain on sale of outparcel land 37 345 -
-------------------------------------------------------
(4,963) (8,155) -
-------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,981) (13,101) 13,110
Extraordinary loss on early extinguishment of debt (NOTE 3) (103) - (884)
_______________________________________________________
NET INCOME (LOSS) $ (6,084) $ (13,101) $ 12,226
=======================================================
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM APPLICABLE TO COMMON
SHAREHOLDERS $ (6,349) $ (13,101) $ 13,110
=======================================================
EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary item $ (0.54) $ (1.11) $ 1.11
Extraordinary item (0.01) - (0.07)
-------------------------------------------------------
NET INCOME (LOSS) $ (0.55) $ (1.11) $ 1.04
=======================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,817 11,814 11,811
=======================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
FAC REALTY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DEFERRED
CONVERTIBLE STOCK ADDITIONAL COMPENSATION
PREFERRED PURCHASE COMMON PAID IN RETAINED RESTRICTED
STOCK WARRANTS STOCK CAPITAL EARNINGS STOCK PLAN TOTAL
-------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ - $ - $ 115 $ 205,548 $ 986 $ - $ 206,649
Issuance of 300,800 shares, $0.01 par
value, common stock, net - - 3 6,788 - - 6,791
Net income - - - - 12,226 - 12,226
Common dividends declared ($1.89 per share) - - - (9,114) (13,212) - (22,326)
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 - 118 203,222 - - 203,340
Issuance of directors stock awards - - - 18 - - 18
Net loss - - - - (13,101) - (13,101)
Common dividends declared ($2.52 per share) - - - (42,872) 13,101 - (29,771)
-------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 - - 118 160,368 - - 160,486
Issuance of convertible preferred stock 19,162 - - - - - 19,162
Issuance of directors stock awards - - - 29 - - 29
Issuance of restricted stock awards - - 4 3,334 - (3,338) -
Issuance of stock purchase warrants - 9 - - - - 9
Compensation under restricted stock plan - - - - - 392 392
Cancellation of restricted stock awards - - (1) (899) - 900 -
Net loss - - - - (6,084) - (6,084)
Preferred dividends declared ($.46 per - - - (368) - - (368)
share)
Common dividends declared ($.75 per share) - - - (15,118) 6,084 - (9,034)
___________________________________________________________________________________
BALANCE AT DECEMBER 31, 1996 $19,162 $ 9 $121 $147,346 $ - $(2,046) $164,592
=====================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
FAC REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,084) $ (13,101) $ 12,226
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Adjustment to carrying value of assets 5,000 8,500 -
Depreciation and amortization 13,802 11,900 8,511
Extraordinary loss on early extinguishment of debt 103 - 884
Amortization of deferred financing costs 1,422 1,552 287
Compensation under restricted stock plan 392 - -
Net changes in:
Tenant and other receivables (619) 828 (3,003)
Deferred charges and other assets 122 3,968 (2,605)
Accounts payable and other liabilities (6,489) 8,431 4,374
----------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,649 22,078 20,674
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in income-producing properties (18,234) (46,048) (32,892)
Acquisition of income-producing properties, net - - (51,827)
Change in restricted cash 946 (4,806) -
----------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,288) (50,854) (84,719)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt on income properties 5,061 139,672 101,193
Proceeds from exchangeable notes 20,000 - -
Proceeds from other debt 9,580 582 1,775
Deferred financing charges (2,289) (4,361) (4,463)
Debt repayments (1,936) (71,294) (34,957)
Payable related to acquisition of properties - (11,737) 11,737
Net proceeds from sale of common stock 29 18 6,791
Distributions to stockholders (15,427) (23,746) (22,326)
----------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,018 29,134 59,750
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,379 358 (4,295)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,655 1,297 5,592
____________________________________________________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,034 $ 1,655 $ 1,297
====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest (net of
interest capitalized of $1,974 in 1996,
$2,567 in 1995, $1,059 in 1994) $ 15,347 $ 9,848 $ 6,631
====================================================
Dividend declared not paid $ - $ 6,025 $ -
====================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
FAC Realty, Inc. (the "Company"), formerly Factory Stores of America, Inc., was
incorporated on March 31, 1993 as a self-administrated and self-managed real
estate investment trust (REIT). The Company is principally engaged in the
development, ownership, acquisition, and operation of factory outlet and
community shopping centers. The Company's revenues are primarily derived under
real estate leases with national, regional and local retailing companies.
The properties owned by the Company consist of: (1) 21 enclosed and 12
unenclosed factory outlet centers in 20 states aggregating approximately
4,600,000 square feet; (2) five community shopping centers located in the
Raleigh, NC area (see Note 12); (3) two unenclosed factory outlet centers held
for sale aggregating approximately 150,000 square feet; (4) one former factory
outlet center which is being converted to commercial office use with
approximately 150,000 square feet that is held for sale; and (5) approximately
181 acres of outparcel land located near or adjacent to certain of the Company's
centers and is actively being marketed for lease or sale.
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, competition, inability to rent unleased space,
failure to generate sufficient income to meet operating expenses, as well as
debt service, capital expenditures and tenant improvements, environmental
matters, financing availability and changes in real estate and zoning laws. The
success of the Company also depends upon certain key personnel, the Company's
ability to maintain its qualification as a REIT, compliance with the terms and
conditions of the debt on its income properties and other debt instruments, and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, FSA Properties, Inc., which was formed
on December 30, 1994 to hold the assets and liabilities of 18 of the Company's
outlet centers in connection with the Company's $70 million bridge financing
(see Note 2). As of December 31, 1996 and 1995, the consolidated financial
statements also include the accounts of FSA Finance, Inc., a wholly owned
subsidiary formed on May 22, 1995 in connection with a $95 million securitized
debt offering (see Note 3). As of December 31, 1996, the consolidated financial
statements also include the accounts of FAC Outparcels, Inc., a majority owned
subsidiary formed on February 22, 1996 to hold certain outparcels which the
Company is marketing for sale or lease. All significant intercompany balances
have been eliminated in consolidation.
F-6
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
INCOME-PRODUCING PROPERTIES
Income-producing properties are recorded at cost less accumulated
depreciation. Included in such costs are acquisition, development, construction,
tenant improvements, interest incurred during construction, certain capitalized
improvements and replacements and certain allocated overhead. Allocated overhead
is computed primarily on the basis of time spent by certain departments in
various operations and represents direct costs of the development department
which meet the definition of "indirect costs" in Statement of Financial
Accounting Standards No. 67, "Accounting for Costs and Initial Rental Operations
of Real Estate Projects."
Leasing charges, including tenant construction allowances and direct
costs incurred by the Company to obtain a lease, are deferred and amortized over
the related leases or terms appropriate to the expenditure.
Depreciation is provided utilizing the straight-line method over the
estimated useful life of 31.5 years for building and improvements, 15 years for
land improvements and 5 to 10 years for equipment.
Certain improvements and replacements are capitalized when they extend
the useful life, increase capacity, or improve the efficiency of the asset. All
other repair and maintenance items are expensed as incurred.
Substantially all of the income-producing properties have been pledged to
secure the Company's debt.
Properties under development include costs related to new development and
expansions in process totaling approximately $2.5 million and $32.8 million at
December 31, 1996 and 1995, respectively. The pre-construction stage of project
development involves certain costs to secure land and zoning and complete other
initial tasks which are essential to the development of the project. These costs
are transferred to developments under construction when the pre-construction
tasks are completed. The Company charges operations for the costs of
unsuccessful development projects.
The Company adopted the Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be
Disposed Of" ("FAS 121") as of January 1, 1996. The pronouncement requires that
certain long-lived assets be reviewed for potential impairment when
circumstances indicate that the carrying amount of such assets may not be
recoverable. Additionally, FAS 121 requires that certain long-lived assets held
for disposition (see Note 13) be reported at the lower of the carrying amount or
fair value less any selling costs.
F-7
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Properties held for sale, at their expected net realizable values, have
been separately classified in the accompanying balance sheet at December 31,
1996. As a result of the Company's intent to sell three outlet center
properties, the Company recognized a charge to 1996 earnings of $5.0 million and
to 1995 earnings of $8.5 million to reduce the carrying amount of these centers
to their estimated net realizable value.
INTEREST COSTS
Interest costs are capitalized related to income-producing properties
under construction, to the extent such assets qualify for capitalization. Total
interest capitalized was $2.0 million, $2.6 million and $1.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Interest expense
includes amortization of deferred financing costs (see Note 3) and is net of
miscellaneous interest income on cash and escrow deposit balances.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
RESTRICTED CASH
In connection with the sale of the $95 million securitized debt offering,
the lender required a holdback of a portion of the loan proceeds to fund certain
environmental and engineering work and to make certain lease related payments
that may be required in connection with the renewal or termination of certain
leases by a tenant at most of the factory outlet centers. Such holdback amounts
to approximately $3.9 and $4.8 million at December 31, 1996 and 1995,
respectively.
REVENUE RECOGNITION
The Company, as a lessor, has retained substantially all of the risks and
benefits of ownership and accounts for its leases as operating leases. Minimum
rental income is recognized on a straight-line basis over the term of the lease
and unpaid rents are included in rents and other receivables from tenants in the
accompanying balance sheets. Certain lease agreements contain provisions which
provide for rents based on a percentage of sales that are recognized ratably on
an estimated basis throughout the year. In addition, certain leases provide for
additional rents based on a percentage of sales volume above a specified
breakpoint and reimbursement of real estate taxes, insurance, advertising,
utilities and certain common area maintenance (CAM) costs. These additional
rents are reflected on the accrual basis. In lease agreements where the tenant
is not required to reimburse the Company for real estate taxes, insurance and
CAM costs, the Company has allocated a portion of the rental amount to tenant
recoveries. For tenants who are not obligated to pay directly or reimburse the
Company for utility costs related to their store, the Company has allocated a
portion of their rental revenue to offset the utility expense.
F-8
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's principal financial instrument subject to potential
concentration of credit risk is tenant accounts receivable which are unsecured.
Although the tenants are primarily in the retail industry, the properties are
geographically diverse. The Company's exposure to credit loss in the event that
payment is not received for revenue recognized equals the outstanding accounts
receivable balance. The Company provides an allowance for estimated
uncollectible amounts.
ACCRUED EXPENSES
Due to potential environmental issues associated with the properties
acquired by the Company and the properties adjacent to the Company's properties,
the Company accrued for the potential remediation costs at the date of
acquisition of the properties. At December 31, 1996 and 1995, accrued expenses
include $500,000 for the potential remediation costs based on the Company's
review of environmental assessments.
STOCK OPTIONS
In October 1995, FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("FASB 123"). FASB 123 encourages companies to adopt
the fair value method for expense recognition of employee stock options. FASB
123 also allows companies to continue to account for stock options and stock
based awards using the intrinsic value method as outlined under Accounting Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and to
make pro forma disclosures of net income and net income per share as if the fair
value method had been applied. Currently, the Company uses APB 25 in accounting
for its stock options and stock based awards and will continue to apply APB 25
for future stock options and stock based awards.
EARNINGS PER SHARE
Primary earnings per common share amounts are computed by dividing income
less preferred dividends ($368,000 for the year ended December 31, 1996) by the
weighted average number of common shares actually outstanding for the years
ended December 31, 1996, 1995 and 1994 of 11,817,000, 11,814,000, and
11,811,000, respectively, which exclude unvested restricted shares. Under fully
diluted earnings computation per share amounts would be based on income divided
by the weighted average number of common shares as increased by the number of
shares that would be outstanding assuming conversion of the Convertible
Preferred Stock. Fully diluted earnings per share amounts are not presented
because the effect of such inclusion would be to increase earnings per share.
Shares issuable under employee stock options and the warrant agreements (see
Note 5) are excluded from the weighted average number of shares on the
assumption that their effect is not dilutive because the market price of the
stock did not exceed the exercise price for the reporting period.
F-9
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company is taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with the tax year ending
December 31, 1993. As a REIT, the Company generally is not subject to federal
income tax. To maintain qualification as a REIT, the Company must distribute at
least 95% of its REIT taxable income to its stockholders and meet certain other
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate rates. The Company may also be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed taxable income.
DIVIDENDS
During 1996, 1995 and 1994, distributions were paid of $0.75, $2.52, and
$1.89, respectively. The ordinary income, return of capital and long-term gain
portions of such distributions for each year are indicated in the table below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ------------------
<S> <C> <C> <C>
Ordinary income 24.7% 0.0% 61.4%
Return of capital 74.9 98.8 38.6
Long-term gains 0.4 1.2 0.0
________________ ________________ _________________
100% 100% 100%
================ ================ ==================
</TABLE>
There were no accrued dividends as of December 31, 1996.
RECLASSIFICATIONS
Certain 1995 and 1994 financial statement amounts have been reclassified
to conform with 1996 classifications. These reclassifications had no effect on
net income or stockholders' equity as previously reported.
3. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets as of December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------------------------
<S> <C> <C>
Deferred financing costs $ 5,915 $ 5,898
Prepaid expenses 518 607
Other assets 3,443 3,854
__________________________________
$9,876 $10,359
=======================================
</TABLE>
F-10
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEFERRED CHARGES AND OTHER ASSETS (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs, including fees and costs incurred to obtain financing,
are being amortized on a straight line basis over the terms of the respective
agreements. Unamortized deferred financing costs are charged to expense when the
associated debt is retired before the maturity date.
As described in Note 4, on April 30, 1996 the Company refinanced its existing
credit line and in connection therewith the related deferred financing costs of
$103,000 were written off as an extraordinary loss.
OTHER ASSETS
During 1993, as part of the VF acquisition (see Note 9), the Company acquired a
favorable lease agreement for land and buildings which has been capitalized as
an intangible asset. This asset is being amortized over the remaining life of
the lease. The carrying value of the intangible asset, approximating $3.1 and
$3.6 million at December 31, 1996 and 1995, respectively, is reviewed if the
facts and circumstances suggest that it may be impaired. If such a review
indicates that the carrying amount of the asset may not be recoverable, the
Company will reduce the carrying value by the amount of the impairment.
4. DEBT ON INCOME PROPERTIES
Debt on income properties consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Class A Notes payable in 85 monthly principal payments ranging from
approximately $104 to $173 determined using various parameters plus
weighted average monthly interest payments at 7.42%. Unpaid
principal and accrued interest due June 1, 2002. $ 55,907 $ 57,257
Class B Notes - monthly interest payments at 7.78% with entire balance
due June 1, 2002. 20,000 20,000
Class C Notes - monthly interest payments at 8.31% with entire balance
due June 1, 2002. 17,000 17,000
Note payable to a financial institution with 45 monthly principal and
interest payments of approximately $59 at a stated rate of prime plus 2 1/4%
and one final payment of the entire principal balance and unpaid accrued
interest payable due on March 23, 1998. Collateralized by a construction deed
of trust, a financing statement, and a security agreement and fixture filing
(with assignment of rents and leases). 5,788 5,871
Credit facility with a financial institution, $75,000,000 and $70,000,000
available as of December 31, 1996 and 1995, respectively, interest at a rate
of LIBOR plus 2.75%, amount outstanding paid in full
in February 1997. 75,000 69,939
_____________________________
$ 173,695 $ 170,067
===================================
</TABLE>
F-11
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT ON INCOME PROPERTIES (CONTINUED)
On May 22, 1995, the Company closed a $95 million rated debt securitization (the
"Mortgage Notes") by FSA Finance, Inc. The total offering of $95 million
consisted of $58 million of Class A Notes rated "AA"; $20 million of Class B
Notes rated "A"; and $17 million of Class C Notes rated "BBB". Interest on the
Class A Notes, Class B Notes and Class C Notes is payable monthly in arrears at
rates per annum equal to 7.42%, 7.78% and 8.31%, respectively. The Company used
these proceeds to repay a $70 million bridge loan, applied $16 million to reduce
the Company's existing revolving credit line, fund escrow reserves and applied
the balance to pay certain expenses related to the issuance and sale of the
Mortgage Notes. The Mortgage Notes are secured by a cross-collateralized
mortgage which covers 18 factory outlet centers owned by FSA Properties, Inc.
Principal of the Class A Notes is paid monthly in accordance with an
amortization schedule calculated based upon level debt service payments in
respect of the Mortgage Notes, the weighted average interest rate on the
Mortgage Notes (7.67%) and a 25-year amortization schedule. The remaining unpaid
principal of the Mortgage Notes is scheduled to be paid as a balloon payment on
June 1, 2002 (the "Scheduled Maturity Date"). Neither the Class B Notes nor the
Class C Notes will receive scheduled note principal payments prior to the
Scheduled Maturity Date. At the Scheduled Maturity Date the entire principal
amount of each of the Class B Notes and the Class C Notes is scheduled to be
paid as a balloon payment.
The notes are subject to Optional Redemption (as defined) in whole or in part on
any payment date beginning on June 1, 1998. Any Optional Redemption occurring on
or prior to December 1, 2001 is subject to the payment of a yield maintenance
premium.
On April 30, 1996, the Company closed on a $75 million credit facility from Bank
One, Dayton, The facility was used to refinance the Company's existing credit
line and repay $5 million in short-term promissory notes. As a result, the
Company expensed the related unamortized loan costs of $103,000 which has been
classified as an extraordinary item in the accompanying consolidated statements
of operations. In February 1997, the Company closed a $150 million line of
credit facility with Nomura Asset Capital Corporation, replacing this $75
million credit facility (see Note 12).
Combined aggregate principal maturities of notes payable are as follows (in
thousands):
1997 $ 76,353
1998 7,383
1999 7,383
2000 1,822
2001 1,964
Thereafter 78,790
--------------------
$ 173,695
====================
F-12
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT ON INCOME PROPERTIES (CONTINUED)
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of December 31,
1996. Although management is not aware of any factors that would significantly
affect the fair value of amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date.
5. CONVERTIBLE PREFERRED STOCK AND UNSECURED SENIOR NOTES
On April 2, 1996, the Company executed a Note Purchase Agreement and other
related documents (collectively the "Agreements") with Gildea Management Company
("Gildea") and Blackacre Bridge Capital, L.L.C. ("Blackacre"), whereby Gildea
and Blackacre agreed to purchase in a private placement up to $25.0 million of
the Company's Exchangeable Notes (the "Exchangeable Notes") and $5.0 million of
its Senior Notes, both of which were unsecured. On April 3, and 29, 1996,
Exchangeable Notes with an aggregate principal amount of $10.0 million each were
sold pursuant to the Agreements.
Holders of the Exchangeable Notes, subject to certain conditions, were required
to exchange them for shares of the Company's Series A Convertible Preferred
Stock (the "Series A Preferred") at the rate of one share of Series A Preferred
for each $25 in principal amount of Exchangeable Notes, upon stockholder
approval of necessary amendments to the Company's Certificate of Incorporation
and authorization of the Series A Preferred. Each share of Series A Preferred is
convertible into shares of the Company's Common Stock at a conversion price
equal to the lower of $9 per share or the 30-day average price of the Company's
Common Stock on the NYSE following an announcement by the Company of the initial
funding, subject to certain limitations. Dividends on the Series A Preferred
will be paid quarterly on each Common Stock dividend payment date in an amount
equal to the dividends that would have been paid on the Common Stock then
issuable upon conversion of the Series A Preferred.
On August 1, 1996, the Company issued holders of the Exchangeable Notes 800,000
shares of the Company's Series A Preferred Stock in exchange for notes with an
aggregate principal amount of $20 million (net of issue cost of $838,000). The
800,000 shares of the Series A Preferred Stock are convertible, at the option of
the holders, into an aggregate of 2,222,222 shares of the Company's Common
Stock.
On April 29, 1996, $5 million of the Senior Notes were placed at 97% of their
face amount. On November 12, 1996, $2.5 million of the Senior Notes were place
at 100% of their face amount. Under the Agreements, these notes mature on the
second anniversary of the initial funding and bear interest, payable quarterly,
at an annual rate of 11% during the first year and 13% thereafter until
maturity. The resulting discount ($150,000) on the Senior Notes is being
amortized to interest expense over the term of the notes. In March 1997, the
Company repaid the Senior Notes at their face amounts.
F-13
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONVERTIBLE PREFERRED STOCK AND UNSECURED SENIOR NOTES (CONTINUED)
In connection with the issuance of the Exchangeable Notes and the initial $5
million of Senior Notes, on April 3, 1996 the Company issued the holder
detachable warrants for the purchase of 200,000 shares of Common Stock of the
Company. Each warrant entitles the holder, subject to certain conditions, to
purchase on or before April 3, 2003 one share of Common Stock of the Company at
a price equal to $9.50 per share, subject to adjustment under certain
conditions. The warrants were valued at an aggregate value of $6,000 at the
issuance date. The $2.5 million of Senior Notes have detachable warrants for the
purchase of 100,000 shares of Common Stock of the Company that were issued with
terms and conditions similar to the existing Senior Notes, except that each
warrant entitles the holder to purchase one share of Common Stock at a price
equal to $8.375 per share. These warrants were valued at an aggregate value of
$3,000 at the issuance date.
6. LEASES
The Company leases certain signage and equipment under capital lease agreements
which expire beginning in 1998 through 2007. Capital leases entered into during
the years ended December 31, 1996, 1995 and 1994 totaled approximately $214,800,
$168,000, and $147,000, respectively. The signage and equipment are included in
equipment and total capitalized cost is approximately $1,324,000 and $1,109,000,
with related accumulated depreciation of $210,000 and $131,000 as of December
31, 1996 and 1995, respectively. Amortization of assets acquired through capital
leases is included with depreciation and amortization expense in the
accompanying statement of operations.
The Company leased an airplane under an operating lease beginning in January
1994 through December 1995. Total lease payments under this lease were
approximately $659,000 and $133,000 for the years ended December 31, 1995 and
1994. As of December 31, 1995, the lease was canceled at a cost of approximately
$180,000.
Aggregate future minimum lease payments under capital and operating leases
having remaining terms in excess of one year as of December 31, 1996, are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------------------------------------
<S> <C> <C>
1997 $ 292 $ 167
1998 271 314
1999 156 309
2000 132 426
2001 100 438
Thereafter 128 1,200
---------------------------------------
1,079 $ 2,854
====================
Less amounts representing interest 253
-------------------
Present value of minimum lease payments $ 826
===================
</TABLE>
F-14
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASE AGREEMENTS
The Company is the lessor of retail stores under operating leases with initial
terms that expire from 1997 to 2006. Many leases are renewable for five years at
the lessee's option.
Expected future minimum rents to be received from tenants, excluding renewal
options and contingent rentals, under operating leases in effect at December 31,
1996, are as follows (in thousands):
1997 $ 34,206
1998 30,050
1999 25,623
2000 19,821
2001 13,774
Thereafter 34,206
--------------------
$ 157,680
====================
For the years ended December 31, 1996, 1995 and 1994 rental revenue from a
single major tenant, VF Corporation, comprised approximately 14%, 14% and 15%,
respectively, of total rental revenue.
8. STOCK AND BONUS INCENTIVE PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
EMPLOYEE STOCK OPTION PLAN
The Company established an Employee Stock Incentive Plan (the "Stock Incentive
Plan") in 1993 for the purpose of attracting and retaining the Company's
executive officers and other employees. A maximum of 1,100,000 shares of common
stock are reserved for issuance under the Stock Incentive Plan. The Stock
Incentive Plan allows for the grant of "incentive" and "nonqualified" options
(within the meaning of the Internal Revenue Code) that are exercisable at a
price equal to the closing price of the Common Stock on the New York Stock
Exchange on the trading day immediately preceding the date of grant.
The options generally are exercisable on a pro rata basis over a period of four
to five years from the grant date. As of December 31, 1996 and 1995, options
outstanding were 1,047,500 shares and 432,500 shares, respectively, of which
512,820 shares and 317,080 shares, respectively, were exercisable. As of
December 31, 1996 and 1995, no stock options had been exercised.
F-15
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK AND BONUS INCENTIVE PLANS (CONTINUED)
In connection with the severance arrangements the Company entered into with
certain former executive officers in 1995 (see Note 11) who held options to
purchase a total of 204,800 shares, the vesting of options for 138,080 shares
was accelerated. The remaining 66,720 shares had vested prior to severance date.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing a model with the following weighted average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.99%
and 7.74%, dividend yields of 0% and 0%, volatility factors of 0.104 and 0.104;
and a weighted-average expected life of the option of 10 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earning per share
information):
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
<S> <C> <C>
Pro forma net loss applicable to common shareholders $ (6,843) $ (13,860)
================== ==================
Pro forma loss per common share:
Primary $ (0.58) $ (1.17)
================== ==================
Fully diluted $ (0.58) $ (1.17)
================== ==================
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
F-16
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK AND BONUS INCENTIVE PLANS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE NON- AVERAGE
INCENTIVE EXERCISE QUALIFIED EXERCISE
PLAN PRICE PLAN PRICE
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Options outstanding December 31, 1994 43,470 $23.00 287,030 $23.00
Options granted 18,604 21.50 83,396 21.50
Canceled or expired - - - -
Exercised - - - -
-------------- ------------ -------------- --------------
Options outstanding December 31, 1995 62,074 22.55 370,426 22.66
Options granted 219,835 9.61 395,165 9.66
Canceled or expired - - - -
Exercised - - - -
Options outstanding December 31, 1996 281,909 $12.46 765,591 $15.95
============== ============ ============== ==============
<CAPTION>
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
EXERCISE AT DECEMBER CONTRACTUAL AT DECEMBER
PRICES 31, 1996 LIFE 31, 1996
------------- -------------- ------------- ---------------
23.00 330,500 6.5 282,220
21.50 102,000 8.1 67,600
10.25 380,000 9.4 116,000
8.88 35,000 9.7 7,000
8.63 200,000 9.7 40,000
</TABLE>
RESTRICTED STOCK PLAN
The Company established the FAC Realty, Inc. 1996 Restricted Stock Plan (the
"Restricted Plan"), reserving 350,000 shares of Common Stock for issuance
thereunder, to give the Executive Compensation Committee ("Committee") more
flexibility in designing equity-based compensation arrangements to attract,
motivate and retain executives and other key employees. Such equity-based
compensation is designed to more closely align the financial interests of
management with that of the shareholders. Pursuant to recent action by the Board
of Directors, the Company has reserved an additional 150,000 shares of Common
Stock for issuance under the Restricted Plan. The Restricted Plan, which is
administered by the Committee, provides for the grant of restricted stock awards
to any new or existing employee of the Company, including executive officers.
Awards under the Restricted Plan typically will be subject to various vesting
schedules ranging from one to ten years from the date of grant. The Restricted
Plan permits the Committee to customize the vesting schedule by deferring the
commencement date, lengthening the vesting period and/or conditioning vesting
upon the achievement of specified performance goals.
F-17
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK AND BONUS INCENTIVE PLANS (CONTINUED)
In 1996, as part of employment agreements or incentives, the Company granted and
issued 42,592 shares of restricted stock to certain officers and other key
employees at no purchase cost to the employees. These shares will vest in three
equal annual installments commencing March 1, 1997. Subsequent to December 31,
1996, the Company granted 60,000 shares of restricted stock to the officers of
the Company in lieu of a cash bonus for 1996 which are subject to a three year
cliff vesting and represent 150% of an equivalent cash bonus of an average of
20% of the salaries for the officers. The recipients of the restricted stock are
entitled to receive dividends on both the vested and unvested shares.
The Company's Independent Directors, upon the recommendation of the Executive
Compensation Committee, which in turn received recommendations from an
executive compensation consulting firm, have approved a long-term incentive
program for two senior executive officers. Pursuant to such program, 270,000
shares of restricted stock will be awarded to the senior executives officers
replacing the 180,000 shares awarded in 1996. These shares will vest in equal
annual installments over ten years commencing March 1, 1997, were awarded. The
senior executive officers will be entitled to receive dividends on only the
vested portion of these specific restricted shares. They will be entitled to
receive dividends on all other vested and unvested restricted stock issued to
them as other compensation, including their portion of the restricted stock
issued in lieu of cash bonuses as noted above. In addition, 90,000 shares of
restricted stock previously granted to the former chairman and chief executive
officer of the Company were cancelled upon his resignation.
The issuance of restricted shares in 1996, net of the cancelled shares, has been
reflected in the Company's financial statements as an increase to Common Stock,
and Additional Paid in Capital of $3,000 and $2,435,000, respectively, with an
offsetting amount in the stockholder's equity section labeled deferred
compensation. The deferred compensation expense will be recognized as
compensation expense ratably over the vesting periods.
DIRECTORS' STOCK AWARD PLAN
On May 23, 1995, the Board of Directors adopted, with stockholder approval, the
1995 Directors' Stock Award Plan (the "Directors' Plan") and reserved 25,000
shares of Common Stock for awards to be granted under the Directors' Plan. Under
the Directors' Plan, each Outside Director who continues as a director as of the
adjournment of each quarterly meeting of the Board, beginning with the first
quarterly meeting after May 1, 1995, will automatically receive an award of
shares of Common Stock equal in value to, and in lieu of, one-half of the
quarterly installment of the retainer fee. The number of shares subject to each
award will be based on the closing price of the Common Stock on the New York
Stock Exchange on the trading date immediately preceding the date of the
relevant quarterly meeting. The awards will be fully vested on the date of
grant, but an Outside Director will not be permitted to sell or otherwise
dispose of the shares until six months after the grant date. During 1996 and
1995, 2,197 and 924 shares were issued in connection with this plan.
F-18
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK AND BONUS INCENTIVE PLANS (CONTINUED)
OTHER PLANS
The Company has adopted a Bonus Incentive Plan for senior management. Under the
terms of the plan, senior management employees can earn bonuses up to 75% of
their base salary based on the achievement of specific individual and Company
performance goals. Bonuses were paid in 1996 with restricted stock as noted
above and bonuses of $176,900 were paid in 1995. There were no bonuses earned
for the year ended December 31, 1994.
On January 1, 1994, the Company adopted a 401(k) Savings & Retirement Plan and
Trust (the "Plan"), a tax qualified defined contribution plan. The Plan covers
substantially all employees of the Company who have attained 21 years of age and
completed at least one year of service. Eligible employees may elect to
contribute 1% to 15% of their compensation to the Plan. The Company may elect to
match a certain percentage of each employees contribution and may also elect to
make a profit sharing contribution. For the years ended December 31, 1996, 1995
and 1994, the Company contributed $64,084, $59,710, and $44,140, respectively,
as a matching contribution and there was no profit sharing contribution made by
the Company. The Plan was replaced effective January 1, 1997 by The FAC Realty,
Inc. 401(k) and Profit Sharing Plan, which is substantially similar to the Plan,
as described above.
9. COMMITMENTS AND CONTINGENCIES
Under the terms of the purchase agreement to acquire the VF Properties, entered
into in 1993, the Company committed to expand certain of these properties by an
aggregate of at least 320,000 square feet in the 36 months following the
acquisition. Through December 31, 1996, the Company completed eight expansions
totaling approximately 303,000 square feet. The original commitment contemplated
the completion of two more expansions. Under the terms of the agreement, at
completion of an expansion and upon payment to VF Corporation of a tenant
allowance, VF Corporation would renew its lease for its original term as of that
date. On December 10, 1996, the Company and VF Factory Outlet, Inc. ("VFFO"), a
operating subsidiary of VF Corporation, entered into an Amendment and Waiver
Agreement ("Amendment Agreement") whereby the requirement to complete the final
two expansions was waived. Under the terms of the Amendment Agreement, in lieu
of the requirement to expand the additional two centers, the Company remained
obligated to pay a tenant allowance for the two centers and will provide for
VFFO's benefit nine additional billboards at three center locations selected by
VFFO for at least three years. Additionally, the Amendment Agreement requires
that the Company continue to manage and market an adjacent factory outlet center
at its Sulphur Springs, TX center as a single property. The Company entered into
a third party management agreement with this outlet center in June 1996.
Pursuant to the Amendment Agreement, the obligation, under the terms of the
original commitment, to pay $9.5 million to VF Corporation in the event all of
the expansions were not completed as planned, has been extinguished. As of
December 31, 1996, the Company's other unsecured notes payable included
$2,016,000 due to VFFO for tenant allowances which were subsequently paid with
the Nomura credit facility (see Note 12).
F-19
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During 1996 the Company completed construction of a 288,000 square foot outlet
center in Branson, Missouri and expansions of approximately 158,000 square feet
at Story City, Iowa, Nebraska City, Nebraska, Smithfield, North Carolina, and
Tupelo, Mississippi. The anticipated cost of these projects is $42.5 million of
which $40.7 million has been expended as of December 31, 1996 and has been
reclassified from the properties under development category for financial
statements purposes. The remaining $1.8 million in anticipated costs represent
estimated tenant buildouts and allowances. Additionally, the Company is
currently in the pre-development and marketing stage for a property located in
Lake Carmel, New York. If the appropriate tenant interest is obtained and the
appropriate agreements, permits and approvals have been received, the Company
intends to commence construction in the fall of 1997.
On July 19, 1996, a purported class action lawsuit was filed in the United
States District Court for the Eastern District of North Carolina against the
Company, its former chairman and chief executive officer, J. Dixon Fleming, Jr.,
and a former president of the Company, David A. Hodson. The complaint seeks
certification of a class consisting of all persons (with certain exclusions) who
purchased common stock of the Company between December 16, 1993 and April 17,
1996, inclusive (the "Class Period"). The complaint alleges that, during the
Class Period, defendants made certain false or misleading statements to the
public concerning (1) earnings and funds from operations; (2) the Company's
ability to maintain dividends at prior levels; (3) the alleged maintenance of
dividends through borrowings rather than funds from operations; (4) the
Company's ability to close a proposed acquisition; (5) the alleged purchase of
certain properties from affiliates of the individual defendants at inflated
prices; and (6) alleged improper accounting practices.
On October 30, 1996, a second purported class action lawsuit was filed in the
United States District Court for the Eastern District of North Carolina against
the Company and Messrs. Fleming and Hodson, containing factual allegations and
legal claims similar to those asserted in the prior purported class action. The
plaintiffs in both actions seek unspecified monetary damages. The cases have
been consolidated and the Company has filed motions to dismiss both lawsuits,
which motions are currently pending.
The Company believes that it and the named former officers have substantial
defenses to the plaintiffs' claims and the Company intends to vigorously defend
the actions. However, no assurance can be given as to the ultimate outcome of
the litigation.
In addition, the Company is a party to certain legal proceedings relating to its
ownership, management and leasing of the properties, arising in the ordinary
course of business.
F-20
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER RELATED PARTY TRANSACTIONS
During 1993, the Company acquired a 19 acre tract of land in a non-monetary
transaction from a partnership whose partners include two former executive
officers of the Company. The recorded value of the land was $748,000. In return
for the land, the Company assumed certain outstanding debt and the remaining
purchase price was settled by reducing amounts owed to the Company by a tenant
whose majority owners were also partners in the partnership. A review of this
and other transactions resulted in J. Dixon Fleming, Jr., the Company's former
Chairman and Chief Executive Officer, agreeing to permit the Company to satisfy
certain asset valuation issues by offsetting amounts otherwise owed to Mr.
Fleming pursuant to his employment agreement (see Note 12) or by the acceptance
from Mr. Fleming of some other cash or value equivalent. The Company has
recently entered into an agreement with Mr. Fleming to sell to him the 19 acre
land tract for the sum of $750,000 which would substantially satisfy the asset
valuation issues.
In 1994, the Company's Board of Directors approved acquisition of certain land
adjacent to one of the Company's existing outlet centers for potential expansion
of that center. The cost of the land acquisition was $400,000. The seller of the
land was a partnership whose partners include former executive officers of the
Company.
On May 5, 1995 the company purchased three parcels of land near its Smithfield,
North Carolina Factory outlet center totaling 4.94 acres for $735,000 from two
partnerships, of which former executive officers and their affiliates are
general partners. The parcels were used as part of the expansion of the
Smithfield center.
11. TERMINATED ACQUISITION
On August 25, 1995, the Company signed definitive agreements to acquire the
factory outlet centers owned by The Public Employees Retirement System of Ohio
(OPERS) and the management and business operations of the Charter Oak Group
Ltd., a subsidiary of Rothschild Realty, Inc., ("RRI"), subject to certain
conditions. On December 7, 1995, the Company reported that RRI had terminated
the agreements under which the Company would have acquired the properties owned
by OPERS and the management and business operations of the Charter Oak Group,
Ltd.
As a result of the Company's pursuit of the acquisition, the Company incurred
direct costs approximating $4.5 million related to the performance of due
diligence. In addition, in contemplation of a successful consummation of the
acquisition transaction, the Company entered into various severance arrangements
aggregating approximately $2.0 million with three former executive officers and
certain other employees of the Company in 1995. The Company has recorded the
$6.5 million charge as a component of general and administrative expense in the
1995 financial statements.
F-21
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TERMINATED ACQUISITION (CONTINUED)
In 1996, RRI for itself and on behalf of OPERS made a demand for payment with
respect to a $5.0 million promissory note (the "Note") issued by the Company in
connection with the Company's proposed purchase of the factory outlet centers
and other properties owned by OPERS. The Note was payable only upon the
occurrence of certain conditions relating to termination of the definitive
acquisition agreements, some of which conditions the Company asserts were not
satisfied. The Company's management has unsuccessfully pursued negotiations with
RRI to settle this claim. To date, these discussions have focused on payment by
the Company of a portion of the actual costs incurred by RRI, OPERS and certain
affiliates in connection with the transaction. RRI has represented these costs
to be approximately $1.3 million. RRI has filed an arbitration action to settle
the dispute. While no assurance can be given as to the outcome of any such
arbitration, the Company believes it has meritorious defenses to the payment of
the Note.
12. SUBSEQUENT EVENTS
The Company obtained a $150,000,000 credit facility with Nomura Asset Capital
Corporation on February 19, 1997. The credit facility with Nomura is secured by
17 of the Company's centers plus an assignment of excess cash flow from the
properties currently secured under the $95 million rated debt securitization
(see Note 4). The credit facility is for a term of 2 years with a 1 year renewal
option and bears interest at the rate of 1 month LIBOR (London Interbank Offered
Rate) plus 2.25%. The proceeds from the credit facility will be used to fund
acquisitions, expansions of existing centers, repay indebtedness, and fund
operating activities, including the repurchase of the Company's stock. The
indebtedness repaid included $75,000,000 of debt on income properties,
$7,420,000 of unsecured senior notes and $2,016,000 of other unsecured notes
outstanding at December 31, 1996 The new credit facility contains financial
covenants relating to debt to total asset value and net operating income to debt
service coverage.
On March 27, 1997, the Company purchased five community centers located in the
Raleigh, North Carolina area for $32.3 million. Pro forma results of operations
for the years ended December 31, 1996 and 1995 are set forth below which assume
the acquisition of the five properties aggregating 605,668 square feet of retail
and office space had been completed as of January 1, 1995. The pro forma
condensed statements of operations are not necessarily indicative of what actual
results of operations of the Company would have been assuming such transaction
had been completed as of January 1, 1995, nor does it purport to represent
results of operations of future periods (in thousands, except for per share
data).
F-22
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED PRO FORMA YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 52,302 $ 51,953
Property Operating Costs 15,279 14,991
Depreciation 14,610 12,708
General and administrative 6,338 15,379
Interest 16,678 13,406
Property sales and adjustments 4,963 8,155
------------------------------- -------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (5,566) $ (12,686)
=============================== ===============================
NET INCOME (LOSS) PER SHARE $ (0.47) $ (1.07)
=============================== ===============================
</TABLE>
Subsequent to December 31, 1996, J. Dixon Fleming, Jr. resigned as Chairman and
Chief Executive Officer of the Company. Pursuant to his three year employment
agreement entered into on December 15, 1995, he is entitled to a lump sum
distribution of the value of the remaining term of the agreement. The Company
has accrued $767,000 as an additional general and administrative expense for
1996 representing the remaining value of his contract.
- - - -
13. ADJUSTMENT TO CARRYING VALUE OF ASSETS
As part of the Company's ongoing strategic evaluation of its portfolio of
assets, the Directors of the Company authorized management in 1995 to pursue the
sale of certain properties that currently are not fully consistent with or
essential to the Company's long-term strategies. Under generally accepted
accounting principles ("GAAP"), assets held for the long-term production of
income are recorded at their historical cost, adjusted for depreciation.
However, when a decision is made to dispose of certain assets, the carrying
value of those assets is computed using fair value less costs to sell.
Accordingly, in the fourth quarter of 1996 and 1995, the Company recorded a $5.0
million and $8.5 million adjustment, respectively, to the carrying value of the
assets held for sale as required under GAAP. This non-cash adjustment was
charged to operations and represents the difference between the net realizable
value and net book value of that asset. Under GAAP, when a decision is made to
dispose of several discrete assets, the anticipated loss on disposal of one
asset cannot be offset by the anticipated gains on the others. Any gains are
deferred until realized, while estimated losses are recorded currently as an
adjustment to the carrying value.
F-23
<PAGE>
FAC REALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. ADJUSTMENT TO CARRYING VALUE OF ASSETS (CONTINUED)
After recording the $5.0 million and $8.5 million valuation adjustment, the net
carrying value of assets currently being marketed for sale at December 31, 1996
and 1995 are $11.4 million and $16.6 million, respectively. There is also $15.8
million of debt associated with these assets held for sale. For the year ended
December 31, 1996, these properties contributed approximately $2.1 million of
revenue and incurred a loss of $1.0 million after deducting related interest
expense on the debt associated with the properties. For the year ended December
31, 1995 these properties contributed approximately $3.0 million of revenue and
net loss of $0.5 million after deducting related interest expense.
The Company has begun the process of marketing these properties and no sales
agreements have been completed to date. Management plans to evaluate all
properties on a regular basis in accordance with its strategy for growth and in
the future may identify other properties for disposition or may decide to defer
the pending disposition of those assets now held for sale.
14. QUARTERLY INFORMATION
Selected quarterly financial data for the four quarters in 1996 and 1995 are as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Total revenue $ 11,575 $ 12,038 $ 12,346 $ 11,174
====================================================================
Net income (loss) applicable
to common shareholders $ 412 $ (94) $ (510) $ (6,260)
====================================================================
Earnings per common share:
Income (loss) before extraordinary
items $ 0.03 $ (0.01) $ (0.04) $ (0.52)
Extraordinary item - - - (0.01)
--------------------------------------------------------------------
Net income (loss) $ 0.03 $ (0.01) $ (0.04) $ (0.53)
====================================================================
1995:
Total revenue $ 11,642 $ 11,995 $ 12,159 $ 10,988
====================================================================
Net income (loss) applicable
to common shareholders $ 2,665 $ 2,288 $ 2,464 $ (20,518)
====================================================================
Earnings (loss) per common share $ 0.23 $ 0.19 $ 0.21 $ (1.74)
====================================================================
</TABLE>
F-24
<PAGE>
FAC Realty, Inc.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
Cost Capitalized Gross Amount at Which Carried At
Initial Cost to Company Subsequent to Close of Period
Acquisition
- - - ------------------------------------------------------------------------------------------------------------------------------------
Buildings Adjustment Buildings
and Carrying to Net and Accumulated
Description Encumbrances Land Improvements Improvements Costs Realizable Land Improvements Total Depreciation
Value
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boaz, AL 2,381,533 34,998 42,004 805,639 271,672 39,230 1,115,083 1,154,313 146,964
- - - ------------------------------------------------------------------------------------------------------------------------------------
Casa 5,834,532 2,220,397 10,557,446 301,293 67,848 (7,400,000) 858,207 4,888,777 5,746,984 1,238,250
Grande,
AZ
- - - ------------------------------------------------------------------------------------------------------------------------------------
Mesa, AZ 3,071,744 1,399,858 7,060,705 3,236,720 169,317 1,441,663 10,424,937 11,866,600 1,090,653
- - - ------------------------------------------------------------------------------------------------------------------------------------
Tucson, 1,133,460 772,231 3,572,837 20,215 58,956 792,446 3,631,793 4,424,239 426,948
AZ
- - - ------------------------------------------------------------------------------------------------------------------------------------
Lathrop, 5,788,398 2,842,636 7,048,844 290,935 (4,900,000) 1,409,731 3,872,684 5,282,415 627,234
CA
- - - ------------------------------------------------------------------------------------------------------------------------------------
Vacaville, 36,236,479 30,008,142 49,464,506 876,071 30,008,142 50,340,577 80,348,719 5,272,740
CA
- - - ------------------------------------------------------------------------------------------------------------------------------------
Graceville, 1,347,037 556,765 2,544,654 200,031 556,765 2,744,685 3,301,450 304,455
FL
- - - ------------------------------------------------------------------------------------------------------------------------------------
Lake 2,392,174 1,128,056 4,801,250 39,827 1,128,056 4,841,077 5,969,133 1,901,085
Park, GA
- - - ------------------------------------------------------------------------------------------------------------------------------------
W. 966,228 471,041 2,130,358 8,945 471,041 2,139,303 2,610,344 240,340
Frankfort,
IL
- - - ------------------------------------------------------------------------------------------------------------------------------------
Story 1,970,865 601,802 2,737,481 1,921,580 37,394 621,443 4,676,814 5,298,257 359,685
City, IA
- - - ------------------------------------------------------------------------------------------------------------------------------------
Carrollton, 1,049,844 340,190 1,555,641 3,854 340,190 1,559,495 1,899,685 175,711
KY
- - - ------------------------------------------------------------------------------------------------------------------------------------
Georgetown, 5,712,654 937,490 6,510,116 40,761 937,490 6,550,877 7,488,367 1,287,556
KY
- - - ------------------------------------------------------------------------------------------------------------------------------------
Hanson, 845,450 308,876 1,408,641 3,300 308,876 1,411,941 1,720,817 158,640
KY
- - - ------------------------------------------------------------------------------------------------------------------------------------
Arcadia, 1,282,111 404,864 1,856,173 1,455,341 95,374 408,356 3,403,396 3,811,752 406,608
LA
- - - ------------------------------------------------------------------------------------------------------------------------------------
Iowa, LA 3,493,287 627,061 2,860,591 2,284,703 23,898 627,061 5,169,192 5,796,253 574,875
- - - ------------------------------------------------------------------------------------------------------------------------------------
Kittery, 2,165,526 355,080 2,485,826 98,547 355,080 2,584,373 2,939,453 224,002
ME
- - - ------------------------------------------------------------------------------------------------------------------------------------
Branson, 18,494,716 5,702,365 24,600,479 6,005,848 24,296,996 30,302,844 526,176
MO
- - - ------------------------------------------------------------------------------------------------------------------------------------
Lebanon, 1,580,501 403,915 1,889,710 13,768 403,915 1,903,478 2,307,393 219,182
MO
- - - ------------------------------------------------------------------------------------------------------------------------------------
Tupelo, 971,151 430,765 1,956,158 1,078,612 439,220 3,026,315 3,465,535 240,878
MS
- - - ------------------------------------------------------------------------------------------------------------------------------------
Nebraska 1,970,865 400,684 1,813,050 1,673,098 53,628 416,909 3,523,551 3,940,460 279,703
City, NE
- - - ------------------------------------------------------------------------------------------------------------------------------------
Las 9,968,875 7,158,719 18,761,605 159,671 7,158,719 18,921,276 26,079,995 1,997,503
Vegas, NV
- - - ------------------------------------------------------------------------------------------------------------------------------------
Conway, 739,432 324,652 2,277,122 107,941 (1,200,000) 172,655 1,337,060 1,509,715 188,591
NH
- - - ------------------------------------------------------------------------------------------------------------------------------------
Lake 1,865,421 975,466 4,441,445 105,683 975,466 4,547,128 5,522,594 349,925
George,
NY
- - - ------------------------------------------------------------------------------------------------------------------------------------
Smithfield, 14,472,056 77,667 9,064,651 8,432,590 98,359 1,329,981 16,343,286 17,673,267 3,701,571
NC
- - - ------------------------------------------------------------------------------------------------------------------------------------
Crossville, 2,703,581 519,239 2,415,619 2,253,670 13,900 530,628 4,671,800 5,202,428 555,934
TN
- - - ------------------------------------------------------------------------------------------------------------------------------------
Nashville, 17,221,270 5,947,579 10,078,170 5,936,074 37,117 6,487,873 15,511,067 21,998,940 1,690,349
TN
- - - ------------------------------------------------------------------------------------------------------------------------------------
Tri-Cities, 3,856,041 353,983 5,648,812 748,050 11,594 1,102,033 5,660,406 6,762,439 1,369,178
TN
- - - ------------------------------------------------------------------------------------------------------------------------------------
Union 1,007,218 296,580 1,343,859 88,011 296,580 1,431,870 1,728,450 161,293
City, TN
- - - ------------------------------------------------------------------------------------------------------------------------------------
Corsicana, 428,449 336,335 1,533,169 12,025 336,335 1,545,194 1,881,529 173,007
TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
Hempstead, 499,857 375,487 1,711,282 375,487 1,711,282 2,086,769 192,367
TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
LaMarque, 7,757,698 4,066,414 11,864,248 26,711 4,066,414 11,890,959 15,957,373 1,167,303
TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
Livingston, 568,885 354,381 1,615,979 12,331 354,381 1,628,310 1,982,691 182,712
TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
Mineral 504,618 315,944 1,441,675 2,819 315,944 1,444,494 1,760,438 166,514
Wells, TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
Sulphur 761,687 512,898 2,326,326 34,233 512,898 2,360,559 2,873,457 269,463
Springs,
TX
- - - ------------------------------------------------------------------------------------------------------------------------------------
Draper, 3,440,401 718,188 4,294,019 3,879,518 305,068 758,719 8,438,074 9,196,793 881,355
UT
- - - ------------------------------------------------------------------------------------------------------------------------------------
North 9,736,608 8,428,229 12,052,296 13,411,035 107,288 8,469,661 25,529,187 33,998,848 2,449,873
Bend, WA
- - - ------------------------------------------------------------------------------------------------------------------------------------
174,220,652 80,708,977 227,766,747 47,438,138 3,476,877 (13,500,000) 80,813,443 265,077,296 345,890,739 31,198,623
=========================================================================================================================
</TABLE>
- - - ------------------------------------------------
Life on
Which
Depreciation
in Latest
Income
Date of Date Statements if
Construction Acquired Computed (1)
- - - -----------------------------------------------
Boaz, AL 1993 31.5 / 5
- - - -----------------------------------------------
Casa 1994 31.5 / 5
Grande,
AZ
- - - -----------------------------------------------
Mesa, AZ 1993 31.5 / 5
- - - -----------------------------------------------
Tucson, 1993 31.5 / 5
AZ
- - - -----------------------------------------------
Lathrop, 1994 31.5 / 5
CA
- - - -----------------------------------------------
Vacaville, 1993 31.5 / 5
CA
- - - -----------------------------------------------
Graceville, 1993 31.5 / 5
FL
- - - -----------------------------------------------
Lake 1993 31.5 / 5
Park, GA
- - - -----------------------------------------------
W. 1993 31.5 / 5
Frankfort,
IL
- - - -----------------------------------------------
Story 1993 31.5 / 5
City, IA
- - - -----------------------------------------------
Carrollton, 1993 31.5 / 5
KY
- - - -----------------------------------------------
Georgetown, 1993 31.5 / 5
KY
- - - -----------------------------------------------
Hanson, 1993 31.5 / 5
KY
- - - -----------------------------------------------
Arcadia, 1993 31.5 / 5
LA
- - - -----------------------------------------------
Iowa, LA 1993 31.5 / 5
- - - -----------------------------------------------
Kittery, 1993 31.5 / 5
ME
- - - -----------------------------------------------
Branson, 1995 31.5 / 5
MO
- - - -----------------------------------------------
Lebanon, 1993 31.5 / 5
MO
- - - -----------------------------------------------
Tupelo, 1993 31.5 / 5
MS
- - - -----------------------------------------------
Nebraska 1993 31.5 / 5
City, NE
- - - -----------------------------------------------
Las 1993 31.5 / 5
Vegas, NV
- - - -----------------------------------------------
Conway, 1993 31.5 / 5
NH
- - - -----------------------------------------------
Lake 1993 31.5 / 5
George,
NY
- - - -----------------------------------------------
Smithfield, 1993 31.5 / 5
NC
- - - -----------------------------------------------
Crossville, 1993 31.5 / 5
TN
- - - -----------------------------------------------
Nashville, 1993 31.5 / 5
TN
- - - -----------------------------------------------
Tri-Cities, 1993 31.5 / 5
TN
- - - -----------------------------------------------
Union 1993 31.5 / 5
City, TN
- - - -----------------------------------------------
Corsicana, 1993 31.5 / 5
TX
- - - -----------------------------------------------
Hempstead, 1993 31.5 / 5
TX
- - - -----------------------------------------------
LaMarque, 1994 31.5 / 5
TX
- - - -----------------------------------------------
Livingston, 1993 31.5 / 5
TX
- - - -----------------------------------------------
Mineral 1993 31.5 / 5
Wells, TX
- - - -----------------------------------------------
Sulphur 1993 31.5 / 5
Springs,
TX
- - - -----------------------------------------------
Draper, 1993 31.5 / 5
UT
- - - -----------------------------------------------
North 1993 31.5 / 5
Bend, WA
- - - -----------------------------------------------
(1) Buildings and improvements are depreciated based on a 15 - 31.5 year life.
Tenant improvements are depreciated over the estimated terms of the leases,
which range from 5 - 10 years.
F-25
<PAGE>
FAC Realty, Inc.
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1996
The changes in total real estate for years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $ 340,166,756 $ 308,586,835 $ 232,842,072
Developed or acquired properties 10,339,504 24,819,456 48,570,023
Improvements 547,694 15,474,668 27,174,740
Adjustment to net realizable value (5,000,000) (8,500,000) -
Sales (163,215) (214,203) -
_______________________________________________________________
Balance, end of period $ 345,890,739 $ 340,166,756 $ 308,586,835
===============================================================
</TABLE>
The changes in accumulated depreciation for years ended December 31, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $ 20,386,741 $ 12,561,252 $ 5,648,428
Developed or acquired properties 8,865,743 6,857,428 6,831,754
Improvements 1,946,139 968,061 81,070
Sales - - -
---------------------------------------------------------------
Balance, end of period $ 31,198,623 $ 20,386,741 $ 12,561,252
===============================================================
</TABLE>
F-26
<PAGE>
Amended and Restated
Effective January 1, 1997
AMENDED AND RESTATED BYLAWS
OF
FAC REALTY, INC.
ARTICLE I
Stockholders
Section 1. Meetings of Stockholders.
(a) Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and the receiving of reports shall be
held at such date and time as shall be determined by the Board of Directors.
Upon due notice, there may also be considered and acted upon at an annual
meeting any matter which could properly be considered and acted upon at a
special meeting.
(b) Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose may be held on any day when called at any time by
the holders of shares entitling them to exercise twenty percent (20%) of the
voting power of the Corporation entitled to vote at such a meeting, the Board of
Directors, the Chairman of the Board, the President or by a committee of the
Board of Directors which has been duly designated by the Board of Directors and
whose powers and authority, as provided in a resolution of the Board of
Directors, include the power to call such meetings, but special meetings may not
be called by any other person or persons.
(c) Place of Meetings. Any meeting of the stockholders may be held at
such place within or without the State of Delaware as may be determined by the
Board of Directors and stated in the notice of said meeting, provided that if
the Board of Directors does not designate a location, such meeting shall be held
at the executive office of the Corporation in Cary, North Carolina.
(d) Notice of Meeting and Waiver of Notice.
(1) Notice. Written notice of the place, date and hour of
every meeting of the stockholders, whether annual or special, shall be
given to each stockholder of record entitled to vote at the meeting not
less than 10 nor more than 60 days before the date of the meeting.
Every notice of a special meeting shall state the purpose or purposes
1
<PAGE>
thereof. Such notice shall be given in writing to each stockholder
entitled thereto by mail, addressed to the stockholder at his address
as it appears on the records of the Corporation. Notice shall be deemed
to have been given at the time when it was deposited in the mail.
(2) Record Holder of Shares. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends and to vote as such owner, and
to hold liable for calls and assessments a person registered on its
books as the owner of shares, and shall not be bound to recognize any
equitable or other claims to or interests in such share or shares on
the part of any other person, whether or not the Corporation shall have
express or other notice thereof, except as otherwise provided by the
laws of Delaware.
(3) Waiver. Whenever any written notice is required to be
given under the provisions of the Certificate of Incorporation, these
Bylaws, or by statute, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any
meeting of the stockholders need be specified in any written waiver of
notice of such meeting. Attendance of a person, either in person or by
proxy, at any meeting, shall constitute a waiver of notice of such
meeting, except where a person attends a meeting for the express
purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
(e) Quorum, Manner of Acting and Adjournment. The holders of record of
shares entitled to cast a majority of the votes entitled to vote at any meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business thereat, except as otherwise provided by statute, by the
Certificate of Incorporation, or by these Bylaws. Whether or not a quorum is
present, the holders of shares entitled to cast a majority of the votes present
in person or represented by proxy at the meeting shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. When a quorum is present at any meeting, the vote of a
majority of the votes entitled to be cast by the holders of all issued and
outstanding shares present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which, by
express provision of the applicable statute or the Certificate of Incorporation
or these Bylaws, a different vote is required, in which case such express
provision shall govern. Except upon those questions governed by the aforesaid
express provisions, the stockholders present in person or by proxy at a meeting
at which a quorum is at any time present or represented shall have the power to
continue to do business until adjournment, notwithstanding a subsequent
reduction in the number of shares present or represented to leave less than
would constitute a quorum.
2
<PAGE>
(f) Organization of Meetings.
(1) Presiding Officer. Any "executive officer" of the
Corporation, as that term is defined in section 3(f) of Article IV of
these Bylaws, may call meetings of the stockholders to order and act as
chairman thereof.
(2) Minutes. The Secretary of the Corporation, or, in his
absence or by his designation, an Assistant Secretary, or, in the
absence of both, a person appointed by the chairman of the meeting,
which person need not be an officer of the Corporation, shall act as
secretary of the meeting and shall make and keep a record of the
proceedings thereat.
(3) Stockholders' List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting. The list shall be
arranged in alphabetical order showing the address of each stockholder
and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any
purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
(4) Voting Procedures and Inspectors of Elections.
(A) The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Board of
Directors may designate one or more persons as alternate
inspectors to replace any inspector who fails to act at such
meeting. If no inspector or alternate is able to act at a
meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties
of inspector with strict impartiality and according to the
best of his ability.
(B) The inspectors shall (i) determine those
stockholders entitled to vote at the meeting, (ii) ascertain
the number of shares outstanding and the voting power of each,
(iii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iv) count all votes and
ballots, (v) determine and retain for a reasonable period a
record of the disposition of any challenges made to any
determination by the inspectors, and (vi) certify their
determination of the number of shares represented at the
meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the
inspectors.
3
<PAGE>
(C) The date and time of the opening and the closing
of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced at the meeting. No
ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery of the State
of Delaware upon application by a stockholder shall determine
otherwise.
(D) In determining the validity and counting of
proxies and ballots, the inspectors shall be limited to an
examination of the proxies, any envelopes submitted with those
proxies, any information provided in accordance with Section
212 (c) (2) of the General Corporation Law of the State of
Delaware, ballots and the regular books and records of the
Corporation, except that the inspector may consider other
reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks,
brokers, their nominees or similar persons which represent
more votes than the holder of proxy is authorized by the
record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the
inspectors at the time they make their certification pursuant
to clause (B) (vi) of this subsection 1(f) (4) shall specify
the precise information considered by them, including the
person or persons from whom they obtained the information,
when the information was obtained, the means by which the
information was obtained and the basis for the inspectors'
belief that such information is accurate and reliable.
(E) The provisions of subsections 1(f) (4) (A)
through (D) of this Article I shall not apply at any time that
the Corporation does not have a class of voting stock that is
(i) listed on a national securities exchange, (ii) authorized
for quotation on an interdealer quotation system, or (iii)
held of record by more than 2,000 stockholders.
(5) Order of Business. Unless otherwise determined by the
Board of Directors prior to the meeting, the chairman of any meeting of
stockholders shall determine the order of business and shall have the
authority in his discretion to regulate the conduct of any such
meeting, including, without limitation, by imposing restrictions on the
persons (other than stockholders of the Corporation or their duly
appointed proxies) who may attend any such meeting of stockholders,
whether any stockholder or his proxy may be excluded from any
stockholders' meeting based upon any determination by the chairman of
the meeting, in his sole discretion, that any such person has unduly
disrupted or is likely to disrupt the proceedings thereat, and the
circumstances in which any person may make a statement or ask questions
at any meeting of stockholders.
(g) Voting. Except as otherwise provided by statute or the Certificate
of Incorporation, every stockholder entitled to vote shall be entitled to cast
the vote per share to which such share is entitled, in person or by proxy, on
each proposal submitted to the meeting for each share held of record by him on
the record date for the determination of the stockholders
4
<PAGE>
entitled to vote at the meeting. At any meeting at which a quorum is present,
all questions and business which may come before the meeting shall be determined
by a majority of votes cast, except when a greater proportion is required by
law, the Certificate of Incorporation, or these Bylaws.
(h) Proxies. A person who is entitled to attend a meeting of
stockholders, to vote thereat, and execute consents, waivers and releases, may
be represented at such meeting or vote thereat, and execute consents, waivers
and releases and exercise any of his rights by proxy or proxies appointed by a
legally sufficient writing signed by such person, or by his duly authorized
attorney, as provided by the laws of the State of Delaware.
Section 2. Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 or less than 10 days before the date of such meeting, or
more than 60 days prior to any other action
If no record date is fixed:
(1) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders or entitled to
receive payment of any dividend or other distribution or allotment of
any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other
lawful action shall be at the close of business on the day next
preceding the day on which notice is given.
(2) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE II
Directors
Section 1. General Powers.
The business and affairs, power and authority of the
Corporation shall be exercised, conducted and controlled by the Board of
Directors, except where the law, the Certificate of Incorporation, or these
Bylaws require any power or action to be authorized or taken by the
stockholders. In addition to the powers and authorities expressly conferred by
these
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Bylaws, the Board of Directors may do all such lawful things and acts as are not
by statute, the Certificate of Incorporation or these Bylaws directed or
required to be done by the stockholders.
Section 2. Number, Nomination and Election of Directors.
(a) Number. The Board of Directors from time to time shall consist of
not less than three nor more than fifteen members. The initial Board of
Directors shall consist of seven members. The Board of Directors may increase or
decrease the number of the members of the Board of Directors within the
limitations set forth above. No reduction in the number of directors shall of
itself have the effect of shortening the term of any incumbent director.
(b) Election. The directors shall be elected at the annual meeting of
stockholders, or if not so elected, at a special meeting of stockholders called
for that purpose. At any meeting of stockholders at which directors are to be
elected (an "Election Meeting") , only persons nominated as candidates shall be
eligible for election, and the candidates receiving the greatest number of votes
entitled to be cast shall be elected.
(c) Nominations.
(1) Qualification. Directors of the Corporation need not be
stockholders or residents of Delaware. No person shall be appointed or
elected a director of the Corporation unless:
(A) such person is elected to fill a vacancy in the
Board of Directors pursuant to section 3(d) of this Article
II; or
(B) such person is nominated for election as a
director of the Corporation in accordance with this section.
(2) Eligibility to Make Nominations. Nominations of candidates
for election as directors at any Election Meeting may be made by the
Board of Directors or a committee thereof.
(3) Procedure for Nominations. Nominations shall be made not
fewer than 30 days prior to the date of an Election Meeting. At the
request of the Secretary or, in his absence, an Assistant Secretary,
each proposed nominee shall provide the Corporation with such
information concerning himself as is required under the rules of the
Securities and Exchange Commission (the "Commission") to be included in
the Corporation's proxy statement soliciting proxies for the election
of such nominee as a director.
(4) Substitution of Nominees. In the event that a person is
validly designated as a nominee in accordance with these Bylaws and
shall thereafter become unable or unwilling to stand for election to
the Board of Directors, the Board of Directors or a committee thereof
may designate a substitute nominee upon delivery, not fewer than five
days prier to the date of an Election Meeting, of a written notice to
the Secretary setting
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forth such information regarding such substitute nominee as would have
been required to be delivered to the Secretary pursuant to these Bylaws
had such substitute nominee been initially proposed as a nominee. Such
notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
(5) Compliance with Procedures. If the chairman of the
Election Meeting determines that a nomination of any candidate for
election as a director was not made in accordance with the applicable
provisions of these Bylaws he shall so declare to the meeting and such
nomination shall be void.
(d) Chairman of the Board of Directors. The Chairman, if any is
elected, shall, subject to the to the provisions of these Bylaws, preside at all
meetings of the stockholders, of the Board of Directors and of the Executive
Committee.
Section 3. Term of Office of Directors.
(a) Term. Each director shall hold office until the annual meeting next
succeeding his election and until his successor is elected and qualified, or
until his earlier resignation, removal from office or death.
(b) Removal. Any director or the entire Board of Directors may be
removed with or without cause, by a vote of a majority of the votes entitled to
be cast at any meeting of stockholders properly called for that purpose.
(c) Resignation. Any director of the Corporation may resign at any time
by giving written notice to the Chairman or to the President or the Secretary of
the Corporation. A resignation from the Board of Directors shall be deemed to
take effect immediately or at such other time as the director may specify.
(d) Vacancy. If there shall be any vacancy in the Board of Directors
for any reason, including, but not limited to, death, resignation or as provided
by law, the Certificate of Incorporation or these Bylaws (including any increase
in the authorized number of directors), the remaining directors Shall constitute
the Board of Directors until such vacancy is filled. The remaining directors may
fill any vacancy in the Board of Directors for the unexpired term.
Section 4. Meetings of Directors.
(a) Meetings. Meetings of the Board of Directors may be held at any
time upon call by the Chairman or by the President or by any two directors.
Unless otherwise indicated in the notice thereof, any business may be transacted
at any such meeting.
(b) Place of Meeting. Any meeting of directors may be held at such
place within or without the State of Delaware as may be designated in the notice
of said meeting.
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(c) Notice of Meeting and Waiver of Notice. No notice of regular
meetings of the Board of Directors need be given. Special meetings of the Board
of Directors may be called by the Chairman, or by the President on notice to
each director, given either in person or by mail, telephone, telegram, telex or
similar medium of communication; special meetings shall be called on like notice
by the Chairman, the President or the Secretary, on the written request of two
directors. At least 24 hours notice of special meetings shall be given to each
director.
Section 5. Quorum and Voting.
Except as otherwise provided in the Certificate of Incorporation, at
any meeting of directors, not less than one-half (1/2) of the directors then in
office (or, in the event that the directors then in office are an uneven number,
the nearest full number of directors less than one-half (1/2) of such number) is
necessary to constitute a quorum for such meeting, except that any meeting duly
called, whether a quorum is present or otherwise, may, by vote of a majority of
the directors present, be adjourned from time to time. At any meeting at which a
quorum is present, all acts, questions and business which may come before the
meeting shall be determined by a majority of votes cast by the directors present
at such meeting, unless the vote of a greater number is required by statute, the
Certificate of Incorporation or these Bylaws.
Section 6. Action of Board of Directors Without a Meeting.
Any action which may be authorized or taken at a meeting of the Board
of Directors may be authorized or taken without a meeting if approved and
authorized by a writing or writings, signed by all of the directors, which are
filed with the minutes of proceedings of the Board of Directors.
Section 7. Compensation.
The Board of Directors is authorized to fix a reasonable salary for
directors or a reasonable fee for attendance at any meeting of the Board of
Directors, the Executive or Audit Committee, or other committees appointed by
the Board of Directors, or any combination of salary and attendance fee. In
addition, directors may be reimbursed for any expenses incurred by them in
traveling to and from such meetings.
Section 8. Committees.
(a) Appointment. The Board of Directors, by resolution passed by a
majority of the whole Board of Directors, may, from time to time, appoint one or
more of its members to act as a committee of the Board of Directors. A committee
shall have and exercise the powers of the Board of Directors in the direction of
the management of the business and affairs of the Corporation to the extent
provided in the resolution appointing such committee. Each committee shall have
such name as may be determined by the Board of Directors. A committee shall keep
minutes of its proceedings and shall report its proceedings to the Board of
Directors when
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required or when requested by a director to do so. Each such committee and each
member thereof shall serve at the pleasure of the Board of Directors. Vacancies
occurring in any such committee may be filled by the Board of Directors.
(b) Executive Committee. In particular, the Board of Directors may
create from its membership an Executive Committee, the members of which shall
hold office during the pleasure of the Board of Directors, and may be removed at
any time, with or without cause, by action thereof. During the intervals between
meetings of the Board of Directors, the Executive Committee shall possess and
may exercise all of the powers and authority of the Board of Directors in the
management and control of the business and affairs of the Corporation to the
extent permitted by law. All action taken by the Executive Committee shall be
reported to the Board of Directors. Each of the Chairman and the President shall
be a member of the Executive Committee, unless such person is not a director or
shall decline in writing.
(c) Committee Action. Unless otherwise provided by the Board of
Directors, a majority of the members of any committee appointed by the Board of
Directors pursuant to this section shall constitute a quorum at any meeting
thereof, and the act of a majority of the members present at a meeting at which
a quorum is present shall be the act of such committee. Action may also be taken
by any such committee without a meeting by a writing or writings, signed by all
of its members, which is filed with the minutes of proceedings of the committee.
Any such committee shall appoint one of its own number as chairman (provided
that the Chairman or the President, if the Chairman declines or is not a member
of the Executive Committee, shall be the chairman of any Executive Committee),
who shall preside at all meetings and may appoint a Secretary (who need not be a
member of the committee) who shall hold office during the pleasure of such
committee. Meetings of any such committee may be held without notice of the
time, place or purposes thereof and may be held at such times and places within
or without the State of Delaware, as the committee may from time to time
determine, at the call of the chairman of the committee or any two members
thereof. Any such committee may prescribe such other rules as it shall determine
for calling and holding meetings and its method of procedure, subject to any
rules prescribed by the Board of Directors.
Section 9. Conference Telephone Meetings.
One or more directors may participate in a meeting of the Board, or of
a committee of the Board of Directors, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
ARTICLE III
Transactions With Certain Affiliates
Following the sale of shares of Common Stock, $0.01 par value
per share, of the Corporation, pursuant to the Corporation's first effective
registration statement for such Common
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Stock filed under the Securities Act of 1933, as amended (the "Securities Act"),
the Corporation shall not, nor shall it permit its subsidiaries to, (i) lend
money to, or borrow money from, any employee of the Corporation or any
"affiliate" (as defined in Rule 405 under the Securities Act) of any entity
which now or hereafter is part of the North-South Group, including, without
limitation, North-South Management Corporation, a North Carolina corporation,
Carolina & Associates-I (Smithfield) , an Ohio general partnership, Carolina &
Associates-II (Valdosta) , an Ohio general partnership, Carolina &
Associates-III (Georgetown) , an Ohio general partnership, Tri-Cities Partners,
a North Carolina general partnership, Music Valley Partners Limited Partnership,
a North Carolina limited partnership, and Carolina Pottery Retail Group, Inc., a
North Carolina corporation, or (ii) enter into any transactions or agreement
with any such affiliate, unless such transaction or agreement is approved by a
majority of the Directors of the Corporation who are "Independent Directors" (as
defined in the Corporation's Certificate of Incorporation)
ARTICLE IV
Officers
Section 1. General Provisions.
The Board of Directors at such time as it determines may elect such
executive officers, as defined in section 3(f) of this Article IV, as the Board
of Directors deems necessary. The Board of Directors may assign such additional
titles to one or more of the officers as they shall deem appropriate. Any two or
more executive offices may be held by the same person. Other officers may be
appointed in the manner provided for in these Bylaws. The election or
appointment of an officer for a given term, or a general provision in the
Certificate of Incorporation or in these Bylaws with respect to term of office,
shall not be deemed to create any contract rights.
Section 2. Term of Office, Removal, and Vacancies.
(a) Term. Each officer of the Corporation shall hold office during the
pleasure of the Board of Directors and until his successor is elected and
qualified, unless he sooner dies or resigns or is removed.
(b) Removal. Subject to the terms of any agreement relating to the
employment or service of any officer of the Corporation, the Board of Directors
by a vote of two-thirds of the members present at a meeting at which a quorum is
present may remove any executive officer at any time, with or without cause, and
the Board of Directors by a vote of a majority of its members present at a
meeting at which a quorum is present may remove any other officer at any time,
with or without cause.
(c) Vacancies. Any vacancy in any executive office may be filled by the
Board of Directors.
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Section 3. Powers and Duties.
(a) In General. Subject to the specific provisions of these Bylaws, all
officers, as between themselves and the Corporation, shall respectively have
such authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the Corporation, or
for any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate from time to time the powers or duties of such officer,
or any of them, to any other officer or to any Director.
(b) President. The President shall, in the absence of the Chairman or
upon the determination of the Board of Directors, preside at all meetings of the
stockholders. The President shall be the chief executive officer of the
Corporation and shall have general supervision over its property, business and
affairs, and shall perform all the duties usually incident to such office,
subject to the direction of the Board of Directors. He may execute all
authorized deeds, mortgages, bonds, contracts and other obligations in the name
of the Corporation and, subject to the provisions of these Bylaws, shall have
such other powers and duties as may be prescribed by the Board of Directors.
(c) Vice Presidents. The Vice Presidents shall have such powers, duties
and titles as may be prescribed by the Board of Directors or as may be delegated
by the President.
(d) Secretary. The Secretary shall attend and shall keep the minutes of
all meetings of the stockholders and the Board of Directors (and perform similar
duties for the committees of the Board of Directors when required) . He shall
keep such books as may be required by the Board of Directors, shall have charge
of the seal, if any, of the Corporation and shall be permitted, subject to the
provisions of these Bylaws, to give notices of stockholders' and directors'
meetings required by law or by these Bylaws, or otherwise, and have such other
powers and duties as may be prescribed by the Board of Directors.
(e) Treasurer. The Treasurer shall receive and have charge of all
money, bills, notes, bonds, stock in other corporations and similar property
belonging to the Corporation, and shall do with the same as shall be ordered by
the Board of Directors. He shall disburse the funds and pledge the credit of the
Corporation as may be directed by the Board of Directors. He shall keep accurate
financial accounts and hold the same open for inspection and examination by the
directors. On the expiration of his term of office, he shall turn over to his
successors, or the Board of Directors, all property, books, papers and money of
the Corporation in his hands, and shall possess such other powers and duties as
may be prescribed by the Board of Directors.
(f) Executive Officers. The officers referred to in subparagraphs (b),
(c), (d) and (e) of this section, and such other officers as the Board of
Directors may by resolution identify as such shall be executive officers of the
Corporation and may be referred to as such.
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(g) Other Officers. The Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, if any, and any other subordinate officers
shall be appointed and removed by the President or the Board of Directors at
whose pleasure each shall serve and shall have such powers and duties as they
may prescribe.
Section 4. Compensation.
The Board of Directors is authorized to determine or to provide the
method of determining the compensation of all officers.
Section 5. Bonds.
If required by the Board of Directors, any and every officer or agent
shall give the Corporation a bond in a sum and with one or more sureties
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
ARTICLE V
Securities Held by Corporation
Section 1. Transfer of Securities owned by the Corporation.
All endorsements, assignments, transfers, share powers or other
instruments of transfer of securities standing in the name of the Corporation
shall be executed for and in the name of the Corporation by the President or by
any Vice President, or by the Secretary or Treasurer or by any additional person
or Persons as may be thereunto authorized by the Board of Directors.
Section 2. Voting Securities Held by the Corporation.
The President, any Vice President, or the Secretary or Treasurer, in
person or by another person thereunto authorized by the Board of Directors, in
person or by proxy or proxies appointed by him, shall have full power and
authority on behalf of the Corporation to vote, act and execute consents,
waivers and releases with respect to any securities issued by other corporations
which the Corporation may own.
ARTICLE VI
Share Certificates
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Section 1. Transfer and Registration of Certificates.
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Certificate of Incorporation or
these Bylaws, as it deems expedient concerning the issuance, transfer and
registration of certificates for shares and the shares represented thereby.
Section 2. Certificates for Shares.
Each holder of shares is entitled to one or more certificates for
shares of the Corporation in such form not inconsistent with law and the
Certificate of Incorporation as shall be approved by the Board of Directors.
Each such certificate shall be signed by the President and any Vice President,
and by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant
Treasurer of the Corporation, which certificate shall certify the number and
class of shares held by such stockholder in the Corporation, but no certificates
for shares shall be executed or delivered until such shares are fully paid. Any
or all of the signatures upon such certificate may be a facsimile, engraved or
printed. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer, transfer agent or registrar, before the certificate
is issued, it may be issued with the same effect as if he were such officer,
transfer agent or registrar at the date of its issue.
Section 3. Transfer Agents Registrars and Dividend Disbursing Agents.
The Board of Directors may from time to time by resolution appoint one
or more incorporated transfer agents and registrars (which may or may not be the
same corporation) for the shares of the Corporation, and the Board of Directors
from time to time by resolutions may appoint a dividend disbursing agent to
disburse any and all dividends authorized by the Board of Directors payable upon
the shares of the Corporation.
Section 4. Transfers.
Subject to restrictions on the transfer of stock, upon surrender to the
Corporation or the duly appointed transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. No transfer shall
be made which would be inconsistent with the provisions of Article 8, Title 6 of
the Delaware Uniform Commercial Code- Investment Securities.
Section 5. Lost, Stolen or Destroyed Certificates.
The Corporation may issue a new certificate for shares in place of any
certificate or certificates heretofore issued by the Corporation alleged to have
been lost, stolen or destroyed upon the making of an affidavit of that fact by
the person claiming the certificate of stock to have been lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
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the Board of Directors or any duly authorized executive officer may, in its or
his discretion, and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representatives, to attest the same in such manner as it shall require and
to indemnify the Corporation, its directors, officers, employees, agents and
representatives, and in connection therewith to give the Corporation a bond in
such sum and containing such terms as the Board of Directors or such executive
officer may direct, against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to have been lost,
stolen or destroyed or the issuance of the new certificate.
Section 6. Protection of the Corporation.
The Corporation may treat a fiduciary as having capacity and authority
to exercise all rights of ownership in respect of shares of record in the name
of the decedent holder, person, firm or corporation in conservation,
receivership or bankruptcy, minor, incompetent person, or person under
disability, as the case may be, for whom he is acting, or a fiduciary acting as
such, and the Corporation, its transfer agent and registrar, upon presentation
of evidence of appointment of such fiduciary shall be under no duty to inquire
as to the powers of such fiduciary and shall not be liable to any firm, person
or corporation for loss caused by any act done or omitted to be done by the
Corporation or its transfer agent or registrar in reliance thereon.
ARTICLE VII
Indemnification of Directors, Officers
and Other Authorized Representatives
Section 1. Indemnification of Authorized Representatives in Third Party
Proceedings.
The Corporation shall indemnify any person who was or is an "authorized
representative" of the Corporation (which shall mean for purposes of this
Article a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, employee, agent or trustee,
of another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans) and who was or is a "party" (which shall
include, for purposes of this Article, the giving of testimony or similar
involvement) or is threatened to be made a party to any "third party proceeding"
(which shall mean for purposes of this Article any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administra tive,
or investigative, other than an action by or in the right of the Corporation) by
reason of the fact that such person was or is an authorized representative of
the Corporation, from and against expenses (which shall include, for purposes of
this Article, attorneys' fees) , judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such third party proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal third party proceedings (which
could or does lead to a criminal third party proceeding) had no reasonable cause
to believe such conduct was unlawful. The
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termination of any third party proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the authorized representative did not act in
good faith and in a manner which such person reasonably believed to be in, or
not opposed to, the best interests of the Corporation, and, with respect to any
criminal third party proceeding, had reasonable cause to believe that such
conduct was unlawful.
Section 2. Indemnification of Authorized Representatives in
Corporate Proceedings.
The Corporation shall indemnify any person who was or is an authorized
representative of the Corporation and who was or is a party or is threatened to
be made a party to any "corporate proceeding" (which shall mean, for purposes of
this Article, any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor or investigative
proceeding by the Corporation) by reason of the fact that such person was or is
an authorized representative of the Corporation, against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such corporate proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such corporate proceeding was pending shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Mandatory Indemnification of Authorized Representatives.
To the extent that an authorized representative of the Corporation has
been successful on the merits or otherwise in defense of any third party or
corporate proceedings or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses actually and reasonably incurred by
such person in connection therewith.
Section 4. Determination of Entitlement to Indemnification.
Any indemnification under section 1, 2 or 3 of this Article VII (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative is proper in the circumstances because such person has either met
the applicable standard of conduct set forth in section 1 or 2 or has been
successful on the merits or otherwise as set forth in section 3 and that the
amount requested has been actually and reasonably incurred. Such determination
shall be made:
(1) by the Board of Directors by a majority of a quorum consisting of
directors who were not parties to such third party or corporate proceedings; or
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(2) if such a quorum is not obtainable, or, even if obtainable, a
majority vote of such a quorum so directs, by independent legal counsel in a
written opinion; or
(3) by the stockholders.
Section 5. Advancing Expenses.
Expenses actually and reasonably incurred in defending a third party or
corporate proceeding shall be paid on behalf of an authorized representative by
the Corporation in advance of the final disposition of such third party or
corporate proceeding upon receipt of an undertaking by or on behalf of the
authorized representative to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article VII.
Section 6. Employee Benefit Plans.
For purposes of this Article, the Corporation shall be deemed to have
requested an authorized representative to serve an employee benefit plan where
the performance by such person of duties to the Corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on an authorized
representative with respect to an employee benefit plan pursuant to applicable
law shall be deemed "fines"; and action taken or omitted by such person with
respect to an employee benefit plan in the performance of duties for a purpose
reasonably believed to be in the interest of the participants and beneficiaries
of the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Corporation.
Section 7. Scope of Article.
The indemnification of and the advancement of expenses to authorized
representatives, provided by, or granted pursuant to, this Article, shall (1)
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in other capacities, (2)
continue as to a person who has ceased to be an authorized representative, and
(3) inure to the benefit of the heirs, personal representatives, executors, and
administrators of such person.
Section 8. Reliance on Provisions.
Each person who shall act as an authorized representative of the
Corporation shall be deemed to be doing so in reliance upon rights of
indemnification provided by this Article VII.
Section 9. Insurance.
The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, trustee or
agent of or for the Corporation,
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or is or was serving at the request or with the prior approval of the
Corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
employee benefit plans), against any liability asserted against him and incurred
by him in any capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of these Bylaws.
ARTICLE VIII
General
Section 1. Contracts, Checks, Etc.
All contracts, agreements, checks, drafts, notes, bonds, bills of
exchange and orders for the payment of money shall be signed or endorsed by the
persons whom the Board of Directors prescribes therefor.
Section 2. Fiscal Year.
The fiscal year of the Corporation shall commence on January 1 of each
year and end on December 31 of the following year, unless otherwise determined
by the Board of Directors.
Section 3. Form of Notices.
Whenever notice is required to be given to any director or officer or
stockholder, such notice may be given either in person or by mail, telephone or
telegram, facsimile transmission, telex or similar medium of communication,
except as expressly provided otherwise in these Bylaws. Except as provided in
Article II, Section 4(c), if mailed, the notice will be deemed given when
deposited in the United States mail, postage prepaid, addressed to the
stockholder, officer or director at such address as appears on the books of the
Corporation. If given in person or by telephone, notice will be deemed given
when communicated. If given by telegram, facsimile transmission, telex or
similar medium of communication, notice will be deemed given when properly
dispatched.
Section 4. Seal.
The Corporation may, but shall not be required to, have a corporate
seal, which shall have inscribed thereon the name of the Corporation, the year
of its organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The Secretary shall have custody of the corporate seal
of the Corporation and shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the Secretary's
signature. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
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Section 5. Consistency With Certificate of Incorporation.
If any provision of these Bylaws shall be inconsistent with the
Corporation's Certificate of Incorporation (and as it may be amended from time
to time), the Certificate of Incorporation (as so amended at the time) shall
govern.
ARTICLE IX
Amendments
Except as otherwise provided in the Certificate of Incorporation, these
Bylaws may be altered, amended, or repealed or new bylaws may be adopted by the
affirmative vote of the directors of the Corporation or by the affirmative vote
of the holders of a majority of the shares of the Corporation entitled to vote
in the election of directors, voting as one class at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting.
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NUMBER SHARES
COMMON STOCK
FACTORY STORES OF AMERICA, INC.
[STAMPED "Name changed to
FAC REALTY, INC."]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 301953 10 S
This certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF
COMMONSTOCK OF THE PAR VALUE OF $.01 EACH OF FAC REALTY, INC. (the Corporation),
transferable on the books of the Corporation by the owner hereof in person or by
duly authorized attorney upon a surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
Registrar.
Witness the signatures of its duly authorized officers.
Dated:
/s/ David A. Hodson
PRESIDENT
/s/ John M. Slocum
SECRETARY
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INCORPORATED UNDER THE LAWS OF
DELAWARE
Number Shares
FAC REALTY, INC.
Authorized Shares 1,000,000 Par Value $25.00 per share
This certifies that is the registered holder of Shares of SERIES A
CONVERTIBLE PREFERRED STOCK transferable only on the books of the Corporation
by the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunder
affixed this day of A.D. .
/s/ Robin W. Malphrus /s/ C. Cammack Morton
Secretary President
SEAL
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Amended and restated effective January 16, 1996
FACTORY STORES OF AMERICA, INC.
AMENDED AND RESTATED
1993 EMPLOYEE STOCK INCENTIVE PLAN
1. General. This Employee Stock Incentive Plan (the "Plan") provides
Eligible Persons (as defined hereafter) with the opportunity to acquire an
equity interest in the Company by making available for purchase shares of Common
Stock, $.01 par value per share, of the Company ("Common Stock"), through the
granting of nontransferable options to purchase Common Stock ("Stock Options").
An Eligible Person is a key employee of Factory Stores of America, Inc., and its
subsidiaries or, with respect to non-qualified Stock Options only, (a) such
other person, such as a consultant, whose relationship with the Company or its
subsidiaries is deemed by the Administrator (as defined hereafter) to be
sufficiently important to the Company or its subsidiaries as to warrant receipt
by such person of a Stock Option or (b) such person that the Company or
Administrator wishes to employ as a key employee of the Company or its
subsidiaries for whom the grant of a Stock Option will, in the Administrator's
judgment, act as an inducement to such person to accept such employment. An
individual grant of Stock Options shall be individually referred to herein as a
"Grant".
It is intended that Eligible Persons may be granted, simultaneously or
from time to time, Stock Options that qualify as incentive stock options
("Incentive Stock Options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or Stock Options that do not so qualify
("Non-qualified Stock Options"). No provision of the Plan is intended or shall
be construed to grant employees alternative rights in any Incentive Stock Option
granted under the Plan so as to prevent such Option from qualifying under
Section 422 of the Code.
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended (the "Securities Act"), and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any
and all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including, without limitation, Rule 16b-3 under the
Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and Stock Options shall be granted and may be exercised, only in
such a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and Stock Options granted hereunder shall
be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
2. Purpose of the Plan. The purpose of the Plan is to provide
continuing incentives to Eligible Persons by encouraging such Eligible Persons
to acquire new or additional stock
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ownership in the Company, thereby increasing their proprietary interest in the
Company's business and enhancing their personal interest in the Company's
success.
For purposes of the Plan, a "subsidiary corporation" is any corporation
fifty percent (50%) or more of the total combined voting power of the
outstanding stock of which is directly or indirectly owned by the Company.
3. Effective Date of the Plan. The Plan shall become effective upon its
adoption by the Board of Directors of the Company, subject to approval by the
holder(s) of a majority of the outstanding shares of voting capital stock of the
Company. If the Plan is not so approved within twelve (12) months after the date
the Plan is adopted by the Board of Directors, the Plan and any Grants made
hereunder shall be null and void. However, if the Plan is so approved, no
further stockholder approval shall be required with respect to the making of
Grants pursuant to the Plan, except as provided in Section 12 hereof.
4. Administration of the Plan. The Plan shall be administered by a
committee selected by the Board of Directors of the Company (the "Board") by
majority vote and composed of no fewer than two (2) members of the Board (such
committee, the "Administrator"). No person shall be appointed to the
Administrator who, during the one-year period immediately preceding such
person's appointment to the Administrator, has received any Grants under the
Plan or any similar stock option or stock incentive plan, other than a
formula-based plan, maintained by the Company or any subsidiary corporation. A
member of the Administrator shall not be eligible to participate in the Plan
while serving on the Administrator.
Subject to the terms and conditions of the Plan, the Administrator
shall be authorized and empowered:
(a) To select Eligible Persons to whom Grants may be
made;
(b) To determine the number of shares of Common Stock
to be covered by any Grant;
(c) To prescribe the terms and conditions of any
Grants made under the Plan, and the form(s) and agreement(s)
used in connection with such Grants;
(d) To determine the time or times when Stock Options
will be granted and when they will terminate in whole or in
part;
(e) To determine the time or times when Stock Options
that are granted may be exercised;
(f) To determine, at the time a Stock Option is
granted under the Plan to an Eligible Person, whether such
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Stock Option is an Incentive Stock Option entitled to the
benefits of Section 422 of the Code; and
(g) To establish any other Stock Option agreement provisions
not inconsistent with the terms and conditions of the Plan and, where
the Stock Option is an Incentive Stock Option, with the terms and
conditions of Section 422 of the Code.
The Administrator may, in its discretion and consistent with the
requirements of Section 16b and Rule 16b-3 under the Exchange Act, the
requirements of other applicable law, and the terms of any Grant made hereunder,
amend, modify, or waive the provisions of any Grant or the terms of any
provision of this Plan as they apply to the exercise of any Grant; provided,
however, that no such amendment, modification or waiver shall, without the
optionee's written consent, (a) adversely alter or impair any rights of the
optionee or obligations to the optionee under a Grant or this Plan or (b) have
an adverse impact on the optionee's exercise of the Grant under Rule 16b-3 or
the tax laws of the United States.
5. Persons Eligible for Grants. Grants may be made from time to time to
those Eligible Persons who are designated by the Administrator in its sole and
exclusive discretion. Eligible Persons who are employees may include, but shall
not necessarily be limited to, officers of the Company and any subsidiary
corporation, excluding members of the Administrator. The Administrator may grant
more than one Stock Option to the same Eligible Person. No Stock Option shall be
granted to any Eligible Person during any period of time when such Eligible
Person is on a leave of absence.
6. Shares Subject to the Plan. The shares to be issued pursuant to any
Grant made under the Plan shall be Common Stock. Either Common Stock held as
treasury stock or authorized and unissued Common Stock, or both, may be so
issued, in such amount or amounts within the maximum limits of the Plan as the
Administrator shall from time to time determine.
Subject to the provisions of the next succeeding paragraph of this
Section 6, the aggregate number of shares of Common Stock that can be actually
issued under the Plan shall be 1,500,000.
If, at any time subsequent to the date of adoption of the Plan by the
Board of Directors, the number of shares of Common Stock are increased or
decreased, or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company or of another corporation (whether
as a result of a stock split, stock dividend, combination or exchange of shares,
exchange for other securities, reclassification, reorganization, redesignation,
merger, consolidation, recapitalization or otherwise): (i) there shall
automatically be substituted for each share of Common Stock subject to an
unexercised Stock Option (in whole or in part) granted under the
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Plan, the number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be changed or for which each such share
of Common Stock shall be exchanged; and (ii) the option price per share of
Common Stock or unit of securities shall be increased or decreased
proportionately so that the aggregate purchase price for the securities subject
to a Stock Option shall remain the same as immediately prior to such event. In
addition to the foregoing, the Administrator shall be entitled in the event of
any such increase, decrease or exchange of Common Stock to make other
adjustments to the securities subject to a Stock Option, to the provisions of
the Plan, and to any related Stock Option agreements (including adjustments
which may provide for the elimination of fractional shares), where necessary
(under Section 422(a)(2) of the Code or otherwise) to preserve the terms and
conditions of any Grants hereunder.
7. Stock Option Provisions.
(a) General. The Administrator may grant to Eligible Persons
(also referred to as "optionees") nontransferable Stock Options that
either qualify as Incentive Stock Options under Section 422 of the Code
or do not so qualify. However, any Stock Option which is an Incentive
Stock Option shall only be granted to employees and shall only be
granted within 10 years from the earlier of (i) the date this Plan is
adopted by the Board of Directors of the Company and (ii) the date this
Plan is approved by the stockholder(s) of the Company.
(b) Stock Option Price. The option price per Common Share
which may be purchased under an Incentive Stock Option granted under
the Plan shall be determined by the Administrator at the time of Grant,
but shall not be less than one hundred percent (100%) of the Fair
Market Value (as defined below) of a Common Share, determined as of the
date such Option is granted; however, if an Eligible Person to whom an
Incentive Stock Option is granted is, at the time of the grant of such
Option, an "owner" as defined in Section 422(b)(6) of the Code
(modified as provided in Section 424(d) of the Code) of more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or any subsidiary corporation (a "Substantial
Stockholder"), the price per share of Common Stock of such Option, as
determined by the Administrator, shall not be less than one hundred ten
percent (110%) of the Fair Market Value of a share of Common Stock on
the date such Option is granted. The option price per share of Common
Stock under each Stock Option granted pursuant to the Plan which is a
Non-qualified Stock Option shall be determined by the Administrator at
the time of Grant, but shall not be less than one hundred percent
(100%) of the Fair Market Value of a share of Common Stock, determined
as of the date such Option is granted. The day on which the
Administrator approves the granting of a Stock Option shall be
considered
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the date on which such Option is granted. Notwithstanding the foregoing
provisions of this Section 7(b), with respect to Grants made within one
year following the date on which Common Stock is sold pursuant to the
Company's first effective registration statement for such Common Stock
filed under the Securities Act of 1933, as amended (the "IPO"), in no
event shall the option price per share of Common Stock be less than the
price at which such shares are sold to the public in the IPO (subject
to equitable adjustment for stock splits, combinations, stock dividends
and recapitalizations).
(c) Fair Market Value. The "Fair Market Value" of a share of
Common Stock as of a given date shall be (in order of applicability):
(i) the closing price of a share of Common Stock on the principal
exchange on which the Common Stock is then trading, if any, on the day
immediately prior to such date, or if Common Stock was not traded on
the day previous to such date, then on the next preceding trading day
during which a sale occurred; or (ii) if Common Stock is not traded on
an exchange but are quoted on NASDAQ or a successor quotation system,
(A) the last sale price (if Common Stock is then listed as a National
Market Issue under the NASD National Market System) or (B) if Common
Stock is not then so listed, the mean between the closing
representative bid and asked prices for Common Stock on the day
previous to such date as reported by NASDAQ or such successor quotation
system; or (iii) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for Common Stock, on the day
previous to such date, as determined in good faith by the
Administrator; or (iv) if Common Stock is not publicly traded, the fair
market value established by the Administrator acting in good faith.
(d) Period of Stock Option. The Administrator shall determine
when each Stock Option is to expire. However, no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years from the
date on which such Option is granted. Further, no Incentive Stock
Option granted to an Eligible Person who is a Substantial Stockholder
at the time of the grant of such Stock Option shall be exercisable
after the expiration of five (5) years from the date of grant of such
Stock Option. Subject to Section 9 hereof, in the event of (i) the
death or permanent and total disability of an Eligible Person, (ii) the
retirement of an Eligible Person who is an employee, or (iii) a Change
in Control as defined in Section 9, the Stock Options held by such
Eligible Person shall be automatically and immediately vested and
exercisable. Notwithstanding any other provision hereof to the
contrary, no Stock Option may be exercised until there has been filed
with the Securities and Exchange Commission an effective registration
statement on Form S-8 (or such other form as the Company shall deem
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necessary) with respect to the Common Stock issuable upon exercise of
such Stock Options.
(e) Limitation on Exercise and Transfer of Stock Options. Only
the Eligible Person to whom a Stock Option is granted may exercise such
Option, except where a guardian or other legal representative has been
duly appointed for such Eligible Person, and except as otherwise
provided in the case of such Eligible Person's death. No Stock Option
granted hereunder shall be transferable by an optionee other than by
will or the laws of descent and distribution. No Stock Option granted
hereunder may be pledged or hypothecated, nor shall any such Option be
subject to execution, attachment or similar process.
(f) Employment, Holding Period Requirements For Certain
Options. The Administrator may condition any Stock Option granted
hereunder to an Eligible Person who is an employee upon the continued
employment of the optionee by the Company or by a subsidiary
corporation. However, the Administrator will require that, from and
after the date of grant of any Incentive Stock Option granted hereunder
until the day three (3) months prior to the date such Option is
exercised, such optionee must be an employee of the Company or of a
subsidiary corporation, but always subject to the right of the Company
or any such subsidiary corporation to terminate such optionee's
employment during such period (except if the optionee's employment is
terminated due to death or permanent and total disability, in which
event such period shall be one year). Each Stock Option shall be
subject to such additional restrictions as to the time and method of
exercise as shall be prescribed by the Administrator. Upon compliance
with any condition or requirement imposed by the Administrator pursuant
to the foregoing, a Stock Option or the appropriate portion thereof may
be exercised in whole or in part from time to time during the option
period; however, such exercise right(s) shall be limited to whole
shares.
(g) Payment of Stock Option Price; Cashless Exercise.
(i) A Stock Option may be exercised by an
optionee giving written notice to the Company of his intention
to exercise the same, accompanied by full payment of the
purchase price in cash or by check, or, with the consent of
the Administrator, in whole or in part with a surrender of
previously acquired Common Stock having a Fair Market Value on
the date of exercise equal to that portion of the purchase
price for which payment in cash or check is not made. The date
on which payment is received by the Company shall be the date
of exercise of the Stock Option.
(ii) A Stock Option may be exercised by an
optionee giving written notice to the Company of his
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intention to exercise the same, provided that within five
business days of the delivery of such notice the funds to pay
for exercise of the Stock 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 the Stock
Option or in connection with the making of a margin loan to
the optionee to enable payment of the exercise price of the
Stock Option. The latter of the dates on which such notice and
payment are received by the Company shall be the date of
exercise of the Stock Option. In connection with any such
exercise, the Company will provide a copy of the notice of
exercise of the Stock Option to the aforesaid broker upon
receipt by the Company of such notice and will deliver to such
broker, within five business days of the delivery of such
notice to the Company, a certificate or certificates (as
requested by the broker) representing the number of Common
Stock underlying the Stock Option that have been sold by such
broker for the optionee.
(iii) The Administrator may, in its sole
discretion, approve other methods of exercise for a Stock
Option or payment of the option price, provided that no such
method shall cause any Stock Option granted under the Plan as
an Incentive Stock Option to not qualify under Section 422 of
the Code, or cause any share of Common Stock issued in
connection with the exercise of a Stock Option not to be a
fully paid and non-assessable share of Common Stock.
(h) Cancellation and Replacement of Stock Options and- Related
Rights. The Administrator may at any time or from time to time permit
the voluntary surrender by an optionee who is the holder of any
outstanding Stock Options under the Plan, where such surrender is
conditioned upon the granting to such optionee of new Stock Options for
such number of shares as the Administrator shall determine, or may
require such a voluntary surrender as a condition precedent to the
grant of new Stock Options. The Administrator shall determine the terms
and conditions of new Stock Options, including the prices at and
periods during which they may be exercised, in accordance with the
provisions of this Plan, all or any of which may differ from the terms
and conditions of the Stock Options surrendered. Any such new Stock
Options shall be subject to all the relevant provisions of this Plan.
The Common Stock subject to any Stock Option so surrendered shall no
longer be charged against the limitation provided in Section 6 of this
Plan and may again become shares subject to the Plan. The granting of
new Stock Options in connection with the surrender of outstanding Stock
Options under this Plan shall be considered for the purposes of the
Plan as the granting of new Stock Options and not an alteration,
amendment or
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modification of the Plan or of the Stock options being
surrendered.
(i) Withholding of Taxes. The Administrator may, in its sole
discretion, require, as a condition to any Grant or to the delivery of
certificates for shares issued hereunder, that the optionee pay to the
Company, in cash, any federal, state or local taxes of any kind
required by law to be withheld with respect to any Grant or any
delivery of Common Stock upon exercise hereof. The Administrator, in
its sole discretion, may permit optionees to pay such taxes through the
withholding of Common Stock otherwise deliverable to such optionee in
connection with such Grant or the delivery to the Company of Common
Stock otherwise acquired by the optionee. The Fair Market Value of
Common Stock withheld by the Company or tendered to the Company for the
satisfaction of tax withholding obligations under this Section 7(j)
shall be determined on the date such Common Stock are withheld or
tendered. The Company, to the extent permitted or required by law,
shall have the right to deduct from any payment of any kind (including
salary, bonus, severance or insurance proceeds) otherwise due to an
optionee any federal, state or local taxes of any kind required by law
to be withheld with respect to any Grant or to the delivery of Common
Stock under the Plan, or to retain or sell without notice a sufficient
number of shares of Common Stock to be issued to such optionee to cover
any such taxes, provided that the Company shall not sell any such
Common Stock if such sale would be considered a sale by such optionee
for purposes of Section 16 of the Exchange Act.
(j) Limitation on Exercisable Incentive Stock Options. The
aggregate fair market value of the Common Stock first becoming subject
to exercise as Incentive Stock Options by an optionee during any given
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). Such aggregate fair market value shall be determined as of
the date such Option is granted, taking into account, in the order in
which granted, any other incentive stock options granted by the
Company, or by a parent or subsidiary corporation thereof.
8. Termination of Employment. If an Eligible Person who is an employee
ceases to be an employee of the Company or any subsidiary corporation, for a
reason other than death, retirement, "permanent and total disability" (as
defined below) or termination "without cause" (as defined below), his Stock
Options shall, unless extended by the Administrator on or before his date of
termination of employment, terminate on the effective date of such termination
of employment. Neither such Eligible Person nor any other person shall have any
right after such date to exercise all or any part of his Stock Options.
If termination of employment of an Eligible Person who is an
employee is due to death or permanent and total disability, all
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Stock Options held by such Eligible Person shall become immediately and
automatically vested and exercisable.
If termination of employment of an Eligible Person who is an employee
is due to death or permanent and total disability or is without cause, then
outstanding Stock Options (to the extent, but only to the extent, that such
Stock Options are vested on the date of termination, or, in the case of death or
permanent and total disability, become immediately and automatically vested and
exercisable pursuant to the foregoing sentence) may be exercised within the one
(1) year period ending on the anniversary of such death, permanent and total
disability or termination without cause (except that, with respect to Incentive
Stock Options held by an Eligible Person whose employment is terminated without
cause, such Options must be exercised within three months of the date of such
termination). In the event of the permanent and total disability of an Eligible
Person who is not an employee on the effective date of any Stock Option granted
to him, such Option may be exercised within the one (1) year period ending on
the anniversary of such permanent and total disability. In the case of death of
any Eligible Person, the Eligible Person's outstanding Stock Options shall be
exercised by such Eligible Person's estate, or the person designated by such
Eligible Person by will, or as otherwise designated by the laws of descent and
distribution. Notwithstanding the foregoing, in no event shall any Stock Option
be exercisable after the expiration of the option period, and in the case of
exercises made after an Eligible Person's death, not to any greater extent than
such Eligible Person would have been entitled to exercise such Option at the
time of his death after giving effect to the immediately preceding paragraph.
Subject to the discretion of the Administrator, in the event an
Eligible Person who is an employee terminates employment with the Company and
all subsidiary corporations because of normal or early retirement under any
pension plan or retirement plan hereafter adopted by the Company, any
then-outstanding Stock Options held by such Eligible Person shall lapse at the
end of the term of such Stock Option or within three (3) months of the date of
retirement, whichever first occurs.
For purposes hereof, "permanent and total disability" means a permanent
and total disability as defined in Section 22(e)(3) of the Code. For purposes
hereof, termination "without cause" means termination of the employee's
employment by the Company for reasons other than (i) conviction of the employee
for a felony or for any crime or offense lesser than a felony involving the
property of the Company or a subsidiary corporation or affiliate of the Company;
(ii) conduct by the employee that has caused demonstrable and serious injury to
the Company or a subsidiary, monetary or otherwise, as evidenced by a final
determination of a court or governmental agency of competent jurisdiction in
effect after exhaustion or lapse of all rights of appeal; or (iii) gross
dereliction of duty or other grave misconduct by the employee, as determined in
good faith by the Company.
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In the event an Eligible Person who is an employee is granted a leave
of absence by the Company or such subsidiary corporation to enter military
service or because of sickness, his employment with the Company or such
subsidiary corporation shall not be considered terminated, and he shall be
deemed an employee of the Company or such subsidiary corporation during such
leave of absence or any extension thereof granted by the Company or such
subsidiary corporation.
9. Change of Control. Upon the occurrence of a Change of
Control (as defined below), notwithstanding any other provisions
hereof or of any agreement to the contrary, all Stock Options
granted under this Plan shall become immediately vested and
exercisable in full.
For purposes of this Plan, a Change of Control shall be deemed to have
occurred if: (i) a tender offer shall be made and consummated for the ownership
of 25% or more of the outstanding voting securities of the Company; (ii) the
Company shall be merged or consolidated with another corporation and, as a
result of such merger or consolidation, less than 25% of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the former stockholders of the Company as the same shall have
existed immediately prior to such merger or consolidation; (iii) the Company
shall sell substantially all of its assets to another corporation which is not a
wholly owned subsidiary; or (iv) a person [(except (A) J. Dixon Fleming, Jr.,
his siblings, David A. Hodson, John M. Slocum, Connell L. Radcliff and R.
Kenneth Langston)]; (B) their respective spouses and lineal descendants; (C) any
trust or other fiduciary solely for the benefit of any of the persons described
in clauses (A) and (B); or (D) any entity controlled, directly or indirectly, by
any of the persons described in clauses (A) through (C)), within the meaning of
Section 3(a)(9) or Section 13(d)(3) (as in effect on the date hereof) of the
Exchange Act, shall acquire, other than by reason of inheritance, twenty-five
percent (25%) or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record). For purposes of this
Plan, ownership of voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule 13d-3(d)(1)(i) (as in
effect on the date hereof) of the Exchange Act.
10. Amendments to the Plan. The Administrator is authorized to
interpret this Plan and from time to time adopt any rules and regulations for
carrying out this Plan that it may deem advisable. Subject to the approval of
the Board of Directors of the Company, the Administrator may at any time amend,
modify, suspend or terminate this Plan. In no event, however, without the
approval of the stockholders, shall any action of the Administrator or the Board
of Directors result in:
(a) Materially amending, modifying or altering the
eligibility requirements provided in Section 5
hereof;
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(b) Materially increasing, except as provided in Section
6 hereof, the maximum number of shares of Common
Stock that may be made subject to Grants under the
Plan;
(c) Materially increasing the benefits accruing to
participants under this Plan;
(d) reduce the minimum option price requirements of
Section 7(b); or
(e) modify the Plan in any manner requiring stockholder
approval under Rule 16b-3 under the Exchange Act, as
the Rule may be amended from time to time;
except to conform this Plan and any agreements made hereunder to changes
required by the Code or by governing law.
11. Investment Representation, Approvals and Listing. The
Administrator may, if it deems appropriate, condition its grant
of any Stock Option hereunder upon receipt of the following or
any substantially similar investment representation from the
optionee:
"I agree that any Common Stock of Factory Stores of America, Inc. which
I may acquire by virtue of this Stock Option shall be acquired for
investment purposes only and not with a view to distribution or resale,
and may not be transferred, sold, assigned, pledged, hypothecated or
otherwise disposed of by me unless (i) a registration statement or
post-effective amendment to a registration statement under the
Securities Act of 1933, as amended, with respect to said Common Stock
has become effective so as to permit the sale or other disposition of
said Common Stock by me; or (ii) there is presented to Factory Stores
of America, Inc. an opinion of counsel satisfactory to Factory Stores
of America, Inc. to the effect that the sale or other proposed
disposition of said Common Stock by me may lawfully be made otherwise
than pursuant to an effective registration statement or post-effective
amendment to a registration statement relating to the said stock under
the Securities Act of 1933, as amended."
The Company shall not issue any certificate or certificates for Common
Stock upon the exercise of any Stock Option granted under this Plan prior to (i)
the obtaining of any approval from any governmental agency which the
Administrator shall, in its sole discretion, determine to be necessary or
advisable; (ii) the admission of such stock to listing on any national
securities exchange on which the Common Stock may be listed; (iii) the
completion of any registration or other qualifications of the Common Stock under
any state or federal law or ruling or regulations of any governmental body which
the Administrator shall, in its sole discretion, determine to be necessary or
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advisable or the determination by the Administrator, in its sole discretion,
that any registration or other qualification of the Common Stock is not
necessary or advisable; or (iv) the obtaining of an investment representation
from the optionee in the form stated above or in such other form as the
Administrator, in its sole discretion, shall determine to be adequate.
12. General Provisions. The form and substance of Stock Option
agreements made hereunder, whether granted at the same or different times, need
not be identical. Nothing in this Plan or in any Stock Option agreement shall
confer upon any Eligible Person who is an employee any right to continue in the
employ of the Company or any of the Company's subsidiary corporations or
affiliates or to interfere with or limit the right of the Company or any
subsidiary corporation to terminate his employment at any time, with or without
cause. Nothing contained in this Plan or in any Stock Option agreement shall be
construed as entitling any optionee to any rights of a stockholder as a result
of the grant of a Stock Option, until such time as Common Stock is actually
issued to such optionee pursuant to the exercise of such Option. This Plan may
be assumed by the successors and assigns of the Company. The liability of the
Company under this Plan and any sale made hereunder is limited to the
obligations set forth herein with respect to such sale and no term or provision
of this Plan shall be construed to impose any liability on the Company in favor
of any Eligible Person (or other party acting on his behalf or in his stead)
with respect to any loss, cost or expense which such person or party may incur
in connection with or arising out of any transaction in connection with this
Plan. The cash proceeds received by the Company from the issuance of Common
Stock pursuant to this Plan will be used for general corporate purposes. The
expense of administering this Plan shall be borne by the Company. The captions
and section numbers appearing in this Plan are inserted only as a matter of
convenience; they do not define, limit, construe or describe the scope or intent
of the provisions of this Plan. All references to employee or key employee
herein refer to an employee of the Company or a subsidiary corporation.
13. Provisions Applicable Solely to Insiders. The following provisions
shall apply only to persons who are subject to Section 16 of the Exchange Act
with respect to securities of the Company ("Insiders"), and shall apply to
Insiders notwithstanding any provision of the Plan to the contrary:
(a) No Insider shall be permitted to transfer any security of
the Company acquired by him, except to the extent permitted by 17
C.F.R. ss.240.16a-2(d)(1), upon the exercise of any Stock Option, until
at least six months and one day after the later of (i) the day on which
such Stock Option is granted to the Insider or (ii) the day on which
the exercise or conversion price of such security is fixed.
(b) An Insider may elect to have stock withheld from a
Grant or tender stock to the Company in order to satisfy any
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applicable tax withholding consequences of a Grant only during the
period beginning on the third business day following the date on which
the Company releases the financial information specified in 17 C.F.R.
ss.240.16b- 3(e)(1)(ii) and ending on the twelfth business day
following such date. Notwithstanding the foregoing, an Insider may
elect to have stock withheld from a Grant in order to satisfy any
applicable tax withholding consequences thereof by providing the
Company with a written election to so withhold at least six months in
advance of the withholding of stock otherwise issuable upon exercise of
a Stock Option,
14. Termination of the Plan. The Plan shall terminate on March 30,
2003. Thereafter, no Stock Options shall be granted hereunder. All Stock Options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to their terms and the terms and conditions of the Plan.
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FACTORY STORES OF AMERICA, INC.
1995 OUTSIDE DIRECTORS'
STOCK AWARD PLAN
Table of Contents
Section Page
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1 Purposes 1
2 Definitions 1
3 Administration 2
4 Amount of Stock 2
5 Eligibility 2
6 Awards 2
7 Terms and Conditions of Awards 2
S Effect of Certain Transactions 3
9 Amendment or Discontinuance 3
10 Termination 4
11 Miscellaneous Provisions 4
12 Approval of Plan 5
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FACTORY STORES OF AMERICA, INC.
1995 OUTSIDE DIRECTORS'
STOCK AWARD PLAN
Factory Stores of America, Inc. hereby establishes the Factory Stores
of America, Inc. 1995 Outside Directors' Stock Award Plan for the benefit of
certain members of the Board of Directors of the Company, subject to the
following provisions:
SECTION 1. PURPOSES. The purposes of the Plan are to secure for the
Company and its stockholders the benefits of the incentive inherent in increased
Common Stock ownership by the Outside Directors, and to provide the Outside
Directors with the opportunity to increase their proprietary interest in the
Company through the payment of a portion of the Retainer Fee in shares of Common
Stock.
SECTION 2. DEFINITIONS. For the purposes of this Plan and any Award
agreement, the following words shall have the meanings indicated, unless the
context clearly requires otherwise:
"AWARD" means an award of shares of Common Stock pursuant to
the terms and conditions of the Plan.
"AWARDEE" means an Outside Director granted an Award under the
Plan.
"BOARD" means the Board of Directors of the Company.
"COMMITTEE" means a committee appointed by the Board. Unless
and until otherwise appointed, the Committee shall be the Board.
"COMMON STOCK" means the common stock of the Company, par
value $0.01 per share, subject to the right of the Company to change
the authorized number of shares of such class and to provide no par or
a change in par value for such stock.
"COMPANY" means Factory Stores of America, Inc., a Delaware
corporation.
"DIRECTOR" means a member of the Board.
"EFFECTIVE DATE" means the date on which the Plan is adopted
by the Company, subject to approval by the stockholders of the Company.
"FAIR MARKET VALUE" means, with respect to shares of Common
Stock, the closing price of the Common Stock on the New York Stock
Exchange or such other securities exchange which the Common Stock is
listed on the relevant date.
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"OUTSIDE DIRECTOR" means any Director who is not an officer or
employee of the Company or any Subsidiary.
"PLAN" means the Factory Stores of America, Inc. 1995 Outside
Directors' Stock Award Plan, as amended from time to time in accordance
herewith.
"RETAINER FEE" means the annual retainer fee earned by each
Outside Director, which is paid in quarterly installments.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of
the corporations other than the last corporation in such unbroken chain
holds stock equal to fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other lower
corporations in the unbroken chain.
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have the powers vested in it by the terms of the
Plan, such powers to include authority (within the limitations described herein)
to prescribe the form of the Award agreement embodying Awards made under the
Plan. Subject to the provisions of the Plan, the Committee shall have the power
to construe the Plan, to determine all questions arising thereunder and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable. Any decision of the Committee in the administration of the
Plan, as described herein, shall be final and conclusive. The Committee may act
only by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or the Secretary or any other officer
of the Company to execute and deliver documents on behalf of the Committee. No
member of the Committee shall be liable for anything done or omitted to be done
by such member or by any other member of the Board in connection with the Plan,
except for such member's own willful misconduct or as expressly provided by
statute.
SECTION 4. AMOUNT OF STOCK. The stock which may be issued and sold
under the Plan will be the Common Stock, of a total number not exceeding
twenty-five thousand (25,000) shares, subject to adjustment as provided in
Section 8. The stock to be issued may be either authorized and unissued shares
or issued shares acquired by the Company or one of its Subsidiaries.
SECTION 5. ELIGIBILITY. Each Outside Director shall receive Awards in
accordance with Section 6.
SECTION 6. AWARDS. As of the date of each quarterly meeting of the
Board (commencing with the first quarterly meeting after May 1, 1995) each
Outside Director who is continuing as a Director as of the adjournment of such
meeting, shall automatically receive an Award representing shares of Common
Stock having a Fair Market Value equal to one-half (1/2) of the quarterly
installment of the Retainer Fee as of the trading date immediately preceding the
date of the relevant quarterly meeting. Each such quarterly Award shall be made
in lieu of onehalf (1/2) of the quarterly
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cash payment of the Retainer Fee. Notwithstanding the foregoing, the Company
shall not be required to issue fractional shares; in lieu thereof, any
fractional share shall be rounded to the next whole number.
SECTION 7. TERMS AND CONDITIONS OR AWARDS.
(a) Each Awardee shall enter into an Award agreement with the
Company in a form specified by the Committee agreeing to the terms and
conditions of the Award and such other matters consistent with the Plan
as the Committee in its sole discretion shall determine. Such
conditions may include, but shall not be limited to, restrictions on
the transferability of the shares of Common Stock granted. Such shares
of Common Stock may not be sold, transferred, pledged, assigned or in
any manner disposed of during the six-month period following the date
the Award is granted, and Awardees shall not be entitled to delivery of
certificates representing the shares of Common Stock awarded until the
expiration of such six-month period. Certificates shall bear a legend
in substantially the following form:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS (INCLUDING
RESTRICTIONS AGAINST TRANSFER)
CONTAINED IN THE FACTORY STORES OF
AMERICA, INC. 1995 OUTSIDE DIRECTORS'
STOCK AWARD PLAN, A COPY OF WHICH IS
AVAILABLE FROM THE SECRETARY OF
FACTORY STORES OF AMERICA, INC."
(b) As of the date of an Award, the Awardee shall become a
stockholder of record of the Company and shall immediately become
entitled to all dividends and other distributions paid on the Common
Stock and to all voting rights with respect to the shares of Common
Stock awarded. In addition, as of the date of an Award, the Awardee
shall be deemed to be the beneficial owner of the shares of Common
Stock covered by such Award for purposes of reporting beneficial
ownership under Section 16(a) of the Securities Exchange Act of 1934,
as amended.
SECTION 8. EFFECT OF CERTAIN TRANSACTIONS. The number of shares of
Common Stock reserved for issuance under the Plan shall be appropriately
adjusted by the Committee, whose determination shall be conclusive, to reflect
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, a consolidation or shares, the payment of a stock
dividend, or any other capital adjustment affecting the number of issued shares
of Common Stock. In the event that the outstanding shares of Common Stock shall
be changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or another corporation, whether through
reorganization, recapitalization, merger, consolidation, or otherwise, then
there shall be substituted for each share of Common Stock reserved for issuance
under the Plan,
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but not yet awarded under the Plan, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged.
SECTION 9. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any
time and from time to time by the Board as the Board shall deem advisable
including, but not limited to, amendments necessary to qualify for any exemption
or to comply with applicable law or regulations; provided, however, that except
as provided in Section 7, the Board may not, without further approval by the
stockholders of the Company, increase the maximum number of shares of Common
Stock as to which Awards may be granted under the Plan, increase the number of
shares subject to an Award, extend the period during which Awards may be granted
under the Plan, or change the class of persons eligible to receive Awards under
the Plan; and provided further, however, that the Plan may not be amended within
six (6) months after its adoption and may be amended no more than once every six
(6) months thereafter other than to bring the Plan into compliance with changes
in the Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended, including regulations and rulings
thereunder. No amendment of the Plan shall materially and adversely affect any
right of any Awardee with respect to any Award theretofore granted without such
Awardee's written consent. Any such action to amend or discontinue the Plan
shall be adopted by formal action of the Board and executed by an officer or
person authorized to act on behalf of the Company.
SECTION 10. TERMINATION. This Plan shall terminate upon the earlier of
the following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating
the Plan; or
(b) ten years from the date the Plan is initially approved and
adopted by the stockholders of the Company in accordance with Section
12.
Any action under Section 10(a) to terminate the Plan shall be adopted by formal
action of the Board and executed by an officer or person authorized to act on
behalf of the Company.
SECTION 11. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Outside
Director or other person shall have any claim or right to be granted an
Award under the Plan. Neither the Plan nor any action taken hereunder
shall be construed as giving any Outside Director any fight to be
retained in the service of the Company.
(b) An Awardee's right and interest under the Plan may not be
assigned or transferred in whole or in part either directly or by
operation of law or otherwise (except in the event of an Awardee's
death, by will or the laws of descent and distribution), including, but
not by way of limitation, execution, levy, garnishment, attachment,
pledge, bankruptcy,
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<PAGE>
or in any other manner, and no such right or interest of any
participant in the Plan shall be subject to any obligation or liability
of such participant.
(c) No shares of Common Stock shall be issued hereunder unless
counsel for the Company shall be satisfied that (i) such issuance will
be in compliance with applicable federal and state securities laws,
including, but not limited to, listing requirements and New York Stock
Exchange requirements, and any other laws or regulations applicable to
the delivery of such shares, and (ii) the certificates representing
shares of Common Stock awarded bear any and all legends (in addition to
the one set forth in Section 7(a)) necessary in order to comply with
such laws and regulations.
(d) It shall be a condition to the obligation of the Company
to issue an Award, that the Awardee pay to the Company, upon its
demand, such amount as may be requested by the Company for the purpose
of satisfying any liability to withhold federal, state, local income or
other taxes. If the amount requested is not paid, the Company may
refuse to issue an Award.
(e) The expenses of the Plan shall be borne by the Company.
(f) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of Awards under the Plan
and the issuance of Awards shall be subordinate to the claims of the
Company's general creditors.
(g) By accepting any Award or other benefit under the Plan,
each Awardee and each person claiming under or through such person
shall be conclusively deemed to have indicated his or her acceptance
and ratification of, and consent to, any action taken under the Plan by
the Company or the Board.
(h) All section references herein refer to sections of this
Plan unless specifically noted otherwise.
(i) Any notice or other communication provided for herein
shall be given in writing by registered or certified mail, return
receipt requested, or by facsimile, telecopy, or other means of
electronic communication, reasonably calculated in any instance to be
received by the receiving party or his, her or its authorized agent at
the receiving party's last- known address. The notice or communication
shall be deemed as delivered when it arrives at such address.
SECTION 12. APPROVAL OF PLAN. The effectiveness of this Plan is subject
to its approval and ratification by the stockholders of the Company within one
year from the date of adoption hereof by the Company.
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FACTORY STORES OF AMERICA, INC.
1996 RESTRICTED STOCK PLAN
Factory Stores of America, Inc., a Delaware corporation (the
"Corporation") does herein set forth the terms of the Factory Stores of America,
Inc. 1996 Restricted Stock Plan (this "Plan"), which was adopted by the Board of
Directors (the "Board") of the Corporation and the Executive Compensation
Committee of the Board (the "Committee") on January 16, 1996.
1. Purpose of this Plan
The purpose of this Plan is to provide to selected directors, officers,
and employees of the Corporation ("Participants" or singularly, "Participant")
an ownership interest in the Corporation, in consideration of their past or
anticipated future contributions to the profitability of the Corporation by
making awards ("Awards"or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock"). The Board believes that participation in the
ownership of the Corporation will induce Participants to serve the Corporation
as directors, officers, or employees and encourage them to contribute to the
future growth and profits of the Corporation. In addition, the existence of this
Plan will make it possible for the Corporation to attract capable individuals to
serve as directors, officers, or employees of the Corporation.
2. Administration of this Plan
(a) This Plan shall be administered by the Committee. The
Committee shall have full power and authority to construe, interpret,
and administer this Plan. All actions, decisions, determinations, or
interpretations of the Committee shall be final, conclusive, and
binding upon all parties.
(b) The Committee shall decide to whom Awards shall be made
under this Plan except as provided in subparagraphs 3(b) and 5(a)
below, the number of shares of Common Stock subject to each Award
except as provided in subparagraph 5(a) below, and such additional or
different terms and conditions for any or all Awards as the Committee
shall deem appropriate.
(c) The Committee may designate any officers or employees of
the Corporation to assist in the administration of this Plan. The
Committee may authorize such individuals to execute documents on its
behalf and may delegate to them such other ministerial and limited
discretionary duties as the Committee may see fit.
3. Shares of Common Stock Available Under the Plan
(a) The Corporation shall provide funding to the Plan to
purchase Three Hundred Fifty Thousand (350,000) shares of the Common
Stock of the Corporation (the "Initial Plan Shares"). Such shares shall
be held or delivered by the Corporation pursuant to the terms of this
Plan. The Initial Plan Shares may be (i) issued from the Corporation's
reserve of
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<PAGE>
authorized but unissued shares of Common Stock or (ii) purchased on the
open market, subject to any limitations of the federal securities laws,
as may be determined by the Committee.
(b) Subsequent to the purchase of the Initial Plan Shares as
provided in subparagraph (a) above, One Hundred Ninety-Six Thousand Six
Hundred Sixty-Seven (196,667) of such shares (the "Allocated Initial
Plan Shares") shall be allocated as provided in Paragraph 5 below. If
shares once allocated to an Initial Participant (as hereinafter
defined) are forfeited as provided in Paragraph 6 below, then such
forfeited shares shall be retained in the Plan and they shall again be
available for making additional Awards to Participants as provided in
Paragraph 2 above.
(c) At any time, and from time to time, the Board may resolve
to issue or purchase additional shares of Common Stock for making
Awards under this Plan. Such shares shall be held by the Corporation
pursuant to the terms of this Plan and shall be available for making
additional Awards to Participants as provided in Paragraph 2 above.
(d) The shares referred to in (i) the last sentence of
subparagraph (b) above; (ii) subparagraph (c) above; and (iii) the last
sentence of this subparagraph (d) and any unallocated Initial Plan
Shares shall be treated collectively as a pool of shares available (the
"Available Shares") for making additional Awards to Participants as
provided in Paragraph 2 above. With respect to the Available Shares, if
any such shares once allocated to a Participant are forfeited as
provided in Paragraph 6 below, then such forfeited shares shall be
available again for grants to Participants as provided in Paragraph 2
above.
4. Eligibility
The Participants in this Plan to whom Awards may be made shall be the
members of the Board and such officers and employees of the Corporation as may
be designated by the Committee.
5. Award of Allocated Initial Plan Shares; Additional Awards
(a) Subject to the provisions of Paragraph 7 below, all of the
Allocated Initial Plan Shares shall be awarded to the persons listed on
Schedule 5(a) (the "Initial Participants") in the number indicated
opposite their respective names, based upon past service and the
continued service of such individuals or their anticipated future
service as members of the Board, officers, or employees of the
Corporation.
(b) The Available Shares shall be held by the Corporation
under this Plan and shall be available for the making of additional
Awards to Participants during the remaining term of this Plan, upon
such terms and conditions as may be determined by the Committee.
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6. Vesting of Shares
(a) Unless otherwise determined by the Committee pursuant to
Paragraph 2(b) above, shares granted under this Plan shall vest and the
right of a Participant to the shares shall be nonforfeitable in
accordance with the following schedule.
Date When Such Shares Percentage of Such
Become Vested Shares Vested
First anniversary of Date of Award 331/3
Second anniversary of Date of Award 662/3
Third anniversary of Date of Award 100
(b) In determining the number of shares vested under the above
vesting schedule, a Participant shall not receive fractional shares. If
the product resulting from multiplying the vested percentage times the
allocated shares results in a fractional share, then a Participant's
vested right shall be to the whole number of shares disregarding any
fractional share.
(c) In the event the employment or board membership, as
applicable, of any Participant is terminated for any reason other than
as provided in subparagraphs (d), (e), and (f) below, and such
Participant does not have a 100% vested interest in an Award, then any
shares which are not vested, based upon the schedule in subparagraph
(a) above, shall be forfeited and shall be available again for Awards
to Participants as may be determined by the Committee.
(d) Unless otherwise determined by the Committee pursuant to
Paragraph 2(b) above, in the event that the membership of a Participant
on the Board or the employment of a Participant with the Corporation
should terminate because of such Participant's retirement, disability,
or death prior to the date when all shares allocated to the Participant
would be 100% vested in accordance with the schedule in subparagraph
(a) above then, notwithstanding the schedule in subparagraph (a) above,
all shares allocated to such Participant shall immediately become fully
vested and nonforfeitable. For purposes of this Plan, the term
"retirement" shall mean termination of a Participant's membership on
the Board or employment with the Corporation (i) with respect to
Participants who are employees of the Corporation, (A) simultaneously
with or subsequent to the termination of employment under conditions
which would constitute retirement under any tax qualified retirement
plan maintained by the Corporation or (B) attaining age 65; (ii) with
respect to Participants who are nonemployee directors of the
Corporation, at any time after attaining age 75 with approval of the
Committee. For purposes of this Plan, the term "disability" shall be
defined in the same manner as such term is defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended; provided, however,
that in the event the employment
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of a Participant by the Corporation is governed by a written employment
agreement that contains a definition of "disability," "permanent
disability," or similar term for purposes of such agreement, then the
definition of such term as set forth therein shall define "disability"
for purposes of this Plan.
(e) Unless otherwise determined by the Committee pursuant to
Paragraph 2(b) above, in the event that the membership of a Participant
on the Board or the employment of a Participant with the Corporation
should terminate because of a "change in control" of the Corporation
prior to the date when all shares allocated to the Participant would be
100% vested in accordance with the schedule in subparagraph (a) above
then, notwithstanding the schedule in subparagraph (a) above, all
shares allocated to such Participant shall immediately become fully
vested and nonforfeitable. When used herein, the phrase "change in
control" means the first to occur of the following events: (i) any
person or group of commonly controlled persons owns or controls,
directly or indirectly, fifty percent (50%) or more of the voting
control or value of the capital stock of the Corporation following the
grant date of the Award; (ii) any person or group of commonly
controlled persons owning less than five percent (5%) of the voting
control or value of the capital stock of the Corporation within 30 days
following the grant date of the Award owns or controls, directly or
indirectly, more than twenty percent (20%) of the voting control or
value of the capital stock of the Corporation; or (iii) following the
grant date of the Award, the stockholders of the Corporation approve an
agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
transactions) in a change in ownership of twenty percent (20%) or more
of the voting control or value of the capital stock of the Corporation,
or an agreement to sell or otherwise dispose of all or substantially
all of the Corporation's assets (including without limitation, a plan
of liquidation or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Corporation's business; provided,
however, a pledge, hypothecation, or other similar disposition for the
purpose of providing collateral security made at the time the
Corporation enters into a bona fide financing transaction with a party
which at the time of such transaction is not an affiliate of the
Corporation would not constitute a change in control; provided,
further, that in the event the employment of a Participant by the
Corporation is governed by a written employment agreement that contains
a definition of "change in control" for purposes of such agreement,
then the definition of "change in control" as set forth therein shall
define "change in control" for purposes of this Plan. Notwithstanding
the foregoing provisions of this subparagraph (e) the ownership or
acquisition of capital stock of the Corporation by J. Dixon Fleming,
Jr., C. Cammack Morton, Connell L. Radcliff, and/or their respective
affiliates, shall not be deemed to result in a "change in control" of
the Corporation.
(f) Unless otherwise determined by the Committee pursuant to
Paragraph 2(b) above, in the event that the employment of a Participant
by the Corporation is governed by a written employment agreement and
the employment of that Participant is terminated
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"without cause" as defined in such employment agreement then,
notwithstanding the schedule in subparagraph (a) above, all shares
allocated to such Participant shall immediately become fully vested and
nonforfeitable.
7. Action Required of Participants
(a) Each Participant receiving an Award of shares under this
Plan shall represent to and agree with the Corporation that the
Participant (i) is acquiring such shares on the Participant's behalf as
an investment and not with a present intention of distribution or
resale and (ii) agrees to have placed upon the certificates
representing such shares a legend setting forth these representations
and agreements or a reference thereto. Such shares shall be
transferable thereafter only if the proposed transfer shall be
permissible under this Plan and if, in the opinion of counsel for the
Corporation, such transfer shall at such time be in compliance with all
applicable federal and state securities laws and regulations.
(b) Each Participant receiving an Award of shares under this
Plan shall deliver to the Corporation a Restricted Stock Agreement
substantially in the form attached hereto as Exhibit A modified as
necessary to reflect any additional or different terms and conditions
or such Award deemed appropriate by the Committee pursuant to
subparagraph 2(b) above, which shall be signed by such Participant. In
the event of any inconsistency between this Plan and any such
Restricted Stock Agreement, the terms of the Restricted Stock Agreement
shall prevail.
8. Restriction
(a) Shares subject to an Award made under this Plan shall
forthwith, after the making of the representations required by
Paragraph 7 above, be issued and a certificate or certificates for such
shares shall be prepared in the name of such Participant. Such
Participant shall thereupon be a stockholder with respect to all the
shares represented by such certificate or certificates and shall have
all the rights of a stockholder with respect to a such shares,
including the right to vote such shares and to receive all dividends
and other distributions (subject to the provisions of subparagraph 8(b)
below) paid with respect to such shares; provided, however, that such
shares shall be subject to the restrictions described in Paragraph 6
above. Certificates of stock representing shares subject to an Award
made under this Plan shall be imprinted with a legend to the effect
that the shares represented are subject to restrictions on transfer and
potential forfeiture in accordance with the terms of the Restricted
Stock Agreement, and the transfer agent for Common Stock shall be
instructed to that effect with respect to such shares. In furtherance
of such restrictions, the Participant shall, immediately upon receipt
of the certificate or certificates, deposit such certificate or
certificates together with a stock power or other instrument of
transfer, appropriately endorsed in blank with the Corporation.
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(b) In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change or exchange for
other securities by reclassification, reorganization, merger,
consolidation, recapitalization, or otherwise, a Participant shall, as
the owner of the shares subject to an Award made under this Plan and
subject to the restrictions hereunder, be entitled to new or additional
or different shares of Common Stock or other securities, the
certificate or certificates for, or other evidence of, such new or
additional or different shares or other securities, together with a
stock power or other instrument of transfer appropriately endorsed,
shall also be imprinted with a legend as provided in subparagraph 8(a)
above and deposited by such Participant with the Corporation, and all
provisions of this Plan relating to vesting, restrictions, and lapse of
restrictions herein set forth shall thereupon be applicable to such
flaw or additional or different shares or other securities to the
extent applicable to the shares with respect to which they were
distributed; provided, however, that if a Participant should receive
rights warrants, or fractional interests in respect of any such shares
then being held under the terms of this Plan, such rights or warrants
may be held, exercised, sold, or otherwise disposed of, and such
fractional interests may be settled, by such Participant free and clear
of the restrictions herein set forth.
(c) The restriction to which shares subject to an Award made
under this Plan shall be subject is that if the directorship or
employment of a Participant should be terminated for any reason during
the "restricted period" (as defined in subparagraph 12(b) ) below),
except as otherwise specifically provided in Paragraph 6 above, the
Participant's interest in the shares issued under this Plan shall be
forfeited as provided in the applicable schedule in subparagraph l2(b)
below.
(d) The restrictions imposed on shares issued under this Plan
may at any time be modified, reduced, relaxed, or eliminated altogether
as the Committee shall from time to time determine, if, in its
discretion, the Committee considers such action to be in furtherance of
the purposes of this Plan. Notice of any change in restrictions shall
be given to affected Participants and the Corporation's transfer agent.
9. Effect of Award on Status of Participant. The fact that an Award is
made to a Participant under this Plan shall not confer on such Participant any
right to continued service on the Board, nor right to continued employment with
the Corporation; nor shall it limit the right of the directors or the
stockholders to remove such Participant from the Board, or to terminate the
Participant's employment at any time.
10. Voting Rights; Dividends; Other Distributions. A Participant shall
have the full power to vote all of the shares held by the Corporation in the
Participant's name from time to time and shall be entitled to receive all cash
dividends declared upon any such shares held by the Corporation in the
Participant's name from time to time. All shares of Common Stock or other
securities, including but not limited to stock dividends, issued in respect of
such shares or in substitution thereof, whether by the Corporation or by another
issuer, shall be held by the Corporation and shall be subject to all terms and
conditions of this Plan and shall be redelivered to
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<PAGE>
a Participant or delivered as instructed by the Committee under the same
circumstances as the shares with respect to, or in substitution for, which they
were issued, provided, however, that if a Participant should receive rights,
warrants, or fractional interests in respect of any of the shares held by the
Corporation in the Participant's name, such rights or warrants may be held
exercised, sold, or otherwise disposed of, and such fractional interests may be
settled, by such Participant free and clear of the restrictions herein set
forth. The Board shall have the full power to vote all Available Shares. Cash
dividends declared upon Available Shares shall be deposited in an interest
bearing account established for this Plan and shall be available to fund future
Awards or any other purpose determined by the Committee to be appropriate;
including, without limitation, payment over to the Corporation.
11. Adjustment Upon Changes in Capitalization; Dissolution; or
Liquidation
(a) In the event of a change in the number of shares of Common
Stock outstanding by reason of a reclassification, recapitalization,
reorganization, merger, or consolidation, or other similar capital
adjustment, merger or consolidation of the Corporation, or the sale by
the Corporation of all or a substantial portion of its assets, or the
occurrence of any other event which could affect the implementation of
this Plan and the realization of its objectives, the Committee may make
such adjustments in the terms, conditions, or restrictions of this Plan
and in any Restricted Stock Agreement then in effect, as the Committee
shall deem equitable and just.
(b) The making of an Award under this Plan shall not affect in
any way the right or power of the Corporation or its stockholders to
make or authorize any adjustment, recapitalization, reorganization, or
other change in the Corporation's capital structure or its business, or
any merger or consolidation of the Corporation, or its issue bonds,
debentures, preferred or other preference stock ahead of or affecting
Common Stock or the rights thereof, or the dissolution or liquidation
of the Corporation, or any sale or transfer of all or any part of the
Corporation's assets or business.
12. Nontransferability
(a) Any shares subject to an Award made under this Plan shall
not be sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of during the "restricted period." Nothing herein shall
preclude a Participant from making a gift of any such shares to a
spouse, child, stepchild, grandchild, parent, or sibling, or legal
dependent of such Participant, or to a trust of which the beneficiary
or beneficiaries of the trust shall be either a person designated
herein or such Participant; provided, however, that any such shares so
given by a Participant shall remain subject to the restrictions,
obligations, and conditions set forth in this Plan. In addition, such
shares may be tendered in response to a tender offer for or a request
or invitation to tenders of greater than fifty (50%) percent of the
outstanding Common Stock and may be surrendered in a merger,
consolidation, or share exchange involving the corporation; provided,
however, in each case, that except as otherwise provided
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<PAGE>
herein, the securities or other consideration received in exchange
therefor shall thereafter be subject to the restrictions and conditions
set forth in this Plan.
(b) The term "restricted period" with respect to shares
subject to an Award made under this Plan shall be the period commencing
on the date of making such Award of such shares to a Participant and
ending on the date on which such shares are no longer subject to
forfeiture as provided in paragraph 6(a) above. The date of making an
Award with respect to the Initial Plan Shares shall be the date
determined by the Board which shall be no sooner than the Effective
Date (as hereinafter defined). The date of making an Award with respect
to Available Shares shall be the date of execution by a Participant of
a Restricted Stock Agreement in the form referred to in subparagraph
7(b) above.
13. Tax Withholding. The Corporation shall have the right to deduct or
otherwise effect a withholding of any amount required by federal or state laws
to be withheld with respect to the making of an Award or the sale of shares
acquired under this Plan in order for the Corporation to obtain a tax deduction
otherwise available as a consequence of such Award or sale, as the case may be.
14. Exculpation and Indemnification. In connection with this Plan, no
member of the Board or the Committee shall be personally liable for any act or
omission to act in such person's capacity as a member of the Board or the
Committee, nor for any mistake in judgment made in good faith, unless arising
out of, or resulting from, such person's own bad faith, gross negligence,
willful misconduct or criminal acts. To the extent permitted by applicable law
and regulation, the Corporation shall indemnify and hold harmless the members of
the Board and the Committee and each other officer or employee of the
Corporation to whom any duty or power relating to the administration or
interpretation of this Plan may be assigned or delegated, from and against any
and all liabilities (including any amount paid in settlement of a claim with the
approval of the Board) and any costs or expenses (including counsel fees)
incurred by such persons arising out of or as a result of, any act or omission
to act in connection with the performance of such person's duties,
responsibilities, and obligations under this Plan, other than such liabilities,
costs, and expenses as may arise out of, or result from, the bad faith, gross
negligence, willful misconduct, or criminal acts of such persons.
15. Amendment and Modification of this Plan. The Board may at any time,
and from time to time, amend or modify this Plan (including the form of
Restricted Stock Agreement) in any respect; provided, however, that no amendment
or modification shall be made that increases the total number of Allocated
Initial Plan Shares covered by this Plan, changes the list of Initial
Participants or the number of Allocated Initial Plan Shares allocated to each,
or effects any change in the category of persons who may receive Awards of
shares under this Plan. Any amendment or modification of this Plan shall not in
any manner affect any Award of shares theretofore made to a Participant under
this Plan without the consent of such Participant or the transferee in the event
of the death of such Participant.
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<PAGE>
16. Termination and Expiration of this Plan. This Plan may be
abandoned, suspended, or terminated, in whole or in part at any time by the
Board; provided, however, that abandonment, suspension, or termination of this
Plan shall not affect any Awards theretofore made under this Plan. Unless sooner
terminated this Plan shall terminate at the close of business on the day that is
the tenth (10th) anniversary of the Effective Date (as hereinafter defined), or
the next business day thereafter; and no Award of shares may be made under this
Plan thereafter but such termination shall not effect any Award of shares
theretofore made. In the event that the Board terminates this Plan in whole, any
Available Shares that had not been allocated to eligible Participants together
with any other trust assets, shall revert to the Corporation.
17. Effective Date. This Plan has been adopted by the Board and the
Committee to be effective as of January 16, 1996 (the "Effective Date").
18. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, the singular number, the
plural, and vice versa, whenever such meanings are appropriate.
19. Expenses of Administration of Plan. All costs and expenses incurred
in the operation and administration of this Plan shall be borne by the
Corporation.
20. Governing Law. Without regard to the principles of conflicts of
laws, the laws of the State of North Carolina shall govern and control the
validity, interpretation, performance, and enforcement of this Plan.
21. Inspection of Plan. A copy of this Plan, and any amendments
thereto, shall be maintained by the Secretary of the Corporation and shall be
shown to any proper person making inquiry about it.
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<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN
FAC REALTY, INC.
AND
PATRICK M. MINIUTTI
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 21st day of October,
1996 between FAC REALTY, INC., a Delaware corporation (the "Company"), and
PATRICK M. MINIUTTI (the "Executive") for employment commencing on the Effective
Date (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as Executive Vice
President and Chief Financial Officer and the Executive hereby accepts such
employment, on the terms and subject to the conditions hereinafter set forth.
(b) During the term of his employment under this Employment
Agreement, the Executive shall be and have the title of Executive Vice President
and Chief Financial Officer and shall devote his entire business time and all
reasonable efforts to his employment and perform diligently such duties as are
customarily performed by executive vice presidents and chief financial officers
of companies similar in size to the Company, together with such other duties as
may be reasonably requested from time to time by the Board of Directors of the
Company (the "Board"), which duties shall be consistent with his title and
position as set forth above and as provided in Paragraph 2; provided, however,
that business activities by the Executive with respect to passive investments,
so long as such activities do not, alone or in the aggregate, materially
interfere with the Executive's performance of his duties as described in this
Paragraph l(b), will not be deemed inconsistent with the requirements of this
Paragraph l(b).
2. Term and Positions.
(a) Subject to the provisions for termination hereinafter
stated, the term of this Employment Agreement shall begin retroactively as of
August 26, 1996 (the "Effective Date") and shall continue through August 25,
1999 (the "Expiration Date"). As of the August 25, 1997 and each successive
anniversary thereof, such term automatically shall be extended for one (1)
additional year, unless: (i) this Employment Agreement is terminated as provided
in Paragraph 5 or (ii) either the Company or the Executive shall give written
notice to the other at least thirty (30) days before the Expiration Date or any
subsequent annual anniversary thereof that this Employment Agreement shall not
be so extended but shall terminate upon the expiration of the then-existing term
(for example, unless such written notice of non-extension is given on or prior
to July 26, 1997, the term of this Employment Agreement automatically will be
extended, effective August 26, 1997, until August 25, 2000).
<PAGE>
(b) The Executive shall be entitled to serve as Executive Vice
President and Chief Financial Officer of the Company. For service as an officer
and employee of the Company, and, upon election by the Company's Board of
Directors as a director, the Executive shall be entitled to the full protection
of the applicable indemnification provisions of the Restated Certificate of
Incorporation and Bylaws of the Company, as the same may be amended from time to
time, which indemnifications shall remain effective after termination of this
Employment Agreement with respect to Executive's actions and inactions during
the term hereof.
(c) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraphs l(b) and 2(b)
without his consent;
(ii) the Executive's place of employment or the
principal executive offices of the Company are located more than fifty
(50) miles from the geographical center of Cary, North Carolina;
(iii) there occurs a material breach by the Company
of any of its obligations under this Employment Agreement, which breach
has not been cured in all material respects within ten (10) days after
the Executive gives notice thereof to the Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company during the term of this Employment
Agreement;
(v) after his initial election to the Company's Board
of Directors, the Executive is not at all times during his employment
hereunder a member of the Board of Directors.
then in any such event the Executive shall have the right to terminate his
employment with the Company, but such termination shall not be considered a
voluntary resignation or termination of such employment or of this Employment
Agreement by the Executive but rather a discharge of the Executive by the
Company "without cause" (as defined in Paragraph 5 (a) (iii)). The Executive may
exercise such right of termination at any time within three (3) months following
the occurrence of the applicable event described in (i) and (iii) of this
Paragraph 2(c), and within six (6) months following the occurrence of the
applicable event described in (ii), (iv) and (v) of this Paragraph 2(c).
(d) The Executive shall be deemed not to have consented to any
written proposal calling for a material change in his duties and
responsibilities unless he shall give written notice of his consent thereto to
the Board of the Company within fifteen (15) days after receipt of such written
proposal. If the Executive shall not have given such consent, the Company shall
have the opportunity to withdraw such proposed material change by written notice
to the Executive given within ten (10) days after the end of said fifteen (15)
day period.
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<PAGE>
(e) The term "change in control" means the first to occur of
the following events:
(i) any person or group of commonly controlled
persons owns or controls, directly or indirectly, fifty
percent (50%) or more of the voting control or value of the
capital stock of the Company following the Effective Date;
(ii) any person or group of commonly controlled
persons owning less than five percent (5%) of the voting
control or value of the capital stock of the Company within 30
days following the Effective Date owns or controls, directly
or indirectly, more than twenty percent (20%) of the voting
control or value of the capital stock of the Company; or
(iii) following the Effective Date, the stockholders
of the Company approve an agreement to merge or consolidate
with another corporation or other entity resulting (whether
separately or in connection with a series of transactions) in
a change in ownership of twenty percent (20%) or more of the
voting control or value of the capital stock of the Company,
or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including without
limitation, a plan of liquidation or dissolution), or
otherwise approve of a fundamental alteration in the nature of
the Company's business; provided, however, a pledge,
hypothecation or other similar disposition for the purpose of
providing collateral security made at the time the Company
enters into a bona fide financing transaction with a party
which at the time of such transaction is not an affiliate of
the Company would not constitute a change in control.
Notwithstanding the foregoing provisions of this Paragraph 2, the
ownership or acquisition of capital stock by the Executive, J. Dixon
Fleming, Jr., C. Cammack Morton, Connell L. Radcliff, and/or their
respective affiliates, shall not be deemed to result in a "change in
control" of the Company.
3. Compensation.
During the term of his employment under this Employment
Agreement the Company shall pay or provide, as the case may be, to the Executive
the compensation and other benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary
payable in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly) of Two Hundred Thousand and
No/100 Dollars ($200,000.00) per annum, to be increased to Two Hundred
Twenty-Five Thousand and No/100 Dollars ($225,000.00) per annum on
February 1, 1997 and thereafter to be increased (but not decreased)
from time to time (based upon the performance of the Company and the
Executive) as determined by the Board or the Company's Executive
Compensation Committee.
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<PAGE>
(b) The Company shall pay to the Executive bonus compensation
on a calendar year basis pursuant to the terms of the incentive
compensation plan established by the Board from time to time, not later
than 30 days following the completion of the audit of the Company's
financial statements for each calendar year, prorated on a per diem
basis for partial calendar years in which the Executive was employed
hereunder.
(c) The Company shall provide to the Executive such life,
medical, hospitalization and dental insurance for himself, his spouse
and eligible family members, as may be available to other officers of
the Company.
(d) The Executive shall participate in all retirement and
other benefit plans of the Company generally available from time to
time to officers of the Company and for which the Executive qualifies
under the terms thereof (and nothing in this Employment Agreement shall
or shall be deemed to in any way affect the Executive's rights and
benefits thereunder except as expressly provided herein).
(e) The Executive shall be entitled to such periods of
vacation and sick leave allowance each year as are determined by the
Company's Executive Compensation Committee for officers generally;
provided that Executive shall be entitled to not less than four weeks
(twenty days) of vacation each year.
(f) The Executive shall be entitled to participate in any
equity or other employee benefit plan that is generally available to
senior executive officers, as distinguished from general management, of
the Company. The Executive's participation in and benefits under any
such plan shall be on the terms and subject to the conditions specified
in the governing document of the particular plan.
(g) The Company shall reimburse the Executive or provide him
with an expense allowance during the term of this Employment Agreement
for travel, entertainment and other expenses reasonably and necessarily
incurred by the Executive in connection with the Company's business.
The Executive shall furnish such documentation with respect to
reimbursement to be paid hereunder as the Company shall reasonably
request.
(h) The Company shall provide to the Executive a relocation
allowance in the amount of Fifty Thousand and No/100 Dollars
($50,000.00) which shall be paid to Executive in accordance with the
terms of that Promissory Note attached hereto as Exhibit A.
(i) The Company shall either reimburse Executive for, or
provide direct payment to applicable providers as to, Executive's
relocation costs including those for temporary housing and moving
expenses incurred through September 30, 1996.
4. Payment in the Event of Death or Permanent Disability.
(a) In the event of the Executive's death or "permanent
disability" (as hereinafter defined) during the term of his employment
under this Employment Agreement, the Company shall pay to the Executive
(or his personal representatives, heirs,
4
<PAGE>
successors and assigns in the event of his death) an amount equal to
two (2) times the Executive's then effective annual base salary, as
determined under Paragraph 3(a), plus a pro rata portion of the bonus
applicable to the calendar year in which such death or permanent
disability occurs, as such bonus is determined under Paragraph 3(b).
(b) The pro rata portion of the bonus described in Paragraph
4(a) shall be paid when and as provided in Paragraph 3(b). The
remainder of the benefit to be paid pursuant to Paragraph 4(a) shall be
paid within ninety (90) days after the date of death or permanent
disability, as the case may be.
(c) Except as otherwise provided in Paragraphs 2(b), 3(d),
4(a) and 4(b), in the event of the Executive's death or permanent
disability, the Executive's employment hereunder shall terminate and
the Executive shall be entitled to no further compensation or other
benefits under this Employment Agreement, except as to that portion of
any unpaid salary and other benefits accrued and earned by him
hereunder up to and including the date of such death or permanent
disability, as the case may be.
(d) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one
hundred twenty (120) days in the aggregate during any consecutive
twelve (12) month period, or after ninety (90) consecutive days, during
which one hundred twenty (120) or ninety (90) days, as the case may be,
the Executive, by reason of his physical or mental disability or
illness, shall have been unable to discharge his duties under this
Employment Agreement. The date of permanent disability shall be such
one hundred twentieth (120th) or ninetieth (9Oth) day, as the case may
be. In the event either the Company or the Executive, after receipt of
notice of the Executive's permanent disability from the other, dispute
that the Executive's permanent disability shall have occurred, the
Executive shall promptly submit to a physical examination by the chief
of medicine of any major accredited hospital in the Raleigh, North
Carolina, area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis,
the Executive is capable of resuming his employment and devoting his
full time and energy to discharging his duties within thirty (30) days
after the date of such statement, such permanent disability shall be
deemed to have occurred.
5. Termination.
(a) The Employment of the Executive under this Employment
Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined
above) of the Executive;
(ii) for "cause" at any time by action of the Board;
or
(iii) "without cause" at any time by action of the
Board.
5
<PAGE>
For purposes hereof, the term "cause" shall mean:
(A) The Executive's fraud, commission of a
felony, commission of an act or series of repeated acts of
dishonesty which fraud, felony or dishonesty is materially
inimical to the best interests of the Company, or which
results in material injury to the business reputation of the
Company, or the Executive's willful and repeated failure to
perform his duties under this Employment Agreement, which
failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive; or
(B) The Executive's material breach of any
material provision of this Employment Agreement, which breach
has not been cured in all substantial respects within ten (10)
days after the Company gives notice thereof to the Executive.
For purposes hereof, the term "without cause" shall mean any reason
other than those set forth in subparagraphs (a)(i) and (a)(ii) of this
Paragraph 5.
The exercise by the Company of its rights of termination under
this Paragraph 5 shall be the Company's sole remedy in the
event of the occurrence of the event as a result of which such
right to terminate arises. Upon any termination of this
Employment Agreement, the Executive shall be deemed to have
resigned from all offices and directorships held by the
Executive in the Company.
(b) In the event of a termination claimed by the Company to be
for "cause" pursuant to Paragraph 5(a)(ii), the Executive shall have the right
to have the justification for said termination determined by arbitration in
Raleigh, North Carolina. In order to exercise such right, the Executive shall
serve on the Company within thirty (30) days after termination a written request
for arbitration. The Company immediately shall request the appointment of a
single arbitrator by the American Arbitration Association and thereafter the
question of "cause" shall be determined under the rules of the American
Arbitration Association, and the decision of the arbitrator shall be final and
binding on both parties. The parties shall use all reasonable efforts to
facilitate and expedite the arbitration and shall act to cause the arbitration
to be completed as promptly as possible. During the pendency of the arbitration,
the Executive shall continue to receive all compensation and benefits to which
he is entitled hereunder, and if at any time during the pendency of such
arbitration the Company fails to pay and provide all compensation and benefits
to the Executive in a timely manner the Company shall be deemed to have
automatically waived whatever rights it then may have had to terminate the
Executive's employment for cause. Expenses of the arbitration shall be borne
equally by the parties.
(c) In the event of termination pursuant to subparagraph
(a)(i) or (a)(ii) of this Paragraph 5, except as otherwise provided in
Paragraphs 2(b), 3(d), 4(a) and 4(b), as applicable, the Executive shall be
entitled to no further compensation or other benefits under this Employment
Agreement, except as to that portion of any unpaid salary and other benefits
accrued and earned by him hereunder up to and including the effective date of
such termination.
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<PAGE>
(d) In the event of termination pursuant to Paragraph 2(c) or
subparagraph (a)(iii) of this paragraph 5, the Executive shall be entitled to
(i) severance pay payable within five (5) days of
such termination in a lump sum equal to the sum of (A) the
greater of (x) the total amount of unpaid base salary for the
then-unexpired portion of the term of this Employment
Agreement, at the then-effective annual rate of salary, as
determined under Paragraph 3(a) and (y) the amount of one
year's base salary at the then-effective annual rate of
salary, and (B) the product of the number of years (including
fractions) representing the unexpired term of this Employment
Agreement (but not less than one) times an amount equal to the
average of the annual bonuses payable to the Executive under
Paragraph 3(b) for the three (3) full calendar years
immediately prior to termination of this Employment Agreement
in which a bonus was payable or such lesser number of full
calendar years during which the Executive was employed
hereunder in which a bonus was payable,
(ii) during a period equal to the greater of one (1)
year or the unexpired term of this Employment Agreement, all
other benefits to which the Executive would have been entitled
during the term of this Employment Agreement had the
Executive's employment not been terminated,
(iii) during a period equal to the greater of one (1)
year or the unexpired term of this Employment Agreement, the
continuing use of a secretary and office space to be provided
by the Company, and
(iv) other benefits accrued and earned by him
hereunder up to and including the effective date of such
termination.
(e) In the event of the termination of his employment pursuant
to Paragraph 2(c) or Paragraph 5(a)(iii), the Executive shall have the option to
be released from his obligations under Paragraph 6(a)(i) for the one (1) year
period following the termination of his employment, by releasing the Company
from its obligations under Paragraph 5(d) hereof (other than those provided in
Paragraph 5(d)(iv)). Such option may be exercised by the Executive giving the
Company notice thereof within five (5) days of such termination.
(f) In no event shall the Executive have or be deemed to have
any duty to seek employment or otherwise mitigate damages with respect to any
amounts or benefits due to him upon termination of this Employment Agreement as
provided in this Paragraph 5, nor shall any such amount or benefits be reduced
by reason of any other compensation or benefits which the Executive may earn
following termination of this Employment Agreement.
6. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of his duties
and responsibilities during the time when he is employed under this Employment
Agreement. In light of such reliance and expectation on the part of the Company
(but subject to Paragraph 5(d) and 5(e) above), during the
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<PAGE>
time when he is employed under this Employment Agreement and for a period of one
(1) year after the termination of such employment for any reason other than the
expiration of the term hereof in accordance with Paragraph 2(a)(ii) hereof (and,
as to clause (ii) of this subparagraph (a), at any time during and after the
term of this Employment Agreement), the Executive shall not, directly or
indirectly, do either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any other corporation, partnership,
proprietorship, firm, association or other business entity engaged in
the business of, or otherwise engage in the business of, acquiring,
owning, developing or managing factory outlet shopping centers;
provided, however, that the ownership of (A) not more than one percent
(1%) of any class of publicly traded securities of any entity of (B)
any interest disclosed in the Company's Registration Statement on form
S-11 shall not be deemed a violation of this covenant; or
(ii) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information
relating to the Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it being
acknowledged by the Executive that all such information regarding the
business of the Company compiled or obtained by, or furnished to, the
Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information (A) is obtainable
in the public domain or known in the industry generally, (B) becomes
obtainable in the public domain or known in the industry generally,
except by reason of the breach by the Executive of the terms hereof,
(C) was not acquired by the Executive in connection with his employment
or affiliation with the Company, (D) was not acquired by the Executive
from the Company or its representatives, or (E) is required to be
disclosed by rule of law or by order of a court or governmental body or
agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 6 may be inadequate and that the
damages flowing such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that, upon adequate proof of the
Executive's violation of any legally enforceable provision of this Paragraph 6,
the Company may be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 6 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 6
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 6, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect the legitimate interests of
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<PAGE>
the Company and do not confer a benefit upon the Company disproportionate to the
detriment to the Executive.
7. Stock Options. The Executive shall receive stock options under the
Company's 1993 Employee Stock Incentive Plan (the "Option Plan") to purchase up
to 200,000 shares of the Company's common stock. To the extent permitted under
the Internal Revenue Code of 1986, as amended ("the Code"), such options shall
be eligible to qualify as "incentive stock options" under Section 422 of the
Code. The Company shall cause the shares underlying such options to be
registered on Form S-8 as soon as practicable after the date of grant. The
shares will be listed on the New York Stock Exchange (the "NYSE") and will be
freely tradable subject to the applicable provisions of Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). As soon as
practicable following approval of the option grant by the Company's Executive
Compensation Committee, the Company and the Executive shall enter into a Stock
Option Agreement in a form mutually agreed upon by the Company and the Executive
providing that such options shall vest at the rate of twenty percent (20%) on
the date of grant and an additional twenty percent (20%) on each of the next
four anniversaries of the date of grant, provided that at each date of vesting
he is employed by the Company, and upon vesting shall be exercisable at any time
or times during the ten year period following the date of grant at an option
price equal $8.63 which was the closing price of the Company's common stock on
the NYSE on August 26, 1996.
8. Restricted Stock. The Executive shall receive a grant of 90,000
shares (the "Restricted Shares") of restricted common stock of the Company
("Common Stock") granted under the Company's 1996 Restricted Stock Plan. Prior
to vesting, the Restricted Shares will be registered under the Securities Act on
Form S-8, will be listed on the NYSE and following vesting thereof will be
freely tradable subject to applicable provisions of Rule 144 promulgated under
the Securities Act. With respect to said grant, the Company and the Executive
shall enter into a Restricted Stock Agreement in a form mutually agreed upon by
the Company and the Executive providing that (i) the Restricted Shares shall
vest in eight installments (provided as to each installment that the Executive
continues to be employed by the Company) with the first being of thirty percent
(30%), commencing on the three-year anniversary date of the Effective Date
followed by seven (7) equal installments of ten percent (10%) each year
thereafter on the fourth through tenth year anniversaries of the Effective Date
provided (ii) such amount of the dividends paid on any unvested Restricted
Shares less an amount necessary to pay all applicable taxes associated with the
vesting of the Restricted Shares and such dividends shall be used by the
Executive to purchase additional shares of Common Stock within thirty (30) days
after each dividend payment to Executive or as soon thereafter as the Executive
may purchase shares of Common Stock without penalty under the Federal Securities
laws; and (iii) all unvested Restricted Shares shall immediately vest upon the
Executive's: death or permanent disability (as defined in Paragraph 4(d)) during
his employment by the Company; or termination of the Executive's employment by
the Company due to the Company's election not to extend this Employment
Agreement as permitted in Paragraph 2(a); or pursuant to Paragraph 5(a)(iii) if
such termination occurs within three (3) months prior to, at the time of, or
within one (1) year following a "change of control" (as defined in Section 2(e)
hereof) or provided that such change is effected, the execution of a definitive
agreement therefor (notwithstanding the requirement of continued employment in
subparagraph (i) above, upon such termination of employment).
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9. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to enter into, execute and deliver
this Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and this Employment Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its respective obligations hereunder and
consummate the transactions contemplated hereby.
10. Miscellaneous.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable nevertheless shall be binding
and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations of the
Executive under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the Executive (other than obligations to perform services
and to refrain from competition and disclosure of confidential information) and
his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Raleigh, North Carolina, and judgment upon the
award rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration; provided, however, that nothing in this
Paragraph 9(d) shall be construed so as to deny the Company the right and power
to seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by the Executive of any of his covenants contained in
Paragraph 6 hereof.
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<PAGE>
(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: Chairman, and
if mailed to the Executive, shall be addressed to him at his home address last
known on the records of the Company, or at such other address or addresses as
either the Company or the Executive may hereafter designate in writing to the
other. All notices provided for hereunder to the parties shall be accompanied by
simultaneous copy of such notice sent to the attorneys for such parties, as
follows:
If to the Executive:
(No counsel selected as of the date hereof)
If to the Company:
prior to December 1, 1996
FAC Realty, Inc.
230 North Equity Drive
Smithfield, North Carolina 27577
Attention: General Counsel
from and after December 1, 1996
FAC Realty, Inc.
11000 Regency Parkway,
Third Floor East Tower
Cary, North Carolina 27511
Attention: General Counsel
Notices sent by Federal Express or similar overnight delivery service or by
facsimile transmissions shall also constitute due notice under this paragraph
9(e), effective upon receipt thereof.
(f) The failure of either party to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to it under the
circumstances.
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<PAGE>
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties made prior to the date hereof and may not
be modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing and signed by the party against whom the
same is sought to be enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of North Carolina.
(i) Captions and paragraph headings used herein are for
convenience and are not a part of this Employment Agreement and shall not be
used in construing it.
(j) Where necessary or appropriate to the mean hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
(k) This Employment Agreement may be executed in multiple
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. This Employment Agreement
may be executed by facsimile signature.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
on the day and year first set forth above.
FAC REALTY, INC., a Delaware
corporation
By: /s/ C. Cammack Morton (SEAL)
C. Cammack Morton
President & COO
PATRICK M. MINIUTTI
/s/ Patrick M. Miniutti (SEAL)
Patrick M. Miniutti
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EMPLOYMENT AGREEMENT
BETWEEN
FAC REALTY, INC.
AND
MICHAELA M. TWOMEY
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 22nd day of July,
1996 between FAC REALTY, INC., a Delaware corporation (the "Company"), and
Michaela M. Twomey (the "Executive") for employment commencing on the Effective
Date (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as Senior Vice
President and the Executive hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth.
(b) During the term of her employment under this Employment
Agreement, the Executive shall be and have the title of Senior Vice President
and shall devote her entire business time and all reasonable efforts to her
employment and perform diligently such duties as are customarily performed by
Senior vice presidents of companies similar in size to the Company, together
with such other duties as may be reasonably requested from time to time by the
Board of Directors of the Company (the "Board"), which duties shall be
consistent with her title and position as set forth above and as provided in
Paragraph 2; provided, however, that business activities by the Executive with
respect to passive investments, so long as such activities do not, alone or in
the aggregate, materially interfere with the Executive's performance of her
duties as described in this Paragraph l(b), will not be deemed inconsistent with
the requirements of this Paragraph l(b).
2. Term and Positions.
(a) Subject to the provisions for termination hereinafter
stated, the term of this Employment Agreement shall begin on August 12, 1996
(the "Effective Date") and shall continue through the first anniversary of the
Effective Date.
(b) The Executive shall be entitled to serve as Senior Vice
President of the Company. For service as an officer and employee of the Company,
the Executive shall be entitled to the full protection of the applicable
indemnification provisions of the Certificate of Incorporation and Bylaws of the
Company, as the same may be amended from time to time, which indemnifications
shall remain effective after termination of this Employment Agreement with
respect to Executive's actions and inactions during the term hereof.
<PAGE>
(c) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraphs l(b) and 2(b)
without her consent;
(ii) the Executive's place of employment or the
principal executive offices of the Company are located more than fifty
(50) miles from the geographical center of Smithfield, North Carolina;
(iii) there occurs a material breach by the Company
of any of its obligations under this Employment Agreement, which breach
has not been cured in all material respects within ten (10) days after
the Executive gives notice thereof to the Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company during the term of this Employment
Agreement;
then in any such event the Executive shall have the right to terminate her
employment with the Company, but such termination shall not be considered a
voluntary resignation or termination of such employment or of this Employment
Agreement by the Executive but rather a discharge of the Executive by the
Company "without cause" (as defined in Paragraph 5 (a) (iii)). The Executive may
exercise such right of termination at any time within three (3) months following
the occurrence of the applicable event described in (i), (iii) and (iv) of this
Paragraph 2(c), and within six (6) months following the occurrence of the
applicable event described in (ii) of this Paragraph 2(c).
(d) The Executive shall be deemed not to have consented to any
written proposal calling for a material change in her duties and
responsibilities unless she shall give written notice of her consent thereto to
the Executive Management Committee of the Company within fifteen (15) days after
receipt of such written proposal. If the Executive shall not have given such
consent, the Company shall have the opportunity to withdraw such proposed
material change by written notice to the Executive given within ten (10) days
after the end of said fifteen (15) day period.
(e) The term "change in control" means the first to occur of
the following events:
i) any person or group of commonly controlled persons
owns or controls, directly or indirectly, fifty percent (50%)
or more of the voting control or value of the capital stock of
the Company following the Effective Date;
ii) any person or group of commonly controlled
persons owning less than five percent (5%) of the voting
control or value of the capital stock of the Company within 30
days following the Effective Date owns or controls, directly
or indirectly, more than twenty percent (20%) of the voting
control or value of the capital stock of the Company; or
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<PAGE>
iii) following the Effective Date, the stockholders
of the Company approve an agreement to merge or consolidate
with another corporation or other entity resulting (whether
separately or in connection with a series of transactions) in
a change in ownership of twenty percent (20%) or more of the
voting control or value of the capital stock of the Company,
or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including without
limitation, a plan of liquidation or dissolution), or
otherwise approve of a fundamental alteration in the nature of
the Company's business; provided, however, a pledge,
hypothecation or other similar disposition for the purpose of
providing collateral security made at the time the Company
enters into a bona fide financing transaction with a party
which at the time of such transaction is not an affiliate of
the Company would not constitute a change in control.
Notwithstanding the foregoing provisions of this Paragraph 2, the
ownership or acquisition of capital stock by the Executive, J. Dixon
Fleming, Jr., C. Cammack Morton, Connell L. Radcliff, and/or their
respective affiliates, shall not be deemed to result in a "change in
control" of the Company.
3. Compensation.
During the term of her employment under this Employment
Agreement the Company shall pay or provide, as the case may be, to the Executive
the compensation and other benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary
payable in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly) of One Hundred Thousand
Dollars ($100,000) per annum plus an amount to be agreed upon for major
transactions which are out of the ordinary day-to-day operation of our
business and which may substantially exceed the core time commitment,
to be increased (but not decreased) from time to time (based upon the
performance of the Company and the Executive) as determined by the
Board or the Company's Executive Compensation Committee.
(b) The Company shall pay to the Executive bonus compensation
on a calendar year basis pursuant to the terms of the incentive
compensation plan established by the Board from time to time, not later
than 30 days following the completion of the audit of the Company's
financial statements for each calendar year, prorated on a per diem
basis for partial calendar years in which the Executive was employed
hereunder.
(c) The Company shall provide to the Executive such life,
medical, hospitalization, dental and other insurance for herself, her
spouse and eligible family members, as may be available to other
officers of the Company.
(d) The Executive shall participate in all retirement and
other benefit plans of the Company generally available from time to
time to officers of the Company and for which the Executive qualifies
under the terms thereof (and nothing in this Employment Agreement shall
or shall be deemed to in any way affect the Executive's rights and
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<PAGE>
benefits thereunder except as expressly provided herein).
(e) The Executive shall be entitled to such periods of
vacation and sick leave allowance each year as are determined by the
Company's Executive Compensation Committee for officers generally.
(f) The Executive shall be entitled to participate in any
equity or other employee benefit plan that is generally available to
officers, as distinguished from general management, of the Company. The
Executive's participation in and benefits under any such plan shall be
on the terms and subject to the conditions specified in the governing
document of the particular plan.
(g) The Company shall reimburse the Executive or provide him
with an expense allowance during the term of this Employment Agreement
for travel, entertainment and other expenses reasonably and necessarily
incurred by the Executive in connection with the Company's business.
The Executive shall furnish such documentation with respect to
reimbursement to be paid hereunder as the Company shall reasonably
request.
4. Payment in the Event of Death or Permanent Disability.
(a) In the event of the Executive's death or "permanent
disability" (as hereinafter defined) during the term of her employment
under this Employment Agreement, the Company shall pay to the Executive
(or her personal representatives, heirs, successors and assigns in the
event of her death) an amount equal to two (2) times the Executive's
then effective annual base salary, as determined under Paragraph 3(a),
plus a pro rata portion of the bonus applicable to the calendar year in
which such death or permanent disability occurs, as such bonus is
determined under Paragraph 3(b).
(b) The pro rata portion of the bonus described in Paragraph
4(a) shall be paid when and as provided in Paragraph 3(b). The
remainder of the benefit to be paid pursuant to Paragraph 4(a) shall be
paid within ninety (90) days after the date of death or permanent
disability, as the case may be.
(c) Except as otherwise provided in Paragraphs 2(b), 3(d),
4(a) and 4(b), in the event of the Executive's death or permanent
disability, the Executive's employment hereunder shall terminate and
the Executive shall be entitled to no further compensation or other
benefits under this Employment Agreement, except as to that portion of
any unpaid salary and other benefits accrued and earned by him
hereunder up to and including the date of such death or permanent
disability, as the case may be.
(d) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one
hundred twenty (120) days in the aggregate during any consecutive
twelve (12) month period, or after ninety (90) consecutive days, during
which one hundred twenty (120) or ninety (90) days, as the case may be,
the Executive, by reason of her physical or mental disability or
illness, shall have been unable to discharge her duties under this
Employment Agreement. The date of
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<PAGE>
permanent disability shall be such one hundred twentieth (120th) or
ninetieth (9Oth) day, as the case may be. In the event either the
Company or the Executive, after receipt of notice of the Executive's
permanent disability from the other, dispute that the Executive's
permanent disability shall have occurred, the Executive shall promptly
submit to a physical examination by the chief of medicine of any major
accredited hospital in the Raleigh, North Carolina, area and, unless
such physician shall issue her written statement to the effect that in
her opinion, based on her diagnosis, the Executive is capable of
resuming her employment and devoting her full time and energy to
discharging her duties within thirty (30) days after the date of such
statement, such permanent disability shall be deemed to have occurred.
5. Termination.
(a) The Employment of the Executive under this Employment
Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined
above) of the Executive;
(ii) for "cause" at any time by action of the Board;
or
(iii) "without cause" at any time by action of the
Board.
For purposes hereof, the term "cause" shall mean:
(A) The Executive's fraud, commission of a
felony, commission of an act or series of repeated acts of
dishonesty which fraud, felony or dishonesty is materially
inimical to the best interests of the Company, or which
results in material injury to the business reputation of the
Company, or the Executive's willful and repeated failure to
perform her duties under this Employment Agreement, which
failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive; or
(B) The Executive's material breach of any
material provision of this Employment Agreement, which breach
has not been cured in all substantial respects within ten (10)
days after the Company gives notice thereof to the Executive.
For purposes hereof, the term "without cause" shall mean any reason
other than those set forth in subparagraphs (a)(i) and (a)(ii) of this
Paragraph 5.
The exercise by the Company of its rights of termination under
this Paragraph 5 shall be the Company's sole remedy in the
event of the occurrence of the event as a result of which such
right to terminate arises. Upon any termination of this
Employment Agreement, the Executive shall be deemed to have
resigned from all offices and directorships held by the
Executive in the Company.
5
<PAGE>
(b) In the event of a termination claimed by the Company to be
for "cause" pursuant to Paragraph 5(a)(ii), the Executive shall have the right
to have the justification for said termination determined by arbitration in
Raleigh, North Carolina. In order to exercise such right, the Executive shall
serve on the Company within thirty (30) days after termination a written request
for arbitration. The Company immediately shall request the appointment of a
single arbitrator by the American Arbitration Association and thereafter the
question of "cause" shall be determined under the rules of the American
Arbitration Association, and the decision of the arbitrator shall be final and
binding on both parties. The parties shall use all reasonable efforts to
facilitate and expedite the arbitration and shall act to cause the arbitration
to be completed as promptly as possible. During the pendency of the arbitration,
the Executive shall continue to receive all compensation and benefits to which
she is entitled hereunder, and if at any time during the pendency of such
arbitration the Company fails to pay and provide all compensation and benefits
to the Executive in a timely manner the Company shall be deemed to have
automatically waived whatever rights it then may have had to terminate the
Executive's employment for cause.
Expenses of the arbitration shall be borne equally by the parties.
(c) In the event of termination pursuant to subparagraph
(a)(i) or (a)(ii) of this Paragraph 5, except as otherwise provided in
Paragraphs 2(b), 3(d), 4(a) and 4(b), as applicable, the Executive shall be
entitled to no further compensation or other benefits under this Employment
Agreement, except as to that portion of any unpaid salary and other benefits
accrued and earned by him hereunder up to and including the effective date of
such termination.
(d) In the event of termination pursuant to Paragraph 2(c) or
subparagraph (a)(iii) of this Paragraph 5, the Executive shall be entitled to
(i) severance pay payable within five (5) days of such termination in a lump sum
equal to the greater of (A) the total amount of unpaid base salary for the
then-unexpired portion of the term of this Employment Agreement, at the then
effective annual rate of salary, as determined under Paragraph 3(a), and (B) the
amount of six month's base salary at the then effective annual rate of salary,
(ii) a pro rata portion of the bonus described in Paragraph 4(a) applicable to
the calendar year in which such termination occurs, as such bonus is determined
under Paragraph 3(b), and (iii) other benefits accrued and earned by him
hereunder up to and including the effective date of such termination.
(e) In no event shall the Executive have or be deemed to have
any duty to seek employment or otherwise mitigate damages with respect to any
amounts or benefits due to him upon termination of this Employment Agreement
provided in this Paragraph 5, nor shall any such amount or benefit be reduced by
reason of any other compensation or benefits which the Executive may earn
following termination of this Employment Agreement.
6. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of her duties
and responsibilities during the time when she is employed under this Employment
Agreement. In light of such reliance and expectation on the part of the Company,
during the time when she is employed under this Employment Agreement and if the
Executive's employment is terminated voluntarily by the
6
<PAGE>
Executive or by the Company pursuant to Paragraph 5(a)(ii), for the period after
such termination through the date this Employment Agreement would have otherwise
terminated but for such termination (and, as to clause (ii) of this subparagraph
(a), at any time during and after the term of this Employment Agreement), the
Executive shall not, directly or indirectly, do either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any other corporation, partnership,
proprietorship, firm, association or other business entity engaged in
the business of, or otherwise engage in the business of, acquiring,
owning, developing or managing factory outlet shopping centers;
provided, however, that the ownership of not more than one percent (1%)
of any class of publicly traded securities of any entity shall not be
deemed a violation of this covenant; or (ii) Disclose, divulge,
discuss, copy or otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, the Company, any
confidential information relating to the Company's operations,
properties or otherwise to its particular business or other trade
secrets of the Company, it being acknowledged by the Executive that all
such information regarding the business of the Company compiled or
obtained by, or furnished to, the Executive while the Executive shall
have been employed by or associated with the Company is confidential
information and the Company's exclusive property; provided, however,
that the foregoing restrictions shall not apply to the extent that such
information (A) is obtainable in the public domain or known in the
industry generally, (B) becomes obtainable in the public domain or
known in the industry generally, except by reason of the breach by the
Executive of the terms hereof, (C) was not acquired by the Executive in
connection with her employment or affiliation with the Company, (D) was
not acquired by the Executive from the Company or its representatives,
or (E) is required to be disclosed by rule of law or by order of a
court or governmental body or agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 6 may be inadequate and that the
damages flowing such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that, upon adequate proof of the
Executive's violation of any legally enforceable provision of this Paragraph 6,
the Company may be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 6 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 6
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 6, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect the legitimate interests of
the Company and do not confer a benefit upon the Company disproportionate to the
detriment to the Executive.
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<PAGE>
7. Stock Options. The Executive shall receive stock options under the
Company's 1993 Employee Stock Incentive Plan (the "Option Plan") to purchase up
to 35,000 shares of the Company's common stock. Such options shall be eligible
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended. The Company shall cause the shares underlying
such options to be registered on Form S-8 as soon as practicable after the date
of grant. The shares will be listed on the New York Stock Exchange (the "NYSE")
and will be freely tradable subject to the applicable provisions of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
As soon as practicable following approval of the option grant by the Company's
Executive Compensation Committee, the Company and the Executive shall enter into
a Stock Option Agreement in a form mutually agreed upon by the Company and the
Executive providing that such options shall vest at the rate of twenty percent
(20%) on the date of grant and an additional twenty percent (20%) on each of the
next four anniversaries of the date of grant, provided that at each date of
vesting she is employed by the Company, and upon vesting shall be exercisable at
any time or times during the ten year period following the date of grant at an
option price equal to the closing price of the Company's common stock on the
NYSE on the business day immediately preceding the effective date of the Stock
Option Agreement.
8. Restricted Stock. The Executive shall receive a grant of 4,384
shares (the "Restricted Shares") of restricted common stock of the Company
("Common Stock") granted under the Company's 1996 Restricted Stock Plan. Prior
to vesting, the Restricted Shares will be registered under the Securities Act on
Form S-8, will be listed on the NYSE and following vesting thereof will be
freely tradable subject to applicable provisions of Rule 144 promulgated under
the Securities Act. With respect to said grant, the Company and the Executive
shall enter into a Restricted Stock Agreement in a form mutually agreed upon by
the Company and the Executive providing that (i) the Restricted Shares shall
vest in three equal installments of thirty-three and one-third percent (331/3)
per year provided the Executive continues to be employed by the Company,
commencing on the one-year anniversary date of the Effective Date and (ii) upon
the Executive's death or permanent disability (as defined in Paragraph 4(d))
during her employment by the Company or termination of the Executive's
employment pursuant to (or, in the case of termination at any time following the
expiration of this Employment Agreement, for the reasons set forth in) Paragraph
2(c) or Paragraph 5(a)(iii), all unvested Restricted Shares shall
(notwithstanding the requirement of continued employment in subparagraph (i)
above), upon such termination of employment, immediately vest.
9. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to enter into, execute and deliver
this Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and
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this Employment Agreement constitutes the legally valid and binding obligation
of the Company, enforceable by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its respective obligations hereunder and
consummate the transactions contemplated hereby.
10. Miscellaneous.
(a) The Executive represents and warrants that she is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable nevertheless shall be binding
and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations of the
Executive under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the Executive (other than obligations to perform services
and to refrain from competition and disclosure of confidential information) and
her heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Raleigh, North Carolina, and judgment upon the
award rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration; provided, however, that nothing in this
Paragraph 9(d) shall be construed so as to deny the Company the right and power
to seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by the Executive of any of her covenants contained in
Paragraph 6 hereof.
(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: Chairman, and
if mailed to the Executive, shall be addressed to him at her home address last
known on the records of the Company, or at such other address or addresses as
either the Company or the Executive may hereafter designate in writing to the
other. All notices provided for hereunder to the parties shall be accompanied by
simultaneous copy of such notice sent to the attorneys for such parties, as
follows:
9
<PAGE>
If to the Executive:
Michaela M. Twomey
1095 Old Cedar Road
McLean, VA 22102
If to the Company:
Robin Malphrus, Esq.
FAC Realty, Inc.
230 N. Equity Drive
Smithfield, NC 27577
Notices sent by Federal Express or similar overnight delivery service or by
facsimile transmissions shall also constitute due notice under this paragraph
9(e), effective upon receipt thereof.
(f) The failure of either party to enforce any provision or
provisions of this Employment Agreement shall not in any way be construed as a
waiver of any such provision or provisions as to any future violations thereof,
nor prevent that party thereafter from enforcing each and every other provision
of this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to it under the
circumstances.
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties made prior to the date hereof and may not
be modified or terminated orally. No modification, termination or attempted
waiver shall be valid unless in writing and signed by the party against whom the
same is sought to be enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of North Carolina.
(i) Captions and paragraph headings used herein are for
convenience and are not a part of this Employment Agreement and shall not be
used in construing it.
(j) Where necessary or appropriate to the mean hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
(k) This Employment Agreement may be executed in multiple
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. This Employment Agreement
may be executed by facsimile signature.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
on the day and year first set forth above.
FAC Realty, Inc., a Delaware corporation
By: /s/ C. Cammack Morton
C. Cammack Morton
President
/s/ Michaela M. Twomey
Michaela M. Twomey
11
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is made and entered
into as of the 26th day of August, 1996 (hereinafter referred to as the
"Effective Date"), by and between FAC REALTY, INC., a Delaware corporation (the
"Corporation"), and PATRICK M. MINIUTTI (the "Participant").
WHEREAS, the Corporation's 1996 Restricted Stock Plan (the "Plan") has
been adopted by the Executive Compensation Committee (the "Committee") of the
Board of Directors of the Corporation (the "Board") and the Board; and
WHEREAS, the Committee has determined that it is desirable and in the
best interest of the Corporation to make an award (the "Award" ) of certain
shares of common stock, par value $.01 per share of the Corporation ("Common
Stock"), under the Plan, to the Participant, subject to certain restrictions as
specified below; and
WHEREAS, in order to enforce the aforesaid restrictions Participant is
required under the terms of the Award to immediately deposit the certificate(s)
for the shares of Common Stock subject to the Award, together with stock powers
appropriately endorsed in blank, with the Corporation in accordance with the
requirements of this Agreement.
NOW, THEREFORE, the Corporation and the Participant agree as follows:
1. Date of Award. The date of making the Award under this Agreement is
the 26th day of August, 1996 (the "Effective Date") .
2. Receipt by Participant. The Participant acknowledges receipt from
the Corporation of 90,000 shares of Common Stock (the "Restricted Stock" ) and
agrees to the execution of stock powers or such other transfer authorizations as
the Corporation shall request, in blank, covering the Restricted Stock to be
held by the Corporation, prior to the distribution of certificates representing
the Restricted Stock to the Participant as hereinafter provided.
3. Investment Representation; Transfer Restrictions. and Registration
(a) Investment Representation. Participant represents to the
Corporation that the Participant is taking the Restricted Stock for
investment and without any present intention to sell, transfer or
otherwise dispose of the Restricted Stock.
(b) Securities Law Restrictions. The Participant agrees with
the Corporation that the Restricted Stock shall be subject to such stop
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
Common Stock is then listed and any other applicable federal or state
securities laws, rules or
1
<PAGE>
regulations, and the Committee may cause a legend or legends to be
placed on any certificate representing any of the shares of Restricted
Stock to make appropriate reference to such restrictions.
(c) Other Transfer Restrictions. The Participant agrees with
the Corporation that each certificate representing any of the shares of
Restricted Stock may bear a legend, substantially in the form attached
as Exhibit A hereto, to the effect that the shares of Restricted Stock
represented thereby are subject to potential forfeiture and may not be
sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms of this Agreement, and
shall be subject to such stop transfer orders and other restrictions as
the Committee shall deem advisable to ensure compliance with the terms
of this Agreement.
(d) Registration. Prior to vesting pursuant to Paragraph 5
below, the Corporation shall cause the Restricted Stock to be
registered under the Securities Act of 1933 and to be listed on the New
York Stock Exchange (the "NYSE" ).
4. Receipt by the Corporation. The Corporation acknowledges receipt
from the Participant of certificates representing the Restricted Stock,
registered in the name of the Participant, and acknowledges receipt of stock
powers executed in blank by the Participant covering all of the Restricted
Stock. Certificates representing the Restricted Stock shall be held by the
Corporation and distributed or transferred as directed by the Committee in
accordance with this Agreement.
5. Vesting and Delivery of Restricted Stock by the Corporation
(a) Periodic Vesting. Subject to subparagraph 5(b) below, the
Restricted Stock shall vest and become nonforfeitable in accordance
with the following schedule:
<TABLE>
<S> <C>
On the third anniversary of the Effective Date: 30% Vested
On the fourth anniversary of the Effective Date an additional: 10% Vested
On the fifth anniversary of the Effective Date an additional: 10% Vested
On the sixth anniversary of the Effective Date an additional: 10% Vested
On the seventh anniversary of the Effective Date an additional: 10% Vested
On the eighth anniversary of the Effective Date an additional: 10% Vested
On the ninth anniversary of the Effective Date an additional: 10% Vested
On the tenth anniversary of the Effective Date an additional: 10% Vested
</TABLE>
(b) Accelerated Vesting
(i) Notwithstanding the requirement of continued
employment in subparagraph 5 (a) above, all Restricted Stock
not previously vested and subject to forfeiture shall vest and
the right of the Participant to such shares of Restricted
Stock shall become nonforfeitable upon the occurrence of any
of the following:
2
<PAGE>
(i) the Participant's death during his
employment by the Corporation; or
(ii) the Participant's disability (as
defined in the Plan) during his employment by the
Corporation; or
(iii) termination of the Participant's
employment by the Corporation due to the
Corporation's election not to extend the
Participant's employment agreement (with the
Corporation with an Effective Date of August 26,
1996, as the same may be amended "the Employment
Agreement") as permitted in Paragraph 2(a) thereof;
or
(iv) the termination of Participant's
employment by the Corporation "without cause"
pursuant to 5(a)(iii) of the Employment Agreement if
such termination occurs within three (3) months prior
to, at the time of, or within one (1) year following
a "change of control" as defined in Section 2(e) of
the Employment Agreement or, provided that such
change is effected, the execution of a definitive
agreement therefor.
(c) Delivery of Restricted Stock Certificates to the
Participant. Within thirty (30) days after a date on which shares of
Restricted Stock have become vested as provided in subparagraphs 5 (a)
or 5 (b) above, the Committee shall instruct the appropriate officer of
the Corporation to deliver to the Participant, the Participant's
designee, or such other person as shall have been designated as
Participant's beneficiary in accordance with this Agreement, as
applicable, certificates representing the shares of Restricted Stock
which have become vested and nonforfeitable, free from any restrictions
imposed by this Agreement other than such restrictions and conditions
as may be deemed necessary by the Committee to assure compliance with
all applicable securities laws rules regulations and listing
requirements as set forth in subparagraph 3 (b) above.
(d) Delivery of Forfeited Restricted Stock. If the
Participant's employment with the Corporation terminates for any reason
other than one of those provided in subparagraph 5 (b) above, before
all of the shares of Restricted Stock are vested in accordance with
subparagraphs 5 (a) and 5 (b) above, all such shares then subject to
forfeiture shall be deemed forfeited by the Participant and the
Committee shall instruct the appropriate officer of the Corporation
concerning the disposition of such forfeited shares.
Thereafter such forfeited shares shall cease to be subject to this
Agreement.
(e) Limitation on Shares of Restricted Stock. Except as
otherwise provided in Paragraph 6 (a) or 9 of this Agreement, the
aggregate number of shares of Restricted Stock which the Participant
may be entitled to receive under this Agreement shall not exceed
90,000.
3
<PAGE>
6. Voting Rights; Dividends; Other Distributions
(a) The Participant shall have the full power to vote all of
the Restricted Stock held by the Corporation in his name from time to
time and shall be entitled to receive all cash dividends declared upon
any of the Restricted Stock held by the Corporation in his name from
time to time. All shares of Common Stock or other securities, including
but not limited to stock dividends, issued in respect of the Restricted
Stock or in substitution thereof, whether by the Corporation or by
another issuer, shall be held by the Corporation and shall be subject
to all terms and conditions of this Agreement and shall be redelivered
to the Participant or delivered as instructed by the Committee under
the same circumstances as the Restricted Stock with respect to, or in
substitution for which they were issued; provided, however, that if the
Participant should receive rights, warrants or fractional interests in
respect of any of the Restricted Stock held by the Corporation in his
name, such rights or warrants may be held, exercised, sold or otherwise
disposed of, and such fractional interests may be settled, by the
Participant free and clear of the restrictions herein set forth.
(b) The Participant shall use the cash dividends paid on any
unvested shares of Restricted Stock, less an amount necessary to pay
all applicable taxes associated with the vesting of the Restricted
Stock and such dividends, to purchase additional shares of Common Stock
within thirty (30) days of payment or as soon thereafter as the
Participant may purchase shares of Common Stock without penalty under
the Federal securities laws.
7. Designation of Beneficiary. The Participant may file with the
Committee a written designation of one or more persons as the beneficiary who
shall be entitled to receive the Restricted Stock, if any, distributable to the
Participant upon his death.
The Participant may, from time to time, revoke or change his beneficiary
designation without the consent of any prior beneficiary, if any, by filing a
new designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt.
If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Restricted
Stock, if any, distributable to the Participant upon the Participant's death. If
the Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct an appropriate officer of the Corporation
to retain the Restricted Stock, without liability for any interest in respect
thereof, until the rights thereto are determined, or the Committee may direct
the transfer of such Restricted Stock into any court of appropriate jurisdiction
and such transfer shall be deemed a complete discharge of the obligations of the
Corporation hereunder.
4
<PAGE>
8. Effect of Award on Status of Participant. The fact that an Award has
been made to the Participant under this Plan shall not confer on the Participant
any right to continued employment with the Corporation; nor shall it limit the
right of the Corporation to terminate the Participant's employment at any time.
9. Adjustment Upon Chances in Capitalization: Dissolution or
Liquidation
(a) In the event of a change in the number or type of shares
of Common Stock outstanding (or in the event of an exchange of such
shares) by reason of a reclassification recapitalization,
reorganization, merger, or consolidation, or other similar capital
adjustment, merger or consolidation of the Corporation, or the sale by
the Corporation of all or a substantial portion of its assets, or the
occurrence of any other event which could affect the implementation of
the Plan and the realization of its objectives, the Committee shall
make such adjustments in the terms, conditions, or restrictions of this
Agreement as are equitable and just.
(b) The making of the Award under this Agreement does not
affect in any way the right or power of the Corporation or its
stockholders to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Corporation's capital structure
or its business, or any merger or consolidation of the Corporation, or
to issue bonds, debentures, preferred or other preference stock ahead
of or affecting Common Stock or the rights thereof or the dissolution
or liquidation of the Corporation, or any sale or transfer of all or
any part of the Corporation's assets or business.
10. Nontransferability. The Restricted Stock may not be sold,
exchanged, transferred, pledged, hypothecated, or otherwise disposed of by the
Participant until transferred to the Participant by the Corporation in
accordance with the terms of this Agreement. Nothing herein shall preclude the
Participant from making a gift of any Restricted Stock to a spouse, child,
stepchild, grandchild, parent, sibling, or legal dependent of the Participant or
to a trust of which the beneficiary or beneficiaries of the trust shall be
either a person designated herein or the Participant, provided, however, that
any Restricted Stock so given shall remain subject to the restrictions,
obligations and conditions set forth in this Agreement. In addition, the
Restricted Stock may be tendered in response to a tender offer for or a request
or invitation to tender of greater than fifty percent (50%) of the common stock
of the Corporation and may be surrendered in a merger, consolidation or share
exchange involving the Corporation; provided, however, in each case, that except
as otherwise provided in Paragraph 6 above, the security or other consideration
received in exchange therefor shall thereafter be subject to the restrictions
and conditions set forth in this Agreement.
11. Taxes. All Restricted Stock distributed pursuant to this Agreement,
and any amounts distributed with respect thereto prior to distribution of such
Restricted Stock by the Corporation, shall be subject to applicable federal,
state and local withholding for taxes. The Participant expressly acknowledges
and agrees to such withholding without regard to whether the Restricted Stock
may then be sold or otherwise transferred by the Participant.
5
<PAGE>
12. Notices. Any notices or other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or when delivered to a
nationally recognized overnight courier service or deposited in the United
States mail as Certified Mail, return receipt requested, properly addressed and
postage prepaid, if to the Corporation at its principal office prior to December
1, 1996 at 230 North Equity Drive, Smithfield, North Carolina 27577 (from and
after December 1, 1996 at 11000 Regency Parkway, Third Floor East Tower, Cary,
North Carolina 27511; and, if to the Participant, at his last address appearing
on the books of the Corporation. The Corporation and the Participant may change
their address or addresses by giving written notice of such change as provided
herein. Any notice or other communication hereunder shall be deemed to have been
given on the date actually delivered, as of the first (1st) business day
following delivery to a nationally recognized overnight courier service or as of
the third (3rd) business day following the date mailed, as the case may be.
13. Construction Controlled by Plan. This Agreement shall be construed
so as to be consistent with the Plan; and except as specifically provided herein
the provisions of the Plan shall be deemed to be controlling in the event that
any provision hereof should appear to be inconsistent therewith. The Participant
hereby acknowledges receipt of a copy of the Plan from the Corporation.
14. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof, shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
15. Modification of Agreement; Waiver. This Agreement may be modified,
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto. No waiver hereunder shall constitute a waiver with respect to any
subsequent occurrence or other transaction hereunder or of any other provision
hereof .
16. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Agreement. As used herein,
the masculine gender shall include the feminine and neuter, the singular number
the plural, and vice versa, whenever such meanings are appropriate.
17. Governing Law: Venue and Jurisdiction. Without regard to the
principles of conflicts of laws, the laws of the state of North Carolina shall
govern and control the validity interpretation, performance, and enforcement of
this Agreement. The parties hereto agree that any suit or action relating to
this Agreement shall be Instituted and prosecuted in the courts of the County of
Johnston, State of North Carolina, and each party hereby does waive any right or
defense relating to such jurisdiction and venue.
6
<PAGE>
18. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the Corporation, and its successors and assigns, and
shall be binding upon and inure to the benefit of the Participant, and his
heirs, legatees, personal representatives, executors and administrators.
19. Entire Agreement. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral in effect between the parties hereto relating to the matters
addressed herein.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed in its corporate name by a duly authorized officer, and attested by its
Secretary or any of its Assistant Secretaries, and its corporate seal to be
hereto affixed, all by authority of its Board of Directors first duly given; and
the individual parties hereto have hereunto set his hand and adopted as his seal
the typewritten word "SEAL" appearing beside his name, all done this the day and
year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton (SEAL)
C. Cammack Morton
President and COO
ATTEST:
(sig of secretary)
Secretary
[Corporate Seal]
/s/ Patrick M. Miniutti (SEAL)
Patrick M. Miniutti
7
<PAGE>
EXHIBIT A
Form of Legend
The shares represented by this certificate are subject to restrictions
on transfer and potential forfeiture under the terms of a Restricted Stock
Agreement dated April 4, 1996, a copy of which agreement may be obtained from
the issuer by writing to:
prior to December 1, 1996
FAC Realty, Inc.
230 North Equity Drive
Smithfield, NC 27577
Attention: Corporate Secretary
from and after December 1, 1996
FAC Realty, Inc.
11000 Regency Parkway
Third Floor East Tower
Cary, North Carolina 27511
Attention: Corporate Secretary
8
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Patrick M. Miniutti hereby sells, assigns
and transfers in accordance with the terms of that Restricted Stock Agreement
dated August 26, 1996 between himself and the Company (hereinafter defined) unto
( ) unvested Shares of the Common Stock of FAC REALTY, INC. (the "Company")
standing in his name on the books of the Company represented by Certificate(s)
No. herewith, and does hereby irrevocably constitute and appoint the Company as
his attorney-in-fact to transfer the said stock on the books of the Company with
full power of substitution in the same.
Dated
IN THE PRESENCE OF:
(SEAL)
Patrick M. Miniutti
9
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is made and entered
into as of this12th day of August, 1996 (hereinafter referred to as the
"Effective Date"), by and between FAC REALTY, INC., a Delaware corporation (the
"Corporation"), and MICHAELA M. TWOMEY (the "Participant").
WHEREAS, The FAC Realty, Inc. 1996 Restricted Stock Plan (the "Plan")
has been adopted by the Executive Compensation Committee (the "Committee") of
the Board of Directors of the Corporation (the "Board") and the Board; and
WHEREAS, the Committee has determined that it is desirable and in the
best interest of the Corporation to make an award (the "Award") of certain
shares of common stock, par value $.01 per share of the Corporation ("Common
Stock"), under the Plan, to the Participant, subject to certain restrictions as
specified below; and
WHEREAS, in order to enforce the aforesaid restrictions, Participant is
required under the terms of the Award to immediately deposit the certificate(s)
for the shares of Common Stock subject to the Award, together with stock powers
appropriately endorsed in blank, with the Corporation in accordance with the
requirements of this Agreement.
NOW, THEREFORE, the Corporation and the Participant agree as follows:
1. Date of Award. The date of making the Award under this Agreement is
the 12th day of August, 1996 (the "Effective Date").
2. Receipt by Participant. The Participant acknowledges receipt from
the Corporation of 4,384 shares of Common Stock (the "Restricted Stock") and
agrees to the execution of stock powers or such other transfer authorizations as
the Corporation shall request, in blank, covering the Restricted Stock to be
held by the Corporation, prior to the distribution of certificates representing
the Restricted Stock to the Participant as hereinafter provided.
3. Investment Representation and Transfer Restrictions
(a) Investment Representation. Participant represents to the
Corporation that the Participant is taking the Restricted Stock for
investment and without any present intention to sell, transfer or
otherwise dispose of the Restricted Stock.
(b) Securities Law Restrictions. The Participant agrees with
the Corporation that the Restricted Stock shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
Common Stock is then listed and any other applicable federal or state
securities laws, rules or regulations, and the Committee may cause a
legend or legends to be placed on any certificate
<PAGE>
representing any of the shares of Restricted Stock to make appropriate
reference to such restrictions.
(c) Other Transfer Restrictions. The Participant agrees with
the Corporation that each certificate representing any of the shares of
Restricted Stock may bear a legend, substantially in the form attached
as Exhibit A hereto, to the effect that the shares of Restricted Stock
represented thereby are subject to potential forfeiture and may not be
sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms of this Agreement, and
shall be subject to such stop-transfer orders and other restrictions as
the Committee shall deem advisable to ensure compliance with the terms
of this Agreement.
(d) Registration. Prior to vesting pursuant to Paragraph 5
below, the Corporation shall cause the Restricted Stock to be
registered under the Securities Act of 1933 and to be listed on the New
York Stock Exchange.
4. Receipt by the Corporation. The Corporation acknowledges receipt
from the Participant of certificates representing the Restricted Stock,
registered in the name of the Participant, and acknowledges receipt of stock
powers executed in blank by the Participant covering all of the Restricted
Stock. Certificates representing the Restricted Stock shall be held by the
Corporation and distributed or transferred as directed by the Committee in
accordance with this Agreement.
5. Vesting and Delivery of Restricted Stock by the Corporation
(a) Periodic Vesting. Subject to subparagraph 5(b) below, the
Restricted Stock shall vest and become nonforfeitable in accordance
with the following schedule:
On the first anniversary
of the Effective Date: 331/3% vested
On the second anniversary
of the Effective Date of Award: 331/3% vested
On the third anniversary
of the Effective Date of Award: 331/3% vested
(b) Accelerated Vesting. Notwithstanding subparagraph 5(a)
above, all Restricted Stock previously not vested and subject to
forfeiture shall vest and the right of the Participant to such shares
of the Restricted Stock shall become nonforfeitable upon the occurrence
of any of the following:
(i) Retirement of Participant. The termination of the
Participant's membership on the Board or employment by the
Corporation, as applicable, by reason of retirement (as
defined in the Plan).
<PAGE>
(ii) Disability of Participant. The termination of
the Participant's membership on the Board or employment by the
Corporation, as applicable, by reason of disability (as
defined in the Plan).
(iii) Death of Participant. The Participant's death
during the employment of the Participant by the Corporation.
(iv) Change in Control. The termination of the
Participant's membership on the Board or employment by the
Corporation, as applicable, by reason of a "change in control"
(as defined in the Plan) of the Corporation.
(c) Delivery of Restricted Stock Certificates to the
Participant. Within thirty (30) days after a date on which shares of
Restricted Stock have become vested as provided in subparagraphs 5(a)
or 5(b) above, the Committee shall instruct the appropriate officer of
the Corporation to deliver to the Participant, the Participant's
designee, or such other person as shall have been designated as
Participant's beneficiary in accordance with this Agreement, as
applicable, certificates representing the shares of Restricted Stock
which have become vested and nonforfeitable, free from any restrictions
imposed by this Agreement other than such restrictions and conditions
as may be deemed necessary by the Committee to assure compliance with
all applicable securities laws, rules, regulations and listing
requirements as set forth in subparagraph 3(b) above.
(d) Delivery of Forfeited Restricted Stock. If the
Participant's employment with the Corporation terminates for any reason
other than one of those provided in subparagraph 5(b) above, before all
of the shares of Restricted Stock are vested in accordance with
subparagraphs 5(a) and 5(b) above, all such shares then subject to
forfeiture shall be deemed forfeited by the Participant and the
Committee shall instruct the appropriate officer of the Corporation
concerning the disposition of such forfeited shares. Thereafter such
forfeited shares shall cease to be subject to this Agreement.
6. Voting Rights: Dividends: Other Distributions. The Participant shall
have the full power to vote all of the Restricted Stock held by the Corporation
in the Participant's name from time to time and shall be entitled to receive all
cash dividends declared upon any of the Restricted Stock held by the Corporation
in the Participant's name from time to time. All shares of Common Stock or other
securities, including but not limited to stock dividends, issued in respect of
the Restricted Stock or in substitution thereof, whether by the Corporation or
by another issuer, shall be held by the Corporation and shall be subject to all
terms and conditions of this Agreement and shall be redelivered to the
Participant or delivered as instructed by the Committee under the same
circumstances as the Restricted Stock with respect to, or in substitution for,
which they were issued; provided, however, that if the Participant should
receive rights, warrants or fractional interests in respect of any of the
Restricted Stock held by the Corporation in the Participant's name, such rights
or warrants may be held, exercised, sold or otherwise disposed of, and such
fractional interests may be settled, by the Participant free and clear of the
restrictions herein set forth.
<PAGE>
7. Designation of Beneficiary. The Participant may file with the
Committee a written designation of one or more persons as the beneficiary who
shall be entitled to receive the Restricted Stock, if any, distributable to the
Participant upon the Participant's death. The Participant may, from time to
time, revoke or change the Participant's beneficiary designation without the
consent of any prior beneficiary, if any, by filing a new designation with the
Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt.
If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated the Participant's beneficiary and shall receive
the Restricted Stock, if any, distributable to the Participant upon the
Participant's death. If the Committee is in doubt as to the right of any person
to receive such distribution, the Committee may direct an appropriate officer of
the Corporation to retain the Restricted Stock, without liability for any
interest in respect thereof, until the rights thereto are determined, or the
Committee may direct the transfer of such Restricted Stock into any court of
appropriate jurisdiction and such transfer shall be deemed a complete discharge
of the obligations of the Corporation hereunder.
8. Effect of Award on Status of Participant. The fact that an Award has
been made to the Participant under this Plan shall not confer on the Participant
any right to continued employment with the Corporation; nor shall it limit the
right of the Corporation to terminate the Participant's employment at any time.
9. Adjustment Upon Changes in Capitalization; Dissolution or
Liquidation
(a) In the event of a change in the number or type of shares
of Common Stock outstanding (or in the event of an exchange of such
shares) by reason of a reclassification, recapitalization,
reorganization, merger, or consolidation, or other similar capital
adjustment, merger or consolidation of the Corporation, or the sale by
the Corporation of all or a substantial portion of its assets, or the
occurrence of any other event which could affect the implementation of
the Plan and the realization of its objectives, the Committee shall
make such adjustments in the terms, conditions, or restrictions of this
Agreement as are equitable and just.
(b) The making of the Award under this Agreement does not
affect in any way the right or power of the Corporation or its
stockholders to make or authorize any adjustment, recapitalization,
reorganization, or other change in the Corporation's capital structure
or its business, or any merger or consolidation of the Corporation, or
to issue bonds, debentures, preferred or other preference stock ahead
of or affecting Common Stock or the rights thereof, or the dissolution
or liquidation of the Corporation, or any sale or transfer of all or
any part of the Corporation's assets or business.
<PAGE>
10. Nontransferability. The Restricted Stock may not be sold,
exchanged, transferred, pledged, hypothecated, or otherwise disposed of by the
Participant until transferred to the Participant by the Corporation in
accordance with the terms of this Agreement. Nothing herein shall preclude the
Participant from making a gift of any Restricted Stock to a spouse, child,
stepchild, grandchild, parent, sibling, or legal dependent of the Participant,
or to a trust of which the beneficiary or beneficiaries of the trust shall be
either a person designated herein or the Participant, provided, however, that
any Restricted Stock so given shall remain subject to the restrictions,
obligations and conditions set forth in this Agreement. In addition, the
Restricted Stock may be tendered in response to a tender offer for or a request
or invitation to tender of greater than fifty percent (50%) of the common stock
of the Corporation and may be surrendered in a merger, consolidation or share
exchange involving the Corporation; provided, however, in each case, that except
as otherwise provided in Paragraph 6 above, the security or other consideration
received in exchange therefor shall thereafter be subject to the restrictions
and conditions set forth in this Agreement.
11. Taxes. All Restricted Stock distributed pursuant to this Agreement,
and any amounts distributed with respect thereto prior to distribution of such
Restricted Stock by the Corporation, shall be subject to applicable federal,
state and local withholding for taxes. The Participant expressly acknowledges
and agrees to such withholding without regard to whether the Restricted Stock
may then be sold or otherwise transferred by the Participant.
12. Notices. Any notices or other communications required or permitted
to be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or when delivered to a
nationally recognized overnight courier service or deposited in the United
States mail as Certified Mail, return receipt requested, properly addressed and
postage prepaid, if to the Corporation at its principal office at 230 North
Equity Drive, Smithfield, North Carolina 27577; and, if to the Participant, at
the Participant's last address appearing on the books of the Corporation. The
Corporation and the Participant may change their address or addresses by giving
written notice of such change as provided herein. Any notice or other
communication hereunder shall be deemed to have been given on the date actually
delivered, as of the first (1st) business day following delivery to a nationally
recognized overnight courier service, or as of the third (3rd) business day
following the date mailed, as the case may be.
13. Construction Controlled by Plan. This Agreement shall be construed
so as to be consistent with the Plan; and except as specifically provided herein
the provisions of the Plan shall be deemed to be controlling in the event that
any provision hereof should appear to be inconsistent therewith. The Participant
hereby acknowledges receipt of a copy of the Plan from the Corporation.
14. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof, shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
<PAGE>
15. Modification of Agreement; Waiver. This Agreement may be modified,
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto. No waiver hereunder shall constitute a waiver with respect to any
subsequent occurrence or other transaction hereunder or of any other provision
hereof.
16. Captions and Headings; Gender and Number. Captions and paragraph
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or in construction of this Agreement. As used herein,
the masculine gender shall include the feminine and neuter, the singular number
the plural, and vice versa, whenever such meanings are appropriate.
17. Governing Law: Venue and Jurisdiction. Without regard to the
principles of conflicts of laws, the laws of the State of North Carolina shall
govern and control the validity, interpretation, performance, and enforcement of
this Agreement. The parties hereto agree that any suit or action relating to
this Agreement shall be instituted and prosecuted in the courts of the County of
Johnston, State of North Carolina, and each party hereby does waive any right or
defense relating to such jurisdiction and venue.
18. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the Corporation, and its successors and assigns, and
shall be binding upon and inure to the benefit of the Participant, and his
heirs, legatees, personal representatives, executors and administrators.
19. Entire Agreement. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed in its corporate name by a duly authorized officer, and attested by its
Secretary or any of its Assistant Secretaries, and its corporate seal to be
hereto affixed, all by authority of its Board of Directors first duly given; and
the individual party hereto has hereunto set such party's hand and adopted as
such party's seal the typewritten word "SEAL" appearing beside such party's
name, all done this the day and year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
C. Cammack Morton
President
ATTEST:
(sig of secretary)
Secretary
[Corporate Seal]
/s/ Michaela M. Twomey (SEAL)
MICHAELA M. TWOMEY
<PAGE>
EXHIBIT A
Form of Legend
The shares represented by this certificate are subject to restrictions
on transfer and potential forfeiture under the terms of a Restricted Stock
Agreement dated ____________________, 1996, a copy of which agreement may be
obtained from the issuer by writing to:
FAC Realty, Inc.
230 North Equity Drive
Smithfield, North Carolina 27358
Attention: Corporate Secretary
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 26th day of August, 1996, by and
between FAC REALTY, INC., a Delaware corporation (the "Company"), and PATRICK M.
MINIUTTI, an individual (the "Holder"), pursuant to, and under authority of, the
Company's 1993 Employee Stock Incentive Plan (the "Plan") .
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Holder with an option to
purchase Fifty- Six Thousand Three Hundred Thirty-Five (56,335) shares of Common
Stock, $.01 par value, of the Company ("Shares"); and
WHEREAS, the Holder desires to accept such option;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:
1. Grant of Option. The Company does hereby grant to the Holder, and
the Holder does hereby accept, the right and option (the "Option") to purchase,
at the option of the Holder 56,335 Shares at the option price of $8.63 per Share
and upon and subject to the other terms and conditions hereof. Notwithstanding
the foregoing, if at any or from time to time the number of Shares are increased
or decreased, or changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company or of another corporation
(whether as a result of a stock split, stock dividend, combination or exchange
of shares, exchange for other securities, reclassification, reorganization
redesignation, merger, consolidation, recapitalization or otherwise), then (i)
there shall automatically be substituted, for each Share for which the Option
has not been exercised, the number and kind of shares of stock or other
securities into which each outstanding share shall be changed or for which each
such share shall be exchanged, and (ii) the option price per Share shall be
increased or decreased proportionately so that the aggregate exercise price for
the Shares subject to the Option shall remain the same as immediately prior to
such event. In addition to the foregoing, the Company shall be entitled in the
event of any such increase, decrease or exchange of Shares to make adjustments
to this Agreement (including adjustments which may provide for the elimination
of fractional shares) which do not have a material adverse effect upon the
Holder, where necessary to preserve the terms and conditions hereof.
2. Term of the Option. Subject to the other terms and conditions
hereof, the Option shall vest with respect to Eleven Thousand Two Hundred
Sixty-Seven (11,267) Shares per year on the first through fifth anniversaries of
the Effective Date, and is exercisable, in whole or in part only with respect to
those Shares for which the option has become vested. Shares for which the Option
has become exercisable shall be referred to herein as "Vested Shares", and
Shares for which the Option has not become exercisable shall be referred to
herein as "Unvested Shares".
1
<PAGE>
The Option shall terminate on August 26, 2006, and must be exercised, if at all,
before such date and shall not thereafter be exercisable, notwithstanding
anything herein to the contrary. The "Effective Date" for the purpose of this
Paragraph 2 shall be the date first written above.
3. 1993 Employee Stock Incentive Plan. This Option is in all respects
subject to the terms and conditions of the Plan, which is incorporated by
reference herein.
4. Exercise. (i) Subject to the other terms and conditions hereof, and
provided payment is made as provided below, the Option shall be exercisable from
time to time by written notice to the Company (in the form required by the
Company) which shall:
(a) state that the Option is thereby being exercised the
number of Shares with respect to which the Option is being exercised,
each person in whose name any certificates for the Shares should be
registered and such person's address and social security number;
(b) be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by anyone other than
the Holder, be accompanied by proof satisfactory to counsel for the
Company of the right of such person or persons to exercise the Option
under all applicable laws and regulations; and
(c) be accompanied by such representations, warranties or
agreements with respect to the investment intent of such person or
persons exercising the Option and the compliance with any applicable
law or regulation or to confirm any factual matters as the Company or
its counsel may reasonably request, in form and substance satisfactory
to counsel for the Company.
(ii) Payment of the option price may be made, in the
discretion of the person exercising the Option, in one of the following manners,
or in any other manner approved by the Administrator (as "Administrator" is
defined in the Plan), in its sole discretion:
(a) the written notice to the Company described above may be
accompanied by full payment of the option price in cash or by check,
or, with the consent of the Company, in whole or in part with a
surrender of previously acquired Shares of the Company having a Fair
Market Value (as defined below) on the date of exercise equal to that
portion of the purchase price for which payment in cash or check is not
made. The later of the dates on which such notice and payment are
received by the Company shall be the date of exercise of the Option;
and
(b) within five days of the giving of the written notice to
the Company described above, the funds to pay for exercise of the
Option may be delivered to the Company by a broker acting on behalf of
the person exercising the Option either in connection with the sale of
the Shares underlying the Option or in connection with the making of a
margin loan to such person to enable payment of the exercise price of
the
2
<PAGE>
Option. The later of the dates on which such notice and payment are
received by the Company shall be the date of exercise of the Option. In
connection with any such exercise, the Company will provide a copy of
the notice of exercise of the Option to the aforesaid broker upon
receipt by the Company of such notice and will deliver to such broker,
within five business days of the delivery of such notice to the
Company, a certificate or certificates (as requested by the broker)
representing the number of Shares underlying the Option that have been
sold by such broker for the person exercising the Option.
(iii) For purposes hereof, the "Fair Market Value" of a Share
as of a given date shall be (in order of applicability): (a) the closing price
of a Share on the principal exchange on which the Shares are then trading, if
any, on the day immediately prior to such date, or if Shares were not traded on
the day previous to such date, then on the next preceding trading day during
which a sale occurred; or (b) if Shares are not traded on an exchange but are
quoted on NASDAQ or a successor quotation system, (1) the last sale price (if
Shares are then listed as a National Market Issue under the NASD national Market
System), or (2) if Shares are not then so listed, the mean between the closing
representative bid and asked prices for Shares on the day previous to such date
as reported by NASDAQ or such successor quotation system; or (c) if Shares are
not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for Shares
on the day previous to such date, as determined in good faith by the
Administrator; and (d) if Shares are not publicly traded, the fair market value
established by the Administrator acting in good faith.
(iv) Upon exercise of the Option and the satisfaction of all
conditions thereto, the Company shall deliver a certificate or certificates for
Shares to the specified person or persons at the specified time upon receipt of
payment for such Shares as set forth above .
5. Termination of Employment. If the Holder's employment with the
Company ends on account of his death or permanent and total disability, the
Option shall automatically become vested with respect to all Shares, and the
Option must be exercised if at all, within the one-year period ending on the
anniversary of such death or permanent and total disability. In the case of
death, the Option shall be exercised by the Holder's estate or the person
designated by the Holder by will, or as otherwise designated by the laws of
descent and distribution. If the Holder's employment with the Company ends due
to termination of his employment by the Company "without cause" (as defined in
Section 8 of the Plan), the Option may and must be exercised, if at all, with
respect to any or all of the Vested Shares, within one year of the date of such
termination. In all other instances that the Holder ceases to be an employee of
the Company, the Holder shall have no right after his employment ends to
exercise all or any part of this Option with respect to either Vested or
Unvested Shares. For purposes hereof, "permanent and total disability" is
defined in Section 8 of the Plan.
3
<PAGE>
6. Transferability. The Option and the Holder's rights therein are not
transferable by the Holder, except upon the death of the Holder as provided in
Paragraph 5. The Option is exercisable (subject to any other applicable
restrictions on exercise) only by the Holder, except when a guardian or other
legal representative has been duly appointed for the Holder and except in the
event of the Holder's death as provided in Paragraph 5.
7. Taxes. The Holder hereby agrees to pay to the Company any federal,
state or local taxes of any kind that may be required by law to be withheld and
remitted by the Company will respect to the Option and the exercise thereof. If
the Holder does not make such payment to the Company, the Company, to the extent
required or permitted by law, shall have the right to withhold from any payment
of any kind otherwise due to the Holder from the Company, any federal, state or
local taxes of any kind required by law to be withheld with respect to the
Option or the Shares which are the subject of the Option. The Administrator, in
its sole discretion, may permit the Holder to pay such taxes through the
withholding of Shares otherwise deliverable to the Holder upon exercise of the
Option or the delivery to the Company of Common Shares otherwise acquired by the
Holder. The fair market value of Common Shares withheld by the Company or
tendered to the Company for the satisfaction of any tax withholding obligations
determined to exist under this Paragraph 8 shall be determined on the date such
Common Shares are withheld or tendered.
8. Intent. This Option is an incentive stock option as defined in
Section 422 of the Internal Revenue Code of 1986, as amended.
9. Securities Law Compliance. Notwithstanding any provision of this
Agreement to the contrary, the Option shall not be exercisable unless, at the
time the Holder attempts to exercise the Option, in the opinion of counsel for
the Company, all applicable securities laws, rules and regulations have been
complied with. The Holder agrees that the Administrator may impose such
restrictions on the Shares as are deemed advisable by the Administrator,
including, without limitation, restrictions relating to listing or trading
requirements. The Holder further agrees that certificates representing the
Shares may bear such legends and statements as the Administrator shall deem
appropriate or advisable to assure. among other things, compliance with
applicable securities laws, rules and regulations.
10. Rights of the Holder. The Holder shall have no dividend voting or
other rights of a stockholder with respect to the Shares which are subject to
the Option prior to the purchase of such Shares upon exercise of the Option and
the execution and delivery of all other documents and instruments deemed
necessary or desirable by the Company.
11. Miscellaneous. This Agreement shall be governed by and construed ln
accordance with the laws of the State of Delaware except to the extent otherwise
governed by Federal law.
4
<PAGE>
IN WITNESS WHEREOF, the parties have subscribed their names hereto as
of the date first above written.
FAC REALTY, INC., a Delaware corporation
By: /s/ C. Cammack Morton (SEAL)
C. Cammack Morton
President and COO
/s/ Patrick M. Miniutti (SEAL)
Patrick M. Miniutti
5
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 26th day of August, 1996, by and
between FAC REALTY, INC., a Delaware corporation (the "Company"), and PATRICK M.
MINIUTTI, an individual (the "Holder"), pursuant to, and under authority of, the
Company's 1993 Employee Stock Incentive Plan (the "Plan").
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Holder with an option to
purchase One Hundred Forty-Three Thousand Six Hundred Sixty-Five (143,665)
shares of Common Stock, $.01 par value, of the Company ("Shares"); and
WHEREAS, the Holder desires to accept such option;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:
1. Grant of Option. The Company does hereby grant to the Holder, and
the Holder does hereby accept, the right and option (the "Option") to purchase,
at the option of the Holder, 143,665 Shares at the option price of $8.63 per
Share, upon and subject to the other terms and conditions hereof.
Notwithstanding the foregoing, if at any or from time to time the number of
Shares are increased or decreased, or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation (whether as a result of a stock split, stock dividend,
combination or exchange of shares, exchange for other securities,
reclassification, reorganization redesignation, merger, consolidation,
recapitalization or otherwise), then (i) there shall automatically be
substituted, for each Share for which the Option has not been exercised, the
number and kind of shares of stock or other securities into which each
outstanding share shall be changed or for which each such share shall be
exchanged, and (ii) the option price per Share shall be increased or decreased
proportionately so that the aggregate exercise price for the Shares subject to
the Option shall remain the same as immediately prior to such event. In addition
to the foregoing, the Company shall be entitled in the event of any such
increase, decrease or exchange of Shares to make adjustments to this Agreement
(including adjustments which may provide for the elimination of fractional
shares) which do not have a material adverse effect upon the Holder, where
necessary to preserve the terms and conditions hereof.
2. Term of the Option. Subject to the other terms and conditions
hereof, the Option shall vest with respect to Twenty-Eight Thousand Seven
Hundred Thirty-Three (28,733) Shares per year on the first through fifth
anniversaries of the Effective Date, and is exercisable, in whole or in part,
only with respect to those Shares for which the Option has become vested. Shares
for which the Option has become exercisable shall be referred to herein as
"Vested Shares", and Shares for which the Option has not become exercisable
shall be referred to herein as "Unvested Shares". The Option shall terminate on
August 26, 2006, and must be exercised, if at all, before
1
<PAGE>
such date and shall not thereafter be exercisable, notwithstanding anything
herein to the contrary. The "Effective Date" for the purpose of this Paragraph 2
shall be the date first written above.
3. Conditions on Exercise Should there ever be insufficient Shares
under the Plan for the exercise of the Option as to the desired number of
Shares, the Option may not be exercised as to such number of Shares unless and
until stockholders of the Company approve an amendment to the Plan to provide
sufficient shares under the Plan for the Option.
4. Exercise. (i) Subject to the other terms and conditions hereof, and
provided payment is made as provided below, the Option shall be exercisable from
time to time by written notice to the Company (in the form required by the
Company) which shall:
(a) state that the Option is thereby being exercised the
number of Shares with respect to which the Option is being exercised,
each person in whose name any certificates for the Shares should be
registered and such person's address and social security number;
(b) be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by anyone other than
the Holder, be accompanied by proof satisfactory to counsel for the
Company of the right of such person or persons to exercise the Option
under all applicable laws and regulations; and
(c) be accompanied by such representations, warranties or
agreements with respect to the investment intent of such person or
persons exercising the Option and the compliance with any applicable
law or regulation or to confirm any factual matters as the Company or
its counsel may reasonably request, in form and substance satisfactory
to counsel for the Company.
(ii) Payment of the Option price may be made, in the
discretion of the person exercising the Option, in one of the following manners,
or in any other manner approved by the Administrator (as "Administrator" is
defined in the Plan), in its sole discretion:
(a) the written notice to the Company described above may be
accompanied by full payment of the option price in cash or by check,
or, with the consent of the Company, in whole or in part with a
surrender of previously acquired Shares of the Company having a Fair
Market Value (as defined below) on the date of exercise equal to that
portion of the purchase price for which payment in cash or check is not
made. The later of the dates on which such notice and payment are
received by the Company shall be the date of exercise of the Option;
and
(b) within five days of the giving of the written notice to
the Company described above, the funds to pay for exercise of the
Option may be delivered to the Company by a broker acting on behalf of
the person exercising the Option either in connection with the sale of
the Shares underlying the Option or in connection with the making of a
margin loan to such person to enable payment of the exercise price of
the Option. The later of the dates on which such notice and payment are
received by the
2
<PAGE>
Company shall be the date of exercise of the Option. In connection with
any such exercise, the Company will provide a copy of the notice of
exercise of the Option to the aforesaid broker upon receipt by the
Company of such notice and will deliver to such broker, within five
business days of the delivery of such notice to the Company, a
certificate or cer`tificates (as requested by the broker) representing
the number of Shares underlying the Option that have been sold by such
broker for the person exercising the Option.
(iii) For purposes hereof, the "Fair Market Value" of a Share
as of a given date shall be (in order of applicability): (a) the closing price
of a Share on the principal exchange on which the Shares are then trading, if
any, on the day immediately prior to such date, or if Shares were not traded on
the day previous to such date, then on the next preceding trading day during
which a sale occurred; or (b) if Shares are not traded on an exchange but are
quoted on NASDAQ or a successor quotation system, (1) the last sale price (if
Shares are then listed as a National Market Issue under the NASD national Market
System), or (2) if Shares are not then so listed, the mean between the closing
representative bid and asked prices for Shares on the day previous to such date
as reported by NASDAQ or such successor quotation system; or (c) if Shares are
not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for Shares,
on the day previous to such date, as determined in good faith by the
Administrator; and (d) if Shares are not publicly traded, the fair market value
established by the Administrator acting in good faith.
(iv) Upon exercise of the Option and the satisfaction of all
conditions thereto, the Company shall deliver a certificate or certificates for
Shares to the specified person or persons at the specified time upon receipt of
payment for such Shares as set forth above .
5. Termination of Employment. If the Holder's employment with the
Company ends on account of his death or permanent and total disability, the
Option shall automatically become vested with respect to all Shares, and the
Option must be exercised, if at all, within the one-year period ending on the
anniversary of such death or permanent and total disability. In the case of
death, the Option shall be exercised by the Holder's estate or the person
designated by the Holder by will, or as otherwise designated by the laws of
descent and distribution. If the Holder's employment with the Company ends due
to termination of his employment by the Company "without cause" (as defined in
Section 8 of the Plan), the Option may and must be exercised, if at all, with
respect to any or all of the Vested Shares, within one year of the date of such
termination. In all other instances that the Holder ceases to be an employee of
the Company, the Holder shall have no right after his employment ends to
exercise all or any part of this Option with respect to either Vested or
Unvested Shares. For purposes hereof, "permanent and total disability" is
defined in Section 8 of the Plan.
6. Transferability. The Option and the Holder's rights therein are not
transferable by the Holder, except upon the death of the Holder as provided in
Paragraph 5. The Option is exercisable (subject to any other applicable
restrictions on exercise) only by the Holder, except when a guardian or other
legal representative has been duly appointed for the Holder and except in the
event of the Holder's death as provided in Paragraph 5.
3
<PAGE>
7. Taxes. The Holder hereby agrees to pay to the Company any federal,
state or local taxes of any kind that may be required by law to be withheld and
remitted by the Company with respect to the Option and the exercise thereof. If
the Holder does not make such payment to the Company, the Company, to the extent
required or permitted by law, shall have the right to withhold from any payment
of any kind otherwise due to the Holder from the Company, any federal, state or
local taxes of any hind required by law to be withheld with respect to the
Option or the Shares which are the subject of the Option. The Administrator, in
its sole discretion, may permit the Holder to pay such taxes through the
withholding of Shares otherwise deliverable to the Holder upon exercise of the
Option or the delivery to the Company of Common Shares otherwise acquired by the
Holder. The fair market value of Common Shares withheld by the Company or
tendered to the Company for the satisfaction of any tax withholding obligations
determined to exist under this Paragraph 8 shall be determined on the date such
Common Shares are withheld or tendered.
8. Intent. The Option does not, and is not intended to, qualify as an
"Incentive Stock Option" for purposes of Section 422 (b) of the Internal Revenue
Code of 1986, as amended. The option shall be construed and exercised consistent
with such intention.
9. Securities Law Compliance. Notwithstanding any provision of this
Agreement to the contrary, the Option shall not be exercisable unless, at the
time the Holder attempts to exercise the Option, in the opinion of counsel for
the Company, all applicable securities laws, rules and regulations have been
complied with. The Holder agrees that the Administrator may impose such
restrictions on the Shares as are deemed advisable by the Administrator,
including, without limitation, restrictions relating to listing or trading
requirements. The Holder further agrees that certificates representing the
Shares may bear such legends and statements as the Administrator shall deem
appropriate or advisable to assure, among other things, compliance with
applicable securities laws, rules and regulations.
10. Rights of the Holder. The Holder shall have no dividend, voting or
other rights of a stockholder with respect to the Shares which are subject to
the Option prior to the purchase of such Shares upon exercise of the Option and
the execution and delivery of all other documents and instruments deemed
necessary or desirable by the Company.
11. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware except to the extent otherwise
governed by Federal law. This Option is subject in all respects to the terms and
conditions of the Plan, which are incorporated by reference herein.
4
<PAGE>
IN WITNESS WHEREOF, the parties have subscribed their names hereto as
of the date first above written.
FAC REALTY, INC., a Delaware
corporation
By: /s/ C. Cammack Morton (SEAL)
C. Cammack Morton
President and COO
/s/ Patrick M. Miniutti (SEAL)
Patrick M. Miniutti
5
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the 18th day of July, 1996, by and between
FAC REALTY, INC., a Delaware corporation (the "Company"), and Michaela M.
Twomey, an individual (the "Holder"), pursuant to and under authority of the
Company's, 1993 Employee Stock Incentive Plan (the "Plan").
W I T N E S S E T H:
WHEREAS, the Company desires to provide the Holder with an option to
purchase Thirty- Five Thousand (35,000) shares of Common Stock, $.01 par value,
of the Company ("Shares"); and
WHEREAS, the Holder desires to accept such option;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:
1. Grant of Option. The Company does hereby grant to the Holder, and
the Holder does hereby accept, the right and option (the "Option") to purchase,
at the option of the Holder, 35,000 Shares at the option price of $8.875 per
Share and upon and subject to the other terms and conditions hereof.
Notwithstanding the foregoing, if at any or from time to time the number of
Shares are increased or decreased, or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation (whether as a result of a stock split, stock dividend,
combination or exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization or otherwise), then (i) there shall automatically be
substituted, for each Share for which the Option has not been exercised, the
number and kind of shares of stock or other securities into which each
outstanding share shall be changed or for which each such share shall be
exchanged, and (ii) the option price per Share shall be increased or decreased
proportionately so that the aggregate exercise price for the Shares subject to
the Option shall remain the same as immediately prior to such event. In addition
to the foregoing, the Company shall be entitled in the event of any such
increase, decrease or exchange of Shares to make adjustments to this Agreement
(including adjustments which may provide for the elimination of fractional
shares) which do not have a material adverse effect upon the Holder, where
necessary to preserve the terms and conditions hereof.
2. Term of the Option. Subject to the other terms and conditions
hereof, the Option shall vest with respect to Seven Thousand (7,000) Shares on
the Effective Date and shall vest with respect to Seven Thousand (7,000) Shares
per year on the first through fourth anniversaries of the Effective Date, and is
exercisable, in whole or in part, only with respect to those Shares for which
the Option has become vested. Shares for which the Option has become exercisable
shall be referred to herein as "Vested Shares", and Shares for which the Option
has not become exercisable shall be referred to herein as "Unvested Shares". The
Option shall terminate on July
<PAGE>
17, 2006 and must be exercised, if at all, before such date and shall not
thereafter be exercisable, notwithstanding anything herein to the contrary. The
"Effective Date" for the purpose of this Paragraph 2 shall be the date first
above written.
3. 1993 Employee Stock Incentive Plan. This Option is in all respects
subject to the terms and conditions of the Plan, which is incorporated by
reference herein.
4. Exercise. (i) Subject to the other terms and conditions hereof, and
provided payment is made as provided below, the Option shall be exercisable from
time to time by written notice to the Company (in the form required by the
Company) which shall:
(a) state that the Option is thereby being exercised, the
number of Shares with respect to which the Option is being exercised,
each person in whose name any certificates for the Shares should be
registered and such person's address and social security number;
(b) be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by anyone other than
the Holder, be accompanied by proof satisfactory to counsel for the
Company of the right of such person or persons to exercise the Option
under all applicable laws and regulations; and
(c) be accompanied by such representations, warranties or
agreements with respect to the investment intent of such person or
persons exercising the Option and the compliance with any applicable
law or regulation or to confirm any factual matters as the Company or
its counsel may reasonably request, in form and substance satisfactory
to counsel for the Company.
(ii) Payment of the Option price may be made, in the
discretion of the person exercising the Option, in one of the following manners,
or in any other manner approved by the Administrator (as "Administrator" is
defined in the Plan), in its sole discretion:
(a) the written notice to the Company described above may be
accompanied by full payment of the option price in cash or by check,
or, with the consent of the Company, in whole or in part with a
surrender of previously acquired Shares of the Company having a Fair
Market Value (as defined below) on the date of exercise equal to that
portion of the purchase price for which payment in cash or check is not
made. The later of the dates on which such notice and payment are
received by the Company shall be the date of exercise of the Option;
and
(b) within five days of the giving of the written notice to
the Company described above, the funds to pay for exercise of the
Option may be delivered to the Company a broker acting on behalf of the
person exercising the Option either in connection with the sale of the
Shares underlying the Option or in connection with the making of a
margin loan to such person to enable payment of the exercise price of
the
2
<PAGE>
Option. The later of the dates on which such notice and payment are
received by the Company shall be the date of exercise of the Option. In
connection with any such exercise, the Company will provide a copy of
the notice of exercise of the Option to the aforesaid broker upon
receipt by the Company of such notice and will deliver to such broker,
within five business days of the delivery of such notice to the
Company, a certificate or certificates (as requested by the broker)
representing the number of Shares underlying the Option that have been
sold by such broker for the person exercising the Option.
(iii) For purposes hereof, the "Fair Market Value" of
a Share as of a given date shall be (in order of applicability): (a) the closing
price of a Share on the principal exchange on which the Shares are then trading,
if any, on the day immediately prior to such date, or if Shares were not traded
on the day previous to such date, then on the next preceding trading day during
which a sale occurred; or (b) if Shares are not traded on an exchange but are
quoted on NASDAQ or a successor quotation system, (1) the last sale price (if
Shares are then listed as a National Market Issue under the NASD national Market
System), or (2) if Shares are not then so listed, the mean between the closing
representative bid and asked prices for Shares on the day previous t such date
as reported by NASDAQ or such successor quotation system; or (c) if Shares are
not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for Shares,
on the day previous to such date, as determined in good faith by the
Administrator; and (d) if Shares are not publicly traded, the fair market value
established by the Administrator acting in good faith.
(iv) Upon exercise of the Option and the satisfaction
of all conditions thereto, the Company shall deliver a certificate or
certificates for Shares to the specified person or persons at the specified time
upon receipt of payment for such Shares as set forth above.
5. Termination of Employment. If the Holder's employment with the
Company ends on account of her death or permanent and total disability, the
Option shall automatically become vested with respect to all Shares, and the
Option must be exercised, if at all, within the one-year period ending on the
anniversary of such death or permanent and total disability. In the case of
death, the Option shall be exercised by the Holder's estate or the person
designated by the Holder by will, or as otherwise designated by the laws of
descent and distribution. If the Holder's employment with the Company ends due
to termination of her employment by the Company "without cause" (as defined in
Section 8 of the Plan), the Option may and must be exercised, if at all, with
respect to any or all of the Vested Shares, within one year of the date of such
termination. In all other instances that the Holder ceases to be an employee of
the Company, the Holder shall have no right after her employment ends to
exercise all or any part of this Option with respect to either Vested or
Unvested Shares. For purposes hereof, "permanent and total disability" is
defined in Section 8 of the Plan.
3
<PAGE>
6. Transferability. The Option and the Holder's rights therein are not
transferable by the Holder, except upon the death of the Holder as provided in
Paragraph 5. The Option is exercisable (subject to any other applicable
restrictions on exercise) only by the Holder, except when a guardian or other
legal representative has been duly appointed for the Holder and except in the
event of the Holder's death as provided in Paragraph 5.
7. Taxes. The Holder hereby agrees to pay to the Company any federal,
state or local taxes of any kind that may be required by law to be withheld and
remitted by the Company with respect to the Option and the exercise thereof. If
the Holder does not make such payment to the Company, the Company, to the extent
required or permitted by law, shall have the right to withhold from any payment
of any kind otherwise due to the Holder from the Company, any federal, state or
local taxes of any kind required by law to be withheld with respect to the
Option or the Shares which are the subject of the Option. The Administrator, in
its sole discretion, may permit the Holder to pay such taxes through the
withholding of Shares otherwise deliverable to the Holder upon exercise of the
Option or the delivery to the Company of Common Shares otherwise acquired by the
Holder. The fair market value of Common Shares withheld by the Company or
tendered to the Company for the satisfaction of any tax withholding obligations
determined to exist under this Paragraph 8 shall be determined on the date such
Common Shares are withheld or tendered.
8. Intent. This Option is an incentive stock option as defined in
Section 422 of the Code.
9. Securities Law Compliance. Notwithstanding any provision of this
Agreement to the contrary, the Option shall not be exercisable unless, at the
time the Holder attempts to exercise the Option, in the opinion of counsel for
the Company, all applicable securities laws, rules and regulations have been
complied with. The Holder agrees that the Administrator may impose such
restrictions on the Shares as are deemed advisable by the Administrator,
including, without limitation, restrictions relating to listing or trading
requirements. The Holder further agrees that certificates representing the
Shares may bear such legends and statements as the Administrator shall deem
appropriate or advisable to assure, among other things, compliance with
applicable securities laws, rules and regulations.
10. Rights of the Holder. The Holder shall have no dividend, voting or
other rights of a stockholder with respect to the Shares which are subject to
the Option prior to the purchase of such Shares upon exercise of the Option and
the execution and delivery of all other documents and instruments deemed
necessary or desirable by the Company.
4
<PAGE>
11. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, except to the extent
otherwise governed by Federal law.
IN WITNESS WHEREOF, the parties have subscribed their names hereto as
of the date first above written.
FAC REALTY, INC.,
a Delaware corporation
By: /s/ J. Dixon Fleming, Jr.
J. Dixon Fleming, Jr.
Chairman and Chief Executive Officer
/s/ Michaela M. Twomey
Michaela M. Twomey
5
<PAGE>
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT
AMENDMENT NO. 1, dated as of April 12, 1996 to NOTE PURCHASE
AGREEMENT. dated as of April 2, 1995 (the "Note Purchase Agreement"), by and
among Factory Stores of America, Inc., a Delaware corporation (the "Borrower"),
Blackacre Bridge Capital, LLC, a Delaware limited liability company
("Blackacre") and Gildea Management Company a Delaware corporation ("Gildea").
PRELIMINARY STATEMENT
Borrower, Blackacre and Gildea have entered into the Note
Purchase Agreement which provides, among other things, for the sale and issuance
by Borrower to designees of Blackacre and Gildea, and the purchase by designees
of Blackacre and Gildea from Borrower, of exchangeable subordinated notes in an
aggregate principal amount up to $25 million and of senior notes in an aggregate
principal of $5 million, upon the terms and subject to the conditions set forth
therein. The parties hereto desire to amend certain provisions of the Note
Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Borrower, Blackacre and Gildea each hereby agree as follows.
1. DEFINITIONS.
Capitalized terms used herein, but not otherwise defined herein, shall
have the meanings ascribed to them in the Note Purchase Agreement.
2. AMENDMENT TO NOTE PURCHASE AGREEMENT.
Effective as of the date hereof, the Note Purchase Agreement is hereby
amended by substituting Schedule 4.1 in the form attached hereto for Schedule
4.1 attached to the Note Purchase Agreement at the time of the execution and
delivery thereof.
3. REFERENCE TO AND EFFECT ON THE NOTE PURCHASE AGREEMENT.
(a) On and after the date hereof each reference in the Note Purchase
Agreement to "this Agreement", "hereunder", "hereof'", "herein", "thereof" or
words of like import shall mean and be a reference to the Note Purchase
Agreement as amended hereby.
<PAGE>
(b) Except as expressly amended by this Amendment No. 1, the Note
Purchase Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
4. GOVERNING LAW.
This Amendment No.1 shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New
York excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
5. COUNTERPARTS.
This agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE>
IN WITNESS WHEREOF, Borrower, Blackacre and Gildea have each caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
FACTORY STORES OF AMERICA, INC.
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief Operating Officer
BLACKACRE BRIDGE CAPITAL, L.L.C.
By: Blackacre Capital Management Corp.,
its managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Vice President
-3-
<PAGE>
AMENDMENT NO. 2 TO
NOTE PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT, executed this 12th day
of November, 1996, effective July 31, 1996, by and among FAC REALTY, INC.,
formerly known as Factory Stores of America, a Delaware corporation with offices
at 230 North Equity Drive, Smithfield North Carolina 27577 (the "Borrower"),
BLACKACRE BRIDGE CAPITAL, LLC, a Delaware limited liability company with offices
at 950 Third Avenue, New York, New York 10022 ("Blackacre"), and GILDEA
MANAGEMENT COMPANY, a Delaware corporation with offices at 115 E. Putnam Avenue,
Greenwich, Connecticut 06830 ("Gildea").
PRELIMINARY STATEMENT
Pursuant to that certain Note Purchase Agreement dated April 2, 1996,
as amended by Amendment No. I dated as of April 12, 1996, by and among Borrower,
Blackacre and Gildea (collectively, the "Note Purchase Agreement"), Borrower
agreed to sell and issue to designees of Blackacre and Gildea, and Blackacre and
Gildea agreed to cause their designees to purchase from Borrower Exchangeable
Subordinate Notes in an aggregate principal amount of up to $25 million and
Senior Notes in an aggregate principal amount of $5 million from the Borrower.
Borrowed has issued and sold to designees of Blackacre and Gildea
Exchangeable Notes in an aggregate amount equal to $20 million, and such
Exchangeable Notes have been exchanged for Series A Preferred Stock of the
Borrower (the "Preferred Stock"), as contemplated by the Note Purchase
Agreement.
Borrower has issued and sold to Blackacre Senior Notes in an amount
equal to $5 million.
Borrower, Blackacre and Gildea have agreed to extend the final
Subsequent Funding Date (the "Final Funding") with respect to the remaining
amounts to be funded to Borrower, and to extend the date for Borrower's filing
of the Registration Statement for the Preferred Stock.
Borrower, Blackacre and Gildea have further agreed to reduce the amount
of the Final Funding to $2.5 million, such amount to he funded with additional
Senior Notes in lieu of Exchangeable Notes.
NOW, THEREFORE, in consideration of the mutual promises, contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
1. DEFINITIONS
Unless otherwise specified, all capitalized terms shall have the
meanings ascribed to them in the Note Purchase Agreement.
<PAGE>
2. EXCHANGEABLE NOTES/PREFERRED STOCK
The parties agree that the sum of $20 million has been funded to the
Borrower by the issuance of Exchangeable Notes and that the Exchangeable Notes
have been exchanged for Series A Preferred Stock of the Borrower, as provided in
the Note Purchase Agreement. Upon the funding of the new Senior Notes as
contemplated hereby, Borrower agrees that neither Blackacre nor Gildea shall
have any further obligations with respect to funding additional Exchangeable
Notes. The Borrower shall file the Registration Statement for the Preferred
Stock as soon as practicable, but in no event later than November 30, 1996.
3. ADDITIONAL SENIOR NOTES
In lieu of funding the remaining $5 million of Exchangeable Notes,
Borrower shall sell and issue to Blackacre and Gildea, and Blackacre and Gildea
shall purchase from Borrower, additional Senior Notes (the "Additional Senior
Notes") in the aggregate amount of $2.5 million, such Additional Senior Notes to
be purchased at par without discount. The form of the Additional Senior Notes is
attached hereto as Exhibit A.
4. CONSIDERATION
Blackacre and Gildea acknowledge that they received a commitment fee
for the Additional Senior Notes in the amount of $100,000 in connection with the
Initial Funding. In addition, Borrower shall give 100,000 warrants of the
Borrower, exercisable into of common stock of the Borrower to designees of
Blackacre and Gildea. The forms of the Warrant Agreement and Warrant Certificate
are attached hereto as Exhibit B and Exhibit C, respectively.
5. FUNDING SCHEDULE
Schedule 4.1 to the Note Purchase Agreement shall be substituted and
replaced in its entirety by the replacement Schedule 4.1 attached hereto and
Exhibit D.
6. USE OF PROCEEDS FOR FINAL FUNDING
Section 5.9(e) of the Note Purchase Agreement shall be substituted and
replaced in its entirety by the replacement Section 5.9(e) set forth below:
"(e) with respect to the Final Funding, Borrower shall have certified
to Blackacre and Gildea in a certificate of the President or any Vice President
of the Borrower that the Borrower will use the proceeds of the Final Funding for
one or more of the use of proceeds identified on Exhibit 5.9(e) hereto."
-2-
<PAGE>
7. NOTICES
Section 16 of the Note Purchase Agreement shall be amended to change
the Borrower's notice addresses, effective December 7, 1 996, as follows:
FAC Realty Trust Inc.
11000 Regency Parkway, Suite 300
Cary, North Carolina 27511
Attention: President
with copies to:
FAC Realty Trust, Inc.
1095 Old Cedar Road
McLean, Virginia 22102
Attention: Michaela M. Twomey, Esq.
and
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue N W
Washington, D.C. 20036-5306
Attention: Stephanie Tsacoumis, Esq.
8. NOTE PURCHASE AGREEMENT IN EFFECT
Except as amended hereby, all terms and provisions of the Note Purchase
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
to Note Purchase Agreement as of the date first written above.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
C. Cammack Morton
President
-3-
<PAGE>
BLACKACRE BRIDGE CAPITAL, LLC
By: Blackacre Capital Management Corp.,
its managing member
By: /s/ Jeffrey B. Citrin
Jeffrey B. Citrin
President
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
William P. O'Donnell
Vice President
-4-
<PAGE>
ADDENDUM TO NOTE PURCHASE AGREEMENT
AGREEMENT dated November 12, 1996 by and among FAC REALTY,
INC. (formerly, FACTORY STORES OF AMERICA, INC)., a Delaware corporation with
offices at 230 North Equity Drive, Smithfield, North Carolina 27577 (the
"Borrower"), BLACKACRE BRIDGE CAPITAL L.L.C., a Delaware limited liability
company with offices at 950 Third Avenue, New York, New York 10022
("Blackacre"), GILDEA MANAGEMENT COMPANY, a Delaware corporation with offices at
115 E. Putnam Avenue, Greenwich, Connecticut 06830 ("Gildea") and BLACKACRE
HOLDINGS, L.L.C. (the "Designee").
PRELIMINARY STATEMENT
Borrower, Blackacre and Gildea have entered into a Note
Purchase Agreement dated as of April 2, 1996, as amended (the "Note Purchase
Agreement"), pursuant to which, among other things, Borrower has agreed to sell
and issue to designees of Blackacre and Gildea, and Blackacre and Gildea have
agreed to cause their designees to purchase from Borrower, certain exchangeable
subordinated notes and senior notes million from Borrower. Borrower, Blackacre
and Gildea desire that the Designee be substituted as the purchaser of certain
of such notes as contemplated by section 17 of the Note Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1. DEFINED TERMS. All capitalized terms used herein which are not
otherwise expressly defined herein shall have the meanings set forth in
the Note Purchase Agreement.
2. IDENTIFICATION OF THE DESIGNEE. The Designee is hereby identified as a
designee in accordance with section 17 of the Note Purchase Agreement.
3. PURCHASE AND SALE.
a. Borrower hereby agrees to issue and sell to the Designee at
the Closing the type and principal amount of Notes set forth
opposite such Designee's name on Exhibit A hereto.
b. The Designee agrees to purchase such Notes from the Borrower
at the Closing.
<PAGE>
4. PURCHASE PRICE AND PAYMENT.
a. The aggregate purchase price payable to Borrower for the Notes
shall be the amount set forth opposite such Designee's name on
Exhibit A hereto under the caption "Purchase Price" (the
"Purchase Price").
b. At the Closing the Purchase Price payable to Borrower shall be
paid by the Designee in accordance with the instructions set
forth on Exhibit A under the caption "Wire Transfer
Instructions For Borrower" by wire transfer of immediately
available funds to the account indicated by the Borrower in
such instructions.
5. NOTE PURCHASE AGREEMENT. By its execution and delivery hereof each of
the undersigned agrees and acknowledges that for all purposes hereof
the Designee shall be deemed to be a Designee party to, and shall be
bound by the terms and conditions of and shall be entitled to all of
the rights, privileges, benefits and remedies of the Note Purchase
Agreement as though such Designee had been a Designee party to the Note
Purchase Agreement. In addition, Designee shall be deemed to have made
(with respect to itself only) each of the representations and
warranties set forth in Section 7 of the Note Purchase Agreement. The
Designee shall be entitled to the rights, privileges, benefits and
remedies including, without limitation, the representations,
warranties, covenants, agreements, indemnifications and undertakings of
the Borrower as well as the remedies upon an Event of Default, of a
Designee, and shall fulfill all of the obligations of Blackacre and
Gildea or the Designees, as the case may be, relating to the Notes
purchased by the Designee.
[Balance of Page Intentionally Left Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief Operating Officer
BLACKACRE BRIDGE CAPITAL, L.L.C.
By: Blackacre Capital Management Corp.,
managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Vice President
BLACKACRE HOLDINGS, L.L.C.
By: Blackacre Capital Management Corp.,
managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
-3-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
CLOSING DATE OR PRINCIPAL
SUBSEQUENT FUNDING AMOUNT OF PURCHASE
NAME OF THE DESIGNEE DATE TYPE OF NOTE NOTE PRICE OF NOTE
- - - -------------------- -------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
BLACKACRE $1,500,000
HOLDINGS, L.L.C. November 12, 1996 Senior Note $1,500,000
</TABLE>
Blackacre Holdings, L.L.C. is also executing and delivering this Addendum as
assignee of (i) the Warrant Certificate dated as of April 3,1996 granting
200,000 Warrants to Blackacre Bridge Capital, L.L.C., for the purchase of
aggregate of 200,000 shares of Common Stock, par value $0.01 per share, of
Borrower and (ii) 200,000 shares of Series A Convertible Preferred Stock, par
value $25.00 per share of Borrower.
Wiring Instructions for Borrower
FAC Realty, Inc.
c/o Centura Bank
Smithfield. NC 27577
ABA #053100850
Account #0551037352
-4-
<PAGE>
ADDENDUM TO NOTE PURCHASE AGREEMENT
AGREEMENT dated November 12,1996, by and among FAC REALTY,
INC. (formerly, FACTORY STORES OF AMERICA, INC)., a Delaware corporation with
offices at 230 North Equity Drive, Smithfield, North Carolina 27577 (the
"Borrower"), BLACKACRE BRIDGE CAPITAL L.L.C., a Delaware limited liability
company with offices at 950 Third Avenue, New York, New York 10022
("Blackacre"), GILDEA MANAGEMENT COMPANY, a Delaware corporation with offices at
115 E. Putnam Avenue, Greenwich, Connecticut 06530 ("Gildea") and NATIONAL UNION
FIRE INSURANCE COMPANY OF PITTSBURGH (the "Designee").
PRELIMINARY STATEMENT
Borrower, Blackacre and Gildea have entered into a Note
Purchase Agreement dated as of April 2, 1996, as amended (the "Note Purchase
Agreement"), pursuant to which, among other things, Borrower has agreed to sell
and issue to designees of Blackacre and Gildea, and Blackacre and Gildea have
agreed to cause their designees to purchase from Borrower, certain exchangeable
subordinated notes and senior notes million from Borrower. Borrower, Blackacre
and Gildea desire that the Designee be substituted as the purchaser of certain
of such notes as contemplated by section 17 of the Note Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1. DEFINED TERMS. All capitalized terms used herein which are not
otherwise expressly defined herein shall have the meanings set forth in
the Note Purchase Agreement.
2. IDENTIFICATION OF THE DESIGNEE. The Designee is hereby identified as a
designee in accordance with section 17 of the Note Purchase Agreement.
3. PURCHASE AND SALE.
a. Borrower hereby agrees to issue and sell to the Designee at
the Closing the type and principal amount of Notes set forth
opposite such Designee's name on Exhibit A hereto.
b. The Designee agrees to purchase such Notes from the Borrower
at the Closing.
-1-
<PAGE>
4. PURCHASE PRICE AND PAYMENT.
a. The aggregate purchase price payable to Borrower for the Notes
shall be the amount set forth opposite such Designee's name on
Exhibit A hereto under the caption "Purchase Price" (the
"Purchase Price").
b. At the Closing the Purchase Price payable to Borrower shall be
paid by. the Designee in accordance with the instructions set
forth on Exhibit A under the caption "Wire Transfer
Instructions For Borrower" by wire transfer of immediately
available funds to the account indicated by the Borrower in
such instructions.
5. NOTE PURCHASE AGREEMENT. By its execution and delivery hereof each of
the undersigned agrees and acknowledges that for all purposes hereof
the Designee shall be deemed to be a Designee party to, and shall be
bound by the terms and conditions of and shall be entitled to all of
the rights, privileges, benefits and remedies of, the Note Purchase
Agreement as though such Designee had been a Designee party to the Note
Purchase Agreement. In addition, Designee shall be deemed to have made
(with respect to itself only) each of the representations and
warranties set forth in Section 7 of the Note Purchase Agreement. The
Designee shall be entitled to the rights privileges, benefits and
remedies including, without limitation, the representations,
warranties, covenants, agreements, indemnifications and undertakings of
the Borrower as well as the remedies upon an Event of Default, of a
Designee, and shall fulfill all of the obligations of Blackacre and
Gildea or the Designees, as the case may be, relating to the Notes
purchased by the Designee.
[Balance of Page Intentionally Left BIank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FAC REALTY, INC
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief Operating Officer
BLACKACRE BRIDGE CAPITAL, L.L.C.
By: Blackacre Capital Management Corp.,
managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Vice President
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH
By: /s/ David B. Pinkerton
Name: David B. Pinkerton
Title: Vice President
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<PAGE>
ADDENDUM TO NOTE PURCHASE AGREEMENT
AGREEMENT dated April 2,1996 by and among FACTORY STORES OF
AMERICA, INC., a Delaware corporation with offices at 230 North Equity Drive,
Smithfield, North Carolina 27577 (the "Borrower"), BLACKACRE BRIDGE
CAPITALL.L.C., a Delaware limited liability company with offices at 950 Third
Avenue, NewYork, New York 10022 ("Blackacre"), GILDIEA MANAGEMENT COMPANY, a
Delaware corporation with offices at 115 E Putnam Avenue, Greenwich, Connecticut
06830 ("Gildea") and Network Fund III, Ltd., a Cayman Islands corporation
(the"Designee").
PRELIMINARY STATEMENT
Borrower, Blackacre and Gildea have entered into a Note
Purchase Agreement dated as of April 2, 1996 (the "Note Purchase Agreement"),
pursuant to which, among other things, Borrower has agreed to sell and issue to
designees of Blackacre and Gildea, and Blackacre and Gildea have agreed to cause
their designees to purchase from Borrower, exchangeable subordinated notes in an
aggregate principal amount up to $25 million and senior notes in an aggregate
principal amount of $5 million from Borrower. Borrower, Blackacre and Gildea
desire that the Designee be substituted as the purchaser of certain of such
notes as contemplated by section 17 of the Note Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1 DEFINED TERMS. All capitalized terms used herein which are not
otherwise expressly defined herein shall have the meanings set forth in
the Note Purchase Agreement.
2. IDENTIFICATION OF THE DESIGNEE. The Designee is hereby identified as a
designee in accordance with section 17 of the Note Purchase Agreement.
3. PURCHASE AND SALE.
a. Borrower hereby agrees to issue and sell to the Designee at
the Closing the type and principal amount of Notes set forth
opposite such Designee's name on Exhibit A hereto.
b. The Designee agrees to purchase such Notes from the Borrower
at the Closing.
4. PURCHASE PRICE AND PAYMENT.
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<PAGE>
a. The aggregate purchase price payable to Borrower for the Notes
shall be the amount set forth opposite such Designee's name on
Exhibit A hereto under the caption "Purchase Price" (the
"Purchase Price").
b. At the Closing the Purchase Price payable to Borrower shall be
paid by the Designee in accordance with the instructions set
forth on Exhibit A under the caption "Wire Transfer
Instructions For Borrower" by wire transfer of immediately
available funds to the account indicated by the Borrower in
such instructions.
5. NOTE PURCHASE AGREEMENT. By its execution and delivery hereof each of
the undersigned agrees and acknowledges that for all purposes hereof
the Designee shall be deemed to be a Designee party to, and shall be
bound by the terms and conditions of and shall be entitled to all of
the rights, privileges, benefits and remedies of, the Note Purchase
Agreement as though such Designee had been a Designee party to the Note
Purchase Agreement. In addition, Designee shall be deemed to have made
(with respect to itself only) each of the representations and
warranties set forth in Section 7 of the Note Purchase Agreement. The
Designee shall be entitled to the rights, privileges, benefits and
remedies including, without limitation, the representations,
warranties, covenants, agreements, indemnifications and undertakings of
the Borrower as well as the remedies upon an Event of Default, of a
Designee, and shall fulfill all of the obligations of Blackacre and
Gildea or the Designees, as the case may be, relating to the Notes
purchased by the Designee.
[Balance of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FACTORY STORES OF AMERICA, INC
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief Operating Officer
BLACKACRE BRIDGE CAPITAL, L.L.C.
By: Blackacre Capital Management Corp.,
managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Vice President
NETWORK FUND III, LTD.
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Managing Director
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<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Closing Date Principal Purchase
Name of or Subsequent Type of Amount of Price
the Designee Funding Date Note Note of Note
<S> <C> <C> <C> <C>
Network Fund, Exchangeable
III, Ltd. Closing Date Note $5,000,000 $5,000,000
</TABLE>
Wiring Instructions for Borrower
Factory Stores of America, Inc.
c/o Centura Bank
Smithfield, NC 27577
ABA #053100850
Account #0551037352
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<PAGE>
WARRANT AGREEMENT dated as of November 12, 1996 between FAC Realty,
Inc., formerly Factory Stores of America, Inc., a Delaware corporation (the
"Corporation"), and Blackacre Holdings, L.L.C. ("Warrant Holder").
PRELIMINARY STATEMENT
The Corporation proposes to issue and sell to Warrant Holder pursuant
to the Note Purchase Agreement 60,000 Warrants, each Warrant representing the
right initially to purchase one share of Common Stock. The Corporation and
Warrant Holder desire to set forth in this Warrant Agreement the terms and
conditions of the Warrants to be issued pursuant to the terms of the Note
Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1. DEFINITIONS. As used in this Warrant Agreement, the following terms
shall have the following meanings, unless the context otherwise
requires.
(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 11(f)
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) "BLACKACRE" shall mean Blackacre Bridge Capital, L.L.C., a
Delaware limited liability company.
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<PAGE>
(c) "BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation.
(d) "BUSINESS DAY" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in New York, New York
are required by law to close.
(e) "CAPITAL STOCK" shall mean 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) corporate stock.
(f) "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.
(g) "CORPORATION" means FAC Realty, Inc, a Delaware corporation.
(h) "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).
(i) "EXCHANGE PRICE PER SHARE" shall mean the $8.41, as such
amount may from time to time be adjusted in accordance with
the provisions of section 11 hereof.
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<PAGE>
(j) "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 amount 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 Warrant
Agreement (calculated on a fully-diluted basis).
(k) "EXPIRATION DATE" shall mean April 3, 2003.
(l) "FAIR MARKET VALUE" of the Common Stock means, as of any date,
the average of the daily 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 for
trading.
(m) "GILDEA" shall mean Gildea Management Company, a Delaware
corporation.
(n) "NOTE PURCHASE AGREEMENT" shall mean that certain Note
Purchase Agreement, dated April 2,1996, by and among the
Corporation, Blackacre and Gildea, as amended.
(o) "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.
(p) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute.
(q) "SERIES A PREFERRED STOCK" means the Series A Convertible
Preferred Stock, $25.00 par value per share, of the
Corporation.
(r) "TRADING DAY" means, with any day on which the New York Stock
Exchange is open for business.
(s) "WARRANT AGREEMENT" shall mean this warrant agreement.
(t) "WARRANT CERTIFICATE" shall mean a certificate evidencing one
or more Warrants, substantially in the form of exhibit A
hereto.
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<PAGE>
(u) "WARRANT HOLDER" shall mean Blackacre, as the original
registered holder of the Warrants issued hereunder, and any
registered transferee of a Warrant Holder.
(v) "WARRANT OFFICE" shall mean the office or agency of the
Corporation at which the Warrant Register shall be maintained
and where the Warrants may be presented for exercise,
exchange, substitution and transfer, which office or agency
will be the office of the Corporation at 11000 Regency
Parkway, Suite 300, Cary North Carolina 27511, which office or
agency may be changed by the Corporation pursuant to notice in
writing to the Persons named in the Warrant Register as the
holders of the Warrants.
(w) "WARRANT REGISTER" shall mean the register, substantially
maintained by the Corporation at the Warrant Office.
(x) "WARRANT SHARES" shall mean the shares of Common Stock issued
or issuable upon exercise of the Warrants, as the same may be
adjusted from time to time pursuant to section 11 hereof, and
any other shares of Capital Stock issued or issuable upon the
exercise of the Warrants pursuant to section 11 hereof.
(y) "WARRANTS" shall mean the warrants to purchase Common Stock
issued by the Corporation pursuant to this Warrant Agreement;
individually, a "Warrant."
2. REPRESENTATIONS AND WARRANTIES. The Corporation hereby represents and
warrants as follows:
(a) The Corporation is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, has the corporate power and authority to conduct its
business as presently conducted, has the corporate power and
authority to execute and deliver this Warrant Agreement and
the Warrant Certificates, to issue the Warrants and to perform
its obligations under this Warrant Agreement and the Warrant
Certificates.
(b) The execution, delivery and performance by the Corporation of
this Warrant Agreement and the Warrant Certificates, the
issuance of the Warrants, and the issuance of the Warrant
Shares upon exercise of the Warrants have been duly authorized
by all necessary corporate action.
(c) This Warrant Agreement has been duly executed and delivered by
the Corporation and constitutes a legal, valid, binding and
enforceable obligation of the
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<PAGE>
Corporation. When the Warrants and Warrant Certificates have
been issued as contemplated hereby. The Warrants and the
Warrant Certificates will constitute legal, valid, binding and
enforceable obligations of the Corporation. The Warrant
Shares, when issued upon exercise of the Warrants in
accordance with the terms hereof will be duly authorized,
validly issued, fully paid and nonassessable. Statements in
this section 2(c) as to validity, binding effect and
enforceability are subject to (i) limitations as to
enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application
relating to or affecting the enforceability of creditors'
rights, including, without limitation, limitations as to
enforceability that may be imposed under Section 548 of the
United States Bankruptcy Code, Article 10 of the New York
Debtor Creditor Law or other provisions of law relating to
fraudulent transfers and obligations and (ii) equitable
principles limiting the availability of equitable remedies.
3. NUMBER OF WARRANTS. The Corporation hereby agrees to issue and deliver
to Warrant Holder on the date hereof 60,000 Warrants and one or more
Warrant Certificates evidencing such Warrants.
4. REGISTRATION, TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Corporation shall maintain at the Warrant Office the
Warrant Register for registration of the Warrants and Warrant
Certificates and transfers thereof. On the date hereof the
Corporation shall register the Warrants and Warrant
Certificates in the Warrant Register in the name of the
Warrant Holder. The Corporation may deem and treat the
registered holders of the Warrant Certificates as the absolute
owners thereof and the Warrants represented thereby
(notwithstanding any notation of ownership or other writing on
the Warrant Certificates made by any person) for the purpose
of any exercise thereof or any distribution to the Warrant
Holders thereof and for all other purposes, and the
Corporation shall not be affected by any notice to the
contrary.
(b) Subject to section 12 hereof, the Corporation shall register
the transfer of any outstanding Warrants in the Warrant
Register upon surrender of the Warrant Certificates evidencing
such Warrants to the Corporation at the Warrant Office,
accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to it, duly
executed by the registered holder or holders thereof or by the
duly appointed legal representative thereof. Upon any such
registration of transfer, new Warrant Certificates evidencing
such transferred Warrants shall be issued to the transferee
and the surrendered Warrant Certificates shall be canceled. If
less than all the Warrants evidenced
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<PAGE>
by Warrant Certificates surrendered for transfer are to be
transferred, new Warrant Certificates shall be issued to the
holder surrendering such Warrant Certificates evidencing such
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
holders thereof when surrendered to the Corporation at the
Warrant Office, for another Warrant Certificate or other
Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any tax or other governmental charge imposed in
connection therewith. Except as provided in section 12(b)(i)
hereof, each Warrant Certificate issued upon transfer or
exchange shall bear the legend set forth in sections 12(b)(i)
hereof if the Warrant Certificate presented for transfer or
exchange bore such legend.
5. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant
Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence satisfactory to the
Corporation of such loss, theft or destruction of such Warrant
Certificate (which shall, in the case of a mutilated Warrant
Certificate, include the surrender thereof) and, if requested,
indemnity satisfactory to it. The Corporation acknowledges that a
written indemnity by the Warrant Holder shall be satisfactory to the
Corporation for such purpose. All expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and other
governmental duties that may be imposed in relation thereto shall be
borne by the holder of such Warrant Certificate. Each Warrant
Certificate issued in any such substitution shall bear the legend set
forth in section 12(b)(i) if the Warrant Certificate for which such
substitution was made bore such legend.
6. DURATION AND EXERCISE OF WARRANTS.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder
thereof on any Business Day after the date hereof and on or
before 5:00 P.M., New York City time, on the Expiration Date.
Each Warrant not exercised by 5:00 p.m. New York City time, on
the Expiration Date shall become void, and all rights
thereunder and all rights in respect thereof under this
Warrant Agreement shall become void.
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<PAGE>
(b) Upon presentation to the Corporation at the Warrant Office of
the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase attached
thereto duly completed and signed by the Warrant Holder, and
upon payment of an amount equal to the product of:
(i) the Exchange Price per Share and
(ii) the number of Warrant Shares being purchased,
in lawful money of the United States of America, the
Corporation shall issue and cause to be delivered to or upon
the written order of the registered holders of such Warrants
and in such name or names as such registered holder may
designate, a certificate for the Warrant Share or Warrant
Shares issued upon such exercise of the Warrants being
exercised. Any Persons so designated to be named therein shall
be deemed to have become Warrant Holders of record of such
Warrant Share or Warrant Shares as of the date of exercise of
such Warrants.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant
Certificate or Certificates shall be issued for the remaining
number of Warrants evidenced by such Warrant Certificate. Each
new Warrant Certificate so issued shall bear the legend set
forth in section 12(b)(i) hereof if the Warrant Certificate
presented in connection with partial exercise thereof bore
such legend. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
7. NO FRACTIONAL SHARES. The Corporation shall not be required to issue
fractional Warrant Shares upon exercise of the Warrants but shall pay
for any such fraction of a share an amount in cash equal to such
fraction of the Fair Market Value of a share of Common Stock.
8. PAYMENT OF TAXES. The Corporation will pay all taxes attributable to
the initial issuance of Warrant Shares upon the exercise of the
Warrants, provided that the Corporation shall not be required to pay
any income or other tax incurred by the holder of the Warrant
Certificate or the Warrant Shares upon exercise of the Warrants or
issuance of the Warrant Shares.
9. STOCK RIGHTS.
(a) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the
holders thereof any right to vote or to consent to or receive
notice as a stockholder in respect of the meetings
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<PAGE>
of stockholders or the election of directors of the
Corporation or any other matter or rights to receive
dividends, or any rights whatsoever as a stockholder of the
Corporation.
(b) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as imposing any
obligation on the registered holders thereof to purchase any
securities or as imposing any liability on such Warrant
Holders as stockholders of the Corporation, whether such
obligation or liability is asserted by the Corporation or by
creditors of the Corporation.
10. RESERVATION AND ISSUANCE OR WARRANT SHARES.
(a) The Corporation will at all times that Warrants
remain outstanding have authorized, and reserve and
keep available, free from preemptive rights, for the
purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the
Warrants, the number of shares of Common Stock
deliverable upon exercise of all outstanding
Warrants.
(b) The Corporation will take any corporate action which
may be necessary in order that the Corporation may
validly and legally issue fully paid and
nonassessable Warrant Shares at the Exchange Price
per Share.
(c) The Corporation covenants that all Warrant Shares
will, upon issuance in accordance with the terms of
this Warrant Agreement and the Corporation's
certificate of incorporation, be fully paid and
nonassessable and free from all taxes with respect to
the issuance thereof and from all liens, charges and
security interests (other than any created by or on
behalf of any Warrant).
11. ADJUSTMENT OF EXCHANGE PRICE PER SHARE.
(a) Prior to the Expiration Date, the Exchange Price per
Share is subject to adjustment from time to time in
the manner provided in this section 11 upon the
occurrence of any of the events enumerated in this
section 11.
(b) In the event that the Corporation shall at any time
after the date hereof:
(i) declare a dividend or make a distribution
on the Common Stock payable in shares of
Common Stock,
(ii) subdivide or reclassify outstanding shares
of Common Stock into a greater number of
shares,
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<PAGE>
(iii) combine shares of its outstanding Common
Stock into a smaller number of shares,
(iv) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
(v) issue by reclassification of any shares of
its outstanding Common Stock, shares of any
series of its Capital Stock or obligation
of the Corporation or other property,
then the exercise privilege and the Exchange Price
per Share in effect immediately prior thereto shall
be adjusted so that the Warrant Holder of Warrant
Shares thereafter surrendered for exercise shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Corporation which such Warrant Holder would have been
entitled to receive after the happening of any of the
events described above had such Warrants been
exercised immediately prior to the happening of such
event or any record date with respect thereto. Such
adjustment shall become effective immediately after
the applicable record date in the case of a dividend
or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
(c) If the Corporation shall at any time after the date
hereof 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 Exchange Price per Share in effect immediately
prior to the date of such issuance, then the Exchange
Price per Share shall be adjusted to equal the ratio
of:
(i) the sum of:
(A) the product of:
(1) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
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(2) the Exchange Price per
Share in effect immediately
prior to such issuance and
(B) the Aggregate Consideration
Receivable by the Corporation in
connection with such issuance to
(ii) 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).
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 Exchange Price per Share 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 Exchange Price per Share then in
effect shall be readjusted to the Exchange Price per
Share 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 or
exercise prior to the date such readjustment is made.
If the Corporation shall at any time after the date
hereof 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 Exchange Price per
Share in effect immediately prior to the date of such
issuance shall not be adjusted hereunder as a result
of such Excluded Transaction.
(d) If the Corporation shall at any time after the date
hereof 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 11(b) hereof,
then the Exchange Price per Share shall be adjusted
to equal the Exchange Price
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<PAGE>
per Share 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 Exchange Price per
Share 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 Warrant Holders of shares of Common Stock
in the same pro rata amounts upon exercise thereof.
(e) In any case in which this section 11 provides that
shall become effective immediately after a record
date for an event, the Corporation may defer until
the occurrence of such event:
(i) issuing to the Warrant Holder of any shares
of Common Stock subject to an exercise after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such exercise by
reason of the adjustment required by such
event over and above the Common Stock
issuable upon such exercise before giving
effect to such adjustment, and
(ii) paying to such Warrant Holder any amount in
cash in lieu of any fractional share of
Common Stock pursuant to section 7.
(f) For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 11, the following shall
apply:
(i) in the case of the issuance of shares of
Capital Stock for cash the consideration
shall be the amount of cash, provided that
in no case shall any deduction be made
discounts or other expenses incurred by
the corporation for any underwriting of
the issue or otherwise in connection
therewith; and
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<PAGE>
(ii) 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.
(g) If after an adjustment a Warrant Holder may, upon
exercise of this Warrant in whole or in part, 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 Exchange
Price per Share between the classes of Capital Stock.
After such allocation, the Exchange Price per Share
of each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 11.
(h) In no event shall an adjustment pursuant to this
section 11 reduce the Exchange Price per Share below
the then par value, if any, of the shares of Common
Stock issuable upon exercise of this Warrant.
(i) No adjustment in the Exchange Price Per Share shall
be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Exchange Price Per Share then in effect.
(j) If there shall occur:
(i) any reclassification or change of
outstanding shares of Common Stock issuable
upon exercise of this Warrant (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 or into another Person
shall be effected as a result of which
holders of Common Stock issuable upon
exercise of this Warrant 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 Warrant Share 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
-12-
<PAGE>
issuable upon exercise of this Warrant
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 11.
If this section 11(i) applies with respect
to a transaction, sections 11(b), (c) and
(d) hereof shall not apply with respect to
that transaction. The above provisions of
this section 11(i) shall similarly apply to
successive reclassifications,
consolidations, mergers and sales.
(k) Notice to Warrant Holders Prior to Certain
Actions.
(i) If:
(A) The Corporation shall take
any action that would
require an adjustment in
the Exchange Price per
Share pursuant to section
11 hereof; or
(B) any event described in
section 11(j) hereof shall
occur; or
(C) the voluntary or
involuntary dissolution,
liquidation or winding-up
of the Corporation shall
occur;
the Corporation shall cause notice
of such proposed action or event to
be mailed to each Warrant Holder at
its address appearing on the Warrant
Register 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
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<PAGE>
(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.
(l) Irrespective of any adjustments in the number or kind
of shares purchasable upon the exercise of the
Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same
number and kind of shares as are stated on the
Warrant Certificates initially issuable pursuant to
this Warrant Agreement
12. SEC REGISTRATION; RESTRICTIONS ON TRANSFER; SUBSEQUENT TRANSFEREES AS
THIRD PARTY BENEFICIARIES.
(a) The Warrant Holder (i) represents that it is acquiring the
Warrants for its own account for investment and not with a
view to any distribution or public offering within the
meaning of the Securities Act, (ii) acknowledges that the
Warrants and the Warrant Shares issuable upon exercise
thereof have not been registered under the Securities Act or
any state securities laws and (iii) agrees that it will not
sell or otherwise transfer any of its Warrants or Warrant
Shares except upon the terms and conditions specified herein,
provided that the Warrant Holders may sell the Warrants
-------- or the Warrant Shares purchased upon exercise of the
Warrants in one or more private transactions not requiring
registration under the Securities Act.
(b) (i) Except as otherwise provided in section 12(c) hereof,
each Warrant Certificate and each certificate for the
Warrant Shares issued to a Warrant Holder shall
include a legend in substantially the following form
(with such changes therein as may be appropriate to
reflect whether such legend refers to Warrants or
Warrant Shares), provided that such legend shall not
be -------- required if such transfer is being made
in connection with a sale which is exempt from
registration pursuant to Rule 144 under the
Securities Act or if the opinion of counsel referred
to in section 12(c) hereof is to the further effect
that neither such legend nor the restrictions on
transfer in this section 12 is required in order to
ensure compliance with the Securities Act:
THE [WARRANTS/SHARES] REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS. SUCH
[WARRANTS/SHARES] MAY BE TRANSFERRED ONLY IN COMPLIANCE
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<PAGE>
WITH THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THE WARRANT AGREEMENT DATED AS OF APRIL 3,1996,
AS AMENDED BETWEEN THE CORPORATION AND THE WARRANT HOLDER, A
COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
(ii) Each certificate for the Warrant Shares issued to a
Warrant Holder shall also include a legend in
substantially the following form:
THE SHARES OF COMMON 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 CAPITAL 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 9.5% OF THE OUTSTANDING CAPITAL 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
REQUESTS. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE
SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE
AUTOMATICALLY CONVERTED
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<PAGE>
INTO SHARES OF EXCESS STOCK WHICH WILL BE HELD IN TRUST BY THE
CORPORATION.
(c) Each Warrant Holder wishing to effect such a transfer of any
Warrant or Warrant Shares shall furnish to the Corporation an
agreement by the transferee thereof that it is taking and
holding the same subject to the terms and conditions specified
herein and a written opinion of such Warrant Holder's counsel,
in form reasonably satisfactory to the Corporation to the
effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state
securities laws.
(d) The restrictions set forth in this section 12 shall terminate
and cease to be effective with respect to any Warrants or
Warrant Shares registered under the Securities Act or upon
receipt by the Corporation of an opinion of counsel, in form
reasonably satisfactory to the Corporation, to the effect that
compliance with such restrictions is not necessary in order to
comply with the Securities Act and any applicable state
securities laws with respect to the transfer of the Warrants
and/or the Warrant Shares. Whenever such restrictions shall so
terminate the holder of such Warrants and/or Warrant Shares
shall be entitled to receive from the Corporation, without
expense (other than transfer taxes, if any), Warrant
Certificates or certificates for such Warrant Shares not
bearing the legend set forth in section 12(b)(i) hereof which
the Corporation will rescind any transfer restrictions
relating thereto.
(e) It is the intention of the parties hereto that each Warrant
Holder who acquires Warrants by transfer be a third party
beneficiary, to the extent of Warrants acquired and held by
such Warrant Holder, of the provisions of this Warrant
Agreement that bestow rights on Warrant Holders.
13. AMENDMENTS AND WAIVERS. Any provision of this Warrant Agreement may be
amended, supplemented, waived, discharged or terminated by a written
instrument signed by the Corporation and the holders of not less than a
majority of the outstanding Warrants, provided that the Exchange Price
per Share may not be increased by amendment, the number of Warrant
Shares issuable upon exercise of the Warrants may not be reduced by
amendment and this section 13 may not be changed by amendment except
with the unanimous consent of the holders of all outstanding Warrants.
14. SPECIFIC PERFORMANCE. The holders of the Warrants shall have the right
to specific performance by the Corporation of the provisions of this
Warrant Agreement. The Corporation hereby irrevocably waives, to the
extent that it may do so under applicable law, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the
remedy of specific performance in any action brought against the
Corporation for specific performance of this Warrant Agreement by the
holders of the Warrants.
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<PAGE>
15. NOTICES.
(a) Any notice or demand permitted or required to be given or made
by the holders or the holders of Warrant Shares to or on the
Corporation pursuant to this Warrant Agreement shall be
sufficiently given or made if delivered personally or by
telecopy (if the sender on the same day sends a confirming
copy of such notice by a nationally recognized overnight
delivery service, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service postage prepaid, addressed to the Corporation at the
Warrant Office.
(b) Any notice permitted or required to be given by the
Corporation to the holders or the holders of Warrant Shares
shall be sufficiently given or made 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, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service, postage prepaid, addressed to such holder as such
holder's name and address shall appear on the Warrant Register
or the Common Stock registry of the Corporation, as the case
may be.
16. BINDING EFFECT. This Warrant Agreement shall be binding upon and inure
to the sole and exclusive benefit of the Corporation and the Warrant
Holder, and their respective successors and assigns.
17. CONTINUED VALIDITY. A holder of Warrant Shares shall continue to be
entitled with respect to such Warrant Shares to all rights and subject
to all obligations to which it would have been entitled or subject as a
holder under sections 13 through 20 hereof.
18. COUNTERPARTS. This Warrant Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
19. NEW YORK LAW. THIS WARRANT AGREEMENT AND EACH WARRANT CERTIFICATE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
20. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant Agreement shall be
construed to give any Person other than the Corporation and the Warrant
Holder any legal or equitable right. remedy or claim under this Warrant
Agreement except as expressly set forth herein.
[Balance of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Warrant
Agreement to be duty executed and delivered by their proper and duly authorized
officers, as of the date and year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C Cammack Morton
Title: President and Chief Operating Officer
BLACKACRE HOLDINGS, L.L.C.
By: Blackacre Capital Management Corp.,
managing member
By: /s/ Jeffrey B. Citrin
Name: Jeffrey B. Citrin
Title: President
-18-
<PAGE>
EXERCISABLE ONLY ON OR BEFORE
APRIL 3, 2003
FACTORY STORES OF AMERICA, INC.
Warrant Certificate
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement dated as of November 17,1996 (the "Warrant Agreement")
between FAC Realty. Inc. (formerly Factory Stores of America, Inc.), a Delaware
corporation (the Corporation"), and Blackacre Holdings, L.L.C. ("Warrant
Holder"). The Warrant Agreement is hereby incorporated by reference in and made
a part of this instrument and is hereby referred to for a description of the
rights, limitations, obligations, duties and immunities thereunder of the
Corporation and the holders. Terms defined in the Warrant Agreement and used
herein have the same meanings herein as therein.
This Warrant Certificate certifies that Warrant Holder, or registered
assigns, is the registered holder of 60,000 Warrants to purchase shares of
Common Stock of the Corporation. Each Warrant entitles the registered holder,
but only subject to the conditions set forth herein and in the Warrant
Agreement, to purchase from the Corporation on or prior to 5:00 PM, New York
City time, on the Expiration Date, one fully paid and nonassessable share of
Common Stock (subject to adjustment as described below) at a price equal to the
Exchange Price per Share.
The Exchange Price per Share shall be payable in lawful money of the
United States of America. The Warrants represented by this certificate may be
exercised by surrender of this Warrant Certificate, along with an executed copy
of the annexed Form of Election to Purchase and payment of the applicable
Exchange Price per Share at the office of the Corporation at 1095 Old Cedar
Road, McLean, Virginia 22102, or such other address as the Corporation may
specify in writing to the registered holder of the Warrants evidenced hereby.
The Exchange Price per Share and the number of shares of Common Stock
purchasable upon exercise of the Warrants is subject to adjustment prior to the
Expiration Date as set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 PM, New York City time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement) all
rights of the registered holders of the Warrants shall cease after 5:00 PM, New
York City time, on the Expiration Date.
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<PAGE>
The Corporation may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owners thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Corporation shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the Warrant Office by the
registered holder hereof in person or by a legal representative duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
No holder of this Warrant Certificate shall be deemed to be the holder
of Common Stock or any other securities of the Corporation that may at any time
be issuable on the exercise hereof for any purpose, nor shall anything contained
in the Warrant Agreement or herein be construed to confer upon the holder of
this Warrant Certificate as such any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholder at any meeting hereof, or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock change of par value, or exchange
of stock to no par value, consolidation, merger. conveyance or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise, until this Warrant Certificate shall have been exercised and the
Common Stock issuable upon the exercise hereof shall have become issuable as
provided in the Warrant Agreement.
[Balance of Page Intentionally Left Blank)
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<PAGE>
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its corporate seal
to be affixed hereunto.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief
Operating Officer
(CORPORATE SEAL)
ATTEST
Assistant Secretary
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<PAGE>
ANNEX TO FORM OF WARRANT CERTIFICATE
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise, in accordance
with section 6(b) of the Warrant Agreement, __________ Warrants, representing
the right to purchase _____________
shares of Common Stock, and herewith tenders payment for such
Shares of Common Stock to the order of the Corporation in the amount of $_______
as payment of the exercise price in accordance with the terms hereof.
The undersigned requests that a certificate for such shares of Common
Stock be registered in the name of __________________ whose address is ________
____________ and that such certificate be delivered to whose address is _______
______________. If said number of shares of Common Stock is less than all of the
shares of Common Stock purchasable hereunder under the method of exercise
selected, the undersigned hereby requests that a new Warrant Certificate
representing the remaining balance of the shares of Common Stock be registered
in the name of ___________________ whose address is ___________________________
______ and that such Warrant Certificate be delivered to ______________________
whose address is __________________________.
Signature:
__________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:
-22-
<PAGE>
WARRANT AGREEMENT dated as of November 12, 1996 between FAC Realty,
Inc., formerly Factory Stores of America, Inc., a Delaware corporation (the
"Corporation"), and National Union Fire Insurance Company of Pittsburgh
("Warrant Holder").
PRELIMINARY STATEMENT
The Corporation proposes to issue and sell to Warrant Holder pursuant
to the Note Purchase Agreement 20,000 Warrants, each Warrant representing the
right initially to purchase one share of Common Stock. The Corporation and
Warrant Holder desire to set forth in this Warrant Agreement the terms and
conditions of the Warrants to be issued pursuant to the terms of the Note
Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1. DEFINITIONS. As used in this Warrant Agreement, the following terms
shall have the following meanings, unless the context otherwise
requires.
(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 11(f)
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) "BLACKACRE" shall mean Blackacre Bridge Capital, L.L.C., a
Delaware limited liability company.
(c) "BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation.
(d) "BUSINESS DAY" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in New York, New York
are required by law to close.
-1-
<PAGE>
(e) "CAPITAL STOCK" shall mean 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) corporate stock.
(f) "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.
(g) "CORPORATION" means FAC Realty, Inc, a Delaware corporation.
(h) "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).
(i) "EXCHANGE PRICE PER SHARE" shall mean the $8.41, as such
amount may from time to time be adjusted in accordance with
the provisions of section 11 hereof.
(j) "EXCLUDED TRANSACTIONAL" 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 amount 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 Warrant
Agreement (calculated on a fully-diluted basis).
(k) "EXPIRATION DATE" shall mean April 3, 2003.
(l) "FAIR MARKET VALUE" of the Common Stock means, as of any date
the average of
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<PAGE>
the daily 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 for trading.
(m) "GILDEA" shall mean Gildea Management Company, a Delaware
corporation.
(n) "NOTE PURCHASE AGREEMENT" shall mean that certain Note
Purchase Agreement, dated April 2,1996, by and among the
Corporation, Blackacre and Gildea, as amended.
(o) "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.
(p) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute.
(q) "SERIES A PREFERRED STOCK" means the Series A Convertible
Preferred Stock, $25.00 par value per share, of the
Corporation.
(r) "TRADING DAY" means, with any day on which the New York Stock
Exchange is open for business.
(s) "WARRANT AGREEMENT" shall mean this warrant agreement.
(t) "WARRANT CERTIFICATE" shall mean a certificate evidencing one
or more Warrants, substantially in the form of exhibit A
hereto.
(u) "WARRANT HOLDER" shall mean Blackacre, as the original
registered holder of the Warrants issued hereunder, and any
registered transferee of a Warrant Holder.
(v) "WARRANT OFFICE" shall mean the office or agency of the
Corporation at which the Warrant Register shall be maintained
and where the Warrants may be presented for exercise,
exchange, substitution and transfer, which office or agency
will be the office of the Corporation at 11000 Regency
Parkway, Suite 300, Cary North Carolina 27511, which office or
agency may be changed by the Corporation pursuant to notice in
writing to the Persons named in the Warrant Register as the
holders of the Warrants.
(w) "WARRANT REGISTER" shall mean the register, substantially
maintained by the Corporation at the Warrant Office.
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<PAGE>
(x) "WARRANT SHARES" shall mean the shares of Common Stock issued
or issuable upon exercise of the Warrants, as the same may be
adjusted from time to time pursuant to section 11 hereof, and
any other shares of Capital Stock issued or issuable upon the
exercise of the Warrants pursuant to section 11 hereof.
(y) "WARRANTS" shall mean the warrants to purchase Common Stock
issued by the Corporation pursuant to this Warrant Agreement;
individually, a "Warrant."
2. REPRESENTATIONS AND WARRANTIES. The Corporation hereby represents and
warrants as follows:
(a) The Corporation is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, has the corporate power and authority to conduct its
business as presently conducted, has the corporate power and
authority to execute and deliver this Warrant Agreement and
the Warrant Certificates, to issue the Warrants and to perform
its obligations under this Warrant Agreement and the Warrant
Certificates.
(b) The execution, delivery and performance by the Corporation of
this Warrant Agreement and the Warrant Certificates, the
issuance of the Warrants, and the issuance of the Warrant
Shares upon exercise of the Warrants have been duly authorized
by all necessary corporate action.
(c) This Warrant Agreement has been duly executed and delivered by
the Corporation and constitutes a legal, valid, binding and
enforceable obligation of the Corporation. When the Warrants
and Warrant Certificates have been issued as contemplated
hereby. The Warrants and the Warrant Certificates will
constitute legal, valid, binding and enforceable obligations
of the Corporation. The Warrant Shares, when issued upon
exercise of the Warrants in accordance with the terms hereof
will be duly authorized, validly issued, fully paid and
nonassessable. Statements in this section 2(c) as to validity,
binding effect and enforceability are subject to (i)
limitations as to enforceability imposed by bankruptcy,
reorganization, moratorium, insolvency and other laws of
general application relating to or affecting the
enforceability of creditors' rights, including, without
limitation, limitations as to enforceability that may be
imposed under Section 548 of the United States Bankruptcy
Code, Article 10 of the New York Debtor Creditor Law or other
provisions of law relating to fraudulent transfers and
obligations and (ii) equitable principles limiting the
availability of equitable remedies.
3. NUMBER OF WARRANTS. The Corporation hereby agrees to issue and deliver
to Warrant Holder on the date hereof 20,000 Warrants and one or more
Warrant Certificates evidencing such Warrants.
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<PAGE>
4. REGISTRATION, TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Corporation shall maintain at the Warrant Office the
Warrant Register for registration of the Warrants and Warrant
Certificates and transfers thereof. On the date hereof the
Corporation shall register the Warrants and Warrant
Certificates in the Warrant Register in the name of the
Warrant Holder. The Corporation may deem and treat the
registered holders of the Warrant Certificates as the absolute
owners thereof and the Warrants represented thereby
(notwithstanding any notation of ownership or other writing on
the Warrant Certificates made by any person) for the purpose
of any exercise thereof or any distribution to the Warrant
Holders thereof and for all other purposes, and the
Corporation shall not be affected by any notice to the
contrary.
(b) Subject to section 12 hereof, the Corporation shall register
the transfer of any outstanding Warrants in the Warrant
Register upon surrender of the Warrant Certificates evidencing
such Warrants to the Corporation at the Warrant Office,
accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to it, duly
executed by the registered holder or holders thereof or by the
duly appointed legal representative thereof. Upon any such
registration of transfer, new Warrant Certificates evidencing
such transferred Warrants shall be issued to the transferee
and the surrendered Warrant Certificates shall be canceled. If
less than all the Warrants evidenced by Warrant Certificates
surrendered for transfer are to be transferred, new Warrant
Certificates shall be issued to the holder surrendering such
Warrant Certificates evidencing such remaining number of
Warrants.
(c) Warrant Certificates may be exchanged at the option of the
holders thereof when surrendered to the Corporation at the
Warrant Office, for another Warrant Certificate or other
Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any tax or other governmental charge imposed in
connection therewith. Except as provided in section 12(b)(i)
hereof, each Warrant Certificate issued upon transfer or
exchange shall bear the legend set forth in sections 12(b)(i)
hereof if the Warrant Certificate presented for transfer or
exchange bore such legend.
5. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant
Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence
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<PAGE>
satisfactory to the Corporation of such loss, theft or destruction of
such Warrant Certificate (which shall, in the case of a mutilated
Warrant Certificate, include the surrender thereof) and, if requested,
indemnity satisfactory to it. The Corporation acknowledges that a
written indemnity by the Warrant Holder shall be satisfactory to the
Corporation for such purpose. All expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and other
governmental duties that may be imposed in relation thereto shall be
borne by the holder of such Warrant Certificate. Each Warrant
Certificate issued in any such substitution shall bear the legend set
forth in section 12(b)(i) if the Warrant Certificate for which such
substitution was made bore such legend.
6. DURATION AND EXERCISE OF WARRANTS.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder
thereof on any Business Day after the date hereof and on or
before 5:00 P.M., New York City time, on the Expiration Date.
Each Warrant not exercised by 5:00 p.m. New York City time, on
the Expiration Date shall become void, and all rights
thereunder and all rights in respect thereof under this
Warrant Agreement shall become void.
(b) Upon presentation to the Corporation at the Warrant Office of
the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase attached
thereto duly completed and signed by the Warrant Holder, and
upon payment of an amount equal to the product of:
(i) the Exchange Price per Share and
(ii) the number of Warrant Shares being purchased,
in lawful money of the United States of America, the
Corporation shall issue and cause to be delivered to or upon
the written order of the registered holders of such Warrants
and in such name or names as such registered holder may
designate, a certificate for the Warrant Share or Warrant
Shares issued upon such exercise of the Warrants being
exercised. Any Persons so designated to be named therein shall
be deemed to have become Warrant Holders of record of such
Warrant Share or Warrant Shares as of the date of exercise of
such Warrants.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant
Certificate or Certificates shall be issued for the remaining
number of Warrants evidenced by such Warrant Certificate. Each
new Warrant Certificate so issued shall bear the legend set
forth in section 12(b)(i) hereof if the Warrant Certificate
presented in connection with partial exercise thereof bore
such legend. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
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<PAGE>
7. NO FRACTIONAL SHARES. The Corporation shall not be required to issue
fractional Warrant Shares upon exercise of the Warrants but shall pay
for any such fraction of a share an amount in cash equal to such
fraction of the Fair Market Value of a share of Common Stock.
8. PAYMENT OF TAXES. The Corporation will pay all taxes attributable to
the initial issuance of Warrant Shares upon the exercise of the
Warrants, provided that the Corporation shall not be required to pay
any income or other tax incurred by the holder of the Warrant
Certificate or the Warrant Shares upon exercise of the Warrants or
issuance of the Warrant Shares.
9. STOCK RIGHTS.
(a) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the
holders thereof any right to vote or to consent to or receive
notice as a stockholder in respect of the meetings of
stockholders or the election of directors of the Corporation
or any other matter or rights to receive dividends, or any
rights whatsoever as a stockholder of the Corporation.
(b) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as imposing any
obligation on the registered holders thereof to purchase any
securities or as imposing any liability on such Warrant
Holders as stockholders of the Corporation, whether such
obligation or liability is asserted by the Corporation or by
creditors of the Corporation.
10. RESERVATION AND ISSUANCE OR WARRANT SHARES.
(a) The Corporation will at all times that Warrants
remain outstanding have authorized, and reserve and
keep available, free from preemptive rights, for the
purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the
Warrants, the number of shares of Common Stock
deliverable upon exercise of all outstanding
Warrants.
(b) The Corporation will take any corporate action which
may be necessary in order that the Corporation may
validly and legally issue fully paid and
nonassessable Warrant Shares at the Exchange Price
per Share.
(c) The Corporation covenants that all Warrant Shares
will, upon issuance in accordance with the terms of
this Warrant Agreement and the Corporation's
certificate of incorporation, be fully paid and
nonassessable and free from all taxes with respect to
the issuance thereof and from all liens, charges and
security interests (other than any created by or on
behalf of any Warrant).
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11. ADJUSTMENT OF EXCHANGE PRICE PER SHARE.
(a) Prior to the Expiration Date, the Exchange Price per
Share is subject to adjustment from time to time in
the manner provided in this section 11 upon the
occurrence of any of the events enumerated in this
section 11.
(b) In the event that the Corporation shall at any time
after the date hereof:
(i) declare a dividend or make a distribution
on the Common Stock payable in shares of
Common Stock,
(ii) subdivide or reclassify outstanding shares
of Common Stock into a greater number of
shares,
(iii) combine shares of its outstanding Common
Stock into a smaller number of shares,
(iv) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
(v) issue by reclassification of any shares of
its outstanding Common Stock, shares of any
series of its Capital Stock or obligation
of the Corporation or other property,
then the exercise privilege and the Exchange Price
per Share in effect immediately prior thereto shall
be adjusted so that the Warrant Holder of Warrant
Shares thereafter surrendered for exercise shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Corporation which such Warrant Holder would have been
entitled to receive after the happening of any of the
events described above had such Warrants been
exercised immediately prior to the happening of such
event or any record date with respect thereto. Such
adjustment shall become effective immediately after
the applicable record date in the case of a dividend
or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
(c) If the Corporation shall at any time after the date
hereof 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
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<PAGE>
of Common Stock) for an Effective Purchase Price per
Share less than the Exchange Price per Share in
effect immediately prior to the date of such
issuance, then the Exchange Price per Share shall be
adjusted to equal the ratio of:
(i) the sum of:
(A) the product of:
(1) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
(2) the Exchange Price per Share
in effect immediately prior
to such issuance and
(B) the Aggregate Consideration
Receivable by the Corporation in
connection with such issuance to
(ii) 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).
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 Exchange Price per Share 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 Exchange Price per Share then in
effect shall be readjusted to the Exchange Price per
Share 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 or
exercise prior to the date such readjustment is made.
If the Corporation shall at any time after the date
hereof 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
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<PAGE>
thereof to any interest in an increase in value,
however measured, of shares of Common Stock) in an
Excluded Transaction the Exchange Price per Share in
effect immediately prior to the date of such issuance
shall not be adjusted hereunder as a result of such
Excluded Transaction.
(d) If the Corporation shall at any time after the date
hereof 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 11(b) hereof,
then the Exchange Price per Share shall be adjusted
to equal the Exchange Price per Share 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 Exchange Price per
Share 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 Warrant Holders of shares of Common Stock
in the same pro rata amounts upon exercise thereof.
(e) In any case in which this section 11 provides that
shall become effective immediately after a record
date for an event, the Corporation may defer until
the occurrence of such event:
(i) issuing to the Warrant Holder of any shares
of Common Stock subject to an exercise after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such exercise by
reason of the adjustment required by such
event over and above the Common Stock
issuable upon such exercise before giving
effect to such adjustment, and
(ii) paying to such Warrant Holder any amount in
cash in lieu of any fractional share of
Common Stock pursuant to section 7.
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<PAGE>
(f) For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 11, the following shall
apply:
(i) in the case of the issuance of shares of
Capital Stock for cash the consideration
shall be the amount of cash, provided that
in no case shall any deduction be made
discounts or other expenses incurred by the
corporation for any underwriting of the
issue or otherwise in connection therewith;
and
(ii) 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.
(g) If after an adjustment a Warrant Holder may, upon
exercise of this Warrant in whole or in part, 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 Exchange
Price per Share between the classes of Capital Stock.
After such allocation, the Exchange Price per Share
of each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 11.
(h) In no event shall an adjustment pursuant to this
section 11 reduce the Exchange Price per Share below
the then par value, if any, of the shares of Common
Stock issuable upon exercise of this Warrant.
(i) No adjustment in the Exchange Price Per Share shall
be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Exchange Price Per Share then in effect.
(j) If there shall occur:
(i) any reclassification or change of
outstanding shares of Common Stock issuable
upon exercise of this Warrant (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 or into another Person
shall be effected as a result of which
holders of Common Stock issuable upon
exercise of this Warrant shall be entitled
to
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<PAGE>
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 Warrant Share 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
exercise of this Warrant 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 11.
If this section 11(i) applies with respect
to a transaction, sections 11(b), (c) and
(d) hereof shall not apply with respect to
that transaction. The above provisions of
this section 11(i) shall similarly apply to
successive reclassifications,
consolidations, mergers and sales.
(k) Notice to Warrant Holders Prior to Certain
Actions.
(i) If:
(A) The Corporation shall take
any action that would
require an adjustment in
the Exchange Price per
Share pursuant to section
11 hereof; or
(B) any event described in
section 11(j) hereof shall
occur; or
(C) the voluntary or
involuntary dissolution,
liquidation or winding-up
of the Corporation shall
occur;
the Corporation shall cause notice
of such proposed action or event to
be mailed to each Warrant Holder at
its address appearing on the Warrant
Register 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.
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<PAGE>
(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.
(l) Irrespective of any adjustments in the number or kind
of shares purchasable upon the exercise of the
Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same
number and kind of shares as are stated on the
Warrant Certificates initially issuable pursuant to
this Warrant Agreement
12. SEC REGISTRATION; RESTRICTIONS ON TRANSFER; SUBSEQUENT TRANSFEREES AS
THIRD PARTY BENEFICIARIES.
(a) The Warrant Holder (i) represents that it is acquiring the
Warrants for its own account for investment and not with a
view to any distribution or public offering within the
meaning of the Securities Act, (ii) acknowledges that the
Warrants and the Warrant Shares issuable upon exercise
thereof have not been registered under the Securities Act or
any state securities laws and (iii) agrees that it will not
sell or otherwise transfer any of its Warrants or Warrant
Shares except upon the terms and conditions specified herein,
provided that the Warrant Holders may sell the Warrants
or the Warrant Shares purchased upon exercise of the Warrants
in one or more private transactions not requiring
registration under the Securities Act.
(b) (i) Except as otherwise provided in section 12(c) hereof,
each Warrant Certificate and each certificate for the
Warrant Shares issued to a Warrant Holder shall include
a legend in substantially the following form (with such
changes therein as may be appropriate to reflect whether
such legend refers to Warrants or Warrant Shares),
provided that such legend shall not be required if such
transfer is being made in connection with a sale which
is exempt from registration pursuant to Rule 144 under
the Securities Act or if the opinion of counsel referred
to in section 12(c) hereof is to the further effect
that neither such legend nor the restrictions on
transfer in this section 12 is required in order to
ensure compliance with the Securities Act:
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<PAGE>
THE [WARRANTS/SHARES] REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS. SUCH
[WARRANTS/SHARES] MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THE WARRANT AGREEMENT DATED AS OF APRIL 3,1996,
AS AMENDED BETWEEN THE CORPORATION AND THE WARRANT HOLDER, A
COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
(ii) Each certificate for the Warrant Shares issued to a
Warrant Holder shall also include a legend in
substantially the following form:
THE SHARES OF COMMON 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 CAPITAL 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 9.5% OF THE OUTSTANDING CAPITAL 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
REQUESTS. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE
SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE
AUTOMATICALLY CONVERTED
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<PAGE>
INTO SHARES OF EXCESS STOCK WHICH WILL BE HELD IN TRUST BY THE
CORPORATION.
(c) Each Warrant Holder wishing to effect such a transfer of any
Warrant or Warrant Shares shall furnish to the Corporation an
agreement by the transferee thereof that it is taking and
holding the same subject to the terms and conditions specified
herein and a written opinion of such Warrant Holder's counsel,
in form reasonably satisfactory to the Corporation to the
effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state
securities laws.
(d) The restrictions set forth in this section 12 shall terminate
and cease to be effective with respect to any Warrants or
Warrant Shares registered under the Securities Act or upon
receipt by the Corporation of an opinion of counsel, in form
reasonably satisfactory to the Corporation, to the effect that
compliance with such restrictions is not necessary in order to
comply with the Securities Act and any applicable state
securities laws with respect to the transfer of the Warrants
and/or the Warrant Shares. Whenever such restrictions shall so
terminate the holder of such Warrants and/or Warrant Shares
shall be entitled to receive from the Corporation, without
expense (other than transfer taxes, if any), Warrant
Certificates or certificates for such Warrant Shares not
bearing the legend set forth in section 12(b)(i) hereof which
the Corporation will rescind any transfer restrictions
relating thereto.
(e) It is the intention of the parties hereto that each Warrant
Holder who acquires Warrants by transfer be a third party
beneficiary, to the extent of Warrants acquired and held by
such Warrant Holder, of the provisions of this Warrant
Agreement that bestow rights on Warrant Holders.
13. AMENDMENTS AND WAIVERS. Any provision of this Warrant Agreement may be
amended, supplemented, waived, discharged or terminated by a written
instrument signed by the Corporation and the holders of not less than a
majority of the outstanding Warrants, provided that the Exchange Price
per Share may not be increased by amendment, the number of Warrant
Shares issuable upon exercise of the Warrants may not be reduced by
amendment and this section 13 may not be changed by amendment except
with the unanimous consent of the holders of all outstanding Warrants.
14. SPECIFIC PERFORMANCE. The holders of the Warrants shall have the right
to specific performance by the Corporation of the provisions of this
Warrant Agreement. The Corporation hereby irrevocably waives, to the
extent that it may do so under applicable law, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the
remedy of specific performance in any action brought against the
Corporation for specific performance of this Warrant Agreement by the
holders of the Warrants.
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<PAGE>
15. NOTICES.
(a) Any notice or demand permitted or required to be given or made
by the holders or the holders of Warrant Shares to or on the
Corporation pursuant to this Warrant Agreement shall be
sufficiently given or made if delivered personally or by
telecopy (if the sender on the same day sends a confirming
copy of such notice by a nationally recognized overnight
delivery service, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service postage prepaid, addressed to the Corporation at the
Warrant Office.
(b) Any notice permitted or required to be given by the
Corporation to the holders or the holders of Warrant Shares
shall be sufficiently given or made 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, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service, postage prepaid, addressed to such holder as such
holder's name and address shall appear on the Warrant Register
or the Common Stock registry of the Corporation, as the case
may be.
16. BINDING EFFECT. This Warrant Agreement shall be binding upon and inure
to the sole and exclusive benefit of the Corporation and the Warrant
Holder, and their respective successors and assigns.
17. CONTINUED VALIDITY. A holder of Warrant Shares shall continue to be
entitled with respect to such Warrant Shares to all rights and subject
to all obligations to which it would have been entitled or subject as a
holder under sections 13 through 20 hereof.
18. COUNTERPARTS. This Warrant Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
19. NEW YORK LAW. THIS WARRANT AGREEMENT AND EACH WARRANT
CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
20. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant Agreement shall be
construed to give any Person other than the Corporation and the Warrant
Holder any legal or equitable right. remedy or claim under this Warrant
Agreement except as expressly set forth herein.
[Balance of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Warrant
Agreement to be duty executed and delivered by their proper and duly authorized
officers, as of the date and year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C Cammack Morton
Title: President and Chief
Operating Officer
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH
By : /s/ David B. Pinkerton
Name: David B. Pinkerton
Title: Vice President
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<PAGE>
EXERCISABLE ONLY ON OR BEFORE
APRIL 3, 2003
FACTORY STORES OF AMERICA, INC.
Warrant Certificate
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement dated as of November 17,1996 (the "Warrant Agreement")
between FAC Realty. Inc. (formerly Factory Stores of America, Inc.), a Delaware
corporation (the Corporation"), and National Union Fire Insurance Company of
Pittsburgh ("Warrant Holder"). The Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitations, obligations, duties and immunities
thereunder of the Corporation and the holders. Terms defined in the Warrant
Agreement and used herein have the same meanings herein as therein.
This Warrant Certificate certifies that Warrant Holder, or registered
assigns, is the registered holder of 20,000 Warrants to purchase shares of
Common Stock of the Corporation. Each Warrant entitles the registered holder,
but only subject to the conditions set forth herein and in the Warrant
Agreement, to purchase from the Corporation on or prior to 5:00 PM, New York
City time, on the Expiration Date, one fully paid and nonassessable share of
Common Stock (subject to adjustment as described below) at a price equal to the
Exchange Price per Share.
The Exchange Price per Share shall be payable in lawful money of the
United States of America. The Warrants represented by this certificate may be
exercised by surrender of this Warrant Certificate, along with an executed copy
of the annexed Form of Election to Purchase and payment of the applicable
Exchange Price per Share at the office of the Corporation at 1095 Old Cedar
Road, McLean, Virginia 22102, or such other address as the Corporation may
specify in writing to the registered holder of the Warrants evidenced hereby.
The Exchange Price per Share and the number of shares of Common Stock
purchasable upon exercise of the Warrants is subject to adjustment prior to the
Expiration Date as set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 PM, New York City time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement) all
rights of the registered holders of the Warrants shall cease after 5:00 PM, New
York City time, on the Expiration Date.
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<PAGE>
The Corporation may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owners thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Corporation shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the Warrant Office by the
registered holder hereof in person or by a legal representative duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
No holder of this Warrant Certificate shall be deemed to be the holder
of Common Stock or any other securities of the Corporation that may at any time
be issuable on the exercise hereof for any purpose, nor shall anything contained
in the Warrant Agreement or herein be construed to confer upon the holder of
this Warrant Certificate as such any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholder at any meeting hereof, or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock change of par value, or exchange
of stock to no par value, consolidation, merger. conveyance or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise, until this Warrant Certificate shall have been exercised and the
Common Stock issuable upon the exercise hereof shall have become issuable as
provided in the Warrant Agreement.
[Balance of Page Intentionally Left Blank)
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<PAGE>
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its corporate seal
to be affixed hereunto.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C. Cammack Morton
Title: President and Chief
Operating Officer
(CORPORATE SEAL)
ATTEST
Assistant Secretary
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<PAGE>
ANNEX TO FORM OF WARRANT CERTIFICATE
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise, in accordance
with section 6(b) of the Warrant Agreement, Warrants, representing the right to
purchase
shares of Common Stock, and herewith tenders payment for such
Shares of Common Stock to the order of the Corporation in the amount of $ as
payment of the exercise price in accordance with the terms hereof.
The undersigned requests that a certificate for such shares of Common
Stock be registered in the name of whose address is and that such certificate be
delivered to whose address is . If said number of shares of Common Stock is less
than all of the shares of Common Stock purchasable hereunder under the method of
exercise selected, the undersigned hereby requests that a new Warrant
Certificate representing the remaining balance of the shares of Common Stock be
registered in the name of whose address is
and that such Warrant
Certificate be delivered to whose address is
.
Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:
-21-
<PAGE>
WARRANT AGREEMENT dated as of November 12, 1996 between FAC Realty,
Inc., formerly Factory Stores of America, Inc., a Delaware corporation (the
"Corporation"), and Network Fund III, Ltd. ("Warrant Holder").
PRELIMINARY STATEMENT
The Corporation proposes to issue and sell to Warrant Holder pursuant
to the Note Purchase Agreement 20,000 Warrants, each Warrant representing the
right initially to purchase one share of Common Stock. The Corporation and
Warrant Holder desire to set forth in this Warrant Agreement the terms and
conditions of the Warrants to be issued pursuant to the terms of the Note
Purchase Agreement.
Accordingly, the parties hereto agree as follows.
1. DEFINITIONS. As used in this Warrant Agreement, the following terms
shall have the following meanings, unless the context otherwise
requires.
(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 11(f)
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) "BLACKACRE" shall mean Blackacre Bridge Capital, L.L.C., a
Delaware limited liability company.
<PAGE>
(c) "BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation.
(d) "BUSINESS DAY" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in New York, New York
are required by law to close.
(e) "CAPITAL STOCK" shall mean 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) corporate stock.
(f) "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.
(g) "CORPORATION" means FAC Realty, Inc, a Delaware corporation.
(h) "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).
(i) "EXCHANGE PRICE PER SHARE" shall mean the $8.41, as such
amount may from time to time be adjusted in accordance with
the provisions of section 11 hereof.
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<PAGE>
(j) "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 amount 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 Warrant
Agreement (calculated on a fully-diluted basis).
(k) "EXPIRATION DATE" shall mean April 3, 2003.
(l) "FAIR MARKET VALUE" of the Common Stock means, as of any date,
the average of the daily 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 for
trading.
(m) "GILDEA" shall mean Gildea Management Company, a Delaware
corporation.
(n) "NOTE PURCHASE AGREEMENT" shall mean that certain Note
Purchase Agreement, dated April 2,1996, by and among the
Corporation, Blackacre and Gildea, as amended.
(o) "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.
(p) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute.
(q) "SERIES A PREFERRED STOCK" means the Series A Convertible
Preferred Stock, $25.00 par value per share, of the
Corporation.
(r) "TRADING DAY" means, with any day on which the New York Stock
Exchange is open for business.
(s) "WARRANT AGREEMENT" shall mean this warrant agreement.
(t) "WARRANT CERTIFICATE" shall mean a certificate evidencing one
or more Warrants, substantially in the form of exhibit A
hereto.
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<PAGE>
(u) "WARRANT HOLDER" shall mean Blackacre, as the original
registered holder of the Warrants issued hereunder, and any
registered transferee of a Warrant Holder.
(v) "WARRANT OFFICE" shall mean the office or agency of the
Corporation at which the Warrant Register shall be maintained
and where the Warrants may be presented for exercise,
exchange, substitution and transfer, which office or agency
will be the office of the Corporation at 11000 Regency
Parkway, Suite 300, Cary North Carolina 27511, which office or
agency may be changed by the Corporation pursuant to notice in
writing to the Persons named in the Warrant Register as the
holders of the Warrants.
(w) "WARRANT REGISTER" shall mean the register, substantially
maintained by the Corporation at the Warrant Office.
(x) "WARRANT SHARES" shall mean the shares of Common Stock issued
or issuable upon exercise of the Warrants, as the same may be
adjusted from time to time pursuant to section 11 hereof, and
any other shares of Capital Stock issued or issuable upon the
exercise of the Warrants pursuant to section 11 hereof.
(y) "WARRANTS" shall mean the warrants to purchase Common Stock
issued by the Corporation pursuant to this Warrant Agreement;
individually, a "Warrant."
2. REPRESENTATIONS AND WARRANTIES. The Corporation hereby represents and
warrants as follows:
(a) The Corporation is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware, has the corporate power and authority to conduct its
business as presently conducted, has the corporate power and
authority to execute and deliver this Warrant Agreement and
the Warrant Certificates, to issue the Warrants and to perform
its obligations under this Warrant Agreement and the Warrant
Certificates.
(b) The execution, delivery and performance by the Corporation of
this Warrant Agreement and the Warrant Certificates, the
issuance of the Warrants, and the issuance of the Warrant
Shares upon exercise of the Warrants have been duly authorized
by all necessary corporate action.
(c) This Warrant Agreement has been duly executed and delivered by
the Corporation and constitutes a legal, valid, binding and
enforceable obligation of the
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<PAGE>
Corporation. When the Warrants and Warrant Certificates have
been issued as contemplated hereby. The Warrants and the
Warrant Certificates will constitute legal, valid, binding and
enforceable obligations of the Corporation. The Warrant
Shares, when issued upon exercise of the Warrants in
accordance with the terms hereof will be duly authorized,
validly issued, fully paid and nonassessable. Statements in
this section 2(c) as to validity, binding effect and
enforceability are subject to (i) limitations as to
enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application
relating to or affecting the enforceability of creditors'
rights, including, without limitation, limitations as to
enforceability that may be imposed under Section 548 of the
United States Bankruptcy Code, Article 10 of the New York
Debtor Creditor Law or other provisions of law relating to
fraudulent transfers and obligations and (ii) equitable
principles limiting the availability of equitable remedies.
3. NUMBER OF WARRANTS. The Corporation hereby agrees to issue and deliver
to Warrant Holder on the date hereof 20,000 Warrants and one or more
Warrant Certificates evidencing such Warrants.
4. REGISTRATION, TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Corporation shall maintain at the Warrant Office the
Warrant Register for registration of the Warrants and Warrant
Certificates and transfers thereof. On the date hereof the
Corporation shall register the Warrants and Warrant
Certificates in the Warrant Register in the name of the
Warrant Holder. The Corporation may deem and treat the
registered holders of the Warrant Certificates as the absolute
owners thereof and the Warrants represented thereby
(notwithstanding any notation of ownership or other writing on
the Warrant Certificates made by any person) for the purpose
of any exercise thereof or any distribution to the Warrant
Holders thereof and for all other purposes, and the
Corporation shall not be affected by any notice to the
contrary.
(b) Subject to section 12 hereof, the Corporation shall register
the transfer of any outstanding Warrants in the Warrant
Register upon surrender of the Warrant Certificates evidencing
such Warrants to the Corporation at the Warrant Office,
accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to it, duly
executed by the registered holder or holders thereof or by the
duly appointed legal representative thereof. Upon any such
registration of transfer, new Warrant Certificates evidencing
such transferred Warrants shall be issued to the transferee
and the surrendered Warrant Certificates shall be canceled. If
less than all the Warrants evidenced
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<PAGE>
by Warrant Certificates surrendered for transfer are to be
transferred, new Warrant Certificates shall be issued to the
holder surrendering such Warrant Certificates evidencing such
remaining number of Warrants.
(c) Warrant Certificates may be exchanged at the option of the
holders thereof when surrendered to the Corporation at the
Warrant Office, for another Warrant Certificate or other
Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates
surrendered for exchange shall be canceled.
(d) No charge shall be made for any such transfer or exchange
except for any tax or other governmental charge imposed in
connection therewith. Except as provided in section 12(b)(i)
hereof, each Warrant Certificate issued upon transfer or
exchange shall bear the legend set forth in sections 12(b)(i)
hereof if the Warrant Certificate presented for transfer or
exchange bore such legend.
5. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Corporation shall
issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant
Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence satisfactory to the
Corporation of such loss, theft or destruction of such Warrant
Certificate (which shall, in the case of a mutilated Warrant
Certificate, include the surrender thereof) and, if requested,
indemnity satisfactory to it. The Corporation acknowledges that a
written indemnity by the Warrant Holder shall be satisfactory to the
Corporation for such purpose. All expenses and reasonable charges
associated with procuring such indemnity and all stamp, tax and other
governmental duties that may be imposed in relation thereto shall be
borne by the holder of such Warrant Certificate. Each Warrant
Certificate issued in any such substitution shall bear the legend set
forth in section 12(b)(i) if the Warrant Certificate for which such
substitution was made bore such legend.
6. DURATION AND EXERCISE OF WARRANTS.
(a) The Warrants evidenced by a Warrant Certificate shall be
exercisable in whole or in part by the registered holder
thereof on any Business Day after the date hereof and on or
before 5:00 P.M., New York City time, on the Expiration Date.
Each Warrant not exercised by 5:00 p.m. New York City time, on
the Expiration Date shall become void, and all rights
thereunder and all rights in respect thereof under this
Warrant Agreement shall become void.
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<PAGE>
(b) Upon presentation to the Corporation at the Warrant Office of
the Warrant Certificate evidencing the Warrants to be
exercised, with the form of election to purchase attached
thereto duly completed and signed by the Warrant Holder, and
upon payment of an amount equal to the product of:
(i) the Exchange Price per Share and
(ii) the number of Warrant Shares being purchased,
in lawful money of the United States of America, the
Corporation shall issue and cause to be delivered to or upon
the written order of the registered holders of such Warrants
and in such name or names as such registered holder may
designate, a certificate for the Warrant Share or Warrant
Shares issued upon such exercise of the Warrants being
exercised. Any Persons so designated to be named therein shall
be deemed to have become Warrant Holders of record of such
Warrant Share or Warrant Shares as of the date of exercise of
such Warrants.
(c) If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time, a new Warrant
Certificate or Certificates shall be issued for the remaining
number of Warrants evidenced by such Warrant Certificate. Each
new Warrant Certificate so issued shall bear the legend set
forth in section 12(b)(i) hereof if the Warrant Certificate
presented in connection with partial exercise thereof bore
such legend. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled.
7. NO FRACTIONAL SHARES. The Corporation shall not be required to issue
fractional Warrant Shares upon exercise of the Warrants but shall pay
for any such fraction of a share an amount in cash equal to such
fraction of the Fair Market Value of a share of Common Stock.
8. PAYMENT OF TAXES. The Corporation will pay all taxes attributable to
the initial issuance of Warrant Shares upon the exercise of the
Warrants, provided that the Corporation shall not be required to pay
any income or other tax incurred by the holder of the Warrant
Certificate or the Warrant Shares upon exercise of the Warrants or
issuance of the Warrant Shares.
9. STOCK RIGHTS.
(a) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the
holders thereof any right to vote or to consent to or receive
notice as a stockholder in respect of the meetings
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<PAGE>
of stockholders or the election of directors of the
Corporation or any other matter or rights to receive
dividends, or any rights whatsoever as a stockholder of the
Corporation.
(b) Nothing contained in this Warrant Agreement or in any of the
Warrant Certificates shall be construed as imposing any
obligation on the registered holders thereof to purchase any
securities or as imposing any liability on such Warrant
Holders as stockholders of the Corporation, whether such
obligation or liability is asserted by the Corporation or by
creditors of the Corporation.
10. RESERVATION AND ISSUANCE OR WARRANT SHARES.
(a) The Corporation will at all times that Warrants
remain outstanding have authorized, and reserve and
keep available, free from preemptive rights, for the
purpose of enabling it to satisfy any obligation to
issue Warrant Shares upon the exercise of the
Warrants, the number of shares of Common Stock
deliverable upon exercise of all outstanding
Warrants.
(b) The Corporation will take any corporate action which
may be necessary in order that the Corporation may
validly and legally issue fully paid and
nonassessable Warrant Shares at the Exchange Price
per Share.
(c) The Corporation covenants that all Warrant Shares
will, upon issuance in accordance with the terms of
this Warrant Agreement and the Corporation's
certificate of incorporation, be fully paid and
nonassessable and free from all taxes with respect to
the issuance thereof and from all liens, charges and
security interests (other than any created by or on
behalf of any Warrant).
11. ADJUSTMENT OF EXCHANGE PRICE PER SHARE.
(a) Prior to the Expiration Date, the Exchange Price per
Share is subject to adjustment from time to time in
the manner provided in this section 11 upon the
occurrence of any of the events enumerated in this
section 11.
(b) In the event that the Corporation shall at any time
after the date hereof:
(i) declare a dividend or make a distribution on
the Common Stock payable in shares of Common
Stock,
(ii) subdivide or reclassify outstanding shares of
Common Stock into a greater number of shares,
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<PAGE>
(iii) combine shares of its outstanding Common Stock
into a smaller number of shares,
(iv) declare a dividend or distribution on the
Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
(v) issue by reclassification of any shares of its
outstanding Common Stock, shares of any series
of its Capital Stock or obligation of the
Corporation or other property,
then the exercise privilege and the Exchange Price
per Share in effect immediately prior thereto shall
be adjusted so that the Warrant Holder of Warrant
Shares thereafter surrendered for exercise shall be
entitled to receive the number of shares of Common
Stock or other Capital Stock and/or property of the
Corporation which such Warrant Holder would have been
entitled to receive after the happening of any of the
events described above had such Warrants been
exercised immediately prior to the happening of such
event or any record date with respect thereto. Such
adjustment shall become effective immediately after
the applicable record date in the case of a dividend
or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification. Such
adjustments shall be made successively whenever any
event referred to above shall occur.
(c) If the Corporation shall at any time after the date
hereof 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 Exchange Price per Share in effect immediately
prior to the date of such issuance, then the Exchange
Price per Share shall be adjusted to equal the ratio
of:
(i) the sum of:
(A) the product of:
(1) the number of shares of
Common Stock outstanding
immediately prior to such
issuance and
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<PAGE>
(2) the Exchange Price per
Share in effect immediately
prior to such issuance and
(B) the Aggregate Consideration
Receivable by the Corporation in
connection with such issuance to
(ii) 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).
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 Exchange Price per Share 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 Exchange Price per Share then in
effect shall be readjusted to the Exchange Price per
Share 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 or
exercise prior to the date such readjustment is made.
If the Corporation shall at any time after the date
hereof 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 Exchange Price per
Share in effect immediately prior to the date of such
issuance shall not be adjusted hereunder as a result
of such Excluded Transaction.
(d) If the Corporation shall at any time after the date
hereof 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 11(b) hereof,
then the Exchange Price per Share shall be adjusted
to equal the Exchange Price per Share in effect
immediately
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<PAGE>
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 Exchange Price per
Share 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 Warrant Holders of shares of Common Stock
in the same pro rata amounts upon exercise thereof.
(e) In any case in which this section 11 provides that
shall become effective immediately after a record
date for an event, the Corporation may defer until
the occurrence of such event:
(i) issuing to the Warrant Holder of any shares
of Common Stock subject to an exercise after
such record date and before the occurrence
of such event the additional shares of
Common Stock issuable upon such exercise by
reason of the adjustment required by such
event over and above the Common Stock
issuable upon such exercise before giving
effect to such adjustment, and
(ii) paying to such Warrant Holder any amount in
cash in lieu of any fractional share of
Common Stock pursuant to section 7.
(f) For purposes of any computations of Aggregate
Consideration Receivable or other consideration
pursuant to this section 11, the following shall
apply:
(i) in the case of the issuance of shares of
Capital Stock for cash the consideration
shall be the amount of cash, provided that
in no case shall any deduction be made
discounts or other expenses incurred by the
corporation for any underwriting of the
issue or otherwise in connection therewith;
and
(ii) in the case of the issuance of shares of
Capital Stock for a consideration in whole
or in part other than cash, the
consideration
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<PAGE>
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.
(g) If after an adjustment a Warrant Holder may, upon
exercise of this Warrant in whole or in part, 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 Exchange
Price per Share between the classes of Capital Stock.
After such allocation, the Exchange Price per Share
of each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to those
applicable to Common Stock in this section 11.
(h) In no event shall an adjustment pursuant to this
section 11 reduce the Exchange Price per Share below
the then par value, if any, of the shares of Common
Stock issuable upon exercise of this Warrant.
(i) No adjustment in the Exchange Price Per Share shall
be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Exchange Price Per Share then in effect.
(j) If there shall occur:
(i) any reclassification or change of
outstanding shares of Common Stock issuable
upon exercise of this Warrant (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 or into another Person
shall be effected as a result of which
holders of Common Stock issuable upon
exercise of this Warrant 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 Warrant Share 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
exercise of this Warrant immediately prior
to such reclassification, change,
consolidation, merger, sale or conveyance.
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<PAGE>
In any such case, appropriate adjustments
which shall be as nearly equivalent as may
be practicable to the adjustments provided
for in this section 11.
If this section 11(i) applies with respect
to a transaction, sections 11(b), (c) and
(d) hereof shall not apply with respect to
that transaction. The above provisions of
this section 11(i) shall similarly apply to
successive reclassifications,
consolidations, mergers and sales.
(k) Notice to Warrant Holders Prior to Certain
Actions.
(i) If:
(A) The Corporation shall take
any action that would
require an adjustment in
the Exchange Price per
Share pursuant to section
11 hereof; or
(B) any event described in
section 11(j) hereof shall
occur; or
(C) the voluntary or
involuntary dissolution,
liquidation or winding-up
of the Corporation shall
occur;
the Corporation shall cause notice
of such proposed action or event to
be mailed to each Warrant Holder at
its address appearing on the Warrant
Register 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
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<PAGE>
shall be entitled to
exchange their Common Stock
for securities or other
property deliverable upon
such event.
(l) Irrespective of any adjustments in the number or kind
of shares purchasable upon the exercise of the
Warrant, Warrant Certificates theretofore or
thereafter issued may continue to express the same
number and kind of shares as are stated on the
Warrant Certificates initially issuable pursuant to
this Warrant Agreement
12. SEC REGISTRATION; RESTRICTIONS ON TRANSFER; SUBSEQUENT TRANSFEREES AS
THIRD PARTY BENEFICIARIES.
(a) The Warrant Holder (i) represents that it is acquiring the
Warrants for its own account for investment and not with a
view to any distribution or public offering within the meaning
of the Securities Act, (ii) acknowledges that the Warrants and
the Warrant Shares issuable upon exercise thereof have not
been registered under the Securities Act or any state
securities laws and (iii) agrees that it will not sell or
otherwise transfer any of its Warrants or Warrant Shares
except upon the terms and conditions specified herein,
provided that the Warrant Holders may sell the Warrants
or the Warrant Shares purchased upon exercise of the
Warrants in one or more private transactions not requiring
registration under the Securities Act.
(b) (i) Except as otherwise provided in section 12(c) hereof,
each Warrant Certificate and each certificate for the
Warrant Shares issued to a Warrant Holder shall
include a legend in substantially the following form
(with such changes therein as may be appropriate to
reflect whether such legend refers to Warrants or
Warrant Shares), provided that such legend shall not
be -------- required if such transfer is being made
in connection with a sale which is exempt from
registration pursuant to Rule 144 under the
Securities Act or if the opinion of counsel referred
to in section 12(c) hereof is to the further effect
that neither such legend nor the restrictions on
transfer in this section 12 is required in order to
ensure compliance with the Securities Act:
THE [WARRANTS/SHARES] REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS. SUCH
[WARRANTS/SHARES] MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER
PROVISIONS OF THE WARRANT AGREEMENT DATED AS OF APRIL
-14-
<PAGE>
3,1996, AS AMENDED BETWEEN THE CORPORATION AND THE WARRANT
HOLDER, A COMPLETE AND CORRECT COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL
BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
(ii) Each certificate for the Warrant Shares issued to a
Warrant Holder shall also include a legend in
substantially the following form:
THE SHARES OF COMMON 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 CAPITAL
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 9.5% OF THE OUTSTANDING CAPITAL 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
REQUESTS. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE
SHARES OF COMMON STOCK REPRESENTED HEREBY WILL BE
AUTOMATICALLY CONVERTED INTO SHARES OF EXCESS STOCK WHICH
WILL BE HELD IN TRUST BY THE CORPORATION.
(c) Each Warrant Holder wishing to effect such a transfer of any
Warrant or Warrant Shares shall furnish to the Corporation an
agreement by the transferee thereof that it is taking and
holding the same subject to the terms and conditions specified
herein
-15-
<PAGE>
and a written opinion of such Warrant Holder's counsel, in
form reasonably satisfactory to the Corporation to the effect
that the proposed transfer may be effected without
registration under the Securities Act and any applicable state
securities laws.
(d) The restrictions set forth in this section 12 shall terminate
and cease to be effective with respect to any Warrants or
Warrant Shares registered under the Securities Act or upon
receipt by the Corporation of an opinion of counsel, in form
reasonably satisfactory to the Corporation, to the effect that
compliance with such restrictions is not necessary in order to
comply with the Securities Act and any applicable state
securities laws with respect to the transfer of the Warrants
and/or the Warrant Shares. Whenever such restrictions shall so
terminate the holder of such Warrants and/or Warrant Shares
shall be entitled to receive from the Corporation, without
expense (other than transfer taxes, if any), Warrant
Certificates or certificates for such Warrant Shares not
bearing the legend set forth in section 12(b)(i) hereof which
the Corporation will rescind any transfer restrictions
relating thereto.
(e) It is the intention of the parties hereto that each Warrant
Holder who acquires Warrants by transfer be a third party
beneficiary, to the extent of Warrants acquired and held by
such Warrant Holder, of the provisions of this Warrant
Agreement that bestow rights on Warrant Holders.
13. AMENDMENTS AND WAIVERS. Any provision of this Warrant Agreement may be
amended, supplemented, waived, discharged or terminated by a written
instrument signed by the Corporation and the holders of not less than a
majority of the outstanding Warrants, provided that the Exchange Price
per Share may not be increased by amendment, the number of Warrant
Shares issuable upon exercise of the Warrants may not be reduced by
amendment and this section 13 may not be changed by amendment except
with the unanimous consent of the holders of all outstanding Warrants.
14. SPECIFIC PERFORMANCE. The holders of the Warrants shall have the right
to specific performance by the Corporation of the provisions of this
Warrant Agreement. The Corporation hereby irrevocably waives, to the
extent that it may do so under applicable law, any defense based on the
adequacy of a remedy at law which may be asserted as a bar to the
remedy of specific performance in any action brought against the
Corporation for specific performance of this Warrant Agreement by the
holders of the Warrants.
-16-
<PAGE>
15. NOTICES.
(a) Any notice or demand permitted or required to be given or made
by the holders or the holders of Warrant Shares to or on the
Corporation pursuant to this Warrant Agreement shall be
sufficiently given or made if delivered personally or by
telecopy (if the sender on the same day sends a confirming
copy of such notice by a nationally recognized overnight
delivery service, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service postage prepaid, addressed to the Corporation at the
Warrant Office.
(b) Any notice permitted or required to be given by the
Corporation to the holders or the holders of Warrant Shares
shall be sufficiently given or made 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, postage prepaid), or if sent by certified or
registered mail or a nationally recognized overnight delivery
service, postage prepaid, addressed to such holder as such
holder's name and address shall appear on the Warrant Register
or the Common Stock registry of the Corporation, as the case
may be.
16. BINDING EFFECT. This Warrant Agreement shall be binding upon and inure
to the sole and exclusive benefit of the Corporation and the Warrant
Holder, and their respective successors and assigns.
17. CONTINUED VALIDITY. A holder of Warrant Shares shall continue to be
entitled with respect to such Warrant Shares to all rights and subject
to all obligations to which it would have been entitled or subject as a
holder under sections 13 through 20 hereof.
18. COUNTERPARTS. This Warrant Agreement may be executed in one or more
separate counterparts and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
19. NEW YORK LAW. THIS WARRANT AGREEMENT AND EACH WARRANT
CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
20. BENEFITS OF THIS AGREEMENT. Nothing in this Warrant Agreement shall be
construed to give any Person other than the Corporation and the Warrant
Holder any legal or equitable right. remedy or claim under this Warrant
Agreement except as expressly set forth herein.
[Balance of Page Intentionally Left Blank]
-17-
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Warrant
Agreement to be duty executed and delivered by their proper and duly authorized
officers, as of the date and year first above written.
FAC REALTY, INC.
By: /s/ C. Cammack Morton
Name: C Cammack Morton
Title: President and Chief Operating
Officer
Network Fund III, Ltd.
By: /s/ William P. O'Donnell
Name: William P. O'Donnell
Title: Managing Director
-18-
<PAGE>
EXERCISABLE ONLY ON OR BEFORE
APRIL 3, 2003
FACTORY STORES OF AMERICA, INC.
Warrant Certificate
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement dated as of November 17,1996 (the "Warrant Agreement")
between FAC Realty. Inc. (formerly Factory Stores of America, Inc.), a Delaware
corporation (the Corporation"), and Network Fund III, Ltd. ("Warrant Holder").
The Warrant Agreement is hereby incorporated by reference in and made a part of
this instrument and is hereby referred to for a description of the rights,
limitations, obligations, duties and immunities thereunder of the Corporation
and the holders. Terms defined in the Warrant Agreement and used herein have the
same meanings herein as therein.
This Warrant Certificate certifies that Warrant Holder, or registered
assigns, is the registered holder of 20,000 Warrants to purchase shares of
Common Stock of the Corporation. Each Warrant entitles the registered holder,
but only subject to the conditions set forth herein and in the Warrant
Agreement, to purchase from the Corporation on or prior to 5:00 PM, New York
City time, on the Expiration Date, one fully paid and nonassessable share of
Common Stock (subject to adjustment as described below) at a price equal to the
Exchange Price per Share.
The Exchange Price per Share shall be payable in lawful money of the
United States of America. The Warrants represented by this certificate may be
exercised by surrender of this Warrant Certificate, along with an executed copy
of the annexed Form of Election to Purchase and payment of the applicable
Exchange Price per Share at the office of the Corporation at 1095 Old Cedar
Road, McLean, Virginia 22102, or such other address as the Corporation may
specify in writing to the registered holder of the Warrants evidenced hereby.
The Exchange Price per Share and the number of shares of Common Stock
purchasable upon exercise of the Warrants is subject to adjustment prior to the
Expiration Date as set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 PM, New York City time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement) all
rights of the registered holders of the Warrants shall cease after 5:00 PM, New
York City time, on the Expiration Date.
-19-
<PAGE>
The Corporation may deem and treat the registered holders of the
Warrants evidenced hereby as the absolute owners thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Corporation shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the Warrant Office by the
registered holder hereof in person or by a legal representative duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, but without payment of any service charge,
for another Warrant Certificate or Warrant Certificates of like tenor evidencing
in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
No holder of this Warrant Certificate shall be deemed to be the holder
of Common Stock or any other securities of the Corporation that may at any time
be issuable on the exercise hereof for any purpose, nor shall anything contained
in the Warrant Agreement or herein be construed to confer upon the holder of
this Warrant Certificate as such any of the rights of a stockholder of the
Corporation or any right to vote for the election of directors or upon any
matter submitted to stockholder at any meeting hereof, or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock change of par value, or exchange
of stock to no par value, consolidation, merger. conveyance or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise, until this Warrant Certificate shall have been exercised and the
Common Stock issuable upon the exercise hereof shall have become issuable as
provided in the Warrant Agreement.
[Balance of Page Intentionally Left Blank)
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<PAGE>
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate
to be signed by its duly authorized officers and has caused its corporate seal
to be affixed hereunto.
FAC REALTY, INC.
By:
Name: C. Cammack Morton
Title: President and Chief Operating
Officer
(CORPORATE SEAL)
ATTEST
Assistant Secretary
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<PAGE>
ANNEX TO FORM OF WARRANT CERTIFICATE
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise, in accordance
with section 6(b) of the Warrant Agreement, Warrants, representing the
right to purchase shares of Common Stock, and herewith tenders payment
for such Shares of Common Stock to the order of the Corporation in the amount
of $ as payment of the exercise price in accordance with the terms
hereof.
The undersigned requests that a certificate for such shares of Common
Stock be registered in the name of whose address is and that such
certificate be delivered to whose address is . If said number
of shares of Common Stock is less than all of the shares of Common Stock
purchasable hereunder under the method of exercise selected, the undersigned
hereby requests that a new Warrant Certificate representing the remaining
balance of the shares of Common Stock be registered in the name of whose
address is
and that such Warrant
Certificate be delivered to whose address is
.
Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:
-22-
<PAGE>
Exhibit 21
FAC Realty, Inc.
Subsidiaries
State of
Name Incorporation
FSA Finance, Inc. Delaware
FSA Properties, Inc. Delaware
FAC Outparcels, Inc. Delaware
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-3240) pertaining to the 1996 Restricted Stock Plan, 1995 Outside
Directors' Stock Award Plan, and 1993 Employee Stock Incentive Plan of FAC
Realty, Inc. of our report dated January 31, 1997, except for Notes 10 and 12 as
to which the date is March 27, 1997, with respect to the consolidated financial
statements and schedule of FAC Realty, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Raleigh, North Carolina
April 11, 1997
