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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement
( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FAC REALTY, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Preliminary Copy
FAC REALTY, INC.
11000 Regency Parkway
Suite 300
Cary, North Carolina 27511
November , 1997
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders
of FAC Realty, Inc., a Delaware corporation (the "Company), to be held at the
Company, 11000 Regency Parkway, Suite 300, Cary, North Carolina 27511, on
December 15, 1997 at 10:00 a.m., local time (the "Special Meeting").
At the Special Meeting, you will be asked to approve the
reincorporation of the Company from the State of Delaware to the State of
Maryland (the "Reincorporation"). The Reincorporation will be accomplished
through the merger (the "Merger") of the Company into FAC Realty Trust, Inc., a
wholly owned subsidiary of the Company to be formed for the sole purpose of
effecting the Reincorporation (the "Maryland Company"). As a result of the
Merger, each outstanding share of common stock of the Company will be converted
into one share of common stock of the Maryland Company. Upon consummation of the
Reincorporation, the Company intends to reorganize itself into an umbrella
partnership structure (an "UPREIT") through the contribution of substantially
all of its assets into FAC Realty Limited Partnership, a limited partnership to
be formed by the Company after the Reincorporation (the "Operating
Partnership"). The Company will be the sole general partner of the Operating
Partnership.
Details of the proposed Reincorporation and information regarding the
Company are contained in the attached Proxy Statement, which you are encouraged
to read carefully.
The Reincorporation requires the affirmative vote of the stockholders
owning a majority of the outstanding shares of common stock of the Company.
Accordingly, whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Proxy Statement at any time before it has been voted at the
Special Meeting. If you attend the Special Meeting, you may vote in person even
if you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated. This solicitation is made on behalf of the Board of
Directors of the Company.
Sincerely,
C. Cammack Morton
President and Chief Executive Officer
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NOTICE OF SPECIAL MEETING
FAC REALTY, INC.
11000 Regency Parkway
Suite 300
Cary, North Carolina 27511
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Special Meeting") of FAC Realty, Inc., a Delaware corporation (the "Company"),
will be held at the Company, 11000 Regency Parkway, Suite 300, Cary,
North Carolina 27511, on December 15, 1997 at 10:00 a.m., local time (the
"Special Meeting"), to consider and vote on a proposal to approve the
reincorporation of the Company from the State of Delaware to the State of
Maryland.
Only stockholders of record at the close of business on October 31,
1997 will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
By Order of the Board of Directors
Robin W. Malphrus
Secretary
Dated: November , 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER PROXY
SOLICITATION. PLEASE MAIL YOUR PROXY TODAY.
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FAC REALTY, INC.
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of FAC
Realty, Inc. ("the Company") in connection with the solicitation by the Board of
Directors of proxies for use at a special meeting of stockholders (the "Special
Meeting") to be held on December 15, 1997. The Special Meeting will be held at
10:00 a.m. at the Company, 11000 Regency Parkway, Suite 300, Cary, North
Carolina 27511. It is anticipated that this Proxy Statement, form of proxy and
notice of meeting will be mailed to stockholders on November 7, 1997.
At the Special Meeting, you will be asked to approve the
reincorporation of the Company from the State of Delaware to the State of
Maryland (the "Reincorporation"). The Reincorporation will be accomplished
through the merger (the "Merger") of the Company into FAC Realty Trust, Inc., a
wholly owned subsidiary of the Company to be formed for the sole purpose of
effecting the Reincorporation (the "Maryland Company"). As a result of the
Merger, each outstanding share of common stock of the Company will be converted
into one share of common stock of the Maryland Company. Upon consummation of the
Reincorporation, the Company intends to reorganize itself into an umbrella
partnership structure (an "UPREIT") through the contribution of substantially
all of its assets into FAC Realty Limited Partnership, a limited partnership to
be formed by the Company after the Reincorporation (the "Operating
Partnership"). The Company will be the sole general partner of the Operating
Partnership.
This proxy solicitation is made by the Board of Directors of the
Company ("the Board of Directors"). In addition to the use of mails, proxies may
be solicited by personal interview, telephone or telegraph, by use of the
Company's internet web page, by directors or officers of the Company and by
certain independent solicitation agents as discussed below. The Company has
retained The Financial Relations Board in conjunction with Beacon Hill Partners,
Inc. (the "Consultants") to assist in the process of identifying and contacting
stockholders for the purpose of soliciting proxies. The expense of engaging the
services of the Consultants to assist in proxy solicitation is not to exceed
$4,000. All costs of solicitation will be borne by the Company.
Returning your completed proxy will not prevent you from voting in
person at the Special Meeting should you be present and wish to do so. Proxies
may be revoked at any time before exercise thereof by filing a notice of such
revocation or a later dated proxy with the secretary of the Company or by voting
in person at the Special Meeting. Consequently, execution of the proxy will not
in any way affect a stockholder's right to attend the Special Meeting, revoke
his or her proxy, and vote in person.
Shares represented by proxies in the form enclosed, if such proxies are
properly executed and returned and not revoked, will be voted as specified.
Where no specification is made on a properly executed and returned proxy, the
shares will be voted FOR the proposals to be voted upon at the Special Meeting
as set forth in the formal notice attached and as described in this Proxy
Statement.
Holders of record of shares of common stock (the "Common Stock") of the
Company as of the close of business on the record date, October 31, 1997, are
entitled to receive notice of, and to vote at, the Special Meeting. At the close
of business on October 31, 1997, _________ shares of Common Stock were issued
and outstanding. A stockholder of record on the record date is entitled to one
vote for each share then held. The holders, present in person or by proxy, of a
majority of the total number of outstanding shares of the Common Stock entitled
to vote at the Special Meeting will constitute a quorum.
Shares represented by proxies that reflect abstention or "broker
non-votes" (i.e., shares held by a broker or nominee that are represented at the
Special Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum.
Approval of the Reincorporation will require the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to vote. Abstentions
will have the same effect as votes against such proposal. Broker non-
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votes, however, will be treated as unvoted for purposes of determining
approval of such proposal, and will not be counted as votes for or against such
proposal.
No appraisal or dissenters' rights are available with respect to any
matters to be voted upon at the Special Meeting.
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AVAILABLE INFORMATION
The Company is and after the reincorporation will continue to be,
subject to the informational requirements of the Securities Exchange Act of
1934, as amended ("Exchange Act"), and, in accordance therewith, files, reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and at its Regional Offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site that
contains reports, proxy and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is:
http://www.sec.gov. The Company's Common Stock is currently listed on the New
York Stock Exchange ("NYSE") and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement, or incorporated
in it by reference, and, if given or made, such information or representation
should not be relied upon as having been authorized. This Proxy
Statement does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy Statement,
or the solicitation of a proxy, in any jurisdiction where or from any person to
whom it is unlawful to make such offer, or solicitation of an offer, or proxy
solicitation. Neither the delivery of this Proxy Statement nor any distribution
of the securities offered pursuant to this Proxy Statement shall, under the
circumstances, create an implication that there has been no change in the
affairs of the Company since the date of this Proxy Statement.
All documents that are incorporated by reference in this Proxy
Statement but which are not delivered herewith are available without charge
(other than exhibits to such documents which are not specifically incorporated
by reference therein) upon request from the Company at 11000 Regency Parkway,
Suite 300, Cary, North Carolina 27511, Attention: Robin W. Malphrus, telephone:
(919) 462-8787. In order to ensure timely delivery of the documents, any request
should be made by December 1, 1997.
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INFORMATION INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT
The following documents filed with the Commission by the Company
pursuant to the Exchange Act are hereby incorporated in this Proxy
Statement by reference:
1. Annual report on Form 10-K for the year ended December 31, 1996,
dated April 15, 1997, as amended on Form 10-K/A dated April 16,
1997;
2. Quarterly report on Form 10-Q dated May 15, 1997 for the quarter
ended March 31, 1997;
3. Quarterly report on Form 10-Q dated August 7, 1997 for the quarter
ended June 30, 1997;
4. Current report on Form 8-K dated April 11, 1997;
5. Current report on Form 8-K/A dated May 27, 1997;
6. Current report on Form 8-K dated September 10, 1997;
7. Proxy Statement filed April 30, 1997;
8. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, as amended, dated
April 30, 1993; and
9. All documents subsequently filed by the Company pursuant to Section
13(a), 13(d), 14 or 15(d) of the Exchange Act prior to the date of
the Special Meeting of Stockholders.
Any statement contained herein or in a document incorporated by
reference or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference in this Proxy Statement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
THE COMPANY 6
RECENT DEVELOPMENTS 6
Recent Acquisition Activity 6
Recent Development Activity 7
Changes in Management 7
DESCRIPTION OF THE PROPOSED TRANSACTION 7
General 7
Merger of FAC Realty, Inc. into Newly Formed Maryland Subsidiary 8
Certain Consequences of the Merger 8
Comparison of Rights of Stockholders of the Company and Stockholders of
the Maryland Company 10
Reorganization as an UPREIT 13
Partnership Agreement of the Operating Partnership 13
FEDERAL INCOME TAX CONSIDERATIONS 16
Taxation of the Company as a REIT 16
Tax Aspects of the Operating Partnership 17
Recent Legislation 19
ACCOUNTING TREATMENT OF THE MERGER 19
APPRAISAL RIGHTS 19
APPROVAL REQUIRED FOR REINCORPORATION 20
RECOMMENDATION OF THE BOARD OF DIRECTORS 20
EXPERTS 20
LEGAL MATTERS 20
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING 20
GENERAL 21
EXHIBIT A AGREEMENT AND PLAN OF MERGER A-1
EXHIBIT B AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FAC REALTY TRUST, INC B-1
EXHIBIT C AMENDED AND RESTATED BYLAWS OF FAC REALTY TRUST, INC C-1
</TABLE>
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THE COMPANY
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: (i) 21 enclosed and 12
unenclosed factory outlet centers in 20 states aggregating approximately
4,600,000 square feet; (ii) five community shopping centers located in the
Raleigh, North Carolina area aggregating approximately 600,000 square feet;
(iii) two unenclosed factory outlet centers held for sale aggregating
approximately 150,000 square feet; (iv) 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 which is currently under contract to sell; and
(v) approximately 163 acres of outparcel land located near or adjacent to
certain of the Company's centers and are 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.
This Proxy Statement, including documents incorporated by reference
herein, contains forward-looking statements withing the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.
These statements are identified by words such as "expect," "anticipate,"
"should" and words of similar import. Forward-looking statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in this section,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Risk Factors" incorporated by reference herein. The Company
disclaims any duty to update these forward-looking statements.
RECENT DEVELOPMENTS
RECENT ACQUISITION ACTIVITY
On October 7, 1997, the Company entered into an agreement to purchase
ten shopping centers located in North Carolina and Virginia, totaling 1.2
million square feet, and to assume third party management of an additional 1.0
million square feet of community shopping centers. The centers to be purchased
are owned primarily by Roy O. Rodwell, Chairman and Co-Founder of Atlantic Real
Estate Corporation ("ARC"), a privately held real estate development company
based in Durham, North Carolina, and John M. Kane, Chairman of Kane Realty
Corporation, a real estate development and brokerage company based in Raleigh,
North Carolina, in a transaction valued at $71.4 million. The purchase of one of
the shopping centers is subject to the final approval of a partnership in which
Mr. Kane is the managing partner.
In exchange for their equity ownership interests in the community
centers, Mr. Rodwell, Mr. Kane and related parties will receive 1.65 million
share equivalent partnership units in a newly created partnership between the
Company and the sellers. The Company will have a 90% interest in the newly
created partnership. The number of partnership units to be issued to the sellers
was based on a $9.50 price per share of the Company's Common Stock. Of the units
to be issued, 346,000 will remain unissued until the completion of certain
performance requirements. As part of the purchase price, the Company will also
assume approximately $55.8 million of fixed rate debt on the properties to be
acquired. Upon completion of its planned reorganization as an UPREIT, the
Company would have the option of
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transferring the assets of the partnership to the Operating Partnership in
exchange for Units in the Operating Partnership on a one-for-one basis. See
"Reorganization as an UPREIT."
RECENT DEVELOPMENT ACTIVITY
On September 22, 1997, the Company and ARC jointly created a limited
liability company named Atlantic Realty LLC to own, develop and manage retail
community and neighborhood shopping centers in the Southeast. The Company and
ARC will own Atlantic Realty LLC equally, with the Company serving as managing
member overseeing its operations. Atlantic Realty LLC currently has plans to
develop nearly one million square feet, including outparcels, over the next
several years.
The joint venture with ARC requires the Company to contribute the
initial equity investment required to develop the properties to be determined on
a project-by-project basis and to perform leasing, property management and
marketing functions. ARC will develop and build the centers, in addition to
providing the anchor tenants and construction financing. In connection with the
joint venture with ARC, Atlantic Realty LLC may convert in part to a downREIT
partnership format, at which time ARC would receive units equivalent to shares
of the Company's common stock in exchange for its ownership interest in each
development project. The Company will receive interest on its equity
contribution during the construction period and a cumulative preferred return
during the period of operations through Atlantic Realty LLC's conversion to a
partnership structure or the sale of the development projects. The Company will
also receive management and leasing fees, while ARC will receive a construction
management fee.
CHANGES IN MANAGEMENT
On September 12, 1997, William H. Neville joined the Company as
Executive Vice President and Chief Operating Officer. Mr. Neville has more than
20 years of experience in the acquisition, development, leasing and management
of shopping centers including community centers, outlet centers and regional
malls.
DESCRIPTION OF THE PROPOSED TRANSACTION
GENERAL
The Board of Directors has unanimously approved the proposed
transaction (the "Reincorporation") to change the Company's state of
incorporation from Delaware to Maryland and concurrently reorganize itself into
an UPREIT structure. The Company believes that after the Reincorporation it will
continue to be organized and will continue to operate in such a manner as to
qualify for taxation as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Board of Directors believes
the Reincorporation is in the best interests of the Company and its stockholders
for the following reasons:
(1) The Company will realize a cost savings in annual franchise tax
payments of approximately $150,000 by changing its state of
incorporation from Delaware to Maryland;
(2) By adopting an UPREIT structure, the Company will realize an
annual cost savings of approximately $188,000 beginning in 1998
related to state franchise tax payments on its assets located in
certain states; and
(3) By adopting an UPREIT structure, the Company may be able to
acquire properties at lower prices and more favorably access
capital markets.
Delaware corporations are required to pay an annual franchise tax each
year on its authorized capital stock. The Reincorporation will enable the
Company to avoid having to continue to pay Delaware's annual franchise tax. For
the year ended December 31, 1996, the Company paid to the State of Delaware a
franchise tax totaling $150,000. The Company anticipates having to pay the same
amount in franchise taxes for future years if it continues as a Delaware
corporation. As a Maryland corporation, the Company would not be subject to such
annual taxes other than the personal property tax filing fee of $100, provided
that Maryland does not alter its current laws.
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Upon completion of the change in corporate domicile, the Company plans
to adopt an UPREIT structure. An UPREIT is a real estate investment trust that
controls and holds substantially all of its properties through an umbrella
limited partnership (an "Operating Partnership"). The limited partnership
interests ("Units") in an Operating Partnership can be issued to acquire
property in transactions that would not trigger immediate tax obligations for
certain sellers. Such Units are generally redeemable for cash or shares of
common stock of the REIT. UPREITs are structured so that distributions of cash
from the Operating Partnership are allocated between the REIT and the other
limited partners based upon their respective Unit ownership. Converting to an
UPREIT could enable the Company to acquire properties at lower prices because of
the tax advantages to certain sellers of receiving Units as consideration and
could offer favorable methods of accessing capital markets.
Upon converting to an UPREIT structure, the Company will transfer
substantially all of its assets to the Operating Partnership. Several of the
states in which the Company presently owns properties (Alabama, Georgia,
Kentucky, Tennessee and Texas) do not require a limited partnership to pay a
franchise tax on assets owned in those states. Since the Company will transfer
substantially all of its assets to the Operating Partnership upon conversion to
an UPREIT structure, the Company estimates that it will save approximately
$188,000 each year in franchise taxes in those states, provided such states do
not alter their current laws. For the year ended 1997, the Company's estimated
savings will be approximately $96,000 exclusive of the one-time payment of
transfer taxes expected to be incurred upon the transfer of its assets to the
Operating Partnership.
In addition, a number of changes will be effected as a result of the
Reincorporation. Such changes are described below under the headings "Certain
Consequences of the Merger" and "Comparison of Rights of Stockholders of the
Company and Stockholders of the Maryland Company."
The Board of Directors estimates that the aggregate cost of the
reincorporation from Delaware to Maryland will be approximately $50,000.
In the event this proposal is not adopted, the Company will continue to
operate as a Delaware corporation, remain subject to Delaware's annual franchise
tax and not convert to an UPREIT structure.
MERGER OF FAC REALTY, INC. INTO NEWLY FORMED MARYLAND SUBSIDIARY
The proposed Reincorporation would be accomplished by merging the
Company into a newly formed Maryland subsidiary, named FAC Realty Trust, Inc.
(the "Maryland Company"), pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), substantially in the form attached as Exhibit A to this
Proxy Statement. The Maryland Company was incorporated in Maryland specifically
for purposes of the Reincorporation and has conducted no business and has no
material assets or liabilities. After consummation of the Reincorporation, the
Maryland Company will change its name to FAC Realty, Inc. The Maryland Company's
principal executive offices are located at 11000 Regency Parkway, Suite 300,
Cary, North Carolina 27511. The Reincorporation would not result in any change
in the Company's business, assets or liabilities and would not result in any
relocation of management or other employees.
WHERE THE CONTEXT SO REQUIRES, THE TERMS (I) "COMPANY" SHALL MEAN THE
MARYLAND COMPANY FOLLOWING THE REINCORPORATION, (II) "BOARD OF DIRECTORS" SHALL
MEAN THE BOARD OF DIRECTORS OF THE MARYLAND COMPANY FOLLOWING THE
REINCORPORATION AND (III) "COMMON STOCK" SHALL MEAN THE MARYLAND COMMON STOCK
FOLLOWING THE REINCORPORATION.
CERTAIN CONSEQUENCES OF THE MERGER
EFFECTIVE TIME. The merger will take effect on the later of the times
(the "Effective Time") on which a Certificate of Ownership and Merger is filed
with the Secretary of State of Delaware and Articles of Merger are filed with
the State Department of Assessments and Taxation of Maryland, which filings are
anticipated to be made as soon as practicable after the Reincorporation proposal
is approved by the stockholders of the Company. At the Effective Time, the
separate corporate existence of the Company will cease and stockholders of the
Company will become stockholders of the Maryland Company.
MANAGEMENT AFTER THE MERGER. Immediately after the merger, the Board of
Directors of the Maryland Company (the "Maryland Board of Directors") will be
composed of the current members of the Board of Directors of
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the Company. The current members of the Board of Directors will continue to
serve as directors of the Maryland Company for the same terms for which they
would otherwise have served as directors of the Company.
STOCKHOLDER RIGHTS. Certain differences in stockholder rights exist
under Delaware General Corporation Law ("Delaware law") and Maryland General
Corporation Law ("Maryland law"). See "Comparison of Rights of Stockholders of
the Company and Stockholders of the Maryland Company" for a more complete
discussion of the consequential effects of the differences between the rights of
stockholders under Delaware and Maryland law.
CONVERSION OF COMMON AND PREFERRED STOCK. As a result of the
Reincorporation, each outstanding share of Common Stock of the Company will
automatically be converted into one share of Common Stock of the Maryland
Company (the "Maryland Common Stock"). Also, each outstanding share of preferred
stock of the Company (the "Preferred Stock") will automatically be converted
into one share of preferred stock of the Maryland Company (the "Maryland
Preferred Stock"). Other than changes due to the differences between Delaware
and Maryland law and certain differences between the charters of the Company and
the Maryland Company (see "Comparison of Rights of Stockholders of the Company
and Stockholders of the Maryland Company"), there will be no changes in the
rights, preferences and privileges of holders of the Common Stock or Preferred
Stock as a result of the Reincorporation. The Maryland Common Stock will be
listed on the NYSE Stock Exchange, Inc. (the "NYSE") under the same symbol as
the Company's Common Stock.
NUMBER OF SHARES OF STOCK AUTHORIZED AND OUTSTANDING. The number of
outstanding shares of Maryland Common Stock immediately following the
Reincorporation will equal the number of shares of Common Stock of the Company
outstanding immediately prior to the Effective Time. The number of outstanding
shares of Maryland Preferred Stock immediately following the Reincorporation
will equal the number of shares of Preferred Stock of the Company outstanding
immediately prior to the Effective Time.
FRANCHISE TAX. As a result of the Reincorporation, the Maryland Company
will not be subject to Delaware's annual franchise tax. For the year ended
December 31, 1996, the Company and its subsidiaries paid to the State of
Delaware annual franchise tax totaling $150,000. The Company anticipates having
to pay the same amount in franchise tax for future years if it continues as a
Delaware corporation. As a Maryland corporation, the Maryland Company would not
be subject to such annual taxes other than the personal property tax filing fee
of $100, provided that Maryland does not alter its current laws.
COMPANY PLANS. The Company's Amended and Restated 1993 Employee Stock
Option Plan, 1995 Directors' Stock Award Plan and 1996 Restricted Stock Plan
(collectively, the "Plans") will be continued by the Maryland Company following
the Reincorporation. Approval of the proposed Reincorporation will constitute
approval of the adoption and assumption of the Plans by the Maryland Company.
OUTSTANDING OPTIONS. In addition to the assumption by the Maryland
Company of all options outstanding under the Plans, any and all other
outstanding options and other rights to acquire shares of Common Stock of the
Company will be converted into options or rights to acquire shares of the
Maryland Company.
FEDERAL INCOME TAX CONSEQUENCES. The Reincorporation is intended to be
tax free under the Code. Accordingly, no gain or loss will be recognized by the
holders of shares of the Common Stock or the Preferred Stock as a result of the
Reincorporation, and no gain or loss will be recognized by the Company or the
Maryland Company. Each former holder of shares of the Common Stock or the
Preferred Stock, as applicable, will have the same tax basis in the Maryland
Common Stock or the Maryland Preferred Stock, as applicable, received by such
holder pursuant to the Reincorporation as such holder has in the shares of the
Common Stock or the Preferred Stock, as applicable, held by such holder at the
Effective Time. Each stockholder's holding period with respect to the Maryland
Common Stock or the Maryland Preferred Stock, as applicable, will include the
period during which such holder held the shares of the Common Stock or the
Preferred Stock, as applicable, provided the Common Stock or the Preferred
Stock, as applicable, were held by such holder as a capital asset at the
Effective Time. The Company has not obtained a ruling from the Internal Revenue
Service, nor an opinion of counsel, with respect to the tax consequences of the
Reincorporation.
The foregoing is only a summary of certain federal income tax
consequences. Stockholders should consult their own tax advisors regarding the
federal tax consequences of the Reincorporation as well as any consequences
under the laws of any other jurisdiction.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF THE COMPANY AND STOCKHOLDERS OF THE
MARYLAND COMPANY
The Company is organized as a corporation under the laws of the State
of Delaware and the Maryland Company is organized as a corporation under the
laws of the State of Maryland. As a Delaware corporation, the Company is subject
to Delaware law. The Company also is governed by its Second Restated Certificate
of Incorporation, as amended (the "Delaware Certificate") and Amended and
Restated Bylaws (the "Delaware Bylaws"), which have been adopted pursuant to
Delaware law. As a Maryland corporation, the Maryland Company will be governed
by Maryland law and by its Articles of Incorporation (the "Maryland Articles")
and Bylaws (the "Maryland Bylaws"). A number of differences between Delaware law
and Maryland law and among these various documents are summarized below.
The discussion of the comparative rights of the stockholders of the
Company and the stockholders of the Maryland Company as set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to Delaware law and Maryland law and also to the Maryland Articles,
Maryland Bylaws, Delaware Certificate and Delaware Bylaws. The Maryland Articles
and Bylaws will be substantially in the forms attached as Exhibits B and C,
respectively, to this Proxy Statement and the Delaware Certificate and Delaware
Bylaws may be obtained from the Company, without charge, by contacting Robin W.
Malphrus, FAC Realty, Inc., 11000 Regency Parkway, Suite 300, Cary, North
Carolina 27511.
LIMITATION OF LIABILITY. Pursuant to Delaware law and the Delaware
Certificate, the liability of directors of the Company to the Company or to any
stockholder of the Company for money damages for breach of fiduciary duty has
been eliminated, except for (i) breach of the directors' duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) unlawful
dividends or redemptions or purchases of stock, or (iv) any transaction from
which the directors derived an improper personal benefit. In general, the
liability of officers may not be eliminated or limited under Delaware law.
Pursuant to Maryland law and the Maryland Articles, the liability of
directors and officers of the Maryland Company to the Maryland Company or to any
stockholder of the Maryland Company for money damages has been eliminated except
for (i) actual receipt of an improper personal benefit in money, property or
service and (ii) active and deliberate dishonesty established by a final
judgment as being material to the cause of action.
As a result of the Reincorporation, directors and officers of the
Company may not be liable under Maryland law for certain actions for which they
would have otherwise been liable under Delaware law; therefore, the likelihood
of payments by the Company pursuant to its indemnification obligations (which
are described below) may be reduced.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Delaware Bylaws and the
Maryland Bylaws each require the indemnification of officers and directors and
the advancement of expenses incurred by such officers and directors in relation
to any action, suit or proceeding. Under Delaware law, the termination of any
proceeding by conviction or upon a plea of nolocontendere or its equivalent,
shall not, of itself, create a presumption that an officer or director is
prohibited from being indemnified. Under Maryland law, such a termination
creates a rebuttable presumption that such person is not entitled to
indemnification. In addition, Delaware law requires court approval before there
may be any indemnification where the person seeking indemnification has been
found liable to the corporation. However, indemnification is prohibited under
Maryland law if the person seeking indemnification has been found liable to the
corporation in a proceeding brought by or in the right of the corporation. In
addition, Maryland law provides that a person adjudged liable on the basis that
personal benefit was improperly received may not be indemnified by the
corporation. Thus, under these circumstances, Maryland law provides
indemnification rights that are narrower than under Delaware law.
Delaware law, Maryland law and the Bylaws of both the Company and the
Maryland Company may permit indemnification for liabilities arising under the
Securities Act or the Exchange Act. The Board of Directors has been advised
that, in the opinion of the Securities and Exchange Commission, indemnification
for liabilities arising under the Securities Act or the Exchange Act is contrary
to public policy and is therefore unenforceable, absent a decision to the
contrary by a court of appropriate jurisdiction.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS. Under both Delaware law and
Maryland law, stockholders may act by written consent in lieu of a stockholder
meeting. Delaware law provides that, unless otherwise provided in the
certificate of incorporation of a Delaware corporation, any action that may be
taken at a stockholder meeting may be
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taken without a meeting, without prior notice and without a vote, upon the
written consent of the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a stockholder meeting at which all shares entitled to vote were present and
voted. Maryland law provides that any action that may be taken at a stockholder
meeting may be taken without a meeting only if (i) a unanimous written consent
setting forth the matter is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent is signed by each
stockholder entitled to notice of the meeting but not entitled to vote at it.
Because Maryland law requires the unanimous written consent of all
stockholders entitled to vote for actions by written consent, it will be very
unlikely that stockholders of the Maryland Company will be able to take action
by written consent. This provision of Maryland law may deter hostile takeovers,
as a holder or group of holders controlling a majority in interest of the
Maryland Company's stock will not be able to amend the Maryland Bylaws or remove
directors pursuant to a stockholders' written consent unless they call a special
meeting of the stockholders. However, the Company does not believe that this
provision will have any material effect on the operation of the Company because
the rules of the NYSE limit listed companies in using written consents in lieu
of stockholder meetings.
INSPECTION OF BOOKS AND RECORDS. Under Delaware law, any stockholder of
the Company may examine the list of stockholders and any stockholder making a
written demand may inspect any other corporate books and records for any purpose
reasonably related to the stockholder's interest as a stockholder. Maryland law
provides an absolute right of stockholder inspection for any purpose to
individuals who have been stockholders for more than six months and,
individually or as a group, own at least five percent or more of a Maryland
corporation's outstanding voting shares. In addition, any stockholder of a
Maryland corporation has the right to request the corporation to provide a sworn
statement showing all stock and securities issued and all consideration received
by the corporation within the preceding 12 months. Thus, as a Maryland
corporation, stockholders of less than five percent of the Company's Common
Stock will not be able to make written demand to inspect the books and records
of the Company if the Reincorporation is approved.
AMENDMENT TO BYLAWS. Under Delaware law, the stockholders may never be
divested of the power to adopt, amend or repeal the bylaws. Such power may also
be conferred upon the board of directors. Under Maryland law, the exclusive
power to adopt, amend or repeal the bylaws may be conferred upon the
stockholders, vested exclusively with the board of directors, or shared by both
groups.
Under both the Delaware Bylaws and the Maryland Bylaws, the bylaws may
be altered, amended or repealed, or new bylaws may be adopted by the respective
stockholders or by the respective boards of directors.
SPECIAL MEETINGS. The Delaware Bylaws provide that special meetings of
the stockholders may be called by the holders of 20% or more of the outstanding
voting stock of the Company entitled to vote at such meeting. Conversely, the
Maryland Bylaws provide that special meetings of the stockholders may be called
by the holders of a majority of the outstanding voting stock of the Maryland
Company entitled to vote at such meeting. Unlike the Delaware Bylaws, the
Maryland Bylaws require that each stockholder who requests a special meeting
must jointly and severally agree to pay the Maryland Company's costs of holding
the special meeting unless each of the resolutions introduced at the special
meeting is adopted.
DIVIDENDS AND OTHER DISTRIBUTIONS. Under Delaware law, dividends may be
paid out of the surplus of the corporation or, if there is no surplus, out of
net profits for the year in which the dividend is declared and/or the preceding
fiscal year. Maryland law permits the payment of dividends and redemption of
stock only if (i) the corporation would remain able to pay indebtedness that
became due in the ordinary course of business or (ii) the corporation's total
assets would remain greater than the sum of the corporation's liabilities plus,
unless the charter provides otherwise, the amount that would be needed upon
dissolution to satisfy the preferential rights of those stockholders whose
preferential rights upon dissolution are superior to those receiving the
distribution. The Company does not believe that the differences between Delaware
and Maryland law regarding dividends or distributions will materially affect its
dividends or distributions in the future.
LAW REGULATING BUSINESS COMBINATIONS. Delaware law requires that a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities (a "business
combination") between a corporation and any person who owns 15% or more of the
outstanding voting stock of the corporation may not occur for three years
following the date such person became such an interested stockholder unless (i)
approved by the board of directors and holders of at least two-thirds of the
outstanding voting stock (other than shares
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controlled by the interested stockholder), (ii) the board of directors approved
the acquisition of voting stock pursuant to which such person became an
interested stockholder, or (iii) an exemption is available.
Under Maryland law, business combinations between a Maryland
corporation and any person who, at any time within the two-year period prior to
the date in question, was the beneficial owner of ten percent or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Maryland Stockholder") are prohibited for five years after the most
recent date on which the Interested Maryland Stockholder became an Interested
Maryland Stockholder. Thereafter, unless an exemption is available, Maryland law
provides that any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation and (b) 66% of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Maryland Stockholder with whom the business combination is to be
effected.
The business combination statute could have the effect of discouraging
offers to acquire the Maryland Company and of increasing the difficulty of
consummating any such offers.
CONTROL SHARE ACQUISITIONS. Maryland law provides that "control shares"
of a Maryland corporation acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-third of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
shares of stock previously acquired by such person, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or more of all
voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an acquiring
person statement as required by the statute, then, subject to certain conditions
and limitations, the corporation may redeem any or all of the control shares
(except those for which voting rights have previously been approved) for fair
value determined, without regard to voting rights, as of the date of the last
control share acquisition or of any meeting of stockholders at which the voting
rights of such are considered and not approved. If voting rights for control
shares are approved at a stockholders' meeting and the acquiror becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The control share acquisition statute could have the effect of
discouraging offers to acquire the Maryland Company and of increasing the
difficulty of consummating any such offers.
Delaware law has no provision comparable to the Maryland control share
acquisition statute.
TRANSFER OF ASSETS TO ANOTHER ENTITY. Unlike Delaware law, which
requires stockholder approval for any transfer of assets not in the ordinary
course of business, Maryland law permits a corporation to transfer any or all of
its assets to a subsidiary without stockholder approval if all of the equity
interests of the subsidiary are owned, directly or indirectly, by the
corporation.
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REORGANIZATION AS AN UPREIT
Upon completion of the Reincorporation, the Company plans to reorganize
itself as an UPREIT. The reorganization will be accomplished through the
contribution of substantially all of the assets of the Company to the Operating
Partnership in a tax-deferred transaction. In exchange for its assets, the
Company will receive Units of interest in the Operating Partnership. Upon the
initial formation of the Operating Partnership, the Company will be the sole
general partner and own substantially all of the Units of limited partnership
interest in the Operating Partnership. As additional limited partners are
admitted to the Operating Partnership in exchange for the contribution of
properties, the Company's percentage ownership in the Operating Partnership will
decline. The Company is currently considering the acquisition of certain
properties that could be contributed to the Operating Partnership in exchange
for Units. See "Recent Developments."
After the reorganization, the Operating Partnership will be the entity
through which the Company conducts substantially all of its business and owns
substantially all of its assets (either directly or though subsidiaries). The
Board of Directors of the Company will manage the affairs of the Operating
Partnership by directing the affairs of the Company as general partner of the
Operating Partnership. The Company's limited and general partnership interests
in the Operating Partnership will entitle it to share in cash distributions
from, and in the profits and losses of, the Operating Partnership in proportion
to its percentage interest therein and will entitle the Company to vote on all
matters requiring a vote of the limited partners.
ANTICIPATED FORM OF PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
THE FOLLOWING SUMMARY OF THE PROPOSED PARTNERSHIP AGREEMENT OF THE
OPERATING PARTNERSHIP (THE "OPERATING PARTNERSHIP AGREEMENT") AND THE
DESCRIPTION OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM OF OPERATING PARTNERSHIP
AGREEMENT. THE OPERATING PARTNERSHIP WILL BE FORMED UNDER THE DELAWARE REVISED
UNIFORM LIMITED PARTNERSHIP ACT, AS AMENDED.
ALLOCATION OF DISTRIBUTIONS, PROFITS AND LOSSES. The Operating
Partnership Agreement provides that, except as set forth below, the net
operating cash of the Operating Partnership available for distribution, as well
as net sales and refinancing proceeds, will be distributed from time to time as
determined by the Company (but not less frequently than quarterly), pro rata in
accordance with the partners' percentage interests. Profits and losses for tax
purposes will also generally be allocated among the partners in accordance with
their percentage interests, subject compliance with the provisions of Section
704(b) and 704(c) of the Code and the Treasury Regulations thereunder. See
"Federal Income Tax Considerations."
MANAGEMENT. As the sole general partner of the Operating Partnership,
the Company will generally have the exclusive right, responsibility and
discretion in the management and control of the Operating Partnership. The
limited partners of the Operating Partnership will generally have no authority
to transact business or take any action on behalf of, or make any decision for,
the Operating Partnership.
The Operating Partnership Agreement provides that the Company shall
not, without the consent of a majority of the holders of the Units, engage in
any transaction or, in its capacity as the general partner, authorize the
Operating Partnership to take any action to amend or terminate the Operating
Partnership Agreement, other than amendments which do not adversely affect any
limited partner, to make a general assignment for the benefit of creditors, to
hold any property other than property incidental to carrying out its
responsibilities as general partner and partnership interests in the Operating
Partnership or a subsidiary thereof, to institute any proceeding for bankruptcy
or to be dissolved or liquidated.
TRANSFERABILITY OF INTERESTS. The Operating Partnership Agreement
generally provides that the Company may not withdraw from the Operating
Partnership, or transfer or assign its interest in the Operating Partnership.
The limited partners generally may transfer all or a portion of their interests
in the Operating Partnership to a transferee. No transferee, however, will be
admitted to the Operating Partnership as a substitute limited partner having the
rights of a limited partner without the consent of the Company and provided that
certain other conditions are met, including an agreement to be bound by the
terms and conditions of the Operating Partnership Agreement.
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ADDITIONAL CAPITAL CONTRIBUTIONS; ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS. No limited partner is required under the terms of the Operating
Partnership Agreement to make additional capital contributions to the Operating
Partnership. The Company is obligated to make additional capital contributions
to the Operating Partnership (i) as described below in connection with the
issuance of additional partnership interests to the Company and (ii) as
specified below under "- Awards Under Plans."
The Operating Partnership Agreement authorizes the Company to issue on
behalf of the Operating Partnership additional partnership interests in the
Operating Partnership to any person other than the Company for any partnership
purpose from time to time for such capital contributions and other consideration
and on such terms and with such designations, preferences and rights as the
Company shall determine. Such additional interests in the Operating Partnership
may not be issued to the Company except in connection with an issuance of
capital stock by the Company with designations, preferences and rights similar
to the additional partnership interests which are issued, and the Company must
make a capital contribution to the Operating Partnership in an amount equal to
the proceeds received by the Company in connection with the issuance of such
stock. If additional partnership interests are issued, the partnership interests
of all existing partners of the Operating Partnership, including the Company,
will be diluted proportionately.
Except in connection with the redemption rights described below, the
Company may not issue additional capital stock except on a pro rata basis to all
stockholders, unless the proceeds of the issuance are contributed to the
Operating Partnership as an additional capital contribution.
REDEMPTION OF PARTNERSHIP UNITS. Generally, after a one-year holding
period, the Operating Partnership will be obligated to redeem each Unit at the
request of the holder thereof for cash equal to the fair market value of one
share of Common Stock at the time of such redemption, provided that the Company
may elect to acquire any such Unit presented for redemption for one share of
Common Stock or an amount of cash of the same value. The Company presently
anticipates that it will elect to issue Common Stock in connection with each
such redemption, rather than having the Operating Partnership pay cash. With
each such redemption, the Company's percentage ownership interest in the
Operating Partnership will increase.
INDEMNIFICATIONS AND FIDUCIARY STANDARDS. The Operating Partnership
Agreement provides that the general partner and each person designated or
delegated by the general partner will discharge his duties in a manner
reasonably believed to be in the best interest of the Operating Partnership as
an entity distinct from the individual interests of the partners, and in general
in a manner consistent with the fiduciary duties of care and loyalty. The
Operating Partnership Agreement also provides that all such individuals will be
indemnified and held harmless by the Operating Partnership for any act performed
for or on behalf of the Operating Partnership, or in furtherance of the
Operating Partnership's business, provided that such individual acted in a
manner he believed to be in or not opposed to the best interests of the
Operating Partnership, and with respect to any criminal action, as to which such
individual had no reasonable cause to believe his conduct was unlawful. No
indemnification will be made if such individual is adjudged liable to the
Operating Partnership unless a court shall determine that such individual is
nevertheless entitled to indemnity. The Operating Partnership Agreement also
provides that no such individual will have a personal liability to the Operating
Partnership and its partners for monetary damages for breach of a fiduciary duty
except (i) for a breach of a duty or loyalty, or (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law.
TAX MATTERS PARTNER. Pursuant to the Operating Partnership Agreement,
the Company will be the tax partner of the Operating Partnership and, as such,
will have authority to make tax elections under the Code on behalf of the
Operating Partnership.
OPERATIONS. The Operating Partnership Agreement requires the Operating
Partnership to be operated in a manner that will enable the Company to satisfy
the requirements for being classified as a REIT and to avoid any federal income
tax liability.
Pursuant to the Operating Partnership Agreement, the Operating
Partnership will assume and pay when due, or reimburse the Company for payment
of, all expenses it incurs relating to the ownership and operation of, or for
the benefit of, the Operating Partnership and all costs and expenses relating to
the formation, continuity of existence and operations of the Company.
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TERM. The term of the Operating Partnership continues until December
31, 2096, or until sooner dissolved pursuant to the terms of the Operating
Partnership Agreement.
AWARDS UNDER PLANS. If options granted in connection with the Company's
Plans are exercised anytime or from time to time, the Partnership Agreement
requires the Company to contribute to the Operating Partnership as an additional
contribution the exercise price received by the Company in connection with the
issuance of Common Stock to such existing participant. Although the Company will
contribute to the Operating Partnership an amount equal to the exercise price
received by the Company, the Company will be considered to have contributed an
amount equal to the fair market value of the Common Stock issued to the
exercising party for purposes of increasing the partnership interests of the
Company (and diluting the interests of the limited partners) in connection with
additional capital contributions of the Company.
OTHER. The Partnership Agreement provides that substantially all
business activities of the Company must be conducted through the Operating
Partnership or subsidiary partnerships or corporations.
The Operating Partnership is authorized to enter into transactions with
partners or their affiliates, as long as the terms of such transactions are fair
and reasonable, and no less favorable to the Operating Partnership than would be
obtained from an unaffiliated third party.
COMPARISON OF COMMON STOCK AND UNITS. Conducting the Company's
operations through the Operating Partnership will enable certain limited
partners who contribute property interests in exchange for Units to defer
certain tax consequences generally associated with the sale of properties by
contributing the properties to the Operating Partnership rather than to the
Company and also offers favorable methods of accessing capital markets. Each
Unit of interest in the Operating Partnership is designed to result in a
distribution per Unit equal to a distribution per share of Common Stock. Each
Unit of limited partnership interest is exchangeable for one share of Common
Stock or cash at the option of the Operating Partnership (subject to certain
antidilution adjustments and certain limitations on exchange to preserve the
Company's status as a REIT). There are, however, certain differences between the
ownership of Common Stock and Units, including:
VOTING RIGHTS. Holders of Common Stock may elect the Board of Directors
of the Company, which as the general partner of the Operating
Partnership, controls the business of the Operating Partnership. Unit
holders may not elect directors of the Company, or elect or remove the
general partner without the consent of the Company.
TRANSFERABILITY. The shares of Common Stock to be issued in various
offerings will be freely transferable under the Securities Act, by
holders who are not affiliates of the Company. The Units and the shares
of Common Stock into which they are convertible are subject to transfer
restrictions under applicable securities laws and under the partnership
agreement, including the required consent of the general partner to the
admission of any new limited partner.
RISKS OF UPREIT CONVERSION. In order to ensure that a seller is able to
contribute its properties to the Operating Partnership on a tax deferred basis,
the seller of such properties may require the Company to agree to maintain a
certain level of minimum debt at the Operating Partnership level and refrain
from selling such properties for a period of time. Adoption of the UPREIT
structure, therefore, could inhibit the Company from selling properties or
retiring debt that would otherwise be in the best interest of the Company.
Upon the admission of additional limited partners to the Operating
Partnership, the Company (as general partner) would owe a fiduciary obligation
to the limited partners. In most cases, the interests of the limited partners
would coincide with the interests of the Company and its stockholders because
(i) the Company would own a majority of the limited partner interests in the
Operating Partnership and (ii) the limited partners' Units would be convertible
into shares of the Company. Nevertheless, under certain circumstances, the
interests of the limited partners might conflict with those of the stockholders.
For example, the sale of certain properties or the sale or merger of the Company
could cause adverse tax consequences to particular limited partners.
Upon the issuance of Units of the Operating Partnership to new limited
partners in exchange for the contribution of properties, the percentage
ownership of the Company (and therefore the stockholders) in the partnership
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would decline. To the extent limited partners redeem such Units for (at the
option of the Company) stock or cash, the Company's percentage ownership in the
partnership would increase commensurately.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain Federal income tax considerations to
the Company is based on current law, is for general purposes only, and is not
tax advice. The summary addresses the material Federal income tax considerations
relating to the Company's REIT status, as well as material Federal income tax
considerations relating to the proposed Operating Partnership. The tax treatment
of a holder of any of the Company's securities will vary depending upon the
terms of the specific securities acquired by such holder, as well as his
particular situation, and this discussion does not attempt to address any
aspects of Federal income taxation relating to holders of the Company's
securities.
EACH STOCKHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP AND SALE OF THE
COMPANY'S SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company believes that it was organized and has operated in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. The Company, however, has not obtained
an opinion of counsel regarding the Company's qualification as a REIT, and
no assurance can be given that it will operate in a manner so as to qualify
or remain qualified.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company. For the
particular provisions that govern the federal income tax treatment of the
Company, reference is made to Sections 856 through 860 of the Code and the
Income Tax Regulations promulgated thereunder. The following summary is
qualified in its entirety by such reference.
If the Company qualifies for tax treatment as a REIT, it will generally
not be subject to federal income taxation on its net income to the extent
currently distributed to its stockholders. This substantially eliminates the
"double taxation" (i.e. taxation at both the corporate and stockholder levels)
that typically results from the use of corporate investment vehicles.
To qualify as a REIT under the Code for a taxable year, the Company
must meet certain organizational and operational requirements, which generally
require it to be a passive investor in operating real estate and to avoid
excessive concentration of its ownership of capital stock. Generally, for each
taxable year, at least 75% of a REIT's gross income must be derived from
specified real estate sources and 95% must be derived from such real estate
sources plus certain other permitted sources. In addition, gross income from the
sale or other disposition of stock or securities held for less than one year and
real property held for less than four years must constitute less than 30% of the
gross income of the REIT for each taxable year. At least 75% of the value of the
total assets of the Company at the end of each calendar quarter must consist of
real estate assets, cash or governmental securities. In addition, the value of
any one issuer's securities owned by the Company may not exceed 5% of the value
of the Company's total assets, and the Company may not own more than 10% of any
one issuer's outstanding voting securities.
So long as the Company qualifies for taxation as a REIT and distributes
at least 95% of its REIT taxable income (computed without regard to net capital
gain or the dividends paid deduction) for its taxable year to its stockholders,
it will generally not be subject to federal income tax with respect to income
which it distributes to its stockholders. However, the Company may be subject to
federal income tax under certain circumstances, including taxes at regular
corporate rates on any undistributed REIT taxable income, the "alternative
minimum tax" on its items of preference, and taxes imposed on income and gain
generated by extraordinary transactions. If the Company fails to qualify as a
REIT, it will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company will
also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost.
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In order to elect again to be taxed as a REIT, the Company would be required to
distribute all of its earnings and profits accumulated in any non-REIT taxable
year. Further, the Company might be subject to taxation on any unrealized gain
inherent in its assets at the time of such election. If disqualified, the
Company would not be able to deduct the dividends paid. Should the failure to
qualify be determined to have occurred retroactively in an earlier tax year of
the Company, substantial federal income tax liability on the Company
attributable to such nonqualifying tax years could be imposed. It is not
possible to state whether in all circumstances the Company would be entitled to
statutory relief. For example, in the event that the Company fails to meet
certain income tests of the tax law, it may nonetheless retain its qualification
as a REIT if it pays a 100% tax based upon the amount by which it failed to meet
the income tests so longs as its failure was due to reasonable cause and not
wilful neglect.
The failure to qualify as a REIT would have a material adverse effect
on an investment in the Company as the taxable income of the Company would be
subject to federal income taxation at corporate rates, and, therefore, the
amount of cash available for distribution to its stockholders would be reduced
or eliminated.
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. stockholders out of current or accumulated earnings or
profits (and not designated as capital gain dividends) will be taken into
account by such stockholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations. Distributions
that are designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the Company's actual net capital gain
for the taxable year) without regard to the period for which the stockholder has
held his Common Stock. However, corporate stockholders may be required to treat
up to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a stockholder's Common Stock,
the distributions will be included in income as long-term capital gain (or
short-term capital gain if the Common Stock has been held for one year or less)
assuming the Common Stock is a capital asset in the hands of the stockholder. In
addition, any dividend declared by the Company in October, November or December
of any year and payable to a stockholder of record on a specified date in any
such month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by the Company during January of the following calendar year.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
GENERAL. Upon completion of the UPREIT restructuring, substantially all
of the Company's investments will be held through the Operating Partnership. In
general, partnerships are "pass-through" entities which are not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company will include in its
income its proportionate share of the foregoing Operating Partnership items for
purposes of the various REIT income tests and in the computation of its REIT
taxable income. Moreover, for purposes of the REIT asset tests, the Company will
include its proportionate share of assets held by the Operating Partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. After conversion to an
UPREIT structure, new partners maybe admitted upon the acquisition of additional
properties. In such event, pursuant to Section 704(c) of the Code, income, gain,
loss and deduction attributable to appreciated or depreciated property (such as
the Company's properties) that is contributed to a partnership in exchange for
an interest in the partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership will be formed by way of contributions of appreciated
property. Consequently, the Operating Partnership Agreement will require such
allocations to be made in a manner consistent with Section 704(c) of the Code.
In general, partners who contribute partnership interests in properties
in exchange for Units in the Operating Partnership (the "Contributing Partners")
will be allocated lower amounts of depreciation deductions for tax purposes
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than such deductions would be if determined on a pro rata basis. In addition, in
the event of the disposition of any of the contributed assets (including the
Company's properties) which have a Book-Tax Difference, all taxable income
attributable to such Book-Tax Difference generally will be allocated to the
Contributing Partners, and the Company generally will be allocated only its
share of capital gains attributable to appreciation, if any, occurring after the
closing of the acquisition of such properties. This will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules of Section 704(c) of the Code do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly
amounts of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements.
Treasury Regulations under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including the "traditional method" that may leave some of the
Book-Tax Differences unaccounted for, or the election of certain alternate
methods which would permit any distortions caused by a Book-Tax Difference at
this time to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. The Company may use the
"traditional method" for accounting for Book-Tax Differences with respect to its
properties to be contributed to the Operating Partnership. In such event,
distributions to stockholders will be comprised of a greater portion of taxable
income rather than a return of capital. The Company has not determined which of
the alternative methods of accounting for Book-Tax Differences will be elected
with respect to its properties to be contributed to the Operating Partnership in
the future.
With respect to any property purchased by the Operating Partnership,
such property initially will have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
In the event that Atlantic Realty LLC is converted in part to a
downREIT partnership format in connection with the joint venture with ARC, the
tax issues and analysis for the downREIT partnership will be similar to those
of the Operating Partnership with respect to tax allocations. See "Recent
Developments."
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax
basis in its interest in the Operating Partnership generally (i) will be equal
to the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) will be increased by (a) its
allocable share of the Operating Partnership's income and (b) its allocable
share of indebtedness of the Operating Partnership and (iii) will be reduced,
but not below zero, by the Company's allocable share of (a) losses suffered by
the Operating Partnership, (b) the amount of cash distributed to the Company and
(c) constructive distributions resulting from a reduction in the Company's share
of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) will
constitute taxable income to the Company. Such taxable income normally will be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gains. Under
current law, capital gains and ordinary income of corporations are generally
taxed at the same marginal rates.
SALE OF THE PROPERTIES. The Company's share of gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income may also have an adverse effect
upon the Company's ability to satisfy the income tests for qualification as a
REIT. Under existing law, whether property is held as inventory or primarily for
sale to customers in the ordinary course of the Operating Partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. It is the Company's present intent
that the Operating Partnership will hold its properties for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating properties and to make such occasional sales
of its properties, including peripheral land, as are consistent with the
Operating Partnership's investment objectives.
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RECENT LEGISLATION
Stockholders should be aware that the recently enacted Taxpayer Relief
Act of 1997 (the "1997 Act") made numerous changes to the Code, including
reducing the maximum tax imposed on net capital gains from the sale of assets
held for more than 18 months by individuals, trusts and estates. The 1997 Act
also makes certain changes to the requirements to qualify as a REIT and to the
taxation of REITs and their stockholders.
The 1997 Act contains significant changes to the taxation of capital
gains of individuals, trusts and estates and certain changes to the REIT
requirements and the taxation of REITs. For gains realized after July 28, 1997,
and subject to certain exceptions, the maximum rate of tax on net capital gains
on individuals, trusts and estates from the sale or exchange of assets held for
more than 18 months has been reduced to 20%, and such maximum rate is further
reduced to 18% for assets acquired after December 31, 2000 and held for more
than five years. For fifteen percent bracket taxpayers, the maximum rate on net
capital gains is reduced to 10%, and such maximum rate is further reduced to 8%
for assets sold after December 31, 2000 and held for more than five years. The
maximum rate for net capital gains attributable to the sale of depreciable real
property held for more than 18 months is 25% to the extent of the deductions for
depreciation with respect to such property. Long-term capital gain allocated to
a stockholder by the Company will be subject to the 25% rate to the extent that
the gain does not exceed depreciation on real property sold by the Company. The
maximum rate of capital gains tax or capital assets held for more than one year
but not more than 18 months remains at 28%. The taxation of capital gains of
corporations was not changed by the 1997 Act.
The 1997 Act also includes several provisions that are intended to
simplify the taxation of REITs. These provisions are effective for taxable years
beginning after the date of enactment of the 1997 Act which, as to the Company,
is its taxable year commencing January 1, 1998. First, in determining whether a
REIT satisfies the income tests, a REIT's rental income from a property will not
cease to qualify as "rents from real property" merely because the REIT performs
a de minimis amount of impermissible services to the tenant. For purposes of the
preceding sentence, (i) the amount of income received from such impermissible
services cannot exceed one percent of all amounts received or accrued during
such taxable year directly or indirectly by the REIT with respect to such
property and (ii) the amount treated as received by the REIT for such
impermissible services cannot be less than 150% of the direct cost of the trust
in furnishing or rendering such services. Second, certain noncash income,
including income from cancellation of indebtedness and original issue discount
will be excluded from income in determining the amount of dividends that a REIT
is required to distribute. Third, a REIT may elect to retain and pay income tax
on net long-term capital gain that it received during the tax year. If such
election is made, (i) the stockholders will include in their income their
proportionate share of the undistributed long-term capital gains as designated
by the REIT, (ii) the stockholders will be deemed to have paid their
proportionate share of the tax, which would be credited or refunded to the
stockholder, and (iii) the basis of the stockholders' shares will be increased
by the amount of the undistributed long-term capital gains (less the amount of
capital gains tax paid by the REIT) included in such stockholders' long-term
capital gains. Fourth, the 1997 Act repeals the requirement that a REIT receive
less than 30% of its gross income from the sale or disposition of stock or
securities held for less than one year, gain from prohibited transactions, and
gain from certain sales of real property held less than four years. Finally, the
1997 Act contains a number of technical provisions that reduce the risk that a
REIT will inadvertently cease to qualify as a REIT.
ACCOUNTING TREATMENT OF THE MERGER
Upon consummation of the merger, all assets and liabilities of the
Company will be transferred to the Maryland Company at historical cost in a
manner similar to that in pooling of interests accounting.
APPRAISAL RIGHTS
Delaware law provides that stockholders of a corporation do not have
appraisal rights when a corporation whose shares are listed on a national
securities exchange merges with a foreign corporation. Consequently, because the
Common Stock is listed on the NYSE, appraisal rights are not available to
stockholders of the Company with respect to the Reincorporation.
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APPROVAL REQUIRED FOR REINCORPORATION
Under Delaware law, the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock entitled to vote on the
proposal is required for approval of the Reincorporation. The Reincorporation
may be abandoned or the Merger Agreement may be amended (with certain
exceptions), either before or after stockholder approval has been obtained, if
in the opinion of the Board of Directors circumstances arise that make such
action advisable.
No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the proposed transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes the Reincorporation is in the best
interests of the Company and its stockholders for the following reasons:
(1) The Company will realize a cost savings in annual franchise tax
payments of approximately $150,000 by changing its state of
incorporation from Delaware to Maryland;
(2) By adopting an UPREIT structure, the Company will realize a cost
savings of approximately $188,000 beginning in 1998 related to
state franchise tax payments on its assets located in certain
states; and
(3) By adopting an UPREIT structure, the Company may be able to
acquire properties at lower prices and more favorably access
capital markets.
Therefore, the Board of Directors recommends stockholders vote FOR
approval of the Reincorporation. The affirmative vote of a majority of the
outstanding shares of each class of the Company's capital stock entitled to vote
at the Special Meeting is required to approve the Reincorporation.
A vote FOR the Reincorporation will constitute approval of (i) the
change in the Company's state of incorporation through a merger of the Company
into the Maryland Company, (ii) the Maryland Articles, (iii) the Maryland
Bylaws, (iv) the conversion into an UPREIT structure and (v) all other aspects
of the Reincorporation.
LEGAL MATTERS
Certain legal matters, including the Reincorporation, will be passed
upon for the Company by Alston & Bird, LLP, Raleigh, North Carolina.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company at 11000
Regency Parkway, Suite 300, Cary, North Carolina 27511 on or before December 15,
1997 for inclusion in the Company's proxy statement and form of proxy relating
to the 1998 Annual Meeting of Stockholders.
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GENERAL
The Board of Directors knows of no other matter to be acted upon at the
Special Meeting. However, if any other matter is lawfully brought before the
Special Meeting, the shares covered by such proxy will be voted thereon in
accordance with the best judgment of the persons acting under such proxy unless
a contrary intent is specified by the stockholder.
Your vote is important. Please complete the enclosed proxy card and
mail it in the enclosed postage-paid envelope as soon as possible.
By Order of the Board
of Directors,
C. CAMMACK MORTON
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
_________________, 1997, is by and between FAC Realty, Inc., a Delaware
corporation (the "Company"), and FAC Realty Trust, Inc., a Maryland corporation
(the "Maryland Company").
RECITALS
WHEREAS, the Board of Directors of the Company and the Board of
Directors of the Maryland Company each have determined that it is in the best
interests of their respective stockholders to effect the merger provided for
herein upon the terms and subject to the conditions set forth therein; and
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto adopt the plan of reorganization encompassed by this agreement
and agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3), the Company shall be merged
with and into the Maryland Company and the separate corporate existence of the
Company shall thereupon cease (the "Merger"). To the extent the Merger
constitutes a transaction for federal income tax purposes, the parties intend
that the Merger qualify as a reorganization described in Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended. The Maryland Company shall be the
surviving entity in the Merger (sometimes hereinafter referred to as the
"Surviving Entity") and shall continue to be governed by the laws of the State
of Maryland, and the separate existence of the Maryland Company with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects specified in the Delaware
General Corporation Law (the "DGCL") and the Maryland General Corporation Law
(the "MGCL").
1.2 CLOSING. The closing of the Merger (the "Closing") shall take place
(i) at the offices of Alston & Bird LLP, 3605 Glenwood Avenue, Suite 310,
Raleigh, North Carolina, at 10:00 a.m. local time on the first business day on
which the last to be fulfilled or waived of the conditions set forth in Section
6.1 hereof shall be fulfilled or (ii) at such other place and time and/or on
such other date as the Company and the Maryland Company may agree.
1.3 EFFECTIVE TIME. Following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VII hereof,
the Company and the Maryland Company will, at such time as they deem advisable,
cause a Certificate of Ownership and Merger (the "Certificate of Ownership and
Merger") to be executed, acknowledged and filed with the Secretary of State of
Delaware as provided in Section 253 of the DGCL and Articles of Merger (the
"Articles of Merger") to be filed with the State Department of Assessments and
Taxation of Maryland (the "SDAT") as provided in Section 3-105 of the MGCL. The
Merger shall become effective at the later of the filing of the Certificate of
Ownership and Merger with the Secretary of State of Delaware and the acceptance
for record of the Articles of Merger by the SDAT (the "Effective Time").
ARTICLE II
ARTICLES OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Maryland Company in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Entity, until duly amended in accordance with the
terms thereof and the MGCL.
2.2 THE BYLAWS. The Bylaws of the Maryland Company in effect at the
Effective Time shall be the Bylaws of the Surviving Entity, until duly amended
in accordance with the terms thereof and the MGCL.
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ARTICLE III
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
3.1 DIRECTORS AND OFFICERS. The directors and officers of the Company
at the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the Surviving Entity until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Entity's Articles of
Incorporation and Bylaws.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Each share of the common stock, par value $0.01 per share
(the "Common Shares") of the Company issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share (the "Maryland
Common Shares") of the Maryland Company. Each share of the preferred stock (the
"Preferred Shares" and, together with the Common Shares, the "Company Shares")
of the Company issued and outstanding immediately prior to the Effective Time
shall be converted into one validly issued, fully paid and nonassessable share
of preferred stock (the "Maryland Preferred Shares" and, together with the
Maryland Common Shares, the "Maryland Company Shares") of the Maryland Company.
Each certificate (each, a "Certificate") representing any such Company Shares
shall thereafter represent the right to receive Maryland Company Shares. All
Company Shares shall no longer be outstanding and shall be canceled and retired
and shall cease to exist.
(b) Each Company Share issued and held in the Company's
treasury at the Effective Time, shall by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor and shall
cease to exist.
(c) At the Effective Time, each Maryland Company Share issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Maryland Company or the holder
of such shares, be canceled and retired without payment of any consideration
therefor.
(d) Each option or other right to purchase or otherwise
acquire Company Shares pursuant to stock option or other stock-based plans of
the Company granted and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
of such option or right, be converted into and become a right to purchase or
otherwise acquire the same number of Maryland Company Shares at the same price
per share and upon the same terms and subject to the same conditions as
applicable to such options or other rights immediately prior to the Effective
Time.
4.2 EXCHANGE OF CERTIFICATES FOR COMPANY SHARES.
(a) Exchange Agent. As of the Effective Time, the Company
shall deposit with an exchange agent (the "Exchange Agent"), for the benefit of
the holders of Company Shares, for exchange in accordance with this Article IV,
certificates representing the Maryland Company Shares (such certificates,
together with the amount of any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") to be issued pursuant to
Section 4.1 in exchange for outstanding Company Shares.
(b) Exchange Procedures. Promptly after the Effective Time,
the Surviving Entity shall cause the Exchange Agent to mail to each holder of
record of a Certificate or Certificates (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Surviving
Entity may
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specify and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing Maryland Company Shares.
Upon surrender of a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate representing
that number of Maryland Company Shares and (y) a check representing unpaid
dividends and distributions, if any, which such holder has the right to receive
in respect of shares represented by the Certificate surrendered pursuant to the
provisions of this Article IV, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrue on unpaid dividends
and distributions, if any, payable to holders of Certificates. In the event of a
transfer of ownership of Company Shares which is not registered in the transfer
records of the Company, a certificate representing the proper number of Maryland
Company Shares may be issued to such a transferee if the Certificate
representing such Company Shares is presented to the Exchange Agent, accompanied
by all documents required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid. If any certificate for
Maryland Company Shares is to be issued in a name other than that in which the
Certificate surrendered in exchange therefore is registered, it shall be a
condition of such exchange that the person requesting this exchange shall pay
any transfer or other taxes required by reason of the issuance of Certificates
for such Maryland Company Shares in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
the Surviving Entity that such tax has been paid or is not applicable.
(c) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Company Shares which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Entity for transfer,
they shall be canceled and exchanged for the Maryland Company Shares deliverable
in respect thereof pursuant to this Agreement in accordance with the procedures
set forth in this Article IV.
(d) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any Maryland Company
Shares that remain unclaimed by the stockholders of the Company for six months
after the Effective Time) shall be paid to the Surviving Entity. Any
stockholders of the Company who have not theretofore complied with this Article
IV shall thereafter look only to the Surviving Entity for payment of their
Maryland Company Shares and unpaid dividends on Maryland Company Shares
deliverable in respect of each Company Share such stockholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon. Notwithstanding the foregoing, none of the Surviving Entity, the
Exchange Agent or any other person shall be liable to any former holder of
Company Shares for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(e) No Liability. In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Entity, the posting by such person of a bond in such
amount as the Surviving Entity may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate, a certificate
representing Maryland Company Shares and cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
ARTICLE V
COVENANTS
5.1 STOCK EXCHANGE LISTING. The Maryland Company shall use its best
efforts to cause the Maryland Company Shares to be issued in the Merger to be
approved for listing on the New York Stock Exchange, Inc. (the "NYSE"), subject
to official notice of issuance, prior to the Closing Date.
5.2 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and after
the Effective Time, the Surviving Entity agrees that it will indemnify, and pay
or reimburse reasonable expenses, to the fullest extent permitted by law and its
bylaws, in advance of final disposition of a proceeding to, (i) any individual
who is a present or former director or officer of the Company or (ii) any
individual who, while a director of the Company and at the request of the
Company, serves or has served another corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted by law and the Surviving Entity's bylaws.
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ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of the Maryland Company and the Company to consummate the
Merger are subject to the fulfillment of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly
approved by the holders of a majority of the Company Shares, in accordance with
applicable law and the Amended Certificate of Incorporation and Bylaws of the
Company.
(b) NYSE Listing. The Maryland Company Shares issuable to the
Company stockholders pursuant to this Agreement shall have been authorized for
listing on the NYSE upon official notice of issuance.
ARTICLE VII
TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by holders of the Company Shares, by the mutual consent of
the Board of Directors of the Company and the Board of Directors of the Maryland
Company.
7.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination
of this Agreement and abandonment of the Merger pursuant to this Article VII, no
party hereto (or any of its directors or officers) shall have any liability or
further obligation to any other party to this Agreement.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 MODIFICATION OR AMENDMENT. Subject to the applicable provisions of
the DGCL and the MGCL, at any time prior to the Effective Time, the parties
hereto may modify or amend this Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
8.2 WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
8.3 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
8.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the States of Delaware and Maryland.
8.5 NO THIRD-PARTY BENEFICIARIES. Except as provided in Section 5.2,
this Agreement is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
8.6 HEADINGS. The Article, Section and paragraph headings herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
8.7 SERVICE OF PROCESS. The Maryland Company may be served with process
in the State of Maryland in any proceeding for the enforcement of any obligation
of the
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Company, as well as for enforcement of any obligations of the Maryland Company
arising from the Merger, and it does hereby irrevocably appoint the Secretary of
State of the State of Maryland as its agent to accept service of process in any
such suit or other proceedings. The address to which a copy of such process
shall be mailed by the Secretary of State to the Maryland Company is 11000
Regency Parkway, Suite 300, Cary, North Carolina 27511.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first herein above written.
FAC REALTY, INC.
ATTEST: By: _____________________________________
C. Cammack Morton
President and Chief Executive Officer
FAC REALTY TRUST, INC.
ATTEST: By: ______________________________________
C. Cammack Morton
President and Chief Executive Officer
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EXHIBIT B
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FAC REALTY TRUST, INC.
(SET FORTH BELOW ARE THE MARYLAND COMPANY'S ARTICLES OF INCORPORATION AS OF
THE EFFECTIVE TIME OF THE
REINCORPORATION)
ARTICLE I
Name
The name of the corporation (the "Corporation") is FAC Realty Trust, Inc.
ARTICLE II
Principal Office, Registered Office and Agent
The address of the Corporation's principal address is 11000 Regency
Parkway, Cary, North Carolina 27511. The address of the Corporation's registered
office in the State of Maryland is Corporation Trust Center, 32 South Street,
Baltimore, Maryland 21202. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
Purposes
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Maryland Corporations
and Associations Article as now or hereafter in force.
ARTICLE IV
Capital Stock
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is Seventy-Five Million (75,000,000)
shares. Forty-Five Million (45,000,000) of such shares are initially classified
as Common Stock, $0.01 par value per share (the "Common Stock"), Five Million
(5,000,000) of such shares are initially classified as Preferred Stock, $25.00
par value per share (the "Preferred Stock") and Twenty-Five Million (25,000,000)
of such shares are initially classified as Excess Stock, $0.01 par value per
share (the "Excess Stock"). The Board of Directors is expressly authorized to
classify or reclassify by resolution or resolutions duly adopted by the Board of
Directors any unissued shares of capital stock of the Corporation into a class
or classes of preferred stock, preference stock, special stock or other stock,
and to divide, classify and reclassify shares of any class into one or more
series of such class, by determining, fixing or altering in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, par value,
qualifications or other terms or conditions of redemption of shares of any such
class or series, as the case may be.
The Common Stock and the Excess Stock shall have the preferences,
qualifications, limitations, restrictions and rights set forth below:
A. Common Stock.
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(1) Dividend Rights. The holders of shares of Common Stock shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Corporation, out of the assets of the Corporation which are by law available
therefore, dividends or distributions payable in cash, in property or in
securities of the Corporation.
(2) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of shares of Common Stock shall be
entitled to receive, ratably with each other holder of Common Stock and Excess
Stock, that portion of the assets of the Corporation available for distribution
to its stockholders as the number of shares of Common Stock held by such holder
bears to the total number of shares of Common Stock and Excess Stock then
outstanding.
(3) Voting Rights. The holders of shares of Common Stock shall be
entitled to vote on all matters (for which holders of Common Stock shall be
entitled to vote thereon) at all meetings of the stockholders of the Corporation
and shall be entitled to one vote for each share of Common Stock entitled to
vote at such meeting.
(4) Restrictions on Transfer to Preserve Tax Benefit; Exchange For
Excess Stock.
(a) Definitions. For the purposes of paragraphs A and B of
this Article IV, the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Capital Stock
by a Person who would be treated as an owner of such shares of Capital
Stock either directly or constructively through the application of
Section 544 of the Code, as modified by Section 856(h) (1) (B) of the
Code. The terms "Beneficial Owner," "Beneficially Owns" and "
Beneficially Owned" shall have the correlative meanings.
"Beneficiary" shall mean the beneficiary of the Trust (as
defined herein) as determined pursuant to subparagraph B(5) of this
Article IV.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Capital Stock" shall mean stock that is Common Stock, Excess
Stock or preferred stock of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Common Equity Stock" shall mean stock that is either Common
Stock or Excess Stock.
"Constructive Ownership" shall mean ownership of shares of
Capital Stock by a Person who would be treated as an owner of such
shares of Capital Stock either directly or constructively through the
application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns" and "Constructively Owned" shall have the correlative meanings.
"Equity Stock" shall mean stock that is either Common Stock or
preferred stock of the Corporation.
"Existing Holder" shall mean (i) any Person who is the
Beneficial Owner of Common Stock in excess of the Ownership Limit
immediately after the effective date of the Merger, so long as, but
only so long as, such Person Beneficially Owns Common Stock in excess
of the Ownership Limit and (ii) any Person to whom an Existing Holder
Transfers Beneficial Ownership of Common Stock causing such transferee
to Beneficially Own Common Stock in excess of the Ownership Limit.
"Existing Holder Limit" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i) of the definition thereof,
shall mean, initially, the percentage of the outstanding Common Equity
Stock Beneficially Owned by such Existing Holder upon the effective
date of the Merger, and after any adjustment pursuant to subparagraph
A(4)(i) of this Article IV, shall mean such percentage of the
outstanding Common
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Equity Stock as so adjusted; and (ii) for any Existing Holder who
becomes an Existing Holder by virtue of clause (ii) of the definition
thereof, shall mean, initially, the percentage of the outstanding
Common Equity Stock Beneficially Owned by such Existing Holder at the
time such Existing Holder becomes an Existing Holder, and after any
adjustment pursuant to subparagraph A(4) (i) of this Article IV, shall
mean such percentage of the outstanding Common Equity Stock as so
adjusted. From and after the effective date of the Merger, the
Secretary of the Corporation shall maintain and, upon request, make
available to each Existing Holder, a schedule which sets forth the then
current Existing Holder Limits for each Existing Holder.
"Market Price" shall mean the last reported sales price of
Common Stock reported on the New York Stock Exchange on the trading day
immediately preceding the relevant date or, if the Common Stock is not
then traded on the New York Stock Exchange, the last reported sales
price of the Common Stock on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over
which the Common Stock may be traded, of if the Common Stock is not
then traded over any exchange or quotation system, then the market
price of the Common Stock on the relevant date as determined in good
faith by the Board of Directors.
"Merger" means the merger of FAC Realty, Inc., a Delaware
corporation, into the Corporation.
"Ownership Limit" initially shall mean 9.8% of the outstanding
shares of stock of the Corporation
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for
or to be used exclusively for the purposes described in Section 642(c)
of the Code, an association, a private foundation within the meaning of
Section 509(a) of the Code, a joint stock company, other entity or a
group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended; provided, however, that a
"person" does not mean an underwriter that participates in a public
offering of the Common Stock, for a period of 25 days following the
purchase by such underwriter of the Common Stock.
"Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer that results in Excess Stock, the Person that
would have been the purported beneficial transferee for whom the
Purported Record Transferee would have acquired shares of Common Stock,
if such Transfer had been valid under subparagraph A(4)(b) of this
Article IV.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer that results in Excess Stock, the record holder of
the Equity Stock if such Transfer had been valid under subparagraph
A(4)(b) of this Article IV.
"REIT" shall mean a Real Estate Investment Trust under Section
856 of the Code.
"Related Party Limit" shall mean 9.8% of the outstanding
shares of stock of the Corporation.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Equity Stock, (including, without
limitation, (i) the granting of any option or entering in to any
agreement for the sale, transfer or other disposition of Equity Stock
or (ii) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity
Stock), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise.
"Trust" shall mean the trust created pursuant to subparagraph
B(1) of this Article IV.
"Trustee" shall mean the Corporation as trustee for the Trust,
and any successor trustee appointed by the Corporation.
(b) Restrictions on Transfers.
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(i) Except as provided in subparagraph A(4)(i) of
this Article IV, from and after the date of the Merger, no
Person (other than an Existing Holder) shall Beneficially Own
shares of Equity Stock in excess of the Ownership Limit, no
Existing Holder shall Beneficially Own shares of Equity Stock
in excess of the Existing Holder Limit for such 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 effective date of the Merger) shall
Constructively Own shares of Equity Stock in excess of 9.8% of
the outstanding Common Equity Stock.
(ii) Except as provided in subparagraph A(4)(i) of
this Article IV, from and after the effective date of the
Merger, any Transfer that, if effective, would result in any
Person (other than an Existing Holder) Beneficially Owning
Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of such shares of Equity Stock which
would be otherwise Beneficially Owned by such Person in excess
of the Ownership Limit; and the intended transferee shall
acquire no rights in such shares of Equity Stock.
(iii) Except as provided in subparagraph A(4)(i) of
this Article IV, from and after the effective date of the
Merger, any Transfer that, if effective, would result in any
Existing Holder Beneficially Owning Equity Stock in excess of
the applicable Existing Holder Limit shall be void ab initio
as to the Transfer of such shares of Equity Stock which would
be otherwise Beneficially Owned by such Existing Holder in
excess of the applicable Existing Holder Limit; and such
Existing Holder shall acquire no rights in such shares of
Equity Stock.
(iv) Except as provided in subparagraph A(4)(i) of
this Article IV, from and after the effective date of the
Merger, any Transfer that, if effective, would result in any
Person Constructively Owning Equity Stock in excess of the
Related Party Limit shall be void ab initio as to the Transfer
of such shares of Equity Stock which would be otherwise
Constructively Owned by such Person in excess of such amount;
and the intended transferee shall acquire no rights in such
shares of Equity Stock.
(v) Except as provided in subparagraph A(4)(i) of
this Article IV, from and after the effective date of the
Merger, any Transfer that, if effective, would result in the
Equity Stock being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution)
shall be void ab initio as to the Transfer of such shares of
Equity Stock which would be otherwise beneficially owned by
the transferee; and the intended transferee shall acquire no
rights in such shares of Equity Stock.
(vi) From and after the effective date of the Merger,
any Transfer that, if effective would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer
of the shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section
856(h) of the Code; and the intended transferee shall acquire
no rights n such shares of Equity Stock.
(c) Conversion Into Excess Stock.
(i) If, notwithstanding the other provisions
contained in this Article IV, but subject to the provisions of
subparagraph A(4)(m), at any time after the effective date of
the Merger, there is a purported Transfer or other change in
the capital structure of the Corporation such that any Person
would either (A) Beneficially Own Equity Stock in excess of
the applicable Ownership Limit or Existing Holder Limit, or
(B) Constructively Own Equity Stock in excess of the
applicable Related Party Limit then, except as otherwise
provided in subparagraph A(4)(i), such shares of Equity Stock
in excess of such Ownership Limit or Existing Holder Limit
(rounded up to the nearest whole share) shall be automatically
converted into, with no further action required, an equal
number of shares of
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Excess Stock. Such conversion shall be effective as of the
close of business on the business day prior to the date of the
Transfer or change in capital structure.
(ii) If, notwithstanding the other provisions
contained in this Article IV, at any time after the effective
date of the Merger, but subject to the provisions of
subparagraph A(4)(m), there is a purported Transfer or other
change in the capital structure of the Corporation such that
any Person Constructively owns shares of Equity Stock in
excess of 9.8% of the outstanding Common Equity Stock then,
except as otherwise provided in subparagraph A(4)(i), such
shares of Equity Stock in excess of such amount (rounded up to
the nearest whole share) shall be automatically converted
into, with no further action required, an equal number of
shares of Excess Stock. Such conversion shall be effective as
of the close of business on the business day prior to the date
of the Transfer or change in capital structure.
(iii) If, notwithstanding the other provisions
contained in this Article IV, but subject to the provisions of
subparagraph A(4)(m), at any time after the effective date of
the Merger, there is a purported Transfer or other change in
the capital structure of the Corporation which, if effective,
would cause the Corporation to become "closely held" within
the meaning of Section 856(h) of the Code, then the shares of
Equity Stock being Transferred which would cause the
Corporation to be "closely held" within the meaning of Section
856(h) of the Code (rounded up to the nearest whole share)
shall be automatically converted into, with no further action
required, an equal number of shares of Excess Stock. Such
conversion shall be effective as of the close of business on
the business day prior to the date of Transfer or change in
capital structure.
(d) Remedies For Breach. If the Board of Directors or its
designees shall at any time determine in good faith that a Transfer has
taken place in violation of subparagraph A(4)(b) of this Article IV or
that a Person intends to acquire or has attempted to acquire beneficial
ownership (determined without reference to any rules of attribution),
Beneficial Ownership or Constructive Ownership of any shares of the
Corporation in violation of subparagraph A(4)(b) of this Article IV,
the Board of Directors or its designees shall take such actions as it
deems advisable to refuse to give effect or to prevent such Transfer,
including, but not limited to, refusing to give effect to such Transfer
on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfer or attempted
Transfer in violation of subparagraph A(4)(b)(ii) through (iv) or
subparagraph A(4)(b)(vi) of this Article IV shall automatically result
in the conversion described in subparagraph A(4)(c), irrespective of
any action (or non-action) by the Board of Directors.
(e) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares in violation of subparagraph A(4)(b) of this
Article IV, or any Person who is a transferee such that Excess Stock
results under subparagraph A(4)(c) of this Article IV, shall
immediately give written notice to the Corporation of such event and
shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of
such Transfer or attempted Transfer on the Corporation's status as a
REIT.
(f) Owners Required to Provide Information. From and after the
effective date of the Merger:
(i) every Beneficial Owner of more than 5.0% (or such
other percentage, between 0.5% and 5.0%, as may be required
from time to time by the Treasury Regulations) of the
outstanding Common Equity Stock of the Corporation shall,
within 30 days after January 1 of each year, give written
notice to the Corporation stating the name and address of such
Beneficial owner, the number of shares Beneficially Owned, and
description of how such shares are held. Each such Beneficial
Owner shall provide to the Corporation such additional
information as the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership on
the Corporation's status as a REIT.
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(ii) each Person who is a Beneficial Owner or
Constructive Owner of Equity Stock and each Person (including
the stockholder of record) who is holding Equity Stock for a
Beneficial Owner or Constructive Owner shall provide to the
Corporation such information that the Corporation may request,
in good faith, in order to determine the Corporation's status
as a REIT.
(g) Remedies Not Limited. Subject to the provisions of
subparagraph A(4)(m), nothing contained in this Article IV shall limit
the authority of the Board of Directors to take such other action as it
deems necessary or advisable to protect the Corporation and the
interests of its stockholders by preservation of the Corporation's
status as a REIT.
(h) Ambiguity. In the case of an ambiguity in the application
of any of the provisions of subparagraph A(4) of this Article IV,
including any definition contained in subparagraph A(4)(a), the Board
of Directors shall have the power to determine the application of the
provisions of this subparagraph A(4) with respect to any situation
based on the facts known to it.
(i) Modification of Existing Holder Limits. Subject to the
9.8% ownership limit set forth in subparagraph A(4)(b)(i), the Existing
Holder Limits may be modified as follows:
(i) Subject to the limitations provided in
subparagraph A(4)(k), any Existing Holder may Transfer Equity
Stock to a Person who is already an Existing Holder up to the
number of shares of Equity Stock Beneficially Owned by such
transferor Existing Holder in excess of the Ownership Limit.
Any such Transfer will decrease the Existing Holder Limit for
such transferor Existing Holder and increase the Existing
Holder Limit for such transferee Existing Holder by the
percentage of the outstanding Common Equity Stock so
Transferred. The transferor Existing Holder shall give the
Board of Directors prior written notice of any such Transfer.
(ii) Any grant of a stock option pursuant to a stock
option plan approved by the stockholders of the Corporation
shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under
subparagraph A(4)(k) to permit the Beneficial Ownership of the
shares of Equity Stock issuable upon the exercise of such
stock option.
(iii) The Board of Directors may reduce the Existing
Holder Limit for any Existing Holder, with the written consent
of such Existing Holder, after any Transfer permitted in this
subparagraph A(4) by such Existing Holder to a Person other
than an Existing Holder or after the lapse (without exercise)
of a stock option described in subparagraph A(4)(i)(ii).
(iv) Any shares of Equity Stock issued to an Existing
Holder pursuant to a dividend reinvestment plan shall increase
the Existing Holder Limit for the Existing Holder to the
maximum extent possible under subparagraph A(4)(k) to permit
the Beneficial Ownership of such shares of Equity Stock.
(v) The Related Party Limit may not be increased to a
percentage which is greater than 9.8%.
(j) Modification of Ownership Limit. Subject to the
limitations provided in subparagraph A(4)(k), the Board of Directors
may from time to time increase the Ownership Limit.
(k) Limitations on Modifications. Notwithstanding any other
provision of this Article IV:
(i) Neither the Ownership Limit nor any Existing
Holder Limit may be increased (nor may any additional Existing
Holder Limit be created) if, after giving effect to such
increase (or creation), five Beneficial Owners of Equity Stock
(including all of the then Existing Holders) could
Beneficially Own, in the aggregate, more than 49.6% of the
outstanding Common Equity Stock.
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(ii) Prior to the modification of any Existing Holder
Limit or Ownership Limit pursuant to subparagraphs A(4)(i) or
A(4)(j) of this Article IV, the Board of Directors may require
such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to
determine or ensure the Corporation's status as a REIT.
(iii) No Existing Holder Limit shall be reduced to a
percentage that is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to a
percentage that is greater than 9.8%.
(l) Exceptions.
(i) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the Ownership Limits or the Existing Holder
Limits, as the case may be, if such Person is not an
individual for purposes of Section 542(a)(2) of the Code and
the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial Ownership of such
Equity Stock will violate the Ownership Limit or the
applicable Existing Holder Limit, as the case may be, and
agrees that any violation or attempted violation will result
in such Equity Stock being converted into Excess Stock in
accordance with subparagraph A(4)(c) of this Article IV.
(ii) The Board of Directors, with a ruling from the
Internal Revenue Service or an opinion of counsel, may exempt
a Person from the limitation on such Person Constructively
Owning shares of Equity Stock in excess of the Related Party
Limit, if such Person does not and represents that it will not
own, directly or constructively (by virtue of the application
of Section 318 of the Code, as modified by Section 856(d)(5)
of the Code), more than a 9.8% interest (as set forth in
Section 856(d)(2)(B)) in a tenant of any real property owned
or leased by the Corporation and the Corporation obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain this fact and such Person
agrees that any violation or attempted violation will result
in such shares of Equity Stock in excess of 9.8% of the
outstanding Common Equity Stock being converted into Excess
Shares in accordance with subparagraph A(4)(c) of this Article
IV.
(m) New York Stock Exchange Transactions. Notwithstanding any
other provision of this subparagraph A(4), nothing in this subparagraph
A(4) shall preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange.
(5) Legend. Each certificate for Equity Stock shall bear the following
legend:
"The shares of [_______] Stock represented by this certificate are
subject to restrictions on transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended. Subject to certain provisions of the
Corporation's Articles of Incorporation, no person may Beneficially Own shares
of Equity Stock in excess of 9.8% (or such greater percentage as may be
determined by the Board of Directors of the Corporation) of the outstanding
shares of Equity Stock of the Corporation unless such Person is an Existing
Holder and no Person (other than an Existing Holder who Constructively Owns in
excess of 9.8% of the Equity Stock immediately following the effective date of
the Merger) may Constructively Own shares of Equity Stock in excess of 9.8% of
the outstanding shares of Equity Stock of the Corporation. Any Person who
attempts to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the above limitations must immediately notify the Corporation. All
capitalized terms in this legend have the meanings defined in the Corporation's
Articles of Incorporation, a copy of which, including the restrictions on
transfer, will be sent without charge to each stockholder who so requests. If
the restrictions on transfer are violated, the shares of [_______] represented
hereby will be automatically converted into shares of Excess Stock which will be
held in trust by the Corporation."
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B. Excess Stock.
(1) Ownership In Trust. Upon any purported Transfer that results in
Excess Stock pursuant to subparagraph A(4)(c) of this Article IV, such Excess
Stock shall be deemed to have been transferred to the Corporation, as Trustee of
a Trust for the exclusive benefit of such Beneficiary or Beneficiaries to whom
an interest in such Excess Stock may later be transferred pursuant to
subparagraph B(5). Shares of Excess Stock so held in trust shall be issued and
outstanding stock of the Corporation. The Purported Beneficial Transferee shall
have no rights in such Excess Stock, except as provided in subparagraph B(5).
(2) Dividend Rights. Excess Stock shall not be entitled to any
dividends. Any dividend or distribution paid prior to the discovery by the
Corporation that the shares of Common Stock have been converted into Excess
Stock shall be repaid to the Corporation upon demand.
(3) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of shares of Excess Stock shall be
entitled to receive, ratably with each other holder of Common Stock and Excess
Stock, that portion of the assets of the Corporation available for distribution
to its stockholders as the number of shares of Excess Stock held by such holder
bears to the total number of shares of Common Stock and Excess Stock then
outstanding. The Corporation, as holder of the Excess Stock in trust, or if the
Corporation shall have been dissolved, any trustee appointed by the Corporation
prior to its dissolution, shall distribute ratably to the Beneficiaries of the
Trust, when determined, any such assets received in respect of Excess Stock in
any liquidation, dissolution or winding up of, or any distribution of the assets
of the Corporation.
(4) Voting Rights. The holders of shares of Excess Stock shall not be
entitled to vote on any matters (except as required by law).
(5) Restrictions On Transfer; Designation of Beneficiary.
(a) Excess Stock shall not be transferrable. The Purported
Record Transferee may freely designate a Beneficiary of an interest in
the Trust (representing the number of shares of Excess Stock held by
the Trust attributable to a purported Transfer that resulted in the
Excess Stock), if (i) the shares of Excess Stock held in the Trust
would not be Excess Stock in the hands of such Beneficiary and (ii) the
Purported Beneficial Transferee does not receive a price for
designating such Beneficiary that reflects a price per share for such
Excess Stock that exceeds (x) the price per share such Purported
Beneficial Transferee paid for the Common Stock in the purported
Transfer that resulted in the Excess Shares, or (y) if the Purported
Beneficial Transferee did not give value for such Excess Shares
(through a gift, devise or other transaction), a price per share equal
to the Market Price on the date of the purported Transfer that resulted
in the Excess Stock. Upon such transfer of an interest in the Trust,
the corresponding shares of Excess Stock in the trust shall be
automatically exchanged for an equal number of shares of Common Stock
and such shares of Common Stock shall be transferred of record to the
transferee of the interest in the Trust if such Common Stock would not
be Excess Stock in the hands of such transferee. Prior to any transfer
of any interest in the Trust, the Purported Record Transferee must give
advance notice to the Corporation of the intended transfer and the
Corporation must have waived in writing its purchase rights under
subparagraph A(6) of this Article IV.
(b) Notwithstanding the foregoing, if a Purported Beneficial
Transferee receives a price for designating a Beneficiary of an
interest in the Trust that exceeds the amounts allowable under
subparagraph B(5)(a) of this Article IV, such Purported Beneficial
Transferee shall pay, or cause such Beneficiary to pay, such excess to
the Corporation.
(6) Purchase Right in Excess Stock. Beginning on the date of the
occurrence of a Transfer that results in Excess Shares, such shares of Excess
Stock shall be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share equal to the lesser of (i) the price per share in
the transaction that created such Excess Stock (or, in the case of a devise or
gift, the Market price at the time of such devise or gift) and (ii) the Market
Price on
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the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer for a period of 90 days after the
later of (i) the date of the Transfer that resulted in such Excess Shares and
(ii) the date the Board of Directors determines in good faith that a Transfer
that resulted in Excess Shares has occurred, if the Corporation does not receive
a notice of such Transfer pursuant to subparagraph A(4)(e) of this Article IV.
C. Other Stock. The power of the Board of Directors to classify or
reclassify any shares of stock shall include, without limitation, subject to the
provisions of these Articles, authority to classify or reclassify any unissued
shares of such stock into a class or classes of preferred stock, preference
stock, special stock or other stock, and to divide and classify shares of any
class into one or more series of such class, by determining, fixing or altering
one or more of the following:
(1) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided that, unless otherwise
prohibited by the terms of such or any other class or series, the number of
shares of any class or series may be decreased by the Board of Directors in
connection with any classification or reclassification of unissued shares and
the number of shares of such class or series may be increased by the Board of
Directors in connection with any such classification or reclassification, and
any shares of any class or series which have been redeemed, purchased, otherwise
acquired or converted into shares of Common Stock or any other class or series
shall become part of the authorized stock and be subject to classification and
reclassification as provided in this subparagraph.
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of such
class or series, whether any such dividends shall rank senior or junior to or on
a parity with the dividends payable on any other class or series of stock, and
the status of any such dividends as cumulative, cumulative to a limited extent
or non-cumulative and as participating or non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the terms
and conditions of such voting rights.
(4) Whether or not shares of such class or series shall have conversion
or exchange privileges and, if so, the terms and conditions thereof, including
provision for adjustment of the conversion or exchange rate in such events or at
such times as the Board of Directors (or any committee of the Board or officer
of the Corporation to whom such duty may be delegated by the Board) shall
determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemptions, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not there shall be
any sinking fund or purchase account in respect thereof, and if so, the terms
thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of dividends or
making of distributions on, or the acquisition of, or the use of moneys for
purchase or redemption of, any stock of the Corporation, or upon any other
action of the Corporation, including action under this subparagraph, and, if so,
the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or series, not
inconsistent with law and these Articles of Incorporation.
D. Series A Convertible Preferred Stock.
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(1) Designation and Amount. The shares of this series of Preferred
Stock shall be designated as "Series A Convertible Preferred Stock," and the
number of shares constituting such series shall be 1,000,000, with a par value
of $25.00 per share. The relative rights, preferences, restrictions and other
matters relating to the Series A Preferred Stock are contained in this paragraph
D of Article IV.
(2) Definitions. As used in this paragraph D of Article IV, the
following terms shall have the following meanings:
(a) "Aggregate Consideration Receivable" by the Corporation in
connection with the issuance of any shares of Common Stock or any
rights, warrants, options or convertible or exercisable securities
entitling the holders thereof to subscribe for or purchase any shares
of Common Stock or any stock appreciation rights entitling the holders
thereof to any interest in an increase in value, however measured, of
shares of Common Stock) means the sum of:
(i) the aggregate consideration paid to the
Corporation for such shares, rights, warrants, options or
convertible or exercisable securities; and
(ii) the aggregate consideration or premiums stated
in such rights, warrants, options or convertible or
exercisable securities to be payable for the shares of Common
Stock covered thereby,
calculated in each case in accordance with subparagraph D(8)(d)(vi) of
this Article IV. In case all or any portion of the consideration to be
received by the Corporation may be paid in a form other than cash, the
value of such consideration shall be determined in good faith by the
Board of Directors or a duly authorized committee thereof (irrespective
of the accounting treatment thereof), and described in a resolution of
the Board of Directors or such committee.
(b) "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in the City of New York,
New York are authorized or obligated by law or executive order to
close.
(c) "Capital Stock" means any and all shares, rights to
purchase, warrants, options, convertible securities, participations in
or other equivalents of or interests (other than security interests) in
(however designated and whether voting or nonvoting) capital stock of
any corporation.
(d) "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.
(e) "Conversion Date" has the meaning set forth in
subparagraph 8(b) hereof.
(f) "Conversion Notice" has the meaning set forth in
subparagraph 8(b) hereof.
(g) "Conversion Price" has the meaning set forth in
subparagraph 8(a) hereof.
(h) "Corporation" means FAC Realty Trust, Inc., a Maryland
corporation.
(i) "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:
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(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).
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
(k) "Excluded Transaction" means the issuance of any shares of
Capital Stock of the Corporation to employees or directors of the
Corporation under an employee benefit plan or arrangement adopted by
the Corporation; provided, however, in no event shall the aggregate of
such issuances exceed 10% of the issued and outstanding shares of
Capital Stock of the Corporation on the date prior to July 10, 1996
(calculated on a fully diluted basis).
(l) "Fair Market Value" of Common Stock means, as of any date,
the average of the closing prices of Common Stock for the 30
consecutive Trading Days next preceding the date prior to the date in
question. The closing price for each day shall be the last sale price,
or the closing bid price if no sale occurred, of Common Stock on the
New York Stock Exchange.
(m) "Holder" of a share of Series A Preferred Stock means the
Person in whose name shares of Series A Preferred Stock are registered
on the books of the Corporation.
(n) "Junior Stock" means Capital Stock of the Corporation now
or hereafter authorized, issued or outstanding that is not Parity Stock
or Senior Stock.
(o) "Liquidation Preference" means, with respect to each share
of Series A Preferred Stock, an amount equal to $25.00.
(p) "Notice of Issuance Date" means the date on which the
Corporation gives the Holders of Series A Preferred Stock written
notice of its intention to issue any class or series of Parity Stock
pursuant to subparagraph D(8)(h)(i)(D) of this Article IV.
(q) "Parity Stock" means Capital Stock of the Corporation now
or hereafter authorized, issued or outstanding ranking on a parity with
the Series A Preferred Stock as to rights upon liquidation, winding up
or dissolution of the Corporation.
(r) "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.
(s) "Second Restated Certificate of Incorporation" means the
Second Restated Certificate of Incorporation of the Corporation as the
same may be amended or restated from time to time.
(t) "Series A Preferred Stock" means the Series A Convertible
Preferred Stock of the Corporation, $25.00 par value per share,
established pursuant to this Paragraph D of Article IV.
(u) "Senior Stock" means Capital Stock of the Corporation now
or hereafter authorized, issued or outstanding ranking senior to the
Series A Preferred Stock as to rights upon liquidation, winding up or
dissolution of the Corporation.
(v) "Trading Day" means any day on which the New York Stock
Exchange is open for business.
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(3) Rank. As to rights upon liquidation, winding up or dissolution of
the Corporation, the Series A Preferred Stock shall rank senior and prior to the
Common Stock and to Junior Stock, on a parity with the Parity Stock and junior
to any Senior Stock. As to dividend rights, the Series A Preferred Stock shall
rank on a parity with the Common Stock. Upon liquidation, winding up or
dissolution, the Series A Preferred Stock shall be subordinated and junior to
the prior payment in full of all principal, interest and premium, if any, of all
outstanding indebtedness of the Corporation.
(4) Dividends. No dividend or distribution shall be declared or paid on
the outstanding shares of Common Stock (including, without limitation, the
distribution of assets or amounts paid on account of any purchase, redemption,
exchange or other retirement of any shares of Common Stock, but excluding
dividends and distributions on the Common Stock that would require an adjustment
in the Conversion Price pursuant to subparagraph 8 of this Article IV) unless:
(a) concurrently with such declaration the Board of Directors
shall have declared a dividend or distribution on the Series A
Preferred Stock that is payable:
(i) in the same form of cash or property or other
value as the dividend declared on the Common Stock and
(ii) in an amount per share of Series A Preferred
Stock equal to the product of:
(A) the amount of the dividend or
distribution per share of Common Stock so declared on
the Common Stock, and
(B) the number of shares of Common Stock
issuable on conversion of a single share of Series A
Preferred Stock if such share of Series A Preferred
Stock were converted immediately prior to the record
date for such dividend or distribution on the
Preferred Stock;
(b) the record date and payment date for the dividend or
distribution so declared on the Series A Preferred Stock in compliance
with the requirements of this subparagraph D(4) shall be the same as
the record date and payment date for the dividend so declared on the
Common Stock; and
(c) the dividend so declared on the Preferred Stock is paid on
the date and in the amount prescribed above.
In the event a dividend on shares of Common Stock is not declared by
the Board of Directors or any duly authorized committee thereof with respect to
any period, the Corporation shall have no obligation at any time to pay a
dividend on the shares of Series A Preferred Stock in respect of such period.
(5) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, either voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, each Holder of shares of Series A Preferred
Stock shall be entitled to receive, out of assets of the Corporation available
for distribution to stockholders, an amount equal to any dividends or
distributions declared or required under subparagraph D(4) of this Article IV to
have been declared on such Holder's shares of Series A Preferred Stock through
the date of final distribution to stockholders, whether or not declared, to the
extent not theretofore paid to such Holder, plus a sum equal to the Liquidation
Preference, before any payment shall be made or any assets distributed to the
holders of any other class or series of Capital Stock of the Corporation ranking
junior to the Series A Preferred Stock with respect to distribution of assets.
If the assets and funds thus distributed among the Holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such Holders of
the full preferential amount described above, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably among the Holders of the Series A Preferred Stock and any Parity Stock
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled. After payment of the full amount of the
liquidating distributions to which they are entitled, the Holders of shares of
Series A Preferred Stock will have no right or claim
B-12
<PAGE>
to any of the remaining assets of the Corporation. A consolidation or merger of
the Corporation with or into any other entity, or sale, lease, conveyance or
disposition of all or substantially all of the assets of the Corporation or the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, shall not be deemed to be a liquidation, dissolution or winding up
within the meaning of this subparagraph D(5) of this Article IV.
(6) Consolidation and Merger.
(a) So long as any shares of Series A Preferred Stock remain
outstanding, on or prior to the effective date of any consolidation or
merger, unless the Corporation is proceeding under subparagraph D(6)(c)
of this Article IV, the Corporation shall not consolidate with or merge
into another Person unless:
(i) if the Corporation is the surviving entity, the
rights and preferences of the Series A Preferred Stock are not
modified as a result of such merger or consolidation and,
after the effective date of such merger or consolidation, the
Corporation, as the surviving entity, does not have
outstanding any Capital Stock that is not Parity Stock or
Junior Stock or Senior Stock authorized pursuant to
subparagraph D(7)(a), or
(ii) if the Corporation is not the surviving entity:
(A) the surviving entity is a Person whose
equity securities are listed on a national securities
exchange in the United States or authorized for
quotation on the NASDAQ National Market;
(B) the Corporation shall make effective
provision such that, upon consummation of such
transaction, the Holders of Series A Preferred Stock
shall receive preferred stock of the surviving entity
having substantially identical terms as the Series A
Preferred Stock, and
(C) the surviving entity does not have
outstanding any Capital Stock that is not Parity
Stock or Junior Stock.
(b) The provisions of subparagraph D(6)(a)(i) and subparagraph
D(6)(a)(ii) may be waived with respect to a consolidation or merger by
the consent to any such waiver by the Holders of a majority of the
shares of Series A Preferred Stock then outstanding.
(c) If the Corporation proposes to undertake a transaction
subject to Rule 13(e)-3 of the Exchange Act, the Corporation shall give
each Holder of Series A Preferred Stock written notice of its intention
to undertake such transaction at least twenty (20) days prior the
consummation of such transaction. Such notice shall include a
description of the proposed terms and conditions of the continuation of
the Holder's investment in the Corporation (or the surviving entity, as
the case may be) and the cash amount or value of other consideration
proposed to be payable to the holders of the Common Stock in connection
with such transaction so as to allow each Holder make its election
required by subparagraph D(6)(d).
(d) The Corporation shall, at the election of each Holder of
Series A Preferred Stork either:
(i) make effective provision such that such holder of
Series A Preferred Stock may continue its investment following
the consummation of such transaction on the terms and
conditions substantially similar to those contained in the
Corporation's notice given pursuant subparagraph D(6)(c); or
B-13
<PAGE>
(ii) purchase, or cause the surviving entity of such
transaction to purchase, such Holder's shares of Series A
Preferred Stock for a cash Purchase price equal to the product
of:
(A) the number of shares of Common Stock
then issuable on conversion of the shares of Series A
Preferred Stock then held by such Holder and
(B) an amount equal to 105% of the cash
amount or value of other consideration payable to the
holder of a single share of Common Stock upon the
consummation of such transaction.
(e) Each Holder's election under subparagraph D(6)(d) shall be
irrevocable and shall be delivered to the Corporation ten (10) Business
Days prior to the consummation of the transaction.
(7) Voting Rights of Series A Preferred Stock.
(a) The Holders of Series A Preferred Stock shall not be
entitled to vote on any matter requiring consent of the stockholders of
the Corporation, whether at an annual or special meeting, except that
Holders of Series A Preferred Stock shall be entitled to vote, as a
class, (i) on any proposal to amend this Certificate of Designation or
as expressly required by applicable law in connection with an amendment
of any of the provisions of the Second Restated Certificate of
Incorporation which would alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them
adversely; and (ii) for the authorization or issuance of any new Parity
Stock or Senior Stock; provided, however, that any vote otherwise
required by clause (ii) with respect to the issuance of any new class
or series of Parity Stock shall not be required if (x) the Fair Market
Value of the Common Stock immediately preceding the Notice of Issuance
Date shall be $15.00 or more and (y) such new class or series of Parity
Stock shall be authorized and issued within six months following the
Notice of Issuance Date. Action by Holders of Series A Preferred Stock
shall require the consent of the Holders of a majority of the shares of
Series A Preferred Stock then outstanding.
(b) The foregoing voting provisions shall not apply if, at or
prior to the time when the action with respect to which such vote would
otherwise be required to be effected, all outstanding shares of Series
A Preferred Stock shall have been converted.
(8) Conversion Privilege.
(a) Right of Conversion.
(i) Each share of Series A Preferred Stock shall be
convertible at the option of the Holder thereof, into a number
of fully paid and nonassessable shares of Common Stock equal
to the ratio of
(A) the Liquidation Preference of such share
of Series A Preferred Stock to
(B) the Conversion Price in effect on the
Conversion Date, or into such additional or other
securities, cash or property and at such other rates
as required in accordance with the provisions of this
subparagraph D(8), at any time and from time to time.
(ii) For purposes of this Paragraph D of Article IV,
the "Conversion Price" shall initially be the lesser of:
(A) $9.00 per share and
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(B) the average of the daily closing prices
(last close price, regular way) of the Common Stock
on the New York Stock Exchange for the 30-day period
ending May 1, 1996, as such Conversion Price may be
adjusted from time to time in accordance with the
provisions of this subparagraph D(8).
(iii) Not later than May 15, 1996, the Corporation
shall provide written notice to each Holder of Series A
Preferred Stock setting forth the Conversion Price as of the
date of such notice.
(b) Conversion Procedures.
(i) In order to exercise the conversion privilege,
the Holder of any shares of Series A Preferred Stock to be
converted in whole or in part shall surrender the certificate
or certificates evidencing such shares to the Corporation and
shall give written notice to the Corporation ("Conversion
Notice") that the Holder elects to convert such shares or the
portion thereof specified in said notice into shares of Common
Stock. The Conversion Notice shall also state the name or
names (with address) in which the certificate or certificates
for shares of Common Stock that shall be issuable upon such
conversion shall be issued. Each certificate evidencing Series
A Preferred Stock surrendered for conversion shall, unless the
shares issuable on conversion are to be issued in the same
name as the registration of such shares of Series A Preferred
Stock, be duly endorsed by, or be accompanied by instruments
of transfer in form satisfactory to the Corporation duly
executed by, the Holder or its duly authorized attorney.
(ii) Within ten Business Days after receipt of a
Conversion Notice and surrender of the certificate or
certificates evidencing the Series A Preferred Stock relating
thereto, the Corporation shall issue and deliver to such
Holder (or upon the written order of such Holder) a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such shares of
Series A Preferred Stock or portion thereof in accordance with
the provisions of this subparagraph D(8), and a check or cash
in respect of any fractional shares of Common Stock issuable
upon such conversion, as provided in subparagraph D(8)(c)
hereof. In the event that less than all the shares of Series A
Preferred Stock represented by a certificate are to be
converted, the Corporation shall issue and deliver or cause to
be issued and delivered to (or upon the written order of) the
Holder of the shares of Series A Preferred Stock so
surrendered, without charge to such Holder, a new certificate
or certificates representing a number of shares of Series A
Preferred Stock equal to the unconverted portion of the
surrendered certificate.
(iii) Each conversion shall be deemed to have been
effected on the date (the "Conversion Date") on which the
certificate or certificates evidencing shares of Series A
Preferred Stock shall have been surrendered to the Corporation
or its transfer agent and a Conversion Notice with respect to
such shares shall have been received by the Corporation, as
described above. Any Person in whose name any certificate or
certificates for shares of Common Stock shall be issuable upon
conversion shall be deemed to have become the holder of record
of the shares represented thereby on the Conversion Date;
provided, however, that surrender of the certificate or
certificates evidencing shares of Series A Preferred Stock on
any date when the stock transfer books of the Corporation
shall be closed shall constitute the Person in whose name the
certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such
certificate or certificates shall have been surrendered.
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<PAGE>
(iv) Except as otherwise provided in this
subparagraph D(8), no payment or adjustment will be made for
dividends or other distributions with a record date prior to
the Conversion Date with respect to any shares of Common Stock
issuable upon conversion of this note as provided herein.
(c) Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be
issued upon conversion of shares of Series A Preferred Stock. If any
fractional share of Common Stock would, but for this subparagraph
D(8)(c), be issuable upon the conversion of any shares of Series A
Preferred Stock, the Corporation shall promptly after the Conversion
Date make a payment therefor in cash equal to the Fair Market Value of
such fractional share of Common Stock on the first Business Day
immediately preceding the Conversion Date.
(d) Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Corporation as follows:
(i) if the Corporation shall at any time after March
1, 1996 (whether or not any shares of Series A Preferred Stock
are then outstanding):
(A) declare a dividend or distribution on
the Common Stock payable in shares of Common Stock
not otherwise payable to a Holder of such shares as a
dividend pursuant to section 4 hereof,
(B) subdivide or reclassify outstanding
shares of Common Stock into a greater number of
shares,
(C) combine shares of outstanding Common
Stock into a smaller number of shares,
(D) declare a dividend or distribution on
the Common Stock in shares of any series of its
Capital Stock other than Common Stock, or
(E) issue by reclassification of any shares
of its outstanding Common Stock, shares of any series
of its Capital Stock or any obligation of the
Corporation or other property,
then the conversion privilege and the Conversion Price in
effect immediately prior thereto shall be adjusted so that the
Holder of any shares of Series A Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other Capital Stock or
obligation of the Corporation or other property which such
Holder would have owned or have been entitled to receive after
the happening of any of the events described above had such
Series A Preferred Stock been converted immediately prior to
the happening of such event. An adjustment made pursuant to
this subparagraph D(8)(d)(i) shall become effective
immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the
effective date in the case of subdivision, combination or
reclassification. Such adjustment shall be made successively
whenever any event referred to above shall occur.
(ii) If the Corporation shall at any time after March
1, 1996 (whether or not any shares of Series A Preferred Stock
are then outstanding) issue any shares of Common Stock (or any
rights, warrants, options or convertible or exercisable
securities entitling the holders thereof to subscribe for or
purchase any shares of Common Stock or any stock appreciation
rights entitling the holders thereof to any interest in an
increase in value. however measured. of shares of Common
Stock) for an Effective Purchase Price per Share
B-16
<PAGE>
less than the Conversion Price in effect immediately prior to
the date of such issuance, then, the Conversion Price shall be
adjusted to equal the ratio of:
(1) the sum of:
a. the product of:
(1) the number of shares of Common
Stock outstanding immediately prior to such
issuance and
(2) the Conversion Price in effect
immediately prior to such issuance and
b. the Aggregate Consideration Receivable by
the Corporation in connection with such issuance to
(2) the sum of:
a. the number of shares of Common Stock
outstanding immediately prior to such issuance and
b. the number of additional shares of Common
Stock to be so issued (including the number of shares
underlying such rights, warrants, options or
convertible or exercisable securities).
If the Corporation shall at any time (whether or not
any shares of Series A Preferred Stock are then outstanding)
issue any shares of Common Stock (or any rights, warrants,
options or convertible or exercisable securities entitling the
holders thereof to subscribe for or purchase any shares of
Common Stock or any stock appreciation rights entitling the
holders thereof to any interest in an increase in value,
however measured, of shares of Common Stock) in an Excluded
Transaction the Conversion Price in effect immediately prior
to the date of such issuance shall not be adjusted as the
result of such Excluded Transaction.
Such adjustment shall be made successively whenever
any shares, rights, warrants, options, convertible or
exercisable securities or stock appreciation rights are issued
at an Effective Purchase Price per Share that is less than the
Conversion Price in effect on the date of such issuance. To
the extent that any such rights, warrants, options,
convertible or exercisable securities or stock appreciation
rights expire without having been converted or exercised, the
Conversion Price then in effect shall be readjusted to the
Conversion Price which then would be in effect if such rights,
options, warrants, convertible or exercisable securities or
stock appreciation rights had not been issued, but such
readjustment shall not affect the number of shares of Common
Stock or other shares of Capital Stock delivered upon any
conversion prior to the date such readjustment is made.
(iii) If the Corporation shall at any time (whether
or not any shares of Series A Preferred Stock are then
outstanding) distribute to all holders of its Common Stock any
of its assets or debt securities, or rights, options, warrants
or convertible or exercisable securities of the Corporation
(including securities issued for cash, but excluding
distributions of Capital Stock referred to in subparagraph
D(8)(d)(i) hereof), then in each such case, the Conversion
Price shall be adjusted to equal the Conversion Price in
effect immediately prior to such distribution less an amount
equal to the then fair market value (as reasonably determined
by the Board of Directors, in good faith and as described in a
resolution of the
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<PAGE>
Board of Directors) of the portion of the assets or debt
securities of the Corporation so distributed or of such
rights, options, warrants or convertible or exchangeable
securities applicable to one share of Common Stock. Such
adjustment shall become effective immediately after the record
date for the determination of shares entitled to receive such
distribution. Such adjustment shall be made successively
whenever any event listed above shall occur. Notwithstanding
the foregoing, no adjustment of the Conversion Price shall be
made upon the distribution to holders of Common Stock of such
rights, options, warrants, convertible securities, assets or
debt securities if the plan or arrangement under which such
rights, options, warrants, convertible securities, assets or
debt securities are issued provides for their issuance to
Holders of shares of Series A Preferred Stock in the same pro
rata amounts upon conversion thereof
(iv) In any case in which this subparagraph D(8)(d)
provides that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer
until the occurrence of such event:
(A) issuing to the Holder of any shares of
Series A Preferred Stock converted after such record
date and before the occurrence of such event the
additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by
such event over and above the Common Stock issuable
upon such conversion before giving effect to such
adjustment, and
(B) paying to such Holder any amount in cash
in lieu of any fractional share of Common Stock
pursuant to subparagraph D(8)(c).
(v) For purposes of any computations of Aggregate
Consideration Receivable or other consideration pursuant to
this subparagraph D(8)(d), the following shall apply:
(A) in the case of the issuance of shares of
Capital Stock for cash, the consideration shall be
the amount of such cash, provided that in no case
shall any deduction be made for any commissions,
discounts or other expenses incurred by the
Corporation for any underwriting of the issue or
otherwise in connection therewith; and
(B) in the case of the issuance of shares of
Capital Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as reasonably determined in good faith by the Board
of Directors or a duly authorized committee thereof
(irrespective of the accounting treatment thereof),
and described in a resolution of the Board of
Directors or such committee.
(vi) If after an adjustment a Holder of shares of
Series A Preferred Stock may, upon conversion of such
security, receive shares of two or more classes of Capital
Stock of the Corporation, the Corporation shall determine on a
fair basis the allocation of the adjusted Conversion Price
between the classes of Capital Stock. After such allocation,
the conversion privilege and the Conversion Price of each
class of Capital Stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common
Stock in this subparagraph D(8).
(vii) In no event shall an adjustment pursuant to
this subparagraph D(8)(d) reduce the Conversion Price below
the then par value, if any, of the shares of Common Stock
issuable upon conversion of shares of Series A Preferred
Stock.
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<PAGE>
(viii) No adjustment in the Conversion Price for the
Series A Preferred Stock shall be required unless such
adjustment would require an increase or decrease of at least
one percent (1%) in the Conversion Price then in effect.
(e) Effect of Reclassification, Consolidation, Merger or Sale.
Unless the Series A Preferred Stock shall have been converted on or
prior to the effective date of any of the events referred to in clauses
(i), (ii) and (iii) of this subparagraph D(8)(e), if there shall occur:
(i) any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of shares of
Series A Preferred Stock (other than a change in par value, or
from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination),
(ii) any consolidation or merger of the Corporation
with another Person shall be effected as a result of which
holders of Common Stock issuable upon conversion of shares of
Series A Preferred Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, or
(iii) any sale or conveyance of the properties and
assets of the Corporation as, or substantially as, an entirety
to any other Person,
each share of Series A Preferred Stock then outstanding shall be
convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by
a holder of the number of shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock immediately prior
to such reclassification, change, consolidation, merger, sale or
conveyance. In any such case, appropriate adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for
in this subparagraph D(8).
If this subparagraph D(8)(e) applies with respect to a transaction,
subparagraph D(8)(d) hereof shall not apply with respect to that transaction.
The above provisions of this subparagraph D(8)(e) shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
(f) Taxes on Shares Issued. The issuance of stock certificates
upon conversion of shares of Series A Preferred Stock shall be made
without charge to the converting Holder for any tax in respect of the
issuance thereof.
(g) Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements. The Corporation shall reserve, free
from preemptive rights, out of its authorized but unissued shares, or
out of shares held in its treasury, sufficient shares of Common Stock
to provide for the conversion of all shares of Series A Preferred Stock
from time to time outstanding. The Corporation covenants that all
shares of Common Stock which may be issued upon conversion of shares of
Series A Preferred Stock will upon issuance be fully paid and
nonassessable by the Corporation and free from all taxes, liens and
charges with respect to the issuance thereof.
(h) Notice to Holders Prior to Certain Actions.
(i) If:
(A) the Corporation shall take any action
that would require an adjustment in the Conversion
Price pursuant to subparagraph D(8)(d)(i), (ii) or
(iii) hereof;
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(B) any event described in subparagraph
D(8)(e) hereof shall occur;
(C) the voluntary or involuntary
dissolution, liquidation or winding-up of the
Corporation shall occur; or
(D) the Corporation intends to issue a new
class or series of Parity Stock without the vote of
the Holders of Series A Preferred Stock as provided
in the proviso of subparagraph D(7)(a)(ii) hereof;
the Corporation shall cause notice of such proposed action or event to
be mailed to each Holder of record of Series A Preferred Stock at its
address appearing on the stock transfer books of the Corporation, as
promptly as possible but in any event no later than the later of (x)
the date 15 days prior to the record date for such proposed action or
the effective date of such event or (y) the date on which the
Corporation first publicly announces such proposed action or event.
In any event, such notice shall specify:
a) the date on which a record is to be taken for the
purpose of such action, or, if a record is not to be
taken, the date as of which the holders of record of
Common Stock are to be determined, or
b) the date on which such proposed event is expected
to become effective, and the date as of which it is
expected that holders of record of Common Stock shall
be entitled to exchange their Common Stock for
securities or other property deliverable upon such
event.
(9) Transfers; Replacement of Certificates.
(a) Transfers. Subject to any restrictions on transfer under
applicable securities or other laws and those set forth in Article IV,
shares of Series A Preferred Stock may be transferred on the books of
the Corporation by the surrender to the Corporation of the certificate
therefor properly endorsed or accompanied by a written assignment and
power of attorney properly executed, with transfer stamps (if
necessary) affixed, and such proof of the authenticity of signature as
the Corporation or its transfer agent may reasonably require.
(b) Replacement of Certificates. If a mutilated certificate
representing shares of Series A Preferred Stock is surrendered to the
Corporation, or if a holder of such certificate claims such certificate
has been lost, destroyed or willfully taken and provides an indemnity
bond or agreement or other security sufficient, in the reasonable
judgment of the Corporation, to protect the Corporation and any of its
officers, directors, employees or representatives from any loss which
any of them may suffer if such certificate is replaced (an
"Indemnity"), then the Corporation shall issue a replacement
certificate of like tenor and dated the date to which interest has been
paid on the mutilated, lost, destroyed or taken certificate.
(10) Sinking Fund. Series A Preferred Stock will not be
subject to any sinking fund or monetary redemption except as provided
in Article 4(B)(6).
(11) Reacquired Shares. Any shares of Series A Preferred Stock
which are converted, purchased, redeemed or otherwise acquired by the
Corporation, shall be retired and canceled by the Corporation promptly
thereafter. No such shares shall upon their cancellation be reissued.
ARTICLE V
Election of Directors
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Election of directors need not be by written ballot unless and to the
extent that the Bylaws of the Corporation so provide.
ARTICLE VI
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the Bylaws of the Corporation, except that any bylaw adopted by the stockholders
may be altered or repealed only by the stockholders if such bylaw specifically
so provides.
ARTICLE VII
Independent Directors
At all times following the effective date of the Merger (as defined in
Article IV), at least a majority of the members of the Board of Directors shall,
except during the period of a vacancy or vacancies therein, be Independent
Directors. An "Independent Director" shall mean a person who is not (i) employed
by the Corporation, or (ii) an "affiliate" (as defined in Rule 405 under the
Securities Act of 1933, as amended) of (A) 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)
Limited Partnership, a North Carolina limited partnership, Carolina &
Associates-III (Georgetown), an Ohio general partnership, Tri-Cities Partners, a
North Carolina general partnership, and Music Valley Partners Limited
Partnership, a North Carolina limited partnership, (B) Carolina Pottery Retail
Group, Inc., a North Carolina corporation, or (C) any entity which is an
affiliate (as defined above) or any entity listed in clause (ii)(A) or (ii)(B)
of this Article VII.
ARTICLE VIII
Compromises
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction may, on the application in a summary way of this Corporation or of
any creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this Corporation, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourth in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE IX
Liability
The personal liability of the directors and officers to the Corporation
or its stockholders for monetary damages is hereby limited to the fullest extent
permitted by Section 5-349 of the Courts and Judicial Proceedings Article of the
Annotated code of Maryland (or its successor) as such provisions may be amended
from time to time. No amendment of these Articles of Incorporation or repeal of
any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provisions with respect to any act or omission
that occurred prior to such amendment or repeal.
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ARTICLE X
General
In the event any provision (or portion thereof) of these Articles of
Incorporation shall be found to be invalid, prohibited, or unenforceable for any
reason, the remaining provisions (or portions thereof) of these Articles of
Incorporation shall be deemed to remain in full force and effect, and shall be
construed as if such invalid, prohibited, or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it being the intent of the
Corporation and its stockholders that each such remaining provision (or portion
thereof) of these Articles of Incorporation remain, to the fullest extent
permitted by law, applicable and enforceable as to all stockholders,
notwithstanding any such finding.
ARTICLE XI
Amendments
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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EXHIBIT C
AMENDED AND RESTATED BYLAWS
OF
FAC REALTY TRUST, INC.
(SET FORTH BELOW ARE THE MARYLAND COMPANY'S BYLAWS AS OF THE EFFECTIVE
TIME OF THE REINCORPORATION)
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.
(1) 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.
(2) In order that the Corporation may determine the
stockholders entitled to request a special meeting, the Board
of Directors may fix a record date to determine the
stockholders entitled to make such a request (the "Request
Record Date"). The Request Record Date shall not precede the
date upon which the resolution fixing the Request Record Date
is adopted by the Board of Directors and shall not be more
than 10 days after the date upon which the resolution fixing
the Request Record Date is adopted by the Board of Directors.
Any stockholder of record seeking to have stockholders request
a special meeting shall, by sending written notice to the
Secretary of the Corporation by certified or registered mail,
return receipt requested, request the Board of Directors to
fix a Request Record Date. The Board of Directors shall within
10 days after the date on which a valid request to fix a
Request Record Date is received, adopt a resolution fixing the
Request Record Date and shall make a public announcement of
such Request Record Date, the Request Record Date shall be the
10th day after the first date on which a valid written request
to set a Request Record Date is received by the Secretary. To
be valid, such written request shall set forth the purpose or
purposes for which the special meeting is to be held, shall be
signed by one or more stockholders of record (or their duly
authorized proxies or other representatives), shall bear the
date of signature of each such stockholder (or proxy or other
representative) and shall set forth all information relating
to such stockholder that is required to be disclosed in
solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 14a-11
thereunder.
(3) In order for a stockholder or stockholders to
request a special meeting, a written request or requests for a
special meeting by the holders of record as of the Request
Record Date of at least a majority of the issued and
outstanding shares of stock that would be entitled to vote at
such a meeting must be delivered to the Corporation. To be
valid, each written request by a stockholder for a special
meeting shall set forth the specific purpose or purposes for
which the special meeting is to be held (which purpose or
purposes shall be limited to the purpose or purposes set forth
in the written request to set a Request Record Date received
by the Corporation pursuant to paragraph (2) of this Section
1(b)), shall be signed by one or more persons who as of the
Request Record Date are
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stockholders of record (or their duly authorized proxies or
other representatives), shall bear the date of signature of
each such stockholder (or proxy or other representative) and
shall set forth the name and address, as they appear in the
Corporation's books, of each stockholder signing such request
and the class and number of shares of the Corporation which
are owned of record and beneficially by each such stockholder,
shall be sent to the Secretary by certified or registered
mail, return receipt requested, and shall be received by the
Secretary within 60 days after the Request Record Date.
(4) The Corporation shall not be required to call a
special meeting upon stockholder request unless, in addition
to the documents required by paragraph (3) of this Section
1(b), the Secretary receives a written agreement signed by
each Soliciting Stockholder (as defined below), pursuant to
which each Soliciting Stockholder, jointly and severally,
agrees to pay the Corporation's costs of holding the special
meeting, including the costs of preparing and mailing proxy
materials for the Corporation's own solicitation, provided
that if each of the resolutions introduced by any Soliciting
Stockholder at such meeting is adopted, and each of the
individuals nominated by or on behalf of any Soliciting
Stockholder for election as a director at such meeting is
elected, then the Soliciting Stockholders shall not be
required to pay such costs. For purposes of this paragraph
(4), the following terms shall have the meanings set forth
below:
(i) "Affiliate" of any Person (as defined herein)
shall mean any Person controlling, controlled by or under
common control with such first Person.
(ii) "Participant" shall have the meaning assigned to
such term in Rule 14a-11 promulgated under the Exchange Act.
(iii) "Person" shall mean any individual, firm,
corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or
other entity.
(iv) "Proxy" shall have the meaning assigned to such
term in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to
such term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Stockholder" shall mean, with
respect to any special meeting requested by a stockholder or
stockholders, any of the following Persons:
(a) if the number of stockholders signing
the request or requests of meeting delivered to the
Corporation pursuant to paragraph (3) of this Section
1(b) is 10 or fewer, each stockholder signing any
such request;
(b) if the number of stockholders signing
the request or requests of meeting delivered to the
Corporation pursuant to paragraph (3) of this Section
1(b) is more than 10, each Person who either (I) was
a Participant in any Solicitation of such request or
requests or (II) at the time of the delivery to the
Corporation of the documents described in paragraph
(3) of this Section 1(b) had engaged or intended to
engage in any Solicitation of Proxies for use at such
special meeting (other than a Solicitation of Proxies
on behalf of the Corporation); or
(c) any Affiliate of a Soliciting
Stockholder, if a majority of the directors then in
office determine that such Affiliate should be
required to sign the written notice described in
paragraph (3) of this Section 1(b) and/or the written
agreement described in this paragraph (4) in order to
prevent the purposes of this Section 3.02 from being
evaded.
(5) Except as provided in the following sentence, any special
meeting shall be held at such hour and day as may be designated by
whichever of the Chairman or the Secretary shall have called such
meeting. In the case of any special meeting called by the Chairman or
the Secretary upon the request of stockholders (a "Request Special
Meeting"), such meeting shall be held at such hour and day as may by
designated by the
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Board of Directors; provided, however, that the date of any Request
Special Meeting shall be not more than 60 days after the Meeting Record
Date (as defined in Section 2(c)); and provided further that in the
event that the directors then in office fail to designate an hour and
date for a Request Special Meeting within 10 days after the date that
valid written requests for such meeting by the holders of record as of
the Request Record Date of at least a majority of the issued and
outstanding shares of stock that would be entitled to vote at such
meeting are delivered to the Corporation (the "Delivery Date"), then
such meeting shall be held at 2:00 p.m. local time on the 90th day
after the Delivery Date or, if such 90th day is not a Business Day (as
defined below), on the first preceding Business Day. In fixing a
meeting date for any special meeting, the Chairman, the Secretary or
the Board of Directors may consider such factors as he or it deems
relevant within the good faith exercise of his or its business
judgment, including, without limitation, the nature of the action
proposed to be taken, the facts and circumstances surrounding any
request of such meeting, and any plan of the Board of Directors to call
an annual meeting or a special meeting for the conduct of related
business.
(6) The Corporation may engage regionally or nationally
recognized independent inspectors of elections to act as an agent of
the Corporation for the purpose of promptly performing a ministerial
review of the validity of any purported written request or requests for
a special meeting received by the Secretary. For the purpose of
permitting the inspectors to perform such review, no purported request
shall be deemed to have been delivered to the Corporation until the
earlier of (i) 5 Business Days following receipt by the Secretary of
such purported request and (ii) such date as the independent inspectors
certify to the Corporation that the valid requests received by the
Secretary represent at least a majority of the issued and outstanding
shares of stock that would be entitled to vote at such meeting. Nothing
contained in this paragraph (6) shall in any way be construed to
suggest or imply that the Board of Directors or any stockholder shall
not be entitled to contest the validity of any request, whether during
or after such 5 Business Day period, or to take any other action
(including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto, and the seeking of
injunctive relief in such litigation).
(7) For purposes of these by-laws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of North Carolina are authorized or obligated
by law or executive order to close.
(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
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 Maryland.
(3) WAIVER. Whenever any written notice is required to be
given under the provisions of the Articles 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
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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
Articles 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 Articles 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.
(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
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retain other persons or entities to assist the inspectors in
the performance of the duties of the inspectors.
(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, 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 Articles 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 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 Articles 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:
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(a) 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.
(b) 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.
(c) In the case of any Request Special Meeting, (i) the record date for
such meeting (the "Meeting Record Date") shall be not later than the 30th day
after the Delivery Date and (ii) if the Board of Directors fails to fix the
Meeting Record Date within 30 days after the Delivery Date, then the close of
business on such 30th day shall be the Meeting Record Date.
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 Articles 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 Bylaws, the Board of Directors may
do all such lawful things and acts as are not by statute, the Articles 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
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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 prior to the date of an Election Meeting, of a written notice to
the Secretary setting 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 Articles 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.
(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 Articles 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
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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
Articles 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 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
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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 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
Articles 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
Articles 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.
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
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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.
(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
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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
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 Articles 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
Articles 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 applicable provisions of the
Uniform Commercial Code.
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, 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
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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, administrative,
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 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 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 such 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.
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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
(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 (i)
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, (ii)
continue as to a person who has ceased to be an authorized representative, and
(iii) 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, 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.
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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.
Section 5. CONSISTENCY WITH ARTICLES OF INCORPORATION.
If any provision of these Bylaws shall be inconsistent with the
Corporation's Articles of Incorporation (and as it may be amended from time to
time), the Articles of Incorporation (as so amended at the time) shall govern.
ARTICLE IX
Amendments
Except as otherwise provided in the Articles 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.
C-14
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************************APPENDIX***************************
P R O X Y
FAC REALTY, INC.
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 15, 1997
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Stockholders of FAC Realty, Inc. (the "Company") to be held on
December 15, 1997, and the Proxy Statement in connection therewith; (b)
appoints C. Cammack Morton as Proxy (the "Proxy") with the power to appoint a
substitute; and (c) authorizes the Proxy to represent and vote, as designated
below, all the shares of Common Stock of the Company, held of record by the
undersigned on October 31, 1997, at such Annual Meeting and at any
adjournment(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL:
1. APPROVAL OF THE REINCORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. OTHER BUSINESS: In his discretion, the Proxy is authorized to vote upon such
other business as may properly come before the meeting or any ajournments
thereof
[ ] FOR [ ] WITHHOLD AUTHORITY
(continued on reverse side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" ELECTION
OF ALL NOMINEES FOR DIRECTOR, "FOR" PROPOSAL
TWO, "FOR" PROPOSAL THREE AND "FOR" PROPOSAL FOUR.
DATED: ___________________
___________________
SIGNATURE ________________
(PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. WHEN SIGNING ON BEHALF OF A
CORPORATION, PARTNERSHIP, ESTATE, TRUST OR IN ANY OTHER REPRESENTATIVE
CAPACITY, PLEASE SIGN YOUR NAME AND TITLE. FOR JOINT ACCOUNTS, EACH JOINT
OWNER MUST SIGN.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE SO AS TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER
YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE
COMPANY TO ADDITIONAL EXPENSE.
<PAGE>
